Unassociated Document


    
      

    

    Exhibit
10.9

     

    AMENDED
AND RESTATED

    ROSETTA
RESOURCES INC.

    2005
LONG-TERM INCENTIVE PLAN

    


    


    ARTICLE
I.  ESTABLISHMENT AND PURPOSE

    


    1.1 
          Establishment and
Purpose.  Rosetta Resources Inc. (“Rosetta”) hereby establishes
the Amended and Restated Rosetta Resources Inc. 2005 Long-Term Incentive Plan,
as set forth in this document. The purpose of the Plan is to attract and retain
highly qualified individuals and service providers, to further align the
interests of Company employees and other service providers with those of the
stockholders of Rosetta, and closely link compensation with Company performance.
Rosetta is committed to creating long-term stockholder value. Rosetta’s
compensation philosophy is based on a belief that Rosetta can best create
stockholder value if key employees, directors, and certain others providing
services to the Company act and are rewarded as business owners. Rosetta
believes that an equity stake through equity compensation programs effectively
aligns employee and stockholder interests by motivating and rewarding long-term
performance that will enhance stockholder value.

    


    1.2 
          Effectiveness and
Term.  This Plan originally became effective as of July 7, 2005
(the “Effective Date”), contingent on the closing of the Acquisition and the
Offering, provided that prior to the Effective Date the Plan was duly approved
by the holders of at least a majority of the shares of Common Stock either (i)
present or represented and entitled to vote at a special meeting of the
stockholders of Rosetta duly held in accordance with applicable law or (ii) by
written action in lieu of a meeting in accordance with applicable law. Unless
terminated earlier by the Board pursuant to Section 14.1, this Plan shall
terminate on the day prior to the tenth anniversary of the Effective
Date.

    


    ARTICLE
II.  DEFINITIONS

    


    2.1 
           “Acquisition” means the closing
of the transactions contemplated by the Purchase and Sale
Agreement.

    


    2.2 
           “Affiliate” means (i) with
respect to Incentive Stock Options, a “parent corporation” or a “subsidiary
corporation” of Rosetta, as those terms are defined in Sections 424(e) and (f)
of the Code, respectively, and (ii) with respect to other Awards, (A) a “parent
corporation” or a subsidiary corporation” of Rosetta as defined in (i) above,
(B) a limited liability company, partnership or other entity in which Rosetta
controls 50% or more of the voting power or equity interests.

    


    2.3 
           “Award” means an award granted
to a Participant in the form of Options, SARs, Restricted Stock, Restricted
Stock Units, Performance Awards, Stock Awards or Other Incentive Awards, whether
granted singly or in combination.

    


    2.4 
           “Award Agreement” means a
written agreement between Rosetta and a Participant that sets forth the terms,
conditions, restrictions and limitations applicable to an
Award.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    2.5
            “Board” means the Board of
Directors of Rosetta.

    


    2.6             “Cash Dividend Right” means a contingent
right, granted in tandem with a specific Restricted Stock Unit Award, to receive
an amount in cash equal to the cash distributions made by Rosetta with respect
to a share of Common Stock during the period such Award is
outstanding.

    


    2.7
            “Cause” means a finding by the
Committee of acts or omissions constituting, in the Committee’s reasonable
judgment, (i) a breach of duty by the Participant in the course of his
employment or service involving fraud, acts of dishonesty (other than
inadvertent acts or omissions), disloyalty to the Company, or moral turpitude
constituting criminal felony; (ii) conduct by the Participant that is
materially detrimental to the Company, monetarily or otherwise, or reflects
unfavorably on the Company or the Participant to such an extent that the
Company’s best interests reasonably require the termination of the Participant’s
employment or service; (iii) acts or omissions of the Participant materially in
violation of his obligations under any written employment or other agreement
between the Participant and the Company or at law; (iv) the Participant’s
failure to comply with or enforce Company policies concerning equal employment
opportunity, including engaging in sexually or otherwise harassing conduct; (v)
the Participant’s repeated insubordination; (vi) the Participant’s failure to
comply with or enforce, in any material respect, all other personnel policies of
the Company; (vii) the Participant’s failure to devote his full (or other
required) working time and best efforts to the performance of his
responsibilities to the Company; or (viii) the Participant’s conviction of, or
entry of a plea agreement or consent decree or similar arrangement with respect
to a felony or any violation of federal or state securities laws.

    


    2.8
            “Code” means the Internal
Revenue Code of 1986, as amended from time to time, including regulations
thereunder and successor provisions and regulations.

    


    2.9
            “Committee” means the Compensation
Committee of the Board or such other committee of the Board as may be designated
by the Board to administer the Plan, which committee shall consist of two or
more members of the Board; provided, however, that with respect to the
application of the Plan to Awards made to Outside Directors, the “Committee”
shall be the Board. During such time as the Common Stock is registered under
Section 12 of the Exchange Act, each member of the Committee shall be an Outside
Director. To the extent that no Committee exists that has the authority to
administer the Plan, the functions of the Committee shall be exercised by the
Board.

    


    2.10           “Common Stock” means the common
stock of Rosetta, $0.001 par value per share, or any stock or other securities
of hereafter issued or issuable in substitution or exchange for the Common
Stock.

    


    2.11           “Company” means Rosetta and any
Affiliate.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    2.12           “Corporate Change” means (i)
the dissolution or liquidation of Rosetta; (ii) a reorganization, merger or
consolidation of Rosetta with one or more corporations (other than a merger or
consolidation effecting a reincorporation of Rosetta in another state or any
other merger or consolidation in which the stockholders of the surviving
corporation and their proportionate interests therein immediately after the
merger or consolidation are substantially identical to the stockholders of
Rosetta and their proportionate interests therein immediately prior to the
merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the
sale of all or substantially all of the assets of the Company; or (iv) the
occurrence of a Change in Control. A “Change in Control” shall be deemed to have
occurred if (x) individuals who were directors of Rosetta immediately prior to a
Control Transaction shall cease, within two years of such Control Transaction to
constitute a majority of the Board (or of the Board of Directors of any
successor to Rosetta or to a company which has acquired all or substantially all
its assets) other than by reason of an increase in the size of the membership of
the applicable Board that is approved by at least a majority of the individuals
who were directors of Rosetta immediately prior to such Control Transaction or
(y) any entity, person or Group acquires shares of Rosetta in a transaction or
series of transactions that result in such entity, person or Group directly or
indirectly owning beneficially 50% or more of the outstanding shares of Common
Stock. As used herein, “Control Transaction” means (A) any tender offer for or
acquisition of capital stock of Rosetta pursuant to which any person, entity, or
Group directly or indirectly acquires beneficial ownership of 20% or more of the
outstanding shares of Common Stock; (B) any Corporate Change Merger of Rosetta;
(C) any contested election of directors of Rosetta; or (D) any combination
of the foregoing, any one of which results in a change in voting power
sufficient to elect a majority of the Board. As used herein, “Group” means
persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2)
of the Exchange Act. Notwithstanding the foregoing, “Corporate Change” shall not
include the Acquisition, the Offering, or any public offering of equity of
Rosetta pursuant to a registration that is effective under the Securities
Act.

    


    2.13           “Dividend Unit Right” means a
contingent right, granted in tandem with a specific Restricted Stock Unit Award,
to have an additional number of Restricted Stock Units credited to a Participant
in respect of the Award equal to the number of shares of Common Stock that could
be purchased at Fair Market Value with the amount of each cash distribution made
by Rosetta with respect to a share of Common Stock during the period such Award
is outstanding.

    


    2.14           “Effective Date” means the date
this Plan becomes effective as provided in Section 1.2.

    


    2.15           “Employee” means an employee of
the Company; provided, however, that the term “Employee” does not include an
Outside Director or an individual performing services for the Company who is
treated for tax purposes as an independent contractor at the time of performance
of the services.

    


    2.16           “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

    


    2.17           “Fair Market Value” means the
fair market value of the Common Stock, as determined in good faith by the
Committee or (i) if the Common Stock is traded in the over-the-counter market,
the average of the representative closing bid and asked prices as reported by
NASDAQ for the date the Award is granted (or if there was no quoted price for
such date of grant, then for the last preceding business day on which there was
a quoted price), or (ii) if the Common Stock is traded in the NASDAQ
National Market System, the average of the highest and lowest selling prices for
such stock as quoted on the NASDAQ National Market System for the date the Award
is granted (or if there are no sales for such date of grant, then for the last
preceding business day on which there were sales), or (iii) if the Common Stock
is listed on any national stock exchange, the average of the highest and lowest
selling prices for such stock as quoted on such exchange for the date the Award
is granted (or if there are no sales for such date of grant, then for the last
preceding business day on which there were sales).


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    2.18           “Good Reason” means any of the
following actions if taken without the Participant’s prior written consent: (i)
any material failure by the Company to comply with its obligations under the
terms of a written employment agreement; (ii) any demotion of the Participant as
evidenced by a material reduction in the Participant’s responsibilities, duties,
compensation, or benefits; or (iii) any permanent relocation of the
Participant’s place of business to a location 50 miles or more from the
then-current location. Neither a transfer of employment among Rosetta and any of
its Affiliates, a change in the co-employment relationship, nor a mere change in
job title or reporting structure constitutes “Good Reason.”

    


    2.19           “Grant Date” means the date an
Award is determined to be effective by the Committee upon the grant of such
Award.

    


    2.20           “Inability to Perform” means
and shall be deemed to have occurred if the Participant has been determined
under the Company’s or any co-employer’s long-term disability plan to be
eligible for long-term disability benefits. In the absence of the Participant’s
participation in, application for benefits under, or existence of such a plan,
“Inability to Perform” means a finding by the Committee in its sole judgment
that the Participant is, despite any reasonable accommodation required by law,
unable to perform the essential functions of his position because of an illness
or injury for (i) 60% or more of the normal working days during six
consecutive calendar months or (ii) 40% or more of the normal working days
during twelve consecutive calendar months.

    


    2.21           “Incentive Stock Option” means
an Option that is intended to meet the requirements of Section 422(b) of the
Code.

    


    2.22           “NASDAQ” means The NASDAQ Stock
Market, Inc.

    


    2.23           “Nonqualified Stock Option”
means an Option that is not an Incentive Stock Option.

    


    2.24           “Offering” means the offering,
sale and issuance by Rosetta of Common Stock as set forth that certain offering
memorandum initially dated June 9, 2005.

    


    2.25           “Option” means an option to
purchase shares of Common Stock granted to a Participant pursuant to Article
VII. An Option may be either an Incentive Stock Option or a Nonqualified Stock
Option, as determined by the Committee.

    


    2.26           “Other Incentive Award” means
an incentive award granted to a Participant pursuant to Article
XII.

    


    2.27           “Outside Director” means a
member of the Board who: (i) meets the independence requirements of the
principal exchange or quotation system upon which the shares of Common Stock are
listed or quoted, (ii) from and after the date on which the remuneration paid
pursuant to the Plan becomes subject to the deduction limitation under Section
162(m) of the Code, qualifies as an “outside director” under Section 162(m) of
the Code, (iii) qualifies as a “non-employee director” of Rosetta under Rule
16b-3, and (iv) satisfies independence criteria under any other applicable laws
or regulations relating to the issuance of shares of Common Stock to
Employees.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    2.28           “Participant” means an
Employee, director, or other individual or entity who performs services for the
Company that has been granted an Award; provided, however, that no Award that
may be settled in Common Stock may be issued to a Participant that is not a
natural person.

    


    2.29           “Performance Award” means an
Award granted to a Participant pursuant to Article XI to receive cash or Common
Stock conditioned in whole or in part upon the satisfaction of performance goals
based on specified performance criteria.

    


    2.30           “Permitted Transferee” shall
have the meaning given such term in Section 15.4.

    


    2.31           “Plan” means the Amended and
Restated Rosetta Resources Inc. 2005 Long-Term Incentive Plan, as in effect and
as amended from time to time.

    


    2.32           “Purchase and Sale Agreement”
means that certain Purchase and Sale Agreement by and among Calpine Gas Holdings
LLC, Calpine Fuels Corporation, Calpine Corporation and Rosetta dated July 7,
2005.

    


    2.33           “Purchased Restricted Stock”
shall have the meaning given such term in Section 9.2.

    


    2.34           “Restricted Period” means the
period established by the Committee with respect to an Award of Restricted Stock
or Restricted Stock Units during which the Award remains subject to
forfeiture.

    


    2.35           “Restricted Stock” means a
share of Common Stock granted to a Participant pursuant to Article IX that is
subject to such terms, conditions, and restrictions as may be determined by the
Committee.

    


    2.36           “Restricted Stock Unit” means a
fictional share of Common Stock granted to a Participant pursuant to Article X
that is subject to such terms, conditions, and restrictions as may be determined
by the Committee.

    


    2.37           “Rosetta” means Rosetta
Resources Inc., a Delaware corporation, or any successor thereto.

    


    2.38           “Rule 16b-3” means Rule 16b-3
promulgated by the SEC under the Exchange Act, or any successor rule or
regulation that may be in effect from time to time.

    


    2.39           “SEC” means the United States
Securities and Exchange Commission, or any successor agency or
organization.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    2.40           “Securities Act” means the
Securities Act of 1933, as amended.

    


    2.41           “Stock Appreciation Right”
or “SAR” means a right granted to
a Participant pursuant to Article VIII with respect to a share of Common Stock
to receive upon exercise cash, Common Stock or a combination of cash and Common
Stock, equal to the appreciation in value of a share of Common
Stock.

    


    ARTICLE
III.  PLAN ADMINISTRATION

    


    3.1           Plan Administrator and Discretionary
Authority.  The Plan shall be administered by the Committee.
The Committee shall have total and exclusive responsibility to control, operate,
manage and administer the Plan in accordance with its terms. The Committee shall
have all the authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan. Without limiting the
generality of the preceding sentence, the Committee shall have the exclusive
right to:  (i) interpret the Plan and the Award Agreements executed
hereunder; (ii) decide all questions concerning eligibility for, and the amount
of, Awards granted under the Plan; (iii) construe any ambiguous provision of the
Plan or any Award Agreement; (iv) prescribe the form of Award Agreements; (v)
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award Agreement; (vi) issue administrative guidelines as an aid
to administering the Plan and make changes in such guidelines as the Committee
from time to time deems proper; (vii) make regulations for carrying out the Plan
and make changes in such regulations as the Committee from time to time deems
proper; (viii) determine whether Awards should be granted singly or in
combination; (ix) to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions and limitations; (x) accelerate the exercise,
vesting or payment of an Award when such action or actions would be in the best
interests of the Company; (xi) require Participants to hold a stated number or
percentage of shares of Common Stock acquired pursuant to an Award for a stated
period; and (xii) take any and all other actions the Committee deems necessary
or advisable for the proper operation or administration of the Plan. The
Committee shall have authority in its sole discretion with respect to all
matters related to the discharge of its responsibilities and the exercise of its
authority under the Plan, including without limitation its construction of the
terms of the Plan and its determination of eligibility for participation in, and
the terms of Awards granted under, the Plan. The decisions of the Committee and
its actions with respect to the Plan shall be final, conclusive and binding on
all persons having or claiming to have any right or interest in or under the
Plan, including without limitation Participants and their respective Permitted
Transferees, estates, beneficiaries and legal representatives.

    


    3.2           Delegation of
Authority.  The Committee may delegate to one or more officers
of the Company the authority to act on behalf of the Committee with respect to
any matter, right, obligation, or election that is the responsibility of or that
is allocated to the Committee herein, and that may be so delegated as a matter
of law, except for grants of Awards to persons (i) subject to Section 16 of
the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered
employees” for purposes of Section 162(m) of the Code.

    


    3.3           Liability;
Indemnification.  No member of the Committee, nor any person to
whom it has delegated authority, shall be personally liable for any action,
interpretation or determination made in good faith with respect to the Plan or
Awards granted hereunder, and each member of the Committee (or delegatee of the
Committee) shall be fully indemnified and protected by Rosetta with respect to
any liability he may incur with respect to any such action, interpretation or
determination, to the maximum extent permitted by applicable
law.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
IV.  SHARES SUBJECT TO THE PLAN

    


    4.1           Available
Shares.

    


    (a)           Subject
to adjustment as provided in Section 4.2, the maximum number of shares of Common
Stock that shall be available for grant of Awards under the Plan shall be
4,950,000 shares of Common Stock.

    


    (b)           The
maximum number of shares of Common Stock that may be subject to Incentive Stock
Options granted under the Plan is 4,950,000. The maximum number of shares of
Common Stock that may be subject to all Awards granted under the Plan to any one
Participant (i) during the fiscal year of Rosetta in which the Participant is
first hired by the Company is 300,000 shares and (ii) during each subsequent
fiscal year is 200,000 shares. The limitations provided in this Section 4.1(b)
shall be subject to adjustment as provided in Section 4.2.

    


    (c)           Shares
of Common Stock issued pursuant to the Plan may be original issue or treasury
shares or a combination of the foregoing, as the Committee, in its sole
discretion, shall from time to time determine. During the term of this Plan,
Rosetta will at all times reserve and keep available such number of shares of
Common Stock as shall be sufficient to satisfy the requirements of the
Plan.

    


    4.2           Adjustments for Recapitalizations and
Reorganizations.  Subject to Article XIII, if there is any
change in the number or kind of shares of Common Stock outstanding (i) by reason
of a stock dividend, spin-off, recapitalization, stock split, or combination or
exchange of shares, (ii) by reason of a merger, reorganization, or
consolidation, (iii) by reason of a reclassification or change in par value, or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Common Stock as a class without Rosetta’s receipt of consideration,
or if the value of outstanding shares of Common Stock is reduced as a result of
a spin-off or Rosetta’s payment of an extraordinary cash dividend, or
distribution or dividend or distribution consisting of any assets of Rosetta
other than cash, the maximum number and kind of shares of Common Stock available
for issuance under the Plan, the maximum number and kind of shares of Common
Stock for which any individual may receive Awards in any fiscal year, the number
and kind of shares of Common Stock covered by outstanding Awards, and the price
per share or the applicable market value or performance target of such Awards
shall be equitably and proportionately adjusted by the Committee to reflect any
increase or decrease in the number of, or change in the kind or value of, issued
shares of Common Stock to preclude, to the extent practicable, the enlargement
or dilution of rights under such Awards; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated.

    


    4.3           Adjustments for
Awards.  The Committee shall have sole discretion to determine
the manner in which shares of Common Stock available for grant of Awards under
the Plan are counted. Without limiting the discretion of the Committee under
this Section 4.3, unless otherwise determined by the Committee, the following
rules shall apply for the purpose of determining the number of shares of Common
Stock available for grant of Awards under the Plan:


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (a)           Options, Restricted Stock and Stock
Awards. The grant of Options, Restricted Stock or Stock Awards shall
reduce the number of shares of Common Stock available for grant of Awards under
the Plan by the number of shares of Common Stock subject to such an
Award.

    


    (b)           SARs. The grant of SARs that
may be paid or settled (i) only in Common Stock or (ii) in either cash or Common
Stock shall reduce the number of shares available for grant of Awards under the
Plan by the number of shares subject to such an Award; provided, however, that
upon the exercise of SARs, the excess of the number of shares of Common Stock
with respect to which the Award is exercised over the number of shares of Common
Stock issued upon exercise of the Award shall again be available for grant of
Awards under the Plan. The grant of SARs that may be paid or settled only for
cash shall not affect the number of shares available for grant of Awards under
the Plan.

    


    (c)           Restricted Stock Units. The
grant of Restricted Stock Units (including those credited to a Participant in
respect of a Dividend Unit Right) that may be paid or settled (i) only in
Common Stock or (ii) in either cash or Common Stock shall reduce the number of
shares available for grant of Awards under the Plan by the number of shares
subject to such an Award; provided, however, that upon settlement of the Award,
the excess, if any, of the number of shares of Common Stock that had been
subject to such Award over the number of shares of Common Stock issued upon its
settlement shall again be available for grant of Awards under the Plan. The
grant of Restricted Stock Units that may be paid or settled only for cash shall
not affect the number of shares available for grant of Awards under the
Plan.

    


    (d)           Other Incentive Awards. The
grant of a Performance Award or Other Incentive Award in the form of Common
Stock or that may be paid or settled (i) only in Common Stock or (ii) in either
Common Stock or cash shall reduce the number of shares available for grant of
Awards under the Plan by the number of shares subject to such an Award;
provided, however, that upon settlement of the Award, the excess, if any, of the
number of shares of Common Stock that had been subject to such Award over the
number of shares of Common Stock issued upon its settlement shall again be
available for grant of Awards under the Plan. The grant of a Performance Award
or Other Incentive Award that may be paid or settled only for cash shall not
affect the number of shares available for grant of Awards under the
Plan.

    


    (e)           Cancellation, Forfeiture and
Termination. If any Award referred to in Sections 4.3(a), (b), (c), or
(d) (other than an Award that may be paid or settled only for cash) is canceled
or forfeited, or terminates, expires or lapses, for any reason, the shares then
subject to such Award shall again be available for grant of Awards under the
Plan.

    


    (f)           Payment of Exercise Price and
Withholding Taxes. If previously acquired shares of Common Stock are used
to pay the exercise price of an Award, the number of shares available for grant
of Awards under the Plan shall be increased by the number of shares delivered as
payment of such exercise price. If previously acquired shares of Common Stock
are used to pay withholding taxes payable upon exercise, vesting or payment of
an Award, or shares of Common Stock that would be acquired upon exercise,
vesting or payment of an Award are withheld to pay withholding taxes payable
upon exercise, vesting or payment of such Award, the number of shares available
for grant of Awards under the Plan shall be increased by the number of shares
delivered or withheld as payment of such withholding taxes.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
V.  ELIGIBILITY

    


    5.1           The
Committee shall select Participants from those Employees, Outside Directors and
other individuals or entities providing services to the Company that, in the
opinion of the Committee, are in a position to make a significant contribution
to the success of the Company. Once a Participant has been selected for an Award
by the Committee, the Committee shall determine the type and size of Award to be
granted to the Participant and shall establish in the related Award Agreement
the terms, conditions, restrictions and limitations applicable to the Award, in
addition to those set forth in the Plan and the administrative guidelines and
regulations, if any, established by the Committee.

    


    ARTICLE
VI.  FORM OF AWARDS

    


    6.1           Form of
Awards.  Awards may be granted under the Plan, in the
Committee’s sole discretion, in the form of Options pursuant to Article VII,
SARs pursuant to Article VIII, Restricted Stock pursuant to Article IX,
Restricted Stock Units pursuant to Article X, Performance Awards pursuant to
Article XI, and Stock Awards and Other Incentive Awards pursuant to Article XII,
or a combination thereof. All Awards shall be subject to the terms, conditions,
restrictions and limitations of the Plan. The Committee may, in its sole
discretion, subject any Award to such other terms, conditions, restrictions
and/or limitations (including without limitation the time and conditions of
exercise, vesting or payment of an Award and restrictions on transferability of
any shares of Common Stock issued or delivered pursuant to an Award), provided
they are not inconsistent with the terms of the Plan. The Committee may, but is
not required to, subject an Award to such conditions as it determines are
necessary or appropriate to ensure that an Award constitutes “qualified
performance based compensation” within the meaning of Section 162(m) of the Code
and the regulations thereunder. Awards under a particular Article of the Plan
need not be uniform, and Awards under more than one Article of the Plan may be
combined in a single Award Agreement. Any combination of Awards may be granted
at one time and on more than one occasion to the same Participant. Subject to
compliance with applicable tax law, an Award Agreement may provide that a
Participant may elect to defer receipt of income attributable to the exercise or
vesting of an Award.

    


    6.2           No Repricing or Reload
Rights.  Except for adjustments made pursuant to Section 4.2,
no Award may be repriced, replaced, regranted through cancellation or otherwise
modified without stockholder approval, if the effect would be to reduce the
exercise price for the shares underlying such Award. The Committee may not
cancel an outstanding Option that is under water for the purpose of granting a
replacement Award of a different type.

    


    6.3           Loans.  The
Committee may, in its sole discretion, approve the extension of a loan by the
Company to a Participant who is an Employee to assist the Participant in paying
the exercise price or purchase price of an Award; provided, however, that no
loan shall be permitted if the extension of such loan would violate any
provision of applicable law. Any loan will be made upon such terms and
conditions as the Committee shall determine.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
VII.  OPTIONS

    


    7.1           General.  Awards may
be granted in the form of Options that may be Incentive Stock Options or
Nonqualified Stock Options, or a combination of both; provided, however, that
Incentive Stock Options may be granted only to Employees.

    


    7.2           Terms and Conditions of
Options.  An Option shall be exercisable in whole or in such
installments and at such times as may be determined by the Committee. The price
at which a share of Common Stock may be purchased upon exercise of an Option
shall be determined by the Committee, but such exercise price shall not be less
than 100% of the Fair Market Value per share of Common Stock on the Grant Date
unless the Option was granted through the assumption of, or in substitution for,
outstanding awards previously granted to individuals who became Employees as a
result of a merger, consolidation, acquisition, or other corporate transaction
involving the Company and complies with Section 409A of the Code. Except as
otherwise provided in Section 7.3, the term of each Option shall be as specified
by the Committee; provided, however, that no Options shall be exercisable later
than ten years after the Grant Date. Options may be granted with respect to
Restricted Stock or shares of Common Stock that are not Restricted Stock, as
determined by the Committee in its sole discretion.

    


    7.3           Restrictions
Relating to Incentive Stock Options.

    


    (a)           Options
granted in the form of Incentive Stock Options shall, in addition to being
subject to the terms and conditions of Section 7.2, comply with Section 422(b)
of the Code. To the extent the aggregate Fair Market Value (determined as of the
times the respective Incentive Stock Options are granted) of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
an individual during any calendar year under all incentive stock option plans of
the Company exceeds $100,000, such excess Incentive Stock Options shall be
treated as options that do not constitute Incentive Stock Options. The Committee
shall determine, in accordance with the applicable provisions of the Code, which
of a Participant’s Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Participant of such
determination as soon as practicable after such determination. The price at
which a share of Common Stock may be purchased upon exercise of an Incentive
Stock Option shall be determined by the Committee, but such exercise price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
Grant Date. No Incentive Stock Option shall be granted to an Employee under the
Plan if, at the time such Option is granted, such Employee owns stock possessing
more than 10% of the total combined voting power of all classes of stock of
Rosetta or an Affiliate, within the meaning of Section 422(b)(6) of the Code,
unless (i) on the Grant Date of such Option, the exercise price of such Option
is at least 110% of the Fair Market Value of the Common Stock subject to the
Option and (ii) such Option by its terms is not exercisable after the expiration
of five years from the Grant Date of the Option.

    


    (b)           Each
Participant awarded an Incentive Stock Option shall notify Rosetta in writing
immediately after the date he or she makes a disqualifying disposition of any
shares of Common Stock acquired pursuant to the exercise of such Incentive Stock
Option. A disqualifying disposition is any disposition (including any sale) of
such Common Stock before the later of (i) two years after the Grant Date of the
Incentive Stock Option or (ii) one year after the date of exercise of the
Incentive Stock Option.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    7.4           Exercise
of Options.

    


    (a)           Subject
to the terms and conditions of the Plan, Options shall be exercised by the
delivery of a written notice of exercise to Rosetta, setting forth the number of
whole shares of Common Stock with respect to which the Option is to be
exercised, accompanied by full payment for such shares.

    


    (b)           Upon
exercise of an Option, the exercise price of the Option shall be payable to
Rosetta in full either: (i) in cash or an equivalent acceptable to the
Committee, or (ii) in the sole discretion of the Committee and in
accordance with any applicable administrative guidelines established by the
Committee, by tendering one or more previously acquired nonforfeitable,
unrestricted shares of Common Stock that have been held by the Participant for
at least six months having an aggregate Fair Market Value at the time of
exercise equal to the total exercise price, or (iii) in a combination of
the forms of payment specified in clauses (i) and (ii) above.

    


    (c)           During
such time as the Common Stock is registered under Section 12 of the Exchange
Act, to the extent permissible under applicable law, payment of the exercise
price of an Option may also be made, in the absolute discretion of the
Committee, by delivery to Rosetta or its designated agent of an executed
irrevocable option exercise form together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the shares with respect
to which the Option is exercised and deliver the sale or margin loan proceeds
directly to Rosetta to pay the exercise price and any required withholding
taxes.

    


    (d)           As
soon as reasonably practicable after receipt of written notification of exercise
of an Option and full payment of the exercise price and any required withholding
taxes, Rosetta shall (i) deliver to the Participant, in the Participant’s name
or the name of the Participant’s designee, a stock certificate or certificates
in an appropriate aggregate amount based upon the number of shares of Common
Stock purchased under the Option, or (ii) cause to be issued in the
Participant’s name or the name of the Participant’s designee, in book-entry
form, an appropriate number of shares of Common Stock based upon the number of
shares purchased under the Option.

    


    7.5           Termination of Employment or
Service.  Each Award Agreement embodying the Award of an Option
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant’s employment or
service with the Company. Such provisions shall be determined by the Committee
in its absolute discretion, need not be uniform among all Options granted under
the Plan and may reflect distinctions based on the reasons for termination of
employment or service. In the event a Participant’s Award Agreement embodying
the award of an Option does not set forth such termination provisions, the
following termination provisions shall apply with respect to such
Award:


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (a)           Termination Other Than For Cause.
If the employment or service of a Participant shall terminate for any
reason other than Cause, each outstanding Option held by the Participant may be
exercised, to the extent then vested, until the earlier of (i) the expiration of
one year from the date of such termination of employment or service or (ii) the
expiration of the term of such Option.

    


    (b)           Termination for
Cause.  Notwithstanding subsection (a) above, if the employment
or service of a Participant shall terminate for Cause, each outstanding Option
held by the Participant may be exercised, to the extent then vested, until the
earlier of (i) the expiration of 30 days from the date of such termination of
employment or service or (ii) the expiration of the terms of such
Option.

    


    Notwithstanding
the foregoing, an Option will not be treated as an Incentive Stock Option unless
at all times beginning on the Grant Date and ending on the day three months (one
year in the case of a Participant who is “disabled” within the meaning of
Section 22(e)(3) of the Code) before the date of exercise of the Option, the
Participant is an employee of Rosetta or an Affiliate (or a corporation or a
parent or subsidiary corporation of such corporation issuing or assuming an
option in a transaction to which Section 424(a) of the Code
applies).

    


    ARTICLE
VIII.  STOCK APPRECIATION RIGHTS

    


    8.1           General.  The
Committee may grant Awards in the form of SARs in such numbers and at such times
as it shall determine. SARs shall vest and be exercisable in whole or in such
installments and at such times as may be determined by the Committee. The price
at which SARs may be exercised shall be determined by the Committee but shall
not be less than 100% of the Fair Market Value per share of Common Stock on the
Grant Date unless the SARs were granted through the assumption of, or in
substitution for, outstanding awards previously granted to individuals who
became Employees as a result of a merger, consolidation, acquisition, or other
corporate transaction involving the Company and comply with Section 409A of the
Code. The term of each SAR shall be as specified by the Committee; provided,
however, that no SARs shall be exercisable later than ten years after the Grant
Date. At the time of an Award of SARs, the Committee may, in its sole
discretion, prescribe additional terms, conditions, restrictions and limitations
applicable to the SARs, including without limitation rules pertaining to the
termination of employment or service (by reason of death, permanent and total
disability, or otherwise) of a Participant prior to exercise of the SARs, as it
determines are necessary or appropriate, provided they are not inconsistent with
the Plan.

    


    8.2           Exercise of
SARs.  SARs shall be exercised by the delivery of a written
notice of exercise to Rosetta, setting forth the number of whole shares of
Common Stock with respect to which the Award is being exercised. Upon the
exercise of SARs, the Participant shall be entitled to receive an amount equal
to the excess of the aggregate Fair Market Value of the shares of Common Stock
with respect to which the Award is exercised (determined as of the date of such
exercise) over the aggregate exercise price of such shares. Such amount shall be
payable to the Participant in cash or in shares of Common Stock, as provided in
the Award Agreement; provided, however, that if SARs are to be settled in cash,
the SARs shall be structured to avoid negative tax consequences to the
Participant under Section 409A of the Code.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
IX.  RESTRICTED STOCK

    


    9.1           General.  Awards may
be granted in the form of Restricted Stock in such numbers and at such times as
the Committee shall determine. The Committee shall impose such terms, conditions
and restrictions on Restricted Stock as it may deem advisable, including without
limitation providing for vesting upon the achievement of specified performance
goals pursuant to a Performance Award and restrictions under applicable Federal
or state securities laws. A Participant shall not be required to make any
payment for Restricted Stock unless required by the Committee pursuant to
Section 9.2.

    


    9.2           Purchased Restricted
Stock.  The Committee may in its sole discretion require a
Participant to pay a stipulated purchase price for each share of Restricted
Stock (“Purchased Restricted Stock”).

    


    9.3           Restricted
Period.  At the time an Award of Restricted Stock is granted,
the Committee shall establish a Restricted Period applicable to such Restricted
Stock. Each Award of Restricted Stock may have a different Restricted Period in
the sole discretion of the Committee.

    


    9.4           Other Terms and
Conditions.  Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. Restricted Stock
awarded to a Participant under the Plan shall be registered in the name of the
Participant or, at the option of Rosetta, in the name of a nominee of Rosetta,
and shall be issued in book-entry form or represented by a stock certificate.
Subject to the terms and conditions of the Award Agreement, a Participant to
whom Restricted Stock has been awarded shall have the right to receive dividends
thereon during the Restricted Period, to vote the Restricted Stock and to enjoy
all other stockholder rights with respect thereto, except that (i) Rosetta shall
retain custody of any certificates evidencing the Restricted Stock during the
Restricted Period, and (ii) the Participant may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of the Restricted Stock during the
Restricted Period. A breach of the terms and conditions established by the
Committee pursuant to the Award of the Restricted Stock may result in a
forfeiture of the Restricted Stock. At the time of an Award of Restricted Stock,
the Committee may, in its sole discretion, prescribe additional terms,
conditions, restrictions and limitations applicable to the Restricted Stock,
including without limitation rules pertaining to the termination of employment
or service (by reason of death, permanent and total disability, retirement,
cause or otherwise) of a Participant prior to expiration of the Restricted
Period.

    


    9.5           Miscellaneous.  Nothing
in this Article shall prohibit the exchange of shares of Restricted Stock
pursuant to a plan of merger or reorganization for stock or other securities of
Rosetta or another corporation that is a party to the reorganization, provided
that the stock or securities so received in exchange for shares of Restricted
Stock shall, except as provided in Article XIII, become subject to the
restrictions applicable to such Restricted Stock. Any shares of Common Stock
received as a result of a stock split or stock dividend with respect to shares
of Restricted Stock shall also become subject to the restrictions applicable to
such Restricted Stock.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
X.  RESTRICTED STOCK UNITS

    


    10.1           General.  Awards may
be granted in the form of Restricted Stock Units in such numbers and at such
times as the Committee shall determine. The Committee shall impose such terms,
conditions and restrictions on Restricted Stock Units as it may deem advisable,
including without limitation prescribing the period over which and the
conditions upon which a Restricted Stock Unit may become vested or be forfeited,
and providing for vesting upon the achievement of specified performance goals
pursuant to a Performance Award. Upon the lapse of restrictions with respect to
each Restricted Stock Unit, the Participant shall be entitled to receive from
the Company one share of Common Stock or an amount of cash equal to the Fair
Market Value of one share of Common Stock, as provided in the Award Agreement. A
Participant shall not be required to make any payment for Restricted Stock
Units.

    


    10.2           Restricted
Period.  At the time an Award of Restricted Stock Units is
granted, the Committee shall establish a Restricted Period applicable to such
Restricted Stock Units. Each Award of Restricted Stock Units may have a
different Restricted Period in the sole discretion of the
Committee.

    


    10.3           Cash Dividend Rights and Dividend
Unit Rights. To the extent provided by the Committee in its sole
discretion, a grant of Restricted Stock Units may include a tandem Cash Dividend
Right or Dividend Unit Right grant. A grant of Cash Dividend Rights may provide
that such Cash Dividend Rights shall be paid directly to the Participant at the
time of payment of related dividend, be credited to a bookkeeping account
subject to the same vesting and payment provisions as the tandem Award (with or
without interest in the sole discretion of the Committee), or be subject to such
other provisions or restrictions as determined by the Committee in its sole
discretion. A grant of Dividend Unit Rights may provide that such Dividend Unit
Rights shall be subject to the same vesting and payment provisions as the tandem
Award or be subject to such other provisions and restrictions as determined by
the Committee in its sole discretion.

    


    10.4           Other Terms and
Conditions.  At the time of an Award of Restricted Stock Units,
the Committee may, in its sole discretion, prescribe additional terms,
conditions, restrictions and limitations applicable to the Restricted Stock
Units, including without limitation rules pertaining to the termination of
employment or service (by reason of death, permanent and total disability,
retirement, cause or otherwise) of a Participant prior to expiration of the
Restricted Period. Awards of Restricted Stock Units are considered nonqualified
deferred compensation subject to Section 409A of the Code and will be designed
to comply with that section.

    


    ARTICLE
XI.  PERFORMANCE AWARDS

    


    11.1           General.  Awards may
be granted in the form of Performance Awards that may be payable in the form of
cash, shares of Common Stock, or a combination of both, in such amounts and at
such times as the Committee shall determine. Performance Awards shall be
conditioned upon the level of achievement of one or more stated performance
goals over a specified performance period that shall not be shorter than one
year. Performance Awards may be combined with other Awards to impose performance
criteria as part of the terms of such other Awards.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    11.2           Terms and
Conditions.  Each Award Agreement embodying a Performance Award
shall set forth (i) the amount, including a target and maximum amount if
applicable, a Participant may earn in the form of cash or shares of Common Stock
or a formula for determining such amount, (ii) the performance criteria and
level of achievement versus such criteria that shall determine the amount
payable or number of shares of Common Stock to be granted, issued, retained
and/or vested, (iii) the performance period over which performance is to be
measured, (iv) the timing of any payments to be made, (v) restrictions on the
transferability of the Award, and (vi) such other terms and conditions as the
Committee may determine that are not inconsistent with the Plan.

    


    11.3           Code Section 162(m)
Requirements.  From and after the date on which remuneration
paid pursuant to the Plan becomes subject to the deduction limitation of Section
162(m) of the Code, the Committee shall determine in its sole discretion whether
all or any portion of a Performance Award shall be intended to satisfy the
requirements for “performance-based compensation” under Section 162(m) of the
Code (the “162(m) Requirements”). The performance goals for any Performance
Award that are intended to satisfy the 162(m) Requirements shall be established
in writing by the Committee based on one or more performance criteria as set
forth in Section 11.4 not later than 90 days after commencement of the
performance period with respect to such Award (or, if longer or shorter, within
the maximum period allowed under Section 162(m) of the Code), provided that the
outcome of the performance in respect of the goals remains substantially
uncertain as of such time. The maximum amount that may be paid in cash pursuant
to Performance Awards granted to a Participant with respect to a fiscal year
that are intended to satisfy the 162(m) Requirements is $1,000,000; provided,
however, that such maximum amount with respect to a Performance Award that
provides for a performance period longer than one fiscal year shall be the
foregoing limit multiplied by the number of full fiscal years in the performance
period. At the time of the grant of a Performance Award and to the extent
permitted under Code Section 162(m) and regulations thereunder for a Performance
Award intended to satisfy the 162(m) Requirements, the Committee may provide for
the manner in which the performance goals will be measured in light of specified
corporate transactions, extraordinary events, accounting changes and other
similar occurrences.

    


    11.4           Performance
Goals.  The performance criteria to be used for purposes of
Performance Awards may be described in terms of objectives that are related to
the individual Participant or objectives that are Company-wide or related to a
subsidiary, division, department, region, function or business unit of the
Company in which the Participant is employed or with respect to which the
Participant performs services, and may consist of one or more or any combination
of the following criteria:  (i) earnings or earnings per share
(whether on a pre-tax, after-tax, operational or other basis), (ii) return on
equity, (iii) return on assets or net assets, (iv) return on capital or
invested capital and other related financial measures, (v) cash flow (whether as
an absolute number or percentage change), (vi) revenues, (vii) income or
operating income, (viii) expenses or expense levels, (ix) one or more operating
ratios, (x) stock price, (xi) total stockholder return, (xii) market share,
(xiii) operating profit, (xiv) profit margin, (xv) capital expenditures,
(xvi) net borrowing, debt leverage levels, credit quality or debt ratings,
(xvii) the accomplishment of mergers, acquisitions, dispositions, public
offerings or similar extraordinary business transactions, (xviii) net asset
value per share, (xix) economic value added, (xx) individual business
objectives, (xxi) growth in production, (xxii) added reserves, (xxiii) growth in
reserves per share, and (xxiv) inventory growth.  Any one or more of
the performance criteria may be used on an absolute or relative basis to measure
the performance of the individual Participant, the Company, or a subsidiary,
division, department, region, function or business unit of the Company in which
the Participant is employed or with respect to which the Participant performs
services, or any combination thereof, as the Committee may deem appropriate, or
any of the above performance criteria may be compared to the performance of a
selected group of comparison companies, or a published or special index that the
Committee, in its sole discretion, deems appropriate, or as compared to various
stock market indices.  To the extent required under Section 162(m) of
the Code, the Committee shall, within the first 90 days of a performance period
(or, if longer or shorter, within the maximum period allowed under Section
162(m) of the Code), define in an objective fashion the manner of calculating
the performance criteria it selects to use for such performance period and
thereafter promptly communicate such performance criteria to the
Participant.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    11.5           Certification and Negative
Discretion.

    


    (a)           Certification.  Following
the completion of a performance period and prior to the payment of any
compensation pursuant to a Performance Award that is intended to satisfy the
162(m) Requirements, the Committee shall review and certify in writing whether,
and to what extent, the performance goals for the performance period have been
achieved and, if so, calculate and certify in writing that amount of the
Performance Awards earned for the performance period.  The Committee
shall then determine the amount of each Participant’s Performance Award actually
payable for the performance period and, in so doing, may apply its negative
discretion pursuant to subsection (b) below.

    


    (b)           Negative
Discretion.  If a Performance Award is intended to satisfy the
162(m) Requirements, the Committee in its sole discretion shall have the
authority to reduce or eliminate, but not to increase, the amount payable and
the number of shares to be granted, issued, retained or vested pursuant to a
Performance Award.

    


    11.6           Code Section 162(m)
Approval.  If so determined by the Committee, the provisions of
the Plan regarding Performance Awards shall be disclosed and reapproved by
shareholders no later than the first shareholder meeting that occurs in the
fifth year following the year in which shareholders previously approved such
provisions, in each case in order for certain Awards granted after such time to
be exempt from the deduction limitations of Section 162(m) of the
Code.  Nothing in this Section, however, shall affect the validity of
Awards granted after such time if such shareholder approval has not been
obtained.

    


    ARTICLE
XII.  STOCK AWARDS AND OTHER INCENTIVE AWARDS

    


    12.1           Stock Awards.  Stock
Awards may be granted to Participants upon such terms and conditions as the
Committee may determine. Shares of Common Stock issued pursuant to Stock Awards
may be issued for cash consideration or for no cash consideration. The Committee
shall determine the number of shares of Common Stock to be issued pursuant to a
Stock Award.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    12.2           Other Incentive
Awards.  Other Incentive Awards may be granted in such amounts,
upon such terms and at such times as the Committee shall determine. Other
Incentive Awards may be granted based upon, payable in or otherwise related to,
in whole or in part, shares of Common Stock if the Committee, in its sole
discretion, determines that such Other Incentive Awards are consistent with the
purposes of the Plan. Each grant of an Other Incentive Award shall be evidenced
by an Award Agreement that shall specify the amount of the Other Incentive Award
and the terms, conditions, restrictions and limitations applicable to such
Award. Payment of Other Incentive Awards shall be made at such times and in such
form, which may be cash, shares of Common Stock or other property (or a
combination thereof), as established by the Committee, subject to the terms of
the Plan.

    


    ARTICLE
XIII.  CORPORATE CHANGE

    


    13.1           Vesting of
Awards.  Except as provided otherwise below in this Article or
in an Award Agreement at the time an Award is granted or amended,
notwithstanding anything to the contrary in this Plan, if a Participant's
employment or service with the Company is terminated for any reason other than
death, Cause or Inability to Perform or if a Participant voluntarily terminates
employment or service for Good Reason, in either case within the one-year period
following a Corporate Change of Rosetta, any time periods, conditions or
contingencies relating to the exercise or realization of, or lapse of
restrictions under, any Award shall be automatically accelerated or waived so
that:

    


    (a)           if
no exercise of the Award is required, the Award may be realized in full at the
time of the occurrence of the Participant's termination of employment or
service; or

    


    (b)           if
exercise of the Award is required, the Award may be exercised in full commencing
on the date of the Participant's termination of employment or
service.

    


    In the
event all outstanding Awards are replaced in connection with a Corporate Change
by comparable types of awards of at least substantially equivalent value, as
determined by the Committee in its sole discretion, such replacement awards
shall provide for automatic acceleration or waiver as provided above in the
event of a Participant's involuntary termination of employment or service with
the Company other than for Cause or voluntary termination of employment or
service for Good Reason, as applicable.

    


    13.2           Cancellation of
Awards.  Notwithstanding the foregoing, on or prior to the date
of a Corporate Change, the Committee may take any of the following actions with
respect to any or all outstanding Awards, without the consent of any
Participant: (i) the Committee may require that Participants surrender their
outstanding Options and SARs in exchange for payment by the Company, in cash,
Common Stock, the securities of another company, or a combination thereof, as
determined by the Committee, in an amount equal to the amount, if any, by which
the then Fair Market Value of the shares of Common Stock subject to the
Participant’s unexercised Options and SARs exceeds the exercise price or grant
price, and (ii) with respect to Participants holding Restricted Stock,
Restricted Stock Units, Performance Awards or Other Incentive Awards, and
related Cash Dividend Rights and Dividend Unit Rights (if applicable), the
Committee may determine that such Participants shall receive payment in
settlement of such Awards (and dividend rights), in an amount equivalent to the
value of such Awards (and dividend rights) at the time of such
settlement.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
XIV.  AMENDMENT AND TERMINATION

    


    14.1           Plan Amendment and
Termination.  The Board may at any time suspend, terminate,
amend or modify the Plan, in whole or in part; provided, however, that no
amendment or modification of the Plan shall become effective without the
approval of such amendment or modification by the holders of at least a majority
of the shares of Common Stock if (i) such amendment or modification increases
the maximum number of shares subject to the Plan (except as provided in Article
IV) or changes the designation or class of persons eligible to receive Awards
under the Plan, (ii) such amendment or modification is necessary to prevent the
Company from being denied a tax deduction under Section 162(m) of the Code, or
(iii) counsel for Rosetta determines that such approval is otherwise required by
or necessary to comply with applicable law or the listing requirements of NASDAQ
or such other exchange or association on which the Common Stock is then listed
or quoted. An amendment to the Plan shall not require stockholder approval if it
curtails rather than expands the scope of the Plan, nor if it is made to conform
the Plan to new statutory or regulatory requirements that arise after submission
of the Plan to stockholders for their approval, such as, without limitation,
changes to Section 409A of the Code, or regulations issued thereunder. Upon
termination of the Plan, the terms and provisions of the Plan shall,
notwithstanding such termination, continue to apply to Awards granted prior to
such termination. Except as otherwise provided herein, no suspension,
termination, amendment or modification of the Plan shall adversely affect in any
material way any Award previously granted under the Plan, without the consent of
the Participant (or the Permitted Transferee) holding such Award.

    


    14.2           Award Amendment and
Cancellation.  The Committee may amend the terms of any
outstanding Award granted pursuant to the Plan, but except as otherwise provided
herein, no such amendment shall adversely affect in any material way the
Participant’s (or a Permitted Transferee’s) rights under an outstanding Award
without the consent of the Participant (or the Permitted Transferee) holding
such Award.

    


    ARTICLE
XV.  MISCELLANEOUS

    


    15.1           Award
Agreements.  After the Committee grants an Award under the Plan
to a Participant, Rosetta and the Participant shall enter into an Award
Agreement setting forth the terms, conditions, restrictions and limitations
applicable to the Award and such other matters as the Committee may determine to
be appropriate. The Committee may permit or require a Participant to defer
receipt of the payment of cash or the delivery of shares of Common Stock that
would otherwise be due to the Participant in connection with any Award. Awards
that are not paid currently shall be recorded as payable on Rosetta’s records
for the Plan. The terms and provisions of the respective Award Agreements need
not be identical. All Award Agreements shall be subject to the provisions of the
Plan, and in the event of any conflict between an Award Agreement and the Plan,
the terms of the Plan shall govern.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    15.2           Listing;
Suspension.

    


    (a)           As
long as the Common Stock is listed on a national securities exchange or system
sponsored by a national securities association, the issuance of any shares of
Common Stock pursuant to an Award shall be conditioned upon such shares being
listed on such exchange or system. Rosetta shall have no obligation to issue
such shares unless and until such shares are so listed, and the right to
exercise any Option or other Award with respect to such shares shall be
suspended until such listing has been effected.

    


    (b)           If
at any time counsel to Rosetta or its Affiliates shall be of the opinion that
any sale or delivery of shares of Common Stock pursuant to an Award is or may in
the circumstances be unlawful or result in the imposition of excise taxes on
Rosetta or its Affiliates under the laws of any applicable jurisdiction, Rosetta
or its Affiliates shall have no obligation to make such sale or delivery, or to
make any application or to effect or to maintain any qualification or
registration under the Securities Act, or otherwise, with respect to shares of
Common Stock or Awards, and the right to exercise any Option or other Award
shall be suspended until, in the opinion of such counsel, such sale or delivery
shall be lawful or will not result in the imposition of excise taxes on Rosetta
or its Affiliates.

    


    (c)           Upon
termination of any period of suspension under this Section, any Award affected
by such suspension that shall not then have expired or terminated shall be
reinstated as to all shares available before such suspension and as to shares
that would otherwise have become available during the period of such suspension,
but no such suspension shall extend the term of any Award unless otherwise
determined by the Committee in its sole discretion.

    


    15.3           Additional
Conditions.  Notwithstanding anything in the Plan to the
contrary:  (i) the Committee may, if it shall determine it
necessary or desirable in its sole discretion, at the time of grant of any Award
or the issuance of any shares of Common Stock pursuant to any Award, require the
recipient of the Award or such shares of Common Stock, as a condition to the
receipt thereof, to deliver to Rosetta a written representation of present
intention to acquire the Award or such shares of Common Stock for his own
account for investment and not for distribution, (ii) the certificate for shares
of Common Stock issued to a Participant may include any legend that the
Committee deems appropriate to reflect any restrictions on transfer, and (iii)
all certificates for shares of Common Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the SEC,
any stock exchange or association upon which the Common Stock is then listed or
quoted, any applicable federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be placed on
any such certificates to make appropriate reference to such
restrictions.

    


    15.4           Transferability.

    


    (a)           All
Awards granted to a Participant shall be exercisable during his lifetime only by
such Participant, or if applicable, a Permitted Transferee as provided in
subsection (c) of this Section; provided, however, that in the event of a
Participant’s legal incapacity, an Award may be exercised by his guardian or
legal representative. When a Participant dies, the personal representative,
beneficiary, or other person entitled to succeed to the rights of the
Participant may acquire the rights under an Award. Any such successor must
furnish proof satisfactory to Rosetta of the successor’s entitlement to receive
the rights under an Award under the Participant’s will or under the applicable
laws of descent and distribution.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (b)           Except
as otherwise provided in this Section, no Award shall be subject to execution,
attachment or similar process, and no Award may be sold, transferred, pledged,
exchanged, hypothecated or otherwise disposed of, other than by will or pursuant
to the applicable laws of descent and distribution. Any attempted sale,
transfer, pledge, exchange, hypothecation or other disposition of an Award not
specifically permitted by the Plan or the Award Agreement shall be null and void
and without effect.

    


    (c)           If
provided in the Award Agreement, Nonqualified Stock Options may be transferred
by a Participant to a Permitted Transferee. For purposes of the Plan, “Permitted
Transferee” means (i) a member of a Participant’s immediate family, (ii) any
person sharing the Participant’s household (other than a tenant or employee of
the Participant), (iii) trusts in which a person listed in (i) or (ii) above has
more than 50% of the beneficial interest, (iv) a foundation in which the
Participant or a person listed in (i) or (ii) above controls the management
of assets, (v) any other entity in which the Participant or a person listed in
(i) or (ii) above owns more than 50% of the voting interests, provided that in
the case of the preceding clauses (i) through (v), no consideration is provided
for the transfer, and (vi) any transferee permitted under applicable securities
and tax laws as determined by counsel to Rosetta. In determining whether a
person is a “Permitted Transferee,” immediate family members shall include a
Participant’s child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships.

    


    (d)           Incident
to a Participant’s divorce, the Participant may request that Rosetta agree to
observe the terms of a domestic relations order which may or may not be part of
a qualified domestic relations order (as defined in Code Section 414(p)) with
respect to all or a part of one or more Awards made to the Participant under the
Plan. Rosetta’s decision regarding such a request shall be made by the
Committee, in its sole and absolute discretion, based upon the best interests of
Rosetta. The Committee’s decision need not be uniform among Participants. As a
condition of participation, a Participant agrees to hold Rosetta harmless from
any claim that may arise out of Rosetta’s observance of the terms of any such
domestic relations order.

    


    15.5           Withholding
Taxes.  The Company shall be entitled to deduct from any
payment made under the Plan, regardless of the form of such payment, the amount
of all applicable income and employment taxes required by law to be withheld
with respect to such payment, may require the Participant to pay to the Company
such withholding taxes prior to and as a condition of the making of any payment
or the issuance or delivery of any shares of Common Stock under the Plan, and
shall be entitled to deduct from any other compensation payable to the
Participant any withholding obligations with respect to Awards. In accordance
with any applicable administrative guidelines it establishes, the Committee may
allow a Participant to pay the amount of taxes required by law to be withheld
from or with respect to an Award by (i) withholding shares of Common Stock
from any payment of Common Stock due as a result of such Award, or
(ii) permitting the Participant to deliver to the Company previously
acquired shares of Common Stock, in each case having an aggregate Fair Market
Value equal to the amount of such required withholding taxes. No payment shall
be made and no shares of Common Stock shall be issued pursuant to any Award
unless and until the applicable tax withholding obligations have been
satisfied.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    15.6           No Fractional
Shares.  No fractional shares of Common Stock shall be issued
or delivered pursuant to the Plan or any Award granted hereunder, provided that
the Committee in its sole discretion may round fractional shares down to the
nearest whole share or settle fractional shares in cash.

    


    15.7           Notices.  All
notices required or permitted to be given or made under the Plan or pursuant to
any Award Agreement (unless provided otherwise in such Award Agreement) shall be
in writing and shall be deemed to have been duly given or made if
(i) delivered personally, (ii) transmitted by first class registered
or certified United States mail, postage prepaid, return receipt requested,
(iii) sent by prepaid overnight courier service, or (iv) sent by
telecopy or facsimile transmission, with confirmation receipt, to the person who
is to receive it at the address that such person has theretofore specified by
written notice delivered in accordance herewith. Such notices shall be effective
(i) if delivered personally or sent by courier service, upon actual receipt
by the intended recipient, (ii) if mailed, upon the earlier of five days
after deposit in the mail or the date of delivery as shown by the return receipt
therefor, or (iii) if sent by telecopy or facsimile transmission, when the
answer back is received. Rosetta or a Participant may change, at any time and
from time to time, by written notice to the other, the address that it or such
Participant had theretofore specified for receiving notices. Until such address
is changed in accordance herewith, notices hereunder or under an Award Agreement
shall be delivered or sent (i) to a Participant at his address as set forth
in the records of the Company or (ii) to Rosetta at the principal executive
offices of Rosetta clearly marked “Attention:  General
Counsel.”

    


    15.8           Compliance with Law and Stock
Exchange or Association Requirements.  In addition, it is the
intent of Rosetta that Options designated Incentive Stock Options comply with
the applicable provisions of Section 422 of the Code, and that Awards intended
to constitute “qualified performance-based awards” comply with the applicable
provisions of Section 162(m) of the Code and that any deferral of the receipt of
the payment of cash or the delivery of shares of Common Stock that the Committee
may permit or require, and any Award granted that is subject to Section 409A of
the Code, comply with the requirements of Section 409A of the Code. To the
extent that any legal requirement of Section 16 of the Exchange Act or Sections
422, 162(m) or 409A of the Code as set forth in the Plan ceases to be required
under Section 16 of the Exchange Act or Sections 422, 162(m) or 409A of the
Code, that Plan provision shall cease to apply. Any provision of this Plan to
the contrary notwithstanding, the Committee may revoke any Award if it is
contrary to law, governmental regulation, or stock exchange requirements or
modify an Award to bring it into compliance with any government regulation or
stock exchange requirements. The Committee may agree to limit its authority
under this Section.

    


    15.9           California Blue Sky
Laws.  Prior to the effective registration of the Common Stock
under Section 12 of the Exchange Act, (i) Rosetta shall deliver a balance sheet
and an income statement at least annually to each Participant performs services
in the State of California, unless such Participant is a key employee whose
duties in connection with the Company assure such Participant access to
equivalent information, (ii) the Compensation Committee may not impose upon any
Award grant made to a Participant performs services in the State of California a
vesting schedule that is more restrictive than 20 percent per year vesting, with
the initial vesting to occur not later than one year after the Award’s grant
date; provided, however, that such vesting limitation shall not be applicable to
any Award grants made to individuals who are officers of Rosetta and (iii) with
respect to California Participants (including any individual whose Award is
based in whole or in part on services performed in California), the Plan shall
otherwise be administered in accordance with California Corporations Code
section 25102(o) and California Code of Regulations, Title 10, sections
260.140.41, 260.140.42, 260.140.45, and 260.140.46.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    15.10         Binding Effect.  The
obligations of Rosetta under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, consolidation or other
reorganization of Rosetta, or upon any successor corporation or organization
succeeding to all or substantially all of the assets and business of Rosetta.
The terms and conditions of the Plan shall be binding upon each Participant and
his Permitted Transferees, heirs, legatees, distributees and legal
representatives.

    


    15.11         Severability.  If
any provision of the Plan or any Award Agreement is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions of the Plan or such agreement, as the case may be, but such
provision shall be fully severable and the Plan or such agreement, as the case
may be, shall be construed and enforced as if the illegal or invalid provision
had never been included herein or therein.

    


    15.12         No Restriction of Corporate
Action.  Nothing contained in the Plan shall be construed to
prevent Rosetta or any Affiliate from taking any corporate action (including any
corporate action to suspend, terminate, amend or modify the Plan) that is deemed
by Rosetta or such Affiliate to be appropriate or in its best interest, whether
or not such action would have an adverse effect on the Plan or any Awards made
or to be made under the Plan. No Participant or other person shall have any
claim against Rosetta or any Affiliate as a result of such action.

    


    15.13         Governing Law.  The
Plan shall be governed by and construed in accordance with the internal laws
(and not the principles relating to conflicts of laws) of the State of Texas
except as superseded by applicable federal law.

    


    15.14         No Right, Title or Interest in
Company Assets.  No Participant shall have any rights as a
stockholder of Rosetta as a result of participation in the Plan until the date
of issuance of Common Stock in his name and, in the case of Restricted Stock,
unless and until such rights are granted to the Participant pursuant to the
Plan. To the extent any person acquires a right to receive payments from the
Company under the Plan, such rights shall be no greater than the rights of an
unsecured general creditor of the Company, and such person shall not have any
rights in or against any specific assets of the Company. All Awards shall be
unfunded.

    


    15.15         Risk of
Participation.  Nothing contained in the Plan shall be
construed either as a guarantee by Rosetta or the Affiliates, or their
respective stockholders, directors, officers or employees, of the value of any
assets of the Plan or as an agreement by Rosetta or the Affiliates, or their
respective stockholders, directors, officers or employees, to indemnify anyone
for any losses, damages, costs or expenses resulting from participation in the
Plan.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    15.16         No Guarantee of Tax
Consequences.  No person connected with the Plan in any
capacity, including without limitation Rosetta and the Affiliates and their
respective directors, officers, agents and employees, makes any representation,
commitment or guarantee that any tax treatment, including without limitation
federal, state and local income, estate and gift tax treatment, will be
applicable with respect to any Awards or payments thereunder made to or for the
benefit of a Participant under the Plan or that such tax treatment will apply to
or be available to a Participant on account of participation in the
Plan.

    


    15.17         Continued Employment or
Service.  Nothing contained in the Plan or in any Award
Agreement shall confer upon any Participant the right to continue in the employ
or service of the Company, or interfere in any way with the rights of the
Company to terminate a Participant’s employment or service at any time, with or
without cause. The loss of existing or potential profit in Awards will not
constitute an element of damages in the event of termination of employment or
service for any reason, even if the termination is in violation of an obligation
of Rosetta or an Affiliate to the Participant.

    


    15.18         Miscellaneous.  Headings
are given to the articles and sections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction of the Plan or any provisions hereof. The use of
the masculine gender shall also include within its meaning the feminine.
Wherever the context of the Plan dictates, the use of the singular shall also
include within its meaning the plural, and vice versa.