**Exhibit 10.1**

 

**CANDELACORPORATION**

 

**SECONDAMENDED AND RESTATED 1998 STOCK PLAN**

 

**October5, 2005**

 

PURPOSE.  Thepurpose of the Candela Corporation 1998 Stock Plan (the “Plan”) is to encourageemployees of Candela Corporation (the “Company”) and of any present or futureparent or subsidiary of the Company (collectively, “Related Corporations”) andother individuals who render services to the Company or a Related Corporation,by providing opportunities to participate in the ownership of the Company andits future growth through (a) the grant of options which qualify as “incentivestock options” (“ISOs”) under Section 422(b) of the Internal Revenue Code of1986, as amended (the “Code”); (b) the grant of options that do not qualify asISOs (“Non-Qualified Options”); (c) awards of stock in the Company (“Awards”);(d) the grant of stock appreciation rights (“SARs”); and (e) opportunitiesto make direct purchases of stock in the Company (“Purchases”).  Both ISOs and Non-Qualified Options arereferred to hereafter individually as an “Option” and collectively as “Options.”  Options, Awards, SARs and authorizations tomake Purchases are referred to hereafter collectively as “Stock Rights.”  As used herein, the terms “parent” and “subsidiary”mean “parent corporation” and “subsidiary corporation,” respectively, as thoseterms are defined in Section 424 of the Code.

 

ADMINISTRATION OF THE PLAN.

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## **BOARD OR COMMITTEEADMINISTRATION.  The Plan shall beadministered by the Board of Directors of the Company (the “Board”) or, subjectto paragraph 0(D) (relating to compliance with Section 162(m) of the Code), bya committee appointed by the Board (the “Committee”).  Hereinafter, all references in this Plan tothe “Committee” shall mean the Board if no Committee has been appointed.  Subject to ratification of the grant orauthorization of each Stock Right by the Board (if so required by applicablestate law), and subject to the terms of the Plan, the Committee shall have theauthority to (i) determine to whom (from among the class of employees eligibleunder paragraph 0 to receive ISOs) ISOs shall be granted, and to whom (fromamong the class of individuals and entities eligible under paragraph 0 toreceive Non-Qualified Options, SARs and Awards and to make Purchases)Non-Qualified Options, SARs, Awards and authorizations to make Purchases may begranted; (ii) determine the time or times at which Options, SARs or Awardsshall be granted or Purchases made; (iii) determine the purchase price ofshares subject to each Option or Purchase, which prices shall not be less thanthe minimum price specified in paragraph 0; (iv) determine the grant price ofSARs; (v) determine whether each Option granted shall be an ISO or aNon-Qualified Option; (vi) determine (subject to paragraph 0) the time or timeswhen each Option or SAR shall become exercisable and the duration of theexercise period; (vii) extend the period during which outstanding Options orSARs may be exercised; (viii) determine whether restrictions such as repurchaseoptions are to be**

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## **imposed on shares subject to Options, SARs, Awards andPurchases and the nature of such restrictions, if any, and (ix) interpret thePlan and prescribe and rescind rules and regulations relating to it.  If the Committee determines to issue aNon-Qualified Option, it shall take whatever actions it deems necessary, underSection 422 of the Code and the regulations promulgated thereunder, to ensurethat such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisionsof the Plan or of any Stock Right granted under it shall be final unlessotherwise determined by the Board.  TheCommittee may from time to time adopt such rules and regulations for carryingout the Plan as it may deem advisable. No member of the Board or the Committee shall be liable for any actionor determination made in good faith with respect to the Plan or any Stock Rightgranted under it.**

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## **COMMITTEE ACTIONS.  The Committee may select one of its membersas its chairman, and shall hold meetings at such time and places as it maydetermine.  A majority of the Committeeshall constitute a quorum and acts of a majority of the members of theCommittee at a meeting at which a quorum is present, or acts reduced to orapproved in writing by all the members of the Committee (if consistent withapplicable state law), shall be the valid acts of the Committee.  From time to time the Board may increase thesize of the Committee and appoint additional members thereof, remove members(with or without cause) and appoint new members in substitution therefor, fillvacancies however caused, or remove all members of the Committee and thereafterdirectly administer the Plan.**

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## **GRANT OF STOCK RIGHTS TOBOARD MEMBERS.  Stock Rights may begranted to members of the Board.  Allgrants of Stock Rights to members of the Board shall in all respects be made inaccordance with the provisions of this Plan applicable to other eligiblepersons.  Members of the Board who either(i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii)have been granted Stock Rights may vote on any matters affecting theadministration of the Plan or the grant of any Stock Rights pursuant to thePlan, except that no such member shall act upon the granting to himself orherself of Stock Rights, but any such member may be counted in determining theexistence of a quorum at any meeting of the Board during which action is takenwith respect to the granting to such member of Stock Rights.**

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## **PERFORMANCE-BASEDCOMPENSATION.  The Board, in itsdiscretion, may take such action as may be necessary to ensure that StockRights granted under the Plan qualify as “qualified performance-basedcompensation” within the meaning of Section 162(m) of the Code and applicableregulations promulgated thereunder (“Performance-Based Compensation”).  Such action may include, in the Board’sdiscretion, some or all of the following: (i) if the Board determines thatStock Rights granted under the Plan generally shall constitute Performance-Based Compensation, the Plan shall be administered, to the extent required forsuch Stock Rights to constitute Performance-Based Compensation, by a Committeeconsisting solely of two or more “outside directors” (as defined in applicableregulations promulgated under Section 162(m) of the Code), (ii) if anyNon-Qualified Options with an exercise price less than the fair market valueper share of the Company’s common stock, $0.01 par value per share (the “CommonStock”), are granted under the Plan and the Board determines that such Optionsshould constitute Performance-Based**

 

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## **Compensation, such options shall be made exercisable onlyupon the attainment of a pre-established, objective performance goalestablished by the Committee, and such grant shall be submitted for, and shallbe contingent upon shareholder approval, and (iii) Stock Rights granted underthe Plan may be subject to such other terms and conditions as are necessary forcompensation recognized in connection with the exercise or disposition of suchStock Right or the disposition of Common Stock acquired pursuant to such StockRight, to constitute Performance-Based Compensation.**

 

ELIGIBLE EMPLOYEES AND OTHERS.  ISOs may be granted only to employees of theCompany or any Related Corporation. Non-Qualified Options, Awards, SARs and authorizations to make Purchasesmay be granted to any employee, officer or director (whether or not also an employee)or consultant of the Company or any Related Corporation.  The Committee may take into consideration arecipient’s individual circumstances in determining whether to grant a StockRight.  The granting of any Stock Rightto any individual or entity shall neither entitle that individual or entity to,nor disqualify such individual or entity from, participation in any other grantof Stock Rights.

 

STOCK.  Thestock subject to Stock Rights shall be authorized but unissued shares of CommonStock or shares of Common Stock reacquired by the Company in any manner.  The aggregate number of shares which may beissued pursuant to the Plan is 5,300,000, subject to adjustment as provided inparagraph 0.  If any Option granted underthe Plan shall expire or terminate for any reason without having been exercisedin full or shall cease for any reason to be exercisable in whole or in part orshall be repurchased by the Company, the unpurchased shares of Common Stocksubject to such Option shall again be available for grants of Stock Rightsunder the Plan.  Where payment uponexercise of a SAR is made in shares of Common Stock, only the net number ofshares of Common Stock issued in connection with such exercise shall be deemed “issued”for purposes of this paragraph 0.

 

No employee of the Company or any Related Corporation may be grantedOptions and/or SARs to acquire, in the aggregate, more than 700,000 shares ofCommon Stock under the Plan during any fiscal year of the Company, subject toadjustment as provided in paragraph 0. If any Option granted under the Plan shall expire or terminate for anyreason without having been exercised in full or shall cease for any reason tobe exercisable in whole or in part or shall be repurchased by the Company, theshares subject to such Option shall be included in the determination of theaggregate number of shares of Common Stock deemed to have been granted to suchemployee under the Plan.

 

GRANTING OF STOCK RIGHTS.  Stock Rights may be granted under the Plan atany time on or after September 19, 1998 and prior to September 18, 2008.  The date of grant of a Stock Right under thePlan will be the date specified by the Committee at the time it grants theStock Right; provided, however, that such date shall not be prior to the dateon which the Committee acts to approve the grant.  SARs may be granted in tandem with an Option(“Tandem SARs”), or may be granted on a freestanding basis, not related to anyOption (“Freestanding SARs”), or any combination of these forms of SARs.

 

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MINIMUM PRICE; ISO LIMITATIONS; FAIR MARKET VALUE.

 

## **PRICE FOR OPTIONS, SARS,AWARDS AND PURCHASES.  Subject toparagraph 0(D) (relating to compliance with Section 162(m) of the Code), theexercise price per share specified in the agreement relating to each Non-QualifiedOption granted, and the purchase price per share of stock granted in any Awardor authorized as a Purchase, under the Plan may be less than the fair marketvalue of the Common Stock of the Company on the date of grant; provided that,in no event shall such exercise price or such purchase price be less than theminimum legal consideration required therefor under the laws of anyjurisdiction in which the Company or its successors in interest may beorganized.  The grant price of aFreestanding SAR shall equal the fair market value of a share of Common Stockon the date of grant of the SAR.  Thegrant price of a Tandem SAR shall equal the exercise price of the relatedOption.**

 

## **PRICE FOR ISOS.  The exercise price per share specified in theagreement relating to each ISO granted under the Plan shall not be less thanthe fair market value per share of Common Stock on the date of such grant.  In the case of an ISO to be granted to anemployee owning stock possessing more than ten percent (10%) of the totalcombined voting power of all classes of stock of the Company or any RelatedCorporation, the price per share specified in the agreement relating to suchISO shall not be less than one hundred ten percent (110%) of the fair marketvalue per share of Common Stock on the date of grant.  For purposes of determining stock ownershipunder this paragraph, the rules of Section 424(d) of the Code shall apply.**

 

## **$100,000 ANNUAL LIMITATION ONISO VESTING.  Each eligible employee maybe granted Options treated as ISOs only to the extent that, in the aggregateunder this Plan and all incentive stock option plans of the Company and anyRelated Corporation, ISOs do not become exercisable for the first time by suchemployee during any calendar year with respect to stock having a fair marketvalue (determined at the time the ISOs were granted) in excess of$100,000.  The Company intends todesignate any Options granted in excess of such limitation as Non-QualifiedOptions, and the Company shall issue separate certificates to the optionee withrespect to Options that are Non-Qualified Options and Options that are ISOs.**

 

## **DETERMINATION OF FAIR MARKETVALUE.  If, at the time an Option or SARis granted under the Plan, the Company’s Common Stock is publicly traded, “fairmarket value” shall be determined as of the date of grant or, if the prices orquotes discussed in this sentence are unavailable for such date, the lastbusiness day for which such prices or quotes are available prior to the date ofgrant and shall mean (i) the average (on that date) of the high and low pricesof the Common Stock on the principal national securities exchange on which theCommon Stock is traded, if the Common Stock is then traded on a nationalsecurities exchange; or (ii) the last reported sale price (on that date) of theCommon Stock on the Nasdaq National Market, if the Common Stock is not thentraded on a national securities exchange; or (iii) the closing bid price (oraverage of bid prices) last quoted (on that date) by an established quotationservice for over-the-counter securities, if the Common Stock is not reported onthe Nasdaq National Market. If the Common Stock is not publicly**

 

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## **traded at the time an Option or SAR is granted under the Plan,“fair market value” shall mean the fair value of the Common Stock as determinedby the Committee after taking into consideration all factors which it deemsappropriate, including, without limitation, recent sale and offer prices of theCommon Stock in private transactions negotiated at arm’s length.**

 

OPTION AND SAR DURATION.  Subject to earlier termination as provided inparagraphs 0 and 0 or in the agreement relating to such Option or SAR, eachOption and SAR shall expire on the date specified by the Committee, but notmore than (i) ten years from the date of grant in the case of Options and SARsgenerally and (ii) five years from the date of grant in the case of ISOsgranted to an employee owning stock possessing more than ten percent (10%) ofthe total combined voting power of all classes of stock of the Company or anyRelated Corporation, as determined under paragraph 0(B).  Subject to earlier termination as provided inparagraphs 0and 0, the term of each ISO shall be the term set forth in theoriginal instrument granting such ISO, except with respect to any part of suchISO that is converted into a Non-Qualified Option pursuant to paragraph 0.

 

EXERCISE OF OPTION AND SARS.  Subject to the provisions of paragraphs 0through 0, each Option or SAR granted under the Plan shall be exercisable asfollows:

 

## **VESTING.  The Option or SAR shall either be fullyexercisable on the date of grant or shall become exercisable thereafter in suchinstallments as the Committee may specify.**

 

## **FULL VESTING OFINSTALLMENTS.  Once an installmentbecomes exercisable, it shall remain exercisable until expiration ortermination of the Option or SAR, unless otherwise specified by the Committee.**

 

## **PARTIAL EXERCISE.  Each Option or, subject to subparagraph 0(B),each SAR or installment thereof, may be exercised at any time or from time totime, in whole or in part, for up to the total number of shares with respect towhich it is then exercisable**

 

## **ACCELERATION OF VESTING.  The Committee shall have the right toaccelerate the date that any installment of any Option or SAR becomesexercisable; provided that the Committee shall not, without the consent of anoptionee, accelerate the permitted exercise date of any installment of anyOption granted pursuant to paragraph 0 if such acceleration would violate theannual vesting limitation contained in Section 422(d) of the Code, as describedin paragraph 0(C).**

 

TERMINATION OF EMPLOYMENT.  Unless otherwise specified in the agreementrelating to such ISO, if an ISO optionee ceases to be employed by the Companyand all Related Corporations other than by reason of death or disability asdefined in paragraph 0, no further installments of his or her ISOs shall becomeexercisable, and his or her ISOs shall terminate on the earlier of (a) threemonths after the date of termination of his or her employment, or (b) theirspecified expiration dates, except to the extent that such ISOs (or unexercisedinstallments thereof) have been converted into Non-Qualified Options pursuantto paragraph 0.

 

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For purposes of this paragraph 0, employment shall be considered ascontinuing uninterrupted during any bona fide leave of absence (such as thoseattributable to illness, military obligations or governmental service) providedthat the period of such leave does not exceed 90 days or, if longer, any periodduring which such optionee’s right to re-employment is guaranteed by statute orby contract.  A bona fide leave ofabsence with the written approval of the Committee shall not be considered aninterruption of employment under this paragraph 0, provided that such writtenapproval contractually obligates the Company or any Related Corporation tocontinue the employment of the optionee after the approved period ofabsence.  ISOs granted under the Planshall not be affected by any change of employment within or among the Companyand Related Corporations, so long as the optionee continues to be an employeeof the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any StockRight the right to be retained in employment or other service by the Company orany Related Corporation for any period of time.

 

DEATH; DISABILITY.

 

## **DEATH.  If an ISO optionee ceases to be employed bythe Company and all Related Corporations by reason of his or her death, any ISOowned by such optionee may be exercised, to the extent otherwise exercisable onthe date of death, by the estate, personal representative or beneficiary whohas acquired the ISO by will or by the laws of descent and distribution, untilthe earlier of (i) the specified expiration date of the ISO or (ii) 180 daysfrom the date of the optionee’s death.**

 

## **DISABILITY.  If an ISO optionee ceases to be employed bythe Company and all Related Corporations by reason of his or her disability,such optionee shall have the right to exercise any ISO held by him or her onthe date of termination of employment, for the number of shares for which he orshe could have exercised it on that date, until the earlier of (i) thespecified expiration date of the ISO or (ii) 180 days from the date of thetermination of the optionee’s employment. For the purposes of the Plan, the term “disability” shall mean “permanentand total disability” as defined in Section 22(e)(3) of the Code or anysuccessor statute.**

 

TRANSFERABILITY OF OPTIONS AND SARS.  Except as otherwise provided in subparagraphs00 and 00 below, an Option or SAR may not be sold, pledged, assigned,hypothecated, transferred or disposed of in any manner other than by will or bythe laws of descent and distribution and may be exercised, during the lifetimeof the optionee or grantee, only by the optionee or grantee.  Notwithstanding the foregoing, with theconsent of the Board or the Compensation Committee thereof, in either case inits sole discretion, an optionee or grantee may transfer all or a portion ofhis or her vested Non-Qualified Options or SARs to:

 

### **a trust for the exclusive benefit of the optionee orgrantee and/or one or more Immediate Family Members or spouses of ImmediateFamily Members.  For the purposes of thissubparagraph 00, “Immediate Family Members” shall mean the optionee’s orgrantee’s spouse, former spouse, children or grandchildren, whether natural oradopted; and**

 

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### **an organization which qualifies as a tax exemptorganization under Section 501(a) and 501(c)(3) of the Code.**

 

As a condition to any transfer pursuant to subparagraphs 00 and 00each such transferee shall agree in writing (in a form satisfactory to theCommittee) to be bound by the terms and conditions of the Option or SARagreement evidencing such transferred Option or SAR, as well as any additionalrestrictions or conditions as the Committee may require.  Following the transfer of an Option or SAR inaccordance with this paragraph 0, the term “optionee” and “grantee” shall referto the transferee, except that, with respect to any requirements of continuedservice or employment or provision of the Company’s tax withholding obligations,such terms shall refer to the optionee or grantee.  The Committee shall have no obligation tonotify any transferee of any termination of the transferred Option or SAR,including an early termination resulting from the termination of employment orservice of the original optionee or grantee. No transferee shall make a subsequent transfer of a transferred Optionor SAR except to the original optionee or grantee or as otherwise provided inthis paragraph 0.

 

TERMS AND CONDITIONS OF OPTIONS AND SARS.  Options or SARs shall be evidenced byinstruments (which need not be identical) in such forms as the Committee mayfrom time to time approve.  Suchinstruments shall conform to the terms and conditions set forth in paragraphs 6through 11 hereof and may contain such other provisions as the Committee deemsadvisable which are not inconsistent with the Plan, including restrictionsapplicable to shares of Common Stock issuable upon exercise of Options orSARs.  The Committee may specify that anyNon-Qualified Option or SARs shall be subject to the restrictions set forthherein with respect to ISOs, or to such other termination and cancellationprovisions as the Committee may determine. The Committee may from time to time confer authority and responsibilityon one or more of its own members and/or one or more officers of the Company toexecute and deliver such instruments. The proper officers of the Company are authorized and directed to takeany and all action necessary or advisable from time to time to carry out theterms of such instruments.

 

ADJUSTMENTS. Upon the occurrence of any of the following events, an optionee’s orgrantee’s rights with respect to Options or SARs granted to such optionee orgrantee hereunder shall be adjusted as hereinafter provided, unless otherwisespecifically provided in the written agreement between the optionee or granteeand the Company relating to such Option or SAR:

 

## **STOCK DIVIDENDS AND STOCKSPLITS.  If the shares of Common Stockshall be subdivided or combined into a greater or smaller number of shares orif the Company shall issue any shares of Common Stock as a stock dividend onits outstanding Common Stock, the number of shares of Common Stock deliverableupon the exercise of Options or SARs shall be appropriately increased ordecreased proportionately, and appropriate adjustments shall be made in thepurchase price per share to reflect such subdivision, combination or stockdividend.**

 

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## **CONSOLIDATIONS ORMERGERS.  If the Company is to beconsolidated with or acquired by another entity in a merger or otherreorganization in which the holders of the outstanding voting stock of theCompany immediately preceding the consummation of such event, shall,immediately following such event, hold, as a group, less than a majority of thevoting securities of the surviving or successor entity, or in the event of asale of all or substantially all of the Company’s assets or otherwise (each, an“Acquisition”), the Committee or the board of directors of any entity assumingthe obligations of the Company hereunder (the “Successor Board”), shall, as tooutstanding Options and SARs, either (i) make appropriate provision for thecontinuation of such Options or SARs by substituting on an equitable basis forthe shares then subject to such Options or SARs either (a) the considerationpayable with respect to the outstanding shares of Common Stock in connectionwith the Acquisition, (b) shares of stock of the surviving or successorcorporation, or (c) such other securities as the Successor Board deemsappropriate, the fair market value of which shall not materially exceed thefair market value of the shares of Common Stock subject to such Options or SARSimmediately preceding the Acquisition; or (ii) upon written notice to theoptionees and grantees, provide that all Options and SARs must be exercised, tothe extent then exercisable or to be exercisable as a result of theAcquisition, within a specified number of days of the date of such notice, atthe end of which period the Options and SARs shall terminate; or(iii) terminate all Options and SARs in exchange for a cash payment equalto the excess of the fair market value of the shares subject to such Options orSARs (to the extent then exercisable or to be exercisable as a result of theAcquisition) over the exercise price thereof.**

 

## **RECAPITALIZATION ORREORGANIZATION.  In the event of arecapitalization or reorganization of the Company (other than a transactiondescribed in subparagraph 0(B) above) pursuant to which securities of theCompany or of another corporation are issued with respect to the outstandingshares of Common Stock, an optionee or grantee upon exercising an Option or SARshall be entitled to receive for the purchase price paid upon such exercise thesecurities he or she would have received if he or she had exercised such Optionor SAR prior to such recapitalization or reorganization.**

 

## **MODIFICATION OF ISOS.  Notwithstanding the foregoing, anyadjustments made pursuant to subparagraphs 0(A), (B) or (C) with respect toISOs shall be made only after the Committee, after consulting with counsel forthe Company, determines whether such adjustments would constitute a “modification”of such ISOs (as that term is defined in Section 424 of the Code) or wouldcause any adverse tax consequences for the holders of such ISOs.  If the Committee determines that suchadjustments made with respect to ISOs would constitute a modification of suchISOs or would cause adverse tax consequences to the holders, it may refrainfrom making such adjustments.**

 

## **DISSOLUTION ORLIQUIDATION.  In the event of theproposed dissolution or liquidation of the Company, each Option and SAR willterminate immediately prior to the consummation of such proposed action or atsuch other time and subject to such other conditions as shall be determined bythe Committee.**

 

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## **ISSUANCES OF SECURITIES.  Except as expressly provided herein, noissuance by the Company of shares of stock of any class, or securitiesconvertible into shares of stock of any class, shall affect, and no adjustmentby reason thereof shall be made with respect to, the number or price of sharessubject to Options and SARs.  Noadjustments shall be made for dividends paid in cash or in property other thansecurities of the Company.**

 

## **FRACTIONAL SHARES.  No fractional shares shall be issued underthe Plan and the optionee and grantee shall receive from the Company cash inlieu of such fractional shares.**

 

## **ADJUSTMENTS.  Upon the happening of any of the eventsdescribed in subparagraphs 0(A), (B) or (C) above, the class and aggregatenumber of shares set forth in paragraph 4 hereof that are subject to StockRights which previously have been or subsequently may be granted under the Planshall also be appropriately adjusted to reflect the events described in suchsubparagraphs.  The Committee or theSuccessor Board shall determine the specific adjustments to be made under thisparagraph 0 and, subject to paragraph 0, its determination shall be conclusive.**

 

MEANS OF EXERCISING OPTIONS AND SARS.

 

## **OPTIONS.  An Option (or any part or installmentthereof) shall be exercised by giving written notice to the Company at itsprincipal office address, or to such transfer agent as the Company shall designate.  Such notice shall identify the Option beingexercised and specify the number of shares as to which such Option is beingexercised, accompanied by full payment of the purchase price therefor either(a) in United States dollars in cash or by check, (b) at the discretion of theCommittee, through delivery of shares of Common Stock having a fair marketvalue equal as of the date of the exercise to the cash exercise price of theOption, (c) at the discretion of the Committee, by delivery of the optionee’spersonal recourse note bearing interest payable not less than annually at noless than 100% of the lowest applicable Federal rate, as defined in Section1274(d) of the Code, (d) at the discretion of the Committee and consistent withapplicable law, through the delivery of an assignment to the Company of asufficient amount of the proceeds from the sale of the Common Stock acquiredupon exercise of the Option and an authorization to the broker or selling agentto pay that amount to the Company, which sale shall be at the optionee’sdirection at the time of exercise, or (e) at the discretion of the Committee,by any combination of (a), (b), (c) and (d) above. If the Committee exercisesits discretion to permit payment of the exercise price of an ISO by means ofthe methods set forth in clauses (b), (c), (d) or (e) of the precedingsentence, such discretion shall be exercised in writing at the time of thegrant of the ISO in question.  The holderof an Option shall not have the rights of a shareholder with respect to theshares covered by such Option until the date of issuance of a stock certificateto such holder for such shares.  Exceptas expressly provided above in paragraph 0 with respect to changes incapitalization and stock dividends, no adjustment shall be made for dividendsor similar rights for which the record date is before the date such stockcertificate is issued.**

 

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## **SARS.  Tandem SARs may be exercised for all or partof the shares of Common Stock subject to the related Option upon the surrenderof the right to exercise the equivalent portion of the related Option.  A Tandem SAR may be exercised only withrespect to the shares of Common Stock for which its related Option is thenexercisable.  Notwithstanding any otherprovision of the Plan to the contrary, with respect to a Tandem SAR granted inconnection with an ISO: (i) the Tandem SAR will expire no later than theexpiration of the underlying ISO; (ii) the value of the payout with respect tothe Tandem SAR may be for no more than one hundred percent (100%) of thedifference between the exercise price of the underlying ISO and the fair marketvalue of the shares of Common Stock subject to the underlying ISO at the timethe Tandem SAR is exercised; and (iii) the Tandem SAR may be exercisedonly when the fair market value of the shares of Common Stock subject to theISO exceeds the exercise price of the ISO. Freestanding SARs may be exercised upon whatever terms and conditionsthe Committee, in its sole discretion, imposes upon them and sets forth in theaward agreement.  Upon exercise of a SAR,a grantee shall be entitled to receive payment from the Company in an amountdetermined by multiplying: (i) the difference between the fair market value ofa share of Common Stock on the date of exercise over the grant price; by (ii)the number of shares of Common Stock with respect to which the SAR isexercised.  At the discretion of theCommittee, the payment upon SAR exercise may be in cash, in shares of CommonStock of equivalent value, or in some combination thereof.**

 

TERM AND AMENDMENT OF PLAN.  This Plan was adopted by the Board onSeptember 19, 1998, subject, with respect to the validation of ISOs grantedunder the Plan, to approval of the Plan by the stockholders of the Company atthe next Meeting of Stockholders or, in lieu thereof, by written consent.  If the approval of stockholders is notobtained prior to September 19, 1999, any grants of ISOs under the Plan madeprior to that date will be rescinded. The Plan shall expire at the end of the day on September 18, 2008(except as to Options outstanding on that date).  Subject to the provisions of paragraph 0above, Options may be granted under the Plan prior to the date of stockholderapproval of the Plan.  The Board mayterminate or amend the Plan in any respect at any time, except that, withoutthe approval of the stockholders obtained within 12 months before or after theBoard adopts a resolution authorizing any of the following actions: (a) thetotal number of shares that may be issued under the Plan may not be increased(except by adjustment pursuant to paragraph 0); (b) the provisions of paragraph0regarding eligibility for grants of ISOs may not be modified; (c) theprovisions of paragraph 0(B) regarding the exercise price at which shares maybe offered pursuant to ISOs may not be modified (except by adjustment pursuantto paragraph 0); and (d) the expiration date of the Plan may not be extended.Except as otherwise provided in this paragraph 0, in no event may action of theBoard or stockholders alter or impair the rights of a grantee or optionee,without such grantee’s or optionee’s consent, under any Stock Right previouslygranted to such grantee or optionee.

 

MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTONON-QUALIFIED OPTIONS.  Subject toparagraph 0(D), without the prior written consent of the holder of an ISO, theCommittee shall not alter the terms of such ISO (including the means ofexercising such ISO) if such alteration would constitute a

 

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modification (within the meaning of Section 424(h)(3) of theCode).  The Committee, at the writtenrequest or with the written consent of any optionee, may in its discretion takesuch actions as may be necessary to convert such optionee’s ISOs (or anyinstallments or portions of installments thereof) that have not been exercisedon the date of conversion into Non-Qualified Options at any time prior to theexpiration of such ISOs, regardless of whether the optionee is an employee ofthe Company or a Related Corporation at the time of such conversion.  Such actions may include, but shall not belimited to, extending the exercise period or reducing the exercise price of theappropriate installments of such ISOs. At the time of such conversion, the Committee (with the consent of theoptionee) may impose such conditions on the exercise of the resultingNon-Qualified Options as the Committee in its discretion may determine,provided that such conditions shall not be inconsistent with this Plan.  Nothing in the Plan shall be deemed to giveany optionee the right to have such optionee’s ISOs converted intoNon-Qualified Options, and no such conversion shall occur until and unless theCommittee takes appropriate action.  Uponthe taking of such action, the Company shall issue separate certificates to theoptionee with respect to Options that are Non-Qualified Options and Optionsthat are ISOs.

 

APPLICATION OF FUNDS. The proceeds received by the Company from the sale of shares pursuant toOptions granted and Purchases authorized under the Plan shall be used forgeneral corporate purposes.

 

NOTICE TO COMPANY OF A DISQUALIFYING DISPOSITION.  By accepting an ISO granted under the Plan,each optionee agrees to notify the Company in writing immediately after suchoptionee makes a Disqualifying Disposition (as described in Sections 421, 422and 424 of the Code and regulations thereunder) of any stock acquired pursuantto the exercise of ISOs granted under the Plan. A Disqualifying Disposition is generally any disposition occurring on orbefore the later of (a) the date two years following the date the ISO wasgranted, or (b) the date one year following the date the ISO was exercised.

 

WITHHOLDING OF ADDITIONAL INCOME TAXES.  Upon the exercise of a Non-Qualified Option,the transfer of a Non-Qualified Option pursuant to an arm’s-length transaction,the grant of an Award, the exercise of a SAR, the making of a Purchase ofCommon Stock for less than its fair market value, the making of a DisqualifyingDisposition (as defined in paragraph 0), the vesting or transfer of restrictedstock or securities acquired on the exercise of an Option or SAR hereunder, orthe making of a distribution or other payment with respect to such stock orsecurities, the Company may withhold taxes in respect of amounts thatconstitute compensation includible in gross income. The Committee in itsdiscretion may condition (i) the exercise of an Option, (ii) the transfer of aNon-Qualified Option, (iii) the grant of an Award, (iv) the exercise of a SAR,(v) the making of a Purchase of Common Stock for less than its fair marketvalue, or (vi) the vesting or transferability of restricted stock or securitiesacquired by exercising an Option or SAR, on the optionee’s or grantee’s makingsatisfactory arrangements for such withholding. Such arrangements may include payment by the optionee or grantee in cashor by check of the amount of the withholding taxes or, at the discretion of theCommittee, by the optionee’s or grantee’s delivery of previously held shares ofCommon

 

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Stock or the withholding from the shares of Common Stock otherwisedeliverable upon exercise of a Option or SAR shares having an aggregate fair marketvalue equal to the amount of such withholding taxes.

 

GOVERNMENTAL REGULATION.  The Company’s obligation to sell and delivershares of the Common Stock under this Plan is subject to the approval of anygovernmental authority required in connection with the authorization, issuanceor sale of such shares.

 

Government regulations may impose reporting or other obligations on theCompany with respect to the Plan.  Forexample, the Company may be required to send tax information statements toemployees and former employees that exercise ISOs under the Plan, and theCompany may be required to file tax information returns reporting the incomereceived by optionees of Options in connection with the Plan.

 

GOVERNING LAW. The validity and construction of the Plan and the instruments evidencingStock Rights shall be governed by the laws of Delaware, or the laws of anyjurisdiction in which the Company or its successors in interest may beorganized.

 

CODE SECTION 409A. To the extent applicable, it is intended that this Plan and any Options,SARs and Awards granted and Purchases made hereunder comply with therequirements of Section 409A of the Code, and any related regulations or otherguidance promulgated with respect to such Section by the U.S. Department of theTreasury or the Internal Revenue Service (“Section 409A”).  Any provision that would cause the Plan orany Options, SARs and Awards granted or Purchases made hereunder to fail tosatisfy Section 409A shall have no force or effect until amended to comply withSection 409A, which amendment may be retroactive to the extent permitted bySection 409A.

 

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Register of Amendments to 1998 Stock Plan

 
| **Date**          | ** ** | **Section  Affected** | ** ** | **Change**                                                                                                                                                                                                                |
|-------------------|------------|-----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| February 29, 2000 |       | 4                     |       | Adjusted to reflect 3-for-2 stock  split.                                                                                                                                                                                 |
| January 30, 2003  |       |                  |       | Stockholders voted to increase the  number of shares available for grant under the Plan from 1,250,000 to  1,650,000 and amended and restated the Plan (as the Amended and Restated 1998  Stock Plan) to accomplish same. |
| January 29, 2004  |       | 4                     |       | Stockholders voted to increase the  number of shares available for grant under the Plan from 1,650,000 to  2,650,000.                                                                                                     |
| October 17, 2004  |       | 4                     |       | Adjusted to reflect 2-for-1 stock  split.                                                                                                                                                                                 |
| October 5, 2005   |       | All                   |       | Completely amended and restated the  Plan (as the Second Amended and Restated 1998 Stock Plan) to add SARs.                                                                                                               |

 

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