Exhibit 10.1


 


AMENDMENT AND
RESTATEMENT OF 

THE 2001 INCENTIVE AWARD PLAN OF

WATSON PHARMACEUTICALS, INC.


 


Watson
Pharmaceuticals, Inc., a Nevada corporation,
adopted the 2001 Incentive Award Plan of Watson Pharmaceuticals, Inc. (the
“Plan”), effective as of February 12, 2001 (the “Effective Date”),
for the benefit of its eligible Employees, Consultants and Directors.  The Plan was subsequently amended effective as
of May 16, 2001, May 19, 2003, and August 4, 2003.


 


The
Plan is hereby amended and restated in its entirety to provide for certain
additional types of awards to eligible Employees, Consultants and Directors.  This amendment and restatement of the Plan is
effective as of May 13, 2005, subject to the approval of this amendment
and restatement of the Plan by the stockholders of the Company.  Awards authorized under this amendment and
restatement of the Plan that were not authorized under the Plan (as in effect
prior to this amendment and restatement) shall not be granted unless and until
this amendment and restatement of the Plan is so approved.  If this amendment and restatement of the Plan
is not so approved, this amendment and restatement of the Plan shall be null
and void and of no further force and effect, and the Plan (as in effect prior
to such amendment and restatement) shall continue in full force and effect in
accordance with the terms and conditions thereof.


 


The
purposes of the Plan are as follows:


 


(1)                                  To
provide an additional incentive for Directors, key Employees and Consultants
(as such terms are defined below) to further the growth, development and
financial success of the Company by personally benefiting through the ownership
of Company stock and/or rights which recognize such growth, development and
financial success.


 


(2)                                  To
enable the Company to obtain and retain the services of Directors, key
Employees and Consultants considered essential to the long range success of the
Company by offering them an opportunity to own stock in the Company and/or
rights which will reflect the growth, development and financial success of the
Company.


 


ARTICLE I.



DEFINITIONS


 


Wherever
the following terms are used in the Plan they shall have the meanings specified
below, unless the context clearly indicates otherwise.  The singular pronoun shall include the plural
where the context so indicates.


 


1.1.                              “Administrator”
shall mean the entity that conducts the general administration of the Plan as
provided herein.  With reference to the
administration of the Plan with respect to Awards granted to Independent Directors,
the term “Administrator” shall refer to the Board.  With reference to the administration of the
Plan with respect to any other Award, the term “Administrator” shall refer to
the Committee unless the Board has assumed the authority for administration of
the Plan generally as provided in Section 11.1.  With reference to the duties of


 


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the Committee under the
Plan which have been delegated to one or more persons pursuant to Section 11.5,
the term “Administrator” shall refer to such person(s) unless the Committee or
the Board has revoked such delegation.


 


1.2.                              “Award”
shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award,  a Dividend Equivalents award, a Deferred
Stock award, a Stock Payment award or a Stock Appreciation Right, which may be
awarded or granted under the Plan (collectively, “Awards”).


 


1.3.                              “Award
Agreement” shall mean a written agreement executed by an authorized officer
of the Company and the Holder which shall contain such terms and conditions
with respect to an Award as the Administrator shall determine, consistent with
the Plan.


 


1.4.                              “Award
Limit” shall mean five hundred
thousand (500,000) shares of Common Stock, as
adjusted pursuant to Section 12.3.


 


1.5.                              “Board”
shall mean the Board of Directors of the Company.


 


1.6.                              “Change
in Control” shall mean the occurrence of any of the following:


 


(a)                                  a
sale of assets representing fifty percent (50%) or more of the net book value
and of the fair market value of the Company’s consolidated assets (in a single
transaction or in a series of related transactions);


 


(b)                                 a
liquidation or dissolution of the Company;


 


(c)                                  a
merger or consolidation involving the Company or any subsidiary of the Company
after the completion of which:  (i) in
the case of a merger (other than a triangular merger) or a consolidation
involving the Company, the stockholders of the Company immediately prior to the
completion of such merger or consolidation beneficially own (within the meaning
of Rule 13d-3 promulgated under the Exchange Act, or comparable successor
rules), directly or indirectly, outstanding voting securities representing less
than sixty percent (60%) of the combined voting power of the surviving entity
in such merger or consolidation, and (ii) in the case of a triangular
merger involving the Company or a subsidiary of the Company, the stockholders
of the Company immediately prior to the completion of such merger beneficially
own (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rules), directly or indirectly, outstanding voting
securities representing less than sixty percent (60%) of the combined voting
power of the surviving entity in such merger and less than sixty percent (60%)
of the combined voting power of the parent of the surviving entity in such
merger;


 


(d)                                 an
acquisition by any person, entity or “group” (within the meaning of Section 13(d) or
14(d) of the Exchange Act or any comparable successor provisions), other
than any employee benefit plan, or related trust, sponsored or maintained by
the Company or an affiliate of the Company and other than in a merger or
consolidation of the type referred to in subsection (c), of beneficial
ownership (within the


 


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meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rules) of
outstanding voting securities of the Company representing more than thirty
percent (30%) of the combined voting power of the Company (in a single transaction
or series of related transactions); or


 


(e)                                  in
the event that the individuals who, as of the Effective Date, are members of
the Board (the “Incumbent Board”), cease for any reason to constitute at
least fifty percent (50%) of the Board; provided, that if the election,
or nomination for election by the Company’s stockholders, of any new member of
the Board is approved by a vote of at least fifty percent (50%) of the
Incumbent Board, such new member of the Board shall be considered as a member
of the Incumbent Board.


 


1.7.                              “Code”
shall mean the Internal Revenue Code of 1986, as amended.


 


1.8.                              “Committee”
shall mean the Compensation Committee of the Board, or another committee or
subcommittee of the Board, appointed as provided in Section 11.1.


 


1.9.                              “Common
Stock” shall mean the common stock of the Company, par value $0.0033 per
share.


 


1.10.                        “Company”
shall mean Watson Pharmaceuticals, Inc., a Nevada corporation.


 


1.11.                        “Consultant”
shall mean any consultant or adviser if: 
(a) the consultant or adviser renders bona fide services to the
Company; (b) the services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market for
the Company’s securities; and (c) the consultant or adviser is a natural
person who has contracted directly with the Company to render such services.


 


1.12.                        “Deferred
Stock” shall mean rights to receive Common Stock awarded under Section 8.4
of the Plan.


 


1.13.                        “Director”
shall mean a member of the Board.


 


1.14.                        “Dividend
Equivalent” shall mean a right to receive the equivalent value (in cash or
Common Stock) of dividends paid on Common Stock, awarded under Section 8.2
of the Plan.


 


1.15.                        “DRO”
shall mean a domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.


 


1.16.                        “Employee”
shall mean any officer or other employee (as defined in accordance with Section 3401(c) of
the Code) of the Company, or of any corporation which is a Subsidiary.


 


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1.17.                        “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.


 


1.18.                        “Fair
Market Value” of a share of Common Stock as of a given date shall be:  (a) the closing price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares
were not traded on the trading day previous to such date, then on the next
preceding date on which a trade occurred, or (b) if Common Stock is not
traded on an exchange but is quoted on Nasdaq or a successor quotation system,
the mean between the closing representative bid and asked prices for the Common
Stock on the trading day previous to such date as reported by Nasdaq or such
successor quotation system, or (c) if Common Stock is not publicly traded
on an exchange and not quoted on Nasdaq or a successor quotation system, the fair
market value of a share of Common Stock as established by the Administrator
acting in good faith.


 


1.19.                        “Holder”
shall mean a person who has been granted or awarded an Award.


 


1.20.                        “Incentive
Stock Option” shall mean an option which conforms to the applicable
provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.


 


1.21.                        “Independent
Director” shall mean a member of the Board who is not an Employee.


 


1.22.                        “Non-Qualified
Stock Option” shall mean an Option which is not designated as an Incentive
Stock Option by the Administrator.


 


1.23.                        “Option”
shall mean a stock option granted under Article IV of the Plan.  An Option granted under the Plan shall, as
determined by the Administrator, be either a Non-Qualified Stock Option or an
Incentive Stock Option; provided, however, that Options granted
to Independent Directors and Consultants shall be Non-Qualified Stock Options.


 


1.24.                        “Performance
Criteria” shall mean any one or more of the following business criteria
with respect to the Company, any Subsidiary or any division or operating unit
thereof:  (a) revenue or sales, (b) net
income, (c) pre-tax income, (d) operating income, (e) cash flow,
(f) earnings per share, (g) return on equity, (h) return on
invested capital or assets, (i) cost reductions or savings, (j) funds from
operations, (k) appreciation in the Fair Market Value of Common Stock, or (l)
earnings before any one or more of the following:  (i) interest, (ii) taxes, (iii) depreciation
or (iv) amortization, each as determined in accordance with generally
accepted accounting principles.


 


1.25.                        “Plan”
shall mean the 2001 Incentive Award Plan of Watson Pharmaceuticals, Inc.,
as amended.


 


1.26.                        “Restricted
Stock” shall mean Common Stock awarded under Article VII of the Plan.


 


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1.27.                        “Restricted
Stock Units” shall mean rights to receive Common Stock awarded under Section 8.5
of the Plan.


 


1.28.                        “Rule 16b-3”
shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may
be amended from time to time.


 


1.29.                        “Section 162(m)
Participant” shall mean any key Employee designated by the Administrator as
a key Employee whose compensation for the fiscal year in which the key Employee
is so designated or a future fiscal year may be subject to the limit on
deductible compensation imposed by Section 162(m) of the Code.


 


1.30.                        “Securities
Act” shall mean the Securities Act of 1933, as amended.


 


1.31.                        “Stock
Appreciation Right” shall mean a stock appreciation right granted under Article IX
of the Plan.


 


1.32.                        “Stock
Payment” shall mean:  (a) a
payment in the form of shares of Common Stock, or (b) an option or other
right to purchase shares of Common Stock, as part of a deferred compensation
arrangement, made in lieu of all or any portion of the compensation, including
without limitation, salary, bonuses and commissions, that otherwise would
become payable to a key Employee, Independent Director or Consultant in cash,
awarded under Section 8.3 of the Plan.


 


1.33.                        “Subsidiary”
shall mean any corporation in an unbroken chain of corporations beginning with
the Company if each of the corporations other than the last corporation in the
unbroken chain then owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.


 


1.34.                        “Substitute
Award” shall mean an Option granted under this Plan upon the assumption of,
or in substitution for, outstanding equity awards previously granted by a
company or other entity in connection with a corporate transaction, such as a
merger, combination, consolidation or acquisition of property or stock; provided,
however, that in no event shall the term “Substitute Award” be construed
to refer to an award made in connection with the cancellation and repricing of
an Option.


 


1.35.                        “Termination
of Consultancy” shall mean the time when the engagement of a Holder as a
Consultant to the Company or a Subsidiary is terminated for any reason, with or
without cause, including, but not by way of limitation, by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary, or
any parent thereof.  The Administrator,
in its absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Consultancy, including, but not by way of
limitation, the question of whether a Termination of Consultancy resulted from
a discharge for good cause, and all questions of whether a particular leave of
absence constitutes a Termination of Consultancy.  Notwithstanding any other provision of the
Plan, the Company or any Subsidiary has an absolute and unrestricted right to
terminate a Consultant’s service at any time for any reason whatsoever, with or
without cause, except to the extent expressly provided otherwise in writing.


 


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1.36.                        “Termination
of Directorship” shall mean the time when a Holder who is an Independent
Director ceases to be a Director for any reason, including, but not by way of
limitation, a termination by resignation, removal, failure to be elected, death
or retirement.  The Board, in its sole
and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.


 


1.37.                        “Termination
of Employment” shall mean the time when the employee-employer relationship
between a Holder and the Company or any Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding:  (a) terminations where
there is a simultaneous reemployment or continuing employment of a Holder by
the Company or any Subsidiary, or any parent thereof, (b) at the
discretion of the Administrator, terminations which result in a temporary severance
of the employee-employer relationship, and (c) at the discretion of the
Administrator, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary, or
any parent thereof, with the former employee. 
The Administrator, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Employment; provided,
however, that, with respect to Incentive Stock Options, unless otherwise
determined by the Administrator in its discretion, a leave of absence, change
in status from an employee to an independent contractor or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the
Code and the then applicable regulations and revenue rulings under said
Section.


 


ARTICLE II.



SHARES SUBJECT TO PLAN


 


2.1.                              Shares
Subject to Plan.


 


(a)                                  The
shares of stock subject to Awards shall be Common Stock, initially shares of
the Company’s Common Stock.  Subject to
adjustment as provided in Section 12.3, the aggregate number of such
shares of Common Stock which may be issued pursuant to Awards under the Plan
shall not exceed fourteen million (14,000,000) shares.  Subject to adjustment as provided in Section 12.3,
the aggregate number of shares of Common Stock which may be issued pursuant to Restricted
Stock awards, Restricted Stock Unit awards, Dividend Equivalent awards,
Deferred Stock awards, or Stock Payment awards shall not exceed one million
(1,000,000) shares.  The shares of Common
Stock issuable upon exercise of such Options or rights or upon any such Awards
may be either previously authorized but unissued shares or treasury shares.


 


(b)                                 The
maximum number of shares which may be subject to Awards granted under the Plan
to any individual in any fiscal year of the
Company shall not exceed the


 


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Award Limit.  To the extent required by Section 162(m)
of the Code, shares subject to Awards which are canceled continue to be counted
against the Award Limit.


 


2.2.                              Add-Back
of Options and Other Rights.  If any
Option, or other right to acquire shares of Common Stock under any other Award
under the Plan, expires or is canceled without having been fully exercised, or
is exercised in whole or in part for cash as permitted by the Plan, the number
of shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1.  Furthermore, any
shares subject to Awards which are adjusted pursuant to Section 12.3 and
become exercisable with respect to shares of stock of another corporation shall
be considered cancelled and may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1.   Shares of Common Stock which are delivered
by the Holder in payment of the exercise price thereof or tax withholding
thereon, may again be optioned, granted or awarded hereunder, subject to the
limitations of Section 2.1.  If any
shares of Restricted Stock are surrendered by the Holder or repurchased by the
Company pursuant to Section 7.4 or 7.5 hereof, such shares may again be
optioned, granted or awarded hereunder, subject to the limitations of Section 2.1.  Notwithstanding the provisions of this Section 2.2,
no shares of Common Stock may again be optioned, granted or awarded if such
action would cause an Incentive Stock Option to fail to qualify as an incentive
stock option under Section 422 of the Code.


 


ARTICLE III.



GRANTING OF AWARDS


 


3.1.                              Award
Agreement.  Each Award shall be
evidenced by an Award Agreement.  Award
Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
contain such terms and conditions as may be necessary to meet the applicable
provisions of Section 162(m) of the Code. Award Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 422 of the Code.


 


3.2.                              Provisions
Applicable to Section 162(m) Participants.


 


(a)                                  The
Committee, in its discretion, may determine whether an Award is to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code.


 


(b)                                 Notwithstanding
anything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m)
Participant, including a Restricted Stock award, a Restricted Stock Unit award,
a Dividend Equivalent award, a Deferred Stock award or a Stock Payment award, the
restrictions with respect to which lapse upon the attainment of performance
goals which are related to one or more of the Performance Criteria and any Award
described in Article VIII that vests or becomes exercisable or payable
upon the attainment of performance goals which are related to one or more of
the Performance Criteria.


 


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(c)                                  To
the extent necessary to comply with the performance-based compensation
requirements of Section 162(m)(4)(C) of the Code, with respect to any
Award granted under Articles VII and VIII which may be granted to one or more Section 162(m)
Participants, no later than ninety (90) days following the commencement of any
fiscal year in question or any other designated fiscal period or period of
service (or such other time as may be required or permitted by Section 162(m)
of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the Performance Criteria applicable to the
fiscal year or other designated fiscal period or period of service, (iii) establish
the various performance targets, in terms of an objective formula or standard,
and amounts of such Awards, as applicable, which may be earned for such fiscal
year or other designated fiscal period or period of service, and (iv) specify
the relationship between Performance Criteria and the performance targets and
the amounts of such Awards, as applicable, to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period or period of
service.  Following the completion of
each fiscal year or other designated fiscal period or period of service, the
Committee shall certify in writing whether the applicable performance targets
have been achieved for such fiscal year or other designated fiscal period or
period of service.  In determining the
amount earned by a Section 162(m) Participant, the Committee shall have
the right to reduce (but not to increase) the amount payable at a given level
of performance to take into account additional factors that the Committee may
deem relevant to the assessment of individual or corporate performance for the
fiscal year or other designated fiscal period or period of service.


 


(d)                                 Furthermore,
notwithstanding any other provision of the Plan, any Award which is granted to
a Section 162(m) Participant and is intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code shall be subject to any additional limitations set forth in Section 162(m)
of the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section 162(m)(4)(C) of
the Code, and the Plan shall be deemed amended to the extent necessary to conform
to such requirements.


 


3.3.                              Limitations
Applicable to Section 16 Persons. 
Notwithstanding any other provision of the Plan, the Plan, and any Award
granted or awarded to any individual who is then subject to Section 16 of
the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act) that are
requirements for the application of such exemptive rule.  To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule.


 


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3.4.                              Consideration.  In consideration of the granting of an Award
under the Plan, the Holder shall agree, in the Award Agreement, to remain in
the employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year (or
such shorter period as may be fixed in the Award Agreement or by action of the
Administrator following grant of the Award) after the Award is granted (or, in
the case of an Independent Director, until the next annual meeting of
stockholders of the Company).


 


3.5.                              At-Will
Employment.  Nothing in the Plan or
in any Award Agreement hereunder shall confer upon any Holder any right to
continue in the employ of, or as a Consultant for, the Company or any
Subsidiary, or as a Director of the Company, or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge any Holder at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided otherwise
in a written employment agreement between the Holder and the Company and any
Subsidiary.


 


ARTICLE IV.



GRANTING OF OPTIONS TO EMPLOYEES,

CONSULTANTS AND INDEPENDENT DIRECTORS


 


4.1.                              Eligibility.  Any Employee or Consultant selected by the Administrator
pursuant to Section 4.4(a)(i) shall be eligible to be granted an
Option.  Each Independent Director of the
Company shall be eligible to be granted Options at the times and in the manner
set forth in Section 4.5.


 


4.2.                              Disqualification
for Stock Ownership.  No person may
be granted an Incentive Stock Option under the Plan if such person, at the time
the Incentive Stock Option is granted, owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section 422
of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.


 


4.3.                              Qualification
of Incentive Stock Options.  No
Incentive Stock Option shall be granted to any person who is not an Employee.


 


4.4.                              Granting
of Options to Employees and Consultants.


 


(a)                                  The
Administrator shall from time to time, in its absolute discretion, and, subject
to applicable limitations of the Plan:


 


(i)                                     Determine
which Employees are key Employees and select from among the key Employees or
Consultants (including Employees or Consultants who have previously received
Awards under the Plan) such of them as in its opinion should be granted
Options;


 


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(ii)                                  Subject
to the Award Limit, determine the number of shares to be subject to such
Options granted to the selected key Employees or Consultants;


 


(iii)                               Subject
to Section 4.3, determine whether such Options are to be Incentive Stock
Options or Non-Qualified Stock Options and whether such Options are to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of
the Code; and


 


(iv)                              Determine
the terms and conditions of such Options, consistent with the Plan; provided,
however, that the terms and conditions of Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code shall include, but not be limited to, such terms and conditions as may
be necessary to meet the applicable provisions of Section 162(m) of the
Code.


 


(b)                                 Upon
the selection of a key Employee or Consultant to be granted an Option, the Administrator
shall instruct the Secretary of the Company to issue the Option and may impose
such conditions on the grant of the Option as it deems appropriate.


 


(c)                                  Any
Incentive Stock Option granted under the Plan may be modified by the Administrator,
with the consent of the Holder, to disqualify such Option from treatment as an “incentive
stock option” under Section 422 of the Code.


 


4.5.                              Granting
of Options to Independent Directors. 
The Board shall from time to time, in its absolute discretion, and
subject to applicable limitations of the Plan:


 


(a)                                  Select
from among the Independent Directors (including Independent Directors who have
previously received Options under the Plan) such of them as in its opinion
should be granted Options;


 


(b)                                 Subject
to the Award Limit, determine the number of shares to be subject to such
Options granted to the selected Independent Directors; and


 


(c)                                  Determine
the terms and conditions of such Options, consistent with the Plan.


 


All
the foregoing Option grants authorized by this Section 4.5 are subject to
stockholder approval of the Plan.


 


4.6.                              Options
in Lieu of Cash Compensation. 
Options may be granted under the Plan to Employees and Consultants in
lieu of cash bonuses which would otherwise be payable to such Employees and
Consultants, and to Independent Directors in lieu of directors’ fees which
would otherwise be payable to such Independent Directors, pursuant to such
policies which may be adopted by the Administrator from time to time.


 


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ARTICLE V.



TERMS OF OPTIONS


 


5.1.                              Option
Price.  The price per share of the shares
subject to each Option granted to Employees, Independent Directors and
Consultants shall be set by the Administrator; provided, however,
that:


 


(a)                                  In
the case of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not
be less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted;


 


(b)                                 In
the case of Incentive Stock Options such price shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for purposes
of Section 424(h) of the Code);


 


(c)                                  In
the case of Incentive Stock Options granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422
of the Code), such price shall not be less than 110% of the Fair Market Value
of a share of Common Stock on the date the Option is granted (or the date the
Option is modified, extended or renewed for purposes of Section 424(h) of
the Code); and


 


(d)                                 In
the case of Non-Qualified Stock Options, such price shall not be less than 100%
of the Fair Market Value of a share of Common Stock on the date the Option is
granted.


 


5.2.                              Option
Term.  The term of an Option granted
to an Employee, Independent Director or Consultant shall be set by the Administrator
in its discretion; provided, however, that, in the case of
Incentive Stock Options, the term shall not be more than ten (10) years
from the date the Incentive Stock Option is granted, or five (5) years
from the date the Incentive Stock Option is granted if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within
the meaning of Section 422 of the Code). 
Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the Administrator
may extend the term of any outstanding Option in connection with any
Termination of Employment, Termination of Directorship or Termination of
Consultancy of the Holder, or amend any other term or condition of such Option
relating to such a Termination of Employment, Termination of Directorship or
Termination of Consultancy.


 


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5.3.                              Option
Vesting.


 


(a)                                  The
period during which the right to exercise, in whole or in part, an Option
granted to an Employee, Independent Director or a Consultant vests in the Holder
shall be set by the Administrator and the Administrator may determine that an
Option may not be exercised in whole or in part for a specified period after it
is granted; provided, however, that, unless the Administrator otherwise
provides in the terms of the Award Agreement or otherwise, no Option shall be
exercisable by any Holder who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted.  At any time after
grant of an Option, the Administrator may, in its sole and absolute discretion
and subject to whatever terms and conditions it selects, accelerate the period
during which an Option granted to an Employee, Independent Director or
Consultant vests.


 


(b)                                 No
portion of an Option granted to an Employee, Independent Director or Consultant
which is unexercisable at Termination of Employment, Termination of
Directorship or Termination of Consultancy, as applicable, shall thereafter
become exercisable, except as may be otherwise provided by the Administrator either
in the Award Agreement or by action of the Administrator following the grant of
the Option.


 


(c)                                  To
the extent that the aggregate fair market value of stock with respect to which “incentive
stock options” (within the meaning of Section 422 of the Code, but without
regard to Section 422(d) of the Code) are exercisable for the first
time by a Holder during any calendar year under the Plan, and all other plans
of the Company and any Subsidiary or parent corporation thereof, within the
meaning of Section 424 of the Code, exceeds $100,000, the Options shall be
treated as Non-Qualified Stock Options to the extent required by Section 422
of the Code.  The rule set forth in
the preceding sentence shall be applied by taking Options and other “incentive
stock options” into account in the order in which they were granted.  For purposes of this Section 5.3(c), the
fair market value of stock shall be determined as of the time the Option or
other “incentive stock options” with respect to such stock is granted.


 


5.4.                              Substitute
Awards.  Notwithstanding the
foregoing provisions of this Article V to the contrary, in the case of an
Option that is a Substitute Award, the price per share of the shares subject to
such Option may be less than the Fair Market Value per share on the date of
grant, provided, that the excess of: 
(a) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award, over (b) the
aggregate exercise price thereof, does not exceed the excess of:  (c) the aggregate fair market value (as
of the time immediately preceding the transaction giving rise to the Substitute
Award, such fair market value to be determined by the Committee) of the shares
of the predecessor entity that were subject to the grant assumed or substituted
for by the Company, over (d) the aggregate exercise price of such shares.


 


5.5.                              Substitution
of Stock Appreciation Rights.  The
Administrator may provide in the Award Agreement evidencing the grant of an
Option that the Administrator, in its sole discretion, shall have the right to
substitute a Stock Appreciation Right for such Option at any time prior to or
upon exercise of such Option, subject to the provisions of Section 9.2; provided,
that such Stock Appreciation Right shall be exercisable with respect to the
same number of


 


12





















 


shares of Common Stock
for which such substituted Option would have been exercisable and at the Option
exercise price per share.


 


ARTICLE VI.



EXERCISE OF OPTIONS


 


6.1.                              Partial
Exercise.  An exercisable Option may
be exercised in whole or in part. 
However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.


 


6.2.                              Manner
of Exercise.  All or a portion of an
exercisable Option shall be deemed exercised upon delivery of all of the
following to the Secretary of the Company, or such other person or entity
designated by the Board, or his, her or its office, as applicable:


 


(a)                                  A
written notice complying with the applicable rules established by the
Administrator stating that the Option, or a portion thereof, is exercised.  The notice shall be signed by the Holder or
other person then entitled to exercise the Option or such portion of the
Option;


 


(b)                                 Such
representations and documents as the Administrator, in its absolute discretion,
deems necessary or advisable to effect compliance with all applicable
provisions of the Securities Act and any other federal or state securities laws
or regulations.  The Administrator may,
in its absolute discretion, also take whatever additional actions it deems appropriate
to effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer notices to agents and registrars;


 


(c)                                  In
the event that the Option shall be exercised pursuant to Section 12.1 by
any person or persons other than the Holder, appropriate proof of the right of
such person or persons to exercise the Option; and


 


(d)                                 Full
cash payment to the Secretary of the Company for the shares with respect to
which the Option, or portion thereof, is exercised.  However, the Administrator may, in its
discretion, (i)  allow payment, in whole or in part, through the delivery
of shares of Common Stock which have been owned by the Holder for at least six
months, duly endorsed for transfer to the Company with a Fair Market Value on
the date of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof; (ii) allow payment, in whole or in part,
through the surrender of shares of Common Stock then issuable upon exercise of
the Option having a Fair Market Value on the date of Option exercise equal to
the aggregate exercise price of the Option or exercised portion thereof; (iii) allow
payment, in whole or in part, through the delivery of property of any kind
which constitutes good and valuable consideration; (iv) allow payment, in
whole or in part, through the delivery of a notice that the Holder has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable


 


13





















 


upon
exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price, provided, that payment of
such proceeds is then made to the Company upon settlement of such sale; or (v) allow
payment through any combination of the consideration provided in the foregoing
paragraphs (i), (ii), (iii) and (iv); provided, however,
that the payment in the manner prescribed in the preceding paragraphs shall not
be permitted to the extent that the Administrator determines that payment in
such manner shall result in an extension or maintenance of credit, an
arrangement for the extension of credit, or a renewal or an extension of credit
in the form of a personal loan to or for any Director or executive officer of
the Company that is prohibited by Section 13(k) of the Exchange Act or
other applicable law.


 


6.3.                              Conditions
to Issuance of Stock Certificates.  The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:


 


(a)                                  The
admission of such shares to listing on all stock exchanges on which such class
of stock is then listed;


 


(b)                                 The
completion of any registration or other qualification of such shares under any
state or federal law, or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body which the
Administrator shall, in its absolute discretion, deem necessary or advisable;


 


(c)                                  The
obtaining of any approval or other clearance from any state or federal
governmental agency which the Administrator shall, in its absolute discretion,
determine to be necessary or advisable;


 


(d)                                 The
lapse of such reasonable period of time following the exercise of the Option as
the Administrator may establish from time to time for reasons of administrative
convenience; and


 


(e)                                  The
receipt by the Company of full payment for such shares, including payment of
any applicable withholding tax, which in the discretion of the Administrator
may be in the form of consideration used by the Holder to pay for such shares
under Section 6.2(d).


 


6.4.                              Rights
as Stockholders.  Holders shall not
be, nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such Holders.


 


6.5.                              Ownership
and Transfer Restrictions.  The
Administrator, in its absolute discretion, may impose such restrictions on the
ownership and transferability of the shares purchasable upon the exercise of an
Option as it deems appropriate.  Any such
restriction shall be set forth in the respective Award Agreement and may be
referred to on the certificates evidencing such shares.  The Holder shall give the Company prompt
notice of any disposition of


 


14





















 


shares of Common Stock
acquired by exercise of an Incentive Stock Option within (a) two years
from the date of granting (including the date the Option is modified, extended
or renewed for purposes of Section 424(h) of the Code) such Option to
such Holder, or (b) one year after the transfer of such shares to such
Holder.


 


6.6.                              Additional
Limitations on Exercise of Options.  Holders
may be required to comply with any timing or other restrictions with respect to
the settlement or exercise of an Option, including a window-period limitation,
as may be imposed in the discretion of the Administrator.


 


ARTICLE VII.



AWARD OF RESTRICTED STOCK


 


7.1.                              Eligibility.  Subject to the Award Limit, Restricted Stock
may be awarded to any Employee whom the Administrator determines is a key
Employee, or any Independent Director or any Consultant, whom the Administrator
determines should receive such an Award.


 


7.2.                              Award
of Restricted Stock.


 


(a)                                  The
Administrator may from time to time, in its absolute discretion:


 


(i)                                     Determine
which Employees are key Employees, and select from among the key Employees,
Independent Directors or Consultants (including Employees, Independent
Directors or Consultants who have previously received other Awards under the
Plan) such of them as in its opinion should be awarded Restricted Stock; and


 


(ii)                                  Determine
the purchase price, if any, and other terms and conditions applicable to such
Restricted Stock, consistent with the Plan.


 


(b)                                 The
Administrator shall establish the purchase price, if any, and form of payment
for Restricted Stock; provided, however, that such purchase price
shall be no less than the par value of the Common Stock to be purchased, unless
otherwise permitted by applicable state law. 
In all cases, legal consideration shall be required for each issuance of
Restricted Stock.


 


(c)                                  Upon
the selection of an Employee, Independent Director or Consultant to be awarded
Restricted Stock, the Administrator shall instruct the Secretary of the Company
to issue such Restricted Stock and may impose such conditions on the issuance
of such Restricted Stock as it deems appropriate.


 


7.3.                              Rights
as Stockholders.  Subject to Section 7.4,
upon delivery of the shares of Restricted Stock to the escrow holder pursuant
to Section 7.7, the Holder shall have, unless otherwise provided by the Administrator,
all the rights of a stockholder with respect to said shares, subject to the
restrictions in his or her Award Agreement, including the right to


 


15





















 


receive all dividends and
other distributions paid or made with respect to the shares; provided, however,
that, in the discretion of the Administrator, any dividends or distributions
with respect to the Common Stock shall be subject to the restrictions set forth
in Section 7.4.


 


7.4.                              Restriction.  All shares of Restricted Stock issued under
the Plan (including any shares received by Holders thereof with respect to
shares of Restricted Stock as a result of stock dividends, stock splits or any
other form of recapitalization) shall, in the terms of each individual Award
Agreement, be subject to such restrictions as the Administrator shall provide,
which restrictions may include, without limitation, restrictions concerning
voting rights and transferability and restrictions based on duration of
employment, directorship or consultancy with the Company, or any Subsidiary, or
any parent thereof, Company performance and individual performance, or any one
or more of the Performance Criteria or other specific performance criteria
determined appropriate by the Administrator; provided, however,
that, unless the Administrator otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person
subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued; and, provided, further,
that, except with respect to shares of Restricted Stock granted to Section 162(m)
Participants, by action taken after the Restricted Stock is issued, the Administrator
may, on such terms and conditions as it may determine to be appropriate, remove
any or all of the restrictions imposed by the terms of the Award
Agreement.  Restricted Stock may not be
sold or encumbered until all restrictions are terminated or expire.  If no consideration was paid by the Holder
upon issuance, a Holder’s rights in unvested Restricted Stock shall lapse, and
such Restricted Stock shall be surrendered to the Company without consideration,
upon Termination of Employment, Termination of Directorship, or Termination of
Consultancy, as applicable; provided, however, that the Administrator
in its sole and absolute discretion may provide that such rights shall not
lapse in the event of a Termination of Employment, Termination of Directorship
or Termination of Consultancy, as applicable, following a “change of ownership
or control” (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Holder’s
death or disability; and, provided, further, except with respect
to shares of Restricted Stock granted to Section 162(m) Participants that
is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of
the Code, the Administrator in its sole and absolute discretion may provide
that no such lapse or surrender shall occur in the event of a Termination of
Employment, Termination of Directorship, or Termination of Consultancy,  as applicable, without cause or following any
Change in Control or because of the Holder’s
retirement, or otherwise.


 


7.5.                              Repurchase
of Restricted Stock.  The Administrator
shall provide in the terms of each individual Award Agreement that the Company
shall have the right to repurchase from the Holder the Restricted Stock then
subject to restrictions under the Award Agreement immediately upon a
Termination of Employment, Termination of Directorship, or Termination of
Consultancy, as applicable, at a cash price per share equal to the price paid
by the Holder for such Restricted Stock; provided, however, that
the Administrator in its sole and absolute discretion may provide that no such
right of repurchase shall exist in the event of a Termination of Employment,
Termination of Directorship or Termination of Consultancy, as applicable,
following a “change of ownership or control” (within the meaning of Treasury
Regulation


 


16





















 


Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Holder’s
death or disability; and, provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m)
Participants that is intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, the Administrator in
its sole and absolute discretion may provide that no such right of repurchase
shall exist in the event of a Termination of Employment, Termination of
Directorship, or Termination of Consultancy, as applicable, without cause or
following any Change in Control or because of the Holder’s retirement, or
otherwise.


 


7.6.                              Escrow.  The Secretary of the Company or such other
escrow holder as the Administrator may appoint shall retain physical custody of
each certificate representing Restricted Stock until all of the restrictions
imposed under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.


 


7.7.                              Legend.  In order to enforce the restrictions imposed
upon shares of Restricted Stock hereunder, the Administrator shall cause a
legend or legends to be placed on certificates representing all shares of
Restricted Stock that are still subject to restrictions under Award Agreements,
which legend or legends shall make appropriate reference to the conditions
imposed thereby.


 


7.8.                              Section 83(b) Election.  If a Holder makes an election under Section 83(b) of
the Code, or any successor section thereto, to be taxed with respect to
the Restricted Stock as of the date of transfer of the Restricted Stock rather
than as of the date or dates upon which the Holder would otherwise be taxable
under Section 83(a) of the Code, the Holder shall deliver a copy of
such election to the Company immediately after filing such election with the
Internal Revenue Service.


 


ARTICLE VIII.



DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS, RESTRICTED STOCK UNITS


 


8.1.                              Eligibility.  Subject to the Award Limit, one or more Dividend
Equivalent awards, Deferred Stock awards, Stock Payment awards, and/or
Restricted Stock Unit awards may be granted to any Employee whom the Administrator
determines is a key Employee, or any Independent Director or any Consultant,
whom the Administrator determines should receive such an Award.


 


8.2.                              Dividend
Equivalents.  


 


(a)                                  Any
key Employee, Independent Director or Consultant selected by the Administrator may
be granted Dividend Equivalents based on the dividends declared on the Common
Stock, to be credited as of dividend payment dates, during the period between
the date a Stock Appreciation Right, Deferred Stock award, or Restricted Stock
Unit award is granted, and the date such Stock Appreciation Right, Deferred
Stock award, or Restricted Stock Unit award vests, is exercised, is distributed,
terminates or expires, as determined by the


 


17





















 


Administrator.  Such Dividend Equivalents shall be converted
to cash or additional shares of Common Stock by such formula and at such time
and subject to such limitations as may be determined by the Administrator.


 


(b)                                 Any
Holder of an Option who is an Employee, Independent Director or Consultant
selected by the Administrator may be granted Dividend Equivalents based on the
dividends declared on the Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the date
such Option vests, is exercised, terminates or expires, as determined by the Administrator.  Such Dividend Equivalents shall be converted
to cash or additional shares of Common Stock by such formula and at such time
and subject to such limitations as may be determined by the Administrator.


 


(c)                                  Dividend
Equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m) of the Code
shall be payable, with respect to pre-exercise periods, regardless of whether
such Option is subsequently exercised.


 


8.3.                              Stock
Payments.  Any key Employee,
Independent Director or Consultant selected by the Administrator may receive
Stock Payments in the manner determined from time to time by the Administrator.  The number of shares shall be determined by
the Administrator and may be based upon the Performance Criteria or other
specific performance criteria determined appropriate by the Administrator,
determined on the date such Stock Payment is made or on any date thereafter.


 


8.4.                              Deferred
Stock.  Any key Employee, Independent
Director or Consultant selected by the Administrator may be granted an award of
Deferred Stock in the manner determined from time to time by the Administrator.  The number of shares of Deferred Stock shall
be determined by the Administrator and may be based upon the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Administrator, in each case on a specified date or dates or over any period
or periods determined by the Administrator. 
Common Stock underlying a Deferred Stock award shall not be issued until
the Deferred Stock award shall have vested, pursuant to a vesting schedule or
performance criteria set by the Administrator.  The Administrator shall specify the
distribution dates applicable to each Deferred Stock award which shall be no
earlier than the vesting dates or events of the award and may be determined at
the election of the Employee, Independent Director or Consultant.  Unless otherwise provided by the Administrator,
a Holder of Deferred Stock shall have no rights as a Company stockholder with
respect to such Deferred Stock until such time as the Award has vested and the
Common Stock underlying the Award has been issued.


 


8.5.                              Restricted
Stock Units.  Any key Employee,
Independent Director or Consultant selected by the Administrator may be granted
an award of Restricted Stock Units in the manner determined from time to time
by the Administrator.  The Administrator
is authorized to make awards of Restricted Stock Units in such amounts and
subject to such terms and conditions as determined by the Administrator.  The Administrator shall specify the date or
dates on which the Restricted Stock Units shall become fully vested and
nonforfeitable, and may specify such conditions to vesting as it deems
appropriate, and may  specify that such
Restricted


 


18





















 


Stock Units become fully
vested and nonforfeitable pursuant to the satisfaction of one or more
Performance Goals or other specific performance goals as the Administrator
determines to be appropriate at the time of the grant of the Restricted Stock
Units or thereafter, in each case on a specified date or dates or over any
period or periods determined by the Administrator.  The Administrator shall specify the distribution
dates applicable to each award of Restricted Stock Units which shall be no
earlier than the vesting dates or events of the award and may be determined at
the election of the Employee, Independent Director or Consultant.  On the distribution dates, the Company shall issue
to the Participant one unrestricted, fully transferable share of Common Stock
for each Restricted Stock Unit distributed. 
The Administrator shall specify the purchase price, if any, to be paid
by the Employee, Independent Director or Consultant to the Company for such
shares of Common Stock to be distributed pursuant to the Restricted Stock Unit
award.


 


8.6.                              Term.  The term of a Dividend Equivalent award,
Deferred Stock award, Stock Payment award and/or Restricted Stock Unit award shall
be set by the Administrator in its discretion.


 


8.7.                              Exercise
or Purchase Price.  The Administrator
may establish the exercise or purchase price of shares of Deferred Stock,
shares distributed as a Stock Payment award or shares distributed pursuant to a
Restricted Stock Unit award; provided, however, that such price
shall not be less than the par value of a share of Common Stock, unless
otherwise permitted by applicable state law.


 


8.8.                              Exercise
upon Termination of Employment, Termination of Consultancy or Termination of
Directorship.  A Dividend Equivalent
award, Deferred Stock award, Stock Payment award and/or Restricted Stock Unit
award is exercisable or distributable only while the Holder is an Employee,
Consultant or Independent Director, as applicable; provided, however,
that the Administrator in its sole and absolute discretion may provide that the
Dividend Equivalent award, Deferred Stock award, Stock Payment award and/or
Restricted Stock Unit award may be exercised or distributed subsequent to a
Termination of Employment, Termination of Directorship or Termination of Consultancy
following a “change of control or ownership” (within the meaning of Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company.


 


8.9.                              Form of
Payment.  Payment of the amount
determined under Section 8.2 above shall be in cash, in Common Stock or a
combination of both, as determined by the Administrator.  To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.3.


 


ARTICLE IX.



STOCK APPRECIATION RIGHTS


 


9.1.                              Grant
of Stock Appreciation Rights.  A
Stock Appreciation Right may be granted to any key Employee, Independent
Director or Consultant selected by the Administrator.  A Stock Appreciation Right may be granted:  (a) in connection and simultaneously with
the grant


 


19





















 


of an Option, (b) with
respect to a previously granted Option, or (c) independent of an
Option.  A Stock Appreciation Right shall
be subject to such terms and conditions not inconsistent with the Plan as the Administrator
shall impose and shall be evidenced by an Award Agreement.


 


9.2.                              Coupled
Stock Appreciation Rights.


 


(a)                                  A
Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular
Option and shall be exercisable only when and to the extent the related Option
is exercisable.


 


(b)                                 A
CSAR may be granted to the Holder for no more than the number of shares subject
to the simultaneously or previously granted Option to which it is coupled.


 


(c)                                  A
CSAR shall entitle the Holder (or other person entitled to exercise the Option
pursuant to the Plan) to surrender to the Company unexercised a portion of the
Option to which the CSAR relates (to the extent then exercisable pursuant to
its terms) and to receive from the Company in exchange therefor an amount
determined by multiplying the difference obtained by subtracting the Option
exercise price from the Fair Market Value of a share of Common Stock on the
date of exercise of the CSAR by the number of shares of Common Stock with
respect to which the CSAR shall have been exercised, subject to any limitations
the Administrator may impose.


 


9.3.                              Independent
Stock Appreciation Rights.


 


(a)                                  An
Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option
and shall have a term set by the Administrator. 
An ISAR shall be exercisable in such installments as the Administrator may
determine.  An ISAR shall cover such
number of shares of Common Stock as the Administrator may determine; provided,
however, that unless the Administrator otherwise provides in the terms
of the ISAR or otherwise, no ISAR granted to a person subject to Section 16
of the Exchange Act shall be exercisable until at least six months have elapsed
from (but excluding) the date on which the Option was granted.  The exercise price per share of Common Stock
subject to each ISAR shall be set by the Administrator; provided, that
such exercise price per share shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the date the ISAR is granted.  An ISAR is exercisable only while the Holder
is an Employee, Independent Director or Consultant; provided, that the Administrator
may determine that the ISAR may be exercised subsequent to Termination of
Employment, Termination of Directorship or Termination of Consultancy without
cause, or following a Change in Control of the Company, or because of the
Holder’s retirement, death or disability, or otherwise.


 


(b)                                 An
ISAR shall entitle the Holder (or other person entitled to exercise the ISAR pursuant
to the Plan) to exercise all or a specified portion of the ISAR (to the extent
then exercisable pursuant to its terms) and to receive from the Company an
amount determined by multiplying the difference obtained by subtracting the
exercise price per share of the ISAR from the Fair Market Value of a share of
Common Stock on the date of exercise of the


 


20





















 


ISAR by the number of
shares of Common Stock with respect to which the ISAR shall have been exercised,
subject to any limitations the Administrator may impose.


 


9.4.                              Payment
and Limitations on Exercise.


 


(a)                                  Payment
of the amounts determined under Section 9.2(c) and 9.3(b) above
shall be in cash, in Common Stock (based on its Fair Market Value as of the date
the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Administrator.  To the
extent such payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.


 


(b)                                 Holders
of Stock Appreciation Rights may be required to comply with any timing or other
restrictions with respect to the settlement or exercise of a Stock Appreciation
Right, including a window-period limitation, as may be imposed in the discretion
of the Administrator.


 


ARTICLE X.


 


COMPLIANCE WITH SECTION 409A
OF THE CODE


 


10.1.                        Awards
subject to Code Section 409A. 
Any Award that constitutes, or provides for, a deferral of compensation
subject to Section 409A of the Code (a “Section 409A Award”)
shall satisfy the requirements of Section 409A of the Code and this Article X,
to the extent applicable.  The Award
Agreement with respect to a Section 409A Award shall incorporate the terms
and conditions required by Section 409A of the Code and this Article X.


 


10.2.                        Distributions
under a Section 409A Award.


 


(a)                                  Subject
to subsection (b), any shares of Common Stock, cash or other property or
amounts to be paid or distributed upon the grant, issuance, vesting, exercise
or payment of a Section 409A Award shall be distributed in accordance with
the requirements of Section 409A(a)(2) of the Code, and shall not be distributed
earlier than:


 


(i)                                     the
Holder’s separation from service, as determined by the Secretary of the
Treasury,


 


(ii)                                  the
date the Holder becomes disabled,


 


(iii)                               the
Holder’s death,


 


(iv)                              a
specified time (or pursuant to a fixed schedule) specified under the Award
Agreement at the date of the deferral of such compensation,


 


(v)                                 to
the extent provided by the Secretary of the Treasury, a change in the ownership
or effective control of the Company or a


 


21





















 


Subsidiary, or in
the ownership of a substantial portion of the assets of the Company or a
Subsidiary, or


 


(vi)                              the
occurrence of an unforeseeable emergency with respect to the Holder.


 


(b)                                 In
the case of a Holder who is a specified employee, the requirement of paragraph
(a)(i) shall be met only if the distributions with respect to the Section 409A
Award may not be made before the date which is six months after the Holder’s
separation from service (or, if earlier, the date of the Holder’s death).  For purposes of this subsection (b), a
Holder shall be a specified employee if such Holder is a key employee (as
defined in Section 416(i) of the Code without regard to paragraph (5) thereof)
of a corporation any stock of which is publicly traded on an established
securities market or otherwise, as determined under Section 409A(a)(2)(B)(i) of
the Code and the Treasury Regulations thereunder.


 


(c)                                  The
requirement of paragraph (a)(vi) shall be met only if, as determined under
Treasury Regulations under Section 409A(a)(2)(B)(ii) of the Code, the
amounts distributed with respect to the unforeseeable emergency do not exceed
the amounts necessary to satisfy such unforeseeable emergency plus amounts
necessary to pay taxes reasonably anticipated as a result of the distribution,
after taking into account the extent to which such unforeseeable emergency is
or may be relieved through reimbursement or compensation by insurance or
otherwise or by liquidation of the Holder’s assets (to the extent the
liquidation of such assets would not itself cause severe financial hardship).


 


(d)                                 For
purposes of this Section, the terms specified therein shall have the respective
meanings ascribed thereto under Section 409A of the Code and the Treasury
Regulations thereunder.


 


10.3.                        Prohibition
on Acceleration of Benefits.  The
time or schedule of any distribution or payment of any shares of Common
Stock, cash or other property or amounts under a Section 409A Award shall
not be accelerated, except as otherwise permitted under Section 409A(a)(3) of
the Code and the Treasury Regulations thereunder.


 


10.4.                        Elections
under Section 409A Awards.


 


(a)                                  Any
deferral election provided under or with respect to an Award to any Employee,
Independent Director or Consultant, or to the Holder of a Section 409A
Award, shall satisfy the requirements of Section 409A(a)(4)(B) of the
Code, to the extent applicable, and, except as otherwise permitted under paragraph
(i) or (ii), any such deferral election with respect to compensation for
services performed during a taxable year shall be made not later than the close
of the preceding taxable year, or at such other time as provided in Treasury
Regulations.


 


(i)                                     In
the case of the first year in which an Employee, Independent Director or
Consultant, or the Holder, becomes eligible to participate in the Plan, any
such deferral election may be made with respect to services to be performed
subsequent to the election with thirty (30) days after the date the


 


22





















 


Employee,
Independent Director or Consultant, or the Holder, becomes eligible to
participate in the Plan, as provided under Section 409A(a)(4)(B)(ii) of
the Code.


 


(ii)                                  In
the case of any performance-based compensation based on services performed by
an Employee, Independent Director or Consultant, or the Holder, over a period
of at least twelve (12) months, any such deferral election may be made no later
than six months before the end of the period, as provided under Section 409A(a)(4)(B)(iii) of
the Code.


 


(b)                                 In
the event that a Section 409A Award permits, under a subsequent election by
the Holder of such Section 409A Award, a delay in a distribution or
payment of any shares of Common Stock, cash or other property or amounts under
such Section 409A Award, or a change in the form of distribution or
payment, such subsequent election shall satisfy the requirements of Section 409A(a)(4)(C) of
the Code, and:


 


(i)                                     such
subsequent election may not take effect until at least twelve (12) months after
the date on which the election is made,


 


(ii)                                  in
the case such subsequent election relates to a distribution or payment not
described in Section 10.2(a)(ii), (iii) or (vi), the first payment
with respect to such election may be deferred for a period of not less than
five years from the date such distribution or payment otherwise would have been
made, and


 


(iii)                               in
the case such subsequent election relates to a distribution or payment
described in Section 10.2(a)(iv), such election may not be made less than
twelve (12) months prior to the date of the first scheduled distribution or
payment under Section 10.2(a)(iv).


 


10.5.                        Compliance
in Form and Operation.  A Section 409A
Award, and any election under or with respect to such Section 409A Award,
shall comply in form and operation with the requirements of Section 409A
of the Code and the Treasury Regulations thereunder.


 


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ARTICLE XI.


 


ADMINISTRATION


 


11.1.                        Compensation
Committee.  The Compensation
Committee (or another committee or a subcommittee of the Board assuming the
functions of the Committee under the Plan) shall consist solely of two or more
Independent Directors appointed by and holding office at the pleasure of the
Board, each of whom is both a “non-employee director” as defined by Rule 16b-3
and an “outside director” for purposes of Section 162(m) of the Code.  Appointment of Committee members shall be
effective upon acceptance of appointment. 
Committee members may resign at any time by delivering written notice to
the Board.  Vacancies in the Committee
may be filled by the Board.


 


11.2.                        Duties
and Powers of Committee.  It shall be
the duty of the Committee to conduct the general administration of the Plan in
accordance with its provisions.  The
Committee shall have the power to interpret the Plan and the Award Agreements,
and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith, to interpret, amend or
revoke any such rules and to amend any Award Agreement provided that the
rights or obligations of the Holder of the Award that is the subject of any
such Award Agreement are not affected adversely.  Any such grant or award under the Plan need
not be the same with respect to each Holder. 
Any such interpretations and rules with respect to Incentive Stock
Options shall be consistent with the provisions of Section 422 of the
Code.  In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole
discretion of the Committee. 
Notwithstanding the foregoing, the full Board, acting by a majority of
its members in office, shall conduct the general administration of the Plan
with respect to Awards granted to Independent Directors.


 


11.3.                        Majority
Rule; Unanimous Written Consent.  The
Committee shall act by a majority of its members in attendance at a meeting at
which a quorum is present or by a memorandum or other written instrument signed
by all members of the Committee.


 


11.4.                        Compensation;
Professional Assistance; Good Faith Actions.  Members of the Committee shall receive such
compensation, if any, for their services as members as may be determined by the
Board.  All expenses and liabilities
which members of the Committee incur in connection with the administration of
the Plan shall be borne by the Company. 
The Committee may, with the approval of the Board, employ attorneys,
consultants, accountants, appraisers, brokers or other persons.  The Committee, the Company and the Company’s
officers and Directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons.  All
actions taken and all interpretations and determinations made by the Committee
or the Board in good faith shall be final and binding upon all Holders, the
Company and all other interested persons. 
No members of the Committee or Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Plan or Awards, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.


 


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11.5.                        Delegation
of Authority to Grant Awards.  The
Committee may, but need not, delegate from time to time some or all of its
authority to grant Awards under the Plan to a committee consisting of one or
more members of the Committee or of one or more officers of the Company, to the
extent permitted by applicable state law; provided, however, that
the Committee may not delegate its authority to grant Awards to individuals:  (a) who are subject on the date of the
grant to the reporting rules under Section 16(a) of the Exchange
Act, (b) who are Section 162(m) Participants, or (c) who are
officers of the Company who are delegated authority by the Committee
hereunder.  Any delegation hereunder
shall be subject to the restrictions and limits that the Committee specifies at
the time of such delegation of authority and may be rescinded at any time by
the Committee.  At all times, any
committee appointed under this Section 11.5 shall serve in such capacity
at the pleasure of the Committee.


 


ARTICLE XII.


 


MISCELLANEOUS PROVISIONS


 


12.1.                        Transferability
of Awards.


 


(a)                                  Except
as otherwise provided in Section 12.1(b):


 


(i)                                     No
Award under the Plan may be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent and distribution or, subject
to the consent of the Administrator, pursuant to a DRO, unless and until such
Award has been exercised, or the shares underlying such Award have been issued,
and all restrictions applicable to such shares have lapsed;


 


(ii)                                  No
Option, Restricted Stock award, Deferred Stock award, Stock Appreciation Right,
Dividend Equivalent  award, Stock Payment
award, or Restricted Stock Unit award, or any interest or right therein, shall
be liable for the debts, contracts or engagements of the Holder or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition
is permitted by the preceding sentence; and


 


(iii)                               During
the lifetime of the Holder, only the Holder may exercise an Option or other
Award (or any portion thereof) granted to him under the Plan, unless it has
been disposed of pursuant to a DRO; after the death of the Holder, any
exercisable portion of an Option or other Award may, prior to the time when
such portion becomes unexercisable under the Plan or the applicable Award
Agreement, be exercised by his personal representative or by


 


25





















 


any person
empowered to do so under the deceased Holder’s will or under the then
applicable laws of descent and distribution.


 


(b)                                 Notwithstanding Section 12.1(a), the
Administrator, in its sole discretion, may determine to permit a Holder to
transfer a Non-Qualified Stock Option to any one or more Permitted Transferees
(as defined below), subject to the following terms and conditions:  (i) a Non-Qualified Stock Option
transferred to a Permitted Transferee shall not be assignable or transferable
by the Permitted Transferee other than by will or the laws of descent and
distribution; (ii) any Non-Qualified Stock Option which is transferred to
a Permitted Transferee shall continue to be subject to all the terms and
conditions of the Non-Qualified Stock Option as applicable to the original
Holder (other than the ability to further transfer the Non-Qualified Stock Option);
and (iii) the Holder and the Permitted Transferee shall execute any and
all documents requested by the Administrator, including, without limitation
documents to (A) confirm the status of the transferee as a Permitted
Transferee, (B) satisfy any requirements for an exemption for the transfer
under applicable federal and state securities laws and (C) evidence the
transfer.  For purposes of this Section 12.1(b),
“Permitted Transferee” shall mean, with respect to a Holder, any 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, any person sharing the Holder’s household (other than a tenant
or employee), a trust in which these persons (or the Holder) control the
management of assets, and any other entity in which these persons (or the
Holder) own more than fifty percent of the voting interests, or any other
transferee specifically approved by the Administrator after taking into account
any state or federal tax or securities laws applicable to transferable
Non-Qualified Stock Options.


 


12.2.                        Amendment,
Suspension or Termination of the Plan. 
Except as otherwise provided in this Section 12.2, the Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board. 
However, without approval of the Company’s stockholders given within twelve
(12) months before or after the action by the Board, no action of the Board
may, except as provided in Section 12.3, (i) increase the limits
imposed in Section 2.1 on the maximum number of shares which may be issued
under the Plan, or the maximum number of shares which may be granted or issued
as Restricted Stock awards, Restricted Stock Unit awards, Dividend Equivalent
awards, Deferred Stock awards, or Stock Payment awards, (ii) expand the
classes of persons to whom Awards may be granted under the Plan, or (iii) decrease
 the exercise price of any outstanding
Option or Stock Appreciation Right granted under the Plan.  No amendment, suspension or termination of
the Plan shall, without the consent of the Holder, alter or impair any rights
or obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. 
No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Award be granted under
the Plan after the first to occur of the following events:


 


(a)                                  The
expiration of ten (10) years from the date the Plan is adopted by the
Board; or


 


26





















 


(b)                                 The
expiration of ten (10) years from the date the Plan is approved by the
Company’s stockholders under Section 12.4.


 


12.3.                        Changes
in Common Stock or Assets of the Company, Acquisition or Liquidation of the
Company and Other Corporate Events.


 


(a)                                  Subject
to Section 12.3(e), in the event that the Administrator determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer,
exchange or other disposition of all or substantially all of the assets of the
Company, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Administrator’s sole discretion, affects the Common Stock such that an
adjustment is determined by the Administrator to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to an Award, then the
Administrator shall, in such manner as it may deem equitable, adjust any or all
of:


 


(i)                                     The
number and kind of shares of Common Stock (or other securities or property)
with respect to which Awards may be granted or awarded (including, but not
limited to, adjustments of the limitations in Section 2.1 on the maximum
number and kind of shares which may be issued under the Plan, and the maximum
number and kind of shares which may be granted or issued as Restricted Stock
awards, Restricted Stock Unit awards, Dividend Equivalent awards, Deferred
Stock awards or Stock Payment awards, and adjustments of the Award Limit);


 


(ii)                                  The
number and kind of shares of Common Stock (or other securities or property)
subject to outstanding Awards; and


 


(iii)                               The
grant or exercise price with respect to any Award.


 


(b)                                 Subject
to Sections 12.3(c) and 12.3(e), in the event of any transaction or event
described in Section 12.3(a) or any unusual or nonrecurring
transactions or events affecting the Company, any affiliate of the Company, or
the financial statements of the Company or any affiliate, or of changes in
applicable laws, regulations or accounting principles, the Administrator, in
its sole and absolute discretion, and on such terms and conditions as it deems
appropriate, either by the terms of the Award or by action taken prior to the
occurrence of such transaction or event and either automatically or upon the
Holder’s request, is hereby authorized to take any one or more of the following
actions whenever the Administrator determines that such action is appropriate
in order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any Award under
the Plan, to facilitate such transactions or events or to give effect to such
changes in laws, regulations or principles:


 


27





















 


(i)                                     To
provide for either the purchase of any such Award for an amount of cash equal
to the amount that could have been attained upon the exercise of such Award or
realization of the Holder’s rights had such Award been currently exercisable or
payable or fully vested or the replacement of such Award with other rights or
property selected by the Administrator in its sole discretion;


 


(ii)                                  To
provide that the Award cannot vest, be exercised or become payable after such
event;


 


(iii)                               To
provide that such Award shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in Section 5.3 or the provisions
of such Award;


 


(iv)                              To
provide that such Award be assumed by the successor or survivor corporation, or
a parent or subsidiary thereof, or shall be substituted for by similar options,
rights or awards covering the stock of the successor or survivor corporation,
or a parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices; and


 


(v)                                 To
make adjustments in the number and type of shares of Common Stock (or other
securities or property) subject to outstanding Awards, and/or in the terms and
conditions of (including the grant, exercise or purchase price), and the
criteria included in, outstanding options, rights and awards and options,
rights and awards which may be granted in the future.


 


(vi)                              To
provide that, for a specified period of time prior to such event, the
restrictions imposed under an Award Agreement upon some or all shares of
Restricted Stock, Restricted Stock Units or Deferred Stock may be terminated,
and, in the case of Restricted Stock, some or all shares of such Restricted
Stock may cease to be subject to repurchase under Section 7.5 or
forfeiture under Section 7.4 after such event.


 


(c)                                  Notwithstanding any other provision of the
Plan, in the event of a Change in Control, each outstanding Award shall remain
outstanding, or shall be assumed or an equivalent award substituted by the
successor corporation, or a parent or subsidiary of the successor
corporation.  In the event that the
successor corporation, or a parent or subsidiary of the successor corporation,
with respect to the Change in Control transaction refuses to assume or substitute
for the Award, the Holder shall have the right to exercise the Award as to all
of the shares subject thereto, including shares as to which such Award
otherwise would not be exercisable, and the Holder shall have the right to vest
in, and received a distribution of, such Award, with respect to all of the
shares subject thereto.  If an Award
becomes exercisable in lieu of assumption or substitution by the successor
corporation, or a parent or subsidiary corporation, with respect to a Change in
Control transaction, the Administrator shall notify the Holder that the Award
shall be fully exercisable for a period of not less than fifteen (15) days from
the date of such notice prior to the Change in Control transaction, and the
Award shall terminate upon the


 


28





















 


expiration of such
period.  For purposes of this Section 12.3(c),
the Award shall be assumed, or an equivalent award shall be substituted for
such Award, if, following the Change in Control transaction, the Award or
substituted award confers on the Holder the right to purchase or receive, for
each share subject to the Award immediately prior to the Change in Control
transaction, the consideration (whether in stock, cash, or other securities or
property, or a combination thereof) received or to be received for each share
of Common Stock in the Change in Control transaction on the effective date of
the Change in Control transaction (and if holders of shares of Common Stock
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that, if such consideration received in the Change in Control
transaction was not solely common stock of the successor corporation or its
parent, the Administrator may, with the consent of the successor corporation or
its parent, provide for the consideration to be received upon the exercise,
vesting or distribution of the assumed Award or substituted award, for each
share subject to the Award, to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by the holders of Common Stock in the Change in Control
transaction.


 


(d)                                 Subject
to Sections 12.3(e), 3.2 and 3.3, the Administrator may, in its discretion,
include such further provisions and limitations in any Award or Award Agreement
as it may deem equitable and in the best interests of the Company.


 


(e)                                  With
respect to Awards which are granted to Section 162(m) Participants and are
intended to qualify as performance-based compensation under Section 162(m)(4)(C),
no adjustment or action described in this Section 12.3 or in any other
provision of the Plan shall be authorized to the extent that such adjustment or
action would cause such Award to fail to so qualify under Section 162(m)(4)(C),
or any successor provisions thereto. No adjustment or action described in this Section 12.3
or in any other provision of the Plan shall be authorized to the extent that
such adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code.  Furthermore, no such
adjustment or action shall be authorized to the extent such adjustment or
action would result in short-swing profits liability under Section 16 or
violate the exemptive conditions of Rule 16b-3 unless the Administrator
determines that the Award is not to comply with such exemptive conditions.  The number of shares of Common Stock subject
to any Award shall always be rounded to the next whole number.


 


(f)                                    Notwithstanding
the foregoing, in the event that the Company becomes a party to a transaction
that is intended to qualify for “pooling of interests” accounting treatment
and, but for one or more of the provisions of this Plan or any Award Agreement
would so qualify, then this Plan and any Award Agreement shall be interpreted
so as to preserve such accounting treatment, and to the extent that any
provision of the Plan or any Award Agreement would disqualify the transaction
from pooling of interests accounting treatment (including, if applicable, an
entire Award Agreement), then such provision shall be null and void.  All determinations to be made in connection
with the preceding sentence shall be made by the independent accounting firm
whose opinion with respect to “pooling of interests” treatment is required as a
condition to the Company’s consummation of such transaction.


 


29





















 


(g)                                 The
existence of the Plan, the Award Agreement and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the Company or
the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital
structure or its business, any merger or consolidation of the Company, any
issue of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to
or affect the Common Stock or the rights thereof or which are convertible into
or exchangeable for Common Stock, or the dissolution or liquidation of the
company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.


 


(h)                                 No
action shall be taken under this Section 12.3 which shall cause an Award
to fail to comply with Section 409A of the Code or the Treasury Regulations
thereunder, to the extent applicable to such Award.


 


12.4.                        Approval
of Plan by Stockholders.  The Plan
will be submitted for the approval of the Company’s stockholders within twelve
(12) months after the date of the Board’s initial adoption of the Plan.  Awards may be granted or awarded prior to
such stockholder approval, provided, that such Awards shall not be
exercisable nor shall such Awards vest prior to the time when the Plan is
approved by the stockholders, and provided  further, that if such
approval has not been obtained at the end of said twelve-month period, all
Awards previously granted or awarded under the Plan shall thereupon be canceled
and become null and void.   In addition,
if the Board determines that Awards other than Options or Stock Appreciation
Rights which may be granted to Section 162(m) Participants should continue
to be eligible to qualify as performance-based compensation under Section 162(m)(4)(C) of
the Code, the Performance Criteria must be disclosed to and approved by the
Company’s stockholders no later than the first stockholder meeting that occurs
in the fifth year following the year in which the Company’s stockholders
previously approved the Plan, as amended and restated to include the
Performance Criteria.


 


12.5.                        Tax
Withholding.  The Company shall be
entitled to require payment in cash or deduction from other compensation
payable to each Holder of any sums required by federal, state or local tax law
to be withheld with respect to the grant, issuance, vesting, exercise or
payment of any Award.  The Administrator
may in its discretion and in satisfaction of the foregoing requirement allow
such Holder to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be
withheld.  Notwithstanding any other provision of the Plan, the number of shares of
Common Stock which may be withheld with respect to the issuance, vesting,
exercise or payment of any Award (or which may be repurchased from the Holder
of such Award within six months after such shares of Common Stock were acquired
by the Holder from the Company) in order to satisfy the Holder’s federal and
state income and payroll tax liabilities with respect to the issuance, vesting,
exercise or payment of the Award shall be limited to the number of shares which
have a Fair Market Value on the date of withholding or repurchase equal to the
aggregate amount of such liabilities based on the minimum statutory withholding
rates for federal and state tax income and payroll tax purposes that are
applicable to such supplemental taxable income.


 


30





















 


12.6.                        Prohibition
on Repricing.  Subject to Section 12.3,
the Administrator shall not, without the approval of the stockholders of the
Company, authorize the amendment of any outstanding Award to reduce its price
per share.  Furthermore, no Award shall
be canceled and replaced with the grant of an Award having a lesser price per
share without the further approval of stockholders of the Company.


 


12.7.                        Forfeiture
Provisions.  Pursuant to its general
authority to determine the terms and conditions applicable to Awards and the
Award Agreements under the Plan, the Administrator shall have the right to
provide, in the terms of Awards made under the Plan, or to require a Holder to
agree by separate written instrument, that:  (a)(i) any proceeds, gains or other
economic benefit actually or constructively received by the Holder upon any
receipt or exercise of the Award, or upon the receipt or resale of any Common
Stock underlying the Award, must be paid to the Company, and (ii) the
Award shall terminate and any unexercised portion of the Award (whether or not
vested) shall be forfeited, if (b)(i) a Termination of Employment,
Termination of Directorship or  Termination of Consultancy occurs prior to a specified
date, or within a specified time period following receipt or exercise of the
Award, or (ii) the Holder at any time, or during a specified time period,
engages in any activity in competition with the Company, or which is inimical,
contrary or harmful to the interests of the Company, as further defined by the
Administrator or (iii) the Holder incurs a Termination of Employment, Termination
of Directorship or Termination of Consultancy for “cause” (as such term is
defined in the sole and absolute discretion of the Committee, or as set forth
in a written agreement relating to such Award between the Company and the
Holder).


 


12.8.                        Effect
of Plan upon Options and Compensation Plans.  The adoption of the Plan shall not affect any
other compensation or incentive plans in effect for the Company or any
Subsidiary.  Nothing in the Plan shall be
construed to limit the right of the Company:  (a) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary, or (b) to grant or assume options or other
rights or awards otherwise than under the Plan in connection with any proper
corporate purpose including but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, limited liability company, firm or association.


 


12.9.                        Compliance
with Laws.  The Plan, the granting
and vesting of Awards under the Plan and the issuance and delivery of shares of
Common Stock and the payment of money under the Plan or under Awards granted or
awarded hereunder are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state and
federal securities law and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith.  Any securities delivered under the Plan shall
be subject to such restrictions, and the person acquiring such securities
shall, if requested by the Company, provide such assurances and representations
to the Company as the Company may deem necessary or desirable to assure
compliance with all applicable legal requirements.  To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.


 


31





















 


12.10.                  Titles.  Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of the
Plan.


 


12.11.                  Governing Law.  The Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of California without regard to conflicts of laws thereof.


 


*  *  *


 


I
hereby certify that the foregoing amendment and restatement of the Plan was
duly adopted by the Board of Directors of Watson Pharmaceuticals, Inc. on March 29,
2005.


 


Executed
on this 13th day of May, 2005.


 


	
   

  	
  /s/David A. Buchen

  	
   

  
	
   

  	
  Secretary

  	
   

  



 


*  *  *


 


I
hereby certify that the foregoing amendment and restatement of the Plan was
approved by the stockholders of Watson Pharmaceuticals, Inc. on May 13,
2005.


 


Executed
on this 13th day of May, 2005.


 


	
   

  	
  /s/David A. Buchen

  	
   

  
	
   

  	
  Secretary

  	
   

  



 


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