“EXHIBIT 10.2”**Xcorporeal, Inc.** **2006 Incentive Compensation Plan**
 

 
**Xcorporeal, Inc.****2006 Incentive Compensation Plan**     1. Purpose. The purpose of this Plan is to assist the Company and its RelatedEntities in attracting, motivating, retaining and rewarding high-quality Employees, officers,Directors and Consultants by enabling such persons to acquire or increase a proprietary interest inthe Company in order to strengthen the mutuality of interests between such persons and theCompany’s shareholders, and providing such persons with annual and long-term performance incentivesto expend their maximum efforts in the creation of shareholder value. The Plan is intended toqualify certain compensation awarded under the Plan for tax deductibility under Section 162(m) ofthe Code (as hereafter defined) to the extent deemed appropriate by the Plan Administrator.     2. Definitions. For purposes of the Plan, the following terms shall be defined as setforth below.          (a) “Applicable Laws” means the requirements relating to the administration of equitycompensation plans under U.S. state corporate laws, U.S. federal and state securities laws, theCode, the rules and regulations of any stock exchange upon which the Common Stock is listed and theapplicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.          (b) “Award” means any award granted pursuant to the terms of this Plan, including anOption, Stock Appreciation Right, Restricted Stock, Stock Unit, Stock granted as a bonus or in lieuof another award, Dividend Equivalent, Other Stock-Based Award or Performance Award, together withany other right or interest, granted to a Participant under the Plan.          (c) “Award Agreement” means the written agreement evidencing an Award granted underthe Plan.          (d) “Beneficiary” means the person, persons, trust or trusts which have beendesignated by a Participant in his or her most recent written beneficiary designation filed withthe Plan Administrator to receive the benefits specified under the Plan upon such Participant’sdeath or to which Awards or other rights are transferred if and to the extent permitted underSection 10(b) hereof. If, upon a Participant’s death, there is no designated Beneficiary orsurviving designated Beneficiary, then the term Beneficiary means the person, persons, trust ortrusts entitled by will or the laws of descent and distribution to receive such benefits.          (e) “Board” means the Company’s Board of Directors.          (f) “Cause” shall, with respect to any Participant, have the meaning specified in theAward Agreement. In the absence of any definition in the Award Agreement, “Cause” shall have theequivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment,consulting, change in control or other agreement for the performance of services between theParticipant and the Company or a Related Entity or, in the absence of any such definition in suchagreement, such term shall mean (i) the failure by the Participant to perform his or her duties asassigned by the Company (or a Related Entity) in a reasonable manner, (ii) any
 

 
violation or breach by the Participant of his or her employment, consulting or other similaragreement with the Company (or a Related Entity), if any, (iii) any violation or breach by theParticipant of his or her confidential information and invention assignment, non-competition,non-solicitation, non-disclosure and/or other similar agreement with the Company or a RelatedEntity, if any, (iv) any act by the Participant of dishonesty or bad faith with respect to theCompany (or a Related Entity), (v) any material violation or breach by the Participant of theCompany’s or a Related Entity’s policy for employee conduct, if any, (vi) use of alcohol, drugs orother similar substances in a manner that adversely affects the Participant’s work performance, or(vii) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorablyupon the Participant or the Company or any Related Entity. The good faith determination by thePlan Administrator of whether the Participant’s Continuous Service was terminated by the Companyfor “Cause” shall be final and binding for all purposes hereunder.          (g) “Change in Control” means and shall be deemed to have occurred on the earliest ofthe following dates:               (i) the date on which any “person” (as such term is used in Sections 13(d) and 14(d) of theExchange Act) obtains “beneficial ownership” (as defined in Rule 13d-3 of the Exchange Act) or apecuniary interest in fifty percent (50%) or more of the Voting Stock;               (ii) the consummation of a merger, consolidation, reorganization or similar transaction otherthan a transaction: (1) (a) in which substantially all of the holders of Company’s Voting Stockhold or receive directly or indirectly fifty percent (50%) or more of the voting stock of theresulting entity or a parent company thereof, in substantially the same proportions as theirownership of the Company immediately prior to the transaction; or (2) in which the holders ofCompany’s capital stock immediately before such transaction will, immediately after suchtransaction, hold as a group on a fully diluted basis the ability to elect at least a majority ofthe directors of the surviving corporation (or a parent company);               (iii) there is consummated a sale, lease, exclusive license or other disposition of all orsubstantially all of the consolidated assets of the Company and its Subsidiaries, other than asale, lease, license or other disposition of all or substantially all of the consolidated assets ofthe Company and its Subsidiaries to an entity, fifty percent (50%) or more of the combined votingpower of the voting securities of which are owned by shareholders of the Company in substantiallythe same proportions as their ownership of the Company immediately prior to such sale, lease,license or other disposition; or               (iv) individuals who, on the date this Plan is adopted by the Board, are Directors (the“Incumbent Board”) cease for any reason to constitute at least a majority of the Directors;provided, however, that if the appointment or election (or nomination for election) of any newDirector was approved or recommended by a majority vote of the members of the Incumbent Board thenstill in office, such new member shall, for purposes of this Plan, be considered as a member of theIncumbent Board.     For purposes of determining whether a Change in Control has occurred, a transaction includesall transactions in a series of related transactions, and terms used in this definition but not
- 2 -

 
defined are used as defined in the Plan. The term Change in Control shall not include a saleof assets, merger or other transaction effected exclusively for the purpose of changing thedomicile of the Company.     Notwithstanding the foregoing or any other provision of this Plan, the definition of Change inControl (or any analogous term) in an individual written agreement between the Company and theParticipant shall supersede the foregoing definition with respect to Awards subject to suchagreement (it being understood, however, that if no definition of Change in Control or anyanalogous term is set forth in such an individual written agreement, the foregoing definition shallapply).          (h) “Code” means the Internal Revenue Code of 1986, as amended from time to time,including regulations thereunder and successor provisions and regulations thereto.          (i) “Committee” means a committee designated by the Board to administer the Plan withrespect to at least a group of Employees, Directors or Consultants.          (j) “Company” means Xcorporeal, Inc., a Delaware corporation.          (k) “Consultant” means any person (other than an Employee or a Director, solely withrespect to rendering services in such person’s capacity as a director) who is engaged by theCompany or any Related Entity to render consulting or advisory services to the Company or suchRelated Entity.          (l) “Continuous Service” means uninterrupted provision of services to the Company orany Related Entity in the capacity as either an officer, Employee, Director or Consultant.Continuous Service shall not be considered to be interrupted in the case of (i) any approved leaveof absence, (ii) transfers among the Company, any Related Entities, or any successor entities, inthe capacity as either an officer, Employee, Director or Consultant or (iii) any change in statusas long as the individual remains in the service of the Company or a Related Entity in the capacityas either an officer, Employee, Director, Consultant (except as otherwise provided in the AwardAgreement). An approved leave of absence shall include sick leave, military leave, or any otherauthorized personal leave.          (m) “Corporate Transaction” means the occurrence, in a single transaction or in aseries of related transactions, of any one or more of the following events:               (i) a sale, lease, exclusive license or other disposition of a substantial portion of theconsolidated assets of the Company and its Subsidiaries, as determined by the Plan Administrator,in its discretion;               (ii) a sale or other disposition of more than twenty percent (20%) of the outstandingsecurities of the Company; or               (iii) a merger, consolidation, reorganization or similar transaction, whether or not theCompany is the surviving corporation.
- 3 -

 
          (n) “Covered Employee” means an Eligible Person who is a Covered Employee as specifiedin Section 7(d) of the Plan.          (o) “Director” means a member of the Board or the board of directors of any RelatedEntity.          (p) “Disability” means a permanent and total disability (within the meaning of Section22(e) of the Code), as determined by a medical doctor satisfactory to the Plan Administrator.          (q) “Dividend Equivalent” means a right, granted to a Participant under Section 6(g)hereof, to receive cash, Shares, other Awards or other property equal in value to dividends paidwith respect to a specified number of Shares or other periodic payments.          (r) “Effective Date” means the effective date of this Plan, which shall be the datethis Plan is adopted by the Board, subject to the approval of the shareholders of the Company.          (s) “Eligible Person” means each officer, Director, Employee or Consultant. Theforegoing notwithstanding, only employees of the Company, any Parent or any Subsidiary shall beEligible Persons for purposes of receiving a grant of Incentive Stock Options. An Employee onleave of absence may be considered as still in the employ of the Company or a Related Entity forpurposes of eligibility for participation in the Plan.          (t) “Employee” means any person, including an officer or Director, who is an employeeof the Company or any Related Entity. The payment of a director’s fee by the Company or a RelatedEntity shall not be sufficient to constitute “employment” by the Company.          (u) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time totime, including rules thereunder and successor provisions and rules thereto.          (v) “Fair Market Value” means the fair market value of Shares, Awards or otherproperty as determined by the Plan Administrator, or under procedures established by the PlanAdministrator. Unless otherwise determined by the Plan Administrator, the Fair Market Value ofShares as of any given date, after which the Shares are publicly traded on a stock exchange ormarket, shall be the closing sale price per Share reported on a consolidated basis for stock listedon the principal stock exchange or market on which Shares is traded on the date as of which suchvalue is being determined or, if there is no sale on that date, then on the last previous day onwhich a sale was reported.          (w) “Good Reason” shall, with respect to any Participant, have the meaning specifiedin the Award Agreement. In the absence of any definition in the Award Agreement, “Good Reason”shall have the equivalent meaning (or the same meaning as “good reason” or “for good reason”) setforth in any employment, consulting, change in control or other agreement for the performance ofservices between the Participant and the Company or a Related Entity or, in the absence of any suchdefinition in such agreement(s), such term shall mean (i) the assignment to the Participant of anyduties inconsistent in any material respect with the Participant’s position (including status,offices, titles and reporting requirements), authority, duties or responsibilities as assigned bythe Company (or a Related Entity) or any other action by the Company (or a Related
- 4 -

 
Entity) which results in a material diminution in such position, authority, duties orresponsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action nottaken in bad faith and which is remedied by the Company (or a Related Entity) promptly afterreceipt of notice thereof given by the Participant; (ii) any failure by the Company (or a RelatedEntity) to comply with its obligations to the Participant as agreed upon, other than an isolated,insubstantial and inadvertent failure not occurring in bad faith and which is remedied by theCompany (or a Related Entity) promptly after receipt of notice thereof given by the Participant;(iii) the Company’s (or Related Entity’s) requiring the Participant to be based at any office orlocation more than fifty (50) miles from the location of employment as of the date of Award, exceptfor travel reasonably required in the performance of the Participant’s responsibilities; (iv) anypurported termination by the Company (or a Related Entity) of the Participant’s Continuous Serviceotherwise than for Cause, as defined in Section 2(f), death, or by reason of the Participant’sDisability as defined in Section 2(o); or (v) any reduction in the Participant’s base salary(unless such reduction is part of Company-wide reduction that affects a majority of the persons ofcomparable level to the Participant).          (x) “Incentive Stock Option” means any Option intended to be designated as anincentive stock option within the meaning of Section 422 of the Code or any successor provisionthereto.          (y) “Non-Employee Director” means a Director of the Company who is not an Employee.          (z) “Non-Qualified Stock Option” means any Option that is not intended to bedesignated as an incentive stock option within the meaning of Section 422 of the Code or anysuccessor provision thereto.          (aa) “Option” means a right, granted to a Participant under Section 6(b) hereof, topurchase Shares or other Awards at a specified price during specified time periods.          (bb) “Other Stock-Based Awards” means Awards granted to a Participant pursuant toSection 6(h) hereof.          (cc) “Parent” means any corporation (other than the Company), whether now or hereafterexisting, in an unbroken chain of corporations ending with the Company, if each of the corporationsin the chain (other than the Company) owns stock possessing fifty percent (50%) or more of thecombined voting power of all classes of stock in one of the other corporations in the chain.          (dd) “Participant” means a person who has been granted an Award under the Plan whichremains outstanding, including a person who is no longer an Eligible Person.          (ee) “Performance Award” means a right, granted to an Eligible Person under Sections6(h) or 7 hereof, to receive Awards based upon performance criteria specified by the PlanAdministrator.          (ff) “Performance Period” means that period established by the Plan Administrator atthe time any Performance Award is granted or at any time thereafter during which
- 5 -

 
any performance goals specified by the Plan Administrator with respect to such Award are to bemeasured.          (gg) “Plan” means this Xcorporeal, Inc. 2006 Incentive Compensation Plan.          (hh) “Plan Administrator” means the Board, its Compensation Committee, or anyCommittee delegated by the Board to administer the Plan. There may be different PlanAdministrators with respect to different groups of Eligible Persons.          (ii) “Related Entity” means any Parent, Subsidiary and any business, corporation,partnership, limited liability company or other entity designated by the Plan Administrator inwhich the Company, a Parent or a Subsidiary, directly or indirectly, holds a substantial ownershipinterest.          (jj) “Restricted Stock” means Stock granted to a Participant under Section 6(d)hereof, that is subject to certain restrictions, including a risk of forfeiture.          (kk) “Rule 16b-3” and “Rule 16a-1(c)(3)” means Rule 16b-3 and Rule16a-1(c)(3), as from time to time in effect and applicable to the Plan and Participants,promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.          (ll) “Share” means a share of the Company’s Common Stock, and the share(s) of suchother securities as may be substituted (or resubstituted) for Stock pursuant to Section 10(c)hereof.          (mm) “Stock” means the Company’s Common Stock, and such other securities as may besubstituted (or resubstituted) for the Company’s Common Stock pursuant to Section 10(c) hereof.          (nn) “Stock Appreciation Right” means a right granted to a Participant pursuant toSection 6(c) hereof.          (oo) “Stock Unit” means a right, granted to a Participant pursuant to Section 6(e)hereof, to receive Shares, cash or a combination thereof at the end of a specified period of time.          (pp) “Subsidiary” means any corporation (other than the Company), whether now orhereafter existing, in an unbroken chain of corporations beginning with the Company, if each of thecorporations other than the last corporation in the unbroken chain owns stock possessing fiftypercent (50%) or more of the total combined voting power of all classes of stock in one of theother corporations in such chain.          (qq) “Voting Stock” means the stock of the Company with a right to vote for theelection of Directors of the Company.
- 6 -

 
     3. Administration.          (a) Administration by Board. The Board shall administer the Plan unless and until theBoard delegates administration to a Committee, as provided in Section 3(c). The Board and/orCommittee(s) administering the Plan shall be the “Plan Administrator.”          (b) Powers of the Plan Administrator. The Plan Administrator shall have the power,subject to, and within the limitations of, the express provisions of the Plan:               (i) To determine from time to time which of the persons eligible under the Plan shall begranted Awards; when and how each Award shall be granted; what type or combination of types ofAward shall be granted; the provisions of each Award granted (which need not be identical),including the time or times when a person shall be permitted to receive Shares or cash pursuant toan Award; and the number of Shares or amount of cash with respect to which an Award shall begranted to each such person.               (ii) To construe and interpret the Plan and Awards granted under it, and to establish, amendand revoke rules and regulations for its administration. The Plan Administrator, in the exerciseof this power, may correct any defect, omission or inconsistency in the Plan or in any AwardAgreement, in a manner and to the extent it shall deem necessary or expedient to make the Planfully effective.               (iii) To amend the Plan or an Award as provided in Section 10(e).               (iv) To terminate or suspend the Plan as provided in Section 10(e).               (v) To adopt such modifications, procedures, and subplans as may be necessary or desirable tocomply with provisions of the laws of foreign countries in which the Company or Related Entitiesmay operate to assure the viability of the benefits from Awards granted to Participants performingservices in such countries and to meet the objectives of the Plan.               (vi) To effect, at any time and from time to time, with the consent of any adversely affectedParticipant, (1) the reduction of the exercise price of any outstanding Award under the Plan, ifany, (2) the cancellation of any outstanding Award and the grant in substitution therefor of (A) anew Award under the Plan or another equity plan of the Company covering the same or a differentnumber of Shares, (B) cash and/or (C) other valuable consideration (as determined by the PlanAdministrator, in its sole discretion) or (3) any other action that is treated as a repricing undergenerally accepted accounting principles.               (vii) Generally, to exercise such powers and to perform such acts as the Plan Administratordeems necessary or appropriate to promote the best interests of the Company and that are not inconflict with the provisions of the Plan.          (c) Delegation to Committee.               (i) General. The Board may delegate administration of the Plan to a Committee orCommittees of more members of the Board, and the term “Committee” shall apply
- 7 -

 
to any person or persons to whom such authority has been delegated. If administration isdelegated to a Committee, the Committee shall have, in connection with the administration of thePlan, the powers theretofore possessed by the Board, to the extent delegated by the Board,including the power to delegate to a subcommittee any of the administrative powers the Committee isauthorized to exercise, subject, however, to such resolutions, not inconsistent with the provisionsof the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committeeat any time and revest in the Board the administration of the Plan.               (ii) Section 162(m) and Rule 16b-3 Compliance. In the discretion of the Board, theCommittee may consist solely of two or more “Outside Directors”, in accordance with Section 162(m)of the Code, and/or solely of two or more “Non-Employee Directors”, in accordance with Rule 16b-3.In addition, the Plan Administrator may delegate to a committee of two or more members of the Boardthe authority to grant Awards to Eligible Persons who are either (a) not then Covered Employees andare not expected to be Covered Employees at the time of recognition of income resulting from suchAward, (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of theCode or (c) not then subject to Section 16 of the Exchange Act.          (d) Effect of Plan Administrator’s Decision. All determinations, interpretations andconstructions made by the Plan Administrator shall be made in good faith and shall not be subjectto review by any person and shall be final, binding and conclusive on all persons.          (e) Arbitration. Any dispute or claim concerning any Award granted (or not granted)pursuant to the Plan or any disputes or claims relating to or arising out of the Plan shall befully, finally and exclusively resolved by binding and confidential arbitration conducted before aretired judge pursuant to the rules of JAMS in the nearest city in which JAMS conducts business tothe city in which the Participant is employed by the Company. The Company shall pay allarbitration fees. In addition to any other relief, the arbitrator may award to the prevailingparty recovery of its attorneys’ fees and costs. By accepting an Award, the Participant and theCompany waive their respective rights to have any such disputes or claims tried by a judge or jury.          (f) Limitation of Liability. The Board and any Committee(s), and each member thereof,who act as the Plan Administrator, shall be entitled to, in good faith, rely or act upon any reportor other information furnished to him or her by any officer or Employee, the Company’s independentauditors, Consultants or any other agents assisting in the administration of the Plan. Members ofthe Board and any Committee(s), and any officer or Employee acting at the direction or on behalf ofthe Board and any Committee(s), shall not be personally liable for any action or determinationtaken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, befully indemnified and protected by the Company with respect to any such action or determination.     4. Shares Issuable Under the Plan.          (a) Number of Shares Available for Issuance Under Plan. Subject to adjustment asprovided in Section 10(c) hereof, the total number of Shares reserved and available
- 8 -

 
forissuance in connection with Awards shall be 2,000,000 Shares. Any Shares issued under thePlan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares.          (b) Availability of Shares Not Issued pursuant to Awards.               (i) If any Shares subject to an Award are forfeited, expire or otherwise terminate withoutissuance of such Shares or any Award is settled for cash or otherwise does not result in theissuance of all or a portion of the Shares subject to such Award, the Shares shall, to the extentof such forfeiture, expiration, termination, cash settlement or non-issuance, be available forAwards under the Plan, subject to Section 4(b)(iv) below.               (ii) If any Shares issued pursuant to an Award are forfeited back to or repurchased by theCompany, including, but not limited to, any repurchase or forfeiture caused by the failure to meeta contingency or condition required for the vesting of such Shares, then the Shares forfeited orrepurchased shall revert to and become available for issuance under the Plan, subject to Section4(b)(iv) below.               (iii) In the event that any Option or other Award granted hereunder is exercised through thewithholding of Shares from the Award by the Company or withholding tax liabilities arising fromsuch Option or other Award are satisfied by the withholding of Shares from the Award by theCompany, then only the number of Shares issued net of the Shares withheld shall be counted asissued for purposes of determining the maximum number of Shares available for grant under the Plan,subject to Section 4(b)(iv) below.               (iv) Notwithstanding anything in this Section 4(b) to the contrary, solely for purposes ofdetermining whether Shares are available for the grant of Incentive Stock Options, the maximumaggregate number of Shares that may be granted under this Plan through Incentive Stock Optionsshall be determined without regard to any Shares restored pursuant to this Section 4(b) that, iftaken into account, would cause the Plan, for purposes of the grant of Incentive Stock Options, tofail the requirement under Code Section 422 that the Plan designate a maximum aggregate number ofShares that may be issued.          (c) Application of Limitations. The limitation contained in this Section 4 shallapply not only to Awards that are settled by the delivery of Shares but also to Awards relating toShares but settled only in cash (such as cash-only Stock Appreciation Rights). The PlanAdministrator may adopt reasonable counting procedures to ensure appropriate counting, avoid doublecounting (as, for example, in the case of tandem or substitute awards) and may make adjustments ifthe number of Shares actually delivered differs from the number of Shares previously counted inconnection with an Award.     5. Eligibility; Per-Person Award Limitations.          (a) Eligibility. Awards may be granted under the Plan only to Eligible Persons.          (b) Per-Person Award Limitations. In any one calendar year, an Eligible Person maynot be granted Options or Stock Appreciation Rights under which more than 2,000,000 Shares could bereceived by the Participant, subject to adjustment as provided in Section 10(c). In any onecalendar year, an Eligible Person may not be granted Awards (other than
- 9 -

 
an Option or Stock Appreciation Right) under which more than 2,000,000 Shares could bereceived by the Participant, subject to adjustment as provided in Section 10(c). In addition, inany one calendar year, an Eligible Person may not be granted Performance Awards (other than Optionsor Stock Appreciation Rights) under which more than $10,000,000 could be received by theParticipant.     6. Terms of Awards.          (a) General. Awards may be granted on the terms and conditions set forth in thisSection 6. In addition, the Plan Administrator may impose on any Award or the exercise thereof, atthe date of grant or thereafter (subject to Section 10(e)), such additional terms and conditions,not inconsistent with the provisions of the Plan, as the Plan Administrator shall determine,including terms requiring forfeiture of Awards in the event of termination of the Participant’sContinuous Service and terms permitting a Participant to make elections relating to his or herAward. The Plan Administrator shall retain full power and discretion to accelerate, waive ormodify, at any time, any term or condition of an Award that is not mandatory under the Plan.          (b) Options. The Plan Administrator is authorized to grant Options to any EligiblePerson on the following terms and conditions:               (i) Stock Option Agreement. Each grant of an Option shall be evidenced by an AwardAgreement. Such Award Agreement shall be subject to all applicable terms and conditions of thePlan and may be subject to any other terms and conditions which are not inconsistent with the Planand which the Plan Administrator deems appropriate for inclusion in the Award Agreement. Theprovisions of the various Award Agreements entered into under the Plan need not be identical.               (ii) Number of Shares. Each Award Agreement shall specify the number of Shares thatare subject to the Option and shall provide for the adjustment of such number in accordance withSection 10(c) hereof. The Award Agreement shall also specify whether the Stock Option is anIncentive Stock Option or a Non-Qualified Stock Option.               (iii) Exercise Price.                    (A) In General. Each Award Agreement shall state the price at which Shares subject tothe Option may be purchased (the “Exercise Price”), which shall be, with respect to Incentive StockOptions, not less than 100% of the Fair Market Value of the Stock on the date of grant. In thecase of Non-Qualified Stock Options, the Exercise Price shall be determined in the sole discretionof the Plan Administrator; provided, however, that notwithstanding any other provision of the Plan,any Non-Qualified Stock Option granted with a per Share exercise price less than the per Share FairMarket Value on the date of grant shall be structured to avoid the imposition of any excise taxunder Code Section 409A, unless otherwise specifically determined by the Plan Administrator.                    (B) Ten Percent Shareholder. If a Participant owns or is deemed to own (by reason ofthe attribution rules applicable under Section 424(d) of the Code) more than 10% of the combinedvoting power of all classes of stock of the Company or any Parent or
- 10 -

 
Subsidiary, any Incentive Stock Option granted to such Employee must have an exercise priceper Share of at least 110% of the Fair Market Value of a Share on the date of grant.               (iv) Time and Method of Exercise. The Plan Administrator shall determine the time ortimes at which or the circumstances under which an Option may be exercised in whole or in part(including based on achievement of performance goals and/or future service requirements), the timeor times at which Options shall cease to be or become exercisable following termination ofContinuous Service or upon other conditions, the methods by which the exercise price may be paid ordeemed to be paid (including, in the discretion of the Plan Administrator, a cashless exerciseprocedure), the form of such payment, including, without limitation, cash, Stock, net exercise,other Awards or awards granted under other plans of the Company or a Related Entity, other property(including notes or other contractual obligations of Participants to make payment on a deferredbasis) or any other form of consideration legally permissible, and the methods by or forms in whichStock will be delivered or deemed to be delivered to Participants.               (v) Termination of Service. Subject to earlier termination of the Option as otherwiseprovided in the Plan and unless otherwise provided by the Plan Administrator with respect to anOption and set forth in the Award Agreement, an Option shall be exercisable after a Participant’stermination of Continuous Service only during the applicable time period determined in accordancewith this Section and thereafter shall terminate and no longer be exercisable:                    (A) Death or Disability. If the Participant’s Continuous Service terminates becauseof the death or Disability of the Participant, the Option, to the extent unexercised andexercisable on the date on which the Participant’s Continuous Service terminated, may be exercisedby the Participant (or the Participant’s legal representative or estate) at any time prior to theexpiration of twelve (12) months (or such other period of time as determined by the PlanAdministrator, in its discretion) after the date on which the Participant’s Continuous Serviceterminated, but in any event only with respect to the vested portion of the Option and no laterthan the date of expiration of the Option’s term as set forth in the Award Agreement evidencingsuch Option (the “Option Expiration Date”).                    (B) Termination for Cause. Notwithstanding any other provision of the Plan to thecontrary, if the Participant’s Continuous Service is terminated for Cause, the Option shallterminate and cease to be exercisable immediately upon such termination of Continuous Service.                    (C) Other Termination of Service. If the Participant’s Continuous Service terminatesfor any reason, except Disability, death or Cause, the Option, to the extent unexercised andexercisable by the Participant on the date on which the Participant’s Continuous Serviceterminated, may be exercised by the Participant at any time prior to the expiration of three (3)months (or such longer period of time as determined by the Plan Administrator, in its discretion)after the date on which the Participant’s Continuous Service terminated, but in any event only withrespect to the vested portion of the Option and no later than the Option Expiration Date.
- 11 -

 
               (vi) Incentive Stock Options. The terms of any Incentive Stock Option granted underthe Plan shall comply in all respects with the provisions of Section 422 of the Code. If and tothe extent required to comply with Section 422 of the Code, Options granted as Incentive StockOptions shall be subject to the following special terms and conditions:                    (1) The Option shall not be exercisable more than ten years after the date such IncentiveStock Option is granted; provided, however, that if a Participant owns or is deemed to own (byreason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined votingpower of all classes of stock of the Company or any Parent or Subsidiary and the Incentive StockOption is granted to such Participant, the Incentive Stock Option shall not be exercisable (to theextent required by the Code at the time of the grant) for no more than five years from the date ofgrant; and                    (2) If the aggregate Fair Market Value (determined as of the date the Incentive Stock Optionis granted) of the Shares with respect to which Incentive Stock Options granted under the Plan andall other option plans of the Company, its Parent or any Subsidiary are exercisable for the firsttime by a Participant during any calendar year in excess of $100,000, then such Participant’sIncentive Stock Option(s) or portions thereof that exceed such $100,000 limit shall be treated asNon-Qualified Stock Options (in the reverse order in which they were granted, so that the lastIncentive Stock Option will be the first treated as a Non-Qualified Stock Option). This paragraphshall only apply to the extent such limitation is applicable under the Code at the time of thegrant.          (c) Stock Appreciation Rights. The Plan Administrator is authorized to grant StockAppreciation Rights to Participants on the following terms and conditions:               (i) Agreement. Each grant of a Stock Appreciation Right shall be evidenced by anAward Agreement. Such Award Agreement shall be subject to all applicable terms and conditions ofthe Plan and may be subject to any other terms and conditions which are not inconsistent with thePlan and which the Plan Administrator deems appropriate for inclusion in the Award Agreement. Theprovisions of the various Award Agreements entered into under the Plan need not be identical.               (ii) Right to Payment. A Stock Appreciation Right shall confer on the Participant towhom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair MarketValue of one Share on the date of exercise over (B) the grant price of the Stock Appreciation Rightas determined by the Plan Administrator.               (iii) Other Terms. The Plan Administrator shall determine at the date of grant orthereafter, the time or times at which and the circumstances under which a Stock Appreciation Rightmay be exercised in whole or in part (including based on achievement of performance goals and/orfuture service requirements), the time or times at which Stock Appreciation Rights shall cease tobe or become exercisable following termination of Continuous Service or upon other conditions, theform of payment upon exercise of Shares, cash or other property, the method of exercise, method ofsettlement, form of consideration payable in settlement (either cash, Shares or other property),method by or forms in which Stock will be delivered or deemed to be delivered to Participants,whether or not a Stock Appreciation Right
- 12 -

 
shall be in tandem or in combination with any other Award, and any other terms and conditionsof any Stock Appreciation Right. Stock Appreciation Rights may be either freestanding or in tandemwith other Awards. Notwithstanding any other provision of the Plan, unless otherwise exempt fromSection 409A of the Code or otherwise specifically determined by the Plan Administrator, each StockAppreciation Right shall be structured to avoid the imposition of any excise tax under Section 409Aof the Code.          (d) Restricted Stock. The Plan Administrator is authorized to grant Restricted Stockto any Eligible Person on the following terms and conditions:               (i) Grant and Restrictions. Restricted Stock shall be subject to such restrictions ontransferability, risk of forfeiture and other restrictions, if any, as the Plan Administrator mayimpose, or as otherwise provided in this Plan. The terms of any Restricted Stock granted under thePlan shall be set forth in a written Award Agreement which shall contain provisions determined bythe Plan Administrator and not inconsistent with the Plan. The restrictions may lapse separatelyor in combination at such times, under such circumstances (including based on achievement ofperformance goals and/or future service requirements), in such installments or otherwise, as thePlan Administrator may determine at the date of grant or thereafter. Except to the extentrestricted under the terms of the Plan and any Award Agreement relating to the Restricted Stock, aParticipant granted Restricted Stock shall have all of the rights of a shareholder, including theright to vote the Restricted Stock and the right to receive dividends thereon (subject to anymandatory reinvestment or other requirement imposed by the Plan Administrator). During therestricted period applicable to the Restricted Stock, subject to Section 10(b) below, theRestricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwiseencumbered by the Participant.               (ii) Forfeiture. Except as otherwise determined by the Plan Administrator, upontermination of a Participant’s Continuous Service during the applicable restriction period, theParticipant’s Restricted Stock that is at that time subject to a risk of forfeiture that has notlapsed or otherwise been satisfied shall be forfeited to or reacquired by the Company; providedthat the Plan Administrator may provide, by rule or regulation or in any Award Agreement or maydetermine in any individual case, that restrictions or forfeiture conditions relating to RestrictedStock shall be waived in whole or in part in the event of terminations resulting from specifiedcauses, and the Plan Administrator may in other cases waive in whole or in part the forfeiture ofRestricted Stock.               (iii) Certificates for Shares. Restricted Stock granted under the Plan may beevidenced in such manner as the Plan Administrator shall determine. If certificates representingRestricted Stock are registered in the name of the Participant, the Plan Administrator may requirethat such certificates bear an appropriate legend referring to the terms, conditions andrestrictions applicable to such Restricted Stock, that the Company retain physical possession ofthe certificates, that the certificates be kept with an escrow agent and that the Participantdeliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.               (iv) Dividends and Splits. As a condition to the grant of an Award of RestrictedStock, the Plan Administrator may require that any cash dividends paid on a Share of RestrictedStock be automatically reinvested in additional Shares of Restricted Stock or applied to
- 13 -

 
the purchase of additional Awards under the Plan. Unless otherwise determined by the PlanAdministrator, Shares distributed in connection with a stock split or stock dividend, and otherproperty distributed as a dividend, shall be subject to restrictions and a risk of forfeiture tothe same extent as the Restricted Stock with respect to which such Shares or other property hasbeen distributed.          (e) Stock Units. The Plan Administrator is authorized to grant Stock Units toParticipants, which are rights to receive Shares, cash or other property, or a combination thereofat the end of a specified time period, subject to the following terms and conditions:               (i) Award and Restrictions. Satisfaction of an Award of Stock Units shall occur uponexpiration of the time period specified for such Stock Units by the Plan Administrator (or, ifpermitted by the Plan Administrator, as elected by the Participant). In addition, Stock Unitsshall be subject to such restrictions (which may include a risk of forfeiture) as the PlanAdministrator may impose, if any, which restrictions may lapse at the expiration of the time periodor at earlier specified times (including based on achievement of performance goals and/or futureservice requirements), separately or in combination, in installments or otherwise, as the PlanAdministrator may determine. The terms of an Award of Stock Units shall be set forth in a writtenAward Agreement which shall contain provisions determined by the Plan Administrator and notinconsistent with the Plan. Stock Units may be satisfied by delivery of Stock, cash equal to theFair Market Value of the specified number of Shares covered by the Stock Units, or a combinationthereof, as determined by the Plan Administrator at the date of grant or thereafter. Prior tosatisfaction of an Award of Stock Units, an Award of Stock Units carries no voting or dividend orother rights associated with Share ownership. Notwithstanding any other provision of the Plan,unless otherwise exempt from Section 409A of the Code or otherwise specifically determined by thePlan Administrator, each Stock Unit shall be structured to avoid the imposition of any excise taxunder Section 409A of the Code.               (ii) Forfeiture. Except as otherwise determined by the Plan Administrator, upontermination of a Participant’s Continuous Service during the applicable time period thereof towhich forfeiture conditions apply (as provided in the Award Agreement evidencing the Stock Units),the Participant’s Stock Units (other than those Stock Units subject to deferral at the election ofthe Participant) shall be forfeited; provided that the Plan Administrator may provide, by rule orregulation or in any Award Agreement or may determine in any individual case, that restrictions orforfeiture conditions relating to Stock Units shall be waived in whole or in part in the event ofterminations resulting from specified causes, and the Plan Administrator may in other cases waivein whole or in part the forfeiture of Stock Units.               (iii) Dividend Equivalents. Unless otherwise determined by the Plan Administrator atdate of grant, any Dividend Equivalents that are granted with respect to any Award of Stock Unitsshall be either (A) paid with respect to such Stock Units at the dividend payment date in cash orin Shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends or(B) deferred with respect to such Stock Units and the amount or value thereof automatically deemedreinvested in additional Stock Units, other Awards or other investment vehicles, as the PlanAdministrator shall determine or permit the Participant to elect.
- 14 -

 
          (f) Bonus Stock and Awards in Lieu of Obligations. The Plan Administrator isauthorized to grant Shares as a bonus or to grant Shares or other Awards in lieu of Companyobligations to pay cash or deliver other property under the Plan or under other plans orcompensatory arrangements, provided that, in the case of Participants subject to Section 16 of theExchange Act, the amount of such grants remains within the discretion of the Plan Administrator tothe extent necessary to ensure that acquisitions of Shares or other Awards are exempt fromliability under Section 16(b) of the Exchange Act. Shares or Awards granted hereunder shall besubject to such other terms as shall be determined by the Plan Administrator.          (g) Dividend Equivalents. The Plan Administrator is authorized to grant DividendEquivalents to any Eligible Person entitling the Eligible Person to receive cash, Shares, otherAwards, or other property equal in value to dividends paid with respect to a specified number ofShares, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basisor in connection with another Award. The terms of an Award of Dividend Equivalents shall be setforth in a written Award Agreement which shall contain provisions determined by the PlanAdministrator and not inconsistent with the Plan. The Plan Administrator may provide that DividendEquivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested inadditional Stock, Awards, or other investment vehicles, and subject to such restrictions ontransferability and risks of forfeiture, as the Plan Administrator may specify. Notwithstandingany other provision of the Plan, unless otherwise exempt from Section 409A of the Code or otherwisespecifically determined by the Plan Administrator, each Dividend Equivalent shall be structured toavoid the imposition of any excise tax under Section 409A of the Code.          (h) Performance Awards. The Plan Administrator is authorized to grant PerformanceAwards to any Eligible Person payable in cash, Shares, other property, or other Awards, on termsand conditions established by the Plan Administrator, subject to the provisions of Section 7 if andto the extent that the Plan Administrator shall, in its sole discretion, determine that an Awardshall be subject to those provisions. The performance criteria to be achieved during anyPerformance Period and the length of the Performance Period shall be determined by the PlanAdministrator upon the grant of each Performance Award. Except as provided in this Plan or as maybe provided in an Award Agreement, Performance Awards will be distributed only after the end of therelevant Performance Period. The performance goals to be achieved for each Performance Periodshall be conclusively determined by the Plan Administrator and may be based upon the criteria setforth in Section 7(b), or in the case of an Award that the Plan Administrator determines shall notbe subject to Section 7 hereof, any other criteria that the Plan Administrator, in its solediscretion, shall determine should be used for that purpose. The amount of the Award to bedistributed shall be conclusively determined by the Plan Administrator. Performance Awards may bepaid in a lump sum or in installments following the close of the Performance Period or, inaccordance with procedures established by the Plan Administrator, on a deferred basis.          (i) Other Stock-Based Awards. The Plan Administrator is authorized, subject tolimitations under applicable law, to grant to any Eligible Person such other Awards that may bedenominated or payable in, valued in whole or in part by reference to, or otherwise based on, orrelated to, Shares, as deemed by the Plan Administrator to be consistent with the purposes of thePlan, including, without limitation, convertible or exchangeable debt securities, other rightsconvertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment
- 15 -

 
contingent upon performance of the Company or any other factors designated by the PlanAdministrator, and Awards valued by reference to the book value of Stock or the value of securitiesof or the performance of specified Related Entities or business units. The Plan Administratorshall determine the terms and conditions of such Awards. The terms of any Award pursuant to thisSection shall be set forth in a written Award Agreement which shall contain provisions determinedby the Plan Administrator and not inconsistent with the Plan. Stock delivered pursuant to an Awardin the nature of a purchase right granted under this Section 6(h) shall be purchased for suchconsideration (including without limitation loans from the Company or a Related Entity), paid forat such times, by such methods, and in such forms, including, without limitation, cash, Stock,other Awards or other property, as the Plan Administrator shall determine. Cash awards, as anelement of or supplement to any other Award under the Plan, may also be granted pursuant to thisSection 6(h). Notwithstanding any other provision of the Plan, unless otherwise exempt fromSection 409A of the Code or otherwise specifically determined by the Plan Administrator, each suchAward shall be structured to avoid the imposition of any excise tax under Section 409A of the Code.     7. Tax Qualified Performance Awards.          (a) Covered Employees. A Committee, composed in compliance with the requirements ofSection 162(m) of the Code, in its discretion, may determine at the time an Award is granted to anEligible Person who is, or is likely to be, as of the end of the tax year in which the Companywould claim a tax deduction in connection with such Award, a Covered Employee, that the provisionsof this Section 7 shall be applicable to such Award.          (b) Performance Criteria. If an Award is subject to this Section 7, then the lapsingof restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, asapplicable, shall be contingent upon achievement of one or more objective performance goals.Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) ofthe Code and regulations thereunder including the requirement that the level or levels ofperformance targeted by the Committee result in the achievement of performance goals being“substantially uncertain.” One or more of the following business criteria for the Company, on aconsolidated basis, and/or for Related Entities, or for business or geographical units of theCompany and/or a Related Entity (except with respect to the total stockholder return and earningsper share criteria), shall be used by the Committee in establishing performance goals for suchAwards: (1) earnings per Share; (2) revenues or gross margins; (3) cash flow; (4) operating margin;(5) return on net assets, investment, capital, or equity; (6) economic value added; (7) directcontribution; (8) net income; pretax earnings; earnings before interest and taxes; earnings beforeinterest, taxes, depreciation and amortization; earnings after interest expense and beforeextraordinary or special items; operating income; income before interest income or expense, unusualitems and income taxes, local, state or federal and excluding budgeted and actual bonuses whichmight be paid under any ongoing bonus plans of the Company; (9) working capital; (10) management offixed costs or variable costs; (11) identification or consummation of investment opportunities orcompletion of specified projects in accordance with corporate business plans, including strategicmergers, acquisitions or divestitures; (12) total stockholder return; and (13) debt reduction. Anyof the above goals may be determined on an absolute or relative basis or as compared to theperformance of a published or special index deemed applicable by the Committee including, but notlimited to, the Standard & Poor’s 500 Stock Index or a group of companies that
- 16 -

 
are comparable to the Company. The Committee shall exclude the impact of an event oroccurrence which the Committee determines should appropriately be excluded, including withoutlimitation (i) restructurings, discontinued operations, extraordinary items, and other unusual ornon-recurring charges, (ii) an event either not directly related to the operations of the Companyor not within the reasonable control of the Company’s management, or (iii) a change in accountingstandards required by generally accepted accounting principles.          (c) Performance Period; Timing For Establishing Performance Goals. Achievement ofperformance goals in respect of such Performance Awards shall be measured over a PerformancePeriod, as specified by the Committee. Performance goals shall be established not later thanninety (90) days after the beginning of any Performance Period applicable to such PerformanceAwards, or at such other date as may be required or permitted for “performance-based compensation”under Section 162(m) of the Code.          (d) Adjustments. The Committee may, in its discretion, reduce the amount of asettlement otherwise to be made in connection with Awards subject to this Section 7, but may notexercise discretion to increase any such amount payable to a Covered Employee in respect of anAward subject to this Section 7. The Committee shall specify the circumstances in which suchAwards shall be paid or forfeited in the event of termination of Continuous Service by theParticipant prior to the end of a Performance Period or settlement of Awards.          (e) Committee Certification. Within a reasonable period of time after the performancecriteria have been satisfied (but no later than three (3) months after the satisfaction of theperformance criteria), to the extent necessary to qualify the payments as “performance basedcompensation” under Section 162(m) of the Code, the Committee shall certify, by resolution or otherappropriate action in writing, that the performance criteria and any other material termspreviously established by the Committee or set forth in the Plan, have been satisfied. To theextent that the performance criteria have been satisfied, but the Committee has not certified suchresult within three (3) months after such satisfaction, then the Participant shall receive thepayment provided for under the Participant’s Award.     8. Certain Provisions Applicable to Awards or Sales.          (a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards granted under thePlan may, in the discretion of the Plan Administrator, be granted either alone or in addition to,in tandem with or in substitution or exchange for, any other Award or any award granted underanother plan of the Company, any Related Entity or any business entity to be acquired by theCompany or a Related Entity or any other right of a Participant to receive payment from the Companyor any Related Entity. Such additional, tandem, and substitute or exchange Awards may be grantedat any time. If an Award is granted in substitution or exchange for another Award or award, thePlan Administrator shall require the surrender of such other Award or award in consideration forthe grant of the new Award. In addition, Awards may be granted in lieu of cash compensation,including in lieu of cash amounts payable under other plans of the Company or any Related Entity.          (b) Form and Timing of Payment Under Awards; Deferrals. Subject to the terms of thePlan and any applicable Award Agreement, payments to be made by the Company or
- 17 -

 
a Related Entity upon the exercise of an Option or other Award or settlement of an Award maybe made in such forms as the Plan Administrator shall determine, including, without limitation,cash, other Awards or other property, and may be made in a single payment or transfer, ininstallments or on a deferred basis. The settlement of any Award may be accelerated, and cash paidin lieu of Shares in connection with such settlement, in the discretion of the Plan Administratoror upon occurrence of one or more specified events (in addition to a Change in Control).Installment or deferred payments may be required by the Plan Administrator (subject to Section10(g) of the Plan) or permitted at the election of the Participant on terms and conditionsestablished by the Plan Administrator. Payments may include, without limitation, provisions forthe payment or crediting of a reasonable interest rate on installment or deferred payments or thegrant or crediting of Dividend Equivalents or other amounts in respect of installment or deferredpayments denominated in Shares.          (c) Exemptions from Section 16(b) Liability. It is the intent of the Company thatthis Plan comply in all respects with applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) tothe extent necessary to ensure that neither the grant of any Awards to nor other transaction by aParticipant who is subject to Section 16 of the Exchange Act is subject to liability under Section16(b) thereof (except for transactions acknowledged in writing to be non-exempt by suchParticipant). Accordingly, if any provision of this Plan or any Award Agreement does not complywith the requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction,such provision will be construed or deemed amended to the extent necessary to conform to theapplicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall avoidliability under Section 16(b).          (d) Code Section 409A. If and to the extent that the Plan Administrator believes thatany Awards may constitute “deferred compensation” under Section 409A of the Code, the terms andconditions set forth in the Award Agreement for that Award shall be drafted in a manner that isintended to comply with, and shall be interpreted in a manner consistent with, the applicablerequirements of Section 409A of the Code, unless otherwise agreed to in writing by the Participantand the Company.     9. Change in Control; Corporate Transaction.          (a) Change in Control.               (i) The Plan Administrator may, in its discretion, accelerate the vesting, exercisability,lapsing of restrictions or expiration of deferral of any Award, including upon a Change in Control.In addition, the Plan Administrator may provide in an Award Agreement that the performance goalsrelating to any Award will be deemed to have been met upon the occurrence of any Change in Control.               (ii) In addition to the terms of Sections 9(a)(i) above, the effect of a “change in control,”may be provided (1) in an employment, compensation or severance agreement, if any, between theCompany or any Related Entity and the Participant, relating to the Participant’s employment,compensation or severance with or from the Company or such Related Entity or (2) in the AwardAgreement.
- 18 -

 
          (b) Corporate Transactions. In the event of a Corporate Transaction, any survivingcorporation or acquiring corporation (together, the “Successor Corporation”) may either (i) assumeany or all Awards outstanding under the Plan; (ii) continue any or all Awards outstanding under thePlan; or (iii) substitute similar stock awards for outstanding Awards (it being understood thatsimilar awards include, but are not limited to, awards to acquire the same consideration paid tothe shareholders or the Company, as the case may be, pursuant to the Corporate Transaction). Inthe event that the Successor Corporation does not assume or continue any or all such outstandingAwards or substitute similar stock awards for such outstanding Awards, then with respect to Awardsthat have been not assumed, continued or substituted, such Awards shall terminate if not exercised(if applicable) at or prior to such effective time (contingent upon the effectiveness of theCorporate Transaction).               The Administrator, in its sole discretion, shall determine whether each Award is assumed,continued, substituted or terminated. Notwithstanding the foregoing, to the extent thatsubstantially all of the holders of the Company’s Voting Stock hold or receive directly orindirectly ninety percent (90%) or more of the Voting Stock of the resulting entity or a parentcompany thereof, in substantially the same proportions as their ownership of the Companyimmediately prior to the transaction, the Awards shall be either assumed or substituted by thesuccessor corporation or its parent or continued by the Company.          The Plan Administrator, in its discretion and without the consent of any Participant, may (butis not obligated to) either (i) accelerate the vesting of any Awards (determined on an Award byAward basis), including permitting the lapse of any repurchase rights held by the Company (and, ifapplicable, the time at which such Awards may be exercised), in full or as to some percentage ofthe Award, to a date prior to the effective time of such Corporate Transaction as the PlanAdministrator shall determine (contingent upon the effectiveness of the Corporate Transaction) or(ii) provide for a cash payment in exchange for the termination of an Award or any portion thereof(determined on an Award by Award basis) where such cash payment is equal to the Fair Market Valueof the Shares that the Participant would receive if the Award were fully vested and exercised (ifapplicable) as of such date (less any applicable exercise price).          Notwithstanding any other provision in this Plan to the contrary, with respect to RestrictedStock and any other Award granted under the Plan with respect to which the Company has anyreacquisition or repurchase rights, the reacquisition or repurchase rights for such Awards may beassigned by the Company to the successor of the Company (or the successor’s parent company) inconnection with such Corporate Transaction. In the event any such rights are not continued withthe Company or assigned to the Successor Corporation, then such rights shall lapse and the Awardshall be fully vested as of the effective time of the Corporate Transaction. In addition, the PlanAdministrator, in its discretion, may (but is not obligated to) provide that any reacquisition orrepurchase rights held by the Company with respect to any such Awards (determined on an Award byAward basis) shall lapse in whole or in part (contingent upon the effectiveness of the CorporateTransaction).          (c) Dissolution or Liquidation. In the event of a dissolution or liquidation of theCompany, then all outstanding Awards shall terminate immediately prior to the completion of suchdissolution or liquidation, and Shares subject to the Company’s repurchase option may be
- 19 -

 
repurchased by the Company notwithstanding the fact that the holder of such stock is still inContinuous Service.     10. General Provisions.          (a) Compliance With Legal and Other Requirements. The Company may, to the extentdeemed necessary or advisable by the Plan Administrator, postpone the issuance or delivery ofShares or payment of other benefits under any Award until completion of such registration orqualification of such Shares or other required action under any federal or state law, rule orregulation, listing or other required action with respect to any stock exchange or automatedquotation system upon which the Shares or other Company securities are listed or quoted orcompliance with any other obligation of the Company, as the Plan Administrator may considerappropriate, and may require any Participant to make such representations, furnish such informationand comply with or be subject to such other conditions as it may consider appropriate in connectionwith the issuance or delivery of Shares or payment of other benefits in compliance with applicablelaws, rules, and regulations, listing requirements or other obligations. The foregoingnotwithstanding, in connection with a Change in Control, the Company shall take or cause to betaken no action, and shall undertake or permit to arise no legal or contractual obligation, thatresults or would result in any postponement of the issuance or delivery of Shares or payment ofbenefits under any Award or the imposition of any other conditions on such issuance, delivery orpayment, to the extent that such postponement or other condition would represent a greater burdenon a Participant than existed on the ninetieth (90th) day preceding the Change inControl.          (b) Limits on Transferability; Beneficiaries.               (i) General. Except as provided in the Award Agreement, a Participant may not assign,sell, transfer or otherwise encumber or subject to any lien any Award or other right or interestgranted under this Plan, in whole or in part, other than by will or by operation of the laws ofdescent and distribution, and such Awards or rights that may be exercisable shall be exercisedduring the lifetime of the Participant only by the Participant or his or her guardian or legalrepresentative.               (ii) Permitted Transfer of Option. The Plan Administrator, in its sole discretion,may permit the transfer of an Option (but not an Incentive Stock Option or any other right topurchase Shares other than an Option) as follows: (A) by gift to a member of the Participant’sImmediate Family or (B) by transfer by instrument to a trust providing that the Option is to bepassed to beneficiaries upon death of the Participant. For purposes of this Section 10(b)(ii),“Immediate Family” shall mean the Participant’s spouse (including a former spouse subject to termsof a domestic relations order); child, stepchild, grandchild, child-in-law; parent, stepparent,grandparent, parent-in-law; sibling and sibling-in-law, and shall include adoptive relationships.If a determination is made by counsel for the Company that the restrictions contained in thisSection 10(b)(ii) are not required by applicable federal or state securities laws under thecircumstances, then the Plan Administrator, in its sole discretion, may permit the transfer ofAwards (other than Incentive Stock Options and Stock Appreciation Rights in tandem therewith) toone or more Beneficiaries or other transferees during the lifetime of the Participant, which may beexercised by such transferees in accordance with the terms of such Award, but only if and to theextent permitted by the Plan Administrator pursuant to the express terms of an Award
- 20 -

 
Agreement (subject to any terms and conditions which the Plan Administrator may imposethereon, and further subject to any prohibitions and restrictions on such transfers pursuant toRule 16b-3). A Beneficiary, transferee or other person claiming any rights under the Plan from orthrough any Participant shall be subject to all terms and conditions of the Plan and any AwardAgreement applicable to such Participant, except as otherwise determined by the Plan Administrator,and to any additional terms and conditions deemed necessary or appropriate by the PlanAdministrator.          (c) Adjustments.               (i) Adjustments to Awards. In the event that any dividend or other distribution(whether in the form of cash, Shares or other property), recapitalization, forward or reversesplit, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange,liquidation, dissolution or other similar corporate transaction or event affects the Shares and/orsuch other securities of the Company or any other issuer such that a substitution, exchange oradjustment is determined by the Plan Administrator to be appropriate, then the Plan Administratorshall, in such manner as it may deem equitable, substitute, exchange or adjust any or all of (A)the number and kind of Shares which may be delivered in connection with Awards granted thereafter,(B) the number and kind of Shares by which annual per-person Award limitations are measured underSection 5 hereof, (C) the number and kind of Shares subject to or deliverable in respect ofoutstanding Awards, (D) the exercise price, grant price or purchase price relating to any Awardand/or make provision for payment of cash or other property in respect of any outstanding Award,and (E) any other aspect of any Award that the Plan Administrator determines to be appropriate.               (ii) Other Adjustments. The Plan Administrator (which shall be a Committee to theextent such authority is required to be exercised by a Committee to comply with Code Section162(m)) is authorized to make adjustments in the terms and conditions of, and the criteria includedin, Awards (including Awards subject to performance goals) in recognition of unusual ornonrecurring events (including, without limitation, acquisitions and dispositions of businesses andassets) affecting the Company, any Related Entity or any business unit, or the financial statementsof the Company or any Related Entity, or in response to changes in applicable laws, regulations,accounting principles, tax rates and regulations or business conditions or in view of the PlanAdministrator’s assessment of the business strategy of the Company, any Related Entity or businessunit thereof, performance of comparable organizations, economic and business conditions, personalperformance of a Participant, and any other circumstances deemed relevant; provided that no suchadjustment shall be authorized or made if and to the extent that such authority or the making ofsuch adjustment would cause Options, Stock Appreciation Rights or Performance Awards granted toParticipants designated by the Plan Administrator as Covered Employees and intended to qualify as“performance-based compensation” under Code Section 162(m) and the regulations thereunder tootherwise fail to qualify as “performance-based compensation” under Code Section 162(m) andregulations thereunder.          (d) Taxes. The Company and any Related Entity are authorized to withhold from anyAward granted, any payment relating to an Award under the Plan, including from a distribution ofShares or any payroll or other payment to a Participant, amounts of withholding and other taxes dueor potentially payable in connection with any transaction involving an Award, and to take suchother action as the Plan Administrator may deem advisable to enable the Company
- 21 -

 
and Participants to satisfy obligations for the payment of withholding taxes and other taxobligations relating to any Award. This authority shall include authority to withhold or receiveShares or other property and to make cash payments in respect thereof in satisfaction of aParticipant’s tax obligations, either on a mandatory or elective basis in the discretion of thePlan Administrator.          (e) Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinueor terminate the Plan or the Committee’s authority to grant Awards under the Plan, without theconsent of shareholders or Participants. Any amendment or alteration to the Plan shall be subjectto the approval of the Company’s shareholders if such shareholder approval is deemed necessary andadvisable by the Board. However, without the consent of an affected Participant, no such amendment,alteration, suspension, discontinuance or termination of the Plan may materially and adverselyaffect the rights of such Participant under any previously granted and outstanding Award. The PlanAdministrator may waive any conditions or rights under or amend, alter, suspend, discontinue orterminate any Award theretofore granted and any Award Agreement relating thereto, except asotherwise provided in the Plan; provided that, without the consent of an affected Participant, nosuch action may materially and adversely affect the rights of such Participant under such Award.          (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any action takenhereunder shall be construed as (i) giving any Eligible Person or Participant the right to continueas an Eligible Person or Participant or in the employ of the Company or a Related Entity; (ii)interfering in any way with the right of the Company or a Related Entity to terminate any EligiblePerson’s or Participant’s Continuous Service at any time, (iii) giving an Eligible Person orParticipant any claim to be granted any Award under the Plan or to be treated uniformly with otherParticipants and Employees or (iv) conferring on a Participant any of the rights of a shareholderof the Company unless and until the Participant is duly issued or transferred Shares in accordancewith the terms of an Award.          (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitutean “unfunded” plan for incentive and deferred compensation. With respect to any payments not yetmade to a Participant or obligations to deliver Shares pursuant to an Award, nothing contained inthe Plan or any Award shall give any such Participant any rights that are greater than those of ageneral creditor of the Company; provided that the Plan Administrator may authorize the creation oftrusts and deposit therein cash, Shares, other Awards or other property or make other arrangementsto meet the Company’s obligations under the Plan. Such trusts or other arrangements shall beconsistent with the “unfunded” status of the Plan unless the Plan Administrator otherwisedetermines with the consent of each affected Participant. The trustee of such trusts may beauthorized to dispose of trust assets and reinvest the proceeds in alternative investments, subjectto such terms and conditions as the Plan Administrator may specify and in accordance withapplicable law.          (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor itssubmission to the shareholders of the Company for approval shall be construed as creating anylimitations on the power of the Plan Administrator to adopt such other incentive arrangements as itmay deem desirable including incentive arrangements and awards which do not qualify under CodeSection 162(m).
- 22 -

 
          (i) Fractional Shares. No fractional Shares shall be issued or delivered pursuant tothe Plan or any Award. The Plan Administrator shall determine whether cash, other Awards or otherproperty shall be issued or paid in lieu of such fractional shares or whether such fractionalshares or any rights thereto shall be forfeited or otherwise eliminated.          (j) Governing Law. The validity, construction and effect of the Plan, any rules andregulations under the Plan, and any Award Agreement shall be determined in accordance with the lawsof the State of California without giving effect to principles of conflicts of laws, and applicablefederal law.          (k) Plan Effective Date and Shareholder Approval; Termination of Plan. The Plan shallbecome effective on the Effective Date, subject to approval of its adoption by the Board byshareholders of the Company eligible to vote in the election of directors, by a vote sufficient tomeet the requirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3 under theExchange Act (if applicable), applicable and other laws, regulations, and obligations of theCompany applicable to the Plan. Awards may be granted subject to shareholder approval, but may notbe exercised or otherwise settled in the event shareholder approval is not obtained. The Planshall terminate no later than ten (10) years from the date of the later of (x) the Effective Dateand (y) the date an increase in the number of Shares reserved for issuance under the Plan isapproved by the Board (subject such increase is also approved by the shareholders).
- 23 -

 
**Xcorporeal, Inc.****2006 Incentive Compensation Plan****Stock Option Agreement**     Unless otherwise defined herein, the terms defined in the 2006 Incentive CompensationPlan (the “***Plan***”) shall have the same defined meanings in this Stock Option Agreement (this “***OptionAgreement***”).**I. NOTICE OF STOCK OPTION GRANT**   **Name:**        **Address:**          The undersigned Optionee has been granted an Option to purchase Common Stock of the Company,subject to the terms and conditions of the Plan and this Option Agreement, as follows:   **Date of Grant:**        **Vesting Commencement Date:**        **Exercise Price per Share:** $      **Total Number of Shares Granted:**        **Total Exercise Price:** $      **Type of Option:**    ___  Nonstatutory Stock Option     ___  Incentive Stock Option     **Expiration Date:**As provided in Section 3 of this Option Agreement.     **Vesting Schedule:**This Option shall be vested according to the following vesting schedule:***[25% of the Shares subject to the Option shall vest on the each of the first fouranniversaries of the Vesting Commencement Date so that the Option is fully vested on thefourth anniversary of the Vesting Commencement Date, subject to Optionee’s ContinuousService on such dates*****.]****Exercise Schedule:**To the extent vested, this Option shall be exercisable during its term asprovided in Section 3 of this Option Agreement.
 

 
**II. AGREEMENT**     1. Grant of Option. The Plan Administrator of the Company hereby grants to theOptionee named in the Notice of Stock Option Grant (the “***Optionee***”), an option (the “***Option***”) topurchase the number of Shares set forth in the Notice of Stock Option Grant, at the exercise priceper Share set forth in the Notice of Stock Option Grant (the “***Exercise Price***”), and subject to theterms and conditions of the Plan, which is incorporated herein by reference. Subject to Section10(e) of the Plan, in the event of a conflict between the terms and conditions of the Plan and thisOption Agreement, the terms and conditions of the Plan shall prevail.     If designated in the Notice of Stock Option Grant as an Incentive Stock Option (“*ISO*”), thisOption is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code.Nevertheless, to the extent that the Option exceeds the $100,000 rule of Code Section 422(d), thisOption shall be treated as a Nonstatutory Stock Option (“*NSO*”).     2. Exercise of Option.          (a) Right to Exercise. This Option shall be exercisable during its term in accordancewith the Vesting Schedule set out in the Notice of Stock Option Grant and with the applicableprovisions of the Plan and this Option Agreement.          (b) Method of Exercise. This Option shall be exercisable by delivery of an exercisenotice in the form attached as Exhibit A (the “***Exercise Notice***”) which shall state theelection to exercise the Option, the number of Shares with respect to which the Option is beingexercised, and such other representations and agreements as may be required by the Company.     No Shares shall be issued pursuant to the exercise of an Option unless such issuance and suchexercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Sharesshall be considered transferred to the Optionee on the date on which the Option is exercised withrespect to such Shares.     The Option shall be deemed exercised when the Company receives (i) written or electronicnotice of exercise (in accordance with this Option Agreement) from the Optionee (or other personentitled to exercise the Option), and (ii) full payment for the Shares with respect to which theOption is exercised (the “***Exercised Shares***”), and (iii) any other documents required by this OptionAgreement or the Exercise Notice. Full payment may consist of any consideration and method ofpayment permitted by this Option Agreement. Shares issued upon exercise of an Option shall beissued in the name of the Optionee or, if requested by the Optionee, in the name of the Optioneeand his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on thebooks of the Company or of a duly authorized transfer agent of the Company), no right to vote orreceive dividends or any other rights as a stockholder shall exist with respect to the Shares,notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) suchShares promptly after the Option is exercised. No adjustment will be made for a dividend or otherright for which the record date is prior to the date the Shares are issued, except as provided inSection 10(c) of the Plan.
- 2 -

 
     Exercise of this Option in any manner shall result in a decrease in the number of Sharesthereafter available for sale under the Option, by the number of Shares as to which the Option isexercised.     3. Term. Optionee may not exercise the Option before the commencement of its term orafter its term expires. During the term of the Option, Optionee may only exercise the Option tothe extent vested. The term of the Option commences on the Date of Grant and expires upon the***earliest***of the following:          (a) With respect to the unvested portion of the Option, upon termination of Optionee’sContinuous Service;          (b) With respect to the vested portion of the Option, sixty (60) days after the termination ofOptionee’s Continuous Service for any reason other than Optionee’s Disability, death or terminationfor Cause;          (c) With respect to the vested portion of the Option, immediately upon the termination ofOptionee’s Continuous Service for Cause;          (d) With respect to the vested portion of the Option, twelve (12) months after the terminationof Optionee’s Continuous Service due to Optionee’s Disability or death;          (e) Immediately prior to the close of certain Corporate Transactions, pursuant to Section 9(b)of the Plan; and          (f) The day before the tenth (10th) anniversary of the Date of Grant.     4. Method of Payment. Payment of the aggregate Exercise Price shall be by any of thefollowing, or a combination thereof, at the election of the Optionee:          (a) cash or check;          (b) in the discretion of the Company, determined at the time of exercise, considerationreceived by the Company under a formal broker-assisted stock option exercise program adopted by theCompany in connection with the Plan, if any;          (c) in the discretion of the Company, determined at the time of exercise, surrender of otherShares which, (i) in the case of Shares acquired from the Company, either directly or indirectly,have been owned by the Optionee for such length of time on the date of surrender as required underthe financial accounting rules to a void a compensation expense, and (ii) have a Fair Market Valueon the date of surrender equal to the aggregate Exercise Price of the Exercised Shares or suchportion of the aggregate Exercise Price of the Exercised Shares that is to be paid through thismethod;          (d) in the discretion of the Company, determined at the time of exercise, surrender of aportion of the Exercised Shares that have a Fair Market Value on the date of surrender equal to theaggregate Exercise Price of the Exercised Shares or such portion of the aggregate Exercise Price ofthe Exercised Shares that is to be paid through this method; or
- 3 -

 
          (d) any combination of the foregoing methods.     5. Optionee’s Representations. In the event the Shares have not been registered underthe Securities Act of 1933, as amended (the “***Securities Act***”), at the time this Option isexercised, the Optionee shall, if required by the Company, concurrently with the exercise of all orany portion of this Option, deliver to the Company an investment representation statement in a formsatisfactory to the Company.     6. Lock-Up Period. Optionee hereby agrees that Optionee shall not offer, pledge,sell, contract to sell, sell any option or contract to purchase, purchase any option or contract tosell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of,directly or indirectly, any Common Stock (or other securities) of the Company or enter into anyswap, hedging or other arrangement that transfers to another, in whole or in part, any of theeconomic consequences of ownership of any Common Stock (or other securities) of the Company held byOptionee (other than those included in the registration) for a period specified by therepresentative of the underwriters of Common Stock (or other securities) of the Company not toexceed ninety (90) days following the effective date of any registration statement of the Companyfiled under the Securities Act.     Optionee agrees to execute and deliver such other agreements as may be reasonably requested bythe Company or the underwriter which are consistent with the foregoing or which are necessary togive further effect thereto. In addition, if requested by the Company or the representative of theunderwriters of Common Stock (or other securities) of the Company, Optionee shall provide, withinten (10) days of such request, such information as may be required by the Company or suchrepresentative in connection with the completion of any public offering of the Company’s securitiespursuant to a registration statement filed under the Securities Act. The obligations described inthis Section shall not apply to a registration relating solely to employee benefit plans on FormS-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relatingsolely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated inthe future. The Company may impose stop-transfer instructions with respect to the shares of CommonStock (or other securities) subject to the foregoing restriction until the end of said one hundredeighty (180) day period. Optionee agrees that any transferee of the Option or shares acquiredpursuant to the Option shall be bound by this Section.     7. Restrictions on Exercise. This Option may not be exercised until such time as thePlan has been approved by the stockholders of the Company, or if the issuance of such Shares uponsuch exercise or the method of payment of consideration for such shares would constitute aviolation of any Applicable Law.     8. Non-Transferability of Option. Unless otherwise expressly permitted by the PlanAdministrator in writing, this Option may not be transferred in any manner otherwise than by willor by the laws of descent or distribution and may be exercised during the lifetime of Optionee onlyby Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors,administrators, heirs, successors and assigns of the Optionee.
- 4 -

 
     9. Tax Provisions.          (a) Tax Consequences. The Optionee may incur tax liability as a result of theOptionee’s purchase or disposition of the Shares. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFOREEXERCISING THE OPTION OR DISPOSING OF THE SHARES..          (b) Withholding Taxes. Optionee agrees to make appropriate arrangements with theCompany (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of allFederal, state, local and foreign income and employment tax withholding requirements applicable tothe Option exercise, including having the Company, in its sole discretion, withhold some of theExercised Shares. Optionee acknowledges and agrees that the Company may refuse to honor theexercise and refuse to deliver Shares if such withholding amounts are not delivered at the time ofexercise.          (c) Notice of Disqualifying Disposition of ISO Shares. If the Option granted toOptionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Sharesacquired pursuant to the ISO on or before the later of (1) the date two years after the Date ofGrant, or (2) the date one year after the date of exercise, the Optionee shall immediately notifythe Company in writing of such disposition.     10. Entire Agreement; Governing Law. The Plan is incorporated herein by reference.The Plan and this Option Agreement constitute the entire agreement of the parties with respect tothe subject matter hereof and supersede in their entirety all prior undertakings and agreements ofthe Company and Optionee with respect to the subject matter hereof, and may not be modifiedadversely to the Optionee’s interest except by means of a writing signed by the Company andOptionee. This agreement is governed by the internal substantive laws but not the choice of lawrules of California.     11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THEVESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICEPROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTIONOR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THETRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE ANEXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THECOMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH ORWITHOUT CAUSE.[*The remainder of this page has been intentionally left blank.*]
- 5 -

 
     Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiarwith the terms and provisions thereof, and hereby accepts this Option subject to all of the termsand provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has hadan opportunity to obtain the advice of counsel prior to executing this Option and fully understandsall provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and finalall decisions or interpretations of the Administrator upon any questions arising under the Plan orthis Option. Optionee further agrees to notify the Company upon any change in the residenceaddress indicated below.   **Optionee** **Xcorporeal, Inc.**         *Signature* *By*         *Print Name* *Title*               *Residence Address*  
- 6 -

 
**EXHIBIT A****Xcorporeal, Inc.**