**EXHIBIT 10.1**

 

**THE 2003 AMENDED AND RESTATED EQUITY PARTICIPATION PLAN**

 

**OF**

 

**SCPIE Holdings Inc.**

 

SCPIE Holdings Inc., a Delaware corporation, has adopted The 2003 Amended and Restated Equity Participation Plan of SCPIE Holdings Inc (the“Plan”), effective May 15, 2003, for the benefit of its eligible employees, consultants and directors. The Plan consists of two plans, one for the benefit of key Employees (as such term is defined below) and Consultants and one for thebenefit of Independent Directors (as such term is defined below) and constitutes an amendment and restatement of the 2001 Amended and Restated Equity Participation Plan of SCPIE Holdings Inc, as amended. 

 

The purposes of this Plan are as follows: 

 

(1) To provide an additional incentive for directors, key Employees andConsultants 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, keyEmployees 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.

1. 

 

DEFINITIONS 

 

1.1. General. Wherever the following terms are used in this Plan they shall have the meanings specified below, unless the context clearly indicatesotherwise. 

 

1.2. Award Limit. “Award Limit”shall mean 250,000 shares of Common Stock, as adjusted pursuant to Section 10.3; provided, however, that solely with respect to the cash component (if any) of Performance Awards or Dividend Equivalents granted pursuant to Section 7.2or Section 7.3, respectively, Award Limit shall mean $250,000. 

 

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

 

1.4. Change in Control. “Change in Control” shall mean a change in ownership or control of the Company effected through the occurrence ofany of the following: 

 

1.4.1. any Person (asdefined in Sections 13(d) and 14(d) of the Exchange Act is or becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting powerof the Company’s then outstanding securities (“Outstanding Company Voting Securities”); provided, however, that, for purposes of this subsection 1.4.1, the following shall not constitute a Change in Control: (i) any acquisition by theCompany or any corporation controlled by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iii) any acquisition by a Person of20% of the Outstanding Company Voting Securities as a result of an acquisition of Common Stock by the Company which, by reducing the number of shares of Common Stock of the Company outstanding, increases the proportionate number of sharesbeneficially owned by such Person to 20% or more of the Outstanding Company Voting Securities; provided, further, that if a Person shall become the beneficial owner of 20% or more of the Outstanding Company Voting Securities by reason of a shareacquisition by the Company as described above and shall, after such share acquisition by the Company, become the beneficial owner of any additional shares of Common Stock, then such acquisition shall constitute a Change in Control; 

 

1.4.2. during any period of two consecutive yearsindividuals who at the beginning of such period constitute the Board, and any new Board member (other than a Board member designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 1.4.1,1.10.1, 1.10.2 or 1.10.3 hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (K) of the Board members then still in office who either were Board members atthe beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; 

 

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

 

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1.6. Committee. “Committee” shall mean the Compensation Committee of the Board, oranother committee or subcommittee of the Board, appointed as provided in Section 9.1. 

 

1.7. Common Stock. “Common Stock” shall mean the common stock of the Company, par value $.0001 per share, and any equity security of the Company issued or authorized to be issued in the future, butexcluding any preferred stock and any warrants, options or other rights to purchase Common Stock. Debt securities of the Company convertible into Common Stock shall be deemed equity securities of the Company. 

 

1.8. Company. “Company” shall mean SCPIE Holdings Inc., aDelaware corporation. 

 

1.9. Consultant.“Consultant” shall mean any consultant or adviser if: 

 

1.9.1. the consultant or adviser renders bona fide services to the Company; 

 

1.9.2. the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raisingtransaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and 

 

1.9.3. the consultant or adviser is a natural person who has contracted directly with the Company to render such services. 

 

1.10. Corporate Transaction. “Corporate Transaction” shallmean any of the following stockholder-approved transactions to which the Company is a party: “Corporate Transaction” shall mean any of the following stockholder-approved transactions to which the Company is a party, other than any suchtransaction which constitutes a Change in Control: 

 

1.10.1. a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Company is incorporated, form a holding company or effect asimilar reorganization as to form whereupon this Plan and all Options are assumed by the successor entity; 

 

1.10.2. the sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, in completeliquidation or dissolution of the Company in a transaction not covered by the exceptions to subsection 1.10.1, above; or 

 

1.10.3. any reverse merger in which the Company is the surviving entity but in which securities possessing more than 50% of the totalcombined voting power of the Company’s outstanding securities are transferred or issued to a person or persons different from those who held such securities immediately prior to such merger. 

 

1.11. Deferred Stock. “Deferred Stock” shall mean CommonStock awarded under Article VII of this Plan. 

 

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1.12. Director. “Director” shall mean a member of (i) the Board or (ii) the Board ofDirectors of any corporation which is a Subsidiary. 

 

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

 

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

 

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

 

1.16. Fair Market Value. “Fair Market Value” of a share ofCommon Stock as of a given date shall be (i) 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 principalexchange), 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 (ii) if Common Stock is not traded on an exchange but is quotedon 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 (iii) if CommonStock 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 Committee (or the Board, in the case of Options granted to IndependentDirectors) acting in good faith. 

 

1.17. Grantee.“Grantee” shall mean an Employee or Consultant granted a Performance Award, Dividend Equivalent, Stock Payment or Stock Appreciation Right, or an award of Deferred Stock, under this Plan. 

 

1.18. Incentive Stock Option. “Incentive Stock Option” shallmean 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 Committee. 

 

1.19. Independent Director. “Independent Director” shall mean a Director who is not an Employee of the Company or of any corporationwhich is a Subsidiary. 

 

1.20. Non-Qualified StockOption. “Non-Qualified Stock Option” shall mean an Option which is not designated as an Incentive Stock Option by the Committee. 

 

1.21. Option. “Option” shall mean a stock option granted under Article III of this Plan. An Option granted under this Plan shall, asdetermined by the Committee, 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. 

 

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1.22. Optionee. “Optionee” shall mean an Employee, Consultant or Independent Directorgranted an Option under this Plan. 

 

1.23. PerformanceAward. “Performance Award” shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VII of this Plan. 

 

1.24. Plan. “Plan” shall mean The 2001 Amended and RestatedEquity Participation Plan of SCPIE Holdings Inc. 

 

1.25.QDRO. “QDRO” shall mean a qualified 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. 

 

1.26. Restricted Stock. “Restricted Stock” shall mean CommonStock awarded under Article VI of this Plan. 

 

1.27.Restricted Stockholder. “Restricted Stockholder” shall mean an Employee, Consultant or Independent Director granted an award of Restricted Stock under Article VI of this Plan. 

 

1.28. Rule 16b-3. “Rule 16b-3” shall mean that certain Rule16b-3 under the Exchange Act, as such Rule may be amended from time to time. 

 

1.29. Section 162(m) Participant. “Section 162(m) Participant” shall mean any key Employee designated by the Committee as a key Employee whose compensation for the fiscal year in which the keyEmployee 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. Stock Appreciation Right. “Stock Appreciation Right” shall mean a stock appreciation right granted under Article VIII of this Plan.

 

1.31. Stock Payment. “Stock Payment” shallmean a payment in the form of (i) shares of Common Stock, or (ii) 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 withoutlimitation, salary, bonuses and commissions, that would otherwise become payable to a key Employee or Consultant in cash, awarded under Article VII of this Plan. 

 

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

 

1.33. Termination of Consultancy. “Termination ofConsultancy” shall mean the time when the engagement of an Optionee, Grantee or Restricted Stockholder 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 

 

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there is a simultaneous commencement of employment with the Company or any Subsidiary. The Committee, in its absolutediscretion, 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, andall questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of this Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a Consultant’sservice at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. 

 

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

 

1.35. Termination of Employment. “Termination of Employment” shall mean the time when the employee-employer relationship between anOptionee, Grantee or Restricted Stockholder 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; butexcluding (i) terminations where there is a simultaneous reemployment or continuing employment of an Optionee, Grantee or Restricted Stockholder by the Company or any Subsidiary, (ii) at the discretion of the Committee, terminations which result ina temporary severance of the employee-employer relationship, and (iii) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the formeremployee. The Committee, 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 resultedfrom a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Terminations of Employment; provided, however, that, with respect to Incentive Stock Options unless otherwise determined by theCommittee 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 leaveof 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. Notwithstanding any other provision of this Plan, theCompany or any Subsidiary has an absolute and unrestricted right to terminate an Employee’s employment at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. 

 

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2. 

 

SHARES SUBJECT TO PLAN 

 

2.1. Shares Subject to Plan. 

 

2.1.1. The shares of stock subject to Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents, awards of DeferredStock, Stock Payments or Stock Appreciation Rights shall be Common Stock, initially shares of the Company’s Common Stock, par value $.0001 per share. The aggregate number of such shares which may be issued upon exercise of such Options orrights or upon any such awards under the Plan shall not exceed 1,700,000. 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.

 

2.1.2. The maximum number of shares which maybe subject to Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock Payments or Stock Appreciation Rights granted under the Plan to any individual in any calendar year shall not exceed theAward Limit. The maximum amount of cash which may be subject to the cash component of awards of Performance Awards or Dividend Equivalents granted under the Plan to any individual in any calendar year shall not exceed the Award Limit. To the extentrequired by Section 162(m) of the Code, shares subject to Options 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 this Plan,expires or is canceled without having been fully exercised, or is exercised in whole or in part for cash as permitted by this Plan, the number of shares subject to such Option or other right but as to which such Option or other right was notexercised 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 Options or other awards which are adjusted pursuant toSection 10.3 and become exercisable with respect to shares of stock of another corporation shall be considered canceled and may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Shares of Common Stock whichare delivered by the Optionee or Grantee or withheld by the Company upon the exercise of any Option or other award under this Plan, in payment of the exercise price thereof, may again be optioned, granted or awarded hereunder, subject to thelimitations of Section 2.1. If any share of Restricted Stock is forfeited by the Restricted Stockholder or repurchased by the Company pursuant to Section 6.7 hereof, such share may again be optioned, granted or awarded hereunder, subject to thelimitations 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 optionunder Section 422 of the Code. 

 

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3. 

 

GRANTING OF OPTIONS 

 

3.1. Eligibility. Any Employee or Consultant selected by the Committee pursuant to Section 3.4.1.1 shall be eligible to be granted an Option. EachIndependent Director of the Company shall be eligible to be granted Options at the times and in the manner set forth in Section 3.4.4. 

 

3.2. Disqualification for Stock Ownership. No person may be granted an Incentive Stock Option under this Plan if such person, at the time theIncentive Stock Option is granted, owns stock possessing more than ten percent 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 theCode) unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. 

 

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

 

3.4. Granting of Options

 

3.4.1. The Committee shall from time to time, in itsabsolute discretion, and subject to applicable limitations of this Plan: 

 

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

 

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

 

3.4.1.3. Subject to Section 3.3, determine whether such Options are to be Incentive Stock Options orNon-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 

 

3.4.1.4. Determine the terms and conditions of such Options, consistent with this Plan; provided, however, that the termsand 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 ofSection 162(m) of the Code. 

 

3.4.2. Upon theselection of a key Employee or Consultant to be granted an Option, the Committee 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. 

 

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3.4.3. Any Incentive Stock Option granted under this Plan may be modified by theCommittee to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. 

 

3.4.4. The Company shall grant Options under the Plan to Independent Directors as follows: 

 

3.4.4.1. Except as provided in Section 3.4.4.3 and subjectto being a Director on the date of each grant, (i) each person who is an Independent Director of the Company as of the effective date of the Plan automatically shall be granted an Option to purchase 5,000 shares of Common Stock (subject toadjustment as provided in Section 10.3) on the date of each annual meeting of stockholders after the effective date of the Plan; and (ii) each person who as of the effective date of the Plan is an Independent Director of a Subsidiary may, in theBoard’s absolute discretion and in connection with each annual meeting of stockholders, be designated by the Board to be granted an Option to purchase 5,000 shares of Common Stock (subject to adjustment as provided in Section 10.3) on the datesof such annual meetings of stockholders after the effective date of the Plan. 

 

3.4.4.2. Subject to being a Director on the date of each grant, during the term of the Plan, (i) a person who is initially elected a Director after the effective date of the Plan and who is an Independent Director ofthe Company at the time of such initial election automatically shall be granted (a) an Option to purchase 5,000 shares of Common Stock (subject to adjustment as provided in Section 10.3) on the date of such initial election and (b) an Option topurchase 5,000 shares of Common Stock (subject to adjustment as provided in Section 10.3) on the date of each subsequent annual meeting of stockholders; and (ii) a person who is initially elected a Director after the effective date of the Plan andwho at the time of such initial election is an Independent Director of a Subsidiary may, in the Board’s absolute discretion and in connection with such initial election or in connection with each subsequent annual meeting of stockholders (asthe case may be), be designated by the Board to be granted (a) an Option to purchase 5,000 shares of Common Stock (subject to adjustment as provided in Section 10.3) on the date of such initial election or (b) an Option to purchase 5,000 shares ofCommon Stock (subject to adjustment as provided in Section 10.3) on the date of such subsequent annual meeting of stockholders. 

 

3.4.4.3. In lieu of the Options to be granted to the Independent Directors under Section 3.4.4.1 at the annual meeting of stockholders tobe held in 2002, 2003, and 2004, the Company, on the effective date of the Plan, shall grant to the Independent Directors of the Company on such date an Option to purchase 15,000 shares of Common Stock (subject to adjustment as provided in Section10.3), and may grant to the Independent Directors of Subsidiaries on such date such Options as the Board in its absolute discretion shall determine. 

 

3.4.4.4. From time to time following the annual meeting of stockholders to be held in 2004, the Board may, in its absolute discretion, andsubject to the applicable limitations of this Plan, grant to the Independent Directors Options to purchase shares of Common Stock (subject to adjustment as provided in Section 10.3) in lieu of annual Option grants for future years. 

 

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3.4.4.5. Directors who are employees of the Company or a Subsidiary who subsequentlyretire from the Company or such Subsidiary and remain a Director will not receive an initial Option grant pursuant to clause (i)(a) or (ii)(a) of Section 3.4.4.2, but to the extent that they are otherwise eligible, will receive, after retirementfrom employment with the Company or a Subsidiary, Options as described in clause (i)(b) or (ii)(b) of Section 3.4.4.2 and in Sections 3.4.4.3 and 3.4.4.4. 

 

4. 

 

TERMS OF OPTIONS 

 

4.1. Option Agreement. Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized officer of the Company and which shall contain such terms and conditions as theCommittee (or the Board, in the case of Options granted to Independent Directors) shall determine, consistent with this Plan. Stock Option Agreements evidencing Options intended to qualify as performance-based compensation as described in Section162(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. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditionsas may be necessary to meet the applicable provisions of Section 422 of the Code. 

 

4.2. Option Price. The price per share of the shares subject to each Option shall be set by the Committee; provided, however, that such price shall be no less than the par value of a share ofCommon Stock, unless otherwise permitted by applicable state law, and (i) 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 theFair Market Value of a share of Common Stock on the date the Option is granted; (ii) 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); (iii) 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 tenpercent 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 ashare 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 (iv) in the case of Options granted to Independent Directors, such price shall equal100% of the Fair Market Value of a share of Common Stock on the date the Option is granted. 

 

4.3. Option Term. The term of an Option shall be set by the Committee in its discretion; provided, however, that, (i) in the case of Options granted to Independent Directors, the term shall be tenyears from the date the Option is granted, without variation or acceleration hereunder, but subject to Section 5.6, and (ii) in the case of Incentive Stock Options, the term shall not be more than ten years from the date the Incentive Stock Optionis granted, or five years from such date 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 Companyor any Subsidiary or parent corporation thereof (within the meaning of 

 

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Section 422 of the Code). Except as limited by requirements of Section 422 of the Code and regulations and rulingsthereunder applicable to Incentive Stock Options, the Committee may extend the term of any outstanding Option in connection with any Termination of Employment or Termination of Consultancy of the Optionee, or amend any other term or condition ofsuch Option relating to such a termination. 

 

4.4. OptionVesting

 

4.4.1. The period during whichthe right to exercise an Option in whole or in part vests in the Optionee shall be set by the Committee and the Committee 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 Committee otherwise provides in the terms of the Option or otherwise, no Option shall be exercisable by any Optionee who is then subject to Section 16 of the Exchange Act within the period ending sixmonths and one day after the date the Option is granted; and provided, further, that Options granted to Independent Directors shall become exercisable (except as provided by Section 4.4.1.1) in cumulative annual installments of 33 1/3% on each of the first, second and third anniversaries of the date of Option grant, without variation oracceleration hereunder except as provided in Sections 4.4.2 and 10.3. At any time after grant of an Option, the Committee may, in its sole and absolute discretion and subject to whatever terms and conditions it selects, accelerate the period duringwhich an Option (except an Option granted to an Independent Director) vests. 

 

4.4.1.1. Options granted to Independent Directors pursuant to Section 3.4.4.3 shall become exercisable with respect to the followingnumber of shares on each of the following anniversaries of the date of grant: (i) first anniversary, 1,666 shares, (ii) second anniversary, 3,333 shares, (iii) third anniversary, 5,001 shares, (iv) fourth anniversary, 3,333 shares and (v) fifthanniversary, 1,667, except as provided in Sections 4.4.2 and 10.3. 

 

4.4.2. No portion of an Option which is unexercisable at Termination of Employment, Termination of Directorship or Termination of Consultancy, as applicable, shall thereafter become exercisable, except (i) as may beotherwise provided by the Committee in the case of Options granted to Employees or Consultants either in the Stock Option Agreement or by action of the Committee following the grant of the Option, or (ii) in the case of Termination of Directorshipby reason of death, permanent and total disability (within the meaning of Section 22(e)(3) of the Code) or retirement required by age limits imposed on directorships, each Option granted to an Independent Director shall become fully vested andexercisable as to all shares covered thereby upon such Termination of Directorship. 

 

4.4.3. To the extent that the aggregate Fair Market Value of stock with respect to which “incentive stock options” (within themeaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by an Optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company and any parentor subsidiary corporation (within the meaning of Section 422 of the Code) of the Company) exceeds $100,000, such Options shall be treated as Non-Qualified Options to the extent required by Section 422 of the Code. The rule set forth in the precedingsentence shall be applied by taking Options into account in the order in which they were granted. 

 

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For purposes of this Section 4.4.3, the Fair Market Value of stock shall be determined as of the time theOption with respect to such stock is granted. 

 

4.5.Consideration. In consideration of the granting of an Option, the Optionee shall agree, in the written Stock Option Agreement, to remain in the employ of (or to consult for or to serve as an Independent Director of, as applicable) the Companyor any Subsidiary for a period of at least one year (or such shorter period as may be fixed in the Stock Option Agreement or by action of the Committee, or Board in the case of Independent Directors, following grant of the Option) after the Optionis granted. Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee 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 shallinterfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Optionee at any time for any reason whatsoever, with or without good cause. 

 

5. 

 

EXERCISE OF OPTIONS 

 

5.1. Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect tofractional shares and the Committee (or the Board, in the case of Options granted to Independent Directors) may require that, by the terms of the Option, a partial exercise be with respect to a minimum number of shares. 

 

5.2. Manner of Exercise. All or a portion of an exercisable Optionshall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his office: 

 

5.2.1. A written notice complying with the applicable rules established by the Committee (or the Board, in the case of Options granted toIndependent Directors) stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Optionee or other person then entitled to exercise the Option or such portion of the Option; 

 

5.2.2. Such representations and documents as the Committee(or the Board, in the case of Options granted to Independent Directors), in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal orstate securities laws or regulations. The Committee or Board may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificatesand issuing stop-transfer notices to agents and registrars; 

 

5.2.3. In the event that the Option shall be exercised pursuant to Section 10.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option; and

 

5.2.4. Full cash payment to the Secretary ofthe Company for the shares with respect to which the Option, or portion thereof, is exercised. However, the Committee (or the 

 

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Board, in the case of Options granted to Independent Directors), may in its discretion (i) allow a delayin payment up to 30 days from the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock owned by the Optionee, duly endorsed for transfer to the Company with a FairMarket Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of theOption having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, through the delivery of property of any kind whichconstitutes good and valuable consideration; (v) allow payment, in whole or in part, through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under theCode) and payable upon such terms as may be prescribed by the Committee or the Board; (vi) allow payment, in whole or in part, through the delivery of a notice that the Optionee has placed a market sell order with a broker with respect to shares ofCommon Stock then issuable 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; or (vii) allow payment through anycombination of the consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the Committee (or the Board, in the case of Options granted to Independent Directors) may also prescribe theform of such note and the security to be given for such note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law.

 

5.3. Conditions to Issuance of Stock Certificates. TheCompany 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: 

 

5.3.1. The admission of such shares to listing on all stockexchanges on which such class of stock is then listed; 

 

5.3.2. 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 whichthe Committee or Board shall, in its absolute discretion, deem necessary or advisable; 

 

5.3.3. The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee (or Board, inthe case of Options granted to Independent Directors) shall, in its absolute discretion, determine to be necessary or advisable; 

 

5.3.4. The lapse of such reasonable period of time following the exercise of the Option as the Committee (or Board, in the case of Optionsgranted to Independent Directors) may establish from time to time for reasons of administrative convenience; and 

 

5.3.5. The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax. 

 

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5.4. Rights as Stockholders. The holders of Options shall not be, nor have any of the rights orprivileges 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. 

 

5.5. Ownership and Transfer Restrictions. The Committee (or Board, inthe case of Options granted to Independent Directors), 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 suchrestriction shall be set forth in the respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. The Committee may require the Employee to give the Company prompt notice of any disposition of shares ofCommon Stock acquired by exercise of an Incentive Stock Option within (i) 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 Employee or(ii) one year after the transfer of such shares to such Employee. The Committee may direct that the certificates evidencing shares acquired by exercise of an Option refer to such requirement to give prompt notice of disposition. 

 

5.6. Limitations on Exercise of Options Granted to IndependentDirectors. No Option granted to an Independent Director may be exercised to any extent by anyone after the first to occur of the following events: 

 

5.6.1. The expiration of 12 months from the date of the Optionee’s death; 

 

5.6.2. The expiration of 12 months from the date of theOptionee’s Termination of Directorship by reason of such Optionee’s permanent and total disability (within the meaning of Section 22(e)(3) of the Code); 

 

5.6.3. The expiration of 12 months from the date of the Optionee’s retirement; 

 

5.6.4. The expiration of three months from the date of theOptionee’s Termination of Directorship for any reason other than such Optionee’s death, permanent and total disability, or retirement unless the Optionee dies within said three-month period; or 

 

5.6.5. The expiration of ten years from the date the Optionwas granted. 

 

6. 

 

AWARD OF RESTRICTED STOCK 

 

6.1. Eligibility. Subject to the Award Limit, Restricted Stock may beawarded to any Employee who the Committee determines is a key Employee or any Independent Director or Consultant whom the Committee determines should receive such an award. 

 

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6.2. Award of Restricted Stock

 

6.2.1. The Committee may from time to time, in its absolute discretion: 

 

6.2.1.1. Determine which Employees are key Employees andselect from among the key Employees or Consultants (including Employees or Consultants who have previously received other awards under this Plan) such of them as in its opinion should be awarded Restricted Stock; and 

 

6.2.1.2. Determine the purchase price, if any, and otherterms and conditions applicable to Restricted Stock granted to key Employees or Consultants, consistent with this Plan. 

 

6.2.1.3. Establish the purchase price, if any, and form of payment for Restricted Stock granted to key Employees or Consultants; 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.

 

6.2.1.4. Upon the selection of a key Employeeor Consultant to be awarded Restricted Stock, 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. 

 

6.2.2. The Board may from time to time, in its absolutediscretion: 

 

6.2.2.1. Select from among theIndependent Directors (including Independent Directors who have previously received other awards under this Plan) such of them as in its opinion should be awarded Restricted Stock; and 

 

6.2.2.2. Determine the purchase price, if any, and other terms and conditions applicable to Restricted Stockgranted to Independent Directors, consistent with this Plan. 

 

6.2.2.3. Establish the purchase price, if any, and form of payment for Restricted Stock granted to Independent Directors; provided, however, that such purchase price shall be no less than the par value of the CommonStock to be purchased, unless otherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance of Restricted Stock. 

 

6.2.2.4. Upon the selection of an Independent Director to be awarded Restricted Stock, instruct theSecretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate. 

 

6.3. Restricted Stock Agreement. Restricted Stock shall be issued only pursuant to a written Restricted Stock Agreement, which shall be executed bythe selected key Employee, 

 

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Independent Director or Consultant and an authorized officer of the Company and which shall contain such terms andconditions as the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors) shall determine, consistent with this Plan. 

 

6.4. Consideration. As consideration for the issuance of Restricted Stock, in addition to payment of any purchase price, the Restricted Stockholdershall agree, in the written Restricted Stock Agreement, to remain in the employ of, as a director of or to consult for, the Company or any Subsidiary for a period of at least one year after the Restricted Stock is issued (or such shorter period asmay be fixed in the Restricted Stock Agreement or by action of the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors) following grant of the Restricted Stock). Nothing in this Plan or in any Restricted StockAgreement hereunder shall confer on any Restricted Stockholder any right to continue in the employ of, as a director of or as a consultant for, the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Companyand any Subsidiary, which are hereby expressly reserved, to discharge any Restricted Stockholder at any time for any reason whatsoever, with or without good cause. 

 

6.5. Rights as Stockholders. Subject to Section 6.6, upon delivery of the shares of Restricted Stock to the escrowholder pursuant to Section 6.8, the Restricted Stockholder shall have, unless otherwise provided by the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors), all the rights of a stockholder with respect to saidshares, subject to the restrictions in his Restricted Stock Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that in the discretion of the Committee (or theBoard, in the case of Restricted Stock granted to Independent Directors), any extraordinary distributions with respect to the Common Stock shall be subject to the restrictions set forth in Section 6.6. 

 

6.6. Restriction. All shares of Restricted Stock issued under thisPlan (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 Restricted Stock Agreement,be subject to such restrictions as the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors) shall provide, which restrictions may include, without limitation, restrictions concerning voting rights andtransferability and restrictions based on duration of employment with the Company, Company performance and individual performance; provided, however, that, unless the Committee (or the Board, in the case of Restricted Stock granted to IndependentDirectors) otherwise provides in the terms of the Restricted Stock 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 sixmonths and one day have elapsed from the date on which the Restricted Stock was issued; provided, further, that, except with respect to shares of Restricted Stock granted pursuant to Section 6.10, by action taken after the Restricted Stock isissued, the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors) 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 theRestricted Stock Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. If no consideration was paid by the Restricted Stockholder upon issuance, a Restricted Stockholder’s rights in unvestedRestricted Stock shall lapse upon Termination of Employment or, if 

 

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applicable, upon Termination of Directorship or Termination of Consultancy with the Company; provided, however, that theCommittee (or the Board, in the case of Restricted Stock granted to Independent Directors) in its sole and absolute discretion may provide that such rights shall not lapse in the event of a Termination of Employment following a “change ofownership 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 Restricted Stockholder’s death or disability; provided, further, except withrespect to shares of Restricted Stock granted pursuant to Section 6.10, the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors) in its sole and absolute discretion may provide that such rights shall lapse inthe event of a Termination of Employment, a Termination of Directorship or a Termination of Consultancy, without cause or following any change in control or ownership of the Company or because of the Restricted Stockholder’s retirement, orotherwise. 

 

6.7. Repurchase of Restricted Stock. TheCommittee (or the Board, in the case of Restricted Stock granted to Independent Directors) shall provide in the terms of each individual Restricted Stock Agreement that the Company shall have the right to repurchase from the Restricted Stockholderthe Restricted Stock then subject to restrictions under the Restricted Stock Agreement immediately upon a Termination of Employment or, if applicable, upon a Termination of Directorship or Termination of Consultancy between the RestrictedStockholder and the Company, at a cash price per share equal to the price paid by the Restricted Stockholder for such Restricted Stock; provided, however, that the Committee in its sole and absolute discretion may provide that no such right ofrepurchase shall exist in the event of a Termination of Employment 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 orbecause of the Restricted Stockholder’s death or disability; provided, further, that, except with respect to shares of Restricted Stock granted pursuant to Section 6.10, the Committee (or the Board, in the case of Restricted Stock granted toIndependent Directors) in its sole and absolute discretion may provide that no such right of repurchase shall exist in the event of a Termination of Employment, a Termination of Directorship or a Termination of Consultancy without cause or followingany change in control or ownership of the Company or because of the Restricted Stockholder’s retirement, or otherwise. 

 

6.8. Escrow. The Secretary of the Company or such other escrow holder as the Committee (or the Board, in the case of Restricted Stock granted toIndependent Directors) may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the Restricted Stock Agreement with respect to the shares evidenced by such certificateexpire or shall have been removed. 

 

6.9. Legend. Inorder to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Committee (or the Board, in the case of Restricted Stock granted to Independent Directors) shall cause a legend or legends to be placed on certificatesrepresenting all shares of Restricted Stock that are still subject to restrictions under Restricted Stock Agreements, which legend or legends shall make appropriate reference to the conditions imposed thereby. 

 

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

 

6.10.1. Notwithstanding anything in the Plan to thecontrary, the Committee may grant Restricted Stock to a Section 162(m) Participant, the restrictions with respect to which lapse upon the attainment of performance goals for the Company which are related to one or more of the following businesscriteria: (i) net income either before or after taxes, (ii) market share, (iii) customer satisfaction, (iv) profits, (v) share price, (vi) earnings per share, (vii) total stockholder return, (viii) return on assets, (ix) return on equity, (x)operating income, (xi) return on capital or investments, or (xii) economic value added (including, but not limited to, any or all of such measures in comparison to the Company’s competitors, the industry, or some other comparator group), eachas determined in accordance with generally accepted accounting principles or subject to such adjustments as may be specified by the Committee at the beginning of a performance period with respect to an award of Restricted Stock that is intended toqualify as qualified performance-based compensation. 

 

6.10.2. To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to Restricted Stock which may be granted to one or more Section 162(m) Participants, no laterthan 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 goal or goals applicable to the fiscal year or other designated fiscal period or period of service, (iii) establish the various targets and amounts of RestrictedStock which may be earned for such fiscal year or other designated fiscal period or period of service and (iv) specify the relationship between performance goals and targets and the amounts of Restricted Stock 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 theapplicable 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 toincrease) 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 periodor period of service. 

 

7. 

 

PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, 

DEFERRED STOCK, STOCK PAYMENTS 

 

7.1. Eligibility. Subject to the Award Limit, one or more Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock Paymentsmay be granted to any Employee whom the Committee determines is a key Employee or any Consultant whom the Committee determines should receive such an award. 

 

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7.2. Performance Awards. Any key Employee or Consultant selected by the Committee may be grantedone or more Performance Awards. The value of such Performance Awards may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by theCommittee, in each case on a specified date or dates or over any period or periods determined by the Committee, or may be based upon the appreciation in the market value, book value, net profits or other measure of the value of a specified number ofshares of Common Stock over a fixed period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions,responsibilities and other compensation of the particular key Employee or Consultant. 

 

7.3. Dividend Equivalents. Any key Employee or Consultant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend paymentdates, during the period between the date an Option, Stock Appreciation Right, Deferred Stock or Performance Award is granted, and the date such Option, Stock Appreciation Right, Deferred Stock or Performance Award is exercised, vests or expires, asdetermined by the Committee. 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 Committee. With respect to DividendEquivalents granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code, such Dividend Equivalents shall be payable regardless of whether such Option is exercised. 

 

7.4. Stock Payments. Any key Employee or Consultant selected by theCommittee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Fair Market Value, book value, net profits or other measure of thevalue of Common Stock or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter. 

 

7.5. Deferred Stock. Any key Employee or Consultant selected by the Committee may be granted an award of DeferredStock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the market value, book value, net profits or other measure of the value of CommonStock or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Common Stock underlying a Deferred Stock award will notbe issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Grantee of Deferred Stock shall have no rights as a Company stockholderwith respect to such Deferred Stock until such time as the award has vested and the Common Stock underlying the award has been issued. 

 

7.6. Performance Award Agreement, Dividend Equivalent Agreement, Deferred Stock Agreement, Stock Payment Agreement. Each Performance Award,Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be evidenced by a written agreement, which 

 

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shall be executed by the Grantee and an authorized officer of the Company and which shall contain such terms andconditions as the Committee shall determine, consistent with this Plan. 

 

7.7. Term. The term of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be set by the Committee in its discretion. 

 

7.8. Exercise or Purchase Price. The Committee may establish the exercise or purchase price of a Performance Award,shares of Deferred Stock, or shares received as a Stock Payment; provided, however, that such price shall not be less than the par value for a share of Common Stock, unless otherwise permitted by applicable state law. 

 

7.9. Exercise Upon Termination of Employment. A Performance Award,Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or payable only while the Grantee is an Employee or Consultant; provided, however, that the Committee in its sole and absolute discretion may provide thatthe Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to a Termination of Employment following a “change of control or ownership” (within the meaning of Section1.162-27(e)(2)(v) or any successor regulation thereto) of the Company; provided, further, that except with respect to Performance Awards granted pursuant to Section 7.12, the Committee in its sole and absolute discretion may providethat the Performance Awards may be exercised or paid following a Termination of Employment or a Termination of Consultancy without cause, or following a change in control of the Company, or because of the Grantee’s retirement, death ordisability, or otherwise. 

 

7.10. Payment on Exercise.Payment of the amount determined under Section 7.2 or 7.3 above shall be in cash, in Common Stock or a combination of both, as determined by the Committee. To the extent any payment under this Article VII is effected in Common Stock, it shall bemade subject to satisfaction of all provisions of Section 5.3. 

 

7.11. Consideration. In consideration of the granting of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment, the Grantee shall agree, in a written agreement, to remain in the employ of, or toconsult for, the Company or any Subsidiary for a period of at least one year after such Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is granted (or such shorter period as may be fixed in such agreement or byaction of the Committee following such grant). Nothing in this Plan or in any agreement hereunder shall confer on any Grantee any right to continue in the employ of, or as a consultant for, the Company or any Subsidiary or shall interfere with orrestrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any time for any reason whatsoever, with or without good cause. 

 

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

 

7.12.1. Notwithstanding anything in the Planto the contrary, the Committee may grant any performance or incentive awards described in Article VII to a Section 162(m) Participant that vest or become exercisable or payable upon the attainment of performance goals for the Company which arerelated to one or more of the following business criteria: (i) net income either before or after taxes, (ii) market share, (iii) customer satisfaction, 

 

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(iv) profits, (v) share price, (vi) earnings per share, (vii) total stockholder return, (viii) return onassets, (ix) return on equity, (x) operating income, (xi) return on capital or investments, or (xii) economic value added (including, but not limited to, any or all of such measures in comparison to the Company’s competitors, the industry, orsome other comparator group), each as determined in accordance with generally accepted accounting principles or subject to such adjustments as may be specified by the Committee at the beginning of a performance period with respect to a performanceor incentive award described in Article VII that is intended to qualify as qualified performance-based compensation. 

 

7.12.2. To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, withrespect to performance or incentive awards described in Article VII which may be granted to one or more Section 162(m) Participants, no later than 90 days following the commencement of any fiscal year in question or any other designated fiscalperiod 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 goal or goalsapplicable to the fiscal year or other designated fiscal period or period of service, (iii) establish the various targets and bonus amounts which may be earned for such fiscal year or other designated fiscal period or period of service and (iv)specify the relationship between performance goals and targets and the amounts 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 yearor 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 determiningthe 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 tothe assessment of individual or corporate performance for the fiscal year or other designated fiscal period or period of service. 

 

8. 

 

STOCK APPRECIATION RIGHTS 

 

8.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any key Employee or Consultant selected by the Committee. A Stock Appreciation Right may be granted (i) in connection andsimultaneously with the grant of an Option, (ii) with respect to a previously granted Option, or (iii) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with this Plan as theCommittee shall impose and shall be evidenced by a written Stock Appreciation Right Agreement, which shall be executed by the Grantee and an authorized officer of the Company. The Committee, in its discretion, may determine whether a StockAppreciation Right is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code and Stock Appreciation Right Agreements evidencing Stock Appreciation Rights intended to so qualify shall contain such terms andconditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. 

 

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8.2. Coupled Stock Appreciation Rights

 

8.2.1. 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. 

 

8.2.2. A CSAR may be granted to the Grantee for no more than the number of shares subject to the simultaneously or previously grantedOption to which it is coupled. 

 

8.2.3. A CSARshall entitle the Grantee (or other person entitled to exercise the Option pursuant to this 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 toreceive 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 thenumber of shares of Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose. 

 

8.3. Independent Stock Appreciation Rights

 

8.3.1. An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by theCommittee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Common Stock as the Committee may determine; provided, however, that unless the Committeeotherwise 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 wasgranted. The exercise price per share of Common Stock subject to each ISAR shall be set by the Committee. An ISAR is exercisable only while the Grantee is an Employee or Consultant; provided that the Committee may determine that the ISAR may beexercised subsequent to Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company, or because of the Grantee’s retirement, death or disability, or otherwise. 

 

8.3.2. An ISAR shall entitle the Grantee (or other personentitled to exercise the ISAR pursuant to this 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 differenceobtained 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 ISAR by the number of shares of Common Stock with respect to which the ISAR shall have beenexercised, subject to any limitations the Committee may impose. 

 

8.4. Payment and Limitations on Exercise

 

8.4.1. Payment of the amount determined under Sections 8.2.3 and 8.3.2 above shall be in cash, in Common Stock (based on its Fair Market Value as of the date the 

 

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Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee. To theextent such payment is effected in Common Stock it shall be made subject to satisfaction of all provisions of Section 5.3 above pertaining to Options. 

 

8.4.2. Grantees of Stock Appreciation Rights may be required to comply with any timing or other restrictions with respect to thesettlement or exercise of a Stock Appreciation Right, including a window-period limitation, as may be imposed in the discretion of the Board or Committee. 

 

8.5. Consideration. In consideration of the granting of a Stock Appreciation Right, the Grantee shall agree, in the written Stock AppreciationRight Agreement, to remain in the employ of, or to consult for, the Company or any Subsidiary for a period of at least one year after the Stock Appreciation Right is granted (or such shorter period as may be fixed in the Stock Appreciation RightAgreement or by action of the Committee following grant of the Stock Appreciation Right). Nothing in this Plan or in any Stock Appreciation Right Agreement hereunder shall confer on any Grantee any right to continue in the employ of, or as aconsultant for, the Company or any Subsidiary 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 Grantee at any time for any reason whatsoever, with orwithout good cause. 

 

9. 

 

ADMINISTRATION 

 

9.1. Compensation Committee. The Compensation Committee (or another committee or a subcommittee of the Board assumingthe functions of the Committee under this Plan) shall consist solely of two or more Independent Directors of the Company appointed by and holding office at the pleasure of the Board, each of whom is a “non-employee director” as defined byRule 16b-3. 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. 

 

9.2. Duties and Powers of Committee. It shall be the duty of theCommittee to conduct the general administration of this Plan in accordance with its provisions. The Committee shall have the power to interpret this Plan and the agreements pursuant to which Options, awards of Restricted Stock or Deferred Stock,Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments are granted or awarded, and to adopt such rules for the administration, interpretation, and application of this Plan as are consistent therewith and to interpret,amend or revoke any such rules. 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 Options granted to Independent Directors. Any suchgrant or award under this Plan need not be the same with respect to each Optionee, Grantee or Restricted Stockholder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422of 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 this Plan except with respect to matters which 

 

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under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to bedetermined in the sole discretion of the Committee. 

 

9.3.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.

 

9.4 Compensation; Professional Assistance; Good FaithActions. Members of the Committee shall receive such compensation 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 thisPlan 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 shallbe 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 Optionees, Grantees,Restricted Stockholders, 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 this Plan, Options, awards ofRestricted Stock or Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, 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. 

 

10. 

 

MISCELLANEOUS PROVISIONS 

 

10.1. Not Transferable. Options, Restricted Stock awards, DeferredStock awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this Plan may not be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution orpursuant to a QDRO, unless and until such rights or awards have been exercised, or the shares underlying such rights or awards have been issued, and all restrictions applicable to such shares have lapsed. No Option, Restricted Stock award, DeferredStock award, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment or interest or right therein shall be liable for the debts, contracts or engagements of the Optionee, Grantee or Restricted Stockholder or his successorsin 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.

 

During the lifetime of the Optionee orGrantee, only he may exercise an Option or other right or award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a QDRO. After the death of the Optionee or Grantee, any exercisable portion of anOption or other right or award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement or other agreement, be 

 

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exercised by his personal representative or by any person empowered to do so under the deceasedOptionee’s or Grantee’s will or under the then applicable laws of descent and distribution. 

 

10.2. Amendment, Suspension or Termination of this Plan. Except as otherwise provided in this Section 10.2, this Plan may be wholly or partiallyamended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company’s stockholders given within 12 months before or after the action by the Board or theCommittee, no action of the Board or the Committee may, except as provided in Section 10.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under this Plan or increase the Award Limit, and no action ofthe Board or the Committee may be taken that would otherwise require stockholder approval as a matter of applicable law, regulation or rule. No amendment, suspension or termination of this Plan shall, without the consent of the holder of Options,Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, alter or impair any rights or obligations under any Options, Restricted Stock awards, Deferred Stock awards,Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments theretofore granted or awarded, unless the award itself otherwise expressly so provides. No Options, Restricted Stock, Deferred Stock, Performance Awards, StockAppreciation Rights, Dividend Equivalents or Stock Payments may be granted or awarded during any period of suspension or after termination of this Plan, and in no event may any Incentive Stock Option be granted under this Plan after the first tooccur of the following events: 

 

10.2.1. Theexpiration of ten years from the date the Plan is adopted by the Board; or 

 

10.2.2. The expiration of ten years from the later of the date the Plan was initially approved or is subsequently reapproved by the Company’s stockholders under Section 10.4. 

 

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

 

10.3.1. Subject to Section 10.3.4, in the event that the Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) 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 (including, but not limited to, a Corporate Transaction), or exchange of Common Stock or other securities of the Company, issuanceof warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Committee’s sole discretion (or in the case of Options or Restricted Stock granted to IndependentDirectors, the Board’s sole discretion), affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be madeavailable under the Plan or with respect to an Option, Restricted Stock award, Performance Award, Stock 

 

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Appreciation Right, Dividend Equivalent, Deferred Stock award or Stock Payment, then the Committee (orthe Board, in the case of Options or Restricted Stock granted to Independent Directors) shall, in such manner as it may deem equitable, adjust any or all of: 

 

10.3.1.1. the number and kind of shares of Common Stock (or other securities or property) with respect to which Options, PerformanceAwards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted under the Plan, or which may be granted as Restricted Stock or Deferred Stock (including, but not limited to, adjustments of the limitations in Section 2.1 onthe maximum number and kind of shares which may be issued and adjustments of the Award Limit), 

 

10.3.1.2. the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options, PerformanceAwards, Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the number and kind of shares of outstanding Restricted Stock or Deferred Stock, and 

 

10.3.1.3. the grant or exercise price with respect to any Option, Performance Award, Stock AppreciationRight, Dividend Equivalent or Stock Payment. 

 

10.3.2. Subject to Sections 10.3.2.7, 10.3.2.8 and 10.3.4, in the event of any Corporate Transaction or other transaction or event described in Section 10.3.1 or any unusual or nonrecurring transactions or events affecting the Company, anyaffiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Committee (or the Board, in the case of Options or Restricted Stock granted toIndependent Directors) in its discretion is hereby authorized to take any one or more of the following actions whenever the Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) determines that suchaction 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 option, right or other award under this Plan, to facilitate such transactionsor events or to give effect to such changes in laws, regulations or principles: 

 

10.3.2.1. In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, inthe case of Options or Restricted Stock granted to Independent Directors) may provide, either by the terms of the agreement or by action taken prior to the occurrence of such transaction or event and either automatically or upon the optionee’srequest, for either the purchase of any such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or any Restricted Stock or Deferred Stock for an amount of cash equal to the amount that could have beenattained upon the exercise of such option, right or award or realization of the optionee’s rights had such option, right or award been currently exercisable or payable or fully vested or the replacement of such option, right or award with otherrights or property selected by the Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) in its sole discretion; 

 

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10.3.2.2. In its sole and absolute discretion, the Committee (or the Board, in the caseof Options or Restricted Stock granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by actiontaken prior to the occurrence of such transaction or event that it cannot vest, be exercised or become payable after such event; 

 

10.3.2.3. In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, inthe case of Options or Restricted Stock granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock orby action taken prior to the occurrence of such transaction or event, that for a specified period of time prior to such transaction or event, such option, right or award shall be exercisable as to all shares covered thereby, notwithstanding anythingto the contrary in (i) Section 4.4 or (ii) the provisions of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock; 

 

10.3.2.4. In its sole and absolute discretion, and on suchterms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Stock Appreciation Right,Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to the occurrence of such transaction or event, that upon such event, such option, right or award be assumed by the successor or survivorcorporation, 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 thenumber and kind of shares and prices; 

 

10.3.2.5. In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) may make adjustments in thenumber and type of shares of Common Stock (or other securities or property) subject to outstanding Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the number and kind of outstanding RestrictedStock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future;

 

10.3.2.6. In its sole and absolutediscretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) may provide either by the terms of a Restricted Stock award or DeferredStock award or by action taken prior to the occurrence of such event that, for a specified period of time prior to such event, the restrictions imposed under a Restricted Stock Agreement or a Deferred Stock Agreement upon some or all shares ofRestricted Stock or Deferred Stock may be terminated, and, in the case of Restricted Stock, some 

 

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or all shares of such Restricted Stock may cease to be subject to repurchase under Section 6.7 orforfeiture under Section 6.6 after such event; 

 

10.3.2.7. In the event of a Change in Control, each Option granted to a key Employee, Consultant or Independent Director shall become fully vested and exercisable as to all shares covered thereby upon such Change in Control, notwithstandinganything to the contrary in Section 4.4 or the vesting schedule of such Options; and 

 

10.3.2.8. In the event of any Corporate Transaction, each outstanding Option, Performance Award, Stock Appreciation Right, DividendEquivalent, Stock Payment, Restricted Stock, or Deferred Stock award shall, immediately prior to the effective date of the Corporate Transaction, automatically become fully exercisable for all of the shares of Common Stock at the time subject tosuch rights or fully vested, as applicable, and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding right shall not so accelerate if and to the extent: (i) such right is, in connection withthe Corporate Transaction, either to be assumed by the successor or survivor corporation (or parent thereof) or to be replaced with a comparable right with respect to shares of the capital stock of the successor or survivor corporation (or parentthereof) or (ii) the acceleration of exercisability of such right is subject to other limitations imposed by the Committee (or Board in the case of Independent Directors) at the time of grant. The determination of comparability of rights underclause (i) above shall be made by the Committee (or Board in the case of Independent Directors), and its determination shall be final, binding and conclusive. 

 

10.3.3. Subject to Section 10.3.4 and 10.8, the Committee (or the Board, in the case of Options or Restricted Stock granted toIndependent Directors) may, in its discretion, include such further provisions and limitations in any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock agreement orcertificate, as it may deem equitable and in the best interests of the Company. 

 

10.3.4. With respect to Options, Stock Appreciation Rights and performance or incentive awards described in Article VII which are grantedto 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 10.3 or in any other provision of the Plan shall be authorized to the extentthat such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code or would cause such option or stock appreciation right to fail to so qualify under Section 162(m)(4)(C), as the case may be, or any successor provisionsthereto. 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 Committee (orthe Board, in the case of Options or Restricted Stock granted to Independent Directors) determines that the option or other award is not to comply with such exemptive conditions. The number of shares of Common Stock subject to any option, right oraward shall always be rounded to the next whole number. 

 

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10.4. Approval of Plan by Stockholders. This Plan, as originally adopted has been submitted forthe approval of the Company’s stockholders and such approval was received within 12 months after the date of the Board’s initial adoption of this Plan. If the Board determines that Restricted Stock, Deferred Stock, Performance Awards,Dividend Equivalents or Stock Payments 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 disclosedto 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 performance criteria. 

 

10.5. Tax Withholding. The Company shall be entitled to requirepayment in cash or deduction from other compensation payable to each Optionee, Grantee or Restricted Stockholder of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting, exercise or payment of anyOption, Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment. The Committee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) may in itsdiscretion and in satisfaction of the foregoing requirement allow such Optionee, Grantee or Restricted Stockholder to elect to have the Company withhold shares of Common Stock otherwise issuable under such Option or other award (or allow the returnof 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 Option, Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment (or which may be repurchased from the Optionee, Grantee or Restricted Stockholder within sixmonths after such shares of Common Stock were acquired from the Company by the Optionee, Grantee or Restricted Stockholder) in order to satisfy the Optionee, Grantee or Restricted Stockholder’s federal and state income and payroll taxliabilities with respect to the issuance, vesting, exercise or payment of the Option, Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment shall be limited to the number of shares whichhave 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 tosuch supplemental taxable income. 

 

10.6. Loans. TheCommittee may, in its discretion, extend one or more loans to key Employees in connection with the exercise or receipt of an Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment granted under this Plan, or theissuance of Restricted Stock or Deferred Stock awarded under this Plan. The terms and conditions of any such loan shall be set by the Committee. 

 

10.7. Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to awards under the Plan, theCommittee (or the Board, in the case of Options or Restricted Stock granted to Independent Directors) shall have the right (to the extent consistent with the applicable exemptive conditions of Rule 16b-3) to provide, in the terms of Options or otherawards made under the Plan, or to require the recipient to agree by separate written instrument, that (i) any proceeds, gains or other economic benefit actually or constructively received by the recipient upon any receipt or exercise of the award,or upon the receipt or resale of any 

 

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Common Stock underlying such award, must be paid to the Company, and (ii) the award shall terminate and any unexercisedportion of such award (whether or not vested) shall be forfeited, if (a) a Termination of Employment, Termination of Consultancy or Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt orexercise of the award, or (b) the recipient 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 theCommittee (or the Board, as applicable). 

 

10.8. LimitationsApplicable to Section 16 Persons and Performance-Based Compensation. Notwithstanding any other provision of this Plan, and any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment granted, or Restricted Stockor Deferred Stock 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 anyamendment 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, Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents, StockPayments, Restricted Stock and Deferred Stock granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. Furthermore, notwithstanding any other provision of this Plan, any Option, StockAppreciation Right or performance or incentive award described in Article VII 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 besubject 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-basedcompensation as described in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent necessary to conform to such requirements. 

 

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

 

10.10. Compliance with Laws. This Plan, the granting and vesting of Options, Restricted Stock awards, Deferred Stockawards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this Plan and the issuance and delivery of shares of Common Stock and the payment of money under this Plan or under Options, Performance Awards,Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or Deferred Stock awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limitedto 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.

 

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Any securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securitiesshall, 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, thePlan, Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or awarded hereunder shall be deemed amended to the extent necessary to conform to suchlaws, rules and regulations. 

 

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

 

10.12. Governing Law. This Plan and any agreements hereunder shall be administered, interpreted and enforced under the internallaws of the State of Delaware without regard to conflicts of laws thereof. 

 

* * * 

 

I herebycertify that the foregoing Plan was duly adopted by the Board of Directors of SCPIE Holdings Inc. on May 15, 2003. 

 
Executed on this 15th day of May,2003.
/s/    JOSEPH P. HENKES
Secretary
 

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