**EXHIBIT 10.4**

 

**AMERICAN DG ENERGY INC.**

**2005 STOCK INCENTIVE PLAN**

 

**1.             Purposesof the Plan.**

 

This2005 Stock Incentive Plan (the “Plan”), as amended to date, is intended toprovide incentives (a) to the officers and employees of American DG EnergyInc., a Delaware corporation (the “Company”), and any parent or subsidiary ofthe Company, by providing such officers and employees with opportunities topurchase stock in the Company pursuant to options granted hereunder whichqualify as “incentive stock options” under Section 422(b) of theInternal Revenue Code of 1986, as amended (the “Code”) (“ISO” or “ISOs”); (b) todirectors, officers, employees, consultants and advisors of the Company and anypresent or future parent, subsidiary or affiliate of the Company (hereinaftercollectively “Related Corporations”) by providing them with opportunities topurchase stock in the Company pursuant to options granted hereunder which donot qualify as ISOs (“Non-Qualified Option” or “Non-Qualified Options”); (c) todirectors, officers, employees, consultants and advisors of the Company andRelated Corporations by providing them with opportunities to receive awards ofstock in the Company whether such stock awards are in the form of bonus shares,deferred stock awards, or of performance share awards (“Awards”); and (d) todirectors, officers, employees, consultants and advisors of the Company andRelated Corporations by providing them with opportunities to make directpurchases of restricted stock in the Company (“Restricted Stock Purchases”).  Both ISOs and Non-Qualified Options arereferred to hereafter individually as an “Option” and collectively as “Options”.  Options, Awards and authorizations to makeRestricted Stock Purchases are referred to hereafter individually as a “StockRight” and collectively as “Stock Rights”. As used herein, the terms “parent” and “subsidiary” mean “parentcorporation” and “subsidiary corporation”, respectively, as those terms aredefined in Section 424 of the Code.

 

**2.             Administrationof the Plan.**

 

(a)           Board or Committee Administration.  This Plan shall be administered by the Boardof Directors of the Company (the “Board”). The Board may appoint a Compensation Committee or Human ResourcesCommittee (as the case may be, the “Committee”) of two (2) or more of itsmembers to administer this Plan and to grant Stock Rights hereunder, providedsuch Committee is delegated such powers in accordance with applicable statelaw.  (All references in this Plan to the“Committee” shall mean the Board if no such Compensation Committee or StockIncentive Plan Committee has been so appointed).  If the Company or any Related Corporationregisters any class of any equity security pursuant to Section 12 of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), this Planshall be administered in accordance with the applicable rules set forth inRule 16b-3 or any successor provisions of the Exchange Act (“Rule 16b-3”).  From and after the date the Company becomessubject to Section 162(m) of the Code with respect to compensationearned under this Plan, each member of the Committee shall also be an “outsidedirector” within the meaning of Section 162(m) of the Code and theregulations promulgated thereunder.

 

(b)           Authority of Board or Committee.  Subject to the terms of this Plan, theCommittee shall have the authority to: (i) determine the employees of theCompany and any Related Corporation (from among the class of employees eligibleunder paragraph 3 to receive ISOs) to whom ISOs may be granted, and todetermine (from among the class of individuals and entities eligible underparagraph 3 to receive Non-Qualified Options and Awards and to make RestrictedStock Purchases) to whom Non-Qualified Options, Awards and authorizations tomake Restricted Stock Purchases may be granted; (ii) determine the time ortimes at which Options or Awards may be granted or Restricted Stock Purchasesmade; (iii) determine the exercise price of shares subject to each Option,which price shall not be less than the minimum price specified in paragraph 6,and the purchase price of shares subject to each Restricted Stock Purchase; (iv) determinewhether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine(subject to paragraph 8) the time or times when or what conditions must besatisfied before each Option shall become exercisable and the duration of theexercise period; (vi) determine whether restrictions such as transferrestrictions, repurchase options and “drag along” rights and rights of firstrefusal are to be imposed on shares subject to Options, Awards and RestrictedStock Purchases and the nature of such restrictions, if any; (vii) imposesuch other terms and conditions with respect to capital stock issued pursuantto Stock Rights not inconsistent with the terms of this Plan as it deemsnecessary or desirable; and (viii) interpret the Plan and prescribe andrescind rules and regulations relating to it.

 

Ifthe Committee determines to issue a Non-Qualified Option, the Committee shalltake whatever actions it deems necessary, under the Code and the regulationspromulgated thereunder, to ensure that such Option is not treated as anISO.  The interpretation and constructionby the Committee of any provisions of the Plan or of any Stock Right grantedunder it shall be final unless otherwise determined by the Board.  The Committee may from time to time adoptsuch rules and regulations for carrying out the Plan as it may deembest.  No member of the Board or theCommittee shall be liable for any action or determination made in good faithwith respect to the Plan or any Stock Right granted under it.

 

 

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(c)           Delegation of Authority to GrantAwards to Officer.  Without limitingthe foregoing, the Board, in its discretion, may also delegate to a singleofficer of the Company who is a member of the Board (to the extent consistentwith state law) all or part of the Board’s or Committee’s authority and dutieswith respect to the granting of Stock Rights to individuals who are not subjectto the reporting and other provisions of Section 16 of the Exchange Act or“covered employees” within the meaning of Section 162(m) of the Code,subject to such limitations as the Board or the Committee deems appropriate,including without limitation as to the amount of Stock Rights that may begranted during the period of delegation, and guidelines as to the determinationof the exercise price of any Option, the purchase price of other Stock Rightsand the setting of vesting schedules or criteria.  Such officer (the “Delegated Officer”) shallact as a one member committee of the Board, and shall in any event be subjectto the same limitations as are applicable to the Committee.  References to the Committee in this Planshall also include the Delegated Officer, but only to the extent consistentwith the authorities and duties delegated to the Delegated Officer by theBoard.  The Board may revoke or amend theterms of a delegation at any time but such action shall not invalidate anyprior actions of the Delegated Officer that were consistent with the terms ofthis Plan.

 

(d)           Committee Actions.  The Committee may select one of its membersas its chairman and shall hold meetings at such time and places as it maydetermine.  Acts by a majority of theCommittee, acting at a meeting (whether held in person or by teleconference),or acts reduced to or approved in writing by all of the members of theCommittee, shall be the valid acts of the Committee.  From time to time the Board may increase thesize of the Committee and appoint additional members thereof, remove members(with or without cause) and appoint new members in substitution therefor, fillvacancies however caused, or remove all members of the Committee and thereafterdirectly administer this Plan, subject to compliance with paragraph 2(a).

 

(e)           Grant of Stock Rights to BoardMembers.  Stock Rights may be grantedto members of the Board, subject to compliance with Rule 16b-3 whenrequired by paragraph 2(a).  All grantsof Stock Rights to members of the Board shall in all respects be made in accordancewith the provisions of this Plan applicable to other eligible persons.

 

**3.             EligibleEmployees and Others.**

 

ISOsmay be granted to any employee of the Company or any parent or subsidiary ofthe Company.  Those officers anddirectors of the Company who are not employees of the Company or any parent orsubsidiary of the Company may not be granted ISOs under this Plan.  Non-Qualified Options, Awards andauthorizations to make Restricted Stock Purchases may be granted to anyemployee, officer or director (whether or not also an employee) of orconsultant or advisor to the Company or any Related Corporation.  The Committee may take into consideration arecipient’s individual circumstances in determining whether to grant a StockRight.  Granting a Stock Right to anyindividual or entity shall neither entitle that individual or entity to, nordisqualify him or her from, participation in any other grant of Stock Rights.

 

**4.             Stock.**

 

Thestock subject to Stock Rights shall be the authorized but unissued shares ofCommon Stock of the Company (the “Common Stock”), or shares of Common Stockreacquired by the Company in any manner. The aggregate number of shares of Common Stock which may be issuedpursuant to this Plan is 4,000,000, subject to adjustment as provided inparagraph 13 or amendment as provided in Section 15.  Any such shares may be issued pursuant to theexercise of Stock Rights, so long as the aggregate number of shares so issueddoes not exceed the number of such shares authorized under this paragraph 4.

 

**5.             Grantingof Stock Rights.**

 

StockRights may be granted under this Plan at any time on or after October 1,2005 and prior to October 1, 2015. The date of grant of a Stock Right under this Plan will be the datespecified by the Committee at the time it grants the Stock Right or such datethat is specified in the instrument or agreement evidencing such Stock Right;provided, however, that such date shall not be prior to the date on which theCommittee acts to approve the grant andthat with respect to an ISO grant such date shall not be earlier than the dateof commencement of employment of the employee granted the ISO.  The Committee shall have the right, with theconsent of the optionee, to convert an ISO granted under this Plan to aNon-Qualified Option pursuant to paragraph 17.

 

**6.             MinimumOption Price; ISO Limitations.**

 

(a)           Price for ISOs.  The exercise price per share specified in theagreement relating to each ISO granted under this Plan shall not be less thanthe fair market value per share of Common Stock on the date of such grant.  In the case of an ISO to be granted to anemployee owning stock possessing more than ten percent (10%) of the totalcombined voting power of all classes of stock of the Company, the price pershare specified in the agreement relating to such ISO shall not be less thanone hundred ten percent (110%) of the fair market value per share of CommonStock on the date of grant.

 

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(b)           $100,000 Annual Limitation on ISOs.  Each eligible employee may be granted ISOsonly to the extent that, in the aggregate under this Plan and all otherincentive stock option plans of the Company and any parent or subsidiary of theCompany, such ISOs do not become exercisable for the first time by suchemployee during any calendar year in a manner which would entitle the employeeto purchase more than $100,000 in fair market value (determined at the time theISOs were granted) of Common Stock in that year.  Any Options granted to an employee in excessof such amount will be granted as Non-Qualified Options.

 

(c)           Determination of Fair Market Value.  If, at the time an Option is granted underthe Plan, the Common Stock is publicly traded, “fair market value” shall bedetermined as of the last business day for which the prices or quotes discussedin this sentence are available prior to the date such Option is granted andshall mean (i) the average (on that date) of the high and low prices ofthe Common Stock on the principal national securities exchange on which theCommon Stock is traded, if the Common Stock is then traded on a nationalsecurities exchange; or (ii) the last reported sale price (on that date)of the Common Stock on the NASDAQ National Market List, if the Common Stock isnot then traded on a national securities exchange; or (iii) the closingbid price (or average of bid prices) last quoted (on that date) by anestablished quotation service for over-the-counter securities, if the CommonStock is not then traded on a national securities exchange and is not reportedon the NASDAQ National Market List. However, if the Common Stock is not publicly traded at the time anOption is granted under the Plan, “fair market value” shall be deemed to be thefair value of the Common Stock as determined by the Committee after taking intoconsideration all factors in good faith it deems appropriate, including,without limitation, recent sale and offer prices of the Common Stock in privatetransactions negotiated at arm’s length, if any.

 

**7.             OptionDuration.**

 

Subjectto earlier termination as provided in paragraphs 9, 10, and 13(b), each Optionshall expire on the date specified by, orshall have such duration as may be specified by, the Committee and setforth in the original stock option agreement granting such Option, but not morethan ten years from the date of grant. Notwithstanding the foregoing, in the case of ISOs granted to anemployee owning stock possessing more than ten percent (10%) of the totalcombined voting power of all classes of stock of the Company, such ISOs shallexpire not more than five years from the date of grant.  Non-Qualified Options shall expire on thedate specified in the agreement granting such Non-Qualified Options, subject toextension as determined by the Committee. ISOs, or any part thereof, that have been converted into Non-QualifiedOptions may be extended as provided in paragraph 17.

 

**8.             Exerciseof Options.**

 

Subjectto the provisions of paragraphs 9 through 13, each Option granted under thePlan shall be exercisable as follows:

 

(a)           Vesting.  As set forth in paragraph 2(b), and subjectto paragraphs 9 and 10 with respect to ISOs, the Committee shall determine thetime or times when or what conditions must be satisfied before each Optionshall become exercisable and the duration of the exercise period. The Committeemay also specify such other conditions precedent as it deems appropriate to theexercise of an Option.

 

(b)           Full Vesting of Installments.  Once an installment becomes exercisable itshall remain exercisable until expiration or termination of the Option, unless otherwisespecified by the Committee.

 

(c)           Partial Exercise.  Each Option or installment may be exercisedat any time or from time to time, in whole or in part, for up to the totalnumber of shares with respect to which it is then exercisable, provided thatthe Committee may specify a certain minimum number or percentage of the sharesissuable upon exercise of any Option that must be purchased upon any exercise.

 

(d)           Acceleration of Vesting.  The Committee shall have the right toaccelerate the date of exercise of any installment of any Option, despite thefact that such acceleration may (i) cause the application of Sections 280Gand 4999 of the Code if a Change inControl Event, as defined below in paragraph 13(b), occurs, or (ii) disqualifyall or part of the Option as an ISO.

 

**9.             Terminationof Employment.**

 

Subjectto the provisions of paragraph 13(b), if an ISO optionee ceases to be employedby the Company and all Related Corporations other than by reason of death ordisability as defined in paragraph 10, no further installments of his or herISOs shall become exercisable following the date of such cessation ofemployment, and his or her ISOs shall terminate after the passage of ninety(90) days from the date of termination of his or her  employment, but in no event later than ontheir specified expiration dates, except to the extent that such ISOs (orunexercised installments thereof) have been converted into Non-QualifiedOptions pursuant to paragraph 17. Nothing in this Plan shall be deemed to give any grantee of any Stock 

 

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Rightthe right to be retained in employment or other service by the Company or anyRelated Corporation for any period of time.

 

Notwithstandinganything contained in this paragraph 9 to the contrary, the Board or Committeemay establish rules in particular stock option agreements with respect toMisconduct, as defined below, committed by a grantee of a Stock Right.

 

**10.          Death;Disability.**

 

(a)           Death.  If an ISO optionee ceases to be employed bythe Company and all Related Corporations by reason of his or her death, or ifthe employee dies within the thirty (30) day period after the employee ceasesto be employed by the Company and all Related Corporations, any ISO of his orhers may be exercised, to the extent of the number of shares with respect towhich he or she could have exercised it on the date of his or her death, by hisor her estate, personal representative or beneficiary who has acquired the ISOby will or by the laws of descent and distribution, at any time prior to the earlierof the specified expiration date of the ISO or one (1) year from the dateof such optionee’s death.

 

(b)           Disability.  If an ISO optionee ceases to be employed bythe Company and all Related Corporations by reason of his or her disability, heor she shall have the right to exercise any ISO held by the optionee on thedate of termination of employment, to the extent of the number of shares withrespect to which he or she could have exercised it on that date, at any timeprior to the earlier of the specified expiration date of the ISO or one (1) yearfrom the date of the termination of the optionee’s employment.  For the purposes of the Plan, the term “disability”shall mean “permanent and total disability” as defined in Section 22(e)(3) ofthe Code or successor statute.

 

**11.          Assignability.**

 

Exceptfor Non-Qualified Options which may be transferred for estate planning purposesto the extent provided in the instrument or agreement granting suchNon-Qualified Options, no Stock Right shall be assignable or transferable bythe grantee except by will or by the laws of descent and distribution, andduring the lifetime of the grantee each Stock Right shall be exercisable onlyby the optionee.  No Stock Right, and noright to exercise any portion thereof, shall be subject to execution,attachment, or similar process, assignment, or any other alienation orhypothecation.  Upon any attempt so totransfer, assign, pledge, hypothecate, or otherwise dispose of any Stock Right,or of any right or privilege conferred thereby, contrary to the provisionsthereof or hereof or upon the levy of any attachment or similar process uponany Stock Right, right or privilege, such Stock Right and such rights andprivileges shall immediately become null and void.  The foregoing shall not be construed torestrict the ability to assign or transfer shares of Common Stock issued uponthe exercise or award of a Stock Right to the extent that the instrument oragreement granting such Stock Right permits such assignment or transfer.

 

**12.          Terms andConditions of Stock Rights.**

 

StockRights shall be evidenced by instruments (which need not be identical) in suchforms as the Committee may from time to time approve.  Such instruments shall conform to the termsand conditions set forth in paragraphs 6 through 11 hereof to the extentapplicable and may contain such other provisions as the Committee deemsadvisable which are not inconsistent with this Plan.  Without limiting the foregoing, suchprovisions may include transfer restrictions, rights of refusal, vestingprovisions, repurchase rights, lock-up provisions and drag-along rights withrespect to shares of Common Stock issuable upon exercise of Stock Rights, andsuch other restrictions applicable to shares of Common Stock as the Committeemay deem appropriate.  In granting anyNon-Qualified Option, the Committee may specify that such Non-Qualified Optionshall be subject to the restrictions set forth herein with respect to ISOs, orto such other termination, cancellation or other provisions as the Committeemay determine.  The Committee may fromtime to time confer authority and responsibility on one or more of its ownmembers and/or one or more officers of the Company to execute and deliver suchinstruments.  The proper officers of theCompany are authorized and directed to take any and all action necessary oradvisable from time to time to carry out the terms of such instruments.

 

**13.          Adjustments.**

 

Uponthe occurrence of any of the following events, an optionee’s rights withrespect to Options granted to the optionee hereunder shall be adjusted ashereinafter provided, unless otherwise specifically provided in the writtenagreement between the optionee and the Company relating to such Option:

 

(a)           Stock Dividends and Stock Splits.  If the shares of Common Stock subject toOptions granted under this Plan shall be subdivided or combined into a greateror smaller number of shares or if the Company shall issue any shares of CommonStock as a stock dividend on its outstanding Common Stock, the number of sharesof Common Stock deliverable upon the exercise of Options shall be appropriatelyincreased or decreased proportionately, and appropriate adjustments shall bemade in the purchase price per share to reflect such subdivision, combinationor stock dividend.

 

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(b)           Acquisitions and Change in ControlEvents.  If the Company is to besubject to or engage in (x) a merger (or reverse merger), consolidation,or other similar event affecting the Company in which outstanding shares ofCommon Stock are exchanged for cash, securities, and/or other property ofanother entity, or (y) the sale or lease of all or substantially all ofthe Company’s assets to another person or entity (any such event in suchclauses (x) and (y) an “Acquisition”), the Committee or the Boardshall (i) provide that the entity that survives the Acquisition orpurchases or leases the Company’s assets in the Acquisition or any affiliate ofsuch entity (the “Surviving Entity”) shall assume the Options granted pursuantto this Plan or substitute options to purchase securities of the SurvivingEntity (or an affiliate thereof) on an equitable basis, (ii) upon writtennotice to the optionees, provide that all Options will become exercisable infull subject to the consummation of the Acquisition as of a specified timeprior to the Acquisition and will terminate immediately prior to theconsummation of such Acquisition or within a specified period of time after theAcquisition, and will not be exercisable after such termination, or (iii) inthe event of an Acquisition under the terms of which holders of Common Stockwill receive upon consummation thereof an amount of cash, securities and/orother property for each share of Common Stock surrendered pursuant to suchAcquisition (the amount of cash plus the fair market value reasonablydetermined by the Committee of any securities and/or other property received byholders of Common Stock in exchange for each share of Common Stock shall be the“Acquisition Price”), provide that all outstanding Options shall terminate uponconsummation of such Acquisition and that each optionee shall receive, inexchange for all vested shares of Common Stock under such Option on the date ofthe Acquisition, a payment in cash or in kind having a fair market valuereasonably determined by the Committee or the board of directors of theSurviving Entity equal to the amount (if any) by which (A) the AcquisitionPrice multiplied by the number of such vested shares of Common Stock exceeds (B) theaggregate exercise price of such shares. If the Committee chooses under clause (iii) in the precedingsentence that all outstanding Options shall terminate upon consummation of anAcquisition and that each optionee shall receive a payment for the optionee’svested shares, with respect to any optionee whose stock option agreementspecifies that no shares are vested until the first anniversary of thecommencement of the optionee’s employment, if the consummation of theAcquisition occurs prior to such first anniversary, then the number of vested sharesunder such Option shall be deemed to be equal to the product of (x) thenumber of shares of stock subject to the Option that otherwise would vest onthe first anniversary and (y) the quotient obtained by dividing the numberof days the optionee was employed by the Company, by 365.  For purposes hereof, an Option shall beconsidered to be assumed or substituted “on an equitable basis” (withoutlimiting other ways in which an Option may be assumed or substituted on anequitable basis hereunder) if, following consummation of the Acquisition, theassumed or substituted option confers the right to purchase, for each share ofCommon Stock subject to the Option immediately prior to the consummation of theAcquisition, the consideration received as a result of the Acquisition by theholders of Common Stock for each share of Common Stock held immediately priorto the consummation of the Acquisition (and if holders of Common Stock wereoffered a choice of consideration, the type of consideration chosen by the holdersof a majority of the outstanding shares of Common Stock); provided, however,that if the consideration received as a result of the Acquisition Event is notsolely common stock of the Surviving Entity (or an affiliate thereof), theCompany may, with the consent of the Surviving Entity, provide for theconsideration to be received upon the exercise of each share of Common Stocksubject to the Option to consist solely of common stock of the Surviving Entity(or an affiliate thereof) having a fair market value as reasonably determinedby the Committee or the board of directors of the Surviving Entity equal to theAcquisition Price.

 

Ifa Change in Control Event, as defined below, occurs that either (a) doesnot also constitute an Acquisition or (b) does constitute an Acquisitionand clause (i) of the preceding paragraph is elected, and the optionee’semployment with the Company, the Related Corporation or the Surviving Entity isterminated on or prior to the six month anniversary of the date of the consummationof such Change in Control Event either by the optionee for Good Reason, asdefined below, or by the Company, the Related Corporation or the SurvivingEntity for reason(s) other than Misconduct, as defined below, then all ofthe Options, or the equivalent to such Options in the form of assumed orsubstituted options granted in the Surviving Entity, that but for suchtermination and such Change in Control Event would vest on or prior to the nextfollowing annual anniversary of the Grant Date thereafter shall becomeimmediately exercisable in full and any repurchase provisions applicable toCommon Stock issued upon exercise thereof shall lapse, provided,however, that in particular stock option agreements issued pursuant to thisPlan, the Board may provide that the Options or assumed or substituted optionscovered by such agreement shall become immediately exercisable upon theconsummation of such Change in Control Event without regard to termination ofemployment, and that any repurchase provisions applicable to Common Stockissued upon exercise thereof shall lapse.

 

A“Change in Control Event” shall occur upon the occurrence of (i) anAcquisition after which holders of the Common Stock before the Acquisition donot beneficially own, directly or indirectly, at least 50% of the combinedvoting power of the then-outstanding securities of the Surviving Entityentitled to vote generally in the election of directors immediately after theconsummation of the Acquisition, (ii) a single transaction or a series oftransactions pursuant to which any person (within the meaning of Section 13(d) orSection 14(d)(2) of the Securities Exchange Act of 1934), excludingany employee benefit plan sponsored by the Company and any affiliates of theCompany prior to such transaction or transactions, acquires the beneficialownership, directly or indirectly, of at least 50% of the combined voting powerof the then-outstanding securities of the Company or the Surviving Entity, asthe case may be, entitled to vote generally in the election of directorsimmediately after the consummation of the transaction or transactions, exceptthat any acquisitions of securities directly from the Company shall bedisregarded for purposes of this clause (ii), or (iii) the liquidation ordissolution of the Company.

 

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If,in connection with a Change in Control Event, a tax under Section 4999 ofthe Code would be imposed on the grantee of any Stock Right (after taking intoaccount the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) ofthe Code), and the grantee, on an after-tax basis (taking into account suchtax) would receive greater net compensation by not having any or all of suchStock Rights accelerate, then at the discretion of the Committee, the number ofStock Rights of any such grantee which shall become immediately exercisable,realizable or vested as provided in this Section 13 (or such provision ofany other agreement or instrument governing such Stock Right that provides forsuch an acceleration in connection with a Change in Control Event) may bereduced (or delayed), to the extent necessary to maximize such netcompensation.  For purposes ofdetermining “net compensation” under this paragraph, the amount of compensationconsidered to be realized by the grantee of any Stock Right as a result of theacceleration of the vesting of such Stock Right shall be determined inaccordance with the principles set forth in the proposed Treasury Regulationsunder Section 280G of the Code (or any final or temporary TreasuryRegulations replacing such proposed Treasury Regulations) for determining theamount of any “parachute payment” resulting from the acceleration of vesting ofrestricted stock, a stock option or any other unvested stock right.

 

“Misconduct”shall mean any one or more of the following: (a) the commission of an actof embezzlement, fraud, dishonesty or deliberate disregard of the rules orpolicies of the Company or any Related Corporation which results in materialloss, damage or injury to the Company or any Related Corporation, whetherdirectly or indirectly; (b) the unauthorized disclosure of any tradesecret or confidential information of the Company or any Related Corporation; (c) thebreach by the optionee of any agreement with the Company or any RelatedCorporation, including without limitation any noncompetition agreement betweenthe optionee and the Company or any Related Corporation; or (d) thewillful failure by the optionee to perform his or her material responsibilitiesto the Company or any Related Corporation.

 

“GoodReason” shall mean (i) any material diminution in the optionee’s title,authority, or responsibilities from and after such Acquisition or Change inControl Event, as the case may be, (ii) any reduction in the annual cashcompensation payable to the optionee from and after such Acquisition or Changein Control Event, as the case may be or (iii) a change of more than 100miles in the optionee’s permanent workplace without the optionee’s consent.

 

(c)           Recapitalization or Reorganization.  If a recapitalization or reorganization ofthe Company (other than a transaction described in subparagraph (b) above)occurs, pursuant to which securities of the Company or another entity areissued with respect to the outstanding shares of Common Stock, an optionee,upon exercising an Option, shall be entitled to receive for the purchase pricepaid upon such exercise the securities he or she would have received if he orshe had exercised his or her Option prior to such recapitalization orreorganization and had been the owner of the Common Stock receivable upon suchexercise at such time.

 

(d)           Modification of ISOs.  Notwithstanding the foregoing, anyadjustments made pursuant to the foregoing subparagraphs (a), (b) or (c) withrespect to ISOs shall be made only after the Committee, after consulting withcounsel for the Company, determines whether such adjustments would constitute a“modification” of such ISOs (as that term is defined in Section 424 of theCode or any successor thereto) or would cause any adverse tax consequences forthe holders of such ISOs.  If theCommittee determines that such adjustments made with respect to ISOs wouldconstitute a modification of such ISOs, it may refrain from making suchadjustments.

 

(e)           Issuances of Securities andNon-Stock Dividends.  Except asexpressly provided herein, no issuance by the Company of shares of stock of anyclass, or securities convertible into shares of stock of any class, of theCompany shall affect, and no adjustment by reason thereof shall be made withrespect to, the number or price of shares subject to Options.  No adjustments shall be made for dividendspaid in cash or in property other than securities of the Company (and, in thecase of securities of the Company, such adjustments shall be made pursuant tothe foregoing subparagraph (a)).

 

(f)            Fractional Shares.  No fractional shares shall be issued underthis Plan, and the optionee shall receive from the Company cash in lieu of suchfractional shares.

 

(g)           Adjustments.  Upon the happening of any of the foregoingevents described in subparagraphs (a), (b) or (c) above, the classand aggregate number of shares set forth in paragraph 4 hereof that are subjectto Stock Rights which previously have been or subsequently may be granted underthis Plan shall also be appropriately adjusted to reflect the events describedin such subparagraphs.  The Committee orthe board of directors of the SurvivingEntity****(the “ Successor Board”),as applicable, shall determine the specific adjustments to be made under thisparagraph 13 and its determination shall be conclusive.

 

Ifany person or entity owning Common Stock obtained by exercise of a Stock Rightmade hereunder receives shares or securities or cash in connection with acorporate transaction described in subparagraphs (a), (b) or (c) aboveas a result of owning such Common Stock, except as otherwise provided insubparagraph (b), such shares or securities or cash shall be subject to all ofthe conditions and restrictions applicable to the Common Stock with respect towhich such shares or securities or cash were issued, unless otherwisedetermined by the Committee or the Successor Board.

 

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**14.          Means ofExercising Options.**

 

AnOption (or any part or installment thereof) shall be exercised by givingwritten notice to the Company at its principal office address.  Such notice shall identify the Option beingexercised and specify the number of shares as to which such Option is beingexercised, accompanied by full payment of the purchase price therefor either (a) inUnited States dollars in cash or by check, or (b) at the discretion of theCommittee, by delivery of an irrevocable and unconditional undertaking,satisfactory in form and substance to the Company, by a creditworthy broker todeliver promptly to the Company sufficient funds to pay the exercise price, ordelivery to the Company of a copy of irrevocable and unconditionalinstructions, satisfactory in form and substance to the Company, to acreditworthy broker to deliver promptly to the Company cash or a checksufficient to pay the exercise price, or (c) at the discretion of theCommittee, by delivery of the grantee’s personal recourse note bearing interestpayable not less than annually at no less than 100% of the applicable Federalrate, as defined in Section 1274(d) of the Code, or (d) at thediscretion of the Committee, by any combination of (a), (b) and (c) above.  The holder of an Option shall not have therights of a shareholder with respect to the shares covered by his or her Optionuntil the date of issuance of a stock certificate to the optionee for theshares subject to the Option.  Except asexpressly provided above in paragraph 13 with respect to changes incapitalization and stock dividends, no adjustment shall be made for dividends orsimilar rights for which the record date is before the date such stockcertificate is issued.

 

**15.          Term andAmendment of Plan.**

 

ThisPlan shall expire on September 30, 2015 (except as to Options outstandingon that date).  Subject to the provisionsof paragraph 5 above, Options may be granted under this Plan prior to the dateof stockholder approval of this Plan. The Board may terminate or amend this Plan in any respect at any time,except that (a) the total number of shares that may be issued under thisPlan may not be increased without stockholder approval (except by adjustmentpursuant to paragraph 13); (b) the provisions of paragraph 3 regardingeligibility for grants of ISOs may not be modified; (c) the provisions ofparagraph 6(b) regarding the exercise price at which shares may be offeredpursuant to ISOs may not be modified (except by adjustment pursuant toparagraph 13); and (d) the expiration date of this Plan may not beextended without the approval of thestockholders obtained within 12 months before or after the Board adopts a resolutionauthorizing any of the foregoing actions.

 

**16.          Section 162(m).**

 

Notwithstandinganything in this Plan to the contrary, no Stock Right shall become exercisable,vested or realizable if such Stock Right is granted to an employee that is a “coveredemployee” as defined in Section 162(m) of the Code and the Committeehas determined that such Stock Right should be structured so that it is not “applicableemployee remuneration” under such Section 162(m) unless and until theterms of this Plan, including any amendment hereto, have been approved by theCompany’s stockholders in the manner and to the extent required under such Section 162(m).

 

**17.          Amendmentof Stock Rights.**

 

TheBoard or Committee may amend, modify or terminate any outstanding Stock Rightsincluding, but not limited to, substituting therefor another Stock Right of thesame or a different type, changing the date of exercise or realization, andconverting an ISO to a Non-Qualified Option, provided,**that*,*except as otherwise provided in paragraphs 9 or 10, thegrantee’s consent to such action shall be required unless the Board orCommittee determines that the action, taking into account any related action,would not materially and adversely affect the grantee.

 

**18.          Applicationof Funds.**

 

Theproceeds received by the Company from the sale of shares pursuant to StockRights issued or granted under this Plan shall be used for general corporatepurposes.

 

**19.          GovernmentalRegulation.**

 

TheCompany’s obligation to sell and deliver shares of the Common Stock under thisPlan is subject to the approval of any governmental authority required inconnection with the authorization, issuance or sale of such shares.

 

**20.          Withholdingof Additional Income Taxes.**

 

Uponthe exercise of a Non-Qualified Option, the making of a Restricted Purchase ofCommon Stock for less than its fair market value, the granting of an Award, themaking of a Disqualifying Disposition (as defined in paragraph 21) or thevesting of restricted Common Stock acquired on the exercise of a Stock Righthereunder, the Company, in accordance with Section 3402(a) of theCode, may require the optionee or purchaser to pay additional withholding taxesin respect of the amount that 

 

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isconsidered compensation includible in such person’s gross income.  The Committee in its discretion may condition(i) the exercise of an Option, (ii) the making of a Restricted StockPurchase of Common Stock for less than its fair market value, or (iii) thegranting of an award, or (iv) the vesting of restricted Common Stockacquired by exercising a Stock Right, on the grantee’s payment of suchadditional withholding taxes.

 

**21.          Notice toCompany of Disqualifying Disposition.**

 

Eachemployee who receives an ISO must agree to notify the Company in writingimmediately after the employee makes a Disqualifying Disposition of any CommonStock acquired pursuant to the exercise of an ISO.  A “Disqualifying Disposition” is anydisposition (including any sale) of such Common Stock before the later of

 

(a)           two years after the date the employeewas granted the ISO, or

 

(b)           one year after the date the employeeacquired Common Stock by exercising the ISO. If the employee has died before such stock is sold, these holding periodrequirements do not apply and no Disqualifying Disposition can occurthereafter.

 

**22.          GoverningLaw; Construction.**

 

Thevalidity and construction of this Plan and the instruments evidencing StockRights shall be governed by the laws of the State of Delaware.

 

 

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