Exhibit 10.1


BIOSPHERE MEDICAL, INC.


2006 STOCK INCENTIVE PLAN


1.             Purpose


The purpose of this 2006 Stock Incentive Plan (the “Plan”)
of BioSphere Medical, Inc., a Delaware corporation
(the “Company”), is to advance the interests of the Company’s stockholders by
enhancing the Company’s ability to attract, retain and motivate persons who are
expected to make important contributions to the Company and by providing such
persons with equity ownership opportunities and performance-based incentives
that are intended to align their interests with those of the Company’s
stockholders. Except where the context otherwise requires, the term “Company”
shall include any of the Company’s present or future parent or subsidiary
corporations as defined in Sections 424(e) or (f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the “Code”) and any other business venture (including, without
limitation, joint venture or limited liability company) in which the Company
has a controlling interest, as determined by the Board of Directors of the
Company (the “Board”).


2.             Eligibility


All of the Company’s employees, officers, directors,
consultants and advisors are eligible to receive options, stock appreciation
rights, restricted stock, restricted stock units and other stock unit awards
(each, an “Award”) under the Plan. Each person who receives an Award under the
Plan is deemed a “Participant”.


3.             Administration
and Delegation


(a)           Administration by
Board of Directors. The Plan will be administered by the Board. The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may construe and interpret the terms of the Plan and
any Award agreements entered into under the Plan. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
Award in the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such expediency. All
decisions by the Board shall be made in the Board’s sole discretion and shall
be final and binding on all persons having or claiming any interest in the Plan
or in any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination relating
to or under the Plan made in good faith.


(b)           Appointment of
Committees. To the extent permitted by applicable law, the Board may
delegate any or all of its powers under the Plan to one or more committees or
subcommittees of the Board (a “Committee”). During such time as the common
stock, $0.01 par value per share, of the
Company (the “Common Stock”) is registered under the Securities Exchange Act of
1934 (the “Exchange Act”), the Board shall appoint one such Committee of not
less than two members, each member of which shall be an “outside director”
within the meaning 









 



of Section 162(m) of the Code and a “non-employee
director” as defined in Rule 16b-3 promulgated under the Exchange
Act. All references in the Plan to the “Board” shall mean the Board or a
Committee of the Board or the officers referred to in Section 3(c) to
the extent that the Board’s powers or authority under the Plan have been delegated
to such Committee or officers.


(c)           Delegation
to Officers. To the extent permitted by applicable law, the Board may
delegate to one or more officers of the Company the power to grant Awards to
employees or officers of the Company or any of its present or future subsidiary
corporations and to exercise such other powers under the Plan as the Board may
determine, provided that the Board shall fix the terms of the Awards to be
granted by such officers (including the exercise price of such Awards, which may
include a formula by which the exercise price will be determined) and the
maximum number of shares subject to Awards that the officers may grant;
provided further, however, that no officer shall be authorized to grant Awards
to any “executive officer” of the Company (as defined by Rule 3b-7
under the Exchange Act of 1934) or to any “officer” of the Company (as defined
by Rule 16a-1 under the Exchange Act).


4.             Stock Available for Awards


(a)           Number
of Shares. Subject to adjustment under Section 10, Awards may be made
under the Plan for up to 2,000,000 shares of Common Stock. If any Award expires
or is terminated, surrendered or canceled without having been fully exercised,
is forfeited in whole or in part (including as the result of shares of Common
Stock subject to such Award being repurchased by the Company at the original
issuance price pursuant to a contractual repurchase right), is settled in cash
or otherwise results in any Common Stock not being issued, the unused Common
Stock covered by such Award shall again be available for the grant of Awards
under the Plan. However, in the case of Incentive Stock Options (as hereinafter
defined), the foregoing provisions shall be subject to any limitations under
the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.


(b)           Sub-limits.
Subject to adjustment under Section 10, the following sub-limits on the
number of shares subject to Awards shall apply:


(1)           Section 162(m) Per-Participant
Limit. The maximum number of shares of Common Stock with respect to which
Awards may be granted to any Participant under the Plan shall be 600,000 per calendar year. For purposes of
the foregoing limit, the combination of an Option in tandem with an SAR (as
each is hereafter defined) shall be treated as a single Award. The per-Participant
limit described in this Section 4(b)(1) shall be construed and
applied consistently with Section 162(m) of the Code or any successor
provision thereto, and the regulations thereunder (“Section 162(m)”).


(2)           Limit
on Awards to Directors. The maximum number of shares with respect to which
Awards may be granted to any director who is not an employee of the Company at
the time of grant shall be 50,000 per calendar year.


(c)           Substitute
Awards. In connection with a merger or consolidation of an entity with the
Company or the acquisition by the Company of property or stock of an entity,
the Board may 



 2
 






 



grant Awards in substitution for any options or other
stock or stock unit awards granted by such entity or an affiliate thereof. Substitute
Awards may be granted on such terms as the Board deems appropriate in the
circumstances, notwithstanding any limitations on Awards contained in the Plan.
Substitute Awards shall not count against the
overall share limit set forth in Section 4(a), except as may be required
by reason of Section 422 and related provisions of the Code.


5.             Stock Options


(a)           General.
The Board may grant options to purchase Common Stock (each, an “Option”) and
determine the number of shares of Common Stock to be covered by each Option,
the exercise price of each Option and the conditions and limitations applicable
to the exercise of each Option, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable. An
Option that is not intended to be an Incentive Stock Option (as hereinafter
defined) shall be designated a “Nonstatutory Stock Option.”


(b)           Incentive
Stock Options. An Option that the Board intends to be an “incentive stock option”
as defined in Section 422 of the Code (an “Incentive Stock Option”) shall
only be granted to employees of BioSphere Medical, Inc., any of BioSphere
Medical, Inc.’s present or future parent or subsidiary corporations as
defined in Sections 424(e) or (f) of the Code, and any other entities
the employees of which are eligible to receive Incentive Stock Options under
the Code, and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Company shall have no
liability to a Participant, or any other party, if an Option (or any part
thereof) that is intended to be an Incentive Stock Option is not an Incentive
Stock Option or for any action taken by the Board, including without limitation
the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.


(c)           Exercise
Price. The Board shall establish the exercise price of each Option and
specify such exercise price in the applicable option agreement; provided,
however, that the exercise price shall be not less than 100% of the Fair Market
Value (as defined below) on the date the Option is granted.


(d)           Duration
of Options. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Board may specify in the applicable option
agreement, provided, however, that no Option will be granted for a term in
excess of 10 years.


(e)           Exercise
of Option. Options may be exercised by delivery to the Company of a written
notice of exercise signed by the proper person or by any other form of notice
(including electronic notice) approved by the Board, together with payment in
full as specified in Section 5(f) for the number of shares for which
the Option is exercised. Shares of Common Stock subject to the Option will be
delivered by the Company following exercise either as soon as practicable or,
subject to such conditions as the Board shall specify, on a deferred basis
(with the Company’s obligation to be evidenced by an instrument providing for
future delivery of the deferred shares at the time or times specified by the
Board).


(f)            Payment
Upon Exercise. Common Stock purchased upon the exercise of an Option
granted under the Plan shall be paid for as follows:


(1)           in
cash or by check, payable to the order of the Company;



 3
 






 



(2)           except
as may otherwise be provided in the applicable option agreement, by (i) delivery
of an irrevocable and unconditional undertaking by a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price and
any required tax withholding or (ii) delivery by the Participant to the
Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price and any required tax withholding;


(3)           to
the extent provided for in the applicable option agreement or approved by the
Board, in its sole discretion, by delivery (either by actual delivery or
attestation) of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board (“Fair
Market Value”), provided (i) such method of payment is then permitted
under applicable law, (ii) such Common Stock, if acquired directly from
the Company, was owned by the Participant for such minimum period of time, if
any, as may be established by the Board in its discretion and (iii) such
Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting
or other similar requirements;


(4)           to
the extent permitted by applicable law and provided for in the applicable
option agreement or approved by the Board, in its sole discretion, by (i) delivery
of a promissory note of the Participant to the Company on terms determined by
the Board, or (ii) payment of such other lawful consideration as the Board
may determine; or


(5)           by
any combination of the above permitted forms of payment.


(g)           Limitation
on Repricing. Unless such action is approved by the Company’s
stockholders:  (i) no outstanding
Option granted under the Plan may be amended to provide an exercise price per
share that is lower than the then-current exercise price per share of such
outstanding Option (other than adjustments pursuant to Section 10) and (ii) the
Board may not cancel any outstanding option (whether or not granted under the
Plan) and grant in substitution therefore new Awards under the Plan covering
the same or a different number of share of Common Stock and having an exercise
price per share lower than the then-current exercise price per share of the
cancelled option.


6.             Director Awards.


(a)           Initial
Grant. Upon the commencement of service on the Board by any individual who
is not then an employee of the Company or any subsidiary of the Company, the
Company shall grant to such person a Nonstatutory Stock Option to purchase
10,000 shares of Common Stock (subject to adjustment under Section 10).


(b)           Annual
Grant. On the date of each annual meeting of stockholders of the Company,
the Company shall grant to each member of the Board of Directors of the Company
who is both serving as a director of the Company immediately prior to and
immediately following such annual meeting and who is not then an employee of
the Company or any of its subsidiaries, (i) a Nonstatutory Stock Option to
purchase 5,000 shares of Common Stock and (ii) 2,500 shares of Restricted
Stock (as defined in Section 8 below) (each subject to adjustment under Section 10);
provided, however, that a director shall not be eligible to receive an option 



 4
 






 



grant or restricted stock grant under this Section 6(b) until
such director has served on the Board for at least six months.


(c)           Terms
of Director Options. Options granted under this Section 6 shall: (i) have
an exercise price equal to the closing sale price (for the primary trading
session) of the Common Stock on The Nasdaq Stock Market (“NASDAQ”) or the
national securities exchange on which the Common Stock is then traded on the
trading date immediately prior to the date of grant (and if the Common Stock is
not then traded on NASDAQ or a national securities exchange, the fair market
value of the Common Stock on such date as determined by the Board), (ii) with
respect to Options granted under Section 6(a), vest in five equal annual
installments beginning on the first anniversary of the date of grant, (iii) with
respect to Options granted under Section 6(b), vest in full on the date of
grant, (iii) expire on the earlier of 10 years from the date of grant or
three months following cessation of service on the Board, and (iv) contain
such other terms and conditions as the Board shall determine.


(d)           Terms
of Director Restricted Stock. Restricted Stock granted under this Section 6
shall (i) have an exercise price equal to $.01 per share, (ii) be
subject to repurchase by the Company at a price equal to the purchase price until
the second anniversary of the date of grant provided that the individual is
serving on the Board on such date, and provided that the Board may provide not
to exercise such repurchase option in the case of death, disability, attainment
of mandatory retirement age or retirement following at least 10 years of
service, and (iii) contain such other terms and conditions as the Board
shall determine.


(e)           Board
Discretion. The Board retains the specific authority to from time to time
increase or decrease the number of shares subject to options and restricted
stock awards granted under this Section 6, subject to the provisions of Section 4(b)(2).


7.             Stock Appreciation Rights.


(a)           General. The Board may grant
Awards consisting of a Stock Appreciation Right (“SAR”) entitling the holder,
upon exercise, to receive an amount in Common Stock or cash or a combination
thereof (such form to be determined by the Board) determined by reference to
appreciation, from and after the date of grant, in the fair market value of a share
of Common Stock. The date as of which such appreciation or other measure is
determined shall be the exercise date.


(b)           Grants. Stock
Appreciation Rights may be granted in tandem with, or independently of, Options
granted under the Plan.


(1)           Tandem Awards. When Stock Appreciation Rights are
expressly granted in tandem with Options, (i) the Stock Appreciation Right
will be exercisable only at such time or times, and to the extent, that the
related Option is exercisable (except to the extent designated by the Board in
connection with an Acquisition Event) and will be exercisable in accordance
with the procedure required for exercise of the related Option; (ii) the
Stock Appreciation Right will terminate and no longer be exercisable upon the
termination or exercise of the related Option, except to the extent designated
by the Board in connection with an Acquisition Event and except that a Stock
Appreciation Right granted with respect to less than the full number of shares 



 5
 






 



covered by an Option will not be reduced until the
number of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock Appreciation
Right; (iii) the Option will terminate and no longer be exercisable upon
the exercise of the related Stock Appreciation Right; and (iv) the Stock
Appreciation Right will be transferable only with the related Option.


(2)           Independent SARs. A Stock Appreciation Right not expressly
granted in tandem with an Option will become exercisable at such time or times,
and on such conditions, as the Board may specify in the SAR Award.


(c)           Grant
Price. The grant price or exercise price of an SAR shall not be less than
100% of the Fair Market Value per share of Common Stock on the date of grant of
the SAR.


(d)           Term.
The term of an SAR shall not be more than 10 years from the date of grant.


(e)           Exercise.
Stock Appreciation Rights may be exercised by delivery to the Company of a
written notice of exercise signed by the proper person or by any other form of
notice (including electronic notice) approved by the Board, together with any
other documents required by the Board.


8.             Restricted Stock; Restricted Stock Units.


(a)           General.
The Board may grant Awards entitling recipients to acquire shares of Common
Stock (“Restricted Stock”), subject to the right of the Company to repurchase
all or part of such shares at their issue price or other stated or formula
price (or to require forfeiture of such shares if issued at no cost) from the
recipient in the event that conditions specified by the Board in the applicable
Award are not satisfied prior to the end of the applicable restriction period
or periods established by the Board for such Award. Instead of granting Awards
for Restricted Stock, the Board may grant Awards entitling the recipient to
receive shares of Common Stock to be delivered at the time such shares of
Common Stock vest (“Restricted Stock Units”) (Restricted Stock and Restricted
Stock Units are each referred to herein as a “Restricted Stock Award”).


(b)           Terms
and Conditions for all Restricted Stock Awards. The Board shall determine
the terms and conditions of a Restricted Stock Award, including the conditions
for vesting and repurchase (or forfeiture) and the issue price, if any.


(c)           Additional Provisions Relating to Restricted Stock.


(1)           Dividends.
Participants holding shares of Restricted Stock will be entitled to all
ordinary cash dividends paid with respect to such shares, unless otherwise
provided by the Board. If any such dividends or distributions are paid in
shares, or consist of a dividend or distribution to holders of Common
Stock other than an ordinary cash dividend, the
shares, cash or other property will be subject to the same restrictions on
transferability and forfeitability as the shares of Restricted Stock with
respect to which they were paid.  Each
dividend payment will be made no later than the end of the calendar year in
which the dividends are paid to shareholders of that class of stock or, if
later, the 15th day of the third month following the date the dividends are
paid to shareholders of that class of stock.



 6
 






 



(2)           Stock
Certificates. The Company may require that any stock certificates issued in
respect of shares of Restricted Stock shall be deposited in escrow by the
Participant, together with a stock power endorsed in blank, with the Company
(or its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant
to receive amounts due or exercise rights of the Participant in the event of
the Participant’s death (the “Designated Beneficiary”). In the absence of an
effective designation by a Participant, “Designated Beneficiary” shall mean the
Participant’s estate.


(d)           Additional
Provisions Relating to Restricted Stock Units.


(1)           Settlement.
Upon the vesting of and/or lapsing of any other restrictions (i.e., settlement)
with respect to each Restricted Stock Unit, the Participant shall be entitled
to receive from the Company one share of Common Stock or an amount of cash
equal to the Fair Market Value of one share of Common Stock, as provided in the
applicable Award agreement. The Board may, in its discretion, provide that
settlement of Restricted Stock Units shall be deferred, on a mandatory basis or
at the election of the Participant.


(2)           Voting
Rights. A Participant shall have no voting rights with respect to any
Restricted Stock Units.


(3)           Dividend
Equivalents. To the extent provided by the Board, in its sole discretion, a
grant of Restricted Stock Units may provide Participants with the right to
receive an amount equal to any dividends or other distributions declared and
paid on an equal number of outstanding shares of Common Stock (“Dividend
Equivalents”). Dividend Equivalents may be paid currently or credited to an
account for the Participants, may be settled in cash and/or shares of Common
Stock and may be subject to the same restrictions on transfer and
forfeitability as the Restricted Stock Units with respect to which paid, as
determined by the Board in its sole discretion, subject in each case to such
terms and conditions as the Board shall establish, in each case to be set forth
in the applicable Award agreement.


9.             Other Stock Unit Awards.


Other Awards of shares of Common Stock, and other
Awards that are valued in whole or in part by reference to, or are otherwise
based on, shares of Common Stock or other property, may be granted hereunder to
Participants (“Other Stock Unit Awards”), including without limitation Awards
entitling recipients to receive shares of Common Stock to be delivered in the
future. Such Other Stock Unit Awards shall also be available as a form of
payment in the settlement of other Awards granted under the Plan or as payment
in lieu of compensation to which a Participant is otherwise entitled. Other
Stock Unit Awards may be paid in shares of Common Stock or cash, as the Board
shall determine. Subject to the provisions of the Plan, the Board shall
determine the terms and conditions of each Other Stock Unit Award, including
any purchase price applicable thereto.



 7














 


10.           Adjustments
for Changes in Common Stock and Certain Other Events.


(a)           Changes in
Capitalization. In the event of any stock split, reverse stock split, stock
dividend, recapitalization, combination of shares, reclassification of shares,
spin-off or other similar change in capitalization or event, or any dividend or
distribution to holders of Common Stock other than an ordinary cash dividend, (i) the
number and class of securities available under this Plan, (ii) the
sub-limits set forth in Section 4(b), (iii) the number and class of
securities and exercise price per share of each outstanding Option and each
Option issuable under Section 6, (iv) the share- and per-share
provisions and the exercise price of each Stock Appreciation Right, (v) the
number of shares subject to and the repurchase price per share subject to each
outstanding Restricted Stock Award and (vi) the share- and
per-share-related provisions and the purchase price, if any, of each
outstanding Other Stock Unit Award, shall be appropriately adjusted by the
Company (or substituted Awards may be made, if applicable) to the extent
determined by the Board. Without limiting the generality of the foregoing, in
the event the Company effects a split of the Common Stock by means of a stock
dividend and the exercise price of and the number of shares subject to such
Option are adjusted as of the date of the distribution of the dividend (rather
than as of the record date for such dividend), then an optionee who exercises
an Option between the record date and the distribution date for such stock
dividend shall be entitled to receive, on the distribution date, the stock
dividend with respect to the shares of Common Stock acquired upon such Option
exercise, notwithstanding the fact that such shares were not outstanding as of
the close of business on the record date for such stock dividend.


(b)           Acquisition
Events


(1)           Consequences Of
Acquisition Events. Subject to Section 10(b)(2) below, upon the
occurrence of an Acquisition Event (as defined below), or the execution by the
Company of any agreement with respect to an Acquisition Event, the Board shall
take any one or more of the following actions with respect to then outstanding
Awards: (i) provide that outstanding Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination of
the Board, the requirements of Section 424(a) of the Code; (ii) upon
written notice to the Participants, provide that all then unexercised Options
will become exercisable in full as of a specified date (the “Acceleration Date”)
prior to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised by the
Participants between the Acceleration Date and the consummation of such
Acquisition Event; (iii) in the event of an Acquisition Event under the
terms of which holders of Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock surrendered pursuant to such
Acquisition Event (the “Acquisition Price”), provide that all outstanding
Options shall terminate upon consummation of such Acquisition Event and each
Participant shall receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options (whether
or not then exercisable), exceeds (B) the aggregate exercise price of such
Options; (iv) provide that all Restricted Stock Awards then outstanding
shall become free of all restrictions prior to the consummation of the
Acquisition Event; and (v) provide that any other stock-based Awards
outstanding (A) shall become exercisable, realizable or vested in full, 



 8
 






 



or shall be free of all conditions or restrictions, as applicable to
each such Award, prior to the consummation of the Acquisition Event, or (B), if
applicable, shall be assumed, or equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof).


An “Acquisition Event” shall be deemed to have
occurred only if any of the following events occur: (a) the stockholders
of the Company approve a merger or consolidation which results in the voting
securities of the Company outstanding immediately prior thereto representing
thereafter (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the combined
voting power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or consolidation; (b) any
sale of all or substantially all of the assets of the Company; (c) the
complete liquidation of the Company; or (d) the acquisition of “beneficial
ownership” (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the Company’s then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
“person”, as such term is used in Sections 13(d) and 14(d) of the
Exchange Act other than the Company, Sepracor Inc. (or its successor), any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportion as their ownership of stock
of the Company; or (e) individuals who, on the date on which the Plan was
adopted by the Board of Directors, constituted the Board of Directors of the
Company, together with any new director whose election by the Board of
Directors or  nomination for election by
the Company’s stockholders was approved by a vote of at least a majority of the
directors then still in office who were directors on the date on which the Plan
was adopted by the Board of Directors or whose election or nomination was
previously so approved, cease for any reason to constitute at least a majority
of the Board of Directors.


(2)           Acceleration
Upon An Acquisition Event. Except to the extent otherwise provided in the
instrument evidencing the Award or in any other agreement between the Participant
and the Company, upon the occurrence of an Acquisition Event or with respect to
Options or any other similar Awards only, upon the execution by the Company of
any agreement with respect to an Acquisition Event, (i) the Board shall
provide a written notice to the Participants that are directors or employees of
the Company that all Options then outstanding shall become immediately
exercisable in full as of a specified date (the “Acceleration Date”) prior to
the Acquisition Event and will terminate immediately prior to the consummation
of such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Date and the consummation of such Acquisition Event; (ii) all
Restricted Stock Awards then outstanding and held by directors or employees of
the Company shall become immediately free of all restrictions; (iii) all
other stock-based Awards that are held by directors or employees of the Company
shall become immediately exercisable, realizable or vested in full, or shall be
immediately free of all restrictions or conditions, as the case may be.


11.           General
Provisions Applicable to Awards


(a)           Transferability
of Awards. Awards shall not be sold, assigned, transferred, pledged or
otherwise encumbered by the person to whom they are granted, either voluntarily
or by operation of law, except by will or the laws of descent and distribution
or, other than in the 



 9
 






 



case of an Incentive Stock Option, pursuant to a qualified domestic
relations order, and, during the life of the Participant, shall be exercisable
only by the Participant; provided, however, that the Board may permit or
provide in an Award for the gratuitous transfer of the Award by the Participant
to or for the benefit of any immediate family member, family trust or other
entity established for the benefit of the Participant and/or an immediate
family member thereof if, with respect to such proposed transferee, the Company
would be eligible to use a Form S-8 for the registration of the sale
of the Common Stock subject to such Award under the Securities Act of 1933, as
amended; provided, further, that the Company shall not be required to recognize
any such transfer until such time as the Participant and such permitted
transferee shall, as a condition to such transfer, deliver to the Company a
written instrument in form and substance satisfactory to the Company confirming
that such transferee shall be bound by all of the terms and conditions of the
Award. References to a Participant, to the extent relevant in the context,
shall include references to authorized transferees.


(b)           Documentation.
Each Award shall be evidenced in such form (written, electronic or otherwise)
as the Board shall determine. Each Award may contain terms and conditions in
addition to those set forth in the Plan.


(c)           Board
Discretion. Except as otherwise provided by the Plan, each Award may be
made alone or in addition or in relation to any other Award. The terms of each
Award need not be identical, and the Board need not treat Participants
uniformly.


(d)           Termination of
Status. The Board shall determine the effect on an Award of the disability,
death, termination of employment, authorized leave of absence or other change
in the employment or other status of a Participant and the extent to which, and
the period during which, the Participant, or the Participant’s legal
representative, conservator, guardian or Designated Beneficiary, may exercise
rights under the Award.


(e)           Withholding.
The Participant must satisfy all applicable federal, state, and local or other
income and employment tax withholding obligations before the Company will
deliver stock certificates or otherwise recognize ownership of Common Stock
under an Award. The Company may decide to satisfy the withholding obligations
through additional withholding on salary or wages. If the Company elects not to
or cannot withhold from other compensation, the Participant must pay the
Company the full amount, if any, required for withholding or have a broker
tender to the Company cash equal to the withholding obligations. Payment of
withholding obligations is due before the Company will issue any shares on
exercise or release from forfeiture of an Award or, if the Company so requires,
at the same time as is payment of the exercise price unless the Company
determines otherwise. If provided for in an Award or approved by the Board in
its sole discretion, a Participant may satisfy such tax obligations in whole or
in part by delivery of shares of Common Stock, including shares retained from
the Award creating the tax obligation, valued at their Fair Market Value;
provided, however, except as otherwise provided by the Board, that the total
tax withholding where stock is being used to satisfy such tax obligations
cannot exceed the Company’s minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable
income). Shares surrendered to satisfy tax withholding requirements cannot be
subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.



 10
 






 



(f)            Amendment of
Award. Except as otherwise provided in Section 5(g), the Board may
amend, modify or terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization, and converting an Incentive Stock Option
to a Nonstatutory Stock Option, provided either (i) that the Participant’s
consent to such action shall be required unless the Board determines that the
action, taking into account any related action, would not materially and
adversely affect the Participant or (ii) that the change is permitted
under Section 10 hereof.


(g)           Conditions on
Delivery of Stock. The Company will not be obligated to deliver any shares
of Common Stock pursuant to the Plan or to remove restrictions from shares
previously delivered under the Plan until (i) all conditions of the Award
have been met or removed to the satisfaction of the Company, (ii) in the
opinion of the Company’s counsel, all other legal matters in connection with
the issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market rules and
regulations, and (iii) the Participant has executed and delivered to the
Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.


(h)           Acceleration.
The Board may at any time provide that any Award shall become immediately
exercisable in full or in part, free of some or all restrictions or conditions,
or otherwise realizable in full or in part, as the case may be.


(i)            Performance
Awards.


(1)           Grants. Restricted
Stock Awards and Other Stock Unit Awards under the Plan may be made subject to
the achievement of performance goals pursuant to this Section 11(i) (“Performance
Awards”), subject to the limit in Section 4(b)(1) on shares covered
by such grants.


(2)           Committee. Grants
of Performance Awards to any Covered Employee intended to qualify as “performance-based
compensation” under Section 162(m) (“Performance-Based Compensation”)
shall be made only by a Committee (or subcommittee of a Committee) comprised
solely of two or more directors eligible to serve on a committee making Awards
qualifying as “performance-based compensation” under Section 162(m). In
the case of such Awards granted to Covered Employees, references to the Board
or to a Committee shall be deemed to be references to such Committee or
subcommittee. “Covered Employee” shall mean any person who is a “covered
employee” under Section 162(m)(3) of the Code.


(3)           Performance
Measures. For any Award that is intended to qualify as Performance-Based
Compensation, the Committee shall specify that the degree of granting, vesting
and/or payout shall be subject to the achievement of one or more objective
performance measures established by the Committee, which shall be based on the
relative or absolute attainment of specified levels of one or any combination
of the following:  (a) net income, (b) earnings
before or after discontinued operations, interest, taxes, depreciation and/or
amortization, (c) operating profit before or after discontinued operations
and/or taxes, (d) sales, (e) sales growth, (f) earnings growth, (g) cash
flow or cash position, (h) gross margins, (i) stock price, (j) market
share, (k) return on sales, assets, equity or investment, (l) improvement
of financial 



 11
 






 



ratings, (m) achievement of balance sheet or income statement
objectives or (n) total shareholder return, and may be absolute in their
terms or measured against or in relationship to other companies comparably,
similarly or otherwise situated. Such performance measures may be adjusted to
exclude any one or more of (i) extraordinary items, (ii) gains or
losses on the dispositions of discontinued operations, (iii) the
cumulative effects of changes in accounting principles, (iv) the writedown
of any asset, and (v) charges for restructuring and rationalization
programs. Such performance measures:  (i) may
vary by Participant and may be different for different Awards; (ii) may be
particular to a Participant or the department, branch, line of business,
subsidiary or other unit in which the Participant works and may cover such
period as may be specified by the Committee; and (iii) shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m). Awards that are not intended to
qualify as Performance-Based Compensation may be based on these or such other
performance measures as the Board may determine.


(4)           Adjustments. Notwithstanding
any provision of the Plan, with respect to any Performance Award that is
intended to qualify as Performance-Based Compensation, the Committee may adjust
downwards, but not upwards, the cash or number of Shares payable pursuant to
such Award, and the Committee may not waive the achievement of the applicable
performance measures except in the case of the death or disability of the
Participant.


(5)           Other. The
Committee shall have the power to impose such other restrictions on Performance
Awards as it may deem necessary or appropriate to ensure that such Awards
satisfy all requirements for Performance-Based Compensation.


12.           Miscellaneous


(a)           No Right To
Employment or Other Status. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment or any other relationship with
the Company. The Company expressly reserves the right at any time to dismiss or
otherwise terminate its relationship with a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.


(b)           No Rights As
Stockholder. Subject to the provisions of the applicable Award, no
Participant or Designated Beneficiary shall have any rights as a stockholder
with respect to any shares of Common Stock to be distributed with respect to an
Award until becoming the record holder of such shares.


(c)           Effective Date
and Term of Plan. The Plan shall become effective on the date the Plan is
approved by the Company’s stockholders (the “Effective Date”). No Awards shall
be granted under the Plan after the completion of 10 years from the Effective
Date, but Awards previously granted may extend beyond that date.


(d)           Amendment of Plan.
The Board may amend, suspend or terminate the Plan or any portion thereof at
any time provided that (i) to the extent required by Section 162(m),
no Award granted to a Participant that is intended to comply with Section 162(m) after
the date of such amendment shall become exercisable, realizable or vested, as
applicable to such Award, 



 12
 






 



unless and
until such amendment shall have been approved by the Company’s stockholders if
required by Section 162(m) (including the vote required under Section 162(m));
(ii) no amendment that would require stockholder approval under the rules of
NASDAQ may be made effective unless and until such amendment shall have been
approved by the Company’s stockholders; and (iii) if the NASDAQ amends its
corporate governance rules so that such rules no longer require
stockholder approval of material amendments to equity compensation plans, then,
from and after the effective date of such amendment to the NASDAQ rules, no
amendment to the Plan (A) materially increasing the number of shares
authorized under the Plan (other than pursuant to Section 10), (B) expanding
the types of Awards that may be granted under the Plan, or (C) materially
expanding the class of participants eligible to participate in the Plan shall
be effective unless stockholder approval is obtained. In addition, if at any
time the approval of the Company’s stockholders is required as to any other
modification or amendment under Section 422 of the Code or any successor
provision with respect to Incentive Stock Options, the Board may not effect
such modification or amendment without such approval. No Award shall be made
that is conditioned upon stockholder approval of any amendment to the Plan.


(e)           Provisions for
Foreign Participants. The Board may modify Awards or Options granted to
Participants who are foreign nationals or employed outside the United States or
establish subplans or procedures under the Plan to recognize differences in
laws, rules, regulations or customs of such foreign jurisdictions with respect
to tax, securities, currency, employee benefit or other matters.


(f)            Compliance With
Code Section 409A. No Award shall provide for deferral of compensation
that does not comply with Section 409A of the Code, unless the Board, at
the time of grant, specifically provides that the Award is not intended to
comply with Section 409A of the Code. The Company shall have no liability
to a Participant, or any other party, if an Award that is intended to be exempt
from, or compliant with, Section 409A is not so exempt or compliant or for
any action taken by the Board.


(g)           Governing Law.
The provisions of the Plan and all Awards made hereunder shall be governed by
and interpreted in accordance with the laws of the State of Delaware, excluding
choice-of-law principles of the law of such state that would require the
application of the laws of a jurisdiction other than such state.


Adopted by the
Board of Directors, March 9, 2006.


Approved by the
Shareholders, May 10, 2006.



 13