Exhibit 10.1


VERTEX
PHARMACEUTICALS INCORPORATED

2006 STOCK and OPTION PLAN


1.                 DEFINITIONS


Unless otherwise specified or unless the context
otherwise requires, the following terms, as used in this Vertex Pharmaceuticals
Incorporated 2006 Stock and Option Plan, have the following meanings:


Administrator means
the Board of Directors and/or a committee of the Board of Directors to which
the Board of Directors has delegated power to act on its behalf in
administering this Plan in whole or in part.


Affiliate means
a corporation that, for purposes of Section 424 of the Code, is a parent
or subsidiary of the Company, direct or indirect.


Board of Directors means
the Board of Directors of the Company.


Code means
the United States Internal Revenue Code of 1986, as amended.


Common Stock means
shares of the Company’s common stock, $.01 par value.


Company means
Vertex Pharmaceuticals Incorporated, a Massachusetts corporation.


Employee means
an employee of the Company or of an Affiliate (including, without limitation,
an employee who is also serving as an officer or director of the Company or of
an Affiliate), designated by the Administrator to be eligible to be granted one
or more Stock Rights under the Plan.


Exchange Act means
the Securities Exchange Act of 1934, as amended.


Fair Market Value of
a Share of Common Stock on a particular date shall be the mean between the
highest and lowest quoted selling prices on such date (the “valuation date”) on
the securities market where the Common Stock is traded, or if there were no sales
on the valuation date, on the next preceding date within a reasonable period
(as determined in the sole discretion of the Administrator) on which there were
sales. If there were no sales in such a market within a reasonable period, the
fair market value shall be as determined in good faith by the Administrator in
its sole discretion. The Fair Market Value as determined in this paragraph
shall be rounded down to the next lower whole cent if the foregoing calculation
results in fractional cents.


ISO means
an option intended to qualify as an incentive stock option under Code Section 422.


Non-Employee Director means
a member of the Board of Directors who is not an employee of the Company or any
Affiliate.


Non-Qualified Option means
an option that is not intended to qualify as an ISO.


Option means
an ISO or Non-Qualified Option granted under the Plan.


Participant means
an Employee, Non-Employee Director, consultant or advisor of the Company or an
Affiliate to whom one or more Stock Rights are granted under the Plan. As used
herein, “Participant” shall include “Participant’s Survivors” and a Participant’s
permitted transferees where the context requires.









 



 


Participant’s Survivors means
a deceased Participant’s legal representatives and/or any person or persons who
acquires the Participant’s rights to a Stock Right by will or by the laws of
descent and distribution.


Plan means
this Vertex Pharmaceuticals Incorporated 2006 Stock and Option Plan, as amended
from time to time.


Shares means
shares of the Common Stock as to which Stock Rights have been or may be granted
under the Plan or any shares of capital stock into which the Shares are changed
or for which they are exchanged within the provisions of Section 3 of the
Plan. The Shares subject to Stock Rights granted under the Plan may be
authorized and unissued shares or shares held by the Company in its treasury,
or both.


Stock Agreement means
an agreement between the Company and a Participant delivered pursuant to the
Plan with respect to a Stock Right, in such form as the Administrator shall
approve.


Stock-Based Award means
a grant by the Company under the Plan of an equity award or equity-based award
that is not an Option or Stock Grant.


Stock Grant means
a grant by the Company of Shares under the Plan.


Stock Right means
a right to Shares or the value of Shares of the Company granted pursuant to the
Plan as an ISO, a Non-Qualified Option, a Stock Grant or a Stock-Based Award.


2.                 PURPOSES OF THE
PLAN


The Plan is intended to encourage ownership of Shares
by Employees, Non-Employee Directors and certain consultants and advisors to
the Company in order to attract such persons, to induce them to work for the
benefit of the Company or of an Affiliate and to provide additional incentive
for them to promote the success of the Company or of an Affiliate. The Plan
provides for the granting of Stock Rights to Employees, Non-Employee Directors,
consultants and advisors of the Company.


3.                 SHARES SUBJECT TO
THE PLAN


The number of Shares subject to this Plan as to which
Stock Rights may be granted from time to time shall be 7,350,000 or the
equivalent of such number of Shares after the Administrator, in its sole
discretion, has interpreted the effect of any stock split, stock dividend,
combination, recapitalization or similar transaction in accordance with Section 17
of this Plan. No Stock Rights shall be granted under this Plan prior to the
date on which the stockholders of the Company approve this Plan. The number of
Shares subject to this Plan shall be reduced, share for share, by the number of
shares underlying Stock Rights, if any, that are granted under the Company’s
1996 Stock and Option Plan after March 22, 2006.


If an Option granted hereunder ceases to be
outstanding, in whole or in part (other than by exercise), or if the Company
shall reacquire (at no more than its original issuance price) any Shares issued
pursuant to a Stock Grant, or if any Stock Right expires or is forfeited,
cancelled or otherwise terminated or results in any Shares not being issued,
the unissued Shares that were subject to such Stock Right shall again be
available for issuance from time to time pursuant to this Plan.



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4.                 ADMINISTRATION OF
THE PLAN


The Administrator
shall administer the Plan. Subject to the provisions of the Plan, the
Administrator is authorized to:


a.                 Interpret
the provisions of the Plan and of any Stock Right or Stock Agreement and to
make all rules and determinations that it deems necessary or advisable for
the administration of the Plan;


b.                Determine
which Employees, Non-Employee Directors, consultants and advisors of the
Company and its Affiliates shall be granted Stock Rights;


c.                 Determine
the number of Shares and exercise price for which a Stock Right shall be
granted;


d.                Specify
the terms and conditions upon which a Stock Right or Stock Rights may be
granted;


e.                 In
its discretion, accelerate:


(i)                the
date of exercise of any installment of any Option; provided that the
Administrator shall not, without the consent of the Option holder accelerate
the exercise date of any installment of any Option granted to any Employee as
an ISO (and not previously converted into a Non-Qualified Option pursuant to Section 20)
if such acceleration would violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in Section 6.2.3; or


(ii)             the
date or dates of vesting of Shares, or lapsing of Company repurchase rights
with respect to any Shares, under any Stock Rights; and


f.                   In
its discretion, extend the exercise date for any Option;


provided, however, that all such interpretations,
rules, determinations, terms and conditions shall be made and prescribed in the
context of preserving the tax status under Code Section 422 of those
Options which are designated as ISOs (unless the holder of any such Option
otherwise agrees). Subject to the foregoing, the interpretation and
construction by the Administrator of any provisions of the Plan or of any Stock
Right granted under it shall be final, unless otherwise determined by the Board
of Directors, if the Administrator is other than the Board of Directors.


The Administrator may employ attorneys, consultants,
accountants or other persons, and the Administrator, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of such persons. All actions taken and all interpretations and
determinations made by the Administrator in good faith shall be final and
binding upon the Company, all Participants, and all other interested persons.
No member or agent of the Administrator shall be personally liable for any
action, determination, or interpretation made in good faith with respect to
this Plan or grants hereunder. Each member of the Administrator shall be
indemnified and held harmless by the Company against any cost or expense
(including counsel fees) reasonably incurred by him or her or any liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with this Plan
unless arising out of such member’s own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members of the Administrator may have as directors or otherwise under the
by-laws of the Company, or any agreement, vote of stockholders or disinterested
directors, or otherwise.



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5.                 ELIGIBILITY FOR
PARTICIPATION


The Administrator shall, in its sole discretion, name
the Participants in the Plan, provided, however, that each Participant must be
a Employee, Non-Employee Director, consultant or advisor of the Company or of
an Affiliate at the time a Stock Right is granted. Notwithstanding the
foregoing, the Administrator may authorize the grant of a Stock Right to a
person not then an Employee, Non-Employee Director, consultant or advisor of
the Company or of an Affiliate; provided,
however, that the actual grant of
such Stock Right shall be conditioned upon such person becoming eligible to
become a Participant at or prior to the time of execution of the Stock
Agreement evidencing such Stock Right. ISOs may be granted only to Employees.
The granting of any Stock Right to any individual shall neither entitle that
individual to, nor disqualify him or her from, participation in other grants of
Stock Rights.


6.                 TERMS AND
CONDITIONS OF OPTIONS


6.1   General.   Each Option shall be set forth in
writing in a Stock Agreement, duly executed by the Company and, to the extent
required by law or requested by the Company, by the Participant. The
Administrator may provide that Options be granted subject to such terms and
conditions, consistent with the terms and conditions specifically required
under this Plan, as the Administrator may deem appropriate including, without
limitation, subsequent approval by the stockholders of the Company of this Plan
or any amendments thereto. Each Stock Agreement shall state the option price
(per share) of the Shares covered by each Option, the number of Shares to which
it pertains, the date or dates on which it first is exercisable and the date
after which it may no longer be exercised (subject to Sections 11, 12 and 13 of
this Plan). Option rights may accrue or become exercisable in installments over
a period of time, or upon the achievement of certain conditions or the
attainment of stated goals or events.


6.2   ISOs.   Each Option intended to be an ISO
shall be issued only to Employees. In addition to the minimum standards set
forth in Section 6.1, ISOs shall be subject to the following terms and
conditions, with such additional restrictions or changes as the Administrator
determines are appropriate but not in conflict with Code Section 422 and
relevant regulations and rulings of the Internal Revenue Service:


6.2.1   ISO Option Price.   The Option price per share of the
Shares covered by an ISO shall not be less than one hundred percent (100%) of
the Fair Market Value per share of the Common Stock on the date of grant of the
ISO; provided, however, that the Option price per share of the Shares covered
by each ISO granted to a Participant who owns, directly or by reason of the
applicable attribution rules in Code Section 424(d), more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or an Affiliate shall not be less than one hundred ten percent (110%)
of the Fair Market Value on the date of grant.


6.2.2   Term of ISO.   Each ISO shall expire not more than
ten (10) years from the date of grant; provided, however, that an ISO
granted to a Participant who owns, directly or by reason of the applicable
attribution rules in Code Section 424(d), more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or an
Affiliate shall expire not more than five (5) years from the date of
grant.


6.2.3   Annual Limit on Incentive Stock
Options.   To the
extent required for “incentive stock option” treatment under Section 422
of the Code, the aggregate Fair Market Value 



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(determined as of the time of grant) of the Shares
with respect to which ISOs granted under this Plan and any other plan of the
Company or its Affiliate become exercisable for the first time by a Participant
during any calendar year shall not exceed the aggregate threshold for ISOs
established by the Code ($100,000 as of March 22, 2006). To the extent
that any Option exceeds this limit, it shall constitute a Non-Qualified Option.


6.3   Non-Employee Directors’ Options.   Each Non-Employee Director, upon
first being elected or appointed to the Board of Directors, shall be granted a
Non-Qualified Option to purchase that number of Shares as shall be established
for such Option grants from time to time by the Board of Directors. Each such
Option shall (i) have an exercise price equal to the Fair Market Value
(per share) on the date of grant of the Option, (ii) have a term of ten (10) years,
and (ii) shall become cumulatively exercisable in sixteen (16) equal
quarterly installments, upon completion of each full quarter of service on the
Board of Directors after the date of grant. In addition, on June 1 of each
year, each Non-Employee Director shall be granted a Non-Qualified Option to
purchase that number of Shares as shall be established for such Option grants
from time to time by the Board of Directors. Each such Option shall (i) have
an exercise price equal to the Fair Market Value (per share) on the date of grant
of such Option, (ii) have a term of ten (10) years, and (iii) be
exercisable in full immediately on the date of grant. Any director entitled to
receive an Option grant under this Section may elect to decline the
Option. If a Non-Employee Director ceases to be any of an Employee,
Non-Employee Director, consultant or advisor of the Company, Options granted
under this Section 6.3 shall remain exercisable to the extent such Options
are exercisable on the date of such termination of service, for their full
term, and the provisions of Sections 11 and 13 below shall not apply to any
such Options.


6.4   Limitation on Number of Options
Granted.   Notwithstanding
anything in this Plan to the contrary, no Participant shall be granted an
aggregate of Options and/or Stock-Based Awards under this Plan in any calendar
year for more than an aggregate of 600,000 Shares (subject to adjustment
pursuant to Section 17 to the extent consistent with Section 162(m) of
the Code).


7.                 TERMS AND
CONDITIONS OF STOCK GRANTS


Each Stock Grant shall be set forth in a Stock
Agreement, duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. The Stock Agreement shall be in
the form approved by the Administrator, with such changes and modifications to
such form as the Administrator, in its discretion, shall approve with respect to
any particular Participant or Participants. The Stock Agreement shall contain
terms and conditions that the Administrator determines to be appropriate and in
the best interest of the Company; provided, however, that the purchase price
per share of the Shares covered by each Stock Grant shall not be less than the
par value per Share. Each Stock Agreement shall state the number of Shares to
which the Stock Grant pertains and the terms of any right of the Company to
reacquire the Shares subject to the Stock Grant, including the time and events
upon which such rights shall accrue and the purchase price therefor, and any
restrictions on the transferability of such Shares.


8.                 TERMS AND
CONDITIONS OF OTHER STOCK-BASED AWARDS


The Administrator shall have the right to grant other
Stock-Based Awards having such terms and conditions as the Administrator may
determine, including, without limitation, the grant of Shares based upon
certain conditions, the grant of securities convertible into Shares and the
grant 



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of stock appreciation rights, phantom stock awards or
stock units. The principal terms of each Stock-Based Award shall be set forth
in a Stock Agreement, duly executed by the Company and, to the extent required
by law or requested by the Company, by the Participant. The Stock Agreement
shall be in a form approved by the Administrator and shall contain terms and
conditions that the Administrator determines to be appropriate.


9.                 EXERCISE OF
OPTIONS AND ISSUANCE OF SHARES


An Option (or any part or installment thereof) shall
be exercised by giving written notice to the Company or its designee, together
with provision for payment of the full purchase price in accordance with this Section for
the Shares as to which the Option is being exercised, and upon compliance with any
other condition(s) set forth in the Stock Agreement. Such notice shall be
signed by the person exercising the Option, shall state the number of Shares
with respect to which the Option is being exercised and shall contain any
representation required by the Plan or the Stock Agreement.


Payment of the purchase price for the Shares as to
which such Option is being exercised shall be made (a) in United States
dollars in cash or by check acceptable to the Administrator, or (b) at the
discretion of the Administrator, (i) through delivery of shares of Common
Stock not subject to any restriction under any plan and having a Fair Market
Value equal as of the date of exercise to the cash exercise price of the
Option, (ii) in accordance with a cashless exercise program established
with a securities brokerage firm, and approved by the Company, (iii) by
any other means (excluding, however, delivery of a promissory note of the
Participant) that the Administrator determines to be consistent with the
purpose of this Plan and applicable law, or (iv) by any combination of the
foregoing. Notwithstanding the foregoing, the Administrator shall accept only
such payment on exercise of an ISO as is permitted by Section 422 of the
Code.


The Company shall then as soon as is reasonably
practicable deliver the Shares as to which such Option was exercised to the
Participant (or to the Participant’s Survivors, as the case may be). It is
expressly understood that the Company may delay the delivery of the Shares in
order to comply with any law or regulation that requires the Company to take
any action with respect to the Shares prior to their issuance. The Shares
shall, upon delivery, be fully paid, non-assessable Shares.


10.          ASSIGNABILITY AND
TRANSFERABILITY OF STOCK RIGHTS


By its terms, a Stock Right granted to a Participant
shall not be transferable by the Participant other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security
Act or the rules thereunder or as approved by the Administrator in its
discretion and set forth in the applicable Stock Agreement, provided, however,
that the Administrator shall not approve any transfer of a Stock Right for
consideration. Except as provided in the preceding sentence or as otherwise
permitted under a Stock Agreement, a Stock Right shall be exercisable, during
the Participant’s lifetime only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.



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11.          EFFECT ON STOCK RIGHTS
OF TERMINATION OF SERVICE


11.1  Except as
otherwise provided in the applicable Stock Agreement or as otherwise provided
in Sections 12 or 13, if a Participant ceases to be an Employee, Non-Employee
Director, consultant or advisor with the Company and its Affiliates (for any
reason other than termination for “cause,” or death) (a “Termination of Service”)
before the Participant has exercised all Stock Rights, the Participant may
exercise any Stock Right granted to him or her to the extent that the Stock
Right is exercisable on the date of such Termination of Service. Any such Stock
Right must be exercised within three months after the date of the Participant’s
Termination of Service, unless otherwise provided in the applicable Stock
Agreement, but in no event after the expiration of the term of the Stock Right.


11.2  The provisions
of this Section, and not the provisions of Section 14, shall apply to a
Participant who subsequently dies after the Termination of Service; provided,
however, that in the case of a Participant’s death within three (3) months
after the Termination of Service, the Participant’s Survivors may exercise the
Stock Right within one (1) year after the date of the Participant’s death,
but in no event after the date of expiration of the term of the Stock Right.


11.3  Notwithstanding
anything herein to the contrary, if subsequent to a Participant’s Termination
of Service, but prior to the exercise of a Stock Right, the Administrator
determines that, either prior or subsequent to the Participant’s Termination of
Service, the Participant engaged in conduct which would constitute “cause” (as
defined in Section 12), then such Participant shall forthwith cease to
have any right to exercise any Stock Right. Stock Rights that consist of Shares
issued under Stock Grants for which any restrictions on transfer or Company repurchase
right shall have lapsed, shall be deemed for all purposes to have been “exercised.”


11.4  Absence
from work with the Company or an Affiliate because of temporary disability or a
leave of absence for any purpose, shall not, during the period of any such
absence in accordance with Company policies, be deemed, by virtue of such
absence alone, a Termination of Service, except as the Administrator may
otherwise expressly provide.


11.5  Except as
required by law or as set forth in a Participant’s Stock Agreement, Stock
Rights granted under the Plan shall not be affected by any change of a
Participant’s status within or among the Company and any Affiliates, so long as
the Participant continues to be an employee, director, consultant or advisor of
the Company or any Affiliate.


12.          EFFECT ON STOCK RIGHTS
OF TERMINATION OF SERVICE FOR “CAUSE”


Except as otherwise provided in a Participant’s Stock
Agreement or as otherwise agreed in writing by the Administrator, if a
Participant’s service with the Company or an Affiliate is terminated for “cause,”
all outstanding and unexercised (vested or unvested) Stock Rights will
immediately be forfeited as of the time the Participant is notified that his or
her service is terminated for “cause.” Stock Rights that consist of Shares
issued under Stock Grants for which any restrictions on transfer or Company
repurchase right shall have lapsed, shall be deemed for all purposes to have
been “exercised.” For purposes of this Plan, “cause” shall include (and is not
limited to) dishonesty with respect to the Company and its Affiliates,
insubordination, substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, breach by the Participant of any
provision of any employment, consulting, advisory, nondisclosure,
non-competition or similar agreement between the Participant and the Company,
and conduct substantially prejudicial to the business of the Company or any
Affiliate. The determination of 



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the Administrator as to the existence of cause will be
conclusive on the Participant and the Company. “Cause” is not limited to events
that have occurred prior to a Participant’s termination of service, nor is it
necessary that the Administrator’s finding of “cause” occur prior to
termination of service. If the Administrator determines, subsequent to a
Participant’s termination of service but prior to the exercise of a Stock
Right, that either prior or subsequent to the Participant’s termination of
service the Participant engaged in conduct which would constitute “cause,” then
the right to exercise any Stock Right shall be forfeited as set forth in this Section 12.
Any definition in an agreement between a Participant and the Company or an
Affiliate which contains a conflicting definition of “cause” for termination of
service and which is in effect at the time of such termination of service shall
supersede the definition in this Plan with respect to that Participant.


13.          EFFECT ON STOCK RIGHTS
OF DEATH WHILE AN EMPLOYEE, DIRECTOR, CONSULTANT OR ADVISOR


Except as otherwise provided in a Participant’s Stock
Agreement, in the event of death of a Participant while the Participant is an
Employee, Non-Employee Director, consultant or advisor of the Company or of an
Affiliate, any Stock Rights granted to such Participant may be exercised by the
Participant’s Survivors to the extent exercisable but not exercised on the date
of death. Any such Stock Right must be exercised within one (1) year after
the date of death of the Participant but in no event after the date of expiration
of the term of the Stock Right, notwithstanding that the decedent might have
been able to exercise the Stock Right as to some or all of the Shares on a
later date if he or she had not died and had continued to be an Employee,
Non-Employee Director, consultant or advisor.


14.          RIGHTS AS A STOCKHOLDER


No Participant to whom a Stock Right (other than a
Stock Grant) has been granted shall have rights as a stockholder with respect
to any Shares covered by such Stock Right, except after due exercise thereof
and/or tender of the full purchase price for the Shares being purchased
pursuant to such exercise. The provisions of this Section 14 shall not be
applicable to Shares issued pursuant to Stock Grants, provided that the
Participant shall have tendered the purchase price therefore, notwithstanding
the existence of stock transfer restrictions on or a Company repurchase right
with respect to such Shares.


15.          EMPLOYMENT OR OTHER
RELATIONSHIP


Nothing in this Plan or any Stock Agreement shall be
deemed to prevent the Company or an Affiliate from terminating the employment,
consultancy or director status of a Participant, or to prevent a Participant
from terminating his or her own employment, consultancy or director status or
to give any Participant a right to be retained in employment or other service
by the Company or any Affiliate for any period of time.


16.          DISSOLUTION OR
LIQUIDATION OF THE COMPANY


Upon the dissolution or liquidation of the Company
(other than in connection with a transaction subject to the provisions of Section 17.2),
all Stock Rights granted under this Plan which as of such date shall not have
been exercised will terminate and become null and void; provided, however, that
if the rights of a Participant or a Participant’s Survivors have not 



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otherwise terminated and expired, the Participant or
Participant’s Survivors will have the right immediately prior to such
dissolution or liquidation to exercise any Stock Right to the extent that such
Stock Right is exercisable as of the date immediately prior to such dissolution
or liquidation. Upon the dissolution or liquidation of the Company, any
outstanding Stock-Based Awards shall immediately terminate unless otherwise
determined by the Administrator or specifically provided in the applicable
Stock Agreement.


17.          ADJUSTMENTS


Upon the occurrence of any of the following events, a
Participant’s rights with respect to any Stock Right granted to him or her
hereunder that have not previously been exercised in full shall be adjusted as
hereinafter provided, unless otherwise specifically provided in the Stock
Agreement or in any employment agreement between a Participant and the Company
or an Affiliate:


17.1   Stock Dividends and Stock Splits.   If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock subject to or
deliverable upon the exercise of a Stock Right shall be appropriately increased
or decreased, and appropriate adjustments shall be made in the purchase price
per Share to reflect such event. The number of Shares subject to Options to be
granted to Non-Employee Directors pursuant to Section 6.3 and the number
of Shares subject to the limitation in Section 6.4 shall also be
proportionately adjusted upon the occurrence of such events.


17.2   Consolidations or Mergers.   In the event of a consolidation or
merger in which the Company is not the surviving corporation or which results
in the acquisition of substantially all the Company’s outstanding stock by a
single person or entity or by a group of persons and/or entities acting in
concert, or in the event of the sale or transfer of substantially all the
Company’s assets (any of the foregoing, an “Acquisition”), all then outstanding
Stock Rights (excluding any Shares subject to Stock Grants as to which all
Company repurchase rights shall have lapsed) shall terminate unless assumed
pursuant to clause (i) below; provided that either (i) the
Administrator shall provide for the surviving or acquiring entity or an
affiliate thereof to assume the outstanding Stock Rights or grant replacement
stock rights in lieu thereof, any such replacement to be upon an equitable
basis as determined by the Administrator, or (ii) if there is no such
assumption or substitution, all outstanding Stock Rights shall become
immediately and fully exercisable and all Company repurchase rights with
respect to Stock Rights shall lapse, in each case immediately prior to the
Acquisition, notwithstanding any restrictions or vesting conditions set forth
therein.


17.3   Recapitalization or Reorganization.   In the event of a recapitalization
or reorganization of the Company (other than a transaction described in Section 17.2
above) pursuant to which securities of the Company or of another corporation
are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising a Stock Right shall be entitled to receive for the
purchase price paid upon such exercise the securities he or she would have
received if he or she had exercised such Stock Right prior to such
recapitalization or reorganization.



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17.4   Adjustments to Stock Grants and
Stock-Based Awards.   Upon
the happening of any of the events described in Sections 17.1, 17.2 or 17.3,
any outstanding Stock-Based Award and the Shares subject to any Stock Grant,
vested or unvested, shall be appropriately adjusted to reflect the events
described in such Sections. The Administrator shall determine the specific
adjustments to be made under this Section 17.4.


17.5   Modification of ISOs.   Notwithstanding the foregoing, any
adjustments made pursuant to Section 17.1, 17.2 or 17.3 with respect to
ISOs shall be made only after the Administrator determines whether such
adjustments would constitute a “modification” of such ISOs (as that term is
defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Administrator determines that
such adjustments made with respect to ISOs would constitute a modification of
such ISOs, it may refrain from making such adjustments, unless the holder of an
ISO specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of
such “modification” on his or her income tax treatment with respect to the ISO.


18.          ISSUANCES OF SECURITIES


Except as expressly provided herein, no issuance
(including for this purpose the delivery of shares held in treasury) by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares subject to Stock Rights.
Except as expressly provided herein, no adjustments shall be made for dividends
paid in cash or in property (including without limitation, securities) of the
Company.


19.          FRACTIONAL SHARES


No fractional share shall be issued under the Plan and
the person exercising any Stock Right shall receive from the Company cash in
lieu of any such fractional share equal to the Fair Market Value thereof.


20.          CONVERSION OF ISOs INTO
NON-QUALIFIED OPTIONS: TERMINATION OF ISOs


Any Options granted under this Plan that do not meet
the requirements of the Code for ISOs shall automatically be deemed to be
Non-Qualified Options without further action on the part of the Administrator.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant’s
ISOs (or any portion thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant’s ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Administrator takes appropriate action. The Administrator, with the consent
of the Participant, 



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may also terminate any portion of any ISO that has not
been exercised at the time of such termination.


21.          WITHHOLDING


If any federal, state, or local income taxes,
employment taxes, Federal Insurance Contributions Act (“FICA”) withholdings or
other amounts are required by applicable law or governmental regulation to be
withheld from the Participant’s salary, wages or other remuneration in
connection with the exercise of a Stock Right, the lapsing of a Company
repurchase right or a Disqualifying Disposition (as defined in Section 22),
the Company may withhold from the Participant’ compensation, if any, or may
require that the Participant advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Participant, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company’s Common Stock, is authorized by the Administrator
(and permitted by law). For purposes hereof, the Fair Market Value of any
shares withheld for purposes of payroll withholding shall be determined in the
manner provided in Section 1 above, as of the most recent practicable date
prior to the date of exercise. If the Fair Market Value of the shares withheld
is less than the amount of payroll withholdings required, the Participant may
be required to advance the difference in cash to the Company or the Affiliate
employer. The Administrator in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant’s payment of
such additional withholding. In no event shall shares be withheld from any
award in satisfaction of tax withholding requirements in an amount that exceeds
the statutory minimum amount of tax withholding required.


22.          NOTICE TO COMPANY OF
DISQUALIFYING DISPOSITION


Each Employee who receives an ISO must agree to notify
the Company in writing immediately after the Employee makes a “Disqualifying
Disposition” of any Shares acquired pursuant to the exercise of an ISO. A
Disqualifying Disposition is any disposition (as defined in Section 424(c) of
the Code) of such Shares before the later of (a) two years from the date
the Employee was granted the ISO, or (b) one year after the date the
Employee acquired Shares by exercising the ISO. If the Employee has died before
such Shares are sold, the notice provisions of this Section 22 shall not
apply.


23.          EFFECTIVE DATE;
TERMINATION OF THE PLAN


This Plan shall be effective on March 29, 2006,
the date of its adoption by the Board of Directors, subject to approval by the
shareholders of the Company. The Plan will terminate on March 28, 2016.
The Plan also may be terminated at an earlier date by vote of the Board of
Directors. Termination of this Plan will not affect any Stock Rights granted or
Stock Agreements executed prior to the effective date of such termination.


24.          AMENDMENT OF THE PLAN;
AMENDMENT OF STOCK RIGHTS


The Plan may be amended by the stockholders of the Company
by affirmative vote of a majority of the votes cast at a meeting of the
stockholders at which a quorum is present. The Plan also may be amended by the
Board of Directors or the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment 



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(including deferral of taxation upon exercise) as may
be afforded incentive stock options under Section 422 of the Code, and to
the extent necessary to qualify the shares issuable upon exercise of any
outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan
for listing on any national securities exchange or quotation in any national
automated quotation system of securities dealers. Any amendment approved by the
Administrator that the Administrator determines is of a scope that requires
stockholder approval shall be subject to stockholder approval. No modification
or amendment of the Plan shall adversely affect a Participant’s rights under a
Stock Right previously granted to the Participant, without such Participant’s
consent.


In its discretion, the Administrator may amend any
term or condition of any outstanding Stock Right, provided: (i) such term or condition is not prohibited by
the Plan; (ii) if the amendment is adverse to the Participant, such
amendment shall be made only with the consent of the Participant or the
Participant’s Survivors, as the case may be; and (iii) any such amendment
of any ISO shall be made only after the Administrator determines whether such
amendment would constitute a “modification” of any Stock Right which is an ISO
(as that term is defined in Section 424(h) of the Code) or would
cause any adverse tax consequences for the holder of such ISO (in which case,
the Participant’s or Participant’s Survivors’ consent to such amendment shall
be required). Notwithstanding the foregoing, the Administrator shall not have
the authority to reduce the exercise price of any Option after the date of
grant, except for adjustments permitted under Section 17 of this Plan.


25.          GOVERNING LAW


This Plan shall be construed and enforced in
accordance with the law of The Commonwealth of Massachusetts.


 



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