Exhibit
      10.1

    


    2005
      STOCK INCENTIVE PLAN 

    OF

    ARBIOS
      SYSTEMS, INC.

    


    (as
      amended on July 12, 2007)

    


     

    
      	
              1.

            	
              PURPOSES
                OF THE PLAN.

            


    

     

    The
      purposes of the 2005 Stock Incentive Plan (the “Plan”)
      of
      Arbios Systems, Inc., a Delaware corporation (the “Company”),
      are
      to:

     

    1.1 Encourage
      selected employees, officers, directors, consultants and advisers to improve
      operations and increase the profitability of the Company;

     

    1.2 Encourage
      selected employees, officers, directors, consultants and advisers to accept
      or
      continue employment or association with the Company or its Affiliates (as
      defined below); and

     

    1.3 Increase
      the interest of selected employees, officers, directors, consultants and
      advisers in the Company’s welfare through participation in the growth in value
      of the common stock of the Company, no par value (the “Common
      Stock”).

     

    
      	
              2.

            	
              TYPES
                OF AWARDS; ELIGIBLE AWARD
                RECIPIENTS.

            


    

     

    2.1 Types
      of Awards.
      The
      Administrator (as defined below) may, from time to time, take the following
      actions, separately or in combination, under the Plan: 

     

    (a) Grant
      incentive stock options (“Incentive
      Options”)
      that
      are intended to satisfy the requirements of Section 422 of the Internal Revenue
      Code of 1986, as amended (the “Code”),
      and
      the regulations thereunder; 

     

    (b) Grant
      non-qualified stock options that are not Incentive Options (“Non-Qualified
      Options”);
      and


     

    (c) Grant
      or
      sell shares of Common Stock that are subject to specified restrictions such
      as,
      without limitation, continued employment with the Company or the attainment
      of
      specified performance goals (“Restricted
      Stock”).
      Incentive Options and Non-Qualified Options are jointly referred to in the
      Plan
      as “Options,”
and
      the persons who receive grants of Options are referred to in the Plan as
“Option
      Holders.”
      

     

    2.2 Eligible
      Award Recipients.
      Awards
      of Options and Restricted Stock may be made to employees of the Company or
      any
      of its Affiliates, including employees who are officers or directors, to
      non-employee directors of the Company or any of its Affiliates and to the other
      individuals described in Section 1 of the Plan whom the Administrator believes
      have made or will make a contribution to the Company or any Affiliate; provided,
      however, that only a person who is an employee of the Company or any Affiliate
      at the date of the grant of an Option is eligible to receive Incentive Options
      under the Plan. The term “Affiliate”
as
      used
      in the Plan means a parent or subsidiary corporation of the Company as defined
      in the applicable provisions (currently Sections 424(e) and (f), respectively)
      of the Code. The term “employee”
      includes an officer or a director who is also an employee of the Company or
      one
      of its Affiliates. The term “consultant”
      includes persons employed by, or otherwise affiliated with, a consultant to
      the
      Company or one of its Affiliates. The term “adviser”
      includes persons employed by, or otherwise affiliated with, an adviser to the
      Company or one of its Affiliates. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              STOCK
                SUBJECT TO THE PLAN; MAXIMUM NUMBER OF
                GRANTS.

            


    

     

    Subject
      to the adjustment provisions of Sections 6.1.1 and 8.2 of the Plan, the total
      number of shares of Common Stock that may be issued under the Plan shall not
      exceed Four Million (4,000,000) shares of Common Stock. The shares covered
      by
      the portion of any award under the Plan that expires, terminates or is cancelled
      unexercised shall become available again for grants under the Plan. If shares
      of
      Restricted Stock awarded under the Plan are forfeited to the Company or
      repurchased by the Company, the number of shares forfeited or repurchased shall
      again be available under the Plan. Where the exercise price of an Option is
      paid
      by means of the Option Holder’s surrender of shares of Common Stock or the
      Company’s withholding of shares otherwise issuable upon exercise of the Option
      as permitted in the Plan, only the net number of shares issued and which remain
      outstanding in connection with such exercise shall be deemed issued and no
      longer available for issuance under the Plan. Subject to the adjustment
      provisions of Sections 6.1.1 and 8.2 of the Plan, no eligible person shall
      be
      granted Options or Restricted Stock during any twelve-month period covering
      more
      than Five Hundred Thousand (500,000) shares of Common Stock.

     

    
      	
              4.

            	
              ADMINISTRATION.

            


    

     

    4.1 Plan
      Administrator.
      The
      Plan shall be administered by the Board of Directors of the Company (the
“Board”)
      and/or
      by one or more committees (jointly referred to in the Plan as the “Committee”)
      to
      which administration of the Plan, or of specified portions of the Plan, is
      delegated by the Board (the Board or the Committee, as applicable, being
      referred to in the Plan as the “Administrator”).
      The
      Board shall appoint and remove members of the Committee in its discretion.
      In
      the Board’s discretion, the Committee may be comprised solely of (i)
“non-employee directors” within the meaning of Rule 16b-3 under the Securities
      Exchange Act of 1934, as amended, and/or (ii) “outside directors” within the
      meaning of Section 162(m) of the Code. The Administrator may delegate
      non-discretionary administrative duties to such employees of the Company as
      it
      deems proper, and the Board, in its discretion, may at any time and from time
      to
      time exercise any and all rights and duties of the Administrator under the
      Plan.

     

    
      
         

      

      
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    4.2 Administrator’s
      Powers.
      Subject
      to the other provisions of the Plan, the Administrator shall have the authority,
      in its discretion: (i) to grant Options and grant or sell Restricted Stock;
      (ii)
      to determine the fair market value of the Common Stock subject to Options or
      Restricted Stock awards; (iii) to determine the exercise price of Options or
      the
      offering price of Restricted Stock; (iv) to determine the persons to whom,
      and
      the time or times at which, Options shall be granted or Restricted Stock shall
      be granted or sold, and the number of shares subject to each Option or the
      number of shares of Restricted Stock granted or sold; (v) to construe and
      interpret the terms and conditions of the Plan and of all Option Agreements
      and
      Restricted Stock Agreements (as defined below); (vi) to prescribe, amend and
      rescind rules and regulations relating to the Plan; (vii) to determine the
      terms
      and conditions of each Option granted and award of Restricted Stock (which
      need
      not be identical), including, but not limited to, the time or times at which
      Options shall be exercisable or the time at which the restrictions on Restricted
      Stock shall lapse; (viii) with the consent of the Option Holder or holder of
      Restricted Stock, to rescind any award or exercise of an Option and to amend
      the
      terms of any Option or Restricted Stock; (ix) to reduce the exercise price
      of
      any Option or the purchase price of Restricted Stock; (x) to accelerate or
      defer
      (with the consent of the Option Holder or holder of Restricted Stock) the
      exercise date of any Option or the date on which the restrictions on Restricted
      Stock lapse; (xi) to authorize any person to execute on behalf of the Company
      any instrument evidencing the grant of an Option or award of Restricted Stock;
      (xii) to determine the duration and purposes of leaves of absence which may
      be
      granted to participants without constituting a termination of their employment
      for the purposes of the Plan; and (xiii) to make all other determinations deemed
      necessary or advisable for the administration of the Plan or of any Option,
      Option Agreement, award of Restricted Stock or Restricted Stock Agreement.
      

     

    4.3 Plan
      Interpretation.
      All
      questions of interpretation, implementation and application of the Plan or
      of
      any Option, Option Agreement, award of Restricted Stock or Restricted Stock
      Agreement shall be determined by the Administrator, which determination shall
      be
      final and binding on all persons.

     

    
      	
              5.

            	
              GRANTING
                OF OPTIONS; OPTION
                AGREEMENTS.

            


    

     

    5.1 No
      Options shall be granted under the Plan more than ten years after the date
      of
      adoption of the Plan by the Board.

     

    5.2 Each
      Option shall be evidenced by a written Option agreement, in form satisfactory
      to
      the Administrator, executed by the Company and the person to whom the Option
      is
      granted (an “Option
      Agreement”).
      In
      the event of a conflict between the terms or conditions of an Option Agreement
      and the terms and conditions of the Plan, the terms and conditions of the Plan
      shall govern.

     

    5.3 The
      Option Agreement shall specify whether each Option it evidences is a
      Non-Qualified Option or an Incentive Option; provided, however, that all Options
      granted under the Plan to non-employee directors, consultants and advisers
      of
      the Company or its Affiliates are intended to be Non-Qualified
      Options.

     

    
      
         

      

      
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    5.4 Subject
      to Section 6.3.3 with respect to Incentive Options, the Administrator may
      approve the grant of Options under the Plan to persons who are expected to
      become employees, directors, consultants or advisers of the Company or its
      Affiliates but who are not employees, directors, consultants or advisers at
      the
      date of approval, and the date of approval shall be deemed to be the date of
      grant unless otherwise specified by the Administrator.

     

    
      	
              6.

            	
              TERMS
                AND CONDITIONS OF
                OPTIONS.

            


    

     

    Each
      Option granted under the Plan shall be subject to the terms and conditions
      set
      forth in Section 6.1. Non-Qualified Options shall also be subject to the terms
      and conditions set forth in Section 6.2 but not those set forth in Section
      6.3.
      Incentive Options shall also be subject to the terms and conditions set forth
      in
      Section 6.3 but not those set forth in Section 6.2.

     

    6.1 Terms
      and Conditions to Which All Options Are Subject.
      All
      Options granted under the Plan shall be subject to the following terms and
      conditions:

     

    6.1.1 Changes
      in Capital Structure.
      Subject
      to Section 6.1.2, if the stock of the Company is changed by reason of a stock
      split, reverse stock split, stock dividend, recapitalization, combination or
      reclassification, appropriate adjustments shall be made by the Administrator,
      in
      its discretion, in (i) the number and class of shares of stock subject to the
      Plan and each Option outstanding under the Plan, and (ii) the exercise price
      of
      each outstanding Option; provided, however, that the Company shall not be
      required to issue fractional shares as a result of any such adjustments. Any
      adjustment, however, in an outstanding Option shall be made without change
      in
      the total price applicable to the unexercised portion of the Option but with
      a
      corresponding adjustment in the price for each share covered by the unexercised
      portion of the Option. Adjustments under this Section 6.1.1 shall be made by
      the
      Administrator, whose determination as to what adjustments shall be made, and
      the
      extent thereof, shall be final, binding and conclusive. If an adjustment under
      this Section 6.1.1 would result in a fractional share interest under an Option
      or any installment, the Administrator’s decision as to inclusion or exclusion of
      that fractional share interest shall be final, but no fractional shares of
      stock
      shall be issued under the Plan on account of any such adjustment.

     

    6.1.2 Corporate
      Transactions.
      

     

    (a) Unless
      otherwise provided in the Option Agreement, in the event of a Corporate
      Transaction (as defined below), the Administrator shall notify each Option
      Holder at least ten days prior to the date of the Corporate Transaction or
      as
      soon as may be practicable. To the extent not previously exercised, all Options
      shall terminate immediately prior to the consummation of the Corporate
      Transaction unless the Administrator determines otherwise in its discretion.
      The
      Administrator, in the exercise of its discretion after considering any
      applicable tax, accounting, legal and financial consequences, may (i) permit
      exercise of any Options prior to their termination even if such Options would
      not otherwise have been exercisable, (ii) provide that all or certain of the
      outstanding Options shall be assumed or an equivalent option substituted by
      an
      applicable successor corporation or other entity or any Affiliate of the
      successor corporation or entity, or (iii) provide that any outstanding Options
      shall be cancelled in exchange for an amount of cash equal to the excess of
      the
      fair market value of the Common Stock underlying the Options as of the Option
      exchange date (as determined pursuant to Section 6.1.9) over the aggregate
      exercise price of the Options. 

     

    
      
         

      

      
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    (b) A
      “Corporate
      Transaction”
means
      (i) a liquidation or dissolution of the Company; (ii) a merger or consolidation
      of the Company with or into another corporation or entity as a result of which
      the Company is not the surviving corporation (other than a merger or
      consolidation with a wholly owned subsidiary of the Company); (iii) a sale
      of
      all or substantially all of the assets of the Company; or (iv) a purchase or
      other acquisition of beneficial ownership of more than fifty percent of the
      outstanding capital stock of the Company in a single transaction or a series
      of
      related transactions by one person or more than one person acting in concert
      (excluding, however, a purchase of stock by the Company or by a
      Company-sponsored employee benefit plan). 

     

    6.1.3 Time
      of Option Exercise.
      Subject
      to Sections 6.1.10 and 6.3.4, an Option granted under the Plan shall be
      exercisable (i) immediately as of the effective date of the Option Agreement
      granting the Option if so provided in the Option Agreement or (ii) in accordance
      with a vesting schedule, performance requirement and/or requirement of continued
      employment with the Company or an Affiliate that is set by the Administrator
      and
      specified in the Option Agreement relating to the Option. In any case, no Option
      shall be exercisable until the Company and the Option Holder have executed
      an
      Option Agreement that is in form satisfactory to the Administrator.


     

    6.1.4 Option
      Grant Date.
      The
      date of an Option grant under the Plan shall be the effective date of the Option
      Agreement granting the Option, provided that the Option Agreement shall not
      specify an effective date that is earlier than the date on which the
      Administrator approved the grant of the Option to the Option
      Holder.

     

    6.1.5 Non-Transferability
      of Option Rights.
      Except
      with the express written approval of the Administrator, which approval the
      Administrator is authorized to give only with respect to Non-Qualified Options,
      or unless otherwise provided in an Option Agreement with respect to
      Non-Qualified Options, (i) no Option granted under the Plan shall be assignable
      or otherwise transferable by the Option Holder except by will or by the laws
      of
      descent and distribution, and (ii) during the life of the Option Holder, an
      Option shall be exercisable only by the Option Holder. 

     

    6.1.6 Payment.
      Except
      as provided below, payment in full, in cash or by check, shall be made for
      all
      Common Stock purchased at the time written notice of exercise of an Option
      is
      given to the Company, and the proceeds of any payment shall constitute general
      funds of the Company. After considering any applicable tax, accounting, legal
      and financial consequences, the Administrator may, in the exercise of its
      discretion, (i) authorize any one or more of the following additional methods
      of
      payment in the Option Agreement or (ii) in the case of a Non-Qualified Option,
      may also authorize any one or more of the following additional methods of
      payment at the time of the exercise of the Non-Qualified Option:

     

    
      
         

      

      
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    (a) Acceptance
      of the Option Holder’s full recourse promissory note for all or part of the
      Option price, payable on such terms and bearing such interest rate as determined
      by the Administrator (but in no event less than the minimum interest rate
      specified under the Code at which no additional interest or original issue
      discount would be imputed), which promissory note may be either secured or
      unsecured in such manner as the Administrator shall approve (including, without
      limitation, by a security interest in the shares of Common Stock acquired upon
      exercise of the Option); provided, however, that this method of payment shall
      not be allowed with respect to an Option Holder who is a director or an
      executive officer of the Company;

     

    (b) By
      delivery by the Option Holder of shares of Common Stock already owned by the
      Option Holder (held for a specified period, if any, to avoid an expense charge
      pursuant to generally accepted accounting principles) for all or part of the
      Option price, provided the fair market value (determined as set forth in Section
      6.1.9) of such shares of Common Stock is at least equal on the date of exercise
      to the Option price or such portion thereof as the Option Holder is authorized
      to pay by delivery of such stock; and

     

    (c) By
      means
      of so-called cashless exercises, provided the fair market value (determined
      as
      set forth in Section 6.1.9) of such shares of Common Stock is equal on the
      date
      of exercise to the Option price, or such portion thereof as the optionee is
      authorized to pay by surrender of such stock, conducted through brokers in
      accordance with applicable rules and regulations of the Securities and Exchange
      Commission and the Federal Reserve Board. 

     

    6.1.7 Withholding
      Taxes.
      In the
      case of an employee exercising a Non-Qualified Option, at the time of exercise
      and as a condition thereto, or at such other time as the amount of such
      obligation becomes determinable, the Option Holder shall remit to the Company
      in
      cash all applicable federal and state withholding taxes. Such obligation to
      remit may be satisfied, if authorized by the Administrator in its discretion,
      after considering any applicable tax, accounting, legal and financial
      consequences, by the Option Holder’s (i) delivery of a full recourse promissory
      note in the required amount on such terms as the Administrator deems appropriate
      (provided that this alternative shall not be allowed with respect to an Option
      Holder who is a director or an executive officer of the Company), (ii) tendering
      to the Company shares of Common Stock already owned by the Option Holder with
      a
      fair market value at least equal to the required amount, or (iii) agreeing
      to
      have shares of Common Stock (with a fair market value at least equal to the
      required amount) which are acquired upon exercise of the Option withheld by
      the
      Company.

     

    6.1.8 Other
      Terms.
      Each
      Option granted under the Plan may contain such other terms and conditions not
      inconsistent with the Plan as may be determined by the Administrator, and each
      Incentive Option granted under the Plan shall include such terms and conditions
      as are necessary to qualify the Option as an “incentive stock option” within the
      meaning of Section 422 of the Code. 

     

    
      
         

      

      
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    6.1.9 Determination
      of Value.
      For
      purposes of the Plan, the fair market value of Common Stock or other securities
      of the Company shall be determined as follows:

     

    (a) If
      the
      securities are traded on a national securities exchange, the Nasdaq National
      Market, the Nasdaq Small Cap Market or the over-the-counter market and if
      selling prices are reported, the fair market value shall be the closing price
      of
      such securities on the last business day preceding the date on which the fair
      market value of the securities is to be determined but, if selling prices are
      not reported, the fair market value shall be the average of the high bid and
      low
      asked prices for such securities on the last business day preceding the date
      on
      which the fair market value of the securities is to be determined (or if there
      are no reported prices for the business day specified in this paragraph, then
      for the last preceding business day on which there were reported prices);
      and

     

    (b) In
      the
      absence of an established market for the securities, the fair market value
      thereof shall be determined in good faith by the Administrator with reference
      to
      the Company’s net worth, prospective earning power, dividend-paying capacity and
      other relevant factors, including the goodwill of the Company, the economic
      outlook in the Company’s industry, the Company’s position in the industry, the
      Company’s management and the values of the stock of other corporations in the
      same or a similar line of business.

     

    6.1.10 Option
      Term.
      Subject
      to Section 6.3.4, no Option shall be exercisable more than ten years after
      the
      date of grant or such lesser period of time as is set forth in the Option
      Agreement (the end of such maximum exercise period being referred to in the
      Plan
      as the “Expiration
      Date”).

     

    6.2 Terms
      and Conditions to Which Only Non-Qualified Options Are
      Subject.
      Options
      granted under the Plan that are designated as Non-Qualified Options shall also
      be subject to the following terms and conditions:

     

    6.2.1 Exercise
      Price.
      The
      exercise price of a Non-Qualified Option shall not be less than the fair market
      value (determined in accordance with Section 6.1.9) of the Common Stock covered
      by the Option at the time the Option is granted. 

     

    6.2.2 Termination
      of Employment.
      Except
      as otherwise provided in the Option Agreement, if for any reason an Option
      Holder ceases to be employed by the Company and its Affiliates, Options that
      are
      Non-Qualified Options held at the date of termination (to the extent then
      exercisable) may be exercised in whole or in part at any time within ninety
      days
      after the date of such termination (but in no event after the Expiration Date).
      For purposes of this Section 6.2.2, “employment” includes service as a director,
      consultant or adviser. For purposes of this Section 6.2.2, an Option Holder’s
      employment shall not be deemed to terminate by reason of the Option Holder’s
      transfer from the Company to an Affiliate of the Company, or vice versa, or
      sick
      leave, military leave or other leave of absence approved by the Administrator,
      if the period of any such leave does not exceed ninety days or, if longer,
      if
      the Option Holder’s right to reemployment by the Company or any Affiliate is
      guaranteed either contractually or by statute.

     

    
      
         

      

      
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    6.3 Terms
      and Conditions to Which Only Incentive Options Are
      Subject.
      Options
      granted under the Plan that are designated as Incentive Options shall also
      be
      subject to the following terms and conditions:

     

    6.3.1 Exercise
      Price.
      The
      exercise price of an Incentive Option shall not be less than the fair market
      value (determined in accordance with Section 6.1.9) of the Common Stock covered
      by the Option at the time the Option is granted. The exercise price of an
      Incentive Option that is granted to any person who owns, directly or by
      attribution under Section 424(d) of the Code, stock possessing more than ten
      percent of the total combined voting power of all classes of stock of the
      Company or of any Affiliate of the Company (a “Ten
      Percent Shareholder”),
      shall
      in no event be less than one hundred ten percent (110%) of the fair market
      value
      (determined in accordance with Section 6.1.9) of the Common Stock covered by
      the
      Option at the time the Option is granted.

     

    6.3.2 Disqualifying
      Dispositions.
      If
      Common Stock acquired by exercise of an Incentive Option granted pursuant to
      the
      Plan is disposed of in a “disqualifying disposition” within the meaning of
      Section 422 of the Code, including a disposition within two years from the
      date
      of grant of the Option or within one year after the issuance of such Common
      Stock on exercise of the Option, the holder of the Common Stock immediately
      before the disposition shall promptly notify the Company in writing of the
      date
      and terms of the disposition and shall provide such other information regarding
      the Option as the Company may reasonably require.

     

    6.3.3 Grant
      Date.
      If an
      Incentive Option is granted in anticipation of employment as provided in Section
      5.4, the Option shall be deemed granted, without further approval, on the date
      the grantee assumes the employment relationship forming the basis for such
      grant
      and, in addition, satisfies all requirements of the Plan for Options granted
      on
      that date.

     

    6.3.4 Term.
      Notwithstanding Section 6.1.10, no Incentive Option granted to any Ten Percent
      Shareholder shall be exercisable more than five years after the date of
      grant.

     

    6.3.5 Termination
      of Employment.
      Except
      as otherwise provided in the Option Agreement, if for any reason an Option
      Holder ceases to be employed by the Company and its Affiliates, Options that
      are
      Incentive Options held at the date of termination (to the extent then
      exercisable) may be exercised in whole or in part at any time within ninety
      days
      after the date of such termination (but in no event after the Expiration Date).
      For purposes of this Section 6.3.5, an Option Holder’s employment shall not be
      deemed to terminate by reason of the Option Holder’s transfer from the Company
      to an Affiliate of the Company, or vice versa, or sick leave, military leave
      or
      other leave of absence approved by the Administrator, if the period of any
      such
      leave does not exceed ninety days or, if longer, if the Option Holder’s right to
      reemployment by the Company or any Affiliate is guaranteed either contractually
      or by statute.

     

    
      
         

      

      
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    6.3.6 Fair
      Market Value Limitation.
      To the
      extent that Options designated as Incentive Options (granted under all stock
      option plans of the Company and its Affiliates, including the Plan) become
      exercisable by an Option Holder for the first time during any calendar year
      for
      stock having a fair market value greater than One Hundred Thousand Dollars
      ($100,000), the portions of such Options which exceed such amount shall be
      treated as Non-Qualified Options. For purposes of this Section 6.3.6,
      Options designated as Incentive Options shall be taken into account in the
      order
      in which they were granted, and the fair market value of stock shall be
      determined as of the time the Option with respect to such stock is granted.
      

     

    
      	
              7.

            	
              MANNER
                OF EXERCISE.

            


    

     

    7.1 An
      Option
      Holder wishing to exercise an Option shall give written notice to the Company
      at
      its principal executive office, to the attention of the officer of the Company
      designated by the Administrator, accompanied by payment of the exercise price
      and withholding taxes as provided in Sections 6.1.6 and 6.1.7. The date that
      the
      Company receives both written notice of an exercise hereunder and payment of
      the
      exercise price will be considered as the date the Option was
      exercised.

     

    7.2 Promptly
      after receipt of written notice of exercise of an Option and the payment called
      for by Section 7.1, the Company shall, without stock issue or transfer taxes
      to
      the Option Holder or other person entitled to exercise the Option, deliver
      to
      the Option Holder or such other person a certificate or certificates for the
      requisite number of shares of Common Stock. An Option Holder or permitted
      transferee of the Option shall not have any privileges as a shareholder with
      respect to any shares of Common Stock covered by the Option until the date
      of
      issuance of such shares as evidenced by the appropriate entry on the books
      of
      the Company or of a duly authorized transfer agent.

     

    
      	
              8.

            	
              RESTRICTED
                STOCK.

            


    

     

    8.1 Grant
      or Sale of Restricted Stock.
      

     

    8.1.1 No
      awards
      of Restricted Stock shall be made under the Plan more than ten years after
      the
      date of adoption of the Plan by the Board.

     

    8.1.2 The
      Administrator may issue shares under the Plan as a grant or for such
      consideration as is determined by the Administrator, including, without
      limitation, services performed by the Restricted Stock recipient and, with
      respect to Restricted Stock recipients who are not directors or executive
      officers of the Company, full recourse promissory notes. Shares issued under
      the
      Plan shall be subject to the terms, conditions and restrictions determined
      by
      the Administrator. The restrictions may include restrictions concerning matters
      such as transferability, continued employment with the Company, attainment
      of
      specified performance goals, repurchase by the Company and forfeiture of the
      shares issued, together with such other restrictions as may be determined by
      the
      Administrator. If shares are subject to forfeiture or repurchase by the Company,
      all dividends or other distributions paid by the Company with respect to the
      shares may be retained by the Company until the shares are no longer subject
      to
      forfeiture or repurchase, at which time all accumulated amounts shall be paid
      to
      the recipient. All Common Stock issued pursuant to this Section 8 shall be
      subject to a purchase or grant agreement (a “Restricted
      Stock Agreement”),
      which
      shall be executed by the Company and the prospective recipient of the shares
      prior to the delivery of certificates representing such shares to the recipient.
      The Restricted Stock Agreement may contain any terms, conditions, restrictions,
      representations and warranties required by the Administrator. The certificates
      representing the shares shall bear any legends required by the Administrator.
      The Administrator may require any purchaser of Restricted Stock to pay to the
      Company in cash upon demand amounts necessary to satisfy any applicable federal,
      state or local tax withholding requirements. If the purchaser fails to pay
      the
      amount demanded, the Administrator may withhold that amount from other amounts
      payable by the Company to the purchaser, including salary, subject to applicable
      law. With the consent of the Administrator in its discretion, a purchaser may
      deliver Common Stock to the Company to satisfy this withholding obligation.
      Upon
      the issuance of Restricted Stock, the number of shares reserved for issuance
      under the Plan shall be reduced by the number of shares issued. 

     

    
      
         

      

      
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    8.1.3 If
      an
      award of Restricted Stock to a recipient is made by a Committee comprised solely
      of “outside directors” within the meaning of Section 162(m) of the Code, the
      Administrator shall have discretion to designate that the Restricted Stock
      is
      intended to be “performance-based compensation” within the meaning of Section
      162(m) of the Code and the regulations thereunder. If any award of Restricted
      Stock is intended to be “performance-based compensation,” then the lapsing of
      restrictions on the Restricted Stock and the payment of dividends and other
      distributions on the Restricted Stock shall be conditioned on the attainment
      of
      one or more objective performance goals established by the Administrator, which
      shall be based on the attainment of specified levels of one or any combination
      of the following performance criteria, applied to either the Company as a whole
      or to any of the Company’s subsidiaries or other business units, and measured
      either annually or over a period of years: revenues, operating margins, cost
      reductions, operating income, income before taxes, net income, net income per
      share, return on equity, return on invested capital, cash flow, market share,
      shareholder return, or share price performance. The Administrator shall set
      such
      performance goals within the time period prescribed by Section 162(m) of the
      Code and the regulations thereunder, and the Administrator shall have the
      authority to impose any other restrictions as it may deem necessary or
      appropriate to ensure that an award of Restricted Stock satisfies all
      requirements for “performance-based compensation” within the meaning of Section
      162(m) of the Code and the regulations thereunder. 

     

    8.2 Changes
      in Capital Structure.
      In the
      event of a change in the Company’s capital structure, as described in Section
      6.1.1, appropriate adjustments shall be made by the Administrator, in its
      discretion, in the number and class of Restricted Stock subject to the Plan
      and
      the Restricted Stock outstanding under the Plan; provided, however, that the
      Company shall not be required to issue fractional shares as a result of any
      such
      adjustments.

     

    8.3 Corporate
      Transactions.
      In the
      event of a Corporate Transaction, as defined in Section 6.1.2, to the extent
      not
      previously forfeited, all Restricted Stock shall be forfeited immediately prior
      to the consummation of the Corporate Transaction unless the Administrator
      determines otherwise in its discretion. The Administrator, in its discretion,
      may elect to remove any restrictions as to any Restricted Stock. The
      Administrator may, in its discretion, provide that all outstanding Restricted
      Stock participate in the Corporate Transaction with an equivalent stock
      substituted by an applicable successor corporation subject to the
      restrictions.

     

    
      
         

      

      
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              9.

            	
              EMPLOYMENT
                OR CONSULTING
                RELATIONSHIP.

            


    

     

    Nothing
      in the Plan or in any Option or Restricted Stock granted or sold under the
      Plan
      shall interfere with or limit in any way the right of the Company or of any
      of
      its Affiliates to terminate the employment or consulting or advising
      relationship of any Option Holder or Restricted Stock holder at any time, nor
      confer upon any Option Holder or Restricted Stock holder any right to continue
      in the employ of, or to consult or advise with, the Company or any of its
      Affiliates.

     

    
      	
              10.

            	
              CONDITIONS
                UPON THE ISSUANCE OF
                SHARES.

            


    

     

    10.1 Securities
      Act Compliance.
      Shares
      of Common Stock shall not be issued pursuant to the exercise of an Option or
      the
      receipt of a Restricted Stock award unless the Administrator determines that
      the
      exercise of the Option or receipt of the Restricted Stock and the issuance
      and
      delivery of such shares will comply with all relevant provisions of law,
      including, without limitation, the Securities Act of 1933, as amended,
      applicable state and foreign securities laws and the requirements of any stock
      exchange or Nasdaq market system upon which the Common Stock may be listed
      or
      quoted. The inability of the Company to obtain from any applicable regulatory
      body a permit, order or approval deemed by the Administrator to be necessary
      to
      the lawful issuance and sale of any shares of Common Stock under the Plan shall
      relieve the Company of any liability in respect of the failure to issue or
      sell
      such shares as to which such requisite permit, order or approval shall not
      have
      been obtained. As a condition to the exercise of any Option or to the receipt of
      any Restricted Stock, the Administrator may require the Option Holder or
      Restricted Stock recipient to satisfy any qualifications that may be necessary
      or appropriate, to evidence compliance with any applicable law or regulation
      and
      to make any representation or warranty with respect thereto as may be reasonably
      requested by the Administrator. 

     

    10.2 Shareholders’
      Agreement.
      As a
      further condition to the receipt of Common Stock pursuant to the exercise of
      an
      Option or to the receipt of Restricted Stock, the Option Holder or recipient
      of
      Restricted Stock may be required by the Administrator, in the Administrator’s
      discretion, to enter into a shareholders’ agreement with the Company which may
      restrict the transferability of the Common Stock and contain rights of
      repurchase or first refusal in favor of the Company.

     

    10.3 Non-Competition
      Agreement.
      As a
      condition to the receipt of Common Stock pursuant to the exercise of an Option
      or to the receipt of Restricted Stock, the Option Holder or recipient of
      Restricted Stock may be required not to render services for any organization,
      or
      to engage directly or indirectly in any business, competitive with the Company
      during any period that is specified in the Option Agreement or Restricted Stock
      Agreement. Failure to comply with this condition shall cause the Option and
      the
      exercise or issuance of shares thereunder and/or the award of Restricted Stock
      to be rescinded and the benefit of such exercise, issuance or award to be repaid
      to the Company.

     

    
      
         

      

      
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              11.

            	
              NON-EXCLUSIVITY
                OF THE PLAN; ASSIGNMENT OF PLAN
                RIGHTS.

            


    

     

    11.1 The
      adoption of the Plan shall not be construed as creating any limitations on
      the
      power of the Company to adopt such other incentive arrangements as it may deem
      desirable, including, without limitation, the granting of stock options other
      than under the Plan.

     

    11.2 Except
      as
      otherwise expressly set forth in the Plan or in an Option Agreement or
      Restricted Stock Agreement executed pursuant to the Plan, no right or benefit
      under the Plan shall be subject in any manner to assignment, alienation,
      hypothecation or charge, and any such attempted action shall be void. No Option
      or Restricted Stock award shall in any manner be subject to the debts or
      liabilities of any Option Holder or Restricted Stock recipient except as
      otherwise may be expressly required by applicable law.

     

    
      	
              12.

            	
              AMENDMENT
                OR TERMINATION OF THE
                PLAN.

            


    

     

    12.1 The
      Board
      may at any time amend, discontinue or terminate the Plan. If not earlier
      terminated, the Plan shall automatically terminate ten years after the date
      of
      its adoption by the Board. Except as provided in Section 6.1.2 or 8.3 with
      respect to a Corporate Transaction, termination of the Plan shall not affect
      the
      terms and conditions of any outstanding Options or previously awarded Restricted
      Stock. Without the consent of an Option Holder or recipient of Restricted Stock,
      no amendment or discontinuation of the Plan may adversely affect an outstanding
      Option or the terms applicable to Restricted Stock except to conform the Plan
      and Incentive Options granted under the Plan to the requirements of applicable
      tax and other laws relating to Incentive Options. 

     

    12.2 No
      amendment, discontinuation or termination of the Plan shall require shareholder
      approval unless (i) shareholder approval is required to preserve incentive
      stock
      option treatment for federal income tax purposes, (ii) shareholder approval
      is
      required under other applicable laws or under the regulations of any stock
      exchange or Nasdaq market system on which the Common Stock is listed or quoted,
      or (iii) the Board otherwise concludes that shareholder approval is advisable.
      

     

    12.3 All
      references in the Plan to statutes, rules and regulations shall be deemed to
      include any successor statutes, rules and regulations.

     

    
      
         

      

      
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              13.

            	
              EFFECTIVE
                DATE OF THE PLAN.

            


    

     

    The
      Plan
      shall become effective upon adoption by the Board. However, no Option shall
      be
      exercisable and the restrictions on Restricted Stock shall not lapse unless
      and
      until the Plan is approved by the Company’s shareholders by written consent or
      at a validly held shareholders’ meeting within twelve months after adoption by
      the Board. If any Options or shares of Restricted Stock are so granted and
      shareholder approval shall not have been obtained within twelve months after
      the
      date of adoption of the Plan by the Board, such Options and Restricted Stock
      shall terminate retroactively as of the date they were awarded. 

     

    
      
         

      

        13