2007 Share Incentive Plan


    Exhibit
      10.1

     

    STRASBAUGH

     

    2007
      SHARE INCENTIVE PLAN

     

    ARTICLE
      ONE

    GENERAL
      PROVISIONS

     

    I.    Purpose
      of the Plan.

     

    This
      2007
      Share Incentive Plan is intended to promote the interests of Strasbaugh by
      providing eligible persons in the Corporation’s service with the opportunity to
      acquire a proprietary or economic interest, or otherwise increase their
      proprietary or economic interest, in the Corporation as an incentive for them
      to
      remain in such service and render superior performance during such service.
      Capitalized terms not otherwise defined herein shall have the meanings assigned
      to such terms in the attached Appendix. 

     

    II.   Structure
      of the Plan.

     

    A.    The
      Plan
      is divided into two equity-based incentive programs:

     

    
      	· 
                	
              the
                Discretionary Grant Program, under which eligible persons may, at
                the
                discretion of the Plan Administrator, be granted options to purchase
                shares of Common Stock or stock appreciation rights tied to the value
                of
                such Common Stock; and

            


    

     

    
      	· 
                	
              the
                Stock Issuance Program, under which eligible persons may be issued
                shares
                of Common Stock pursuant to restricted stock or restricted stock
                unit
                awards or other stock-based awards, made by and at the discretion
                of the
                Plan Administrator, that vest upon the completion of a designated
                service
                period and/or the attainment of pre-established performance milestones,
                or
                under which shares of Common Stock may be issued through direct purchase
                or as a bonus for services rendered to the Corporation (or any Parent
                or
                Subsidiary).

            


    

     

    B.    The
      provisions of Articles
      One and Four
      shall
      apply to all equity programs under the Plan and shall govern the interests
      of
      all persons under the Plan.

     

    III.    Administration
      of the Plan.

     

    A.    The
      Compensation Committee shall have sole and exclusive authority to administer
      the
      Discretionary Grant and Stock Issuance Programs; provided,
      however,
      that
      the Board may retain, reassume or exercise from time to time the power to
      administer those programs with respect to all persons. However, any
      discretionary Awards to members of the Compensation Committee must be authorized
      and approved by a disinterested majority of the Board.

     

    B.    The
      Plan
      Administrator shall, within the scope of its administrative functions under
      the
      Plan, have full power and authority (subject to the provisions of the Plan)
      to
      establish such rules and regulations as it may deem appropriate for proper
      administration of the Discretionary Grant and Stock Issuance Programs and to
      make such determinations under, and issue such interpretations of, the
      provisions of those programs and any outstanding Awards thereunder as it may
      deem necessary or advisable. Decisions of the Plan Administrator within the
      scope of its administrative functions under the Plan shall be final and binding
      on all parties who have an interest in the Discretionary Grant and Stock
      Issuance Programs under its jurisdiction or any Award thereunder. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    C.    Service
      on the Compensation Committee shall constitute service as a Board member, and
      members of each such committee shall accordingly be entitled to full
      indemnification and reimbursement as Board members for their service on such
      committee. No member of the Compensation Committee shall be liable for any
      act
      or omission made in good faith with respect to the Plan or any Award under
      the
      Plan. 

     

    IV.   Eligibility.

     

    A.    The
      persons eligible to participate in the Discretionary Grant and Stock Issuance
      Programs are as follows: 

     

    (i)    Employees;

     

    (ii)   non-employee
      members of the Board or the board of directors of any Parent or Subsidiary;
      and

     

    (iii)   Consultants.

     

    B.    The
      Plan
      Administrator shall, within the scope of its administrative jurisdiction under
      the Plan, have full authority to determine (i) with respect to Awards made
      under
      the Discretionary Grant Program, which eligible persons are to receive such
      Awards, the time or times when those Awards are to be made, the number of shares
      to be covered by each such Award, the status of any awarded option as either
      an
      Incentive Option or a Non-Statutory Option, the exercise price per share in
      effect for each Award (subject to the limitations set forth in Article Two),
      the
      time or times when each Award is to vest and become exercisable and the maximum
      term for which the Award is to remain outstanding, and (ii) with respect to
      Awards under the Stock Issuance Program, which eligible persons are to receive
      such Awards, the time or times when the Awards are to be made, the number of
      shares subject to each such Award, the vesting schedule (if any) applicable
      to
      the shares subject to such Award, and the cash consideration (if any) payable
      for such shares. 

     

    C.    The
      Plan
      Administrator shall have the absolute discretion to grant options or stock
      appreciation rights in accordance with the Discretionary Grant Program and
      to
      effect stock issuances or other stock-based awards in accordance with the Stock
      Issuance Program.

     

    V.    Stock
      Subject to the Plan.
       

    

    A.    The
      stock
      issuable under the Plan shall be shares of authorized but unissued or reacquired
      Common Stock, including shares repurchased by the Corporation on the open
      market. Subject to any additional shares authorized by the vote of the Board
      and
      approved by the shareholders, as of February 9, 2007, the number of shares
      of Common Stock reserved for issuance over the term of the Plan shall not exceed
      2,000,000 shares. Any or all of the shares of Common Stock reserved for issuance
      under the Plan shall be authorized for issuance pursuant to Incentive Options
      or
      other Awards.

     

    B.    No
      one
      person participating in the Plan may be granted Awards for more than 500,000
      shares of Common Stock in the aggregate per calendar year.

     

    C.    Shares
      of
      Common Stock subject to outstanding Awards under the Plan shall be available
      for
      subsequent issuance under the Plan to the extent (i) those Awards expire or
      terminate for any reason prior to the issuance of the shares of Common Stock
      subject to those Awards or (ii) the Awards are cancelled in accordance with
      the
      cancellation-regrant provisions of Article Two.
      Unvested shares issued under the Plan and subsequently cancelled or repurchased
      by the Corporation at the original exercise or issue price paid per share
      pursuant to the Corporation’s repurchase rights under the Plan shall be added
      back to the number of shares of Common Stock reserved for issuance under the
      Plan and shall accordingly be available for subsequent reissuance under the
      Plan. In addition, should the exercise price of an option under the Plan be
      paid
      with shares of Common Stock, the authorized reserve of Common Stock under the
      Plan shall be reduced only by the net number of shares issued under the
      exercised stock option. Should shares of Common Stock otherwise issuable under
      the Plan be withheld by the Corporation in satisfaction of the withholding
      taxes
      incurred in connection with the issuance, exercise or vesting of an Award under
      the Plan, the number of shares of Common Stock available for issuance under
      the
      Plan shall be reduced only by the net number of shares issued with respect
      to
      that Award.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    D.    If
      any
      change is made to the Common Stock by reason of any stock split, stock dividend,
      recapitalization, combination of shares, exchange of shares or other change
      affecting the outstanding Common Stock as a class without the Corporation’s
      receipt of consideration, appropriate adjustments shall be made by the Plan
      Administrator to (i) the maximum number and/or class of securities issuable
      under the Plan, (ii) the maximum number and/or class of securities for which
      any
      one person may be granted Awards under the Plan per calendar year, (iii) the
      number and/or class of securities and the exercise or base price per share
      (or
      any other cash consideration payable per share) in effect under each outstanding
      Award under the Discretionary Grant Program, and (iv) the number and/or class
      of
      securities subject to each outstanding Award under the Stock Issuance Program
      and the cash consideration (if any) payable per share thereunder. To the extent
      such adjustments are to be made to outstanding Awards, those adjustments shall
      be effected in a manner that shall preclude the enlargement or dilution of
      rights and benefits under those Awards. The adjustments determined by the Plan
      Administrator shall be final, binding and conclusive.

     

    ARTICLE
      TWO

    DISCRETIONARY
      GRANT PROGRAM

     

    I.    Option
      Terms.
       

    

    Each
      option shall be evidenced by one or more documents in the form approved by
      the
      Plan Administrator; provided,
      however,
      that
      each such document shall comply with the terms specified below. Each document
      evidencing an Incentive Option shall, in addition, be subject to the provisions
      of the Plan applicable to such options.

     

    A.    Exercise
      Price.
      

     

    1.    The
      exercise price per share shall be fixed by the Plan Administrator but shall
      not
      be less than 85% of the Fair Market Value per share of Common Stock on the
      option grant date. 

     

    2.    The
      exercise price shall become immediately due upon exercise of the option and
      shall be payable in one or more of the following forms that the Plan
      Administrator may deem appropriate in each individual instance:

     

    (i)    cash
      or
      check made payable to the Corporation;

     

    (ii)    shares
      of
      Common Stock valued at Fair Market Value on the Exercise Date and held for
      the
      period (if any) necessary to avoid any additional charges to the Corporation’s
      earnings for financial reporting purposes; or

     

    (iii)   to
      the
      extent the option is exercised for vested shares, through a special sale and
      remittance procedure pursuant to which the Optionee shall concurrently provide
      irrevocable instructions to (a) a brokerage firm to effect the immediate sale
      of
      the purchased shares and remit to the Corporation, out of the sale proceeds
      available on the settlement date, sufficient funds to cover the aggregate
      exercise price payable for the purchased shares plus all applicable federal,
      state and local income and employment taxes required to be withheld by the
      Corporation by reason of such exercise and (b) the Corporation to deliver the
      certificates for the purchased shares directly to such brokerage firm to
      complete the sale.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    Except
      to
      the extent such sale and remittance procedure is utilized, payment of the
      exercise price for the purchased shares must be made on the Exercise Date.
      

     

    B.    Exercise
      and Term of Options.
      Each
      option shall be exercisable at such time or times, during such period and for
      such number of shares as shall be determined by the Plan Administrator and
      set
      forth in the documents evidencing the option. However, no option shall have
      a
      term in excess of ten years measured from the option grant date. 

     

    C.    Effect
      of Termination of Service.
      

     

    1.    The
      following provisions shall govern the exercise of any options held by the
      Optionee at the time of cessation of Service or death: 

     

    (i)    Any
      option outstanding at the time of the Optionee’s cessation of Service for any
      reason shall remain exercisable for such period of time thereafter as shall
      be
      determined by the Plan Administrator and set forth in the documents evidencing
      the option or as otherwise specifically authorized by the Plan Administrator
      in
      its sole discretion pursuant to an express written agreement with Optionee,
      but
      no such option shall be exercisable after the expiration of the option
      term.

     

    (ii)    Any
      option held by the Optionee at the time of death and exercisable in whole or
      in
      part at that time may be subsequently exercised by the personal representative
      of the Optionee’s estate or by the person or persons to whom the option is
      transferred pursuant to the Optionee’s will or the laws of inheritance or by the
      Optionee’s designated beneficiary or beneficiaries of that option. 

     

    (iii)   During
      the applicable post-Service exercise period, the option may not be exercised
      in
      the aggregate for more than the number of vested shares for which that option
      is
      at the time exercisable. No additional shares shall vest under the option
      following the Optionee’s cessation of Service, except to the extent (if any)
      specifically authorized by the Plan Administrator in its sole discretion
      pursuant to an express written agreement with Optionee. Upon the expiration
      of
      the applicable exercise period or (if earlier) upon the expiration of the option
      term, the option shall terminate and cease to be outstanding for any shares
      for
      which the option has not been exercised.

     

    2.    The
      Plan
      Administrator shall have complete discretion, exercisable either at the time
      an
      option is granted or at any time while the option remains outstanding, to:
      

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

       

    

    (i)    extend
      the period of time for which the option is to remain exercisable following
      the
      Optionee’s cessation of Service from the limited exercise period otherwise in
      effect for that option to such greater period of time as the Plan Administrator
      shall deem appropriate, but in no event beyond the expiration of the option
      term, and/or

     

    (ii)    permit
      the option to be exercised, during the applicable post-Service exercise period,
      not only with respect to the number of vested shares of Common Stock for which
      such option is exercisable at the time of the Optionee’s cessation of Service
      but also with respect to one or more additional installments in which the
      Optionee would have vested had the Optionee continued in Service.

     

    D.    Shareholder
      Rights.
      The
      holder of an option shall have no shareholder rights with respect to the shares
      subject to the option until such person shall have exercised the option, paid
      the exercise price and become a holder of record of the purchased shares.


     

    E.    Repurchase
      Rights.
      The
      Plan Administrator shall have the discretion to grant options that are
      exercisable for unvested shares of Common Stock. Should the Optionee cease
      Service while holding such unvested shares, the Corporation shall have the
      right
      to repurchase, at the exercise price paid per share, any or all of those
      unvested shares. The terms upon which such repurchase right shall be exercisable
      (including the period and procedure for exercise and the appropriate vesting
      schedule for the purchased shares) shall be established by the Plan
      Administrator and set forth in the document evidencing such repurchase
      right.

     

    F.    Transferability
      of Options.
      The
      transferability of options granted under the Plan shall be governed by the
      following provisions: 

     

    (i)    Incentive
      Options.
      During
      the lifetime of the Optionee, Incentive Options shall be exercisable only by
      the
      Optionee and shall not be assignable or transferable other than by will or
      the
      laws of inheritance following the Optionee’s death.

     

    (ii)    Non-Statutory
      Options.
      Non-Statutory Options shall be subject to the same limitation on transfer as
      Incentive Options, except that the Plan Administrator may structure one or
      more
      Non-Statutory Options so that the option may be assigned in whole or in part
      during the Optionee’s lifetime to one or more Family Members of the Optionee or
      to a trust established exclusively for the Optionee and/or one or more such
      Family Members, to the extent such assignment is in connection with the
      Optionee’s estate plan or pursuant to a domestic relations order. The assigned
      portion may only be exercised by the person or persons who acquire a proprietary
      interest in the option pursuant to the assignment. The terms applicable to
      the
      assigned portion shall be the same as those in effect for the option immediately
      prior to such assignment and shall be set forth in such documents issued to
      the
      assignee as the Plan Administrator may deem appropriate.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    (iii)    Beneficiary
      Designations.
      Notwithstanding the foregoing, the Optionee may designate one or more persons
      as
      the beneficiary or beneficiaries of his or her outstanding options under this
      Article Two
      (whether
      Incentive Options or Non-Statutory Options), and those options shall, in
      accordance with such designation, automatically be transferred to such
      beneficiary or beneficiaries upon the Optionee’s death while holding those
      options. Such beneficiary or beneficiaries shall take the transferred options
      subject to all the terms and conditions of the applicable agreement evidencing
      each such transferred option, including (without limitation) the limited time
      period during which the option may be exercised following the Optionee’s
      death.

     

    II.    Incentive
      Options.
       

    

    The
      terms
      specified below, together with any additions, deletions or changes thereto
      imposed from time to time pursuant to the provisions of the Code governing
      Incentive Options, shall be applicable to all Incentive Options. Except as
      modified by the provisions of this Section II,
      all the
      provisions of Articles
      One, Two and Four
      shall be
      applicable to Incentive Options. Options that are specifically designated as
      Non-Statutory Options when issued under the Plan shall not be subject to the
      terms of this Section II.
      

     

    A.    Eligibility.
      Incentive Options may only be granted to Employees. 

     

    B.    Exercise
      Price.
      The
      exercise price per share shall not be less than 100% of the Fair Market Value
      per share of Common Stock on the option grant date. 

     

    C.    Dollar
      Limitation.
      The
      aggregate Fair Market Value of the shares of Common Stock (determined as of
      the
      respective date or dates of grant) for which one or more options granted to
      any
      Employee under the Plan (or any other option plan of the Corporation or any
      Parent or Subsidiary) may for the first time become exercisable as Incentive
      Options during any one calendar year shall not exceed the sum of One Hundred
      Thousand Dollars ($100,000). To the extent the Employee holds two or more such
      options which become exercisable for the first time in the same calendar year,
      then for purposes of the foregoing limitation on the exercisability of those
      options as Incentive Options, such options shall be deemed to become first
      exercisable in that calendar year on the basis of the chronological order in
      which they were granted, except to the extent otherwise provided under
      applicable law or regulation. 

     

    D.    10%
      Shareholder.
      If any
      Employee to whom an Incentive Option is granted is a 10% Shareholder, then
      the
      exercise price per share shall not be less than 110% of the Fair Market Value
      per share of Common Stock on the option grant date, and the option term shall
      not exceed five years measured from the option grant date. 

     

    III.    Stock
      Appreciation Rights.
       

    

    A.    Authority.
      The
      Plan Administrator shall have full power and authority, exercisable in its
      sole
      discretion, to grant stock appreciation rights in accordance with this
Section III
      to
      selected Optionees or other individuals eligible to receive option grants under
      the Discretionary Grant Program. 

     

    B.    Types.
      Three
      types of stock appreciation rights shall be authorized for issuance under this
      Section III:
      (i)
      tandem stock appreciation rights (“Tandem
      Rights”),
      (ii)
      standalone stock appreciation rights (“Standalone
      Rights”)
      and
      (iii) limited stock appreciation rights (“Limited
      Rights”).
      

     

    C.    Tandem
      Rights.
      The
      following terms and conditions shall govern the grant and exercise of Tandem
      Rights. 

     

    1.    One
      or
      more Optionees may be granted a Tandem Right, exercisable upon such terms and
      conditions as the Plan Administrator may establish, to elect between the
      exercise of the underlying stock option for shares of Common Stock or the
      surrender of that option in exchange for a distribution from the Corporation
      in
      an amount equal to the excess of (i) the Fair Market Value (on the option
      surrender date) of the number of shares in which the Optionee is at the time
      vested under the surrendered option (or surrendered portion thereof) over (ii)
      the aggregate exercise price payable for such vested shares.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    2.    No
      such
      option surrender shall be effective unless it is approved by the Plan
      Administrator, either at the time of the actual option surrender or at any
      earlier time. If the surrender is so approved, then the distribution to which
      the Optionee shall accordingly become entitled under this Section III
      may be
      made in shares of Common Stock valued at Fair Market Value on the option
      surrender date, in cash, or partly in shares and partly in cash, as the Plan
      Administrator shall in its sole discretion deem appropriate.

     

    3.    If
      the
      surrender of an option is not approved by the Plan Administrator, then the
      Optionee shall retain whatever rights the Optionee had under the surrendered
      option (or surrendered portion thereof) on the option surrender date and may
      exercise such rights at any time prior to the later of (i) five business days
      after the receipt of the rejection notice or (ii) the last day on which the
      option is otherwise exercisable in accordance with the terms of the instrument
      evidencing such option, but in no event may such rights be exercised more than
      ten years after the date of the option grant.

     

    D.    Standalone
      Rights.
      The
      following terms and conditions shall govern the grant and exercise of Standalone
      Rights under this Article Two:
      

     

    1.    One
      or
      more individuals eligible to participate in the Discretionary Grant Program
      may
      be granted a Standalone Right not tied to any underlying option under this
      Discretionary Grant Program. The Standalone Right shall relate to a specified
      number of shares of Common Stock and shall be exercisable upon such terms and
      conditions as the Plan Administrator may establish. In no event, however, may
      the Standalone Right have a maximum term in excess of ten years measured from
      the grant date. Upon exercise of the Standalone Right, the holder shall be
      entitled to receive a distribution from the Corporation in an amount equal
      to
      the excess of (i) the aggregate Fair Market Value (on the exercise date) of
      the
      shares of Common Stock underlying the exercised right over (ii) the aggregate
      base price in effect for those shares.

     

    2.    The
      number of shares of Common Stock underlying each Standalone Right and the base
      price in effect for those shares shall be determined by the Plan Administrator
      in its sole discretion at the time the Standalone Right is granted. In no event,
      however, may the base price per share be less than the Fair Market Value per
      underlying share of Common Stock on the grant date.

     

    3.    Standalone
      Rights shall be subject to the same transferability restrictions applicable
      to
      Non-Statutory Options and may not be transferred during the holder’s lifetime,
      except to one or more Family Members of the holder or to a trust established
      exclusively for the holder and/or such Family Members, to the extent such
      assignment is in connection with the holder’s estate plan or pursuant to a
      domestic relations order covering the Standalone Right as marital property.
      In
      addition, one or more beneficiaries may be designated for an outstanding
      Standalone Right in accordance with substantially the same terms and provisions
      as set forth in Section I.F
      of this
Article Two.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    4.    The
      distribution with respect to an exercised Standalone Right may be made in shares
      of Common Stock valued at Fair Market Value on the exercise date, in cash,
      or
      partly in shares and partly in cash, as the Plan Administrator shall in its
      sole
      discretion deem appropriate.

     

    5.    The
      holder of a Standalone Right shall have no shareholder rights with respect
      to
      the shares subject to the Standalone Right unless and until such person shall
      have exercised the Standalone Right and become a holder of record of shares
      of
      Common Stock issued upon the exercise of such Standalone Right.

     

    E.    Limited
      Rights.
      The
      following terms and conditions shall govern the grant and exercise of Limited
      Rights under this Article Two:
      

     

    1.  One
      or
      more Section 16 Insiders may, in the Plan Administrator’s sole discretion,
      be granted Limited Rights with respect to their outstanding options under this
      Article Two.

     

    2.    Upon
      the
      occurrence of a Hostile Take-Over, the Section 16 Insider shall have the
      unconditional right (exercisable for a 30-day period following such Hostile
      Take-Over) to surrender each option with such a Limited Right to the
      Corporation. The Section 16 Insider shall in return be entitled to a cash
      distribution from the Corporation in an amount equal to the excess of (i) the
      Take-Over Price of the number of shares in which the Optionee is at the time
      vested under the surrendered option (or surrendered portion thereof) over (ii)
      the aggregate exercise price payable for those vested shares. Such cash
      distribution shall be made within five days following the option surrender
      date.

     

    3.    The
      Plan
      Administrator shall pre-approve, at the time such Limited Right is granted,
      the
      subsequent exercise of that right in accordance with the terms of the grant
      and
      the provisions of this Section III.
      No
      additional approval of the Plan Administrator or the Board shall be required
      at
      the time of the actual option surrender and cash distribution. Any unsurrendered
      portion of the option shall continue to remain outstanding and become
      exercisable in accordance with the terms of the instrument evidencing such
      grant.

     

    F.    Post-Service
      Exercise.
      The
      provisions governing the exercise of Tandem, Standalone and Limited Stock
      Appreciation Rights following the cessation of the recipient’s Service or the
      recipient’s death shall be substantially the same as those set forth in
Section I.C
      of this
Article Two
      for the
      options granted under the Discretionary Grant Program. 

     

    G.    Net
      Counting.
      Upon
      the exercise of any Tandem, Standalone or Limited Right under this Section III,
      the
      share reserve under Section V
      of
Article One
      shall
      only be reduced by the net number of shares actually issued by the Corporation
      upon such exercise, and not by the gross number of shares as to which such
      Tandem, Standalone or Limited Right is exercised. 

     

    IV.    Change
      in Control/ Hostile Take-Over.
       

    

    A.    No
      Award
      outstanding under the Discretionary Grant Program at the time of a Change in
      Control shall vest and become exercisable on an accelerated basis if and to
      the
      extent that: (i) such Award is, in connection with the Change in Control,
      assumed by the successor corporation (or parent thereof) or otherwise continued
      in full force and effect pursuant to the terms of the Change in Control
      transaction, (ii) such Award is replaced with a cash retention program of the
      successor corporation that preserves the spread existing at the time of the
      Change in Control on the shares of Common Stock as to which the Award is not
      otherwise at that time vested and exercisable and provides for subsequent payout
      of that spread in accordance with the same exercise/vesting schedule applicable
      to those shares, or (iii) the acceleration of such Award is subject to other
      limitations imposed by the Plan Administrator. However, if none of the foregoing
      conditions are satisfied, each Award outstanding under the Discretionary Grant
      Program at the time of the Change in Control but not otherwise vested and
      exercisable as to all the shares at the time subject to that Award shall
      automatically accelerate so that each such Award shall, immediately prior to
      the
      effective date of the Change in Control, vest and become exercisable as to
      all
      the shares of Common Stock at the time subject to that Award and may be
      exercised as to any or all of those shares as fully vested shares of Common
      Stock. 

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    B.    All
      outstanding repurchase rights under the Discretionary Grant Program shall also
      terminate automatically, and the shares of Common Stock subject to those
      terminated rights shall immediately vest in full, in the event of any Change
      in
      Control, except to the extent: (i) those repurchase rights are assigned to
      the
      successor corporation (or parent thereof) or otherwise continue in full force
      and effect pursuant to the terms of the Change in Control transaction or (ii)
      such accelerated vesting is precluded by other limitations imposed by the Plan
      Administrator. 

     

    C.    Immediately
      following the consummation of the Change in Control, all outstanding Awards
      under the Discretionary Grant Program shall terminate and cease to be
      outstanding, except to the extent assumed by the successor corporation (or
      parent thereof) or otherwise expressly continued in full force and effect
      pursuant to the terms of the Change in Control transaction.

     

    D.    Each
      option that is assumed in connection with a Change in Control or otherwise
      continued in effect shall be appropriately adjusted, immediately after such
      Change in Control, to apply to the number and class of securities that would
      have been issuable to the Optionee in consummation of such Change in Control
      had
      the option been exercised immediately prior to such Change in Control. In the
      event outstanding Standalone Rights are to be assumed in connection with a
      Change in Control transaction or otherwise continued in effect, the shares
      of
      Common Stock underlying each such Standalone Right shall be adjusted immediately
      after such Change in Control to apply to the number and class of securities
      into
      which those shares of Common Stock would have been converted in consummation
      of
      such Change in Control had those shares actually been outstanding at that time.
      Appropriate adjustments to reflect such Change in Control shall also be made
      to
      (i) the exercise price payable per share under each outstanding option, provided
      the aggregate exercise price payable for such securities shall remain the same,
      (ii) the base price per share in effect under each outstanding Standalone Right,
      provided the aggregate base price shall remain the same, (iii) the maximum
      number and/or class of securities available for issuance over the remaining
      term
      of the Plan, and (iv) the maximum number and/or class of securities for which
      any one person may be granted Awards under the Plan per calendar year. To the
      extent the actual holders of the Corporation’s outstanding Common Stock receive
      cash consideration for their Common Stock in consummation of the Change in
      Control, the successor corporation may, in connection with the assumption or
      continuation of the outstanding Awards under the Discretionary Grant Program,
      substitute, for the securities underlying those assumed Awards, one or more
      shares of its own common stock with a fair market value equivalent to the cash
      consideration paid per share of Common Stock in such Change in Control
      transaction. 

     

    E.    The
      Plan
      Administrator shall have the discretionary authority to structure one or more
      outstanding Awards under the Discretionary Grant Program so that those Awards
      shall, immediately prior to the effective date of a Change in Control or a
      Hostile Take-Over, vest and become exercisable as to all the shares at the
      time
      subject to those Awards and may be exercised as to any or all of those shares
      as
      fully vested shares of Common Stock, whether or not those Awards are to be
      assumed or otherwise continued in full force and effect pursuant to the express
      terms of such transaction. In addition, the Plan Administrator shall have the
      discretionary authority to structure one or more of the Corporation’s repurchase
      rights under the Discretionary Grant Program so that those rights shall
      immediately terminate at the time of such Change in Control or consummation
      of
      such Hostile Take-Over and shall not be assignable to successor corporation
      (or
      parent thereof), and the shares subject to those terminated rights shall
      accordingly vest in full at the time of such Change in Control or consummation
      of such Hostile Take-Over. 

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    F.    The
      Plan
      Administrator shall have full power and authority to structure one or more
      outstanding Awards under the Discretionary Grant Program so that those Awards
      shall immediately vest and become exercisable as to all of the shares at the
      time subject to those Awards in the event the Optionee’s Service is subsequently
      terminated by reason of an Involuntary Termination within a designated period
      (not to exceed 18 months) following the effective date of any Change in Control
      or a Hostile Take-Over in which those Awards do not otherwise vest on an
      accelerated basis. Any Awards so accelerated shall remain exercisable as to
      fully vested shares until the expiration or sooner termination of their term.
      In
      addition, the Plan Administrator may structure one or more of the Corporation’s
      repurchase rights under the Discretionary Grant Program so that those rights
      shall immediately terminate with respect to any shares held by the Optionee
      at
      the time of his or her Involuntary Termination, and the shares subject to those
      terminated repurchase rights shall accordingly vest in full at that
      time.

     

    G.    The
      portion of any Incentive Option accelerated in connection with a Change in
      Control shall remain exercisable as an Incentive Option only to the extent
      the
      applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded.
      To
      the extent such dollar limitation is exceeded, the accelerated portion of such
      option shall be exercisable as a Non-Statutory Option under the federal tax
      laws. 

     

    H.    Awards
      outstanding under the Discretionary Grant Program shall in no way affect the
      right of the Corporation to adjust, reclassify, reorganize or otherwise change
      its capital or business structure or to merge, consolidate, dissolve, liquidate
      or sell or transfer all or any part of its business or assets.

     

    V.    Exchange/
      Repricing Programs.
       

    

    A.    The
      Plan
      Administrator shall have the authority to effect, at any time and from time
      to
      time, with the consent of the affected holders, the cancellation of any or
      all
      outstanding options or stock appreciation rights under the Discretionary Grant
      Program and to grant in exchange one or more of the following: (i) new options
      or stock appreciation rights covering the same or a different number of shares
      of Common Stock but with an exercise or base price per share not less than
      the
      Fair Market Value per share of Common Stock on the new grant date or (ii) cash
      or shares of Common Stock, whether vested or unvested, equal in value to the
      value of the cancelled options or stock appreciation rights. 

     

    B.    The
      Plan
      Administrator shall also have the authority, exercisable at any time and from
      time to time, with or, if the affected holder is not a Section 16 Insider,
      then
      without, the consent of the affected holders, to reduce the exercise or base
      price of one or more outstanding stock options or stock appreciation rights
      to a
      price not less than the then current Fair Market Value per share of Common
      Stock
      or issue new stock options or stock appreciation rights with a lower exercise
      or
      base price in immediate cancellation of outstanding stock options or stock
      appreciation rights with a higher exercise or base price. 

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      THREE

    STOCK
      ISSUANCE PROGRAM

     

    I.    Stock
      Issuance Terms.
       

    

    A.    Issuances.
      Shares
      of Common Stock may be issued under the Stock Issuance Program through direct
      and immediate issuances without any intervening option grants. Each such stock
      issuance shall be evidenced by a Stock Issuance Agreement that complies with
      the
      terms specified below. Shares of Common Stock may also be issued under the
      Stock
      Issuance Program pursuant to restricted stock awards or restricted stock units,
      awarded by and at the discretion of the Plan Administrator, that entitle the
      recipients to receive the shares underlying those awards or units upon the
      attainment of designated performance goals and/or the satisfaction of specified
      Service requirements or upon the expiration of a designated time period
      following the vesting of those awards or units. 

     

    B.    Issue
      Price.

     

    1.    The
      price
      per share at which shares of Common Stock may be issued under the Stock Issuance
      Program shall be fixed by the Plan Administrator, but shall not be less than
      100% of the Fair Market Value per share of Common Stock on the issuance date.
      

     

    2.    Shares
      of
      Common Stock may be issued under the Stock Issuance Program for any of the
      following items of consideration that the Plan Administrator may deem
      appropriate in each individual instance: 

     

    (i)    cash
      or
      check made payable to the Corporation;

     

    (ii)    past
      services rendered to the Corporation (or any Parent or Subsidiary);
      or

     

    (iii)    any
      other
      valid form of consideration permissible under the California Corporations Code
      at the time such shares are issued.

     

    C.    Vesting
      Provisions.
      

     

    1.    Shares
      of
      Common Stock issued under the Stock Issuance Program may, in the discretion
      of
      the Plan Administrator, be fully and immediately vested upon issuance or may
      vest in one or more installments over the Participant’s period of Service and/or
      upon attainment of specified performance objectives. The elements of the vesting
      schedule applicable to any unvested shares of Common Stock issued under the
      Stock Issuance Program shall be determined by the Plan Administrator and
      incorporated into the Stock Issuance Agreement. Shares of Common Stock may
      also
      be issued under the Stock Issuance Program pursuant to restricted stock awards
      or restricted stock units that entitle the recipients to receive the shares
      underlying those awards and/or units upon the attainment of designated
      performance goals or the satisfaction of specified Service requirements or
      upon
      the expiration of a designated time period following the vesting of those awards
      or units, including (without limitation) a deferred distribution date following
      the termination of the Participant’s Service. 

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    2.    The
      Plan
      Administrator shall also have the discretionary authority, consistent with
      Code
      Section 162(m), to structure one or more Awards under the Stock Issuance
      Program so that the shares of Common Stock subject to those Awards shall vest
      (or vest and become issuable) upon the achievement of certain pre-established
      corporate performance goals based on one or more of the following criteria:
      (i)
      return on total shareholders’ equity; (ii) net income per share of Common Stock;
      (iii) net income or operating income; (iv) earnings before interest, taxes,
      depreciation, amortization and stock-compensation costs, or operating income
      before depreciation and amortization; (v) sales or revenue targets; (vi) return
      on assets, capital or investment; (vii) cash flow; (viii) market share; (ix)
      cost reduction goals; (x) budget comparisons; (xi) implementation or completion
      of projects or processes strategic or critical to the Corporation’s business
      operations; (xii) measures of customer satisfaction; (xiii) any combination
      of,
      or a specified increase in, any of the foregoing; and (xiv) the formation of
      joint ventures, research and development collaborations, marketing or customer
      service collaborations, or the completion of other corporate transactions
      intended to enhance the Corporation’s revenue or profitability or expand its
      customer base; provided,
      however,
      that
      for purposes of items (ii), (iii) and (vii) above, the Plan Administrator may,
      at the time the Awards are made, specify certain adjustments to such items
      as
      reported in accordance with generally accepted accounting principles in the
      U.S.
      (“GAAP”),
      which
      will exclude from the calculation of those performance goals one or more of
      the
      following: certain charges related to acquisitions, stock-based compensation,
      employer payroll tax expense on certain stock option exercises, settlement
      costs, restructuring costs, gains or losses on strategic investments,
      non-operating gains or losses, certain other non-cash charges, valuation
      allowance on deferred tax assets, and the related income tax effects, purchases
      of property and equipment, and any extraordinary non-recurring items as
      described in Accounting Principles Board Opinion No. 30 or its successor,
      provided that such adjustments are in conformity with those reported by the
      Corporation on a non-GAAP basis. In addition, such performance goals may be
      based upon the attainment of specified levels of the Corporation’s performance
      under one or more of the measures described above relative to the performance
      of
      other entities and may also be based on the performance of any of the
      Corporation’s business groups or divisions thereof or any Parent or Subsidiary.
      Performance goals may include a minimum threshold level of performance below
      which no award will be earned, levels of performance at which specified portions
      of an award will be earned, and a maximum level of performance at which an
      award
      will be fully earned. The Plan Administrator may provide that, if the actual
      level of attainment for any performance objective is between two specified
      levels, the amount of the award attributable to that performance objective
      shall
      be interpolated on a straight-line basis. 

     

    3.    Any
      new,
      substituted or additional securities or other property (including money paid
      other than as a regular cash dividend) that the Participant may have the right
      to receive with respect to the Participant’s unvested shares of Common Stock by
      reason of any stock dividend, stock split, recapitalization, combination of
      shares, exchange of shares or other change affecting the outstanding Common
      Stock as a class without the Corporation’s receipt of consideration shall be
      issued subject to (i) the same vesting requirements applicable to the
      Participant’s unvested shares of Common Stock and (ii) such escrow arrangements
      as the Plan Administrator shall deem appropriate. 

     

    4.    The
      Participant shall have full shareholder rights with respect to any shares of
      Common Stock issued to the Participant under the Stock Issuance Program, whether
      or not the Participant’s interest in those shares is vested. Accordingly, the
      Participant shall have the right to vote such shares and to receive any regular
      cash dividends paid on such shares. The Participant shall not have any
      shareholder rights with respect to the shares of Common Stock subject to a
      restricted stock unit award until that award vests and the shares of Common
      Stock are actually issued thereunder. However, dividend-equivalent units may
      be
      paid or credited, either in cash or in actual or phantom shares of Common Stock,
      on outstanding restricted stock unit or restricted stock awards, subject to
      such
      terms and conditions as the Plan Administrator may deem
      appropriate.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

       

    

    5.    Should
      the Participant cease to remain in Service while holding one or more unvested
      shares of Common Stock issued under the Stock Issuance Program or should the
      performance objectives not be attained with respect to one or more such unvested
      shares of Common Stock, then except as set forth in Section
      I.C.6
      of this
Article
      Three,
      those
      shares shall be immediately surrendered to the Corporation for cancellation,
      and
      the Participant shall have no further shareholder rights with respect to those
      shares. To the extent the surrendered shares were previously issued to the
      Participant for consideration paid in cash, cash equivalent or otherwise, the
      Corporation shall repay to the Participant the same amount and form of
      consideration as the Participant paid for the surrendered shares. 

     

    6.    The
      Plan
      Administrator may in its discretion waive the surrender and cancellation of
      one
      or more unvested shares of Common Stock that would otherwise occur upon the
      cessation of the Participant’s Service or the non-attainment of the performance
      objectives applicable to those shares. Any such waiver shall result in the
      immediate vesting of the Participant’s interest in the shares of Common Stock as
      to which the waiver applies. Such waiver may be effected at any time, whether
      before or after the Participant’s cessation of Service or the attainment or
      non-attainment of the applicable performance objectives. However, no vesting
      requirements tied to the attainment of performance objectives may be waived
      with
      respect to shares that were intended at the time of issuance to qualify as
      performance-based compensation under Code Section 162(m), except in the
      event of the Participant’s Involuntary Termination or as otherwise provided in
Section II.E
      of this
Article Three.

     

    7.    Outstanding
      restricted stock awards or restricted stock units under the Stock Issuance
      Program shall automatically terminate, and no shares of Common Stock shall
      actually be issued in satisfaction of those awards or units, if the performance
      goals or Service requirements established for such awards or units are not
      attained or satisfied. The Plan Administrator, however, shall have the
      discretionary authority to issue vested shares of Common Stock under one or
      more
      outstanding restricted stock awards or restricted stock units as to which the
      designated performance goals or Service requirements have not been attained
      or
      satisfied. However, no vesting requirements tied to the attainment of
      performance goals may be waived with respect to awards or units which were
      at
      the time of grant intended to qualify as performance-based compensation under
      Code Section 162(m), except in the event of the Participant’s Involuntary
      Termination or as otherwise provided in Section II.E
      of this
Article Three.
      

     

    II.    Change
      in Control/ Hostile Take-Over.
       

    

    A.    All
      of
      the Corporation’s outstanding repurchase rights under the Stock Issuance Program
      shall terminate automatically, and all the shares of Common Stock subject to
      those terminated rights shall immediately vest in full, in the event of any
      Change in Control, except to the extent (i) those repurchase rights are to
      be
      assigned to the successor corporation (or parent thereof) or otherwise continued
      in full force and effect pursuant to the express terms of the Change in Control
      transaction or (ii) such accelerated vesting is precluded by other limitations
      imposed in the Stock Issuance Agreement. 

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    B.    Each
      outstanding Award under the Stock Issuance Program that is assumed in connection
      with a Change in Control or otherwise continued in effect shall be adjusted
      immediately after the consummation of that Change in Control to apply to the
      number and class of securities into which the shares of Common Stock subject
      to
      the Award immediately prior to the Change in Control would have been converted
      in consummation of such Change in Control had those shares actually been
      outstanding at that time, and appropriate adjustments shall also be made to
      the
      cash consideration (if any) payable per share thereunder, provided the aggregate
      amount of such consideration shall remain the same. If any such Award is not
      so
      assumed or otherwise continued in effect or replaced with a cash retention
      program which preserves the Fair Market Value of the shares underlying the
      Award
      at the time of the Change in Control and provides for the subsequent payout
      of
      that value in accordance with the vesting schedule in effect for the Award
      at
      the time of such Change in Control, such Award shall vest, and the shares of
      Common Stock subject to that Award shall be issued as fully-vested shares,
      immediately prior to the consummation of the Change in Control.

     

    C.    The
      Plan
      Administrator shall have the discretionary authority to structure one or more
      unvested Awards under the Stock Issuance Program so that the shares of Common
      Stock subject to those Awards shall automatically vest (or vest and become
      issuable) in whole or in part immediately upon the occurrence of a Change in
      Control or upon the subsequent termination of the Participant’s Service by
      reason of an Involuntary Termination within a designated period (not to exceed
      18 months) following the effective date of that Change in Control transaction.
      

     

    D.    The
      Plan
      Administrator shall also have the discretionary authority to structure one
      or
      more unvested Awards under the Stock Issuance Program so that the shares of
      Common Stock subject to those Awards shall automatically vest (or vest and
      become issuable) in whole or in part immediately upon the occurrence of a
      Hostile Take-Over or upon the subsequent termination of the Participant’s
      Service by reason of an Involuntary Termination within a designated period
      (not
      to exceed 18 months) following the effective date of that Hostile
      Take-Over.

     

    E.    The
      Plan
      Administrator’s authority under Paragraphs C and D of this Section II
      shall
      also extend to any Award intended to qualify as performance-based compensation
      under Code Section 162(m), even though the automatic vesting of those
      Awards pursuant to Paragraph C or D of this Section II
      may
      result in their loss of performance-based status under Code Section 162(m).


     

    F.    Awards
      outstanding under the Stock Issuance Program shall in no way affect the right
      of
      the Corporation to adjust, reclassify, reorganize or otherwise change its
      capital or business structure or to merge, consolidate, dissolve, liquidate
      or
      sell or transfer all or any part of its business or assets.

     

    ARTICLE
      FOUR

    MISCELLANEOUS

     

    I.    Tax
      Withholding.
       

    

    A.    The
      Corporation’s obligation to deliver shares of Common Stock upon the issuance,
      exercise or vesting of Awards under the Plan shall be subject to the
      satisfaction of all applicable federal, state and local income and employment
      tax withholding requirements. 

     

    B.    Subject
      to applicable laws, rules and regulations and policies of the Corporation,
      the
      Plan Administrator may, in its discretion, provide any or all Optionees or
      Participants to whom Awards are made under the Plan with the right to utilize
      any or all of the following methods to satisfy all or part of the Withholding
      Taxes to which those holders may become subject in connection with the issuance,
      exercise or vesting of those Awards. 

     

    1.    Stock
      Withholding:
      The
      election to have the Corporation withhold, from the shares of Common Stock
      otherwise issuable upon the issuance, exercise or vesting of those Awards a
      portion of those shares with an aggregate Fair Market Value equal to the
      percentage of the Withholding Taxes (not to exceed 100%) designated by the
      Optionee or Participant and make a cash payment equal to such Fair Market Value
      directly to the appropriate taxing authorities on such individual’s behalf. The
      shares of Common Stock so withheld shall not reduce the number of shares of
      Common Stock authorized for issuance under the Plan.

     

    2.    Stock
      Delivery:
      The
      election to deliver to the Corporation, at the time the Award is issued,
      exercised or vests, one or more shares of Common Stock previously acquired
      by
      such the Optionee or Participant (other than in connection with the issuance,
      exercise or vesting triggering the Withholding Taxes) with an aggregate Fair
      Market Value equal to the percentage of the Withholding Taxes (not to exceed
      100%) designated by such holder. The shares of Common Stock so delivered shall
      not be added to the shares of Common Stock authorized for issuance under the
      Plan.

     

    3.    Sale
      and Remittance:
      The
      election to deliver to the Corporation, to the extent the Award is issued or
      exercised for vested shares, through a special sale and remittance procedure
      pursuant to which the Optionee or Participant shall concurrently provide
      irrevocable instructions to a brokerage firm to effect the immediate sale of
      the
      purchased or issued shares and remit to the Corporation, out of the sale
      proceeds available on the settlement date, sufficient funds to cover the
      Withholding Taxes required to be withheld by the Corporation by reason of such
      issuance, exercise or vesting.

     

    II.    Share
      Escrow/Legends.
       

    

    Unvested
      shares issued under the Plan may, in the Plan Administrator’s discretion, be
      held in escrow by the Corporation until the Participant’s interest in such
      shares vests or may be issued directly to the Participant with restrictive
      legends on the certificates evidencing those unvested shares. 

     

    III.    Effective
      Date and Term of the Plan.
       

    

    A.    The
      Plan
      was adopted by the Board on February 9, 2007, subject to shareholder
      approval within twelve months after that date. Should shareholder approval
      not
      be obtained within such period, the Plan will be terminated.

     

    B.    The
      Plan
      shall become effective on the Plan Effective Date. Awards may be granted under
      the Discretionary Grant Program and the Stock Issuance Program at any time
      on or
      after the Plan Effective Date.

     

    C.    The
      Plan
      shall terminate upon the earliest to occur of (i) February 9, 2008, if
      shareholder approval of the Plan has not yet been obtained,
      (ii) February 9, 2017, (iii) the date on which all shares available
      for issuance under the Plan shall have been issued as fully-vested shares,
      (iv)
      the termination of all outstanding Awards in connection with a Change in Control
      or (v) such other date as the Board in its sole discretion terminates the Plan.
      If the Plan terminates on February 9, 2017 or on such other date as the
      Board terminates the Plan, then all Awards outstanding at that time shall
      continue to have force and effect in accordance with the provisions of the
      documents evidencing such Awards.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    IV.    Amendment,
      Suspension or Termination of the Plan.
       

    

    The
      Board
      may suspend or terminate the Plan at any time, without notice, and in its sole
      discretion. The Board shall have complete and exclusive power and authority
      to
      amend or modify the Plan in any or all respects. However, no such amendment
      or
      modification shall materially impair the rights and obligations with respect
      to
      Awards at the time outstanding under the Plan unless the Optionee or the
      Participant consents to such amendment or modification. In addition, shareholder
      approval will be required for any amendment to the Plan that (i) materially
      increases the number of shares of Common Stock available for issuance under
      the
      Plan, (ii) materially expands the class of individuals eligible to receive
      option grants or other awards under the Plan, (iii) materially increases the
      benefits accruing to the Optionees and Participants under the Plan or materially
      reduces the price at which shares of Common Stock may be issued or purchased
      under the Plan, (iv) materially extends the term of the Plan, (v) expands the
      types of awards available for issuance under the Plan or (vi) is required under
      applicable laws, rules or regulations to be approved by
      shareholders.

     

    V.    Use
      of Proceeds.
       

    

    Any
      cash
      proceeds received by the Corporation from the sale of shares of Common Stock
      under the Plan shall be used for general corporate purposes. 

     

    VI.    Regulatory
      Approvals.
       

    

    A.    The
      implementation of the Plan, the grant of any Award and the issuance of shares
      of
      Common Stock in connection with the issuance, exercise or vesting of any Award
      made under the Plan shall be subject to the Corporation’s procurement of all
      approvals and permits required by regulatory authorities having jurisdiction
      over the Plan, the Awards made under the Plan and the shares of Common Stock
      issuable pursuant to those Awards. 

     

    B.    No
      shares
      of Common Stock or other assets shall be issued or delivered under the Plan
      unless and until there shall have been compliance with all applicable
      requirements of federal and state securities laws, including the filing and
      effectiveness of the Form S-8 registration statement for the shares of Common
      Stock issuable under the Plan, and all applicable listing requirements of the
      OTCBB, NASDAQ Global Market, if applicable, and any stock exchange or other
      market on which Common Stock is then quoted or listed for trading.

     

    VII.   No
      Employment/ Service Rights.
       

    

    Nothing
      in the Plan shall confer upon the Optionee or the Participant any right to
      continue in Service for any period of specific duration or interfere with or
      otherwise restrict in any way the rights of the Corporation (or any Parent
      or
      Subsidiary employing or retaining such person) or of the Optionee or the
      Participant, which rights are hereby expressly reserved by each, to terminate
      such person’s Service at any time for any reason, with or without cause.


     

    VIII.   Non-Exclusivity
      of the Plan.
       

    

    Nothing
      contained in the Plan is intended to amend, modify, or rescind any previously
      approved compensation plans, programs or options entered into by the
      Corporation. This Plan shall be construed to be in addition to and independent
      of any and all other arrangements. Neither the adoption of the Plan by the
      Board
      nor the submission of the Plan to the shareholders of the Corporation for
      approval shall be construed as creating any limitations on the power or
      authority of the Board to adopt, with or without shareholder approval, such
      additional or other compensation arrangements as the Board may from time to
      time
      deem desirable.

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    IX.    Governing
      Law.
       

    

    All
      questions and obligations under the Plan and agreements issued pursuant to
      the
      Plan shall be construed and enforced in accordance with the laws of the State
      of
      California.

     

    X.    Information
      to Optionees and Participants.
       

    

    Optionees
      and Participants under the Plan who do not otherwise have access to financial
      statements of the Corporation will receive the Corporation’s financial
      statements at least annually.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    APPENDIX
      

     

    The
      following definitions shall be in effect under the Plan: 

     

    A.    “Award”
means
      any of the following stock or stock-based awards authorized for issuance or
      grant under the Plan: stock option, stock appreciation right, direct stock
      issuance, restricted stock or restricted stock unit award or other stock-based
      award.

     

    B.    “Board”
means
      the Corporation’s board of directors.

     

    C.    “Change
      in Control”
shall
      be deemed to have occurred if, in a single transaction or series of related
      transactions:

     

    (i)    any
      person (as such term is used in Section 13(d) and 14(d) of the 1934 Act, or
      persons acting as a group, other than a trustee or fiduciary holding securities
      under an employment benefit program, is or becomes a “beneficial
      owner”
(as
      defined in Rule 13-3 under the 1934 Act), directly or indirectly of securities
      of the Corporation representing 51% or more of the combined voting power of
      the
      Corporation, or

     

    (ii)    there
      is
      a merger, consolidation, or other business combination transaction of the
      Corporation with or into an other corporation, entity or person, other than
      a
      transaction in which the holders of at least a majority of the shares of voting
      capital stock of the Corporation outstanding immediately prior to such
      transaction continue to hold (either by such shares remaining outstanding or
      by
      their being converted into shares of voting capital stock of the surviving
      entity) a majority of the total voting power represented by the shares of voting
      capital stock of the Corporation (or surviving entity) outstanding immediately
      after such transaction, or

     

    (iii)    all
      or
      substantially all of the Corporation’s assets are sold.

     

    D.    “Code”
means
      the Internal Revenue Code of 1986, as amended.

     

    E.    “Common
      Stock”
means
      the Corporation’s common stock, no par value per share.

     

    F.    “Compensation
      Committee”
means
      a
      committee of the Board comprised solely of two or more Eligible Directors who
      are appointed by the Board to administer the Discretionary Grant and Stock
      Issuance Programs, who are “outside
      directors”
within
      the meaning of Section 162(m) of the Code and who are “non-employee
      directors”
within
      the meaning of Rule 16b-3(b)(3)(i).

     

    G.    “Consultant”
means
      a
      consultant or other independent advisor who is under written contract with
      the
      Corporation (or any Parent or Subsidiary) to provide consulting or advisory
      services to the Corporation (or any Parent or Subsidiary) and whose securities
      issued pursuant to the Plan could be registered on Form S-8.

     

    H.    “Corporation”
means
      Strasbaugh, a California corporation, and any corporate successor to all or
      substantially all of the assets or voting stock of Strasbaugh that shall by
      appropriate action adopt the Plan.

     

    I.    “Discretionary
      Grant Program”
means
      the discretionary grant program in effect under Article Two
      of the
      Plan pursuant to which stock options and stock appreciation rights may be
      granted to one or more eligible individuals.

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    J.    “Eligible
      Director”
means
      a
      Board member who is not, at the time of such determination, an employee of
      the
      Corporation (or any Parent or Subsidiary).

     

    K.    “Employee”
means
      an individual who is in the employ of the Corporation (or any Parent or
      Subsidiary), subject to the control and direction of the employer entity as
      to
      both the work to be performed and the manner and method of
      performance.

     

    L.    “Exercise
      Date”
means
      the date on which the Corporation shall have received written notice of the
      option exercise.

     

    M.    “Fair
      Market Value”
per
      share of Common Stock on any relevant date shall be determined in accordance
      with the following provisions:

     

    (i)    If
      the
      Common Stock is at the time traded on the OTCBB, then the Fair Market Value
      shall be the closing selling price per share of Common Stock at the close of
      regular hours trading (i.e., before after- hours trading begins) on the OTCBB
      on
      the date in question, as such price is reported by the National Association
      of
      Securities Dealers. If there is no closing selling price for the Common Stock
      on
      the date in question, then the Fair Market Value shall be the closing selling
      price on the last preceding date for which such quotation exists.

     

    (ii)    If
      the
      Common Stock is not traded on the OTCBB but is at the time listed or quoted
      on
      any other market or exchange, then the Fair Market Value shall be the closing
      selling price per share of Common Stock at the close of regular hours trading
      (i.e., before after-hours trading begins) on the date in question on the market
      or exchange determined by the Plan Administrator to be the primary market for
      the Common Stock, as such price is officially quoted in the composite tape
      of
      transactions on such exchange. If there is no closing selling price for the
      Common Stock on the date in question, then the Fair Market Value shall be the
      closing selling price on the last preceding date for which such quotation
      exists.

     

    (iii)    In
      the
      absence of an established market for the Common Stock, the Fair Market Value
      shall be determined in good faith by the Plan Administrator.

     

    In
      addition, with respect to any Incentive Option, the Fair Market Value shall
      be
      determined in a manner consistent with any regulations issued by the Secretary
      of the Treasury for the purpose of determining fair market value of securities
      subject to an Incentive Option plan under the Code.

     

    N.    “Family
      Member”
means,
      with respect to a particular Optionee or Participant, any child, stepchild,
      grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
      niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
      brother-in-law or sister-in-law, including adoptive relationships.

     

    O.    “Hostile
      Take-Over”
means
      either of the following events effecting a change in control or ownership of
      the
      Corporation:

     

    (i)    the
      acquisition, directly or indirectly, by any person or related group of persons
      (other than the Corporation or a person that directly or indirectly controls,
      is
      controlled by, or is under common control with, the Corporation) of beneficial
      ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
      possessing more than 50% of the total combined voting power of the Corporation’s
      outstanding securities pursuant to a tender or exchange offer made directly
      to
      the Corporation’s shareholders that the Board does not recommend such
      shareholders to accept, or

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    (ii)    a
      change
      in the composition of the Board over a period of 36 consecutive months or less
      such that a majority of the Board members ceases, by reason of one or more
      contested elections for Board membership, to be composed of individuals who
      either (A) have been Board members continuously since the beginning of such
      period or (B) have been elected or nominated for election as Board members
      during such period by at least a majority of the Board members described in
      clause (A) who were still in office at the time the Board approved such election
      or nomination.

     

    P.    “Incentive
      Option”
means
      an option that satisfies the requirements of Code Section 422.

     

    Q.    “Involuntary
      Termination”
means
      the termination of the Service of any individual that occurs by reason
      of:

     

    (i)    if
      such
      individual is providing services to the Corporation pursuant to a written
      contract that defines “cause”
or
      “misconduct”
or
      similar reasons such individual could be dismissed or discharged by the
      Corporation, then such individual’s involuntary dismissal or discharge by the
      Corporation other than for any of such reasons and other than for Misconduct
      shall be an Involuntary Termination;

     

    (ii)    if
      such
      individual is not providing services to the Corporation pursuant to a written
      contract that defines “cause”
or
      “misconduct”
or
      similar reasons such individual could be dismissed or discharged by the
      Corporation, then such individual’s involuntary dismissal or discharge by the
      Corporation for reasons other than Misconduct shall be an Involuntary
      Termination;

     

    (iii)    if
      such
      individual is providing services to the Corporation pursuant to a written
      contract that defines “good
      reason”
or
      similar reasons such individual could voluntarily resign, then such individual’s
      voluntary resignation for any of such reasons shall be an Involuntary
      Termination; or

     

    (iv)    if
      such
      individual is providing services to the Corporation pursuant to a written
      contract that does not define “good
      reason”
or
      similar reasons such individual could voluntarily resign, then such individual’s
      voluntary resignation following (A) a change in his or her position with the
      Corporation that materially reduces his or her duties and responsibilities
      or
      the level of management to which he or she reports, (B) a reduction in his
      or
      her level of compensation (including base salary, fringe benefits and target
      bonus under any corporate-performance based bonus or incentive programs) by
      more
      than 15% or (C) a relocation of such individual’s place of employment by more
      than 50 miles, provided and only if such change, reduction or relocation is
      effected by the Corporation without the individual’s consent, shall be an
      Involuntary Termination.

     

    R.    “Misconduct”
means
      the commission of: any act of fraud, embezzlement or dishonesty by the Optionee
      or Participant; any unauthorized use or disclosure by such person of
      confidential information or trade secrets of the Corporation (or any Parent
      or
      Subsidiary); any illegal or improper conduct or intentional misconduct, gross
      negligence or recklessness by such person that has adversely affected or, in
      the
      determination of the Plan Administrator, is likely to adversely affect, the
      business, reputation, goodwill or affairs of the Corporation (or any Parent
      or
      Subsidiary) in a material manner; any conduct that provides a basis for the
      Corporation to terminate for “cause,”
      “misconduct”
or
      similar reasons the written contract pursuant to which the Optionee or
      Participant is providing Services to the Corporation; resignation by the
      Optionee or Participant on fewer than 30 days’ prior written notice and in
      violation of an agreement to remain in Service of the Corporation, in
      anticipation of a termination for “cause,”
      “misconduct”
or
      similar reasons under the agreement, or in lieu of a formal discharge for
“cause,”
      “misconduct”
or
      similar reasons. The foregoing definition shall not in any way preclude or
      restrict the right of the Corporation (or any Parent or Subsidiary) to discharge
      or dismiss any Optionee, Participant or other person in the Service of the
      Corporation (or any Parent or Subsidiary) for any other acts or omissions,
      but
      such other acts or omissions shall not be deemed, for purposes of the Plan,
      to
      constitute grounds for termination for Misconduct.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    S.    “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    T.    “Non-Statutory
      Option”
means
      an option not intended to satisfy the requirements of Code
      Section 422.

     

    U.    “Optionee”
means
      any person to whom an option is granted under the Discretionary Grant
      Program.

     

    V.    “OTCBB”
means
      the OTC Bulletin Board.

     

    W.    “Parent”
means
      any corporation (other than the Corporation) in an unbroken chain of
      corporations ending with the Corporation, provided each corporation in the
      unbroken chain (other than the Corporation) owns, at the time of the
      determination, stock possessing 50% or more of the total combined voting power
      of all classes of stock in one of the other corporations in such
      chain.

     

    X.    “Participant”
means
      any person who is issued shares of Common Stock or restricted stock units or
      other stock-based awards under the Stock Issuance Program.

     

    Y.    “Permanent
      Disability”
or
      “Permanently
      Disabled”
means
      the inability of the Optionee or the Participant to engage in any substantial
      gainful activity by reason of any medically determinable physical or mental
      impairment expected to result in death or to be of continuous duration of twelve
      months or more. 

     

    Z.    “Plan”
means
      the Corporation’s 2007 Shares Incentive Plan, as set forth in this
      document.

     

    AA.    “Plan
      Administrator”
means
      the particular entity, whether the Compensation Committee or the Board, which
      is
      authorized to administer the Discretionary Grant and Stock Issuance Programs
      with respect to one or more classes of eligible persons, to the extent such
      entity is carrying out its administrative functions under those programs with
      respect to the persons then subject to its jurisdiction.

     

    BB.    “Plan
      Effective Date”
means
      the date that shareholder approval of the Plan is obtained in accordance with
      Section
      III.A.
      of
Article
      Four.

     

    CC.    “Section 16
      Insider”
means
      an officer or director of the Corporation subject to the short-swing profit
      liability provisions of Section 16 of the 1934 Act.

     

    DD.    “Service”
means
      the performance of services for the Corporation (or any Parent or Subsidiary)
      by
      a person in the capacity of an Employee, an Eligible Director or a Consultant,
      except to the extent otherwise specifically provided in the documents evidencing
      the Award made to such person. For purposes of the Plan, an Optionee or
      Participant shall be deemed to cease Service immediately upon the occurrence
      of
      the either of the following events: (i) the Optionee or Participant no longer
      performs services in any of the foregoing capacities for the Corporation or
      any
      Parent or Subsidiary or (ii) the entity for which the Optionee or Participant
      is
      performing such services ceases to remain a Parent or Subsidiary of the
      Corporation, even though the Optionee or Participant may subsequently continue
      to perform services for that entity.

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    EE.    “Stock
      Issuance Agreement”
means
      the agreement entered into by the Corporation and the Participant at the time
      of
      issuance of shares of Common Stock under the Stock Issuance
      Program.

     

    FF.    “Stock
      Issuance Program”
means
      the stock issuance program in effect under Article Three
      of the
      Plan.

     

    GG.    “Subsidiary”
means
      any corporation (other than the Corporation) in an unbroken chain of
      corporations beginning with the Corporation, provided each corporation (other
      than the last corporation) in the unbroken chain owns, at the time of the
      determination, stock possessing 50% or more of the total combined voting power
      of all classes of stock in one of the other corporations in such
      chain.

     

    HH.    “Take-Over
      Price”
means
      the greater of (i) the Fair Market Value per share of Common Stock on the date
      the option is surrendered to the Corporation in connection with a Hostile
      Take-Over or, if applicable, (ii) the highest reported price per share of Common
      Stock paid by the tender offeror in effecting such Hostile Take-Over through
      the
      acquisition of such Common Stock. However, if the surrendered option is an
      Incentive Option, the Take-Over Price shall not exceed the clause (i) price
      per
      share.

     

    II.    “10%
      Shareholder”
means
      the owner of stock (as determined under Code Section 424(d)) possessing
      more than 10% of the total combined voting power of all classes of stock of
      the
      Corporation (or any Parent or Subsidiary).

     

    JJ.    “Withholding
      Taxes”
means
      the federal, state and local income and employment taxes to which the Optionee
      or Participant may become subject in connection with the issuance, exercise
      or
      vesting of the Award made to him or her under the Plan.

     

     

    -21-