**Exhibit 10.2**

 

**UTSTARCOM, INC.**

 

**2006 EQUITYINCENTIVE PLAN**

 

**As amended June 27,2008**

 

        1.*    Purposes of the Plan*.    Thepurposes of this Plan are:

 

·  to attract and retain the best available personnel for positions ofsubstantial responsibility,

 

·  to provide incentives to individuals who perform services to the Company,and

 

·  to promote the success of the Company’s business.

 

        ThePlan permits the grant of Incentive Stock Options, Nonstatutory Stock Options,Restricted Stock, Restricted Stock Units, Stock Appreciation Rights,Performance Units, Performance Shares and other stock or cash awards as theAdministrator may determine.

 

        2.*    Definitions*.    Asused herein, the following definitions will apply:

 

        (a)   “*Administrator*” means the Board or any ofits Committees as will be administering the Plan, in accordance with Section 4of the Plan.

 

        (b)   “*Affiliate*” means any corporation or anyother entity (including, but not limited to, partnerships and joint ventures)controlling, controlled by, or under common control with the Company.

 

        (c)   “*Annual Revenue*” means the Company’s or abusiness unit’s net sales for the Performance Period, determined in accordancewith generally accepted accounting principles; provided, however, that prior tothe Performance Period, the Administrator shall determine whether anysignificant item(s) shall be excluded or included from the calculation ofAnnual Revenue with respect to one or more Participants.

 

        (d)   “*Applicable Laws*” means the requirementsrelating to the administration of equity-based awards under U.S. statecorporate laws, U.S. federal and state securities laws, the Code, any stockexchange or quotation system on which the Common Stock is listed or quoted andthe applicable laws of any foreign country or jurisdiction where Awards are, orwill be, granted under the Plan.

 

        (e)   “*Award*” means, individually orcollectively, a grant under the Plan of Options, Restricted Stock, RestrictedStock Units, Stock Appreciation Rights, Performance Units, Performance Sharesand other stock or cash awards as the Administrator may determine.

 

        (f)    “*Award Agreement*” means the written orelectronic agreement setting forth the terms and provisions applicable to eachAward granted under the Plan. The Award Agreement is subject to the terms andconditions of the Plan.

 

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        (g)   “*Board*” means the Board of Directors of theCompany.

 

        (h)   “*Cash Collections*” means the actual cash orother freely negotiable consideration, in any currency, received insatisfaction of accounts receivable created by the sale of any Company productsor services.

 

        (i)    “*Change in Control*” means the occurrence ofany of the following events:

 

          (i)  Any“person” (as such term is used in Sections 13(d) and 14(d) of theExchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 ofthe Exchange Act), directly or indirectly, of securities of the Companyrepresenting fifty percent (50%) or more of the total voting power representedby the Company’s then outstanding voting securities;

 

         (ii)  Theconsummation of the sale or disposition by the Company of all or substantiallyall of the Company’s assets;

 

        (iii)  Achange in the composition of the Board occurring within a two-year period, as aresult of which fewer than a majority of the directorsare Incumbent Directors. “Incumbent Directors” means directors who either (A) areDirectors as of the effective date of the Plan, or (B) are elected, ornominated for election, to the Board with the affirmative votes of at least amajority of the Incumbent Directors at the time of such election or nomination(but will not include an individual whose election or nomination is inconnection with an actual or threatened proxy contest relating to the electionof directors to the Company); or

 

        (iv)  Theconsummation of a merger or consolidation of the Company with any othercorporation, other than a merger or consolidation which would result in thevoting securities of the Company outstanding immediately prior theretocontinuing to represent (either by remaining outstanding or by being convertedinto voting securities of the surviving entity or its parent) at least fiftypercent (50%) of the total voting power represented by the voting securities ofthe Company or such surviving entity or its parent outstanding immediatelyafter such merger or consolidation.

 

        (j)    “*Code*” means the Internal Revenue Code of1986, as amended. Any reference to a section of the Code herein will be areference to any successor or amended section of the Code.

 

        (k)   “*Committee*” means a committee of Directorsor of other individuals satisfying Applicable Laws appointed by the Board inaccordance with Section 4 hereof.

 

        (l)    “*Common Stock*” means the common stock ofthe Company.

 

        (m)  “*Company*” means UTStarcom, Inc., aDelaware corporation, or any successor thereto.

 

        (n)   “*Consultant*” means any person, including anadvisor, engaged by the Company or its Affiliates to render services to suchentity.

 

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        (o)   “*Customer Satisfaction MBOs*” means as toany Participant, the objective and measurable individual goals set by a “managementby objectives” process and approved by the Administrator, which goals relate tothe satisfaction of external or internal customer requirements.

 

        (p)   “*Determination Date*” means the latestpossible date that will not jeopardize the qualification of an Award grantedunder the Plan as “performance-based compensation” under Section 162(m) ofthe Code.

 

        (q)   “*Director*” means a member of the Board.

 

        (r)   “*Disability*” means total and permanentdisability as defined in Section 22(e)(3) ofthe Code, provided that in the case of Awards other than Incentive StockOptions, the Administrator in its discretion may determine whether a permanentand total disability exists in accordance with uniform and non-discriminatorystandards adopted by the Administrator from time to time.

 

        (s)   “*Earnings Per Share*”means as to any Performance Period, the Company’s Net Income or a business unit’sPro Forma Net Income, divided by a weighted average number of Sharesoutstanding and dilutive common equivalent Shares deemed outstanding.

 

        (t)    “*Employee*” means any person, includingOfficers and Directors, employed by the Company or its Affiliates. Neitherservice as a Director nor payment of a director’s fee by the Company will besufficient to constitute “employment” by the Company.

 

        (u)   “*Exchange Act*” means the SecuritiesExchange Act of 1934, as amended.

 

        (v)   “*Fair Market Value*” means, as of any date,the value of Common Stock as the Administrator may determine in good faith byreference to the price of such stock on any established stock exchange or anational market system on the day of determination if the Common Stock is solisted on any established stock exchange or a national market system. If theCommon Stock is not listed on any established stock exchange or a nationalmarket system, the value of the Common Stock will be determined by theAdministrator in good faith.

 

        (w)  “*Fiscal Year*” means the fiscal year of theCompany.

 

        (x)   “*Incentive Stock Option*” means an Optionthat by its terms qualifies and is otherwise intended to qualify as anincentive stock option within the meaning of Section 422 of the Code andthe regulations promulgated thereunder.

 

        (y)   “*Net Income*” means as to any PerformancePeriod, the income after taxes of the Company determined in accordance withgenerally accepted accounting principles, provided that prior to thePerformance Period, the Administrator shall determine whether any significantitem(s) shall be included or excluded from the calculation of Net Incomewith respect to one or more participants.

 

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        (z)   “*New Orders*” means as to any PerformancePeriod, the firm orders for a system, product, part, or service that are beingrecorded for the first time as defined in the Company’s order recognitionpolicy.

 

        (aa) “*NonstatutoryStock Option*” means an Option that by its terms does not qualify oris not intended to qualify as an Incentive Stock Option.

 

        (bb) “*Officer*”means a person who is an officer of the Company within the meaning of Section 16of the Exchange Act and the rules and regulations promulgated thereunder.

 

        (cc) “*Operating Profit*” means as to anyPerformance Period, the difference between revenue and related costs andexpenses, excluding income derived from sources other than regular activitiesand before income deductions.

 

        (dd) “*Option*”means a stock option granted pursuant to the Plan.

 

        (ee) “*Parent*”means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) ofthe Code.

 

        (ff)  “*Participant*”means the holder of an outstanding Award.

 

        (gg) “*PerformanceGoals*” will have the meaning set forth in Section 11 of thePlan.

 

        (hh) “*PerformancePeriod*” means any Fiscal Year of the Company or such other period asdetermined by the Administrator in its sole discretion.

 

        (ii)   “*Performance Share*” means an Awarddenominated in Shares which may be earned in whole or in part upon attainmentof Performance Goals or other vesting criteria as the Administrator maydetermine pursuant to Section 10.

 

        (jj)   “*PerformanceUnit*” means an Award which may be earned in whole or in part uponattainment of Performance Goals or other vesting criteria as the Administratormay determine and which may be settled for cash, Shares or other securities ora combination of the foregoing pursuant to Section 10.

 

        (kk) “*Period ofRestriction*” means the period during which the transfer of Shares ofRestricted Stock are subject to restrictions and therefore, the Shares aresubject to a substantial risk of forfeiture. Such restrictions may be based onthe passage of time, the achievement of target levels of performance, or theoccurrence of other events as determined by the Administrator.

 

        (ll)   “*Plan*”means this 2006 Equity Incentive Plan.

 

        (mm) “*Pro Forma NetIncome*” means as to any business unit for any Performance Period,the Net Income of such business unit, minus allocations of designated corporateexpenses.

 

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        (nn) “*ProductShipments*” means as to any Performance Period, the quantitative andmeasurable number of units of a particular product that shipped during suchPerformance Period.

 

        (oo) “*RestrictedStock*” means Shares issued pursuant to an Award of Restricted Stockunder Section 8 of the Plan, or issued pursuant to the early exercise ofan Option.

 

        (pp) “*Restricted Stock Unit*” means a bookkeepingentry representing an amount equal to the Fair Market Value of one Share,granted pursuant to Section 9. Each Restricted Stock Unit represents anunfunded and unsecured obligation of the Company.

 

        (qq) “*Return onDesignated Assets*” means as to any Performance Period, the Pro FormaNet Income of a business unit, divided by the average of beginning and endingbusiness unit designated assets, or Net Income of the Company, divided by theaverage of beginning and ending designated corporate assets.

 

        (rr)  “*Return onEquity*” means, as to any Performance Period, the percentage equal tothe value of the Company’s or any business unit’s common stock investments atthe end of such Performance Period, divided by the value of such common stockinvestments at the start of such Performance Period, excluding any common stockinvestments so designated by the Administrator.

 

        (ss)  “*Return on Sales*” means as to anyPerformance Period, the percentage equal to the Company’s Net Income or thebusiness unit’s Pro Forma Net Income, divided by the Company’s or the businessunit’s Annual Revenue.

 

        (tt)  “*Rule 16b-3*”means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3,as in effect when discretion is being exercised with respect to the Plan.

 

        (uu) “*Section 16(b)*”means Section 16(b) of the Exchange Act.

 

        (vv) “*ServiceProvider*” means an Employee, Director or Consultant.

 

        (ww) “*Share*”means a share of the Common Stock, as adjusted in accordance with Section 14of the Plan.

 

        (xx) “*Stock Appreciation Right*” means an Award,granted alone or in connection with an Option, that pursuant to Section 7is designated as a Stock Appreciation Right.

 

        (yy) “*Subsidiary*”means a “subsidiary corporation,” whether now or hereafter existing, as definedin Section 424(f) of the Code.

 

        (zz) “*SuccessorCorporation*” has the meaning given to such term in Section 14(c) ofthe Plan.

 

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        3.*    Stock Subject to the Plan*.

 

        (a) *   Stock Subject to the Plan*.    Subjectto the provisions of Section 14 of the Plan, the maximum aggregate numberof Shares that may be awarded and sold under the Plan is 4,500,000 Shares plus (i) anyShares that, as of the date of stockholder approval of this Plan, have beenreserved but not issued pursuant to any awards granted under the Company’s 1997Stock Plan (the “*1997 Plan*”), theCompany’s Amended 2001 Director Option Plan (the “*2001 Plan*”), and the Company’s 2003 Non-Statutory StockOption Plan (the “*2003 Plan*”) andare not subject to any awards granted thereunder, and (ii) any Sharessubject to stock options or similar awards granted under the 1997 Plan, the2001 Plan, and the 2003 Plan that expire or otherwise terminate without havingbeen exercised in full and Shares issued pursuant to awards granted under the1997 Plan, the 2001 Plan, and the 2003 Plan that are forfeited to orrepurchased by the Company. The Shares may be authorized, but unissued, or reacquired Common Stock.

 

        (b) *   Lapsed Awards*.    Ifan Award expires or becomes unexercisable without having been exercised infull, or, with respect to Restricted Stock, Restricted Stock Units, PerformanceShares or Performance Units, is forfeited to or repurchased by the Company, theunpurchased Shares (or for Awards other than Options and Stock AppreciationRights, the forfeited or repurchased Shares) which were subject thereto willbecome available for future grant or sale under the Plan (unless the Plan hasterminated). With respect to Stock Appreciation Rights, all of the Sharescovered by the Award (that is, Shares actually issued pursuant to a StockAppreciation Right, as well as the Shares that represent payment of theexercise price) will cease to be available under the Plan. However, Shares thathave actually been issued under the Plan under any Award will not be returnedto the Plan and will not become available for future distribution under thePlan; provided, however, that if unvested Shares of Restricted Stock,Restricted Stock Units, Performance Shares or Performance Units are repurchasedby the Company or are forfeited to the Company, such Shares will becomeavailable for future grant under the Plan. Shares used to pay the tax andexercise price of an Award will not become available for future grant or saleunder the Plan. To the extent an Award under the Plan is paid out in cashrather than Shares, such cash payment will not result in reducing the number ofShares available for issuance under the Plan. Notwithstanding the foregoingand, subject to adjustment provided in Section 14, the maximum number ofShares that may be issued upon the exercise of Incentive Stock Options willequal the aggregate Share number stated in Section 3(a), plus, to theextent allowable under Section 422 of the Code, any Shares that becomeavailable for issuance under the Plan under this Section 3(b).

 

(c)  *Shares Subject to Options Surrendered in the2008 Option Exchange Program.* Notwithstanding anything to the contrary in Section 3(a), no morethan 3.2 million shares covered by stock options granted under the 1997 Planthat are tendered to the Company pursuant to the stock option exchange programapproved by the Company’s stockholders on June 27, 2008 will becomeavailable for future grant or sale under the Plan.  Shares covered by stock options granted underthe 1997 Plan that are not tendered in the stock option exchange program maybecome available for future grant or sale under the Plan as provided in Section 3(b) withoutregard to the foregoing limitation.

 

(d) *Determining Number of Shares Awarded andAvailable Under the Plan.* Forpurposes of determining the number of shares awarded and sold under the Plan aswell as the number of shares remaining available for future grant or sale awardunder the Plan, the Administrator will count shares as follows: (i) allawards granted prior to June 27, 2008 count as one share for every oneshare subject to such awards; (ii) all awards granted on or after June 27,2008 with an exercise price equal to or greater than the fair market value onthe date of grant (such as awards of stock options and stock appreciationrights) count as one share for every one share subject to such awards; and (iii) allawards 

 

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granted on or after June 27, 2008 with an exercise price less than thefair market value on the date of grant (such as awards of restricted stock andrestricted stock units) count as 1.33 shares for every one share subject tosuch awards.  To the extent that a sharethat was subject to an award that counted as 1.33 shares pursuant to thepreceding sentence is returned to the Plan as provided in Section 3(b),the Plan reserve will be credited with 1.33 shares that thereafter will beavailable for future grant or sale.

 

        4.*    Administration of the Plan*.

 

        (a) *   Procedure*.

 

        (i) *   Multiple Administrative Bodies*.    DifferentCommittees with respect to different groups of Service Providers may administerthe Plan.

 

        (ii) *   Section 162(m)*.    Tothe extent that the Administrator determines it to be desirable to qualifyAwards granted hereunder as “performance-based compensation” within the meaningof Section 162(m) of the Code, the Plan will be administered by aCommittee of two or more “outside directors” within the meaning of Section 162(m)of the Code.

 

        (iii) *   Rule 16b-3*.    Tothe extent desirable to qualify transactions hereunder as exempt under Rule 16b-3,the transactions contemplated hereunder will be structured to satisfy therequirements for exemption under Rule 16b-3.

 

        (iv) *   Other**Administration*.    Other than as provided above, the Plan will be administered by (A) theBoard or (B) a Committee, which committee will be constituted to satisfyApplicable Laws.

 

        (b) *   Powers of the Administrator*.    Subjectto the provisions of the Plan, and in the case of a Committee, subject to thespecific duties delegated by the Board to such Committee, the Administratorwill have the authority, in its discretion:

 

          (i)  to determine the Fair Market Value;

 

         (ii)  to select the Service Providers to whom Awards may begranted hereunder;

 

        (iii)  to determine the terms and conditions, not inconsistent withthe terms of the Plan, of any Award granted hereunder;

 

        (iv)  to construe and interpret the terms of the Plan and Awardsgranted pursuant to the Plan;

 

         (v)  toprescribe, amend and rescind rules and regulations relating to the Plan,including rules and regulations relating to sub-plans established for thepurpose of satisfying applicable foreign laws;

 

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        (vi)  to modify or amend each Award (subject to Section 19(c) ofthe Plan). Notwithstanding the previous sentence, the Administrator may notmodify or amend an Option or Stock Appreciation Right to reduce the exerciseprice of such Option or Stock Appreciation Right after it has been granted(except for adjustments made pursuant to Section 14), and neither may theAdministrator cancel any outstanding Option or Stock Appreciation Right andimmediately replace it with a new Option or Stock Appreciation Right with alower exercise price;

 

       (vii)  to authorize any person to execute on behalf of the Companyany instrument required to effect the grant of an Award previously granted bythe Administrator;

 

      (viii)  toallow a Participant to defer the receipt of the payment of cash or the deliveryof Shares that would otherwise be due to such Participant under an Award pursuantto such procedures as the Administrator may determine; and

 

        (ix)  to make all other determinations deemed necessary oradvisable for administering the Plan.

 

        (c) *   Effectof Administrator’s Decision*.    TheAdministrator’s decisions, determinations and interpretations will be final andbinding on all Participants and any other holders of Awards.

 

5.*    Eligibility*.    NonstatutoryStock Options, Restricted Stock, Restricted Stock Units, Stock AppreciationRights, Performance Units, Performance Shares and such other cash or stockawards as the Administrator determines may be granted to Service Providers.Incentive Stock Options may be granted only to employees of the Company or anyParent or Subsidiary of the Company.

 

        6.*    Stock Options*.

 

        (a) *   Limitations*.    EachOption will be designated in the Award Agreement as either an Incentive StockOption or a Nonstatutory Stock Option. However, notwithstanding suchdesignation, to the extent that the aggregate Fair Market Value of the Shareswith respect to which Incentive Stock Options are exercisable for the firsttime by the Participant during any calendar year (under all plans of theCompany and any Parent or Subsidiary) exceeds $100,000, such Options will betreated as Nonstatutory Stock Options. For purposes of this Section 6(a),Incentive Stock Options will be taken into account in the order in which theywere granted. The Fair Market Value of the Shares will be determined as of thetime the Option with respect to such Shares is granted.

 

        (b) *   Number of Shares*.    TheAdministrator will have complete discretion to determine the number of Optionsgranted to any Participant, provided that during any Fiscal Year, noParticipant will be granted Options covering more than 1,000,000 Shares.Notwithstanding the foregoing limitation, in connection with a Participant’sinitial service as an Employee, an Employee may be granted Options covering upto an additional 2,000,000 Shares.

 

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        (c) *   Term of Option*.    TheAdministrator will determine the term of each Option in its sole discretion.Any Option granted under the Plan will not be exercisable after the expirationof seven (7) years from the date of grant or such shorter term as may beprovided in the Award Agreement. Moreover, in the case of an Incentive StockOption granted to a Participant who, at the time the Incentive Stock Option isgranted, owns stock representing more than ten percent (10%) of the totalcombined voting power of all classes of stock of the Company or any Parent orSubsidiary, the term of the Incentive Stock Option will be five (5) yearsfrom the date of grant or such shorter term as may be provided in the AwardAgreement.

 

        (d) *   Option Exercise Price andConsideration*.

 

        (i) *   Exercise Price*.    Theper share exercise price for the Shares to be issued pursuant to exercise of anOption will be determined by the Administrator, but will be no less than 100%of the Fair Market Value per Share on the date of grant. In addition, in thecase of an Incentive Stock Option granted to an Employee who, at the time theIncentive Stock Option is granted, owns stock representing more than tenpercent (10%) of the voting power of all classes of stock of the Companyor any Parent or Subsidiary, the per Share exercise price will be no less than110% of the Fair Market Value per Share on the date of grant. Notwithstandingthe foregoing provisions of this Section 6(c), Options may be granted witha per Share exercise price of less than 100% of the Fair Market Value per Shareon the date of grant pursuant to a transaction described in, and in a mannerconsistent with, Section 424(a) of the Code. The Administrator maynot modify or amend an Option to reduce the exercise price of such Option afterit has been granted (except for adjustments made pursuant to Section 14 ofthe Plan) nor may the Administrator cancel any outstanding Option and replaceit with a new Option, Stock Appreciation Right, or other Award with a lowerexercise price, unless, in either case, such action is approved by the Company’sstockholders.

 

        (ii) *   Waiting Period and Exercise Dates*.    Atthe time an Option is granted, the Administrator will fix the period withinwhich the Option may be exercised and will determine any conditions that mustbe satisfied before the Option may be exercised.

 

        (iii) *   Form of Consideration*.    TheAdministrator will determine the acceptable form(s) of consideration forexercising an Option, including the method of payment, to the extent permittedby Applicable Laws.

 

        (e) *   Exercise of Option*.

 

        (i) *   Procedure for Exercise; Rights as aStockholder*.    Any Option granted hereunderwill be exercisable according to the terms of the Plan and at such times andunder such conditions as determined by the Administrator and set forth in theAward Agreement. An Option may not be exercised for a fraction of a Share.

 

        AnOption will be deemed exercised when the Company receives: (i) notice ofexercise (in such form as the Administrator specify from time to time) from theperson entitled to exercise the Option, and (ii) full payment for theShares with respect to which the Option is exercised (together with anapplicable withholding taxes). No adjustment will be made for a dividend orother right for which the record date is prior to the date the Shares areissued, except as provided in Section 14 of the Plan.

 

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        (ii) *   Termination of Relationship as aService Provider*.    If a Participant ceases tobe a Service Provider, other than upon the Participant’s termination as theresult of the Participant’s death or Disability, the Participant may exercisehis or her Option within such period of time as is specified in the Award Agreementto the extent that the Option is vested on the date of termination (but in noevent later than the expiration of the term of such Option as set forth in theAward Agreement). In the absence of a specified time in the Award Agreement,the Option will remain exercisable for three (3) months following theParticipant’s termination. Unless otherwise provided by the Administrator, ifon the date of termination the Participant is not vested as to his or herentire Option, the Shares covered by the unvested portion of the Option willrevert to the Plan. If after termination the Participant does not exercise hisor her Option within the time specified by the Administrator, the Option willterminate, and the Shares covered by such Option will revert to the Plan.

 

        (iii) *   Disability of Participant*.    Ifa Participant ceases to be a Service Provider as a result of the Participant’sDisability, the Participant may exercise his or her Option within such periodof time as is specified in the Award Agreement to the extent the Option isvested on the date of termination (but in no event later than the expiration ofthe term of such Option as set forth in the Award Agreement). In the absence ofa specified time in the Award Agreement, the Option will remain exercisable fortwelve (12) months following the Participant’s termination. Unlessotherwise provided by the Administrator, if on the date of termination theParticipant is not vested as to his or her entire Option, the Shares covered bythe unvested portion of the Option will revert to the Plan. If aftertermination the Participant does not exercise his or her Option within the timespecified herein, the Option will terminate, and the Shares covered by suchOption will revert to the Plan.

 

        (iv) *   Death**of Participant*.    Ifa Participant dies while a Service Provider, the Option may be exercisedfollowing the Participant’s death within such period of time as is specified inthe Award Agreement to the extent that the Option is vested on the date of death(but in no event may the option be exercised later than the expiration of theterm of such Option as set forth in the Award Agreement), by the Participant’sdesignated beneficiary, provided such beneficiary has been designated prior toParticipant’s death in a form acceptable to the Administrator. If no suchbeneficiary has been designated by the Participant, then such Option may beexercised by the personal representative of the Participant’s estate or by theperson(s) to whom the Option is transferred pursuant to the Participant’swill or in accordance with the laws of descent and distribution. In the absenceof a specified time in the Award Agreement, the Option will remain exercisablefor twelve (12) months following Participant’s death. Unless otherwiseprovided by the Administrator, if at the time of death Participant is notvested as to his or her entire Option, the Shares covered by the unvestedportion of the Option will immediately revert to thePlan. If the Option is not so exercised within the time specified herein, theOption will terminate, and the Shares covered by such Option will revert to thePlan.

 

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        (v) *   Other Termination*.    AParticipant’s Award Agreement may also provide that if the exercise of theOption following the termination of Participant’s status as a Service Provider(other than upon the Participant’s death or Disability) would result inliability under Section 16(b), then the Option will terminate on theearlier of (A) the expiration of the term of the Option set forth in theAward Agreement, or (B) the 10th day after the last date on which suchexercise would result in such liability under Section 16(b). Finally, aParticipant’s Award Agreement may also provide that if the exercise of theOption following the termination of the Participant’s status as a ServiceProvider (other than upon the Participant’s death or disability) would beprohibited at any time solely because the issuance of Shares would violate theregistration requirements under the Securities Act, then the Option willterminate on the earlier of (A) the expiration of the term of the Option,or (B) the expiration of a period of three (3) months after thetermination of the Participant’s status as a Service Provider during which theexercise of the Option would not be in violation of such registrationrequirements.

 

        7.*    Stock Appreciation Rights*.

 

        (a) *   Grant of Stock Appreciation Rights*.    Subjectto the terms and conditions of the Plan, a Stock Appreciation Right may begranted to Service Providers at any time and from time to time as will bedetermined by the Administrator, in its sole discretion.

 

        (b) *   Number of Shares*.    TheAdministrator will have complete discretion to determine the number of StockAppreciation Rights granted to any Participant, provided that during any FiscalYear, no Participant will be granted Stock Appreciation Rights covering morethan 1,000,000 Shares. Notwithstanding the foregoing limitation, in connectionwith a Participant’s initial service as an Employee, an Employee may be grantedStock Appreciation Rights covering up to an additional 2,000,000 Shares.

 

        (c) *   Exercise Price and Other Terms*.    TheAdministrator, subject to the provisions of the Plan, will have completediscretion to determine the terms and conditions of Stock Appreciation Rightsgranted under the Plan, provided, however, that the exercise price will be notless than 100% of the Fair Market Value of a Share on the date of grant. TheAdministrator may not modify or amend a Stock Appreciation Right to reduce theexercise price of such Stock Appreciation Right after it has been granted(except for adjustments made pursuant to Section 14 of the Plan) nor maythe Administrator cancel any outstanding Stock Appreciation Right and replaceit with a new Stock Appreciation Right, Option, or other Award with a lowerexercise price, unless, in either case, such action is approved by the Company’sstockholders.

 

        (d) *   Stock Appreciation Right Agreement*.    EachStock Appreciation Right grant will be evidenced by an Award Agreement thatwill specify the exercise price, the term of the Stock Appreciation Right, theconditions of exercise, and such other terms and conditions as theAdministrator, in its sole discretion, will determine.

 

        (e) *   Expiration of Stock AppreciationRights*.    A Stock Appreciation Right grantedunder the Plan will expire upon the date determined by the Administrator, inits sole discretion, and set forth in the Award Agreement. Notwithstanding theforegoing, the rules of Section 6(e) also will apply to StockAppreciation Rights.

 

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        (f) *   Payment of Stock Appreciation RightAmount*.    Upon exercise of a Stock AppreciationRight, a Participant will be entitled to receive payment from the Company in anamount determined by multiplying:

 

          (i)  Thedifference between the Fair Market Value of a Share on the date of exerciseover the exercise price; times

 

         (ii)  Thenumber of Shares with respect to which the Stock Appreciation Right isexercised.

 

        Atthe discretion of the Administrator, the payment upon Stock Appreciation Rightexercise may be in cash, in Shares of equivalent value, or in some combinationthereof

 

(g) *Term of Stock Appreciation Rights.* The Administrator will determine the term ofeach Stock Appreciation Right in its sole discretion.  Any Stock Appreciation Right granted underthe Plan will not be exercisable after the expiration of seven (7) yearsfrom the date of grant or such shorter term as may be provided in the AwardAgreement.

 

        8.*    Restricted Stock*.

 

        (a) *   Grant of Restricted Stock*.    Subjectto the terms and provisions of the Plan, the Administrator, at any time andfrom time to time, may grant Shares of Restricted Stock to Service Providers insuch amounts as the Administrator, in its sole discretion, will determine.

 

        (b) *   RestrictedStock Agreement*.    Each Award of RestrictedStock will be evidenced by an Award Agreement that will specify the Period ofRestriction, the number of Shares granted, and such other terms and conditionsas the Administrator, in its sole discretion, will determine. Notwithstandingthe foregoing sentence, during any Fiscal Year no Participant will receive morethan an aggregate of 300,000 Shares of Restricted Stock; provided, however,that in connection with a Participant’s initial service as an Employee, anEmployee may be granted an aggregate of up to an additional 600,000 Shares ofRestricted Stock. Unless the Administrator determines otherwise, Shares ofRestricted Stock will be held by the Company as escrow agent until therestrictions on such Shares have lapsed.

 

        (c) *   Transferability*.    Exceptas provided in this Section 8, Shares of Restricted Stock may not be sold,transferred, pledged, assigned, or otherwise alienated or hypothecated untilthe end of the applicable Period of Restriction.

 

        (d) *   Other Restrictions*.    TheAdministrator, in its sole discretion, may impose such other restrictions onShares of Restricted Stock as it may deem advisable or appropriate.

 

        (e) *   Removal of Restrictions*.    Exceptas otherwise provided in this Section 8, Shares of Restricted Stockcovered by each Restricted Stock grant made under the Plan will be releasedfrom escrow as soon as practicable after the last day of the Period ofRestriction. The Administrator, in its discretion, may accelerate the time atwhich any restrictions will lapse or be removed.

 

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        (f) *   Voting Rights*.    Duringthe Period of Restriction, Service Providers holding Shares of Restricted Stockgranted hereunder may exercise full voting rights with respect to those Shares,unless the Administrator determines otherwise.

 

        (g) *   Dividends and Other Distributions*.    Duringthe Period of Restriction, Service Providers holding Shares of Restricted Stockwill be entitled to receive all dividends and other distributions paid withrespect to such Shares unless otherwise provided in the Award Agreement. If anysuch dividends or distributions are paid in Shares, the Shares will be subjectto the same restrictions on transferability and forfeitability as the Shares ofRestricted Stock with respect to which they were paid.

 

        (h) *   Return of Restricted Stock toCompany*.    On the date set forth in the AwardAgreement, the Restricted Stock for which restrictions have not lapsed willrevert to the Company and again will become available for grant under the Plan.

 

        9.*    Restricted Stock Units*.

 

        (a) *   Grant*.    RestrictedStock Units may be granted at any time and from time to time as determined bythe Administrator. Each Restricted Stock Unit grant will be evidenced by anAward Agreement that will specify such other terms and conditions as theAdministrator, in its sole discretion, will determine, including all terms,conditions, and restrictions related to the grant, the number of RestrictedStock Units and the form of payout, which, subject to Section 9(d), may beleft to the discretion of the Administrator. Notwithstanding the anything tothe contrary in this subsection (a), during any Fiscal Year of the Company, noParticipant will receive more than an aggregate of 300,000 Restricted StockUnits; provided, however, that in connection with a Participant’s initialservice as an Employee, an Employee may be granted an aggregate of up to anadditional 600,000 Restricted Stock Units.

 

        (b) *   Vesting Criteria and Other Terms*.    TheAdministrator will set vesting criteria in its discretion, which, depending onthe extent to which the criteria are met, will determine the number ofRestricted Stock Units that will be paid out to the Participant. After the grant of Restricted Stock Units, the Administrator, inits sole discretion, may reduce or waive any restrictions for such RestrictedStock Units. Each Award of Restricted Stock Units will be evidenced byan Award Agreement that will specify the vesting criteria, and such other termsand conditions as the Administrator, in its sole discretion, will determine.

 

        (c) *   Earning Restricted Stock Units*.    Uponmeeting the applicable vesting criteria, the Participant will be entitled toreceive a payout as specified in the Award Agreement. Notwithstanding theforegoing, at any time after the grant of Restricted Stock Units, the Administrator,in its sole discretion, may reduce or waive any vesting criteria that must bemet to receive a payout.

 

        (d) *   Form and Timing of Payment*.    Paymentof earned Restricted Stock Units will be made as soon as practicable after thedate(s) set forth in the Award Agreement. The Administrator, in its solediscretion, may pay earned Restricted Stock Units in cash, Shares, or acombination thereof. Shares represented by Restricted Stock Units that arefully paid in cash again will be available for grant under the Plan.

 

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        (e) *   Cancellation*.    Onthe date set forth in the Award Agreement, all unearned Restricted Stock Unitswill be forfeited to the Company.

 

        10.*    Performance Units andPerformance Shares*.

 

        (a) *   Grant of Performance Units/Shares*.    PerformanceUnits and Performance Shares may be granted to Service Providers at any timeand from time to time, as will be determined by the Administrator, in its solediscretion. The Administrator will have complete discretion in determining thenumber of Performance Units/Shares granted to each Participant provided thatduring any Fiscal Year, (a) no Participant will receive Performance Unitshaving an initial value greater than $2,000,000, and (b) no Participantwill receive more than 300,000 Performance Shares. Notwithstanding theforegoing limitation, in connection with a Participant’s initial service as anEmployee, an Employee may be granted up to an additional 600,000 PerformanceShares and additional Performance Units having an initial value up to$2,000,000.

 

        (b) *   Value of Performance Units/Shares*.    EachPerformance Unit will have an initial value that is established by theAdministrator on or before the date of grant. Each Performance Share will havean initial value equal to the Fair Market Value of a Share on the date ofgrant.

 

        (c) *   Performance Objectives and OtherTerms*.    The Administrator will set performanceobjectives or other vesting provisions (including, without limitation, continuedstatus as a Service Provider) in its discretion which, depending on the extentto which they are met, will determine the number or value of PerformanceUnits/Shares that will be paid out to the Participant. The Administrator mayset performance objectives based upon the achievement of Company-wide,divisional, or individual goals, or any other basis determined by theAdministrator in its discretion. Each Award of Performance Units/Shares will beevidenced by an Award Agreement that will specify the Performance Period, andsuch other terms and conditions as the Administrator, in its sole discretion,will determine.

 

        (d) *   Earning of Performance Units/Shares*.    Afterthe applicable Performance Period has ended, the holder of PerformanceUnits/Shares will be entitled to receive a payout of the number of PerformanceUnits/Shares earned by the Participant over the Performance Period, to bedetermined as a function of the extent to which the corresponding performanceobjectives or other vesting provisions have been achieved. After the grant of aPerformance Unit/Share, the Administrator, in its sole discretion, may reduceor waive any performance objectives or other vesting provisions for suchPerformance Unit/Share.

 

        (e) *   Form and Timing of Payment ofPerformance Units/Shares*.    Payment of earnedPerformance Units/Shares will be made as soon as practicable after theexpiration of the applicable Performance Period. The Administrator, in its solediscretion, may pay earned Performance Units/Shares in the form of cash, inShares (which have an aggregate Fair Market Value equal to the value of theearned Performance Units/Shares at the close of the applicable PerformancePeriod) or in a combination thereof.

 

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        (f) *   Cancellation of PerformanceUnits/Shares*.    On the date set forth in theAward Agreement, all unearned or unvested Performance Units/Shares will beforfeited to the Company, and again will be available for grant under the Plan.

 

        11.*    Performance Goals*.    Thegranting and/or vesting of Awards of Restricted Stock, Restricted Stock Units,Performance Shares and Performance Units and other incentives under the Planmay be made subject to the attainment of performance goals relating to one ormore business criteria within the meaning of Section 162(m) of theCode and may provide for a targeted level or levels of achievement (“PerformanceGoals”) including one or more of the following measures: (a) AnnualRevenue, (b) Cash Collections, (c) Customer Satisfaction MBOs, (d) EarningsPer Share, (e) Net Income, (f) New Orders, (g) Operating Profit,(h) Pro Forma Net Income, (i) Return on Designated Assets, (j) Returnon Equity, (k) Return on Sales, and (l) Product Shipments. AnyPerformance Goals may be used to measure the performance of the Company as awhole or a business unit of the Company and may be measured relative to a peergroup or index. The Performance Goals may differ from Participant toParticipant and from Award to Award. Any criteria used may be (i) measuredin absolute terms, (ii) compared to another company or companies, (iii) measuredagainst the performance of the Company as a whole or a segment of the Companyand/or (iv) measured on a pre-tax or post-tax basis (if applicable). Priorto the Determination Date, the Administrator will determine whether anysignificant element(s) will be included in or excluded from thecalculation of any Performance Goal with respect to any Participant.

 

        12.*    Leaves of Absence/TransferBetween Locations*.    Unless the Administratorprovides otherwise, vesting of Awards granted hereunder will be suspendedduring any unpaid leave of absence. A Service Provider will not cease to be anEmployee in the case of (i) any leave of absence approved by the Companyor (ii) transfers between locations of the Company or between the Companyand its Affiliates. For purposes of Incentive Stock Options, no such leave mayexceed ninety (90) days, unless reemployment upon expiration of such leaveis guaranteed by statute or contract. If reemployment upon expiration of aleave of absence approved by the Company is not so guaranteed, then three (3) monthsfollowing the ninety-first (91st) day of such leave any IncentiveStock Option held by the Participant will cease to be treated as an IncentiveStock Option and will be treated for tax purposes as a Nonstatutory StockOption.

 

        13.*    Transferability of Awards*.    Unlessdetermined otherwise by the Administrator, an Award may not be sold, pledged,assigned, hypothecated, transferred, or disposed of in any manner other than bywill or by the laws of descent or distribution and may be exercised, during thelifetime of the Participant, only by the Participant. With the approval of theAdministrator, a Participant may, in a manner specified by the Administrator, (a) transferan Award to a Participant’s spouse or former spouse pursuant to acourt-approved domestic relations order which relates to the provision of childsupport, alimony payments or marital property rights, and (b) transfer anOption by bona fide gift and not for any consideration, to (i) a member ormembers of the Participant’s immediate family, (ii) a trust establishedfor the exclusive benefit of the Participant and/or member(s) of theParticipant’s immediate family, (iii) a partnership, limited liabilitycompany of other entity whose only partners or members are the Participantand/or member(s) of the Participant’s immediate family, or (iv) afoundation in which the Participant and/or member(s) of the Participant’simmediate family control the management of the foundation’s assets. Forpurposes of this Section 13, “immediate family” shall mean the Participant’sspouse, former spouse, children, grandchildren, parents, grandparents,siblings, nieces, nephews, parents-in-law, sons-in-law, daughters-in-law,brothers-in-law, sisters-in-law, including adoptive or step relationships andany person sharing the Participant’s household (other than as a tenant oremployee).

 

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        14.*    Adjustments; Dissolution orLiquidation; Merger or Change in Control*.

 

        (a) *   Adjustments*.    Inthe event that any dividend or other distribution (whether in the form of cash,Shares, other securities, or other property), recapitalization, stock split,reverse stock split, reorganization, merger, consolidation, split-up, spin-off,combination, repurchase, or exchange of Shares or other securities of theCompany, or other change in the corporate structure of the Company affectingthe Shares occurs, the Administrator, in order to prevent diminution orenlargement of the benefits or potential benefits intended to be made availableunder the Plan, may (in its sole discretion) adjust the number and class ofShares that may be delivered under the Plan and/or the number, class, and priceof Shares covered by each outstanding Award, and the numerical Share limits setforth in Sections 3, 6, 7, 8, 9 and 10.

 

        (b) *   Dissolution or Liquidation*.    Inthe event of the proposed dissolution or liquidation of the Company, theAdministrator will notify each Participant as soon as practicable prior to theeffective date of such proposed transaction. To the extent it has not beenpreviously exercised, an Award will terminate immediately prior to theconsummation of such proposed action.

 

        (c) *   Changein Control*.    In the event of a Change inControl, each outstanding Award will be assumed or an equivalent option orright substituted by the successor corporation or a Parent or Subsidiary of thesuccessor corporation (the “*SuccessorCorporation*”). In the event that the Successor Corporation refusesto assume or substitute for the Award, the Participant will fully vest in andhave the right to exercise all of his or her outstanding Options and StockAppreciation Rights, including Shares as to which such Awards would nototherwise be vested or exercisable, all restrictions on Restricted Stock willlapse, and, with respect to Restricted Stock Units, Performance Shares andPerformance Units, all Performance Goals or other vesting criteria will bedeemed achieved at target levels and all other terms and conditions met. Inaddition, if the Successor Corporation refuses to assume or substitute anOption or Stock Appreciation Right in the event of a Change in Control, theAdministrator will notify the Participant in writing or electronically that theOption or Stock Appreciation Right will be fully vested and exercisable for aperiod of time determined by the Administrator in its sole discretion, and theOption or Stock Appreciation Right will terminate upon the expiration of suchperiod.

 

        Forthe purposes of this subsection (c), an Award will be considered assumed if,following the Change in Control, the Award confers the right to purchase orreceive, for each Share subject to the Award immediately prior to the Change inControl, the consideration (whether stock, cash, or other securities orproperty) or, in the case of a Stock Appreciation Right upon the exercise ofwhich the Administrator determines to pay cash or a Performance Share orPerformance Unit which the Administrator can determine to pay in cash, the fairmarket value of the consideration received in the merger or Change in Controlby holders of Common Stock for each Share held on the effective date of thetransaction (and if holders were offered a choice of consideration, the type ofconsideration chosen by the holders of a majority of the outstanding Shares);provided, however, that if such consideration received in the Change in Controlis not solely 

 

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common stock of theSuccessor Corporation, the Administrator may, with the consent of the SuccessorCorporation, provide for the consideration to be received upon the exercise ofan Option or Stock Appreciation Right or upon the payout of a Restricted StockUnit, Performance Share or Performance Unit, for each Share subject to suchAward (or in the case of an Award settled in cash, the number of implied sharesdetermined by dividing the value of the Award by the per share considerationreceived by holders of Common Stock in the Change in Control), to be solelycommon stock of the Successor Corporation equal in fair market value to the pershare consideration received by holders of Common Stock in the Change inControl.

 

        Notwithstandinganything in this Section 14(c) to the contrary, an Award that vests,is earned or paid-out upon the satisfaction of one or more Performance Goalswill not be considered assumed if the Company or its successor modifies any ofsuch Performance Goals without the Participant’s consent; provided, however, amodification to such Performance Goals only to reflect the SuccessorCorporation’s post-Change in Control corporate structure will not be deemed toinvalidate an otherwise valid Award assumption.

 

        15.*    Tax Withholding*

 

        (a) *   Withholding Requirements*.    Priorto the delivery of any Shares or cash pursuant to an Award (or exercisethereof), the Company will have the power and the right to deduct or withhold,or require a Participant to remit to the Company, an amount sufficient tosatisfy federal, state, local, foreign or other taxes required to be withheldwith respect to such Award (or exercise thereof).

 

        (b) *   Withholding Arrangements*.    TheAdministrator, in its sole discretion and pursuant to such procedures as it mayspecify from time to time, may permit a Participant to satisfy such taxwithholding obligation, in whole or in part by (without limitation) (a) payingcash, (b) electing to have the Company withhold otherwise deliverable cashor Shares having a Fair Market Value equal to the amount required to bewithheld, (c) delivering to the Company already-owned Shares having a FairMarket Value equal to the amount required to be withheld, or (d) selling asufficient number of Shares otherwise deliverable to the Participant through suchmeans as the Administrator may determine in its sole discretion (whetherthrough a broker or otherwise) equal to the amount required to be withheld. Theamount of the withholding requirement will be deemed to include any amountwhich the Administrator agrees may be withheld at the time the election ismade, not to exceed the amount determined by using the maximum federal, stateor local marginal income tax rates applicable to the Participant with respectto the Award on the date that the amount of tax to be withheld is to bedetermined. The Fair Market Value of the Shares to be withheld or deliveredwill be determined as of the date that the taxes are required to be withheld.

 

        16.*    No Effect on Employment orService*.    Neither the Plan nor any Award willconfer upon a Participant any right with respect to continuing the Participant’srelationship as a Service Provider with the Company, nor will they interfere inany way with the Participant’s right or the Company’s right to terminate suchrelationship at any time, with or without cause, to the extent permitted byApplicable Laws.

 

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        17.*    Date of Grant*.    Thedate of grant of an Award will be, for all purposes, the date on which theAdministrator makes the determination granting such Award, or such other laterdate as is determined by the Administrator. Notice of the determination will beprovided to each Participant within a reasonable time after the date of suchgrant.

 

        18.*    Term of Plan*.    Subjectto Section 22 of the Plan, the Plan will become effective upon itsadoption by the Board. It will continue in effect for a term of ten (10) yearsunless terminated earlier under Section 19 of the Plan.

 

        19.*    Amendment and Termination ofthe Plan*.

 

        (a) *   Amendment and Termination*.    TheAdministrator may at any time amend, alter, suspend or terminate the Plan.

 

        (b) *   Stockholder Approval*.    TheCompany will obtain stockholder approval of any Plan amendment to the extentnecessary and desirable to comply with Applicable Laws.

 

        (c) *   Effect of Amendment or Termination*.    Noamendment, alteration, suspension or termination of the Plan will impair therights of any Participant, unless mutually agreed otherwise between theParticipant and the Administrator, which agreement must be in writing andsigned by the Participant and the Company. Termination of the Plan will notaffect the Administrator’s ability to exercise the powers granted to ithereunder with respect to Awards granted under the Plan prior to the date ofsuch termination.

 

        20.*    Conditions UponIssuance of Shares*.

 

        (a) *   Legal Compliance*.    Shareswill not be issued pursuant to the exercise of an Award unless the exercise ofsuch Award and the issuance and delivery of such Shares will comply withApplicable Laws and will be further subject to the approval of counsel for theCompany with respect to such compliance.

 

        (b) *   Investment Representations*.    Asa condition to the exercise of an Award, the Company may require the personexercising such Award to represent and warrant at the time of any such exercisethat the Shares are being purchased only for investment and without any presentintention to sell or distribute such Shares if, in the opinion of counsel forthe Company, such a representation is required.

 

        21.*    Inability to Obtain Authority*.    Theinability of the Company to obtain authority from any regulatory body havingjurisdiction, which authority is deemed by the Company’s counsel to be necessaryto the lawful issuance and sale of any Shares hereunder, will relieve theCompany of any liability in respect of the failure to issue or sell such Sharesas to which such requisite authority will not have been obtained.

 

        22.*    Stockholder Approval*.    ThePlan will be subject to approval by the stockholders of the Company withintwelve (12) months after the date the Plan is adopted. Such stockholderapproval will be obtained in the manner and to the degree required underApplicable Laws.

 

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