**EXHIBIT 10.14**

 

**Egami Media, Inc.**

**2005 Incentive Compensation Plan**

 

1.*             Purpose*.  The purpose of this 2005 IncentiveCompensation Plan (the “Plan”) is to assist Egami Media, Inc., a Delawarecorporation (the “Company”) and its Related Entities in attracting, motivating,retaining and rewarding high-quality executives and other Employees, officers,Directors and Consultants by enabling such persons to acquire or increase aproprietary interest in the Company in order to strengthen the mutuality ofinterests between such persons and the Company’s shareholders, and providingsuch persons with annual and long term performance incentives to expend theirmaximum efforts in the creation of shareholder value.  The Plan is intended to qualify certaincompensation awarded under the Plan for tax deductibility under Section 162(m)of the Code (as hereafter defined) to the extent deemed appropriate by theCommittee (or any successor committee) of the Board.

 

2.*             Definitions*.  For purposes of the Plan, the following termsshall be defined as set forth below, in addition to such terms defined in Section 1hereof.

 

(a)           “AnnualIncentive Award” means a conditional right granted to a Participant under Section 8(c) hereofto receive a cash payment, Stock or other Award, as determined by theCommittee, after the end of a specified fiscal year.

 

(b)           “Award”means any Option, Stock Appreciation Right (including Limited StockAppreciation Right), Restricted Stock, Stock Units, Stock granted as a bonus orin lieu of another award, Dividend Equivalent, Other Stock-Based Award,Performance Award or Annual Incentive Award, together with any other right orinterest, granted to a Participant under the Plan.

 

(c)           “Beneficiary”means the person, persons, trust or trusts which have been designated by aParticipant in his or her most recent written beneficiary designation filedwith the Committee to receive the benefits specified under the Plan upon suchParticipant’s death or to which Awards or other rights are transferred if andto the extent permitted under Section 10(b) hereof.  If, upon a Participant’s death, there is nodesignated Beneficiary or surviving designated Beneficiary, then the termBeneficiary means the person, persons, trust or trusts entitled by will or thelaws of descent and distribution to receive such benefits.

 

(d)           “BeneficialOwner”, “Beneficially Owning” and “Beneficial Ownership” shall have themeanings ascribed to such terms in Rule 13d3 under the Exchange Act andany successor to such Rule.

 

(e)           “Board”means the Company’s Board of Directors.

 

(f)            “Cause”shall, with respect to any Participant, have the equivalent meaning (or thesame meaning as “cause” or “for cause”) set forth in any employment agreementbetween the Participant and the Company or a Related Entity or, in the absenceof any such agreement, such term shall mean (i) the failure by theParticipant to perform his or her duties as assigned by the Company (or aRelated Entity) in a 

 

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reasonable manner, (ii) any violation orbreach by the Participant of his or her employment agreement with the Company(or a Related Entity), if any, (iii) any violation or breach by theParticipant of his or her confidential information and invention assignmentagreement with the Company (or a Related Entity), if any, (iv) any act bythe Participant of dishonesty or bad faith with respect to the Company (or aRelated Entity), (v) chronic addiction to alcohol, drugs or other similarsubstances affecting the Participant’s work performance, or (vi) thecommission by the Participant of any act, misdemeanor, or crime reflectingunfavorably upon the Participant or the Company.  The good faith determination by the Committeeof whether the Participant’s Continuous Service was terminated by the Companyfor “Cause” shall be final and binding for all purposes hereunder.

 

(g)           “Changein Control” means a Change in Control as defined with related terms in Section 9of the Plan.

 

(h)           “Changein Control Price” shall be defined as it is defined, if at all, (1) in anemployment, compensation, or severance agreement, if any, between the Companyor any Related Entity and the Participant, relating to the Participant’semployment, compensation, or severance with or from the Company or such RelatedEntity, or (2) in the agreement evidencing the Award to such Participant.

 

(i)            “Code”means the Internal Revenue Code of 1986, as amended from time to time,including regulations thereunder and successor provisions and regulationsthereto.

 

(j)            “Committee”means a committee designated by the Board to administer the Plan with respectto at least a group of Employees, Directors or Consultants.

 

(k)           “Consultant”means any person (other than an Employee or a Director, solely with respect torendering services in such person’s capacity as a director) who is engaged by theCompany or any Related Entity to render consulting or advisory services to theCompany or such Related Entity.

 

(l)            “ContinuousService” means uninterrupted provision of services to the Company as anEmployee, a Director, or a Consultant. Continuous Service shall not be considered to be interrupted in the caseof (i) any approved leave of absence, (ii) transfers among theCompany, any Related Entities, or any successor entities, as either anEmployee, a Director, or a Consultant, or (iii) any change in status aslong as the individual remains in the service of the Company or a RelatedEntity as either an Employee, a Director, or a Consultant (except as otherwiseprovided in the Option Agreement).  Anapproved leave of absence shall include sick leave, military leave, or anyother authorized personal leave.

 

(m)          “CorporateTransaction” means the occurrence, in a single transaction or in a series ofrelated transactions, of any one or more of the following events:

 

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(i)            a sale or other disposition of all or substantially all, asdetermined by the Board in its discretion, of the consolidated assets of theCompany and its Subsidiaries;

 

(ii)           a sale or other disposition of more than fifty percent (50%)of the outstanding securities of the Company;

 

(iii)          a merger, consolidation or similar transaction followingwhich the Company is not the surviving corporation; or

 

(iv)          a merger, consolidation or similar transaction followingwhich the Company is the surviving corporation.

 

(n)           “CoveredEmployee” means an Eligible Person who is a Covered Employee as specified in Section 7(e) ofthe Plan.

 

(o)           “Director”means a member of the Board or the board of directors of any Related Entity.

 

(p)           “Disability”means a permanent and total disability (within the meaning of Section 22(e) ofthe Code), as determined by a medical doctor satisfactory to the Committee.

 

(q)           “DividendEquivalent” means a right, granted to a Participant under Section 6(g) hereof,to receive cash, Stock, other Awards or other property equal in value todividends paid with respect to a specified number of shares of Stock, or otherperiodic payments.

 

(r)            “EffectiveDate” means the effective date of the Plan, which shall be January 1, 2005.

 

(s)           “EligiblePerson” means all Employees (including officers), Directors and Consultants ofthe Company or of any Related Entity. The foregoing notwithstanding, only employees of the Company, theParent, or any Subsidiary shall be Eligible Persons for purposes of receivingany Incentive Stock Options.  An Employeeon leave of absence may be considered as still in the employ of the Company ora Related Entity for purposes of eligibility for participation in the Plan.

 

(t)            “Employee”means any person, including an officer or Director, who is an employee of theCompany or any Related Entity.  ThePayment of a director’s fee by the Company or a Related Entity shall not besufficient to constitute “employment” by the Company.

 

(u)           “ExchangeAct” means the Securities Exchange Act of 1934, as amended from time to time,including rules thereunder and successor provisions and rules thereto.

 

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(v)           “ExecutiveOfficer” means an executive officer of the Company as defined under the ExchangeAct.

 

(w)          “FairMarket Value” means the fair market value of Stock, Awards or other property asdetermined by the Plan Administrator, or under procedures established by thePlan Administrator.  Unless otherwisedetermined by the Plan Administrator, the Fair Market Value of Stock as of anygiven date, after which the Stock is publicly traded on a stock exchange ormarket, shall be the closing sale price per share reported on a consolidatedbasis for stock listed on the principal stock exchange or market on which Stockis traded on the date as of which such value is being determined or, if thereis no sale on that date, then on the last previous day on which a sale wasreported.

 

(x)            “GoodReason” shall, with respect to any Participant, have the equivalent meaning (orthe same meaning as “good reason” or “for good reason”) set forth in anyemployment agreement between the Participant and the Company or a RelatedEntity or, in the absence of any such agreement, such term shall mean (i) theassignment to the Participant of any duties inconsistent in any respect withthe Participant’s position (including status, offices, titles and reportingrequirements), authority, duties or responsibilities as assigned by the Company(or a Related Entity), or any other action by the Company (or a Related Entity)which results in a diminution in such position, authority, duties orresponsibilities, excluding for this purpose an isolated, insubstantial andinadvertent action not taken in bad faith and which is remedied by the Company(or a Related Entity) promptly after receipt of notice thereof given by theParticipant; (ii) any failure by the Company (or a Related Entity) tocomply with its obligations to the Participant as agreed upon, other than anisolated, insubstantial and inadvertent failure not occurring in bad faith andwhich is remedied by the Company (or a Related Entity) promptly after receiptof notice thereof given by the Participant; (iii) the Company’s (or Related Entity’s) requiring the Participantto be based at any office or location outside of fifty miles from the locationof employment as of the date of Award, except for travel reasonably required inthe performance of the Participant’s responsibilities; (iv) any purportedtermination by the Company (or a Related Entity) of the Participant’sContinuous Service otherwise than for Cause as defined in Section 2(f), orby reason of the Participant’s Disability as defined in Section 2(o),prior to the Expiration Date.  Forpurposes of this Section 2(v), any good faith determination of “GoodReason” made by the Company shall be conclusive.

 

(y)           “IncentiveStock Option” means any Option intended to be designated as an incentive stockoption within the meaning of Section 422 of the Code or any successorprovision thereto.

 

(z)            “LimitedStock Appreciation Right” means a right granted to a Participant under Section 6(c) hereof.

 

(aa)         “Option”means a right granted to a Participant under Section 6(b) hereof, topurchase Stock or other Awards at a specified price during specified timeperiods.

 

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(bb)         “Optionee”means a person to whom an Option or Incentive Stock Option is granted underthis Plan or any person who succeeds to the rights of such person under thisPlan.

 

(cc)         “Other Stock-Based Awards”means Awards granted to a Participant under Section 6(h) hereof.

 

(dd)         “Parent”means any corporation (other than the Company), whether now or hereafterexisting, in an unbroken chain of corporations ending with the Company, if eachof the corporations in the chain (other than the Company) owns stock possessing50 percent or more of the combined voting power of all classes of stock in oneof the other corporations in the chain.

 

(ee)         “Participant”means a person who has been granted an Award under the Plan which remainsoutstanding, including a person who is no longer an Eligible Person.

 

(ff)           “PerformanceAward” means a right, granted to an Eligible Person under Section 8hereof, to receive Awards based upon performance criteria specified by the PlanAdministrator.

 

(gg)         “Person” hasthe meaning ascribed to such term in Section 3(a)(9) of the ExchangeAct and used in Sections 13(d) and 14(d) thereof, and shall include a“group” as defined in Section 13(d) thereof.

 

(hh)         “Plan Administrator”means the Board or any Committee delegated by the Board to administer the Plan.

 

(ii)           “RelatedEntity” means any Parent, Subsidiary and any business, corporation,partnership, limited liability company or other entityin which the Company, a Parent or a Subsidiary, directly or indirectly, holds asubstantial ownership interest.

 

(jj)           “RestrictedStock” means Stock granted to a Participant under Section 6(d) hereof,that is subject to certain restrictions and to a risk of forfeiture.

 

(kk)         “Rule 16b-3”and “Rule 16a-1(c)(3)” means Rule 16b-3 and Rule 16a-1(c)(3), asfrom time to time in effect and applicable to the Plan and Participants,promulgated by the Securities and Exchange Commission under Section 16 ofthe Exchange Act.

 

(ll)           “Stock”means the Company’s Common Stock, and such other securities as may besubstituted (or resubstituted) for Stock pursuant to Section 10(c) hereof.

 

(mm)       “StockAppreciation Right” means a right granted to a Participant under Section 6(c) hereof.

 

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(nn)         “Stock Unit”means a right, granted to a Participant under Section 6(e) hereof, toreceive Stock, cash or a combination thereof at the end of a specified periodof time.

 

(oo)         “Subsidiary”means any corporation (other than the Company), whether now or hereafterexisting, in an unbroken chain of corporations beginning with the Company, ifeach of the corporations other than the last corporation in the unbroken chainowns stock possessing 50 percent or more of the total combined voting power ofall classes of stock in one of the other corporations in such chain.

 

3.*             Administration.*

 

(a)           *Administration by Board.*  The Board shall administer the Plan unlessand until the Board delegates administration to a Committee, as provided in Section 3(c).

 

(b)           *Powers of Board.*  The Board shall have the power, subject to,and within the limitations of, the express provisions of the Plan:

 

(i)            Todetermine from time to time which of the persons eligible under the Plan shallbe granted Awards; when and how each Award shall be granted; what type orcombination of types of Award shall be granted; the provisions of each Awardgranted (which need not be identical), including the time or times when aperson shall be permitted to receive Stock pursuant to an Award; and the numberof shares of Stock with respect to which an Award shall be granted to each suchperson.

 

(ii)           Toconstrue and interpret the Plan and Awards granted under it, and to establish,amend and revoke rules and regulations for its administration.  The Board, in the exercise of this power, maycorrect any defect, omission or inconsistency in the Plan or in any Stock AwardAgreement, in a manner and to the extent it shall deem necessary or expedientto make the Plan fully effective.

 

(iii)          Toeffect, at any time and from time to time, with the consent of any adverselyaffected Participant, (1) the reduction of the exercise price of anyoutstanding Award under the Plan, if any, (2) the cancellation of anyoutstanding Award and the grant in substitution therefor of (A) a newAward under the Plan or another equity plan of the Company covering the same ora different number of shares of Stock, (B) cash and/or (C) othervaluable consideration (as determined by the Board, in its sole discretion), or(3) any other action that is treated as a repricing under generallyaccepted accounting principles.

 

(iv)          To amend the Planor an Award as provided in Section 10(e).

 

(v)           Toterminate or suspend the Plan as provided in Section 10(e).

 

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(vi)          Generally, toexercise such powers and to perform such acts as the Board deems necessary orexpedient to promote the best interests of the Company and that are not inconflict with the provisions of the Plan.

 

(c)           *Delegation to Committee*.

 

(i)            *General.*  The Board may delegate administration of thePlan to a Committee or Committees of two (2) or more members of the Board,and the term “Committee” shall apply to any person or persons to whom suchauthority has been delegated.  Ifadministration is delegated to a Committee, the Committee shall have, inconnection with the administration of the Plan, the powers theretoforepossessed by the Board, including the power to delegate to a subcommittee anyof the administrative powers the Committee is authorized to exercise (andreferences in this Plan to the Board shall thereafter be to the Committee orsubcommittee), subject, however, to such resolutions, not inconsistent with theprovisions of the Plan, as may be adopted from time to time by the Board.  The Board may abolish the Committee at anytime and revest in the Board the administration of the Plan.

 

(ii)           *Section 162(m) and Rule 16b-3 Compliance*.  In the discretion of the Board, the Committeemay consist solely of two or more “Outside Directors”, in accordance with Section 162(m)of the Code, and/or solely of two or more “Non-Employee Directors”, inaccordance with Rule 16b-3.  Inaddition, the Board or the Committee may delegate to a committee of two or moremembers of the Board the authority to grant Awards to eligible persons who areeither (a) not then Covered Employees and are not expected to be CoveredEmployees at the time of recognition of income resulting from such Award, (b) notpersons with respect to whom the Company wishes to comply with Section 162(m)of the Code, or (c) not then subject to Section 16 of the ExchangeAct.

 

(d)           *Effect of Board’s Decision*. All determinations, interpretations andconstructions made by the Board in good faith shall not be subject to review byany person and shall be final, binding and conclusive on all persons.

 

(e)           *Arbitration*.  Any dispute or claim concerning any Awardgranted (or not granted) pursuant to the Plan or any disputes or claimsrelating to or arising out of the Plan shall be fully, finally and exclusivelyresolved by binding and confidential arbitration conducted before a retiredjudge pursuant to the rules of JAMS in Los Angeles, California.  The Company shall pay all arbitrationfees.  In addition to any other relief,the arbitrator may award to the prevailing party recovery of its attorneys’fees and costs.  By accepting an Award,the Participant and the Company waive their respective rights to have any suchdisputes or claims tried by a judge or jury.

 

(f)            *Limitation of Liability*.  The Committee and the Board, and each memberthereof, shall be entitled to, in good faith, rely or act upon any report orother information furnished to him or her by any officer or Employee, theCompany’s independent auditors, Consultants or any other agents assisting inthe administration of the Plan.  Membersof the Committee and the Board, and any officer or Employee acting 

 

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at the directionor on behalf of the Plan Administrator, shall not be personally liable for anyaction or determination taken or made in good faith with respect to the Plan,and shall, to the extent permitted by law, be fully indemnified and protectedby the Company with respect to any such action or determination.

 

4.*             StockSubject to Plan.*

* *

(a)           *Limitation on Overall Number of Shares Subject toAwards*.  Subject toadjustment as provided in Section 10(c) hereof, the total number ofshares of Stock reserved and available for delivery in connection with Awardsunder the Plan shall be ten million (10,000,000).  Any shares of Stock delivered under the Planmay consist, in whole or in part, of authorized and unissued shares or treasuryshares.

 

(b)           *Application of Limitations*.  The limitation contained in this Section 4shall apply not only to Awards that are settled by the delivery of shares ofStock but also to Awards relating to shares of Stock but settled only in cash(such as cash-only Stock Appreciation Rights). The Plan Administrator may adopt reasonable counting procedures toensure appropriate counting, avoid double counting (as, for example, in thecase of tandem or substitute awards) and make adjustments if the number ofshares of Stock actually delivered differs from the number of shares previouslycounted in connection with an Award.

 

5.*             Eligibility;Per-Person Award Limitations*. Awards may be granted under the Plan only to Eligible Persons.  In each fiscal year during any part of whichthe Plan is in effect, an Eligible Person may not be granted Awards under whichmore than one million (1,000,000) shares of Stock could be received by theParticipant, subject to adjustment as provided in Section 10(c).  In addition, the maximum amount that may beearned as an Annual Incentive Award or other cash Award in any fiscal year byany one Participant shall be $500,000, and the maximum amount that may beearned as a Performance Award or other cash Award in respect of a performanceperiod by any one Participant shall be $1,000,000.

 

6.*             SpecificTerms of Awards.*

* *

(a)           *General*.  Awards may be granted on the terms andconditions set forth in this Section 6. In addition, the Plan Administrator may impose on any Award or theexercise thereof, at the date of grant or thereafter (subject to Section 10(e)),such additional terms and conditions, not inconsistent with the provisions ofthe Plan, as the Plan Administrator shall determine, including terms requiringforfeiture of Awards in the event of termination of Continuous Service by theParticipant and terms permitting a Participant to make elections relating tohis or her Award.  The Plan Administratorshall retain full power and discretion to accelerate, waive or modify, at anytime, any term or condition of an Award that is not mandatory under thePlan.  Except in cases in which the PlanAdministrator is authorized to require other forms of consideration under thePlan, or to the extent other forms of consideration must be paid to satisfy therequirements of California law, no consideration other than services may berequired for the grant (but not the exercise) of any Award.

 

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(b)           *Options*.  The Plan Administrator is authorized to grantOptions to Participants on the following terms and conditions:

 

(i)            *Stock Option Agreement*.  Each grant of an Option shall be evidenced bya Stock Option Agreement.  Such StockOption Agreement shall be subject to all applicable terms and conditions of thePlan and may be subject to any other terms and conditions which are notinconsistent with the Plan and which the Plan Administrator deems appropriatefor inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into underthe Plan need not be identical.

 

(ii)           *Number of Shares*.  Each Stock Option Agreement shall specify thenumber of shares of Stock that are subject to the Option and shall provide forthe adjustment of such number in accordance with Section 10(c) hereof.  The Stock Option Agreement shall also specifywhether the Stock Option is an Incentive Stock Option or a Non-Qualified StockOption.

 

(iii)          ExercisePrice.

 

(A)          *InGeneral*.  Each StockOption Agreement shall state the price at which shares of Stock subject to theOption may be purchased (the “Exercise Price”), which shall be, with respect toIncentive Stock Options, not less than 100% of the Fair Market Value of theStock on the date of grant.  In the caseof Non-Qualified Stock Options, the Exercise Price shall be determined in thesole discretion of the Plan Administrator; provided, however, that the ExercisePrice shall be no less than 100% of the Fair Market Value of the shares ofStock on the date of grant of the Non-Qualified Stock Option.

 

(B)           *TenPercent Shareholder*.  If aParticipant owns or is deemed to own (by reason of the attribution rules applicableunder Section 424(d) of the Code) more than 10% of the combinedvoting power of all classes of stock of the Company or any Related Entity, anyIncentive Stock Option granted to such Participant must have an Exercise Priceper share of at least 110% of the Fair Market Value of a share of Stock on thedate of grant.

 

(iv)          *Time**and Method of Exercise*.  The Plan Administrator shall determine thetime or times at which or the circumstances under which an Option may beexercised in whole or in part (including based on achievement of performancegoals and/or future service requirements). The Plan Administrator may also determine the time or times at whichOptions shall cease to be or become exercisable following termination ofContinuous Service or upon other conditions. The Board or the Committee may determine the methods by which suchexercise price may be paid or deemed to be paid (including in the discretion ofthe Plan Administrator a cashless exercise procedure), the form of such payment,including, without limitation, cash, Stock, other Awards or awards grantedunder other plans of the Company or a Related Entity, or other property(including notes or other contractual obligations of Participants to makepayment on a deferred basis), and the methods by or forms in which Stock willbe delivered or deemed to be delivered to Participants.

 

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(v)           *Incentive Stock Options*.  The terms of any Incentive Stock Optiongranted under the Plan shall comply in all respects with the provisions of Section 422of the Code.  Anything in the Plan to thecontrary notwithstanding, no term of the Plan relating to Incentive StockOptions (including any Stock Appreciation Rights in tandem therewith) shall beinterpreted, amended or altered, nor shall any discretion or authority grantedunder the Plan be exercised, so as to disqualify either the Plan or anyIncentive Stock Option under Section 422 of the Code, unless theParticipant has consented in writing to the change that will result in suchdisqualification.  If and to the extentrequired to comply with Section 422 of the Code, Options granted asIncentive Stock Options shall be subject to the following special terms andconditions:

 

(A)          the Option shall not beexercisable more than ten years after the date such Incentive Stock Option isgranted; provided, however, that if a Participant owns or is deemed to own (byreason of the attribution rules of Section 424(d) of the Code) morethan 10% of the combined voting power of all classes of stock of the Company orany Parent Corporation and the Incentive Stock Option is granted to suchParticipant, the term of the Incentive Stock Option shall be (to the extentrequired by the Code at the time of the grant) for no more than five years fromthe date of grant; and

 

(B)           The aggregate FairMarket Value (determined as of the date the Incentive Stock Option is granted)of the shares of stock with respect to which Incentive Stock Options grantedunder the Plan and all other option plans of the Company or its ParentCorporation during any calendar year exercisable for the first time by theParticipant during any calendar year shall not (to the extent required by theCode at the time of the grant) exceed $100,000. To the extent an Option exceeds such limit, unless otherwise providedfor in the Stock Option Agreement, the amount of the Option in excess of$100,000 shall be treated as a Non-Qualified Stock Option.

 

(vi)          *Repurchase**Rights*.  The Committee and the Board shall have thediscretion to grant Options which are exercisable for unvested shares of CommonStock.  Should the Optionee’s ContinuousService cease while holding such unvested shares, the Company shall have theright to repurchase, at the exercise price paid per share, any or all of thoseunvested shares.  The terms upon whichsuch repurchase right shall be exercisable (including the period and procedurefor exercise and the appropriate vesting schedule for the purchasedshares) shall be established by the Plan Administrator and set forth in thedocument evidencing such repurchase right.

 

(c)           *Stock Appreciation Rights*.  The Plan Administrator is authorized to grantStock Appreciation Rights to Participants on the following terms andconditions:

 

(i)            *Right to Payment*.  A Stock Appreciation Right shall confer onthe Participant to whom it is granted a right to receive, upon exercisethereof, the excess of (A) the Fair Market Value of one share of stock onthe date of exercise (or, in the case of a “Limited Stock Appreciation Right”that may be exercised only in the event of a Change in Control, the Fair MarketValue determined by reference to the Change in Control Price over (B) thegrant price of the Stock Appreciation Right as determined by the PlanAdministrator.  The grant price of aStock Appreciation Right shall not be less 

 

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thanthe Fair Market Value of a share of Stock on the date of grant except asprovided under Section 8(a) hereof.

 

(ii)           *Other Terms*.  The Plan Administrator shall determine at thedate of grant or thereafter, the time or times at which and the circumstancesunder which a Stock Appreciation Right may be exercised in whole or in part(including based on achievement of performance goals and/or future servicerequirements), the time or times at which Stock Appreciation Rights shall ceaseto be or become exercisable following termination of Continuous Service or uponother conditions, the method of exercise, method of settlement, form ofconsideration payable in settlement, method by or forms in which Stock will bedelivered or deemed to be delivered to Participants, whether or not a StockAppreciation Right shall be in tandem or in combination with any other Award,and any other terms and conditions of any Stock Appreciation Right.  Limited Stock Appreciation Rights that mayonly be exercised in connection with a Change in Control or other event asspecified by the Plan Administrator, may be granted onsuch terms, not inconsistent with this Section 6(c), as the PlanAdministrator may determine.  StockAppreciation Rights and Limited Stock Appreciation Rights may be eitherfreestanding or in tandem with other Awards.

 

(d)           *Restricted Stock*.  The Plan Administrator is authorized to grantRestricted Stock to Participants on the following terms and conditions:

 

(i)            *Grant and Restrictions*.  Restricted Stock shall be subject to suchrestrictions on transferability, risk of forfeiture and other restrictions, ifany, as the Plan Administrator may impose, or as otherwise provided in thisPlan.  The restrictions may lapseseparately or in combination at such times, under such circumstances (includingbased on achievement of performance goals and/or future service requirements),in such installments or otherwise, as the Plan Administrator may determine atthe date of grant or thereafter. Except to the extent restricted under theterms of the Plan and any Award agreement relating to the Restricted Stock, aParticipant granted Restricted Stock shall have all of the rights of ashareholder, including the right to vote the Restricted Stock and the right toreceive dividends thereon (subject to any mandatory reinvestment or otherrequirement imposed by the Plan Administrator). During the restricted period applicable to the Restricted Stock, subjectto Section 10(b) below, the Restricted Stock may not be sold,transferred, pledged, hypothecated, margined or otherwise encumbered by theParticipant.

 

(ii)           *Forfeiture*.  Except as otherwise determined by the PlanAdministrator at the time of the Award, upon termination of a Participant’sContinuous Service during the applicable restriction period, the Participant’sRestricted Stock that is at that time subject to restrictions shall beforfeited and reacquired by the Company; provided that the Plan Administratormay provide, by rule or regulation or in any Award agreement, or maydetermine in any individual case, that restrictions or forfeiture conditionsrelating to Restricted Stock shall be waived in whole or in part in the eventof terminations resulting from specified causes, and the Plan Administrator mayin other cases waive in whole or in part the forfeiture of Restricted Stock.

 

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(iii)          *Certificates for Stock*.  Restricted Stock granted under the Plan maybe evidenced in such manner as the Plan Administrator shall determine.  If certificates representing Restricted Stockare registered in the name of the Participant, the Plan Administrator mayrequire that such certificates bear an appropriate legend referring to theterms, conditions and restrictions applicable to such Restricted Stock, thatthe Company retain physical possession of the certificates, and that theParticipant deliver a stock power to the Company, endorsed in blank, relatingto the Restricted Stock.

 

(iv)          *Dividends**and Splits*.  As a condition to the grant of an Award ofRestricted Stock, the Plan Administrator may require that any cash dividendspaid on a share of Restricted Stock be automatically reinvested in additionalshares of Restricted Stock or applied to the purchase of additional Awardsunder the Plan.  Unless otherwisedetermined by the Plan Administrator, Stock distributed in connection with aStock split or Stock dividend, and other property distributed as a dividend,shall be subject to restrictions and a risk of forfeiture to the same extent asthe Restricted Stock with respect to which such Stock or other property hasbeen distributed.

 

(e)           *Stock Units*.  The Plan Administrator is authorized to grantStock Units to Participants, which are rights to receive Stock, cash, or acombination thereof at the end of a specified time period, subject to thefollowing terms and conditions:

 

(i)            *Award and Restrictions*.  Satisfaction of an Award of Stock Units shalloccur upon expiration of the time period specified for such Stock Units by thePlan Administrator (or, if permitted by the Plan Administrator, as elected bythe Participant).  In addition, StockUnits shall be subject to such restrictions (which may include a risk offorfeiture) as the Plan Administrator may impose, if any, which restrictionsmay lapse at the expiration of the time period or at earlier specified times(including based on achievement of performance goals and/or future servicerequirements), separately or in combination, in installments or otherwise, asthe Plan Administrator may determine. Stock Units may be satisfied by delivery of Stock, cash equal to theFair Market Value of the specified number of shares of Stock covered by theStock Units, or a combination thereof, as determined by the Plan Administratorat the date of grant or thereafter. Prior to satisfaction of an Award of Stock Units, an Award of StockUnits carries no voting or dividend or other rights associated with shareownership.

 

(ii)           *Forfeiture*.  Except as otherwise determined by the PlanAdministrator, upon termination of a Participant’s Continuous Service duringthe applicable time period thereof to which forfeiture conditions apply (asprovided in the Award agreement evidencing the Stock Units), the Participant’sStock Units (other than those Stock Units subject to deferral at the electionof the Participant) shall be forfeited; provided that the Plan Administratormay provide, by rule or regulation or in any Award agreement, or maydetermine in any individual case, that restrictions or forfeiture conditionsrelating to Stock Units shall be waived in whole or in part in the event ofterminations resulting from specified causes, and the Plan Administrator may inother cases waive in whole or in part the forfeiture of Stock Units.

 

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(iii)          *Dividend Equivalents*.  Unless otherwise determined by the PlanAdministrator at date of grant, any Dividend Equivalents that are granted withrespect to any Award of Stock Units shall be either (A) paid with respectto such Stock Units at the dividend payment date in cash or in shares ofunrestricted Stock having a Fair Market Value equal to the amount of suchdividends, or (B) deferred with respect to such Stock Units and the amountor value thereof automatically deemed reinvested in additional Stock Units,other Awards or other investment vehicles, as the Plan Administrator shalldetermine or permit the Participant to elect.

 

(f)            *Bonus Stock and Awards in Lieu of Obligations*.  The Plan Administrator is authorized to grantStock as a bonus, or to grant Stock or other Awards in lieu of Companyobligations to pay cash or deliver other property under the Plan or under otherplans or compensatory arrangements, provided that, in the case of Participantssubject to Section 16 of the Exchange Act, the amount of such grantsremains within the discretion of the Committee to the extent necessary toensure that acquisitions of Stock or other Awards are exempt from liabilityunder Section 16(b) of the Exchange Act.  Stock or Awards granted hereunder shall besubject to such other terms as shall be determined by the Plan Administrator.

 

(g)           *Dividend Equivalents*.  The Plan Administrator is authorized to grantDividend Equivalents to a Participant entitling the Participant to receivecash, Stock, other Awards, or other property equal in value to dividends paidwith respect to a specified number of shares of Stock, or other periodicpayments.  Dividend Equivalents may beawarded on a free-standing basis or in connection with another Award.  The Plan Administrator may provide thatDividend Equivalents shall be paid or distributed when accrued or shall bedeemed to have been reinvested in additional Stock, Awards, or other investmentvehicles, and subject to such restrictions on transferability and risks offorfeiture, as the Plan Administrator may specify.

 

(h)           *Other Stock-Based Awards*.  The Plan Administrator is authorized, subjectto limitations under applicable law, to grant to Participants such other Awardsthat may be denominated or payable in, valued in whole or in part by referenceto, or otherwise based on, or related to, Stock, as deemed by the PlanAdministrator to be consistent with the purposes of the Plan, including,without limitation, convertible or exchangeable debt securities, other rightsconvertible or exchangeable into Stock, purchase rights for Stock, Awards withvalue and payment contingent upon performance of the Company or any otherfactors designated by the Plan Administrator, and Awards valued by reference tothe book value of Stock or the value of securities of or the performance ofspecified Related Entities or business units. The Plan Administrator shall determine the terms and conditions of suchAwards.  Stock delivered pursuant to anAward in the nature of a purchase right granted under this Section 6(h) shallbe purchased for such consideration (including without limitation loans fromthe Company or a Related Entity), paid for at such times, by such methods, andin such forms, including, without limitation, cash, Stock, other Awards orother property, as the Plan Administrator shall determine.  The Plan Administrator shall have thediscretion to grant such other Awards which are exercisable for unvested sharesof Common Stock.  Should the Optionee’sContinuous Service cease while holding such unvested shares, the Company shallhave 

 

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the right torepurchase, at the exercise price paid per share, any or all of those unvestedshares.  The terms upon which suchrepurchase right shall be exercisable (including the period and procedure forexercise and the appropriate vesting schedule for the purchased shares)shall be established by the Plan Administrator and set forth in the documentevidencing such repurchase right.  Cashawards, as an element of or supplement to any other Award under the Plan, mayalso be granted pursuant to this Section 6(h).

 

7.*             Performanceand Annual Incentive Awards.*

* *

(a)           *Performance Conditions*.  The right of a Participant to exercise orreceive a grant or settlement of any Award, and the timing thereof, may besubject to such performance conditions as may be specified by the PlanAdministrator.  The Plan Administratormay use such business criteria and other measures of performance as it may deemappropriate in establishing any performance conditions, and may exercise itsdiscretion to reduce the amounts payable under any Award subject to performanceconditions, except as limited under Sections 7(b) and 7(c) hereof inthe case of a Performance Award or Annual Incentive Award intended to qualifyunder Code Section 162(m).  If andto the extent required under Code Section 162(m), any power or authorityrelating to a Performance Award or Annual Incentive Award intended to qualifyunder Code Section 162(m), shall be exercised by the Committee as the PlanAdministrator and not the Board.

 

(b)           *Performance Awards Granted to Designated CoveredEmployees*.  If and to theextent that the Committee determines that a Performance Award to be granted toan Eligible Person who is designated by the Committee as likely to be a CoveredEmployee should qualify as “performance-based compensation” for purposes ofCode Section 162(m), the grant, exercise and/or settlement of suchPerformance Award shall be contingent upon achievement of pre-establishedperformance goals and other terms set forth in this Section 7(b).

 

(i)            *Performance Goals Generally*.  The performance goals for such PerformanceAwards shall consist of one or more business criteria and a targeted level orlevels of performance with respect to each of such criteria, as specified bythe Committee consistent with this Section 7(b).  Performance goals shall be objective andshall otherwise meet the requirements of Code Section 162(m) andregulations thereunder including the requirement that the level or levels ofperformance targeted by the Committee result in the achievement of performancegoals being “substantially uncertain.” The Committee may determine that such Performance Awards shall begranted, exercised and/or settled upon achievement of any one performance goalor that two or more of the performance goals must be achieved as a condition togrant, exercise and/or settlement of such Performance Awards.  Performance goals may differ for PerformanceAwards granted to any one Participant or to different Participants.

 

(ii)           *Business Criteria*.  One or more of the following businesscriteria for the Company, on a consolidated basis, and/or specified RelatedEntities or business units of the Company (except with respect to the totalshareholder return and earnings per share criteria), shall be used exclusivelyby the Committee in establishing 

 

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performance goals for such PerformanceAwards: (1) total shareholder return; (2) such total shareholderreturn as compared to total return (on a comparable basis) of a publiclyavailable index such as, but not limited to, the Russell 2000 Small Cap Index; (3) netincome; (4) pretax earnings; (5) pretax operating earnings afterinterest expense and before bonuses, service fees, and extraordinary or specialitems; (6) earnings per share; (7) operating earnings; and (8) ratioof debt to shareholders’ equity.  One ormore of the foregoing business criteria shall also be exclusively used inestablishing performance goals for Annual Incentive Awards granted to a CoveredEmployee under Section 7(c) hereof that are intended to qualify as “performance-basedcompensation” under Code Section 162(m).

 

(iii)          *Performance Period; Timing ForEstablishing Performance Goals*. Achievement of performance goals in respect of such Performance Awardsshall be measured over a performance period of up to ten years, as specified bythe Committee.  Performance goals shallbe established not later than ninety (90) days after the beginning of anyperformance period applicable to such Performance Awards, or at such other dateas may be required or permitted for “performance-based compensation” under CodeSection 162(m).

 

(iv)          *Performance**Award Pool*.  The Committee may establish a PerformanceAward pool, which shall be an unfunded pool, for purposes of measuring Companyperformance in connection with Performance Awards.  The amount of such Performance Award poolshall be based upon the achievement of a performance goal or goals based on oneor more of the business criteria set forth in Section 7(b)(ii) hereofduring the given performance period, as specified by the Committee in accordancewith Section 7(b)(iii) hereof. The Committee may specify the amount of the Performance Award pool as apercentage of any of such business criteria, a percentage thereof in excess ofa threshold amount, or as another amount which need not bear a strictlymathematical relationship to such business criteria.

 

(v)           *Settlement of Performance Awards; Other Terms*.  Settlement of such Performance Awards shallbe in cash, Stock, other Awards or other property, in the discretion of theCommittee.  The Committee may, in itsdiscretion, reduce the amount of a settlement otherwise to be made inconnection with such Performance Awards. The Committee shall specify the circumstances in which such PerformanceAwards shall be paid or forfeited in the event of termination of ContinuousService by the Participant prior to the end of a performance period orsettlement of Performance Awards.

 

(c)           *Annual Incentive Awards Granted to DesignatedCovered Employees*.  TheCommittee may, within its discretion, grant one or more Annual Incentive Awardsto any Eligible Person, subject to the terms and conditions set forth in this Section 7(c).

 

(i)            *Annual Incentive Award Pool*.  The Plan Administrator may establish anAnnual Incentive Award pool, which shall be an unfunded pool, for purposes ofmeasuring Company performance in connection with Annual Incentive 

 

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Awards.  In the case of Annual Incentive Awardsintended to qualify as “performance-based compensation” for purposes of Code Section 162(m),the amount of such Annual Incentive Award pool shall be based upon theachievement of a performance goal or goals based on one or more of the businesscriteria set forth in Section 7(b)(ii) hereofduring the given performance period, as specified by the Committee inaccordance with Section 7(b)(iii) hereof.  The Committee may specify the amount of theAnnual Incentive Award pool as a percentage of any such business criteria, apercentage thereof in excess of a threshold amount, or as another amount whichneed not bear a strictly mathematical relationship to such business criteria.

 

(ii)           *Potential Annual Incentive Awards*.  Not later than the end of the ninetieth (90th)day of each fiscal year, or at such other date as may be required or permittedin the case of Awards intended to be “performance-based compensation” underCode Section 162(m), the Committee shall determine the Eligible Personswho will potentially receive Annual Incentive Awards, and the amountspotentially payable thereunder, for that fiscal year, either out of an AnnualIncentive Award pool established by such date under Section 7(c)(i) hereofor as individual Annual Incentive Awards. In the case of individual Annual Incentive Awards intended to qualifyunder Code Section 162(m), the amount potentially payable shall be basedupon the achievement of a performance goal or goals based on one or more of thebusiness criteria set forth in Section 7(b)(ii) hereofin the given performance year, as specified by the Committee; in other cases,such amount shall be based on such criteria as shall be established by theCommittee.  In all cases, the maximumAnnual Incentive Award of any Participant shall be subject to the limitationset forth in Section 5 hereof.

 

(iii)          *Payout of Annual Incentive Awards*.  After the end of each fiscal year, the PlanAdministrator (who shall be the Committee with respect to Annual IncentiveAwards for Covered Persons) shall determine the amount, if any, of (A) theAnnual Incentive Award pool, and the maximum amount of potential AnnualIncentive Award payable to each Participant in the Annual Incentive Award pool,or (B) the amount of potential Annual Incentive Award otherwise payable toeach Participant.  The Plan Administratormay, in its discretion, determine that the amount payable to any Participant asan Annual Incentive Award shall be reduced from the amount of his or herpotential Annual Incentive Award, including a determination to make no Awardwhatsoever.  The Plan Administrator shallspecify the circumstances in which an Annual Incentive Award shall be paid orforfeited in the event of termination of Continuous Service by the Participantprior to the end of a fiscal year or settlement of such Annual Incentive Award.

 

(d)           *Written Determinations*.  All determinations by the Committee as to theestablishment of performance goals, the amount of any Performance Award pool orpotential individual Performance Awards and as to the achievement ofperformance goals relating to Performance Awards under Section 7(b), and theamount of any Annual Incentive Award pool or potential individual AnnualIncentive Awards and the amount of final Annual Incentive Awards under Section 7(c),shall be made in writing in the case of any Award intended to qualify underCode Section 162(m).  The Committeemay not 

 

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delegateany responsibility relating to such Performance Awards or Annual IncentiveAwards if and to the extent required to comply with Code Section 162(m).

 

(e)           *Status of Section 7(b) and Section 7(c) AwardsUnder Code Section 162(m)*. It is the intent of the Company that Performance Awards and AnnualIncentive Awards under Section 7(b) and 7(c) hereof granted topersons who are designated by the Committee as likely to be Covered Employeeswithin the meaning of Code Section 162(m) and regulations thereundershall, if so designated by the Committee, constitute “qualifiedperformance-based compensation” within the meaning of Code Section 162(m)and regulations thereunder.  Accordingly,the terms of Sections 7(b), (c), (d) and (e), including the definitions ofCovered Employee and other terms used therein, shall be interpreted in a mannerconsistent with Code Section 162(m) and regulations thereunder.  The foregoing notwithstanding, because theCommittee cannot determine with certainty whether a given Participant will be aCovered Employee with respect to a fiscal year that has not yet been completed,the term Covered Employee as used herein shall mean only a person designated bythe Committee, at the time of grant of Performance Awards or an AnnualIncentive Award, as likely to be a Covered Employee with respect to that fiscalyear.  If any provision of the Plan orany agreement relating to such Performance Awards or Annual Incentive Awardsdoes not comply or is inconsistent with the requirements of Code Section 162(m)or regulations thereunder, such provision shall be construed or deemed amendedto the extent necessary to conform to such requirements.

 

8.*             CertainProvisions Applicable to Awards or Sales.*

* *

(a)           *Stand-Alone, Additional, Tandem, and SubstituteAwards*.  Awards grantedunder the Plan may, in the discretion of the Plan Administrator, be grantedeither alone or in addition to, in tandem with, or in substitution or exchangefor, any other Award or any award granted under another plan of the Company,any Related Entity, or any business entity to be acquired by the Company or aRelated Entity, or any other right of a Participant to receive payment from theCompany or any Related Entity.  Suchadditional, tandem, and substitute or exchange Awards may be granted at anytime.  If an Award is granted insubstitution or exchange for another Award or award, the Plan Administratorshall require the surrender of such other Award or award in consideration forthe grant of the new Award.  In addition,Awards may be granted in lieu of cash compensation, including in lieu of cashamounts payable under other plans of the Company or any Related Entity, in whichthe value of Stock subject to the Award is equivalent in value to the cashcompensation (for example, Stock Units or Restricted Stock), or in which theexercise price, grant price or purchase price of the Award in the nature of aright that may be exercised is equal to the Fair Market Value of the underlyingStock minus the value of the cash compensation surrendered (for example,Options granted with an exercise price “discounted” by the amount of the cashcompensation surrendered).

 

(b)           *Term of Awards*.  The term of each Award shall be for suchperiod as may be determined by the Plan Administrator; provided that in noevent shall the term of any Option or Stock Appreciation Right exceed a periodof ten years (or such shorter 

 

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termas may be required in respect of an Incentive Stock Option under Section 422of the Code).

 

(c)           *Purchase Prices*.  In the case of an Award under this Plan,other than an Option, which grants an Employee, Director, or Consultant of theCompany the right to purchase Stock, the Board or the Committee shall havediscretion to set the purchase price, provided that in no event shall thepurchase price per share of Stock be less than 100% of the Fair Market Value ofsuch share on the date of the Award or the date of the purchase.

 

(d)           *Form and Timing of Payment UnderAwards; Deferrals*. Subject to the terms of the Plan and any applicable Award agreement,payments to be made by the Company or a Related Entity upon the exercise of anOption or other Award or settlement of an Award may be made in such forms asthe Plan Administrator shall determine, including, without limitation, cash,other Awards or other property, and may be made in a single payment ortransfer, in installments, or on a deferred basis.  The settlement of any Award may beaccelerated, and cash paid in lieu of Stock in connection with such settlement,in the discretion of the Plan Administrator or upon occurrence of one or morespecified events (in addition to a Change in Control).  Installment or deferred payments may berequired by the Plan Administrator (subject to Section 10(e) of thePlan) or permitted at the election of the Participant on terms and conditionsestablished by the Plan Administrator. Payments may include, without limitation, provisions for the payment orcrediting of a reasonable interest rate on installment or deferred payments orthe grant or crediting of Dividend Equivalents or other amounts in respect ofinstallment or deferred payments denominated in Stock.

 

(e)           *Exemptions from Section 16(b) Liability*.  It is the intent of the Company that thisPlan comply in all respects with applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither thegrant of any Awards to nor other transaction by a Participant who is subject toSection 16 of the Exchange Act is subject to liability under Section 16(b) thereof(except for transactions acknowledged in writing to be non-exempt by suchParticipant).  Accordingly, if anyprovision of this Plan or any Award agreement does not comply with therequirements of Rule 16b-3 or Rule 16a-1(c)(3) asthen applicable to any such transaction, such provision will be construed ordeemed amended to the extent necessary to conform to the applicablerequirements of Rule 16b-3 or Rule 16a-1(c)(3) so that suchParticipant shall avoid liability under Section 16(b).

 

9.*             Changein Control; Corporate Transaction.*

 

(a)           *Change of Control*

 

(i)            *Effect of “Change in Control.”*  The effect of a “Change in Control,” asdefined in Section 9(a)(ii) below, shall be as provided, if at all, (1) inan employment, compensation, or severance agreement, if any, between theCompany or any Related Entity and the Participant, relating to the Participant’semployment, 

 

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compensation, orseverance with or from the Company or such Related Entity, or (2) in theagreement evidencing the Award.

 

(ii)           *Definition of “Change in Control.”*  “Change in Control” shall mean and be deemedto have occurred on the earliest of the following dates:

 

(1)           the date of anacquisition by any “person” (as such term is used in Sections 13(d) and 14(d)of the Exchange Act) of “beneficial ownership” (as defined in Rule 13d-3of the Exchange Act) or a pecuniary interest in more than 45% of the combinedvoting power of the Company’s then outstanding securities (“Voting Stock”), otherthan an acquisition by one or more of Company, Image Entertainment, Inc.,Image Investors Co. or Messrs. John Kluge, Stuart Subotnick or MartinGreenwald (each, an “Excluded Person”) in connection with a new issuance ofVoting Stock (or rights to acquire Voting Stock) after the effective date ofthe Plan by Company to the Excluded Person in a transaction that the Committeedetermines (in advance of the issuance) does not constitute a Change in Controlevent, or in the event that one or more Excluded Persons take Company from apublic company to a privately held company;

 

(2)           approval by theshareholders of Company of a Corporate Transaction other than aCorporate Transaction: (1) (a) in which substantially all of theholders of Company’s Voting Stock hold or receive directly or indirectly 50% ormore of the voting stock of the resulting entity or a parent company thereof,and (b) after which no “person” as such term is used in Sections 13(d) and14(d) of the Exchange Act (other than any one or more of the ExcludedPersons, as defined above) owns more than 50% of the voting stock of theresulting entity (or a parent company) who did not own directly or indirectlyat least that amount of Voting Stock immediately before the CorporateTransaction; or (2) in which the holders of Company’s capital stockimmediately before such Corporate Transaction will, immediately after suchCorporate Transaction, hold as a group on a fully diluted basis the ability toelect at least a majority of the directors of the surviving corporation (or aparent company);

 

(3)           the date the personswho were members of the Board at the beginning of any 24-month period shallcease to constitute a majority of the Board, unless the election, or thenomination for election by Company’s shareholders, of each new director wasapproved by two-thirds of the members of the Board then in office who were inoffice at the beginning of the 24-month period.

 

Forpurposes of determining whether a Change in Control has occurred, a transactionincludes all transactions in a series of related transactions, and terms usedin this definition but not defined are used as defined in the Plan.  The term Change in Control shall not include a sale of assets, merger or other transactioneffected exclusively for the purpose of changing the domicile of the Company.

 

Notwithstanding the foregoing or any other provision of this Plan, thedefinition of Change in Control (or any analogous term) in an individualwritten agreement between the Company and the Participant shall supersede theforegoing definition with respect to Awards subject to such agreement (it beingunderstood,

 

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however,that if no definition of Change in Control or any analogous term is set forthin such an individual written agreement, the foregoing definition shall apply).

 

(b)           *Corporate Transactions*.  In the event of a Corporate Transaction, anysurviving corporation or acquiring corporation may assume or continue any orall Awards outstanding under the Plan or may substitute similar stock awardsfor outstanding Awards (it being understood that similar stock awards include,but are not limited to, awards to acquire the same consideration paid to theshareholders or the Company, as the case may be, pursuant to the CorporateTransaction), and any reacquisition or repurchase rights held by the Company inrespect of Stock issued pursuant to Awards may be assigned by the Company tothe successor of the Company (or the successor’s parent company), if any, inconnection with such Corporate Transaction. In the event that any surviving corporation or acquiring corporationdoes not assume or continue any or all such outstanding Awards or substitutesimilar stock awards for such outstanding Awards, then with respect to Awardsthat have been not assumed, continued or substituted and that are held byParticipants whose Continuous Service has not terminated prior to the effectivetime of the Corporate Transaction, the vesting of such Awards (and, ifapplicable, the time at which such Awards may be exercised) shall (contingentupon the effectiveness of the Corporate Transaction) be accelerated in full toa date prior to the effective time of such Corporate Transaction as the Boardshall determine (or, if the Board shall not determine such a date, to the datethat is five (5) days prior to the effective time of the CorporateTransaction), the Awards shall terminate if not exercised (if applicable) at orprior to such effective time, and any reacquisition or repurchase rights heldby the Company with respect to such Awards held by Participants whoseContinuous Service has not terminated shall (contingent upon the effectivenessof the Corporate Transaction) lapse. With respect to any other Awards outstanding under the Plan that havenot been assumed, continued or substituted, the vesting of such Stock Awards(and, if applicable, the time at which such Stock Award may be exercised) shallnot be accelerated, unless otherwise provided in a written agreement betweenthe Company or any Affiliate and the holder of such Award, and such Awardsshall terminate if not exercised (if applicable) prior to the effective time ofthe Corporate Transaction.

 

(c)           *Dissolution or Liquidation*.  In the event of a dissolution or liquidationof the Company, then all outstanding Awards shall terminate immediately priorto the completion of such dissolution or liquidation, and shares of CommonStock subject to the Company’s repurchase option may be repurchased by theCompany notwithstanding the fact that the holder of such stock is still inContinuous Service.

 

10.*           GeneralProvisions.*

* *

(a)           *Compliance With Legal andOther Requirements*.  TheCompany may, to the extent deemed necessary or advisable by the PlanAdministrator, postpone the issuance or delivery of Stock or payment of otherbenefits under any Award until completion of such registration or qualificationof such Stock or other required action under any federal or state law, rule orregulation, listing or other required action with respect to any stock exchangeor automated quotation system upon which the Stock or other Company securitiesare listed or quoted, or compliance with any other obligation of 

 

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the Company, as the Plan Administrator, mayconsider appropriate, and may require any Participant to make suchrepresentations, furnish such information and comply with or be subject to suchother conditions as it may consider appropriate in connection with the issuanceor delivery of Stock or payment of other benefits in compliance with applicablelaws, rules, and regulations, listing requirements, or other obligations.  The foregoing notwithstanding, in connectionwith a Change in Control, the Company shall take or cause to be taken noaction, and shall undertake or permit to arise no legal or contractualobligation, that results or would result in any postponement of the issuance ordelivery of Stock or payment of benefits under any Award or the imposition ofany other conditions on such issuance, delivery or payment, to the extent thatsuch postponement or other condition would represent a greater burden on aParticipant than existed on the 90th day preceding the Change in Control.

 

(b)           Limitson Transferability; Beneficiaries.

 

(i)            *General*.  Except as provided in the Award agreement, aParticipant may not assign, sell, transfer, or otherwise encumber or subject toany lien any Award or other right or interest granted under this Plan, in wholeor in part, including any Award or right which constitutes a derivativesecurity as generally defined in Rule 16a1(c) under the Exchange Act,other than by will or by operation of the laws of descent and distribution, andsuch Awards or rights that may be exercisable shall be exercised during thelifetime of the Participant only by the Participant or his or her guardian orlegal representative.

 

(ii)           *Permitted Transfer of Option*.  The Committee or Board, in its sole discretion,may permit the transfer of an Option (but not an Incentive Stock Option, or anyother right to purchase Stock other than an Option) as follows:  (A) by gift to a member of theParticipant’s Immediate Family or (B) by transfer by instrument to a trustproviding that the Option is to be passed to beneficiaries upon death of theOptionee.  For purposes of this Section 10(b)(ii), “Immediate Family” shall mean the Optionee’s spouse(including a former spouse subject to terms of a domestic relations order); child,stepchild, grandchild, child-in-law; parent, stepparent, grandparent,parent-in-law; sibling and sibling-in-law, and shall include adoptiverelationships.  If a determination ismade by counsel for the Company that the restrictions contained in this Section 10(b)(ii) arenot required by applicable federal or state securities laws under thecircumstances, then the Committee or Board, in its sole discretion, may permitthe transfer of Awards (other than Incentive Stock Options and StockAppreciation Rights in tandem therewith) to one or more Beneficiaries or othertransferees during the lifetime of the Participant, which may be exercised bysuch transferees in accordance with the terms of such Award, but only if and tothe extent permitted by the Plan Administrator pursuant to the express terms ofan Award agreement (subject to any terms and conditions which the PlanAdministrator may impose thereon, and further subject to any prohibitions andrestrictions on such transfers pursuant to Rule 16b-3).  A Beneficiary, transferee, or other personclaiming any rights under the Plan from or through any Participant shall besubject to all terms and conditions of the Plan and any Award agreementapplicable to such Participant, except as otherwise determined by the PlanAdministrator, and to any additional terms and conditions deemed necessary orappropriate by the Plan Administrator.

 

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(c)           *Adjustments*.

 

(i)            *Adjustments to Awards*.  In the event that any dividend or otherdistribution (whether in the form of cash, Stock, or other property),recapitalization, forward or reverse split, reorganization, merger,consolidation, spin-off, combination, repurchase, share exchange, liquidation,dissolution or other similar corporate transaction or event affects the Stockand/or such other securities of the Company or any other issuer such that asubstitution, exchange, or adjustment is determined by the Plan Administratorto be appropriate, then the Plan Administrator shall, in such manner as it maydeem equitable, substitute, exchange, or adjust any or all of (A) thenumber and kind of shares of Stock which may be delivered in connection withAwards granted thereafter, (B) the number and kind of shares of Stock bywhich annual per-person Award limitations are measured under Section 5hereof, (C) the number and kind of shares of Stock subject to ordeliverable in respect of outstanding Awards, (D) the exercise price,grant price or purchase price relating to any Award and/or make provision forpayment of cash or other property in respect of any outstanding Award, and (E) anyother aspect of any Award that the Plan Administrator determines to beappropriate.

 

(ii)           *Other Adjustments*.  The Committee (and the Board if and only tothe extent such authority is not required to be exercised by the Committee tocomply with Code Section 162(m)) is authorized to make adjustments in theterms and conditions of, and the criteria included in, Awards (includingPerformance Awards and performance goals, and Annual Incentive Awards and anyAnnual Incentive Award pool or performance goals relating thereto) inrecognition of unusual or nonrecurring events (including, without limitation,acquisitions and dispositions of businesses and assets) affecting the Company,any Related Entity or any business unit, or the financial statements of theCompany or any Related Entity, or in response to changes in applicable laws,regulations, accounting principles, tax rates and regulations or businessconditions or in view of the Committee’s assessment of the business strategy ofthe Company, any Related Entity or business unit thereof, performance ofcomparable organizations, economic and business conditions, personalperformance of a Participant, and any other circumstances deemed relevant;provided that no such adjustment shall be authorized or made if and to theextent that such authority or the making of such adjustment would causeOptions, Stock Appreciation Rights, Performance Awards granted under Section 8(b) hereofor Annual Incentive Awards granted under Section 8(c) hereof toParticipants designated by the Committee as Covered Employees and intended toqualify as “performance-based compensation” under Code Section 162(m) andthe regulations thereunder to otherwise fail to qualify as “performance-basedcompensation” under Code Section 162(m) and regulations thereunder.

 

(d)           *Taxes*.  The Company and any Related Entity areauthorized to withhold from any Award granted, any payment relating to an Awardunder the Plan, including from a distribution of Stock, or any payroll or otherpayment to a Participant, amounts of withholding and other taxes due orpotentially payable in connection with any transaction involving an Award, andto take such other action as the Plan Administrator may deem advisable toenable the Company and Participants to satisfy obligations for the payment ofwithholding taxes and other tax obligations relating to any Award.  This 

 

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authority shall includeauthority to withhold or receive Stock or other property and to make cashpayments in respect thereof in satisfaction of a Participant’s tax obligations,either on a mandatory or elective basis in the discretion of the Committee.

 

(e)           *Changes to the Plan and Awards*.  The Board may amend, alter, suspend,discontinue or terminate the Plan, or the Committee’s authority to grant Awardsunder the Plan, without the consent of shareholders or Participants, exceptthat any amendment or alteration to the Plan shall be subject to the approvalof the Company’s shareholders not later than the annual meeting next followingsuch Board action if such shareholder approval is required by any federal orstate law or regulation (including, without limitation, Rule 16b-3 or CodeSection 162(m)) or the rules of any stock exchange or automatedquotation system on which the Stock may then be listed or quoted, and the Boardmay otherwise, in its discretion, determine to submit other such changes to thePlan to shareholders for approval; provided that, without the consent of anaffected Participant, no such Board action may materially and adversely affectthe rights of such Participant under any previously granted and outstandingAward.  The Plan Administrator may waiveany conditions or rights under, or amend, alter, suspend, discontinue orterminate any Award theretofore granted and any Award agreement relatingthereto, except as otherwise provided in the Plan; provided that, without theconsent of an affected Participant, no such Plan Administrator action maymaterially and adversely affect the rights of such Participant under suchAward.  Notwithstanding anything in thePlan to the contrary, if any right under this Plan would cause a transaction tobe ineligible for pooling of interest accounting that would, but for the righthereunder, be eligible for such accounting treatment, the Plan Administratormay modify or adjust the right so that pooling of interest accounting shall beavailable, including the substitution of Stock having a Fair Market Value equalto the cash otherwise payable hereunder for the right which caused thetransaction to be ineligible for pooling of interest accounting.

 

(f)            *Reporting of Financial Information*.  The Company shall provide to the recipient ofany Award under this Plan, no less frequently than annually, the financialstatements of the Company, until such time as a determination is made bycounsel for the Company that such reports are not required by applicablefederal or state securities laws under the circumstances.

 

(g)           *Limitation on Rights Conferred Under Plan*.  Neither the Plan nor any action takenhereunder shall be construed as (i) giving any Eligible Person orParticipant the right to continue as an Eligible Person or Participant or in theemploy of the Company or a Related Entity; (ii) interfering in any waywith the right of the Company or a Related Entity to terminate any EligiblePerson’s or Participant’s Continuous Service at any time, (iii) giving anEligible Person or Participant any claim to be granted any Award under the Planor to be treated uniformly with other Participants and Employees, or (iv) conferringon a Participant any of the rights of a shareholder of the Company unless anduntil the Participant is duly issued or transferred shares of Stock inaccordance with the terms of an Award.

 

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(h)           *Unfunded Status of Awards; Creation ofTrusts*.  The Plan is intended toconstitute an “unfunded” plan for incentive and deferred compensation.  With respect to any payments not yet made toa Participant or obligation to deliver Stock pursuant to an Award, nothingcontained in the Plan or any Award shall give any such Participant any rightsthat are greater than those of a general creditor of the Company; provided thatthe Committee may authorize the creation of trusts and deposit therein cash,Stock, other Awards or other property, or make other arrangements to meet theCompany’s obligations under the Plan. Such trusts or other arrangements shall be consistent with the “unfunded”status of the Plan unless the Committee otherwise determines with the consentof each affected Participant.  Thetrustee of such trusts may be authorized to dispose of trust assets andreinvest the proceeds in alternative investments, subject to such terms andconditions as the Plan Administrator may specify and in accordance withapplicable law.

 

(i)            *Nonexclusivity of the Plan*.  Neither the adoption of the Plan by the Boardnor its submission to the shareholders of the Company for approval shall beconstrued as creating any limitations on the power of the Board or a committeethereof to adopt such other incentive arrangements as it may deem desirableincluding incentive arrangements and awards which do not qualify under Code Section 162(m).

 

(j)            *Payments in the Event of Forfeitures; FractionalShares*.  Unless otherwisedetermined by the Plan Administrator, in the event of a forfeiture of an Awardwith respect to which a Participant paid cash or other consideration, theParticipant shall be repaid the amount of such cash or otherconsideration.  No fractional shares ofStock shall be issued or delivered pursuant to the Plan or any Award.  The Plan Administrator shall determinewhether cash, other Awards or other property shall be issued or paid in lieu ofsuch fractional shares or whether such fractional shares or any rights theretoshall be forfeited or otherwise eliminated.

 

(k)           *Governing Law*.  The validity, construction and effect of thePlan, any rules and regulations under the Plan, and any Award agreementshall be determined in accordance with the laws of the State of Delawarewithout giving effect to principles of conflicts of laws, and applicablefederal law.

 

(l)            *Plan Effective Date and Shareholder Approval; Terminationof Plan*.  The Plan shallbecome effective on the Effective Date, subject to subsequent approval within12 months of its adoption by the Board by shareholders of the Company eligibleto vote in the election of directors, by a vote sufficient to meet therequirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3under the Exchange Act (if applicable), applicable Nasdaq requirements, andother laws, regulations, and obligations of the Company applicable to thePlan.  Awards may be granted subject toshareholder approval, but may not be exercised or otherwise settled in theevent shareholder approval is not obtained. The Plan shall terminate no later than 10 years from the date the Planis adopted by the Board or 10 years from the date the Plan is approved by theShareholders, whichever is earlier.

 

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(m)          StateSecurities Laws.  The sale of thesecurities which are the subject of the Plan has not been qualified with thecommissioner of Corporations of the State of California and the issuance of thesecurities or the payment or receipt of any part of the consideration thereforprior to the qualification is unlawful, unless the sale of securities is exemptfrom the qualification by sections 25102 or 25102.1 of the California Corporations Code.  The rights of all parties to the Plan areexpressly conditioned upon the qualification being obtained unless the sale isso exempt.

 

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**EGAMI MEDIA, INC.**

**2005 INCENTIVE COMPENSATION PLAN**

 

**EMPLOYEE (INCENTIVE)/DIRECTOR (NONQUALIFIED)**

**STOCK OPTION GRANT NOTICE**

 

THISEMPLOYEE (INCENTIVE)/DIRECTOR (NONQUALIFIED) STOCK OPTION GRANT NOTICE (the “GrantNotice”) is between the Company and the Optionee named below and evidences theCompany’s grant to the Optionee of a Incentive Stock Option to purchaseauthorized but unissued shares of the Company’s Common Stock.  The Option is granted pursuant to and subjectto the Company’s 2005 Incentive Compensation Plan (the “Plan”) and standardStock Option Agreement (“Option Agreement”), incorporated herein by thisreference.

 
| Optionee:                    |       | Vesting  Schedule (1),(2),(3): |
|------------------------------|------------|-------------------------------------|
| ** **                   | ** ** | ** **                          |
| Exercise Price Per Share:(1) | ** ** | ** **                          |
| ** **                   | ** ** | ** **                          |
| Number of Shares:(1)         | ** ** | ** **                          |
| ** **                   | ** ** | ** **                          |
| Grant Date:                  | ** ** | ** **                          |
| ** **                   | ** ** | ** **                          |
| Expiration Date:(2)          | ** ** | ** **                          |
| ** **                   | ** ** | ** **                          |
| Other:                       | ** ** | ** **                          |
| ** **                   | ** ** | ** **                          |

 

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(1)   *Subject to adjustment under Section 10(c) ofthe Plan.*

(2)   *Subject to early termination ofthe Optionee’s employment terminates or in certain other circumstances.  See Sections 8(b), 9 and 10(c) of thePlan and Section 3 of the Option Agreement for exceptions and additionaldetails regarding possible early termination of the Option.*

(3)   *Options may not be exercisedprior to their vesting date.  Please seethe Option Agreement for all requirements, terms and conditions of exercise.*

 

Optioneeaccepts the Option in accordance with the terms set forth in this Grant Notice,and agrees to and acknowledges receipt of a copy of the Option Agreement andPlan.

 

**AGREED AND ACKNOWLEDGED:**

 

**EGAMIMEDIA, INC.**

**(a Delaware Corporation)**

 

 
| By:    |                     |   |                         |   |
|--------|--------------------------|--------|------------------------------|--------|
|   | (Authorized  Officer)    |   | (Optionee’s  Signature) |
|   |                     |
|   |                     |   |
|   | (Street  Address)        |
|   |                     |
|   |                     |   |
|   | (City,  State, Zip Code) |

 

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**EGAMI MEDIA, INC.**

 

**2005 STOCK AWARD PLAN**

** **

**STOCK OPTION AGREEMENT**

** **

Unless otherwise defined herein, the terms definedin the 2005 Incentive Compensation Plan shall have the same defined meanings inthis Stock Option Agreement.

 

1.             Grant of Option.  The Plan Administrator of the Company herebygrants to the Optionee named in the Stock Option Grant Notice (the “*Optionee*”), an option (the “*Option*”) to purchase the number of Sharesset forth in the Grant Notice, at the exercise price per Share set forth in theStock Option Grant Notice (the “*ExercisePrice*”), and subject to the terms and conditions of the Plan, whichis incorporated herein by reference. Subject to Section 10(e) of the Plan, in the event ofa conflict between the terms and conditions of the Plan and this OptionAgreement, the terms and conditions of the Plan shall prevail. If designated inthe Stock Option Grant Notice as an Incentive Stock Option (“*ISO*”), this Option is intended to qualifyas an Incentive Stock Option as defined in Section 422 of the Code.  Nevertheless, to the extent that it exceedsthe $100,000 rule of Code Section 422(d), this Option shall betreated as a Nonstatutory Stock Option (“*NSO*”).

 

2.             Exercise of Option.

 

(a)           Right to Exercise.  This Option shall be exercisable during itsterm in accordance with the Vesting Schedule set out in the Stock OptionGrant Notice and with the applicable provisions of the Plan and this OptionAgreement.

 

Method ofExercise. This Option shall be exercisable by delivery of an exercise notice inthe form attached as Exhibit A (the “*ExerciseNotice*”) which shall state the election to exercise the Option, thenumber of Shares with respect to which the Option isbeing exercised, and such other representations and agreements as may berequired by the Company. No Shares shall be issued pursuant to the exercise ofan Option unless such issuance and such exercise complieswith Applicable Laws.  Assuming suchcompliance, for income tax purposes the Shares shall be considered transferredto the Optionee on the date on which the Option is exercised with respect tosuch Shares.

 

The Option shall be deemed exercised when theCompany receives (i) written or electronic notice of exercise (inaccordance with this Option Agreement) from the Optionee (or other personentitled to exercise the Option), and (ii) full payment for the Shareswith respect to which the Option is exercised, and (iii) any otherdocuments required by this Option Agreement or the Exercise Notice.  Full payment may consist of any considerationand method of payment permitted by this Option Agreement.  Shares issued upon exercise of an Option shallbe issued in the name of the Optionee or, if requested by the Optionee, in thename of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry onthe books of the Company or of a duly authorized transfer agent of theCompany), no right to vote or receive dividends or any other rights as astockholder shall exist with respect to the Shares, notwithstanding theexercise of the Option.  The Companyshall issue (or cause to be issued) such Shares promptly after the Option isexercised.  No adjustment will be madefor a dividend or other right for which the record date is prior to the datethe Shares are issued, except as provided in Section 10(c) of thePlan.

 

Exercise of this Option in any manner shall resultin a decrease in the number of Shares thereafter available for sale under theOption, by the number of Shares as to which the Option is exercised.

 

3.             Term.  Optionee may not exercise theOption before the commencement of its term or after its term expires.  During the term of the Option, Optionee mayonly exercise the Option to the extent vested. The term of the Option commences on the Grant Date and expires upon the ***earliest*** of thefollowing:

 

(a)           With respect to the unvested portion of theOption, upon termination of your continuous service;

 

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(b)           With respect to the vested portion of theOption, thirty (30) days after the termination of your continuous serviceas a Service Provider for any reason other than your Disability, death ortermination for Cause;

 

(c)           With respect to the vested portion of theOption, immediately upon the termination of your continuous service as aService Provider for Cause;

 

(d)           With respect to the vested portion of theOption, twelve (12) months after the termination of your continuousservice as a Service Provider due to your Disability or death;

 

(e)           Immediately prior to the close of certainCorporate Transactions, pursuant to Section 10(c) of the Plan; or

 

(f)            The day before the tenth (10th)anniversary of the Grant Date.

 

4.             Method of Payment. Payment of the aggregate Exercise Price shall be by any of thefollowing, or a combination thereof, at the election of the Optionee:

 

(a)           cash or check;

 

(b)           consideration received by the Company under a formalcashless exercise program adopted by the Company in connection with the Plan;or

 

(c)           surrender of other Shares which, (i) in the caseof Shares acquired from the Company, either directly or indirectly, have beenowned by the Optionee for more than six (6) months on the date ofsurrender, and (ii) have a Fair Market Value on the date of surrenderequal to the aggregate Exercise Price of the Exercised Shares.

 

5.             Optionee’s Representations.  Inthe event the Shares have not been registered under the Securities Act of 1933,as amended, at the time this Option is exercised, the Optionee shall, ifrequired by the Company, concurrently with the exercise of all or any portionof this Option, deliver to the Company an investment representation statementin a form satisfactory to the Company.

 

6.             Lock-Up Period. Optionee hereby agrees that Optionee shall not offer, pledge, sell,contract to sell, sell any option or contract to purchase, purchase any optionor contract to sell, grant any option, right or warrant to purchase, lend, orotherwise transfer or dispose of, directly or indirectly, any Common Stock (orother securities) of the Company or enter into any swap, hedging or otherarrangement that transfers to another, in whole or in part, any of the economicconsequences of ownership of any Common Stock (or other securities) of theCompany held by Optionee (other than those included in the registration) for aperiod specified by the representative of the underwriters of Common Stock (orother securities) of the Company not to exceed one hundred eighty (180)days following the effective date of any registration statement of the Companyfiled under the Securities Act.

 

Optionee agrees to execute and deliver such otheragreements as may be reasonably requested by the Company or the underwriterwhich are consistent with the foregoing or which are necessary to give furthereffect thereto.  In addition, ifrequested by the Company or the representative of the underwriters of CommonStock (or other securities) of the Company, Optionee shall provide, withinten (10) days of such request, such information as may be required bythe Company or such representative in connection with the completion of anypublic offering of the Company’s securities pursuant to a registrationstatement filed under the Securities Act. The obligations described in this Section shall not apply to aregistration relating solely to employee benefit plans on Form S-1 or Form S-8or similar forms that may be promulgated in the future, or a registrationrelating solely to a Commission Rule 145 transaction on Form S-4 orsimilar forms that may be promulgated in the future.  The Company may impose stop-transferinstructions with respect to the shares of Common Stock (or other securities)subject to the foregoing restriction until the end of said one hundred eighty(180) day period.  Optionee agreesthat any transferee of the Option or shares acquired pursuant to the Optionshall be bound by this Section.

 

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7.             Restrictions on Exercise.  ThisOption may not be exercised until such time as the Plan has been approved bythe stockholders of the Company, or if the issuance of such Shares upon suchexercise or the method of payment of consideration for such shares wouldconstitute a violation of any Applicable Law.

 

8.             Non-Transferability of Option.  ThisOption may not be transferred in any manner otherwise than by will or by thelaws of descent or distribution and may be exercised during the lifetime ofOptionee only by Optionee.  The terms ofthe Plan and this Option Agreement shall be binding upon the executors,administrators, heirs, successors and assigns of the Optionee.

 

9.             Tax Obligations.

 

(a)           Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (orthe Parent or Subsidiary employing or retaining Optionee) for the satisfactionof all Federal, state, local and foreign income and employment tax withholdingrequirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honorthe exercise and refuse to deliver Shares if such withholding amounts are notdelivered at the time of exercise.

 

(b)           Notice of Disqualifying Disposition of ISOShares.  If the Option granted to Optionee herein isan ISO, and if Optionee sells or otherwise disposes of any of the Sharesacquired pursuant to the ISO on or before the later of (1) the date twoyears after the Grant Date, or (2) the date one year after the date ofexercise, the Optionee shall immediately notify the Company in writing of suchdisposition.  Optionee agrees thatOptionee may be subject to income tax withholding by the Company on thecompensation income recognized by the Optionee.

 

10.           Entire Agreement; Governing Law.  ThePlan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement ofthe parties with respect to the subject matter hereof and supersede in theirentirety all prior undertakings and agreements of the Company and Optionee withrespect to the subject matter hereof, and may not be modified adversely to theOptionee’s interest except by means of a writing signed by the Company andOptionee.  This agreement is governed bythe internal substantive laws but not the choice of law rules ofCalifornia.

 

11.           No Guarantee of Continued Service.  OPTIONEEACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOFIS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY(NOT THROUGH THE ACT OF BEING HIRED OR APPOINTED, BEING GRANTED THIS OPTION ORACQUIRING SHARES HEREUNDER).  OPTIONEEFURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONSCONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOTCONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICEPROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOTINTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATEOPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUTCAUSE.

 

Optionee acknowledges receipt of a copy of the Planand represents that he or she is familiar with the terms and provisionsthereof, and hereby accepts this Option subject to all of the terms andprovisions thereof.  Optionee hasreviewed the Plan and this Option in their entirety, has had an opportunity toobtain the advice of counsel prior to executing this Option and fullyunderstands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final alldecisions or interpretations of the Administrator upon any questions arisingunder the Plan or this Option.  Optioneefurther agrees to notify the Company upon any change in the residence addressindicated below.

 

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***EXHIBIT A***

** **

**2005 STOCK AWARD PLAN**

** **

**EXERCISE NOTICE**

 

Egami Media, Inc.20525 Nordhoff Street, Suite 200

Chatsworth, CA 91311

 

Attention:

 

1.             Exercise of Option. Effective as of today,                           ,          , the undersigned (“*Optionee*”) hereby elects to exerciseOptionee’s option to purchase                   shares of the Common Stock (the “*Shares*”)of Image Entertainment, Inc. (the “*Company*”)under and pursuant to the 2005 Incentive Compensation Plan(the “*Plan*”) and the Stock Option Agreementdated                         ,         (the “*Option Agreement*”).

 

2.             Delivery of Payment. Optionee herewith delivers to the Company the full purchase price of theShares, as set forth in the Option Agreement, and any and all withholding taxesdue in connection with the exercise of the Option.

 

3.             Representations of Optionee. Optionee acknowledges that Optionee has received, read and understoodthe Plan and the Option Agreement and agrees to abide by and be bound by theirterms and conditions.

 

4.             Rights as Stockholder.  Untilthe issuance of the Shares (as evidenced by the appropriate entry on the booksof the Company or of a duly authorized transfer agent of the Company), no rightto vote or receive dividends or any other rights as a stockholder shall existwith respect to the Optioned Stock, notwithstanding the exercise of theOption.  The Shares shall be issued tothe Optionee as soon as practicable after the Option is exercised in accordancewith the Option Agreement.  No adjustmentshall be made for a dividend or other right for which the record date is priorto the date of issuance except as provided in Section 10(c) of thePlan.

 

5.             Tax Consultation. Optionee understands that Optionee may suffer adverse tax consequencesas a result of Optionee’s purchase or disposition of the Shares.  Optionee represents that Optionee hasconsulted with any tax consultants Optionee deems advisable in connection withthe purchase or disposition of the Shares and that Optionee is not relying onthe Company for any tax advice.

 

6.             Restrictive Legends and Stop-Transfer Orders.

 

(a)           Legends.  Optionee understands and agreesthat the Company shall cause the legends set forth below or legendssubstantially equivalent thereto, to be placed upon any certificate(s)evidencing ownership of the Shares together with any other legends that may berequired by the Company or by state or federal securities laws:

 

THE SHARES REPRESENTED BY THISCERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD NOT TO EXCEED180 DAYS FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERINGOF THE COMPANY’S SECURITIES AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OFBY THE HOLDER WITHOUT THE CONSENT OF THE COMPANY OR THE MANAGING UNDERWRITER.

 

(b)           Stop-Transfer Notices. Optionee agrees that, in order to ensure compliance with therestrictions referred to herein, the Company may issue appropriate “stoptransfer” instructions to its transfer agent, if any, and that, if the Companytransfers its own securities, it may make appropriate notations to the sameeffect in its own records.

 

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(c)           Refusal to Transfer.  TheCompany shall not be required (i) to transfer on its books any Shares thathave been sold or otherwise transferred in violation of any of the provisionsof this Exercise Notice or (ii) to treat as owner of such Shares or toaccord the right to vote or pay dividends to any purchaser or other transfereeto whom such Shares shall have been so transferred.

 

7.             Successors and Assigns.  TheCompany may assign any of its rights under this Exercise Notice to single ormultiple assignees, and this Exercise Notice shall inure to the benefit of thesuccessors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this ExerciseNotice shall be binding upon Optionee and his or her heirs, executors,administrators, successors and assigns.

 

8.             Interpretation.  Anydispute regarding the interpretation of this Exercise Notice shall be submittedby Optionee or by the Company forthwith to the Administrator which shall reviewsuch dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final andbinding on all parties.

 

9.             Governing Law; Severability.  ThisExercise Notice is governed by the internal substantive laws but not the choiceof law rules, of California.  In theevent that any provision hereof becomes or is declared by a court of competentjurisdiction to be illegal, unenforceable or void, this Option Agreement willcontinue in full force and effect.

 

10.           Entire Agreement.  ThePlan and Option Agreement are incorporated herein by reference.  This Exercise Notice, the Plan, the OptionAgreement and the Investment Representation Statement constitute the entireagreement of the parties with respect to the subject matter hereof andsupersede in their entirety all prior undertakings and agreements of theCompany and Optionee with respect to the subject matter hereof, and may not bemodified adversely to the Optionee’s interest except by means of a writingsigned by the Company and Optionee.

 
| **OPTIONEE**         | ** ** | **EGAMI MEDIA, INC.** |   |
|----------------------|------------|-----------------------|--------|
| ** **           | ** ** | ** **            |   |
|                 |       |                  |   |
| *Signature*          | * *   | *By*                  |   |
|                 |       |                  |   |
|                 |       |                  |   |
| *Print Name*         | * *   | *Title*               |   |
|                 |       |                  |   |
|                 |       |                  |   |
|                 |       |                  |   |
| *Residence  Address* |       |                  |   |

 

 

SIGNATURE PAGE OF STOCK OPTION EXERCISE NOTICE

 

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