Exhibit 10.6**DIAMOND HILL INVESTMENT GROUP, INC.****2005 EMPLOYEE AND DIRECTOR EQUITY INCENTIVE PLAN**(Effective May 12, 2005)      **1. ****Purposes of the Plan****.**The purposes of this Plan are (a) to attract and retain thebest available personnel for positions of substantial responsibility, (b) to provide additionalincentive to Employees, Directors and Consultants, and (c) to promote the success of the Company’sbusiness.      The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, RestrictedStock Units, Restricted Stock, Stock Grants and Stock Appreciation Rights.      **2. ****Definitions**. As used herein, the following definitions shall apply:            (a) “*Administrator*” means the Board or any of its Committees as shall be administering thePlan, in accordance with Section 4 of the Plan.            (b) “*Applicable Laws*” means the requirements relating to the administration of equity-basedawards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, anystock exchange or quotation system on which the Common Stock is listed or quoted and theapplicable laws of any foreign country or jurisdiction where Awards are, or will be, granted underthe Plan.            (c) “*Award*” means, individually or collectively, a grant under the Plan of Incentive StockOptions, Nonstatutory Stock Options, Restricted Stock Units, Restricted Stock, Stock Grants orStock Appreciation Rights.            (d) “*Award Agreement*” means the written or electronic agreement setting forth the terms andprovisions applicable to each Award granted under the Plan. The Award Agreement is subject to theterms and conditions of the Plan.            (e) “*Board*” means the Board of Directors of the Company.            (f) “*Cash Position*” means as to any Performance Period, the Company’s level of cash and cashequivalents.            (g) “*Change in Control*” means the occurrence of any of the following events:                  (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly orindirectly, of securities of the Company representing fifty percent (50%) or more of the totalvoting power represented by the Company’s then outstanding voting securities;                  (ii) The consummation of the sale or disposition by the Company of all or substantially all ofthe Company’s assets;
 

 
                  (iii) A change in the composition of the Board occurring within a two-year period, as a resultof which fewer than a majority of the directors are Incumbent Directors; or                  (iv) The consummation of a merger or consolidation of the Company with any other corporation,other than a merger or consolidation which would result in the voting securities of the Companyoutstanding immediately prior thereto continuing to represent (either by remaining outstanding orby being converted into voting securities of the surviving entity or its Parent) at least fiftypercent (50%) of the total voting power represented by the voting securities of the Company or suchsurviving entity or its Parent outstanding immediately after such merger or consolidation.            (h) “*Code*” means the Internal Revenue Code of 1986, as amended.            (i) “*Committee*” means a committee of Directors appointed by the Board in accordance withSection 4 of the Plan.            (j) “*Common Stock*” means the common stock of the Company.            (k) “*Company*” means Diamond Hill Investment Group, Inc., an Ohio corporation.            (l) “*Consultant*” means any natural person, including an advisor, engaged by the Company torender services to the Company.            (m) “*Director*” means a member of the Board.            (n) “*Disability*” means total and permanent disability as defined in Section 22(e)(3) of theCode.            (o) “*Earnings Per Share*” means as to any Performance Period, the Company’s or a businessunit’s Net Income, divided by a weighted average number of Common Stock outstanding and dilutivecommon equivalent shares deemed outstanding.            (p) “*Employee*” means any person, including an Officer or Director, employed by the Company orany Parent or Subsidiary of the Company, with the status of employment determined based upon suchfactors as are deemed appropriate by the Administrator in its discretion, subject to anyrequirements of the Code or the Applicable Laws. Neither service solely as a Director nor paymentof a Director’s fee by the Company shall be sufficient to constitute “employment” by the Company.            (q) “*Exchange Act*” means the Securities Exchange Act of 1934, as amended.            (r) “*Fair Market Value*” means, as of any date, the value of Common Stock determined asfollows:                  (i) If the Common Stock is listed on any established stock exchange or a national marketsystem including, without limitation, The NASDAQ National Market or The
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NASDAQ SmallCap Market of The NASDAQ Stock Market, its Fair Market Value shall be the closingsales price for such stock (or the closing bid, if no sales were reported) as quoted on suchexchange or system on the day of determination, as reported in The Wall Street Journal or suchother source as the Administrator deems reliable;                  (ii) If the Common Stock is regularly quoted by a recognized securities dealer but sellingprices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean betweenthe high bid and low asked prices for the Common Stock on the day of determination, as reported inThe Wall Street Journal or such other source as the Administrator deems reliable; or                  (iii) In the absence of an established market for the Common Stock, the Fair Market Valueshall be determined in good faith by the Administrator.            (s) “*Fiscal Year*” means the fiscal year of the Company.            (t) “*Freestanding SAR*” means a Stock Appreciation Right that is granted independent of anyOption.            (u) “*Incentive Stock Option*” means an Option intended to qualify as an incentive stock optionwithin the meaning of Section 422 of the Code and the regulations promulgated thereunder.            (v) “*Incumbent Directors*” means directors who either (i) are Directors as of the effectivedate of the Plan, or (ii) are elected, or nominated for election, to the Board with theaffirmative votes of at least a majority of the Incumbent Directors at the time of such electionor nomination (but will not include an individual whose election or nomination is in connectionwith an actual or threatened proxy contest relating to the election of directors to the Company).            (w) “*Individual Objectives*” means as to a Participant for any Performance Period, theobjective and measurable goals set by a process and approved by the Administrator (in itsdiscretion).            (x) “*Net Income*” means as to any Performance Period, the Company’s or a business unit’sincome after taxes.            (y) “*Nonstatutory Stock Option*” means an Option not intended to qualify as an Incentive StockOption.            (z) “*Officer*” means a person who is an officer of the Company within the meaning of Section16 of the Exchange Act and the rules and regulations promulgated thereunder.            (aa) “*Operating Cash Flow*” means as to any Performance Period, the Company’s or a businessunit’s sum of Net Income plus depreciation and amortization less capital expenditures plus changesin working capital comprised of accounts receivable, inventories, other current assets, tradeaccounts payable, accrued expenses, product warranty, advance payments from customers andlong-term accrued expenses.
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            (bb) “*Operating Income*” means as to any Performance Period, the Company’s or a businessunit’s income from operations but excluding any unusual items.            (cc) “*Option*” means an Award of a right to purchase Common Stock or Restricted Stock grantedpursuant to Section 6 of the Plan.            (dd) “*Option Exchange Program*” means a program whereby outstanding Options are surrendered inexchange for Options with a lower exercise price.            (ee) “*Parent*” means a “parent corporation,” whether now or hereafter existing, as defined inSection 424(e) of the Code.            (ff) “*Participant*” means the holder of an outstanding Award.            (gg) “*Performance Goals*” means the goal(s) (or combined goal(s)) determined by theAdministrator (in its discretion) to be applicable to a Participant with respect to an Award. Asdetermined by the Administrator, the Performance Goals applicable to an Award may provide for atargeted level or levels of achievement using one or more of the following measures: (i) CashPosition, (ii) Earnings Per Share, (iii) Individual Objectives, (iv) Net Income, (v) OperatingCash Flow, (vi) Operating Income, (vii) Return on Assets, (viii) Return on Equity, (ix) Return onSales, (x) Revenue, and (xi) Total Shareholder Return. The Performance Goals may differ fromParticipant to Participant and from Award to Award. Prior to the grant date, the Administratorshall determine whether any significant element(s) shall be included in or excluded from thecalculation of any Performance Goal with respect to any Participant. For example (but not by wayof limitation), the Administrator may determine that the measures for one or more PerformanceGoals shall be based upon the Company’s pro-forma results and/or results in accordance withgenerally accepted accounting principles.            (hh) “*Performance Period*” means any Fiscal Year or such other period as determined by theAdministrator in its sole discretion.            (ii) “*Plan*” means this 2005 Employee and Director Equity Incentive Plan.            (jj) “*Restricted Stock*” means Common Stock acquired pursuant to an Award that is subject to avesting schedule and the Company’s repurchase option.            (kk) “*Restricted Stock Unit*” means the right to receive Restricted Stock acquired pursuant toa grant under Section 7 of the Plan.            (ll) “*Return on Assets*” means as to any Performance Period, the percentage equal to theCompany’s or a business unit’s Operating Income before incentive compensation, divided by averagenet Company or business unit, as applicable, assets.            (mm) “*Return on Equity*” means as to any Performance Period, the percentage equal to theCompany’s Net Income divided by average shareholder’s equity.
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            (nn) “*Return on Sales*” means as to any Performance Period, the percentage equal to theCompany’s or a business unit’s Operating Income before incentive compensation, divided by theCompany’s or the business unit’s, as applicable, revenue.            (oo) “*Revenue*” means as to any Performance Period, the Company’s or business unit’s netsales.            (pp) “*Rule 16b-3*” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as ineffect when discretion is being exercised with respect to the Plan.            (qq) “*Section 16(b)*” means Section 16(b) of the Exchange Act.            (rr) “*Service Provider*” means an Employee, Director or Consultant.            (ss) “*Share*” means a share of Common Stock or Restricted Stock, as the case may be and asadjusted in accordance with Section 15 of the Plan.            (tt) “*Stock Appreciation Right*” or “*SAR*” means an Award, granted alone or in connection withan Option, that is designated as a Stock Appreciation Right pursuant to Section 9 of the Plan.            (uu) “*Stock Grant”*means an Award of Shares of Common Stock acquired pursuant to a grantunder Section 8 of the Plan.            (vv) “*Subsidiary*” means a “subsidiary corporation”, whether now or hereafter existing, asdefined in Section 424(f) of the Code.            (ww) “*Tandem SAR*” means a Stock Appreciation Right that is granted in connection with arelated Option, the exercise of which will require forfeiture of the right to purchase an equalnumber of Shares under the related Option (and when a Share is purchased under the Option, theStock Appreciation Right will be canceled to the same extent).            (xx) “*Ten Percent Holder”*means a person who owns stock representing more than ten percent(10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary.            (yy) “*Total Shareholder Return*” means as to any Performance Period, the total return (changein Share price plus reinvestment of any dividends) of a Share.      **3. ****Stock Subject to the Plan****.**            (a) *Number of Shares*. Subject to the provisions of Section 15 of the Plan, the maximumaggregate number of Shares that may be granted and/or sold under the Plan is the total of (i)500,000 Shares and (ii) an annual increase to be added on the last day of the Fiscal Year beginningin 2005, equal to the lesser of (A) 100,000 Shares, (B) 5% of the Company’s total outstandingShares on such date, or (C) a lesser amount determined by the Board. The Shares may be authorized,but unissued, or reacquired Common Stock. Shares will not be deemed to have been issued pursuant tothe Plan with respect to any portion of an Award that is settled in
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cash. Upon payment in Shares pursuant to the exercise of a SAR, the number of Shares availablefor issuance under the Plan will be reduced only by the number of Shares actually issued in suchpayment. If the exercise price of an Award is paid by tender to the Company of Shares owned by theParticipant, the number of Shares available for issuance under the Plan will be reduced by thegross number of Shares for which the Award is exercised.            (b) *ShareUsage*. If an Award expires or becomes unexercisable without having been exercisedin full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares whichwere subject thereto shall become available for future grant or sale under the Plan (unless thePlan has terminated); *provided, however*, that Shares that have actually been issued under the Planshall not be returned to the Plan and shall not become available for future distribution under thePlan, except that if unvested Shares of Restricted Stock are repurchased by the Company, suchShares shall become available for future grant under the Plan.      **4. ****Administration of the Plan****.**            (a) *Procedure*.                  (i) *Section 162(m)*. To the extent that the Administrator determines it to be desirable toqualify Awards granted hereunder as “performance-based compensation” within the meaning of Section162(m) of the Code, the Plan shall be administered by a Committee of two or more “outsidedirectors” within the meaning of Section 162(m) of the Code.                  (ii) *Rule 16b-3*. To the extent desirable to qualify transactions hereunder as exempt underRule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirementsfor exemption under Rule 16b-3.                  (iii) *Other Administration*. Other than as provided above, the Plan shall be administered by(A) the Board, or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.            (b) *Powers of the Administrator*. Subject to the provisions of the Plan, and in the case of aCommittee, subject to the specific duties delegated by the Board to such Committee, theAdministrator shall have the authority, at its discretion:                  (i) to determine the Fair Market Value;                  (ii) to select the Service Providers to whom Awards may be granted hereunder;                  (iii) to determine the number of Shares of Common Stock to be covered by each Award grantedhereunder;                  (iv) to approve forms of agreement for use under the Plan;                  (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of anyAward granted hereunder. Such terms and conditions include, but are
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not limited to, the exercise price, the time or times when Awards may be exercised (which maybe based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions,and any restriction or limitation regarding any Award or the Shares of Common Stock relatingthereto, based in each case on such factors as the Administrator, in its sole discretion, shalldetermine;                  (vi) to reduce the exercise price of any Award to the then current Fair Market Value if theFair Market Value of the Common Stock covered by such Award shall have declined since the date theAward was granted;                  (vii) to institute an Option Exchange Program;                  (viii) to construe and interpret the terms of the Plan and Awards granted pursuant to thePlan;                  (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, includingrules and regulations relating to sub-plans established for the purpose of satisfying applicableforeign laws;                  (x) to modify or amend each Award (subject to Section 25 of the Plan), including thediscretionary authority to extend the post-termination exercisability period of Awards longer thanis otherwise provided for in the Plan;                  (xi) to allow Participants to satisfy withholding tax obligations by electing to have theCompany withhold from the Shares to be issued upon exercise of an Award that number of Shareshaving a Fair Market Value equal to the minimum amount required to be withheld;                  (xii) to authorize any person to execute on behalf of the Company any instrument required toeffect the grant of an Award previously granted by the Administrator; and                  (xiii) to make all other determinations deemed necessary or advisable for administering thePlan.            (c) *Effect of Administrator’s Decision*. The Administrator’s decisions, determinations andinterpretations shall be final and binding on all Participants and any other holders of Awards.      **5. ****Eligibility****.**Awards may be granted to Service Providers; *provided, however*, thatIncentive Stock Options may be granted only to Employees.      **6. ****Stock Options****.**            (a) *Share Limitations.*                  (i) No Service Provider shall be granted, in any Fiscal Year, Options to purchase more than25,000 Shares. Notwithstanding the foregoing limitation, in connection with his or her initialservice as a Service Provider, a Service Provider may be granted Options to
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purchase up to an additional 25,000 Shares. The foregoing limitations shall be adjustedproportionately in connection with any change in the Company’s capitalization as described inSection 15.                  (ii) Each Option shall be designated in the Award Agreement as either an Incentive StockOption or a Nonstatutory Stock Option. Notwithstanding such designation, to the extent that theaggregate Fair Market Value of the Shares with respect to which Incentive Stock Options areexercisable for the first time by the Participant during any calendar year (under all plans of theCompany and any Parent or Subsidiary of the Company) exceeds $100,000, such Options shall betreated as Nonstatutory Stock Options. For purposes of this Section 6(a)(ii), Incentive StockOptions shall be taken into account in the order in which they were granted. The Fair Market Valueof the Shares shall be determined as of the time the Option with respect to such Shares is granted.                  (iii) If an Option is cancelled in the same Fiscal Year in which it was granted (other than inconnection with a transaction described in Section 15), the cancelled Option will be countedagainst the limits set forth in subsections (i) and (ii) above. For this purpose, if the exerciseprice of an Option is reduced, the transaction will be treated as a cancellation of the Option andthe grant of a new Option.            (b) *Term of Option*. The term of each Option shall be stated in the Award Agreement. In thecase of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or suchshorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive StockOption granted to a Participant who, at the time the Incentive Stock Option is granted, is a TenPercent Holder, the term of the Incentive Stock Option shall be five (5) years from the date ofgrant or such shorter term as may be provided in the Award Agreement.            (c) *Waiting Period and Exercise Dates.*At the time an Option is granted, the Administratorshall fix the period within which the Option may be exercised and shall determine any conditionsthat must be satisfied before the Option may be exercised.            (d) *Option Exercise Price.*The per share exercise price for the Shares to be issued pursuantto exercise of an Option shall be determined by the Administrator, subject to the following:                  (i) In the case of an Incentive Stock Option that is:                        (a) granted to an Employee who, at the time the Incentive Stock Option is granted, is a TenPercent Holder, the per Share exercise price shall be no less than one hundred ten percent (110%)of the Fair Market Value per Share on the date of grant; and                        (b) granted to any Employee other than a Ten Percent Holder, the per Share exercise priceshall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date ofgrant.
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      Notwithstanding the foregoing, Incentive Stock Options may be granted with a per Shareexercise price of less than one hundred percent (100%) of the Fair Market Value per Share on thedate of grant pursuant to a merger or other corporate transaction.                  (ii) In the case of a Nonstatutory Stock Option, including a Nonstatutory Stock Optionintended to qualify as “performance-based compensation” within the meaning of Section 162(m) of theCode, the per Share exercise price shall be no less than one hundred percent (100%) of the FairMarket Value per Share on the date of grant.            (e) *Notification Upon Disqualifying Disposition Under**Section 421(b)**of the Code.*Each AwardAgreement with respect to an Incentive Stock Option shall require the Participant to notify theCompany of any disposition of Shares issued pursuant to the exercise of such Option under thecircumstances described in Section 421(b) of the Code (relating to certain disqualifyingdispositions), within ten (10) days of such disposition      **7. ****Restricted Stock Units/Restricted Stock****.**            (a) *Grant of Restricted Stock Units or Restricted Stock*. Subject to the terms and provisionsof the Plan, the Administrator, at any time and from time to time, may grant Restricted Stock Unitsor Restricted Stock to Participants in such amounts as the Administrator shall determine, in itssole discretion, provided that during any Fiscal Year, no Service Provider will receive grants ofRestricted Stock Units/Restricted Stock for more than an aggregate of 25,000 Shares of RestrictedStock. Notwithstanding the foregoing limitation, in connection with his or her initial service asa Service Provider, a Service Provider may be granted an aggregate of up to an additional 25,000Shares of Restricted Stock and/or Shares of Restricted Stock underlying Restricted Stock Units. Theforegoing limitations shall be adjusted proportionately in connection with any change in theCompany’s capitalization as described in Section 15.            (b) *Issue and Vesting Date(s)*. At the time of the grant of Restricted Stock Units orRestricted Stock, the Administrator shall establish issue and vesting date(s) with respect to theRestricted Stock. The Administrator may divide the Restricted Stock into classes and assigndifferent issue dates or vesting schedules to such classes.            (c) *Repurchase Option*. Each Restricted Stock Unit or Restricted Stock grant shall beevidenced by an Award Agreement. The Award Agreement will grant the Company a repurchase optionwith respect to any unvested Shares of Restricted Stock, exercisable upon the voluntary orinvoluntary termination of the Service Provider’s relationship with the Company for any reason(including death or Disability). The purchase price for Shares repurchased pursuant to the AwardAgreement will be the original purchase price paid for the Shares, if any, and may be paid bycancellation of any indebtedness of the purchaser to the Company. The repurchase option will lapseat a rate determined by the Administrator.            (d) *Other Restrictions*. The Administrator shall impose such other conditions and/orrestrictions on the Restricted Stock Units/Restricted Stock granted pursuant to the Plan as it maydeem advisable including, without limitation, a requirement that Participants pay a stipulatedpurchase price for each share of Restricted Stock and/or restrictions under applicable federal orstate securities laws.
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            (e) *Rights as a Shareholder*. The holder of Restricted Stock shall have the rights equivalentto those of a shareholder and may exercise full voting powers with respected to the RestrictedStock during the restriction period.            (f) *Dividends And Other Distributions*. During the period of restriction, Participants holdingRestricted Stock granted hereunder may, if the Administrator so determines, be credited withregular cash dividends paid with respect to the underlying Shares while they are so held. TheAdministrator may apply any restrictions to the dividends that the Administrator deems appropriate.Without limiting the generality of the preceding sentence, if the grant or vesting of RestrictedStock granted to a Participant is designed to comply with the requirements of “performance-basedcompensation” under Section 162(m) of the Code, the Administrator may apply any restrictions itdeems appropriate to the payment of dividends declared with respect to such Restricted Stock, suchthat the dividends and/or the Restricted Stock maintain eligibility therefor.      **8. ****Stock Grants****.**            (a) *Stock Grants*. Subject to the terms and provisions of the Plan, the Administrator, at anytime and from time to time, may award Stock Grants in such amounts as the Administrator shalldetermine, in its sole discretion, provided that during any Fiscal Year, no Service Provider willreceive Stock Grants for more than an aggregate of 25,000 Shares of Common Stock. Notwithstandingthe foregoing limitation, in connection with his or her initial service as a Service Provider, aService Provider may be granted an aggregate of up to an additional 25,000 Shares pursuant to StockGrants. The foregoing limitations shall be adjusted proportionately in connection with any changein the Company’s capitalization as described in Section 15.            (b) *Restrictions*. Generally, Shares issued in connection with a Stock Grant will not have anyvesting requirements or other restrictions; *provided, however*, that the Administrator may imposesuch other conditions and/or restrictions on the Common Stock issued pursuant to Stock Grants as itmay deem advisable, in its sole discretion. Each Stock Grant shall be evidenced by an AwardAgreement.      **9. ****Stock Appreciation Rights****.**            (a) *Grant of SARs*. Subject to the terms and conditions of the Plan, a SAR may be granted toService Providers at any time and from time to time as will be determined by the Administrator, inits sole discretion, provided that during any Fiscal Year, no Service Provider will be granted SARscovering more than 25,000 Shares. Notwithstanding the foregoing limitation, in connection with hisor her initial service as a Service Provider, a Service Provider may be granted SARs covering up toan additional 25,000 Shares. The foregoing limitations shall be adjusted proportionately inconnection with any change in the Company’s capitalization as described in Section 15. TheAdministrator may grant Freestanding SARs, Tandem SARs, or any combination thereof.            (b) *Base Value and Other Terms.*The Administrator, subject to the provisions of the Plan, willhave complete discretion to determine the terms and conditions of SARs granted
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under the Plan. The base value of Tandem SARs will equal the exercise price of the relatedOption; *provided, however,*that the base value of a SAR shall not be less than one hundred percent(100%) of the Fair Market Value of a Share on the grant date. A SAR may be exercised for all orany portion of the Shares as to which it is exercisable; provided, that no partial exercise of aSAR shall be for an aggregate base value of less than $1,000. The partial exercise of a SAR shallnot cause the expiration, termination or cancellation of the remaining portion thereof.            (c) *Exercise of Tandem SARs*. Tandem SARs may be exercised for all or part of the Sharessubject to the related Option upon the surrender of the right to exercise the equivalent portion ofthe related Option. A Tandem SAR may be exercised only with respect to the Shares for which itsrelated Option is then exercisable. With respect to a Tandem SAR granted in connection with anIncentive Stock Option: (i) the Tandem SAR will expire no later than the expiration of theunderlying Incentive Stock Option; (ii) the value of the payout with respect to the Tandem SAR willbe for no more than one hundred percent (100%) of the difference between the exercise price of theunderlying Incentive Stock Option and the Fair Market Value of the Shares subject to the underlyingIncentive Stock Option at the time the Tandem SAR is exercised; and (iii) the Tandem SAR will beexercisable only when the Fair Market Value of the Shares subject to the Incentive Stock Optionexceeds the exercise price of the Incentive Stock Option.            (d) *Exercise of Freestanding SARs*. Freestanding SARs will be exercisable on such terms andconditions as the Administrator, in its sole discretion, will determine.            (e) *Payment of SAR Amount*. Upon exercise of a SAR, a Participant will be entitled to receivepayment from the Company in Shares of equivalent value to an amount determined by multiplying:                  (i) The difference between the Fair Market Value of a Share on the date of exercise over thebase value; and                  (ii) The number of Shares with respect to which the SAR is exercised.            (f) *Other Provisions*. Each SAR grant will be evidenced by an Award Agreement that will specifythe exercise price, the term of the SAR, the conditions of exercise, and such other terms andconditions as the Administrator, in its sole discretion, will determine.      **10. ****Performance-Based Restrictions on Awards****.**Any Award granted under the Plan mayvest subject to the satisfaction of one or more performance objectives. The Administrator may setperformance objectives, in its sole discretion, and the time period during which the performanceobjectives must be met will be called the “Performance Period.”            (a) *General Performance Objectives*. The Administrator may set performance objectives basedupon the achievement of Company-wide, divisional, or individual goals, or any other basisdetermined by the Administrator in its discretion.            (b) *Section **162(m)**Performance Objectives*. For purposes of qualifying Awards as“performance-based compensation” under Section 162(m) of the Code, the Committee, in itsdiscretion, may determine that the performance objectives applicable to
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Awards will be based on the achievement of Performance Goals. The Performance Goals will beset by the Committee on or before the latest date permissible to enable the Awards to qualify as“performance-based compensation” under Section 162(m) of the Code. In granting Awards which areintended to qualify under Section 162(m) of the Code, the Committee will follow any proceduresdetermined by it from time to time to be necessary or appropriate to ensure qualification of theAwards under Section 162(m) of the Code (e.g., in determining the Performance Goals).      **11. ****Exercise of Awards****.**            (a) *Procedure for Exercise.*Any Award granted under the Plan shall be exercisable according tothe terms of the Plan and at such times and under such conditions as determined by theAdministrator and set forth in the Award Agreement. An Award may not be exercised for a fraction ofa Share. An Award shall be deemed exercised when the Company receives: (A) written or electronicnotice of exercise (in accordance with the Award Agreement) from the person entitled to exercisethe Award, and (B) full payment, as required by the Award Agreement and the Plan, for the Shareswith respect to which the Award is exercised. Shares issued upon exercise of an Award shall beissued in the name of the Participant or, if requested by the Participant, in the name of theParticipant and his or her spouse and/or to a trust if, under Code Section 671 and applicable statelaw, the Participant remains the beneficial owner of the Shares. Exercising an Award in any mannershall decrease the number of Shares thereafter available, both for purposes of the Plan and forissuance under the Award, by the number of Shares as to which the Award is exercised.            (b) *Rights as a Shareholder.*Until the Shares are issued (as evidenced by the appropriateentry on the books of the Company or of a duly authorized transfer agent of the Company), no rightto vote or receive dividends or any other rights as a shareholder shall exist with respect to theShares, notwithstanding the exercise of the Award. The Company shall issue (or cause to be issued)such Shares promptly after the Award is exercised. No adjustment will be made for a dividend orother right for which the record date is prior to the date the Shares are issued, except asprovided in Section 15 of the Plan.            (c) *Termination of Relationship as a Service Provider*. If a Participant ceases to be a ServiceProvider, other than upon the Participant’s death or Disability, the Participant may exercise, asapplicable, his or her Award to the extent that the Award is vested on the date of termination,within three (3) months following the Participant’s termination or, in the case of an Award otherthan an Incentive Stock Option, a greater/lesser period if specified in the Award Agreement (but inno event later than the expiration of the term of such Award as set forth in the Award Agreement).If, on the date of termination, the Participant is not vested as to his or her entire Award, theShares covered by the unvested portion of the Award shall revert to the Plan; *provided, however*,that unvested Shares of Restricted Stock shall not automatically revert to the Plan but shall besubject to the Company’s repurchase option as provided in the Award Agreement. If, aftertermination, the Participant does not exercise his or her Award, as applicable, within the timespecified herein, the Award shall terminate, and the Shares covered by such Award shall revert tothe Plan.
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            (d) *Disability of Participant*. If a Participant ceases to be a Service Provider as a result ofthe Participant’s Disability, the Participant may exercise, as applicable, his or her Award, to theextent that the Award is vested on the date of termination, within twelve (12) months following theParticipant’s termination or, in the case of an Award other than an Incentive Stock Option, agreater/lesser period if specified in the Award Agreement (but in no event later than theexpiration of the term of such Award as set forth in the Award Agreement). If, on the date oftermination, the Participant is not vested as to his or her entire Award, the Shares covered by theunvested portion of the Award shall revert to the Plan; *provided, however*, that unvested Shares ofRestricted Stock shall not automatically revert to the Plan but shall be subject to the Company’srepurchase option as provided in the Award Agreement. If, after termination, the Participant doesnot exercise his or her Award, as applicable, within the time specified herein, the Award shallterminate, and the Shares covered by such Award shall revert to the Plan.            (e) *Death of Participant*. If a Participant dies while a Service Provider, the Award may beexercised, as applicable, by the Participant’s designated beneficiary, provided such beneficiaryhas been designated prior to Participant’s death in a form acceptable to the Administrator, to theextent that the Award is vested on the date of termination, within twelve (12) months followingParticipant’s death or a greater/lesser period if specified in the Award Agreement (but in no eventlater than the expiration of the term of such Award as set forth in the Award Agreement). If nosuch beneficiary has been designated by the Participant, then such Award may be exercised by thepersonal representative of the Participant’s estate or by the person(s) to whom the Award istransferred pursuant to the Participant’s will or in accordance with the laws of descent anddistribution. If, at the time of death, Participant is not vested as to his or her entire Award,the Shares covered by the unvested portion of the Award shall immediately revert to the Plan;*provided, however*, that unvested Shares of Restricted Stock shall not automatically revert to thePlan but shall be subject to the Company’s repurchase option as provided in the Award Agreement.If the Award is not so exercised, as applicable, within the time specified herein, the Award shallterminate, and the Shares covered by such Award shall revert to the Plan.      **12. ****Form of Consideration.** The Administrator shall determine the acceptable form ofconsideration for exercising an Award, including the method of payment. In the case of an IncentiveStock Option, the Administrator shall determine the acceptable form of consideration at the time ofgrant. Such consideration may consist entirely of:            (a) cash;            (b) check;            (c) other Shares which, in the case of Shares acquired directly or indirectly from theCompany, (i) have been owned by the Participant for more than six (6) months on the date ofsurrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregateexercise price of the Shares as to which said Award shall be exercised;            (d) consideration received by the Company under a cashless exercise program implemented by theCompany in connection with the Plan;
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            (e) a reduction in the amount of any Company liability to the Participant, including anyliability attributable to the Participant’s participation in any Company-sponsored deferredcompensation program or arrangement;            (f) any combination of the foregoing methods of payment; or            (g) such other consideration and method of payment for the issuance of Shares to the extentpermitted by Applicable Laws.      **13. ****Transferability of Awards****.**Unless determined otherwise by the Administrator,Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any mannerother than by will or by the laws of descent or distribution and may be exercised, during thelifetime of the Participant, only by the Participant. If the Administrator makes an Awardtransferable, such Award shall contain such additional terms and conditions as the Administratordeems appropriate.      **14. ****Leaves of Absence****.**Unless the Administrator provides otherwise, vesting of Awardsgranted hereunder will be suspended during any unpaid leave of absence. A Service Provider will notcease to be an Employee in the case of any leave of absence approved by the Company. For purposesof Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment uponexpiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of aleave of absence approved by the Company is not so guaranteed, then three (3) months following the91st day of such leave any Incentive Stock Option held by the Participant will cease tobe treated as an Incentive Stock Option and will be treated for tax purposes as a NonstatutoryStock Option.      **15. ****Adjustments Upon Changes in Capitalization, Merger or Change in Control****.**            (a) *Changes in Capitalization*. Subject to any required action by the shareholders of theCompany, the number of Shares of Common Stock that have been authorized for issuance under the Planbut as to which no Awards have yet been granted or which have been returned to the Plan uponcancellation or expiration of an Award, the number of Shares that may be added annually to the Planpursuant to Section 3(a), the number of Shares of Common Stock as well as the price per share ofCommon Stock covered by each such outstanding Award, and the numerical Share limits in Sections3(a), 6(a), 7(a), 8(a) and 9(a) shall be proportionately adjusted for any increase or decrease inthe number of issued Shares of Common Stock resulting from a stock split, reverse stock split,stock dividend, combination or reclassification of the Common Stock, or any other increase ordecrease in the number of issued Shares of Common Stock effected without receipt of considerationby the Company; *provided, however*, that conversion of any convertible securities of the Companyshall not be deemed to have been “effected without receipt of consideration.” Such adjustmentshall be made by the Board, whose determination in that respect shall be final, binding andconclusive. Except as expressly provided herein, no issuance by the Company of shares of stock ofany class, or securities convertible into shares of stock of any class, shall affect, and noadjustment by reason thereof shall be made with respect to, the number or price of Shares of CommonStock subject to an Award.
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            (b) *Dissolution or Liquidation*. In the event of the proposed dissolution or liquidation of theCompany, the Administrator shall notify each Participant as soon as practicable prior to theeffective date of such proposed transaction. The Administrator in its discretion may provide for aParticipant to have the right to exercise his or her Award until ten (10) days prior to suchtransaction as to all Shares covered thereby, including Shares as to which the Award would nototherwise be exercisable. In addition, the Administrator may provide that any Company repurchaseoption applicable to any Restricted Stock shall lapse as to all such Shares, provided the proposeddissolution or liquidation takes place at the time and in the manner contemplated. To the extent ithas not been previously exercised, an Award will terminate immediately prior to the consummation ofsuch proposed action.            (c) *Merger or Change in Control*. In the event of a merger of the Company with or into anothercorporation, or a Change in Control, each outstanding Award shall be assumed or an equivalentoption or right substituted by the successor corporation or a Parent or Subsidiary of the successorcorporation.      In the event that the successor corporation refuses to assume or substitute for the Award, theParticipant shall fully vest in and have the right to exercise his or her Awards as to all Sharescovered thereby, including Shares as to which such Awards would not otherwise be vested orexercisable. All restrictions on Restricted Stock or other vesting criteria will lapse, asdetermined by the Board. In addition, if an Award becomes fully vested and exercisable in lieu ofassumption or substitution in the event of a Change in Control, the Administrator shall notify theParticipant in writing or electronically that the Award shall be fully vested and exercisable for aperiod of fifteen (15) days from the date of such notice, and the Award shall terminate upon theexpiration of such period.      For the purposes of this subsection (c), an Award shall be considered assumed if, followingthe merger or Change in Control, the Award confers the right to purchase or receive, for each Sharesubject to the Award immediately prior to the merger or Change in Control, the consideration(whether stock, cash, or other securities or property); *provided, however*, that if suchconsideration received in the merger or Change in Control is not solely common stock of thesuccessor corporation or its Parent, the Administrator may, with the consent of the successorcorporation, provide for the consideration to be received upon the exercise of the Award, for eachShare subject to such Award, to be solely common stock of the successor corporation or its Parentequal in fair market value to the per share consideration received by holders of Common Stock inthe merger or Change in Control.      Notwithstanding anything in this Section 15(c) to the contrary, an Award that vests, is earnedor paid-out upon the satisfaction of one or more Performance Goals, will not be considered assumedif the Company or its successor modifies any of such Performance Goals without the Participant’sconsent; *provided, however*, a modification to such Performance Goals only to reflect the successorcorporation’s post-Change in Control corporate structure will not be deemed to invalidate anotherwise valid Award assumption.      **16. ****No Effect on Employment or Service****.**Neither the Plan nor any Award shall conferupon a Participant any right with respect to continuing the Participant’s relationship as a
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Service Provider with the Company, nor shall they interfere in any way with the Participant’sright or the Company’s right to terminate such relationship at any time, with or without cause.      **17. ****Date of Grant****.**The date of grant of an Award shall be, for all purposes, the dateon which the Administrator makes the determination granting such Award, or such other later date asis determined by the Administrator. Notice of the determination shall be provided to eachParticipant within a reasonable time after the date of such grant.      **18. ****Conditions Upon Issuance of Shares****.**            (a) *Legal Compliance*. Shares shall not be issued pursuant to the exercise of an Award unlessthe exercise of such Award and the issuance and delivery of such Shares shall comply withApplicable Laws and shall be further subject to the approval of counsel for the Company withrespect to such compliance.            (b) *Investment Representations*. As a condition to the exercise of an Award, the Company mayrequire the person exercising such Award to represent and warrant at the time of any such exercisethat the Shares are being purchased only for investment and without any present intention to sellor distribute such Shares if, in the opinion of counsel for the Company, such a representation isrequired.      **19. ****Inability to Obtain Authority****.**The inability of the Company to obtain authorityfrom any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel tobe necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company ofany liability in respect of the failure to issue or sell such Shares as to which such requisiteauthority shall not have been obtained.      **20. ****Reservation of Shares****.**The Company, during the term of this Plan, will at alltimes reserve and keep available such number of Shares as shall be sufficient to satisfy therequirements of the Plan.      **21. ****Withholding Taxes****.**            (a) *Cash*. Whenever cash is to be paid pursuant to an Award, the Company shall have the rightto deduct therefrom an amount sufficient to satisfy any federal, state and local withholding taxrequirements related thereto.            (b) *Shares*. Whenever Shares are to be delivered pursuant to an Award, the Company shall havethe right to require the Participant to remit to the Company in cash an amount sufficient tosatisfy any federal, state and local withholding tax requirements related thereto. With theapproval of the Administrator, in its sole discretion, a Participant may satisfy the foregoingrequirement by electing to have the Company withhold from delivery Shares having a value equal tothe amount of tax to be withheld. Such Shares shall be valued at their Fair Market Value on thedate as of which the amount of tax to be withheld is determined. Fractional share amounts shall besettled in cash. Such a withholding election may be made with respect to all or any portion of theShares to be delivered pursuant to an Award. All elections by a Participant to have Shareswithheld for these purposes shall be made in such form and under
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such conditions as the Administrator may deem necessary or advisable. The Company shall notbe required to issue any Shares under the Plan until such tax obligations are satisfied.      **22. ****Notification of Election Under****Section 83(b)****of The Code****.**If any Participantshall, in connection with the acquisition of Shares under the Plan, make the election permittedunder Section 83(b) of the Code (i.e., an election to include in gross income in the year oftransfer the amounts specified in Section 83(b)), such Participant shall notify the Company of suchelection within ten (10) days of filing notice of the election with the Internal Revenue Service,in addition to any filing and notification required pursuant to regulations issued under theauthority of Code Section 83(b).      **23. ****Escrow**. Each share of Restricted Stock issued pursuant to the terms of the Planwhich has not vested shall be held in escrow pursuant to the terms of the Award Agreement. TheCompany may retain the certificates representing the Restricted Stock in the Company’s possessionuntil such time as all conditions and/or restrictions applicable to such Shares have beensatisfied.      **24. ****Shareholder Approval; Term****.**The Plan shall be subject to, and shall becomeeffective upon, approval by the shareholders of the Company, which shall be obtained within twelve(12) months after the date the Plan is adopted by the Board. Such shareholder approval shall beobtained in the manner and to the degree required under Applicable Laws. The Plan shall continuein effect for a term of ten (10) years from its effective date unless terminated earlier underSection 25 of the Plan.      **25. ****Amendment and Termination of the Plan****.**            (a) *Amendment and Termination*. The Board may at any time amend, alter, suspend or terminatethe Plan.            (b) *Shareholder Approval*. The Company shall obtain shareholder approval of any Plan amendmentto the extent necessary and desirable to comply with Applicable Laws.            (c) *Effect of Amendment or Termination*. No amendment, alteration, suspension or termination ofthe Plan shall impair the rights of any Participant, unless mutually agreed otherwise between theParticipant and the Administrator, which agreement must be in writing and signed by the Participantand the Company. Termination of the Plan shall not affect the Administrator’s ability to exercisethe powers granted to it hereunder with respect to Options granted under the Plan prior to the dateof such termination.
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