exv10w88






Exhibit
10.88


SELECT MEDICAL HOLDINGS CORPORATION




2005 EQUITY INCENTIVE PLAN

(amended and restated as of August 12, 2009)




ARTICLE I

GENERAL




     1.1. Purpose. The purpose of the Select Medical Holdings Corporation 2005 Equity
Incentive Plan (the “Plan”) is to:



          (a) attract and retain employees of the Company and its Subsidiaries, qualified individuals to
serve as non-employee members of the Board, and consultants to provide services to the Company and
its Subsidiaries;




          (b) motivate participating employees, directors and consultants, by means of appropriate
incentives, to achieve long-range goals;




          (c) provide incentive compensation opportunities which are competitive with those of other
major corporations in the Company’s peer group; and




          (d) further align Participants’ interests with those of the Company’s other stockholders
through compensation alternatives based on the Company’s Stock;




and thereby promote the long-term financial interest of the Company and its Subsidiaries, including
the growth in value of the Company’s equity and enhancement of long-term stockholder return.




     1.2. Effective Time. The Plan was originally effective on February 24, 2005. This
amendment and restatement of the Plan shall become effective immediately prior to the consummation
of a Qualified Public Offering (the “Effective Time”). Unless earlier terminated by the Board
pursuant to Section 1.19, this amendment and restatement of the Plan shall terminate upon the
earlier of the 10 year anniversary of (i) its adoption by the Board or (ii) its approval by the
Company’s stockholders.



     1.3. Definitions. The following definitions are applicable to the Plan:



          (a) “1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor
statute.




          (b) “Affiliate” means, with respect to any specified Person, a Person that directly, or
indirectly through one or more intermediaries, Controls, is Controlled by or is under common
Control with, the specified Person.




          (c) “Award” means Restricted Stock, Incentive Stock Options or Non-Qualified Stock Options
granted under the terms of the Plan.




 









 








          (d) “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5
under the 1934 Act, except that in calculating the beneficial ownership of any particular “person”
(as that term is used in Section 13(d)(3) of the 1934 Act), such “person” will be deemed to have
beneficial ownership of all securities that such “person” has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is exercisable only
after the passage of time.




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




          (f) “Capital Stock” means: (i) in the case of a corporation, corporate stock; (ii) in the case
of an association or business entity, any and all shares, interests, participations, rights or
other equivalents (however designated) of corporate stock; (iii) in the case of a partnership or
limited liability company, partnership interests (whether general or limited) or membership
interests; and (iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the issuing Person,
but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether
or not such debt securities include any right of participation with Capital Stock.




          (g) “Change of Control” means:





          (i) the direct or indirect sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the properties or assets of the Company and its Subsidiaries
or Select and its subsidiaries, in either case, taken as a whole, to any “person” (as that
term is used in Section 13(d) of the 1934 Act) other than Permitted Holders;




          (ii)
the consummation of any transaction (including, without limitation, any
merger or consolidation), the result of which is that any “person” (as defined in Section
1.3(g)(i)), other than Permitted Holders, becomes the Beneficial Owner, directly or
indirectly, of more than 40% of the Voting Stock of the Company or Select, measured by
voting power rather than number of shares, unless the Permitted Holders are the Beneficial
Owners of a greater percentage of the Voting Stock of the Company or Select, as the case may
be; provided, however, that for purposes of this clause (ii), each Person will be deemed to
beneficially own any Voting Stock of another Person held by one or more of its subsidiaries;
or




          (iii) the first day on which a majority of the members of the Board or the board of
directors of Select (the “Select Board”) are not Continuing Directors.



          (h) “Code” means the Internal Revenue Code of 1986, as amended.




          (i) “Committee” means the compensation committee of the Board (or, if there is no such
committee, the Board committee performing equivalent functions), which, from and after the date the
Company registers any class of its equity securities pursuant to Section 12 of



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the 1934 Act, shall be comprised solely of at least two members of the Board who are (i)
“non-employee directors” as defined under rules and regulations promulgated under Section 16(b) of
the 1934 Act and (ii) “outside directors” as defined in Section 162(m) of the Code. The Board
shall have the power to fill vacancies on the Committee arising by resignation, death, removal or
otherwise. The Committee may delegate ministerial tasks to such persons as it deems appropriate.




          (j) “Company” means Select Medical Holdings Corporation, a Delaware corporation.




          (k)
“Continuing Directors” means, as of any date of
determination, any member of the
Board or the Select Board who: (i) was a member of such board of directors on the first date Select
became a wholly-owned subsidiary of the Company; (ii) was nominated for election or elected to such
board of directors with the approval of a majority of the Continuing Directors who were members of
such board of directors at the time of such nomination or election; or (iii) was designated or
appointed with the approval of Permitted Holders holding a majority of the Voting Stock of all of
the Permitted Holders.




          (l) “Control” (including the terms “Controlling,” “Controlled by” and “under common Control
with”) means the possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.




          (m) “Disabled” means the person so affected is unable to engage in substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a continuous period
of not less than one hundred eighty (180) days. The Committee shall have sole discretion to
determine whether a Participant is Disabled for purposes of the Plan.




          (n) “Fair Market Value” means, with respect to a share of Stock on any date herein specified,
(i) if the shares of Stock are listed or admitted for trading on a national securities exchange,
the reported closing sales price, regular way, or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices, regular way, in either case on
the principal national securities exchange on which the shares of Stock are listed or admitted for
trading, (ii) if the shares of Stock are not listed or admitted for trading on a national
securities exchange, the average of the closing bid and asked prices of the shares of Stock, as
reported by The National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such day the shares of Stock are not quoted by any such organization,
the fair market value per share of Stock on such day, as determined in good faith by the Committee.
If the Fair Market Value of Stock is to be determined as of a day other than a trading day, the
Fair Market Value of Stock for such day shall be determined as described above on the last trading
day ending prior to the date as of which the determination is being made. If, in the discretion of
the Committee, another means of determining Fair Market Value shall be necessary or advisable in
order to comply with the requirements of Section 162(m) of the Code or any other applicable law,
governmental regulation, or ruling of any governmental entity, then



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the Committee may provide for another means of such determination; provided, that, in such
event, Fair Market Value will be determined in accordance with Section 409A of the Code (and, with
respect to Incentive Stock Options, Section 422 of the Code) and the applicable guidance
thereunder.




          (o) “Incentive Stock Option” means a Stock Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code.




          (p) “Non-Qualified Stock Option” means a Stock Option other than an Incentive Stock Option.




          (q) “Option Date” means, with respect to any Stock Option, the date on which the Stock Option
is awarded under the Plan.




          (r) “Option Share” means any share of Stock issued upon exercise of a Stock Option, regardless
of whether the holder of such share is the Participant in respect of which such Stock Option was
originally issued under the Plan or a transferee thereof.




          (s) “Participant” means any employee of the Company or any Subsidiary, any non-employee member
of the Board, and any consultant providing services to the Company or any Subsidiary, who is
selected by the Committee to participate in the Plan.




          (t) “Performance Goal” means a goal that must be met by the end of a period specified by the
Committee (but that is substantially uncertain of being met before the grant of the Award) based
upon: (i) the price of Stock, (ii) the market share of the Company, its Subsidiaries or Affiliates
(or any business unit thereof), (iii) sales by the Company, its Subsidiaries or Affiliates (or any
business unit thereof), (iv) earnings per share of Stock, (v) return on stockholder equity of the
Company, (vi) costs of the Company, its Subsidiaries or Affiliates (or any business unit thereof),
(vii) cash flow of the Company, its Subsidiaries or Affiliates (or any business unit thereof),
(viii) return on total assets of the Company, its Subsidiaries or Affiliates (or any business unit
thereof), (ix) return on invested capital of the Company, its Subsidiaries or Affiliates (or any
business unit thereof), (x) return on net assets of the Company, its Subsidiaries or Affiliates (or
any business unit thereof), (xi) operating income of the Company, its Subsidiaries or Affiliates
(or any business unit thereof), (xii) net income of the Company, its Subsidiaries or Affiliates (or
any business unit thereof) or (xiii) any other financial or other measurement deemed appropriate by
the Committee, as it relates to the results of operations or other measurable progress of the
Company, its Subsidiaries or Affiliates (or any business unit thereof). The Committee shall have
discretion to determine the specific targets with respect to each of these categories of
Performance Goals.




          (u) “Permitted Holder” means (A) Welsh Carson, Anderson & Stowe IX, L.P., WCAS Capital
Partners IV, L.P., Thoma Cressey Fund VI, L.P., Thoma Cressey Fund VII, L.P., and their respective
affiliates and (B) (i) any officer, director, employee, member, partner or stockholder of the
manager or general partner (or the general partner of the general partner) of any of the Persons
referred to in clause (A), (ii) Rocco A. Ortenzio, Robert A. Ortenzio and each



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of the other directors, officers and employees of Select who owned capital stock of the
Company on the first date Select became a wholly-owned subsidiary of the Company; (iii) the
spouses, ancestors, siblings, descendants (including children or grandchildren by adoption) and the
descendants of any of the siblings of the Persons referred to in clause (i) or (ii); (iv) in the
event of the incompetence or death of any of the Persons described in any of clauses (i) through
(iii), such Person’s estate, executor, administrator, committee or other personal representative,
in each case, who at any particular date shall be the Beneficial Owner or have the right to
acquire, directly or indirectly, Capital Stock of Select or the Company (or any other direct or
indirect parent company of Select); (v) any trust created for the benefit of the Persons described
in any of clauses (i) through (iv) or any trust for the benefit of any such trust; or (vi) any
Person controlled by any of the Persons described in any of clauses (i) through (v). For purposes
of this definition, “control,” as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through ownership of voting securities or by contract or
otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.




          (v) “Permitted Transferees” means a member of a Participant’s immediate family, trusts for the
benefit of the Participant or such immediate family members, a foundation in which such immediate
family members (or the Participant) control the management of assets, and partnerships in which the
Participant or such immediate family members are the only partners, in each case provided that no
consideration is provided for the transfer. Immediate family members shall include a Participant’s
spouse and descendants (children, grandchildren and more remote descendants), and shall include
step-children and relationships arising from legal adoption.




          (w) “Person” means any natural person, corporation, limited liability company, partnership,
trust, joint stock company, business trust, unincorporated association, joint venture, governmental
authority or other legal entity of any nature whatsoever.




          (x) “Qualified Public Offering” means the sale of Stock by the Company to the public in a firm
commitment underwritten public offering pursuant to an effective registration statement (other than
a registration statement on Form S-4 or Form S-8 or any similar successor form) filed under the
Securities Act of 1933, as amended, in which the aggregate proceeds to the Company (together with
the aggregate proceeds in all such prior public offerings) prior to underwriting discounts and
commissions are at least $250,000,000.




          (y) “Restricted Period” has the meaning given to it in Article IV.




          (z) “Restricted Stock” has the meaning given to it in Article IV.




          (aa) “Retirement” means the termination of employment from the Company constituting retirement
as determined by the Committee.




          (bb) “Select” means Select Medical Corporation, a Delaware corporation.




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          (cc) “Stock” means the common stock of the Company, par value $0.001 per share.




          (dd) “Stock Option” means the right of a Participant to purchase Stock pursuant to an
Incentive Stock Option or a Non-Qualified Stock Option awarded pursuant to the provisions of the
Plan.




          (ee) “Subsidiary” means, at any relevant time, any corporation or other entity of which 50% or
more of the total combined voting power of all classes of stock (or other equity interests in the
case of an entity other than a corporation) entitled to vote is owned, directly or indirectly, by
the Company.




          (ff) “Terminated for Cause” shall mean that a Participant’s employment is terminated for
“cause” as specified in a written employment agreement, if the Participant is party to a written
employment agreement with the Company or any Subsidiary, or, with respect to a Participant that is
not a party to a written employment agreement with the Company or any Subsidiary, if the Committee
determines that such Participant’s employment or other service to the Company or any Subsidiary is
being terminated as a result of malfeasance, misconduct, dishonesty, disloyalty, disobedience or
action that might reasonably be expected to injure the Company or its business interests or
reputation.




          (gg) “Voting Stock” of any specified Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the board of directors of such
Person.




     1.4. Administration.



          (a) The Plan shall be administered by the Committee. Any action of the Committee in
administering the Plan shall be final, conclusive and binding on all Persons, including the
Company, its Subsidiaries and Affiliates and any of their employees, the Participants (including
Permitted Transferees, if applicable), any Persons claiming rights from or through Participants,
and the stockholders of the Company.




          (b) Subject to the provisions of the Plan, the Committee shall have full and final authority
in its discretion (i) to select the employees, non-employee directors and consultants who will
receive Awards pursuant to the Plan; (ii) to determine the type or types of Awards to be granted to
each Participant; (iii) to determine the number of shares of Stock to which an Award will relate,
the terms and conditions of any Award granted under the Plan (including, but not limited to,
restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award
and waivers or accelerations thereof, and waivers of or modifications to performance conditions
(including Performance Goals) relating to an Award, based in each case on such considerations as
the Committee shall determine) and all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent, and under what circumstances an Award may be canceled,
forfeited, or surrendered; (v) to determine whether, and to certify that, Performance Goals to
which the settlement of an Award is subject



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are satisfied; (vi) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan, and to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; (vii) to determine the effect, if any,
of a Change of Control upon outstanding Awards; and (viii) to construe and interpret the Plan and
to make all other determinations as it may deem necessary or advisable for the administration of
the Plan.




          (c) The Committee may impose on any Award or the exercise thereof, at the date of grant or
thereafter, such terms and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine, including terms requiring forfeiture of Awards in the event of the
Participant’s termination of employment or other service with the Company and its Subsidiaries;
provided, however, that the Committee shall retain full power to accelerate or waive any such term
or condition as it may have previously imposed. The right of a Participant to exercise or receive
a grant or settlement of any Award, and the timing thereof, may be subject to such Performance
Goals as may be specified by the Committee.




     1.5. Participation. Subject to the terms and conditions of the Plan, the Committee
shall determine and designate, from time to time, the employees, non-employee Board members and
consultants of the Company or any of its Subsidiaries who will participate in the Plan. In the
discretion of the Committee, a Participant may be awarded Stock Options or Restricted Stock, and
more than one Award may be granted to a Participant. Except as otherwise agreed to by the Company
and the Participant, any Award under the Plan shall not affect any previous Award to the
Participant under the Plan or any other plan maintained by the Company or any of its Subsidiaries.







     1.6. Shares Subject to the Plan. The shares of Stock with respect to which Awards may
be made under the Plan shall be either authorized and unissued shares or issued shares. Any shares
of Stock issued by the Company through the assumption or substitution of outstanding grants in
connection with the acquisition of another entity shall not reduce the maximum number of shares
available for delivery under the Plan. Subject to adjustment pursuant to the provisions of Section
1.12, the maximum number of shares of Stock available for issuance with respect to (i) Stock
Options shall be 5,317,379 shares, increased by an amount such that the total number of shares
available for issuance with respect to Stock Options shall be 5,317,379 shares plus 10% of the
Company’s total issued and outstanding shares of Common Stock in
excess of 68,173,794 shares;
provided, however, that such increase in shares over the term of the Plan shall not exceed
3,000,000 shares in the aggregate and (ii) Restricted Stock shall not exceed 17,276,723 shares
(the aggregate number of shares authorized for issuance under clauses (i) and (ii), the “Plan
Limit”). Notwithstanding anything contained herein to the contrary, the maximum number of shares
of Stock that may be delivered in respect of Incentive Stock Options granted under the Plan shall
not exceed 7,500,000 shares. If any shares of Stock subject to an Award are forfeited or such
Award otherwise terminates or is settled for any reason whatsoever without an actual distribution
of shares to the Participant, any shares counted against the number of shares available for
issuance pursuant to the Plan with respect to such Award shall, to the extent of any such
forfeiture, settlement, or termination, again be available for Awards under the Plan; provided,
however, that the Committee may adopt procedures for the counting of shares of Stock







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relating to any Award to ensure appropriate counting, avoid double counting, and provide for
adjustments in any case in which the number of shares of Stock actually distributed differs from
the number of shares of Stock previously counted in connection with such Award.








     1.7. Individual Limit. Subject to adjustment as provided in Section 1.12, the maximum
number of shares of Stock available for Awards that may be granted to any individual shall not
exceed 1,500,000 shares during any calendar year (the “Individual Limit”).







     1.8. Compliance With Applicable Laws. Notwithstanding any other provision of the
Plan, the Company shall have no liability to issue any shares of Stock under the Plan unless such
issuance would comply with all applicable laws and the applicable requirements of any national
securities exchange or similar entity. Prior to the issuance of any shares of Stock under the
Plan, the Company may require a written statement that the recipient is acquiring the shares for
investment and not for the purpose or with the intention of distributing the shares. The
Committee, in its discretion, may impose such conditions, restrictions and contingencies with
respect to shares of Stock acquired pursuant to the exercise of a Stock Option or in connection
with an Award of Restricted Stock as the Committee determines to be desirable in order to comply
with applicable laws and any applicable requirements of any national securities exchange or similar
entity.



     1.9. Withholding of Taxes. Each Participant must make appropriate arrangements with
the Company for the payment of any taxes relating to an Award granted hereunder. The Company or
any Subsidiary, as applicable, may, in its discretion, withhold from any payment relating to any
Award under the Plan, including from a distribution of Stock or any payroll or other payment to a
Participant, amounts of withholding and other taxes due in connection with any transaction
involving an Award, and take such other action as the Committee may deem advisable in its
discretion to enable the Company and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This authority shall include
the ability to, in the Committee’s discretion, withhold or receive Stock or other property and to
make cash payments in respect thereof in satisfaction of a Participant’s tax withholding
obligations. Withholding of taxes in the form of shares of Stock from the profit attributable to
the Award shall not occur at a rate that exceeds the minimum required statutory federal and state
withholding rates.



     1.10. Transferability. Incentive Stock Options are not transferable other than by
will or by the laws of descent and distribution. Incentive Stock Options may be exercised during
the lifetime of the Participant only by the Participant or, in the case of a Disabled Participant,
by his guardian or legal representative on his behalf. Non-Qualified Stock Options are not
transferable other than by will or by the laws of descent and distribution or, if provided by the
Committee in the Award Agreement (as defined in Section 1.14 hereof), to Permitted Transferees in
compliance with such Award Agreement. Non-Qualified Stock Options may be exercised either by the
Participant, his guardian or legal representative in the case of a Disabled Participant and as
otherwise permitted under the laws of descent and distribution, or by a Permitted Transferee to
whom any such Non-Qualified Stock Options are transferred in compliance with the terms of the



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applicable Award Agreement. During the Restricted Period, shares of Restricted Stock awarded
under the Plan are not transferable other than by will or by the laws of descent and distribution
or, if provided in the Award Agreement, to Permitted Transferees in compliance with such Award
Agreement. Stock Options, Option Shares and shares of Restricted Stock shall also be subject to
any restrictions on transfer or other restrictions or conditions contained in the Award Agreement
relating thereto, or as otherwise determined by the Committee.




     1.11. Employee and Stockholder Status. The Plan does not constitute a contract of
employment or services, and selection as a Participant will not give any employee, non-employee
director or consultant the right to be retained in the employ of, nor to continue to provide
services as a director or consultant to, the Company or any Subsidiary. No Award of Stock Options
under the Plan shall confer upon the holder thereof any right as a stockholder of the Company until
the issuance of shares of Stock to the holder thereof upon the exercise of such Stock Option. If
the transfer of shares is restricted pursuant to Section 1.10, certificates representing such
shares may bear a legend referring to such restrictions.



     1.12. Change in Stock and Adjustments. In the event of any change in the outstanding
shares of Stock of the Company by reason of any stock dividend, stock split, spinoff,
recapitalization, merger, consolidation, combination, extraordinary dividend, exchange of shares or
other similar change, the aggregate number (including the Plan Limit and the Individual Limit) and
class of shares of Company capital stock with respect to which Awards may be made under the Plan,
and the terms (including the exercise price) and the number and class of shares subject to any
outstanding Awards shall be equitably adjusted by the Committee; provided, however, in any case,
that no adjustment shall be made that would cause the Plan to violate Section 422 of the Code with
respect to Incentive Stock Options or that would adversely affect the status of any Award that is
“performance-based compensation” under Section 162(m) of the Code. In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria included in,
Awards, including any Performance Goals, in recognition of unusual or nonrecurring events
(including, without limitation, events described herein) affecting the Company, any of its
Subsidiaries or Affiliates, or in response to changes in applicable laws, regulations, or
accounting principles; provided, however, that no such adjustment shall be made to any outstanding
Awards to the extent that such adjustment would constitute a “repricing” of any Stock Option under
the rules of any applicable national securities exchange or would adversely affect the status of
the Award as “performance-based compensation” under Section 162(m) of the Code.



     1.13. Change of Control. Upon a Change of Control, the Committee may, at its
discretion, (i) fully vest any or all Awards made under the Plan, (ii) cancel any outstanding Stock
Option in exchange for a cash payment of an amount equal to the difference, if any, between the
then Fair Market Value of the Stock Option less the exercise price of the Stock Option; provided,
that, if the exercise price of any such Stock Option equals or exceeds the then Fair Market Value
of such Stock Option as determined by the Committee in its sole discretion, such Stock Option will
be cancelled with no further payment due the Participant, (iii) after having given the Participant
a reasonable chance to exercise any outstanding Stock Options, terminate any or all



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of the Participant’s unexercised Stock Options, (iv) where the Company is not the surviving
corporation, cause the surviving corporation to assume all outstanding Awards or replace all
outstanding Awards with comparable awards, or (v) take such other action as the Committee shall
determine to be appropriate.




     1.14. Agreement With Company. At the time any Award under the Plan is granted, the
Committee shall require a Participant to enter into an agreement with the Company in a form
specified by the Committee, agreeing to the terms and conditions of the Plan and to such additional
terms and conditions, not inconsistent with the Plan, as the Committee may, in its sole discretion,
prescribe (an “Award Agreement”). In the event of any inconsistency or conflict between the terms
of the Plan and an Award Agreement, the terms of the Plan shall govern.



     1.15. Assignment. Except as contemplated by Section 1.10, no right or benefit under
the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same
shall be void. No right or benefit hereunder shall in any manner be liable for or subject to any
debts, contracts, liabilities, or torts of the Person entitled to such benefits.



     1.16. Gender, Tense and Headings. Whenever the context requires such, words of the
masculine gender used herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Headings as used herein are inserted solely for convenience and
reference and constitute no part of the construction of the Plan.



     1.17. Tax Consequences. Neither the Company nor the Committee makes any commitment or
guarantee that any federal, state or local tax treatment will apply or be available to any
Participant.



     1.18. Severability. In the event that any provision of this Plan shall be held
illegal, invalid or unenforceable for any reason, such provision shall be fully severable, but
shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced
as if the illegal, invalid, or unenforceable provision had never been included herein.



     1.19. Amendment and Termination of Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan and outstanding Awards (subject to the terms of this Section
1.19) without the consent of the Company’s stockholders or Participants, except that any such
amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval
of the Company’s stockholders if (i) such action would increase the number of shares of Stock
subject to the Plan, (ii) such action would result in the “repricing” of any Stock Option, or (iii)
such stockholder approval is required by any federal or state law or regulation or the rules of any
stock exchange or automated quotation system on which the Stock may then be listed or quoted;
provided, however, that without the consent of an affected Participant, no amendment, alteration,
suspension, discontinuation, or termination of the Plan may materially and adversely affect the
rights of such Participant under any Award theretofore granted and any Award Agreement relating
thereto. The Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award



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Agreement relating thereto; provided, however, that without the consent of an affected
Participant, no such amendment, alteration, suspension, discontinuation, or termination of any
Award may materially and adversely affect the rights of such Participant under such Award. The
foregoing notwithstanding, any Performance Goal or other performance condition specified in
connection with an Award shall not be deemed a fixed contractual term, but shall remain subject to
adjustment by the Committee, in its discretion, at any time in view of the Committee’s assessment
of the Company’s strategy, performance of comparable companies, and other circumstances, except to
the extent that any such adjustment to a performance condition would adversely affect the status of
an Award as “performance-based compensation” under Section 162(m) of the Code.




     1.20. Foreign Nationals. Without amending the Plan, Awards may be granted to
employees, non-employee directors and consultants who are foreign nationals or employed outside the
United States or both, on such terms and conditions different from those specified in the Plan as
may, in the judgment of the Committee, be necessary or desirable to further the purpose of the
Plan.



     1.21. Governing Law. The Plan shall be governed by the applicable Code provisions to
the maximum extent possible. Otherwise, the laws of the State of Delaware shall govern the
operation of, and the rights of Participants under, the Plan, and Stock Options and Awards of
Restricted Stock granted thereunder.



     1.22. Indemnification of Board and Committee. Without limiting any other rights of
indemnification which they may have from the Company and any Subsidiary, the members of the Board
and the members of the Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any claim, action, suit, or proceeding to which they
or any of them may be a party by reason of any action taken or failure to act under, or in
connection with, the Plan, or any Stock Option or Award of Restricted Stock granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement is approved by
legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such
action, suit, or proceeding, except a judgment based upon a finding of willful misconduct or
recklessness on their part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing, giving the Company
an opportunity, at its own expense, to handle and defend the same before such Board or Committee
member undertakes to handle it on his or her own behalf. The provisions of this Section 1.22 shall
not give members of the Board or the Committee greater rights than they would have under the
Company’s by-laws or the Delaware General Corporation Law.



ARTICLE II

INCENTIVE STOCK OPTIONS




     2.1. Definition. The Award of any Incentive Stock Option under the Plan entitles the
Participant to purchase shares of Stock at a fixed price, subject to the following terms of this
Article II and the terms of the Award documentation.



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     2.2. Eligibility. The Committee shall designate the employees to whom Incentive Stock
Options are to be awarded under the Plan and shall determine the number of shares to be offered to
each Participant under each Incentive Stock Option Award. Incentive Stock Options may be awarded
only to employees of the Company or its corporate Subsidiaries. In no event shall the aggregate
Fair Market Value (determined at the time of grant) of Stock with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any calendar year (under all
plans of the Company and all related companies (within the meaning of Section 422 of the Code))
exceed $100,000; any Incentive Stock Options awarded in excess of this limit shall be considered
Non-Qualified Stock Options for federal income tax purposes, determined in accordance with the
final regulations promulgated under Section 422 of the Code.



     2.3. Exercise Price. The purchase price per share of Stock under each Incentive Stock
Option shall be determined by the Committee at the time of grant; provided, however, that in no
event shall such price be less than 100% of the Fair Market Value per share of Stock as of the
Option Date (110% of such Fair Market Value if the holder of the Incentive Stock Option owns stock
possessing more than 10% of the combined voting power of all classes of stock of the Company or any
Subsidiary).



     2.4. Exercise.



          (a) Each Incentive Stock Option shall become and be exercisable at such time or times and
during such period or periods, in full or in such installments as may be determined by the
Committee at the Option Date. To the extent provided by the Committee, the full purchase price of
each share of Stock purchased upon the exercise of any Incentive Stock Option shall be paid (i) in
cash, (ii) by delivery of shares of Stock (valued at Fair Market Value as of the day of exercise)
that have an aggregate Fair Market Value equal to the aggregate exercise price and that have been
outstanding for at least six months (unless the Committee approves a shorter period) or (iii) by
any other means (including any combination of the foregoing) acceptable to the Committee. At the
time of such exercise or as soon as practicable thereafter, if the Company’s Stock is customarily
certificated, a certificate representing the shares so purchased shall be delivered to the Person
entitled thereto. If payment of the purchase price of shares of Stock is paid in cash, payments
shall be made only with cash, cashier’s check, certified check, official bank check or postal money
order payable to the order of the Company in the amount (in United States dollars) of the purchase
price. If payment of such purchase price is made by shares of Stock, the Participant shall deliver
to the Company (i) certificates registered in the name of such Participant, or other satisfactory
evidence of the Participant’s ownership if the Company’s Stock is not then certificated,
representing a number of shares of Stock legally and beneficially owned by such Participant, free
of liens, claims and encumbrances of every kind and having a Fair Market Value as of the date of
delivery of such notice that is not greater than the purchase price of the shares of Stock with
respect to which such Incentive Stock Options are to be exercised, such certificates (or other
evidence of ownership, if applicable) to be accompanied by stock powers duly endorsed in blank by
the record holder of the shares of Stock represented by such certificates, and (ii) if the purchase
price of the shares of Stock with respect to which such Incentive Stock Options are to be exercised
exceeds such Fair Market Value, cash or a cashier’s



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check, certified check, official bank check or postal money order payable to the order of the
Company in the amount (in United States dollars) of such excess.




          (b) Incentive Stock Options shall be exercised by the delivery of written notice to the
Company setting forth the number of shares of Stock with respect to which the Incentive Stock
Option is to be exercised and the address to which the certificates, if applicable, representing
shares of the Stock issuable upon the exercise of such Incentive Stock Option shall be mailed.




     In order to be effective, such written notice shall be accompanied by a form of payment as
provided in Section 2.4(a). Such notice shall be delivered in person to the Secretary of the
Company, or shall be sent by registered mail, return receipt requested, to the Secretary of the
Company, in which case, delivery shall be deemed made on the date such notice is deposited in the
mail.



     2.5. Disqualifying Dispositions. If shares of Stock acquired upon the exercise of an
Incentive Stock Option are disposed of in a “disqualifying disposition” within the meaning of
Section 422 of the Code prior to the expiration of either two years after the date of grant of such
Incentive Stock Option or one year after the transfer of shares of Stock to the Participant
pursuant to the exercise of such Incentive Stock Option, or in any other “disqualifying
disposition” within the meaning of Section 422 of the Code, such Participant shall notify the
Company in writing as soon as practicable thereafter of the date and terms of such disposition and,
if the Company (or any Subsidiary) thereupon has a tax-withholding obligation, shall pay to the
Company (or such Subsidiary) an amount equal to any withholding tax the Company (or such
Subsidiary) is required to pay as a result of the disqualifying disposition.



     2.6. Incentive Stock Option Expiration Date. The expiration date with respect to an
Incentive Stock Option or any portion thereof awarded to a Participant under the Plan (the “ISO
Expiration Date”) means the earliest of:



          (a) the date that is ten (10) years after the date on which the Incentive Stock Option is
awarded, or if the Participant owns stock possessing more than 10% of the combined voting power of
all classes of stock of the Company or any Subsidiary, the date that is five (5) years after the
date on which the Incentive Stock Option is awarded;




          (b) the date established by the Committee at the time of the Award;




          (c) unless the Committee provides otherwise at the time of the Award, the date that is one
year after the Participant’s employment with the Company and all corporate Subsidiaries is
terminated by reason of the Participant becoming disabled (within the meaning of Section 22(e)(3)
of the Code) or the Participant’s death; or




          (d) unless the Committee provides otherwise at the time of the Award, the date that is ninety
(90) days after the termination of the Participant’s employment with the Company and all corporate
Subsidiaries for any reason other than by reason of the Participant



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becoming disabled (within the meaning of Section 22(e)(3) of the Code) or the Participant’s
death.



Notwithstanding the foregoing, unless the Committee provides otherwise at the time of grant (i) if
the Participant is Terminated for Cause all Incentive Stock Options held by the Participant,
whether vested or unvested, shall immediately terminate, and (ii) if the Participant’s employment
with the Company and all Subsidiaries is terminated other than because the Participant is
Terminated for Cause, then all Incentive Stock Options held by the Participant that are vested as
of the date of such termination shall be exercisable by the Participant until the ISO Expiration
Date and all unvested Incentive Stock Options held by such Participant shall terminate on the date
of such termination. All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of the applicable ISO Expiration Date or the date the Participant is Terminated for
Cause, if earlier.




ARTICLE III

NON-QUALIFIED STOCK OPTIONS




     3.1. Definition. The Award of any Non-Qualified Stock Option under the Plan entitles
the Participant to purchase shares of Stock at a fixed price, subject to the following terms of
this Article III and the terms of the Award documentation.



     3.2. Eligibility. The Committee shall designate the Participants to whom
Non-Qualified Stock Options are to be awarded under the Plan and shall determine the number of
option shares to be offered to each such Participant under any Award of Non-Qualified Stock
Options.



     3.3. Exercise Price. The purchase price of a share of Stock under each Non-Qualified
Stock Option shall be determined by the Committee in its sole discretion at the time of grant, but
shall not be less than 100% of the Fair Market Value of a share of Stock at the time of the grant.



     3.4. Exercise.



          (a) Each Non-Qualified Stock Option shall become and be exercisable at such time or times and
during such period or periods, in full or in such installments as may be determined by the
Committee at the Option Date. To the extent provided by the Committee, the full purchase price of
each share of Stock provided upon exercise of a Non-Qualified Stock Option shall be paid (i) in
cash, (ii) by delivery of shares of Stock (valued at Fair Market Value as of the day of exercise)
that have an aggregate Fair Market Value equal to the aggregate exercise price and that have been
outstanding for at least six months (unless the Committee approves a shorter period), (iii) through
the Participant’s election to irrevocably authorize a third party acceptable to the Committee or
its designee to sell the shares of Stock (or a sufficient portion of the shares of Stock) acquired
upon exercise of the Non-Qualified Stock Option and remit to the Company a sufficient portion of
the sale proceeds to pay the entire purchase price and any tax withholding resulting from such
exercise, or (iv) by any other means (including any combination of the foregoing) acceptable to the
Committee. At the time of such exercise or as



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soon as practicable thereafter, if the Company’s Stock is customarily certificated, a
certificate representing the shares so purchased shall be delivered to the Person entitled thereto.
If payment of the purchase price of shares of Stock is paid in cash, payments shall be made only
with cash, cashier’s check, certified check, official bank check or postal money order payable to
the order of the Company in the amount (in United States dollars) of the purchase price. If
payment of such purchase price is made by shares of Stock, the Participant shall deliver to the
Company (i) certificates registered in the name of such Participant, or other satisfactory evidence
of the Participant’s ownership if the Company’s Stock is not then certificated, representing a
number of shares of Stock legally and beneficially owned by such Participant, free of liens, claims
and encumbrances of every kind and having a Fair Market Value as of the date of delivery of such
notice that is not greater than the purchase price of the shares of Stock with respect to which
such Non-Qualified Stock Options are to be exercised, such certificates (or other evidence of
ownership, if applicable) to be accompanied by stock powers duly endorsed in blank by the record
holder of the shares of Stock represented by such certificates, and (ii) if the purchase price of
the shares of Stock with respect to which such Non-Qualified Stock Options are to be exercised
exceeds such Fair Market Value, cash or a cashier’s check, certified check, official bank check or
postal money order payable to the order of the Company in the amount (in United States dollars) of
such excess.




          (b) Non-Qualified Stock Options shall be exercised by the delivery of written notice to the
Company setting forth the number of shares of Stock with respect to which the Non-Qualified Stock
Option is to be exercised and the address to which the certificates, if applicable, representing
shares of the Stock issuable upon the exercise of such Non-Qualified Stock Option shall be mailed.
In order to be effective, such written notice shall be accompanied by a form of payment as provided
in Section 3.4(a). Such notice shall be delivered in person to the Secretary of the Company, or
shall be sent by registered mail, return receipt requested, to the Secretary of the Company, in
which case, delivery shall be deemed made on the date such notice is deposited in the mail.




     3.5. Non-Qualified Stock Option Expiration Date. The expiration date with respect to
a Non-Qualified Stock Option or any portion thereof awarded to a Participant under the Plan (the
“NQO Expiration Date”) means the earliest of:



          (a) the date that is ten (10) years after the date on which the Non-Qualified Stock Option is
awarded;




          (b) the date established by the Committee at the time of the Award;




          (c) unless the Committee provides otherwise at the time of grant, the date that is one year
after the Participant’s employment and other service with the Company and all Subsidiaries is
terminated by reason of the Participant becoming Disabled, the Participant’s death or the
Participant’s Retirement; or




          (d) unless the Committee provides otherwise at the time of grant, the date that is ninety (90)
calendar days after the termination of the Participant’s employment and other



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service with the Company and all Subsidiaries for any reason other than the Participant
becoming Disabled, the Participant’s death or the Participant’s Retirement.



Notwithstanding the foregoing, unless the Committee provides otherwise at the time of grant (i) if
the Participant is Terminated for Cause all Non-Qualified Stock Options held by the Participant,
whether vested or unvested, shall immediately terminate, and (ii) if the Participant’s employment
and other service with the Company and all Subsidiaries is terminated other than because the
Participant is Terminated for Cause, then all Non-Qualified Stock Options held by the Participant
that are vested as of the date of such termination shall be exercisable by the Participant until
the NQO Expiration Date and all unvested Non-Qualified Stock Options held by such Participant shall
terminate on the date of such termination. All rights to purchase shares of Stock pursuant to a
Non-Qualified Stock Option shall cease as of the applicable NQO Expiration Date or the date on
which the Participant is Terminated for Cause, if earlier.




ARTICLE IV

RESTRICTED STOCK




     4.1. Definition. Restricted Stock Awards are issuances of Stock to Participants, the
vesting of which may be subject to a required period of employment or service as a director or
consultant, or any other conditions (including, without limitation, the attainment of Performance
Goals) established by the Committee.



     4.2. Eligibility. The Committee shall designate any Participant to whom Restricted
Stock is to be awarded and the number of shares of Stock that are subject to any such Award.



     4.3. Terms and Conditions of Awards. All shares of Restricted Stock awarded to
Participants under the Plan shall be subject to the following terms and conditions and to such
other terms and conditions, not inconsistent with the Plan, as shall be prescribed by the Committee
in its sole discretion and as shall be contained in the applicable Award Agreement.



          (a) Subject to Section 1.10, Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided or as set
forth in an applicable Award Agreement, for such period or until the satisfaction of such
conditions as the Committee may determine, after the time of the Award of such Restricted Stock
(the “Restricted Period”). A single Award of shares of Restricted Stock may impose different
Restricted Periods for different portions of such shares of Restricted Stock. Except for such
restrictions, the Participant as owner of such shares shall have all the rights of a stockholder,
including but not limited to, the right to vote such shares and, except as otherwise provided by
the Committee, the right to receive all dividends paid on such shares.




          (b) Except as otherwise determined by the Committee in its sole discretion or as set forth in
the applicable Award Agreement, a Participant whose employment or service with the Company and all
Subsidiaries terminates prior to the end of the Restricted Period for any reason shall forfeit all
shares of Restricted Stock then subject to a Restricted Period.




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          (c) If certificates are typically issued to the Company’s stockholders, each certificate
issued in respect of shares of Restricted Stock awarded under the Plan shall be registered in the
name of the Participant and, at the discretion of the Committee, each such certificate may be
deposited in a bank designated by the Committee. Each such certificate shall bear the following
(or a similar) legend:





     “The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the corporation’s 2005 Equity Incentive Plan and an
agreement entered into between the registered owner and the corporation. A
copy of such plan and agreement is on file in the office of the Secretary of
the corporation, 4716 Old Gettysburg Road, Mechanicsburg, PA 17055.”



          (d) At the end of the Restricted Period for shares of Restricted Stock, certificates for such
shares of Restricted Stock shall be delivered to the Participant (or his or her legal
representative, beneficiary, heir or Permitted Transferee, as applicable) free of all restrictions
under this Plan and the applicable Award Agreement.





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