EXHIBIT 10.2


 


2003 EQUITY INCENTIVE PLAN


OF


DTS, INC.


 


1.                               Purpose of this Plan


 


The
purpose of this 2003 Equity Incentive Plan is to enhance the long-term
stockholder value of DTS, Inc. by offering opportunities to eligible
individuals to participate in the growth in value of the equity of DTS, Inc.


 


2.                               Definitions and Rules of Interpretation


 


2.1         Definitions


 


This
Plan uses the following defined terms:


 


(a)       “Administrator” means the
Board, the Committee, or any officer or employee of the Company to whom the
Board or the Committee delegates authority to administer this Plan.


 


(b)       “Affiliate” means a “parent” or
“subsidiary” (as each is defined in Section 424 of the Code) of the
Company and any other entity that the Board or Committee designates as an
“Affiliate” for purposes of this Plan.


 


(c)       “Applicable Law” means any and
all laws of whatever jurisdiction, within or without the United States, and the
rules of any stock exchange or quotation system on which Shares are listed
or quoted, applicable to the taking or refraining from taking of any action
under this Plan, including the administration of this Plan and the issuance or
transfer of Awards or Award Shares.


 


(d)       “Award” means a Stock Award, SAR,
Cash Award, or Option granted in accordance with the terms of this Plan.


 


(e)       “Award Agreement” means the
document evidencing the grant of an Award.


 


(f)        “Award Shares” means Shares
covered by an outstanding Award or purchased under an Award.


 


(g)       “Awardee” means: (i) a person to
whom an Award has been granted, including a holder of a Substitute Award, (ii) a
person to whom an Award has been transferred in accordance with all applicable
requirements of Sections 6.5, 7(h), and 17.


 


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


 


(i)        “Cash Award” means the
right to receive cash as described in Section 8.3.


 


(j)        “Change in Control” means any
transaction or event that the Board specifies as a Change in Control under Section 10.4.


 


(k)       “Code” means the Internal Revenue
Code of 1986.


 


(l)        “Committee” means a committee composed
of Company Directors appointed in accordance with the Company’s charter
documents and Section 4.


 


(m)      “Company” means DTS, Inc., a
Delaware corporation.


 


(n)       “Company Director” means a member
of the Board.


 


(o)       “Consultant” means an
individual who, or an employee of any entity that, provides bona fide services
to the Company or an Affiliate not in connection with the offer or sale of
securities in a capital-raising transaction, but who is not an Employee.


 

















 


(p)       “Director” means a member of the Board
of Directors of the Company or an Affiliate.


 


(q)       “Divestiture” means any
transaction or event that the Board specifies as a Divestiture under Section 10.5.


 


(r)        “Domestic Relations Order” means a “domestic relations order” as
defined in, and otherwise meeting the requirements of, Section 414(p) of
the Code, except that reference to a “plan” in that definition shall be to this
Plan.


 


(s)        “Effective Date” means the first date
of the sale by the Company of shares of its capital stock in an initial public
offering pursuant to a registration statement on Form S-1 filed with the
SEC.


 


(t)        “Employee” means a regular employee of
the Company or an Affiliate, including an officer or Director, who is treated
as an employee in the personnel records of the Company or an Affiliate, but not
individuals who are classified by the Company or an Affiliate as: (i) leased
from or otherwise employed by a third party, (ii) independent contractors,
or (iii) intermittent or temporary workers.  The Company’s or an
Affiliate’s classification of an individual as an “Employee” (or as not an
“Employee”) for purposes of this Plan shall not be altered retroactively even
if that classification is changed retroactively for another purpose as a result
of an audit, litigation or otherwise.  An Awardee shall not cease to be an
Employee due to transfers between locations of the Company, or between the Company
and an Affiliate, or to any successor to the Company or an Affiliate that
assumes the Awardee’s Options under Section 10.  Neither service as a
Director nor receipt of a director’s fee shall be sufficient to make a Director
an “Employee”.


 


(u)       “Exchange Act” means the
Securities Exchange Act of 1934.


 


(v)       “Executive” means, if the Company has
any class of any equity security registered under Section 12 of the
Exchange Act, an individual who is subject to Section 16 of the Exchange
Act or who is a “covered employee” under Section 162(m) of the Code,
in either case because of the individual’s relationship with the Company or an
Affiliate.  If the Company does not have any class of any equity security
registered under Section 12 of the Exchange Act, “Executive” means any (i) Director,
(ii) officer elected or appointed by the Board, or (iii) beneficial
owner of more than 10% of any class of the Company’s equity securities.


 


(w)      “Expiration Date” means, with
respect to an Award, the date stated in the Award Agreement as the expiration
date of the Award or, if no such date is stated in the Award Agreement, then
the last day of the maximum exercise period for the Award, disregarding the
effect of an Awardee’s Termination or any other event that would shorten that
period.


 


(x)       “Fair Market Value” means the
value of Shares as determined under Section 18.2.


 


(y)       “Fundamental Transaction” means any
transaction or event described in Section 10.3.


 


(z)        “Grant Date” means the date
the Administrator approves the grant of an Award.  However, if the
Administrator specifies that an Award’s Grant Date is a future date or the date
on which a condition is satisfied, the Grant Date for such Award is that future
date or the date that the condition is satisfied.


 


(aa)     “Incentive Stock Option” means an
Option intended to qualify as an incentive stock option under Section 422
of the Code and designated as an Incentive Stock Option in the Award Agreement
for that Option.


 


(bb)     “Nonstatutory Option” means any
Option other than an Incentive Stock Option.


 


(cc)     “Non-Employee Director” means any
person who is a member of the Board but is not an Employee of the Company or
any Affiliate of the Company and has not been an Employee of the Company or any
Affiliate of the Company at any time during the preceding twelve months.
Service as a Director does not in itself constitute employment for purposes of
this definition.


 


(dd)     “Objectively Determinable Performance Condition” shall mean a
performance condition (i) that is established (A) at the time an
Award is granted or (B)  no later than the earlier of (1) 90 days
after the beginning of the period of service to which it relates, or (2) before
the elapse of 25% of the period of service to which it relates, (ii) that
is uncertain of achievement at the time it is established, and (iii) the
achievement of which is determinable by a third party with knowledge of the
relevant facts.  Examples of measures that may be used in Objectively
Determinable Performance Conditions include net order dollars, net profit
dollars, net profit growth, net revenue dollars, revenue growth, individual
performance, earnings per share, return on assets, return on equity, and other
financial objectives, objective customer 


 

















 


satisfaction indicators and efficiency
measures, each with respect to the Company and/or an Affiliate or individual
business unit.


 


(ee)     “Officer” means an officer of the
Company as defined in Rule 16a-1 adopted under the Exchange Act.


 


(ff)       “Option” means a right to purchase
Shares of the Company granted under this Plan.


 


(gg)     “Option Price” means the
price payable under an Option for Shares, not including any amount payable in
respect of withholding or other taxes.


 


(hh)     “Option Shares” means Shares
covered by an outstanding Option or purchased under an Option.


 


(ii)       “Plan” means this 2003 Equity
Incentive Plan of DTS, Inc.


 


(jj)       “Prior Plans” means
the Company’s 1997 Stock Option Plan and the 2002 Stock Option Plan in effect.


 


(kk)     “Purchase Price” means the
price payable under a Stock Award for Shares, not including any amount payable
in respect of withholding or other taxes.


 


(ll)       “Rule 16b-3” means Rule 16b-3
adopted under Section 16(b) of the Exchange Act.


 


(mm)  
“SAR” or “Stock Appreciation Right” means a right to receive
cash based on a change in the Fair Market Value of a specific number of Shares
pursuant to an Award Agreement, as described in Section 8.1.


 


(nn)     “Securities Act” means the
Securities Act of 1933.


 


(oo)     “Share” means a share of the common
stock of the Company or other securities substituted for the common stock under
Section 10.


 


(pp)     “Stock Award” means an offer
by the Company to sell shares subject to certain restrictions pursuant to the
Award Agreement as described in Section 8.2.


 


(qq)     “Substitute Award” means a
Substitute Option, Substitute SAR or Substitute Stock Award granted in
accordance with the terms of this Plan.


 


(rr)      “Substitute Option” means an
Option granted in substitution for, or upon the conversion of, an option
granted by another entity to purchase equity securities in the granting entity.


 


(ss)      “Substitute SAR” means a SAR
granted in substitution for, or upon the conversion of, a stock appreciation
right granted by another entity with respect to equity securities in the
granting entity.


 


(tt)       “Substitute Stock Award” means a Stock
Award granted in substitution for, or upon the conversion of, a stock award
granted by another entity to purchase equity securities in the granting entity.


 


(uu)     “Termination” means that the
Awardee has ceased to be, with or without any cause or reason, an Employee,
Director or Consultant.  However, unless so determined by the
Administrator, or otherwise provided in this Plan, “Termination” shall not
include a change in status from an Employee, Consultant or Director to another
such status.  An event that causes an Affiliate to cease being an
Affiliate shall be treated as the “Termination” of that Affiliate’s Employees,
Directors, and Consultants.


 


2.2         Rules of Interpretation


 


Any
reference to a “Section,” without more, is to a Section of this
Plan.  Captions and titles are used for convenience in this Plan and shall
not, by themselves, determine the meaning of this Plan.  Except when
otherwise indicated by the context, the singular includes the plural and vice
versa.  Any reference to a statute is also a reference to the applicable rules and
regulations adopted under that statute.  Any reference to a statute, rule or
regulation, or to a section of a statute, rule or regulation, is a
reference to that statute, rule, regulation, or section as amended from time to
time, both before and after the Effective Date and including any successor
provisions.


 

















 


3.             Shares Subject to this Plan; Term of this Plan


 


3.1         Number of Award Shares


 


The
Shares issuable under this Plan shall be authorized but unissued or
reacquired Shares, including Shares repurchased by the Company on the open
market. The number of Shares initially reserved for issuance over the term of
this Plan shall not exceed 3,000,000 Shares.  Such reserve shall consist
of (i) the number of Shares available for issuance, as of the Effective
Date, under the Prior Plans as last approved by the Company’s stockholders,
including the Shares subject to outstanding options under the Prior Plans, plus
(ii) those Shares issued under the Prior Plans that are forfeited or
repurchased by the Company or that are issuable upon exercise of options
granted pursuant to the Prior Plans that expire or become unexercisable for any
reason without having been exercised in full after the Effective Date, plus (iii) an
additional increase of approximately 928,949 Shares to be approved by the
Company’s stockholders prior to the Effective Date.  The maximum number of
Shares shall be cumulatively increased on the first January 1 after the
Effective Date and each January 1 thereafter for 10 years, by a number of
Shares equal to the least of (a) 4% of the number of Shares issued and
outstanding on the immediately preceding December 31, (b) 1,500,000
Shares, and (c) a number of Shares set by the Board.  When an Award
is granted, the maximum number of Shares that may be issued under this Plan
shall be reduced by the number of Shares covered by that Award.  However,
if an Award later terminates or expires without having been exercised in full,
the maximum number of shares that may be issued under this Plan shall be
increased by the number of Shares that were covered by, but not purchased
under, that Award.  By contrast, the repurchase of Shares by the Company
shall not increase the maximum number of Shares that may be issued under this
Plan.  Notwithstanding anything in this Plan to the contrary, at no time
during the eighteen (18) months following the Effective Date may the sum of the
number of Shares subject to Awards under this Plan and the number of Shares
subject to options under the Prior Plans exceed 15% of the outstanding
Shares on a “fully diluted” basis.  For the purposes of this Section 3.1,
outstanding Shares on a “fully diluted” basis shall be the number of Shares
that is equal to (x) the number of Shares issued and outstanding plus
(y) all Shares subject to or available for Awards or options under
this Plan and the Prior Plans, respectively, and 50% of the Shares then
issuable upon the exercise of warrants that were outstanding on the Effective
Date of the Plan.


 


3.2         Source of Shares


 


Award
Shares may be:  (a) Shares that have never been issued, (b) Shares
that have been issued but are no longer outstanding, or (c) Shares that
are outstanding and are acquired to discharge the Company’s obligation to
deliver Award Shares.


 


3.3         Term of this Plan


 


(a)       This Plan
shall be effective on, and Awards may be granted under this Plan on and after,
the earliest the date on which the Plan has been both adopted by the Board and
approved by the Company’s stockholders.


 


(b)       Subject to the
provisions of Section 14, Awards may be granted under this Plan for a period
of ten years from the earlier of the date on which the Board approves this Plan
and the date the Company’s stockholders approve this Plan.  Accordingly,
Awards may not be granted under this Plan after the earlier of those dates.


 


4.                               Administration


 


4.1         General


 


(a)       The Board
shall have ultimate responsibility for administering this Plan.  The Board
may delegate certain of its responsibilities to a Committee, which shall
consist of at least two members of the Board.  The Board or the Committee
may further delegate its responsibilities to any Employee of the Company or any
Affiliate.  Where this Plan specifies that an action is to be taken or a
determination made by the Board, only the Board may take that action or make
that determination.  Where this Plan specifies that an action is to be
taken or a determination made by the Committee, only the Committee may take
that action or make that determination.  Where this Plan references the
“Administrator,” the action may be taken or determination made by the Board,
the Committee, or other Administrator.  However, only the Board or the
Committee may approve grants of Awards to Executives, and an Administrator
other than the Board or the Committee may grant Awards only within guidelines
established by the Board or Committee.  Moreover, all actions and
determinations by any Administrator are subject to the provisions of this Plan.


 


(b)       So long as the
Company has registered and outstanding a class of equity securities under Section 12
of 


 

















 


the Exchange Act, the Committee shall consist
of Company Directors who are “Non-Employee Directors” as defined in
Rule 16b-3 and, after the expiration of any transition period permitted by
Treasury Regulations Section 1.162-27(h)(3), who are “outside directors”
as defined in Section 162(m) of the Code.


 


4.2         Authority of the Board or the Committee


 


Subject
to the other provisions of this Plan, the Board or the Committee shall have the
authority to:


 


(a)       grant Awards,
including Substitute Awards;


 


(b)       determine the
Fair Market Value of Shares;


 


(c)       determine the
Option Price and the Purchase Price of Awards;


 


(d)       select the
Awardees;


 


(e)       determine the
times Awards are granted;


 


(f)        determine the
number of Shares subject to each Award;


 


(g)       determine the
methods of payment that may be used to purchase Award Shares;


 


(h)       determine the
methods of payment that may be used to satisfy withholding tax obligations;


 


(i)        determine the
other terms of each Award, including but not limited to the time or times at
which Awards may be exercised, whether and under what conditions an Award is
assignable, and whether an Option is a Nonstatutory Option or an Incentive
Stock Option;


 


(j)        modify or
amend any Award;


 


(k)       authorize any
person to sign any Award Agreement or other document related to this Plan on
behalf of the Company;


 


(l)        determine the
form of any Award Agreement or other document related to this Plan, and whether
that document, including signatures, may be in electronic form;


 


(m)      interpret this
Plan and any Award Agreement or document related to this Plan;


 


(n)       correct any
defect, remedy any omission, or reconcile any inconsistency in this Plan, any
Award Agreement or any other document related to this Plan;


 


(o)       adopt, amend,
and revoke rules and regulations under this Plan, including rules and
regulations relating to sub-plans and Plan addenda;


 


(p)       adopt, amend,
and revoke special rules and procedures which may be inconsistent with the
terms of this Plan, set forth (if the Administrator so chooses) in sub-plans
regarding (for example) the operation and administration of this Plan and the
terms of Awards, if and to the extent necessary or useful to accommodate non-U.S.
Applicable Laws and practices as they apply to Awards and Award Shares held by,
or granted or issued to, persons working or resident outside of the United
States or employed by Affiliates incorporated outside the United States;


 


(q)       determine whether
a transaction or event should be treated as a Change in Control, a Divestiture
or neither;


 


(r)        determine the
effect of a Fundamental Transaction and, if the Board determines that a
transaction or event should be treated as a Change in Control or a Divestiture,
then the effect of that Change in Control or Divestiture; and


 


(s)        make all other
determinations the Administrator deems necessary or advisable for the
administration of this Plan.


 

















 


4.3         Scope of Discretion


 


Subject
to the provisions of this Section 4.3, on all matters for which this Plan
confers the authority, right or power on the Board, the Committee, or other
Administrator to make decisions, that body may make those decisions in its sole
and absolute discretion.  Those decisions will be final, binding and
conclusive.  In making its decisions, the Board, Committee or other
Administrator need not treat all persons eligible to receive Awards, all
Awardees, all Awards or all Award Shares the same way.  Notwithstanding
anything herein to the contrary, and except as provided in Section 14.3,
the discretion of the Board, Committee or other Administrator is subject to the
specific provisions and specific limitations of this Plan, as well as all
rights conferred on specific Awardees by Award Agreements and other agreements.


 


5.             Persons Eligible to Receive Awards


 


5.1         Eligible Individuals


 


Awards
(including Substitute Awards) may be granted to, and only to, Employees,
Directors and Consultants, including to prospective Employees, Directors and
Consultants conditioned on the beginning of their service for the Company or an
Affiliate.  However, Incentive Stock Options may only be granted to
Employees, as provided in Section 7(g).


 


5.2         Section 162(m) Limitation


 


(a)       Options and SARs  Subject to the provisions of this Section 5.2,
for so long as the Company is a “publicly held corporation” within the meaning
of Section 162(m) of the Code: (i) no Employee may be granted
one or more SARs and Options within any fiscal year of the Company under this
Plan to purchase more than 1,500,000 Shares under Options or to receive
compensation calculated with reference to more than that number of Shares under
SARs, subject to adjustment pursuant to Section 10, (ii) Options and
SARs may be granted to an Executive only by the Committee (and, notwithstanding
anything to the contrary in Section 4.1(a), not by the Board).  If an
Option or SAR is cancelled without being exercised or if the Option Price of an
Option is reduced, that cancelled or repriced Option or SAR shall continue to
be counted against the limit on Awards that may be granted to any individual
under this Section 5.2.  Notwithstanding anything herein to the
contrary, a new Employee of the Company or an Affiliate shall be eligible to
receive up to a maximum of 2,000,000 Shares under Options in the calendar year
in which they commence employment, or such compensation calculated with
reference to such number of Shares under SARs, subject to adjustment pursuant to
Section 10.


 


(b)       Cash Awards and Stock Awards  Any Cash Award or
Stock Award intended as “qualified performance-based compensation” within the
meaning of Section 162(m) of the Code must vest or become exercisable
contingent on the achievement of one or more Objectively Determinable
Performance Conditions.  The Committee shall have the discretion to
determine the time and manner of compliance with Section 162(m) of
the Code.


 


6.                               Terms and Conditions of Option


 


The
following rules apply to all Options:


 


6.1         Price


 


No
Nonstatutory Option may have an Option Price less than 85% of the Fair Market
Value of the Shares on the Grant Date.  No Option intended as “qualified
incentive-based compensation” within the meaning of Section 162(m) of
the Code may have an Option Price less than 100% of the Fair Market Value of
the Shares on the Grant Date.  In no event will the Option Price of any
Option be less than the par value of the Shares issuable under the Option if
that is required by Applicable Law.  The Option Price of an Incentive
Stock Option shall be subject to Section 7(f).


 


6.2         Term


 


No
Option shall be exercisable after its Expiration Date.  No Option may have
an Expiration Date that is more than ten years after its Grant Date. 
Additional provisions regarding the term of Incentive Stock Options are
provided in Sections 7(a) and 7(e).


 


6.3         Vesting


 


Options
shall be exercisable: (a) on the Grant Date, or (b) in accordance
with a schedule related to the Grant Date, the date the Optionee’s
directorship, employment or consultancy begins, or a different date specified
in the Option 


 

















 


Agreement.  Additional provisions
regarding the vesting of Incentive Stock Options are provided in
Section 7(c).  No Option granted to an individual who is subject to
the overtime pay provisions of the Fair Labor Standards Act may be exercised
before the expiration of six months after the Grant Date.


 


6.4         Form and Method of Payment


 


(a)       The Board or
Committee shall determine the acceptable form and method of payment for
exercising an Option.


 


(b)       Acceptable
forms of payment for all Option Shares are cash, check or wire transfer,
denominated in U.S. dollars except as specified by the Administrator for
non-U.S. Employees or non-U.S. sub-plans.


 


(c)       In addition,
the Administrator may permit payment to be made by any of the following
methods:


 


(i)       other Shares,
or the designation of other Shares, which (A) are “mature” shares for
purposes of avoiding variable accounting treatment under generally accepted
accounting principles (generally mature shares are those that have been owned
by the Optionee for more than six months on the date of surrender), and (B) have
a Fair Market Value on the date of surrender equal to the Option Price of the
Shares as to which the Option is being exercised;


 


(ii)     provided that
a public market exists for the Shares, consideration received by the Company
under a procedure under which a licensed broker-dealer advances funds on behalf
of an Optionee or sells Option Shares on behalf of an Optionee (a “ Cashless Exercise Procedure  “), provided that if the Company extends or
arranges for the extension of credit to an Optionee under any Cashless Exercise
Procedure, no Officer or Director may participate in that Cashless Exercise
Procedure;


 


(iii)    with respect
only to Optionees who are neither Officers nor Directors as of the date of
exercise, one or more promissory notes meeting the requirements of Section 6.4(e) provided,
however, that promissory notes may not be used for any portion of an Award
which is not vested at the time of exercise;


 


(iv)     cancellation
of any debt owed by the Company or any Affiliate to the Optionee by the Company
including without limitation waiver of compensation due or accrued for services
previously rendered to the Company; and


 


(v)      any
combination of the methods of payment permitted by any paragraph of this Section 6.4.


 


(d)       The
Administrator may also permit any other form or method of payment for Option
Shares permitted by Applicable Law.


 


(e)                      The promissory
notes referred to in Section 6.4(c)(iii) shall be full
recourse.  Unless the Committee specifies otherwise after taking into
account any relevant accounting issues, the promissory notes shall bear
interest at a fair market value rate when the Option is exercised. 
Interest on the promissory notes shall also be at least sufficient to avoid
imputation of interest under Sections 483, 1274, and 7872 of the
Code.  The promissory notes and their administration shall at all times
comply with any applicable margin rules of the Federal Reserve.  The
promissory notes may also include such other terms as the Administrator
specifies.  Payment may not be made by promissory note by Officers or
Directors if Shares are registered under Section 12 of the Exchange Act.


 


6.5                          Nonassignability of Options


 


Except
as determined by the Administrator, no Option shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution.  However, Options may be transferred and exercised in
accordance with a Domestic Relations Order and may be exercised by a guardian
or conservator appointed to act for the Optionee.  Incentive Stock Options
may only be assigned in compliance with Section 7(h).


 


6.6                          Substitute Options


 


The
Board may cause the Company to grant Substitute Options in connection with the
acquisition by the Company or an Affiliate of equity securities of any entity
(including by merger, tender offer, or other similar transaction) or of all or
a portion of the assets of any entity.  Any such substitution shall be
effective on the effective date of the acquisition.  Substitute Options
may be Nonstatutory Options or Incentive Stock Options.  Unless and to the
extent specified otherwise by 


 

















 


the Board, Substitute Options shall have the
same terms and conditions as the options they replace, except that (subject to
the provisions of Section 10) Substitute Options shall be Options to
purchase Shares rather than equity securities of the granting entity and shall
have an Option Price determined by the Board.


 


6.7                          Repricings


 


In
furtherance of, and not in limitation of the provisions of Section 10,
Options may be repriced, replaced or regranted through cancellation or
modification without stockholder approval.


 


7.             Incentive Stock Options


 


The
following rules apply only to Incentive Stock Options and only to the
extent these rules are more restrictive than the rules that would
otherwise apply under this Plan.  With the consent of the Optionee, or
where this Plan provides that an action may be taken notwithstanding any other
provision of this Plan, the Administrator may deviate from the requirements of
this Section, notwithstanding that any Incentive Stock Option modified by the
Administrator will thereafter be treated as a Nonstatutory Option.


 


(a)                     The Expiration
Date of an Incentive Stock Option shall not be later than ten years from its
Grant Date, with the result that no Incentive Stock Option may be exercised
after the expiration of ten years from its Grant Date.


 


(b)                     No Incentive
Stock Option may be granted more than ten years from the date this Plan was
approved by the Board.


 


(c)                      Options
intended to be incentive stock options under Section 422 of the Code that
are granted to any single Optionee under all incentive stock option plans of
the Company and its Affiliates, including incentive stock options granted under
this Plan, may not vest at a rate of more than $100,000 in Fair Market Value of
stock (measured on the grant dates of the options) during any calendar
year.  For this purpose, an option vests with respect to a given share of
stock the first time its holder may purchase that share, notwithstanding any
right of the Company to repurchase that share.  Unless the administrator
of that option plan specifies otherwise in the related agreement governing the
option, this vesting limitation shall be applied by, to the extent necessary to
satisfy this $100,000 rule, treating certain stock options that were intended
to be incentive stock options under Section 422 of the Code as
Nonstatutory Options.  The stock options or portions of stock options to
be reclassified as Nonstatutory Options are those with the highest option
prices, whether granted under this Plan or any other equity compensation plan
of the Company or any Affiliate that permits that treatment.  This Section 7(c) shall
not cause an Incentive Stock Option to vest before its original vesting date or
cause an Incentive Stock Option that has already vested to cease to be vested.


 


(d)                     In order for
an Incentive Stock Option to be exercised for any form of payment other than those
described in Section 6.4(b), that right must be stated at the time of
grant in the Option Agreement relating to that Incentive Stock Option.


 


(e)                      Any Incentive
Stock Option granted to a Ten Percent Stockholder, must have an Expiration Date
that is not later than five years from its Grant Date, with the result that no
such Option may be exercised after the expiration of five years from the Grant
Date.  A “ Ten
Percent Stockholder  “ is
any person who, directly or by attribution under Section 424(d) of
the Code, owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate on the
Grant Date.


 


(f)                         The Option
Price of an Incentive Stock Option shall never be less than the Fair Market
Value of the Shares at the Grant Date.  The Option Price for the Shares
covered by an Incentive Stock Option granted to a Ten Percent Stockholder shall
never be less than 110% of the Fair Market Value of the Shares at the Grant
Date.


 


(g)                     Incentive
Stock Options may be granted only to Employees.  If an Optionee changes
status from an Employee to a Consultant, that Optionee’s Incentive Stock
Options become Nonstatutory Options if not exercised within the time period
described in Section 7(i) (determined by treating that change in
status as a Termination solely for purposes of this Section 7(g)).


 


(h)                     No rights
under an Incentive Stock Option may be transferred by the Optionee, other than
by will or the laws of descent and distribution.  During the life of the
Optionee, an Incentive Stock Option may be exercised only by the
Optionee.  The Company’s compliance with a Domestic Relations Order, or
the exercise of an Incentive Stock Option 


 

















 


by a guardian or conservator appointed to act
for the Optionee, shall not violate this Section 7(h).


 


(i)                        An Incentive
Stock Option shall be treated as a Nonstatutory Option if it remains
exercisable after, and is not exercised within, the three-month period
beginning with the Optionee’s Termination for any reason other than the
Optionee’s death or disability (as defined in Section 22(e) of the
Code).  In the case of Termination due to death, an Incentive Stock Option
shall continue to be treated as an Incentive Stock Option if it remains
exercisable after, and is not exercised within, the three-month period after
the Optionee’s Termination provided it is exercised before the Expiration
Date.  In the case of Termination due to disability, an Incentive Stock
Option shall be treated as a Nonstatutory Option if it remains exercisable
after, and is not exercised within, one year after the Optionee’s Termination.


 


(j)                         An Incentive
Stock Option may only be modified by the Board.


 


8.             Stock Appreciation Rights, Stock Awards and Cash Awards


 


8.1                          Stock Appreciation Rights


 


The
following rules apply to SARs:


 


(a)                     General.  SARs may be granted
either alone, in addition to, or in tandem with other Awards granted under this
Plan. The Administrator may grant SARs to eligible participants subject to
terms and conditions not inconsistent with this Plan and determined by the
Administrator. The specific terms and conditions applicable to the Awardee
shall be provided for in the Award Agreement. SARs shall be exercisable, in
whole or in part, at such times as the Administrator shall specify in the Award
Agreement.  The grant or vesting of a SAR may be made contingent on the achievement
of Objectively Determinable Performance Conditions.


 


(b)                     Exercise of SARs.  Upon the
exercise of an SAR, in whole or in part, an Awardee shall be entitled to a
payment in an amount equal to the excess of the Fair Market Value of a fixed
number of Shares covered by the exercised portion of the SAR on the date of
exercise, over the Fair Market Value of the Shares covered by the exercised
portion of the SAR on the Grant Date.  The amount due to the Awardee upon
the exercise of a SAR shall be paid in cash, Shares or a combination thereof,
over the period or periods specified in the Award Agreement.  An Award
Agreement may place limits on the amount that may be paid over any specified
period or periods upon the exercise of a SAR, on an aggregate basis or as to
any Awardee.  A SAR shall be considered exercised when the Company
receives written notice of exercise in accordance with the terms of the Award
Agreement from the person entitled to exercise the SAR.  If a SAR has been
granted in tandem with an Option, upon the exercise of the SAR, the number of
shares that may be purchased pursuant to the Option shall be reduced by the
number of shares with respect to which the SAR is exercised.


 


(c)                      Nonassignability of SARs.  Except
as determined by the Administrator, no SAR shall be assignable or otherwise
transferable by the Awardee except by will or by the laws of descent and
distribution.  Notwithstanding anything herein to the contrary, SARs may
be transferred and exercised in accordance with a Domestic Relations Order.


 


(d)                     Substitute SARs.  The
Board may cause the Company to grant Substitute SARs in connection with the
acquisition by the Company or an Affiliate of equity securities of any entity
(including by merger) or all or a portion of the assets of any entity. 
Any such substitution shall be effective on the effective date of the
acquisition.  Unless and to the extent specified otherwise by the Board,
Substitute SARs shall have the same terms and conditions as the options they
replace, except that (subject to the provisions of Section 10) Substitute
SARs shall be exercisable with respect to the Fair Market Value of Shares
rather than equity securities of the granting entity and shall be on terms
that, as determined by the Board in its sole and absolute discretion, properly
reflects the substitution.


 


(e)                      Repricings.  A SAR may be
repriced, replaced or regranted, through cancellation or modification without
stockholder approval.


 


8.2                          Stock Awards


 


The
following rules apply to all Stock Awards:


 


(a)                     General.  The specific terms
and conditions of a Stock Award applicable to the Awardee shall be provided for
in the Award Agreement. The Award Agreement shall state the number of Shares
that the Awardee shall be entitled to receive or purchase, the terms and
conditions on which the Shares shall vest, the price to be paid and, if
applicable, 


 

















 


the time within which the Awardee must accept
such offer. The offer shall be accepted by execution of the Award
Agreement.  The Administrator may require that all Shares subject to a
right of repurchase or risk of forfeiture be held in escrow until such
repurchase right or risk of forfeiture lapses.  The grant or vesting of a
Stock Award may be made contingent on the achievement of Objectively
Determinable Performance Conditions.


 


(b)                     Right of Repurchase.  If so
provided in the Award Agreement, Award Shares acquired pursuant to a Stock
Award may be subject to repurchase by the Company or an Affiliate if not vested
in accordance with the Award Agreement.


 


(c)                      Form of Payment.  The
Administrator shall determine the acceptable form and method of payment for
exercising a Stock Award.  Acceptable forms of payment for all Award
Shares are cash, check or wire transfer, denominated in U.S. dollars except as
specified by the Administrator for non-U.S. Employees or non-U.S.
sub-plans.  In addition, the Administrator may permit payment to be made
by any of the methods permitted with respect to the exercise of Options
pursuant to Section 6.4.


 


(d)                     Nonassignability of Stock Awards.  Except as determined by the Administrator, no Stock Award shall
be assignable or otherwise transferable by the Awardee except by will or by the
laws of descent and distribution.  Notwithstanding anything to the
contrary herein, Stock Awards may be transferred and exercised in accordance
with a Domestic Relations Order.


 


(e)                      Substitute Stock Award.  The
Board may cause the Company to grant Substitute Stock Awards in connection with
the acquisition by the Company or an Affiliate of equity securities of any
entity (including by merger) or all or a portion of the assets of any
entity.  Unless and to the extent specified otherwise by the Board,
Substitute Stock Awards shall have the same terms and conditions as the stock
awards they replace, except that (subject to the provisions of Section 10)
Substitute Stock Awards shall be Stock Awards to purchase Shares rather than
equity securities of the granting entity and shall have a Purchase Price that,
as determined by the Board in its sole and absolute discretion, properly
reflects the substitution.  Any such Substituted Stock Award shall be
effective on the effective date of the acquisition.


 


8.3                          Cash Awards


 


The
following rules apply to all Cash Awards:


 


Cash
Awards may be granted either alone, in addition to, or in tandem with other
Awards granted under this Plan. After the Administrator determines that it will
offer a Cash Award, it shall advise the Awardee, by means of an Award
Agreement, of the terms, conditions and restrictions related to the Cash Award.


 


9.                               Exercise of Awards


 


9.1                          In General


 


An
Award shall be exercisable in accordance with this Plan and the Award Agreement
under which it is granted.


 


9.2                          Time of Exercise


 


Options
and Stock Awards shall be considered exercised when the Company receives: (a) written
notice of exercise from the person entitled to exercise the Option or Stock
Award, (b) full payment, or provision for payment, in a form and method
approved by the Administrator, for the Shares for which the Option or Stock
Award is being exercised, and (c) with respect to Nonstatutory Options,
payment, or provision for payment, in a form approved by the Administrator, of
all applicable withholding taxes due upon exercise.  An Award may not be
exercised for a fraction of a Share.  SARs shall be considered exercised
when the Company receives written notice of the exercise from the person
entitled to exercise the SAR.


 


9.3                          Issuance of Award Shares


 


The
Company shall issue Award Shares in the name of the person properly exercising
the Award.  If the Awardee is that person and so requests, the Award
Shares shall be issued in the name of the Awardee and the Awardee’s
spouse.  The Company shall endeavor to issue Award Shares promptly after
an Award is exercised or after the Grant Date of a Stock Award, as
applicable.  Until Award Shares are actually issued, as evidenced by the
appropriate entry on the stock 


 

















 


register of the Company or its transfer
agent, the Awardee will not have the rights of a stockholder with respect to
those Award Shares, even though the Awardee has completed all the steps
necessary to exercise the Award.  No adjustment shall be made for any
dividend, distribution, or other right for which the record date precedes the
date the Award Shares are issued, except as provided in Section 10.


 


9.4                          Termination


 


(a)                     In General  Except as provided in
an Award Agreement or in writing by the Administrator, including in an Award
Agreement, and as otherwise provided in Sections 9.4(b), (c), (d) and
(e) after an Awardee’s Termination, the Awardee’s Awards shall be
exercisable to the extent (but only to the extent) they are vested on the date
of that Termination and only during the three months after the Termination, but
in no event after the Expiration Date.  To the extent the Awardee does not
exercise an Award within the time specified for exercise, the Award shall
automatically terminate.


 


(b)                     Leaves of Absence  Unless
otherwise provided in the Award Agreement, no Award may be exercised more than
three months after the beginning of a leave of absence, other than a personal
or medical leave approved by an authorized representative of the Company with
employment guaranteed upon return.  Awards shall not continue to vest
during a leave of absence, unless otherwise determined by the Administrator
with respect to an approved personal or medical leave with employment
guaranteed upon return.


 


(c)                      Death or Disability  Unless
otherwise provided by the Administrator, if an Awardee’s Termination is due to
death or disability (as determined by the Administrator with respect to all
Awards other than Incentive Stock Options and as defined by Section 22(e) of
the Code with respect to Incentive Stock Options), all Awards of that Awardee
to the extent exercisable at the date of that Termination may be exercised for
one year after that Termination, but in no event after the Expiration
Date.  In the case of Termination due to death, an Award may be exercised
as provided in Section 17.  In the case of Termination due to
disability, if a guardian or conservator has been appointed to act for the
Awardee and been granted this authority as part of that appointment, that
guardian or conservator may exercise the Award on behalf of the Awardee. 
Death or disability occurring after an Awardee’s Termination shall not cause
the Termination to be treated as having occurred due to death or
disability.  To the extent an Award is not so exercised within the time
specified for its exercise, the Award shall automatically terminate.


 


(d)                     Divestiture  If an Awardee’s
Termination is due to a Divestiture, the Board may take any one or more of the
actions described in Section 10.3 or 10.4 with respect to the Awardee’s
Awards.


 


(e)                      Termination for Cause  In the
discretion of the Administrator, which may be exercised on the date of grant,
or at a date later in time, if an Awardee’s Termination is due to Cause, all of
the Awardee’s Awards shall automatically terminate and cease to be exercisable
at the time of Termination and the Administrator may rescind any and all
exercises of Awards by the Awardee that occurred after the first event
constituting Cause.  “Cause” means employment-related dishonesty, fraud,
misconduct or disclosure or misuse of confidential information, or other
employment-related conduct that is likely to cause significant injury to the
Company, an Affiliate, or any of their respective employees, officers or
directors (including, without limitation, commission of a felony or similar
offense), in each case as determined by the Administrator.  “Cause” shall
not require that a civil judgment or criminal conviction have been entered
against or guilty plea shall have been made by the Awardee regarding any of the
matters referred to in the previous sentence.  Accordingly, the
Administrator shall be entitled to determine “Cause” based on the
Administrator’s good faith belief.  If the Awardee is criminally charged
with a felony or similar offense, that shall be a sufficient, but not a
necessary, basis for such a belief.


 


(f)                         Administrator Discretion 
Notwithstanding the provisions of Section 9.4 (a)-(e), the Plan
Administrator shall have complete discretion, exercisable either at the time an
Award is granted or at any time while the Award remains outstanding, to:


 


(i)                    Extend the
period of time for which the Award is to remain exercisable, following the
Awardee’s Termination, from the limited exercise period otherwise in effect for
that Award to such greater period of time as the Administrator shall deem
appropriate, but in no event beyond the Expiration Date; and/or


 


(ii)                Permit the
Award to be exercised, during the applicable post-Termination exercise period,
not only with respect to the number of vested Shares for which such Award may
be exercisable at the time of the Awardee’s Termination but also with respect
to one or more additional installments in which the Awardee would have vested
had the Awardee not been subject to Termination.


 














 


(g)                     Consulting or Employment Relationship  Nothing
in this Plan or in any Award Agreement, and no Award or the fact that Award
Shares remain subject to repurchase rights, shall:  (A) interfere
with or limit the right of the Company or any Affiliate to terminate the
employment or consultancy of any Awardee at any time, whether with or without
cause or reason, and with or without the payment of severance or any other
compensation or payment, or (B) interfere with the application of any provision
in any of the Company’s or any Affiliate’s charter documents or Applicable Law
relating to the election, appointment, term of office, or removal of a
Director.


 


10.                        Certain Transactions and Events


 


10.1                   In General


 


Except
as provided in this Section 10, no change in the capital structure of the
Company, merger, sale or other disposition of assets or a subsidiary, change in
control, issuance by the Company of shares of any class of securities or
securities convertible into shares of any class of securities, exchange or
conversion of securities, or other transaction or event shall require or be the
occasion for any adjustments of the type described in this Section 10. 
Additional provisions with respect to the foregoing transactions are set forth
in Section 14.3.


 


10.2                   Changes in Capital Structure


 


In
the event of any stock split, reverse stock split, recapitalization,
combination or reclassification of stock, stock dividend, spin-off, or similar
change to the capital structure of the Company (not including a Fundamental
Transaction or Change in Control), the Board shall make whatever adjustments it
concludes are appropriate to: (a) the number and type of Awards that may
be granted under this Plan, (b) the number and type of Options that may be
granted to any individual under this Plan, (c) the terms of any SAR, (d) the
Purchase Price of any Stock Award, (e) the Option Price and number and
class of securities issuable under each outstanding Option, and (f) the
repurchase price of any securities substituted for Award Shares that are
subject to repurchase rights.  The specific adjustments shall be
determined by the Board.  Unless the Board specifies otherwise, any
securities issuable as a result of any such adjustment shall be rounded down to
the next lower whole security.  The Board need not adopt the same rules for
each Award or each Awardee.


 


10.3                   Fundamental Transactions


 


Except
for grants to Non-Employee Directors pursuant to Section 11 herein, in the
event of (a) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders
of the Company or their relative stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation,
which assumption shall be binding on all Participants), (b) a merger in
which the Company is the surviving corporation but after which the stockholders
of the Company immediately prior to such merger (other than any stockholder
that merges, or which owns or controls another corporation that merges, with
the Company in such merger) cease to own their shares or other equity interest
in the Company, (c) the sale of all or substantially all of the assets of
the Company, or (d) the acquisition, sale, or transfer of more than 50% of
the outstanding shares of the Company by tender offer or similar transaction
(each, a “ Fundamental
Transaction  “), any or
all outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement shall be
binding on all participants under this Plan.  In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to participants as was provided to stockholders (after
taking into account the existing provisions of the Awards).  The successor
corporation may also issue, in place of outstanding Shares held by the
participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the participant. In the event such
successor corporation (if any) does not assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 10.3,
the vesting with respect to such Awards shall fully and immediately accelerate
or the repurchase rights of the Company shall fully and immediately terminate,
as the case may be, so that the Awards may be exercised or the repurchase
rights shall terminate before, or otherwise in connection with the closing or
completion of the Fundamental Transaction or event, but then terminate. 
Notwithstanding anything in this Plan to the contrary, the Committee may, in
its sole discretion, provide that the vesting of any or all Award Shares
subject to vesting or a right of repurchase shall accelerate or lapse, as the
case may be, upon a transaction described in this Section 10.3. If the
Committee exercises such discretion with respect to Options, such Options shall
become exercisable in full prior to the consummation of such event at such time
and on such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the Fundamental Transaction, they shall
terminate at such time as determined by the Committee.  Subject to any
greater rights granted to participants under the foregoing provisions of this Section 10.3,
in the event of the occurrence of any Fundamental Transaction, any outstanding
Awards shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.


 

















 


10.4                   Changes of Control


 


The
Board may also, but need not, specify that other transactions or events
constitute a “Change in
Control “.  The Board may do that either before or after
the transaction or event occurs.  Examples of transactions or events that
the Board may treat as Changes of Control are: (a) any person or entity,
including a “group” as contemplated by Section 13(d)(3) of the
Exchange Act, acquires securities holding 30% or more of the total combined
voting power or value of the Company, or (b) as a result of or in
connection with a contested election of Company Directors, the persons who were
Company Directors immediately before the election cease to constitute a
majority of the Board.  In connection with a Change in Control,
notwithstanding any other provision of this Plan, the Board may, but need not,
take any one or more of the actions described in Section 10.3.  In
addition, the Board may extend the date for the exercise of Awards (but not
beyond their original Expiration Date).  The Board need not adopt the same
rules for each Award or each Awardee.  Notwithstanding anything in
this Plan to the contrary, in the event of a Termination of services for any
reason other than death, disability or Cause, within 18 months following the
consummation of a Fundamental Transaction or Change in Control, any Awards,
assumed or substituted in a Fundamental Transaction or Change in Control, which
are subject to vesting conditions and/or the right of repurchase in favor of
the Company or a successor entity, shall accelerate fully so that such Award
Shares are immediately exercisable upon Termination or, if subject to the right
of repurchase in favor of the Company, such repurchase rights shall lapse as of
the date of Termination. Such Awards shall be exercisable for a period of three
(3) months following termination.


 


10.5                   Divestiture


 


If
the Company or an Affiliate sells or otherwise transfers equity securities of
an Affiliate to a person or entity other than the Company or an Affiliate, or
leases, exchanges or transfers all or any portion of its assets to such a
person or entity, then the Board may specify that such transaction or event
constitutes a “
Divestiture  “.  In
connection with a Divestiture, notwithstanding any other provision of this
Plan, the Board may, but need not, take one or more of the actions described in
Section 10.3 or 10.4 with respect to Awards or Award Shares held by, for
example, Employees, Directors or Consultants for whom that transaction or event
results in a Termination.  The Board need not adopt the same rules for
each Award or each Awardee.


 


10.6                   Dissolution


 


If
the Company adopts a plan of dissolution, the Board may cause Awards to be
fully vested and exercisable (but not after their Expiration Date) before the
dissolution is completed but contingent on its completion and may cause the
Company’s repurchase rights on Award Shares to lapse upon completion of the
dissolution.  The Board need not adopt the same rules for each Award
or each Awardee.  Notwithstanding anything herein to the contrary, in the
event of a dissolution of the Company, to the extent not exercised before the
earlier of the completion of the dissolution or their Expiration Date, Awards
shall terminate immediately prior to the dissolution.


 


10.7                   Cut-Back to Preserve Benefits


 


If
the Administrator determines that the net after-tax amount to be realized by
any Awardee, taking into account any accelerated vesting, termination of
repurchase rights, or cash payments to that Awardee in connection with any
transaction or event set forth in this Section 10 would be greater if one
or more of those steps were not taken or payments were not made with respect to
that Awardee’s Awards or Award Shares, then, at the election of the Awardee, to
such extent, one or more of those steps shall not be taken and payments shall
not be made.


 


11.          Automatic Option Grants to Non-Employee Directors and Non-Employee
Director Fee Option Grants


 


11.1                   Automatic Option Grants to Non-Employee Directors


 


(a)                     Grant Dates  Option grants to Non-Employee Directors shall
be made on the dates specified below:


 


(i)                    Each
Non-Employee Director who is then serving as a member of the Board on the
Effective Date (the “
Current Directors  “) and
each Non-Employee Director who is first elected or appointed to the Board at
any time after the effective date of this Plan shall automatically be granted,
on the date of such initial election or appointment, a Nonstatutory Option to
purchase 7,500 Shares (the “ Initial Grant 
“).


 

















 


(ii)                Commencing in
2004, on the date of each annual stockholders meeting, each individual who is
to continue to serve as a Non-Employee Director shall automatically be granted
a Nonstatutory Option to purchase 3,750 Shares (the “ Annual Grant “),
provided, however, that such individual has served as a Non-Employee Director
for at least six (6) months.


 


(b)                     Exercise Price


 


(i)                    The Option
Price shall be equal to one hundred percent (100%) of the Fair Market Value of
the Shares on the Option grant date.


 


(ii)                The Option
Price shall be payable in one or more of the alternative forms authorized
pursuant to Section 6.4.  Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the Option
Price must be made on the date of exercise.


 


(c)                      Option Term   Each Option shall have a term of ten (10) years
measured from the Option grant date.


 


(d)                     Exercise and Vesting of Options  Except as otherwise
determined by the whole Board, the Shares underlying each Option granted
pursuant to Section 11.1 shall vest and be exercisable as set forth below.


 


(i)                    Initial Grant.  The Shares
underlying each Option issued pursuant to the Initial Grant shall vest and be
exercisable as to 4.1666% of the Shares at the end of each full succeeding
month from the date of grant, rounded down to the nearest whole Share, for so
long as the Non-Employee Director continuously remains a Director of, or a
Consultant to, the Company provided, however, that the Shares underlying each
Option issued to Current Directors, pursuant to the Initial Grant, shall be
fully vested and immediately exercisable on the grant date.


 


(ii)                Annual Grant.  The Shares
underlying each Option issued pursuant to the Annual Grant shall vest and be
exercisable as to 8.3333% of the Shares at the end of each full succeeding
month from the date of grant, rounded down to the nearest whole Share, for so
long as the Non-Employee Director continuously remains a Director of, or a
Consultant to, the Company.


 


(e)                      Termination of Board Service  The following
provisions shall govern the exercise of any Options held by the Awardee at the
time the Awardee ceases to serve as a Non-Employee Director:


 


(i)                    In General  Except as otherwise
provided in Section 11.3, after cessation of service as a Director (the “ Cessation Date  “), the Awardee’s Options shall be
exercisable to the extent (but only to the extent) they are vested on the
Cessation Date and only during the three months after such Cessation Date, but
in no event after the Expiration Date.  To the extent the Awardee does not
exercise an Option within the time specified for exercise, the Option shall
automatically terminate.


 


(ii)                Death or Disability  If an
Awardee’s cessation of service on the Board is due to death or disability (as
determined by the Board), all Options of that Awardee, to the extent
exercisable upon such Cessation Date, may be exercised for one year after the
Cessation Date, but in no event after the Expiration Date.  In the case of
a cessation of service due to death, an Option may be exercised as provided in Section 17. 
In the case of a cessation of service due to disability, if a guardian or
conservator has been appointed to act for the Awardee and been granted this
authority as part of that appointment, that guardian or conservator may
exercise the Option on behalf of the Awardee.  Death or disability
occurring after an Awardee’s cessation of service shall not cause the cessation
of service to be treated as having occurred due to death or disability. 
To the extent an Option is not so exercised within the time specified for its
exercise, the Option shall automatically terminate.


 


11.2                   Director Fee Option Grants


 


(a)                     Option Grants.  The Board shall have the
sole and exclusive authority to determine the calendar year or years for which
the Director fee option grant program (the “ Director Fee Option Program ”) is to be
in effect.  For each such calendar year the program is in effect, each
Non-Employee Director may elect to apply all or any portion of the annual
retainer fee otherwise payable in cash, for his or her service on the Board for
that year, to the acquisition of a special Option grant under this Director Fee
Option Program.  Such election must be filed with the Company’s Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. 
Each Non-Employee Director who files such a timely election shall automatically
be granted an Option 


 

















 


under
this Director Fee Option Program on the first trading day in January in
the calendar year for which the annual retainer fee which is the subject of
that election would otherwise be payable in cash.


 


(b)                     Option Terms  Each Option shall be a Nonstatutory Option
governed by the terms and conditions specified below.


 


(i)                    Exercise Price


 


A.                  The Purchase
Price shall be thirty-three and one-third percent (33-1/3%) of the Fair Market
Value per Share on the Option grant date.


 


B.                  The Purchase
Price shall become immediately due upon exercise of the Option and shall be
payable in one or more of the alternative forms authorized pursuant to Section 6.4
of this Plan.  Except to the extent the sale and remittance procedure
specified thereunder is utilized, payment of the Purchase Price must be made on
the date that the Option is exercised.


 


(ii)                Number of Option Shares.  The
number of Shares subject to the Option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):


 


X
= A ÷ (B x 66-2/3%), where


 


X
is the number of Option Shares,


 


A
is the portion of the annual retainer fee subject to the Non-Employee
Director’s election, and


 


B
is the Fair Market Value of a Share on the option grant date.


 


(iii)            Exercise and Term of Options  The
Option shall become exercisable in a series of twelve (12) equal monthly
installments upon the Awardee’s completion of each month of Board service over
the twelve (12)-month period measured from the grant date.  Each Option
shall have a maximum term of ten (10) years measured from the Option grant
date.


 


(iv)              Termination of Board Service  Should the
Awardee cease Board service for any reason (other than death or permanent
disability) while holding one or more Options under this Director Fee Option
Program, then each such Option shall remain exercisable, for any or all of the
Shares for which the Option is exercisable at the time of such cessation of
Board service, until the earlier of (x) the expiration of the ten
(10)-year Option term or (y) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.  However, each
Option held by the Awardee under this Director Fee Option Program at the time
of his or her cessation of Board service shall immediately terminate and cease
to remain outstanding with respect to any and all Shares for which the Option
is not otherwise at that time exercisable.


 


(v)                  Death or Permanent Disability  Should
the Awardee’s service as a Board member cease by reason of death or permanent
disability, then each Option held by such Awardee under this Director Fee
Option Program shall immediately become exercisable for all the Shares at the
time subject to that Option, and the Option may be exercised for any or all of
those Shares as fully-vested Shares until the earlier of (x) the
expiration of the ten (10)-year option term or (y) the expiration of the
three (3)-year period measured from the date of such cessation of Board
service.


 


Should
the Awardee die after cessation of his or her Board service but while holding
one or more Options under this Director Fee Option Program, then each such
Option may be exercised, for any or all of the shares for which the Option is
exercisable at the time of the Awardee’s cessation of Board service (less any
Shares subsequently purchased by the Awardee prior to death), by the personal
representative of the Awardee’s estate or by the person or persons to whom the
Option is transferred pursuant to the Awardee’s will or in accordance with the
laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option.  Such right of exercise shall lapse, and the
Option shall terminate, upon the earlier of (xx) the expiration of the ten
(10)-year Option term or (yy) the three (3)-year period measured from the date
of the Awardee’s cessation of Board service.


 


11.3                   Certain Transactions and Events


 


(a)                     In the event
of a Fundamental Transaction while the Awardee remains a Non-Employee 


 

















 


Director,
the Shares at the time subject to each outstanding Option held by such Awardee
pursuant to Section 11, but not otherwise vested, shall automatically vest
in full so that each such Option shall, immediately prior to the effective date
of the Fundamental Transaction, become exercisable for all the Shares as fully
vested Shares and may be exercised for any or all of those vested Shares.
Immediately following the consummation of the Fundamental Transaction, each
Option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or Affiliate thereof).


 


(b)                     In the event
of a Change in Control while the Awardee remains a Non-Employee Director, the
Shares at the time subject to each outstanding Option held by such Awardee
pursuant to Section 11, but not otherwise vested, shall automatically vest
in full so that each such Option shall, immediately prior to the effective date
of the Change in Control, become exercisable for all the Shares as fully vested
Shares and may be exercised for any or all of those vested Shares. Each such
Option shall remain exercisable for such fully vested Shares until the
expiration or sooner termination of the Option term in connection with a Change
in Control.


 


(c)                      Each Option
which is assumed in connection with a Fundamental Transaction shall be
appropriately adjusted, immediately after such Fundamental Transaction, to
apply to the number and class of securities which would have been issuable to
the Awardee in consummation of such Fundamental Transaction had the Option been
exercised immediately prior to such Fundamental Transaction. Appropriate
adjustments shall also be made to the Option Price payable per share under each
outstanding Option, provided the aggregate Option Price payable for such
securities shall remain the same. To the extent the actual holders of the Company’s
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Fundamental Transaction, the successor corporation may, in
connection with the assumption of the outstanding Options granted pursuant to Section 11,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Fundamental Transaction.


 


(d)                     The grant of
Options pursuant to Section 11 shall in no way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.


 


(e)                      The remaining
terms of each Option granted pursuant to Section 11 shall, as applicable,
be the same as terms in effect for Awards granted under this Plan. 
Notwithstanding the foregoing, the provisions of Section 9.4 and Section 10
shall not apply to Options granted pursuant to Section 11.


 


11.4                   Limited Transferability of Options


 


Each
Option granted pursuant to Section 11 may be assigned in whole or in part
during the Awardee’s lifetime to one or more members of the Awardee’s family or
to a trust established exclusively for one or more such family members or to an
entity in which the Awardee is majority owner or to the Awardee ‘s former
spouse, to the extent such assignment is in connection with the Awardee ‘s
estate or financial plan or pursuant to a Domestic Relations Order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the Option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
Option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Administrator may deem appropriate. The
Awardee may also designate one or more persons as the beneficiary or beneficiaries
of his or her outstanding Options under Section 11, and those Options
shall, in accordance with such designation, automatically be transferred to
such beneficiary or beneficiaries upon the Awardee ‘s death while holding those
Options. Such beneficiary or beneficiaries shall take the transferred Options
subject to all the terms and conditions of the applicable Award Agreement
evidencing each such transferred Option, including (without limitation) the
limited time period during which the Option may be exercised following the
Awardee ‘s death.


 


12.                        Withholding and Tax Reporting


 


12.1                   Tax Withholding Alternatives


 


(a)                     General  Whenever Award Shares
are issued or become free of restrictions, the Company may require the Awardee
to remit to the Company an amount sufficient to satisfy any applicable tax
withholding requirement, whether the related tax is imposed on the Awardee or
the Company.  The Company shall have no obligation to deliver Award Shares
or release Award Shares from an escrow or permit a transfer of Award Shares
until the Awardee has satisfied those tax withholding obligations. 
Whenever payment in satisfaction of Awards is made in cash, the payment will be
reduced by an amount sufficient to satisfy all tax withholding requirements.


 

















 


(b)                     Method of Payment  The
Awardee shall pay any required withholding using the forms of consideration
described in Section 6.4(b), except that, in the discretion of the
Administrator, the Company may also permit the Awardee to use any of the forms
of payment described in Section 6.4(c).  The Administrator, in its
sole discretion, may also permit Award Shares to be withheld to pay required
withholding.  If the Administrator permits Award Shares to be withheld,
the Fair Market Value of the Award Shares withheld, as determined as of the
date of withholding, shall not exceed the amount determined by the applicable
minimum statutory withholding rates.


 


12.2                   Reporting of Dispositions


 


Any
holder of Option Shares acquired under an Incentive Stock Option shall promptly
notify the Administrator, following such procedures as the Administrator may
require, of the sale or other disposition of any of those Option Shares if the
disposition occurs during:  (a) the longer of two years after the
Grant Date of the Incentive Stock Option and one year after the date the
Incentive Stock Option was exercised, or (b) such other period as the
Administrator has established.


 


13.          Compliance with Law


 


The
grant of Awards and the issuance and subsequent transfer of Award Shares shall
be subject to compliance with all Applicable Law, including all applicable
securities laws.  Awards may not be exercised, and Award Shares may not be
transferred, in violation of Applicable Law.  Thus, for example, Awards
may not be exercised unless:  (a) a registration statement under the
Securities Act is then in effect with respect to the related Award Shares, or (b) in
the opinion of legal counsel to the Company, those Award Shares may be issued
in accordance with an applicable exemption from the registration requirements
of the Securities Act and any other applicable securities laws.  The
failure or inability of the Company to obtain from any regulatory body the
authority considered by the Company’s legal counsel to be necessary or useful
for the lawful issuance of any Award Shares or their subsequent transfer shall
relieve the Company of any liability for failing to issue those Award Shares or
permitting their transfer.  As a condition to the exercise of any Award or
the transfer of any Award Shares, the Company may require the Awardee to
satisfy any requirements or qualifications that may be necessary or appropriate
to comply with or evidence compliance with any Applicable Law.


 


14.          Amendment or Termination of this Plan or Outstanding Awards


 


14.1                   Amendment and Termination


 


The
Board may at any time amend, suspend, or terminate this Plan.


 


14.2                   Stockholder Approval


 


The
Company shall obtain the approval of the Company’s stockholders for any
amendment to this Plan if stockholder approval is necessary or desirable to
comply with any Applicable Law or with the requirements applicable to the grant
of Awards intended to be Incentive Stock Options.  The Board may also, but
need not, require that the Company’s stockholders approve any other amendments
to this Plan.


 


14.3                   Effect


 


No
amendment, suspension, or termination of this Plan, and no modification of any
Award even in the absence of an amendment, suspension, or termination of this
Plan, shall impair any existing contractual rights of any Awardee unless the
affected Awardee consents to the amendment, suspension, termination, or
modification.  Notwithstanding anything herein to the contrary, no such
consent shall be required if the Board determines, in its sole and absolute
discretion, that the amendment, suspension, termination, or modification: 
(a) is required or advisable in order for the Company, this Plan or the
Award to satisfy Applicable Law, to meet the requirements of any accounting
standard or to avoid any adverse accounting treatment, or (b) in
connection with any transaction or event described in Section 10, is in
the best interests of the Company or its stockholders.  The Board may, but
need not, take the tax or accounting consequences to affected Awardees into
consideration in acting under the preceding sentence.  Those decisions
shall be final, binding and conclusive.  Termination of this Plan shall
not affect the Administrator’s ability to exercise the powers granted to it
under this Plan with respect to Awards granted before the termination of Award
Shares issued under such Awards even if those Award Shares are issued after the
termination.


 

















 


15.          Reserved Rights


 


15.1                   Nonexclusivity of this Plan


 


This
Plan shall not limit the power of the Company or any Affiliate to adopt other
incentive arrangements including, for example, the grant or issuance of stock
options, stock, or other equity-based rights under other plans.


 


15.2                   Unfunded Plan


 


This
Plan shall be unfunded.  Although bookkeeping accounts may be established
with respect to Awardees, any such accounts will be used merely as a
convenience.  The Company shall not be required to segregate any assets on
account of this Plan, the grant of Awards, or the issuance of Award
Shares.  The Company and the Administrator shall not be deemed to be a
trustee of stock or cash to be awarded under this Plan.  Any obligations
of the Company to any Awardee shall be based solely upon contracts entered into
under this Plan, such as Award Agreements.  No such obligations shall be
deemed to be secured by any pledge or other encumbrance on any assets of the
Company.  Neither the Company nor the Administrator shall be required to
give any security or bond for the performance of any such obligations.


 


16.          Special Arrangements Regarding Award Shares


 


16.1                   Escrow of Stock Certificates


 


To
enforce any restrictions on Award Shares, the Administrator may require their
holder to deposit the certificates representing Award Shares, with stock powers
or other transfer instruments approved by the Administrator endorsed in blank,
with the Company or an agent of the Company to hold in escrow until the
restrictions have lapsed or terminated.  The Administrator may also cause
a legend or legends referencing the restrictions to be placed on the
certificates.


 


16.2                   Repurchase Rights


 


(a)                     General  If a Stock Award is
subject to vesting conditions, the Company shall have the right, during the
seven months after the Awardee’s Termination, to repurchase any or all of the
Award Shares that were unvested as of the date of that Termination.  The
repurchase price shall be determined by the Administrator in accordance with
this Section 16.2 which shall be either (i) the Purchase Price for
the Award Shares (minus the amount of any cash dividends paid or payable with
respect to the Award Shares for which the record date precedes the repurchase)
or (ii) the lower of (A) the Purchase Price for the Shares or (B) the
Fair Market Value of those Award Shares as of the date of the
Termination.  The repurchase price shall be paid in cash.  The
Company may assign this right of repurchase.


 


(b)                     Procedure  The Company or its
assignee may choose to give the Awardee a written notice of exercise of its
repurchase rights under this Section 16.2.  However, the Company’s
failure to give such a notice shall not affect its rights to repurchase Award
Shares.  The Company must, however, tender the repurchase price during the
period specified in this Section 16.2 for exercising its repurchase rights
in order to exercise such rights.


 


17.          Beneficiaries


 


An
Awardee may file a written designation of one or more beneficiaries who are to
receive the Awardee’s rights under the Awardee’s Awards after the Awardee’s
death.  An Awardee may change such a designation at any time by written
notice.  If an Awardee designates a beneficiary, the beneficiary may exercise
the Awardee’s Awards after the Awardee’s death.  If an Awardee dies when
the Awardee has no living beneficiary designated under this Plan, the Company
shall allow the executor or administrator of the Awardee’s estate to exercise
the Award or, if there is none, the person entitled to exercise the Option
under the Awardee’s will or the laws of descent and distribution.  In any
case, no Award may be exercised after its Expiration Date.


 


18.          Miscellaneous


 


18.1                   Governing Law


 


This
Plan, the Award Agreements and all other agreements entered into under this
Plan, and all actions taken under this Plan or in connection with Awards or
Award Shares, shall be governed by the laws of the State of Delaware.


 


18.2                   Determination of Value


 


Fair Market Value shall be determined as follows:


 

















 


(a)                     Listed Stock.  If the
Shares are traded on any established stock exchange or quoted on a national
market system, Fair Market Value shall be the closing sales price for the
Shares as quoted on that stock exchange or system for the date the value is to
be determined (the “
Value Date  “) as reported
in   The Wall Street Journal
  or a similar publication.  If no sales are reported as having
occurred on the Value Date, Fair Market Value shall be that closing sales price
for the last preceding trading day on which sales of Shares are reported as
having occurred.  If no sales are reported as having occurred during the
five trading days before the Value Date, Fair Market Value shall be the closing
bid for Shares on the Value Date.  If Shares are listed on multiple
exchanges or systems, Fair Market Value shall be based on sales or bid prices
on the primary exchange or system on which Shares are traded or quoted.


 


(b)                     Stock Quoted by Securities Dealer  If
Shares are regularly quoted by a recognized securities dealer but selling
prices are not reported on any established stock exchange or quoted on a
national market system, Fair Market Value shall be the mean between the high
bid and low asked prices on the Value Date.  If no prices are quoted for
the Value Date, Fair Market Value shall be the mean between the high bid and
low asked prices on the last preceding trading day on which any bid and asked
prices were quoted.


 


(c)                      No Established Market  If
Shares are not traded on any established stock exchange or quoted on a national
market system and are not quoted by a recognized securities dealer, the
Administrator (following guidelines established by the Board or Committee) will
determine Fair Market Value in good faith.  The Administrator will
consider the following factors, and any others it considers significant, in
determining Fair Market Value: (i) the price at which other securities of
the Company have been issued to purchasers other than Employees, Directors, or
Consultants, (ii) the Company’s stockholder’s equity, prospective earning
power, dividend-paying capacity, and non-operating assets, if any, and (iii) any
other relevant factors, including the economic outlook for the Company and the
Company’s industry, the Company’s position in that industry, the Company’s
goodwill and other intellectual property, and the values of securities of other
businesses in the same industry.


 


18.3                   Reservation of Shares


 


During
the term of this Plan, the Company shall at all times reserve and keep
available such number of Shares as are still issuable under this Plan.


 


18.4                   Electronic Communications


 


Any
Award Agreement, notice of exercise of an Award, or other document required or
permitted by this Plan may be delivered in writing or, to the extent determined
by the Administrator, electronically.  Signatures may also be electronic
if permitted by the Administrator.


 


18.5                   Notices


 


Unless
the Administrator specifies otherwise, any notice to the Company under any
Option Agreement or with respect to any Awards or Award Shares shall be in
writing (or, if so authorized by Section 18.4, communicated
electronically), shall be addressed to the Secretary of the Company, and shall
only be effective when received by the Secretary of the Company.


 

















 


Amendment to


2003 Equity Incentive Plan


of DTS, Inc.


 


Notwithstanding
the provisions of Section 11 of the 2003 Equity Incentive Plan (the “Plan”) of DTS, Inc.
(the “Company”),
the Plan was amended on May 9, 2005 to provide as follows:


 


Any
automatic option grant to newly elected or appointed non-employee directors
under the Plan made during the period from May 19, 2005 to December 31,
2005 shall consist of an option to purchase 30,000 shares of the Company’s
common stock, vesting monthly over a three year period starting on the date of
the grant.


 


Any
annual automatic option grant to non-employee directors under the Plan made
during the period from May 19, 2005 to December 31, 2005 shall
consist of an option to purchase 10,000 shares of the Company’s common stock,
vesting monthly over a one year period starting on the date of the grant,
provided that such individual has served as a non-employee director for at
least 6 months.


 


Any
automatic option grant to newly elected or appointed non-employee directors
under the Plan made at any time on or after January 1, 2006 shall consist
of an option to purchase 15,000 shares of the Company’s common stock, vesting
monthly over a three year period starting on the date of the grant.


 


Any
annual automatic option grant to non-employee directors under the Plan made at
any time on or after January 1, 2006 shall consist of an option to
purchase 5,000 shares of the Company’s common stock, vesting monthly over a one
year period starting on the date of the grant, provided that such individual
has served as a non-employee director for at least 6 months.


 


Each
non-employee director first elected or appointed to the Board at any time on or
after January 1, 2006 shall automatically be granted on the date of such
initial election or appointment, 7,500 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments at
the end of each full month from the date of the grant for so long as the
non-employee director continuously remains a director of, or a consultant to,
the Company.


 


On
the date of each annual stockholders’ meeting held on or after January 1,
2006, each individual who is to continue to serve as a non-employee director
shall automatically be granted 2,500 shares of restricted stock under the Plan,
provided that such individual has served as a non-employee director for at
least 6 months.  Such restricted stock shall vest over a period of one
year in equal installments at the end of each full month from the date of grant
for so long as the non-employee director continuously remains a director of, or
a consultant to, the Company.


 


None
of the above-referenced compensation shall be paid to any member of the Board
(or committees thereof) who is an employee of the Company.


 

















 


Amendment to


2003 Equity Incentive Plan


of DTS, Inc.


 


The
2003 Equity Incentive Plan of DTS, Inc., as amended on May 9, 2005,
was further amended on May 15, 2008, by adding a new Section 5.2(c).
The new Section 5.2(c) reads in its entirety as follows:


 


(c)                                  Cash Awards.  Subject to the
provisions of this Section 5.2, so long as the Company is a “publicly held
corporation” within the meaning of Code Section 162(m), no Employee may be
granted one or more Cash Awards within a single fiscal year of the Company
having an aggregate amount of more than $3,000,000, considered without regard
to any number of Options, SARs or Stock Awards that may have been granted or
awarded to such Employee during the applicable fiscal year. With respect to any
Cash Award that is granted with the intent of having it qualify as “qualified
performance-based compensation” under Code Section 162(m), such Cash
Awards may be granted to an Executive only by the Committee (and,
notwithstanding anything to the contrary in Section 4.1(a), not by the
Board). Any Cash Award intended as “qualified performance-based compensation”
within the meaning of Section 162(m) of the Code must be awarded,
vest or become exercisable contingent on the achievement of one or more
Objectively Determinable Performance Conditions. If a Cash Award is cancelled,
the cancelled Cash Award shall continue to be counted toward the foregoing
limitation.


 

















 


Amendment to


2003 Equity Incentive Plan


of DTS, Inc.


 


Notwithstanding
the provisions of Section 11 of the 2003 Equity Incentive Plan (the “Plan”) of DTS, Inc.,
as previously amended on May 9, 2005 and May 15, 2008, on February 19,
2009 Section 11 of the Plan was further amended to provide as follows:


 


Any annual automatic option grant to non-employee
directors under the Plan made at any time after February 19, 2009 shall
consist of an option to purchase 7,500 shares of the Company’s common stock,
vesting monthly over a one year period starting on the date of the grant,
provided that such individual has served as a non-employee director for at
least 6 months.


 


Each non-employee director first elected or
appointed to the Board at any time after February 19, 2009 shall
automatically be granted on the date of such initial election or appointment,
5,000 shares of restricted stock under the Plan, which shall vest over a period
of three years in equal installments on each annual anniversary of the date of
grant for so long as the non-employee director continuously remains a director
of, or a consultant to, the Company.


 


Each restricted stock award automatically granted to
a non-employee director on the date of each annual stockholders’ meeting shall
vest in a single installment on the one-year anniversary of the date of grant
so long as the non-employee director continuously remains a director of, or a
consultant to, the Company.


 


Except
as set forth above, the terms and conditions of Section 11 of the Plan, as
amended on May 9, 2005, shall remain in effect.


 


The
above-referenced equity compensation shall not be paid to any member of the
Board (or committees thereof) who is an employee of the Company.


 

















 


Amendment to


2003 Equity Incentive Plan


of DTS, Inc.


 


The
2003 Equity Incentive Plan of DTS, Inc., as amended on May 9, 2005, May 15,
2008 and February 19, 2009 (as amended, the “Plan”), was further
amended on February 15, 2010 to provide as follows:


 


1.  Section 2.1(d) shall
be amended in its entirety to read as follows:


 


(d)       “Award” means a Stock
Award, SAR, Cash Award, Option, or Restricted Stock Unit granted in accordance
with the terms of this Plan.


 


2.  Section 2.1
shall be amended by the addition of a new Section 2.11(vv) as follows:


 


(vv)     “Restricted
Stock Unit” means a right granted to a Participant pursuant to
Section 8.4 to receive on a future date a Share.


 


3.  Section 8
of the Plan shall be amended by the addition of a new Section 8.4 as
follows:


 


8.4           The following rules apply
to Restricted Stock Units Awards:


 


Restricted
Stock Units may be granted under this Plan. 
Restricted Stock Unit Awards shall be evidenced by Award Agreements
specifying the number of Restricted Stock Units subject to the Award, in such
form as the Administrator shall from time to time establish.  Award Agreements evidencing Restricted Stock
Units may incorporate all or any of the terms of the Plan by reference and
shall comply with and be subject to the following terms and conditions:


 


(a)          Grant of
Restricted Stock Unit Awards


 


Restricted Stock Unit Awards may be granted upon such conditions as the
Administrator shall determine, including, without limitation, upon the
attainment of one or more Objectively Determinable Performance Conditions.


 


(b)         Purchase Price


 


No
monetary payment (other than applicable tax withholding, if any) shall be
required as a condition of receiving a Restricted Stock Unit Award, the
consideration for which shall be services actually rendered to the Company or
an Affiliate.  Notwithstanding the
foregoing, if required by applicable state corporate law, the Participant shall
furnish consideration in the form of cash or past services having a value not
less than the par value of the Shares issued upon settlement of the Restricted
Stock Unit Award.


 


(c)          Vesting


 


Restricted
Stock Unit Awards may (but need not) be made subject to vesting conditions
based upon the satisfaction of such service requirements, conditions,
restrictions or performance criteria set forth in the Award Agreement evidencing
such Award.


 


(d)         Voting
Rights, Dividend Equivalent Rights and Distributions


 


Participants
shall have no voting rights with respect to Shares represented by Restricted
Stock Units until the date of the issuance of such Shares (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company).  However, the
Award Agreement evidencing any Restricted Stock Unit Award may provide that the
Participant shall be entitled to dividend equivalent rights with respect to the
payment of cash dividends on Shares during the period beginning on the date
such Award is granted and ending, with respect to each Share subject to the
Award, on the earlier of the date the Award is settled or the date on which it
is terminated.  Such 


 

















 


dividend
equivalent rights, if any, shall be paid by crediting the Participant with
additional whole Restricted Stock Units as of the date of payment of such cash
dividends on Shares.  The number of
additional Restricted Stock Units (rounded to the nearest whole number) to be
so credited shall be determined by dividing (i) the amount of cash
dividends paid on such date with respect to the number of Shares represented by
the Restricted Stock Units previously credited to the Participant by (ii) the
Fair Market Value per Share on such date. 
Such additional Restricted Stock Units shall be subject to the same
terms and conditions and shall be settled in the same manner and at the same
time as the Restricted Stock Units originally subject to the Restricted Stock
Unit Award.  In the event of a dividend
or distribution paid in Shares or other property or any other adjustment made
upon a change in the capital structure of the Company as described in Section 10.2,
appropriate adjustments shall be made in the Participant’s Restricted Stock
Unit Award so that it represents the right to receive upon settlement any and
all new, substituted or additional securities or other property (other than
regular, periodic cash dividends) to which the Participant would be entitled by
reason of the Shares issuable upon settlement of the Award, and all such new,
substituted or additional securities or other property shall be immediately
subject to the same vesting conditions as are applicable to the Award.


 


(e)          Effect of
Termination of Service


 


Unless
otherwise set forth in the Award Agreement evidencing a Restricted Stock Unit
Award, if a Participant’s service terminates for any reason, whether voluntary
or involuntary (including the Participant’s death or disability), then the
Participant shall forfeit to the Company any Restricted Stock Units pursuant to
the Award which remain subject to vesting conditions as of the date of the
Participant’s termination of service.


 


(f)            Settlement
of Restricted Stock Unit Awards


 


The
Company shall issue to a Participant on the date on which Restricted Stock
Units subject to the Participant’s Restricted Stock Unit Award vest or on such
other date set forth in the Award Agreement one (1) Share (and/or any
other new, substituted or additional securities or other property pursuant to
an adjustment described above) for each Restricted Stock Unit then becoming
vested or otherwise to be settled on such date, subject to the withholding of
applicable taxes, if any.  If permitted
by the Administrator, the Participant may elect, consistent with the
requirements of Section 409A of the Code, to defer receipt of all or any
portion of the Shares or other property otherwise issuable to the Participant,
and such deferred issuance date(s) and amount(s) elected by the
Participant shall be set forth in the Award Agreement.


 


(g)         Nontransferability
of Restricted Stock Unit Awards


 


The
right to receive Shares pursuant to a Restricted Stock Unit Award shall not be
subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution.  All rights
with respect to a Restricted Stock Unit Award granted to a Participant
hereunder shall be exercisable during his or her lifetime only by such
Participant or the Participant’s guardian or legal representative.


 


Except
as set forth above, the terms and conditions of the Plan, as amended hereby,
shall remain in effect.