exv4w2



 





Exhibit
4.2




2007 Stock Incentive Plan

of

Lam Research Corporation




As Amended by the Board of Directors 

on

November 2, 2006




1. Purpose of this Plan




     The purpose of this 2007 Stock Incentive Plan is to enhance the long-term stockholder value of
Lam Research Corporation by offering opportunities to eligible individuals to participate in the
growth in value of the equity of Lam Research Corporation.



2. Definitions and Rules of Interpretation




     2.1 Definitions.



     This Plan uses the following defined terms:



               (a) “Administrator” means the Board or 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, 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, or (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) “Cause” means employment related dishonesty, fraud, misconduct or disclosure or
misuse of confidential information, or other employment related misconduct 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 belief.



               (j) “Change in Control” means any transaction or event that the Board specifies as a
Change in Control under Section 10.3.



               (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 Lam Research Corporation, a Delaware corporation.



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



               (o) “Consultant” means an individual who (including as an employee or agent of an
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) “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.



               (r) “Effective Date” means the date the shareholders of the Company approve the
Plan. In the event the shareholders do not approve the Plan, the Plan shall be null and void and
no terms of the Plan shall take effect.



               (s) “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



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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.”




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



               (u) “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) officer elected or appointed by the Board, or (ii) beneficial owner of more than 10%
of any class of the Company’s equity securities.



               (v) “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.



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



               (x) “Good Reason” means (i) a material diminution in responsibility or compensation
in connection with his or her employment relationship with the Company or an Affiliate, as
applicable, or (ii) requiring Awardee to work for the Company or an Affiliate in a location (other
than normal business travel) which is more than 50 miles from Awardee’s principal place of
employment before the Change in Control as the case may be.



               (y) “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.



               (z) “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.



               (aa) “Involuntary Termination” means termination by the Company without Cause or
termination by the Awardee for Good Reason.



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



               (cc) “Objectively Determinable Performance Condition” shall mean any one or more of
the following performance criteria, either individually, alternatively or in any combination,
applied to either the Company as a whole or to a business unit, Affiliate or business segment,
either individually, alternatively or in any combination, and measured either annually



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or cumulatively over a period of years, on an absolute basis or relative to a pre-established
target, to previous years’ results or to a designated comparison group, in each case as specified
by the Committee in the Award and may include actual, growth, or performance-to-target for: (i)
cash flow, including free cash flow; (ii) earnings (including revenue, gross margin, operating
profit, earnings before interest and taxes, earnings before taxes, and net earnings) or earnings
per share; (iii) stock price; (iv) return on equity or average shareholders’ equity; (v) total
stockholder return, either actual or relative to share price or market capitalization; (vi) return
on capital; (vii) return on assets or net assets; (viii) return on investment or invested capital;
(ix) return on operating revenue; (x) income, net income, operating income, net operating income,
operating profit, net operating profit, or operating margin (with or without regard to
amortization/impairment of goodwill); (xi) market share or applications won; (xii) operational
performance, including orders, backlog, deferred revenues, revenue per employee, overhead, days
sales outstanding, inventory turns, or other expense levels; (xiii) stockholder value or return
relative to the moving average of the S&P 500 Index or a peer group index; (xiv) asset turns; and
(xv) strategic plan development and implementation (including individually designed goals and
objectives that are consistent with the Participant’s specific duties and responsibilities and that
are designed to improve the financial performance of the Company, an Affiliate, or a specific
business unit thereof and that are consistent with and derived from the strategic operating plan of
the Company, an Affiliate or any of their business units for the applicable performance period).
The Committee may appropriately adjust any evaluation of performance under an Objectively
Determinable Performance Criteria to exclude any of the following events that occurs during a
performance period: (A) asset write-downs; (B) litigation or claim judgments or settlements; (C)
the effect of changes in tax law, accounting principles or other such laws or provisions affecting
reported results; (D) accruals for reorganization and restructuring programs; and (E) any
extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or
in management’s discussion and analysis of financial condition and results of operations appearing
in the Company’s annual report to shareholders for the applicable year.




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



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



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



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



               (hh) “Plan” means this 2007 Stock Incentive Plan of Lam Research Corporation.



               (ii) “Prior Plans” mean the Company’s 1999 Stock Option Plan and 1997 Stock
Incentive Plan.



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



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



               (ll) “SAR” or “Stock Appreciation Right” means a right to receive cash and/or Shares
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.



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



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



               (oo) “Stock Award” means an offer by the Company to sell or issue shares, including
shares subject to certain restrictions pursuant to the Award Agreement as described in Section 8.2
or, as determined by the Committee, a notional account representing the right to be paid an amount
based on Shares. Types of Awards which may be granted as Stock Awards include such awards as are
commonly known as restricted stock, deferred stock, restricted stock units, performance shares,
phantom stock or similar types of awards as determined by the Administrator.



               (pp) “Substitute Award” means a Substitute Option, Substitute SAR or Substitute
Stock Award granted in accordance with Sections 6.6, 8.1(d) and 8.2(e) of this Plan.



               (qq) “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.



               (rr) “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.



               (ss) “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.



               (tt) “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



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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.
Subject to adjustment under Section 10, the number of Shares initially reserved for issuance or
sale over the term of this Plan shall be 15,000,000. Except as required by Applicable Law, Shares
shall not reduce the number of Shares reserved for issuance under this Plan until the actual date
of delivery of the Shares to the Awardee. Shares subject to Awards granted under this Plan that
are cancelled, expire or are forfeited or repurchased (including without limitation any such Shares
that have been issued under the Award to the Participant) shall be available for re-grant or
re-issuance under the Plan following such cancellation, expiration, forfeiture or repurchase. If
an Awardee pays the exercise or purchase price of an Award granted under the Plan through the
withholding of Award Shares or the tender of Shares, or if Shares are withheld from the Award or
otherwise tendered to satisfy any applicable withholding obligations, the number of Shares so
tendered or withheld shall become available for re-grant or re-issuance thereafter under the Plan
following such tender or withholding.



     3.2 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 13, Awards may be granted under this Plan
for a period of ten years from the latest date the Company’s stockholders approve this Plan,
including any subsequent amendment or restatement of this Plan.



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; provided
that, if for some reason the Committee cannot act or make a determination, then the Board shall
also be entitled to take such action or make such determination. Where this Plan references the



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“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
the 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. So long as the Shares are listed with Nasdaq,
the Committee shall comply with applicable Nasdaq rules and listing standards.



     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 and the conditions upon which Awards may be exercised or become vested, whether and
under what conditions an Award is assignable, whether an Option is a Nonstatutory Option or an
Incentive Stock Option, automatic cancellation of the Award if certain objective requirements
determined by the Administration are not met, and whether the Award or Award Shares are subject to
any forfeiture or other conditions;



               (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;



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               (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, as well as the effect of a Change of Control; and



               (r) 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 13.3, 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. 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, no
Employee may be granted one or more Options or SARs within any fiscal year of the



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Company under
this Plan giving him or her the right to purchase or be issued more than 1,000,000 Shares under
such Options or SARs, or to receive compensation calculated with reference to more than that number
of Shares under Options and SARs, subject to adjustment pursuant to Section 10. 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 annual limit on
Options and SARs 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
be granted in the fiscal year in which he or she commences employment Options and SARs giving him
or her the right to purchase or be issued up to a maximum of 2,000,000 Shares, or to receive
compensation calculated with reference to that number of Shares under such Options and SARs,
subject to adjustment pursuant to Section 10.




               (b) Stock Awards. Any Stock Award intended as “qualified performance-based
compensation” within the meaning of Section 162(m) of the Code, whether granted solely under this
Plan or pursuant to the terms of any other stockholder-approved compensation plan awards granted
under which are intended to comply with Code Section 162(m) (including without limitation the
Company’s 2004 Executive Incentive Plan (the “2004 EIP”)), must be granted, 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. Notwithstanding anything to the contrary contained herein or in
the 2004 EIP, no Employee may be granted one or more Stock Awards within any fiscal year of the
Company under this Plan (whether the Company’s obligation to issue such Shares arises solely under
this Plan or also under any other stockholder-approved compensation plan, including the 2004 EIP)
giving him or her the right to purchase or be issued more than 300,000 Shares under such Stock
Awards, or to receive compensation calculated with reference to more than that number of Shares
under Stock Awards, subject to adjustment pursuant to Section 10.



6. Terms and Conditions of Options




     The following rules apply to all Options:



     6.1 Price. No Option may have a per-Share Option Price less than the Fair Market
Value of a Share on the Grant Date.



     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 vest and become 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).



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     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. So long as there is no material adverse accounting consequence during
the term of the Award or at the time of exercise, the Board or Committee may require the delivery
in Shares for the value of the net appreciation of the Shares at the time of exercise over the
exercise price. The difference between full number of Shares covered by the exercised portion of
the Award and the number of Shares actually delivered shall be restored to the amount of Shares
reserved for issuance under Section 3.1.



               (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) Shares, or the designation of Shares, in either case whether Shares subject to
the Option or not, that 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) 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



                    (iv) 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.



     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, or in any manner allowed under the Form S-8 rules if so permitted by
the Administrator 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



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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.




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) Except as provided in Section 7(e), 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 Shares (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 or would otherwise be vested to cease to vest or 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



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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.



8. Stock Appreciation Rights and Stock 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



12









 




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, as specified in the Award Agreement, 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 or in any manner allowed under the Form
S-8 rules if so permitted by the Administrator.



               (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 awards they
replace, except that (subject to the provisions of Section 9) Substitute SARs shall be exercisable
with respect to the Fair Market Value of Shares rather than with regard to the value of 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.



     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 (if any), whether Shares are to be delivered at the
time of grant or at some deferred date specified in the Award Agreement, whether the Award is
payable solely in Shares, cash or either 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.



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               (c) Form of Payment. If the Awardee is required to pay any amount to purchase
Shares subject to the Stock Award, then 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. 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 and in any manner
allowed under the Form S-8 rules if so permitted by the Administrator.



               (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.



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 (or its authorized agent) receives: (a) written (including electronic) 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) if applicable, 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



14









 




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 or with regard to Stock Awards, except as set forth in
the Award Agreement.




     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),
and (d) after an Awardee’s Termination for other than Cause, 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 ninety (90) days after the Termination, but in no event after the Expiration
Date. Except as provided in an Award Agreement, or otherwise in writing by the Administrator
(including, pursuant to Section 9.4(d)(ii)), an Award shall terminate as to all Shares that are
unvested as of the Awardee’s date of termination for any reason. Unless otherwise provided in the
Award Agreement, in the event of termination for Cause the Award may not be exercised after the
date of Termination (even as to vested Shares). 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 16. 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) Administrator Discretion. Notwithstanding the provisions of Section 9.4
(a)-(c), 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:



15









 





                    (i) After considering any tax and accounting consequences of such change, 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.



               (e) Consulting or Employment Relationship. Nothing in this Plan or in any Award
Agreement, and no Award or the fact that an Award remains unvested or that Award Shares remain
subject to repurchase rights or other forfeiture conditions, 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, the existence of
outstanding Awards shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations,
exchanges, or other changes in the Company’s capital structure or its business, or any merger or
consolidation of the Company or any issuance of Shares or other securities or subscription rights
thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Shares or other securities of the Company or the rights thereof, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar character or otherwise.
Further, except as expressly provided in this Section 10 or otherwise expressly provided for in a
writing approved by the Board or Committee, (i) the issuance by the Company of shares of stock or
any class of securities convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares or other
securities, (ii) the payment of a dividend in property other than Shares, or (iii) the occurrence
of any similar transaction, and in any case whether or not for fair value, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of Shares subject to Options
or other Awards theretofore granted or the purchase or repurchase price per Share.



     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,
extraordinary cash dividend or similar change to the capital structure of the Company (not
including a Change of Control), the Board or Committee shall make appropriate adjustments to



16









 




preserve the proportionate value of such Awards or the Plan to: (a) the number and type of Shares
that may be granted subject to Awards granted under this Plan, (b) the number and type of Awards
that may be granted to any individual under this Plan, (c) the terms of any SAR, (d) the Purchase
Price or repurchase 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 to be
made to effectuate the intent of the preceding sentence shall be determined by the Board or the
Committee, whose determination in this regard shall be final and binding on all parties. Unless
the Board or Committee specifies otherwise, any securities issuable as a result of any such
adjustment shall be rounded down to the next lower whole security. The Board or Committee need not
adopt the same rules for each Award or each Awardee.




     10.3 Change of Control Transactions. In the event of (a) any merger or
consolidation in which the Company shall not be the surviving entity or survives only as a
subsidiary of another entity whose shareholders did not own all or substantially all of the Common
Stock in substantially the same proportions as immediately prior to such transaction (which
transaction shall not include 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) the sale, transfer or other disposition of all or substantially all of the
assets of the Company, including a liquidation or dissolution of the Company, or (c) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction (each, a “Change of Control”), any or all outstanding Awards shall be
subject to the definitive agreement governing the Change of Control transaction. Such transaction
agreement may provide, without limitation and in a manner that is binding on all parties, for (1)
the assumption, substitution or replacement with equivalent awards of outstanding Awards (but in
each case adjusted to reflect the transaction terms) by the surviving corporation or its parent,
(2) continuation of outstanding Awards (but again adjusted to reflect the transaction terms) by the
Company if the Company is a surviving corporation, (3) accelerated vesting, or lapse of repurchase
rights or forfeiture conditions applicable to, and accelerated expiration or termination of, the
outstanding Awards, or (4) settlement of outstanding Awards (including termination thereof) in
cash. Except for adjustments to reflect the transaction terms as referenced above or, to the
extent any Award or Award Shares are subject to accelerated vesting or lapse of restrictions
approved by the Board or Committee upon specific events or conditions (and then only to the extent
such acceleration benefits are reflected in the transaction agreement, the applicable Award
Agreement or another written agreement between the participant and the Company), any outstanding
Awards that are assumed, substituted, replaced with equivalent awards or continued shall continue
following the transaction to be subject to the same vesting or other restrictions that applied to
the original Award. The Administrator need not adopt the same rules or apply the same treatment
for each Award or Awardee.



     10.4 Dissolution. Notwithstanding anything herein to the contrary, in the event of
a dissolution or liquidation of the Company, to the extent an Award has not been exercised or the
Shares subject thereto have not been issued in full prior to the earlier of the completion of the



17









 




transaction or the applicable Award Expiration Date, then outstanding Awards shall terminate
immediately prior to the transaction.




11. Award Grants to Non-Employee Directors




     11.1 General.



     Consistent with the terms of this Plan and as reflected in individual Award Agreements, the
Administrator or, if required by Applicable Law, the Board, may grant Awards to Directors who are
not Employees (“Non-Employee Directors”) on such terms and conditions as it determines, including
to provide for satisfaction of Director fee or retainer payments through issuance of Awards under
the Plan. Such Awards may be done by establishing an annual or other periodic grant program, or
may done through action taken to approve individual Awards from time to time. To the extent that
the Administrator or the Board from time to time establish an annual or other periodic grant
program for Non-Employee Directors, it may at any time amend, suspend or terminate such program
with respect to Awards that have not yet been
granted, without the need for approval from any Non-Employee Director who might otherwise have
benefited from such Awards or from the stockholders.



     11.2 Non-Employee Director Award Guidelines



     Awards granted by the Board pursuant to Section 11.1 may be granted only with the approval of
the Committee or a majority of the Company Directors then serving on the Board who meet the
director independence standards of Nasdaq (or such other primary exchange or system on which Shares
are traded or quoted). Such grants shall be made with the objective that Non-Employee Director
compensation taken as a whole shall not exceed the 75th percentile of comparable
companies.



12. Tax Matters




     12.1 Tax Withholding.



               (a) General. Whenever Awards are granted, Award Shares vest, are issued or become
free of restrictions, or Awards or Award Shares are transferred, 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. The
Awardee accepts this requirement as a condition of her or her receipt of the Award. To the extent
any 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). If the Administrator permits Award Shares to be withheld from the Award to
satisfy applicable withholding obligations, the Fair Market Value of the Award Shares



18









 




withheld, as
determined as of the date of withholding, shall not exceed the amount determined by the applicable
minimum statutory withholding rates to the extent the Administrator determines such limit is
necessary or advisable in light of generally accepted accounting principles.




     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.



     12.3 Liability for Applicable Taxes. Regardless of any action the Company or the Awardee’s employer (the “Employer”) takes with
respect to any or all income tax, social security, payroll tax, payment on account, other
tax-related withholding or information reporting (“Tax-Related Items”), the Awardee acknowledges
and agrees that the ultimate liability for all Tax-Related Items legally due by him is and remains
the Awardee ‘s responsibility and that the Company and or the Employer (i) make no representations
nor undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of
an Award; and (ii) do not commit to structure the terms or any aspect of an Award granted hereunder
to reduce or eliminate the Awardee ‘s liability for Tax-Related Items. The Awardee shall pay the
Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be
required to withhold as a result of the Awardee’s participation in the Plan that cannot be
satisfied by the means previously described. The Company may refuse to deliver any benefit under
the Plan if the Awardee fails to comply with his or her obligations in connection with the
Tax-Related Items.



13. Compliance with Law




     13.1 General. 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 or issued 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. The Company shall have
no liability to any Awardee or any party who might claim through the Awardee to the extent that the
Awardee (or his or her permitted transferee) is required to forfeit



19









 




an Award, or the benefits
received or to be received under an Award, pursuant to any Applicable Law.




     13.2 Tax Matters. Notwithstanding anything to the contrary contained herein, to the
extent that the Administrator determines that any Award granted under the Plan is subject to Code
Section 409A and unless otherwise specified in the applicable Award Agreement, the Award Agreement
evidencing such Award shall incorporate the terms and conditions necessary for such Award to avoid
the consequences described in Code Section 409A(a)(1), and to the maximum extent permitted under
Applicable Law (and unless otherwise stated in the applicable Award Agreement), the Plan and the
Award Agreements shall be interpreted in a manner that results in their conforming to the
requirements of Code Section 409A(a)(2), (3) and (4) and any
Department of Treasury or Internal Revenue Service regulations or other interpretive guidance
issued under Section 409A (whenever issued, the “Guidance”). Notwithstanding anything to the
contrary in this Plan (and unless the Award Agreement provides otherwise, with specific reference
to this sentence), to the extent that a Participant holding an Award that constitutes “deferred
compensation” under Section 409A and the Guidance is a “specified employee” (also as defined
thereunder), no distribution or payment of any amount shall be made before a date that is six
months following the date of such Participant’s “separation from service” (as defined in Section
409A and the Guidance) or, if earlier, the date of the Participant’s death.



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; provided however that the Company shall obtain stockholder approval
of any of the following: (a) other than an increase under Section 10.2, an increase to the Shares
reserved for issuance hereunder; (b) an expansion of the class of persons eligible to receive
Awards hereunder; or (c) any amendment of outstanding Options or SARs that effects a repricing of
such Awards or other lowering of the original Option Price or grant date Fair Market Value that
applies to a SAR. For Stock Awards to continue to be eligible to qualify as “performance-based
compensation” under Code Section 162(m), the Company’s stockholders must re-approve the material
terms of the performance goals included in the Plan by the date of the first stockholder meeting
that occurs in the fifth year following the year in which the stockholders first approved the Plan.
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



20









 




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 or other forfeiture conditions,
the Company shall have the right, during such period after the Awardee’s Termination as is
specified by the Administrator to repurchase any or all of the Award Shares that were unvested or
otherwise subject to forfeiture as of the date of that Termination. The repurchase price shall be
such price as is determined by the Administrator and set forth in the Award Agreement, subject to
adjustment under Section 10. 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



21









 




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.




     16.3 Deferral of Award Benefits. The Administrator may in its discretion and upon
such terms and conditions as it determines appropriate permit one or more Participants whom it
selects to (a) defer compensation payable pursuant to the terms of an Award, or (b) defer
compensation arising outside the terms of this Plan pursuant to a program that provides for
deferred payment in satisfaction of such other compensation amounts through the issuance of one or
more Awards. Any such deferral arrangement shall be evidenced by an Award Agreement in such form
as the Administrator shall from time to time establish, and no such deferral arrangement shall be a
valid and binding obligation unless evidenced by a fully executed Award Agreement, the form of
which the Administrator has approved, including through the Administrator’s establishing a written
program (the “Program”) under this Plan to govern the form of Award Agreements participating in
such Program. Any such Award Agreement or Program shall specify the treatment of dividends or
dividend equivalent rights (if any) that apply to Awards governed thereby, and shall further
provide that any elections governing payment of amounts pursuant to such Program shall be in
writing, shall be delivered to the Company or its agent in a form and manner that complies with
Code Section 409A and the Guidance, and shall specify the amount to be distributed in settlement of
the deferral arrangement, as well as the time and form of such distribution in a manner required by
the Administrator, and shall specify the amount to be distributed in settlement of the deferral
arrangement, as well as the time and form of such distribution.





     16.4 Limit to Waivers of Vesting or Forfeiture Conditions. Time or performance-based vesting
or forfeiture restrictions shall not be waived on greater than five percent (5%) of the total
number of Award Shares set forth in Section 3.1 (as such section may be amended from time to time),
subject to adjustment as set forth in Section 10 (the “Waiver Limit”), other than due to a change
of control or a change in status due to a Participant’s death, disability, retirement or other
exigent circumstances as determined by the Board, the Committee or the Administrator. Final
determination as to whether a particular waiver will be made and is subject to the Waiver Limit
shall be at the discretion of the Board, the Committee or the Administrator.





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; provided the Company may require of any such person, evidence of authority to act in
such capacity as it deems appropriate. In any case, no Award may be exercised after its Expiration
Date.



22









 





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 (or on the last preceding date
on which a closing bid for the Shares was made). 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, and unless otherwise required by Applicable Law, the Administrator (following guidelines
established by the Board or Committee) will determine Fair Market Value in good faith using any
reasonable valuation method. 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, present
value of future cash flows, and value of tangible and intangible 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



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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.



Plan History



Initial
Adoption — Adopted by the Board on August 15, 2006 and approved by the
stockholders at 2006 annual meeting (November 2, 2006).




Amendment No. 1 — During the pendency of the 2006 proxy solicitation, two institutional
stockholders suggested changes to the plan. Stockholder approval of the Plan was obtained without
regard to how the votes of such stockholders were cast. Nevertheless because the Board is willing
to consider stockholder inputs when they are reasonable and consistent with the Company’s business
objectives, following the 2006 annual meeting, on November 2, 2006, the Board amended the Plan to
add sections 11.2 (“Non-Employee Director Award Guidelines”) and 16.4 (“Limit to Waivers of Vesting
or Forfeiture Conditions”). (November 2, 2006).




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