**Exhibit 10.1**

 

**AMENDMENT ANDRESTATEMENT OF THE 2001 INCENTIVE AWARD PLAN OFWATSON PHARMACEUTICALS, INC.**

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WatsonPharmaceuticals, Inc., a Nevada**corporation,adopted the 2001 Incentive Award Plan of Watson Pharmaceuticals, Inc. (the“Plan”), effective as of February 12, 2001 (the “Effective Date”),for the benefit of its eligible Employees, Consultants and Directors.  The Plan was subsequently amended effective asof May 16, 2001, May 19, 2003, and August 4, 2003.

 

ThePlan is hereby amended and restated in its entirety to provide for certainadditional types of awards to eligible Employees, Consultants and Directors.  This amendment and restatement of the Plan iseffective as of May 13, 2005, subject to the approval of this amendmentand restatement of the Plan by the stockholders of the Company.  Awards authorized under this amendment andrestatement of the Plan that were not authorized under the Plan (as in effectprior to this amendment and restatement) shall not be granted unless and untilthis amendment and restatement of the Plan is so approved.  If this amendment and restatement of the Planis not so approved, this amendment and restatement of the Plan shall be nulland void and of no further force and effect, and the Plan (as in effect priorto such amendment and restatement) shall continue in full force and effect inaccordance with the terms and conditions thereof.

 

Thepurposes of the Plan are as follows:

 

(1)                                  Toprovide an additional incentive for Directors, key Employees and Consultants(as such terms are defined below) to further the growth, development andfinancial success of the Company by personally benefiting through the ownershipof Company stock and/or rights which recognize such growth, development andfinancial success.

 

(2)                                  Toenable the Company to obtain and retain the services of Directors, keyEmployees and Consultants considered essential to the long range success of theCompany by offering them an opportunity to own stock in the Company and/orrights which will reflect the growth, development and financial success of theCompany.

 

# **ARTICLE I.DEFINITIONS**

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Whereverthe following terms are used in the Plan they shall have the meanings specifiedbelow, unless the context clearly indicates otherwise.  The singular pronoun shall include the pluralwhere the context so indicates.

 

## 1.1.                              “Administrator”shall mean the entity that conducts the general administration of the Plan asprovided herein.  With reference to theadministration of the Plan with respect to Awards granted to Independent Directors,the term “Administrator” shall refer to the Board.  With reference to the administration of thePlan with respect to any other Award, the term “Administrator” shall refer tothe Committee unless the Board has assumed the authority for administration ofthe Plan generally as provided in Section 11.1.  With reference to the duties of

 

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the Committee under thePlan which have been delegated to one or more persons pursuant to Section 11.5,the term “Administrator” shall refer to such person(s) unless the Committee orthe Board has revoked such delegation.

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## 1.2.                              “Award”shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award,  a Dividend Equivalents award, a DeferredStock award, a Stock Payment award or a Stock Appreciation Right, which may beawarded or granted under the Plan (collectively, “Awards”).

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## 1.3.                              “AwardAgreement” shall mean a written agreement executed by an authorized officerof the Company and the Holder which shall contain such terms and conditionswith respect to an Award as the Administrator shall determine, consistent withthe Plan.

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## 1.4.                              “AwardLimit” shall mean**five hundredthousand (500,000)**shares of Common Stock, asadjusted pursuant to Section 12.3.

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## 1.5.                              “Board”shall mean the Board of Directors of the Company.

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## 1.6.                              “Changein Control” shall mean the occurrence of any of the following:

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### (a)                                  asale of assets representing fifty percent (50%) or more of the net book valueand of the fair market value of the Company’s consolidated assets (in a singletransaction or in a series of related transactions);

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### (b)                                 aliquidation or dissolution of the Company;

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### (c)                                  amerger or consolidation involving the Company or any subsidiary of the Companyafter the completion of which:  (i) inthe case of a merger (other than a triangular merger) or a consolidationinvolving the Company, the stockholders of the Company immediately prior to thecompletion of such merger or consolidation beneficially own (within the meaningof Rule 13d-3 promulgated under the Exchange Act, or comparable successorrules), directly or indirectly, outstanding voting securities representing lessthan sixty percent (60%) of the combined voting power of the surviving entityin such merger or consolidation, and (ii) in the case of a triangularmerger involving the Company or a subsidiary of the Company, the stockholdersof the Company immediately prior to the completion of such merger beneficiallyown (within the meaning of Rule 13d-3 promulgated under the Exchange Act,or comparable successor rules), directly or indirectly, outstanding votingsecurities representing less than sixty percent (60%) of the combined votingpower of the surviving entity in such merger and less than sixty percent (60%)of the combined voting power of the parent of the surviving entity in suchmerger;

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### (d)                                 anacquisition by any person, entity or “group” (within the meaning of Section 13(d) or14(d) of the Exchange Act or any comparable successor provisions), otherthan any employee benefit plan, or related trust, sponsored or maintained bythe Company or an affiliate of the Company and other than in a merger orconsolidation of the type referred to in subsection (c), of beneficialownership (within the

 

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meaning of Rule 13d-3promulgated under the Exchange Act, or comparable successor rules) ofoutstanding voting securities of the Company representing more than thirtypercent (30%) of the combined voting power of the Company (in a single transactionor series of related transactions); or

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### (e)                                  inthe event that the individuals who, as of the Effective Date, are members ofthe Board (the “Incumbent Board”), cease for any reason to constitute atleast fifty percent (50%) of the Board; provided, that if the election,or nomination for election by the Company’s stockholders, of any new member ofthe Board is approved by a vote of at least fifty percent (50%) of theIncumbent Board, such new member of the Board shall be considered as a memberof the Incumbent Board.

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## 1.7.                              “Code”shall mean the Internal Revenue Code of 1986, as amended.

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## 1.8.                              “Committee”shall mean the Compensation Committee of the Board, or another committee orsubcommittee of the Board, appointed as provided in Section 11.1.

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## 1.9.                              “CommonStock” shall mean the common stock of the Company, par value $0.0033 pershare.

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## 1.10.                        “Company”shall mean Watson Pharmaceuticals, Inc.*,* a Nevada corporation.

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## 1.11.                        “Consultant”shall mean any consultant or adviser if: (a) the consultant or adviser renders bona fide services to theCompany; (b) the services rendered by the consultant or adviser are not inconnection with the offer or sale of securities in a capital-raisingtransaction and do not directly or indirectly promote or maintain a market forthe Company’s securities; and (c) the consultant or adviser is a naturalperson who has contracted directly with the Company to render such services.

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## 1.12.                        “DeferredStock” shall mean rights to receive Common Stock awarded under Section 8.4of the Plan.

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## 1.13.                        “Director”shall mean a member of the Board.

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## 1.14.                        “DividendEquivalent” shall mean a right to receive the equivalent value (in cash orCommon Stock) of dividends paid on Common Stock, awarded under Section 8.2of the Plan.

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## 1.15.                        “DRO”shall mean a domestic relations order as defined by the Code or Title I of theEmployee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

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## 1.16.                        “Employee”shall mean any officer or other employee (as defined in accordance with Section 3401(c) ofthe Code) of the Company, or of any corporation which is a Subsidiary.

 

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## 1.17.                        “ExchangeAct” shall mean the Securities Exchange Act of 1934, as amended.

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## 1.18.                        “FairMarket Value” of a share of Common Stock as of a given date shall be:  (a) the closing price of a share ofCommon Stock on the principal exchange on which shares of Common Stock are thentrading, if any (or as reported on any composite index which includes suchprincipal exchange), on the trading day previous to such date, or if shareswere not traded on the trading day previous to such date, then on the nextpreceding date on which a trade occurred, or (b) if Common Stock is nottraded on an exchange but is quoted on Nasdaq or a successor quotation system,the mean between the closing representative bid and asked prices for the CommonStock on the trading day previous to such date as reported by Nasdaq or suchsuccessor quotation system, or (c) if Common Stock is not publicly tradedon an exchange and not quoted on Nasdaq or a successor quotation system, the fairmarket value of a share of Common Stock as established by the Administratoracting in good faith.

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## 1.19.                        “Holder”shall mean a person who has been granted or awarded an Award.

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## 1.20.                        “IncentiveStock Option” shall mean an option which conforms to the applicableprovisions of Section 422 of the Code and which is designated as anIncentive Stock Option by the Administrator.

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## 1.21.                        “IndependentDirector” shall mean a member of the Board who is not an Employee.

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## 1.22.                        “Non-QualifiedStock Option” shall mean an Option which is not designated as an IncentiveStock Option by the Administrator.

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## 1.23.                        “Option”shall mean a stock option granted under Article IV of the Plan.  An Option granted under the Plan shall, asdetermined by the Administrator, be either a Non-Qualified Stock Option or anIncentive Stock Option; provided, however, that Options grantedto Independent Directors and Consultants shall be Non-Qualified Stock Options.

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## 1.24.                        “PerformanceCriteria” shall mean any one or more of the following business criteriawith respect to the Company, any Subsidiary or any division or operating unitthereof:  (a) revenue or sales, (b) netincome, (c) pre-tax income, (d) operating income, (e) cash flow,(f) earnings per share, (g) return on equity, (h) return oninvested capital or assets, (i) cost reductions or savings, (j) funds fromoperations, (k) appreciation in the Fair Market Value of Common Stock, or (l)earnings before any one or more of the following:  (i) interest, (ii) taxes, (iii) depreciationor (iv) amortization, each as determined in accordance with generallyaccepted accounting principles.

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## 1.25.                        “Plan”shall mean the 2001 Incentive Award Plan of Watson Pharmaceuticals, Inc.,as amended.

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## 1.26.                        “RestrictedStock” shall mean Common Stock awarded under Article VII of the Plan.

 

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## 1.27.                        “RestrictedStock Units” shall mean rights to receive Common Stock awarded under Section 8.5of the Plan.

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## 1.28.                        “Rule 16b-3”shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule maybe amended from time to time.

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## 1.29.                        “Section 162(m)Participant” shall mean any key Employee designated by the Administrator asa key Employee whose compensation for the fiscal year in which the key Employeeis so designated or a future fiscal year may be subject to the limit ondeductible compensation imposed by Section 162(m) of the Code.

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## 1.30.                        “SecuritiesAct” shall mean the Securities Act of 1933, as amended.

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## 1.31.                        “StockAppreciation Right” shall mean a stock appreciation right granted under Article IXof the Plan.

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## 1.32.                        “StockPayment” shall mean:  (a) apayment in the form of shares of Common Stock, or (b) an option or otherright to purchase shares of Common Stock, as part of a deferred compensationarrangement, made in lieu of all or any portion of the compensation, includingwithout limitation, salary, bonuses and commissions, that otherwise wouldbecome payable to a key Employee, Independent Director or Consultant in cash,awarded under Section 8.3 of the Plan.

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## 1.33.                        “Subsidiary”shall mean any corporation in an unbroken chain of corporations beginning withthe Company if each of the corporations other than the last corporation in theunbroken chain then owns stock possessing fifty percent (50%) or more of thetotal combined voting power of all classes of stock in one of the othercorporations in such chain.

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## 1.34.                        “SubstituteAward” shall mean an Option granted under this Plan upon the assumption of,or in substitution for, outstanding equity awards previously granted by acompany or other entity in connection with a corporate transaction, such as amerger, combination, consolidation or acquisition of property or stock; provided,however, that in no event shall the term “Substitute Award” be construedto refer to an award made in connection with the cancellation and repricing ofan Option.

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## 1.35.                        “Terminationof Consultancy” shall mean the time when the engagement of a Holder as aConsultant to the Company or a Subsidiary is terminated for any reason, with orwithout cause, including, but not by way of limitation, by resignation,discharge, death or retirement, but excluding terminations where there is asimultaneous commencement of employment with the Company or any Subsidiary, orany parent thereof.  The Administrator,in its absolute discretion, shall determine the effect of all matters andquestions relating to Termination of Consultancy, including, but not by way oflimitation, the question of whether a Termination of Consultancy resulted froma discharge for good cause, and all questions of whether a particular leave ofabsence constitutes a Termination of Consultancy.  Notwithstanding any other provision of thePlan, the Company or any Subsidiary has an absolute and unrestricted right toterminate a Consultant’s service at any time for any reason whatsoever, with orwithout cause, except to the extent expressly provided otherwise in writing.

 

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## 1.36.                        “Terminationof Directorship” shall mean the time when a Holder who is an IndependentDirector ceases to be a Director for any reason, including, but not by way oflimitation, a termination by resignation, removal, failure to be elected, deathor retirement.  The Board, in its soleand absolute discretion, shall determine the effect of all matters andquestions relating to Termination of Directorship with respect to IndependentDirectors.

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## 1.37.                        “Terminationof Employment” shall mean the time when the employee-employer relationshipbetween a Holder and the Company or any Subsidiary is terminated for anyreason, with or without cause, including, but not by way of limitation, atermination by resignation, discharge, death, disability or retirement; butexcluding:  (a) terminations wherethere is a simultaneous reemployment or continuing employment of a Holder bythe Company or any Subsidiary, or any parent thereof, (b) at thediscretion of the Administrator, terminations which result in a temporary severanceof the employee-employer relationship, and (c) at the discretion of theAdministrator, terminations which are followed by the simultaneousestablishment of a consulting relationship by the Company or a Subsidiary, orany parent thereof, with the former employee. The Administrator, in its absolute discretion, shall determine theeffect of all matters and questions relating to Termination of Employment,including, but not by way of limitation, the question of whether a Terminationof Employment resulted from a discharge for good cause, and all questions ofwhether a particular leave of absence constitutes a Termination of Employment; provided,however, that, with respect to Incentive Stock Options, unless otherwisedetermined by the Administrator in its discretion, a leave of absence, changein status from an employee to an independent contractor or other change in theemployee-employer relationship shall constitute a Termination of Employment if,and to the extent that, such leave of absence, change in status or other changeinterrupts employment for the purposes of Section 422(a)(2) of theCode and the then applicable regulations and revenue rulings under saidSection.

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# **ARTICLE II.SHARES SUBJECT TO PLAN**

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## 2.1.                              SharesSubject to Plan.

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###### (a)                                  Theshares of stock subject to Awards shall be Common Stock, initially shares ofthe Company’s Common Stock.  Subject toadjustment as provided in Section 12.3, the aggregate number of suchshares of Common Stock which may be issued pursuant to Awards under the Planshall not exceed fourteen million (14,000,000) shares.  Subject to adjustment as provided in Section 12.3,the aggregate number of shares of Common Stock which may be issued pursuant to RestrictedStock awards, Restricted Stock Unit awards, Dividend Equivalent awards,Deferred Stock awards, or Stock Payment awards shall not exceed one million(1,000,000) shares.  The shares of CommonStock issuable upon exercise of such Options or rights or upon any such Awardsmay be either previously authorized but unissued shares or treasury shares.

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###### (b)                                 Themaximum number of shares which may be subject to Awards granted under the Planto any individual in any fiscal**year of theCompany shall not exceed the

 

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Award Limit.  To the extent required by Section 162(m)of the Code, shares subject to Awards which are canceled continue to be countedagainst the Award Limit.

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## 2.2.                              Add-Backof Options and Other Rights.  If anyOption, or other right to acquire shares of Common Stock under any other Awardunder the Plan, expires or is canceled without having been fully exercised, oris exercised in whole or in part for cash as permitted by the Plan, the numberof shares subject to such Option or other right but as to which such Option orother right was not exercised prior to its expiration, cancellation or exercisemay again be optioned, granted or awarded hereunder, subject to the limitationsof Section 2.1.  Furthermore, anyshares subject to Awards which are adjusted pursuant to Section 12.3 andbecome exercisable with respect to shares of stock of another corporation shallbe considered cancelled and may again be optioned, granted or awardedhereunder, subject to the limitations of Section 2.1.   Shares of Common Stock which are deliveredby the Holder in payment of the exercise price thereof or tax withholdingthereon, may again be optioned, granted or awarded hereunder, subject to thelimitations of Section 2.1.  If anyshares of Restricted Stock are surrendered by the Holder or repurchased by theCompany pursuant to Section 7.4 or 7.5 hereof, such shares may again beoptioned, granted or awarded hereunder, subject to the limitations of Section 2.1.  Notwithstanding the provisions of this Section 2.2,no shares of Common Stock may again be optioned, granted or awarded if suchaction would cause an Incentive Stock Option to fail to qualify as an incentivestock option under Section 422 of the Code.

 

# **ARTICLE III.GRANTING OF AWARDS**

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## 3.1.                              AwardAgreement.  Each Award shall beevidenced by an Award Agreement.  AwardAgreements evidencing Awards intended to qualify as performance-basedcompensation as described in Section 162(m)(4)(C) of the Code shallcontain such terms and conditions as may be necessary to meet the applicableprovisions of Section 162(m) of the Code. Award Agreements evidencingIncentive Stock Options shall contain such terms and conditions as may benecessary to meet the applicable provisions of Section 422 of the Code.

 

## 3.2.                              ProvisionsApplicable to Section 162(m) Participants.

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###### (a)                                  TheCommittee, in its discretion, may determine whether an Award is to qualify asperformance-based compensation as described in Section 162(m)(4)(C) ofthe Code.

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###### (b)                                 Notwithstandinganything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m)Participant, including a Restricted Stock award, a Restricted Stock Unit award,a Dividend Equivalent award, a Deferred Stock award or a Stock Payment award, therestrictions with respect to which lapse upon the attainment of performancegoals which are related to one or more of the Performance Criteria and any Awarddescribed in Article VIII that vests or becomes exercisable or payableupon the attainment of performance goals which are related to one or more ofthe Performance Criteria.

 

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###### (c)                                  Tothe extent necessary to comply with the performance-based compensationrequirements of Section 162(m)(4)(C) of the Code, with respect to anyAward granted under Articles VII and VIII which may be granted to one or more Section 162(m)Participants, no later than ninety (90) days following the commencement of anyfiscal year in question or any other designated fiscal period or period ofservice (or such other time as may be required or permitted by Section 162(m)of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m)Participants, (ii) select the Performance Criteria applicable to thefiscal year or other designated fiscal period or period of service, (iii) establishthe various performance targets, in terms of an objective formula or standard,and amounts of such Awards, as applicable, which may be earned for such fiscalyear or other designated fiscal period or period of service, and (iv) specifythe relationship between Performance Criteria and the performance targets andthe amounts of such Awards, as applicable, to be earned by each Section 162(m)Participant for such fiscal year or other designated fiscal period or period ofservice.  Following the completion ofeach fiscal year or other designated fiscal period or period of service, theCommittee shall certify in writing whether the applicable performance targetshave been achieved for such fiscal year or other designated fiscal period orperiod of service.  In determining theamount earned by a Section 162(m) Participant, the Committee shall havethe right to reduce (but not to increase) the amount payable at a given levelof performance to take into account additional factors that the Committee maydeem relevant to the assessment of individual or corporate performance for thefiscal year or other designated fiscal period or period of service.

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###### (d)                                 Furthermore,notwithstanding any other provision of the Plan, any Award which is granted toa Section 162(m) Participant and is intended to qualify asperformance-based compensation as described in Section 162(m)(4)(C) ofthe Code shall be subject to any additional limitations set forth in Section 162(m)of the Code (including any amendment to Section 162(m) of the Code) or anyregulations or rulings issued thereunder that are requirements forqualification as performance-based compensation as described in Section 162(m)(4)(C) ofthe Code, and the Plan shall be deemed amended to the extent necessary to conformto such requirements.

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## 3.3.                              LimitationsApplicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Awardgranted or awarded to any individual who is then subject to Section 16 ofthe Exchange Act, shall be subject to any additional limitations set forth inany applicable exemptive rule under Section 16 of the Exchange Act(including any amendment to Rule 16b-3 of the Exchange Act) that arerequirements for the application of such exemptive rule.  To the extent permitted by applicable law,the Plan and Awards granted or awarded hereunder shall be deemed amended to theextent necessary to conform to such applicable exemptive rule.

 

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## 3.4.                              Consideration.  In consideration of the granting of an Awardunder the Plan, the Holder shall agree, in the Award Agreement, to remain inthe employ of (or to consult for or to serve as an Independent Director of, asapplicable) the Company or any Subsidiary for a period of at least one year (orsuch shorter period as may be fixed in the Award Agreement or by action of theAdministrator following grant of the Award) after the Award is granted (or, inthe case of an Independent Director, until the next annual meeting ofstockholders of the Company).

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## 3.5.                              At-WillEmployment.  Nothing in the Plan orin any Award Agreement hereunder shall confer upon any Holder any right tocontinue in the employ of, or as a Consultant for, the Company or anySubsidiary, or as a Director of the Company, or shall interfere with orrestrict in any way the rights of the Company and any Subsidiary, which arehereby expressly reserved, to discharge any Holder at any time for any reasonwhatsoever, with or without cause, except to the extent expressly provided otherwisein a written employment agreement between the Holder and the Company and anySubsidiary.

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# **ARTICLE IV.GRANTING OF OPTIONS TO EMPLOYEES,CONSULTANTS AND INDEPENDENT DIRECTORS**

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## 4.1.                              Eligibility.  Any Employee or Consultant selected by the Administratorpursuant to Section 4.4(a)(i) shall be eligible to be granted anOption.  Each Independent Director of theCompany shall be eligible to be granted Options at the times and in the mannerset forth in Section 4.5.

 

## 4.2.                              Disqualificationfor Stock Ownership.  No person maybe granted an Incentive Stock Option under the Plan if such person, at the timethe Incentive Stock Option is granted, owns stock possessing more than 10% ofthe total combined voting power of all classes of stock of the Company or anythen existing Subsidiary or parent corporation (within the meaning of Section 422of the Code) unless such Incentive Stock Option conforms to the applicableprovisions of Section 422 of the Code.

 

## 4.3.                              Qualificationof Incentive Stock Options.  NoIncentive Stock Option shall be granted to any person who is not an Employee.

 

## 4.4.                              Grantingof Options to Employees and Consultants.

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###### (a)                                  TheAdministrator shall from time to time, in its absolute discretion, and, subjectto applicable limitations of the Plan:

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(i)                                     Determinewhich Employees are key Employees and select from among the key Employees orConsultants (including Employees or Consultants who have previously receivedAwards under the Plan) such of them as in its opinion should be grantedOptions;

 

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(ii)                                  Subjectto the Award Limit, determine the number of shares to be subject to suchOptions granted to the selected key Employees or Consultants;

 

(iii)                               Subjectto Section 4.3, determine whether such Options are to be Incentive StockOptions or Non-Qualified Stock Options and whether such Options are to qualifyas performance-based compensation as described in Section 162(m)(4)(C) ofthe Code; and

 

(iv)                              Determinethe terms and conditions of such Options, consistent with the Plan; provided,however, that the terms and conditions of Options intended to qualify asperformance-based compensation as described in Section 162(m)(4)(C) ofthe Code shall include, but not be limited to, such terms and conditions as maybe necessary to meet the applicable provisions of Section 162(m) of theCode.

 

###### (b)                                 Uponthe selection of a key Employee or Consultant to be granted an Option, the Administratorshall instruct the Secretary of the Company to issue the Option and may imposesuch conditions on the grant of the Option as it deems appropriate.

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###### (c)                                  AnyIncentive Stock Option granted under the Plan may be modified by the Administrator,with the consent of the Holder, to disqualify such Option from treatment as an “incentivestock option” under Section 422 of the Code.

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## 4.5.                              Grantingof Options to Independent Directors. The Board shall from time to time, in its absolute discretion, andsubject to applicable limitations of the Plan:

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###### (a)                                  Selectfrom among the Independent Directors (including Independent Directors who havepreviously received Options under the Plan) such of them as in its opinionshould be granted Options;

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###### (b)                                 Subjectto the Award Limit, determine the number of shares to be subject to suchOptions granted to the selected Independent Directors; and

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###### (c)                                  Determinethe terms and conditions of such Options, consistent with the Plan.

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## Allthe foregoing Option grants authorized by this Section 4.5 are subject tostockholder approval of the Plan.

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## 4.6.                              Optionsin Lieu of Cash Compensation. Options may be granted under the Plan to Employees and Consultants inlieu of cash bonuses which would otherwise be payable to such Employees andConsultants, and to Independent Directors in lieu of directors’ fees whichwould otherwise be payable to such Independent Directors, pursuant to suchpolicies which may be adopted by the Administrator from time to time.

 

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# **ARTICLE V.TERMS OF OPTIONS**

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## 5.1.                              OptionPrice.  The price per share of the sharessubject to each Option granted to Employees, Independent Directors andConsultants shall be set by the Administrator; provided, however,that:

 

###### (a)                                  Inthe case of Options intended to qualify as performance-based compensation asdescribed in Section 162(m)(4)(C) of the Code, such price shall notbe less than 100% of the Fair Market Value of a share of Common Stock on thedate the Option is granted;

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###### (b)                                 Inthe case of Incentive Stock Options such price shall not be less than 100% ofthe Fair Market Value of a share of Common Stock on the date the Option isgranted (or the date the Option is modified, extended or renewed for purposesof Section 424(h) of the Code);

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###### (c)                                  Inthe case of Incentive Stock Options granted to an individual then owning(within the meaning of Section 424(d) of the Code) more than 10% ofthe total combined voting power of all classes of stock of the Company or anySubsidiary or parent corporation thereof (within the meaning of Section 422of the Code), such price shall not be less than 110% of the Fair Market Valueof a share of Common Stock on the date the Option is granted (or the date theOption is modified, extended or renewed for purposes of Section 424(h) ofthe Code); and

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###### (d)                                 Inthe case of Non-Qualified Stock Options, such price shall not be less than 100%of the Fair Market Value of a share of Common Stock on the date the Option isgranted.

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## 5.2.                              OptionTerm.  The term of an Option grantedto an Employee, Independent Director or Consultant shall be set by the Administratorin its discretion; provided, however, that, in the case ofIncentive Stock Options, the term shall not be more than ten (10) yearsfrom the date the Incentive Stock Option is granted, or five (5) yearsfrom the date the Incentive Stock Option is granted if the Incentive StockOption is granted to an individual then owning (within the meaning of Section 424(d) ofthe Code) more than 10% of the total combined voting power of all classes ofstock of the Company or any Subsidiary or parent corporation thereof (withinthe meaning of Section 422 of the Code). Except as limited by requirements of Section 422 of the Code andregulations and rulings thereunder applicable to Incentive Stock Options, the Administratormay extend the term of any outstanding Option in connection with anyTermination of Employment, Termination of Directorship or Termination ofConsultancy of the Holder, or amend any other term or condition of such Optionrelating to such a Termination of Employment, Termination of Directorship orTermination of Consultancy.

 

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## 5.3.                              OptionVesting.

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###### (a)                                  Theperiod during which the right to exercise, in whole or in part, an Optiongranted to an Employee, Independent Director or a Consultant vests in the Holdershall be set by the Administrator and the Administrator may determine that anOption may not be exercised in whole or in part for a specified period after itis granted; provided, however, that, unless the Administrator otherwiseprovides in the terms of the Award Agreement or otherwise, no Option shall beexercisable by any Holder who is then subject to Section 16 of theExchange Act within the period ending six months and one day after the date theOption is granted.  At any time aftergrant of an Option, the Administrator may, in its sole and absolute discretionand subject to whatever terms and conditions it selects, accelerate the periodduring which an Option granted to an Employee, Independent Director orConsultant vests.

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###### (b)                                 Noportion of an Option granted to an Employee, Independent Director or Consultantwhich is unexercisable at Termination of Employment, Termination ofDirectorship or Termination of Consultancy, as applicable, shall thereafterbecome exercisable, except as may be otherwise provided by the Administrator eitherin the Award Agreement or by action of the Administrator following the grant ofthe Option.

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###### (c)                                  Tothe extent that the aggregate fair market value of stock with respect to which “incentivestock options” (within the meaning of Section 422 of the Code, but withoutregard to Section 422(d) of the Code) are exercisable for the firsttime by a Holder during any calendar year under the Plan, and all other plansof the Company and any Subsidiary or parent corporation thereof, within themeaning of Section 424 of the Code, exceeds $100,000, the Options shall betreated as Non-Qualified Stock Options to the extent required by Section 422of the Code.  The rule set forth inthe preceding sentence shall be applied by taking Options and other “incentivestock options” into account in the order in which they were granted.  For purposes of this Section 5.3(c), thefair market value of stock shall be determined as of the time the Option orother “incentive stock options” with respect to such stock is granted.

######  

## 5.4.                              SubstituteAwards.  Notwithstanding theforegoing provisions of this Article V to the contrary, in the case of anOption that is a Substitute Award, the price per share of the shares subject tosuch Option may be less than the Fair Market Value per share on the date ofgrant, provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such SubstituteAward is granted) of the shares subject to the Substitute Award, over (b) theaggregate exercise price thereof, does not exceed the excess of:  (c) the aggregate fair market value (asof the time immediately preceding the transaction giving rise to the SubstituteAward, such fair market value to be determined by the Committee) of the sharesof the predecessor entity that were subject to the grant assumed or substitutedfor by the Company, over (d) the aggregate exercise price of such shares.

##  

## 5.5.                              Substitutionof Stock Appreciation Rights.  TheAdministrator may provide in the Award Agreement evidencing the grant of anOption that the Administrator, in its sole discretion, shall have the right tosubstitute a Stock Appreciation Right for such Option at any time prior to orupon exercise of such Option, subject to the provisions of Section 9.2; provided,that such Stock Appreciation Right shall be exercisable with respect to thesame number of

 

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shares of Common Stockfor which such substituted Option would have been exercisable and at the Optionexercise price per share.

 

# **ARTICLE VI.EXERCISE OF OPTIONS**

# ** **

## 6.1.                              PartialExercise.  An exercisable Option maybe exercised in whole or in part. However, an Option shall not be exercisable with respect to fractionalshares and the Administrator may require that, by the terms of the Option, apartial exercise be with respect to a minimum number of shares.

 

## 6.2.                              Mannerof Exercise.  All or a portion of anexercisable Option shall be deemed exercised upon delivery of all of thefollowing to the Secretary of the Company, or such other person or entitydesignated by the Board, or his, her or its office, as applicable:

 

###### (a)                                  Awritten notice complying with the applicable rules established by theAdministrator stating that the Option, or a portion thereof, is exercised.  The notice shall be signed by the Holder orother person then entitled to exercise the Option or such portion of theOption;

######  

###### (b)                                 Suchrepresentations and documents as the Administrator, in its absolute discretion,deems necessary or advisable to effect compliance with all applicableprovisions of the Securities Act and any other federal or state securities lawsor regulations.  The Administrator may,in its absolute discretion, also take whatever additional actions it deems appropriateto effect such compliance including, without limitation, placing legends onshare certificates and issuing stop-transfer notices to agents and registrars;

######  

###### (c)                                  Inthe event that the Option shall be exercised pursuant to Section 12.1 byany person or persons other than the Holder, appropriate proof of the right ofsuch person or persons to exercise the Option; and

######  

###### (d)                                 Fullcash payment to the Secretary of the Company for the shares with respect towhich the Option, or portion thereof, is exercised.  However, the Administrator may, in itsdiscretion, (i)  allow payment, in whole or in part, through the deliveryof shares of Common Stock which have been owned by the Holder for at least sixmonths, duly endorsed for transfer to the Company with a Fair Market Value onthe date of delivery equal to the aggregate exercise price of the Option orexercised portion thereof; (ii) allow payment, in whole or in part,through the surrender of shares of Common Stock then issuable upon exercise ofthe Option having a Fair Market Value on the date of Option exercise equal tothe aggregate exercise price of the Option or exercised portion thereof; (iii) allowpayment, in whole or in part, through the delivery of property of any kindwhich constitutes good and valuable consideration; (iv) allow payment, inwhole or in part, through the delivery of a notice that the Holder has placed amarket sell order with a broker with respect to shares of Common Stock thenissuable

 

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###### uponexercise of the Option, and that the broker has been directed to pay asufficient portion of the net proceeds of the sale to the Company insatisfaction of the Option exercise price, provided, that payment ofsuch proceeds is then made to the Company upon settlement of such sale; or (v) allowpayment through any combination of the consideration provided in the foregoingparagraphs (i), (ii), (iii) and (iv); provided, however,that the payment in the manner prescribed in the preceding paragraphs shall notbe permitted to the extent that the Administrator determines that payment insuch manner shall result in an extension or maintenance of credit, anarrangement for the extension of credit, or a renewal or an extension of creditin the form of a personal loan to or for any Director or executive officer ofthe Company that is prohibited by Section 13(k) of the Exchange Act orother applicable law.

######  

## 6.3.                              Conditionsto Issuance of Stock Certificates.  TheCompany shall not be required to issue or deliver any certificate orcertificates for shares of stock purchased upon the exercise of any Option orportion thereof prior to fulfillment of all of the following conditions:

 

###### (a)                                  Theadmission of such shares to listing on all stock exchanges on which such classof stock is then listed;

######  

###### (b)                                 Thecompletion of any registration or other qualification of such shares under anystate or federal law, or under the rulings or regulations of the Securities andExchange Commission or any other governmental regulatory body which theAdministrator shall, in its absolute discretion, deem necessary or advisable;

######  

###### (c)                                  Theobtaining of any approval or other clearance from any state or federalgovernmental agency which the Administrator shall, in its absolute discretion,determine to be necessary or advisable;

######  

###### (d)                                 Thelapse of such reasonable period of time following the exercise of the Option asthe Administrator may establish from time to time for reasons of administrativeconvenience; and

######  

###### (e)                                  Thereceipt by the Company of full payment for such shares, including payment ofany applicable withholding tax, which in the discretion of the Administratormay be in the form of consideration used by the Holder to pay for such sharesunder Section 6.2(d).

######  

## 6.4.                              Rightsas Stockholders.  Holders shall notbe, nor have any of the rights or privileges of, stockholders of the Company inrespect of any shares purchasable upon the exercise of any part of an Optionunless and until certificates representing such shares have been issued by theCompany to such Holders.

 

## 6.5.                              Ownershipand Transfer Restrictions.  TheAdministrator, in its absolute discretion, may impose such restrictions on theownership and transferability of the shares purchasable upon the exercise of anOption as it deems appropriate.  Any suchrestriction shall be set forth in the respective Award Agreement and may bereferred to on the certificates evidencing such shares.  The Holder shall give the Company promptnotice of any disposition of

 

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shares of Common Stockacquired by exercise of an Incentive Stock Option within (a) two yearsfrom the date of granting (including the date the Option is modified, extendedor renewed for purposes of Section 424(h) of the Code) such Option tosuch Holder, or (b) one year after the transfer of such shares to suchHolder.

 

## 6.6.                              AdditionalLimitations on Exercise of Options.  Holdersmay be required to comply with any timing or other restrictions with respect tothe settlement or exercise of an Option, including a window-period limitation,as may be imposed in the discretion of the Administrator.

 

# **ARTICLE VII.AWARD OF RESTRICTED STOCK**

# ** **

## 7.1.                              Eligibility.  Subject to the Award Limit, Restricted Stockmay be awarded to any Employee whom the Administrator determines is a keyEmployee, or any Independent Director or any Consultant, whom the Administratordetermines should receive such an Award.

 

## 7.2.                              Awardof Restricted Stock.

##  

###### (a)                                  TheAdministrator may from time to time, in its absolute discretion:

######  

(i)                                     Determinewhich Employees are key Employees, and select from among the key Employees,Independent Directors or Consultants (including Employees, IndependentDirectors or Consultants who have previously received other Awards under thePlan) such of them as in its opinion should be awarded Restricted Stock; and

 

(ii)                                  Determinethe purchase price, if any, and other terms and conditions applicable to suchRestricted Stock, consistent with the Plan.

 

###### (b)                                 TheAdministrator shall establish the purchase price, if any, and form of paymentfor Restricted Stock; provided, however, that such purchase priceshall be no less than the par value of the Common Stock to be purchased, unlessotherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance ofRestricted Stock.

######  

###### (c)                                  Uponthe selection of an Employee, Independent Director or Consultant to be awardedRestricted Stock, the Administrator shall instruct the Secretary of the Companyto issue such Restricted Stock and may impose such conditions on the issuanceof such Restricted Stock as it deems appropriate.

######  

## 7.3.                              Rightsas Stockholders.  Subject to Section 7.4,upon delivery of the shares of Restricted Stock to the escrow holder pursuantto Section 7.7, the Holder shall have, unless otherwise provided by the Administrator,all the rights of a stockholder with respect to said shares, subject to therestrictions in his or her Award Agreement, including the right to

 

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receive all dividends andother distributions paid or made with respect to the shares; provided, however,that, in the discretion of the Administrator, any dividends or distributionswith respect to the Common Stock shall be subject to the restrictions set forthin Section 7.4.

 

## 7.4.                              Restriction.  All shares of Restricted Stock issued underthe Plan (including any shares received by Holders thereof with respect toshares of Restricted Stock as a result of stock dividends, stock splits or anyother form of recapitalization) shall, in the terms of each individual AwardAgreement, be subject to such restrictions as the Administrator shall provide,which restrictions may include, without limitation, restrictions concerningvoting rights and transferability and restrictions based on duration ofemployment, directorship or consultancy with the Company, or any Subsidiary, orany parent thereof, Company performance and individual performance, or any oneor more of the Performance Criteria or other specific performance criteriadetermined appropriate by the Administrator; provided, however,that, unless the Administrator otherwise provides in the terms of the AwardAgreement or otherwise, no share of Restricted Stock granted to a personsubject to Section 16 of the Exchange Act shall be sold, assigned or otherwisetransferred until at least six months and one day have elapsed from the date onwhich the Restricted Stock was issued; and, provided, further,that, except with respect to shares of Restricted Stock granted to Section 162(m)Participants, by action taken after the Restricted Stock is issued, the Administratormay, on such terms and conditions as it may determine to be appropriate, removeany or all of the restrictions imposed by the terms of the AwardAgreement.  Restricted Stock may not besold or encumbered until all restrictions are terminated or expire.  If no consideration was paid by the Holderupon issuance, a Holder’s rights in unvested Restricted Stock shall lapse, andsuch Restricted Stock shall be surrendered to the Company without consideration,upon Termination of Employment, Termination of Directorship, or Termination ofConsultancy, as applicable; provided, however, that the Administratorin its sole and absolute discretion may provide that such rights shall notlapse in the event of a Termination of Employment, Termination of Directorshipor Termination of Consultancy, as applicable, following a “change of ownershipor control” (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) orany successor regulation thereto) of the Company or because of the Holder’sdeath or disability; and, provided, further, except with respectto shares of Restricted Stock granted to Section 162(m) Participants thatis intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) ofthe Code, the Administrator in its sole and absolute discretion may providethat no such lapse or surrender shall occur in the event of a Termination ofEmployment, Termination of Directorship, or Termination of Consultancy,  as applicable, without cause or following anyChange in Control**or because of the Holder’sretirement, or otherwise.

 

## 7.5.                              Repurchaseof Restricted Stock.  The Administratorshall provide in the terms of each individual Award Agreement that the Companyshall have the right to repurchase from the Holder the Restricted Stock thensubject to restrictions under the Award Agreement immediately upon aTermination of Employment, Termination of Directorship, or Termination ofConsultancy, as applicable, at a cash price per share equal to the price paidby the Holder for such Restricted Stock; provided, however, thatthe Administrator in its sole and absolute discretion may provide that no suchright of repurchase shall exist in the event of a Termination of Employment,Termination of Directorship or Termination of Consultancy, as applicable,following a “change of ownership or control” (within the meaning of TreasuryRegulation

 

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Section 1.162-27(e)(2)(v) orany successor regulation thereto) of the Company or because of the Holder’sdeath or disability; and, provided, further, that, except withrespect to shares of Restricted Stock granted to Section 162(m)Participants that is intended to qualify as performance-based compensation asdescribed in Section 162(m)(4)(C) of the Code, the Administrator inits sole and absolute discretion may provide that no such right of repurchaseshall exist in the event of a Termination of Employment, Termination ofDirectorship, or Termination of Consultancy, as applicable, without cause orfollowing any Change in Control or because of the Holder’s retirement, orotherwise.

 

## 7.6.                              Escrow.  The Secretary of the Company or such otherescrow holder as the Administrator may appoint shall retain physical custody ofeach certificate representing Restricted Stock until all of the restrictionsimposed under the Award Agreement with respect to the shares evidenced by suchcertificate expire or shall have been removed.

 

## 7.7.                              Legend.  In order to enforce the restrictions imposedupon shares of Restricted Stock hereunder, the Administrator shall cause alegend or legends to be placed on certificates representing all shares ofRestricted Stock that are still subject to restrictions under Award Agreements,which legend or legends shall make appropriate reference to the conditionsimposed thereby.

 

## 7.8.                              Section 83(b) Election.  If a Holder makes an election under Section 83(b) ofthe Code, or any successor section thereto, to be taxed with respect tothe Restricted Stock as of the date of transfer of the Restricted Stock ratherthan as of the date or dates upon which the Holder would otherwise be taxableunder Section 83(a) of the Code, the Holder shall deliver a copy ofsuch election to the Company immediately after filing such election with theInternal Revenue Service.

 

# **ARTICLE VIII.DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS, RESTRICTED STOCK UNITS**

# ** **

## 8.1.                              Eligibility.  Subject to the Award Limit, one or more DividendEquivalent awards, Deferred Stock awards, Stock Payment awards, and/orRestricted Stock Unit awards may be granted to any Employee whom the Administratordetermines is a key Employee, or any Independent Director or any Consultant,whom the Administrator determines should receive such an Award.

 

## 8.2.                              DividendEquivalents.  

##  

###### (a)                                  Anykey Employee, Independent Director or Consultant selected by the Administrator maybe granted Dividend Equivalents based on the dividends declared on the CommonStock, to be credited as of dividend payment dates, during the period betweenthe date a Stock Appreciation Right, Deferred Stock award, or Restricted StockUnit award is granted, and the date such Stock Appreciation Right, DeferredStock award, or Restricted Stock Unit award vests, is exercised, is distributed,terminates or expires, as determined by the

 

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Administrator.  Such Dividend Equivalents shall be convertedto cash or additional shares of Common Stock by such formula and at such timeand subject to such limitations as may be determined by the Administrator.

######  

###### (b)                                 AnyHolder of an Option who is an Employee, Independent Director or Consultantselected by the Administrator may be granted Dividend Equivalents based on thedividends declared on the Common Stock, to be credited as of dividend paymentdates, during the period between the date an Option is granted, and the datesuch Option vests, is exercised, terminates or expires, as determined by the Administrator.  Such Dividend Equivalents shall be convertedto cash or additional shares of Common Stock by such formula and at such timeand subject to such limitations as may be determined by the Administrator.

######  

###### (c)                                  DividendEquivalents granted with respect to Options intended to be qualifiedperformance-based compensation for purposes of Section 162(m) of the Codeshall be payable, with respect to pre-exercise periods, regardless of whethersuch Option is subsequently exercised.

######  

## 8.3.                              StockPayments.  Any key Employee,Independent Director or Consultant selected by the Administrator may receiveStock Payments in the manner determined from time to time by the Administrator.  The number of shares shall be determined bythe Administrator and may be based upon the Performance Criteria or otherspecific performance criteria determined appropriate by the Administrator,determined on the date such Stock Payment is made or on any date thereafter.

 

## 8.4.                              DeferredStock.  Any key Employee, IndependentDirector or Consultant selected by the Administrator may be granted an award ofDeferred Stock in the manner determined from time to time by the Administrator.  The number of shares of Deferred Stock shallbe determined by the Administrator and may be based upon the PerformanceCriteria or other specific performance criteria determined to be appropriate bythe Administrator, in each case on a specified date or dates or over any periodor periods determined by the Administrator. Common Stock underlying a Deferred Stock award shall not be issued untilthe Deferred Stock award shall have vested, pursuant to a vesting schedule orperformance criteria set by the Administrator.  The Administrator shall specify thedistribution dates applicable to each Deferred Stock award which shall be noearlier than the vesting dates or events of the award and may be determined atthe election of the Employee, Independent Director or Consultant.  Unless otherwise provided by the Administrator,a Holder of Deferred Stock shall have no rights as a Company stockholder withrespect to such Deferred Stock until such time as the Award has vested and theCommon Stock underlying the Award has been issued.

 

## 8.5.                              RestrictedStock Units.  Any key Employee,Independent Director or Consultant selected by the Administrator may be grantedan award of Restricted Stock Units in the manner determined from time to timeby the Administrator.  The Administratoris authorized to make awards of Restricted Stock Units in such amounts andsubject to such terms and conditions as determined by the Administrator.  The Administrator shall specify the date ordates on which the Restricted Stock Units shall become fully vested andnonforfeitable, and may specify such conditions to vesting as it deemsappropriate, and may  specify that suchRestricted

 

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Stock Units become fullyvested and nonforfeitable pursuant to the satisfaction of one or morePerformance Goals or other specific performance goals as the Administratordetermines to be appropriate at the time of the grant of the Restricted StockUnits or thereafter, in each case on a specified date or dates or over anyperiod or periods determined by the Administrator.  The Administrator shall specify the distributiondates applicable to each award of Restricted Stock Units which shall be noearlier than the vesting dates or events of the award and may be determined atthe election of the Employee, Independent Director or Consultant.  On the distribution dates, the Company shall issueto the Participant one unrestricted, fully transferable share of Common Stockfor each Restricted Stock Unit distributed. The Administrator shall specify the purchase price, if any, to be paidby the Employee, Independent Director or Consultant to the Company for suchshares of Common Stock to be distributed pursuant to the Restricted Stock Unitaward.

##  

## 8.6.                              Term.  The term of a Dividend Equivalent award,Deferred Stock award, Stock Payment award and/or Restricted Stock Unit award shallbe set by the Administrator in its discretion.

 

## 8.7.                              Exerciseor Purchase Price.  The Administratormay establish the exercise or purchase price of shares of Deferred Stock,shares distributed as a Stock Payment award or shares distributed pursuant to aRestricted Stock Unit award; provided, however, that such priceshall not be less than the par value of a share of Common Stock, unlessotherwise permitted by applicable state law.

 

## 8.8.                              Exerciseupon Termination of Employment, Termination of Consultancy or Termination ofDirectorship.  A Dividend Equivalentaward, Deferred Stock award, Stock Payment award and/or Restricted Stock Unitaward is exercisable or distributable only while the Holder is an Employee,Consultant or Independent Director, as applicable; provided, however,that the Administrator in its sole and absolute discretion may provide that theDividend Equivalent award, Deferred Stock award, Stock Payment award and/orRestricted Stock Unit award may be exercised or distributed subsequent to aTermination of Employment, Termination of Directorship or Termination of Consultancyfollowing a “change of control or ownership” (within the meaning of Section 1.162-27(e)(2)(v) orany successor regulation thereto) of the Company.

 

## 8.9.                              Form ofPayment.  Payment of the amountdetermined under Section 8.2 above shall be in cash, in Common Stock or acombination of both, as determined by the Administrator.  To the extent any payment under this Article VIIIis effected in Common Stock, it shall be made subject to satisfaction of allprovisions of Section 6.3.

 

# **ARTICLE IX.STOCK APPRECIATION RIGHTS**

# ** **

## 9.1.                              Grantof Stock Appreciation Rights.  AStock Appreciation Right may be granted to any key Employee, IndependentDirector or Consultant selected by the Administrator.  A Stock Appreciation Right may be granted:  (a) in connection and simultaneously withthe grant

 

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of an Option, (b) withrespect to a previously granted Option, or (c) independent of anOption.  A Stock Appreciation Right shallbe subject to such terms and conditions not inconsistent with the Plan as the Administratorshall impose and shall be evidenced by an Award Agreement.

 

## 9.2.                              CoupledStock Appreciation Rights.

##  

###### (a)                                  ACoupled Stock Appreciation Right (“CSAR”) shall be related to a particularOption and shall be exercisable only when and to the extent the related Optionis exercisable.

######  

###### (b)                                 ACSAR may be granted to the Holder for no more than the number of shares subjectto the simultaneously or previously granted Option to which it is coupled.

######  

###### (c)                                  ACSAR shall entitle the Holder (or other person entitled to exercise the Optionpursuant to the Plan) to surrender to the Company unexercised a portion of theOption to which the CSAR relates (to the extent then exercisable pursuant toits terms) and to receive from the Company in exchange therefor an amountdetermined by multiplying the difference obtained by subtracting the Optionexercise price from the Fair Market Value of a share of Common Stock on thedate of exercise of the CSAR by the number of shares of Common Stock withrespect to which the CSAR shall have been exercised, subject to any limitationsthe Administrator may impose.

######  

## 9.3.                              IndependentStock Appreciation Rights.

##  

###### (a)                                  AnIndependent Stock Appreciation Right (“ISAR”) shall be unrelated to any Optionand shall have a term set by the Administrator. An ISAR shall be exercisable in such installments as the Administrator maydetermine.  An ISAR shall cover suchnumber of shares of Common Stock as the Administrator may determine; provided,however, that unless the Administrator otherwise provides in the termsof the ISAR or otherwise, no ISAR granted to a person subject to Section 16of the Exchange Act shall be exercisable until at least six months have elapsedfrom (but excluding) the date on which the Option was granted.  The exercise price per share of Common Stocksubject to each ISAR shall be set by the Administrator; provided, thatsuch exercise price per share shall not be less than 100% of the Fair MarketValue of a share of Common Stock on the date the ISAR is granted.  An ISAR is exercisable only while the Holderis an Employee, Independent Director or Consultant; provided, that the Administratormay determine that the ISAR may be exercised subsequent to Termination ofEmployment, Termination of Directorship or Termination of Consultancy withoutcause, or following a Change in Control of the Company, or because of theHolder’s retirement, death or disability, or otherwise.

######  

###### (b)                                 AnISAR shall entitle the Holder (or other person entitled to exercise the ISAR pursuantto the Plan) to exercise all or a specified portion of the ISAR (to the extentthen exercisable pursuant to its terms) and to receive from the Company anamount determined by multiplying the difference obtained by subtracting theexercise price per share of the ISAR from the Fair Market Value of a share ofCommon Stock on the date of exercise of the

 

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ISAR by the number ofshares of Common Stock with respect to which the ISAR shall have been exercised,subject to any limitations the Administrator may impose.

######  

## 9.4.                              Paymentand Limitations on Exercise.

##  

###### (a)                                  Paymentof the amounts determined under Section 9.2(c) and 9.3(b) aboveshall be in cash, in Common Stock (based on its Fair Market Value as of the datethe Stock Appreciation Right is exercised) or a combination of both, asdetermined by the Administrator.  To theextent such payment is effected in Common Stock it shall be made subject tosatisfaction of all provisions of Section 6.3 above pertaining to Options.

######  

###### (b)                                 Holdersof Stock Appreciation Rights may be required to comply with any timing or otherrestrictions with respect to the settlement or exercise of a Stock AppreciationRight, including a window-period limitation, as may be imposed in the discretionof the Administrator.

######  

# **ARTICLE X.**

# ** **

# **COMPLIANCE WITH SECTION 409AOF THE CODE**

# ** **

## 10.1.                        Awardssubject to Code Section 409A. Any Award that constitutes, or provides for, a deferral of compensationsubject to Section 409A of the Code (a “Section 409A Award”)shall satisfy the requirements of Section 409A of the Code and this Article X,to the extent applicable.  The AwardAgreement with respect to a Section 409A Award shall incorporate the termsand conditions required by Section 409A of the Code and this Article X.

##  

## 10.2.                        Distributionsunder a Section 409A Award.

##  

###### (a)                                  Subjectto subsection (b), any shares of Common Stock, cash or other property oramounts to be paid or distributed upon the grant, issuance, vesting, exerciseor payment of a Section 409A Award shall be distributed in accordance withthe requirements of Section 409A(a)(2) of the Code, and shall not be distributedearlier than:

######  

(i)                                     theHolder’s separation from service, as determined by the Secretary of theTreasury,

 

(ii)                                  thedate the Holder becomes disabled,

 

(iii)                               theHolder’s death,

 

(iv)                              aspecified time (or pursuant to a fixed schedule) specified under the AwardAgreement at the date of the deferral of such compensation,

 

(v)                                 tothe extent provided by the Secretary of the Treasury, a change in the ownershipor effective control of the Company or a

 

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Subsidiary, or inthe ownership of a substantial portion of the assets of the Company or aSubsidiary, or

 

(vi)                              theoccurrence of an unforeseeable emergency with respect to the Holder.

 

###### (b)                                 Inthe case of a Holder who is a specified employee, the requirement of paragraph(a)(i) shall be met only if the distributions with respect to the Section 409AAward may not be made before the date which is six months after the Holder’sseparation from service (or, if earlier, the date of the Holder’s death).  For purposes of this subsection (b), aHolder shall be a specified employee if such Holder is a key employee (asdefined in Section 416(i) of the Code without regard to paragraph (5) thereof)of a corporation any stock of which is publicly traded on an establishedsecurities market or otherwise, as determined under Section 409A(a)(2)(B)(i) ofthe Code and the Treasury Regulations thereunder.

######  

###### (c)                                  Therequirement of paragraph (a)(vi) shall be met only if, as determined underTreasury Regulations under Section 409A(a)(2)(B)(ii) of the Code, theamounts distributed with respect to the unforeseeable emergency do not exceedthe amounts necessary to satisfy such unforeseeable emergency plus amountsnecessary to pay taxes reasonably anticipated as a result of the distribution,after taking into account the extent to which such unforeseeable emergency isor may be relieved through reimbursement or compensation by insurance orotherwise or by liquidation of the Holder’s assets (to the extent theliquidation of such assets would not itself cause severe financial hardship).

######  

###### (d)                                 Forpurposes of this Section, the terms specified therein shall have the respectivemeanings ascribed thereto under Section 409A of the Code and the TreasuryRegulations thereunder.

######  

## 10.3.                        Prohibitionon Acceleration of Benefits.  Thetime or schedule of any distribution or payment of any shares of CommonStock, cash or other property or amounts under a Section 409A Award shallnot be accelerated, except as otherwise permitted under Section 409A(a)(3) ofthe Code and the Treasury Regulations thereunder.

##  

## 10.4.                        Electionsunder Section 409A Awards.

##  

###### (a)                                  Anydeferral election provided under or with respect to an Award to any Employee,Independent Director or Consultant, or to the Holder of a Section 409AAward, shall satisfy the requirements of Section 409A(a)(4)(B) of theCode, to the extent applicable, and, except as otherwise permitted under paragraph(i) or (ii), any such deferral election with respect to compensation forservices performed during a taxable year shall be made not later than the closeof the preceding taxable year, or at such other time as provided in TreasuryRegulations.

######  

(i)                                     Inthe case of the first year in which an Employee, Independent Director orConsultant, or the Holder, becomes eligible to participate in the Plan, anysuch deferral election may be made with respect to services to be performedsubsequent to the election with thirty (30) days after the date the

 

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Employee,Independent Director or Consultant, or the Holder, becomes eligible toparticipate in the Plan, as provided under Section 409A(a)(4)(B)(ii) ofthe Code.

 

(ii)                                  Inthe case of any performance-based compensation based on services performed byan Employee, Independent Director or Consultant, or the Holder, over a periodof at least twelve (12) months, any such deferral election may be made no laterthan six months before the end of the period, as provided under Section 409A(a)(4)(B)(iii) ofthe Code.

 

###### (b)                                 Inthe event that a Section 409A Award permits, under a subsequent election bythe Holder of such Section 409A Award, a delay in a distribution orpayment of any shares of Common Stock, cash or other property or amounts undersuch Section 409A Award, or a change in the form of distribution orpayment, such subsequent election shall satisfy the requirements of Section 409A(a)(4)(C) ofthe Code, and:

######  

(i)                                     suchsubsequent election may not take effect until at least twelve (12) months afterthe date on which the election is made,

 

(ii)                                  inthe case such subsequent election relates to a distribution or payment notdescribed in Section 10.2(a)(ii), (iii) or (vi), the first paymentwith respect to such election may be deferred for a period of not less thanfive years from the date such distribution or payment otherwise would have beenmade, and

 

(iii)                               inthe case such subsequent election relates to a distribution or paymentdescribed in Section 10.2(a)(iv), such election may not be made less thantwelve (12) months prior to the date of the first scheduled distribution orpayment under Section 10.2(a)(iv).

 

## 10.5.                        Compliancein Form and Operation.  A Section 409AAward, and any election under or with respect to such Section 409A Award,shall comply in form and operation with the requirements of Section 409Aof the Code and the Treasury Regulations thereunder.

 

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# **ARTICLE XI.**

# ** **

# **ADMINISTRATION**

# ** **

## 11.1.                        CompensationCommittee.  The CompensationCommittee (or another committee or a subcommittee of the Board assuming thefunctions of the Committee under the Plan) shall consist solely of two or moreIndependent Directors appointed by and holding office at the pleasure of theBoard, each of whom is both a “non-employee director” as defined by Rule 16b-3and an “outside director” for purposes of Section 162(m) of the Code.  Appointment of Committee members shall beeffective upon acceptance of appointment. Committee members may resign at any time by delivering written notice tothe Board.  Vacancies in the Committeemay be filled by the Board.

 

## 11.2.                        Dutiesand Powers of Committee.  It shall bethe duty of the Committee to conduct the general administration of the Plan inaccordance with its provisions.  TheCommittee shall have the power to interpret the Plan and the Award Agreements,and to adopt such rules for the administration, interpretation andapplication of the Plan as are consistent therewith, to interpret, amend orrevoke any such rules and to amend any Award Agreement provided that therights or obligations of the Holder of the Award that is the subject of anysuch Award Agreement are not affected adversely.  Any such grant or award under the Plan neednot be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive StockOptions shall be consistent with the provisions of Section 422 of theCode.  In its absolute discretion, theBoard may at any time and from time to time exercise any and all rights andduties of the Committee under the Plan except with respect to matters whichunder Rule 16b-3 or Section 162(m) of the Code, or any regulations orrules issued thereunder, are required to be determined in the solediscretion of the Committee. Notwithstanding the foregoing, the full Board, acting by a majority ofits members in office, shall conduct the general administration of the Planwith respect to Awards granted to Independent Directors.

 

## 11.3.                        MajorityRule; Unanimous Written Consent.  TheCommittee shall act by a majority of its members in attendance at a meeting atwhich a quorum is present or by a memorandum or other written instrument signedby all members of the Committee.

 

## 11.4.                        Compensation;Professional Assistance; Good Faith Actions.  Members of the Committee shall receive suchcompensation, if any, for their services as members as may be determined by theBoard.  All expenses and liabilitieswhich members of the Committee incur in connection with the administration ofthe Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys,consultants, accountants, appraisers, brokers or other persons.  The Committee, the Company and the Company’sofficers and Directors shall be entitled to rely upon the advice, opinions orvaluations of any such persons.  Allactions taken and all interpretations and determinations made by the Committeeor the Board in good faith shall be final and binding upon all Holders, theCompany and all other interested persons. No members of the Committee or Board shall be personally liable for anyaction, determination or interpretation made in good faith with respect to thePlan or Awards, and all members of the Committee and the Board shall be fullyprotected by the Company in respect of any such action, determination orinterpretation.

 

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## 11.5.                        Delegationof Authority to Grant Awards.  TheCommittee may, but need not, delegate from time to time some or all of itsauthority to grant Awards under the Plan to a committee consisting of one ormore members of the Committee or of one or more officers of the Company, to theextent permitted by applicable state law; provided, however, thatthe Committee may not delegate its authority to grant Awards to individuals:  (a) who are subject on the date of thegrant to the reporting rules under Section 16(a) of the ExchangeAct, (b) who are Section 162(m) Participants, or (c) who areofficers of the Company who are delegated authority by the Committeehereunder.  Any delegation hereundershall be subject to the restrictions and limits that the Committee specifies atthe time of such delegation of authority and may be rescinded at any time bythe Committee.  At all times, anycommittee appointed under this Section 11.5 shall serve in such capacityat the pleasure of the Committee.

 

# **ARTICLE XII.**

# ** **

# **MISCELLANEOUS PROVISIONS**

# ** **

## 12.1.                        Transferabilityof Awards.

##  

###### (a)                                  Exceptas otherwise provided in Section 12.1(b):

######  

(i)                                     NoAward under the Plan may be sold, pledged, assigned or transferred in anymanner other than by will or the laws of descent and distribution or, subjectto the consent of the Administrator, pursuant to a DRO, unless and until suchAward has been exercised, or the shares underlying such Award have been issued,and all restrictions applicable to such shares have lapsed;

 

(ii)                                  NoOption, Restricted Stock award, Deferred Stock award, Stock Appreciation Right,Dividend Equivalent  award, Stock Paymentaward, or Restricted Stock Unit award, or any interest or right therein, shallbe liable for the debts, contracts or engagements of the Holder or hissuccessors in interest or shall be subject to disposition by transfer,alienation, anticipation, pledge, encumbrance, assignment or any other meanswhether such disposition be voluntary or involuntary or by operation of law byjudgment, levy, attachment, garnishment or any other legal or equitableproceedings (including bankruptcy), and any attempted disposition thereof shallbe null and void and of no effect, except to the extent that such dispositionis permitted by the preceding sentence; and

 

(iii)                               Duringthe lifetime of the Holder, only the Holder may exercise an Option or otherAward (or any portion thereof) granted to him under the Plan, unless it hasbeen disposed of pursuant to a DRO; after the death of the Holder, anyexercisable portion of an Option or other Award may, prior to the time whensuch portion becomes unexercisable under the Plan or the applicable AwardAgreement, be exercised by his personal representative or by

 

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any personempowered to do so under the deceased Holder’s will or under the thenapplicable laws of descent and distribution.

 

###### (b)                                 Notwithstanding Section 12.1(a), theAdministrator, in its sole discretion, may determine to permit a Holder totransfer a Non-Qualified Stock Option to any one or more Permitted Transferees(as defined below), subject to the following terms and conditions:  (i) a Non-Qualified Stock Optiontransferred to a Permitted Transferee shall not be assignable or transferableby the Permitted Transferee other than by will or the laws of descent anddistribution; (ii) any Non-Qualified Stock Option which is transferred toa Permitted Transferee shall continue to be subject to all the terms andconditions of the Non-Qualified Stock Option as applicable to the originalHolder (other than the ability to further transfer the Non-Qualified Stock Option);and (iii) the Holder and the Permitted Transferee shall execute any andall documents requested by the Administrator, including, without limitationdocuments to (A) confirm the status of the transferee as a PermittedTransferee, (B) satisfy any requirements for an exemption for the transferunder applicable federal and state securities laws and (C) evidence thetransfer.  For purposes of this Section 12.1(b),“Permitted Transferee” shall mean, with respect to a Holder, any child,stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,daughter-in-law, brother-in-law, or sister-in-law, including adoptiverelationships, any person sharing the Holder’s household (other than a tenantor employee), a trust in which these persons (or the Holder) control themanagement of assets, and any other entity in which these persons (or theHolder) own more than fifty percent of the voting interests, or any othertransferee specifically approved by the Administrator after taking into accountany state or federal tax or securities laws applicable to transferableNon-Qualified Stock Options.

######  

## 12.2.                        Amendment,Suspension or Termination of the Plan. Except as otherwise provided in this Section 12.2, the Plan may bewholly or partially amended or otherwise modified, suspended or terminated atany time or from time to time by the Board. However, without approval of the Company’s stockholders given within twelve(12) months before or after the action by the Board, no action of the Boardmay, except as provided in Section 12.3, (i) increase the limitsimposed in Section 2.1 on the maximum number of shares which may be issuedunder the Plan, or the maximum number of shares which may be granted or issuedas Restricted Stock awards, Restricted Stock Unit awards, Dividend Equivalentawards, Deferred Stock awards, or Stock Payment awards, (ii) expand theclasses of persons to whom Awards may be granted under the Plan, or (iii) decrease the exercise price of any outstandingOption or Stock Appreciation Right granted under the Plan.  No amendment, suspension or termination ofthe Plan shall, without the consent of the Holder, alter or impair any rightsor obligations under any Award theretofore granted or awarded, unless the Awarditself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension orafter termination of the Plan, and in no event may any Award be granted underthe Plan after the first to occur of the following events:

 

###### (a)                                  Theexpiration of ten (10) years from the date the Plan is adopted by theBoard; or

 

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###### (b)                                 Theexpiration of ten (10) years from the date the Plan is approved by theCompany’s stockholders under Section 12.4.

######  

## 12.3.                        Changesin Common Stock or Assets of the Company, Acquisition or Liquidation of theCompany and Other Corporate Events.

 

###### (a)                                  Subjectto Section 12.3(e), in the event that the Administrator determines thatany dividend or other distribution (whether in the form of cash, Common Stock,other securities or other property), recapitalization, reclassification, stocksplit, reverse stock split, reorganization, merger, consolidation, split-up,spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer,exchange or other disposition of all or substantially all of the assets of theCompany, or exchange of Common Stock or other securities of the Company,issuance of warrants or other rights to purchase Common Stock or othersecurities of the Company, or other similar corporate transaction or event, inthe Administrator’s sole discretion, affects the Common Stock such that anadjustment is determined by the Administrator to be appropriate in order toprevent dilution or enlargement of the benefits or potential benefits intendedto be made available under the Plan or with respect to an Award, then theAdministrator shall, in such manner as it may deem equitable, adjust any or allof:

######  

(i)                                     Thenumber and kind of shares of Common Stock (or other securities or property)with respect to which Awards may be granted or awarded (including, but notlimited to, adjustments of the limitations in Section 2.1 on the maximumnumber and kind of shares which may be issued under the Plan, and the maximumnumber and kind of shares which may be granted or issued as Restricted Stockawards, Restricted Stock Unit awards, Dividend Equivalent awards, DeferredStock awards or Stock Payment awards, and adjustments of the Award Limit);

 

(ii)                                  Thenumber and kind of shares of Common Stock (or other securities or property)subject to outstanding Awards; and

 

(iii)                               Thegrant or exercise price with respect to any Award.

 

###### (b)                                 Subjectto Sections 12.3(c) and 12.3(e), in the event of any transaction or eventdescribed in Section 12.3(a) or any unusual or nonrecurringtransactions or events affecting the Company, any affiliate of the Company, orthe financial statements of the Company or any affiliate, or of changes inapplicable laws, regulations or accounting principles, the Administrator, inits sole and absolute discretion, and on such terms and conditions as it deemsappropriate, either by the terms of the Award or by action taken prior to theoccurrence of such transaction or event and either automatically or upon theHolder’s request, is hereby authorized to take any one or more of the followingactions whenever the Administrator determines that such action is appropriatein order to prevent dilution or enlargement of the benefits or potential benefitsintended to be made available under the Plan or with respect to any Award underthe Plan, to facilitate such transactions or events or to give effect to suchchanges in laws, regulations or principles:

 

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(i)                                     Toprovide for either the purchase of any such Award for an amount of cash equalto the amount that could have been attained upon the exercise of such Award orrealization of the Holder’s rights had such Award been currently exercisable orpayable or fully vested or the replacement of such Award with other rights orproperty selected by the Administrator in its sole discretion;

 

(ii)                                  Toprovide that the Award cannot vest, be exercised or become payable after suchevent;

 

(iii)                               Toprovide that such Award shall be exercisable as to all shares covered thereby,notwithstanding anything to the contrary in Section 5.3 or the provisionsof such Award;

 

(iv)                              Toprovide that such Award be assumed by the successor or survivor corporation, ora parent or subsidiary thereof, or shall be substituted for by similar options,rights or awards covering the stock of the successor or survivor corporation,or a parent or subsidiary thereof, with appropriate adjustments as to thenumber and kind of shares and prices; and

 

(v)                                 Tomake adjustments in the number and type of shares of Common Stock (or othersecurities or property) subject to outstanding Awards, and/or in the terms andconditions of (including the grant, exercise or purchase price), and thecriteria included in, outstanding options, rights and awards and options,rights and awards which may be granted in the future.

 

(vi)                              Toprovide that, for a specified period of time prior to such event, therestrictions imposed under an Award Agreement upon some or all shares ofRestricted Stock, Restricted Stock Units or Deferred Stock may be terminated,and, in the case of Restricted Stock, some or all shares of such RestrictedStock may cease to be subject to repurchase under Section 7.5 orforfeiture under Section 7.4 after such event.

 

###### (c)                                  Notwithstanding any other provision of thePlan, in the event of a Change in Control, each outstanding Award shall remainoutstanding, or shall be assumed or an equivalent award substituted by thesuccessor corporation, or a parent or subsidiary of the successorcorporation.  In the event that thesuccessor corporation, or a parent or subsidiary of the successor corporation,with respect to the Change in Control transaction refuses to assume or substitutefor the Award, the Holder shall have the right to exercise the Award as to allof the shares subject thereto, including shares as to which such Awardotherwise would not be exercisable, and the Holder shall have the right to vestin, and received a distribution of, such Award, with respect to all of theshares subject thereto.  If an Awardbecomes exercisable in lieu of assumption or substitution by the successorcorporation, or a parent or subsidiary corporation, with respect to a Change inControl transaction, the Administrator shall notify the Holder that the Awardshall be fully exercisable for a period of not less than fifteen (15) days fromthe date of such notice prior to the Change in Control transaction, and theAward shall terminate upon the

 

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expiration of suchperiod.  For purposes of this Section 12.3(c),the Award shall be assumed, or an equivalent award shall be substituted forsuch Award, if, following the Change in Control transaction, the Award orsubstituted award confers on the Holder the right to purchase or receive, foreach share subject to the Award immediately prior to the Change in Controltransaction, the consideration (whether in stock, cash, or other securities orproperty, or a combination thereof) received or to be received for each shareof Common Stock in the Change in Control transaction on the effective date ofthe Change in Control transaction (and if holders of shares of Common Stockwere offered a choice of consideration, the type of consideration chosen by theholders of a majority of the outstanding shares of Common Stock); provided,however, that, if such consideration received in the Change in Controltransaction was not solely common stock of the successor corporation or itsparent, the Administrator may, with the consent of the successor corporation orits parent, provide for the consideration to be received upon the exercise,vesting or distribution of the assumed Award or substituted award, for eachshare subject to the Award, to be solely common stock of the successorcorporation or its parent equal in fair market value to the per shareconsideration received by the holders of Common Stock in the Change in Controltransaction.

######  

###### (d)                                 Subjectto Sections 12.3(e), 3.2 and 3.3, the Administrator may, in its discretion,include such further provisions and limitations in any Award or Award Agreementas it may deem equitable and in the best interests of the Company.

######  

###### (e)                                  Withrespect to Awards which are granted to Section 162(m) Participants and areintended to qualify as performance-based compensation under Section 162(m)(4)(C),no adjustment or action described in this Section 12.3 or in any otherprovision of the Plan shall be authorized to the extent that such adjustment oraction would cause such Award to fail to so qualify under Section 162(m)(4)(C),or any successor provisions thereto. No adjustment or action described in this Section 12.3or in any other provision of the Plan shall be authorized to the extent thatsuch adjustment or action would cause the Plan to violate Section 422(b)(1) ofthe Code.  Furthermore, no suchadjustment or action shall be authorized to the extent such adjustment oraction would result in short-swing profits liability under Section 16 orviolate the exemptive conditions of Rule 16b-3 unless the Administratordetermines that the Award is not to comply with such exemptive conditions.  The number of shares of Common Stock subjectto any Award shall always be rounded to the next whole number.

######  

###### (f)                                    Notwithstandingthe foregoing, in the event that the Company becomes a party to a transactionthat is intended to qualify for “pooling of interests” accounting treatmentand, but for one or more of the provisions of this Plan or any Award Agreementwould so qualify, then this Plan and any Award Agreement shall be interpretedso as to preserve such accounting treatment, and to the extent that anyprovision of the Plan or any Award Agreement would disqualify the transactionfrom pooling of interests accounting treatment (including, if applicable, anentire Award Agreement), then such provision shall be null and void.  All determinations to be made in connectionwith the preceding sentence shall be made by the independent accounting firmwhose opinion with respect to “pooling of interests” treatment is required as acondition to the Company’s consummation of such transaction.

 

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###### (g)                                 Theexistence of the Plan, the Award Agreement and the Awards granted hereundershall not affect or restrict in any way the right or power of the Company orthe shareholders of the Company to make or authorize any adjustment,recapitalization, reorganization or other change in the Company’s capitalstructure or its business, any merger or consolidation of the Company, anyissue of stock or of options, warrants or rights to purchase stock or of bonds,debentures, preferred or prior preference stocks whose rights are superior toor affect the Common Stock or the rights thereof or which are convertible intoor exchangeable for Common Stock, or the dissolution or liquidation of thecompany, 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 orotherwise.

######  

###### (h)                                 Noaction shall be taken under this Section 12.3 which shall cause an Awardto fail to comply with Section 409A of the Code or the Treasury Regulationsthereunder, to the extent applicable to such Award.

######  

## 12.4.                        Approvalof Plan by Stockholders.  The Planwill be submitted for the approval of the Company’s stockholders within twelve(12) months after the date of the Board’s initial adoption of the Plan.  Awards may be granted or awarded prior tosuch stockholder approval, provided, that such Awards shall not beexercisable nor shall such Awards vest prior to the time when the Plan isapproved by the stockholders, and providedfurther, that if suchapproval has not been obtained at the end of said twelve-month period, allAwards previously granted or awarded under the Plan shall thereupon be canceledand become null and void.   In addition,if the Board determines that Awards other than Options or Stock AppreciationRights which may be granted to Section 162(m) Participants should continueto be eligible to qualify as performance-based compensation under Section 162(m)(4)(C) ofthe Code, the Performance Criteria must be disclosed to and approved by theCompany’s stockholders no later than the first stockholder meeting that occursin the fifth year following the year in which the Company’s stockholderspreviously approved the Plan, as amended and restated to include thePerformance Criteria.

 

## 12.5.                        TaxWithholding.  The Company shall beentitled to require payment in cash or deduction from other compensationpayable to each Holder of any sums required by federal, state or local tax lawto be withheld with respect to the grant, issuance, vesting, exercise orpayment of any Award.  The Administratormay in its discretion and in satisfaction of the foregoing requirement allowsuch Holder to elect to have the Company withhold shares of Common Stockotherwise issuable under such Award (or allow the return of shares of CommonStock) having a Fair Market Value equal to the sums required to bewithheld.  Notwithstanding any other provision of the Plan, the number of shares ofCommon Stock which may be withheld with respect to the issuance, vesting,exercise or payment of any Award (or which may be repurchased from the Holderof such Award within six months after such shares of Common Stock were acquiredby the Holder from the Company) in order to satisfy the Holder’s federal andstate income and payroll tax liabilities with respect to the issuance, vesting,exercise or payment of the Award shall be limited to the number of shares whichhave a Fair Market Value on the date of withholding or repurchase equal to theaggregate amount of such liabilities based on the minimum statutory withholdingrates for federal and state tax income and payroll tax purposes that areapplicable to such supplemental taxable income.

 

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## 12.6.                        Prohibitionon Repricing.  Subject to Section 12.3,the Administrator shall not, without the approval of the stockholders of theCompany, authorize the amendment of any outstanding Award to reduce its priceper share.  Furthermore, no Award shallbe canceled and replaced with the grant of an Award having a lesser price pershare without the further approval of stockholders of the Company.

##  

## 12.7.                        ForfeitureProvisions.  Pursuant to its generalauthority to determine the terms and conditions applicable to Awards and theAward Agreements under the Plan, the Administrator shall have the right toprovide, in the terms of Awards made under the Plan, or to require a Holder toagree by separate written instrument, that:  (a)(i) any proceeds, gains or othereconomic benefit actually or constructively received by the Holder upon anyreceipt or exercise of the Award, or upon the receipt or resale of any CommonStock underlying the Award, must be paid to the Company, and (ii) theAward shall terminate and any unexercised portion of the Award (whether or notvested) shall be forfeited, if (b)(i) a Termination of Employment,Termination of Directorship or  Termination of Consultancy occurs prior to a specifieddate, or within a specified time period following receipt or exercise of theAward, or (ii) the Holder at any time, or during a specified time period,engages in any activity in competition with the Company, or which is inimical,contrary or harmful to the interests of the Company, as further defined by theAdministrator or (iii) the Holder incurs a Termination of Employment, Terminationof Directorship or Termination of Consultancy for “cause” (as such term isdefined in the sole and absolute discretion of the Committee, or as set forthin a written agreement relating to such Award between the Company and theHolder).

 

## 12.8.                        Effectof Plan upon Options and Compensation Plans.  The adoption of the Plan shall not affect anyother compensation or incentive plans in effect for the Company or anySubsidiary.  Nothing in the Plan shall beconstrued to limit the right of the Company:  (a) to establish any other forms ofincentives or compensation for Employees, Directors or Consultants of theCompany or any Subsidiary, or (b) to grant or assume options or otherrights or awards otherwise than under the Plan in connection with any propercorporate purpose including but not by way of limitation, the grant orassumption of options in connection with the acquisition by purchase, lease,merger, consolidation or otherwise, of the business, stock or assets of anycorporation, partnership, limited liability company, firm or association.

 

## 12.9.                        Compliancewith Laws.  The Plan, the grantingand vesting of Awards under the Plan and the issuance and delivery of shares ofCommon Stock and the payment of money under the Plan or under Awards granted orawarded hereunder are subject to compliance with all applicable federal andstate laws, rules and regulations (including but not limited to state andfederal securities law and federal margin requirements) and to such approvalsby any listing, regulatory or governmental authority as may, in the opinion ofcounsel for the Company, be necessary or advisable in connection therewith.  Any securities delivered under the Plan shallbe subject to such restrictions, and the person acquiring such securitiesshall, if requested by the Company, provide such assurances and representationsto the Company as the Company may deem necessary or desirable to assurecompliance with all applicable legal requirements.  To the extent permitted by applicable law,the Plan and Awards granted or awarded hereunder shall be deemed amended to theextent necessary to conform to such laws, rules and regulations.

 

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## 12.10.                  Titles.  Titles are provided herein for convenienceonly and are not to serve as a basis for interpretation or construction of thePlan.

 

## 12.11.                  Governing Law.  The Plan and any agreements hereunder shallbe administered, interpreted and enforced under the internal laws of the Stateof California without regard to conflicts of laws thereof.

 

*  *  *

 

Ihereby certify that the foregoing amendment and restatement of the Plan wasduly adopted by the Board of Directors of Watson Pharmaceuticals, Inc. on March 29,2005.

 

Executedon this 13th day of May, 2005.

 
|   | /s/David A. Buchen |   |
|--------|--------------------|--------|
|   | Secretary          |   |

 

*  *  *

 

Ihereby certify that the foregoing amendment and restatement of the Plan wasapproved by the stockholders of Watson Pharmaceuticals, Inc. on May 13,2005.

 

Executedon this 13th day of May, 2005.

 
|   | /s/David A. Buchen |   |
|--------|--------------------|--------|
|   | Secretary          |   |

 

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