2010
INCENTIVE PLAN

      OF

      POINT.360

       

      
        	
                1.

              	
                PURPOSES OF THE
      PLAN

              


      

       

      The
purposes of the 2010 Incentive Plan (the “Plan”) of Point.360, a California
corporation (the “Company”), are to:

       

      1.1           Encourage
selected employees, directors, consultants and advisers to improve operations
and increase the profitability of the Company;

       

      1.2           Encourage
selected employees, directors, consultants and advisers to accept or continue
employment or association with the Company or its Affiliates; and

       

      1.3           Increase
the interest of selected employees, directors, consultants and advisers in the
Company’s welfare through participation in the growth in value of the common
stock of the Company (the “Common Stock”).  All references herein to
stock or shares, unless otherwise specified, shall mean Common
Stock.

       

      
        	
                2.

              	
                TYPES OF AWARDS;
      ELIGIBLE PERSONS

              


      

       

      2.1           The
Administrator (as defined below) may, from time to time, take the following
action, separately or in combination, under the Plan: (i) grant “incentive stock
options” (“ISOs”) intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
“Code”); (ii) grant “non-qualified options” (“NQOs,” and together with ISOs,
“Options”); (iii) grant or sell Common Stock subject to restrictions
(“restricted stock”) or without restrictions and (iv) grant stock appreciation
rights (any such right would permit the holder to receive the excess of the fair
market value of Common Stock on the exercise date over its fair market value (or
a greater base value) on the grant date (“SARs”)), either in tandem with Options
or as separate and independent grants; and performance compensation awards in
either Common Stock or cash or in combinations of Common Stock and
cash..  Any such awards may be made to employees, including employees
who are officers or directors, and to individuals described in Section 1 of the
Plan who the Administrator believes have made or will make a contribution to the
Company or any Affiliate (as defined below); provided, however, that only a
person who is an employee of the Company or any Affiliate at the date of the
grant of an Option is eligible to receive ISOs under the Plan or performance
compensation awards.  The term “Affiliate” as used in the Plan means a
parent or subsidiary corporation as defined in the applicable provisions
(currently Sections 424(e) and (f), respectively) of the Code.  The
term “employee” includes an officer or director who is an employee of the
Company.  The term “consultant” includes persons employed by, or
otherwise affiliated with, a consultant.  The term “adviser” includes
persons employed by, or otherwise affiliated with, an adviser.

       

      2.2           Except
as otherwise expressly set forth in the Plan, no right or benefit under the Plan
shall be subject in any manner to anticipation, alienation, hypothecation, or
charge, and any such attempted action shall be void.  No right or
benefit under the Plan shall in any manner be liable for or subject to debts,
contracts, liabilities, or torts of any option holder or any other person except
as otherwise may be expressly required by applicable law.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                3.

              	
                STOCK SUBJECT TO THE
      PLAN; MAXIMUM NUMBER OF
GRANTS

              


      

       

      Subject
to the provisions of Sections 6.1.1 and 8.2 of the Plan, the total number of
shares of Common Stock under the Plan which may be offered, or issued as
restricted stock or unrestricted stock on the exercise of Options or SARs or
otherwise under the Plan shall not exceed four million (4,000,000) shares of
Common Stock.  The shares subject to an Option or SAR granted under
the Plan that expire, terminate or are cancelled unexercised shall become
available again for grants under the Plan.  If shares of restricted
stock awarded under the Plan are forfeited to the Company or repurchased by the
Company, the number of shares forfeited or repurchased shall again be available
under the Plan.  Where the exercise price of an Option is paid by
means of the optionee’s surrender of previously owned shares of Common Stock or
the Company’s withholding of shares otherwise issuable upon exercise of the
Option as may be permitted herein, only the net number of shares issued and
which remain outstanding in connection with such exercise shall be deemed
“issued” and no longer available for issuance under the Plan.  No
eligible person shall be granted Options or other awards during any twelve-month
period covering more than one million (1,000,000) shares.

       

      
        	
                4.

              	
                ADMINISTRATION

              


      

       

      4.1           The
Plan shall be administered by the Board of Directors of the Company (the
“Board”) or by a committee (the “Adminstrator”) selected by the Board to
administer the Plan, or of part thereof (in either case, the
“Administrator”).  The Board shall appoint and remove members of the
Adminstrator in its discretion in accordance with applicable laws.  At
the Board’s discretion, the Adminstrator may be comprised solely of
“non-employee directors” within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or  “outside
directors” within the meaning of Section 162(m) of the Code.  The
Administrator may delegate non-discretionary administrative duties to such
employees of the Company as the Administrator deems proper and the Board, in its
absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under the Plan.

       

      4.2           Subject
to the other provisions of the Plan, the Administrator shall have the authority,
in its discretion: (i) to grant Options and SARs and grant or sell restricted
stock or unrestricted stock; (ii) to determine the fair market value of the
Common Stock subject to Options or other awards; (iii) to determine the exercise
price of Options granted, which shall be no less than the fair market value of
the Common Stock on the date of grant, the economic terms of SARs granted, which
shall provide for a benefit of the appreciation on Common Stock over not less
than the value of the Common Stock on the date of grant, or the offering price
of restricted stock; (iv) to determine the persons to whom, and the time or
times at which, Options or SARs shall be granted or restricted stock or
unrestricted stock granted or sold, and the number of shares subject to each
Option or SAR or the number of shares of restricted stock granted or sold; (v)
to grant performance compensation awards under the criteria set forth in the
Plan; and (vi) to construe and interpret the terms and provisions of the Plan,
of any applicable agreement and all Options and SARs granted under the Plan, and
of any restricted  or unrestricted stock award under the Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option and SAR granted and award
of restricted stock or unrestricted stock (which need not be identical),
including but not limited to, the time or times at which Options and SARs shall
be exercisable or the time at which the restrictions on restricted stock shall
lapse; (viii) with the consent of the grantee, to rescind any award or exercise
of an Option or SAR and to modify or amend the terms of any Option, SAR or
restricted stock; (ix) to reduce the purchase price of restricted stock or
unrestricted stock; (x) to accelerate or defer (with the consent of the grantee)
the exercise date of any Option or SAR or the date on which the restrictions on
restricted stock lapse; (xi) to issue shares of restricted stock to an optionee
in connection with the accelerated exercise of an Option by such optionee; (xii)
to authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option. SAR or award of restricted stock or
unrestricted stock and a performance compensation award; (xiii) to determine the
duration and purposes of leaves of absence which may be granted to participants
without constituting a termination of their employment for the purposes of the
Plan; and (xiv) to make all other determinations deemed necessary or advisable
for the administration of the Plan, any applicable agreement, Option, SAR or
award of restricted stock or unrestricted stock.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      4.3           All
questions of interpretation, implementation, and application of the Plan or any
agreement or Option, SAR or award of restricted stock shall be determined by the
Administrator, which determination shall be final and binding on all
persons.

       

      
        	
                5.

              	
                GRANTING OF OPTIONS
      AND SARS; AGREEMENTS

              


      

       

      5.1           No
Options or SARs shall be granted under the Plan after ten (10) years from the
date of adoption of the Plan by the Board.

       

      5.2           Each
Option and SAR shall be evidenced by a written agreement, in form satisfactory
to the Administrator, executed by the Company and the person to whom such grant
is made.  In the event of a conflict between the terms or conditions
of an agreement and the terms and conditions of the Plan, the terms and
conditions of the Plan shall govern.

       

      5.3           Each
agreement shall specify whether the Option it evidences is an NQO or an ISO,
provided, however, all Options
granted under the Plan to non-employee directors, consultants and advisers of
the Company are intended to be NQOs.

       

      5.4           Subject
to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant
of Options or SARs under the Plan to persons who are expected to become
employees, directors, consultants or advisers of the Company, but are not
employees, directors, consultants or advisers at the date of
approval.

       

      
        	
                6.

              	
                TERMS AND CONDITIONS
      OF OPTIONS AND SARS

              


      

       

      Each
Option and SAR granted under the Plan shall be subject to the terms and
conditions set forth in Section 6.1.  NQOs and SARs shall also be
subject to the terms and conditions set forth in Section 6.2, but not those set
forth in Section 6.3.  ISOs shall also be subject to the terms and
conditions set forth in Section 6.3, but not those set forth in Section
6.2.  SARs shall be subject to the terms and conditions of Section
6.4.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      6.1         Terms and Conditions to
Which All Options and SARs Are Subject.  All Options and SARs
granted under the Plan shall be subject to the following terms and
conditions:

       

      6.1.1        Changes in Capital
Structure.  Subject to Section 6.1.2, if the Common Stock of
the Company is changed by reason of a stock split, reverse stock split, stock
dividend, recapitalization, combination or reclassification, or if the Company
effects a spin-off of the Company’s subsidiary, appropriate adjustments shall be
made by the Administrator, in its sole discretion, in (a) the number and class
of shares of stock subject to the Plan and each Option and SAR outstanding under
the Plan, and (b) the exercise price of each outstanding Option; provided, that the
Company shall not be required to issue fractional shares as a result of any such
adjustments.  Any adjustment, however, in an outstanding Option shall
be made without change in the total price applicable to the unexercised portion
of the Option but with a corresponding adjustment in the price for each share
covered by the unexercised portion of the Option.  Adjustments under
this Section 6.1.1 shall be made by the Administrator, whose determination as to
the nature of the adjustments that shall be made, and the extent thereof, shall
be final, binding, and conclusive.  If an adjustment under this
Section 6.1.1 would result in a fractional share interest under an option or any
installment, the Administrator’s decision as to inclusion or exclusion of that
fractional share interest shall be final, but no fractional shares of stock
shall be issued under the Plan on account of any such adjustment.

       

      6.1.2        Corporate
Transactions.  Except as otherwise provided in the applicable
agreement, in the event of a Corporate Transaction (as defined below), the
Administrator shall notify each holder of an Option or SAR at least thirty (30)
days prior thereto or as soon as may be practicable.  To the extent
not then exercised all Options and SARs shall terminate immediately prior to the
consummation of such Corporate Transaction unless the Administrator determines
otherwise in its sole discretion; provided. however, that the
Administrator, in its sole discretion, may (i) permit exercise of any Options or
SARs prior to their termination, even if such Options or SARs would not
otherwise have been exercisable, and/or (ii) provide that all or certain of the
outstanding Options and SARs shall be assumed or an equivalent Option or SAR
substituted by an applicable successor corporation or entity or any Affiliate of
the successor corporation or entity.  A “Corporate Transaction” means
(i) a liquidation or dissolution of the Company; (ii) a merger or consolidation
of the Company with or into another corporation or entity (other than a merger
with a wholly-owned subsidiary); (iii) a sale of all or substantially all of the
assets of the Company; or (iv) a purchase or other acquisition of more than 50%
of the outstanding stock of the Company by one person, other than Haig
Bagerdjian, or by more than one person acting in concert with persons other than
Haig Bagerdjian.

       

      6.1.3        Time of Option or SAR
Exercise.  Subject to Section 5 and Section 6.3.4, an Option or
SAR granted under the Plan shall be exercisable (a) immediately as of the
effective date of the of the applicable agreement or (b) in accordance with a
schedule or performance criteria as may be set by the Administrator and
specified in the applicable agreement.  However, in no case may an
Option or SAR be exercisable until a written agreement in form and substance
satisfactory to the Company is executed by the Company and the
grantee.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      6.1.4      Grant
Date.  The date of grant of an Option or SAR under the Plan
shall be the date approved or specified by the Administrator and reflected
as  the effective date of the applicable agreement.

       

      6.1.5      Non-Transferability of
Rights.  Except with the express written approval of the
Administrator, which approval the Administrator is authorized to give only with
respect to NQOs and SARs, no Option or SAR granted under the Plan shall be
assignable or otherwise transferable by the grantee except by will or by the
laws of descent and distribution.  During the life of the grantee, an
Option or SAR shall be exercisable only by the grantee or permitted
transferee.

       

      6.1.6      Payment.  Except
as provided below, payment in full, in cash, shall be made for all Common Stock
purchased at the time written notice of exercise of an Option is given to the
Company and the proceeds of any payment shall be considered general funds of the
Company.  The Administrator, in the exercise of its absolute
discretion after considering any tax, accounting and financial consequences, may
authorize any one or more of the following additional methods of
payment:

       

      (a)           Subject
to the Sarbanes-Oxley Act of 2002, acceptance of the optionee’s full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate specified under the Code at which no
additional interest or original issue discount would be imputed), which
promissory note may be either secured or unsecured in such manner as the
Administrator shall approve (including, without limitation, by a security
interest in the shares of the Company);

       

      (b)           Subject
to the discretion of the Administrator and the terms of the stock option
agreement granting the Option, delivery by the optionee of shares of Common
Stock already owned by the optionee for all or part of the Option price,
provided the fair market value (determined as set forth in Section 6.1.9) of
such shares of Common Stock is equal on the date of exercise to the Option
price, or such portion thereof as the optionee is authorized to pay by delivery
of such stock;

       

      (c)           Subject
to the discretion of the Administrator, through the surrender of shares of
Common Stock then issuable upon exercise of the Option, provided the fair market
value (determined as set forth in Section 6.1.9) of such shares of Common Stock
is equal on the date of exercise to the Option price, or such portion thereof as
the optionee is authorized to pay by surrender of such stock; and

       

      (d)           By
means of so-called cashless exercises as permitted under applicable rules and
regulations of the Securities and Exchange Commission and the Federal Reserve
Board.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      6.1.7      Withholding and Employment
Taxes.  At the time of exercise and as a condition thereto, or
at such other time as the amount of such obligation becomes determinable, the
grantee of an Option or SAR shall remit to the Company in cash all applicable
federal and state withholding and employment taxes.  Such obligation
to remit may be satisfied, if authorized by the Administrator in its sole
discretion, after considering any tax, accounting and financial consequences, by
the holder’s (i) delivery of a promissory note in the required amount on such
terms as the Administrator deems appropriate, (ii) tendering to the Company
previously owned shares of Common Stock or other securities of the Company with
a fair market value equal to the required amount, or (iii) agreeing to have
shares of Common Stock (with a fair market value equal to the required amount),
which are acquired upon exercise of the Option or SAR, withheld by the
Company.

       

      6.1.8      Other
Provisions.  Each Option and SAR granted under the Plan may
contain such other terms, provisions, and conditions not inconsistent with the
Plan as may be determined by the Administrator, and each ISO granted under the
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an “incentive stock option” within the meaning of Section 422 of
the Code.

       

      6.1.9      Determination of
Value.  For purposes of the Plan, the fair market value of
Common Stock or other securities of the Company shall be determined as
follows:

       

      (a)           If
the stock of the Company is listed on a securities exchange or is regularly
quoted by a recognized securities dealer, and selling prices are reported, its
fair market value shall be the closing price of such stock on the date the value
is to be determined, but if selling prices are not reported, its fair market
value shall be the mean between the high bid and low asked prices for such stock
on the date the value is to be determined (or if there are no quoted prices for
the date of grant, then for the last preceding business day on which there were
quoted prices).

       

      (b)           In
the absence of an established market for the stock, the fair market value
thereof shall be determined in good faith by the Administrator, with reference
to the Company’s net worth, prospective earning power, dividend-paying capacity,
and other relevant factors, including the goodwill of the Company, the economic
outlook in the Company’s industry, the Company’s position in the industry, the
Company’s management, and the values of stock of other corporations in the same
or a similar line of business.

       

      6.1.10    Option and SAR
Term.  No Option or SAR shall be exercisable more than 10 years
after the date of grant, or such lesser period of time as is set forth in the
applicable agreement (the end of the maximum exercise period stated in the
agreement is referred to in the Plan as the “Expiration Date”).

       

      6.2         Terms and Conditions to
Which Only NQOs and SARs Are Subject.  Options granted under
the Plan which are designated as NQOs and SARs shall be subject to the following
terms and conditions:

       

      6.2.1      Exercise
Price.  The exercise price of an NQO and the base value of an
SAR shall be the amount determined by the Administrator as specified in the
option or SAR agreement, but shall not be less than the fair market value of the
Common Stock on the date of grant (determined under Section 6.1.9).

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      6.2.2        Termination of
Employment.  Except as otherwise provided in the applicable
agreement, if for any reason a grantee ceases to be employed by the Company or
any of its Affiliates, Options that are NQOs and SARs held at the date of
termination (to the extent then exercisable) may be exercised in whole or in
part at any time within ninety (90) days of the date of such termination (but in
no event after the Expiration Date).  For purposes of this Section
6.2.2, “employment” includes service as a director, consultant or
adviser.  For purposes of this Section 6.2.2, a grantee’s employment
shall not be deemed to terminate by reason of the grantee’s transfer from the
Company to an Affiliate, or vice versa, or sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave
does not exceed ninety (90) days or, if longer, if the grantee’s right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.

       

      6.3         Terms and Conditions to
Which Only ISOs Are Subject.  Options granted under the Plan
which are designated as ISOs shall be subject to the following terms and
conditions:

       

      6.3.1        Exercise
Price.  The exercise price of an ISO shall not be less than the
fair market value (determined in accordance with Section 6.1.9) of the stock
covered by the Option at the time the Option is granted.  The exercise
price of an ISO granted to any person who owns, directly or by attribution under
the Code (currently Section 424(d)), stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Affiliate (a “Ten Percent Stockholder”) shall in no event be less than
one hundred ten percent (110%) of the fair market value (determined in
accordance with Section 6.1.9) of the stock covered by the Option at the time
the Option is granted.

       

      6.3.2        Disqualifying
Dispositions.  If stock acquired by exercise of an ISO granted
pursuant to the Plan is disposed of in a “disqualifying disposition” within the
meaning of Section 422 of the Code (a disposition within two (2) years from the
date of grant of the Option or within one year after the issuance of such stock
on exercise of the Option), the holder of the stock immediately before the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the Option
as the Company may reasonably require.

       

      6.3.3        Grant
Date.  If an ISO is granted in anticipation of employment as
provided in Section 5.4, the Option shall be deemed granted, without further
approval, on the date the grantee assumes the employment relationship forming
the basis for such grant, and, in addition, satisfies all requirements of the
Plan for Options granted on that date.

       

      6.3.4        Term.  Notwithstanding
Section 6.1.10, no ISO granted to any Ten Percent Stockholder shall be
exercisable more than five (5) years after the date of grant.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      6.3.5        Termination of
Employment.  Except as otherwise provided in the stock option
agreement, if for any reason an optionee ceases to be employed by the Company or
any of its Affiliates, Options that are ISOs held at the date of termination (to
the extent then exercisable) may be exercised in whole or in part at any time
within 90 days of the date of termination (but in no event after the Expiration
Date).  For purposes of this Section 6.3.5, an optionee’s employment
shall not be deemed to terminate by reason of the optionee’s transfer from the
Company to an Affiliate, or vice versa, or sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave
does not exceed ninety (90) days or, if longer, if the optionee’s right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.

       

      6.4         Terms and Conditions
Applicable Solely to SARs.  In addition to the other terms and
conditions applicable to SARs in this Section 6, the holder shall be entitled to
receive on exercise of an SAR only Common Stock at a fair market value equal to
the benefit to be received by the exercise.

       

      
        	
                7.

              	
                MANNER OF
      EXERCISE

              


      

       

      7.1         An
optionee wishing to exercise an Option or SAR shall give written notice to the
Company at its principal executive office, to the attention of the officer of
the Company designated by the Administrator, accompanied by payment of the
exercise price and/or withholding taxes as provided in Sections 6.1.6 and
6.1.7.  The date the Company receives written notice of an exercise
hereunder accompanied by the applicable payment will be considered as the date
such Option or SAR was exercised.

       

      7.2         Promptly
after receipt of written notice of exercise and the applicable payments called
for by Section 7.1, the Company shall, without stock issue or transfer taxes to
the holder or other person entitled to exercise the Option or SAR, deliver to
the holder or such other person a certificate or certificates for the requisite
number of shares of Common Stock.  A holder or permitted transferee of
an Option or SAR shall not have any privileges as a stockholder with respect to
any shares of Common Stock to be issued until the date of issuance (as evidenced
by the appropriate entry on the books of the Company or a duly authorized
transfer agent) of such shares.

       

      
        	
                8.

              	
                STOCK

              


      

       

      8.1         Grant or Sale of
Stock.

       

      8.1.1        No
awards of Common Stock shall be granted under the Plan after ten (10) years from
the date of adoption of the Plan by the Board.

       

      8.1.2        The
Administrator may issue Common Stock under the Plan as a grant or for such
consideration (including services, and, subject to the Sarbanes-Oxley Act of
2002, promissory notes) as determined by the Administrator.  Common
Stock issued under the Plan shall be subject to the terms, conditions and
restrictions determined by the Administrator.  The restrictions, if
any, may include restrictions concerning transferability, repurchase by the
Company and forfeiture of the shares issued, together with such other
restrictions as may be determined by the Administrator.  If shares are
subject to forfeiture or repurchase by the Company, all dividends or other
distributions paid by the Company with respect to the shares may be retained by
the Company until the shares are no longer subject to forfeiture or repurchase,
at which time all accumulated amounts shall be paid to the
recipient.  All Common Stock issued pursuant to this Section 8 shall
be subject to a written purchase agreement, grant agreement, or performance
compensation award which shall be executed by the Company and the prospective
recipient of the Common Stock prior to the delivery of certificates representing
such stock to the recipient.  The purchase agreement, grant agreement
or performance compensation award, may contain any terms, conditions,
restrictions, representations and warranties required by the
Administrator.  The certificates representing the shares shall bear
any legends required by the Administrator.  The Administrator may
require any purchaser or grantee of Common Stock to pay to the Company in cash
upon demand amounts necessary to satisfy any applicable federal, state or local
tax withholding requirements.  If the purchaser or grantee fails to
pay the amount demanded, the Administrator may withhold that amount from other
amounts payable by the Company to the purchaser or grantee, including salary,
subject to applicable law.  With the consent of the Administrator in
its sole discretion, a purchaser or grantee may deliver Common Stock to the
Company to satisfy this withholding obligation.  Upon the issuance of
Common Stock, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      8.2           Changes in Capital
Structure.  In the event of a change in the Company’s capital
structure, as described in Section 6.1.1, appropriate adjustments shall be made
by the Administrator, in its sole discretion, in the number and class of
restricted stock subject to the Plan and the restricted stock outstanding under
the Plan; provided, however, that the
Company shall not be required to issue fractional shares as a result of any such
adjustments.

       

      8.3           Corporate
Transactions.  In the event of a Corporate Transaction, as
defined in Section 6.1.2 hereof, to the extent not previously forfeited, subject
to the terms of the purchase agreement, the grant agreement or the performance
compensation award, all restricted stock shall be forfeited immediately prior to
the consummation of such Corporate Transaction unless the Administrator
determines otherwise in its sole discretion; provided, however, that the
Administrator, in its sole discretion, may remove any restrictions as to any
restricted stock.  The Administrator may, in its sole discretion,
provide that all outstanding restricted stock participate in the Corporate
Transaction with an equivalent stock substituted by an applicable successor
corporation subject to the restriction.

       

      
        	
                9.

              	
                PERFORMANCE
      COMPENSATION AWARDS

              


      

       

      9.1           General.  The
Administrator shall have the authority to designate an award as a performance
compensation award in order to qualify such award as “performance-based
compensation” under Section 162(m) of the Code.

       

      9.2           Eligibility.  The
Administrator will, in its sole discretion, designate within the first ninety
(90) days of a Performance Period (or within the maximum period allowed under
Section 162(m) of the Code) which participants will be eligible to receive
performance compensation awards in respect of such Performance Period (defined
at the end of this Section 9.2).  Designation of a participant
eligible to receive an award for a Performance Period shall not in any manner
entitle the participant to receive payment in respect of any award for such
Performance Period.  The determination as to whether or not such
participant becomes entitled to payment in respect of any performance
compensation award shall be decided solely in accordance with the provisions of
this Section 9.  Moreover, designation of a participant eligible to
receive an award hereunder for a particular Performance Period shall not require
designation of such participant eligible to receive an award hereunder in any
subsequent Performance Period and designation of one person as a participant
eligible to receive an award hereunder shall not require designation of any
other person as a participant eligible to receive an award hereunder in such
period or in any other period.  “Performance Period” shall mean one or
more periods of time of at least one (1) year in duration, as the Administrator
may select, over which the attainment of one or more performance goals will be
measured for the purpose of determining the participant’s right to, and the
payment of, a performance compensation award.  All performance
compensation awards under the Plan shall be evidenced by a written
agreement.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      9.3           Discretion of Administrator
with Respect to performance compensation awards.  With regard
to a particular Performance Period, the Administrator shall have full discretion
to select the length of such Performance Period, the type of performance
compensation awards to be issued, the performance criteria that will be used to
establish the performance goals, the kinds and levels of the performance goals
that are to apply to the Company and the Performance Formula or
Formulas.  A “Performance Formula” is an objective formula to be
applied against the relevant performance goals to determine, with regard to the
performance compensation award of a participant, whether all, some portion but
less than all, or none of the performance compensation award has been earned for
the Performance Period.  Within the first ninety (90) days of a
Performance Period (or within the maximum period allowed under Section 162(m) of
the Code), the Administrator shall, with regard to the performance compensation
awards to be issued for such Performance Period, exercise its discretion with
respect to each of the matters enumerated in the immediately preceding sentence
of this Section 9.3 and record the same in writing.

       

      9.4           Performance Criteria.
The criterion or criteria that the Administrator shall select for purposes of
establishing the performance goal or goals for a Performance Period with respect
to any performance compensation award under the Plan shall be based on the
attainment of specific levels of performance of the Company (or an Affiliate,
division or operational unit of the Company) and shall be limited to the
following: return on net assets, return on stockholders’ equity, return on
assets, return on capital, revenue, average revenue per subscriber, stockholder
returns, profit margin, earnings per share of Common Stock, net earnings,
operating earnings, free cash flow, earnings before interest, taxes,
depreciation and amortization, number of subscribers, growth of subscribers,
operating expenses, capital expenses, subscriber acquisition costs, Common Stock
price, enterprise value, equity market capitalization or sales or market
share.  To the extent required under Section 162(m) of the Code, the
Administrator shall, within the first ninety (90) days of a Performance Period
(or within the maximum period allowed under Section 162(m) of the Code), define
in an objective fashion the manner of calculating the performance criteria it
selects to use for such Performance Period.

       

      9.5           Performance
Goals.  The Adminstrator is authorized at any time during the
first ninety (90) days of a Performance Period, or at any time thereafter (but
only to the extent the exercise of such authority after the first ninety (90)
days of a Performance Period would not cause the performance compensation awards
granted to any participant for the Performance Period to fail to qualify as
“performance-based compensation” under Section 162(m) of the Code), in its sole
discretion, to adjust or modify the calculation of a Performance Goal for such
Performance Period to the extent permitted under Section 162(m) of the Code in
order to prevent the dilution or enlargement of the rights of participants, (a)
in the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event or development affecting the Company; or (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      9.6         Grant.  The
Adminstrator shall have sole authority to determine the employees
(“participants”) who shall receive performance compensation awards, which shall
consist of a right which is (i) denominated in cash or Common Stock or a
combination thereof, (ii) the Common Stock valued, as determined by the
Administrator, in accordance with the achievement of such performance goal or
goals during the Performance Period as the Adminstrator shall establish, and
(iii) payable at such time and in such form as the Adminstrator shall
determine.

       

      9.7         Terms and
Conditions.

       

      9.7.1        Employment at End of
Performance Period.  Unless otherwise provided in the
applicable written performance compensation award, a Participant must be
employed by the Company on the last day of a Performance Period to be eligible
for payment in respect of a performance compensation award for such Performance
Period.

       

      9.7.2        Certification and Negative
Discretion. Following the completion of a Performance Period, the
Administrator shall meet to review and certify in writing whether, and to what
extent, the performance goals for the Performance Period have been achieved and,
if so, to calculate and certify in writing the amount of the performance
compensation awards earned for the period based upon the Performance Formula or
Formulas.  The Adminstrator shall then determine the actual size of
each Participant’s performance compensation award payment for the Performance
Period and, in so doing, may apply Negative Discretion, if and when it deems
appropriate.  Negative Discretion is the power of the Administrator to
reduce or eliminate the amount of the performance compensation award earned
under the Performance Formula in the Performance Period if, in its sole
judgment, such reduction or elimination is appropriate.

       

      9.7.3        Right to
Payment.  The participant shall be entitled to receive the
performance compensation earned as certified by the
Administrator.  Performance compensation payments may be paid in a
lump sum or in installments following the close of the Performance Period as set
forth in the written performance compensation award on the date of
grant.

       

      9.7.4        Timing of Award
Payments.  The amounts payable for a Performance Period shall
be paid to participants as soon as administratively possible following
completion of the certifications required by this Section 9.7.2; provided that
in no event shall any such payment be made later than the fifteenth day of the
third month following the end of such Performance Period.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      9.7.5        Maximum Award
Payable.  Notwithstanding any provision contained in the Plan
to the contrary, the maximum performance compensation award payable to any one
participant under the Plan for a Performance Period is ______ shares of Common
Stock or, in the event the performance compensation award is paid in cash, the
equivalent cash value thereof on the last day of the Performance Period to which
such award relates, or if the award is payable in cash and Common Stock, the
cash paid shall be the excess of the award over the value of the Common Stock,
as so determined. Furthermore, any payment that has been deferred and is payable
in cash shall not, between the date as of which it is deferred and the payment
date, increase by a measuring factor for each fiscal year greater than a
reasonable rate of interest set by the Administrator; any such deferred payment
made with respect to Common Stock, shall not increase by an amount greater than
the appreciation of a share of Common Stock from the end of the Performance
Period to the payment date.

       

      
        	
                10.

              	
                EMPLOYMENT OR
      CONSULTING RELATIONSHIP

              


      

       

      Nothing
in the Plan or any Option, SAR or performance compensation award, or award of
Common Stock under the Plan shall interfere with or limit in any way the right
of the Company or of any of its Affiliates to terminate the employment,
consulting or advising of any recipient thereof or restricted stock holder at
any time, nor confer upon any of any recipient, optionee or restricted stock
holder any right to continue in the employ of, or consult with, or advise, the
Company or any of its Affiliates.

       

      
        	
                11.

              	
                CONDITIONS UPON
      ISSUANCE OF SHARES

              


      

       

      11.1         Securities
Act.  Shares of Common Stock shall not be issued pursuant to
the exercise of an Option, SAR or other award under the Plan unless the exercise
of such Option or SAR or payment under other awards, the receipt of Common Stock
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended (the “Securities Act”).

       

      11.2         Non-Compete
Agreement.  As a further condition to the receipt of Common
Stock pursuant to the exercise of an Option, SAR or any other award under the
Plan, the optionee or recipient may be required not to render services for any
organization, or engage directly or indirectly in any business, competitive with
the Company at any time during which  an Option or SAR is outstanding
to such Optionee and for six (6) months after any exercise of an Option or SAR
or the receipt of Common Stock pursuant to the exercise of an Option or SAR or
other award and, as to restricted stock, for six (6) months after the
restrictions on such restricted stock lapse.  Failure to comply with
this condition shall cause such Option, SAR  and the exercise or
issuance of shares thereunder and/or any other award under the Plan to be
rescinded and the benefit of such exercise, issuance or award to be repaid to
the Company.

       

      
        	
                12.

              	
                NON-EXCLUSIVITY OF THE
      PLAN

              


      

       

      The
adoption of the Plan shall not be construed as creating any limitations on the
power of the Company to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options other
than under the Plan.

       

      
        	
                13.

              	
                MARKET
      STAND-OFF

              


      

       

      Each
optionee, holder of an SAR or recipient of Common Stock under the Plan, if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
Securities Act, shall not sell or otherwise transfer any shares of Common Stock
so acquired during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act; provided, however, that such
restriction shall apply only to a registration statement of the Company which
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act and the restriction period
shall not exceed 90 days after the registration statement becomes
effective.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      
        	
                14.

              	
                AMENDMENTS TO
      PLAN

              


      

       

      The Board
may at any time amend, alter, suspend or discontinue the
Plan.  Without the consent of an optionee, holder of an SAR or holder
of restricted stock, or performance compensation award, no amendment,
alteration, suspension or discontinuance may adversely affect such person’s
outstanding Option(s), SAR(s) or the terms applicable to restricted stock or
performance compensation award except to conform the Plan and ISOs granted under
the Plan to the requirements of federal or other tax laws relating to
ISOs.  No amendment, alteration, suspension or discontinuance shall
require stockholder approval unless (a) stockholder approval is required to
preserve incentive stock option treatment for federal income tax purposes or (b)
the Board otherwise concludes that stockholder approval is
advisable.

       

      
        	
                15.

              	
                EFFECTIVE DATE OF
      PLAN; TERMINATION

              


      

       

      The Plan
shall become effective upon adoption by the Board; provided, however, that no
Option or SAR, or other award under the Plan shall be exercisable unless and
until written consent of the stockholders of the Company, or approval of
stockholders of the Company voting at a validly called stockholders’ meeting, is
obtained within twelve (12) months after adoption by the Board.  If
any Options, SARs or other awards are so granted and stockholder approval shall
not have been obtained within twelve (12) months of the date of adoption of the
Plan by the Board, such Options, SARs or other awards shall terminate
retroactively as of the date they were granted.  In
addition,  awards may be made under the Plan and exercise of Options
and SARs shall occur only after there has been compliance with all applicable
federal and state securities laws and other applicable laws, rules and
regulations.   The Plan (but not Options and SARs previously
granted under the Plan) shall terminate ten (10) years from the date of its
adoption by the Board.  Termination shall not affect any outstanding
Options or SARs or the terms applicable to other previously made awards under
the Plan.



      
        
           


        

        
          13