Exhibit 10.12


 


TRANSOMA MEDICAL, INC.


2007 STOCK INCENTIVE PLAN


 


1.             Purpose
of Plan.


 


The purpose of the Transoma Medical, Inc. 2007 Stock
Incentive Plan (the “Plan”) is to advance the interests of Transoma Medical,
Inc. (the ”Company”) and its stockholders by enabling the Company and its
Subsidiaries to attract and retain qualified individuals through opportunities
for equity participation in the Company, and to reward those individuals who
contribute to the achievement of the Company’ economic objectives.


 


2.             Definitions.


 


The following terms will have the meanings set forth
below, unless the context clearly otherwise requires:


 


2.1           “Board” means the Board
of Directors of the Company.


 


2.2           “Broker Exercise Notice”
means a written notice pursuant to which a Participant, upon exercise of an
Option, irrevocably instructs a broker or dealer to sell a sufficient number of
shares or loan a sufficient amount of money to pay all or a portion of the
exercise price of the Option and/or any related withholding tax obligations and
remit such sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or dealer
or their nominee.


 


2.3           “Cause” means (i)
dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or
attempted injury, in each case related to the Company or any Subsidiary, (ii)
any unlawful or criminal activity of a serious nature, (iii) any intentional
and deliberate breach of a duty or duties that, individually or in the aggregate,
are material in relation to the Participant’s overall duties, or (iv) any
material breach of any confidentiality, non-compete or non-solicitation
agreement entered into with the Company or any Subsidiary.


 


2.4           “Change in Control” means
an event described in Section 14.1 of the Plan; provided, however, if
distribution of an Incentive Award subject to Section 409A of the Code is
triggered by a Change in Control, the term Change in Control will mean a change
in the ownership or effective control of the Company, or in the ownership of a
substantial portion of the assets of the Company, as such term is defined in
Section 409A of the Code and the regulations and rulings issued thereunder.


 


2.5           “Code” means the Internal
Revenue Code of 1986, as amended.


 


2.6           “Committee” means the
group of individuals administering the Plan, as provided in Section 3 of the
Plan.


 

















 


2.7           “Common Stock” means the
common stock of the Company, par value $0.001 per share, or the number and kind
of shares of stock or other securities into which such Common Stock may be
changed in accordance with Section 4.3 of the Plan.


 


2.8           “Disability” means the
disability of the Participant such as would entitle the Participant to receive
disability income benefits pursuant to the long-term disability plan of the
Company or Subsidiary then covering the Participant or, if no such plan exists
or is applicable to the Participant, the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code; provided,
however, if distribution of an Incentive Award subject to Section 409A of the
Code is triggered by an Eligible Recipient’s Disability, such term will mean
that the Eligible Recipient is disabled as defined by Section 409A of the Code
and the regulations and rulings issued thereunder.


 


2.9           “Eligible Recipients”
means all employees (including, without limitation, officers and directors who
are also employees) of the Company or any Subsidiary, and any non-employee
directors, consultants, advisors and independent contractors of the Company or
any Subsidiary.


 


2.10         “Exchange Act” means the
Securities Exchange Act of 1934, as amended.


 


2.11         “Fair
Market Value” means, with respect to the Common Stock, as of any date: (i)
the last reported sale price of a share of Common Stock as of such date during
the regular daily trading session on the Nasdaq Stock Market or on any national
exchange (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote); or (ii) if the Common
Stock is publicly traded but is not so listed, the average of the closing bid
and asked prices on such date, as reported by The Wall Street Journal, in the
over-the-counter market (or, if no shares were quoted on such
date, as of the next preceding date on which there was such a quote); or (iii)
if the Common Stock is not so listed or reported, such price as the Committee
determines in good faith in the exercise of its reasonable discretion.


 


2.12         “Good Reason,” unless
otherwise defined in an agreement evidencing an Incentive Award, means the
occurrence of any of the following in connection with a Change in Control: (i)
a substantial diminution in the Participant’s authority, duties or
responsibilities as in effect prior to the Change in Control, (ii) a
reduction by the Company in the Participant’s base salary, or an adverse
change in the form or timing of the payment thereof, as in effect
immediately prior to the Change in Control or as thereafter increased,
or (iii) the Company’s requiring the Participant to be based at any office
or location that is more than fifty (50) miles further from the office or
location thereof immediately preceding the Change in Control; provided,
however, Good Reason shall not include any of the circumstances or events
described above unless (A) the Participant has first provided written
notice of such circumstance or event to the Company or its successor and
the Company or such successor has not corrected such circumstance or event
within thirty (30) days thereafter; and (B) the Participant has not
otherwise consented to the occurrence in writing.


 


2.13         “Incentive Award” means
an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit Award,
Performance Award or Stock Bonus granted to an Eligible Recipient pursuant to
the Plan.


 

















 


2.14         “Incentive Stock Option”
means a right to purchase Common Stock granted to an Eligible Recipient
pursuant to Section 6 of the Plan that qualifies as an “incentive stock option”
within the meaning of Section 422 of the Code.


 


2.15         “Non-Statutory Stock Option”
means a right to purchase Common Stock granted to an Eligible Recipient
pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock
Option.


 


2.16         “Option” means an
Incentive Stock Option or a Non-Statutory Stock Option.


 


2.17         “Participant” means an
Eligible Recipient who receives one or more Incentive Awards under the Plan.


 


2.18         “Performance Criteria”
means the performance criteria that may be used by the Committee in granting
Incentive Awards contingent upon achievement of performance goals, consisting
of net sales, operating income, income before income taxes, net income, net
income per share (basic or diluted), profitability as measured by return ratios
(including return on assets, return on equity, return on investment and return
on sales), cash flows, market share, cost reduction goals, margins (including
one or more of gross, operating and net income margins), stock price, total
return to stockholders, economic value added, working capital and strategic plan
development and implementation. The Committee may select one criterion or
multiple criteria for measuring performance, and the measurement may be based
upon Company, Subsidiary or business unit performance, either absolute or by
relative comparison to other companies or any other external measure of the
selected criteria.


 


2.19         “Performance Award” means
a right granted to an Eligible Recipient pursuant to Section 10 of the Plan to
receive an amount of cash, a number of shares of Common Stock, or a combination
of both, contingent upon achievement of Performance Criteria or other
objectives during a specified period.


 


2.20         “Previously Acquired Shares”
means shares of Common Stock that are already owned by the Participant.


 


2.21         “Restricted Stock Award”
means an award of Common Stock granted to an Eligible Recipient pursuant to
Section 8 of the Plan that are subject to restrictions on transferability and a
risk of forfeiture.


 


2.22         “Retirement” means termination of
employment or service at age 55 or older and completion of at least ten years
of continuous service.


 


2.23         “Securities Act” means
the Securities Act of 1933, as amended.


 


2.24         “Stock Appreciation Right”
means a right granted to an Eligible Recipient pursuant to Section 7 of the
Plan to receive a payment from the Company, in the form of shares of Common
Stock, cash or a combination of both, equal to the difference between the Fair
Market Value of one or more shares of Common Stock and a specified exercise
price of such shares.


 

















 


2.25         “Stock Bonus” means an
award of Common Stock granted to an Eligible Recipient pursuant to Section 11
of the Plan.


 


2.26         “Stock Unit Award” means
a right granted to an Eligible Recipient pursuant to Section 9 of the Plan to
receive the Fair Market Value of one or more shares of Common Stock, payable in
cash, shares of Common Stock, or a combination of both, the payment, issuance,
retention and /or vesting of which is subject to the satisfaction of specified
conditions, which may include achievement of Performance Criteria or other
objectives.


 


2.27         “Subsidiary” means any
entity in which the Company has a “controlling interest” (as defined in Treas.
Reg. Sec. 1.409A-1(b)(5)(ii)(E)(1)), either directly or through a chain of
corporations or other entities in which each corporation or other entity has a “controlling
interest” in another corporation or entity in the chain, as determined by the
Committee.


 


2.28         “Tax Date” means the date
any withholding tax obligation arises under the Code for a Participant with
respect to an Incentive Award.


 


3.             Plan
Administration.


 


3.1           The Committee. The Plan will be administered
by the Board or by a committee of the Board. So long as the Company has a class
of its equity securities registered under Section 12 of the Exchange Act, any
committee administering the Plan will consist solely of two or more members of
the Board who are “non-employee directors” within the meaning of Rule 16b-3
under the Exchange Act, who are “independent” as required by the listing
standards of the Nasdaq Stock Market (or other applicable market or exchange on
which the Company’s Common Stock may be quoted or traded) and who are “outside
directors” within the meaning of Section 162(m) of the Code. Such a committee,
if established, will act by majority approval of the members (unanimous
approval with respect to action by written consent), and a majority of the
members of such a committee will constitute a quorum. As used in the Plan, “Committee”
will refer to the Board or to such a committee, if established. To the extent consistent
with applicable corporate law of the Company’s jurisdiction of incorporation,
the Committee may delegate to any officers of the Company the duties, power and
authority of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however, that only the
Committee may exercise such duties, power and authority with respect to
Eligible Recipients who are subject to Section 16 of the Exchange Act or whose
compensation in the fiscal year may be subject to the limits on deductible
compensation pursuant to Section 162(m) of the Code. The Committee may exercise
its duties, power and authority under the Plan in its sole and absolute
discretion without the consent of any Participant or other party, unless the
Plan specifically provides otherwise. Each determination, interpretation or
other action made or taken by the Committee pursuant to the provisions of the
Plan will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Incentive Award granted under the
Plan.


 

















 


3.2           Authority of the Committee.


 


(a)           In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions of
Incentive Awards as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan, including, without limitation, the
following:  (i) the Eligible Recipients
to be selected as Participants; (ii) the nature and extent of the Incentive
Awards to be made to each Participant (including the number of shares of Common
Stock to be subject to each Incentive Award, any exercise price, the manner in
which Incentive Awards will vest or become exercisable and whether Incentive
Awards will be granted in tandem with other Incentive Awards) and the form of
written agreement, if any, evidencing such Incentive Award; (iii) the time or
times when Incentive Awards will be granted; (iv) the duration of each
Incentive Award; and (v) the restrictions and other conditions to which the
payment or vesting of Incentive Awards may be subject. In addition, the
Committee will have the authority under the Plan in its sole discretion to pay
the economic value of any Incentive Award in the form of cash, Common Stock or
any combination of both.


 


(b)           Subject to Section 3.2(d), the Committee will have the
authority under the Plan to amend or modify the terms of any outstanding
Incentive Award in any manner, including, without limitation, the authority to
modify the number of shares or other terms and conditions of an Incentive
Award, extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an Incentive Award,
accept the surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards in
substitution for surrendered Incentive Awards; provided, however that the
amended or modified terms are permitted by the Plan as then in effect, and any
Participant adversely affected by such amended or modified terms has consented
to such amendment or modification.


 


(c)           In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, extraordinary dividend or divestiture
(including a spin-off) or any other change in corporate structure or shares;
(ii) any purchase, acquisition, sale, disposition or write-down of a
significant amount of assets or a significant business; (iii) any change in
accounting principles or practices, tax laws or other such laws or provisions
affecting reported results; (iv) any uninsured catastrophic losses or
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 or in management’s discussion and analysis of financial
performance appearing in the Company’s annual report to stockholders for the
applicable year; or (v) any other similar change, in each case with respect to
the Company or any other entity whose performance is relevant to the grant or
vesting of an Incentive Award, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) may, without the consent of any affected Participant,
amend or modify the vesting criteria (including Performance Criteria) of any
outstanding Incentive Award that is based in whole or in part on the financial
performance of the Company (or any Subsidiary or division or other subunit
thereof) or 


 

















 


such other entity so as equitably to reflect
such event, with the desired result that the criteria for evaluating such
financial performance of the Company or such other entity will be substantially
the same (in the sole discretion of the Committee or the board of directors of
the surviving corporation) following such event as prior to such event;
provided, however, that the amended or modified terms are permitted by the Plan
as then in effect, including the limitations in Section 3.2(a) and 3.2(b).


 


(d)           Notwithstanding any other provision of this Plan other than
Section 4.3, the Committee may not, without prior approval of the Company’s
stockholders, seek to effect any re-pricing of any previously granted, “underwater”
Option or Stock Appreciation Right by: 
(i) amending or modifying the terms of the Option or Stock Appreciation
Right to lower the exercise price; (ii) canceling the underwater Option or
Stock Appreciation Right and granting either (A) replacement Options or Stock
Appreciation Rights having a lower exercise price; (B) Restricted Stock Awards;
or (C) Stock Unit Awards, Performance Awards or Stock Bonuses in exchange; or
(iii) repurchasing the underwater Options or Stock Appreciation Rights and
granting new Incentive Awards under this Plan. For purposes of this Section
3.2(d), Options and Stock Appreciation Rights will be deemed to be “underwater”
at any time when the Fair Market Value of the Common Stock is less than the
exercise price of the Option or Stock Appreciation Right.


 


(e)           In addition to the authority of the Committee under Section
3.2(b) and notwithstanding any other provision of the Plan, the Committee may,
in its sole discretion, amend the terms of the Plan or Incentive Awards with
respect to Participants resident outside of the United States or employed by a
non-U.S. Subsidiary in order to comply with local legal requirements, to
otherwise protect the Company’s or Subsidiary’s interests, or to meet
objectives of the Plan, and may, where appropriate, establish one or more
sub-plans (including the adoption of any required rules and regulations) for
the purposes of qualifying for preferred tax treatment under foreign tax laws. The
Committee shall have no authority, however, to take action pursuant to this
Section 3.2(e): (i) to reserve shares or grant Incentive Awards in excess of
the limitations provided in Section 4.1; (ii) to effect any re-pricing in
violation of Section 3.2(d); (iii) to grant Options having an exercise price
less than 100% of the Fair Market Value of one share of Common Stock on the
date of grant in violation of Section 6.2; or (iv) for which stockholder
approval would then be required pursuant to Section 19.


 


(f)            Notwithstanding anything in this
Plan to the contrary, the Committee will determine whether an Incentive Award
is subject to the requirements of Section 409A of the Code and, if determined
to be subject to Section 409A of the Code, the Committee will make such
Incentive Award subject to such written terms and conditions determined
necessary or desirable to cause such Incentive Award to comply in form with the
requirements of Section 409A of the Code. Further, the Plan, as it relates to
Incentive Awards that are subject to Section 409A of the Code, will be
administered in a manner that is intended to comply with the requirements of
Section 409A of the Code and any regulations or rulings issued thereunder.


 

















 


4.             Shares
Available for Issuance.


 


4.1           Maximum Number of Shares
Available; Certain Restrictions on Awards. Subject to adjustment as provided immediately below and in
Section 4.3 of the Plan, the maximum number of shares of Common Stock that will
be available for issuance under the Plan will be


 


(a)           4,000,000;


 


(b)           the number of shares subject to outstanding options under
the Company’s Data Sciences International, Inc. 1992 Stock Option Plan and 2000
Stock Incentive Plan as of the Effective Date which are not thereafter issued
or which have been issued but are subsequently forfeited;


 


(c)           the number of shares issued or Incentive Awards granted
under the Plan in connection with the settlement, assumption or substitution of
outstanding awards or obligations to grant future awards as a condition of the Company
and/or any Subsidiary(ies) acquiring, merging or consolidating with another
entity; and


 


(d)           the number of shares that are unallocated and available for
grant under a stock plan assumed by the Company or any Subsidiary(ies) in
connection with the merger, consolidation, or acquisition of another entity by
the Company and/or any of its Subsidiaries, based on the applicable exchange
ratio and other transaction terms, but only to the extent that such shares may
be utilized by the Company or its Subsidiaries following the transaction
pursuant to the rules and regulations of the Nasdaq Stock Market (or other
applicable market or exchange on which the Company’s Common Stock may be quoted
or traded).


 


provided, however, that the number of shares available
for grant and issuance under the Plan shall automatically be increased on the
first day of each fiscal year of the Company commencing on July 1, 2008 through
and including July 1, 2017 by the lesser of: (i) three percent (3%) of the
number of shares of the Company’s Common Stock issued and outstanding at the
end of the immediately preceding fiscal year; or (ii) such lesser number
of shares as determined by the Board.


 


The shares available
for issuance under the Plan may, at the election of the Committee, be either
treasury shares or shares authorized but unissued, and, if treasury shares are
used, all references in the Plan to the issuance of shares will, for corporate
law purposes, be deemed to mean the transfer of shares from treasury. Notwithstanding
any other provisions of the Plan to the contrary, (i) no Participant in the
Plan may be granted Options and Stock Appreciation Rights relating to more than
500,000 shares of Common Stock in the aggregate during any calendar year; (ii)
no Participant in the Plan may be granted Restricted Stock Awards, Stock Unit
Awards, Performance Awards and Stock Bonuses relating to more than 200,000
shares of Common Stock in the aggregate during any calendar year; (iii) no
Participant in the Plan may be granted Incentive Awards denominated in cash in
an amount in excess of $500,000 in the aggregate during any calendar year; and
(iv) no more than 4,000,000 shares of Common Stock may be issued pursuant to
the exercise of Incentive Stock Options granted under the Plan. All of the


 

















 


foregoing share
limits are subject, in each case, to adjustment as provided in Section 4.3 of
the Plan. In addition, the limits set forth in clauses (i) and (ii)
above will
not apply to Incentive Awards granted as a result of the Company’s assumption
or substitution of like awards issued by any acquired, merged or consolidated
entity pursuant to the applicable transaction terms, and the limit in clause
(iv) above will not apply to any Incentive Stock Options that are assumed or
substituted pursuant to the applicable provisions of the Code in connection
with any acquisition, consolidation or merger.


 


4.2           Accounting for Incentive Awards. Shares of Common Stock that
are issued under the Plan or that are potentially issuable pursuant to
outstanding Incentive Awards will be applied to reduce the maximum number of
shares of Common Stock remaining available for issuance under the Plan. All
shares so subtracted from the amount available under the Plan with respect to
an Incentive Award that lapses, expires, is forfeited (including issued shares
forfeited under a Restricted Stock Award) or for any reason is terminated
unexercised or unvested or is settled or paid in cash or any form other than
shares of Common Stock will automatically again become available for issuance
under the Plan.


 


4.3           Adjustments to Shares and
Incentive Awards.
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of the
Company, the Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation) will
make appropriate adjustment (which determination will be conclusive) as to the
number and kind of securities or other property (including cash) available for
issuance or payment under the Plan and, in order to prevent dilution or enlargement
of the rights of Participants, (a) the number and kind of securities or other
property (including cash) subject to outstanding Incentive Awards, and (b) the
exercise price of outstanding Options and Stock Appreciation Rights.


 


5.             Participation.


 


Participants in the Plan will be those Eligible
Recipients who, in the judgment of the Committee, have contributed, are
contributing or are expected to contribute to the achievement of economic
objectives of the Company or its Subsidiaries. Eligible Recipients may be
granted from time to time one or more Incentive Awards, singly or in
combination or in tandem with other Incentive Awards, as may be determined by
the Committee in its sole discretion. Incentive Awards will be deemed to be
granted as of the date specified in the grant resolution of the Committee,
which date will be the date of any related agreement with the Participant.


 


6.             Options.


 


6.1           Grant. An Eligible Recipient may be
granted one or more Options under the Plan, and such Options will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Stock Option. To the extent that any Incentive Stock Option
granted under the 


 

















 


Plan ceases for any
reason to qualify as an “incentive stock option” for purposes of Section 422 of
the Code, such Incentive Stock Option will continue to be outstanding for purposes
of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option.


 


6.2           Exercise Price. The per share price to be paid
by a Participant upon exercise of an Option will be determined by the Committee
in its discretion at the time of the Option grant, provided that such price
will not be less than 100% of the Fair Market Value of one share of Common
Stock on the date of grant (or 110% of the Fair Market Value of one share of
Common Stock on the date of grant of an Incentive Stock Option if, at the time
the Incentive Stock Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the Company). Notwithstanding
the foregoing, to the extent that Options are granted under the Plan as a
result of the Company’s assumption or substitution of options issued by any
acquired, merged or consolidated entity, the exercise price for such Options
shall be the price determined by the Committee pursuant to the conversion terms
applicable to the transaction.


 


6.3           Exercisability and Duration. An Option will become
exercisable at such times and in such installments and upon such terms and
conditions as may be determined by the Committee in its sole discretion at the
time of grant (including without limitation (i) the achievement of one or more
of the Performance Criteria; and/or that (ii) the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain
period; provided, however, that no Option may be exercisable after ten (10)
years from its date of grant (five years from its date of grant in the case of
an Incentive Option if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company).


 


6.4           Payment of Exercise Price.


 


(a)           The total purchase price of the shares to be purchased upon
exercise of an Option will be paid entirely in cash (including check, bank
draft or money order); provided, however, that the Committee, in its sole
discretion and upon terms and conditions established by the Committee, may
allow such payments to be made, in whole or in part, by (i) tender of a Broker
Exercise Notice; (ii) by tender, or attestation as to ownership, of Previously
Acquired Shares that have been held for the period of time necessary to avoid a
charge to the Company’s earnings for financial reporting purposes and that are
otherwise acceptable to the Committee; (iii) to the extent permissible under
applicable law, by delivery of a promissory note (on terms acceptable to the
Committee in its sole discretion) (iv) by a “net exercise of the Option (as
further described in paragraph (b), below); 
or  (v) by a combination of such
methods.


 


(b)           In the case of a “net exercise” of an Option, the Company
will not require a payment of the exercise price of the Option from the
Participant but will reduce the number of shares of Common Stock issued upon
the exercise by the largest number of whole shares that has a Fair Market Value
that does not exceed the aggregate exercise price for the shares exercised
under this method. Shares of Common Stock will no longer 


 

















 


be outstanding under an Option (and will
therefore not thereafter be exercisable) following the exercise of such Option
to the extent of (i) shares used to pay the exercise price of an Option under
the “net exercise,” (ii) shares actually delivered to the Participant as a
result of such exercise and (iii) any shares withheld for purposes of tax
withholding pursuant to Section 13.1.


 


(c)           Previously Acquired Shares tendered or covered by an
attestation as payment of an Option exercise price will be valued at their Fair
Market Value on the exercise date.


 


6.5           Manner of Exercise. An Option may be exercised by
a Participant in whole or in part from time to time, subject to the conditions
contained in the Plan and in the agreement evidencing such Option, by delivery
in person, by facsimile or electronic transmission or through the mail of
written notice of exercise to the Company at its principal executive office in St.
Paul, Minnesota and by paying in full the total exercise price for the shares
of Common Stock to be purchased in accordance with Section 6.4 of the Plan.


 


7.             Stock
Appreciation Rights.


 


7.1           Grant. An Eligible Recipient may be
granted one or more Stock Appreciation Rights under the Plan, and such Stock
Appreciation Rights will be subject to such terms and conditions, consistent
with the other provisions of the Plan, as may be determined by the Committee in
its sole discretion. The Committee will have the sole discretion to determine
the form in which payment of the economic value of Stock Appreciation Rights
will be made to a Participant (i.e., cash, Common Stock or any combination
thereof) or to consent to or disapprove the election by a Participant of the
form of such payment.


 


7.2           Exercise Price. The exercise price of a Stock
Appreciation Right will be determined by the Committee, in its discretion, at
the date of grant but may not be less than 100% of the Fair Market Value of one
share of Common Stock on the date of grant. Notwithstanding the foregoing, to
the extent that Stock Appreciation Rights are granted under the Plan as a
result of the Company’s assumption or substitution of stock appreciation rights
issued by any acquired, merged or consolidated entity, the exercise price for
such Stock Appreciation Rights shall be the price determined by the Committee
pursuant to the conversion terms applicable to the transaction.


 


7.3           Exercisability and Duration. A Stock Appreciation Right
will become exercisable at such time and in such installments as may be
determined by the Committee in its sole discretion at the time of grant;
provided, however, that no Stock Appreciation Right may be exercisable after ten
(10) years from its date of grant. A Stock Appreciation Right will be exercised
by giving notice in the same manner as for Options, as set forth in Section 6.5
of the Plan.


 


7.4           Grants in Tandem with Options. Stock Appreciation Rights may
be granted alone or in addition to other Incentive Awards, or in tandem with an
Option, either at the time of grant of the Option or at any time thereafter
during the term of the Option. A Stock Appreciation 


 

















 


Right granted in
tandem with an Option shall cover the same number of shares of Common Stock as
covered by the Option (or such lesser number as the Committee may determine),
shall be exercisable at such time or times and only to the extent that the
related Option is exercisable, have the same term as the Option and shall have
an exercise price equal to the exercise price for the Option. Upon the exercise
of a Stock Appreciation Right granted in tandem with an Option, the Option
shall be canceled automatically to the extent of the number of shares covered
by such exercise; conversely, upon exercise of an Option having a related Stock
Appreciation Right, the Stock Appreciation Right shall be canceled
automatically to the extent of the number of shares covered by the Option
exercise.


 


8.             Restricted
Stock Awards.


 


8.1           Grant. An Eligible Recipient may be
granted one or more Restricted Stock Awards under the Plan, and such Restricted
Stock Awards will be subject to such terms and conditions, consistent with the
other provisions of the Plan, as may be determined by the Committee in its sole
discretion. The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such Restricted
Stock Awards as it deems appropriate, including, without limitation, (i) the
achievement of one or more of the Performance Criteria; and/or that (ii) the
Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period.


 


8.2           Rights as a Stockholder;
Transferability.
Except as provided in Sections 8.1, 8.3, 8.4 and 15.3 of the Plan, a
Participant will have all voting, dividend, liquidation and other rights with
respect to shares of Common Stock issued to the Participant as a Restricted
Stock Award under this Section 8 upon the Participant becoming the holder of
record of such shares as if such Participant were a holder of record of shares
of unrestricted Common Stock.


 


8.3           Dividends and Distributions. Unless the Committee
determines otherwise in its sole discretion (either in the agreement evidencing
the Restricted Stock Award at the time of grant or at any time after the grant
of the Restricted Stock Award), any dividends or distributions (other than
regular quarterly cash dividends) paid with respect to shares of Common Stock
subject to the unvested portion of a Restricted Stock Award will be subject to
the same restrictions as the shares to which such dividends or distributions
relate. The Committee will determine in its sole discretion whether any
interest will be paid on such dividends or distributions.


 


8.4           Enforcement of Restrictions. To enforce the restrictions
referred to in this Section 8, the Committee may place a legend on the stock
certificates referring to such restrictions and may require the Participant,
until the restrictions have lapsed, to keep the stock certificates, together
with duly endorsed stock powers, in the custody of the Company or its transfer
agent, or to maintain evidence of stock ownership, together with duly endorsed
stock powers, in a certificateless book-entry stock account with the Company’s
transfer agent.


 

















 


9.             Stock
Unit Awards.


 


An
Eligible Recipient may be granted one or more Stock Unit Awards under the
Plan, and such Stock Unit Awards will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the payment, issuance, retention and/or vesting of such
Stock Unit Awards as it deems appropriate, including, without limitation,
(i) the achievement of one or more of the Performance Criteria; and/or that
(ii) the Participant remain in the continuous employ or service of the Company
or a Subsidiary for a certain period; provided, however, that in all cases
payment of a Stock Unit Award will be made within two and one-half months
following the end of the Eligible Recipient’s tax year during which receipt of
the Stock Unit Award is no longer subject to a “substantial risk of forfeiture”
within the meaning of Section 409A of the Code.


 


10.           Performance
Awards.


 


An Eligible Recipient may be granted one or more
Performance Awards under the Plan, and such Performance Awards will be subject
to such terms and conditions, if any, consistent with the other provisions of
the Plan, as may be determined by the Committee in its sole discretion,
including, but not limited to, the achievement of one or more of the
Performance Criteria; provided, however, that in all cases payment of the
Performance Award will be made within two and one-half months following the end
of the Eligible Recipient’s tax year during which receipt of the Performance
Award is no longer subject to a “substantial risk of forfeiture” within the
meaning of Section 409A of the Code.


 


11.           Stock
Bonuses.


 


An Eligible Recipient may be granted one or more Stock
Bonuses under the Plan, and such Stock Bonuses will be subject to such terms
and conditions, if any, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion, including, but not
limited to, the achievement of one or more of the Performance Criteria;
provided, however, that in all cases payment of the Performance Award will be
made within two and one-half months following the end of the Eligible Recipient’s
tax year during which receipt of the Performance Award is no longer subject to
a “substantial risk of forfeiture” within the meaning of Section 409A of the
Code.


 


12.           Effect
of Termination of Employment or Other Service. The following provisions
shall apply upon termination of a Participant’s employment or other service
with the Company and all Subsidiaries, except to the extent that the Committee
provides otherwise in an agreement evidencing an Incentive Award at the time of
grant or determines pursuant to Section 12.3.


 


12.1         Termination of Employment Due to
Death, Diability or Retirement. Subject to Sections 12.4 and 12.6 of the Plan, in the
event a Participant’s employment or other service with the Company and all
Subsidiaries is terminated by reason of death, Disability or Retirement:


 


(a)           All outstanding Options and Stock Appreciation Rights then
held by the Participant will, to the extent exercisable as of such termination,
remain exercisable in 


 

















 


full for a period of twelve months after such
termination (but in no event after the expiration date of any such Option or
Stock Appreciation Right). Options and Stock Appreciation Rights not
exercisable as of such termination will be forfeited and terminate.


 


(b)           All Restricted Stock Awards then held by the Participant
that have not vested as of such termination will be terminated and forfeited;
and


 


(c)           All outstanding but unpaid Stock Unit Awards, Performance
Awards and Stock Bonuses then held by the Participant will be terminated and
forfeited.


 


12.2         Termination of Employment for
Reasons Other than Death, Disability or Retirement. Subject to Sections 12.4 and
12.6 of the Plan, in the event a Participant’s employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
death, Disability or Retirement, or a Participant is in the employ or service
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Participant continues in the employ or service of the Company or
another Subsidiary):


 


(a)           All outstanding Options and Stock Appreciation Rights then
held by the Participant will, to the extent exercisable as of such termination,
remain exercisable in full for a period of three months after such termination
(but in no event after the expiration date of any such Option or Stock
Appreciation Right). Options and Stock Appreciation Rights not exercisable as
of such termination will be forfeited and terminate;


 


(b)           All Restricted Stock Awards then held by the Participant
that have not vested as of such termination will be terminated and forfeited;
and


 


(c)           All outstanding but unpaid Stock Unit Awards, Performance
Awards and Stock Bonuses then held by the Participant will be terminated and
forfeited.


 


12.3         Modification of Rights Upon
Termination. Notwithstanding
the other provisions of this Section 12, upon a Participant’s termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any time on or
after the date of grant, including following such termination), cause Options
or Stock Appreciation Rights (or any part thereof) then held by such
Participant to terminate, become or continue to become exercisable and/or
remain exercisable following such termination of employment or service, and
Restricted Stock Awards, Stock Unit Awards or Performance Awards then held by
such Participant to terminate, vest and/or continue to vest or become free of
restrictions and conditions to payment, as the case may be, following such
termination of employment or service, in each case in the manner determined by
the Committee; provided, however, that (i) no Incentive Award may remain
exercisable or continue to vest beyond its expiration date; and (ii) any such
action adversely affecting any outstanding Incentive Award will not be
effective without the consent of the affected Participant (subject to the right
of the Committee to take whatever action it deems appropriate under Sections
3.2(c), 4.3 and 14 of the Plan).


 

















 


12.4         Effects of Actions Constituting
Cause. Notwithstanding
anything in the Plan to the contrary, in the event that a Participant is
determined by the Committee, acting in its sole discretion, to have committed
any action which would constitute Cause as defined in Section 2.3, irrespective
of whether such action or the Committee’s determination occurs before or after
termination of such Participant’s employment with the Company or any
Subsidiary, all rights of the Participant under the Plan and any agreements
evidencing an Incentive Award then held by the Participant shall terminate and
be forfeited without notice of any kind. The Company may defer the exercise of
any Option, the vesting of any Restricted Stock Award or the payment of any
Stock Unit Award, Performance Award or Stock Bonus for a period of up to
forty-five (45) days in order for the Committee to make any determination as to
the existence of Cause.


 


12.5         Determination of Termination of
Employment or Other Service.


 


(a)           The change in a Participant’s status from that of an
employee of the Company or any Subsidiary to that of a non-employee consultant
or advisor of the Company or any Subsidiary will, for purposes of the Plan, be
deemed to result in a termination of such Participant’s employment with the
Company and its Subsidiaries, unless the Committee otherwise determines in its
sole discretion.


 


(b)           The change in a Participant’s status from that of a
non-employee consultant or advisor of the Company or any Subsidiary to that of
an employee of the Company or any Subsidiary will not, for purposes of the
Plan, be deemed to result in a termination of such Participant’s service as a
non-employee consultant or advisor with the Company and its Subsidiaries, and
such Participant will thereafter be deemed to be an employee of the Company or
its Subsidiaries until such Participant’s employment is terminated, in which
event such Participant will be governed by the provisions of this Plan relating
to termination of employment (subject to paragraph (a), above).


 


(c)           Unless the Committee otherwise determines in its sole
discretion, a Participant’s employment or other service will, for purposes of
the Plan, be deemed to have terminated on the date recorded on the personnel or
other records of the Company or the Subsidiary for which the Participant
provides employment or other service, as determined by the Committee in its
sole discretion based upon such records; provided, however, if distribution of
an Incentive Award subject to Section 409A of the Code is triggered by a
termination of a Participant’s employment, such termination must also
constitute a “separation from service” within the meaning of Section 409A of
the Code.


 


12.6         Breach of Confidentiality,
Non-Compete or Non-Solicitation Agreements. Notwithstanding anything in the Plan to the contrary and
in addition to the rights of the Committee under Section 12.4, the Committee
may, among other terms and conditions in an Award Agreement, require a
Participant to surrender shares of Common Stock received, and to disgorge any
profits (however defined by the Committee), made or realized by the Participant
in connection with any Incentive Awards or any shares issued upon the exercise
or vesting of any Incentive Awards in the event that the Participant materially
breaches the terms of any confidentiality, non-compete or non-solicitation
agreement entered into with the Company or any Subsidiary (including a
confidentiality, non-compete or non-solicitation agreement made in 


 

















 


connection with the
grant of an Incentive Award), whether such breach occurs before or after
termination of such Participant’s employment or other service with the Company
or any Subsidiary.


 


13.           Payment
of Withholding Taxes.


 


13.1         General Rules. The Company is entitled to (a)
withhold and deduct from future wages of the Participant (or from other amounts
that may be due and owing to the Participant from the Company or a Subsidiary),
or make other arrangements for the collection of, all legally required amounts
necessary to satisfy any and all federal, foreign, state and local withholding
and employment-related tax requirements attributable to an Incentive Award,
including, without limitation, the grant, exercise or vesting of, or payment of
dividends with respect to, an Incentive Award or a disqualifying disposition of
stock received upon exercise of an Incentive Stock Option; (b) withhold cash
paid or payable or shares of Common Stock from the shares issued or otherwise
issuable to the Participant in connection with an Incentive Award; or (c)
require the Participant promptly to remit the amount of such withholding to the
Company before taking any action, including issuing any shares of Common Stock,
with respect to an Incentive Award.


 


13.2         Special Rules. The Committee may, in its sole
discretion and upon terms and conditions established by the Committee, permit
or require a Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 13.1 of the Plan by
electing to tender, or by attestation as to ownership of, Previously Acquired
Shares that have been held for the period of time necessary to avoid a charge
to the Company’s earnings for financial reporting purposes and that are
otherwise acceptable to the Committee, by delivery of a Broker Exercise Notice
or a combination of such methods. For purposes of satisfying a Participant’s
withholding or employment-related tax obligation, Previously Acquired Shares
tendered or covered by an attestation will be valued at their Fair Market
Value.


 


14.           Change
in Control.


 


14.1         A “Change in Control”
shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:


 


(a)               the sale, lease, exchange or
other transfer, directly or indirectly, of substantially all of the assets of
the Company (in one transaction or in a series of related transactions) to a
person or entity that is not controlled by the Company; or


 


(b)              the approval of stockholders of
the Company of any plan or proposal for the liquidation or dissolution of the
Company; or


 


(c)               a merger or consolidation to
which the Company is a party if the stockholders of the Company immediately
prior to the effective date of such merger or consolidation have “beneficial
ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately
following the effective date of such merger or consolidation, of securities of
the surviving corporation representing less than 50% of the combined voting 


 

















 


power of the surviving corporation’s then
outstanding securities ordinarily having the right to vote at elections of
directors;


 


(d)              any person, other than the
Company, or any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, becomes, after the Effective Date, the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the combined voting power of the Company’s
outstanding securities ordinarily having the right to vote at elections of
directors; or


 


(e)           the Incumbent Directors cease for any reason to constitute at
least a majority of the Board;


 


provided, however, that a transaction
or series of transactions resulting in the separation of the human and animal
product businesses of the Company or a similar reorganization, recapitalization
or spinoff shall not constitute a “Change in Control” for the purposes hereof.


 


For
purposes of this Section 14.1, “Incumbent Directors” of the Company will
mean any individuals who are members of the Board on the Effective Date and any
individual who subsequently becomes a member of the Board whose election, or
nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the Incumbent Directors (either by specific vote or
by approval of the Company’s proxy statement in which such individual is named
as a nominee for director without objection to such nomination).


 


14.2         Acceleration of Vesting. Without limiting the authority
of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control
of the Company occurs, then, if approved by the Committee in its sole
discretion either in an agreement evidencing an Incentive Award at the time of
grant or at any time after the grant of an Incentive Award: (a) all Options and
Stock Appreciation Rights will become immediately exercisable in full and will
remain exercisable in accordance with their terms; (b) all Restricted Stock
Awards will become immediately fully vested and non-forfeitable; and (c) any
conditions to the payment of Stock Unit Awards, Performance Awards and Stock
Bonuses will lapse. The Committee may make any such acceleration subject to further
conditions, including, but not limited to, conditions relating to (i) the
failure of any successor to assume the Incentive Awards in connection with a
Change in Control, or (ii) the Participant’s involuntary termination, other
than for Cause, or voluntary termination for Good Reason, in each case within a
specified period of time following a Change in Control.


 


14.3         Cash Payment. If a Change in Control of the
Company occurs, then the Committee, if approved by the Committee in its sole
discretion either in an agreement evidencing an Incentive Award at the time of
grant or at any time after the grant of an Incentive Award, and without the
consent of any Participant affected thereby, may determine that: (i) some or
all Participants holding outstanding Options will receive, with respect to some
or all of the shares of Common Stock subject to such Options, as of the
effective date of any such Change in Control of the Company, cash in an amount
equal to the excess of the Fair Market Value of such shares immediately prior
to the effective date of such Change in Control of the Company over the 


 

















 


exercise price per
share of such Options (or, in the event that there is no excess, that such
Options will be terminated); and (ii) some or all Participants holding Performance
Awards will receive, with respect to some or all of the shares of Common Stock
subject to such Performance Awards, as of the effective date of any such Change
in Control of the Company, cash in an amount equal the Fair Market Value of
such shares immediately prior to the effective date of such Change in Control.


 


14.4         Limitation on Change in Control
Payments. Notwithstanding
anything in Section 14.2 or 14.3 of the Plan to the contrary, if, with
respect to a Participant, the acceleration of the vesting of an Incentive Award
as provided in Section 14.2 or the payment of cash in exchange for all or
part of an Incentive Award as provided in Section 14.3 (which acceleration or
payment could be deemed a “payment” within the meaning of
Section 280G(b)(2) of the Code), together with any other “payments” that
such Participant has the right to receive from the Company or any corporation
that is a member of an “affiliated group” (as defined in Section 1504(a)
of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a “parachute payment” (as defined in
Section 280G(b)(2) of the Code), then the “payments” to such Participant
pursuant to Section 13.3 or 13.4 of the Plan will be reduced to the largest
amount as will result in no portion of such “payments” being subject to the
excise tax imposed by Section 4999 of the Code; provided, that such reduction
shall be made only if the aggregate amount of the payments after such reduction
exceeds the difference between (A) the amount of such payments absent such
reduction minus (B) the aggregate amount of the excise tax imposed under
Section 4999 of the Code attributable to any such excess parachute payments. Notwithstanding
the foregoing sentence, if a Participant is subject to a separate agreement
with the Company or a Subsidiary that expressly addresses the potential
application of Sections 280G or 4999 of the Code (including, without
limitation, that “payments” under such agreement or otherwise will be reduced,
that the Participant will have the discretion to determine which “payments”
will be reduced, that such “payments” will not be reduced or that such “payments”
will be “grossed up” for tax purposes), then this Section 14.4 will not apply,
and any “payments” to a Participant pursuant to Section 14.2 or 14.3 of the
Plan will be treated as “payments” arising under such separate agreement.


 


15.           Rights
of Eligible Recipients and Participants; Transferability.


 


15.1         Employment or Service. Nothing in the Plan will
interfere with or limit in any way the right of the Company or any Subsidiary
to terminate the employment or service of any Eligible Recipient or Participant
at any time, nor confer upon any Eligible Recipient or Participant any right to
continue in the employ or service of the Company or any Subsidiary.


 


15.2         Rights as a Stockholder;
Dividends. As a
holder of Incentive Awards (other than Restricted Stock Awards), a Participant
will have no rights as a stockholder unless and until such Incentive Awards are
exercised for, or paid in the form of, shares of Common Stock and the
Participant becomes the holder of record of such shares. Except as otherwise
provided in the Plan or otherwise provided by the Committee, no adjustment will
be made in the amount of cash payable or in the number of shares of Common
Stock issuable under Incentive Awards denominated in or based on the value of
shares of Common Stock as a result of cash dividends or distributions paid to
holders of Common Stock prior to the payment of, or issuance of shares of


 

















 


Common Stock under,
such Incentive Awards. In its discretion, the Committee may provide in an
agreement evidencing an Incentive Award that the Participant will be entitled
to receive dividend equivalents, in the form of a cash credit to an account for
the benefit of the Participant, for any such dividends and distributions. The
terms of any rights to dividend equivalents will be determined by the Committee
and set forth in the agreement evidencing the Incentive Award, including the
time and form of payment and whether such equivalents will be credited with
interest or deemed to be reinvested in Common Stock; provided, however,
that dividend equivalents in respect of Options and Stock Appreciation
Rights will only be paid out in cash.


 


15.3         Restrictions on Transfer.


 


(a)           Except pursuant to testamentary will or the laws of descent
and distribution or as otherwise expressly permitted by subsections (b) and (c)
below, no right or interest of any Participant in an Incentive Award prior to
the exercise (in the case of Options) or vesting or issuance (in the case of
Restricted Stock Awards and Performance Awards) of such Incentive Award will be
assignable or transferable, or subjected to any lien, during the lifetime of
the Participant, either voluntarily or involuntarily, directly or indirectly,
by operation of law or otherwise.


 


(b)           A Participant will be entitled to designate a beneficiary to
receive an Incentive Award upon such Participant’s death, and in the event of
such Participant’s death, payment of any amounts due under the Plan will be
made to, and exercise of any Options (to the extent permitted pursuant to
Section 12 of the Plan) may be made by, 
such beneficiary. If a deceased Participant has failed to designate a
beneficiary, or if a beneficiary designated by the Participant fails to survive
the Participant, payment of any amounts due under the Plan will be made to, and
exercise of any Options (to the extent permitted pursuant to Section 12 of the
Plan) may be made by, the Participant’s legal representatives, heirs and
legatees. If a deceased Participant has designated a beneficiary and such
beneficiary survives the Participant but dies before complete payment of all
amounts due under the Plan or exercise of all exercisable Options, then such
payments will be made to, and the exercise of such Options may be made by, the
legal representatives, heirs and legatees of the beneficiary.


 


(c)           Upon a Participant’s request, the Committee may, in its sole
discretion, permit a transfer of all or a portion of a Non-Statutory Stock
Option, other than for value, to such Participant’s 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, any person sharing such Participant’s
household (other than a tenant or employee), a trust in which any of the
foregoing have more than fifty percent of the beneficial interests, a
foundation in which any of the foregoing (or the Participant) control the
management of assets, and any other entity in which these persons (or the
Participant) own more than fifty percent of the voting interests. Any permitted
transferee will remain subject to all the terms and conditions applicable to the
Participant prior to the transfer. A permitted transfer may be conditioned upon
such requirements as the Committee may, in its sole discretion, 


 

















 


determine, including, but not limited to
execution and/or delivery of appropriate acknowledgements, opinion of counsel,
or other documents by the transferee.


 


15.4         Non-Exclusivity of the Plan. Nothing contained in the Plan
is intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.


 


16.           Securities
Law and Other Restrictions.


 


Notwithstanding any other provision of the Plan or any
agreements entered into pursuant to the Plan, the Company will not be required
to issue any shares of Common Stock under this Plan, and a Participant may not
sell, assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to Incentive Awards granted under the Plan, unless (a) there is in
effect with respect to such shares a registration statement under the
Securities Act and any applicable securities laws of a state or foreign
jurisdiction or an exemption from such registration under the Securities Act and
applicable state or foreign securities laws, and (b) there has been obtained
any other consent, approval or permit from any other U.S. or foreign regulatory
body which the Committee, in its sole discretion, deems necessary or advisable.
The Company may condition such issuance, sale or transfer upon the receipt of
any representations or agreements from the parties involved, and the placement
of any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.


 


17.           Performance-Based
Compensation Provisions. 


 


The Committee, when it is comprised solely of two or
more outside directors meeting the requirements of Section 162(m) of the Code (“Section
162(m)”), in its sole discretion, may designate whether any Incentive Awards
are intended to be “performance-based compensation” within the meaning of
Section 162(m). Any Incentive Awards so designated will, to the extent required
by Section 162(m), be conditioned upon the achievement of one or more
Performance Criteria, and such Performance Criteria will be established by the
Committee within the time period prescribed by, and will otherwise comply with
the requirements of, Section 162(m) giving due regard to the disparate
treatment under Section 162(m) of Options and Stock Appreciation Rights (where
compensation is determined based solely on an increase in the value of the
underlying stock after the date of grant or award), as compared to other forms
of compensation, including Restricted Stock Awards, Stock Unit Awards and
Performance Awards. The Committee shall also certify in writing that such
Performance Criteria have been met prior to payment of compensation to the
extent required by Section 162(m).


 


18.           Compliance
with Section 409A.


 


It is
intended that all Incentive Awards issued hereunder will either be exempt from
or otherwise will comply, in form and operation, with Section 409A of the Code,
including proposed, temporary or final regulations or any other guidance issued
by the Secretary of the Treasury and the Internal Revenue Service with respect
thereto. The Committee is authorized to


 

















 


adopt rules or
regulations deemed necessary or appropriate to qualify for an exception from or
to comply with the requirements of Section 409A of the Code (including any
transition or grandfather rules relating thereto). Notwithstanding anything in
this Section 18 to the contrary, with respect to any Incentive Award subject to
Section 409A of the Code, no amendment to or payment under such Incentive Award
will be made unless permitted under Section 409A and the regulations or rulings
issued thereunder.


 


19.           Plan
Amendment, Modification and Termination.


 


The Board may suspend or terminate the Plan or any portion
thereof at any time. In addition to the authority of the Committee to amend the
Plan under Section 3.2(e), the Board may amend the Plan from time to time in
such respects as the Board may deem advisable in order that Incentive Awards
under the Plan will conform to any change in applicable laws or regulations or
in any other respect the Board may deem to be in the best interests of the
Company; provided, however, that no such amendments to the Plan will be
effective without approval of the Company’s stockholders if: (i) stockholder
approval of the amendment is then required pursuant to Section 422 of the Code
or Section 162(m) of the Code or the rules of the Nasdaq Stock Market (or other
applicable market or exchange on which the Company’s Common Stock may be quoted
or traded); or (ii) such amendment seeks to increase the number of shares
authorized for issuance hereunder (other than by virtue of an adjustment under
Section 4.3) or to modify Section 3.2(d) hereof. No termination, suspension or
amendment of the Plan may adversely affect any outstanding Incentive Award
without the consent of the affected Participant; provided, however, that this
sentence will not impair the right of the Committee to take whatever action it
deems appropriate under Sections 3.2(c), 4.3 and 14 of the Plan.


 


20.           Effective
Date and Duration of the Plan.


 


The
Plan will be effective as of August 2, 2007, and will terminate at midnight on
the tenth (10th) anniversary of such effective date, or at any prior time by
Board action. No Incentive Award will be granted after termination of the Plan.
Incentive Awards outstanding upon termination of the Plan may continue to be
exercised, earned or become free of restrictions, according to their terms.


 


21.           Miscellaneous.


 


21.1         Governing Law. Except to the extent expressly
provided herein or in connection with other matters of corporate governance and
authority (all of which shall be governed by the laws of the Company’s
jurisdiction of incorporation), the validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in
accordance with the laws of the State of Minnesota, notwithstanding the
conflicts of laws principles of any jurisdictions.


 


21.2         Successors and Assigns. The Plan will be binding upon
and inure to the benefit of the successors and permitted assigns of the Company
and the Participants.