Document:

exv10w41

 

Exhibit
10.41

Execution Copy

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (the “Agreement”) entered into as of January 10, 2007 (the
“Effective Date”), by and between Robin C. Sheldrick (the “Executive”) and PharmaNet
Development Group, Inc., a Delaware corporation (the “Company”).

     WHEREAS, in its business, the Company has acquired and developed certain trade secrets,
including but not limited to proprietary processes, sales methods and techniques, and other like
confidential business and technical information, including, but not limited to, technical
information, design systems, proprietary assays, pricing methods, pricing rates or discounts,
process, procedure, formula, design of computer software or improvement of any portion or phase
thereof, whether patented or not, that is of any value whatsoever to the Company, as well as
certain unpatented information relating to the Services (as defined below) information concerning
proposed new services, market feasibility studies, proposed or existing marketing techniques or
plans (whether developed or produced by the Company or by any other entity for the Company), other
Confidential Information (as defined below) and information about the Company’s employees,
officers, and directors, which necessarily will be communicated to the Executive by reason of his
or her employment with the Company;

     WHEREAS, the Company has strong and legitimate business interests in preserving and protecting
its investment in the Executive, its trade secrets and Confidential Information, and its
substantial relationships with suppliers, and Clients (as defined below), actual and prospective;
and

     WHEREAS, the Company desires to preserve and protect its legitimate business interests further
by restricting competitive activities of the Executive during the term of employment and following
(for a reasonable time) termination of employment;

     WHEREAS, the Company’s Board of Directors (the “Board”) considers it essential to and
in the best interests of the Company’s direct and indirect holders of ownership interests
(collectively, the “Stockholders”) to foster the continued employment of the Executive and
has approved the severance arrangement set forth in this Agreement;

     WHEREAS, the Company desires to employ the Executive and to ensure the continued availability
to the Company of the Executive’s services, and the Executive is willing to accept such employment
and render such services, all upon and subject to the terms and conditions contained in this
Agreement;

     WHEREAS, the Executive was previously a party to that certain Employment Agreement dated
November 2, 2004 by and between the applicable subsidiary of the Company and the Executive (the
“Previous Employment Agreement”) and by executing this Agreement, the Executive hereby
agrees that this Agreement supersedes any prior employment arrangement set forth in the Previous
Employment Agreement;

     WHEREAS, the Executive was previously a party to that certain Severance Agreement dated
October 31, 2004 by and between a subsidiary of the Company and the Executive (the “Previous
Severance Agreement”) and by executing this Agreement, the Executive hereby agrees that this
Agreement supersedes any prior employment arrangement set forth in the Previous Severance
Agreement; and

 

 

     WHEREAS, the Executive acknowledges and agrees that the payments, benefits, promises and
undertakings performed, and to be performed, as set forth herein exceed and are greater than the
payments, benefits, promises and undertakings to which Employee would have been entitled had
Executive not executed this Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth in this
Agreement, and intending to be legally bound, the Company and the Executive agree as follows:

     1. Representations and Warranties. The Executive hereby represents and warrants to
the Company that he or she is not subject to any written nonsolicitation or noncompetition
agreement affecting his or her employment with the Company (other than any prior agreement with the
Company or its Affiliate (as defined below)), (b) is not subject to any written confidentiality or
nonuse/nondisclosure agreement affecting his or her employment with the Company (other than any
prior agreement with the Company or its Affiliate), and (c) has not brought to the Company any
trade secrets, confidential business information, documents, or other personal property of a prior
employer.

     2. Term of Employment.

          (a) Term. Subject to Section 6 hereof, the Company hereby employs the Executive, and
the Executive hereby accepts employment with the Company, for a period commencing on the Effective
Date and ending three (3) years from the Effective Date (the “Employment Term”).

          (b) Continuing Effect. Notwithstanding any termination of employment, at the end of
the Employment Term or otherwise, the provisions of Sections 7 and 8 shall remain in full force and
effect and the provisions of Section 8 shall be binding upon the legal representatives, successors
and assigns of the Executive.

     3. Duties.

          (a) General Duties. The Executive shall serve as the Senior Vice President, Human
Resources, with duties and responsibilities that are customary for such position. The Executive
shall use his or her best efforts to perform his or her duties and discharge his or her
responsibilities pursuant to this Agreement competently, carefully and faithfully. During the
Employment Term, the Executive shall be deemed an officer (but not an executive officer) and a
member of the Executive Committee of the Company. In addition, Executive may be required to
execute and deliver to the Company, on a timely basis, quarterly certifications or
sub-certifications in order to permit Company to comply with its reporting obligations, including
those under the Sarbanes-Oxley Act of 2002.

          (b) Devotion of Time. The Executive shall devote the amount of time and attention to
the business and affairs of the Company that are reasonably necessary to competently perform his or
her duties. The Executive shall not enter the employ of or serve as a consultant to, or in any way
perform any services with or without compensation to, any other persons, business or organization
without the prior written consent of the board of directors of the Company. Notwithstanding the
foregoing, the Executive shall be permitted, subject to the first sentence of this Section 3(b) and
Sections 7, 8, 9 and 10 hereof, to (i) serve on corporate, advisory, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions and (iii) manage personal investments.

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          (c) Location of Office. The Executive’s principal business office shall be at the
Company’s office location in Princeton, New Jersey as it may be changed from time to time by the
senior management of the Company; provided, however, that the Executive’s job
responsibilities shall include all business travel reasonably necessary to such requirements.

          (d) Adherence to Inside Information Policies. The Executive acknowledges that the
Company is publicly-held and, as a result, has implemented inside information policies designed to
preclude its employees and those of its subsidiaries from violating the federal securities laws by
trading on material, non-public information or passing such information on to others in breach of
any duty owed to the Company or any third party. The Executive shall promptly execute any
agreements generally distributed by the Company to its employees requiring such employees to abide
by its inside information policies.

     4. Compensation and Expenses.

          (a) Annual Base Salary. For the services of the Executive to be rendered under this
Agreement, during the Employment Term the Company shall pay the Executive an annual base salary
equivalent to $210,000 per annum provided, however, that effective as of January 1, 2007 the annual
base salary will be $262,000 (the “Annual Base Salary”). Commencing January 1, 2008, the Annual
Base Salary shall be adjusted annually on a compounded basis on such Executive’s employment
anniversary date (as such date has been, or may in the future be, modified) at the greater of (i)
four (4%), (ii) an amount approved by the Compensation Committee of the Company’s Board of
Directors or (iii) the Consumer Price Index in accordance with the formula attached hereto as
Exhibit A. The Annual Base Salary shall be payable in accordance with the Company’s normal
payroll practices.

          (b) Annual (Cash) Incentive. In addition to any other compensation received pursuant
to this Agreement, the Executive shall be eligible to participate in the same Company cash
incentive plan or plans that the members of the Company’s Executive Committee are eligible to
participate.

          (c) Long-Term Incentive. The Executive shall be eligible to participate in all
long-term incentive plan or plans that the members of the Company’s Executive Committee are
eligible to participate.

          (d) Expenses. In addition to any compensation received pursuant to this Section 4,
the Company shall reimburse or advance funds to the Executive for reasonable travel, entertainment,
professional dues and miscellaneous expenses incurred in connection with the performance of his or
her duties under this Agreement and in accordance with the Company’s policies relating to travel
and expenses, subject to receipt by the Company of evidence of such expenses. The Executive must
submit all required receipts and documentation for each such reimbursable expense within sixty (60)
days following the last day of the month of the incurrence of that expense.

     5. Benefits.

          (a) Vacation. During each year of employment, the Executive shall be entitled to
twenty (20) business days of vacation (or such longer period as may be provided for under the
Company’s written policies) without loss of compensation or other benefits to which he or she is

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entitled under this Agreement, such vacation to be taken at such times as the Executive may select
and the affairs of the Company may permit.

          (b) Employee Benefit Programs. The Executive is entitled to participate in any
pension, 401(k), medical insurance, disability insurance, life insurance or other employee benefit
plan that is maintained by the Company, including reimbursement of membership fees in professional
organizations, subject to the eligibility requirements of these specific plans.

          (c) Insurance. The Company shall pay the cost of all insurance premiums in connection
with the insurance or benefit programs referred to in Section 5(b) in which the Executive chooses
to participate, except to the extent any benefit program is funded by deferrals from the
Executive’s compensation. In addition, the Company shall include the Executive in the Company’s
D&O (director and officer) liability insurance policy as an additional insured for the benefit of
the Executive.

          (d) Transportation Benefit. The Executive shall be entitled to receive a per month
motor vehicle allowance equivalent to one thousand dollars ($1,000) per month. For the purposes of
clarity, the Company shall not reimburse the Executive for any applicable tax the Executive may
incur as a result of his or her receipt of this monthly motor vehicle allowance.

     6. Termination; Severance.

          (a) Certain Definitions. For purpose of this Agreement:

               “Cause” means that the Executive has: (i) been convicted of a felony involving any
subject matter; (ii) been charged with a felony, by a government agency, relating to the business
of the Company or any Affiliate; (iii) been convicted of a misdemeanor directly involving the
Executive’s employment that directly affects the business of the Company; (iv) been found after an
internal investigation to have engaged in sexual misconduct which is related to the Executive’s
employment or the business of the Company and/or violated the Company’s sexual harassment policy;
(v) failed to carry out the duties and responsibilities assigned to Executive which are consistent
with the terms of this Agreement; (vi) misappropriated the Company funds or otherwise defrauds the
Company; (vii) breached his or her fiduciary duty to the Company resulting in profit to him or her,
directly or indirectly; (viii) been found to have committed any act or failed to take any action
which results in the common stock of the Company (the “Common Stock”) being delisted for
trading on its principal trading market or exchange; (ix) been convicted of illegal possession or
illegal use of a controlled substance; (x) engaged in chronic drinking or the use of illegal drugs,
chemicals or controlled substances or the abuse of otherwise legal drugs or chemicals or controlled
substances that affects the performance of his or her duties as reasonable determined by the
Company; (xi) failed or refused to cooperate in any official investigation conducted by or on
behalf of the Company; (xii) breached any material provision of this Agreement, including Section
3(d) herein, after notice and a reasonable opportunity to cure such behavior (if the behavior is of
the nature that it can be cured); (xiii) intentionally or willfully failed to comply with the reasonable directives of the Board or the
CEO of the Company; (xiv) committed an act or omission constituting gross negligence or willful
misconduct which causes, at least in part, the Company to restate its financial statements for a
completed fiscal period after having filed such financial statements with the Securities and
Exchange Commission; or (xv) been found by a court, the Securities and Exchange Commission or any
state governmental

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authority which regulates or enforces such state’s securities laws, in a final determination, to have violated any applicable securities laws, whether such finding was after a
hearing or trial or on consent without admitting or denying any allegations of wrongdoing.

               “Disability” means the occurrence of either of the following circumstances: (i) if
Executive is deemed disabled for purposes of any long-term disability insurance policy paid for by
the Company and in effect at such time, or (ii) if in the exercise of the reasonable judgment of
the Company, due to accident, mental or physical illness, or any other reason, Executive has become
physically or mentally incapable of performing, with or without reasonable accommodation, the
essential functions of his or her employment for a period of more than one hundred twenty (120)
consecutive days or for one hundred eighty (180) days within a three hundred and sixty-five (365)
day period.

               “Effective Date of Termination” with respect to any purported termination of the
Executive’s employment, shall mean (i) if the Executive’s employment is terminated by his or her
death, the date of his or her death, (ii) if the Executive’s employment is terminated for Cause or
without Cause, the date specified in the Notice of Termination, (iii) if the Executive’s employment
is terminated as a result of a Disability, the date on which it is finally determined that the
Executive is Disabled and (iv) if Executive terminates his or her employment for Good Reason or
otherwise voluntarily terminates his or her employment, the date specified in the Notice of
Termination.

               “Good Reason” means the material breach of any of the material terms or conditions of
this Agreement by the Company.

               “Notice of Termination” means a notice indicating the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive’s employment with the Company under the
provision so indicated.

               “Person” shall have the meaning ascribed thereto in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended, as modified, applied and used in Sections 13(d) and 14(d)
thereof; provided, however, a Person shall not include (i) the Company, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of the Company (in its
capacity as such), (iii) an underwriter temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporate entity owned, directly or indirectly, by the Stockholders in
substantially the same character and proportions as their ownership of interests in the Company.

     (b) Termination.

               (i) Either the Company or the Executive, in his, her or its sole discretion, may terminate the
Executive’s employment without Cause at any time upon thirty (30) days written notice. Upon the
Effective Date of Termination, whether with or without Cause, the Executive shall have no right to compensation or reimbursement under Section 4 (except for compensation earned
or reimbursable expenses incurred through the Effective Date of Termination) or to participate in
any employee benefit programs under Section 5 for any period subsequent to the Effective Date of
Termination, except as provided for by law or this Agreement. On or before the Effective Date of
Termination or prior to receiving any final compensation or expenses due him or her, the Executive

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shall (a) return to the Company’s headquarters, (b) participate in an exit interview, and (c)
execute a “Certificate of Conclusion of Employment,” certifying that he or she has complied with
his or her obligations and acknowledging his or her continuing obligations under this Agreement.
The Executive’s failure to comply with the requirements of this Section shall constitute a material
breach of this Agreement. For clarity, if the Executive’s employment is terminated by the Company
for any reason other than Cause, he or she shall be entitled to the Severance Payments set forth
below.

               (ii) The Company may terminate the Executive’s employment pursuant to the terms of this
Agreement at any time for Cause (as defined above) by giving written notice of termination. The
Executive shall have thirty (30) days from the date of the notice to provide the Company CEO with
evidence that the Company is mistaken as to Cause and that the Executive’s behavior does not meet
the criteria for Cause. During such thirty (30) day period, the Executive shall be suspended
without pay; provided, however, that if employment is reinstated then the Executive
shall be paid for such thirty (30) day period or if the termination is upheld, the Effective Date
of Termination shall be deemed to be the date of receipt by the Executive of the written notice of
termination. Upon any such termination for Cause, the Executive shall have no right to
compensation or reimbursement under Section 4 (except for compensation earned or reimbursable
expenses incurred through the Effective Date of Termination), or to participate in any employee
benefit programs under Section 5 for any period subsequent to the Effective Date of Termination,
except as provided by law.

          (c) Severance. In the event that the Executive executes and does not revoke a written
release upon termination of employment, in substantially the form attached hereto as Exhibit
B, the Company shall cause the payments and benefits described in this Section (the
“Severance Payments”) to be made upon the termination of the Executive’s employment with
the Company during the Employment Term unless such termination is (i) by the Company for Cause,
death or Disability, or (ii) by the Executive without Good Reason. Severance Payments due and
payable to the Executive by the Company in accordance with this Section shall be determined as
follows:

               (i) In lieu of any further salary payments to the Executive for periods subsequent to the
Effective Date of Termination, the Company shall cause an aggregate severance payment to be made to
the Executive, in cash, equal to two (2) times such Executive’s Annual Base Salary (the “Cash
Severance Payment”) and payable in twenty-four (24) equal monthly installments.

               (ii) For a twenty-four (24) month period after the Effective Date of Termination, the Company
shall arrange to provide the Executive with life, disability, accident and health insurance
benefits substantially similar to those which the Executive is receiving immediately prior to the
Effective Date of Termination. To the extent such benefits are provided under insured arrangements,
the Company shall pay each applicable insurance premium (net of any payment required of the
Executive) on the specified due date for that premium (which shall not be less frequently than
annually); provided, however, that in the event any such premium payment cannot be made by the
Company on the applicable due by reason of the restrictions set forth in subparagraph (f) of this
Section, the Executive shall make such premium payment and the Company shall promptly reimburse
the Executive for that payment upon the conclusion of the six (6)-month deferral period set
forth in subparagraph (f). In addition, benefits otherwise receivable by the Executive pursuant to
this Section shall be reduced to the extent comparable benefits are actually received by or made
available to the Executive without cost during such period following the Executive’s termination of
employment (and

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any such benefits actually received by the Executive shall be reported to the Company by the Executive).

               (iii) All unvested long-term incentive grants, if any, outstanding on the Effective Date of
Termination shall immediately vest.

               (iv) To the extent the Executive is, on the Effective Date of Termination, participating in
one or more deferred compensation arrangements subject to Section 409A of the Internal Revenue Code
(the “Code”), the payments and benefits provided under those arrangements shall continue to be
governed by, and to become due and payable in accordance with, the specific terms and conditions
of those arrangements, and nothing in this Agreement shall be deemed to modify or alter those terms
and conditions.

          (d) Benefit Limit.

               (i) In the event that any payments or benefits to which Executive becomes entitled in
accordance with the provisions of this Agreement (or any other agreement with the Company or other
Affiliated Company) would otherwise constitute a parachute payment under Code Section 280G(b)(2),
then such payments and/or benefits will be subject to reduction to the extent necessary to assure
that the Executive receives only the greater of (i) the amount of those payments which would not
constitute such a parachute payment or (ii) the amount which yields Executive the greatest
after-tax amount of benefits after taking into account any excise tax imposed under Code Section
4999 on the payments and benefits provided Executive under this Agreement (or on any other payments
or benefits to which the Executive may become entitled in connection with any change in control or
ownership of the Company or the subsequent termination of his employment with the Company).

               (ii) Should a reduction in benefits be required to satisfy the benefit limit of this
subparagraph (d), then the portion of any parachute payment otherwise payable in cash to Executive
shall be reduced to the extent necessary to comply with such benefit limit. Should such benefit
limit still be exceeded following such reduction, then the number of shares which would otherwise
vest on an accelerated basis under each of the Executive’s options or other equity awards (based on
the amount of the parachute payment attributable to each such option or equity award under Code
Section 280G) shall be reduced to the extent necessary to eliminate such excess.

          (e) Resolution Procedures. In the event there is any disagreement between the
Executive and the Company as to whether one or more payments or benefits to which the Executive
becomes entitled in connection with the Change in Control or his subsequent termination of
employment constitute a parachute payment under Code Section 280G or as to the determination of the
present value thereof, such dispute will be resolved as follows:

               (i) In the event the Treasury Regulations under Code Section 280G (or applicable judicial
decisions) specifically address the status of any such payment or benefit or the method of
valuation therefor, the characterization afforded to such payment or benefit by the Regulations (or
such decisions) will, together with the applicable valuation methodology, be controlling.

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               (ii) In the event Treasury Regulations (or applicable judicial decisions) do not address the
status of any payment in dispute, the matter will be submitted for resolution to independent
auditors selected and paid for by the COmpany. The resolution reached by the independent auditors
will be final and controlling; provided, however, that if in the judgment of the independent
auditors, the status of the payment in dispute can be resolved through the obtainment of a private
letter ruling from the Internal Revenue Service, a formal and proper request for such ruling will
be prepared and submitted by the independent auditors, and the determination made by the Internal
Revenue Service in the issued ruling will be controlling. All expenses incurred in connection with
the preparation and submission of the ruling request shall be shared equally by the Executive and
the Company.

               (iii) In the event Treasury Regulations (or applicable judicial decisions) do not address the
appropriate valuation methodology for any payment in dispute, the present value thereof will, at
the independent auditor’s election, be determined through an independent third-party appraisal, and
the expenses incurred in obtaining such appraisal shall be shared equally by the Executive and the
Company.

          (f) Date of Payment. The Cash Severance Payment shall be made on the fifteenth day of
each of the twenty-four (24) months immediately following the month in which the Effective Date of
Termination occurs or (if later) the month in which the date of the Executive’s “separation from
service” with the Company (as such term is defined in Treasury Regulations issued under Code
Section 409(A) occurs. At the time that payments are made under this Section, the Company shall
provide the Executive with a detailed written statement setting forth the manner in which such
payments were calculated and the basis for such calculations. Notwithstanding the foregoing, Cash
Severance Payments shall immediately cease and no longer be payable if Executive violates any of
the terms set forth in Sections 7 or 8 hereof. Such remedy shall be in addition to any and all
other remedies available by law or equity.

          (g) Delayed Commencement Date. Notwithstanding any provision to the contrary in this
Agreement, no payment or benefit to which the Executive otherwise becomes entitled under this
Section shall be made, paid or provided prior to the earlier of (i) the expiration of the
six (6) month period measured from the date of the Executive’s “separation from service” with the
Company (as such term is defined in Treasury Regulations issued under Code Section 409(A) or (ii)
the date of the Executive’s death, if the Executive is deemed at the time of such separation from
service to be a “key employee” within the meaning of that term under Code Section 416(i) and such
delayed commencement is otherwise required in order to avoid a prohibited distribution under Code
Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period,
all payments and benefits deferred pursuant to this subparagraph (f), whether they would have
otherwise been payable in a single sum or in installments in the absence of such deferral, shall be
paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due
under this Section 6 shall be paid or provided in accordance with the normal payment dates specified for
them herein.

          (h) Notice of Termination. Any purported termination of the Executive’s employment
with the Company (other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with Section 14.

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     7. Non-Competition Agreement.

          (a) Competition with the Company. During the Employment Term and for twenty-four (24)
months after the Effective Date of Termination, the Executive, directly or indirectly or, in
association with or as a stockholder, director, officer, consultant, employee, partner, joint
venturer, member or otherwise of or through any person, firm, corporation, partnership, association
or other entity (any of the foregoing, an “Affiliated Entity”) shall not act as an
executive officer or provide Services (as such term is defined in Section 8 hereof) to any entity
which competes with the Company or its Affiliates, within any metropolitan area in the United
States or elsewhere in which the Company or its subsidiaries or affiliates (collectively, the
“Affiliates”), if applicable, is then engaged in the offer and sale of competitive Services
(the “Prohibited Business”); provided, the foregoing shall not prohibit Executive
from owning up to five percent (5%) of the securities of any publicly-traded enterprise that
engages in the Prohibited Business provided the Executive is not an employee, director, officer,
consultant to such enterprise or otherwise reimbursed for services rendered to such enterprise. In
addition, during the period commencing on the Effective Date of Termination and continuing for
twenty-four (24) months thereafter, the Executive may not, directly or indirectly, including
through any Affiliated Entity, seek Prohibited Business from any Client (as defined a) on behalf of
any enterprise or business other than the Company, refer Prohibited Business generated from any
Client to any enterprise or business other than the Company, cause any Client to cancel or reduce
any existing contract for services it may have with the Company or receive commissions based on
sales or otherwise relating to the Prohibited Business from any Client, enterprise or business
other than the Company. For purposes of this Agreement, the term “Client” means any person,
firm, corporation, limited liability company, partnership, association or other entity (i) to which
the Company sold or provided Services in excess of $100,000 during the twenty-four (24) month
period prior to the Effective Date of Termination, or (ii) who or which has been approached by an
employee of the Company for the purpose of soliciting business for the Company and which business
was reasonably expected to generate revenue in excess of $100,000.

          (b) No Payment. The Executive acknowledges and agrees that no separate or additional
payment will be required to be made to him or her in consideration of his or her undertakings in
this Section 7.

          (c) References. References to the Company in this Section 7 shall include the
Company’s Affiliates.

     8. Non-Disclosure of Confidential Information.

          (a) Confidential Information. “Confidential Information” includes, but is not
limited to, trade secrets (as defined by the common law and statute in Florida or New Jersey or any
future Florida or New Jersey statute), processes, policies, procedures, techniques (including
recruiting techniques), designs, drawings, know-how, show-how, technical information, specifications,
computer software and source code, information and data relating to the development, research,
testing, costs, marketing and uses of the Services, the Company’s budgets and strategic plans, and
the identity and special needs of Clients, databases, data, all technology relating to the
Company’s businesses, systems, methods of operation, Client lists, Client information, solicitation
leads, marketing and advertising materials, methods and manuals and forms, all of which pertain to
the activities or operations of the Company, names, home addresses and all telephone numbers and
e-mail addresses of the Company’s

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employees, former employees, clients and former clients. In addition, Confidential Information also includes the identity of Clients and the identity of and
telephone numbers, e-mail addresses and other addresses of employees or agents of Clients who are
the persons with whom the Company’s employees and agents communicate in the ordinary course of
business. For purposes of this Agreement, the following will not constitute Confidential
Information: (i) information which is or subsequently becomes generally available to the public
through no act of the Executive, (ii) information set forth in the written records of the Executive
prior to disclosure to the Executive by or on behalf of the Company, and (iii) information which is
lawfully obtained by the Executive in writing from a third party (excluding any Affiliates of the
Executive) who did not acquire such confidential information or trade secret, directly or
indirectly, from the Executive or the Company. As used herein, the term “Services” shall
include the providing of early and late stage clinical drug development services, clinical trials
management services and other services engaged in by the Company during the Employment Term.

          (b) Legitimate Business Interests. The Executive recognizes that the Company has
legitimate business interests to protect and, as a consequence, the Executive agrees to the
restrictions contained in this Agreement because they further the Company’s legitimate business
interests. These legitimate business interests include, but are not limited to (i) trade secrets,
(ii) valuable confidential business or professional information that otherwise does not qualify as
trade secrets, including all Confidential Information, (iii) substantial relationships with
specific prospective or existing Clients or clients, (iv) Client goodwill associated with the
Company’s business and (v) specialized training relating to the Services and the Company’s
technology, methods and procedures.

          (c) Confidentiality. The Confidential Information shall be held by the Executive in
the strictest confidence and shall not, without the prior written consent of the Company, be
disclosed to any person other than in connection with the Executive’s employment with the Company.
The Executive further acknowledges that such Confidential Information as is acquired and used by
the Company is a special, valuable and unique asset. The Executive shall exercise all due and
diligence precautions to protect the integrity of the Company’s Confidential Information and to
keep it confidential whether it is in written form, on electronic media or oral. The Executive
shall not copy any Confidential Information except to the extent necessary to his or her employment
nor remove any Confidential Information or copies thereof from the Company’s premises except to the
extent necessary to his or her employment and then only with the authorization of an officer of the
Company. All records, files, materials and other Confidential Information obtained by the
Executive in the course of his or her employment with the Company are confidential and proprietary
and shall remain the exclusive property of the Company or its Clients, as the case may be. The
Executive shall not, except in connection with and as required by his or her performance of his or
her duties under this Agreement, for any reason use for his or her own benefit or the benefit of
any person or entity with which he or she may be associated or disclose any such Confidential
Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever without the prior written
consent of an officer of the Company (excluding the Executive, if applicable).

          (d) References to the Company in this Section 8 shall include the Company’s Affiliates.

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     9. Equitable Relief.

          (a) The Company and the Executive recognize that the services to be rendered under this
Agreement by the Executive are special, unique and of extraordinary character, and that in the
event of the breach by the Executive of the terms and conditions of this Agreement or if the
Executive, shall cease to be an employee of the Company for any reason and take any action in
violation of Section 7 and/or Section 8, the Company shall be entitled to institute and prosecute
proceedings in any court of competent jurisdiction referred to in Section 9(b) below to enjoin the
Executive from breaching the provisions of Section 7 or Section 8. In such action, the Company
shall not be required to plead or prove irreparable harm or lack of an adequate remedy at law or
post a bond or any security.

          (b) Any action between the Company and Executive must be commenced in Mercer County, New
Jersey. The Executive and the Company irrevocably and unconditionally submit to the exclusive
jurisdiction of such courts and agree to take any and all future action necessary to submit to the
jurisdiction of such courts. The Executive and the Company irrevocably waive any objection that
they now have or hereafter irrevocably waive any objection that they now have or hereafter may have
to the laying of venue of any suit, action or proceeding brought in any such court and further
irrevocably waive any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Final judgment against the Executive or the Company in any
such suit shall be conclusive and may be enforced in other jurisdictions by suit on the judgment, a
certified or true copy of which shall be conclusive evidence of the fact and the amount of any
liability of the Executive or the Company therein described, or by appropriate proceedings under
any applicable treaty or otherwise.

     10. Conflicts of Interest. Except as otherwise set forth in Section 7(a), while
employed by the Company, the Executive shall not, directly or indirectly, unless approved by the
Board:

          (a) participate as an individual in any way in the benefits of transactions with any of the
Company suppliers or Clients, including, without limitation, having a financial interest in the
Company’s suppliers or Clients, or making loans to, or receiving loans from, the Company’s
suppliers or Clients;

          (b) realize a personal gain or advantage from a transaction in which the Company has an
interest or use information obtained in connection with the Executive’s employment with the Company
for the Executive’s personal advantage or gain; or

          (c) accept any offer to serve as an officer, director, partner, consultant, manager with, or
to be employed in a technical capacity by, a person or entity that does business with the Company.

          As used in Section 10(a), (b) or (c), references to the Company also includes its Affiliates.

     11. Inventions, Ideas, Processes, and Designs. All inventions, ideas, processes,
programs, software, and designs (including all improvements) (a) conceived or made by the Executive
during the course of his or her employment with the Company (whether or not actually conceived
during regular business hours) and for a period of six (6) months subsequent to the Effective Date
of Termination or expiration of such employment with the Company and (b) related to the business of
the Company,

11

 

shall be disclosed in writing promptly to the Company and shall be the sole and
exclusive property of the Company. An invention, idea, process, program, software, or design
(including an improvement) shall be deemed related to the business of the Company if (x) it was
made with the Company’s equipment, supplies, facilities, or Confidential Information, (y) results
from work performed by the Executive for the Company, or (z) pertains to the current business or
demonstrably anticipated research or development work of the Company. The Executive shall
cooperate with the Company and its attorneys in the preparation of patent and copyright
applications for such developments and, upon request, shall promptly assign all such inventions,
ideas, processes, and designs to the Company. The decision to file for patent or copyright
protection or to maintain such development as a trade secret shall be in the sole discretion of the
Company, and the Executive shall be bound by such decision.

     12. Assignability. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of the Company. The
Executive’s obligations hereunder may not be assigned or alienated and any attempt to do so by the
Executive will be void.

     13. Severability.

               (a) The Executive expressly agrees that the character, duration and geographical scope of the
non-competition provisions set forth in this Agreement are reasonable in light of the circumstances
as they exist on the date hereof. Should a decision, however, be made at a later date by a court
of competent jurisdiction that the character, duration or geographical scope of such provisions is
unreasonable, then it is the intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to impose only those restrictions on
the Executive’s conduct that are reasonable in the light of the circumstances and as are necessary
to assure to the Company the benefits of this Agreement. If, in any judicial proceeding, a court
shall refuse to enforce all of the separate covenants deemed included herein because taken together
they are more extensive than necessary to assure to the Company the intended benefits of this
Agreement, it is expressly understood and agreed by the parties hereto that the provisions of this
Agreement that, if eliminated, would permit the remaining separate provisions to be enforced in
such proceeding shall be deemed eliminated, for the purposes of such proceeding, from this
Agreement.

               (b) If any provision of this Agreement otherwise is deemed to be invalid or unenforceable or
is prohibited by the laws of the state or jurisdiction where it is to be performed, this Agreement
shall be considered divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from either of the parties
to the other. The remaining provisions of this Agreement shall be valid and binding and of like
effect as though such provision were not included and the invalid or unenforceable provision shall
be substituted with a provision which most closely approximates the intent and the economic effect
of the invalid or unenforceable provision and which would be enforceable to the maximum extent
permitted in such jurisdiction or in such case.

     14. Notices and Addresses. All notices, offers, acceptance and any other acts under
this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered
to the addressees in person, by Federal Express or similar overnight delivery, or by facsimile
delivery followed by Federal Express or similar next business day delivery, as follows:

12

 

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	To the Company:
	 	 	 	PharmaNet Development Group, Inc.

504 Carnegie Center

Princeton, NJ 08540

Fax: (609)514-0390

Attn: Chief Executive Officer
	 
	 	 	 	 	 	 
	 

	 	With a copy to:
	 	 	 	Morgan Lewis & Bockius, LLP

502 Carnegie Center

Princeton, NJ 08540

Fax: (609)919-6701

Attn: Denis Segota, Esq.
	 
	 	 	 	 	 	 
	 

	 	To the Executive:
	 	 	 	Robin C. Sheldrick

Princeton, NJ 08540

or to such other address as either of them, by notice to the other may designate from time to time.
The transmission confirmation receipt from the sender’s facsimile machine shall be evidence of
successful facsimile delivery. Time shall be counted to, or from, as the case may be, the delivery
in person or by mailing.

     15. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one and the same
instrument. The execution of this Agreement may be by actual or facsimile signature.

     16. Attorney’s Fees. In the event that there is any controversy or claim arising out
of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any
action or proceeding is commenced to enforce the provisions of this Agreement, each party shall be
responsible for its own attorney’s fee, costs and expenses.

     17. Governing Law. This Agreement and any dispute, disagreement, or issue of
construction or interpretation arising hereunder whether relating to its execution, its validity,
the obligations provided therein or performance shall be governed or interpreted according to the
internal laws of the State of New Jersey without regard to choice of law considerations.

     18. Entire Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes all prior oral and written agreements between the parties hereto with
respect to the subject matter hereof, including but not limited to, the Previous Employment
Agreement and the Previous Severance Agreement, each of which is terminated and no longer in force
and effect. Neither this Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or parties against which,
enforcement or the change, waiver discharge or termination is sought.

     19. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out the purpose and
intent of this Agreement and to fulfill the obligations of the parties hereunder.

13

 

     20. Section and Paragraph Headings. The section and paragraph headings in this
Agreement are for reference purposes only and shall not affect the meaning or interpretation of
this Agreement.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

14

 

     IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date
set forth above.

	 	 	 	 	 
	 	PharmaNet Development Group, Inc.

 	 
	 	By:  	/s/ Jeffrey P. McMullen
 	 
	 	 	Jeffrey P. McMullen 	 
	 	 	Chief Executive Officer 	 

 

 

	 	 	 	 	 

	 	 	IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date
set forth above.

	 	 	 	 	 
	 	Executive

 	 
	 	/s/ Robin C. Sheldrick
 	 
	 	Robin C. Sheldrick 	 
	 	 	 

 

 

	 	 	 	 	 

Exhibit A

CONSUMER PRICE INDEX FORMULA

               Commencing January 1, 2008 and the beginning of each year thereafter during the term of this
Agreement, the Executive’s annual salary shall be adjusted in accordance with the Consumer Price
Index, all Urban Consumers issued by the Bureau of Labor Statistics of the U.S. Department of Labor
using the years 1982-84 as a base of 100 (the “Index”). At the commencement of January 1,
2008, and of each year thereafter, the Executive’s adjusted Annual Base Salary shall be multiplied
each year by a fraction, the numerator of which shall be the published Index number for the month
preceding the commencement of the new year (i.e., December 2007) and the denominator of
which shall be the published Index number for the preceding month of the preceding year
(i.e., November 2006). The resulting increase to the Executive’s Annual Base Salary shall
be added to the prior year’s Annual Base Salary and become a part thereof for the current year. In
the event that the Index herein referred to ceases to be published during the term of this
Agreement, or if a substantial change is made in the method of establishing such Index, then the
determination of the adjustment in the Executive’s compensation shall be made with the use of such
conversion factor, formula or table as may be published by the Bureau of Labor Statistics, or if
none is available, the parties shall accept comparable statistics on the cost of living in the
United States as shall then be computed and published by an agency of the United States, or if not
so computed or published, by a respected financial periodical selected by the Company.

 

 

Exhibit B

GENERAL RELEASE

     THIS GENERAL RELEASE (“Release”) is executed by Robin C. Sheldrick (the
“Executive”) pursuant to Section 6 of the Employment Agreement dated as of December ___,
2006 by and between PharmaNet Development Group, Inc., a Delaware corporation (the
“Company”) and the Executive (the “Employment Agreement”).

     WHEREAS, the Executive’s employment with the Company is terminating;

     WHEREAS, the Executive has had 21 days (with 7 days to revoke after signing) to consider the
form of this Release;

     WHEREAS, the Company advised the Executive in writing to consult with an attorney before
signing this Release;

     WHEREAS, the Executive acknowledges that the consideration to be provided to the
Executive under the Employment Agreement is sufficient to support this Release; and

     WHEREAS, the Executive understands that the Company regards the representations and covenants
by the Executive in the Employment Agreement and this Release as material and that the Company is
relying on such representations and covenants in paying amounts to the Executive pursuant to the
Employment Agreement.

          THE EXECUTIVE THEREFORE AGREES AS FOLLOWS:

     1. The Executive shall receive the payments and benefits set forth in Section 6 (if
applicable) of the Employment Agreement in accordance with the terms and subject to the conditions
thereof.

     2. The Executive, on behalf of himself or herself, his or her heirs, executors,
administrators, and/or assigns, does hereby RELEASE AND FOREVER DISCHARGE the Company, together
with its parents, subsidiaries, affiliates, partners, joint ventures, predecessor and successor
corporations and business entities, past, present and future, and its and their agents, directors,
officers, employees, shareholders, investors, insurers and reinsurers, representatives, attorneys,
and employee benefit plans (and the trustees or other individuals affiliated with such plans) past,
present and future (collectively, the “Releasees”), of and from any and all legally
waivable causes of action, suits, debts, complaints, claims and demands whatsoever in law or in
equity, whether known or unknown, suspected or unsuspected, which Executive, or his or her heirs,
executors, administrators, and/or assigns, ever had or now has against each or any of the
Releasees, from the beginning of time to the date of execution of this Agreement, including,
without limitation, any and all claims relating to Executive’s employment with Company or the
termination of that employment, including, without limitation, claims under the Age Discrimination
in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, Section 1981 of the
Civil Rights Act of 1870, the Americans with Disabilities Act, the Employee Retirement Income
Security Act, the Family and Medical Leave Act, the New Jersey Law Against Discrimination, the New
Jersey Conscientious Employee Protection Act, the New Jersey Family Leave Act, the New Jersey Wage
Payment Act, the New Jersey Wage and Hour Law, and any and all other applicable federal, state or
local constitutional, statutory or common

Page 1 of 2 - General Release

 

law claims, now or hereafter recognized, including but not limited to, any claim for severance
pay, bonus pay, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance
or any other fringe benefit or disability, or any claims for economic loss, compensatory damages,
punitive damages, liquidated damages, attorneys’ fees, expenses and costs.

     3. The Executive expressly represents and warrants that the Executive is the sole owner of the
actual and alleged claims, demands, rights, causes of action and other matters that are released
herein; that the same have not been transferred or assigned or caused to be transferred or assigned
to any other person, firm, corporation or other legal entity; and that the Executive has the full
right and power to grant, execute and deliver the general release, undertakings and agreements
contained herein.

     4. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE, THE EXECUTIVE EXPRESSLY
ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS RELEASE CAREFULLY, THAT THE EXECUTIVE FULLY
UNDERSTANDS ITS TERMS AND CONDITIONS, THAT THE EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN
ATTORNEY PRIOR TO EXECUTING THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE EXECUTIVE
HAS 21 DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS RELEASE AND THAT THE
EXECUTIVE INTENDS TO BE LEGALLY BOUND BY IT. DURING A PERIOD OF 7 DAYS FOLLOWING THE DATE
OF THE EXECUTIVE’S EXECUTION OF THIS RELEASE, THE EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE
RELEASE OF CLAIMS. IF EXECUTIVE DOES NOT SO REVOKE, THIS RELEASE WILL BECOME A BINDING AGREEMENT
BETWEEN EXECUTIVE AND THE COMPANY UPON THE EXPIRATION OF SUCH 7 DAY REVOCATION PERIOD. THIS
RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH 7 DAY REVOCATION
PERIOD.

     5. This Release contains the entire agreement and understanding between the parties relating
to the subject matter hereof and supersedes any prior understandings, agreements or representations
by or between the parties, written or oral, relating to the subject matter hereof.

     6. This Release shall be governed and construed in accordance with the laws of the State of
New Jersey without regard to principles of conflict of laws.

	 	 	 	 	 
	 	EXECUTIVE

 	 
	 	 	  	 
	 	 	 	 
	      	Date:                                                      	 	 
	 

Page 2 of 2 - General Releaseexv10w42

 

Exhibit 10.42

PHARMANET DEVELOPMENT GROUP, INC.

AMENDED AND RESTATED 1999 STOCK PLAN

     1. Purpose and Eligibility. This Stock Plan (the “Plan”) is intended to advance the interests
of PharmaNet Development Group, Inc., (the “Company”) and its Related Corporations, as defined
below, by enhancing the ability of the Company to attract and retain qualified employees,
consultants, Officers; as defined below, and directors, by creating incentives and rewards for
their contributions to the success of the Company and its Related Corporations. This Plan will
provide to (a) Officers and other employees of the Company and its Related Corporations
opportunities to purchase common stock (“Common Stock”) of the Company pursuant to Options granted
hereunder which qualify as incentive stock options (“ISOs”) under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the “Code”), (b) directors, Officers, employees and consultants
of the Company and Related Corporations opportunities to purchase Common Stock in the Company
pursuant to options granted hereunder which do not qualify as ISOs (“Non-Qualified Options”); (c)
directors, Officers, employees and consultants of the Company and Related Corporations
opportunities to receive shares of Common Stock of the Company (“Awards”); (d) directors,
Officers, employees and consultants of the Company and Related Corporations opportunities to
receive grants of stock appreciation rights (“SARs”); (e) directors, Officers, employees and
consultants of the Company and Related Corporations opportunities to receive grants of restricted
stock units (“RSUs”); and (f) non-employee directors of the Company and Related Corporations
opportunities to purchase Common Stock in the Company pursuant to RSUs granted hereunder
(“Non-Discretionary RSUs”). ISOs and Non-Qualified Options are referred to hereafter as “Options.”
Options, Awards, Non-Discretionary RSUs, RSUs and SARs are sometimes referred to hereafter
collectively as “Stock Rights.” Any of the Options and/or Stock Rights may in the Committee’s
discretion be issued in tandem to one or more other Options and/or Stock Rights to the extent
permitted by law.

     For purposes of the Plan, the term “Related Corporations” shall mean a corporation which is a
subsidiary corporation with respect to the Company within the meaning of Section 425(f) of the
Code.

     This Plan is intended to comply in all respects with Rule 16b-3 and its successor rules as
promulgated under Section 16(b) of the Securities Exchange Act of 1934 (“Rule 16b-3”) for
participants who are subject to Section 16 of the Securities Exchange Act of 1934 (the “Exchange
Act”). To the extent any provision of the Plan or action by the Plan administrators fails to so
comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by
the Plan administrators; provided, however, such exercise of discretion by the Plan
administrators shall not interfere with the contract rights of any grantee. In the event that any
interpretation or construction of the Plan is required, it shall be interpreted and construed in
order to ensure, to the maximum extent permissible by law, that such grantee does not violate the
short-swing profit provisions of Section 16(b) of the Exchange Act and that any exemption
available under Rule 16b-3 or other rule is available.

     2. Administration of the Plan.

 

 

          (a) The Plan may be administered by the entire board of directors of the Company (the
“Board”) or by a committee as defined below (the “Committee”). If the Company is subject to the
provisions of the Exchange Act, the Committee shall consist of two or more members of the Board,
each of whom shall be both an “outside director” within the meaning of Section 162(m) of the Code
and a “non-employee director” within the meaning of Rule 16b-3. Once appointed, such Committee
shall continue to serve until otherwise directed by the Board. A majority of the members of any
such Committee shall constitute a quorum, and all determinations of the Committee shall be made by
the majority of its members present at a meeting. Any determination of the Committee under the
Plan may be made without notice or meeting of the Committee by a writing signed by all of the
Committee members. Subject to ratification of the grant of each Option by the Board (but only if
so required by applicable state law), and subject to the terms of the Plan, the Committee shall
have the authority to (i) determine the employees of the Company and Related Corporations (from
among the class of employees eligible under Section 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities eligible under Section
3 to receive Non-Qualified Options, Awards and SARs) to whom Non-Qualified Options, Awards and
SARs may be granted; (ii) determine when Stock Rights may be granted; (iii) determine the exercise
prices of Stock Rights other than Awards, which shall not be less than the fair market value
defined by Section 7; (iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option; (v) [except for Non-Discretionary RSUs]1, determine (subject to
Section 6) when Stock Rights shall become exercisable, the duration of the exercise period and
when each Stock Right shall vest; (vi) determine whether restrictions such as repurchase options
are to be imposed on shares subject to or issued in connection with Stock Rights, and the nature
of such restrictions, if any, and (vii) interpret the Plan and promulgate and rescind rules and
regulations relating to it. The interpretation and construction by the Committee of any provisions
of the Plan or of any Stock Right granted under it shall be final, binding and conclusive unless
otherwise determined by the Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best.

          No members of the Committee or the Board shall be liable for any action or determination made
in good faith with respect to the Plan or any Stock Right granted under it. No member of the
Committee or the Board shall be liable for any act or omission of any other member of the
Committee or the Board or for any act or omission on his own part, including but not limited to
the exercise of any power and discretion given to him under the Plan, except those resulting from
his own gross negligence or willful misconduct.

          (b) The Committee may select one of its members as its chairman and shall hold meetings at
such time and places as it may determine. All references in this Plan to the Committee shall mean
the Board if no Committee has been appointed. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies however caused or remove all members
of the Committee and thereafter directly administer the Plan.

 

			
	1	 	Current proposal is to delete this phrase in order to
make it clear that the Committee has discretion for all Awards.

2

 

          (c) Stock Rights may be granted to members of the Board, whether such grants are in their
capacity as directors, Officers or consultants. All grants of Stock Rights to members of the Board
shall in all other respects be made in accordance with the provisions of this Plan applicable to
other eligible persons. Members of the Board who are either (i) eligible for Stock Rights pursuant
to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the Plan.

          (d) In addition to such other rights of indemnification as he may have as a member of the
Board, and with respect to administration of the Plan and the granting of Stock Rights under it,
each member of the Board and of the Committee shall be entitled without further act on his part to
indemnification from the Company for all expenses (including advances of litigation expenses, the
amount of judgment and the amount of approved settlements made with a view to the curtailment of
costs of litigation) reasonably incurred by him in connection with or arising out of any action,
suit or proceeding, including any appeal thereof, with respect to the administration of the Plan
or the granting of Stock Rights under it in which he may be involved by reason of his being or
having been a member of the Board or the Committee, whether or not he continues to be such member
of the Board or the Committee at the time of the incurring of such expenses; provided,
however, that such indemnity shall not include any expenses incurred by such member of the
Board or the Committee (i) in respect of matters as to which he shall be finally adjudged in such
action, suit or proceeding to have been guilty of or liable for gross negligence or willful
misconduct in the performance of his duties as a member of the Board or the Committee; (ii) in
respect of any matter in which any settlement is effected to an amount in excess of the amount
approved by the Company on the advice of its legal counsel or (iii) arising from any action in
which person asserts a claim against the Company whether such claim is termed a complaint,
counterclaim, cross-claim, third party complaint or otherwise and provided further that no right
of indemnification under the provisions set forth herein shall be available to any such member of
the Board or the Committee unless within 10 days after institution of any such action, suit or
proceeding he shall have offered the Company in writing the opportunity to handle and defend such
action, suit or proceeding at its own expense. The foregoing right of indemnification shall inure
to the benefit of the heirs, executors or administrators of each such member of the Board or the
Committee and shall be in addition to all other rights to which such member of the Board or the
Committee would be entitled to as a matter of law, contract or otherwise. Provided,
however, the exception in Section 2(d) (iii) shall not apply to an action for indemnification
under circumstances where the Company has failed to provide indemnification to the Board or
Committee member which indemnification is required by this Plan.

          (e) The Board may delegate the powers to grant Stock Rights to executive Officers to the
extent permitted by Delaware law.

     3. Eligible Employees and Others.

          (a) ISOs may be granted to any employee of the Company or any Related Corporation. Those
Officers and directors of the Company who are not employees may not be granted ISOs under the
Plan. Subject to compliance with Rule 16b-3 and other applicable securities laws, Non-Qualified
Options, Awards and SARs may be granted to any director

3

 

(whether or not an employee), Officers, employee or consultant of the Company or any Related
Corporation. The Committee may take into consideration a recipient’s individual circumstances in
determining whether to grant an ISO, a Non-Qualified Option, an Award or a SAR. Granting of any
Stock Right to any individual or entity shall neither entitle that individual or entity to, nor
disqualify him from participation in, any other grant of Stock Rights.

          (b) At each annual meeting of the Company’s stockholders at which Board members are to be
elected, commencing with the March 2006 annual meeting, each individual of the Company (i) who is
to continue to serve as a Board member following such meeting or is first elected as a Board
member at such meeting and (ii) who is not otherwise an employee or 10% stockholder of the Company
at such time shall be granted a restricted stock unit award covering that number of shares of
Common Stock (rounded up to the next whole share) determined by dividing the sum of $125,000 by
the fair market value per share of Common Stock (as determined in accordance with Section 7(c)) on
the date of such award. Each restricted unit shall entitle the Board member to receive one share
of Common Stock upon the vesting of that unit pursuant to the following vesting provisions:

               (1) Fifty percent (50%) of each restricted stock unit award will vest, and the underlying
shares of Common Stock shall become immediately issuable, upon the Board member’s continued
service as a Board member through December 30 of the calendar year in which the award is made. The
remaining fifty percent (50%) will vest, and the underlying shares of Common Stock shall become
immediately issuable, upon the Board member’s continued service as a Board member through June 30
of the succeeding calendar year.

               (2) All of the RSUs awarded to such Board member shall vest, and the underlying shares of
Common Stock shall become immediately issuable, upon the effective date of a Change in Control (as
defined in Section 14(c)), provided the Board member continues to serve as a Board member until
such effective date.

          The restricted stock unit award program set forth in Section 3(b) shall, effective with the
restricted stock unit awards made to eligible Board members at the March 2006 annual stockholders
meeting, replace and supersede the Non-Qualified Option program previously in effect as the
formula grant program for such Board members under this Section 3(b).

          (c) The “formula” grant contained in Section 3(b) above shall not be amended more than once
every six months, other than to comport with changes in the Code or other applicable laws.

     4. Common Stock. The Common Stock subject to Stock Rights shall be authorized but unissued
shares of Common Stock, par value $0.001, or shares of Common Stock reacquired by the Company in
any manner, including purchase, forfeiture or otherwise. The aggregate number of shares of Common
Stock which may be issued pursuant to the Plan is 3,150,000 subject to adjustment as provided in
Section 14, and less all Options outstanding as of the date this Plan is approved by the Company’s
stockholders and Options previously exercised under the Second Amended and Restated 1999 Stock
Option Plan. Any such shares may be issued under

4

 

ISOs, Non-Qualified Options, Awards, RSUs or SARs, so long as the number of shares so issued
does not exceed the limitations in this Section. If any Stock Rights granted under the Plan shall
expire or terminate for any reason without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested
shares, the unpurchased shares subject to such Stock Rights and any unvested shares so reacquired
by the Company shall again be available for grants under the Plan.

     5. Granting of Stock Rights.

          (a) Stock Rights may be granted under the Plan at any time on and after the approval of
this Plan by the Company’s stockholders. The date of grant of a Stock Right under the Plan will
be the date specified by the Committee at the time it grants the Stock Right; provided,
however, that such date shall not be prior to the date on which the Committee acts to
approve the grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to Section 17.

          (b) The Committee shall grant Stock Rights to participants that it, in its sole discretion,
selects. Stock Rights shall be granted on such terms as the Committee shall determine except that
ISOs shall be granted on terms that comply with the Code and regulations thereunder.

          (c) A SAR entitles the holder to receive, in cash or in shares of Common Stock, value equal
to (or otherwise based on) the excess of: (a) the fair market value of a specified number of
shares of Common Stock at the time of exercise over (b) an exercise price established by the
Committee. The exercise price of each SAR granted under this Plan shall be established by the
Committee or shall be determined by a method established by the Committee at the time the SAR is
granted, provided the exercise price shall not be less than 100% of the fair market value of a
share of Common Stock on the date of the grant of the SAR, or such higher price as is established
by the Committee. A SAR shall be exercisable in accordance with such terms and conditions and
during such periods as may be established by the Committee. Shares of Common Stock delivered
pursuant to the exercise of a SAR shall be subject to such conditions, restrictions and
contingencies as the Committee may establish in the applicable SAR agreement or document, if any.
Settlement of SARs may be made in shares of Common Stock (valued at their fair market value at the
time of exercise), in cash, or in a combination thereof, as determined in the discretion of the
Committee. The Committee, in its discretion, may impose such conditions, restrictions and
contingencies with respect to shares of Common Stock acquired pursuant to the exercise of each SAR
as the Committee determines to be desirable. A SAR under the Plan shall be subject to such terms
and conditions, not inconsistent with the Plan, as the Committee shall, in its discretion,
prescribe. The terms and conditions of any SAR to any grantee shall be reflected in such form of
agreement or document as is determined by the Committee. A copy of such document, if any, shall be
provided to the grantee, and the Committee may require that the grantee execute such agreement or
document prior to granting the SAR to such person.

          (d) An RSU gives the grantee the right to receive an amount in cash or shares of the
Company’s Common Stock on applicable vesting or other dates, equal to the fair market value of one
share of the Common Stock of the Company. RSUs may be issued either alone, in addition to, or in
tandem with other Stock Rights granted under the Plan. After the Committee

5

 

determines that it will grant RSUs under the Plan, it shall advise the offeree in writing of
the terms, conditions and restrictions related to the offer, including the Restricted Unit Period
(as defined below) applicable to the imposition, if any, of any performance-based condition or
other restriction on the RSUs, the number of RSUs that such person shall be entitled to and the
time within which such person must accept such offer, which shall in no event exceed 30 days from
the date upon which the Committee made the determination to grant the RSUs. The offer shall be
accepted by execution of an RSU agreement in the form determined by the Committee. With respect to
an RSU, which becomes non-forfeitable due to the lapse of time, the Committee shall prescribe in
the RSU agreement, the period in which such restricted Common Stock becomes no longer forfeitable
(the “Restricted Unit Period”). With respect to the granting of the RSU, which becomes
non-forfeitable due to the satisfaction of certain pre-established performance-based objectives
imposed by the Committee, the measurement date of whether such performance-based objectives have
been satisfied shall be a date no earlier than the first anniversary of the date of the RSU. A
recipient who is granted an RSU shall possess no incidents of ownership with respect to such
underlying Common Stock; provided that the RSU agreement may provide for payments in lieu of
dividends to such grantee. The RSU agreement shall contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Committee in its sole
discretion. In addition, the provisions of RSU agreements need not be the same with respect to
each grantee.

          (e) Notwithstanding any provision of this Plan, the Committee may impose conditions and
restrictions on any grant of Stock Rights including forfeiture of vested Options, cancellation of
Common Stock acquired in connection with any Stock Right and forfeiture of profits.

          (f) The Stock Rights shall not be exercisable for a period of more than ten years from the
date of grant.

     6. Sale of Shares. Any shares of the Company’s Common Stock acquired pursuant to Stock Rights
granted hereunder shall not be sold to any person subject to Section 16 under the Exchange Act
until at least six months elapse from the date of acquisition of such Stock Rights. Nothing in
this Section 6 shall be deemed to reduce the holding period set forth under the applicable
securities laws.

     7. ISO Minimum Option Price and Other Limitations.

          (a) The exercise price per share relating to all Options granted under the Plan shall not be
less than the fair market value per share of Common Stock on the last trading day prior to the
date of such grant. For purposes of determining the exercise price, the date of the grant shall be
the later of (i) the date of approval by the Committee or the Board, or (ii) for ISOs, the date
the recipient becomes an employee of the Company. In the case of an ISO to be granted to an
employee owning Common Stock which represents more than 10 percent of the total combined voting
power of all classes of stock of the Company or any Related Corporation, the price per share shall
not be less than 110 percent of the fair market value per share of Common Stock on the date of
grant and such ISO shall not be exercisable after the expiration of five years from the date of
grant.

6

 

          (b) In no event shall the aggregate fair market value (determined at the time an ISO is
granted) of Common Stock for which ISOs granted to any employee are exercisable for the first time
by such employee during any calendar year (under all stock option plans of the Company and any
Related Corporation) exceed $100,000.

          (c) “Fair market value” shall be determined as of the last trading day prior to the date such
Option is granted and shall mean:

               (1) the closing price on the principal market if the Common Stock is listed on a national
securities exchange, the Nasdaq Stock Market (“Nasdaq”) or the National Association of
Securities Dealers, Inc.’s Over-the-Counter Bulletin Board (the “Bulletin Board”);

               (2) if the Company’s shares are not listed on a national securities exchange, Nasdaq or the
Bulletin Board, then the closing price if reported or the average bid and asked price for the
Company’s shares as listed in the National Quotation Bureau’s “pink sheets”;

               (3) if there are no prices available under Section 7(c)(1) or (2), then fair market value
shall be based upon the average closing bid and asked price as determined following a polling of
all dealers making a market in the Company’s Common Stock; or

               (4) if there is no regularly established trading market for the Company’s Common Stock, the
fair market value shall be established by the Board or the Committee taking into consideration all
relevant factors including the most recent price at which the Company’s Common Stock was sold.

     8. Duration of Stock Rights. Subject to earlier termination as provided in Sections 5, 9, 10
and 11, each Stock Right shall expire on the date specified in the original instrument granting
such Stock Right (except with respect to any part of an ISO that is converted into a Non-Qualified
Option pursuant to Section 17), provided, however, that such instrument must comply with
Section 422 of the Code with regard to ISOs and Rule 16b-3 with regard to all Stock Rights granted
pursuant to the Plan to Officers, directors and 10% stockholders of the Company.

     9. Exercise of Options and SARs; Vesting of Stock Rights. Subject to the provisions of
Sections 3(b) and 9 through 13, each Option granted under the Plan shall be exercisable as
follows:

          (a) The Options and SARs shall either be fully vested and exercisable from the date of grant
or shall vest and become exercisable in such installments as the Committee may specify.

          (b) Once an installment becomes exercisable it shall remain exercisable until expiration or
termination of the Option and SAR, unless otherwise specified by the Committee.

7

 

          (c) Each Option and SAR or installment, once it becomes exercisable, may be exercised at any
time or from time to time, in whole or in part, for up to the total number of shares with respect
to which it is then exercisable.

          (d) The Committee shall have the right to accelerate the vesting date of any installment of
any Stock Right; provided that the Committee shall not accelerate the exercise date of any
installment of any Option granted to any employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to Paragraph 17) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code as described in Section 7(b).

     10. Termination of Employment. Subject to any greater restrictions or limitations as may be
imposed by the Committee upon the granting of any Option, if an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or disability as defined
in Section 11, no further installments of his ISOs shall become exercisable, and his ISOs shall
terminate as provided for in the grant or on the day three months after the day of the termination
of his employment, whichever is earlier, but in no event later than on their specified expiration
dates, except to the extent that such ISOs (or unexercised installments thereof) have been
converted into Non-Qualified Options pursuant to Section 17. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those attributable to
illness, military obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such optionee’s right to re-employment
is guaranteed by statute. A leave of absence with the written approval of the Company’s Board
shall not be considered an interruption of employment under the Plan, provided that such written
approval contractually obligates the Company or any Related Corporation to continue the employment
of the optionee after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related Corporations so long
as the optionee continues to be an employee of the Company or any Related Corporation.

     11. Death; Disability. Subject to any greater restrictions or limitations as may be imposed
by the Committee upon the granting of any Option:

          (a) If the holder of an Option or SAR ceases to be employed by the Company and all Related
Corporations by reason of his death, any Options or SARs of such employee may be exercised to the
extent of the number of shares with respect to which he could have exercised it on the date of his
death, by his estate, personal representative or beneficiary who has acquired the Options or SARs
by will or by the laws of descent and distribution, at any time prior to the earlier of the Option
or SARs specified expiration date or three months from the date of the employee’s death.

          (b) If the holder of an Option or SAR ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise any Option or SARs
held by him on the date of termination of employment until the earlier of (i) the Options or SARs
specified expiration date or (ii) one year from the date of the termination of the

8

 

person’s employment. For the purposes of the Plan, the term “disability” shall mean
“permanent and total disability” as defined in Section 22(e)(3) of the Code or successor statute.

     12. Assignment, Transfer or Sale.

          (a) No ISO granted under this Plan shall be assignable or transferable by the grantee except
by will or by the laws of descent and distribution, and during the lifetime of the grantee, each
ISO shall be exercisable only by him, his guardian or legal representative.

          (b) The shares underlying Stock Rights granted to any Officers, director or a beneficial
owner of 10% or more of the Company’s securities registered under Section 12 of the Exchange Act
(“10% Owner”) shall not be sold, assigned or transferred by the grantee until at least six months
elapse from the date of the grant thereof.

          (c) Notwithstanding (b) above, any Officer, director or 10% Owner may transfer Stock Rights
other than ISOs to members of his or her immediate family (i.e. children, grandchildren or
spouse), to trusts for the immediate benefit of such family members and to partnerships or limited
liability companies in which such family members are the only partners or members, upon approval
of the Committee so long as no consideration is received for the transfer.

     13. Terms and Conditions of Stock Rights. Stock Rights shall be evidenced by instruments
(which need not be identical) in such forms as the Committee may from time to time approve. Such
instruments shall conform to the terms and conditions set forth in Sections 5 through 12 hereof
and may contain such other provisions as the Committee deems advisable which are not inconsistent
with the Plan. In granting any Stock Rights, the Committee may specify that Stock Rights shall be
subject to the restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own members and/or one or more Officers
of the Company to execute and deliver such instruments. The proper Officers of the Company are
authorized and directed to take any and all action necessary or advisable from time to time to
carry out the terms of such instruments.

     14. Adjustments Upon Certain Events.

          (a) Subject to any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Stock Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no Stock Rights have yet
been granted or which have been returned to the Plan upon cancellation or expiration of a Stock
Right, as well as the price per share of Common Stock (or cash, as applicable) covered by each such
outstanding Stock Right, shall be proportionately adjusted for any increases or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company shall not be deemed
to have been “effected without receipt of consideration.” Such adjustment shall be made by the
Committee, whose determination in

9

 

that respect shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock subject to a Stock Right. No adjustments shall be
made for dividends or other distributions paid in cash or in property other than securities of the
Company.

          (b) In the event of the proposed dissolution or liquidation of the Company, the Committee
shall notify each Participant as soon as practicable prior to the effective date of such proposed
transaction. To the extent it has not been previously exercised, a Stock Right will terminate
immediately prior to the consummation of such proposed action.

          (c) In the event of a merger of the Company with or into another corporation, or a “Change in
Control” (as defined below), each outstanding Stock Right shall be assumed (as defined below) or an
equivalent option or right substituted by the successor corporation or a parent or subsidiary of
the successor corporation. In the event that the successor corporation refuses to assume or
substitute for the Stock Rights, the Participants shall fully vest in and have the right to
exercise their Stock Rights, including shares or cash as to which it would not otherwise be vested
or exercisable. If a Stock Right becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Committee shall notify the Participant
in writing or electronically that the Stock Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Stock Right shall terminate upon
the expiration of such period.

          For the purposes of this subsection (c), “Change in Control” means the occurrence of any of
the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing fifty percent (50%) or more of
the total voting power represented by the Company’s then outstanding voting securities; (ii) the
consummation of the sale or disposition by the Company of all or substantially all of the Company’s
assets; or (iii) the consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting securities of the
Company or such surviving entity or its parent outstanding immediately after such merger or
consolidation.

          For the purposes of this subsection (c), the Stock Right shall be considered “assumed” if,
following the merger or Change in Control, the option or right confers the right to purchase or
receive, for each share of Common Stock subject to the Stock Right immediately prior to the merger
or Change in Control, the consideration (whether stock, cash, or other securities or property)
received in the merger or Change in Control by holders of Common Stock for each share held on the
effective date of the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares); provided, however,
that if such consideration received in the merger or Change in

10

 

Control is not solely common stock of the successor corporation or its parent, the Committee may,
with the consent of the successor corporation, provide for the consideration to be received upon
the exercise of the Stock Right, for each share of Common Stock subject to the Stock Right, to be
solely common stock of the successor corporation or its parent equal in fair market value to the
per share consideration received by holders of Common Stock in the merger or Change in Control.

          (d) Notwithstanding the foregoing, any adjustments made pursuant to Section 14(a), (b) or (c)
with respect to ISOs shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a “modification” of such ISOs (as
that term is defined in Section 425(h) of the Code) or would cause any adverse tax consequences for
the holders of such ISOs. If the Committee determines that such adjustments made with respect to
ISOs would constitute a modification of such ISOs it may refrain from making such adjustments.

          (e) No fractional shares shall be issued under the Plan and the optionee shall receive from
the Company cash in lieu of such fractional shares.

     15. Means of Exercising Stock Rights.

          (a) A Stock Right (or any part or installment thereof) shall be exercised by giving written
notice to the Company at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is being exercised,
accompanied by full payment of the exercise price therefor either (i) in United States dollars by
check or wire transfer; or (ii) at the discretion of the Committee, through delivery of shares of
Common Stock having a fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right; or (iii) at the discretion of the Committee, by any combination of (i),
(ii) and (iii) above. If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (ii), (iii) or (iv) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant of the Stock
Right in question. The holder of a Stock Right shall not have the rights of a stockholder with
respect to the shares covered by his Stock Right until the date of issuance of a stock certificate
to him for such shares. Except as expressly provided above in Section 14 with respect to changes
in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is issued.

          (b) Each notice of exercise shall, unless the shares of Common Stock are covered by a then
current registration statement under the Securities Act of 1933, as amended (the “Act”), contain
the holder’s acknowledgment in form and substance satisfactory to the Company that (i) such shares
are being purchased for investment and not for distribution or resale (other than a distribution
or resale which, in the opinion of counsel satisfactory to the Company, may be made without
violating the registration provisions of the Act), (ii) the holder has been advised and
understands that (1) the shares have not been registered under the Act and are “restricted
securities” within the meaning of Rule 144 under the Act and are subject to restrictions on
transfer and (2) the Company is under no obligation to register the shares under

11

 

the Act or to take any action which would make available to the holder any exemption from
such registration, and (iii) such shares may not be transferred without compliance with all
applicable federal and state securities laws. Notwithstanding the above, should the Company be
advised by counsel that issuance of shares should be delayed pending registration under federal or
state securities laws or the receipt of an opinion that an appropriate exemption therefrom is
available, the Company may defer exercise of any Stock Right granted hereunder until either such
event has occurred.

     16. Term, Termination and Amendment.

          (a) This Plan was adopted by the Board, but is subject to stockholder approval. This Plan if
approved by the Company’s stockholders, amends and supersedes the Company’s Second Amended and
Restated 1999 Stock Plan.

          (b) The Board may terminate the Plan at any time. Unless sooner terminated, the Plan shall
terminate ten (10) years from the earlier of the date the Plan is adopted by the Board or the date
the Plan received stockholder approval. No Stock Rights may be granted under the Plan while the
Plan is terminated. Termination of the Plan shall not impair rights and obligations under any
Stock Right granted while the Plan is in effect, except with the written consent of the grantee.

          (c) The Board at any time, and from time to time, may amend the Plan. However, except as
provided in Section 14 relating to adjustments in Common Stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent (i) stockholder approval is
necessary to satisfy the requirements of Section 422 of the Code or (ii) required by the rules of
the principal national securities exchange or trading market upon which the Company’s Common Stock
trades. Rights under any Stock Rights granted before amendment of the Plan shall not be impaired by
any amendment of the Plan, except with the written consent of the grantee.

          (d) The Board at any time, and from time to time, may amend the terms of any one or more Stock
Rights; provided, however, that the rights under the Stock Right shall not be impaired by any such
amendment, except with the written consent of the grantee.

     17. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The Committee, at the
written request of any optionee, may in its discretion take such actions as may be necessary to
convert such optionee’s ISOs (or any installments or portions of installments thereof) that have
not been exercised on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a
Related Corporation at the time of such conversion.  Provided, however, the
Committee shall not reprice the Options or extend the exercise period or reduce the exercise price
of the appropriate installments of such Options without the approval of the Company’s
stockholders. At the time of such conversion, the Committee (with the consent of the optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in
its discretion may determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee’s
ISOs

12

 

converted into Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such termination.

     18. Application of Funds. The proceeds received by the Company from the sale of shares
pursuant to Stock Rights granted under the Plan shall be used for general corporate purposes.

     19. Governmental Regulations. The Company’s obligation to sell and deliver shares of the
Common Stock under this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.

     20. Tax Withholding.

     A. The Company’s obligation to deliver shares of Common Stock upon the issuance, exercise or
vesting of Stock Rights (such term includes options, stock appreciation rights, restricted stock
awards and restricted stock units) under the Plan shall be subject to the satisfaction of all
applicable income and employment tax withholding requirements.

     B. The Committee may, in its discretion, provide any or all Optionees and Participants to whom
Stock Rights are granted under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such individuals may become subject
in connection with the issuance, exercise or vesting of those Stock Rights. Such right may be
provided to any such holder in either or both of the following formats:

          Stock Withholding: The election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the issuance, exercise or vesting of such Stock Rights, a
portion of those shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by such individual. The
shares of Common Stock so withheld shall reduce the number of shares of Common Stock authorized for
issuance under the Plan.

          Stock Delivery: The election to deliver to the Company, at the time of the issuance,
exercise or vesting of the Stock Rights, one or more shares of Common Stock previously acquired by
such holder (other than in connection with the issuance exercise or vesting of the shares
triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of
the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the individual. The
shares of Common Stock so delivered shall not be added to the shares of Common Stock authorized for
issuance under the Plan.

          C. For purposes of this Section 20, the term Withholding Taxes shall mean the applicable
income and employment withholding taxes which the Company must collect from the Optionee or
Participant in connection with the issuance, exercise or vesting of the Stock Rights granted to
him or her under the Plan.

     21. Notice to Company of Disqualifying Disposition. Each employee who receives an ISO must
agree to notify the Company in writing immediately after the employee makes a

13

 

Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. A
Disqualifying Disposition is any disposition (including any sale) of such Common Stock before the
later of (i) two years after the date of employee was granted the ISO or (ii) one year after the
date the employee acquired Common Stock by exercising the ISO. If the employee has died before
such stock is sold, these holding period requirements do not apply and no Disqualifying
Disposition can occur thereafter.

     22. Continued Employment. The grant of a Stock Right pursuant to the Plan shall not be
construed to imply or to constitute evidence of any agreement, express or implied, on the part of
the Company or any Related Corporation to retain the grantee in the employ of the Company or a
Related Corporation, as a member of the Company’s Board or in any other capacity, whichever the
case may be.

     23. Governing Law; Construction. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the State of Delaware. In
construing this Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.

     24. Forfeiture of Stock Rights. Notwithstanding any other provision of this Plan, all
vested Stock Rights shall be immediately forfeited in the event of:

          (a) Termination of the relationship with the grantee for cause including, but not limited to,
fraud, theft, dishonesty and violation of Company policy;

          (b) Purchasing or selling securities of the Company without written authorization in
accordance with the Company’s inside information guidelines then in effect;

          (c) Breaching any duty of confidentiality including that required by the Company’s inside
information guidelines then in effect;

          (d) Competing with the Company;

          (e) Failure to execute the Company’s standard stock option agreement, or applicable SAR
agreement or document; or

          (f) A finding by the Company’s board of directors that grantee has acted against the
interests of the Company.

14

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