Document:

EX-10.24

 

Exhibit 10.24

 

 

Medco Health Solutions, Inc.

Deferred Compensation Plan For Directors

 

 

 

 

Medco Health Solutions, Inc. Deferred Compensation Plan For Directors

	 	 	 	 	 	 	 
	Article I	 	 	 	 
	 

	 	Establishment and Purpose
	 	 	1	 
	 
	 	 	 	 	 	 
	Article II 	 	 	 	 
	 

	 	Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	Article III	 	 	 	 
	 

	 	Eligibility and Participation
	 	 	6	 
	 
	 	 	 	 	 	 
	Article IV	 	 	 	 
	 

	 	Deferrals
	 	 	6	 
	 
	 	 	 	 	 	 
	Article V	 	 	 	 
	 

	 	Benefits
	 	 	9	 
	 
	 	 	 	 	 	 
	Article VI	 	 	 	 
	 

	 	Modifications to Payment Schedules
	 	 	11	 
	 
	 	 	 	 	 	 
	Article VII	 	 	 	 
	 

	 	Valuation of Account Balances; Investments
	 	 	12	 
	 
	 	 	 	 	 	 
	Article VIII	 	 	 	 
	 

	 	Administration
	 	 	13	 
	 
	 	 	 	 	 	 
	Article IX	 	 	 	 
	 

	 	Amendment and Termination
	 	 	15	 
	 
	 	 	 	 	 	 
	Article X	 	 	 	 
	 

	 	Informal Funding
	 	 	15	 
	 
	 	 	 	 	 	 
	Article XI	 	 	 	 
	 

	 	Claims
	 	 	16	 
	 
	 	 	 	 	 	 
	Article XII	 	 	 	 
	 

	 	General Provisions
	 	 	21	 

 

 

Medco Health Solutions, Inc. Deferred Compensation Plan For Directors

Article I

Establishment and Purpose

Medco Health Solutions, Inc. (the “Company”) hereby establishes the Medco Health Solutions, Inc.
Deferred Compensation Plan for Directors (the “Plan”), effective January 1, 2008.

The purpose of the Plan is to provide non-employee Directors with an opportunity to defer receipt
of their cash compensation. The Plan is not intended to meet the qualification requirements of Code
Section 401(a), but is intended to meet the requirements of Code Section 409A, and shall be
operated and interpreted consistent with that intent.

The Plan constitutes an unsecured promise by the Company to pay benefits in the future.
Participants in the Plan shall have the status of general unsecured creditors of the Company. The
Plan is unfunded for Federal tax purposes and is exempt from all provisions of ERISA. Any amounts
set aside to defray the liabilities assumed by the Company will remain the general assets of the
Company and shall remain subject to the claims of the Company’s creditors until such amounts are
distributed to the Participants.

Article II

Definitions

	2.1	 	Account. Account means a bookkeeping account maintained by the Committee to record
the payment obligation of the Company to a Participant as determined under the terms of the
Plan. The Committee may maintain an Account to record the total obligation to a Participant
and component Accounts to reflect amounts payable at different times and in different forms.
Reference to an Account means any such Account established by the Committee, as the context
requires. Accounts are intended to constitute unfunded obligations for Federal tax purposes.

	2.2	 	Account Balance. Account Balance means, with respect to any Account, the total
payment obligation owed to a Participant from such Account as of the most recent Valuation
Date.

	2.3	 	Affiliate. Affiliate means a corporation, trade or business that, together with the
Company, is treated as a single employer under Code Section 414(b) or (c).

	2.4	 	Beneficiary. Beneficiary means a natural person, estate, or trust designated by a
Participant to receive payments to which a Beneficiary is entitled in accordance with
provisions of the Plan. The Participant’s spouse, if living, otherwise the Participant’s
estate, shall be the Beneficiary if: (i) the Participant has failed to properly designate a
Beneficiary, or (ii) all designated Beneficiaries have predeceased the Participant.

A former spouse shall have no interest under the Plan, as Beneficiary or otherwise, unless the
Participant designates such person as a Beneficiary after dissolution of the marriage.

1

 

	2.5	 	Business Day. A Business Day is each day on which the New York Stock Exchange is
open for business.

	2.6	 	Change in Control. Change in Control occurs on the date on which any of the
following events occur (i) a change in the ownership of the Company; (ii) a change in the
effective control of the Company; (iii) a change in the ownership of a substantial portion of
the assets of the Company.

For purposes of this Section, a change in the ownership of the Company occurs on the date on
which any one person, or more than one person acting as a group, acquires ownership of stock
of the Company that, together with stock held by such person or group constitutes more than
50% of the total fair market value or total voting power of the stock of the Company. A
change in the effective control of the Company occurs on the date on which either (i) a
person, or more than one person acting as a group, acquires ownership of stock of the
Company possessing 30% or more of the total voting power of the stock of the Company, taking
into account all such stock acquired during the 12-month period ending on the date of the
most recent acquisition, or (ii) a majority of the members of the Company’s Board of
Directors is replaced during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of such Board of Directors prior to the date of
the appointment or election, but only if no other corporation is a majority shareholder of
the Company . A change in the ownership of a substantial portion of assets occurs on the
date on which any one person, or more than one person acting as a group, other than a person
or group of persons that is related to the Company, acquires assets from the Company that
have a total gross fair market value equal to or more than 40% of the total gross fair
market value of all of the assets of the Company immediately prior to such acquisition or
acquisitions, taking into account all such assets acquired during the 12-month period ending
on the date of the most recent acquisition.

An event constitutes a Change in Control with respect to a Participant only if the
Participant performs services for the company that has experienced the Change in Control, or
the Participant’s relationship to the affected company otherwise satisfies the requirements
of Treasury Regulation Section 1.409A-3(i)(5)(ii).

The determination as to the occurrence of a Change in Control shall be based on objective
facts and in accordance with the requirements of Code Section 409A.

	2.7	 	Change in Control Benefit. Change in Control Benefit means the benefit payable to a
Participant in accordance with Section 5.1.

	2.8	 	Claimant. Claimant means a Participant or Beneficiary filing a claim under Article XI
of this Plan.

	2.9	 	Code. Code means the Internal Revenue Code of 1986, as amended from time to time.

2

 

	2.10	 	Code Section 409A. Code Section 409A means section 409A of the Code, and regulations
and other guidance issued by the Treasury Department and Internal Revenue Service thereunder.

	2.11	 	Committee. Committee means the committee appointed by the Board of Directors of the
Company (or the appropriate committee of such board) to administer the Plan. If no designation
is made, the Chairman of the Board or his delegate shall have and exercise the powers of the
Committee.

	2.12	 	Common Stock. Common Stock shall mean the common stock of the Company, par value
$0.01.

	2.13	 	Company. Company means Medco Health Solutions, Inc.

	2.14	 	Compensation. Compensation means such annual retainer, meeting fees, lead director
fees, committee chair and/or committee member fees paid to a Director in cash that are
approved by the Committee as Compensation that may be deferred under this Plan. Compensation
shall not include any compensation that has been previously deferred under this Plan or any
other arrangement subject to Code Section 409A.

	2.15	 	Compensation Deferral Agreement. Compensation Deferral Agreement means an agreement
between a Participant and the Company that specifies (i) the amount of each component of
Compensation that the Participant has elected to defer to the Plan in accordance with the
provisions of Article IV, and (ii) the Payment Schedule applicable to one or more Accounts.
The Committee may permit different deferral amounts for each component of Compensation and may
establish a minimum or maximum deferral amount for each such component. Unless otherwise
specified by the Committee in the Compensation Deferral Agreement, Participants may defer up
to 100% of their Compensation for a Plan Year. A Compensation Deferral Agreement may also
specify the investment allocation described in Section 7.4.

	2.16	 	Death Benefit. Death Benefit means the benefit payable under the Plan to a
Participant’s Beneficiary(ies) upon the Participant’s death as provided in Section 5.1 of the
Plan.

	2.17	 	Deferral. Deferral means a credit to a Participant’s Account(s) that records that
portion of the Participant’s Compensation that the Participant has elected to defer to the
Plan in accordance with the provisions of Article IV. Unless the context of the Plan clearly
indicates otherwise, a reference to Deferrals includes Earnings attributable to such
Deferrals.

Deferrals shall be calculated with respect to the gross cash Compensation payable to the
Participant prior to any deductions or withholdings, but shall be reduced by the Committee
as necessary so that it does not exceed 100% of the cash Compensation of the Participant
remaining after deduction of all amounts required by law.

3

 

	2.18	 	Director. Director means a member of the Board of Directors of the Company who is
not an Employee of the Company.

	2.19	 	Earnings. Earnings means an adjustment to the value of an Account in accordance with
Article VII.

	2.20	 	Effective Date. Effective Date means January 1, 2008.
	 
	2.21	 	Employee. Employee means a common-law employee of an Employer.
	 
	2.22	 	Employer. Employer means the Company and each Affiliate.

	2.23	 	ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time.

	2.24	 	Participant. Participant means a Director who has received notification of his or her
eligibility to defer Compensation under the Plan under Section 3.1 and any other person with
an Account Balance greater than zero, regardless of whether such individual continues to be a
Director. A Participant’s continued participation in the Plan shall be governed by Section 3.2
of the Plan.

	2.25	 	Payment Schedule. Payment Schedule means the date as of which payment of an Account
under the Plan will commence and the form in which payment of such Account will be made.

	2.26	 	Plan. Generally, the term Plan means the “Medco Health Solutions, Inc. Deferred
Compensation Plan for Directors” as documented herein and as may be amended from time to time
hereafter. However, to the extent permitted or required under Code Section 409A, the term Plan
may in the appropriate context also mean a portion of the Plan that is treated as a single
plan under Treas. Reg. Section 1.409A-1(c), or the Plan or portion of the Plan and any other
nonqualified deferred compensation plan or portion thereof that is treated as a single plan
under such section.

	2.27	 	Plan Year. Plan Year means January 1 through December 31.

	2.28	 	Retirement Account. Retirement Account means an Account established by the Committee
to record the amounts payable to a Participant upon a Separation from Service. Unless the
Participant has established a Specified Date Account, all Deferrals and Company Contributions
shall be allocated to a Retirement Account on behalf of the Participant.

	2.29	 	Retirement Benefit. Retirement Benefit means the benefit payable to a Participant
under the Plan following the Participant’s Separation from Service.

	2.30	 	Separation from Service. A Director incurs a Separation from Service when the
Director ceases to be a member of the Board of Directors for any reason.

4

 

For purposes of determining whether a Separation from Service has occurred, the Employer
means the Employer as defined in Section 2.22 of the Plan, except that for purposes of
determining whether another organization is an Affiliate of the Company, common ownership of
at least 50% shall be determinative.

The Committee specifically reserves the right to determine whether a sale or other
disposition of substantial assets to an unrelated party constitutes a Separation from
Service with respect to a Participant providing services to the seller immediately prior to
the transaction and providing services to the buyer after the transaction. Such
determination shall be made in accordance with the requirements of Code Section 409A.

	2.31	 	Specified Date Account. A Specified Date Account means an Account established
pursuant to Section 4.3 that will be paid (or that will commence to be paid) at a future date
as specified in the Participant’s Compensation Deferral Agreement. Unless otherwise determined
by the Committee, a Participant may maintain no more than five Specified Date Accounts.

	2.32	 	Specified Date Benefit. Specified Date Benefit means the benefit payable to a
Participant under the Plan in accordance with Section 5.1.

	2.33	 	Substantial Risk of Forfeiture. Substantial Risk of Forfeiture shall have the meaning
specified in Treas. Reg. Section 1.409A-1(d).

	2.34	 	Unforeseeable Emergency. An Unforeseeable Emergency means a severe financial hardship
to the Participant resulting from an illness or accident of the Participant, the Participant’s
spouse, the Participant’s dependent (as defined in Code section 152, without regard to section
152(b)(1), (b)(2), and (d)(1)(B)), or a Beneficiary; loss of the Participant’s property due to
casualty (including the need to rebuild a home following damage to a home not otherwise
covered by insurance, for example, as a result of a natural disaster); or other similar
extraordinary and unforeseeable circumstances arising as a result of events beyond the control
of the Participant. The types of events which may qualify as an Unforeseeable Emergency may be
limited by the Committee.

2.35 Valuation Date. Valuation Date shall mean each Business Day.

Article III

Eligibility and Participation

	3.1	 	Eligibility and Participation. A Director becomes a Participant upon receipt of
notification of eligibility to participate.

	3.2	 	Duration. A Participant shall be eligible to defer Compensation, subject to the terms
of the Plan, for as long as such Participant remains a Director. A Participant who is no
longer a Director may not defer Compensation under the Plan but may otherwise exercise all of
the rights of a Participant under the Plan with respect to his or her Account(s). On and after
a Separation from Service, a Participant shall remain a Participant as long as his

5

 

or her Account Balance is greater than zero and during such time may continue to make
allocation elections as provided in Section 7.4. An individual shall cease being a
Participant in the Plan when all benefits under the Plan to which he or she is entitled have
been paid

Article IV

Deferrals

	4.1	 	Deferral Elections, Generally.

	 	(a)	 	A Participant may elect to defer Compensation by submitting a Compensation
Deferral Agreement during the enrollment periods established by the Committee and in
the manner specified by the Committee, but in any event, in accordance with Section
4.2. A Compensation Deferral Agreement that is not timely filed with respect to a
service period or component of Compensation shall be considered void and shall have no
effect with respect to such service period or Compensation. The Committee may modify
any Compensation Deferral Agreement prior to the date the election becomes irrevocable
under the rules of Section 4.2.
	 
	 	(b)	 	The Participant shall specify on his or her Compensation Deferral Agreement the
amount of Deferrals and whether to allocate Deferrals to a Retirement Account or to a
Specified Date Account. If no designation is made, Deferrals shall be allocated to the
Retirement Account. A Participant may also specify in his or her Compensation Deferral
Agreement the Payment Schedule applicable to his or her Plan Accounts. If the Payment
Schedule is not specified in a Compensation Deferral Agreement, the Payment Schedule
shall be the Payment Schedule specified in Section 5.2.

	4.2	 	Timing Requirements for Compensation Deferral Agreements.

	 	(a)	 	First Year of Eligibility. In the case of the first year in which a Director
becomes eligible to participate in the Plan, the Director has up to 30 days following
his or her initial eligibility to submit a Compensation Deferral Agreement with respect
to Compensation to be earned during such year. The Compensation Deferral Agreement
described in this paragraph becomes irrevocable upon the end of such 30-day period. The
determination of whether a Director may file a Compensation Deferral Agreement under
this paragraph shall be determined in accordance with the rules of Code Section 409A,
including the provisions of Treas. Reg. Section 1.409A-2(a)(7).
	 
	 	 	 	A Compensation Deferral Agreement filed under this paragraph applies to Compensation
earned on and after the date the Compensation Deferral Agreement becomes
irrevocable.

6

 

	 	(b)	 	Prior Year Election. Except as otherwise provided in this Section 4.2,
Participants may defer Compensation by filing a Compensation Deferral Agreement no
later than December 31 of the year prior to the year in which the Compensation to be
deferred is earned. A Compensation Deferral Agreement described in this paragraph shall
become irrevocable with respect to such Compensation as of January 1 of the year in
which such Compensation is earned.
	 
	 	(c)	 	Short-Term Deferrals. Compensation that meets the definition of a “short-term
deferral” described in Treas. Reg. Section 1.409A-1(b)(4) may be deferred in accordance
with the rules of Article VI, applied as if the date the Substantial Risk of Forfeiture
lapses is the date payments were originally scheduled to commence, provided, however,
that the provisions of Section 6.3 shall not apply to payments attributable to a Change
in Control (as defined in Treas. Reg. Section 1.409A-3(i)(5)).
	 
	 	(d)	 	Certain Forfeitable Rights. With respect to a legally binding right to a
payment in a subsequent year that is subject to a forfeiture condition requiring the
Participant’s continued services for a period of at least twelve months from the date
the Participant obtains the legally binding right, an election to defer such
Compensation may be made on or before the 30th day after the Participant obtains the
legally binding right to the Compensation, provided that the election is made at least
twelve months in advance of the earliest date at which the forfeiture condition could
lapse. The Compensation Deferral Agreement described in this paragraph becomes
irrevocable after such 30th day. If the forfeiture condition applicable to the payment
lapses before the end of the required service period as a result of the Participant’s
death or disability (as defined in Treas. Reg. Section 1.409A-3(i)(4)) or upon a Change
in Control (as defined in Treas. Reg. Section 1.409A-3(i)(5)), the Compensation
Deferral Agreement will be void unless it would be considered timely under another rule
described in this Section.
	 
	 	(e)	 	“Evergreen” Deferral Elections. Compensation Deferral Agreements will continue
in effect for each subsequent year or performance period. Such “evergreen” Compensation
Deferral Agreements will become effective with respect to an item of Compensation on
the date such election becomes irrevocable under this Section 4.2. An evergreen
Compensation Deferral Agreement may be terminated or modified prospectively with
respect to Compensation for which such election remains revocable under this Section
4.2. A Participant whose Compensation Deferral Agreement is cancelled in accordance
with Section 4.6 will be required to file a new Compensation Deferral Agreement under
this Article IV in order to recommence Deferrals under the Plan.

	4.3	 	Allocation of Deferrals. A Compensation Deferral Agreement may allocate Deferrals to
one or more Specified Date Accounts and/or to the Retirement Account. The Committee may, in
its discretion, establish a minimum deferral period for Specified Date Accounts (for example,
the third Plan Year following the year Compensation subject to the Compensation Deferral
Agreement is earned).

7

 

	4.4	 	Deductions from Pay. The Committee has the authority to determine the methods by
which any component of Compensation subject to a Compensation Deferral Agreement will be
deducted from a Participant’s Compensation.

	4.5	 	Vesting. Participant Deferrals shall be 100% vested at all times.

	4.6	 	Cancellation of Deferrals. The Committee may cancel a Participant’s Deferrals for the
balance of the Plan Year in which an Unforeseeable Emergency occurs.

Article V

Benefits

	5.1	 	Benefits, Generally. A Participant shall be entitled to the following benefits under
the Plan:

	 	(a)	 	Retirement Benefit. Upon the Participant’s Separation from Service for any
reason other than death, he or she shall be entitled to a Retirement Benefit. The
Retirement Benefit shall be equal to the portion of the Participant’s Retirement
Account. The Retirement Benefit shall be based on the value of that Account as of the
end of the month in which Separation from Service occurs. Payment of the Retirement
Benefit will be made or begin on the first day of the month following the month in
which Separation from Service occurs.
	 
	 	(b)	 	Specified Date Benefit. If the Participant has established one or more
Specified Date Accounts, he or she shall be entitled to a Specified Date Benefit with
respect to each such Specified Date Account. The Specified Date Benefit shall be equal
to the portion of the Specified Date Account, based on the value of that Account as of
the end of the month designated by the Participant at the time the Account was
established. Payment of the Specified Date Benefit will be made or begin the first day
of the month following the designated month.
	 
	 	(c)	 	Death Benefit. In the event of the Participant’s death, his or her designated
Beneficiary(ies) shall be entitled to a Death Benefit. The Death Benefit shall equal
the unpaid balances of any Accounts. The Death Benefit shall be based on the value of
those Accounts as of the end of the month in which death occurred, with payment made on
the first day of the following month.
	 
	 	(e)	 	Change in Control Benefit. A Participant will receive a single lump sum payment
equal to the unpaid balance of all of his or her Accounts upon a Change in Control.
Accounts will be valued as of the last day of the month in which the Change in Control
occurs, with payment made within 90 days of such Change in Control.
	 
	 	(f)	 	Unforeseeable Emergency Payments. A Participant who experiences an
Unforeseeable Emergency may submit a written request to the Committee to receive
payment of all or any portion of his or her Accounts. Whether a

8

 

	 	 	 	Participant or Beneficiary is faced with an Unforeseeable Emergency permitting an
emergency payment shall be determined by the Committee based on the relevant facts
and circumstances of each case, but, in any case, a distribution on account of
Unforeseeable Emergency may not be made to the extent that such emergency is or may
be reimbursed through insurance or otherwise, by liquidation of the Participant’s
assets, to the extent the liquidation of such assets would not cause severe
financial hardship, or by cessation of Deferrals under this Plan. If an emergency
payment is approved by the Committee, the amount of the payment shall not exceed the
amount reasonably necessary to satisfy the need, taking into account the additional
compensation that is available to the Participant as the result of cancellation of
deferrals to the Plan, including amounts necessary to pay any taxes or penalties
that the Participant reasonably anticipates will result from the payment. The amount
of the emergency payment shall reduce the amounts otherwise payable to the
Participant. Emergency payments shall be paid in a single lump sum within the 90-day
period following the date the payment is approved by the Committee.

5.2 Form of Payment.

	 	(a)	 	Retirement Benefit. A Participant who is entitled to receive a Retirement
Benefit shall receive payment of such benefit in a single lump sum, unless the
Participant elects on his or her Compensation Deferral Agreement to have such benefit
paid in one of the following alternative forms of payment: (i) substantially equal
annual installments over a period of two to ten years, as elected by the Participant,
or (ii) a lump sum payment of a percentage of the Retirement Account, with the balance
paid in substantially equal annual installments over a period of two to ten years, as
elected by the Participant.
	 
	 	(b)	 	Specified Date Benefit. The Specified Date Benefit shall be paid in a single
lump sum, unless the Participant elects on the Compensation Deferral Agreement with
which the account was established to have the Specified Date Account paid in
substantially equal annual installments over a period of two to five years, as elected
by the Participant.
	 
	 	(c)	 	Death Benefit. A designated Beneficiary who is entitled to receive a Death
Benefit shall receive payment of such benefit in a single lump sum.
	 
	 	(d)	 	Change in Control. A Participant who is entitled to receive a Change in Control
Benefit shall receive payment of such benefit in a single lump sum.
	 
	 	(e)	 	Rules Applicable to Installment Payments. If a Payment Schedule specifies
installment payments, annual payments will be made beginning as of the payment
commencement date for such installments and shall continue on each annual anniversary
thereof until the number of installment payments specified in the Payment Schedule has
been paid. The amount of each installment payment shall

9

 

	 	 	 	be determined by dividing (a) by (b), where (a) equals the Account Balance as of the
Valuation Date and (b) equals the remaining number of installment payments.

For purposes of Article VI, installment payments will be treated as a single form of
payment.

	5.3	 	Acceleration of or Delay in Payments. The Committee, in its sole and absolute
discretion, may elect to accelerate the time or form of payment of a benefit owed to the
Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section
1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay the time
for payment of a benefit owed to the Participant hereunder, to the extent permitted under
Treas. Reg. Section 1.409A-2(b)(7).

Article VI

Modifications to Payment Schedules

	6.1	 	Participant’s Right to Modify. A Participant may modify any or all of the
alternative Payment Schedules with respect to an Account, consistent with the permissible
Payment Schedules available under the Plan, provided such modification complies with the
requirements of this Article VI.

	6.2	 	Time of Election. The date on which a modification election is submitted to the
Committee must be at least twelve months prior to the date on which payment is scheduled to
commence under the Payment Schedule in effect prior to the modification.

	6.3	 	Date of Payment under Modified Payment Schedule. Except with respect to modifications
that relate to the payment of a Death Benefit, the date payments are to commence under the
modified Payment Schedule must be no earlier than five years after the date payment would have
commenced under the original Payment Schedule. Under no circumstances may a modification
election result in an acceleration of payments in violation of Code Section 409A.

	6.4	 	Effective Date. A modification election submitted in accordance with this Article VI
is irrevocable upon receipt by the Committee and becomes effective 12 months after such date.

	6.5	 	Effect on Accounts. An election to modify a Payment Schedule is specific to the
Account or payment event to which it applies, and shall not be construed to affect the Payment
Schedules of any other Accounts.

10

 

Article VII

Valuation of Account Balances; Investments

	7.1	 	Valuation. Deferrals shall be credited to appropriate Accounts at the times
determined by the Committee. Valuation of Accounts shall be performed under procedures
approved by the Committee.

	7.2	 	Earnings Credit. Each Account will be credited with Earnings on each Business Day,
based upon the Participant’s investment allocation among a menu of investment options selected
in advance by the Committee, in accordance with the provisions of this Article VII
(“investment allocation”).

	7.3	 	Investment Options. Investment options will be determined by the Committee. The
Committee, in its sole discretion, shall be permitted to add or remove investment options from
the Plan menu from time to time, provided that any such additions or removals of investment
options shall not be effective with respect to any period prior to the effective date of such
change.

	7.4	 	Investment Allocations. A Participant’s investment allocation constitutes a deemed,
not actual, investment among the investment options comprising the investment menu. At no time
shall a Participant have any real or beneficial ownership in any investment option included in
the investment menu, nor shall the Company or any trustee acting on its behalf have any
obligation to purchase actual securities as a result of a Participant’s investment allocation.
A Participant’s investment allocation shall be used solely for purposes of adjusting the value
of a Participant’s Account Balances.

A Participant shall specify an investment allocation for each of his Accounts in accordance
with procedures established by the Committee. Allocation among the investment options must
be designated in increments of 1%. The Participant’s investment allocation will become
effective on the same Business Day or, in the case of investment allocations received after
a time specified by the Committee, the next Business Day.

A Participant may change an investment allocation on any Business Day, both with respect to
future credits to the Plan and with respect to existing Account Balances, in accordance with
procedures adopted by the Committee. Changes shall become effective on the same Business Day
or, in the case of investment allocations received after a time specified by the Committee,
the next Business Day, and shall be applied prospectively.

	7.5	 	Unallocated Deferrals and Accounts. If the Participant fails to make an investment
allocation with respect to an Account, such Account shall be invested in an investment option,
the primary objective of which is the preservation of capital, as determined by the Committee.

11

 

Article VIII

Administration

	8.1	 	Plan Administration. This Plan shall be administered by the Committee which shall
have discretionary authority to make, amend, interpret and enforce all appropriate rules and
regulations for the administration of this Plan and to utilize its discretion to decide or
resolve any and all questions, including but not limited to eligibility for benefits and
interpretations of this Plan and its terms, as may arise in connection with the Plan. Claims
for benefits shall be filed with the Committee and resolved in accordance with the claims
procedures in Article XI.

	8.2	 	Administration Upon Change in Control. Upon a Change in Control, the Committee, as
constituted immediately prior to such Change in Control, shall continue to act as the
Committee. The individual who was the Chairman of the Board of the Company (or if such person
is unable or unwilling to act, the next highest ranking board member) prior to the Change in
Control shall have the authority (but shall not be obligated) to appoint an independent third
party to act as the Committee.

Upon such Change in Control, the Company may not remove the Committee, unless 2/3rds of the
members of the Board of Directors of the Company and a majority of Participants and
Beneficiaries with Account Balances consent to the removal and replacement Committee.
Notwithstanding the foregoing, neither the Committee nor the officer described above shall
have authority to direct investment of trust assets under any rabbi trust described in
Section 10.2.

The Company shall, with respect to the Committee identified under this Section, (i) pay all
reasonable expenses and fees of the Committee, (ii) indemnify the Committee (including
individuals serving as Committee) against any costs, expenses and liabilities including,
without limitation, attorneys’ fees and expenses arising in connection with the performance
of the Committee hereunder, except with respect to matters resulting from the Committee’s
gross negligence or willful misconduct and (iii) supply full and timely information to the
Committee on all matters related to the Plan, any rabbi trust, Participants, Beneficiaries
and Accounts as the Committee may reasonably require.

	8.3	 	Withholding. The Company shall have the right to withhold from any payment due under
the Plan (or with respect to any amounts credited to the Plan) any taxes required by law to be
withheld in respect of such payment (or credit). Withholdings with respect to amounts credited
to the Plan shall first be deducted from Compensation that has not been deferred to the Plan
and then from Compensation deferred to the Plan.

	8.4	 	Indemnification. The Company shall indemnify and hold harmless each employee,
officer, director, agent or organization, to whom or to which are delegated duties,
responsibilities, and authority under the Plan or otherwise with respect to administration of
the Plan, including, without limitation, the Committee and its agents, against all claims,
liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him
or it (including but not limited to reasonable attorney fees) which arise as a result of his
or its actions or failure to act in connection with the operation and

12

 

administration of the Plan to the extent lawfully allowable and to the extent that such
claim, liability, fine, penalty, or expense is not paid for by liability insurance purchased
or paid for by the Company. Notwithstanding the foregoing, the Company shall not indemnify
any person or organization if his or its actions or failure to act are due to gross
negligence or willful misconduct or for any such amount incurred through any settlement or
compromise of any action unless the Company consents in writing to such settlement or
compromise.

	8.5	 	Delegation of Authority. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative duties as it sees fit,
and may from time to time consult with legal counsel who shall be legal counsel to the
Company.

	8.6	 	Binding Decisions or Actions. The decision or action of the Committee in respect of
any question arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations thereunder shall be final and conclusive
and binding upon all persons having any interest in the Plan.

Article IX

Amendment and Termination

	9.1	 	Amendment and Termination. The Company may at any time and from time to time amend
the Plan or may terminate the Plan as provided in this Article IX.

	9.2	 	Amendments. The Company, by action taken by its Chairman of the Board of Directors,
may amend the Plan at any time and for any reason, provided that any such amendment shall not
reduce the Account Balances of any Participant accrued as of the date of any such amendment or
restatement (as if the Participant had incurred a voluntary Separation from Service on such
date) or reduce any rights of a Participant under the Plan or other Plan features with respect
to Deferrals made prior to the date of any such amendment or restatement without the consent
of the Participant except to the extent required by law or necessary to avoid taxation of the
Participant under Code Section 409A. The Committee is granted the authority to amend the Plan
without the consent of the Chairman of the Board of Directors for the purpose of (i)
conforming the Plan to the requirements of law, (ii) facilitating the administration of the
Plan, (iii) clarifying provisions based on the Committee’s interpretation of the document and
(iv) making such other amendments as the Board of Directors may authorize.

	9.3	 	Termination. The Company, by action taken by its Board of Directors, may terminate
the Plan and pay Participants and Beneficiaries their Account Balances in a single lump sum
at any time, to the extent and in accordance with Treas. Reg. Section 1.409A-3(j)(4)(ix).

	9.4	 	Accounts Taxable Under Code Section 409A. The Plan is intended to constitute a plan
of deferred compensation that meets the requirements for deferral of income taxation under
Code Section 409A. The Committee, pursuant to its authority to interpret the Plan, may

13

 

sever from the Plan or any Compensation Deferral Agreement any provision or exercise of a
right that otherwise would result in a violation of Code Section 409A.

Article X

Informal Funding

	10.1	 	General Assets. Obligations established under the terms of the Plan may be satisfied
from the general funds of the Company, or a trust described in this Article X. No Participant,
spouse or Beneficiary shall have any right, title or interest whatever in assets of the
Company. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a fiduciary relationship, between the
Company and any Director, spouse, or Beneficiary. To the extent that any person acquires a
right to receive payments hereunder, such rights are no greater than the right of an unsecured
general creditor of the Company.

	10.2	 	Rabbi Trust. The Company may, in its sole discretion, establish a grantor trust,
commonly known as a rabbi trust, as a vehicle for accumulating assets to pay benefits under
the Plan. Payments under the Plan may be paid from the general assets of the Company or from
the assets of any such rabbi trust. Payment from any such source shall reduce the obligation
owed to the Participant or Beneficiary under the Plan.

Article XI

Claims

	11.1	 	Filing a Claim. Any controversy or claim arising out of or relating to the Plan shall
be filed in writing with the Committee which shall make all determinations concerning such
claim. Any claim filed with the Committee and any decision by the Committee denying such claim
shall be in writing and shall be delivered to the Participant or Beneficiary filing the claim
(the “Claimant”).

	 	(a)	 	In General. Notice of a denial of benefits will be provided within ninety (90)
days of the Committee’s receipt of the Claimant’s claim for benefits. If the Committee
determines that it needs additional time to review the claim, the Committee will
provide the Claimant with a notice of the extension before the end of the initial
ninety (90) day period. The extension will not be more than ninety (90) days from the
end of the initial ninety (90) day period and the notice of extension will explain the
special circumstances that require the extension and the date by which the Committee
expects to make a decision.
	 
	 	(b)	 	Contents of Notice. If a claim for benefits is completely or partially denied,
notice of such denial shall be in writing and shall set forth the reasons for denial in
plain language. The notice shall (i) cite the pertinent provisions of the Plan document
and (ii) explain, where appropriate, how the Claimant can perfect the claim, including
a description of any additional material or information necessary to complete the claim
and why such material or information is necessary. The claim

14

 

	 	 	 	denial also shall include an explanation of the claims review procedures and the
time limits applicable to such procedures, including a statement of the Claimant’s
right, if any, to bring a civil action under Section 502(a) of ERISA following an
adverse decision on review.

	11.2	 	Appeal of Denied Claims. A Claimant whose claim has been completely or partially
denied shall be entitled to appeal the claim denial by filing a written appeal with a
committee designated to hear such appeals (the “Appeals Committee”). A Claimant who timely
requests a review of the denied claim (or his or her authorized representative) may review,
upon request and free of charge, copies of all documents, records and other information
relevant to the denial and may submit written comments, documents, records and other
information relevant to the claim to the Appeals Committee. All written comments, documents,
records, and other information shall be considered “relevant” if the information (i) was
relied upon in making a benefits determination,(ii) was submitted, considered or generated in
the course of making a benefits decision regardless of whether it was relied upon to make the
decision, or (iii) demonstrates compliance with administrative processes and safeguards
established for making benefit decisions. The Appeals Committee may, in its sole discretion
and if it deems appropriate or necessary, decide to hold a hearing with respect to the claim
appeal.

	 	(a)	 	In General. Appeal of a denied benefits claim must be filed in writing with the
Appeals Committee no later than sixty (60) days after receipt of the written
notification of such claim denial. The Appeals Committee shall make its decision
regarding the merits of the denied claim within sixty (60) days following receipt of
the appeal (or within one hundred and twenty (120) days after such receipt, in a case
where there are special circumstances requiring extension of time for reviewing the
appealed claim). If an extension of time for reviewing the appeal is required because
of special circumstances, written notice of the extension shall be furnished to the
Claimant prior to the commencement of the extension. The notice will indicate the
special circumstances requiring the extension of time and the date by which the Appeals
Committee expects to render the determination on review. The review will take into
account comments, documents, records and other information submitted by the Claimant
relating to the claim without regard to whether such information was submitted or
considered in the initial benefit determination.
	 
	 	(b)	 	Contents of Notice. If a benefits claim is completely or partially denied on
review, notice of such denial shall be in writing and shall set forth the reasons for
denial in plain language.

The decision on review shall set forth (i) the specific reason or reasons for the
denial, (ii) specific references to the pertinent Plan provisions on which the
denial is based, (iii) a statement that the Claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, or other information relevant (as defined above) to the Claimant’s claim,
and (iv) a statement describing any voluntary appeal procedures offered by the plan
and a

15

 

statement of the Claimant’s right, if any, to bring an action under Section 502(a)
of ERISA.

	11.3	 	Claims Appeals Upon Change in Control. Upon a Change in Control, the Appeals
Committee, as constituted immediately prior to such Change in Control, shall continue to act
as the Appeals Committee. Upon such Change in Control, the Company may not remove any member
of the Appeals Committee, but may replace resigning members if 2/3rds of the members of the
Board of Directors of the Company and a majority of Participants and Beneficiaries with
Account Balances consent to the replacement.

The Appeals Committee shall have the exclusive authority at the appeals stage to interpret
the terms of the Plan and resolve appeals under the Claims Procedure.

Each Company shall, with respect to the Committee identified under this Section, (i) pay its
proportionate share of all reasonable expenses and fees of the Appeals Committee, (ii)
indemnify the Appeals Committee (including individual committee members) against any costs,
expenses and liabilities including, without limitation, attorneys’ fees and expenses arising
in connection with the performance of the Appeals Committee hereunder, except with respect
to matters resulting from the Appeals Committee’s gross negligence or willful misconduct and
(iii) supply full and timely information to the Appeals Committee on all matters related to
the Plan, any rabbi trust, Participants, Beneficiaries and Accounts as the Appeals Committee
may reasonably require.

	11.4	 	Legal Action. A Claimant may not bring any legal action, including commencement of
any arbitration, relating to a claim for benefits under the Plan unless and until the Claimant
has followed the claims procedures under the Plan and exhausted his or her administrative
remedies under such claims procedures.

If a Participant or Beneficiary prevails in a legal proceeding brought under the Plan to
enforce the rights of such Participant or any other similarly situated Participant or
Beneficiary, in whole or in part, the Company shall reimburse such Participant or
Beneficiary for all legal costs, expenses, attorneys’ fees and such other liabilities
incurred as a result of such proceedings. If the legal proceeding is brought in connection
with a Change in Control, or a “change in control” as defined in a rabbi trust described in
Section 10.2, the Participant or Beneficiary may file a claim directly with the trustee for
reimbursement of such costs, expenses and fees. For purposes of the preceding sentence, the
amount of the claim shall be treated as if it were an addition to the Participant’s or
Beneficiary’s Account Balance.

	11.5	 	Discretion of Appeals Committee. All interpretations, determinations and decisions of
the Appeals Committee with respect to any claim shall be made in its sole discretion, and
shall be final and conclusive.

16

 

	11.6	 	Arbitration.

	 	(a)	 	Prior to Change in Control. If, prior to a Change in Control, any claim or
controversy between the Company and a Participant or Beneficiary is not resolved
through the claims procedure set forth in Article XI, such claim shall be submitted to
and resolved exclusively by expedited binding arbitration by a single arbitrator.
Arbitration shall be conducted in accordance with the following procedures:

The complaining party shall promptly send written notice to the other party
identifying the matter in dispute and the proposed remedy. Following the giving of
such notice, the parties shall meet and attempt in good faith to resolve the matter.
In the event the parties are unable to resolve the matter within twenty one (21)
days, the parties shall meet and attempt in good faith to select a single arbitrator
acceptable to both parties. If a single arbitrator is not selected by mutual consent
within ten (10) Business Days following the giving of the written notice of dispute,
an arbitrator shall be selected from a list of nine persons each of whom shall be an
attorney who is either engaged in the active practice of law or recognized
arbitrator and who, in either event, is experienced in serving as an arbitrator in
disputes between employers and employees, which list shall be provided by the main
office of either JAMS, the American Arbitration Associate (“AAA”) or the Federal
Mediation and Conciliation Service. If, within three Business Days of the parties’
receipt of such list, the parties are unable to agree on an arbitrator from the
list, then the parties shall each strike names alternatively from the list, with the
first to strike being determined by the flip of a coin. After each party has had
four strikes, the remaining name on the list shall be the arbitrator. If such person
is unable to serve for any reason, the parties shall repeat this process until an
arbitrator is selected.

Unless the parties agree otherwise, within sixty (60) days of the selection of the
arbitrator, a hearing shall be conducted before such arbitrator at a time and a
place agreed upon by the parties. In the event the parties are unable to agree upon
the time or place of the arbitration, the time and place shall be designated by the
arbitrator after consultation with the parties. Within thirty (30) days of the
conclusion of the arbitration hearing, the arbitrator shall issue an award,
accompanied by a written decision explaining the basis for the arbitrator’s award.

In any arbitration hereunder, the Company shall pay all administrative fees of the
arbitration and all fees of the arbitrator, except that the Participant or
Beneficiary may, if he/she/it wishes, pay up to one-half of those amounts. Each
party shall pay its own attorneys’ fees, costs, and expenses, unless the arbitrator
orders otherwise. The prevailing party in such arbitration, as determined by the
arbitrator, and in any enforcement or other court proceedings, shall be entitled, to
the extent permitted by law, to reimbursement from the other party for all of the
prevailing party’s costs (including but not limited to the arbitrator’s
compensation), expenses, and attorneys’ fees. The arbitrator shall have no authority
to add to or to modify this Plan, shall apply all applicable law, and shall have no
lesser and no

17

 

greater remedial authority than would a court of law resolving the same claim or
controversy. The arbitrator shall have no authority to add to or to modify this
Plan, shall apply all applicable law, and shall have no lesser and no greater
remedial authority than would a court of law resolving the same claim or
controversy. The arbitrator shall, upon an appropriate motion, dismiss any claim
without an evidentiary hearing if the party bringing the motion establishes that it
would be entitled to summary judgment if the matter had been pursued in court
litigation.

The parties shall be entitled to discovery as follows: Each party may take no more
than three depositions. The Company may depose the Participant or Beneficiary plus
two other witnesses, and the Participant or Beneficiary may depose the Company,
pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure, plus two other
witnesses. Each party may make such reasonable document discovery requests as are
allowed in the discretion of the arbitrator.

The decision of the arbitrator shall be final, binding, and non-appealable, and may
be enforced as a final judgment in any court of competent jurisdiction.

This arbitration provision of the Plan shall extend to claims against any parent,
subsidiary, or affiliate of each party, and, when acting within such capacity, any
officer, director, shareholder, Participant, Beneficiary, or agent of any party, or
of any of the above, and shall apply as well to claims arising out of state and
federal statutes and local ordinances as well as to claims arising under the common
law or under this Plan.

Notwithstanding the foregoing, and unless otherwise agreed between the parties,
either party may apply to a court for provisional relief, including a temporary
restraining order or preliminary injunction, on the ground that the arbitration
award to which the applicant may be entitled may be rendered ineffectual without
provisional relief.

Any arbitration hereunder shall be conducted in accordance with the Federal
Arbitration Act: provided, however, that, in the event of any inconsistency between
the rules and procedures of the Act and the terms of this Plan, the terms of this
Plan shall prevail.

If any of the provisions of this Section 11.6(a) are determined to be unlawful or
otherwise unenforceable, in the whole part, such determination shall not affect the
validity of the remainder of this section and this section shall be reformed to the
extent necessary to carry out its provisions to the greatest extent possible and to
insure that the resolution of all conflicts between the parties, including those
arising out of statutory claims, shall be resolved by neutral, binding arbitration.
If a court should find that the provisions of this Section 11.6(a) are not
absolutely binding, then the parties intend any arbitration decision and award to be
fully

18

 

admissible in evidence in any subsequent action, given great weight by any finder of
fact and treated as determinative to the maximum extent permitted by law.

The parties do not agree to arbitrate any putative class action or any other
representative action. The parties agree to arbitrate only the claims(s) of a single
Participant or Beneficiary.

	 	(b)	 	Upon Change in Control. If, upon the occurrence of a Change in Control, any
dispute, controversy or claim arises between a Participant or Beneficiary and the
Company out of or relating to or concerning the provisions of the Plan, such dispute,
controversy or claim shall be finally settled by a court of competent jurisdiction
which, notwithstanding any other provision of the Plan, shall apply a de novo standard
of review to any determination made by the Company or its Board of Directors, the
Committee, or the Appeals Committee.

Article XII

General Provisions

	12.1	 	Anti-assignment Rule. No interest of any Participant, spouse or Beneficiary under
this Plan and no benefit payable hereunder shall be assigned as security for a loan, and any
such purported assignment shall be null, void and of no effect, nor shall any such interest or
any such benefit be subject in any manner, either voluntarily or involuntarily, to
anticipation, sale, transfer, assignment or encumbrance by or through any Participant, spouse
or Beneficiary.

	12.2	 	No Legal or Equitable Rights or Interest. No Participant or other person shall have
any legal or equitable rights or interest in this Plan that are not expressly granted in this
Plan. Participation in this Plan does not give any person any right to be retained in the
service of the Company. The right and power of the Company to dismiss or discharge a Director
is expressly reserved. The Company makes no representations or warranties as to the tax
consequences to a Participant or a Participant’s beneficiaries resulting from a deferral of
income pursuant to the Plan.

	12.3	 	No Employment Contract. Nothing contained herein shall be construed to constitute a
contract of employment between the Director and the Company.

	12.4	 	Notice. Any notice or filing required or permitted to be delivered to the Committee
under this Plan shall be delivered in writing, in person, or through such electronic means as
is established by the Committee. Notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the date shown on the postmark on the receipt for

19

 

registration or certification. Written transmission shall be sent by certified mail to:

MEDCO HEALTH SOLUTIONS, INC.

ATTN: VICE PRESIDENT, COMPENSATION AND BENEFITS

100 PARSONS POND DRIVE

FRANKLIN LAKES, NJ 07417-2603

Any notice or filing required or permitted to be given to a Participant under this Plan
shall be sufficient if in writing or hand-delivered, or sent by mail to the last known
address of the Participant.

	12.5	 	Headings. The headings of Sections are included solely for convenience of reference,
and if there is any conflict between such headings and the text of this Plan, the text shall
control.

	12.6	 	Invalid or Unenforceable Provisions. If any provision of this Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof and the Committee may elect in its sole discretion to construe such invalid
or unenforceable provisions in a manner that conforms to applicable law or as if such
provisions, to the extent invalid or unenforceable, had not been included.

	12.7	 	Lost Participants or Beneficiaries. Any Participant or Beneficiary who is entitled to
a benefit from the Plan has the duty to keep the Committee advised of his or her current
mailing address. If benefit payments are returned to the Plan or are not presented for payment
after a reasonable amount of time, the Committee shall presume that the payee is missing. The
Committee, after making such efforts as in its discretion it deems reasonable and appropriate
to locate the payee, shall stop payment on any uncashed checks and may discontinue making
future payments until contact with the payee is restored.

	12.8	 	Facility of Payment to a Minor. If a distribution is to be made to a minor, or to a
person who is otherwise incompetent, then the Committee may, in its discretion, make such
distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the
payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to
the person having custody of an incompetent payee. Any such distribution shall fully discharge
the Committee, the Company, and the Plan from further liability on account thereof.

20

 

	12.9	 	Governing Law. The laws of the State of New Jersey shall govern the construction and
administration of the Plan.

IN WITNESS WHEREOF, the undersigned executed this Plan as of the 26th day of November, 2007, to be
effective as of the Effective Date.

	 	 	 	 	 
	 	Medco Health Solutions, Inc.

 	 
	 	By:  	David B. Snow, Jr.
 	 
	 	Its:  	Chairman and Chief Executive Officer 	 
	 
 
	 	 	
           
           
                                      (Signature) 	 
	 

21exv10w1

 

Exhibit
10.1

BSQUARE CORPORATION

THIRD AMENDED AND RESTATED

STOCK PLAN

 

 

	 	 	 	 	 	 	 
	1.

	 	DEFINITIONS
	 	 	1	 
	 
	 	 	 	 	 	 
	2.

	 	PURPOSES
	 	 	4	 
	 
	 	 	 	 	 	 
	3.

	 	ADMINISTRATION
	 	 	4	 
	 
	 	 	 	 	 	 
	 	(a)

	Committee
	 	 	4	 
	 	(b)

	Appointment of Committee
	 	 	4	 
	 	(c)

	Powers; Regulations
	 	 	4	 
	 	(d)

	Delegation to Executive Officer
	 	 	5	 
	 
	 	 	 	 	 	 
	4.

	 	ELIGIBILITY
	 	 	5	 
	 
	 	 	 	 	 	 
	5.

	 	STOCK
	 	 	5	 
	 
	 	 	 	 	 	 
	6.

	 	TERMS AND CONDITIONS OF OPTIONS
	 	 	5	 
	 
	 	 	 	 	 	 
	 	(a)

	Number of Shares and Type of Option
	 	 	6	 
	 	(b)

	Date of Grant
	 	 	6	 
	 	(c)

	Option Price
	 	 	6	 
	 	(d)

	Duration of Options
	 	 	6	 
	 	(e)

	Vesting Schedule and Exercisability of Options
	 	 	7	 
	 	(f)

	Acceleration of Vesting
	 	 	7	 
	 	(g)

	Term of Option
	 	 	8	 
	 	(h)

	Exercise of Options
	 	 	8	 
	 	(i)

	Payment upon Exercise of Option
	 	 	9	 
	 	(j)

	Rights as a Shareholder
	 	 	9	 
	 	(k)

	Transfer of Option
	 	 	10	 
	 	(l)

	Securities Regulation and Tax Withholding
	 	 	10	 
	 	(m)

	Stock Split, Reorganization or Liquidation
	 	 	12	 
	 	(n)

	Approved Transactions; Control Purchase
	 	 	13	 
	 
	 	 	 	 	 	 
	7.

	 	TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
	 	 	13	 
	 
	 	 	 	 	 	 
	 	(a)

	Award of Stock Appreciation Rights
	 	 	13	 
	 	(b)

	Restrictions of Tandem SARs
	 	 	14	 
	 	(c)

	Amount of Payment Upon Exercise of SARs
	 	 	14	 
	 	(d)

	Form of Payment Upon Exercise of SARs
	 	 	14	 
	 
	 	 	 	 	 	 
	8.

	 	RESTRICTED STOCK AWARDS
	 	 	14	 
	 
	 	 	 	 	 	 
	 	(a)

	Nature of Restricted Stock Awards
	 	 	14	 
	 	(b)

	Rights as a Shareholder
	 	 	15	 
	 	(c)

	Restrictions
	 	 	15	 
	 	(d)

	Vesting of Restricted Stock
	 	 	15	 
	 	(e)

	Waiver, Deferral and Reinvestment of Dividends
	 	 	15	 
	 
	 	 	 	 	 	 
	9.

	 	UNRESTRICTED STOCK AWARDS
	 	 	15	 
	 
	 	 	 	 	 	 
	 	(a)

	Grant or Sale of Unrestricted Stock
	 	 	15	 
	 	(b)

	Elections to Receive Unrestricted Stock In Lieu of Compensation
	 	 	15	 
	 	(c)

	Restrictions on Transfers
	 	 	16	 
	 
	 	 	 	 	 	 
	10.

	 	TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
	 	 	16	 
	 
	 	 	 	 	 	 
	11.

	 	SECURITIES REGULATION AND TAX WITHHOLDING
	 	 	17	 
	 
	 	 	 	 	 	 
	12.

	 	STOCK SPLIT, REORGANIZATION OR LIQUIDATION
	 	 	18	 
	 
	 	 	 	 	 	 
	13.

	 	APPROVED TRANSACTIONS; CONTROL PURCHASE
	 	 	19	 
	 
	 	 	 	 	 	 
	14.

	 	EFFECTIVE DATE; TERM
	 	 	20	 

 

 

	 	 	 	 	 	 	 
	15.

	 	NO OBLIGATIONS TO EXERCISE AWARD
	 	 	20	 
	 
	 	 	 	 	 	 
	16.

	 	NO RIGHT TO AWARDS OR TO EMPLOYMENT
	 	 	20	 
	 
	 	 	 	 	 	 
	17.

	 	APPLICATION OF FUNDS
	 	 	20	 
	 
	 	 	 	 	 	 
	18.

	 	INDEMNIFICATION OF COMMITTEE
	 	 	20	 
	 
	 	 	 	 	 	 
	19.

	 	SHAREHOLDERS AGREEMENT
	 	 	21	 
	 
	 	 	 	 	 	 
	20.

	 	SEPARABILITY
	 	 	21	 
	 
	 	 	 	 	 	 
	21.

	 	NON-EXCLUSIVITY OF THE PLAN
	 	 	21	 
	 
	 	 	 	 	 	 
	22.

	 	EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION
	 	 	21	 
	 
	 	 	 	 	 	 
	23.

	 	AMENDMENT OF PLAN
	 	 	21	 

 

 

BSQUARE CORPORATION

THIRD AMENDED AND RESTATED

STOCK PLAN

1. DEFINITIONS.

     Capitalized terms not defined elsewhere in the Plan shall have the following meanings (whether
used in the singular or plural).

	 	(a)	 	“Agreement” means a written agreement approved by the Committee evidencing
Awards granted under the Plan.
	 
	 	(b)	 	“Approved Transaction” means

	 	(i)	 	a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act covering the offer
and sale of Common Stock for the account of the Company to the public with
aggregate proceeds paid to the Company of not less than $10,000,000 (after the
deduction of underwriting commissions and offering expenses);
	 
	 	(ii)	 	the acquisition of the Company by another entity by means of
merger, consolidation or other transaction or series of related transactions
resulting in the exchange of the outstanding shares of the Company for
securities of, or consideration issued, or caused to be issued by, the
acquiring entity or any of its affiliates, provided, that after such event the
shareholders of the Company immediately prior to the event own less than a
majority of the outstanding voting equity securities of the surviving entity
immediately following the event;
	 
	 	(iii)	 	any liquidation or dissolution of the Company; and
	 
	 	(iv)	 	any sale, lease, exchange or other transfer not in the ordinary
course of business (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company.

	 	(c)	 	“Award” means any award granted under the Plan, including Options, Stock
Awards, Restricted Stock Units and SARs.
	 
	 	(d)	 	“Awardee” means any person to whom an Award is granted under the Plan (as well
as any permitted transferee of an Award).
	 
	 	(e)	 	“Board” means the Board of Directors of the Company.
	 
	 	(f)	 	“Code” means the Internal Revenue Code of 1986, as amended from time to time,
or any successor statute or statutes thereto. Reference to any specific section of the
Code shall include any successor section.
	 
	 	(g)	 	“Committee” shall mean the Board, or the committee appointed by the Board
pursuant to Section 3(b) of the Plan, if it is administering the Plan.
	 
	 	(h)	 	“Common Stock” means the Common Stock, no par value, of the Company.

 

 

	 	(i)	 	“Company” means BSQUARE CORPORATION, a Washington corporation.
	 
	 	(j)	 	“Control Purchase” means any transaction (or series of related transactions) in
which any person, corporation or other entity (including any “person” as defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company and any
employee benefit plan sponsored by the Company):

	 	(i)	 	purchases any Common Stock (or securities convertible into
Common Stock) for cash, securities or any other consideration pursuant to a
tender offer or exchange offer unless by the terms of such offer the offeror,
upon consummation thereof, would be the “beneficial owner” (as that term is
defined in Rule 13d-3 under the Exchange Act) of less than 30% of the shares of
Common Stock then outstanding; or
	 
	 	(ii)	 	becomes the “beneficial owner,” directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors (calculated as provided in Rule
13d-3(d) under the Exchange Act in the case of rights to acquire the Company’s
securities);

	 	 	provided, however, that the foregoing shall not constitute a Control Purchase if the
transactions or related transactions received the prior approval of a majority of
all of the directors of the Company, excluding for such purpose the votes of
directors who are directors or officers of, or have a material financial interest in
any Person (other than the Company) who is a party to the event specified in either
clauses (i) or (ii).

	 	(k)	 	“Covered Employee” has the meaning given to it by Section 162(m)(3) of the
Code.
	 
	 	(l)	 	“Date of Grant” means that date the Committee has deemed to be the effective
date of the Award for purposes of the Plan.
	 
	 	(m)	 	“Disability” means any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than twelve (12) months that renders the Awardee
unable to engage in any substantial gainful activity.
	 
	 	(n)	 	“Effective Date” means at the time specified in the resolutions of the Board
adopting the Plan.
	 
	 	(o)	 	“Employees” means individuals employed by the Company or a Related Corporation.
	 
	 	(p)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time, or any successor statute or statutes thereto. Reference to any specific
section of the Exchange Act shall include any successor section.
	 
	 	(q)	 	“Executive Officer” shall be defined in Section 3(d).
	 
	 	(r)	 	“Fair Market Value” means, if the Common Stock is publicly traded, the last
sales price (or, if no last sales price is reported, the average of the high bid and
low asked prices) for a share of Common Stock on that day (or, if that day is not a
trading day, on the next preceding trading day), as reported by the principal exchange on which the Common
Stock is listed, or, if the Common Stock is publicly traded but not listed on an
exchange, as

2

 

	 	 	 	reported by The Nasdaq Stock Market, or if such prices or quotations
are not reported by The Nasdaq Stock Market, as reported by any other available
source of prices or quotations selected by the Committee. If the Common Stock is
not publicly traded or if the Fair Market Value is not determinable by any of the
foregoing means, the Fair Market Value on any day shall be determined in good faith
by the Committee on the basis of such considerations as the Committee deems
important.

	 	(s)	 	“Immediate Family Member” means a spouse, children or grandchildren of the
Optionee.
	 
	 	(t)	 	“Incentive Stock Option” means an Option that is an incentive stock option
within the meaning of Section 422 of the Code.
	 
	 	(u)	 	“Non-Employee Director” has the meaning given to it by Rule 16b-3 promulgated
under the Exchange Act of 1934.
	 
	 	(v)	 	“Non-Insiders” has the meaning given to by Section 162(m)(3) of the Code.
	 
	 	(w)	 	“Non-Qualified Stock Option” means an Option that is not an Incentive Stock
Option.
	 
	 	(x)	 	“Option” means an option with respect to shares of Common Stock awarded
pursuant to Section 6.
	 
	 	(y)	 	“Optionee” means any person to whom an Option is granted under the Plan (as
well as any permitted transferee of an Option).
	 
	 	(z)	 	“Outside Director” has the meaning given to it by the regulations promulgated
under Section 162(m) of the Code.
	 
	 	(aa)	 	“Plan” means the BSQUARE CORPORATION Third Amended and Restated Stock Plan.
	 
	 	(bb)	 	“Qualified Performance-Based Compensation” has the meaning given to it by the
regulations promulgated under Section 162(m) of the Code.
	 
	 	(cc)	 	“Related Corporation” means any corporation (other than the Company) that is a
“parent corporation” of the Company or “subsidiary corporation” of the Company, as
defined in Sections 424(e) and 424(f), respectively, of the Code.
	 
	 	(dd)	 	“Restricted Stock Awards” means Awards granted pursuant to Section 8.
	 
	 	(ee)	 	“Restricted Stock Unit” means a bookkeeping entry representing the equivalent
of one share of Common Stock, as awarded under the Plan.
	 
	 	(ff)	 	“SARs” means Awards granted pursuant to Section 7.
	 
	 	(gg)	 	“Section 16 Insiders” means individuals who are subject to Section 16(b) of the
Exchange Act with respect to the Common Stock.
	 
	 	(hh)	 	“Securities Act” means the Securities Act of 1933, as amended from time to
time, or any successor statute or statutes thereto. References to any specific section
of the Securities Act shall include any successor section.

3

 

	 	(ii)	 	“Stock Awards” means Restricted and Unrestricted Stock Awards granted pursuant
to Sections 8 and 9, respectively.
	 
	 	(jj)	 	“Ten Percent Shareholder” means a person who owns more than ten percent of the
total combined voting power of the Company or any related corporation as determined
with reference to Section 424(d) of the Code.
	 
	 	(kk)	 	“Unrestricted Stock Awards” means Awards granted pursuant to Section 9.

2. PURPOSES.

     The purposes of the Plan are to retain the services of directors, valued key employees and
consultants of the Company and such other persons as the Committee shall select in accordance with
Section 4, to encourage such persons to acquire a greater proprietary interest in the Company,
thereby strengthening their incentive to achieve the objectives of the shareholders of the Company,
and to serve as an aid and inducement in hiring new employees and to provide an equity incentive to
directors, consultants and other persons selected by the Committee.

3. ADMINISTRATION.

	 	(a)	 	Committee.

     The Plan shall be administered by the Board unless the Board appoints a separate committee of
the board to administer the Plan pursuant to Section 3(b) below. A majority of the members of the
Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority
of the members present. Any action may be taken by a written instrument signed by all of the
members of the Committee and any action so taken shall be fully effective as if it had been taken
at a meeting.

	 	(b)	 	Appointment of Committee.

     The Board may appoint a committee consisting of two or more of its members to administer the
Plan. The Board shall consider whether a director is (i) an Outside Director and (ii) a
Non-Employee Director when appointing any such Committee and shall appoint solely two or more
individuals who qualify as Outside Directors if the Board intends for compensation attributable to
Options to be Qualified Performance-Based Compensation. The Committee shall have the powers and
authority vested in the Board hereunder (including the power and authority to interpret any
provision of the Plan or of any Option). The members of any such Committee shall serve at the
pleasure of the Board.

	 	(c)	 	Powers; Regulations.

     Subject to the provisions of the Plan, and with a view to effecting its purpose, the Committee
shall have sole authority, in its absolute discretion, to:

	 	(i)	 	construe and interpret the Plan;

	 
	 	(ii)	 	define the terms used in the Plan;
	 
	 	(iii)	 	prescribe, amend and rescind rules and regulations relating to
the Plan;
	 
	 	(iv)	 	correct any defect, supply any omission or reconcile any
inconsistency in the Plan;
	 
	 	(v)	 	grant Awards under the Plan;
	 
	 	(vi)	 	determine the individuals to whom Awards shall be granted under
the Plan and the type of Award;
	 
	 	(vii)	 	determine the time or times at which Awards shall be granted
under the Plan;

4

 

	 	(viii)	 	determine the number of shares of Common Stock subject to each Award, the
exercise price of each Award, the duration of each Award and the times at which
each Award shall become exercisable;
	 
	 	(ix)	 	determine all other terms and conditions of Awards; and
	 
	 	(x)	 	make all other determinations necessary or advisable for the
administration of the Plan.

     All decisions, determinations and interpretations made by the Committee shall be binding and
conclusive on all participants in the Plan and on their legal representatives, heirs and
beneficiaries.

	 	(d)	 	Delegation to Executive Officer.

     The Committee may by resolution delegate to one or more executive officers (the “Executive
Officer”) of the Company the authority to grant Awards under the Plan to consultants and employees
of the Company who, at the time of grant, are not Section 16 Insiders nor Covered Employees;
provided, however, that the authority delegated to the Executive Officer under this Section 3 shall
not exceed that of the Committee under the provisions of the Plan and shall be subject to such
limitations, in addition to those specified in this Section 3, as may be specified by the Committee
at the time of delegation.

4. ELIGIBILITY.

     Incentive Stock Options may be granted to any individual who, at the time such Options are
granted, is an Employee, including Employees who are also directors of the Company. Other Awards
may be granted to Employees and to such other persons as the Committee shall select. Awards may be
granted in substitution for outstanding options or equity-based awards of another corporation in
connection with the merger, consolidation, acquisition of property or stock or other reorganization
between such other corporation and the Company or any subsidiary of the Company. At such point as
the Company first becomes subject to the periodic reporting requirements of Section 12 of the
Exchange Act, no person shall be eligible to receive in any fiscal year Awards for more than
500,000 shares of Common Stock (subject to adjustment as set forth herein).

5. STOCK.

     The Company is authorized to grant up to a total of 9,857,755 shares of the Company’s
authorized but unissued, or reacquired, Common Stock pursuant to Awards under the Plan; provided,
however, that the number of shares reserved for issuance under the Plan during each of the
Company’s fiscal years beginning on January 1, 2003 shall be increased annually by an amount equal
to the lesser of (A) four percent (4%) of the Company’s outstanding shares at the end of the
previous fiscal year, (B) an amount determined by the Board of Directors or (C) 1,500,000 shares.
The number of shares with respect to which Awards may be granted hereunder (including the amount of
the annual increase described in this Section 5) is subject to adjustment as set forth herein. In
the event that any outstanding Award expires or is terminated for any reason, the shares of Common
Stock allocable to the unexercised or forfeited portion of such Award may again be subject to an
Award granted to the same Awardee or to a different person eligible under Section 4; provided,
however, that any expired or terminated Awards will be counted against the
maximum number of shares with respect to which Awards may be granted to any particular person as
set forth in Section 4.

6. TERMS AND CONDITIONS OF OPTIONS.

     Each Option granted under the Plan shall be evidenced by an Agreement. Agreements may contain
such provisions, not inconsistent with the Plan, as the Committee or Executive Officer, in its
discretion, may deem advisable. All Options also shall comply with the following requirements:

5

 

	 	(a)	 	Number of Shares and Type of Option.

     Each Agreement shall state the number of shares of Common Stock to which it pertains and
whether the Option is intended to be an Incentive Stock Option or a Non-Qualified Stock Option. In
the absence of action to the contrary by the Committee or Executive Officer in connection with the
grant of an Option, all Options shall be Non-Qualified Stock Options. The aggregate Fair Market
Value (determined at the Date of Grant) of the Common Stock with respect to which the Incentive
Stock Options granted to the Optionee and any incentive stock options granted to the Optionee under
any other stock option plan of the Company, any Related Corporation or any predecessor corporation
are exercisable for the first time by the Optionee during any calendar year shall not exceed
$100,000, or such other limit as may be prescribed by the Code. If

	 	(i)	 	an Optionee holds one or more Incentive Stock Options under the
Plan (and/or any incentive stock options under any other stock option plan of
the Company, any Related Corporation or any predecessor corporation), and
	 
	 	(ii)	 	the aggregate Fair Market Value of the shares of Common Stock
with respect to which, during any calendar year, such Options become
exercisable for the first time exceeds $100,000 (said value to be determined as
provided above),

	 	 	then such Option or Options are intended to qualify under Section 422 of the Code with respect to
the maximum number of such shares as can, in light of the foregoing limitation, be so qualified,
with the shares so qualified to be the shares subject to the Option or Options earliest granted to
the Optionee. If an Option that would otherwise qualify as an Incentive Stock Option becomes
exercisable for the first time in any calendar year for shares of Common Stock that would cause
such aggregate Fair Market Value to exceed $100,000, then the portion of the Option in respect of
such shares shall be deemed to be a Non-Qualified Stock Option.

	 	(b)	 	Date of Grant.
	 
	 	 	 	Each Agreement shall state the Date of Grant.
	 
	 	(c)	 	Option Price.

     Each Agreement shall state the price per share of Common Stock at which it is exercisable. The
exercise price shall be fixed by the Committee or Executive Officer at whatever price the Committee
or Executive Officer may determine in the exercise of its sole discretion; provided, however, that
the per share exercise price for an Incentive Stock Option shall not be less than the Fair Market
Value at the Date of Grant; provided further, that with respect to Incentive Stock Options granted
to Ten Percent Shareholders of the Company, the per share exercise price shall not be less than 110
percent (110%) of the Fair Market Value at the Date of Grant; and, provided further, that Options
granted in substitution for outstanding options of another corporation in connection with the
merger, consolidation, acquisition of property or stock or other reorganization involving such other corporation and the Company or any subsidiary of
the Company may be granted with an exercise price equal to the exercise price for the substituted
option of the other corporation, subject to any adjustment consistent with the terms of the
transaction pursuant to which the substitution is to occur.

	 	(d)	 	Duration of Options.

6

 

     On the Date of Grant, the Committee or Executive Officer shall designate, subject to Section
6(g), the expiration date of the Option, which date shall not be later than ten (10) years from the
Date of Grant in the case of Incentive Stock Options; provided, however, that the expiration date
of any Incentive Stock Option granted to a Ten Percent Shareholder shall not be later than five (5)
years from the Date of Grant. In the absence of action to the contrary by the Committee in
connection with the grant of an Option, and except in the case of Incentive Stock Options granted
to Ten Percent Shareholders, all Options granted under this Section 6 shall expire ten (10) years
from the Date of Grant.

	 	(e)	 	Vesting Schedule and Exercisability of Options

     No Option shall be exercisable until it has vested. The vesting schedule for each Option
shall be specified by the Committee or Executive Officer at the time of grant of the Option;
provided, however, that if no vesting schedule is specified at the time of grant, the Option shall
be vested according to the following schedule:

	 	 	 	 	 
	Number of Years of	 	 
	Continuous Employment	 	Portion of Total
	With the Company Following	 	Option Which Will Become
	Grant Date	 	Vested
	 
	 	 	 	 
	1
	 	 	25	%
	2
	 	 	50	%
	3
	 	 	75	%
	4
	 	 	100	%

     The Committee or Executive Officer may specify a vesting schedule for all or any portion of an
Option based on the achievement of performance objectives established in advance of the
commencement by the Optionee of services related to the achievement of the performance objectives.
Performance objectives shall be expressed in terms of one or more of the following: return on
equity, return on assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the Company’s
performance relative to its internal business plan. Performance objectives may be in respect of
the performance of the Company as a whole (whether on a consolidated or unconsolidated basis), a
Related Corporation, or a subdivision, operating unit, product or product line of the foregoing.
Performance objectives may be absolute or relative and may be expressed in terms of a progression
or a range. An Option which is exercisable (in whole or in part) upon the achievement of one or
more performance objectives may be exercised only upon completion of the following process: (a)
the Optionee must deliver written notice to the Company that the performance objective has been
achieved and demonstrating, if necessary, how the objective has been satisfied, (b) within 45 days
after receipt of such notice, the Committee will make a good faith determination whether such
performance objective has been achieved and deliver written notice to the Optionee detailing the
results of such determination; if the Company fails to respond with such 45-day period, then the
performance objective shall be presumed to have been achieved and (c) upon receipt of written
notice from the Company that the performance objective has been achieved (or upon expiration of
such 45-day period without a determination by the Company), the Optionee may exercise the Option; upon receipt of
written notice from the Company that the performance objective has not been achieved, the Optionee
shall have 15 days to appeal the Company’s determination and the Company shall have 15 days after
the receipt of such appeal to consider the issues presented by the Optionee and make a
determination on the appeal, which determination shall be conclusive and binding on the Optionee.

(f) Acceleration of Vesting.

7

 

     Except to the extent that such acceleration would render unavailable “pooling of interests”
accounting treatment for any reorganization, merger or consolidation of the Company, the vesting of
one or more outstanding Options may be accelerated by the Board at such times and in such amounts
as it shall determine in its sole discretion.

	 	(g)	 	Term of Option.

     Any vested Option granted to an Optionee shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events:

	 	(i)	 	as designated by (x) the Board in accordance with Section 6(n)
hereof or (y) the Committee or the Executive Officer in accordance with Section
6(d) hereof;
	 
	 	(ii)	 	the date of the Optionee’s termination of employment or
contractual relationship with the Company or any Related Corporation for cause
(as determined in the sole discretion of the Committee);
	 
	 	(iii)	 	the expiration of ninety (90) days from the date of the
Optionee’s termination of employment or contractual relationship with the
Company or any Related Corporation for any reason whatsoever other than cause,
death or Disability unless the exercise period is extended by the Committee a
date not later than the expiration date of the Option;
	 
	 	(iv)	 	the expiration of one year from (A) the date of death of the
Optionee or (B) cessation of the Optionee’s employment or contractual
relationship by reason of Disability unless the exercise period is extended by
the Committee until a date not later than the expiration date of the Option; or
	 
	 	(v)	 	any other event specified by the Committee at the time of grant
of the Option.

     If an Optionee’s employment or contractual relationship is terminated by death, any Option
granted to the Optionee shall be exercisable only by the person or persons to whom such Optionee’s
rights under such Option shall pass by the Optionee’s will or by the laws of descent and
distribution of the state or county of the Optionee’s domicile at the time of death. The Committee
shall determine whether an Optionee has incurred a Disability on the basis of medical evidence
reasonably acceptable to the Committee. Upon making a determination of Disability, the Committee
shall, for purposes of the Plan, determine the date of an Optionee’s termination of employment or
contractual relationship.

     Unless accelerated in accordance with Section 6(f), any unvested Option granted to an Optionee
shall terminate immediately upon termination of employment of the Optionee by the Company for any
reason whatsoever, including death or Disability. For purposes of the Plan, transfer of employment
between or among the Company and/or any Related Corporation shall not be deemed to constitute a
termination of employment with the Company or any Related Corporation. For purposes of this
subsection with respect to Incentive Stock Options, employment shall be deemed to continue while
the Optionee is on military leave, sick leave or other bona fide leave of absence (as determined by
the Committee). The foregoing notwithstanding, employment shall not be deemed to continue beyond
the first ninety (90) days of such leave, unless the Optionee’s re-employment rights are guaranteed
by statute or by contract.

(h) Exercise of Options.

     If less than all of the shares included in an Option are purchased, the remainder may be
purchased at any subsequent time prior to the expiration date with respect to, or the termination
of, the Option. No

8

 

portion of any Option may be exercised for less than one hundred (100) shares
(as adjusted pursuant to Section 6(m)); provided, however, that if the Option is less than one
hundred (100) shares, it may be exercised with respect to all shares for which it is vested. Only
whole shares may be issued upon exercise of an Option, and to the extent that an Option covers less
than one (1) share, it is unexercisable.

     An Option or any portion thereof may be exercised by giving written notice to the Company upon
such terms and conditions as the Agreement evidencing the Option may provide and in accordance with
such other procedures for the exercise of an Option as the Committee may establish from time to
time. Such notice shall be accompanied by payment in the amount of the aggregate exercise price
for such shares, which payment shall be in the form specified in Section 6(i). The Company shall
not be obligated to issue, transfer or deliver a certificate of Common Stock to the holder of any
Option until provision has been made by the holder, to the satisfaction of the Company, for the
payment of the aggregate exercise price for all shares for which the Option shall have been
exercised and for satisfaction of any tax withholding obligations associated with such exercise.
Options granted to an Optionee are, during the Optionee’s lifetime, exercisable only by the
Optionee or a transferee who takes title to the Option in the manner permitted by Section 6(k).

	 	(i)	 	Payment upon Exercise of Option.

     Upon the exercise of an Option, the Optionee shall pay to the Company the aggregate exercise
price therefor in cash, by certified or cashier’s check. In addition, such Optionee may pay for
all or any portion of the aggregate exercise price by complying with one or more of the following
alternatives:

          (1)
by delivering to the Company whole shares of Common Stock then owned by such
Optionee, or, subject to the prior approval of the Committee, by the Company withholding
whole shares of Common Stock otherwise issuable to the Optionee upon exercise of the Option,
which shares of Common Stock received or withheld shall be valued for such purpose at their
Fair Market Value on the date of exercise.

          
(2) by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale or loan
proceeds required to pay the exercise price;

          
(3) by any combination of the foregoing methods of payment; or

          
(4) by complying with any other payment mechanism, including through the execution of a
promissory note, as may be permitted for the issuance of equity securities under applicable
securities and other laws and approved by the Committee at the time of exercise.

	 	(j)	 	Rights as a Shareholder.

     An Optionee shall have no rights as a shareholder with respect to any shares of Common Stock
issuable upon exercise of the Option until such holder becomes a record holder of such shares.
Subject to the provisions of Sections 6(m), no rights shall accrue to an Optionee and no
adjustments shall be made on account of dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights declared on, or created in, the
Common Stock for which the record date is prior to the date such Optionee becomes a record holder
of the shares of Common Stock issuable upon exercise of such Option.

9

 

	 	(k)	 	Transfer of Option.

     Options granted under the Plan and the rights and privileges conferred by the Plan may not be
transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will, by applicable laws of descent and distribution or pursuant to a
domestic relations order (as defined in the Code or Title I of the Employment Retirement Income
Security Act of 1974 or the rules or regulations thereunder), and shall not be subject to
execution, attachment or similar process; provided, however, that solely with respect to
Non-Qualified Stock Options, the Committee may, in its discretion, authorize all or a portion of
the Options to be granted to an Optionee to be on terms which permit transfer by such Optionee to:

	 	(i)	 	Immediate Family Members,
	 
	 	(ii)	 	a trust or trusts for the exclusive benefit of such Immediate
Family Members, or
	 
	 	(iii)	 	a partnership in which such Immediate Family Members are the
only partners, provided that:

	 	(x)	 	there may be no consideration for any such
transfer,
	 
	 	(y)	 	the Agreement evidencing such Options must be
approved by Committee, and must expressly provide for transferability
in a manner consistent with this Section, and
	 
	 	(z)	 	subsequent transfers of transferred Options
shall be prohibited other than by will, by applicable laws of descent
and distribution or pursuant to a domestic relations order (as defined
in the Code or Title I of the Employment Retirement Income Security Act
of 1974 or the rules or regulations thereunder).

Following transfer, any such Options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer, provided that for purposes of Section 6(l)(2),
the term “Optionee” shall be deemed to refer to the initial transferor. The events of termination
of employment of Section 6(g) shall continue to be applied with respect to the original Optionee,
following which the options shall be exercisable by the transferee only to the extent, and for the
periods, specified in Section 6(g). Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any Option or of any right or privilege conferred by the Plan contrary to the
provisions hereof, or upon the sale, levy or any attachment or similar process upon the rights and
privileges conferred by the Plan, such Option shall thereupon terminate and become null and void.

	 	(l)	 	Securities Regulation and Tax Withholding.

10

 

          (1) No shares of Common Stock shall be issued upon exercise of an Option unless the exercise
of such Option and the issuance and delivery of such shares shall comply with all relevant
provisions of law, including, without limitation, any applicable state securities laws, the
Securities Act, the Exchange Act, the rules and regulations thereunder and the requirements of any
stock exchange upon which such shares may then be listed, and such issuance shall be further
subject to the approval of counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of such shares. The
inability of the Company to obtain from any regulatory body the authority deemed by the Company to
be necessary for the lawful issuance and sale of any shares under the Plan, or the unavailability
of an exemption from registration for the issuance and sale of any shares under the Plan, shall
relieve the Company of any liability with respect to the non-issuance or sale of such shares.

     As long as the Common Stock is not registered under the Exchange Act, the Company intends that
all offers and sales of Options and shares of Common Stock issuable upon exercise of Options shall
be exempt from registration under the provisions of Section 5 of the Securities Act, and the Plan
shall be administered in a manner so as to preserve such exemption. The Company also intends that
the Plan shall constitute a written compensatory benefit plan, within the meaning of Rule 701(b)
promulgated under the Securities Act, and that each Option granted pursuant to the Plan at a time
when the Common Stock is not registered under the Exchange Act shall, unless otherwise specified by
the Committee at the time the Option is granted or at any time thereafter, be granted in reliance
on the exemption from the registration requirements of Section 5 of the Securities Act provided by
Rule 701.

     As a condition to the exercise of an Option, the Committee may require the Optionee to
represent and warrant in writing at the time of such exercise that the shares of Common Stock
issuable upon exercise of the Option are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the Committee, a
stop-transfer order against such shares may be placed on the stock books and records of the
Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred
unless an opinion of counsel is provided stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on the certificates representing such shares in order
to assure an exemption from registration. The Committee also may require such other documentation
as it shall, in its discretion, deem necessary from time to time to comply with federal and state
securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF ANY OPTION OR ANY
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF ANY OPTION.

          (2) The Optionee shall pay to the Company by certified or cashier’s check, promptly upon
exercise of the Option or, if later, the date that the amount of such obligations becomes
determinable, all applicable federal, state, local and foreign withholding taxes that the
Committee, in accordance with the applicable rules and regulations, determines to result from the
exercise of the Option or from a transfer or other disposition of shares of Common Stock acquired
upon exercise of the Option or otherwise related to the Option or shares of Common Stock acquired
upon exercise of the Option, which determination by the Committee of the amount due shall be
binding upon the Optionee. Upon approval of the Committee, such Optionee may satisfy such
obligation by complying with one or more of the following alternatives selected by the Committee:

     (A) by delivering to the Company whole shares of Common Stock then owned by
such Optionee, or by the Company withholding whole shares of Common Stock otherwise
issuable to the Optionee upon exercise of the Option, which shares of Common Stock
received or withheld shall have a Fair Market Value on the date of exercise (as
determined by the Committee in good faith) equal to the tax obligation to be
paid by such Optionee upon such exercise;

11

 

     (B) by executing appropriate loan documents approved by the Committee by which
such Optionee borrows funds from the Company to pay the withholding taxes due under
this Section 6(l)(2), with such repayment terms as the Committee shall select;

     (C) by any combination of the foregoing methods of payment; or

     (D) by complying with any other payment mechanism as may be permitted for the
issuance of equity securities under applicable securities and other laws and
approved by the Committee from time to time.

          (3) The issuance, transfer or delivery of certificates of Common Stock pursuant to the
exercise of an Option may be delayed, at the discretion of the Committee, until the Committee is
satisfied that the applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.

	 	(m)	 	Stock Split, Reorganization or Liquidation.

               (1) Upon the occurrence of any of the following events, the Committee shall, with respect to
each outstanding Option, proportionately adjust the number of shares of Common Stock issuable upon
exercise of such Option, the per share exercise price or both so as to preserve the rights of the
Optionee substantially proportionate to the rights of such Optionee prior to such event, and to the
extent that such action shall include an increase or decrease in the number of shares of Common
Stock issuable upon exercise of outstanding Options, the number of shares available under Section 5
(including the amount of the annual increase in the number of shares reserved for issuance
described in Section 5) shall automatically be increased or decreased, as the case may be,
proportionately, without further action on the part of the Committee, the Company, the Company’s
shareholders, or any Optionee:

	 	(i)	 	the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or any successor
provision) or any “corporate transaction” described in the regulations
promulgated thereunder;
	 
	 	(ii)	 	the Company subdivides its outstanding shares
of Common Stock into a greater number of shares of Common Stock (by
stock dividend, stock split, reclassification or otherwise) or combines
its outstanding shares of Common Stock into a smaller number of shares
of Common Stock (by reverse stock split, reclassification or
otherwise); or
	 
	 	(iii)	 	any other event with substantially the same
effect shall occur.

               (2) If the Company shall at any time declare an extraordinary dividend with respect to the
Common Stock, whether payable in cash or other property, or is involved in any recapitalization,
spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock, or
other similar event (including a merger or consolidation other than one that constitutes an
Approved Transaction), the Committee may, in the exercise of its sole discretion and with respect
to each outstanding Option, proportionately adjust the number of shares of Common Stock issuable
upon exercise of such Option, the per share exercise price or both so as to preserve the rights of
the Optionee substantially proportionate to the rights of such Optionee prior to such event, and to
the extent that such action shall include an increase or decrease in the number of shares of Common Stock issuable upon exercise of
outstanding Options, the number of shares available under Section 5 of the Plan shall automatically
be increased or decreased, as the case may be, proportionately, without further action on the part
of the Committee, the Company, the Company’s shareholders, or any Optionee.

12

 

               (3) The foregoing adjustments shall be made by the Committee or by the applicable terms of any
assumption or substitution document.

               (4) With respect to the foregoing adjustments, the number of shares subject to an Option shall
always be a whole number. The Committee may, if deemed appropriate, provide for a cash payment to
any Optionee in connection with any adjustment made pursuant to this Section 6(m).

               (5) The grant of an Option shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital or business
structure, to merge, consolidate or dissolve, to liquidate or to sell or transfer all or any part
of its business or assets.

	 	(n)	 	Approved Transactions; Control Purchase.

     In the event of any Approved Transaction or Control Purchase, if so provided for in the
Agreement representing such Option, an Option may become exercisable in full in respect of the
aggregate number of shares thereunder effective upon the Control Purchase or immediately prior to
consummation of the Approved Transaction. In the case of an Approved Transaction, the Company
shall provide notice of the pendency of the Approved Transaction at least fifteen (15) days prior
to the expected date of consummation thereof to each Optionee entitled to acceleration. Each such
Optionee shall thereupon be entitled to exercise the vested portion of the Option at any time prior
to consummation of the Approved Transaction or immediately following the Control Purchase. Any
such exercise shall be contingent on such consummation.

     Following consummation of the Approved Transaction or Control Purchase, and until such Option
is terminated pursuant to Section 6(g) hereof, any vested portion of Options that are not exercised
shall remain exercisable, and any unvested portions of any Options shall remain in effect and
continue to vest in accordance with the vesting schedule specified at the time of grant, and upon
such vesting shall become exercisable. Notwithstanding the foregoing, in its reasonable
discretion, the Board may determine that any or all outstanding Options that are unvested at the
time of, or are not exercised upon consummation of, the Approved Transaction or Control Purchase
shall thereafter terminate, provided that, in making such determination, the Board shall consider
the best interests of the Optionees, the Company and its shareholders, and will make such
determination only if the action to be taken, in the opinion of the Board, is appropriate in light
of the circumstances under which such determination is made.

     Moreover, except to the extent that such determination would render unavailable “pooling of
interests” accounting treatment for any reorganization, merger or consolidation of the Company, the
Board may take, or make effective provision for the taking of, such action as in the opinion of the
Board is equitable and appropriate in order to substitute new stock options for any or all
outstanding Options that do not become exercisable on an accelerated basis, or to assume such
Options (which assumption may be effected by any means determined by the Board, in its discretion,
including, but not limited to, by a cash payment to each Optionee, in cancellation of the Options
held by him or her, of such amount as the Board determines, in its sole discretion, represents the
then value of the Options) and in order to make such new stock options or assumed Options, as
nearly as practicable, equivalent to the old Options, taking into account, to the extent
applicable, the kind and amount of securities, cash or other assets into or for which
the Common Stock may be changed, converted or exchanged in connection with the Approved
Transaction.

7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.

	 	(a)	 	Award of Stock Appreciation Rights.

     Stock appreciation rights (“SARs”) may be granted to eligible participants, either on a
free-standing basis (without regard to or in addition to the grant of an Option) or on a tandem
basis (related to

13

 

the grant of an underlying Option). SARs granted in tandem with or in addition
to an Option may be granted either at the same time as the Option or at a later time; provided,
however, that a tandem SAR shall not be granted with respect to any outstanding Incentive Stock
Option without the consent of the Awardee. SARs shall be evidenced by Agreements stating the
number of shares of Common Stock subject to the SAR evidenced thereby and the terms and conditions
of such SAR. In no event shall a SAR be exercisable more than ten years from the date it is
granted. The Awardee shall have none of the rights of a shareholder of the Company with respect to
any shares of Common Stock represented by a SAR.

	 	(b)	 	Restrictions of Tandem SARs.

     No Incentive Stock Option may be surrendered in connection with the exercise of a tandem SAR
unless the Fair Market Value of the Common Stock subject to the Incentive Stock Option is greater
than the exercise price for such Incentive Stock Option. SARs granted in tandem with Options shall
be exercisable only to the same extent and subject to the same conditions as the Options related
thereto are exercisable. Additional conditions to the exercise of any such tandem SAR may be
prescribed.

	 	(c)	 	Amount of Payment Upon Exercise of SARs.

     A SAR shall entitle the Awardee to receive, subject to the provisions of the Plan and the
applicable Agreement, a payment having an aggregate value equal to the product of (i) the excess of
(A) the Fair Market Value on the exercise date of one share of Common Stock over (B) the base price
per share specified in the applicable Agreement, times (ii) the number of shares specified by the
SAR, or portion thereof, which is exercised. In the case of exercise of a tandem SAR, such payment
shall be made in exchange for the surrender of the unexercised related Option (or any portion or
portions thereof which the Awardee from time to time determines to surrender for this purpose).

	 	(d)	 	Form of Payment Upon Exercise of SARs.

     Payment by the Company of the amount receivable upon any exercise of a SAR may be made by the
delivery of Common Stock or cash, or any combination of Common Stock and cash, as determined in the
sole discretion of the Committee from time to time. If upon settlement of the exercise of a SAR an
Awardee is to receive a portion of such payment in shares of Common Stock, the number of shares
shall be determined by dividing such portion by the Fair Market Value of a share of Common Stock on
the exercise date. No fractional shares shall be used for such payment and the Committee shall
determine whether cash shall be given in lieu of such fractional shares or whether such fractional
shares shall be eliminated.

8. RESTRICTED STOCK AWARDS.

	 	(a)	 	Nature of Restricted Stock Awards.

     A Restricted Stock Award is an Award pursuant to which the Company may, in its sole
discretion, grant or sell, at such purchase price as determined by the Committee, in its sole
discretion, shares of Common Stock subject to such restrictions and conditions as the Committee may
determine at the time of grant (“Restricted Stock”), which purchase price shall be payable in cash
or other form of consideration acceptable to the Committee. Conditions may be based on continuing
employment (or other service relationship) and/or achievement of pre-established performance goals
and objectives. The terms and conditions of each such Agreement shall be determined by the
Committee, and such terms and conditions may differ among individual Awards and Awardees.

14

 

	 	(b)	 	Rights as a Shareholder.

     Upon execution of an Agreement setting forth the Restricted Stock Award and payment of any
applicable purchase price, an Awardee shall have the rights of a shareholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the applicable Agreement.
Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall
remain in the possession of the Company until such Restricted Stock is vested as provided in
Section 8(d) below, and the Awardee shall be required, as a condition of the grant, to deliver to
the Company a stock power endorsed in blank.

	 	(c)	 	Restrictions.

     Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or
disposed of except as specifically provided herein or in the applicable Agreement. If an Awardee’s
employment (or other service relationship) with the Company terminates under the conditions
specified in the applicable Agreement, or upon such other event or events as may be stated in the
applicable Agreement, the Company or its assigns shall have the right or shall agree, as may be
specified in the applicable Agreement, to repurchase some or all of the shares of Common Stock
subject to the Award at such purchase price as is set forth in such instrument.

	 	(d)	 	Vesting of Restricted Stock.

     The Committee at the time of grant shall specify the date or dates and/or the attainment of
pre-established performance goals, objectives and other conditions on which Restricted Stock shall
become vested, subject to such further rights of the Company or its assigns as may be specified in
the applicable Agreement.

	 	(e)	 	Waiver, Deferral and Reinvestment of Dividends.

     The Restricted Stock Award Agreement may require or permit the immediate payment, waiver,
deferral or investment of dividends paid on the Restricted Stock.

9. UNRESTRICTED STOCK AWARDS.

	 	(a)	 	Grant or Sale of Unrestricted Stock.

     The Committee may, in its sole discretion, grant (or sell at a purchase price determined by
the Committee) an Unrestricted Stock Award to any Awardee, pursuant to which such Awardee may
receive shares of Common Stock free of any vesting restrictions (“Unrestricted Stock”) under the
Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in
respect of past services or other valid consideration, or in lieu of any cash compensation due to
such individual.

	 	(b)	 	Elections to Receive Unrestricted Stock In Lieu of Compensation.

     Upon the request of an Awardee and with the consent of the Committee, each such Awardee may,
pursuant to an advance written election delivered to the Company no later than the date specified
by the Committee, receive a portion of the cash compensation otherwise due to such Awardee in the
form of shares of Unrestricted Stock either currently or on a deferred basis.

15

 

	 	(c)	 	Restrictions on Transfers.

     The right to receive shares of Unrestricted Stock on a deferred basis may not be sold,
assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent
and distribution.

10. TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS.

	 	(a)	 	Restricted Stock Unit Agreement.

     Each grant of Restricted Stock Units under the Plan shall be evidenced by an Agreement between
the recipient and the Company. Such Restricted Stock Units shall be subject to the terms of the
Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions
of the various Agreements evidencing Restricted Stock Units under the Plan need not be identical.

	 	(b)	 	Number of Shares.

     Each Agreement evidencing a Restricted Stock Unit shall specify the number of shares of Common
Stock to which the Restricted Stock Unit pertains and shall provide for the adjustment of such
number in accordance with Section 12.

	 	(c)	 	Payment for Awards.

     To the extent that an Award is granted in the form of Restricted Stock Units, no cash
consideration shall be required of the Awardee.

	 	(d)	 	Vesting of Restricted Stock Units.

     The Committee at the time of grant shall specify the date or dates and/or the attainment of
pre-established performance goals, objectives and other conditions on which the Restricted Stock
Unit shall become vested, subject to such further rights of the Company or its assigns as may be
specified in the applicable Agreement.

	 	(e)	 	Voting and Dividend Rights.

     The holders of Restricted Stock Units shall have no voting rights. Prior to settlement or
forfeiture, any Restricted Stock Unit awarded under the Plan may, at the Committee’s discretion,
carry with it a right to dividend equivalents. Such right entitles the holder to be credited with
an amount equal to all cash dividends paid on one share of Common Stock while the Restricted Stock
Unit is outstanding. Dividend equivalents may be converted into additional Restricted Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form of shares of Common
Stock, or in a combination of both. Prior to distribution, any dividend equivalents that are not
paid shall be subject to the same conditions and restrictions as the Restricted Stock Units to
which they attach.

	 	(f)	 	Form and Time of Settlement of Restricted Stock Units.

     Settlement of vested Restricted Stock Units may be made in the form of (a) cash, (b) shares of
Common Stock or (c) any combination of both, as determined by the Committee. The actual number of
Restricted Stock Units eligible for settlement may be larger or smaller than the number included in
the original Award, based on predetermined performance factors. Methods of converting Restricted
Stock Units into cash may include (without limitation) a method based on the average Fair Market
Value of shares of Common Stock over a series of trading days. Vested Restricted Stock Units may
be settled in a lump sum or in installments. The distribution may occur or commence when all
vesting conditions

16

 

applicable to the Restricted Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Restricted Stock Units is settled,
the number of such Restricted Stock Units shall be subject to adjustment pursuant to Section 12.

	 	(g)	 	Creditors’ Rights.

     A holder of Restricted Stock Units shall have no rights other than those of a general creditor
of the Company. Restricted Stock Units represent an unfunded and unsecured obligation of the
Company, subject to the terms and conditions of the applicable Restricted Stock Agreement.

11. SECURITIES REGULATION AND TAX WITHHOLDING.

     (a) No shares of Common Stock shall be issued upon exercise of an Award unless the exercise of
such Award and the issuance and delivery of such shares shall comply with all relevant provisions
of law, including, without limitation, any applicable state securities laws, the Securities Act,
the Exchange Act, the rules and regulations thereunder and the requirements of any stock exchange
upon which such shares may then be listed, and such issuance shall be further subject to the
approval of counsel for the Company with respect to such compliance, including the availability of
an exemption from registration for the issuance and sale of such shares. The inability of the
Company to obtain from any regulatory body the authority deemed by the Company to be necessary for
the lawful issuance and sale of any shares under the Plan, or the unavailability of an exemption
from registration for the issuance and sale of any shares under the Plan, shall relieve the Company
of any liability with respect to the non-issuance or sale of such shares.

     As long as the Common Stock is not registered under the Exchange Act, the Company intends that
all offers and sales of Awards and shares of Common Stock issuable upon exercise of Awards shall be
exempt from registration under the provisions of Section 5 of the Securities Act, and the Plan
shall be administered in a manner so as to preserve such exemption. The Company also intends that
the Plan shall constitute a written compensatory benefit plan, within the meaning of Rule 701(b)
promulgated under the Securities Act, and that each Award granted pursuant to the Plan at a time
when the Common Stock is not registered under the Exchange Act shall, unless otherwise specified by
the Committee at the time the Award is granted or at any time thereafter, be granted in reliance on the exemption from the registration
requirements of Section 5 of the Securities Act provided by Rule 701.

     As a condition to the exercise of an Award, the Committee may require the Awardee to represent
and warrant in writing at the time of such exercise that the shares of Common Stock issuable upon
exercise of the Award are being purchased only for investment and without any then-present
intention to sell or distribute such shares. At the option of the Committee, a stop-transfer order
against such shares may be placed on the stock books and records of the Company, and a legend
indicating that such shares may not be pledged, sold or otherwise transferred unless an opinion of
counsel is provided stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the certificates representing such shares in order to assure an
exemption from registration. The Committee also may require such other documentation as it shall,
in its discretion, deem necessary from time to time to comply with federal and state securities
laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF ANY AWARD OR ANY SHARES OF COMMON
STOCK ISSUABLE UPON THE EXERCISE OF ANY AWARD.

     (b) The Awardee shall pay to the Company by certified or cashier’s check, promptly upon
exercise of the Award or, if later, the date that the amount of such obligations becomes
determinable, all applicable federal, state, local and foreign withholding taxes that the
Committee, in accordance with the applicable rules and regulations, determines to result from the
exercise of the Award or from a transfer or other disposition of shares of Common Stock acquired
upon exercise of the Award or otherwise related to

17

 

the Award or shares of Common Stock acquired
upon exercise of the Award, which determination by the Committee of the amount due shall be binding
upon the Awardee. Upon approval of the Committee, such Awardee may satisfy such obligation by
complying with one or more of the following alternatives selected by the Committee:

     (i) by delivering to the Company whole shares of Common Stock then owned by
such Awardee, or by the Company withholding whole shares of Common Stock otherwise
issuable to the Awardee upon exercise of the Award, which shares of Common Stock
received or withheld shall have a Fair Market Value on the date of exercise (as
determined by the Committee in good faith) equal to the tax obligation to be paid by
such Awardee upon such exercise;

     (ii) by executing appropriate loan documents approved by the Committee by which
such Awardee borrows funds from the Company to pay the withholding taxes due under
this Section 11, with such repayment terms as the Committee shall select;

     (iii) by any combination of the foregoing methods of payment; or

     (iv) by complying with any other payment mechanism as may be permitted for the
issuance of equity securities under applicable securities and other laws and
approved by the Committee from time to time.

     (c) The issuance, transfer or delivery of certificates of Common Stock pursuant to the
exercise of an Award may be delayed, at the discretion of the Committee, until the Committee is
satisfied that the applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.

12. STOCK SPLIT, REORGANIZATION OR LIQUIDATION.

     (a) Upon the occurrence of any of the following events, the Committee shall, with respect to
each outstanding Award, proportionately adjust the number of shares of Common Stock issuable upon
exercise of such Award, the per share exercise price or both so as to preserve the rights of the
Awardee substantially proportionate to the rights of such Awardee prior to such event, and to the
extent that such action shall include an increase or decrease in the number of shares of Common
Stock issuable upon exercise of outstanding Awards, the number of shares available under Section 5
(including the amount of the annual increase in the number of shares reserved for issuance
described in Section 5) shall automatically be increased or decreased, as the case may be,
proportionately, without further action on the part of the Committee, the Company, the Company’s
shareholders, or any Awardee:

     (i) the Company shall at any time be involved in a transaction described in
Section 424(a) of the Code (or any successor provision) or any “corporate
transaction” described in the regulations promulgated thereunder;

     (ii) the Company subdivides its outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock dividend, stock split,
reclassification or otherwise) or combines its outstanding shares of Common Stock
into a smaller number of shares of Common Stock (by reverse stock split,
reclassification or otherwise); or

     (iii) any other event with substantially the same effect shall occur.

     (b) If the Company shall at any time declare an extraordinary dividend with respect to the
Common Stock, whether payable in cash or other property, or is involved in any recapitalization,
spin-off,

18

 

combination, exchange of shares, warrants or rights offering to purchase Common Stock, or
other similar event (including a merger or consolidation other than one that constitutes an
Approved Transaction), the Committee may, in the exercise of its sole discretion and with respect
to each outstanding Award, proportionately adjust the number of shares of Common Stock issuable
upon exercise of such Award, the per share exercise price or both so as to preserve the rights of
the Awardee substantially proportionate to the rights of such Awardee prior to such event, and to
the extent that such action shall include an increase or decrease in the number of shares of Common
Stock issuable upon exercise of outstanding Awards, the number of shares available under Section 5
of the Plan shall automatically be increased or decreased, as the case may be, proportionately,
without further action on the part of the Committee, the Company, the Company’s shareholders, or
any Awardee.

     (c) The foregoing adjustments shall be made by the Committee or by the applicable terms of any
assumption or substitution document.

     (d) With respect to the foregoing adjustments, the number of shares subject to an Award shall
always be a whole number. The Committee may, if deemed appropriate, provide for a cash payment to
any Awardee in connection with any adjustment made pursuant to this Section 12.

     (e) The grant of an Award shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital or business
structure, to merge, consolidate or dissolve, to liquidate or to sell or transfer all or any part
of its business or assets.

13. APPROVED TRANSACTIONS; CONTROL PURCHASE.

     In the event of any Approved Transaction or Control Purchase, if so provided for in the
Agreement representing such Award, an Award may become exercisable in full in respect of the
aggregate number of shares thereunder effective upon the Control Purchase or immediately prior to
consummation of the Approved Transaction. In the case of an Approved Transaction, the Company shall provide notice of
the pendency of the Approved Transaction at least fifteen (15) days prior to the expected date of
consummation thereof to each Awardee entitled to acceleration. Each such Awardee shall thereupon
be entitled to exercise the vested portion of the Award at any time prior to consummation of the
Approved Transaction or immediately following the Control Purchase. Any such exercise shall be
contingent on such consummation.

     Following consummation of the Approved Transaction or Control Purchase, and until such Award
is terminated, any vested portion of Awards that are not exercised shall remain exercisable, and
any unvested portions of any Awards shall remain in effect and continue to vest in accordance with
the vesting schedule specified at the time of grant, and upon such vesting shall become
exercisable. Notwithstanding the foregoing, in its reasonable discretion, the Board may determine
that any or all outstanding Awards that are unvested at the time of, or are not exercised upon
consummation of, the Approved Transaction or Control Purchase shall thereafter terminate, provided
that, in making such determination, the Board shall consider the best interests of the Awardees,
the Company and its shareholders, and will make such determination only if the action to be taken,
in the opinion of the Board, is appropriate in light of the circumstances under which such
determination is made.

     Moreover, except to the extent that such determination would render unavailable “pooling of
interests” accounting treatment for any reorganization, merger or consolidation of the Company, the
Board may take, or make effective provision for the taking of, such action as in the opinion of the
Board is equitable and appropriate in order to substitute new awards for any or all outstanding
Awards that do not become exercisable on an accelerated basis, or to assume such Awards (which
assumption may be effected by any means determined by the Board, in its discretion, including, but
not limited to, by a cash payment to each Awardee, in cancellation of the Awards held by him or
her, of such amount as the Board determines, in its sole discretion, represents the then value of
the Awards) and in order to make such new stock options or

19

 

assumed Awards, as nearly as practicable, equivalent to the old Awards, taking into account, to the extent applicable, the kind
and amount of securities, cash or other assets into or for which the Common Stock may be changed,
converted or exchanged in connection with the Approved Transaction.

14. EFFECTIVE DATE; TERM.

     The Plan shall be effective at the time specified in the resolutions of the Board adopting the
Plan (the “Effective Date”). Awards may be granted by the Committee or Executive Officer from time
to time thereafter until the tenth anniversary of the Effective Date. Termination of the Plan
shall not terminate any Award granted prior to such termination. Issuance of Non-Qualified Stock
Options under the Plan shall be subject to the requirement of RCW 21.20.310(10) that the
Administrator of Securities of the Department of Financial Institutions of the State of Washington
be provided with notification of the adoption of the Plan. No Non-Qualified Stock Option shall be
granted hereunder until this notification requirement has been satisfied. Issuance of Incentive
Stock Options under the Plan within twelve (12) months after the Effective Date shall be subject to
the approval of the Plan by the shareholders of the Company at a duly held meeting of shareholders
at which a majority of all outstanding voting stock of the Company is represented in person or by
proxy. The approval required shall be a majority of the votes cast on the proposal to approve the
Plan. Such approval may also be provided pursuant to a written consent in lieu of such meeting. No
Incentive Stock Option granted hereunder shall be exercisable until this approval requirement has
been satisfied. If this requirement is not satisfied within twelve (12) months after the Effective
Date, then, notwithstanding any contrary provision in the Plan (a) no Incentive Stock Options may
thereafter be granted under the Plan, and (b) each Incentive Stock Option granted under the Plan
prior thereto shall automatically be deemed to be a Non-Qualified Stock Option (except to the
extent the Agreement evidencing the Option expressly provides otherwise).

15. NO OBLIGATIONS TO EXERCISE AWARD.

     The grant of an Award shall impose no obligation upon the Awardee to exercise such Award.

16. NO RIGHT TO AWARDS OR TO EMPLOYMENT.

     Whether or not any Awards are to be granted under the Plan shall be exclusively within the
discretion of the Committee, and nothing contained in the Plan shall be construed as giving any
person any right to participate under the Plan. The grant of an Award to any Awardee shall in no
way constitute any form of agreement or understanding binding on the Company or any Related
Corporation, express or implied, that the Company or such Related Corporation will employ or
contract with such Awardee for any length of time, nor shall it interfere in any way with the
Company’s or, where applicable, a Related Corporation’s right to terminate such Awardee’s
employment at any time, which right is hereby reserved.

17. APPLICATION OF FUNDS.

     The proceeds received by the Company from the sale of Common Stock issued upon the exercise of
Awards shall be used for general corporate purposes, unless otherwise directed by the Board.

18. INDEMNIFICATION OF COMMITTEE.

     In addition to all other rights of indemnification they may have by virtue of being a member
of the Board or an executive officer of the Company, members of the Committee and the Executive
Officer shall be indemnified by the Company for all reasonable expenses and liabilities of any type
or nature, including attorneys’ fees, incurred in connection with any action, suit or proceeding to
which they or any of them are a party by reason of, or in connection with, the Plan or any Award
granted under the Plan, and against all amounts paid by them in settlement thereof (provided that
such settlement is approved by independent legal

20

 

counsel selected by the Company), except to the
extent that such expenses relate to matters for which it is adjudged that such Committee member or
Executive Officer is liable for willful misconduct; provided, however, that within fifteen (15)
days after the institution of any such action, suit or proceeding, the Committee member or
Executive Officer involved therein shall, in writing, notify the Company of such action, suit or
proceeding, so that the Company may have the opportunity to make appropriate arrangements to
prosecute or defend the same.

19. SHAREHOLDERS AGREEMENT.

     Unless the Agreement evidencing an Award expressly provides otherwise, each Awardee may be
required, as a condition to the issuance of any shares of Common Stock that such Awardee acquires
upon the exercise of the Award, to execute and deliver to the Company a shareholders agreement in
such form as may be required by the Company at the time of such exercise, or a counterpart thereof,
together with, unless the Awardee is unmarried, a spousal consent in the form required thereby,
unless the Awardee has previously executed and delivered such documents and they are in effect at
the time of exercise and apply by their terms to the shares to be issued.

20. SEPARABILITY.

     With respect to Incentive Stock Options, if the Plan does not contain any provision required
to be included herein under Section 422 of the Code, such provision shall be deemed to be
incorporated herein with the same force and effect as if such provision had been set out in full
herein; provided, however, that to the extent any Option that is intended to qualify as an
Incentive Stock Option cannot so qualify, the Option, to that extent, shall be deemed to be a
Non-Qualified Stock Option for all purposes of the Plan.

21. NON-EXCLUSIVITY OF THE PLAN.

     Neither the adoption of the Plan by the Board nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any limitations on the
power of the Board to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and cash otherwise than
pursuant to the Plan, and such arrangements may be either generally applicable or applicable only
in specific cases.

22. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION.

     By acceptance of an Award, unless otherwise provided in the Agreement evidencing the Award,
the Awardee with respect to such Award shall be deemed to have agreed that the Award is special
incentive compensation that will not be taken into account, in any manner, as salary, compensation
or bonus in determining the amount of any payment or other benefit under any pension, retirement or
other employee benefit plan, program or policy of the Company or any of its affiliates.

23. AMENDMENT OF PLAN.

     The Board may, at any time, modify, amend or terminate the Plan or modify or amend any Award
granted pursuant to the Plan, including, without limitation, such modifications or amendments as
are necessary to maintain compliance with applicable statutes, rules or regulations; provided,
however, that no amendment with respect to an outstanding Award which has the effect of reducing
the benefits afforded to the Awardee shall be made over the objection of such Awardee; further
provided, that the events triggering acceleration of vesting of an outstanding Award may be
modified, expanded or eliminated without the consent of the Awardee. The Board may condition the
effectiveness of any such amendment on the receipt of shareholder approval at such time and in such
manner as the Committee may consider necessary for the Company to comply with or to avail the
Company, the Awardees or both of the benefits of any securities,

21

 

tax, market listing or other
administrative or regulatory requirement which the Board determines to be desirable. Without
limiting the generality of the foregoing, the Board may modify grants to persons who are eligible
to receive Awards under the Plan who are foreign nationals or employed outside the United States to
recognize differences in local law, tax policy or custom.

	 	 	 
	Date Amended and Restated Plan was Approved by Board of Directors of Company:

	 	January 29, 1998
	 
	 	 
	Date Amended and Restated Plan was Approved by Shareholders of Company:

	 	January 29, 1998
	 
	 	 
	As Amended by the Board of Directors and Shareholders of the Company:

	 	August 31, 1999
	 

	 	May 2, 2000

	 

	 	April 29, 2003
	 

	 	May 12, 2005
	 
	 	 
	As Amended and Restated by the Board of Directors of the Company:

	 	December 21, 2007

22

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}]]