Document:

ROFIN-SINAR TECHNOLOGIES INC.
                           2002 EQUITY INCENTIVE PLAN

1.  Purposes

The purposes of the Rofin-Sinar Technologies Inc. 2002 Equity Incentive Plan, as
may be amended from time to time (the "Plan"), (i) are to attract, retain and
motivate officers and other key employees and consultants of Rofin-Sinar
Technologies Inc., a Delaware corporation, and any successor thereto (the
"Company"), and its Subsidiaries (as hereinafter defined), (ii) to compensate
them for their contributions to the growth and profits of the Company, and (iii)
to encourage ownership by them of stock of the Company.

2.  Definitions

For purposes of the Plan, the following terms shall be defined as follows:

"Affiliate" and "Associate" have the respective meanings ascribed to such terms
in Rule 12b-2 promulgated under the Exchange Act.

"Award" means an award made pursuant to the terms of the Plan to an Eligible
Individual (as hereinafter defined) in the form of Stock Options, Restricted
Stock Awards or Performance Share Awards.

"Award Agreement" means a written agreement granting an Award, which is executed
by the Participant and by an officer on behalf of the Company, and containing
such terms and conditions as the Committee deems appropriate and that are not
inconsistent with the terms of the Plan.

"Beneficial Owner" has the meaning ascribed to such term in Rule 13d-3
promulgated under the Exchange Act.

"Board" means the Board of Directors of the Company.

A "Change in Control" of the Company shall be deemed to have occurred when (A)
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any person
or entity organized, appointed or established by the Company or any Subsidiary
of the Company for or pursuant to the terms of any such plan), alone or together
with its Affiliates and Associates (collectively, an "Acquiring Person"), shall
become the Beneficial Owner of twenty percent (20%) or more of the then
outstanding shares of Common Stock or the Combined Voting Power of the Company
(except pursuant to an offer for all outstanding shares of Common Stock at a
price and upon such terms and conditions as a majority of the Continuing
Directors determine to be in the best interests of the Company and its
shareholders (other than an Acquiring Person on whose behalf the offer is being
made)), (B) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director who is a representative or nominee of an Acquiring Person) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least a majority of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved (collectively,
the "Continuing Directors"), cease for any reason to constitute a majority of
the Board, (C) upon the consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the Surviving Entity (as defined in Section
14 hereof) or any Parent of such Surviving Entity) at least 80% of the Combined
Voting Power of the Company, such Surviving Entity or the Parent of such
Surviving Entity outstanding immediately after such merger or consolidation, or
(D) the shareholders of the Company approve a plan of reorganization (other than
a reorganization under the United States Bankruptcy Code) or complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; provided, however,
that a change in control shall not be deemed to have occurred in the event of
(x) a sale or conveyance in which the Company continues as a holding company of
an entity or entities that conduct all or

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substantially all of the business or businesses formerly conducted by the
Company or (y) any transaction undertaken for the purpose of incorporating the
Company under the laws of another jurisdiction, if such transaction does not
materially affect the beneficial ownership of the Company's capital stock.

"Code" means the Internal Revenue Code of 1986, as amended, and the applicable
rulings and regulations thereunder.

"Combined Voting Power" means the combined voting power of the Company's or
other relevant entity's then outstanding voting securities.

"Committee" means the Compensation Committee of the Board, any successor
committee thereto or any other committee appointed from time to time by the
Board to administer the Plan. The Committee shall consist of at least two
individuals and shall serve at the pleasure of the Board.

"Common Stock" means the Common Stock, par value $.01 per share, of the Company.

"Disability" means, with respect to any Participant, that, as a result of
incapacity due to physical or mental illness, such Participant is, or is
reasonably likely to become, unable to perform his or her duties for more than
six (6) consecutive months or six (6) months in the aggregate during any twelve
(12) month period.

"Eligible Individuals" means the individuals described in Section 7 who are
eligible for Awards under the Plan.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
applicable rulings and regulations promulgated thereunder.

"Fair Market Value" means, on any given date, the closing price of the shares of
Common Stock, as reported on the Nasdaq National Market for such date or, if
Common Stock was not traded on such date, on the next preceding day on which
Common Stock was traded; provided that if the Common Stock is not then traded on
the Nasdaq National Market, Fair Market Value means the fair market value
thereof as of the relevant date of determination as determined in accordance
with a valuation methodology approved by the Committee.

"Incentive Stock Option" means a Stock Option which is an "incentive stock
option" within the meaning of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option in an Award Agreement.

"Nonqualified Stock Option" means a Stock Option which is not an Incentive Stock
Option.

"Parent" means any corporation which is a "parent corporation" within the
meaning of Section 424(e) of the Code with respect to the relevant entity.

"Participant" means an Eligible Individual to whom an Award has been granted
under the Plan.

"Performance Share Award" means a conditional Award of shares of Common Stock
granted to an Eligible Individual pursuant to Section 10 hereof.

"Person" means any person, entity or "group" within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Exchange Act.

"Restricted Stock Award" means an Award of shares of Common Stock granted to an
Eligible Individual pursuant to Section 9 hereof.

"Retirement" means retirement from active employment with the Company and its
Subsidiaries on or after the attainment of age 55, or such other retirement date
as may be approved by the Committee for purposes of the Plan and specified in
the applicable Award Agreement.

"Stock Option" means an Award to purchase shares of Common Stock granted to an
Eligible Individual pursuant to Section 8 hereof.

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"Subsidiary" means (i) any corporation which is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code with respect to the Company or
(ii) any other corporation or other entity in which the Company, directly or
indirectly, has an equity or similar interest and which the Committee designates
as a Subsidiary for the purposes of the Plan.

"Ten Percent Shareholder" means an Eligible Individual who, at the time an
Incentive Stock Option is to be granted to him or her, owns (within the meaning
of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company, or of
a Parent or a Subsidiary.

3. Administration of the Plan

(a) The Plan shall be administered by the Committee, and the Committee shall
make the determinations set forth in this subsection 3(a), based on the
recommendations of the Company's management; provided, however, that with
respect to any Participant the deductibility of whose Award may, in the
reasonable belief of the Committee, be subject to the deduction limitation of
Section 162(m) of the Code, the Committee shall exercise sole discretion
regarding administration of the Plan and the determinations set forth in this
subsection 3(a). The Committee shall have full power and authority, subject to
the express provisions hereof, (i) to select Participants from the Eligible
Individuals, (ii) to make Awards in accordance with the Plan, (iii) to determine
the number of Shares subject to each Award, (iv) to determine the terms and
conditions of each Award, including, without limitation, those related to
vesting, forfeiture, payment and exercisability, and including the authority to
amend the terms and conditions of an Award after the granting thereof to a
Participant in a manner that is not prejudicial to the rights of such
Participant in such Award, (v) to specify and approve the provisions of the
Award Agreements delivered to Participants in connection with their Awards, (vi)
to construe and interpret any Award Agreement delivered under the Plan, (vii) to
prescribe, amend and rescind rules and procedures relating to the Plan, (viii)
to vary the terms of Awards to take account of tax, securities law and other
regulatory requirements of foreign jurisdictions and (ix) to make all other
determinations (including, without limitation, factual determinations) and to
formulate such procedures as may be necessary or advisable for the
administration of the Plan.

(b) The Committee shall have full power and authority, subject to the express
provisions hereof, to construe and interpret the Plan.

(c) All determinations by the Committee in carrying out and administering the
Plan and in construing and interpreting the Plan shall be final, binding and
conclusive for all purposes and upon all persons interested herein.

(d) No member of the Committee shall be liable for anything whatsoever in
connection with the administration of the Plan except such person's own willful
misconduct. Under no circumstances shall any member of the Committee be liable
for any act or omission of any other member of the Committee. In the performance
of its functions with respect to the Plan, the Committee shall be entitled to
rely upon information and advice furnished by the Company's officers, the
Company's accountants, the Company's counsel and any other party the Committee
deems necessary, and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such advice.

4. Duration of Plan

The Plan shall remain in effect until terminated by the Board of Directors and
thereafter until all Awards granted under the Plan are satisfied by the issuance
of shares of Common Stock or are terminated under the terms of the Plan or under
the Award Agreement entered into in connection with the grant thereof.
Notwithstanding the foregoing, no Awards may be granted under the Plan after the
tenth anniversary of the Effective Date (as defined in Section 16(l)).

5.  Shares of Stock Subject to the Plan

Subject to adjustment as provided in Section 13(b) hereof, the number of shares
of Common Stock that may be issued under the Plan pursuant to Awards shall not
exceed, in the aggregate, 1,500,000 shares, all of which may be granted as
Incentive Stock Options. Such shares may be either authorized but unissued
shares, treasury shares or any combination thereof. To the fullest extent
permitted under Section 422 of the Code, any shares subject to an

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Award which lapses, expires or is otherwise terminated without the issuance of
such shares may again be available for purposes of the Plan.

6.  Maximum Number of Shares per Eligible Individual

In accordance with the requirements under Section 162(m) of the Code (as
applicable), no Eligible Individual shall receive grants of Stock Options with
respect to an aggregate of more than 200,000 shares of Common Stock in any
fiscal year of the Company.

7.  Eligible Individuals

Awards may be granted by the Committee to individuals ("Eligible Individuals")
who are officers or other key employees or consultants of the Company or a
Subsidiary with the potential to contribute to the future success of the Company
or its Subsidiaries. Awards shall not be affected by any change of duties or
positions so long as the holder continues to be an employee or consultant of the
Company or of a Subsidiary.

8.  Stock Options

Stock Options granted under the Plan may be in the form of Incentive Stock
Options or Nonqualified Stock Options; provided that only employees may be
granted Incentive Stock Options. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem appropriate:

(a) Award Agreement. Stock Options shall be evidenced by an Award Agreement in
such form and containing such terms and conditions as the Committee deems
appropriate and which are not inconsistent with the terms of the Plan.

(b) Terms of Stock Options Generally. Subject to the terms of the Plan and the
applicable Award Agreement, each Stock Option shall entitle the Participant to
whom such Stock Option was granted to purchase, upon payment of the relevant
exercise price, the number of shares of Common Stock specified in the Award
Agreement.

(c) Exercise Price. The exercise price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant
and set forth in the Award Agreement; provided, however, that with respect to
Incentive Stock Options, the exercise price shall not be less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the date
of grant (110% in the case of an Incentive Stock Option granted to a Ten Percent
Shareholder).

(d) Option Term. The term of each Stock Option shall be fixed by the Committee
and set forth in the Award Agreement; provided, however, that a Stock Option
shall not be exercisable after the expiration of ten (10) years after the date
the Stock Option is granted (five (5) years in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder).

(e) Exercisability. A Stock Option shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Committee. Only whole shares shall be issued pursuant to the exercise of any
Stock Option. The Committee may provide that Stock Options shall be exercisable
in whole or in part based upon length of service or attainment of specified
performance criteria. Subject to the first sentence of this paragraph, the
Committee, in its sole discretion, may provide for the acceleration of vesting
of a Stock Option, in whole or in part, based on such factors or criteria
(including specified performance criteria) as the Committee may determine.

(f) Method of Exercise. A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the Secretary of the Company specifying the
number of shares to be purchased, and containing any representations required by
the Committee. Such notice shall be accompanied by payment in full of the
exercise price either by cash, certified or bank check, or other instrument
acceptable to the Committee. The manner in which the exercise price may be paid
may be subject to certain conditions specified by the Committee, including,
without limitation, conditions intended to avoid the imposition of liability
against the individual under Section 16 of the Exchange Act. In accordance with
the rules and procedures that may be established by the Committee in its sole

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discretion, a Stock Option may also be exercised through a "cashless exercise"
procedure approved by the Committee involving a broker or dealer approved by the
Committee, that affords Participants the opportunity to sell immediately some or
all of the shares underlying the exercised portion of the Stock Option in order
to generate sufficient cash to pay the Stock Option exercise price and/or to
satisfy withholding tax obligations related to the Stock Option. If requested by
the Committee, the Participant shall deliver the Award Agreement evidencing an
exercised Stock Option to the Secretary of the Company, who shall endorse
thereon a notation of such exercise and return such Award Agreement to the
Participant exercising the Option. No fractional shares (or cash in lieu
thereof) shall be issued upon exercise of a Stock Option and the number of
shares that may be purchased upon exercise shall be rounded to the nearest
number of whole shares.

(g) Rights as Shareholder. A Participant shall have no rights as a shareholder
with respect to any shares of Common Stock issuable upon exercise of a Stock
Option until a certificate or certificates evidencing the shares of Common Stock
shall have been issued to the Participant and, subject to Section 13(b), no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date on which the
Participant shall become the holder of record thereof.

(h) Special Rule for Incentive Stock Options. With respect to Incentive Stock
Options granted under the Plan, if the aggregate Fair Market Value (determined
as of the date the Incentive Stock Option is granted) of the number of shares
with respect to which Incentive Stock Options are exercisable for the first time
by a Participant during any calendar year under all plans of the Company or a
Parent or Subsidiary exceeds One Hundred Thousand Dollars ($100,000) or such
other limit as may be required by the Code, such Incentive Stock Options shall
be treated, to the extent of such excess, as Nonqualified Stock Options.

9. Restricted Stock Awards

Restricted Stock Awards granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the Plan, as the Committee shall deem appropriate:

(a) Award Agreement. Restricted Stock Awards shall be evidenced by an Award
Agreement in such form and containing such restrictions, terms and conditions as
the Committee deems appropriate and which are not inconsistent with the terms of
the Plan, including, without limitation, restrictions on the sale, assignment,
transfer or other disposition of such shares and provisions requiring that a
Participant forfeit such shares upon a termination of employment for specified
reasons within a specified period of time.

(b) Terms of Restricted Stock Awards Generally. Restricted Stock Awards may be
granted under the Plan in such form as the Committee may from time to time
approve. Restricted Stock Awards may be granted for no consideration or such
consideration as the Committee deems appropriate. Restricted Stock Awards may be
granted alone or in addition to other Awards under the Plan. Subject to the
terms of the Plan, the Committee shall determine the number of shares of Common
Stock subject to each Restricted Stock Award granted to a Participant, and the
Committee may impose different terms and conditions on any particular Restricted
Stock Award granted to any Participant. The Committee, in its sole discretion,
may provide for the lapse of restrictions in installments and may waive or
accelerate such restrictions in whole or in part, based on such factors or
criteria, including specified performance criteria, as the Committee may
determine. Upon expiration of any applicable restriction period or lapse of any
restrictions, the Participant shall be vested in the Restricted Stock Award, or
applicable portion thereof.

(c) Evidence of Ownership. Each Participant receiving a Restricted Stock Award
shall be issued a certificate or certificates in respect of such shares of
Common Stock at the time of grant. Such certificate shall be registered in the
name of such Participant, and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Award. The Committee may
require that the certificate or certificates evidencing such shares be held in
custody by the Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock Award, the Participant shall have
delivered a stock power, endorsed in blank, relating to the Common Stock covered
by such Award.

(d) Rights as Shareholder. Except as otherwise provided by the Committee in its
sole discretion, a Participant shall have, with respect to the shares of Common
Stock received under a Restricted Stock Award, all of the rights of a

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shareholder of the Company, including the right to vote the shares and the right
to receive any cash dividends. Stock dividends issued with respect to shares
covered by a Restricted Stock Award shall be treated as additional shares under
the Restricted Stock Award and shall be subject to the same restrictions and
other terms and conditions that apply to the shares with respect to which such
dividends are issued.

10. Performance Share Awards

Performance Share Awards granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the Plan, as the Committee shall deem
appropriate:

(a) Award Agreement. Performance Share Awards shall be evidenced by an Award
Agreement in such form and containing such terms and conditions as the Committee
deems appropriate and which are not inconsistent with the terms of the Plan.
Each Award Agreement shall set forth the number of shares of Common Stock to be
received by a Participant upon satisfaction of certain specified performance
criteria and subject to such other terms and conditions as the Committee deems
appropriate.

(b) Terms of Performance Share Awards Generally. Performance Share Awards may be
granted under the Plan in such form as the Committee may from time to time
approve. Performance Share Awards may be granted for no consideration or such
consideration as the Committee deems appropriate. Performance Share Awards may
be granted alone or in addition to other Awards under the Plan. Subject to the
terms of the Plan, the Committee shall determine the number of shares of Common
Stock subject to each Performance Share Award granted to a Participant.

(c) Performance Goals. Performance Share Awards shall provide that, in order for
a Participant to be entitled to receive shares of Common Stock under such Award,
the Company, a Subsidiary and/or the Participant must achieve certain specified
performance goals ("Performance Goals") over a designated performance period
("Performance Period"). The Performance Goals and Performance Period shall be
established by the Committee in its sole discretion. The Committee shall
establish the Performance Goals for each Performance Period before, or as soon
as practicable after, the commencement of the Performance Period. In setting
Performance Goals, the Committee may use such measures as net earnings,
operating earnings or income, absolute and/or relative return on equity or
assets, earnings per share, cash flow, pretax profits, earnings growth, revenue
growth, comparison to peer companies, any combination of the foregoing, or such
other measure or measures of performance, including individual measures of
performance, in such manner as it deems appropriate. Prior to the end of a
Performance Period, with respect to any Participant the deductibility of whose
Performance Award will not, in the reasonable belief of the Committee, be
subject to the deduction limitation of Section 162(m) of the Code, the Committee
may, in its discretion, adjust the performance objectives to reflect a Change in
Capitalization (as hereinafter defined) or any other event which may materially
affect the performance of the Company, a Subsidiary or a division, including,
but not limited to, market conditions or a significant acquisition or
disposition of assets or other property by the Company, a Subsidiary or a
division. With respect to any Participant, the deductibility of whose
Performance Award may, in the reasonable belief of the Committee, be subject to
the deduction limitation of Section 162(m) of the Code, the Committee shall not
be entitled to exercise the discretion conferred upon it in the preceding
sentence to the extent the existence or exercise of such discretion would result
in a loss of tax deductibility under such Section 162(m) of the Code. The extent
to which a Participant is entitled to payment of a Performance Share Award at
the end of the Performance Period shall be determined by the Committee, in its
sole discretion, based on the Committee's determination of whether the
Performance Goals established by the Committee in the granting of such
Performance Share Award have been met.

(d) Payment of Awards. Payment in settlement of a Performance Share Award shall
be made as soon as practicable following the conclusion of the respective
Performance Period, or at such other time as the Committee shall determine, in
shares of Common Stock.

(e) Rights as Shareholder. Except as otherwise provided by the Committee in the
applicable Award Agreement, a Participant shall have no rights as a shareholder
with respect to a Performance Share Award until a certificate or certificates
evidencing the shares of Common Stock shall have been issued to the Participant
following the conclusion of the Performance Period, and, subject to Section
13(b), no adjustment shall be made for dividends or

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distributions or other rights in respect of any share for which the record date
is prior to the date on which the Participant shall become the holder of record
thereof.

11. Termination of Employment

(a) Disability or Retirement. Except as may otherwise be provided by the
Committee in its sole discretion at the time of grant or subsequent thereto, if
a Participant's employment with the Company and its Subsidiaries terminates by
reason of Disability or Retirement, (i) any Stock Option held by the Participant
may thereafter be exercised, to the extent it was exercisable on the date of
termination, for a period (the "Exercise Period") of one year from the date of
such Disability or Retirement or until the expiration of the stated term of the
Stock Option, whichever period is shorter, and to the extent not exercisable on
the date of termination of employment, such Stock Option shall be forfeited;
provided, however, that if a Participant terminates employment by reason of
Retirement and such Participant holds an Incentive Stock Option, the Exercise
Period shall not exceed the shorter of three months from the date of Retirement
and the remainder of the stated term of such Incentive Stock Option; provided
further, however, that if the Participant dies during the Exercise Period, any
unexercised Stock Option held by such Participant may thereafter be exercised to
the extent it was exercisable on the date of Disability or Retirement, by the
legal representative of the estate or legatee of the Participant under the will
of the Participant, for a period of one year from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is shorter (or, in the case of an Incentive Stock Option, for a period equal to
the remainder of the Exercise Period), and (ii) if such termination is prior to
the end of any applicable restriction period (with respect to a Restricted Stock
Award) or Performance Period (with respect to a Performance Share Award), the
number of shares of Common Stock subject to such Award which have not been
earned as of the date of Disability or Retirement shall be forfeited. In
determining whether to exercise its discretion under the first sentence of this
Section 11(a) with respect to an Incentive Stock Option the Committee may
consider the provisions of Section 422 of the Code.

(b) Death. Except as may otherwise be provided by the Company in its sole
discretion at the time of grant or subsequent thereto, if a Participant's
employment with the Company and its Subsidiaries terminates by reason of death,
(i) any Stock Option held by the Participant may thereafter be exercised, to the
extent it was exercisable on the date of death, by the legal representative of
the estate or legatee of the Participant under the will of the Participant, for
a period of one year from the date of the Participant's death or until the
expiration of the stated term of such Stock Option, whichever period is shorter,
and to the extent not exercisable on the date of death, such Stock Option shall
be forfeited and (ii) if such termination is prior to the end of any applicable
restriction period (with respect to a Restricted Stock Award) or Performance
Period (with respect to a Performance Share Award), the number of shares of
Common Stock subject to such Award which have not been earned as of the date of
death shall be forfeited.

(c) Other Terminations. Unless the Committee determines otherwise in its sole
discretion at the time of grant or subsequent thereto, if a Participant's
employment with the Company and its Subsidiaries terminates for any reason other
than death, Disability or Retirement, (i) any Stock Option held by the
Participant may thereafter be exercised, to the extent it was exercisable on the
date of termination, for a period of sixty (60) days from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is shorter, and to the extent not exercisable on
the date of termination of employment, such Stock Option shall be forfeited, and
(ii) if such termination is prior to the end of any applicable restriction
period (with respect to a Restricted Stock Award) or Performance Period (with
respect to a Performance Share Award), the number of shares of Common Stock
subject to such Award which have not been earned as of the date of such
termination of employment shall be forfeited. In determining whether to exercise
its discretion under the first sentence of this Section 11(c) with respect to an
Incentive Stock Option, the Committee may consider the provisions of Section 422
of the Code.

12. Non-transferability

Unless the Committee determines otherwise, no Award shall be transferable other
than by will or by the laws of descent and distribution or pursuant to a
domestic relations order; provided, however, that the Committee may, in its
discretion and subject to such terms and conditions as it shall specify, permit
the transfer of an Award for no consideration to a Participant's family members
or to one or more trusts or partnerships established in whole or in part for the
benefit of one or more of such family members (collectively, "Permitted
Transferees"). Any Award

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transferred to a Permitted Transferee shall be further transferable only by will
or the laws of descent and distribution or, for no consideration, to another
Permitted Transferee of the Participant. The Committee may in its discretion
permit transfers of Awards other than those contemplated by this Section 12.

13. Recapitalization or Reorganization

(a) The existence of the Plan, the Award Agreements and the Awards granted
hereunder shall not affect or restrict in any way the right or power of the
Company or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
dividend or other distribution, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior preference
stocks whose rights are superior to or affect the Common Stock or the rights
thereof or which are convertible into or exchangeable for Common Stock, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.

(b) Notwithstanding any provision of the Plan or any Award Agreement, in the
event of any change in the outstanding Common Stock by reason of a stock
dividend or split, recapitalization, reorganization, merger, consolidation,
stock split, combination or exchange of shares (a "Change in Capitalization"),
(i) such proportionate adjustments as may be necessary (in the form determined
by the Committee in its sole discretion) to reflect such change shall be made to
prevent dilution or enlargement of the rights of Participants under the Plan
with respect to the aggregate number of shares of Common Stock for which Awards
in respect thereof may be granted under the Plan, the number of shares of Common
Stock covered by each outstanding Award, and the exercise or Award prices in
respect thereof and (ii) the Committee may make such other adjustments,
consistent with the foregoing, as it deems appropriate in its sole discretion.
The determination of the Committee, as to any substitution or adjustment or as
to there being no need for the same, will be final and binding on all parties.

14. Change in Control

In the event of a Change in Control and except as the Committee (as constituted
immediately prior to such Change in Control) may otherwise determine in its sole
discretion, (i) all Stock Options then outstanding shall become fully
exercisable as of the date of the Change in Control, whether or not then
exercisable, (ii) all restrictions and conditions of all Restricted Stock Awards
then outstanding shall lapse as of the date of the Change in Control, (iii) all
Performance Share Awards shall be deemed to have been fully earned as of the
date of the Change in Control, and (iv) in the case of a Change in Control
involving a merger of, or consolidation involving, the Company in which the
Company is (A) not the surviving corporation (the "Surviving Entity") or (B)
becomes a wholly owned subsidiary of the Surviving Entity or any Parent thereof,
each outstanding Stock Option granted under the Plan and not exercised (a
"Predecessor Option") will be converted into an option (a "Substitute Option")
to acquire common stock of the Surviving Entity or its Parent, which Substitute
Option will have substantially the same terms and conditions as the Predecessor
Option, with appropriate adjustments as to the number and kind of shares and
exercise prices.

15. Amendment of the Plan

The Board or Committee may at any time and from time to time terminate, modify,
suspend or amend the Plan in whole or in part, except that no termination,
modification, suspension or amendment shall be effective without shareholder
approval if such approval is required to comply with Rule 16b-3 under the
Exchange Act, Section 162(m) of the Code, or to comply with any other law,
regulation or stock exchange rule. No termination, modification, suspension or
amendment of the Plan shall, without the consent of a Participant to whom any
Awards shall previously have been granted, adversely affect his or her rights
under such Awards. Notwithstanding any provision herein to the contrary, the
Board or Committee shall have broad authority to amend the Plan or any Stock
Option to take into account changes in applicable tax laws, securities laws,
accounting rules and other applicable state and federal laws.

                                       8
<PAGE>

16. Miscellaneous

(a) Tax Withholding.

(i) No later than the date as of which an amount first becomes includable in the
gross income of the Participant for applicable income tax purposes with respect
to any award under the Plan, the Participant shall pay to the Company or make
arrangements satisfactory to the Committee regarding the payment of any federal,
state or local taxes of any kind required by law to be withheld with respect to
such amount. Unless otherwise determined by the Committee, in accordance with
rules and procedures established by the Committee, the minimum required
withholding obligations may be settled with Common Stock, including Common
Stock that is part of the Award that gives rise to the withholding requirement.
The obligation of the Company under the Plan shall be conditioned upon such
payment or arrangements and the Company shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind
otherwise due to the Participant.

(ii) The applicable Award Agreement for an Incentive Stock Option shall provide
that if a Participant makes a disposition, within the meaning of Section 424(c)
of the Code and the regulations promulgated thereunder, of any share of Common
Stock issued to such Participant pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such share of Common Stock to the Participant pursuant to such
exercise, the Participant shall, within ten (10) days of such disposition,
notify the Company thereof, by delivery of written notice to the Company at its
principal executive office.

(b) Loans.

On such terms and conditions as shall be approved by the Committee, the Company
may, in its sole discretion, directly or indirectly lend money to a Participant
to accomplish the purposes of the Plan, including to assist such Participant to
acquire or carry shares of Common Stock acquired upon the exercise of Stock
Options granted hereunder, and the Committee may also separately lend money to
any Participant to pay taxes with respect to any of the transactions
contemplated by the Plan.

(c) No Right to Grants or Employment.

No Eligible Individual or Participant shall have any claim or right to receive
grants of Awards under the Plan. Nothing in the Plan or in any Award or Award
Agreement shall confer upon any employee of the Company or any Subsidiary any
right to continued employment with the Company or any Subsidiary, as the case
may be, or interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any of its employees at any time, with or without
cause.

(d) Unfunded Plan.

The Plan is intended to constitute an unfunded plan for incentive compensation.
With respect to any payments not yet made to a Participant by the Company,
nothing contained herein shall give any such Participant any rights that are
greater than those of a general creditor of the Company. In its sole discretion,
the Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Common Stock or payments in
lieu thereof with respect to awards hereunder.

(e) Other Employee Benefit Plans.

Payments received by a Participant under any Award made pursuant to the
provisions of the Plan shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan or similar
arrangement provided by the Company, unless otherwise specifically provided for
under the terms of such plan or arrangement or by the Committee.

                                       9
<PAGE>

(f) Securities Law Restrictions.

The Committee may require each Eligible Individual purchasing or acquiring
shares of Common Stock pursuant to a Stock Option or other Award under the Plan
to represent to and agree with the Company in writing that such Eligible
Individual is acquiring the shares for investment and not with a view to the
distribution thereof. All certificates for shares of Common Stock delivered
under the Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, the Nasdaq
National Market or any other exchange upon which the Common Stock is then
listed, and any applicable federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. No shares of Common Stock shall be
issued hereunder unless the Company shall have determined that such issuance is
in compliance with, or pursuant to an exemption from, all applicable federal and
state securities laws.

(g) Compliance with Rule 16b-3.

(i) The Plan is intended to comply with Rule 16b-3 under the Exchange Act or its
successors under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Award Agreement in a manner
consistent therewith. To the extent any provision of the Plan or Award Agreement
or any action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
Moreover, in the event the Plan or an Award Agreement does not include a
provision required by Rule 16(b)(3) to be stated therein, such provision (other
than one relating to eligibility requirements, or the price and amount of
Awards) shall be deemed automatically to be incorporated by reference into the
Plan or such Award Agreement insofar as Participants subject to Section 16 of
the Exchange Act are concerned.

(ii) Notwithstanding anything contained in the Plan or any Award Agreement to
the contrary, if the consummation of any transaction under the Plan would result
in the possible imposition of liability on a Participant pursuant to Section
16(b) of the Exchange Act, the Committee shall have the right, in its sole
discretion, but shall not be obligated, to defer such transaction to the extent
necessary to avoid such liability, but in no event for a period in excess of 180
days.

(h) Deductibility Under Code Section 162(m).

Awards granted under the Plan to Eligible Individuals which the Committee
reasonably believes may be subject to the deduction limitation of Section 162(m)
of the Code shall not be exercisable, and payment under the Plan in connection
with such an Award shall not be made, unless and until the Committee has
determined in its sole discretion that such exercise or payment would no longer
be subject to the deduction limitation of Section 162(m) of the Code.

(i) Award Agreement.

Each Eligible Individual receiving an Award under the Plan shall enter into an
Award Agreement in a form specified by the Committee agreeing to the terms and
conditions of the Award and such other matters as the Committee shall, in its
sole discretion, determine. In the event of any conflict or inconsistency
between the Plan and any such Award Agreement, the Plan shall govern, and the
Award Agreement shall be interpreted to minimize or eliminate any such conflict
or inconsistency.

(j) Expenses.

The costs and expenses of administering the Plan shall be borne by the Company.

(k) Applicable Law.

Except as to matters of federal law, the Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware without giving effect to conflicts of law principles.

                                       10
<PAGE>

(l) Effective Date.

The Plan shall be effective as of the date (the "Effective Date") the Plan is
approved by the Board, subject to its approval by the shareholder of the
Company. Awards granted under the Plan prior to such shareholder approval shall
be and are made subject to defeasance by the failure of the shareholders to
approve the Plan.

                                       11
<PAGE>

                                Table of Contents

1.  Purposes...................................................................1

2.  Definitions................................................................1

3.  Administration of the Plan.................................................3

4.  Duration of the Plan.......................................................3

5.  Shares of Stock Subject to the Plan........................................3

6.  Maximum Number of Shares per Eligible Individual...........................4

7.  Eligible Individuals.......................................................4

8.  Stock Options..............................................................4

9.  Restricted Stock Awards....................................................5

10. Performance Share Awards...................................................6

11. Termination of Employment..................................................7

12. Non-transferability........................................................7

13. Recapitalization or Reorganization.........................................8

14. Change in Control..........................................................8

15. Amendment of the Plan......................................................8

16. Miscellaneous..............................................................9

                                       12Exhibit 4.1

                                                   EXHIBIT 4.1

                        2003 LONG TERM INCENTIVE PLAN

                      NON-QUALIFIED STOCK OPTION AGREEMENT

 

 

 

To:         __________________________________________________

     Name

 

__________________________________________________

     Address

 

 

Exercise Price:                  $                              

 

Date of Grant:                                                  

 

 

                You (the “Optionee”) are hereby granted under the 2003 Long Term Incentive Plan of Talk America Holdings, Inc. (the "Company") and in connection with your employment with the “Company”, or any subsidiary or affiliate thereof, an option (“Option”), effective as of the date of grant (“Date of Grant”), to purchase ________ shares of common stock of Company, $.01 par value (“Common Stock”), at the exercise price shown above.  

 

    1.                The vesting dates for this option are as follows: in installments, as follows: (i)  ______ shares of common stock may be purchased on the first anniversary of the Date of Grant and, (ii) ________ shares of common stock may be purchased on the second anniversary of the Date of Grant, and (iii) _______  shares of common stock may be purchased on the third anniversary of the Date of Grant;  provided, however, the Option shall only vest as set forth in (i), (ii), and (iii) if  the Optionee has been continuously employed by the Company or any of its affiliates between the Date of Grant and the vesting date and on such vesting date.  In addition, the Option will vest in full (less any component or portion which would otherwise be vested or exercisable and any portion previously vested and exercised) upon a “Change of Control” (as that term is defined herein).  Notwithstanding the foregoing the Board of Directors of the Company (the “Board”) or its designees may accelerate or waive such vesting date with respect to any or all of the shares of Common Stock covered by the Option.   

                  A.            “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

                

(a)   any person (as defined in Section 3(a)(9) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company (or a Significant Subsidiary as defined below) becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act; provided, that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the 60 day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or any Significant Subsidiary (as defined below) representing 50% or more of the combined voting power of the Company’s or such Significant Subsidiary’s then outstanding securities;

                                

(b)    during any period of two years, individuals who at the beginning of such period constitute the Board of Company and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved but excluding for this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or Person other than the Board, cease for any reason to constitute at least a majority of the Board of  the Company;

 

	 
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               (c)     the consummation of a merger or consolidation of the Company or any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Company ( a “Significant Subsidiary”) with any other entity, including a merger or consolidation which would result in the voting securities of the Company or a Significant Subsidiary outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation;

                                

(d)   the stockholders of the Company approve a plan or agreement for the sale or disposition of all or substantially all of the consolidated assets of the Company in which case the Board shall determine the effective date of the Change of Control resulting therefrom; and

 

(e)   any other event occurs which the Board determines, in its discretion, would materially alter, the structure of the Company or its ownership.

 

    2.                The Optionee may exercise the Option by giving written notice to the Secretary of the Company on forms supplied by the Company at its then principal executive office, accompanied by payment of the exercise price for the total number of shares the Optionee specifies that the Optionee wishes to purchase.  The payment may be in any of the following forms:  (a) cash, which may be evidenced by a check and includes cash received from a so-called “cashless exercise”;  (b) (unless prohibited by the Board) certificates representing shares of Common Stock of the Company, which will be valued by the Secretary of the Company at the fair market value per share of the Company’s Common Stock on the date of delivery of such certificates of the Company, accompanied by an assignment of the stock to the Company; or (c) (unless prohibited by the Board) any combination of cash and Common Stock of the Company valued as provided in clause (b).  Any assignment of stock shall be in a form and substance satisfactory to the Secretary of the Company, including guarantees of signature(s) and payment of all transfer taxes if the Secretary deems such guarantees necessary or desirable.

    3.                The Company agrees to use commercially reasonable efforts to file a Form S-8 and register the shares issuable upon the exercise of the Options contemplated herein under the Securities Act of 1933 and any applicable state securities registration requirements and to cause such shares to be listed on NASDAQ (if such shares are not already listed or so registered).

 

    4.                Your Option will, to the extent not previously exercised by you, as to any shares purchasable hereunder (i.e. vested) expire upon the earlier of: (a) the tenth anniversary of the Date of Grant or (b) ninety (90) days after your employment with the Company is terminated for any reason.

 

    5.                In the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board deems in its reasonable discretion to be similar circumstances, the number and kind of shares subject to this Option and the exercise price of such shares shall be appropriately adjusted in a manner to be determined in the reasonable discretion of the Board.

 

    6.                Except as otherwise provided by the Board or the Committee (as defined below), this Option is not transferable except as designated by Optionee or by will or the laws of descent and distribution, and is exercisable during the Optionee’s lifetime only by the Optionee, including, for this purpose, the Optionee’s legal guardian or custodian in the event of disability.  Until the exercise price has been paid in full pursuant to due exercise of this Option and the purchased shares are delivered to the Optionee, the Optionee does not have any rights as a stockholder of the Company.  The Company reserves the right not to deliver to the Optionee the shares purchased by virtue of the exercise of this Option during any period of time in which the Company deems, in its sole discretion, that such would violate a federal, state, local or securities exchange rule, regulation or law.

 

	 
	 	2	 
	

	 

 

    7.                Notwithstanding anything to the contrary contained herein, this Option is not exercisable without the consent of the Company until all the following events occur and during the following periods of time:

 

(a)            Until this Option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Company may deem necessary or desirable; or

 

(b)           During any period of time in which the Company deems that the exercisability of this Option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Company to be legally obligated to issue or sell more shares than the Company is legally entitled to issue or sell.

 

(c)           Until the Optionee has paid or made suitable arrangements to pay (i) all federal, state and local income tax withholding required to be withheld by the Company in connection with the Option exercise and (ii) the Optionee’s portion of other federal, state and local payroll and other taxes due in connection with the Option exercise.

 

                8.                The following two paragraphs shall be applicable if, on the date of exercise of this Option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred:

 

(a)           The Optionee hereby agrees, warrants and represents that he will acquire the Common Stock to be issued hereunder for his own account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted.  The Optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company to the effect that the proposed transaction will be exempt from such registration.  The Optionee shall execute such instruments, representations, acknowledgments and agreements as the Company may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law.

 

(b)           The certificates for Common Stock to be issued to the Optionee hereunder shall bear the following legend:

 

“The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws.  The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company that the proposed transaction will be exempt from such registration.”

 

The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any  applicable state laws or upon receipt of any opinion of counsel acceptable to the Company that said registration is no longer required.

 

	 
	 	3	 
	

	 

 

    9.                The sole purpose of the agreements, warranties, representations and legend set forth in the two immediately preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws.

 

    10.                It is the intention of the Company and the Optionee that this Option shall not be an “Incentive Stock Option” as that term is used in Section 422 of the Code and the regulations thereunder.  This Option is not granted pursuant to any stock option plan. Notwithstanding the foregoing, the Board and the Compensation Committee or similar committee thereof (the “Committee”) shall have plenary authority to interpret the Option, prescribe, amend and rescind rules and regulations relating to it, and make all other determinations deemed necessary or advisable for the administration and/or exercise of the Option.  

    11.                This Option constitutes the entire understanding between the Company and the Optionee with respect to the subject matter hereof and no amendment, modification or waiver of this Option, in whole or in part, shall be binding upon the Company unless in writing and signed by an authorized officer of the Company.  This Option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the State of Delaware.

 

                Please sign the copy of this Option and return it to the Company’s Secretary, thereby indicating your understanding of and agreement with its terms and conditions.

 

                                                                                                                        TALK AMERICA HOLDINGS, INC.

 

 

                                                                                                                        By:                                                                          

                                                                                                                                        Aloysius T. Lawn IV

                                                                                                                                        Executive Vice President-General

                                                                                                                                        Counsel and Secretary        

 

I hereby acknowledge receipt of a copy of the foregoing stock Option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions.

 

 

 

                                                                                                                                ________________

Optionee                                                                                                                Date

	 
	 	4

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