Document:

exv10w1

 

Exhibit 10.1

Harmonic Inc.

Change Of Control Severance Agreement

     This Change of Control Severance Agreement (the “Agreement”) is made and entered into by and
between Patrick Harshman, (the “Employee”) and Harmonic Inc. (the “Company”), effective as of the
latest date set forth by the signatures of the parties hereto below.

RECITALS

     A.     It is expected that the Company from time to time will consider the possibility of an
acquisition by another company or other Change of Control. The Board of Directors of the Company
(the “Board “) recognizes that such consideration can be a distraction to the Employee and can
cause the Employee to consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its shareholders to assure that the Company will
have the continued dedication and objectivity of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company.

     B.     The Board believes that it is in the best interests of the Company and its shareholders to
provide the Employee with an incentive to continue his employment and to motivate the Employee to
maximize the value of the Company upon a Change of Control for the benefit of its shareholders.

     C.     The Board believes that it is imperative to provide the Employee with certain severance
benefits upon Employee’s termination of employment following a Change of Control which provides the
Employee with enhanced financial security and provides incentive and encouragement to the Employee
to remain with the Company notwithstanding the possibility of a Change of Control.

     D. Certain capitalized terms used in the Agreement are defined in Section 6 below.

     The parties hereto agree as follows:

     1.     Term of Agreement. This Agreement shall terminate upon the date that all
obligations of the parties hereto with respect to this Agreement have been satisfied.

     2.     At-Will Employment. The Company and the Employee acknowledge that the Employee’s
employment is and shall continue to be at-will, as defined under applicable law. If the Employee’s
employment terminates for any reason, including (without limitation) any termination prior to a
Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be available in
accordance with the Company’s established employee plans and practices or pursuant to other
agreements with the Company.

     3.     Severance Benefits.

          (a)     Termination Following a Change of Control. If the Employee’s employment
terminates at any time within eighteen (18) months following a Change of Control, then, subject to
Section 5, the Employee shall be entitled to receive the following severance benefits:

 

 

                  (i)     Involuntary Termination. If the Employee’s employment is terminated as a result
of Involuntary Termination other than for Cause, then the Employee shall receive the following
severance benefits from the Company:

                        (1)     Severance Payment. A cash payment in an amount equal to two hundred percent
(200%) of the Employee’s Annual Compensation;

                        (2)     Bonus Payment. A cash payment in an amount equal to twice either: a) 50% of the
established annual target bonus or b) the average of the actual bonuses paid in each of the two
prior years, whichever is greater.

                        (3)     Continued Employee Benefits. One hundred percent (100%) Company-paid health,
dental and life insurance coverage at the same level of coverage as was provided to such employee
immediately prior to the Change of Control (the “Company-Paid Coverage”). If such coverage
included the Employee’s dependents immediately prior to the Change of Control, such dependent shall
also be covered at Company expense. Company- Paid Coverage shall continue until the earlier of (i)
one year from the date of the Change of Control, or (ii) the date that the Employee and his
dependents become covered under another employer’s group health, dental or life insurance plans.
For purposes of Title X of the Consolidated Budget Reconciliation Act of 1985 (“COBRA”), the date
of the “qualifying event” for Employee and his dependent shall be the date upon which the
Company-Paid Coverage terminates.

                        (4)     Equity Compensation Accelerated Vesting. One hundred percent (100%) of the
unvested portion of any outstanding stock option, restricted stock or other equity compensation
award held by the Employee shall automatically be accelerated in full so as to become completely
vested and all such outstanding stock options and stock appreciation rights shall be exercisable
for a period of one year after such termination.

                        (5)     Outplacement Assistance. If desired by Employee, Company will pay up to five
thousand dollars ($5,000.00) for outplacement assistance selected by Company and approved by
Employee.

          (b) Timing of Severance Payments. Any severance payment to which Employee is entitled
under Section 3(a)(i)(1) shall be paid by the Company to the Employee (or to the Employee’s
successors in interest pursuant to Section 7(b)) in cash and in full, not later than thirty (30)
calendar days following the Termination Date; provided, however, that if the Employee is a “key
employee” under Code Section 409A and a delay in making any payment or providing any benefit under
this Plan is required by Code Section 409A, such payments shall not be made until the end of six
(6) months following the date of the Employee’s separation from service as required by Code Section
409A.

          (c)     Voluntary Resignation; Termination For Cause. If the Employee’s employment
terminates by reason of the Employee’s voluntary resignation (and is not an Involuntary
Termination), or if the Employee is terminated for Cause, then the Employee shall not be entitled
to receive severance or other benefits except for those (if any) as may then be established under
the Company’s then existing severance and benefits plans and practices or pursuant to other
agreements with the Company.

          (d)     Disability; Death. If the Company terminates the Employee’s employment as a
result of the Employee’s Disability or such Employee’s employment is terminated due to the death of
the Employee then the Employee shall not be entitled to receive severance or other benefits except
for those (if any) as may then be established under the Company’s then existing severance and
benefits plans and practices or pursuant to other agreements with the Company.

 

 

          (e)     Termination Apart from Change of Control. In the event the Employee’s employment
is terminated for any reason, either prior to the occurrence of a Change of Control or after the
eighteen (18) -month period following a Change of Control, then the Employee shall be entitled to
receive severance and any other benefits only as may then be established under the Company’s
existing severance and benefits plans and practices or pursuant to other agreements with the
Company.

     4.     Attorney Fees; Costs and Expenses. The Company shall promptly reimburse Employee,
on a monthly basis, for the reasonable attorney fees, costs and expenses incurred by the Employee
in connection with any action brought by Employee to enforce his rights hereunder, regardless of
the outcome of the action.

     5.     Limitation on Payments. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee (i) constitute “parachute
payments” within the meaning of Section 280G of the Internal Revenue Code of 1986 as amended (the
“Code”) and (ii) but for this Section 5, would be subject to the excise tax imposed by Section 4999
of the Code, then the Employee’s severance benefits under Section 3(a)(i) shall be either

          (a)     delivered in full, or

          (b)     delivered as to such lesser extent which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing
amounts taking into account the applicable federal, state and local income taxes and the excise tax
imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the
greatest amount of severance benefits, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee
otherwise agree in writing, any determination required under this Section 5 shall be made in
writing by the Company’s Accountants immediately prior to Change of Control, whose determination
shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes
of making the calculations required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and
the Employee shall furnish to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section. The Company shall bear all
costs the Accountants may reasonably incur in connection with any calculations contemplated by this
Section 5.

     6.     Definition of Terms. The following terms referred to in this Agreement shall have
the following meanings:

          (a)     Annual Compensation. “Annual Compensation” means an amount equal to Employee’s
Company base salary for the twelve months preceding the Change of Control.

          (b)     Cause. “Cause” shall mean (i) any act of personal dishonesty taken by the
Employee in connection with his responsibilities as an employee and intended to result in
substantial personal enrichment of the Employee, (ii) the conviction of a felony) (iii) a willful
act by the Employee which constitutes gross misconduct and which is injurious to the Company, and
(iv) following delivery to the Employee of a written demand for performance from the Company which
describes the basis for the Company’s belief that the Employee has not substantially performed his
duties, continued violations by the Employee of the Employee’s obligations to the Company which are
demonstrably willful and deliberate on the Employee’s part.

 

 

          (c)     Change of Control. “Change of Control” means the occurrence of any of the
following events:

                  (i)     Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty percent (50%) or more of
the total voting power represented by the Company’s then outstanding voting securities;

                  (ii)     A change in the composition of the Board occurring within a two-year period, as a result
of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors”
shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of at least a majority
of the Incumbent Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company);

                  (iii)     The consummation of a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;

                  (iv)     The consummation of the sale or disposition by the Company of all or substantially all
the Company’s assets.

          (d)     Disability. “Disability” shall mean that the Employee has been unable to perform
his Company duties as the result of his incapacity due to physical or mental illness, and such
inability, at least 26 weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the Employee or the Employee’s
legal representative (such Agreement as to acceptability not to be unreasonably withheld).
Termination resulting from Disability may only be effected after at least 30 days written notice by
the Company of its intention to terminate the Employee’s employment. In the event that the
Employee resumes the performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.

          (e)     Involuntary Termination. “Involuntary Termination” shall mean (i) without the
Employee’s express written consent, the significant reduction of the Employee’s duties authority or
responsibilities relative to the Employee’s duties, authority or responsibilities as in effect
immediately prior to such reduction, or the assignment to Employee of such reduced duties,
authority or responsibilities; (ii) without the Employee’s express written consent, a substantial
reduction, without good business reasons, of the facilities and perquisites (including office space
and location) available to the Employee immediately prior to such reduction; (iii) a reduction by
the Company in the base salary of the Employee as in effect immediately prior to such reduction;
(iv) a material reduction by the Company in the kind or level of employee benefits, including
bonuses, to which the Employee was entitled immediately prior to such reduction with the result
that the Employee’s overall benefits package is significantly reduced; (v) the relocation of the
Employee to a facility or a location more than twenty-five (25) miles from the Employee’s then
present location, without the Employee’s express written consent; (vi) any purported termination of
the Employee by the Company which is not effected for Disability or for Cause, or any purported
termination for which the grounds relied upon are not valid; (vii) the failure of the Company to
obtain the assumption of this Agreement by any successors contemplated in

 

 

Section 7(a) below; or (viii) any act or set of facts or circumstances which would, under
California case law or statute constitute a constructive termination of the Employee.

          (f)     Termination Date. “Termination Date” shall mean (i) if this Agreement is
terminated by the Company for Disability, thirty (30) days after notice of termination is given to
the Employee (provided that the Employee shall not have returned to the performance of the
Employee’s duties on a full-time basis during such thirty (30)-day period), (ii) if the Employee’s
employment is terminated by the Company for any other reason, the date on which a notice of
termination is given, provided that if within thirty (30) days after the Company gives the Employee
notice of termination, the Employee notifies the Company that a dispute exists concerning the
termination or the benefits due pursuant to this Agreement, then the Termination Date shall be the
date on which such dispute is finally determined, either by mutual written agreement of the
parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected), or (iii) if the Agreement is
terminated by the Employee, the date on which the Employee delivers the notice of termination to
the Company.

     7.     Successors.

          (a)     Company’s Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company’s business and/or assets shall assume the obligations under this Agreement and
agree expressly to perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term “Company” shall include any successor to the
Company’s business and/or assets which executes and delivers the assumption agreement described in
this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law.

          (b)     Employee’s Successors. The terms of this Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     8.     Notice.

          (a)     General. Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally delivered or when
mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company, mailed notices shall
be addressed to its corporate headquarters, and all notices directed shall be to the attention of
its Secretary.

          (b)     Notice of Termination. Any termination by the Company for Cause or by the
Employee as a result of a voluntary resignation or an Involuntary Termination shall be communicated
by a notice of termination to the other party hereto given in accordance with Section 8(a) of this
Agreement. Such notice shall indicate the specific termination provision in this Agreement relied
upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis
for termination under the provision so indicated, and shall specify the termination date (which
shall be not more than 30 days after the giving of such notice). The failure by the Employee to
include in the notice any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his rights hereunder.

 

 

     9.     Miscellaneous Provisions.

          (a)     No Duty to Mitigate. The Employee shall not be required to mitigate the amount of
any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings
that the Employee may receive from any other source.

          (b)     Waiver. No provision of this Agreement shall be modified, waived or discharged
unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and
by an authorized officer of the Company (other than the Employee). No waiver by either party of
any breach of, or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the same condition or
provision at another time.

          (c)     Whole Agreement. No agreements, representations or understandings (whether oral
or written and whether express or implied) which are not expressly set forth in this Agreement have
been made or entered into by either party with respect to the subject matter hereof. This
Agreement represents the entire understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior arrangements and understandings regarding same.

          (d)     Choice of Law. This Agreement shall be deemed to have been executed and delivered
within the State of California and the validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of California, without regard to choice
of law principles.

          (e)     Severability. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other provision hereof,
which shall remain in full force and effect.

          (f)     Withholding. All payments made pursuant to this Agreement will be subject to
withholding of applicable income and employment taxes.

          (g)     Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed an original but all of which together will constitute one and the same instrument.

 

 

     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the day and year set forth below.

	 	 	 	 	 	 	 
	COMPANY	 	HARMONIC INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David R. Van Valkenburg
	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	Chairman Compensation Committee	 	 
	 

	 	 	 	 	 	 
	 

	 	Date:
	 	May 30, 2006	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	EMPLOYEE

	 	Name:
	 	/s/ Patrick Harshman	 	 
	 

	 	 	 	 	 	 
	 

	 	Date:	 	May 30, 2006exv10w1

 

Exhibit 10.1

INTERMUNE, INC.

AMENDED AND RESTATED 2000 NON-EMPLOYEE DIRECTORS’

STOCK OPTION PLAN

ADOPTED FEBRUARY 8, 2000

APPROVED BY STOCKHOLDERS MARCH 20, 2000

AMENDED ON JUNE 19, 2002

AMENDED ON MARCH 5, 2003

APPROVED BY STOCKHOLDERS MAY 29, 2003

AMENDED AND RESTATED ON APRIL 2, 2004

APPROVED BY STOCKHOLDERS MAY 27, 2004

AMENDED AND RESTATED ON MAY 25, 2006

1. Purposes.

     (a) Amendment and Restatement. The Plan amends and restates the InterMune, Inc. 2000
Non-Employee Directors’ Stock Option Plan adopted January 31, 2000 (the “Prior Plan”). All
outstanding Options granted under the Prior Plan shall remain subject to the terms of the Prior
Plan. All Options granted subsequent to the effective date of this Plan shall be subject to the
terms of this Plan (as amended and restated hereby).

     (b) Eligible Option Recipients. The persons eligible to receive Options are the Non-Employee
Directors of the Company.

     (c) Available Options. The purpose of the Plan is to provide a means by which Non-Employee
Directors may be given an opportunity to benefit from increases in value of the Common Stock
through the granting of Nonstatutory Stock Options.

     (d) General Purpose. The Company, by means of the Plan, seeks to retain the services of its
Non-Employee Directors, to secure and retain the services of new Non-Employee Directors and to
provide incentives for such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. Definitions.

     (a) “Affiliate” means any parent corporation or subsidiary corporation of the Company,
whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f),
respectively, of the Code.

     (b) “Annual Grant” means a Director Annual Grant or a Chairman Annual Grant.

     (c) “Annual Meeting” means the annual meeting of the stockholders of the Company.

     (d) “Board” means the Board of Directors of the Company.

 

 

     (e) “Chairman” means the Chairman of the Board, if such person is also a Non-Employee
Director. If such person is not a Non-Employee Director, then such person shall not be considered a
“Chairman” for purposes of the Plan.

     (f) “Chairman Annual Grant” shall have the meaning ascribed in Section 6(c)(i).

     (g) “Chairman Partial Grant” shall have the meaning ascribed in Section 6(c)(ii).

     (h) “Code” means the Internal Revenue Code of 1986, as amended.

     (i) “Common Stock” means the common stock of the Company.

     (j) “Company” means InterMune, Inc., a Delaware corporation.

     (k) “Consultant” means any person, including an advisor, (i) engaged by the Company or
an Affiliate to render consulting or advisory services and who is compensated for such services or
(ii) who is a member of the Board of Directors of an Affiliate. However, the term “Consultant”
shall not include either Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a director’s fee by the
Company for their services as Directors.

     (l) “Continuous Service” means (i) with respect to Options granted to an Optionholder
in his or her capacity as Chairman, that the Optionholder’s service as Chairman is not interrupted
or terminated; and (ii) with respect to Options granted to an Optionholder in his or her capacity
as a Director, that the Optionholder’s service with the Company or an Affiliate, whether as an
Employee, Director or Consultant, is not interrupted or terminated. Solely with respect to
subclause (ii) above, the Optionholder’s Continuous Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionholder renders service to the Company
or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the
Optionholder renders such service, provided that there is no interruption or termination of the
Optionholder’s service. For example, a change in status without interruption from a Non-Employee
Director of the Company to a Consultant of an Affiliate or an Employee of the Company will not
constitute an interruption of Continuous Service. The Board or the chief executive officer of the
Company, in that party’s sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that party, including sick
leave, military leave or any other personal leave.

     (m) “Director” means a member of the Board of Directors of the Company.

     (n) “Director Annual Grant” shall have the meaning ascribed in Section 6(b)(i).

     (o) “Disability” means the permanent and total disability of a person within the
meaning of Section 22(e)(3) of the Code.

     (p) “Employee” means any person employed by the Company or an Affiliate. Mere service
as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient
to constitute “employment” by the Company or an Affiliate.

2

 

     (q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (r) “Initial Grant” shall have the meaning ascribed in Section 6(a)(i).

     (s) “Fair Market Value” means, as of any date, the value of the Common Stock
determined as follows:

          (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq
National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable.

          (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be
determined in good faith by the Board.

     (t) “New Director Partial Grant” shall have the meaning ascribed in Section 6(a)(ii).

     (u) “Non-Employee Director” means a Director who is not an Employee.

     (v) “Nonstatutory Stock Option” means an Option not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.

     (w) “Officer” means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

     (x) “Option” means a Nonstatutory Stock Option granted pursuant to the Plan.

     (y) “Option Agreement” means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant. Each Option
Agreement shall be subject to the terms and conditions of the Plan.

     (z) “Optionholder” means a person to whom an Option is granted pursuant to the Plan
or, if applicable, such other person who holds an outstanding Option.

     (aa) “Partial Annual Grant” shall have the meaning ascribed in Section 6(b)(ii).

     (bb) “Partial Grant” shall mean a New Director Partial Grant, a Partial Annual Grant
or a Chairman Partial Grant.

     (cc) “Plan” means this InterMune, Inc. Amended and Restated 2000 Non-Employee
Directors’ Stock Option Plan.

     (dd) “Prior Annual Grant” shall have the meaning ascribed in Section 6(b)(ii).

     (ee) “Prior Grant Vest Date” shall have the meaning ascribed in Section 6(b)(ii).

3

 

     (ff) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor
to Rule 16b-3, as in effect from time to time.

     (gg) “Securities Act” means the Securities Act of 1933, as amended.

3. Administration.

     (a) Administration By Board. The Board shall administer the Plan. The Board may not delegate
administration of the Plan to a committee.

     (b) Powers Of Board. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:

          (i) To determine the provisions of each Option to the extent not specified in the Plan.

          (ii) To construe and interpret the Plan and Options granted under it, and to establish, amend
and revoke rules and regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

          (iii) To amend the Plan or an Option as provided in Section 12.

          (iv) To terminate or suspend the Plan as provided in Section 13.

          (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary
or expedient to promote the best interests of the Company that are not in conflict with the
provisions of the Plan.

     (c) Effect Of Board‘s Decision. All determinations, interpretations and constructions made by
the Board in good faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.

4. Shares Subject to the Plan.

     (a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon
changes in the Common Stock, the Common Stock that may be issued pursuant to Options shall not
exceed in the aggregate one million two hundred seventy thousand (1,270,000) shares of Common
Stock.

     (b) Reversion Of Shares To The Share Reserve. If any Option shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full, the shares of
Common Stock not acquired under such Option shall revert to and again become available for issuance
under the Plan.

     (c) Source Of Shares. The shares of Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

4

 

5. Eligibility.

     The Options as set forth in Sections 6(a) and 6(b) automatically shall be granted under the
Plan to all Non-Employee Directors. The Options as set forth in Sections 6(c) automatically shall
be granted under the Plan to each Chairman.

6. Non-Discretionary Grants.

     (a) New Director Grants.

          (i) Without any further action of the Board, each person who, after the date of the Annual
Meeting in 2004, is elected or appointed for the first time to be a Non-Employee Director shall
automatically be granted, upon the date of his or her initial election or appointment to be a
Non-Employee Director, an Option to purchase thirty thousand (30,000) shares of Common Stock (an
“Initial Grant”).

          (ii) In addition to the Initial Grant, without any further action of the Board, each person
who, after the date of the Annual Meeting in 2004, is elected or appointed for the first time to be
a Non-Employee Director on a date other than an Annual Meeting date shall automatically be granted,
upon the date of his or her initial election or appointment to be a Non-Employee Director, an
Option to purchase the number of shares of Common Stock equal to the product of (A) 1,667 and (B)
the number of consecutive 30-day periods included in the period commencing on the date of such
appointment and ending on the date of the next Annual Meeting, provided, however, that if the last
consecutive 30-day period ends on a date that is not the date of the next Annual Meeting or there
are fewer than 30 days between such appointment and the date of the next Annual Meeting, then the
number of consecutive 30-day periods determined pursuant to this clause (B) shall be increased by
one (1) (a “New Director Partial Grant”). For example, if a Non-Employee Director was
appointed on April 15, 2005 and the next Annual Meeting was scheduled for May 27, 2005, the
Non-Employee Director would receive an Option to purchase 3,334 shares of Common Stock pursuant to
this Section 6(a)(ii) (1,667 shares for the 30-day period from April 15, 2005 to May 14, 2005 and
1,667 shares for the period beginning on May 15, 2005 and ending on May 27, 2005). If at the time
of the New Director Partial Grant the date of the next Annual Meeting has not been set by
resolution of the Board, the date of the next Annual Meeting shall be deemed to be the first
anniversary of the date of the immediately preceding Annual Meeting. In no event, however, shall
the maximum number of shares subject to a New Director Partial Grant exceed twenty thousand
(20,000) shares.

     (b) Director Annual Grants.

          (i) Without any further action of the Board, on the day following each Annual Meeting,
commencing with the Annual Meeting in 2004, each person who is then a Non-Employee Director (and
who is not otherwise entitled to receive a Director Partial Grant on that day) shall, subject to
the provisions of Section 6(b)(ii), automatically be granted an Option to purchase twenty thousand
(20,000) shares of Common Stock (a “Director Annual Grant”).

          (ii) Notwithstanding the provisions of Section 6(b)(i), if any person who is a Non-Employee
Director on May 28, 2004 and received, in his or her capacity as a Non-Employee Director, an Option
to purchase twenty-five thousand (25,000) shares of Common

5

 

Stock under the terms of the Prior Plan at any time during the one year period prior to May
27, 2004 (a “Prior Annual Grant”), then such Non-Employee Director shall not receive a
Director Annual Grant on May 28, 2004 pursuant to the provisions of Section 6(b)(i) above and, in
lieu thereof, such Non-Employee Director shall automatically be granted, on the date such Prior
Annual Grant vests in full (the “Prior Grant Vest Date”), if such Non-Employee Director is
a Non-Employee Director on the Prior Grant Vest Date, an Option to purchase the number of shares of
Common Stock equal to the product of (A) 1,667 and (B) the number of consecutive 30-day periods
included in the period commencing on the Prior Grant Vest Date and ending on May 27, 2005,
provided, however, that if the last consecutive 30-day period ends on a date other than May 27,
2005 or there are fewer than 30 days between the Prior Grant Vest Date and May 27, 2005, then the
number of consecutive 30-day periods determined pursuant to this clause (B) shall be increased by
one (1) (a “Partial Annual Grant”). For example, if a Non-Employee Director has a Prior
Grant Vest Date of March 15, 2005, and if such person remains a Non-Employee Director on March 15,
2005, such Non-Employee Director would receive an Option to purchase 5,001 shares of Common Stock
pursuant to this Section 6(b)(ii) on March 15, 2005 (1,667 shares for the 30-day period from March
15, 2005 to April 13, 2005, 1,667 shares for the 30-day period beginning on April 14, 2005 and
ending on May 13, 2005, and 1,667 shares for the period beginning on May 14, 2005 and ending on May
27, 2005). In no event, however, shall the maximum number of shares subject to a Partial Annual
Grant exceed twenty thousand (20,000) shares.

     (c) Chairman Grants.

          (i) Without any further action of the Board, on the day following each Annual Meeting,
commencing with the Annual Meeting in 2004, the Chairman shall automatically be granted, in
addition to a Director Annual Grant, an Option to purchase ten thousand (10,000) shares of Common
Stock (the “Chairman Annual Grant”).

          (ii) Additionally, without any further action of the Board, each person who, after the date of
the Annual Meeting in 2004, is appointed by the Board for the first time (and who was not Chairman
on the day following the immediately preceding Annual Meeting) shall automatically be granted, upon
the date of his or her initial appointment as Chairman, an Option to purchase the number of shares
of Common Stock equal to the product of (A) 834 and (B) the number of consecutive 30-day periods
included in the period commencing on the date of such appointment and ending on the date of the
next Annual Meeting, provided, however, that if the last consecutive 30-day period ends on a date
that is not the date of the next Annual Meeting or there are fewer than 30 days between such
appointment and the date of the next Annual Meeting, then the number of consecutive 30-day periods
determined pursuant to this clause (B) shall be increased by one (1) (a “Chairman Partial
Grant”). For example, if the Chairman was appointed on April 15, 2005 and the next Annual
Meeting was scheduled for May 27, 2005, the Chairman would receive an Option to purchase 1,668
shares of Common Stock pursuant to this Section 6(c)(ii) (834 shares for the 30-day period from
April 15, 2005 to May 14, 2005 and 834 shares for the period beginning on May 15, 2005 and ending
on May 27, 2005). If at the time of the Chairman Partial Grant the date of the next Annual Meeting
has not been set by resolution of the Board, the date of the next Annual Meeting shall be deemed to
be the first anniversary of the date of the immediately preceding Annual Meeting. In no event,
however, shall the maximum number of shares subject to a Chairman Partial Grant exceed ten thousand
(10,000) shares.

6

 

7. Option Provisions.

     Each Option shall be in such form and shall contain such terms and conditions as required by
the Plan. Each Option shall contain such additional terms and conditions, not inconsistent with the
Plan, as the Board shall deem appropriate. Each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each of the following
provisions:

     (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date
it was granted.

     (b) Exercise Price. The exercise price of each Option shall be one hundred percent (100%) of
the Fair Market Value of the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of the Code.

     (c) Consideration. The purchase price of stock acquired pursuant to an Option may be paid, to
the extent permitted by applicable statutes and regulations, in any combination of the following
methods:

          (i) By cash or check.

          (ii) Provided that at the time of exercise the Common Stock is publicly traded and quoted
regularly in THE WALL STREET JOURNAL, by delivery of already-owned shares of Common Stock either
that the Optionholder has held for the period required to avoid a charge to the Company’s reported
earnings (generally six months) or that the Optionholder did not acquire, directly or indirectly
from the Company, that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for
these purposes shall include delivery to the Company of the Optionholder’s attestation of ownership
of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing,
the Optionholder may not exercise the Option by tender to the Company of Common Stock to the extent
such tender would violate the provisions of any law, regulation or agreement restricting the
redemption of the Company’s stock.

          (iii) Provided that at the time of exercise the Common Stock is publicly traded and quoted
regularly in THE WALL STREET JOURNAL, pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to
pay the aggregate exercise price to the Company from the sales proceeds.

     (d) Transferability. An Option is transferable by will or by the laws of descent and
distribution. An Option also is transferable (i) by instrument to an inter vivos or testamentary
trust, in a form accepted by the Company, in which the Option is to be passed to beneficiaries upon
the death of the trustor (settlor) and (ii) by gift, in a form accepted by the Company, to a member
of the “immediate family” of the Optionholder as that term is defined in the general

7

 

instructions to Form S-8 (promulgated under the Securities Act). An Option shall be
exercisable during the lifetime of the Optionholder only by the Optionholder and a permitted
transferee as provided herein. However, the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

     (e) Exercise Schedule. An Option shall be exercisable only for whole shares and then only as
the shares of Common Stock subject to the Option vest.

     (f) Vesting Schedule. Options shall vest as follows:

          (i) An Initial Grant shall vest in consecutive monthly installments at a rate of one
thirty-sixth (1/36th) of the total number of shares subject to such Option. The first such
installment shall vest one month from the date of grant of such Option and each subsequent
installment shall vest one month from the vesting date of the prior installment until such Option
has fully vested; provided, however, that vesting shall cease on termination of the Optionholder’s
Continuous Service.

          (ii) An Annual Grant shall vest in consecutive monthly installments at a rate of one twelfth
(1/12th) of the total number of shares subject to such Option. The first such installment shall
vest one month from the date of grant of such Option and each subsequent installment shall vest one
month from the vesting date of the prior installment until such Option has fully vested; provided,
however, that vesting shall cease on termination of the Optionholder’s Continuous Service.

          (iii) A Partial Grant shall vest in consecutive monthly installments from the date of grant of
such Option. Each vesting installment shall be equal, as nearly as possible, to each other vesting
installment. The first such installment shall vest one month from the date of grant of such Option
(or on the date of the next Annual Meeting if it is to occur within one month of the date of grant)
and such vesting installments shall continue until the date of the next Annual Meeting occurring
after the date of grant of such Option, at which time such Option shall be fully vested; provided,
however, that such vesting shall cease on termination of the Optionholder’s Continuous Service.

     (g) Termination Of Continuous Service. In the event an Optionholder’s Continuous Service
terminates (other than due to the Optionholder’s death or Disability), the Optionholder may
exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of
the date of termination) but only within such period of time ending on the earlier of (i) the date
that is three (3) months following the termination of the Optionholder’s Continuous Service (or
such longer or shorter period specified in the Option Agreements either as of the date of option
grant or as amended thereafter), or (ii) the expiration of the term of the Option as set forth in
the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.

     (h) Disability Of Optionholder. In the event an Optionholder’s Continuous Service terminates
due to the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date of termination), but

8

 

only within such period of time ending on the earlier of (i) the date that is twelve (12)
months after the date of such termination, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified herein, the Option shall terminate.

     (i) Death Of Optionholder. In the event (i) an Optionholder’s Continuous Service terminates as
a result of the Optionholder’s death or (ii) the Optionholder dies within the three-month period
after the termination of the Optionholder’s Continuous Service for a reason other than death, then
the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as
of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to exercise the Option upon the
Optionholder’s death, but only within the period ending on the earlier of (1) the date that is
eighteen (18) months following the date of death or (2) the expiration of the term of such Option
as set forth in the Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.

     (j) Extension Of Termination Date. If exercise of the Option following the termination of the
Optionholder’s Continuous Service would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act, then the Option shall
terminate on the earlier of: (i) the expiration of the term of the Option set forth in subsection
7(a), or (ii) the expiration of the applicable period of time after the termination of the
Optionholder’s Continuous Service during which the exercise of the Option would not be in violation
of such registration requirements.

8. Covenants of the Company.

     (a) Availability Of Shares. During the terms of the Options, the Company shall keep available
at all times the number of shares of Common Stock required to satisfy such Options.

     (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to grant
Options and to issue and sell shares of Common Stock upon exercise of the Options; provided,
however, that this undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Options unless and until such authority is obtained.

9. Use of Proceeds from Stock.

     Proceeds from the sale of stock pursuant to Options shall constitute general funds of the
Company.

9

 

10. Miscellaneous.

     (a) Stockholder Rights. No Optionholder shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such Option unless and until such
Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms.

     (b) No Service Rights. Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Optionholder any right to continue to serve the Company as a
Non-Employee Director or as Chairman or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or without cause, (ii)
the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an
Affiliate, and any applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

     (c) Investment Assurances. The Company may require an Optionholder, as a condition of
exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the
Company as to the Optionholder’s knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of exercising the Option;
and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder’s own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of
the shares upon the exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that such requirement
need not be met in the circumstances under the then applicable securities laws. The Company may,
upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as
such counsel deems necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.

     (d) Withholding Obligations. The Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an Option by any of
the following means (in addition to the Company’s right to withhold from any compensation paid to
the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option,
provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum
amount of tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.

11. Adjustments upon Changes in Stock.

     (a) Capitalization Adjustments. If any change is made in the stock subject to the Plan, or
subject to any Option, without the receipt of consideration by the Company (through

10

 

merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating dividend, combination of shares,
exchange of shares, change in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of securities subject both to the Plan pursuant to subsection 4(a) and to the
non-discretionary Options specified in Section 6, and the outstanding Options will be appropriately
adjusted in the class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the Company shall not be
treated as a transaction “without receipt of consideration” by the Company.)

     (b) Dissolution Or Liquidation. In the event of a dissolution or liquidation of the Company,
then all outstanding Options shall terminate immediately prior to such event.

     (c) Change In Control. In the event of (i) a sale, lease or other disposition of all or
substantially all of the securities or assets of the Company, (ii) a merger or consolidation in
which the Company is not the surviving corporation or (iii) a reverse merger in which the Company
is the surviving corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then any surviving corporation or acquiring corporation may assume
any Options outstanding under the Plan or may substitute similar Options (including an option to
acquire the same consideration paid to the stockholders in the transaction described in this
subsection 11(c)) for those outstanding under the Plan, and the vesting of Options held by
Non-Employee Directors shall accelerate in full on the date immediately preceding the date of such
event. In the event no surviving corporation or acquiring corporation assumes such Options or
substitutes similar Options for those outstanding under the Plan, then with respect to Options held
by Optionholders whose Continuous Service has not terminated, the vesting of such Options (and the
time during which such Options may be exercised) shall accelerate in full on the date immediately
preceding the date of such event, and the Options shall terminate if not exercised at or prior to
such event. With respect to any other Options outstanding under the Plan, such Options shall
terminate if not exercised prior to such event.

12. Amendment of the Plan and Options.

     (a) Amendment Of Plan. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company to the extent
stockholder approval is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

     (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to
the Plan for stockholder approval.

     (c) No Impairment Of Rights. Rights under any Option granted before amendment of the Plan
shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of
the Optionholder and (ii) the Optionholder consents in writing.

11

 

     (d) Amendment Of Options. The Board at any time, and from time to time, may amend the terms of
any one or more Options; provided, however, that the rights under any Option shall not be impaired
by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

13. Termination or Suspension of the Plan.

     (a) Plan Term. The Board may suspend or terminate the Plan at any time. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.

     (b) No Impairment Of Rights. Suspension or termination of the Plan shall not impair rights and
obligations under any Option granted while the Plan is in effect except with the written consent of
the Optionholder.

14. Effective Date of Plan and Amendments.

     (a) The Prior Plan became effective on March 29, 2000. The Plan (as amended and restated
hereby) became effective as of April 2, 2004.

     (b) No Option that has been granted under an amendment adopted by the Board which is subject
to stockholder approval shall be exercised unless and until such amendment has been approved by the
stockholders, which approval shall be within twelve (12) months after the date such amendment is
adopted by the Board.

15. Choice of Law.

     All questions concerning the construction, validity and interpretation of this Plan shall be
governed by the law of the State of Delaware, without regard to such state’s conflict of laws
rules.

12

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