Document:

Exhibit
10.23

CPI
INTERNATIONAL, INC.

2006 EQUITY AND PERFORMANCE INCENTIVE PLAN

(Reflecting December 7, 2006 Amendment)

CPI INTERNATIONAL, INC. (formerly CPI Holdco, Inc.),
a corporation existing under the laws of the State of Delaware (the “Company”), hereby establishes and adopts the following 2006
Equity and Performance Incentive Plan (the “Plan”).  Certain capitalized terms used in the Plan
are defined in Article II.

RECITALS

WHEREAS, the Company desires to encourage high
levels of performance by those individuals who are key to the success of the
Company, to attract new individuals who are highly motivated and who are
expected to contribute to the success of the Company and to encourage such
individuals to remain as directors, employees, consultants and/or advisors of
the Company and its Affiliates by increasing their proprietary interest in the
Company’s growth and success; and

WHEREAS, to attain these ends, the Company has
formulated the Plan embodied herein to authorize the granting of Awards to Participants
whose judgment, initiative and efforts are or have been or are expected to be
responsible for the success of the Company.

NOW, THEREFORE, the Company hereby constitutes,
establishes and adopts the following Plan and agrees to the following provisions:

ARTICLE I

PURPOSE OF THE PLAN

1.1           Purpose.  The purpose of the Plan is to assist the
Company and its Affiliates in attracting and retaining selected individuals to
serve as directors, employees, consultants and/or advisors of the Company who
are expected to contribute to the Company’s success and to achieve long-term
objectives which will inure to the benefit of all stockholders of the Company
through the additional incentives inherent in the Awards hereunder.

ARTICLE
II

DEFINITIONS

2.1           “Affiliate” shall mean (i) any person
or entity that directly, or through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Company (including any
Parent or Subsidiary) or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.

2.2           “Applicable Laws” means the legal
requirements relating to the administration of and issuance of securities under
stock incentive plans, including, without limitation, the requirements of state
corporations law, federal and state securities law, federal and state tax law,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted.  For
all purposes of this Plan, references to statutes and regulations shall be
deemed to include any successor statutes and regulations, to the extent
reasonably appropriate as determined by the Committee.

 

2.3           “Award” shall
mean any Option, Stock Appreciation Right, Restricted Stock Award, Performance
Award, Dividend Equivalent, Other Stock Unit Award or any other right, interest
or option relating to Shares or other property (including cash) granted
pursuant to the provisions of the Plan.

2.4           “Award Agreement” shall mean any written
agreement, contract or other instrument or document evidencing any Award
granted by the Committee hereunder.

2.5           “Board” shall mean the board of directors of
the Company.

2.6           “Cause” shall have the meaning set forth in
a Participant’s employment or consulting agreement with the Company (if any),
or if not defined therein, shall mean (i) acts or omissions by the
Participant which constitute intentional material misconduct or a knowing
violation of a material policy of the Company or any of its subsidiaries,
(ii) the Participant personally receiving a benefit in money, property or
services from the Company or any of its subsidiaries or from another person
dealing with the Company or any of its subsidiaries, in material violation of
applicable law or Company policy, (iii) an act of fraud, conversion,
misappropriation, or embezzlement by the Participant or his conviction of, or
entering a guilty plea or plea of no contest with respect to, a felony, or the
equivalent thereof (other than DUI), or (iv) any deliberate and material
misuse or deliberate and material improper disclosure of confidential or
proprietary information of the Company.

2.7           “Change of Control” shall mean the
occurrence of any of the following events:

(i)            The
direct or indirect acquisition by an unrelated “Person” or “Group” of “Beneficial
Ownership” (as such terms are defined below) of more than 50% of the voting
power of the Company’s issued and outstanding voting securities in a single
transaction or a series of related transactions;

(ii)           The
direct or indirect sale or transfer by the Company of substantially all of its
assets to one or more unrelated Persons or Groups in a single transaction or a
series of related transactions;

(iii)          The
merger, consolidation or reorganization of the Company with or into another
corporation or other entity in which the Beneficial Owners of more than 50% of
the voting power of the Company’s issued and outstanding voting securities
immediately before such merger or consolidation do not own more than 50% of the
voting power of the issued and outstanding voting securities of the surviving
corporation or other entity immediately after such merger, consolidation or
reorganization; or

(iv)          During any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of the Company
(together with any new Directors whose election to such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the Directors of the Company then still in office who
were either Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of the Company then in office.

For purposes of determining whether a Change of
Control has occurred, the following Persons and Groups shall not be deemed to
be “unrelated”: (A) such Person or Group directly or indirectly has 

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Beneficial Ownership of more than 50% of the issued
and outstanding voting power of the Company’s voting securities immediately
before the transaction in question, (B) the Company has Beneficial Ownership of
more than 50% of the voting power of the issued and outstanding voting
securities of such Person or Group, (C) more than 50% of the voting power of
the issued and outstanding voting securities of such Person or Group are owned,
directly or indirectly, by Beneficial Owners of more than 50% of the issued and
outstanding voting power of the Company’s voting securities immediately before
the transaction in question or (D) any investment fund(s) that are Affiliates
of Cypress Associates II LLC.  The terms “Person,”
“Group,” “Beneficial Owner,” and “Beneficial Ownership” shall have the meanings
used in the Exchange Act.

2.8           “Code” shall mean the Internal Revenue Code
of 1986, as amended from time to time, and any successor thereto.

2.9           “Committee” shall mean the Committee (or
other body) constituted under Section 4.2 to administer this Plan.

2.10         “Company” has the meaning set forth in
introductory paragraph of the Plan.

2.11         “Consultant” means any person, including an
advisor, who (i) is a natural person, (ii) provides bona fide services to the
Company or a Parent or Subsidiary, and (iii) provides services that are not in
connection with the offer or sale of securities in a capital-raising
transaction, and that do not directly or indirectly promote or maintain a
market for the securities of the Company; provided that the term ‘Consultant’
does not include (i) Employees or (ii) Directors who are paid only a director’s
fee by the Company or who are not compensated by the Company for their services
as Directors.

2.12         “Continuous Status as an Employee, Director or
Consultant” means that the employment, director or consulting
relationship is not interrupted or terminated by the Company, any Parent or
Subsidiary, or by the Employee, Director or Consultant.  Continuous Status as an Employee, Director or
Consultant will not be considered interrupted in the case of: (i) any
leave of absence approved by the Company (and, but only to the extent required
by Applicable Laws, the Committee), including sick leave, military leave, or
any other personal leave, provided, that for purposes of Incentive Stock
Options, any such leave may not exceed 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including certain Company
policies) or statute; (ii) transfers between locations of the Company or
between the Company, its Parent, its Subsidiaries or its successor; or
(iii) in the case of an Award other than an Incentive Stock Option, the
ceasing of a person to be an Employee while such person remains or becomes a
Director or Consultant, the ceasing of a person to be a Director while such
person remains or becomes an Employee or Consultant or the ceasing of a person
to be a Consultant while such person remains or becomes an Employee or
Director.

2.13         “Covered Employee” shall mean a “covered employee” within the meaning of
Section 162(m)(3) of the Code, or any successor provision thereto.

2.14         “Director” shall mean a non-employee member
of the Board or a non-employee member of the board of directors of a Parent or
Subsidiary.

2.15         “Disability” shall mean total and permanent
disability as defined in Section 22(e)(3) of the Code.

2.16         “Dividend Equivalents” shall have the
meaning set forth in Section 12.5.

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2.17         “Employee” shall mean any employee of the
Company or any Parent or Subsidiary.

2.18         “Exchange Act” shall mean the Securities
Exchange Act of 1934 and the rules promulgated thereunder, in each case as
amended.

2.19         “Fair Market Value” shall mean, with respect
to any property other than Shares, the market value of such property determined
by such methods or procedures as shall be established from time to time by the
Committee.  The Fair Market Value of
Shares as of any date shall be determined as follows:

(i)            If the Shares are listed on any established stock
exchange or a national market system, including without limitation, the
National Market System of NASDAQ, the Fair Market Value of a Share will be
(i) the closing sales price for such Shares (or the closing bid, if no
sales are reported) as quoted on that system or exchange (or the system or
exchange with the greatest volume of trading in Shares) on the last market
trading day prior to the day of determination or (ii) any sales price for
such Shares (or the closing bid, if no sales are reported) as quoted on that
system or exchange (or the system or exchange with the greatest volume of
trading in Shares) on the day of determination, as the Committee may select, in
each case as reported in the Wall Street Journal or any other source the
Committee considers reliable.

(ii)           If the Shares are quoted on the NASDAQ System (but not on
the NASDAQ National Market System) or are regularly quoted by recognized
securities dealers but selling prices are not reported, the Fair Market Value
of a Share will be the mean between the high bid and low asked prices for the
Shares on (i) the last market trading day prior to the day of
determination or (ii) the day of determination, as the Committee may
select, in each case as reported in the Wall Street Journal or any other source
the Committee considers reliable.

(iii)          If the Shares are not traded as set forth above, the Fair
Market Value will be determined in good faith by the Committee with reference
to the earnings history, book value and prospects of the Company in light of
market conditions generally, and any other factors the Committee considers
appropriate, such determination by the Committee to be made in a manner
consistent with Proposed Regulation Section 1.409A-1(b)(5)(iv) or successor IRS
guidance, and to be final, conclusive and binding.

2.20         “Family Member”
means any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, any person sharing the Participant’s household (other
than a tenant or employee), a trust in which these persons (or the Participant)
control the management of assets, and any other entity in which these persons
(or the Participant) own more than 50 percent of the voting interests.

2.21         “Incentive Stock Option”
means an Option intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.

2.22         “Limitations”
shall have the meaning set forth in Section 3.2.

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2.23         “Option” shall mean any right granted to a
Participant under the Plan allowing such Participant to purchase Shares at such
price or prices and during such period or periods as the Committee shall
determine.

2.24         “Other Stock Unit Award”
shall have the meaning set forth in Section 8.1.

2.25         “Parent” means
a “parent corporation” with respect to the Company, whether now or later
existing, as defined in Section 424(e) of the Code.

2.26         “Participant”
shall mean an Employee, Director or Consultant who is selected by the Committee
to receive an Award under the Plan.

2.27         “Payee” shall
have the meaning set forth in Section 13.1.

2.28         “Performance Award” shall mean any Award of
Performance Shares or Performance Units granted pursuant to Article IX.

2.29         “Performance Period” shall mean that period
established by the Committee at the time any Performance Award is granted or at
any time thereafter during which any performance goals specified by the
Committee with respect to such Award are to be measured.

2.30         “Performance Share” shall mean any grant
pursuant to Article IX of a unit valued by reference to a designated number of
Shares, which value may be paid to the Participant by delivery of such property
as the Committee shall determine, including cash, Shares, other property, or
any combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant
or thereafter.

2.31         “Performance Unit” shall mean any grant
pursuant to Article IX of a unit valued by reference to a designated amount of
property (including cash) other than Shares, which value may be paid to the
Participant by delivery of such property as the Committee shall determine,
including cash, Shares, other property, or any combination thereof, upon
achievement of such performance goals during the Performance Period as the
Committee shall establish at the time of such grant or thereafter.

2.32         “Prior Plan” shall mean, collectively, the
Company’s 2000 Stock Option Plan and 2004 Stock Incentive Plan, each as
amended.

2.33         “Restricted Stock” shall mean any Share
issued with the restriction that the holder may not sell, transfer, pledge or
assign such Share and with such other restrictions as the Committee, in its
sole discretion, may impose (including any restriction on the right to vote
such Share and the right to receive any dividends), which restrictions may
lapse separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.

2.34         “Restricted Period” shall have the meaning
set forth in Section 7.1.

2.35         “Restricted Stock Award” shall have the
meaning set forth in Section 7.1.

2.36         “Shares” shall mean the shares of common
stock of the Company, par value $0.01 per share.

2.37         “Stock Appreciation Right” shall mean any
right granted to a Participant pursuant to Article VI.

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2.38         “Subsidiary” shall mean any corporation
(other than the Company) in an unbroken chain of corporations beginning with
the Company if, at the time of the granting of the Award, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.

2.39         “Substitute Awards” shall mean Awards
granted or Shares issued by the Company in assumption of, or in substitution or
exchange for, awards previously granted, or the right or obligation to make
future awards, by a company or other entity acquired by the Company or any
Subsidiary or with which the Company or any Subsidiary combines.

ARTICLE
III

SHARES SUBJECT TO THE PLAN

3.1           Number
of Shares.

(a)           Subject
to adjustment as provided in Section 12.2, a total of 1,400,000 Shares shall be authorized for grant under
the Plan, plus any Shares subject to awards granted under the Prior Plan, which
such awards are forfeited, expire or otherwise terminate without issuance of
Shares, or are settled for cash or otherwise do not result in the issuance of
Shares, on or after the effective date of this Plan.

(b)           If
any Shares subject to an Award or to an award under the Prior Plan are
forfeited, expire or otherwise terminate without issuance of such Shares, or
any Award or award under the Prior Plan is settled for cash or otherwise does
not result in the issuance of all or a portion of the Shares subject to such
Award, the Shares shall, to the extent of such forfeiture, expiration,
termination, cash settlement or non-issuance, again be available for Awards
under the Plan.

(c)           In
the event that (i) any Option or other Award granted under this Plan or
any option or award granted under the Prior Plan is exercised through the
tendering of Shares (either actually, by attestation, or by the giving of
instructions to a broker to remit to the Company that portion of the sales
price required to pay the exercise price) or by the withholding of Shares by
the Company, or (ii) withholding tax liabilities arising from such Options
or Awards under this Plan or options or awards under a Prior Plan are satisfied
by the tendering of Shares (either actually, by attestation, or by the giving
of instructions to a broker to remit to the Company that portion of the sales
price required to pay the exercise price) or by the withholding of Shares by
the Company, then the Shares so tendered or withheld shall again be available
for Awards under the Plan.

(d)           Substitute
Awards shall not reduce the Shares authorized for issuance under the Plan or
authorized for grant to a Participant in any calendar year.  Additionally, in the event that a company or
other entity acquired by the Company or any Subsidiary, or with which the
Company or any Subsidiary combines, has shares or other equity interests
available under a pre-existing plan approved by shareholders or equityholders
and not adopted in contemplation of such acquisition or combination, the shares
or equity interests available for grant pursuant to the terms of such
pre-existing plan (as adjusted, to the extent appropriate, using the exchange
ratio or other adjustment or valuation ratio or formula used in such
acquisition or combination to determine the consideration payable to the holders
of common stock of the entities party to such acquisition or combination) may
be used for Awards under the Plan and shall not reduce the Shares authorized
for issuance under the Plan; provided that Awards using such available shares
or equity interests shall not be made after the date awards or grants could
have been made under the terms of the pre-existing plan, absent the acquisition
or combination, and shall only be made to individuals who were employees,
directors or consultants of such acquired or combined company or entity before
such acquisition or combination.

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3.2           Limitations
on Grants to Individual Participant. 
Subject to adjustment as provided in Section 12.2, no Participant
may be granted (i) Options or Stock Appreciation Rights during any fiscal
year of the Company with respect to more than 460,000 Shares, or
(ii) Restricted Stock, Performance Awards and/or Other Stock Unit Awards
that are denominated in Shares in any fiscal year of the Company with respect
to more than 460,000 Shares (the “Limitations”).  In addition to the foregoing, the maximum
dollar value payable to any Participant in fiscal year of the Company with
respect to Performance Awards and/or Other Stock Unit Awards that are valued
with reference to cash or property other than Shares is $3,000,000.  If an Award is cancelled, the cancelled Award
shall continue to be counted toward the applicable Limitations.

3.3           Character
of Shares.  Any Shares issued
hereunder may consist, in whole or in part, of authorized and unissued shares,
treasury shares or shares purchased in the open market or otherwise.

ARTICLE
IV

ELIGIBILITY AND ADMINISTRATION

4.1           Eligibility.  Any Employee, Director or Consultant shall be
eligible to be selected as a Participant. 
Only Employees may receive awards of Incentive Stock Options.

4.2           Administration.

(a)           The
Plan shall be administered by the Committee, constituted as follows:

(i)            The Committee will
consist of the Board, or a committee designated by the Board, which Committee
will be constituted to satisfy Applicable Laws. 
Once appointed, a Committee will serve in its designated capacity until
otherwise directed by the Board.  The
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan.

(ii)           The Board (or a committee designated
by the Board) may by resolution provide that the Plan may be administered by
different bodies with respect to Directors, officers who are not Directors, and
Employees and Consultants who are neither Directors nor officers, and Covered
Employees.  Any reference to a “Committee”
herein shall, to the extent permitted by Applicable Laws, be a reference to any
body appointed to administer the Plan pursuant to the foregoing sentence.

(b)           The
Committee shall have full discretion, power and authority, subject to the
provisions of the Plan and subject to such orders or resolutions not
inconsistent with the provisions of the Plan as may from time to time be
adopted by the Board, to: 
(i) select the Employees, Consultants and Directors to whom Awards
may from time to time be granted hereunder; (ii) determine the type or
types of Awards, not inconsistent with the provisions of the Plan, to be
granted to each Participant hereunder; (iii) determine the number of
Shares to be covered by each Award granted hereunder; (iv) determine the
terms and conditions, not inconsistent with the provisions of the Plan, of any
Award granted hereunder and the form and content of any Award Agreement;
(v) determine whether, to what extent and under what circumstances Awards
may be settled in cash, Shares or other property, subject to the provisions of
the Plan; (vi) determine whether, to what extent and under what
circumstances any Award shall be modified, amended, canceled or suspended;
(vii) interpret and administer the Plan and any instrument or agreement 

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entered into under or in connection with the Plan, including any Award
Agreement; (viii) correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent that the
Committee shall deem desirable to carry it into effect; (ix) establish
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; (x) determine whether any Award
will have Dividend Equivalents; (xi) determine whether, to what extent, and
under what circumstances cash, Shares, or other property payable with respect
to an Award shall be deferred either automatically or at the election of the
Participant; provided that the Committee shall take no action that would
subject the Participant to a penalty tax under Section 409A of the Code; and (xii) make
any other determination and take any other action that the Committee deems
necessary or desirable for administration of the Plan.

(c)           Decisions
of the Committee shall be final, conclusive and binding on all persons or
entities, including the Company, any Participant, any stockholder and any
Employee or any Affiliate.  A majority of
the members of the Committee may determine its actions and fix the time and
place of its meetings.

(d)           The
Committee may delegate to a committee of one or more Directors of the Company
or, to the extent permitted by Applicable Law, to one or more officers or a
committee of officers, the authority to grant Awards to Employees and officers
of the Company who are not Directors, Covered Employees, or “officers,” as such
term is defined by Rule 16a-1(f) of the Exchange Act, and to cancel or suspend
Awards to Employees and officers of the Company who are not Directors, Covered
Employees, or “officers,” as such term is defined by Rule 16a-1(f) of the
Exchange Act.

ARTICLE V

OPTIONS

5.1           Grant
of Options.  Options may be granted
hereunder to Participants either alone or in addition to other Awards granted
under the Plan.  Any Option shall be
subject to the terms and conditions of this Article V and to such additional
terms and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall deem desirable.

5.2           Award
Agreements.  All Options granted
pursuant to this Article V shall be evidenced by a written Award Agreement in
such form and containing such terms and conditions as the Committee shall
determine which are not inconsistent with the provisions of the Plan.  Granting of an Option pursuant to the Plan
shall impose no obligation on the recipient to exercise such Option.  Any individual who is granted an Option
pursuant to this Article V may hold more than one Option granted pursuant to
the Plan at the same time.

5.3           Option
Price.  Other than in connection with
Substitute Awards, the option price per each Share purchasable under any Option
granted pursuant to this Article V shall not be less than 100% of the Fair
Market Value of such Share on the date of grant of such Option.  Other than pursuant to Section 12.2, the
Committee shall not be permitted to (a) lower the option price per Share
of an Option after it is granted, (b) cancel an Option when the option
price per Share exceeds the Fair Market Value of the underlying Shares in
exchange for another Award (other than in connection with Substitute Awards),
and (c) take any other action with respect to an Option that may be
treated as a repricing under the rules and regulations of the NASDAQ National
Market or other exchange or quotation system on which the Shares are
principally traded.

5.4           Option
Period.  The term of each Option
shall be fixed by the Committee in its sole discretion; provided that no Option
shall be exercisable after the expiration of ten years from the date the Option
is granted.

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5.5           Exercise
of Options.  Vested Options granted
under the Plan shall be exercised by the Participant or by the Participant’s
executors, administrators, guardian, beneficiary, or legal representative, or
Family Members, as may be provided in an Award Agreement in accordance with
Section 12.3 as to all or part of the Shares covered thereby, by the giving of
written notice of exercise to the Company or its designated agent, specifying
the number of Shares to be purchased, accompanied by payment of the full
purchase price for the Shares being purchased. 
Unless otherwise provided in an Award Agreement, full payment of such
purchase price shall be made at the time of exercise and shall be made
(a) in cash or by certified check or bank check or wire transfer of
immediately available funds, (b) with the consent of the Committee, by
tendering previously acquired Shares (either actually or by attestation, valued
at their then Fair Market Value) that have been owned for a period of at least
six months (or such other period to avoid accounting charges against the
Company’s earnings), (c) with the consent of the Committee, by delivery of
other consideration (including, where permitted by law and the Committee, other
Awards) having a Fair Market Value on the exercise date equal to the total
purchase price, (d) with the consent of the Committee, by withholding
Shares otherwise issuable in connection with the exercise of the Option,
(e)  with the consent of the Committee, by delivery of a properly executed
exercise notice together with any other documentation as the Committee and the
Participant’s broker, if applicable, require to effect an exercise of the
Option and delivery to the Company of the sale or other proceeds (as permitted
by Applicable Law) required to pay the exercise price, (f) through any
other method specified in an Award Agreement, or (g) any combination of any
of the foregoing.  In connection with a
tender of previously acquired Shares pursuant to clause (b) above, the
Committee, in its sole discretion, may permit the Participant to constructively
exchange Shares already owned by the Participant in lieu of actually tendering
such Shares to the Company, provided that adequate documentation concerning the
ownership of the Shares to be constructively tendered is furnished in form
satisfactory to the Committee.  The
notice of exercise, accompanied by such payment, shall be delivered to the
Company at its principal business office or such other office as the Committee
may from time to time direct, and shall be in such form, containing such
further provisions consistent with the provisions of the Plan, as the Committee
may from time to time prescribe.  In no
event may any Option granted hereunder be exercised for a fraction of a
Share.  No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the date
of such issuance.

5.6           Form of Settlement. 
In its sole discretion, the Committee may provide, at the time of grant,
that the Shares to be issued upon an Option’s exercise shall be in the form of
Restricted Stock or other similar securities, or may reserve the right so to
provide after the time of grant.

5.7           Incentive Stock Options.  With respect to the Options that may be
granted by the Committee under the Plan, the Committee may grant Options
intended to qualify as Incentive Stock Options to any Employee of the Company
or any Parent or Subsidiary, subject to the requirements of Section 422 of
the Code.  The Award Agreement of an
Option intended to qualify as an Incentive Stock Option shall designate the
Option as an Incentive Stock Option. 
Notwithstanding anything in Section 3.1 to the contrary and solely
for the purposes of determining whether Shares are available for the grant of
Incentive Stock Options under the Plan, the maximum aggregate number of Shares
with respect to which Incentive Stock Options may be granted under the Plan
shall be 1,400,000 Shares. 
Notwithstanding the provisions of Section 5.3, in the case of an
Incentive Stock Option granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent of the
voting power of all classes of capital stock of the Company or any Parent or
Subsidiary, the per Share exercise price will be no less than 110% of the Fair
Market Value per Share on the date of grant. 
Notwithstanding the provisions of Section 5.4, in the case of an Incentive
Stock Option granted to an Employee who, at the time the Incentive Stock Option
is granted, owns stock representing more than ten percent of the voting power
of all classes of capital stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option will be five years from the date of grant or
any shorter term specified in the Award Agreement.

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Notwithstanding the foregoing, if the Shares
subject to an Employee’s Incentive Stock Options (granted under all plans of
the Company or any Parent or Subsidiary), which become exercisable for the
first time during any calendar year, have a Fair Market Value in excess of
$100,000, the Options accounting for this excess will be not be treated as
Incentive Stock Options.  For purposes of
the preceding sentence, Incentive Stock Options will be taken into account in
the order in which they were granted, and the Fair Market Value of the Shares
will be determined as of the time of grant.

5.8           Termination
of Employment or Consulting Relationship or Directorship.  If a Participant holds exercisable Options on
the date his or her Continuous Status as an Employee, Director or Consultant
terminates (other than because of termination due to Cause, but including death
or Disability), the Participant may exercise the Options that were vested and
exercisable as of the date of termination until the end of the original term or
for a period set forth in the Award Agreement or determined by the
Committee.  If the Participant is not
entitled to exercise his or her entire Option at the date of such termination,
the Shares covered by the unexercisable portion of the Option will revert to
the Plan, unless otherwise set forth in the Award Agreement or determined by
the Committee.  The Committee may
determine in its sole discretion that such unexercisable portion of the Option
will become exercisable at such times and on such terms as the Committee may
determine in its sole discretion.  If the
Participant does not exercise an Option within the time specified above after
termination, that Option will expire, and the Shares covered by it will revert
to the Plan, except as otherwise determined by the Committee.

ARTICLE
VI

STOCK APPRECIATION RIGHTS

6.1           Grant
and Exercise.  The Committee may
provide Stock Appreciation Rights either alone or in addition to other Awards
upon such terms and conditions as the Committee may establish in its sole
discretion.

6.2           Terms
and Conditions.  Stock Appreciation
Rights shall be subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:

(a)           Upon
the exercise of a Stock Appreciation Right, the holder shall have the right to
receive the excess of (i) the Fair Market Value of one Share on the date
of exercise or such other amount as the Committee shall so determine at any
time during a specified period before the date of exercise over (ii) the
grant price of the right on the date of grant, which, except in the case of
Substitute Awards or in connection with an adjustment provided in
Section 12.2, shall not be less than the Fair Market Value of one Share on
such date of grant of the right.

(b)           Upon
the exercise of a Stock Appreciation Right, payment shall be made in whole
Shares or cash as designated by the Committee.

(c)           The
provisions of Stock Appreciation Rights need not be the same with respect to
each recipient.

(d)           The
Committee may impose such other conditions or restrictions on the terms of
exercise and the exercise price of any Stock Appreciation Right, as it shall
deem appropriate.  In connection with the
foregoing, the Committee shall consider the applicability and effect of
Section 162(m) of the Code. 
Notwithstanding the foregoing provisions of this Section 6.2, but
subject to Section 12.2, a Stock Appreciation Right shall not have
(i) an exercise price less than Fair Market Value on the date of grant, or
(ii) a term of greater than ten years. 
In addition to the 

 10
 

 

foregoing, but subject to Section 12.2, the base amount of any Stock
Appreciation Right shall not be reduced after the date of grant.

6.3           Termination
of Employment or Consulting Relationship or Directorship.  If a Participant holds exercisable Stock
Appreciation Rights on the date his or her Continuous Status as an Employee,
Director or Consultant terminates (other than because of termination due to
Cause, but including death or Disability), the Participant may exercise the
Stock Appreciation Rights that were vested and exercisable as of the date of
termination until the end of the original term or for a period  set forth in the Award Agreement or
determined by the Committee.  If the
Participant is not entitled to exercise his or her entire Stock Appreciation
Right at the date of such termination, the Shares covered by the unexercisable
portion of the Stock Appreciation Right will revert to the Plan, unless
otherwise set forth in the Award Agreement or determined by the Committee.  The Committee may determine in its sole
discretion that such unexercisable portion of the Stock Appreciation Right will
become exercisable at such times and on such terms as the Committee may
determine in its sole discretion.  If the
Participant does not exercise a Stock Appreciation Right within the time specified
above after termination, that Stock Appreciation Right will expire, and the
Shares covered by it will revert to the Plan, except as otherwise determined by
the Committee.

ARTICLE
VII

RESTRICTED STOCK AWARDS

7.1           Grants.  Awards of Restricted Stock may be issued
hereunder to Participants either alone or in addition to other Awards granted
under the Plan (a “Restricted Stock Award”).  A Restricted Stock Award shall be subject to
restrictions imposed by the Committee covering a period of time specified by
the Committee (the “Restricted Period”).  The provisions of Restricted Stock Awards
need not be the same with respect to each recipient.  The Committee has absolute discretion to
determine whether any consideration (other than services) is to be received by
the Company or any Affiliate as a condition precedent to the issuance of
Restricted Stock.

7.2           Award
Agreements.  The terms of any
Restricted Stock Award granted under the Plan shall be set forth in a written
Award Agreement which shall contain provisions determined by the Committee and
not inconsistent with the Plan.

7.3           Rights
of Holders of Restricted Stock. 
Except as otherwise provided in the Award Agreement, beginning on the
date of grant of the Restricted Stock Award and subject to execution of the
Award Agreement, the Participant shall become a shareholder of the Company with
respect to all Shares subject to the Award Agreement and shall have all of the
rights of a shareholder, including the right to vote such Shares and the right
to receive distributions made with respect to such Shares; provided, however,
the Award Agreement may provide that any Shares or any other property
(including cash) distributed as a dividend or otherwise with respect to any
Restricted Shares as to which the restrictions have not yet lapsed may be
subject to restrictions.

ARTICLE
VIII

OTHER STOCK UNIT AWARDS

8.1           Other
Stock Unit Awards.  Other Awards of
Shares and other Awards that are valued in whole or in part by reference to, or
are otherwise based on, Shares or other property (“Other Stock Unit Awards”) may be granted hereunder to
Participants, either alone or in addition to other Awards granted under the
Plan, and such Other Stock Unit Awards shall also be available as a form of
payment in the settlement of other Awards granted under the Plan.  Other Stock Unit Awards shall be paid in
Shares or cash.  Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to
determine the Employees, Consultants and Directors to whom 

 11
 

 

and the time or times at which such Other Stock Unit Awards shall be
made, the number of Shares to be granted pursuant to such Awards, and all other
conditions of the Awards.  The provisions
of Other Stock Unit Awards need not be the same with respect to each recipient.

8.2           Terms
and Conditions.  Shares (including
securities convertible into Shares) subject to Awards granted under this
Article VIII may be issued for no consideration or for such minimum
consideration as may be required by Applicable Law.  Shares (including securities convertible into
Shares) purchased pursuant to a purchase right awarded under this
Article VIII shall be purchased for such consideration as the Committee
shall determine in its sole discretion.

ARTICLE
IX

PERFORMANCE AWARDS

9.1           Terms
of Performance Awards.  Performance
Awards may be issued hereunder to Participants, for no consideration or for
such minimum consideration as may be required by Applicable Law, either alone
or in addition to other Awards granted under the Plan.  The performance criteria to be achieved
during any Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Award; provided,
however, that a Performance Period shall not be shorter than six months nor
longer than five years.  Except as provided
in Article XI or as may be provided in an Award Agreement, Performance Awards
will be distributed only after the end of the relevant Performance Period.  Performance Awards may be paid in cash,
Shares, other property, or any combination thereof, in the sole discretion of
the Committee at the time of payment. 
The performance goals to be achieved for each Performance Period shall
be conclusively determined by the Committee and may be based upon the criteria
set forth in Section 10.2.  The
amount of the Award to be distributed shall be conclusively determined by the
Committee.  The terms of a Performance
Award may provide that the Performance Award will be paid in a lump sum or in
installments following the close of the Performance Period.

ARTICLE X

CODE SECTION 162(m) PROVISIONS

10.1         Covered
Employees.  Notwithstanding any other
provision of the Plan, if the Committee determines at the time Restricted
Stock, a Performance Award or an Other Stock Unit Award is granted to a
Participant who is, or is likely to be, as of the end of the tax year in which
the Company would claim a tax deduction in connection with such Award, a
Covered Employee, and that the deduction limit of Section 162(m) of the Code
would apply to such Award, then the Committee may provide that this Article X
is applicable to such Award.

10.2         Performance
Criteria.  If Restricted Stock, a
Performance Award or an Other Stock Unit Award is subject to this Article X,
then the lapsing of restrictions thereon and the distribution of cash, Shares or
other property pursuant thereto, as applicable, shall be subject to the
achievement of one or more objective performance goals established by the
Committee, which shall be based on the attainment of specified levels of or
growth of one or any combination of the following factors, or an objective
formula determined at the time of the Award that is based on modified or
unmodified calculations of one or any combination of the following factors: net
sales; pretax income before or after allocation of corporate overhead and
bonus; earnings per share; net income; division, group or corporate financial
goals; return on stockholders’ equity; return on assets; attainment of
strategic and operational initiatives; appreciation in and/or maintenance of
the price of the Shares or any other publicly-traded securities of the Company;
market share; gross profits; earnings before taxes; earnings before interest
and taxes; earnings before interest, taxes, depreciation and amortization (“EBITDA”); an adjusted formula of EBITDA
determined by the Committee; economic value-added 

 12
 

 

models; comparisons with various stock market indices; reductions in
costs, and/or return on invested capital of the Company or any Affiliate,
division or business unit of the Company for or within which the Participant is
primarily employed.  Such performance
goals also may be based solely by reference to the Company’s performance or the
performance of an Affiliate, division or business unit of the Company, or based
upon the relative performance of other companies or upon comparisons of any of
the indicators of performance relative to other companies.  Unless the Committee specifies otherwise when
it sets performance goals for an Award, objective adjustments shall be made to
any of the foregoing measures for items that will not properly reflect the
Company’s financial performance for these purposes, such as the write-off of
debt issuance costs, pre-opening and development costs, gain or loss from asset
dispositions, asset or other impairment charges, litigation settlement costs,
and other non-routine items that  may
occur during the Performance Period. 
Also, unless the  Committee
determines otherwise in setting the performance goals for an Award, such
performance goals shall be applied by excluding the impact of  (a) restructurings, discontinued
operations and charges for extraordinary items, (b) an event either not
directly related to the operations of the Company or not within the reasonable
control of the Company’s management, or (c) a change in accounting
standards required by generally accepted accounting principles.  Such performance goals shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m) of the Code, or any successor
provision thereto, and the regulations thereunder.

10.3         Adjustments.  Notwithstanding any provision of the Plan
(other than Article XI), with respect to any Restricted Stock, Performance
Award or Other Stock Unit Award that is subject to this Article X, the
Committee may adjust downward, but not upward, the amount payable pursuant to
such Award, and the Committee may not waive the achievement of the applicable
performance goals, except in the case of the death or Disability of the
Participant or the occurrence of a Change of Control.

10.4         Determination
of Performance.  Prior to the
vesting, payment, settlement or lapsing of any restrictions with respect to any
Restricted Stock, Performance Award or Other Stock Unit Award that is subject
to this Article X, the Committee shall certify in writing that the applicable
performance goals have been achieved to the extent necessary for such Award to
qualify as “performance based compensation” within the meaning of Section
162(m)(4)(C) of the Code.

10.5         Restrictions.
 The Committee shall have the power to
impose such other restrictions on Awards subject to this Article X as it may
deem necessary or appropriate to ensure that such Awards satisfy all
requirements for “performance-based compensation” within the meaning of
Section 162(m)(4)(C) of the Code, or which are not inconsistent with such
requirements.

ARTICLE
XI

CHANGE OF CONTROL PROVISIONS

11.1         Impact
of Change of Control.  The terms of
any Award may provide in the Award Agreement evidencing the Award, or the Committee
may determine in its discretion, that, upon a Change of Control of the Company,
(a) Options and Stock Appreciation Rights outstanding as of the date of
the Change of Control immediately vest and become exercisable in full or in
part, (b) restrictions and deferral limitations on Restricted Stock lapse
and the Restricted Stock becomes free of some or all restrictions and
limitations and becomes partially or fully vested, (c) Performance Awards
shall be considered to be earned and payable (either in full or pro-rata based
on the portion of Performance Period completed as of the date of the Change of
Control), and any deferral or other restriction shall lapse and such
Performance Awards shall be immediately settled or distributed, (d) the
restrictions and deferral limitations and other conditions applicable to any
Other Stock Unit Awards or any other Awards shall lapse in full or in part, and
such Other Stock Unit Awards or such 

 13
 

 

other Awards shall become free of some or all restrictions, limitations
or conditions and become partially or fully vested and transferable, and
(e) such other additional benefits, changes or adjustments as the
Committee deems appropriate shall apply, subject in each case to any terms and
conditions contained in the Award Agreement evidencing such Award.  Notwithstanding any other provision of the
Plan, the Committee, in its discretion, may determine that, upon the occurrence
of a Change of Control of the Company, (a) each Option and Stock Appreciation
Right shall remain exercisable for only a limited period of time determined by
the Committee (provided that they remain exercisable for at least 30 days after
notice of such action is given to the Participants), or (b) each Option and
Stock Appreciation Right outstanding shall terminate within a period specified
in a notice to the Participant, and such Participant shall receive, with
respect to each Share subject to such Option or Stock Appreciation Right, an
amount equal to the excess of the Fair Market Value of such Share immediately prior
to the occurrence of such Change of Control over the exercise price per share
of such Option and/or Stock Appreciation Right; such amount to be payable in
cash, in one or more kinds of stock or property (including the stock or
property, if any, payable in the transaction) or in a combination thereof, as
the Committee, in its discretion, shall determine.  Notwithstanding the foregoing and the
provisions of Section 11.2, the Committee will take no action that would
subject any Participant to a penalty tax under Section 409A of the Code.

11.2         Assumption
Upon Change of Control.  The terms of
any Award Agreement may also provide that, if in the event of a Change of
Control the successor company assumes or substitutes for an Option, Stock
Appreciation Right, Share of Restricted Stock or Other Stock Unit Award, then
each outstanding Option, Stock Appreciation Right, Share of Restricted Stock or
Other Stock Unit Award need not be accelerated as described in
Sections 11.1(a), (b) and (d).  For
the purposes of this Section 11.2, an Option, Stock Appreciation Right,
Share of Restricted Stock or Other Stock Unit Award shall be considered assumed
or substituted for if following the Change of Control the award confers the
right to purchase or receive, for each Share subject to the Option, Stock
Appreciation Right, Restricted Stock Award or Other Stock Unit Award
immediately prior to the Change of Control, the consideration (whether stock,
cash or other securities or property) received in the transaction constituting
a Change of Control by holders of Shares for each Share held on the effective
date of such transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares); provided, however, that if such consideration received
in the transaction constituting a Change of Control is not solely common stock
of the successor company, the Committee may, with the consent of the successor
company, provide that the consideration to be received upon the exercise or
vesting of an Option, Stock Appreciation Right, Restricted Stock Award or Other
Stock Unit Award, for each Share subject thereto, will be solely common stock
of the successor company substantially equal in fair market value to the per
share consideration received by holders of Shares in the transaction
constituting a Change of Control.  The
determination of such substantial equality of value of consideration shall be
made by the Committee in its sole discretion and its determination shall be
conclusive and binding.  Any assumption
or substitution of an Incentive Stock Option will be made in a manner that will
not be considered a “modification” under the provisions of Section 424(h)(3) of
the Code.  Notwithstanding the foregoing,
an Award Agreement may provide that in the event of a termination of a
Participant’s employment in such successor company within a specified time
period following such Change of Control, all or part of any such Award held by
such Participant at the time of the Change of Control shall be accelerated as
described in Sections 11.1(a), (b) and (d) above.

ARTICLE
XII

GENERALLY APPLICABLE PROVISIONS

12.1         Amendment
and Modification of the Plan.  The
Board may, from time to time, alter, amend, suspend or terminate the Plan as it
shall deem advisable, subject to any requirement for stockholder approval
imposed by Applicable Law; provided that the Board may not amend the Plan 

 14
 

 

in any manner that would result in noncompliance with Rule 16b-3 of the
Exchange Act; and further provided that the Board may not, without the approval
of the Company’s stockholders, amend the Plan to (a) increase the number
of Shares that may be the subject of Awards under the Plan (except for
adjustments pursuant to Section 12.2), (b) expand the types of awards
available under the Plan, (c) materially expand the class of persons
eligible to participate in the Plan, (d) amend any provision of
Section 5.3, (e) increase the maximum permissible term of any Option
specified by Section 5.4, or (f) amend any provision of
Section 3.2.  In addition, no
amendments to, or termination of, the Plan (other than by reason of the failure
of stockholders to approve the Plan in the manner set forth in Section 13.12)
shall in any way impair the rights of a Participant under any Award previously
granted without such Participant’s consent.

12.2         Adjustments.  In the event of any merger, reorganization,
consolidation, recapitalization, dividend or distribution (whether in shares or
other property, but excluding any cash dividend or distribution), stock split,
reverse stock split, spin-off or similar transaction or other change in
corporate structure affecting the Shares or the value thereof, the Committee
shall make equitable, proportionate and appropriate adjustments and other
substitutions to the Plan and to Awards, including such equitable,
proportionate and appropriate adjustments in the aggregate number, class and
kind of securities that may be delivered under the Plan and, in the aggregate
or to any one Participant, in the number, class, kind and option or exercise
price of securities subject to outstanding Awards granted under the Plan
(including, if the Committee deems appropriate, the substitution of similar
options to purchase the shares of, or other awards denominated in the shares
of, another company); provided, however, that the number of Shares subject to
any Award shall always be a whole number. 
Adjustments under this Section 12.2 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.  Where an adjustment under this Section 12.2
is made to an Incentive Stock Option, the adjustment will be made in a manner
which will not be considered a “modification” under the provisions of Sections
409A or 424(h)(3) of the Code.

12.3         Transferability
of Awards.  Except as provided below,
and except as otherwise authorized by the Committee in an Award Agreement, no
Award, and no Shares subject to Awards that have not been issued or as to which
any applicable restriction, performance or deferral period has not lapsed, may
be sold, assigned, transferred, pledged or otherwise encumbered, other than by
will or the laws of descent and distribution, and such Award may be exercised
during the life of the Participant only by the Participant or the Participant’s
guardian or legal representative. 
Notwithstanding the foregoing, to the extent that the Committee so
authorizes in the Award Agreement or otherwise, an Award other than an
Incentive Stock Option may be assigned, in whole or in part, during the
Participant’s lifetime to one or more Family Members of the Participant.  Rights under the assigned portion may be
exercised by the Family Member(s) who acquire a proprietary interest in such
Award pursuant to the assignment.  The
terms applicable to the assigned portion shall be the same as those in effect
for the Award immediately before such assignment and shall be set forth in such
documents issued to the assignee as the Committee deems appropriate.

(a)           Designation
of Beneficiary.  A Participant may
file a written designation of a beneficiary who is to receive any Awards that
remain unexercised in the event of the Participant’s death.  If a Participant is married and the
designated beneficiary is not the spouse, spousal consent will be required for
the designation to be effective.  The
Participant may change such designation of beneficiary at any time by written
notice to the Committee, subject to the above spousal consent requirement.

(b)           Effect
of No Designation.  If a Participant
dies and there is no beneficiary validly designated and living at the time of
the Participant’s death, the Company will deliver such Participant’s Awards to
the executor or administrator of his or her estate, or if no such executor or 

 15
 

 

administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such Awards to the spouse or to any one
or more dependents or relatives of the Participant, or if no spouse, dependent
or relative is known to the Company, then to such other person as the Company
may designate.

(c)           Death
of Spouse or Dissolution of Marriage. 
If a Participant designates his or her spouse as beneficiary, that
designation will be deemed automatically revoked if the Participant’s marriage
is later dissolved.  Similarly, any
designation of a beneficiary will be deemed automatically revoked upon the
death of the beneficiary if the beneficiary predeceases the Participant.  Without limiting the generality of the
preceding sentence, the interest in Awards of a spouse of a Participant who has
predeceased the Participant or whose marriage has been dissolved will
automatically pass to the Participant, and will not be transferable by such
spouse in any manner, including but not limited to such spouse’s will, nor will
any such interest pass under the laws of intestate succession.

12.4         Termination
of Employment.  The Committee shall
determine and set forth in each Award Agreement whether any Awards granted in
such Award Agreement will continue to be exercisable, and the terms of such
exercise, on and after the date that a Participant’s Continuous Status as an
Employee, Director or Consultant ceases, whether by reason of death,
disability, voluntary or involuntary termination of employment or services, or
otherwise.  The date of termination of a
Participant’s Continuous Status as an Employee, Director or Consultant will be
determined by the Committee, which determination will be final.

12.5         Dividend
Equivalents.  Subject to the provisions
of the Plan and any Award Agreement, the recipient of an Award (including any
deferred Award) may, if so determined by the Committee, be entitled to receive,
currently or on a deferred basis, cash, stock or other property dividends, or
cash payments in amounts equivalent to stock or other property dividends on
Shares (“Dividend Equivalents”)
with respect to the number of Shares covered by the Award, as determined by the
Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Shares
or otherwise reinvested.

ARTICLE
XIII

MISCELLANEOUS

13.1         Tax
Withholding.  The Company shall have
the right to make all payments or distributions pursuant to the Plan to a
Participant (or to the Participant’s executors, administrators, guardian,
beneficiary, or legal representative, or Family Members) (any such person, a “Payee”) net of any applicable Federal,
State and local taxes required to be paid or withheld as a result of
(a) the grant of any Award, (b) the exercise of an Option or Stock
Appreciation Rights, (c) the delivery of Shares or cash, (d) the
lapse of any restrictions in connection with any Award, or (e) any other
event occurring pursuant to the Plan. 
The Company or any Affiliate shall have the right to withhold from wages
or other amounts otherwise payable to such Payee such withholding taxes as may
be required by law, or to otherwise require the Payee to pay such withholding
taxes.  If the Payee shall fail to make
such tax payments as are required, the Company or its Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to such Payee or to take such other action as
may be necessary to satisfy such withholding obligations.  The Committee shall be authorized to
establish procedures for election by Participants to satisfy such obligation
for the payment of such taxes by tendering previously acquired Shares (either
actually or by attestation, valued at their then Fair Market Value) that have
been owned for a period of at least six months (or such other period to avoid
accounting charges against the Company’s earnings), or by directing the Company
to retain Shares (up to the employee’s minimum required tax withholding 

 16
 

 

rate) otherwise deliverable in connection with the Award.  If Shares acquired upon exercise of any
Incentive Stock Option are disposed of in a disposition that, under Section 422
of the Code, disqualifies the holder from the application of Section 421(a) of
the Code, the holder of the Shares immediately before the disposition will
comply with any requirements imposed by the Company in order to enable the
Company to secure the related income tax deduction to which it is entitled in
such event.

13.2         Right
of Discharge Reserved; Claims to Awards. 
Nothing in the Plan nor the grant of an Award hereunder shall confer
upon any Employee, Consultant or Director the right to continue in the
employment or service of the Company or any Affiliate or affect any right that
the Company or any Affiliate may have to terminate the employment or service of
(or to demote or to exclude from future Awards under the Plan) any such
Employee, Consultant or Director at any time for any reason.  The Company shall not be liable for the loss
of existing or potential profit from an Award granted in the event of
termination of an employment or other relationship.  No Employee or Participant shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Employees or Participants under the Plan.

13.3         Prospective
Recipient.  The prospective recipient
of any Award under the Plan shall not, with respect to such Award, be deemed to
have become a Participant, or to have any rights with respect to such Award,
until and unless such recipient shall have executed an agreement or other
instrument evidencing the Award and delivered a copy thereof to the Company,
and otherwise complied with the then applicable terms and conditions.

13.4         Cancellation
of Award.  Notwithstanding anything
to the contrary contained herein, all outstanding Awards granted to any
Participant may be canceled in the discretion of the Committee if the
Participant’s Continuous Status as an Employee, Director or Consultant is
terminated for Cause, or if, after the termination of the Participant’s
Continuous Status as an Employee, Director, or Consultant, the Committee
determines that Cause existed before such termination.

13.5         Stop
Transfer Orders.  All certificates
for Shares delivered under the Plan pursuant to any Award shall be subject to
such stop-transfer orders and other restrictions as the Committee may deem
advisable under the provisions of this Plan, the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are 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.

13.6         Nature
of Payments.  All Awards made
pursuant to the Plan are in consideration of services performed or to be
performed for the Company or any Affiliate, division or business unit of the
Company.  Any income or gain realized pursuant
to Awards under the Plan and any Stock Appreciation Rights constitute a special
incentive payment to the Participant and shall not be taken into account, to
the extent permissible under Applicable Law, as compensation for purposes of
any of the employee benefit plans of the Company or any Affiliate except as may
be determined by the Committee or by the Board or board of directors of the
applicable Affiliate.

13.7         Other
Plans.  Nothing contained in the Plan
shall prevent the Board from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.

13.8         Severability.  If any provision of the Plan shall be held
unlawful or otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (a) be 

 17
 

 

deemed limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited shall remain in
full force and effect, and (b) not affect any other provision of the Plan
or part thereof, each of which shall remain in full force and effect.  If the making of any payment or the provision
of any other benefit required under the Plan shall be held unlawful or
otherwise invalid or unenforceable by a court of competent jurisdiction, such
unlawfulness, invalidity or unenforceability shall not prevent any other
payment or benefit from being made or provided under the Plan, and if the
making of any payment in full or the provision of any other benefit required
under the Plan in full would be unlawful or otherwise invalid or unenforceable,
then such unlawfulness, invalidity or unenforceability shall not prevent such
payment or benefit from being made or provided in part, to the extent that it
would not be unlawful, invalid or unenforceable, and the maximum payment or
benefit that would not be unlawful, invalid or unenforceable shall be made or
provided under the Plan.

13.9         Construction.  All references in the Plan to “Section,” “Sections,” or “Article”
are intended to refer to the Section, Sections or Article, as the case may be,
of the Plan.  As used in the Plan, the
words “include” and “including,” and variations thereof, shall
not be deemed to be terms of limitation, but rather shall be deemed to be
followed by the words “without limitation.”

13.10       Unfunded
Status of the Plan.  The Plan is
intended to constitute an “unfunded”
plan for incentive and deferred 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 the Shares or payments in lieu of or with
respect to Awards hereunder; provided, however, that the existence of such
trusts or other arrangements is consistent with the unfunded status of the
Plan.

13.11       Governing
Law.  The Plan and all determinations
made and actions taken thereunder, to the extent not otherwise governed by the
Code or the laws of the United States, shall be governed by the laws of the
State of Delaware and construed accordingly.

13.12       Effective
Date of Plan; Termination of Plan. 
The Plan shall be effective on the date of its adoption by the Board,
subject to the approval of the Plan, within 12 months thereafter, by
affirmative votes representing a majority of the votes cast under Applicable
Laws at a duly constituted meeting of the stockholders of the Company or by
written consent of stockholders holding a majority of the issued and
outstanding Shares.  After the adoption
of this Plan by the Board, Awards may be made, but all such Awards shall be
subject to stockholder approval of this Plan in accordance with the first
sentence of this Section 13.12, and no Options or Stock Appreciation Rights may
be exercised prior to such stockholder approval of the Plan.  If the stockholders do not approve this Plan
in the manner set forth in the first sentence of this Section 13.12, this Plan,
and all Awards granted hereunder, shall be null and void and of no effect.  Awards may be granted under the Plan at any
time and from time to time on or prior to the tenth anniversary of the
effective date of the Plan (unless the Board sooner suspends or terminates the
Plan under Section 12.1), on which date the Plan will expire except as to
Awards then outstanding under the Plan. 
Notwithstanding the foregoing, unless affirmative votes representing a
majority of the votes cast under Applicable Laws approve the continuation of
Article X at the first duly constituted meeting of the stockholders of the
Company that occurs in the fifth year following the effective date of this
Plan, no Awards other than Options or Stock Appreciation Rights shall be made
to Covered Employees following the date of such meeting.  Except as set forth in the third sentence of
this Section 13.12, outstanding Awards shall remain in effect until they have
been exercised or terminated, or have expired.

 18
 

 

13.13       Foreign
Employees.  Awards may be granted to
Participants who are foreign nationals or employed outside the United States,
or both, on such terms and conditions different from those applicable to Awards
to Employees employed in the United States as may, in the judgment of the
Committee, be necessary or desirable in order to recognize differences in local
law or tax policy.  The Committee also may
impose conditions on the exercise or vesting of Awards in order to minimize the
Company’s obligation with respect to tax equalization for Employees on
assignments outside their home country.

13.14       Effect
on Prior Plan.  On the approval of
this Plan by the stockholders of the Company in the manner set forth in Section
13.12, the Prior Plan shall be cancelled and no further grants or awards shall
be made under the Prior Plan.  Grants and
awards made under the Prior Plan before the date of such cancellation, however,
shall continue in effect in accordance with their terms.

13.15       Section
409A of the Code.  The Committee
shall take no action under this Plan that would subject a Participant to a
penalty tax under Section 409A of the Code.

13.16       Other
Company Compensation Plans.  Shares
available for Awards under the Plan may be used by the Company as a form of
payment of compensation under other Company compensation plans, whether or not
existing on the date hereof.  To the
extent any Shares are used as such by the Company, such Shares will reduce the
then number of Shares available under Article III of the Plan for future
Awards.

13.17       Captions.  The captions in the Plan are for convenience
of reference only, and are not intended to narrow, limit or affect the substance
or interpretation of the provisions contained herein.

 

 19Exhibit
10.28

CPI
INTERNATIONAL, INC.

2006 EMPLOYEE STOCK PURCHASE PLAN

(Reflecting July 1, 2006 and December 7, 2006
Amendments)

The
following constitute the provisions of the 2006 Employee Stock Purchase Plan of
CPI International, Inc.:

1.             Purpose.  The purpose of the Plan is to provide
employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll
deductions.  It is the intention of the
Company to have the Plan qualify as an “Employee Stock Purchase Plan” under
Section 423 of the Code.  The provisions
of the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.

2.             Definitions.  As used herein, the following definitions
shall apply:

(a)           “Administrator” means either the Board or a
committee of the Board that is responsible for the administration of the Plan
as is designated from time to time by resolution of the Board.

(b)           “Applicable Laws” means the legal requirements
relating to the administration of employee stock purchase plans, if any, under
applicable provisions of federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock exchange or
national market system, and the rules of any foreign jurisdiction applicable to
participation in the Plan by residents therein.

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

(d)           “Change in Control” shall be deemed to occur upon:

(1)           the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more (on a fully diluted basis) of either (A) the then
outstanding shares of Common Stock of the Company, taking into account as
outstanding for this purpose such Common Stock issuable upon the exercise of
options or warrants, the conversion of convertible stock or debt, and the
exercise of any similar right to acquire such Common Stock (the “Outstanding
Company Common Stock”) or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided,
however, that for purposes of this Plan, the following acquisitions
shall not constitute a Change in Control: 
(I) any acquisition by the Company or any Parent, Subsidiary or
Designated Holder, (II) any acquisition by any employee benefit plan sponsored
or maintained by the Company or any Parent, Subsidiary or Designated Holder, or
(III) in respect of an Award held by a particular Participant, any acquisition
by the Participant or any group of persons including the Participant (or any
entity controlled by the Participant or any group of persons including the
Participant);

 

(2)           individuals
who, on the Effective Date, constitute the Board (the “Incumbent Directors”)
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof, whose
election or nomination for election was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board (either by a specific vote
or by approval of a registration statement of the Company describing such
person’s inclusion on the Board, or a proxy statement of the Company in which
such person is named as a nominee for director, without written objection to
such nomination) shall be an Incumbent Director; provided, however,
that no individual initially elected or nominated as a director of the Company
as a result of an actual or threatened election contest, as such terms are used
in Rule 14a-11 of Regulation A promulgated under the Exchange Act, with respect
to directors or as a result of any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than the Board shall be
deemed to be an Incumbent Director;

(3)           the
dissolution or liquidation of the Company;

(4)           the
sale, transfer or other disposition of all or substantially all of the business
or assets of the Company, other than any such sale, transfer or other
disposition to one or more Designated Holders; or

(5)           the
consummation of a reorganization, recapitalization, merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the
Company that requires the approval of the Company’s stockholders, whether for
such transaction or the issuance of securities in the transaction (a “Business
Combination”), unless immediately following such Business Combination:  (A) more than 50% of the total voting power
of (x) the entity resulting from such Business Combination (the “Surviving
Company”), or (y) if applicable, the ultimate parent entity that directly
or indirectly has beneficial ownership of sufficient voting securities eligible
to elect a majority of the members of the Board of Directors (or the analogous
governing body) of the Surviving Company (the “Parent Company”), is
represented by the Outstanding Company Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which the Outstanding Company Voting Securities were
converted pursuant to such Business Combination), and such voting power among
the holders thereof is in substantially the same proportion as the voting power
of the Outstanding Company Voting Securities among the holders thereof
immediately prior to the Business Combination, and (B) at least a majority of
the members of the Board of Directors (or the analogous governing body) of the
Parent Company (or, if there is no Parent Company, the Surviving Company)
following the consummation of the Business Combination were Board members at
the time of the Board’s approval of the execution of the initial agreement
providing for such Business Combination.

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

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

(g)           “Company”
means CPI International, Inc., a Delaware corporation.

 2
 

 

(h)           “Compensation”
means an Employee’s base salary from the Company or one or more Designated
Subsidiaries, including such amounts of base salary as are deferred by the
Employee (i) under a qualified cash or deferred arrangement described in
Section 401(k) of the Code, or (ii) to a plan qualified under Section 125 of
the Code.  Compensation does not include
overtime, commissions, bonuses, reimbursements or other expense allowances,
fringe benefits (cash or noncash), moving expenses, deferred compensation,
contributions (other than contributions described in the first sentence) made
on the Employee’s behalf by the Company or one or more Subsidiaries under any
employee benefit or welfare plan now or hereafter established, and any other
payments not specifically referenced in the first sentence.

(i)            “Designated
Holder” means Cypress Merchant Banking Partners II L.P., a Delaware limited
partnership, Cypress Merchant B II C.V., a Netherlands limited partnership,
55th Street Partners II L.P., a Delaware limited partnership, and Cypress
Side-by-Side LLC, a Delaware limited liability company.

(j)            “Designated
Subsidiary” means a Subsidiary that has been designated by the
Administrator from time to time for participation in this Plan.

(k)           “Effective
Date” means the date the Administrator deems appropriate to commence the
first Offer Period.  However, should any
Designated Subsidiary become a participating company in the Plan after such
date, then such entity shall designate a separate Effective Date with respect
to its employee-participants.

(l)            “Employee”
means any individual, including an officer or director, who is an employee of
the Company or a Designated Subsidiary for purposes of Section 423 of the Code.

(m)          “Enrollment
Date” means the first day of each Offer Period.

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

(o)           “Exercise
Date” means the last day of each Purchase Period.

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

(i)            If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation, the National Market System of NASDAQ, the Fair Market Value of a
share of Common Stock will be (i) the closing sales price for such shares
of Common Stock (or the closing bid, if no sales are reported) as quoted on
that system or exchange (or the system or exchange with the greatest volume of
trading in Common Stock) on the last market trading day prior to the day of
determination or (ii) any sales price for such shares of Common Stock (or
the closing bid, if no sales are reported) as quoted on that system or exchange
(or the system or exchange with the greatest volume of trading in Common Stock)
on the day of determination, as the Administrator may select, in each case as
reported in 

 3
 

 

the
Wall Street Journal or any other source the Administrator considers reliable.

(ii)           If the Common Stock is quoted on the
NASDAQ System (but not on the NASDAQ National Market System) or is regularly
quoted by recognized securities dealers but selling prices are not reported,
the Fair Market Value of a share of Common Stock will be the mean between the
high bid and low asked prices for the Common Stock on (i) the last market
trading day prior to the day of determination or (ii) the day of
determination, as the Administrator may select, in each case as reported in the
Wall Street Journal or any other source the Administrator considers reliable.

(iii)          If the Common Stock is not traded as
set forth above, the Fair Market Value will be determined in good faith by the
Administrator with reference to the earnings history, book value and prospects
of the Company in light of market conditions generally, and any other factors
the Administrator considers appropriate, such determination by the Committee to
be made in a manner consistent with Proposed Regulation Section
1.409A-1(b)(5)(iv) or successor IRS guidance, and to be final, conclusive and
binding.

(q)           “Offer
Period” means an Offer Period established pursuant to Section 4 hereof.

(r)            “Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

(s)           “Participant”
means an Employee of the Company or Designated Subsidiary who is actively
participating in the Plan.

(t)            “Plan”
means this CPI International, Inc. Employee Stock Purchase Plan.

(u)           “Purchase
Period” means a period specified as such pursuant to Section 4(b) hereof.

(v)           “Purchase
Price” shall mean the purchase price for a share of Common Stock for a
Purchase Period, which shall be determined by the Administrator before the
beginning of the Offer Period that contains such Purchase Period to be either:

i)              A fixed percentage (to be determined in the
Administrator’s discretion before the beginning of such Offer Period, but not
to be less than 85%) of the Fair Market Value of a share of Common Stock on the
Exercise Date, or

ii)             The lesser of (A) a fixed
percentage (to be determined in the Administrator’s discretion before the
beginning of such Offer Period, but not to be less than 85%) of the Fair Market
Value of a share of Common Stock on the Exercise Date, and (B) a fixed
percentage (to be determined in the Administrator’s discretion before the
beginning of such Offer Period, but not to be less than 85%) of the Fair Market
Value of a share of Common Stock on the Enrollment Date.

 4
 

 

(w)          “Reserves”
means the sum of the number of shares of Common Stock covered by each option
under the Plan which have not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under the Plan but not yet
placed under option.

(x)            “Subsidiary” means a “subsidiary corporation,”
whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.             Eligibility.

(a)           General.  Any
individual who is an Employee on a given Enrollment Date shall be eligible to
participate in the Plan for the Offer Period commencing with such Enrollment
Date.

(b)           Limitations on Grant and Accrual.  Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan if, (i)
immediately after the grant, such Employee (taking into account stock owned by
any other person whose stock would be attributed to such Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary, or (ii) which permits the Employee’s rights to purchase stock under
all employee stock purchase plans of the Company and its Subsidiaries to accrue
at a rate which exceeds $25,000 worth of stock (determined at the Fair Market
Value of the shares at the time such option is granted) for each calendar year
in which such option is outstanding at any time.  The determination of the accrual of the right
to purchase stock shall be made in accordance with Section 423(b)(8) of the
Code and the regulations there under.

(c)           Other Limits on Eligibility.  Notwithstanding Subsection (a), above, the
following Employees shall not be eligible to participate in the Plan for any
relevant Offer Period: (i) Employees whose customary employment is 20 hours or
less per week; (ii) Employees whose customary employment is for not more than
five months in any calendar year;  and
(iii)  Employees who are subject to rules
or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.

4.             Offer
Periods.

(a)           The Plan shall be implemented through overlapping or
consecutive Offer Periods until such time as (i) the maximum number of shares
of Common Stock available for issuance under the Plan shall have been
purchased, or (ii) the Plan shall have been sooner terminated in accordance
with Section 19 hereof.  The duration of
each Offer Period shall be set in advance by the Administrator, and no Offer
Period shall have a duration greater than 24 months.

(b)           A Participant shall be granted a separate option for each
Offer Period in which he or she participates. 
The option shall be granted on the Enrollment Date and shall be
automatically exercised on the last day of the Offer Period.  However, with respect to any Offer Period,
the Administrator may specify shorter Purchase Periods within an Offer Period,
such that the option granted on the Enrollment Date shall be automatically
exercised 

 5
 

 

in successive installments on the last day of
each Purchase Period ending within the Offer Period.

(c)           Except as specifically provided herein, the acquisition of
Common Stock through participation in the Plan for any Offer Period shall
neither limit nor require the acquisition of Common Stock by a Participant in
any subsequent Offer Period.

5.             Participation.

(a)           An eligible Employee may become a Participant in the Plan
by completing a subscription agreement authorizing payroll deductions on such
form the Administrator designates for evidencing elections to participate in
this Plan and filing it in accordance with procedures established by the
Administrator for such purpose at least 10 business days prior to the
Enrollment Date for the Offer Period in which such participation will commence,
unless a later time for filing the subscription agreement is set by the
Administrator for all eligible Employees with respect to a given Offer Period
or the Administrator establishes another procedure for an eligible Employee to
become a Participant in the Plan.

(b)           Payroll deductions for a Participant shall commence with
the first scheduled payroll date beginning on the Enrollment Date and shall end
on the last scheduled payroll date during the Offer Period, unless sooner
terminated by the Participant as provided in Section 10.

6.             Payroll
Deductions.

(a)           At
the time a Participant files a subscription agreement, the Participant shall
elect to have payroll deductions made during the Offer Period in a fixed dollar
amount or a fixed whole percentage of his Compensation, in accordance with
uniform rules established by the Administrator, but such payroll deductions
shall not exceed 10% of such Participant’s Compensation in effect on the dates
that such deductions are made.

(b)           All
payroll deductions made for a Participant shall be credited to the Participant’s
account under the Plan.

(c)           A
Participant may discontinue participation in the Plan as provided in Section
10, during the Offer Period by completing and filing with the Company a change
of status notice on the form established by the Administrator for such purpose
authorizing a suspension of the Participant’s payroll deductions.  Any such suspension shall be effective with
the first scheduled payroll date commencing 10 business days after the Company’s
receipt of the change of status notice unless the Company elects to process a
given change in participation more quickly.

(d)           Notwithstanding
the foregoing, to the extent necessary to comply with the limits set forth in
Section 423(b)(8) of the Code and Section 3(b) herein, a Participant’s payroll
deductions shall be decreased to zero dollars ($0).  Payroll deductions shall recommence at the
rate provided in such Participant’s subscription agreement, as amended, at the
time when permitted under Section 423(b)(8) of the Code and Section 3(b)
herein, unless such participation is sooner terminated by the Participant as
provided in Section 10.

 6
 

 

7.             Grant of
Option.  On the Enrollment Date of
each Offer Period, each eligible Employee participating in such Offer Period
shall be granted an option to purchase on the Exercise Date of such Offer
Period (at the applicable Purchase Price) up to a number of shares of the
Company’s Common Stock determined by dividing such Employee’s payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant’s account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during
each Offer Period more than the number of shares of Common Stock determined by
dividing $25,000 by the Fair Market Value of one share of Common Stock on the
first day of the Offer Period, such limit to be adjusted ratably by the
Administrator for Offer Periods greater than or less than 12 months (subject to
any adjustment pursuant to Section 18), and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12
hereof.  Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof.  The
Employee may accept the grant of such option by turning in a completed and
signed subscription agreement to the Company on or prior to the first day of
the Offer Period, or with respect to the first Offer Period, within the time
frame permitted under Section 5(a) above. 
The Administrator may, for future Offer Periods, increase or decrease,
in its absolute discretion, the maximum number of shares of the Company’s
Common Stock an employee may purchase during an Offer Period.  Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant to
Section 10 hereof.  The option shall
expire on the last day of the Offer Period.

8.             Exercise
of Option.  Unless a participant
withdraws from the Plan as provided in Section 10 hereof, his or her option for
the purchase of shares shall be exercised automatically on the Exercise Date,
and the maximum number of full and fractional shares subject to option shall be
purchased for such participant at the applicable Purchase Price with the
accumulated payroll deductions in his or her account.  During a participant’s lifetime, a
participant’s option to purchase shares hereunder is exercisable only by him or
her.

9.             Delivery.  Upon receipt of a request from a Participant
after each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to such Participant, as promptly as practicable, of a
certificate or book entry representing the shares purchased upon exercise of
the Participant’s option.

10.           Withdrawal;
Termination of Employment.

(a)           A Participant may either (i) withdraw all but not less
than all the payroll deductions credited to the Participant’s account and not
yet used to exercise the Participant’s option under the Plan or (ii) terminate
future payroll deductions, but allow accumulated payroll deductions to be used
to exercise the Participant’s option under the Plan, at any time by giving
written notice to the Administrator on the form established by the
Administrator for such purpose.  If the
Participant elects withdrawal alternative (i) described above, all of the
Participant’s payroll deductions credited to the Participant’s account will be
paid to such Participant as promptly as practicable after receipt of notice of
withdrawal.  If the Participant elects
withdrawal alternative (ii) described above, no further payroll deductions for
the purchase of shares will be made during the Offer Period (unless the
Participant resumes payroll deductions during the Offer Period under rules
adopted by 

 7
 

 

the Administrator), and all of the
Participant’s payroll deductions credited to the Participant’s account will be
applied to the exercise of the Participant’s option on the next Exercise
Date.  The Administrator, in its
discretion, may adopt rules under which a Participant who withdraws from an
Offer Period may rejoin the Offer Period or participate in later Offer Periods,
and rules under which a Participant who terminates payroll deductions during an
Offer Period may resume payroll deductions during the Offer Period or a later
Offer Period; provided, however, that (I) the rules in effect at any time shall
be uniform for all Participants, and (II) the Administrator may, in its
discretion, adopt rules under which a Participant who withdraws from an Offer
Period, or who terminates payroll deductions during an Offer Period, will not
be permitted to rejoin that Offer Period or to resume payroll deductions during
that Offer Period.

(b)           Upon termination of a Participant’s employment
relationship for any reason whatsoever, including with or without cause, at a
time more than three (3) months from the next scheduled Exercise Date, the
payroll deductions credited to such Participant’s account during the Offer
Period but not yet used to exercise the option will be returned to such
Participant or, in the case of his/her death, to the person or persons entitled
thereto under Section 14, and such Participant’s option will be automatically
terminated.  Upon termination of a
Participant’s employment relationship for any reason whatsoever, including with
or without cause, within three (3) months from the next scheduled Exercise
Date, the payroll deductions credited to such Participant’s account during the
Offer Period, but not yet used to exercise the option, will be returned to such
Participant (or, in the case of his/her death, to the person or persons
entitled thereto under Section 14) as of such Exercise Date, unless, before
such Exercise Date, the Participant (or, in the case of his/her death, the
person or persons entitled to the Participant’s account balance under Section
14) notifies the Administrator in the manner determined by the Administrator in
its discretion that the Participant (or, in the case of his/her death, the
person or persons entitled to the Participant’s account balance under Section
14) desires to purchase Common Stock as of the next scheduled Exercise Date, in
which case the payroll deductions credited to such Participant’s account during
the Offer Period, but not yet used to exercise the option, will be applied to
the purchase of Common Stock on the next Exercise Date.  In such a case, no further payroll deductions
will be credited to the Participant’s account following the Participant’s
termination of employment and the Participant’s option under the Plan will be
automatically terminated after the purchase of Common Stock on the next
scheduled Exercise Date.

11.           Interest.  No interest shall accrue on the payroll
deductions credited to a Participant’s account under the Plan

12.           Stock;
Maximum Purchasable.

(a)           The
maximum number of shares of Common Stock which shall be made available for sale
under the Plan shall be 760,000 shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18.  In addition, the Administrator may, in its
discretion, impose a maximum limit on the number of shares of Common Stock
available for sale during any Offer Period or Purchase Period.  If the Administrator determines that on a
given Exercise Date the number of shares with respect to which options are to
be exercised may exceed (x) the number of shares then available for sale under
the Plan or (y) the number of shares available for sale under the Plan on the 

 8
 

 

Enrollment Date of the Offer Period, or on the first day of a Purchase
Period, in which such Exercise Date is to occur, the Administrator may make a
pro rata allocation of the shares remaining available for purchase on such
Enrollment Dates or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine to be equitable, and shall
either continue all Offer Periods then in effect or terminate any one or more
Offer Periods then in effect pursuant to Section 19, below.

(b)           A
Participant will have no interest or voting right in shares covered by the
Participant’s option until such shares are actually purchased on the Participant’s
behalf in accordance with the applicable provisions of the Plan.  No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.

(c)           Shares
to be delivered to a Participant under the Plan will be registered in the name
of the Participant, in the name of the Participant and his or her spouse, or in
the name of a grantor trust (within the meaning of Sections 671 et seq. of the
Code) of which the Participant is the grantor.

13.           Administration.

(a)           In
General.  The Plan shall be
administered by the Administrator which shall have full and exclusive
discretionary authority to construe, interpret and apply the terms of the Plan,
to determine eligibility and to adjudicate all disputed claims filed under the
Plan.  Every finding, decision and
determination made by the Administrator shall, to the full extent permitted by
Applicable Law, be final and binding upon all persons.  Except as set forth in Section 13(b), the
Administrator may delegate its duties to one or more officers of the Company or
other persons.

(b)           Rule
16b-3 Limitations.  Notwithstanding
the provisions of Section 13(a), in the event that the Company shall at any
time be subject to Section 16 promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and Rule 16b-3 promulgated there under
or any successor provision (“Rule 16b-3”) provides specific requirements for
the administrators of plans of this type, then at such time the Plan shall be administered
with respect to Participants who are “officers” within the meaning of Rule
16a-1(f) only by such a body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3; provided, however, that no failure of
the Administrator to meet such applicable requirements of Rule 16b-3 shall
render ineffective or void any option granted under this Plan.

14.           Designation
of Beneficiary.

(a)           Each
Participant will file a written designation of a beneficiary who is to receive
any shares and cash, if any, from the Participant’s account under the Plan in
the event of such Participant’s death. 
If a Participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.

(b)           Such
designation of beneficiary may be changed by the Participant (and the
Participant’s spouse, if any) at any time by written notice.  In the event of the death of a Participant
and in the absence of a beneficiary validly designated under the Plan who is 

 9
 

 

living (or in existence) at the time of such Participant’s death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Administrator), the Administrator shall
deliver such shares and/or cash to the spouse (or domestic partner, as
determined by the Administrator) of the Participant, or if no spouse (or
domestic partner) is known to the Administrator, then to the issue of the
Participant, such distribution to be made per stripes (by right of
representation), or if no issue are known to the Administrator, then to the
heirs at law of the Participant determined in accordance with Section 27.

15.           Transferability.  Neither payroll deductions credited to a
Participant’s account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14 hereof) by the Participant.  Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw funds from an Offer
Period in accordance with Section 10.

16.           Use of
Funds.  All payroll deductions
received or held by the Company under the Plan may be used by the Company for
any corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.

17.           Reports.  Individual accounts will be maintained for
each Participant in the Plan.  Statements
of account will be made available to Participants electronically, or in
hardcopy if requested, at least annually, which statements will set forth the
amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.

18.           Adjustments
Upon Changes in Capitalization; Changes in Control.

(a)           Adjustments
Upon Changes in Capitalization. 
Subject to any required action by the stockholders of the Company
pursuant to Section 423 of the Code or Applicable Law, the Reserves, the
Purchase Price, the maximum number of shares that may be purchased in any Offer
Period or Purchase Period, as well as any other terms that the Administrator
determines require adjustment, shall be equitably and proportionately adjusted
for (i) any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, dividend or distribution
(whether in the form of stock or property, but excluding any cash dividend or
distribution), combination or reclassification of the Common Stock, (ii) any
other increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company, or (iii) any reorganization,
recapitalization, merger, consolidation, spin-off, combination, exchange of
Common Stock or other corporate exchange or any transaction similar to the
foregoing; provided, however that conversion of any convertible securities of
the Company shall not be deemed to have been “effected without receipt of
consideration.”  Such adjustment shall be
made by the Administrator in accordance with the rules of Section 424(a) of the
Code, and its determination shall be final, binding and conclusive.  Except as the Administrator determines, no
issuance by the Company of shares of stock of any class, 

 10
 

 

or securities convertible into shares of stock of any class shall
affect, and no adjustment by reason hereof shall be made with respect to, the
Reserves and the Purchase Price..

(b)           Changes
in Control.  In the event of a
proposed Change in Control, each option under the Plan shall be assumed by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Administrator determines, in the exercise of its sole discretion and
in lieu of such assumption, to shorten the Offer Period then in progress by
setting a new Exercise Date (the “New Exercise Date”).  If the Administrator shortens the Offer
Period then in progress in lieu of assumption in the event of a Change in
Control, the Administrator shall notify each Participant in writing, at least
ten (10) days prior to the New Exercise Date, that the Exercise Date for the
Participant’s option has been changed to the New Exercise Date and that the
Participant’s option will be exercised automatically on the New Exercise Date,
unless prior to such date the Participant has withdrawn from the Offer Period
as provided in Section 10.  For purposes
of this Subsection, an option granted under the Plan shall be deemed to be
assumed if, in connection with the Change in Control, the option is replaced
with a comparable option with respect to shares of capital stock of the
successor corporation or Parent thereof. 
The determination of option comparability shall be made by the
Administrator prior to the Change in Control and its determination shall be
final, binding and conclusive on all persons.

(c)           Dissolution
or Liquidation.  In the event of the
proposed dissolution or liquidation of the Company, the Offer Period shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board.

19.           Amendment
or Termination.

(a)           The Administrator may at any time and for any reason
terminate or amend the Plan.  Except as
provided in Section 18, no such termination can affect options previously
granted, provided that the Plan or any one or more Offer Periods may be
terminated by the Administrator on any Exercise Date or by the Administrator
establishing a new Exercise Date with respect to any Offer Period and/or any
Purchase Period then in progress if the Administrator determines that the
termination of the Plan or such one or more Offer Periods is in the best
interests of the Company and its stockholders. 
Except as provided in Section 18 and this Section 19, no amendment may
make any change in any option theretofore granted which adversely affects the
rights of any Participant without the consent of affected Participants.  To the extent necessary to comply with
Section 423 of the Code (or any successor rule or provision or any other
Applicable Law), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.

(b)           Without
stockholder consent and without regard to whether any Participant rights may be
considered to have been “adversely affected,” the Administrator shall be
entitled to limit the frequency and/or number of changes in the amount withheld
during Offer Periods, change the amount of shares of Common Stock available for
purchase during an Offer Period or a Purchase Period, change the length of
Purchase Periods within any Offer Period, determine the length of any future
Offer Period, determine whether future Offer Periods shall be consecutive or
overlapping, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, establish additional terms, 

 11
 

 

conditions, rules or procedures to accommodate the rules or laws of
applicable foreign jurisdictions, permit payroll withholding in excess of the
amount designated by a Participant in order to adjust for delays or mistakes in
the Company’s processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each Participant properly correspond with amounts withheld from the
Participant’s Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion advisable and which are
consistent with the Plan.

(c)           In
the event the Board determines that the ongoing operation of the Plan may
result in unfavorable financial accounting consequences, the Board may, in its
discretion and, to the extent necessary or desirable, modify or amend the Plan
to reduce or eliminate such accounting consequence including, but not limited
to:

(1)           altering
the Purchase Price for any Offer Period including an Offer Period underway at
the time of the change in Purchase Price;

(2)           shortening
any Offer Period so that Offer Period ends on a new Exercise Date, including an
Offer Period underway at the time of the Board action; and

(3)           allocating
shares.

Such
modifications or amendments shall not require stockholder approval or the
consent of any Participants.

20.           Notices.  All notices or other communications by a
Participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the
Administrator at the location, or by the person, designated by the
Administrator for the receipt thereof.

21.           Conditions
Upon Issuance of Shares.  Shares
shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.  As a condition to the exercise of an option,
the Company may require the Participant to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned Applicable Laws.  In
addition, no options shall be exercised or shares issued hereunder before the
Plan shall have been approved by stockholders of the Company as provided in
Section 23.

22.           Term of
Plan.  The Plan shall become
effective upon the earlier to occur of its adoption by the Board or its
approval by the stockholders of the Company. 
It shall continue in effect until all shares of Common Stock authorized
for sale under Section 12(a) have been sold, unless earlier terminated by the
Administrator under Section 19.

23.           Plan
Approval.  The Plan was originally
adopted by the Board and by the Company’s stockholders on April 6, 2006,
effective as of April 7, 2006.

 12
 

 

24.           No
Employment Rights.  The Plan does
not, directly or indirectly, create any right for the benefit of any employee
or class of employees to purchase any shares under the Plan, or create in any
employee or class of employees any right with respect to continuation of
employment by the Company or a Subsidiary, and it shall not be deemed to
interfere in any way with such employer’s right to terminate, or otherwise
modify, an employee’s employment at any time for any reason, including with or
without cause.

25.           No
Effect on Retirement and Other Benefit Plans.  Except as specifically provided in a
retirement or other benefit plan of the Company or a Subsidiary, participation
in the Plan shall not be deemed compensation for purposes of computing benefits
or contributions under any retirement plan of the Company or a Subsidiary, and
shall not affect any benefits under any other benefit plan of any kind or any
benefit plan subsequently instituted under which the availability or amount of
benefits is related to level of compensation. 
The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee
Retirement Income Security Act of 1974, as amended.

26.           Effect
of Plan.  The provisions of the Plan
shall, in accordance with its terms, be binding upon, and inure to the benefit
of, all successors of each Participant, including, without limitation, such
Participant’s estate and the executors, administrators or trustees thereof,
heirs and legatees, and any receiver, trustee in bankruptcy or representative
of creditors of such Participant.

27.           Governing
Law.  The Plan is to be construed in
accordance with and governed by the internal laws of the State of Delaware (a)
without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Delaware to the rights and duties of the parties, except to the extent
the internal laws of the State of Delaware are superseded by the laws of the
United States, and (b) regardless of any provision in an employment agreement
that designates the applicable law for purposes of such employment agreement to
be other than the laws of the State of Delaware.  Should any provision of the Plan be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.

28.           Dispute
Resolution.  Any claim or controversy
between the parties which the parties are unable to resolve themselves arising
out of or relating to the Plan, including any claim arising out of, connected
with, or related to the formation, interpretation, performance or breach of any
provision of this Plan, and any claim or dispute as to whether a claim is
subject to arbitration, shall be submitted to and resolved exclusively by
expedited arbitration by a single arbitrator in accordance with the following
procedures:

(a)           In the event of a claim or controversy subject to this
arbitration provision, the complaining party shall promptly send written notice
to the other party identifying the matter in dispute and the proposed
remedy.  Following the giving of such
notice, the parties shall meet and attempt in good faith to resolve the
matter.  In the event the parties are
unable to resolve the matter within 21 days, the parties shall meet and attempt
in good faith to select a single arbitrator acceptable to both parties.  If a single arbitrator is not selected by
mutual consent within 10 business days following the giving of the written
notice of dispute, an arbitrator shall be selected from a list of nine persons
each of whom 

 13
 

 

shall be an
attorney who is either engaged in the active practice of law or a recognized
arbitrator and who, in either event, is experienced in serving as an arbitrator
in disputes between employers and employees, which list shall be provided by
the office of the American Arbitration Association (“AAA”) or of the Federal
Mediation and Conciliation Service having jurisdiction over Palo Alto,
California. If, within three business days of the parties’ receipt of such
list, the parties are unable to agree upon an arbitrator from the list, then
the parties shall each strike names alternatively from the list, with the first
to strike being determined by the flip of a coin.  After each party has had four strikes, the remaining
name on the list shall be the arbitrator. 
If such person is unable to serve for any reason, the parties shall
repeat this process until an arbitrator is selected.

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

(c)           In
any arbitration hereunder, the Company shall pay all administrative fees of the
arbitration and all fees of the arbitrator, except that the Participant or
Beneficiary may, if he wishes, pay up to one-half of those amounts.  Each party shall pay its own attorneys’ fees,
costs, and expenses, unless the arbitrator orders otherwise.  The prevailing party in such arbitration, as
determined by the arbitrator, and in any enforcement or other court
proceedings, shall be entitled, to the extent permitted by law, to
reimbursement from the other party for all of the prevailing party’s costs
(including but not limited to the arbitrator’s compensation), expenses, and
attorneys’ fees.  The arbitrator shall
have no authority to add to or to modify this Plan, shall apply all applicable
law, and shall have no lesser and no greater remedial authority than would a
court of law resolving the same claim or controversy. The arbitrator shall,
upon an appropriate motion, dismiss any claim without an evidentiary hearing if
the party bringing the motion establishes that it would be entitled to summary
judgment if the matter had been pursued in court litigation.  The parties shall be entitled to reasonable
discovery subject to the discretion of the arbitrator.

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

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

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

 14
 

 

(g)           Any
arbitration hereunder shall be conducted in accordance with the employment
rules and procedures of the AAA then in effect; provided, however, that, in the
event of any inconsistency between the rules and procedures of the AAA and the
terms of this Plan, the terms of this Plan shall prevail.

(h)           If
any of the provisions of this Section 28 are determined to be unlawful or
otherwise unenforceable, in whole or in part, such determination shall not
affect the validity of the remainder of this Section 28, and this Section 28
shall be reformed to the extent necessary to carry out its provisions to the
greatest extent possible and to insure that the resolution of all conflicts
between the parties, including those arising out of statutory claims, shall be
resolved by neutral, binding arbitration. 
If a court should find that the provisions of this Section 28 are not
absolutely binding, then the parties intend any arbitration decision and award
to be fully admissible in evidence in any subsequent action, given great weight
by any finder of fact, and treated as determinative to the maximum extent
permitted by law.

 

 15

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