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Unassociated Document

    EXHIBIT
10.9

    

    EMPLOYMENT
AGREEMENT WITH KENNETH H. VOLZ

    EXECUTIVE
VICE PRESIDENT, CHIEF FINANCIAL OFFICER & TREASURER

    

    This
Employment
Agreement (this “Agreement”) is made and
entered into as of February 12, 2010 and shall be effective April 11, 2010 (the
“Effective Date”), by
and between Warwick
Valley Telephone Company (the “Company”) and Kenneth H.
Volz (“Executive”).

     

     

    
      	
              1.  

            	
              Employment.

            

    

     

    The
Company hereby agrees to employ Executive, and Executive hereby agrees to be
employed by the Company, upon the terms and subject to the conditions set forth
in this Agreement.

     

     

    
      	
              2.  

            	
              Term
      of Employment.

            

    

     

    (a) The
period of Executive’s employment under this Agreement shall begin as of the
Effective Date and shall continue until April 10, 2012 (the “Initial Term”), and shall be
renewed automatically for successive one-year periods thereafter (each, a “Renewal Period”), unless
Executive or the Company gives written notice of nonrenewal to the other at
least sixty (60) days before the expiration of the Initial Term or any
subsequent Renewal Period.

     

    (b) Notwithstanding
the foregoing, Executive’s employment may be terminated by the Company or by
Executive at any time for any reason.

     

    (c) As used
in this Agreement, the term “Employment Term” refers to
Executive’s period of employment from the Effective Date until the date his
employment terminates.

     

     

    
      	
              3.  

            	
              Duties
      and Responsibilities.

            

    

     

    (a) The
Company will employ Executive as its Executive Vice President, Chief Financial
Officer and Treasurer.  In such capacity, Executive shall perform the
customary duties and have the customary responsibilities of such positions and
such other duties as may be assigned to Executive from time to time by the
President and Chief Executive Officer (the “President”) pursuant to the
President’s properly delegated authority. Executive will exercise his judgment
in accordance with the highest ethical standards.

     

    (b) Executive
agrees to faithfully serve the Company, devote his full working time, attention
and energies to the business of the Company, its subsidiaries and affiliated
entities, and perform the duties under this Agreement to the best of his
abilities.

     

    (c) Executive
agrees (i) to comply with all applicable laws, rules and regulations; (ii) to
comply with the Company’s rules, procedures, policies, requirements, and
directions; and (iii) not to engage in any other business or employment without
the written consent of the Company except as otherwise specifically provided
herein.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (d) Executive
acknowledges that he has received a copy of the Company’s Code of Ethics, that
he has read the Code of Ethics and that this Agreement does not supersede that
policy.

     

     

    
      	
              4.  

            	
              Compensation
      and Benefits.

            

    

     

    (a) Base Salary.  During
the Employment Term, the Company shall pay Executive a base salary at the annual
rate of $250,000 per year or such higher rate as may be determined annually by
the Company (“Base
Salary”). Such Base Salary, less applicable withholdings, shall be paid
in accordance with the Company’s standard payroll practice for
executives.

     

    (b) Annual
Bonus.  During the Employment Term, Executive will be eligible
to receive an Annual Bonus each year, as determined in accordance with the
Applicable Plan approved by the Board (or Compensation Committee as the case may
be) for Executive for such year. An example of the Applicable Plan for 2010 is
attached as Appendix A to this Agreement for illustration purposes only.
Subsequent measurement metrics will be determined by the Board (or Compensation
Committee as the case may be) at their sole discretion for 2010 and each
subsequent year. The Board (or Compensation Committee as the case may be) has
the right to change or eliminate the Applicable Plan in its sole discretion at
any time. The Annual Bonus to be paid to Executive in 2011 shall be based on the
Company’s financial performance in 2010, continuing in like progression with the
Annual Bonus to be paid in any year based on the Company’s prior year’s
performance. Such Annual Bonus, less applicable withholdings, shall be paid
within 2.5 months of the end of the taxable fiscal year during which it was
earned. Except as otherwise provided by Section 7, in order to be eligible to
receive payment of any portion of an Annual Bonus, Executive must be actively
employed by the Company on the payment date. Notwithstanding the foregoing,
Executive acknowledges that whether any Annual Bonus is to be paid for a given
year and the amount of that Annual Bonus is completely at the discretion of the
Board (or Compensation Committee as the case may be).

     

    (c) Incentive
Compensation.  Executive shall be eligible to receive incentive
compensation (“Incentive
Compensation”) each year, in accordance with the Applicable Plan approved
by the Board (or Compensation Committee as the case may be) for Executive for
such year. The Incentive Compensation shall be in the form of equity-based
awards (stock options and restricted stock of the Company) under the Company’s
incentive compensation plans. An example of the Applicable Plan for 2010 is
attached as Appendix A to this Agreement for illustration purposes only.
Subsequent measurement metrics will be determined by the Board (or Compensation
Committee as the case may be) at their sole discretion for 2010 and each
subsequent year. The Board (or Compensation Committee as the case may be) has
the right to change or eliminate the Applicable Plan in its sole discretion at
any time. The Incentive Compensation to be paid to Executive in 2011 shall be
based on the Company’s financial performance in 2010, continuing in like
progression with the Incentive Compensation to be paid in any year based on the
Company’s prior year performance. Such Incentive Compensation shall be delivered
to Executive within 2.5 months of the end of the taxable fiscal year during
which it was earned. Except as otherwise provided by Section 7, in order to be
eligible to receive payment of any portion of the Incentive Compensation,
Executive must be actively employed by the Company on the payment date.
Notwithstanding the foregoing, Executive acknowledges that whether any Incentive
Compensation is to be paid for a given year and the amount of that Incentive
Compensation is completely at the discretion of the Board (or Compensation
Committee as the case may be).

     

    
      
         

      

      
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    (d) Benefit Plans, Fringe Benefits and
Vacation.  Executive shall be eligible to participate in any
401(k) savings plan generally made available by the Company to other executives
in accordance with the eligibility requirements of such plans and subject to the
terms and conditions set forth in such plans, except for any pension benefit.
Executive shall be eligible to participate in any health and welfare plans made
available to other executives, including, but not limited to, any medical and
dental benefits plan, life insurance plan, short-term and long-term disability
plans, or other executive benefit or fringe benefit plan. Executive will also be
eligible to receive at least four (4) weeks of vacation per calendar year,
accrued and earned on a daily basis, as well as other types of paid time-off
(e.g., holidays, personal days, absence due to illness, etc.) according to the
Company’s vacation and paid time-off policy.

     

    (e) Housing and Travel
Allowance.  Executive has affirmed his plan to maintain a
residence in the community served by the Company. To defray the costs to
Executive of this additional residence, and the cost of occasional commutes
between his current home and Company offices, the Company will provide Executive
with a Housing and Travel Allowance of $4,800 per month for the duration of his
employment under this Agreement. The Company shall also pay Executive a tax
gross-up benefit on the Housing and Travel Allowance in an amount such that,
after the withholding of all federal and state income and employment taxes with
respect to the Housing and Travel Allowance and the tax gross-up benefit,
Executive will be in the same after-tax economic position that Executive would
have been in had the Housing and Travel Allowance not been subject to such
taxes. The Housing and Travel Allowance and tax-gross up benefit for a given
month shall be paid to Executive on the first day of such month, or as soon as
administratively practicable thereafter, but in no event later than the end of
that month.

     

    (f) Expense
Reimbursement.  The Company shall promptly reimburse Executive
for the ordinary and necessary business expenses incurred by Executive in the
performance of the duties under this Agreement in accordance with the Company’s
customary practices applicable to executives, provided that such expenses are
incurred and accounted for in accordance with the Company’s expense
reimbursement policy. Reimbursement shall be made as soon as administratively
practicable following Executive’s submission of the necessary documents and
receipts required under the Company’s expense reimbursement policy, but in no
event later than December 31st of the
calendar year following the calendar year in which the expense was
incurred.

     

    (g) Concession.  Executive
will be provided with paid PDA or mobile phone service for one electronic
device, as well as concession Telephone and Toll Service, DSL Internet Service
and in territory Digital TV service benefits consistent with those available to
other executives.

     

    (h) Indemnification.  Executive
will be covered by the Company’s standard Director’s and Officer’s
Indemnification Agreement, providing for indemnification consistent with the New
York Business Corporation Law and the Company’s by-laws.

     

    
      
         

      

      
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              5.  

            	
              Termination
      of Employment.

            

    

     

    Executive’s
employment may be terminated by the Company or by Executive at any time for any
reason. Upon termination, Executive shall be entitled to receive the
compensation and benefits described in Section 7. Executive’s employment will
terminate under the following conditions:

     

    (a) Death.  Executive’s
employment shall terminate upon Executive’s death.

     

    (b) Total
Disability.  The Company may terminate Executive’s employment
upon his becoming Totally Disabled. For purposes of this Agreement, Executive
shall be “Totally
Disabled” if Executive is physically or mentally incapacitated so as to
render Executive incapable of performing his usual and customary duties under
this Agreement without reasonable accommodation. Executive’s receipt of
disability benefits under the Company’s long-term disability plan, if any, or
receipt of Social Security disability benefits shall be deemed conclusive
evidence of Total Disability for purpose of this Agreement; provided, however,
that in the absence of Executive’s receipt of such longterm disability benefits
or Social Security benefits, the Company may, in its reasonable discretion (but
based upon appropriate medical evidence), determine that Executive is Totally
Disabled.

     

    (c) Termination
by the Company for Cause.

     

    
      	
              (i)  

            	
              The
      Company may terminate Executive’s employment for Cause at any time after
      providing written notice to
Executive.

            

    

     

    
      	
              (ii)  

            	
              For
      purposes of this Agreement, the term “Cause” shall mean any
      of the following: (A) conviction of a crime or a nolo contendere plea
      involving the alleged commission by Executive of a felony or of a criminal
      act involving, in the good faith judgment and sole discretion of the
      Board, fraud, dishonesty, or moral turpitude; (B) deliberate and continual
      refusal to perform employment duties reasonably requested by the Board
      after fifteen (15) days’ written notice by certified mail of such failure
      to perform, specifying that the failure constitutes cause (other than as a
      result of vacation, sickness, illness or injury); (C) fraud or
      embezzlement as determined by the Board; (D) gross misconduct or gross
      negligence in connection with the business of the Company or an affiliate
      which has a substantial adverse effect on the Company or the affiliate; or
      (E) breach of the terms of the confidentiality, non-solicitation and
      non-competition provisions of Section
9.

            

    

     

    
      	
              (iii)  

            	
              Regardless
      of whether Executive’s employment initially was considered to be
      terminated for any reason other than Cause, Executive’s employment will be
      considered to have been terminated for Cause for purposes of this
      Agreement if the Board subsequently determines that Executive engaged in
      an act constituting Cause during the Employment Period or Executive
      breached the terms of the terms of the confidentiality, non-solicitation
      and non-competition provisions of Section 9 after his
      termination.

            

    

     

     

    
      
         

      

      
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    (d) Termination by the Company Without
Cause.  The Company may terminate Executive’s employment at any
time under this Agreement without Cause after providing written notice to
Executive.

     

    (e) Termination by
Executive.  Executive may terminate his employment under this
Agreement after providing thirty (30) days’ written notice to the
Company.

     

    (f) Expiration of Initial Term or Renewal
Period.  In the event that either party gives written notice of
non-renewal of the Initial Term or a Renewal Period, as applicable, pursuant to
Section 2, Executive’s employment shall terminate upon the expiration of the
Initial Term or Renewal Period.

     

     

    
      	
              6.  

            	
              Return
      of Property and Information.

            

    

     

    Executive
agrees that when his employment with the Company ends, he will immediately
return to the Company all property, data, information and knowledge which are in
his possession or under his control, including without limitation all documents,
forms, correspondence, financial records and forecasts, operation manuals,
notebooks, reports, proposals, computer programs, software, software
documentation, employee handbooks, supervisor’s manuals, lists of clients and
referral sources, client data, and all copies thereof, relating in any way to
the business of the Company, whether relating to the Company directly or to a
client of the Company, made or obtained by Executive during his employment with
the Company, whether or not such data, information, or knowledge constitute
confidential or trade secret information.

     

     

    
      	
              7.  

            	
              Compensation
      Following Termination of
Employment.

            

    

     

    (a) Termination for Any
Reason.  Upon termination of Executive’s employment for any
reason under this Agreement, Executive (or his designated beneficiary or estate,
as the case may be) shall be entitled to receive the following
compensation:

     

    
      	
              (i)  

            	
              Earned but Unpaid
      Compensation.  The Company shall pay Executive any
      accrued but unpaid Base Salary for services rendered through the date of
      termination, any appropriately documented and accrued but unpaid expenses
      required to be reimbursed under this Agreement, and any unused vacation
      accrued to the date of termination.

            

    

     

    
      	
              (ii)  

            	
              Other Compensation and
      Benefits.  Except as may be provided under this
      Agreement, any benefits to which Executive may be entitled through the
      date of Executive’s termination pursuant to the plans, policies and
      arrangements referred to in Section 4(d) shall be determined and paid in
      accordance with the terms of such plans, policies and arrangements, and
      except as otherwise provided by this Agreement, Executive shall have no
      right to receive any other compensation, or to participate in any other
      plan, arrangement or benefit, with respect to future periods after such
      termination or resignation.

            

    

     

     

    
      
         

      

      
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    (b) Termination by the Company Without
Cause not in Connection With a Change in Control.  In the event
Executive’s employment is terminated without Cause before a Change in Control
(as defined by Section 7(c)(iii)) or more than twenty-four (24) months after a
Change in Control, if Executive executes the Release and Waiver required by
Section 8 and such Release and Waiver is not revoked on or before the expiration
of the revocation period thereof, and Executive has complied with the return of
property and information provision set forth in Section 6, then in addition to
the payments to be made pursuant to Section 7(a), the Company shall
also:

     

    
      	
              (i)  

            	
              Severance
      Pay.  Pay to Executive severance pay in an amount equal
      to 100% of his Base Salary in effect as of the date of his termination of
      employment. Payment of such Severance Pay shall be made in a lump sum as
      soon as administratively practicable after the date of Executive’s
      termination (or if required by Section 409A, on the six (6) month
      anniversary of his termination), but no later than ninety (90) days
      thereafter, and not before the expiration of the revocation period for the
      Release and Waiver.

            

    

     

    
      	
              (ii)  

            	
              Annual
      Bonus.  Pay to Executive the target amount of the Annual
      Bonus under the Applicable Plan for the year in which the termination of
      Executive’s employment occurs. Payment of such Annual Bonus shall be made
      in a lump sum as soon as administratively practicable after the date of
      Executive’s termination (or if required by Section 409A, on the six (6)
      month anniversary of his termination), but no later than ninety (90) days
      thereafter, and not before the expiration of the revocation period for the
      Release and Waiver.

            

    

     

    
      	
              (iii)  

            	
              Benefits
      Continuation.  Continue to provide Executive and his
      family for the one-year period following Executive’s termination with the
      health and welfare benefits, including, but not limited to, benefits under
      any medical and dental benefits plan, life insurance plan, short-term and
      long-term disability plans, or other executive benefit or fringe benefit
      plan, which Executive and his family were receiving as of the date of
      Executive’s termination. The Company shall provide such benefits at the
      same cost to Executive as the cost, if any, charged to Executive for those
      benefits at the time of his termination. To the extent that the provision
      of such benefits at the Company’s expense during the six (6) month period
      following Executive’s termination would violate the requirements of
      Section 409A, then Executive shall be required to pay to the Company the
      Company portion of the cost of such benefits during such six (6) month
      period, and the Company shall reimburse Executive for the amounts so paid
      by Executive on the six (6) month anniversary of his termination, or as
      soon as administratively practicable thereafter, but no later than ninety
      (90) days thereafter.

            

    

     

    (c) Termination by the Company Without
Cause or by Executive for Good Reason in Connection With a Change in
Control.

     

    
      	
              (i)  

            	
              In
      the event Executive’s employment is terminated by the Company without
      Cause, or by Executive for Good Reason, within the twenty-four (24) month
      period following a Change in Control, if Executive executes the Release
      and Waiver required by Section 8 and such Release and Waiver is not
      revoked on or before the expiration of the revocation period thereof, and
      Executive has complied with the return of property and information
      provision set forth in Section 6, then in addition to the payments to be
      made pursuant to 7(a), but subject to Section 7(c)(iv), the Company shall
      also:

            

    

     

    
      
         

      

      
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              (A)  

            	
              Severance
      Pay.  Pay to Executive severance pay in an amount equal
      to 150% of his
      Base Salary at its highest level in effect from the date of the Change in
      Control through his termination of employment. Payment of such Severance
      Pay shall be made in a lump sum as soon as administratively practicable
      after the date of Executive’s termination (or if required by Section 409A,
      on the six (6) month anniversary of his termination), but no later than
      ninety (90) days thereafter, and not before the expiration of the
      revocation period for the Release and
Waiver.

            

    

     

    
      	
              (B)  

            	
              Annual
      Bonus.  Pay to Executive 150% of the target amount of the
      Annual Bonus under the Applicable Plan for the year in which the
      termination of Executive’s employment occurs. Payment of such Annual Bonus
      shall be made in a lump sum as soon as administratively practicable after
      the date of Executive’s termination (or if required by Section 409A, on
      the six (6) month anniversary of his termination), but no later than
      ninety (90) days thereafter, and not before the expiration of the
      revocation period for the Release and
Waiver.

            

    

     

    
      	
              (C)  

            	
              Equity Vesting
      Acceleration.  Accelerate the vesting of and the lapsing
      of restrictions on any unvested or restricted equity compensation (e.g.,
      stock options, restricted stock,
etc.).

            

    

     

    
      	
              (D)  

            	
              Benefits
      Continuation.  Continue to provide Executive and his
      family for the one-year period following Executive’s termination with the
      health and welfare benefits, including, but not limited to, benefits under
      any medical and dental benefits plan, life insurance plan, short- term and
      long-term disability plans, or other executive benefit or fringe benefit
      plan, which Executive and his family were receiving as of the date of
      Executive’s termination. The Company shall provide such benefits at the
      same cost to Executive as the cost, if any, charged to Executive for those
      benefits at the time of his termination. To the extent that the provision
      of such benefits at the Company’s expense during the six (6) month period
      following Executive’s termination would violate the requirements of
      Section 409A, then Executive shall be required to pay to the Company the
      Company portion of the cost of such benefits during such six (6) month
      period, and the Company shall reimburse Executive for the amounts so paid
      by Executive on the six (6) month anniversary of his termination, or as
      soon as administratively practicable thereafter, but no later than ninety
      (90) days thereafter.

            

    

     

    
      
         

      

      
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              (ii)  

            	
              “Good
      Reason.”  For
      purposes of this Agreement, the term “Good Reason” shall
      mean the occurrence of any of the following in connection with a Change in
      Control, without Executive’s express written consent: (A) the assignment
      of duties to Executive materially inconsistent with Executive’s current
      authorities, duties, responsibilities and status; (B) any reduction in
      Executive’s title, position, or reporting lines; (C) the relocation of
      Executive to an office or location more than seventy-five (75) miles from
      the office or location of Executive’s work as of the date of the Change in
      Control; (D) requiring Executive to travel on Company business to a
      substantially greater extent than required as of the date of the Change in
      Control; or (E) the reduction in Executive’s Base Salary as in effect on
      the date of the Change in Control.

            

    

     

    
      	
              (iii)  

            	
              “Change in
      Control.”  For
      purposes of this Agreement, the term “Change in Control”
      shall mean the happening of any of the
  following:

            

    

     

    
      	
              (A)  

            	
              Any
      individual, entity or group (within the meaning of Section 13(d)(3) or
      14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a
      “Person”) becomes
      the beneficial owner (within the meaning of Rule 13d-3 promulgated under
      the Exchange Act) of 25% or more of either (1) the then outstanding common
      shares of the Company (the “Outstanding Company Common
      Shares”) or (2) 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
      such beneficial ownership shall not constitute a Change in Control if it
      occurs as a result of any of the following acquisitions of securities: (I)
      any acquisition directly from the Company, (II) any acquisition by the
      Company or any corporation, partnership, trust or other entity controlled
      by the Company (a “Subsidiary”), (III)
      any acquisition by any employee benefit plan (or related trust) sponsored
      or maintained by the Company or any Subsidiary, (IV) any acquisition by an
      underwriter temporarily holding Company securities pursuant to an offering
      of such securities, (V) any acquisition by an individual, entity or group
      that is permitted to, and actually does, report its beneficial ownership
      on Schedule 13-G (or any successor schedule); provided that, if any such
      individual, entity or group subsequently becomes required to or does
      report its beneficial ownership on Schedule 13D (or any successor
      schedule), then, for purposes of this paragraph, such individual, entity
      or group shall be deemed to have first acquired, on the first date on
      which such individual, entity or group becomes required to or does so
      report, beneficial ownership of all of the Outstanding Company Common
      Stock and Outstanding Company Voting Securities beneficially owned by it
      on such date, or (VI) any acquisition by any corporation pursuant to a
      reorganization, merger or consolidation, if, following such
      reorganization, merger or consolidation, the conditions described in
      clauses (I ), (2) and (3) of Section 7(c)(iii)(C) are satisfied.
      Notwithstanding the foregoing, a Change in Control shall not be deemed to
      occur solely because any Person (the “Subject Person”)
      became the beneficial owner of 25% or more of the Outstanding Company
      Common Shares or Outstanding Company Voting Securities as a result of the
      acquisition of Outstanding Company Common Shares or Outstanding Company
      Voting Securities by the Company which, by reducing the number of
      Outstanding Company Common Shares or Outstanding Company Voting
      Securities, increases the proportional number of shares beneficially owned
      by the Subject Person; provided, that if a Change in Control would be
      deemed to have occurred (but for the operation of this sentence) as a
      result of the acquisition of Outstanding Company Common Shares or
      Outstanding Company Voting Securities by the Company, and after such share
      acquisition by the Company, the Subject Person becomes the beneficial
      owner of any additional Outstanding Company Common Shares or Outstanding
      Company Voting Securities which increases the percentage of the
      Outstanding Company Common Shares or Outstanding Company Voting Securities
      beneficially owned by the Subject Person, then a Change in Control shall
      then be deemed to have occurred; or

            

    

     

    
      
         

      

      
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              (B)  

            	
              Individuals
      who, as of the date of this Agreement, constitute the Board (the “Incumbent Board”)
      cease for any reason to constitute at least a majority of the Board;
      provided, however, that any individual becoming a director subsequent to
      the date hereof whose election, or nomination for election by the
      Company’s shareholders, was approved by a vote of at least a majority of
      the directors then comprising the Incumbent Board shall be considered as
      though such individual were a member of the Incumbent Board, but
      excluding, for this purpose, any such individual whose initial assumption
      of office occurs as a result of either an actual or threatened election
      contest or other actual or threatened solicitation of proxies or consents
      by or on behalf of a Person other than the Board, including by reason of
      agreement intended to avoid or settle any such actual or threatened
      contest or solicitation; or

            

    

     

    
      	
              (C)  

            	
              The
      consummation of a reorganization, merger, statutory share exchange,
      consolidation, or similar corporate transaction involving the Company or
      any of its direct or indirect Subsidiaries (each a “Business Combination”)
      in each case, unless, following such Business Combination, (1) the
      Outstanding Company Common Shares and the Outstanding Company Voting
      Securities immediately prior to such Business Combination, continue to
      represent (either by remaining outstanding or being converted into voting
      securities of the resulting or surviving entity or any parent thereof)
      more than 50% of the then-outstanding shares of common stock and the
      combined voting power of the then-outstanding voting securities entitled
      to vote generally in the election of directors, as the case may be, of the
      corporation resulting from Business Combination (including, without
      limitation, a corporation that, as a result of such transaction, owns the
      Company or all or substantially all of the Company’s assets either
      directly or through one or more subsidiaries), (2) no Person (excluding
      the Company, any employee benefit plan (or related trust) of the Company,
      a Subsidiary or such corporation resulting from such Business Combination
      or any parent or a subsidiary thereof, and any Person beneficially owning,
      immediately prior to such reorganization, merger or consolidation,
      directly or indirectly, 25% or more of the Outstanding Company Common
      Shares or Outstanding Company Voting Securities, as the case may be)
      beneficially owns, directly or indirectly, 25% or more of, respectively,
      the then outstanding shares of common stock of the corporation resulting
      from such Business Combination (or any parent thereof) or the combined
      voting power of the then outstanding voting securities of such corporation
      entitled to vote generally in the election of directors, and (3) at least
      a majority of the members of the board of directors of the corporation
      resulting from such Business Combination (or any parent thereof) were
      members of the Incumbent Board at the time of the execution of the initial
      agreement or action of the Board providing for such Business Combination;
      or

            

    

     

    
      
         

      

      
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              (D)  

            	
              The
      consummation of the sale, lease, exchange or other disposition of all or
      substantially all of the assets of the Company, unless such assets have
      been sold, leased, exchanged or disposed of to a corporation with respect
      to which following such sale, lease, exchange or other disposition (1)
      more than 50% of, respectively, the then outstanding shares of common
      stock of such corporation and the combined voting power of the then
      outstanding voting securities of such corporation (or any parent thereof)
      entitled to vote generally in the election of directors is then
      beneficially owned, directly or indirectly, by all or substantially all of
      the individuals and entities who were the beneficial owners, respectively,
      of the Outstanding Company Common Shares and Outstanding Company Voting
      Securities immediately prior to such sale, lease, exchange or other
      disposition in substantially the same proportions as their ownership
      immediately prior to such sale, lease, exchange or other disposition of
      such Outstanding Company Common Shares and Outstanding Company Voting
      Shares, as the case may be, (2) no Person (excluding the Company and any
      employee benefit plan (or related trust) of the Company or a Subsidiary of
      such corporation or a subsidiary thereof and any Person beneficially
      owning, immediately prior to such sale, lease, exchange or other
      disposition, directly or indirectly, 25% or more of the Outstanding
      Company Common Shares or Outstanding Company Voting Securities, as the
      case may be) beneficially owns, directly or indirectly, 25% or more of,
      respectively, the then outstanding shares of common stock of such
      corporation (or any parent thereof) and the combined voting power of the
      then outstanding voting securities of such corporation (or any parent
      thereof) entitled to vote generally in the election of directors, and (3)
      at least a majority of the members of the board of directors of such
      corporation (or any parent thereof) were members of the Incumbent Board at
      the time of the execution of the initial agreement or action of the Board
      providing for such sale, lease, exchange or other disposition of assets of
      the Company; or

            

    

     

    
      	
              (E)  

            	
              Approval
      by the shareholders of the Company of a complete liquidation or
      dissolution of the Company.

            

    

     

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
              (iv)  

            	
              Potential Section 280G
      Adjustment.  In the event that any amount or benefit to
      be paid or provided to Executive pursuant to Section 7(c)(i), taken
      together with any amounts or benefits otherwise paid or provided to
      Executive by the Company or any affiliated company (collectively, the
      “Covered
      Payments”), would be an “excess parachute
      payment,” as defined in Section 280G of the Internal Revenue Code
      and the related Treasury Regulations and other guidance issued thereunder,
      and would thereby subject Executive to the tax imposed under Section 4999
      of the Internal Revenue Code (the “Excise Tax”), then the
      Company shall either (A) make the Covered Payment to Executive without
      adjustment and subject to the Excise Tax, or (B) reduce the Covered
      Payments to the maximum amount that may be paid without Executive becoming
      subject to the Excise Tax (such reduced amount, the “Payment Cap”),
      whichever provides the greater net after-tax benefit to Executive. In the
      event that the reduction of the Covered Payments will provide Executive
      with the greater net after-tax benefit, Executive shall have the right to
      designate which of the payments and benefits otherwise provided for in
      Section 7(c)(i) that he will receive in connection with the application of
      the Payment Cap.

            

    

     

    (d) Termination of
Employment.  For purposes of this Section 7, the term “termination of employment”
and words of similar import shall mean a “separation from service” as
defined by Section 409A, and this Section 7 shall be interpreted and
administered consistent with such definition.

     

    (e) No Mitigation; No Set-Off Against
Severance Benefits.  Executive shall not be required to
mitigate damages or the amount of any payment or benefits provided for under
Section 7 by seeking other employment or otherwise, nor shall the amount of any
payment or benefits provided for in Section 7 be reduced by any compensation
earned by Executive as a result of employment by another employer after the date
of termination of Executive’s employment with the Company, except as otherwise
provided by the confidentiality, non-solicitation and non-competition provisions
of Section 9. In addition, the Company’s obligations under this Agreement shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against
Executive.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    
      	
              8.  

            	
              Release
      and Waiver.

            

    

     

    (a) In
exchange for the additional consideration under Section 7 to which Executive
would not otherwise be entitled, Executive shall generally and completely
release the Company, its subsidiaries and affiliates, and its directors,
officers, executives, shareholders, partners, agents, attorneys, predecessors,
successors, insurers and assigns from any and all claims, liabilities and
obligations, both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring at any time prior to or at
Executive’s termination. Such general release shall include, but shall not be
limited to: (i) all claims arising out of or in any way related to Executive’s
employment with the Company or the termination of that employment; (ii) all
claims related to Executive’s compensation or benefits from the Company,
including salary, bonuses, incentive compensation, vacation pay, expense
reimbursements, severance pay, fringe benefits, stock, stock options, restricted
stock, or any other ownership or equity interests in the Company, or its
subsidiaries or affiliates under all State and federal statutes such as the Fair
Labor Standards Act, the Family and Medical Leave Act, the Employee Retirement
and Income Security Act, the New York Labor Law and any similar State or local
statute, regulation or order; (iii) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing;
(iv) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (v) all federal,
state, and local statutory claims, including claims for discrimination,
harassment, retaliation, attorneys’ fees, or other claims arising under, for
example, the Age Discrimination in Employment Act (the “ADEA”), Title VII of the
Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the
Americans With Disabilities Act, the Equal Pay Act, the Family Medical Leave
Act, the New York Human Rights Law and any similar State or local statute,
regulation or order. Notwithstanding the foregoing, Executive shall not be
required to release the Company or its subsidiaries or affiliates from: (A) any
obligation to indemnify Executive pursuant to the articles and bylaws of the
Company, any valid fully executed indemnification agreement with the Company,
any applicable directors and officers liability insurance policy, and applicable
law; or (B) any obligations to make payments to Executive under Section 7.
Executive shall be required to represent that he has no lawsuits, claims or
actions pending in his name, or on behalf of any other person or entity, against
the Company or its subsidiaries or affiliates, or any other person or entity
subject to the release to be granted under this Section.

     

    (b) Executive
shall acknowledge that: (i) he is knowingly and voluntarily waiving and
releasing any rights he may have under the ADEA; (ii) that the consideration
given for the waiver and release (i.e., the additional consideration to be
provided under Section 7) is in addition to anything of value to which he is
already entitled; and (iii) that he has been advised, as required by the ADEA,
that: (A) his waiver and release does not apply to any rights or claims that may
arise after the date that he signs such release; (B) he should consult with an
attorney prior to signing the release (although he may choose voluntarily not to
do so); (C) he has twenty-one (21) days from the date he receives the proposed
release to consider the release (although he may choose voluntarily to sign it
earlier); (D) he has seven (7) days following the date he signs the release to
revoke the release by providing written notice of his revocation to the Board;
and (E) the release will not be effective until the date upon which the
revocation period has expired, which will be the eighth day after the date that
the release is signed by Executive.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (c) The
claims included in this release and waiver do not include vested rights,
if any, under any qualified retirement plan in which Executive participates, and
his COBRA, unemployment compensation and worker’s compensation rights, if any.
Nothing in this release shall be construed to constitute a waiver of: (i) any
claims Executive may have against the Company that arise from acts or omissions
that occur after the effective date of this Release; (ii) Executive’s right to
file an administrative charge with any governmental agency concerning the
termination of that employment; or (iii) Executive’s right to participate in any
administrative or court investigation, hearing or proceeding. Executive agrees,
however, to waive and release any right to receive any individual remedy or to
recover any individual monetary or non-monetary damages as a result of any such
administrative charge or proceeding. In addition, this release does not affect
Executive’s rights as expressly created by this Agreement, and does not limit
his ability to enforce this Agreement.

     

     

    
      	
              9.  

            	
              Executive
      Covenants.

            

    

     

    (a) Non-Disclosure of Confidential
Information and Trade Secrets.

     

    
      	
              (i)  

            	
              During
      the course of Executive’s employment with the Company, Executive will
      acquire and have access to Confidential Information and Trade Secrets
      belonging to the Company, its affiliates, subsidiaries, divisions and
      joint ventures (collectively referred to as the “Company” throughout
      and for purposes of this Section 9). Such Confidential Information and
      Trade Secrets include, without limitation, business and technical
      information, whatever its nature and form and whether obtained orally, by
      observation, from written materials or otherwise, as for example: (A)
      financial and business information, such as information with respect to
      costs, commissions, fees, profits, profit margins, sales, markets, mailing
      lists, accounts receivables and accounts payables, pricing strategies,
      strategies and plans for future business, new business, product or other
      development, potential acquisitions or divestitures, and new marketing
      ideas; (B) marketing information, such as information on markets, end
      users and applications, the identity of the Company’s customers, vendors,
      suppliers, and distributors, their names and addresses, the names of
      representatives of the Company’s customers, vendors, distributors or
      suppliers responsible for entering into contracts with the Company, the
      Company’s financial arrangements with its distributors and suppliers, the
      amounts paid by such customers to the Company, specific customer needs and
      requirements, leads and referrals to prospective customers; and (C)
      personnel information, such as the identity and number of the Company’s
      employees, personal information such as social security numbers, skills,
      qualifications, and abilities. Executive acknowledges and agrees that the
      Confidential Information and Trade Secrets are not generally known or
      available to the general public, but have been developed, complied or
      acquired by the Company at its great effort and expense and for commercial
      advantage and, therefore, takes every reasonable precaution to prevent the
      use or disclosure of any part of it by or to unauthorized persons.
      Confidential Information and Trade Secrets can be in any form or media,
      whether oral, written or machine readable, including electronic
      files.

            

    

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    
      	
              (ii)  

            	
              Executive
      agrees he will not, while associated with the Company and for so long
      thereafter as the pertinent information or documentation remains
      confidential, directly or indirectly use, disclose or disseminate to any
      other person, organization or entity or otherwise use any Confidential
      Information and Trade Secrets, except as specifically required in the
      performance of Executive’s duties on behalf of the Company or with prior
      written authorization from the
Board.

            

    

     

    (b) Non-Solicitation of
Customers.  Executive acknowledges and agrees that during the
course of and solely as a result of employment with the Company, he will come
into contact with some, most or all of the Company’s customers and will have
access to Confidential Information and Trade Secrets regarding the Company’s
customers, distributors and suppliers. Consequently, Executive covenants and
agrees that in the event of the termination of his employment, whether such
termination is voluntary or involuntary, Executive will not, for a period of
twelve (12) months following such termination, directly or indirectly, solicit
or initiate contact with any customer, former customer or prospective customer
of the Company for the purpose of selling products or services to the customer
competitive with the products or services purchased by the customer from the
Company. This restriction shall apply to any customer, former customer or
prospective customer of the Company with whom Executive had contact or about
whom Executive obtained Confidential Information or Trade Secrets during his
employment with the Company. For the purposes of this Section, “contact” means interaction
between Executive and the customer or then prospective customer which takes
place to further the business relationship, or making sales to our performing
services for the customer or prospective customer on behalf of the Company. This
restriction will not apply when a former employee who is not working in a
competitive capacity responds to a request for proposal on behalf of his new
employer who is not engaged in the same or similar businesses as the
Company.

     

    (c) Non-Compete.  Executive
acknowledges that his services are special and unique, and compensation is
partly in consideration of and conditioned upon Executive not competing with
Company, and that a covenant on Executive’s part not to compete is essential to
protect the business and good will of the Company. Accordingly, except as
hereinafter provided, Executive agrees that for twelve (12) months after the
termination of his employment, Executive shall not be engaged or interested as a
director, officer, stockholder (except as provided herein), employee, partner,
individual proprietor, lender or in any other capacity, in any business, which
competitive with the business of the Company as conducted at the time of
Executive’s termination and which involves Executive’s knowledge, actions or
assistance within the counties of Westchester, Rockland, Ulster, Orange, Duchess
and Sullivan in New York and Sussex, Bergen and Passaic in New Jersey; however,
this restriction will not apply to new kinds of business in which Executive may
engage in the future, after such termination, unless Executive has been actively
engaged in the development or otherwise involved in such business while an
employee of the Company. In addition, Executive agrees that for this same twelve
(12) months, he shall not recruit or recommend any other person who is or was an
employee of the Company while Executive was also an employee, to any business
which is competitive with the business of Executive as conducted at the time of
Executive’s termination and which involves Executive’s knowledge, actions or
assistance within the counties of Westchester, Rockland, Ulster, Orange, Duchess
and Sullivan in New York and Sussex, Bergen and Passaic in New Jersey. Nothing
herein shall prohibit Executive from investing in any securities of any
corporation which is in competition with the Company, whose securities are
listed on a national exchange or traded in the over-the-counter market if
Executive shall own less than 5% of the outstanding securities of such
operation.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (d) Enforcement of
Covenants.  Executive acknowledges and agrees that compliance
with the covenants set forth in this Section 9 is necessary to protect the
Confidential Information and Trade Secrets, business and goodwill of the
Company, and that any breach of this Section 9 will result in irreparable and
continuing harm to the Company, for which money damages may not provide adequate
relief. Accordingly, in the event of any breach or anticipatory breach of
Section 9 by Executive, the Company and Executive agree that the Company shall
be entitled to the following particular forms of relief as a result of such
breach, in addition to any remedies otherwise available to it at law or equity:
(i) injunctions, both preliminary and permanent, enjoining or restraining such
breach or anticipatory breach, and Executive hereby consents to the issuance
thereof forthwith and without bond; and (ii) recovery of all reasonable sums and
costs, including attorneys’ fees, incurred by the Company to enforce the
provisions of this Section 9.

     

     

    
      	
              10.  

            	
              Withholding
      of Taxes

            

    

     

    The
Company shall withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local or other taxes.

     

     

    
      	
              11.  

            	
              No
      Claim Against Assets.

            

    

     

    Nothing
in this Agreement shall be construed as giving Executive any claim against any
specific assets of the Company or as imposing any trustee relationship upon the
Company in respect of Executive. The Company shall not be required to establish
a special or separate fund or to segregate any of its assets in order to provide
for the satisfaction of its obligations under this Agreement. Executive’s rights
under this Agreement shall be limited to those of an unsecured general creditor
of the Company and its affiliates.

     

     

    
      	
              12.  

            	
              Executive
      Acknowledgement.

            

    

     

    Executive
acknowledges that he has had the opportunity to discuss this Agreement with and
obtain advice from his private attorney, has had sufficient time to and has
carefully read and fully understands all of the provisions of this Agreement,
and is knowingly and voluntarily entering into this Agreement.

     

     

    
      	
              13.  

            	
              Successors
      and Assignment.

            

    

     

    (a) Except as
otherwise provided in this Agreement, this Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
representatives, successors and assigns.

     

    (b) The
Company shall require any successor or successors (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to Executive, to acknowledge expressly that this Agreement is
binding upon and enforceable against the Company in accordance with the terms
hereof, and to become jointly and severally obligated with the Company to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession or successions had
taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement by the
Company.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    (c) The
rights and benefits of Executive under this Agreement are personal to him and no
such right or benefit shall be subject to voluntary or involuntary alienation,
assignment or transfer; provided, however, that nothing in this Section 13 shall
preclude Executive from designating a beneficiary or beneficiaries to receive
any benefit payable on his death.

     

     

    
      	
              14.  

            	
              Entire
      Agreement; Amendment.

            

    

     

    This
Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company (or any of its
subsidiaries or affiliated entities) relating to the terms of Executive’s
employment, except for the Company’s Code of Ethics and the Director’s and
Officer’s Indemnification Agreement. This Agreement may not be amended except by
a written agreement signed by both parties.

     

     

    
      	
              15.  

            	
              Governing
      Law.

            

    

     

    This
Agreement shall be governed by and construed in accordance with the domestic
substantive laws of the State of New York, without giving effect to any
conflicts or choice of laws rule or provision that would result in the
application of the domestic substantive laws of any other
jurisdiction.

     

     

    
      	
              16.  

            	
              Section
      409A.

            

    

     

    The
parties intend that this Agreement and the payments and benefits to be provided
hereunder satisfy the requirements of Section 409A, and this Agreement shall be
administered and interpreted consistent with such intention.

     

     

    
      	
              17.  

            	
              Notices.

            

    

     

    Any
notice, consent, request or other communication made or given in connection with
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:

     

    
      	
              To
      the Company:

            
	
              Warwick
      Valley Telephone Company

            
	
              Attention:
      President and CEO

            
	
              47
      Main Street

            
	
              Warwick,
      New York 10990

            
	 
      
	
              To
      Executive:

            
	
              At
      the address set forth below

            

    

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    
      	
              18.  

            	
              Miscellaneous.

            

    

     

    (a) Waiver.  The failure
of a party to insist upon strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver thereof or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.

     

    (b) Severability.  If
any term or provision of this Agreement is declared illegal or unenforceable by
any court of competent jurisdiction and cannot be modified to be enforceable,
such term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.

     

    (c) Headings.  Section
headings are used herein for convenience of reference only and shall not affect
the meaning of any provision of this Agreement.

     

    (d) Rules of
Construction.  Whenever the context so requires, the use of the
singular shall be deemed to include the plural and vice versa.

     

    (e) Authority to Enter into this
Agreement.  The officer of the Company whose signature appears
below has been authorized to enter into this Agreement on behalf of the
Company.

     

    (f) Counterparts.  This
Agreement may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, and such counterparts will together
constitute but one agreement.

     

    In Witness
Whereof, the parties hereto have duly executed this Agreement as of the
day and year set forth below.

     

    

    
      	
              Warwick
      Valley Telephone Company

            	 
      	
              Executive

            
	
              /s/  Duane
      W. Albro

            	 
      	
              /s/  Kenneth
      H. Volz

            
	
              Duane
      W. Albro

            	 
      	
              Kenneth
      H. Volz

            
	
              President,
      Chief Executive Officer

            	 
      	
              Executive
      Vice President, Chief Financial Officer &
  Treasurer

            

    

     

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    

     

    APPENDIX
A

     

    Illustration
of Annual Bonus and Incentive Compensation (Long Term Incentive Plan) —
CFO

     

     

    

     

     

    Annual Bonus Performance
Matrix:

     

     

    The
performance matrix below will be used to calculate the Payout Factor amounts.
The Payout Factor amounts will be applied to both the Target Annual Bonus and
the Target Incentive Compensation amounts.

     

     

    Target Annual
Bonus:

     

    Target
Annual Bonus Amount:  50%  x  [base salary of
$250,000]  = $125,000

    Actual
Annual Bonus Payout:   [Target Annual Bonus Amount of
$125,000]  x  [calculated Payout Factor]

    

     

    Methodology:

     

    Target
Financial Metrics will be determined for each year by the Board of Directors on
behalf of the Company and in collaboration with the CEO.

     

    The
matrix below reflects both the elements of performance that will be evaluated
and the weightings associated with each Financial Metric to determine the
applicable payout factor that will be used to calculate the Annual Bonus and
Incentive Compensation amounts.

     

    

     

    
      	
              Financial
      Metric

            	
              Weighting

            	
              Result

            	
              Target

            	
              Actual/Target

            	
              Payout
      Factor

            
	 
      	
              A

            	
              B

            	
              C

            	
              (B/C)

            	
              A
      x (B/C)

            
	
              Revenue

            	
              0.25

            	
              TBD

            	
              $TBD

            	
              TBD

            	
              TBD

            
	
              EBITDA

            	
              0.25

            	
              TBD

            	
              $TBD

            	
              TBD

            	
              TBD

            
	
              Free
      Cash Flow

            	
              0.25

            	
              TBD

            	
              $TBD

            	
              TBD

            	
              TBD

            
	
              Net
      Income

            	
              0.15

            	
              TBD

            	
              $TBD

            	
              TBD

            	
              TBD

            
	
              BOD
      Discretion

            	
              0.10

            	
              NA

            	
              NA

            	
              NA

            	
              TBD

            
	
              Total

            	
              1.00

            	 
      	 
      	 
      	
              Total
      Payout Factor

            

    

     

    Illustrative Example: By way of
illustration only,
assume the following Financial Metric targets: (1) Revenue: $30,000,000; (2)
EBITDA: $5,000,000; (3) Free Cash Flow: $2,000,000; and (4) Net Income:
$6,000,000.  Assume the following actual financial results for the
fiscal year: (1) Actual Revenue: $28,000,000; (2) Actual EBITDA: $4,000,000; (3)
Actual Free Cash Flow: $1,500,000; and (4) Actual Net Income: $5,000,000. The
resulting payout factor calculations would be calculated as
follows:

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

     

    
      	
              Financial
      Metric

            	
              Weighting

            	
              Result

            	
              Target

            	
              Actual/Target

            	
              Payout
      Factor

            
	 
      	
              A

            	
              B

            	
              C

            	
              (B/C)

            	
              A
      x (B/C)

            
	
              Revenue

            	
              0.25

            	
              $28,000,000

            	
              $30,000,000

            	
              .9333

            	
              .2333

            
	
              EBITDA

            	
              0.25

            	
              $  4,000,000

            	
              $  5,000,000

            	
              .8000

            	
              .2000

            
	
              Free
      Cash Flow

            	
              0.25

            	
              $  1,500,000

            	
              $  2,000,000

            	
              .7500

            	
              .1875

            
	
              Net
      Income

            	
              0.15

            	
              $  5,000,000

            	
              $  6,000,000

            	
              .8333

            	
              .1250

            
	
              BOD
      Discretion

            	
              0.10

            	
              N/A

            	
              N/A

            	
              N/A

            	
              .1000

            
	
              Total

            	
              1.00

            	 
      	 
      	 
      	
              .8458

            

    

     

    Based
upon this illustration, which also assumes the BOD Discretionary component is
paid out in the full 10% amount, the actual Annual Bonus to be paid would be
based on a payout factor of .8458 and result in an Annual Bonus of $125,000 x
..8458 or $105,729

     

    Notwithstanding
the foregoing matrix, in the event that the actual results / target results for
Revenue and Net Income are less than .9000 (90%) then the payout factor
attributable to those metrics of measurement will be zero, respectively.
Likewise, in the event that the actual results / target results for EBITDA and
Free Cash Flow are less than .7500 (75%) then the payout factor attributable to
those metrics of measurement will be zero, respectively. This methodology will
also be applied to Incentive Compensation payout in the same
manner.

     

    Incentive Compensation (Long
Term Incentive Plan) Component:

     

    

     

    
      	
              Ø  

            	
              Target
      Incentive Compensation Component

            

    

     

    

     

    
      	
              Stock
      Options:

            	
              25,000

            
	 
      	 
      
	
              Restricted
      Shares:

            	
                5,000

            

    

    

     

    Applying
the same methodological approach used to determine the Annual Bonus payout as
shown above would result in an Incentive Compensation payout of:

     

    

     

    
      	
              Stock
      Options:

            	
              25,000  x
      .8458 = 21,146

            
	 
      	 
      
	
              Restricted
      Shares:

            	
                5,000
      x .8458 =   4,229

            

    

    

    For
calculating both the Annual Bonus and the Incentive Compensation, the Board of
Directors retains the sole discretion to award compensation, if any, under this
Appendix A.

     

     

     

    19Image
Metrics Limited

     

    2009 STOCK INCENTIVE
PLAN

     

    
      	
              1.

            	
              PURPOSE

            

    

     

    The
purpose of this 2009 Stock Incentive Plan (the “Plan”) of Image Metrics Limited,
a company registered in England and Wales under No. 04098216 (the “Company”), is
to advance the interests of the Company’s stockholders by enhancing the
Company’s ability to attract, retain and motivate persons who are expected to
make important contributions to the Company and by providing such persons with
equity ownership opportunities and performance-based incentives that are
intended to better align the interests of such persons with those of the
Company’s stockholders.  Except where the context otherwise requires,
the term “Company” shall include any of the Company’s present or future parent
or subsidiary corporations as defined in Sections 424(e) or (f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the “Code”) and any other business venture (including, without
limitation, joint venture or limited liability company) in which the Company has
a controlling interest, as determined by the Board of Directors of the Company
(the “Board”).

     

    
      	
              2.

            	
              ELIGIBILITY

            

    

     

    
      	
               
      

            	
              All
      of the Company’s employees, officers, directors, consultants and advisors
      are eligible to be granted options, restricted stock, restricted stock
      units (“RSUs”) and other stock-based awards (each, an “Award”) under the
      Plan.  Each person who receives an Award under the Plan is
      deemed a “Participant”.

            

    

     

    
      	
              3.

            	
              ADMINISTRATION AND
      DELEGATION

            

    

     

    
      	
              3.1

            	
              Administration by
      Board of Directors.  The Plan will be administered by the
      Board.  The Board shall have authority to grant Awards and to
      adopt, amend and repeal such administrative rules, guidelines and
      practices relating to the Plan as it shall deem advisable.  The
      Board may construe and interpret the terms of the Plan and any Award
      agreements entered into under the Plan.  The Board may correct
      any defect, supply any omission or reconcile any inconsistency in the Plan
      or any Award in the manner and to the extent it shall deem expedient to
      carry the Plan into effect and it shall be the sole and final judge of
      such expediency.  All decisions by the Board shall be made in
      the Board’s sole discretion and shall be final and binding on all persons
      having or claiming any interest in the Plan or in any Award.  No
      director or person acting pursuant to the authority delegated by the Board
      shall be liable for any action or determination relating to or under the
      Plan made in good faith.

            

    

     

    
      	
              3.2

            	
              Appointment of
      Committees.  To the extent permitted by applicable law,
      the Board may delegate any or all of its powers under the Plan to one or
      more committees or subcommittees of the Board (a
      “Committee”).  All references in the Plan to the “Board” shall
      mean the Board or a Committee of the Board to the extent that the Board’s
      powers or authority under the Plan have been delegated to such
      Committee.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
      	
              4.

            	
              STOCK AVAILABLE FOR
      AWARDS.

            

    

     

    
      	
              4.1

            	
              Subject
      to adjustment under Section 6, Awards may be made under the Plan for up to
      2,492,757 ordinary shares in the capital of the Company.  If any
      Award expires or is terminated, surrendered or cancelled without having
      been fully exercised or is forfeited in whole or in part (including as the
      result of shares in the capital of the Company being repurchased by the
      Company at the original issuance price pursuant to a contractual
      repurchase right) or results in any such shares not being issued, the
      unused shares covered by such an Award shall again be available for the
      grant of Awards under the Plan. Further, shares in the capital of the
      Company tendered to the Company by a Participant to exercise an Award
      shall be added to the number of shares available for the grant of Awards
      under the Plan.  However, in the case of Incentive Stock Options
      (as hereinafter defined), the foregoing provisions shall be subject to any
      limitations under the Code.  Shares issued under the Plan may
      consist in whole or in part of authorized but unissued shares or treasury
      shares.

            

    

     

    
      	
              4.2

            	
              Substitute
      Awards.  In connection with a merger or consolidation of
      an entity with the Company or the acquisition by the Company of property
      or stock of an entity, the Board may grant Awards in substitution for any
      options or other stock or stock-based awards granted by such entity or an
      affiliate thereof.  Substitute Awards may be granted on such
      terms as the Board deems appropriate in the circumstances, notwithstanding
      any limitations on Awards contained in the Plan.  Substitute
      Awards shall not count against the overall share limit set forth in
      Section 4.1, except as may be required by reason of Section 422 and
      related provisions of the Code.

            

    

     

    
      	
              5.

            	
              STOCK
      OPTIONS

            

    

     

    
      	
              5.1

            	
              General.  The
      Board may grant options to purchase shares in the capital of the Company
      (each, an “Option”) and determine the number and class of shares in the
      capital of the Company to be covered by each Option, the exercise price of
      each Option and the conditions and limitations applicable to the exercise
      of each Option, including conditions relating to applicable federal or
      state securities laws, as it considers necessary or
      advisable  An Option that is not intended to be an Incentive
      Stock Option (as hereinafter defined) shall be designated a “Nonstatutory
      Stock Option”.

            

    

     

    
      	
              5.2

            	
              Incentive Stock
      Options.  An Option that the Board intends to be an
      “incentive stock option” as defined in Section 422 of the Code (an
      “Incentive Stock Option”) shall only be granted to employees of Image
      Metrics Limited, any of Image Metric Limited’s present or future parent or
      subsidiary corporations as defined in Sections 424(e) or (f) of the Code,
      and any other entities the employees of which are eligible to receive
      Incentive Stock Options under the Code, and shall be subject to and shall
      be construed consistently with the requirements of Section 422 of the
      Code.  The Company shall have no liability to a Participant, or
      any other party, if an Option (or any part thereof) that is intended to be
      an Incentive Stock Option is not an Incentive Stock Option or for any
      action taken by the Board, including without limitation the conversion of
      an Incentive Stock Option to a Nonstatutory Stock
  Option.

            

    

     

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

    
      	
              5.3

            	
              Exercise
      Price.  The Board shall establish the exercise price of
      each Option and specify the exercise price in the applicable option
      agreement. The exercise price shall be not less than 100% of the Fair
      Market Value (as defined below) on the date the Option is
      granted.

            

    

     

    
      	
              5.4

            	
              Duration of
      Options.  Each Option shall be exercisable at such times
      and subject to such terms and conditions as the Board may specify in the
      applicable option agreement.

            

    

     

    
      	
              5.5

            	
              Exercise of Option -
      Notice of exercise.  Options may be exercised by delivery
      to the Company of a written notice of exercise signed by the proper person
      or by any other form of notice (including electronic notice) approved by
      the Board together with payment in full as specified in Section 5.6 for
      the number of shares for which the Option is
  exercised.

            

    

     

    
      	
              5.6

            	
              Payment upon
      Exercise.  Shares in the capital of the Company purchased
      upon the exercise of an Option granted under the Plan shall be paid for as
      follows:

            

    

     

    
      	
               
      

            	
              (a)

            	
              in
      cash or by check, payable to the order of the
  Company;

            

    

     

    
      	
               
      

            	
              (b)

            	
              when
      shares in the capital of the Company are registered under the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”) or UK equivalent,
      except as may otherwise be provided in the applicable option agreement, by
      (i) delivery of an irrevocable and unconditional undertaking by a
      creditworthy broker to deliver promptly to the Company sufficient funds to
      pay the exercise price and any required tax withholding or (ii) delivery
      by the Participant to the Company of a copy of irrevocable and
      unconditional instructions to a creditworthy broker to deliver promptly to
      the Company cash or a check sufficient to pay the exercise price and any
      required tax withholding;

            

    

     

    
      	
               
      

            	
              (c)

            	
              when
      shares in the capital of the Company are registered under the Exchange Act
      and to the extent provided for in the applicable option agreement or
      approved by the Board, in its sole discretion, by delivery (either by
      actual delivery or attestation) of shares in the capital of the Company
      owned by the Participant valued at their fair market value as determined
      by (or in a manner approved by) the Board (“Fair Market Value”), provided
      (i) such method of payment is then permitted under applicable law, (ii)
      such shares, if acquired directly from the Company, were owned by the
      Participant for such minimum period of time, if any, as may be established
      by the Board in its discretion and (iii) such shares are not subject to
      any repurchase, forfeiture, unfulfilled vesting or other similar
      requirements;

            

    

     

    
      	
               
      

            	
              (d)

            	
              to
      the extent provided for in the applicable option agreement or approved by
      the Board, in its sole discretion by (i) delivery of a promissory note of
      the Participant to the Company on terms determined by the Board, or
      (ii) payment of such other lawful consideration as the Board may
      determine; or

            

    

     

    
      	
               
      

            	
              (e)

            	
              by
      any combination of the above permitted forms of
  payment.

            

    

     

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

    
      	
              6. 

            	
              RESTRICTED
      STOCK; RESTRICTED STOCK
UNITS

            

    

     

    
      	
              6.1

            	
              General.  The
      Board may grant Awards entitling recipients to acquire shares in the
      capital of the Company (“Restricted Stock”), subject to the right of the
      Company to repurchase all or part of such shares at their issue price or
      other stated or formula price (or to require forfeiture of such shares if
      issued at no cost) from the recipient in the event that conditions
      specified by the Board in the applicable Award are not satisfied prior to
      the end of the applicable restriction period or periods established by the
      Board for such Award.  Instead of granting Awards for Restricted
      Stock, the Board may grant Awards entitling the recipient to receive
      shares in the capital of the Company or cash to be delivered at the time
      such Award vests (“Restricted Stock Units”) (Restricted Stock and
      Restricted Stock Units are each referred to herein as a “Restricted Stock
      Award”).

            

    

     

    
      	
              6.2

            	
              Terms and Conditions
      for All Restricted Stock Awards.  The Board shall
      determine the terms and conditions of a Restricted Stock Award, including
      the conditions for vesting and repurchase (or forfeiture) and the issue
      price, if any.

            

    

     

    
      	
              6.3

            	
              Additional Provisions
      Relating to Restricted
Stock.

            

    

     

    
      	
               
      

            	
              (a)

            	
              Dividends.  Participants
      holding shares of Restricted Stock will be entitled to all ordinary cash
      dividends paid with respect to such shares, unless otherwise provided by
      the Board.  Unless otherwise provided, by the Board, if any
      dividends or distributions are paid in shares, or consist of a dividend or
      distribution to holders of shares in the capital of the Company other than
      an ordinary cash dividend, the shares, cash or other property will be
      subject to the same restrictions on transferability and forfeitability as
      the shares of Restricted Stock with respect to which they were
      paid.   Each dividend payment will be made no later than
      the end of the calendar year in which the dividends are paid to
      shareholders of that class of shares or, if later, the 15th day of the
      third month following the date the dividends are paid to shareholders of
      that class of shares.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Share
      Certificates.  The Company may require that any share
      certificates issued in respect of shares of Restricted Stock shall be
      deposited in escrow by the Participant, together with a stock transfer
      form endorsed in blank, with the Company (or its designee).  At
      the expiration of the applicable restriction periods, the Company (or such
      designee) shall deliver the certificates no longer subject to such
      restrictions to the Participant or if the Participant has died, to the
      beneficiary designated, in a manner determined by the Board, by a
      Participant to receive amounts due or exercise rights of the Participant
      in the event of the Participant’s death (the “Designated
      Beneficiary”).  In the absence of an effective designation by a
      Participant, “Designated Beneficiary” shall mean the Participant’s
      estate.

            

    

     

    
      
         

      

      
        - 4
-

        
          

        

      

      
         

      

    

    
      	
              7. 

            	
              OTHER
      STOCK-BASED AWARDS

            

    

     

    Other
Awards of shares in the capital of the Company, and other Awards that are valued
in whole or in part by reference to, or are otherwise based on, shares in the
capital of the Company or other property, may be granted hereunder to
Participants (“Other Stock-Based Awards”), including without limitation stock
appreciation rights (“SARs”) and Awards entitling recipients to receive shares
in the capital of the Company to be delivered in the future.  Such
Other Stock-Based Awards shall also be available as a form of payment in the
settlement of other Awards granted under the Plan or as payment in lieu of
compensation to which a Participant is otherwise entitled.  Other
Stock-Based Awards may be paid in shares in the capital of the Company or cash,
as the Board shall determine.  Subject to the provisions of the Plan,
the Board shall determine the terms and conditions of each Other Stock-Based
Award, including any purchase price applicable thereto.

     

    
      	
              8.

            	
              ADJUSTMENTS
      FOR CHANGES IN THE SHARE CAPITAL OF THE COMPANY AND CERTAIN OTHER
      EVENTS

            

    

     

    
      	
              8.1

            	
              Changes
      in Capitalization.

            

    

     

    
      	
               
      

            	
              (a)

            	
              Adjustment.  The
      number of shares available for Award under the Plan, the number of shares
      over which an Option is granted and the exercise price per share subject
      to Option, the number of shares subject to and the repurchase price per
      share subject to each outstanding Restricted Stock Award, and the terms of
      each other outstanding Award may be adjusted in such manner as the Board
      shall determine as fair and reasonable following any capitalization issue
      (other than a scrip dividend), rights issue, open offer, subdivision,
      consolidation, reduction or other variation of share capital of the
      Company or the Company is the subject of a
  demerger.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Limitation or
      adjustments.  No adjustment under Section 8.1(a) above
      shall be made which would reduce the exercise price per share subject to
      Option to subscribe for shares in the capital of the Company below the
      nominal value of a share unless and to the extent that the
      Board:

            

    

     

    
      	
               
      

            	
              (i)

            	
              is
      authorized to capitalize from the reserves of the Company a sum equal to
      the amount by which the nominal value of the shares subject to the Option
      exceeds the adjusted exercise
  price;  and

            

    

     

    
      	
               
      

            	
              (ii)

            	
              applies
      such sum (if any) in paying up the amount by which the aggregate nominal
      value of the shares in respect of which the Option is being exercised
      exceeds the total exercise price for such
  shares.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Action following
      adjustment.  The Company may take such steps as it may
      consider necessary to notify Participants of any adjustment made under
      Section 8.1(a) and to call in, cancel, endorse, issue or reissue any
      option certificate or agreement subsequent upon such
      adjustment.

            

    

     

    
      
         

      

      
        - 5
-

        
          

        

      

      
         

      

    

    
      	
              8.2

            	
              Change
      of Control.

            

    

     

    
      	
               
      

            	
              (a)

            	
              On
      the acquisition of more than 50% of the Company’s issued share capital by
      any person or persons acting in concert (as defined by the UK City Code on
      Takeovers and Mergers as amended from time to time) other than where the
      purpose and effect of the acquisition is to create or impose a holding
      company for the Company, such company having substantially the same
      shareholders and proportionate shareholdings as the Company immediately
      prior to such acquisition (a “Change of Control”), the Board may take any
      one or more of the following actions as to all or any (or any portion of)
      outstanding Awards other than Restricted Stock Awards on such terms as the
      Board determines:

            

    

     

    
      	
               
      

            	
              (A)

            	
              provide
      that Awards shall be assumed, or substantially equivalent Awards shall be
      substituted, by the acquiring or succeeding corporation (or an affiliate
      thereof);

            

    

     

    
      	
               
      

            	
              (B)

            	
              upon
      written notice to a Participant, provide that the Participant’s
      unexercised Awards will terminate immediately prior to the Change of
      Control unless exercised by the Participant within a specified period
      following the date of such notice;

            

    

     

    
      	
               
      

            	
              (C)

            	
              provide
      that outstanding Awards shall become exercisable in whole or in part prior
      to or upon such Change of Control;

            

    

     

    
      	
               
      

            	
              (D)

            	
              in
      the event of a Change of Control under the terms of which holders of
      shares in the capital of the Company will receive upon consummation
      thereof a cash payment for each share surrendered in the Change of Control
      (the “Acquisition Price”), make or provide for a cash payment to a
      Participant equal to the excess, if any, of (y) the Acquisition Price
      times the number of shares subject to the Participant’s Awards (to the
      extent the exercise price does not exceed the Acquisition Price) over (z)
      the aggregate exercise price of all such outstanding Awards and any
      applicable tax withholdings, in exchange for the termination of such
      Awards;

            

    

     

    
      	
               
      

            	
              (E)

            	
              provide
      that, in connection with a liquidation or dissolution of the Company,
      Awards shall convert into the right to receive liquidation proceeds (if
      applicable, net of the exercise price thereof and any applicable tax
      withholdings); and

            

    

     

    
      	
               
      

            	
              (F)

            	
              any
      combination of the foregoing.

            

    

     

    In taking
any of the actions permitted under this Section 8.2, the Board shall not be
obligated by the Plan to treat all Awards, all Awards held by a Participant, or
all Awards of the same type, identically.

    
      
         

      

      
        - 6
-

        
          

        

      

      
         

      

    

    For
purposes of clause (A) above, an Option shall be considered assumed if,
following the Change of Control, the Option confers the right to purchase, for
each share subject to the Option immediately prior to the Change of Control, the
consideration (whether cash, securities or other property) received as a result
of the Change of Control by holders of shares in the capital of the Company for
each share held immediately prior to the Change of Control (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 the
consideration received as a result of the Change of Control is not solely
capital stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise of
Options to consist solely of capital stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in value (as determined by the
Board) to the per share consideration received by holders of outstanding shares
as a result of the Change of Control.

     

    
      	
               
      

            	
              (b)

            	
              Upon
      the occurrence of a Change of Control as described at (a) above the Board
      may determine that (i) the repurchase and other rights of the Company
      under each outstanding Restricted Stock Award shall inure to the benefit
      of the Company’s successor and shall, unless the Board determines
      otherwise, apply to the cash, securities or other property which the
      shares in the capital of the Company was converted into or exchanged for
      pursuant to such Change of Control in the same manner and to the same
      extent as they applied to the shares in the capital of the Company subject
      to such Restricted Stock Award or (ii) except to the extent specifically
      provided to the contrary in the instrument evidencing any Restricted Stock
      Award or any other agreement between a Participant and the Company, all
      restrictions and conditions on all Restricted Stock Awards then
      outstanding shall automatically be deemed terminated or
      satisfied.

            

    

     

    
      	
              8.3

            	
              Business
      Sale.

            

    

     

    On a sale
of substantially all of the business assets or undertaking of the Company, the
provisions of Section 8.2 (Change of Control) shall apply to the extent that the
Board may take any of the actions described at (A),(B), (C) or (D) therein in
relation to outstanding Awards.

     

    
      	
              9.

            	
              GENERAL PROVISIONS APPLICABLE
      TO AWARDS

            

    

     

    
      	
              9.1

            	
              Transferability of
      Awards.  Awards shall not be transferred, mortgaged,
      pledged or encumbered in any way whatsoever by the person to whom they are
      granted, either voluntarily or by operation of law, except by will or the
      laws of descent and distribution and, during the life of the Participant,
      shall be exercisable only by the Participant.  References to a
      Participant, to the extent relevant in the context, shall include
      references to authorized
transferees.

            

    

     

    
      	
              9.2

            	
              Documentation.  Each
      Award shall be evidenced in such form (written, electronic or otherwise)
      as the Board shall determine.  Each Award may contain terms and
      conditions in addition to those set forth in the
  Plan.

            

    

     

    
      	
              9.3

            	
              Board
      Discretion.  Except as otherwise provided by the Plan,
      each Award may be made alone or in addition or in relation to any other
      Award.  The terms of each Award need not be identical, and the
      Board need not treat Participants
uniformly.

            

    

     

    
      
         

      

      
        - 7
-

        
          

        

      

      
         

      

    

    
      	
              9.4

            	
              Termination of
      Status.  The Board shall determine the effect on an Award
      of the disability, death, termination or other cessation of employment,
      authorized leave of absence or other change in the employment or other
      status of a Participant and the extent to which, and the period during
      which, the Participant, or the Participant’s legal representative,
      conservator, guardian or Designated Beneficiary, may exercise rights under
      the Award.

            

    

     

    
      	
              9.5

            	
              Withholding.  Each
      Participant shall pay to the Company, or make provision satisfactory to
      the Board for payment of, any taxes required by law to be withheld in
      connection with Awards to such Participant no later than the date of the
      event creating the tax liability.  Except as the Board may
      otherwise provide in an Award, when shares in the capital of the Company
      are registered under the Exchange Act, Participants may satisfy such tax
      obligations in whole or in part by delivery of such shares, including
      shares retained from the Award creating the tax obligation, valued at
      their Fair Market Value; provided, however, that the total tax withholding
      where stock is being used to satisfy such tax obligations cannot exceed
      the Company’s minimum statutory withholding obligations (based on minimum
      statutory withholding rates for federal and state tax purposes, including
      payroll taxes, that are applicable to such supplemental taxable
      income).  The Company may, to the extent permitted by law,
      deduct any such tax obligations from any payment of any kind otherwise due
      to a Participant. Shares surrendered to satisfy tax withholding
      requirements cannot be subject to any repurchase, forfeiture, unfulfilled
      vesting or other similar
requirements.

            

    

     

    
      	
              9.6

            	
              Amendment of
      Award.  The Board may amend, modify or terminate any
      outstanding Award, including but not limited to, substituting therefor
      another Award of the same or a different type, changing the date of
      exercise or realization, and converting an Incentive Stock Option to a
      Nonstatutory Stock Option.  The Participant’s consent to such
      action shall be required unless (i) the Board determines that the action,
      taking into account any related action, would not materially and adversely
      affect the Participant’s rights under the Plan or (ii) the change is
      permitted under Section 8 hereof.

            

    

     

    
      	
              9.7

            	
              Conditions on Delivery
      of Stock.  The Company will not be obligated to deliver
      any shares pursuant to the Plan or to remove restrictions from shares
      previously delivered under the Plan until (i) all conditions of the Award
      have been met or removed to the satisfaction of the Company, (ii) in
      the opinion of the Company’s counsel, all other legal matters in
      connection with the issuance and delivery of such shares have been
      satisfied, including any applicable securities laws and any applicable
      stock exchange or stock market rules and regulations, and (iii) the
      Participant has executed and delivered to the Company such representations
      or agreements as the Company may consider appropriate to satisfy the
      requirements of any applicable laws, rules or
  regulations.

            

    

     

    
      	
              9.8

            	
              Acceleration.  The
      Board may at any time provide that any Award shall become immediately
      exercisable in full or in part, free of some or all restrictions or
      conditions, or otherwise realizable in full or in part, as the case may
      be.

            

    

     

    
      
         

      

      
        - 8
-

        
          

        

      

      
         

      

    

    
      	
              10.

            	
              MISCELLANEOUS

            

    

     

    
      	
              10.1

            	
              No Right to Employment
      or Other Status.  No person shall have any claim or right
      to be granted an Award, and the grant of an Award shall not be construed
      as giving a Participant the right to continued employment or any other
      relationship with the Company.  The Company expressly reserves
      the right at any time to dismiss or otherwise terminate its relationship
      with a Participant free from any liability or claim under the Plan, except
      as expressly provided in the applicable
Award.

            

    

     

    
      	
              10.2

            	
              No Rights as
      Stockholder.  Subject to the provisions of the applicable
      Award, no Participant or Designated Beneficiary shall have any rights as a
      stockholder with respect to any shares in the capital of the Company to be
      distributed with respect to an Award until becoming the record holder of
      such shares.

            

    

     

    
      	
              10.3

            	
              Effective Date and
      Term of Plan.  The Plan shall become effective on the
      date on which it is adopted by the Board.  No Awards shall be
      granted under the Plan after the expiration of 10 years from the earlier
      of (i) the date on which the Plan was adopted by the Board or (ii) the
      date the Plan was approved by the Company’s stockholders, but Awards
      previously granted may extend beyond that
date.

            

    

     

    
      	
              10.4

            	
              Amendment of
      Plan.  The Board may amend, suspend or terminate the Plan
      or any portion thereof at any time; provided that if at any time the
      approval of the Company’s stockholders is required as to any modification
      or amendment under Section 422 of the Code or any successor provision with
      respect to Incentive Stock Options, the Board may not effect such
      modification or amendment without such approval.  Unless
      otherwise specified in the amendment, any amendment to the Plan adopted in
      accordance with this Section 10.4 shall apply to, and be binding on the
      holders of, all Awards outstanding under the Plan at the time the
      amendment is adopted, provided the Board determines that such amendment
      does not materially and adversely affect the rights of Participants under
      the Plan.

            

    

     

    
      	
              10.5

            	
              Authorization of
      Sub-Plans.  The Board may from time to time establish one
      or more sub-plans under the Plan for purposes of satisfying applicable
      blue sky, securities or tax laws of various jurisdictions.  The
      Board shall establish such sub-plans by adopting supplements to this Plan
      containing (i) such limitations on the Board’s discretion under the Plan
      as the Board deems necessary or desirable or (ii) such additional terms
      and conditions not otherwise inconsistent with the Plan as the Board shall
      deem necessary or desirable.  All supplements adopted by the
      Board shall be deemed to be part of the Plan, but each supplement shall
      apply only to Participants within the affected jurisdiction and the
      Company shall not be required to provide copies of any supplement to
      Participants in any jurisdiction which is not the subject of such
      supplement.

            

    

     

    
      	
              10.6

            	
              Compliance with Code
      Section 409A.  No Award shall provide for deferral of
      compensation that does not comply with Section 409A of the Code, unless
      the Board, at the time of grant, specifically provides that the Award is
      not intended to comply with Section 409A of the Code.  The
      Company shall have no liability to a Participant, or any other party, if
      an Award that is intended to be exempt from, or compliant with, Section
      409A is not so exempt or compliant or for any action taken by the
      Board.

            

    

     

    
      
         

      

      
        - 9
-

        
          

        

      

      
         

      

    

    
      	
              10.7

            	
              Governing
      Law.  The provisions of the Plan and all Awards made
      hereunder shall be governed by and construed in accordance with English
      law.

            

    

     

    
      
         

      

      
        - 10
-

        
          

        

      

      
         

      

    

    Image
Metrics Limited

     

    2009 STOCK INCENTIVE
PLAN

     

    CALIFORNIA
SUPPLEMENT

     

    Pursuant
to Section 10.5 of the Plan, the Board has adopted this supplement for purposes
of satisfying the requirements of Section 25102(o) of the California
Law:

     

    Any
Awards granted under the Plan to a Participant who is a resident of the State of
California on the date of grant (a “California Participant”) shall be subject to
the following additional limitations, terms and conditions:

     

    
      	
              1.

            	
              ADDITIONAL
      LIMITATIONS ON OPTIONS.

            

    

     

    
      	
              1.1

            	
              Maximum Duration of
      Options.  No Options granted to California Participants
      shall have a term in excess of 120 months measured from the Option grant
      date.

            

    

     

    
      	
              1.2

            	
              Minimum Exercise
      Period Following Termination.  Unless a California
      Participant’s employment is terminated for cause (as defined by applicable
      law, the terms of any contract of employment between the Company and such
      Participant, or in the instrument evidencing the grant of such
      Participant’s Option), in the event of termination of employment of such
      Participant, such Participant shall have the right to exercise an Option,
      to the extent that he or she was otherwise entitled to exercise such
      Option on the date employment terminated, until the earlier of: (i) at
      least six months from the date of termination, if termination was caused
      by such Participant’s death or “permanent and total disability” (within
      the meaning of Section 22(e)(3) of the Code), (ii) at least 30 days from
      the date of termination, if termination was caused other than by such
      Participant’s death or “permanent and total disability” (within the
      meaning of Section 22(e)(3) of the Code) and (iii) the Option expiration
      date.

            

    

     

    
      	
              2.

            	
              ADDITIONAL
      LIMITATIONS.

            

    

     

    
      	
               
      

            	
              The
      terms of all Awards granted to a California Participant under Section 7 of
      the Plan shall comply, to the extent applicable, with Section 260.140.41,
      Section 260.140.42 Section 260.140.45 and Section 260.140.46 of the
      California Code of Regulations.

            

    

     

    
      	
              3.

            	
              ADDITIONAL
      LIMITATIONS ON TIMING OF AWARDS.

            

    

     

    
      	
               
      

            	
              No
      Award granted to a California Participant shall become exercisable, vested
      or realizable, as applicable to such Award, unless the Plan has been
      approved by the holders of a majority of the Company’s outstanding voting
      securities by the later of (i) within 12 months before or after the
      date the Plan was adopted by the Board or (ii) prior to or within 12
      months of the granting of any Award to a California
      Participant.

            

    

     

    
      
         

      

      
        A - 1

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