Document:

Exhibit
10.1

CREDIT AGREEMENT

THIS
CREDIT AGREEMENT (as amended, restated and supplemented from time to time, this
“Agreement”) by and between THOMAS
GROUP, INC., a Delaware corporation (“Borrower”)
and JPMORGAN CHASE BANK, N.A., a national banking association (“Bank”), is dated as of December 5,
2006 (the “Effective Date”).

The
parties hereto agree as follows:

ARTICLE
I.

THE LOANS

SECTION 1.01.      Revolving
Credit Note.  Subject to the terms
and conditions hereof, Bank agrees to make loans (“Loan” or “Loans”) to Borrower from time to time before the
Termination Date, not to exceed at any one time outstanding Five Million Five
Hundred Thousand and No/100 Dollars ($5,500,000) (the “Commitment”).  Borrower has the right to borrow, repay and
reborrow.  Each Loan must be at least
$100,000 or the balance of the Commitment, whichever is less, and each
repayment must be at least $100,000 or the principal balance of the Note (as
defined below), whichever is less.  The
Loans may only be used for working capital needs, capital expenditures and
other general corporate purposes. Chapter 346 of the Texas Finance Code (which
governs certain revolving loan accounts) will not apply to this Agreement, the
Note or any Loan.  The Loans will be
evidenced by, and will bear interest and be payable as provided in, the
promissory note of Borrower dated of even date herewith (together with any and
all renewals, extensions, modifications and replacements thereof and
substitutions therefor, the “Note”).  “Termination
Date” means the earlier of: (a) March 31, 2009; (b) the date
specified by Bank pursuant to Section 6.1 hereof, or (c) the date
specified by Bank pursuant to Section 5.12 hereof.

SECTION 1.02.      Reserved.

SECTION 1.03.      Required
Payment. 
If the unpaid amount of the Loans at any time exceeds the
Commitment then in effect, Borrower must make a payment on the Note in an
amount sufficient to reduce the unpaid principal balance of the Note to an
amount no greater than the Commitment. 
Such payment shall be accompanied by any prepayment charge required by
the Note.

SECTION 1.04.      Commitment Fee. 
Borrower agrees to pay to Bank a commitment fee in the amount of the
product of the average daily unused amount of the Commitment times 0.25% per
annum (“Commitment Fee”).  Accrued Commitment Fees payable under this
Section shall be payable in arrears on the last day of each fiscal quarter and
on the date on which the Commitment terminates, commencing on the first such
date to occur after the date hereof.  All

 

Commitment Fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).

SECTION 1.05.      Past-Due
Amounts. 
Each amount due to Bank in connection with the Loan Documents
will bear interest from its due date until paid at the lesser of: (a) three
percent (3%) per annum plus the then applicable rate under the Note, or (ii)
the Highest Lawful Rate.

SECTION 1.06.      Capital
Adequacy.  If Bank determines after the date of this
Agreement that any change in applicable laws, rules or regulations regarding
capital adequacy, or any change in the interpretation or administration thereof
by any appropriate governmental agency, or compliance with any request or
directive to Bank regarding capital adequacy (whether or not having the force
of law) of any such agency, increases the capital required to be maintained
with respect to the Loan or Note and therefore reduces the rate of return on
Bank’s capital below the level Bank could have achieved but for such change or
compliance (taking into consideration Bank’s policies with respect to capital
adequacy), then Borrower will pay to Bank from time to time, within fifteen
(15) days of Bank’s request, any additional amount required to compensate Bank
for such reduction.  Bank will request
any additional amount by delivering to Borrower a certificate of Bank setting
forth the amount necessary to compensate Bank. 
The certificate will be conclusive and binding, absent manifest
error.  Bank may make any assumptions, and
may use any allocations of costs and expenses and any averaging and attribution
methods, which Bank in good faith finds reasonable.

ARTICLE
II.

CONDITIONS
PRECEDENT

SECTION 2.01.      All Loans. 
Bank is not obligated to make any Loan unless:(a) Bank has received the
following, duly executed and in Proper Form: (1) a Request for Loan,
substantially in the form of Exhibit A attached hereto, not later than
the period required under the Note before the date (which shall also be a
Business Day) of the proposed Loan; provided however, Bank may accept and act
upon verbal advance requests received from Borrower’s representative reasonably
believed by Bank to be authorized to make such requests; and (2) such other
documents as Bank reasonably may require; (b) no Event of Default exists; and
(c) the making of the Loan is not prohibited by, or subjects Bank to any
penalty or onerous condition under any Legal Requirement.

SECTION 2.02.      First Loan.  In
addition to the matters described in the preceding section, Bank will not be
obligated to make the first Loan unless Bank has received all of the documents
specified on Annex I attached hereto in Proper Form.

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ARTICLE
III.

REPRESENTATIONS
AND WARRANTIES

To induce Bank to enter
into this Agreement and to make the Loans, Borrower represents and warrants as
of the Effective Date and as of the date of each request for a Loan that each
of the following statements is and shall remain true and correct throughout the
term of this Agreement:

SECTION 3.01.      Organization
and Status.  Borrower and each Subsidiary of Borrower is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; has all power and authority to conduct its
business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification desirable.  Borrower has no Subsidiary other than those
listed on Annex II, as supplemented from time to time to include any new
Subsidiaries created or acquired in accordance with this Agreement, and each
Subsidiary is owned by Borrower in the percentage set forth on Annex II.

SECTION 3.02.      Financial
Statements.  All financial statements delivered
to Bank are complete and correct and fairly present, in accordance with
generally accepted accounting principles, consistently applied (“GAAP”), the financial condition and the
results of operations of Borrower and each Subsidiary of Borrower as at the
dates and for the periods indicated.  No
material adverse change has occurred in the assets, liabilities, financial
condition, business or affairs of Borrower or any Subsidiary of Borrower since
the dates of such financial statements. 
Neither Borrower nor any Subsidiary of Borrower is subject to any
instrument or agreement having a Material Adverse Effect on Borrower or any
Subsidiary.

SECTION 3.03.      Enforceability.  The
Loan Documents are legal, valid and binding obligations of the Parties
enforceable in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency and other similar laws affecting creditors’ rights
generally.  The execution, delivery and
performance of the Loan Documents have all been duly authorized by all
necessary action; are within the power and authority of the Parties; do not and
will not violate any Legal Requirement, the Organizational Documents of the
Parties or any agreement or instrument binding or affecting the Parties or any
of their respective Property.

SECTION 3.04.      Compliance. 
Borrower and each Subsidiary of Borrower has filed all applicable tax
returns and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith
and for which adequate reserves have been established.  Borrower and each Subsidiary of Borrower is
in compliance with all applicable Legal Requirements for which noncompliance
could result in a Material Adverse Effect on Borrower. Borrower and each Subsidiary
of Borrower manage and operate (and will continue to manage and operate) their
respective businesses in accordance with good industry practices.  Neither Borrower nor any Subsidiary of
Borrower is in default in the payment of any other indebtedness in an aggregate
amount in excess of $250,000 or under any material agreement to which it is a
party.  The Parties have obtained all
consents of and

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registered
with all Governmental Authorities or other Persons required to execute, deliver
and perform the Loan Documents.

SECTION 3.05.      Litigation. 
Except as previously disclosed to Bank in writing, there is no
litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree affecting
Borrower or any Subsidiary of Borrower before or by any Governmental Authority
which could have a Material Adverse Effect on Borrower.

SECTION 3.06.      Intentionally
Deleted.

SECTION 3.07.      Regulation
U; Business Purpose.  None of the proceeds of any Loan will be used
to purchase or carry, directly or indirectly, any margin stock or for any other
purpose which would make this credit a “purpose credit” within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System.  All Loans will be used for business,
commercial, investment, agricultural or other similar purpose and not primarily
for personal, family, or household use.

SECTION 3.08.      Environment. 
Borrower and each Subsidiary of Borrower have complied with applicable
Legal Requirements in each instance in which any of them have generated,
handled, used, stored or disposed of any hazardous or toxic waste or substance,
on or off its premises (whether or not owned by any of them).  Neither Borrower nor any Subsidiary of
Borrower has any material contingent liability for non-compliance with
environmental or hazardous waste laws. 
Neither Borrower nor any Subsidiary of Borrower has received any notice
that it or any of its Property or operations does not comply with, or that any
Governmental Authority is investigating its compliance with, any environmental
or hazardous waste laws.

SECTION 3.09.      Investment
Company Act/Public Utility Holding Company Act.  Neither Borrower nor
any Subsidiary of Borrower is an “investment company” within the meaning of the
Investment Company Act of 1940 or a “holding company” or an “affiliate” of a “holding
company” or a “public utility” within the meaning of the Public Utility Holding
Company Act of 1935, as amended.

ARTICLE IV.

AFFIRMATIVE COVENANTS

Borrower agrees to
do, and if necessary cause to be done, and cause each of its Subsidiaries to
do, each of the following:

SECTION 4.01.      Corporate
Fundamentals.

(a)                                  Pay
when due all taxes and governmental charges of every kind upon it or against
its income, profits or Property, unless and only to the extent that the same
shall be contested in good faith and adequate reserves have been established
therefor;

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(b)                                 Renew
and keep in full force and effect all of its licenses, permits and franchises
necessary for the conduct of its business;

(c)                                  Do
all things necessary to preserve its corporate existence and its qualifications
and rights in all jurisdictions where such qualification is necessary; and

(d)                                 Comply
with all applicable Legal Requirements for which noncompliance could result in
a Material Adverse Effect on Borrower; and

(e)                                  Protect,
maintain and keep in good repair its Property and make all replacements and
additions to its Property as may be reasonably necessary to conduct its
business properly and efficiently.

SECTION 4.02.      Insurance.  Maintain insurance with such reputable
financially sound insurers, on such of its Property and personnel, in such
amounts and against such risks as is customary with similar Persons in similar
businesses, and furnish Bank satisfactory evidence thereof promptly upon request.

SECTION 4.03.      Financial
Information.  Furnish to Bank in Proper Form:

(a)                                  the
financial statements prepared in conformity with GAAP on consolidated and
consolidating bases and the other information described in, and within the
times required by, the Reporting Requirements, Financial Covenants and
Compliance Certificate attached hereto as Exhibit B and incorporated
herein by reference (“Compliance Certificate”);

(b)                                 within
the time required by the Compliance Certificate, a completed Compliance Certificate
signed and certified by the chief financial officer or president of the Party
required to submit the information;

(c)                                  promptly
after such request is submitted to the appropriate Governmental Authority, any
request for waiver of funding standards or extension of amortization periods
with respect to any employee benefit plan; and

(d)                                 such
other information relating to the financial condition and affairs of Borrower,
each Obligor and their Subsidiaries as Bank may reasonably request from time to
time.

SECTION 4.04.      Matters
Requiring Notice.  Notify Bank immediately, upon acquiring
knowledge of (a) the institution or threatened institution of any lawsuit or
administrative proceeding which, if adversely determined, might have a Material
Adverse Effect on Borrower; (b) any material adverse change in the assets,
liabilities, financial condition, business or affairs of Borrower; (c) any
Event of Default; (d) any reportable event or any prohibited transaction in
connection with any employee benefit plan; or (e) any sale, transfer,
hypothecation, assignment or other disposition by any of the Current Owners of
any shares of the
capital stock of the Borrower except (i) in one or more transactions in which
one or more of the Current Owners retains beneficial ownership of such shares
(within the meaning of the Securities

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Exchange Act of 1934 and the
rules of the Securities and Exchange Commission thereunder as in effect on the
date hereof), (ii) in sales made into the public securities markets pursuant to
Rule 144 under the Securities Act of 1933, as amended, or any similar provision
or (iii) in connection with a public offering or registered sale unless such
transaction is reasonably expected to cause a Change in Control (and provided
that no such notice shall be required during any period in which notification
of such registered sale or public offering is not permitted by or is
inadvisable in light of applicable Legal Requirements).

SECTION 4.05.      Inspection. 
Upon prior notice to Borrower, permit Bank and its affiliates to inspect
and photograph its Property, to examine and copy its files, books and records,
and to discuss its affairs with its officers and accountants, at such times and
intervals and to such extent as Bank reasonably desires.

SECTION 4.06.      Assurances. 
Promptly execute and deliver any and all further agreements, documents,
instruments, and other writings that Bank may request to cure any defect in the
execution and delivery of any Loan Document or more fully to describe
particular aspects of the agreements set forth or intended to be set forth in
the Loan Documents.

SECTION 4.07.      Certain
Changes.  Notify Bank at least thirty (30) days prior
to the date that any of the Parties changes its name or the location of its
chief executive office or principal place of business.

SECTION 4.08.      Compliance
Certificate.  Comply with each of the other covenants set
forth in the Compliance Certificate attached hereto as Exhibit B.

SECTION 4.09.      Accounts. 
Maintain primary operating and collection bank accounts with Bank.

SECTION 4.10.      Minimum Tangible Net
Worth.

(a)                                  For
the period commencing on the date of this Agreement through and including
December 31, 2006, maintain, as of any fiscal quarter end, Tangible Net Worth
greater than or equal to (i) $8,000,000, plus (ii) 50% of the sum of (a)
positive Net Income for the Initial Measurement Period, minus (b) Stock
Repurchases for the Initial Measurement Period, minus (c) Distributions for the
Initial Measurement Period.

(b)                                 For
the period commencing on January 1, 2007 and at all times thereafter, maintain,
as of any fiscal quarter end, Tangible Net Worth greater than or equal to (i)
$8,000,000, plus (ii) 50% of the sum of (a) positive Net Income for the
four-quarter period then ending, minus (b) Stock Repurchases for the four-quarter
period then ending, minus (c) Distributions for the four-quarter period then
ending.

 

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SECTION 4.11.      Compliance with Agreements.  Comply, and cause each Subsidiary to comply,
in all material respects with all material agreements, contracts, and
instruments binding on it or affecting its properties or business.

SECTION 4.12.      Additional
Subsidiaries.  If any additional
Subsidiary is formed or acquired, with the Bank’s prior consent (in accordance
with Section 5.08), after the Effective Date and if such Subsidiary is a
Domestic Subsidiary, Borrower will cause such Domestic Subsidiary to become a
Guarantor within five Business Days after such Domestic Subsidiary is formed or
acquired, provided that if Borrower has not received a form of guaranty from
the Bank on or before the date such Domestic Subsidiary is formed or acquired,
then Borrower will have five (5) Business Days from the date of receipt of such
guaranty to comply with this Section, and promptly after delivery of such
guaranty form from the Bank, Borrower shall take such actions to create and
perfect Liens on such Domestic Subsidiary’s Accounts and Proceeds to secure the
Obligations as the Bank shall request. 
If such Subsidiary is a Foreign Subsidiary and any equity interest in or
Indebtedness of such Foreign Subsidiary are owned by or on behalf of the
Borrower or any Guarantor, Borrower will cause to be pledged to Bank within
five (5) Business Days after such Foreign Subsidiary is formed or acquired,
provided that if Borrower has not received a form of security agreement from
the Bank on or before the date such Foreign Subsidiary is formed or acquired,
then Borrower will have five (5) Business Days from the date of receipt of such
security agreement to comply with this Section, all shares of common stock of
the Foreign Subsidiary and all other shares of capital stock of whatever class
of the Foreign Subsidiary now or hereafter owned by or on behalf of the
Borrower or any Guarantor and all equity rights of any such Foreign Subsidiary,
subject, however, to the limitation that shares of capital stock of any such
Foreign Subsidiary which represent in excess of 65% of the combined voting
power of all classes of capital stock of such Foreign Subsidiary shall not be
pledged; provided, however, that if following a change in the
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder which would
permit a pledge of 66-2/3% or more of the total combined voting power of all
classes of capital stock of any Foreign Subsidiary entitled to vote without
causing the undistributed earnings of such Foreign Subsidiary as determined for
Federal income taxes to be treated as a deemed dividend to the Borrower for
Federal income tax purposes, then the 65% limitation set forth above shall no
longer be applicable and the Borrower shall cause to be duly pledged and
delivered to Bank such of the capital stock not theretofore required to be
pledged under this Agreement.

ARTICLE
V.

NEGATIVE
COVENANTS

Borrower will not, and no
Subsidiary of Borrower will:

SECTION 5.01.      Indebtedness. 
Create, incur, or permit to exist, or assume or guarantee, directly or
indirectly, or become or remain liable with respect to, any Indebtedness,
contingent or otherwise except:

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(a)                                  Indebtedness
to Bank, or secured by Liens permitted by this Agreement, or otherwise approved
in writing by Bank, and renewals and extensions (but not increases) thereof;

(b)                                 Purchase
money Indebtedness owing to Persons other than Bank, so long as the amount of
such purchase money Indebtedness incurred by Borrower does not exceed $250,000, in the aggregate at any
time outstanding;

(c)                                  Indebtedness
(other than the purchase money Indebtedness referenced in Section 5.01(b))
owing to Persons other than Bank, so long as the amount of such Indebtedness
incurred by Borrower does not exceed $250,000,
in the aggregate at any time outstanding;

(d)                                 Indebtedness
outstanding as of the date hereof more particularly described in Schedule
5.01 attached hereto, and all renewals and extensions (but not increases)
thereto; and

(e)                                  Current
accounts payable and unsecured current liabilities, not the result of
borrowing, to vendors, suppliers and Persons providing services, for
expenditures for goods and services normally required by it in the ordinary
course of business and on ordinary trade terms.

SECTION 5.02.      Liens. 
Create or permit to exist any Lien upon any of its Property now owned or
hereafter acquired, except:

(a)                                  Liens,
not for borrowed money, arising in the ordinary course of business;

(b)                                 Liens
for taxes not delinquent or being contested in good faith by appropriate
proceedings;

(c)                                  Liens
in effect on the date hereof and set forth in Schedule 5.02, so long as neither
the indebtedness secured thereby nor the Property covered thereby increases;

(d)                                 Liens
securing purchase money Indebtedness that is otherwise permitted under Section
5.01(b) of this Agreement; and

(e)                                  Liens
in favor of Bank, or otherwise approved in writing by Bank.

SECTION 5.03.      Financial
and Other Covenants.  Fail to comply with the required financial
covenants and other covenants described, and calculated as set forth, in Exhibit
B.  Unless otherwise provided on Exhibit
B, all such amounts and ratios will be calculated: (a) on the basis of
GAAP; and (b) on a consolidated basis. 
Compliance with the requirements of Exhibit B will be determined
as of the dates of the financial statements to be provided to Bank.

SECTION 5.04.      Corporate
Changes.  In any single transaction or series of
transactions, directly or indirectly:

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(a)                                  liquidate
or dissolve except for Subsidiaries into Subsidiaries that are Guarantors or
into Borrower;

(b)                                 be
a party to any merger, acquisition or consolidation except between Subsidiaries
that are Guarantors, or with Borrower as long as Borrower is the surviving
entity;

(c)                                  sell
or dispose of any interest in any of its Subsidiaries, or permit any of its
Subsidiaries to issue any additional equity other than to Borrower or to a
Subsidiary that is a Guarantor;

(d)                                 sell,
convey or lease all or any substantial part of its assets, except for
sale of inventory in the ordinary course of business; or

(e)                                  permit
any Change in Control of Borrower, without the consent of Bank, which consent
shall not be unreasonably withheld, conditioned, or delayed.

SECTION 5.05.      Restricted
Payments.  Unless otherwise permitted on Exhibit B,
at any time: (a) redeem, retire or otherwise acquire, directly or indirectly,
any shares of its capital stock or other equity interest except a
Permitted Redemption; (b) declare or pay any dividend (except (i) stock
dividends and dividends paid to Borrower, and/or (ii) any other dividends to
the extent that (A) an Event of Default has not occurred and is not then
continuing, and (B) giving effect to such dividend will not result in the
occurrence of an Event of Default); or (c) make any other distribution or contribution
of any Property or cash or obligation to owners of an equity interest or to a
Subsidiary in their capacity as such.

SECTION 5.06.      Nature of
Business; Management.  Change the nature of its business or enter
into any business which is substantially different from the business in which
it is presently engaged.

SECTION 5.07.      Affiliate
Transactions.  Enter into any transaction or agreement with
any Affiliate except upon terms substantially similar to those obtainable from
wholly unrelated sources.

SECTION 5.08.      Subsidiaries. 
Form, create or acquire any Subsidiary without Bank’s prior written
consent, which consent (a) may be withheld in Bank’s sole and absolute
discretion with respect to the formation, creation or acquisition of any
Foreign Subsidiary, and (b) shall not be unreasonably withheld or delayed with
respect to any Domestic Subsidiary so long as (i) no Default or Event of
Default exists or would result therefrom, and (ii) Borrower promptly complies
with Section 4.12 of this Agreement.

SECTION 5.09.      Loans and
Investments.  Unless otherwise provided on Exhibit B,
make any advance, loan, extension of credit, or capital contribution to or
investment in, or purchase, any stock, bonds, notes, debentures, or other
securities of, any Person, except:

(a)                                  readily
marketable direct obligations of the United States of America or any agency
thereof with maturities of one year or less from the date of acquisition;

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(b)                                 a
Permitted Redemption;

(c)                                  Permitted
Investments;

(d)                                 fully
insured certificates of deposit with maturities of one year or less from the
date of acquisition issued by any commercial bank operating in the United
States of America having capital and surplus in excess of $50,000,000.00; and

(e)                                  commercial
paper of a domestic issuer if at the time of purchase such paper is rated in
one of the two highest rating categories of Standard and Poor’s Corporation or
Moody’s Investors Service.

SECTION 5.10.      Capital Expenditures.  Permit the aggregate Capital
Expenditures of Borrower and its Subsidiaries to exceed $500,000 on an annual
basis during the term of this Agreement.

SECTION 5.11.      Government Regulation.  (1) be or become subject at any time to any
law, regulation, or list of any government agency (including, without
limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Bank from making any advance or extension of credit to Borrower or from
otherwise conducting business with Borrower, or (2) fail to provide documentary
and other evidence of Borrower’s identity as may be requested by Bank at any
time to enable Bank to verify Borrower’s identity or to comply with any
applicable law or regulation, including, without limitation, Section 326 of the
USA Patriot Act of 2001, 31 U.S.C. Section 5318.

SECTION 5.12.      Change Of
Chief Executive Officer. Cause or permit the Chief Executive Officer of the
Borrower to cease being directly involved in the executive management of the
Borrower (as Chief Executive Officer, or otherwise) without notifying the Bank
in writing (“CEO Change Notice”) of the occurrence of such event within
five (5) Business Days after such occurrence (“Change Notice Period”).  Upon delivery of such notice to the Bank, the
Borrower may, for a period of 90 days from the date of such notice (the “Substitution
Period”), seek a qualified replacement for the Chief Executive Officer that
is reasonably acceptable to the Bank. If the Borrower fails to provide the CEO
Change Notice, or fails to find a qualified replacement reasonably acceptable
to the Bank within the Substitution Period, then the Bank may elect to (i)
terminate the Commitment by so notifying the Borrower in writing (such notice
being referred to herein as the “Termination Notice”) within thirty (30)
days after the expiration date of the Substitution Period (or, in the case of a
failure of Borrower to timely provide the CEO Change Notice, at any time after
the of end of Change Notice Period), and (ii) accelerate the Termination Date
to a date which is thirty (30) days after the date of the Termination Notice.

 

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ARTICLE VI.

EVENTS OF DEFAULT AND REMEDIES

SECTION 6.01.      Events
of Default.  Each of the following is
an “Event of Default”:

(a)                                  Any Obligor fails to
pay any principal of the Note as and when due; or

(b)                                 Any Obligor fails to
pay any interest on the Note or any other obligation under any Loan Document as
and when due and such failure remains unremedied for five (5) days; or

(c)                                  Any
Obligor or any Subsidiary of Borrower fails to pay at maturity, or within any
applicable period of grace, any principal of or interest on any other borrowed
money obligation in excess of $250,000; or

(d)                                 Any
representation or warranty made in any Loan Document was incorrect, false or
misleading when made; or

(e)                                  Any
Obligor violates any term, covenant or other provision contained in any Loan
Document and, only in respect of the
violation of covenants in Sections 4.01, 4.02, 4.05, 4.06 and 4.07 of this
Agreement, such failure shall continue unremedied for ten (10) business days;
or

(f)                                    An
event of default (other than an event of default covered by (a), (b) or (d)
above) occurs under any other Loan Document; or

(g)                                 Final
judgment for the payment of money in excess of $50,000 is rendered against any
Obligor or any Subsidiary of Borrower and remains undischarged for a period of
thirty (30) days during which execution is not effectively stayed; or

(h)                                 The
making of any levy, seizure, garnishment, sequestration or attachment of or on
any of the Collateral; or

(i)                                     Any
order is entered in any proceeding against any Obligor or any Subsidiary of
Borrower decreeing the dissolution, liquidation or split-up thereof, and such
order shall remain in effect for thirty (30) days; or

(j)                                     Any
Obligor or any Subsidiary of Borrower makes a general assignment for the
benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against
any Obligor or any Subsidiary of Borrower and the Obligor or such Subsidiary by
any act or omission shall indicate

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approval thereof, consent thereto or
acquiescence therein, or an order shall be entered appointing a trustee,
custodian, receiver or liquidator of all or any substantial part of the assets
of any Obligor or any Subsidiary of Borrower or granting relief to any Obligor
or any Subsidiary of Borrower or approving the petition in any such proceeding,
and such order shall remain in effect for more than thirty (30) days; or any
Obligor or any Subsidiary of Borrower shall fail generally to pay its debts as
they become due or suffer any writ of attachment or execution or any similar
process to be issued or levied against it or any substantial part of its
property which is not released, stayed, bonded or vacated within thirty (30)
days after its issue or levy; or

(k)                                  A
material adverse change occurs in the assets, liabilities, financial condition,
business or affairs of any Obligor or any Subsidiary of Borrower; or

(l)                                     Any
Change of Control for which Borrower has not obtained the written consent of
Bank.

SECTION 6.02.      If any Event of
Default occurs, then Bank may do any or all of the following, at its sole
discretion: (1) declare the Obligations to be immediately due and payable
without notice of acceleration or of intention to accelerate, presentment and
demand or protest, all of which are hereby expressly waived; (2) without notice
to any Obligor, terminate the Commitment and accelerate the Termination Date;
(3) set off, in any order, against the indebtedness of any Obligor under the
Loan Documents any debt owing by Bank to the Obligor (whether such debt is owed
individually or jointly), including, but not limited to, any deposit account,
which right is hereby granted by each Obligor to Bank; and (4) exercise any and
all other rights pursuant to the Loan Documents, at law, in equity or
otherwise.  Nothing in this Agreement is
intended to waive or vary the duties of Bank or the rights of any Obligor in
violation of Section 9.602 of the Texas Business and Commerce Code.

SECTION 6.03.      Remedies
Cumulative.  No remedy, right or power of Bank is
exclusive of any other remedy, right or power now or hereafter existing by
contract, at law, in equity, or otherwise, and all remedies, rights and powers
are cumulative.

ARTICLE VII.

MISCELLANEOUS.

SECTION 7.01.      No Waiver.  No
waiver of any default or Event of Default will be a waiver of any other default
or Event of Default.  No failure to
exercise or delay in exercising any right or power under any Loan Document will
be a waiver thereof, nor shall any single or partial exercise of any such right
or power preclude any further or other exercise thereof or the exercise of any
other right or power.  The making of any
Loan during either the existence of any default or Event of Default, or
subsequent to the occurrence of an Event of Default will not be a waiver of any
such default or Event of Default.  No
amendment, modification or waiver of any Loan Document will be effective unless
the same is in writing and signed by the Person against whom such amendment,
modification or waiver is sought to be enforced.  No notice to or demand on

 12
 

 

any Person
shall entitle any Person to any other or further notice or demand in similar or
other circumstances.

SECTION 7.02.      Notices. 
All notices required under the Loan Documents shall be in writing and
either delivered against receipt therefor, or mailed by registered or certified
mail, return receipt requested, in each case addressed to the address shown on
the signature page hereof or to such other address as a party may designate, or
by facsimile to the facsimile number shown on the last page (provided that a
copy of such facsimile shall also be sent by registered or certified mail,
return receipt requested).  Except for
the notices required by Section 2.1, which shall be given only upon actual
receipt by Bank, notices shall be deemed to have been given (whether actually
received or not) when delivered (or, if mailed, on the next Business Day).

SECTION 7.03.      Governing
Law.  UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA.

SECTION 7.04.      Survival;
Parties Bound; Term of Agreement.  All representations, warranties, covenants
and agreements made by or on behalf of Borrower in the Loan Documents will
survive the execution and delivery of the Loan Documents; will not be affected
by any investigation made by any Person, and will bind Borrower and the
successors, trustees, receivers and assigns of Borrower and will benefit the
successors and assigns of Bank; provided that Bank’s agreement to make
Loans to Borrower will not inure to the benefit of any successor or assign of
Borrower.  Except as otherwise provided
herein, the term of this Agreement will be until the later of the final maturity
of the Note and the full and final payment of all Obligations and all amounts
due under the Loan Documents.

SECTION 7.05.      Documentary
Matters.  This Agreement may be executed in several
identical counterparts, on separate counterparts; each counterpart will constitute
an original instrument, and all separate counterparts will constitute but one
and the same instrument.  The headings
and captions in the Loan Documents have been included solely for convenience
and should not be considered in construing the Loan Documents.  If any provision of any Loan Document is
invalid, illegal or unenforceable in any respect under any applicable law, the
remaining provisions will remain effective.

SECTION 7.06.      Expenses.  Any provision to the contrary notwithstanding,
and whether or not the transactions contemplated by this Agreement are
consummated, Borrower agrees to pay on demand all out-of-pocket expenses
(including, without limitation, the reasonable fees and expenses of counsel for
Bank) in connection with the negotiation, preparation, execution, filing,
recording, modification, supplementing and waiver of the Loan Documents and the
making, servicing and collection of the Loans. 
Borrower agrees to pay Bank’s standard Documentation Preparation and
Processing Fee for preparation, negotiation and handling of this
Agreement.  The obligations of Borrower
under this and the following section will survive the termination of this
Agreement.

SECTION 7.07.      Indemnification.  Borrower agrees to indemnify, defend and hold
Bank harmless from and against any and all loss, liability, obligation, damage,
penalty, judgment,

 13
 

 

claim,
deficiency and expense (including interest, penalties, attorneys’ fees and
amounts paid in settlement) to which Bank may become subject arising out of or
based upon the Loan Documents, or any Loan, INCLUDING
ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY
AND EXPENSE RESULTING FROM BANK’S OWN NEGLIGENCE, except and
to the extent caused by Bank’s gross negligence or willful misconduct.

SECTION 7.08.      Nature of
Obligations.  If more than one Borrower executes this
Agreement, all of the representations, warranties, covenants and agreements of
Borrower shall be joint and several obligations of all Borrowers.

SECTION 7.09.      Usury Not
Intended.  No provision of this Agreement or of any other
Loan Document shall require the payment or the collection of interest in excess
of the maximum amount permitted by applicable law.  If any excess of interest in such respect is
hereby provided for, or shall be adjudicated to be so provided, in any Loan
Document or otherwise in connection with this loan transaction, the provisions
of this Section shall govern and prevail and neither the Borrower nor the
sureties, guarantors, successors, or assigns of the Borrower shall be obligated
to pay the excess amount of such interest or any other excess sum paid for the
use, forbearance, or detention of sums loaned pursuant hereto.  In the event Bank ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a payment and
reduction of the principal of the indebtedness evidenced by the Note; and, if
the principal of the Note has been paid in full, any remaining excess shall
forthwith be paid to the Borrower.  In
determining whether or not the interest paid or payable exceeds the Highest
Lawful Rate, the Borrower and Bank shall, to the extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee, or
premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) amortize, prorate, allocate, and spread in equal
or unequal parts the total amount of interest throughout the entire contemplated
term of the indebtedness evidenced by the Note so that interest for the entire
term does not exceed the Highest Lawful Rate.

SECTION 7.10.      No
Course of Dealing.  NO COURSE OF DEALING BY BORROWER WITH BANK,
NO COURSE OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF
ANY NATURE MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF
THIS AGREEMENT.

SECTION 7.11.      Jury
Trial Waiver.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW, BORROWER AND BANK HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
ANY RIGHT TO TRIAL BY JURY THAT BORROWER OR BANK MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS AGREEMENT OR THE
OBLIGATIONS. BORROWER REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT
OF BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WILL NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY TRIAL WAIVER. BORROWER
ACKNOWLEDGES THAT BANK HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS SECTION.

 

 14

 

SECTION 7.12.      NO
ORAL AGREEMENTS.  THIS AGREEMENT, THE
NOTE AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES HERETO.  THERE ARE NO UNWRITTEN
ORAL AGREEMENTS AMONG THE PARTIES HERETO.

SECTION
7.13.      USA PATRIOT ACT NOTIFICATION.
The following notification is provided to Borrower pursuant to Section 326 of
the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A
NEW ACCOUNT. To help the government fight the funding of terrorism and money
laundering activities, Federal law requires all financial institutions to
obtain, verify, and record information that identifies each person or entity
that opens an account, including any deposit account, treasury management
account, loan, other extension of credit, or other financial services product.
What this means for Borrower: When Borrower opens an account, if Borrower is an
individual Bank will ask for Borrower’s name, taxpayer identification number,
residential address, date of birth, and other information that will allow Bank
to identify Borrower, and if Borrower is not an individual Bank will ask for
Borrower’s name, taxpayer identification number, business address, and other
information that will allow Bank to identify Borrower. Bank may also ask, if
Borrower is an individual to see Borrower’s driver’s license or other
identifying documents, and if Borrower is not an individual to see Borrower’s
legal organizational documents or other identifying documents.

ARTICLE
VIII.

DEFINITIONS.

Unless
the context otherwise requires, capitalized terms used in Loan Documents and
not defined elsewhere shall have the meanings provided by GAAP, except as
follows:

Affiliate means, as to any Person,
any other Person that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
such Person.  The term “control” means to
possess, directly or indirectly, the power to direct the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.  Bank is not
under any circumstances to be deemed an Affiliate of Borrower or any of its
Subsidiaries.

Authority Documents means certificates of
authority to transact business, certificates of good standing, borrowing
resolutions (with secretary’s certificate), secretary’s certificates of
incumbency, and other documents which empower and enable Borrower or its
representatives to enter into agreements evidenced by Loan Documents or
evidence such authority.

 15
 

 

Business Day means a day when the
main office of Bank is open for the conduct of commercial lending business.

Capital Expenditures means, for any period, the additions to property, plant and equipment
and other capital expenditures of the Borrower and its Subsidiaries that are
(or would be) set forth in a consolidated statement of cash flows of the
Borrower for such period prepared in accordance with GAAP.

Change
in Control means
(a) other than the purchase by an underwriter in connection with a public
offering, the acquisition of ownership, directly or indirectly, beneficially or
of record, by any Person or group (within the meaning of the Securities
Exchange Act of 1934 and the rules of the Securities and Exchange Commission
thereunder as in effect on the date hereof), of shares representing more than
35% of either the aggregate ordinary voting power or the aggregate equity value
represented by the issued and outstanding capital stock of the Borrower, other
than by the Current Owners or either of them); or (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of
the Borrower by Persons who were neither (i) nominated by the board of
directors of the Borrower nor (ii) appointed by directors so nominated.

Chief
Executive Officer means
James Taylor or any successor Bank may approve in accordance with this
Agreement.

Collateral means all accounts receivable for sales of products and
services provided by the Borrower or any Subsidiary to their respective
customers in the ordinary course of business, now or hereafter subject to Security Documents,
or intended so to be, as well as certain equity interest of Borrower in its
Subsidiaries, all as more particularly set forth in the Security Documents.

Control  means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise.  “Controlling” and “Controlled”
have meanings correlative thereto.

Corporation means corporations,
partnerships, limited liability companies, joint ventures, joint stock
associations, associations, banks, business trusts and other business entities.

Current Owners means Edward P. Evans
and General John T. Chain.

Distributions means all dividends and
distributions made by Borrower to its shareholders, partners, owners or
members, as the case may be, other than salary, bonuses or other compensation
for services expending in the current accounting period.

Domestic Subsidiaries means Subsidiaries other than Foreign Subsidiaries.

Effective Prime Rate has the meaning attributed to such term in the Note.

Foreign
Subsidiary means any Subsidiary that is organized under
the laws of a jurisdiction other than the United States of America or any state
thereof or the District of Columbia.

 16
 

 

Governmental Authority means any foreign
governmental authority, the United States of America, any state of the United
States and any political subdivision of any of the foregoing, and any agency,
department, commission, board, bureau, court or other tribunal having
jurisdiction over Bank or any Obligor, or any Subsidiary of Borrower or their
respective Property.

Highest Lawful Rate means the maximum
nonusurious rate of interest permitted to be charged by applicable Federal or
Texas law (whichever permits the higher lawful rate) from time to time in
effect.  To the extent that Texas law determines the Highest Lawful Rate, the
Highest Lawful Rate is the weekly rate ceiling as defined in the Texas Finance
Code Chapter 303.

Indebtedness means and includes (a)
all items which in accordance with GAAP would be included on the liability side
of a balance sheet on the date as of which Indebtedness is to be determined
(excluding capital stock, surplus, surplus reserves and deferred credits); (b)
all guaranties and other contingent obligations in respect of, or any
obligations to purchase or otherwise acquire, Indebtedness of others, and (c)
all Indebtedness secured by any Lien existing on any interest of the Person
with respect to which Indebtedness is being determined, in Property owned
subject to such Lien, whether or not the Indebtedness secured thereby has been
assumed.

Initial Measurement Period means, with respect to
the Tangible Net Worth requirement in Section 4.10, the period commencing
January 1, 2006 and ending as of the date of such determination.

Intangible Assets means patent rights, trademarks, trade names,
franchises, copyrights, licenses, goodwill, and all other intangible assets of
such Person.

Legal Requirement means any law,
ordinance, decree, requirement, order, judgment, rule, regulation (or
interpretation of any of the foregoing) of, and the terms of any license or
permit issued by, any Governmental Authority.

Lien shall mean any mortgage,
pledge, charge, encumbrance, security interest, collateral assignment or other
lien or restriction of any kind, whether based on common law, constitutional
provision, statute or contract.

Loan Documents means this Agreement,
the Note and the agreements, documents and instruments required to be executed
by the Parties in connection with this Agreement or listed as items 1 through 4
on Annex I, all other assignments, deeds, guaranties, pledges,
instruments, certificates and agreements now or hereafter executed or delivered
to Bank pursuant to any of the foregoing, and all amendments, modifications,
renewals, extensions, increases and rearrangements of, and substitutions for,
any of the foregoing.

Material Adverse Effect means, with respect to a
Person, a material and adverse affect on the financial
condition, business or affairs.

 17
 

 

Net Income means the net income (or loss) of a Person for any
applicable period of determination, determined in accordance with GAAP, but
excluding, in any event:

(a)                                  any
gains or losses on the sale or other disposition, not in the ordinary course of
business, of investments or fixed or capital assets, and any taxes on the
excluded gains and any tax deductions or credits on account of any excluded
losses; and

(b)                                 in
the case of Borrower, net earnings of any Person in which Borrower has an
ownership interest, unless such net earnings shall have actually been received
by Borrower in the form of cash distributions.

Note means the Revolving
Promissory Note identified on Annex I to this Agreement, as such Note may be
amended, restated, renewed or otherwise modified from time to time.

Obligations means all debts,
obligations and liabilities of every kind and character of Borrower, whether
joint or several, contingent or otherwise, now or hereafter existing in favor
of Bank and arising out of or in connection with the Loan Documents, including
without limitation, all principal, interest and other amounts which are or
become owing under this Agreement, the Note or any other Loan Document.  Borrower and Bank specifically contemplate
that Obligations include indebtedness hereafter incurred by Borrower to Bank
pursuant to the Loan Documents.

Obligor means each Borrower and
any guarantor, surety, co-signer, general partner or other person who may now
or hereafter be obligated to pay all or any part of the Obligations.

Organizational Documents means, with respect to a
corporation, the certificate of incorporation, articles of incorporation and
bylaws of such corporation; with respect to a limited liability company, the
articles of organization, regulations and other documents establishing such
entity, with respect to a partnership, joint venture, or trust, the agreement,
certificate or instrument establishing such entity; in each case including all
modifications and supplements thereof as of the date of the Loan Document
referring to such Organizational Document and any and all future modifications
thereof which are consented to by Bank.

Parties  means all Persons other than Bank executing
any Loan Document.

Permitted Investments means
any advances, loans, extensions of credit, or capital contributions to or
investments in, or purchases of any stock, bonds, notes, debentures, or other
securities of, any Person or Persons, which, when combined, do not exceed $500,000 in the aggregate.

Permitted Redemption means any redemption by
Borrower from time to time of all or any portion of its capital stock, and/or
treasury stock but only to the extent that (i) an Event of Default has not
occurred and is not then continuing, (ii) giving effect to such redemption will
not result in the occurrence of an Event of Default, (iii) the combined
consideration for all such redemptions during any twelve month period does not
exceed in the aggregate positive Net
Income for the twelve month period ending immediately ending prior to the date
of such Permitted Redemption after giving affect to same, and (iv) the cashless
exercise of stock options.

 18
 

 

Person means any individual,
Corporation, trust, unincorporated organization, Governmental Authority or any
other form of entity.

Proper Form means in form and
substance satisfactory to Bank.

Property means any interest in
any kind of property or asset, whether real, personal or mixed, tangible or
intangible.

Security Documents means item number 4
listed on Annex I and all supplements, modifications, amendment,
extensions thereof and all other agreements hereafter executed and delivered to
Bank to secure the Loans.

Stock Repurchases means any redemption by
Borrower from time to time of all or any portion of its capital stock, and/or
treasury stock.

Subsidiary means, as to a
particular parent Corporation, any Corporation of which 50% or more of the
indicia of equity rights is at the time directly or indirectly owned by such
parent Corporation or by one or more Persons controlled by, controlling or
under common control with such parent Corporation.

Tangible Net Worth means total assets less
the sum of Intangible Assets and total liabilities.

THIS WRITTEN LOAN AGREEMENT
TOGETHER WITH THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
BANK AND THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES.

THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN BANK AND THE PARTIES.

This Agreement may be executed in any number of
counterparts, each of which will for all purposes be deemed to be an original
and all of which are identical.

[Signatures on following
page]

 

 19

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective authorized officers as
of the Effective Date.

	
  BORROWER:

  	
  THOMAS GROUP, INC., a Delaware corporation

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

	
  

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  5221 N. O’Connor Blvd., Suite 500

  
	
   

  	
  Irving, Texas 75039

  
	
   

  	
  Attn: David English

  
	
   

  	
  Fax:

  	
   

  

 

	
  BANK:

  	
   

  	
  JPMORGAN CHASE BANK, N.A.,

  
	
   

  	
   

  	
  a national banking association

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Debbie Sowards

  
	
   

  	
   

  	
  Senior Vice
  President

  

 

	
  

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  1717 Main Street, 3rd Floor

  
	
   

  	
  Dallas, Texas 75201

  
	
   

  	
  Attn: Debbie Sowards

  
	
   

  	
  Fax: (214) 290-2765

  

 

 

EXHIBITS

A.            Request
For Loan

B.            Reporting
Requirements, Financial Covenants, and Compliance Certificate

C.            Reserved

 

ANNEXES

I.              Loan
Documents

II.            Subsidiaries

 

 

EXHIBIT A

REQUEST FOR LOAN

[Letterhead of Borrower]

JPMorgan
Chase Bank

[branch
address to be inserted]

 

	
  Re: 

  	
  Request for Loan under Agreement

  
	
  Account #:

  	
   

  	
   

  
	
  Note #:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
   

  
				

 

Ladies and Gentlemen:

This letter confirms our oral or telephonic request of
________________, 200__, for a Loan in accordance with that certain Credit
Agreement dated as of September ___, 2006 (as amended, restated and
supplemented from time to time, the “Agreement”)
between you and us.  Any term defined in
the Agreement and used in this letter has the same meaning as in the Agreement.

(check if applicable)

                1.             The proposed Loan is to be in the amount of $                    
and is to be made on                      ,
200     , which is a Business Day at least             
Business Days after the date of this letter. 
The proceeds of the proposed Loan should be (check one:)  ̈ deposited into account number
                 
with Bank o                                     . The Borrower confirms the request that
the Loan be of the following Type:

(i) Type (check
whichever is applicable)

	
         

  	
  LIBOR Loan having an
  Interest Period of (check whichever is applicable):

  	
   

  	
   

  
	
   

  	
  one month

  	
   

  	
   

  
	
   

  	
   

  	
  two months

  	
   

  	
   

  
	
   

  	
   

  	
  three months

  	
   

  	
   

  
	
   

  	
   

  	
  four months

  	
   

  	
   

  
	
   

  	
   

  	
  six months

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
         

  	
  Prime Rate Loan

  	
   

  	
   

  

 

 1
 

 

(check if applicable)

                2.             With
respect to an existing Loan, Borrower requests that the Bank do as follows:

                Requests that the Bank convert a LIBOR
Loan into a Prime Rate Loan in the amount of $                    .

                The Borrower confirms the request that the
Bank convert a Prime Rate Loan into a LIBOR Loan in the amount of $                   ,
having an Interest Period of (check whichever is applicable):

	
  

  	
   

  	
  one month

  
	
   

  	
   

  	
  two months

  
	
   

  	
   

  	
  three months

  
	
   

  	
   

  	
  four months

  
	
   

  	
   

  	
  six months

  

 

                Requests that the Bank continue a LIBOR
Loan in the amount of $       , having an
Interest Period of (check whichever is applicable):

	
  

  	
   

  	
  one month

  
	
   

  	
   

  	
  two months

  
	
   

  	
   

  	
  three months

  
	
   

  	
   

  	
  four months

  
	
   

  	
   

  	
  six months

  

 

The
undersigned hereby certifies that:

(1)     The representations and warranties made by
Borrower or by any other Person in the Agreement and                                        the
other Loan Documents are true and correct on and as of this date as though made
on this date.

(2)     The proposed Loan complies with all
applicable provisions of the Agreement.

(3)     No Event of Default has occurred and is
continuing.

Sincerely,

	
  

  	
  THOMAS GROUP, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  :

  
	
   

  	
   

  	
  Title

  	
   

  

 

 2

 

EXHIBIT B

to Credit Agreement between

Thomas Group, Inc. (“Borrower”)
and JPMorgan Chase Bank, N.A. (“Bank”)

dated the Effective Date, as same may be amended, restated and
supplemented in writing.

 

REPORTING REQUIREMENTS, FINANCIAL
COVENANTS AND

COMPLIANCE CERTIFICATE FOR
CURRENT REPORTING PERIOD ENDING           ,
200        (“END DATE”)

 

A.                                   REPORTING PERIOD.  THIS EXHIBIT WILL BE IN PROPER FORM AND
SUBMITTED WITHIN  45 DAYS OF THE END OF
EACH CALENDAR QUARTER AND WITH THE FISCAL YEAR END FINANCIAL STATEMENT.

BORROWER’S FISCAL YEAR
ENDS ON DECEMBER 31

B. Financial Reporting.  Borrower will provide the following financial
information in Proper Form within the times indicated:

 

	
  

  	
  WHO

  	
   

  	
   

  	
   

  	
  WHEN DUE

  	
   

  	
   

  	
   

  	
  WHAT

  	
   

  
	
  BORROWER

  	
   

  	
  Within 120 days of fiscal
  year end

  	
   

  	
  Annual financial
  statements (balance sheet, income statement, cash flow statement), audited
  (with unqualified opinion) by independent certified public accountants
  satisfactory to Bank, accompanied by Compliance Certificate

  
	
  BORROWER

  	
   

  	
  Within 45 days of each Reporting Period End Date.

  	
   

  	
  Unaudited interim financial statements accompanied
  by Compliance Certificate

  

 

 

 

	
  C. FINANCIAL COVENANTS.
  Borrower will comply with the following financial covenants, defined in
  accordance with GAAP and the definitions in Section 8, and incorporating
  the calculation adjustments indicated on the Compliance Certificate:

  	
   

  	
  COMPLIANCE
  CERTIFICATE

  	
   

  	
   

  	
   

  
	
  REQUIRED

  Except as
  specified otherwise, each covenant will be complied with at all times and reported
  for each Reporting Period or as of each Reporting Period End Date, as
  appropriate:

  	
   

  	
  ACTUAL REPORTED

  For Current
  Reporting Period/as of the End Date

  	
   

  	
   

  	
  COMPLIANCE

  Yes   No

  (Circle One)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   1.
  Have a Tangible Net Worth greater than or equal to (i) $8,000,000, plus (ii)
  50% of the sum of (a) positive Net Income for the four quarter period then
  ending/Initial Measurement Period (as applicable), minus (b) Stock
  Repurchases for the four quarter period then ending/Initial Measurement
  Period (as applicable), minus (c) Distributions for the four quarter period
  then ending/Initial Measurement Period (as applicable)

  	
   

  	
  Tangible Net Worth equals:

   

  Covenant Calculation

  Positive Net Income

   

  Minus: Stock
  Repurchases

  Distributions

   

  Equals: Times 50%: 

   

  Plus $8,000,000

   

  Equals (Covenant Requires):

   

  	
  $

   

   

  $

   

  $

  $

   

  $

   

  $

   

  $

   

  	
        

   

   

        

   

        

        

   

        

   

        

   

        

  	
  Yes    No

  
	
  2. Outstanding Purchase Money Indebtedness (not to exceed $250,000 per Section 5.01(b))

  	
   

  	
    $                          

  	
   

  	
   

  	
  Yes   No

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3. Outstanding Indebtedness permitted under Section 5.01(c) (not
  to exceed $250,000)

  	
   

  	
    $                          

  	
   

  	
   

  	
  Yes   No

  

 

 

 

	
  4. Permitted Redemption
  consideration obligation to date (total not to exceed in the aggregate
  positive Net Income for the twelve month period ending as of the date of such
  Permitted Redemption upon giving affect to same per Section 5.09(b))

  	
   

  	
    $                     

  	
   

  	
   

  	
  Yes   No

  
	
  5. Permitted Investments to date (not to exceed $500,000 per Section 5.09(c))

  	
   

  	
    $                     

  	
   

  	
   

  	
  Yes   No

  

 

THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS
AND AGREEMENTS CONTAINED IN THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR
MODIFY THE TERMS AND CONDITIONS OF THE AGREEMENT.  IN CASE OF CONFLICT BETWEEN THIS EXHIBIT B
AND THE AGREEMENT, THE AGREEMENT SHALL CONTROL.

The undersigned hereby certifies that the above
information and computations are true and correct and not misleading in any
material respect as of the date hereof, and that since the date of Borrower’s
most recent Compliance Certificate (if any):

 ̈            No default or Event of Default has occurred under the
Agreement during the current Reporting Period, or been                             discovered
from a prior period, and not reported.

 ̈            A default or Event of Default (as described below) has
occurred during the current Reporting Period or has                                   been
discovered from a prior period and is being reported for the first time and:

 ̈ was cured on                           .

 ̈ was waived by Bank in
writing on                       .

 ̈ is continuing.

 

Description of Event of Default:

 

 

Executed this            
day of                             ,
200              .

	
  BORROWER: THOMAS GROUP, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNATURE:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NAME:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TITLE:

  	
  (Chief Financial Officer or President)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ADDRESS:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBIT C

RESERVED

 

 

ANNEX I

Loan
Documents

“Loan Documents” includes, but is not limited to,
the following, all of which must be in Proper Form:

	
  1.

  	
   

  	
  Agreement

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Revolving Promissory Note (the “Note”)

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Compliance Certificate

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  One or more Security
  Agreements, in Proper Form, covering all Collateral

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Financing Statements

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Opinion of Borrower’s and Guarantor’s Counsel

  
	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Certified Copies of Organizational and Authority
  Documents

  
	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Insurance policies and certificates

  
	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Financial Statements of Borrower

  
	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  UCC search

  

 

 

ANNEX II

Subsidiaries

[To be provided]

 

 

Schedule 5.1

Existing Indebtedness

(to be inserted)Exhibit
10.2

Verigy
Ltd.

2006 Equity Incentive Plan

(As Amended December 13, 2006)

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE 1.

  	
   

  	
  INTRODUCTION

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2.

  	
   

  	
  ADMINISTRATION

  	
   

  	
  1

  
	
  2.1

  	
   

  	
  Committee Composition

  	
   

  	
  1

  
	
  2.2

  	
   

  	
  Committee Responsibilities

  	
   

  	
  1

  
	
  2.3

  	
   

  	
  Committee for Non-Officer Grants

  	
   

  	
  2

  
	
  2.4

  	
   

  	
  Administration with Respect to Substitute Awards

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3.

  	
   

  	
  SHARES AVAILABLE FOR GRANTS

  	
   

  	
  2

  
	
  3.1

  	
   

  	
  Basic Limitation

  	
   

  	
  2

  
	
  3.2

  	
   

  	
  Shares Returned to Reserve

  	
   

  	
  2

  
	
  3.3

  	
   

  	
  Substitute Awards

  	
   

  	
  2

  
	
  3.4

  	
   

  	
  Dividend Equivalents

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4.

  	
   

  	
  ELIGIBILITY

  	
   

  	
  3

  
	
  4.1

  	
   

  	
  Incentive Stock Options

  	
   

  	
  3

  
	
  4.2

  	
   

  	
  Other Grants

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5.

  	
   

  	
  OPTIONS

  	
   

  	
  3

  
	
  5.1

  	
   

  	
  Option Agreement

  	
   

  	
  3

  
	
  5.2

  	
   

  	
  Number of Shares

  	
   

  	
  3

  
	
  5.3

  	
   

  	
  Exercise Price

  	
   

  	
  4

  
	
  5.4

  	
   

  	
  Exercisability and Term

  	
   

  	
  4

  
	
  5.5

  	
   

  	
  Effect of Change in Control

  	
   

  	
  5

  
	
  5.6

  	
   

  	
  Buyout Provisions

  	
   

  	
  5

  
	
  5.7

  	
   

  	
  Payment for Option Shares

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6.

  	
   

  	
  SHARE APPRECIATION RIGHTS

  	
   

  	
  5

  
	
  6.1

  	
   

  	
  SAR Agreement

  	
   

  	
  5

  
	
  6.2

  	
   

  	
  Number of Shares

  	
   

  	
  6

  
	
  6.3

  	
   

  	
  Exercise Price

  	
   

  	
  6

  
	
  6.4

  	
   

  	
  Exercisability and Term

  	
   

  	
  6

  
	
  6.5

  	
   

  	
  Effect of Change in Control

  	
   

  	
  7

  
	
  6.6

  	
   

  	
  Exercise of SARs

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7.

  	
   

  	
  RESTRICTED SHARES

  	
   

  	
  7

  
	
  7.1

  	
   

  	
  Restricted Share Agreement

  	
   

  	
  7

  
	
  7.2

  	
   

  	
  Number of Shares

  	
   

  	
  7

  
	
  7.3

  	
   

  	
  Payment for Awards

  	
   

  	
  8

  
	
  7.4

  	
   

  	
  Vesting Conditions

  	
   

  	
  8

  
	
  7.5

  	
   

  	
  Effect of Change in Control

  	
   

  	
  9

  
	
  7.6

  	
   

  	
  Voting and Dividend Rights

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8.

  	
   

  	
  SHARE UNITS

  	
   

  	
  9

  
	
  8.1

  	
   

  	
  Share Unit Agreement

  	
   

  	
  9

  
	
  8.2

  	
   

  	
  Number of Shares

  	
   

  	
  9

  

 

 i
 

 

 

	
  8.3

  	
   

  	
  Payment for Awards

  	
   

  	
  9

  
	
  8.4

  	
   

  	
  Vesting Conditions

  	
   

  	
  9

  
	
  8.5

  	
   

  	
  Effect of Change in Control

  	
   

  	
  10

  
	
  8.6

  	
   

  	
  Voting and Dividend Rights

  	
   

  	
  10

  
	
  8.7

  	
   

  	
  Form and Time of Settlement of Share Units

  	
   

  	
  10

  
	
  8.8

  	
   

  	
  Creditors’ Rights

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9.

  	
   

  	
  AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS

  	
   

  	
  11

  
	
  9.1

  	
   

  	
  Initial Grants

  	
   

  	
  11

  
	
  9.2

  	
   

  	
  Annual Grants

  	
   

  	
  11

  
	
  9.3

  	
   

  	
  Cessation of Eligibility to Vest

  	
   

  	
  12

  
	
  9.4

  	
   

  	
  Accelerated Exercisability

  	
   

  	
  12

  
	
  9.5

  	
   

  	
  Exercise Price

  	
   

  	
  12

  
	
  9.6

  	
   

  	
  Term

  	
   

  	
  12

  
	
  9.7

  	
   

  	
  Affiliates of Outside Directors

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10.

  	
   

  	
  PROTECTION AGAINST DILUTION

  	
   

  	
  12

  
	
  10.1

  	
   

  	
  Adjustments

  	
   

  	
  12

  
	
  10.2

  	
   

  	
  Dissolution or Liquidation

  	
   

  	
  13

  
	
  10.3

  	
   

  	
  Reorganizations

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11.

  	
   

  	
  PAYMENT OF DIRECTOR’S FEES IN SECURITIES

  	
   

  	
  14

  
	
  11.1

  	
   

  	
  Effective Date

  	
   

  	
  14

  
	
  11.2

  	
   

  	
  Elections to Receive NSOs, Restricted Shares or
  Share Units

  	
   

  	
  14

  
	
  11.3

  	
   

  	
  Number and Terms of NSOs, Restricted Shares or Share
  Units

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12.

  	
   

  	
  LIMITATION ON RIGHTS

  	
   

  	
  15

  
	
  12.1

  	
   

  	
  Retention Rights

  	
   

  	
  15

  
	
  12.2

  	
   

  	
  Shareholders’ Rights

  	
   

  	
  15

  
	
  12.3

  	
   

  	
  Regulatory Requirements

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13.

  	
   

  	
  WITHHOLDING TAXES

  	
   

  	
  15

  
	
  13.1

  	
   

  	
  General

  	
   

  	
  15

  
	
  13.2

  	
   

  	
  Share Withholding

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 14.

  	
   

  	
  LIMITATION ON PAYMENTS

  	
   

  	
  15

  
	
  14.1

  	
   

  	
  Scope of Limitation

  	
   

  	
  15

  
	
  14.2

  	
   

  	
  Basic Rule

  	
   

  	
  16

  
	
  14.3

  	
   

  	
  Reduction of Payments

  	
   

  	
  16

  
	
  14.4

  	
   

  	
  Overpayments and Underpayments

  	
   

  	
  16

  
	
  14.5

  	
   

  	
  Related Corporations

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 15.

  	
   

  	
  FUTURE OF THE PLAN

  	
   

  	
  17

  
	
  15.1

  	
   

  	
  Term of the Plan

  	
   

  	
  17

  
	
  15.2

  	
   

  	
  Amendment or Termination

  	
   

  	
  17

  
	
  15.3

  	
   

  	
  Shareholder Approval

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 16.

  	
   

  	
  DEFINITIONS

  	
   

  	
  17

  

 

 ii

 

Verigy
Ltd.

2006
Equity Incentive Plan

ARTICLE 1.            INTRODUCTION.

The purpose of the Plan is to promote the long-term
success of the Company and the creation of shareholder value by
(a) encouraging Employees, Outside Directors and Consultants to focus on
critical long-range objectives, (b) encouraging the attraction and
retention of Employees, Outside Directors and Consultants with exceptional
qualifications and (c) linking Employees, Outside Directors and
Consultants directly to shareholder interests through increased share
ownership.  The Plan seeks to achieve
this purpose by providing for Awards in the form of Options (which may
constitute ISOs or NSOs), SARs, Restricted Shares or Share Units.

The Plan shall be governed by, and construed in
accordance with, the laws of the Republic of Singapore (except its
choice-of-law provisions).

ARTICLE 2.            ADMINISTRATION.

2.1          Committee Composition.  The Committee shall administer the Plan.  The Committee shall consist exclusively of
two or more directors of the Company, who shall be appointed by the Board.  In addition, each member of the Committee
shall meet the following requirements:

(a)           Any
listing standards prescribed by the principal securities market on which the
Company’s equity securities are traded;

(b)           Such
requirements as the Internal Revenue Service may establish for outside
directors acting under plans intended to qualify for exemption under
section 162(m)(4)(C) of the Code;

(c)           Such
requirements as the Securities and Exchange Commission may establish for administrators
acting under plans intended to qualify for exemption under Rule 16b-3
(or its successor) under the Exchange Act; and

(d)           Any
other requirements imposed by applicable law, regulations or rules.

2.2          Committee
Responsibilities.  The Committee shall
(a) select the Employees, Outside Directors and Consultants who are to
receive Awards under the Plan, (b) determine the type, number, vesting
requirements and other features and conditions of such Awards,
(c) interpret the Plan, (d) make all other decisions relating to the
operation of the Plan and (e) carry out any other duties delegated to it
by the Board.  The Committee may adopt
such rules or guidelines as it deems
appropriate to implement the Plan, including rules and procedures relating to
the operation and administration of the Plan in order to accommodate the
specific

 

requirements of local laws
and procedures.  Without limiting the
generality of the foregoing, the Committee is specifically authorized to adopt
(a) rules and procedures regarding the conversion of local currency,
withholding procedures and handling of stock certificates that vary with local
requirements and (b) such sub-plans and Plan addenda as the Committee
deems desirable to accommodate foreign tax laws, regulations and practice.  The Committee’s determinations under the Plan
shall be final and binding on all persons.

2.3          Committee for
Non-Officer Grants.  The Board may
also appoint a secondary committee of the Board, which shall be composed of one
or more directors of the Company who need not satisfy the requirements of
Section 2.1.  Such secondary
committee may administer the Plan with respect to Employees and Consultants who
are not Outside Directors and are not considered executive officers of the
Company under section 16 of the Exchange Act, may grant Awards under the
Plan to such Employees and Consultants and may determine all features and
conditions of such Awards.  Within the
limitations of this Section 2.3, any reference in the Plan to the
Committee shall include such secondary committee.

2.4          Administration with
Respect to Substitute Awards.  
Notwithstanding any other provision of this Plan, in connection with
issuing Substitute Awards, the Committee may provide that the Substitute Awards
shall be subject to the terms and conditions of the plan and/or agreements
under which the awards being assumed or substituted were originally issued,
even where such terms are in conflict or inconsistent with the terms of this
Plan.

ARTICLE 3.            SHARES
AVAILABLE FOR GRANTS.

3.1          Basic Limitation.  Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares.  The aggregate number of Shares issued under
the Plan shall not exceed (a) 10,300,000 plus (b) the additional
Shares described in Section 3.3. 
The number of Shares that are subject to Awards outstanding at any time
under the Plan shall not exceed the number of Shares that then remain available
for issuance under the Plan. 
Notwithstanding any other provision of this Plan, the maximum number of
Shares that may be issued upon the exercise of ISOs under this Plan is
10,300,000.  The limitations of this
Section 3.1 shall be subject to adjustment pursuant to Article 10.

3.2          Shares Returned to
Reserve.  If Options, SARs or Share
Units (including Replacement Awards) are forfeited or terminate for any other
reason before being exercised or settled, then the Shares subject to such
Options, SARs or Share Units shall again become available for issuance under
the Plan.  If SARs are exercised, then
only the number of Shares (if any) actually issued in settlement of such SARs
shall reduce the number available under Section 3.1 and the balance shall
again become available for issuance under the Plan.  If Share Units are settled, then only the
number of Shares (if any) actually issued in settlement of such Share Units
shall reduce the number available under Section 3.1 and the balance shall
again become available for issuance under the Plan.  If Restricted Shares or Shares issued upon the
exercise of Options are reacquired by the Company pursuant to a forfeiture
provision or for any other reason, then such Shares shall again become
available for issuance under the Plan.

3.3          Substitute Awards.  Except with respect to Substitute Awards
issued with respect to awards previously issued by Agilent Technologies, Inc.,
Substitute Awards shall not

 2
 

 

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

3.4          Dividend
Equivalents.  Any dividend
equivalents paid or credited under the Plan shall be applied against the number
of Shares that may be issued under the Plan if such dividend equivalents are
converted into Share Units.

ARTICLE 4.            ELIGIBILITY.

4.1          Incentive
Stock Options.  Only Employees
who are common-law employees of the Company, a Parent or a Subsidiary
shall be eligible for the grant of ISOs. 
In addition, an Employee who owns more than 10% of the total combined voting
power of all classes of outstanding shares of the Company or any of its Parents
or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(5) of the Code are
satisfied.

4.2          Other
Grants.  Only Employees,
Outside Directors and Consultants shall be eligible for the grant of Restricted
Shares, Share Units, NSOs or SARs.

ARTICLE 5.            OPTIONS.

5.1          Option
Agreement.  Each grant of an
Option under the Plan shall be evidenced by an Option Agreement between the
Optionee and the Company.  Such Option
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan.  The Option Agreement shall specify whether
the Option is an ISO or an NSO.  The provisions
of the various Option Agreements entered into under the Plan need not be
identical.  An Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 5.7(b).

5.2          Number of
Shares.  Each Option Agreement
shall specify the number of Shares subject to the Option and shall provide for
the adjustment of such number in accordance with Article 10.  Options granted to any Optionee in a single
fiscal year of the Company shall not cover more than 750,000 Shares, except
that Options granted to a new Employee in the fiscal year of the Company in
which his or her Service as an Employee first commences shall not cover

 3
 

 

more than 1,500,000
Shares.  The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with
Article 10.

5.3          Exercise
Price.  Each Option Agreement
shall specify the Exercise Price; provided that the Exercise Price shall in no
event be less than 100% of the Fair Market Value of a Share on the Date of
Grant.  Other than in connection with an
event or transaction described in Article 10, Options may not be repriced,
replaced, regranted through cancellation or modified without shareholder
approval if the effect of such repricing, replacement, regrant or modification
would be to reduce the exercise price of such Options.

5.4          Exercisability
and Term.

(a)           General. 
Each Option Agreement shall specify the date or event when all or any
installment of the Option is to become exercisable.  The Option Agreement shall also specify the
term of the Option; provided that the term of an ISO shall in no event exceed
10 years from the Date of Grant.  Options
may be awarded in combination with SARs, and such an Award may provide that the
Options will not be exercisable unless the related SARs are forfeited.

(b)           Cessation of Eligibility to Vest.  Unless otherwise provided by the Option
Agreement, if an Optionee ceases to be an Awardee Eligible to Vest, other than
as a result of circumstances described in Subsection (c) or (d) below,
such Optionee’s Option shall terminate immediately as to the unvested Shares
and such unvested Shares shall revert to the Plan, and such Optionee’s Option
shall be exercisable as to the vested Shares for three months after the date
such individual ceases to be an Awardee Eligible to Vest or, if earlier, the
expiration of the term of such Option. 
If, for any reason, the Optionee does not exercise his or her vested
Option within the appropriate exercise period set forth above, the Option shall
automatically terminate, and the Shares covered by such Option shall revert to
the Plan.

(c)           Death, Disability or Retirement of Optionee.  Unless otherwise provided by the Option
Agreement, if an Optionee ceases to be an Awardee Eligible to Vest as a result
of the Optionee’s death, total and permanent disability or retirement due to
age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s
retirement policy, then (i) the vested portion of such Optionee’s Option
shall be determined by adding 12 months to the length of his or her actual
Service, (ii) such Optionee’s Option shall terminate immediately as to the
unvested Shares and such unvested Shares shall revert to the Plan, and (iii) such
Optionee’s Option shall be exercisable as to the vested Shares for one year
after the date such individual ceases to be an Awardee Eligible to Vest or, if
earlier, the expiration of the term of such Option.  Where an individual ceases to be an Awardee
Eligible to Vest as a result of death, the Option may be exercised by the
beneficiary designated by the Optionee, the executor or administrator of the
Optionee’s estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee’s will or the laws of descent or distribution.  If, for any reason, the Option is not so
exercised within the time specified herein, the Option shall automatically
terminate, and the Shares covered by such Option shall revert to the Plan.

(d)           Voluntary Severance Incentive Program.  If an Optionee ceases to be an Awardee
Eligible to Vest as a result of participation in a voluntary severance
incentive

 4
 

 

program or
workforce management plan approved by the Board or a Committee, unvested
Options shall vest and Options shall remain exercisable, to the extent provided
by the Board or a Committee in such voluntary severance incentive program or
workforce management plan.  Absent a
specific provision for acceleration or extended exercise period, the provisions
of Subsection (b) above shall apply.

5.5          Effect of
Change in Control.  The
Committee may determine, at the time of granting an Option or thereafter, that
such Option shall become exercisable as to all or part of the Shares subject to
such Option if a Change in Control occurs with respect to the Company or if the
Optionee’s Service is terminated without Cause after a Change in Control.  In addition, acceleration of exercisability
may be required under Section 10.3.

5.6          Buyout
Provisions.  The Committee may
at any time (a) offer to buy out for a payment in cash or cash equivalents
an Option previously granted or (b) authorize an Optionee to elect to cash
out an Option previously granted, in either case at such time and based upon
such terms and conditions as the Committee shall establish.

5.7          Payment for
Option Shares.

(a)           General Rule.  The entire Exercise Price of Shares issued
upon exercise of Options shall be payable in cash or cash equivalents at the
time when such Shares are purchased, except that the Committee at its sole
discretion may accept payment of the Exercise Price in any other form(s)
described in this Section 5.7. 
However, if the Optionee is an Outside Director or executive officer of
the Company, he or she may pay the Exercise Price in a form other than cash or
cash equivalents only to the extent permitted by section 13(k) of the
Exchange Act.

(b)           Surrender of Shares.  With the Committee’s consent, all or any part
of the Exercise Price may be paid by surrendering, or attesting to the
ownership of, Shares that are already owned by the Optionee.  Such Shares shall be valued at their Fair
Market Value on the date when the new Shares are purchased under the Plan.

(c)           Exercise/Sale.  With the Committee’s consent, all or any part
of the Exercise Price and any withholding taxes may be paid by delivering (in a
manner prescribed by the Company) an irrevocable direction to a securities
broker approved by the Company to sell all or part of the Shares being
purchased under the Plan and to deliver all or part of the sales proceeds to
the Company.

(d)           Other Forms of Payment.  With the Committee’s consent, all or any part
of the Exercise Price and any withholding taxes may be paid in any other form
that is consistent with applicable laws, regulations and rules.

ARTICLE 6.            SHARE APPRECIATION RIGHTS.

6.1          SAR
Agreement.  Each grant of a
SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee
and the Company.  Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with

 5
 

 

the Plan.  The provisions of the various SAR Agreements
entered into under the Plan need not be identical.

6.2          Number of
Shares.  Each SAR Agreement
shall specify the number of Shares to which the SAR pertains and shall provide
for the adjustment of such number in accordance with Article 10.  SARs granted to any Optionee in a single
fiscal year shall in no event pertain to more than 750,000 Shares, except that
SARs granted to a new Employee in the fiscal year of the Company in which his
or her Service as an Employee first commences shall not pertain to more than
1,500,000 Shares.  The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance
with Article 10.

6.3          Exercise
Price.  Each SAR Agreement
shall specify the Exercise Price; provided that the Exercise Price shall in no
event be less than 100% of the Fair Market Value of a Share on the Date of
Grant.  Other than in connection with an
event or transaction described in Article 10, SARs may not be repriced,
replaced, regranted through cancellation or modified without shareholder
approval if the effect of such repricing, replacement, regrant or modification
would be to reduce the exercise price of such SARs.

6.4          Exercisability
and Term.

(a)           General. 
Each SAR Agreement shall specify the date when all or any installment of
the SAR is to become exercisable.  The
SAR Agreement shall also specify the term of the SAR.  SARs may be awarded in combination with
Options, and such an Award may provide that the SARs will not be exercisable
unless the related Options are forfeited. 
An SAR may be included in an ISO only at the time of grant but may be
included in an NSO at the time of grant or thereafter.  An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.

(b)           Cessation of Eligibility to Vest.  Unless otherwise provided by the SAR
Agreement, if an Optionee ceases to be an Awardee Eligible to Vest, other than
as a result of circumstances described in Subsection (c) or (d) below,
such Optionee’s SAR shall terminate immediately as to the unvested Shares and
such unvested Shares shall revert to the Plan, and the SAR shall be exercisable
as to the vested Shares for three months after the date such individual ceases
to be an Awardee Eligible to Vest or, if earlier, the expiration of the term of
such SAR.  If, for any reason, the
Optionee does not exercise his or her vested SARs within the appropriate
exercise period set forth above, the SAR shall automatically terminate, and the
Shares covered by such SAR shall revert to the Plan.

(c)           Death, Disability or Retirement of Optionee.  Unless otherwise provided by the SAR
Agreement, if an Optionee ceases to be an Awardee Eligible to Vest as a result
of the Optionee’s total and permanent disability or retirement due to age, in
accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement
policy, then (i) the vested portion of such Optionee’s SAR shall be
determined by adding 12 months to the length of his or her actual Service,
(ii) such Optionee’s SAR shall terminate immediately as to the unvested
Shares and such unvested Shares shall revert to the Plan, and (iii) such
Optionee’s SAR shall be exercisable as to the vested Shares for one year after
the date such individual ceases to be an Awardee Eligible to Vest or, if
earlier, the expiration of the term of such SAR.  Where an

 6
 

 

individual
ceases to be an Awardee Eligible to Vest as a result of death, the SAR may be
exercised by the beneficiary designated by the Optionee, the executor or
administrator of the Optionee’s estate or, if none, by the person(s) entitled
to exercise the SAR under the Optionee’s will or the laws of descent or
distribution.  If, for any reason, the
SAR is not so exercised within the time specified herein, the SAR shall
automatically terminate, and the Shares covered by such SAR shall revert to the
Plan.

(d)           Voluntary Severance Incentive Program.  If an Optionee ceases to be an Awardee
Eligible to Vest as a result of participation in a voluntary severance
incentive program or workforce management plan approved by the Board or a
Committee, unvested SARs shall vest and SARs shall remain exercisable, to the
extent provided by the Board or a Committee in such voluntary severance incentive
program or workforce management plan. 
Absent a specific provision for acceleration or extended exercise
period, the provisions of Subsection (b) above shall apply.

6.5          Effect of
Change in Control.  The
Committee may determine, at the time of granting a SAR or thereafter, that such
SAR shall become exercisable as to all or part of the Shares subject to such
SAR if a Change in Control occurs with respect to the Company or if the
Optionee’s Service is terminated without Cause after a Change in Control.  In addition, acceleration of exercisability
may be required under Section 10.3.

6.6          Exercise of
SARs.  Upon exercise of a SAR,
the Optionee (or any person having the right to exercise the SAR after his or
her death) shall receive from the Company consideration in the form of
(a) Shares, (b) cash or (c) a combination of Shares and cash, as
the Committee shall determine.  Each SAR
Agreement shall specify the amount and/or Fair Market Value of the consideration
that the Optionee will receive upon exercising the SAR; provided that the
aggregate consideration shall not exceed the amount by which the Fair Market
Value (on the date of exercise) of the Shares subject to the SAR exceeds the
Exercise Price of the SAR.  If, on the
date when a SAR expires, the Exercise Price of the SAR is less than the Fair
Market Value of the Shares subject to the SAR on such date but any portion of
the SAR has not been exercised, then the SAR shall automatically be deemed to
be exercised as of such date with respect to such portion.  An SAR Agreement may also provide for an
automatic exercise of the SAR on an earlier date.

ARTICLE 7.            RESTRICTED SHARES.

7.1          Restricted
Share Agreement.  Each grant
of Restricted Shares under the Plan shall be evidenced by a Restricted Share
Agreement between the recipient and the Company.  Such Restricted Shares shall be subject to
all applicable terms of the Plan and may be subject to any other terms that are
not inconsistent with the Plan.  The
provisions of the various Restricted Share Agreements entered into under the
Plan need not be identical.

7.2          Number of
Shares.  Each Restricted Share
Agreement shall specify the number of Shares to which the Agreement
pertains.  Such number shall be subject
to the limitation of Section 7.4(a), if applicable.

 7
 

 

7.3          Payment for
Awards.  Restricted Shares may
be sold or awarded under the Plan for such consideration as the Committee may
determine, including (without limitation) cash, cash equivalents, property,
past services and future services. 
Within the limitations of the Plan, the Committee may accept the
cancellation of outstanding options in return for the grant of Restricted
Shares.

7.4          Vesting Conditions.

(a)           General. 
Each Award of Restricted Shares may or may not be subject to
vesting.  Vesting shall occur, in full or
in installments, upon satisfaction of the conditions specified in the
Restricted Share Agreement.  The
Committee may include among such conditions continued performance of Service
and/or the requirement that the performance of the Company (or a Subsidiary,
Affiliate or business unit of the Company) for a specified period of not less
than one fiscal year equal or exceed a target determined by the Committee.  Such target shall be based on one or more of
the criteria set forth in Appendix A, and shall be determined not later
than the 90 days following commencement of the specified performance
period.  As to Awards with respect to
which the Company desires to secure an exemption from section 162(m) of
the Code, no Participant shall receive more than 400,000 Restricted Shares
subject to performance-based vesting conditions in a single fiscal year, except
that a new Employee may receive up to 800,000 Restricted Shares subject to
performance-based vesting conditions in the fiscal year of the Company in which
his or her Service as an Employee first commences.  The limitations set forth in the preceding
sentence shall be subject to adjustment in accordance with Article 10.

(b)           Cessation of Eligibility to Vest.  Unless otherwise provided by the Restricted
Share Agreement, if a Participant ceases to be an Awardee Eligible to Vest,
other than as a result of circumstances described in Subsection (c)
or (d) below, then:

(i)            To the extent that the
Participant did not purchase the Restricted Shares, all unvested Shares subject
to a Restricted Share Agreement shall immediately be forfeited and shall revert
to the Plan; and

(ii)           To the extent that the
Participant purchased the Restricted Shares, the Company shall have a right to
repurchase the unvested Restricted Shares at the original price paid by the
Participant upon the Participant’s ceasing to be an Awardee Eligible to Vest.

(c)           Death, Disability or Retirement of Participant.  Unless otherwise provided by the Restricted
Share Agreement, if a Participant ceases to be an Awardee Eligible to Vest as a
result of the Participant’s death, total and permanent disability or retirement
due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s
retirement policy, the provisions of Subsection (b) above will apply except
that the vested portion of such Participant’s Restricted Shares shall be
determined by adding 12 months to the length of his or her actual Service.

(d)           Voluntary Severance Incentive Program.  If a Participant ceases to be an Awardee
Eligible to Vest as a result of participation in a voluntary severance
incentive

 8
 

 

program or
workforce management plan approved by the Board or a Committee, unvested
Restricted Shares shall vest to the extent provided by the Board or a Committee
in such voluntary severance incentive program or workforce management
plan.  Absent a specific provision for
acceleration, the provisions of Subsection (b) above shall apply.

7.5          Effect of
Change in Control.  The
Committee may determine, at the time of granting Restricted Shares or
thereafter, that all or part of such Restricted Shares shall become vested if a
Change in Control occurs with respect to the Company or if the Participant’s
Service is terminated without Cause after a Change in Control.

7.6          Voting and
Dividend Rights.  The holders
of Restricted Shares awarded under the Plan shall have the same voting,
dividend and other rights as the Company’s other shareholders.  A Restricted Share Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. 
Such additional Restricted Shares shall be subject to the same
conditions and restrictions as the Award with respect to which the dividends
were paid.

ARTICLE 8.            SHARE UNITS.

8.1          Share Unit
Agreement.  Each grant of
Share Units under the Plan shall be evidenced by a Share Unit Agreement between
the recipient and the Company.  Such
Share Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan.  The provisions of the various Share Unit
Agreements entered into under the Plan need not be identical.

8.2          Number of
Shares.  Each Share Unit
Agreement shall specify the number of Shares to which the Share Unit pertains
and shall provide for the adjustment of such number in accordance with
Article 10.  Such number shall be
subject to the limitation of Section 8.4(a), if applicable.

8.3          Payment for
Awards.  To the extent that an
Award is granted in the form of Share Units, no cash consideration shall be
required of the Award recipients.

8.4          Vesting
Conditions.

(a)           General. 
Each Award of Share Units may or may not be subject to vesting.  Vesting shall occur, in full or in
installments, upon satisfaction of the conditions specified in the Share Unit
Award.  The Committee may include among
such conditions continued performance of Service and/or the requirement that
the performance of the Company (or a Subsidiary, Affiliate or business unit of
the Company) for a specified period of not less than one fiscal year equal or
exceed performance targets determined by the Committee.  Such targets shall be based on one or more of
the criteria set forth in Appendix A, and shall be determined not later
than the 90 days following commencement of the specified performance
period.  As to Awards with respect to
which the Company desires to secure an exemption from section 162(m) of
the Code, no Participant shall receive more than 400,000 Share Units subject to
performance-based vesting conditions in a single fiscal year, except that a new
Employee may receive up to 800,000 Share Units subject to performance-based
vesting conditions in the fiscal year of the

 9
 

 

Company in
which his or her Service as an Employee first commences.  The limitations set forth in the preceding
sentence shall be subject to adjustment in accordance with Article 10.

(b)           Cessation of Eligibility to Vest.  Unless otherwise provided by the Share Unit
Award, if a Participant ceases to be an Awardee Eligible to Vest, other than as
a result of circumstances described in Subsection (c) or (d) below, then
all unvested Share Units subject to a Share Unit Agreement shall immediately be
forfeited and shall revert to the Plan.

(c)           Death, Disability or Retirement of Participant.  Unless otherwise provided by the Share Unit
Award, if a Participant ceases to be an Awardee Eligible to Vest as a result of
the Participant’s death, total and permanent disability or retirement due to
age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s
retirement policy, the provisions of Subsection (b) above will apply except
that the vested portion of such Participant’s Share Unit Award shall be
determined by adding 12 months to the length of his or her actual Service.

(d)           Voluntary Severance Incentive Program.  If a Participant ceases to be an Awardee
Eligible to Vest as a result of participation in a voluntary severance
incentive program or workforce management plan approved by the Board or a
Committee, unvested Share Units shall vest to the extent provided by the Board
or a Committee in such voluntary severance incentive program or workforce
management plan.  Absent a specific
provision for acceleration, the provisions of Subsection (b) above shall
apply.

8.5          Effect of Change in Control.  The Committee may determine, at the time of
granting Share Units or thereafter, that all or part of such Share Units shall
become vested if a Change in Control occurs with respect to the Company or if
the Participant’s Service is terminated without Cause after a Change in Control.  In addition, acceleration of vesting may be
required under Section 10.3.

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

8.7          Form and
Time of Settlement of Share Units. 
Settlement of vested Share Units may be made in the form of
(a) cash, (b) Shares or (c) any combination of both, as
determined by the Committee.  The actual
number of Share Units eligible for settlement may be larger or smaller than the
number included in the original Award, based on predetermined performance
factors.  Methods of converting Share
Units into cash may include (without limitation) a method based on the average
Fair Market Value of Shares over a series of trading days.  Vested Share Units may be settled in a lump
sum or in installments.  The distribution
may occur or commence when all vesting conditions applicable to the Share Units
have been satisfied or have lapsed, or it may be deferred to any later
date.  The amount of a deferred
distribution

 10
 

 

may be
increased by an interest factor or by dividend equivalents.  Until an Award of Share Units is settled, the
number of such Share Units shall be subject to adjustment pursuant to
Article 10.

8.8          Creditors’
Rights.  A holder of Share
Units shall have no rights other than those of a general creditor of the
Company.  Share Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Share Unit Agreement.

ARTICLE 9.            AUTOMATIC OPTION GRANTS TO OUTSIDE
DIRECTORS.

9.1          Initial
Grants.  In connection with
joining the Board, each Outside Director shall receive:

(a)           
A one-time grant of an NSO covering Shares with an Accounting Value of
$110,000.  Such NSO shall be granted on
the date when such Outside Director first joins the Board, and shall vest and
become exercisable on the first anniversary of the Date of Grant; and

(b)           A
one-time grant of Share Units with an Accounting Value of $110,000.  Such Share Units shall be granted on the date
when such Outside Director first joins the Board and shall vest on the first
anniversary of the Date of Grant. 
Settlement of vested Share Units shall be made in a lump sum on the
third anniversary of the Date of Grant. 
Such lump sum shall consist of a number of Shares equal to the number of
vested Share Units.

(c)           With
respect to an Outside Director who first becomes a member of the Board prior to
completion of the Company’s initial public offering, the initial grants
referred to in subparagraphs (a) and (b) above shall be granted on the date of
the Company’s initial public offering and the prices shall be calculated by
reference to the initial public offering price reflected in the final
prospectus related to the offering.

An Outside Director who
was previously an Employee shall not receive grants under this
Section 9.1.

9.2          Annual
Grants.  Upon the conclusion
of each regular annual meeting of the Company’s shareholders held in the year
2007 or thereafter, each Outside Director who will continue serving as a member
of the Board thereafter shall receive:

(a)           A
grant of an NSO covering Shares with an Accounting Value of $55,000.  Such NSO shall vest and become exercisable on
the first anniversary of the Date of Grant; and

(b)           A
grant of Share Units with an Accounting Value of $55,000.  Such Share Units shall vest on the first
anniversary of the Date of Grant. 
Settlement of vested Share Units shall be made in a lump sum on the
third anniversary of the Date of Grant, unless deferred to a later date.  Such lump sum shall consist of a number of
Shares equal to the number of vested Share Units.

 11
 

 

Notwithstanding the
foregoing, no grants shall be made pursuant to this Section 9.2 in the calendar
year in which the same Outside Director received grants described in
Section 9.1.  An Outside Director
who previously was an Employee shall be eligible to receive grants under this
Section 9.2.

9.3          Cessation
of Eligibility to Vest.  Unless
otherwise provided by the Award Agreement, if an Outside Director’s Service
terminates prior to the vesting date specified in such agreement other than as
a result of circumstances described in Section 9.4 below, then such Director’s
unvested Award shall immediately be forfeited and such unvested Shares shall
revert to the Plan.

9.4          Accelerated
Exercisability.  All Awards
granted to an Outside Director under this Article 9 shall also become
exercisable in full, and Restricted Shares and Share Units shall be
distributed, in the event that:

(a)           Such
Outside Director’s Service terminates because of death, total and permanent
disability, or retirement at or after age 65;

(b)           The
Company is subject to a Change in Control before such Outside Director’s Service
terminates; or

(c)           As
otherwise required by Section 10.3.

9.5          Exercise
Price.  The Exercise Price
under all NSOs granted to an Outside Director under this Article 9 shall
be equal to 100% of the Fair Market Value of a Share on the Date of Grant,
payable in one of the forms described in Section 5.7(a), (b) or (c).

9.6          Term.  The Option Agreement shall specify the term
of the option, which shall not exceed 10 years form the Date of Grant.  Each NSO granted to an Outside Director under
this Article 9 shall terminate on the earlier of (a) the expiration
of the term of such option or (b) the date 12 months after the termination
of such Outside Director’s Service for any reason.

9.7          Affiliates
of Outside Directors.  The
Committee may provide that the NSOs that otherwise would be granted to an
Outside Director under this Article 9 shall instead be granted to an
affiliate of such Outside Director.  Such
affiliate shall then be deemed to be an Outside Director for purposes of the
Plan, provided that the Service-related vesting and termination provisions
pertaining to the NSOs shall be applied with regard to the Service of the
Outside Director.

ARTICLE 10.          PROTECTION AGAINST DILUTION.

10.1        Adjustments.  In the event of a subdivision of the
outstanding Shares, a declaration of a dividend payable in Shares or a
combination or consolidation of the outstanding Shares (by reclassification or
otherwise) into a lesser number of Shares, corresponding adjustments shall
automatically be made in each of the following:

(a)           The
number of Options, SARs, Restricted Shares and Share Units available for future
Awards under Article 3;

 12
 

 

(b)           The
limitations set forth in Sections 5.2, 7.2, 8.4(a) and 9.4(a);

(c)           The
number of Shares covered by each outstanding Option and SAR;

(d)           The
Exercise Price under each outstanding Option and SAR; or

(e)           The
number of Share Units included in any prior Award that has not yet been
settled.

In
the event of a declaration of an extraordinary dividend payable in a form other
than Shares in an amount that has a material effect on the price of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or
more of the foregoing.  Except as
provided in this Article 10, a Participant shall have no rights by reason
of any issuance by the Company of shares of any class or securities convertible
into shares of any class, any subdivision or consolidation of shares of any
class, the payment of any share dividend or any other increase or decrease in
the number of shares of any class.

10.2        Dissolution
or Liquidation.  To the extent
not previously exercised or settled, Options, SARs and Share Units shall
terminate immediately prior to the dissolution or liquidation of the Company.

10.3        Reorganizations.  In the event that the Company is a party to a
merger or consolidation, all outstanding Awards shall be subject to the
agreement of merger or consolidation. 
Such agreement shall provide for one or more of the following:

(a)           The
continuation of such outstanding Awards by the Company (if the Company is the
surviving corporation).

(b)           The
assumption of such outstanding Awards by the surviving corporation or its
parent, provided that the assumption of Options or SARs shall comply with
sections 409A and 424(a) of the Code (whether or not the Options are
ISOs).

(c)           The
substitution by the surviving corporation or its parent of new awards for such
outstanding Awards, provided that the substitution of Options or SARs shall
comply with sections 409A and 424(a) of the Code (whether or not the
Options are ISOs).

(d)           Full
exercisability of outstanding Options and SARs and full vesting of the Shares
subject to such Options and SARs, followed by the cancellation of such Options
and SARs.  The full exercisability of
such Options and SARs and full vesting of such Shares may be contingent on the
closing of such merger or consolidation. 
The Optionees shall be able to exercise such Options and SARs during a
period of not less than five full business days preceding the closing date of
such merger or consolidation, unless (i) a shorter period is required to
permit a timely closing of such merger or consolidation and (ii) such
shorter period still offers the Optionees a reasonable opportunity to exercise
such Options and SARs.  Any exercise of
such Options and SARs during such period may be contingent on the closing of
such merger or consolidation.

 13
 

 

(e)           The
cancellation of outstanding Options and SARs and a payment to the Optionees
equal to the excess of (i) the Fair Market Value of the Shares subject to
such Options and SARs (whether or not such Options and SARs are then
exercisable or such Shares are then vested) as of the closing date of such
merger or consolidation over (ii) their Exercise Price.  Such payment shall be made in the form of
cash, cash equivalents, or securities of the surviving corporation or its
parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and
may be deferred until the date or dates when such Options and SARs would have
become exercisable or such Shares would have vested.  Such payment may be subject to vesting based
on the Optionee’s continuing Service, provided that the vesting schedule shall
not be less favorable to the Optionee than the schedule under which such
Options and SARs would have become exercisable or such Shares would have
vested.  If the Exercise Price of the
Shares subject to such Options and SARs exceeds the Fair Market Value of such
Shares, then such Options and SARs may be cancelled without making a payment to
the Optionees.  For purposes of this
Subsection (e), the Fair Market Value of any security shall be determined
without regard to any vesting conditions that may apply to such security.

(f)            The
cancellation of outstanding Share Units and a payment to the Participants equal
to the Fair Market Value of the Shares subject to such Share Units (whether or
not such Share Units are then vested) as of the closing date of such merger or
consolidation.  Such payment shall be
made in the form of cash, cash equivalents, or securities of the surviving
corporation or its parent with a Fair Market Value equal to the required
amount.  Such payment may be made in
installments and may be deferred until the date or dates when such Share Units
would have vested.  Such payment may be
subject to vesting based on the Participant’s continuing Service, provided that
the vesting schedule shall not be less favorable to the Participant than the
schedule under which such Share Units would have vested.  For purposes of this Subsection (f), the
Fair Market Value of any security shall be determined without regard to any
vesting conditions that may apply to such security.

ARTICLE 11.          PAYMENT OF DIRECTOR’S FEES IN SECURITIES.

11.1        Effective Date.  No provision of this Article 11 shall be
effective unless and until the Board has determined to implement such
provision.

11.2        Elections to
Receive NSOs, Restricted Shares or Share Units.  An Outside Director may elect to receive his
or her annual retainer payments and/or meeting fees from the Company in the
form of cash, NSOs, Restricted Shares or Share Units, or a combination thereof,
as determined by the Board.  Such NSOs,
Restricted Shares and Share Units shall be issued under the Plan.  An election under this Article 11 shall
be filed with the Company on the prescribed form.

11.3        Number and
Terms of NSOs, Restricted Shares or Share Units.  The number of NSOs, Restricted Shares or
Share Units to be granted to Outside Directors in lieu of annual retainers and
meeting fees that would otherwise be paid in cash shall be calculated in a
manner determined by the Board.  The
Board shall also determine the terms of such NSOs, Restricted Shares or Share
Units.

 14
 

 

ARTICLE 12.          LIMITATION ON RIGHTS.

12.1        Retention
Rights.  Neither the Plan nor
any Award granted under the Plan shall be deemed to give any individual a right
to remain an Employee, Outside Director or Consultant.  The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the Service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to
applicable laws, the Company’s Articles of Association and a written employment
agreement (if any).

12.2        Shareholders’
Rights.  A Participant shall have
no dividend rights, voting rights or other rights as a shareholder with respect
to any Shares covered by his or her Award prior to the time when such Shares
are issued or, if applicable, the time when he or she becomes entitled to
receive such Shares by filing any required notice of exercise and paying any
required Exercise Price.  No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to such time, except as expressly provided in the Plan.

12.3        Regulatory
Requirements.  Any other
provision of the Plan notwithstanding, the obligation of the Company to issue
Shares under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required.  The Company reserves the right to restrict,
in whole or in part, the delivery of Shares pursuant to any Award prior to the
satisfaction of all legal requirements relating to the issuance of such Shares,
to their registration, qualification or listing or to an exemption from
registration, qualification or listing.

ARTICLE 13.          WITHHOLDING TAXES.

13.1        General.  To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan.  The Company shall not be required to issue
any Shares or make any cash payment under the Plan until such obligations are
satisfied.

13.2        Share
Withholding.  To the extent
that applicable law subjects a Participant to tax withholding obligations, the
Committee may permit such Participant to satisfy all or part of such
obligations by having the Company withhold all or a portion of any Shares that
otherwise would be issued to him or her or by surrendering all or a portion of
any Shares that he or she previously acquired. 
Such Shares shall be valued at their Fair Market Value on the date when
they are withheld or surrendered.

ARTICLE 14.          LIMITATION ON PAYMENTS.

14.1        Scope of
Limitation.  This
Article 14 shall apply to an Award only if:

(a)           The
independent auditors selected for this purpose by the Committee (the “Auditors”)
determine that the after-tax value of such Award to the Participant, taking
into account the effect of all federal, state and local income taxes,
employment taxes and excise taxes applicable to the Participant (including the
excise tax under section 4999 of the

 15
 

 

Code), will be
greater after the application of this Article 14 than it was before the
application of this Article 14; or

(b)           The
Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall be subject to this
Article 14 (regardless of the after-tax value of such Award to the
Participant).

If
this Article 14 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.

14.2        Basic Rule.  In the event that the Auditors determine that
any payment or transfer by the Company under the Plan to or for the benefit of
a Participant (a “Payment”) would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning “excess parachute
payments” in section 280G of the Code, then the aggregate present value of
all Payments shall be reduced (but not below zero) to the Reduced Amount.  For purposes of this Article 14, the “Reduced
Amount” shall be the amount, expressed as a present value, which maximizes the
aggregate present value of the Payments without causing any Payment to be
nondeductible by the Company because of section 280G of the Code.

14.3        Reduction of
Payments.  If the Auditors
determine that any Payment would be nondeductible by the Company because of
section 280G of the Code, then the Company shall promptly give the
Participant notice to that effect and a copy of the detailed calculation
thereof and of the Reduced Amount, and the Participant may then elect, in his
or her sole discretion, which and how much of the Payments shall be eliminated
or reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall advise the Company in writing of
his or her election within 10 days of receipt of notice.  If no such election is made by the Participant
within such 10-day period, then the Company may elect which and how much
of the Payments shall be eliminated or reduced (as long as after such election
the aggregate present value of the Payments equals the Reduced Amount) and
shall notify the Participant promptly of such election.  For purposes of this Article 14, present
value shall be determined in accordance with section 280G(d)(4) of the
Code.  All determinations made by the
Auditors under this Article 14 shall be binding upon the Company and the
Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable.  As
promptly as practicable following such determination and the elections
hereunder, the Company shall pay or transfer to or for the benefit of the Participant
such amounts as are then due to him or her under the Plan and shall promptly
pay or transfer to or for the benefit of the Participant in the future such
amounts as become due to him or her under the Plan.

14.4        Overpayments
and Underpayments.  As a
result of uncertainty in the application of section 280G of the Code at
the time of an initial determination by the Auditors hereunder, it is possible
that Payments will have been made by the Company which should not have been
made (an “Overpayment”) or that additional Payments which will not have been
made by the Company could have been made (an “Underpayment”), consistent in
each case with the calculation of the Reduced Amount hereunder.  In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against the
Company or the Participant that the Auditors believe has a high probability of
success, determine that an Overpayment has been made, such Overpayment shall be
treated for all purposes as a loan to the Participant that he

 16
 

 

or she shall
repay to the Company, together with interest at the applicable federal rate
provided in section 7872(f)(2) of the Code; provided, however, that no
amount shall be payable by the Participant to the Company if and to the extent
that such payment would not reduce the amount that is subject to taxation under
section 4999 of the Code.  In the
event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for the
benefit of the Participant, together with interest at the applicable federal
rate provided in section 7872(f)(2) of the Code.

14.5        Related
Corporations.  For purposes of
this Article 14, the term “Company” shall include affiliated corporations
to the extent determined by the Auditors in accordance with
section 280G(d)(5) of the Code.

ARTICLE 15.          FUTURE OF THE PLAN.

15.1        Term of the
Plan.  The Plan, as set forth
herein, shall become effective on the date of the Company’s initial public
offering.  The Plan shall remain in
effect until the earlier of (a) the date when the Plan is terminated under
Section 15.2 or (b) the 10th anniversary
of the date when the Board adopted the Plan.

15.2        Amendment or
Termination.  The Board may,
at any time and for any reason, amend or terminate the Plan.  No Awards shall be granted under the Plan
after the termination thereof.  The
termination of the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan.

15.3        Shareholder
Approval.  An amendment of the
Plan shall be subject to the approval of the Company’s shareholders only to the
extent required by applicable laws, regulations or rules.  However, section 162(m) of the Code may
require that the Company’s shareholders approve:

(a)           The
Plan not later than the first regular meeting of shareholders that occurs in
the fourth calendar year following the calendar year in which the Company’s
initial public offering occurred; and

(b)           The
performance criteria set forth in Appendix A not later than the first
meeting of shareholders that occurs in the fifth year following the year in
which the Company’s shareholders previously approved such criteria.

ARTICLE 16.          DEFINITIONS.

16.1         “Awardee
Eligible to Vest” means a Participant who is in active
service with the Company or a Subsidiary or Affiliate (or who is on an approved
leave of absence or taking vacation or otherwise approved flexible time off (“FTO”)
in accordance with the Company’s FTO policy) on the vesting date fixed in the
Award Agreement, subject to the exceptions provided in Articles 5, 7, 8
and 9.  With the exception of an
individual who is on an approved leave of absence or taking FTO, in no event
shall an individual be considered an Awardee Eligible to Vest if and at the
time the individual ceases or has ceased to perform job duties for which he or
she is compensated directly by the Company or a Subsidiary or Affiliate. The
foregoing shall be true in the event that the individual, prior to ceasing to
perform job duties

 17
 

 

for which he or
she is compensated directly by the Company or a Subsidiary or Affiliate,
received or provided notice of termination (irrespective of any notice period
or similar period prescribed under the laws of a jurisdiction outside the
United States) whether such notice of termination or transfer is lawful or
unlawful under applicable employment law or is in breach of an employment
contract.  Continued affiliation or
relationship with the Company or a Subsidiary or Affiliate pursuant to a
statutory or contractual notice period shall not constitute continuation of an
individual’s status as an Awardee Eligible to Vest.  In accordance with the definition above,
status as an Awardee Eligible to Vest will always cease upon termination of
employment with the Company or a Subsidiary or Affiliate except as provided in
Articles 5, 7, 8 and 9.

16.2         “Accounting Value” means, with respect to an
Award, a value calculated using the same methodology as was applied by the
Company for purposes of determining the accounting charge associated with
similar Awards for the fiscal period immediately preceding the date on which
the subject Award is granted.

16.3         “Affiliate” means any entity other than a
Subsidiary, if the Company and/or one or more Subsidiaries own not less than
50% of such entity.

16.4         “Award” means any award of an Option, a SAR,
a Restricted Share or a Share Unit under the Plan.

16.5         “Board” means the Company’s Board of
Directors, as constituted from time to time.

16.6         “Cause” means:

(a)           An
unauthorized use or disclosure by the Participant of the Company’s confidential
information or trade secrets, which use or disclosure causes material harm to
the Company;

(b)           A
material breach by the Participant of any agreement between the Participant and
the Company;

(c)           A
material failure by the Participant to comply with the Company’s written
policies or rules;

(d)           The
Participant’s conviction of, or plea of “guilty” or “no contest” to, a felony
under the laws of the United States or any State thereof or the equivalent
under the applicable laws outside of the United States;

(e)           The
Participant’s gross negligence or willful misconduct;

(f)            A
continuing failure by the Participant to perform assigned duties after
receiving written notification of such failure; or

(g)           A
failure by the Participant to cooperate in good faith with a governmental or
internal investigation of the Company or its directors, officers or employees,
if the Company has requested the Participant’s cooperation.

 18
 

 

16.7         “Change in Control” means:

(a)           The
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization, if persons who were not
shareholders of the Company immediately prior to such merger, consolidation or
other reorganization own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding securities of
each of (i) the continuing or surviving entity and (ii) any direct or
indirect parent corporation of such continuing or surviving entity;

(b)           The
sale, transfer or other disposition of all or substantially all of the Company’s
assets;

(c)           A
change in the composition of the Board, as a result of which fewer than 50% of
the incumbent directors are directors who either:

(i)            Had been directors of
the Company on the date 24 months prior to the date of such change in the
composition of the Board (the “Original Directors”); or

(ii)           Were appointed to the
Board, or nominated for election to the Board, with the affirmative votes of at
least a majority of the aggregate of (A) the Original Directors who were
in office at the time of their appointment or nomination and (B) the
directors whose appointment or nomination was previously approved in a manner
consistent with this Paragraph (ii); or

(d)           Any
transaction as a result of which any person is the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing at least 30% of the total voting power
represented by the Company’s then outstanding voting securities.  For purposes of this Subsection (d), the
term “person” shall have the same meaning as when used in sections 13(d)
and 14(d) of the Exchange Act but shall exclude (i) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or of a Parent or Subsidiary and (ii) a corporation owned directly
or indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of Shares.

A transaction shall not constitute a Change in Control
if its sole purpose is to change the jurisdiction of the Company’s
incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s
securities immediately before such transaction.

16.8         “Code” means the U.S. Internal Revenue Code
of 1986, as amended.

16.9         “Committee” means a committee of the Board,
as described in Article 2.

16.10       “Company” means Verigy Ltd., a Singapore corporation.

16.11       “Consultant” means a consultant or adviser who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor.

 19
 

 

16.12       “Date of Grant” means the
latest of: (a) the date on which the Committee determines that the Option or
SAR shall be granted; (b) the date on which the Optionee’s Service commences;
or (c) the date on which all material terms of the Option or SAR, including
(without limitation) the Exercise Price, are ascertainable; provided, however,
that with respect to automatic awards to Outside Directors, “Date of Grant”
means the date of such automatic award as provided in the applicable provision
of this Plan.

16.13       “Employee” means a full time or part time employee of the
Company or any Subsidiary or Affiliate, including Officers and Directors, who
is treated as an employee in the personnel records of the Company or a
Subsidiary or Affiliate for the relevant period, but shall exclude individuals
who are classified by the Company or a Subsidiary or Affiliate as
(a) leased from or otherwise employed by a third party,
(b) independent contractors or (c) intermittent or temporary, even if
any such classification is changed retroactively as a result of an audit,
litigation or otherwise.  A Participant
shall not cease to be an Employee in the case of (i) any vacation or sick
time or otherwise approved FTO in accordance with the Company’s (or a
Subsidiary’s or Affiliate’s) FTO policy or (ii) transfers between
locations of the Company or between the Company and/or any Subsidiary or
Affiliate.  Neither service as a Director
nor payment of a director’s fee by the Company shall be sufficient to
constitute “employment” by the Company.

16.14       “Exchange Act” means the U.S. Securities Exchange Act of 1934,
as amended.

16.15       “Exercise Price,” in the case of an Option, means the amount
for which one Share may be purchased upon exercise of such Option, as specified
in the applicable Option Agreement.  “Exercise Price,” in the case of a SAR,
means an amount, as specified in the applicable SAR Agreement, which is subtracted
from the Fair Market Value of one Share in determining the amount payable upon
exercise of such SAR.

16.16       “Fair Market Value” means the market price of Shares,
determined by the Committee as follows:

(a)           If the Shares are
traded on Nasdaq or on a stock exchange, then the Fair Market Value shall be
equal to the last sale price of the Shares on such market or exchange as of the
date in question or, if the market or exchange was closed on the date in
question, then the Fair Market Value will be equal to the last sale price on
the last trading day immediately preceding the day in question.  If the Shares are traded on more than one
market or exchange, then the Fair Market Value shall be determined by reference
to the primary market or exchange where the Shares trade.

(b)           If foregoing provisions
are not applicable, then the Committee shall determine the Fair Market Value in
good faith on such basis as it deems appropriate.  Such determination shall be conclusive and
binding on all persons.

16.17       “ISO” means an incentive stock option described in
section 422(b) of the Code.

 20
 

 

16.18       “NSO” means a share option not described in sections 422
or 423 of the Code.

16.19       “Option” means an ISO or NSO granted under the Plan and
entitling the holder to purchase Shares.

16.20       “Option Agreement” means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.

16.21       “Optionee” means an individual or estate that holds an Option
or SAR.

16.22       “Outside Director” means a member of the Board who is not an
Employee.

16.23       “Parent” means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns shares possessing 50% or more of the
total combined voting power of all classes of shares in one of the other
corporations in such chain.  A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.

16.24       “Participant” means an individual or estate that holds an
Award.

16.25       “Plan” means this Verigy Ltd. 2006 Equity Incentive Plan, as
amended from time to time.

16.26       “Replacement Awards” means Awards granted or Shares issued by the
Company in the conversion, assumption, substitution, or exchange of awards
previously granted under the Agilent Technologies, Inc. 1999 Stock Plan or the
Agilent Technologies, Inc. 1999 Non-employee Director Stock Plan.

16.27       “Restricted Share” means a Share awarded under the Plan.

16.28       “Restricted Share Agreement” means the agreement between the
Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.

16.29       “SAR” means a share appreciation right granted under the Plan.

16.30       “SAR Agreement” means the agreement between the Company and an
Optionee that contains the terms, conditions and restrictions pertaining to his
or her SAR.

16.31       “Service” means service as an Employee, Outside Director or
Consultant.

16.32       “Shares” means the Ordinary Shares of the Company.

16.33       “Share Unit” means a bookkeeping entry representing the
equivalent of one Share, as awarded under the Plan.

 21
 

 

16.34       “Share Unit Agreement” means the agreement between the Company
and the recipient of a Share Unit that contains the terms, conditions and
restrictions pertaining to such Share Unit.

16.35       “Subsidiary” means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns shares
possessing 50% or more of the total combined voting power of all classes of
shares in one of the other corporations in such chain.  A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.

16.36       “Substitute Awards” means:

(a)           Awards granted or
Shares issued by the Company in assumption of, or in substitution or exchange
for, awards previously granted by: (i) a company acquired by the Company; (ii)
a company acquired by any Subsidiary; or (iii) a company with which the Company
or any Subsidiary combines; and

(b)           Awards granted or
Shares issued by the Company in assumption of, or in substitution or exchange
for, awards previously granted by Agilent Technologies, Inc.

Adoption and Amendment History:

	
  Action

  	
   

  	
  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Adopted by the
  Board of Directors:

  	
   

  	
  June 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Approved by the
  sole shareholder:

  	
   

  	
  June 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Amended by the Board of Directors to revise
  definition of “Fair Market Value” (Section 16.16)

  	
   

  	
  August 29, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Amended by the Board
  of Directors to add definition of Date of Grant (Section 16.12)

  	
   

  	
  December 13, 2006

  	
   

  

 22
 

 

ADDENDUM TO THE VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

Pursuant
to Section 2.2 of the Verigy Ltd. 2006 Equity Incentive Plan the
following modifications to the Plan will apply in the countries as set forth
below:

CHINA

All stock options granted in China will only be
exercisable using the full cashless exercise method (i.e.,
cashless exercise for cash).  Only full
cashless exercise (proceeds remitted in cash) will be permitted.  Cash exercises are prohibited.

FRANCE

All
options and restricted stock units (“RSUs”) granted in France shall be subject
to the additional terms and conditions of the Verigy Ltd. 2006
Equity Incentive Plan Option Sub-Plan for French Employees and the Verigy Ltd. 2006
Equity Incentive Plan RSU Sub-Plan for French Employees, as
applicable.

ITALY

All stock options granted in Italy will only be
exercisable using the full cashless exercise method (i.e.,
cashless exercise for cash).  Only full
cashless exercise (proceeds remitted in cash) will be permitted.  Cash exercises are prohibited.

 23
 

 

Appendix A

Performance
Criteria for Restricted Shares and Share Units

The Committee may apply any one or more of
the following performance criteria, individually, alternatively or in any
combination, either to the Company as a whole or to a business unit, Subsidiary
or Affiliate, measured annually, quarterly or cumulatively over a period of
years, either on an absolute basis or relative to a pre-established target,
with respect to previous years’ results or a designated comparison group, in
each case as specified by the Committee: (i) cash flow (before or after
dividends), (ii) earnings per share (including earnings before interest,
taxes, depreciation and amortization), (iii) share price, (iv) return
on equity, (v) total shareholder return, (vi) return on capital
(including return on total capital or return on invested capital),
(vii) return on assets or net assets, (viii) market capitalization,
(ix) economic value added, (x) debt leverage (debt to capital),
(xi) revenue or net revenue, (xii) income or net income,
(xiii) operating income, (xiv) operating profit or net operating
profit, (xv) operating margin or profit margin, (xvi) return on
operating revenue, (xvii) cash from operations, (xviii) operating
ratio, (xix) operating revenue, (xx) customer satisfaction measures,
(xxi) net order dollars, (xxii) guaranteed efficiency measures; (xxiii)
service agreement renewal rates; (xxiv) service revenues as a percentage of
product revenues, either with respect to one or more particular transactions or
with respect to revenues as a whole; or (xxv) individual performance.  To the extent consistent with
section 162(m) of the Code, the Committee may appropriately adjust any
evaluation of performance under a performance criterion to exclude any of the
following events that occurs during a performance period: (i) asset
write-downs, (ii) litigation, claims, judgments or settlements,
(iii) the effect of changes in tax law, accounting principles or other
such laws or provisions affecting reported results, (iv) accruals for
reorganization and restructuring programs and (v) any extraordinary,
unusual or non-recurring items.

 24

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