Document:

EXHIBIT 10.14

 

Egami Media, Inc.

2005 Incentive Compensation Plan

 

1.             Purpose.  The purpose of this 2005 Incentive
Compensation Plan (the “Plan”) is to assist Egami Media, Inc., a Delaware
corporation (the “Company”) and its Related Entities in attracting, motivating,
retaining and rewarding high-quality executives and other Employees, officers,
Directors and Consultants by enabling such persons to acquire or increase a
proprietary interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company’s shareholders, and providing
such persons with annual and long term performance incentives to expend their
maximum efforts in the creation of shareholder value.  The Plan is intended to qualify certain
compensation awarded under the Plan for tax deductibility under Section 162(m)
of the Code (as hereafter defined) to the extent deemed appropriate by the
Committee (or any successor committee) of the Board.

 

2.             Definitions.  For purposes of the Plan, the following terms
shall be defined as set forth below, in addition to such terms defined in Section 1
hereof.

 

(a)           “Annual
Incentive Award” means a conditional right granted to a Participant under Section 8(c) hereof
to receive a cash payment, Stock or other Award, as determined by the
Committee, after the end of a specified fiscal year.

 

(b)           “Award”
means any Option, Stock Appreciation Right (including Limited Stock
Appreciation Right), Restricted Stock, Stock Units, Stock granted as a bonus or
in lieu of another award, Dividend Equivalent, Other Stock-Based Award,
Performance Award or Annual Incentive Award, together with any other right or
interest, granted to a Participant under the Plan.

 

(c)           “Beneficiary”
means the person, persons, trust or trusts which have been designated by a
Participant in his or her most recent written beneficiary designation filed
with the Committee to receive the benefits specified under the Plan upon such
Participant’s death or to which Awards or other rights are transferred if and
to the extent permitted under Section 10(b) hereof.  If, upon a Participant’s death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.

 

(d)           “Beneficial
Owner”, “Beneficially Owning” and “Beneficial Ownership” shall have the
meanings ascribed to such terms in Rule 13d3 under the Exchange Act and
any successor to such Rule.

 

(e)           “Board”
means the Company’s Board of Directors.

 

(f)            “Cause”
shall, with respect to any Participant, have the equivalent meaning (or the
same meaning as “cause” or “for cause”) set forth in any employment agreement
between the Participant and the Company or a Related Entity or, in the absence
of any such agreement, such term shall mean (i) the failure by the
Participant to perform his or her duties as assigned by the Company (or a
Related Entity) in a 

 

 

reasonable manner, (ii) any violation or
breach by the Participant of his or her employment agreement with the Company
(or a Related Entity), if any, (iii) any violation or breach by the
Participant of his or her confidential information and invention assignment
agreement with the Company (or a Related Entity), if any, (iv) any act by
the Participant of dishonesty or bad faith with respect to the Company (or a
Related Entity), (v) chronic addiction to alcohol, drugs or other similar
substances affecting the Participant’s work performance, or (vi) the
commission by the Participant of any act, misdemeanor, or crime reflecting
unfavorably upon the Participant or the Company.  The good faith determination by the Committee
of whether the Participant’s Continuous Service was terminated by the Company
for “Cause” shall be final and binding for all purposes hereunder.

 

(g)           “Change
in Control” means a Change in Control as defined with related terms in Section 9
of the Plan.

 

(h)           “Change
in Control Price” shall be defined as it is defined, if at all, (1) in an
employment, compensation, or severance agreement, if any, between the Company
or any Related Entity and the Participant, relating to the Participant’s
employment, compensation, or severance with or from the Company or such Related
Entity, or (2) in the agreement evidencing the Award to such Participant.

 

(i)            “Code”
means the Internal Revenue Code of 1986, as amended from time to time,
including regulations thereunder and successor provisions and regulations
thereto.

 

(j)            “Committee”
means a committee designated by the Board to administer the Plan with respect
to at least a group of Employees, Directors or Consultants.

 

(k)           “Consultant”
means any person (other than an Employee or a Director, solely with respect to
rendering services in such person’s capacity as a director) who is engaged by the
Company or any Related Entity to render consulting or advisory services to the
Company or such Related Entity.

 

(l)            “Continuous
Service” means uninterrupted provision of services to the Company as an
Employee, a Director, or a Consultant. 
Continuous Service shall not be considered to be interrupted in the case
of (i) any approved leave of absence, (ii) transfers among the
Company, any Related Entities, or any successor entities, as either an
Employee, a Director, or a Consultant, or (iii) any change in status as
long as the individual remains in the service of the Company or a Related
Entity as either an Employee, a Director, or a Consultant (except as otherwise
provided in the Option Agreement).  An
approved leave of absence shall include sick leave, military leave, or any
other authorized personal leave.

 

(m)          “Corporate
Transaction” means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:

 

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(i)            a sale or other disposition of all or substantially all, as
determined by the Board in its discretion, of the consolidated assets of the
Company and its Subsidiaries;

 

(ii)           a sale or other disposition of more than fifty percent (50%)
of the outstanding securities of the Company;

 

(iii)          a merger, consolidation or similar transaction following
which the Company is not the surviving corporation; or

 

(iv)          a merger, consolidation or similar transaction following
which the Company is the surviving corporation.

 

(n)           “Covered
Employee” means an Eligible Person who is a Covered Employee as specified in Section 7(e) of
the Plan.

 

(o)           “Director”
means a member of the Board or the board of directors of any Related Entity.

 

(p)           “Disability”
means a permanent and total disability (within the meaning of Section 22(e) of
the Code), as determined by a medical doctor satisfactory to the Committee.

 

(q)           “Dividend
Equivalent” means a right, granted to a Participant under Section 6(g) hereof,
to receive cash, Stock, other Awards or other property equal in value to
dividends paid with respect to a specified number of shares of Stock, or other
periodic payments.

 

(r)            “Effective
Date” means the effective date of the Plan, which shall be January 1, 2005.

 

(s)           “Eligible
Person” means all Employees (including officers), Directors and Consultants of
the Company or of any Related Entity. 
The foregoing notwithstanding, only employees of the Company, the
Parent, or any Subsidiary shall be Eligible Persons for purposes of receiving
any Incentive Stock Options.  An Employee
on leave of absence may be considered as still in the employ of the Company or
a Related Entity for purposes of eligibility for participation in the Plan.

 

(t)            “Employee”
means any person, including an officer or Director, who is an employee of the
Company or any Related Entity.  The
Payment of a director’s fee by the Company or a Related Entity shall not be
sufficient to constitute “employment” by the Company.

 

(u)           “Exchange
Act” means the Securities Exchange Act of 1934, as amended from time to time,
including rules thereunder and successor provisions and rules thereto.

 

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(v)           “Executive
Officer” means an executive officer of the Company as defined under the Exchange
Act.

 

(w)          “Fair
Market Value” means the fair market value of Stock, Awards or other property as
determined by the Plan Administrator, or under procedures established by the
Plan Administrator.  Unless otherwise
determined by the Plan Administrator, the Fair Market Value of Stock as of any
given date, after which the Stock is publicly traded on a stock exchange or
market, shall be the closing sale price per share reported on a consolidated
basis for stock listed on the principal stock exchange or market on which Stock
is traded on the date as of which such value is being determined or, if there
is no sale on that date, then on the last previous day on which a sale was
reported.

 

(x)            “Good
Reason” shall, with respect to any Participant, have the equivalent meaning (or
the same meaning as “good reason” or “for good reason”) set forth in any
employment agreement between the Participant and the Company or a Related
Entity or, in the absence of any such agreement, such term shall mean (i) the
assignment to the Participant of any duties inconsistent in any respect with
the Participant’s position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as assigned by the Company
(or a Related Entity), or any other action by the Company (or a Related Entity)
which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
(or a Related Entity) promptly after receipt of notice thereof given by the
Participant; (ii) any failure by the Company (or a Related Entity) to
comply with its obligations to the Participant as agreed upon, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company (or a Related Entity) promptly after receipt
of notice thereof given by the Participant; 
(iii) the Company’s (or Related Entity’s) requiring the Participant
to be based at any office or location outside of fifty miles from the location
of employment as of the date of Award, except for travel reasonably required in
the performance of the Participant’s responsibilities; (iv) any purported
termination by the Company (or a Related Entity) of the Participant’s
Continuous Service otherwise than for Cause as defined in Section 2(f), or
by reason of the Participant’s Disability as defined in Section 2(o),
prior to the Expiration Date.  For
purposes of this Section 2(v), any good faith determination of “Good
Reason” made by the Company shall be conclusive.

 

(y)           “Incentive
Stock Option” means any Option intended to be designated as an incentive stock
option within the meaning of Section 422 of the Code or any successor
provision thereto.

 

(z)            “Limited
Stock Appreciation Right” means a right granted to a Participant under Section 6(c) hereof.

 

(aa)         “Option”
means a right granted to a Participant under Section 6(b) hereof, to
purchase Stock or other Awards at a specified price during specified time
periods.

 

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(bb)         “Optionee”
means a person to whom an Option or Incentive Stock Option is granted under
this Plan or any person who succeeds to the rights of such person under this
Plan.

 

(cc)         “Other Stock-Based Awards”
means Awards granted to a Participant under Section 6(h) hereof.

 

(dd)         “Parent”
means any corporation (other than the Company), whether now or hereafter
existing, in an unbroken chain of corporations ending with the Company, if each
of the corporations in the chain (other than the Company) owns stock possessing
50 percent or more of the combined voting power of all classes of stock in one
of the other corporations in the chain.

 

(ee)         “Participant”
means a person who has been granted an Award under the Plan which remains
outstanding, including a person who is no longer an Eligible Person.

 

(ff)           “Performance
Award” means a right, granted to an Eligible Person under Section 8
hereof, to receive Awards based upon performance criteria specified by the Plan
Administrator.

 

(gg)         “Person” has
the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, and shall include a
“group” as defined in Section 13(d) thereof.

 

(hh)         “Plan Administrator”
means the Board or any Committee delegated by the Board to administer the Plan.

 

(ii)           “Related
Entity” means any Parent, Subsidiary and any business, corporation,
partnership, limited liability company or other entity
in which the Company, a Parent or a Subsidiary, directly or indirectly, holds a
substantial ownership interest.

 

(jj)           “Restricted
Stock” means Stock granted to a Participant under Section 6(d) hereof,
that is subject to certain restrictions and to a risk of forfeiture.

 

(kk)         “Rule 16b-3”
and “Rule 16a-1(c)(3)” means Rule 16b-3 and Rule 16a-1(c)(3), as
from time to time in effect and applicable to the Plan and Participants,
promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act.

 

(ll)           “Stock”
means the Company’s Common Stock, and such other securities as may be
substituted (or resubstituted) for Stock pursuant to Section 10(c) hereof.

 

(mm)       “Stock
Appreciation Right” means a right granted to a Participant under Section 6(c) hereof.

 

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(nn)         “Stock Unit”
means a right, granted to a Participant under Section 6(e) hereof, to
receive Stock, cash or a combination thereof at the end of a specified period
of time.

 

(oo)         “Subsidiary”
means any corporation (other than the Company), whether now or hereafter
existing, 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 stock possessing 50 percent or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

 

3.             Administration.

 

(a)           Administration by Board.  The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in Section 3(c).

 

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

 

(i)            To
determine from time to time which of the persons eligible under the Plan shall
be granted Awards; when and how each Award shall be granted; what type or
combination of types of Award shall be granted; the provisions of each Award
granted (which need not be identical), including the time or times when a
person shall be permitted to receive Stock pursuant to an Award; and the number
of shares of Stock with respect to which an Award shall be granted to each such
person.

 

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

 

(iii)          To
effect, at any time and from time to time, with the consent of any adversely
affected Participant, (1) the reduction of the exercise price of any
outstanding Award under the Plan, if any, (2) the cancellation of any
outstanding Award and the grant in substitution therefor of (A) a new
Award under the Plan or another equity plan of the Company covering the same or
a different number of shares of Stock, (B) cash and/or (C) other
valuable consideration (as determined by the Board, in its sole discretion), or
(3) any other action that is treated as a repricing under generally
accepted accounting principles.

 

(iv)          To amend the Plan
or an Award as provided in Section 10(e).

 

(v)           To
terminate or suspend the Plan as provided in Section 10(e).

 

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

 

(c)           Delegation to Committee.

 

(i)            General.  The Board may delegate administration of the
Plan to a Committee or Committees of two (2) or more members of the Board,
and the term “Committee” shall apply to any person or persons to whom such
authority has been delegated.  If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any
of the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.  The Board may abolish the Committee at any
time and revest in the Board the administration of the Plan.

 

(ii)           Section 162(m) and Rule 16b-3 Compliance.  In the discretion of the Board, the Committee
may consist solely of two or more “Outside Directors”, in accordance with Section 162(m)
of the Code, and/or solely of two or more “Non-Employee Directors”, in
accordance with Rule 16b-3.  In
addition, the Board or the Committee may delegate to a committee of two or more
members of the Board the authority to grant Awards to eligible persons who are
either (a) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Award, (b) not
persons with respect to whom the Company wishes to comply with Section 162(m)
of the Code, or (c) not then subject to Section 16 of the Exchange
Act.

 

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

 

(e)           Arbitration.  Any dispute or claim concerning any Award
granted (or not granted) pursuant to the Plan or any disputes or claims
relating to or arising out of the Plan shall be fully, finally and exclusively
resolved by binding and confidential arbitration conducted before a retired
judge pursuant to the rules of JAMS in Los Angeles, California.  The Company shall pay all arbitration
fees.  In addition to any other relief,
the arbitrator may award to the prevailing party recovery of its attorneys’
fees and costs.  By accepting an Award,
the Participant and the Company waive their respective rights to have any such
disputes or claims tried by a judge or jury.

 

(f)            Limitation of Liability.  The Committee and the Board, and each member
thereof, shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or Employee, the
Company’s independent auditors, Consultants or any other agents assisting in
the administration of the Plan.  Members
of the Committee and the Board, and any officer or Employee acting 

 

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at the direction
or on behalf of the Plan Administrator, shall not be personally liable for any
action or determination taken or made in good faith with respect to the Plan,
and shall, to the extent permitted by law, be fully indemnified and protected
by the Company with respect to any such action or determination.

 

4.             Stock
Subject to Plan.

 

(a)           Limitation on Overall Number of Shares Subject to
Awards.  Subject to
adjustment as provided in Section 10(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with Awards
under the Plan shall be ten million (10,000,000).  Any shares of Stock delivered under the Plan
may consist, in whole or in part, of authorized and unissued shares or treasury
shares.

 

(b)           Application of Limitations.  The limitation contained in this Section 4
shall apply not only to Awards that are settled by the delivery of shares of
Stock but also to Awards relating to shares of Stock but settled only in cash
(such as cash-only Stock Appreciation Rights). 
The Plan Administrator may adopt reasonable counting procedures to
ensure appropriate counting, avoid double counting (as, for example, in the
case of tandem or substitute awards) and make adjustments if the number of
shares of Stock actually delivered differs from the number of shares previously
counted in connection with an Award.

 

5.             Eligibility;
Per-Person Award Limitations. 
Awards may be granted under the Plan only to Eligible Persons.  In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards under which
more than one million (1,000,000) shares of Stock could be received by the
Participant, subject to adjustment as provided in Section 10(c).  In addition, the maximum amount that may be
earned as an Annual Incentive Award or other cash Award in any fiscal year by
any one Participant shall be $500,000, and the maximum amount that may be
earned as a Performance Award or other cash Award in respect of a performance
period by any one Participant shall be $1,000,000.

 

6.             Specific
Terms of Awards.

 

(a)           General.  Awards may be granted on the terms and
conditions set forth in this Section 6. 
In addition, the Plan Administrator may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 10(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Plan Administrator shall determine, including terms requiring
forfeiture of Awards in the event of termination of Continuous Service by the
Participant and terms permitting a Participant to make elections relating to
his or her Award.  The Plan Administrator
shall retain full power and discretion to accelerate, waive or modify, at any
time, any term or condition of an Award that is not mandatory under the
Plan.  Except in cases in which the Plan
Administrator is authorized to require other forms of consideration under the
Plan, or to the extent other forms of consideration must be paid to satisfy the
requirements of California law, no consideration other than services may be
required for the grant (but not the exercise) of any Award.

 

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(b)           Options.  The Plan Administrator is authorized to grant
Options to Participants on the following terms and conditions:

 

(i)            Stock Option Agreement.  Each grant of an Option shall be evidenced by
a Stock Option Agreement.  Such Stock
Option Agreement shall be subject to all applicable terms and conditions of the
Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Plan Administrator deems appropriate
for inclusion in a Stock Option Agreement. 
The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical.

 

(ii)           Number of Shares.  Each Stock Option Agreement shall specify the
number of shares of Stock that are subject to the Option and shall provide for
the adjustment of such number in accordance with Section 10(c) hereof.  The Stock Option Agreement shall also specify
whether the Stock Option is an Incentive Stock Option or a Non-Qualified Stock
Option.

 

(iii)          Exercise
Price.

 

(A)          In
General.  Each Stock
Option Agreement shall state the price at which shares of Stock subject to the
Option may be purchased (the “Exercise Price”), which shall be, with respect to
Incentive Stock Options, not less than 100% of the Fair Market Value of the
Stock on the date of grant.  In the case
of Non-Qualified Stock Options, the Exercise Price shall be determined in the
sole discretion of the Plan Administrator; provided, however, that the Exercise
Price shall be no less than 100% of the Fair Market Value of the shares of
Stock on the date of grant of the Non-Qualified Stock Option.

 

(B)           Ten
Percent Shareholder.  If a
Participant owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Related Entity, any
Incentive Stock Option granted to such Participant must have an Exercise Price
per share of at least 110% of the Fair Market Value of a share of Stock on the
date of grant.

 

(iv)          Time and Method of Exercise.  The Plan Administrator shall determine the
time or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of performance
goals and/or future service requirements). 
The Plan Administrator may also determine the time or times at which
Options shall cease to be or become exercisable following termination of
Continuous Service or upon other conditions. 
The Board or the Committee may determine the methods by which such
exercise price may be paid or deemed to be paid (including in the discretion of
the Plan Administrator a cashless exercise procedure), the form of such payment,
including, without limitation, cash, Stock, other Awards or awards granted
under other plans of the Company or a Related Entity, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis), and the methods by or forms in which Stock will
be delivered or deemed to be delivered to Participants.

 

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(v)           Incentive Stock Options.  The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of Section 422
of the Code.  Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options (including any Stock Appreciation Rights in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify either the Plan or any
Incentive Stock Option under Section 422 of the Code, unless the
Participant has consented in writing to the change that will result in such
disqualification.  If and to the extent
required to comply with Section 422 of the Code, Options granted as
Incentive Stock Options shall be subject to the following special terms and
conditions:

 

(A)          the Option shall not be
exercisable more than ten years after the date such Incentive Stock Option is
granted; provided, however, that if a Participant owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the Company or
any Parent Corporation and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be (to the extent
required by the Code at the time of the grant) for no more than five years from
the date of grant; and

 

(B)           The aggregate Fair
Market Value (determined as of the date the Incentive Stock Option is granted)
of the shares of stock with respect to which Incentive Stock Options granted
under the Plan and all other option plans of the Company or its Parent
Corporation during any calendar year exercisable for the first time by the
Participant during any calendar year shall not (to the extent required by the
Code at the time of the grant) exceed $100,000. 
To the extent an Option exceeds such limit, unless otherwise provided
for in the Stock Option Agreement, the amount of the Option in excess of
$100,000 shall be treated as a Non-Qualified Stock Option.

 

(vi)          Repurchase Rights.  The Committee and the Board shall have the
discretion to grant Options which are exercisable for unvested shares of Common
Stock.  Should the Optionee’s Continuous
Service cease while holding such unvested shares, the Company shall have the
right to repurchase, at the exercise price paid per share, any or all of those
unvested shares.  The terms upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.

 

(c)           Stock Appreciation Rights.  The Plan Administrator is authorized to grant
Stock Appreciation Rights to Participants on the following terms and
conditions:

 

(i)            Right to Payment.  A Stock Appreciation Right shall confer on
the Participant to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share of stock on
the date of exercise (or, in the case of a “Limited Stock Appreciation Right”
that may be exercised only in the event of a Change in Control, the Fair Market
Value determined by reference to the Change in Control Price over (B) the
grant price of the Stock Appreciation Right as determined by the Plan
Administrator.  The grant price of a
Stock Appreciation Right shall not be less 

 

10

 

than
the Fair Market Value of a share of Stock on the date of grant except as
provided under Section 8(a) hereof.

 

(ii)           Other Terms.  The Plan Administrator shall determine at the
date of grant or thereafter, the time or times at which and the circumstances
under which a Stock Appreciation Right may be exercised in whole or in part
(including based on achievement of performance goals and/or future service
requirements), the time or times at which Stock Appreciation Rights shall cease
to be or become exercisable following termination of Continuous Service or upon
other conditions, the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, whether or not a Stock
Appreciation Right shall be in tandem or in combination with any other Award,
and any other terms and conditions of any Stock Appreciation Right.  Limited Stock Appreciation Rights that may
only be exercised in connection with a Change in Control or other event as
specified by the Plan Administrator, may be granted on
such terms, not inconsistent with this Section 6(c), as the Plan
Administrator may determine.  Stock
Appreciation Rights and Limited Stock Appreciation Rights may be either
freestanding or in tandem with other Awards.

 

(d)           Restricted Stock.  The Plan Administrator is authorized to grant
Restricted Stock to Participants on the following terms and conditions:

 

(i)            Grant and Restrictions.  Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions, if
any, as the Plan Administrator may impose, or as otherwise provided in this
Plan.  The restrictions may lapse
separately or in combination at such times, under such circumstances (including
based on achievement of performance goals and/or future service requirements),
in such installments or otherwise, as the Plan Administrator may determine at
the date of grant or thereafter. Except to the extent restricted under the
terms of the Plan and any Award agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
shareholder, including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment or other
requirement imposed by the Plan Administrator). 
During the restricted period applicable to the Restricted Stock, subject
to Section 10(b) below, the Restricted Stock may not be sold,
transferred, pledged, hypothecated, margined or otherwise encumbered by the
Participant.

 

(ii)           Forfeiture.  Except as otherwise determined by the Plan
Administrator at the time of the Award, upon termination of a Participant’s
Continuous Service during the applicable restriction period, the Participant’s
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Plan Administrator
may provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Restricted Stock shall be waived in whole or in part in the event
of terminations resulting from specified causes, and the Plan Administrator may
in other cases waive in whole or in part the forfeiture of Restricted Stock.

 

11

 

(iii)          Certificates for Stock.  Restricted Stock granted under the Plan may
be evidenced in such manner as the Plan Administrator shall determine.  If certificates representing Restricted Stock
are registered in the name of the Participant, the Plan Administrator may
require that such certificates bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted Stock, that
the Company retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.

 

(iv)          Dividends and Splits.  As a condition to the grant of an Award of
Restricted Stock, the Plan Administrator may require that any cash dividends
paid on a share of Restricted Stock be automatically reinvested in additional
shares of Restricted Stock or applied to the purchase of additional Awards
under the Plan.  Unless otherwise
determined by the Plan Administrator, Stock distributed in connection with a
Stock split or Stock dividend, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other property has
been distributed.

 

(e)           Stock Units.  The Plan Administrator is authorized to grant
Stock Units to Participants, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified time period, subject to the
following terms and conditions:

 

(i)            Award and Restrictions.  Satisfaction of an Award of Stock Units shall
occur upon expiration of the time period specified for such Stock Units by the
Plan Administrator (or, if permitted by the Plan Administrator, as elected by
the Participant).  In addition, Stock
Units shall be subject to such restrictions (which may include a risk of
forfeiture) as the Plan Administrator may impose, if any, which restrictions
may lapse at the expiration of the time period or at earlier specified times
(including based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise, as
the Plan Administrator may determine. 
Stock Units may be satisfied by delivery of Stock, cash equal to the
Fair Market Value of the specified number of shares of Stock covered by the
Stock Units, or a combination thereof, as determined by the Plan Administrator
at the date of grant or thereafter. 
Prior to satisfaction of an Award of Stock Units, an Award of Stock
Units carries no voting or dividend or other rights associated with share
ownership.

 

(ii)           Forfeiture.  Except as otherwise determined by the Plan
Administrator, upon termination of a Participant’s Continuous Service during
the applicable time period thereof to which forfeiture conditions apply (as
provided in the Award agreement evidencing the Stock Units), the Participant’s
Stock Units (other than those Stock Units subject to deferral at the election
of the Participant) shall be forfeited; provided that the Plan Administrator
may provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Stock Units shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Plan Administrator may in
other cases waive in whole or in part the forfeiture of Stock Units.

 

12

 

(iii)          Dividend Equivalents.  Unless otherwise determined by the Plan
Administrator at date of grant, any Dividend Equivalents that are granted with
respect to any Award of Stock Units shall be either (A) paid with respect
to such Stock Units at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Stock Units and the amount
or value thereof automatically deemed reinvested in additional Stock Units,
other Awards or other investment vehicles, as the Plan Administrator shall
determine or permit the Participant to elect.

 

(f)            Bonus Stock and Awards in Lieu of Obligations.  The Plan Administrator is authorized to grant
Stock as a bonus, or to grant Stock or other Awards in lieu of Company
obligations to pay cash or deliver other property under the Plan or under other
plans or compensatory arrangements, provided that, in the case of Participants
subject to Section 16 of the Exchange Act, the amount of such grants
remains within the discretion of the Committee to the extent necessary to
ensure that acquisitions of Stock or other Awards are exempt from liability
under Section 16(b) of the Exchange Act.  Stock or Awards granted hereunder shall be
subject to such other terms as shall be determined by the Plan Administrator.

 

(g)           Dividend Equivalents.  The Plan Administrator is authorized to grant
Dividend Equivalents to a Participant entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic
payments.  Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award.  The Plan Administrator may provide that
Dividend Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Plan Administrator may specify.

 

(h)           Other Stock-Based Awards.  The Plan Administrator is authorized, subject
to limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Plan
Administrator to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Stock, purchase rights for Stock, Awards with
value and payment contingent upon performance of the Company or any other
factors designated by the Plan Administrator, and Awards valued by reference to
the book value of Stock or the value of securities of or the performance of
specified Related Entities or business units. 
The Plan Administrator shall determine the terms and conditions of such
Awards.  Stock delivered pursuant to an
Award in the nature of a purchase right granted under this Section 6(h) shall
be purchased for such consideration (including without limitation loans from
the Company or a Related Entity), paid for at such times, by such methods, and
in such forms, including, without limitation, cash, Stock, other Awards or
other property, as the Plan Administrator shall determine.  The Plan Administrator shall have the
discretion to grant such other Awards which are exercisable for unvested shares
of Common Stock.  Should the Optionee’s
Continuous Service cease while holding such unvested shares, the Company shall
have 

 

13

 

the right to
repurchase, at the exercise price paid per share, any or all of those unvested
shares.  The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.  Cash
awards, as an element of or supplement to any other Award under the Plan, may
also be granted pursuant to this Section 6(h).

 

7.             Performance
and Annual Incentive Awards.

 

(a)           Performance Conditions.  The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Plan
Administrator.  The Plan Administrator
may use such business criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may exercise its
discretion to reduce the amounts payable under any Award subject to performance
conditions, except as limited under Sections 7(b) and 7(c) hereof in
the case of a Performance Award or Annual Incentive Award intended to qualify
under Code Section 162(m).  If and
to the extent required under Code Section 162(m), any power or authority
relating to a Performance Award or Annual Incentive Award intended to qualify
under Code Section 162(m), shall be exercised by the Committee as the Plan
Administrator and not the Board.

 

(b)           Performance Awards Granted to Designated Covered
Employees.  If and to the
extent that the Committee determines that a Performance Award to be granted to
an Eligible Person who is designated by the Committee as likely to be a Covered
Employee should qualify as “performance-based compensation” for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such
Performance Award shall be contingent upon achievement of pre-established
performance goals and other terms set forth in this Section 7(b).

 

(i)            Performance Goals Generally.  The performance goals for such Performance
Awards shall consist of one or more business criteria and a targeted level or
levels of performance with respect to each of such criteria, as specified by
the Committee consistent with this Section 7(b).  Performance goals shall be objective and
shall otherwise meet the requirements of Code Section 162(m) and
regulations thereunder including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance
goals being “substantially uncertain.” 
The Committee may determine that such Performance Awards shall be
granted, exercised and/or settled upon achievement of any one performance goal
or that two or more of the performance goals must be achieved as a condition to
grant, exercise and/or settlement of such Performance Awards.  Performance goals may differ for Performance
Awards granted to any one Participant or to different Participants.

 

(ii)           Business Criteria.  One or more of the following business
criteria for the Company, on a consolidated basis, and/or specified Related
Entities or business units of the Company (except with respect to the total
shareholder return and earnings per share criteria), shall be used exclusively
by the Committee in establishing 

 

14

 

performance goals for such Performance
Awards: (1) total shareholder return; (2) such total shareholder
return as compared to total return (on a comparable basis) of a publicly
available index such as, but not limited to, the Russell 2000 Small Cap Index; (3) net
income; (4) pretax earnings; (5) pretax operating earnings after
interest expense and before bonuses, service fees, and extraordinary or special
items; (6) earnings per share; (7) operating earnings; and (8) ratio
of debt to shareholders’ equity.  One or
more of the foregoing business criteria shall also be exclusively used in
establishing performance goals for Annual Incentive Awards granted to a Covered
Employee under Section 7(c) hereof that are intended to qualify as “performance-based
compensation” under Code Section 162(m).

 

(iii)          Performance Period; Timing For
Establishing Performance Goals. 
Achievement of performance goals in respect of such Performance Awards
shall be measured over a performance period of up to ten years, as specified by
the Committee.  Performance goals shall
be established not later than ninety (90) days after the beginning of any
performance period applicable to such Performance Awards, or at such other date
as may be required or permitted for “performance-based compensation” under Code
Section 162(m).

 

(iv)          Performance Award Pool.  The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring Company
performance in connection with Performance Awards.  The amount of such Performance Award pool
shall be based upon the achievement of a performance goal or goals based on one
or more of the business criteria set forth in Section 7(b)(ii) hereof
during the given performance period, as specified by the Committee in accordance
with Section 7(b)(iii) hereof. 
The Committee may specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage thereof in excess of
a threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.

 

(v)           Settlement of Performance Awards; Other Terms.  Settlement of such Performance Awards shall
be in cash, Stock, other Awards or other property, in the discretion of the
Committee.  The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards. 
The Committee shall specify the circumstances in which such Performance
Awards shall be paid or forfeited in the event of termination of Continuous
Service by the Participant prior to the end of a performance period or
settlement of Performance Awards.

 

(c)           Annual Incentive Awards Granted to Designated
Covered Employees.  The
Committee may, within its discretion, grant one or more Annual Incentive Awards
to any Eligible Person, subject to the terms and conditions set forth in this Section 7(c).

 

(i)            Annual Incentive Award Pool.  The Plan Administrator may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Annual Incentive 

 

15

 

Awards.  In the case of Annual Incentive Awards
intended to qualify as “performance-based compensation” for purposes of Code Section 162(m),
the amount of such Annual Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the business
criteria set forth in Section 7(b)(ii) hereof
during the given performance period, as specified by the Committee in
accordance with Section 7(b)(iii) hereof.  The Committee may specify the amount of the
Annual Incentive Award pool as a percentage of any such business criteria, a
percentage thereof in excess of a threshold amount, or as another amount which
need not bear a strictly mathematical relationship to such business criteria.

 

(ii)           Potential Annual Incentive Awards.  Not later than the end of the ninetieth (90th)
day of each fiscal year, or at such other date as may be required or permitted
in the case of Awards intended to be “performance-based compensation” under
Code Section 162(m), the Committee shall determine the Eligible Persons
who will potentially receive Annual Incentive Awards, and the amounts
potentially payable thereunder, for that fiscal year, either out of an Annual
Incentive Award pool established by such date under Section 7(c)(i) hereof
or as individual Annual Incentive Awards. 
In the case of individual Annual Incentive Awards intended to qualify
under Code Section 162(m), the amount potentially payable shall be based
upon the achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 7(b)(ii) hereof
in the given performance year, as specified by the Committee; in other cases,
such amount shall be based on such criteria as shall be established by the
Committee.  In all cases, the maximum
Annual Incentive Award of any Participant shall be subject to the limitation
set forth in Section 5 hereof.

 

(iii)          Payout of Annual Incentive Awards.  After the end of each fiscal year, the Plan
Administrator (who shall be the Committee with respect to Annual Incentive
Awards for Covered Persons) shall determine the amount, if any, of (A) the
Annual Incentive Award pool, and the maximum amount of potential Annual
Incentive Award payable to each Participant in the Annual Incentive Award pool,
or (B) the amount of potential Annual Incentive Award otherwise payable to
each Participant.  The Plan Administrator
may, in its discretion, determine that the amount payable to any Participant as
an Annual Incentive Award shall be reduced from the amount of his or her
potential Annual Incentive Award, including a determination to make no Award
whatsoever.  The Plan Administrator shall
specify the circumstances in which an Annual Incentive Award shall be paid or
forfeited in the event of termination of Continuous Service by the Participant
prior to the end of a fiscal year or settlement of such Annual Incentive Award.

 

(d)           Written Determinations.  All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award pool or
potential individual Performance Awards and as to the achievement of
performance goals relating to Performance Awards under Section 7(b), and the
amount of any Annual Incentive Award pool or potential individual Annual
Incentive Awards and the amount of final Annual Incentive Awards under Section 7(c),
shall be made in writing in the case of any Award intended to qualify under
Code Section 162(m).  The Committee
may not 

 

16

 

delegate
any responsibility relating to such Performance Awards or Annual Incentive
Awards if and to the extent required to comply with Code Section 162(m).

 

(e)           Status of Section 7(b) and Section 7(c) Awards
Under Code Section 162(m). 
It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Section 7(b) and 7(c) hereof granted to
persons who are designated by the Committee as likely to be Covered Employees
within the meaning of Code Section 162(m) and regulations thereunder
shall, if so designated by the Committee, constitute “qualified
performance-based compensation” within the meaning of Code Section 162(m)
and regulations thereunder.  Accordingly,
the terms of Sections 7(b), (c), (d) and (e), including the definitions of
Covered Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder.  The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Participant will be a
Covered Employee with respect to a fiscal year that has not yet been completed,
the term Covered Employee as used herein shall mean only a person designated by
the Committee, at the time of grant of Performance Awards or an Annual
Incentive Award, as likely to be a Covered Employee with respect to that fiscal
year.  If any provision of the Plan or
any agreement relating to such Performance Awards or Annual Incentive Awards
does not comply or is inconsistent with the requirements of Code Section 162(m)
or regulations thereunder, such provision shall be construed or deemed amended
to the extent necessary to conform to such requirements.

 

8.             Certain
Provisions Applicable to Awards or Sales.

 

(a)           Stand-Alone, Additional, Tandem, and Substitute
Awards.  Awards granted
under the Plan may, in the discretion of the Plan Administrator, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company,
any Related Entity, or any business entity to be acquired by the Company or a
Related Entity, or any other right of a Participant to receive payment from the
Company or any Related Entity.  Such
additional, tandem, and substitute or exchange Awards may be granted at any
time.  If an Award is granted in
substitution or exchange for another Award or award, the Plan Administrator
shall require the surrender of such other Award or award in consideration for
the grant of the new Award.  In addition,
Awards may be granted in lieu of cash compensation, including in lieu of cash
amounts payable under other plans of the Company or any Related Entity, in which
the value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Stock Units or Restricted Stock), or in which the
exercise price, grant price or purchase price of the Award in the nature of a
right that may be exercised is equal to the Fair Market Value of the underlying
Stock minus the value of the cash compensation surrendered (for example,
Options granted with an exercise price “discounted” by the amount of the cash
compensation surrendered).

 

(b)           Term of Awards.  The term of each Award shall be for such
period as may be determined by the Plan Administrator; provided that in no
event shall the term of any Option or Stock Appreciation Right exceed a period
of ten years (or such shorter 

 

17

 

term
as may be required in respect of an Incentive Stock Option under Section 422
of the Code).

 

(c)           Purchase Prices.  In the case of an Award under this Plan,
other than an Option, which grants an Employee, Director, or Consultant of the
Company the right to purchase Stock, the Board or the Committee shall have
discretion to set the purchase price, provided that in no event shall the
purchase price per share of Stock be less than 100% of the Fair Market Value of
such share on the date of the Award or the date of the purchase.

 

(d)           Form and Timing of Payment Under
Awards; Deferrals. 
Subject to the terms of the Plan and any applicable Award agreement,
payments to be made by the Company or a Related Entity upon the exercise of an
Option or other Award or settlement of an Award may be made in such forms as
the Plan Administrator shall determine, including, without limitation, cash,
other Awards or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis.  The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Plan Administrator or upon occurrence of one or more
specified events (in addition to a Change in Control).  Installment or deferred payments may be
required by the Plan Administrator (subject to Section 10(e) of the
Plan) or permitted at the election of the Participant on terms and conditions
established by the Plan Administrator. 
Payments may include, without limitation, provisions for the payment or
crediting of a reasonable interest rate on installment or deferred payments or
the grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.

 

(e)           Exemptions from Section 16(b) Liability.  It is the intent of the Company that this
Plan comply in all respects with applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither the
grant of any Awards to nor other transaction by a Participant who is subject to
Section 16 of the Exchange Act is subject to liability under Section 16(b) thereof
(except for transactions acknowledged in writing to be non-exempt by such
Participant).  Accordingly, if any
provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 or Rule 16a-1(c)(3) as
then applicable to any such transaction, such provision will be construed or
deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such
Participant shall avoid liability under Section 16(b).

 

9.             Change
in Control; Corporate Transaction.

 

(a)           Change of Control

 

(i)            Effect of “Change in Control.”  The effect of a “Change in Control,” as
defined in Section 9(a)(ii) below, shall be as provided, if at all, (1) in
an employment, compensation, or severance agreement, if any, between the
Company or any Related Entity and the Participant, relating to the Participant’s
employment, 

 

18

 

compensation, or
severance with or from the Company or such Related Entity, or (2) in the
agreement evidencing the Award.

 

(ii)           Definition of “Change in Control.”  “Change in Control” shall mean and be deemed
to have occurred on the earliest of the following dates:

 

(1)           the date of an
acquisition by any “person” (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) of “beneficial ownership” (as defined in Rule 13d-3
of the Exchange Act) or a pecuniary interest in more than 45% of the combined
voting power of the Company’s then outstanding securities (“Voting Stock”), other
than an acquisition by one or more of Company, Image Entertainment, Inc.,
Image Investors Co. or Messrs. John Kluge, Stuart Subotnick or Martin
Greenwald (each, an “Excluded Person”) in connection with a new issuance of
Voting Stock (or rights to acquire Voting Stock) after the effective date of
the Plan by Company to the Excluded Person in a transaction that the Committee
determines (in advance of the issuance) does not constitute a Change in Control
event, or in the event that one or more Excluded Persons take Company from a
public company to a privately held company;

 

(2)           approval by the
shareholders of Company of a Corporate Transaction other than a
Corporate Transaction: (1) (a) in which substantially all of the
holders of Company’s Voting Stock hold or receive directly or indirectly 50% or
more of the voting stock of the resulting entity or a parent company thereof,
and (b) after which no “person” as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than any one or more of the Excluded
Persons, as defined above) owns more than 50% of the voting stock of the
resulting entity (or a parent company) who did not own directly or indirectly
at least that amount of Voting Stock immediately before the Corporate
Transaction; or (2) in which the holders of Company’s capital stock
immediately before such Corporate Transaction will, immediately after such
Corporate Transaction, hold as a group on a fully diluted basis the ability to
elect at least a majority of the directors of the surviving corporation (or a
parent company);

 

(3)           the date the persons
who were members of the Board at the beginning of any 24-month period shall
cease to constitute a majority of the Board, unless the election, or the
nomination for election by Company’s shareholders, of each new director was
approved by two-thirds of the members of the Board then in office who were in
office at the beginning of the 24-month period.

 

For
purposes of determining whether a Change in Control has occurred, a transaction
includes all transactions in a series of related transactions, and terms used
in this definition but not defined are used as defined in the Plan.  The term Change in Control shall not include a sale of assets, merger or other transaction
effected exclusively for the purpose of changing the domicile of the Company.

 

Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual
written agreement between the Company and the Participant shall supersede the
foregoing definition with respect to Awards subject to such agreement (it being
understood,

 

19

 

however,
that if no definition of Change in Control or any analogous term is set forth
in such an individual written agreement, the foregoing definition shall apply).

 

(b)           Corporate Transactions.  In the event of a Corporate Transaction, any
surviving corporation or acquiring corporation may assume or continue any or
all Awards outstanding under the Plan or may substitute similar stock awards
for outstanding Awards (it being understood that similar stock awards include,
but are not limited to, awards to acquire the same consideration paid to the
shareholders or the Company, as the case may be, pursuant to the Corporate
Transaction), and any reacquisition or repurchase rights held by the Company in
respect of Stock issued pursuant to Awards may be assigned by the Company to
the successor of the Company (or the successor’s parent company), if any, in
connection with such Corporate Transaction. 
In the event that any surviving corporation or acquiring corporation
does not assume or continue any or all such outstanding Awards or substitute
similar stock awards for such outstanding Awards, then with respect to Awards
that have been not assumed, continued or substituted and that are held by
Participants whose Continuous Service has not terminated prior to the effective
time of the Corporate Transaction, the vesting of such Awards (and, if
applicable, the time at which such Awards may be exercised) shall (contingent
upon the effectiveness of the Corporate Transaction) be accelerated in full to
a date prior to the effective time of such Corporate Transaction as the Board
shall determine (or, if the Board shall not determine such a date, to the date
that is five (5) days prior to the effective time of the Corporate
Transaction), the Awards shall terminate if not exercised (if applicable) at or
prior to such effective time, and any reacquisition or repurchase rights held
by the Company with respect to such Awards held by Participants whose
Continuous Service has not terminated shall (contingent upon the effectiveness
of the Corporate Transaction) lapse. 
With respect to any other Awards outstanding under the Plan that have
not been assumed, continued or substituted, the vesting of such Stock Awards
(and, if applicable, the time at which such Stock Award may be exercised) shall
not be accelerated, unless otherwise provided in a written agreement between
the Company or any Affiliate and the holder of such Award, and such Awards
shall terminate if not exercised (if applicable) prior to the effective time of
the Corporate Transaction.

 

(c)           Dissolution or Liquidation.  In the event of a dissolution or liquidation
of the Company, then all outstanding Awards shall terminate immediately prior
to the completion of such dissolution or liquidation, and shares of Common
Stock subject to the Company’s repurchase option may be repurchased by the
Company notwithstanding the fact that the holder of such stock is still in
Continuous Service.

 

10.           General
Provisions.

 

(a)           Compliance With Legal and
Other Requirements.  The
Company may, to the extent deemed necessary or advisable by the Plan
Administrator, postpone the issuance or delivery of Stock or payment of other
benefits under any Award until completion of such registration or qualification
of such Stock or other required action under any federal or state law, rule or
regulation, listing or other required action with respect to any stock exchange
or automated quotation system upon which the Stock or other Company securities
are listed or quoted, or compliance with any other obligation of 

 

20

 

the Company, as the Plan Administrator, may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations.  The foregoing notwithstanding, in connection
with a Change in Control, the Company shall take or cause to be taken no
action, and shall undertake or permit to arise no legal or contractual
obligation, that results or would result in any postponement of the issuance or
delivery of Stock or payment of benefits under any Award or the imposition of
any other conditions on such issuance, delivery or payment, to the extent that
such postponement or other condition would represent a greater burden on a
Participant than existed on the 90th day preceding the Change in Control.

 

(b)           Limits
on Transferability; Beneficiaries.

 

(i)            General.  Except as provided in the Award agreement, a
Participant may not assign, sell, transfer, or otherwise encumber or subject to
any lien any Award or other right or interest granted under this Plan, in whole
or in part, including any Award or right which constitutes a derivative
security as generally defined in Rule 16a1(c) under the Exchange Act,
other than by will or by operation of the laws of descent and distribution, and
such Awards or rights that may be exercisable shall be exercised during the
lifetime of the Participant only by the Participant or his or her guardian or
legal representative.

 

(ii)           Permitted Transfer of Option.  The Committee or Board, in its sole discretion,
may permit the transfer of an Option (but not an Incentive Stock Option, or any
other right to purchase Stock other than an Option) as follows:  (A) by gift to a member of the
Participant’s Immediate Family or (B) by transfer by instrument to a trust
providing that the Option is to be passed to beneficiaries upon death of the
Optionee.  For purposes of this Section 10(b)(ii), “Immediate Family” shall mean the Optionee’s spouse
(including a former spouse subject to terms of a domestic relations order); child,
stepchild, grandchild, child-in-law; parent, stepparent, grandparent,
parent-in-law; sibling and sibling-in-law, and shall include adoptive
relationships.  If a determination is
made by counsel for the Company that the restrictions contained in this Section 10(b)(ii) are
not required by applicable federal or state securities laws under the
circumstances, then the Committee or Board, in its sole discretion, may permit
the transfer of Awards (other than Incentive Stock Options and Stock
Appreciation Rights in tandem therewith) to one or more Beneficiaries or other
transferees during the lifetime of the Participant, which may be exercised by
such transferees in accordance with the terms of such Award, but only if and to
the extent permitted by the Plan Administrator pursuant to the express terms of
an Award agreement (subject to any terms and conditions which the Plan
Administrator may impose thereon, and further subject to any prohibitions and
restrictions on such transfers pursuant to Rule 16b-3).  A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award agreement
applicable to such Participant, except as otherwise determined by the Plan
Administrator, and to any additional terms and conditions deemed necessary or
appropriate by the Plan Administrator.

 

21

 

(c)           Adjustments.

 

(i)            Adjustments to Awards.  In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Stock
and/or such other securities of the Company or any other issuer such that a
substitution, exchange, or adjustment is determined by the Plan Administrator
to be appropriate, then the Plan Administrator shall, in such manner as it may
deem equitable, substitute, exchange, or adjust any or all of (A) the
number and kind of shares of Stock which may be delivered in connection with
Awards granted thereafter, (B) the number and kind of shares of Stock by
which annual per-person Award limitations are measured under Section 5
hereof, (C) the number and kind of shares of Stock subject to or
deliverable in respect of outstanding Awards, (D) the exercise price,
grant price or purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any outstanding Award, and (E) any
other aspect of any Award that the Plan Administrator determines to be
appropriate.

 

(ii)           Other Adjustments.  The Committee (and the Board if and only to
the extent such authority is not required to be exercised by the Committee to
comply with Code Section 162(m)) is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Awards (including
Performance Awards and performance goals, and Annual Incentive Awards and any
Annual Incentive Award pool or performance goals relating thereto) in
recognition of unusual or nonrecurring events (including, without limitation,
acquisitions and dispositions of businesses and assets) affecting the Company,
any Related Entity or any business unit, or the financial statements of the
Company or any Related Entity, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee’s assessment of the business strategy of
the Company, any Related Entity or business unit thereof, performance of
comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided that no such adjustment shall be authorized or made if and to the
extent that such authority or the making of such adjustment would cause
Options, Stock Appreciation Rights, Performance Awards granted under Section 8(b) hereof
or Annual Incentive Awards granted under Section 8(c) hereof to
Participants designated by the Committee as Covered Employees and intended to
qualify as “performance-based compensation” under Code Section 162(m) and
the regulations thereunder to otherwise fail to qualify as “performance-based
compensation” under Code Section 162(m) and regulations thereunder.

 

(d)           Taxes.  The Company and any Related Entity are
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Stock, or any payroll or other
payment to a Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Plan Administrator may deem advisable to
enable the Company and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award.  This 

 

22

 

authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant’s tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.

 

(e)           Changes to the Plan and Awards.  The Board may amend, alter, suspend,
discontinue or terminate the Plan, or the Committee’s authority to grant Awards
under the Plan, without the consent of shareholders or Participants, except
that any amendment or alteration to the Plan shall be subject to the approval
of the Company’s shareholders not later than the annual meeting next following
such Board action if such shareholder approval is required by any federal or
state law or regulation (including, without limitation, Rule 16b-3 or Code
Section 162(m)) or the rules of any stock exchange or automated
quotation system on which the Stock may then be listed or quoted, and the Board
may otherwise, in its discretion, determine to submit other such changes to the
Plan to shareholders for approval; provided that, without the consent of an
affected Participant, no such Board action may materially and adversely affect
the rights of such Participant under any previously granted and outstanding
Award.  The Plan Administrator may waive
any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the Plan; provided that, without the
consent of an affected Participant, no such Plan Administrator action may
materially and adversely affect the rights of such Participant under such
Award.  Notwithstanding anything in the
Plan to the contrary, if any right under this Plan would cause a transaction to
be ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Plan Administrator
may modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a Fair Market Value equal
to the cash otherwise payable hereunder for the right which caused the
transaction to be ineligible for pooling of interest accounting.

 

(f)            Reporting of Financial Information.  The Company shall provide to the recipient of
any Award under this Plan, no less frequently than annually, the financial
statements of the Company, until such time as a determination is made by
counsel for the Company that such reports are not required by applicable
federal or state securities laws under the circumstances.

 

(g)           Limitation on Rights Conferred Under Plan.  Neither the Plan nor any action taken
hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ of the Company or a Related Entity; (ii) interfering in any way
with the right of the Company or a Related Entity to terminate any Eligible
Person’s or Participant’s Continuous Service at any time, (iii) giving an
Eligible Person or Participant any claim to be granted any Award under the Plan
or to be treated uniformly with other Participants and Employees, or (iv) conferring
on a Participant any of the rights of a shareholder of the Company unless and
until the Participant is duly issued or transferred shares of Stock in
accordance with the terms of an Award.

 

23

 

(h)           Unfunded Status of Awards; Creation of
Trusts.  The Plan is intended to
constitute an “unfunded” plan for incentive and deferred compensation.  With respect to any payments not yet made to
a Participant or obligation to deliver Stock pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Company; provided that
the Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet the
Company’s obligations under the Plan. 
Such trusts or other arrangements shall be consistent with the “unfunded”
status of the Plan unless the Committee otherwise determines with the consent
of each affected Participant.  The
trustee of such trusts may be authorized to dispose of trust assets and
reinvest the proceeds in alternative investments, subject to such terms and
conditions as the Plan Administrator may specify and in accordance with
applicable law.

 

(i)            Nonexclusivity of the Plan.  Neither the adoption of the Plan by the Board
nor its submission to the shareholders of the Company for approval shall be
construed as creating any limitations on the power of the Board or a committee
thereof to adopt such other incentive arrangements as it may deem desirable
including incentive arrangements and awards which do not qualify under Code Section 162(m).

 

(j)            Payments in the Event of Forfeitures; Fractional
Shares.  Unless otherwise
determined by the Plan Administrator, in the event of a forfeiture of an Award
with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other
consideration.  No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Award.  The Plan Administrator shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

 

(k)           Governing Law.  The validity, construction and effect of the
Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of Delaware
without giving effect to principles of conflicts of laws, and applicable
federal law.

 

(l)            Plan Effective Date and Shareholder Approval; Termination
of Plan.  The Plan shall
become effective on the Effective Date, subject to subsequent approval within
12 months of its adoption by the Board by shareholders of the Company eligible
to vote in the election of directors, by a vote sufficient to meet the
requirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3
under the Exchange Act (if applicable), applicable Nasdaq requirements, and
other laws, regulations, and obligations of the Company applicable to the
Plan.  Awards may be granted subject to
shareholder approval, but may not be exercised or otherwise settled in the
event shareholder approval is not obtained. 
The Plan shall terminate no later than 10 years from the date the Plan
is adopted by the Board or 10 years from the date the Plan is approved by the
Shareholders, whichever is earlier.

 

24

 

(m)          State
Securities Laws.  The sale of the
securities which are the subject of the Plan has not been qualified with the
commissioner of Corporations of the State of California and the issuance of the
securities or the payment or receipt of any part of the consideration therefor
prior to the qualification is unlawful, unless the sale of securities is exempt
from the qualification by sections 25102 or 25102.1 of the California Corporations Code.  The rights of all parties to the Plan are
expressly conditioned upon the qualification being obtained unless the sale is
so exempt.

 

25

 

EGAMI MEDIA, INC.

2005 INCENTIVE COMPENSATION PLAN

 

EMPLOYEE (INCENTIVE)/DIRECTOR (NONQUALIFIED)

STOCK OPTION GRANT NOTICE

 

THIS
EMPLOYEE (INCENTIVE)/DIRECTOR (NONQUALIFIED) STOCK OPTION GRANT NOTICE (the “Grant
Notice”) is between the Company and the Optionee named below and evidences the
Company’s grant to the Optionee of a Incentive Stock Option to purchase
authorized but unissued shares of the Company’s Common Stock.  The Option is granted pursuant to and subject
to the Company’s 2005 Incentive Compensation Plan (the “Plan”) and standard
Stock Option Agreement (“Option Agreement”), incorporated herein by this
reference.

 

	
  Optionee:

  	
   

  	
  Vesting
  Schedule (1),(2),(3):

  
	
   

  	
   

  	
   

  
	
  Exercise Price Per Share:(1)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Shares:(1)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Grant Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Expiration Date:(2)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Other:

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

(1)   Subject to adjustment under Section 10(c) of
the Plan.

(2)   Subject to early termination of
the Optionee’s employment terminates or in certain other circumstances.  See Sections 8(b), 9 and 10(c) of the
Plan and Section 3 of the Option Agreement for exceptions and additional
details regarding possible early termination of the Option.

(3)   Options may not be exercised
prior to their vesting date.  Please see
the Option Agreement for all requirements, terms and conditions of exercise.

 

Optionee
accepts the Option in accordance with the terms set forth in this Grant Notice,
and agrees to and acknowledges receipt of a copy of the Option Agreement and
Plan.

 

AGREED AND ACKNOWLEDGED:

 

EGAMI
MEDIA, INC.

(a Delaware Corporation)

 

 

	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Authorized
  Officer)

  	
   

  	
  (Optionee’s
  Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City,
  State, Zip Code)

  

 

26

 

EGAMI MEDIA, INC.

 

2005 STOCK AWARD PLAN

 

STOCK OPTION AGREEMENT

 

Unless otherwise defined herein, the terms defined
in the 2005 Incentive Compensation Plan shall have the same defined meanings in
this Stock Option Agreement.

 

1.             Grant of Option.  The Plan Administrator of the Company hereby
grants to the Optionee named in the Stock Option Grant Notice (the “Optionee”), an option (the “Option”) to purchase the number of Shares
set forth in the Grant Notice, at the exercise price per Share set forth in the
Stock Option Grant Notice (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which
is incorporated herein by reference. 
Subject to Section 10(e) of the Plan, in the event of
a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail. If designated in
the Stock Option Grant Notice as an Incentive Stock Option (“ISO”), this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.  Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be
treated as a Nonstatutory Stock Option (“NSO”).

 

2.             Exercise of Option.

 

(a)           Right to Exercise.  This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Stock Option
Grant Notice and with the applicable provisions of the Plan and this Option
Agreement.

 

Method of
Exercise. 
This Option shall be exercisable by delivery of an exercise notice in
the form attached as Exhibit A (the “Exercise
Notice”) which shall state the election to exercise the Option, the
number of Shares with respect to which the Option is
being exercised, and such other representations and agreements as may be
required by the Company. No Shares shall be issued pursuant to the exercise of
an Option unless such issuance and such exercise complies
with Applicable Laws.  Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.

 

The Option shall be deemed exercised when the
Company receives (i) written or electronic notice of exercise (in
accordance with this Option Agreement) from the Optionee (or other person
entitled to exercise the Option), and (ii) full payment for the Shares
with respect to which the Option is exercised, and (iii) any other
documents required by this Option Agreement or the Exercise Notice.  Full payment may consist of any consideration
and method of payment permitted by this Option Agreement.  Shares issued upon exercise of an Option shall
be issued in the name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. 
Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Shares, notwithstanding the
exercise of the Option.  The Company
shall issue (or cause to be issued) such Shares promptly after the Option is
exercised.  No adjustment will be made
for a dividend or other right for which the record date is prior to the date
the Shares are issued, except as provided in Section 10(c) of the
Plan.

 

Exercise of this Option in any manner shall result
in a decrease in the number of Shares thereafter available for sale under the
Option, by the number of Shares as to which the Option is exercised.

 

3.             Term.  Optionee may not exercise the
Option before the commencement of its term or after its term expires.  During the term of the Option, Optionee may
only exercise the Option to the extent vested. 
The term of the Option commences on the Grant Date and expires upon the earliest of the
following:

 

(a)           With respect to the unvested portion of the
Option, upon termination of your continuous service;

 

27

 

(b)           With respect to the vested portion of the
Option, thirty (30) days after the termination of your continuous service
as a Service Provider for any reason other than your Disability, death or
termination for Cause;

 

(c)           With respect to the vested portion of the
Option, immediately upon the termination of your continuous service as a
Service Provider for Cause;

 

(d)           With respect to the vested portion of the
Option, twelve (12) months after the termination of your continuous
service as a Service Provider due to your Disability or death;

 

(e)           Immediately prior to the close of certain
Corporate Transactions, pursuant to Section 10(c) of the Plan; or

 

(f)            The day before the tenth (10th)
anniversary of the Grant Date.

 

4.             Method of Payment. 
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:

 

(a)           cash or check;

 

(b)           consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan;
or

 

(c)           surrender of other Shares which, (i) in the case
of Shares acquired from the Company, either directly or indirectly, have been
owned by the Optionee for more than six (6) months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender
equal to the aggregate Exercise Price of the Exercised Shares.

 

5.             Optionee’s Representations.  In
the event the Shares have not been registered under the Securities Act of 1933,
as amended, at the time this Option is exercised, the Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion
of this Option, deliver to the Company an investment representation statement
in a form satisfactory to the Company.

 

6.             Lock-Up Period. 
Optionee hereby agrees that Optionee shall not offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any Common Stock (or
other securities) of the Company or enter into any swap, hedging or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any Common Stock (or other securities) of the
Company held by Optionee (other than those included in the registration) for a
period specified by the representative of the underwriters of Common Stock (or
other securities) of the Company not to exceed one hundred eighty (180)
days following the effective date of any registration statement of the Company
filed under the Securities Act.

 

Optionee agrees to execute and deliver such other
agreements as may be reasonably requested by the Company or the underwriter
which are consistent with the foregoing or which are necessary to give further
effect thereto.  In addition, if
requested by the Company or the representative of the underwriters of Common
Stock (or other securities) of the Company, Optionee shall provide, within
ten (10) days of such request, such information as may be required by
the Company or such representative in connection with the completion of any
public offering of the Company’s securities pursuant to a registration
statement filed under the Securities Act. 
The obligations described in this Section shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or
similar forms that may be promulgated in the future.  The Company may impose stop-transfer
instructions with respect to the shares of Common Stock (or other securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period.  Optionee agrees
that any transferee of the Option or shares acquired pursuant to the Option
shall be bound by this Section.

 

28

 

7.             Restrictions on Exercise.  This
Option may not be exercised until such time as the Plan has been approved by
the stockholders of the Company, or if the issuance of such Shares upon such
exercise or the method of payment of consideration for such shares would
constitute a violation of any Applicable Law.

 

8.             Non-Transferability of Option.  This
Option may not be transferred in any manner otherwise than by will or by the
laws of descent or distribution and may be exercised during the lifetime of
Optionee only by Optionee.  The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

 

9.             Tax Obligations.

 

(a)           Withholding Taxes. 
Optionee agrees to make appropriate arrangements with the Company (or
the Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal, state, local and foreign income and employment tax withholding
requirements applicable to the Option exercise. 
Optionee acknowledges and agrees that the Company may refuse to honor
the exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

 

(b)           Notice of Disqualifying Disposition of ISO
Shares.  If the Option granted to Optionee herein is
an ISO, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (1) the date two
years after the Grant Date, or (2) the date one year after the date of
exercise, the Optionee shall immediately notify the Company in writing of such
disposition.  Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.

 

10.           Entire Agreement; Governing Law.  The
Plan is incorporated herein by reference. 
The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee’s interest except by means of a writing signed by the Company and
Optionee.  This agreement is governed by
the internal substantive laws but not the choice of law rules of
California.

 

11.           No Guarantee of Continued Service.  OPTIONEE
ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF
IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY
(NOT THROUGH THE ACT OF BEING HIRED OR APPOINTED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER).  OPTIONEE
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE
OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

 

Optionee acknowledges receipt of a copy of the Plan
and represents that he or she is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof.  Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. 
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions arising
under the Plan or this Option.  Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.

 

29

 

EXHIBIT A

 

2005 STOCK AWARD PLAN

 

EXERCISE NOTICE

 

Egami Media, Inc.

20525 Nordhoff Street, Suite 200
Chatsworth, CA 91311
 

Attention:

 

1.             Exercise of Option. 
Effective as of today,                           ,
          , the undersigned (“Optionee”) hereby elects to exercise
Optionee’s option to purchase                   
shares of the Common Stock (the “Shares”)
of Image Entertainment, Inc. (the “Company”)
under and pursuant to the 2005 Incentive Compensation Plan(the “Plan”) and the Stock Option Agreement
dated                         ,
         (the “Option Agreement”).

 

2.             Delivery of Payment. 
Optionee herewith delivers to the Company the full purchase price of the
Shares, as set forth in the Option Agreement, and any and all withholding taxes
due in connection with the exercise of the Option.

 

3.             Representations of Optionee. 
Optionee acknowledges that Optionee has received, read and understood
the Plan and the Option Agreement and agrees to abide by and be bound by their
terms and conditions.

 

4.             Rights as Stockholder.  Until
the issuance of the Shares (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the
Option.  The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised in accordance
with the Option Agreement.  No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 10(c) of the
Plan.

 

5.             Tax Consultation. 
Optionee understands that Optionee may suffer adverse tax consequences
as a result of Optionee’s purchase or disposition of the Shares.  Optionee represents that Optionee has
consulted with any tax consultants Optionee deems advisable in connection with
the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.

 

6.             Restrictive Legends and Stop-Transfer Orders.

 

(a)           Legends.  Optionee understands and agrees
that the Company shall cause the legends set forth below or legends
substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may be
required by the Company or by state or federal securities laws:

 

THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD NOT TO EXCEED
180 DAYS FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING
OF THE COMPANY’S SECURITIES AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
BY THE HOLDER WITHOUT THE CONSENT OF THE COMPANY OR THE MANAGING UNDERWRITER.

 

(b)           Stop-Transfer Notices. 
Optionee agrees that, in order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate “stop
transfer” instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.

 

30

 

(c)           Refusal to Transfer.  The
Company shall not be required (i) to transfer on its books any Shares that
have been sold or otherwise transferred in violation of any of the provisions
of this Exercise Notice or (ii) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.

 

7.             Successors and Assigns.  The
Company may assign any of its rights under this Exercise Notice to single or
multiple assignees, and this Exercise Notice shall inure to the benefit of the
successors and assigns of the Company. 
Subject to the restrictions on transfer herein set forth, this Exercise
Notice shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.

 

8.             Interpretation.  Any
dispute regarding the interpretation of this Exercise Notice shall be submitted
by Optionee or by the Company forthwith to the Administrator which shall review
such dispute at its next regular meeting. 
The resolution of such a dispute by the Administrator shall be final and
binding on all parties.

 

9.             Governing Law; Severability.  This
Exercise Notice is governed by the internal substantive laws but not the choice
of law rules, of California.  In the
event that any provision hereof becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Option Agreement will
continue in full force and effect.

 

10.           Entire Agreement.  The
Plan and Option Agreement are incorporated herein by reference.  This Exercise Notice, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee’s interest except by means of a writing
signed by the Company and Optionee.

 

	
  OPTIONEE

  	
   

  	
  EGAMI MEDIA, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print Name

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Residence
  Address

  	
   

  	
   

  	
   

  

 

 

SIGNATURE PAGE OF STOCK OPTION EXERCISE NOTICE

 

31Exhibit
10.1

 

June 9, 2005

 

 

Robert Bujarski

24402 La Cresta Drive

Dana Point, CA 92629

 

Dear Rob:

 

We are pleased to extend
the following offer of employment to you:

 

	
  Title:

  	
   

  	
  Vice President &
  General Counsel

  
	
   

  	
   

  	
   

  
	
  Reporting to:

  	
   

  	
  Caren Mason, President
  & CEO

  
	
   

  	
   

  	
   

  
	
  Compensation:

  	
   

  	
  $240,000 annually

  
	
   

  	
   

  	
   

  
	
  Signing Bonus:

  	
   

  	
  Upon commencing
  employment with QUIDEL Corporation, you will receive a one-time lump sum
  bonus of $50,000 (gross), to be paid within the first week of employment.

  
	
   

  	
   

  	
   

  
	
  Annual Bonus:

  	
   

  	
  You will participate in the bonus plan with a target
  bonus of 25% at achievement of plan. Your eligibility for this plan will be
  prorated in 2005.

  
	
   

  	
   

  	
   

  
	
  Stock Options:

  	
   

  	
  You will receive an
  option to purchase 70,000 shares of common QUIDEL stock. The vesting schedule
  for this option will be 25% on the first year anniversary of the Option Grant
  Date and the remaining 75% will vest quarterly over the next three years. The
  purchase price will be the closing NASDAQ market price of QUIDEL’s stock on
  your actual start date. These options are subject to approval of the Board of
  Directors.

  
	
   

  	
   

  	
   

  
	
  Relocation Assistance:

  	
   

  	
  

  You will be entitled to receive up to $25,000 in reimbursement for relocation
  expenses per the attached policy.

  
	
   

  	
   

  	
   

  
	
  Vacation Benefit:

  	
   

  	
  You will receive four
  weeks of vacation per year, accrued from your anniversary date.

  
	
   

  	
   

  	
   

  
	
  Severance:

  	
   

  	
  You will be entitled to a payment equivalent to half
  your annual salary (six months) in the event that your employment is severed
  without cause and for reasons not subject to change in control provisions.

  

 

 

	
  Change in Control Provisions:

  	
   

  	
  

  You will be provided with change of control protection as outlined for other
  Vice Presidents. Details of this protection are contained in the attached
  Agreement re: Change in Control.

  
	
   

  	
   

  	
   

  
	
  Start Date:

  	
   

  	
  July 2005, the exact
  date TBD

  

 

In
addition to the above, as a QUIDEL employee, you will be eligible to
participate in our benefits programs, which will take effect on your first day
of employment.  A summary of these
benefits is enclosed.  Details of these
benefit plans will be provided to you upon your employment.

 

As
a condition of employment with QUIDEL Corporation, you will be required to: (1)
read, sign and return one copy of the enclosed Invention and Confidential
Information Agreement;  (2) within the
first three days of employment, you must provide documents from the enclosed
List of Acceptable Documents (I-9) which prove your identity and right to work
in the United States; and (3) read, sign and return one copy of page 5 of the
enclosed Employee Code of Conduct.

 

This offer of employment
is contingent upon successfully passing a pre-employment drug screen, background and reference check.  We will be in contact with you to set
up your drug screen appointment, which must be completed as soon as reasonably
possible.

 

QUIDEL Corporation is an
at-will employer.  This means that you
have the right to terminate your employment with QUIDEL at any time, for any
reason, with or without notice.  Similarly,
QUIDEL has the right to terminate the employment relationship at any time, for
any reason, with or without notice.  Any
contrary representations, which may have been made to you, are superseded by
this offer.  Any modifications to this “at-will”
term of your employment must be in writing and signed by you and QUIDEL’s
President.

 

If you should voluntarily
leave the company within one year of beginning work, you will be required to
repay a prorated portion of your signing bonus. 
You must make this repayment within 30 days of providing notice of your
resignation.

 

In addition, if you
should voluntarily leave the company within one year of beginning work, or one
year of receiving relocation assistance, whichever is later, you will be
required to repay a prorated portion of all relocation expenses covered by
QUIDEL. You must make this repayment within 30 days of providing notice of your
resignation

 

This offer expires seven
business days from the date of this letter. 
Please indicate your acceptance of our offer by signing on the following
page and returning a copy of this letter to Human Resources as soon as
possible.

 

2

 

Rob, on behalf of Caren
Mason, the Board of Directors, and the entire QUIDEL team, we are looking
forward to having you join us as we work together to provide quality products
to the medical community and to create value for the employees and shareholders
of QUIDEL Corporation.

 

Sincerely,

 

	
  /s/ Phyllis Huckabee

  
	
  Phyllis Huckabee

  
	
  Vice President, Human
  Resources

  

 

 

	
  cc:

  	
   

  	
  Caren Mason

  
	
   

  	
   

  	
  Human Resources

  

 

Enclosures

 

 

I have read, understand
and accept these terms and conditions of employment.  I further understand that while my salary,
benefits, job title and job duties may change from time to time without a
written modification of this agreement, the at-will term of my employment is a
term of employment which cannot be altered or modified except in writing,
signed by me and QUIDEL’s President.

 

	
  /s/ Robert Bujarski

  	
   

  	
  6-13-05

  	
   

  
	
  Signature

  	
  Date

  

 

3

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