Document:

Exhibit 10.2

 

SEPARATION AGREEMENT

 

This
Separation Agreement (hereinafter “Agreement”), dated as of February 9, 2006,
which by mutual agreement between the parties hereto shall be effective as of May 9, 2006 (the “Effective Date”), is
made and entered into between GUESS?, INC., a Delaware corporation (hereinafter
“GUESS”), and Frederick G. Silny
(hereinafter “EMPLOYEE”), and is made in light of the following:

 

EMPLOYEE
is employed by GUESS as Senior Vice President
and Chief Financial Officer and the parties anticipate that such
employment will terminate on the Effective Date. The parties hereto desire to
resolve all pending issues and/or claims between them, regarding the employment
of EMPLOYEE, the performance of EMPLOYEE’s duties as an employee of GUESS, and
the termination of EMPLOYEE’s employment with GUESS.

 

The
parties hereto acknowledge that each has denied, and continues to deny, any
claims existing or asserted by the other, but that GUESS and EMPLOYEE desire to
bring matters relating to EMPLOYEE’s employment with GUESS to a conclusion.
Therefore, the parties make this Agreement, and expressly recognize that the
making of this Agreement does not in any way constitute an admission of
wrongdoing or liability on the part of either party.

 

1.             Each
party represents and warrants to the other party that it (a) has not filed
any complaints, lawsuits, charges and/or other claims against the other party,
or any of the Releasees identified in Paragraph 4 below, with any court or
government agency or entity based upon or arising out of or in any way related
to EMPLOYEE’s employment, the termination of EMPLOYEE’s employment, or any acts
or events which occurred prior to EMPLOYEE’s execution of this Agreement; and (b) has
not assigned any such action, cause of action, claim, judgment, obligation,
damage or liability or authorized any other person or entity to assert such on such
party’s behalf.

 

EMPLOYEE
further represents and warrants that EMPLOYEE has not at any time sustained
physical or mental injury arising out of EMPLOYEE’s employment, or the
termination thereof, with GUESS through the date of execution of this
Agreement.

 

2.             In
consideration of covenants undertaken and releases given herein by EMPLOYEE,
GUESS agrees to: (a) pay EMPLOYEE the sum of One Hundred Sixty Thousand Two Hundred Ninety-Five and 20/100 Dollars ($160,295.20), less all legally required withholdings for taxes and
other related obligations, which sum represents a twenty-six (26) weeks severance to be paid in equal installments on regularly scheduled paydays
commencing on the first of such paydays following the Effective Date,
subject to the terms set forth in this Paragraph 2; (b) pay COBRA premiums
for medical and dental benefits for EMPLOYEE and continue all of EMPLOYEE’s Exec-U-Care
benefits and disability benefits on the same terms and conditions as existed on
EMPLOYEE’s termination date from June 1, 

 

 

2006 through November 30,
2006; (c) pay EMPLOYEE the performance-based Cash Bonus
Opportunity, if any, for which EMPLOYEE is eligible pursuant to the Annual
Incentive Bonus Plan, to be paid in accordance with, and subject to, GUESS’s
normal approval procedures and payment terms; and (d) pay EMPLOYEE a
one-time cash payment in the amount of Three Hundred Thousand and 00/100
Dollars ($300,000.00), less all legally required withholdings for taxes and
other related obligations to be paid in full within five (5) days of the
later of (i) receipt by GUESS of this Agreement executed by EMPLOYEE or (ii) the
Effective Date, subject to the terms set forth in this Paragraph 2.

 

Should EMPLOYEE find and begin employment or any
consulting position prior to November 7,
2006 at a salary or remuneration equal to or greater than EMPLOYEE’s
salary at GUESS as of May 9, 2006,
payments under clause (a) and (b) of this Paragraph 2 shall be
discontinued.  If EMPLOYEE accepts and
begins employment or any consulting position prior to November 7, 2006 at a salary or remuneration lower than the
above referenced GUESS salary, GUESS will pay EMPLOYEE the difference in compensation
from the date of such employment through November 7, 2006 in lieu of
payments under clause (a) and (b) of this Paragraph 2.  Should EMPLOYEE fail to work full-time for
GUESS up to and including May 9, 2006 (other than by reason of termination
by GUESS without cause), payments under clauses (a), (b) and (d) of this
Paragraph 2 shall be null and void.

 

EMPLOYEE
acknowledges that GUESS is not obligated to provide the above-referenced
consideration to EMPLOYEE under its normal policies and procedures.  EMPLOYEE also acknowledges that no other
monetary payments shall be made to EMPLOYEE in return for entering into this
Agreement and no other monies are owed to EMPLOYEE by GUESS or by any of the
Releasees identified in Paragraph 4 below, other than the payment GUESS will
make to EMPLOYEE on the last day of his employment for earned unpaid salary and
unused accrued vacation time, if any.

 

3.             In
consideration of the covenants undertaken herein by GUESS, EMPLOYEE agrees: (a) not
to attempt to induce, directly or indirectly, any present or future employee of
GUESS to abandon EMPLOYEE’s employment with GUESS and commence employment with
any other employer for a period of two (2) years following the Effective
Date; (b) to continue to comply with the terms of GUESS’s Confidentiality
Agreement which is attached hereto as Exhibit A and made a part
hereof (“Confidentiality Agreement”); (c) that GUESS may enforce the
confidentiality provisions of the Confidentiality Agreement in connection with
EMPLOYEE’s conduct as if EMPLOYEE were still an employee of GUESS, to the
extent permitted by law; (d) to return any and all GUESS property to GUESS
promptly upon the Effective Date; and (e) that EMPLOYEE will remain
available for questions concerning EMPLOYEE’s position if requested by
GUESS.  EMPLOYEE agrees that the
provisions of this paragraph are necessary and reasonable.

 

EMPLOYEE agrees to notify GUESS’s Legal Department in
the event that EMPLOYEE is contacted by anyone in connection with either GUESS
or any officers, directors or employees of GUESS.  In particular, EMPLOYEE acknowledges and
agrees that EMPLOYEE is obligated to cooperate with GUESS and its counsel, at
the sole cost and 

 

2

 

expense of GUESS, in connection with any subpoenas, process, or any
actual or potential litigation matters related in any way to GUESS or any
officers, directors, or employees of GUESS. 
EMPLOYEE further acknowledges and agrees that any material breach of
this provision that remains uncured after two (2) business days of actual receipt
by EMPLOYEE of written notice regarding such breach will require the return of
any severance amount paid by GUESS under this Agreement.

 

4.             In
consideration of the covenants undertaken herein by the parties, each party
also hereby covenants not to sue and fully releases and discharges the other,
all of its divisions, and all of its parent, successor, subsidiary and
affiliated companies and entities, and each of their respective divisions,
officers, directors, shareholders, partners, limited partners, agents,
employees, representatives, successors, independent contractors, payroll
companies, attorneys, insurers, licensees and assigns, past and present (all of
which and whom are collectively referred to as “Releasees”), with respect to
and from, any and all claims, demands, rights, liens, agreements, contracts,
covenants, actions, suits, causes of action, obligations, debts, costs,
expenses, attorneys’ fees, damages, judgments, orders and liabilities of
whatever kind or nature in law, equity or otherwise, whether now known or
unknown, suspected or unsuspected, and whether or not concealed or hidden,
which the releasing party now owns or holds, or has at anytime heretofore owned
or held, or may in the future hold against said Releasees, or any of them,
arising out of, grounded upon, or in any way connected with EMPLOYEE’s
employment relationship with GUESS, the separation from that employment, or any
other transactions, occurrences, acts or omissions or any loss, damages or
injury whatsoever, known or unknown, suspected or unsuspected, resulting from
any act or omission by or on the part of the Releasees, or any of them,
committed or omitted prior to the date of this Agreement, excluding any claims,
demands, rights, liens, agreements, contracts, covenants, actions, suits,
causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages,
judgments, orders and liabilities of whatever kind or nature in law arising out
of or related to EMPLOYEE’s fraud, gross negligence or willful misconduct,
which are hereby expressly excluded from the above covenants (“Claim or Claims”).
EMPLOYEE’s release of any such Claim or Claims includes, but is not limited to,
any action arising out of any foreign, federal, state or local constitution,
statute, ordinance, regulation, or common law, including, but not limited to,
any Claims arising under the Age Discrimination In Employment Act; Title VII of
the Civil Rights Act of 1964; the Equal Pay Act; the American with Disabilities
Act; the Family and Medical Leave Act; the Employee Retirement Income Security
Act; the Worker Adjustment and Retraining Notification Act; the California Fair
Employment and Housing Act; all provisions of the California Labor Code; all
provisions of the California Government Code; NLRB charges or Claims of
discrimination based on “union” status; the Orders of the California Industrial
Welfare Commission regulating wages, hours and working conditions; any other
foreign, federal, state or local laws, prohibiting employment discrimination or
otherwise regulating employment, including but not limited to, any Claim or
Claims for discrimination, failure to prevent discrimination, failure to
prevent retaliation, harassment, failure to prevent harassment, assault, battery,
misrepresentation, fraud, deceit, invasion of privacy, breach of contract,
breach of collective bargaining agreement, breach of quasi-contract, breach of
implied contract, an accounting, wrongful or constructive discharge, breach of
the covenant of good faith and fair dealing, libel, slander, negligent or
intentional infliction of emotional distress, 

 

3

 

violation of public policy, negligent supervision, negligent retention,
negligence, or interference with business opportunity or with contracts; and
any Claim or Claims for vacation pay, severance pay, bonus or similar benefit,
sick leave, pension, retirement, retirement bonus, holiday pay, life insurance,
health or medical insurance, reimbursement of health or medical costs; provided,
however, that this release shall not affect any rights EMPLOYEE has been
granted pursuant to this Agreement.

 

5.             EMPLOYEE
expressly acknowledges and agrees that this Agreement includes a waiver and
release of all claims which EMPLOYEE has or may have under the Age
Discrimination in Employment Act of 1967, as amended, 29 U.S.C., §621, et seq.
(“ADEA”).  The following terms and
conditions apply to and are part of the waiver and release of ADEA claims under
this Agreement.

 

The
waiver and release of claims under the ADEA contained in this Agreement does
not cover rights or claims that may arise after the date on which EMPLOYEE
signs this Agreement.  EMPLOYEE has been
advised to consult a lawyer before signing this Agreement.  EMPLOYEE is granted twenty-one (21) days
after EMPLOYEE is presented with this Agreement to decide whether or not to
sign this Agreement.  EMPLOYEE will have
the right to revoke the waiver and release of claims under the ADEA within
seven (7) days of signing this Agreement, and this Agreement shall not
become effective or enforceable until this revocation period has expired.  EMPLOYEE hereby acknowledges and agrees that
EMPLOYEE is knowingly and voluntarily waiving and releasing EMPLOYEE’s rights
and claims only in exchange for consideration (something of value) in addition
to anything of value to which EMPLOYEE is already entitled.

 

6.             EMPLOYEE
understands, acknowledges and agrees that the California Civil Code section 1542
states as follows:

 

“A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.”

 

EMPLOYEE hereby expressly
waives the benefit of the foregoing statute.

 

7.             Should
any part, term or provision of this Agreement, with the exception of the
releases embodied in Paragraphs 4, 5 and 6, be declared or determined by any
Court or other tribunal of appropriate jurisdiction to be invalid or
unenforceable such term or provision shall be deemed stricken and severed from
this Agreement and any and all other terms of the Agreement shall remain in
full force and effect to the fullest extent permitted by law. The releases
embodied in Paragraph 4, 5 and 6 are the essence of this Agreement and should
any of these paragraphs be deemed invalid or unenforceable, this Agreement may
be declared null and void and any consideration received under this Agreement
shall be returned to the Company.

 

4

 

8.             The
parties hereto acknowledge and agree that this Agreement and any other
agreements specifically referred to herein constitute and contain the entire
agreement and understanding concerning the subject matter between the parties
and supersedes and replaces all prior and contemporaneous negotiations and
proposed agreements, whether written or oral. Each of the parties warrants that
no other party or any agent or attorney or any other party has made any promise,
representation or warranty whatsoever not contained herein to induce each party
to execute this Agreement and the other documents referred to herein. Each of
the parties represents that it has not executed this Agreement or any other
documents referred to herein in reliance on any promise, representation or
warranty not contained herein.

 

9.             The
parties hereto acknowledge and agree that the language of this Agreement shall
be construed as a whole according to its fair meaning and not strictly for or against
any of the parties.

 

10.           This
Agreement shall, in all respects, be interpreted, construed and governed by and
under the domestic laws of the State of California. Any judicial proceeding
brought to interpret or enforce this Agreement shall be brought in the County
of Los Angeles, State of California.

 

11.           Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in Los Angeles, California, in accordance
with the Rules Resolution of Employment Disputes of the American
Arbitration Association then in effect.

 

12.           Should
any action be brought to enforce any of the terms or conditions of this
Agreement, the prevailing party shall be entitled to recover all reasonable costs
and expenses incurred in the prosecution or defense of this action, including
attorneys’ fees.

 

13.           Each
party hereby agrees that for a period of one (1) year following the
Effective Date, any communication, whether oral or written, made by it or on
its behalf to any person or entity, which relates in any way to the other party
will: (a) be, to the best of the party’s knowledge, truthful, and (b) not
intentionally or negligently criticize, disparage or, in any manner, undermine
the reputation or business practices of the other party or any of its
affiliates, directors, officers, management or employees.  Notwithstanding the above, EMPLOYEE
acknowledges that any such communication by EMPLOYEE is subject to and governed
by the terms of the Confidentiality Agreement referenced in Section 3
above.

 

14.           EMPLOYEE
acknowledges that EMPLOYEE has carefully read and fully understands this
Agreement, and that EMPLOYEE has had the opportunity to ask GUESS about any
questions, concerns or issues in connection with this Agreement, or its terms.  EMPLOYEE further acknowledges that EMPLOYEE
has had the opportunity, and taken it to the extent EMPLOYEE deemed appropriate
and necessary, to consult legal counsel of EMPLOYEE’s choice, in connection
with this Agreement and consents to all of the terms and provisions contained
herein knowingly, voluntarily and without any reservation whatsoever.

 

5

 

15.           Either
facsimile or original signatures shall be binding. EMPLOYEE’s signature is
binding when received by GUESS.

 

 

	
  EMPLOYEE

  	
  GUESS?, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Frederick G. Silny

  	
   

  	
  By:

  	
  /s/ Carlos
  Alberini

  
	
  Frederick G. Silny

  	
   

  	
   Carlos
  Alberini

  	
   

  
	
   

  	
   

  	
   President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  February 9, 2006

  	
  Dated:

  	
    February
  9, 2006

  	
   

  
										

 

6

 

EXHIBIT A

 

CONFIDENTIALITY AGREEMENT

 

7

 

	
  

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  GUESS?,
  INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

CONFIDENTIALITY AGREEMENT

 

This Agreement is between GUESS?, INC. (“GUESS?”), a
Delaware corporation, and the employee (“Associate”) who has signed below.

 

BACKGROUND

 

•      GUESS?
is a clothing manufacturer and designer. In the course of developing its
business and goodwill, GUESS? has developed and continues to develop techniques
and other information that it uses in the manufacturing, styling, pricing and
selling of its apparel products. This information, and all other information
concerning the operation of GUESS? business is and always has been kept
confidential by GUESS? and is and always has been a trade secret of GUESS?. By
this Agreement, GUESS? desires to maintain and preserve the confidentiality of
its trade secrets and other confidential information regarding its business
from any unauthorized disclosures (hereinafter-CONFIDENTIAL INFORMATION).

 

•      Associate is to be employed by GUESS?, The purpose of Associate’s
relationship with GUESS? is to perform personal services to GUESS?. In order to
enable Associate to perform such services, GUESS? may disclose or authorize the
disclosure of trade secrets and other confidential information to Associate and
the Associate may develop additional trade secrets and confidential information
during employment by GUESS? which shall become part of this CONFIDENTIAL
INFORMATION.

 

AGREEMENT

 

Therefore, in consideration of GUESS? employment or
continuing employment of Associate and the wages or salary paid to Associate,
it is agreed:

 

1.             This agreement is in effect during period of
employment or continuing employment of Associate by GUESS?, INC.

 

2.             During employment,  Associate may receive, develop, otherwise
acquire, have access to or become acquainted with CONFIDENTIAL INFORMATION
relating to the business of GUESS?. Associate understands that the term
CONFIDENTIAL INFORMATION shall include, but not be limited to, all drawings,
designs, patterns, devices, methods, techniques, compilations, processes,
product specifications, future plans, discounts, manufacturing costs, financial
information, cost and suppliers; costs of materials; the prices GUESS? obtains
or has obtained, or at which it sells or has sold its apparel products,
manufacturing and sales costs; written business records, documents
specifications, plans and compilations of information, reports, correspondence,
sales records, account lists, budgets, indexes, invoices, telephone records, or
any other material relating in any manner whatsoever to the customer, sales
representatives or employees (including the salaries of employees other than
Associate and their abilities) of GUESS?. If it is determined that any of the
information identified above is, in whole or in part, not
entitled to protection as a trade secret, it shall be confidential information
this is protected by this Agreement.

 

a.             Associate agrees that all CONFIDENTIAL
INFORMATION, or any copy, extract or summary, whether originated or prepared by
Associate or by or for GUESS? is and shall remain the exclusive property of
GUESS?.

 

3.             Associate shall not disclose to others,
either directly or indirectly, or take or use for Associate’s own purposes or
the purposes of others, the CONFIDENTIAL INFORMATION of GUESS?.    Associate shall not disclose the name of
any employee, customer, sales representative or independent contractor of
GUESS? to any third party, unless the disclosure occurs during Associate’s
employment with GUESS? and is reasonably required by Associate’s position with
GUESS?.   These restrictions shall apply
to (1) trade secrets or confidential information conceived by or belonging to
third parties which are in GUESS?’ possession, and (2) trade secrets or confidential
information conceived, originated, discovered or developed by Associate within
the scope of Associate’s employment.

 

4.             Any invention, improvement, development,
copyrightable matter, design, idea or suggestion conceived, made, devised or
developed by Associate, solely or jointly with others:

 

a.             During regular working hours or with the use
of GUESS? equipment, supplies, facilities, CONFIDENTIAL INFORMATION or trade
secrets.

 

b.             During the term of Associate’s employment
whether during regular working hours or not, which relate to business of
GUESS?; or

 

c.             during the term of Associate’s employment and
after which embodies, uses or is the result of any CONFIDENTIAL INFORMATION of GUESS?
which Associate has knowledge of, shall be disclosed to GUESS? by Associate and
become the sole property of GUESS?.

 

5.             As to each invention, improvement,
development, copyrightable matter, design, idea, suggestion or other matter
described above, Associate unqualifiedly assigns to GUESS? all rights,
including foreign patent and priority rights, which Associate has.  Associate agrees that, upon request by GUESS?,
Associate shall promptly execute all instruments and documents requested by
GUESS?, including but not limited to applications for Letters Patent and
assignment of the rights thereto.  This
Agreement does not apply to any invention, which qualifies fully under the
provisions of Section 2870 of the California Labor Code.

 

6.             Upon the termination of Associate’s
employment, or whenever required by GUESS?, Associate shall immediately deliver
to GUESS? all property and materials in Associate’s possession or under
Associate’s control belonging to GUESS?, including, but not limited to, all
physical embodiments of CONFIDENTIAL INFORMATION.

 

7.             Associate shall obtain prior written
permission pursuant to GUESS? policies and procedures to publish or cause to be
published any article, book, textbook, play, tape recordings or any other form
of communication concerning GUESS? or the business of GUESS?, GUESS? may grant
or withhold this permission in its sole subjective discretion.

 

8.             Throughout the duration of Associate’s
employment with GUESS?, or any time thereafter, EMPLOYEE shall not disrupt,
damage, impair or interfere with the business of GUESS? in any manner,
including, and without limitation, for a period of twenty four (24) months
after the termination of Associate’s employment with GUESS?, by directly or
indirectly soliciting, encouraging or inducing an employee to leave the employ
of GUESS?, or by inducing an employee, a consultant, a sales representative or
another independent contractor to end that person’s relationship with GUESS?,
by raiding GUESS?’ employees or sales representatives, or otherwise soliciting,
disrupting or interfering with its relationship with customers, agents,

 

8

 

representatives
or vendors, or otherwise.  Associate is
not, however, restricted from being employed by or engaged in any type of
business following the termination of Associate’s employment relationship with
GUESS?.

 

9.             Associate shall not do anything, which
conflicts with the interest of GUESS? during the term of Associate’s
employment. Associate shall avoid conflicts of interest and shall refer
questions about potential conflicts to Associate’s supervisor.

 

a.             Associate, during the term of employment,
shall not perform any services or accept any employment with any organization,
which does business with GUESS? or is a competitor of GUESS?. This prohibition
includes acting as an advisor or consultant, unless that activity is required
as part of the Associate’s work for GUESS?.

 

b.             Associate must immediately disclose in
writing to the Human Resources Department any financial interest Associate or
Associate’s immediate family has, during the term of employment, in any firm,
which does business with GUESS? or which competes with GUESS?.

 

c.             Associate and Associate’s immediate family
are not to, during the term of employment, accept gifts from any person of firm
doing business with GUESS?. The meaning of gifts for purposes of this Agreement
includes the acceptance of lavish entertainment and free travel and lodging.

 

d.             Associate, during the term of employment,
shall not give, offer or promise anything of value to any
representative of a company with which GUESS? does business.

 

10.           Associate and GUESS? agree that the
CONFIDENTIAL INFORMATION of GUESS?, is of a special, unique unusual,
extraordinary, and intellectual character, which gives it a particular value. The
loss of which would cause irreparable damage and cannot be reasonably
compensated in damages. If Associate breaches or attempts to breach any of the
provisions of this agreement, GUESS? shall be entitled to injunctive and other
equitable relief to prevent a breach of this Agreement, or any of the
provisions thereof.

 

11.           The employment relationship between GUESS?
and Associate is at the Mutual consent of Associate and GUESS? and is not for a
fixed term. Accordingly, either Associate or GUESS? can end the employment
relationship at will, at any time, with or without cause or advance notice. No
one in the company has the right to alter the nature of the
employment relationship without a written agreement. There are not any express
or implied agreements that affect or impair the ability of Associate or GUESS?
to terminate the employment relationship at will.

 

12.           Nothing in this Agreement shall limit
Associate’s right to discuss the amount of Associate’s own wages with others or
to restrict Associate’s disclosure or use of any information that GUESS? is not
legally capable of protecting under this Agreement.

 

13.           The provisions of this Agreement are
severable, and if any one or more are determined to be unenforceable by a court of law, in whole or in part, the remaining
provisions shall still be binding and enforceable.  Moreover, if any court determines that any of
the provisions, or any part thereof, are unenforceable because of the duration
or geographic scope of such provision, as the case may be and, it is reduced
form, such provision shall then be enforceable.

 

14.           The failure of a party to insist upon strict
adherence to any term of this Agreement, or to object to any failure to comply
with any provision of this Agreement, shall not (a) be a waiver of that
term or provision, (b) prevent that party from enforcing that term or
provision, or (c) prevent that party from enforcing that term of provision
by any claim of delay.

 

This agreement replaces all
previous agreements, whether written or oral, relating to the above subject
matter, and cannot be changed orally.  By
signing below the Associate acknowledges that he or she has read it,
understands it, and agrees to each of its provisions.

 

	
  /s/ Fredrick G. Silny

  	
   

  	
   

  
	
  Associate Signature

  	
   

  
	
   

  	
   

  
	
  Fredrick G. Silny

  	
   

  	
   

  
	
  Print Name

  	
   

  
	
   

  	
   

  
	
  11/12/01

  	
   

  	
   

  
	
  Date

  	
   

  

 

Confidentiality
Agreement

 

9Exhibit 4.4

 

ISOLAGEN, INC.

 

2005
EQUITY INCENTIVE PLAN

 

Adopted by the
Isolagen, Inc.

Board of Directors on April 26,
2005

 

Approved by the Shareholders

On June 23, 2005

 

Amended by the
Isolagen, Inc.

Board of Directors on December
7, 2005

 

 

ISOLAGEN, INC.

2005 EQUITY
INCENTIVE PLAN

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Purpose

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Administration

  	
  4

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Grants

  	
  4

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Shares Subject to the Plan

  	
  4

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Eligibility for Participation

  	
  5

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Options

  	
  5

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Stock Units

  	
  7

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Stock Awards

  	
  8

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Stock Appreciation Rights and
  Other Stock-Based Awards

  	
  8

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Qualified Performance-Based
  Compensation

  	
  9

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Deferrals

  	
  10

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Withholding of Taxes

  	
  10

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Transferability of Grants

  	
  11

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Consequences of a Change of
  Control

  	
  11

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Requirements for Issuance of
  Shares

  	
  11

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Amendment and Termination of
  the Plan

  	
  13

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Miscellaneous

  	
  13

  

 

i

 

ISOLAGEN, INC.

 

2005 EQUITY INCENTIVE PLAN

 

1.             Purpose and Objectives

 

The
Isolagen, Inc. 2005 Equity Incentive Plan (the “Plan”) is designed to
align the interests of (i) designated employees of Isolagen, Inc.
(the “Company”) and its subsidiaries, (ii) non-employee members of the
board of directors of the Company, and (iii) consultants and key advisors
of the Company and its subsidiaries with the interests of the Company’s
stockholders and to provide incentives for such persons to exert maximum
efforts for the success of the Company. By extending the opportunity to receive
grants of stock options, stock units, stock awards, stock appreciation rights
and other stock-based awards, the Company believes that the Plan will encourage
the participants to contribute materially to the growth of the Company, thereby
benefiting the Company’s shareholders, and will align the economic interests of
the participants with those of the shareholders. The Plan may furthermore be
expected to benefit the Company and its stockholders by making it possible for
the Company to attract and retain the best available talent. The Plan shall be
effective as of April 26, 2005, subject to approval by the shareholders of the
Company.

 

2.             Definitions

 

Whenever
used in this Plan, the following terms will have the respective meanings set
forth below:

 

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

 

(b)           “Cause” means, except to the extent otherwise
specified by the Committee, a finding by the Committee of a Participant’s
incompetence in the performance of duties, disloyalty, dishonesty, theft,
embezzlement, or unauthorized disclosure of customer lists, product lines,
processes or trade secrets of the Employer, individually or as an employee,
partner, associate, officer or director of any organization.

 

(c)           “Change of Control” shall be deemed to have
occurred if:

 

(i)            Any “person” (as such term is used in sections
13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 50% of the voting power of the
then outstanding securities of the Company; provided that a Change of Control
shall not be deemed to occur as a result of a transaction in which the Company
becomes a subsidiary of another corporation and in which the shareholders of
the Company, immediately prior to the transaction, will beneficially own,
immediately after the transaction, shares entitling such shareholders to more
than 50% of all votes to which all shareholders of the parent corporation would
be entitled in the election of directors;

 

(ii)           The consummation of (i) a merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors, (ii) a sale or other disposition of all or substantially all of
the assets of the Company, or (iii) a liquidation or dissolution of the
Company; or

 

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

 

(e)           “Committee” means the Compensation Committee of
the Board or another committee appointed by the Board to administer the Plan.
Grants that are intended to be “qualified performance-based compensation” under
section 162(m) of the Code shall be made by a committee that consists of
two or more persons appointed by the Board, all of whom shall be “outside
directors” as defined under section 162(m) of the Code and related
Treasury regulations.

 

 

(f)            “Company” means Isolagen, Inc. and any
successor corporation.

 

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

 

(h)           “Consultant” means a consultant or advisor who
performs services for the Employer and who renders bona fide services to the
Employer, if the services are not in connection with the offer and sale of
securities in a capital-raising transaction and the Consultant does not directly
or indirectly promote or maintain a market for the Employer’s securities.

 

(i)            “Disability” means a Participant’s becoming
disabled within the meaning of section 22(e)(3) of the Code, within the
meaning of the Employer’s long-term disability plan applicable to the
Participant, or as otherwise determined by the Committee.

 

(j)            “Effective Date” of the Plan means April 26, 2005,
subject to approval of the Plan by the shareholders of the Company.

 

(k)           “Employee” means an employee of the Employer
(including an officer or director who is also an employee).

 

(l)            “Employer” means the Company and its subsidiaries.

 

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

 

(n)           “Exercise Price” means the per share price at
which shares of Company Stock may be purchased under an Option, as designated
by the Committee.

 

(o)           “Fair Market Value” of Company Stock means, unless
the Committee determines otherwise with respect to a particular Grant,
(i) if the principal trading market for the Company Stock is the American
Stock Exchange or another national securities exchange, the “closing
transaction” price at which shares of Company Stock are traded on such
securities exchange on the relevant date or (if there were no trades on that
date) the latest preceding date upon which a sale was reported, (ii) if
the Company Stock is not principally traded on a national securities exchange,
but is quoted on The Nasdaq Stock Market, Inc. National Market System (“NMS”)
or Small-Cap Market (“Small-Cap”), the NASD OTC Bulletin Board (“OTCBB”) or the
Pink Sheets, the last reported “closing transaction” price of Company Stock on
the relevant date, as reported by the NMS, Small-Cap, OTCBB or Pink Sheets, or,
if not so reported, as reported in a customary financial reporting service, as
the Committee determines, or (iii) if the Company Stock is not publicly
traded or, if publicly traded, is not subject to reported closing transaction
prices as set forth above, the Fair Market Value per share shall be as
determined by the Committee. Notwithstanding the foregoing, for federal, state
and local income tax purposes, the Fair Market Value may be determined by the
Committee in accordance with uniform and non-discriminatory standards adopted
by it from time to time.

 

(p)           “Grant” means an Option, Stock Unit, Stock Award,
SAR or Other Stock-Based Award granted under the Plan.

 

(q)           “Grant Agreement” means the written instrument
that sets forth the terms and conditions of a Grant, including all amendments
thereto.

 

(r)            “Incentive Stock Option” means an Option that is
intended to meet the requirements of an incentive stock option under
section 422 of the Code.

 

(s)           “Non-Employee Director” means a member of the
Board who is not an employee of the Employer.

 

3

 

(t)            “Nonqualified Stock Option” means an Option that
is not intended to be taxed as an incentive stock option under section 422
of the Code.

 

(u)           “Option” means an option to purchase shares of
Company Stock, as described in Section 7.

 

(v)           “Other Stock-Based Award” means any Grant based
on, measured by or payable in Company Stock (other than a Grant described in
Sections 7, 8 or 9 of the Plan), as described in Section 10.

 

(w)          “Participant” means an Employee, Consultant or
Non-Employee Director designated by the Committee to participate in the Plan.

 

(x)            “Plan” means this Isolagen, Inc. 2005 Equity
Incentive Plan, as in effect from time to time.

 

(y)           “SAR” means a stock appreciation right as
described in Section 10.

 

(z)            “Stock Award” means an award of Company Stock as
described in Section 9.

 

(aa)         “Stock Unit” means an award of a phantom unit
representing a share of Company Stock, as described in Section 8.

 

3.             Administration

 

(a)           Committee.  The Plan
shall be administered and interpreted by the Committee. Ministerial functions
may be performed by an administrative committee comprised of Company employees
appointed by the Committee.

 

(b)           Committee Authority.  The
Committee shall have the sole authority to (i) determine the Participants
to whom Grants shall be made under the Plan, (ii) determine the type, size
and terms and conditions of the Grants to be made to each such Participant,
(iii) determine the time when the grants will be made and the duration of
any applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability, (iv) amend the
terms and conditions of any previously issued Grant, subject to the provisions
of Section 17 below, and (v) deal with any other matters arising
under the Plan.

 

(c)           Committee Determinations.  The
Committee shall have full power and express discretionary authority to
administer and interpret the Plan, to make factual determinations and to adopt
or amend such rules, regulations, agreements and instruments for implementing
the Plan and for the conduct of its business as it deems necessary or
advisable, in its sole discretion. The Committee’s interpretations of the Plan
and all determinations made by the Committee pursuant to the powers vested in
it hereunder shall be conclusive and binding on all persons having any interest
in the Plan or in any awards granted hereunder. All powers of the Committee
shall be executed in its sole discretion, in the best interest of the Company,
not as a fiduciary, and in keeping with the objectives of the Plan and need not
be uniform as to similarly situated Participants.

 

4.             Grants

 

(a)           Grants under the Plan may consist of Options as described in
Section 7, Stock Units as described in Section 8, Stock Awards as
described in Section 9, and SARs or Other Stock-Based Awards as described
in Section 10. All Grants shall be subject to such terms and conditions as
the Committee deems appropriate and as are specified in writing by the
Committee to the Participant in the Grant Agreement.

 

(b)           All Grants shall be made conditional upon the Participant’s
acknowledgement, in writing or by acceptance of the Grant, that all decisions
and determinations of the Committee shall be final and binding on the
Participant, his or her beneficiaries and any other person having or claiming
an interest under such Grant. Grants under a particular Section of the Plan
need not be uniform as among the Participants.

 

4

 

5.             Shares Subject to the Plan

 

(a)           Shares Authorized.  The
aggregate number of shares of Company Stock that may be issued under the Plan
is 2,100,000 shares, subject to adjustment as described in subsection
(e) below.

 

(b)           Limit on Stock Awards, Stock
Units, SARs and Other Stock-Based Awards.  Within the aggregate limit
described in subsection (a), the maximum number of shares of Company Stock that
may be issued under the Plan pursuant to Stock Awards, Stock Units, SARs and
Other Stock-Based Awards during the term of the Plan is 525,000 shares, subject
to adjustment as described in subsection (e) below.

 

(c)           Source of Shares; Share
Counting.  Shares issued under the Plan may be
authorized but unissued shares of Company Stock or reacquired shares of Company
Stock, including shares purchased by the Company on the open market for
purposes of the Plan. If and to the extent Options and SARs granted under the
Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered
without having been exercised, and if and to the extent that any Stock Awards,
Stock Units or Other Stock-Based Awards are forfeited or terminated, or
otherwise are not paid in full, the shares reserved for such Grants shall again
be available for purposes of the Plan.

 

(d)           Individual Limits.  All Grants
under the Plan shall be expressed in shares of Company Stock. The maximum
number of shares of Company Stock with respect to which all Grants may be made
under the Plan to any individual during any calendar year shall be 500,000
shares, subject to adjustment as described in subsection (e) below. The
individual limits of this subsection (d) shall apply without regard to
whether the Grants are to be paid in Company Stock or cash. All cash payments
shall equal the Fair Market Value of the shares of Company Stock to which the
cash payments relate.

 

(e)           Adjustments.  If there
is any change in the number or kind of shares of Company Stock outstanding
(i) by reason of a stock dividend, spinoff, recapitalization, stock split,
or combination or exchange of shares, (ii) by reason of a merger,
reorganization or consolidation, (iii) by reason of a reclassification or
change in par value, or (iv) by reason of any other extraordinary or
unusual event affecting the outstanding Company Stock as a class without the
Company’s receipt of consideration, or if the value of outstanding shares of
Company Stock is substantially reduced as a result of a spinoff or the Company’s
payment of an extraordinary dividend or distribution, the maximum number of
shares of Company Stock available for issuance under the Plan, the maximum
number of shares of Company Stock for which any individual may receive Grants
in any year, the number of shares covered by outstanding Grants, the kind of
shares issued and to be issued under the Plan, and the price per share or the
applicable market value of such Grants may be appropriately adjusted by the
Committee to reflect any increase or decrease in the number of, or change in
the kind or value of, issued shares of Company Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive. 
To the extent that any Grant is subject to section 409A of the Code, or
becomes subject to section 409A of the Code as a result of any adjustment made
hereunder, such adjustment shall be made in compliance with section 409A of the
Code.

 

6.             Eligibility for Participation

 

(a)           Eligible Persons.  All
Employees, Consultants and Non-Employee Directors shall be eligible to
participate in the Plan.

 

(b)           Selection of Participants.  The
Committee shall select the Employees, Consultants and Non-Employee Directors to
receive Grants and shall determine the number of shares of Company Stock
subject to each Grant.

 

7.             Options

 

(a)           General Requirements.  The
Committee may grant Options to an Employee, Consultant or Non-Employee Director
upon such terms and conditions as the Committee deems appropriate under this
Section 7. The Committee shall determine the number of shares of Company
Stock that will be subject to each Grant of Options to Employees, Consultants
and Non-Employee Directors.

 

5

 

(b)           Type of Option, Price and Term

 

(i)            The Committee may grant Incentive Stock Options or
Nonqualified Stock Options or any combination of the two, all in accordance
with the terms and conditions set forth herein. Incentive Stock Options may be
granted only to Employees of the Company or its parents or subsidiaries, as
defined in section 424 of the Code. Nonqualified Stock Options may be
granted to Employees, Consultants or Non-Employee Directors.

 

(ii)           The Exercise Price of Company Stock subject to an
Option shall be determined by the Committee; provided, however, that the
Exercise Price for an Option (including Incentive Stock Options or Nonqualified
Stock Options) will be equal to, or greater than, the Fair Market Value of a
share of Company Stock on the date the Option is granted and further provided
that an Incentive Stock Option may not be granted to an Employee who, at the
time of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary, as
defined in section 424 of the Code, unless the Exercise Price per share is
not less than 110% of the Fair Market Value of the Company Stock on the date of
grant

 

(iii)          The Committee shall determine the term of each
Option, which shall not exceed ten years from the date of grant. However, an
Incentive Stock Option that is granted to an Employee who, at the time of
grant, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary, as defined
in section 424 of the Code, may not have a term that exceeds five years
from the date of grant.

 

(c)           Exercisability of Options.

 

(i)            Options shall become exercisable in accordance
with such terms and conditions as may be determined by the Committee and
specified in the Grant Agreement. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.

 

(ii)           The Committee may provide in a Grant Agreement
that the Participant may elect to exercise part or all of an Option before it
otherwise has become exercisable. Any shares so purchased shall be restricted
shares and shall be subject to a repurchase right in favor of the Company
during a specified restriction period, with the repurchase price equal to the
lesser of (A) the Exercise Price or (B) the Fair Market Value of such
shares at the time of repurchase, or such other restrictions as the Committee
deems appropriate.  Notwithstanding the
foregoing, to the extent that an Option would otherwise be exempt from section
409A of the Code, the Committee may only include such a provision in a Grant
Agreement for such an Option if the inclusion of such a provision will not
cause that Option to become subject to section 409A of the Code.

 

(iii)          Options granted to persons who are non-exempt
employees under the Fair Labor Standards Act of 1938, as amended, may not be
exercisable for at least six months after the date of grant (except that such
Options may become exercisable, as determined by the Committee, upon the
Participant’s death, Disability or retirement, or upon a Change of Control or
other circumstances permitted by applicable regulations).

 

(d)           Termination of Employment or
Service.  Upon termination of employment or the
services of a Participant, an Option may only be exercised as follows:

 

(i)            In the event that a Participant ceases to be
employed by, or provide service to, the Employer for any reason other than
Disability, death, or termination for Cause, any Option which is otherwise
exercisable by the Participant shall terminate unless exercised within three
months after the date on which the Participant ceases to be employed by, or
provide service to, the Employer (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Except as otherwise provided by the Committee,
any of the Participant’s Options that are not otherwise

 

6

 

exercisable as of the date on which the Participant ceases to be
employed by, or provide service to, the Employer shall terminate as of such
date.

 

(ii)           In the event the Participant ceases to be employed
by, or provide service to, the Employer on account of a termination for Cause
by the Employer, any Option held by the Participant shall terminate as of the
date the Participant ceases to be employed by, or provide service to, the
Employer. In addition, notwithstanding any other provisions of this
Section 7, if the Committee determines that the Participant has engaged in
conduct that constitutes Cause at any time while the Participant is employed
by, or providing service to, the Employer or after the Participant’s
termination of employment or service, any Option held by the Participant shall
immediately terminate and the Participant shall automatically forfeit all
shares underlying any exercised portion of an Option for which the Company has
not yet delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Participant for such shares. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a
forfeiture.

 

(iii)          In the event the Participant ceases to be employed
by, or provide service to, the Employer on account of the Participant’s
Disability, any Option which is otherwise exercisable by the Participant shall
terminate unless exercised within one year after the date on which the
Participant ceases to be employed by, or provide service to, the Employer (or
within such other period of time as may be specified by the Committee), but in
any event no later than the date of expiration of the Option term. Except as
otherwise provided by the Committee, any of the Participant’s Options which are
not otherwise exercisable as of the date on which the Participant ceases to be
employed by, or provide service to, the Employer shall terminate as of such
date.

 

(iv)          If the Participant dies while employed by, or
providing service to, the Employer or while an Option remains outstanding under
Section 7(d)(i) or 7(d)(iii) above (or within such other period
of time as may be specified by the Committee), any Option that is otherwise
exercisable by the Participant shall terminate unless exercised within one year
after the date on which the Participant ceases to be employed by, or provide
service to, the Employer (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Except as otherwise provided by the Committee,
any of the Participant’s Options that are not otherwise exercisable as of the
date on which the Participant ceases to be employed by, or provide service to,
the Employer shall terminate as of such date.

 

(e)           Exercise of Options.  A
Participant may exercise an Option that has become exercisable, in whole or in
part, by delivering a notice of exercise to the Company. The Participant shall
pay the Exercise Price for the Option (i) in cash, (ii) if permitted
by the Committee, by delivering shares of Company Stock owned by the
Participant and having a Fair Market Value on the date of exercise equal to the
Exercise Price or by attestation to ownership of shares of Company Stock having
an aggregate Fair Market Value on the date of exercise equal to the Exercise
Price, (iii) by payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board, or (iv) by
such other method as the Committee may approve. Shares of Company Stock used to
exercise an Option shall have been held by the Participant for the requisite
period of time to avoid adverse accounting consequences to the Company with
respect to the Option. Payment for the shares pursuant to the Option, and any
required withholding taxes, must be received by the time specified by the
Committee depending on the type of payment being made, but in all cases prior
to the issuance of the Company Stock.

 

(f)            Limits on Incentive Stock
Options.  Each Incentive Stock Option shall provide
that, if the aggregate Fair Market Value of the stock on the date of the grant
with respect to which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, as defined in
section 424 of the Code, exceeds $100,000, then the Option, as to the
excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock
Option shall not be granted to any person who is not an Employee of the Company
or a parent or subsidiary, as defined in section 424 of the Code.

 

8.             Stock Units

 

(a)           General Requirements.  The
Committee may grant Stock Units to an Employee, Consultant or Non-Employee

 

7

 

Director, upon such terms and
conditions as the Committee deems appropriate under this Section 8. Each
Stock Unit shall represent the right of the Participant to receive a share of
Company Stock or an amount based on the value of a share of Company Stock. All
Stock Units shall be credited to bookkeeping accounts on the Company’s records
for purposes of the Plan.

 

(b)           Terms of Stock Units.  The
Committee may grant Stock Units that are payable on terms and conditions
determined by the Committee, which may include payment based on achievement of
performance goals. Stock Units may be paid at the end of a specified vesting or
performance period, or payment may be deferred to a date authorized by the
Committee. The Committee shall determine the number of Stock Units to be
granted and the requirements applicable to such Stock Units.

 

(c)           Payment With Respect to Stock
Units.  Payment with respect to Stock Units shall be
made in cash, in Company Stock, or in a combination of the two, as determined
by the Committee. The Grant Agreement shall specify the maximum number of
shares that can be issued under the Stock Units.

 

(d)           Requirement of Employment or
Service.  The Committee shall determine in the Grant
Agreement under what circumstances a Participant may retain Stock Units after
termination of the Participant’s employment or service, and the circumstances
under which Stock Units may be forfeited.

 

9.             Stock Awards

 

(a)           General Requirements.  The
Committee may issue shares of Company Stock to an Employee, Consultant or
Non-Employee Director under a Stock Award, upon such terms and conditions as
the Committee deems appropriate under this Section 9. Shares of Company
Stock issued pursuant to Stock Awards may be issued for cash consideration or
for no cash consideration, and subject to restrictions or no restrictions, as
determined by the Committee. The Committee may establish conditions under which
restrictions on Stock Awards shall lapse over a period of time or according to
such other criteria as the Committee deems appropriate, including restrictions
based upon the achievement of specific performance goals. The Committee shall
determine the number of shares of Company Stock to be issued pursuant to a
Stock Award.

 

(b)           Requirement of Employment or
Service.  The Committee shall determine in the Grant
Agreement under what circumstances a Participant may retain Stock Awards after
termination of the Participant’s employment or service, and the circumstances
under which Stock Awards may be forfeited.

 

(c)           Restrictions on Transfer.  While
Stock Awards are subject to restrictions, a Participant may not sell, assign,
transfer, pledge or otherwise dispose of the shares of a Stock Award except
upon death as described in Section 14(a). Each certificate for a share of
a Stock Award shall contain a legend giving appropriate notice of the
restrictions in the Grant. The Participant shall be entitled to have the legend
removed when all restrictions on such shares have lapsed. The Company may retain
possession of any certificates for Stock Awards until all restrictions on such
shares have lapsed.

 

(d)           Right to Vote and to Receive
Dividends.  The Committee shall determine to what extent,
and under what conditions, the Participant shall have the right to vote shares
of Stock Awards and to receive any dividends or other distributions paid on
such shares during the restriction period.

 

10.          Stock Appreciation Rights and Other Stock-Based
Awards

 

(a)           The Committee may grant SARs to an Employee, Non-Employee Director or
Consultant separately or in tandem with an Option. The following provisions are
applicable to SARs:

 

(i)            Base Amount. The Committee shall establish the base amount of the SAR at the time
the SAR is granted. The base amount of each SAR shall be equal to the per share
Exercise Price of the related Option or, if there is no related Option, an
amount that is at least equal to the Fair Market Value of a share of Company
Stock as of the date of Grant of the SAR.

 

8

 

(ii)           Tandem SARs. The Committee
may grant tandem SARs either at the time the Option is granted or at any time
thereafter while the Option remains outstanding; provided, however, that, in
the case of an Incentive Stock Option, SARs may be granted only at the date of
the grant of the Incentive Stock Option. In the case of tandem SARs, the number
of SARs granted to a Participant that shall be exercisable during a specified
period shall not exceed the number of shares of Company Stock that the Participant
may purchase upon the exercise of the related Option during such period. Upon
the exercise of an Option, the SARs relating to the Company Stock covered by
such Option shall terminate. Upon the exercise of SARs, the related Option
shall terminate to the extent of an equal number of shares of Company Stock.

 

(iii)          Exercisability. An SAR
shall be exercisable during the period specified by the Committee in the Grant
Agreement and shall be subject to such vesting and other restrictions as may be
specified in the Grant Agreement. The Committee may grant SARs that are subject
to achievement of performance goals or other conditions. The Committee may
accelerate the exercisability of any or all outstanding SARs at any time for
any reason. SARs may only be exercised while the Participant is employed by, or
providing service to, the Employer or during the applicable period after
termination of employment or service as described in Section 7(d). A
tandem SAR shall be exercisable only during the period when the Option to which
it is related is also exercisable.

 

(iv)          Grants to Non-Exempt Employees. SARs granted to persons who are non-exempt employees under the Fair
Labor Standards Act of 1938, as amended, may not be exercisable for at least
six months after the date of grant (except that such SARs may become
exercisable, as determined by the Committee, upon the Participant’s death,
Disability or retirement, or upon a Change of Control or other circumstances
permitted by applicable regulations).

 

(v)           Value of SARs. When a
Participant exercises SARs, the Participant shall receive in settlement of such
SARs an amount equal to the value of the stock appreciation for the number of
SARs exercised. The stock appreciation for an SAR is the amount by which the
Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in subsection (i).

 

(vi)          Form of Payment. The
Committee shall determine whether the stock appreciation for an SAR shall be
paid in the form of shares of Company Stock, cash or a combination of the two.
For purposes of calculating the number of shares of Company Stock to be
received, shares of Company Stock shall be valued at their Fair Market Value on
the date of exercise of the SAR. If shares of Company Stock are to be received
upon exercise of an SAR, cash shall be delivered in lieu of any fractional
share.

 

(b)           Other Stock-Based Awards.  The
Committee may grant other awards not specified in Sections 7, 8 or 9 above that
are based on or measured by Company Stock to Employees, Consultants and
Non-Employee Directors, on such terms and conditions as the Committee deems
appropriate. Other Stock-Based Awards may be granted subject to achievement of
performance goals or other conditions and may be payable in Company Stock or
cash, or in a combination of the two, as determined by the Committee in the
Grant Agreement.

 

11.          Qualified Performance-Based Compensation

 

(a)           Designation as Qualified
Performance-Based Compensation.  The Committee may determine that Stock Units,
Stock Awards, SARs or Other Stock-Based Awards granted to an Employee shall be
considered “qualified performance-based compensation” under section 162(m)
of the Code, in which case the provisions of this Section 11 shall apply
to such Grants. The Committee may also grant Options under which the
exercisability of the Options is subject to achievement of performance goals as
described in this Section 11 or otherwise.

 

(b)           Performance Goals.  When
Grants are made under this Section 11, the Committee shall establish in
writing (i) the objective performance goals that must be met,
(ii) the period during which performance will be measured, (iii) the
maximum amounts that may be paid if the performance goals are met, and (iv) any
other conditions 

 

9

 

that the Committee deems
appropriate and consistent with the requirements of section 162(m) of the
Code for “qualified performance-based compensation.” The performance goals
shall satisfy the requirements for “qualified performance-based compensation,”
including the requirement that the achievement of the goals be substantially
uncertain at the time they are established and that the performance goals be
established in such a way that a third party with knowledge of the relevant
facts could determine whether and to what extent the performance goals have
been met. The Committee shall not have discretion to increase the amount of
compensation that is payable, but may reduce the amount of compensation that is
payable, pursuant to Grants identified by the Committee as “qualified
performance-based compensation.”

 

(c)           Criteria Used for Objective
Performance Goals.  The Committee shall use objectively
determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, price-earnings multiples, gross profit, net
earnings, operating earnings, revenue, revenue growth, number of days sales
outstanding in accounts receivable, number of days of cost of sales in
inventory, productivity, margin, EBITDA (earnings before interest, taxes,
depreciation and amortization), net capital employed, return on assets,
shareholder return, return on equity, return on capital employed, growth in
assets, unit volume, sales, cash flow, market share, relative performance to a
comparison group designated by the Committee, debt reduction, market
capitalization or strategic business criteria consisting of one or more
objectives based on meeting specified R&D programs, new product releases,
revenue goals, market penetration goals, customer growth, geographic business
expansion goals, cost targets, quality improvements, cycle time reductions,
manufacturing improvements and/or efficiencies, human resource programs,
customer programs, goals relating to acquisitions or divestitures or goals
relating to FDA or other regulatory approvals. The performance goals may relate
to one or more business units or the performance of the Company as a whole, or
any combination of the foregoing. Performance goals need not be uniform as
among Participants. Performance goals may be set on a pre tax or after tax
basis, may be defined by absolute or relative measures, and may be valued on a
growth or fixed basis.

 

(d)           Timing of Establishment of
Goals.  The Committee shall establish the performance
goals in writing either before the beginning of the performance period or
during a period ending no later than the earlier of (i) 90 days after
the beginning of the performance period or (ii) the date on which 25% of the
performance period has been completed, or such other date as may be required or
permitted under applicable regulations under section 162(m) of the Code.

 

(e)           Certification of Results.  The
Committee shall certify the performance results for the performance period
specified in the Grant Agreement after the performance period ends. The
Committee shall determine the amount, if any, to be paid pursuant to each Grant
based on the achievement of the performance goals and the satisfaction of all
other terms of the Grant Agreement.

 

(f)            Death, Disability or Other
Circumstances.  The Committee may provide in the Grant
Agreement that Grants under this Section 11 shall be payable, in whole or
in part, in the event of the Participant’s death or Disability, a Change of
Control or under other circumstances consistent with the Treasury regulations
and rulings under section 162(m) of the Code.

 

12.          Deferrals

 

The
Committee may permit or require a Participant to defer receipt of the payment
of cash or the delivery of shares that would otherwise be due to the
Participant in connection with any Grant. The Committee shall establish rules
and procedures for any such deferrals, consistent with applicable requirements
of section 409A of the Code.

 

13.          Withholding of Taxes

 

(a)           Required Withholding.  All Grants
under the Plan shall be subject to applicable federal (including FICA), state
and local tax withholding requirements. The Company may require that the
Participant or other person receiving or exercising Grants pay to the Company
the amount of any federal, state or local taxes that the Company is required to
withhold with respect to such Grants, or the Company may deduct from other
wages paid by the Company the amount of any withholding taxes due with respect
to such Grants.

 

10

 

(b)           Election to Withhold Shares.  If the
Committee so permits, a Participant may elect to satisfy the Company’s tax
withholding obligation with respect to Grants paid in Company Stock by having
shares withheld, at the time such Grants become taxable, up to an amount that
does not exceed the minimum applicable withholding tax rate for federal
(including FICA), state and local tax liabilities. The election must be in a
form and manner prescribed by the Committee.

 

14.          Transferability of Grants

 

(a)           Restrictions on Transfer.  Except as
described in subsection (b) below, only the Participant may exercise
rights under a Grant during the Participant’s lifetime, and a Participant may
not transfer those rights except by will or by the laws of descent and
distribution. When a Participant dies, the personal representative or other
person entitled to succeed to the rights of the Participant may exercise such
rights. Any such successor must furnish proof satisfactory to the Company of his
or her right to receive the Grant under the Participant’s will or under the
applicable laws of descent and distribution.

 

(b)           Transfer of Nonqualified Stock
Options to or for Family Members.  Notwithstanding the foregoing, the Committee
may provide, in a Grant Agreement, that a Participant may transfer Nonqualified
Stock Options to family members, or one or more trusts or other entities for
the benefit of or owned by family members, consistent with the applicable
securities laws, according to such terms as the Committee may determine;
provided that the Participant receives no consideration for the transfer of an
Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.

 

15.          Consequences of a Change of Control

 

In the
event of a Change of Control, the Committee may take any one or more of the
following actions with respect to any or all outstanding Grants, without the
consent of any Participant: (i) the Committee may determine that
outstanding Options and SARs shall be fully exercisable, and restrictions on
outstanding Stock Awards and Stock Units shall lapse, as of the date of the
Change of Control or at such other time or subject to specific conditions as
the Committee determines, (ii) the Committee may require that Participants
surrender their outstanding Options and SARs in exchange for one or more
payments by the Company, in cash or Company Stock as determined by the
Committee, in an amount equal to the amount by which the then Fair Market Value
of the shares of Company Stock subject to the Participant’s unexercised Options
and SARs exceeds the Exercise Price, if any, and on such terms as the Committee
determines, (iii) after giving Participants an opportunity to exercise
their outstanding Options and SARs, the Committee may terminate any or all
unexercised Options and SARs at such time as the Committee deems appropriate,
(iv) with respect to Participants holding Stock Units or Other Stock-Based
Awards, the Committee may determine that such Participants shall receive one or
more payments in settlement of such Stock Units or Other Stock-Based Awards, in
such amount and form and on such terms as may be determined by the Committee,
or (v) the Committee may determine that Grants that remain outstanding
after the Change of Control shall be converted to similar grants of the
surviving corporation (or a parent or subsidiary of the surviving corporation).
Such acceleration, surrender, termination, settlement or assumption shall take
place as of the date of the Change of Control or such other date as the
Committee may specify.  Notwithstanding
the foregoing, to the extent required to comply with section 409A of the Code,
a Grant Agreement will include a definition of “Change of Control” that
complies with and falls within the definition of “change in control event” set
forth in section 409A of the Code and any Internal Revenue Service regulations
or other guidance issued thereunder.

 

16.          Requirements for Issuance of Shares

 

No Company
Stock shall be issued in connection with any Grant hereunder unless and until
all legal requirements applicable to the issuance of such Company Stock have
been complied with to the satisfaction of the Committee. The Committee shall
have the right to condition any Grant made to any Participant hereunder on such
Participant’s undertaking in writing to comply with such restrictions on his or
her subsequent disposition of such shares of Company Stock as the Committee
shall deem necessary or advisable, and certificates representing such shares
may be legended to reflect any such restrictions. Certificates representing
shares of Company Stock issued under the Plan 

 

11

 

will be subject to such stop-transfer
orders and other restrictions as may be required by applicable laws,
regulations and interpretations, including any requirement that a legend be
placed thereon. No Participant shall have any right as a shareholder with
respect to Company Stock covered by a Grant until shares have been issued to
the Participant.

 

17.          Amendment and Termination of the Plan

 

(a)           Amendment.  The Board
may amend or terminate the Plan at any time; provided, however, that the Board
shall not amend the Plan without approval of the shareholders of the Company if
such approval is required in order to comply with the Code or applicable laws,
or to comply with applicable stock exchange requirements. No amendment or
termination of this Plan shall, without the consent of the Participant,
materially impair any rights or obligations under any Grant previously made to
the Participant under the Plan, unless such right has been reserved in the Plan
or the Grant Agreement, or except as provided in Section 18(b) below.
Notwithstanding anything in the Plan to the contrary, the Board may amend the
Plan in such manner as it deems appropriate in the event of a change in
applicable law or regulations.

 

(b)           Shareholder Approval for “Qualified
Performance-Based Compensation.”  If Grants are made under Section 11
above, the Plan must be reapproved by the Company’s shareholders no later than
the first shareholders meeting that occurs in the fifth year following the year
in which the shareholders previously approved the provisions of
Section 11, if additional Grants are to be made under Section 11 and
if required by section 162(m) of the Code or the regulations thereunder.

 

(c)           Termination of Plan.  The Plan
shall terminate on the day immediately preceding the tenth anniversary of its
Effective Date, unless the Plan is terminated earlier by the Board or is
extended by the Board with the approval of the shareholders. The termination of
the Plan shall not impair the power and authority of the Committee with respect
to an outstanding Grant.

 

18.          Miscellaneous

 

(a)           Grants in Connection with
Corporate Transactions and Otherwise.  Nothing contained in this Plan
shall be construed to (i) limit the right of the Committee to make Grants
under this Plan in connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business or assets of any corporation, firm
or association, including Grants to employees thereof who become Employees, or
for other proper corporate purposes, or (ii) limit the right of the
Company to grant stock options or make other stock-based awards outside of this
Plan. Without limiting the foregoing, the Committee may make a Grant to an
employee of another corporation who becomes an Employee by reason of a
corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company in substitution for a grant
made by such corporation. The terms and conditions of the Grants may vary from
the terms and conditions required by the Plan and from those of the substituted
stock incentives, as determined by the Committee

 

(b)           Compliance with Law.  The Plan,
the exercise of Options and the obligations of the Company to issue or transfer
shares of Company Stock under Grants shall be subject to all applicable laws
and to approvals by any governmental or regulatory agency as may be required.
With respect to persons subject to section 16 of the Exchange Act, it is
the intent of the Company that the Plan and all transactions under the Plan
comply with all applicable provisions of Rule 16b-3 or its successors
under the Exchange Act. In addition, it is the intent of the Company that
Incentive Stock Options comply with the applicable provisions of
section 422 of the Code, that Grants of “qualified performance-based
compensation” comply with the applicable provisions of section 162(m) of
the Code and that, to the extent applicable, Grants comply with the
requirements of section 409A of the Code. To the extent that any legal
requirement of section 16 of the Exchange Act or section 422, 162(m) or
409A of the Code as set forth in the Plan ceases to be required under
section 16 of the Exchange Act or section 422, 162(m) or 409A of the
Code, that Plan provision shall cease to apply. The Committee may revoke any
Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Committee may also
adopt rules regarding the withholding of taxes on payments to Participants. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.

 

12

 

(c)           Enforceability.  The Plan
shall be binding upon and enforceable against the Company and its successors
and assigns.

 

(d)           Funding of the Plan; Limitation
on Rights.  This Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the payment of any Grants under this
Plan. Nothing contained in the Plan and no action taken pursuant hereto shall
create or be construed to create a fiduciary relationship between the Company
and any Participant or any other person. No Participant or any other person
shall under any circumstances acquire any property interest in any specific
assets of the Company. To the extent that any person acquires a right to
receive payment from the Company hereunder, such right shall be no greater than
the right of any unsecured general creditor of the Company.

 

(e)           Rights of Participants.  Nothing in
this Plan shall entitle any Employee, Non-Employee Director or other person to
any claim or right to receive a Grant under this Plan. Neither this Plan nor
any action taken hereunder shall be construed as giving any individual any
rights to be retained by or in the employment or service of the Employer.

 

(f)            No Fractional Shares.  No
fractional shares of Company Stock shall be issued or delivered pursuant to the
Plan or any Grant. The Committee 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.

 

(g)           Employees Subject to Taxation
Outside the United States.  With respect to Participants who are subject
to taxation in countries other than the United States, the Committee may make
Grants on such terms and conditions as the Committee deems appropriate to
comply with the laws of the applicable countries, and the Committee may create
such procedures, addenda and subplans and make such modifications as may be
necessary or advisable to comply with such laws.

 

(h)           Governing Law.  The
validity, construction, interpretation and effect of the Plan and Grant
Agreements issued under the Plan shall be governed and construed by and
determined in accordance with the laws of the State of Delaware, without giving
effect to the conflict of laws provisions thereof.

 

13

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