Document:

exv10w1

 

EXHIBIT 10.1

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment (the “Amendment”) to the Original Employment Agreement (“Original Agreement”)
entered into January 21, 1998 between Harry J. Ashenhurst (the “Executive”) and Lennox
International Inc. (“Lennox”), a Delaware corporation, and previously amended on July 31, 2000 (the
“Employment Agreement”), is made and entered into on this 20th day of March, 2006
between the Executive and Lennox.

In the event an adverse action occurs on or before August 1, 2008, which shall be limited to a
significant diminution of the Executive’s duties, a failure by Lennox to treat the Executive the
same as other similarly situated senior executives of Lennox in adjusting (upwards or downwards)
his annual rate of base salary, a change in the types of the Executive’s duties that adversely
affects more than 10% of his normal duties, Lennox’s non-renewal of the Employment Agreement for
annual periods through December 31, 2008, and / or assignment to the Executive of duties that
significantly diminishes the status of his position during the term of this Amendment , but
excluding a diminution, failure, change, non-renewal by Executive and/or assignment that is due to
the Executive’s death, permanent disability, voluntary resignation as described in Section 3(a) of
the Employment Agreement (including the Executive’s non-renewal of the Employment Agreement), or
termination for Cause as described in Section 3(c) of the Employment Agreement. Lennox agrees to
the following, in addition to those provisions specified in the Employment Agreement, except as
outlined below:

	1.	 	Executive will remain as an employee of Lennox through July 31, 2008 for purposes of
receiving all cash compensation, employee and executive benefits, and participating in the
Performance Share Program, and receiving stock options, stock appreciation rights and
restricted stock awards, and participating in any other short- and/or long-term incentive
program in effect for Lennox executives at the time of the adverse action, as well as in any
new plans or amendments applied to similarly situated senior executives through July 31, 2008.
	 
	2.	 	Executive will receive his annual base salary and target annual incentive award(s) through
July 31, 2008, with the base salary amounts provided in 2008 based on seven months of
employment during the year, and with the incentive award for 2008 determined according to the
provisions of the annual incentive plan.
	 
	3.	 	Executive will continue to participate in the Performance Share Program, receive stock
options and stock appreciation rights, and receive restricted stock awards, as well as be
eligible to participate in any new or amended equity plans applied to similarly situated
senior executives with the actual awards received to be equivalent in relative terms to those
provided to other similarly situated senior executives at Lennox through July 31, 2008.

 

 

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	4.	 	The remaining terms of the Employment Agreement, as amended by this Amendment, shall continue
in effect through December 31, 2008, including specifically the annual notice of renewal or
nonrenewal requirements of the Employment Agreement for Calendar year 2009.
	 
	5.	 	Lennox’s agreement to the provisions described above shall be subject to and contingent upon
the Executive’s execution of a full release of any and all claims, known or unknown, in a form
acceptable to Lennox in return for the benefits granted under this Amendment in lieu of, and
thereby including the release of any claim to, the Normal or Enhanced Severance Benefits
outlined in Exhibit C to the Employment Agreement at any time thereafter. The Executive
recognizes the adequacy of the consideration for such release.

All of the above provisions will continue to be governed by the standard Lennox program and plan
policies and procedures in effect during the Executive’s employment, and the terms of this
Amendment shall be interpreted broadly and in favor of being in compliance with such programs and
plans, subject to their terms, conditions and any broadly applied amendment.

Notwithstanding any other provision of the Employment Agreement as amended by this Amendment, the
parties shall, in good faith, amend the Employment Agreement as amended to the limited extent
necessary to comply with the requirements under Section 409A of the Internal Revenue Code of 1986,
as amended, in order to ensure that any amounts paid or payable under the Employment Agreement as
amended are not subject to the additional 20% income tax there under (including, without
limitation, any amendment instituting a six-month waiting period before a distribution upon
separation from service, if required) while maintaining to the maximum extent practicable the
original intent of the Employment Agreement as amended.

Accepted and agreed this 20th day of March, 2006

	 	 	 
	 

	 	Company:
	 

	 	Lennox International Inc.
	 

	 	By:
	 
	 	 
	 

	 	/s/ James J. Byrne
	 

	 	 
	 

	 	James J. Byrne
	 

	 	Chairman — Compensation and Human Resources Committee of the LII BOD
	 
	 	 
	 

	 	Executive:
	 
	 	 
	 

	 	/s/ Harry J. Ashenhurst
	 

	 	 
	 

	 	Harry J. Ashenhurst
	 

	 	Executive Vice President and Chief Administrative Officer of Lennox International Inc.exv10w2

 

Exhibit 10.2

ARADIGM CORPORATION

2005 Equity Incentive Plan

Adopted: March 21, 2005

Approved By Shareholders: May 19, 2005

Termination Date: March 20, 2015

Amended by Board (including
to reflect January 2006 1-for-5 reverse stock split): March 30, 2006

Amendment Approved by Shareholders: May 18, 2006

Amended: August 8, 2006

1.   General.

     (a)  Amendment and Restatement. The Plan is a complete amendment and restatement of the
Company’s 1996 Equity Incentive Plan that was previously adopted in April 1996 (as thereafter
amended, the “Prior Plan"). All outstanding awards granted under the Prior Plan shall remain
subject to the terms of the Prior Plan. All Stock Awards granted on or after the effective date of
this Plan shall be subject to the terms of this Plan.

     (b)  Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are
Employees, Directors and Consultants.

     (c)  Available Stock Awards. The Plan provides for the grant of the following Stock Awards:
(i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Purchase Awards, (iv)
Stock Bonus Awards, (v) Stock Appreciation Rights, (vi) Stock Unit Awards and (vii) Other Stock
Awards.

     (d)   General Purpose. The Company, by means of the Plan, seeks to secure and retain the
services of the group of persons eligible to receive Stock Awards as set forth in Section 1(a), to
provide incentives for such persons to exert maximum efforts for the success of the Company and any
Affiliate and to provide a means by which such eligible recipients may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of Stock Awards.

2.   Definitions.

     As used in the Plan, the following definitions shall apply to the capitalized terms indicated
below:

     (a)   “Affiliate” means (i) any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each corporation in the unbroken chain (other than
the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other corporations in such
chain, and (ii) any corporation (other than the Company) in an

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unbroken chain of corporations beginning with the Company, provided each corporation (other
than the last corporation) in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. The Board shall have the authority to determine
(i) the time or times at which the ownership tests are applied, and (ii) whether “Affiliate”
includes entities other than corporations within the foregoing definition.

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

     (c)   “Capitalization Adjustment” has the meaning ascribed to that term in Section 11(a).

     (d)   “Cause” means, with respect to a Participant, the occurrence of any of the following: (i)
such Participant’s commission of any felony or any crime involving fraud, dishonesty or moral
turpitude under the laws of the United States or any state thereof; (ii) such Participant’s
attempted commission of, or participation in, a fraud or act of dishonesty against the Company;
(iii) such Participant’s intentional, material violation of any material contract or agreement
between the Participant and the Company or any statutory duty owed to the Company; (iv) such
Participant’s unauthorized use or disclosure of the Company’s confidential information or trade
secrets; or (v) such Participant’s gross misconduct. The determination that a termination is for
Cause shall be made by the Company in its sole discretion. Any determination by the Company that
the Continuous Service of a Participant was terminated by reason of dismissal without Cause for the
purposes of outstanding Stock Awards held by such Participant shall have no effect upon any
determination of the rights or obligations of the Company or such Participant for any other
purpose.

     (e)   “Change in Control” means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:

          (i)   any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power of the Company’s
then outstanding securities other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of
the acquisition of securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person from the Company in a transaction or series of related transactions the primary
purpose of which is to obtain financing for the Company through the issuance of equity securities
or (B) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”)
exceeds the designated percentage threshold of the outstanding voting securities as a result of a
repurchase or other acquisition of voting securities by the Company reducing the number of shares
outstanding, provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting securities that,
assuming the repurchase or other acquisition had not occurred, increases the percentage of the then
outstanding voting securities Owned by the Subject Person over the designated percentage threshold,
then a Change in Control shall be deemed to occur;

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          (ii)   there is consummated a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such merger, consolidation or
similar transaction, the shareholders of the Company immediately prior thereto do not Own, directly
or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%)
of the combined outstanding voting power of the surviving Entity in such merger, consolidation or
similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power
of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each
case in substantially the same proportions as their Ownership of the outstanding voting securities
of the Company immediately prior to such transaction;

          (iii)   the shareholders of the Company approve or the Board approves a plan of complete
dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company
shall otherwise occur;

          (iv)   there is consummated a sale, lease, exclusive license or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries, other than a
sale, lease, license or other disposition of all or substantially all of the consolidated assets of
the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting
power of the voting securities of which are Owned by shareholders of the Company in substantially
the same proportions as their Ownership of the outstanding voting securities of the Company
immediately prior to such sale, lease, license or other disposition; or

          (v)   individuals who, on the date this Plan is adopted by the Board, are members of the Board
(the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of
the Board; provided, however, that if the appointment or election (or nomination for election) of
any new Board member was approved or recommended by a majority vote of the members of the Incumbent
Board then still in office, such new member shall, for purposes of this Plan, be considered as a
member of the Incumbent Board.

     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 or any
Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards
subject to such agreement; provided, 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.

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

     (g)   “Committee” means a committee of one (1) or more members of the Board to whom authority
has been delegated by the Board in accordance with Section 3(c).

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

     (i)   “Company” means Aradigm Corporation, a California corporation.

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     (j)   “Consultant” means any person, including an advisor, who is (i) engaged by the Company or
an Affiliate to render consulting or advisory services and is compensated for such services or (ii)
serving as a member of the Board of Directors of an Affiliate and is compensated for such services.
However, service solely as a Director, or payment of a fee for such service, shall not cause a
Director to be considered a “Consultant” for purposes of the Plan.

     (k)   “Continuous Service” means that the Participant’s service with the Company or an
Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A
change in the capacity in which the Participant renders service to the Company or an Affiliate as
an Employee, Consultant or Director or a change in the entity for which the Participant renders
such service, provided that there is no interruption or termination of the Participant’s service
with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service. For
example, a change in status from an employee of the Company to a consultant to an Affiliate or to a
Director shall not constitute an interruption of Continuous Service. To the extent permitted by
law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any other personal leave.
Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for
purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave
of absence policy or in the written terms of the Participant’s leave of absence.

     (l)   “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:

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

          (ii)   a sale or other disposition of at least ninety percent (90%) of the outstanding
securities of the Company;

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

          (iv)   the consummation of a merger, consolidation or similar transaction following which the
Company is the surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of
the merger, consolidation or similar transaction into other property, whether in the form of
securities, cash or otherwise.

     (m)   “Covered Employee” means the chief executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation is required to be reported to
shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

     (n)   “Director” means a member of the Board.

     (o)   “Disability” means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code; provided, however, that to the extent that Section

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260.140.41 of Title 10 of the California Code of Regulations applies to an Option,
“Disability” shall mean the inability of a person, in the opinion of a qualified physician
acceptable to the Company, to perform the major duties of that person’s position with the Company
or an Affiliate because of the sickness or injury of the person and such inability results in
termination of employment by the Company or an Affiliate.

     (p)   “Employee” means any person employed by the Company or an Affiliate. However, service
solely as a Director, or payment of a fee for such services, shall not cause a Director to be
considered an “Employee” for purposes of the Plan.

     (q)   “Entity” means a corporation, partnership or other entity.

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

     (s)   “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include
(i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or
any Subsidiary of the Company or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned,
directly or indirectly, by the shareholders of the Company in substantially the same proportions as
their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the
meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the effective date of the Plan
as set forth in Section 14, is the Owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the Company’s then
outstanding securities.

     (t)   “Fair Market Value” means, as of any date, the value of the Common Stock determined as
follows and in each case in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations:

          (i)   If the Common Stock is listed on any established stock exchange or traded on the Nasdaq
National Market, the Nasdaq SmallCap Market, the pink sheets or the Over The Counter Bulletin Board
System, the Fair Market Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such exchange, market or system
(or the exchange, market or system with the greatest volume of trading in the Common Stock) on the
date in question, as reported in The Wall Street Journal or such other source as the Board deems
reliable. Unless otherwise provided by the Board, if there is no closing sales price (or closing
bid if no sales were reported) for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price (or closing bid if no sales were reported) on the last
preceding date for which such quotation exists.

          (ii)   In the absence of an established market or system for the Common Stock, the Fair Market
Value shall be determined by the Board in good faith.

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

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     (v)   “Non-Employee Director” means a Director who either (i) is not a current employee or
officer of the Company or an Affiliate, does not receive compensation, either directly or
indirectly, from the Company or an Affiliate for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged in a business
relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or
(ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

     (w)   “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock
Option.

     (x)   “Officer” means a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.

     (y)   “Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares
of Common Stock granted pursuant to the Plan.

     (z)   “Option Agreement” means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to
the terms and conditions of the Plan.

     (aa)   “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.

     (bb)   “Other Stock Award” means an award based in whole or in part by reference to the Common
Stock which is granted pursuant to the terms and conditions of Section 7(e).

     (cc)   “Other Stock Award Agreement” means a written agreement between the Company and a holder
of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each
Other Stock Award Agreement shall be subject to the terms and conditions of the Plan.

     (dd)   “Outside Director” means a Director who either (i) is not a current employee of the
Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated
corporation” who receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or
an “affiliated corporation,” and does not receive remuneration from the Company or an “affiliated
corporation,” either directly or indirectly, in any capacity other than as a Director, or (ii) is
otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

     (ee)   “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to
have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or
Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power, which includes the power to vote or to direct the voting,
with respect to such securities.

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     (ff)   “Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.

     (gg)   “Performance Criteria” means the one or more criteria that the Board shall select for
purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria
that shall be used to establish such Performance Goals may be based on any one of, or combination
of, the following: (i) earnings per share; (ii) earnings before interest, taxes and depreciation;
(iii) earnings before interest, taxes, depreciation and amortization (EBITDA); (iv) net earnings;
(v) total shareholder return; (vi) return on equity; (vii) return on assets, investment or capital
employed; (viii) operating margin; (ix) gross margin; (x) operating income; (xi) net income (before
or after taxes); (xii) net operating income; (xiii) net operating income after tax; (xiv) pre- and
after-tax income; (xv) pre-tax profit; (xvi) operating cash flow; (xvii) sales or revenue targets;
(xviii) increases in revenue or product revenue; (xix) expenses and cost reduction goals; (xx)
improvement in or attainment of expense levels; (xxi) improvement in or attainment of working
capital levels; (xxii) economic value added (or an equivalent metric); (xxiii) market share; (xxiv)
cash flow; (xxv) cash flow per share; (xxvi) share price performance; (xxvii) debt reduction;
(xxviii) implementation or completion of projects or processes; (xxix) customer satisfaction; (xxx)
total shareholder return; (xxxi) shareholders’ equity; and (xxxii) other measures of performance
selected by the Board. Partial achievement of the specified criteria may result in the payment or
vesting corresponding to the degree of achievement as specified in the Stock Award Agreement. The
Board shall, in its sole discretion, define the manner of calculating the Performance Criteria it
selects to use for such Performance Period.

     (hh)   “Performance Goals” means, for a Performance Period, the one or more goals established by
the Board for the Performance Period based upon the Performance Criteria. The Board is authorized
at any time in its sole discretion, to adjust or modify the calculation of a Performance Goal for
such Performance Period in order to prevent the dilution or enlargement of the rights of
Participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event or development; (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial statements of the Company,
or in response to, or in anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions; or (c) in view of the Board’s assessment of the business
strategy of the Company, performance of comparable organizations, economic and business conditions,
and any other circumstances deemed relevant. Specifically, the Board is authorized to make
adjustment in the method of calculating attainment of Performance Goals and objectives for a
Performance Period as follows: (i) to exclude the dilutive effects of acquisitions or joint
ventures; (ii) to assume that any business divested by the Company achieved performance objectives
at targeted levels during the balance of a Performance Period following such divestiture; and (iii)
to exclude the effect of any change in the outstanding shares of common stock of the Company by
reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other similar corporate change, or
any distributions to common shareholders other than regular cash dividends. In addition, the Board
is authorized to make adjustment in the method of calculating attainment of Performance Goals and
objectives for a Performance Period as follows: (i) to exclude restructuring and/or other
nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar
denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally
accepted accounting standards required by the

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Financial Accounting Standards Board; (iv) to exclude the effects to any statutory adjustments
to corporate tax rates; (v) to exclude the impact of any “extraordinary items” as determined under
generally accepted accounting principles; and (vi) to exclude any other unusual, non-recurring gain
or loss or other extraordinary item.

     (ii)   “Performance Period” means the one or more periods of time, which may be of varying and
overlapping durations, as the Board may select, over which the attainment of one or more
Performance Goals will be measured for the purpose of determining a Participant’s right to and the
payment of a Stock Award.

     (jj)   “Plan” means this Aradigm Corporation 2005 Equity Incentive Plan.

     (kk)   “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.

     (ll)   “Securities Act” means the Securities Act of 1933, as amended.

     (mm)   “Stock Appreciation Right” means a right to receive the appreciation on Common Stock that
is granted pursuant to the terms and conditions of Section 7(d).

     (nn)   “Stock Appreciation Right Agreement” means a written agreement between the Company and a
holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation
Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions
of the Plan.

     (oo)   “Stock Award” means any right granted under the Plan, including an Option, a Stock
Purchase Award, Stock Bonus Award, a Stock Appreciation Right, a Stock Unit Award or any Other
Stock Award.

     (pp)   “Stock Award Agreement” means a written agreement between the Company and a Participant
evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.

     (qq)   “Stock Bonus Award” means an award of shares of Common Stock which is granted pursuant to
the terms and conditions of Section 7(b).

     (rr)   “Stock Bonus Award Agreement” means a written agreement between the Company and a holder
of a Stock Bonus Award evidencing the terms and conditions of a Stock Bonus Award grant. Each
Stock Bonus Award Agreement shall be subject to the terms and conditions of the Plan.

     (ss)   “Stock Purchase Award” means an award of shares of Common Stock which is granted pursuant
to the terms and conditions of Section 7(a).

     (tt)   “Stock Purchase Award Agreement” means a written agreement between the Company and a
holder of a Stock Purchase Award evidencing the terms and conditions of a Stock Purchase Award
grant. Each Stock Purchase Award Agreement shall be subject to the terms and conditions of the
Plan.

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     (uu)   “Stock Unit Award” means a right to receive shares of Common Stock which is granted
pursuant to the terms and conditions of Section 7(c).

     (vv)   “Stock Unit Award Agreement” means a written agreement between the Company and a holder
of a Stock Unit Award evidencing the terms and conditions of a Stock Unit Award grant. Each Stock
Unit Award Agreement shall be subject to the terms and conditions of the Plan.

     (ww)   “Subsidiary” means, with respect to the Company, (i) any corporation of which more than
fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether, at the time, stock
of any other class or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company,
and (ii) any partnership in which the Company has a direct or indirect interest (whether in the
form of voting or participation in profits or capital contribution) of more than fifty percent
(50%).

     (xx)   “Ten Percent Shareholder” means either (i) a person who Owns (or is deemed to Own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Affiliate or (ii) a person who
Owns securities possessing more than 10% of the total combined voting power (as defined in Section
194.5 of the California Corporation Code) of all classes of securities of the issuer or its parent
or subsidiaries possessing voting power.

3.  Administration.

     (a)   Administration by Board. The Board shall administer the Plan unless and until the Board
delegates administration of the Plan 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 (1) which of the persons eligible under the Plan shall be
granted Stock Awards; (2) when and how each Stock Award shall be granted; (3) what type or
combination of types of Stock Award shall be granted; (4) the provisions of each Stock Award
granted (which need not be identical), including the time or times when a person shall be permitted
to receive Common Stock pursuant to a Stock Award; and (5) the number of shares of Common Stock
with respect to which a Stock Award shall be granted to each such person.

          (ii)   To construe and interpret the Plan and Stock 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 amend the Plan or a Stock Award as provided in Section 12.

9

 

          (iv)   To terminate or suspend the Plan as provided in Section 13.

          (v)   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.

          (vi)   To adopt such procedures and sub-plans as are necessary or appropriate to permit
participation in the Plan by Employees who are foreign nationals or employed outside the United
States.

     (c)   Delegation to Committee.

          (i)   General. The Board may delegate some or all of the administration of the Plan to a
Committee or Committees. 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
that have been delegated to the Committee, 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 retain the authority to concurrently administer the Plan with the
Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

          (ii)   Section 162(m) and Rule 16b-3 Compliance. In the sole 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, in its sole discretion, may (1) delegate to a committee of
one or more members of the Board who need not be Outside Directors the authority to grant Stock
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 Stock Award or (b) not
persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, and/or
(2) delegate to a committee of one or more members of the Board who need not be Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act.

     (d)   Delegation to an Officer. The Board may delegate to one or more Officers of the Company
the authority to do one or both of the following (i) designate Officers and Employees of the
Company or any of its Subsidiaries to be recipients of Stock Awards and the terms thereof, and (ii)
determine the number of shares of Common Stock to be subject to such Stock Awards granted to such
Officers and Employees of the Company; provided, however, that the Board resolutions regarding such
delegation shall specify the total number of shares of Common Stock that may be subject to the
Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself
or herself. Notwithstanding anything to the contrary in this Section 3(d), the Board may not
delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to
Section 2(t)(ii) above.

10

 

     (e)   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.

     (f)   Cancellation and Re-Grant of Stock Awards. Neither the Board nor any Committee shall have
the authority to: (i) reprice any outstanding Stock Awards under the Plan, or (ii) cancel and
re-grant any outstanding Stock Awards under the Plan, unless the shareholders of the Company have
approved such an action within twelve (12) months prior to such an event.

4.   Shares Subject to the Plan.

     (a)   Share Reserve. Subject to the provisions of Section 11(a) relating to Capitalization
Adjustments and subsection 4(d) below, the number of shares of Common Stock that may be issued
pursuant to Stock Awards shall not exceed, in the aggregate, four million six hundred thirty-seven
thousand five hundred twenty-seven (4,637,527) shares of Common Stock (including shares underlying
Stock Awards issued pursuant to the Prior Plan).

     (b)   Reversion of Shares to the Share Reserve. Any shares of Common Stock subject to
outstanding awards granted under the Prior Plan that would otherwise have reverted to the share
reserve of the Prior Plan shall revert to and again become available for issuance under this Plan.
If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to
a Stock Award are forfeited to or repurchased by the Company, including, but not limited to, any
repurchase or forfeiture caused by the failure to meet a contingency or condition required for the
vesting of such shares, then the shares of Common Stock not issued under such Stock Award, or
forfeited to or repurchased by the Company, shall revert to and again become available for issuance
under the Plan. If any shares subject to a Stock Award are not delivered to a Participant because
such shares are withheld for the payment of taxes, the number of shares that are not delivered to
the Participant shall remain available for issuance under the Plan. If the exercise price of any
Stock Award is satisfied by tendering shares of Common Stock held by the Participant (either by
actual delivery or attestation), then the number of shares so tendered shall remain available for
issuance under the Plan. Notwithstanding anything to the contrary in this Section 4(b), subject to
the provisions of Section 11(a) relating to Capitalization Adjustments the aggregate maximum number
of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options
shall be four million six hundred thirty-seven thousand five hundred twenty-seven (4,637,527)
shares of Common Stock plus the amount of any increase in the number of shares that may be
available for issuance pursuant to Stock Awards pursuant to Section 4(a).

     (c)   Source of Shares. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the Company on the open
market.

     (d)   Reserve Limitation. Notwithstanding Section 4(a), if at the time of each grant of a Stock
Award under the Plan, the Company is subject to Section 260.140.45 of Title 10 of the California
Code of Regulations (“Section 260.140.45”), and to the extent required by Section 260.140.45 the
total number of securities issuable upon exercise of all outstanding options of the

11

 

Company and the total number of shares provided for under this Plan or any other equity
incentive, stock bonus or similar plan or agreement of the Company shall not exceed thirty percent
(30%) of the then outstanding capital stock of the Company (as measured as set forth in Section
260.140.45), unless stockholder approval to exceed thirty percent (30%) has been obtained in
compliance with Section 260.140.45, in which case the limit shall be such higher percentage as
approved by the stockholders.

5.   Eligibility.

     (a)   Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to
Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors
and Consultants.

     (b)   Ten Percent Shareholders.

          (i)   So long as the Company is subject to Section 260.140.41 of Title 10 of the California Code
of Regulations, no Ten Percent Shareholder shall be eligible for the grant of a Nonstatutory Stock
Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant; provided, however, that a Nonstatutory
Stock Option may be granted at a lower exercise price and a longer term if a lower percentage of
the Fair Market Value of the Common Stock on the date of grant and a longer term is permitted by
Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of
the Nonstatutory Stock Option.

          (ii)   A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the
exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock on the date of grant and the Option is not exercisable after the expiration of
five (5) years from the date of grant.

          (iii)   So long as the Company is subject to Section 260.140.42 of Title 10 of the California
Code of Regulations, a Ten Percent Shareholder shall not be granted a Stock Purchase Award unless
the purchase price of the restricted stock is at least (A) one hundred percent (100%) of the Fair
Market Value of the Common Stock on the date of grant or (B) such lower percentage of the Fair
Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.42 of
Title 10 of the California Code of Regulations at the time of the grant of the Stock Purchase
Award.

          (iv)   So long as the Company is subject to Section 260.140.42 of Title 10 of the California
Code of Regulations, a Ten Percent Shareholder shall not be granted a Stock Appreciation Right
unless the strike price is at least (A) one hundred percent (100%) of the Fair Market Value of the
Common Stock on the date of grant or (B) such lower percentage of the Fair Market Value of the
Common Stock on the date of grant as is permitted by Section 260.140.42 of Title 10 of the
California Code of Regulations at the time of the grant of the Stock Appreciation Award.

     (c)   Section 162(m) Limitation on Annual Grants. Subject to the provisions of Section 11(a)
relating to Capitalization Adjustments, at such time as the Company may be

12

 

subject to the applicable provisions of Section 162(m) of the Code, no Employee shall be
eligible to be granted Stock Awards whose value is determined by reference to an increase over an
exercise or strike price of at least one hundred percent (100%) of the Fair Market Value of the
Common Stock on the date the Stock Award is granted covering more than five hundred thousand
(500,000) shares of Common Stock during any calendar year.

     (d)   Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the
time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8") is not
available to register either the offer or the sale of the Company’s securities to such Consultant
because of the nature of the services that the Consultant is providing to the Company, because the
Consultant is not a natural person, or because of any other rule governing the use of Form S-8.

6.   Option Provisions.

     Each Option shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate
certificate or certificates shall be issued for shares of Common Stock purchased on exercise of
each type of Option. The provisions of separate Options need not be identical; provided, however,
that each Option Agreement shall include (through incorporation of provisions hereof by reference
in the Option or otherwise) the substance of each of the following provisions:

     (a)   Term. The Board shall determine the term of an Option; provided, however, that subject
to the provisions of Section 5(b) regarding Ten Percent Shareholders, no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years from the date of grant; provided
further, to the extent that the Company is subject to Section 260.140.41(c) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, no Option shall be
exercisable after the expiration of ten (10) years from the date of grant.

     (b)   Exercise Price of an Incentive Stock Option. Subject to the provisions of Section 5(b)
regarding Ten Percent Shareholders, the exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option in a manner
consistent with the provisions of Section 424(a) of the Code.

     (c)   Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of Section 5(b)
regarding Ten Percent Shareholders, the exercise price of each Nonstatutory Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to
the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or

13

 

substitution for another option in a manner consistent with the provisions of Section 424(a)
of the Code.

     (d)   Consideration. The purchase price of Common Stock acquired pursuant to the exercise of an
Option shall be paid, to the extent permitted by applicable law and as determined by the Board in
its sole discretion, by any combination of the methods of payment set forth below. The Board shall
have the authority to grant Options that do not permit all of the following methods of payment (or
otherwise restrict the ability to use certain methods) and to grant Options that require the
consent of the Company to utilize a particular method of payment. The methods of payment permitted
by this Section 6(d) are:

          (i)   by cash or check;

          (ii)   pursuant to a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check)
by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;

          (iii)   by delivery to the Company (either by actual delivery or attestation) of shares of
Common Stock;

          (iv)   according to a deferred payment or similar arrangement with the Optionholder; provided,
however, that interest shall compound at least annually and shall be charged at the minimum rate of
interest necessary to avoid (i) the imputation of interest income to the Company and compensation
income to the Optionholder under any applicable provisions of the Code and (ii) the treatment of
the Option as a variable award for financial accounting purposes; or

          (v)   in any other form of legal consideration that may be acceptable to the Board.

     (e)   Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing,
(i) an Option may be transferred pursuant to a domestic relations order and (ii) the Optionholder
may, by delivering written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.

     (f)   Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall be
transferable to the extent provided in the Option Agreement; provided, however, to the extent that
the Company is subject to Section 260.140.41(d) of Title 10 of the California Code of Regulations
at the time of the grant of the Nonstatutory Stock Option, the Nonstatutory Stock Option shall not
be transferable except by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. If the Nonstatutory Stock Option
does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder.

14

 

Notwithstanding the foregoing, (i) an Option may be transferred pursuant to a domestic
relations order and (ii) the Optionholder may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

     (g)   Vesting Generally. The total number of shares of Common Stock subject to an Option may
vest and therefore become exercisable in periodic installments that may or may not be equal. The
Option may be subject to such other terms and conditions on the time or times when it may or may
not be exercised (which may be based on performance or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may vary. The provisions of this
Section 6(g) are subject to any Option provisions governing the minimum number of shares of Common
Stock as to which an Option may be exercised. Notwithstanding the foregoing, to the extent that
the Company is subject to the restrictions on vesting under Section 260.140.41(f) of Title 10 of
the California Code of Regulations at the time of the grant of the Option, an Option granted to an
Employee who is not an officer, manager or Director on the date of grant shall provide for vesting
and exercisability of the total number of shares of Common Stock at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted, subject to
reasonable conditions such as continued employment.

     (h)   Termination of Continuous Service. In the event that an Optionholder’s Continuous Service
terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise
his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of
the date of termination of Continuous Service) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous
Service (or such longer or shorter period specified in the Option Agreement, which period, for so
long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of
Regulations, shall not be less than thirty (30) days unless such termination is for Cause) or (ii)
the expiration of the term of the Option as set forth in the Option Agreement. If, after
termination of Continuous Service, the Optionholder does not exercise his or her Option within the
time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

     (i)   Extension of Termination Date. An Optionholder’s Option Agreement may provide that if the
exercise of the Option following the termination of the Optionholder’s Continuous Service (other
than upon the Optionholder’s death or Disability or upon a Change in Control) would be prohibited
at any time solely because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of a period of three (3) months after the termination of the Optionholder’s Continuous
Service during which the exercise of the Option would not be in violation of such registration
requirements or (ii) the expiration of the term of the Option as set forth in the Option Agreement.

     (j)   Disability of Optionholder. In the event that an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of
termination of Continuous Service), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination of Continuous Service (or

15

 

such longer or shorter period specified in the Option Agreement, which period, for so long as
the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations,
shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does
not exercise his or her Option within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.

     (k)   Death of Optionholder. In the event that (i) an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period
(if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous
Service for a reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s
estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionholder’s death, but only within the period
ending on the earlier of (i) the date eighteen (18) months following the date of death (or such
longer or shorter period specified in the Option Agreement, which period, for so long as the
Company is subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations,
shall not be less than six (6) months) or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, after the Optionholder’s death, the Option is not exercised
within the time specified herein or in the Option Agreement (as applicable), the Option shall
terminate.

     (l)   Early Exercise. The Option may include a provision whereby the Optionholder may elect at
any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the full vesting of the
Option. Subject to the “Repurchase Limitation” of Section 10(j) (for so long as the Company is
subject to Sections 260.140.41 of Title 10 of the California Code of Regulations), any unvested
shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company
or to any other restriction the Board determines to be appropriate. The Company shall not be
required to exercise its repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically provides in the
Option.

7.   Provisions of Stock Awards other than Options.

     (a)   Stock Purchase Awards. Each Stock Purchase Award Agreement shall be in such form and
shall contain such terms and conditions as the Board shall deem appropriate. At the Board’s
election, shares of Common Stock may be (i) held in book entry form subject to the Company’s
instructions until any restrictions relating to the Stock Purchase Award lapse or (ii) evidenced by
a certificate, which certificate shall be held in such form and manner as determined by the Board.
The terms and conditions of Stock Purchase Award Agreements may change from time to time, and the
terms and conditions of separate Stock Purchase Award Agreements need not be identical, provided,
however, that each Stock Purchase Award Agreement shall include (through incorporation of the
provisions hereof by reference in the agreement or otherwise) the substance of each of the
following provisions:

16

 

          (i)   Purchase Price. Subject to the provisions of Section 5(b) regarding Ten Percent
Shareholders, at the time of the grant of a Stock Purchase Award, the Board will determine the
price to be paid by the Participant for each share subject to the Stock Purchase Award. To the
extent required by applicable law, the price to be paid by the Participant for each share of the
Stock Purchase Award will not be less than the par value of a share of Common Stock; provided,
however, to the extent that the Company is subject to Section 260.140.42(b) of Title 10 of the
California Code of Regulations at the time of the grant of the Stock Purchase Award, the purchase
price of the Stock Purchase Award shall be at least (A) eighty five percent (85%) of the Fair
Market Value of the Common Stock on the date of grant or (B) such lower percentage of the Fair
Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.42 of
Title 10 of the California Code of Regulations at the time of the grant of the Stock Purchase
Award.

          (ii)   Consideration. At the time of the grant of a Stock Purchase Award, the Board will
determine the consideration permissible for the payment of the purchase price of the Stock Purchase
Award. The purchase price of Common Stock acquired pursuant to the Stock Purchase Award shall be
paid either: (A) in cash or by check at the time of purchase, (B) at the discretion of the Board,
according to a deferred payment or other similar arrangement with the Participant, (C) by past
services rendered to the Company or (D) in any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable law.

          (iii)   Vesting. Subject to Section 10(j), shares of Common Stock acquired under a Stock
Purchase Award may be subject to a share repurchase right or option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.

          (iv)   Termination of Participant’s Continuous Service. Subject to Section 10(j), in the event
that a Participant’s Continuous Service terminates, the Company shall have the right, but not the
obligation, to repurchase or otherwise reacquire, any or all of the shares of Common Stock held by
the Participant that have not vested as of the date of termination under the terms of the Stock
Purchase Award Agreement. The Company shall not be required to exercise its repurchase or
reacquisition option until at least six (6) months (or such longer or shorter period of time
necessary to avoid a charge to earnings for financial accounting purposes) have elapsed following
the Participant’s purchase of the shares of stock acquired pursuant to the Stock Purchase Award
unless otherwise determined by the Board or provided in the Stock Purchase Award Agreement.

          (v)   Transferability. Rights to purchase or receive shares of Common Stock under a Stock
Purchase Award shall be transferable by the Participant only upon such terms and conditions as are
set forth in the Stock Purchase Award Agreement, as the Board shall determine in its sole
discretion, and so long as Common Stock awarded under the Stock Purchase Award remains subject to
the terms of the Stock Purchase Award Agreement; provided, however, to the extent that the Company
is subject to Section 260.140.42(c) of Title 10 of the California Code of Regulations at the time
of the grant of the Stock Purchase Award, the right to purchase or receive shares of Common Stock
under the Stock Purchase Award shall not be transferable except by will or by the laws of descent
and distribution.

17

 

     (b)   Stock Bonus Awards. Each Stock Bonus Award Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. At the Board’s election,
shares of Common Stock may be (i) held in book entry form subject to the Company’s instructions
until any restrictions relating to the Stock Bonus Award lapse or (ii) evidenced by a certificate,
which certificate shall be held in such form and manner as determined by the Board. The terms and
conditions of Stock Bonus Award Agreements may change from time to time, and the terms and
conditions of separate Stock Bonus Award Agreements need not be identical, provided, however, that
each Stock Bonus Award Agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the following provisions:

          (i)   Consideration. A Stock Bonus Award may be awarded in consideration for (A) past services
actually rendered to the Company or an Affiliate, or (B) any other form of legal consideration that
may be acceptable to the Board in its sole discretion and permissible under applicable law.

          (ii)   Vesting. Subject to Section 10(j), shares of Common Stock awarded under the Stock Bonus
Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule
to be determined by the Board.

          (iii)   Termination of Participant’s Continuous Service. Subject to Section 10(j), in the event
a Participant’s Continuous Service terminates, the Company may receive via a forfeiture condition,
any or all of the shares of Common Stock held by the Participant which have not vested as of the
date of termination of Continuous Service under the terms of the Stock Bonus Award Agreement.

          (iv)   Transferability. Rights to acquire shares of Common Stock under the Stock Bonus Award
Agreement shall be transferable by the Participant only upon such terms and conditions as are set
forth in the Stock Bonus Award Agreement, as the Board shall determine in its sole discretion, so
long as Common Stock awarded under the Stock Bonus Award Agreement remains subject to the terms of
the Stock Bonus Award Agreement; provided, however, to the extent that the Company is subject to
Section 260.140.42(c) of Title 10 of the California Code of Regulations at the time of the grant of
the Stock Bonus Award, the right to acquire shares of Common Stock under the Stock Bonus Award
shall not be transferable except by will or by the laws of descent and distribution.

     (c)   Stock Unit Awards. Each Stock Unit Award Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of
Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate
Stock Unit Award Agreements need not be identical, provided, however, that each Stock Unit Award
Agreement shall include (through incorporation of the provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:

          (i)   Consideration. At the time of grant of a Stock Unit Award, the Board will determine the
consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock
subject to the Stock Unit Award. The consideration to be paid (if any) by the

18

 

Participant for each share of Common Stock subject to a Stock Unit Award may be paid in any
form of legal consideration that may be acceptable to the Board in its sole discretion and
permissible under applicable law.

          (ii)   Vesting. Subject to Section 10(j), at the time of the grant of a Stock Unit Award, the
Board may impose such restrictions or conditions to the vesting of the Stock Unit Award as it, in
its sole discretion, deems appropriate.

          (iii)   Payment. A Stock Unit Award may be settled by the delivery of shares of Common Stock,
their cash equivalent, any combination thereof or in any other form of consideration, as determined
by the Board and contained in the Stock Unit Award Agreement.

          (iv)   Additional Restrictions. At the time of the grant of a Stock Unit Award, the Board, as
it deems appropriate, may impose such restrictions or conditions that delay the delivery of the
shares of Common Stock (or their cash equivalent) subject to a Stock Unit Award after the vesting
of such Stock Unit Award.

          (v)   Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common
Stock covered by a Stock Unit Award, as determined by the Board and contained in the Stock Unit
Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted
into additional shares of Common Stock covered by the Stock Unit Award in such manner as determined
by the Board. Any additional shares covered by the Stock Unit Award credited by reason of such
dividend equivalents will be subject to all the terms and conditions of the underlying Stock Unit
Award Agreement to which they relate.

          (vi)   Termination of Participant’s Continuous Service. Subject to Section 10(j), and except as
otherwise provided in the applicable Stock Unit Award Agreement, such portion of the Stock Unit
Award that has not vested will be forfeited upon the Participant’s termination of Continuous
Service.

          (vii)   Transferability. Rights to receive payment or shares of Common Stock under the Stock
Unit Award Agreement shall be transferable by the Participant only upon such terms and conditions
as are set forth in the Stock Unit Award Agreement, as the Board shall determine in its sole
discretion; provided, however, to the extent that the Company is subject to Section 260.140.42(c)
of Title 10 of the California Code of Regulations at the time of the grant of the Stock Unit Award,
the right to receive payment or shares of Common Stock under the Stock Unit Award shall not be
transferable except by will or by the laws of descent and distribution.

     (d)   Stock Appreciation Rights. Each Stock Appreciation Right Agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate. The terms and
conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and
conditions of separate Stock Appreciation Right Agreements need not be identical; provided,
however, that each Stock Appreciation Right Agreement shall include (through incorporation of the
provisions hereof by reference in the agreement or otherwise) the substance of each of the
following provisions:

19

 

          (i)   Strike Price. Subject to the provisions of Section 5(b) regarding Ten Percent
Shareholders, at the time of the grant of a Stock Appreciation Right, the Board shall determine, at
its discretion, the strike price for such Stock Appreciation Right; provided, however, to the
extent that the Company is subject to Section 260.140.42(b) of Title 10 of the California Code of
Regulations at the time of the grant of the Stock Appreciation Right, the strike price of the Stock
Appreciation Right shall be at least (A) eighty five percent (85%) of the Fair Market Value of the
Common Stock on the date of grant or (B) such lower percentage of the Fair Market Value of the
Common Stock on the date of grant as is permitted by Section 260.140.42 of Title 10 of the
California Code of Regulations at the time of the grant of the Stock Appreciation Right.

          (ii)   Calculation of Appreciation. Each Stock Appreciation Right will be denominated in shares
of Common Stock equivalents. The appreciation distribution payable on the exercise of a Stock
Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair
Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of
Common Stock equal to the number of share of Common Stock equivalents in which the Participant is
vested under such Stock Appreciation Right, and with respect to which the Participant is exercising
the Stock Appreciation Right on such date, over (B) the strike price determined by the Board at the
time of grant of the Stock Appreciation Right.

          (iii)   Vesting. Subject to Section 10(j), at the time of the grant of a Stock Appreciation
Right, the Board may impose such restrictions or conditions to the vesting of such Stock
Appreciation Right as it, in its sole discretion, deems appropriate.

          (iv)   Exercise. To exercise any outstanding Stock Appreciation Right, the Participant must
provide written notice of exercise to the Company in compliance with the provisions of the Stock
Appreciation Right Agreement evidencing such Stock Appreciation Right.

          (v)   Payment. The appreciation distribution in respect to a Stock Appreciation Right may be
paid in Common Stock, in cash, in any combination of the two or in any other form of consideration,
as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such
Stock Appreciation Right.

          (vi)   Termination of Continuous Service. Subject to Section 10(j) in the event that a
Participant’s Continuous Service terminates, the Participant may exercise his or her Stock
Appreciation Right (to the extent that the Participant was entitled to exercise such Stock
Appreciation Right as of the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the Participant’s Continuous
Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement) or
(ii) the expiration of the term of the Stock Appreciation Right as set forth in the Stock
Appreciation Right Agreement. If, after termination, the Participant does not exercise his or her
Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right
Agreement (as applicable), the Stock Appreciation Right shall terminate.

          (vii)   Transferability. Rights to receive payment or shares of Common Stock under the Stock
Appreciation Right Agreement shall be transferable by the Participant only upon

20

 

such terms and conditions as are set forth in the Stock Appreciation Right Agreement, as the
Board shall determine in its sole discretion; provided, however, to the extent that the Company is
subject to Section 260.140.42(c) of Title 10 of the California Code of Regulations at the time of
the grant of the Stock Appreciation Right, the right to receive payment or shares of Common Stock
under the Stock Appreciation Right shall not be transferable except by will or by the laws of
descent and distribution.

     (e)   Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference
to, or otherwise based on, Common Stock may be granted either alone or in addition to Stock Awards
provided for under Section 6 and the preceding provisions of this Section 7. Subject to the
provisions of the Plan, the Board shall have sole and complete authority to determine the persons
to whom and the time or times at which such Other Stock Awards will be granted, the number of
shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock
Awards and all other terms and conditions of such Other Stock Awards; provided, however, to the
extent that the Company is subject to Section 260.140.42(b), (c) and (h) of Title 10 of the
California Code of Regulations at the time of the grant of the Other Stock Award, the Other Stock
Award shall comply with the applicable restrictions set forth therein.

8.   Covenants of the Company.

     (a)   Availability of Shares. During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

     (b)   Securities Law Compliance. The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to grant
Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards;
provided, however, that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority that counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and
until such authority is obtained.

9.   Use of Proceeds from Sales of Common Stock.

     Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute
general funds of the Company.

10.   Miscellaneous.

     (a)   Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate
the time at which a Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock
Award stating the time at which it may first be exercised or the time during which it will vest.

21

 

     (b)   Shareholder Rights. No Participant shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award
unless and until such Participant has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.

     (c)   No Employment or Other Service Rights. Nothing in the Plan, any Stock Award Agreement or
other instrument executed thereunder or any Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in the capacity in
effect at the time the Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice and with or without
cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with
the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of the state in which
the Company or the Affiliate is incorporated, as the case may be.

     (d)   Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market
Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by any Optionholder during any calendar year (under all
plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof that exceed such limit (according to the order in which they were
granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of
the applicable Option Agreement(s).

     (e)   Investment Assurances. The Company may require a Participant, as a condition of
exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances
satisfactory to the Company as to the Participant’s knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably satisfactory to the Company
who is knowledgeable and experienced in financial and business matters and that he or she is
capable of evaluating, alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award and (ii) to give written assurances satisfactory to the Company stating
that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own
account and not with any present intention of selling or otherwise distributing the Common Stock.
The foregoing requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition of Common Stock
under the Stock Award has been registered under a then currently effective registration statement
under the Securities Act or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the circumstances under the then
applicable securities laws. The Company may, upon advice of counsel to the Company, place legends
on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to, legends restricting the
transfer of the Common Stock.

     (f)   Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement,
the Company may, in its sole discretion, satisfy any federal, state or local tax withholding
obligation relating to a Stock Award by any of the following means (in addition to the Company’s
right to withhold from any compensation paid to the Participant by the Company)

22

 

or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii)
withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to
the Participant in connection with the Stock Award; or (iii) by such other method as may be set
forth in the Stock Award Agreement.

     (g)   Information Obligation. To the extent required by Section 260.140.46 of Title 10 of the
California Code of Regulations, the Company shall deliver financial statements to Participants at
least annually. This Section 10(g) shall not apply to key Employees whose duties in connection
with the Company assure them access to equivalent information.

     (h)   Electronic Delivery. Any reference herein to a “written” agreement or document shall
include any agreement or document delivered electronically or posted on the Company’s intranet.

     (i)   Performance Stock Awards. A Stock Award may be granted, may vest, or may be exercised
based upon service conditions, upon the attainment during a Performance Period of certain
Performance Goals, or both. The length of any Performance Period, the Performance Goals to be
achieved during the Performance Period, and the measure of whether and to what degree such
Performance Goals have been attained shall be conclusively determined by the Board in its sole
discretion. The maximum benefit to be received by any individual in any calendar year attributable
to Stock Awards described in this Section 10(h) shall not exceed the value of one hundred thousand
(100,000) shares of Common Stock.

     (j)   Repurchase Limitation. The terms of any repurchase option shall be specified in the Stock
Award, and the repurchase price may be either the Fair Market Value of the shares of Common Stock
on the date of termination of Continuous Service or the lower of (i) the Fair Market Value of the
shares of Common Stock on the date of repurchase or (ii) their original purchase price. To the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of
Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award
granted to a person who is not an officer, manager, Director or Consultant shall be upon the terms
described below:

          (i)   Fair Market Value. If the repurchase option gives the Company the right to repurchase the
shares of Common Stock upon termination of Continuous Service at not less than the Fair Market
Value of the shares of Common Stock to be purchased on the date of termination of Continuous
Service, then (A) the right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of termination of
Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards
after such date of termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding “qualified small business
stock”) and (B) the right terminates when the shares of Common Stock become publicly traded.

          (ii)   Original Purchase Price. If the repurchase option gives the Company the right to
repurchase the shares of Common Stock upon termination of Continuous Service at the lower of (A)
the Fair Market Value of the shares of Common Stock on the date of repurchase or

23

 

(B)   their original purchase price, then (i) the right to repurchase at the original purchase
price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per
year over five (5) years from the date the Stock Award is granted (without respect to the date the
Stock Award was exercised or became exercisable) and (ii) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock
within ninety (90) days of termination of Continuous Service (or in the case of shares of Common
Stock issued upon exercise of Options after such date of termination, within ninety (90) days after
the date of the exercise) or such longer period as may be agreed to by the Company and the
Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the
Code regarding “qualified small business stock”).

11.   Adjustments upon Changes in Common Stock; Corporate Transactions.

     (a)   Capitalization Adjustments. If any change is made in, or other events occur with respect
to, the Common Stock subject to the Plan or subject to any Stock Award after the effective date of
the Plan set forth in Section 14 without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the receipt of
consideration by the Company (each a “Capitalization Adjustment”)), the Plan shall be appropriately
adjusted in: (i) the class(es) and maximum number of securities subject to the Plan pursuant to
Sections 4(a) and 4(b), (ii) the class(es) and maximum number of securities that may be issued
pursuant to the exercise of Incentive Stock Options pursuant to Section 4(b), (iii) the maximum
number of securities that may be awarded to any person pursuant to Sections 5(c) and 10(h) and (iv)
the class(es) and number of securities and price per share of stock subject to outstanding Stock
Awards. The Board shall make such adjustments, and its determination shall be final, binding and
conclusive. (Notwithstanding the foregoing, the conversion of any convertible securities of the
Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

     (b)   Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company,
all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares
of Common Stock not subject to the Company’s right of repurchase) shall terminate immediately prior
to the completion of such dissolution or liquidation, and the 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 Award is providing Continuous Service, provided, however, that the Board may,
in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or
no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously
expired or terminated) before the dissolution or liquidation is completed but contingent on its
completion.

     (c)   Corporate Transaction. The following provisions shall apply to Stock Awards in the event
of a Corporate Transaction unless otherwise provided in a written agreement between the Company or
any Affiliate and the holder of the Stock Award:

          (i)   Stock Awards May Be Assumed. In the event of a Corporate Transaction, any surviving
corporation or acquiring corporation (or the surviving or acquiring

24

 

corporation’s parent company) may assume or continue any or all Stock Awards outstanding under
the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan
(including but not limited to, awards to acquire the same consideration paid to the shareholders of
the Company pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held
by the Company in respect of Common Stock issued pursuant to Stock 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. A surviving corporation or acquiring corporation may choose to
assume or continue only a portion of a Stock Award or substitute a similar stock award for only a
portion of a Stock Award. The terms of any assumption, continuation or substitution shall be set
by the Board in accordance with the provisions of Section 3.

          (ii)   Stock Awards Held by Current Participants. In the event of a Corporate Transaction in
which the surviving corporation or acquiring corporation (or its parent company) does not assume or
continue such outstanding Stock Awards or substitute similar stock awards for such outstanding
Stock Awards, then with respect to Stock Awards that have not been 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 (referred to as the “Current Participants”), the
vesting of such Stock Awards (and, if applicable, the time at which such Stock 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), and such Stock Awards shall terminate if
not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and
any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall
lapse (contingent upon the effectiveness of the Corporate Transaction).

          (iii)   Stock Awards Held by Persons other than Current Participants. In the event of a
Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent
company) does not assume or continue such outstanding Stock Awards or substitute similar stock
awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been
assumed, continued or substituted and that are held by persons other than Current Participants, the
vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be
exercised) shall not be accelerated and such Stock Awards (other than a Stock Award consisting of
vested and outstanding shares of Common Stock not subject to the Company’s right of repurchase)
shall terminate if not exercised (if applicable) prior to the effective time of the Corporate
Transaction; provided, however, that any reacquisition or repurchase rights held by the Company
with respect to such Stock Awards shall not terminate and may continue to be exercised
notwithstanding the Corporate Transaction.

          (iv)   Payment for Stock Awards in Lieu of Exercise. Notwithstanding the foregoing, in the
event a Stock Award will terminate if not exercised prior to the effective time of a Corporate
Transaction, the Board may provide, in its sole discretion, that the holder of such Stock Award may
not exercise such Stock Award but will receive a payment, in such form as may be determined by the
Board, equal in value to the excess, if any, of (A) the value of the

25

 

property the holder of the Stock Award would have received upon the exercise of the Stock
Award, over (B) any exercise price payable by such holder in connection with such exercise.

     (d)   Change in Control. A Stock Award may be subject to additional acceleration of vesting and
exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement
for such Stock Award or as may be provided in any other written agreement between the Company or
any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall
occur.

12.   Amendment of the Plan and Stock Awards.

     (a)   Amendment of Plan. Subject to the limitations, if any, of applicable law, the Board at
any time, and from time to time, may amend the Plan. However, except as provided in Section 11(a)
relating to Capitalization Adjustments, no amendment shall be effective unless approved by the
shareholders of the Company to the extent shareholder approval is necessary to satisfy applicable
law.

     (b)   Shareholder Approval. The Board, in its sole discretion, may submit any other amendment
to the Plan for shareholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on corporate deductibility
of compensation paid to Covered Employees.

     (c)   Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible Employees with the
maximum benefits provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

     (d)   No Impairment of Rights. Rights under any Stock Award granted before amendment of the
Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent
of the affected Participant and (ii) such Participant consents in writing.

     (e)   Amendment of Stock Awards. The Board, at any time and from time to time, may amend the
terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms
more favorable than previously provided in the Stock Award Agreement, subject to any specified
limits in the Plan that are not subject to Board discretion; provided, however, that the rights
under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests
the consent of the affected Participant and (ii) such Participant consents in writing.

13.   Termination or Suspension of the Plan.

     (a)   Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the
Plan is adopted by the Board or approved by the shareholders of the Company,

26

 

whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.

     (b)   No Impairment of Rights. Suspension or termination of the Plan shall not impair rights
and obligations under any Stock Award granted while the Plan is in effect except with the written
consent of the affected Participant.

14.   Effective Date of Plan.

     This Plan (as an amendment and restatement of the Prior Plan) shall become effective on the
date that the Plan is adopted by the Board, but no Stock Award shall be exercised (or, in the case
of a Stock Purchase Award, Stock Bonus Award, Stock Unit Award, or Other Stock Award shall be
granted) unless and until the Plan has been approved by the shareholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is adopted by the
Board.

15.   Choice of Law.

     The law of the State of California shall govern all questions concerning the construction,
validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

27

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