Document:

Exhibit 10.1

NEOPHARM, INC.

2006 EMPLOYEE STOCK
PURCHASE PLAN

The purpose of this NeoPharm, Inc.
2006 Employee Stock Purchase Plan (the “Plan”) is to provide eligible employees
of NeoPharm, Inc. (the “Company”) and certain of its subsidiaries with
opportunities to purchase shares of the Company’s common stock, $0.0002145 par
value (the “Common Stock”). One hundred thousand (100,000) shares of Common
Stock in the aggregate have been approved for this purpose, subject, however,
to adjustment as provided by Section 15 hereof. This Plan is intended to
qualify as an “employee stock purchase plan” as defined in Section 423 of
the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations
promulgated thereunder, and shall be interpreted consistent therewith.

1.      Administration.   The
Plan will be administered by the Company’s Board of Directors (the “Board”) or
by one or more committees or subcommittees appointed by the Board (a “Committee”).
The Board or a Committee (in either case, the “Administrator”) may delegate to
one or more individuals the day-to-day administration of the Plan. The
Administrator shall have full power and authority to promulgate any
rules and regulations which it deems necessary or advisable for the proper
administration of the Plan, to interpret the provisions and supervise the
administration of the Plan, to make factual determinations relevant to Plan
entitlements, and to take all action in connection with the administration of
the Plan as it deems necessary or advisable, consistent with any delegation from
the Board; provided, however, the administration of the Plan shall be
consistent with Rule 16b-3 (“Rule 16b-3”) under the
Securities Exchange Act of 1934. The administration, interpretation or
application of the Plan by the Administrator shall be final and binding upon
all employees. The Company shall pay all expenses incurred in connection with
the administration of the Plan. No Board or Committee member shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option (as defined in Section 9) granted hereunder.

2.      Eligibility.   All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or a Committee
from time to time (a “Designated Subsidiary”), are eligible to participate in
any one or more of the offerings of Options to purchase Common Stock under the
Plan provided that:

(a)    they are customarily employed by the Company
or a Designated Subsidiary for more than 20 hours a week and for more than
five months in a calendar year; and

(b)    they are employees of the Company or a
Designated Subsidiary on the first day of the applicable Plan Period
(as defined below).

For
purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company or Designated Subsidiary; provided that where
the period of leave exceeds ninety (90) days and the individual’s right to
reemployment is not guaranteed by statute or by contract, the employment
relationship will be deemed to have terminated on the ninety-first (91st) day
of such leave.

No employee may be
granted an Option hereunder if such employee, immediately after the Option is
granted, owns 5% or more of the total combined voting power or value of
the stock of the Company or any subsidiary. For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply
in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by
the employee.

3.      Offerings.   The
Company will make one or more offerings (“Offerings”) to employees to purchase
stock under this Plan. Offerings will begin each January 1, April 1,
July 1, and October 1 or the

 

 

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first business day thereafter (the “Offering
Commencement Dates”). Each Offering Commencement Date, other than the Initial
Offering Commencement Date (as herein defined), will begin a three-month period
(a “Plan Period”) during which payroll deductions will be made and held for the
purchase of Common Stock at the end of the Plan Period. The Administrator may,
at any time and at its discretion, choose a different Plan Period of
twelve (12) months or less for subsequent Offerings. Notwithstanding
anything to the contrary, the first Plan Period shall begin on January 1,
2006 (the “Initial Offering Commencement Date”) and end on June 30, 2006.

4.      Participation.   An
employee eligible on the Offering Commencement Date of any Offering may
participate in such Offering by completing and forwarding a payroll deduction
authorization form to the employee’s appropriate payroll office at least
ten days prior to the applicable Offering Commencement Date.
The payroll deduction authorization form will authorize a regular payroll
deduction from the Compensation received by the employee during the Plan
Period. Unless an employee files a new form or withdraws from the Plan, his
deductions and purchases will continue at the same rate for future Offerings
under the Plan as long as the Plan remains in effect. As used herein, the term “Compensation”
means the amount of money reportable on the employee’s Federal Income Tax
Withholding Statement.

5.      Deductions.   The
Company will maintain payroll deduction accounts for all participating
employees. With respect to any Offering made under this Plan, an employee may
authorize a payroll deduction in any dollar amount up to a maximum of 15% of
the Compensation he or she receives during the Plan Period or such shorter
period during which deductions from payroll are made. Payroll deductions may be
made in 1% increments of Compensation, between 1% and 15%, with any change in
compensation during the Plan Period to result in an automatic corresponding
change in the dollar amount withheld as soon as administratively practical.

6.      Deduction Changes.   An
employee may increase, decrease or discontinue his or her payroll deduction
during any Plan Period by filing a new payroll deduction authorization
form. If an employee elects to discontinue his or her payroll deductions during
a Plan Period, but does not elect to withdraw his or her funds pursuant to
Section 8 hereof, funds deducted prior to such employee’s election to
discontinue will be applied to the purchase of Common Stock on the Exercise
Date (as defined below). The Administrator may (i) establish
rules limiting the frequency with which employees may change, discontinue
and resume payroll deductions under the Plan and may impose a waiting period on
employees wishing to resume payroll deductions following discontinuance, and
(ii) change the rules regarding discontinuance of participation or
changes in participation in the Plan.

If an employee has not
followed the procedures prescribed by the Administrator to change the rate of
payroll deductions or to discontinue the payroll deductions, the rate of
payroll deductions shall continue at the properly elected rate in effect until
such rate is changed in accordance with Plan procedures.

7.      Interest.   Interest
will not be paid on any employee accounts, except to the extent that the
Administrator, in its sole discretion, elects to credit employee accounts with
interest at such per annum rate as it may from time to time determine.

8.      Withdrawal of Funds.   An
employee may at any time prior to the close of business on the last business
day in a Plan Period and for any reason permanently draw out the balance
accumulated in the employee’s account and thereby withdraw from participation
in an Offering. Partial withdrawals are not permitted. The employee may not
begin participation again during the remainder of the Plan Period. The employee
may participate in any subsequent Offering in accordance with terms and
conditions established by the Administrator.

9.      Purchase of Shares.   On
the Offering Commencement Date of each Plan Period, the Company will grant to
each eligible employee who is then a participant in the Plan an option (the “Option”)
to purchase on the last business day of such Plan Period (the “Exercise Date”),
at the Option Price

 

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hereinafter provided for, the largest
number of whole shares of Common Stock of the Company as does not exceed the
number of shares determined by multiplying $2,083 by the number of full months in the Plan Period and dividing
the result by the closing price (as defined below) on the Offering Commencement
Date of such Plan Period.

Notwithstanding
the above, no employee may be granted an Option which permits his or her rights
to purchase Common Stock under this Plan and any other employee stock purchase
plan (as defined in Section 423(b) of the Code) of the Company and
its subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market
value of such Common Stock (determined at the Offering Commencement Date of the
Plan Period) for each calendar year in which the Option is outstanding at any
time.

The
purchase price for each share purchased will be 85% of the closing price of the
Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such
closing price shall be (a) the closing price on any national securities
exchange on which the Common Stock is listed, (b) the closing price of the
Common Stock on the Nasdaq National Market or (c) the average of the
closing bid and asked prices in the over-the-counter-market, whichever is
applicable, as published in The Wall Street Journal.
If no sales of Common Stock were made on such a day, the price of the Common
Stock for purposes of clauses (a) and (b) above shall be the
reported price for the next preceding day on which sales were made.

Each
employee who continues to be a participant in the Plan on the Exercise Date
shall be deemed to have exercised his or her Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his or her
accumulated payroll deductions on such date will pay for, but not in excess of
the maximum number determined in the manner set forth above.

Any balance remaining in
an employee’s payroll deduction account at the end of a Plan Period will be
automatically refunded to the employee, except that any balance which is less
than the purchase price of one share of Common Stock will be carried forward
into the employee’s payroll deduction account for the Plan, except that if the
employee requests a refund of the residual, in accordance with procedures
established by the Administrator, or if the employee terminates his or her
employment, the balance shall then be refunded.

10.    Issuance of Shares.   Shares
of Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company’s sole discretion) in
the name of a brokerage firm, bank or other nominee holder designated by the
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares.

11.    Rights on Retirement,
Death or Termination of Employment.   In the event of a
participating employee’s termination of employment for any reason (including
death) prior to the last business day of a Plan Period, the employee’s
participation in the Plan shall immediately terminate and thereafter no payroll
deduction shall be taken from any pay due and owing to such employee and the
balance in the employee’s account shall be paid to the employee or, in the
event of the employee’s death, (a) to a beneficiary previously designated
in a revocable notice signed by the employee (with any spousal consent required
under state law) or (b) in the absence of such a designated beneficiary,
to the executor or administrator of the employee’s estate or (c) if no
such executor or administrator has been appointed to the knowledge of the
Company, to such other person(s) as the Company may, in its discretion or
as may be required under applicable law, designate. If, prior to the last
business day of the Plan Period, the Designated Subsidiary by which an employee
is employed shall cease to be a subsidiary of the Company, or if the employee
is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for the purposes
of this Plan as of the date of such action.

 

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12.    Optionees Not
Stockholders; No Enlargement of Employee Rights.   Neither the
granting of an Option to an employee nor the deductions from his or her
pay shall constitute such employee a stockholder of the shares of Common Stock
covered by an Option under this Plan until such shares have been purchased by
and issued to him or her. In addition, nothing contained in this Plan shall be
deemed to give any employee the right to be retained in the employ of the
Company or of the Designated Subsidiary or to interfere with the right of the
Company or the Designated Subsidiary to discharge any employee at any time.

13.    Rights Not Transferable.   Rights
under this Plan and Options granted under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee’s lifetime only by the
employee.

14.    Application of Funds.   Funds
held by the Company under this Plan will not be commingled with other corporate
funds of the Company, but will be held for the benefit of the participant and
shall be credited to an account in the name of the employee until the last
business day of the Plan Period, at which time all funds up to the maximum
amount permissible under the Plan will be used for the purchase of Company
shares, as provided in the Plan. Should a participating employee choose to
cease his or her participation in the Plan, as provided by the Plan, his or her
account balance will be promptly refunded to him or her.

15.    Adjustment in Case of
Changes Affecting Common Stock.   In the event of a subdivision
of outstanding shares of Common Stock, or the payment of a dividend in Common
Stock, the number of shares approved for this Plan, and the share limitation
set forth in Section 9, shall be increased proportionately, and such other
adjustment shall be made as may be deemed equitable by the Board or a
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or a Committee
to give proper effect to such event.

16.    Merger.   If
the Company shall at any time merge or consolidate with another corporation and
the holders of the capital stock of the Company immediately prior to such
merger or consolidation continue to hold at least 51% by voting power
of the capital stock of the surviving corporation (“Continuity
of Control”), the holder of each Option then outstanding will thereafter
be entitled to receive at the next Exercise Date upon the exercise of such
Option for each share as to which such Option shall be exercised the same
securities or property to which a holder of one share of the Common Stock was
entitled upon and at the time of such merger or consolidation, and the
Administrator shall take such steps in connection with such merger or
consolidation as the Administrator shall deem necessary to assure that the
provisions of Section 15 shall thereafter be applicable, as nearly as
reasonably may be, in relation to the said securities or property as to which
such holder of such Option might thereafter be entitled to receive thereunder.

In
the event of a merger or consolidation of the Company with or into another corporation
which does not involve Continuity of Control, or of a sale of all or
substantially all of the assets of the Company while unexercised Options remain
outstanding under the Plan, (i) subject to the provisions of clauses
(ii) and (iii), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (ii) all outstanding Options may be
cancelled by the Administrator as of a date prior to the effective date of any
such transaction and all payroll deductions shall be paid out to the
participating employees; or (iii) all outstanding Options may be cancelled
by the Administrator as of the effective date of any such transaction, provided
that notice of such cancellation shall be given to each holder of an Option,
and each holder of an Option shall have the right to exercise such Option in
full based on payroll deductions then credited to his account as of a date
determined by the Board or a Committee, which date shall not be less than
ten (10) days preceding the effective date of such transaction.

 

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17.    Amendment of the Plan.   The
Board may at any time, and from time to time, amend this Plan in any respect,
except that (i) if the approval of any such amendment by the stockholders
of the Company is required by Section 423 of the Code, such amendment
shall not be effected without such approval, and (ii) in no event may any
amendment be made which would cause the Plan to fail to comply with
Section 423 of the Code.

18.    Insufficient Shares.   In
the event that the total number of shares of Common Stock specified in
elections to be purchased under any Offering plus the number of shares
purchased under previous Offerings under this Plan exceeds the maximum number
of shares issuable under this Plan, the Administrator will allot the shares
then available on a pro rata basis.

19.    Termination of the Plan.   This
Plan may be terminated at any time by the Board. Upon termination of this Plan
all amounts in the accounts of participating employees shall be promptly
refunded.

20.    Governmental Regulations.   The
Company shall have no obligation to sell and deliver shares of Common
Stock under this Plan unless and until (i) it has taken all actions
required to register the shares of Common Stock under the Securities Act of
1933; (ii) any applicable listing requirement of any stock exchange or the
Nasdaq National Market (to the extent the Common Stock is then so listed or
quoted) for the Common Stock is met; and (iii) all other applicable
provisions of state and federal law have been satisfied.

21.    Governing Law.   The
Plan shall be governed by Delaware law except to the extent that such law is
preempted by federal law.

22.    Available Shares.   Shares
may be issued upon exercise of an Option from authorized but unissued Common
Stock, from shares held in the treasury of the Company, or from any other
proper source.

23.    Notification Upon Sale of
Shares.   Each employee agrees, by entering the Plan, to
promptly give the Company notice of any disposition of shares purchased under
the Plan where such disposition occurs within two years after the date of grant
of the Option pursuant to which such shares were purchased. As a condition to
the exercise of an Option, the Company may require the employee exercising such
Option to represent and warrant at the time of any such exercise that the
shares of Common Stock are being purchased only for investment and without any
present intention to sell or distribute such shares of Common Stock if such a
representation is required by applicable law.

24.    Withholding.   Each
employee shall, no later than the date of the event creating the tax liability,
make provision satisfactory to the Administrator for payment of any taxes
required by law to be withheld in connection with any transaction related to
Options granted to or shares acquired by such employee pursuant to the Plan.
The Company may deduct, to the extent permitted by law, any such taxes from any
payment of any kind otherwise due to an employee.

25.    Effective Date and Approval of Shareholders.   The Plan shall take effect upon the
adoption of the Plan by the Board, subject, however, to subsequent approval of
the Plan by the stockholders of the Company as required by Section 423 of
the Code, which stockholder approval must occur within twelve months of the adoption
of the Plan by the Board. No Option granted under this Plan may be exercised
unless or until such stockholder approval has been obtained.

 

5Exhibit 10.2

NEOPHARM, INC.

2006 EQUITY INCENTIVE PLAN

Introduction.   NeoPharm, Inc.,
a Delaware corporation (the “Company”), hereby establishes the NeoPharm, Inc.
2006 Equity Incentive Plan (the “Plan”), effective on the Effective Date (as
defined below).

1.      Purpose.

The purpose of the Plan
is to advance the interests of the Company and enable the Company to attract
and retain officers, directors, employees and consultants. The Plan will also
encourage and facilitate the acquisition of a larger personal financial
interest in the Company by those officers, directors, employees and consultants
upon whose judgment and efforts the Company is largely dependent on for the
successful conduct of its operations. An additional purpose of the Plan is to
provide a means by which officers, directors, employees and consultants of the
Company and its Subsidiaries can acquire and maintain Stock ownership, thereby
strengthening their commitment to the success of the Company and their desire
to remain associated with the Company and its Subsidiaries. It is anticipated
that the acquisition of such financial interest and Stock ownership will
stimulate the efforts of such officers, directors, employees and consultants on
behalf of the Company, strengthen their desire to continue in the service of
the Company and encourage shareholder and entrepreneurial perspectives through
Stock ownership.

2.      Definitions.

As used in the Plan,
terms defined parenthetically immediately after their use shall have the
respective meanings provided by such definitions and the terms set forth below
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

(a)    “Administrator”
means a Committee of the Board appointed pursuant to Section 4 of the
Plan.

(b)    “Award” means
Options, shares of Restricted Stock, performance units, performance shares,
SARs, or stock bonuses granted under the Plan.

(c)    “Award Agreement”
has the meaning specified in Section 4(c)(vi).

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

(e)    “Cause” means
conviction of the Grantee of a felony; the material violation by the Grantee of
written policies of the Company or a Subsidiary; the gross and habitual
negligence by the Grantee in the performance of the Grantee’s duties to the
Company or its Subsidiaries; or the willful and intentional action or omission
to act in connection with the Grantee’s duties to the Company or a Subsidiary
resulting, in the opinion of the Administrator, in injury of a material nature
to the Company or a Subsidiary.

(f)     “Change of Control”
means any of the following:

(i)     the acquisition or holding by any person,
entity or “group” within the meaning of Section 13(d)(3) or
14(d)(2) of the 1934 Act (other than by the Company or any of its
Subsidiaries or any employee benefit plan of the Company or its Subsidiaries)
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 30% or more of either the then-outstanding
Stock or the combined voting power of the Company’s then-outstanding voting
securities entitled to vote generally in the election of directors (“Voting
Power”); except that no such person, entity or group shall be deemed to own
beneficially:  

 

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(A) any securities held by the
Company or a Subsidiary or any employee benefit plan (or any related trust) of
the Company or a Subsidiary; (B) any securities acquired pursuant to a
benefit plan of the Company or a Subsidiary; (C) any securities issuable
pursuant to an option, warrant or right owned by such person, entity or group
as of the close of business on the business day immediately preceding the
Effective Date; (D) any security that would otherwise be beneficially
owned by such person, entity or group as of the close of business on the
business day immediately preceding the Effective Date; and (E) any
securities issued in connection with a stock split, stock dividend or similar
recapitalization or reorganization with respect to shares covered by the foregoing
exceptions; or

(ii)    individuals who, as of the Effective Date,
constitute the Board (the “Incumbent Board’’) cease for any reason to
constitute at least a majority of the Board; provided that any individual who
becomes a director after the Effective Date whose election or nomination for
election by the Company’s stockholders was approved by at least a majority of
the Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company (as such terms are used in Rule 14a-11 under the 1934 Act))
shall be deemed to be members of the Incumbent Board; or

(iii)   approval by the stockholders of the Company
of (A) a merger, reorganization or consolidation with respect to which
persons who were the respective beneficial owners of the Stock and Voting Power
of the Company immediately before such merger, reorganization or consolidation
do not, immediately thereafter, beneficially own, directly or indirectly, more
than 60%, respectively, of the then-outstanding common shares and the Voting
Power of the corporation resulting from such merger, reorganization or
consolidation, (B) a liquidation or dissolution of the Company or
(C) the sale or other disposition of all or substantially all of the
assets of the Company; provided, however, that for the purposes of this
Section the votes of all Section 16 Persons shall be disregarded in
determining whether stockholder approval has been obtained.

Notwithstanding
the foregoing, a Change of Control shall be deemed not to have occurred with
respect to any Section 16 Person if such Section 16 Person is, by
agreement (written or otherwise), a participant on such Section 16 Person’s
own behalf in a transaction which causes the Change of Control to occur.

(g)    “Change of Control Value”
means the Fair Market Value of a share of Stock on the date of a Change of
Control.

(h)    “Code” means the
Internal Revenue Code of 1986, as amended, and regulations and rulings
thereunder. References to a particular section of the Code shall include
references to successor provisions.

(i)     “Committee”
means a committee of the Board appointed pursuant to Section 4(a).

(j)     “Company” has
the meaning set forth in the introductory paragraph.

(k)    “Consultant”
means any person who is engaged by the Company or any Subsidiary to render
consulting or advisory services and is compensated for such services, and any
director of the Company or any Subsidiary whether compensated for such services
or not.

(l)     “Continuous Status as an
Employee or Consultant” means that the employment or consulting
relationship (including service as a Director) is not interrupted or terminated
by the individual, the Company, or the Subsidiary. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of:
(i) any leave of absence approved by the Company, including sick leave,
military leave, or any other personal leave; provided, however, that for purposes
of Incentive Stock

 

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Options, no such leave may exceed ninety
(90) days, unless re-employment upon the expiration of such leave is guaranteed
by contract (including certain Company policies) or statute; provided, further,
that on the ninety-first (91st) day of any such leave (where re-employment is
not guaranteed by contract or statute) the Grantee’s Incentive Stock Option
shall automatically convert to a Nonstatutory Stock Option, or
(ii) transfers between locations of the Company or between the Company,
its Subsidiaries or its successor.

(m)   “Director” means
any person who is a member of the Board of Directors of the Company.

(n)    “Disability”
means, for purposes of the exercise of an Incentive Stock Option after
termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code, and for all other purposes, a mental or
physical condition which, in the opinion of the Administrator renders a Grantee
unable or incompetent to carry out the job responsibilities which such Grantee
held or the tasks to which such Grantee was assigned at the time the disability
was incurred. and which is expected to be permanent or for an indefinite
duration exceeding one year.

(o)    “Effective Date”
means the date of adoption of this Plan by the Board; provided, that if the
stockholders of the Company do not approve the Plan within twelve (12) months
of Board’s adoption of the Plan, then the Plan, and any Awards made pursuant to
the Plan, shall be null and void, and there shall be no Effective Date;

(p)    “Employee” means
any person, including officers and Directors, employed by the Company or any
Subsidiary.

(q)    “Fair Market Value”
means, as of any applicable date:

            (i)  if
the Stock is listed for trading on any stock exchange (including for this
purpose the Nasdaq National Market), the mean between the lowest and highest
reported sale prices of the Stock on the date in question on the principal
exchange on which the Stock is then listed or admitted for trading. If no
reported sale of Stock takes place on the date in question on the principal
exchange, then the reported closing sale price of the Stock on such date on the
principal exchange shall be determinative of Fair Market Value; provided,
however, that the Administrator may establish the Fair Market Value in such
other manner as may be reasonably determined in good faith by the Administrator
based on the reported sale prices of the Stock on such stock exchange.

           (ii)  if
the Stock is not at the time listed or admitted to trading on a stock exchange
(including the Nasdaq National Market), the Fair Market Value shall be the mean
between the closing reported sale price of the Stock on the date in question in
the over-the-counter market.

          (iii)  in
the absence of an established market for the Stock, the Fair Market Value
thereof shall be determined in good faith by the Committee.

          (iv)  in
all events, Fair Market Value shall be determined without regard to any
restrictions (other than restrictions which, by their terms, will never lapse).

(r)     “Grant Date”
means the date on which an Award shall be duly granted, as determined in
accordance with Section 6(a)(i).

(s)    “Grantee” means
an individual who has been granted an Award.

(t)     “Incentive Stock Option”
or “ISO” means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code.

(u)    “including” or “includes” means “including, without
limitation,” or “includes, without
limitation,” respectively.

 

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(v)    “Measuring Period”
has the meaning specified in Section 6(e)(i)(A).

(w)   “Minimum Consideration”
means $.0002145 per share of Stock or such other amount that is from time to
time considered to be capital for purposes of Section 154 of the Delaware
General Corporation Law.

(x)     “1934 Act” means
the Securities Exchange Act of 1934. References to a particular section of, or
rule under, the 1934 Act shall include references to successor provisions.

(y)    “Nonstatutory Stock Option”
means an Option which does not or is not intended to qualify as an Incentive
Stock Option.

(z)     “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. “Named Executive Officer” has the meaning specified in
Section 4(b).

(aa)  “Option” means a
stock option granted pursuant to the Plan.

(bb)  “Option Price”
means the per share purchase price of Stock subject to an Option.

(cc)  “Performance Goals”
has the meaning specified in Section 6(e)(i)(B).

(dd)  “Performance Percentage”
has the meaning specified in Section 6(e)(i)(C).

(ee)  “Plan” has the
meaning set forth in the introductory paragraph.

(ff)    “Retirement”
means a termination of employment with the Company and its Subsidiaries other
than for Cause at any time after attaining age 65.

(gg)  “Restricted Stock”
means shares of Stock acquired pursuant to a grant of a Stock Purchase Right
under Section 6(d) below.

(hh)  “SAR” means
Awards representing stock appreciation rights which constitute the conditional
right of the holder to receive, in cash and/or shares of Stock, as determined
by the Administrator in its sole discretion, an amount equal to the Fair Market
Value of a share of Stock on the applicable exercise or designated settlement
date minus a specified base price.

(ii)    “SEC” means the
Securities and Exchange Commission.

(jj)    “Section 16 Person”
means a person, whether or not a Grantee, who is subject to potential liability
under Section 16(b) of the 1934 Act with respect to transactions
involving equity securities of the Company.

(kk)  “Stand-Alone SAR”
means an SAR that is not granted in conjunction with an Option.

(ll)    “Stock” means
the common stock, $.0002145 par value, of the Company.

(mm)      “Stock Purchase Right”
means the right to purchase Stock pursuant to Section 6(d) below.

(nn)  “Subsidiary”
means, for purposes of grants of Incentive Stock Options, a corporation as
defined in Section 424(f) of the Code (with the Company being treated
as the employer corporation for purposes of this definition) and, for all other
purposes, a corporation with respect to which the Company owns, directly or
indirectly, 25% or more of the then-outstanding common shares.

(oo)  “Tandem SAR”
means a SAR that is awarded in conjunction with an Option.

(pp)  “10% Owner”
means a person who owns stock (including stock treated as owned under
Section 424(d) of the Code) possessing more than 10% of the total
combined voting power of all classes of stock of the Company.

 

4

 

3.      Scope of the Plan.

(a)    Subject to Section 24, an aggregate of 1,000,000
shares of Stock are hereby made available and are reserved for delivery on
account of the grant and exercise of Awards (including Restricted Stock) and
the payment of benefits in connection with Awards under the Plan. Such shares
may be treasury shares or newly-issued shares, as may be determined from time
to time by the Board or the Administrator.

(b)    Subject to Section 3(a) (as to the
maximum number of shares of Stock available for delivery in connection with
Awards), up to an aggregate of 500,000 shares of Restricted Stock and bonus
shares of Stock may be granted under the Plan.

(c)    If and to the extent an Award shall expire
or terminate for any reason without having been exercised in full or shall be
forfeited, without, in either case, the Grantee having enjoyed any of the
benefits of stock ownership (other than dividends that are likewise forfeited
or voting rights), the shares of Stock (including Restricted Stock) associated
with such Award shall become available for other Awards. To the extent that the
benefit in connection with an Award is paid in cash, there shall be deducted
from the share limit provided in Section 3(a) a number of shares equal
to the amount of the cash paid divided by the Fair Market Value of a share of
Stock on the date of such payment.

4.      Administration.

(a)    The Plan shall be administered by a
committee (the “Committee”) designated by the Board of Directors of the Company
(the “Board”), which shall appoint and remove members of the Committee in its
discretion subject only to the requirements set forth herein or in the charter
of the Committee. The Committee shall consist of two or more members of the
Board who are “non-employee directors” within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and,
if deemed appropriate by the Board, are “outside directors” within the meaning
of Section 162(m) of the Code.

(b)    Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange (including for
this purpose rules promulgated by Nasdaq), the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers to
any person or persons selected by it. Any such allocation or delegation may be
revoked or modified by the Committee at any time, but such revocation or
modification shall not invalidate any prior actions of the Committee’s delegate
or delegates that were consistent with the terms of the Plan. Notwithstanding
any other provision of this Section 4(b), unless the Board determines
otherwise, the Committee shall not allocate any portion of its responsibilities
and powers to any other person or persons with respect to grants to
(i) any Officer, Director or 10% Owner of any class of the Company’s
equity securities that are registered pursuant to Section 12 of the
Exchange Act, as more fully described under Section 16 of the Exchange Act
or (ii) the Chief Executive Officer of the Company (or person acting in
such capacity) or any of the four highest compensated officers of the Company
other than the Chief Executive Officer or any person who is otherwise one of the
group of “covered employees,” as defined in the Treasury Regulations
promulgated under Code Section 162(m) (each person described in
clause (ii) a “Named Executive Officer”).

(c)    Subject to the provisions of the Plan,
including, but not limited to, Section 25 hereof, and the specific duties
delegated by the Board to the Committee, and subject to the requirements of
applicable law and the approval of any relevant authorities, including the
approval, if required, of any stock exchange (including for this purpose the
Nasdaq National Market) upon which the Stock is listed, the Administrator shall
have full and final authority and sole discretion, as follows:

            (i)  to
grant Awards and determine the Grant Date and term thereof;

 

5

 

           (ii)  to
determine (A) when and to whom Awards may be granted, (B) the terms
and conditions applicable to each Award, including the Option Price of an
Option, whether an Option shall qualify as an Incentive Stock Option, the terms
and conditions applicable to each SAR, including whether a SAR shall be a
Stand-Alone SAR or a Tandem SAR, the terms and conditions applicable to
Restricted Stock, and the benefit payable under any performance unit or
performance share, and (C) whether or not specific Awards shall be
identified with other specific Awards, and if so whether they shall be
exercisable cumulatively with, or alternatively to, such other specific Awards;

          (iii)  to
determine the amount, if any, that a Grantee shall pay for shares of Restricted
Stock, whether to permit or require the payment of cash dividends thereon to be
deferred and the terms related thereto, when Restricted Stock (including
Restricted Stock acquired upon the exercise of an Option) shall be forfeited
and whether such shares shall be held in escrow;

          (iv)  to
interpret the Plan and to make all determinations necessary or advisable for
the administration of the Plan;

           (v)  to
prescribe, amend, and rescind rules relating to the Plan, including
rules with respect to the exercisability and nonforfeitability of Awards
upon the termination of employment or consulting services (including service as
a Director) of a Grantee;

          (vi)  to
determine the terms and provisions and any restrictions or conditions
(including, but not limited to, specifying such performance criteria, Measuring
Period, and other terms and conditions consistent with the Plan as the
Administrator deems appropriate) and imposing restrictions with respect to
Stock acquired upon exercise of an Award, which restrictions may continue
beyond the Grantee’s termination of employment) of the written agreements by
which all Awards shall be evidenced (“Award Agreements”) which need not be
identical and, with the consent of the Grantee, to modify any such Award
Agreement at any time;

         (vii)  to
cancel, with the consent of the Grantee, outstanding Awards under this or prior
plans of the Company and to grant new Awards in substitution therefor, but
subject, in any such case, to the limitation of Section 25;

        (viii)  to
authorize foreign Subsidiaries to adopt plans as provided in Section 15;

          (ix)  to
accelerate the exercisability (including exercisability within a period of less
than one year after the Grant Date) of, and to accelerate or waive any or all
of the restrictions and conditions applicable to, any Award or any group of
Awards for any reason and at any time, including in connection with a
termination of employment or service as a Consultant (including service as a
Director) (other than for Cause);

           (x)  subject
to Section 6(a)(ii) and 6(c)(ii), to extend the time during which any
Award or group of Awards may be exercised;

          (xi)  to
make such adjustments or modifications to Awards of Grantees working outside
the United States as are necessary and advisable to fulfill the purposes of the
Plan;

         (xii)  to
amend Award Agreements with the consent of the Grantee; provided that the
consent of the Grantee shall not be required for any amendment of the Plans or
any Award Agreement which (A) does not adversely affect the rights of the
Grantee, or (B) is necessary or advisable (as determined by the
Administrator) to carry out the purpose of the Award as a result of any new or
change in existing applicable law, regulation, ruling or judicial decision
(including, but not limited to, Code Section 409A); provided that any such
change shall be applicable only to Awards which have not been exercised;

 

6

 

        (xiii)  to
take any action at any time before the exercise of an Option (whether or not an
Incentive Stock Option), without the consent of the Grantee, to prevent such
Option from being treated as an Incentive Stock Option;

        (xiv)  to
impose such additional conditions, restrictions, and limitations upon the
grant, exercise or retention of Awards as the Administrator may, before or
concurrently with the grant thereof, deem appropriate, including requiring
simultaneous exercise or related identified Awards, and limiting the percentage
of Awards which may from time to time be exercised by a Grantee;

         (xv)  to
certify in writing before the payment of any performance based Awards (except
for a payment that is attributable solely to the increase in the price of the
Stock of the Company) that the underlying performance goals and any other
material terms have been satisfied;

        (xvi)  subject
to Section 6(b) hereof, to permit an Employee, Director or Consultant
to elect, prior to earning compensation, to acquire Options pursuant to
Section 6(b) of the Plan in lieu of receiving such compensation,
determine the terms and conditions of such Options and determine the value of
such Options on the Grant Date in accordance with Section 6(b) of the
Plan:

       (xvii)  to
specify the manner of designating a beneficiary to exercise Awards after the
Grantee’s death or transferring an Option (other than an Incentive Stock
Option), SAR, performance unit or performance share to a revocable inter vivos
trust;

      (xviii)  to
approve the manner of payment and determine the terms related thereto by a
Grantee in connection with an Award, including use of Restricted Stock to pay
the Option Price, deferral of the payment or guarantee of the payment by the
Company pursuant to Section 10 and elective share withholding pursuant to
Section 13;

         (xix)  to
prohibit a Grantee from making an election under Section 83(b) of the
Code in accordance with Section 11;

          (xx)  to
require a written investment representation by a Grantee as provided in
Section 17;

         (xxi)  to
make equitable adjustment of Awards as provided in Section 24;

        (xxii)  to
take any other action with respect to any matters relating to the Plan  which the Administrator believes are
necessary or advisable and, in any case, are not in violation of any applicable
law or any provision of the Plan.

The
determination of the Administrator on all matters relating to the Plan or any
Award Agreement shall be conclusive and final. No member of the Administrator
shall be liable for any action or determination made in good faith with respect
to the Plan or any Award.

5.      Eligibility.

Awards
may be granted to Officers, Employees, Directors and Consultants with the
restriction, however, that any Option which is to be an Incentive Stock Option,
or any SAR which is granted in tandem with an Incentive Stock Option, may only
be granted to an Employee. In selecting the individuals to whom Awards may be
granted, as well as in determining the number of shares of Stock subject to,
and the other terms and conditions applicable to, each Award, the Administrator
shall take into consideration such factors as it deems relevant in promoting
the purposes of the Plan.

 

7

 

6.      Conditions to Grants.

(a)    General Conditions.

            (i)  The
Grant Date of an Award shall be the date on which the Administrator grants the
Award or such later date as specified in advance by the Administrator.

           (ii)  The
term of each Award (subject to Section 6(c)(ii) with respect to
Incentive Stock Options) shall be a period of not more than 10 years from the
Grant Date, and shall be subject to earlier termination as herein provided.

          (iii)  A
Grantee may, if otherwise eligible, be granted additional Awards in any
combination.

          (iv)  The
terms and conditions of each Award shall be governed by and in compliance with
the provisions of this Plan. To the extent not set forth in the Plan, the terms
and conditions of each Award shall be set forth in an Award Agreement.

(b)    Grant of
Options and Option Price.   No later than the Grant Date of any
Option, the Administrator shall determine the Option Price of such Option;
provided, however, that the Administrator may elect to determine the Option
Price as of the date the Grantee is hired or promoted (or similar event), if
the Grant Date occurs not more than 90 days after the date of hiring, promotion
or other event. The Option Price of an Option (other than an Incentive Stock
Option) shall not be less than 85% of the Fair Market Value of the Stock on the
Grant Date. The Award Agreement may provide that the Option shall be
exercisable for Restricted Stock or that it will be awarded in tandem with a
SAR.

If
and to the extent deemed necessary by the Administrator with respect to a
Nonqualified Stock Option grant to a Named Executive Officer, the price to be
paid for each share of Stock upon exercise of the Option shall in no event be
less than 100% of the Fair Market Value of a share of Stock on the date the
Option is granted, unless the exercisability of the Option with respect to
shares of Stock for which the Option price is less than such amount is subject
to performance goals set forth in Section 6(e)(i)(B) that enable such
Option to qualify as “performance-based compensation” under Treasury
Regulations promulgated under Section 162(m) of the Code.

The Administrator may,
in its discretion, permit an Employee, Director or Consultant eligible to
receive Awards under Section 5 of the Plan to elect, prior to earning
compensation, to be granted an Option or Options under the Plan in lieu of
receiving such compensation. Subject to the express terms of the Plan, such
Options shall have such terms and conditions as the Administrator in its
discretion specifies; provided that, in the judgment of the Administrator, the
value of such options on the Grant Date equals the amount of compensation
foregone by such Employee, Director or Consultant; and provided, further, that
except to the extent such condition may be waived by the securities law counsel
to the Company, a Section 16 Person must irrevocably elect to forego such
compensation and acquire such Option at least six months prior to the Grant
Date of such Option.

(c)    Grant of
Incentive Stock Options.   At the time of the grant of any
Option, the Administrator may designate that such Option shall be made subject
to additional restrictions to permit it to qualify as an “Incentive Stock
Option” under the requirements of Section 422 of the Code. Any Option designated
as an Incentive Stock Option:

            (i)  shall
have an Option Price of not less than 100% of the Fair Market Value of the
Stock on the Grant Date except, however, that the Option Price shall not be
less than 110% of the Fair Market Value of the Stock on the Grant Date if
granted to a 10% Owner.

           (ii)  shall
be for a period of not more than 10 years from the Grant Date, or, in the case
of an Incentive Stock Option granted to a 10% Owner, 5 years from the Grant Date,
and, in either

 

8

 

case,
shall be subject to earlier termination as provided herein or in the applicable
Award Agreement;

          (iii)  shall
not have an aggregate Fair Market Value (determined for each Incentive Stock
Option at its Grant Date) of Stock with respect to which Incentive Stock
Options are exercisable for the first time by such Grantee during any calendar
year (under the Plan and any other employee stock option plan of the Grantee’s
employer or any parent or Subsidiary thereof (“Other Plans”)), determined in
accordance with the provisions of Section 422 of the Code, which exceeds
$100,000 (the “$100,000 Limit”);

          (iv)  shall,
if the aggregate Fair Market Value of Stock (determined on the Grant Date) with
respect to the portion of such grant which is exercisable for the first time
during any calendar year (“Current Grant”) and all Incentive Stock Options
previously granted under the Plan and any Other Plans which are exercisable for
the first time during a calendar year (“Prior Grants”) would exceed the
$100,000 Limit, be exercisable as follows:

(A)   the portion of the Current Grant which would,
when added to any Prior Grants, be exercisable with respect to Stock which
would have an aggregate Fair Market Value (determined as of the respective Grant
Date for such options) in excess of the $100,000 Limit shall, notwithstanding
the terms of the Current Grant, be exercisable for the first time by the
Grantee in the first subsequent calendar year or years in which it could be
exercisable for the first time by the Grantee when added to all Prior Grants
without exceeding the $100,000 Limit; and

(B)   if, viewed as of the date of the Current
Grant, any portion of a Current Grant could not be exercised under the
preceding provisions of this Section 6(c)(iv) during any calendar
year commencing with the calendar year in which it is first exercisable through
and including the last calendar year in which it may by its terms be exercised,
such portion of the Current Grant shall not be an Incentive Stock Option, but shall
be exercisable as a Nonstatutory Stock Option at such date or dates as are
provided in the Current Grant;

           (v)  shall
be granted within 10 years from the earlier of the date the Plan is adopted or
the date the Plan is approved by the stockholders of the Company;

          (vi)  shall
require the Grantee to notify the Administrator of any disposition of any Stock
issued pursuant to the exercise of the Incentive Stock Option under the
circumstances described in Section 421(b) of the Code (relating to
certain disqualifying dispositions), within ten (10) days of such
disposition;

         (vii)  shall
by its terms not be assignable or transferable other than by will or the laws
of descent and distribution and may be exercised, during the Grantee’s
lifetime, only by the Grantee; provided, however, that the Grantee may, to the
extent provided in the Plan in any manner specified by the Administrator,
designate in writing a beneficiary to exercise his Incentive Stock Option after
the Grantee’s death; and

Notwithstanding
the foregoing and Section 4(c)(vi), the Administrator may, without the
consent of the Grantee, at any time before the exercise of an Option (whether
or not an Incentive Stock Option), take any action necessary to prevent such
option from being treated as an Incentive Stock Option. Any Option not
specifically identified as an Incentive Stock Option, or failing to qualify as
an Incentive Stock Option, shall be a Nonstatutory Stock Option.

(d)    Grant of Restricted Stock.

            (i)  The
Administrator may grant shares of Restricted Stock to any individual eligible
under Section 5 to receive Awards.

 

9

 

           (ii)  The
Administrator shall determine the amount, if any, that a Grantee shall pay for
shares of Restricted Stock, subject to the following sentence. Except with
respect to shares of Restricted Stock that are treasury shares, for which no
payment need be required, the Administrator shall require the Grantee to pay at
least the Minimum Consideration for each share of Restricted Stock granted to
such Grantee. Such payment shall be made in full by the Grantee before the
delivery of the shares and in any event no later than 10 days after the Grant
Date for such shares of Restricted Stock. In the discretion of the
Administrator, and to the extent permitted by law, payment may also be made in
accordance with Section 10.

          (iii)  The
Administrator may, but need not, provide that all or any portion of a Grantee’s
Award of Restricted Stock, or Restricted Stock acquired upon exercise of an
Option, shall be forfeited:

(A)   except as otherwise specified in the Award
Agreement, upon the Grantee’s termination of Continuous Status as an Employee
or Consultant for reasons other than death, Disability or any other reason
specified in the Award Agreement within a specified time period after the Grant
Date, or

(B)   if the Company or the Grantee does not
achieve specified performance goals (if any) within a specified time period
after the Grant Date and before the Grantee’s termination of Continuous Status
as an Employee or Consultant, or

(C)   upon failure to satisfy such other
restrictions as the Administrator may specify in the Award Agreement; provided
that, subject to Section 4(c)(ix), in no case shall such Award become
nonforfeitable before the first anniversary of the Grant Date.

          (iv)  If
a share of Restricted Stock is forfeited, then if the Grantee was required to
pay for such share or acquired such Restricted Stock upon the exercise of an
Option, the Grantee shall be deemed to have resold such share of Restricted
Stock to the Company at a price equal to the lesser of (A) the amount paid
or, if the Restricted Stock was acquired on exercise of an Option, the Option
Price paid by the Grantee for such share of Restricted Stock, or (B) the
Fair Market Value of a share of Stock on the date of such forfeiture. The
Company shall pay to the Grantee the required amount as soon as is
administratively practical. Such share of Restricted Stock shall cease to be
outstanding, and shall no longer confer on the Grantee thereof any rights as a
stockholder of the Company, from and after the later of the date the event
causing the forfeiture occurred or the date of the Company’s tender of the
payment specified above, whether or not such tender is accepted by the Grantee.

           (v)  The
Administrator may provide that any share of Restricted Stock shall be held
(together with a stock power executed in blank by the Grantee) in escrow by the
Secretary of the Company until such shares become nonforfeitable or are
forfeited. Any share of Restricted Stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to the restrictions
set forth in the Plan and the Award Agreement. If any shares of Restricted
Stock become nonforfeitable, the Company shall cause certificates for such
shares to be issued or reissued without such legend.

(e)    Grant of Performance
Units, Performance Shares and other Performance Based Awards.

            (i)  Before
the grant of any performance unit, performance share, or other performance
based Award, the Administrator shall:

(A)   condition the grant, exercise, vesting or
settlement of performance units, performance shares or other performance based
Awards on the achievement of specified performance goals in accordance with
this Section 6, with the performance period during

 

10

 

which achievement of such performance
goals may be measured (the “Measuring Period”) being any period specified by
the Administrator;

(B)   take any necessary action to assure that
where a performance goal is established in connection with an Award covered by
this Section it must be (1) objective, so that a third party having
knowledge of the relevant facts could determine whether the goal is met,
(2) prescribed in writing by the Administrator before the beginning of the
applicable Measuring Period or at such later date not later than 90 days after
the commencement of the Measuring Period when fulfillment is substantially
uncertain and in any event before completion of 25% of the Measuring Period,
and (3) based on any one or more of the following performance goals (“Performance
Goals”) (which may be applied to an individual, a Subsidiary, a business unit
or division, or the Company and any one or more of its Subsidiaries, business
units or divisions as a group, as determined by the Administrator):  (i) total stockholder return;
(ii) the achievement of a specified closing or average closing price of
the Stock; (iii) the price of a share of Common Stock or the absolute or
percentage increase in the closing or average closing price of the Stock;
(iv) Fair Market Value of the Company or any Subsidiary or shares of
Common Stock or stock of any Subsidiary, (v) the absolute or percentage
increase in market share; (vi) one or more of the following measures of
the Company’s net income for the specified Measuring Period determined in
accordance with generally accepted accounting principles as consistently
applied by the Company: absolute net income (before or after taxes) or
operating income or a percentage or absolute dollar increase in net income
(before of after taxes) or operating income; earnings per share or a percentage
or absolute dollar increase in earnings per share; return on assets employed,
equity, capital or investment or a percentage or absolute dollar increase in
return on assets employed, equity, capital or investment; absolute gross (or
net or operating) margins or percentage increase in gross (or net or operating)
margins; absolute cash flow from operations or a percentage on absolute dollar
increase in cash flow; or the Company’s absolute gross revenues or a percentage
or absolute dollar increase in gross revenues for the specified Measuring
Period determined in accordance with generally accepted accounting principles
as consistently applied by the Company; and/or (vii) achievement of
advances in research; implementation or completion of projects or processes;
new product development; development of products to pre-clinical phase;
commencement, advancement or completion of clinical trials for a product; FDA
or other regulatory body approval for commercialization of products; commercial
launch of new products; the formation of joint ventures or collaborations;
increase in customer base; measures of customer satisfaction or economic value
added. The awards may be based on the Company’s performance alone, or the
Company’s performance may be measured against variously weighted published
benchmark indices, including, but not limited to, various stock market indices
with respect to the price of a share of Common Stock, that the Administrator
determines are representative of the Company’s peer group. If and to the extent
permitted for Awards intended to qualify as “performance-based” under
Section 162(m) of the Code, the Administrator may provide for the
adjustment of such performance goals to reflect changes in accounting methods,
corporate transactions (including, without limitation, dispositions and
acquisitions) and other similar types of events or circumstances occurring
during the applicable Measuring Period.

Each
performance unit will have an initial value that is established by the
Administrator at the Grant Date. Each performance share shall have an initial
value equal to not less than Fair Market Value of a share of Stock on the Grant
Date.

 

11

 

(C)   at the expiration of the applicable Measuring
Period, determine the extent to which the performance goals established
pursuant to this Section are achieved 
and the extent to which each performance-based Award has been earned
(the “Performance Percentage”). The Administrator may not exercise its
discretion to enhance the value of an Award that is subject to
performance-based conditions imposed under this Section.

           (ii)  When
granted, performance units or performance shares may, but need not, be
identified with shares of Stock subject to a specific Option or specific shares
of Restricted Stock of the Grantee granted under the Plan in a number equal to
or different from the number of the performance units or performance shares so
granted. If performance units or performance shares are identified with shares
of Stock subject to an Option or shares of Restricted Stock, then unless
otherwise provided in the applicable Award Agreement, the Grantee’s associated
performance units shall terminate upon (A) the expiration, termination,
forfeiture or cancellation of such Option or shares of Restricted Stock,
(B) the exercise of such Option or (C) the date such shares of
Restricted Stock become nonforfeitable.

(f)     Grant of Stock
Appreciation Rights.

            (i)  SARS
granted under the Plan will have such vesting and other terms and conditions as
the Administrator, acting in its discretion in accordance with the Plan, may
determine, either at the time the SAR is granted or, if the holder’s rights are
not adversely affected, at any subsequent time. The Administrator may impose
restrictions on the settlement of SARs, and/or make or impose such other
arrangements or conditions as it deems appropriate for the deferral of income
attributable to, the exercise of SARs granted under the Plan.

           (ii)  SARs
may be awarded in conjunction with an Option Award (“Tandem SARs”) or
independent of any Option Award (“Stand-Alone SARs”). A Tandem SAR may be
awarded either at or after the time the related Option Award is granted,
provided that a Tandem SAR awarded in conjunction with an ISO may only be
awarded at the time the ISO is granted.

          (iii)  The
base price per share of Stock covered by a SAR granted under the Plan may not
be less than the Fair Market Value of a share of Stock on the Grant Date of the
SAR, provided that, in the case of a Tandem SAR awarded in conjunction with an
Incentive Stock Option granted to a “10% Owner,” the base price may not be less
than 110% of the Fair Market Value of a share of Stock on the Grant Date of the
SAR.

          (iv)  Unless
sooner terminated in accordance with its terms, a Stand-Alone SAR will
automatically expire on the tenth anniversary of the Grant Date and a Tandem
SAR will expire upon the expiration of the related Option.

           (v)  The
Administrator may establish such exercisability and other conditions applicable
to a SAR following the Grantee’s termination of Continuous Status as an
Employee or Consultant as it deems appropriate on a grant-by-grant basis.

(g)    Grant of
Stock Bonuses.   The Administrator may grant shares of Stock as
a bonus to any individual eligible under Section 5 to receive Awards in
such amount and subject to such terms and conditions as the Administrator, in
its sole discretion, shall determine.

(h)    Reduction
of Available Shares.   Upon the granting of an Award, but
subject to Section 3(c), the number of shares of Stock reserved for
issuance under the Plan shall be reduced by the number of shares of Stock
subject to such Award.

7.      Grantee’s Agreement to
Serve.   Each Grantee who is granted an Award shall, by
executing such Grantee’s Award Agreement, agree that such Grantee will remain
in the employ of, or available as a consultant to, the Company or any of its
Subsidiaries for at least one year after the Grant Date. No

 

12

 

obligation of the Company or any of its
Subsidiaries as to the length of any Grantee’s employment or consulting
relationship shall be implied by the terms of the Plan, any grant of an Award
hereunder or any Award Agreement. The Company and its Subsidiaries reserve the
same rights to terminate employment or service of any Grantee as existed before
the Effective Date.

8.      Limited
Transferability.   Subject to the terms of this Plan, the terms
of any applicable Award Agreement or the requirements of any applicable law,
each Award (other than Restricted Stock and stock bonuses) granted hereunder
shall not be assignable or transferable other than by will or the laws of
descent and distribution and may be exercised, during the Grantee’s lifetime,
only by the Grantee; provided, however, that the Administrator may, in its
discretion, authorize all or a portion of the Options (other than Incentive
Stock Options) granted to a Grantee to be on terms which permit, once such
Options have vested, transfer by such Grantee to:

(a)    the spouse, children or grandchildren of the
Grantee (“Immediate Family Members”);

(b)    a trust or trusts for the exclusive benefit
of such Immediate Family Members, or;

(c)    a partnership in which such Immediate Family
Members are the only partners, provided that:

            (i)  there
may be no consideration for any such transfer;

           (ii)  the
Award Agreement pursuant to which such Options are granted expressly provides
for transferability in a manner consistent with this Section 8; and

          (iii)  subsequent
transfers of transferred Options shall be prohibited except those in accordance
with Section 14(b). Following transfer, any such Options shall continue to
be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of Section 14(b) hereof
the term “Grantee” shall be deemed to refer to the transferee. The provisions
of this Plan relating to the period of exercisability and expiration of the
Option shall continue to be applied with respect to the original Optionee, and
the Options shall be exercisable by the transferee only to the extent, and for
the periods, set forth in this Plan as to the original Grantee.

9.      Exercise.

(a)    Exercise
of Options. Subject to Section 4(c)(ix) and such terms and
conditions as the Administrator may impose in the Award Agreement, each Option
shall become exercisable with respect to 25% of the shares subject thereto on
each of the first four annual anniversaries of the Grant Date of such Option
unless the Administrator provides otherwise in the Award Agreement.

Each
Option shall be exercised by delivery to the Company of written notice of
intent to purchase a specific number of shares of Stock subject to the Option,
which notice may be delivered electronically in accordance with procedures
established by the Administrator. The Option Price of any shares of Stock or
shares of Restricted Stock as to which an Option shall be exercised shall be
paid in full at the time of the exercise. Payment may, at the election of the
Grantee, be made in any one or any combination of the following:

            (i)  cash;

           (ii)  check;

          (iii)  surrender
of other shares of Stock which (i) in the case of shares of Stock acquired
upon exercise of an option under any compensation plan maintained by the
Company, have been owned by the Grantee for more than six (6) months on
the date of surrender, and (ii) have a Fair Market Value on the date of
surrender equal to the Option Price of the exercised Option shares;

 

13

 

          (iv)  with
the approval of the Administrator, shares of Restricted Stock (issued under the
Plan or any other compensation plan maintained by the Company) held by the
Grantee for at least 6 months prior to exercise of the Option, each valued at
the Fair Market Value of a share of Stock on the date of exercise;

           (v)  delivery
of a properly executed exercise notice together with such other documentation
as the Administrator and a broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price (a “Cashless Exercise”); or

          (vi)  any
combination of the foregoing methods of payment

In
the discretion of the Administrator and to the extent permitted by law, payment
may also be made in accordance with Section 10.

Notwithstanding
the foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company’s Stock. The
Company reserves, at any and all times, the right, in the Company’s sole and
absolute discretion, to establish, decline to approve or terminate any program
or procedures for the exercise of Options by means of a Cashless Exercise.

If
Restricted Stock (“Tendered Restricted Stock”) is used to pay the Option Price
for Stock subject to an Option, then the Administrator may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the
Option shall be subject to the same restrictions as the Tendered Restricted
Stock, determined as of the date of exercise of the Option, or (ii) a
number of shares of Stock acquired on exercise of the Option equal to the
number of shares of Tendered Restricted Stock shall, unless the Administrator
provides otherwise, be subject to the same restrictions as the Tendered
Restricted Stock, determined as of the date of exercise of the Option.

(b)    Exercise of Performance
Units.

            (i)  Subject
to Section 4(c)(ix) and such terms and conditions as the
Administrator may impose or as otherwise provided in any Award Agreement, if,
with respect to any performance unit, the minimum performance goals have been
achieved during the applicable Measuring Period, then such performance unit
shall be exercisable commencing on the later of (A) the first anniversary
of the Grant Date or (B) the first day after the end of the applicable Measuring
Period. Performance units shall be exercised by delivery to the Company of
written notice of intent to exercise a specific number of performance units;
provided, however, that performance units not identified with shares of Stock
subject to an Option or shares of Restricted Stock shall be deemed exercised on
the date on which they first become exercisable. Unless otherwise provided in
the applicable Award Agreement, the exercise of performance units which are
identified with shares of Stock subject to an Option or shares of Restricted
Stock shall result in the cancellation or forfeiture of such shares of Stock
subject to Option or shares of Restricted Stock, as the case may be, to the
extent of such exercise.

           (ii)  The
benefit for each performance unit exercised shall be an amount equal to the
product of:

(A)   the Unit Value (as defined below) multiplied
by

(B)   the Performance Percentage attained during
the Measuring Period for such performance unit.

 

14

 

          (iii)  The Unit Value
shall be, as specified by the Administrator:

(A)   a dollar amount, or

(B)   an amount equal to the Fair Market Value of a
share of Stock on the Grant Date.

          (iv)  The
benefit upon the exercise of a performance unit shall be payable as soon as is
administratively practicable after the later of (A) the date the Grantee
exercises or is deemed to exercise such performance unit, or (B) the date
(or dates in the event to installment payments) as provided in the applicable
Award Agreement. Such benefit shall be payable in cash, except that the
Administrator may provide in the Award Agreement that benefits, with respect to
any particular exercise, may be paid wholly or partly in Stock. Notwithstanding
the foregoing, if the Administrator in its discretion determines that the
exercise of performance units would preclude the use of pooling of interests
accounting following a sale of the Company which is reasonably likely to occur
and that such preclusion of pooling would have a material adverse effect on the
sale of the Company, the Administrator, in its discretion, may either
unilaterally bar the exercise of performance units by canceling the performance
units prior to the Change of Control or cause the Company to pay the
performance units rights benefit in Stock if it determines that such payment
would not cause the transaction to be ineligible for pooling. If the Award
Agreement provides that the benefit may be paid wholly in Stock unless the
Administrator specifies at the time of exercise that the benefit shall be paid
partly or wholly in cash, the number of shares of Stock payable in lieu of cash
shall be determined by valuing the Stock at its Fair Market Value on the date
such benefit is to be paid.

(c)    Payment of
Performance Shares.   Subject to Section 4(c)(ix), and such
terms and conditions as the Administrator may impose or as otherwise provided
in the Award Agreement, if, with respect to any performance share, the minimum
performance goals have been achieved during the applicable Measuring Period,
then the Company shall pay to the Grantee of such Award shares of Stock equal
in number to the product of the number of performance shares specified in the
applicable Award Agreement multiplied by the Performance Percentage achieved
during such Measuring Period, except to the extent that the Administrator in
its discretion determines that cash be paid in lieu of some or all of such
shares of Stock. The amount of cash payable in lieu of a share of Stock shall
be determined by valuing such share at its Fair Market Value on the business
day next preceding the date such cash is to be paid. Payments pursuant to this
Section 9(c) shall be made as soon as administratively practical
after the end of the applicable Measuring Period. Any performance shares with
respect to which the performance goals have not been achieved by the end of the
applicable Measuring Period shall expire.

(d)    Exercise
of SARs.   Subject to Section 4(c)(ix), and such terms and
conditions as the Administrator may impose in the Award Agreement, each SAR shall
become exercisable as provided in the Award Agreement. Except as otherwise
specifically provided herein, a Tandem SAR will be exercisable only at the same
time and to the same extent and subject to the same conditions as the related
Option is exercisable. The exercise of a Tandem SAR will terminate the related
Option to the extent of the shares of Stock with respect to which the SAR is
exercised, and vice versa. An outstanding and exercisable SAR may be exercised
by transmitting to the Secretary of the Company (or other person designated for
this purpose by the Administrator) a written notice, which may be delivered
electronically in accordance with procedures established by the Administrator,
identifying the SAR that is being exercised, specifying the number of shares of
Stock covered by the exercise and containing such other information or
statements as the Administrator may require, and by satisfying any applicable
tax withholding obligations pursuant to Section 12. The Administrator may
establish such rules and procedures as it deems appropriate for the
exercise of SARs under the Plan. Upon the exercise of a SAR (or designated
settlement date, if applicable), the holder will be entitled to receive

 

15

 

an amount, in cash and/or shares of Stock
as determined by the Administrator, equal to the product of (i) the number
of shares of Stock with respect to which the SAR is being exercised (or
settled) and (ii) the difference between the Fair Market Value of a share
of Stock on the date the SAR is exercised (or settled) and the base price per
share of the SAR.

(e)    Special
Rules for Section 16 Persons.   No Option, SAR,
performance unit, or performance share (if the benefit payable with respect to
such performance unit or performance share is to be determined by reference to
the Fair Market Value of the Stock on the date the performance unit or
performance share is exercised) shall be exercisable by a Section 16
Person during the first six months after its Grant Date, except as exempted
from Section 16 of the 1934 Act under Rule 16a-2(d) under
the 1934 Act or as may from time to time be permitted by the Administrator.

(f)     Full
Vesting upon Change of Control.   Except as otherwise provided
in this Plan or in the applicable Award Agreement, in the event of a Change of
Control, all unvested Awards shall become immediately vested and exercisable;
provided that the benefit payable with respect to any performance unit or
performance share with respect to which the Measuring Period has not ended as
of the date or such Change of Control shall be equal to the product of the Unit
Value multiplied successively by each of the following:

(1)    a fraction, the numerator of which is the
number of months (including as a whole month any partial month) that have
elapsed since the beginning of such Measuring Period until the date of such
Change of Control and the denominator of which is the number of months
(including as a whole month any partial month) in the Measuring Period; and

(2)    a percentage equal to the greater of the
target percentage, if any, specified in the applicable Award Agreement or the
maximum percentage, if any, that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance
goals have been achieved as of the date of such Change of Control would
continue until the end of the Measuring Period.

10.    Loans and
Guarantees.     The
Administrator may:

(a)    allow a Grantee, other than a
Section 16 Person, to defer payment to the Company of all or any portion
of (i) the Option Price of an Option, (ii) the purchase price of a
share of Restricted Stock, or (iii) any taxes associated with a benefit
hereunder which is not a cash benefit at the time such benefit is so taxable,
or

(b)    cause the Company to guarantee a loan from a
third party to the Grantee, other than a Section 16 Person, in an amount
equal to all or any portion of such Option Price, purchase price, or any
related taxes.

Any
such payment deferral or guarantee by the Company pursuant to this
Section 10 shall be on such terms and conditions as the Administrator may
determine, provided, that the interest rate applicable to any such payment
deferral shall not be more favorable to the Grantee than the terms applicable
to funds borrowed by the Company from time to time. Notwithstanding the
foregoing, a Grantee shall not be entitled to defer the payment of such Option
Price, purchase price or any related taxes unless the Grantee (i) enters
into a binding obligation to pay the deferred amount and (ii) except with
respect to treasury shares, pays upon exercise of an Option or grant of shares
of Restricted Stock, as the case may be, an amount equal to or greater than the
Minimum Consideration therefor. If the Administrator has permitted a payment
deferral or caused the Company to guarantee a loan pursuant to this
Section 10, then the Administrator may require the immediate payment of
such deferred amount or the immediate release of such guarantee upon the
Grantee’s termination of employment or if the Grantee sells or otherwise
transfers the Grantee’s shares of Stock purchased pursuant to such deferral or
guarantee. The 

 

16

 

Administrator may at any time in its
discretion forgive the repayment of any or all of the principal of or interest
on any such deferred payment obligation.

11.    Notification
under Section 83(b).   The Administrator may, on the Grant
Date or any later date, prohibit a Grantee from making the election described
below. If the Administrator has not prohibited such Grantee from making such
election, and the Grantee, in connection with the grant or exercise of any
Option, the grant of any share of Restricted Stock, grant or vesting of any
Stock bonus, the vesting or sale of shares of Stock or at any other time as a
result of participation in the Plan, makes the election permitted under
Section 83(b) of the Code (i.e., an election to include in such
Grantee’s gross income in the year of transfer the amounts specified in
Section 83(b) of the Code), such Grantee shall notify the Company of
such election within 10 days of filing notice of the election with the internal
Revenue Service, in addition to any filing and notification required pursuant
to regulations issued under the authority of Section 83(b) of the
Code.

12.    Mandatory Tax Withholding.

(a)    Whenever under the Plan, cash or shares of
Stock are to be delivered upon exercise or payment of an Award or upon a share
of Restricted Stock becoming nonforfeitable, or any other event with respect to
rights and benefits hereunder, the Company shall be entitled to require as a
condition of payment or delivery (i) that the Grantee remit an amount
sufficient to satisfy all federal, state, and local tax withholding
requirements related thereto, (ii) the withholding of such sums from
compensation otherwise due to the Grantee or from any shares of Stock due to
the Grantee under the Plan or (iii) any combination of the foregoing.

(b)    If any disqualifying disposition described
in Section 6(c)(vi) is made with respect to shares of Stock acquired
under an Incentive Stock Option granted pursuant to the Plan or any election
described in Section 11 is made, then the person making such disqualifying
disposition or election shall remit to the Company an amount sufficient to
satisfy all federal, state, and local tax withholding requirements thereby
incurred; provided that, in lieu of or in addition to the foregoing, the
Company shall have the right to withhold such sums from compensation otherwise
due to the Grantee or from any shares of Stock due to the Grantee under the
Plan.

(c)    In making any Award the Administrator may
elect to pay, as a cash bonus, the amount of the tax owed by the Grantee up to
a maximum of thirty (30%) percent of the Fair Market Value of the Award.

13.    Elective Share
Withholding.

(a)    Subject to Section 13(b), and with the
consent of Administrator, the giving of which shall be within the Administrator’s
sole discretion, a Grantee may elect the withholding (“Share Withholding”) by
the Company of a portion of the shares of Stock otherwise deliverable to such
Grantee upon the exercise or payment of an Award or upon a share of Restricted
Stock becoming nonforfeitable (each a “Taxable Event”) having a Fair Market
Value equal to:

            (i)  the
minimum amount necessary to satisfy required federal, state, or local tax
withholding liability attributable to the Taxable Event; or

                (ii)           with
the Administrator’s prior approval, a greater amount, not to exceed the
estimated total amount of such Grantee’s tax liability with respect to the
Taxable Event.

 

17

 

(b)    Each Share Withholding election by a Grantee
shall be subject to the following restrictions:

            (i)  any
Grantee’s election shall be subject to the Administrator’s right to revoke such
election of Share Withholding by such Grantee at any time before the Grantee’s
election if the Administrator has reserved the right to do so in the Award
Agreement:

           (ii)  if
the Grantee is a Section 16 Person, such Grantee’s election shall be
subject to the disapproval of the Administrator at any time, whether or not the
Administrator has reserved the right to do so;

          (iii)  the
Grantee’s election must be made before the date (the “Tax Date”) on which the
amount of tax to be withheld is determined;

          (iv)  the
Grantee’s election shall be irrevocable;

           (v)  a
Section 16 Person may not elect Share Withholding within six months after
the grant of the related Option (except if the Grantee dies or incurs a
Disability before the end of the six-month period); and

          (vi)  except
to the extent such condition may be waived by the securities law counsel to the
Company, a Section 16 Person must elect Share Withholding either six
months before the Tax Date or during the 10-business day period beginning
on the third business day after the release of the Company’s quarterly or
annual statement of financial results.

14.    Termination
of Continuous Status as an Employee or Consultant.   Except as
otherwise provided in this Plan or by the Administrator in the Award Agreement
or otherwise:

(a)    For Cause.   If
a Grantee has a termination of Continuous Status as an Employee or Consultant
for Cause,

            (i)  the
Grantee’s shares of Restricted Stock that are forfeitable shall thereupon be
forfeited, subject to the provisions of Section 6(d)(iv) regarding
repayment of certain amounts to the Grantee; and

           (ii)  any
unexercised Option, SAR, performance unit or performance share shall thereupon
terminate.

(b)    On Account
of Death or Disability.   If a Grantee has a termination of
Continuous Status as an Employee or Consultant on account of the Grantee’s
death or Disability, then, except as otherwise provided in the Award Agreement,

            (i)  the
Grantee’s shares of Restricted Stock that were forfeitable shall thereupon
become nonforfeitable;

           (ii)  any
unexercised Option, or SAR, whether or not exercisable on the date of such
termination of Continuous Status as an Employee or Consultant on account of
death or Disability may be exercised, in whole or in part, at any time within
twelve (12) months after such termination of Continuous Status as an Employee
or Consultant by the Grantee, or after the Grantee’s death, by (A) his
personal representative or by the person to whom the Option is transferred by
will or the applicable laws of descent and distribution, (B) the Grantee’s
beneficiary designated in accordance with Sections 6(c)(vii) or 8, or
(C) the then-acting trustee of the trust described in Section 8; and

          (iii)  any
unexercised performance unit or performance share may be exercised in whole or
in part, at any time within 180 days after such termination of Continuous
Status as an Employee or Consultant on account of death or Disability by the
Grantee or, after the Grantee’s death, by (A) his personal representative
or by the person to whom the performance unit or performance

 

18

 

share
is transferred by will or the applicable laws of descent and distribution,
(B) the Grantee’s beneficiary designated in accordance with
Section 8, or (C) the then-serving trustee or the trust described in
Section 8; provided that the benefit payable with respect to any
performance unit or performance share with respect to which the Measuring
Period has not ended as of the date of such termination of Continuous Status as
an Employee or Consultant on account of death or Disability shall be equal to
the product of the Unit Value multiplied successively by each of the following:

(1)    a fraction, the numerator of which is the
number of months (including as a whole month any partial month) that have
elapsed since the beginning of such Measuring Period until the date of such
termination of Continuous Status as an Employee or Consultant and the
denominator of which is the number of months (including as a whole month any
partial month) in the Measuring Period; and

(2)    a percentage determined in the discretion of
the Committee that would be earned under the terms of the applicable Award
Agreement assuming that the rate at which the performance goals have been
achieved as of the date of such termination 
of Continuous Status as an Employee or Consultant would continue until
the end of the Measuring Period, or, if the Administrator elects to compute the
benefit after the end of the Measuring Period, the Performance Percentage, as
determined by the Administrator, attained during the Measuring Period for the
performance unit or performance share.

(c)    Any Other
Reason.   If a Grantee has a termination of Continuous Status as
an Employee or Consultant for a reason other than for Cause, death, or
Disability,

            (i)  the
Grantee’s shares of Restricted Stock, to the extent forfeitable on the date of
the Grantee’s termination of Continuous Status as an Employee or Consultant
shall be forfeited on such date;

           (ii)  any
unexercised Option or SAR, in either case to the extent exercisable on the date
of the Grantee’s termination of Continuous Status as an Employee or Consultant,
may be exercised in whole or in part, not later than the 90th day following the
Grantee’s termination of Continuous Status as an Employee or Consultant;
provided, however, that (A) if such 90th day is not a business day, such
Option or SAR may be exercised not later than the first business day following
such 90th day and (B) if the Grantee has entered into an agreement with
the Company not to sell any shares of Stock (or the capital stock of a
successor to the Company) for a specified period following the consummation of
a business combination between the Company and another corporation or entity
(the “Specified Period”), such Option may be exercised in whole or in part
until the later of such 90th day following the termination of the Grantee’s
Continuous Status as an Employee or Consultant or 10 business days following
the expiration of the Specified Period; and

          (iii)  the
Grantee’s performance units and performance shares shall become non-
forfeitable and may be exercised in whole or in part within 90 days after
termination of Continuous Status as an Employee or Consultant, but only if and
to the extent determined by the Administrator or as set forth in the Award
Agreement.

(d)    Change of
Status.   Notwithstanding the foregoing, in the event of a
Grantee’s change of status from Employee to Consultant (or from Consultant to
Employee), there shall not be a termination of the individual’s Awards
provided, however, any Incentive Stock Option granted to an Employee shall
automatically convert to a Nonstatutory Stock Option on the 91st day following
such change of status.

 

19

 

(e)    Extension
of Term.   In the event of termination of the Grantee’s
Continuous Status as an Employee or Consultant other than for Cause, the term
of any Award (whether or not exercisable on the date of the Grantee’s
termination of Continuous Status as an Employee or Consultant) which by its
terms would otherwise expire after the Grantee’s termination of Continuous
Status as an Employee or Consultant but prior to the end of the period
following the Grantee’s termination of Continuous Status as an Employee or
Consultant described in Sections 14(b), (c) and (d) above for
exercise of Awards may, in the discretion of the Administrator, be extended so
as to permit any unexercised portion thereof to be exercised at any time within
such period. The Administrator may further extend the period of exercisability
to permit any unexercised portion thereof to be exercised with a specified
period provided by the Administrator. However, in no event may the term of any
Award expire more than 10 years after the Grant Date of such Award.

15.    Equity Incentive
Plans of Foreign Subsidiaries.   The Administrator may authorize
any foreign Subsidiary, if any, to adopt a plan for granting Awards (“Foreign
Equity Incentive Plan’’). All Awards granted under such Foreign Equity
Incentive Plans shall be treated as grants under the Plan. Such Foreign Equity
Incentive Plans shall have such terms and provisions as the Administrator
permits not inconsistent with the provisions of the Plan and which may be more
restrictive than those contained in the Plan. Awards granted under such Foreign
Equity Incentive Plans shall be governed by the terms of the Plan except to the
extent that the provisions of the Foreign Equity Incentive Plans are more
restrictive than the terms of the Plan, in which case such terms of the Foreign
Equity Incentive Plans shall control.

16.    Substituted
Awards.   Subject to Section 18 and Section 25, if the
Administrator cancels any Award (granted under this Plan or any plan of any
entity acquired by the Company or any of its Subsidiaries), and a new Award is
substituted therefor, then the Administrator may determine the terms and
conditions of such new Award; provided that (a) the Option Price of any
new option shall not be less than 100% of the Fair Market Value of a share of
Stock on the date of grant of the new Award; (b) no Award shall be canceled
without the consent of the Grantee if the terms and conditions of the new Award
to be substituted are not at least as favorable as the terms and conditions of
the Award to be cancelled (and the Grant Date of the new Award shall be the
date on which such new Award is granted); and (c) no new Award may be
granted if the grant of such new Award would constitute a “repricing,” under
Section 25(g), unless approved by the stockholders.

17.    Securities Law Matters;
Postponement of Exercise or Payout.

(a)    If the Administrator deems it necessary to
comply with the Securities Act of 1933, the Administrator may require a written
investment intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for shares of Stock.

(b)    The Administrator may postpone any grant,
exercise or vesting of an Award hereunder for such time as the Administrator in
its sole discretion may deem necessary in order to permit the Company
(i) to effect, amend or maintain any necessary registration of the Plan or
the shares of Stock issuable upon the grant or exercise of any Award under the
securities laws, (ii) to permit any action to be taken in order to
(A) list such shares of Stock or other shares of stock of the Company on a
stock exchange if such shares of Stock or other shares of stock of the Company
are not then listed on such exchange or (B) comply with restrictions or
regulations incident to the maintenance of a public market for such shares of
Stock or other shares of stock of the Company, including any rules or
regulations of any stock exchange on which the shares of Stock or other shares
of stock of the  Company are listed,
(iii) to determine that such shares of Stock in the Plan are exempt from
such registration or that no action of the kind referred to in
(ii)(B) above needs to be taken, (iv) to comply with any other
applicable law, including without limitation, securities laws, (v) during
any such time the Company or any Subsidiary is prohibited from doing any of such
acts under applicable law, including without limitation, during the course of
an investigation of the Company or any Subsidiary, or under any

 

20

 

contract, loan agreement or covenant or
other agreement to which the Company or any Subsidiary is a party, or
(vi) to otherwise comply with any prohibition on such acts or payments
during  any applicable blackout period;
and the Company shall not be obligated by virtue of any terms and conditions of
any applicable Award Agreement or any provision of the Plan to recognize the
grant, exercise or vesting of any Award or to grant, sell or issue shares of
Stock or make any such payments in violation of the securities laws or the laws
of any government having jurisdiction thereof or any of the provisions hereof.
Any such postponement shall not extend the term of an Award and neither the
Company nor its directors and officers nor the Administrator shall have any
obligation or liability to any Participant or to any other person with respect
to shares of Stock or payments as to which the Award shall lapse because of
such postponement.

18.    Code Section 162(m).

(a)    To comply with Section 162(m) of
the Code, the number of shares for which Awards may be granted to any Grantee
in any calendar year, or “earned” by any Grantee under any performance-based
award during any calendar year, shall not exceed 500,000 as such number may be
adjusted in accordance with Section 24 of this Plan. If an equity Award
under the Plan is canceled, the Stock otherwise issuable pursuant thereto shall
continue to be counted against the maximum number of shares of Stock which may
be covered by grants or sales under this Plan to any one individual in any
calendar year and any Stock issuable pursuant to any replacement Option, SAR,
Stock sale or other equity Award also shall count against such maximum limit.

(b)    If the Company determines that compensation
payable under the Plan is subject to the Code
Section 162(m) limitation on deduction and if the Company determines
that a particular Award should qualify as performance based compensation so as
to be exempt from the deduction limitation, the following provisions to the
extent applicable shall apply with respect to such grant:

            (i)  The
Option Price for any Option and the exercise price for any SAR shall equal 100%
of the Fair Market Value of the Stock on the Grant Date.

           (ii)  The
performance units or performance shares awarded under the Plan to any Grantee
for any Measuring Period shall not have a value in excess of the Grantee’s base
annual salary in effect at the time of the grant of the Award multiplied by the
number of years in the Measuring Period. The Performance Percentage with
respect to performance units and performance shares attained during the
Measuring Period for such performance units or performance shares shall not
exceed 150%.  The value of any stock
bonuses awarded to a Grantee for each calendar year shall not exceed the
Grantee’s base annual salary in effect for such year. The value of performance
shares and stock bonuses awarded under the Plan to any Grantee for purposes of
the limitations contained in this subparagraph shall be determined by valuing
the Stock at its Fair Market Value on the date the performance shares or stock
bonuses are granted.

          (iii)  The
performance goals and the amount of compensation under the goals applicable to
the grant of any performance unit, performance share, stock bonus or other
performance-based Award shall be determined as provided in
Section 6(e) hereof.

          (iv)  The
Administrator with respect to any person covered by
Section 162(m) shall be comprised solely of two or more outside
directors as defined for purposes of the regulations under Code
Section 162(m).

19.    Funding.   Benefits
payable under the Plan to any person shall be paid directly by the Company. The
Company shall not be required to fund, or otherwise segregate assets to be used
for payment of benefits under the Plan.

 

21

 

20.    No
Employment Rights.   Neither the establishment of the Plan, nor
the granting of any Award shall be construed to (a) give any Grantee the
right to remain employed by the Company or any of its Subsidiaries or to any
benefits not specifically provided by the Plan or (b) in any manner modify
the right of the Company or any of its Subsidiaries to modify, amend, or
terminate any of its employee benefit plans.

21.    Rights as
a Stockholder.   A Grantee shall not, by reason of any Award
(other than Restricted Stock) have any right as a stockholder of the Company
with respect to the shares of Stock which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to him. Shares of
Restricted Stock held by a Grantee or held in escrow by the Secretary of the
Company shall confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan or in any Award Agreement. The
Administrator at the time of grant of Restricted Stock, may permit or require
the payment of cash dividends thereon to be deferred and, if the Administrator
so determines, reinvested in additional Restricted Stock to the extent shares
are available under Section 3 or otherwise reinvested. Stock dividends and
deferred cash dividends issued with respect to Restricted Stock shall be
subject to the same restrictions and other terms as apply to the shares with
respect to which such dividends are issued. The Administrator may provide for
crediting to and payment of interest on deferred cash dividends.

22.    Nature of
Payments.   Any and all grants, payments of cash, or deliveries
of shares of Stock hereunder shall constitute special incentive payments to the
Grantee and shall not be taken into account in computing the amount of salary or
compensation of the Grantee for the purposes of defining any pension,
retirement, death or other benefits under (a) any pension, retirement,
profit-sharing, bonus, life insurance or other employee benefit plan of the
Company or any of its Subsidiaries or (b) any agreement between the
Company or any Subsidiary, on the one hand, and the Grantee, on the other hand,
except as such plan or agreement shall otherwise expressly provide.

23.    Non-uniform
Determinations.   The Administrator’s determinations under the
Plan need not be uniform and may be made by the Administrator selectively among
persons who receive, or are eligible to receive, Awards (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Administrator shall be entitled, among other things, to make
non-uniform and selective determinations, to enter into non-uniform and
selective Award Agreements as to (a) the identity of the Grantees,
(b) the terms and provisions of Awards, and (c) the treatment, under
Section 14, of terminations of Continuous Status as an Employee or
Consultant. Notwithstanding the foregoing, the Administrator’s interpretation
of Plan provisions shall be uniform as to similarly situated Grantees.

24.    Adjustments.

(a)    the aggregate number of shares of Stock
issuable pursuant to the Plan and the exercise of Incentive Stock Options, the
maximum number of shares with respect to which Options, SARs or other equity
Awards may be granted to or earned by any Grantee in any calendar year, the
number of shares of Stock and the exercise price per share covered by each
outstanding Option, the number of shares of Stock and the base price per share
covered by each outstanding SAR, the number of shares of Stock covered by each
outstanding performance unit or performance share or other-equity-based Award,
and any per-share base or purchase price or target market price included in the
terms of any such Award and related terms shall all be adjusted proportionately
or as otherwise appropriate to reflect any increase or decrease in the number
of issued shares of Stock resulting from a split-up or consolidation of shares
or any like capital adjustment, or the payment of any stock dividend, and/or to
reflect a change in the character or class of shares covered by the Plan
arising from a readjustment or recapitalization of the Company’s capital stock.

(b)    if the stockholders of the Company receive
capital stock of another corporation (“Exchange Stock”) in exchange for their
shares of Stock in any transaction involving a merger (other than a merger of
the Company in which the holders of Stock immediately prior to the merger have
the same proportionate ownership of common stock in the surviving corporation
immediately after the merger),

 

22

 

consolidation, acquisition of property or
stock, separation or reorganization (other than a mere reincorporation or the
creation of a holding company) (an “Exchange Transaction”), all outstanding
Options shall be converted into Options to purchase shares of Exchange Stock
and all outstanding SARs shall be converted into SARs relating to shares of
Exchange Stock unless the Board, in its sole discretion, determines that all
such Options and/or SARs shall instead terminate, in which case the Company
shall notify the Option holders and SAR holders in writing or electronically,
at least fifteen (15) days prior to the consummation of the Exchange
Transaction, that the Option and SAR holders shall have the right, contingent
upon the occurrence of the Exchange Transaction, to exercise all of his or her
outstanding Options and SARs in full (whether or not the vesting conditions, if
any, set forth in the related Option and SAR Award Agreements have been
satisfied) for the period specified in the notice (but in any case not less
than fifteen days from the date of such notice); provided that, if the Exchange
Transaction does not take place within the specified period in the notice for
any reason whatsoever, the notice and any exercise pursuant thereto shall be
null and void. The amount and exercise or base price of converted Options and
SARs shall be determined by adjusting the amount and price of the Options and
SARs granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Stock receive in such
merger, consolidation, acquisition or property or stock, separation or
reorganization. To the extent provided in Section 9(f), the converted
Options and SARs shall be fully vested whether or not the vesting requirements
set forth in the Option or SAR Agreement have been satisfied. The Board, acting
in its discretion, but subject to Section 9(f), may provide for cash
settlement and/or make such other adjustments to the terms of any other
outstanding Award as it deems appropriate in the context of an Exchange
Transaction, taking into account the manner in which outstanding Options and
SARs are being treated.

(c)    in the event of any adjustment in the number
of shares covered by any Award pursuant to the provisions hereof, any
fractional shares resulting from such adjustment will be disregarded and each
such Award will cover only the number of full shares resulting from the
adjustment.

(d)    All adjustments under this Section 24
shall be made by the Administrator or the Board as applicable, and such
determinations as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. Unless the Grantee of an Option agrees
otherwise, any change or adjustment to an Incentive Stock Option shall be made
in such a manner so as not to constitute a “modification” as defined in
Section 424(h) of the Code and so as not to cause the Option holder’s
Incentive Stock Option issued hereunder to fail to continue to qualify as an
Incentive Stock Option.

25.    Amendment
of the Plan.   The Board may from time to time in its discretion
amend or modify the Plan without the approval of the stockholders of the
Company, except that:

(a)    The number of shares of Stock which may be
reserved for issuance under the Plan shall not be increased except as provided
in Section 24 above without stockholder approval;

(b)    The types of grants and sales that may be
made under the Plan may not be expanded without stockholder approval;

(c)    The Option price per share of Stock subject
to Incentive Stock Options may not be fixed at less than 100% of the Fair
market Value of a share of Stock on the date the Option is granted and the
other provisions of Section 6(c) may not be changed;

(d)    The expiration date of this Plan may not be
extended;

(e)    The maximum period of ten (10) years
during which the Awards may be exercised may not be extended;

 

23

 

(f)     The class of persons eligible to receive
grants under the Plan as set forth in Section 5 shall not be changed
without stockholder approval; and

(g)    The benefits to eligible participants may
not be materially increased, including any change in the Plan or any Award
Agreement to permit a repricing under generally accepted accounting principles,
or decrease in the exercise price of outstanding equity-based Awards or to
reduce the price at which Stock may be purchased (pursuant to any Option or
other equity-based Award) without stockholder approval.

Except
as otherwise provided in this Plan, in no event may action by the Board or
stockholders to amend this Plan alter or impair the rights of a then existing
Grantee, without the Grantee’s consent, under any Award previously granted to
such Grantee hereunder.

26.    Deferred
Compensation.   No deferral of compensation (as defined under
Code Section 409A or guidance thereto) is intended under this Plan. If any
Award would be considered deferred compensation as defined under Code
Section 409A and if this Plan fails to meet the requirements of Code
Section 409A with respect to such Award, then notwithstanding any
provision in the Plan to the contrary, such Award shall be null and void.
However, the Committee may permit deferrals of compensation pursuant to the
terms of a participant’s Award Agreement, a separate plan or a subplan which
meets the requirements of Code Section 409A and any related guidance.
Additionally, to the extent any Award is subject to Code Section 409A,
notwithstanding any provision in the Plan to the contrary, the Plan does not
permit any distribution pursuant to such Award, or any acceleration or delay of
the time or schedule of any distribution related to such Award, except as
permitted by and in compliance with Code Section 409A, the regulations
thereunder, and/or the Secretary of the United States Treasury.

27.    Termination
of the Plan.   The Plan shall terminate on the tenth (10th)
anniversary of the Effective Date or at such earlier time as the Board may
determine. Any termination. whether in whole or in part, shall not affect any
Award then outstanding under the Plan.

28.    No Illegal
Transactions. The Plan and all Awards granted pursuant to it are
subject to all laws and regulations of any governmental authority which may be
applicable thereto; and notwithstanding any provision of the Plan or any Award,
Grantees shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any Stock or pay any
benefits to a Grantee if such exercise, delivery, receipt or payment would
constitute a violation by the Grantee or the Company of any such law or
regulation.

29.    Controlling
Law.   The law of Illinois, except its law with respect to
choice of law, shall be controlling in all matters relating to the Plan.

30.    Severability.   If
all or any part of the Plan is declared by any court or governmental authority
to be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any portion of the Plan not declared to be unlawful or invalid. Any
Section or part of a Section so declared to be unlawful or invalid
shall, if possible, be construed in a manner which will give effect to the
terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.

 

24

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