Document:

exv10w2

 

“EXHIBIT 10.2”

Xcorporeal, Inc.

 

2006 Incentive Compensation Plan

 

 

Xcorporeal, Inc.

2006 Incentive Compensation Plan

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

     2. Definitions. For purposes of the Plan, the following terms shall be defined as set
forth below.

          (a) “Applicable Laws” means the requirements relating to the administration of equity
compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the
Code, the rules and regulations of any stock exchange upon which the Common Stock is listed and the
applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.

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

          (c) “Award Agreement” means the written agreement evidencing an Award granted under
the Plan.

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

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

          (f) “Cause” shall, with respect to any Participant, have the meaning specified in the
Award Agreement. In the absence of any definition in the Award Agreement, “Cause” shall have the
equivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment,
consulting, change in control or other agreement for the performance of services between the
Participant and the Company or a Related Entity or, in the absence of any such definition in such
agreement, such term shall mean (i) the failure by the Participant to perform his or her duties as
assigned by the Company (or a Related Entity) in a reasonable manner, (ii) any

 

 

violation or breach by the Participant of his or her employment, consulting or other similar
agreement with the Company (or a Related Entity), if any, (iii) any violation or breach by the
Participant of his or her confidential information and invention assignment, non-competition,
non-solicitation, non-disclosure and/or other similar agreement with the Company or a Related
Entity, if any, (iv) any act by the Participant of dishonesty or bad faith with respect to the
Company (or a Related Entity), (v) any material violation or breach by the Participant of the
Company’s or a Related Entity’s policy for employee conduct, if any, (vi) use of alcohol, drugs or
other similar substances in a manner that adversely affects the Participant’s work performance, or
(vii) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably
upon the Participant or the Company or any Related Entity. The good faith determination by the
Plan Administrator of whether the Participant’s Continuous Service was terminated by the Company
for “Cause” shall be final and binding for all purposes hereunder.

          (g) “Change in Control” means and shall be deemed to have occurred on the earliest of
the following dates:

               (i) the date on which any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) obtains “beneficial ownership” (as defined in Rule 13d-3 of the Exchange Act) or a
pecuniary interest in fifty percent (50%) or more of the Voting Stock;

               (ii) the consummation of a merger, consolidation, reorganization or similar transaction other
than a transaction: (1) (a) in which substantially all of the holders of Company’s Voting Stock
hold or receive directly or indirectly fifty percent (50%) or more of the voting stock of the
resulting entity or a parent company thereof, in substantially the same proportions as their
ownership of the Company immediately prior to the transaction; or (2) in which the holders of
Company’s capital stock immediately before such transaction will, immediately after such
transaction, hold as a group on a fully diluted basis the ability to elect at least a majority of
the directors of the surviving corporation (or a parent company);

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

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

     For purposes of determining whether a Change in Control has occurred, a transaction includes
all transactions in a series of related transactions, and terms used in this definition but not

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defined are used as defined in the Plan. The term Change in Control shall not include a sale
of assets, merger or other transaction effected exclusively for the purpose of changing the
domicile of the Company.

     Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in
Control (or any analogous term) in an individual written agreement between the Company and the
Participant shall supersede the foregoing definition with respect to Awards subject to such
agreement (it being understood, however, that if no definition of Change in Control or any
analogous term is set forth in such an individual written agreement, the foregoing definition shall
apply).

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

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

          (j) “Company” means Xcorporeal, Inc., a Delaware corporation. 

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

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

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

               (i) a sale, lease, exclusive license or other disposition of a substantial portion of the
consolidated assets of the Company and its Subsidiaries, as determined by the Plan Administrator,
in its discretion;

               (ii) a sale or other disposition of more than twenty percent (20%) of the outstanding
securities of the Company; or

               (iii) a merger, consolidation, reorganization or similar transaction, whether or not the
Company is the surviving corporation.

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

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

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

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

          (r) “Effective Date” means the effective date of this Plan, which shall be the date
this Plan is adopted by the Board, subject to the approval of the shareholders of the Company.

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

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

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

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

          (w) “Good Reason” shall, with respect to any Participant, have the meaning specified
in the Award Agreement. In the absence of any definition in the Award Agreement, “Good Reason”
shall have the equivalent meaning (or the same meaning as “good reason” or “for good reason”) set
forth in any employment, consulting, change in control or other agreement for the performance of
services between the Participant and the Company or a Related Entity or, in the absence of any such
definition in such agreement(s), such term shall mean (i) the assignment to the Participant of any
duties inconsistent in any material respect with the Participant’s position (including status,
offices, titles and reporting requirements), authority, duties or responsibilities as assigned by
the Company (or a Related Entity) or any other action by the Company (or a Related

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Entity) which results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company (or a Related Entity) promptly after
receipt of notice thereof given by the Participant; (ii) any failure by the Company (or a Related
Entity) to comply with its obligations to the Participant as agreed upon, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the
Company (or a Related Entity) promptly after receipt of notice thereof given by the Participant;
(iii) the Company’s (or Related Entity’s) requiring the Participant to be based at any office or
location more than fifty (50) miles from the location of employment as of the date of Award, except
for travel reasonably required in the performance of the Participant’s responsibilities; (iv) any
purported termination by the Company (or a Related Entity) of the Participant’s Continuous Service
otherwise than for Cause, as defined in Section 2(f), death, or by reason of the Participant’s
Disability as defined in Section 2(o); or (v) any reduction in the Participant’s base salary
(unless such reduction is part of Company-wide reduction that affects a majority of the persons of
comparable level to the Participant).

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

          (y) “Non-Employee Director” means a Director of the Company who is not an Employee.

          (z) “Non-Qualified Stock Option” means any Option that is not intended to be
designated as an incentive stock option within the meaning of Section 422 of the Code or any
successor provision thereto.

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

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

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

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

          (ee) “Performance Award” means a right, granted to an Eligible Person under Sections
6(h) or 7 hereof, to receive Awards based upon performance criteria specified by the Plan
Administrator.

          (ff) “Performance Period” means that period established by the Plan Administrator at
the time any Performance Award is granted or at any time thereafter during which

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any performance goals specified by the Plan Administrator with respect to such Award are to be
measured.

          (gg) “Plan” means this Xcorporeal, Inc. 2006 Incentive Compensation Plan.

          (hh) “Plan Administrator” means the Board, its Compensation Committee, or any
Committee delegated by the Board to administer the Plan. There may be different Plan
Administrators with respect to different groups of Eligible Persons.

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

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

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

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

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

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

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

          (pp) “Subsidiary” means any corporation (other than the Company), whether now or
hereafter existing, in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

          (qq) “Voting Stock” means the stock of the Company with a right to vote for the
election of Directors of the Company.

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     3. Administration.

          (a) Administration by Board. The Board shall administer the Plan unless and until the
Board delegates administration to a Committee, as provided in Section 3(c). The Board and/or
Committee(s) administering the Plan shall be the “Plan Administrator.”

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

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

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

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

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

               (v) To adopt such modifications, procedures, and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or Related Entities
may operate to assure the viability of the benefits from Awards granted to Participants performing
services in such countries and to meet the objectives of the Plan.

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

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

          (c) Delegation to Committee.

               (i) General. The Board may delegate administration of the Plan to a Committee or
Committees of more members of the Board, and the term “Committee” shall apply

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to any person or persons to whom such authority has been delegated. If administration is
delegated to a Committee, the Committee shall have, in connection with the administration of the
Plan, the powers theretofore possessed by the Board, to the extent delegated by the Board,
including the power to delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise, subject, however, to such resolutions, not inconsistent with the provisions
of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.

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

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

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

          (f) Limitation of Liability. The Board and any Committee(s), and each member thereof,
who act as the Plan Administrator, shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any officer or Employee, the Company’s independent
auditors, Consultants or any other agents assisting in the administration of the Plan. Members of
the Board and any Committee(s), and any officer or Employee acting at the direction or on behalf of
the Board and any Committee(s), shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be
fully indemnified and protected by the Company with respect to any such action or determination.

     4. Shares Issuable Under the Plan.

          (a) Number of Shares Available for Issuance Under Plan. Subject to adjustment as
provided in Section 10(c) hereof, the total number of Shares reserved and available

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for
issuance in connection with Awards shall be 2,000,000 Shares. Any Shares issued under the
Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares.

          (b) Availability of Shares Not Issued pursuant to Awards.

               (i) If any Shares subject to an Award are forfeited, expire or otherwise terminate without
issuance of such Shares or any Award is settled for cash or otherwise does not result in the
issuance of all or a portion of the Shares subject to such Award, the Shares shall, to the extent
of such forfeiture, expiration, termination, cash settlement or non-issuance, be available for
Awards under the Plan, subject to Section 4(b)(iv) below.

               (ii) If any Shares issued pursuant to an Award are forfeited back to or repurchased by the
Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet
a contingency or condition required for the vesting of such Shares, then the Shares forfeited or
repurchased shall revert to and become available for issuance under the Plan, subject to Section
4(b)(iv) below.

               (iii) In the event that any Option or other Award granted hereunder is exercised through the
withholding of Shares from the Award by the Company or withholding tax liabilities arising from
such Option or other Award are satisfied by the withholding of Shares from the Award by the
Company, then only the number of Shares issued net of the Shares withheld shall be counted as
issued for purposes of determining the maximum number of Shares available for grant under the Plan,
subject to Section 4(b)(iv) below.

               (iv) Notwithstanding anything in this Section 4(b) to the contrary, solely for purposes of
determining whether Shares are available for the grant of Incentive Stock Options, the maximum
aggregate number of Shares that may be granted under this Plan through Incentive Stock Options
shall be determined without regard to any Shares restored pursuant to this Section 4(b) that, if
taken into account, would cause the Plan, for purposes of the grant of Incentive Stock Options, to
fail the requirement under Code Section 422 that the Plan designate a maximum aggregate number of
Shares that may be issued.

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

     5. Eligibility; Per-Person Award Limitations.

          (a) Eligibility. Awards may be granted under the Plan only to Eligible Persons.

          (b) Per-Person Award Limitations. In any one calendar year, an Eligible Person may
not be granted Options or Stock Appreciation Rights under which more than 2,000,000 Shares could be
received by the Participant, subject to adjustment as provided in Section 10(c). In any one
calendar year, an Eligible Person may not be granted Awards (other than

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an Option or Stock Appreciation Right) under which more than 2,000,000 Shares could be
received by the Participant, subject to adjustment as provided in Section 10(c). In addition, in
any one calendar year, an Eligible Person may not be granted Performance Awards (other than Options
or Stock Appreciation Rights) under which more than $10,000,000 could be received by the
Participant.

     6. Terms of Awards.

          (a) General. Awards may be granted on the terms and conditions set forth in this
Section 6. In addition, the Plan Administrator may impose on any Award or the exercise thereof, at
the date of grant or thereafter (subject to Section 10(e)), such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Plan Administrator shall determine,
including terms requiring forfeiture of Awards in the event of termination of the Participant’s
Continuous Service and terms permitting a Participant to make elections relating to his or her
Award. The Plan Administrator shall retain full power and discretion to accelerate, waive or
modify, at any time, any term or condition of an Award that is not mandatory under the Plan.

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

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

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

               (iii) Exercise Price.

                    (A) In General. Each Award Agreement shall state the price at which Shares subject to
the Option may be purchased (the “Exercise Price”), which shall be, with respect to Incentive Stock
Options, not less than 100% of the Fair Market Value of the Stock on the date of grant. In the
case of Non-Qualified Stock Options, the Exercise Price shall be determined in the sole discretion
of the Plan Administrator; provided, however, that notwithstanding any other provision of the Plan,
any Non-Qualified Stock Option granted with a per Share exercise price less than the per Share Fair
Market Value on the date of grant shall be structured to avoid the imposition of any excise tax
under Code Section 409A, unless otherwise specifically determined by the Plan Administrator.

                    (B) Ten Percent Shareholder. If a Participant owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent or

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Subsidiary, any Incentive Stock Option granted to such Employee must have an exercise price
per Share of at least 110% of the Fair Market Value of a Share on the date of grant.

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

               (v) Termination of Service. Subject to earlier termination of the Option as otherwise
provided in the Plan and unless otherwise provided by the Plan Administrator with respect to an
Option and set forth in the Award Agreement, an Option shall be exercisable after a Participant’s
termination of Continuous Service only during the applicable time period determined in accordance
with this Section and thereafter shall terminate and no longer be exercisable:

                    (A) Death or Disability. If the Participant’s Continuous Service terminates because
of the death or Disability of the Participant, the Option, to the extent unexercised and
exercisable on the date on which the Participant’s Continuous Service terminated, may be exercised
by the Participant (or the Participant’s legal representative or estate) at any time prior to the
expiration of twelve (12) months (or such other period of time as determined by the Plan
Administrator, in its discretion) after the date on which the Participant’s Continuous Service
terminated, but in any event only with respect to the vested portion of the Option and no later
than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing
such Option (the “Option Expiration Date”).

                    (B) Termination for Cause. Notwithstanding any other provision of the Plan to the
contrary, if the Participant’s Continuous Service is terminated for Cause, the Option shall
terminate and cease to be exercisable immediately upon such termination of Continuous Service.

                    (C) Other Termination of Service. If the Participant’s Continuous Service terminates
for any reason, except Disability, death or Cause, the Option, to the extent unexercised and
exercisable by the Participant on the date on which the Participant’s Continuous Service
terminated, may be exercised by the Participant at any time prior to the expiration of three (3)
months (or such longer period of time as determined by the Plan Administrator, in its discretion)
after the date on which the Participant’s Continuous Service terminated, but in any event only with
respect to the vested portion of the Option and no later than the Option Expiration Date.

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               (vi) Incentive Stock Options. The terms of any Incentive Stock Option granted under
the Plan shall comply in all respects with the provisions of Section 422 of the Code. If and to
the extent required to comply with Section 422 of the Code, Options granted as Incentive Stock
Options shall be subject to the following special terms and conditions:

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

                    (2) If the aggregate Fair Market Value (determined as of the date the Incentive Stock Option
is granted) of the Shares with respect to which Incentive Stock Options granted under the Plan and
all other option plans of the Company, its Parent or any Subsidiary are exercisable for the first
time by a Participant during any calendar year in excess of $100,000, then such Participant’s
Incentive Stock Option(s) or portions thereof that exceed such $100,000 limit shall be treated as
Non-Qualified Stock Options (in the reverse order in which they were granted, so that the last
Incentive Stock Option will be the first treated as a Non-Qualified Stock Option). This paragraph
shall only apply to the extent such limitation is applicable under the Code at the time of the
grant.

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

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

               (ii) Right to Payment. A Stock Appreciation Right shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market
Value of one Share on the date of exercise over (B) the grant price of the Stock Appreciation Right
as determined by the Plan Administrator.

               (iii) Other Terms. The Plan Administrator shall determine at the date of grant or
thereafter, the time or times at which and the circumstances under which a Stock Appreciation Right
may be exercised in whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which Stock Appreciation Rights shall cease to
be or become exercisable following termination of Continuous Service or upon other conditions, the
form of payment upon exercise of Shares, cash or other property, the method of exercise, method of
settlement, form of consideration payable in settlement (either cash, Shares or other property),
method by or forms in which Stock will be delivered or deemed to be delivered to Participants,
whether or not a Stock Appreciation Right

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shall be in tandem or in combination with any other Award, and any other terms and conditions
of any Stock Appreciation Right. Stock Appreciation Rights may be either freestanding or in tandem
with other Awards. Notwithstanding any other provision of the Plan, unless otherwise exempt from
Section 409A of the Code or otherwise specifically determined by the Plan Administrator, each Stock
Appreciation Right shall be structured to avoid the imposition of any excise tax under Section 409A
of the Code.

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

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

               (ii) Forfeiture. Except as otherwise determined by the Plan Administrator, upon
termination of a Participant’s Continuous Service during the applicable restriction period, the
Participant’s Restricted Stock that is at that time subject to a risk of forfeiture that has not
lapsed or otherwise been satisfied shall be forfeited to or reacquired by the Company; provided
that the Plan Administrator may provide, by rule or regulation or in any Award Agreement or may
determine in any individual case, that restrictions or forfeiture conditions relating to Restricted
Stock shall be waived in whole or in part in the event of terminations resulting from specified
causes, and the Plan Administrator may in other cases waive in whole or in part the forfeiture of
Restricted Stock.

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

               (iv) Dividends and Splits. As a condition to the grant of an Award of Restricted
Stock, the Plan Administrator may require that any cash dividends paid on a Share of Restricted
Stock be automatically reinvested in additional Shares of Restricted Stock or applied to

- 13 -

 

the purchase of additional Awards under the Plan. Unless otherwise determined by the Plan
Administrator, Shares distributed in connection with a stock split or stock dividend, and other
property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to
the same extent as the Restricted Stock with respect to which such Shares or other property has
been distributed.

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

               (i) Award and Restrictions. Satisfaction of an Award of Stock Units shall occur upon
expiration of the time period specified for such Stock Units by the Plan Administrator (or, if
permitted by the Plan Administrator, as elected by the Participant). In addition, Stock Units
shall be subject to such restrictions (which may include a risk of forfeiture) as the Plan
Administrator may impose, if any, which restrictions may lapse at the expiration of the time period
or at earlier specified times (including based on achievement of performance goals and/or future
service requirements), separately or in combination, in installments or otherwise, as the Plan
Administrator may determine. The terms of an Award of Stock Units shall be set forth in a written
Award Agreement which shall contain provisions determined by the Plan Administrator and not
inconsistent with the Plan. Stock Units may be satisfied by delivery of Stock, cash equal to the
Fair Market Value of the specified number of Shares covered by the Stock Units, or a combination
thereof, as determined by the Plan Administrator at the date of grant or thereafter. Prior to
satisfaction of an Award of Stock Units, an Award of Stock Units carries no voting or dividend or
other rights associated with Share ownership. Notwithstanding any other provision of the Plan,
unless otherwise exempt from Section 409A of the Code or otherwise specifically determined by the
Plan Administrator, each Stock Unit shall be structured to avoid the imposition of any excise tax
under Section 409A of the Code.

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

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

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

          (g) Dividend Equivalents. The Plan Administrator is authorized to grant Dividend
Equivalents to any Eligible Person entitling the Eligible Person to receive cash, Shares, other
Awards, or other property equal in value to dividends paid with respect to a specified number of
Shares, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis
or in connection with another Award. The terms of an Award of Dividend Equivalents shall be set
forth in a written Award Agreement which shall contain provisions determined by the Plan
Administrator and not inconsistent with the Plan. The Plan Administrator may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Plan Administrator may specify. Notwithstanding
any other provision of the Plan, unless otherwise exempt from Section 409A of the Code or otherwise
specifically determined by the Plan Administrator, each Dividend Equivalent shall be structured to
avoid the imposition of any excise tax under Section 409A of the Code.

          (h) Performance Awards. The Plan Administrator is authorized to grant Performance
Awards to any Eligible Person payable in cash, Shares, other property, or other Awards, on terms
and conditions established by the Plan Administrator, subject to the provisions of Section 7 if and
to the extent that the Plan Administrator shall, in its sole discretion, determine that an Award
shall be subject to those provisions. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall be determined by the Plan
Administrator upon the grant of each Performance Award. Except as provided in this Plan or as may
be provided in an Award Agreement, Performance Awards will be distributed only after the end of the
relevant Performance Period. The performance goals to be achieved for each Performance Period
shall be conclusively determined by the Plan Administrator and may be based upon the criteria set
forth in Section 7(b), or in the case of an Award that the Plan Administrator determines shall not
be subject to Section 7 hereof, any other criteria that the Plan Administrator, in its sole
discretion, shall determine should be used for that purpose. The amount of the Award to be
distributed shall be conclusively determined by the Plan Administrator. Performance Awards may be
paid in a lump sum or in installments following the close of the Performance Period or, in
accordance with procedures established by the Plan Administrator, on a deferred basis.

          (i) Other Stock-Based Awards. The Plan Administrator is authorized, subject to
limitations under applicable law, to grant to any Eligible Person such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or
related to, Shares, as deemed by the Plan Administrator to be consistent with the purposes of the
Plan, including, without limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment

- 15 -

 

contingent upon performance of the Company or any other factors designated by the Plan
Administrator, and Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified Related Entities or business units. The Plan Administrator
shall determine the terms and conditions of such Awards. The terms of any Award pursuant to this
Section shall be set forth in a written Award Agreement which shall contain provisions determined
by the Plan Administrator and not inconsistent with the Plan. Stock delivered pursuant to an Award
in the nature of a purchase right granted under this Section 6(h) shall be purchased for such
consideration (including without limitation loans from the Company or a Related Entity), paid for
at such times, by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards or other property, as the Plan Administrator shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, may also be granted pursuant to this
Section 6(h). Notwithstanding any other provision of the Plan, unless otherwise exempt from
Section 409A of the Code or otherwise specifically determined by the Plan Administrator, each such
Award shall be structured to avoid the imposition of any excise tax under Section 409A of the Code.

     7. Tax Qualified Performance Awards.

          (a) Covered Employees. A Committee, composed in compliance with the requirements of
Section 162(m) of the Code, in its discretion, may determine at the time an Award is granted to an
Eligible Person who is, or is likely to be, as of the end of the tax year in which the Company
would claim a tax deduction in connection with such Award, a Covered Employee, that the provisions
of this Section 7 shall be applicable to such Award.

          (b) Performance Criteria. If an Award is subject to this Section 7, then the lapsing
of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as
applicable, shall be contingent upon achievement of one or more objective performance goals.
Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of
the Code and regulations thereunder including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance goals being
“substantially uncertain.” One or more of the following business criteria for the Company, on a
consolidated basis, and/or for Related Entities, or for business or geographical units of the
Company and/or a Related Entity (except with respect to the total stockholder return and earnings
per share criteria), shall be used by the Committee in establishing performance goals for such
Awards: (1) earnings per Share; (2) revenues or gross margins; (3) cash flow; (4) operating margin;
(5) return on net assets, investment, capital, or equity; (6) economic value added; (7) direct
contribution; (8) net income; pretax earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; earnings after interest expense and before
extraordinary or special items; operating income; income before interest income or expense, unusual
items and income taxes, local, state or federal and excluding budgeted and actual bonuses which
might be paid under any ongoing bonus plans of the Company; (9) working capital; (10) management of
fixed costs or variable costs; (11) identification or consummation of investment opportunities or
completion of specified projects in accordance with corporate business plans, including strategic
mergers, acquisitions or divestitures; (12) total stockholder return; and (13) debt reduction. Any
of the above goals may be determined on an absolute or relative basis or as compared to the
performance of a published or special index deemed applicable by the Committee including, but not
limited to, the Standard & Poor’s 500 Stock Index or a group of companies that

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are comparable to the Company. The Committee shall exclude the impact of an event or
occurrence which the Committee determines should appropriately be excluded, including without
limitation (i) restructurings, discontinued operations, extraordinary items, and other unusual or
non-recurring charges, (ii) an event either not directly related to the operations of the Company
or not within the reasonable control of the Company’s management, or (iii) a change in accounting
standards required by generally accepted accounting principles.

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

          (d) Adjustments. The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with Awards subject to this Section 7, but may not
exercise discretion to increase any such amount payable to a Covered Employee in respect of an
Award subject to this Section 7. The Committee shall specify the circumstances in which such
Awards shall be paid or forfeited in the event of termination of Continuous Service by the
Participant prior to the end of a Performance Period or settlement of Awards.

          (e) Committee Certification. Within a reasonable period of time after the performance
criteria have been satisfied (but no later than three (3) months after the satisfaction of the
performance criteria), to the extent necessary to qualify the payments as “performance based
compensation” under Section 162(m) of the Code, the Committee shall certify, by resolution or other
appropriate action in writing, that the performance criteria and any other material terms
previously established by the Committee or set forth in the Plan, have been satisfied. To the
extent that the performance criteria have been satisfied, but the Committee has not certified such
result within three (3) months after such satisfaction, then the Participant shall receive the
payment provided for under the Participant’s Award.

     8. Certain Provisions Applicable to Awards or Sales.

          (a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards granted under the
Plan may, in the discretion of the Plan Administrator, be granted either alone or in addition to,
in tandem with or in substitution or exchange for, any other Award or any award granted under
another plan of the Company, any Related Entity or any business entity to be acquired by the
Company or a Related Entity or any other right of a Participant to receive payment from the Company
or any Related Entity. Such additional, tandem, and substitute or exchange Awards may be granted
at any time. If an Award is granted in substitution or exchange for another Award or award, the
Plan Administrator shall require the surrender of such other Award or award in consideration for
the grant of the new Award. In addition, Awards may be granted in lieu of cash compensation,
including in lieu of cash amounts payable under other plans of the Company or any Related Entity.

          (b) Form and Timing of Payment Under Awards; Deferrals. Subject to the terms of the
Plan and any applicable Award Agreement, payments to be made by the Company or

- 17 -

 

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

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

          (d) Code Section 409A. If and to the extent that the Plan Administrator believes that
any Awards may constitute “deferred compensation” under Section 409A of the Code, the terms and
conditions set forth in the Award Agreement for that Award shall be drafted in a manner that is
intended to comply with, and shall be interpreted in a manner consistent with, the applicable
requirements of Section 409A of the Code, unless otherwise agreed to in writing by the Participant
and the Company.

     9. Change in Control; Corporate Transaction.

          (a) Change in Control.

               (i) The Plan Administrator may, in its discretion, accelerate the vesting, exercisability,
lapsing of restrictions or expiration of deferral of any Award, including upon a Change in Control.
In addition, the Plan Administrator may provide in an Award Agreement that the performance goals
relating to any Award will be deemed to have been met upon the occurrence of any Change in Control.

               (ii) In addition to the terms of Sections 9(a)(i) above, the effect of a “change in control,”
may be provided (1) in an employment, compensation or severance agreement, if any, between the
Company or any Related Entity and the Participant, relating to the Participant’s employment,
compensation or severance with or from the Company or such Related Entity or (2) in the Award
Agreement.

- 18 -

 

          (b) Corporate Transactions. In the event of a Corporate Transaction, any surviving
corporation or acquiring corporation (together, the “Successor Corporation”) may either (i) assume
any or all Awards outstanding under the Plan; (ii) continue any or all Awards outstanding under the
Plan; or (iii) substitute similar stock awards for outstanding Awards (it being understood that
similar awards include, but are not limited to, awards to acquire the same consideration paid to
the shareholders or the Company, as the case may be, pursuant to the Corporate Transaction). In
the event that the Successor Corporation does not assume or continue any or all such outstanding
Awards or substitute similar stock awards for such outstanding Awards, then with respect to Awards
that have been not assumed, continued or substituted, such Awards shall terminate if not exercised
(if applicable) at or prior to such effective time (contingent upon the effectiveness of the
Corporate Transaction).

               The Administrator, in its sole discretion, shall determine whether each Award is assumed,
continued, substituted or terminated. Notwithstanding the foregoing, to the extent that
substantially all of the holders of the Company’s Voting Stock hold or receive directly or
indirectly ninety percent (90%) or more of the Voting Stock of the resulting entity or a parent
company thereof, in substantially the same proportions as their ownership of the Company
immediately prior to the transaction, the Awards shall be either assumed or substituted by the
successor corporation or its parent or continued by the Company.

          The Plan Administrator, in its discretion and without the consent of any Participant, may (but
is not obligated to) either (i) accelerate the vesting of any Awards (determined on an Award by
Award basis), including permitting the lapse of any repurchase rights held by the Company (and, if
applicable, the time at which such Awards may be exercised), in full or as to some percentage of
the Award, to a date prior to the effective time of such Corporate Transaction as the Plan
Administrator shall determine (contingent upon the effectiveness of the Corporate Transaction) or
(ii) provide for a cash payment in exchange for the termination of an Award or any portion thereof
(determined on an Award by Award basis) where such cash payment is equal to the Fair Market Value
of the Shares that the Participant would receive if the Award were fully vested and exercised (if
applicable) as of such date (less any applicable exercise price).

          Notwithstanding any other provision in this Plan to the contrary, with respect to Restricted
Stock and any other Award granted under the Plan with respect to which the Company has any
reacquisition or repurchase rights, the reacquisition or repurchase rights for such Awards may be
assigned by the Company to the successor of the Company (or the successor’s parent company) in
connection with such Corporate Transaction. In the event any such rights are not continued with
the Company or assigned to the Successor Corporation, then such rights shall lapse and the Award
shall be fully vested as of the effective time of the Corporate Transaction. In addition, the Plan
Administrator, in its discretion, may (but is not obligated to) provide that any reacquisition or
repurchase rights held by the Company with respect to any such Awards (determined on an Award by
Award basis) shall lapse in whole or in part (contingent upon the effectiveness of the Corporate
Transaction).

          (c) Dissolution or Liquidation. In the event of a dissolution or liquidation of the
Company, then all outstanding Awards shall terminate immediately prior to the completion of such
dissolution or liquidation, and Shares subject to the Company’s repurchase option may be

- 19 -

 

repurchased by the Company notwithstanding the fact that the holder of such stock is still in
Continuous Service.

     10. General Provisions.

          (a) Compliance With Legal and Other Requirements. The Company may, to the extent
deemed necessary or advisable by the Plan Administrator, postpone the issuance or delivery of
Shares or payment of other benefits under any Award until completion of such registration or
qualification of such Shares or other required action under any federal or state law, rule or
regulation, listing or other required action with respect to any stock exchange or automated
quotation system upon which the Shares or other Company securities are listed or quoted or
compliance with any other obligation of the Company, as the Plan Administrator may consider
appropriate, and may require any Participant to make such representations, furnish such information
and comply with or be subject to such other conditions as it may consider appropriate in connection
with the issuance or delivery of Shares or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Company shall take or cause to be
taken no action, and shall undertake or permit to arise no legal or contractual obligation, that
results or would result in any postponement of the issuance or delivery of Shares or payment of
benefits under any Award or the imposition of any other conditions on such issuance, delivery or
payment, to the extent that such postponement or other condition would represent a greater burden
on a Participant than existed on the ninetieth (90th) day preceding the Change in
Control.

          (b) Limits on Transferability; Beneficiaries.

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

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

- 20 -

 

Agreement (subject to any terms and conditions which the Plan Administrator may impose
thereon, and further subject to any prohibitions and restrictions on such transfers pursuant to
Rule 16b-3). A Beneficiary, transferee or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan and any Award
Agreement applicable to such Participant, except as otherwise determined by the Plan Administrator,
and to any additional terms and conditions deemed necessary or appropriate by the Plan
Administrator.

          (c) Adjustments.

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

               (ii) Other Adjustments. The Plan Administrator (which shall be a Committee to the
extent such authority is required to be exercised by a Committee to comply with Code Section
162(m)) is authorized to make adjustments in the terms and conditions of, and the criteria included
in, Awards (including Awards subject to performance goals) in recognition of unusual or
nonrecurring events (including, without limitation, acquisitions and dispositions of businesses and
assets) affecting the Company, any Related Entity or any business unit, or the financial statements
of the Company or any Related Entity, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in view of the Plan
Administrator’s assessment of the business strategy of the Company, any Related Entity or business
unit thereof, performance of comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant; provided that no such
adjustment shall be authorized or made if and to the extent that such authority or the making of
such adjustment would cause Options, Stock Appreciation Rights or Performance Awards granted to
Participants designated by the Plan Administrator as Covered Employees and intended to qualify as
“performance-based compensation” under Code Section 162(m) and the regulations thereunder to
otherwise fail to qualify as “performance-based compensation” under Code Section 162(m) and
regulations thereunder.

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

- 21 -

 

and Participants to satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to withhold or receive
Shares or other property and to make cash payments in respect thereof in satisfaction of a
Participant’s tax obligations, either on a mandatory or elective basis in the discretion of the
Plan Administrator.

          (e) Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue
or terminate the Plan or the Committee’s authority to grant Awards under the Plan, without the
consent of shareholders or Participants. Any amendment or alteration to the Plan shall be subject
to the approval of the Company’s shareholders if such shareholder approval is deemed necessary and
advisable by the Board. However, without the consent of an affected Participant, no such amendment,
alteration, suspension, discontinuance or termination of the Plan may materially and adversely
affect the rights of such Participant under any previously granted and outstanding Award. The Plan
Administrator may waive any conditions or rights under or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award Agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an affected Participant, no
such action may materially and adversely affect the rights of such Participant under such Award.

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

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

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

- 22 -

 

          (i) Fractional Shares. No fractional Shares shall be issued or delivered pursuant to
the Plan or any Award. The Plan Administrator shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.

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

          (k) Plan Effective Date and Shareholder Approval; Termination of Plan. The Plan shall
become effective on the Effective Date, subject to approval of its adoption by the Board by
shareholders of the Company eligible to vote in the election of directors, by a vote sufficient to
meet the requirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3 under the
Exchange Act (if applicable), applicable and other laws, regulations, and obligations of the
Company applicable to the Plan. Awards may be granted subject to shareholder approval, but may not
be exercised or otherwise settled in the event shareholder approval is not obtained. The Plan
shall terminate no later than ten (10) years from the date of the later of (x) the Effective Date
and (y) the date an increase in the number of Shares reserved for issuance under the Plan is
approved by the Board (subject such increase is also approved by the shareholders).

- 23 -

 

Xcorporeal, Inc.

2006 Incentive Compensation Plan

Stock Option Agreement

     Unless otherwise defined herein, the terms defined in the 2006 Incentive Compensation
Plan (the “Plan”) shall have the same defined meanings in this Stock Option Agreement (this “Option
Agreement”).

I. NOTICE OF STOCK OPTION GRANT

	 	 	 
	Name:
	 	 
	 

	 	 
	 
	 	 
	Address:
	 	 
	 

	 	 

     The undersigned Optionee has been granted an Option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as follows:

	 	 	 
	Date of Grant:
	 	 
	 

	 	 
	 
	 	 
	Vesting Commencement Date:
	 	 
	 

	 	 
	 
	 	 
	Exercise Price per Share:

	 	$
	 

	 	 
	 
	 	 
	Total Number of Shares Granted:
	 	 
	 

	 	 
	 
	 	 
	Total Exercise Price:

	 	$
	 

	 	 
	 
	 	 
	Type of Option:
	 	 
	 

	 	___  Nonstatutory Stock Option
	 
	 	 
	 

	 	___  Incentive Stock Option

     Expiration Date: As provided in Section 3 of this Option Agreement.

     Vesting Schedule: This Option shall be vested according to the following vesting schedule:

[25% of the Shares subject to the Option shall vest on the each of the first four
anniversaries of the Vesting Commencement Date so that the Option is fully vested on the
fourth anniversary of the Vesting Commencement Date, subject to Optionee’s Continuous
Service on such dates.]

Exercise Schedule: To the extent vested, this Option shall be exercisable during its term as
provided in Section 3 of this Option Agreement.

 

 

II. AGREEMENT

     1. Grant of Option. The Plan Administrator of the Company hereby grants to the
Optionee named in the Notice of Stock Option Grant (the “Optionee”), an option (the “Option”) to
purchase the number of Shares set forth in the Notice of Stock Option Grant, at the exercise price
per Share set forth in the Notice of Stock Option Grant (the “Exercise Price”), and subject to the
terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
10(e) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this
Option Agreement, the terms and conditions of the Plan shall prevail.

     If designated in the Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this
Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code.
Nevertheless, to the extent that the Option exceeds the $100,000 rule of Code Section 422(d), this
Option shall be treated as a Nonstatutory Stock Option (“NSO”).

     2. Exercise of Option.

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

          (b) Method of Exercise. This Option shall be exercisable by delivery of an exercise
notice in the form attached as Exhibit A (the “Exercise Notice”) which shall state the
election to exercise the Option, the number of Shares with respect to which the Option is being
exercised, and such other representations and agreements as may be required by the Company.

     No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such
exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Shares
shall be considered transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.

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

- 2 -

 

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

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

          (a) With respect to the unvested portion of the Option, upon termination of Optionee’s
Continuous Service;

          (b) With respect to the vested portion of the Option, sixty (60) days after the termination of
Optionee’s Continuous Service for any reason other than Optionee’s Disability, death or termination
for Cause;

          (c) With respect to the vested portion of the Option, immediately upon the termination of
Optionee’s Continuous Service for Cause;

          (d) With respect to the vested portion of the Option, twelve (12) months after the termination
of Optionee’s Continuous Service due to Optionee’s Disability or death;

          (e) Immediately prior to the close of certain Corporate Transactions, pursuant to Section 9(b)
of the Plan; and

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

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

          (a) cash or check;

          (b) in the discretion of the Company, determined at the time of exercise, consideration
received by the Company under a formal broker-assisted stock option exercise program adopted by the
Company in connection with the Plan, if any;

          (c) in the discretion of the Company, determined at the time of exercise, surrender of other
Shares which, (i) in the case of Shares acquired from the Company, either directly or indirectly,
have been owned by the Optionee for such length of time on the date of surrender as required under
the financial accounting rules to a void a compensation expense, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares or such
portion of the aggregate Exercise Price of the Exercised Shares that is to be paid through this
method;

          (d) in the discretion of the Company, determined at the time of exercise, surrender of a
portion of the Exercised Shares that have a Fair Market Value on the date of surrender equal to the
aggregate Exercise Price of the Exercised Shares or such portion of the aggregate Exercise Price of
the Exercised Shares that is to be paid through this method; or

- 3 -

 

          (d) any combination of the foregoing methods.

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

     6. Lock-Up Period. Optionee hereby agrees that Optionee shall not offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any Common Stock (or other securities) of the Company or enter into any
swap, hedging or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any Common Stock (or other securities) of the Company held by
Optionee (other than those included in the registration) for a period specified by the
representative of the underwriters of Common Stock (or other securities) of the Company not to
exceed ninety (90) days following the effective date of any registration statement of the Company
filed under the Securities Act.

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

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

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

- 4 -

 

     9. Tax Provisions.

          (a) Tax Consequences. The Optionee may incur tax liability as a result of the
Optionee’s purchase or disposition of the Shares. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THE OPTION OR DISPOSING OF THE SHARES..

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

          (c) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to
Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of
Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition.

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

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

[The remainder of this page has been intentionally left blank.]

- 5 -

 

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

	 	 	 
	Optionee

	 	Xcorporeal, Inc.
	 
	 	 
	 
	 	 
	 

	 	 
	Signature

	 	By
	 
	 	 
	 
	 	 
	 

	 	 
	Print Name

	 	Title
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	Residence Address
	 	 

- 6 -

 

EXHIBIT A

Xcorporeal, Inc.

2006 Incentive Compensation Plan

Exercise Notice

Xcorporeal, Inc.

Attention:

     1. Exercise of Option. Effective as of today,                     , ___, the undersigned
(“Optionee”) hereby elects to exercise Optionee’s option to purchase                     shares of the Common
Stock (the “Shares”) of Xcorporeal, Inc. (the “Company”) under and pursuant to the 2006 Incentive
Compensation Plan (the “Plan”) and the Stock Option Agreement dated                     , ___(the “Option
Agreement”).

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

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

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

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

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

     7. Governing Law; Severability. This Exercise Notice is governed by the internal
substantive laws but not the choice of law rules, of Delaware. In the event that any provision

Stock Option Exercise Notice

 

 

hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Option Agreement will continue in full force and effect.

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

     IN WITNESS WHEREOF, the undersigned have executed this Exercise Notice for the Option
Agreement on the respective dates set forth below.

	 	 	 
	Optionee

	 	Xcorporeal, Inc.
	 
	 	 
	 
	 	 
	 

	 	 
	Signature

	 	By
	 
	 	 
	 
	 	 
	 

	 	 
	Print Name

	 	Title
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	Residence Address
	 	 
	 
	 	 
	 
	 	 
	 	 	 
	Date
	 	 

Stock Option Exercise Noticeexv10w3

 

EXHIBIT
10.3

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of October 13, 2006, by
and between Xcorporeal, Inc. (“Company”), and Daniel S. Goldberger (“Executive”).

RECITALS

     A. WHEREAS, Executive has experience and expertise applicable to employment with Company to
perform as the President and Chief Operating Officer of Company, Company has agreed to employ
Executive and Executive has agreed to enter into such employment, on the terms set forth in this
Agreement.

     B. WHEREAS, Executive acknowledges that this Agreement is necessary for the protection of
Company’s investment in its business, good will, products, methods of operation, information, and
relationships with its customers and other employees.

     C. WHEREAS, Company acknowledges that Executive desires definition of his compensation and
benefits, and other terms of his employment.

     NOW, THEREFORE, in consideration thereof and of the covenants and conditions contained herein,
the parties agree as follows:

AGREEMENT

     1. TERM OF AGREEMENT

          1.1 Initial Term. The initial term of this Agreement shall begin on October 6, 2006
and shall continue until the earlier of: (a) the date on which it is terminated pursuant to Section
5; or (b) four (4) years following the Commencement Date (“Initial Term”). After the expiration of
the Initial Term, Executive shall be employed on an at-will basis, with either party able to
terminate the employment, with or without cause and with or without notice.

2. EMPLOYMENT

          2.1 Employment of Executive. Company agrees to employ Executive to render services on
the terms set forth herein. Executive hereby accepts such employment on the terms and conditions
of this Agreement.

          2.2 Position and Duties. Executive shall serve as President and Chief Operating
Officer of Company, reporting to the Chairman (“Chairman”) of the Company’s Board of Directors
(“Board”), and shall have the general powers, duties and responsibilities of management usually
vested in that office in a corporation and such other powers and duties as may be prescribed from
time to time by the Chairman or the Board.

          2.3 Standard of Performance. Executive agrees that he will at all times faithfully
and industriously and to the best of his ability, experience and talents perform all of the duties
that may be required of and from him pursuant to the terms of this Agreement. Such
 

 

 

duties shall be performed at such place or places as the interests, needs, business and
opportunities of Company shall require or render advisable.

          2.4 Exclusive Service. Commencing 30 days after the Company receives debt or equity
financing in the amount of at least $10 million, or a date otherwise mutually agreed between the
parties, (the “Commencement Date”), Executive shall (a) devote all of his business energies and
abilities and all of his productive time to the performance of his duties under this Agreement
(reasonable absences during holidays and vacations excepted), and shall not, without the prior
written consent of Company, render to others any service of any kind (whether or not for
compensation) that, in the opinion of Company, would materially interfere with the performance of
his duties under this Agreement, and (b) not, without the prior written consent of Company,
maintain any affiliation with, whether as an agent, consultant, employee, officer, director,
trustee or otherwise, nor shall he directly or indirectly render any services of an advisory nature
or otherwise to, or participate or engage in, any other business activity.

     3. COMPENSATION

          3.1 Compensation. During the term of this Agreement, Company shall pay the amounts
and provide the benefits described in this Section 3, and Executive agrees to accept such amounts
and benefits in full payment for Executive’s services under this Agreement.

          3.2 Base Salary. Company shall pay to Executive a base salary equivalent to $10,000
per month prior to the Commencement Date, and $275,000 per year after the Commencement Date, less
applicable taxes, payable in accordance with Company’s standard payroll practices. At Company’s
sole discretion, Executive’s base salary may be increased, but not decreased, annually.
Notwithstanding the foregoing, commencing on January 1, 2007 and annually thereafter, the Base
Salary shall be increased by at least the Consumer Price Index for Los Angeles, California (or a
reasonable proxy thereof).

          3.3 Discretionary Bonus. Except as described in Section 5.1 below, Executive is
eligible to receive an annual bonus in the sole discretion of Company. This discretionary bonus
will be targeted at 50% of Executive’s base salary, based on Executive achieving designated
individual goals and milestones, and the overall performance and profitability of the Company. The
goals and milestones will be established and reevaluated on an annual basis by mutual agreement of
Executive and the Chairman, subject to review and approval by the Board or its compensation
Committee. Any bonus under this Section 3.3 will be based on a calendar year and shall be paid no
later than April 30th of the following year. The first annual bonus, to the extent
granted at the sole discretion of the Company, shall be prorated based on the Commencement Date.
The goals and objectives related to the 2006 target bonus shall be established within thirty days.

          3.4 Commuting. Executive expects to relocate from his home in Boulder, CO in
approximately June 2008. During this commuting period, Executive will be on location in the Los
Angeles office Tuesday – Thursday unless otherwise required to travel on Company business.
Reasonable and customary travel and accommodations for such commuting will be at Company expense.
Executive will maintain a fully equipped home office at his own

 - 2 - 

 

expense during the commuting period and will work at least eight hours per day while away from
the Los Angeles office.

          3.5 Equity Incentive Plan.

               (a) Executive shall be granted options to purchase 400,000 shares of Company’s common stock,
at fair market value, pursuant to a Stock Option Agreement under the provisions of Company’s 2006
Stock Incentive Plan (“Plan”), upon approval by the Board and the Company’s stockholders. The
options will vest as follows: 20% on the first, second, third, fourth and fifth anniversaries
thereof.

               (b) Except as otherwise set forth herein, vesting of options will cease upon the termination
of Executive’s employment with Company.

          3.6 Fringe Benefits. Subject to Section 3.7 and upon satisfaction of the applicable
eligibility requirements, Executive and Executive’s family shall be provided with group medical and
dental insurance and group dental coverage through Company’s plans. Medical and dental benefits
will commence on the first day of the month following the Commencement Date. In the event that no
benefit plans are in place at that time, the Company will reimburse Executive for COBRA coverage
until such time as Executive is covered under the Company’s group medical and dental plans.
Company will pay for $300,000 of term life insurance for the benefit of Executive, subject to the
standard physical examination that is required by the issuing insurance company. In addition,
Executive will be provided with accidental death and disability and long-term disability insurance,
or reimbursed for the reasonably equivalent cost of a private disability policy. Executive is also
eligible to participate in Company’s 401K plan beginning on the first day of the month following
the Commencement Date.

          3.7 Paid Time Off. Executive shall accrue, on a daily basis, a total of four (4)
workweeks of paid time off (PTO) per year following the date of this Agreement, provided, however,
that Executive’s accrued and unused PTO may not exceed a total of seven (7) workweeks. This PTO
shall be in addition to normal Company holidays, which shall be determined at the discretion of the
Company from time to time. Thereafter, Executive will not continue to accrue PTO benefits until he
has used enough PTO time to fall below this maximum amount. Any accrued but unused PTO will be paid
to Executive, on a pro rata basis, at the time that his employment is terminated. In addition to
PTO, the Executive shall be entitled to normal Company holidays.

          3.8 Deduction from Compensation. Company shall deduct and withhold from all
compensation payable to Executive all amounts required to be deducted or withheld pursuant to any
present or future law, ordinance, regulation, order, writ, judgment, or decree requiring such
deduction and withholding.

     4. REIMBURSEMENT OF EXPENSES

          4.1 Travel and Other Expenses. Company shall pay to or reimburse Executive for those
travel, promotional, professional continuing education and licensing costs (to the extent
required), professional society membership fees, seminars and similar expenditures

 - 3 - 

 

incurred by Executive which Company determines are reasonably necessary for the proper
discharge of Executive’s duties under this Agreement and for which Executive submits appropriate
receipts and indicates the amount, date, location and business character in a timely manner.

          4.2 Liability Insurance. Company shall provide Executive with officers and directors’
insurance, or other liability insurance, consistent with its usual business practices, to cover
Executive against all insurable events related to his employment with Company.

          4.3 Indemnification. Promptly upon written request from Executive, Company shall
indemnify Executive, to the fullest extent under applicable law, for all judgments, fines,
settlements, losses, costs or expenses (including attorney’s fees), arising out of Executive’s
activities as an agent, employee, officer or director of Company, or in any other capacity on
behalf of or at the request of Company. Such agreement by Company shall not be deemed to impair
any other obligation of Company respecting indemnification of Executive otherwise arising out of
this or any other agreement or promise of Company or under any statute.

     5. TERMINATION

          5.1 Termination With Good Cause; Resignation Without Good Reason. Company may
terminate Executive’s employment at any time, with or without notice, or Good Cause (as defined
below). If Company terminates Executive’s employment with Good Cause, or if Executive resigns
without Good Reason (as defined below), Company shall pay Executive his salary prorated through the
date of termination, at the rate in effect at the time notice of termination is given, together
with any benefits accrued through the date of termination. Company shall have no further
obligations to Executive under this Agreement or any other agreement, and all unvested options will
terminate.

          5.2 Termination Without Good Cause; Resignation with Good Reason. Executive shall
have the right to terminate his employment with notice and Good Reason. If Company terminates
Executive’s employment without Good Cause, or Executive resigns for Good Reason:

               (a) Company shall pay Executive his salary prorated through the date of termination, at the
rate in effect at the time notice of termination is given, together with any benefits accrued
through the date of termination;

               (b) Company shall pay Executive in a lump sum an amount equal to one (1) year’s salary (at the
rate in effect at the time of termination) plus a bonus equal to 100% of the targeted bonus;

               (c) All of Executive’s unvested stock options will vest immediately; and

               (d) In addition to any rights under COBRA, the term for continued medical benefits provided by
Company shall continue for a period of one year from

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the date of termination, provided that coverage will terminate sooner if Executive becomes
eligible for coverage under another employer’s plan.

     To be eligible for the compensation provided for in Section 5.2(b), (c) and (d) above,
Executive must execute a full and complete release of any and all claims against Company
substantially in the standard form used by Company (“Release”). Company shall have no further
obligations to Executive under this Agreement or any other agreement.

          5.3 Good Cause. For purposes of this Agreement, a termination shall be for “Good
Cause” if Executive, in the subjective, good faith opinion of Company, shall:

               (a) Commit an act of fraud, moral turpitude, misappropriation of funds or embezzlement in
connection with his duties;

               (b) Breach Executive’s fiduciary duty to Company, including, but not limited to, acts of
self-dealing (whether or not for personal profit);

               (c) Materially breach this Agreement, the Confidentiality Agreement (defined below), or
Company’s written Codes of Ethics as adopted by the Board;

               (d) Willful, reckless or grossly negligent violation of any material provision of Company’s
written Executive Handbook, or any applicable state or federal law or regulation;

               (e) Fail or refuse (whether willful, reckless or negligent) to comply with all relevant and
material obligations, assumable and chargeable to an executive of his corporate rank and
responsibilities, under the Sarbanes-Oxley Act and the regulations of the Securities and Exchange
Commission promulgated thereunder;

               (f) Fail to or refuse to comply with the lawful directives of the Chairman or the Board in the
performance of his duties under this Agreement (other than a failure caused by temporary
disability); provided, however, that no termination shall occur on that basis unless the Company
first provides the Executive with written notice to cure; the notice to cure shall reasonably
specify the acts or omissions that constitute the Executive’s failure or refusal to perform his
duties, and the Executive shall have a reasonable opportunity (not to exceed 10 days after the date
of notice to cure) to correct his failure or refusal to perform his duties; termination shall be
effective as of the date of written notice to cure; or

               (g) Be convicted of, or enter a plea of guilty or no contest to, a felony or misdemeanor under
state or federal law, other than a traffic violation or misdemeanor not involving dishonesty or
moral turpitude.

          5.4 Good Reason. For purposes of this Agreement, a resignation shall be for “Good
Reason” if tendered within ninety (90) days of any of the following actions by Company:

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               (a) Assignment to Executive of duties materially inconsistent with Executive’s status as
defined in Section 2.2, or a substantial reduction in the nature or status of Executive’s
responsibilities;

               (b) Relocation of Executive’s site of employment outside a 30 mile radius of Los Angeles
(unless closer to Executive’s residence) without Executive’s consent, except for reasonably
required travel on Company’s business;

               (c) Failure to cause any acquiring or successor entity following a Change in Control to assume
Company’s obligations under this Agreement, unless such assumption occurs by operation of law; or

               (d) Material breach of this Agreement by Company, or failure to timely pay to Executive any
amount due under Section 3, which continues after written notice and reasonable opportunity to cure
(not to exceed 10 days after the date of notice).

               (e) Executive is asked to report to an individual other than the current Chairman or Board.

          5.5 Effects of Change in Control. Immediately upon a Change in Control (as defined
below) all of Executive’s unvested options shall vest immediately, and remain exercisable for a
period of three (3) years thereafter. Further, if Executive is terminated without Good Cause or
resigns for Good Reason during the first twelve (12) months following a Change in Control,
Executive shall be entitled to receive a lump sum in an amount equal to (i) one and one-half years
of salary (at the rate in effect at the time of termination); and (ii) one and one-half times the
Executive’s full targeted bonus for that year. In addition to any rights under COBRA, the term for
continued medical benefits provided by Company shall continue for a period of eighteen (18) months
from the date of termination, provided that coverage will terminate sooner if Executive becomes
eligible for coverage under another employer’s plan. To be eligible for the compensation provided
for in this Section 5.5, Executive must execute a Release. Company shall have no further
obligations to Executive under this Agreement or any other agreement.

          5.6 Change in Control. For purposes of this Agreement, a “Change in Control” shall be
defined as:

               (a) The acquisition of Company by another entity by means of a transaction or series of
related transactions (including, without limitation, any reorganization, merger, stock purchase or
consolidation); or

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

          5.7 No Change in Control. Notwithstanding the provisions of Section 5.6, the
following shall not constitute a Change in Control:

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               (a) If the sole purpose of the transaction is to change the state of the Company’s
incorporation or to create or eliminate a holding company that will be owned in substantially the
same proportions by the same beneficial owners as before the transaction;

               (b) If Company’s stockholders of record as constituted immediately prior to the transaction
will, immediately after the transaction (by virtue of securities issued as a consideration for
Company’s capital stock or assets or otherwise), hold more than 50% of the combined voting power of
the surviving or acquiring entity’s outstanding securities;

               (c) An underwritten public offering of Company’s common stock, if Company’s stockholders of
record as constituted immediately prior to the offering will, immediately after the offering,
continue to hold more than 50% of the combined voting power of Company’s outstanding securities;

               (d) The private placement of preferred or common stock, or the issuance of debt instruments
convertible into preferred or common stock, for fair market value as determined by the Board,
provided the acquiring person does not as a result of the transaction own more than 50% of the
outstanding capital stock of Company, have the right to vote more than 50% of the outstanding
voting stock of Company, or have the right to elect a majority of the Board; or

               (e) If Executive is a member of a group that acquires control of Company in an event that
would otherwise be a Change in Control, such event shall not be deemed a Change in Control and
Executive shall have no right to benefits hereunder as a result of such event; provided, however,
that Executive shall not be deemed a member of any acquiring group solely by virtue of his
continued employment or ownership of stock or stock options following a Change in Control.

     5.8 Death or Disability. To the extent consistent with federal and state law,
Executive’s employment, salary, and accrual of commissions shall terminate on his death or
disability. “Disability” means any health condition, physical or mental, or other cause beyond
Executive’s control, that prevents him from performing his duties, even after reasonable
accommodation is made by Company, for a period of 180 consecutive days within any 360 day period.
In the event of termination due to death or Disability, Company shall pay Executive (or his legal
representative) his salary prorated through the date of termination, at the rate in effect at the
time of termination, together with any benefits accrued through the date of termination. Company
shall have no further obligations to Executive (or his legal representative) under this Agreement.

     5.9 Return of Company Property. Within five (5) days after the Termination Date,
Executive shall return to Company all products, books, records, forms, specifications, formulae,
data processes, designs, papers and writings relating to the business of Company including without
limitation proprietary or licensed computer programs, customer lists and customer data, and/or
copies or duplicates thereof in Executive’s possession or under Executive’s control. Executive
shall not retain any copies or duplicates of such property and all

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licenses granted to him by Company to use computer programs or software shall be revoked on
the Termination Date.

     6. DUTY OF LOYALTY

          6.1 During the term of this Agreement, Executive shall not, without the prior written consent
of Company, directly or indirectly render services of a business, professional, or commercial
nature to any person or firm, whether for compensation or otherwise, or engage in any activity
directly or indirectly competitive with or adverse to the business or welfare of Company, whether
alone, as a partner, or as an officer, director, employee, consultant, or holder of more than 1 %
of the capital stock of any other corporation. Otherwise, Executive may make personal investments
in any other business so long as these investments do not require him to participate in the
operation of the companies in which he invests. Notwithstanding the foregoing, Executive will be
permitted to render services to his previous employers to support the closing of a final
transaction currently in process.

     7. CONFIDENTIAL INFORMATION

          7.1 Trade Secrets of Company. Executive, during the term of this Agreement, will
develop, have access to and become acquainted with various trade secrets which are owned by Company
and/or its affiliates and which are regularly used in the operation of the businesses of such
entities. Executive shall not disclose such trade secrets, directly or indirectly, or use them in
any way, either during the term of this Agreement or at any time thereafter, except as required in
the course of his employment by Company. All files, contracts, manuals, reports, letters, forms,
documents, notes, notebooks, lists, records, documents, customer lists, vendor lists, purchase
information, designs, computer programs and similar items and information, relating to the
businesses of such entities, whether prepared by Executive or otherwise and whether now existing or
prepared at a future time, coming into his possession shall remain the exclusive property of such
entities, and shall not be removed, other than work-related purposes, from the premises where the
work of Company is conducted, except with the prior written authorization by Company.

          7.2 Confidential Data of Customers of Company. Executive, in the course of his
duties, will have access to and become acquainted with financial, accounting, statistical and
personal data of customers of Company and of their affiliates. All such data is confidential and
shall not be disclosed, directly or indirectly, or used by Executive in any way, either during the
term of this Agreement (except as required in the course of employment by Company) or at any time
thereafter.

          7.3 Inevitable Disclosure. Subject to Section 5.2, after Executive’s employment has
terminated with Good Cause or without Good Reason, Executive shall not accept employment with any
direct competitor of Company for a period of one (1) year, where the new employment is likely to
result in the inevitable disclosure of Company’s trade secrets or confidential information, or it
would be impossible for Executive to perform his new job without using or disclosing trade secrets
or confidential information.

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          7.4 Continuing Effect. The provisions of this Section 7 shall remain in effect after
the Termination Date.

     8. NO SOLICITATION

          8.1 No Solicitation of Executives. Subject to Section 5.2, Executive agrees that he
will not, during his employment with Company, and for one (1) year thereafter if terminated without
Good Cause or with Good Reason or for two (2) years thereafter if terminated with Good Cause or
without Good Reason, encourage or solicit any other employee of Company to terminate his or her
employment for any reason, nor will he assist others to do so.

          8.2 No Solicitation of Customer. Subject to Section 5.2, Executive agrees that he
will not, during his employment with Company, and for one (1) year thereafter if terminated
without Good Cause or with Good Reason or for two (2) years thereafter if terminated with Good
Cause or without Good Reason, directly or indirectly call on, or otherwise solicit, business from
any actual customer or potential customer known by Executive to be targeted by Company, nor will he
assist others in doing so.

     9. INTELLECTUAL PROPERTIES.

          To the extent permissible under applicable law, all intellectual properties made or conceived
by Executive arising out of or relating to this Agreement or the Company’s business during the term
of this employment by Company shall be the right and property solely of Company, whether developed
independently by Executive or jointly with others. The Executive will sign the Company’s standard
Executive Innovation, Proprietary Information and Confidentiality Agreement (“Confidentiality
Agreement”).

     10. OTHER PROVISIONS

          10.1 Compliance With Other Agreements. Executive represents and warrants to Company
that the execution, delivery and performance of this Agreement will not conflict with or result in
the violation or breach of any term or provision of any order, judgment, injunction, contract,
agreement, commitment or other arrangement to which Executive is a party or by which he is bound.

          10.2 Injunctive Relief. Executive acknowledges that the services to be rendered under
this Agreement and the items described in Sections 6, 7, 8 and 9 are of a special, unique and
extraordinary character, that it would be difficult or impossible to replace such services or to
compensate Company in money damages for a breach of this Agreement. Accordingly, Executive agrees
and consents that if he violates any of the provisions of this Agreement, Company, in addition to
any other rights and remedies available under this Agreement or otherwise, shall be entitled to
temporary and permanent injunctive relief, without the necessity of proving actual damages and
without the necessity of posting any bond or other undertaking in connection therewith.

          10.3 Attorneys’ Fees. The prevailing party in any suit or other proceeding brought to
enforce, interpret or apply any provisions of this Agreement, shall be

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entitled to recover all costs and expenses of the proceeding and investigation (not limited to
court costs), including all attorneys’ fees.

          10.4 Counsel. The parties acknowledge and represent that, prior to the execution of
this Agreement, they have had an opportunity to consult with their respective counsel concerning
the terms and conditions set forth herein. Additionally, Executive represents that he has had an
opportunity to receive independent legal advice concerning the taxability of any consideration
received under this Agreement. Executive has not relied upon any advice from Company and/or its
attorneys with respect to the taxability of any consideration received under this Agreement.
Executive further acknowledges that Company has not made any representations to him with respect to
tax issues.

          10.5 Nondelegable Duties. This is a contract for Executive’s personal services. The
duties of Executive under this Agreement are personal and may not be delegated or transferred in
any manner whatsoever, and shall not be subject to involuntary alienation, assignment or transfer
by Executive during his life.

          10.6 Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws, without regard to the laws as to choice or conflict of laws, of the
State of California.

          10.7 Venue. If any dispute arises regarding the application, interpretation or
enforcement of any provision of this Agreement, including fraud in the inducement, such dispute
shall be resolved either in federal or state court in Los Angeles, California.

          10.8 No Jury. If any dispute arises regarding the application, interpretation or
enforcement of any provision of this Agreement, including fraud in the inducement, the parties
hereby waive their right to a jury trial.

          10.9 No Punitive Damages. If any dispute arises regarding the application,
interpretation or enforcement of any provision of this Agreement, including fraud in the
inducement, the parties hereby waive their right to seek punitive damages in connection with said
dispute.

          10.10 Severability. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions, and this Agreement shall be construed in all
respects as if any invalid or unenforceable provision were omitted.

          10.11 Binding Effect. The provisions of this Agreement shall bind and inure to the
benefit of the parties and their respective successors and permitted assigns.

          10.12 Notice. Any notices or communications required or permitted by this Agreement
shall be deemed sufficiently given if in writing and when delivered personally or 48 hours after
deposit with the United States Postal Service as registered or certified mail, postage prepaid and
addressed as follows:

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               (a) If to Company, to the principal office of Company in the State of California, marked
“Attention: Chairman”; or

               (b) If to Executive, to the most recent address for Executive appearing in Company’s records.

          10.13 Headings. The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement.

          10.14 Amendment and Waiver. This Agreement may be amended, modified or supplemented
only by a writing executed by each of the parties. Either party may in writing waive any provision
of this Agreement to the extent such provision is for the benefit of the waiving party. No waiver
by either party of a breach of any provision of this Agreement shall be construed as a waiver of
any subsequent or different breach, and no forbearance by a party to seek a remedy for
noncompliance or breach by the other party shall be construed as a waiver of any right or remedy
with respect to such noncompliance or breach.

          10.15 Entire Agreement. This Agreement is the only agreement and understanding
between the parties pertaining to the subject matter of this Agreement, and supersedes all prior
agreements, summaries of agreements, descriptions of compensation packages, discussions,
negotiations, understandings, representations or warranties, whether verbal or written, between the
parties pertaining to such subject matter.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.

EXECUTIVE:

	 	 	 	 	 	 	 
	 

Daniel S. Goldberger

	 	 
	 	 
	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	XCORPOREAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 
	 

	 	 	 	Terren S. Peizer	 	 
	 

	 	 	 	Its Chairman	 	 

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