Document:

exh4-1_052009.htm

    Exhibit
4.1

     

    PNM
RESOURCES, INC.

    SECOND
AMENDED AND RESTATED

    OMNIBUS
PERFORMANCE EQUITY PLAN

     

    SECTION
1

    ESTABLISHMENT, PURPOSE, AND
EFFECTIVE DATE

     

    1.1    
Background and
Establishment.  PNM Resources, Inc., a New Mexico corporation,
(the “Company”) established the “PNM Resources, Inc. Omnibus Performance Equity
Plan” (the “Plan”), effective upon the closing of the mandatory share exchange
which resulted in the Company becoming the holding company for the Public
Service Company of New Mexico.  The Company subsequently amended and
restated the Plan by the adoption of a document titled the “PNM Resources, Inc.
Amended and Restated Omnibus Performance Equity Plan,” which became effective
following approval of the Company’s shareholders at the Company’s 2005 Annual
Meeting.  The Company now wishes to amend and restate the Plan a
second time by the adoption of this document.  This amended and
restated Plan document permits the grant of Options, Restricted Stock Rights,
Restricted Stock, Performance Cash, Performance Shares, Performance Units, and
Stock Appreciation Rights.  This amended and restated Plan document
also permits the grant of awards that qualify for the “performance-based
compensation” exception to the limitations on the deduction of compensation
imposed by Section 162(m) of the Code.

     

    1.2    
Purpose.  The
purpose of the Plan is to advance the interests of the Company by encouraging
and providing for the acquisition of an equity interest in the Company by
Employees and Nonemployee Directors, by providing additional incentives and
motivation toward superior performance of the Company, and by enabling the
Company to attract and retain the services of Employees and Nonemployee
Directors upon whose judgment, interest, and special effort the successful
conduct of its operations is largely dependent.

     

    1.3    
Effective
Date.  This amended and restated Plan document will become
effective as of the date it is approved by the Company’s shareholders at its
2009 Annual Meeting (the “Effective Date”).  The current Plan
document, as amended, will remain in effect until this amended and restated Plan
document is approved by the shareholders.

     

    SECTION
2

    DEFINITIONS

     

    2.1    
Definitions.  When
a word or phrase appears in this Plan document with the initial letter
capitalized, and the word or phrase does not commence a sentence, the word or
phrase will generally be given the meaning ascribed to it in this Section 2.1
unless a clearly different meaning is required by the context.  The
following words and phrases will have the following meanings:

     

    (a)    
“Affiliate” means (i) any
member of a “controlled group of corporations” (within the meaning of Section
414(b) of the Code as modified by Section 415(h) of the Code) that includes the
Company as a member of the group, and (ii) any member of a group of trades or

     

    
      
         

      

      
        
           

        

        
          

        

      

      
         

      

    

    businesses
under common control (within the meaning of Section 414(c) of the Code as
modified by Section 415(h) of the Code) that includes the Company as a member of
the group.  In applying Section 1563(a)(1), (2) and (3) of the Code
for purposes of determining the members of a controlled group of corporations
under Section 414(b) of the Code, the language “at least 50 percent” shall be
used instead of “at least 80 percent” each place it appears in Section
1563(a)(1), (2) and (3) and in applying Treas. Reg. § 1.414(c)-2 for purposes of
determining the members of a group of trades or businesses (whether or not
incorporated) that are under common control for purposes of Section 414(c) of
the Code, the language “at least 50 percent” shall be used instead of “at least
80 percent” each place it appears in Treas. Reg. § 1.414(c)-2.

     

    (b)    
“Annual Meeting” or “Annual Meeting Date” means
the dates established for the annual meetings of the Company’s shareholders
pursuant to the Company’s Bylaws.

     

    (c)    
“Award” means any Option,
Restricted Stock Right, Restricted Stock, Performance Share, Performance Unit,
Performance Cash or Stock Appreciation Right granted pursuant to the
Plan.

     

    (d)    
“Award Agreement” means any
written agreement, contract or other instrument or document evidencing an
Award.

     

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

     

    (f)    
“Cause” means, for purposes of
termination of a Participant’s employment:

     

    (i)    
The
willful and continued failure of a Participant to substantially perform his or
her duties with the Company or any Affiliate after written demand for
substantial performance is delivered to the Participant which specifically
identifies the manner in which the Participant has not substantially performed
his or her duties;

     

    (ii)   
The
willful failure to report to work for more than thirty (30) days;
or

     

    (iii)  
The
willful engaging by the Participant in conduct which is demonstrably and
materially injurious to the Company or any Affiliate, monetarily or otherwise,
including acts of fraud, misappropriation, violence or embezzlement for personal
gain at the expense of the Company or any Affiliate, conviction of a felony, or
conviction of a misdemeanor involving immoral acts.

     

    Cause
shall not be deemed to exist on the basis of Subsection 2.1(f)(i) or 2.1(f)((ii)
if the failure results from such Participant’s incapacity due to verifiable
physical or Mental Illness substantiated by appropriate medical
evidence.  An act, or failure to act, by a Participant shall not be
deemed “willful” if done or omitted to be done by the Participant in good faith
and with a reasonable belief that his or her action was in the best interests of
the Company and its Affiliates.

     

    
      
         

      

      
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    (g)    
“CEO” means the Chief
Executive Officer of the Company.

     

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

     

    (i)    
Any
“person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act
becoming directly or indirectly the “beneficial owner” as defined in Rule 13d-3
under the Exchange Act, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company’s then outstanding
securities unless such person is, or shall be, a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or a
corporation owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportion as their ownership of stock of the
Company;

     

    (ii)    
During
any period of two (2) consecutive years, excluding any period prior to the
Effective Date of this Plan, the following individuals ceasing, for any reason,
to constitute a majority of the Board:

     

    (1)    
directors
who were directors at the beginning of such period; and

     

    (2)    
any new
directors whose election by the Board or nomination for election by the
Company’s shareholders was approved by a vote of at least two-thirds (2/3rds) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, such new directors being referred to as “Approved New
Directors.”  For purposes of determining whether a Change in Control
has occurred pursuant to this Subsection 2.1(h)(ii)(2), a director designated by
a person who has entered into an agreement with the Company to effect a
transaction described in Subsections 2.1(h)(i), (iii) or (iv) shall not be
considered to be an “Approved New Director.”

     

    (iii)  
The
shareholders of the Company approving a merger or consolidation of the Company
with another company, corporation or subsidiary that is not affiliated with the
Company immediately before the Change in Control; provided, however, that if the
merger or consolidation would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent, either by
remaining outstanding or by being converted into voting securities of the
surviving entity, at least sixty percent (60%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, the merger or consolidation will
be disregarded; or

     

    (iv)   
The
adoption of a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of the
Company’s assets.

     

    Notwithstanding
the foregoing, a Change in Control will not be deemed to have occurred
until:  (1) any required regulatory approval, including any final
non-appealable regulatory order, has been obtained and (2) the transaction that
would otherwise be considered a Change in Control closes.

     

    
      
         

      

      
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    The Award
Agreement for any Award subject to the requirements of Section 409A of the Code
may prescribe a different definition of the term “Change in Control” that will
apply for purposes of that Award Agreement and that complies with the
requirements of Section 409A of the Code.

     

    (i)    
“Code” means the Internal
Revenue Code of 1986, as amended.  All references to the Code shall be
interpreted to include a reference to any applicable regulations, rulings or
other official guidance promulgated pursuant to such section of the
Code.

     

    (j)    
“Committee” means the Board
Governance and Human Resources Committee or any such other committee as may be
designated by the Board to administer the Plan, the membership of such committee
not being less than two (2) members of the Board.  Each Committee
member must be (i) a “non-employee director” (as defined in Rule 16b-3 under the
Exchange Act) if required to meet the conditions for exemption of the Awards
under the Plan from Section 16(b) of the Exchange Act, and (ii) an “outside
director” as defined in Section 162(m) of the Code and the regulations issued
thereunder.

     

    (k)    
“Company” means PNM Resources,
Inc., a New Mexico corporation.

     

    (l)     
“Covered Employee” means an
employee who is, or could be, a “covered employee” as defined by Section 162(m)
of the Code.

     

    (m)    
“Disability” means the
inability of a Participant to engage in any substantially gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months.  The permanence
and degree of impairment shall be supported by medical evidence.  Any
determination of Disability pursuant to this Plan is not an admission by the
Company or an Affiliate that a Participant is disabled under federal or state
law.

     

    (n)     
“Effective Date” means the
date on which the shareholders of the Company approve the Plan as described in
Section 1.3.

     

    (o)    
“Employee” means an individual
who is classified by an Employer as a common law employee (or who would be
considered a common law employee if such person was not on an authorized leave
of absence).  Regardless of any subsequent determination by a court or
a governmental agency that an individual should be treated as a common law
employee, an individual will be considered an Employee under the Plan only if
such individual has been so classified by an Employer for purposes of the
Plan.  Examples of individuals who will not be considered to be
Employees of an Employer include (i) consultants, (ii) leased employees as
defined in Section 414(n) of the Code, (iii) individuals providing services to
an Employer pursuant to a contract with a third-party, (iv) independent
contractors, (v) employees of independent contractors, (vi) interns, and (vii)
co-op employees.

     

    (p)    
“Employer” means the Company,
or any of its Affiliates that has adopted the Plan in accordance with Section
21.4.

     

    
      
         

      

      
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    (q)    
“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.  All references to
a section of ERISA shall be interpreted to include a reference to any applicable
regulations, rulings or other official guidance promulgated pursuant to such
section of ERISA.

     

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

     

    (s)    
“Fair Market Value” means the
closing sale price of one share of Stock as reported on the New York Stock
Exchange on the date such value is determined (or if Stock is not traded on such
date, on the first immediately preceding business day on which Stock was so
traded).

     

    (t)    
“Grant Date” means the date
the Committee approves the Award or a date in the future on which the Committee
determines the Award will become effective.

     

    (u)    
“Impaction” means the
elimination of a Participant’s position by the Company, as approved by the CEO
of the Company or his or her authorized designee, followed by the Company giving
a Notice of Impaction to the Participant and the Participant’s subsequent
Termination of Employment.

     

    (v)    
“Mental Illness” means any
disorder, other than a disorder induced by alcohol or drug abuse, which impairs
the behavior, emotional reaction or thought process of a person.

     

    (w)    
“Nonemployee Director” means
any member of the Board who, as of the Grant Date, is not an
Employee.

     

    (x)     
“Notice of Impaction” means a
written notice issued by the Company, at its sole discretion, to the Participant
stating that his or her position with the Company has been selected for
Impaction.

     

    (y)    
“Opposite-Sex Spouse” means an
individual of the opposite sex who is legally married to the Participant under
the laws of the jurisdiction in which the marriage was performed or
occurred.

     

    (z)    
“Option” means the right to
purchase Stock at a stated price for a specified period of time.  For
purposes of the Plan, an Option may be either (i) a “non-qualified stock option”
(an option which is not an incentive stock option), or (ii) an “incentive stock
option” within the meaning of Section 422 of the Code.

     

    (aa)    “Participant” means any
Employee or Nonemployee Director who is selected by an Employer, or the
Committee (in the case of a Nonemployee Director), from time to time to
participate in the Plan; provided, however, that all Employees who are selected
to participate in the Plan shall be subject to approval by the CEO, in his or
her sole discretion.  Notwithstanding the above, the CEO’s right to
participate in the Plan shall be determined in the sole discretion of the
Committee.

     

    
      
         

      

      
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    (bb)   
“Performance-Based Award”
means an Award granted to select Covered Employees pursuant to Sections
7, 8, 9 or 10 which are subject to the terms set forth in Section 12. All
Performance-Based Awards are intended to qualify as “performance-based
compensation” pursuant to Section 162(m) of the Code.

     

    (cc)   
“Performance Cash Award” means
a right to receive a payment in cash as determined by the
Committee.

     

    (dd)   
“Performance Criteria” means
the criteria or any combination of criteria, that the Committee selects for
purposes of establishing the Performance Goal or Performance Goals for a
Participant for a Performance Period.  The Performance Criteria that
will be used to establish Performance Goals are limited to the
following:  revenue; revenue growth; earnings (including earnings
before interest, taxes, depreciation and amortization); operating income; pre-
and after-tax income; cash flow (before and after dividends); cash flow per
share (before and after dividends); net earnings; earnings per share; adjusted
cash earnings; return on equity; return on capital (including return on total
capital or return on invested capital); cash flow return on investment; return
on assets or net assets; economic value added (or an equivalent metric); share
price performance; total shareholder return; improvement in or attainment of
expense levels; improvement in or attainment of working capital levels; total
operating cost or operating cost per unit of output (megawatt hours); the ratio
of funds from operations to debt; and improvement in, attainment of or
compliance with various environmental standards.  The Committee shall,
within the time prescribed by Section 162(m) of the Code, define in an objective
fashion the manner of calculating the Performance Criteria it selects to use for
a particular Performance Period for a particular Participant.

     

    (ee)   
“Performance Goals” means the
goal or goals established in writing by the Committee for a Performance Period
based on the Performance Criteria.  Depending on the Performance
Criteria used to establish Performance Goals, the Performance Goals may be
expressed in terms of overall Company performance, or the performance of a
division, Affiliate or subsidiary, or an individual.  The Performance
Goals may be stated in terms of absolute levels or relative to another company
or companies or to an index or indices.

     

    (ff)   
“Performance Period” means one
or more periods of time, which may be of varying and overlapping durations, as
the Committee may select, over which the attainment of one or more Performance
Goals will be measured for the purpose of determining a Participant’s right to
and the payment of an Award granted pursuant to Sections 8, 9, or
12.

     

    (gg)   
“Performance Share” means a
right to receive a payment in the form of Stock equal to the value of a
Performance Share as determined by the Committee.

     

    (hh)   
“Performance Unit” means a
right to receive a payment in cash or Stock or a combination thereof equal to
the value of a Performance Unit as determined by the Committee.

     

    (ii)    
“Plan” means the PNM
Resources, Inc. Second Amended and Restated Omnibus Performance Equity Plan as
set forth in this document and as amended from time to time.  The Plan
also is referred to as the “PEP” from time to time.

     

    
      
         

      

      
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    (jj)    
“Restricted Period” means the
period during which Restricted Stock or a Restricted Stock Right, Performance
Share or Performance Unit is subject to restrictions pursuant to the relevant
provisions of the Plan.

     

    (kk)   
“Restricted Stock” means Stock
granted to a Participant that is subject to certain restrictions and to risk of
forfeiture.

     

    (ll)    
 “Restricted Stock Right” means
the right granted to a Participant to receive Stock in the future, at no
monetary cost to the Participant, the payment of which is subject to certain
restrictions and to risk of forfeiture.

     

    (mm)   “Retainer” means the annual
retainer to which each Nonemployee Director is entitled, as may be determined by
the Board from time to time and as in effect on the Grant Date.

     

    (nn)    
“Retirement” means Termination
of Employment and attainment of:

     

    (i) age
forty-five (45) with twenty (20) years of service;

     

    (ii) age
fifty-five (55) with ten (10) years of service;

     

    (iii) age
fifty-nine with one-half (591⁄2); or

     

    (iv) any age
with thirty (30) years of service.

     

    In the
case of a Nonemployee Director, “Retirement” means (i) a Nonemployee Director’s
retirement and related resignation from the Board pursuant to the “Director
Service Policy” or any equivalent policy that may be adopted or amended from
time to time by the Board, or (ii) completion of the Nonemployee Director’s
elected term under circumstances in which he or she is not reelected for an
ensuing term for any reason other than for Cause.

     

    (oo)    
“Same-Sex Spouse” means an
individual of the same sex who is legally married to the Participant under the
laws of the jurisdiction in which the marriage was performed or
occurred.

     

    (pp)    
“Separation from Service”
means either (i) the termination of a Participant’s employment with the
Company and all Affiliates due to death, retirement or other reasons, or (ii) a
permanent reduction in the level of bona fide services the Participant provides
to the Company and all Affiliates to an amount that is 20% or less of the
average level of bona fide services the Participant provided to the Company and
all Affiliates in the immediately preceding 36 months, with the level of bona
fide service calculated in accordance with Treas. Reg. §
1.409A-1(h)(1)(ii).

     

    A
Participant’s employment relationship is treated as continuing while the
Participant is on military leave, sick leave, or other bona fide leave of
absence (if the period of such leave does not exceed six months, or if longer,
so long as the Participant’s right to reemployment with the Company or an
Affiliate is provided either by 

     

    
      
         

      

      
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    statute
or contract).  If the Participant’s period of leave exceeds six months
and the Participant’s right to reemployment is not provided either by statute or
by contract, the employment relationship is deemed to terminate on the first day
immediately following the expiration of such six-month
period.  Whether a termination of employment has occurred will be
determined based on all of the facts and circumstances and in accordance with
regulations issued by the United States Treasury Department pursuant to Section
409A of the Code.

     

    For
purposes of the Plan, if a Participant performs services in more than one
capacity, the Participant must have a Termination of Employment or Service in
all capacities as an employee, member of the Board, independent contractor or
consultant to have a Separation from Service.  Notwithstanding the
foregoing, if a Participant provides services both as an employee and as a
member of the Board, (i) the services provided as a member of the Board are not
taken into account in determining whether the Participant has a Separation from
Service as an employee under a nonqualified deferred compensation plan in which
the Participant participates as an employee and that is not aggregated under
Section 409A of the Code with any plan in which the Participant participates as
a member of the Board, and (ii) the services provided as an employee are not
taken into account in determining whether the Participant has a Termination of
Employment as a member of the Board under a nonqualified deferred compensation
plan in which the Participant participates as a member of the Board and that is
not aggregated under Section 409A of the Code with any plan in which the
Participant participates as an employee.

     

    In the case of a Nonemployee Director,
“Separation from Service” means that such Director has ceased to be a member of
the Board.

     

    (qq)    
“Specified Employee” means
certain officers and highly compensated employees of the Company as defined in
Treas. Reg. § 1.409A-1(i).  The identification date for determining
whether any employee is a Specified Employee during any calendar year shall be
the September 1 preceding the commencement of such calendar year.

     

    (rr)    
“Spouse” means the
Opposite-Sex Spouse or Same-Sex Spouse of the Participant.

     

    (ss)    
“Stock” means the Common Stock
of the Company, no par value.

     

    (tt)    
“Stock Appreciation Right” or
“SAR” means the right to
receive a payment in Stock from the Company equal to the excess of the Fair
Market Value of one share of Stock on the date of exercise over a specified
price fixed by the Committee, which shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of Stock on the Grant
Date.  In the case of a Stock Appreciation Right which is granted in
conjunction with an Option, the specified price shall be the Option exercise
price.

     

    (uu)    
“Termination of Employment”
means, in the context of an Award that is subject to the requirements of Section
409A of the Code, a “Separation from Service”.  In the case of any
other Award, “Termination of Employment” will be given its natural
meaning.

     

    (vv)    
“Termination of Service”
means, in the context of an Award that is subject to the requirements of Section
409A of the Code, a “Separation from Service”.  In the case of any
other Award, “Termination of Service” will mean the termination of a Nonemployee
Director’s service on the Board.

     

    
      
         

      

      
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    (ww)    
“Year of Service” for purposes
of this Plan shall have the same meaning as set forth in the PNM Resources, Inc.
Employees’ Retirement Plan, as it may be amended from time to time (the “ERP”),
and shall include service with a predecessor organization as provided in the
ERP.

     

    2.2    
Gender and
Number.  Except when otherwise indicated by the context, words
in the masculine gender when used in this Plan document will include the
feminine gender, the singular will include the plural, and the plural will
include the singular.

     

    SECTION
3

    ELIGIBILITY AND
PARTICIPATION

     

    Awards
may be made only to those Participants who are Employees of an Employer or
Nonemployee Directors on the Grant Date of the Award.

     

    SECTION
4

    ADMINISTRATION

     

    4.1    
Administration.  The
Committee shall be responsible for the administration of the
Plan.  The Committee, by majority action thereof, is authorized to
interpret the Plan, to prescribe, amend, and rescind rules and regulations
relating to the Plan, to provide for conditions and assurances deemed necessary
or advisable to protect the interests of the Company, and to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the
Plan.  Determinations, interpretations, or other actions made or taken
by the Committee in good faith pursuant to the provisions of the Plan shall be
final, binding and conclusive for all purposes of the Plan.

     

    4.2    
Awards.  The
Committee shall have the authority, in its sole discretion, to determine the
Participants who are entitled to receive Awards under the Plan, the types of
Awards, the times when Awards shall be granted, the number of Awards, the
purchase price or exercise price, if any, the period(s) during which such Awards
shall be exercisable (whether in whole or in part), the restrictions applicable
to Awards, the form of each Award Agreement, which need not be the same for each
Participant, and the other terms and provisions of any Award (which need not be
identical).  The Committee shall have the authority to modify existing
Awards, subject to Section 17 of this Plan.  Notwithstanding the
foregoing, the Committee will not have the authority to accelerate the vesting
or waive the forfeiture of any Performance-Based Awards or to reprice any
previously granted Option.

     

    4.3    
Award
Agreement.  Each Award shall be evidenced by an Award Agreement
that shall specify the type of Award granted and such other provisions and
restrictions applicable to such Award as the Committee, in its discretion, shall
determine.

     

    4.4    
Claims.  Any
claim relating to an Award granted under this Plan shall be submitted to the
Committee or its designee.  The Committee shall render a written
decision and, if there is an adverse determination with respect to the claim,
either in whole or in part, the decision will set forth the basis for the
determination.  If the Committee does not render a decision within one
hundred and twenty (120) days, the claim shall be deemed denied.

     

    
      
         

      

      
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    SECTION
5

    STOCK SUBJECT TO THE
PLAN

     

    5.1    
Number.  The
total number of shares of Stock subject to all Awards under the Plan may not
exceed 12,343,0001, subject to adjustment upon
occurrence of any of the events indicated in Section 5.3.  The number
of shares of Stock subject to Restricted Stock, Restricted Stock Right,
Performance Share and Performance Unit Awards may not exceed 1,560,000, subject
to adjustment upon occurrence of any of the events indicated in Section
5.3.  The shares to be delivered under the Plan may consist, in whole
or in part, of authorized but unissued Stock or shares purchased on the open
market or treasury Stock not reserved for any other purpose.

     

    5.2    
Availability of
Stock for Grant.  Subject to the express provisions of the
Plan, if any Award granted under the Plan terminates, expires, lapses for any
reason, or is paid in cash, any Stock subject to or surrendered for such Award
will again be Stock available for the grant of an Award.  The exercise
of a stock-settled SAR or broker-assisted “cashless” exercise of an Option (or a
portion thereof) will reduce the number of shares of Stock available for
issuance pursuant to Section 5.1 by the entire number of shares of Stock
subject to that SAR or Option (or applicable portion thereof), even though a
smaller number of shares of Stock will be issued upon such an
exercise.  Also, shares of Stock tendered to pay the exercise price of
an Option or tendered or withheld to satisfy a tax withholding obligation
arising in connection with an Award will not become available for grant or sale
under the Plan.

     

    5.3    
Adjustment in
Capitalization.  In the event of any change in the outstanding
shares of Stock by reason of a Stock dividend or split, recapitalization,
merger, consolidation, combination, exchange of shares, or other similar
corporate change, the aggregate number of shares of Stock available under the
Plan and subject to each outstanding Award, and its stated exercise price or the
basis upon which the Award is measured, shall be adjusted appropriately by the
Committee, whose determination shall be conclusive; provided, however, that
fractional shares shall be rounded to the nearest whole share.  Any
adjustment to an incentive stock option shall be made consistent with the
requirements of Section 424 of the Code.  Further, with respect to any
Option or Stock Appreciation Right that otherwise satisfies the requirements of
the stock rights exception to Section 409A of the Code, any adjustment pursuant
to this Section 5.3 shall be made consistent with the requirements of the final
regulations promulgated pursuant to Section 409A of the Code.

     

    5.4    
Annual Limitation
on Number of Shares Subject to Awards.  Notwithstanding any
provision in this Plan document to the contrary, and subject to adjustment upon
the occurrence of any of the events indicated in Section 5.3, the maximum number
of shares of Stock that may be granted to any one Participant during any of the
Company’s fiscal years with respect to one or more Awards shall be five hundred
thousand (500,000).

     

    ___________________________________

    1 As of February 27, 2009, (a) 2,940,594 shares have been issued
upon exercise or vesting of awards under the Plan and (b) 4,201,985 shares are
subject to outstanding awards under the Plan and not otherwise forfeited or
cancelled.

     

    
      
         

      

      
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    SECTION
6

    DURATION OF THE
PLAN

     

    The Plan
shall remain in effect, subject to the Board’s right to amend or terminate the
Plan at any time pursuant to Section 17, until all Awards issued under the Plan
expire, terminate,  are exercised or are paid in full in accordance
with the provisions of the Plan and any Award Agreement.  However, no
Award may be granted under the Plan after May 18, 2019.  Any Awards
granted under the Plan prior to May 19, 2019 shall continue in effect until they
expire, terminate, are exercised or are paid in full in accordance with the
terms of the Plan and the Award Agreement for such Awards.

     

    SECTION
7

    STOCK
OPTIONS

     

    7.1    
Grant of
Options.  Subject to the provisions of Sections 5 and 6 and
this Section 7, Options may be granted to Participants at any time and from time
to time as shall be determined by the Committee.  The Committee shall
have complete discretion in determining the number of Options granted to each
Participant.  The Committee may grant any type of Option that is
permitted by law at the time of grant except discounted options.  To
the extent the aggregate Fair Market Value (determined at the time the Option is
granted) of the Stock with respect to which incentive stock options are
exercisable for the first time by a Participant in any calendar year (under this
Plan and any other plans of the Company) exceeds the limitations set forth in
Section 422(d) of the Code, as amended, such Options shall not be deemed
incentive stock options.  In determining which Options may be treated
as non-qualified options under the preceding sentence, Options will be taken
into account in the order of their Grant Dates.  No incentive stock
option may be granted to any person who owns, directly or indirectly, more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company.  Nothing in this Section 7 of the Plan shall be deemed to
prevent the grant of nonstatutory stock options in amounts which exceed the
maximum established by Section 422 of the Code.  No Options may be
granted later than ten (10) years from the Effective Date.

     

    7.2    
Exercise
Price.  No Option shall be granted at an exercise price that is
less than the Fair Market Value of one share of  Stock on the Grant
Date.

     

    7.3    
Duration of
Options.  Each Option shall expire at such time or times as the
Committee shall determine at the time it is granted; provided, however, that all
Options shall lapse and no longer be exercisable no later than ten (10) years
from the Grant Date.

     

    7.4    
Exercisability of
Options.  Options shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for all
Participants.  During a Participant’s lifetime, an incentive stock
option may be exercised only by the Participant.

     

    7.5    
No Obligations to
Exercise Options.  The granting of an Option will impose no
obligation upon the Participant to exercise such Option.

     

    7.6    
Payment.  The
purchase price of Stock upon exercise of any Option shall be paid in full either
(a) in cash, (b) in previously-acquired Stock (through actual tender or by
attestation) 

     

    
      
         

      

      
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    held for
more than six (6) months, valued at its Fair Market Value on the date of
exercise, or (c) by a combination thereof as determined by the
Committee.  The Committee in its sole discretion also may permit a
Participant to make payment of the purchase price upon exercise of any Option
through (d) a broker-assisted “cashless” exercise arrangement by delivering a
properly executed notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds to pay the
exercise price; or (e) a “net-issuance” as permitted pursuant to any policy
determined by the Committee.  The proceeds from payment of exercise
prices shall be added to the general funds of the Company and shall be used for
general corporate purposes.

     

    7.7    
Delivery of
Shares.  Within an administratively reasonable period of time
after the exercise of an Option, and the payment of the full exercise price, and
the satisfaction of all withholding obligations incurred pursuant to such
exercise, the Participant shall receive a Stock certificate evidencing his or
her ownership of such Stock.  A Participant shall have none of the
rights of a shareholder with respect to Options until the record date of the
Stock purchase.  No adjustment will be made for dividends or other
rights for which the record date is prior to the date such Stock certificate is
issued in the Participant’s name.

     

    SECTION
8

    RESTRICTED STOCK RIGHTS AND
RESTRICTED STOCK

     

    8.1    
Grant of
Restricted Stock Rights and Restricted
Stock.  Subject to the provisions of Sections 5 and 6, and this
Section 8, the Committee, at any time and from time to time, may grant
Restricted Stock Rights or Restricted Stock to such Participants and in such
amounts as it shall determine.

     

    8.2    
Restricted
Stock Rights.

     

    (a)    
Voting
Rights.  During the Restricted Period, Participants holding the
Restricted Stock Rights granted hereunder shall have no voting rights with
respect to the shares subject to such Restricted Stock Rights prior to the
issuance of such shares pursuant to the Plan.

     

    (b)    
Dividend
Equivalents and Other Distributions.  During the Restricted
Period, at the discretion of the Committee, Participants holding Restricted
Stock Rights may be entitled to receive dividend equivalents and other
distributions paid with respect to those Rights while they are so
held.  Any dividend equivalents or other distributions to which a
Participant may be entitled pursuant to this Subsection 8.2(b) shall be payable
in accordance with the requirements of Section 409A of the Code (or an
applicable exception thereto) to the extent Section 409A of the Code applies to
such dividend equivalents or other distributions.

     

    (c)    
Form and Timing
of Payment. Payment
for any vested Restricted Stock Rights Award issued pursuant to this Section
shall be made in one lump sum payment of shares of Stock.  As a
general rule, the shares payable under any Restricted Stock Rights Award will be
issued to the Participant within ninety (90) days following the date on which
the Restricted Stock Rights vest.  Such payment is intended to be made
at a specified time or pursuant to a fixed schedule under Treas. Reg. §
1.409A-3(a)(4).  Restricted Stock Rights that vest upon a

     

    
      
         

      

      
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    Participant’s
Termination of Employment for the reasons described in Section 13.1 shall be
payable at the times described in Section 13.1.

     

    (d)    
Conforming
Amendment to Existing Restricted Stock Rights Award
Agreements.  The Award Agreement for any Restricted Stock
Rights Award issued prior to January 1, 2009 and that was outstanding as of
January 1, 2009 was automatically amended to the extent necessary to provide for
payment as described in this Section 8.2 or in Sections 13.1 or 13.2, as
applicable, without any further action by the Company or the
Participant.

     

    8.3    
Grant of
Restricted Stock.

     

    (a)    
Issuance and
Restrictions.  Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted
Stock).  These restrictions may lapse separately or in combination at
such times, pursuant to such circumstances, in such installments, or otherwise,
as the Committee determines at the time of the grant of the Award or
thereafter.

     

    (b)    
Forfeiture.  Except
as otherwise determined by the Committee at the time of the grant of the
Restricted Stock Award or thereafter, upon Termination of Employment during the
applicable Restriction Period, Restricted Stock that is at that time subject to
restrictions shall be forfeited; provided however, that the Committee may
provide in any Restricted Stock Award Agreement that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part in
the event of terminations resulting from specified causes, and the Committee may
in other cases waive in whole or in part restrictions or forfeiture conditions
relating to Restricted Stock.

     

    (c)    
Certificates for
Restricted Stock.  Restricted Stock granted pursuant to the
Plan may be evidenced in such manner as the Committee shall
determine.  If certificates representing shares of Restricted Stock
are registered in the name of the Participant, the certificates must bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, and the Company may, in its discretion,
retain physical possession of the certificate until such time as all applicable
restrictions lapse.

     

    SECTION
9

    PERFORMANCE SHARE,
PERFORMANCE UNIT

    AND PERFORMANCE CASH
AWARDS

     

    9.1    
Grant of
Performance Shares or Performance Units.  Subject to the
provisions of Sections 5 and 6 and this Section 9, Performance Shares or
Performance Units may be granted to Participants at any time and from time to
time as shall be determined by the Committee.  The Committee shall
have complete discretion in determining the number of Performance Shares or
Performance Units granted to each Participant.

     

    9.2    
Value of
Performance Shares and Performance Units.  Each Performance
Share and each Performance Unit shall have a value determined by the Committee
at the time of grant.  The Committee shall set goals (including
Performance Goals) for a particular period (including a 

     

    
      
         

      

      
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    Performance
Period) in its discretion which, depending on the extent to which they are met,
will determine the ultimate value of the Performance Share or Performance Unit
to the Participant.

     

    9.3    
Form and Timing
of Payment.

     

    (a)    
General
Rule. Payment
for vested Performance Shares shall be made in Stock.  Payment for
vested Performance Units shall be made in cash, Stock or a combination thereof
as determined by the Committee.  All payments for Performance Shares
and Performance Units shall be made in a lump sum.  As a general rule,
payment for vested Performance Shares or Performance Units shall be made on or
before March 15 of the calendar year following the calendar year in which the
Performance Period applicable to such Performance Shares or Performance Units
ends.  Performance Shares and Performance Units that vest upon a
Participant’s Termination of Employment for the reasons described in Section
13.1 shall be payable at the times described in Section 13.1.

     

    (b)    
Conforming
Amendment to Existing Performance Share or Performance Unit Award
Agreements.  The Award Agreement for any Performance Share or
Performance Unit Award that was issued prior to January 1, 2009 and that was
outstanding as of January 1, 2009 was automatically amended to the extent
necessary to provide for payment as described in this Section 9.3, or in
Sections 13.1 or 13.2, as applicable, without any further action by the Company
or the Participant.

     

    9.4    
Performance Cash
Awards.  Performance Cash Awards may be granted to Participants
at any time and from time to time as shall be determined by the
Committee.  A Performance Cash Award will grant to the Participant the
right to receive an amount of cash depending on the satisfaction of any one or
more goals (including Performance Goals) during a particular period (including a
Performance Period), as determined by the Committee.  The Committee
shall have complete discretion to determine the amount of any Performance Cash
Award granted to a Participant.  Payment for vested Performance Cash
Awards will be made on or before March 15 of the calendar year following the
calendar year in which the Performance Period applicable to such Performance
Cash Award ends.

     

    SECTION
10

    STOCK APPRECIATION
RIGHTS

     

    10.1    
Grant of Stock
Appreciation Rights.  Subject to the provisions of Sections 5
and 6 and this Section 10, Stock Appreciation Rights (“SARs”) may be granted to
Participants at any time and from time to time as shall be determined by the
Committee. SARs may be granted in connection with the grant of an Option, in
which case the exercise of SARs will result in the surrender of the right to
purchase the shares under the Option as to which the SARs were
exercised.  Alternatively, SARs may be granted independently of
Options.

     

    10.2    
Exercisability of
SARs.  SARs granted under the Plan shall be exercisable at such
times and be subject to such restrictions and conditions as the Committee shall
in each instance approve, which need not be the same for all Participants;
provided, however, that no SAR shall be exercisable later than ten (10) years
from the Grant Date.

     

    
      
         

      

      
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    10.3    
Exercise of
SARs.  Upon exercise of the SAR or at a fixed date after all or
part of the SAR becomes exercisable, the Participant shall be entitled to
receive payment of an amount determined by multiplying:

     

    (a)    
The
difference between the Fair Market Value of a share of Stock at the date of
exercise over the price fixed by the Committee at the Grant Date, which shall
not be less than the Fair Market Value of a share of Stock at the Grant Date,
by

     

    (b)    
The
number of shares with respect to which the SAR is exercised.

     

    10.4    
Form and Timing
of Payment.  Payment for SARs shall be made in Stock and shall
be payable at the time specified in the Award Agreement for such
SARs.

     

    SECTION
11

    NONEMPLOYEE DIRECTOR
RETAINER GRANTS

     

    11.1    
Payment of
Retainer.  The Retainer is payable in cash or Awards, as
determined by the Board in the exercise of its discretion.  The
Board’s determination of the combination of cash and Awards payable to each
Nonemployee Director need not be uniform.  To the extent the Retainer
payable to any Nonemployee Director under this Section 11 is considered
“non-qualified deferred compensation” that is subject to the requirements of
Section 409A of the Code, the Retainer shall be paid in accordance with the
provisions of Section 409A of the Code and any regulations promulgated
thereunder or an exception thereto.

     

    11.2    
Grant
Date.  Unless the Board or Committee determines otherwise, the
Grant Date for Awards and distribution of cash to Non-Employee Directors shall
be each Annual Meeting Date.

     

    11.3    
Term of
Awards.  Subject to the limitations set forth in this Plan,
Awards granted to Nonemployee Directors shall be subject to such terms and
conditions as set forth in each Award Agreement as determined by the Committee
in its sole discretion.

     

    11.4    
Termination of
Service.

     

    (a)    
Nonvested
Awards.  If a Nonemployee Director holds any nonvested Awards
upon his or her Termination of Service as a Nonemployee Director due to death,
Disability, Retirement, or Change in Control, all such nonvested Awards shall
become one hundred percent (100%) vested.  Upon a Non-Employee
Director’s Termination of Service as a Nonemployee Director for any reason other
than death, Disability, Retirement, or Change in Control, all nonvested Awards
shall be canceled.

     

    (b)    
Vested
Awards.  If a Nonemployee Director holds any vested Awards upon
a Termination of Service as a Nonemployee Director for any reason other than for
Cause, the vested Award shall be exercisable on or before the earlier
of:  (i) one (1) year following the Termination of Service, or (ii)
the tenth (10th) anniversary date of the Grant Date of the
Award.  Upon a Non-Employee Director’s Termination of Service for
Cause, all vested Awards shall be canceled.

     

    
      
         

      

      
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    SECTION
12

    PERFORMANCE-BASED
AWARDS

     

    12.1     
Grant of
Performance-Based Awards.  Options granted to Covered Employees
pursuant Section 7 and SARs granted to Covered Employees pursuant to Section 10
should, by their terms, qualify for the “performance-based compensation”
exception to the deduction limitations of Section 162(m) of the
Code.  The Committee, in the exercise of its complete discretion, also
may choose to qualify some or all of the Restricted Stock Rights or Restricted
Stock Awards granted to Covered Employees pursuant to Sections 8 and/or some or
all of the Performance Share, Performance Units or Performance Cash Awards
granted to Covered Employees pursuant to Section 9 for the “performance-based
compensation” exception to the deduction limitations of Section 162(m) of the
Code.  If the Committee, in its discretion, decides that a particular
Award to a Covered Employee should qualify as “performance-based compensation,”
the Committee will grant a Performance-Based Award to the Covered Employee and
the provisions of this Section 12 shall control over any contrary provision
contained in Sections 8 or 9.  If the Committee concludes that a
particular Award to a Covered Employee should not be qualified as
“performance-based compensation,” the Committee may grant the Award without
satisfying the requirements of Section 162(m) of the Code and the provisions of
this Section 12 shall not apply.

     

    12.2    
Applicability.  This
Section 12 shall apply only to Awards to those Covered Employees selected by the
Committee to receive Performance-Based Awards.  The designation of a
Covered Employee as a Participant for any Performance Period shall not in any
manner entitle the Participant to receive a Performance-Based Award for such
Performance Period.  Moreover, designation of a Covered Employee as a
Participant for a particular Performance Period shall not require designation of
such Covered Employee as a Participant for any subsequent Performance
Period.

     

    12.3    
Committee
Discretion with Respect to Performance-Based Awards.  With
regard to a particular Performance Period, the Committee shall have full
discretion to select the length of the Performance Period, the type of
Performance-Based Awards to be issued, the kind and/or level of the Performance
Goal or Goals and whether the Performance Goal or Goals apply to the Company, an
Affiliate, a subsidiary or any division or business unit thereof or the
Participant or any group of Participants.

     

    12.4    
Establishment of
Performance Goals.  The Performance Goals for any
Performance-Based Award granted pursuant to this Section 12 shall be established
by the Committee in writing not later than ninety (90) days after the
commencement of the Performance Period for such Award; provided that (a) the
outcome must be substantially uncertain at the time the Committee establishes
the Performance Goals; and (b) in no event will the Committee establish the
Performance Goals for any Performance-Based Award after twenty-five percent
(25%) of the Performance Period for such Award has elapsed.

     

    12.5    
Performance
Evaluation; Adjustment of Goals.  At the time that a
Performance-Based Award is first issued, the Committee, in the Award Agreement
or in another written document, shall specify whether performance will be
evaluated including or excluding the effect of any of the following events that
occur during the Performance Period:

     

    
      
         

      

      
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    (a)  
Judgments
entered or settlements reached in litigation;

     

    (b)  
The write
down of assets;

     

    (c)  
The
impact of any reorganization or restructuring;

     

    (d)  
The
impact of changes in tax laws, accounting principles, regulatory actions or
other laws affecting reported results;

     

    (e)  
Extraordinary
non-recurring items as described in Accounting Principles Board Opinion No. 30
and/or in management’s discussion and analysis of financial condition and
results of operations appearing in the Company’s annual report to shareholders
or Annual Report on Form 10 K, as the case may be, for the applicable
year;

     

    (f)  
The
impact of any mergers, acquisitions, spin-offs or other divestitures;
and

     

    (g)  
Foreign
exchange gains and losses.

     

    The
inclusion or exclusion of these items shall be expressed in a form that
satisfies the requirements of Section 162(m) of the Code.  The
Committee, in its discretion, also may, within the time prescribed by Section
162(m) of the Code, adjust or modify the calculation of Performance Goals for
such Performance Period in order to prevent the dilution or enlargement of the
rights of Participants (i) in the event of, or in anticipation of, any unusual
or extraordinary corporate item, transaction, event, or development, or (ii) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

     

    12.6    
Payment of
Performance-Based Awards.  Unless otherwise provided in the
relevant Award Agreement, a Participant must be an Employee of the Company or an
Affiliate on the day a Performance-Based Award for such Performance Period is
paid to the Participant.  Furthermore, a Participant shall be eligible
to receive payment pursuant to a Performance-Based Award for a Performance
Period only if the Performance Goals for such Performance Period are
achieved.

     

    The
degree of payout of a Performance-Based Award shall be determined based upon the
written certification of the Committee as to the extent to which the Performance
Goals and any other material terms and conditions precedent to such payment have
been satisfied.  The Committee shall have the sole discretion to
adjust the determinations of the degree of attainment of the preestablished
Performance Goals.  Notwithstanding any provision herein to the
contrary, the Committee may not make any adjustment or take any other action
with respect to any Performance-Based Award that will increase the amount
payable under any such Award.  The Committee shall retain the sole
discretion to adjust the Performance Goals upward (thus reducing any potential
payment), or to otherwise reduce the amount payable with respect to any
Performance-Based Award.

     

    
      
         

      

      
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    12.7    
Maximum Award
Payable.  In accordance with Section 5.4, the maximum
Performance-Based Award (other than a Performance Cash Award) payable to any one
participant for a Performance Period is five hundred thousand (500,000) shares
of Stock or the equivalent cash value.  The maximum Performance Cash
Award payable to any one Participant for any Performance Period is five hundred
thousand (500,000) times the Fair Market Value of a share of Stock on the date
on which the Performance Period begins.

     

    SECTION
13

    TERMINATION OF
EMPLOYMENT

     

    13.1    
Termination of
Employee’s Employment Due to Death, Disability, Retirement, Impaction or Change
in Control.

     

    (a)  
Nonvested
Awards.

     

    (i)    
Options and
SARs.  If a Participant holds any nonvested Options or SARs
upon a Termination of Employment due to death, Disability, Retirement,
Impaction, or Change in Control, all such nonvested Options or SARs shall become
one hundred percent (100%) vested.  Such vested Options or SARs shall
be exercisable on or before the earlier of (1) three (3) years following the
Termination of Employment, or (2) the tenth (10th)
anniversary date of the Grant Date for the Options or SARs.

     

    (ii)   
Incentive Stock
Options.  Notwithstanding the foregoing, in the case of an
incentive stock option, the favorable tax treatment described in Section 422 of
the Code shall not be available if such Option is exercised after the date
prescribed in Section 422(a)(2), as amended, following a Termination of
Employment except as otherwise allowed by Sections 421(c)(1)(A) and
422(c)(6).

     

    (iii)  
Restricted Stock
Rights.  If a Participant holds any nonvested Restricted Stock
Rights upon a Separation from Service due to death, Disability, Retirement,
Impaction or Change in Control, such nonvested Restricted Stock Rights shall
vest and become payable as follows:

     

    (1)    
Restricted Stock
Rights Subject To Restrictions Based On Meeting Service Requirements.
 If
the Restricted Stock Rights are subject to restrictions based on meeting certain
service requirements, the Restricted Stock Rights shall become one hundred
percent (100%) vested upon the Participant’s Separation from
Service.  The shares of Stock payable pursuant to such Award will be
issued to the Participant within ninety (90) days following the date of the
Participant’s Separation from Service.  Such payment is intended to be
made upon the Participant’s Separation from Service pursuant to Treas. Reg. §
1.409A-3(a)(1).  Accordingly, if the Participant is a Specified
Employee on the date on which any Restricted Stock Rights become payable
pursuant to this Subsection 13.1(a)(iii)(1), the six (6) month delay described
in Subsection 20.3 shall apply.

     

    (2)    
Restricted Stock
Rights Subject To Restrictions Based On Meeting Performance
Requirements. If
the Restricted Stock Rights are subject to restrictions based on meeting certain
performance requirements, a pro rata portion of the Restricted Stock Rights
Award shall vest at the end of the Performance Period based on the level of
achievement 

     

    
      
         

      

      
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    of the
Performance Goals applicable to such Award, as described in the Award
Agreement.  The payment to which the Participant is entitled for the
pro rata portion of the vested Restricted Stock Rights Award shall be based on
the number of full months included in the Performance Period as of the date of
the Participant’s Separation from Service compared to the number of full months
included in the Performance Period.  The Participant’s pro rata
portion of the shares of Stock payable pursuant to such Restricted Stock Rights
Award will be issued to the Participant within ninety (90) days following the
termination of the Performance Period described therein.  Such payment
is intended to be made at a specified time or pursuant to a fixed schedule under
Treas. Reg. § 1.409A-3(a)(4).

     

    (3)    
Restricted Stock
Rights Subject to Restrictions Based on Meeting Performance Requirements and
Service Requirements.  Certain Restricted Stock Rights granted
hereunder may be subject to restrictions based on meeting performance
requirements, the satisfaction of which will determine the number of Restricted
Stock Rights payable to the Participant, and then to restrictions based on
meeting certain service requirements, the satisfaction of which will determine
whether the Participant actually is paid for such Restricted Stock
Rights.  If the Participant’s Separation from Service due to death,
Disability, Retirement, Impaction or Change in Control occurs during the period
of time during which the Restricted Stock Rights are subject to restrictions
based on meeting performance requirements, the Participant’s Restricted Stock
Rights shall vest and become payable as described in Subsection
13.1(a)(iii)(2).  If such Separation from Service occurs during the
period of time during which the Restricted Stock Rights are subject to
restrictions based on meeting service requirements, the Participant’s Restricted
Stock Rights shall vest and become payable as described in Subsection
13.1(a)(iii)(1).

     

    (iv)   
Performance
Shares and Performance Units.  If a Participant holds any
nonvested Performance Shares or Performance Units upon a Termination of
Employment due to death, Disability, Retirement, Impaction or Change in Control,
such nonvested Performance Shares or Performance Units shall vest and become
payable as follows:

     

    (1)    
Performance
Shares and Performance Units Subject to Restrictions Based On Meeting Service
Requirements. If
the restriction is based on meeting certain service requirements, the
Performance Shares or Performance Units shall become one hundred percent (100%)
vested at Termination of Employment.  Payment for such vested
Performance Shares or Performance Units shall be made on or before March 15 of
the calendar year following the calendar year in which the Performance Period
applicable to such Performance Shares or Performance Units ends.

     

    (2)    
Performance
Shares and Performance Units Subject To Restrictions Based On Meeting
Performance Requirements. If
the restriction is based on meeting certain Performance Goals, a pro rata
portion of such Award shall vest at the end of the Performance Period based on
the level of achievement of the Performance Goals applicable to such Award, as
described in the Award Agreement.  The payment to which the
Participant is entitled for the pro rata portion of the vested Performance Share
or Performance Unit Award shall be based on the number of full months included
in the Performance Period as of the date of the Participant’s Termination of
Employment compared to the number of full months included in the Performance
Period.  Such payment shall be made on or before March 15 of the
calendar 

     

    
      
         

      

      
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    year
following the calendar year in which the Performance Period applicable to such
Performance Shares or Performance Units ends.

     

    (v)    
Restricted Stock
and Performance Cash Awards.  If a Participant holds any
nonvested Restricted Stock or Performance Cash Awards upon a Termination of
Employment due to death, Disability, Retirement, Impaction or Change in Control,
the vesting of the Restricted Stock or Performance Cash Awards upon such
Termination of Employment shall be determined in accordance with the terms of
the Award Agreements for such Awards.

     

    (b)    
Vested
Awards.

     

    (i)    
Options and
SARs.  If a Participant holds any vested Options or SARs upon a
Termination of Employment due to death, Disability, Retirement, Impaction or
Change in Control, such vested Options or SARs shall be exercisable on or before
the earlier of: (1) three (3) years following the Termination of Employment or
(2) the tenth (10th) anniversary date of the Grant Date of the Options or
SARs.

     

    (ii)   
Incentive Stock
Options.  Notwithstanding the foregoing, in the case of an
incentive stock option, the favorable tax treatment described in Section 422 of
the Code shall not be available if such Option is exercised after the date
prescribed in Section 422(a)(2), as amended, following a Termination of
Employment except as otherwise allowed by Sections 421(c)(1)(A) and
422(c)(6).

     

    (iii)  
Restricted Stock
Rights.  If a Participant holds any vested, but not yet paid,
Restricted Stock Rights upon a Separation from Service due to death, Disability,
Retirement, Impaction or Change in Control, such Restricted Stock Rights will be
payable in accordance with the provisions of Section 8.2.

     

    (iv)   
Performance
Shares and Performance Units.  If a Participant holds any
vested, but not yet paid, Performance Shares or Performance Units upon a
Termination of Employment due to death, Disability, Retirement, Impaction or
Change in Control, such Performance Shares or Performance Units will be payable
in accordance with the provisions of Section 9.3.

     

    (v)    
Restricted Stock
and Performance Cash Awards.  If a Participant holds any
vested, but not yet paid, Restricted Stock or Performance Cash Awards upon a
Termination of Employment due to death, Disability, Retirement, Impaction or
Change in Control, the payment of such Restricted Stock or Performance Cash
Awards shall be determined in accordance with the terms of the Award Agreements
for such Awards.

     

    13.2    
Voluntary
Termination or Involuntary Termination of Employment For Reasons Other Than
Impaction or Cause.

     

    (a)    
Nonvested
Awards.  If a Participant holds any nonvested Options, SARs,
Restricted Stock Rights, Performance Share or Performance Unit Awards upon
voluntary or involuntary Termination of Employment for reasons other than
Impaction or Cause, all such nonvested Awards shall be canceled and the
Participant shall forfeit such Awards.  If a Participant holds any
nonvested Restricted Stock or Performance Cash Awards upon a 

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    Termination
of Employment described in the preceding sentence, the cancellation, forfeiture,
vesting or payment of such Awards shall be determined in accordance with the
terms of the Award Agreements for such Awards.

     

    (b)    
Vested
Awards.

     

    (i)    
Options and
SARs.  If a Participant holds any vested Options or SARs upon
voluntary or involuntary Termination of Employment for reasons other than
Impaction or Cause, such vested Options or SARs shall be exercisable on or
before the earlier of: (1) three (3) months following the termination date or
(2) the tenth (10th) anniversary of the Grant Date of the Options or
SARs.

     

    (ii)   
Incentive Stock
Options.  Notwithstanding the foregoing, in the case of an
incentive stock option, the favorable tax treatment described in Section 422 of
the Code shall not be available if such Option is exercised after the date
prescribed in Section 422(a)(2), as amended, following a Termination of
Employment except as otherwise allowed by Sections 421(c)(1)(A) and
422(c)(6).

     

    (iii)  
Restricted Stock
Rights. If a Participant holds any vested, but not yet paid, Restricted
Stock Rights upon a voluntary or involuntary Separation from Service for reasons
other than Impaction or Cause, such Restricted Stock Rights will be payable in
accordance with the provisions of Section 8.2.

     

    (iv)   
Performance
Shares and Performance Units.  If a Participant holds any
vested, but not yet paid, Performance Shares or Performance Units upon a
voluntary or involuntary Termination of Employment for reasons other than
Impaction or Cause, such Performance Shares or Performance Units will be payable
in accordance with the provisions of Section 9.3.

     

    (v)    
Restricted Stock
and Performance Cash Awards.  If a Participant holds any
vested, but not yet paid, Restricted Stock or Performance Cash Awards upon
voluntary or involuntary Termination of Employment for reasons other than
Impaction or Cause, the payment of such Restricted Stock or Performance Cash
Awards shall be determined in accordance with the terms of the Award Agreements
for such Award.

     

    13.3    
Termination of
Employment for Cause.  If a Participant holds any Awards,
whether vested or nonvested, all Awards shall terminate immediately and shall be
forfeited upon a Termination of Employment for Cause.

     

    13.4    
Disposition of
Vested Awards Upon Death.  If a Participant dies without having
fully exercised his or her vested Awards, the estate or beneficiary, if such
designation was made for purposes of the Plan, shall have the right to exercise
the Awards pursuant to the terms and conditions contained herein.

     

    13.5    
Discretion of
Committee.  Notwithstanding the above, subject to Section 17 of
the Plan, the Committee may, at any time and in its sole discretion, alter the
vesting and exercise provisions described in this Section 13 for all or any
portion of an Award granted under the Plan, 

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    provided
that the Committee will not take any action pursuant to this Section 13.5 that
will cause payment of any Award to violate the provisions of Section 409A of the
Code.

     

    13.6    
Transfer to
Affiliate.

     

    (a)    
Transfer of
Employer to Affiliate.  If a Participant is employed by an
Employer and ownership of the Employer is transferred to an Affiliate, the
Participant will not be treated as having incurred a Termination of Employment
for purposes of the Plan, regardless of whether the Affiliate has adopted the
Plan pursuant to Section 21.4.

     

    (b)    
Transfer of
Participant to Non-adopting Affiliate.  If a Participant leaves
the employ of an Employer to become employed by an Affiliate, the Participant
will not be treated as having incurred a Termination of Employment for purposes
of the Plan, regardless of whether the Affiliate has adopted the Plan pursuant
to Section 21.4.

     

    SECTION
14

    NON-TRANSFERABILITY

     

    14.1    
General.  The
Committee may, in its sole discretion, determine the right of a Participant to
transfer any Award granted under the Plan.  Unless otherwise
determined by the Committee, no Award granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution or pursuant to a
domestic relations order (that would otherwise qualify as a qualified domestic
relations order as defined in the Code or Title I of ERISA but for the fact that
the order pertains to an Award) in favor of a Spouse or, if applicable, until
the termination of any Restricted Period or Performance Period as determined by
the Committee.

     

    14.2    
Beneficiaries.  Notwithstanding
Section 14.1, a Participant may, in the manner determined by the Committee,
designate a beneficiary to exercise the rights of the Participant and to receive
any distribution with respect to any Award upon the Participant’s
death.  A beneficiary, legal guardian, legal representative, or other
person claiming any rights pursuant to the Plan is subject to all terms and
conditions of the Plan and any Award Agreement applicable to the Participant,
except to the extent the Plan and Award Agreement otherwise provide, and to any
additional restrictions deemed necessary or appropriate by the
Committee.  If no beneficiary has been designated or survives the
Participant, payment shall be made to the person entitled thereto pursuant to
the Participant’s will or the laws of descent and
distribution.  Subject to the foregoing, a beneficiary designation may
be changed or revoked by a Participant at any time provided the change or
revocation is provided to the Committee.

     

    14.3    
Stock
Certificates.  Notwithstanding anything herein to the contrary,
the Company shall not be required to issue or deliver any certificates
evidencing shares of Stock pursuant to the exercise of any Award, unless and
until the Committee has determined, with advice of counsel, that the issuance
and delivery of such certificates is in compliance with all applicable laws,
regulations of governmental authorities and, if applicable, the requirements of
any exchange or quotation system on which the shares of Stock are listed, quoted
or traded.  All Stock certificates delivered pursuant to the Plan are
subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with Federal, state, or 

     

    
      
         

      

      
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    foreign
jurisdiction, securities or other laws, rules and regulations and the rules of
any national securities exchange or automated quotation system on which the
Stock is listed, quoted, or traded.  The Committee may place legends
on any Stock certificate to reference restrictions applicable to the
Stock.  In addition to the terms and conditions provided herein, the
Board may require that a Participant make such reasonable covenants, agreements,
and representations as the Board, in its discretion, deems advisable in order to
comply with any such laws, regulations, or requirements.

     

    SECTION
15

    EMPLOYER
DISCRETION

     

    15.1    
Employment.  Nothing
in the Plan shall interfere with or limit in any way the right of any Employer
to terminate any Participant’s employment or service at any time, nor confer
upon any Participant any right to continue in the employ or service of the
Employer.

     

    15.2    
Participant.  No
Employee shall have a right to be selected as a Participant, or, having been so
selected, to be selected again as a Participant.

     

    15.3    
No Rights To
Awards.  No Participant, Employee, or other person shall have
any claim to be granted any Award pursuant to the Plan, and neither the Company
nor the Committee is obligated to treat Participants, employees, and other
persons uniformly.

     

    SECTION
16

    SUBSTITUTION OF
AWARDS

     

    16.1    
Any Award
may be granted under this Plan in substitution for Awards held by any individual
who is an employee of another corporation who is about to become an Employee of
an Employer or a Nonemployee Director as the result of a merger, consolidation
or reorganization of the corporation with an Employer, or the acquisition by an
Employer of the assets of the corporation, or the acquisition by an Employer of
stock of the corporation as the result of which such corporation becomes a
subsidiary of an Employer.  The terms and conditions of the Awards so
granted may vary from the terms and conditions set forth in this Plan to such
extent as the Committee at the time of granting the Award may deem appropriate
to conform, in whole or in part, to the provisions of the Award in substitution
for which they are granted.  However, in the event that the Award for
which a substitute Award is being granted is an incentive stock option, no
variation shall adversely affect the status of any substitute Award as an
incentive stock option under the Code.  In addition, in the event that
the Award for which a substitute Award is being granted is a nonstatutory stock
option or a SAR that otherwise satisfies the requirements of the stock rights
exception to Section 409A of the Code, no variation shall adversely affect the
status of any substitute Award under the stock rights exception to Section 409A
of the Code.

     

    SECTION
17

    AMENDMENT, MODIFICATION, AND
TERMINATION

     

    The Board
may at any time, and from time to time, terminate, amend or modify the Plan;
provided however, that any such action of the Board shall be subject to approval
of the shareholders to the extent required by law, regulation or any stock
exchange rule for any exchange on which shares of Stock are
listed.  Notwithstanding the above, to the extent 

     

    
      
         

      

      
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    permitted
by law, the Board may delegate to the Committee or the CEO the authority to
approve non-substantive amendments to the Plan.  No amendment,
modification, or termination of the Plan or any Award under the Plan shall in
any manner adversely affect any Award theretofore granted under the Plan without
the consent of the holder thereof (unless such change is required in order to
cause the benefits under the Plan to qualify as performance-based compensation
within the meaning of Section 162(m) of the Code and applicable interpretive
authority thereunder).  Except as provided in Section 5.3, neither the
Board, the CEO nor the Committee may, without the approval of the shareholders,
(a) reduce the purchase price or exercise price of any outstanding Award,
including any Option or SAR; (b) increase the number of shares available under
the Plan (other than any adjustment as provided in Section 5.3); (c) grant
Options with an exercise price that is below Fair Market Value on the date of
grant; (d) reprice previously granted Options or SARs; or (e) cancel any Option
or SAR in exchange for cash or any other Award or in exchange for any Option or
SAR with an exercise price that is less than the exercise price for the original
Option or SAR.  Additional rules relating to amendments to the Plan or
any Award Agreement to assure compliance with Section 409A of the Code are set
forth in Section 20.3.

     

    SECTION
18

    TAX
WITHHOLDING

     

    18.1    
Tax
Withholding.  The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, and local withholding tax requirements on any Award under the
Plan.  To the extent that alternative methods of withholding are
available under applicable tax laws, the Company shall have the power to choose
among such methods.

     

    18.2    
Form of
Payment.  To the extent permissible under applicable tax,
securities, and other laws, the Company may, in its sole discretion, permit the
Participant to satisfy a tax withholding requirement by (a) using already owned
shares that have been held by the Participant for at least six (6) months; (b) a
broker-assisted “cashless” transaction; or (c) directing the Company to apply
shares of Stock to which the Participant is entitled pursuant to the Award
(including, for this purpose, the filing of an election under Section 83(b) of
the Code), to satisfy the required minimum statutory withholding
amount.

     

    18.3    
Tax Upon
Disposition of Shares Subject to § 422 Restrictions.  In the
event that a Participant shall dispose (whether by sale, exchange, gift, the use
of a qualified domestic relations order (as defined by the Code or Title I of
ERISA) in favor of a Spouse, or the rules thereunder, or any like transfer) of
any shares of Stock of the Company that are deemed to have been purchased by the
Participant pursuant to an incentive stock option and that the Participant
acquired within two (2) years of the Grant Date of the related Option or within
one (1) year after the acquisition of such shares of Stock, the Participant will
notify the secretary of the Company of such disposition no later than fifteen
(15) days following the date of the disposition.  Such notification
shall include the date or dates of the disposition, the number of shares of
Stock of which the Participant disposed, and the consideration received, if any,
for such shares of Stock.  If the Company so requests, the Participant
shall forward to the secretary of the Company any amount requested by the
Company for the purpose of satisfying its liability, if any, to withhold
federal, state or local income or earnings tax or any other applicable tax or
assessment (plus 

     

    
      
         

      

      
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    interest
or penalties thereon, if any, caused by delay in making such payment) incurred
by reason of such disposition.

     

    SECTION
19

    INDEMNIFICATION

     

    Each
person who is or shall have been a member of the Committee or of the Board shall
be indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all amounts
paid by him in settlement thereof, with the Company’s approval, or paid by him
in satisfaction of any judgment in any such action, suit, or proceeding against
him, provided he shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf.  The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person may be
entitled under the Company’s articles of incorporation, bylaws, resolution or
agreement, as a matter of law, or otherwise, or any power that the Company may
have to indemnify him or hold him harmless.

     

    SECTION
20

    REQUIREMENTS OF
LAW

     

    20.1    
Requirements of
Law.  The granting of Awards and the issuance of shares and/or
cash under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.  The Company shall be under
no obligation to register pursuant to the Securities Act of 1933, as amended,
any of the shares of Stock paid pursuant to the Plan.  If the shares
of Stock paid pursuant to the Plan may in certain circumstances be exempt from
registration pursuant to the Securities Act of 1933, as amended, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.

     

    20.2    
Governing
Law.  The Plan and all agreements into which the Company and
any Participant enter pursuant to the Plan shall be construed in accordance with
and governed by the laws of the State of New Mexico. The Plan is an unfunded
performance-based bonus plan for a select group of management or highly
compensated employees and is not intended to be either an employee pension or
welfare benefit plan subject to ERISA.

     

    20.3    
Section 409A of
the Code.  Some of the Awards that may be granted pursuant to
the Plan (including, but not necessarily limited to, Restricted Stock Rights
Awards, Performance Share Awards, Performance Unit Awards and Performance Cash
Awards) may be considered to be “non-qualified deferred compensation” subject to
Section 409A of the Code.  If an Award is subject to Section 409A of
the Code, the Company intends (but cannot and does not guarantee) that the Award
Agreement and this Plan will comply with and meet the requirements of Section
409A of the Code or an exception thereto and the Award Agreement shall include
such provisions, in addition to the provisions of this Plan, as the Company
believes are necessary to assure compliance with Section 409A of the Code or an
exception thereto.  An Award subject to 

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    Section
409A of the Code also shall be administered in good faith compliance with the
provisions of Section 409A of the Code as well as applicable guidance issued by
the Internal Revenue Service and the Department of Treasury.  To the
extent necessary to comply with Section 409A of the Code, any Award that is
subject to Section 409A of the Code may be modified, replaced or terminated in
the discretion of the Committee.  Notwithstanding any provision of
this Plan or any Award Agreement to the contrary, in the event that the
Committee determines that any Award is or may become subject to Section 409A of
the Code, the Company may adopt such amendments to the Plan and the related
Award Agreements, without the consent of the Participant, or adopt other
policies and procedures (including amendments, policies and procedures with
retroactive effective dates), or take any other action that the Committee
determines to be necessary or appropriate to either comply with Section 409A of
the Code or to exclude or exempt the Plan or any Award from the requirements of
Section 409A of the Code.

     

    If, at
the time of a Participant’s Separation from Service, the Company has any stock
which is publicly traded on an established securities market or otherwise, and
if the Participant is considered to be a Specified Employee, to the extent any
payment for any Award is subject to the requirements of Section 409A of the Code
and is payable upon the Participant’s Separation from Service, such payment
shall not commence prior to the first business day following the date which is
six (6) months after the Participant’s Separation from Service (or if earlier
than the end of the six (6) month period, the date of the Participant’s
death).  Any amounts that would have been distributed during such six
(6) month period will be distributed on the day following the expiration of the
six (6) month period.

     

    Under no
circumstances may the time or schedule of any payment for any Award that is
subject to the requirements of Section 409A of the Code be accelerated or
subject to further deferral except as otherwise permitted or required pursuant
to regulations and other guidance issued pursuant to Section 409A of the
Code.  If the Company fails to make any payment pursuant to the
payment provisions applicable to an Award that is subject to Section 409A of the
Code, either intentionally or unintentionally, within the time period specified
in such provisions, but the payment is made within the same calendar year, such
payment will be treated as made within the time period specified in the
provisions.  In addition, in the event of a dispute with respect to
any payment, such payment may be delayed in accordance with the regulations and
other guidance issued pursuant to Section 409A of the Code.

     

    20.4    
Securities Law
Compliance.  With respect to any Participant who is, on the
relevant date, obligated to file reports pursuant to Section 16 of the Exchange
Act, transactions pursuant to this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors pursuant to the Exchange
Act.  Notwithstanding any other provision of the Plan, the Committee
may impose such conditions on the exercise of any Award as may be required to
satisfy the requirements of Rule 16b-3 or its successors pursuant to the
Exchange Act.  To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be void to the extent permitted by
law and voidable as deemed advisable by the Committee.

     

    20.5    
Restrictions.  The
Committee shall impose such restrictions on any Awards under the Plan as it may
deem advisable, including without limitation, restrictions under applicable
federal securities law, under the requirements of any stock exchange upon which
the Stock is then listed and under any blue sky or state securities laws
applicable to such Awards.

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    SECTION
21

    GENERAL
PROVISIONS

     

    21.1    
Funding.  The
Company shall not be required to segregate any of its assets to ensure the
payment of any Award under the Plan.  Neither the Participant nor any
other persons shall have any interest in any fund or in any specific asset or
assets of the Company or any other entity by reason of any Award, except to the
extent expressly provided hereunder.  The interests of each
Participant and former Participant hereunder are unsecured and shall be subject
to the general creditors of the Company.

     

    21.2    
No Shareholders
Rights.  No Award gives the Participant any of the rights of a
shareholder of the Company unless and until shares of Stock are in fact issued
to such person in connection with such Award.

     

    21.3    
Titles and
Headings.  The titles and headings of the Sections in the Plan
are for convenience of reference only and, in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall
control.

     

    21.4    
Adoption by
Affiliates.  An Affiliate, by action of its board of directors,
may adopt the Plan with respect to its Employees only with the approval of the
Board.  Notwithstanding any provision to the contrary, an Affiliate of
the Company that adopted a prior version of the Plan will be deemed to have
adopted this amended and restated Plan.

     

    (a)   
 Except as
otherwise clearly indicated by the context “Company” as used herein shall
include each Affiliate that has adopted this Plan in accordance with this
Section 21.4.

     

    (b)    
By
adopting the Plan, each participating Affiliate shall be deemed to have agreed
to:

     

    (i)    
Assume
the obligations and liabilities imposed upon it by the Plan with respect to the
its Employees;

     

    (ii)   
Comply
with all of the terms and provisions of the Plan;

     

    (iii)  
Delegate
to the Committee the power and responsibility to administer the Plan with
respect to the Affiliate’s Employees;

     

    (iv)    Delegate
to PNM Resources the full power to amend or terminate the Plan with respect to
the Affiliate’s Employees; and

     

    (v)    
Be bound
by any action taken by PNM Resources pursuant to the terms and provisions of the
Plan, regardless of whether such action is taken with or without the consent of
the Affiliate.

     

    (c)    
Any
Affiliate that has adopted this Plan for the benefit of its Employees may
terminate its adoption of the Plan by action of its board of directors and
timely providing notice to PNM Resources of such termination.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    (d)    
The
Company and each participating Affiliate shall bear the costs and expenses of
providing benefits to their respective Employees who are
Participants.  Such costs and expenses shall be allocated among PNM
Resources’ Affiliates in accordance with agreements entered into between PNM
Resources and any participating Affiliate, or in the absence of such an
agreement, procedures adopted by PNM Resources.

     

    

     

    
      	
               

               

               

               

              May 19,
      2009

              Date

            	
              PNM
      RESOURCES, INC.

               

               

              By        /s/ Alice A.
      Cobb                                                           

              Alice
      A. Cobb

              Senior
      Vice President and Chief Administrative
Officer

            

    

    

     

    

      

    

     

       

    

    
      
         

      

      
        28ECOSPHERE TECHNOLOGIES, INC

EXHIBIT 10.1

ECOSPHERE TECHNOLOGIES, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (the “Agreement”) entered into this 1st day of February, 2008, between Ecosphere Technologies, Inc. (the “Company”), and Michael R. Donn, Sr. (the “Optionee”).

WHEREAS, pursuant to the Warrant and Option Exchange Offer (the “Offer”), the Optionee was granted non-qualified stock options from the Company in exchange for previously issued options or warrants.    

NOW THEREFORE, in consideration of the mutual covenants and promises hereafter set forth and for other good and valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows: 

1.

Grant of Non-Qualified Options.  The Company irrevocably grants to the Optionee the right and option (the “Options”) to purchase all or any part of an aggregate of 200,000 shares of authorized but unissued or treasury common stock of the Company on the terms and conditions herein set forth. 

The common stock shall be unregistered unless the Company voluntarily files a registration statement covering such shares with the Securities and Exchange Commission.  The Options are not intended to be Incentive Stock Options as defined by Section 422 of the Internal Revenue Code of 1986 (the “Code”), and are not issued under the Company’s 2006 Equity Incentive Plan.

2.

Price.  The exercise price of the shares of common stock subject to the Options is disclosed on the form of Option annexed as Exhibit A.

3.

When Exercisable. The Options are fully vested and exercisable through January 31, 2011.

4.

Method of Exercise.  The Options shall be exercisable by a written notice which shall:

(a)  

state the election to exercise the Options, the number of shares to be exercised, the person in whose name the stock certificate or certificates for such shares of common stock is to be registered, his address and social security number (or if more than one, the names, addresses and social security numbers of such persons);

(b)  

contain such representations and agreements as to the holder’s investment intent with respect to such shares of common stock as set forth in Section 7 hereof;

(c)  

be signed by the person or persons entitled to exercise the Options and, if the Options are being exercised by any person or persons other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Options.

(d)

be accompanied by full payment of the purchase or exercise price therefor in United States dollars by check.  

The certificate or certificates for shares of common stock as to which the Options shall be exercised shall be registered in the name of the person or persons exercising the Options.

5.

Adjustments.  Upon the occurrence of any of the following events, the Optionee’s rights with respect to Options granted to him hereunder shall be adjusted as hereinafter provided unless otherwise specifically provided in a written agreement between the Optionee and the Company relating to such Options:

(a)

If the shares of common stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of its common stock as a stock dividend on its outstanding common stock, the number of shares of common stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend.

(b)

If the Company is to be consolidated with or acquired by another entity pursuant to an Acquisition, the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”) shall either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of common stock in connection with the Acquisition; or (ii) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options over the exercise price thereof.

(c)

In the event of a recapitalization or reorganization of the Company (other than a transaction described in Section 5(b) above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of common stock, the Optionee upon exercising Options shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised his Options prior to such recapitalization or reorganization.  

(d)

Except as expressly provided herein, no issuance by the Company of shares of common stock of any class or securities convertible into shares of common stock of any class shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options.  No adjustments shall be made for dividends or other distributions paid in cash or in property other than securities of the Company.

2

(e)

No fractional shares shall be issued and the Optionee shall receive from the Company cash in lieu of such fractional shares.

(f)

The Board or the Successor Board shall determine the specific adjustments to be made under this Section 5, and its determination shall be conclusive.  If the Optionee receives securities or cash in connection with a corporate transaction described in Section 5(a), (b) or (c) above as a result of owning such restricted common stock, such securities or cash shall be subject to all of the conditions and restrictions applicable to the restricted common stock with respect to which such securities or cash were issued, unless otherwise determined by the Board or the Successor Board.

6.  

Necessity to Become Holder of Record.  Neither the Optionee, nor his estate, shall have any rights as a stockholder with respect to any shares covered by the Options until such person shall have become the holder of record of such shares.  No adjustment shall be made for cash dividends or cash distributions, ordinary or extraordinary, in respect of such shares for which the record date is prior to the date on which he/she shall become the holder of record thereof.

7.  

Conditions to Exercise of Options.  In order to enable the Company to comply with the Securities Act of 1933 (the “Securities Act”) and relevant state law, the Company may require the Optionee, his estate, or any Transferee as a condition of the exercising of the Options granted hereunder, to give written assurance satisfactory to the Company that the shares subject to the Options are being acquired for his own account, for investment only, with no view to the distribution of same, and that any subsequent resale of any such shares either shall be made pursuant to a registration statement under the Securities Act and applicable state law which has become effective and is current with regard to the shares being sold, or shall be pursuant to an exemption from registration under the Securities Act and applicable state law.

The Options are subject to the requirement that, if at any time the Board shall determine, in its discretion, that the listing, registration, or qualification of the shares of common stock subject to the Options upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with the issue or purchase of shares under the Options, the Options may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected.  

8.  

Duties of Company.  The Company shall at all times during the term of Options:

(a)  

Reserve and keep available for issue such number of shares of its authorized and unissued common stock as will be sufficient to satisfy the requirements of this Agreement;

(b)  

Pay all original issue taxes with respect to the issue of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith;

(c)  

Use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto.

3

9.

Severability.  In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

10.

Arbitration.  Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach or enforcement which the parties are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim or dispute to binding arbitration in Martin County, Florida (unless the parties agree in writing to a different location), before a single arbitrator in accordance with the rules of the American Arbitration Association then in effect.  In any such arbitration proceeding the parties agree to provide all discovery deemed necessary by the arbitrator.  The decision and award made by the arbitrator shall be final, binding and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.

11.

Benefit.  This Agreement shall be binding upon and insure to the benefit of the parties hereto and their legal representatives, successors and assigns.

12.

Notices and Addresses.  All notices, offers, acceptance and any other acts required under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipted delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows:

			
	The Optionee:

	 
	Michael R. Donn, Sr.

	 
	 
	3515 SE Lionel Terrace

	 
	 
	Stuart, FL  34997

	 
	 
	 

	The Company:

	 
	Ecosphere Technologies, Inc.

	 
	 
	3515 S.E. Lionel Terrace

	 
	 
	Stuart, FL 34997

	 
	 
	Facsimile: (772) 781-4778

	 
	 
	Attention: Mr. Dennis McGuire

	 
	 
	 

	with a copy to:

	 
	Michael D. Harris, Esq.

	 
	 
	Harris Cramer LLP

	 
	 
	1555 Palm Beach Lakes Blvd., Suite 310

	 
	 
	West Palm Beach, FL 33401

	 
	 
	Facsimile:  (561) 659-0701

or to such other address as either of them, by notice to the other may designate from time to time.  The transmission confirmation receipt from the sender’s facsimile machine shall be conclusive evidence of successful facsimile delivery.  Time shall be counted to, or from, as the case may be, the delivery in person or by mailing.

13.

Attorney’s Fees.  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or 

4

proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to a reasonable attorney’s fee, costs and expenses.

14.

Governing Law.  This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the state of Delaware without regard to choice of law considerations.  

15.

Oral Evidence.  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.

16.

Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.

17.

Additional Documents.  The parties hereto shall execute such additional instruments as may be reasonably required by their counsel in order to carry out the purpose and intent of this Agreement and to fulfill the obligations of the parties hereunder.

18.

Section or Paragraph Headings.  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.

IN WITNESS WHEREOF the parties hereto have set their hand and seals the day and year first above written.

				
	WITNESSES:

	 
	ECOSPHERE TECHNOLOGIES, INC.

	 
	 
	 
	 

	                                                    

	 
	 
	 

	 
	 
	 
	 

	 
	     

	By:

	/s/ Dennis McGuire

	 
	 
	 
	Dennis McGuire, Chief Executive Officer

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	OPTIONEE

	 
	 
	 
	 

	 
	 
	 
	/s/ Michael R. Donn, Sr.

	 
	 
	 
	Michael R. Donn, Sr.

5

EXHIBIT A

ECOSPHERE TECHNOLOGIES, INC.

Options:  200,000

This Certifies that Michael R. Donn, Sr. is the registered holder of Options to purchase 200,000 shares of Common Stock exercisable at $.28 per share at any time through January 31, 2011 transferable only on the books of the Corporation by the holder hereof in person or by attorney upon surrender of this Certificate properly endorsed.

In Witness Whereof, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal is to be hereunto affixed this 1st day of February, 2008.

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS AS MAY BE APPLICABLE OR AN OPINION OF COUNSEL TO THE CORPORATION THAT AN EXEMPTION FROM SUCH APPLICABLE LAWS EXISTS.

The rights and obligations under this Certificate are subject to a Non-Qualified Stock Option Agreement between the Corporation and the registered holder.  The transfer on the books of the Corporation is subject to execution of a similar Agreement.

		
	                                                                                 

	/s/ Dennis McGuire

	 
	Dennis McGuire, President

ASSIGNMENT FORM

(To assign the foregoing Options, execute

this form and supply required information. 

Do not use this form to exercise the Options.)

FOR VALUE RECEIVED, ___________________Options and all rights evidenced thereby are hereby assigned to

________________________________________________________________ whose address is

_____________________________________________________________________________.

Dated:  ______________, _______

Holder’s Signature:

_____________________________

Holder’s Address:

_____________________________

_____________________________

Signature Guaranteed:  ___________________________________________

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Options, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Options.

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