Document:

exv10w9

 

Exhibit 10.9

INDEMNIFICATION AGREEMENT

     THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into
as of August        , 2003, by and between CapitalSource Inc., a Delaware
corporation (the “Company”), and the undersigned.

     WHEREAS, the Company has invited Indemnitee to serve as a director on the
Board of Directors (the “Board”) of the Company and/or as an executive officer
of the Company.

     WHEREAS, in order to induce Indemnitee to serve on the Board, the Company
wishes to grant and secure to Indemnitee as permitted by 8
Del. C. § 145(f)
indemnification and advancement rights to the fullest extent permitted by
Delaware law as the same exists or may hereafter be revised, whether or not
expressly provided for in the Company’s Amended and Restated Bylaws or other
provisions of Section 145 of the General Corporation Law of the State of
Delaware (the “DGCL”).

     NOW, THEREFORE, in consideration of the Indemnitee’s agreement to serve on
the Board and/or as an executive officer of the Company and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company agrees as follows:

     Section 1. Indemnification and Advancement Expenses.

     (a)  If the Indemnitee is made a party or is threatened to be made a party
to or is otherwise involved, whether or not a party thereto, in any action,
suit, demand, arbitration, or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a “Proceeding”) or otherwise
incurs or suffers any expense, liability, damage, costs, obligations, penalties
or loss (including, without limitation, attorneys’ fees, judgments, fines,
Employee Retirement and Income Security Act excise taxes or penalties and
amounts paid or to be paid in settlement) (collectively, “Losses”), by reason
of the fact that the Indemnitee is or was serving as a director and/or as an
executive officer of the Company, the Indemnitee shall be indemnified and held
harmless by the Company to the fullest extent permitted by Delaware law against
all Losses incurred or suffered by the Indemnitee in connection therewith,
except with respect to indemnification for liability arising from a Proceeding
initiated by the Indemnitee or another director or officer of the Company and
unauthorized by the Board, and such indemnification shall continue as to the
Indemnitee after the Indemnitee has ceased to be a member of the Board and
shall inure to the benefit of the Indemnitee’s heirs, executors,
administrators, conservators and guardians.

     (b)  The rights conferred upon Indemnitee hereunder shall include the right
to be paid or reimbursed by the Company for any Losses from time to time

 

 

incurred or suffered by Indemnitee, including, without limitation, the expenses
incurred in defending or otherwise being involved in any such Proceeding or
other action in advance of its final disposition (hereinafter an “Advancement
of Expenses”); provided, however, that if and only if the DGCL so requires,
such Advancement of Expense shall be made only upon delivery to the Company of
such an undertaking (hereinafter an “Undertaking”), by or on behalf of the
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by a final judicial decision from which there is no further right to
appeal (hereinafter a “Final Adjudication”), that the Indemnitee is not
entitled to be indemnified for such Losses under the DGCL.

     Section 2. Right of Indemnitee to Enforce Indemnification and Advancement
Obligations. If a claim under either (a) Section 1(a) of this Agreement with
respect to any right to indemnification is not paid in full by the Company
within sixty (60) days after a written claim for indemnification has been
received by the Company, or (b) under Section 1(b) of this Agreement with
respect to any right to the Advancement of Expenses is not paid in full by the
Company within twenty (20) days after a written claim for Advancement of
Expenses is received by the Company, then the Indemnitee shall be entitled at
any time thereafter to bring suit against the Company to recover the unpaid
amount of any such claim. If successful in whole or in part in any such suit,
the Indemnitee shall be entitled additionally to be paid, and to seek as an
award in connection with any such suit, the cost and expenses (including
attorneys’ fees) incurred by Indemnitee in prosecuting such suit. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met any applicable standard of
conduct set forth in Delaware Law, nor an actual determination by the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that he has not met any such applicable standard of conduct,
shall be a defense to the suit or create a presumption for purposes thereof
that the Indemnitee has not met any applicable standard of conduct.

     Section 3. Rights Not Exclusive. The rights provided hereunder shall not
be deemed exclusive of any other right to which the Indemnitee may be entitled
or hereafter may acquire under any statute, provision of the Company’s Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.

     Section 4. D&O Insurance.

     (a) 
The Company hereby represents and warrants that Exhibit A contains a
complete and accurate description of the policies of directors’ and officers’

2

 

liability insurance purchased by the Company and that such policies are in full
force and effect.

     (b)  The Company hereby covenants and agrees that, so long as Indemnitee
shall continue to serve as a director and/or an executive officer of the
Company and thereafter so long as Indemnitee shall be subject to any possible
or threatened Proceeding by reason of the fact that Indemnitee was a director
and/or an executive officer of the Company, the Company shall maintain in full
force and effect the directors’ and officers’ liability insurance issued by the
insurer(s), and having the policy number(s), amount(s) and deductible(s) set
forth on Exhibit A hereto and any replacement or substitute policies issued by
one or more reputable insurers providing in all respects coverage at least
comparable to and in the same amount as that provided under the policy or
policies identified on Exhibit A (“D&O Insurance”).

     (c)  In all policies of D&O Insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company’s directors or
officers most favorably insured by such policy. The Company shall notify
Indemnitee in writing when this has occurred.

     Section 5. Settlement. The Company shall have no obligation to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any
Proceeding effected without the Company’s prior written consent. The Company
shall not settle any Proceeding in any manner which would impose any fine or
any obligation on Indemnitee without Indemnitee’s written consent. Neither the
Company nor Indemnitee shall unreasonably withhold their consent to any
proposed settlement.

     Section 6. Severability. In the event that any provision of this Agreement
is determined by a court to require the Company to do or to fail to do an act
which is in violation of applicable law, such provision shall be limited or
modified in its application to the minimum extent necessary to avoid a
violation of law, and, as so limited or modified, such provision and the
balance of this Agreement shall be enforceable in accordance with their terms.

     Section 7. Choice of Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware.

     Section 8. Consent to Jurisdiction. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or Proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the Court of Chancery of the
State of Delaware

3

 

(or an other state court of such state if it is determined that the Court of
Chancery does not have jurisdiction over such action).

     Section 9. Successor and Assigns. This Agreement shall be (i) binding upon
all successors and assigns of the Company (including any transferee of all or
substantially all of its assets and successor by merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Indemnitee.

     Section 10. Amendment. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto.

     Section 11. Costs and Expenses. The Company agrees that the Company will
pay (and indemnify the Indemnitee against) all the Indemnitee’s costs and
expenses in performing his function, including, without limitation, the
reasonable fees and expenses of Indemnitee’s counsel incurred by Indemnitee in
connection with his service as a director and/or an executive officer of the
Company.

[SIGNATURE PAGE FOLLOWS]

4

 

     IN WITNESS WHEREOF, the Company and the Indemnitee have executed this
Indemnification Agreement in duplicate as of the day and year first set forth
above.

	 	 	 
	 	 	
CAPITALSOURCE INC
	 	 	 
	 	 	
By:
	 	 	

	 	 	
Name:
	 	 	
Title:
	 	 	 
	 	 	
DIRECTOR AND/OR EXECUTIVE OFFICER
	 	 	 
	 	 	
By:
	 	 	

	 	 	
[Name: ]

[Title: ]

(Indemnitee)

5exv10w12

 

EXHIBIT 10.12

CAPITALSOURCE INC.

SECOND AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

AS OF         , 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	1.	 	
PURPOSE
	 	 	1	 
	2.	 	
DEFINITIONS
	 	 	1	 
	3.	 	
ADMINISTRATION OF THE PLAN
	 	 	5	 
	 	 	
3.1.      Board
	 	 	5	 
	 	 	
3.2.      Committee
	 	 	5	 
	 	 	
3.3.      Terms of Awards
	 	 	6	 
	 	 	
3.4.      Deferral Arrangement
	 	 	7	 
	 	 	
3.5.      No Liability
	 	 	7	 
	4.	 	
STOCK SUBJECT TO THE PLAN
	 	 	7	 
	5.	 	
EFFECTIVE DATE, DURATION AND AMENDMENTS
	 	 	8	 
	 	 	
5.1.      Effective Date
	 	 	8	 
	 	 	
5.2.      Term
	 	 	8	 
	 	 	
5.3.      Amendment and Termination of the Plan
	 	 	8	 
	6.	 	
AWARD ELIGIBILITY AND LIMITATIONS
	 	 	8	 
	 	 	
6.1.      Service Providers; Outside Directors; Other Persons
	 	 	8	 
	 	 	
6.2.      Successive Awards
	 	 	8	 
	 	 	
6.3.      Limitation on Shares of Stock Subject to Awards and Cash Awards
	 	 	9	 
	 	 	
6.4.      Limitations on Incentive Stock Options
	 	 	9	 
	 	 	
6.5.      Stand-Alone, Additional, Tandem, and Substitute Awards
	 	 	9	 
	7.	 	
AWARD AGREEMENT
	 	 	9	 
	8.	 	
TERMS AND CONDITIONS OF OPTIONS
	 	 	10	 
	 	 	
8.1.      Option Price
	 	 	10	 
	 	 	
8.2.      Vesting
	 	 	10	 
	 	 	
8.3.      Term
	 	 	10	 
	 	 	
8.4.      Termination of Service
	 	 	10	 
	 	 	
8.5.      Limitations on Exercise of Option
	 	 	11	 
	 	 	
8.6.      Method of Exercise
	 	 	11	 
	 	 	
8.7.      Rights of Holders of Options
	 	 	11	 
	 	 	
8.8.      Delivery of Stock Certificates
	 	 	11	 
	 	 	
8.9.      No Option Repricing
	 	 	11	 
	9.	 	
TRANSFERABILITY OF OPTIONS
	 	 	11	 
	 	 	
9.1.      Transferability of Options
	 	 	11	 
	 	 	
9.2.      Family Transfers
	 	 	12	 
	10.	 	
STOCK APPRECIATION RIGHTS
	 	 	12	 
	 	 	
10.1.      Right to Payment
	 	 	12	 
	 	 	
10.2.      Other Terms
	 	 	12	 
	11.	 	
RESTRICTED STOCK AND STOCK UNITS
	 	 	13	 
	 	 	
11.1.      Grant of Restricted Stock or Stock Units
	 	 	13	 
	 	 	
11.2.      Restrictions
	 	 	13	 
	 	 	
11.3.      Restricted Stock Certificates
	 	 	13	 
	 	 	
11.4.      Rights of Holders of Restricted Stock
	 	 	13	 

- i -

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	 	 	
11.5.      Rights of Holders of Stock Units
	 	 	14	 
	 	 	
              11.5.1.
Voting and Dividend Rights
	 	 	14	 
	 	 	
              11.5.2.
Creditor’s Rights
	 	 	14	 
	 	 	
11.6.      Termination of Service
	 	 	14	 
	 	 	
11.7.      Purchase of Restricted Stock
	 	 	14	 
	 	 	
11.8.      Delivery of Stock
	 	 	14	 
	12.	 	
UNRESTRICTED STOCK AWARDS
	 	 	15	 
	13.	 	
FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK
	 	 	15	 
	 	 	
13.1.      General Rule
	 	 	15	 
	 	 	
13.2.      Surrender of Stock
	 	 	15	 
	 	 	
13.3.      Cashless Exercise
	 	 	15	 
	 	 	
13.4.      Other Forms of Payment
	 	 	15	 
	14.	 	
DIVIDEND EQUIVALENT RIGHTS
	 	 	16	 
	 	 	
14.1.      Dividend Equivalent Rights
	 	 	16	 
	 	 	
14.2.      Termination of Service
	 	 	16	 
	15.	 	
PERFORMANCE AND ANNUAL INCENTIVE AWARDS
	 	 	16	 
	 	 	
15.1.      Performance Conditions
	 	 	16	 
	 	 	
15.2.      Performance or Annual Incentive Awards Granted to
Designated Covered Employees
	 	 	17	 
	 	 	
              15.2.1.
Performance Goals Generally
	 	 	17	 
	 	 	
              15.2.2.
Business Criteria
	 	 	17	 
	 	 	
              15.2.3.
Timing For Establishing Performance Goals
	 	 	17	 
	 	 	
              15.2.4.
Performance or Annual Incentive Award Pool
	 	 	18	 
	 	 	
              15.2.5. Settlement of Performance or Annual Incentive
Awards; Other Terms
	 	 	18	 
	 	 	
15.3.      Written Determinations
	 	 	18	 
	 	 	
15.4.      Status of Section 14.2 Awards Under Code Section 162(m)
	 	 	18	 
	16.	 	
PARACHUTE LIMITATIONS
	 	 	19	 
	17.	 	
REQUIREMENTS OF LAW
	 	 	19	 
	 	 	
17.1.      General
	 	 	19	 
	 	 	
17.2.      Rule 16b-3
	 	 	20	 
	18.	 	
EFFECT OF CHANGES IN CAPITALIZATION
	 	 	20	 
	 	 	
18.1.      Changes in Stock
	 	 	20	 
	 	 	
18.2.      Changes in Capitalization; Merger; Liquidation
	 	 	21	 
	 	 	
18.3.      Adjustments
	 	 	21	 
	 	 	
18.4.      No Limitations on Company
	 	 	22	 
	19.	 	
GENERAL PROVISIONS
	 	 	22	 
	 	 	
19.1.      Disclaimer of Rights
	 	 	22	 
	 	 	
19.2.      Nonexclusivity of the Plan
	 	 	22	 
	 	 	
19.3.      Withholding Taxes
	 	 	22	 
	 	 	
19.4.      Captions
	 	 	23	 
	 	 	
19.5.      Other Provisions
	 	 	23	 
	 	 	
19.6.      Number And Gender
	 	 	23	 
	 	 	
19.7.      Severability
	 	 	23	 
	 	 	
19.8.      Governing Law
	 	 	23	 

- ii -

 

CAPITALSOURCE INC.

SECOND AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

     CapitalSource Inc., a Delaware corporation (the “Company”), sets forth
herein the terms of its Second Amended and Restated 2000 Equity Incentive Plan
(the “Plan”) as of      , 2003, as follows:

1.       PURPOSE

     This Plan is intended to provide incentive to eligible persons to
stimulate their efforts toward the continued success of the Company and to
operate and manage their businesses in a manner that will provide for the
long-term growth and profitability of the Company; and (b) provide a means of
obtaining, rewarding and retaining key personnel. To this end, the Plan
provides for the grant of stock options, stock appreciation rights, restricted
stock, stock units, unrestricted stock, dividend equivalent rights and cash
awards. Any of these awards may, but need not, be made as performance
incentives to reward attainment of annual or long-term performance goals in
accordance with the terms hereof. Stock options granted under the Plan may be
non-qualified stock options or incentive stock options, as provided herein.

2.       DEFINITIONS

     For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:

     2.1     “Affiliate” means, with respect to the Company, any company or other
trade or business that controls, is controlled by or is under common control
with the Company within the meaning of Rule 405 of Regulation C under the
Securities Act, including, without limitation, any Subsidiary.

     2.2     “Annual Incentive Award” means an Award made subject to attainment of
performance goals (as described in Section 15) over a performance period of up
to and including one year (the fiscal year, unless otherwise specified by the
Committee).

     2.3     “Award” means a grant of an Option, Stock Appreciation Right,
Restricted Stock, Unrestricted Stock, Stock Unit, Dividend Equivalent Rights,
or cash award under the Plan.

     2.4     “Award Agreement” means the written agreement between the Company and
a Grantee that evidences and sets out the terms and conditions of an Award.

     2.5     “Benefit Arrangement” shall have the meaning set forth in Section 16
hereof.

     2.6     “Board” means the Board of Directors of the Company.

 

 

     2.7     “Cause” has the same meaning as provided in the employment agreement
between the Service Provider and the Company or any Affiliate of the Company,
on the date of Termination of Employment, or if no such definition or
employment agreement exists, “Cause” means conduct amounting to (i) fraud or
dishonesty against the Company or any Affiliate of the Company, (ii) Service
Provider’s willful misconduct, repeated refusal to follow the reasonable
directions of a member of the Board or knowing violation of law in the course
of performance of the duties of Service Provider’s employment with the Company
any Affiliate of the Company, (iii) repeated absences from work without a
reasonable excuse, (iv) intoxication with alcohol or drugs while on the
Company’s or any Affiliate of the Company’s premises, (v) a conviction or plea
of guilty or nolo contendere to a felony or a crime involving dishonesty, or
(vi) a material breach or violation of the terms of any employment or other
agreement to which Service Provider and the Company, or, if applicable, any
Affiliate of the Company are parties.

     2.8     “Code” means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.

     2.9     “Committee” means the Compensation Committee of the Board.

     2.10     “Company” means CapitalSource Inc.

     2.11     “Corporate Transaction” means (i) the dissolution or liquidation of
the Company or a merger, consolidation, or reorganization of the Company with
one or more other entities in which the Company is not the surviving entity,
(ii) a sale of substantially all of the assets of the Company to another person
or entity, or (iii) any transaction (including without limitation a merger or
reorganization in which the Company is the surviving entity) which results in
any person or entity (other than persons who are shareholders or Affiliates
immediately prior to the transaction) owning 50% or more of the combined voting
power of all classes of stock of the Company.

     2.12     “Covered Employee” means a Grantee who is a Covered Employee within
the meaning of Section 162(m)(3) of the Code.

     2.13     “Disability” has the same meaning as provided in the long-term
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any Affiliate of the Company for
the Service Provider. If no long-term disability plan or policy was ever
maintained on behalf of the Service Provider, Disability shall mean that
condition described in Code Section 22(e)(3), as amended from time to time. In
the event of a dispute, the determination of Disability shall be made by the
Board and shall be supported by advice of a physician competent in the area to
which such Disability relates.

     2.14     “Dividend Equivalent” means a right, granted to a Grantee under
Section 14 hereof, to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.

- 2 -

 

     2.15     “Effective Date” means the date on which the Stock is sold in the
initial public offering pursuant to the agreement between the Company and the
underwriter or underwriters managing the Company’s initial public offering of
its Stock.

     2.16     “Exchange Act” means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.

     2.17     “Fair Market Value” means the value of a share of Stock, determined
as follows: if on the Grant Date or other determination date the Stock is
listed on an established national or regional stock exchange, is admitted to
quotation on The Nasdaq Stock Market, Inc. or is publicly traded on an
established securities market, the Fair Market Value of a share of Stock shall
be the closing price of the Stock on such exchange or in such market (if there
is more than one such exchange or market the Board shall determine the
appropriate exchange or market) on the Grant Date or such other determination
date (or if there is no such reported closing price, the Fair Market Value
shall be the mean between the highest bid and lowest asked prices or between
the high and low sale prices on such trading day) or, if no sale of Stock is
reported for such trading day, on the next preceding day on which any sale
shall have been reported. If the Stock is not listed on such an exchange,
quoted on such system or traded on such a market, Fair Market Value shall be
the value of the Stock as determined by the Board in good faith.

     2.18     “Family Member” means a person who is a spouse, former spouse, child,
stepchild, grandchild, parent, stepparent, grandparent, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister,
brother-in-law, or sister-in-law, including adoptive relationships, of the
Grantee, any person sharing the Grantee’s household (other than a tenant or
employee), a trust in which any one or more of these persons have more than
fifty percent of the beneficial interest, a foundation in which any one or more
of these persons (or the Grantee) control the management of assets, and any
other entity in which one or more of these persons (or the Grantee) own more
than fifty percent of the voting interests.

     2.19     “Grant Date” means, as determined by the Board or authorized
Committee, the latest to occur of (i) the date as of which the Board approves
an Award, (ii) the date on which the recipient of an Award first becomes
eligible to receive an Award under Section 6 hereof, or (iii) such other date
as may be specified by the Board.

     2.20     “Grantee” means a person who receives or holds an Award under the
Plan.

     2.21     “Incentive Stock Option” means an “incentive stock option” within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.

     2.22     “Non-qualified Stock Option” means an Option that is not an Incentive
Stock Option.

     2.23     “Option” means an option to purchase one or more shares of Stock
pursuant to the Plan.

- 3 -

 

     2.24     “Option Price” means the purchase price for each share of Stock
subject to an Option.

     2.25     “Other Agreement” shall have the meaning set forth in Section 16
hereof.

     2.26     “Outside Director” means a member of the Board who is not an officer
or employee of the Company.

     2.27     “Performance Award” means an Award made subject to the attainment of
performance goals (as described in Section 15) over a performance period of
more than one year.

     2.28     “Plan” means this CapitalSource Inc. Amended and Restated 2000 Equity
Incentive Plan.

     2.29     “Purchase Price” means the purchase price for each share of Stock
pursuant to a grant of Restricted Stock.

     2.30     “Reporting Person” means a person who is required to file reports
under Section 16(a) of the Exchange Act.

     2.31     “Restricted Stock” means shares of Stock, awarded to a Grantee
pursuant to Section 11 hereof.

     2.32     “SAR Exercise Price” means the per share exercise price of an SAR
granted to a Grantee under Section 10 hereof.

     2.33     “Securities Act” means the Securities Act of 1933, as now in effect
or as hereafter amended.

     2.34     “Service” means service as an employee, officer, Outside Director or
other Service Provider of the Company or an Affiliate. Unless otherwise stated
in the applicable Award Agreement, a Grantee’s change in position or duties
shall not result in interrupted or terminated Service, so long as such Grantee
continues to be an employee, officer, Outside Director or other Service
Provider of the Company or an Affiliate. Subject to the preceding sentence,
whether a termination of Service shall have occurred for purposes of the Plan
shall be determined by the Board, which determination shall be final, binding
and conclusive.

     2.35     “Service Provider” means an employee, officer or Outside Director of
the Company or an Affiliate, or a consultant or adviser currently providing
services to the Company or an Affiliate.

     2.36     “Stock” means the common stock, par value $.01 per share, of the
Company.

- 4 -

 

     2.37      “Stock Appreciation Right” or “SAR” means a right granted to a
Grantee under Section 10 hereof.

     2.38     “Stock Unit” means a bookkeeping entry representing the equivalent of
a share of Stock, awarded to a Grantee pursuant to Section 11 hereof.

     2.39     “Subsidiary” means any “subsidiary corporation” of the Company within
the meaning of Section 424(f) of the Code.

     2.40     “Termination Date” means the date upon which an Option shall
terminate or expire, as set forth in Section 8.3 hereof.

     2.41      “Ten Percent Stockholder” means an employee who owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company, its parent or any of its Subsidiaries. In determining
stock ownership, the attribution rules of Section 424(d) of the Code shall be
applied.

     2.42     “Unrestricted Stock” means an Award pursuant to Section 12 hereof.

3.       ADMINISTRATION OF THE PLAN

     3.1.     Board

     The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company’s amended and
restated certificate of incorporation and amended and restated by-laws and
applicable law. The Board shall have full power and authority to take all
actions and to make all determinations required or provided for under the Plan,
any Award or any Award Agreement, and shall have full power and authority to
take all such other actions and make all such other determinations not
inconsistent with the specific terms and provisions of the Plan that the Board
deems to be necessary or appropriate to the administration of the Plan, any
Award or any Award Agreement. All such actions and determinations shall be by
the affirmative vote of a majority of the members of the Board present at a
meeting or by unanimous consent of the Board executed in writing in accordance
with the Company’s amended and restated certificate of incorporation and
amended and restated by-laws and applicable law. The interpretation and
construction by the Board of any provision of the Plan, any Award or any Award
Agreement shall be final and conclusive.

     3.2.      Committee.

     The Board from time to time may delegate to the Committee such powers and
authorities related to the administration and implementation of the Plan, as
set forth in Section 3.1 above and other applicable provisions, as the Board
shall determine, consistent with the amended and restated certificate of
incorporation and amended and restated by-laws of the Company and applicable
law. The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not be Outside
Directors, who may administer the Plan with respect to employees or other
Service Providers who are not officers or directors of the Company, may grant
Awards under the Plan to such employees or other Service Providers, and
may

- 5 -

 

determine all terms of such Awards. In the event that the Plan, any Award
or any Award Agreement entered into hereunder provides for any action to be
taken by or determination to be made by the Board, such action may be taken or
such determination may be made by the Committee if the power and authority to
do so has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action
or determination by the Committee shall be final, binding and conclusive. To
the extent permitted by law, the Committee may delegate its authority under the
Plan to a member of the Board.

     3.3.     Terms of Awards.

     Subject to the other terms and conditions of the Plan, the Board shall
have full and final authority to:

     (i)     designate Grantees,

     (ii)     determine the type or types of Awards to be made to a Grantee,

     (iii)       determine the number of shares of Stock to be subject to an Award,

     (iv)     establish the terms and conditions of each Award (including, but not
limited to, the exercise price of any Option, the nature and duration of any
restriction or condition (or provision for lapse thereof) relating to the
vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock
subject thereto, and any terms or conditions that may be necessary to qualify
Options as Incentive Stock Options),

     (v)       prescribe the form of each Award Agreement evidencing an Award, and

     (vi)     amend, modify, or supplement the terms of any outstanding Award,
subject to Section 8.9. Such authority specifically includes the authority, in
order to effectuate the purposes of the Plan but without amending the Plan, to
modify Awards to eligible individuals who are foreign nationals or are
individuals who are employed outside the United States to recognize differences
in local law, tax policy, or custom.

     The Board shall have the right, in its discretion, to make Awards in
substitution or exchange for any other award under another plan of the Company,
any Affiliate, or any business entity to be acquired by the Company or an
Affiliate. Shares issued pursuant to Awards granted in substitution for awards
held by employees of a business entity acquired by the Company or an Affiliate
shall not count against the shares available for issuance under the Plan. The
Company may retain the right in an Award Agreement to cause a forfeiture of the
gain realized by a Grantee on account of actions taken by the Grantee in
violation or breach of or in conflict with any non-competition agreement, any
agreement prohibiting solicitation of employees or clients of the Company or
any Affiliate thereof or any confidentiality obligation with respect to the
Company or any Affiliate thereof or otherwise in competition with the Company
or any Affiliate thereof, to the extent specified in such Award Agreement
applicable to the Grantee. Furthermore, the Company may annul an Award if the
Grantee is an employee of the Company or an Affiliate thereof and is terminated
for Cause as defined in the applicable Award Agreement or the Plan, as

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applicable. The grant of any Award shall be contingent upon the Grantee
executing the appropriate Award Agreement.

     3.4.     Deferral Arrangement.

     The Board may permit or require the deferral of any award payment into a
deferred compensation arrangement, subject to such rules and procedures as it
may establish, which may include provisions for the payment or crediting of
interest or dividend equivalents, including converting such credits into
deferred Stock equivalents and restricting deferrals to comply with hardship
distribution rules affecting 401(k) plans.

     3.5.     No Liability.

     No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award or
Award Agreement.

4.      STOCK SUBJECT TO THE PLAN

     Subject to adjustment as provided in Section 18 hereof, the number of
shares of Stock available for issuance under the Plan shall be twenty million
(20,000,000). Notwithstanding the preceding sentence, the aggregate number of
shares of Stock which cumulatively may be available for issuance pursuant to
Awards other than Awards of Options shall not exceed seven million (7,000,000).
Stock issued or to be issued under the Plan shall be authorized but unissued
shares or treasury shares. If any shares covered by an Award are not purchased
or are forfeited, if an Award is settled in cash or if an Award otherwise
terminates without delivery of any Stock subject thereto, then the number of
shares of Stock counted against the aggregate number of shares available under
the Plan with respect to such Award shall, to the extent of any such
forfeiture, cash payment or termination, again be available for making Awards
under the Plan. If the Option Price of any Option granted under the Plan, the
withholding obligation of any Grantee with respect to an Option pursuant to
Section 19.3 or any other payment under the Plan is satisfied by tendering
shares of Stock to the Company (by either actual delivery or by attestation) or
by withholding shares of Stock, only the number of shares of Stock issued net
of the shares of Stock tendered or withheld shall be deemed delivered for
purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.

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5.       EFFECTIVE DATE, DURATION AND AMENDMENTS

     5.1.     Effective Date.

     The amendment and restatement of the Plan shall be effective as of the
Effective Date, subject to approval of the Plan by the Company’s stockholders
within one year of the Effective Date. Upon approval of the Plan by the
stockholders of the Company as set forth above, all Awards made under the Plan
on or after the Effective Date shall be fully effective as if the stockholders
of the Company had approved the Plan on the Effective Date. If the
stockholders fail to approve the amendment and restatement of the Plan within
one year after the Effective Date, any Awards made hereunder after the
Effective Date shall be null and void and of no effect.

     5.2.     Term.

     The Plan shall terminate automatically ten (10) years after the Effective
Date and may be terminated on any earlier date as provided in Section 5.3.

     5.3.     Amendment and Termination of the Plan

     The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Awards have not been
made. An amendment shall be contingent on approval of the Company’s
stockholders to the extent stated by the Board or required by applicable law.
In addition, an amendment will be contingent on approval of the Company’s
stockholders if the amendment would (i) materially increase the benefits
accruing to participants under the Plan, (ii) materially increase the aggregate
number of shares of Stock that may be issued under the Plan, or (iii)
materially modify the requirements as to eligibility for participation in the
Plan. No Awards shall be made after termination of the Plan. No amendment,
suspension, or termination of the Plan shall, without the consent of the
Grantee, impair rights or obligations under any Award theretofore awarded under
the Plan.

6.       AWARD ELIGIBILITY AND LIMITATIONS

     6.1.      Service Providers; Outside Directors; Other Persons

     Subject to this Section 6, Awards may be made under the Plan to: (i) any
Service Provider to the Company or of any Affiliate, including any such Service
Provider who is an officer or director of the Company, or of any Affiliate, as
the Board shall determine and designate from time to time, (ii) any Outside
Director, and (iii) any other individual whose participation in the Plan is
determined to be in the best interests of the Company by the Board.

     6.2.     Successive Awards.

     An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.

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     6.3.     Limitation on Shares of Stock Subject to Awards and Cash
Awards.

     During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, but only after such time as the reliance
period described in Treas. Reg. Section 1.162-27(f)(2) has expired:

     (i)  the maximum number of shares of Stock subject to Options or SARs that
can be issued under the Plan to any person eligible for an Award under Section
6 hereof is two million (2,000,000) in any three consecutive calendar years;

     (ii)  the maximum number of shares that can be issued under the Plan, other
than pursuant to an Option, SAR or time-vested Restricted Stock grant to any
person eligible for an Award under Section 6 hereof is one million (1,000,000)
in any three consecutive calendar years; and

     (iii)  the maximum amount that may be earned as an Annual Incentive Award
or other cash Award in any fiscal year by any one Grantee shall be $5,000,000
and the maximum amount that may be earned as a Performance Award or other cash
Award in respect of a performance period by any one Grantee shall be
$5,000,000.

     The preceding limitations in this Section 6.3 are subject to adjustment as
provided in Section 18 hereof.

     6.4.     Limitations on Incentive Stock Options.

     An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee’s employer and its Affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in
the order in which they were granted.

     6.5.      Stand-Alone, Additional, Tandem, and Substitute Awards

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

7.       AWARD AGREEMENT

     Each Award granted pursuant to the Plan shall be evidenced by an Award
Agreement, in such form or forms as the Board shall from time to time
determine. Award
Agreements

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granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan. Each
Award Agreement evidencing an Award of Options shall specify whether such
Options are intended to be Non-qualified Stock Options or Incentive Stock
Options, and in the absence of such specification such options shall be deemed
Non-qualified Stock Options.

8.       TERMS AND CONDITIONS OF OPTIONS

     8.1.     Option Price

     The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price of each Option
shall be at least the Fair Market Value on the Grant Date of a share of Stock;
provided, however, that in the event that a Grantee is a Ten Percent
Stockholder, the Option Price of an Option granted to such Grantee that is
intended to be an Incentive Stock Option shall be not less than 110 percent of
the Fair Market Value of a share of Stock on the Grant Date. In no case shall
the Option Price of any Option be less than the par value of a share of Stock.

     8.2.     Vesting.

     Subject to Sections 8.3 and 18 hereof, each Option granted under the Plan
shall become exercisable at such times and under such conditions as shall be
determined by the Board and stated in the Award Agreement. For purposes of
this Section 8.2, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. No Option granted under
the amended and restatement of the Plan shall be exercisable in whole or in
part prior to the date the Plan is approved by the Stockholders of the Company
as provided in Section 5.1 hereof.

     8.3.     Term.

     Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
“Termination Date”); provided, however, that in the event that the Grantee is a
Ten Percent Stockholder, an Option granted to such Grantee that is intended to
be an Incentive Stock Option shall not be exercisable after the expiration of
five years from its Grant Date.

     8.4.     Termination of Service.

     Each Award Agreement shall set forth the extent to which the Grantee shall
have the right to exercise the Option following termination of the Grantee’s
Service. Such provisions shall be determined in the sole discretion of the
Board, need not be uniform among all Options issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of Service. An
Option that is intended to be an Incentive Stock Option shall no longer
exercisable as an Incentive Stock Option ninety (90) days after the termination
of the Grantee’s Service.

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     8.5.     Limitations on Exercise of Option.

     Notwithstanding any other provision of the Plan, in no event may any
Option be exercised, in whole or in part, prior to the date the Plan is
approved by the stockholders of the Company as provided herein, or after ten
years following the Grant Date, or after the occurrence of an event referred to
in Section 18 hereof which results in termination of the Option.

     8.6.      Method of Exercise.

     An Option that is exercisable may be exercised by the Grantee’s delivery
to the Company of written notice of exercise on any business day, at the
Company’s principal office, on the form specified by the Company. Such notice
shall specify the number of shares of Stock with respect to which the Option is
being exercised and shall be accompanied by payment in full of the Option Price
of the shares for which the Option is being exercised.

     8.7.     Rights of Holders of Options

     Unless otherwise stated in the applicable Award Agreement, an individual
holding or exercising an Option shall have none of the rights of a stockholder
(for example, the right to receive cash or dividend payments or distributions
attributable to the subject shares of Stock or to direct the voting of the
subject shares of Stock ) until the shares of Stock covered thereby are fully
paid and issued to him. Except as provided in Section 18 hereof, no adjustment
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such issuance.

     8.8.      Delivery of Stock Certificates.

     Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option. Notwithstanding any other provision of this
Plan to the contrary, the Company may elect to satisfy any requirement under
this Plan for the delivery of stock certificates through the use of book-entry.

     8.9.      No Option Repricing.

     Notwithstanding any other provision in the Plan to the contrary, the
Option Price of an Option may not be amended or modified after the Grant Date,
and an Option may not be surrendered in consideration of or exchanged for cash,
a grant of Restricted Stock or a new option having an Option Price below that
of the Option which was surrendered or exchanged without approval of the
Company’s stockholders.

9.       TRANSFERABILITY OF OPTIONS

     9.1.      Transferability of Options

     Except as provided in Section 9.2, during the lifetime of a Grantee, only
the Grantee (or, in the event of legal incapacity or incompetency, the
Grantee’s guardian or

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legal representative) may exercise an Option. Except as
provided in Section 9.2, no Option shall be assignable or transferable by the
Grantee to whom it is granted, other than by will or the laws of descent and
distribution.

     9.2.     Family Transfers.

     If authorized in the applicable Award Agreement, a Grantee may transfer,
not for value, all or part of an Option which is not an Incentive Stock Option
to any Family Member. For the purpose of this Section 9.2, a “not for value”
transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic
relations order in settlement of marital property rights; or (iii) a transfer
to an entity in which more than fifty percent of the voting interests are owned
by Family Members (or the Grantee) in exchange for an interest in that entity.
Following a transfer under this Section 9.2, any such Option shall continue to
be subject to the same terms and conditions as were applicable immediately
prior to transfer. Subsequent transfers of transferred Options are prohibited
except to Family Members of the original Grantee in accordance with this
Section 9.2 or by will or the laws of descent and distribution. The events of
termination of Service of Section 8.4 hereof shall continue to be applied with
respect to the original Grantee, following which the Option shall be
exercisable by the transferee only to the extent, and for the periods
specified, in Section 8.4.

10.      STOCK APPRECIATION RIGHTS

     The Board is authorized to grant Stock Appreciation Rights (“SARs”) to
Grantees on the following terms and conditions:

     10.1.      Right to Payment.

     A SAR shall confer on the Grantee to whom it is granted a right to
receive, upon exercise thereof, the excess of (A) the Fair Market Value of one
share of Stock on the date of exercise over (B) the grant price of the SAR as
determined by the Board. The Award Agreement for an SAR shall specify the
grant price of the SAR, which shall be fixed at the Fair Market Value of a
share of Stock on the date of grant.

     10.2.     Other Terms.

     The Board shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which SARs shall cease to be
or become exercisable following termination of Service or upon other
conditions, the method of exercise, method of settlement, form of consideration
payable in settlement which may be cash or Stock, method by or forms in which
Stock will be delivered or deemed to be delivered to Grantees,
whether or not a SAR shall be in tandem or in combination with any other Award,
and any other terms and conditions of any SAR.

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11.       RESTRICTED STOCK AND STOCK UNITS

     11.1.      Grant of Restricted Stock or Stock Units.

     The Board may from time to time grant Restricted Stock or Stock Units to
persons eligible to receive Awards under Section 6 hereof, subject to such
restrictions, conditions and other terms, if any, as the Board may determine.
Awards of Restricted Stock may be made for no consideration (other than par
value of the shares which is deemed paid by Services already rendered).

     11.2.     Restrictions.

     At the time a grant of Restricted Stock or Stock Units is made, the Board
may, in its sole discretion, establish a period of time (a “restricted period”)
applicable to such Restricted Stock or Stock Units. Each Award of Restricted
Stock or Stock Units may be subject to a different restricted period. The
Board may, in its sole discretion, at the time a grant of Restricted Stock or
Stock Units is made, prescribe restrictions in addition to or other than the
expiration of the restricted period, including the satisfaction of corporate or
individual performance objectives, which may be applicable to all or any
portion of the Restricted Stock or Stock Units in accordance with Section 15.1
and 15.2. Notwithstanding the foregoing, Restricted Stock that vests solely by
the passage of time shall not vest in full in less than three (3) years from
the Grant Date. Restricted Stock for which vesting may be accelerated may be
accelerated by achieving performance targets shall not vest in full in less
than one (1) year from the Grant Date. Neither Restricted Stock nor Stock
Units may be sold, transferred, assigned, pledged or otherwise encumbered or
disposed of during the restricted period or prior to the satisfaction of any
other restrictions prescribed by the Board with respect to such Restricted
Stock or Stock Units.

     11.3.     Restricted Stock Certificates.

     The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Board may provide in an Award Agreement
that either (i) the Secretary of the Company, or his delegate, shall hold such
certificates for the Grantee’s benefit until such time as the Restricted Stock
is forfeited to the Company or the restrictions lapse, or (ii) such
certificates shall be delivered to the Grantee, provided,
however, that all
such certificates, regardless of whether held by the Secretary, his delegate or
delivered to the Grantee, shall bear a legend or legends that comply with the
applicable securities laws and regulations and makes appropriate reference to
the restrictions imposed under the Plan and the Award Agreement.

     11.4.     Rights of Holders of Restricted Stock.

     Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends
declared or paid with respect to such Stock. The Board may provide that any
dividends paid on Restricted Stock must be reinvested in shares of Stock, which
may or may not be subject to the same vesting conditions and restrictions
applicable to such Restricted Stock. All distributions, if any, received by a
Grantee with respect to Restricted Stock as a result of any 

- 13 -

 

stock split, stock
dividend, combination of shares, or other similar transaction shall be subject
to the restrictions applicable to the original Grant.

     11.5.      Rights of Holders of Stock Units.

               11.5.1.     Voting and Dividend Rights.

     Unless the Board otherwise provides in an Award Agreement, holders of
Stock Units shall have no rights as stockholders of the Company. The Board may
provide in an Award Agreement evidencing a grant of Stock Units that the holder
of such Stock Units shall be entitled to receive, upon the Company’s payment of
a cash dividend on its outstanding Stock, a cash payment for each Stock Unit
held equal to the per-share dividend paid on the Stock. Such Award Agreement
may also provide that such cash payment will be deemed reinvested in additional
Stock Units at a price per unit equal to the Fair Market Value of a share of
Stock on the date that such dividend is paid.

               11.5.2.     Creditor’s Rights.

     A holder of Stock Units shall have no rights other than those of a general
creditor of the Company. Stock Units represent an unfunded and unsecured
obligation of the Company, subject to the terms and conditions of the
applicable Award Agreement.

     11.6.      Termination of Service.

     Unless the Board otherwise provides in an Award Agreement or in writing
after the Award Agreement is issued, upon the termination of a Grantee’s
Service, any Restricted Stock or Stock Units held by such Grantee that have not
vested, or with respect to which all applicable restrictions and conditions
have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of
Restricted Stock or Stock Units, the Grantee shall have no further rights with
respect to such Award, including but not limited to any right to vote
Restricted Stock or any right to receive dividends with respect to shares of
Restricted Stock or Stock Units.

     11.7.     Purchase of Restricted Stock.

     The Grantee shall be required, to the extent required by applicable law,
to purchase the Restricted Stock from the Company at a Purchase Price equal to
the greater of (i) the aggregate par value of the shares of Stock represented
by such Restricted Stock or (ii) the Purchase Price, if any, specified in the
Award Agreement relating to such Restricted Stock. The Purchase Price shall be
payable in a form described in Section 13 or, in the discretion of the Board,
in consideration for past Services rendered to the Company or an Affiliate.

     11.8.     Delivery of Stock.

     Upon the expiration or termination of any restricted period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of
Restricted Stock or Stock Units settled in Stock shall lapse, and, unless
otherwise provided in the Award Agreement, a stock certificate for such shares
shall be delivered, free of all such restrictions, to the Grantee or the
Grantee’s beneficiary or estate, as the case may be. Stock Units may also be
settled in cash upon the determination of the Board or as specified in the
applicable Award Agreement.

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12.      UNRESTRICTED STOCK AWARDS

     The Board may, in its sole discretion, grant (or sell at par value or such
other higher purchase price determined by the Board) an Unrestricted Stock
Award to any Grantee pursuant to which such Grantee may receive shares of Stock
free of any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted
Stock Awards may be granted or sold as described in the preceding sentence in
respect of past services and other valid consideration, or in lieu of, or in
addition to, any cash compensation due to such Grantee.

13.      FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

     13.1.     General Rule.

     Payment of the Option Price for the shares purchased pursuant to the
exercise of an Option or the Purchase Price for Restricted Stock shall be made
in cash or in cash equivalents acceptable to the Company.

     13.2.     Surrender of Stock.

     To the extent the Award Agreement so provides, payment of the Option Price
for shares purchased pursuant to the exercise of an Option or the Purchase
Price for Restricted Stock may be made all or in part through the tender to the
Company of shares of Stock, which shares, if acquired from the Company, shall
have been held for at least six months at the time of tender and which shall be
valued, for purposes of determining the extent to which the Option Price or
Purchase Price has been paid thereby, at their Fair Market Value on the date of
exercise.

     13.3.     Cashless Exercise.

     With respect to an Option only (and not with respect to Restricted Stock),
to the extent the Award Agreement so provides and subject to compliance with
applicable law, payment of the Option Price for shares purchased pursuant to
the exercise of an Option may be made all or in part by delivery (on a form
acceptable to the Board) of an irrevocable direction to a licensed securities
broker acceptable to the Company to sell shares of Stock and to deliver all or
part of the sales proceeds to the Company in payment of the Option Price and
any withholding taxes described in Section 19.3.

     13.4.     Other Forms of Payment.

     To the extent the Award Agreement so provides, payment of the Option Price
for shares purchased pursuant to exercise of an Option or the Purchase Price
for Restricted
Stock may be made in any other form that is consistent with applicable
laws, regulations and rules.

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14.       DIVIDEND EQUIVALENT RIGHTS

     14.1.      Dividend Equivalent Rights.

     A Dividend Equivalent Right is an Award entitling the recipient to receive
credits based on cash distributions that would have been paid on the shares of
Stock specified in the Dividend Equivalent Right (or other award to which it
relates) if such shares had been issued to and held by the recipient. A
Dividend Equivalent Right may be granted hereunder to any Grantee as a
component of another Award or as a freestanding award. The terms and
conditions of Dividend Equivalent Rights shall be specified in the grant.
Dividend Equivalents credited to the holder of a Dividend Equivalent Right may
be paid currently or may be deemed to be reinvested in additional shares of
Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment.
Dividend Equivalent Rights may be settled in cash or Stock or a combination
thereof, in a single installment or installments, all determined in the sole
discretion of the Board. A Dividend Equivalent Right granted as a component of
another Award may provide that such Dividend Equivalent Right shall be settled
upon exercise, settlement, or payment of, or lapse of restrictions on, such
other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A
Dividend Equivalent Right granted as a component of another Award may also
contain terms and conditions different from such other award.

     14.2.     Termination of Service.

     Except as may otherwise be provided by the Board either in the Award
Agreement or in writing after the Award Agreement is issued, a Grantee’s rights
in all Dividend Equivalent Rights or interest equivalents shall automatically
terminate upon the Grantee’s termination of Service for any reason.

15.       PERFORMANCE AND ANNUAL INCENTIVE AWARDS

     15.1.      Performance Conditions

     The right of a Grantee to exercise or receive a grant or settlement of any
Award, and the timing thereof, may be subject to such performance conditions as
may be specified by the Board. The Board may use such business criteria and
other measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 15.2 hereof in the case of a Performance Award or Annual
Incentive Award intended to qualify under Code Section 162(m). If and to the
extent required under Code Section 162(m), any power or authority relating to a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m), shall be exercised by the Committee and not the Board.

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     15.2.     Performance or Annual Incentive Awards Granted to Designated Covered Employees

     If and to the extent that the Committee determines that a Performance or
Annual Incentive Award to be granted to a Grantee who is designated by the
Committee as likely to be a Covered Employee should qualify as
“performance-based compensation” for purposes of Code Section 162(m), the
grant, exercise and/or settlement of such Performance or Annual Incentive Award
shall be contingent upon achievement of pre-established performance goals and
other terms set forth in this Section 15.2.

               15.2.1.     Performance Goals Generally.

     The performance goals for such Performance or Annual Incentive Awards
shall consist of one or more business criteria and a targeted level or levels
of performance with respect to each of such criteria, as specified by the
Committee consistent with this Section 15.2. Performance goals shall be
objective and shall otherwise meet the requirements of Code Section 162(m) and
regulations thereunder including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance
goals being “substantially uncertain.” The Committee may determine that such
Performance or Annual Incentive Awards shall be granted, exercised and/or
settled upon achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise and/or
settlement of such Performance or Annual Incentive Awards. Performance goals
may differ for Performance or Annual Incentive Awards granted to any one
Grantee or to different Grantees.

               15.2.2.      Business Criteria.

     One or more of the following business criteria for the Company, on a
consolidated basis, and/or specified subsidiaries or business units of the
Company (except with respect to the total stockholder return and earnings per
share criteria), shall be used exclusively by the Committee in establishing
performance goals for such Performance or Annual Incentive Awards: (1) total
stockholder return; (2) such total stockholder return as compared to total
return (on a comparable basis) of a publicly available index such as, but not
limited to, the Standard & Poor’s 500 Stock Index; (3) net income; (4) pretax
earnings; (5) earnings before interest expense and taxes (EBIT), (6) earnings
before interest expense, taxes, depreciation and amortization (EBITDA); (7)
pretax operating earnings after interest expense and before bonuses, service
fees, and extraordinary or special items; (8) operating margin; (9) earnings
per share; (10) return on equity; (11) return on assets, (12) return on
capital; (13) return on investment; (14) operating earnings; (15) working
capital; (16) ratio of debt to stockholders’ equity, (17) revenue and (18) book
value.

               15.2.3.     Timing For Establishing Performance Goals.

     Performance goals shall be established not later than 90 days after the
beginning of any performance period applicable to such Performance or Annual
Incentive Awards, or at such other date as may be required or permitted for
“performance-based compensation” under Code Section 162(m).

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               15.2.4.     Performance or Annual Incentive Award Pool.

     The Committee may establish a Performance or Annual Incentive Award pool,
which shall be an unfunded pool, for purposes of measuring Company performance
in connection with Performance or Annual Incentive Awards.

               15.2.5.      Settlement of Performance or Annual Incentive Awards; Other
Terms.

     Settlement of such Performance or Annual Incentive Awards shall be in
cash, Stock, other Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such Performance or Annual
Incentive Awards. The Committee shall specify the circumstances in which such
Performance or Annual Incentive Awards shall be paid or forfeited in the event
of termination of Service by the Grantee prior to the end of a performance
period or settlement of Performance Awards.

     15.3.     Written Determinations.

     All determinations by the Committee as to the establishment of performance
goals, the amount of any Performance Award pool or potential individual
Performance Awards and as to the achievement of performance goals relating to
Performance Awards, and the amount of any Annual Incentive Award pool or
potential individual Annual Incentive Awards and the amount of final Annual
Incentive Awards, shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). To the extent required to comply with Code
Section 162(m), the Committee may delegate any responsibility relating to such
Performance Awards or Annual Incentive Awards.

     15.4.     Status of Section 14.2 Awards Under Code Section 162(m)

     It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Section 15.2 hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute “qualified performance-based
compensation” within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Section 15.2, including the definitions
of Covered Employee and other terms used therein, shall be interpreted in a
manner consistent with Code Section 162(m) and regulations thereunder. The
foregoing notwithstanding, because the Committee cannot determine with
certainty whether a given Grantee will be a Covered Employee with respect to a
fiscal year that has not yet been completed, the term Covered Employee as used
herein shall mean only a person designated by the Committee, at the time of
grant of Performance Awards or an Annual Incentive Award, as likely to be a
Covered Employee with respect to that fiscal year. If any provision of the
Plan or any agreement relating to such Performance Awards or Annual Incentive
Awards does not comply or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements.

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16.       PARACHUTE LIMITATIONS

     Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by a
Grantee with the Company or any Affiliate, except an agreement, contract, or
understanding between the Grantee and the Company or any Affiliate that
modifies or excludes application of this paragraph (an “Other Agreement”), and
notwithstanding any formal or informal plan or other arrangement for the direct
or indirect provision of compensation to the Grantee (including groups or
classes of Grantees or beneficiaries of which the Grantee is a member), whether
or not such compensation is deferred, is in cash, or is in the form of a
benefit to or for the Grantee (a “Benefit Arrangement”), if the Grantee is a
“disqualified individual,” as defined in Section 280G(c) of the Code, any
Option, Restricted Stock or Stock Unit held by that Grantee and any right to
receive any payment or other benefit under this Plan shall not become
exercisable or vested (i) to the extent that such right to exercise, vesting,
payment, or benefit, taking into account all other rights, payments, or
benefits to or for the Grantee under this Plan, all Other Agreements, and all
Benefit Arrangements, would cause any payment or benefit to the Grantee under
this Plan to be considered a “parachute payment” within the meaning of Section
280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if,
as a result of receiving a Parachute Payment, the aggregate after-tax amounts
received by the Grantee from the Company under this Plan, all Other Agreements,
and all Benefit Arrangements would be less than the maximum after-tax amount
that could be received by the Grantee without causing any such payment or
benefit to be considered a Parachute Payment. In the event that the receipt of
any such right to exercise, vesting, payment, or benefit under this Plan, in
conjunction with all other rights, payments, or benefits to or for the Grantee
under any Other Agreement or any Benefit Arrangement would cause the Grantee to
be considered to have received a Parachute Payment under this Plan that would
have the effect of decreasing the after-tax amount received by the Grantee as
described in clause (ii) of the preceding sentence, then the Grantee shall have
the right, in the Grantee’s sole discretion, to designate those rights,
payments, or benefits under this Plan, any Other Agreements, and any Benefit
Arrangements that should be reduced or eliminated so as to avoid having the
payment or benefit to the Grantee under this Plan be deemed to be a Parachute
Payment.

17.       REQUIREMENTS OF LAW

     17.1.     General.

     The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion,
that the listing, registration or qualification of any shares subject to an
Award upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance
or purchase of shares hereunder, no shares of Stock may be issued or sold to
the Grantee or any other individual exercising an Option pursuant to such Award
unless such listing, registration, qualification, consent or approval

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shall
have been effected or obtained free of any conditions not
acceptable to the Company, and any delay caused thereby shall in no way affect
the date of termination of the Award. Specifically, in connection with the
Securities Act, upon the exercise of any Option or the delivery of any shares
of Stock underlying an Award, unless a registration statement under such Act is
in effect with respect to the shares of Stock covered by such Award, the
Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee or any other individual
exercising an Option may acquire such shares pursuant to an exemption from
registration under the Securities Act. Any determination in this connection by
the Board shall be final, binding, and conclusive. The Company may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the Securities Act. The Company shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares of
Stock pursuant to the Plan to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable until the shares of Stock
covered by such Option are registered or are exempt from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.

     17.2.     Rule 16b-3.

     During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Awards pursuant to the Plan and the exercise of Options granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To
the extent that any provision of the Plan or action by the Board does not
comply with the requirements of Rule 16b-3, it shall be deemed inoperative to
the extent permitted by law and deemed advisable by the Board, and shall not
affect the validity of the Plan. In the event that Rule 16b-3 is revised or
replaced, the Board may exercise its discretion to modify this Plan in any
respect necessary to satisfy the requirements of, or to take advantage of any
features of, the revised exemption or its replacement.

18.      EFFECT OF CHANGES IN CAPITALIZATION

     18.1.     Changes in Stock.

     If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Company on account of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Company occurring after the Effective Date, the
number and kinds of shares for which grants of Awards may be made under the
Plan shall be adjusted proportionately and accordingly by the Company. In
addition, the number and kind of shares for which Awards are outstanding shall
be adjusted proportionately and accordingly so that the proportionate interest
of the Grantee immediately following such event shall, to the extent
practicable, be the same as immediately before such event. Any such adjustment
in outstanding Options or SARs shall not change the aggregate Option

- 20 -

 

Price or SAR Exercise Price payable with respect to shares that are subject to
the unexercised portion of an outstanding Option or SAR, as applicable, but
shall include a corresponding proportionate adjustment in the Option Price or
SAR Exercise Price per share. The conversion of any convertible securities of
the Company shall not be treated as an increase in shares effected without
receipt of consideration. Notwithstanding the foregoing, in the event of any
distribution to the Company’s stockholders of securities of any other entity or
other assets (other than dividends payable in cash or stock of the Company)
without receipt of consideration by the Company, the Company may, in such
manner as the Company deems appropriate, adjust (i) the number and kind of
shares subject to outstanding Awards and/or (ii) the exercise price of
outstanding Options and SARs to reflect such distribution.

     18.2.     Changes in Capitalization; Merger; Liquidation.

     (a)     In the event of a merger, consolidation, reorganization or other
Corporate Transaction of the Company, the Board may make such adjustments with
respect to Awards and take such other action as it deems necessary or
appropriate to reflect such merger, consolidation, reorganization or other
Corporate Transaction, including, without limitation, the substitution of new
awards, the termination or the adjustment of outstanding awards, the
acceleration of Awards or the removal of restrictions on outstanding Awards,
all as may be provided in the applicable Award Agreement or, if not expressly
addressed therein, as the Board subsequently may determine in the event of any
such transaction.

     (b)     In addition to or instead of any adjustments authorized in Section
18.1(a) above, in the event of a merger, consolidation, reorganization or other
Corporate Transaction of the Company, the Board may elect, in its sole
discretion, to cancel or repurchase any outstanding Awards issued under the
Plan and pay or deliver, or cause to be paid or delivered, to the holder
thereof an amount in cash or securities having a value (as determined by the
Board acting in good faith), in the case of an Award consisting of Restricted
Stock or Stock Units, equal to the formula or fixed price per share paid to
holders of the Stock in connection with such transaction and, in the case of
Options, equal to the product of the number of shares of Stock subject to the
Option (the “Option Stock”) multiplied by the amount, if any, by which (I) the
formula or fixed price per share of Stock paid to holders of Stock pursuant to
such transaction exceeds (II) the Option Price applicable to such Option.

     18.3.     Adjustments.

     Adjustments under this Section 18 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other
securities shall be issued pursuant to any such adjustment, and any fractions
resulting from any such adjustment shall be eliminated in each case by rounding
downward to the nearest whole share. The Board may provide in the Award
Agreements at the time of grant, or any time thereafter with the consent of the
Grantee, for different provisions to apply to an Award in place of those
described in Section 18.

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     18.4.     No Limitations on Company.

     The existence of this Plan and the Awards granted pursuant to this Plan
shall not affect in any way the right or power of the Company to make or
authorize any adjustment, reclassification, reorganization or other change in
its capital or business structure, any merger or consolidation of the Company,
any issue of debt or equity securities having preferences or priorities as to
the Stock or the rights thereof, the dissolution or liquidation of the Company,
any sale or transfer of all or any part of its business or assets, or any other
act or proceeding.

19.       GENERAL PROVISIONS

     19.1.     Disclaimer of Rights

     No provision in the Plan or in any Award or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any Affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or
to terminate any employment or other relationship between any individual and
the Company. In addition, notwithstanding anything contained in the Plan to
the contrary, unless otherwise stated in the applicable Award Agreement, no
Award granted under the Plan shall be affected by any change of duties or
position of the Grantee, so long as such Grantee continues to be a director,
officer, consultant or employee of the Company or an Affiliate. The obligation
of the Company to pay any benefits pursuant to this Plan shall be interpreted
as a contractual obligation to pay only those amounts described herein, in the
manner and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
Grantee or beneficiary under the terms of the Plan.

     19.2.      Nonexclusivity of the Plan

     Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.

     19.3.     Withholding Taxes

     The Company or an Affiliate, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock upon the exercise of an Option or pursuant to
an Award. At the time of such vesting, lapse, or exercise, the Grantee shall
pay to the Company or the Affiliate, as the case may be, any

- 22 -

 

amount that the
Company or the Affiliate may reasonably determine to be necessary to
satisfy such withholding obligation. Subject to the prior approval of the
Company or the Affiliate, which may be withheld by the Company or the
Affiliate, as the case may be, in its sole discretion, the Grantee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company or
the Affiliate to withhold shares of Stock otherwise issuable to the Grantee or
(ii) by delivering to the Company or the Affiliate shares of Stock already
owned by the Grantee. The shares of Stock so delivered or withheld shall have
an aggregate Fair Market Value equal to such withholding obligations. The Fair
Market Value of the shares of Stock used to satisfy such withholding obligation
shall be determined by the Company or the Affiliate as of the date that the
amount of tax to be withheld is to be determined. A Grantee who has made an
election pursuant to this Section 19.3 may satisfy his or her withholding
obligation only with shares of Stock that are not subject to any repurchase,
forfeiture, unfulfilled vesting, or other similar requirements.

     19.4.     Captions

     The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.

     19.5.      Other Provisions

     Each Award granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.

     19.6.     Number And Gender

     With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.

     19.7.      Severability

     If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.

     19.8.     Governing Law

     The validity and construction of this Plan and the instruments evidencing
the Award hereunder shall be governed by the laws of the State of Delaware,
other than any conflicts or choice of law rule or principle that might
otherwise refer construction or interpretation of this Plan and the instruments
evidencing the Awards granted hereunder to the substantive laws of any other
jurisdiction.

* * *

- 23 -

 

     The Plan was amended and restated in connection with the Company’s initial
public offering. Prior to this amendment and restatement, the Plan was known
as the CapitalSource Holdings LLC Amended and Restated 2000 Equity Incentive
Plan and awards under the Plan related to units of CapitalSource Holdings, LLC.

     To record adoption of the amendment and restatement of the Plan by the
Board as of          , 2003, and approval of the amendment and restatement of
the Plan by the stockholders on          , 2003, the Company has caused its
authorized officer to execute the Plan.

	 	 	 	 	 
	 	 	
CAPITALSOURCE INC.
	 	 	
 
	 	 	
By:

Title:
	 	Steven A. Museles

Chief Legal
Officer and Secretary

- 24 -

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