Document:

Exhibit 10.1

 

TERMINATION AGREEMENT

 

This
Termination Agreement (this “Agreement”)
is entered into and made effective as of October 28, 2009 by and among FB
Bancorp, a California corporation (“FB Bancorp”),
First Business Bank, National Association, a national banking association (“First Business Bank”), 1st Pacific
Bancorp, a California corporation (“1st Pacific Bancorp”),
and 1st Pacific Bank of California, a California state-chartered bank and the
wholly-owned subsidiary of 1st Pacific Bancorp (“1st Pacific
Bank”), with reference to the following:

 

RECITAL

 

WHEREAS,
FB Bancorp, First Business Bank, 1st Pacific Bancorp and 1st Pacific Bank are
parties to an Agreement and Plan of Merger, dated as of July 16, 2009 (the
“Merger Agreement”) and desire to
terminate the Merger Agreement on the terms and conditions set forth herein;

 

NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth in
this Agreement, the parties agree as follows:

 

AGREEMENT

 

1.               Agreement
to Terminate.   FB
Bancorp, First Business Bank, 1st Pacific Bancorp and 1st Pacific Bank agree to
terminate the Merger Agreement by mutual agreement pursuant to Section 11.1.1
of the Merger Agreement, effective immediately. 
Notwithstanding anything herein to the contrary, the provisions of
Sections 11.2, 13.1, 13.2, 13.6, 13.9 and 13.10 of the Merger Agreement
and any other section of the Merger Agreement which, by its terms, relates
to post-termination rights or obligations, shall survive the termination of the
Merger Agreement and remain in full force.

 

2.               Release
of Claims. In consideration for its agreement to terminate
the Merger Agreement as set forth herein, each of FB Bancorp, First Business
Bank, 1st Pacific Bancorp and 1st Pacific Bank, on behalf of themselves, and
their respective officers, directors, employees, agents, representatives,
investors, shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, hereby fully and forever
release each other party and their respective, officers, directors, employees,
agents, representatives, investors, shareholders, administrators, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns,
from, and agree not to sue concerning, any claim, duty, obligation or cause of
action relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, that any of them may possess (other than claims for a
breach of an obligation under this Agreement) including but not limited to any
and all claims relating to, or arising from, the Merger Agreement.  FB Bancorp, First Business Bank, 1st Pacific
Bancorp and 1st Pacific Bank understand and agree that the release provided in
this Section 2  extends to all such
claims and/or potential claims, and that they hereby expressly waive all rights
with respect to all such claims
under California Civil Code section 1542, which provides as follows:

 

1

 

“A general release does not extend to claims which the
creditor does not know or suspect to exist in his or her favor at the time of
executing the release, which if known by him or her must have materially
affected his or her settlement with the debtor.”

 

3.               Press
Releases.  Attached as Exhibit A
is the mutually agreed upon joint press release of the parties relating to the
termination of the Merger Agreement. Each of FB Bancorp, First Business Bank,
1st Pacific Bancorp and 1st Pacific Bank will mutually agree on the issuance of
any other press release or public statements in respect of this Agreement and
the Merger Agreement terminated hereby and shall not issue any such press
release or any public statement prior to such mutual agreement, except as may
be required by applicable law.

 

4.               Definitions.  Capitalized terms used herein and not
otherwise defined shall have the same meaning as set forth in the Merger
Agreement.

 

5.               Governing
Law; Venue.  This
Agreement shall be governed by the laws of California, without giving effect to
its principles of conflicts of laws. The parties hereto agree that any
disputes, claims, disagreements, lawsuits, actions or controversies of any type
or nature whatsoever that, directly or indirectly, arise from or relate to this
Agreement, including, without limitation, claims relating to the inducement,
construction or performance of this Agreement, shall be brought in the state
superior courts located in San Diego County, California or Federal district
courts located in San Diego County, California, and the parties hereto agree
not to challenge the selection of that venue in any such proceeding for any
reason, including, without limitation, on the grounds that such venue is an
inconvenient forum.

 

6.               Counterparts.  This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement. A
facsimile or other electronic copy of a signature page shall be deemed to
be an original signature page.

 

IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the date first above written.

 

	
   

  	
  FB
  BANCORP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Nathan L. Rogge

  
	
   

  	
  Name:

  	
  Nathan
  L. Rogge

  
	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FIRST
  BUSINESS BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Nathan L. Rogge

  
	
   

  	
  Name:

  	
  Nathan
  L. Rogge

  
	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  1ST
  PACIFIC BANCORP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Ronald J. Carlson

  
	
   

  	
  Name:

  	
  Ronald
  J. Carlson

  
	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  1ST
  PACIFIC BANK OF CALIFORNIA

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Ronald J. Carlson

  
	
   

  	
  Name:

  	
  Ronald
  J. Carlson

  
	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  

 

2

 

Exhibit A

 

Draft Press Release

 

October 28, 2009 — San Diego,
CA - First Business Bank, N.A. (FBBN - OTC Bulletin Board) and 1st Pacific
Bancorp (NASDAQ: FPBN) today announced the termination of the Agreement and
Plan of Merger dated July 16, 2009, and the proposed merger transaction
contemplated therein.  Nathan Rogge, President of First Business Bank,
stated that “today’s economic and regulatory environment presented
unanticipated complications that could not be overcome, given the structure of
the transaction.”  The parties have begun to explore alternative
transactions that could be mutually beneficial.

 

First Business Bank is exclusively
focused on serving the special needs of professionals and small- and
medium-sized enterprises. Established in 2001, First Business Bank is dedicated
to providing businesses and professionals with simple, fast and effective
solutions. Experienced bankers deliver highly tailored financial solutions
while providing customers with educational and networking opportunities. For
more information, contact First Business Bank, N.A. at (858) 847-4780,
12265 El Camino Real, Suite 100, San Diego, CA 92130, or visit
the company’s website at www.fbbank.com.

 

1st Pacific Bank of California is a
San Diego community business bank. The bank offers a full complement of
business products and services to meet the financial needs of professional
firms, small- to mid-sized businesses, their owners and the employees who work
there. For additional information about 1st Pacific Bank, visit the company’s
website at www.1stpacbank.com.

 

Contacts: Rumpasri Chicharoen, First
Business Bank 858-847-4780

Ronald J. Carlson, Chairman,
President and CEO, 1st Pacific Bank of California 858-875-2005

 

Forward-Looking
Statements

 

This release may contain
forward-looking statements, which are included in accordance with the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995 and,
accordingly, the cautionary statements contained in 1st Pacific Bancorp’s
Annual Report on Form 10-K for the year ended Dec. 31, 2008 (See Item
I — Business, and Item 7 — Management’s Discussion and Analysis of Consolidated
Financial Condition and Results of Operations), and other filings with the
Securities and Exchange Commission or the Board of Governors of the Federal
Reserve System are incorporated herein by reference. These factors include, but
are not limited to: the effect of interest rate and currency exchange
fluctuations; competition in the financial services market for both deposits
and loans; the ability to efficiently incorporate acquisitions into current
operations; the ability of the two institutions to increase their customer
bases; the effect of regulatory and legislative action; and regional and
general economic conditions. Actual results and performance in future periods
may be materially different from any future results or performance suggested by
the forward-looking statements in this release. Such forward-looking statements
speak only as of the date of this release. First Business Bank and 1st Pacific
Bancorp expressly disclaim any obligation to update or revise any
forward-looking statements found herein to reflect any changes in their expectations
of results or any change in events.

 

3Exhibit
4.10

 

 

NOVARTIS CORPORATION

2001 STOCK INCENTIVE PLAN

FOR NORTH AMERICAN EMPLOYEES

 

(as amended and restated effective January 1,
2008)

 

1.                                      Purpose

 

The
Plan was originally established by Novartis Corporation, effective as of
January 1, 2001, and has subsequently been amended from time to time. The
purpose of the Plan is to provide a means through which the Company and its
Subsidiaries may attract able persons to enter and remain in the employ or in a
consulting relationship with the Company and its Subsidiaries and to provide a
means whereby they can acquire and maintain Stock ownership, or be paid
incentive compensation measured by reference to the value of Stock, thereby
strengthening their commitment to the welfare of the Company and its Subsidiaries
and promoting an identity of interest between shareholders of Novartis AG and
these employees, directors and consultants. So that the appropriate incentive
can be provided, the Plan provides for granting Incentive Stock Options,
Nonqualified Stock Options (including Tradable Options), Stock Appreciation
Rights, Restricted Stock Awards or any combination of the foregoing.

 

The
Plan, as amended and restated herein, is effective as of January 1, 2008,
and applies to any Eligible Person employed by a member of the Novartis Group
on or after that date.

 

2.                                      Definitions

 

The
following definitions shall be applicable throughout the Plan.

 

(a)                                  “ADS” means a
Novartis AG American Depositary Share, each of which represents one ordinary
share of Novartis AG, nominal value CHF 0.50 per share.

 

(b)                                 “Award” means,
individually or collectively, any Incentive Stock Option, Nonqualified Stock
Option, Stock Appreciation Right, Restricted Stock or Restricted Stock Unit
Award under the Plan.

 

(c)                                  “Award
Agreement” means the electronic or paper award notice or agreement, if any,
between the Company (or one of its Subsidiaries) and a Participant who was
granted an Award which defines rights and obligations of the parties with
respect to such Award in addition to those set forth in the Plan.

 

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

 

(e)                                  “Cause” means
the Company, a Subsidiary or any other member of the Novartis Group (as the
case may be) with which the Participant has an employment, consulting or other
contractual relationship having cause to terminate the Participant’s employment
or service with the Novartis Group in accordance with the provisions of any
existing employment, consulting or any other agreement between the Participant
and the Company, such Subsidiary or such other member of the Novartis Group (as
the case may be) or, in the absence of such an employment, consulting or other
agreement which

 

 

defines
or describes such cause, upon (i) the determination by the Company, such
Subsidiary or such other member of the Novartis Group (as the case may be) with
which the Participant has a relationship that the Participant has engaged,
during the performance of his duties to the Company, Subsidiary or such other
member of the Novartis Group, in significant acts or omissions constituting
dishonesty, willful misconduct or gross negligence relating to the business of
the Company, such Subsidiary or such other member of the Novartis Group.

 

(f)                                    “Change in
Control” shall, unless in the case of a particular award, the applicable Award
Agreement states otherwise, be deemed to occur if:

 

(i)                                     Novartis AG
enters into any agreement to engage in a transaction, the consummation of which
would result in any “person,” as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than (A) Novartis AG itself or any other member of the
Novartis Group, (B) any trustee or other fiduciary holding securities under an
employee benefit plan of Novartis AG or any other member of the Novartis Group
or (C) any combination of persons described in the foregoing clauses (A) and
(B)) becoming the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Novartis AG
representing thirty-three and one-third percent (33-1/3%) or more of the
combined voting power of the then outstanding securities of Novartis AG,
provided that such transaction actually does occur;

 

(ii)                                  the
corporation, partnership, limited liability company or other business
organization by which a Participant is employed ceases to be a member of the
Novartis Group (whether by reason of sale, spin-off, public offering or
otherwise), provided that in such
event, should the Participant be offered continued employment by the business
organization for a period of at least six (6) months following the date
the employer ceased being a member of the Novartis Group (the “Transition
Employment Period”) with compensation and benefits equal to or greater than the
Participant’s compensation and benefits immediately before the employer ceased
being a member of the Novartis Group, no Change in Control shall be deemed to
have occurred with respect to such Participant unless he or she remains
employed throughout the Transition Employment period or unless the
Participant’s employment earlier terminates due to retirement, death or
disability or is involuntarily terminated for reasons other than for Cause;

 

(iii)                               individuals who
constitute the Board of Directors of Novartis AG (the “Novartis Board”), and
any new director (other than a director designated by a person who has entered
into an agreement with Novartis AG to effect a transaction described in clause
(i), (iv) or (v) of this Section 2(f)) whose election by the
Novartis Board or nomination for election by the shareholders of Novartis AG
was approved by a vote of at least two-thirds (2/3) 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 (unless the
approval of the election or nomination for election of such new directors was
in connection with

 

2

 

an
actual or threatened election or proxy contest), cease for any reason to
constitute at least a majority thereof;

 

(iv)                              Novartis AG
enters into any agreement to engage in a transaction, the consummation of which
would result in, or the shareholders of Novartis AG approve, a merger or
consolidation of Novartis AG with any other corporation, and such merger or
consolidation actually does occur other than (a) a merger or consolidation
which would result in the voting securities of Novartis AG outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by converted into voting securities of the surviving entity)
more than fifty percent (50%) of the combined voting power of the voting
securities of Novartis AG or such surviving entity outstanding immediately
after such merger or consolidation or (b) a merger or consolidation
effected to implement a recapitalization of Novartis AG (or similar
transaction) in which no “person” (as defined above in (i), including the
exemptions thereto) acquires fifty percent (50%) or more of the combined voting
power of Novartis AG’s then outstanding securities; or

 

(v)                                 Novartis AG
enters into any agreement to engage in a transaction, the consummation of which
would result in, or the shareholders of Novartis AG approve, a complete
liquidation of Novartis AG or the sale or disposition by Novartis AG of all or
substantially all of the assets of Novartis AG or any transaction having a
similar effect, provided that
such liquidation, sale or disposition actually does occur.

 

(g)                                 “Code” means
the Internal Revenue Code of 1986, as amended. Reference in the Plan to any
section of the Code shall be deemed to include any amendments or successor
provisions to such section and any regulations under such section.

 

(h)                                 “Committee”
means the Policy (Stock) Committee of the Board or such other committee
appointed by the Board to administer the Plan.

 

(i)                                     “Company” means
Novartis Corporation, a New York corporation.

 

(j)                                     “Date of Grant”
means the date on which the granting of an Award is authorized or such other
date as may be specified in such authorization.

 

(k)                                  “Disability”
and “Disabled” shall have the meaning set forth in
Section 22(e)(3) of the Code.

 

(l)                                     “Eligible
Person” means (i) a person regularly employed in the United States or
Canada by the Company, a Subsidiary or any other member of the Novartis Group
(including any such person who is working in the United States on secundment or
other nonpermanent basis) who makes a significant contribution to the financial
results of any of the foregoing entities; (ii) a director of the Company
or a Subsidiary (including non-employee directors) or (iii) a consultant
to the Company or a Subsidiary.

 

3

 

(m)                               “Exchange Act”
means the Securities Exchange Act of 1934.

 

(n)                                 “Fair Market
Value” on a given date means (i) if the Stock is listed on a national
securities exchange in the United States, the closing sale price reported as
having occurred on the primary exchange with which the Stock is listed and
traded (currently the New York Stock Exchange) on such date, or, if there is no
such sale on that date, then on the last preceding date on which such a sale
was reported; (ii) if the Stock is not listed on any national securities
exchange but is quoted in the National Market System of the National
Association of Securities Dealers Automated Quotation System the trade price of
the last sale reported on such date, or, if there is no such sale on that date,
then on the last preceding date on which a sale was reported; or (iii) if
the Stock is not listed on a national securities exchange nor quoted in the National
Market System of the National Association of Securities Dealers Automated
Quotation System on a last sale basis, the amount determined by the Committee
to be the fair market value based upon a good faith attempt to value the Stock
accurately.

 

(o)                                 “Holder” means
a Participant who has been granted an Award.

 

(p)                                 “Incentive
Stock Option” means an Option granted by the Committee to a Participant under
the Plan which is designated by the Committee as an “incentive stock option”
within the meaning of Section 422 of the Code.

 

(q)                                 “Nonqualified
Stock Option” means an Option granted under the Plan which is not designated as
an Incentive Stock Option.

 

(r)                                    “Normal
Termination” means termination of employment or service with the Novartis
Group: (i) by the Participant with written approval of the Committee; or
(ii) by the member of the Novartis Group with which the Participant has an
employment, consulting or other contractual relationship without Cause. By way
of example, if a Participant terminates his/her employment or service with the
Novartis Group without the written approval of the Committee, such termination
is not a Normal Termination.

 

(s)                                  “Novartis AG”
means Novartis AG, the parent of the Company, the stock of which is traded on
the SWX Swiss Exchange and the ADSs of which are listed on the New York Stock
Exchange.

 

(t)                                    “Novartis
Group” means Novartis AG and each corporation, partnership, limited liability
company or other business organization (each a “Business Entity”) more than 50%
of the voting power of which is owned by Novartis AG either directly or
indirectly through one or more intermediate Business Entities more than 50% of
the voting power of each of which is owned either directly by Novartis AG or by
another such intermediate Business Entity.

 

(u)                                 “Option” means
an Award granted under Section 7 of the Plan.

 

(v)                                 “Option Period”
means the period described in Section 7(c).

 

4

 

(w)                               “Option Price”
means the exercise price set for an Option described in Section 7(a).

 

(x)                                   “Participant”
means an Eligible Person who has been selected by the Committee in its sole
discretion to participate in the Plan and to receive an Award pursuant to
Section 6.

 

(y)                                 “Plan” means
the Company’s 2001 Stock Incentive Plan, as amended from time to time, and as
amended and restated in this document.

 

(z)                                   “Restricted
Period” means, with respect to any share of Restricted Stock or any Restricted
Stock Unit, the period of time determined by the Committee during which such
Award is subject to the restrictions set forth in Section 9 of the Plan.

 

(aa)                            “Restricted
Stock” means shares of Stock issued or transferred to or on behalf of a
Participant subject to forfeiture and the other restrictions set forth in
Section 9 of the Plan.

 

(bb)                          “Restricted
Stock Award” means an Award of Restricted Stock or Restricted Stock Units
granted under Section 9 of the Plan.

 

(bb1)                    “Restricted Stock Unit”
means the potential right to acquire one share of Stock.

 

(cc)                            “Retirement”
means, except as set forth in an Award Agreement, a Participant’s termination
of employment from the Novartis Group for any reason other than Cause or such
other factors as the Committee may consider in its discretion after such
Participant has attained age 55 or older and completed 10 or more Years of
Service, or any other date approved by the Committee. Notwithstanding anything
in this Plan to the contrary, for purposes of any Restricted Stock Award
granted on or after February 4, 2004, and any Option granted on or after
January 1, 2009, no termination of employment from the Novartis Group will
constitute a “Retirement” without the consent of the Committee.

 

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

 

(ee)                            “Stock” means
ADSs or such other authorized shares of stock of Novartis AG as from time to
time may be authorized for use under the Plan.

 

(ff)                                “Stock
Appreciation Right” or “SAR” means an Award granted under Section 8 of the
Plan.

 

(gg)                          “Strike Price”
means the price set for an SAR described in Section 8(a).

 

(hh)                          “Subsidiary”
means any corporation or other legal entity that is organized in the United
States (including under the laws of any State) or Canada and more than 50% of
whose stock having general voting power (or, in the case of a legal entity other

 

5

 

than
a corporation, more than 50% of the voting interests in which) is owned,
directly or indirectly, by Novartis AG.

 

(ii)                                  “Tradable
Options” is defined in Section 7(i).

 

(jj)                                  “Years of
Service” has the meaning set forth under “Years of Vesting Service” in the
Pension Plan for Salaried Employees of Novartis Corporation; provided, however,
that no Years of Service shall be granted under this Plan for service with an
entity that is not part of the Novartis Group, or for an entity prior to it
becoming part of the Novartis Group unless the Committee approves the granting
of such service.

 

3.                                      Effective Date, Duration and Shareholder Approval

 

The
Plan is effective as of January 1, 2001.

 

The
expiration date of the Plan, after which no Awards may be granted hereunder,
shall be December 31, 2010; provided,
however, that the administration of the Plan shall continue in
effect until all matters relating to the payment of Awards previously granted
have been settled.

 

4.                                      Administration

 

The
Plan shall be administered by the Committee composed of at least three persons.
The majority of the members of the Committee shall constitute a quorum. The
acts of a majority of the members present at any meeting at which a quorum is
present or acts approved in writing by a majority of the Committee shall be
deemed the acts of the Committee.

 

Subject
to the provisions of the Plan, the Committee, in its sole discretion, shall
have exclusive power to:

 

(i)                                     Select the
Eligible Persons to participate in the Plan;

 

(ii)                                  Determine the
nature and extent of the Awards to be made to each Participant;

 

(iii)                               Determine the
time or times when Awards will be made to Eligible Persons;

 

(iv)                              Determine the
duration of each Restricted Period;

 

(v)                                 Determine the
conditions to which the payment of Awards may be subject;

 

(vi)                              Prescribe the
form of Award Agreement, if any, or other form or forms evidencing Awards; and

 

(vii)                           Cause records
to be established in which there shall be entered, from time to time as Awards
are made to Eligible Persons, the date of each Award, the number of Incentive
Stock Options, Nonqualified Stock Options,

 

6

 

SARs,
Restricted Stock Units and shares of Restricted Stock awarded by the Committee
to each Eligible Person, and the expiration date and the duration of any
applicable Restricted Period.

 

(viii)                        Modify existing
Awards as it determines to be appropriate and consistent with the Plan and
applicable law.

 

The
Committee shall have the authority, subject to the provisions of the Plan, to
establish, adopt, or revise such rules and regulations and to make all
such determinations relating to the Plan as it may deem necessary or advisable
for the administration of the Plan. The Committee’s interpretation of the Plan
or any documents evidencing Awards granted pursuant thereto and all decisions
and determinations by the Committee with respect to the Plan shall be final,
binding, and conclusive on all parties unless otherwise determined by the
Board.

 

5.                                      Grant of Awards; Shares Subject to the Plan

 

The
Committee may, from time to time, grant Awards of Options, Stock Appreciation
Rights, Restricted Stock Units or Restricted Stock, under the Plan to one or
more Eligible Persons; provided, however,
that:

 

(a)                                  Subject to
Section 11, the aggregate number of shares of Stock made subject to all
Awards may not exceed 120,000,000;

 

(b)                                 Such shares
shall be deemed to have been used in payment of Awards whether they are
actually delivered or the Fair Market Value equivalent of such shares is paid
in cash. In the event any Option, SAR not attached to an Option or Restricted
Stock Award, shall be surrendered, terminate, expire, or be forfeited, the
number of shares of Stock no longer subject thereto shall thereupon be released
and shall thereafter be available for new Awards under the Plan; and

 

(c)                                  Stock delivered
by the Company in settlement of Awards under the Plan may be authorized and
unissued Stock or Stock held in the treasury of Novartis AG or held by another
member of the Novartis Group or may be purchased on the open market or by
private purchase.

 

6.                                      Eligibility

 

Participation
shall be limited to Eligible Persons selected by the Committee.

 

7.                                      Stock Options

 

The
Committee is authorized to grant one or more Incentive Stock Options or
Nonqualified Stock Options to any Participant; provided,
however, that no Incentive Stock Options shall be granted to any
Participant who is not an employee of the Company or a Subsidiary. Each Option
so granted shall be subject to the following conditions or to such other
conditions as may be reflected in any applicable Award Agreement.

 

7

 

(a)                                  Option Price. The exercise
price (“Option Price”) per share of Stock for each Option shall be set by the
Committee at the time of grant but, with respect to Incentive Stock Options
shall not be less than the Fair Market Value of a share of Stock at the Date of
Grant.

 

(b)                                 Manner of
Exercise and Form of Payment. Options which have become
exercisable may be exercised by delivery of a notice of exercise to the
Committee or its designee, in a form prescribed by the Committee or its
designee, accompanied by payment of the Option Price. The Option Price shall be
payable by bank draft or certified personal check and/or shares of Stock valued
at the Fair Market Value at the time the Option is exercised (provided that such Stock has been held by
the Participant for at least six months) or, in the discretion of the
Committee, either (i) in other property having a fair market value on the
date of exercise equal to the Option Price, or (ii) by delivering to the
Committee a copy of irrevocable instructions to a stockbroker to deliver
promptly to the Company an amount of sale or loan proceeds sufficient to pay
the Option Price.

 

(c)                                  Vesting, Option
Period and Expiration. Options shall vest and become exercisable
in such manner and on such date or dates determined by the Committee, which
vesting shall take place no sooner than three years after the date of grant,
unless a shorter period is designated as provided in subparagraph
(d) below. Options shall be exercisable as soon as administratively
practicable following their vesting. Options shall expire after such period
(the “Option Period’) as may be determined by the Committee, which Option
Period (i) in the case of Incentive Stock Options shall be ten years and
(ii) in the case of Nonqualified Stock Options shall be ten years unless
the Committee shall specify a longer period than ten years in individual
circumstances, as determined by the Committee, on the basis of national tax law
other than U.S. law concerning the valuation of the Option at grant and on the
resulting tax liability of the Participant), which different period shall not
affect the terms and conditions of any such Option other than with respect to
the Option Period. If an Option is exercisable in installments, such
installments or portions thereof which become exercisable shall remain
exercisable until the Option expires. Unless otherwise stated in the applicable
Option Award Agreement or unless otherwise extended in the exercise of its
discretion by the Committee, the Option shall expire earlier than the end of
the Option Period in the following circumstances:

 

(i)                                If prior to the
end of the Option Period, the Holder shall undergo a Normal Termination, the
Option shall expire on the earlier of the last day of the Option Period or the
date that is ninety days after the date of such Normal Termination. In such
event, the Option shall remain exercisable by the Holder until its expiration,
only to the extent the Option was exercisable at the time of such Normal
Termination.

 

(ii)                             For Options
granted prior to February 4, 2003, if the Holder dies or the Holder’s
employment with the Novartis Group is terminated by reason of Retirement prior
to the end of the Option Period and while still in the employ or service of the
Company, a Subsidiary or another member of the Novartis Group, or within thirty
days of Normal Termination, such Holder becomes Disabled, the

 

8

 

Option
shall become 100% vested and nonforfeitable and shall expire on the earlier of
the last day of the Option Period or the date that is (i) one year with
respect to an Incentive Stock Option and (ii) three years with respect to
a Nonqualified Stock Option after the date of death, Disability or Retirement
of the Holder. In the event of death, the Option shall remain exercisable by
the person or persons to whom the Holder’s rights under the Option pass by will
or the applicable laws of descent and distribution until its expiration, only
to the extent the Option was exercisable by the Holder at the time of death.

 

(iii)                          If the Holder
ceases employment or service with all members of the Novartis Group for reasons
other than Normal Termination, death, Disability or Retirement, the Option
shall expire immediately upon such cessation of employment or service.

 

(iv)                         Notwithstanding
anything in the Plan to the contrary, for Options granted on or after
February 4, 2003, if a Holder’s employment with all members of the
Novartis Group is terminated by reason of death, Disability or Retirement
(approved by the Committee as provided in Section 2(cc) for Options
granted on or after January 1, 2009) prior to the end of the Option
Period, the Option shall become 100% vested and nonforfeitable and shall expire
on the last day of the Option Period.

 

(v)                            Notwithstanding
anything in the Plan to the contrary, for Options granted on or after
February 1, 2006, if a Holder’s employment with all members of the
Novartis Group is terminated by reason of Normal Termination, and within thirty
days of such Normal Termination such Holder becomes Disabled, the Option shall
become 100% vested and nonforfeitable and shall expire on the last day of the
Option Period.

 

(d)                                 Discretionary
Authority. Notwithstanding any vesting dates or exercise
periods set by the Committee, the Chairman of the Board of the Company may, in
his sole discretion, accelerate the exercisability of any Option, delay or
defer the expiration of any Option (but not beyond its original Option Period)
or, in the case of any Nonqualified Stock Option, set a different Option Period
which may be longer or shorter than ten years, which actions shall not affect the
terms and conditions of any such Option other than with respect to
exercisability, expiration and/or the Option Period applicable thereto.

 

(e)                                  Other Terms and
Conditions. An Option granted under the Plan may be evidenced
by an Award Agreement, which may contain such provisions as may be determined
by the Committee and, except as may be specifically stated otherwise in such
Award Agreement, such Option shall be subject to the following terms and
conditions:

 

(i)                                Each Option
issued pursuant to this Section 7 or portion thereof that is exercisable
shall be exercisable for the full amount or for any part thereof, subject to
any limitations that may be imposed on the partial exercise in the discretion
of the Committee to reflect the need for administrative convenience.

 

9

 

(ii)                             Each ADS
purchased through the exercise of an Option issued pursuant to this
Section 7 shall be paid for in full at the time of the exercise. Each
Option shall cease to be exercisable, as to any share of Stock, when the Holder
purchases the share or exercises a related SAR or when the Option expires.

 

(iii)                          Subject to
Sections 7(i) and 10(k), Options issued pursuant to this Section 7
shall not be transferable by the Holder except by will or the laws of descent
and distribution and shall be exercisable during the Holder’s lifetime only by
him.

 

(iv)                         Each Option
issued pursuant to this Section 7 shall vest and become exercisable by the
Holder in accordance with the vesting schedule established by the Committee and
set forth in the Award Agreement, consistent with the requirements of
subparagraph(c) above.

 

(v)                            Any Award
Agreement may contain a provision that, upon demand by the Committee for such a
representation, the Holder shall deliver to the Committee at the time of any
exercise of an Option issued pursuant to this Section 7 a representation
in the form prescribed by the Committee that the shares to be acquired upon
such exercise are to be acquired for investment and not for resale or with a
view to the distribution thereof. Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of an
Option issued pursuant to this Section 7 shall be a condition precedent to
the right of the Holder or such other person to purchase any shares. In the
event certificates for Stock are delivered under the Plan with respect to which
such investment representation has been obtained, the Committee may cause a
legend or legends to be placed on such certificates to make appropriate
reference to such representation and to restrict transfer in the absence of
compliance with applicable federal or state securities laws.

 

(vi)                         Any Incentive
Stock Option Award Agreement shall contain a provision requiring the Holder to
notify the Company in writing immediately after the Holder makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of
such Incentive Stock Option. A disqualifying disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after
the Date of Grant of the Incentive Stock Option or (b) one year after the
date the Holder acquired the Stock by exercising the Incentive Stock Option.

 

(f)                                    Incentive Stock
Option Grants to 10% Shareholders.  Notwithstanding
anything to the contrary in this Section 7, if an Incentive Stock Option
is granted to a Holder who owns stock representing more than ten percent of the
voting power of all classes of stock of Novartis AG or of a Subsidiary, the
Option Period shall not exceed five years from the Date of Grant of such Option
and the Option Price shall be at least 110 percent of the Fair Market Value (on
the Date of Grant) of the Stock subject to the Option.

 

10

 

(g)                                 $100,000 Per
Year Limitation for Incentive Stock Options. To the extent the
aggregate Fair Market Value (determined as of the Date of Grant) of Stock for
which Incentive Stock Options are exercisable for the first time by any
Participant during any calendar year (under all plans of the Company and its
Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.

 

(h)                                 Voluntary
Surrender. The Committee may permit the voluntary surrender
of all or any portion of any Nonqualified Stock Option issued pursuant to this
Section 7 and its corresponding SAR, if any, granted under the Plan to be
conditioned upon the granting to the Holder of a new Option for the same or a
different number of shares as the Option surrendered or require such voluntary
surrender as a condition precedent to a grant of a new Option to such
Participant. Such new Option shall be exercisable at an Option Price, during an
Option Period, and in accordance with any other terms or conditions specified
by the Committee at the time the new Option is granted, all determined in
accordance with the provisions of the Plan without regard to the Option Price,
Option Period, or any other terms and conditions of the Nonqualified Stock
Option surrendered.

 

(i)                                     Tradable
Options. The Committee may grant Nonqualified Stock Options that the Holder
may sell on or after the date such Options become vested to a Market Maker in
accordance with procedures established from time to time by the Committee and
by the Market Maker. For purposes of this Section 7(i), the term “Market
Maker” shall mean UBS Warburg, or any other entity identified from time to time
by the Committee. Upon the sale by a Holder of such Options to the Market
Maker, and notwithstanding any other provision of this Plan to the contrary,
such Options shall not expire until the last day of the Option Period.

 

8.                                      Stock Appreciation Rights

 

Any
Option granted under the Plan may include SARs, either at the Date of Grant or,
except in the case of an Incentive Stock Option, by subsequent amendment. The
Committee also may award SARs to Eligible Persons independent of any Option. An
SAR shall confer on the Holder thereof the right to receive in shares of Stock,
cash or a combination thereof the value equal to the excess of the Fair Market
Value of one share of Stock on the date of exercise over the Strike Price of
the SAR, with respect to every share of Stock for which the SAR is granted. An
SAR shall be subject to such terms and conditions not inconsistent with the
Plan as the Committee shall impose, including, but not limited to, the
following:

 

(a)                                  Strike Price. The Strike
Price per share of Stock for which an SAR is granted shall be set by the
Committee at the time of grant, but (i) with respect to an SAR granted in
connection with an Option the Strike Price shall be equal to the Option Price
of such Option and (ii) with respect to an SAR granted independently of an
Option, the Strike Price shall not be less than 100% of the Fair Market Value
of a share of Stock at the Date of Grant.

 

(b)                                 Vesting. SARs granted
in connection with an Option shall become exercisable, be transferable and
shall expire according to the same vesting schedule,

 

11

 

transferability
rules and expiration provisions as the corresponding Option. An SAR
granted independently of an Option shall become exercisable, be transferable
and shall expire in accordance with a vesting schedule, transferability
rules and expiration provisions as established by the Committee and
reflected in an Award Agreement.

 

(c)                                  Automatic
Exercise. If on the last day of the Option Period (or in the
case of an SAR granted independently of an Option, the period established by
the Committee after which the SAR shall expire), the Fair Market Value of the
Stock exceeds the Strike Price, the Holder has not exercised the SAR or the
corresponding Option (if any), and neither the SAR nor the corresponding Option
(if any), has expired, such SAR shall be deemed to have been exercised by the
Holder on such last day and the Company shall make the appropriate payment
therefor.

 

(d)                                 Payment. Upon the
exercise of an SAR, the Company shall pay to the Holder an amount equal to the
number of shares subject to the SAR multiplied by the excess, if any, of the
Fair Market Value of one share of Stock on the exercise date over the Strike
Price. The Company shall pay such excess in cash, in shares of Stock valued at
Fair Market Value, or any combination thereof, as determined by the Committee.
Fractional shares shall be settled in cash.

 

(e)                                  Method of
Exercise. A Holder may exercise an SAR after such time as
the SAR vests by filing an irrevocable notice with the Committee or its
designee, in a form prescribed by the Committee or its designee, specifying the
number of SARs to be exercised, and the date on which such SARs were awarded.

 

(f)                                    Expiration. Each SAR
shall cease to be exercisable, as to any share of Stock, when the Holder
exercises the SAR or exercises a related Option, with respect to such share of
Stock. An SAR shall expire ten years after its Date of Grant, unless the
Committee shall specify a shorter period.

 

(g)                                 Deferral of
Proceeds. To the extent permitted under the terms of a
nonqualified deferred compensation plan maintained by the Company or a
Subsidiary, a Participant may defer the proceeds of the exercise of an SAR
under such deferred compensation plan.

 

9.                                      Restricted Stock and Restricted Stock Unit Awards

 

(a)                                  Award of
Restricted Stock and Restricted Stock Units.

 

(i)                                     The Committee
shall have the discretion and authority (1) to grant Restricted Stock and
Restricted Stock Units, (2) to issue or transfer Restricted Stock and
Restricted Stock Units to Eligible Persons, and (3) to establish terms,
conditions and restrictions applicable to such Restricted Stock and Restricted
Stock Units, including the Restricted Period, which may differ with respect to
each grantee, the time or times at which Restricted Stock or Restricted Stock
Units shall be granted or become vested, the number of shares or units to be
covered by each grant and the consideration, if any, required to be paid by a
Participant for an award of Restricted Stock or Restricted Stock Units.

 

12

 

(ii)                                  The Holder of a
Restricted Stock Award shall execute and deliver to the Company (or acknowledge
by electronic means) any Award Agreement issued with respect to the Restricted
Stock and Restricted Stock Units setting forth the restrictions applicable to
such Restricted Stock and Restricted Stock Units. If the Committee determines
that the Restricted Stock shall be held in escrow rather than delivered to the
Holder or held in a brokerage account by the Company (or in such other form as
the Committee determines to be appropriate) pending the release of the
applicable restrictions, the Holder additionally shall execute and deliver to
the Company (1) an escrow agreement satisfactory to the Committee, and
(2) the appropriate blank stock powers with respect to the Restricted
Stock covered by such agreements. If a Holder shall fail to execute or
acknowledge by electronic means any required Restricted Stock Award Agreement
and, if applicable, an escrow agreement and stock powers, the Award shall be
null and void. Subject to the restrictions set forth in Section 9(b), the
Holder shall generally have the rights and privileges of a shareholder as to
such Restricted Stock, including the right to vote such Restricted Stock. If
Novartis AG, the Company or a Subsidiary holds Stock relating to Restricted
Stock Units that have been granted under this Plan, the Company may permit the
Holder of a Restricted Stock Unit to express his/her preference as to how a
proportionate amount of such Stock should be voted in any matter for which
shareholders have a right to vote; provided, however, that such expressed
preference shall be advisory only and the legal owner of such Stock shall be
under no obligation to follow such expressed preference. At the discretion of
the Committee, cash dividends (or cash dividend equivalents) and stock
dividends with respect to the Restricted Stock and Restricted Stock Units may
be either currently paid to the Holder, withheld by Novartis AG for the
Holder’s account or issued as additional Restricted Stock Units, and interest may
be paid on the amount of cash dividends withheld at a rate and subject to such
terms as determined by the Committee. Cash dividends (or cash dividend
equivalents) or stock dividends so withheld by the Committee shall not be
subject to forfeiture. Only Holders who are Eligible Persons on the date on
which the dividend (or cash dividend equivalents) payments are to be made,
withheld or issued, as the case may be, are eligible to receive the dividend
(or cash dividend equivalents).

 

(iii)                               Upon the Award
of Restricted Stock, the Committee may cause a Stock certificate registered in
the name of the Holder to be issued and, if it so determines, deposited
together with the Stock powers with an escrow agent designated by the
Committee. If an escrow arrangement is used, the Committee shall cause the
escrow agent to issue to the Holder a receipt evidencing any Stock certificate
held by it registered in the name of the Holder. The Committee may also elect
to hold such Restricted Stock in such form as it determines to be appropriate.

 

(b)                                 Restrictions.

 

(i)                                     Restricted
Stock and Restricted Stock Units awarded to a Participant shall be subject to
the following restrictions until the expiration of the

 

13

 

Restricted
Period, and to such other terms and conditions as may be set forth in any
applicable Award Agreement: (1) if an escrow arrangement is used, the
Holder shall not be entitled to delivery of any Stock certificate; (2) the
shares of Restricted Stock shall be subject to the restrictions on
transferability set forth in the Award Agreement; and (3) the shares or
units shall be subject to forfeiture to the extent provided in subparagraph
(d) below and in the Award Agreement and, to the extent such shares of
Restricted Stock are forfeited, any Stock certificates that have been issued
shall be returned to the Company, and all rights of the Holder to such shares
and as a shareholder shall terminate without further obligation on the part of
the Company.

 

(ii)                                  The Committee
shall have the authority to remove any or all of the restrictions on the
Restricted Stock or Restricted Stock Units whenever it may determine that, by
reason of changes in applicable laws or other changes in circumstances arising
after the date of the Restricted Stock Award, such action is appropriate.

 

(c)                                  Restricted
Period. The Restricted Period of Restricted Stock and Restricted Stock Units
shall commence on the Date of Grant and shall expire from time to time as to
that part of the Restricted Stock and Restricted Stock Units indicated in a
schedule established by the Committee and set forth in any Award Agreement.

 

(d)                                 Forfeiture
Provisions. If a Holder’s employment with the Company and all
members of the Novartis Group is terminated by reason of death, Disability or
Retirement (as approved by the Committee as provided in Section 2(cc)),
all restrictions on the Award shall expire. Except to the extent determined by
the Committee and reflected in the underlying Award Agreement, in the event a
Holder’s employment with the Company and all members of the Novartis Group is
terminated (either by the Holder or by the Company) during a Restricted Period
for any reason other than death, Disability or Retirement, that portion of the
Award with respect to which restrictions have not expired shall be completely
forfeited.

 

(e)                                  Delivery of
Stock. Upon the expiration of the Restricted Period with respect to any
shares of Restricted Stock and Restricted Stock Units covered by a Restricted
Stock Award, the restrictions set forth in Section 9(b) and any Award
Agreement shall be of no further force or effect with respect to shares of
Restricted Stock and Restricted Stock Units which have not then been forfeited.
With respect to Restricted Stock, unless the Holder has made a proper and
timely deferral election under Section 9(h) below, the Committee will
hold (net of any tax withholding) shares of Stock in a brokerage account in the
name of the Holder or his beneficiary (or will hold such stock in such other
form as the Committee determines to be appropriate) until the Holder or his
beneficiary provides direction regarding the delivery of such shares of Stock.
If an escrow arrangement is used for shares of Restricted Stock, upon such
expiration, the Company shall deliver to the Holder, or his beneficiary,
without charge, the shares of Restricted Stock which have not then been
forfeited and with respect to which the Restricted Period has expired (to the
nearest full share) and any cash dividends or Stock dividends credited to the
Holder’s account with respect to such Restricted Stock and the

 

14

 

interest
thereon, if any. With respect to Restricted Stock Units, unless a Holder has
made a proper and timely deferral election under Section 9(f) or
Section 9(h) below, the Company shall credit (net of any tax
withholding) shares of Stock reflecting the number of Restricted Stock Units
which have not then been forfeited and to which the Restricted Period has
expired to a brokerage account in the name of the Holder or his beneficiary (or
hold such shares in such other form as the Committee determines to be
appropriate) until the Holder or his beneficiary provides direction regarding
the delivery of such shares of Stock.

 

(f)                                    Deferral of
Restricted Stock Units. The Restricted Stock Award may permit the
Holder of Restricted Stock Units to request the deferral of payment of vested
Restricted Stock Units to a date later than the payment date specified in the
Award. The Committee will determine any terms and conditions, including the
timing of such election, of such deferral.

 

(g)                                 Stock
Restrictions. To the extent a certificate is issued representing
Restricted Stock awarded under the Plan, each such certificate shall bear the
following legend until the end of the Restricted Period with respect to such
Stock:

 

(i)                                “Transfer of
this certificate and the shares represented hereby is restricted pursuant to
the terms of a Restricted Stock Agreement, dated as of
                      ,
between Novartis Corporation and a copy of such Agreement is on file at the
offices of the Company at 608 Fifth Avenue New York, New York 10020.”

 

(ii)                             Stop transfer
orders shall be entered with Novartis AG’s transfer agent and registrar against
the transfer of legended securities.

 

(h)                            Deferral of
Proceeds. To the extent permitted under the terms of a nonqualified
deferred compensation plan maintained by the Company or a Subsidiary, for
Restricted Stock or Restricted Stock Units granted on or after February 4,
2004, the Participant may defer the proceeds of any transfer of such Restricted
Stock or Restricted Stock Units under such nonqualified plan.

 

10.                               General

 

(a)                             Additional
Provisions of an Award. Awards under the Plan also may be subject
to such other provisions (whether or not applicable to the benefit awarded to
any other Participant) as the Committee determines appropriate including,
without limitation, provisions to assist the Participant in financing the
purchase of Stock upon the exercise of Options, provisions for the forfeiture
of or restrictions on resale or other disposition of shares of Stock acquired
under any Award, provisions giving the Company the right to repurchase shares
of Stock acquired under any Award in the event the Participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal and state tax withholding requirements. Any such
provisions shall be reflected in the applicable Award agreement. The Committee
shall not be required to provide uniform terms for Awards to all Participants
and, in determining the provisions to

 

15

 

be
included in Awards made to any Participant, may take into account such
considerations as it considers reasonable or appropriate (which, without
limitation, may include tax considerations related to such Participant’s
residence or nationality).

 

(b)                            Privileges of
Stock Ownership. Except as otherwise specifically provided in the
Plan, no person shall be entitled to the privileges of stock ownership in
respect of shares of Stock which are subject to Awards hereunder until such
shares have been issued to that person.

 

(c)                             Government and
Other Regulations. The obligation of the Company to make payment of
Awards in Stock or otherwise shall be subject to all applicable laws, rules,
and regulations, and to such approvals by governmental agencies as may be
required. Notwithstanding any terms or conditions of any Award to the contrary,
the Company shall be under no obligation to offer to sell or to sell and shall
be prohibited from offering to sell or selling any shares of Stock pursuant to
an Award unless such shares have been properly registered for sale pursuant to
the Securities Act with the Securities and Exchange Commission or unless the Company
has received an opinion of counsel, satisfactory to the Company, that such
shares may be offered or sold without such registration pursuant to an
available exemption therefrom and the terms and conditions of such exemption
have been fully complied with. The Company shall be under no obligation to
register for sale under the Securities Act any of the shares of Stock to be
offered or sold under the Plan. If the shares of Stock offered for sale or sold
under the Plan are offered or sold pursuant to an exemption from registration
under the Securities Act, the Company may restrict the transfer of such shares
and may legend any Stock certificates representing such shares in such manner
as it deems advisable to ensure the availability of any such exemption.

 

(d)                            Tax Withholding.
Notwithstanding any other provision of the Plan, the Company or a Subsidiary,
as appropriate, shall have the right to deduct from all Awards cash and/or
Stock, valued at Fair Market Value on the date of payment, in an amount
necessary to satisfy all Federal, state or local taxes as required by law to be
withheld with respect to such Awards and, in the case of Awards paid in Stock,
the Holder or other person receiving such Stock may be required to pay to the
Company or a Subsidiary prior to delivery of such Stock, the amount of any such
taxes which the Company or a Subsidiary is required to withhold, if any, with
respect to such Stock. Subject in particular cases to the disapproval of the
Committee, the Company or a Subsidiary may accept shares of Stock of equivalent
Fair Market Value in payment of such withholding tax obligations if the Holder
of the Award elects to make payment in such manner.

 

(e)                             Claim to Awards
and Employment or Service Rights. No employee or other
person shall have any claim or right to be granted an Award under the Plan or,
having been selected for the grant of an Award, to be selected for a grant of
any other Award. Neither the Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any Participant any right to
be retained in the employ or service of the Company, a Subsidiary or any member
of the Novartis Group.

 

16

 

(f)                               Designation and
Change of Beneficiary. Each Participant may file with the
Committee a designation in a form prescribed by the Committee of one or more
persons as the beneficiary who shall be entitled to receive the rights or
amounts payable with respect to an Award due under the Plan upon his death. A
Participant may, from time to time, revoke or change his beneficiary
designation without the consent of any prior beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided,
however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant’s death,
and in no event shall it be effective as of a date prior to such receipt. If no
beneficiary designation is filed by the Participant, the beneficiary shall be
deemed to be his or her spouse or, if the Participant is unmarried at the time
of death, his or her estate.

 

(g)                            Payments to
Persons Other Than Participants. If the Committee shall
find that any person to whom any amount is payable under the Plan is unable to
care for his affairs because of illness or accident, or is a minor, or has
died, then any payment due to such person or his estate (unless a prior claim
therefor has been made by a duly appointed legal representative) may, if the
Committee so directs the Company, be paid to his spouse, child, relative, an
institution maintaining or having custody of such person, or any other person
deemed by the Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge
of the liability of the Committee and the Company therefor.

 

(h)                            No Liability of
Committee Members. No member of the Committee shall be personally
liable by reason of any contract or other instrument executed by such member or
on his behalf in his capacity as a member of the Committee nor for any mistake
of judgment made in good faith, and the Company shall indemnify and hold
harmless each member of the Committee and each other employee, officer or
director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including
any sum paid in settlement of a claim) arising out of any act or omission to
act in connection with the Plan unless arising out of such person’s own fraud
or willful bad faith; provided, however,
that approval of the Board shall be required for the payment of any amount in
settlement of a claim against any such person. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company’s Articles of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.

 

(i)                                Governing Law. The Plan
shall be governed by and construed in accordance with the internal laws of the
State of New York without regard to the principles of conflicts of law thereof.

 

(j)                                Funding. No provision
of the Plan shall require the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust
or other entity to which contributions are made or otherwise to segregate any
assets, nor shall the Company maintain separate bank accounts, books, records
or

 

17

 

other
evidence of the existence of a segregated or separately maintained or
administered fund for such purposes. Holders shall have no rights under the
Plan other than as unsecured general creditors of the Company, except that
insofar as they may have become entitled to payment of additional compensation
by performance of services, they shall have the same rights as other employees
under general law.

 

(k)                             Nontransferability. A person’s
rights and interest under the Plan, including amounts payable, may not be sold,
assigned, donated, or transferred or otherwise disposed of, mortgaged, pledged
or encumbered (including, but not limited to, pursuant to a “domestic relations
order” (as that term is defined in Code Section 414(p)(1)(B))) except, in
the event of a Holder’s death, to a designated beneficiary to the extent
permitted by the Plan, or in the absence of such designation, by will or the
laws of descent and distribution; provided,
however, the Committee may, in its sole discretion, allow in an
Award Agreement for transfer of Awards other than Incentive Stock Options to
other persons or entities as long as such transferability does not adversely
impact the ability of Novartis AG to register the Stock underlying Awards
pursuant to the Securities Act.

 

(l)                                Reliance on
Reports. Each member of the Committee and each member of the Board shall be
fully justified in relying, acting or failing to act, and shall not be liable
for having so relied, acted or failed to act in good faith, upon any report
made by the independent public accountant of the Company and its Subsidiaries
and upon any other information furnished in connection with the Plan by any
person or persons other than himself.

 

(m)                          Relationship to
Other Benefits. No payment under the Plan shall be taken into
account in determining any benefits under any pension, retirement, profit
sharing, group insurance or other benefit plan of the Company except as
otherwise specifically provided in such other plan.

 

(n)                            Expenses. The expenses
of administering the Plan shall be borne by the Company.

 

(o)                            Pronouns. Masculine
pronouns and other words of masculine gender shall refer to both men and women.

 

(p)                            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.

 

11.                               Changes in Capital Structure

 

Awards
granted under the Plan and any Award Agreements shall be subject to equitable
adjustment or substitution, as determined by the Committee in its sole
discretion, as to the number, price or kind of a share of Stock or other
consideration subject to such Awards (i) in the event of changes in the
outstanding ADS or in the capital structure of Novartis AG by reason of stock
dividends, stock splits, reverse stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring

 

18

 

after
the Date of Grant of any such Award, (ii) in the event of any change in
applicable laws or any change in circumstances which results in or would result
in any substantial dilution or enlargement of the rights granted to, or
available for, Participants in the Plan, or (iii) upon the occurrence of
any other event which otherwise warrants equitable adjustment because it
interferes with the intended operation of the Plan. In addition, in the event
of any such corporate or other event, the aggregate number of shares of Stock
available under the Plan shall be appropriately adjusted by the Committee,
whose determination shall be conclusive. The Company shall give each
Participant notice of an adjustment hereunder and, upon notice, such adjustment
shall be conclusive and binding for all purposes.

 

Notwithstanding
the above, in the event of any of the following: (i) Novartis AG is merged
or consolidated with another corporation or entity and, in connection
therewith, consideration is received by shareholders of Novartis AG in a form
other than stock or other equity interests of the surviving entity;
(ii) all or substantially all of the assets of Novartis AG are acquired by
another person; (iii) the reorganization or liquidation of Novartis AG; or
the execution by Novartis AG of a written agreement to undergo an event
described in clauses (i), (ii) or (iii) above, then the Committee
may, in its sole discretion, cancel any outstanding Awards and pay to the
Holders thereof, in cash, the value of such Awards based upon the price per
share of Stock received or to be received by other shareholders of Novartis AG
in the event. The terms of this Section 11 may be varied by the Committee
in any particular Award agreement.

 

12.                               Change in Control

 

Except
to the extent stated otherwise in any individual Award Agreement, or except as
otherwise provided in the exercise of discretion by the Compensation Committee
of Novartis AG, upon the occurrence of a Change in Control (i) all
outstanding Options and freestanding SARs shall become immediately exercisable
in full and (ii) all restrictions with respect to outstanding shares of Restricted
Stock and Restricted Stock Units shall lapse.

 

13.                               Nonexclusivity of the Plan

 

Neither
the adoption of this Plan by the Board nor, if applicable, the submission of
this Plan to the shareholders of the Company or Novartis AG for approval shall
be construed as creating any limitations on the power of the Board to adopt
such other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under this Plan, and
such arrangements may be either applicable generally or only in specific cases.

 

14.                               Amendment and Termination

 

The
Board or the Committee may, at any time, or from time to time, amend,
terminates or suspend and, if suspended, reinstate, the Plan in whole or in
part in its sole discretion; provided that any such amendment shall be
contingent on obtaining the approval of the shareholders of the Company or
Novartis AG if the Committee determines that such approval is necessary to
comply with any requirement of law or rule of any stock exchange on which
the equity securities of Novartis AG are traded. The Board or the Committee may
not cancel, reduce or otherwise alter

 

19

 

outstanding
vested Awards in a manner adverse to a Participant unless it obtains the
express written consent of the affected individual Participant.

 

15.                               Canadian Participants

 

Addendum
A hereto shall apply at all times to Participants who are Canadian residents.

 

16.                               Code Section 409A

 

Anything
under the Plan to the contrary notwithstanding, to the extent applicable, it is
intended that the Plan shall comply with the provisions of Code
Section 409A and the Plan and all applicable Awards be construed and
applied in a manner consistent with this intent. In furtherance thereof, any amount
constituting a “deferral of compensation” under Treasury Regulation Section 1.409A-1(b)
that is payable to a Participant upon a separation from service of the
Participant (within the meaning of Treasury Regulation Section 1.409A-1(h))
(other than due to the Participant’s death), occurring while the Participant
shall be a “specified employee” (within the meaning of Treasury Regulation
Section 1.409A-1(i)) of the Novartis Group (as limited by Code Sections
414(b), (c), (m) and (o)), shall not be paid until the earlier of (x) the
date that is six months following such separation from service or (y) the date
of the Participant’s death following such separation from service.

 

17.                               Exclusive Provisions

 

This
Plan and any Award Agreement entered into with Participants contemplated by
this Plan and consistent with this Plan’s terms, contains the entire provisions
with respect to the subject matter hereof, and supercedes all prior
negotiations, instruments and oral understandings.

 

20

 

ADDENDUM A

ADDENDUM FOR CANADIAN PARTICIPANTS

 

Addendum
to The Novartis Corporation 2001 Stock Incentive Plan for North American
Employees, hereinafter, referred to as the “Plan”. The provisions of this
Addendum shall apply at all times to Canadian resident employees who are
eligible to participate in the Plan (hereinafter “Canadian Participants”).

 

With
respect to a Participant who is 55 or older with 10 or more Years of Service
and who separates from service with the Novartis Group prior to January 1,
2009 for reasons other than Cause, notwithstanding anything to the contrary in
Section 2(cc) above, consent of the Stock Committee in order for such
termination to be treated as a Retirement is not required.

 

With
respect to Section 5 of the Plan, the Stock Committee cannot unilaterally
decide to pay cash to a Canadian Participant exercising his/her Option and must
at all times deliver Stock to such Participant. The Canadian Participant, can
however, elect to receive the Fair Market Value equivalent of such Stock in
cash at the time of exercise.

 

With
respect to Section 7 of the Plan, the Option Price cannot be paid by a
Canadian Participant by the delivery or tender of Stock previously acquired
under the Plan or any other Novartis plan.

 

A
Canadian Participant who has received Stock in satisfaction of his/her Option
Award under the Plan cannot cause Novartis AG, or any corporation with which it
does not deal at arm’s length, to redeem, acquire or cancel the Stock delivered
by the Stock Committee on exercise of the Option.

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