Document:

Exhibit 10.121

 

MEDAREX, INC.

2005 EQUITY INCENTIVE PLAN

 

Section 1.               Purpose
of the Plan. The purpose of the Plan is to aid Medarex, Inc.
and any Participating Company in securing and retaining Directors, Officers,
Consultants, and other Employees and to motivate such persons to exert their
best efforts on behalf of the Participating Company Group.

 

Section 2.               Definitions
and Construction. Whenever used herein, the following terms shall have
their respective meanings set forth below:

 

(a)           “Affiliate” means (i) an
entity, other than a Parent Company, that directly, or indirectly through one
or more intermediary entities, controls the Company or (ii) an entity,
other than a Subsidiary Company, that is controlled by the Company directly or
indirectly through one or more intermediary entities. For this purpose, the
term “control” (including the term “controlled by”) means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of the relevant entity, whether through the ownership
of voting securities, by contract or otherwise; or shall have such other
meaning assigned such term for the purposes of registration on Form S-8
under the Securities Act.

 

(b)           “Award” means any
Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit,
Performance Share, Performance Unit, Deferred Stock Award, Other Stock-based
Award or Deferred Compensation Award granted under the Plan.

 

(c)           “Award Agreement” means a written
agreement between the Company and a Participant setting forth the terms,
conditions and restrictions of the Award granted to the Participant. An Award
Agreement may be an “Option Agreement,” a “Stock Appreciation Right Agreement,”
a “Restricted Stock Agreement,” a “Restricted Stock Unit Agreement,” a “Performance
Share Agreement,” a “Performance Unit Agreement,” a “Deferred Stock Award
Agreement,” a “Deferred Compensation Award Agreement” and such other cash
agreement or “Stock-based Award Agreement” containing such terms and conditions
as shall be determined by the Committee from time to time.

 

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

 

(e)           “Cashless Exercise” shall have the
meaning set forth in Section 6(d).

 

(f)            “Cause” shall have the
meaning set forth in Section 6(h).

 

(g)           “Change in Control” means, unless
otherwise defined by the Participant’s Award Agreement or contract of
employment or service, the occurrence of any of the following:

 

(i)            An acquisition (other than
directly from the Company) of any voting securities of the Company (the “Voting
Securities”) by any “Person” (as 

 

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the term “person” is used for purposes of Section 13(d) or
14(d) of the Exchange Act) immediately after which such Person has “Beneficial
Ownership” (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the combined voting power of the Company’s then
outstanding Voting Securities; provided, however,
that in determining whether a Change in Control has occurred, voting securities
which are acquired in a “Non-Control Acquisition” (as hereinafter defined)
shall not constitute an acquisition which would cause a Change in Control.

 

A “Non-Control Acquisition” shall mean an
acquisition of Voting Securities by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or (y) any
company or other Person of which a majority of its voting power or its equity
securities or equity interest is owned directly or indirectly by the Company (a
“Subsidiary”), (2) the Company or any Subsidiary, or (3) any Person
in connection with a Non-Control Transaction (as defined below);

 

(ii)           The individuals who, as of
the Effective Date, are members of the Board (the “Incumbent Board”), cease for
any reason to constitute at least 66 2/3% of the Board; provided,
however, that if the election, or nomination for election by the
Company’s shareholders, of any new director was approved by a vote of at least
66 2/3% of the Incumbent Board, such new director shall be considered as a
member of the Incumbent Board; provided, further, however, that no individual
shall be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened “Election
Contest” (as described in Rule 14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a “Proxy Contest”) including by reason
of any agreement intended to avoid or settle any Election Contest or Proxy
Contest; or

 

(iii)          Approval of the Company’s
shareholders of: (1) a merger, consolidation or reorganization involving
the Company, unless (i) the shareholders of the Company, immediately
before such merger, consolidation or reorganization, own, directly or
indirectly immediately following such merger, consolidation or reorganization,
at least 66 2/3% of the combined voting power of the outstanding Voting
Securities of the company resulting from such merger, consolidation or reorganization
(the “Surviving Company”) in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization, (ii) the individuals who were members of
the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least
66 2/3% of the members of the board of directors of the Surviving Company, and (iii) no
Person, other than the Company, any Subsidiary, any employee benefit plan (or
any trust forming a part thereof) maintained by the Company, the Surviving
Company or any subsidiary thereof, or any Person who, immediately prior to such
merger, 

 

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consolidation or reorganization had
Beneficial Ownership of 20% or more of the then outstanding Voting Securities
of the Company, has Beneficial Ownership of 20% or more of the combined voting
power of the Surviving Company’s then outstanding voting securities (a
transaction described in clause (i) through (iii) shall herein be
referred to as a “Non-Control Transaction”); (2) a complete liquidation or
dissolution of the Company; or (3) an agreement for the sale or other
disposition of all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).

 

Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by reducing the number
of Voting Securities outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition, the Subject Person becomes the Beneficial Owner of any additional
Voting Securities which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.

 

(h)           “Code” means the
Internal Revenue Code of 1986, as amended, and any applicable regulations
promulgated thereunder.

 

(i)            “Committee” means the
Company’s Compensation and Organization Committee and such other committee or
subcommittee of the Board, if any, duly appointed to administer the Plan and
having such powers in each instance as shall be specified by the Board. The
Committee shall have at least two members, each of whom shall be a “non-employee
director” as defined in Rule 16b-3 under the Exchange Act and an “outside
director” as defined in Section 162(m) of the Code and the
regulations thereunder, and, if applicable, meet the independence requirements
of the applicable stock exchange, quotation system or other self-regulatory
organization on which the Stock is traded. If, at any time, there is no
committee of the Board then authorized or properly constituted to administer
the Plan, the Board shall exercise all of the powers of the Committee granted
herein; provided, however, that all Awards
granted to “non-employee directors” as defined in Rule 16b-3 under the Exchange
Act must be granted by a committee comprised solely of “outside directors” as
defined in Section 162(m) of the Code.

 

(j)            “Company” means Medarex, Inc.,
a New Jersey corporation, or any successor company thereto.

 

(k)           “Consultant” means a person
engaged to provide consulting or advisory services (other than as an Employee
or a member of the Board) to a Participating Company, provided that the
identity of such person, the nature of such services or the entity to which
such services are provided would not preclude the Company from offering or
selling securities to such person pursuant to the Plan in reliance on
registration on a Form S-8 Registration Statement under the Securities
Act.

 

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(l)            “Covered Employee” shall have the
meaning given to such term in Section 162(m) of the Code.

 

(m)          “Deferral Period” shall have the
meaning set forth in Section 11(a).

 

(n)           “Deferred Compensation Award” means an award
granted to a Participant pursuant to Section 13 of the Plan.

 

(o)           “Deferred Stock Award” means an award
of Stock granted to a Participant pursuant to Section 11 of the Plan.

 

(p)           “Director” means a member
of the Board.

 

(q)           “Disability” means a
condition causing a Participant to be disabled within the meaning of Section 409A(a)(2)(C)
of the Code.

 

(r)            “Dividend Equivalent” means a credit,
made at the discretion of the Committee or as otherwise provided by the Plan,
to the account of a Participant in an amount equal to the cash dividends paid
on one share of Stock for each share of Stock represented by an Award held by
such Participant.

 

(s)           “Effective Date” means May 19,
2005.

 

(t)            “Elective Deferred Period” shall have the
meaning set forth in Section 11(b)(v).

 

(u)           “Employee” means any
person treated as an employee (including an Officer or a member of the Board
who is also treated as an employee) in the records of a Participating Company
and, with respect to any Incentive Stock Option granted to such person, who is
an employee for purposes of Section 422 of the Code; provided,
however, that neither service as a member of the Board nor payment
of a director’s fee shall be sufficient to constitute employment for purposes
of the Plan. For purposes of the Plan, the Committee shall determine in good
faith and in the exercise of its discretion whether an individual has become or
has ceased to be an Employee and the effective date of such individual’s
employment or termination of employment, as the case may be. For purposes of an
individual’s rights, if any, under the Plan as of the time of the Committee’s
determination, all such determinations by the Committee shall be final, binding
and conclusive, notwithstanding that the Committee or any court of law or
governmental agency subsequently makes a contrary determination.

 

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

 

(w)          “Fair Market Value” means, as of
any date, the value of a share of Stock or other property as determined by the
Committee, in its discretion, or by the Company, in its discretion, if such
determination is expressly allocated to the Company herein, subject to the
following:

 

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(i)            Except as otherwise
determined by the Committee, if, on such date, the Stock is listed on a national
or regional securities exchange or market system, the Fair Market Value of a
share of Stock shall be the closing price of a share of Stock (or the mean of
the closing bid and asked prices of a share of Stock if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, the Nasdaq SmallCap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant
date does not fall on a day on which the Stock has traded on such securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to the
relevant date, or such other appropriate day as shall be determined by the
Committee, in its discretion.

 

(ii)           Notwithstanding the
foregoing, the Committee may, in its discretion, determine the Fair Market
Value on the basis of the opening, closing, high, low or average sale price of
a share of Stock or the actual sale price of a share of Stock received by a
Participant, on such date or the trading day immediately preceding such date.
The Committee may vary its method of determination of the Fair Market Value as
provided in this Section for different purposes under the Plan.

 

(iii)          If, on such date, the Stock
is not listed on a national or regional securities exchange or market system,
the Fair Market Value of a share of Stock shall be as determined by the
Committee in good faith without regard to any restriction other than a
restriction which, by its terms, will never lapse.

 

(x)            “Full Value Award” means any of
the following types of Awards to the extent such Awards are settled in shares
of Stock:  Restricted Stock; Restricted
Stock Units; Performance Shares; Performance Units; Deferred Stock Awards;
Other Stock-based Awards; and Deferred Compensation Awards.

 

(y)           “Incentive Stock Option” means an Option
intended to be (as set forth in the Award Agreement) and which qualifies as an
incentive stock option within the meaning of Section 422(b) of the
Code.

 

(z)            “Insider” means an
Officer, a Director or any other person whose transactions in Stock are subject
to Section 16 of the Exchange Act.

 

(aa)         “Nonqualified Stock Option” means an Option
not intended to be (as set forth in the Award Agreement) or not qualifying as
an incentive stock option within the meaning of Section 422(b) of the
Code.

 

(bb)         “Officer” means any
person designated by the Board as an officer of the Company.

 

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(cc)         “Option” means the right
to purchase Stock at a stated price for a specified period of time granted to a
Participant pursuant to Section 6 of the Plan. An Option may be either an
Incentive Stock Option or a Nonqualified Stock Option.

 

(dd)         “Option Expiration Date” shall have the
meaning set forth in Section 6(f).

 

(ee)         “Other Stock-based Awards” means awards
that are valued in whole or in part by reference to or are otherwise based on
the Stock, including without limitation, convertible debentures, but excluding
Options, Restricted Stock Awards, Restricted Stock Units, Performance Awards,
Stock Appreciation Rights, Deferred Stock Awards and Deferred Compensation
Awards.

 

(ff)           “Parent Company” means any
present or future “parent company” of the Company, as defined in Section 424(e) of
the Code.

 

(gg)         “Participant” means any
eligible person under the Plan who has been granted one or more Awards.

 

(hh)         “Participating Company” means the
Company or any Parent Company, Subsidiary Company or Affiliate.

 

(ii)           “Participating Company Group” means, at any
point in time, all entities collectively which are then Participating
Companies.

 

(jj)           “Performance Award” means an Award
of Performance Shares or Performance Units.

 

(kk)         “Performance Award Formula” means, for any
Performance Award, a formula or table established by the Committee pursuant to Section 10
of the Plan which provides the basis for computing the value of a Performance
Award at one or more threshold levels of attainment of the applicable
Performance Goal(s) measured as of the end of the applicable Performance
Period.

 

(ll)           “Performance Goal” means a
performance goal established by the Committee pursuant to Section 10 of
the Plan.

 

(mm)       “Performance Measure” shall have the
meaning set forth in Section 10(d).

 

(nn)         “Performance Period” means a period
established by the Committee pursuant to Section 10(c) of the Plan at
the end of which one or more Performance Goals are to be measured.

 

(oo)         “Performance Share” means a
bookkeeping entry representing a right granted to a Participant pursuant to Section 10
of the Plan to receive a payment equal to the Fair Market Value of a share of
Stock, based upon a Performance Award Formula.

 

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(pp)         “Performance Targets” shall have the
meaning set forth in Section 10(d).

 

(qq)         “Performance Unit” means a
bookkeeping entry representing a right granted to a Participant pursuant to Section 10
of the Plan to receive a payment with an initial value of up to $100, as
determined by the Committee, based upon a Performance Award Formula.

 

(rr)           “Plan” means the
Company’s 2005 Equity Incentive Plan.

 

(ss)           “Predecessor
Plans” means each of the Company’s Amended and Restated 1991 Stock Option
Plan, 1992 Stock Option Plan, 1994 Stock Option Plan, 1995 Stock Option Plan,
1996 Stock Option Plan, Houston Biotechnology Incorporated Replacement Stock
Option Plan, Houston Biotechnology Incorporated 1994A Stock Option Plan, 1997
Stock Option Plan, 1999 Stock Option Plan, 2000 Stock Option Plan, 2000
Non-Director/Officer Employee Stock Option Plan, 2001 Non-Director/Officer
Employee Stock Option Plan, 2001 Stock Option Plan, and 2002 New Employee Stock
Option Plan.

 

(tt)           “Restricted Stock Award” means an Award
of Restricted Stock.

 

(uu)         “Restricted Stock” means Stock
granted to a Participant pursuant to Section 8 of the Plan.

 

(vv)         “Restricted Stock Unit” means a
bookkeeping entry representing a right granted to a Participant pursuant to Section 9
or Section 13 of the Plan, to receive a share of Stock on a date
determined in accordance with the provisions of Section 9 or Section 13
and the Participant’s Award Agreement.

 

(ww)       “Restriction Period” means the
period established in accordance with Section 8 of the Plan during which
shares subject to a Restricted Stock Award are subject to Vesting Conditions.

 

(xx)          “Retirement” means the
termination of a Participant’s Service by retirement as determined in
accordance with the Company’s then current employment policies and guidelines.

 

(yy)         “Rule 16b-3” means Rule 16b-3
under the Exchange Act, as amended from time to time, or any successor rule or
regulation.

 

(zz)          “SAR” or “Stock Appreciation Right” means a bookkeeping entry
representing, for each share of Stock subject to such SAR, a right granted to a
Participant pursuant to Section 7 of the Plan to receive payment of an
amount equal to the excess, if any, of the Fair Market Value of a share of
Stock on the date of exercise of the SAR over the exercise price.

 

(aaa)       “Section 162(m)” means Section 162(m) of
the Code.

 

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

 

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(ccc)       “Service” means a
Participant’s employment or service with the Participating Company Group,
whether in the capacity of an Employee, Officer, Director or Consultant. Unless
otherwise provided by the Committee, a Participant’s Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders such Service or a change in the Participating Company
for which the Participant renders such Service, provided that there is no
interruption or termination of the Participant’s Service. Furthermore, a Participant’s
Service shall not be deemed to have terminated if the Participant takes any
military leave, sick leave, or other bona fide leave of absence that is
approved by the Company and otherwise complies with the provisions of Section 14
of the Plan. A Participant’s Service shall be deemed to have terminated either
upon an actual termination of employment or service with the Participating
Company Group or upon the entity for which the Participant performs Service
ceasing to be a Participating Company. Subject to the foregoing, the Company,
in its discretion, shall determine whether the Participant’s Service has
terminated and the effective date of such termination.

 

(ddd)      “Spread” shall have the
meaning set forth in Section 21(a)(3).

 

(eee)       “Stock” means the
common stock of the Company, as adjusted from time to time in accordance with Section 4(c) of
the Plan.

 

(fff)         “Subsidiary Company” means any
present or future “subsidiary company” of the Company, as defined in Section 424(f) of
the Code.

 

(ggg)      “Ten Percent Owner” or “10% Owner”
means a Participant who, at the time an Option is granted to the
Participant, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of a Participating Company (other
than an Affiliate) within the meaning of Section 422(b)(6) of the
Code.

 

(hhh)      “Vesting Conditions” mean those
conditions established in accordance with Section 8 or Section 9 of
the Plan prior to the satisfaction of which shares subject to a Restricted
Stock Award or Restricted Stock Unit Award, respectively, remain subject to
forfeiture or a repurchase option in favor of the Company upon the Participant’s
termination of Service.

 

Captions
and titles contained herein are for convenience only and shall not affect the
meaning or interpretation of any provision of the Plan. Except when otherwise
indicated by the context, the singular shall include the plural and the plural
shall include the singular. Use of the term “or” is not intended to be
exclusive, unless the context clearly requires otherwise.

 

Section 3.               Administration.

 

(a)           The Plan shall be
administered by the Committee. All questions of interpretation of the Plan or
of any Award shall be determined by the Committee, and such determinations
shall be final and binding upon all persons having an interest in the Plan or
such Award. A majority of the whole Committee present at a meeting at which a
quorum is present, or an act approved in writing by all members of the
Committee, shall be an act of the Committee. The Committee shall have full
power and authority, subject to such resolutions not inconsistent with the
provisions of the Plan as may from time to time be issued or adopted by 

 

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the Board, to grant Awards to Participants,
pursuant to the provisions of the Plan. The Committee shall also interpret the
provisions of the Plan and any Award issued under the Plan (and any agreements
relating thereto) and supervise the administration of the Plan.

 

(b)           The Committee shall: (i) select
the Participants to whom Awards may from time to time be granted hereunder; (ii) determine
whether Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock Awards, Restricted Stock Units,
Performance Shares, Performance Units, Other Stock-based Awards, or Deferred
Compensation Awards, or a combination of the foregoing, are to be granted
hereunder; (iii) determine the number of shares of Stock to be covered by
each Award granted hereunder; (iv) determine the terms, conditions and
restrictions applicable to each Award (which need not be identical) and any
shares acquired pursuant thereto, including, without limitation, (A) the
exercise or purchase price of Stock purchased pursuant to any Award, (B) the
method of payment for Stock purchased pursuant to any Award, (C) the
method for satisfaction of any tax withholding obligation arising in connection
with any Award, including by the withholding or delivery of shares of Stock, (D) the
timing, terms and conditions of the exercisability or vesting of any Award or
any shares acquired pursuant thereto; provided, however,
that the exercisability or vesting of any Award may only be accelerated in the
event of death, Disability, Retirement or Change in Control, (E) the
Performance Award Formula and Performance Goals applicable to any Award and the
extent to which such Performance Goals have been attained, (F) the time of
the expiration of any Award, (G) the effect of the Participant’s
termination of Service on any of the foregoing, and (H) all other terms,
conditions and restrictions applicable to any Award or Stock acquired pursuant
thereto not inconsistent with the terms of the Plan; (v) determine
whether, to what extent and under what circumstances Awards may be settled in
cash; (vi) determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an Award under this Plan shall
be deferred either automatically or at the election of the Participant; and (vii) determine
whether, to what extent, and under what circumstances Option grants and/or
other Awards under the Plan are to be made, and operate, on a tandem basis.

 

(c)           The Chief Executive Officer
and the Chief Financial Officer or any other Officer designated by the
Committee shall have the authority to act on behalf of the Company with respect
to any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein. The Board or the
Committee may, in its discretion, delegate to a committee comprised of one or
more Officers the authority to grant one or more Awards, without further
approval of the Board or the Committee, to any Employee, other than a person
who, at the time of such grant, is an Insider; provided,
however, that (i) such Awards shall not be granted for shares
of Stock in excess of the maximum aggregate number of shares of Stock
authorized for issuance pursuant to Section 4, (ii) the exercise
price per share of each such Award which is an Option or Stock Appreciation
Right shall be not less than the Fair Market Value per share of the Stock on
the effective date of grant (or, if the Stock has not traded on such date, on
the last day preceding the effective date of grant on which the Stock was
traded), and (iii) each such Award shall be subject to the terms and
conditions of the appropriate standard form of Award Agreement approved by the
Board or the Committee and shall conform to the provisions of the Plan and such
other guidelines as shall be established from time to time by the Board or the
Committee.

 

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(d)           With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the
Exchange Act, the Plan shall be administered in compliance with the
requirements, if any, of Rule 16b-3.

 

(e)           No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Award thereunder.

 

Notwithstanding
the foregoing, without the affirmative vote of holders of a majority of the
shares of Stock cast in person or by proxy at a meeting of the shareholders of
the Company at which a quorum representing a majority of all outstanding shares
of Stock is present or represented by proxy, the Board shall not approve a
program providing for either (i) the cancellation of outstanding Options
or SARs and the grant in substitution therefore of new Options or SARs having a
lower exercise price or (ii) the amendment of outstanding Options or SARs
to reduce the exercise price thereof. This paragraph shall not be construed to
apply to “issuing or assuming a stock option in a transaction to which section
424(a) applies,” within the meaning of Section 424 of the Code.

 

Section 4.              Stock
Subject to the Plan; Individual Limitations on Awards.

 

(a)           Subject to adjustment as
provided in Sections 4(b) and 4(c) below, the maximum aggregate
number of shares of Stock that may be issued under the Plan shall be 21,000,000
shares and shall consist of (i) authorized but unissued shares, or (ii) reacquired
shares (treasury) of Stock, or (iii) any combination thereof.  The number of shares of Stock available for
issuance under the Plan shall be reduced by: (1) 1 share for each share of
stock issued pursuant to (A) an Option granted under Section 6, or (B) a
Stock Appreciation Right granted under Section 7 with respect to which the
strike price is at least one hundred percent (100%) of the Fair Market Value of
the underlying Stock on the date of grant; and (2) 1.60 shares for each share of Stock issued pursuant to a Full
Value Award (for purposes of clarification, a Full Value Award is any Award
other than an Option granted under Section 6 or a Stock Appreciation Right
granted under Section 7 with respect to which the strike price is at least
one hundred percent (100%) of the Fair Market Value of the underlying Stock on
the date of grant).

 

If an outstanding Award for any reason expires or is
terminated or canceled without having been exercised or settled in full, or if
shares of Stock acquired pursuant to an Award subject to forfeiture or
repurchase are forfeited or repurchased by the Company at the Participant’s
purchase price, the shares of Stock allocable to the terminated portion of such
Award or such forfeited or repurchased shares of Stock shall again be available
for issuance under the Plan. Shares of Stock shall not be deemed to have been
issued pursuant to the Plan with respect to any portion of an Award that is
settled in cash.  To the extent there is
issued a share of Stock pursuant to an Award that counted as  1.60
shares against the number of shares available for issuance under the
Plan and such share of Stock again becomes available for issuance under the
Plan pursuant to this Section 4(a), then the number of shares of Stock
available for issuance under the Plan shall increase by 1.60 shares.

 

If any shares subject to an Award are not delivered
to a Participant because such shares are withheld in satisfaction of tax
withholding obligations pursuant to Section 19, the 

 

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number
of shares that are not delivered to the Participant shall not remain available
for subsequent issuance under the Plan. If any shares subject to an Award are
not delivered to a Participant because the Award is exercised through a
reduction of shares subject to the Award (i.e., “net
exercised”), the number of shares that are not delivered to the Participant
shall not remain available for issuance under the Plan.  If the exercise price of any Award is
satisfied by tendering shares of Stock held by the Participant (either by
actual delivery or attestation), then the number of shares so tendered shall
not remain available for subsequent issuance under the Plan.

 

The maximum number of shares available for issuance
under the Plan shall not be reduced to reflect any dividends or dividend
equivalents that are reinvested into additional shares of Stock or credited as
additional Performance Shares. The maximum number of shares of Stock shall not
be reduced by the issuance of shares of Stock hereunder due to the assumption,
conversion or substitution of Awards made by an entity acquired by the Company.
For the purposes of computing the total number of shares of Stock granted under
the Plan, where one or more types of Awards, both of which are payable in
shares of Stock, are granted in tandem with each other, such that the exercise
of one type of Award with respect to a number of shares cancels an equal number
of shares of the other, the number of shares granted under both Awards shall be
deemed to be equivalent to the number of shares under one of the Awards.

 

(b)           The maximum aggregate number
of shares of Stock that may be issued under the Plan as set forth in Section 4(a) above
shall be cumulatively increased from time to time by:

 

(i)            the number of shares of
Stock authorized and remaining available for the future grant of options under
the Predecessor Plans as of the Effective Date; and

 

(ii)           the number of shares of
Stock subject to that portion of any option outstanding under a Predecessor
Plan as of the Effective Date which, on or after the Effective Date, expires or
is terminated or canceled for any reason without having been exercised.

 

Notwithstanding the foregoing, the aggregate number
of shares of Stock authorized for issuance under the Predecessor Plans that may
become authorized for issuance under the Plan pursuant to this Section 4(b) shall
not exceed 10,000,000 shares.

 

The Plan shall serve as the successor to the
Predecessor Plans, and no further option grants shall be made under the
Predecessor Plans. All options outstanding under the Predecessor Plans as of
the Effective Date shall, immediately upon the Effective Date, be incorporated
into the Plan and treated as outstanding Options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option. No provision of the Plan shall
be deemed to adversely affect or otherwise diminish the rights or obligations
of the holders of such incorporated options with respect to their acquisition
of shares of Stock which may exist under the terms of the Predecessor Plans
under which such incorporated option was issued. Subject to the rights of 

 

A-11

 

the
Participant under the incorporated option documents and Predecessor Plans, the
discretion delegated to the Committee hereunder may be exercisable with respect
to incorporated options to the same extent as it is exercisable with respect to
options originally granted under this Plan.

 

(c)           Subject to any required
action by the shareholders of the Company, in the event of any change in the
Stock effected without receipt of consideration by the Company, whether through
merger, consolidation, reorganization, reincorporation, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares, or similar
change in the capital structure of the Company, or in the event of payment of a
dividend or distribution to the shareholders of the Company in a form other
than Stock (excepting normal cash dividends) that has a material effect on the
Fair Market Value of shares of Stock, appropriate adjustments shall be made in
the number and kind of shares subject to the Plan and to any outstanding Awards
and in the exercise or purchase price per share under any outstanding Award in
order to prevent dilution or enlargement of Participants’ rights under the
Plan. For purposes of the foregoing, conversion of any convertible securities
of the Company shall not be treated as “effected without receipt of
consideration by the Company.” Any fractional share resulting from an
adjustment pursuant to this Section 4(c) shall be rounded down to the
nearest whole number, and in no event may the exercise or purchase price under
any Award be decreased to an amount less than the par value, if any, of the stock
subject to such Award. The Committee in its sole discretion, may also make such
adjustments in the terms of any Award to reflect, or related to, such changes
in the capital structure of the Company or distributions as it deems
appropriate, including modification of Performance Goals, Performance Award
Formulas and Performance Periods. The adjustments determined by the Committee
pursuant to this Section 4(c) shall be final, binding and conclusive.

 

(d)           The maximum number of shares
of Stock with respect to which Options and/or SARs may be granted to any
Participant in any fiscal year of the Company shall be 1,000,000 shares.  The maximum number of shares with respect to
which Full Value Awards, in the aggregate, may be granted to any Participant in
any fiscal year of the Company shall be 200,000 shares.  In connection with a Participant’s (i) commencement
of Service or (ii) promotion, a Participant may be granted Options and/or
SARs for up to an additional 500,000 shares or may be granted Full Value Awards,
in the aggregate, for up to an additional 50,000 shares none of which shall
count against the limit set forth in the preceding sentence.  The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company’s capitalization
pursuant to Section 4(c) above. 
To the extent required by Section 162(m) of the Code or the
regulations thereunder, in applying the foregoing limitations with respect to a
Participant, if any Awards are canceled, the canceled Awards shall continue to
count against the maximum number of shares of Stock with respect to which
Awards may be granted to the Participant. 
For this purpose, if the Company reprices an Option (or in the case of a
SAR, if the base amount on which the stock appreciation is calculated is
reduced to reflect a reduction in the Fair Market Value of the Stock), and if
such repricing or reduction (in the case of a SAR) is approved by the
shareholders of the Company, then such repricing or reduction shall be treated
as the cancellation of the existing Option or SAR and the grant of a new Option
or SAR.

 

A-12

 

Section 5.              Eligibility.

 

(a)           Awards may, at the Committee’s
sole discretion, be granted in the form of Options pursuant to Section 6,
SARs pursuant to Section 7, Restricted Stock Awards pursuant to Section 8,
Restricted Stock Unit Awards pursuant to Section 9, Performance Awards
pursuant to Section 10, Deferred Stock Awards pursuant to Section 11,
Other Stock-based Awards pursuant to Section 12, Deferred Compensation
Awards pursuant to Section 13, or any combination thereof. All Awards
shall be subject to the terms, conditions, restrictions and limitations of the
Plan. The Committee may, in its sole judgment, subject an Award at any time to
such other terms, conditions, restrictions and/or limitations, (including, but
not limited to, the time and conditions of exercise and restrictions on
transferability and vesting), provided they are not inconsistent with the terms
of the Plan. Awards under a particular Section of the Plan need not be
uniform and Awards under two or more Sections may be combined into a single
Award Agreement. Any combination of Awards may be granted at one time and on
more than one occasion to the same Participant.

 

(b)           In order to facilitate the
making of any Award to Participants who are employed or retained by the Company
outside the United States as Employees, Directors or Consultants (or who are
foreign nationals temporarily within the United States), the Committee may
provide for such modifications and additional terms and conditions (“special
terms”) in Awards as the Committee may consider necessary or appropriate to
accommodate differences in local law, policy or custom or to facilitate
administration of the Plan. The special terms may provide that the grant of an
Award is subject to (1) applicable governmental or regulatory approval or
other compliance with local legal requirements and/or (2) the execution by
the Participant of a written instrument in the form specified by the Committee,
and that in the event such conditions are not satisfied, the grant shall be
void.  The Committee may adopt or approve
sub-plans, appendices or supplements to, or amendments, restatements, or alternative
versions of, the Plan as it may consider necessary or appropriate for purposes
of implementing any special terms, without thereby affecting the terms of the
Plan as in effect for any other purpose; provided, however,
no such sub-plans, appendices or supplements to, or amendments, restatements,
or alternative versions of, the Plan shall: (i) increase the number of
available shares under Section 4; (ii) cause the Plan to cease to
satisfy any conditions of Rule 16b-3 under the Exchange Act or, with
respect to Covered Employees, Section 162(m) of the Code; or (iii) revoke,
remove or reduce any vested right of a Participant without the prior written
consent of such Participant.

 

(c)           Unless otherwise
specifically determined by the Committee, all Awards and payments pursuant to
such Awards shall be determined in U.S. currency. The Committee shall
determine, in its discretion, whether and to the extent any payments made
pursuant to an Award shall be made in local currency, as opposed to U.S.
dollars. In the event payments are made in local currency, the Committee may
determine, in its discretion and without liability to any Participant, the
method and rate of converting the payment into local currency.

 

(d)           The Committee shall have the
right at any time and from time to time and without prior notice to modify
outstanding Awards to comply with or satisfy local laws and regulations or to
avoid costly governmental filings. By means of illustration, but not
limitation, the Committee may restrict the method of exercise of an Award to
facilitate compliance with applicable securities laws or exchange control
filings, laws or regulations.

 

A-13

 

(e)           No Employee in any country shall have any right to receive
an Award, except as expressly provided for under the Plan. All Awards made at
any time are subject to the prior approval of the Committee.

 

(f)            Awards may be granted only to Employees, Consultants and
Directors. For purposes of the foregoing sentence, “Employees,” “Consultants”
and “Directors” shall include prospective Employees, prospective Consultants
and prospective Directors to whom Awards are granted in connection with written
offers of an employment or other service relationship with the Participating
Company Group; provided, however, that no Stock
subject to any such Award shall vest, become exercisable or be issued prior to
the date on which such person commences Service.

 

(g)           Awards are granted solely at the discretion of the
Committee. Eligible persons may be granted more than one Award. However,
eligibility in accordance with this Section shall not entitle any person
to be granted an Award, or, having been granted an Award, to be granted an
additional Award.

 

Section 6.               Options. Any Option
granted under the Plan shall be in such form as the Committee may from time to
time approve. Any such Option shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall deem
desirable.

 

(a)           Option Price.
The purchase price per share of the Stock purchasable under an Option shall be
determined by the Committee, but will be not less than 100% of the Fair Market
Value of the Stock on the date of the grant of the Option, as determined in
accordance with procedures established by the Committee. Notwithstanding the
foregoing, the purchase price per share of the Stock purchasable under any
Incentive Stock Option granted to any 10% Owner shall not be less then 110% of
the Fair Market Value of the Stock on the date of the grant of the Option, as
determined in accordance with procedures established by the Committee.

 

(b)           Option Period.
The term of each Option shall be fixed by the Committee, but no Option shall be
exercisable after the expiration of 10 years from the date the Option is
granted. Notwithstanding the foregoing, no Incentive Stock Option granted to a
10% Owner shall be exercisable after the expiration of five years from the date
the Option is granted.

 

(c)           Exercisability.

 

(i)            Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to the date of grant; provided, however, that no Option shall be exercisable until
the first anniversary date of the granting of the Option, except in the event
of death, Disability, Retirement or Change in Control.

 

(ii)           Solely for Federal income tax purposes, to the
extent that the aggregate Fair Market Value of Stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar 

 

A-14

 

year exceeds $100,000.00 (as of the date of
grant), such Options shall be treated as Nonqualified Stock Options. For
purposes of this rule, Options shall be taken into account in the order in
which they were granted.

 

(d)           Method of Exercise.
Options may be exercised, in whole or in part, by giving written notice of
exercise to the Company specifying the number of shares to be purchased. Except
as otherwise provided below, payment of the exercise price for the number of
shares of Stock being purchased pursuant to any Option shall be made (i) in
cash, by check or in cash equivalent, (ii) by tender to the Company, or
attestation to the ownership, of shares of Stock owned by the Participant
having a Fair Market Value not less than the exercise price, (iii) by
delivery of a properly executed notice of exercise together with irrevocable
instructions to a broker providing for the assignment to the Company of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation,
through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a “Cashless Exercise”), (iv) by such other consideration as may
be approved by the Committee from time to time to the extent permitted by
applicable law, or (v) by any combination thereof. The Committee may at
any time or from time to time grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.

 

Notwithstanding the foregoing, an Option may not be
exercised by tender to the Company, or attestation to the ownership, of shares
of Stock to the extent such tender or attestation would constitute a violation
of the provisions of any law, regulation or agreement restricting the
redemption of the Company’s stock. Unless otherwise provided by the Committee,
an Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock unless such shares either have been owned by the
Participant for more than six (6) months (and not used for another Option
exercise by attestation during such period) or were not acquired, directly or
indirectly, from the Company.

 

The Company reserves, at any and all times, the
right, in the Company’s sole and absolute discretion, to establish, decline to
approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise, including with respect to one or more Participants
specified by the Company, notwithstanding that such program or procedures may
be available to other Participants.

 

(e)           Restrictions on
Transferability. During the lifetime of the Participant, an Option
shall be exercisable only by the Participant or the Participant’s guardian or
legal representative. Prior to the issuance of shares of Stock upon the
exercise of an Option, the Option shall not be subject in any manner to
anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s
beneficiary, except transfer by will or by the laws of descent and
distribution. Notwithstanding the foregoing, to the extent permitted by the
Committee, in its discretion, and set forth in the Award Agreement evidencing
such Option, a Nonqualified Stock Option shall be assignable or transferable to
a “family member” of the Participant as such term is defined in and subject to
the applicable limitations, if any, described in the General Instructions to Form S-8
Registration Statement under the Securities Act.

 

A-15

 

(f)            Termination by Death.
Except to the extent otherwise provided by the Committee at or after the time
of grant, if a Participant’s Service terminates by reason of death, the Option
may thereafter be immediately exercised in full by the legal representative of
the estate or by the legatee of the Participant under the will of the
Participant until the expiration of the stated period of the Option (the “Option
Expiration Date”).

 

(g)           Termination by Reason of
Disability. Except to the extent otherwise provided by the Committee
at or after the time of grant, if a Participant’s Service terminates by reason
of Disability, any Option held by such Participant may thereafter be exercised
in full at any time prior to three (3) years from the date of such
termination, but in no event later than the Option Expiration Date.
Notwithstanding the foregoing, if the Option is an Incentive Stock Option and
is not exercised within 12 months of the date the Participant’s Service is
terminated by reason of the Participant being permanently and totally disabled
within the meaning of Section 22(e)(3) of the Code, the Option shall
thereafter be treated as a Nonqualified Stock Option and not an Incentive Stock
Option. If the Participant dies during the 12-month period commencing on the
date his/her Service terminates by reason of such permanent and total
disability, however, then the Option will continue to be an Incentive Stock
Option until the Option Expiration Date.

 

(h)           Termination for Cause.
If a Participant’s Service is terminated by reason of “Cause,” the Option to
the extent unexercised and exercisable by the Participant on the date on which
the Participant’s Service terminated, shall immediately terminate and shall be
forfeited in its entirety. For the purposes of the Plan, “Cause” shall mean,
unless otherwise provided in an Award Agreement: (i) any gross failure by
the Participant (other than by reason of Disability) to faithfully and
professionally carry out his or her duties or to comply with any other material
provision of his or her employment agreement, if any, which continues for
thirty (30) days after written notice by the Participating Company for which
the Participant is performing services (the “Employer”); provided, that the
Employer does not have to provide notice in the event that the failure is not
susceptible to remedy or relates to the same type of acts or omissions as to
which notice has been given on a prior occasion; (ii) the Participant’s
dishonesty or other willful misconduct; (iii) the Participant’s conviction
of any felony or of any other crime involving moral turpitude, whether or not
relating to his or her employment; (iv) the Participant’s insobriety or
use of drugs, chemicals or controlled substances either in the course of
performing his or her duties and responsibilities for a Participating Company
or otherwise affecting the ability of Participant to perform those duties and responsibilities;
(v) the Participant’s failure to comply with a lawful written direction of
the Employer; (vi) any wanton or willful dereliction of duties by the
Participant; or (vii) breach of the Employer’s Standards of Integrity or
insider trading policies. Notwithstanding the foregoing, in the event that a
Participant is a party to an employment agreement with the Company or any other
Participating Company that defines a termination on account of “Cause” (or a
term having similar meaning), such definition shall apply as the definition of
a termination of account of “Cause” for purposes hereof, but only to the extent
that such definition provides the Participant with greater rights. A
termination on account of Cause shall be communicated by written notice to the
Participant, and shall be deemed to occur on the date such notice is sent to
the Participant.

 

A-16

 

(i)            Other Termination.
If the Participant’s Service terminates for any reason except Disability, death
or Cause, the Option, to the extent unexercised and exercisable by the
Participant on the date on which the Participant’s Service terminated, may be
exercised by the Participant at any time prior to the expiration of three (3) months
after the date on which the Participant’s Service terminated, or such other
period of time as determined by the Committee at or after grant, but in any
event no later than the Option Expiration Date. Notwithstanding the foregoing,
if such termination is by action of the Company within 18 months following a
Change in Control (other than discharge for Cause), any unexercised portion of
the Option may be exercised by the Participant until the earlier of (x) six
(6) months and one day after such termination or (y) the Option Expiration
Date. Notwithstanding the foregoing, if the Option is not exercised within
three (3) months of the date Participant’s Service is terminated, the
Option shall be treated as a Nonqualified Option and not an Incentive Stock
Option.

 

(j)            Extension if Exercise
Prevented by Law. Notwithstanding the foregoing, if the exercise of
an Option within the applicable time periods set forth above is prevented by
the provisions of Section 22 below, the Option shall remain exercisable
until three (3) months (or such longer period of time as determined by the
Committee, in its discretion) after the date the Participant is notified in
writing by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.

 

(k)           Extension if Participant
Subject to Section 16(b). Notwithstanding the foregoing, if a
sale within the applicable time periods set forth above of shares acquired upon
the exercise of the Option would subject the Participant to suit under Section 16(b) of
the Exchange Act, the Option shall remain exercisable until the earliest to
occur of (i) the tenth (10th) day following the date on which a sale of
such shares by the Participant would no longer be subject to such suit, (ii) the
one hundred and ninetieth (190th) day after the Participant’s termination of
Service, or (iii) the Option Expiration Date.

 

Section 7.              Stock Appreciation Rights.

 

(a)           Types of SARs Authorized. SARs
shall be granted independently of and not in tandem with any Option.

 

(b)           Exercise Price. The
exercise price for each SAR shall be established in the discretion of the
Committee; provided, however, that the exercise
price per share subject to a SAR shall be not less than the Fair Market Value
of a share of Stock on the effective date of grant of the SAR.

 

(c)           Exercisability and Term of
SARs. SARs shall be exercisable at such time or times, or upon such
event or events, and subject to such terms, conditions, performance criteria
and restrictions as shall be determined by the Committee and set forth in the
Award Agreement evidencing such SAR; provided, however,
that (i) no SAR shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such SAR and (ii) the vesting and
exercisability of any SAR shall not be accelerated except in the event of
death, Disability, Retirement or Change in Control.

 

A-17

 

(d)           Exercise of SARs. Upon
the exercise (or deemed exercise pursuant to Section 7(e) below) of a
SAR, the Participant (or the Participant’s legal representative or other person
who acquired the right to exercise the SAR by reason of the Participant’s
death) shall be entitled to receive payment of an amount for each share with
respect to which the SAR is exercised equal to the excess, if any, of the Fair
Market Value of a share of Stock on the date of exercise of the SAR over the
exercise price. Subject to Section 409A of the Code, payment of such
amount shall be made in cash, shares of Stock, or any combination thereof as
determined by the Committee. Unless otherwise provided in the Award Agreement
evidencing such SAR, payment shall be made in a lump sum as soon as practicable
following the date of exercise of the SAR. Subject to Section 409A of the
Code, the Award Agreement evidencing any SAR may provide for deferred payment
in a lump sum or in installments. When payment is to be made in shares of
Stock, the number of shares to be issued shall be determined on the basis of
the Fair Market Value of a share of Stock on the date of exercise of the SAR.
For purposes of Section 7, a SAR shall be deemed exercised on the date on
which the Company receives notice of exercise from the Participant or as
otherwise provided in Section 7(e).

 

(e)           Deemed Exercise of SARs. If,
on the date on which a SAR would otherwise terminate or expire, the SAR by its
terms remains exercisable immediately prior to such termination or expiration
and, if so exercised, would result in a payment to the holder of such SAR, then
any portion of such SAR which has not previously been exercised shall
automatically be deemed to be exercised as of such date with respect to such
portion.

 

(f)            Effect of Termination of
Service. Subject to earlier termination of the SAR as otherwise
provided herein, a SAR shall be exercisable after a Participant’s termination
of Service only during the applicable time period determined in accordance with
Section 6(f) through (k) (treating the SAR as if it were an
Option), or such other period of time as determined by the Committee at or
after the grant, and thereafter shall terminate.

 

(g)           Nontransferability of
SARs. During the lifetime of the Participant, a SAR shall be
exercisable only by the Participant or the Participant’s guardian or legal
representative. Prior to the exercise of a SAR, the SAR shall not be subject in
any manner to anticipation, alienation, sale, exchange, transfer, assignment,
pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and
distribution.

 

Section 8.              Restricted Stock Awards.

 

(a)           Stock and
Administration. Shares of Restricted Stock may be issued either
alone or in addition to Options, Deferred Stock Awards or other Awards granted
under the Plan. The Committee shall determine the Directors, Consultants, and
Employees of the Participating Company Group to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
awarded, the time or times within which such Restricted Stock Awards may be
subject to forfeiture (subject to Section 3(b)(iv)(D)), and all other
conditions of the Awards.  Restricted
Stock Awards may be granted upon such conditions as the Committee shall
determine, including, without limitation, upon the attainment of one or more
Performance Goals described in Section 10(d).  If either the grant of a Restricted Stock
Award or the Vesting Conditions with respect to such Award is to be contingent
upon the 

 

A-18

 

attainment of one or more Performance Goals,
the Committee shall follow procedures substantially equivalent to those set
forth in Sections 10(c) through 10(e), as applicable.  The provisions of Restricted Stock Awards
need not be the same with respect to each recipient.

 

(b)           Awards and Certificates.
The prospective recipient of an Award of shares of Restricted Stock shall not,
with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such recipient shall
have executed an agreement or other instrument evidencing the Award and
delivered a fully executed copy thereof to the Company and otherwise complied
with the then applicable terms and conditions.

 

(i)            Each Participant shall be issued a stock certificate
in respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:

 

“The
transferability of this certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture) of the Medarex, Inc.
2005 Equity Incentive Plan and an Agreement entered into between the registered
owner and Medarex, Inc. Copies of such Plan and Agreement are on file in
the offices of Medarex, Inc., 707 State Road, Princeton, New Jersey 08540.”

 

The
Committee shall require that the stock certificates evidencing such shares be
held in custody by the Company until the restrictions thereon shall have
lapsed, and shall require, as a condition of any Restricted Stock Award, that
the Participant shall have delivered a stock power, endorsed in blank, relating
to the Stock covered by such Award.

 

(c)           Restrictions and
Conditions. The shares of Restricted Stock awarded pursuant to the
Plan shall be subject to the following restrictions and conditions:

 

(i)            subject to the provisions of this Plan, during a
period set by the Committee commencing with the date of such Award (the “restriction
period”), the Participant shall not be permitted to sell, transfer, pledge, or
assign shares of Restricted Stock awarded under the Plan. Within these limits
the Committee may provide for the lapse of such restrictions in installments
where deemed appropriate (subject to Section 3(b)(iv)(D)).  Notwithstanding the foregoing, or any other
provision of the Plan, any Awards of Restricted Stock which vest on the basis
of the Participant’s continuous Service with the Company or any Participating
Company shall not provide for vesting which is any more rapid than annual pro
rata vesting over a three-year period and any Awards of Restricted Stock which
provide for vesting upon the attainment of Performance Goals shall provide for
a Performance Period of at least 12 months; provided, however,
that (A) up to 10% of the authorized shares under this Plan may be
subject to Full Value Awards which do not meet these vesting guidelines and 

 

A-19

 

(B) the vesting of any Award of
Restricted Stock may be accelerated in the event of death, Disability,
Retirement or Change in Control.

 

(ii)           Except as provided in subsection (c)(i) of this
Section 8, the Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a Shareholder of the Company, including
the right to vote the Restricted Stock and the right to receive any cash
dividends. The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so determines,
reinvested in additional Restricted Stock or otherwise reinvested. Certificates
for shares of unrestricted Stock shall be delivered to the Participant promptly
after, and only after, the period of forfeiture shall expire without forfeiture
in respect of such shares of Restricted Stock.

 

(iii)          Subject to the provisions of subsection (d) of
this Section 8, upon termination of Service of any reason during the
restriction period, all shares still subject to restriction shall be forfeited
by the Participant and reacquired by the Company.

 

(d)           Effect of Termination of
Service. Unless related to death, Disability, Retirement or Change
in Control and (i) otherwise provided by the Committee in the grant of a
Restricted Stock Award and set forth in the Award Agreement or (ii) determined
by the Committee in its sole discretion after the date of grant, if a
Participant’s Service terminates for any reason, whether voluntary or
involuntary (including the Participant’s death, Disability or Retirement), then
the Participant shall forfeit to the Company any Restricted Stock pursuant to
the Award which remain subject to Vesting Conditions as of the date of the
Participant’s termination of Service.

 

(e)           Section 83(b) Election.
If a Participant makes an election pursuant to Section 83(b) of
the Code with respect to a Restricted Stock Award, the Participant shall file,
within 30 days following the date of grant of a Restricted Stock Award, a copy
of such election with the Company and with the Internal Revenue Service, in
accordance with the regulations under Section 83 of the Code. The
Committee may provide in an Award Agreement that the Restricted Stock Award is
conditioned upon the Participant’s making or refraining from making an election
with respect to the Award under Section 83(b) of the Code.

 

Section 9.               Terms and
Conditions of Restricted Stock Unit Awards.

 

(a)           Grant of Restricted Stock
Unit Awards. Restricted Stock Unit Awards may be granted upon such
conditions as the Committee shall determine, including, without limitation,
upon the attainment of one or more Performance Goals described in Section 10(d).
If either the grant of a Restricted Stock Unit Award or the Vesting Conditions
with respect to such Award is to be contingent upon the attainment of one or
more Performance Goals, the Committee shall follow procedures substantially
equivalent to those set forth in Sections 10(c) through 10(e), as
applicable.  The provisions of Restricted
Stock Unit Awards need not be the same with respect to each recipient.

 

A-20

 

(b)           Purchase Price. No
monetary payment (other than applicable tax withholding, if any) shall be
required as a condition of receiving a Restricted Stock Unit Award, the
consideration for which shall be services actually rendered to a Participating
Company or for its benefit.

 

(c)           Vesting. Restricted
Stock Units may or may not be made subject to Vesting Conditions based upon the
satisfaction of such Service requirements, conditions, restrictions or
performance criteria, including, without limitation, Performance Goals as
described in Section 10(d), as shall be established by the Committee and
set forth in the Award Agreement evidencing such Award.  Notwithstanding the foregoing, or any other
provision of the Plan, any Awards of Restricted Stock Units which vest on the
basis of the Participant’s continuous Service with the Company or any
Participating Company shall not provide for vesting which is any more rapid
than annual pro rata vesting over a three-year period and any Awards of
Restricted Stock Units which provide for vesting upon the attainment of
Performance Goals shall provide for a Performance Period of at least 12 months;
provided, however, that (i) up to
10% of the authorized shares under this Plan may be subject to Full Value
Awards which do not meet these vesting guidelines and (ii) the vesting of
any Award of Restricted Stock Units may be accelerated in the event of death,
Disability, Retirement or Change in Control.

 

(d)           Voting Rights, Dividend
Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Restricted Stock
Units until the date of the issuance of such shares (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). However, the Committee, in its discretion, may provide
in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant
shall be entitled to receive Dividend Equivalents with respect to the payment
of cash dividends on Stock having a record date prior to date on which
Restricted Stock Units held by such Participant are settled. Such Dividend
Equivalents, if any, shall be paid by crediting the Participant with additional
whole Restricted Stock Units as of the date of payment of such cash dividends
on Stock. The number of additional Restricted Stock Units (rounded to the
nearest whole number) to be so credited shall be determined by dividing (x) the
amount of cash dividends paid on such date with respect to the number of shares
of Stock represented by the Restricted Stock Units previously credited to the
Participant by (y) the Fair Market Value per share of Stock on such date.
Such additional Restricted Stock Units shall be subject to the same terms and
conditions and shall be settled in the same manner and at the same time (or as
soon thereafter as practicable) as the Restricted Stock Units originally
subject to the Restricted Stock Unit Award. In the event of a dividend or
distribution paid in shares of Stock or any other adjustment made upon a change
in the capital structure of the Company as described in Section 4(c),
appropriate adjustments shall be made in the Participant’s Restricted Stock
Unit Award so that it represents the right to receive upon settlement any and
all new, substituted or additional securities or other property (other than
normal cash dividends) to which the Participant would be entitled by reason of
the shares of Stock issuable upon settlement of the Award, and all such new,
substituted or additional securities or other property shall be immediately
subject to the same Vesting Conditions as are applicable to the Award.

 

A-21

 

(e)           Effect of Termination of
Service. Unless related to death, Disability, Retirement or Change
in Control and (i) otherwise provided by the Committee in the grant of a
Restricted Stock Unit Award and set forth in the Award Agreement or (ii) determined
by the Committee in its sole discretion after the date of grant, if a
Participant’s Service terminates for any reason, whether voluntary or
involuntary (including the Participant’s death, Disability or Retirement), then
the Participant shall forfeit to the Company any Restricted Stock Units
pursuant to the Award which remain subject to Vesting Conditions as of the date
of the Participant’s termination of Service.

 

(f)            Settlement of Restricted
Stock Unit Awards. The Company shall issue to a Participant on the
date on which Restricted Stock Units subject to the Participant’s Restricted
Stock Unit Award vest or on such other date determined by the Committee, in its
discretion, and set forth in the Award Agreement one (1) share of Stock (and/or
any other new, substituted or additional securities or other property pursuant
to an adjustment described in Section 9(d)) for each Restricted Stock Unit
then becoming vested or otherwise to be settled on such date, subject to the
withholding of applicable taxes. Notwithstanding the foregoing, if permitted by
the Committee and set forth in the Award Agreement, and subject to Section 409A
of the Code, the Participant may elect in accordance with terms specified in
the Award Agreement to defer receipt of all or any portion of the shares of
Stock or other property otherwise issuable to the Participant pursuant to this
Section.

 

(g)           Nontransferability of
Restricted Stock Unit Awards. Prior to the issuance of shares of
Stock in settlement of a Restricted Stock Unit Award, the Award shall not be
subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution. All rights with respect to a Restricted Stock Unit
Award granted to a Participant hereunder shall be exercisable during his or her
lifetime only by such Participant or the Participant’s guardian or legal
representative.

 

Section 10.            Terms and
Conditions of Performance Awards.

 

(a)           Types of Performance
Awards Authorized. Performance Awards may be in the form of either
Performance Shares or Performance Units. Each Award Agreement evidencing a
Performance Award shall specify the number of Performance Shares or Performance
Units subject thereto, the Performance Award Formula, the Performance Goal(s) and
Performance Period applicable to the Award, and the other terms, conditions and
restrictions of the Award.

 

(b)           Value of Performance
Shares and Performance Units. Unless otherwise provided by the
Committee in granting a Performance Award, each Performance Share shall have an
initial value equal to the Fair Market Value of one (1) share of Stock,
subject to adjustment as provided in Section 4(c), on the effective date
of grant of the Performance Share, and each Performance Unit shall have an
initial value of one hundred dollars ($100). The final value payable to the
Participant in settlement of a Performance Award determined on the basis of the
applicable Performance Award Formula will depend on the extent to which
Performance Goals established by the Committee are attained within the 

 

A-22

 

applicable Performance Period established by
the Committee.  No Participant shall be
granted, within any one fiscal year of the Company, Performance Units which in
the aggregate may have a maximum final value in excess of $2,000,000.

 

(c)           Establishment of
Performance Period, Performance Goals and Performance Award Formula. In
granting each Performance Award, the Committee shall establish in writing the
applicable Performance Period, Performance Award Formula and one or more
Performance Goals which, when measured at the end of the Performance Period,
shall determine on the basis of the Performance Award Formula the final value
of the Performance Award to be paid to the Participant. Unless otherwise
permitted in compliance with the requirements under Section 162(m) with
respect to “performance-based compensation,” the Committee shall establish the
Performance Goal(s) and Performance Award Formula applicable to each
Performance Award no later than the earlier of (a) the date ninety (90)
days after the commencement of the applicable Performance Period or (b) the
date on which 25% of the Performance Period has elapsed, and, in any event, at
a time when the outcome of the Performance Goals remains substantially
uncertain. Except as provided in Section 10(d)(iii), once established, the
Performance Goals and Performance Award Formula shall not be changed during the
Performance Period. The Company shall notify each Participant granted a
Performance Award of the terms of such Award, including the Performance Period,
Performance Goal(s) and Performance Award Formula. Notwithstanding the
foregoing, or any other provision of the Plan, all Performance Awards shall
provide for a Performance Period of at least 12 months; provided,
however, that up to 10% of the authorized shares under this Plan may
be subject to Full Value Awards which do not meet this vesting guideline.

 

(d)           Measurement of Performance
Goals. Performance Goals shall be established by the Committee on
the basis of targets to be attained (“Performance Targets”) with respect to one
or more measures of business or financial performance (each, a “Performance
Measure”), subject to the following:

 

(i)            Performance Measures. Performance
Measures shall have the same meanings as used in the Company’s financial
statements, or, if such terms are not used in the Company’s financial
statements, they shall have the meanings used generally in the Company’s
industry. Performance Measures shall be calculated with respect to the Company
and each Subsidiary Company consolidated therewith for financial reporting
purposes or such division or other business unit as may be selected by the
Committee. For purposes of the Plan, any financial Performance Measures
applicable to a Performance Award shall be calculated in accordance with the
Company’s past accounting practices.  Performance
Measures may be one or more of the following, as determined by the Committee: (1) cost
of sales, (2) earnings per share, (3) cash flow (including but not
limited to net operating cash flow, free cash flow and cash flow return on
capital), (4) marketing and sales expenses, (5) net income or net
earnings (before or after taxes), (6) operating margin, (7) product
approvals, (8) product sales, (9) projects in clinical or preclinical
development, (10) regulatory filings, (11) research and development
efforts, (12) working capital, (13) revenue, (14) achievement of specified
milestones in the discovery, development, commercialization, or manufacturing
of one or more of the Company’s products 

 

A-23

 

and/or services, (15) expense targets, (16)
personal management objectives, (17) share price (including, but not limited
to, growth measures and total shareholder return), (18) operating efficiency,
(19) gross margin, (20) return measures (including, but not limited to, return
on assets, capital, equity, or sales), (21) productivity ratios, (22) operating
income, (23) net operating income, (24) net operating profit, (25) earnings
before or after interest, taxes, depreciation, and/or amortization, (26)
economic value added, (27) market share, (28) customer satisfaction, (29) joint
ventures, corporate partnerships and strategic alliances, (30) spin-offs, split
ups and the like, (31) reorganizations, (32) strategic investments or
recapitalizations, restructurings, financings (issuance of debt or equity) or
refinancings, (33) acquisitions or divestitures, (34) organizational
realignments, (35) infrastructure changes, (36) assets and (37) debt reduction.
The Performance Measures and Performance Goals may differ from Participant to
Participant and from Award to Award. Any criteria used may be measured, as
applicable, (A) in absolute terms, (B) in relative terms (including,
but not limited to, passage of time and/or against another company or
companies), (C) on a per-share basis, (D) against the performance of
the Company as a whole or a segment of the Company and/or (E) on a pre-tax
or after-tax basis.  Partial achievement
of the specified criteria may result in a payment or vesting corresponding to
the degree of achievement as specified in the applicable Award Agreement.

 

(ii)           Performance Targets. Performance
Targets may include a minimum, maximum, target level and intermediate levels of
performance, with the final value of a Performance Award determined under the
applicable Performance Award Formula by the level attained during the
applicable Performance Period. A Performance Target may be stated as an
absolute value or as a value determined relative to a standard selected by the
Committee.

 

(iii)          Adjustments. To the extent
compliant with Section 162(m) of the Code, at the time of the grant
of any Performance Award, the Committee is authorized to determine whether,
when calculating the attainment of Performance Goals for a Performance Period: (i) to
exclude restructuring and/or other nonrecurring charges; (ii) to exclude
exchange rate effects, as applicable, for non-U.S. dollar denominated net sales
and operating earnings; (iii) to exclude the effects of changes to
generally accepted accounting standards required by the Financial Accounting
Standards Board; (iv) to exclude the effects of any statutory adjustments
to corporate tax rates; (v) to exclude the effects of any “extraordinary
items” as determined under generally accepted accounting principles; and/or (vi) to
make adjustments for the purpose of providing a consistent basis from period to
period for the calculation of Performance Measures in order to prevent the
dilution or enlargement of the Participant’s rights with respect to a
Performance Award.

 

A-24

 

(e)           Settlement of Performance
Awards.

 

(i)            Determination of Final
Value. As soon as practicable following the completion of the Performance
Period applicable to a Performance Award, the Committee shall certify in
writing the extent to which the applicable Performance Goals have been attained
and the resulting final value of the Award earned by the Participant and to be
paid upon its settlement in accordance with the applicable Performance Award
Formula.

 

(ii)           Discretionary Adjustment of Award
Formula. In its discretion, the Committee may, either at the
time it grants a Performance Award or at any time thereafter, provide for the
positive or negative adjustment of the Performance Award Formula applicable to
a Performance Award granted to any Participant who is not a Covered Employee to
reflect such Participant’s individual performance in his or her position with
the Company or such other factors as the Committee may determine. If permitted
under a Covered Employee’s Award Agreement, the Committee shall have the
discretion, on the basis of such criteria as may be established by the
Committee, to reduce some or all of the value of the Performance Award that
would otherwise be paid to the Covered Employee upon its settlement notwithstanding
the attainment of any Performance Goal and the resulting value of the
Performance Award determined in accordance with the Performance Award Formula.
No such reduction may result in an increase in the amount payable upon
settlement of another Participant’s Performance Award.

 

(iii)          Effect of Leaves of Absence. Unless
otherwise required by law, payment of the final value, if any, of a Performance
Award held by a Participant who has taken in excess of thirty (30) days in
leaves of absence during a Performance Period shall be prorated on the basis of
the number of days of the Participant’s Service during the Performance Period
during which the Participant was not on a leave of absence.

 

(iv)          Notice to Participants. As soon as
practicable following the Committee’s determination and certification in
accordance with Sections 10(e)(i) and (ii), the Company shall notify each
Participant of the determination of the Committee.

 

(v)           Payment in Settlement of
Performance Awards. As soon as practicable following the Committee’s
determination and certification in accordance with Sections 10(e)(i) and
(ii), and in no event later than the date required by Section 409A of the
Code to avoid a payment of deferred compensation, payment shall be made to each
eligible Participant (or such Participant’s legal representative or other
person who acquired the right to receive such payment by reason of the
Participant’s death) of the final value of the Participant’s Performance Award.
Payment of such amount shall be made in cash, shares of Stock, or a combination
thereof as determined by the Committee. Unless otherwise provided in the Award
Agreement evidencing a Performance Award, payment shall be made in a lump sum.
Subject to Section 409A of the Code, an Award Agreement may provide for
deferred payment in a lump sum or 

 

A-25

 

in installments. If any payment is to be made
on a deferred basis, the Committee may, but shall not be obligated to, provide
for the payment during the deferral period of Dividend Equivalents or interest.

 

(vi)          Provisions Applicable to Payment in
Shares. If payment is to be made in shares of Stock, the
number of such shares shall be determined by dividing the final value of the
Performance Award by the value of a share of Stock determined by the method
specified in the Award Agreement. Such methods may include, without limitation,
the closing market price on a specified date (such as the settlement date) or
an average of market prices over a series of trading days. Shares of Stock
issued in payment of any Performance Award may be fully vested and freely
transferable shares or may be shares of Stock subject to vesting conditions
determined by the Committee.

 

(f)            Voting Rights; Dividend
Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Performance Share
Awards until the date of the issuance of such shares, if any (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). However, the Committee, in its discretion, may
provide in the Award Agreement evidencing any Performance Share Award that the
Participant shall be entitled to receive Dividend Equivalents with respect to
the payment of cash dividends on Stock having a record date prior to the date
on which the Performance Shares are settled or forfeited. Such Dividend
Equivalents, if any, shall be credited to the Participant in the form of
additional whole Performance Shares as of the date of payment of such cash
dividends on Stock. The number of additional Performance Shares (rounded to the
nearest whole number) to be so credited shall be determined by dividing (x) the
amount of cash dividends paid on such date with respect to the number of shares
of Stock represented by the Performance Shares previously credited to the
Participant by (y) the Fair Market Value per share of Stock on such date.
Dividend Equivalents may be paid currently or may be accumulated and paid to
the extent that Performance Shares become non-forfeitable, as determined by the
Committee. Settlement of Dividend Equivalents may be made in cash, shares of
Stock, or a combination thereof as determined by the Committee, and may be paid
on the same basis as settlement of the related Performance Share as provided in
Section 10(e). Dividend Equivalents shall not be paid with respect to
Performance Units. In the event of a dividend or distribution paid in shares of
Stock or any other adjustment made upon a change in the capital structure of
the Company as described in Section 4(c), appropriate adjustments shall be
made in the Participant’s Performance Share Award so that it represents the
right to receive upon settlement any and all new, substituted or additional
securities or other property (other than normal cash dividends) to which the
Participant would entitled by reason of the shares of Stock issuable upon
settlement of the Performance Share Award, and all such new, substituted or
additional securities or other property shall be immediately subject to the
same Performance Goals as are applicable to the Award.

 

(g)           Effect of Termination of
Service. Unless related to death, Disability, Retirement (if in
compliance with Section 162(m) of the Code) or Change in Control and (i) otherwise
provided by the Committee in the grant of a Performance Award and set forth in
the Award Agreement or (ii) determined by the Committee in its sole
discretion after the date of

 

A-26

 

grant, the effect of a Participant’s
termination of Service on the Performance Award shall be as follows:

 

(i)             Termination
for Cause and Voluntary Termination of Service by Participant. If a
Participant’s Service terminates for reason of Cause or voluntary termination
before the completion of the Performance Period applicable to the Performance
Award, such Award shall be forfeited in its entirety.

 

(ii)            Other
Termination of Service. If the Participant’s Service terminates for
any reason except for Cause or voluntary termination before the completion of
the Performance Period applicable to the Performance Award, the final value of
the Participant’s Performance Award shall be determined by the extent to which
the applicable Performance Goals have been attained with respect to the entire
Performance Period and shall be prorated based on the number of months of the
Participant’s Service during the Performance Period. Payment shall be made
following the end of the Performance Period in any manner permitted by Section 10(e).

 

(h)           Nontransferability of Performance
Awards. Prior to settlement in accordance with the
provisions of the Plan, no Performance Award shall be subject in any manner to
anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance,
or garnishment by creditors of the Participant or the Participant’s
beneficiary, except transfer by will or by the laws of descent and
distribution. All rights with respect to a Performance Award granted to a
Participant hereunder shall be exercisable during his or her lifetime only by
such Participant or the Participant’s guardian or legal representative.

 

Section 11.            Deferred
Stock Awards.

 

(a)           Stock and
Administration. Subject to the requirements of Section 409A of
the Code, Deferred Stock Awards of the right to receive Stock that is not to be
distributed to the Participant until after a specified deferral period may be
made either alone or in addition to Options, Restricted Stock, or other Awards
granted under the Plan. The Committee shall determine the Participants to whom,
and the time or times at which, Deferred Stock Awards shall be awarded, the
number of shares of Stock to be awarded to any Participant, the duration of the
period (the “Deferral Period”) during which, and the conditions under which,
receipt of the Stock will be deferred, and the terms and conditions of the
Deferred Stock Award in addition to those contained in subsection (b) of
this Section 11.  In its sole
discretion, the Committee may provide for a minimum payment at the end of the
applicable Deferral Period based on a stated percentage of the Fair Market
Value on the date of grant of the number of shares of Stock covered by a
Deferred Stock Award.  Deferred Stock
Awards may also be granted upon the completion of a specified Performance
Period or upon such conditions as the Committee shall determine, including,
without limitation, upon the attainment of one or more Performance Goals
described in Section 10(d).  If
either the grant of a Deferred Stock Award or other conditions with respect to
such Award is to be contingent upon the attainment of one or more Performance
Goals, the Committee shall follow procedures 

 

A-27

 

substantially equivalent to those set forth
in Sections 10(c) through 10(e), as applicable.  The provisions of Deferred Stock Awards need
not be the same with respect to each recipient.

 

Notwithstanding the
foregoing, or any other provision of the Plan, any Deferred Stock Awards which
vest on the basis of the Participant’s continuous Service with the Company or
any Participating Company shall not provide for vesting which is any more rapid
than annual pro rata vesting over a three-year period and any Deferred Stock
Awards which provide for vesting upon the attainment of Performance Goals shall
provide for a Performance Period of at least 12 months; provided,
however, that up to 10% of the authorized shares under this Plan may
be subject to Full Value Awards which do not meet these vesting guidelines.

 

(b)           Terms and
Conditions. Deferred Stock Awards made pursuant to this Section 11
shall be subject to the following terms and conditions:

 

(i)             Subject to the provisions of
the Plan, the shares of stock to be issued pursuant to a Deferred Stock Award
may not be sold, assigned, transferred, pledged or otherwise encumbered during
the Deferral Period or Elective Deferral Period (defined below), where
applicable, and may be subject to a risk of forfeiture during all or such
portion of the Deferral Period as shall be specified by the Committee. At the
expiration of the Deferral Period and Elective Deferral Period, share
certificates shall be delivered to the Participant, or the Participant’s legal
representative, representing the number of shares covered by the Deferred Stock
Award.

 

(ii)            Amounts equal to any
dividends declared during the Deferral Period with respect to the number of
shares of Stock covered by a Deferred Stock Award will be paid to the
Participant currently, or deferred and deemed to be reinvested in additional
deferred Stock or otherwise reinvested, as determined at the time of the
Deferred Stock Award by the Committee, in its sole discretion.

 

(iii)           Subject to the provisions of
subsection (b)(iv) of this Section 11, upon termination of the
Service for any reason during the Deferral Period for a given Deferred Stock
Award, the Stock subject to such Deferred Stock Award shall be forfeited by the
Participant.

 

(iv)           In the event of the
Participant’s Disability, death or Retirement during the Deferral Period (or Elective
Deferral Period, where applicable), the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interests of the Company,
waive in whole or in part any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of the Participant’s Deferred
Stock Award; provided, however, that if such
Deferred Stock Award is subject to Section 409A of the Code, such waiver
may only occur in the event of the Participant’s Disability or death, or upon
the occurrence of an unforeseeable emergency (as such term is defined under Section 409A
of the Code and Treasury Regulations thereunder) and (ii) the Award
Agreement evidencing such Deferred Stock Award must provide for 

 

A-28

 

such waiver at the time of grant of such
Deferred Stock Award.  Anything in the
Plan to the contrary notwithstanding, upon the occurrence of a Change in
Control, the Deferral Period and the Elective Deferral Period with respect to
each Deferred Stock Award shall expire immediately and all share certificates
relating to such Deferred Stock Award shall be delivered to each Participant or
the Participant’s legal representative; provided, however,
that if such Award is subject to Section 409A of the Code, (i) such
delivery shall only occur if the Change in Control is deemed to be a change in
the ownership of the Company, a change in effective control of the Company, or
a change in the ownership of a substantial portion of the assets of the Company
(as such terms are defined under Section 409A of the Code and Treasury
Regulations thereunder) and (ii) the Award Agreement evidencing such
Deferred Stock Award must provide for such delivery at the time of grant of
such Deferred Stock Award.

 

(v)           Subject to Section 409A
of the Code, prior to completion of the Deferral Period, a Participant may
elect to defer further the receipt of the Deferred Stock Award for a specified
period or until a specified event (the “Elective Deferred Period”), subject in
each case to the approval of the Committee and under such terms as are
determined by the Committee, all in its sole discretion.

 

(vi)          Each Deferred Stock Award
shall be confirmed by an Award Agreement or other instrument executed by the
Committee and by the Participant.

 

Section 12.            Other
Stock-Based Awards.

 

(a)           Stock and
Administration. Subject to the requirements of Section 409A of
the Code, Other Stock-based Awards may be granted either alone or in addition
to other Awards granted under the Plan. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine the
Participants to whom and the time or times at which such Other Stock-based
Awards shall be made, the number of shares of the Stock to be awarded pursuant
to such Other Stock-based Awards and all other conditions of the Other
Stock-based Awards.  Other Stock-based
Awards may also be granted upon the completion of a specified Performance
Period or upon such conditions as the Committee shall determine, including, without
limitation, upon the attainment of one or more Performance Goals described in Section 10(d).  If either the grant of a Other Stock-based
Award or other conditions with respect to such Award is to be contingent upon
the attainment of one or more Performance Goals, the Committee shall follow
procedures substantially equivalent to those set forth in Sections 10(c) through
10(e), as applicable.  The provisions of
Other Stock-based Awards need not be the same with respect to each recipient.

 

Notwithstanding the
foregoing, or any other provision of the Plan, any Other Stock-based Awards
which vest on the basis of the Participant’s continuous Service with the
Company or any Participating Company shall not provide for vesting which is any
more rapid than annual pro rata vesting over a three-year period and any Other
Stock-based Awards which provide for vesting upon the attainment of Performance
Goals shall provide for a Performance 

 

A-29

 

Period of at least 12 months; provided, however, that up to 10% of the authorized shares
under this Plan may be subject to Full Value Awards which do not meet these
vesting guidelines.

 

(b)           Terms and
Conditions. Other Stock-based Awards made pursuant to this Section 12
shall be subject to the following terms and conditions:

 

(i)             Subject to the provisions of
this Plan, shares or interests in shares subject to Other Stock-based Awards
made under this Section 12 may not be sold, assigned, transferred, pledged
or otherwise encumbered prior to the date on which the shares are issued, or,
if later, the date on which any applicable restriction, performance or deferral
period lapses.

 

(ii)            Subject to the provisions of
this Plan and the Other Stock-based Award agreement, the recipients of Other
Stock-based Awards under this Section 12 shall be entitled to receive,
currently or on a deferred basis, interest or dividends or interest or Dividend
Equivalents with respect to the number of shares or interests therein covered
by the Other Stock-based Awards, as determined at the time of grant of the
Other Stock-based Awards by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Stock or otherwise reinvested.

 

(iii)           Any Other Stock-based Awards
granted under this Section 12 and any Stock covered by any such Other
Stock-based Award may be forfeited to the extent so provided in the Other
Stock-based Award agreement, as determined by the Committee, in its sole
discretion.

 

(iv)          In the event of the
Participant’s Disability, death or Retirement, the Committee may, in its sole
discretion, waive in whole or in part any or all of the remaining limitations
imposed hereunder (if any) with respect to any or all Other Stock-based Awards;
provided, however, that if such Other
Stock-based Awards are subject to Section 409A of the Code, such waiver
may only occur in the event of the Participant’s Disability or death, or upon
the occurrence of an unforeseeable emergency (as such term is defined under Section 409A
of the Code and Treasury Regulations thereunder) and (ii) the Award
Agreement evidencing such Other Stock-based Awards must provide for such waiver
at the time of grant of such Other Stock-based Awards. Anything in the Plan to
the contrary notwithstanding, upon the occurrence of a Change in Control, any
limitations imposed with respect to any Other Stock-based Award under this Section 12,
including any provision providing for the forfeiture of any Other Stock-based
Award under any circumstance, shall terminate immediately and the number of
shares of or interests in the Stock subject to such Other Stock-based Award
shall be delivered to the Participant (or, in the case of an Other Stock-based
Award with respect to which such number is not determinable, such number of
shares of or interests in the Stock as is determined by the Committee and set
forth in the terms of such Other Stock-based Award); provided,
however, that if such Other Stock-based Award is subject to Section 409A

 

A-30

 

of the Code, (i) such delivery shall
only occur if the Change in Control is deemed to be a change in the ownership
of the Company, a change in effective control of the Company, or a change in
the ownership of a substantial portion of the assets of the Company (as such
terms are defined under Section 409A of the Code and Treasury Regulations
thereunder) and (ii) the Award Agreement evidencing such Other Stock-based
Award must provide for such delivery at the time of grant of such Other
Stock-based Award.

 

(v)           Each Other Stock-based Award
under this Section 12 shall be confirmed by an agreement or other
instrument executed by the Company and by the Participant.

 

(vi)          The Stock or interests therein
(including securities convertible into the Stock) paid or awarded on a bonus
basis under this Section 12 shall be issued for no cash consideration; the
Stock or interests therein (including securities convertible into the Stock)
purchased pursuant to a purchase right Awarded under this Section 12 shall
be priced at least at 50% of the Fair Market Value of the Stock on the date of
grant.

 

(vii)         The Committee, in its sole
discretion, may impose such restrictions on the transferability of Other
Stock-based Awards as it deems appropriate. Any such restrictions shall be set
forth in the written agreement between the Company and the Participant with
respect to such Award.

 

(viii)        Each Other Stock-based Award
to an Insider under this Section 12 shall be subject to all of the
limitations and qualifications that may be required by Section 16 of the
Exchange Act and all of the rules and regulations promulgated thereunder.

 

Section 13.            Deferred
Compensation Awards.

 

(a)           Establishment of Deferred
Compensation Award Programs. This Section 13 shall
not be effective unless and until the Committee determines to establish a
program pursuant to this Section. The Committee, in its discretion and upon
such terms and conditions as it may determine, and subject to the requirements
of Section 409A of the Code, may establish one or more programs pursuant
to the Plan under which a Participant designated by the Committee who is an
Insider or otherwise among a select group of management and highly compensated
Employees may irrevocably elect, prior to a date specified by the Committee, to
reduce such Participant’s compensation otherwise payable in cash (subject to
any minimum or maximum reductions imposed by the Committee) and to be granted
automatically at such time or times as specified by the Committee one or more
Awards of Restricted Stock Units with respect to such numbers of shares of
Stock as determined in accordance with the rules of the program
established by the Committee and having such other terms and conditions as
established by the Committee.

 

(b)           Terms and Conditions of Deferred
Compensation Awards. Deferred Compensation Awards granted pursuant to
this Section 13 may be evidenced by Award 

 

A-31

 

Agreements in such form as the Committee
shall from time to time establish. Deferred Compensation Awards may incorporate
all or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:

 

(c)           Vesting
Conditions. Deferred Compensation Awards shall be subject to
such vesting conditions as shall be determined by the Committee.  Notwithstanding the foregoing, or any other
provision of the Plan, any Deferred Compensation Awards which vest on the basis
of the Participant’s continuous Service with the Company or any Participating
Company shall not provide for vesting which is any more rapid than annual pro
rata vesting over a three-year period and any Deferred Compensation Awards
which provide for vesting upon the attainment of Performance Goals shall
provide for a Performance Period of at least 12 months; provided, however, that (i) up to 10% of the authorized
shares under this Plan may be subject to Full Value Awards which do not meet
these vesting guidelines, (ii) any Restricted Stock Units subject to
Deferred Compensation Awards that are granted in lieu of compensation that has
been earned by the Participant and that is otherwise payable in cash shall not
be subject to these vesting guidelines, and (iii) the vesting of any
Deferred Compensation Awards may accelerated in the event of death, Disability,
Retirement or Change in Control.

 

(d)           Terms
and Conditions of Restricted Stock Units.

 

(i)             Voting
Rights; Dividend Equivalent Rights and Distributions. Participants
shall have no voting rights with respect to shares of Stock represented by
Restricted Stock Units until the date of the issuance of such shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). However, a Participant shall be
entitled to receive Dividend Equivalents with respect to the payment of cash
dividends on Stock having a record date prior to date on which Restricted Stock
Units held by such Participant are settled. Such Dividend Equivalents shall be
paid by crediting the Participant with additional whole and/or fractional
Restricted Stock Units as of the date of payment of such cash dividends on
Stock. The method of determining the number of additional Restricted Stock
Units to be so credited shall be specified by the Committee and set forth in
the Award Agreement. Such additional Restricted Stock Units shall be subject to
the same terms and conditions and shall be settled in the same manner and at
the same time (or as soon thereafter as practicable) as the Restricted Stock
Units originally granted under the Award Agreement. In the event of a dividend
or distribution paid in shares of Stock or any other adjustment made upon a
change in the capital structure of the Company as described in Section 4(c),
appropriate adjustments shall be made in the Participant’s Restricted Stock
Units so that the Participant receives upon settlement any and all new,
substituted or additional securities or other property (other than normal cash
dividends) to which the Participant would entitled by reason of the shares of
Stock issuable upon settlement of the Award.

 

(ii)            Settlement
of Restricted Stock Units. A Participant electing to
receive an Award of Restricted Stock Units pursuant to this Section 13,
shall specify at the time of such election a settlement date with respect to
such 

 

A-32

 

Award. The Company shall issue to the
Participant as soon as practicable following the earlier of the settlement date
elected by the Participant or, if so determined by the Committee, the date of
termination of the Participant’s Service or the date of the Participant’s death
or Disability, a number of whole shares of Stock equal to the number of whole
Restricted Stock Units granted under the Award Agreement. Such shares of Stock
shall be fully vested, and the Participant shall not be required to pay any
additional consideration (other than applicable tax withholding) to acquire
such shares. Any fractional Restricted Stock Units shall be settled by the
Company by payment in cash of an amount equal to the Fair Market Value as of
the payment date of such fractional share.

 

(iii)           Nontransferability
of Restricted Stock Units. Prior to their settlement
in accordance with the provision of the Plan, no Restricted Stock Unit shall be
subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution. All rights with respect to a Restricted Stock Unit
granted to a Participant hereunder shall be exercisable during his or her
lifetime only by such Participant or the Participant’s guardian or legal
representative.

 

Section 14.             Transfer,
Leave of Absence, etc. For purposes of the Plan: (a) a transfer
of an Employee from the Company to a Participating Company, or vice versa, or
from one Participating Company to another; (b) a leave of absence, duly
authorized in writing by the Company, for military service or sickness, or for
any other purposes approved by the Company if the period of such leave does not
exceed three (3) months; or (c) a leave of absence in excess of three
(3) months, duly authorized in writing by the Company, shall not be deemed
a termination of Service. However, if any such leave of absence taken by a
Participant exceeds three (3) months, then any Incentive Stock Option held
by the Participant shall cease to be treated as an Incentive Stock Option and
instead shall be treated thereafter as a Nonqualified Stock Option after six (6) months
following the commencement of such leave, unless the Participant’s right to
return to Service is guaranteed by statute or contract.

 

Section 15.             Amendments
and Termination. The Board may amend, alter, or discontinue the Plan,
but no amendment, alteration, or discontinuation shall be made (i) which
would impair the rights of a Participant under any Award theretofore granted,
without the Participant’s consent, or (ii) which, without the approval of
the shareholders, would:

 

(a)           except as is provided in Section 4
of the Plan, increase the total number of shares available for the purpose of
the Plan;

 

(b)           subsequent to the date of
grant, decrease the option price of any Option or SAR to less than 100% (110%
in the case of a 10% Owner of an Incentive Stock Option) of the Fair Market
Value on the date of the granting of the Option or SAR or cancel any outstanding Option or SAR in exchange for cash,
other awards or Options or SARs with an exercise price that is less than the
exercise price of the original Options or SARs;

 

A-33

 

(c)           extend the maximum option
period under Section 6(b) of the Plan;

 

(d)           otherwise materially
increase the benefits accruing to Participants under, or materially modify the
requirements as to eligibility for participation in, the Plan; or

 

(e)           violate any applicable law, rule or
regulation enacted or promulgated by any governmental authority, securities
exchange, market system  or self
regulatory organization.

 

The Committee may amend the terms of any Award
theretofore granted, prospectively or retroactively, but no such amendment
shall impair the rights of any holder without such holder’s consent.
Notwithstanding the foregoing, the Board or the Committee may, in its
discretion, amend the Plan or terms of any outstanding Award held by a person
then subject to Section 16 of the Exchange Act without the consent of any
holder in order to preserve exemptions under said Section 16 which are or
become available from time to time under rules of the Securities and
Exchange Commission.

 

Section 16.            Unfunded
Status of the Plan. The Plan is intended to constitute an “unfunded” plan
for incentive and deferred compensation. With respect to any payments not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor
of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver the Stock; provided, however,
that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.

 

Section 17.            Employment
at Will. Nothing contained in the Plan, or in any Award
granted pursuant to the Plan, or in any agreement made pursuant to the Plan,
shall confer upon any Participant any right with respect to continuance of
employment by a Participating Company or its subsidiaries, nor interfere in any
way with the right of a Participating Company or its subsidiaries to terminate
the Participant’s employment at will or change the Participant’s compensation
at any time.

 

Section 18.            Additional
Compensation Arrangements. Nothing contained in this
Plan shall prevent the Board of Directors from adopting other or additional
compensation arrangements, subject to shareholder approval if such approval is
required; and such arrangements may be either generally applicable or
applicable only in specific cases.

 

Section 19.            Taxes.

 

(a)           Participants shall make
arrangements satisfactory to the Committee regarding payment of any federal,
state, or local taxes of any kind required by law to be withheld with respect
to any income which the Participant is required, or elects, to include in his
gross income and the Company and its subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Participant. Anything contained herein to the
contrary notwithstanding, the Committee may, in its sole discretion, authorize
acceptance of Stock received in connection with the grant or 

 

A-34

 

exercise of an Award or otherwise previously
acquired in satisfaction of withholding requirements.

 

(b)           Notwithstanding any
provisions to the contrary in this Section 19, an Insider may only satisfy
tax withholding requirements with the settlement of a stock appreciation right
or with shares of the Stock if he or she has held such stock or stock
appreciation right for at least six (6) months or the cash settlement of
the tax obligation occurs no earlier than six (6) months after the date of
an irrevocable election made by an Insider.

 

Section 20.            Standard
Forms of Award Agreement.

 

(a)           Award Agreements. Each Award
shall comply with and be subject to the terms and conditions set forth in the
appropriate form of Award Agreement approved by the Committee and as amended
from time to time. Any Award Agreement may consist of an appropriate form of
notice of grant and a form of agreement incorporated therein by reference, or
such other form or forms, including electronic media, as the Committee may
approve from time to time.

 

(b)           Authority to Vary Terms. The Committee
shall have the authority from time to time to vary the terms of any standard
form of Award Agreement either in connection with the grant or amendment of an
individual Award or in connection with the authorization of a new standard form
or forms; provided, however, that the terms and
conditions of any such new, revised or amended standard form or forms of Award
Agreement are not inconsistent with the terms of the Plan.

 

Section 21.            Change in Control.

 

(a)           Effect of Change in Control on
Options and SARs.

 

(1)           Accelerated Vesting. The Committee, in its discretion, may provide in any Award
Agreement evidencing an Option or SAR Award or, in the event of a Change in
Control, may take such actions as it deems appropriate to provide, for the
acceleration of the exercisability and vesting in connection with such Change
in Control of any or all outstanding Options and SARs and shares acquired upon
the exercise of such Options and SARs upon such conditions and to such extent
as the Committee shall determine.

 

(2)           Assumption or Substitution. In the event of a Change in Control, the Surviving Company,
may, without the consent of any Participant, either assume the Company’s rights
and obligations under outstanding Options and SARs or substitute for
outstanding Options and SARs substantially equivalent options and SARs (as the
case may be) for the stock of the Surviving Company or other Person acquiring
the Company’s Voting Securities in such Change in Control (the “Acquirer”). Any
Options or SARs which are not assumed or substituted in connection with the
Change in Control nor exercised as of the time of consummation of the Change in
Control shall terminate and cease to be outstanding effective as of the time of
consummation of the Change in Control.

 

(3)           Cash-Out of Options or SARs. The Committee, in its discretion and without the consent of
any Participant, may determine that, upon the occurrence of a 

 

A-35

 

Change
in Control, each or any Option or SAR outstanding immediately prior to the
Change in Control shall be canceled in exchange for a payment with respect to
each vested share of Stock subject to such canceled Option or SAR in (i) cash,
(ii) stock of the Company or of a corporation or other business entity a
party to the Change in Control, or (iii) other property which, in any such
case, shall be in an amount having a Fair Market Value equal to the excess of
the Fair Market Value of the consideration to be paid per share of Stock in the
Change in Control over the exercise price per share under such Option or SAR
(the “Spread”). In the event such determination is made by the Committee, the
Spread (reduced by applicable withholding taxes, if any) shall be paid to
Participants in respect of their canceled Options and SARs as soon as
practicable following the date of the Change in Control.

 

(b)           Effect of Change in Control on
Restricted Stock Awards. The Committee, in its discretion, may provide
in any Award Agreement evidencing a Restricted Stock Award or, in the event of
a Change in Control, may take such actions as it deems appropriate to provide,
that the lapsing of the Restriction Period applicable to the shares subject to
the Restricted Stock Award held by a Participant whose Service has not terminated
prior to the Change in Control shall be accelerated effective immediately prior
to the consummation of the Change in Control to such extent as the Committee
shall determine.

 

(c)           Effect of Change in Control on
Restricted Stock Unit Awards. The Committee, in its
discretion, may provide in any Award Agreement evidencing a Restricted Stock
Unit Award or, in the event of a Change in Control, may take such actions as it
deems appropriate to provide, that the Restricted Stock Unit Award held by a
Participant whose Service has not terminated prior to the Change in Control
shall be settled effective as of the date of the Change in Control to such
extent as the Committee shall determine; provided, however,
that if such Restricted Stock Unit Award is subject to Section 409A of the
Code, (i) such settlement shall only occur if the Change in Control is
deemed to be a change in the ownership of the Company, a change in effective
control of the Company, or a change in the ownership of a substantial portion
of the assets of the Company (as such terms are defined under Section 409A
of the Code and Treasury Regulations thereunder) and (ii) the Award
Agreement evidencing such Restricted Stock Unit Award must provide for such
settlement at the time of grant of such Restricted Stock Unit Award.

 

(d)           Effect of Change in Control on
Performance Awards. The Committee, in its discretion, may provide in any
Award Agreement evidencing a Performance Award or, in the event of a Change in
Control, may take such actions as it deems appropriate to provide, that the
Performance Award held by a Participant whose Service has not terminated prior
to the Change in Control or whose Service terminated by reason of the
Participant’s death or Disability shall become payable effective as of the date
of the Change in Control to such extent as the Committee shall determine; provided, however, that if such Performance Award is subject
to Section 409A of the Code, (i) such payment shall only occur if the
Change in Control is deemed to be a change in the ownership of the Company, a
change in effective control of the Company, or a change in the ownership of a
substantial portion of the assets of the Company (as such terms are defined
under Section 409A of the Code and Treasury Regulations thereunder) and (ii) the
Award Agreement evidencing such Performance Award must provide for such payment
at the time of grant of such Performance Award.

 

A-36

 

(e)           Effect of Change in Control on
Deferred Stock Awards, Other Stock-Based Awards and Deferred Compensation
Awards. The Committee, in its discretion, may provide in any
Award Agreement evidencing a Deferred Stock Award, Other Stock-based Award or a
Deferred Compensation Award or, in the event of a Change in Control, may take
such actions as it deems appropriate to provide, that the stock or Restricted
Stock Units pursuant to such Award shall be settled effective as of the date of
the Change in Control; provided, however,
that if such Award is subject to Section 409A of the Code, (i) such
settlement shall only occur if the Change in Control is deemed to be a change
in the ownership of the Company, a change in effective control of the Company,
or a change in the ownership of a substantial portion of the assets of the
Company (as such terms are defined under Section 409A of the Code and
Treasury Regulations thereunder) and (ii) the Award Agreement evidencing
such Award must provide for such settlement at the time of grant of such Award.

 

(f)            Excise Tax Limit. In the event
that the vesting of Awards together with all other payments and the value of
any benefit received or to be received by a Participant would result in all or
a portion of such payment being subject to the excise tax under Section 4999
of the Code, then the Participant’s payment shall be either (i) the full
payment or (ii) such lesser amount that would result in no portion of the
payment being subject to excise tax under Section 4999 of the Code (the “Excise
Tax”), whichever of the foregoing amounts, taking into account the applicable
federal, state, and local employment taxes, income taxes, and the Excise Tax,
results in the receipt by the Participant, on an after-tax basis, of the
greatest amount of the payment notwithstanding that all or some portion of the
payment may be taxable under Section 4999 of the Code. All determinations
required to be made under this Section 21(f) shall be made by the
nationally recognized accounting firm which is the Company’s outside auditor
immediately prior to the event triggering the payments that are subject to the
Excise Tax (the “Accounting Firm”). The Company shall cause the Accounting Firm
to provide detailed supporting calculations of its determinations to the
Company and the Participant. All fees and expenses of the Accounting Firm shall
be borne solely by the Company. The Accounting Firm’s determinations must be
made with substantial authority (within the meaning of Section 6662 of the
Code). For the purposes of all calculations under Section 280G of the Code
and the application of this Section 21(f), all determinations as to
present value shall be made using 120 percent of the applicable Federal rate
(determined under Section 1274(d) of the Code) compounded
semiannually, as in effect on December 30, 2004.

 

Section 22.             Compliance
With Securities Law. The grant of Awards and the issuance of shares
of Stock pursuant to any Award shall be subject to compliance with all
applicable requirements of federal, state and foreign law with respect to such
securities and the requirements of any stock exchange or market system upon
which the Stock may then be listed. In addition, no Award may be exercised or
shares issued pursuant to an Award unless (a) a registration statement
under the Securities Act shall at the time of such exercise or issuance be in
effect with respect to the shares issuable pursuant to the Award or (b) in
the opinion of legal counsel to the Company, the shares issuable pursuant to
the Award may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. The inability of the
Company to obtain from any regulatory body having jurisdiction the authority,
if any, deemed by the Company’s legal counsel to be necessary to the lawful
issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite 

 

A-37

 

authority shall not have been obtained. As a
condition to issuance of any Stock, the Company may require the Participant to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any
representation, warranty or covenant with respect thereto as may be requested
by the Company.

 

Section 23.            Miscellaneous
Provisions.

 

(a)           Deferrals of Payment. In addition to
the grant of Deferred Stock Awards or Deferred Compensation Awards under Section 11
or 13 of the Plan, the Committee may in its discretion permit a Participant to
defer the receipt of payment of cash or delivery of shares of Stock that would
otherwise be due to the Participant by virtue of the exercise of a right or the
satisfaction of vesting or other conditions with respect to an Award. If any
such deferral is to be permitted by the Committee, the Committee shall
establish rules and procedures relating to such deferral in a manner
intended to comply with the requirements of Section 409A of the Code,
including, without limitation, the time when an election to defer may be made,
the time period of the deferral and the events that would result in payment of
the deferred amount, the interest or other earnings attributable to the
deferral and the method of funding, if any, attributable to the deferred
amount.

 

(b)           Repurchase Rights. Shares issued
under the Plan may be subject to one or more repurchase options, or other
conditions and restrictions as determined by the Committee in its discretion at
the time the Award is granted. The Company shall have the right to assign at
any time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Participant shall execute any agreement evidencing
such repurchase options or transfer restrictions prior to the receipt of shares
of Stock hereunder and shall promptly present to the Company any and all
certificates representing shares of Stock acquired hereunder for the placement
on such certificates of appropriate legends evidencing any such repurchase
options or transfer restrictions.

 

(c)           Provision of Information. Each
Participant shall be given access to information concerning the Company
equivalent to that information generally made available to the Company’s common
shareholders.

 

(d)           Rights as Employee, Consultant or
Director. No person, even though eligible pursuant to Section 5,
shall have a right to be selected as a Participant, or, having been so
selected, to be selected again as a Participant. Nothing in the Plan or any
Award granted under the Plan shall confer on any Participant a right to remain
an Employee, Officer, Consultant or Director or interfere with or limit in any
way any right of a Participating Company to terminate the Participant’s Service
at any time. To the extent that an Employee of a Participating Company other
than the Company receives an Award under the Plan, that Award shall in no event
be understood or interpreted to mean that the Company is the Employee’s
employer or that the Employee has an employment relationship with the Company.

 

(e)           Rights as a Shareholder. A Participant
shall have no rights as a shareholder with respect to any shares covered by an
Award until the date of the issuance of 

 

A-38

 

such shares (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date such shares are issued,
except as provided in Section 4(c) or another provision of the Plan.

 

(f)            Fractional Shares. The Company
shall not be required to issue fractional shares upon the exercise or
settlement of any Award; provided, however,
that if the Company does not issue fractional shares upon the exercise or
settlement of any Award, it shall make a cash payment equal to the Fair Market
Value of such fractional shares unless such fractional shares are rounded up.

 

(g)           Severability. If any one or
more of the provisions (or any part thereof) of this Plan shall be held
invalid, illegal or unenforceable in any respect, such provision shall be
modified so as to make it valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions (or any part thereof)
of the Plan shall not in any way be affected or impaired thereby.

 

(h)           Beneficiary Designation. Subject to
local laws and procedures, each Participant may file with the Company a written
designation of a beneficiary who is to receive any benefit under the Plan to
which the Participant is entitled in the event of such Participant’s death
before he or she receives any or all of such benefit. Each designation will
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant’s lifetime. If a
married Participant designates a beneficiary other than the Participant’s
spouse, the effectiveness of such designation may be subject to the consent of
the Participant’s spouse. If a Participant dies without an effective
designation of a beneficiary who is living at the time of the Participant’s
death, the Company will pay any remaining unpaid benefits to the Participant’s
legal representative.

 

(i)            Choice of Law. Except to the
extent governed by applicable federal law, the validity, interpretation,
construction and performance of the Plan and each Award Agreement shall be
governed by the laws of the State of New Jersey, without regard to its conflict
of law rules.

 

Section 24.            Effective
Date of the Plan. The Plan shall be effective on the Effective Date.

 

Section 25.            Term
of the Plan. No Award shall be granted pursuant to the Plan after May 19,
2015, but Awards theretofore granted may extend beyond that date.

 

A-39Exhibit
10.1

 

AML
COMMUNICATIONS, INC.

 

2005
EQUITY INCENTIVE PLAN

 

1.                                      NAME.

 

                                                The
name of the plan is “AML Communications, Inc. 2005 Equity Incentive Plan.”

 

2.                                      PURPOSE.

 

The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, and its Parent and
Subsidiaries (if any), by offering them an opportunity to participate in the
Company’s future performance through awards of Options, Restricted Stock and
Stock Awards. Capitalized terms not defined in the text are defined in Section 3.

 

3.                                      DEFINITIONS.

 

As used in this Plan, the following terms
will have the following meanings:

 

“AWARD”
means any award under this Plan, including any Option, Restricted Stock or
Stock Award.

 

“AWARD AGREEMENT” means, with respect
to each Award, the signed written agreement between the Company and the
Participant setting forth the terms and conditions of the Award.

 

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

 

“CAUSE”
means any cause, as defined by applicable law, for the termination of a
Participant’s employment with the Company or a Parent or Subsidiary of the
Company.

 

“CODE” means the Internal Revenue
Code of 1986, as amended.

 

“COMMITTEE” means the Board of
Directors.

 

“COMPANY” means AML Communications, Inc.,
a Delaware corporation, or any successor corporation.

 

“DISABILITY”
means a disability, whether temporary or permanent, partial or total, as
determined by the Committee.

 

“EXCHANGE ACT” means the Securities
Exchange Act of 1934, as amended.

 

“EXERCISE PRICE” means the price at
which a holder of an Option may purchase the Shares issuable upon exercise of
the Option.

 

1

 

“FAIR MARKET VALUE” means, as of any
date, the value of a share of the Company’s Common Stock determined as follows:

 

(a)                                  if
such Common Stock is publicly traded and is then listed on a national
securities exchange, its closing price on the date of determination on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street Journal;

 

(b)                                 if
such Common Stock is quoted on the NASDAQ National Market, its closing price on
the NASDAQ National Market on the date of determination as reported in The Wall Street Journal;

 

(c)                                  if
such Common Stock is publicly traded but is not listed or admitted to trading
on a national securities exchange, the average of the closing bid and asked
prices on the date of determination as reported in The Wall
Street Journal;

 

(d)                                 the price per share at which shares of
the Company’s Common Stock are initially offered for sale to the public by the
Company’s underwriters in the initial public offering of the Company’s Common
Stock pursuant to a registration statement filed with the SEC under the
Securities Act if the Award is made on the effective date of such registration
statement; or

 

(e)                                  if
none of the foregoing is applicable, by the Committee in good faith.

 

“INSIDER” means an officer or director
of the Company or any other person whose transactions in the Company’s Common
Stock are subject to Section 16 of the Exchange Act.

 

“OPTION” means an award of an option
to purchase Shares pursuant to Section 7.

 

“PARENT” means any corporation (other
than the Company) in an unbroken chain of corporations ending with the Company
if each of such corporations other than the Company owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

 

“PARTICIPANT” means a person who
receives an Award under this Plan.

 

“PERFORMANCE FACTORS” means the
factors selected by the Committee, in its sole and absolute discretion, from
among the following measures to determine whether the performance goals
applicable to Awards have been satisfied:

 

(a)                                Net revenue and/or net
revenue growth;

 

(b)                               Earnings
before income taxes and amortization and/or earnings before income taxes and
amortization growth;

 

(c)                                Operating income and/or
operating income growth;

 

(d)                               Net income and/or net
income growth;

 

(e)                                Earnings per share
and/or earnings per share growth;

 

2

 

(f)                                    Total
stockholder return and/or total stockholder return growth;

 

(g)                                 Return
on equity;

 

(h)                                 Operating
cash flow return on income;

 

(i)                                     Adjusted
operating cash flow return on income;

 

(j)                                     Economic
value added; and

 

(k)                                  Individual
business objectives.

 

“PERFORMANCE PERIOD” means the period
of service determined by the Committee, not to exceed five years, during which
years of service or performance is to be measured for Restricted Stock Awards
or Stock Awards.

 

“PLAN” means this AML Communications, Inc.
2005 Equity Incentive Plan, as amended from time to time.

 

“RESTRICTED STOCK AWARD” means an award
of Shares pursuant to Section 8.

 

“SEC” means the Securities and
Exchange Commission.

 

“SECURITIES ACT” means the Securities
Act of 1933, as amended.

 

“SHARES” means shares of the Company’s
Common Stock reserved for issuance under this Plan, as adjusted pursuant to
Sections 4 and 19, and any successor security.

 

“STOCK AWARD” means an award of
Shares, or cash in lieu of Shares, pursuant to Section 9.

 

“SUBSIDIARY” means any corporation
(other than the Company) in an unbroken chain of corporations beginning with
the Company if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.

 

“TERMINATION”
or “TERMINATED” means, for purposes of
this Plan with respect to a Participant, that the Participant has for any
reason ceased to provide services as an employee, officer, director,
consultant, independent contractor, or advisor to the Company or a Parent or
Subsidiary of the Company. An employee will not be deemed to have ceased to
provide services in the case of (i) sick leave, (ii) military leave,
or (iii) any other leave of absence approved by the Company, provided that
such leave is for a period of not more than 90 days, unless reemployment upon
the expiration of such leave is guaranteed by contract or statute or unless
provided otherwise pursuant to a formal policy adopted from time to time by the
Company and issued and promulgated to employees in writing. In the case of any
employee on an approved leave of absence, the Committee may make such
provisions respecting suspension of vesting of the Award while on leave from
the employ of the Company or a Subsidiary as it may deem appropriate, except
that in no event may an Option be exercised after the expiration of the term
set forth in the Option agreement. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the “Termination
Date”).

 

3

 

4.                                      SHARES
SUBJECT TO THE PLAN.

 

4.1                                 Number of Shares
Available. Subject to Sections 4.2 and 19, the total aggregate number of
Shares initially reserved and available for grant and issuance pursuant to this
Plan will be 500,000 Shares and will include Shares that are subject to:  (a) issuance upon exercise of an Option
but cease to be subject to such Option for any reason other than exercise of
such Option; (b) an Award granted hereunder but forfeited or repurchased
by the Company at the original issue price; and (c) an Award that
otherwise terminates without Shares being issued. Subject to this Section 4.1,
the number of Shares reserved and available for grant and issuance shall be
increased on the first day of January of each year so that the total of
all Common Stock available for Awards shall be the maximum amount allowable
under Regulation 260.140.45 of Title 10 of the California Code of Regulations. At
all times the Company shall reserve and keep available a sufficient number of
Shares as shall be required to satisfy the requirements of all outstanding
Options granted under this Plan and all other outstanding but unvested Awards
granted under this Plan. At no time shall the total number of shares issuable
upon exercise of all outstanding Awards exceed the applicable percentage as
calculated in accordance with the conditions and exclusions of Regulation
260.140.45 of Title 10 of the California Code of Regulations, based on the
shares of the Company’s Common Stock which are outstanding at the time the
calculation is made.

 

4.2                                 Adjustment of
Shares. In the event that the number of outstanding shares is changed by a
stock dividend, recapitalization, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the capital
structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under this Plan, (b) the Exercise Prices of
and number of Shares subject to outstanding Options, and (c) the number of
Shares subject to other outstanding Awards will be proportionately adjusted,
subject to any required action by the Board or the stockholders of the Company
and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.

 

5.                                      ELIGIBILITY.

 

ISOs (as defined in Section 7 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All
other Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent or Subsidiary
of the Company, provided such consultants, contractors and advisors render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
this Plan.

 

6.                                      ADMINISTRATION.

 

6.1                                 Committee Authority.
This Plan will be administered by the Committee or by the Board acting as the
Committee. Subject to the general purposes, terms and conditions of this Plan,
and to the direction of the Board, the Committee will have full power to
implement and carry out this Plan. Without limitation, the Committee will have
the authority to:

 

4

 

(a)                                  construe and interpret this Plan, any
Award Agreement and any other agreement or document executed pursuant to this
Plan;

 

(b)                                 prescribe, amend and
rescind rules and regulations relating to this Plan or any Award;

 

(c)                                  select
persons to receive Awards;

 

(d)                                 determine
the form and terms of Awards;

 

(e)                                  determine the number
of Shares or other consideration subject to Awards;

 

(f)                                    determine whether Awards will be granted
singly, in combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of the Company;

 

(g)                                 grant
waivers of Plan or Award conditions;

 

(h)                                 determine
the vesting, exercisability and payment of Awards;

 

(i)                                     correct any
defect, supply any omission or reconcile any inconsistency in this Plan, any
Award or any Award Agreement;

 

(j)                                     determine
whether an Award has been earned; and

 

(k)                                  make all other
determinations necessary or advisable for the administration of this Plan.

 

6.2                                 Committee
Discretion. Any determination made by the Committee with respect to any
Award will be made at the time of grant of the Award or, unless in
contravention of any express term of this Plan or Award, at any later time, and
such determination will be final and binding on the Company and on all persons
having an interest in any Award under this Plan. The Committee may delegate to
one or more officers of the Company the authority to grant an Award under this
Plan to Participants who are not Insiders of the Company.

 

7.                                    OPTIONS.

 

The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options within
the meaning of the Code (“ISO”) or Nonqualified Stock Options (“NQSOs”), the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:

 

7.1                                 Form of Option
Grant. Each Option granted under this Plan will be evidenced by an Award
Agreement which will expressly identify the Option as an ISO or an NQSO
(hereinafter referred to as the “Stock Option Agreement”), and will be in such
form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.

 

5

 

7.2                                 Date of Grant. The
date of grant of an Option will be the date on which the Committee makes the
determination to grant such Option, unless otherwise specified by the Committee.
The Stock Option Agreement and a copy of this Plan will be delivered to the
Participant within a reasonable time after the granting of the Option.

 

7.3                                 Exercise Period.
Options may be exercisable within the times or upon the events determined by
the Committee as set forth in the Stock Option Agreement governing such Option;
provided, however, that no Option will be exercisable after the expiration of
ten (10) years from the date the Option is granted; and provided further
that no ISO granted to a person who directly or by attribution owns more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any Parent or Subsidiary of the Company (“Ten Percent
Stockholder”) will be exercisable after the expiration of five (5) years
from the date the ISO is granted. The Committee also may provide for Options to
become exercisable at one time or from time to time, periodically or otherwise,
in such number of Shares or percentage of Shares as the Committee determines,
provided, however, that in all events a Participant will be entitled to
exercise an Option at the rate of at least 20% per year over five years from
the date of grant, subject to reasonable conditions such as continued
employment; and further provided that an Option granted to a Participant who is
an officer, director or consultant may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.

 

7.4                                 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided
that:  (a) the Exercise Price of an
ISO will be not less than 100% of the Fair Market Value of the Shares on the
date of grant; and (b) the Exercise Price of an Option granted to a Ten Percent
Stockholder will not be less than 110% of the Fair Market Value of the Shares
on the date of grant. Payment for the Shares purchased may be made in
accordance with Section 10 of this Plan.

 

7.5                                 Method of Exercise.
Options may be exercised only by delivery to the Company of a written stock
option exercise agreement  (the “Exercise
Agreement”) in a form approved by the Committee, (which need not be the same
for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding the Participant’s
investment intent and access to information and other matters, if any, as may
be required or desirable by the Company to comply with applicable securities
laws, together with payment in full of the Exercise Price for the number of
Shares being purchased.

 

7.6                                 Termination. Notwithstanding
the exercise periods set forth in the Stock Option Agreement, exercise of an
Option will always be subject to the following:

 

(a)                                  If the Participant’s service is
Terminated for any reason except death or Disability, then the Participant may
exercise such Participant’s Options only to the extent that such Options would
have been exercisable upon the Termination Date no later than three (3) months
after the Termination Date (or such longer time period not exceeding five (5) years
as may be determined by the Committee, with any exercise beyond three (3) months
after the Termination Date deemed to be an NQSO).

 

6

 

(b)                                 If the Participant’s service is
Terminated because of the Participant’s death or Disability (or the Participant
dies within three (3) months after a Termination other than for Cause or
because of Participant’s Disability), then the Participant’s Options may be
exercised only to the extent that such Options would have been exercisable by
the Participant on the Termination Date and must be exercised by the
Participant (or the Participant’s legal representative) no later than twelve
(12) months after the Termination Date (or such longer time period not
exceeding five (5) years as may be determined by the Committee, with any
such exercise beyond (i) three (3) months after the Termination Date
when the Termination is for any reason other than the Participant’s death or
Disability, or (ii) twelve (12) months after the Termination Date when the
Termination is for Participant’s death or Disability, deemed to be an NQSO).

 

(c)                                  Notwithstanding the provisions in
paragraph 7.6(a) above, if the Participant’s service is Terminated for
Cause, as defined by applicable law, neither the Participant, the Participant’s
estate nor such other person who may then hold the Option shall be entitled to
exercise any Option with respect to any Shares whatsoever, after Termination,
whether or not after Termination the Participant may receive payment from the
Company or a Subsidiary for vacation pay, for services rendered prior to
Termination, for services rendered for the day on which Termination occurs, for
salary in lieu of notice, or for any other benefits. For the purpose of this
paragraph, subject to the foregoing, Termination shall be deemed to occur on
the date when the Company dispatches notice or advice to the Participant that
his service is Terminated.

 

7.7                                 Limitations on
Exercise. The Committee may specify a reasonable minimum number of Shares
that may be purchased on any exercise of an Option, provided that such minimum
number will not prevent the Participant from exercising the Option for the full
number of Shares for which it is then exercisable.

 

7.8                                 Limitations on ISO.
The aggregate Fair Market Value (determined as of the date of grant) of Shares
with respect to which ISO are exercisable for the first time by a Participant
during any calendar year (under this Plan or under any other incentive stock
option plan of the Company, Parent or Subsidiary of the Company) will not
exceed $100,000. If the Fair Market Value of Shares on the date of grant with
respect to which ISO are exercisable for the first time by a Participant during
any calendar year exceeds $100,000, then the Options for the first $100,000
worth of Shares to become exercisable in such calendar year will be ISO and the
Options for the amount in excess of $100,000 that become exercisable in that
calendar year will be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date of this Plan to
provide for a different limit on the Fair Market Value of Shares permitted to
be subject to ISO, such different limit will be automatically incorporated
herein and will apply to any Options granted after the effective date of such
amendment.

 

7.9                                 Modification, Extension or Renewal. The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options in substitution
therefore, provided that any such action may not, without the written consent
of a Participant, impair any of such Participant’s rights under any Option
previously granted. Any outstanding ISO that is modified, extended, renewed or
otherwise altered will be treated in accordance with Section 424(h) of
the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 7.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.

 

7

 

7.10                           No Disqualification. Notwithstanding
any other provision in this Plan, no term of this Plan relating to ISO will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422
of the Code or, without the consent of the Participant affected, to disqualify
any ISO under Section 422 of the Code.

 

8.                                      RESTRICTED STOCK.

 

A Restricted Stock Award is an offer by the Company to
sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the “Purchase Price”), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:

 

8.1                                 Form of
Restricted Stock Award. All purchases under a Restricted Stock Award made
pursuant to this Plan will be evidenced by an Award Agreement (the “Restricted
Stock Purchase Agreement”) that will be in such form (which need not be the
same for each Participant) as the Committee will from time to time approve, and
will comply with and be subject to the terms and conditions of this Plan. The
offer of Restricted Stock will be accepted by the Participant’s execution and
delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted
Stock Purchase Agreement is delivered to the person. If such person does not
execute and deliver the Restricted Stock Purchase Agreement along with full
payment for the Shares to the Company within thirty (30) days, then the offer
will terminate, unless otherwise extended by the Committee.

 

8.2                                 Purchase Price.
The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be
determined by the Committee on the date the Restricted Stock Award is granted
and may not be less than 85% of the Fair Market Value of the Shares on the
grant date, except in the case of a sale to a Ten Percent Stockholder, in which
case the Purchase Price will be 100% of the Fair Market Value. Payment of the
Purchase Price must be made in accordance with Section 10 of this Plan.

 

8.3                                 Terms of Restricted Stock Awards. Restricted Stock Awards shall be
subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in
the Participant’s individual Restricted Stock Purchase Agreement. Restricted
Stock Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall:  (a) determine the nature,
length and starting date of any Performance Period for the Restricted Stock
Award; (b) select from among the Performance Factors to be used to measure
performance goals, if any; and (c) determine the number of Shares that may
be awarded to the Participant. Prior to the payment of any Restricted Stock
Award, the Committee shall determine the extent to which such Restricted Stock
Award has been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Restricted Stock Awards that are
subject to different Performance Periods and have different performance goals
and other criteria.

 

8.4                                 Termination During
Performance Period. If a Participant is Terminated during a Performance
Period for any reason, then such Participant will be entitled to payment
(whether in Shares, cash or otherwise) with respect to the Restricted Stock
Award only to the extent earned as of the date of Termination in accordance
with the Restricted Stock Purchase Agreement, unless the Committee determines
otherwise.

 

8

 

9.                                      STOCK
AWARDS.

 

9.1                                 Awards
of Stock.  A Stock Award is an award
of Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent or Subsidiary of the Company.  A Stock Award will be awarded pursuant to an
Award Agreement (the “Stock Award Agreement”) that will be in such form (which
need not be the same for each Participant) as the Committee will from time to
time approve, and will comply with and be subject to the terms and conditions
of this Plan.  A Stock Award may be
awarded upon satisfaction of such performance goals as are set out in advance
in the Participant’s individual Stock Award Agreement (the “Performance Stock
Award Agreement”) that will be in such form (which need not be the same for
each Participant) as the Committee will from time to time approve, and will
comply with and be subject to the terms and conditions of this Plan.  Stock Awards may vary from Participant to
Participant and between groups of Participants, and may be based upon the
achievement of the Company, Parent or Subsidiary and/or individual performance
factors or upon such other criteria as the Committee may determine.

 

9.2                                 Terms of Stock Awards. 
The Committee will determine the number of Shares to be awarded to the
Participant.  If the Stock Award is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Award Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Award; (b) select
from among the Performance Factors to be used to measure the performance, if
any; and (c) determine the number of Shares that may be awarded to the
Participant.  Prior to the payment of any
Stock Award, the Committee shall determine the extent to which such Stock Award
has been earned.  Performance Periods may
overlap and Participants may participate simultaneously with respect to Stock
Awards that are subject to different Performance Periods and different
performance goals and other criteria. 
The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee.  The Committee may adjust the performance
goals applicable to the Stock Awards to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the impact of extraordinary or
unusual items, events or circumstances to avoid windfalls or hardships.

 

9.3                                 Form of
Payment.  The earned portion of a
Stock Award may be paid to the Participant by the Company either currently or
on a deferred basis, with such interest or dividend equivalent, if any, as the
Committee may determine.  Payment may be
made in the form of cash or whole Shares or a combination thereof, either in a
lump sum payment or in installments, all as the Committee will determine.

 

10.                               PAYMENT
FOR SHARE PURCHASES.

 

10.1                           Payment.  Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:

 

(a)                                  by
cancellation of indebtedness of the Company to the Participant;

 

(b)                                 by surrender of shares that either: (1) have
been owned by the Participant for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has been
fully paid with respect to such shares); or (2) were obtained by the
Participant in the public market;

 

9

 

(c)                                  by tender of a full recourse promissory
note having such terms as may be approved by the Committee and bearing interest
at a rate sufficient to avoid imputation of income under Sections 483 and 1274
of the Code; provided, however, that Participants who are not employees of the
Company and officers and directors of the Company will not be entitled to
purchase Shares with a promissory note;

 

(d)                                 by waiver of compensation due or accrued
to the Participant for services rendered;

 

(e)                                  with respect only to purchases upon
exercise of an Option, and provided that a public market for the Company’s
stock exists:

 

(1)                                  through a “same day sale” commitment from
the Participant and a broker-dealer that is a member of the National
Association of Securities Dealers (an “NASD Dealer”) whereby the Participant
irrevocably elects to exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the Exercise Price
directly to the Company; or

 

(2)                                  through a “margin” commitment from the
Participant and a NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price directly to the Company; or

 

(f)                                    by any combination
of the foregoing.

 

10.2                           Loan Guarantees. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.

 

11.                               WITHHOLDING
TAXES.

 

11.1                           Withholding Generally. 
Whenever Shares are to be issued in satisfaction of Awards granted under
this Plan, the Company may require the Participant to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such Shares.  Whenever, under this Plan, payments in
satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.

 

11.2                           Stock
Withholding.  When, under applicable
tax laws, a participant incurs tax liability in connection with the exercise or
vesting of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may allow the Participant to satisfy the minimum withholding tax obligation by
electing to have the Company withhold from the Shares to be issued that number
of Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined.  All elections by a
Participant to have Shares withheld for this purpose will be made in accordance
with the requirements established by the Committee and will be in writing in a
form acceptable to the Committee.

 

10

 

12.                               PRIVILEGES
OF STOCK OWNERSHIP.

 

12.1                           Voting and Dividends. 
No Participant will have any of the rights of a stockholder with respect
to any Shares until the Shares are issued to the Participant.  After Shares are issued to the Participant,
the Participant will be a stockholder and will have all the rights of a
stockholder with respect to such Shares, including the right to vote and
receive all dividends or other distributions made or paid with respect to such
Shares; provided, that if such Shares are Restricted Stock, then any new,
additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock split
or any other change in the corporate or capital structure of the Company will
be subject to the same restrictions as the Restricted Stock.

 

12.2                           Financial Statements. 
The Company will provide financial statements to each Participant prior
to such Participant’s purchase of Shares under this Plan, and to each
Participant annually during the period such Participant has Awards outstanding.

 

13.                               NON-TRANSFERABILITY
OF AWARDS.

 

Awards of Stock and Restricted Stock granted under this Plan, and any
interest therein, will not be transferable or assignable by the Participant,
and may not be made subject to execution, attachment or similar process, other
than by will or by the laws of descent and distribution.  Awards of Options granted under this Plan,
and any interest therein, will not be transferable or assignable by the
Participant, and may not be made subject to execution, attachment or similar
process, other than by will or by the laws of descent and distribution, by
instrument to an inter vivos or testamentary trust in which the options are to
be passed to beneficiaries upon the death of the trustor, or by gift to “immediate
family” as that term is defined in 17 C.F.R. 240.16a-1(e).  During the lifetime of the Participant an
Award will be exercisable only by the Participant.  During the lifetime of the Participant, any
elections with respect to an Award may be made only by the Participant unless
otherwise determined by the Committee and set forth in the Award Agreement with
respect to Awards that are not ISOs.

 

14.                               CERTIFICATES.

 

All certificates for Shares or other securities delivered under this
Plan will be subject to such stop transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

 

15.                               ESCROW;
PLEDGE OF SHARES.

 

To enforce any restrictions on a Participant’s Shares, the Committee
may require the Participant to deposit all certificates representing Shares,
together with stock powers or other instruments of transfer approved by the
Committee appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have lapsed
or terminated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates. 
Any Participant who is permitted to execute a promissory note as partial
or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as 

 

11

 

collateral to secure the payment of the Participant’s obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant’s Shares or other collateral. 
In connection with any pledge of the Shares, the Participant will be
required to execute and deliver a written pledge agreement in such form as the
Committee will from time to time approve. 
The Shares purchased with the promissory note may be released from the
pledge on a pro rata basis as the promissory note is paid.

 

16.                               EXCHANGE
OF AWARDS.

 

The Committee may, at any time or from time to time, authorize the
Company, with the consent of the respective Participants, to issue new Awards
in exchange for the surrender and cancellation of any or all outstanding
Awards.

 

17.                               SECURITIES LAW AND OTHER
REGULATORY COMPLIANCE.

 

An Award will not be effective unless such Award is in compliance with
all applicable federal and state securities laws, rules and regulations of
any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they
are in effect on the date of grant of the Award and also on the date of
exercise or other issuance. Notwithstanding any other provision in this Plan,
the Company will have no obligation to issue or deliver certificates for Shares
under this Plan prior to: (a) obtaining any approvals from governmental
agencies that the Company determines are necessary or advisable; and/or (b) completion
of any registration or other qualification of such Shares under any state or
federal law or ruling of any governmental body that the Company determines to
be necessary or advisable.  The Company
will be under no obligation to register the Shares with the SEC or to effect
compliance with the registration, qualification or listing requirements of any
state securities laws, stock exchange or automated quotation system, and the
Company will have no liability for any inability or failure to do so.

 

18.                               NO OBLIGATION TO EMPLOY.

 

Nothing in this Plan or any Award granted under this Plan will confer
or be deemed to confer on any Participant any right to continue in the employ
of, or to continue any other relationship with, the Company or any Parent or
Subsidiary of the Company or limit in any way the right of the Company or any
Parent or Subsidiary of the Company to terminate Participant’s employment or
other relationship at any time, with or without cause.

 

19.                               CORPORATE
TRANSACTIONS.

 

19.1                           Assumption
or Replacement of Awards by Successor. 
In the event of (a) a dissolution or liquidation of the Company, (b) a
merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or other
transaction in which there is no substantial change in the stockholders of the
Company or their relative stock holdings and the Awards granted under this Plan
are assumed, converted or replaced by the successor corporation, which
assumption will be binding on all Participants), (c) a merger in which the
Company is the surviving corporation but after which the stockholders of the
Company immediately prior to such merger (other than any stockholder that
merges, or which owns or 

 

12

 

controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition,
sale, or transfer of more than 50% of the outstanding shares of the Company by
tender offer or similar transaction, any or all outstanding Awards may be
assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants.  In the alternative, the successor corporation
may substitute equivalent Awards or provide substantially similar consideration
to Participants as was provided to stockholders (after taking into account the
existing provisions of the Awards).  The
successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant.  In the event such successor corporation (if
any) refuses to assume or substitute Awards, as provided above, pursuant to a
transaction described in this Subsection 19.1, such Awards will expire on such
transaction at such time and on such conditions as the Committee will
determine.  Notwithstanding anything in
this Plan to the contrary, the Committee may provide that the vesting of any or
all Awards granted pursuant to this Plan will accelerate upon a transaction
described in this Section 19.  If
the Committee exercises such discretion with respect to Options, such Options
will become exercisable in full prior to the consummation of such event at such
time and on such conditions as the Committee determines, and if such Options
are not exercised prior to the consummation of the corporate transaction, they
shall terminate at such time as determined by the Committee.

 

19.2                           Other Treatment of Awards. 
Subject to any greater rights granted to Participants under the
foregoing provisions of this Section 19, in the event of the occurrence of
any transaction described in Section 19.1, any outstanding Awards will be
treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, or sale of assets.

 

19.3                           Assumption of Awards by the Company. 
The Company, from time to time, also may substitute or assume
outstanding awards granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either; (a) granting an
Award under this Plan in substitution of such other company’s award; or (b) assuming
such award as if it had been granted under this Plan if the terms of such
assumed award could be applied to an Award granted under this Plan.  Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant.  In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code).  In the event the Company elects to grant a
new Option rather than assuming an existing option, such new Option may be
granted with a similarly adjusted Exercise Price.

 

20.                               ADOPTION
AND EFFECTIVE DATE.

 

This AML Communications, Inc. 2005 Equity Incentive Plan is
effective as of November 1, 2005, the date it was adopted by the Board.

 

21.                               STOCKHOLDER
APPROVAL.

 

This Plan shall be approved by the stockholders of the Company within
twelve (12) months before or after the date this Plan is adopted by the Board.

 

13

 

22.                               TERM
OF PLAN/GOVERNING LAW.

 

Unless earlier terminated as provided herein, this Plan will terminate
on November 1, 2015.  This Plan and
all agreements thereunder shall be governed by and construed in accordance with
the laws of the State of California.

 

23.                               AMENDMENT
OR TERMINATION OF PLAN.

 

The Board may at any time terminate or amend this Plan in any respect,
including without limitation amendment of any form of Award Agreement or
instrument to be executed pursuant to this Plan; provided, however, that the
Board will not, without the approval of the stockholders of the Company, amend
this Plan in any manner that requires such stockholder approval under the Code,
if applicable, or by any stock exchange or market on which the Common Stock of
the Company is listed for trading.

 

24.                               NONEXCLUSIVITY OF THE PLAN.

 

Neither the adoption of this Plan by the Board, the submission of this
Plan to the stockholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable,
including, without limitation, the granting of stock options and bonuses
otherwise than under this Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.

 

25.                               ACTION
BY COMMITTEE.

 

Any action
permitted or required to be taken by the Committee or any decision or
determination permitted or required to be made by the Committee pursuant to
this Plan shall be taken or made in the Committee’s sole and absolute
discretion.

 

*****************************************

 

14

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