Document:

EXHIBIT
10.2

 

NATIONAL SEMICONDUCTOR

 

2005
EXECUTIVE OFFICER EQUITY PLAN

 

(as
amended effective August 7, 2007,

subject
to stockholder approval)

 

1.                                       PURPOSE AND OBJECTIVES

 

The National Semiconductor
2005 Executive Officer Equity Plan (the “Plan”) is designed to align the
interests of Executive Officers of National Semiconductor Corporation with the
interests of the Company’s stockholders and to provide incentives for such
Executive Officers to exert maximum efforts for the success of the Company. By
extending to Executive Officers the opportunity to acquire proprietary
interests in the Company and to participate in its success, the Plan may be
expected to benefit the Company and its stockholders by making it possible for
the Company to attract and retain the best available executive talent and by
rewarding them for their part in increasing the value of the Company’s shares.

 

2.                                       DEFINITIONS

 

Whenever used in this Plan,
the following terms shall have the meaning set forth below:

 

Award:     The
grant of any form of stock, stock option, or performance share units whether
granted singly, in combination or in tandem, to a Participant pursuant to such
terms, conditions, performance requirements, limitations and restrictions as
the Committee may establish in order to fulfill the objectives of the Plan.

 

Award Agreement:     An
agreement, which may be in written or electronic form, between the Company and
a Participant that sets forth the terms, conditions, performance requirements,
limitations and restrictions applicable to an Award.

 

Board:     The
board of directors of the Company.

 

Code:     The
Internal Revenue Code of 1986, as amended.

 

Committee:     The
committee appointed by the Board to administer the Plan. The Committee shall be
comprised solely of directors who are (a) “nonemployee directors” under Rule
16b-3 of the Securities Exchange Act of 1934, (b) “outside directors” under
Section 162(m) of the Code and (c) “independent directors” pursuant to New York
Stock Exchange requirements.

 

Common Stock:     National
Semiconductor Corporation’s common stock, par value $0.50 per share.

 

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Company:     National
Semiconductor Corporation (“NSC”) a Delaware corporation, and any corporation
in which NSC controls directly or indirectly more than fifty percent (50%) of
the combined voting power of voting securities.

 

Disability:     Inability
to perform any services for the Company and eligible to receive disability
benefits under the standards used by the Company’s applicable disability
benefit plans or any successor plan thereto.

 

Effective Date:     October
1, 2004, the date this Plan was approved by the Company’s stockholders.

 

EOIP:     The
Company’s Executive Officer Incentive Plan.

 

Exchange Act:     Securities
Exchange Act of 1934, as amended.

 

Executive Officer:     Employees
of the Company identified as the Company’s executive officers in the Company’s
annual report on Form 10-K filed with the Securities and Exchange Commission.

 

Exercise Price:     Price
at which a share of Common Stock may be purchased by a Participant pursuant to
the exercise of an Option.

 

Fiscal Year:     The
fiscal year of the Company.

 

Grant Date:     With
respect to an Award, the date that the Award was granted.

 

Immediate Family:     Parents
(including step-parents), spouses, children (including step-children and
adopted children) and siblings (including step-siblings.)

 

Non-Qualified Stock Option:     Option
to purchase shares of Common Stock that is not intended to be an incentive
stock option, as that term is defined in the Code.

 

Option:     Non-Qualified
Stock Option.

 

Participant:     An
Executive Officer to whom an Award has been made under the Plan.

 

Performance Goals:     The
goal(s) (or combined goals) determined by the Committee (in its discretion) to
be applicable to a Participant with respect to an Award. As determined by the
Committee, the Performance Goals applicable to an Award may provide for a
targeted level or levels of achievement using one or more of the business criteria
specified in Section 6. The Performance Goals may differ from Participant to
Participant and from Award to Award.

 

Performance Share Units:     Awards
to be made under the conditions specified in Section 8.

 

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Retirement:     Permanent
termination of employment with the Company and (a) age is either sixty-five
(65) or age is at least fifty-five (55) and years of service in the employ of
the Company is ten (10) or more, and (b) the terminating employee has confirmed
to the Company that he or she does not intend to engage in a full-time
vocation; provided however, that the Committee may in its discretion waive the
obligation to deliver a certification that the terminating employee does not
intend to engage in a full-time vocation.

 

Secretary:     The
Secretary of the Company.

 

3.                                      ADMINISTRATION

 

3.1     The Committee.     The
Plan shall be administered by the Committee. The Committee shall consist of not
less than two (2) directors who shall be appointed from time to time by, and
shall serve at the pleasure of, the Board.

 

3.2     Authority
of the Committee.     It shall be the duty of the
Committee to administer the Plan in accordance with the Plan’s provisions. The
Committee shall have all powers and discretion necessary or appropriate to
administer the Plan and to control its operation, including, but not limited
to, the power to (a) approve which Executive Officers shall be granted Awards,
(b) prescribe the terms and conditions of the Awards, (c) interpret the Plan
and the Awards, (d) adopt such procedures and subplans as are necessary or
appropriate to permit participation in the Plan by Executive Officers who are
foreign nationals or employed outside of the United States, (e) adopt rules for
the administration, interpretation and application of the Plan as are
consistent therewith and (f) interpret, amend or revoke any such rules. The
duties of the Committee under this Plan may not be delegated.

 

3.3     Decisions
Binding.     All determinations and decisions made by
the Committee and the Board pursuant to the provisions of the Plan shall be
final, conclusive, and binding on all persons, and shall be given the maximum
deference permitted by law. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or an Award.

 

4.                                       SHARES SUBJECT TO THE PLAN

 

4.1     Number
of Shares. Subject to adjustment as provided in Section 4.3, the total number
of shares available for issuance under the Plan shall not exceed 6,000,000
(consisting of 3,000,000 shares approved in fiscal 2005 and 3,000,000 approved
in fiscal 2008) which may be unissued shares, or shares acquired by the
Company, either on the market or otherwise. Of the total number of shares of
Common Stock that may be issued under the Plan, up to 3,500,000 (consisting of
2,000,000 of the shares approved in fiscal 2005 and 1,500,000 of the shares
approved in fiscal 2008) shares of Common Stock can be delivered under the 

 

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Plan in connection with
Performance Share Units and the balance remaining may be delivered upon
exercise of Options that may be granted under this Plan. No shares from any of
NSC’s other equity plans shall be available for Awards under this Plan.

 

4.2     Expired
Awards. If an Award is forfeited, cancelled, terminates, expires, or lapses for
any reason, any shares of Common Stock subject to such Award shall again be
available to be the subject of an Award. Notwithstanding the foregoing, any
shares of Common Stock that are exchanged by a Participant or withheld by the
Company as full or partial payment in connection with any Award under the Plan,
as well as any shares exchanged by a Participant or withheld by the Company or
a Participant’s employing company to satisfy the tax withholding obligations
related to any Award under the Plan, shall not be available for subsequent
Awards under the Plan.

 

4.3     Adjustments
in Awards and Authorized Shares.     In the event that
there is any change in the shares of the Company through any dividend or other
distribution (whether in the form of cash, shares of Common Stock, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares of Common Stock or other securities of the
Company, then the number of shares of Common Stock that may be delivered under
the Plan, the number, class, and price of shares of Common Stock subject to
outstanding Awards, and the numerical limits of Section 4.1 shall be
appropriately adjusted. Notwithstanding the preceding, the number of shares of
Common Stock subject to any Award shall always be a whole number.

 

5.                                       ELIGIBILITY

 

Awards may be granted under
the Plan only to Executive Officers of the
Company.     No Executive Officer shall have the
automatic right to receive an Award under this Plan. Once having been selected
to receive an Award, an Executive Officer has no right to be selected to
receive a future Award.

 

6.                                       PERFORMANCE GOALS

 

Performance Goals shall
identify one or more business criteria, which may include any of the following:

 

Financial Business Criteria:

 

	
  Net income

  	
  Earnings per share

  
	
  Debt reduction

  	
  Cash flow

  
	
  Stockholder return

  	
  Revenue

  
	
  Return on investment

  	
  Revenue growth

  
	
  Return on invested capital

  	
  Return on net assets

  
	
  Return on equity

  	
  Profit before tax

  
	
  Gross operating profit

  	
  Profit after tax

  
	
  Return on research and

  	
  Market capitalization

  

 

4

 

	
  development investment

  	
  Total stockholder return

  

Margin

 

Performance Goals based on
financial business criteria may be set on a pre tax or after tax basis, may be
defined by absolute or relative measures, and may be valued on a growth or
fixed basis.

 

Strategic and Operational
Business Criteria:

 

	
  Quality improvements

  Cycle time reductions

  Manufacturing improvements 

  and/or efficiencies

  Strategic positioning 

  programs

  Business/information 

  systems improvements

  Infrastructure support

  programs

  Human resource programs

  New product releases

  Operational and strategic

  programs

  	
  Market Share

  Reduction in product
  returns

  Customer satisfaction  

  improvements

  Compensation/review

  program improvements

  Expense management

  Customer request date

  performance

  New product revenue

  Customer programs

  Technology development

  programs

  

 

7.                                       STOCK OPTIONS

 

7.1     Grant
of Options.     Subject to the terms and provisions of
the Plan, Options may be granted to Executive Officers at any time and from
time to time as determined by the Committee in its sole discretion. The
Committee shall determine the number of shares of Common Stock subject to each
Option, provided, however that no one individual may receive a grant of more
than 500,000 Options in any one Fiscal Year.

 

7.2     Award Agreement.     Each Option shall be
evidenced by an Award Agreement that shall specify the Exercise Price, the
expiration date of the Option, the number of shares of Common Stock to which
the Option pertains, and such other terms and conditions as the Committee, in
its discretion, shall determine. The Committee may provide that Options become
exercisable in installments. The terms of the Award Agreement need not be
identical for all Participants or for each Option granted.

 

7.3     Exercise
Price.     The Exercise Price for each Option shall be
the closing price of the Common Stock on the New York Stock Exchange on the
date the Option grant was approved by the Committee. If there is no trading on
such date, the Grant Date shall be the next date on which the New York Stock
Exchange is open for trading and the Exercise Price shall be the closing price
of the Common Stock on the New York Stock Exchange on such Grant Date.

 

7.4     Term.     The
maximum term of any Option shall be six years and one day from the Grant Date.
The minimum full vesting period for any service based Option shall be three
years from the Grant 

 

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Date. Subject to these
limits, the Committee shall provide in each Award Agreement when each Option
expires and becomes unexercisable.

 

7.5           Performance Requirements.     The
Committee may establish performance requirements for exercisability of Options.
Performance requirements may be set based upon the achievement of Performance
Goals or other specific performance objectives (Company-wide, divisional, or
individual.)

 

7.6           Exercisability of Options.

 

7.6.1     Except
as provided in Section 9.1.1, an Option may not be exercised to any extent,
either by the person to whom it was granted, the grantee’s transferee, the
grantee’s guardian or legal representative or by any person after the grantee’s
death, unless the person to whom the Option was granted has remained in the
continuous employ of the Company for not less than six months from the date
when the Option was granted. Otherwise, each Option shall be exercisable as
determined by the Committee. Subject to the foregoing, Options shall be
exercisable only after the time vesting requirements specified in the Option
grant have been satisfied and, if applicable, the Committee has certified in
writing that all applicable performance conditions have been met.

 

7.6.2     The
Committee has the discretion to determine whether Options granted shall be
transferable without consideration to the Participant’s Immediate Family
members or family trusts for the benefit of the Participant’s Immediate Family
members. Options shall otherwise not be transferable, either with or without
consideration.

 

7.7           Payment of Purchase Price.

 

7.7.1     Options
shall be exercised by the Participant’s delivery of a notice of exercise (which
may be in electronic form) to the Company’s Stock Administration department (or
such other designee as the Company may identify), setting forth the number of
shares with respect to which the Option is to be exercised, accompanied by full
payment for the shares. The notice shall be given in the form and manner
specified by the Company from time to time.

 

7.7.2     Upon
the exercise of any Option, the Exercise Price shall be payable to the Company
in full in cash or its equivalent. Previously acquired shares of Common Stock
that have been held by the Participant for at least six months or a combination
of cash and Common Stock held by the Participant for at least six months may also
be tendered to pay the Exercise Price. Common Stock tendered in full or partial
payment of the Exercise Price shall be valued on the date of exercise at the
opening price of the Common Stock on the New York Stock Exchange on the date of
exercise or, if 

 

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there shall be no trading on
such date, then on the first previous date on which there was such trading. As
soon as practicable after receipt of a notification of exercise and full
payment for the shares of Common Stock purchased, the Company shall deliver to
the Participant (or to one of the Company’s preferred brokers that is
designated by the Participant), share certificates (which may be in book entry
form) representing such shares.

 

7.8           Termination of Employment.     An
Option shall terminate and may not be exercised if the Participant to whom it
is granted ceases to be continuously employed by the Company, except (subject
nevertheless to the last sentence of this Section 7.8): (a) if the
Participant’s continuous employment is terminated for any reason other than (i)
Retirement, (ii) Disability, or (iii) death, the Participant or the
Participant’s transferee may exercise the Option to the extent that the
Participant was entitled to exercise such Option at the date of such
termination at any time within a period of three (3) months following the date
of such termination, or if the Participant shall die within the period of three
(3) months following the date of such termination without having exercised such
Option, the Option may be exercised within a period of one year following the
Participant’s death by the Participant’s transferee or the person or persons to
whom the Participant’s rights under the Option otherwise pass by will or by the
laws of descent or distribution but only to the extent exercisable at the date
of such termination; (b) if the Participant’s continuous employment is
terminated by (i) Retirement, (ii) Disability, or (iii) death, the Option may
be exercised in accordance with its terms and conditions at any time within a
period of five (5) years following the date of such termination by the
Participant or the Participant’s transferee, or in the event of the
Participant’s death, by the persons to whom the Participant’s rights under the
Option shall pass by will or by the laws of descent or distribution; (c) if the
Participant’s continuous employment is terminated and within a period of ninety
(90) days thereafter the Participant returns to the active payroll as an
employee of the Company, the Committee may reinstate any portion of the Option
previously granted but not exercised. Nothing contained in this Section 7.8 is
intended to extend the stated term of the Option and in no event may an Option
be exercised by anyone after the expiration of its stated term.

 

8.                                       PERFORMANCE SHARE UNITS

 

8.1           Establishment of Performance Share Unit Targets.     Subject
to the terms and provisions of the Plan, the Committee, at any time and from
time to time, may establish for the Executive Officers target awards of
Performance Share Units in such amounts as the Committee, in its sole
discretion, shall determine. The Committee shall determine the number of
Performance Share Unit targets to be established for each Participant,
provided, however, that no one individual may have a target of more than
250,000 Performance Share Units established in any one Fiscal Year.

 

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8.2           Performance Share Unit
Agreement.     Performance Share Units shall be
evidenced by an agreement, which may be in written or electronic form, that
shall specify the target number of Performance Share Units established for the
Participant, applicable performance conditions, the performance period which at
a minimum shall be two years, a vesting period which may or may not run
concurrently to the performance period, and such other terms and conditions as
the Committee, in its sole discretion, shall determine.

 

8.3           Performance Conditions.     The
Committee shall set performance conditions for Performance Share Units in
accordance with this Section 8.3.

 

8.3.1        General Performance Conditions.     The
Committee may set performance conditions based upon the achievement of specific
performance objectives (Company-wide, divisional, or individual).

 

8.3.2        Section 162(m) Performance
Conditions.     For purposes of qualifying Performance
Share Units as “performance-based compensation” under Section 162(m) of the
Code, the Committee may set performance conditions based upon the achievement
of Performance Goals. The Performance Goals shall be set by the Committee on or
before the latest date permissible to enable the Performance Share Units to
qualify as “performance-based compensation” under Section 162(m) of the Code.
In qualifying Performance Share Units under Section 162(m) of the Code, the
Committee shall follow any procedures determined by it from time to time to be
necessary or appropriate to ensure qualification of the Performance Share Units
under Section 162(m) of the Code (e.g., in determining the Performance Goals
and measuring performance achievement).

 

8.4           Award Determination and Calculation.     Awards
will be determined at the end of the performance period if a threshold
performance level on the performance conditions of 50% has been achieved. At
the time of Award determination, the actual number of Performance Share Units
earned will be determined, based on achievement of applicable performance
goals. The Committee must determine the performance level achieved and certify
in writing that the performance ratings and other applicable conditions have
been satisfied before Awards can be paid. The actual number of Performance
Share Units that may be earned may range from 50% to 150% of the established
target and may not exceed 375,000 for any one performance period for any one
Participant. Awards will be paid in shares of Common Stock equal to the number
of Performance Share Units that has been earned after the Committee has
approved the Award and any applicable vesting period thereafter has been
satisfied.

 

8.5           Transferability.     Prior to
actual payment of Awards, Participants shall not have the right to sell,
transfer, pledge, 

 

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assign, or otherwise
alienate or hypothecate any rights to Awards. Any attempted disposition thereof
shall be null and void and of no effect.

 

8.6           Other Conditions.                The
Committee may impose such other conditions as it may deem advisable or
appropriate in accordance with this Section 8.6.

 

8.6.1        General Conditions.             The Committee may set conditions
based on applicable federal or state securities laws or any other basis
determined by the Committee.

 

8.6.2  Termination of Employment.              Each Performance Share Unit
Agreement shall provide that any rights to receive shares of Common Stock upon achievement
of performance conditions shall terminate immediately upon termination of
employment for any reason during the applicable performance and vesting
periods; provided, however, that the Committee may provide that no such
termination shall occur in the event of a termination of employment because of
the Participant’s Retirement, Disability or death, in which event the Committee
shall have the discretion to determine whether and in what amount an Award is
payable. Awards determined by the Committee to be payable upon the
Participant’s termination of employment by reason of death or Disability shall
be paid as soon as practical after such termination of employment to (i) in the
case of death, the person or persons to whom the Participant’s rights pass by
will or by the laws of descent or distribution; or (ii) in the case of
Disability to the Participant or, if applicable, the Participant’s legal
representative. Any Awards determined by the Committee to be payable upon the
Participant’s employment by reason of Retirement shall only be paid after the
performance period has been completed and measured and the Committee has
determined the actual Award amount earned by the Participant. The Committee
shall have the discretion to determine the effect of all matters and questions
relating to termination of employment, including but not by way of limitation,
the question of whether a termination of employment resulted from a discharge
for cause, and all questions of whether particular leaves of absence constitute
termination of employment.

 

9.                                       CHANGE-OF-CONTROL PROVISIONS

 

9.1           Impact.     Notwithstanding any
other provision of the Plan to the contrary, in the event of a
Change-of-Control:

 

9.1.1     any
Options outstanding as of the date such Change-of-Control occurs, and which are
not then exercisable and vested, shall become fully exercisable and vested;

 

9.1.2     the
performance conditions imposed under each Performance Share Unit Agreement
shall lapse, and each Participant shall be entitled to receive shares of Common

 

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Stock equivalent to the
target number of Performance Share Units specified in the Performance Share
Unit Award Agreement.

 

Notwithstanding any of other
provision of the Plan, in the event of a Change-in-Control in which the
consideration paid to the holders of Common Stock is solely cash, each Award
shall, upon the occurrence of a Change-of-Control, be cancelled in exchange for
a payment in an amount equal to (i) the excess of the consideration paid per
share Common Stock in the Change-of-Control over the Exercise Price or other
applicable purchase price per share of Common Stock subject to the Award
multiplied by (ii) the number of shares of Common Stock granted under the
Award.

 

9.2           Definition of Change-of-Control.     For
purposes of the Plan, a “Change-of-Control” shall mean the happening of any of
the following events:

 

9.2.1     The acquisition by any
individual, entity or group (within the meaning of Section 13(d) (3) or 14(d)
(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of
either (x) the then outstanding shares of NSC’s Common Stock (the “Outstanding
Company Common Stock”) or (y) the combined voting power of the then outstanding
voting securities of NSC entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however,
that for purposes of this Section 9.2.1, the following acquisitions shall not
be deemed to result in a Change-of-Control: (i) any acquisition directly from
NSC, (ii) any acquisition by NSC, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by NSC or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant
to a transaction that complies with clauses (i), (ii) and (iii) of Section
9.2.3 below; or

 

9.2.2        individuals who, as of the date hereof,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by NSC’s stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as
a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board; or

 

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9.2.3        the approval by the stockholders of
NSC’s of a reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of NSC or the acquisition of assets
of another corporation (“Business Combination”) or, if consummation of such
Business Combination is subject, at the time of such approval by stockholders,
to the consent of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation) unless, following
such Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60%,
respectively, of the then outstanding shares of Common Stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns NSC or all or
substantially all of NSC’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of NSC or any
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 35% or more of, respectively, the then outstanding
shares of Common Stock resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business Combination;
or

 

9.2.4        approval by the stockholders of NSC of a
complete liquidation or dissolution of NSC.

 

9.3           Notwithstanding the foregoing, a Change-of-Control shall
not be deemed to have occurred by virtue of the consummation of any transaction
or series of integrated transactions immediately following which the record
holders of the Common Stock immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of NSC immediately
following such transaction or series of transactions.

 

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10.           FORFEITURE OF AWARDS

 

Notwithstanding anything in
the Plan to the contrary, the Committee may, in its sole discretion, in the
event of serious misconduct by a Participant (including, without limitation,
any misconduct prejudicial to or in conflict with the Company) or any
termination of employment for cause or in the event that a Participant
terminates employment for Retirement and subsequently engages in full-time
employment, or any activity of a Participant in competition with the business
of the Company, (a) cancel any outstanding Award granted to such Participant,
in whole or in part, whether or not vested or deferred, or (b) following the
exercise or payment of an Award within a period specified by the Committee,
require such Participant to repay to the Company any gain realized or payment
received upon the exercise or payment of such Award (with such gain or payment
valued as of the date of exercise or payment). Such cancellation or repayment
obligation shall be effective as of the date specified by the Committee. Any
repayment obligation may be satisfied in Common Stock or cash or a combination
thereof (valued based upon the opening price of the Common Stock on the New
York Stock Exchange on the date of payment or if there is no trading on the New
York Stock Exchange on such date, the opening price on the immediately
preceding trading day on the New York Stock Exchange), and the Committee may
provide for an offset to any future payments owed by the Company to the
Participant if necessary to satisfy the repayment obligation. The determination
of whether a Participant has engaged in a serious breach of conduct or any
activity in competition with the business of the Company shall be determined by
the Committee in good faith and in its sole discretion. This Section 11 shall
have no application following a Change-of-Control.

 

11.           TERM; AMENDMENT AND TERMINATION

 

11.1     Term
of the Plan.     The Plan shall be effective as of the
Effective Date and shall remain in effect thereafter, unless terminated earlier
by the Company. Awards outstanding on the Plan’s termination date shall not be
affected or impaired by the termination of the Plan, but no Award may be
granted or issued during any period of suspension or after termination of the
Plan.

 

11.2     Amendment.     The
Board may amend, alter, suspend, discontinue or terminate the Plan or any
portion thereof at any time; provided, however, that no such amendment,
alteration, suspension, discontinuation or termination (a) shall be made
without stockholder approval if such approval is required by applicable law,
regulatory requirement or stock exchange or accounting rules, or if the Board
deems it necessary or desirable to qualify for or comply with any tax,
applicable law, stock exchange, accounting or regulatory requirement, (b)
except as required by applicable law or stock exchange or accounting rules,
shall be made without the consent of the affected Participant, if such action
would impair the rights of such Participant under any outstanding Award or (c)
shall cause an Award qualified as 

 

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performance-based compensation
under Section 162(m) of the Code to cease to qualify as such. Notwithstanding
anything to the contrary herein, the Committee or Board may amend or alter the
Plan in such manner as may be necessary so as to have the Plan conform to local
rules and regulations in any jurisdiction outside the United States.

 

12.           GENERAL PROVISIONS

 

12.1     Representation.     The
Committee may require each person purchasing or receiving shares of Common
Stock pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.

 

12.2     Conditions
to NSC’s Obligation to Issue Stock.     Notwithstanding
any other provision of the Plan or agreements made pursuant thereto, NSC shall
not be required to issue or deliver any certificate or certificates for shares
of Common Stock under the Plan prior to fulfillment of all of the following
conditions:

 

12.2.1     Listing
or approval for listing upon notice of issuance, of such shares on the New York
Stock Exchange, Inc., or such other securities exchange as may at the time be
the principal market for the Common Stock;

 

12.2.2     Any
registration or other qualification of such shares of NSC under any state or
federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Committee shall, in its absolute
discretion upon the advice of counsel, deem necessary or advisable; and

 

12.2.3     Obtaining
any other consent, approval, or permit from any state or federal governmental
agency which the Committee shall, in its absolute discretion after receiving
the advice of counsel, determine to be necessary or advisable.

 

12.3         No Limit on Other Arrangements.     Nothing
contained in the Plan shall prevent the Company from adopting other or
additional compensation arrangements for its Executive Officers or otherwise
affect any other compensation or incentive plans in effect for the Company.

 

12.4         No Repricings/Regrants/Exchanges/Modifications. The
Committee may not grant new Options or Performance Share Units in exchange for
the cancellation of any other Award made under this Plan or any other plan of
the Company. Other than in connection with a change in the Company’s
capitalization as provided in Section 4.3, the Exercise Price of an Option may
not be reduced without approval of the Company’s stockholders. No material 

 

13

 

amendments may be made to
the Plan without the approval of the Company’s stockholders.

 

12.5         No Contract of Employment.     The
Plan shall not constitute a contract of employment, and adoption of the Plan
shall not confer upon any Participant or Executive Officer any right to
continued employment, nor shall it interfere in any way with the right of the
Company to terminate the employment of any Participant or Executive Officer at
any time.

 

12.6         Tax Withholding.     No later than
the date on which an amount first becomes includible in the gross income of the
Participant for income tax purposes with respect to any Award under the Plan,
the Participant shall pay to the Company, or make arrangements satisfactory to
the Company regarding the payment of, any federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such amount.
Unless otherwise determined by the Committee, withholding obligations may be
settled with Common Stock, including Common Stock that is part of the Award
that gives rise to the withholding requirement, cash, shares of Common Stock
previously owned by the Participant for at least six months duly enclosed for
transfer to the Company, or in any combination of the foregoing. If Common
Stock that is part of the Award is used to settle tax withholding obligations,
the value of such Common Stock may not exceed the maximum withholding rate
applicable to the Award. Common Stock used to satisfy tax withholding obligations
shall be valued at the opening price of the Common Stock on the New York Stock
Exchange on the date the Common Stock is used to satisfy the tax withholding
obligation or, if there is no trading on the New York Stock Exchange on such
day, the opening price on the immediately preceding trading day on the New York
Stock Exchange. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant. The Committee may establish such
procedures as it deems appropriate for the settlement of withholding
obligations with Common Stock.

 

12.7         Governing Law.     The Plan, all
Award Agreements and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
USA, without reference to principles of conflict of laws.

 

12.8         Nontransferability.     No Award,
or interest or right therein or part thereof, shall be liable for the debts,
contracts or engagements of the Participant or successors in interest or shall
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect.
Any transfer of Awards to independent third parties for cash consideration
without stockholder approval is prohibited.

 

14

 

Notwithstanding the
foregoing, nothing in this Section 12.8 shall prevent transfers as provided by
Section 7.6.2 or by will or the applicable laws of descent and distribution.

 

12.9         Rights as Stockholder.     No
Participant (nor any beneficiary or transferee) shall have any of the rights or
privileges of a stockholder of the Company with respect to any shares of Common
Stock issuable pursuant to an Award (or exercise thereof), unless and until
certificates (which may be in book entry form) representing such shares shall
have been issued, recorded on the records of the Company or its transfer agents
or registrars, and delivered to the Participant (or beneficiary or transferee,
as applicable.) Participants who have received target awards of Performance
Share Units shall not be entitled to receive any dividends that may be paid on the
Common Stock during the performance period.

 

12.10       Gender and Number.     Except where
otherwise indicated by the context, any masculine term used herein also shall
include the feminine; the plural shall include the singular and the singular
shall include the plural.

 

12.11       Severability.     In the event any
provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.

 

12.12       Section 409A.     This Plan is
intended to comply and shall be administered in a manner that is intended to
comply with Section 409A of the Code and shall be construed and interpreted in
accordance with such intent. To the extent that an Award, issuance and/or
payment is subject to 409A of the Code, it shall be awarded and/or issued or
paid in a manner that will comply with Section 409A of the Code, including
regulations or any other guidance issued by the Secretary of the Treasury and
the Internal Revenue Service with respect thereto. In particular, any payment
of shares of Common Stock due in connection with Performance Share Units shall
be made no later than sixty (60) days of the first of the calendar year
following the date that the Performance Share Unit Award has been deemed to be
earned. Any provision of this Plan that would cause an Award, issuance and/or
payment to fail to satisfy Section 409A of the Code shall have no force or
effect until amended to comply with Code Section 409A (which amendment may be
retroactive to the extent permitted by applicable law).

 

12.13       Acceleration of Awards.     Except as
permitted in Sections 7.8, 8.6.2, and 9.1, acceleration of Awards and/or
continued vesting of Awards after termination of employment shall not be
permitted without the approval of stockholders.

 

15Exhibit 10.1

 

TITAN MACHINERY INC.

2005 EQUITY
INCENTIVE PLAN

SECTION 1.

DEFINITIONS

As used herein, the
following terms shall have the meanings indicated below:

(a)          “Affiliate”
shall mean the Parent or a Subsidiary of the Company.

(b)          “Committee” shall
mean a Committee of two or more directors who shall be appointed by and serve
at the pleasure of the Board. If the Company’s securities are registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended,
then, to the extent necessary for compliance with Rule 16b-3, or any successor
provision, each of the members of the Committee shall be a “non-employee
director.” Solely for purposes of this Section 1(a), “non-employee director”
shall have the same meaning as set form in Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended.

(c)          The “Company” shall
mean Titan Machinery Inc., a North Dakota corporation.

(d)          “Fair Market Value” as
of any date shall mean (i) if such stock is listed on the Nasdaq National
Market, Nasdaq SmallCap Market, or an established stock exchange, the price of
such stock at the close of the regular trading session of such market or
exchange on such date, as reported by The Wall Street Journal or a
comparable reporting service, or, if no sale of such stock shall have occurred
on such date, on the next preceding day on which there was a sale of stock;
(ii) if such stock is not so listed on the Nasdaq National Market, Nasdaq SmallCap
Market, or an established stock exchange, the average of the closing “bid” and “asked”
prices quoted by the OTC Bulletin Board, the National Quotation Bureau, or any
comparable reporting service on such date or, if there are no quoted “bid” and “asked”
prices on such date, on the next preceding date for which there are such
quotes; or (iii) if such stock is not publicly traded as of such date, the per
share value as determined by the Board, or the Committee, in its sole
discretion by applying principles of valuation with respect to the Company’s
Common Stock.

(e)          The “Internal Revenue
Code” or “Code” shall
mean the Internal Revenue Code of 1986, as amended from time to time.

(f)           The “Participant” means
(i) an employee of the Company or any Affiliate to whom an incentive stock
option has been granted pursuant to Section 9, (ii) a consultant or advisor to
or director, employee or officer of the Company or any Affiliate to whom a
nonqualified stock option has been granted pursuant to Section 10, or (iii) a consultant
or advisor to, or director, employee or officer of the Company or any Affiliate
to whom a restricted stock award has been granted pursuant to Section 11.

(g)          “Parent” shall mean any corporation which owns,
directly or indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company’s outstanding stock.

 1
 

(h)          The “Plan” means
the Titan Machinery Inc. 2005 Equity Incentive Plan, as amended hereafter from
time to time, including the form of Option and Award Agreements as they may be
modified by the Board from time to time.

(i)           “Stock,” “Option Stock” or
“Common Stock” shall mean Common
Stock of the Company (subject to adjustment as described in Section 12)
reserved for incentive and nonqualified stock options and restricted stock
awards pursuant to this Plan.

(j)           A “Subsidiary”
shall mean any corporation of which fifty percent (50%) or more of the total
voting power of outstanding stock is owned, directly or indirectly in an
unbroken chain, by the Company.

SECTION 2.

PURPOSE

The Plan has been
established to promote the interests of the Company, its Subsidiaries and its
stockholders by (i) attracting and retaining exceptional employees, consultants
and directors; (ii) motivating such employees, consultants and directors by
means of performance-related incentives to achieve long-range performance
goals; and (iii) enabling such employees, consultants and directors to
participate in the long-term growth and financial success of the Company.

It is the intention of the
Company to carry out the Plan through the granting of stock options which will
qualify as “incentive stock options” under the provisions of Section 422 of the
Internal Revenue Code, or any successor provision, pursuant to Section 9 of
this Plan, through the granting of nonqualified stock options pursuant to
Section 10 of this Plan, and through the granting of restricted stock awards
pursuant to Section 11 of this Plan. With respect to incentive stock options,
adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within 12 months before or after
the adoption of the Plan by the Board of Directors. Any incentive stock options
granted after adoption of the Plan by the Board of Directors shall be treated
as nonqualified stock options if shareholder approval is not obtained within
such 12-month period.

SECTION 3.

EFFECTIVE DATE OF PLAN

The Plan shall be effective
as of the date of adoption by the Board of Directors, subject to approval by
the shareholders of the Company as required in Section 2.

SECTION 4.

ADMINISTRATION

The Plan shall be
administered by the Board of Directors of the Company (hereinafter referred to
as the “Board”) or by a Committee
which may be appointed by the Board from time to time or by one or more
officers designated by the Board or Committee (collectively referred to as the “Administrator”). Except as otherwise
provided herein, the Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described in the Plan)
to determine, in its

 2
 

sole discretion, whether an incentive stock option,
nonqualified stock option or restricted stock award shall be granted, the individuals
to whom, and the time or times at which, options and awards shall be granted,
the number of shares subject to each option or award, the option price, and
terms and conditions of each option or award. The Administrator shall have full
power and authority to administer and interpret the Plan, to make and amend
rules, regulations and guidelines for administering the Plan, to prescribe the
form and conditions of the respective stock option and restricted stock award
agreements (which may vary from Participant to Participant) evidencing each
option or award and to make all other determinations necessary or advisable for
the administration of the Plan. The Administrator’s interpretation of the Plan,
and all actions taken and determinations made by the Administrator pursuant to
the power vested in it hereunder, shall be conclusive and binding on all
parties concerned.

No member of the Board or
the Committee shall be liable for any action taken or determination made in
good faith in connection with the administration of the Plan. In the event the
Board appoints a Committee as provided hereunder, any action of the Committee
with respect to the administration of the Plan shall be taken pursuant to a
majority vote of the Committee members or pursuant to the written resolution of
all Committee members.

SECTION 5.

PARTICIPANTS

The Administrator shall from
time to time, at its discretion and without approval of the shareholders,
designate those employees to whom incentive stock options shall be granted
pursuant to Section 9 of the Plan; those employees, officers, directors,
consultants and advisors of the Company or of any Affiliate to whom
nonqualified stock options shall be granted pursuant to Section 10 of the Plan;
and those employees, officers, directors, consultants and advisors of the
Company or any Affiliate to whom restricted stock awards shall be granted
pursuant to Section 11 of the Plan; provided, however, that consultants or
advisors shall not be eligible to receive stock options or restricted stock awards
hereunder unless such consultant or advisor renders bona fide services to the
Company or Affiliate and such services are not in connection with the offer or
sale of securities in a capital raising transaction and do not directly or
indirectly promote or maintain a market for the Company’s securities. The
Administrator may grant additional incentive stock options, nonqualified stock
options and restricted stock awards under this Plan to some or all Participants
then holding options or awards or may grant options and awards solely or
partially to new Participants. In designating Participants, the Administrator
shall also determine the number of shares to be optioned or awarded to each
such Participant. The Board may from time to time designate individuals as
being ineligible to participate in the Plan.

SECTION 6.

STOCK

The Stock to he optioned or
awarded under this Man shall consist of authorized but unissued shares of
Stock. One Million (1,000,000) shares of Stock shall be reserved and available
for stock options and restricted stock awards under the Plan; provided,
however, that the total number of shares of Stock reserved for options and
restricted stock awards under this Plan shall be subject to adjustment as
provided in Section 12 of the Plan; and provided, further, that all shares of
Stock reserved and available under the Plan shall constitute the maximum

 3
 

aggregate number of shares of Stock that may be
issued through incentive stock options. If (i) any portion of an outstanding
stock option or restricted stock award under the Plan for any reason expires,
(ii) any portion of an outstanding stock option is terminated prior to the
exercise of such option, or (iii) any portion of a restricted stock award is
terminated prior to the lapsing of any risks of forfeiture on such stock, the
shares of Stock allocable to such portion of the option or award shall continue
to be reserved for stock options and restricted stock awards under the Plan and
may be optioned or awarded hereunder.

SECTION 7.

DURATION OF
PLAN

Incentive stock options may
be granted pursuant to the Plan from time to time during a period often (10)
years from the effective date as defined in Section 3. Nonqualified stock
options and restricted stock awards may be granted pursuant to the Plan from time
to time after the effective date of the Plan and until the Plan is discontinued
or terminated by the Board. Any incentive stock option granted during such
ten-year period and any nonqualified stock option or restricted stock award
granted prior to the termination of the Plan by the Board shall remain in full
force and effect until the expiration of the option or award as specified in
the written stock option or restricted stock award agreement and shall remain
subject to the terms and conditions of this Plan.

SECTION 8.

PAYMENT

Participants may pay for
shares of Stock upon exercise of stock options granted pursuant to this Plan
with cash, personal check, certified check, previously-owned shares of the
Company’s Common Stock, or such other form of payment as may be authorized by
the Administrator. Any Stock so tendered as part of such payment shall be
valued at such Stock’s then Fair Market Value. The Administrator may, in its
sole discretion, limit the forms of payment available to the Participant and
may exercise such discretion any time prior to the termination of the option
granted to the Participant or upon any exercise of the option by the
Participant. “Previously-owned shares” means shares of the Company’s Common
Stock which the Participant has owned for at least six (6) months prior to the
exercise of the stock option, or for such other period of time as may be
required by generally accepted accounting principles.

With respect to payment in
the form of Common Stock of the Company, the Administrator may require advance
approval or adopt such rules as it deems necessary to assure compliance with Rule
16b-3, or any successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if applicable.

SECTION 9.

TERMS AND
CONDITIONS OF INCENTIVE STOCK OPTIONS

Each incentive stock option
granted pursuant to this Section 9 shall be evidenced by a written incentive
stock option agreement (the “Option Agreement”). The Option Agreement shall be in
such form as may be approved from time to time by the Administrator and may
vary

 4
 

from Participant to Participant; provided, however,
that each Participant and each Option Agreement shall comply with and be
subject to the following terms and conditions:

(a)          Number of Shares and Option Price. The Option
Agreement shall state the total number of shares covered by the incentive stock
option. To the extent required to qualify the Option as an incentive stock
option under Section 422 of the Internal Revenue Code, or any successor provision,
the option price per share shall not be less than one hundred percent (100%) of
the per share Fair Market Value of the Common Stock on the date the
Administrator grants the option; provided, however, that if a Participant owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Affiliate, the option price
per share of an incentive stock option granted to such Participant shall not be
less than one hundred ten percent (110%) of the per share Fair Market Value of
the Common Stock on the date of the grant of the option. The Administrator
shall have full authority and discretion in establishing the option price and
shall be fully protected in so doing.

(b)          Term and Exercisability of Incentive Stock Option.
The term during which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To the extent
required to qualify the Option as an incentive stock option under Section 422
of the Internal Revenue Code, or any successor provision, in no event shall any
incentive stock option be exercisable during a term of more than 10 years after
the date on which it is granted; provided, however, that if a Participant owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Affiliate, the incentive stock
option granted to such Participant shall be exercisable during a term of not
more than five years after the date on which it is granted.

The Option Agreement shall
state when the incentive stock option becomes exercisable and shall also state
the maximum term during which the option may be exercised. In the event an
incentive stock option is exercisable immediately, the manner of exercise of
the option in the event it is not exercised in full immediately shall be
specified in the Option Agreement. The Administrator may accelerate the
exercisability of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.

(c)          Nontransferability. No incentive stock option shall
be transferable, in whole or in part, by the Participant other than by will or
by the laws of descent and distribution. During the Participant’s lifetime, the
incentive stock option may be exercised only by the Participant. If the
Participant shall attempt any transfer of any incentive stock option granted
under the Plan during the Participant’s lifetime, such transfer shall be void
and the incentive stock option, to the extent not fully exercised, shall
terminate.

(d)          No Rights as Shareholder. A Participant (or the
Participant’s successor or successors) shall have no rights as a shareholder
with respect to any shares covered by an incentive stock option until the date
of the issuance of a stock certificate evidencing such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 12 of the Plan).

 5
 

(e)          Withholding. The Company or its Affiliate shall be
entitled to withhold and deduct from future wages of the Participant all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Participant’s exercise of an
incentive stock option or a “disqualifying disposition” of shares acquired
through the exercise of an incentive stock option as defined in Code Section
421(b). In the event the Participant is required under the Option Agreement to
pay the Company, or make arrangements satisfactory to the Company respecting
payment of, such withholding and employment-related taxes, the Board may, in
its discretion and pursuant to such rules as it may adopt, permit the
Participant to satisfy such obligation, in whole or in part, by electing to
have the Company withhold shares of Common Stock otherwise issuable to the
Participant as a result of the exercise of the incentive stock option having a
Fair Market Value equal to the minimum required tax withholding, based on the
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to the supplemental income
resulting from the option. In no event may the Company or any Affiliate
withhold shares having a Fair Market Value in excess of such statutory minimum
required tax withholding. The Participant’s election to have shares withheld
for this purpose shall be made on or before the date the incentive stock option
is exercised or, if later, the date that the amount of tax to be withheld is
determined under applicable tax law. Such election shall be approved by the
Board and otherwise comply with such rules as the Board may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of 1934, if
applicable.

(f)           Other Provisions. The Option Agreement authorized
under this Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such limitations
and restrictions upon the exercise of the option as shall be necessary to ensure
that such option will be considered an “incentive stock option” as defined in
Section 422 of the Internal Revenue Code or to conform to any change therein.

SECTION 10.

TERMS AND
CONDITIONS OF NONQUALIFIED STOCK OPTIONS

Each nonqualified stock
option granted pursuant to this Section 10 shall be evidenced by a written
nonqualified stock option agreement (the “Option
Agreement”). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Participant to Participant; provided,
however, that each Participant and each Option Agreement shall comply with and
be subject to the following terms and conditions:

(a)          Number of Shares and Option Price. The Option
Agreement shall state the total number of shares covered by the nonqualified
stock option. Unless otherwise determined by the Administrator, the option
price per share shall be one hundred percent (100%) of the per share Fair
Market Value of the Common Stock on the date the Administrator grants the
option.

(b)          Term and Exercisability of Nonqualified Stock Option.
The term during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator. The Option
Agreement shall state when the nonqualified stock option becomes exercisable
and shall also state the maximum term during which the option may be exercised.
In the event a nonqualified stock option is exercisable immediately, the manner
of exercise of the option in the event it is not exercised in full immediately
shall be specified in the

 6
 

Option Agreement. The
Administrator may accelerate the exercisability of any nonqualified stock
option granted hereunder which is not immediately exercisable as of the date of
grant.

(c)          Withholding. The Company or its Affiliate shall be
entitled to withhold and deduct from future wages of the Participant all
legally required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Participant’s exercise of a nonqualified
stock option. In the event the Participant is required under the Option
Agreement to pay the Company or Affiliate, or make arrangements satisfactory to
the Company or Affiliate respecting payment of such withholding and
employment-related taxes, the Administrator may, in its discretion and pursuant
to such rules as it may adopt, permit the Participant to satisfy such
obligation, in whole or in part, by delivering shares of the Company’s Common
Stock or by electing to have the Company or Affiliate withhold shares of Common
Stock otherwise issuable to the Participant as a result of the exercise of the
nonqualified stock option having a Fair Market Value equal to the minimum
required tax withholding, based on the minimum statutory withholding rates for
federal and state tax purposes, including payroll taxes, that are applicable to
the supplemental income resulting from such exercise. In no event may the
Company or Affiliate withhold shares having a Fair Market Value in excess of
such statutory minimum required tax withholding. The Participant’s election to
have shares withheld for this purpose shall be made on or before the date the
nonqualified stock option is exercised or, if later, the date that the amount
of tax to be withheld is determined under applicable tax law. Such election
shall be approved by the Administrator and otherwise comply with such rules as
the Administrator may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, if applicable.

(d)          Transferability. The Administrator may, in its sole
discretion, permit the Participant to transfer any or all nonqualified stock
options to any member of the Participant’s “immediate family” as such term is
defined in Rule 16a-l(e) promulgated under the Securities Exchange Act of 1934,
or any successor provision, or to one or more trusts whose beneficiaries are
members of such Participant’s “immediate family” or partnerships in which such
family members are the only partners; provided, however, that the Participant
cannot receive any consideration for the transfer and such transferred
nonqualified stock option shall continue to be subject to the same terms and
conditions as were applicable to such nonqualified stock option immediately
prior to its transfer.

(e)          No Rights as Shareholder. A Participant (or the
Participant’s successor or successors) shall have no rights as a shareholder
with respect to any shares covered by a nonqualified stock option until the
date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which
the record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 11 of the Plan).

(f)           Other Provisions. The Option Agreement authorized
under this Section 10 shall contain such other provisions as the Administrator
shall deem advisable.

 7
 

SECTION 11.

RESTRICTED
STOCK AWARDS

Each restricted stock award
granted pursuant to the Plan shall be evidenced by a written restricted stock
agreement (the “Restricted Stock Agreement). The Restricted Stock Agreement
shall be in such form as may be approved from time to time by the Administrator
and may vary from Participant to Participant; provided, however, that each
Participant and each Restricted Stock Agreement shall comply with and be
subject to the following terms and conditions:

(a)          Number of Shares. The Restricted Stock Agreement
shall state the total number of shares of Stock covered by the restricted stock
award.

(b)          Risks of Forfeiture. The Restricted Stock Agreement
shall set forth the risks of forfeiture, if any, which shall apply to the
shares of Stock covered by the restricted stock award, and shall specify the
manner in which such risks of forfeiture shall lapse. The Administrator may, in
its sole discretion, modify the manner in which such risks of forfeiture shall
lapse but only with respect to those shares of Stock which are restricted as of
the effective date of the modification.

(c)          Issuance of Restricted Shares. The Company shall
cause to be issued a stock certificate representing such shares of Stock in the
Participant’s name, and shall deliver such certificate to the Participant;
provided, however, that the Company shall place a legend on such certificate
describing the risks of forfeiture and other transfer restrictions set forth in
the Participant’s Restricted Stock Agreement and providing for the cancellation
and return of such certificate if the shares of Stock subject to the restricted
stock award are forfeited.

(d)          Rights as Shareholder. Until the risks of forfeiture
have lapsed or the shares subject to such restricted stock award have been
forfeited, the Participant shall be entitled to vote the shares of Stock
represented by such stock certificates and shall receive all dividends
attributable to such shares, but the Participant shall not have any other rights
as a shareholder with respect to such shares.

(e)          Withholding Taxes. The Company or its Affiliate
shall be entitled to withhold and deduct from future wages of the Participant
all legally required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Participant’s restricted stock
award. In the event the Participant is required under the Restricted Stock
Agreement to pay the Company or Affiliate, or make arrangements satisfactory to
the Company or Affiliate respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and pursuant
to such rules as it may adopt, permit the Participant to satisfy such
obligations, in whole or in part, by delivering shares of Common Stock,
including shares of Stock received pursuant to a restricted stock award on
which the risks of forfeiture have lapsed. Such shares shall have a Fair Market
Value equal to the minimum required tax withholding, based on the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, that are applicable to the supplemental income resulting from
the lapsing of the risks of forfeiture on such restricted stock. In no event
may the Participant deliver shares having a Fair Market Value in excess of such
statutory minimum required tax withholding. The

 8
 

Participant’s election to
deliver shares of Common Stock for this purpose shall be made on or before the
date that the amount of tax to be withheld is determined under applicable tax
law. Such election shall be approved by the Administrator and otherwise comply
with such rules as the Administrator may adopt to assure compliance with Rule
16b-3, or any successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if applicable.

(f)           Nontransferability. No restricted stock award shall
be transferable, in whole or in part, by the Participant, other than by will or
by the laws of descent and distribution, prior to the date the risks of
forfeiture described in the restricted stock agreement have lapsed. If the
Participant shall attempt any transfer of any restricted stock award granted
under the Plan prior to such date, such transfer shall be void and the
restricted stock award shall terminate.

(g)          Other Provisions. The Restricted Stock Agreement
authorized under this Section 11 shall contain such other provisions as the
Administrator shall deem advisable.

SECTION 12.

RECAPITALIZATION,
SALE, MERGER, EXCHANGE OR LIQUIDATION

In the event of an increase
or decrease in the number of shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company, the
Board may, in its sole discretion, adjust the number of shares of Stock
reserved under Section 6 hereof, the number of shares of Stock covered by each
outstanding stock option and restricted stock award, and, if applicable, the
price per share thereof to reflect such change. Additional shares which may be
credited pursuant to such adjustment shall be subject to the same restrictions
as are applicable to the shares with respect to which the adjustment relates.

Unless otherwise provided in
the Option or Restricted Stock Agreement, in the event of an acquisition of the
Company through the sale of substantially all of the Company’s assets and the
consequent discontinuance of its business or through a merger, consolidation,
exchange, reorganization, reclassification, extraordinary dividend, divestiture
or liquidation of the Company (collectively referred to as a “transaction”),
the Board may provide for one or more of the following:

(a)          the equitable acceleration of the exercisability of any
outstanding options and the lapsing of the risks of forfeiture on any
restricted stock awards;

(b)          the complete termination of this Plan, the cancellation of
outstanding options not exercised prior to a date specified by the Board (which
date shall give Participants a reasonable period of time in which to exercise
the options prior to the effectiveness of such transaction), and the
cancellation of any restricted stock awards for which the risks of forfeiture
have not lapsed;

(c)          that Participants holding outstanding stock options shall
receive, with respect to each share of Stock subject to such options, as of the
effective date of any such transaction, cash in an amount equal to the excess
of the Fair Market Value of such Stock on the date immediately preceding the
effective date of such transaction over the option price per share of such
options;

 9
 

provided that the Board may,
in lieu of such cash payment, distribute to such Participants shares of Common
Stock of the Company or shares of stock of any corporation succeeding the
Company by reason of such transaction, such shares having a value equal to the
cash payment herein;

(d)          that Participants holding outstanding restricted stock
awards shall receive, with respect to each share of Stock subject to such
awards, as of the effective date of any such transaction, cash in an amount
equal to the Fair Market Value of such Stock on the date immediately preceding
the effective date of such transaction; provided that the Board may, in lieu of
such cash payment, distribute to such Participants shares of Common Stock of
the Company or shares of stock of any corporation succeeding the Company by
reason of such transaction, such shares having a value equal to the cash
payment herein;

(e)          the continuance of the Plan with respect to the exercise of
options which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Participants holding such options the
right to exercise their respective options as to an economically equivalent
number of shares of stock of the corporation succeeding the Company by reason
of such transaction; and

(f)          the continuance of the Plan with respect to restricted
stock awards for which the risks of forfeiture have not lapsed as of the date
of adoption by the Board of such plan for such transaction and provide to
Participants holding such awards the right to receive an economically
equivalent number of shares of stock of the corporation succeeding the Company
by reason of such transaction.

The Board may restrict the
rights of or the applicability of this Section 12 to the extent necessary to
comply with Section 16(b) of the Securities Exchange Act of 1934, the Internal
Revenue Code or any other applicable law or regulation. The grant of an option,
restricted stock or award pursuant to the Plan shall not limit in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.

SECTION 13.

SECURITIES
LAW COMPLIANCE AND

RESTRICTIONS ON TRANSFER

No shares of Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company’s counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Stock to Participant, the Administrator may require Participant to
(i) represent that the shares of Stock are being acquired for investment and
not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares of Stock as
exempt from the Securities Act of 1933 and any other applicable securities
laws, and (ii) represent that Participant shall not dispose of the shares of
Stock in violation of the Securities Act of 1933 or any other applicable
securities laws or any company policies then in effect.

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As a further condition to
the grant of any stock option or the issuance of Stock to Participant,
Participant agrees to the following:

(a)          In the event the Company advises Participant that it plans
an underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to impose
restrictions under which certain shareholders may not sell or contract to sell
or grant any option to buy or otherwise dispose of part or all of their stock
purchase rights of the underlying Common Stock, Participant will not, for a
period not to exceed 180 days from the prospectus, sell or contract to sell or
grant an option to buy or otherwise dispose of any stock option granted to
Participant pursuant to the Plan or any of the underlying shares of Common
Stock without the prior written consent of the underwriter(s) or its
representative(s).

(b)          In the event the Company makes any
public offering of its securities and determines in its sole discretion that it
is necessary to reduce the number of issued but unexercised stock purchase
rights so as to comply with any state’s securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have the
right (i) to accelerate the exercisability of any stock option and the date on
which such option must be exercised, provided that the Company gives
Participant prior written notice of such acceleration, and (ii) to cancel any
options or portions thereof which Participant does not exercise prior to or
contemporaneously with such public offering.

(c)          In the event of a transaction (as
defined in Section 12 of the Plan), Participant will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under other
applicable legal or accounting principles if Participant is an “affiliate” (as
defined in such applicable legal and accounting principles) at the time of the
transaction, and Participant will execute any documents necessary to ensure
compliance with such rules.

The Company reserves the
right to place a legend on any stock certificate issued upon the exercise of an
option or upon the grant of a restricted stock award pursuant to the Plan to
assure compliance with this Section 13.

SECTION 14.

AMENDMENT
OF THE PLAN

The Board may from time to
time, insofar as permitted by law, suspend or discontinue the Plan or revise or
amend it in any respect; provided, however, that no such revision or amendment,
except as is authorized in Section 12, shall impair the terms and conditions of
any stock option or restricted stock award which is outstanding on the date of
such revision or amendment to the material detriment of the Participant without
the consent of the Participant. Notwithstanding the foregoing, no such revision
or amendment shall (i) materially increase the number of shares subject to the
Plan except as provided in Section 12 hereof, (ii) change the designation of
the class of employees eligible to receive stock options or restricted stock
awards, (iii) decrease the price at which options may be granted, or (iv)
materially increase the benefits accruing to Participants under the Plan,
without the approval of the shareholders of the Company if such approval is
required for compliance with the requirements of any applicable law or
regulation. Furthermore, the Plan may not, without the approval of the
shareholders, be amended

 11
 

in any manner that will cause incentive stock
options to fail to meet the requirements of Section 422 of the Internal Revenue
Code.

SECTION 15.

NO
OBLIGATION TO EXERCISE OPTION

The granting of a stock
option shall impose no obligation upon the Participant to exercise such option.
Further, the granting of a stock option or restricted stock award hereunder
shall not impose upon the Company or any Affiliate any obligation to retain the
Participant in its employ for any period.

 12

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