Document:

Exhibit 10.1

 

As Adopted by the Board of Directors

on April 4, 2002, and amended on

July 22, 2002 and amended on

April 10, 2003

 

ACTIVISION, INC.

 

2002 INCENTIVE PLAN

 

ACTIVISION, INC., a corporation formed under the laws of the State of
Delaware (the “Company”), hereby establishes and adopts the following 2002
Incentive Plan (the “Plan”).

 

RECITALS

 

WHEREAS, the Company desires to encourage high levels of performance by
those individuals who are key to the success of the Company, to attract new
individuals who are highly motivated and who will contribute to the success of
the Company and to encourage such individuals to remain as employees of the
Company and its subsidiaries by increasing their proprietary interest in the
Company’s growth and success.

 

WHEREAS, to attain these ends, the Company has formulated the Plan
embodied herein to authorize the granting of incentive awards through grants of
share options (“Options”), grants of share appreciation rights, grants of Share
Purchase Awards (hereafter defined), grants of Restricted Share Awards
(hereafter defined), grants of Performance-Based Awards (hereafter defined), or
any other award made under the Plan to those persons (each such person, a
“Participant”) whose judgment, initiative and efforts are or have been or will
be responsible for the success of the Company.

 

NOW, THEREFORE, the Company hereby constitutes, establishes and adopts
the following Plan and agrees to the following provisions:

 

ARTICLE 1.

 

PURPOSE OF THE PLAN

 

1.1.                            Purpose.  The purpose of the Plan is to assist the
Company and its subsidiaries in attracting and retaining selected individuals
to serve as officers (other than executive officers), consultants, advisors and
other key employees of the Company and its subsidiaries who will contribute to
the Company’s success and to achieve long-term objectives which will inure to
the benefit of all shareholders of the Company through the additional incentive
inherent in the ownership or increased ownership of the Company’s shares of
common stock (“Shares”).  Options
granted under the Plan will be either “incentive share options,” intended to
qualify as such under the provisions of Section 422 of the Internal Revenue
Code of 1986, as amended from time to time (the “Code”), or “nonqualified share
options.”  For purposes of the Plan, the
term “subsidiary” shall mean “subsidiary corporation,” as such term is defined
in Section 424(f) of the Code, and “affiliate” shall have the meaning set forth
in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  For purposes of the Plan, the
term “Award” shall mean a grant of an Option, a grant of a share appreciation
right, a grant of a Share Purchase Award, a grant of a Restricted Share Award,
or any other award made under the terms of the Plan.

 

 

ARTICLE 2.

 

SHARES SUBJECT TO AWARDS

 

2.1.                            Number of Shares.  Subject to the adjustment provisions of
Section 10.9 hereof, the aggregate number of Shares which may be issued under
Awards under the Plan, whether pursuant to Options, share appreciation rights,
Share Purchase Awards, Restricted Share Awards or Performance-Based Awards
shall not exceed 4,350,000.  No Options
to purchase fractional Shares shall be granted or issued under the Plan.  For purposes of this Section 2.1, the Shares
that shall be counted toward such limitation shall include all Shares:

 

(1)  issued or issuable pursuant
to Options that have been or may be exercised;

 

(2)  issued or issuable pursuant
to Share Purchase Awards;

 

(3)  issued as, or subject to
issuance as a Restricted Share Award; and

 

(4)  issued or issuable under
any other Award granted under the terms of the Plan.

 

2.2.                            Shares Subject to
Terminated Awards.  The Shares
covered by any unexercised portions of terminated Options granted under
Articles 4 and 6, Shares forfeited as provided in Section 8.2(a) and Shares
subject to any Awards which are otherwise surrendered by the Participant
without receiving any payment or other benefit with respect thereto may again
be subject to new Awards under the Plan, other than grants of Options intended
to qualify as incentive share options. 
In the event the purchase price of an Option is paid in whole or in part
through the delivery of Shares, the number of Shares issuable in connection
with the exercise of the Option shall not again be available for the grant of
Awards under the Plan.  Shares subject
to Options, or portions thereof, which have been surrendered in connection with
the exercise of share appreciation rights shall not again be available for the
grant of Awards under the Plan.

 

2.3.                            Character of Shares.  Shares delivered under the Plan may be
authorized and unissued Shares or Shares acquired by the Company, or both.

 

2.4.                            Limitations on Grants to
Individual Participant.  Subject to
adjustments pursuant to the provisions of Section 10.9 hereof, the maximum
number of Shares with respect to which Options or stock appreciation rights may
be granted hereunder to any employee during any fiscal year of the Company
shall be 500,000 Shares (the “Limitation”). 
If an Option is cancelled, the cancelled Option shall continue to be
counted toward the Limitation for the year granted.  An Option (or a stock appreciation right) that is repriced during
any fiscal year is treated as the cancellation of the Option (or stock appreciation
right) and a grant of a new Option (or stock appreciation right) for purposes
of the Limitation for that fiscal year.

 

ARTICLE 3.

 

ELIGIBILITY AND ADMINISTRATION

 

3.1.                            Awards to Employees and
Others.  (a)  Participants who
receive (i) Options under Articles 4 and 6 hereof or share appreciation rights
under Article 5 (“Optionees”), and (ii) Share Purchase Awards under Article 7,
Restricted Share Awards under Article 8, Deferred Share Awards (as defined
herein) under Article 9, Performance-Based Awards under Article 11, or any
other Award granted under the Plan shall consist of such officers (other than
executive officers), key employees, consultants and

 

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advisors of the Company or any of its subsidiaries or affiliates as the
Committee (as defined in Section 3.2 below) shall select from time to
time.  Executive officers and Directors
(as defined in Section 3.2 below) of the Company shall not be eligible to receive
Awards under the Plan. The Committee’s designation of an Optionee or
Participant in any year shall not require the Committee to designate such
person to receive Awards or grants in any other year.  The designation of an Optionee or Participant to receive Awards
or grants under one portion of the Plan shall not require the Committee to
include such Optionee or Participant under other portions of the Plan.

 

(b)                                  No Option that is
intended to qualify as an “incentive share option” may be granted (x) to any
individual that is not an employee of the Company or any subsidiary thereof, or
(y) to any employee who, at the time of such grant, owns, directly or
indirectly (within the meaning of Sections 422(b)(6) and 424(d) of the Code),
shares possessing more than 10% of the total combined voting power of all
classes of shares of the Company or any of its subsidiaries or affiliates,
unless at the time of such grant, (i) the option price is fixed at not less
than 110% of the Fair Market Value (as defined 
in Section 10.2 below) of the Shares subject to such Option, determined
on the date of the grant, and (ii) the exercise of such Option is prohibited by
its terms after the expiration of five years from the date such Option is
granted.

 

3.2.                            Administration.  (a)  The Plan shall be administered by a
committee (the “Committee”) consisting of not fewer than two Directors of the
Company (the directors of the Company being hereinafter referred to as the
“Directors”), as designated by the Directors. 
The Directors may remove from, add members to, or fill vacancies in the
Committee.  Unless otherwise determined
by the Directors, each member of the Committee will be a “non-employee
director” within the meaning of Rule 16b-3 (or any successor rule) of the
Exchange Act and an “outside director” within the meaning of Section
162(m)(4)(C)(i) of the Code and the regulations thereunder.

 

(b)                                  The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it may deem appropriate for the conduct of meetings and proper
administration of the Plan.  All actions
of the Committee shall be taken by majority vote of its members.

 

(c)                                  Subject to the
provisions of the Plan, the Committee shall have authority, in its sole
discretion, to grant Awards under the Plan, to interpret the provisions of the
Plan and, subject to the requirements of applicable law, including Rule 16b-3
of the Exchange Act, to prescribe, amend, and rescind rules and regulations
relating to the Plan or any Award thereunder as it may deem necessary or
advisable.  The Committee shall have no
authority to reduce the exercise price of any Options or share appreciation
rights granted under the Plan (except in connection with adjustments pursuant
to Section 10.9 below).  All decisions
made by the Committee pursuant to the provisions of the Plan shall be final,
conclusive and binding on all persons, including the Company, its shareholders,
Directors and employees, and other Plan participants.

 

ARTICLE 4.

 

OPTIONS

 

4.1.                            Grant of Options.  The Committee shall determine, within the limitations
of the Plan, those officers (other than executive officers), key employees,
consultants and advisors of the Company and its subsidiaries and affiliates to
whom Options are to be granted under the Plan, the number of Shares that may be
purchased under each such Option and the option price, and shall designate such
Options at the time of the grant as either “incentive share options” or
“nonqualified share options”;

 

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provided, however,
that Options granted to employees of an affiliate (that is not also a
subsidiary) or to non-employees of the Company may only be “nonqualified share
options.”

 

4.2.                            Share Option Agreements;
etc.  All Options granted pursuant
to Article 4 and Article 6 herein (a) shall be authorized by the Committee and
(b) shall be evidenced in writing by share option agreements (“Share Option
Agreements”) in such form and containing such terms and conditions as the
Committee shall determine that are not inconsistent with the provisions of the
Plan, and, with respect to any Share Option Agreement granting Options that are
intended to qualify as “incentive share options,” are not inconsistent with
Section 422 of the Code.  Granting of an
Option pursuant to the Plan shall impose no obligation on the recipient to
exercise such Option.  Any individual
who is granted an Option pursuant to this Article 4 and Article 6 herein may
hold more than one Option granted pursuant to such Articles at the same time
and may hold both “incentive share options” and “nonqualified share options” at
the same time.  To the extent that any
Option does not qualify as an “incentive share option” (whether because of its
provisions, the time or manner of its exercise or otherwise) such Option or the
portion thereof which does not so qualify shall constitute a separate
“nonqualified share option.”

 

4.3.                            Option Price.  Subject to Section 3.1(b), the option
exercise price per each Share purchasable under any “incentive share option”
granted pursuant to this Article 4, any “nonqualified share option” granted
pursuant to Article 6, and Options intended to be performance-based under
Section 162(m) of the Code shall not be less than 100% of the Fair Market Value
of such Share on the date of the grant of such Option.  The option exercise price per share of each
Share purchasable under any “nonqualified share option” that is not intended to
be performance-based under Section 162(m) of the Code and is granted pursuant
to this Article 4 shall be determined by the Committee at the time of the grant
of such Option, but shall not be less than 85% of the Fair Market Value of such
Share on the date of the grant of such Option.

 

4.4.                            Other Provisions.  Options granted pursuant to this Article 4
shall be made in accordance with the terms and provisions of Article 10 hereof
and any other applicable terms and provisions of the Plan.

 

ARTICLE 5.

 

SHARE APPRECIATION RIGHTS

 

5.1.                            Grant and Exercise.  Share appreciation rights may be granted in
conjunction with all or part of any Option granted under the Plan, as follows:
(i) in the case of a nonqualified share option, such rights may be granted
either at the time of the grant of such option or at any subsequent time during
the term of the option; and (ii) in the case of an incentive share option, such
rights may be granted only at the time of the grant of such option.  A “share appreciation right” is a right to
receive cash or whole Shares, as provided in this Article 5, in lieu of
the purchase of a Share under a related Option.  A share appreciation right or applicable portion thereof shall
terminate and no longer be exercisable upon the termination or exercise of the
related Option, and a share appreciation right granted with respect to less
than the full number of Shares covered by a related Option shall not be reduced
until, and then only to the extent that, the exercise or termination of the
related Option exceeds the number of Shares not covered by the share
appreciation right.  A share
appreciation right may be exercised by the holder thereof (the “Holder”), in
accordance with Section 5.2 of this Article 5, by giving written notice thereof
to the Company and surrendering the applicable portion of the related
Option.  Upon giving such notice and
surrender, the Holder shall be entitled to receive an amount determined in the
manner prescribed in Section 5.2 of this Article 5.  Options which have been so surrendered, in whole or in part,
shall no longer be exercisable to the extent the related share appreciation
rights have been exercised.

 

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5.2.                           Terms and Conditions.  Share appreciation rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:

 

(a)                                  Share
appreciation rights shall be exercisable only at such time or times and to the
extent that the Options to which they relate shall be exercisable in accordance
with the provisions of the Plan.

 

(b)                                  Upon
the exercise of a share appreciation right, a Holder shall be entitled to
receive up to, but no more than, an amount in cash or whole Shares as
determined by the Committee in its sole discretion equal to the excess of the
then Fair Market Value of one Share over the option exercise price per Share
specified in the related Option multiplied by the number of Shares in respect
of which the share appreciation right shall have been exercised.  The Holder shall specify in his written notice
of exercise, whether payment shall be made in cash or in whole Shares.  Each share appreciation right may be
exercised only at the time and so long as a related Option, if any, would be
exercisable or as otherwise permitted by applicable law.

 

(c)                                  Upon
the exercise of a share appreciation right, the Option or part thereof to which
such share appreciation right is related shall be deemed to have been exercised
for the purpose of the limitation of the number of Shares to be issued under
the Plan, as set forth in Section 2.1 of the Plan.

 

(d)                                  With
respect to share appreciation rights granted in connection with an Option that
is intended to be an “incentive share option,” the following shall apply:

 

(i)                        No share
appreciation right shall be transferable by a Holder otherwise than by will or
by the laws of descent and distribution, and share appreciation rights shall be
exercisable, during the Holder’s lifetime, only by the Holder.

 

(ii)                     Share
appreciation rights granted in connection with an Option may be exercised only
when the Fair Market Value of the Shares subject to the Option exceeds the
option exercise price at which Shares can be acquired pursuant to the Option.

 

ARTICLE 6.

 

RELOAD OPTIONS

 

6.1.                            Authorization of Reload
Options.  Concurrently with the
award of any Option (such Option hereinafter referred to as the “Underlying
Option”) to any Participant in the Plan, the Committee may grant one or more
reload options (each, a “Reload Option”) to such Participant to purchase for
cash or Shares (held for at least six months or such other period to avoid
accounting charges against the Company’s earnings) a number of Shares as
specified below.  A Reload Option shall
be exercisable for an amount of Shares equal to (i) the number of Shares
delivered by the Optionee to the Company to exercise the Underlying Option, and
(ii) to the extent authorized by the Committee, the number of Shares used to
satisfy any tax withholding requirement incident to the exercise of the
Underlying Option, subject to the availability of Shares under the Plan at the
time of such exercise.  Any Reload
Option may provide for the grant, when exercised, of subsequent Reload Options
to the extent and upon such terms and conditions consistent with this Article
6, as the Committee in its sole discretion shall specify at or after the time
of grant of such Reload Option.  Except
as otherwise determined by the Committee, a Reload Option will vest and become
exercisable six months after the exercise of an Underlying Option or Reload
Option by the Participant delivering to the Company Shares owned by the
Optionee for at least six months in payment of the exercise price and/or tax
withholding obligations. 
Notwithstanding the fact that the

 

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Underlying Option may be an “incentive share option,” a Reload Option
is not intended to qualify as an “incentive share option” under Section 422 of
the Code.

 

6.2.                            Reload Option Amendment.  Each Share Option Agreement shall state
whether the Committee has authorized Reload Options with respect to the Underlying
Option.  Upon the exercise of an
Underlying Option or other Reload Option, the Reload Option will be evidenced
by an amendment to the underlying Share Option Agreement.

 

6.3.                            Reload Option Price.  The option exercise price per Share payable
upon the exercise of a Reload Option shall be the Fair Market Value of a Share
on the date the corresponding Underlying Option is exercised.

 

6.4.                            Term and Exercise.  Except as otherwise determined by the
Committee, each Reload Option vests and is fully exercisable six months after
its grant (i.e., six months after the corresponding Underlying Option is
exercised).  The term of each Reload
Option shall be equal to the remaining option term of the Underlying Option.

 

6.5.                            Termination of
Employment.  No additional Reload
Options shall be granted to Optionees when Options and/or Reload Options are
exercised pursuant to the terms of this Plan following termination of the
Optionee’s employment unless the Committee, in its sole discretion, shall
determine otherwise.

 

6.6.                            Applicability of Other
Sections.  Except as otherwise
provided in this Article 6, the provisions of Article 10 applicable to
Options shall apply equally to Reload Options.

 

ARTICLE 7.

 

SHARE PURCHASE AWARDS

 

7.1.                            Grant of Share Purchase
Award.  The term “Share Purchase
Award” means the right to purchase Shares of the Company and to pay for such
Shares through a loan made by the Company to the Participant (a “Purchase
Loan”) as set forth in this Article 7.

 

7.2.                            Terms of Purchase Loans.  (a)  Purchase
Loan.  Each Purchase Loan
shall be evidenced by a promissory note. 
The term of the Purchase Loan shall be for a period of years, as
determined by the Committee, and the proceeds of the Purchase Loan shall be
used exclusively by the Participant for purchase of Shares from the Company at
a purchase price equal to the Fair Market Value on the date of the Share
Purchase Award.

 

(b)                                  Interest
on Purchase Loan.  A Purchase Loan
shall be non-interest bearing or shall bear interest at whatever rate the
Committee shall determine (but not in excess of the maximum rate permissible
under applicable law), payable in a manner and at such times as the Committee
shall determine.  Those terms and
provisions as the Committee shall determine shall be incorporated into the
promissory note evidencing the Purchase Loan.

 

(c)                                  Forgiveness
of Purchase Loan.  Subject to
Section 7.4 hereof, the Company may forgive the repayment of up to 100% of the
principal amount of the Purchase Loan, subject to such terms and conditions as
the Committee shall determine and set forth in the promissory note evidencing
the Purchase Loan.   A Participant’s
Purchase Loan can be prepaid at any time, and from time to time, without
penalty.

 

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7.3.                            Security for Loans.  (a)  Stock
Power and Pledge.  Purchase
Loans granted to Participants shall be secured by a pledge of the Shares
acquired pursuant to the Share Purchase Award. 
Such pledge shall be evidenced by a pledge agreement (the “Pledge
Agreement”) containing such terms and conditions as the Committee shall
determine.  Purchase Loans shall be
recourse or non-recourse with respect to a Participant, as determined from time
to time by the Committee.  The share
certificates for the Shares purchased by a Participant pursuant to a Share
Purchase Award shall be issued in the Participant’s name, but shall be held by
the Company as security for repayment of the Participant’s Purchase Loan
together with a stock power executed in blank by the Participant (the execution
and delivery of which by the Participant shall be a condition to the issuance
of the Share Purchase Award).  Unless
otherwise determined by the Committee, the Participant shall be entitled to
exercise all rights applicable to such Shares, including, but not limited to,
the right to vote such Shares and the right to receive dividends and other
distributions made with respect to such Shares.  When the Purchase Loan and any accrued but unpaid interest
thereon has been repaid or otherwise satisfied in full, the Company shall
deliver to the Participant the share certificates for the Shares purchased by a
Participant under the Share Purchase Award.

 

(b)                                  Release
and Delivery of Share Certificates During the Term of the Purchase Loan.  The Company shall release and deliver to
each Participant certificates for Shares purchased by a Participant pursuant to
a Share Purchase Award, in such amounts and on such terms and conditions as the
Committee shall determine, which shall be set forth in the Pledge Agreement.

 

(c)                                  Release
and Delivery of Share Certificates Upon Repayment of the Purchase Loan.  The Company shall release and deliver to
each Participant certificates for the Shares purchased by the Participant under
the Share Purchase Award and then held by the Company, provided the Participant
has paid or otherwise satisfied in full the balance of the Purchase Loan and
any accrued but unpaid interest thereon. 
In the event the balance of the Purchase Loan is not repaid, forgiven or
otherwise satisfied within 90 days after (i) the date repayment of the Purchase
Loan is due (whether in accordance with its term, by reason of acceleration or
otherwise), or (ii) such longer time as the Committee, in its discretion, shall
provide for repayment or satisfaction, the Company shall retain those Shares
then held by the Company in accordance with the Pledge Agreement.

 

(d)                                  Recourse
Purchase Loans.  Notwithstanding
Sections 7.3(a), (b) and (c) above, in the case of a recourse Purchase Loan,
the Committee may make a Purchase Loan on such terms as it determines,
including without limitation, not requiring a pledge of the acquired Shares.

 

7.4.                            Termination of
Employment.  (a) 
Termination of Employment by Death,
Disability or by the Company Without Cause; Change of Control.  In the event of a Participant’s termination
of employment or separation from service by reason of death, “disability” or by
the Company without “cause,” or in the event of a “change of control,” the
Committee shall have the right (but shall not be required) to forgive the remaining
unpaid amount (principal and interest) of the Purchase Loan in whole or in part
as of the date of such occurrence. 
“Change of Control,” “disability” and “cause” shall have the respective
meanings as set forth in the promissory note evidencing the Purchase Loan.

 

(b)                                  Other
Termination of Employment.  Subject
to Section 7.4(a) above, in the event of a Participant’s termination of
employment or separation from service for any reason, the Participant shall
repay to the Company the entire balance of the Purchase Loan and any accrued
but unpaid interest thereon, which amounts shall become immediately due and
payable, unless otherwise determined by the Committee.

 

7.5.                            Restrictions on Transfer.  No Share Purchase Award or Shares purchased
through such an Award and pledged to the Company as collateral security for the
Participant’s Purchase Loan

 

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(and accrued and unpaid interest thereon) may be otherwise pledged,
sold, assigned or transferred (other than by will or by the laws of descent and
distribution).

 

ARTICLE 8.

 

RESTRICTED SHARE AWARDS

 

8.1.                            Restricted Share Awards.  (a)  Grant.  A grant of Shares made pursuant to this
Article 8 is referred to as a “Restricted Share Award.”  The Committee may grant to any Participant
an amount of Shares in such manner, and subject to such terms and conditions
relating to vesting, forfeitability and restrictions on delivery and transfer
(whether based on performance standards, periods of service or otherwise) as
the Committee shall establish (such Shares, “Restricted Shares”).  The terms of any Restricted Share Award
granted under this Plan shall be set forth in a written agreement (a
“Restricted Share Agreement”) which shall contain provisions determined by the
Committee and not inconsistent with this Plan. 
The provisions of Restricted Share Awards need not be the same for each
Participant receiving such Awards.

 

(b)                                  Issuance
of Restricted Shares.  As soon as
practicable after the date of grant of a Restricted Share Award by the
Committee, the Company shall cause to be transferred on the books of the
Company, Shares registered in the name of the Company, as nominee for the
Participant, evidencing the Restricted Shares covered by the Award; provided,
however, such Shares shall be subject to forfeiture to the Company retroactive
to the date of grant, if a Restricted Share Agreement delivered to the
Participant by the Company with respect to the Restricted Shares covered by the
Award is not duly executed by the Participant and timely returned to the
Company.  All Restricted Shares covered
by Awards under this Article 8 shall be subject to the restrictions, terms and
conditions contained in the Plan and the Restricted Share Agreement entered
into by and between the Company and the Participant.  Until the lapse or release of all restrictions applicable to an
Award of Restricted Shares, the share certificates representing such Restricted
Shares shall be held in custody by the Company or its designee.

 

(c)                                  Shareholder
Rights.  Beginning on the date of
grant of the Restricted Share Award and subject to execution of the Restricted
Share Agreement as provided in Sections 8.1(a) and (b), the Participant shall
become a shareholder of the Company with respect to all Shares subject to the Restricted
Share Agreement and shall have all of the rights of a shareholder, including,
but not limited to, the right to vote such Shares and the right to receive
distributions made with respect to such Shares; provided, however, that any Shares or any other property
(other than cash) distributed as a dividend or otherwise with respect to any
Restricted Shares as to which the restrictions have not yet lapsed shall be
subject to the same restrictions as such Restricted Shares and shall be
represented by book entry and held as prescribed in Section 8.1(b).

 

(d)                                  Restriction
on Transferability.  None of the
Restricted Shares may be assigned or transferred (other than by will or the
laws of descent and distribution), pledged or sold prior to lapse or release of
the restrictions applicable thereto.

 

(e)                                  Delivery
of Shares Upon Release of Restrictions. 
Upon expiration or earlier termination of the forfeiture period without
a forfeiture and the satisfaction of or release from any other conditions
prescribed by the Committee, the restrictions applicable to the Restricted
Shares shall lapse.  As promptly as
administratively feasible thereafter, subject to the requirements of Section
12.1, the Company shall deliver to the Participant or, in case of the
Participant’s death, to the Participant’s beneficiary, one or more stock
certificates for the appropriate number of Shares, free of all such
restrictions, except for any restrictions that may be imposed by law.

 

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8.2.                            Terms of Restricted
Shares.  (a)  Forfeiture of Restricted Shares.  Subject to Section 8.2(b), all Restricted
Shares shall be forfeited and returned to the Company and all rights of the
Participant with respect to such Restricted Shares shall terminate unless the
Participant continues in the service of the Company as an employee until the
expiration of the forfeiture period for such Restricted Shares and satisfies
any and all other conditions set forth in the Restricted Share Agreement.  The Committee in its sole discretion, shall
determine the forfeiture period (which may, but need not, lapse in
installments) and any other terms and conditions applicable with respect to any
Restricted Share Award and the Committee has the discretion to modify the terms
and conditions of a Restricted Share award as long as the rights of the
Participant are not impaired.

 

(b)                                  Waiver
of Forfeiture Period. Notwithstanding anything contained in this Article 8
to the contrary, the Committee may, in its sole discretion and subject to the
limitations imposed under Section 162(m) of the Code and the Treasury
Regulations thereunder in the case of a Restricted Share Award intended to
comply with the performance-based exception under Code Section 162(m), waive
the forfeiture period and any other conditions set forth in any Restricted
Share Agreement under appropriate circumstances (including the death,
disability or retirement of the Participant or a material change in
circumstances arising after the date of an Award) and subject to such terms and
conditions (including forfeiture of a proportionate number of the Restricted
Shares) as the Committee shall deem appropriate.

 

ARTICLE 9.

 

DEFERRED SHARE AWARDS

 

9.1.                            Shares and
Administration.  Awards of the right
to receive Shares that are not to be distributed to the Participant until after
a specified deferral period (such Award and the deferred Shares delivered
thereunder hereinafter as the context shall require, the “Deferred Shares”) may
be made either alone or in addition to share Options, share appreciation
rights, or Restricted Share Awards, or Other Share-based Awards (hereafter
defined) granted under the Plan.  The
Committee shall determine the officers (other than executive officers),
employees, consultants and advisors of the Company and its subsidiaries to whom
and the time or times at which Deferred Shares shall be awarded, the number of
Deferred Shares to be awarded to any Participant, the duration of the period
(the “Deferral Period”) during which, and the conditions under which, receipt
of the Shares will be deferred, and the terms and conditions of the award in
addition to those contained in Section 9.2.  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 covered by a Deferred Share award. 
The Committee may also provide for the grant of Deferred Shares upon the
completion of a specified performance period. 
The provisions of Deferred Share awards need not be the same with
respect to each recipient.

 

9.2.                            Terms and Conditions.  Deferred Share awards made pursuant to this
Article 9 shall be subject to the following terms and conditions:

 

(a)                                  Subject
to the provisions of the Plan, the Shares to be issued pursuant to a Deferred
Share 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 

 

9

 

Participant, or the Participant’s legal
representative, in a number equal to the number of shares covered by the
Deferred Share award.

 

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

 

(c)                                  Subject
to the provisions of paragraph 9.2(d) of this Article 9, upon termination of
employment for any reason during the Deferral Period for a  given Award, the Deferred Shares in question
shall be forfeited by the Participant.

 

(d)                                  In
the event of the Participant’s death or permanent disability during the
Deferral Period (or Elective Deferral Period, where applicable), or in cases of
special circumstances, 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 Shares.

 

(e)                                  Prior
to completion of the Deferral Period, a Participant may elect to further defer
receipt of the Award for a specified period or until a specified event (the
“Elective Deferral 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.

 

(f)                                    Each
Award shall be confirmed by a Deferred Share agreement or other instrument
executed by the Company and the Participant.

 

ARTICLE 10.

 

GENERALLY APPLICABLE PROVISIONS

 

10.1.                     Option Period.  Subject to Section 3.1(b), the period for
which an Option is exercisable shall be set by the Committee and shall not
exceed ten years from the date such Option is granted, provided, however, in the case of an
Option that is not intended to be an “incentive share option,” the Committee
may prescribe a period in excess of ten years. 
After the Option is granted, the option period may not be reduced,
subject to expiration due to termination of employment or otherwise.

 

10.2.                     Fair Market Value.  The “Fair Market Value” of a Share shall be
determined in good faith by the Committee in its sole discretion from time to
time. In no case shall Fair Market Value be less than the par value of a
Share.  An Option shall be considered
granted on the date the Committee acts to grant the Option or such later date
as the Committee shall specify.

 

10.3.                     Exercise of Options.  Vested Options granted under the Plan shall
be exercised by the Optionee or by a Permitted Assignee thereof (or by his or
her executors, administrators, guardian or legal representative, as provided in
Sections 10.6 and 10.7 hereof) as to all or part of the Shares covered thereby,
by the giving of written notice of exercise to the Company, specifying the
number of Shares to be purchased, accompanied by payment of the full purchase
price for the Shares being purchased. 
Full payment of such purchase price shall be made at the time of
exercise and shall be made (i) in cash or by certified check or bank check or
wire transfer of immediately available funds, (ii) with the consent of the

 

10

 

Committee, by delivery of a promissory note in favor of the Company
upon such terms and conditions as determined by the Committee, (iii) with the
consent of Committee, by tendering previously acquired Shares (valued at its
Fair Market Value, as determined by the Committee as of the date of tender)
that have been owned for a period of at least six months (or such other period
to avoid accounting charges against the Company’s earnings), (iv) if Shares are
traded on a national securities exchange, the Nasdaq Stock Market, Inc. or
quoted on a national quotation system sponsored by the National Association of
Securities Dealers, Inc. and the Committee authorizes this method of exercise,
through the delivery of irrevocable instructions to a broker approved by the
Committee to deliver promptly to the Company an amount equal to the purchase
price, or (v) with the consent of the Committee, any combination of (i), (ii),
(iii) and (iv). In connection with a tender of previously acquired Shares pursuant
to clause (iii) above, the Committee, in its sole discretion, may permit the
Optionee to constructively exchange Shares already owned by the Optionee in
lieu of actually tendering such Shares to the Company, provided that adequate
documentation concerning the ownership of the Shares to be constructively
tendered is furnished in form satisfactory to the Committee. The notice of
exercise, accompanied by such payment, shall be delivered to the Company at its
principal business office or such other office as the Committee may from time
to time direct, and shall be in such form, containing such further provisions
consistent with the provisions of the Plan, as the Committee may from time to
time prescribe.  In no event may any
Option granted hereunder be exercised for a fraction of a Share.  The Company shall, subject to Section 10.4
herein, effect the transfer of Shares purchased pursuant to an Option as soon
as practicable, and, within a reasonable time thereafter, such transfer shall
be evidenced on the books of the Company. 
No person exercising an Option shall have any of the rights of a holder
of Shares subject to an Option until certificates for such Shares shall have
been issued following the exercise of such Option.  No adjustment shall be made for cash dividends or other rights
for which the record date is prior to the date of such issuance.

 

10.4.                     Transferability.  No Option that is intended to qualify as an
“incentive stock option” under Section 422 of the Code shall be assignable or
transferable by the Optionee, other than by will or the laws of descent and
distribution, and such Option may be exercised during the life of the Optionee
only by the Optionee or his guardian or legal representative.  “Non-qualified share options” and any share
appreciation rights granted in tandem therewith are transferable (together and
not separately) with the consent of the Committee by the Optionee or Holder, as
the case may be, to any one or more of the following persons (each, a “Permitted
Assignee”): (i) the spouse, parent, issue, spouse of issue, or issue of
spouse (“issue” shall include all descendants whether natural or adopted) of
such Optionee or Holder, as the case may be; (ii) a trust for the benefit of
one or more of those persons described in clause (i) above or for the benefit
of such Optionee or Holder, as the case may be; (iii) an entity in which the
Optionee or Holder or any Permitted Assignee thereof is a beneficial owner; or
(iv) in the case of a transfer by an Optionee who is a non-employee director,
another non-employee director of the Company; provided that such Permitted
Assignee shall be bound by and subject to all of the terms and conditions of
this Plan and the Share Option Agreement relating to the transferred Option and
shall execute an agreement satisfactory to the Company evidencing such
obligations; and provided further that such Optionee or Holder shall remain
bound by the terms and conditions of this Plan.  In the case of a transfer by a non-employee director to another
non-employee director, the vesting and exercisability shall after such transfer
be determined by reference to the service of the assignee, rather than the
assignor.  The Company shall cooperate
with any Permitted Assignee and the Company’s transfer agent in effectuating any
transfer permitted under this Section 10.4.

 

10.5.                     Termination of Employment.  Unless the Committee determines otherwise,
in the event of the termination of employment of an Optionee or the termination
or separation from service of an advisor or consultant for any reason (other
than death or disability as provided below), any Option(s) held by such
Optionee (or Permitted Assignee) under this Plan and not previously exercised
or expired shall be deemed cancelled and terminated on the day of such termination
or separation, provided, however,
that in no instance may the term of the Option, if extended by the Committee,
exceed the maximum term

 

11

 

established pursuant to Section 3.1(b)(ii) or 10.1 above.  Notwithstanding the foregoing, in the event
of the termination or separation from service of an Optionee for any reason
other than death or disability, under conditions satisfactory to the Company,
the Committee may, in its sole discretion, allow any “nonqualified share
options” granted to such Optionee under the Plan and not previously exercised
or expired to be exercisable for a period of time to be specified by the
Committee, provided, however,
that in no instance may the term of the Option, as so extended, exceed the
maximum term established pursuant to Section 10.1 above.

 

10.6.                     Death.  In the event an Optionee dies while employed
by the Company or any of its subsidiaries or affiliates or during his term as
an advisor or consultant of the Company or any of its subsidiaries or
affiliates, as the case may be, any Option(s) held by such Optionee (or his
Permitted Assignee) and not previously expired or exercised shall, to the
extent exercisable on the date of death, be exercisable by the estate of such
Optionee or by any person who acquired such Option by bequest or inheritance,
or by the Permitted Assignee at any time within one year after the death of the
Optionee, unless earlier terminated pursuant to its terms, provided, however, that if the term of
such Option would expire by its terms within six months after the Optionee’s
death, the term of such Option shall be extended until six months after the
Optionee’s death, provided further, however,
that in no instance may the term of the Option, as so extended, exceed the
maximum term established pursuant to Section 3.1(b)(ii) or 10.1 above.

 

10.7.                     Disability.  In the event of the termination of
employment of an Optionee or the separation from service of an advisor or
consultant of the Company, due to total disability, the Optionee, or his
guardian or legal representative, or a Permitted Assignee shall have the
unqualified right to exercise any Option(s) that have not expired or been
previously exercised and that the Optionee was eligible to exercise as of the
first date of total disability (as determined by the Committee), at any time
within one year after such termination or separation, unless earlier terminated
pursuant to its terms, provided, however,
that if the term of such Option would expire by its terms within six months
after such termination or separation, the term of such Option shall be extended
until six months after such termination or separation, provided further, however, that in no
instance may the term of the Option, as so extended, exceed the maximum term
established pursuant to Section 3.1(b)(ii) or 10.1 above.  The term “total disability” shall, for
purposes of this Plan, be defined in the same manner as such term is defined in
Section 22(e)(3) of the Code.

 

10.8.                     Amendment and Modification of
the Plan. The Committee may, from time to time, alter, amend, suspend or
terminate the Plan as it shall deem advisable, subject to any requirement for
shareholder approval imposed by applicable law or any rule of any stock
exchange or quotation system on which Shares are listed or quoted; provided
that no amendments to, or termination of, the Plan shall in any way impair the
rights of an Optionee or a Participant (or a Permitted Assignee thereof) under
any Award previously granted without such Optionee’s or Participant’s consent.

 

10.9.                     Adjustments. In the event
that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities, the issuance of warrants or other rights to
purchase Shares or other securities, or other similar corporate transaction or
event affects the Shares with respect to which Awards have been or may be
issued under the Plan, such that an adjustment is determined in good faith by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as the Committee may deem
equitable, adjust any or all of (i) the number and type of Shares that
thereafter may be made the subject of Awards, (ii) the number and type of
Shares subject to outstanding Awards and share appreciation rights, and (iii)
the grant or exercise price with respect to any

 

12

 

Award, or, if deemed appropriate, make provision for a cash payment to
the holder of any outstanding Award; provided, in each case, that with respect
to “incentive stock options,” no such adjustment shall be authorized to the
extent that such adjustment would cause such options to violate Section 422(b)
of the Code or any successor provision; and provided further, that the number
of Shares subject to any Award denominated in Shares shall always be a whole
number.  In the event of any
reorganization, merger, consolidation, split-up, spin-off, or other business
combination involving the Company (collectively, a “Reorganization”), the
Committee or the Board of Directors of the Company may cause any Award
outstanding as of the effective date of the Reorganization to be cancelled in
consideration of a cash payment or alternate Award (whether from the Company or
another entity that is a party to the Reorganization) or a combination thereof
made to the holder of such cancelled Award substantially equivalent in value to
the fair market value of such cancelled Award. 
The determination of fair market value shall be made by the Committee or
the Board of Directors, as the case may be, in their sole discretion.

 

10.10.              Change of Control.  The terms of any Award may provide in the
Share Option Agreement, Restricted Share Agreement, Purchase Loan or other
document evidencing the Award, that upon a “Change of Control” of the Company
(as that term may be defined therein), (i) Options (and share appreciation
rights) immediately vest and become fully exercisable, (ii) restrictions on
Restricted Shares lapse and the shares become fully vested, (iii) Purchase
Loans are forgiven in whole or in part, and (iv) such other additional benefits
as the Committee deems appropriate shall apply, subject in each case to any
terms and conditions contained in the applicable document evidencing such
Award.  For purposes of this Plan, a
“Change of Control” shall mean an event described in the applicable document
evidencing the Award or such other event as determined in the sole discretion
of the Board of Directors of the Company. 
The Committee, in its discretion, may determine that, upon the
occurrence of a Change of Control of the Company, each Option and share
appreciation right outstanding hereunder shall terminate within a specified
number of days after notice to the Participant or Holder, and such Participant
or Holder shall receive, with respect to each Share subject to such Option or
share appreciation right, an amount equal to the excess of the Fair Market
Value of such Share immediately prior to the occurrence of such Change of
Control over the exercise price per share of such Option or share appreciation
right; such amount to be payable in cash, in one or more kinds of property
(including the property, if any, payable in the transaction) or in a combination
thereof, as the Committee, in its discretion, shall determine.

 

10.11.              Employment Violation.  Each Share Option Agreement evidencing an
Option granted hereunder shall include and be subject to the following terms:

 

(a)                                  The
terms of this Section 10.11 shall apply to the Option if the Optionee is or
shall become subject to an employment agreement with the Company.

 

(b)                                 If
the Optionee materially breaches his or her employment agreement (it being
understood that any breach of the post-termination obligations contained
therein shall be deemed to be material) for so long as the terms of such
employment agreement shall apply to the Optionee (each an “Employment
Violation”), the Company shall have the right to require (i) the termination
and cancellation of the unexercised portion of the Option, if any, whether
vested or unvested, and (ii) payment by the Optionee to the Company of the
Recapture Amount (as defined below). 
Such termination of unexercised Options and payment of the Recapture
Amount, as the case may be, shall be in addition to, and not in lieu of, any
other right or remedy available to the Company arising out of or in connection
with any such Employment Violation including, without limitation, the right to
terminate Optionee’s employment if not already terminated, seek injunctive
relief and additional monetary damages.

 

13

 

(c)                                  “Recapture
Amount” shall mean the gross gain realized or unrealized by the Optionee upon
each exercise of his Option during the period beginning on the date which is
twelve (12) months prior to the date of the Optionee’s Employment Violation and
ending on the date of computation (the “Look-back Period”), which gain shall be
calculated as the sum of:

 

(i)                                     if
the Optionee has exercised any portion of his Option during the Look-back
Period and sold any of the Shares acquired on exercise thereafter, an amount
equal to the product of (x) the sales price per  Share sold minus the exercise price per Share times (y) the
number of Shares as to which the Option was exercised and which were sold at
such sales price; plus

 

(ii)                                  if
the Optionee has exercised any portion of his Option during the Look-back
Period and not sold any of the Shares acquired on exercise thereafter, with
respect to each of such Shares an amount equal to the product of (x) the
greatest of the following: (1) the Fair Market Value per Share on the date of
exercise, (2) the arithmetic average of the per Share closing sales prices as
reported on NASDAQ for the thirty (30) trading day period ending on the trading
day immediately preceding the date of the Company’s written notice of its
exercise of its rights under this clause (h), or (3) the arithmetic average of
the per Share closing sales prices as reported on NASDAQ for the thirty (30)
trading day period ending on the trading day immediately preceding the date of
computation, minus the exercise price per Share times (y) the number of Shares
as to which this Option was exercised and which were not sold;

 

provided, however, in lieu of payment by the Optionee to the Company of
the Recapture Amount determined pursuant to subclause (ii) above, the Optionee,
in his or her discretion, may tender to the Company the Shares acquired upon
exercise of this Option during the Look-back Period and the Optionee shall not
be entitled to receive any consideration from the Company in exchange therefor.

 

With respect to any other Awards granted hereunder, the terms of any
Restricted Share Agreement, share appreciation right, Share Purchase Award or
any other document evidencing an Award under the Plan, may include comparable
provisions to those set forth in this Section 10.11.

 

10.12.              Other Provisions.  (a)  The Committee may require each Participant
purchasing Shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that such Participant is acquiring the Shares
without a view to distribution thereof. 
The certificates for such Shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.

 

(b)                                  All certificates for
Shares delivered under the Plan pursuant to any Award shall be subject to such
share-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other restrictions of the
Securities and Exchange Commission, any stock exchange upon which the Shares
are then listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.

 

(c)                                  Awards granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Awards granted
under the Plan.  If Awards are granted
in substitution for other Awards, the Committee shall require the surrender of
such other Awards in consideration for the grant of the new Awards.  Awards granted in addition to or in tandem
with other Awards may be granted either at the same time as or at a different
time from the grant of such other Awards.

 

14

 

(d)                                  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.

 

(e)                                  A Participant shall
have no right as a shareholder until he or she becomes the holder of record.

 

(f)                                    The
Company will provide to its shareholders, at least annually, reports containing
financial statements and management’s discussion and analysis of financial
conditions and results of operations.

 

10.13.              Terms of Option Grant.  Notwithstanding anything in Section 10.4,
10.5, 10.6, 10.7, 10.10 and 10.11 to the contrary, the Committee may grant an
Option under such terms and conditions as may be provided in the Share Option
Agreement given to the Optionee and the Committee has the discretion to modify
the terms and conditions of an Option after grant as long as the rights of the
Optionee are not impaired unless the Optionee otherwise consents, provided, however, that in no instance
may the term of the Option, as so granted, exceed the maximum term established
pursuant to Section 10.1 above, provided  further that in no instance
may the exercise price of the Option be reduced after the date of grant (except
in connection with adjustments pursuant to Section 10.9 hereof).

 

ARTICLE 11.

 

PERFORMANCE-BASED AWARDS.

 

11.1.                     General.  (a)  Certain Awards granted under the Plan may be
granted in a manner such that the Awards qualify as “performance-based
compensation”(as such term is used in Section 162(m) of the Code and the
regulations thereunder) and thus be exempt from the deduction limitation
imposed by Section 162(m) of the Code (“Performance-Based Awards”).  Awards shall only qualify as
Performance-Based Awards if, among other things, at the time of grant the
Committee is comprised solely of two or more “outside directors” (as such term
is used in Section 162(m) of the Code and the regulations thereunder).

 

(b)                                  Performance-Based
Awards may be granted to Participants at any time and from time to time, as
shall be determined by the Committee. 
The Committee shall have complete discretion in determining the number,
amount and timing of awards granted to each Participant.  Such Performance-Based Awards may take the
form of, without limitation, cash, Shares or any combination thereof.

 

(c)                                  The Committee shall
set performance goals at its discretion which, depending on the extent to which
they are met, will determine the number and/or value of such Performance-Based
Awards that will be paid out to the Participants, and may attach to such
Performance-Based Awards one or more restrictions.  The maximum amount of 
Performance-Based Awards to be awarded to any employee during any fiscal
year shall be $1,000,000.

 

11.2.                     Options and Share Appreciation
Rights.  Options and share
appreciation rights granted under the Plan with an exercise price at or above
the Fair Market Value of the Shares on the date of grant should qualify as
Performance-Based Awards.

 

11.3.                     Other Awards. 
Either the granting or vesting of Performance-Based Awards granted under
the Plan shall be subject to the achievement of a performance target or
targets, as

 

15

 

determined by the Committee in its sole
discretion, based on one or more of the performance measures specified in
Section 11.4 below.  With respect to
such Performance-Based Awards:

 

(1)                                 the
Committee shall establish in writing (x) the objective performance-based goals
applicable to a given period and (y) the individual employees or class of
employees to which such performance-based goals apply no later than 90 days
after the commencement of such period (but in no event after 25 percent of such
period has elapsed);

 

(2)                                 no
Performance-Based Awards shall be payable to or vest with respect to, as the
case may be, any Participant for a given period until the Committee certifies
in writing that the objective performance goals (and any other material terms)
applicable to such period have been satisfied; and

 

(3)                                 after
the establishment of a performance goal, the Committee shall not revise such
performance goal or increase the amount of compensation payable thereunder (as
determined in accordance with Section 162(m) of the Code) upon the attainment
of such performance goal.

 

11.4.                     Performance Measures.  The Committee may use the following
performance measures (either individually or in any combination) to set
performance targets with respect to Awards intended to qualify as
Performance-Based Awards: net sales; pretax income before allocation of
corporate overhead and bonus; budget; earnings per share; net income; division,
group or corporate financial goals; return on stockholders’ equity; return on
assets; attainment of strategic and operational initiatives; appreciation in
and/or maintenance of the price of the common stock or any other
publicly-traded securities of the Company; market share; gross profits;
earnings before taxes; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; economic value-added models;
comparisons with various stock market indices; and/or reductions in costs.

 

ARTICLE 12.

 

MISCELLANEOUS

 

12.1.                     Tax Withholding.  The Company shall have the right to make all
payments or distributions pursuant to the Plan to an Optionee or Participant
(or a Permitted Assignee thereof) net of any applicable Federal, State and
local taxes required to be paid as a result of the grant of any Award, exercise
of an Option or share appreciation rights or any other event occurring pursuant
to this Plan.  The Company or any
subsidiary or affiliate thereof shall have the right to withhold from wages or
other amounts otherwise payable to such Optionee or Participant (or a Permitted
Assignee thereof) such withholding taxes as may be required by law, or to
otherwise require the Optionee or Participant (or a Permitted Assignee thereof)
to pay such withholding taxes.  If the
Optionee or Participant (or a Permitted Assignee thereof) shall fail to make
such tax payments as are required, the Company or its subsidiaries or
affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to such Optionee or
Participant or to take such other action as may be necessary to satisfy such
withholding obligations.  In
satisfaction of the requirement to pay withholding taxes, the Optionee or
Participant (or Permitted Assignee) may make a written election, which may be
accepted or rejected in the discretion of the Committee, to have withheld a
portion of the Shares then issuable to the Optionee (or Permitted Assignee)
pursuant to the Plan having an aggregate Fair Market Value equal to the
withholding taxes.

 

16

 

12.2.                     Right of Discharge Reserved.  Nothing in the Plan nor the grant of an
Award hereunder shall confer upon any employee or other individual the right to
continue in the employment or service of the Company or any subsidiary or
affiliate of the Company or affect any right that the Company or any subsidiary
or affiliate of the Company may have to terminate the employment or service of
(or to demote or to exclude from future Options under the Plan) any such
employee or other individual at any time for any reason.  Except as specifically provided by the
Committee, the Company shall not be liable for the loss of existing or
potential profit with respect to an Award in the event of termination of an
employment or other relationship even if the termination is in violation of an
obligation of the Company or any subsidiary or affiliate of the Company to the
employee, advisor or consultant.

 

12.3.                     Nature of Payments.  All Awards made pursuant to the Plan are in
consideration of services performed or to be performed for the Company or any
subsidiary or affiliate of the Company. 
Any income or gain realized pursuant to Awards under the Plan and any
share appreciation rights constitutes a special incentive payment to the
Optionee, Participant or Holder and shall not be taken into account, to the
extent permissible under applicable law, as compensation for purposes of any of
the employee benefit plans of the Company or any subsidiary or affiliate of the
Company except as may be determined by the Committee or by the Directors or
directors of the applicable subsidiary or affiliate of the Company.

 

12.4.                     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 or Optionee by the Company, nothing
contained herein shall give any such Participant or Optionee 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 Shares or payments in lieu of or with respect
to Awards hereunder; provided, however, that the existence of such trusts or
other arrangements is consistent with the unfunded status of the Plan.

 

12.5.                     Severability.  If any provision of the Plan shall be held
unlawful or otherwise invalid or unenforceable in whole or in part, such
unlawfulness, invalidity or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which remain in full force and
effect.  If the making of any payment or
the provision of any other benefit required under the Plan shall be held
unlawful or otherwise invalid or unenforceable, such unlawfulness, invalidity
or unenforceability shall not prevent any other payment or benefit from being
made or provided under the Plan, and if the making of any payment in full or
the provision of any other benefit required under the Plan in full would be
unlawful or otherwise invalid or unenforceable, then such unlawfulness,
invalidity or unenforceability shall not prevent such payment or benefit from
being made or provided in part, to the extent that it would not be unlawful,
invalid or unenforceable, and the maximum payment or benefit that would not be
unlawful, invalid or unenforceable shall be made or provided under the Plan.

 

12.6.                     Gender and Number.  In order to shorten and to improve the
understandability of the Plan document by eliminating the repeated usage of
such phrases as “his or her” and any masculine terminology herein shall also
include the feminine, and the definition of any term herein in the singular
shall also include the plural except when otherwise indicated by the context.

 

12.7.                     Governing Law.  The Plan and all determinations made and
actions taken thereunder, to the extent not otherwise governed by the Code or
the laws of the United States, shall be governed by the laws of the State of
Delaware and construed accordingly.

 

12.8.                     Effective Date of Plan;
Termination of Plan. The Plan shall be effective on the date of the
approval of the Plan by the Board of Directors.  Notwithstanding the foregoing, no Option intended

 

17

 

to qualify as an incentive share option shall be granted hereunder
until the Plan shall be approved by the holders of a majority of the shares
entitled to vote thereon, provided such approval is obtained within 12 months
after the date of adoption of the Plan by the Board of Directors.  Awards may be granted under the Plan at any
time and from time to time prior to April 3, 2012, on which date the Plan will
expire except as to Awards and related share appreciation rights then
outstanding under the Plan.  Such
outstanding Awards and share appreciation rights shall remain in effect until
they have been exercised or terminated, or have expired.

 

12.9.                     Captions.  The captions in this Plan are for
convenience of reference only, and are not intended to narrow, limit or affect
the substance or interpretation of the provisions contained herein.

 

12.10.              Dissolution or Liquidation.  In the event of the proposed dissolution or
liquidation of the Company, the Committee shall notify each Optionee and
Participant as soon as practicable prior to the effective date of such proposed
transaction.  The Committee in its sole
discretion may permit an Optionee to exercise an Option until ten days prior to
such transaction with respect to all vested and exercisable Shares covered
thereby and with respect to such number of unvested Shares as the Committee
shall determine.  In addition, the
Committee may provide that any forfeiture provision or Company repurchase
option applicable to any Restricted Share Award shall lapse as to such number
of Shares as the Committee shall determine, contingent upon the occurrence of
the proposed dissolution or liquidation at the time and in the manner
contemplated.  To the extent an Option
has not been previously exercised, the Option shall terminate automatically
immediately prior to the consummation of the proposed action.  To the extent a forfeiture provision
applicable to a Restricted Share Award has not been waived by the Committee,
the related Restricted Share Award shall be forfeited automatically immediately
prior to the consummation of the proposed action.

 

12.11.              Successors and Assigns.  This Plan shall be binding upon and inure to
the benefit of the respective successors and permitted assigns of the Company,
Optionees and Participants.

 

18

 

STOCK OPTION AGREEMENT

(Non-Transferable)

 

	
  Stock Option
  #                                

  	
   

  	
  For             Shares

  

 

Issued Pursuant to the

2002 Incentive Plan of

 

ACTIVISION, INC.

 

THIS CERTIFIES that on                       
(the “Issuance Date”)             
(the “Holder”) was granted an option (the “Option”) to purchase at
the option price of
$             per
share, all or any part of                    
fully paid and non-assessable shares (“Shares”) of common stock, par value
$.000001 per share, of ACTIVISION, INC., a Delaware corporation (the
“Company”), upon and subject to the following terms and conditions:

 

a.                                       Terms of the
Plan.  The Option is granted
pursuant to, and is subject to the terms and conditions of, the Company’s 2002
Incentive Plan (the “Plan”), the terms, conditions and definitions of which are
hereby incorporated herein as though set forth at length, and the receipt of a
copy of which the Holder hereby acknowledges by his signature below.  Capitalized terms used herein shall have the
meanings set forth in the Plan, unless otherwise defined herein.

 

[The Company intends that this Option qualify as an “incentive” share
option within the meaning of Section 422 of the Internal Revenue Code to the
maximum extent permissible under the Internal Revenue Code.  To the extent that the Option does not
qualify as an incentive share option, the Option or the portion thereof which
does not so qualify shall constitute a separate “nonqualified” share option.]

 

b.                                       Expiration.  This Option shall expire on [ten (10) years
less one day from date of issuance], unless extended or earlier terminated in
accordance herewith.

 

c.                                       Exercise.
 This Option may be exercised or
surrendered during the Holder’s lifetime only by the Holder or his/her guardian
or legal representative.  THIS OPTION
SHALL NOT BE TRANSFERABLE BY THE HOLDER OTHERWISE THAN BY WILL OR BY THE LAWS
OF DESCENT AND DISTRIBUTION, SUBJECT TO THE TERMS AND CONDITIONS OF THE PLAN.

 

This Option shall vest and be exercisable as follows:

 

	
  Vesting Date

  	
   

  	
  Shares Vested at Vesting Date

  	
   

  	
  Cumulative Shares

  Vested at Vesting Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [vesting schedule]

  	
   

  	
   

  

 

 

This Option shall be exercised by the Holder (or by her executors,
administrators, guardian or legal representative) as to all or part of the
Shares, by the giving of written notice of exercise to the Company, specifying
the number of Shares to be purchased, accompanied by payment of the full
purchase price for the Shares being purchased. 
Full payment of such purchase price shall be made at the time of
exercise and shall be made (i) in cash or by certified check or bank check or
wire transfer of immediately available funds, (ii) with the consent of the
Company, by tendering previously acquired Shares (valued at its Fair Market
Value (as defined in the Plan), as determined by the Company as of the date of
tender), or (iii) with the consent of the Company, a combination of (i) and (ii).  Such notice of exercise, accompanied by such
payment, shall be delivered to the Company at its principal business office or
such other office as the Company may from time to time direct, and shall be in
such form, containing such further provisions as the Company may from time to
time prescribe.  In no event may this
Option be exercised for a fraction of a Share. 
The Company shall effect the transfer of Shares purchased pursuant to an
Option as soon as practicable, and, within a reasonable time thereafter, such
transfer shall be evidenced on the books of the Company.  No person exercising this Option shall have
any of the rights of a holder of Shares subject to this Option until
certificates for such Shares shall have been issued following the exercise of
such Option.  No adjustment shall be
made for cash dividends or other rights for which the record date is prior to
the date of such issuance.

 

(d)                                  Termination of
Employment.  In the event of the
termination of employment or separation from service of the Holder for any
reason (other than death or disability as provided below), this Option, to the
extent not previously exercised or expired, shall be deemed cancelled and
terminated on the day of such termination or separation, unless the Company
decides, in its sole discretion, to extend the term of this Option, subject to
the terms of the Plan.

 

(e)                                  Death.  In the event the Holder dies while employed
by the Company or any of its subsidiaries or affiliates, or during his term as
a Director of the Company or any of its subsidiaries or affiliates, as the case
may be, this Option, to the extent not previously expired or exercised, shall,
to the extent exercisable on the date of death, be exercisable by the estate of
the Holder or by any person who acquired this Option by bequest or inheritance,
at any time within one year after the death of the Holder,  provided,
however, that if the term of such Option would expire by its terms
within six months after the Optionee’s death, the term of such Option shall be
extended until six months after the Optionee’s death, provided further, however, that in no
instance may the term of the Option, as so extended, exceed the maximum term
established pursuant to Sections 3.1(b)(ii) or 10.1 of the Plan.

 

(f)                                    Disability.  In the event of the termination of
employment of the Holder or the separation from service of the Holder due to
total disability, the Holder, or her guardian or legal representative, shall
have the unqualified right to exercise any portion of this Option which has not
been previously exercised or expired and which the Holder was eligible to
exercise as of the first date of total disability (as determined by the
Company), at any time within one year after such termination or separation, provided, however, that if the term of
such Option would expire by its terms within six months after such termination
or separation, the term of such Option shall be extended until six months after
such termination or separation, provided
further, however, that in no instance may the term of the Option, as
so extended, exceed the maximum term established pursuant to Section 3.1(b)(ii)
or 10.1 of the Plan.  The term “total
disability” shall, for purposes of this Share Option Agreement, be defined in
the same manner as such term is defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended.

 

(g)                                 Change of Control.  If the Holder is an active employee of the
Company or any of its subsidiaries at the time there occurs a “Change of
Control” of the Company (as defined below) and the Holder’s employment is
terminated by the Company or any of its subsidiaries other than for Cause (as
defined below) within twelve (12) months following such Change of Control, or
such longer period as the Committee may determine, the portion, if any, of this
Option with respect to which the right to exercise

 

2

 

has not yet accrued, shall immediately vest
and be exercisable in full, effective upon such termination, for a period of 30
days thereafter, or such longer period as the Committee may determine.  For purposes of this Option, a “Change of
Control” of the Company shall be deemed to occur if:

 

(i)                                                 there
shall have occurred a Change of Control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as in effect on the date hereof, whether or not the Company is
then subject to such reporting requirement, provided, however,
that there shall not be deemed to be a Change of Control of the Company if
immediately prior to the occurrence of what would otherwise be a Change of
Control of the Company (a) the Holder is the other party to the transaction (a
“Control Event”) that would otherwise result in a Change of Control of the
Company or (b) the Holder is an executive officer, trustee, director or more
than 5% equity holder of the other party to the Control Event or of any entity,
directly or indirectly, controlling such other party;

 

(ii)                                              the
Company merges or consolidates with, or sells all or substantially all of its
assets to, another company (each, a “Transaction”), provided, however,
that a Transaction shall not be deemed to result in a Change of Control of the
Company if (a) immediately prior thereto the circumstances in (i)(a) or (i)(b)
above exist, or (b) (1) the shareholders of the Company, immediately before
such Transaction own, directly or indirectly, immediately following such
Transaction in excess of fifty percent (50%) of the combined voting power of
the outstanding voting securities of the corporation or other entity resulting
from such Transaction (the “Surviving Corporation”) in substantially the same
proportion as their ownership of the voting securities of the Company
immediately before such Transaction and (2) the individuals who were members of
the Company’s Board of Directors immediately prior to the execution of the
agreement providing for such Transaction constitute at least a majority of the
members of the board of directors or the board of trustees, as the case may be,
of the Surviving Corporation, or of a corporation or other entity beneficially
directly or indirectly owning a majority of the outstanding voting securities
of the Surviving Corporation; or

 

(iii)                                           the
Company acquires assets of another company or a subsidiary of the Company
merges or consolidates with another company (each, an “Other Transaction”) and
(a) the shareholders of the Company, immediately before such Other Transaction
own, directly or indirectly, immediately following such Other Transaction 50%
or less of the combined voting power of the outstanding voting securities of
the corporation or other entity resulting from such Other Transaction (the
“Other Surviving Corporation”) in substantially the same proportion as their
ownership of the voting securities of the Company immediately before such Other
Transaction or (b) the individuals who were members of the Company’s Board of
Directors immediately prior to the execution of the agreement providing for
such Other Transaction constitute less than a majority of the members of the
board of directors or the board of trustees, as the case may be, of the Other
Surviving Corporation, or of a corporation or other entity beneficially directly
or indirectly owning a majority of the outstanding voting securities of the
Other Surviving Corporation, provided, however, that an Other
Transaction shall not be deemed to result in a Change of Control of the Company
if immediately prior thereto the circumstances in (i)(a) or (i)(b) above exist.

 

3

 

For purposes of this clause (g), “Cause” shall mean (unless a different
definition is used in the Holder’s written employment agreement with the
Company, if any, in which case such different definition shall apply to the
Holder) any of the following:

 

(i)                                                  material
breach by the Holder of his or her employment agreement, if any, or material
failure by the Holder to perform his or her duties (other than as a result of
incapacity due to physical or mental illness) during his or her employment with
the Company after written notice of such breach or failure and the Holder
failed to cure such breach or failure to the Company’s reasonable satisfaction
within five (5) days after receiving such written notice;

 

(ii)                                              material
breach by the Holder of his or her Employee Proprietary Information Agreement
or other similar arrangement entered into by the Holder in connection with his
or her employment by the Company; or

 

(iii)                                           any
act of fraud, misappropriation, misuse, embezzlement or any other material act
of dishonesty in respect of the Company or its funds, properties, assets or
other employees.

 

(h)                                 Employment
Violation.  In consideration of the
granting and by acceptance of this Option, the Holder hereby agrees that the
terms of this clause (h) shall apply to the Option.  The Holder acknowledges and agrees that each exercise of this
Option and each written notice of exercise delivered to the Company and
executed by the Holder shall serve as a reaffirmation of and continuing
agreement by the Holder to comply with the terms contained in this clause (h).

 

The Company and the Holder acknowledge and agree that if the Holder
materially breaches his or her employment agreement (it being understood that
any breach of the post-termination obligations contained therein shall be
deemed to be material) for so long as the terms of such employment agreement
shall apply to the Holder (each an “Employment Violation”), the Company shall
have the right to require (i) the termination and cancellation of the
unexercised portion of this Option, if any, whether vested or unvested, and
(ii) payment by the Holder to the Company of the Recapture Amount (as defined
below).  The Company and the Holder
further agree that such termination of unexercised Options and payment of the
Recapture Amount, as the case may be, shall be in addition to, and not in lieu
of, any other right or remedy available to the Company arising out of or in
connection with any such Employment Violation including, without limitation,
the right to terminate the Holder’s employment if not already terminated, seek
injunctive relief and additional monetary damages.

 

For purposes of this clause (h), the “Recapture Amount” shall mean the
gross gain realized or unrealized by the Holder upon each exercise of this
Option during the period beginning on the date which is twelve (12) months
prior to the date of the Holder’s Employment Violation and ending on the date
of computation (the “Look-back Period”), which gain shall be calculated as the
sum of:

 

(i)                                     if
the Holder has exercised any portion of this Option during the Look-back Period
and sold any of the Shares acquired on exercise thereafter, an amount equal to
the product of (x) the sales price per Share sold minus the exercise price per
Share times (y) the number of Shares as to which this Option was exercised and
which were sold at such sales price; plus

 

(ii)                                  if
the Holder has exercised any portion of this Option during the Look-back Period
and not sold any of the Shares acquired on exercise thereafter, with respect to
each of such Shares an amount equal to the product of (x) the greatest of the
following: (1) the Fair Market Value per Share on the date of exercise, (2) the
arithmetic average of the per Share closing sales

 

4

 

prices as reported on NASDAQ for the thirty
(30) trading day period ending on the trading day immediately preceding the
date of the Company’s written notice of its exercise of its rights under this
clause (h), or (3) the arithmetic average of the per Share closing sales prices
as reported on NASDAQ for the thirty (30) trading day period ending on the
trading day immediately preceding the date of computation, minus the exercise
price per Share times (y) the number of Shares as to which this Option was
exercised and which were not sold;

 

provided, however, in lieu of payment by the Holder to the Company of
the Recapture Amount determined pursuant to subclause (ii) above, the Holder,
in his or her discretion, may tender to the Company the Shares acquired upon
exercise of this Option during the Look-back Period and the Optionee shall not
be entitled to receive any consideration from the Company in exchange therefor.

 

(i)                                    Adjustments.  In the event that the Company shall
determine that any dividend or other distribution (whether in the form of cash,
shares of common stock of the Company, 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 of the Company or other securities, the issuance of
warrants or other rights to purchase shares of common stock of the Company, or other
securities, or other similar corporate transaction or event affects the Shares,
such that an adjustment is determined by the Company to be appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available to the Holder, then the Company shall, in such
manner as the Company may deem equitable, adjust any or all of (i) the number
and type of shares of common stock of the Company subject to this Option, and
(ii) the grant or exercise price with respect to this Option, or, if deemed
appropriate, make provision for a cash payment to the Holder.

 

(j)                                    Delivery of
Share Certificates.  Within a
reasonable time after the exercise of this Option, the Company shall cause to
be delivered to the person entitled thereto a certificate for the Shares
purchased pursuant to the exercise of this Option.  If this Option shall have been exercised with respect to less
than all of the Shares subject to this Option, the Company shall also cause to
be delivered to the person entitled thereto a new Stock Option Agreement in
replacement of this Stock Option Agreement if surrendered at the time of the
exercise of this Option, indicating the number of Shares with respect to which
this Option remains available for exercise, or the Company shall make a
notation in its books and records to reflect the partial exercise of this
Option.

 

(k)                                Withholding.  In the event that the Holder elects to
exercise this Option or any part thereof, and if the Company or any subsidiary
or affiliate of the Company shall be required to withhold any amounts by
reasons of any federal, state or local tax laws, rules or regulations in
respect of the issuance of Shares to the Holder pursuant to this Option, the
Company or such subsidiary or affiliate shall be entitled to deduct and
withhold such amounts from any payments to be made to the Holder.  In any event, the Holder shall make
available to the Company or such subsidiary or affiliate, promptly when
requested by the Company or such subsidiary or affiliate, sufficient funds to
meet the requirements of such withholding; and the Company or such subsidiary
or affiliate shall be entitled to take and authorize such steps as it may deem
advisable in order to have such funds available to the Company or such subsidiary
or affiliate out of any funds or property due or to become due to the Holder.

 

(l)                                    Reservation of
Shares.  The Company hereby agrees
that at all times there shall be reserved for issuance and/or delivery upon
exercise of this Option such number of Shares as shall be required for issuance
or delivery upon exercise hereof.

 

(m)                              Rights of Holder.  Nothing contained herein shall be construed
to confer upon the Holder any right to be continued in the employ of the
Company and/or any subsidiary or affiliate of the Company or derogate from any
right of the Company and/or any subsidiary or affiliate of the Company to

 

5

 

retire, request the resignation of, or discharge the Holder at any
time, with or without cause.  The Holder
shall not, by virtue hereof, be entitled to any rights of a shareholder in the
Company, either at law or in equity, and the rights of the Holder are limited
to those expressed herein and are not enforceable against the Company except to
the extent set forth herein.

 

(n)                                 Exclusion from
Pension Computations.  By acceptance
of the grant of this Option, the Holder hereby agrees that any income realized
upon the receipt or exercise hereof, or upon the disposition of the Shares
received upon its exercise, is special incentive compensations and, to the
extent permissible under applicable law, shall not be taken into account as
“wages”, “salary” or “compensation” in determining the amount of any payment
under any pension, retirement, incentive, profit sharing, bonus or deferred
compensation plan of the Company or any of its subsidiaries or affiliates.

 

(o)                                  Registration;
Legend.  The Company may postpone
the issuance and delivery of Shares upon any exercise of this Option until (a)
the admission of such Shares to listing on any stock exchange or exchanges on
which Shares of the Company of the same class are then listed and (b) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule or regulation as the Company shall determine to be
necessary or advisable.  The Holder
shall make such representations and furnish such information as may, in the
opinion of counsel for the Company, be appropriate to permit the Company, in
light of the then existence or non-existence with respect to such Shares of an
effective Registration Statement under the Securities Act of 1933, as amended,
to issue the Shares in compliance with the provisions of that or any comparable
act.

 

The Company may cause the following or a similar legend to be set forth
on each certificate representing Shares or any other security issued or
issuable upon exercise of this Option unless counsel for the Company is of the
opinion as to any such certificate that such legend is unnecessary:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

 

(p)                                  Amendment.  The Company may at any time or from time to
time amend the terms of the Plan, and may, with the consent of the Holder, at
any time or from time to time amend the terms and conditions of this Option, provided,
however, that in no instance may the exercise price of this Option
be reduced after the date of grant (except in connection with adjustments
pursuant to Section 10.9 of the Plan).

 

(q)                                  Notices.  Any notice which either party hereto may be
required or permitted to give to the other shall be in writing, and may be
delivered personally or by mail, postage prepaid, or overnight courier,
addressed as follows:  if to the
Company, at its office at 3100 Ocean Park Boulevard, Santa Monica, California
90405, Attn: General Counsel, or at such other address as the Company by notice
to the Holder may designate in writing from time to time; and if to the Holder,
at the address shown below her signature on this Stock Option Agreement, or at
such other address as the Holder by notice to the Company may designate in
writing from time to time.  Notices
shall be effective upon receipt.

 

6

 

(r)                                  Interpretation.  A determination of the Committee as to any
questions which may arise with respect to the interpretation of the provisions
of this Option and of the Plan shall be final and binding.  The Committee may authorize and establish
such rules, regulations and revisions thereof as it may deem advisable.

 

7

 

IN WITNESS WHEREOF, the parties have executed this Stock Option
Agreement as of the date set forth above.

 

	
   

  	
  ACTIVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  	
   

  
					

 

ACCEPTED:

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Option Holder

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  City

  	
  State     Zip Code

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Social Security Number

  	
   

  	
   

  	
   

  

 

8Exhibit 10.2

 

ACTIVISION, INC.

 

2003 INCENTIVE PLAN

 

ACTIVISION, INC., a corporation formed under the laws of the State of

Delaware (the “Company”), hereby establishes and adopts the following 2003

Incentive Plan (the “Plan”).

 

RECITALS

 

WHEREAS, the Company desires to encourage high levels of performance by

those individuals who are key to the success of the Company, to attract new

individuals who are highly motivated and who will contribute to the success of

the Company and to encourage such individuals to remain as directors, officers

and/or employees of the Company and its subsidiaries by increasing their

proprietary interest in the Company’s growth and success.

 

WHEREAS, to attain these ends, the Company has formulated the Plan

embodied herein to authorize the granting of incentive awards through grants of

share options (“Options”), grants of share appreciation rights, grants of Share

Purchase Awards (hereafter defined), grants of Restricted Share Awards

(hereafter defined), grants of Performance-Based Awards (hereafter defined), or

any other award made under the Plan to those persons (each such person, a

“Participant”) whose judgment, initiative and efforts are or have been or will

be responsible for the success of the Company.

 

NOW, THEREFORE, the Company hereby constitutes, establishes and adopts

the following Plan and agrees to the following provisions:

 

ARTICLE 1.

 

PURPOSE OF THE

PLAN

 

1.1.                            Purpose.  The

Purpose of the Plan is to assist the Company and its subsidiaries in attracting

and retaining selected individuals to serve as directors, officers,

consultants, advisors and other employees of the Company and its subsidiaries

who will contribute to the Company’s success and to achieve long-term

objectives which will inure to the benefit of all shareholders of the Company

through the additional incentive inherent in the ownership or increased

ownership of the Company’s shares of common stock, par value $.000001 per share

(“Shares”).  For purposes of the Plan,

the term “subsidiary” shall mean “subsidiary corporation,” as such term is

defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the

“Code”), and “affiliate” shall have the meaning set forth in Rule 12b-2 of the

Securities and Exchange Commission (“SEC”), promulgated under the Securities

Exchange Act of 1934, as amended (the “Exchange Act”).  For purposes of the Plan, the term “Award”

shall mean a grant of an Option, a grant of a share appreciation right, a grant

of a Share Purchase Award, a grant of a Restricted Share Award, or any other

award made under the terms of the Plan.

 

 

ARTICLE 2.

 

SHARES SUBJECT

TO AWARDS

 

2.1.                            Number of Shares. 

Subject to the adjustment provisions of Section 8.6 hereof,

the aggregate number of Shares which may be issued under Awards under the Plan shall

not exceed [9,000,000].  No Options to

purchase fractional Shares shall be granted or issued under the Plan.  For purposes of this Section 2.1, the Shares

that shall be counted toward such limitation shall include all Shares issued or

issuable under any Award granted under the terms of the Plan.

 

2.2.                            Shares Subject to Terminated Awards.  The Shares covered by any

unexercised portions of terminated Options, Shares forfeited as provided in

Section 6.1(a) and Shares subject to any Awards which are otherwise surrendered

by the Participant without receiving any payment or other benefit with respect

thereto may again be subject to new Awards under the Plan, other than grants of

Options intended to qualify as incentive share options.  In the event the purchase price of an Option

is paid in whole or in part through the delivery of Shares, the number of

Shares issuable in connection with the exercise of the Option shall not again

be available for the grant of Awards under the Plan.  Shares subject to Options, or portions thereof, which have been

surrendered in connection with the exercise of a Related SAR (as defined in

Article 5, below) shall not again be available for the grant of Awards under

the Plan.

 

2.3.                            Character of Shares. 

Shares delivered under the Plan may be authorized and

unissued Shares or Shares acquired by the Company, or both.

 

2.4.                            Limitations on Grants to Individual Participant.  Subject to adjustments pursuant

to the provisions of Section 8.6 hereof, the maximum number of Shares with

respect to which Options or share appreciation rights may be granted hereunder

to any employee during any fiscal year of the Company shall be [750,000] Shares

(the “Limitation”).  If an Option is

cancelled, the cancelled Option shall continue to be counted toward the

Limitation for the fiscal year in which it was granted.  An Option (or a share appreciation right)

that is repriced during any fiscal year is treated as the cancellation of the

Option (or share appreciation right) and a grant of a new Option (or share appreciation

right) for purposes of the Limitation for that fiscal year.

 

ARTICLE 3.

 

ELIGIBILITY

AND ADMINISTRATION

 

3.1.                            Awards to Employees, Directors and Others.  Participants who receive (i)

Options under Article 4 hereof or share appreciation rights under Article 5

(“Optionees”), and (ii) any other Awards granted under the Plan shall consist

of such officers, employees,  consultants, advisors, and directors

(“Directors”)  of the Company or any of

its subsidiaries or affiliates as the Committee (as defined in Section 3.2

below) shall select from time to time in its sole and absolute discretion.

 

3.2.                            Administration. 

(a) The Plan

shall be administered by a committee or committees (the “Committee”) consisting

of not fewer than two Directors as designated by the Directors.  The Directors may remove from, add members

to, or fill vacancies in the Committee. 

In

 

2

 

determining the composition of

any committee or subcommittee, the Directors or the Committee, as the case may

be, shall consider the desirability of compliance with the compositional

requirements of (i) Rule 16b-3 of the SEC with respect to award holders who are

subject to the trading restrictions of Section 16(b) of the Exchange Act with

respect to securities of the Company and (ii) Section 162(m) of the Code, but

shall not be bound by such compliance.

 

Notwithstanding

any other provision of this Plan, any Award to a member of the Committee must

be approved by the Board of Directors of the Company (excluding Directors who

are also members of the Committee) to be effective.

 

(c)                                  The

Committee is authorized, subject to the provisions of the Plan, to establish

such rules and regulations as it may deem appropriate for the conduct of

meetings and proper administration of the Plan.  All actions of the Committee shall be taken by majority vote of

its members.

 

(d)                                  Subject

to the provisions of the Plan, the Committee shall have authority, in its sole

discretion, to grant Awards under the Plan, to determine the amount and/or

number of Shares subject to an Award, to determine the terms of such Award

(which terms need not be identical), to interpret the provisions of the Plan

and, subject to the requirements of applicable law, to prescribe, amend, and

rescind rules and regulations relating to the Plan or any Award thereunder as

it may deem necessary or advisable.  All

decisions made by the Committee pursuant to the provisions of the Plan shall be

final, conclusive and binding on all persons, including the Company, its

shareholders, Directors and employees, and other Plan participants.

 

ARTICLE 4.

 

OPTIONS

 

4.1.                            Grant of Options. 

The Committee shall determine, within the limitations of the

Plan, those Participants to whom  Options are to be granted under the

Plan, the number of Shares that may be purchased under each such Option and the

option price, the time or times at which Options are exercisable, and all other

terms of the Options, and shall designate such Options at the time of the grant

as either incentive share options (“ISOs”) that satisfy the requirements of

Section 422 of the Code or nonqualified share options (“NQOs”) not

intended to satisfy those requirements; provided,

however, that Options granted to employees of an affiliate (that is

not also a subsidiary) or to non-employees of the Company may only be NQOs.

 

4.2.                            Share Option Agreements; etc.  All Options granted pursuant to

this Article 4 (a) shall be authorized by the Committee and (b) shall be

evidenced in writing by share option agreements (“Share Option Agreements”) in

such form and containing such terms and conditions as the Committee shall

determine that are not inconsistent with the provisions of the Plan, and, with

respect to any Share Option Agreement granting Options that are intended to qualify

as ISOs, are not inconsistent with Section 422 of the Code.  Granting of an Option pursuant to the Plan

shall impose no obligation on the recipient to exercise such Option.  To the extent that any Option does not

qualify as an ISO (whether because of its provisions, the time or manner of its

exercise or otherwise) such Option or the portion thereof which does not so

qualify shall constitute a separate NQO.

 

3

 

4.3.                            Option Price.  Except as otherwise provided herein, and subject to Section 4.5,

the option exercise price per each Share purchasable under any Option for all

(i) ISOs, (ii) NQOs that are Performance-Based Awards (as defined in Article 9,

below) and (iii) Options granted under Section 4.4, below shall not be less

than 100% of the Fair Market Value of such Share on the date of the grant of

such Option.  Except as otherwise

provided herein, the Option exercise price per share of each Share purchasable

under any NQO that is not intended to be performance-based under Section 162(m)

of the Code shall be determined by the Committee at the time of the grant of

such Option.

 

4.4.                            Reload Options.  An Option may provide, subject to such terms as the Committee

shall authorize, that upon the exercise of the Option, the holder will

automatically be granted a new Option covering that number of Shares equal to

(i) the number of Shares delivered to the Company by the holder, or withheld

from Shares otherwise issuable to the holder upon exercise, in payment of the exercise

price of the Option or the tax withholding obligations attributable thereto

and/or (ii) that number of Shares with a then Fair Market Value equal to the

amount of the withholding obligations paid in cash by the holder.

 

4.5.                            Incentive Options.  Options granted under the Plan that are

intended to be ISOs will be subject to the following additional terms:

 

(a)                                  Dollar

limit.  To the extent that the

aggregate Fair Market Value (determined as of the respective date or dates of

grant) of Shares with respect to which Options that would otherwise be ISOs are

exercisable for the first time by an individual during any calendar year under

the Plan (and any other plan of the Company, a parent or subsidiary corporation

or predecessor thereof) exceeds the sum of $100,000 (or other amount allowed

under Section 422 of the Code or the regulations promulgated thereunder),

whether by reason of acceleration or otherwise, those Options will not be

treated as ISOs.  In making this determination,

Options will be taken into account in the order in which they were granted.

 

(b)                                  10%

Shareholder.  If any employee to

whom an ISO is to be granted is, on the date of grant, the owner of Shares

(determined using the attribution rules of Section 424(d) of the Code)

possessing more than 10% of the total combined voting power of all classes of

stock of his or her employer corporation or of its parent or subsidiary, then

the following special provisions will apply to the option granted to that

employee:

 

(i)                                     The

Option price per Share of the stock subject to that ISO will not be less than

110% of the Fair Market Value of the Option Shares on the date of grant; and

 

(ii)                                  The

Option will not have a term in excess of 5 years from the date of grant.

 

(c)                                  Term.  In no event will an ISO be exercisable after

the expiration of 10 years from the date of grant of such Option.

 

(d)                                  Employees.  The class of employees eligible to receive

ISOs is all employees of the Company or a parent or subsidiary.  ISOs may only be granted to employees of the

Company or a parent or subsidiary.  For

purposes of this Plan, “parent” has the meaning attributed to such term for

purposes of Section 422(b) of the Code.

 

4

 

(e)                                  Transferability.  An ISO is not transferable by the employee

to whom it is granted, other than by will or the laws of descent and

distribution, and is exercisable, during his lifetime, only by such employee.

 

4.6.                            Other Provisions. 

Options granted pursuant to this Article 4 shall be made in

accordance with the terms and provisions of Article 8 hereof and any other

applicable terms and provisions of the Plan.

 

ARTICLE 5.

 

SHARE

APPRECIATION RIGHTS

 

5.1.                            Grant and Exercise.  The Committee may provide share appreciation

rights (i) in conjunction with all or part of any Option granted under the Plan

or at any subsequent time during the term of such Option (a “Related SAR”) or

(ii) without regard to any Option or other Award (a “Freestanding SAR”;  Related SARs and Freestanding SARs are

referred to collectively herein as “share appreciation rights”), in each case

upon such terms and conditions as the Committee may establish, subject to

Section 5.3, below, including the right to receive up to, but no more than, an

amount in cash or Shares (or part cash, part Shares) as determined by the

Committee in its sole discretion.

 

5.2.                            Upon

the exercise of a Related SAR, the Option or part thereof to which such Related

SAR is related shall be deemed to have been exercised for the purpose of the

limitation of the number of Shares to be issued under the Plan, as set forth in

Section 2.1 of the Plan.

 

5.3.                            With

respect to a Related SAR granted in connection with an Option that is intended

to be an ISO, the following shall apply:

 

(a)                                  Such

Related SAR shall be granted only at the time of the grant of such ISO.

 

(b)                                  No

Related SAR shall be transferable by a Holder otherwise than by will or by the

laws of descent and distribution, and such Related SAR shall be exercisable,

during the Holder’s lifetime, only by the Holder.

 

(c)                                  A

Related SAR granted in connection with an Option may be exercised only when the

Fair Market Value of the Shares subject to the Option exceeds the option

exercise price at which Shares can be acquired pursuant to the Option.

 

(d)                                  The

right to receive up to, but no more than, an amount in cash or Shares (or part

cash, part Shares) with respect to such Related SAR may not exceed the excess

of the then Fair Market Value of one Share over the Option exercise price per

Share specified in the related Option multiplied by the number of Shares into

which the Related SAR is exercisable.

 

5

 

ARTICLE 6.

 

RESTRICTED

SHARES AND RESTRICTED SHARE UNITS

 

6.1.                            Restricted Share Awards.  (a) Grant. 

The Committee may grant to any Participant (i) Shares (together with

cash dividend equivalents if so determined by the Committee) (such Shares,

“Restricted Shares”) and/or units which represent a conditional right to

receive Shares, cash or a combination of Shares and cash in the future (such

units, “Restricted Share Units”) in such amount and manner, and subject to such

terms and conditions relating to vesting, forfeitability and restrictions on

delivery and transfer (whether based on performance standards, periods of

service or otherwise) as the Committee shall establish.  A grant of Restricted Shares and/or

Restricted Share Units made pursuant to this Article 6 is referred to as a  “Restricted Share Award.”  The terms of any Restricted Share Award

granted under this Plan shall be set forth in a written agreement (a

“Restricted Share Agreement”) which shall contain provisions determined by the

Committee and not inconsistent with this Plan. 

The provisions of Restricted Share Awards need not be the same for each

Participant receiving such Awards.  The

Committee has absolute discretion to determine whether any consideration (other

than services) is to be received by the Company or its affiliates as a

condition precedent to the issuance of restricted stock.

 

(b)                                  Rights of

Holders of Restricted Shares.  Beginning

on the date of grant of the Restricted Shares and subject to execution of the

Restricted Share Agreement, the Participant shall become a shareholder of the

Company with respect to all Shares subject to the Restricted Share Agreement and

shall have all of the rights of a shareholder, including, but not limited to,

the right to vote such Shares and the right to receive distributions made with

respect to such Shares; provided, however, that any Shares or any

other property (other than cash) distributed as a dividend or otherwise with

respect to any Restricted Shares as to which the restrictions have not yet

lapsed shall be subject to the same restrictions as such Restricted Shares.

 

(c)                                  Rights of

Holders of Restricted Share Units. 

Unless the Committee otherwise provides in a Restricted Share Agreement,

any Participant holding Restricted Share Units shall have no rights as a

shareholder of the Company with respect to such Restricted Share Units.  The Committee may provide in the Restricted Share

Agreement evidencing a grant of Restricted Share Units that the Participant

holding such Restricted Share Units shall be credited with additional

Restricted Share Units on account of any dividends paid after the date of the

Restricted Share Agreement and prior to delivery of Shares or cash pursuant to

such Restricted Share Agreement, in a manner determined by the Committee in its

sole discretion.

 

(d)                                  Waiver of

Forfeiture Period.  Notwithstanding

anything contained in this Article 6 to the contrary, the Committee may, in its

sole discretion and subject to the limitations imposed under Section 162(m) of

the Code and the Treasury Regulations thereunder in the case of a Restricted

Share Award intended to comply with the performance-based exception under Code

Section 162(m), waive the forfeiture period and any other conditions set forth

in any Restricted Share Agreement under appropriate circumstances (including

the death, disability or retirement of the Participant or a material change in

circumstances arising after the date of an Award) and subject to such terms and

conditions (including forfeiture of a proportionate number of the Restricted

Share and/or Restricted Share Units) as the Committee shall deem appropriate.

 

6

 

ARTICLE 7.

 

DEFERRED SHARE

AWARDS

 

7.1.                            Shares and Administration.  (a)  Awards of the right to receive Shares that

are not to be distributed to the Participant until after a specified deferral

period (such Award and the deferred Shares delivered thereunder hereinafter as

the context shall require, the “Deferred Shares”) may be made on such terms,

conditions and restrictions as the Committee shall determine, including the

time or times at which Deferred Shares shall be awarded, the number of Deferred

Shares to be awarded to any Participant, and the duration of the period (the

“Deferral Period”) during which, and the conditions under which, receipt of the

Shares will be deferred.

 

(b)                                  Prior

to completion of the Deferral Period, a Participant may elect to further defer

receipt of the Award for a specified period or until a specified event (the

“Elective Deferral 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.

 

(c)                                  Each

Award shall be confirmed by a Deferred Share agreement or other instrument

executed by the Company and the Participant.

 

(d)                                  In

the event of the Participant’s death or permanent disability during the

Deferral Period (or Elective Deferral Period, where applicable), or in cases of

special circumstances, 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 Shares.

 

ARTICLE 8.

 

GENERALLY

APPLICABLE PROVISIONS

 

8.1.                            Fair Market Value. 

The “Fair Market Value” of a Share shall be determined in

good faith by the Committee in its sole discretion from time to time.  In no case shall Fair Market Value be less

than the par value of a Share.  An

Option shall be considered granted on the date the Committee acts to grant the

Option or such later date as the Committee shall specify.

 

8.2.                            Exercise of Options. 

Vested Options granted under the Plan shall be exercised by

the Optionee or by a Permitted Assignee thereof (or by his or her executors,

administrators, guardian or legal representative, as provided in Sections 9.5

and 9.6 hereof) as to all or part of the Shares covered thereby, by the giving

of written notice of exercise to the Company, specifying the number of Shares

to be purchased, accompanied by payment of the full purchase price for the

Shares being purchased.  Full payment of

such purchase price shall be made at the time of exercise and shall be made (i)

in cash or by certified check or bank check or wire transfer of immediately

available funds, (ii) with the consent of the Committee, by tendering

previously acquired Shares (valued at their then Fair Market Value, as

determined by the Committee as of the date of tender) that have been owned for

a period of at least six months (or such other period to avoid accounting

charges against the Company’s earnings), (iii) if Shares are traded on a

national securities exchange, the Nasdaq Stock Market, Inc., or quoted on a

national quotation

 

7

 

system sponsored by the National Association of Securities Dealers,

Inc., and the Committee authorizes this method of exercise, through the

delivery of irrevocable instructions to a broker approved by the Committee to

deliver promptly to the Company an amount equal to the purchase price, or (iv)

through any other method specified in the Share Option Agreement, or with the

consent of the Committee, any combination of (i), (ii), and (iii).  In connection with a tender of previously

acquired Shares pursuant to clause (ii) above, the Committee, in its sole

discretion, may permit the Optionee to constructively exchange Shares already

owned by the Optionee in lieu of actually tendering such Shares to the Company,

provided that adequate documentation concerning the ownership of the Shares to

be constructively tendered is furnished in form satisfactory to the Committee.  The notice of exercise, accompanied by such

payment, shall be delivered to the Company at its principal business office or

such other office as the Committee may from time to time direct, and shall be

in such form, containing such further provisions consistent with the provisions

of the Plan, as the Committee may from time to time prescribe.  In no event may any Option granted hereunder

be exercised for a fraction of a Share. 

No person exercising an Option shall have any of the rights of a holder

of Shares subject to an Option until certificates for such Shares shall have

been issued following the exercise of such Option.  No adjustment shall be made for cash dividends or other rights

for which the record date is prior to the date of such issuance.

 

8.3.                            Transferability.  Except as provided below, and except as otherwise authorized by

the Committee in a Share Option Agreement with respect to an Optionee, no

Option shall be assignable or transferable by the Optionee, other than by will

or the laws of descent and distribution, and such Option may be exercised

during the life of the Optionee only by the Optionee or his guardian or legal

representative.   NQOs and any Related

SARs granted in tandem therewith are transferable (together and not separately)

with the consent of the Committee by the Optionee or holder of such Related SAR

(“Holder”), as the case may be, to any one or more of the following persons

(each, a “Permitted Assignee”): (i) the spouse, parent, issue, spouse of issue,

or issue of spouse (“issue” shall include all descendants whether natural or

adopted) of such Optionee or Holder, as the case may be; (ii) a trust for the

benefit of one or more of those persons described in clause (i) above or for

the benefit of such Optionee or Holder, as the case may be; (iii) an entity in

which the Optionee or Holder or any Permitted Assignee thereof is a beneficial

owner; or (iv) in the case of a transfer by an Optionee who is a non-employee

director, another non-employee director of the Company; provided that such

Permitted Assignee shall be bound by and subject to all of the terms and

conditions of this Plan and the Share Option Agreement relating to the

transferred Option and shall execute an agreement satisfactory to the Company

evidencing such obligations; and provided further that such Optionee or Holder

shall remain bound by the terms and conditions of this Plan.  In the case of a transfer by a non-employee

director to another non-employee director, the vesting and exercisability shall

after such transfer be determined by reference to the service of the assignee,

rather than the assignor.  The Company

shall cooperate with any Permitted Assignee and the Company’s transfer agent in

effectuating any transfer permitted under this Section 8.3.

 

8.4.                            Termination of Employment.  The Committee will determine and set forth

in each Share Option Agreement whether the Options granted in such Share Option

Agreement will continue to be exercisable, and the terms of such exercise, on

and after the date that an Optionee ceases to be employed by or to provide

services to the Company or an affiliate, whether by reason of death,

disability, voluntary or involuntary termination of employment or services, or

 

8

 

otherwise.  The date of

termination of an Optionee’s employment or services will be determined by the

Committee, which determination will be final.

 

8.5.                            Amendment and Modification of the Plan.  The Committee may, from time to

time, alter, amend, suspend or terminate the Plan as it shall deem advisable,

subject to any requirement for shareholder approval imposed by applicable law

or any rule of any stock exchange or quotation system on which Shares are

listed or quoted; provided that the Committee may not amend the Plan, without

the approval of the Company’s shareholders, to increase the number of Shares

that may be the subject of Options under the Plan (except for adjustments

pursuant to Section 8.6 hereof).  In

addition, no amendments to, or termination of, the Plan shall in any way impair

the rights of an Optionee or a Participant (or a Permitted Assignee thereof)

under any Award previously granted without such Optionee’s or Participant’s

consent.

 

8.6.                            Adjustments.  In

the event that the Committee shall determine that any dividend or other

distribution (whether in the form of cash, Shares, other securities, or other

property), recapitalization, stock split, reverse stock split, reorganization,

merger, consolidation, split-up, spin-off, combination, repurchase, or exchange

of Shares or other securities, the issuance of warrants or other rights to

purchase Shares or other securities, or other similar corporate transaction or

event affects the Shares with respect to which Awards have been or may be

issued under the Plan, such that an adjustment is determined in good faith by

the Committee to be appropriate in order to prevent dilution or enlargement of

the benefits or potential benefits intended to be made available under the

Plan, then the Committee shall, in such manner as the Committee may deem

equitable, adjust any or all of (i) the number and type of Shares that

thereafter may be made the subject of Awards, (ii) the number and type of

Shares subject to outstanding Awards, and (iii) the grant or exercise price

with respect to any Award, or, if deemed appropriate, make provision for a cash

payment to the holder of any outstanding Award; provided, in each case, that

with respect to ISOs, no such adjustment shall be authorized to the extent that

such adjustment would cause such options to violate Section 422(b) of the Code

or any successor provision; and provided further, that the number of Shares

subject to any Award denominated in Shares shall always be a whole number.  In the event of any reorganization, merger,

consolidation, split-up, spin-off, or other business combination involving the

Company (collectively, a “Reorganization”), the Committee or the Board of

Directors of the Company may cause any Award outstanding as of the effective

date of the Reorganization to be cancelled in consideration of a cash payment

or alternate Award (whether from the Company or another entity that is a party

to the Reorganization) or a combination thereof made to the holder of such

cancelled Award substantially equivalent in value to the fair market value of

such cancelled Award.  The determination

of fair market value shall be made by the Committee or the Board of Directors,

as the case may be, in their sole discretion.

 

8.7.                            Change of Control. 

The terms of any Award may provide in the Share Option

Agreement, Restricted Share Agreement, or other document evidencing the Award,

that upon a “Change of Control” of the Company (as that term may be defined

therein), (i) Options (and share appreciation rights) immediately vest and

become fully exercisable, (ii) restrictions on Restricted Shares lapse and

the shares become fully vested, and (iii) such other additional benefits as the

Committee deems appropriate shall apply, subject in each case to any terms and

conditions contained in the applicable document evidencing such Award.  For purposes of this Plan, a “Change of

Control” shall mean an event described in the applicable document 

 

9

 

evidencing the Award or such other event as determined in the sole

discretion of the Board of Directors of the Company.  The Committee, in its discretion, may determine that, upon the

occurrence of a Change of Control of the Company, each Option and share

appreciation right outstanding hereunder shall terminate within a specified

number of days after notice to the Participant or Holder, and such Participant

or Holder shall receive, with respect to each Share subject to such Option or

share appreciation right, an amount equal to the excess of the Fair Market

Value of such Share immediately prior to the occurrence of such Change of

Control over the exercise price per share of such Option or share appreciation

right; such amount to be payable in cash, in one or more kinds of property

(including the property, if any, payable in the transaction) or in a

combination thereof, as the Committee, in its discretion, shall determine.

 

8.8.                            Employment Violation.  Each Share Option Agreement evidencing an Option

granted hereunder shall include and be subject to the following terms:

 

(a)                                  The

terms of this Section 8.8 shall apply to the Option if the Optionee is or shall

become subject to an employment agreement with the Company.

 

(b)                                  If

the Optionee materially breaches his or her employment agreement (it being

understood that any breach of the post-termination obligations contained

therein shall be deemed to be material) for so long as the terms of such

employment agreement shall apply to the Optionee (each an “Employment

Violation”), the Company shall have the right to require (i) the termination

and cancellation of the unexercised portion of the Option, if any, whether

vested or unvested, and (ii) payment by the Optionee to the Company of the

Recapture Amount (as defined below). 

Such termination of unexercised Options and payment of the Recapture

Amount, as the case may be, shall be in addition to, and not in lieu of, any

other right or remedy available to the Company arising out of or in connection

with any such Employment Violation including, without limitation, the right to

terminate Optionee’s employment if not already terminated, seek injunctive

relief and additional monetary damages.

 

(c)                                  “Recapture

Amount” shall mean the gross gain realized or unrealized by the Optionee upon

each exercise of his Option during the period beginning on the date which is

twelve (12) months prior to the date of the Optionee’s Employment Violation and

ending on the date of computation (the “Look-back Period”), which gain shall be

calculated as the sum of:

 

(i)                                     if

the Optionee has exercised any portion of his Option during the Look-back

Period and sold any of the Shares acquired on exercise thereafter, an amount

equal to the product of (x) the sales price per Share sold minus the exercise

price per Share times (y) the number of Shares as to which the Option was

exercised and which were sold at such sales price; plus

 

(ii)                                  if

the Optionee has exercised any portion of his Option during the Look-back

Period and not sold any of the Shares acquired on exercise thereafter, with

respect to each of such Shares an amount equal to the product of (x) the

greatest of the following:  (1) the Fair

Market Value per Share on the date of exercise, (2) the arithmetic average of

the per Share closing sales prices as reported on NASDAQ for the thirty (30)

trading day period ending on the trading day immediately preceding the date of

the Company’s written notice of its exercise of its rights under this Section

8.8, or (3) the 

 

10

 

arithmetic

average of the per Share closing sales prices as reported on NASDAQ for the

thirty (30) trading day period ending on the trading day immediately preceding

the date of computation, minus the exercise price per Share times (y) the

number of Shares as to which this Option was exercised and which were not sold;

 

provided, however, in lieu of payment by the Optionee to the Company of

the Recapture Amount determined pursuant to subclause (ii) above, the Optionee,

in his or her discretion, may tender to the Company the Shares acquired upon

exercise of this Option during the Look-back Period and the Optionee shall not

be entitled to receive any consideration from the Company in exchange therefor.

 

With respect

to any other Awards granted hereunder, the terms of any Restricted Share

Agreement, share appreciation right, Share Purchase Award or any other document

evidencing an Award under the Plan, may include comparable provisions to those

set forth in this Section 8.8.

 

8.9.                            Other Provisions. 

(a) 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.

 

(b)                                  A

Participant shall have no right as a shareholder until he or she becomes the

holder of record.

 

(c)                                  The

Committee’s designation of an Optionee or Participant in any year shall not

require the Committee to designate such person to receive Awards or grants in

any other year.  The designation of an

Optionee or Participant to receive Awards or grants under one portion of the

Plan shall not require the Committee to include such Optionee or Participant

under other portions of the Plan.

 

8.10.                     Terms of Option Grant.  Notwithstanding anything in this Plan to the

contrary, the Committee may grant an Option under such terms and conditions as

may be provided in the Share Option Agreement given to the Optionee and the

Committee has the discretion to modify the terms and conditions of an Option

after grant as long as the rights of the Optionee are not impaired unless the

Optionee otherwise consents, provided,

however, that in no instance may the term of an ISO exceed the

maximum term established pursuant to Section 4.5 above.

 

8.11.                     Repricing of Options and Share Appreciation Rights.  Except as provided in Section 8.6 above, the

exercise price of an Option or share appreciation right granted hereunder may

not be reduced after such Option or share appreciation right has been granted

to a Participant.

 

ARTICLE 9.

 

PERFORMANCE-BASED

AWARDS

 

9.1.                            General. 

(a)  Certain Awards granted under the Plan may

be granted in a manner such that the Awards qualify as “performance-based

compensation” (as such term is used in

 

11

 

Section 162(m) of the Code and the regulations thereunder) and thus be

exempt from the deduction limitation imposed by Section 162(m) of the Code

(“Performance-Based Awards”).  Awards

shall only qualify as Performance-Based Awards if, among other things, at the

time of grant the Committee is comprised solely of two or more “outside

directors” (as such term is used in Section 162(m) of the Code and the

regulations thereunder).

 

(b)                                  Performance-Based

Awards may be granted to Participants who are executive officers or key

employees of the Company or a parent or subsidiary (“Key Employees”) at any

time and from time to time, as shall be determined by the Committee.  The Committee shall have complete discretion

in determining the number, amount and timing of awards granted to each Key

Employee.  Such Performance-Based Awards

may take the form of, without limitation, cash, Shares or any combination

thereof.

 

(c)                                  The

Committee shall set performance goals at its discretion which, depending on the

extent to which they are met, will determine the number and/or value of such

Performance-Based Awards that will be paid out to the Key Employees, and may

attach to such Performance-Based Awards one or more restrictions.  The maximum amount of Performance-Based

Awards (other than Options or share appreciation rights) to be awarded to any

Key Employee during any fiscal year of the Company shall be $[1,000,000].  The maximum amount of Performance-Based

Awards that are Options or share appreciation rights that may be awarded to any

Key Employee during any fiscal year of the Company is Options or share

appreciation rights covering up to [750,000] Shares.

 

9.2.                            Other Awards. 

Either the granting or vesting of Performance-Based Awards

(other than Options or share appreciation rights) granted under the Plan shall

be subject to the achievement of a performance target or targets, as determined

by the Committee in its sole discretion, based on one or more of the

performance measures specified in Section 9.3 below.  With respect to such Performance-Based Awards:

 

(1)                                 the Committee

shall establish in writing (x) the objective performance-based goals applicable

to a given period and (y) the individual Key Employees or class of Key

Employees to which such performance-based goals apply no later than 90 days

after the commencement of such period (but in no event after 25 percent of

such period has elapsed);

 

(2)                                 no

Performance-Based Awards shall be payable to or vest with respect to, as the

case may be, any Key Employee for a given period until the Committee certifies

in writing that the objective performance goals (and any other material terms)

applicable to such period have been satisfied; and

 

(3)                                 after the

establishment of a performance goal, the Committee shall not revise such

performance goal or increase the amount of compensation payable thereunder (as

determined in accordance with Section 162(m) of the Code) upon the attainment

of such performance goal.

 

9.3.                            Performance Measures.  The Committee may use the following performance

measures (either individually or in any combination) to set performance targets

with respect to

 

12

 

Awards intended to qualify as Performance-Based Awards: net sales;

pretax income before allocation of corporate overhead and bonus; budget;

earnings per share; net income; division, group or corporate financial goals;

return on stockholders’ equity; return on assets; attainment of strategic and

operational initiatives; appreciation in and/or maintenance of the price of the

common stock or any other publicly-traded securities of the Company; market

share; gross profits; earnings before taxes; earnings before interest and

taxes; earnings before interest, taxes, depreciation and amortization; economic

value-added models; comparisons with various stock market indices; and/or

reductions in costs.

 

ARTICLE 10.

 

MISCELLANEOUS

 

10.1.                     Tax Withholding. 

The Company shall have the right to make all payments or

distributions pursuant to the Plan to an Optionee or Participant (or a

Permitted Assignee thereof) (any such person, a “Payee”) net of any applicable

Federal, State and local taxes required to be paid as a result of (i) the grant

of any Award, (ii) the exercise of an Option or share appreciation rights,

(iii) the delivery of shares or cash, or lapse of any restrictions, in

connection with Restricted Share Awards or (iv) any other event occurring

pursuant to this Plan.  The Company or

any subsidiary or affiliate thereof shall have the right to withhold from wages

or other amounts otherwise payable to such Payee such withholding taxes as may

be required by law, or to otherwise require the Payee to pay such withholding

taxes.  If the Payee shall fail to make

such tax payments as are required, the Company or its subsidiaries or

affiliates shall, to the extent permitted by law, have the right to deduct any

such taxes from any payment of any kind otherwise due to such Payee or to take

such other action as may be necessary to satisfy such withholding obligations.  In satisfaction of the requirement to pay

withholding taxes, the Payee may make a written election, which may be accepted

or rejected in the discretion of the Committee, to have withheld a portion of

the Shares then issuable to the Payee pursuant to the Plan having an aggregate

Fair Market Value equal to the withholding taxes.

 

10.2.                     Right of Discharge Reserved.  Nothing in the Plan nor the grant

of an Award hereunder shall confer upon any employee, Director or other

individual the right to continue in the employment or service of the Company or

any subsidiary or affiliate of the Company or affect any right that the Company

or any subsidiary or affiliate of the Company may have to terminate the

employment or service of (or to demote or to exclude from future Options under

the Plan) any such employee, Director or other individual at any time for any

reason.  Except as specifically provided

by the Committee, the Company shall not be liable for the loss of existing or

potential profit with respect to an Award in the event of termination of an

employment or other relationship even if the termination is in violation of an

obligation of the Company or any subsidiary or affiliate of the Company to the

employee, Director, advisor or consultant.

 

10.3.                     Nature of Payments. 

All Awards made pursuant to the Plan are in consideration of

services performed or to be performed for the Company or any subsidiary or

affiliate of the Company.  Any income or

gain realized pursuant to Awards under the Plan and any share appreciation

rights constitutes a special incentive payment to the Optionee, Participant or

Holder and shall not be taken into account, to the extent permissible under

applicable law, as compensation for purposes of any of the employee benefit

plans of the Company or any

 

13

 

subsidiary or affiliate of the Company except as may be determined by

the Committee or by the Directors or directors of the applicable subsidiary or

affiliate of the Company.

 

10.4.                     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 or Optionee by the Company, nothing contained herein shall give

any such Participant or Optionee 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

Shares or payments in lieu of or with respect to Awards hereunder; provided,

however, that the existence of such trusts or other arrangements is consistent

with the unfunded status of the Plan.

 

10.5.                     Severability. 

If any provision of the Plan shall be held unlawful or otherwise

invalid or unenforceable in whole or in part, such unlawfulness, invalidity or

unenforceability shall not affect any other provision of the Plan or part

thereof, each of which remain in full force and effect.  If the making of any payment or the provision

of any other benefit required under the Plan shall be held unlawful or

otherwise invalid or unenforceable, such unlawfulness, invalidity or

unenforceability shall not prevent any other payment or benefit from being made

or provided under the Plan, and if the making of any payment in full or the

provision of any other benefit required under the Plan in full would be

unlawful or otherwise invalid or unenforceable, then such unlawfulness,

invalidity or unenforceability shall not prevent such payment or benefit from

being made or provided in part, to the extent that it would not be unlawful,

invalid or unenforceable, and the maximum payment or benefit that would not be

unlawful, invalid or unenforceable shall be made or provided under the Plan.

 

10.6.                     Gender and Number. 

In order to shorten and to improve the understandability of

the Plan document by eliminating the repeated usage of such phrases as “his or

her,” any masculine terminology herein shall also include the feminine, and the

definition of any term herein in the singular shall also include the plural

except when otherwise indicated by the context.

 

10.7.                     Governing Law. 

The Plan and all determinations made and actions taken

thereunder, to the extent not otherwise governed by the Code or the laws of the

United States, shall be governed by the laws of the State of Delaware and

construed accordingly.

 

10.8.                     Effective Date of Plan; Termination of Plan.  The Plan shall be effective on

the date of the approval of the Plan by the Board of Directors.  Notwithstanding the foregoing, no Option

intended to qualify as an ISO shall be granted hereunder until the Plan shall

be approved by the holders of a majority of the shares entitled to vote

thereon, provided such approval is obtained within 12 months after the date of

adoption of the Plan by the Board of Directors.  Awards may be granted under the Plan at any time and from time to

time prior to April 28, 2013, on which date the Plan will expire except as to

Awards then outstanding under the Plan. 

Such outstanding Awards shall remain in effect until they have been

exercised or terminated, or have expired.

 

14

 

10.9.                     Captions.  The

captions in this Plan are for convenience of reference only, and are not

intended to narrow, limit or affect the substance or interpretation of the

provisions contained herein.

 

10.10.              Dissolution or Liquidation.  In the event of the proposed dissolution or

liquidation of the Company, the Committee shall notify each Optionee and

Participant as soon as practicable prior to the effective date of such proposed

transaction.  The Committee in its sole

discretion may permit an Optionee to exercise an Option until ten days prior to

such transaction with respect to all vested and exercisable Shares covered

thereby and with respect to such number of unvested Shares as the Committee

shall determine.  In addition, the

Committee may provide that any forfeiture provision or Company repurchase

option applicable to any Restricted Share Award shall lapse as to such number

of Shares as the Committee shall determine, contingent upon the occurrence of

the proposed dissolution or liquidation at the time and in the manner

contemplated.  To the extent an Option

has not been previously exercised, the Option shall terminate automatically

immediately prior to the consummation of the proposed action.  To the extent a forfeiture provision

applicable to a Restricted Share Award has not been waived by the Committee,

the related Restricted Share Award shall be forfeited automatically immediately

prior to the consummation of the proposed action.

 

10.11.              Successors and Assigns.  This Plan shall be binding upon and inure to the

benefit of the respective successors and permitted assigns of the Company,

Optionees and Participants.

 

15

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