Document:

exv10w15

 

Exhibit
10.15

RAE Systems Inc.

2007 Equity Incentive Plan

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	1.
	 	Establishment, Purpose and Term of Plan	 	 	1	 
	 
	 
	 	1.1                           Establishment	 	 	1	 
	 
	 	1.2                           Purpose	 	 	1	 
	 
	 	1.3                           Term of Plan	 	 	1	 
	 
	 	 	 	 	 	 
	2.
	 	Definitions and Construction	 	 	1	 
	 
	 
	 	2.1                           Definitions	 	 	1	 
	 
	 	2.2                           Construction	 	 	9	 
	 
	 	 	 	 	 	 
	3.
	 	Administration	 	 	9	 
	 
	 
	 	3.1                           Administration by the Committee	 	 	9	 
	 
	 	3.2                           Authority of Officers	 	 	9	 
	 
	 	3.3                           Administration with Respect to Insiders	 	 	9	 
	 
	 	3.4                           Committee Complying with Section 162(m)	 	 	9	 
	 
	 	3.5                           Powers of the Committee	 	 	10	 
	 
	 	3.6                           Option or SAR Repricing	 	 	11	 
	 
	 	3.7                           Indemnification	 	 	11	 
	 
	 	 	 	 	 	 
	4.
	 	Shares Subject to Plan	 	 	11	 
	 
	 
	 	4.1                           Maximum Number of Shares Issuable	 	 	11	 
	 
	 	4.2                           Adjustment for Unissued Predecessor Plan Shares	 	 	11	 
	 
	 	4.3                           Share Counting	 	 	12	 
	 
	 	4.4                           Adjustments for Changes in Capital Structure	 	 	12	 
	 
	 	 	 	 	 	 
	5.
	 	Eligibility, Participation and Award Limitations	 	 	13	 
	 
	 
	 	5.1                           Persons Eligible for Awards	 	 	13	 
	 
	 	5.2                           Participation in the Plan	 	 	13	 
	 
	 	5.3                           Award Limitations	 	 	13	 
	 
	 	 	 	 	 	 
	 
	6.
	 	Stock Options	 	 	15	 
	 
	 
	 	6.1                           Exercise Price	 	 	15	 
	 
	 	6.2                           Exercisability and Term of Options	 	 	16	 
	 
	 	6.3                           Payment of Exercise Price	 	 	16	 
	 
	 	6.4                           Effect of Termination of Service	 	 	17	 
	 
	 	6.5                           Transferability of Options	 	 	18	 
	 
	 	 	 	 	 	 
	7.
	 	Stock Appreciation Rights	 	 	18	 
	 
	 
	 	7.1                           Types of SARs Authorized	 	 	18	 
	 
	 	7.2                           Exercise Price	 	 	18	 
	 
	 	7.3                           Exercisability and Term of SARs	 	 	18	 

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	 	 	 	 	Page	 
	 
	 	7.4                           Exercise of SARs	 	 	19	 
	 
	 	7.5                           Deemed Exercise of SARs	 	 	19	 
	 
	 	7.6                           Effect of Termination of Service	 	 	19	 
	 
	 	7.7                           Transferability of SARs	 	 	19	 
	 
	 	 	 	 	 	 
	8.
	 	Restricted Stock Awards	 	 	20	 
	 
	 
	 	8.1                           Types of Restricted Stock Awards Authorized	 	 	20	 
	 
	 	8.2                           Purchase Price	 	 	20	 
	 
	 	8.3                           Purchase Period	 	 	20	 
	 
	 	8.4                           Payment of Purchase Price	 	 	20	 
	 
	 	8.5                           Vesting and Restrictions on Transfer	 	 	20	 
	 
	 	8.6                           Voting Rights; Dividends and Distributions	 	 	21	 
	 
	 	8.7                           Effect of Termination of Service	 	 	21	 
	 
	 	8.8                           Nontransferability of Restricted Stock Award Rights	 	 	21	 
	 
	 	 	 	 	 	 
	9.
	 	Restricted Stock Unit Awards	 	 	22	 
	 
	 
	 	9.1                           Grant of Restricted Stock Unit Awards	 	 	22	 
	 
	 	9.2                           Purchase Price	 	 	22	 
	 
	 	9.3                           Vesting	 	 	22	 
	 
	 	9.4                           Voting Rights, Dividend Equivalent Rights and Distributions	 	 	22	 
	 
	 	9.5                           Effect of Termination of Service	 	 	23	 
	 
	 	9.6                           Settlement of Restricted Stock Unit Awards	 	 	23	 
	 
	 	9.7                           Nontransferability of Restricted Stock Unit Awards	 	 	23	 
	 
	 	 	 	 	 	 
	10.
	 	Performance Awards	 	 	24	 
	 
	 
	 	10.1                          Types of Performance Awards Authorized	 	 	24	 
	 
	 	10.2                          Initial Value of Performance Shares and Performance Units	 	 	24	 
	 
	 	10.3 Establishment of Performance
Period, Performance Goals and Performance Award Formula	 	 	24	 
	 
	 	10.4                            Measurement of Performance Goals	 	 	25	 
	 
	 	10.5                               Settlement of Performance Awards	 	 	26	 
	 
	 	10.6                         Voting Rights; Dividend Equivalent Rights and Distributions	 	 	28	 
	 
	 	10.7                         Effect of Termination of Service	 	 	28	 
	 
	 	10.8                         Nontransferability of Performance Awards	 	 	29	 
	 
	 	 	 	 	 	 
	11.
	 	Deferred Compensation Awards	 	 	29	 
	 
	 
	 	11.1                         Establishment of Deferred Compensation Award Programs	 	 	29	 
	 
	 	11.2                         Terms and Conditions of Deferred Compensation Awards	 	 	29	 
	 
	 	 	 	 	 	 
	12.
	 	Cash-Based Awards and Other Stock-Based Awards	 	 	30	 
	 
	 
	 	12.1                         Grant of Cash-Based Awards	 	 	30	 

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	 	12.2                         Grant of Other Stock-Based Awards	 	 	31	 
	 
	 	12.3                         Value of Cash-Based and Other Stock-Based Awards	 	 	31	 
	 
	 	12.4                         Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards	 	 	31	 
	 
	 	12.5                         Voting Rights; Dividend Equivalent Rights and Distributions	 	 	31	 
	 
	 	12.6                         Effect of Termination of Service	 	 	32	 
	 
	 	12.7                         Nontransferability of Cash-Based Awards and Other Stock-Based Awards	 	 	32	 
	 
	 	 	 	 	 	 
	13.
	 	Nonemployee Director Awards	 	 	32	 
	 
	 	 	 	 	 	 
	14.
	 	Standard Forms of Award Agreement	 	 	32	 
	 
	 
	 	14.1                         Award Agreements	 	 	32	 
	 
	 	14.2                         Authority to Vary Terms	 	 	33	 
	 
	 	 	 	 	 	 
	15.
	 	Change in Control	 	 	33	 
	 
	 
	 	15.1                         Effect of Change in Control on Awards	 	 	33	 
	 
	 	15.2                         Effect of Change in Control on Nonemployee Director Awards	 	 	34	 
	 
	 	15.3                         Federal Excise Tax Under Section 4999 of the Code	 	 	34	 
	 
	 	 	 	 	 	 
	16.
	 	Compliance with Securities Law	 	 	35	 
	 
	 	 	 	 	 	 
	17.
	 	Compliance with Section 409A	 	 	35	 
	 
	 
	 	17.1                         Awards Subject to Section 409A	 	 	35	 
	 
	 	17.2                         Deferral and/or Distribution Elections	 	 	36	 
	 
	 	17.3                         Subsequent Elections	 	 	36	 
	 
	 	17.4                         Distributions Pursuant to Deferral Elections	 	 	37	 
	 
	 	17.5                         Unforeseeable Emergency	 	 	37	 
	 
	 	17.6                         Disabled	 	 	38	 
	 
	 	17.7                         Death	 	 	38	 
	 
	 	17.8                         No Acceleration of Distributions	 	 	38	 
	 
	 	 	 	 	 	 
	18.
	 	Tax Withholding	 	 	38	 
	 
	 
	 	18.1                         Tax Withholding in General	 	 	38	 
	 
	 	18.2                         Withholding in Shares	 	 	39	 
	 
	 	 	 	 	 	 
	19.
	 	Amendment or Termination of Plan	 	 	39	 
	 
	 	 	 	 	 	 
	20.
	 	Miscellaneous Provisions	 	 	39	 
	 
	 
	 	20.1                         Repurchase Rights	 	 	39	 
	 
	 	20.2                         Forfeiture Events	 	 	39	 
	 
	 	20.3                         Provision of Information	 	 	40	 
	 
	 	20.4                         Rights as Employee, Consultant or Director	 	 	40	 

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(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	20.5
	 	Rights as a Stockholder	 	 	40	 
	20.6
	 	Delivery of Title to Shares	 	 	40	 
	20.7
	 	Fractional Shares	 	 	40	 
	20.8
	 	Retirement and Welfare Plans	 	 	41	 
	20.9
	 	Beneficiary Designation	 	 	41	 
	20.10
	 	Severability	 	 	41	 
	20.11
	 	No Constraint on Corporate Action	 	 	41	 
	20.12
	 	Unfunded Obligation	 	 	41	 
	20.13
	 	Choice of Law	 	 	42	 

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RAE Systems Inc.

2007 Equity Incentive Plan

1.      Establishment, Purpose and Term of Plan.

          1.1 Establishment. The RAE Systems Inc. 2007 Equity Incentive Plan (the “Plan”) is hereby
established effective as of June 7, 2007, the date of its approval by the stockholders of the
Company (the “Effective Date”).

          1.2 Purpose. The purpose of the Plan is to advance the interests of the Participating Company
Group and its stockholders by providing an incentive to attract, retain and reward persons
performing services for the Participating Company Group and by motivating such persons to
contribute to the growth and profitability of the Participating Company Group. The Plan seeks to
achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights,
Restricted Stock Purchase Rights, Restricted Stock Bonuses, Restricted Stock Units, Performance
Shares, Performance Units, Deferred Compensation Awards, Cash-Based and Other Stock-Based Awards
and Nonemployee Director Awards. The Company intends that Awards granted pursuant to the Plan be
exempt from or comply with Section 409A of the Code (including any amendments or replacements of
such section), and the Plan shall be so construed.

          1.3 Term of Plan. The Plan shall continue in effect until its termination by the Committee;
provided, however, that all Awards shall be granted, if at all, within ten (10) years from the
Effective Date.

2.      Definitions and Construction.

          2.1 Definitions. Whenever used herein, the following terms shall have their respective
meanings set forth below:

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

               (b) “Award” means any Option, Stock Appreciation Right, Restricted Stock Purchase Right,
Restricted Stock Bonus, Restricted Stock Unit, Performance Share, Performance Unit, Deferred
Compensation Award, Cash-Based Award, Other Stock-Based Award or Nonemployee Director Award granted
under the Plan.

 

 

               (c) “Award Agreement” means a written or electronic agreement between the Company and a
Participant setting forth the terms, conditions and restrictions of the Award granted to the
Participant.

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

               (e) “Cash-Based Award” means an Award denominated in cash and granted pursuant to Section 12.

               (f) “Cause” means, unless such term or an equivalent term is otherwise defined with respect to
an Award by the Participant’s Award Agreement or by a written contract of employment or service,
any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of
fiduciary duty for personal profit, or falsification of any Participating Company documents or
records; (ii) the Participant’s material failure to abide by a Participating Company’s code of
conduct or other policies (including, without limitation, policies relating to confidentiality and
reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation,
destruction or diversion of any tangible or intangible asset or corporate opportunity of a
Participating Company (including, without limitation, the Participant’s improper use or disclosure
of a Participating Company’s confidential or proprietary information); (iv) any intentional act by
the Participant which has a material detrimental effect on a Participating Company’s reputation or
business; (v) the Participant’s repeated failure or inability to perform any reasonable assigned
duties after written notice from a Participating Company of, and a reasonable opportunity to cure,
such failure or inability; (vi) any material breach by the Participant of any employment, service,
non-disclosure, non-competition, non-solicitation or other similar agreement between the
Participant and a Participating Company, which breach is not cured pursuant to the terms of such
agreement; or (vii) the Participant’s conviction (including any plea of guilty or nolo contendere)
of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which
impairs the Participant’s ability to perform his or her duties with a Participating Company.

               (g) “Change in Control” means, unless such term or an equivalent term is otherwise defined
with respect to an Award by the Participant’s Award Agreement or by a written contract of
employment or service, the occurrence of any of the following:

                         (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the total combined voting power of the Company’s
then-outstanding securities entitled to vote generally in the election of Directors; provided,
however, that the following acquisitions shall not constitute a Change in Control: (1) an
acquisition by any such person who on the Effective Date is the beneficial owner of more than fifty
percent (50%) of such voting power, (2) any acquisition directly from the Company, including,
without limitation, a public offering of securities, (3) any acquisition by the Company, (4) any
acquisition by a trustee or other fiduciary under an employee benefit plan of a Participating
Company or (5) any acquisition by an entity owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of the voting securities of the
Company; or

 

 

                         (ii) an Ownership Change Event or series of related Ownership Change Events (collectively, a
“Transaction”) in which the stockholders of the Company immediately before the Transaction do not
retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding securities entitled to vote
generally in the election of Directors or, in the case of an Ownership Change Event described in
Section 2.1(ff)(iii), the entity to which the assets of the Company were transferred (the
“Transferee”), as the case may be; or

                         (iii) a liquidation or dissolution of the Company;

provided, however, that a Change in Control shall be deemed not to include a transaction described
in subsections (i) or (ii) of this Section 2.1(g) in which a majority of the members of the board
of directors of the continuing, surviving or successor entity, or parent thereof, immediately after
such transaction is comprised of Incumbent Directors. Notwithstanding the foregoing, to the extent
that any amount constituting Section 409A Deferred Compensation would become payable under this
Plan by reason of a Change in Control, such amount shall become payable only if the event
constituting a Change in Control would also constitute a change in ownership or effective control
of the Company or a change in the ownership of a substantial portion of the assets of the Company
within the meaning of Section 409A.

     For purposes of the preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting securities of one or more
corporations or other business entities which own the Company or the Transferee, as the case may
be, either directly or through one or more subsidiary corporations or other business entities. The
Committee shall have the right to determine whether multiple sales or exchanges of the voting
securities of the Company or multiple Ownership Change Events are related, and its determination
shall be final, binding and conclusive.

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

               (i) “Committee” means the Compensation Committee and such other committee or subcommittee of
the Board, if any, duly appointed to administer the Plan and having such powers in each instance as
shall be specified by the Board. If, at any time, there is no committee of the Board then
authorized or properly constituted to administer the Plan, the
Board shall exercise all of the powers of the Committee granted herein, and, in any event, the
Board may in its discretion exercise any or all of such powers.

               (j) “Company” means RAE Systems Inc., a Delaware corporation, or any successor corporation
thereto.

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

 

 

               (l) “Covered Employee” means, at any time the Plan is subject to Section 162(m), any Employee
who is or may reasonably be expected to become a “covered employee” as defined in Section 162(m),
or any successor statute, and who is designated, either as an individual Employee or a member of a
class of Employees, by the Committee no later than (i) the date ninety (90) days after the
beginning of the Performance Period, or (ii) the date on which twenty-five percent (25%) of the
Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable
Performance Period.

               (m) “Deferred Compensation Award” means an award granted to a Participant pursuant to Section
11.

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

               (o) “Disability” means the permanent and total disability of the Participant, within the
meaning of Section 22(e)(3) of the Code.

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

               (q) “Employee” means any person treated as an employee (including an Officer or a member of
the Board who is also treated as an employee) in the records of a Participating Company and, with
respect to any Incentive Stock Option granted to such person, who is an employee for purposes of
Section 422 of the Code; provided, however, that neither service as a member of the Board nor
payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.
The Company shall determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of such individual’s
employment or termination of employment, as the case may be. For purposes of an individual’s
rights, if any, under the terms of the Plan as of the time of the Company’s determination of
whether or not the individual is an Employee, all such determinations by the Company shall be
final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any
court of law or governmental agency subsequently makes a contrary determination as to such
individual’s status as an Employee.

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

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

                         (i) Except as otherwise determined by the Committee, if, on such date, the Stock is listed on
a national or regional securities exchange or market system, the Fair Market Value of a share of
Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked
prices of a share of Stock if the Stock is so quoted instead) as quoted on the national or regional
securities exchange or market system constituting the primary market

 

 

for the Stock, as reported in
The Wall Street Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange or market system,
the date on which the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as shall be
determined by the Committee, in its discretion.

                         (ii) Notwithstanding the foregoing, the Committee may, in its discretion, determine the Fair
Market Value of a share of Stock on the basis of the opening, closing, or average of the high and
low sale prices of a share of Stock on such date or the preceding trading day, the actual sale
price of a share of Stock received by a Participant, any other reasonable basis using actual
transactions in the Stock as reported on a national or regional securities exchange or market
system and consistently applied, or on any other basis consistent with the requirements of Section
409A. The Committee may also determine the Fair Market Value upon the average selling price of the
Stock during a specified period that is within thirty (30) days before or thirty (30) days after
such date, provided that, with respect to the grant of an Option or SAR, the commitment to grant
such Award based on such valuation method must be irrevocable before the beginning of the specified
period and such valuation method must be used consistently for grants of Options and SARs under the
same and substantially similar programs. The Committee may vary its method of determination of the
Fair Market Value as provided in this Section for different purposes under the Plan to the extent
consistent with the requirements of Section 409A.

                         (iii) If, on such date, the Stock is not listed on a national or regional securities exchange
or market system, the Fair Market Value of a share of Stock shall be as determined by the Committee
in good faith, without regard to any restriction other than a restriction which, by its terms, will
never lapse, and in a manner consistent with the requirements of Section 409A.

               (t) “Full Value Award” means any Award settled in Stock, other than (i) an Option, (ii) a
Stock Appreciation Right, (iii) a Restricted Stock Purchase Right or an Other Stock-Based Award
under which the Company will receive monetary consideration equal to the Fair Market Value
(determined as of the date of grant) of the shares subject to such Award, or (iv) a Nonemployee
Director Award which is any of the foregoing types of Awards.

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

               (v) “Incumbent Director” means a director who either (i) is a member of the Board as of the
Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such election or nomination,
but who was not elected or nominated in connection with an actual or threatened proxy contest
relating to the election of directors of the Company.

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

 

 

               (x) “Insider Trading Policy” means the written policy of the Company pertaining to the
purchase, sale, transfer or other disposition of the Company’s equity securities by Directors,
Officers, Employees or other service providers who may possess material, nonpublic information
regarding the Company or its securities.

               (y) “Net-Exercise” means a procedure by which the Participant will be issued a number of whole
shares of Stock upon the exercise of an Option determined in accordance with the following formula:

                         N = X(A-B)/A, where

                         “N” = the number of shares of Stock to be issued to the
Participant upon exercise of the Option;

                         “X” = the total number of shares with respect to which the
Participant has elected to exercise the Option;

                         “A” = the Fair Market Value of one (1) share of Stock determined
on the exercise date; and

                         “B” = the exercise price per share (as defined in the
Participant’s Award Agreement)

               (z) “Nonemployee Director” means a Director who is not an Employee.

               (aa) “Nonemployee Director Award” means a Nonstatutory Stock Option, Stock Appreciation
Right, Restricted Stock Award or Restricted Stock Unit Award granted to a Nonemployee Director
pursuant to Section 13.

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

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

               (dd) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant
to Section 6 or Section 13.

               (ee) “Other Stock-Based Award” means an Award denominated in shares of Stock granted pursuant
to Section 12.

               (ff) “Ownership Change Event” means the occurrence of any of the following with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of related transactions
by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the
Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the Company (other than a sale,
exchange or transfer to one or more subsidiaries of the Company).

 

 

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

               (hh) “Participant” means any eligible person who has been granted one or more Awards.

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

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

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

               (ll) “Performance Award Formula” means, for any Performance Award, a formula or table
established by the Committee pursuant to Section 10.3 which provides the basis for computing the
value of a Performance Award at one or more threshold levels of attainment of the applicable
Performance Goal(s) measured as of the end of the applicable Performance Period.

               (mm) “Performance-Based Compensation” means compensation under an Award that satisfies the
requirements of Section 162(m) for certain performance-based compensation paid to Covered
Employees.

               (nn) “Performance Goal” means a performance goal established by the Committee pursuant to
Section 10.3.

               (oo) “Performance Period” means a period established by the Committee pursuant to Section 10.3
at the end of which one or more Performance Goals are to be measured.

               (pp) “Performance Share” means a right granted to a Participant pursuant to Section 10 to
receive a payment equal to the value of a Performance Share, as determined by the Committee, based
on performance.

               (qq) “Performance Unit” means a right granted to a Participant pursuant to Section 10 to
receive a payment equal to the value of a Performance Unit, as determined by the Committee, based
upon performance.

               (rr) “Predecessor Plan” means the Company’s 2002 Stock Option Plan, as amended and as in
effect immediately prior to its termination effective as of the Effective Date.

               (ss) “Restricted Stock Award” means an Award of a Restricted Stock Bonus or a Restricted Stock
Purchase Right.

 

 

               (tt) “Restricted Stock Bonus” means Stock granted to a Participant pursuant to Section 8 or
Section 13.

               (uu) “Restricted Stock Purchase Right” means a right to purchase Stock granted to a
Participant pursuant to Section 8 or Section 13.

               (vv) “Restricted Stock Unit” or “Stock Unit” means a right granted to a Participant pursuant
to Section 9, Section 11 or Section 13 to receive a share of Stock on a date determined in
accordance with the provisions of such Sections, as applicable, and the Participant’s Award
Agreement.

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

               (xx) “SAR” or “Stock Appreciation Right” means a right granted to a Participant pursuant to
Section 7 or Section 13 to receive payment, for each share of Stock subject to such SAR, of an
amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of
exercise of the SAR over the exercise price.

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

               (zz) “Section 409A” means Section 409A of the Code.

               (aaa) “Section 409A Deferred Compensation” means compensation provided pursuant to the Plan
that constitutes deferred compensation subject to and not exempted from the requirements of Section
409A.

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

               (ccc) “Service” means a Participant’s employment or service with the Participating Company
Group, whether in the capacity of an Employee, a Director or a Consultant. Unless otherwise
provided by the Committee, a Participant’s Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant renders such Service or a change in
the Participating Company for which the Participant renders such Service, provided that there is no
interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service
shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or
other bona fide leave of absence approved by the
Company. However, unless otherwise provided by the Committee, if any such leave taken by a
Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the
commencement of such leave the Participant’s Service shall be deemed to have terminated, unless the
Participant’s right to return to Service is guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company or required by law, an unpaid leave of
absence shall not be treated as Service for purposes of determining vesting under the Participant’s
Award Agreement. A Participant’s Service shall be deemed to have terminated either upon an actual
termination of Service or upon the entity for which the Participant performs Service ceasing to be
a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine
whether the Participant’s Service has terminated and the effective date of such termination.

 

 

               (ddd) “Stock” means the common stock of the Company, as adjusted from time to time in
accordance with Section 4.4.

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

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

               (ggg) “Vesting Conditions” mean those conditions established in accordance with the Plan prior
to the satisfaction of which shares subject to an Award remain subject to forfeiture or a
repurchase option in favor of the Company exercisable for the Participant’s monetary purchase
price, if any, for such shares upon the Participant’s termination of Service.

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

     3. Administration.

          3.1 Administration by the Committee. The Plan shall be administered by the Committee. All
questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement
or other document employed by the Company in the administration of the Plan or of any Award shall
be determined by the Committee, and such determinations shall be final, binding and conclusive upon
all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith.
Any and all actions, decisions and determinations taken or made by the Committee in the exercise of
its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than
determining questions of interpretation pursuant to the preceding sentence) shall be final, binding
and conclusive upon all persons having an interest therein.

          3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein, provided the Officer has apparent
authority with respect to such matter, right, obligation, determination or election.

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

          3.4 Committee Complying with Section 162(m). If the Company is a “publicly held corporation”
within the meaning of Section 162(m), the Board may establish a

 

 

Committee of “outside directors”
within the meaning of Section 162(m) to approve the grant of any Award intended to result in the
payment of Performance-Based Compensation.

          3.5 Powers of the Committee. In addition to any other powers set forth in the Plan and
subject to the provisions of the Plan, the Committee shall have the full and final power and
authority, in its discretion:

               (a) to determine the persons to whom, and the time or times at which, Awards shall be granted
and the number of shares of Stock, units or monetary value to be subject to each Award;

               (b) to determine the type of Award granted;

               (c) to determine the Fair Market Value of shares of Stock or other property;

               (d) to determine the terms, conditions and restrictions applicable to each Award (which need
not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the
exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares
purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with Award, including by the withholding or delivery of shares of
Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any
shares acquired pursuant thereto, (v) the Performance Measures, Performance Period, Performance
Award Formula and Performance Goals applicable to any Award and the extent to which such
Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the
effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other
terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not
inconsistent with the terms of the Plan;

               (e) to determine whether an Award will be settled in shares of Stock, cash, or in any
combination thereof;

               (f) to approve one or more forms of Award Agreement;

               (g) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or
conditions applicable to any Award or any shares acquired pursuant thereto;

               (h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any
shares acquired pursuant thereto, including with respect to the period following a Participant’s
termination of Service;

               (i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to
adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without
limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of
or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose
citizens may be granted Awards; and

 

 

               (j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award Agreement and to make all other determinations and take such other actions with respect
to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with
the provisions of the Plan or applicable law.

          3.6 Option or SAR Repricing. Without the affirmative vote of holders of a majority of the
shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which
a quorum representing a majority of all outstanding shares of Stock is present or represented by
proxy, the Board shall not approve (a) the cancellation of outstanding Options or SARs and the
grant in substitution therefore of new Options or SARs having a lower exercise price, (b) the
amendment of outstanding Options or SARs to reduce the exercise price thereof, or (c) the
cancellation of outstanding Options or SARs having exercise prices per share greater than the then
current Fair Market Value of a share of Stock and the grant in substitution therefore of Full Value
Awards. This paragraph shall not be construed to apply to “issuing or assuming a stock option in a
transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.

          3.7 Indemnification. In addition to such other rights of indemnification as they may have as
members of the Board or the Committee or as officers or employees of the Participating Company
Group, members of the Board or the Committee and any officers or employees of the Participating
Company Group to whom authority to act for the Board, the Committee or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees,
actually and necessarily incurred in connection with the defense of any action, suit or proceeding,
or in connection with any appeal therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with the Plan, or any right granted
hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad
faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the
institution of such action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at its own expense to handle and defend the same.

     4. Shares Subject to Plan.

          4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2, 4.3
and 4.4, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be
equal to four million (4,000,000) shares, and shall consist of authorized but unissued or
reacquired shares of Stock or any combination thereof.

          4.2 Adjustment for Unissued Predecessor Plan Shares. The maximum aggregate number of shares
of Stock that may be issued under the Plan as set forth in Section 4.1 shall be cumulatively
increased from time to time by:

               (a) the number of shares of Stock subject to that portion of any option outstanding pusuant to
the Predecessor Plan as of the Effective Date which, on or after the

 

 

Effective Date, expires or is
terminated or canceled for any reason without having been exercised or settled in full; and

               (b) the number of shares of Stock acquired pursuant to the Predecessor Plan subject to
forfeiture or repurchase by the Company at the Participant’s purchase price which, on or after the
Effective Date, is so forfeited or repurchased;

provided, however, that the aggregate number of shares of Stock authorized for issuance under the
Predecessor Plan that may become authorized for issuance under the Plan pursuant to this Section
4.2 shall not exceed one million five hundred thousand (1,500,000).

          4.3 Share Counting. If an outstanding Award for any reason expires or is terminated or
canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant
to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an
amount not greater than the Participant’s purchase price, the shares of Stock allocable to the
terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be
available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued
pursuant to the Plan with respect to any portion of an Award that is settled in cash. Upon payment
in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance
under the Plan shall be reduced by the gross number of shares for which the SAR is exercised. If
the exercise price of an Option is paid by tender to the Company, or attestation to the ownership,
of shares of Stock owned by the Participant, or by means of a Net-Exercise, the number of shares
available for issuance under the Plan shall be reduced by the gross number of shares for which the
Option is exercised. If Options, SARs or Performance Awards are settled in the form of Stock Units
issued pursuant to a stock issuance deferral award described in Section 11.1(b), the number of
shares available for issuance under the Plan shall be reduced by the number of shares subject to
such Stock Units, but shall not be further reduced by the number of shares of Stock originally
subject to such Options, SARs or Performance Awards settled in such manner. Shares withheld or
reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 18.2
shall not again be available for issuance under the Plan.

          4.4 Adjustments for Changes in Capital Structure. Subject to any required action by the
stockholders of the Company, in the event of any change in the Stock effected
without receipt of consideration by the Company, whether through merger, consolidation,
reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or
similar change in the capital structure of the Company, or in the event of payment of a dividend or
distribution to the stockholders of the Company in a form other than Stock (excepting normal cash
dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and
proportionate adjustments shall be made in the number and kind of shares subject to the Plan and to
any outstanding Awards, in the Award limits set forth in Section 5.3 and in the exercise or
purchase price per share under any outstanding Award in order to prevent dilution or enlargement of
Participants’ rights under the Plan. For purposes of the foregoing, conversion of any convertible
securities of the Company shall not be treated as “effected without receipt of consideration by the
Company.” If a majority of the shares which are of the same class as the shares that are subject
to outstanding Awards are exchanged for, converted into, or

 

 

otherwise become (whether or not
pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the
Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New
Shares. In the event of any such amendment, the number of shares subject to, and the exercise or
purchase price per share of, the outstanding Awards shall be adjusted in a fair and equitable
manner as determined by the Committee, in its discretion. Any fractional share resulting from an
adjustment pursuant to this Section 4.4 shall be rounded down to the nearest whole number, and in
no event may the exercise or purchase price under any Award be decreased to an amount less than the
par value, if any, of the stock subject to such Award. The Committee in its sole discretion, may
also make such adjustments in the terms of any Award to reflect, or related to, such changes in the
capital structure of the Company or distributions as it deems appropriate, including modification
of Performance Goals, Performance Award Formulas and Performance Periods. The adjustments
determined by the Committee pursuant to this Section shall be final, binding and conclusive.

     The Committee may, without affecting the number of Shares reserved or available hereunder,
authorize the issuance or assumption of benefits under this Plan in connection with any merger,
consolidation, acquisition of property or stock, or reorganization upon such terms and conditions
as it may deem appropriate, subject to compliance with Section 409A and any other applicable
provisions of the Code and related guidance issued by the U.S. Treasury Department.

     5. Eligibility, Participation and Award Limitations.

          5.1 Persons Eligible for Awards. Awards, other than Deferred Compensation Awards or
Nonemployee Director Awards, may be granted only to Employees and Consultants. Deferred
Compensation Awards may be granted only to Officers, Directors and individuals who are among a
select group of management or highly compensated Employees. Nonemployee Director Awards may be
granted only to persons who, at the time of grant, are Nonemployee Directors.

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

          5.3 Award Limitations.

               (a) Incentive Stock Option Limitations.

                    (i) Maximum Number of Shares Issuable Pursuant to Incentive Stock Options. Subject to
adjustment as provided in Section 4.4, the maximum aggregate number of shares of Stock that may be
issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed five
million five hundred thousand (5,500,000) shares. The maximum aggregate number of shares of Stock
that may be issued under the Plan pursuant to all Awards other than Incentive Stock Options shall
be the number of shares determined in accordance with Section 4.1, subject to adjustment as
provided in Sections 4.2, 4.3 and 4.4.

 

 

                         (ii) Persons Eligible. An Incentive Stock Option may be granted only to a person who, on the
effective date of grant, is an Employee of the Company, a Parent Corporation or a Subsidiary
Corporation (each being an “ISO-Qualifying Corporation”). Any person who is not an Employee of an
ISO-Qualifying Corporation on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee of an ISO-Qualifying Corporation
shall be deemed granted effective on the date such person commences Service as an Employee of an
ISO-Qualifying Corporation, with an exercise price determined as of such date in accordance with
Section 6.1.

                         (iii) Fair Market Value Limitation. To the extent that options designated as Incentive Stock
Options (granted under all stock option plans of the Participating Company Group, including the
Plan) become exercisable by a Participant for the first time during any calendar year for stock
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of
such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For
purposes of this Section, options designated as Incentive Stock Options shall be taken into account
in the order in which they were granted, and the Fair Market Value of stock shall be determined as
of the time the option with respect to such stock is granted. If the Code is amended to provide
for a limitation different from that set forth in this Section, such different limitation shall be
deemed incorporated herein effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in
part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section, the Participant may designate which portion of such Option the Participant is exercising.
In the absence of such designation, the Participant shall be deemed to have exercised the Incentive
Stock Option portion of the Option first. Upon exercise, shares issued pursuant to each such
portion shall be separately identified.

               (b) Limit on Full Value Awards without Minimum Vesting. Except with respect to a maximum of
five percent (5%) of the maximum aggregate number of shares of Stock that may be issued under the
Plan, determined in accordance with Sections 4.1, 4.2, 4.3 and 4.4, Full Value Awards which vest on
the basis of the Participant’s continued Service shall provide for vesting over a period of not
less than three (3) years, and Full Value Awards which vest on the basis of the attainment of
performance goals shall provide for a performance period of not less than twelve (12) months. The
foregoing limitations shall not preclude the acceleration
of vesting of any such Award upon the death, disability, retirement or involuntary termination
of Service of the Participant or upon or following a Change in Control, as determined by the
Committee in its discretion.

               (c) Nonemployee Director Award Limits. Subject to adjustment as provided in Section 4.4, no
Nonemployee Director may be granted within any fiscal year of the Company one or more Nonemployee
Director Awards for more than two hundred thousand (200,000) shares; provided, however, that the
foregoing annual limit shall be increased by one or more of the following additions, as applicable:
(i) an additional one hundred thousand (100,000) shares in the fiscal year in which the Nonemployee
Director is first appointed or elected to the Board as a Nonemployee Director, (ii) an additional
two hundred fifty thousand (250,000) shares in any fiscal year in which the Nonemployee Director is
serving as the Chairman or Lead

 

 

Director of the Board, and (iii) an additional one hundred thousand
(100,000) shares in any fiscal year for each committee of the Board on which the Nonemployee
serves.

               (d) Section 162(m) Award Limits. The following limits shall apply to the grant of any Award
intended to qualify for treatment as Performance-Based Compensation:

                    (i) Options and SARs. Subject to adjustment as provided in Section 4.4, no Employee shall be
granted within any fiscal year of the Company one or more Options or Freestanding SARs which in the
aggregate are for more than one million five hundred thousand (1,500,000) shares.

                    (ii) Restricted Stock Awards and Restricted Stock Unit Awards. Subject to adjustment as
provided in Section 4.4, no Employee shall be granted within any fiscal year of the Company one or
more Restricted Stock Awards or Restricted Stock Unit Awards for more than five hundred thousand
(500,000) shares.

                    (iii) Performance Awards. Subject to adjustment as provided in Section 4.4, no Employee shall
be granted (1) Performance Shares which could result in such Employee receiving more than five
hundred thousand (500,000) shares for each full fiscal year of the Company contained in the
Performance Period for such Award, or (2) Performance Units which could result in such Employee
receiving more than three million dollars ($3,000,000) for each full fiscal year of the Company
contained in the Performance Period for such Award. No Participant may be granted more than one
Performance Award for the same Performance Period.

                    (iv) Cash-Based Awards and Other Stock-Based Awards. Subject to adjustment as provided in
Section 4.4, no Employee shall be granted (1) Cash-Based Awards in any fiscal year of the Company
which could result in such Employee receiving more than three million dollars ($3,000,000) for each
full fiscal year of the Company contained in the Performance Period for such Award, or (2) Other
Stock-Based Awards in any fiscal year of the Company which could result in such Employee receiving
more than five hundred thousand (500,000) shares for each full fiscal year of the Company contained
in the Performance Period for such Award. No Participant may be granted more than one Cash-Based
Award or Other Stock-Based Award for the same Performance Period.

     6. Stock Options.

          Options shall be evidenced by Award Agreements specifying the number of shares of Stock
covered thereby, in such form as the Committee shall from time to time establish. Award Agreements
evidencing Options may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:

          6.1 Exercise Price. The exercise price for each Option shall be established in the discretion
of the Committee; provided, however, that (a) the exercise price per share shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no
Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less
than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective
date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an

 

 

exercise price lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.

          6.2 Exercisability and Term of Options. Options shall be exercisable at such time or times,
or upon such event or events, and subject to such terms, conditions, performance criteria and
restrictions as shall be determined by the Committee and set forth in the Award Agreement
evidencing such Option; provided, however, that (a) no Option shall be exercisable after the
expiration of ten (10) years after the effective date of grant of such Option and (b) no Incentive
Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5)
years after the effective date of grant of such Option. Subject to the foregoing, unless otherwise
specified by the Committee in the grant of an Option, each Option shall terminate ten (10) years
after the effective date of grant of the Option, unless earlier terminated in accordance with its
provisions.

          6.3 Payment of Exercise Price.

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

               (b) Limitations on Forms of Consideration.

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

                    (ii) Cashless Exercise. The Company reserves, at any and all times, the right, in the
Company’s sole and absolute discretion, to establish, decline to approve or

 

 

terminate any program
or procedures for the exercise of Options by means of a Cashless Exercise, including with respect
to one or more Participants specified by the Company notwithstanding that such program or
procedures may be available to other Participants.

          6.4 Effect of Termination of Service.

               (a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided
herein and unless otherwise provided by the Committee, an Option shall terminate immediately upon
the Participant’s termination of Service to the extent that it is then unvested and shall be
exercisable after the Participant’s termination of Service to the extent it is then vested only
during the applicable time period determined in accordance with this Section and thereafter shall
terminate:

                    (i) Disability. If the Participant’s Service terminates because of the Disability of the
Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on
which the Participant’s Service terminated, may be exercised by the Participant (or the
Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Participant’s Service terminated, but in any event no later than
the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such
Option (the “Option Expiration Date”).

                    (ii) Death. If the Participant’s Service terminates because of the death of the Participant,
then the Option, to the extent unexercised and exercisable for vested shares on the date on which
the Participant’s Service terminated, may be exercised by the Participant’s legal representative or
other person who acquired the right to exercise the Option by reason of the Participant’s death at
any time prior to the expiration of twelve (12) months after the date on which the Participant’s
Service terminated, but in any event no later than the Option Expiration Date. The Participant’s
Service shall be deemed to have terminated on account of death if the Participant dies within three
(3) months after the Participant’s termination of Service.

                    (iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary,
if the Participant’s Service is terminated for Cause or if, following the Participant’s termination
of Service and during any period in which the Option otherwise would remain exercisable, the
Participant engages in any act that would constitute Cause, the Option shall terminate in its
entirety and cease to be exercisable immediately upon such termination of Service or act.

                    (iv) Other Termination of Service. If the Participant’s Service terminates for any reason,
except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested
shares on the date on which the Participant’s Service terminated, may be exercised by the
Participant at any time prior to the expiration of three (3) months after the date on which the
Participant’s Service terminated, but in any event no later than the Option Expiration Date.

               (b) Extension if Exercise Prevented by Law or Insider Trading Policy. Notwithstanding the
foregoing, other than termination of Service for Cause, if the exercise of an Option within the
applicable time periods set forth in Section 6.4(a) is prevented

 

 

by the provisions of Section 16
below or a sale of shares pursuant to a Cashless Exercise of the Option would violate the
provisions of the Insider Trading Policy, the Option shall remain exercisable until thirty (30)
days after the date such exercise or sale, as the case may be, first would no longer be prevented
by such provisions, but in any event no later than the Option Expiration Date.

          6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be
exercisable only by the Participant or the Participant’s guardian or legal representative. An
Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set
forth in the Award Agreement evidencing such Option, a Nonstatutory Stock Option shall be
assignable or transferable subject to the applicable limitations, if any, described in the General
Instructions to Form S-8 under the Securities Act.

     7. Stock Appreciation Rights.

          Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of
shares of Stock subject to the Award, in such form as the Committee shall from time to time
establish. Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and conditions:

          7.1 Types of SARs Authorized. SARs may be granted in tandem with all or any portion of a
related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Freestanding
SAR”). A Tandem SAR may only be granted concurrently with the grant of the related Option.

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

          7.3 Exercisability and Term of SARs.

               (a) Tandem SARs. Tandem SARs shall be exercisable only at the time and to the extent, and
only to the extent, that the related Option is exercisable, subject to such provisions as the
Committee may specify where the Tandem SAR is granted with respect to less than the full number of
shares of Stock subject to the related Option. The Committee may, in its discretion, provide in
any Award Agreement evidencing a Tandem SAR that such SAR may not be exercised without the advance
approval of the Company and, if such approval is not
given, then the Option shall nevertheless remain exercisable in accordance with its terms. A
Tandem SAR shall terminate and cease to be exercisable no later than the date on which the related
Option expires or is terminated or canceled. Upon the exercise of a Tandem SAR with respect to
some or all of the shares subject to such SAR, the related Option shall be canceled

 

 

automatically
as to the number of shares with respect to which the Tandem SAR was exercised. Upon the exercise
of an Option related to a Tandem SAR as to some or all of the shares subject to such Option, the
related Tandem SAR shall be canceled automatically as to the number of shares with respect to which
the related Option was exercised.

               (b) Freestanding SARs. Freestanding SARs shall be exercisable at such time or times, or upon
such event or events, and subject to such terms, conditions, performance criteria and restrictions
as shall be determined by the Committee and set forth in the Award Agreement evidencing such SAR;
provided, however, that no Freestanding SAR shall be exercisable after the expiration of ten (10)
years after the effective date of grant of such SAR.

          7.4 Exercise of SARs. Upon the exercise (or deemed exercise pursuant to Section 7.5) of an
SAR, the Participant (or the Participant’s legal representative or other person who acquired the
right to exercise the SAR by reason of the Participant’s death) shall be entitled to receive
payment of an amount for each share with respect to which the SAR is exercised equal to the excess,
if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the
exercise price. Payment of such amount shall be made (a) in the case of a Tandem SAR, solely in
whole shares of Stock in a lump sum as soon as practicable following the date of exercise of the
SAR and (b) in the case of a Freestanding SAR, in cash, whole shares of Stock, or any combination
thereof as determined by the Committee, in a lump sum as soon as practicable following the date of
exercise of the SAR. When payment is to be made in shares of Stock, the number of shares to be
issued shall be determined on the basis of the Fair Market Value of a share of Stock on the date of
exercise of the SAR. For purposes of Section 7, an SAR shall be deemed exercised on the date on
which the Company receives notice of exercise from the Participant or as otherwise provided in
Section 7.5.

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

          7.6 Effect of Termination of Service. Subject to earlier termination of the SAR as otherwise
provided herein and unless otherwise provided by the Committee in the grant of an SAR and set forth
in the Award Agreement, an SAR shall be exercisable after a Participant’s termination of Service
only to the extent and during the applicable time period determined in accordance with Section 6.4
(treating the SAR as if it were an Option) and thereafter shall terminate.

          7.7 Transferability of SARs. During the lifetime of the Participant, an SAR shall be
exercisable only by the Participant or the Participant’s guardian or legal representative. An SAR
shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set
forth in the Award Agreement evidencing such Award, a Tandem SAR related to a Nonstatutory Stock
Option or a Freestanding SAR shall be assignable or transferable subject to

 

 

the applicable
limitations, if any, described in the General Instructions to Form S-8 under the Securities Act.

     8. Restricted Stock Awards.

          Restricted Stock Awards shall be evidenced by Award Agreements specifying whether the Award is
a Restricted Stock Bonus or a Restricted Stock Purchase Right and the number of shares of Stock
subject to the Award, in such form as the Committee shall from time to time establish. Award
Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and conditions:

          8.1 Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted in
the form of either a Restricted Stock Bonus or a Restricted Stock Purchase Right. Restricted Stock
Awards may be granted upon such conditions as the Committee shall determine, including, without
limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If
either the grant of or satisfaction of Vesting Conditions applicable to a Restricted Stock Award is
to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow
procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).

          8.2 Purchase Price. The purchase price for shares of Stock issuable under each Restricted
Stock Purchase Right shall be established by the Committee in its discretion. No monetary payment
(other than applicable tax withholding) shall be required as a condition of receiving shares of
Stock pursuant to a Restricted Stock Bonus, the consideration for which shall be services actually
rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required
by applicable state corporate law, the Participant shall furnish consideration in the form of cash
or past services rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock subject to a Restricted Stock Award.

          8.3 Purchase Period. A Restricted Stock Purchase Right shall be exercisable within a period
established by the Committee, which shall in no event exceed thirty (30) days from the effective
date of the grant of the Restricted Stock Purchase Right.

          8.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase
price for the number of shares of Stock being purchased pursuant to any Restricted Stock Purchase
Right shall be made (a) in cash or by check or cash equivalent, (b) by such other consideration as
may be approved by the Committee from time to time to the extent permitted by applicable law, or
(c) by any combination thereof.

          8.5 Vesting and Restrictions on Transfer. Subject to Section 5.3(b), Shares issued pursuant
to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon
the satisfaction of such Service requirements, conditions, restrictions or performance criteria,
including, without limitation, Performance Goals as described in Section 10.4, as shall be
established by the Committee and set forth in the Award Agreement evidencing such Award. During
any period in which shares acquired pursuant to a Restricted

 

 

Stock Award remain subject to Vesting
Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise
disposed of other than pursuant to an Ownership Change Event or as provided in Section 8.8. The
Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock
Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such
Restricted Stock Award would otherwise occur on a day on which the sale of such shares would
violate the provisions of the Insider Trading Policy, then satisfaction of the Vesting Conditions
automatically shall be determined on the next trading day on which the sale of such shares would
not violate the Insider Trading Policy. Upon request by the Company, each Participant shall
execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock
hereunder and shall promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing
any such transfer restrictions.

          8.6 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section
8.5 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted
Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a
stockholder of the Company holding shares of Stock, including the right to vote such shares and to
receive all dividends and other distributions paid with respect to such shares. However, in the
event of a dividend or distribution paid in shares of Stock or other property or any other
adjustment made upon a change in the capital structure of the Company as described in Section 4.4,
any and all new, substituted or additional securities or other property (other than normal cash
dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock
Award shall be immediately subject to the same Vesting Conditions as the shares subject to the
Restricted Stock Award with respect to which such dividends or distributions were paid or
adjustments were made.

          8.7 Effect of Termination of Service. Unless otherwise provided by the Committee in the Award
Agreement evidencing a Restricted Stock Award, if a Participant’s Service terminates for any
reason, whether voluntary or involuntary (including the Participant’s death or disability), then
(a) the Company shall have the option to repurchase for the purchase price paid by the Participant
any shares acquired by the Participant pursuant to a Restricted Stock Purchase Right which remain
subject to Vesting Conditions as of the date of the Participant’s termination of Service and (b)
the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a
Restricted Stock Bonus which remain subject to Vesting Conditions as of the date of the
Participant’s termination of Service. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to one or more persons
as may be selected by the Company.

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

 

 

     9. Restricted Stock Unit Awards.

          Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of
Restricted Stock Units subject to the Award, in such form as the Committee shall from time to time
establish. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the
terms of the Plan by reference and shall comply with and be subject to the following terms and
conditions:

          9.1 Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon
such conditions as the Committee shall determine, including, without limitation, upon the
attainment of one or more Performance Goals described in Section 10.4. If either the grant of a
Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be
contingent upon the attainment of one or more Performance Goals, the Committee shall follow
procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).

          9.2 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall
be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which
shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding
the foregoing, if required by applicable state corporate law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating Company or for its
benefit having a value not less than the par value of the shares of Stock issued upon settlement of
the Restricted Stock Unit Award.

          9.3 Vesting. Subject to Section 5.3(b), Restricted Stock Unit Awards may (but need not) be
made subject to Vesting Conditions based upon the satisfaction of such Service requirements,
conditions, restrictions or performance criteria, including, without limitation, Performance Goals
as described in Section 10.4, as shall be established by the Committee and set forth in the Award
Agreement evidencing such Award. The Committee, in its discretion, may provide in any Award
Agreement evidencing a Restricted Stock Unit Award that, if the satisfaction of Vesting Conditions
with respect to any shares subject to the Award would otherwise occur on a day on which the sale of
such shares would violate the provisions of the Insider Trading Policy, then satisfaction of the
Vesting Conditions automatically shall be determined on the first to occur of (a) the next trading
day on which the sale of such shares would not violate the Insider Trading Policy or (b) the later
of (i) the last day of the calendar year in which the original vesting date occurred or (ii) the
last day of the Company’s taxable year in which the original vesting date occurred.

          9.4 Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Restricted Stock Units until the date
of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion,
may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant
shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on
Stock during the period beginning on the date such Award is granted and ending, with respect to
each share subject to the Award, on the earlier of the date the Award is settled or the date on
which it is terminated. Such Dividend Equivalent

 

 

Rights, if any, shall be paid by crediting the
Participant with additional whole Restricted Stock Units as of the date of payment of such cash
dividends on Stock. The number of additional Restricted Stock Units (rounded to the nearest whole
number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on
such date with respect to the number of shares of Stock represented by the Restricted Stock Units
previously credited to the Participant by (b) the Fair Market Value per share of Stock on such
date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and
shall be settled in the same manner and at the same time as the Restricted Stock Units originally
subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in
shares of Stock or other property or any other adjustment made upon a change in the capital
structure of the Company as described in Section 4.4, appropriate adjustments shall be made in the
Participant’s Restricted Stock Unit Award so that it represents the right to receive upon
settlement any and all new, substituted or additional securities or other property (other than
normal cash dividends) to which the Participant would be entitled by reason of the shares of Stock
issuable upon settlement of the Award, and all such new, substituted or additional securities or
other property shall be immediately subject to the same Vesting Conditions as are applicable to the
Award.

          9.5 Effect of Termination of Service. Unless otherwise provided by the Committee and set
forth in the Award Agreement evidencing a Restricted Stock Unit Award, if a Participant’s Service
terminates for any reason, whether voluntary or involuntary (including the Participant’s death or
disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant
to the Award which remain subject to Vesting Conditions as of the date of the Participant’s
termination of Service.

          9.6 Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on
the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award
vest or on such other date determined by the Committee, in its discretion, and set forth in the
Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities
or other property pursuant to an adjustment described in Section 9.4) for each Restricted Stock
Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of
applicable taxes, if any. If permitted by the Committee, the Participant may elect, consistent
with the requirements of Section 409A, to defer receipt of all or any portion of the shares of
Stock or other property otherwise issuable to the Participant pursuant to this Section, and such
deferred issuance date(s) and amount(s) elected by the Participant shall be set forth in the Award
Agreement. Notwithstanding the foregoing, the Committee, in its discretion, may provide in any
Award Agreement for settlement of any
Restricted Stock Unit Award by payment to the Participant in cash of an amount equal to the
Fair Market Value on the payment date of the shares of Stock or other property otherwise issuable
to the Participant pursuant to this Section.

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

 

 

     10.
Performance Awards.

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

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

     10.2 Initial Value of Performance Shares and Performance Units. Unless otherwise provided by
the Committee in granting a Performance Award, each Performance Share shall have an initial
monetary value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as
provided in Section 4.4, on the effective date of grant of the Performance Share, and each
Performance Unit shall have an initial monetary value established by the Committee at the time of
grant. The final value payable to the Participant in settlement of a Performance Award determined
on the basis of the applicable Performance Award Formula will depend on the extent to which
Performance Goals established by the Committee are attained within the applicable Performance
Period established by the Committee.

     10.3 Establishment of Performance Period, Performance Goals and Performance Award Formula. In
granting each Performance Award, the Committee shall establish in writing the applicable
Performance Period (subject to Section 5.3(b)), Performance Award Formula and one or more
Performance Goals which, when measured at the end of the Performance Period, shall determine on the
basis of the Performance Award Formula the final value of the Performance Award to be paid to the
Participant. Unless otherwise permitted in compliance with the requirements under Section 162(m)
with respect to each Performance Award intended to result in the payment of Performance-Based
Compensation, the Committee shall establish the Performance Goal(s) and Performance Award Formula
applicable to each Performance Award no later than the earlier of (a) the date ninety (90) days
after the
commencement of the applicable Performance Period or (b) the date on which 25% of the
Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance
Goals remains substantially uncertain. Once established, the Performance Goals and Performance
Award Formula applicable to a Covered Employee shall not be changed during the Performance Period.
The Company shall notify each Participant granted a Performance Award of the terms of such Award,
including the Performance Period, Performance Goal(s) and Performance Award Formula.

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

 

 

               (a) Performance Measures. Performance Measures shall have the same meanings as used in the
Company’s financial statements, or, if such terms are not used in the Company’s financial
statements, they shall have the meaning applied pursuant to generally accepted accounting
principles, or as used generally in the Company’s industry. Performance Measures shall be
calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for
financial reporting purposes or such division or other business unit as may be selected by the
Committee. For purposes of the Plan, the Performance Measures applicable to a Performance Award
shall be calculated in accordance with generally accepted accounting principles, if applicable, but
prior to the accrual or payment of any Performance Award for the same Performance Period and
excluding the effect (whether positive or negative) of any change in accounting standards or any
extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the
establishment of the Performance Goals applicable to the Performance Award. Each such adjustment,
if any, shall be made solely for the purpose of providing a consistent basis from period to period
for the calculation of Performance Measures in order to prevent the dilution or enlargement of the
Participant’s rights with respect to a Performance Award. Performance Measures may be one or more
of the following, as determined by the Committee:

                    (i) revenue;

                    (ii) sales;

                    (iii) expenses;

                    (iv) operating income;

                    (v) gross margin;

                    (vi) operating margin;

                    (vii) earnings before any one or more of: stock-based compensation expense, interest, taxes,
depreciation and amortization;

                    (viii) pre-tax profit;

                    (ix) net operating income;

                    (x) net income;

                    (xi) economic value added;

                    (xii) free cash flow;

                    (xiii) operating cash flow;

                    (xiv) balance of cash, cash equivalents and marketable securities;

                    (xv) stock price;

 

 

                    (xvi) earnings per share;

                    (xvii) return on stockholder equity;

                    (xviii) return on capital;

                    (xix) return on assets;

                    (xx) return on investment;

                    (xxi) employee satisfaction;

                    (xxii) employee retention;

                    (xxiii) market share;

                    (xxiv) customer satisfaction;

                    (xxv) product development;

                    (xxvi) research and development expenses;

                    (xxvii) completion of an identified special project; and

                    (xxviii) completion of a joint venture or other corporate transaction.

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

          10.5 Settlement of Performance Awards.

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

               (b) Discretionary Adjustment of Award Formula. In its discretion, the Committee may, either
at the time it grants a Performance Award or at any time thereafter, provide for the positive or
negative adjustment of the Performance Award Formula applicable to a Performance Award granted to
any Participant who is not a Covered Employee to reflect such Participant’s individual performance
in his or her position with the Company or such other factors as the Committee may determine. If
permitted under a Covered Employee’s Award Agreement, the Committee shall have the discretion, on
the basis of such criteria as may be established by the Committee, to reduce some or all of the
value of the Performance Award that

 

 

would otherwise be paid to the Covered Employee upon its
settlement notwithstanding the attainment of any Performance Goal and the resulting value of the
Performance Award determined in accordance with the Performance Award Formula. No such reduction
may result in an increase in the amount payable upon settlement of another Participant’s
Performance Award that is intended to result in Performance-Based Compensation.

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

               (d) Notice to Participants. As soon as practicable following the Committee’s determination
and certification in accordance with Sections 10.5(a) and (b), the Company shall notify each
Participant of the determination of the Committee.

               (e) Payment in Settlement of Performance Awards. As soon as practicable following the
Committee’s determination and certification in accordance with Sections 10.5(a) and (b), but in any
event within the Short-Term Deferral Period described in Section 17.1 (except as otherwise provided
below or consistent with the requirements of Section 409A), payment shall be made to each eligible
Participant (or such Participant’s legal representative or other person who acquired the right to
receive such payment by reason of the Participant’s death) of the final value of the Participant’s
Performance Award. Payment of such amount shall be made in cash, shares of Stock, or a combination
thereof as determined by the Committee. Unless otherwise provided in the Award Agreement
evidencing a Performance Award, payment shall be made in a lump sum. If permitted by the
Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer
receipt of all or any portion of the payment to be made to the Participant pursuant to this
Section, and such deferred payment date(s) elected by the Participant shall be set forth in the
Award Agreement. If any payment is to
be made on a deferred basis, the Committee may, but shall not be obligated to, provide for the
payment during the deferral period of Dividend Equivalent Rights or interest.

               (f) Provisions Applicable to Payment in Shares. If payment is to be made in shares of Stock,
the number of such shares shall be determined by dividing the final value of the Performance Award
by the Fair Market Value of a share of Stock determined by the method specified in the Award
Agreement. Shares of Stock issued in payment of any Performance Award may be fully vested and
freely transferable shares or may be shares of Stock subject to Vesting Conditions as provided in
Section 8.5. Any shares subject to Vesting Conditions shall be evidenced by an appropriate Award
Agreement and shall be subject to the provisions of Sections 8.5 through 8.8 above.

          10.6 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Performance Share Awards until the
date of the issuance of such shares, if any (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its
discretion, may provide in the Award Agreement

 

 

evidencing any Performance Share Award that the
Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash
dividends on Stock during the period beginning on the date the Award is granted and ending, with
respect to each share subject to the Award, on the earlier of the date on which the Performance
Shares are settled or the date on which they are forfeited. Such Dividend Equivalent Rights, if
any, shall be credited to the Participant in the form of additional whole Performance Shares as of
the date of payment of such cash dividends on Stock. The number of additional Performance Shares
(rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the
amount of cash dividends paid on the dividend payment date with respect to the number of shares of
Stock represented by the Performance Shares previously credited to the Participant by (b) the Fair
Market Value per share of Stock on such date. Dividend Equivalent Rights may be paid currently or
may be accumulated and paid to the extent that Performance Shares become nonforfeitable, as
determined by the Committee. Settlement of Dividend Equivalent Rights may be made in cash, shares
of Stock, or a combination thereof as determined by the Committee, and may be paid on the same
basis as settlement of the related Performance Share as provided in Section 10.5. Dividend
Equivalent Rights shall not be paid with respect to Performance Units. In the event of a dividend
or distribution paid in shares of Stock or other property or any other adjustment made upon a
change in the capital structure of the Company as described in Section 4.4, appropriate adjustments
shall be made in the Participant’s Performance Share Award so that it represents the right to
receive upon settlement any and all new, substituted or additional securities or other property
(other than normal cash dividends) to which the Participant would entitled by reason of the shares
of Stock issuable upon settlement of the Performance Share Award, and all such new, substituted or
additional securities or other property shall be immediately subject to the same Performance Goals
as are applicable to the Award.

          10.7 Effect of Termination of Service. Unless otherwise provided by the Committee and set
forth in the Award Agreement evidencing a Performance Award, the effect of a Participant’s
termination of Service on the Performance Award shall be as follows:

               (a) Death or Disability. If the Participant’s Service terminates because of the death or
Disability of the Participant before the completion of the Performance Period applicable to the
Performance Award, the final value of the Participant’s Performance Award shall be determined by
the extent to which the applicable Performance Goals have been attained with respect to the entire
Performance Period and shall be prorated based on the number of months of the Participant’s Service
during the Performance Period. Payment shall be made following the end of the Performance Period
in any manner permitted by Section 10.5.

               (b) Other Termination of Service. If the Participant’s Service terminates for any reason
except death or Disability before the completion of the Performance Period applicable to the
Performance Award, such Award shall be forfeited in its entirety; provided, however, that in the
event of an involuntary termination of the Participant’s Service, the Committee, in its sole
discretion, may waive the automatic forfeiture of all or any portion of any such Award.

          10.8 Nontransferability of Performance Awards. Prior to settlement in accordance with the
provisions of the Plan, no Performance Award shall be subject in any manner to anticipation,
alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or

 

 

garnishment by creditors
of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution. All rights with respect to a Performance Award granted to a Participant
hereunder shall be exercisable during his or her lifetime only by such Participant or the
Participant’s guardian or legal representative.

     11. Deferred Compensation Awards.

          11.1 Establishment of Deferred Compensation Award Programs. This Section 11 shall not be
effective unless and until the Committee determines to establish a program pursuant to this
Section. The Committee, in its discretion and upon such terms and conditions as it may determine,
consistent with the requirements of Section 409A, may establish one or more programs pursuant to
the Plan under which:

               (a) Elective Cash Compensation Reduction Awards. Participants designated by the Committee who
are Officers, Directors or otherwise among a select group of management or highly compensated
Employees may irrevocably elect, prior to a date specified by the Committee in compliance with
Section 409A, to reduce such Participant’s compensation otherwise payable in cash (subject to any
minimum or maximum reductions imposed by the Committee) and to be granted automatically at such
time or times as specified by the Committee one or more Awards of Stock Units with respect to such
numbers of shares of Stock as determined in accordance with the rules of the program established by
the Committee and having such other terms and conditions as established by the Committee.

               (b) Stock Issuance Deferral Awards. Participants designated by the Committee who are
Officers, Directors or otherwise among a select group of management or highly compensated Employees
may irrevocably elect, prior to a date specified by the Committee in compliance with Section 409A,
to be granted automatically an Award of Stock Units with
respect to such number of shares of Stock and upon such other terms and conditions as
established by the Committee in lieu of:

                    (i) shares of Stock otherwise issuable to such Participant upon the exercise of an Option;

                    (ii) cash or shares of Stock otherwise issuable to such Participant upon the exercise of an
SAR; or

                    (iii) cash or shares of Stock otherwise issuable to such Participant upon the settlement of a
Performance Award.

          11.2 Terms and Conditions of Deferred Compensation Awards. Deferred Compensation Awards
granted pursuant to this Section 11 shall be evidenced by Award Agreements in such form as the
Committee shall from time to time establish. Award Agreements evidencing Deferred Compensation
Awards may incorporate all or any of the terms of the Plan by reference and, except as provided
below, shall comply with and be subject to the terms and conditions of Section 9.

               (a) Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Stock

 

 

Units until the date of the
issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company). However, a Participant shall be entitled to
Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period
beginning on the date the Stock Units are granted automatically to the Participant and ending on
the earlier of the date on which such Stock Units are settled or the date on which they are
forfeited. Such Dividend Equivalent Rights shall be paid by crediting the Participant with
additional whole Stock Units as of the date of payment of such cash dividends on Stock. The number
of additional Stock Units (rounded to the nearest whole number) to be so credited shall be
determined by dividing (A) the amount of cash dividends paid on the dividend payment date with
respect to the number of shares of Stock represented by the Stock Units previously credited to the
Participant by (B) the Fair Market Value per share of Stock on such date. Such additional Stock
Units shall be subject to the same terms and conditions and shall be settled in the same manner and
at the same time as the Stock Units originally subject to the Stock Unit Award. In the event of a
dividend or distribution paid in shares of Stock or other property or any other adjustment made
upon a change in the capital structure of the Company as described in Section 4.4, appropriate
adjustments shall be made in the Participant’s Stock Unit Award so that it represents the right to
receive upon settlement any and all new, substituted or additional securities or other property
(other than normal cash dividends) to which the Participant would entitled by reason of the shares
of Stock issuable upon settlement of the Award.

               (b) Settlement of Deferred Compensation Awards. A Participant electing to receive an Award of
Stock Units pursuant to this Section 11 shall specify at the time of such election a settlement
date with respect to such Award in compliance with the requirements of Section 409A. The Company
shall issue to the Participant on the settlement date
elected by the Participant, or as soon thereafter as practicable, a number of whole shares of
Stock equal to the number of vested Stock Units subject to the Stock Unit Award. Such shares of
Stock shall be fully vested, and the Participant shall not be required to pay any additional
consideration (other than applicable tax withholding) to acquire such shares.

     12. Cash-Based Awards and Other Stock-Based Awards.

          Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements in such
form as the Committee shall from time to time establish. Award Agreements evidencing Cash-Based
Awards and Other Stock-Based Awards may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and conditions:

          12.1 Grant of Cash-Based Awards. Subject to the provisions of the Plan, the Committee, at any
time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon
such terms and conditions, including the achievement of performance criteria, as the Committee may
determine.

          12.2 Grant of Other Stock-Based Awards. The Committee may grant other types of equity-based
or equity-related Awards not otherwise described by the terms of this Plan (including the grant or
offer for sale of unrestricted securities, stock-equivalent units, stock appreciation units,
securities or debentures convertible into common stock or other forms

 

 

determined by the Committee)
in such amounts and subject to such terms and conditions as the Committee shall determine. Such
Awards may involve the transfer of actual shares of Stock to Participants, or payment in cash or
otherwise of amounts based on the value of Stock and may include, without limitation, Awards
designed to comply with or take advantage of the applicable local laws of jurisdictions other than
the United States.

          12.3 Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a
monetary payment amount or payment range as determined by the Committee. Each Other Stock-Based
Award shall be expressed in terms of shares of Stock or units based on such shares of Stock, as
determined by the Committee. Subject to Section 5.3(b), the Committee may require the satisfaction
of such Service requirements, conditions, restrictions or performance criteria, including, without
limitation, Performance Goals as described in Section 10.4, as shall be established by the
Committee and set forth in the Award Agreement evidencing such Award. If the Committee exercises
its discretion to establish performance criteria, the final value of Cash-Based Awards or Other
Stock-Based Awards that will be paid to the Participant will depend on the extent to which the
performance criteria are met. The establishment of performance criteria with respect to the grant
or vesting of any Cash-Based Award or Other Stock-Based Award intended to result in
Performance-Based Compensation shall follow procedures substantially equivalent to those applicable
to Performance Awards set forth in Section 10.

          12.4 Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards. Payment or
settlement, if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall be made
in accordance with the terms of the Award, in cash, shares of Stock
or other securities or any combination thereof as the Committee determines. The determination
and certification of the final value with respect to any Cash-Based Award or Other Stock-Based
Award intended to result in Performance-Based Compensation shall comply with the requirements
applicable to Performance Awards set forth in Section 10. To the extent applicable, payment or
settlement with respect to each Cash-Based Award and Other Stock-Based Award shall be made in
compliance with the requirements of Section 409A.

          12.5 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Other Stock-Based Awards until the
date of the issuance of such shares of Stock (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such
Award. However, the Committee, in its discretion, may provide in the Award Agreement evidencing
any Other Stock-Based Award that the Participant shall be entitled to Dividend Equivalent Rights
with respect to the payment of cash dividends on Stock during the period beginning on the date such
Award is granted and ending, with respect to each share subject to the Award, on the earlier of the
date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights,
if any, shall be paid in accordance with the provisions set forth in Section 9.4. Dividend
Equivalent Rights shall not be granted with respect to Cash-Based Awards.

          12.6 Effect of Termination of Service. Each Award Agreement evidencing a Cash-Based Award or
Other Stock-Based Award shall set forth the extent to which the Participant shall have the right to
retain such Award following termination of the Participant’s

 

 

Service. Such provisions shall be determined in the sole discretion of the Committee, need
not be uniform among all Cash-Based Awards or Other Stock-Based Awards, and may reflect
distinctions based on the reasons for termination.

          12.7 Nontransferability of Cash-Based Awards and Other Stock-Based Awards. Prior to the
payment or settlement of a Cash-Based Award or Other Stock-Based Award, the Award shall not be
subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,
except transfer by will or by the laws of descent and distribution. The Committee may impose such
additional restrictions on any shares of Stock issued in settlement of Cash-Based Awards and Other
Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period
requirements, restrictions under applicable federal securities laws, under the requirements of any
stock exchange or market upon which such shares of Stock are then listed and/or traded, or under
any state securities laws applicable to such shares of Stock.

     13. Nonemployee Director Awards.

          From time to time, the Board or the Committee shall set the amount(s) and type(s) of
Nonemployee Director Awards that shall be granted to all Nonemployee Directors on a periodic,
nondiscriminatory basis pursuant to the Plan, as well as the additional amount(s) and type(s) of
Nonemployee Director Awards, if any, to be awarded, also on a periodic, nondiscriminatory basis, in
consideration of one or more of the following: (a) the initial election or appointment of an
individual to the Board as a Nonemployee Director, (b) a Nonemployee Director’s service as Chairman
or Lead Director of the Board, (c) a Nonemployee Director’s service as the chairman of a committee
of the Board, and (d) a Nonemployee Director’s service other than as the chairman of a committee of
the Board. The terms and conditions of each Nonemployee Director Award shall comply with the
applicable provisions of the Plan. Subject to the limits set forth in Section 5.3(b), Section
5.3(c) and the foregoing, the Board or the Committee shall grant Nonemployee Director Awards having
such terms and conditions as it shall from time to time determine.

     14. Standard Forms of Award Agreement.

          14.1 Award Agreements. Each Award shall comply with and be subject to the terms and
conditions set forth in the appropriate form of Award Agreement approved by the Committee and as
amended from time to time. No Award or purported Award shall be a valid and binding obligation of
the Company unless evidenced by a fully executed Award Agreement. Any Award Agreement may consist
of an appropriate form of Notice of Grant and a form of Agreement incorporated therein by
reference, or such other form or forms, including electronic media, as the Committee may approve
from time to time.

          14.2 Authority to Vary Terms. The Committee shall have the authority from time to time to
vary the terms of any standard form of Award Agreement either in connection with the grant or
amendment of an individual Award or in connection with the authorization of a new standard form or
forms; provided, however, that the terms and conditions of any such new,

 

 

revised or amended standard form or forms of Award Agreement are not inconsistent with the
terms of the Plan.

     15. Change in Control.

          15.1 Effect of Change in Control on Awards. Subject to the requirements and limitations of
Section 409A if applicable, the Committee may provide for any one or more of the following:

               (a) Accelerated Vesting. The Committee may, in its discretion, provide in any Award Agreement
or, in the event of a Change in Control, may take such actions as it deems appropriate to provide
for the acceleration of the exercisability, vesting and/or settlement in connection with such
Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant
thereto upon such conditions, including termination of the Participant’s Service prior to, upon, or
following such Change in Control, to such extent as the Committee shall determine.

               (b) Assumption, Continuation or Substitution. In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or other business entity or parent
thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, either
assume or continue the Company’s rights and obligations under each or any Award or portion thereof
outstanding immediately prior to the Change in Control or substitute for each or any such
outstanding Award or portion thereof a substantially equivalent award with respect to the
Acquiror’s stock, as applicable. For purposes of this Section, if so determined by the Committee,
in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following
the Change in Control, the Award confers the right to receive, subject to the terms and conditions
of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award
immediately prior to the Change in Control, the consideration (whether stock, cash, other
securities or property or a combination thereof) to which a holder of a share of Stock on the
effective date of the Change in Control was entitled; provided, however, that if such consideration
is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror,
provide for the consideration to be received upon the exercise or settlement of the Award, for each
share of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in
Fair Market Value to the per share consideration received by holders of Stock pursuant to the
Change in Control. If any portion of such consideration may be received by holders of Stock
pursuant to the Change in Control on a contingent or delayed basis, the Committee may, in its sole
discretion, determine such Fair Market Value per share as of the time of the Change in Control on
the basis of the Committee’s good faith estimate of the present value of the probable future
payment of such consideration. Any Award or portion thereof which is neither assumed or continued
by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of
consummation of the Change in Control shall terminate and cease to be outstanding effective as of
the time of consummation of the Change in Control.

               (c) Cash-Out of Outstanding Stock-Based Awards. The Committee may, in its discretion and
without the consent of any Participant, determine that, upon the
occurrence of a Change in Control, each or any Award denominated in shares of Stock or portion

 

 

thereof outstanding immediately prior to the Change in Control and not previously exercised or
settled shall be canceled in exchange for a payment with respect to each vested share (and each
unvested share, if so determined by the Committee) of Stock subject to such canceled Award in (i)
cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change
in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair
Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in
the Change in Control, reduced by the exercise or purchase price per share, if any, under such
Award. If any portion of such consideration may be received by holders of Stock pursuant to the
Change in Control on a contingent or delayed basis, the Committee may, in its sole discretion,
determine such Fair Market Value per share as of the time of the Change in Control on the basis of
the Committee’s good faith estimate of the present value of the probable future payment of such
consideration. In the event such determination is made by the Committee, the amount of such
payment (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect
of the vested portions of their canceled Awards as soon as practicable following the date of the
Change in Control and in respect of the unvested portions of their canceled Awards in accordance
with the vesting schedules applicable to such Awards.

          15.2 Effect of Change in Control on Nonemployee Director Awards. Subject to the requirements
and limitations of Section 409A, if applicable, in the event of a Change in Control, each
outstanding Nonemployee Director Award shall become immediately exercisable and vested in full and,
except to the extent assumed, continued or substituted for pursuant to Section 15.1(b), shall be
settled effective immediately prior to the time of consummation of the Change in Control.

          15.3 Federal Excise Tax Under Section 4999 of the Code.

               (a) Excess Parachute Payment. In the event that any acceleration of vesting pursuant to an
Award and any other payment or benefit received or to be received by a Participant would subject
the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization
of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section
280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of
any acceleration of vesting called for under the Award in order to avoid such characterization.

               (b) Determination by Independent Accountants. To aid the Participant in making any election
called for under Section 15.3(a), no later than the date of the occurrence of any event that might
reasonably be anticipated to result in an “excess parachute payment” to the Participant as
described in Section 15.3(a), the Company shall request a determination in writing by independent
public accountants selected by the Company (the “Accountants”). As soon as practicable thereafter,
the Accountants shall determine and report to the Company and the Participant the amount of such
acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit
to the Participant. For the purposes of such determination, the Accountants may rely on
reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Participant shall furnish to the Accountants such information and
documents as the Accountants
may reasonably request in order to make their required determination. The Company shall bear

 

 

all fees and expenses the Accountants may reasonably charge in connection with their services
contemplated by this Section.

     16. Compliance with Securities Law.

          The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject
to compliance with all applicable requirements of federal, state and foreign law with respect to
such securities and the requirements of any stock exchange or market system upon which the Stock
may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award
unless (a) a registration statement under the Securities Act shall at the time of such exercise or
issuance be in effect with respect to the shares issuable pursuant to the Award or (b) in the
opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in
accordance with the terms of an applicable exemption from the registration requirements of the
Securities Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the
lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite authority shall not
have been obtained. As a condition to issuance of any Stock, the Company may require the
Participant to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.

     17. Compliance with Section 409A.

          17.1 Awards Subject to Section 409A. The provisions of this Section 17 shall apply to any
Award or portion thereof that is or becomes subject to Section 409A, notwithstanding any provision
to the contrary contained in the Plan or the Award Agreement applicable to such Award. Awards
subject to Section 409A include, without limitation:

               (a) Any Nonstatutory Stock Option or SAR that permits the deferral of compensation other than
the deferral of recognition of income until the exercise of the Award.

               (b) Each Deferred Compensation Award.

               (c) Any Restricted Stock Unit Award, Performance Award, Cash-Based Award or Other Stock-Based
Award if either (i) the Award provides by its terms for settlement of all or any portion of the
Award on one or more dates following the Short-Term Deferral Period (as defined below) or (ii) the
Committee permits or requires the Participant to elect one or more dates on which the Award will be
settled.

     Subject to any applicable U.S. Treasury Regulations promulgated pursuant to Section 409A or
other applicable guidance, the term “Short-Term Deferral Period” means the period ending on the
later of (i) the 15th day of the third month following the end of the Company’s fiscal year in
which the applicable portion of the Award is no longer subject to a substantial risk of forfeiture
or (ii) the 15th day of the third month following the end of the
Participant’s taxable year in which the applicable portion of the Award is no longer subject
to a substantial risk of forfeiture. For this purpose, the term “substantial risk of forfeiture”
shall have

 

 

the meaning set forth in any applicable U.S. Treasury Regulations promulgated pursuant
to Section 409A or other applicable guidance.

          17.2 Deferral and/or Distribution Elections. Except as otherwise permitted or required by
Section 409A or any applicable U.S. Treasury Regulations promulgated pursuant to Section 409A or
other applicable guidance, the following rules shall apply to any deferral and/or distribution
elections (each, an “Election”) that may be permitted or required by the Committee pursuant to an
Award subject to Section 409A:

               (a) All Elections must be in writing and specify the amount of the distribution in settlement
of an Award being deferred, as well as the time and form of distribution as permitted by this Plan.

               (b) All Elections shall be made by the end of the Participant’s taxable year prior to the year
in which services commence for which an Award may be granted to such Participant; provided,
however, that if the Award qualifies as “performance-based compensation” for purposes of Section
409A and is based on services performed over a period of at least twelve (12) months, then the
Election may be made no later than six (6) months prior to the end of such period.

               (c) Elections shall continue in effect until a written election to revoke or change such
Election is received by the Company, except that a written election to revoke or change such
Election must be made prior to the last day for making an Election determined in accordance with
paragraph (b) above or as permitted by Section 17.3.

          17.3 Subsequent Elections. Except as otherwise permitted or required by Section 409A or any
applicable U.S. Treasury Regulations promulgated pursuant to Section 409A or other applicable
guidance, any Award subject to Section 409A which permits a subsequent Election to delay the
distribution or change the form of distribution in settlement of such Award shall comply with the
following requirements:

               (a) No subsequent Election may take effect until at least twelve (12) months after the date on
which the subsequent Election is made;

               (b) Each subsequent Election related to a distribution in settlement of an Award not described
in Section 17.4(b), 17.4(c) or 17.4(f) must result in a delay of the distribution for a period of
not less than five (5) years from the date such distribution would otherwise have been made; and

               (c) No subsequent Election related to a distribution pursuant to Section 17.4(d) shall be made
less than twelve (12) months prior to the date of the first scheduled payment under such
distribution.

     17.4 Distributions Pursuant to Deferral Elections. Except as otherwise permitted or required
by Section 409A or any applicable U.S. Treasury Regulations promulgated pursuant to Section 409A or
other applicable guidance, no distribution in settlement of an Award subject to Section 409A may
commence earlier than:

 

 

          (a) Separation from service (as determined by the Secretary of the United States Treasury);

          (b) The date the Participant becomes Disabled (as defined below);

          (c) Death;

          (d) A specified time (or pursuant to a fixed schedule) that is either (i) specified by the
Committee upon the grant of an Award and set forth in the Award Agreement evidencing such Award or
(ii) specified by the Participant in an Election complying with the requirements of Section 17.2
and/or 17.3, as applicable;

          (e) To the extent provided by the Secretary of the U.S. Treasury, a change in the ownership or
effective control or the Company or in the ownership of a substantial portion of the assets of the
Company; or

          (f) The occurrence of an Unforeseeable Emergency (as defined by applicable U.S. Treasury
Regulations promulgated pursuant to Section 409A).

     Notwithstanding anything else herein to the contrary, to the extent that a Participant is a
“Specified Employee” (as defined in Section 409A(a)(2)(B)(i) of the Code) of the Company, no
distribution pursuant to Section 17.4(a) in settlement of an Award subject to Section 409A may be
made before the date (the “Delayed Payment Date”) which is six (6) months after such Participant’s
date of separation from service, or, if earlier, the date of the Participant’s death. All such
amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date shall
be accumulated and paid on the Delayed Payment Date.

          17.5 Unforeseeable Emergency. The Committee shall have the authority to provide in the Award
Agreement evidencing any Award subject to Section 409A for distribution in settlement of all or a
portion of such Award in the event that a Participant establishes, to the satisfaction of the
Committee, the occurrence of an Unforeseeable Emergency. In such event, the amount(s) distributed
with respect to such Unforeseeable Emergency cannot exceed the amounts necessary to satisfy such
Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of
such distribution(s), after taking into account the extent to which such hardship is or may be
relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the
Participant’s assets (to the extent the liquidation of such assets would not itself cause severe
financial hardship) or by cessation of deferrals under the Award. All distributions with respect
to an Unforeseeable Emergency shall be made in a lump sum as soon as practicable following the
Committee’s determination that an Unforeseeable Emergency has occurred.

     The occurrence of an Unforeseeable Emergency shall be judged and determined by the Committee.
The Committee’s decision with respect to whether an Unforeseeable Emergency has occurred and the
manner in which, if at all, the distribution in settlement of an Award shall be altered or
modified, shall be final, conclusive, and not subject to approval or appeal.

 

 

          17.6 Disabled. The Committee shall have the authority to provide in any Award subject to
Section 409A for distribution in settlement of such Award in the event that the Participant becomes
Disabled. A Participant shall be considered “Disabled” if either:

               (a) the Participant is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result in death or
can be expected to last for a continuous period of not less than twelve (12) months, or

               (b) the Participant is, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a continuous period of not
less than twelve (12) months, receiving income replacement benefits for a period of not less than
three (3) months under an accident and health plan covering employees of the Participant’s
employer.

     All distributions payable by reason of a Participant becoming Disabled shall be paid in a lump
sum or in periodic installments as established by the Participant’s Election, commencing as soon as
practicable following the date the Participant becomes Disabled. If the Participant has made no
Election with respect to distributions upon becoming Disabled, all such distributions shall be paid
in a lump sum as soon as practicable following the date the Participant becomes Disabled.

          17.7 Death. If a Participant dies before complete distribution of amounts payable upon
settlement of an Award subject to Section 409A, such undistributed amounts shall be distributed to
his or her beneficiary under the distribution method for death established by the Participant’s
Election as soon as administratively possible following receipt by the Committee of satisfactory
notice and confirmation of the Participant’s death. If the Participant has made no Election with
respect to distributions upon death, all such distributions shall be paid in a lump sum as soon as
practicable following the date of the Participant’s death.

          17.8 No Acceleration of Distributions. Notwithstanding anything to the contrary herein, this
Plan does not permit the acceleration of the time or schedule of any distribution under an Award
subject to Section 409A, except as provided by Section 409A and/or the Secretary of the U.S.
Treasury.

 

 

     18. Tax Withholding.

          18.1 Tax Withholding in General. The Company shall have the right to deduct from any and all
payments made under the Plan, or to require the Participant, through payroll withholding, cash
payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes,
if any, required by law to be withheld by the Participating
Company Group with respect to an Award or the shares acquired pursuant thereto. The Company
shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow
established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the
Participating Company Group’s tax withholding obligations have been satisfied by the Participant.

          18.2 Withholding in Shares. The Company shall have the right, but not the obligation, to
deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an
Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a
Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding
obligations of the Participating Company Group. The Fair Market Value of any shares of Stock
withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount
determined by the applicable minimum statutory withholding rates.

     19. Amendment or Termination of Plan.

          The Committee may amend, suspend or terminate the Plan at any time. However, without the
approval of the Company’s stockholders, there shall be (a) no increase in the maximum aggregate
number of shares of Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.4), (b) no change in the class of persons eligible to receive Incentive Stock Options,
and (c) no other amendment of the Plan that would require approval of the Company’s stockholders
under any applicable law, regulation or rule, including the rules of any stock exchange or market
system upon which the Stock may then be listed. No amendment, suspension or termination of the
Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as
provided by the next sentence, no amendment, suspension or termination of the Plan may adversely
affect any then outstanding Award without the consent of the Participant. Notwithstanding any
other provision of the Plan to the contrary, the Committee may, in its sole and absolute discretion
and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect
retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the
Plan or such Award Agreement to any present or future law, regulation or rule applicable to the
Plan, including, but not limited to, Section 409A.

     20. Miscellaneous Provisions.

          20.1 Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase
options, or other conditions and restrictions as determined by the Committee in its discretion at
the time the Award is granted. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to one or more persons
as may be selected by the Company. Upon request by the Company, each Participant shall execute any
agreement evidencing such transfer restrictions prior to the receipt

 

 

of shares of Stock hereunder
and shall promptly present to the Company any and all certificates representing shares of Stock
acquired hereunder for the placement on such certificates of appropriate legends evidencing any
such transfer restrictions.

          20.2 Forfeiture Events.

               (a) The Committee may specify in an Award Agreement that the Participant’s rights, payments,
and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or
recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting
or performance conditions of an Award. Such events may include, but shall not be limited to,
termination of Service for Cause or any act by a Participant, whether before or after termination
of Service, that would constitute Cause for termination of Service.

               (b) If the Company is required to prepare an accounting restatement due to the material
noncompliance of the Company, as a result of misconduct, with any financial reporting requirement
under the securities laws, any Participant who knowingly or through gross negligence engaged in the
misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any
Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the
Sarbanes-Oxley Act of 2002, shall reimburse the Company the amount of any payment in settlement of
an Award earned or accrued during the twelve- (12-) month period following the first public
issuance or filing with the United States Securities and Exchange Commission (whichever first
occurred) of the financial document embodying such financial reporting requirement.

          20.3 Provision of Information. Each Participant shall be given access to information
concerning the Company equivalent to that information generally made available to the Company’s
common stockholders.

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

          20.5 Rights as a Stockholder. A Participant shall have no rights as a stockholder with
respect to any shares covered by an Award until the date of the issuance of such shares (as
evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date such shares are issued, except as provided in
Section 4.4 or another provision of the Plan.

 

 

          20.6 Delivery of Title to Shares. Subject to any governing rules or regulations, the Company
shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall
deliver such shares to or for the benefit of the Participant by means of one or more of the
following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to
the account of the Participant, (b) by depositing such shares of Stock for the
benefit of the Participant with any broker with which the Participant has an account
relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.

          20.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise or settlement of any Award.

          20.8 Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or
cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the
benefits payable to any Participant under any Participating Company’s retirement plans (both
qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides
that such compensation shall be taken into account in computing a Participant’s benefit.

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

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

          20.11 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a)
limit, impair, or otherwise affect the Company’s or another Participating Company’s right or power
to make adjustments, reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of
its business or assets; or (b) limit the right or power of the Company or another Participating
Company to take any action which such entity deems to be necessary or appropriate.

          20.12 Unfunded Obligation. Participants shall have the status of general unsecured creditors
of the Company. Any amounts payable to Participants pursuant to the Plan shall be unfunded and
unsecured obligations for all purposes, including, without limitation,

 

 

Title I of the Employee
Retirement Income Security Act of 1974. No Participating Company shall be required to segregate
any monies from its general funds, or to create any trusts, or establish any special accounts with
respect to such obligations. The Company shall retain at all times beneficial ownership of any
investments, including trust investments, which the Company
may make to fulfill its payment obligations hereunder. Any investments or the creation or
maintenance of any trust or any Participant account shall not create or constitute a trust or
fiduciary relationship between the Committee or any Participating Company and a Participant, or
otherwise create any vested or beneficial interest in any Participant or the Participant’s
creditors in any assets of any Participating Company. The Participants shall have no claim against
any Participating Company for any changes in the value of any assets which may be invested or
reinvested by the Company with respect to the Plan.

          20.13 Choice of Law. Except to the extent governed by applicable federal law, the validity,
interpretation, construction and performance of the Plan and each Award Agreement shall be governed
by the laws of the State of California, without regard to its conflict of law rules.exv10w1

 

Exhibit 10.1

[IDENIX LETTERHEAD]

June 8th, 2007

CONFIDENTIAL

Ronald C. Renaud, Jr.

19 Radcliffe Road

Wellesley, MA 02482

Dear Ron:

On behalf of Idenix Pharmaceuticals, Inc. (“Idenix”), I am pleased to offer you the position of
Chief Financial Officer and Treasurer, reporting to Dr. Jean-Pierre Sommadossi, Chief Executive
Officer and Chairman of the Board. The terms of your employment are set forth below.

	1.	 	Commencement: Your employment will commence on or about a date mutually agreed upon
by yourself and Jean-Pierre Sommadossi, but with a tentative start date of June 29, 2007.
Upon commencement of your employment, you may expect that the Board will elect you as an
executive officer of Idenix and that you will be thereafter an “officer” of Idenix within the
meaning of Rule 16a-1(f) under the Securities Exchange Act and an “executive officer” within
the meaning of Rule 3b-7 under the Exchange Act.

	2.	 	Base Salary: Your semi-monthly salary will be $14,166.67 (equivalent to an annual
rate of $340,000), subject to applicable withholding and payable in accordance with normal
payroll practices of Idenix. The Base Salary shall be reviewed annually for
additional increases, if any, which is the sole discretion of the Idenix Board of Directors.
After any such increase, the term “Base Salary” as utilized herein shall thereafter refer to
the increased amount. Base Salary shall not be reduced at any time without your express prior
written consent.

	3.	 	Equity: After the commencement of your employment, we will recommend that you be
awarded options to purchase 225,000 shares of common stock of Idenix Pharmaceuticals Inc., the
publicly traded parent company of Idenix. The exercise price of such option will be the
current fair market value of Idenix’s common stock on the date of grant. Shortly after the
Chief Executive Officer acts upon such recommendation, you will receive a copy of the equity
plan agreement. Except as otherwise contemplated and provided by paragraph 8B hereof, the
option will vest ratably over a 48-month period beginning on the last day of the month in
which your employment commences. In addition, you shall have annual performance targets and
opportunities to be awarded additional equity awards and incentives. Such awards may include
stock options, restricted stock grants and other equity linked incentives. The actual type of
award and number of shares to be awarded under such target equity opportunity shall be subject
to annual approval by the Board and conditioned upon the achievement of annual performance
targets established by the Board. Currently, it is anticipated that the target equity award
would be comprised of an annual grant of options to purchase 40,000 shares of Idenix’s common
stock on terms and conditions with respect to exercise price and vesting

B-1

 

substantially similar to the initial “new hire” grant described above. Any award granted for
fiscal year 2007 will be pro-rated according to your date of hire.

	4.	 	Benefits: Upon the commencement of your employment, you will be eligible to
participate in all benefit plans Idenix provides generally to its senior level executives,
subject to, and on a basis consistent with, the participation requirements and other terms and
conditions of such plans and programs. Such programs currently include medical, dental,
disability, life insurance and a 401(k) plan. You will be eligible to accrue four weeks of
vacation per calendar year and such vacation carryover as is set forth in the policy approved
by the Board. Paid time off will be prorated according to your date of hire.

	5.	 	Location: This position is based at Idenix’ offices in Cambridge, Massachusetts.

	6.	 	Sign-on Bonus: In connection with your commencement of employment, Idenix will pay to
you within the first 30 days of your employment, a lump sum amount of $400,000. Such amount
will be included and reported as bonus income on 2007 Form W-2 and will be subject to
applicable withholding taxes. You agree that if you voluntarily terminate your employment
with Idenix or are terminated by Idenix for cause during the 24 month period immediately
following the commencement of your employment such amount will be repayable in whole or part
to Idenix. Specifically, if you voluntarily terminate your employment or Idenix terminates
your employment for cause on or prior to the 1st anniversary of your employment
commencement, you will be liable for repayment of 100% of such amount. If you voluntarily
terminate your employment or Idenix terminates your employment for cause after the 1st
anniversary but on or prior to the 2nd anniversary of your employment commencement, you will
be liable for repayment of 50% of such amount.

	7.	 	Incentive based compensation: In your role as Chief Financial Officer and Treasurer,
you are eligible for an annual target cash bonus (“Target Bonus”) equal to 50% of your Base
Salary. The actual cash bonus may range from 0% to a maximum aggregate amount of 200% of the
target bonus, with any bonus for fiscal year 2007 being pro-rated according to your hire date.
Your Target Bonus as a percentage of Base Salary may, at the discretion of the Board, be
periodically reviewed for increase. After any such increase, the term “Target Bonus” as used
herein shall thereafter refer to the increased amount. The Target Bonus shall not be reduced
at any time without your express prior written consent.

	8.	 	Termination: You and Idenix each agree that your employment with Idenix is that of an
employee at will. Both you and Idenix have the right to terminate your employment at any time
for any or no reason, subject to the consequences provided herein.

	A)	 	In the event Idenix terminates your employment for reasons other than Cause (as defined in
Appendix A hereto), or you terminate your employment for Good Reason (as defined on
Appendix A hereto), within the first year of your employment with Idenix, you will be
entitled to receive the following:

	 	1.	 	A lump sum payment equivalent to six months of Base Salary, less any and all
applicable taxes and withholdings.

	 	2.	 	All equity awards will be handled in accordance with Idenix Pharmaceuticals,
Inc. Stock Incentive Plan

B-2

 

	 	3.	 	Provided you timely elect and remain eligible for benefits continuation
pursuant to the federal “COBRA” laws, continued payment by Idenix of premiums for you
(and your covered dependents) under the group health, dental, disability and life
insurance coverage at the active employee rates for a period of 6 months subsequent to
the date of your termination. Any such payments and related coverage shall be
discontinued in the event that you obtain substantially equivalent substitute coverage
from another employer or provider during such 6 month period.

	B)	 	In the event Idenix terminates your employment for reasons other than Cause (as defined in
Appendix A hereto) or you terminate your employment for Good Reason (as defined on
Appendix A hereto) after you have completed one year of employment with Idenix, you
will be entitled to receive the following:

	 	1.	 	Lump sum payment equivalent to one year of Base Salary and the greater of: (i)
the Target Bonus; or (ii) the bonus you earned in the year preceding the year in which
the termination of your employment occurs, less any and all applicable taxes and
withholdings;

	 	2.	 	Immediate vesting and exercisability of all outstanding equity awards; and

	 	3.	 	Provided you timely elect and remain eligible for benefits continuation
pursuant to the federal “COBRA” laws, continued payment by Idenix of premiums for you
(and your covered dependents) under the group health, dental, disability and life
insurance coverage at the active employee rates for a period of 12 months subsequent to
the date of your termination. Any such payments and related coverage shall be
discontinued in the event that you obtain substantially equivalent substitute coverage
from another employer or provider during such 12 month period.

	C)	 	The obligation of Idenix to make the payments and provide the benefits described in paragraph
A and B above are conditioned upon the execution, delivery and honor by you of a release of
claims upon the termination of your employment. The form of waiver and release of claims is
set forth as Appendix B to this letter. In addition, in exchange for the payments and
benefits described above you agree that for a period of one year following the termination of
employment, you shall not, without express prior written approval of Idenix, directly or
indirectly, knowingly solicit any employee of Idenix or any of its affiliates, to leave the
employ of such entity.

	9.	 	Termination Within One Year After a Change in Control. If your employment is
terminated by Idenix (or any successor to Idenix) without Cause or you terminate your
employment for Good Reason, in each case within one (1) year following a Change in Control (as
defined in Appendix A hereto) in addition to the payments, benefits and entitlements provided
pursuant to Paragraph 8 hereof, you shall also be entitled to an additional lump-sum amount
equivalent to one year of Base Salary and the greater of your Target Bonus or the actual bonus
for the year preceding the year in which termination of employment occurs, payable as soon as
practicable following the termination of employment.

	 	A.	 	Excise Tax Provision. Anything herein to the contrary
notwithstanding, to the extent that any payment, entitlement or benefit provided under
this Agreement or any other agreement, plan, policy, program or arrangement of the
Company (the “Payments”) would be subject to the imposition of the excise tax imposed
under Section 4999 of the Internal Revenue Code of

B-3

 

1986, as amended (the “Code”), or any similar Federal or state law (an “Excise Tax”),
the Payments shall be reduced (but not below zero) to the maximum amount as will result
in no portion of the Payments being subject to such Excise Tax (the “Safe Harbor Cap”),
but only if the net after-tax amount that would be received by the Employee, taking into
account all applicable Federal, state and local income taxes and the imposition of the
Excise Tax, is greater than the net after-tax amount, similarly determines, that would
be received by the Employee if Payments are not reduced to the Safe Harbor Cap. Unless
the Employee has given prior written notice specifying a different order to the Company
to effectuate the reductions described in the preceding sentence, the Company shall
reduce or eliminate the Payments to the Safe Harbor Cap, by first reducing or
eliminating those payments or benefits which are not payable in cash and then by
reducing or eliminating cash payments. Any notice given by the Employee pursuant to the
preceding sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing the Employee’s rights and entitlements to any
benefit, entitlement or compensation.

	10.	 	Section 409 A Treatment: If any payment, compensation or other benefits provided to
you in connection with your employment termination is determined, in whole or in part, to
constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code
and you are a specified employee as defined in Section 409A(2)(B)(i), no part of such payments
shall be paid before the day that is six (6) months plus one (1) day after the date of
termination (the “New Payment Date”) if necessary to avoid adverse treatment under Section
409A of the Code. The aggregate of any payments that otherwise would have been paid to you
during the period between the date of termination and the New Payment Date shall be paid to
you in a lump sum on such New Payment Date. Thereafter, any payments that remain outstanding
as of the day immediately following the New Payment Date shall be paid without delay over the
time period originally scheduled, in accordance with the terms of this letter agreement.

	11.	 	Disclosure of Inventions: This offer is conditioned on your agreement, that as an
employee of Idenix, you will make full and prompt disclosure to Idenix of all inventions,
improvements, modifications, discoveries, creations, methods, processes and developments which
are created, made, or reduced to practice by you alone, under your direction or with others in
connection with or relating to Idenix’s then present or planned business or research and
development activities during the term of your employment, whether or not such developments
are patentable or protected as confidential information, and whether or not such developments
are made or conceived during normal working hours or on or off the premises of Idenix (all of
which are hereinafter collectively termed “Developments”).

	12.	 	Assignment of Inventions: By your acceptance of this offer of employment, you agree
to assign and do hereby assign to Idenix all your title, interests and rights, including,
without limitation, intellectual property rights, in and to any and all Developments, and you
agree to assign to Idenix any and all patents and patent applications arising from such
Developments, and to execute and deliver such assignments, patents and patent applications and
other documents (including, without limitation, power of attorney) as Idenix may direct.
Additionally, you agree to cooperate fully with Idenix both during and after the term of your
employment, to enable Idenix to secure and maintain rights in said Developments assigned to
Idenix in any and all countries. In the event that any of such Developments are by operation
of applicable law

B-4

 

	 	 	excluded from this assignment, you agree that Idenix shall have a non-exclusive, fully paid
license to use for all purposes any such Developments not assigned to Idenix.
	 
	13.	 	No Conflict: By your acceptance of this offer of employment, you hereby represent
that you are not bound by the terms of any agreement with any previous employer or other
party to refrain from competing, directly or indirectly, with the business of such previous
employer or any other party. You further represent that your acceptance of this offer of
employment and employment by Idenix does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by you in confidence or in
trust prior to your employment with Idenix.

	14.	 	Nonsolicitation of employees: By your acceptance of this offer of employment, you
shall not, without the express prior written approval of the Company, either directly or
indirectly, knowingly solicit any employee of the Company or it’s affiliates (or any employee
who was employed by the Company or any of it’s affiliates at any time within your employment
with the Company and a period of one year following the termination of your employment.

	15.	 	Noncompetition: In consideration of your employment by the Company according to the
terms of this offer, you shall not, without the express written approval of the Company,
engage in a “Competitive Business”, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any
relationship or capacity, in any geographic location in which the Company or any of it’s
Affiliates is engaged in business during your employment and a period of one (1) year after
termination in the event Idenix terminates your employment for reasons other than Cause, or
you terminate your employment for Good Reason. For purposes of this offer, the term
“Competitive Business” shall mean a commercial, for profit entity that discovers, develops
and commercializes therapeutics for the treatment of HBV, HCV and HIV.

	16.	 	Confidential Information of Prior Employers: You shall not use or disclose to
Idenix any information in violation of any agreements with or rights of any prior employer,
nor shall you use or provide to Idenix or bring to the premises of Idenix, any copies or
tangible embodiments of non-public information belonging to or obtained from any such prior
agreement.

In the position of Chief Financial Officer and Treasurer, you will have access to valuable,
confidential and proprietary information. Accordingly, as a condition to commencing employment with
Idenix, you will be required to enter into a confidentiality and non-disclosure agreement in
standard form regarding the nondisclosure and nonuse of such valuable, confidential and proprietary
information. This offer is contingent upon conducting a successful background check.

B-5

 

If you agree with the above terms, please sign both copies of this letter indicating your
acceptance and return one copy to me at your earliest convenience but in any event no later than
June 11, 2007. The second copy of this letter is for your records. This offer of employment will
expire on June 12, 2007.

Very
truly yours,

/s/ Paul Fanning                                 

Paul Fanning

V.P., Human Resources

ACCEPTED
as of this 13th day of June, 2007

/s/
Ronald C. Renaud, Jr.                    

Ronald C. Renaud, Jr.

B-6

 

Appendix A

“Change in Control” shall mean:

     (i) any “person,” as such term is used in Sections 3(a)(9) and 13(d) of the
Securities Exchange Act of 1934, becomes a “beneficial owner,” as such term is used
in Rule 13d-3 promulgated under that act, of fifty percent (50%) or more of the
Voting Stock of the Company, or Novartis Pharma AG disposes of its entire interest
in the Company’s Voting Stock;

     (ii) the Company adopts any plan of liquidation providing for the distribution
of all or substantially all of its assets;

     (iii) all or substantially all of the assets or business of the Company is
disposed of pursuant to a merger, consolidation or other transaction (unless the
shareholders of the Company immediately prior to such merger, consolidation or other
transaction beneficially own, directly or indirectly, at least fifty percent (50%)
of the Voting Stock or other ownership interests of the entity or entities, if any,
that succeed to the business of the Company); or

     (iv) the Company combines with another company and is the surviving corporation
but, immediately after the combination, the shareholders of the Company immediately
prior to the combination hold, directly or indirectly, fifty percent (50%) or less
of the Voting Stock of the combined company (there being excluded from the number of
shares held by such shareholders, but not from the Voting Stock of the combined
company, any shares received by affiliates of such other company in exchange for
stock of such other company).

     For purposes of this definition of “Change in Control” the “Company” shall include any entity
that succeeds to all or substantially all of the business of the Company and “Voting Stock” shall
mean securities of any class or classes having general voting power under ordinary circumstances,
in the absence of contingencies, to elect the directors of a corporation.

“Good Reason” to terminate your employment with Idenix shall be deemed to exist if, there
is: (i) any adverse change in your title or a material diminution in your authority or
responsibilities; (ii) a reduction in your Base Salary, the Target Bonus or target equity amount;
or (iii) the primary place of your employment is relocated by Idenix to a location more than 40
miles from Cambridge, Massachusetts.

“Termination for Cause” shall be the result of: (i) willful fraud or willful material
dishonesty in connection with the Employee’s employment by the Company; (ii) intentional failure by
the Employee to substantially perform the Employee’s duties hereunder or gross neglect in the
performance of such duties; (iii) gross misconduct by the Employee that is materially detrimental
to the Company’s reputation, goodwill or business operations; (iv) a breach of any of the
Employee’s covenants; or (v) the conviction of, or plea of nolo contendere to, a
charge of commission of a felony; provided that prior to any Termination for Cause Employee is
given written notice with specificity of any such reasons and a reasonable opportunity to cure if
such a cure is reasonably possible..

B-7

 

Appendix B

Executive’s Release of Claims

AGREEMENT AND RELEASE

     THIS AGREEMENT AND RELEASE is executed by ___(the “Executive”)
releasing certain claims against Idenix Pharmaceuticals, Inc., a corporation domesticated under the
laws of the State of Delaware (together with its successors and assigns, the “Company”),
and certain affiliated parties.

     WHEREAS,
the Executive and the Company have entered into an letter agreement
as of ___ ___,
2007 (the “Letter Agreement”);

     WHEREAS, the Executive’s employment with the Company has terminated and as such the Executive
is due certain payments and entitlements pursuant to the Letter Agreement subject to the
Executive’s executing this Agreement and Release.

     NOW, THEREFORE, in consideration of the payments set forth in paragraph 9 of the Letter
Agreement and other good and valuable consideration, the Executive agrees as follows:

          1. The Executive, on behalf of himself and his dependents, heirs, administrators, agents,
executors, successors and assigns, hereby releases and forever discharges the Company and all of
its current and former subsidiaries, joint venturers, affiliates and executive benefit plans, and
all of their respective directors, officers, trustees, employees, successors and assigns
(collectively, the “Released Parties”), from any and all charges, controversies, claims,
wages, rights, agreements, actions, costs or expenses, causes of action, obligations, damages,
losses, promises and liabilities of whatever kind or nature, in law or equity or otherwise, whether
known or unknown, suspected or unsuspected, from the beginning of time to the date the Executive
executes this Agreement and Release, including, but not limited to, any and all claims arising out
of, or relating to, the Executive’s employment with the Company or any affiliate, or the
termination thereof, including, but not limited to, claims under the Age Discrimination in
Employment Act (ADEA), as amended by the Older Workers’ Benefit Protection Act (OWBPA) or any state
counterpart, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Equal Pay
Act, the Sarbanes-Oxley Act, the Americans With Disabilities Act of 1990 (ADA), the Fair Credit
Reporting Act, the Employee Retirement Income Security Act of 1974 (ERISA) ,the Family and Medical
Leave Act (FMLA), the Massachusetts Fair Employment Practices Act., the Massachusetts Civil Rights
Act, the Massachusetts Equal Rights Act, the Massachusetts Labor and Industries Act, the
Massachusetts Privacy Act, and the Massachusetts Maternity Leave Act, all as amended, all claims of
discrimination, retaliation or harassment under any applicable state law or any local, state or
federal law or regulation governing discrimination in employment; all claims under state contract
or tort law such as wrongful termination, assault, invasion of privacy, breach of the implied
covenant of good faith and fair dealing, defamation or negligent or intentional infliction of
emotional distress and all claims for attorneys’ fees.

B-8

 

          Anything to the contrary notwithstanding in this Agreement and Release, nothing herein shall
release any Released Party from any claims or damages based on (i) any right or claim that arises
after the date of this Agreement and Release, (ii) any right the Executive may have to enforce
paragraphs 2, 3 and 9 of the Letter Agreement or this Agreement and Release, (iii) any right the
Executive may have to benefits or entitlements under any applicable plan, policy, program, award or
agreement of the Company or any Affiliate, or (iv) the Executive’s eligibility for indemnification
in accordance with applicable laws or the Company’s restated certificate of incorporation, as
amended, or by-laws, or under any applicable insurance policy with respect to any liability the
Executive incurs or has incurred as an officer of the Company.

          2. The Executive expressly acknowledges and agrees that this Agreement and Release fully and
finally releases and fully resolves any and all disputes between him and any Released Party with
respect to the claims released herein, including those that are unknown, unanticipated or
unsuspected or which may hereafter arise as a result of the discovery of new or additional facts.

          3. The Executive understands and agrees that by entering into this Agreement, he is waiving
any and all rights or claims he might have under the Age Discrimination in Employment Act, as
amendment by the Older Workers Benefits Protection Act, and that he has received consideration
beyond that to which he was previously entitled. The Executive acknowledges that he has been
provided a period of at least twenty-one (21) calendar days in which to consider and execute this
Agreement and Release. The Executive further acknowledges and understands that he has seven
calendar days from the date on which he executes this Agreement and Release to revoke his
acceptance of this Agreement and Release by delivering to the Company written notification of his
intention to revoke this Agreement and Release. If the Executive so revokes his agreement to this
Agreement and Release he shall not be entitled to the payments, benefits and other entitlements
provided pursuant to paragraph 9 of the Letter Agreement that are conditioned on him executing this
Agreement and Release. This Agreement and Release becomes effective when signed by the Executive
unless revoked in writing in accordance with this seven-day provision. To the extent that the
Executive has not otherwise done so, the Executive is advised to consult with an attorney prior to
executing this Agreement and Release.

     IN WITNESS WHEREOF, the Executive has executed this Agreement and Release as of the date
written below.

                                                            

Executive

Date: ____________________

B-9

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