Document:

Exhibit 4.1

 

EMRISE CORPORATION

 

2007 STOCK
INCENTIVE PLAN

 

The purpose of the Plan is to promote the success and
enhance the value of the Company by linking the personal interests of the
members of the Board, Employees, and Consultants to those of the Company’s
stockholders and by providing such individuals with an incentive for
outstanding performance to generate superior returns to the Company’s
stockholders. The Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract, and retain the services of members
of the Board, Employees, and Consultants upon whose judgment, interest, and
special effort the successful conduct of the Company’s operation is largely
dependent.

 

ARTICLE I

DEFINITIONS

 

Wherever the following terms are used in the Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise. The singular pronoun shall include the plural where the context so
indicates.

 

1.1           “Administrator” shall mean the entity that
conducts the general administration of the Plan as provided herein. With
reference to the administration of the Plan with respect to Awards granted to
Independent Directors, the term “Administrator” shall refer to the Board. With
reference to the administration of the Plan with respect to any other Award,
the term “Administrator” shall refer to the Committee unless the Board has
assumed the authority for administration of the Plan generally as provided in Section 11.2.
With reference to the duties of the Committee under the Plan that have been
delegated to one or more persons pursuant to Section 11.5, the term
“Administrator” shall refer to such person(s) unless the Committee or the
Board has revoked such delegation.

 

1.2           “Award” shall mean an Option, a Restricted
Stock award, a Restricted Stock Unit award, a Performance Award, a Stock
Payment award or a Stock Appreciation Right, that may be awarded or granted
under the Plan (collectively, “Awards”).

 

1.3           “Award Agreement” shall mean a written
agreement executed by an authorized officer of the Company and the Holder that
shall contain such terms and conditions with respect to an Award as the
Administrator shall determine, consistent with the Plan.

 

1.4           “Award Limit” shall mean 500,000 shares of
Common Stock, as adjusted pursuant to Section 12.3.

 

1.5           “Board” means the board of directors of the
Company.

 

1.6           “Cause” shall mean “cause” or “due cause” as
defined in a Holder’s employment or consulting agreement with the Company or a
Subsidiary, if any, or if not defined therein, shall have the meaning set forth
in a written agreement between the Company and the Holder relating to an Award,
or if not defined therein, shall mean (i) acts or omissions by the Holder
that constitute intentional material misconduct or a knowing violation of a
material policy of the Company or a Subsidiary, (ii) the Holder personally
receiving a benefit in money, property or services from the Company or a
Subsidiary or from another person dealing with the Company or a Subsidiary in
material violation of applicable law or Company policy, (iii) an act of
fraud, conversion, misappropriation or embezzlement by the Holder or his 

 

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conviction of, or
entering a guilty plea or plea of no contest with respect to, a felony, or the
equivalent thereof (other than driving under the influence) or (iv) any
material misuse or improper disclosure of confidential or proprietary
information of the Company or a Subsidiary. A termination for Cause may also
include any resignation in anticipation of discharge for Cause or resignation
accepted by the Company in lieu of a formal discharge for Cause.

 

1.7           “Change in Control” means the
occurrence of any of the following events:

 

(a)           the acquisition, directly or indirectly, by any “person”
or “group” (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of
the Exchange Act and the rules thereunder) of “beneficial ownership” (as
determined pursuant to Rule 13d-3 under the Exchange Act) of securities
entitled to vote generally in the election of directors (“voting securities”)
of the Company that represent 40%
or more of the combined voting power of the Company’s then outstanding voting
securities or 50% or more of the combined Fair Market Value of the Company’s
then outstanding stock, other than:

 

(i)            an acquisition by a trustee or other fiduciary holding
securities under any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the Company or by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company, or

 

(ii)           an acquisition of voting securities by the Company or
a corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of the stock of the
Company.

 

provided, however, that
notwithstanding the foregoing, an acquisition of the Company’s securities by
the Company that (x) causes the Company’s voting securities beneficially
owned by a person or group to represent 40%
or more of the combined voting power of the Company’s then outstanding voting
securities or (y) cause the Company’s stock beneficially owned by a person
or group to represent 50% or more of the combined Fair Market Value of the
Company’s then outstanding stock shall not be considered an acquisition by any
person or group for purposes of this subsection (a); provided, however, that if
a person or group shall become the beneficial owner of 40% or more of the combined voting power of the Company’s then
outstanding voting securities or 50% or more of the combined Fair Market Value
of the Company’s then outstanding stock by reason of share acquisitions by the
Company as described above and shall, after such share acquisitions by the
Company, become the beneficial owner of any additional securities of the
Company, then such acquisition shall constitute a Change in Control;

 

(b)           the date a majority of members of the Board is
replaced during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of the Board before the date of
the appointment or election, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board;

 

(c)           the acquisition by any “person” or “group” (as those
terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Exchange
Act and the rules thereunder), or combined acquisitions during the
12-month period ending on the date of the most recent acquisition by such
person or group, of ownership of assets from the Company that have a total
gross fair market 

 

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value equal to or more
than 40% of the total gross fair market value of all of the assets of the
Company immediately before such acquisition; and

 

(d)           stockholder approval of a complete liquidation or
dissolution of the Company.

 

For purposes of
subsection (a) above, the calculation of voting power shall be made as if
the date of the acquisition were a record date for a vote of the Company’s
stockholders, and for purposes of subsection (c) above, the calculation of
voting power shall be made as if the date of the consummation of the
transaction were a record date for a vote of the Company’s stockholders.

 

Notwithstanding the
foregoing, there is no Change in Control event under this Section 1.7
when there is a transfer to an entity that is controlled by the stockholders of
the Company immediately after the transfer. 
A transfer of assets by the Company is not treated  as a Change in Control if the assets are
transferred to:

 

(i)  a stockholder
of the Company (immediately before the asset transfer) in exchange for or with
respect to the stockholders’ stock;

 

(ii)  an entity, 50%
or more of the total value or voting power of which is owned, directly or
indirectly, by the Company;

 

(iii)  a person or
group that owns, directly or indirectly, 50% or more of the total value or
voting power of all the outstanding stock of the Company; or

 

(iv)  an entity, at
least 50% of the total value or voting power of which is owned, directly or
indirectly, by a person or group described in (iii) above.

 

1.8           “Code” shall mean the Internal Revenue Code of
1986, as amended.

 

1.9           “Committee” shall mean the Compensation
Committee of the Board, or another committee or subcommittee of the Board,
appointed as provided in Section 11.2.

 

1.10         “Common Stock” shall mean the common stock of
the Company, par value $0.0033 per share.

 

1.11         “Company” means EMRISE Corporation, a Delaware
corporation.

 

1.12         “Consultant” shall mean any consultant or adviser
if: (a) the consultant or adviser renders bona fide services to the
Company; (b) the services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market for
the Company’s securities; and (c) the consultant or adviser is a natural
person who has contracted directly with the Company to render such services.

 

1.13         “Director” shall mean a member of the Board.

 

1.14         “DRO” shall mean a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.

 

1.15         “Employee” shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code)
of the Company, or of any corporation that is a Subsidiary.

 

1.16         “Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.

 

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1.17         “Fair Market Value” of a share of Common Stock
as of a given date shall be: (a) if the Common Stock is listed or admitted
for trading on any United States national securities exchange and/or is quoted
on a system of automated dissemination of quotations of securities prices in
common use, the last reported sale price of a share of Common Stock on the
principal exchange or system on which shares of Common Stock are trading on
such date (or if no sale occurred on such date, then on the next preceding date
on which a trade occurred); provided, however, that if the Common Stock is not
a last sale reported security, then the Fair Market Value shall be the average
of the closing high bid and low asked quotations for a share of Common Stock on
such principal exchange or system on such date (or if bid and asked prices were
not both reported on such date, then on the next preceding date on which bid
and asked prices were both reported); provided further, that the sale, bid and
asked prices referred to in this clause (a) shall be as reported in a
newspaper of general circulation or by such other source as the Administrator
deems reliable; or (b) if the Common Stock is not listed or admitted for
trading on such an exchange or system on such date, the Fair Market Value of a
share of Common Stock as established by the Administrator acting in good faith,
taking into account all material information available with respect to the
value of a share of Common Stock, including, without limitation, the value of
the tangible and intangible assets of the Company, the present value of its
anticipated future cash flows, the market value of the stock or equity
interests in other entities engaged in substantially the same business, recent
arm’s length transactions involving the sale of Common Stock, and other
relevant factors such as control premiums or discounts for lack of
marketability.

 

1.18         “Holder” shall mean a person who has been
granted or awarded an Award.

 

1.19         “Incentive Stock Option” shall mean an option
that conforms to the applicable provisions of Section 422 of the Code and
that is designated as an Incentive Stock Option by the Administrator.

 

1.20         “Independent Director” shall mean a member of
the Board who is not an Employee.

 

1.21         “Non-Qualified Stock Option” shall mean an
Option that is not designated as an Incentive Stock Option by the
Administrator.

 

1.22         “Option” shall mean a stock option granted
under Article IV of the Plan. An Option granted under the Plan
shall, as determined by the Administrator, be either a Non-Qualified Stock
Option or an Incentive Stock Option; provided, however, that Options granted to
Independent Directors and Consultants shall be Non-Qualified Stock Options.

 

1.23         “Performance Award” shall mean a stock bonus or
other performance or incentive award that is paid in Common Stock, awarded
under Section 8.2 of the Plan.

 

1.24         “Performance Criteria” means the criteria that
the Committee selects for an Award for purposes of establishing the Performance
Goal or Performance Goals for a Performance Period. The Performance Criteria
that will be used to establish Performance Goals are limited to the following: (a) net
earnings (either before or after (i) interest, (ii) taxes, (iii) depreciation
and (iv) amortization), (b) sales or revenue, (c) net income
(either before or after taxes), (d) operating earnings, (e) cash flow
(including, but not limited to, operating cash flow and free cash flow), (f) return
on assets, (g) return on stockholders’ equity, (h) return on sales, (i) gross
or net profit margin, (j) expense, (k) working capital, (l) earnings
per share, (m) price per share of Common Stock, and (n) market share,
any of which may be measured either in absolute terms or as compared to any
incremental increase or as compared to results of a peer group. The Committee
shall, within the time prescribed by Section 162(m) of the Code,
define in an objective fashion the manner of calculating the Performance
Criteria it selects to use for such Performance Period for such Award;
provided, however, that each Performance Criteria shall be determined in accordance

 

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with generally accepted
accounting principles unless otherwise specified by the Committee at the time
of grant.

 

1.25         “Performance Goals” means, for a Performance
Period, the goals established in writing by the Committee for the Performance
Period based upon the Performance Criteria. Depending on the Performance
Criteria used to establish such Performance Goals, the Performance Goals may be
expressed in terms of overall Company performance or the performance of a
division, business unit, or an individual. The Committee, in its discretion,
may, within the time prescribed by Section 162(m) of the Code, adjust
or modify the calculation of Performance Goals for such Performance Period in
order to prevent the dilution or enlargement of the rights of any Holder of a
Performance Award (a) in the event of, or in anticipation of, any unusual
or extraordinary corporate item, transaction, event, or development, or (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

 

1.26         “Performance Period” means one or more periods
of time, which may be of varying and overlapping durations, as the Committee
may select, over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Holder’s right to, and the payment
of, a Performance Award.

 

1.27         “Plan” shall mean the 2007 Stock Incentive
Plan, as amended and/or restated from time to time, of EMRISE Corporation.

 

1.28         “Restricted Stock” shall mean Common Stock
awarded under Article VII of the Plan.

 

1.29         “Restricted Stock Units” shall mean rights to
receive Common Stock awarded under Section 8.4 of the Plan.

 

1.30         “Rule 16b-3” shall mean Rule 16b-3
promulgated under the Exchange Act, as such Rule may be amended from time
to time.

 

1.31         “Section 162(m) Participant” shall
mean any key Employee designated by the Administrator as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or
a future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.

 

1.32         “Section 409A Award” has the meaning set
forth in Section 10.1 of the Plan.

 

1.33         “Securities Act” shall mean the Securities Act
of 1933, as amended.

 

1.34         “Stock Appreciation Right” shall mean a stock
appreciation right granted under Article IX of the Plan.

 

1.35         “Stock Payment” shall mean: (a) a payment
in the form of shares of Common Stock, or (b) an option or other right to
purchase shares of Common Stock, as part of a deferred compensation
arrangement, made in lieu of all or any portion of the compensation, including
without limitation, salary, bonuses, commissions and directors’ fees, that
would otherwise become payable to a key Employee, Independent Director or
Consultant in cash, awarded under Section 8.3 of the Plan.

 

1.36         “Subsidiary” shall mean any corporation in an
unbroken chain of corporations, beginning with the Company as parent, if each
of the corporations other than the last corporation in the unbroken 

 

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chain then owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

 

1.37         “Substitute Award” shall mean an Option granted
under this Plan upon the assumption of, or in substitution for, outstanding
equity awards previously granted by a company or other entity, in connection
with a corporate transaction, such as a merger, combination, consolidation or
acquisition of property or stock; provided, however, that in no event shall the
term “Substitute Award” be construed to refer to an award made in
connection with the cancellation and repricing of an Option.

 

1.38         “Termination of Consultancy” shall mean the
time when the engagement of a Holder as a Consultant to the Company or a
Subsidiary is terminated for any reason, with or without Cause, including, but
not by way of limitation, by resignation, discharge, death or retirement, but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
Cause, and all questions of whether a particular leave of absence constitutes a
Termination of Consultancy. Notwithstanding any other provision of the Plan,
the Company or any Subsidiary has an absolute and unrestricted right to
terminate a Consultant’s service at any time for any reason whatsoever, with or
without Cause, except to the extent expressly provided otherwise in writing.

 

1.39         “Termination of Directorship” shall mean the
time when a Holder who is an Independent Director ceases to be a Director for
any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or retirement. The Board, in its sole
and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.

 

1.40         “Termination of Employment” shall mean the time
when the employee-employer relationship between a Holder and the Company or any
Subsidiary is terminated for any reason, with or without Cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding: (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company
or any Subsidiary, (b) at the discretion of the Administrator,
terminations that result in a temporary severance of the employee-employer
relationship, and (c) at the discretion of the Administrator, terminations
that are followed by the simultaneous establishment of a consulting
relationship by the Company or a Subsidiary with the former employee. The
Administrator, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for Cause, and all questions of whether a particular
leave of absence constitutes a Termination of Employment; provided, however,
that, with respect to Incentive Stock Options, unless otherwise determined by
the Administrator in its discretion, a leave of absence, change in status from
an employee to an independent contractor or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the
Code and the then applicable regulations and revenue rulings under that
section.

 

1.41         “Treasury Regulations” mean regulations
promulgated under the Code.

 

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ARTICLE II

SHARES SUBJECT TO PLAN

 

2.1           Shares
Subject to Plan.

 

(a)           Subject to Section 12.3 and Section 2.1(b),
the maximum number of shares of Common Stock that may be issued or transferred
pursuant to Awards under the Plan shall be 5,000,000 shares.

 

(b)           To the extent that an Award terminates, expires, or
lapses for any reason, any shares of Common Stock then subject to such Award
shall again be available for the grant of an Award pursuant to the Plan.
Additionally, any shares of Common Stock tendered or withheld to satisfy the
grant or exercise price or tax withholding obligation pursuant to any Award
shall again be available for the grant of an Award pursuant to the Plan. To the
extent permitted by applicable law or any exchange rule, shares of Common Stock
issued in assumption of, or in substitution for, any outstanding awards of any
entity acquired in any form of combination by the Company or any Subsidiary
shall not be counted against shares of Common Stock available for grant
pursuant to this Plan. If any shares of Restricted Stock are surrendered by the
Holder or repurchased by the Company pursuant to Section 7.4 or 7.5
hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1(a). Notwithstanding the
provisions of this Section 2.1(b), no shares of Common Stock may
again be optioned, granted or awarded if such action would cause an Incentive
Stock Option to fail to qualify as an incentive stock option under Section 422
of the Code.

 

2.2           Stock
Distributed.
Any Common Stock distributed pursuant to an Award may consist, in whole or in
part, of authorized and unissued Common Stock, shares of Common Stock held in
treasury or shares of Common Stock purchased on the open market.

 

2.3           Limitation
on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the
contrary, and subject to Article II, the maximum number of shares
of Common Stock with respect to one or more Awards that may be granted to any
one Employee, Independent Director or Consultant during each calendar year
shall not exceed the Award Limit. To the extent required by Section 162(m) of
the Code, shares subject to Awards that are canceled continue to be counted
against the Award Limit.

 

ARTICLE III

GRANTING OF AWARDS

 

3.1           Award
Agreement.
Each Award shall be evidenced by an Award Agreement. Award Agreements
evidencing Awards intended to qualify as performance-based compensation (as
described in Section 162(m)(4)(C) of the Code) shall contain such
terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of
the Code. Award Agreements evidencing Incentive Stock Options shall contain
such terms and conditions as may be necessary to meet the applicable provisions
of Section 422 of the Code.

 

3.2           Provisions
Applicable to Section 162(m) Participants.

 

(a)           The Committee, in its discretion, may determine whether
an Award is to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of
the Code).

 

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(b)           Notwithstanding anything in the Plan to the contrary,
the Committee may grant any Award to a Section 162(m) Participant,
including Restricted Stock the restrictions with respect to which lapse upon
the attainment of performance goals that are related to one or more of the
Performance Criteria and any performance or incentive award described in Article VIII
that vests or becomes exercisable or payable upon the attainment of performance
goals that are related to one or more of the Performance Criteria.

 

(c)           To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of
the Code, with respect to any Award granted under Articles VII and VIII
that may be granted to one or more Section 162(m) Participants, no
later than ninety (90) days following the commencement of any fiscal year in
question or any other designated fiscal period or period of service (or such
other time as may be required or permitted by Section 162(m) of the
Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants,
(ii) select the Performance Criteria applicable to the fiscal year or
other designated fiscal period or period of service, (iii) establish the
various performance targets, in terms of an objective formula or standard, and
amounts of such Awards, as applicable, which may be earned for such fiscal year
or other designated fiscal period or period of service, and (iv) specify
the relationship between Performance Criteria and the performance targets and
the amounts of such Awards, as applicable, to be earned by each Section 162(m) Participant
for such fiscal year or other designated fiscal period or period of service.
Following the completion of each fiscal year or other designated fiscal period
or period of service, the Committee shall certify in writing whether the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount earned
by a Section 162(m) Participant, the Committee shall have the right
to reduce (but not to increase) the amount payable at a given level of
performance to take into account additional factors that the Committee may deem
relevant to the assessment of individual or corporate performance for the
fiscal year or other designated fiscal period or period of service.

 

(d)           Furthermore, notwithstanding any other provision of
the Plan, any Award that is granted to a Section 162(m) Participant
and is intended to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of
the Code) shall be subject to any additional limitations set forth in Section 162(m) of
the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation (as described in Section 162(m)(4)(C) of
the Code), and the Plan shall be deemed amended to the extent necessary to
conform to such requirements.

 

3.3           Limitations
Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the
Plan, and any Award granted or awarded to any individual who is then subject to
Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16
of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange
Act) that are requirements for the application of such exemptive rule. To the
extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
applicable exemptive rule.

 

3.4           Consideration. In consideration of the granting of an
Award under the Plan, the Holder shall agree, in the Award Agreement, to remain
in the employ of (or to consult for or to serve as an Independent Director of,
as applicable) the Company or any Subsidiary for a period of at least one year
(or such shorter period as may be fixed in the Award Agreement or by action of
the Administrator following grant of the Award) after the Award is granted (or,
in the case of an Independent Director, until the next annual meeting of
stockholders of the Company).

 

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3.5           At-Will
Employment.
Nothing in the Plan or in any Award Agreement hereunder shall confer upon any
Holder any right to continue in the employ of, or as a Consultant for, the
Company or any Subsidiary, or as a Director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
rights are hereby expressly reserved, to discharge any Holder at any time for
any reason whatsoever, with or without Cause, except to the extent expressly
provided otherwise in a written employment agreement between the Holder and the
Company and any Subsidiary.

 

ARTICLE IV

GRANTING OF OPTIONS TO EMPLOYEES,

CONSULTANTS AND INDEPENDENT DIRECTORS

 

4.1           Eligibility. Any Employee or Consultant selected by
the Administrator pursuant to Section 4.4(a)(i) shall be
eligible to be granted an Option. Each Independent Director of the Company
shall be eligible to be granted Options at the times and in the manner set
forth in Section 4.5.

 

4.2           Disqualification
for Stock Ownership. No person may be granted an Incentive Stock Option under the Plan if
such person, at the time the Incentive Stock Option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any then existing Subsidiary or parent corporation
(within the meaning of Section 422 of the Code) unless such Incentive
Stock Option conforms to the applicable provisions of Section 422 of the
Code.

 

4.3           Qualification
of Incentive Stock Options. No Incentive Stock Option shall be granted to any
person who is not an Employee.

 

4.4           Granting
of Options to Employees and Consultants.

 

(a)           The Administrator shall from time to time, in its
absolute discretion, and, subject to applicable limitations of the Plan:

 

(i)            Determine which Employees are key Employees and select
from among the key Employees or Consultants (including Employees or Consultants
who have previously received Awards under the Plan) such of them as in its
opinion should be granted Options;

 

(ii)           Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key Employees or
Consultants;

 

(iii)          Subject to Section 4.3, determine whether
such Options are to be Incentive Stock Options or Non-Qualified Stock Options
and whether such Options are to qualify as performance-based compensation (as
described in Section 162(m)(4)(C) of the Code); and

 

(iv)          Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and conditions of
Options intended to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of
the Code) shall include, but not be limited to, such terms and conditions as
may be necessary to meet the applicable provisions of Section 162(m) of
the Code.

 

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(b)           Upon the selection of a key Employee or Consultant to
be granted an Option, the Administrator shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of the
Option as it deems appropriate.

 

(c)           Any Incentive Stock Option granted under the Plan may
be modified by the Administrator, with the consent of the Holder, to disqualify
such Option from treatment as an “incentive stock option” under Section 422
of the Code.

 

4.5           Granting
of Options to Independent Directors. The Board shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:

 

(a)           Select from among the Independent Directors (including
Independent Directors who have previously received Awards under the Plan) such
of them as in its opinion should be granted Non-Qualified Stock Options;

 

(b)           Subject to the Award Limit, determine the number of
shares to be subject to such Non-Qualified Stock Options granted to the
selected Independent Directors; and

 

(c)           Subject to the provisions of Article V,
determine the terms and conditions of such Non-Qualified Stock Options,
consistent with the Plan.

 

All the foregoing Non-Qualified Stock Option grants
authorized by this Section 4.5 are subject to stockholder approval
of the Plan.

 

4.6           Options in
Lieu of Cash Compensation. Options may be granted under the Plan to Employees
and Consultants in lieu of cash bonuses which would otherwise be payable to
such Employees and Consultants, and to Independent Directors in lieu of
directors’ fees which would otherwise be payable to such Independent Directors,
pursuant to such policies that may be adopted by the Administrator from time to
time.

 

ARTICLE V

TERMS OF OPTIONS

 

5.1           Option
Price. The
price per share of the shares subject to each Option granted to Employees,
Independent Directors and Consultants shall be set by the Administrator;
provided, however, that:

 

(a)           In the case of Incentive Stock Options, such price
shall not be less than 100% of the Fair Market Value of a share of Common Stock
on the date the Option is granted (or the date the Option is modified, extended
or renewed for purposes of Section 424(h) of the Code);

 

(b)           In the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code), such price shall not be less than
110% of the Fair Market Value of a share of Common Stock on the date the Option
is granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code); and

 

(c)           In the case of Non-Qualified Stock Options, such price
shall not be less than 100% of the Fair Market Value of a share of Common Stock
on the date the Option is granted.

 

10

 

5.2           Option
Term. The
term of an Option granted to an Employee, Independent Director or Consultant
shall be set by the Administrator in its discretion; provided, however, that
the term (as may be extended by the Administrator in its discretion) shall not
be more than ten years from the date of grant of the Option, or in the case of
an Incentive Stock Option, five years from the date of grant if the Incentive
Stock Option is granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within
the meaning of Section 422 of the Code). The Administrator may amend the
terms or conditions of an Option in connection with any Termination of
Employment, Termination of Directorship or Termination of Consultancy, and may
extend the term of any outstanding Option in connection with any Termination of
Employment, Termination of Directorship or Termination of Consultancy of the
Holder, provided that in no event shall the Administrator have the discretion
to extend the term of any Option past the tenth anniversary of the original
date of grant at a time when the exercise price of the stock
right does not equal or exceed the Fair Market Value of the stock that could be
purchased.

 

5.3           Option
Vesting.

 

(a)           The period during which the right to exercise, in
whole or in part, an Option granted to an Employee, Independent Director or a
Consultant vests in the Holder shall be set by the Administrator, and the
Administrator may determine that an Option may not be exercised in whole or in
part for a specified period after it is granted; provided, however, that,
unless the Administrator otherwise provides in the terms of the Award Agreement
or otherwise, no Option shall be exercisable by any Holder who is then subject
to Section 16 of the Exchange Act within the period ending six months and
one day after the date the Option is granted. Subject to Section 10.3,
at any time after grant of an Option, the Administrator may, in its sole and
absolute discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option granted to an Employee,
Independent Director or Consultant vests.

 

(b)           No portion of an Option granted to an Employee,
Independent Director or Consultant that is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Administrator either in the Award Agreement or by action of the
Administrator following the grant of the Option.  Options that are exercisable by an Employee at
Termination of Employment shall continue to be exercisable by the Employee (a) for
a period of at least six months from the date of the Termination of Employment
if Termination of Employment was caused by death or disability, and (b) for
a period of at least 30 days after the date of Termination of Employment if
Termination of Employment was caused by other than death or disability, unless
Termination of Employment constituted a termination for Cause, in which case
Options would terminate and no longer be exercisable immediately upon
Termination of Employment for Cause.

 

(c)           To the extent that the aggregate fair market value of
stock with respect to which “incentive stock options” (within the meaning of Section 422
of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by a Holder during any calendar year under the
Plan, and all other plans of the Company and any Subsidiary or parent
corporation thereof, within the meaning of Section 424 of the Code,
exceeds $100,000, the Options shall be treated as Non-Qualified Stock Options
to the extent required by Section 422 of the Code. The rule set forth
in the preceding sentence shall be applied by taking Options and other “incentive
stock options” into account in the order in which they were granted. For
purposes of this Section 5.3(c), the fair market value of stock
shall be determined as of the time the Option or other “incentive stock options”
with respect to such stock is granted.

 

11

 

5.4           Substitute
Awards.
Notwithstanding the foregoing provisions of this Article V to the
contrary, in the case of an Option that is a Substitute Award, the price per
share of the shares subject to such Option may be less than the Fair Market Value
per share on the date of grant, provided, that the excess of: (a) the
aggregate Fair Market Value (as of the date such Substitute Award is granted)
of the shares subject to the Substitute Award, over (b) the aggregate
exercise price thereof does not exceed the excess of: (x) the aggregate
fair market value (as of the time immediately preceding the transaction giving
rise to the Substitute Award, such fair market value to be determined by the
Administrator) of the shares of the predecessor entity that were subject to the
grant assumed or substituted for by the Company, over (y) the aggregate
exercise price of such shares.

 

ARTICLE VI

EXERCISE OF OPTIONS

 

6.1           Partial
Exercise. An
exercisable Option may be exercised in whole or in part. However, an Option
shall not be exercisable with respect to fractional shares, and the
Administrator may require that, by the terms of the Option, a partial exercise
be with respect to a minimum number of shares.

 

6.2           Manner of
Exercise. All
or a portion of an exercisable Option shall be deemed exercised upon delivery
of all of the following to the Secretary of the Company, or such other person
or entity designated by the Board, or his, her or its office, as applicable:

 

(a)           A written notice complying with the applicable rules established
by the Administrator stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Holder or other person then
entitled to exercise the Option or such portion of the Option;

 

(b)           Such representations and documents as the
Administrator, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and any
other federal or state securities laws or regulations. The Administrator may,
in its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;

 

(c)           In the event that the Option shall be exercised
pursuant to Section 12.1 by any person or persons other than the
Holder, appropriate proof of the right of such person or persons to exercise
the Option; and

 

(d)           Full cash payment to the Secretary of the Company for
the shares with respect to which the Option, or portion thereof, is exercised.
However, the Administrator may, in its discretion, (i) allow payment, in
whole or in part, through the delivery of shares of Common Stock that have been
owned by the Holder for at least six months, duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (ii) allow
payment, in whole or in part, through the surrender of shares of Common Stock
then issuable upon exercise of the Option having a Fair Market Value on the
date of Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iii) allow payment, in whole or in part,
through the delivery of property of any kind that constitutes good and valuable
consideration; (iv) allow payment, in whole or in part, through the
delivery of a notice that the Holder has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of
the Option, and that the broker has been directed to pay a sufficient portion
of the net proceeds of the sale to the Company in satisfaction of the Option
exercise price, provided that payment of such proceeds is then made to the
Company upon settlement of such sale; or (v) allow payment through any 

 

12

 

combination of the
consideration provided in the foregoing subparagraphs (i), (ii), (iii) and
(iv); provided, however, that the payment in the manner prescribed in the
preceding paragraphs shall not be permitted to the extent that the
Administrator determines that payment in such manner shall result in an
extension or maintenance of credit, an arrangement for the extension of credit,
or a renewal or an extension of credit in the form of a personal loan to or for
any Director or executive officer of the Company that is prohibited by Section 13(k) of
the Exchange Act or other applicable law.

 

6.3           Conditions
to Issuance of Stock Certificates. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of any Option or portion thereof prior to fulfillment of all of the
following conditions:

 

(a)           The admission of such shares to listing on all stock
exchanges or quotation systems on which such class of stock is then listed or
admitted for trading;

 

(b)           The completion of any registration or other
qualification of such shares under any state or federal law, or under the rulings
or regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator shall, in its absolute
discretion, deem necessary or advisable;

 

(c)           The obtaining of any approval or other clearance from
any state or federal governmental agency that the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;

 

(d)           The lapse of such reasonable period of time following
the exercise of the Option as the Administrator may establish from time to time
for reasons of administrative convenience, provided that in no event shall such
lapse constitute an additional deferral of compensation under Section 409A
of the Code; and

 

(e)           The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by the
Holder to pay for such shares under Section 6.2(d).

 

6.4           Rights as
Stockholders.
Holders shall not be, nor have any of the rights or privileges of, stockholders
of the Company in respect of any shares purchasable upon the exercise of any
part of an Option unless and until certificates representing such shares have
been issued by the Company to such Holders.

 

6.5           Ownership
and Transfer Restrictions. Options granted pursuant to this Plan shall not be
transferable during the lifetime of the holder of the Option, except that the Administrator may allow for transfer
by will, by the laws of descent and distribution, to a revocable trust, or as
permitted by Rule 701 of the Securities Act. The Administrator, in
its absolute discretion, may impose such additional restrictions on the
ownership and transferability of the shares purchasable upon the exercise of an
Option as it deems appropriate. Any such restriction shall be set forth in the
respective Award Agreement and may be referred to on the certificates
evidencing such shares. The Holder shall give the Company prompt notice of any
disposition of shares of Common Stock acquired by exercise of an Incentive
Stock Option within (a) two years from the date of granting (including the
date the Option is modified, extended or renewed for purposes of Section 424(h) of
the Code) such Option to such Holder, or (b) one year after the transfer
of such shares to such Holder.

 

13

 

6.6           Additional
Limitations on Exercise of Options. Holders may be required to comply with any timing or
other restrictions with respect to the settlement or exercise of an Option,
including a window-period limitation, as may be imposed in the discretion of
the Administrator.

 

ARTICLE VII

AWARD OF RESTRICTED STOCK

 

7.1           Eligibility. Subject to the Award Limit, Restricted
Stock may be awarded to any Employee who the Administrator determines is a key
Employee, or any Independent Director or any Consultant who the Administrator
determines should receive such an Award.

 

7.2           Award
of Restricted Stock.

 

(a)           The Administrator may from time to time, in its
absolute discretion:

 

(i)            Determine which Employees are key Employees, and
select from among the Key Employees, Independent Directors or Consultants
(including Employees, Independent Directors or Consultants who have previously
received Awards under the Plan) such of them as in its opinion should be
awarded Restricted Stock; and

 

(ii)           Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Stock, consistent with the Plan.

 

(b)           The Administrator shall establish the purchase price,
if any, and form of payment for Restricted Stock; provided, however, that such
purchase price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law. In all cases,
legal consideration shall be required for each issuance of Restricted Stock.

 

(c)           Upon the selection of an Employee, Independent
Director or Consultant to be awarded Restricted Stock, the Administrator shall
instruct the Secretary of the Company to issue such Restricted Stock and may
impose such conditions on the issuance of such Restricted Stock as it deems
appropriate.

 

7.3           Rights as
Stockholders.
Subject to Section 7.4, upon delivery of the shares of Restricted
Stock to the escrow holder pursuant to Section 7.6, the Holder
shall have, unless otherwise provided by the Administrator, all the rights of a
stockholder with respect to said shares, subject to the restrictions in his or
her Award Agreement, including the right to receive all dividends and other
distributions paid or made with respect to the shares; provided, however, that,
in the discretion of the Administrator, any extraordinary distributions with
respect to the Common Stock shall be subject to the restrictions set forth in Section 7.4.

 

7.4           Restriction. All shares of Restricted Stock issued
under the Plan (including any shares received by Holders thereof with respect
to shares of Restricted Stock as a result of stock dividends, stock splits or
any other form of recapitalization) shall, in the terms of each individual Award
Agreement, be subject to such restrictions as the Administrator shall provide,
which restrictions may include, without limitation, restrictions concerning
voting rights and transferability and restrictions based on duration of
employment, directorship or consultancy with the Company, Company performance
and individual performance; provided, however, that, unless the Administrator
otherwise provides in the terms of the Award Agreement or otherwise, no share
of Restricted Stock granted to a person subject to Section 16 of the
Exchange Act shall be sold, assigned or otherwise transferred until at least
six months and one day

 

14

 

have elapsed from the
date on which the Restricted Stock was issued, and provided, further, that,
except with respect to shares of Restricted Stock granted to Section 162(m) Participants,
by action taken after the Restricted Stock is issued, the Administrator may, on
such terms and conditions as it may determine to be appropriate, remove any or
all of the restrictions imposed by the terms of the Award Agreement. Restricted
Stock may not be sold or encumbered until all restrictions are terminated or
expire. If no consideration was paid by the Holder upon issuance, a Holder’s
rights in unvested Restricted Stock shall lapse, and such Restricted Stock
shall be surrendered to the Company without consideration, upon Termination of
Employment, Termination of Directorship, or Termination of Consultancy, as
applicable; and, provided, however, that the Administrator in its sole and
absolute discretion may provide that such rights shall not lapse in the event
of a Termination of Employment, Termination of Directorship or Termination of
Consultancy, as applicable, following a “change of ownership or control”
(within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Holder’s
death or disability; and, provided, further, except with respect to shares of
Restricted Stock granted to Section 162(m) Participants, the
Administrator in its sole and absolute discretion may provide that no such
lapse or surrender shall occur in the event of a Termination of Employment,
Termination of Directorship, or Termination of Consultancy, as applicable, that
occurs without Cause or following any Change in Control or because of the
Holder’s retirement, or otherwise.

 

7.5           Repurchase of Restricted Stock. The Administrator shall provide in the
terms of each individual Award Agreement that the Company shall have the right
to repurchase from the Holder the Restricted Stock then subject to restrictions
under the Award Agreement, which right shall arise immediately upon a Termination
of Employment, Termination of Directorship, or Termination of Consultancy, as
applicable, and shall be exercisable by the Company for up to six months from
the date of such termination, at a cash price per share equal to the price paid
by the Holder for such Restricted Stock; provided, however, that to the extent
the Company is subject to Section 260.140.8 of the California Code of
Regulations, such right of repurchase shall lapse at the rate of at least 20%
of the Restricted Stock per year; provided further, the Administrator in its
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment, Termination of Directorship
or Termination of Consultancy, as applicable, following a “change of ownership
or control” (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Holder’s
death or disability; and, provided further, that, except with respect to shares
of Restricted Stock granted to Section 162(m) Participants, the
Administrator in its sole and absolute discretion may provide that no such
right of repurchase shall exist in the event of a Termination of Employment,
Termination of Directorship, or Termination of Consultancy, as applicable, that
occurs without Cause or following any Change in Control or because of the
Holder’s retirement, or otherwise.

 

7.6           Escrow. The Secretary of the Company or such other escrow
holder as the Administrator may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.

 

7.7           Legend. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Administrator shall cause a legend or
legends to be placed on certificates representing all shares of Restricted
Stock that are still subject to restrictions under Award Agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.

 

7.8           Section 83(b) Election. If a Holder makes an election under Section 83(b) of
the Code, or any successor section thereto, to be taxed with respect to the
Restricted Stock as of the date of transfer of the Restricted Stock rather than
as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of
the Code, the Holder shall deliver a copy of such election to the Company immediately
after filing such election with the Internal Revenue Service.

 

15

 

ARTICLE VIII

PERFORMANCE AWARDS, STOCK PAYMENTS, RESTRICTED STOCK UNITS

 

8.1           Eligibility. Subject to the Award Limit, one or more
Performance Awards, Stock Payment awards, and/or Restricted Stock Unit awards
may be granted to any Employee whom the Administrator determines is a key
Employee, or any Independent Director or any Consultant whom the Administrator
determines should receive such an Award.

 

8.2           Performance Awards.

 

(a)           Any key Employee, Independent Director or Consultant
selected by the Administrator may be granted one or more Performance Awards.
The amount of such Performance Awards
may be linked to any one or more of the Performance Criteria or other specific
performance criteria determined appropriate by the Administrator, in each case
on a specified date or dates or over any period or periods determined by the
Administrator. In making such determinations, the Administrator shall consider
(among such other factors as it deems relevant in light of the specific type of
award) the contributions, responsibilities and other compensation of the
particular key Employee, Independent Director or Consultant.

 

(b)           Without limiting Section 8.2(a), the
Administrator may grant Performance Awards to any Section 162(m) Participant
upon the attainment of objective performance goals that are established by the
Administrator and relate to one or more of the Performance Criteria, in each case
on a specified date or dates or over any period or periods determined by the
Administrator. Any such Performance Awards granted to Section 162(m) Participants
shall be based upon objectively determinable formulas established in accordance
with the provisions of Section 3.2. The maximum aggregate amount of
all Performance Awards granted to a Section 162(m) Participant under
this Section 8.2(b) during any calendar year shall not exceed
the Award Limit. Unless otherwise specified by the Administrator at the time of
grant, the Performance Criteria with respect to a Performance Award payable to
a Section 162(m) Participant shall be determined on the basis of
generally accepted accounting principles.

 

8.3           Stock Payments. Any key Employee, Independent Director or Consultant
selected by the Administrator may receive Stock Payments in the manner
determined from time to time by the Administrator. The number of shares shall
be determined by the Administrator and may be based upon the Performance
Criteria or other specific performance criteria determined appropriate by the
Administrator, determined on the date such Stock Payment is made or on any date
thereafter.

 

8.4           Restricted Stock Units. Any key Employee, Independent Director
or Consultant selected by the Administrator may be granted an award of
Restricted Stock Units in the manner determined from time to time by the
Administrator. The Administrator is authorized to make awards of Restricted
Stock Units in such amounts and subject to such terms and conditions as determined
by the Administrator. The Administrator shall specify the date or dates on
which the Restricted Stock Units shall become fully vested and nonforfeitable,
and may specify such conditions to vesting as it deems appropriate, and may
specify that such Restricted Stock Units become fully vested and nonforfeitable
pursuant to the satisfaction of one or more Performance Goals or other specific
performance goals as the Administrator determines to be appropriate at the time
of the grant of the Restricted Stock Units or thereafter, in each case on a
specified date or dates or over any period or periods determined by the
Administrator. The Administrator shall specify the distribution dates
applicable to each award of Restricted Stock Units, which shall be no earlier
than the vesting dates or events of the award and may be determined at the
election of the Employee, Independent Director or Consultant. On the
distribution dates, the Company shall issue to the Holder one unrestricted,
fully transferable share of Common Stock for each Restricted 

 

16

 

Stock Unit distributed.
The Administrator shall specify the purchase price, if any, to be paid by the
Employee, Independent Director or Consultant to the Company for such shares of
Common Stock to be distributed pursuant to the Restricted Stock Unit award.

 

8.5           Term. The term of a Performance Award, Stock Payment award
and/or Restricted Stock Unit award shall be set by the Administrator in its
discretion.

 

8.6           Exercise or Purchase Price. The Administrator may establish the
exercise or purchase price of a Performance Award, shares distributed as a
Stock Payment award or shares distributed pursuant to a Restricted Stock Unit
award; provided, however, that such price shall not be less than the par value
of a share of Common Stock, unless otherwise permitted by applicable state law.

 

8.7           Exercise upon Termination of Employment,
Termination of Consultancy or Termination of Directorship. A Performance Award, Stock Payment
award and/or Restricted Stock Unit award is exercisable or distributable only
while the Holder is an Employee, Consultant or Independent Director, as
applicable; provided, however, that the Administrator in its sole and absolute
discretion may provide that the Performance Award, Stock Payment award and/or
Restricted Stock Unit award may be exercised or distributed subsequent to a
Termination of Employment, Termination of Directorship or Termination of
Consultancy following a “change of control or ownership” (within the meaning of
Treasury Regulation Section 1.162-27(e)(2)(v) or any successor
regulation thereto) of the Company; and, provided, further, that, except with
respect to Performance Awards granted to Section 162(m) Participants,
the Administrator in its sole and absolute discretion may provide that
Performance Awards may be exercised or paid following a Termination of
Employment, Termination of Directorship or Termination of Consultancy that
occurs without Cause or following a Change in Control or because of the Holder’s
retirement, death or disability, or otherwise.

 

8.8           Form of Payment. Payment of the amount determined under Section 8.2
above shall be in cash, in Common Stock or a combination of both, as determined
by the Administrator. To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.3.

 

ARTICLE IX

STOCK APPRECIATION RIGHTS

 

9.1           Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any key Employee, Independent Director or Consultant selected by the
Administrator. A Stock Appreciation Right may be granted: (a) in
connection and simultaneously with the grant of an Option, (b) with
respect to a previously granted Option, or (c) independent of an Option. A
Stock Appreciation Right shall be subject to such terms and conditions not
inconsistent with the Plan as the Administrator shall impose and shall be
evidenced by an Award Agreement.

 

9.2           Coupled Stock Appreciation
Rights.

 

(a)           A Coupled Stock Appreciation Right (“CSAR”)
shall be related to a particular Option and shall be exercisable only when and
to the extent the related Option is exercisable.

 

(b)           A CSAR may be granted to the Holder for no more than
the number of shares subject to the simultaneously or previously granted Option
to which it is coupled.

 

(c)           A CSAR shall entitle the Holder (or other person
entitled to exercise the Option pursuant to the Plan) to surrender to the
Company unexercised a portion of the Option to which 

 

17

 

the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the Company
in exchange therefor an amount determined by multiplying the difference
obtained by subtracting the Option exercise price from the Fair Market Value of
a share of Common Stock on the date of exercise of the CSAR by the number of
shares of Common Stock with respect to which the CSAR shall have been
exercised, subject to any limitations the Administrator may impose.

 

9.3           Independent Stock
Appreciation Rights.

 

(a)           An Independent Stock Appreciation Right (“ISAR”)
shall be unrelated to any Option and shall have a term set by the
Administrator. An ISAR shall be exercisable in such installments as the
Administrator may determine. An ISAR shall cover such number of shares of
Common Stock as the Administrator may determine; provided, however, that unless
the Administrator otherwise provides in the terms of the ISAR or otherwise, no
ISAR granted to a person subject to Section 16 of the Exchange Act shall
be exercisable until at least six months have elapsed following the date on
which the Option was granted. The exercise price per share of Common Stock
subject to each ISAR shall be set by the Administrator; provided, that such
exercise price per share shall not be less than 100% of the Fair Market Value
of a share of Common Stock on the date the ISAR is granted. An ISAR is
exercisable only while the Holder is an Employee, Independent Director or
Consultant; provided, that the Administrator may determine that the ISAR may be
exercised subsequent to Termination of Employment, Termination of Directorship
or Termination of Consultancy without Cause, or following a Change in Control
of the Company, or because of the Holder’s retirement, death or disability, or
otherwise.

 

(b)           An ISAR shall entitle the Holder (or other person
entitled to exercise the ISAR pursuant to the Plan) to exercise all or a
specified portion of the ISAR (to the extent then exercisable pursuant to its
terms) and to receive from the Company an amount determined by multiplying (i) the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of exercise
of the ISAR by (ii) the number of shares of Common Stock with respect to
which the ISAR shall have been exercised, subject to any limitations the
Administrator may impose.

 

9.4           Payment and Limitations on
Exercise.

 

(a)           Payment of the amounts determined under Section 9.2(c) and
9.3(b) above shall be in shares of Common Stock (based on its Fair
Market Value as of the date the Stock Appreciation Right is exercised). The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock issuable upon the exercise of any Stock
Appreciation Right prior to fulfillment of the conditions set forth in Section 6.3
above.

 

(b)           Holders of Stock Appreciation Rights may be required
to comply with any timing or other restrictions with respect to the settlement or
exercise of a Stock Appreciation Right, including a window-period limitation,
as may be imposed in the discretion of the Administrator.

 

ARTICLE X

COMPLIANCE WITH SECTION 409A OF THE CODE

 

Terms used in this Article X
and not otherwise defined in the Plan shall have the respective meanings
ascribed thereto under Section 409A of the Code and the Treasury
Regulations thereunder.

 

18

 

10.1         Awards subject to Code Section 409A. Any Award that constitutes, or provides
for, a deferral of compensation subject to Section 409A of the Code (a “Section 409A
Award”) shall satisfy the requirements of Section 409A of the Code and
this Article X, to the extent applicable. The Award Agreement with
respect to a Section 409A Award shall incorporate the terms and conditions
required by Section 409A of the Code and this Article X.

 

10.2         Distributions under a Section 409A Award.

 

(a)           Subject to subsection (b), any shares of Common Stock
or other property or amounts to be paid or distributed upon the grant,
issuance, vesting, exercise or payment of a Section 409A Award shall be
distributed in accordance with the requirements of Section 409A(a)(2) of
the Code, and shall not be distributed earlier than:

 

(i)            the Holder’s separation from service, as determined in
accordance with Section 1.409A-1 of the Treasury Regulations and such
other guidance as is promulgated from time to time by the Secretary of the
Treasury,

 

(ii)           the date the Holder becomes disabled,

 

(iii)          the Holder’s death,

 

(iv)          a specified time (or pursuant to a fixed schedule)
specified under the Award Agreement at the date of the deferral of
compensation,

 

(v)           to the extent provided by Section 1.409A-1 and Section 1.409A-3 of the Treasury
Regulations and such other guidance as it promulgated from time to time by  the Secretary of the Treasury, a
change in the ownership or effective control of the Company or a Subsidiary, or
in the ownership of a substantial portion of the assets of the Company or a
Subsidiary, or

 

(vi)          the occurrence of an unforeseeable emergency with
respect to the Holder.

 

(b)           In the case of a Holder who is a specified employee
(as defined in the following sentence), the requirement of paragraph (a)(i) shall
be met only if the distributions with respect to the Section 409A Award
may not be made before the date that is six months after the Holder’s
separation from service (or, if earlier, the date of the Holder’s death). For
purposes of this subsection (b), a Holder shall be a specified employee if
such Holder is a key employee (as defined in Section 416(i) of the
Code without regard to paragraph (5) thereof) of a corporation any stock
of which is publicly traded on an established securities market or otherwise,
as determined under Section 409A(a)(2)(B)(i) of the Code and the
Treasury Regulations thereunder.

 

(c)           The requirement of paragraph (a)(vi) shall be met
only if, as determined under Treasury Regulations under Section 409A(a)(2)(B)(ii) of
the Code, the amounts distributed with respect to the unforeseeable emergency
do not exceed the amounts necessary to satisfy such unforeseeable emergency
plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such unforeseeable
emergency is or may be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Holder’s assets (to the extent
the liquidation of such assets would not itself cause severe financial
hardship).

 

19

 

10.3         Prohibition on Acceleration of Benefits. The time or schedule of any
distribution or payment of any shares of Common Stock or other property or
amounts under a Section 409A Award shall not be accelerated if and to the
extent such acceleration is prohibited under Section 409A(a)(3) of
the Code and the Treasury Regulations thereunder.

 

10.4         Elections under Section 409A
Awards.

 

(a)           Any deferral election provided under or with respect
to an Award to any Employee, Independent Director or Consultant, or to the
Holder of a Section 409A Award, shall satisfy the requirements of Section 409A(a)(4)(B) of
the Code, to the extent applicable, and, except as otherwise permitted under
paragraph (i) or (ii), any such deferral election with respect to
compensation for services performed during a taxable year shall be made not
later than the close of the preceding taxable year, or at such other time as
provided in Treasury Regulations.

 

(i)            In the case of the first year in which an Employee,
Independent Director or Consultant, or the Holder, becomes eligible to
participate in the Plan, any such deferral election may be made with respect to
services to be performed subsequent to the election within thirty (30) days
after the date the Employee, Independent Director or Consultant, or the Holder,
becomes eligible to participate in the Plan, as provided under Section 409A(a)(4)(B)(ii) of
the Code.

 

(ii)           In the case of any performance-based compensation
based on services performed by an Employee, Independent Director or Consultant,
or the Holder, over a period of at least twelve months, any such deferral
election may be made no later than six months before the end of the period, as
provided under Section 409A(a)(4)(B)(iii) of the Code.

 

(b)           In the event that a Section 409A Award permits,
under a subsequent election by the Holder of such Section 409A Award, a
delay in a distribution or payment of any shares of Common Stock or other
property or amounts under such Section 409A Award, or a change in the form
of distribution or payment, such subsequent election must satisfy the
requirements of Section 409A(a)(4)(C) of the Code, and:

 

(i)            such subsequent election may not take effect until at
least twelve months after the date on which the election is made,

 

(ii)           in the case such subsequent election relates to a
distribution or payment not described in Section 10.2(a)(ii), (iii) or
(vi), the first payment with respect to such election may be deferred for a
period of not less than five years from the date such distribution or payment
otherwise would have been made, and

 

(iii)          in the case such subsequent election relates to a
distribution or payment described in Section 10.2(a)(iv), such
election may not be made less than twelve months prior to the date of the first
scheduled distribution or payment under Section 10.2(a)(iv).

 

10.5         Compliance in Form and Operation. A Section 409A Award, and any
election under or with respect to such Section 409A Award, shall comply in
form and operation with the requirements of Section 409A of the Code and
the Treasury Regulations thereunder.

 

20

 

ARTICLE XI

ADMINISTRATION

 

11.1         Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the
Committee under the Plan) shall consist solely of two or more Independent
Directors appointed by and holding office at the pleasure of the Board, each of
whom is both a “non-employee director” as defined by Rule 16b-3 and an “outside
director” for purposes of Section 162(m) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment, which need
not be in writing. Committee members may resign at any time by delivering
written notice to the Board. Vacancies in the Committee may be filled by the
Board.

 

11.2         Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected materially and adversely.
Any such grant or award under the Plan need not be the same with respect to
each Holder. Any such interpretations and rules with respect to Incentive
Stock Options shall be consistent with the provisions of Section 422 of
the Code. In its absolute discretion, the Board may at any time and from time
to time exercise any and all rights and duties of the Committee under the Plan except
with respect to matters that under Rule 16b-3 or Section 162(m) of
the Code, or any regulations or rules issued thereunder, are required to
be determined in the sole discretion of the Committee. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Awards granted
to Independent Directors.

 

11.3         Majority Rule; Unanimous Written Consent. The Committee shall act by a majority
of its members in attendance at a meeting at which a quorum is present or by a
memorandum or other written instrument signed by all members of the Committee.

 

11.4         Compensation; Professional Assistance; Good Faith
Actions.
Members of the Committee shall receive such compensation, if any, for their
services as members as may be determined by the Board. All expenses and
liabilities that members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company’s officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Holders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or Awards, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.

 

11.5         Delegation of Authority to Grant Awards. The Committee may, but need not,
delegate from time to time some or all of its authority to grant Awards under
the Plan to a committee consisting of one or more members of the Committee
and/or of one or more officers of the Company; provided, however, that the
Committee may not delegate its authority to grant Awards to individuals (a) who
are subject on the date of the grant to the reporting rules under Section 16(a) of
the Exchange Act, (b) who are Section 162(m) Participants, or (c) who
are officers of the Company who are delegated authority by the Committee
hereunder. Any delegation hereunder shall be subject to the restrictions and
limits that the Committee specifies at the time of such delegation of authority
and may be rescinded at any time by the 

 

21

 

Committee. At all times,
any committee appointed under this Section 11.5 shall serve in such
capacity at the pleasure of the Committee.

 

ARTICLE XII

MISCELLANEOUS PROVISIONS

 

12.1         Transferability of Awards.

 

(a)           Except as otherwise provided in Section 12.1(b):

 

(i)            No Award under the Plan may be sold, pledged, assigned
or transferred in any manner other than by will or the laws of descent and
distribution or, subject to the consent of the Administrator, pursuant to a
DRO, unless and until such Award has been exercised, or the shares underlying
such Award have been issued, and all restrictions applicable to such shares
have lapsed;

 

(ii)           No Option, Restricted Stock award, Performance Award,
Stock Appreciation Right, Stock Payment award or Restricted Stock Unit award or
interest or right therein shall be liable for the debts, contracts or
engagements of the Holder or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except
to the extent that such disposition is permitted by the preceding sentence; and

 

(iii)          During the lifetime of the Holder, only the Holder may
exercise an Option or other Award (or any portion thereof) granted to him under
the Plan, unless it has been disposed of pursuant to a DRO; after the death of
the Holder, any exercisable portion of an Option or other Award may, prior to
the time when such portion becomes unexercisable under the Plan or the
applicable Award Agreement, be exercised by his personal representative or by
any person empowered to do so under the deceased Holder’s will or under the
then applicable laws of descent and distribution.

 

(b)           Notwithstanding Section 12.1(a), the
Administrator, in its sole discretion, may determine to permit a Holder to
transfer a Non-Qualified Stock Option to any one or more Permitted Transferees
(as defined below), subject to the following terms and conditions: (i) a
Non-Qualified Stock Option transferred to a Permitted Transferee shall not be
assignable or transferable by the Permitted Transferee other than by will or
the laws of descent and distribution; (ii) any Non-Qualified Stock Option
that is transferred to a Permitted Transferee shall continue to be subject to
all the terms and conditions of the Non-Qualified Stock Option as applicable to
the original Holder (other than the ability to further transfer the
Non-Qualified Stock Option); and (iii) the Holder and the Permitted
Transferee shall execute any and all documents requested by the Administrator,
including, without limitation documents to (A) confirm the status of the
transferee as a Permitted Transferee, (B) satisfy any requirements for an
exemption for the transfer under applicable federal and state securities laws
and (C) evidence the transfer. For purposes of this Section 12.1(b),
“Permitted Transferee” shall mean, with respect to a Holder, any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or 

 

22

 

sister-in-law, including
adoptive relationships, any person sharing the Holder’s household (other than a
tenant or employee), a trust in which these persons (or the Holder) control the
management of assets, a foundation in which these persons (or the Holder)
control the management of assets, and any other entity in which these persons
(or the Holder) own more than 50% of the voting interests, or any other
transferee specifically approved by the Administrator after taking into account
any state or federal tax or securities laws applicable to transferable Non-Qualified
Stock Options.

 

12.2         Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 12.2,
the Plan may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Administrator. However,
without approval of the Company’s stockholders given within twelve months
before or after the action by the Administrator, no action of the Administrator
may, except as provided in Section 12.3, (i) increase the
limits imposed in Section 2.1 on the maximum number of shares that
may be issued under the Plan, (ii) expand the classes of persons to whom
Awards may be granted under the Plan, or (iii) decrease the exercise price
of any outstanding Option or Stock Appreciation Right granted under the Plan.
No amendment, suspension or termination of the Plan shall, without the consent
of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so provides.
No Awards may be granted or awarded during any period of suspension or after
termination of the Plan, and in no event may any Award be granted under the
Plan after the first to occur of the following events:

 

(a)           The expiration of ten years from the date the Plan is
adopted by the Board; or

 

(b)           The expiration of ten years from the date the Plan is
approved by the Company’s stockholders under Section 12.4.

 

12.3         Changes in Common Stock or
Assets of the Company, Acquisition or Liquidation of the Company and Other
Corporate Events.

 

(a)           Subject to Section 12.3(e), in the event
that the Administrator determines that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities or other
property), recapitalization, reclassification, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company, or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the Administrator’s
sole discretion, affects the Common Stock such that an adjustment is determined
by the Administrator to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to an Award, then the Administrator shall, in
such manner as it may deem equitable, adjust any or all of:

 

(i)            The number and kind of shares of Common Stock (or
other securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations in Section 2.1
on the maximum number and kind of shares that may be issued under the Plan, and
the maximum number and kind of shares that may be granted or issued as
Restricted Stock awards, Restricted Stock Unit awards, Performance Awards or
Stock Payment awards, and adjustments of the Award Limit);

 

23

 

(ii)           The number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Awards; and

 

(iii)          The grant or exercise price with respect to any Award.

 

(b)           Subject to Sections 12.3(c) and 12.3(e),
in the event of any transaction or event described in Section 12.3(a) or
any unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations or accounting
principles, the Administrator, in its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, either by the terms of the Award
or by action taken prior to the occurrence of such transaction or event and
either automatically or upon the Holder’s request, is hereby authorized to take
any one or more of the following actions whenever the Administrator determines
that such action is appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan
or with respect to any Award under the Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:

 

(i)            To provide for either the purchase of any such Award
for an amount of cash equal to the amount that could have been attained upon
the exercise of such Award or realization of the Holder’s rights had such Award
been currently exercisable or payable or fully vested or the replacement of
such Award with other rights or property selected by the Administrator in its
sole discretion;

 

(ii)           To provide that the Award cannot vest, be exercised or
become payable after such event;

 

(iii)          To provide that such Award shall be exercisable as to
all shares covered thereby, notwithstanding anything to the contrary in Section 5.3
or the provisions of such Award;

 

(iv)          To provide that such Award be assumed by the successor
or survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of the
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices;

 

(v)           To make adjustments in the number and type of shares
of Common Stock (or other securities or property) subject to outstanding
Awards, and/or in the terms and conditions of (including the grant, exercise or
purchase price), and the criteria included in, outstanding options, rights and
awards and options, rights and awards that may be granted in the future; and

 

(vi)          To provide that, for a specified period of time prior
to such event, the restrictions imposed under an Award Agreement upon some or
all shares of Restricted Stock or Restricted Stock Units may be terminated,
and, in the case of Restricted Stock, some or all shares of such Restricted
Stock may cease to be subject to repurchase under Section 7.5 or
forfeiture under Section 7.4 after such event.

 

24

 

(c)           Notwithstanding any other provision of the Plan, in
the event of a merger of the Company with or into another corporation, or the
sale of substantially all of the assets of the Company, the Committee may cause
any or all Awards outstanding hereunder to be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for any such Award, the Committee may cause any or all of
such Awards to become fully exercisable immediately prior to the consummation
of such transaction and all forfeiture restrictions on any or all of such
Awards to lapse. Upon, or in anticipation of, a merger, consolidation or other
similar transaction involving the Company, the Committee may cause any and all
Awards outstanding hereunder to terminate at a specific time in the future,
including but not limited to the date of such transaction; provided, however,
that each Participant shall have the right to exercise such Awards during a
period of time as the Committee, in its sole and absolute discretion, shall
determine. If any agreement between the Company or any Company subsidiary or
affiliate and a Participant contains provisions that conflict with and are more
restrictive than the provisions of this Section 12.3(c), this Section 12.3(c) shall
prevail and control and the more restrictive terms of such agreement (and only
such terms) shall be of no force or effect.

 

(d)           Subject to Sections 12.3(e), 3.2 and 3.3, the
Administrator may, in its discretion, include such further provisions and
limitations in any Award, agreement or certificate, as it may deem equitable
and in the best interests of the Company.

 

(e)           With respect to Awards that are granted to Section 162(m) Participants
and are intended to qualify as performance-based compensation under Section 162(m)(4)(C),
no adjustment or action described in this Section 12.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under Section 162(m)(4)(C),
or any successor provisions thereto. No adjustment or action described in this Section 12.3
or in any other provision of the Plan shall be authorized to the extent that
such adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3
unless the Administrator determines that the Award is not to comply with such
exemptive conditions. The number of shares of Common Stock subject to any Award
shall always be rounded to the nearest whole number.

 

(f)            The existence of the Plan, the Award Agreement and the
Awards granted hereunder shall not affect or restrict in any way the right or
power of the Company or the stockholders of the Company to make or authorize
any adjustment, recapitalization, reorganization or other change in the Company’s
capital structure or its business, any merger or consolidation of the Company,
any issue of stock or of options, warrants or rights to purchase stock or of
bonds, debentures, preferred or prior preference stocks whose rights are
superior to or affect the Common Stock or the rights thereof or that are convertible
into or exchangeable for Common Stock, or the dissolution or liquidation of the
company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

 

(g)           No action shall be taken under this Section 12.3
that shall cause an Award to fail to comply with Section 409A of the Code
or the Treasury Regulations thereunder, to the extent applicable to such Award.

 

12.4         Approval of Plan by Stockholders. The Plan will be submitted for the
approval of the Company’s stockholders within twelve months after the date of
the Board’s initial adoption of the Plan. 

 

25

 

No Awards may be granted
or awarded prior to such stockholder approval. In addition, if the Board
determines that Awards, other than Options or Stock Appreciation Rights, that
may be granted to Section 162(m) Participants should continue to be
eligible to qualify as performance-based compensation under Section 162(m)(4)(C) of
the Code, then to the extent required by Section 162(m) of the Code,
the Performance Criteria must be disclosed to and approved by the Company’s
stockholders no later than the first stockholder meeting that occurs in the
fifth year following the year in which the Company’s stockholders previously
approved the Plan containing the Performance Criteria.

 

12.5         Tax Withholding. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Holder to remit to
the Company, an amount sufficient to satisfy federal, state, local and foreign
taxes (including the Holder’s FICA obligation) required by law to be withheld
with respect to any taxable event concerning a Holder arising as a result of
this Plan. The Administrator may in its discretion and in satisfaction of the
foregoing requirement allow a Holder to elect to have the Company withhold
shares of Common Stock otherwise issuable under an Award (or allow the return
of shares of Common Stock) having a Fair Market Value equal to the sums
required to be withheld. Notwithstanding any other provision of the Plan, the
number of shares of Common Stock that may be withheld with respect to the
issuance, vesting, exercise or payment of any Award (or that may be repurchased
from the Holder of such Award within six months (or such other period as may be
determined by the Administrator) after such shares of Common Stock were
acquired by the Holder from the Company) in order to satisfy the Holder’s
federal, state, local and foreign income and payroll tax liabilities with
respect to the issuance, vesting, exercise or payment of the Award shall be
limited to the number of shares which have a Fair Market Value on the date of
withholding or repurchase equal to the aggregate amount of such liabilities
based on the minimum statutory withholding rates for federal, state, local and
foreign income tax and payroll tax purposes that are applicable to such
supplemental taxable income.

 

12.6         Prohibition on Repricing. Subject to Section 12.3, the
Administrator shall not, without the approval of the stockholders of the
Company authorize the amendment of any outstanding Award to reduce its price
per share. Furthermore, no Award shall be canceled and replaced with the grant
of an Award having a lesser price per share without the further approval of
stockholders of the Company.

 

12.7         Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right to provide, in the terms of Awards made
under the Plan, or to require a Holder to agree by separate written instrument,
that: (a)(i) any proceeds, gains or other economic benefit actually or
constructively received by the Holder upon any receipt or exercise of the
Award, or upon the receipt or resale of any Common Stock underlying the Award,
must be paid to the Company, and (ii) the Award shall terminate and any
unexercised portion of the Award (whether or not vested) shall be forfeited, if
(b)(i) a Termination of Employment, Termination of Directorship or
Termination of Consultancy occurs prior to a specified date, or within a
specified time period following receipt or exercise of the Award, or (ii) the
Holder at any time, or during a specified time period, engages in any activity
in competition with the Company, or that is inimical, contrary or harmful to
the interests of the Company, as further defined by the Administrator or (iii) the
Holder incurs a Termination of Employment, Termination of Directorship or
Termination of Consultancy for Cause.

 

12.8         Effect of Plan upon Options and Compensation Plans. The adoption of the Plan shall not
affect any other compensation or incentive plans in effect for the Company or
any Subsidiary. Nothing in the Plan shall be construed to limit the right of
the Company: (a) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary, or (b) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or 

 

26

 

assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.

 

12.9         Compliance with Laws. The Plan, the granting and vesting of
Awards under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted or awarded
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal
securities law and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of counsel
for the Company, be necessary or advisable in connection therewith. Any
securities delivered under the Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company,
provide such assurances and representations to the Company as the Company may
deem necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan and Awards
granted or awarded hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.

 

12.10       Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.

 

12.11       Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws principles thereof.

 

12.12       Financial Information. Security holders are to receive
financial statements of the Company at least annually as and to the extent
required by Section 260.140.46 of the California Code of Regulations.

 

27Exhibit 10.1

 

SECOND
AMENDMENT TO EMPLOYMENT AGREEMENT

 

This Second Amendment (the “Second Amendment”), dated July 10, 2008,
is to that certain Employment Agreement (the “Initial Agreement”), dated as of February 23,
2004, between Shuffle Master, Inc. (“the Company”) and Mark L. Yoseloff (“Employee”), as amended by the First Amendment
(the “First Amendment”), dated June 5, 2007, to the Initial Agreement.  All references to the “Agreement” shall mean
the Initial Agreement, the First Amendment and this Second Amendment.  All capitalized terms used in this Second
Amendment and not otherwise defined herein shall have the same meaning as in
the Initial Agreement.

 

For
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee hereby agree as follows:

 

1.         The date of “October 31,
2008”, which now appears in paragraph 1 of the First Amendment, is hereby
replaced with the date “October 31, 2009”. 
Thus, the term of the Agreement now expires on October 31, 2009,
unless otherwise terminated earlier in accordance with the provisions of the
Agreement.

 

2.         Except as
expressly amended hereby, the Agreement, as amended hereby, remains and is hereby
confirmed and ratified by the parties as being and remaining in full force and
effect, according and subject to its terms, conditions and provisions, and no
other terms, conditions or provisions thereof are hereby modified, changed or
implied.

 

 

	
  EMPLOYER

  	
   

  	
  EMPLOYEE

  	
   

  
	
  SHUFFLE
  MASTER, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  PAUL C. MEYER

  	
   

  	
    /s/
  MARK L. YOSELOFF

  	
   

  
	
   

  	
    Paul
  C. Meyer

  	
   

  	
    Mark
  L. Yoseloff

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
    President
  and Chief

    Operating Officer

  	
   

  	
    Chairman
  and Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHUFFLE MASTER, INC.

  	
   

  	
   

  	
   

  
	
  COMPENSATION COMMITTEE

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ JOHN R. BAILEY

  	
   

  	
   

  	
   

  
	
   

  	
  John R. Bailey on behalf
  of Louis Castle for the Compensation Committee

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