Document:

EXHIBIT 10.1

 

WESTAFF, INC.

 

2006 STOCK INCENTIVE PLAN

 

1.                                       Purposes
of the Plan. The purposes of this Plan are to attract and retain the best
available personnel, to provide additional incentives to Employees and
Directors and to promote the success of the Company’s business.

 

2.                                       Definitions.
The following definitions shall apply as used herein and in the individual
Award Agreements except as defined otherwise in an individual Award Agreement. In
the event a term is separately defined in an individual Award Agreement, such
definition shall supercede the definition contained in this Section 2.

 

(a)                                  “Administrator”
means the Board.

 

(b)                                 “Affiliate”
and “Associate” shall have the respective meanings ascribed to such
terms in Rule 12b-2 promulgated under the Exchange Act.

 

(c)                                  “Applicable
Laws” means the legal requirements relating to the Plan and the Awards
under applicable provisions of federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock exchange or
national market system, and the rules of any non-U.S. jurisdiction
applicable to Awards granted to residents therein.

 

(d)                                 “Assumed”
means that pursuant to a Corporate Transaction either (i) the Award is
expressly affirmed by the Company or (ii) the contractual obligations
represented by the Award are expressly assumed (and not simply by operation of
law) by the successor entity or its Parent in connection with the Corporate
Transaction with appropriate adjustments to the number and type of securities
of the successor entity or its Parent subject to the Award and the exercise or
purchase price thereof which at least preserves the compensation element of the
Award existing at the time of the Corporate Transaction as determined in
accordance with the instruments evidencing the agreement to assume the Award.

 

(e)                                  “Award”
means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock,
Restricted Stock Unit or other right or benefit under the Plan.

 

(f)                                    “Award
Agreement” means the written agreement evidencing the grant of an Award
executed by the Company and the Grantee, including any amendments thereto.

 

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

 

(h)                                 “Cause”
means, with respect to the termination by the Company or a Related Entity of
the Grantee’s Continuous Service, that such termination is for “Cause” as such
term is expressly defined in a then-effective written agreement between the
Grantee and the Company or such Related Entity, or in the absence of such
then-effective written agreement and definition, is based on, in the
determination of the Administrator, the Grantee’s:  (i) performance of any act or failure to
perform any act in bad faith and to the detriment of the Company or a
Related Entity; (ii) dishonesty, intentional misconduct or material breach
of any agreement with 

 

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the Company or a Related Entity; or (iii) commission of a crime
involving dishonesty, breach of trust, or physical or emotional harm to any
person.

 

(i)                                     “Change
in Control” means a change in ownership or
control of the Company effected through either of the following transactions:

 

(i)                                     the
direct or indirect acquisition by any person or related group of persons (other
than an acquisition from or by the Company or by a Company-sponsored employee
benefit plan or by a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the Company’s
outstanding securities pursuant to a tender or exchange offer made directly to
the Company’s stockholders which a majority of the Continuing Directors who are
not Affiliates or Associates of the offeror do not recommend such stockholders
accept, or

 

(ii)                                  a
change in the composition of the Board over a period of twelve (12) months or
less such that a majority of the Board members (rounded up to the next whole
number) ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who are Continuing Directors.

 

(j)                                     “Code”
means the Internal Revenue Code of 1986, as amended.

 

(k)                                  “Common
Stock” means the common stock of the Company.

 

(l)                                     “Company”
means Westaff, Inc., a Delaware corporation, or any successor entity that
adopts the Plan in connection with a Corporate Transaction.

 

(m)                               “Continuing
Directors” means members of the Board who either (i) have been Board
members continuously for a period of at least twelve (12) months or (ii) have
been Board members for less than twelve (12) months and were elected or
nominated for election as Board members by at least a majority of the Board
members described in clause (i) who were still in office at the time
such election or nomination was approved by the Board.

 

(n)                                 “Continuous
Service” means that the provision of services to the Company or a Related
Entity in any capacity of Employee or Director is not interrupted or terminated.
In jurisdictions requiring notice in advance of an effective termination as an
Employee or Director, Continuous Service shall be deemed terminated upon the
actual cessation of providing services to the Company or a Related Entity
notwithstanding any required notice period that must be fulfilled before a
termination as an Employee or Director can be effective under Applicable Laws. A
Grantee’s Continuous Service shall be deemed to have terminated either upon an
actual termination of Continuous Service or upon the entity for which the
Grantee provides services ceasing to be a Related Entity. Continuous Service
shall not be considered interrupted in the case of (i) any approved leave
of absence, (ii) transfers among the Company, any Related Entity, or any
successor, in any capacity of Employee or Director, or (iii) any change in
status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee or Director (except as otherwise
provided in the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave. 

 

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For purposes of each Incentive Stock Option granted under the Plan, if
such leave exceeds three (3) months, and reemployment upon expiration of
such leave is not guaranteed by statute or contract, then the Incentive Stock
Option shall be treated as a Non-Qualified Stock Option on the day three (3) months
and one (1) day following the expiration of such three (3) month
period.

 

(o)                                 “Corporate
Transaction” means any of the following transactions, provided, however,
that the Administrator shall determine under parts (iv) and (v) whether
multiple transactions are related, and its determination shall be final, binding
and conclusive:

 

(i)                                     a
merger or consolidation in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the state
in which the Company is incorporated;

 

(ii)                                  the
sale, transfer or other disposition of all or substantially all of the assets
of the Company;

 

(iii)                               the complete liquidation
or dissolution of the Company;

 

(iv)                              any
reverse merger or series of related transactions culminating in a reverse
merger (including, but not limited to, a tender offer followed by a reverse
merger) in which the Company is the surviving entity but (A) the shares of
Common Stock outstanding immediately prior to such merger are converted or
exchanged by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, or (B) in which securities possessing more
than forty percent (40%) of the total combined voting power of the Company’s
outstanding securities are transferred to a person or persons different from
those who held such securities immediately prior to such merger or the initial
transaction culminating in such merger, but
excluding any such transaction or series of related transactions that the
Administrator determines shall not be a Corporate Transaction; or

 

(v)                                 acquisition in a single or series of related
transactions by any person or related group of persons (other than the Company
or by a Company-sponsored employee benefit plan) of beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company’s outstanding securities but excluding any such transaction or series of
related transactions that the Administrator determines shall not be a Corporate
Transaction.

 

(p)                                 “Covered
Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of
the Code.

 

(q)                                 “Director”
means a member of the Board or the board of directors of any Related Entity.

 

(r)                                    “Disability”
means as defined under the long-term disability policy of the Company or the
Related Entity to which the Grantee provides services regardless of whether the
Grantee is covered by such policy. If the Company or the Related Entity to
which the Grantee provides service does not have a long-term disability plan in
place, “Disability” means that a Grantee is unable to carry out the
responsibilities and functions of the position held by the 

 

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Grantee by reason of any medically determinable physical or mental
impairment for a period of not less than ninety (90) consecutive days. A
Grantee will not be considered to have incurred a Disability unless he or she
furnishes proof of such impairment sufficient to satisfy the Administrator in
its discretion.

 

(s)                                  “Dividend
Equivalent Right” means a right entitling the Grantee to compensation
measured by dividends paid with respect to Common Stock.

 

(t)                                    “Employee”
means any person, including an Officer or
Director, who is in the employ of the Company or any Related Entity, subject to
the control and direction of the Company or any Related Entity as to both the
work to be performed and the manner and method of performance. The
payment of a director’s fee by the Company or a Related Entity shall not be
sufficient to constitute “employment” by the Company.

 

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

 

(v)                                 “Fair
Market Value” means, as of any date, the value of Common Stock determined
as follows:

 

(i)                                     If
the Common Stock is listed on one or more established stock exchanges or
national market systems, including without limitation The Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on the principal exchange or system
on which the Common Stock is listed (as determined by the Administrator) on the
date of determination (or, if no closing sales price or closing bid was
reported on that date, as applicable, on the last trading date such closing
sales price or closing bid was reported), as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;

 

(ii)                                  If
the Common Stock is regularly quoted on an automated quotation system
(including the OTC Bulletin Board) or by a recognized securities dealer, its
Fair Market Value shall be the closing sales price for such stock as quoted on
such system or by such securities dealer on the date of determination, but if selling
prices are not reported, the Fair Market Value of a share of Common Stock shall
be the mean between the high bid and low asked prices for the Common Stock on
the date of determination (or, if no such prices were reported on that date, on
the last date such prices were reported), as reported in The Wall Street
Journal or such other source as the Administrator deems reliable; or

 

(iii)                               In the absence of an established market for the Common Stock of the type
described in (i) and (ii), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith.

 

(w)                               “Grantee”
means an Employee or Director who receives an Award under the Plan.

 

(x)                                   “Incentive
Stock Option” means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code

 

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(y)                                 “Non-Qualified
Stock Option” means an Option not intended to qualify as an Incentive Stock
Option.

 

(z)                                   “Officer”
means a person who is an officer of the Company or a Related Entity within the
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

 

(aa)                            “Option”
means an option to purchase Shares pursuant to an Award Agreement granted under
the Plan.

 

(bb)                          “Parent”
means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of
the Code.

 

(cc)                            “Performance-Based
Compensation” means compensation qualifying as “performance-based
compensation” under Section 162(m) of the Code.

 

(dd)                          “Plan”
means this 2006 Stock Incentive Plan.

 

(ee)                            “Related
Entity” means any Parent or Subsidiary of the Company.

 

(ff)                                “Replaced” means that pursuant to a Corporate
Transaction the Award is replaced with
a comparable stock award or a cash incentive program of the Company, the
successor entity (if applicable) or Parent of either of them which preserves
the compensation element of such Award existing at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same (or
a more favorable) vesting schedule applicable to such Award. The
determination of Award comparability shall be made by the Administrator and its
determination shall be final, binding and conclusive.

 

(gg)                          “Restricted
Stock” means Shares issued under the Plan to the Grantee for such
consideration, if any, and subject to such restrictions on transfer, rights of
first refusal, repurchase provisions, forfeiture provisions, and other terms
and conditions as established by the Administrator.

 

(hh)                          “Restricted
Stock Units” means an Award which may be earned in whole or in part upon
the passage of time or the attainment of performance criteria established by
the Administrator and which may be settled for cash, Shares or other
securities or a combination of cash, Shares or other securities as established
by the Administrator.

 

(ii)                                  “Rule 16b-3”
means Rule 16b-3 promulgated under the Exchange Act or any successor
thereto.

 

(jj)                                  “SAR”
means a stock appreciation right entitling the Grantee to Shares or cash
compensation, as established by the Administrator, measured by appreciation in
the value of Common Stock.

 

(kk)                            “Share”
means a share of the Common Stock.

 

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(ll)                                  “Subsidiary”
means a “subsidiary corporation”, whether now or hereafter existing, as defined
in Section 424(f) of the Code.

 

3.                                       Stock
Subject to the Plan.

 

(a)                                  Subject
to the provisions of Section 10, below, the maximum aggregate number of
Shares which may be issued pursuant to all Awards (including Incentive
Stock Options) is 1,500,000 Shares. In addition, Dividend Equivalent Rights
shall be payable solely in cash and therefore the issuance of Dividend
Equivalent Rights shall not be deemed to reduce the maximum aggregate number of
Shares which may be issued under the Plan. SARs payable in Shares shall
reduce the maximum aggregate number of Shares which may be issued under
the Plan only by the net number of actual Shares issued to the Grantee upon
exercise of the SAR. The Shares to be issued pursuant to Awards may be authorized,
but unissued, or reacquired Common Stock.

 

(b)                                 Any
Shares covered by an Award (or portion of an Award) which is forfeited,
canceled or expires (whether voluntarily or involuntarily) shall be deemed not
to have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan
and shall not become available for future issuance under the Plan, except that
if unvested Shares are forfeited, or repurchased by the Company at the lower of
their original purchase price or their Fair Market Value at the time of
repurchase, such Shares shall become available for future grant under the Plan.
To the extent not prohibited by the listing requirements of The Nasdaq National
Market (or other established stock exchange or national market system on which
the Common Stock is traded) and Applicable Law, any Shares covered by an Award
which are surrendered or otherwise retained or withheld (i) in payment of
the Award exercise or purchase price (including pursuant to the “net exercise”
of an option pursuant to Section 7(b)(v)) or (ii) in satisfaction of
tax withholding obligations incident to the exercise of an Award shall be
deemed not to have been issued for purposes of determining the maximum number
of Shares which may be issued pursuant to all Awards under the Plan,
unless otherwise determined by the Administrator.

 

4.                                       Administration
of the Plan.

 

(a)                                  Plan
Administrator. The Plan shall be administered by the Board. All actions
taken by the Board with respect to the administration of the Plan (including,
but not limited to, those actions described in Section 4(b) of the
Plan) must be unanimously approved by the Board. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.

 

(b)                                 Powers
of the Administrator. Subject to Applicable Laws and the provisions of the
Plan (including any other powers given to the Administrator hereunder), and
except as otherwise provided by the Board, the Administrator shall have the
authority, in its discretion:

 

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(i)                                     to
select the Employees and Directors to whom Awards may be granted from time
to time hereunder;

 

(ii)                                  to
determine whether and to what extent Awards are granted hereunder;

 

(iii)                               to determine the number
of Shares or the amount of other consideration to be covered by each Award
granted hereunder;

 

(iv)                              to
approve forms of Award Agreements for use under the Plan;

 

(v)                                 to
determine the terms and conditions of any Award granted hereunder;

 

(vi)                              to
amend the terms of any outstanding Award granted under the Plan, provided that (A) any
amendment that would adversely affect the Grantee’s rights under an outstanding
Award shall not be made without the Grantee’s written consent, provided,
however, that an amendment or modification that may cause an Incentive
Stock Option to become a Non-Qualified Stock Option shall not be treated as
adversely affecting the rights of the Grantee, (B) the reduction of the
exercise price of any Option awarded under the Plan and the reduction of the
base appreciation amount of any SAR awarded under the Plan shall be subject to
stockholder approval and (C) canceling an Option or SAR at a time when its
exercise price or base appreciation amount (as applicable) exceeds the Fair
Market Value of the underlying Shares, in exchange for another Option, SAR,
Restricted Stock, or other Award shall be subject to stockholder approval,
unless the cancellation and exchange occurs in connection with a Corporate
Transaction;

 

(vii)                           to construe and interpret
the terms of the Plan and Awards, including without limitation, any notice of
award or Award Agreement, granted pursuant to the Plan;

 

(viii)                        to grant Awards to Employees
and Directors employed outside the United States on such terms and conditions
different from those specified in the Plan as may, in the judgment of the
Administrator, be necessary or desirable to further the purpose of the Plan;
and

 

(ix)                                to
take such other action, not inconsistent with the terms of the Plan, as the
Administrator deems appropriate.

 

The express grant in the Plan of any specific power to the
Administrator shall not be construed as limiting any power or authority of the
Administrator; provided that the Administrator may not exercise any right
or power reserved to the Board. Any decision made, or action taken, by the
Administrator or in connection with the administration of this Plan shall be
final, conclusive and binding on all persons having an interest in the Plan.

 

(c)                                  Indemnification.
In addition to such other rights of indemnification as they may have as
members of the Board or as Officers or Employees of the Company or a Related
Entity, members of the Board and any Officers or Employees of the Company or a
Related 

 

7

 

Entity to whom authority to act for the Board, the Administrator or the
Company is delegated shall be defended and indemnified by the Company to the
extent permitted by law on an after-tax basis against all reasonable expenses,
including attorneys’ fees, actually and necessarily incurred in connection with
the defense of any claim, investigation, action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, or any Award granted hereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by the
Company) or paid by them in satisfaction of a judgment in any such claim,
investigation, action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such claim, investigation, action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct; provided, however, that within thirty (30) days after
the institution of such claim, investigation, action, suit or proceeding, such
person shall offer to the Company, in writing, the opportunity at the Company’s
expense to defend the same.

 

5.                                       Eligibility.
Awards other than Incentive Stock Options may be granted to Employees and
Directors. Incentive Stock Options may be granted only to Employees of the
Company or a Parent or a Subsidiary of the Company. An Employee or Director who
has been granted an Award may, if otherwise eligible, be granted additional
Awards. Awards may be granted to such Employees or Directors who are
residing in non-U.S. jurisdictions as the Administrator may determine from
time to time.

 

6.                                       Terms
and Conditions of Awards.

 

(a)                                  Types
of Awards. The Administrator is authorized under the Plan to award any type
of arrangement to an Employee or Director that is not inconsistent with the
provisions of the Plan and that by its terms involves or might involve the
issuance of (i) Shares, (ii) cash or (iii) an Option, a SAR, or
similar right with a fixed or variable price related to the Fair Market Value
of the Shares and with an exercise or conversion privilege related to the
passage of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions. Such awards include, without
limitation, Options, SARs, sales or bonuses of Restricted Stock, Restricted
Stock Units or Dividend Equivalent Rights, and an Award may consist of one
such security or benefit, or two (2) or more of them in any combination or
alternative.

 

(b)                                 Designation
of Award. Each Award shall be designated in the Award Agreement. In the
case of an Option, the Option shall be designated as either an Incentive Stock
Option or a Non-Qualified Stock Option. However, notwithstanding such designation,
an Option will qualify as an Incentive Stock Option under the Code only to the
extent the $100,000 dollar limitation of Section 422(d) of the Code
is not exceeded. The $100,000 limitation of Section 422(d) of the
Code is calculated based on the aggregate Fair Market Value of the Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary of the Company). For purposes
of this calculation, Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the grant date of the relevant Option.

 

8

 

(c)                                  Conditions
of Award. Subject to the terms of the Plan, the Administrator shall
determine the provisions, terms, and conditions of each Award including, but
not limited to, the Award vesting schedule, repurchase provisions, rights of
first refusal, forfeiture provisions, form of payment (cash, Shares, or
other consideration) upon settlement of the Award, payment contingencies, and
satisfaction of any performance criteria. The performance criteria established
by the Administrator may be based on any one of, or combination of, the
following: (i) increase in share price, (ii) earnings per share, (iii) total
stockholder return, (iv) operating margin, (v) gross margin, (vi) return
on equity, (vii) return on assets, (viii) return on investment, (ix) operating
income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow, (xiii)
revenue, (xiv) expenses, (xv) earnings before interest, taxes and depreciation,
(xvi) economic value added, (xvii) market share, (xviii) gross profit,
(xix) growth in sales and (xx) sales targets. The performance
criteria may be applicable to the Company, Related Entities and/or any
individual business units of the Company or any Related Entity. Partial
achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.

 

(d)                                 Acquisitions
and Other Transactions. The Administrator may issue Awards under the
Plan in settlement, assumption or substitution for, outstanding awards or
obligations to grant future awards in connection with the Company or a Related
Entity acquiring another entity, an interest in another entity or an additional
interest in a Related Entity whether by merger, stock purchase, asset purchase
or other form of transaction.

 

(e)                                  Deferral
of Award Payment. The Administrator may establish one or more programs
under the Plan to permit selected Grantees the opportunity to elect to defer
receipt of consideration upon exercise of an Award, satisfaction of performance
criteria, or other event that absent the election would entitle the Grantee to
payment or receipt of Shares or other consideration under an Award. The
Administrator may establish the election procedures, the timing of such
elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator
deems advisable for the administration of any such deferral program.

 

(f)                                    Separate
Programs. The Administrator may establish one or more separate
programs under the Plan for the purpose of issuing particular forms of Awards
to one or more classes of Grantees on such terms and conditions as determined
by the Administrator from time to time.

 

(g)                                 Individual
Limitations on Awards.

 

(i)                                     Individual
Limit for Options and SARs. The maximum number of Shares with respect to
which Options and SARs may be granted to any Grantee in any calendar year
shall be 1,000,000 Shares. In connection with a Grantee’s commencement of
Continuous Service, a Grantee may be granted Options and SARs for up to an
additional 500,000 Shares which shall not count against the limit set forth in
the previous sentence. The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company’s capitalization
pursuant to Section 10, below. To the extent required by Section 162(m)
of the Code or the regulations thereunder, in applying the foregoing
limitations with respect to a 

 

9

 

Grantee, if any Option or SAR is canceled, the canceled Option or SAR
shall continue to count against the maximum number of Shares with respect to
which Options and SARs may be granted to the Grantee. For this purpose,
the repricing of an Option (or in the case of a SAR, the base amount on which
the stock appreciation is calculated is reduced to reflect a reduction in the
Fair Market Value of the Common Stock) shall be treated as the cancellation of
the existing Option or SAR and the grant of a new Option or SAR.

 

(ii)                                  Individual
Limit for Restricted Stock and Restricted Stock Units. For awards of
Restricted Stock and Restricted Stock Units that are intended to be
Performance-Based Compensation, the maximum number of Shares with respect to
which such Awards may be granted to any Grantee in any calendar year shall
be 1,000,000 Shares. The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company’s capitalization pursuant to Section 10,
below.

 

(iii)                               Deferral. If the
vesting or receipt of Shares under an Award is deferred to a later date, any
amount (whether denominated in Shares or cash) paid in addition to the original
number of Shares subject to such Award will not be treated as an increase in
the number of Shares subject to the Award if the additional amount is based
either on a reasonable rate of interest or on one or more predetermined actual
investments such that the amount payable by the Company at the later date will
be based on the actual rate of return of a specific investment (including any
decrease as well as any increase in the value of an investment).

 

(h)                                 Early
Exercise. The Award Agreement may, but need not, include a provision
whereby the Grantee may elect at any time while an Employee or Director to
exercise any part or all of the Award prior to full vesting of the Award. Any
unvested Shares received pursuant to such exercise may be subject to a
repurchase right in favor of the Company or a Related Entity or to any other
restriction the Administrator determines to be appropriate.

 

(i)                                     Term
of Award. The term of each Award shall be the term stated in the Award
Agreement, provided, however, that the term of an Award shall be no more than
ten (10) years from the date of grant thereof. However, in the case
of an Incentive Stock Option granted to a Grantee who, at the time the Option
is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in
the Award Agreement. Notwithstanding the foregoing, the specified term of any
Award shall not include any period for which the Grantee has elected to defer
the receipt of the Shares or cash issuable pursuant to the Award.

 

(j)                                     Transferability
of Awards. Incentive Stock Options may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Grantee, only by the Grantee. Other Awards shall be
transferable (i) by will and by the laws of descent and distribution and (ii) during
the lifetime of the Grantee, to the extent and in the manner authorized by the
Administrator. Notwithstanding the foregoing, the Grantee may designate
one or more beneficiaries of the Grantee’s Award in the event of the Grantee’s
death on a beneficiary designation form provided by the Administrator.

 

10

 

(k)                                  Time
of Granting Awards. The date of grant of an Award shall for all purposes be
the date on which the Administrator makes the determination to grant such
Award, or such other later date as is determined by the Administrator.

 

7.                                       Award
Exercise or Purchase Price, Consideration and Taxes.

 

(a)                                  Exercise
or Purchase Price. The exercise or purchase price, if any, for an Award
shall be as follows:

 

(i)                                     In
the case of an Incentive Stock Option:

 

(A)                              granted
to an Employee who, at the time of the grant of such Incentive Stock Option
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary of the Company, the
per Share exercise price shall be not less than one hundred ten percent (110%)
of the Fair Market Value per Share on the date of grant; or

 

(B)                                granted
to any Employee other than an Employee described in the preceding paragraph,
the per Share exercise price shall be not less than one hundred percent (100%)
of the Fair Market Value per Share on the date of grant.

 

(ii)                                  In
the case of a Non-Qualified Stock Option, the per Share exercise price shall be
not less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.

 

(iii)                               In the case of SARs, the
base appreciation amount shall be not less than one hundred percent (100%) of
the Fair Market Value per Share on the date of grant.

 

(iv)                              In
the case of Awards intended to qualify as Performance-Based Compensation, the
exercise or purchase price, if any, shall be not less than one hundred percent
(100%) of the Fair Market Value per Share on the date of grant.

 

(v)                                 In
the case of other Awards, such price as is determined by the Administrator.

 

(vi)                              Notwithstanding
the foregoing provisions of this Section 7(a), in the case of an Award
issued pursuant to Section 6(d), above, the exercise or purchase price for
the Award shall be determined in accordance with the provisions of the relevant
instrument evidencing the agreement to issue such Award.

 

(b)                                 Consideration.
Subject to Applicable Laws, the consideration to be paid for the Shares to be
issued upon exercise or purchase of an Award including the method of payment,
shall be determined by the Administrator. In addition to any other types of
consideration the Administrator may determine, the Administrator is
authorized to accept as consideration for Shares issued under the Plan the following,
provided that the portion of the consideration equal to the par value of the
Shares must be paid in cash or other legal consideration permitted by the
Delaware General Corporation Law:

 

11

 

(i)                                     cash;

 

(ii)                                  check;

 

(iii)                               surrender of Shares or
delivery of a properly executed form of attestation of ownership of Shares
as the Administrator may require which have a Fair Market Value on the
date of surrender or attestation equal to the aggregate exercise price of the
Shares as to which said Award shall be exercised;

 

(iv)                              with
respect to Options, payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (A) shall provide written
instructions to a Company designated brokerage firm to effect the immediate
sale of some or all of the purchased Shares and remit to the Company sufficient
funds to cover the aggregate exercise price payable for the purchased Shares
and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction;

 

(v)                                 with
respect to Options, payment through a “net exercise” such that, without the
payment of any funds, the Grantee may exercise the Option and receive the
net number of Shares equal to (i) the number of Shares as to which the
Option is being exercised, multiplied by (ii) a fraction, the numerator of
which is the Fair Market Value per Share (on such date as is determined by the
Administrator) less the Exercise Price per Share, and the denominator of which
is such Fair Market Value per Share; or

 

(vi)                              any
combination of the foregoing methods of payment.

 

The Administrator may at any time or from time to time, by
adoption of or by amendment to the standard forms of Award Agreement described
in Section 4(b)(iv), or by other means, grant Awards which do not permit
all of the foregoing forms of consideration to be used in payment for the
Shares or which otherwise restrict one or more forms of consideration.

 

(c)                                  Taxes.
No Shares shall be delivered under the Plan to any Grantee or other person
until such Grantee or other person has made arrangements acceptable to the
Administrator for the satisfaction of any non-U.S., federal, state, or local
income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares. Upon exercise or
vesting of an Award the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations, including, but not limited
to, by surrender of the whole number of Shares covered by the Award sufficient
to satisfy the minimum applicable tax withholding obligations incident to the
exercise or vesting of an Award.

 

8.                                       Exercise
of Award.

 

(a)                                  Procedure
for Exercise; Rights as a Stockholder.

 

(i)                                     Any
Award granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator under the terms of the Plan and
specified in the Award Agreement.

 

12

 

(ii)                                  An
Award shall be deemed to be exercised when written notice of such exercise has
been given to the Company in accordance with the terms of the Award by the
person entitled to exercise the Award and full payment for the Shares with
respect to which the Award is exercised has been made, including, to the extent
selected, use of the broker-dealer sale and remittance procedure to pay the
purchase price as provided in Section 7(b)(iv).

 

(b)                                 Exercise
of Award Following Termination of Continuous Service.

 

(i)                                     An
Award may not be exercised after the termination date of such Award set
forth in the Award Agreement and may be exercised following the
termination of a Grantee’s Continuous Service only to the extent provided in
the Award Agreement.

 

(ii)                                  Where
the Award Agreement permits a Grantee to exercise an Award following the
termination of the Grantee’s Continuous Service for a specified period, the
Award shall terminate to the extent not exercised on the last day of the
specified period or the last day of the original term of the Award, whichever
occurs first.

 

(iii)                               Any Award designated as
an Incentive Stock Option to the extent not exercised within the time permitted
by law for the exercise of Incentive Stock Options following the termination of
a Grantee’s Continuous Service shall convert automatically to a Non-Qualified
Stock Option and thereafter shall be exercisable as such to the extent
exercisable by its terms for the period specified in the Award Agreement.

 

9.                                       Conditions
Upon Issuance of Shares.

 

(a)                                  Shares
shall not be issued pursuant to the exercise of an Award unless the exercise of
such Award and the issuance and delivery of such Shares pursuant thereto shall
comply with all Applicable Laws, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.

 

(b)                                 As
a condition to the exercise of an Award, the Company may require the
person exercising such Award to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any Applicable
Laws.

 

10.                                 Adjustments
Upon Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding
Award, and the number of Shares which have been authorized for issuance under
the Plan but as to which no Awards have yet been granted or which have been
returned to the Plan, the exercise or purchase price of each such outstanding
Award, the maximum number of Shares with respect to which Awards may be
granted to any Grantee in any calendar year, as well as any other terms that
the Administrator determines require adjustment shall be proportionately
adjusted for (i) any increase or decrease in the number of issued Shares
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Shares, or similar transaction affecting the Shares,
(ii) any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company, or (iii) as the
Administrator may determine in its discretion, any other transaction with
respect to Common Stock including a corporate merger, 

 

13

 

consolidation, acquisition of property or stock, separation (including
a spin-off or other distribution of stock or property), reorganization,
liquidation (whether partial or complete) or any similar transaction; provided,
however that conversion of any convertible securities of the Company shall not
be deemed to have been “effected without receipt of consideration.”  In the event of any distribution of cash or
other assets to stockholders other than a normal cash dividend, the
Administrator may also, in its discretion, make adjustments in connection
with the events described in (i)-(iii) of this Section 10 or
substitute, exchange or grant Awards with respect to the shares of a Related
Entity (collectively “adjustments”). In determining adjustments to be made
under this Section 10, the Administrator may take into account such
factors as it deems appropriate, including (x) the restrictions of
Applicable Law, (y) the potential tax, accounting or other consequences of
an adjustment and (z) the possibility that some Grantees might receive an
adjustment and a distribution or other unintended benefit, and in light of such
factors or circumstances may make adjustments that are not uniform or
proportionate among outstanding Awards, modify vesting dates, defer the
delivery of stock certificates or make other equitable adjustments. Any such
adjustments to outstanding Awards will be effected in a manner that precludes
the material enlargement of rights and benefits under such Awards. Adjustments,
if any, and any determinations or interpretations, including any determination
of whether a distribution is other than a normal cash dividend, shall be made
by the Administrator and its determination shall be final, binding and
conclusive. In connection with the foregoing adjustments, the Administrator
may, in its discretion, prohibit the exercise of Awards during certain periods
of time. Except as the Administrator determines, no issuance by the Company of
shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.

 

11.                                 Corporate
Transactions and Changes in Control.

 

(a)                                  Termination
of Award to Extent Not Assumed in Corporate Transaction. Effective upon the
consummation of a Corporate Transaction, all outstanding Awards under the Plan
shall terminate. However, all such Awards shall not terminate to the extent
they are Assumed in connection with the Corporate Transaction.

 

(b)                                 Acceleration
of Award Upon Corporate Transaction or Change in Control.

 

(i)                                     Except
as provided otherwise in an individual Award Agreement, in the event of a
Corporate Transaction, for the portion of each Award that is neither Assumed
nor Replaced, such portion of the Award shall automatically become fully vested
and exercisable and be released from any repurchase or forfeiture rights (other
than repurchase rights exercisable at Fair Market Value) for all of the Shares
at the time represented by such portion of the Award, immediately prior to the
specified effective date of such Corporate Transaction, provided that the
Grantee’s Continuous Service has not terminated prior to such date.

 

(ii)                                  The
Administrator shall have the authority, exercisable either in advance of any
actual or anticipated Corporate Transaction or Change in Control or at the time
of an actual Corporate Transaction or Change in Control and exercisable at the
time of the grant of an Award under the Plan or any time while an Award remains
outstanding, to provide for the full or partial automatic vesting and
exercisability of one or more outstanding unvested Awards 

 

14

 

under the Plan and the
release from restrictions on transfer and repurchase or forfeiture rights of
such Awards in connection with a Corporate Transaction or Change in Control, on
such terms and conditions as the Administrator may specify. The
Administrator also shall have the authority to condition any such Award vesting
and exercisability or release from such limitations upon the subsequent
termination of the Continuous Service of the Grantee within a specified period
following the effective date of the Corporate Transaction or Change in Control.
The Administrator may provide that any Awards so vested or released from
such limitations in connection with a Change in Control, shall remain fully
exercisable until the expiration or sooner termination of the Award.

 

(c)                                  Effect
of Acceleration on Incentive Stock Options. Any Incentive Stock Option
accelerated under this Section 11 in connection with a Corporate
Transaction or Change in Control shall remain exercisable as an Incentive Stock
Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of
the Code is not exceeded.

 

12.                                 Effective
Date and Term of Plan. The Plan shall become effective upon its approval by
the stockholders of the Company. It shall continue in effect for a term of ten (10) years
unless sooner terminated.

 

13.                                 Amendment,
Suspension or Termination of the Plan.

 

(a)                                  The
Board may at any time amend, suspend or terminate the Plan; provided,
however, that no such amendment shall be
made without the approval of the Company’s stockholders to the extent such
approval is required by Applicable Laws, or if such amendment would lessen the
stockholder approval requirements of Section 4(b)(vi) or this Section 13(a).

 

(b)                                 No
Award may be granted during any suspension of the Plan or after
termination of the Plan.

 

(c)                                  No
suspension or termination of the Plan (including termination of the Plan under Section 12,
above) shall adversely affect any rights under Awards already granted to a
Grantee.

 

14.                                 Reservation
of Shares.

 

(a)                                  The
Company, during the term of the Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

 

(b)                                 The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

 

15.                                 No
Effect on Terms of Employment/Consulting Relationship. The Plan shall not
confer upon any Grantee any right with respect to the Grantee’s Continuous
Service, nor shall it 

 

15

 

interfere in any way with his or her right or the right of the Company
or any Related Entity to terminate the Grantee’s Continuous Service at any
time, with or without Cause, and with or without notice. The ability of the
Company or any Related Entity to terminate the employment of a Grantee who is
employed at will is in no way affected by its determination that the Grantee’s
Continuous Service has been terminated for Cause for the purposes of this Plan.

 

16.                                 No
Effect on Retirement and Other Benefit Plans. Except as specifically
provided in a retirement or other benefit plan of the Company or a Related
Entity, Awards shall not be deemed compensation for purposes of computing
benefits or contributions under any retirement plan of the Company or a Related
Entity, and shall not affect any benefits under any other benefit plan of any
kind or any benefit plan subsequently instituted under which the availability
or amount of benefits is related to level of compensation. The Plan is not a “Retirement
Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of
1974, as amended.

 

17.                                 Unfunded
Obligation. Grantees shall have the status of general unsecured creditors
of the Company. Any amounts payable to Grantees pursuant to the Plan shall be
unfunded and unsecured obligations for all purposes, including, without
limitation, Title I of the Employee Retirement Income Security Act of
1974, as amended. Neither the Company nor any Related Entity shall be required
to segregate any monies from its general funds, or to create any trusts, or
establish any special accounts with respect to such obligations. The Company
shall retain at all times beneficial ownership of any investments, including
trust investments, which the Company may make to fulfill its payment
obligations hereunder. Any investments or the creation or maintenance of any
trust or any Grantee account shall not create or constitute a trust or
fiduciary relationship between the Administrator, the Company or any Related
Entity and a Grantee, or otherwise create any vested or beneficial interest in
any Grantee or the Grantee’s creditors in any assets of the Company or a
Related Entity. The Grantees shall have no claim against the Company or any
Related Entity for any changes in the value of any assets that may be
invested or reinvested by the Company with respect to the Plan.

 

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

 

16EXHIBIT 10.2

 

WESTAFF, INC.

 

2006 NON-EMPLOYEE DIRECTOR OPTION PROGRAM

 

ARTICLE I

ESTABLISHMENT AND PURPOSE OF THE PROGRAM

 

1.01        Establishment
of Program

 

The Westaff, Inc. 2006 Non-Employee Director
Option Program (the “Program”) is adopted pursuant to the Westaff, Inc.
2006 Stock Incentive Plan (the “Plan”) and, in addition to the terms and
conditions set forth below, is subject to the provisions of the Plan.

 

1.02        Purpose of
Program

 

The purpose of the Program is to enhance the ability
of the Company to attract and retain directors who are not Employees (“Non-Employee
Directors”) through a program of automatic Option grants.

 

1.03        Effective
Date of the Program

 

The Program is effective as of the date the Plan is
approved by the stockholders of the Company.

 

ARTICLE II

DEFINITIONS

 

Capitalized terms in this Program, unless otherwise
defined herein, have the meaning given to them in the Plan.

 

ARTICLE III

OPTION TERMS

 

3.01        Date of
Grant and Number of Shares

 

A Non-Qualified Stock Option to purchase 3,000 shares of Common Stock shall be granted (the “Initial Grant”)
to each Non-Employee Director, such Initial Grant to be made to Non-Employee
Directors (elected or appointed to the Board after the effective date of this
Program) on the first business day after each such Non-Employee Director first
becomes a Non-Employee Director; provided that no Initial Grant shall be made
to any Non-Employee Director who has at any time been in the prior employ of
the Company or any Related Entity. In addition, on the first business day after
each annual meeting of the Company’s stockholders commencing with the annual
meeting of the Company’s stockholders in 2006, each Non-Employee Director who
continues as a Non-Employee Director following such annual meeting shall be
granted a Non-Qualified Stock Option to purchase 3,000 shares of Common Stock
(a “Subsequent Grant”); provided that no Subsequent Grant shall be made to any
Non-Employee Director who has not served as a director of the Company, as of
the time of such annual meeting, for at least six (6) months.

 

1

 

3.02        Vesting

 

Each Initial Grant and Subsequent Grant under the
Program shall vest and become fully exercisable on the first anniversary of the
grant date.

 

In the event the Non-Employee Director’s Continuous
Service is terminated as the result of the Non-Employee Director’s death of
Disability, 100% of the Shares subject to the Option shall vest immediately
prior to the termination of the Non-Employee Director’s Continuous Service.

 

3.03        Exercise
Price

 

The exercise price per share of Common Stock of each
Initial Grant and Subsequent Grant shall be one hundred percent (100%) of the
Fair Market Value per Share on the date of grant.

 

3.04        Corporate
Transaction/Change in Control

 

(a)           In the
event of a Corporate Transaction, each Option which is at the time outstanding
under the Program automatically shall become fully vested and exercisable
immediately prior to the effective date of such Corporate Transaction. Effective
upon the consummation of the Corporate Transaction, all outstanding Options
under the Program shall terminate. However, all such Options shall not
terminate to the extent they are Assumed in connection with the Corporate
Transaction.

 

(b)           In the
event of a Change in Control (other than a Change in Control which also is a
Corporate Transaction), each Option which is at the time outstanding under the
Program automatically shall become fully vested and exercisable, immediately
prior to the specified effective date of such Change in Control.

 

3.05        Other Terms

 

The Administrator shall determine the remaining terms
and conditions of the Options awarded under the Program.

 

3.06        Amendment,
Suspension or Termination of the Program

 

The Board may at any time amend, suspend or
terminate the Program without the approval
of the Company’s stockholders.

 

2

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