Document:

Exhibit
10.3

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH
THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.  THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

IMAGEWARE
SYSTEMS, INC.

	
  Warrant
  Shares: [      ]

  	
  Initial Exercise Date:
  September 9, 2007

  
	
  Warrant No. 07-[     ]

  	
  Issue Date: March 9,
  2007

  

THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, [      ] (the “Holder”), is entitled, upon
the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the six month anniversary of the
date hereof (the “Initial Exercise Date”) and on or prior to the close
of business on the 5 year anniversary of the Initial Exercise Date (the “Termination
Date”) but not thereafter, to subscribe for and purchase from ImageWare
Systems, Inc., a Delaware corporation (the “Company”), up to [       ] shares (the “Warrant Shares”) of
common stock, par value $0.01 per share, of the Company (the “Common Stock”).  The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).

Section 1.               Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated March 9, 2007, among the Company and the purchasers signatory thereto.

Section
2.               Exercise.

a)             Exercise of
Warrant.  Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy
of the Notice of Exercise Form annexed 
hereto (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the address of such
Holder appearing on the books of the Company); and, within 3 Trading Days of
the date said Notice of Exercise is delivered to the

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Company, the Company shall have received  payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer or cashier’s check drawn on a
United States bank.  Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full,
in which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise is
delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt of
such notice.  The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by reason
of the provisions of this paragraph, following the purchase of a portion of the
Warrant Shares hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on the face
hereof.

b)            Exercise Price.  The exercise price per share of the Common
Stock under this Warrant shall be $2.33, subject to adjustment hereunder (the “Exercise
Price”).

c)             Cashless Exercise.  If at any time after one year from the date
of issuance of this Warrant there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Holder, then this Warrant may also be exercised at such time by
means of a “cashless exercise” in which the Holder shall be entitled to receive
a certificate for the number of Warrant Shares equal to the quotient obtained
by dividing [(A-B) (X)] by (A), where:

 (A) = the VWAP
on the Trading Day immediately preceding the date of such election;

(B) =  the
Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.

Notwithstanding anything herein to the contrary, on
the Termination Date, this Warrant shall be automatically exercised via
cashless exercise pursuant to this Section 2(c).

d)            Trading Market
Restrictions.  If the Company has not
obtained Shareholder Approval, then the Company may not issue upon exercise of
this Warrant a number of shares
of Common Stock, which, when aggregated with any shares of Common Stock issued
(A) upon conversion of or as payment of dividends on the Preferred Stock issued pursuant to the Purchase Agreement,
(B) upon prior exercise of

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this or any other Warrant issued pursuant to
the Purchase Agreement and (C) pursuant to any warrants issued to any
registered broker-dealer as a fee in connection with the Securities pursuant to
the Purchase Agreement, would exceed 2,724,000, subject to adjustment
for reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date of the
Purchase Agreement (such number of shares, the “Issuable Maximum”).  The Holder and the
holders of the other Warrants issued pursuant to the Purchase Agreement shall
be entitled to a portion of the Issuable Maximum equal to the product of (I)
and (II) where (I) is equal to the Issuable Maximum and (II) is the quotient
obtained by dividing (x) such Holder’s original Subscription Amount by (y) the
aggregate original Subscription Amount of all holders pursuant to the Purchase
Agreement. In addition, the Holder may allocate its pro-rata portion of the
Issuable Maximum among Preferred Stock and Warrants held by it in its sole
discretion. Such portion shall be adjusted upward ratably in the event a
Purchaser no longer holds any Preferred Stock or Warrants and the amount of
shares issued to such Purchaser pursuant to its Preferred Stock and Warrants
was less than such Purchaser’s pro-rata share of the Issuable Maximum.  For avoidance of doubt, unless and
until any required Shareholder Approval is obtained and effective, warrants
issued to any registered broker-dealer as a fee in connection with the
Securities issued pursuant to the Purchase Agreement as described in (C) above
shall provide that such warrants shall not be allocated any portion of the
Issuable Maximum and shall be unexercisable unless and until such Shareholder
Approval is obtained and effective.

e)             Mechanics of
Exercise.

i.      Authorization of
Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

ii.     Delivery of
Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (“Warrant Share Delivery Date”). 
This Warrant shall be deemed to have been exercised on the date the
Exercise Price is received by the Company. 
The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such

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shares for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price (or by cashless exercise, if
permitted) and all taxes required to be paid by the Holder, if any, pursuant to
Section 2(e)(vii) prior to the issuance of such shares, have been paid.

iii.    Delivery of New
Warrants Upon Exercise.  If this
Warrant shall have been exercised in part, the Company shall, at the request of
a Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

iv.    Rescission Rights.  If the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery
Date, then the Holder will have the right to rescind such exercise.

v.     Compensation for Buy-In
on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to
the Holder, if the Company fails to cause its transfer agent to transmit to the
Holder a certificate or certificates representing the Warrant Shares pursuant
to an exercise on or before the Warrant Share Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market
transaction or otherwise) or the Holder’s brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
the Warrant Shares which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company shall (1) pay in cash to the Holder the
amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y)
the amount obtained by multiplying (A) the number of Warrant Shares that the
Company was required to deliver to the Holder in connection with the exercise
at issue times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of Warrant Shares
for which such exercise was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of the

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Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant
as required pursuant to the terms hereof.

vi.    No Fractional Shares or
Scrip.  No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.  As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the
Company shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the Exercise
Price or round up to the next whole share.

vii.   Charges, Taxes and
Expenses.  Issuance of certificates
for Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that
in the event certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for exercise shall
be accompanied by the Assignment Form attached hereto duly executed by the
Holder; and the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.  Closing of Books.  The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.

Section
3.               Certain Adjustments.

a)             Stock Dividends
and Splits. If the Company, at any time while this Warrant is outstanding:
(A) pays a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event and the number of

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shares issuable upon exercise of this Warrant shall be proportionately
adjusted.  Any adjustment made pursuant
to this Section 3(a) shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.

b)            Subsequent Equity
Sales. If the Company or any Subsidiary thereof, as applicable, at any time
while this Warrant is outstanding, shall sell or grant any option to purchase
or sell or grant any right to reprice its securities, or otherwise dispose of
or issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock, at an effective price per share less than
the then Exercise Price (such lower price, the “Base Share Price” and
such issuances collectively, a “Dilutive Issuance”) (if the holder of
the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per share
which is less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then the Exercise Price shall be reduced and only reduced to equal
the Base Share Price.  Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are
issued.  Notwithstanding the foregoing,
no adjustments shall be made, paid or issued under this Section 3(b) in respect
of an Exempt Issuance.  The Company shall
notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this
Section 3(b), indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price and other pricing terms (such
notice the “Dilutive Issuance Notice”). 
For purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of
any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share Price
regardless of whether the Holder accurately refers to the Base Share Price in
the Notice of Exercise.

c)             Subsequent
Rights Offerings.  If the Company, at
any time while the Warrant is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming receipt by the Company in full of
all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP.  Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become

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effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.

d)            Pro Rata
Distributions.  If the Company, at
any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security other than the Common Stock (which shall
be subject to Section 3(b)), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then per share fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

e)             Fundamental
Transaction. If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental Transaction”),
then, upon any subsequent exercise of this Warrant, the Holder shall have the
right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental
Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the
number of shares of Common Stock of the successor or acquiring corporation or
of the Company, if it is the surviving corporation, and any additional
consideration (the “Alternate Consideration”) receivable upon or as a
result of such reorganization, reclassification, merger, consolidation or
disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) if the
Company is acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula.  For purposes of any such
exercise, the determination of the Exercise Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in
such Fundamental Transaction, and the Company shall apportion the Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.  If holders of Common Stock are

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given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. 
To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing
provisions and evidencing the Holder’s right to exercise such warrant into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
3(e) and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

f)             Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of
a given date shall be the sum of the number of shares of Common Stock
(excluding treasury shares, if any) issued and outstanding.

g)            Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

h)            Notice to Holder.

i.      Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to the Holder a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment. If the Company enters
into a Variable Rate Transaction (as defined in the Purchase Agreement),
despite the prohibition thereon in the Purchase Agreement, the Company shall be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised.

ii.     Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common
Stock

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is converted into other securities, cash or property;
(E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each case,
the Company shall cause to be mailed to the Holder at its last address as it
shall appear upon the Warrant Register of the Company, at least 10 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.  The
Holder is entitled to exercise this Warrant during the 10-day period commencing
on the date of such notice to the effective date of the event triggering such
notice; provided that in no event shall the Holder be entitled to exercise this
Warrant after the Termination Date.

Section
4.               Transfer of Warrant.

a)             Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
rights hereunder (including, without limitation, any registration rights) are transferable
only to an Affiliate of the Holder, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.

b)            New Warrants.
This Warrant may be divided or combined with other Warrants upon presentation
hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. 
Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the

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Company shall execute and deliver a new Warrant or Warrants in exchange
for the Warrant or Warrants to be divided or combined in accordance with such
notice.

c)             Warrant Register.
The Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”), in the name of the
record Holder hereof from time to time. 
The Company may deem and treat the registered Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to
the contrary.

d)            Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer, that (i) the
Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, and (ii) the Holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company, and (iii) the transferee be an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a “qualified institutional buyer” as
defined in Rule 144A(a) promulgated under the Securities Act.

Section
5.               Miscellaneous.

a)             No Rights as
Shareholder Until Exercise.  This
Warrant does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof as set forth in Section
2(e)(ii).

b)            Loss, Theft,
Destruction or Mutilation of Warrant. The Company covenants that upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)             Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be
taken or such right may be exercised on the next succeeding Business Day.

 

 10

d)            Authorized Shares.

The Company
covenants that during the period the Warrant is outstanding, it will reserve
from its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant.  The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may be
listed.

Except and to the
extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against impairment.  Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of
this Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

Before taking any
action which would result in an adjustment in the number of Warrant Shares for
which this Warrant is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.

e)             Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

f)             Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

g)            Nonwaiver and
Expenses.  No course of dealing or
any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right 

 11
 

or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to Holder such
amounts as shall be sufficient to cover any costs and expenses including, but
not limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto
or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)            Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

i)              Limitation of
Liability.  No provision hereof, in
the absence of any affirmative action by Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of
Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

j)              Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law would
be adequate.

k)             Successors and
Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.

l)              Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

m)            Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

n)            Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

********************

 12
 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be executed by its officer thereunto duly authorized as of the date
first above indicated.

	
  

  	
   

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  

 

 13

NOTICE OF EXERCISE

TO:         IMAGEWARE
SYSTEMS, INC.

(1)   The
undersigned hereby elects to purchase               
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

(2)   Payment
shall take the form of (check applicable box):

o  in
lawful money of the United States; or

o  [if
permitted] the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)   Please
issue a certificate or certificates representing said Warrant Shares in the
name of the undersigned or in such other name as is specified below:

 

The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

 

 

 

(4)  Accredited
Investor.  The undersigned is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.

[SIGNATURE OF HOLDER]

	
  Name of Investing Entity:

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [       ]
all of or [            ]
shares of the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

	
  

  	
   

  	
  whose address is:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
  Dated:

  	
  ,

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  
												

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.Exhibit 10.43

SUNESIS PHARMACEUTICALS, INC.

2006 EMPLOYMENT COMMENCEMENT INCENTIVE PLAN

ADOPTED
BY THE BOARD OF DIRECTORS ON NOVEMBER 29, 2005

EFFECTIVE
AS OF JANUARY 1, 2006

AMENDED
AND RESTATED ON SEPTEMBER 13, 2006

FURTHER
AMENDED AND RESTATED ON DECEMBER 6, 2006

ARTICLE 1

PURPOSE

1.1           General.

(a)           Eligible
Stock Award Recipients.  Only
Eligible Participants may receive Awards under the Plan.

(b)           General
Purpose.  The purpose of the Plan is
to promote the success and enhance the value of Sunesis Pharmaceuticals, Inc.
(the “Company”) by linking the
personal interests of Eligible Participants to those of Company stockholders
and by providing such individuals with an incentive for outstanding performance
to generate superior returns to Company stockholders.  The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the
services of Eligible Participants upon whose judgment, interest, and special
effort the successful conduct of the Company’s operation will be largely
dependent.

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

2.1           Definitions.  The
following words and phrases shall have the following meanings:

(a)           “Award” means an Option, a Restricted
Stock award, a Stock Appreciation Right award, a Performance Share award, a
Dividend Equivalents award,  a Stock
Payment award, or a Restricted Stock Unit award granted to an Eligible
Participant pursuant to the Plan.

(b)           “Award Agreement” means any written
agreement, contract, or other instrument or document evidencing an Award.

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

(d)           “Cause” includes one
or more of the following: (i) the commission of an act of fraud, embezzlement
or dishonesty by a Participant that has a material adverse impact on the
Company or any successor or parent or Subsidiary thereof; (ii) a conviction of,
or plea of “guilty” or “no contest” to, a felony by a Participant; (iii) any
unauthorized use or disclosure by a Participant of confidential information or
trade secrets of the Company or any successor or parent or Subsidiary thereof
that has a material adverse impact on any such entity or (iv) any other
intentional misconduct by a Participant that has a material adverse impact on
the Company or any successor or parent or Subsidiary thereof.  However, if the term or concept of “Cause”
has been defined in an agreement between a Participant and the Company or any
successor or parent or Subsidiary thereof, then “Cause” shall have the
definition set forth in such agreement. 
The foregoing definition shall not in any way preclude or restrict the
right of the Company or any successor or 

parent or Subsidiary thereof that has a material
adverse impact on any such entity or (iv) any other intentional misconduct
by a Participant that has a material adverse impact on the Company or any
successor or parent or Subsidiary thereof. 
However, if the term or concept of ‘Cause’ has been defined in an
agreement between a Participant and the Company or any successor or parent or
Subsidiary thereof, then ‘Cause’ shall have the definition set forth in such
agreement.  The foregoing definition
shall not in any way preclude or restrict the right of the Company or any
successor or parent or Subsidiary thereof to discharge or dismiss any
Participant in the service of such entity for any other acts or omissions, but
such other acts or omissions shall not be deemed, for purposes of this Plan, to
constitute grounds for termination for Cause.

(e)           “Change of Control” means and includes
each of the following:

(1)           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 50% or more of the combined voting power of the Company’s then
outstanding voting securities, other than:

(A)          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

(B)           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;

Notwithstanding the
foregoing, the following event shall not constitute an “acquisition” by any
person or group for purposes of this subsection (e): an acquisition of the
Company’s securities by the Company that causes the Company’s voting securities
beneficially owned by a person or group to represent 50% or more of the
combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or
group shall become the beneficial owner of 50% or more of the combined voting
power of the Company’s then outstanding voting securities 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 voting
securities of the Company, then such acquisition shall constitute a Change of
Control; or

(2)           during
any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a
director designated by a person who shall have entered into an agreement with
the Company to effect a transaction described in clauses (1) or
(3) of this subsection (e)) whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or

 2
 

(3)           the
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of
(x) a merger, consolidation, reorganization, or business combination or (y) a
sale or other disposition of all or substantially all of the Company’s assets
or (z) the acquisition of assets or stock of another entity, in each case
other than a transaction:

(A)          which
results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by
being converted into voting securities of the Company or the person that, as a
result of the transaction, controls, directly or indirectly, the Company or
owns, directly or indirectly, all or substantially all of the Company’s assets
or otherwise succeeds to the business of the Company (the Company or such
person, the “Successor
Entity”)) directly or indirectly, at least a majority of the
combined voting power of the Successor Entity’s outstanding voting securities
immediately after the transaction, and

(B)           after
which no person or group beneficially owns voting securities representing 50%
or more of the combined voting power of the Successor Entity; provided, however, that no person or group
shall be treated for purposes of this clause (B) as beneficially owning
50% or more of combined voting power of the Successor Entity solely as a result
of the voting power held in the Company prior to the consummation of the transaction;
or

(4)           the Company’s stockholders approve a
liquidation or dissolution of the Company.

The Committee shall have
full and final authority, which shall be exercised in its discretion, to
determine conclusively whether a Change of Control of the Company has occurred
pursuant to the above definition, and the date of the occurrence of such Change
of Control and any incidental matters relating thereto.

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

(g)           “Committee” means the Board or a
committee of the Board described in Article 11.

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

(i)            “Disability”  means, for purposes of the Plan, that the Participant
qualifies to receive long-term disability payments under the Company’s
long-term disability insurance program, as it may be amended from time to time.

(j)            “Dividend Equivalents”
means a right granted to a Participant pursuant to Article 8 to receive the
equivalent value (in cash or Stock) of dividends paid on Stock.

(k)           “Eligible Participant” means any
Employee who has not previously been an Employee or Director of the Company or
a Subsidiary, or is commencing employment with the Company or a Subsidiary
following a bona fide period of non-employment by the Company or a Subsidiary,
if he or she is granted an Award in connection with his or her commencement of
employment with the Company or a Subsidiary and such grant is an inducement
material to his 

 3
 

or her entering into employment with the Company or a
Subsidiary.  The Board may in its
discretion adopt procedures from time to time to ensure that an Employee is
eligible to participate in the Plan prior to the granting of any Awards to such
Employee under the Plan (including, without limitation, a requirement, that
each such Employee certify to the Company prior to the receipt of an Award
under the Plan that he or she has not been previously employed by the Company
or a Subsidiary, or if previously employed, has had a bona fide period of
non-employment, and that the grant of Awards under the Plan is an inducement
material to his or her agreement to enter into employment with the Company or a
Subsidiary).

(l)            “Employee” means any
officer or other employee (as defined in accordance with Section 3401(c) of the
Code) of the Company or any Subsidiary.

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

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

(1)           If the Stock
is listed on any established stock exchange or a national market system, 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 such exchange or system for such
date, or if no bids or sales were reported for such date, then the closing
sales price (or the closing bid, if no sales were reported) on the trading date
immediately prior to such date during which a bid or sale occurred, in each
case, as reported in The Wall Street Journal
or such other source as the Committee deems reliable;

(2)           If the Stock
is regularly quoted by a recognized securities dealer but selling prices are
not reported, its Fair Market Value shall be the mean of the closing bid and
asked prices for the Stock on such date, or if no closing bid and asked prices
were reported for such date, the date immediately prior to such date during
which closing bid and asked prices were quoted for the Stock, in each case, as
reported in The Wall Street Journal or such other
source as the Committee deems reliable; or

(3)           In the
absence of an established market for the Stock, the Fair Market Value thereof
shall be determined in good faith by the Committee.

(o)           “Good Reason” means a
Participant’s voluntary resignation following any one or more of the following
that is effected without the Participant’s written consent: (i) a change in his
or her position following the Change of Control that materially reduces his or
her duties or responsibilities, (ii) a reduction in his or her base salary
following a Change of Control, unless the base salaries of all similarly
situated individuals are similarly reduced, or (iii) a relocation of such
Participant’s place of employment following a Change of Control by more than
fifty (50) miles from such Participant’s place of employment prior to a Change
of Control.  However, if the term or
concept of “Good Reason” has been defined in an agreement between a Participant
and the Company or any successor or parent or Subsidiary thereof, then “Good
Reason” shall have the definition set forth in such agreement.

(p)           “Incentive Stock Option”
means an Option that is intended to meet the requirements of Section 422 of the
Code or any successor provision thereto. 
Incentive Stock 

 4
 

Options may not be granted under the Plan.

(q)           “Independent Director” means a Director
who is not an Employee of the Company and who qualifies as “independent” within
the meaning of NASD Rule 4200(a)(15), if the Company’s securities are traded on
the Nasdaq National Market, or the requirements of any other established stock
exchange on which the Company’s securities are traded, as such rules or
requirements may be amended from time to time.

(r)            “NASD” means the National Association
of Securities Dealers, Inc.

(s)           “Non-Qualified Stock Option” means an
Option that is not intended to be an Incentive Stock Option.

(t)            “Option” means a right
granted to a Participant pursuant to Article 5 of the Plan to purchase a
specified number of shares of Stock at a specified price during specified time
periods.  An Option must be a
Non-Qualified Stock Option.

(u)           “Participant” means an
Eligible Participant who has been granted an Award pursuant to the Plan.

(v)           “Performance Share” means a right
granted to a Participant pursuant to Article 8, to receive cash, Stock, or
other Awards, the payment of which is contingent upon achieving certain
performance goals established by the Committee.

(w)          “Plan” means this Sunesis
Pharmaceuticals, Inc. 2006 Employment Commencement Incentive Plan, as it may be
amended from time to time.

(x)            “Restricted Stock”
means Stock awarded to a Participant pursuant to Article 6 that is subject to
certain restrictions and to risk of forfeiture.

(y)           “Restricted Stock Unit”
means a right to receive a specified number of shares of Stock during specified
time periods pursuant to Article 8.

(z)            “Stock” means the
common stock of the Company and such other securities of the Company that may
be substituted for Stock pursuant to Article 10.

(aa)         “Stock Appreciation Right” or “SAR” means a right
granted pursuant to Article 7 to receive a payment equal to the excess of the Fair
Market Value of a specified number of shares of Stock on the date the SAR is
exercised over the Fair Market Value on the date the SAR was granted as set
forth in the applicable Award Agreement.

(bb)         “Stock Payment” means (a) a payment in
the form of shares of Stock, or (b) an option or other right to purchase shares
of Stock, as part of any bonus, deferred compensation or other arrangement,
made in lieu of all or any portion of the compensation, granted pursuant to
Article 8.

(cc)         “Subsidiary” means any corporation or
other entity of which a majority of the outstanding voting stock or voting
power is beneficially owned directly or indirectly by the 

 5
 

Company.

ARTICLE 3

SHARES SUBJECT TO THE PLAN

3.1           Number of Shares.

(a)           Subject to
Article 10, the aggregate number of shares of Stock which may be issued or
transferred pursuant to Awards under the Plan shall be 400,000 shares.

The payment of Dividend
Equivalents in conjunction with any outstanding Awards shall not be counted
against the shares available for issuance under the Plan.

(b)           To the extent that an Award
terminates, expires, or lapses for any reason, any shares of Stock subject to
the Award shall again be available for the grant of an Award pursuant to the
Plan.  Additionally, any shares of 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 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 Stock available for grant pursuant to the Plan.

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

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

4.1           Eligibility.

(a)           General.  Awards may be granted only to Eligible
Participants.  All Options granted under
the Plan shall be Non-Qualified Stock Options.

(b)           Foreign Participants.  In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may
provide for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom.  Moreover, the Committee may approve such
supplements to, or amendments, restatements, or alternative versions of, the
Plan as it may consider necessary or appropriate for such purposes without
thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such
supplements, amendments, restatements, or alternative versions shall increase
the share limitations contained in Sections 3.1 of the Plan.

4.2           Actual Participation. 
Subject to the provisions of the Plan, the Committee may, from time to
time, select from among all eligible individuals, those to whom Awards shall be
granted and shall determine the nature and amount of each Award.  No individual shall have any right to be
granted an Award pursuant to the Plan.

 6
 

 

ARTICLE 5

STOCK OPTIONS

5.1           General.  Options may be
granted to Eligible Participants on the following terms and conditions:

(a)           Exercise Price.  The exercise price per share of Stock subject
to an Option shall be determined by the Committee and set forth in the Award
Agreement; provided that the
exercise price for any Option shall not be less than Fair Market Value of a
share of Stock on the date of grant.

(b)           Time And Conditions Of
Exercise.  The Committee shall determine
the time or times at which an Option may be exercised in whole or in part; provided, that the term of any Option
granted under the Plan shall not exceed ten years; and provided, further, that such Option shall
be exercisable for not less than one year after the date of the Participant’s
death.  The Committee shall also
determine the performance or other conditions, if any, that must be satisfied
before all or part of an Option may be exercised.

(c)           Payment.  The Committee shall determine the methods by
which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, promissory note bearing interest at no
less than such rate as shall then preclude the imputation of interest under the
Code, shares of Stock held for longer than six months having a Fair Market
Value on the date of delivery equal to the aggregate exercise price of the
Option or exercised portion thereof, or other property acceptable to the
Committee (including through the delivery of a notice that the Participant has
placed a market sell order with a broker with respect to shares of 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), and the methods by which shares of Stock shall be delivered or
deemed to be delivered to Participants. 
Notwithstanding any other provision of the Plan to the contrary, no
Participant who is a member of the Board or an “executive officer” of the
Company within the meaning of Section 13(k) of the Exchange Act shall be
permitted to pay the exercise price of an Option in any method which would
violate Section 13(k).

(d)           Evidence Of Grant.  All Options shall be evidenced by a written
Award Agreement between the Company and the Participant.  The Award Agreement shall include such
additional provisions as may be specified by the Committee.

ARTICLE 6

RESTRICTED STOCK AWARDS

6.1           Grant of Restricted Stock. 
Restricted Stock may be awarded to any Eligible Participant in such
amounts and subject to such terms and conditions as determined by the
Committee.  All Awards of Restricted
Stock shall be evidenced by a written Restricted Stock Award Agreement.

6.2           Issuance and Restrictions. 
Restricted Stock shall be subject to such restrictions on
transferability and other restrictions as the Committee may impose (including,
without limitation,

 7
 

limitations on the right to vote Restricted Stock or the right to
receive dividends on the Restricted Stock). 
These restrictions may lapse separately or in combination at such times,
pursuant to such circumstances, in such installments, or otherwise, as the
Committee determines at the time of the grant of the Award or thereafter.

6.3           Forfeiture.  Except as otherwise determined by the
Committee at the time of the grant of the Award or thereafter, upon termination
of employment or service during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may
provide in any Restricted Stock Award Agreement that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part in
the event of terminations resulting from specified causes, and the Committee
may in other cases waive in whole or in part restrictions or forfeiture
conditions relating to Restricted Stock.

6.4           Certificates For Restricted Stock.  Restricted Stock granted pursuant to the Plan
may be evidenced in such manner as the Committee shall determine.  If certificates representing shares of
Restricted Stock are registered in the name of the Participant, certificates
must bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company may, at its
discretion, retain physical possession of the certificate until such time as
all applicable restrictions lapse.

ARTICLE 7

STOCK
APPRECIATION RIGHTS

7.1           Grant of Stock Appreciation Rights.  A Stock Appreciation Right may be granted to
any Eligible Participant selected by the Committee.  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 Committee shall impose and shall be evidenced by an Award Agreement.

7.2           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 a
Participant 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 Participant
(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 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 Stock on the date of exercise of the CSAR by the
number of shares of Stock with respect to which the CSAR shall have been
exercised, subject to any limitations the Committee may impose.

 8
 

7.3           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 Committee. 
An ISAR shall be exercisable in such installments as the Committee may
determine.  An ISAR shall cover such
number of shares of Stock as the Committee may determine.  The exercise price per share of Stock subject
to each ISAR shall be set by the Committee; provided, however, that, the Committee in its sole and absolute discretion may provide
that the ISAR may be exercised subsequent to a termination of employment or
service, as applicable, or following a Change of Control, or because of the
Participant’s retirement, death or Disability, or otherwise.

(b)           An ISAR shall entitle the Participant
(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 the difference obtained by subtracting the exercise price per share
of the ISAR from the Fair Market Value of a share of Stock on the date of
exercise of the ISAR by the number of shares of Stock with respect to which the
ISAR shall have been exercised, subject to any limitations the Committee may
impose.

7.4           Payment and
Limitations on Exercise.

(a)           Payment
of the amounts determined under Section 7.2(c) and 7.3(b) above shall be in
cash, in Stock (based on its Fair Market Value as of the date the Stock
Appreciation Right is exercised) or a combination of both, as determined by the
Committee.

(b)           To
the extent any payment under Section 7.2(c) or 7.3(b) is effected in Stock it
shall be made subject to satisfaction of all provisions of Article 5 above
pertaining to Options.

ARTICLE 8

OTHER TYPES OF AWARDS

8.1           Performance
Share Awards.  Any Eligible
Participant selected by the Committee may be granted one or more Performance
Share awards which may be denominated in a number of shares of Stock or in a
dollar value of shares of Stock and which may be linked to any one or more
specific performance criteria determined appropriate by the Committee, in each
case on a specified date or dates or over any period or periods determined by
the Committee.  In making such
determinations, the Committee 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 Participant.

8.2           Dividend
Equivalents.  Any Eligible
Participant selected by the Committee may be granted Dividend Equivalents based
on the dividends declared on the shares of Stock that are subject to any Award,
to be credited as of dividend payment dates, during the period between the date
the Award is granted and the date the Award is exercised, vests or expires, as
determined by the Committee.  Such
Dividend Equivalents shall be converted to cash or additional shares of 

 9
 

Stock by such formula and at such time and subject to
such limitations as may be determined by the Committee.

8.3           Stock
Payments.  Any Eligible Participant
selected by the Committee may receive Stock Payments in the manner determined
from time to time by the Committee.  The
number of shares shall be determined by the Committee and may be based upon
specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.

8.4           Restricted Stock
Units.  Any Eligible
Participant selected by the Committee may be granted an award of Restricted
Stock Units in the manner determined from time to time by the Committee.  The number of Restricted Stock Units shall be
determined by the Committee and may be linked to the Performance Criteria or
other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. 
Stock underlying a Restricted Stock Unit award will not be issued until
the Restricted Stock Unit award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee. 
Unless otherwise provided by the Committee, a Participant awarded
Restricted Stock Units shall have no rights as a Company stockholder with
respect to such Restricted Stock Units until such time as the Restricted Stock
Units have vested and the Stock underlying the Restricted Stock Units has been
issued.

8.5           Term.  The term of any Award of Performance Shares,
Dividend Equivalents, Stock Payments or Restricted Stock Units shall be set by
the Committee in its discretion.

8.6           Exercise or Purchase Price.  The Committee may establish the exercise or
purchase price of any Award of Performance Shares, Restricted Stock Units or
Stock Payments; provided, however, that such price shall not be less than the
par value of a share of Stock, unless otherwise permitted by applicable state
law.

8.7           Exercise Upon Termination of
Employment or Service.  An Award of
Performance Shares, Dividend Equivalents, Restricted Stock Units and Stock
Payments shall only be  exercisable or
payable while the Participant is an Employee or Director of the Company or a
Subsidiary; provided, however, that the Committee in
its sole and absolute discretion may provide that an Award of Performance
Shares, Dividend Equivalents, Stock Payments or Restricted Stock Units may be
exercised or paid subsequent to a termination of employment or service, as
applicable, or following a Change of Control, or because of the Participant’s
retirement, death or Disability, or otherwise.

8.8           Form of Payment.  Payments with respect to any Awards granted
under this Article 8 shall be made in cash, in Stock or a combination of both,
as determined by the Committee.

8.9           Award Agreement.  All Awards under this Article 8 shall be
subject to such additional terms and conditions as determined by the Committee
and shall be evidenced by a written Award Agreement.

 

 10

ARTICLE 9

PROVISIONS APPLICABLE TO AWARDS

9.1           Stand-Alone and Tandem Awards. 
Awards granted pursuant to the Plan may, in the discretion of the
Committee, be granted either alone, in addition to, or in tandem with, any
other Award granted pursuant to the Plan. Awards granted in addition to or in
tandem with other Awards may be granted either at the same time as or at a
different time from the grant of such other Awards.

9.2           Award Agreement.  Awards
under the Plan shall be evidenced by Award Agreements that set forth the terms,
conditions and limitations for each Award which may include the term of an
Award, the provisions applicable in the event the Participant’s employment or
service terminates, and the Company’s authority to unilaterally or bilaterally
amend, modify, suspend, cancel or rescind an Award.

9.3           Limits on Transfer.  No
right or interest of a Participant in any Award may be pledged, encumbered, or
hypothecated to or in favor of any party other than the Company or a
Subsidiary, or shall be subject to any lien, obligation, or liability of such
Participant to any other party other than the Company or a Subsidiary.  No Award shall be assigned, transferred, or
otherwise disposed of by a Participant other than by will or the laws of
descent and distribution.

9.4           Beneficiaries. 
Notwithstanding Section 9.3, a Participant may, in the manner determined
by the Committee, designate a beneficiary to exercise the rights of the
Participant and to receive any distribution with respect to any Award upon the
Participant’s death.  A beneficiary,
legal guardian, legal representative, or other person claiming any rights
pursuant to the Plan is subject to all terms and conditions of the Plan and any
Award Agreement applicable to the Participant, except to the extent the Plan
and Award Agreement otherwise provide, and to any additional restrictions
deemed necessary or appropriate by the Committee.  If the Participant is married and resides in
a community property state, a designation of a person other than the
Participant’s spouse as his beneficiary with respect to more than 50% of the
Participant’s interest in the Award shall not be effective without the prior
written consent of the Participant’s spouse. 
If no beneficiary has been designated or survives the Participant, payment
shall be made to the person entitled thereto pursuant to the Participant’s will
or the laws of descent and distribution. 
Subject to the foregoing, a beneficiary designation may be changed or
revoked by a Participant at any time provided the change or revocation is filed
with the Committee.

9.5           Stock Certificates.  Notwithstanding anything herein to the
contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Stock pursuant to the exercise of any Award,
unless and until the Board has determined, with advice of counsel, that the
issuance and delivery of such certificates is in compliance with all applicable
laws, regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Stock are listed or
traded.  All Stock certificates delivered
pursuant to the Plan are subject to any stop-transfer orders and other
restrictions as the Committee deems necessary or advisable to comply with
federal, state, or foreign jurisdiction, securities or other laws, rules and
regulations and the rules of any national securities exchange or automated
quotation system on which the Stock is listed, quoted, or traded.  The Committee may place legends on any Stock
certificate to reference restrictions applicable to the Stock.  In addition to the terms and conditions
provided herein, the Board may require that a Participant make such

 11
 

reasonable
covenants, agreements, and representations as the Board, in its discretion,
deems advisable in order to comply with any such laws, regulations, or
requirements. The Committee shall have the right to require any Participant to comply with any timing or
other restrictions with respect to the settlement or exercise of any Award,
including a window-period limitation, as may be imposed in the discretion of
the Committee.

ARTICLE 10

CHANGES IN CAPITAL STRUCTURE

10.1         Adjustments.  In the
event of any stock dividend, stock split, combination or exchange of shares,
merger, consolidation, spin-off, recapitalization or other distribution (other
than normal cash dividends) of Company assets to stockholders, or any other
change affecting the shares of Stock or the share price of the Stock, the
Committee shall make such proportionate adjustments, if any, as the Committee
in its discretion may deem appropriate to reflect such change with respect to
(i) the aggregate number and type of shares that may be issued under the Plan
(including, but not limited to, adjustments of the limitations in Sections
3.1); (ii) the terms and conditions of any outstanding Awards (including,
without limitation, any applicable performance targets or criteria with respect
thereto); and (iii) the grant or exercise price per share for any outstanding
Awards under the Plan.

10.2         Effect of a Change of Control When Awards Are
Not Assumed.  If a Change of
Control occurs and a Participant’s Awards are not assumed by the surviving or
successor entity or its parent or Subsidiary and such successor does not
substitute substantially similar awards for those outstanding under the Plan,
such Awards shall become fully exercisable and/or payable as applicable, and
all forfeiture restrictions on such Awards shall lapse.  Upon, or in anticipation of, a Change of Control,
the Committee may cause any and all Awards outstanding hereunder to terminate
at a specific time in the future and shall give each Participant the right to
exercise such Awards during a period of time as the Committee, in its sole and
absolute discretion, shall determine. 
The Committee shall have sole discretion to determine whether an Award
has been assumed by the surviving or successor entity or its parent or
Subsidiary or whether such successor has substituted substantially similar
awards for those outstanding under the Plan in connection with a Change of
Control.

10.3         Effect
of Change of Control When Awards Are
Assumed; Termination Following Change of Control.

(a)           In the event of a Change of Control
where a Participant’s Awards are assumed by the surviving or successor entity
or its parent or Subsidiary or such successor substitutes substantially similar
awards for those outstanding under the Plan, then fifty percent (50%) of such
Participant’s unvested Awards shall become fully exercisable and/or payable as
applicable, and all forfeiture restrictions on such Awards shall lapse,
immediately prior to such Change of Control.

(b)           In the event of a Change of Control
where a Participant’s Awards are assumed by the surviving or successor entity
or its parent or Subsidiary or such successor substitutes substantially similar
awards for those outstanding under the Plan, if within twelve (12) months
following such Change of Control (i) the Participant’s employment or service
with 

 12
 

the surviving or successor entity or its parent or
Subsidiary is terminated without Cause or (ii) such Participant voluntarily
terminates such Participant’s employment or service with Good Reason, then such
Participant’s remaining unvested Awards (including any substituted awards)
shall become fully exercisable and/or payable as applicable, and all forfeiture
restrictions on such Awards (including any substituted awards) shall lapse, on
the date of termination.  Such Awards
(including any substituted awards) shall remain exercisable, as applicable,
until the earlier of the expiration date of the Award or three (3) months
following such Participant’s cessation of employment or service.

10.4         Outstanding Awards — Certain Mergers.  Subject to any required action by the
stockholders of the Company, in the event that the Company shall be the
surviving corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Stock receive
securities of another corporation), each Award outstanding on the date of such
merger or consolidation shall pertain to and apply to the securities that a
holder of the number of shares of Stock subject to such Award would have
received in such merger or consolidation.

10.5         Outstanding Awards — Other Changes.  In the event of any other change in the capitalization
of the Company or corporate change other than those specifically referred to in
this Article 10, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Awards outstanding on
the date on which such change occurs and in the per share grant or exercise
price of each Award as the Committee may consider appropriate to prevent
dilution or enlargement of rights.

10.6         No Other Rights.  Except
as expressly provided in the Plan, no Participant shall have any rights by
reason of any subdivision or consolidation of shares of stock of any class, the
payment of any dividend, any increase or decrease in the number of shares of
stock of any class or any dissolution, liquidation, merger, or consolidation of
the Company or any other corporation. 
Except as expressly provided in the Plan or pursuant to action of the
Committee under the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to an Award or the grant or exercise price of
any Award.

ARTICLE 11

ADMINISTRATION

11.1         Committee.  Unless and until the Board delegates
administration to the Committee as set forth below, the Plan shall be
administered by the Board, which shall, in such event, constitute the “Committee”
for the purposes of the Plan.  Any action
taken by the Board in connection with the administration of the Plan shall not
be deemed approved by the Board unless such actions are approved by a majority
of the Independent Directors.  The Board
may delegate administration of the Plan to the Committee, and the term “Committee”
shall apply to any person or persons to whom such authority has been delegated;
provided, however,  that such Committee be comprised of a majority of or solely
two or more Independent Directors.  If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a 

 13
 

subcommittee any
of the administrative powers the Committee is authorized to exercise (and
references in the Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.

The Board may abolish the
Committee at any time and revest in the Board the administration of the
Plan.  Any action taken by the Board in
connection with the administration of the Plan shall continue to not be deemed
approved by the Board unless such actions are approved by a majority of the
Independent Directors.  Appointment of
Committee members shall be effective upon acceptance of appointment.  Committee members may resign at any time by
delivering written notice to the Board. 
Vacancies in the Committee may only be filled by the Board.

11.2         Action by the Committee. 
A majority of the Committee shall constitute a quorum.  The acts of a majority of the members present
at any meeting at which a quorum is present, and acts approved in writing by a
majority of the Committee in lieu of a meeting, shall be deemed the acts of the
Committee.  Each member of the Committee
is entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Company or any
Subsidiary, the Company’s independent certified public accountants, or any
executive compensation consultant or other professional retained by the Company
to assist in the administration of the Plan.

11.3         Authority of Committee.  Subject to any specific designation in the
Plan, the Committee has the exclusive power, authority and discretion to:

(a)           Adopt
procedures from time to time in the Committee’s discretion to ensure that an
Employee is eligible to participate in the Plan prior to the granting of any
Awards to such Employee under the Plan (including, without limitation, a
requirement, if any, that each such Employee certify to the Company prior to
the receipt of an Award under the Plan that he or she has not been previously
employed by the Company or a Subsidiary, or if previously employed, has had a
bona fide period of non-employment, and that the grant of Awards under the Plan
is an inducement material to his or her agreement to enter into employment with
the Company or a Subsidiary);

(b)           Designate Participants to
receive Awards;

(c)           Determine the type or types of
Awards to be granted to each Participant;

(d)           Determine the number of Awards
to be granted and the number of shares of Stock to which an Award will relate;

(e)           Determine the terms and
conditions of any Award granted pursuant to the Plan, including, but not
limited to, the exercise price, grant price, or purchase price, any reload
provision, any restrictions or limitations on the Award, any schedule for lapse
of forfeiture restrictions or restrictions on the exercisability of an Award,
and accelerations or waivers thereof, any provisions related to non-competition
and recapture of gain on an Award, based in each case on such considerations as
the Committee in its sole discretion determines;

 14
 

(f)            Determine whether, to what
extent, and pursuant to what circumstances an Award may be settled in, or the
exercise price of an Award may be paid in cash, Stock, other Awards, or other
property, or an Award may be canceled, forfeited, or surrendered;

(g)           Prescribe the form of each
Award Agreement, which need not be identical for each Participant;

(h)           Decide all other matters that
must be determined in connection with an Award;

(i)            Establish, adopt, or revise
any rules and regulations as it may deem necessary or advisable to administer
the Plan;

(j)            Interpret the terms of, and
any matter arising pursuant to, the Plan or any Award Agreement; and

(k)           Make all other decisions and
determinations that may be required pursuant to the Plan or as the Committee
deems necessary or advisable to administer the Plan.

12.4         Decisions Binding.  The Committee’s interpretation of the Plan,
any Awards granted pursuant to the Plan, any Award Agreement and all decisions
and determinations by the Committee with respect to the Plan are final,
binding, and conclusive on all parties.

ARTICLE 12

EFFECTIVE AND EXPIRATION DATE

12.1         Effective Date.  The
Plan is effective as of the date of its adoption by the Board (the “Effective Date”).

12.2         Expiration Date.  The
Plan will expire on, and no Award may be granted pursuant to the Plan after
December 31, 2015 (the “Expiration Date”).  Any Awards that are outstanding on the
Expiration Date shall remain in force according to the terms of the Plan and
the applicable Award Agreement.  Each
Award Agreement shall provide that it will expire on the tenth anniversary of
the date of grant of the Award to which it relates.

ARTICLE 13

AMENDMENT, MODIFICATION, AND TERMINATION

13.1         Amendment, Modification, and Termination.  With the approval of the Board, at any time
and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that to the extent
necessary and desirable to comply with any applicable law, regulation, or stock
exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.

13.2         Awards Previously Granted. 
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any Award previously granted pursuant to the Plan
without the prior written consent of the Participant.

 15
 

ARTICLE 14

GENERAL PROVISIONS

14.1         No Rights to Awards.  No
Participant, employee, or other person shall have any claim to be granted any
Award pursuant to the Plan, and neither the Company nor the Committee is
obligated to treat Participants, employees, and other persons uniformly.

14.2         No Stockholders Rights. 
No Award gives the Participant any of the rights of a stockholder of the
Company unless and until shares of Stock are in fact issued to such person in
connection with such Award.

14.3         Withholding.  The
Company or any Subsidiary shall have the authority and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, local and foreign taxes (including the
Participant’s FICA obligation) required by law to be withheld with respect to
any taxable event concerning a Participant arising as a result of the
Plan.  The Committee may in its
discretion and in satisfaction of the foregoing requirement allow a Participant
to elect to have the Company withhold shares of Stock otherwise issuable under
an Award (or allow the return of shares of 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
Stock which may be withheld with respect to the issuance, vesting, exercise or
payment of any Award (or which may be repurchased from the Participant of such
Award within six months after such shares of Stock were acquired by the
Participant from the Company) in order to satisfy the Participant’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.

14.4         No Right to Employment or Services.  Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant’s employment or services at any time,
nor confer upon any Participant any right to continue in the employ or service
of the Company or any Subsidiary.

14.5         Unfunded Status of Awards. 
The Plan is intended to be an “unfunded” plan for incentive
compensation.  With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Subsidiary.

14.6         Indemnification.  To the
extent allowable pursuant to applicable law, each member of the Committee or of
the Board shall be indemnified and held harmless by the Company from any loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
such member in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or she may be
involved by reason of any action or failure to act pursuant to the Plan and
against and from any and all amounts paid by him or her in satisfaction of
judgment in such action, suit, or proceeding against him or her; provided, he or she gives the Company an opportunity, at its own
expense, to handle and defend 

 16
 

the same before he or she undertakes to handle and defend it on his or
her own behalf.  The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled pursuant to the Company’s Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.

14.7         Relationship to Other Benefits.  No payment pursuant to the Plan shall be
taken into account in determining any benefits pursuant to any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary except to the extent otherwise expressly
provided in writing in such other plan or an agreement thereunder.

14.8         Expenses.  The expenses
of administering the Plan shall be borne by the Company and its Subsidiaries.

14.9         Titles and Headings. 
The titles and headings of the Articles and Sections in the Plan are for
convenience of reference only and, in the event of any conflict, the text of
the Plan, rather than such titles or headings, shall control.

14.10       Fractional Shares.  No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.

14.11       Limitations Applicable to
Section 16 Persons.  Notwithstanding
any other provision of the Plan, the Plan, and any Award granted or awarded to
any Participant 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.

14.12       Government And Other Regulations.  The obligation of the Company to make payment
of awards in Stock or otherwise shall be subject to all applicable laws, rules,
and regulations, and to such approvals by government agencies as may be
required.  The Company shall be under no
obligation to register pursuant to the Securities Act of 1933, as amended, any
of the shares of Stock paid pursuant to the Plan.  If the shares paid pursuant to the Plan may
in certain circumstances be exempt from registration pursuant to the Securities
Act of 1933, as amended, the Company may restrict the transfer of such shares
in such manner as it deems advisable to ensure the availability of any such
exemption.

14.13       Governing Law.  The Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Delaware.

14.14       SECTION 409A OF THE CODE.  In the event any provision of the Plan, or
the application thereof, is or becomes inconsistent with Section 409A of the
Code and any regulations promulgated thereunder, such provision shall be void
or unenforceable or in the sole 

 17
 

discretion of the
Committee shall be deemed amended to comply with Section 409A and any
regulations promulgated thereunder.  The
other provisions of the Plan shall remain in full force and effect.

ARTICLE 15

GENERAL PROVISIONS

15.1         STOCKHOLDER
APPROVAL NOT REQUIRED.  It is expressly intended that approval of the
Company’s stockholders not be required as a condition of the effectiveness of
the Plan, and the Plan’s provisions shall be interpreted in a manner consistent
with such intent for all purposes. 
Specifically, Rule 4350(i) promulgated by the NASD generally requires
stockholder approval for stock option plans or other equity compensation
arrangements adopted by companies whose securities are listed on the Nasdaq
National Market pursuant to which stock awards or stock may be acquired by
officers, directors, employees, or consultants of such companies.  NASD Rule 4350(i)(1)(A)(iv) provides an
exception to this requirement for issuances of securities to a person not
previously an employee or director of the issuer, or following a bona fide
period of non-employment, as an inducement material to the individual’s
entering into employment with the issuer; provided, such
issuances are approved by either the issuer’s compensation committee comprised
of a majority of independent directors or a majority of the issuer’s
independent directors.   Awards under the
Plan may only be made to Eligible Participants who have not previously been an
Employee or director of the Company or a Subsidiary, or following a bona fide
period of non-employment by the Company or a Subsidiary, as an inducement
material to the Eligible Participant’s entering into employment with the
Company or a Subsidiary.  Awards under
the Plan will be approved by (i) the Company’s Compensation Committee comprised
of a majority of the Company’s Independent Directors or (ii) a majority of the
Company’s Independent Directors. 
Accordingly, pursuant to NASD Rule 4350(i)(1)(A)(iv), the issuance of
Awards and the shares of Common Stock issuable upon exercise or vesting of such
Awards pursuant to the Plan are not subject to the approval of the Company’s
stockholders.

 18

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