Document:

Exhibit 10.2

 

ROSETTA
STONE INC.

2009 OMNIBUS INCENTIVE PLAN

 

 

	
  ARTICLE I

  	
  ESTABLISHMENT,
  PURPOSE AND DURATION

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
  Establishment

  	
   

  	
  1

  
	
  1.2

  	
  Purpose of the Plan

  	
   

  	
  1

  
	
  1.3

  	
  Duration of Plan

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
  “Affiliate”

  	
   

  	
  1

  
	
  2.2

  	
  “Annual Cash Incentive
  Award”

  	
   

  	
  1

  
	
  2.3

  	
  “Authorized Shares”

  	
   

  	
  1

  
	
  2.4

  	
  “Award”

  	
   

  	
  1

  
	
  2.5

  	
  “Award Agreement”

  	
   

  	
  2

  
	
  2.6

  	
  “Board”

  	
   

  	
  2

  
	
  2.7

  	
  “Cash-Based Award”

  	
   

  	
  2

  
	
  2.8

  	
  “Code”

  	
   

  	
  2

  
	
  2.9

  	
  “Committee”

  	
   

  	
  2

  
	
  2.10

  	
  “Company”

  	
   

  	
  2

  
	
  2.11

  	
  “Corporate Change”

  	
   

  	
  2

  
	
  2.12

  	
  “Covered Employee”

  	
   

  	
  2

  
	
  2.13

  	
  “Director”

  	
   

  	
  2

  
	
  2.14

  	
  “Disability”

  	
   

  	
  2

  
	
  2.15

  	
  “Dividend Equivalent”

  	
   

  	
  3

  
	
  2.16

  	
  Effective Date

  	
   

  	
  3

  
	
  2.17

  	
  “Employee”

  	
   

  	
  3

  
	
  2.18

  	
  “Exchange Act”

  	
   

  	
  3

  
	
  2.19

  	
  “Fair Market Value”

  	
   

  	
  3

  
	
  2.20

  	
  “Fiscal Year”

  	
   

  	
  3

  
	
  2.21

  	
  “Freestanding SAR”

  	
   

  	
  3

  
	
  2.22

  	
  “Full Value Award”

  	
   

  	
  3

  
	
  2.23

  	
  “Holder”

  	
   

  	
  3

  
	
  2.24

  	
  “Incentive Stock Option”
  or “ISO”

  	
   

  	
  4

  
	
  2.25

  	
  “Insider”

  	
   

  	
  4

  
	
  2.26

  	
  “Minimum Statutory Tax
  Withholding Obligation”

  	
   

  	
  4

  
	
  2.27

  	
  “Nonqualified Stock
  Option” or “NQSO”

  	
   

  	
  4

  
	
  2.28

  	
  “Option”

  	
   

  	
  4

  
	
  2.29

  	
  “Option Price”

  	
   

  	
  4

  
	
  2.30

  	
  “Other Stock-Based Award”

  	
   

  	
  4

  
	
  2.31

  	
  “Parent Corporation”

  	
   

  	
  4

  
	
  2.32

  	
  “Performance-Based
  Compensation”

  	
   

  	
  4

  
	
  2.33

  	
  “Performance Goals”

  	
   

  	
  4

  
	
  2.34

  	
  “Performance Stock Award”

  	
   

  	
  4

  
	
  2.35

  	
  “Performance Unit Award”

  	
   

  	
  4

  
	
  2.36

  	
  “Period of Restriction”

  	
   

  	
  4

  
	
  2.37

  	
  “Permissible under
  Section 409A”

  	
   

  	
  4

  
	
  2.38

  	
  “Plan”

  	
   

  	
  4

  
	
  2.39

  	
  “Restricted Stock”

  	
   

  	
  5

  
	
  2.40

  	
  “Restricted Stock Award”

  	
   

  	
  5

  
	
  2.41

  	
  “RSU”

  	
   

  	
  5

  
	
  2.42

  	
  “RSU Award”

  	
   

  	
  5

  
	
  2.43

  	
  “SAR”

  	
   

  	
  5

  
	
  2.44

  	
  “Section 409A”

  	
   

  	
  5

  
	
  2.45

  	
  “Separation from Service”

  	
   

  	
  5

  
					

 

i

 

	
  2.46

  	
  “Stock”

  	
   

  	
  5

  
	
  2.47

  	
  “Subsidiary Corporation”

  	
   

  	
  5

  
	
  2.48

  	
  “Substantial Risk of
  Forfeiture”

  	
   

  	
  5

  
	
  2.49

  	
  “Tandem SAR”

  	
   

  	
  5

  
	
  2.50

  	
  “Ten Percent Stockholder”

  	
   

  	
  5

  
	
  2.51

  	
  “Third Party Service
  Provider”

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  ELIGIBILITY

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  GENERAL
  PROVISIONS RELATING TO AWARDS

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
  Authority to Grant Awards

  	
   

  	
  6

  
	
  4.2

  	
  Shares That Count Against
  Limit

  	
   

  	
  7

  
	
  4.3

  	
  Non-Transferability

  	
   

  	
  7

  
	
  4.4

  	
  Requirements of Law

  	
   

  	
  7

  
	
  4.5

  	
  Changes in the Company’s
  Capital Structure

  	
   

  	
  8

  
	
  4.6

  	
  Election Under
  Section 83(b) of the Code

  	
   

  	
  10

  
	
  4.7

  	
  Forfeiture for Cause

  	
   

  	
  10

  
	
  4.8

  	
  Forfeiture Events

  	
   

  	
  11

  
	
  4.9

  	
  Award Agreements

  	
   

  	
  11

  
	
  4.10

  	
  Amendments of Award
  Agreements

  	
   

  	
  11

  
	
  4.11

  	
  Rights as Stockholder

  	
   

  	
  11

  
	
  4.12

  	
  Issuance of Shares of
  Stock

  	
   

  	
  11

  
	
  4.13

  	
  Restrictions on Stock
  Received

  	
   

  	
  11

  
	
  4.14

  	
  Compliance With
  Section 409A

  	
   

  	
  11

  
	
  4.15

  	
  Date of Grant

  	
   

  	
  12

  
	
  4.16

  	
  Source of Shares
  Deliverable Under Awards

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  OPTIONS

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  Authority to Grant Options

  	
   

  	
  12

  
	
  5.2

  	
  Type of Options Available

  	
   

  	
  12

  
	
  5.3

  	
  Option Agreement

  	
   

  	
  12

  
	
  5.4

  	
  Option Price

  	
   

  	
  12

  
	
  5.5

  	
  Duration of Option

  	
   

  	
  12

  
	
  5.6

  	
  Amount Exercisable

  	
   

  	
  12

  
	
  5.7

  	
  Exercise of Option

  	
   

  	
  13

  
	
  5.8

  	
  Transferability—Incentive
  Stock Options

  	
   

  	
  13

  
	
  5.9

  	
  Notification of
  Disqualifying Disposition

  	
   

  	
  13

  
	
  5.10

  	
  No Rights as Stockholder

  	
   

  	
  13

  
	
  5.11

  	
  $100,000 Limitation on
  ISOs

  	
   

  	
  13

  
	
  5.12

  	
  Separation from Service

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  STOCK
  APPRECIATION RIGHTS

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  Authority to Grant SAR
  Awards

  	
   

  	
  14

  
	
  6.2

  	
  Type of Stock Appreciation
  Rights Available

  	
   

  	
  14

  
	
  6.3

  	
  General Terms

  	
   

  	
  14

  
	
  6.4

  	
  SAR Agreement

  	
   

  	
  14

  
	
  6.5

  	
  Term of SAR

  	
   

  	
  14

  
	
  6.6

  	
  Exercise of Freestanding
  SARs

  	
   

  	
  14

  
	
  6.7

  	
  Exercise of Tandem SARs

  	
   

  	
  14

  
	
  6.8

  	
  Payment of SAR Amount

  	
   

  	
  15

  
	
  6.9

  	
  Separation from Service

  	
   

  	
  15

  
					

 

ii

 

	
  6.10

  	
  Nontransferability of SARs

  	
   

  	
  15

  
	
  6.11

  	
  No Rights as Stockholder

  	
   

  	
  15

  
	
  6.12

  	
  Restrictions on Stock
  Received

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  RESTRICTED
  STOCK AWARDS

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
  Restricted Stock Awards

  	
   

  	
  15

  
	
  7.2

  	
  Restricted Stock Award
  Agreement

  	
   

  	
  16

  
	
  7.3

  	
  Holder’s Rights as
  Stockholder

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  RESTRICTED
  STOCK UNIT AWARDS

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
  Authority to Grant RSU
  Awards

  	
   

  	
  16

  
	
  8.2

  	
  RSU Award

  	
   

  	
  16

  
	
  8.3

  	
  RSU Award Agreement

  	
   

  	
  16

  
	
  8.4

  	
  Dividend Equivalents

  	
   

  	
  16

  
	
  8.5

  	
  Form of Payment Under
  RSU Award

  	
   

  	
  16

  
	
  8.6

  	
  Time of Payment Under RSU
  Award

  	
   

  	
  16

  
	
  8.7

  	
  Holder’s Rights as
  Stockholder

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  PERFORMANCE
  STOCK AWARDS AND PERFORMANCE UNIT AWARDS

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
  Authority to Grant
  Performance Stock Awards and Performance Unit Awards

  	
   

  	
  17

  
	
  9.2

  	
  Performance Goals

  	
   

  	
  17

  
	
  9.3

  	
  Time of Establishment of
  Performance Goals

  	
   

  	
  18

  
	
  9.4

  	
  Written Agreement

  	
   

  	
  18

  
	
  9.5

  	
  Form of Payment Under
  Performance Unit Award

  	
   

  	
  18

  
	
  9.6

  	
  Time of Payment Under
  Performance Unit Award

  	
   

  	
  18

  
	
  9.7

  	
  Holder’s Rights as
  Stockholder With Respect to a Performance Stock Award

  	
   

  	
  18

  
	
  9.8

  	
  Increases Prohibited

  	
   

  	
  18

  
	
  9.9

  	
  Stockholder Approval

  	
   

  	
  18

  
	
  9.10

  	
  Dividend Equivalents

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  DIRECTOR
  AWARDS

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  ANNUAL CASH
  INCENTIVE AWARDS

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
  Authority to Grant Annual
  Cash Incentive Awards

  	
   

  	
  18

  
	
  11.2

  	
  Covered Employees

  	
   

  	
  19

  
	
  11.3

  	
  Written Agreement

  	
   

  	
  19

  
	
  11.4

  	
  Form of Payment Under
  Annual Cash Incentive Award

  	
   

  	
  19

  
	
  11.5

  	
  Time of Payment Under
  Annual Cash Incentive Award

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
  OTHER
  STOCK-BASED AWARDS

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
  Authority to Grant Other
  Stock-Based Awards

  	
   

  	
  19

  
	
  12.2

  	
  Value of Other Stock-Based
  Award

  	
   

  	
  19

  
	
  12.3

  	
  Payment of Other
  Stock-Based Award

  	
   

  	
  19

  
	
  12.4

  	
  Separation from Service

  	
   

  	
  19

  
	
  12.5

  	
  Time of Payment of Other
  Stock-Based Award

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
  CASH-BASED
  AWARDS

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
  Authority to Grant
  Cash-Based Awards

  	
   

  	
  20

  
	
  13.2

  	
  Value of Cash-Based Award

  	
   

  	
  20

  
	
  13.3

  	
  Payment of Cash-Based
  Award

  	
   

  	
  20

  
					

 

iii

 

	
  13.4

  	
  Time of Payment of
  Cash-Based Award

  	
   

  	
  20

  
	
  13.5

  	
  Separation from Service

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIV

  	
  SUBSTITUTION
  AWARDS

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XV

  	
  ADMINISTRATION

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  15.1

  	
  Awards

  	
   

  	
  21

  
	
  15.2

  	
  Authority of the Committee

  	
   

  	
  21

  
	
  15.3

  	
  Decisions Binding

  	
   

  	
  22

  
	
  15.4

  	
  No Liability

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XVI

  	
  AMENDMENT
  OR TERMINATION OF PLAN

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  16.1

  	
  Amendment, Modification,
  Suspension, and Termination

  	
   

  	
  22

  
	
  16.2

  	
  Awards Previously Granted

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XVII

  	
  MISCELLANEOUS

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  17.1

  	
  Unfunded Plan/No
  Establishment of a Trust Fund

  	
   

  	
  22

  
	
  17.2

  	
  No Employment Obligation

  	
   

  	
  23

  
	
  17.3

  	
  Tax Withholding

  	
   

  	
  23

  
	
  17.4

  	
  Indemnification of the
  Committee

  	
   

  	
  23

  
	
  17.5

  	
  Gender and Number

  	
   

  	
  24

  
	
  17.6

  	
  Severability

  	
   

  	
  24

  
	
  17.7

  	
  Headings

  	
   

  	
  24

  
	
  17.8

  	
  Other Compensation Plans

  	
   

  	
  24

  
	
  17.9

  	
  Retirement and Welfare
  Plans

  	
   

  	
  24

  
	
  17.10

  	
  Other Awards

  	
   

  	
  24

  
	
  17.11

  	
  Successors

  	
   

  	
  24

  
	
  17.12

  	
  Law
  Limitations/Governmental Approvals

  	
   

  	
  24

  
	
  17.13

  	
  Delivery of Title

  	
   

  	
  24

  
	
  17.14

  	
  Inability to Obtain
  Authority

  	
   

  	
  25

  
	
  17.15

  	
  Investment Representations

  	
   

  	
  25

  
	
  17.16

  	
  Persons Residing Outside
  of the United States

  	
   

  	
  25

  
	
  17.17

  	
  Arbitration of Disputes

  	
   

  	
  25

  
	
  17.18

  	
  No Fractional Shares

  	
   

  	
  25

  
	
  17.19

  	
  Governing Law

  	
   

  	
  25

  
					

 

iv

 

ROSETTA
STONE INC.

2009 OMNIBUS INCENTIVE PLAN

 

ARTICLE I

ESTABLISHMENT, PURPOSE AND DURATION

 

1.1           Establishment.  The Company hereby establishes an incentive
compensation plan, to be known as the “Rosetta Stone Inc. 2009
Omnibus Incentive Plan,” as set forth in this document.  The Plan permits the grant of Incentive Stock
Options, Nonqualified Stock Options, SARs, Restricted Stock, RSUs, Performance
Stock Awards, Performance Unit Awards, Annual Cash Incentive Awards, Other
Stock-Based Awards and Cash-Based Awards. 
The Plan is
effective as of February 27, 2009 (the “Effective
Date”), provided that the Company’s shareholders approve the
adoption of the Plan within one year after the Effective Date.

 

1.2           Purpose of
the Plan.  The Plan is
intended to advance the best interests of the Company, its Affiliates and its stockholders
by providing those persons who have substantial responsibility for the
management and growth of the Company and its Affiliates with additional
performance incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue in
their employment or affiliation with the Company or its Affiliates.

 

1.3           Duration of
Plan.  The Plan shall continue
indefinitely until it is terminated pursuant to Section 16.1.  No Awards may be granted under the Plan on or
after the tenth anniversary of the Effective Date.  The applicable provisions of the Plan will
continue in effect with respect to an Award granted under the Plan for as long
as such Award remains outstanding. 
Notwithstanding the foregoing, no Incentive Stock Options may be granted
more than ten years after the earlier of (a) adoption of the Plan by the
Board, and (b) the Effective Date.

 

ARTICLE II

DEFINITIONS

 

The
words and phrases defined in this Article shall have the meaning set out
below throughout the Plan, unless the context in which any such word or phrase
appears reasonably requires a broader, narrower or different meaning.

 

2.1           “Affiliate” means any corporation,
partnership, limited liability company or association, trust or other entity or
organization which, directly or indirectly, controls, is controlled by, or is
under common control with, the Company. 
For purposes of the preceding sentence, “control” (including, with
correlative meanings, the terms “controlled by” and “under common control
with”), as used with respect to any entity or organization, shall mean the
possession, directly or indirectly, of the power (a) to vote more than
fifty percent (50%) of the securities having ordinary voting power for the
election of directors of the controlled entity or organization, or (ii) to
direct or cause the direction of the management and policies of the controlled
entity or organization, whether through the ownership of voting securities or
by contract or otherwise.

 

2.2           “Annual Cash Incentive Award” means
an Award granted to a key executive Employee pursuant to Article XI.

 

2.3           “Authorized Shares” shall have the
meaning ascribed to that term in Section 4.1(a).

 

2.4           “Award” means, individually or
collectively, a grant under the Plan of Incentive Stock Options, Nonqualified
Stock Options, SARs, Restricted Stock, RSUs, Performance Stock Awards,
Performance Unit 

 

1

 

Awards,
Annual Cash Incentive Awards, Other Stock-Based Awards and Cash-Based Awards,
in each case subject to the terms and provisions of the Plan.

 

2.5           “Award Agreement”
means an agreement that sets forth the terms and conditions applicable to an
Award granted under the Plan.

 

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

 

2.7           “Cash-Based Award” means an Award
granted pursuant to Article XIII.

 

2.8           “Code” means the United States
Internal Revenue Code of 1986, as amended from time to time.

 

2.9           “Committee” means (a) in the
case of an Award granted to a Director, the Board, and (b) in the case of
any other Award granted under the Plan, the Compensation Committee of the Board
or, if the Compensation Committee of the Board chooses to delegate it duties, a
committee of at least two persons who are members of the Compensation Committee
of the Board and are appointed by the Compensation Committee of the Board to
administer the Plan.  Each member of the
Committee in respect of his or her participation in any decision with respect
to an Award that is intended to satisfy the requirements of section 162(m) of
the Code must satisfy the requirements of “outside director” status within the
meaning of section 162(m) of the Code; provided, however, that the
failure to satisfy such requirement shall not affect the validity of the action
of any committee otherwise duly authorized and acting in the matter.  As to Awards, grants or other transactions
that are authorized by the  Committee and
that are intended to be exempt under Rule 16b-3, the requirements of Rule 16b-3(d)(1) with
respect to committee action must also be satisfied.

 

2.10         “Company”
means Rosetta Stone Inc., a Delaware corporation, or any successor (by
reincorporation, merger or otherwise).

 

2.11         “Corporate
Change” shall have the meaning ascribed to that term in Section 4.5(c).

 

2.12         “Covered
Employee” means an Employee who is a “covered employee,” as
defined in section 162(m) of the Code and the regulations or other
guidance promulgated by the Internal Revenue Service under section 162(m) of
the Code, or any successor statute.

 

2.13         “Director” means a director of the Company who is
not an Employee.

 

2.14         “Disability”
means as determined by the Committee in its discretion exercised in good faith,
(a) in the case of an Award that is exempt from the application of the
requirements of Section 409A, a physical or mental condition of the Holder
that would entitle him to payment of disability income payments under the
Company’s long-term disability insurance policy or plan for employees as then
in effect; or in the event that the Holder is a Director or is not covered, for
whatever reason, under the Company’s long-term disability insurance policy or
plan for employees or in the event the Company does not maintain such a
long-term disability insurance policy, “Disability” means a permanent and total
disability as defined in section 22(e)(3) of the Code and (b) in
the case of an Award that is not exempt from the application of the
requirements of Section 409A, (i) the Holder is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or (ii) the
Holder is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Company.  A determination of Disability may be made by
a physician selected or approved by the Committee and, in this respect, the
Holder shall submit to an examination by such physician upon request by the
Committee.

 

2

 

2.15         “Dividend Equivalent” means a payment equivalent
in amount to dividends paid to the Company’s stockholders.

 

2.16         “Effective
Date” shall have the meaning ascribed to that term in Section 1.1.

 

2.17         “Employee”
means (a) a person employed by the Company or any Affiliate as a common
law employee or (b) a person who has agreed to become a common law
employee of the Company or any Affiliate and is expected to become such within
six (6) months from the date of a determination made for purposes of
the Plan.

 

2.18         “Exchange
Act” means the Securities Exchange Act of 1934, as amended, or
any successor act.

 

2.19         “Fair
Market Value” of the Stock as of any particular date means,

 

(a)           if the Stock is traded on a stock
exchange,

 

(i)            and if the Stock is traded on that
date, the closing sale price of the Stock on that date; or

 

(ii)           and if the Stock is not traded on
that date, the closing sale price of the Stock on the last trading date
immediately preceding that date;

 

as reported on the principal
securities exchange on which the Stock is traded; or

 

(b)           if the Stock is traded in the
over-the-counter market,

 

(i)            and if the Stock is traded on that
date, the average between the high bid and low asked price on that date; or

 

(ii)           and if the Stock is not traded on
that date, the average between the high bid and low asked price on the last
trading date immediately preceding that date;

 

as reported in such
over-the-counter market; provided, however, that (x) if the Stock is not
so traded, or (y) if, in the discretion of the Committee, another means of
determining the fair market value of a share of Stock at such date shall be
necessary or advisable, the Committee may provide for another method or means
for determining such fair market value, which method or means shall comply with
the requirements of a reasonable valuation method as described under Section 409A.

 

2.20         “Fiscal
Year” means the calendar year.

 

2.21         “Freestanding
SAR” means a SAR that is granted independently of any Options,
as described in Article VI.

 

2.22         “Full
Value Award”  means an Award
other than in the form of an ISO, NQSO, or SAR,
and which is settled by the issuance of shares of Stock.

 

2.23         “Holder”
means a person who has been granted an Award or any person who is entitled to
receive shares of Stock or cash under an Award.

 

3

 

2.24         “Incentive
Stock Option” or “ISO” means
an option to purchase Stock granted pursuant to Article V that is
designated as an Incentive Stock Option and that is intended to satisfy the
requirements of section 422 of the Code.

 

2.25         “Insider”
shall mean an individual who is, on the relevant date, an officer, a Director,
or more than ten percent (10%) Beneficial Owner of any class of the
Company’s equity securities that is registered pursuant to Section 12 of
the Exchange Act, as determined by the Board in accordance with Section 16
of the Exchange Act.

 

2.26         “Minimum
Statutory Tax Withholding Obligation” means, with respect to an
Award, the amount the Company or an Affiliate is required to withhold for
federal, state, local and foreign taxes based upon the applicable minimum
statutory withholding rates required by the relevant tax authorities.

 

2.27         “Nonqualified
Stock Option” or “NQSO” means
a “nonqualified stock option” to purchase Stock granted pursuant to Article V
that does not satisfy the requirements of section 422 of the Code.

 

2.28         “Option”
means an Incentive Stock Option or a Nonqualified Stock Option.

 

2.29         “Option
Price” shall have the meaning ascribed to that term in Section 5.4.

 

2.30         “Other
Stock-Based Award” means an equity-based or equity-related Award
not otherwise described by the terms and provisions of the Plan that is granted
pursuant to Article XII.

 

2.31         “Parent Corporation” means any corporation (other
than the Company) in an unbroken chain of corporations ending with the Company
if, at the time of the action or transaction, each of the corporations other
than the Company owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.

 

2.32         “Performance-Based
Compensation” means compensation under an Award that satisfies
the requirements of section 162(m) of the Code for deductibility of
remuneration paid to Covered Employees.

 

2.33         “Performance
Goals” means one or more of the criteria described in Section 9.2
on which the performance goals applicable to an Award are based.

 

2.34         “Performance
Stock Award” means an Award designated as a performance stock award
granted to a Holder pursuant to Article IX.

 

2.35         “Performance
Unit Award” means an Award designated as a performance unit
award granted to a Holder pursuant to Article IX.

 

2.36         “Period
of Restriction” means the period during which Restricted Stock is
subject to a substantial risk of forfeiture (based on the passage of time, the
achievement of Performance Goals, or upon the occurrence of other events as
determined by the Committee, in its discretion), as provided in Article VII.

 

2.37         “Permissible
under Section 409A” means with respect to a particular
action (such as, the grant, payment, vesting, settlement or deferral of an
amount or award under the Plan) that such action shall not subject the
compensation at issue to be subject to the additional tax or interest
applicable under Section 409A.

 

2.38         “Plan”
means the Rosetta Stone Inc. 2009 Omnibus Incentive Plan, as set forth in this
document as it may be amended from time to time.

 

4

 

2.39         “Restricted
Stock” means shares of restricted Stock issued or granted under
the Plan pursuant to Article VII.

 

2.40         “Restricted
Stock Award” means an authorization by the Committee to issue or
transfer Restricted Stock to a Holder.

 

2.41         “RSU”
means a restricted stock unit credited to a Holder’s ledger account maintained
by the Company pursuant to Article VIII.

 

2.42         “RSU
Award” means an Award granted pursuant to Article VIII.

 

2.43         “SAR” means a stock appreciation right granted
under the Plan pursuant to Article VI.

 

2.44         “Section 409A” means section 409A of the
Code and Department of Treasury rules and regulations issued thereunder.

 

2.45         “Separation
from Service” means the termination of the Award recipient’s
employment or service relationship with the Company and all Affiliates as
determined under Section 409A.  “Separation from Service” means, in the case of an ISO, the
termination of the Employee’s employment relationship with all of the Company,
any Parent Corporation, any Subsidiary Corporation and any parent or subsidiary
corporation (within the meaning of section 422(a)(2) of the Code) of
any such corporation that issues or assumes an ISO in a transaction to which
section 424(a) of the Code applies.

 

2.46         “Stock”
means the common stock of the Company, $0.00005 par value per share (or such
other par value as may be designated by act of the Company’s stockholders).

 

2.47         “Subsidiary
Corporation” means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in an unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in the chain.

 

2.48         “Substantial Risk of Forfeiture” shall have the
meaning ascribed to that term in Section 409A.

 

2.49         “Tandem
SAR” means a SAR that is granted in connection with a related
Option pursuant to Article VI herein, the exercise of which shall require
forfeiture of the right to purchase a share of Stock under the related Option
(and when a share of Stock is purchased under the Option, the Tandem SAR shall
similarly be canceled).

 

2.50         “Ten
Percent Stockholder”  means an
individual, who, at the time the applicable Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent Corporation or Subsidiary
Corporation.  An individual shall be
considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust, shall be considered as being owned
proportionately by or for its stockholders, partners, or beneficiaries.

 

2.51         “Third
Party Service Provider”  means any
consultant, agent, representative, advisor, or independent contractor who
renders services to the Company or an Affiliate that (a) are not in
connection with the offer and sale of the Company’s securities in a capital
raising transaction, and (b) do not directly or indirectly promote or
maintain a market for the Company’s securities.

 

5

 

ARTICLE III

ELIGIBILITY

 

Except
as otherwise specified in this Article III, the persons who are eligible
to receive Awards under the Plan are Employees, Directors and Third Party
Service Providers, provided, however, that (a) only those persons who are,
on the dates of grant, key employees of the Company or any Parent Corporation
or Subsidiary Corporation are eligible for grants of Incentive Stock Options
under the Plan, (b) the only persons who are eligible to receive Annual
Cash Incentive Awards under the Plan are key executive Employees who, by the
nature and scope of their positions, regularly directly make or influence
policy decisions which significantly impact the overall results or success of
the Company and (c) Directors and Third Party Service Providers are only
eligible to receive NQSO, SAR and Full Value Awards.  Awards other than ISOs, Performance Stock
Awards, Performance Units Awards or Annual Cash Incentive Awards may also be
granted to a person who is expected to become a key Employee within six months.

 

ARTICLE IV

GENERAL PROVISIONS RELATING TO AWARDS

 

4.1           Authority to
Grant Awards.  The Committee
may grant Awards to those Employees, Directors and Third Party Service
Providers as the Committee shall from time to time determine, under the terms
and conditions of the Plan.  Subject only
to any applicable limitations set out in the Plan, the number of shares of
Stock or other value to be covered by any Award to be granted under the Plan
shall be as determined by the Committee in its sole discretion.

 

(a)           The aggregate number of shares of
Stock with respect to which Awards may be granted under the Plan is equal to
the greater of (i) twelve percent (12%) of the number of shares of Stock
outstanding on a fully diluted basis as of the Effective Date or (ii) twelve
percent (12%) of the number of shares of Stock outstanding on a fully diluted
basis as of the closing of the Company’s initial public offering of its Stock
(the “Authorized Shares”).

 

(b)           The aggregate number of shares of
Stock with respect to which ISOs may be granted under the Plan is equal to the
Authorized Shares.

 

(c)           The maximum number of shares of Stock
with respect to which ISOs may be granted to an Employee during a Fiscal Year
is equal to twenty-five percent (25%) of the Authorized Shares.  The maximum number of shares of Stock with
respect to which NQSOs may be granted to an Employee during a Fiscal Year is
equal to twenty-five percent (25%) of the Authorized Shares.  The maximum number of shares of Stock with
respect to which SARs may be granted to an Employee during a Fiscal Year is
equal to twenty-five percent (25%) of the Authorized Shares.  The maximum number of shares of Stock with
respect to which Performance Stock Awards may be granted to an Employee during
a Fiscal Year is equal to twenty-five percent (25%) of the Authorized
Shares.  The maximum number of shares of
Stock with respect to which Performance Unit Awards payable in shares of Stock
may be granted to an Employee during a Fiscal Year is equal to twenty-five
percent (25%) of the Authorized Shares . 
The maximum value of cash with respect to which Performance Unit Awards
payable in cash may be granted to an Employee during a Fiscal Year, determined
as of the dates of grants of the Performance Unit Awards, is $5,000,000.  The maximum amount that may be paid to a key
executive Employee under Annual Cash Incentive Award(s) granted to an
Employee during a Fiscal Year is $5,000,000.

 

(d)           Each of the foregoing numerical
limits stated in this Section 4.2 shall be subject to adjustment in
accordance with the provisions of Section 4.5.

 

6

 

4.2           Shares That Count Against Limit.

 

(a)           If shares of Stock are withheld from
payment of an Award to satisfy tax obligations with respect to the Award, such
shares of Stock will count against the aggregate number of shares of Stock with
respect to which Awards may be granted under the Plan.

 

(b)           If shares of Stock are tendered in
payment of an Option Price of an Option, such shares of Stock will not be added
to the aggregate number of shares of Stock with respect to which Awards may be
granted under the Plan.

 

(c)           To the extent that any outstanding
Award is forfeited or cancelled for any reason or is settled in cash in lieu of
shares of Stock, the shares of Stock allocable to such portion of the Award may
again be subject to an Award granted under the Plan.

 

(d)           When a SAR is settled in shares of
Stock, the number of shares of Stock subject to the SAR under the SAR Award
Agreement will be counted against the aggregate number of shares of Stock with
respect to which Awards may be granted under the Plan as one share for every
share subject to the SAR, regardless of the number of shares used to settle the
SAR upon exercise.

 

(e)           The maximum number of shares of Stock
available for issuance under the Plan shall not be reduced to reflect any
dividends or Dividend Equivalents that are reinvested into additional shares of
Stock or credited as additional Restricted Stock, Restricted Stock Units,
Performance Shares, or other Stock-Based Awards.

 

4.3           Non-Transferability.  Except
as specified in the applicable Award Agreements or in domestic relations court
orders, an Award shall not be transferable by the Holder other than by will or
under the laws of descent and distribution, and shall be exercisable, during
the Holder’s lifetime, only by him or her. 
Any attempted assignment of an Award in violation of this Section shall
be null and void.  In the discretion of
the Committee, any attempt to transfer an Award other than under the terms of
the Plan and the applicable Award Agreement may terminate the Award.

 

4.4           Requirements
of Law.  The Company shall not
be required to sell or issue any shares of Stock under any Award if issuing
those shares of Stock would constitute or result in a violation by the Holder
or the Company of any provision of any law, statute or regulation of any
governmental authority.  Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option or pursuant to any
other Award, the Company shall not be required to issue any shares of Stock
unless the Committee has received evidence satisfactory to it to the effect
that the Holder will not transfer the shares of Stock except in accordance with
applicable law, including receipt of an opinion of counsel satisfactory to the
Company to the effect that any proposed transfer complies with applicable
law.  The determination by the Committee
on this matter shall be final, binding and conclusive. The Company may, but
shall in no event be obligated to, register any shares of Stock covered by the
Plan pursuant to applicable securities laws of any country or any political
subdivision.  In the event the shares of
Stock issuable on exercise of an Option or pursuant to any other Award are not
registered, the Company may imprint on the certificate evidencing the shares of
Stock any legend that counsel for the Company considers necessary or advisable
to comply with applicable law, or, should the shares of Stock be represented by
book or electronic entry rather than a certificate, the Company may take such
steps to restrict transfer of the shares of Stock as counsel for the Company
considers necessary or advisable to comply with applicable law.  The Company shall not be obligated to take
any other affirmative action in order to cause or enable the exercise of an
Option or any other Award, or the issuance of shares of Stock pursuant thereto,
to comply with any law or regulation of any governmental authority.

 

7

 

4.5           Changes in the Company’s Capital Structure.

 

(a)           The existence of outstanding Awards
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company’s capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference shares ahead of or affecting the
Stock or Stock rights, the dissolution or liquidation of the Company, any sale
or transfer of all or any part of its assets or business or any other corporate
act or proceeding, whether of a similar character or otherwise.

 

(b)           If the Company shall effect a
subdivision or consolidation of Stock or other capital readjustment, the
payment of a Stock dividend, or other increase or reduction of the number of
shares of Stock outstanding, without receiving compensation therefor in money,
services or property, then (1) the number, class or series and per share
price of Stock subject to outstanding Awards under the Plan shall be
appropriately adjusted in such a manner as to entitle a Holder to receive upon
exercise of an Award, for the same aggregate cash consideration, the equivalent
total number and class or series of Stock the Holder would have received had
the Holder exercised his or her Award in full immediately prior to the event
requiring the adjustment, and (2) the number and class or series of Stock
then reserved to be issued under the Plan shall be adjusted by substituting for
the total number and class or series of Stock then reserved, that number and
class or series of Stock that would have been received by the owner of an equal
number of outstanding shares of Stock of each class or series of Stock as the
result of the event requiring the adjustment.

 

(c)           If while unexercised Awards remain
outstanding under the Plan (1) the Company shall not be the surviving
entity in any merger, consolidation or other reorganization (or survives only
as a subsidiary of an entity other than an entity that was wholly-owned by the
Company immediately prior to such merger, consolidation or other
reorganization), (2) the Company sells, leases or exchanges or agrees to
sell, lease or exchange all or substantially all of its assets to any other
person or entity (other than an entity wholly-owned by the Company), (3) the
Company is to be dissolved or (4) the Company is a party to any other
corporate transaction (as defined under section 424(a) of the Code
and applicable Department of Treasury regulations) that is not described in
clauses (1), (2) or (3) of this sentence (each such event is referred
to herein as a “Corporate Change”), then,
except as otherwise provided in an Award Agreement or another agreement between
the Holder and the Company (provided that such exceptions shall not apply in
the case of a reincorporation merger), or as a result of the Committee’s
effectuation of one or more of the alternatives described below, there shall be
no acceleration of the time at which any Award then outstanding may be
exercised, and no later than ten days after the approval by the stockholders of
the Company of such Corporate Change, the Committee, acting in its sole and absolute
discretion without the consent or approval of any Holder, shall act to effect
one or more of the following alternatives, which may vary among individual
Holders and which may vary among Awards held by any individual Holder (provided
that, with respect to a reincorporation merger in which Holders of the
Company’s ordinary shares will receive one ordinary share of the successor
corporation for each ordinary share of the Company, none of such alternatives
shall apply and, without Committee action, each Award shall automatically
convert into a similar award of the successor corporation exercisable for the
same number of ordinary shares of the successor as the Award was exercisable
for ordinary shares of Stock of the Company):

 

(1)           accelerate the time at which some or
all of the Awards then outstanding may be exercised so that such Awards may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all such Awards that remain unexercised and all rights of
Holders thereunder shall terminate;

 

8

 

(2)           require the mandatory surrender to
the Company by all or selected Holders of some or all of the then outstanding
Awards held by such Holders (irrespective of whether such Awards are then
exercisable under the provisions of the Plan or the applicable Award Agreement
evidencing such Award) as of a date, before or after such Corporate Change,
specified by the Committee, in which event the Committee shall thereupon cancel
such Award and the Company shall pay to each such Holder an amount of cash per
share equal to the excess, if any, of the per share price offered to
stockholders of the Company in connection with such Corporate Change over the
exercise prices under such Award for such shares;

 

(3)           with respect to all or selected
Holders, have some or all of their then outstanding Awards (whether vested or
unvested) assumed or have a new award of a similar nature substituted for some
or all of their then outstanding Awards under the Plan (whether vested or
unvested) by an entity which is a party to the transaction resulting in such
Corporate Change and which is then employing such Holder or which is affiliated
or associated with such Holder in the same or a substantially similar manner as
the Company prior to the Corporate Change, or a parent or subsidiary of such
entity, provided that (A) such assumption or substitution is on a basis
where the excess of the aggregate fair market value of the Stock subject to the
Award immediately after the assumption or substitution over the aggregate
exercise price of such Stock is equal to the excess of the aggregate fair
market value of all Stock subject to the Award immediately before such
assumption or substitution over the aggregate exercise price of such Stock, and
(B) the assumed rights under such existing Award or the substituted rights
under such new Award, as the case may be, will have the same terms and
conditions as the rights under the existing Award assumed or substituted for,
as the case may be;

 

(4)           provide that the number and class or
series of Stock covered by an Award (whether vested or unvested) theretofore
granted shall be adjusted so that such Award when exercised shall thereafter
cover the number and class or series of Stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement or plan relating to such
Corporate Change if, immediately prior to such Corporate Change, the Holder had
been the holder of record of the number of shares of Stock then covered by such
Award; or

 

(5)           make such adjustments to Awards then
outstanding as the Committee deems appropriate to reflect such Corporate Change
(provided, however, that the Committee may determine in its sole and absolute
discretion that no such adjustment is necessary to reflect such Corporate
Change).

 

Any
adjustment effected by the Committee under Section 4.5 shall be designed
to provide the Holder with the intrinsic value of his or her Award, as
determined prior to the Corporate Change, or, if applicable, equalize the Fair
Market Value of the Award before and after the Corporate Change.

 

In
effecting one or more of the alternatives set out in paragraphs (3), (4) or
(5) immediately above, and except as otherwise may be provided in an Award
Agreement, the Committee, in its sole and absolute discretion and without the
consent or approval of any Holder, may accelerate the time at which some or all
Awards then outstanding may be exercised.

 

(d)           In the event of changes in the
outstanding Stock by reason of recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant changes in capitalization
occurring after the date of the grant of any Award and not otherwise provided
for by this 

 

9

 

Section 4.5, any
outstanding Award and any Award Agreement evidencing such Award shall be
subject to adjustment by the Committee in its sole and absolute discretion as
to the number and price of Stock or other consideration subject to such
Award.  In the event of any such change
in the outstanding Stock, the aggregate number of shares of Stock available
under the Plan may be appropriately adjusted by the Committee, whose
determination shall be conclusive.

 

(e)           After a merger of one or more
corporations into the Company or after a consolidation of the Company and one
or more corporations in which the Company shall be the surviving corporation,
each Holder shall be entitled to have his Restricted Stock appropriately
adjusted based on the manner in which the shares of Stock were adjusted under
the terms of the agreement of merger or consolidation.

 

(f)            The issuance by the Company of stock
of any class or series, or securities convertible into, or exchangeable for,
stock of any class or series, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to subscribe
for them, or upon conversion or exchange of stock or obligations of the Company
convertible into, or exchangeable for, stock or other securities, shall not
affect, and no adjustment by reason of such issuance shall be made with respect
to, the number, class or series, or price of shares of Stock then subject to
outstanding Awards.

 

4.6           Election Under Section 83(b) of
the Code.  No Holder shall
exercise the election permitted under section 83(b) of the Code with
respect to any Award without the prior written approval of the General Counsel
of the Company.  Any Holder who makes an
election under section 83(b) of the Code with respect to any Award
without the prior written approval of the General Counsel of the Company may,
in the discretion of the Committee, forfeit any or all Awards granted to him or
her under the Plan.

 

4.7           Forfeiture
for Cause.  Notwithstanding
any other provision of the Plan or an Award Agreement, if the Committee finds
by a majority vote that a Holder, before or after his Separation from Service (a) committed
a felony or a crime involving moral turpitude or committed any other act or
omission involving fraud, embezzlement or any other act of dishonesty in the
course of his employment by the Company or an Affiliate which conduct damaged
the Company or an Affiliate; (b) substantially and repeatedly failed to
perform duties of the office held by the Holder as reasonably directed by the
Company or an Affiliate, (c) committed gross negligence or willful
misconduct with respect to the Company or an Affiliate; (d) committed a
material breach of any employment agreement between the Holder and the Company
or an Affiliate that is not cured within ten (10) days after receipt of
written notice thereof from the Company or the Affiliate, as applicable; (e) failed,
within ten (10) days after receipt by the Holder of written notice thereof
from the Company or an Affiliate, to correct, cease or otherwise alter any
failure to comply with instructions or other action or omission which the Board
reasonably believes does or may materially or adversely affect the Company’s or
an Affiliate’s business or operations, (f) committed misconduct which is
of such a serious or substantial nature that a reasonable likelihood exists
that such misconduct will materially injure the reputation of the Company or an
Affiliate, (g) harassed or discriminated against the Company’s or an
Affiliate’s employees, customers or vendors in violation of the Company’s
policies with respect to such matters, (h) misappropriated funds or assets
of the Company or an Affiliate for personal use or willfully violated the
Company policies or standards of business conduct as determined in good faith
by the Board, (i) failed, due to some action or inaction on the part of
the Holder, to have immigration status that permits the Holder to maintain
full-time employment with the Company or an Affiliate in the United States in
compliance with all applicable immigration law, (j) disclosed trade
secrets of the Company or an Affiliate, then as of the date the Committee makes
its finding, any Awards awarded to the Holder that have not been exercised by
the Holder (including all Awards that have not yet vested) will be forfeited to
the Company.  The findings and decision
of the Committee or the Board, if applicable, with respect to such matter,
including those regarding the acts of the Holder and the damage done to the
Company, will be final for all purposes. 
No decision of the Committee, however, will affect the finality of the
discharge of the individual by the Company or an Affiliate.

 

10

 

4.8           Forfeiture
Events.  The Committee may
specify in an Award Agreement that the Holder’s rights, payments, and benefits
with respect to an Award shall be subject to reduction, cancellation,
forfeiture, or recoupment upon the occurrence of certain specified events, in
addition to any otherwise applicable vesting or performance conditions of an
Award.  Such events may include, but
shall not be limited to, Separation from Service for cause, Separation from
Service for any other reason, violation of material policies of the Company and
its Affiliates, breach of noncompetition, confidentiality, or other restrictive
covenants that may apply to the Holder, or other conduct by the Holder that is
detrimental to the business or reputation of the Company and its Affiliates.

 

4.9           Award
Agreements.  Each Award shall
be embodied in a written Award Agreement that shall be subject to the terms and
conditions of the Plan.  The Award
Agreement shall be signed by  an
executive officer of the Company, other than the Holder, on behalf of the
Company, and may be signed by the Holder to the extent required by the
Committee.  The Award Agreement may
specify the effect of a change in control of the Company on the Award.  The Award Agreement may contain any other
provisions that the Committee in its discretion shall deem advisable which are
not inconsistent with the terms and provisions of the Plan.

 

4.10         Amendments
of Award Agreements.  The
terms of any outstanding Award under the Plan may be amended from time to time
by the Committee in its discretion in any manner that it deems appropriate and
that is consistent with the terms of the Plan. 
However, no such amendment shall adversely affect in a material manner
any right of a Holder without his or her written consent.  Except as specified in Section 4.5(b),
the Committee may not directly or indirectly lower the exercise price of a
previously granted Option or the grant price of a previously granted SAR.

 

4.11         Rights as
Stockholder.  A Holder shall
not have any rights as a stockholder with respect to Stock covered by an
Option, a SAR, an RSU, a Performance Unit, or an Other Stock-Based Award
payable in Stock until the date, if any, such Stock is issued by the Company;
and, except as otherwise provided in Section 4.5, no adjustment for
dividends, or otherwise, shall be made if the record date therefor is prior to
the date of issuance of such Stock.

 

4.12         Issuance of
Shares of Stock.  Shares of
Stock, when issued, may be represented by a certificate or by book or
electronic entry.

 

4.13         Restrictions
on Stock Received.  The
Committee may impose such conditions and/or restrictions on any shares of Stock
issued pursuant to an Award as it may deem advisable or desirable.  These restrictions may include, but shall not
be limited to, a requirement that the Holder hold the shares of Stock for a
specified period of time.

 

4.14         Compliance
With Section 409A. 
Awards shall be designed, granted and administered in such a manner that
they are either exempt from the application of, or comply with, the
requirements of Section 409A.  The
Plan and each Award Agreement under the Plan that is intended to comply the
requirements of Section 409A shall be construed and interpreted in accordance
with such intent.  If the Committee
determines that an Award, Award Agreement, payment, distribution, deferral
election, transaction, or any other action or arrangement contemplated by the
provisions of the Plan would, if undertaken, cause a Holder to become subject
to additional taxes under Section 409A, then unless the Committee
specifically provides otherwise, such Award, Award Agreement, payment,
distribution, deferral election, transaction or other action or arrangement
shall not be given effect to the extent it causes such result and the related
provisions of the Plan and/or Award Agreement will be deemed modified, or, if
necessary, suspended in order to comply with the requirements of Section 409A
to the extent determined appropriate by the Committee, in each case without the
consent of or notice to the Holder.  The
exercisability of an Option or a SAR shall not be extended to the extent that
such extension would subject the Holder to additional taxes under Section 409A.

 

11

 

4.15         Date of
Grant.  The date on which an
option or SAR is granted shall be the date the Company completes the corporate
action constituting an offer of stock for sale to a Holder under the terms and
conditions of the Option or SAR; provided that
such corporate action shall not be considered complete until the date on which
the maximum number of shares that
can be purchased under the Option and the minimum Option price are fixed or
determinable.  If the corporate action
contemplates an immediate offer of stock for sale to a class of individuals,
then the date of the granting of an Option is the time or date of that
corporate action, if the offer is to be made immediately.  If the corporate action contemplates a
particular date on which the offer is to be made, then the date of grant is the
contemplated date of the offer.

 

4.16         Source of
Shares Deliverable Under Awards.  Any
shares of Stock delivered pursuant to an Award may consist, in whole or in
part, of authorized and unissued shares of Stock or of treasury shares of
Stock.

 

ARTICLE V

OPTIONS

 

5.1           Authority to
Grant Options.  Subject to the
terms and provisions of the Plan, the Committee, at any time, and from time to
time, may grant Options under the Plan to eligible persons in such number and
upon such terms as the Committee shall determine;  provided that ISOs may be granted only to eligible Employees
of the Company or of any Parent Corporation or Subsidiary Corporation (as
permitted by section 422 of the Code and the regulations thereunder).

 

5.2           Type of
Options Available.  Options
granted under the Plan may be NQSOs or ISOs.

 

5.3           Option
Agreement.  Each Option grant
under the Plan shall be evidenced by an Award Agreement that shall specify (a) whether
the Option is intended to be an ISO or an NQSO, (b) the Option Price, (c) the
duration of the Option, (d) the number of shares of Stock to which the
Option pertains, (e) the exercise restrictions, if any, applicable to the
Option and (f) such other provisions as the Committee shall determine that
are not inconsistent with the terms and provisions of the Plan.  Notwithstanding the designation of an Option
as an ISO in the applicable Award Agreement for such Option, to the extent the
limitations of Section 5.11 of the Plan are exceeded with respect to the
Option, the portion of the Option in excess of the limitation shall be treated
as a NQSO.  An Option granted under the
Plan may not be granted with any Dividend Equivalents rights.

 

5.4           Option Price.  The
price at which shares of Stock may be purchased under an Option (the “Option Price”) shall not be less
than one hundred percent (100%) of the Fair Market Value of the shares of Stock
on the date the Option is granted; provided, however,
if the Option is an ISO granted to a Ten Percent Stockholder, the Option Price
must not be less than one hundred ten percent (110%) of the Fair Market Value
of the shares of Stock on the date the ISO is granted.  Subject to the limitations set forth in the
preceding sentences of this Section 5.4, the Committee shall determine the
Option Price for each grant of an Option under the Plan.

 

5.5           Duration of Option.  An
Option shall not be exercisable after the earlier of (i) the general term
of the Option specified in the applicable Award Agreement (which shall not
exceed ten years, or, in the case of a Ten Percent Stockholder, no ISO shall be
exercisable later than the fifth (5th) anniversary of the date of its grant) or (ii) the
period of time specified in the applicable Award Agreement that follows the
Holder’s Separation from Service.

 

5.6           Amount Exercisable.  Each
Option may be exercised at the time, in the manner and subject to the
conditions the Committee specifies in the Award Agreement in its sole
discretion.

 

12

 

5.7           Exercise of Option.

 

(a)           General Method of Exercise.
Subject to the terms and provisions of the Plan and the applicable Award
Agreement, Options may be exercised in whole or in part from time to time by
the delivery of written notice in the manner designated by the Committee
stating (1) that the Holder wishes to exercise such Option on the date
such notice is so delivered, (2) the number of shares of Stock with
respect to which the Option is to be exercised and (3) the address to
which a stock certificate, if any, representing such shares of Stock should be
mailed or delivered.  Except in the case
of exercise by a third party broker as provided below, in order for the notice
to be effective the notice must be accompanied by payment of the Option Price
by any combination of the following: (a) cash, certified check, bank draft
or postal or express money order for an amount equal to the Option Price under
the Option, (b) an election to make a cashless exercise through a
registered broker-dealer (if approved in advance by the Committee or an
executive officer of the Company) or (c) any other form of payment which
is acceptable to the Committee.

 

(b)           Exercise Through
Third-Party Broker.  The
Committee may permit a Holder to elect to pay the Option Price and any
applicable tax withholding resulting from such exercise by authorizing a
third-party broker to sell all or a portion of the shares of Stock acquired
upon exercise of the Option and remit to the Company a sufficient portion of
the sale proceeds to pay the Option Price and any applicable tax withholding
resulting from such exercise.

 

5.8           Transferability—Incentive Stock Options.
Notwithstanding anything in the Plan or an Award Agreement to the contrary, no
ISO granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution, and all ISOs granted to an Employee under this Article V
shall be exercisable during his or her lifetime only by such Employee.

 

5.9           Notification of Disqualifying Disposition. If any Employee shall make any disposition of
shares of Stock issued pursuant to the exercise of an ISO under the
circumstances described in section 421(b) of the Code (relating to
certain disqualifying dispositions), such Employee shall notify the Company of
such disposition within ten (10) days thereof.

 

5.10         No Rights as Stockholder. 
A Holder of an Option shall not have any rights as a stockholder with
respect to Stock covered by an Option until the date a stock certificate for
such Stock is issued by the Company; and, except as otherwise provided in Section 4.5,
no adjustment for dividends, or otherwise, shall be made if the record date
therefor is prior to the date of issuance of such certificate.

 

5.11         $100,000 Limitation on ISOs.  To the extent that the aggregate Fair Market
Value of shares of Stock with respect to which ISOs first become exercisable by
a Holder in any calendar year exceeds $100,000, taking into account both shares
of Stock subject to ISOs under the Plan and Stock subject to ISOs under all
other plans of the Company, such Options shall be treated as NQSOs.  For this purpose, the “Fair Market Value” of
the shares of Stock subject to Options shall be determined as of the date the
Options were awarded.  In reducing the
number of Options treated as ISOs to meet the $100,000 limit, the most recently
granted Options shall be reduced first. 
To the extent a reduction of simultaneously granted Options is necessary
to meet the $100,000 limit, the Committee may, in the manner and to the extent
permitted by law, designate which shares of Stock are to be treated as shares
acquired pursuant to the exercise of an ISO.

 

5.12         Separation
from Service.  Each Award
Agreement shall set forth the extent to which the Holder of an Option shall
have the right to exercise the Option following the Holder’s Separation from
Service.  Such provisions shall be
determined in the sole discretion of the Committee, need not be uniform among
all Options 

 

13

 

issued
pursuant to the Award Agreement or the Plan, and may reflect distinctions based
on the reasons for termination.

 

ARTICLE VI

STOCK APPRECIATION RIGHTS

 

6.1           Authority to
Grant SAR Awards.  Subject to
the terms and provisions of the Plan, the Committee, at any time, and from time
to time, may grant SARs under the Plan to eligible persons in such number and
upon such terms as the Committee shall determine.  Subject to the terms and conditions of the
Plan, the Committee shall have complete discretion in determining the number of
SARs granted to each Holder and, consistent with the provisions of the Plan, in
determining the terms and conditions pertaining to such SARs.

 

6.2           Type of
Stock Appreciation Rights Available. 
The Committee may grant Freestanding SARs, Tandem SARs, or any
combination of these forms of SARs.

 

6.3           General Terms.  Subject to the terms and conditions of the
Plan, a SAR granted under the Plan shall confer on the recipient a right to
receive, upon exercise thereof, an amount equal to the excess of (a) the
Fair Market Value of one share of the Stock on the date of exercise over (b) the
grant price of the SAR, which shall not be less than one hundred percent (100%)
of the Fair Market Value of one share of the Stock on the date of grant of the
SAR.  The grant price of Tandem SARs
shall be equal to the Option Price of the related Option.  A SAR granted under the Plan may not be granted
with any Dividend Equivalents rights.

 

6.4           SAR
Agreement.  Each Award of SARs
granted under the Plan shall be evidenced by an Award Agreement that shall
specify (a) the grant price of the SAR, (b) the term of the SAR, (c) the
vesting and termination provisions of the SAR and (d) such other
provisions as the Committee shall determine that are not inconsistent with the
terms and provisions of the Plan.  The
Committee may impose such additional conditions or restrictions on the exercise
of any SAR as it may deem appropriate.

 

6.5           Term of SAR.  The term of a SAR granted under the Plan
shall be determined by the Committee, in its sole discretion; provided that no
SAR shall be exercisable on or after the tenth anniversary date of its
grant.  Notwithstanding any other
provision of this Plan to the contrary, with respect to a Tandem SAR granted in
connection with an ISO: (a) the Tandem SAR will expire no later than the
expiration of the underlying ISO; (b) the value of the payout with respect
to the Tandem SAR may be for no more than one hundred percent (100%) of
the excess of the Fair Market Value of the shares of Stock subject to the
underlying ISO at the time the Tandem SAR is exercised over the Option Price of
the underlying ISO; and (c) the Tandem SAR may be exercised only when the
Fair Market Value of the shares of Stock subject to the ISO exceeds the Option
Price of the ISO.

 

6.6           Exercise of
Freestanding SARs.  Subject to
the terms and provisions of the Plan and the applicable Award Agreement,
Freestanding SARs may be exercised in whole or in part from time to time by the
delivery of written notice in the manner designated by the Committee stating (a) that
the Holder wishes to exercise such SAR on the date such notice is so delivered,
(b) the number of shares of Stock with respect to which the SAR is to be
exercised and (c) the address to which the payment due under such SAR
should be mailed.  In accordance with
applicable law, a Freestanding SAR may be exercised upon whatever additional
terms and conditions the Committee, in its sole discretion, imposes.

 

6.7           Exercise of
Tandem SARs.  Subject to the
terms and provisions of the Plan and the applicable Award Agreement, Tandem
SARs may be exercised for all or part of the shares of Stock subject to the
related Option upon the surrender of the right to exercise the equivalent
portion of the related Option and by the delivery of written notice in the
manner designated by the Committee stating (a) that the Holder wishes to
exercise such SAR on the date such notice is so delivered, (b) the number
of shares of Stock with respect to which the SAR is to 

 

14

 

be
exercised and (c) the address to which the payment due under such SAR
should be mailed.  A Tandem SAR may be
exercised only with respect to the shares of Stock for which its related Option
is then exercisable.  In accordance with
applicable law, a Tandem SAR may be exercised upon whatever additional terms
and conditions the Committee, in its sole discretion, imposes.

 

6.8           Payment of
SAR Amount.  Upon the exercise
of a SAR, a Holder shall be entitled to receive payment from the Company in an
amount determined by multiplying the excess of the Fair Market Value of a share
of Stock on the date of exercise over the grant price of the SAR by the number
of shares of Stock with respect to which the SAR is exercised.  At the discretion of the Committee, the
payment upon SAR exercise may be in cash, in Stock of equivalent value, in some
combination thereof or in any other manner approved by the Committee in its
sole discretion.  The Committee’s
determination regarding the form of SAR payout shall be set forth in the Award
Agreement pertaining to the grant of the SAR.

 

6.9           Separation
from Service.  Each Award
Agreement shall set forth the extent to which the Holder of a SAR shall have
the right to exercise the SAR following the Holder’s Separation from
Service.  Such provisions shall be
determined in the sole discretion of the Committee, may be included in the
Award Agreement entered into with the Holder, need not be uniform among all
SARs issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination or severance.

 

6.10         Nontransferability
of SARs.  Except as otherwise
provided in a Holder’s Award Agreement, no SAR granted under the Plan may be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution.  Further, except as otherwise provided in a
Holder’s Award Agreement, all SARs granted to a Holder under the Plan shall be
exercisable during his or her lifetime only by the Holder, and after that time,
by the Holder’s heirs or estate.  Any
attempted assignment of a SAR in violation of this Section 6.10 shall be
null and void.

 

6.11         No Rights as
Stockholder.  A grantee of a
SAR award, as such, shall have no rights as a stockholder.

 

6.12         Restrictions
on Stock Received.  The
Committee may impose such conditions and/or restrictions on any shares of Stock
received upon exercise of a SAR granted pursuant to the Plan as it may deem
advisable or desirable.  These
restrictions may include, but shall not be limited to, a requirement that the
Holder hold the shares of Stock received upon exercise of a SAR for a specified
period of time.

 

ARTICLE VII

RESTRICTED STOCK AWARDS

 

7.1           Restricted
Stock Awards.  Subject to the terms and provisions of the
Plan, the Committee, at any time, and from time to time, may make Awards of
Restricted Stock under the Plan to eligible persons in such number and upon
such terms as the Committee shall determine. 
The amount of, the vesting and the transferability restrictions
applicable to any Restricted Stock Award shall be determined by the Committee
in its sole discretion.  If the Committee
imposes vesting or transferability restrictions on a Holder’s rights with
respect to Restricted Stock, the Committee may issue such instructions to the
Company’s share transfer agent in connection therewith as it deems
appropriate.  The Committee may also
cause the certificate for shares of Stock issued pursuant to a Restricted Stock
Award to be imprinted with any legend which counsel for the Company considers
advisable with respect to the restrictions or, should the shares of Stock be
represented by book or electronic entry rather than a certificate, the Company
may take such steps to restrict transfer of the shares of Stock as counsel for
the Company considers necessary or advisable to comply with applicable law.

 

15

 

7.2           Restricted
Stock Award Agreement.  Each
Restricted Stock Award shall be evidenced by an Award Agreement that contains
any vesting, transferability restrictions and other provisions not inconsistent
with the Plan as the Committee may specify.

 

7.3           Holder’s
Rights as Stockholder. 
Subject to the terms and conditions of the Plan, each recipient of a
Restricted Stock Award shall have all the rights of a stockholder with respect
to the shares of Restricted Stock included in the Restricted Stock Award during
the Period of Restriction established for the Restricted Stock Award.  Dividends paid with respect to Restricted
Stock in cash or property other than shares of Stock or rights to acquire
shares of Stock shall be paid to the recipient of the Restricted Stock Award
currently.  Dividends paid in shares of
Stock or rights to acquire shares of Stock shall be added to and become a part
of the Restricted Stock.  During the
Period of Restriction, certificates representing the Restricted Stock shall be
registered in the Holder’s name and bear a restrictive legend to the effect
that ownership of such Restricted Stock, and the enjoyment of all rights
appurtenant thereto, are subject to the restrictions, terms, and conditions
provided in the Plan and the applicable Award Agreement.  Such certificates shall be deposited by the
recipient with the Secretary of the Company or such other officer of the
Company as may be designated by the Committee, together with all stock powers
or other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock which
shall be forfeited in accordance with the Plan and the applicable Award
Agreement.

 

ARTICLE VIII

RESTRICTED STOCK UNIT AWARDS

 

8.1           Authority to
Grant RSU Awards.  Subject to
the terms and provisions of the Plan, the Committee, at any time, and from time
to time, may grant RSU Awards under the Plan to eligible persons in such
amounts and upon such terms as the Committee shall determine.  The amount of, the vesting and the
transferability restrictions applicable to any RSU Award shall be determined by
the Committee in its sole discretion. 
The Committee shall maintain a bookkeeping ledger account which reflects
the number of RSUs credited under the Plan for the benefit of a Holder.

 

8.2           RSU Award.  An RSU Award shall be similar in nature to a
Restricted Stock Award except that no shares of Stock are actually transferred
to the Holder until a later date specified in the applicable Award Agreement.  Each RSU shall have a value equal to the Fair
Market Value of a share of Stock.

 

8.3           RSU Award
Agreement.  Each RSU Award
shall be evidenced by an Award Agreement that contains any Substantial Risk of
Forfeiture, transferability restrictions, form and time of payment provisions
and other provisions not inconsistent with the Plan as the Committee may
specify.

 

8.4           Dividend
Equivalents.  An Award
Agreement for an RSU Award may specify that the Holder shall be entitled to the
payment of Dividend Equivalents under the Award.

 

8.5           Form of
Payment Under RSU Award. 
Payment under an RSU Award shall be made in either cash or shares of
Stock as specified in the applicable Award Agreement.

 

8.6           Time of
Payment Under RSU Award.  A
Holder’s payment under an RSU Award shall be made at such time as is specified
in the applicable Award Agreement.  The
Award Agreement shall specify that the payment will be made (1) by a date
that is no later than the date that is two and one-half (2 1/2) months after
the end of the Fiscal Year in which the RSU Award payment is no longer subject
to a Substantial Risk of Forfeiture or (2) at a time that is Permissible
under Section 409A.

 

16

 

8.7           Holder’s
Rights as Stockholder.  Each
recipient of an RSU Award shall have no rights of a stockholder with respect to
the Holder’s an RSUs.  A Holder shall
have no voting rights with respect to any RSU Awards.

 

ARTICLE IX

PERFORMANCE STOCK AWARDS AND PERFORMANCE UNIT AWARDS

 

9.1           Authority to
Grant Performance Stock Awards and Performance Unit Awards.  Subject to the terms and provisions of the
Plan, the Committee, at any time, and from time to time, may grant Performance
Stock Awards and Performance Unit Awards under the Plan to eligible persons in
such amounts and upon such terms as the Committee shall determine.  The amount of, the vesting and the
transferability restrictions applicable to any Performance Stock Award or
Performance Unit Award shall be based upon the attainment of such Performance
Goals as the Committee may determine; provided, however, that the performance
period for any Performance Stock Award or Performance Unit Award shall not be
less than one year.  If the Committee
imposes vesting or transferability restrictions on a Holder’s rights with
respect to Performance Stock Award or Performance Unit Awards, the Committee
may issue such instructions to the Company’s share transfer agent in connection
therewith as it deems appropriate.  The
Committee may also cause the certificate for shares of Stock issued pursuant to
a Performance Stock Award or Performance Unit Award to be imprinted with any
legend which counsel for the Company considers advisable with respect to the
restrictions or, should the shares of Stock be represented by book or electronic
entry rather than a certificate, the Company may take such steps to restrict
transfer of the shares of Stock as counsel for the Company considers necessary
or advisable to comply with applicable law.

 

9.2           Performance
Goals.  A Performance Goal
must be objective such that a third party having knowledge of the relevant
facts could determine whether the goal is met. 
Unless and until the Committee proposes for shareholder vote and the
shareholders approve a change in the general Performance Goals set forth in
this Article IX, the Performance Goals upon which the payment or vesting
of an Award to a Covered Employee that is intended to qualify as
Performance-Based Compensation shall be limited to one or more of the following
Performance Goals, which may be based on one or more business criteria that
apply to the Holder, one or more business units or subsidiaries of the Company,
or the Company as a whole:  earnings per
share, earnings per share growth, total shareholder return, economic value
added, cash return on capitalization, increased revenue, revenue ratios (per
employee or per customer), net income, stock price, market share, return on
equity, return on assets, return on capital, return on capital compared to cost
of capital, return on capital employed, return on invested capital, shareholder
value, net cash flow, operating income, earnings before interest and taxes,
cash flow, cash flow from operations, cost reductions, cost ratios (per
employee or per customer), proceeds from dispositions, project completion time
and budget goals, net cash flow before financing activities, customer growth,
total market value and customer satisfaction scores.  Goals may also be based on performance
relative to a peer group of companies. 
Unless otherwise stated, such a Performance Goal need not be based upon
an increase or positive result under a particular business criterion and could
include, for example, maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business criteria).  In interpreting Plan provisions applicable to
Performance Goals and Performance Stock or Performance Unit Awards, it is
intended that the Plan will conform with the standards of section 162(m) of
the Code and Treasury Regulations § 1.162-27(e)(2)(i), and the Committee
in establishing such goals and interpreting the Plan shall be guided by such
provisions.  Prior to the payment of any
compensation based on the achievement of Performance Goals, the Committee must certify
in writing that applicable Performance Goals and any of the material terms
thereof were, in fact, satisfied. 
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Performance Stock or Performance Unit Awards made
pursuant to the Plan shall be determined by the Committee.

 

17

 

9.3           Time of
Establishment of Performance Goals.  With
respect to a Covered Employee, a Performance Goal for a particular Performance
Stock Award or Performance Unit Award must be established by the Committee
prior to the earlier to occur of (a) 90 days after the commencement of the
period of service to which the Performance Goal relates or (b) the lapse
of 25 percent of the period of service, and in any event while the outcome
is substantially uncertain.

 

9.4           Written
Agreement.  Each Performance
Stock Award or Performance Unit Award shall be evidenced by an Award Agreement
that contains any vesting, transferability restrictions and other provisions
not inconsistent with the Plan as the Committee may specify.

 

9.5           Form of
Payment Under Performance Unit Award.  Payment under a Performance Unit Award shall
be made in cash and/or shares of Stock as specified in the Holder’s Award
Agreement.

 

9.6           Time of
Payment Under Performance Unit Award.  A Holder’s payment under a Performance Unit
Award shall be made at such time as is specified in the applicable Award
Agreement.  The Award Agreement shall
specify that the payment will be made (1) by a date that is no later than
the date that is two and one-half (2 1/2) months after the end of the calendar
year in which the Performance Unit Award payment is no longer subject to a
Substantial Risk of Forfeiture or (2) at a time that is Permissible under Section 409A.

 

9.7           Holder’s
Rights as Stockholder With Respect to a Performance Stock Award.  Subject
to the terms and conditions of the Plan, each Holder of a Performance Stock
Award shall have all the rights of a stockholder with respect to the shares of
Stock issued to the Holder pursuant to the Award during any period in which
such issued shares of Stock are subject to forfeiture and restrictions on
transfer, including without limitation, the right to vote such shares of Stock.

 

9.8           Increases
Prohibited.  None of the
Committee or the Board may increase the amount of compensation payable under a
Performance Stock or Performance Unit Award. 
If the time at which a Performance Stock Award or Performance Unit Award
will vest or be paid is accelerated for any reason, the number of shares of
Stock subject to, or the amount payable under, the Performance Stock or
Performance Unit Award shall be reduced pursuant to Department of Treasury
Regulation section 1.162-27(e)(2)(iii) to reasonably reflect the time
value of money.

 

9.9           Stockholder
Approval.  No payments of
Stock or cash will be made to a Covered Employee pursuant to this Article IX
unless the stockholder approval requirements of Department of Treasury
Regulation section 1.162-27(e)(4) are satisfied.

 

9.10         Dividend
Equivalents.  An Award
Agreement for a Performance Unit Award may specify that the Holder shall be
entitled to the payment of Dividend Equivalents under the Award.

 

ARTICLE X

DIRECTOR AWARDS

 

All
Awards to Directors shall be determined by the Board.

 

ARTICLE XI

ANNUAL CASH INCENTIVE AWARDS

 

11.1         Authority to
Grant Annual Cash Incentive Awards. 
Subject to the terms and provisions of the Plan, the Committee, at any
time, and from time to time, may grant Annual Cash Incentive Awards under the
Plan 

 

18

 

to
key executive Employees who, by the nature and scope of their positions,
regularly directly make or influence policy decisions which significantly
impact the overall results or success of the Company in such amounts and upon
such terms as the Committee shall determine. 
Subject to the following provisions in this Article XI, the amount
of any Annual Cash Incentive Awards shall be based on the attainment of such
Performance Goals as the Committee may determine and the term, conditions and
limitations applicable to any Annual Cash Incentive Awards made pursuant to the
Plan shall be determined by the Committee.

 

11.2         Covered
Employees.  The Performance
Goals upon which the payment or vesting of an Annual Cash Incentive Award to a
Covered Employee that is intended to qualify as Performance-Based Compensation
must meet the requirements of Sections 9.2, 9.3, 9.8 and 9.9 as applied to such
Annual Cash Incentive Award.

 

11.3         Written
Agreement.  Each Annual Cash
Incentive Award shall be evidenced by an Award Agreement that contains any
vesting, transferability restrictions and other provisions not inconsistent
with the Plan as the Committee may specify.

 

11.4         Form of
Payment Under Annual Cash Incentive Award.  Payment under an Annual Cash Incentive Award
shall be made in cash.

 

11.5         Time of
Payment Under Annual Cash Incentive Award.  A Holder’s payment under an Annual Cash
Incentive Award shall be made at such time as is specified in the applicable
Award Agreement.  The Award Agreement
shall specify that the payment will be made (1) by a date that is no later
than the date that is two and one-half (2 1/2) months after the end of the
calendar year in which the Annual Cash Incentive Award payment is no longer
subject to a Substantial Risk of Forfeiture or (2) at a time that is
Permissible under Section 409A.

 

ARTICLE XII

OTHER STOCK-BASED AWARDS

 

12.1         Authority to
Grant Other Stock-Based Awards. 
Subject to the terms and provisions of the Plan, the Committee, at any
time, and from time to time, may grant other types of equity-based or
equity-related Awards not otherwise described by the terms and provisions of
the Plan (including the grant or offer for sale of unrestricted shares of
Stock) under the Plan to eligible persons in such number and upon such terms as
the Committee shall determine.  Such
Awards may involve the transfer of actual shares of Stock to Holders, or
payment in cash or otherwise of amounts based on the value of shares of Stock
and may include, without limitation, Awards designed to comply with or take
advantage of the applicable local laws of jurisdictions other than the United
States.

 

12.2         Value of
Other Stock-Based Award.  Each
Other Stock-Based Award shall be expressed in terms of shares of Stock or units
based on shares of Stock, as determined by the Committee.

 

12.3         Payment of
Other Stock-Based Award. 
Payment, if any, with respect to an Other Stock-Based Award shall be
made in accordance with the terms of the Award, in cash or shares of Stock as
the Committee determines.

 

12.4         Separation
from Service.  The Committee
shall determine the extent to which a Holder’s rights with respect to Other
Stock-Based Awards shall be affected by the Holder’s Separation from
Service.  Such provisions shall be
determined in the sole discretion of the Committee and need not be uniform
among all Other Stock-Based Awards issued pursuant to the Plan.

 

19

 

12.5         Time of
Payment of Other Stock-Based Award.  A Holder’s payment under an Other Stock-Based
Award shall be made at such time as is specified in the applicable Award
Agreement.  If a payment under the Award
Agreement is subject to Section 409A, the Award Agreement shall specify
that the payment will be made (1) by a date that is no later than the date
that is two and one-half (2 1/2) months after the end of the calendar year in
which the Other Stock-Based Award payment is no longer subject to a Substantial
Risk of Forfeiture or (2) at a time that is Permissible under Section 409A.

 

ARTICLE XIII

CASH-BASED AWARDS

 

13.1         Authority to
Grant Cash-Based Awards. 
Subject to the terms and provisions of the Plan, the Committee, at any
time, and from time to time, may grant Cash-Based Awards under the Plan to
eligible persons in such amounts and upon such terms as the Committee shall
determine.

 

13.2         Value of
Cash-Based Award.  Each
Cash-Based Award shall specify a payment amount or payment range as determined
by the Committee.

 

13.3         Payment of
Cash-Based Award.  Payment, if
any, with respect to a Cash-Based Award shall be made in accordance with the
terms of the Award, in cash.

 

13.4         Time of
Payment of Cash-Based Award.  Payment under a Cash-Based Award shall be made
at such time as is specified in the applicable Award Agreement.  If a payment under the Award Agreement is
subject to Section 409A, the Award Agreement shall specify that the
payment will be made (1) by a date that is no later than the date that is
two and one-half (2 1/2) months after the end of the calendar year in which the
Cash-Based Award payment is no longer subject to a Substantial Risk of
Forfeiture or (2) at a time that is Permissible under Section 409A.

 

13.5         Separation
from Service.  The Committee
shall determine the extent to which a Holder’s rights with respect to
Cash-Based Awards shall be affected by the Holder’s Separation from
Service.  Such provisions shall be
determined in the sole discretion of the Committee and need not be uniform
among all Cash-Based Awards issued pursuant to the Plan.

 

ARTICLE XIV

SUBSTITUTION AWARDS

 

Awards
may be granted under the Plan from time to time in substitution for stock
options and other awards held by employees of other entities who are about to
become Employees, or whose employer is about to become an Affiliate as the
result of a merger or consolidation of the Company with another corporation, or
the acquisition by the Company of substantially all the assets of another
corporation, or the acquisition by the Company of at least fifty percent (50%)
of the issued and outstanding stock of another corporation as the result of
which such other corporation will become a subsidiary of the Company.  The terms and conditions of the substitute
Awards so granted may vary from the terms and conditions set forth in the Plan
to such extent as the Board at the time of grant may deem appropriate to
conform, in whole or in part, to the provisions of the Award in substitution
for which they are granted.  If shares of
Stock are issued under the Plan with respect to an Award granted under this Article such
shares of Stock will not count against the aggregate number of shares of Stock
with respect to which Awards may be granted under the Plan.

 

20

 

ARTICLE XV

ADMINISTRATION

 

15.1         Awards.  The Plan shall be administered by the
Committee or, in the absence of the Committee or in the case of awards issued
to Directors, the Plan shall be administered by the Board.  The members of the Committee (that is not
itself the Board) shall serve at the discretion of the Board.  The Committee shall have full and exclusive
power and authority to administer the Plan and to take all actions that the
Plan expressly contemplates or are necessary or appropriate in connection with
the administration of the Plan with respect to Awards granted under the Plan.

 

15.2         Authority of
the Committee.  The Committee
shall have full and exclusive power to interpret and apply the terms and
provisions of the Plan and Awards made under the Plan, and to adopt such rules,
regulations and guidelines for implementing the Plan as the Committee may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of the Plan.  A majority of the members of the Committee
shall constitute a quorum for the transaction of business relating to the Plan
or Awards made under the Plan, and the vote of a majority of those members
present at any meeting shall decide any question brought before that
meeting.  Any decision or determination
reduced to writing and signed by a majority of the members shall be as
effective as if it had been made by a majority vote at a meeting properly
called and held.  All questions of
interpretation and application of the Plan, or as to Awards granted under the
Plan, shall be subject to the determination, which shall be final and binding,
of a majority of the whole Committee.  No
member of the Committee shall be liable for any act or omission of any other
member of the Committee or for any act or omission on his own part, including
but not limited to the exercise of any power or discretion given to him under
the Plan, except those resulting from his own willful misconduct.  In carrying out its authority under the Plan,
the Committee shall have full and final authority and discretion, including but
not limited to the following rights, powers and authorities to (a) determine
the persons to whom and the time or times at which Awards will be made; (b) determine
the number and exercise price of shares of Stock covered in each Award subject
to the terms and provisions of the Plan; (c) determine the terms,
provisions and conditions of each Award, which need not be identical and need
not match the default terms set forth in the Plan; (d) accelerate the time
at which any outstanding Award will vest; (e) prescribe, amend and rescind
rules and regulations relating to administration of the Plan; and (f) make
all other determinations and take all other actions deemed necessary,
appropriate or advisable for the proper administration of the Plan.

 

The
Committee may make an Award to an individual who the Company expects to become
an Employee of the Company or any of its Affiliates within six (6) months
after the date of grant of the Award, with the Award being subject to and
conditioned on the individual actually becoming an Employee within that time
period and subject to other terms and conditions as the Committee may
establish.

 

The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Award to a Holder in the manner and to the
extent the Committee deems necessary or desirable to further the Plan’s
objectives. Further, the Committee shall make all other determinations that may
be necessary or advisable for the administration of the Plan.  As permitted by law and the terms and
provisions of the Plan, the Committee may delegate to one or more of its
members or to one or more officers of the Company, and/or its Affiliates or to
one or more agents or advisors such administrative duties or powers as it may
deem advisable, and the Committee or any person to whom it has delegated duties
or powers as aforesaid may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under the
Plan.  The Committee may, by resolution,
authorize one or more officers of the Company to do one or more of the
following on the same basis as can the Committee: (a) designate Employees
to be recipients of Awards; (b) designate Third Party Service Providers to
be recipients of Awards; and (c) determine the size of any such Awards; provided, however, (i) the Committee shall not delegate
such responsibilities to any such officer for Awards granted to an Employee
that is considered an Insider; (ii) the resolution providing such
authorization sets 

 

21

 

forth
the total number of Awards such officer(s) may grant; and (iii) the
officer(s) shall report periodically to the Committee regarding the nature
and scope of the Awards granted pursuant to the authority delegated.  The Committee may employ attorneys,
consultants, accountants, agents, and other persons, any of whom may be an
Employee, and the Committee, the Company, and its officers and Board shall be
entitled to rely upon the advice, opinions, or valuations of any such persons.

 

15.3         Decisions
Binding.  All determinations
and decisions made by the Committee or the Board, as the case may be, pursuant
to the provisions of the Plan and all related orders and resolutions of the
Committee or the Board, as the case may be, shall be final, conclusive and
binding on all persons, including the Company, its Affiliates, its
stockholders, Holders and the estates and beneficiaries of Holders.

 

15.4         No
Liability.  Under no
circumstances shall the Company, its Affiliates, the Board or the Committee
incur liability for any indirect, incidental, consequential or special damages
(including lost profits) of any form incurred by any person, whether or not
foreseeable and regardless of the form of the act in which such a claim may be
brought, with respect to the Plan or the Company’s, its Affiliates’, the
Committee’s or the Board’s roles in connection with the Plan.

 

ARTICLE XVI

AMENDMENT OR TERMINATION OF PLAN

 

16.1         Amendment,
Modification, Suspension, and Termination.  Subject to Section 16.2, the Board may,
at any time and from time to time, alter, amend, modify, suspend, or terminate
the Plan and the Committee may, at any time and from time to time, alter,
amend, modify, suspend, or terminate any Award Agreement in whole or in part;
provided, however, that, without the prior approval of the Company’s
stockholders and except as provided in Section 4.5, the Committee shall
not directly or indirectly lower the Option Price of a previously granted
Option or the grant price of a previously granted SAR, cancel a previously
granted Option or previously granted SAR for a payment of cash or other
property if the aggregate fair market value of such Award is less than the
aggregate Option Price of such Award in the case of an Option or the aggregate
grant price of such Award in the case of a SAR, and no amendment of the Plan
shall be made without stockholder approval if stockholder approval is required
by applicable law or stock exchange rules.

 

16.2         Awards
Previously Granted. 
Notwithstanding any other provision of the Plan to the contrary, no
termination, amendment, suspension, or modification of the Plan or an Award
Agreement shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Holder holding such
Award.

 

ARTICLE XVII

MISCELLANEOUS

 

17.1         Unfunded
Plan/No Establishment of a Trust Fund.  Holders
shall have no right, title, or interest whatsoever in or to any investments
that the Company or any of its Affiliates may make to aid in meeting
obligations under the Plan.  Nothing
contained in the Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Holder, beneficiary, legal
representative, or any other person.  To
the extent that any person acquires a right to receive payments from the
Company under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company. 
All payments to be made hereunder shall be paid from the general funds
of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts, except
as expressly set forth in the Plan.  No
property shall be set aside nor shall a trust 

 

22

 

fund
of any kind be established to secure the rights of any Holder under the
Plan.  The Plan is not intended to be
subject to the Employee Retirement Income Security Act of 1974, as amended.

 

17.2         No
Employment Obligation.  The
granting of any Award shall not constitute an employment contract, express or
implied, nor impose upon the Company or any Affiliate any obligation to employ
or continue to employ, or utilize the services of, any Holder.  The right of the Company or any Affiliate to
terminate the employment of any person shall not be diminished or affected by
reason of the fact that an Award has been granted to him, and nothing in the
Plan or an Award Agreement shall interfere with or limit in any way the right
of the Company or its Affiliates to terminate any Holder’s employment at any
time or for any reason not prohibited by law.

 

17.3         Tax
Withholding.  The Company or
any Affiliate shall be entitled to deduct from other compensation payable to
each Holder any sums required by federal, state, local or foreign tax law to be
withheld with respect to the vesting or exercise of an Award or lapse of
restrictions on an Award.  In the
alternative, the Company may require the Holder (or other person validly
exercising the Award) to pay such sums for taxes directly to the Company or any
Affiliate in cash or by check within one day after the date of vesting,
exercise or lapse of restrictions. In the discretion of the Committee, and with
the consent of the Holder, the Company may reduce the number of shares of Stock
issued to the Holder upon such Holder’s exercise of an Award or the vesting of
an Award to satisfy the tax withholding obligations of the Company or an Affiliate;
provided that the Fair Market Value of
the shares of Stock held back shall not exceed the Company’s or the Affiliate’s
Minimum Statutory Tax Withholding Obligation.

 

The
Committee may, in its discretion, permit a Holder to satisfy any Minimum Statutory
Tax Withholding Obligation arising upon the vesting of or payment under an
Award by delivering to the Holder a reduced number of shares of Stock in the
manner specified herein.  If permitted by
the Committee and acceptable to the Holder, at the time of vesting of shares
under the Award, the Company shall (a) calculate the amount of the
Company’s or an Affiliate’s Minimum Statutory Tax Withholding Obligation on the
assumption that all such shares of Stock vested under the Award are made
available for delivery, (b) reduce the number of such shares of Stock made
available for delivery so that the Fair Market Value of the shares of Stock
withheld on the vesting date approximates the Company’s or an Affiliate’s
Minimum Statutory Tax Withholding Obligation and (c) in lieu of the
withheld shares of Stock, remit cash to the United States Treasury and/or other
applicable governmental authorities, on behalf of the Holder, in the amount of
the Minimum Statutory Tax Withholding Obligation.  The Company shall withhold only whole shares
of Stock to satisfy its Minimum Statutory Tax Withholding Obligation.  Where the Fair Market Value of the withheld
shares of Stock does not equal the amount of the Minimum Statutory Tax
Withholding Obligation, the Company shall withhold shares of Stock with a Fair
Market Value slightly less than the amount of the Minimum Statutory Tax
Withholding Obligation and the Holder must satisfy the remaining minimum
withholding obligation in some other manner permitted under this Section 17.3.  The withheld shares of Stock not made
available for delivery by the Company shall be retained as treasury shares or
will be cancelled and the Holder’s right, title and interest in such shares of
Stock shall terminate.

 

The
Company shall have no obligation upon vesting or exercise of any Award or lapse
of restrictions on an Award until the Company or an Affiliate has received
payment sufficient to cover the Minimum Statutory Tax Withholding Obligation
with respect to that vesting, exercise or lapse of restrictions.  Neither the Company nor any Affiliate shall
be obligated to advise a Holder of the existence of the tax or the amount which
it will be required to withhold.

 

17.4         Indemnification
of the Committee.  The Company
shall indemnify each present and future member of the Committee against, and
each member of the Committee shall be entitled without further action on his or
her part to indemnity from the Company for, all expenses (including attorney’s
fees, the amount of judgments and the amount of approved settlements made with
a view to the curtailment of costs of litigation, 

 

23

 

other
than amounts paid to the Company itself) reasonably incurred by such member in
connection with or arising out of any action, suit or proceeding in which such
member may be involved by reason of such member being or having been a member
of the Committee, whether or not he or she continues to be a member of the
Committee at the time of incurring the expenses, including, without limitation,
matters as to which such member shall be finally adjudged in any action, suit
or proceeding to have been negligent in the performance of such member’s duty
as a member of the Committee.  However,
this indemnity shall not include any expenses incurred by any member of the
Committee in respect of matters as to which such member shall be finally
adjudged in any action, suit or proceeding to have been guilty of willful
misconduct in the performance of his duty as a member of the Committee.  In addition, no right of indemnification
under the Plan shall be available to or enforceable by any member of the
Committee unless, within 60 days after institution of any action, suit or
proceeding, such member shall have offered the Company, in writing, the opportunity
to handle and defend same at its own expense. 
This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and shall be in
addition to all other rights to which a member of the Committee may be entitled
as a matter of law, contract or otherwise.

 

17.5         Gender and
Number.  If the context
requires, words of one gender when used in the Plan shall include the other and
words used in the singular or plural shall include the other.

 

17.6         Severability.  In the event any
provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.

 

17.7         Headings.  Headings of Articles and Sections are
included for convenience of reference only and do not constitute part of the
Plan and shall not be used in construing the terms and provisions of the Plan.

 

17.8         Other Compensation
Plans.  The adoption of the
Plan shall not affect any other option, incentive or other compensation or
benefit plans in effect for the Company or any Affiliate, nor shall the Plan
preclude the Company from establishing any other forms of incentive
compensation arrangements for Employees, Directors or Third Party Service
Providers.

 

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

 

17.10       Other
Awards.  The grant of an Award
shall not confer upon the Holder the right to receive any future or other
Awards under the Plan, whether or not Awards may be granted to similarly
situated Holders, or the right to receive future Awards upon the same terms or
conditions as previously granted.

 

17.11       Successors.  All obligations of the Company
under the Plan with respect to Awards granted hereunder shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation, or otherwise, of all
or substantially all of the business and/or assets of the Company.

 

17.12       Law
Limitations/Governmental Approvals.  The granting of Awards and the
issuance of shares of Stock under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.

 

17.13       Delivery of
Title.  The Company shall have no
obligation to issue or deliver evidence of title for shares of Stock issued
under the Plan prior to (a) obtaining any approvals from governmental
agencies that the 

 

24

 

Company
determines are necessary or advisable; and (b) completion of any
registration or other qualification of the Stock under any applicable national
or foreign law or ruling of any governmental body that the Company determines
to be necessary or advisable.

 

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

 

17.15       Investment
Representations.  The Committee may require any
person receiving Stock pursuant to an Award under the Plan to represent and
warrant in writing that the person is acquiring the shares of Stock for
investment and without any present intention to sell or distribute such Stock.

 

17.16       Persons
Residing Outside of the United States.  Notwithstanding any provision of the Plan to
the contrary, in order to comply with the laws in other countries in which the
Company or any of its Affiliates operates or has Employees, the Committee, in
its sole discretion, shall have the power and authority to (a) determine
which Affiliates shall be covered by the Plan; (b) determine which persons
employed outside the United States are eligible to participate in the Plan; (c) amend
or vary the terms and provisions of the Plan and the terms and conditions of
any Award granted to persons who reside outside the United States; (d) establish
subplans and modify exercise procedures and other terms and procedures to the
extent such actions may be necessary or advisable — any subplans and
modifications to Plan terms and procedures established under this Section 17.16
by the Committee shall be attached to the Plan document as Appendices; and (e) take
any action, before or after an Award is made, that it deems advisable to obtain
or comply with any necessary local government regulatory exemptions or
approvals. Notwithstanding the above, the Committee may not take any actions
hereunder, and no Awards shall be granted, that would violate the Exchange Act,
the Code, any securities law or governing statute or any other applicable law.

 

17.17       Arbitration
of Disputes.  Any controversy
arising out of or relating to the Plan or an Award Agreement shall be resolved
by arbitration conducted in the greater District of Columbia metropolitan area
pursuant to the arbitration rules of the American Arbitration
Association.  The arbitration shall be
final and binding on the parties.

 

17.18       No
Fractional Shares.  No
fractional shares of Stock shall be issued or delivered pursuant to the Plan or
any Award.  The Committee shall determine
whether cash, additional Awards, or other property shall be issued or paid in
lieu of fractional shares of Stock or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

 

17.19       Governing
Law.  The provisions of the
Plan and the rights of all persons claiming thereunder shall be construed,
administered and governed under the laws of the State of Delaware, excluding
any conflicts or choice of law rule or principle that might otherwise
refer construction or interpretation of the Plan to the substantive law of
another jurisdiction. Unless otherwise provided in the Award Agreement,
recipients of an Award under the Plan are deemed to submit to the exclusive
jurisdiction and venue of the federal or state courts of the Commonwealth of
Virginia, to resolve any and all issues that may arise out of or relate to the
Plan or any related Award Agreement.

 

25Exhibit 10.6

 

OPTION NO.:                

 

ROSETTA STONE INC.

2009 OMNIBUS INCENTIVE PLAN

COVER SHEET TO

NONQUALIFIED STOCK OPTION AWARD AGREEMENT

 

Rosetta Stone Inc., a Delaware corporation (the “Company”), has granted an option (the “Option”) to purchase shares of the Company’s common stock,
$.00005 par value (the “Stock”), to the
individual whose name is set forth below on the “Name of Optionee” line (“Optionee”).  The terms
and conditions of the Option are set forth in this Cover Sheet, in the attached
Nonqualified Stock Option Award Agreement and in the Rosetta Stone Inc. 2009
Omnibus Incentive Plan (the “Plan”).

 

Grant Date:                                            ,
20    

 

Name of Optionee:                                            

 

Optionee’s Employee Identification Number:                 
-                 
-                 

 

Number of Shares of the Stock Covered by the Option:                           

 

Option Price per Share of Stock:  $                
..                 

 

Vesting Start Date:                                
, 20                

 

By signing this Cover Sheet, you agree to, and
agree to be bound by, all of the terms and conditions described in this Cover
Sheet, the attached Nonqualified Stock Option Award Agreement and in the Plan,
a copy of which has been previously made available to you.  You acknowledge that you have had an
opportunity to carefully reviewed the Plan, and agree that the terms of the
Plan will control in the event any provision of this Cover Sheet or the attached
Nonqualified Stock Option Award Agreement is inconsistent with the terms of the
Plan.

 

	
  Optionee:

  	
   

  
	
   

  	
  (Optionee Signature)

  

 

	
  ROSETTA
  STONE INC.

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

Attachment

 

THIS AGREEMENT IS NOT A STOCK
CERTIFICATE OR A NEGOTIABLE INSTRUMENT

 

 

ROSETTA STONE INC.

2009 OMNIBUS INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AWARD AGREEMENT

 

This NONQUALIFIED STOCK  OPTION AWARD AGREEMENT (this “Agreement”) and the Cover Sheet to which
this Agreement is attached (the “Cover Sheet”)
are entered into between Rosetta Stone Inc., a Delaware corporation (the “Company”), and Optionee (as that term is
defined in the Covered Sheet).  The Board
of Directors of the Company has adopted, and the stockholders of the Company
have approved, the Rosetta Stone Inc. 2009 Omnibus Incentive Plan (the “Plan”), the terms of which are
incorporated by reference herein in their entirety.  Any term used in this Agreement that is not
specifically defined herein shall have the meaning specified in the Plan.

 

IT IS AGREED:

 

1.             Grant of Option.
Subject to the terms of the Plan, this Agreement and the Cover Sheet, on the
Grant Date set forth on the Cover Sheet (the “Grant
Date”), the Company granted to Optionee an option (the “Option”) to purchase that number of shares
of the Company’s common stock, $.00005 par value (the “Stock”), at the Option Price per Share of
Stock set forth on the Cover Sheet (the “Option Price”),
subject to adjustment as provided in the Plan.

 

2.             Type of Option.  The Option is a nonqualified stock option
which is not intended to be governed by section 422 of the Code and will
be interpreted accordingly.

 

3.             Optionee’s Agreement.  In accepting the Option, Optionee accepts and
agrees to be bound by all the terms and conditions of the Plan which pertain to
nonqualified stock options granted under the Plan.

 

4.             Vesting of Option.  Subject to the provisions of the Plan and the
provision of this Agreement (including the requirement in Section 6 that
Optionee continue to be employed by the Company on the dates set forth below),
the Option will be exercisable in accordance with the following schedule:

 

(a)           on
the first anniversary of the Vesting Start Date (as set forth on the Cover
Sheet) the Option will vest with respect to, and may be exercised for up to,
[one-fourth (1/4th)]
[                 ]
of the total number of shares of the Stock subject to the Option as set forth
on the Cover Sheet (the “Option Shares”);

 

[Note: subparagraphs (b) and (c) are
alternative paragraphs]

 

(b)           [on
each succeeding anniversary of the Vesting Start Date the Option will vest with
respect to, and may be exercised for up to, an additional [one-fourth (1/4th)] [                 ]
of the Option Shares so that on the [fourth] [                ]
anniversary of the Vesting Start Date the Option shall be exercisable in full;
and]

 

 

(c)           [on
the last day of each succeeding three-month period beginning on the first
anniversary of the Vesting Start Date the Option will vest with respect to, and
may be exercised for up to, an additional one-sixteenth (1/16th) of the Option
Shares (and as of the last day of each such quarter the resulting aggregate
number of vested Option Shares will be rounded [down] to the nearest whole
number of Option Shares) so that on the day before the fifth anniversary of the
Vesting Start Date the Option shall be exercisable in full; and]

 

(d)           to
the extent not exercised, installments shall be cumulative and may be exercised
in whole or in part.

 

5.             Manner of Exercise.

 

(a)           To
the extent that the Option is vested and exercisable in accordance with Section 4
of this Agreement, the Option may be exercised by Optionee at any time, or from
time to time, in whole or in part, on or prior to the termination of the Option
(as set forth in Section 6 of this Agreement) upon payment of the Option
Price for the Option Shares to be acquired in accordance with the terms and
conditions of this Agreement and the Plan.

 

(b)           If
Optionee is entitled to exercise the vested and exercisable portion of the
Option, and wishes to do so, in whole or part, Optionee shall (i) deliver
to the Company a fully completed and executed notice of exercise, in such form
as may be designated by the Company in its sole discretion, specifying the
exercise date and the number of Option Shares to be purchased pursuant to such
exercise and (ii) remit to the Company in a form satisfactory to the
Company, in its sole discretion, the Option Price for the Option Shares to be
acquired on exercise of the Option, plus an amount sufficient to satisfy any
withholding tax obligations of the Company that arise in connection with such
exercise (as determined by the Company) in accordance with the provisions of
the Plan.

 

(c)           The
Company’s obligation to deliver shares of the Stock to Optionee under this
Agreement is subject to and conditioned upon Optionee satisfying all tax
obligations associated with Optionee’s receipt, holding and exercise of the
Option.  Unless otherwise approved by the
Committee, all such tax obligations shall be payable in accordance with the
provisions of the Plan.

 

(d)           The
Company and its Affiliates and subsidiaries, as applicable, shall be entitled
to deduct from any compensation otherwise due to Optionee the amount necessary
to satisfy all such taxes.

 

(e)           Upon
full payment of the Option Price and satisfaction of all applicable tax
obligations, and subject to the applicable terms and conditions of the Plan and
the terms and conditions of this Agreement, the Company shall cause
certificates for the shares purchased hereunder to be delivered to Optionee or
cause an uncertificated book-entry representing such shares to be made.

 

6.             Termination of Option.  Unless the Option terminates earlier as
provided in this Section 6 the Option shall terminate and become null and
void at the close of business at the Company’s principal business office on the
day before the date of the tenth anniversary of the Grant Date (the “Option General Expiration Date”).  If Optionee ceases to be an employee of the 

 

2

 

Company
for any reason the Option shall not continue to vest after such cessation of
service as an employee of the Company.

 

(a)           If
Optionee ceases to be an employee of the Company and any Subsidiary Corporation
due to death or Disability, (i) the portion of the Option that was exercisable
on the date of such cessation shall remain exercisable for, and shall otherwise
terminate and become null and void at the close of business at the Company’s
principal business office on the day that is six (6) months after the
date of such death or Disability, but in no event after the Option General
Expiration Date; and (ii) the portion of the Option that was not
exercisable on the date of such cessation shall be forfeited and become null
and void immediately upon such cessation.

 

(b)           If
Optionee ceases to be an employee of the Company or a Subsidiary Corporation
due to Cause, all of the Option shall be forfeited and become null and void
immediately upon such cessation, whether or not then exercisable.  For purposes of this Section 6(b) the
term “Cause” means the occurrence
of one of the following events:  (i) commission
of a felony or a crime involving moral turpitude or the commission of any other
act or omission involving dishonesty in the performance of his duties to the
Company, an Affiliate or Subsidiary Corporation or fraud; (ii) substantial
and repeated failure to perform duties of the office held by Optionee as
reasonably directed by the Company; (iii) gross negligence or willful
misconduct with respect to the Company or any Subsidiary Corporations; (iv) material
breach of any employment agreement between Optionee and the Company that is not
cured within ten (10) days after receipt of written notice thereof from
the Company; (v) failure, within ten (10) days after receipt by
Optionee of written notice thereof from the Company, to correct, cease or
otherwise alter any failure to comply with instructions or other action or
omission which the Board reasonably believes does or may materially or
adversely affect its business or operations; (vi) misconduct which is of
such a serious or substantial nature that a reasonable likelihood exists that
such misconduct will materially injure the reputation of the Company or its
Subsidiary Corporations if Optionee was to remain employed by the Company; (vii) harassing
or discriminating against the Company’s employees, customers or vendors in
violation of the Company’s policies with respect to such matters; and/or (viii) misappropriation
of funds or assets of the Company for personal use or willful violation of Company
policies or standards of business conduct as determined in good faith by the
Board.

 

(c)           If
Optionee ceases to be an employee of the Company or a Subsidiary Corporation
for any reason other than death, Disability, or Cause, (i) the portion of
the Option that was exercisable on the date of such cessation shall remain
exercisable for, and shall otherwise terminate and become null and void at the
close of business at the Company’s principal business office on the day that is
30-days after the date of such cessation, but in no event after the Option
General Expiration Date, and (ii) the portion of the Option that was not
exercisable on the date of such cessation shall be forfeited and become null
and void immediately upon such cessation.

 

(d)           Upon
the death of Optionee prior to the expiration of the Option, Optionee’s
executors, administrators or any person or persons to whom the Option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to the termination of the Option to exercise the
Option with respect to the number of shares that Optionee would have been
entitled to exercise if he were still alive.

 

3

 

7.             Tax Withholding.  To the extent that the receipt of the Option,
this Agreement or the Cover Sheet, the vesting of the Option or the exercise of
the Option results in income to Optionee for federal, state, local or foreign
income, employment or other tax purposes with respect to which the Company or
its subsidiaries or any Affiliate has a withholding obligation, Optionee shall
deliver to the Company at the time of such receipt, vesting or exercise, as the
case may be, such amount of money as the Company or its subsidiaries or any
Affiliate may require to meet its obligation under applicable tax laws or
regulations, and, if Optionee fails to do so, the Company or its subsidiaries
or any Affiliate is authorized to withhold from the shares subject to the
Option (based on the Fair Market Value of such shares as of the date the amount
of tax to be withheld is determined) or from any cash or stock remuneration
then or thereafter payable to Optionee any tax required to be withheld by
reason of such taxable income, sufficient to satisfy the withholding obligation.

 

8.             Capital Adjustments and
Reorganizations. The existence of the Option shall not affect in
any way the right or power of the Company or any company the stock of which is
awarded pursuant to this Agreement to make or authorize any adjustment, recapitalization,
reorganization or other change in its capital structure or its business, engage
in any merger or consolidation, issue any debt or equity securities, dissolve
or liquidate, or sell, lease, exchange or otherwise dispose of all or any part
of its assets or business, or engage in any other corporate act or proceeding.

 

9.             Employment Relationship. For
purposes of this Agreement, Optionee shall be considered to be in the
employment of the Company and its Affiliates as long as Optionee has an
employment relationship with the Company and its Affiliates.  The Committee shall determine any questions
as to whether and when there has been a termination of such employment
relationship, and the cause of such termination, under the Plan and the
Committee’s determination shall be final and binding on all persons.

 

10.           Not an Employment Agreement.  This Agreement is not an employment or
service agreement, and no provision of this Agreement shall be construed or
interpreted to create an employment or other service relationship between
Optionee and the Company, its subsidiaries or any of its Affiliates or
guarantee the right to remain employed by the Company, its subsidiaries or any
of its Affiliates, for any specified term or require the Company or any
Affiliate to employ Employee for any period of time.

 

11.           No Rights As Stockholder.  Optionee shall not have any rights as a
stockholder with respect to any Option Shares until the date of the issuance of
such shares following Optionee’s exercise of the Option pursuant to its terms
and conditions and payment of all amounts for and with respect to the
shares.  No adjustment shall be made for
dividends or other rights for which the record date is prior to the date a
certificate or certificates are issued for such shares or an uncertificated
book-entry representing such shares is made.

 

12.           Legend.  Optionee consents to the placing on the
certificate for any Option Shares of an appropriate legend restricting resale
or other transfer of such shares except in accordance with the Securities Act
of 1933 and all applicable rules thereunder.

 

4

 

13.           Notices.  Any notice, instruction, authorization,
request, demand or other communications required hereunder shall be in writing,
and shall be delivered either by personal delivery, by telegram, telex,
telecopy or similar facsimile means, by certified or registered mail, return
receipt requested, or by courier or delivery service, addressed to the Company
at the Company’s principal business office address to the attention of the
Company’s General Counsel and to Optionee at Optionee’s residential address as
it appears on the books and records of the Company, or at such other address
and number as a party shall have previously designated by written notice given
to the other party in the manner hereinabove set forth.  Notices shall be deemed given when received,
if sent by facsimile means (confirmation of such receipt by confirmed facsimile
transmission being deemed receipt of communications sent by facsimile means);
and when delivered (or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt requested.

 

14.           Amendment and Waiver.
Except as otherwise provided herein or in the Plan or as necessary to implement
the provisions of the Plan, this Agreement may be amended, modified or
superseded only by written instrument executed by the Company and Optionee.  Only a written instrument executed and
delivered by the party waiving compliance hereof shall waive any of the terms
or conditions of this Agreement.  Any
waiver granted by the Company shall be effective only if executed and delivered
by a duly authorized director or officer of the Company other than
Optionee.  The failure of any party at
any time or times to require performance of any provisions hereof shall in no
manner effect the right to enforce the same. 
No waiver by any party of any term or condition, or the breach of any
term or condition contained in this Agreement, in one or more instances, shall
be construed as a continuing waiver of any such condition or breach, a waiver
of any other condition, or the breach of any other term or condition.

 

15.           Dispute Resolution.  In the event of any difference of opinion
concerning the meaning or effect of the Plan or this Agreement, such difference
shall be resolved by the Committee.

 

16.           Governing Law  and Severability. The
validity, construction and performance of this Agreement shall be governed by
the laws of the State of Delaware, excluding any conflicts or choice of law rule or
principle that might otherwise refer construction or interpretation of this
Agreement to the substantive law of another jurisdiction.  The invalidity of any provision of this
Agreement shall not affect any other provision of this Agreement, which shall
remain in full force and effect.

 

17.           Transfer Restrictions.
The Option Shares may not be sold or otherwise disposed of in any manner that
would constitute a violation of any applicable federal or state securities
laws.  Optionee also agrees (a) that
the Company may refuse to cause the transfer of Option Shares to be registered
on the applicable stock transfer records if such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of any
applicable securities law and (b) that the Company may give related
instructions to the transfer agent, if any, to stop registration of the
transfer of the Option Shares.

 

5

 

18.           Successors and Assigns.  This Agreement shall, except as herein stated
to the contrary, inure to the benefit of and bind the legal representatives,
successors and assigns of the parties hereto.

 

19.           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be an original for all purposes but all of
which taken together shall constitute but one and the same instrument.

 

20.           Option Transfer Prohibitions.  The Option granted to Optionee under this
Agreement shall not be transferable or assignable by Optionee other than by
will or the laws of descent and distribution, and shall be exercisable during
Optionee’s lifetime only by him.

 

6

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