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EXHIBIT 10.1

I-FLOW CORPORATION

AMENDED AND RESTATED

2001 EQUITY INCENTIVE PLAN

ARTICLE I

PURPOSE OF PLAN

     
The Company has adopted this Plan to promote the interests of
the Company and its stockholders by using investment interests
in the Company to attract, retain and motivate its directors,
management, employees and other persons, to encourage and reward
their contributions to the performance of the Company, and to
align their interests with the interests of the Company’s
stockholders. Capitalized terms not otherwise defined herein
have the meanings ascribed to them in Article VIII.

ARTICLE II

EFFECTIVE DATE AND TERM OF PLAN

     
2.1     Term of Plan. This Plan
became effective as of the Effective Date and will continue in
effect until the Expiration Date, at which time this Plan will
automatically terminate.

     
2.2     Effect on Awards. Awards
may be granted only during the Plan Term, but each Award granted
during the Plan Term will remain in effect after the Expiration
Date until such Award has been exercised, terminated or expired
in accordance with its terms and the terms of this Plan.

ARTICLE III

SHARES SUBJECT TO PLAN

     
3.1     Number of Shares. The
maximum number of shares of Common Stock that may be issued
pursuant to Awards under this Plan is 4,750,000, subject to
adjustment as set forth in Section 3.4, provided,
however, that at no time while this Plan is a California
Regulated Plan shall the total number of shares issuable upon
exercise of all outstanding Awards or other stock options and
the total number of shares provided for under any stock bonus or
similar plan of the Company exceed the applicable percentage
(currently thirty percent) as calculated in accordance with the
conditions and exclusions of Rule 260.140.45 of
Title 10 of the California Securities Rules, unless and to
the extent that this requirement is waived by the California
Commissioner.

     
3.2     Source of Shares. The
Common Stock to be issued under this Plan will be made
available, at the discretion of the Administrator, either from
authorized but unissued shares of Common Stock or from
previously issued shares of Common Stock reacquired by the
Company, including without limitation shares purchased on the
open market.

     
3.3     Availability of Unused
Shares. Shares of Common Stock subject to unexercised
portions of any Award that expire, terminate or are canceled,
and shares of Common Stock issued pursuant to an Award that are
reacquired by the Company pursuant to this Plan or the terms of
the Award under which such shares were issued, will again become
available for the grant of further Awards under this Plan as
part of the shares available under Section 3.1. However, if
the exercise price of, or withholding taxes incurred in
connection with, an Award is paid with shares of Common Stock,
or if shares of Common Stock otherwise issuable pursuant to
Awards are withheld by the Company in satisfaction of an
exercise price or the withholding taxes incurred in connection
with any exercise or vesting of an Award, then the number of
shares of Common Stock available for issuance under the Plan
will be reduced by the gross number of shares for which the
Award is exercised or for which it vests, as applicable, and not
by the net number of shares of Common Stock issued to the holder
of such Award.

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3.4     Adjustment Provisions.

          
(a)     Adjustments. If the
Company consummates any Reorganization in which holders of
shares of Common Stock are entitled to receive in respect of
such shares any additional shares or new or different shares or
securities, cash or other consideration (including, without
limitation, a different number of shares of Common Stock), or if
the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number or kind of shares or other
securities through merger, consolidation, sale or exchange of
assets of the Company, reorganization, recapitalization,
reclassification, combination, stock dividend, stock split,
reverse stock split, spin-off, or similar transaction then,
subject to Section 7.1, an appropriate and proportionate
adjustment shall be made by the Administrator in its discretion
in: (i) the maximum number and kind of shares subject to
this Plan as provided in Section 3.1; (ii) the number
and kind of shares or other securities subject to then
outstanding Awards; and/or (iii) the price for each share
or other unit of any other securities subject to, or measurement
criteria applicable to, then outstanding Awards.

          
(b)     No Fractional Interests.
No fractional interests will be issued under the Plan resulting
from any adjustments.

          
(c)     Adjustments Related to
Company Stock. To the extent any adjustments relate to stock
or securities of the Company, such adjustments will be made by
the Administrator, whose determination in that respect will be
final, binding and conclusive.

          
(d)     Right to Make
Adjustment. The grant of an Award will not affect in any way
the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business
or assets.

          
(e)     Limitations. No
adjustment to the terms of an Incentive Stock Option may be made
unless such adjustment either: (i) would not cause the
Option to lose its status as an Incentive Stock Option; or
(ii) is agreed to in writing by the Administrator and the
Recipient.

     
3.5     Reservation of Shares.
The Company will at all times reserve and keep available shares
of Common Stock equaling at least the total number of shares of
Common Stock issuable pursuant to all outstanding Awards.

ARTICLE IV

ADMINISTRATION OF PLAN

     
4.1     Administrator.

          
(a)     Plan Administration.
This Plan will be administered by the Board and may also be
administered by a Committee of the Board appointed pursuant to
Section 4.1(b).

          
(b)     Administration by
Committee.

               
(i)     The Board in its sole
discretion may from time to time appoint a Committee of not less
than two (2) Board members with authority to administer
this Plan in whole or part and, subject to applicable law, to
exercise any or all of the powers, authority and discretion of
the Board under this Plan. The Board may from time to time
increase or decrease (but not below two (2)) the number of
members of the Committee, remove from membership on the
Committee all or any portion of its members, and/or appoint such
person or persons as it desires to fill any vacancy existing on
the Committee, whether caused by removal, resignation or
otherwise. The Board may disband the Committee at any time.

               
(ii)     Notwithstanding the foregoing
provisions of this Section 4.1(b) to the contrary, as long
as the Company is an Exchange Act Registered Company,
(1) the Board shall appoint the Committee, (2) this
Plan shall be administered by the Committee, and (3) each
of the Committee’s members shall be Non-Employee Directors
and in addition, if Awards are to be made to persons subject to
Section 162(m) of the IRC and such Awards are intended to
constitute Performance-Based Compensation, then each of the
Committee’s members shall, in addition to being a
Non-Employee Director, also be an Outside Director.

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4.2     Authority of
Administrator.

          
(a)     Authority to Interpret
Plan. Subject to the express provisions of this Plan, the
Administrator will have the power to implement, interpret and
construe this Plan and any Awards and Award Documents or other
documents defining the rights and obligations of the Company and
Recipients hereunder and thereunder, to determine all questions
arising hereunder and thereunder, and to adopt and amend such
rules and regulations for the administration hereof and thereof
as it may deem desirable. The interpretation and construction by
the Administrator of any provisions of this Plan or of any Award
or Award Document, and any action taken by, or inaction of, the
Administrator relating to this Plan or any Award or Award
Document, will be within the discretion of the Administrator and
will be conclusive and binding upon all persons. Subject only to
compliance with the express provisions hereof, the Administrator
may act in its discretion in matters related to this Plan and
any and all Awards and Award Documents.

          
(b)     Authority to Grant
Awards. Subject to the express provisions of this Plan, the
Administrator may from time to time in its discretion select the
Eligible Persons to whom, and the time or times at which, Awards
will be granted or sold, the nature of each Award, the number of
shares of Common Stock or the number of rights that make up or
underlie each Award, the exercise price and period (if
applicable) for the exercise of each Award, and such other terms
and conditions applicable to each individual Award as the
Administrator may determine. Any and all terms and conditions of
Awards may be established by the Administrator without regard to
existing Awards or other grants and without incurring any
obligation of the Company in respect of subsequent Awards. The
Administrator may grant at any time new Awards to an Eligible
Person who has previously received Awards or other grants
(including other stock options) regardless of the status of such
other Awards or grants. The Administrator may grant Awards
singly or in combination or in tandem with other Awards as it
determines in its discretion.

          
(c)     Procedures. Subject to
the Company’s charter or bylaws or any Board resolution
conferring authority on the Committee, any action of the
Administrator with respect to the administration of this Plan
must be taken pursuant to a majority vote of the authorized
number of members of the Administrator or by the unanimous
written consent of its members; provided, however, that
(i) if the Administrator is the Committee and consists of
two (2) members, then actions of the Administrator must be
unanimous, and (ii) actions taken by the Board will be
valid if approved in accordance with applicable law.

     
4.3     No Liability. No member
of the Board or the Committee or any designee thereof will be
liable for any action or inaction with respect to this Plan or
any Award or any transaction arising under this Plan or any
Award except in circumstances constituting bad faith of such
member.

     
4.4     Amendments.

          
(a)     Plan Amendments. The
Administrator may at any time and from time to time in its
discretion, insofar as permitted by applicable law, rule or
regulation and subject to Section 4.4(c), suspend or
discontinue this Plan or revise or amend it in any respect
whatsoever, and this Plan as so revised or amended will govern
all Awards, including those granted before such revision or
amendment. Without limiting the generality of the foregoing, the
Administrator is authorized to amend this Plan to comply with or
take advantage of amendments to applicable laws, rules or
regulations, including the Securities Act, the Exchange Act, the
IRC, or the rules of any exchange or market system upon which
the Common Stock is listed or trades, or any rules or
regulations promulgated thereunder. No stockholder approval of
any amendment or revision will be required unless such approval
is required by applicable law, rule or regulation.

          
(b)     Award Amendments. The
Administrator may at any time and from time to time in its
discretion, subject to Section 4.4(c) and compliance with
applicable statutory or administrative requirements, accelerate
or extend the vesting or exercise period of any Award as a whole
or in part, and make such other modifications in the terms and
conditions of an Award as it deems advisable.

          
(c)     Limitation. Except as
otherwise provided in this Plan or in the applicable Award
Document, no amendment, revision, suspension or termination of
this Plan or an outstanding Award that would cause an Incentive
Stock Option to cease to qualify as such or that would alter,
impair or diminish in any material

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respect any rights or obligations under any Award theretofore
granted under this Plan may be effected without the written
consent of the Recipient to whom such Award was granted.

     
4.5     Other Compensation
Plans. The adoption of this Plan will not affect any other
stock option, incentive or other compensation plans in effect
from time to time for the Company, except that on the Effective
Date of this Plan, the Company’s 1996 Stock Incentive Plan
will be terminated by the Board. This Plan will not preclude the
Company from establishing any other forms of incentive or other
compensation for employees, directors, advisors or consultants
of the Company, whether or not approved by stockholders.

     
4.6     Plan Binding on
Successors. Subject to Section 7.1, this Plan will be
binding upon the successors and assigns of the Company.

     
4.7     References to Successor
Statutes, Regulations and Rules. Any reference in this Plan
to a particular statute, regulation or rule will also refer to
any successor provision of such statute, regulation or rule.

     
4.8     Invalid Provisions. In
the event that any provision of this Plan is found to be invalid
or otherwise unenforceable under any applicable law, such
invalidity or unenforceability is not to be construed as
rendering any other provisions contained herein invalid or
unenforceable, and all such other provisions are to be given
full force and effect to the same extent as though the invalid
and unenforceable provision were not contained herein.

     
4.9     Governing Law. This
Agreement will be governed by and interpreted in accordance with
the internal laws of the State of Delaware, without giving
effect to the principles of the conflicts of laws thereof.

     
4.10     Interpretation.
Headings herein are for convenience of reference only, do not
constitute a part of this Plan, and will not affect the meaning
or interpretation of this Plan. References herein to Sections or
Articles are references to the referenced Section or Article
hereof, unless otherwise specified.

ARTICLE V

GENERAL AWARD PROVISIONS

     
5.1     Participation in Plan.

          
(a)     Eligibility to Receive
Awards. A person is eligible to receive grants of Awards if,
at the time of the grant of the Award, such person is an
Eligible Person or has received an offer of employment from the
Company, provided, however, that Awards granted to a
person who has received an offer of employment will terminate
and be forfeited without consideration if the employment offer
is not accepted within such time as may be specified by the
Company. Status as an Eligible Person will not be construed as a
commitment that any Award will be granted under this Plan to an
Eligible Person or to Eligible Persons generally.

          
(b)     Eligibility to Receive
Incentive Stock Options. Incentive Stock Options may be
granted only to Eligible Persons meeting the employment
requirements of Section 422 of the IRC.

          
(c)     Awards to Foreign
Nationals. Notwithstanding anything to the contrary herein,
the Administrator may, in order to fulfill the purposes of this
Plan, modify grants of Awards to Recipients who are foreign
nationals or employed outside of the United States to recognize
differences in applicable law, tax policy or local custom.

     
5.2     Award Documents. Each
Award must be evidenced by an agreement duly executed on behalf
of the Company and by the Recipient or, in the
Administrator’s discretion, a confirming memorandum issued
by the Company to the Recipient, setting forth such terms and
conditions applicable to the Award as the Administrator may in
its discretion determine. Awards will not be deemed made or
binding upon the Company, and Recipients will have no rights
thereto, until such an agreement is entered into between the
Company and the Recipient or such a memorandum is delivered by
the Company to the Recipient, but an Award may have an effective
date prior to the date of such an agreement or memorandum. Award
Documents may be (but need not be) identical and must comply
with and be subject to the terms and conditions of this Plan, a
copy of which will be provided to each Recipient and
incorporated by reference into each Award Document. Any Award
Document may contain such other terms, provisions and conditions
not

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inconsistent with this Plan as may be determined by the
Administrator. In case of any conflict between this Plan and any
Award Document, this Plan shall control.

     
5.3     Payment For Awards.

          
(a)     Payment of Exercise
Price. The exercise price or other payment for an Award is
payable upon the exercise of a Stock Option or upon other
purchase of shares pursuant to an Award granted hereunder by
delivery of legal tender of the United States or payment of such
other consideration as the Administrator may from time to time
deem acceptable in any particular instance; provided,
however, that the Administrator may, in the exercise of its
discretion, allow exercise of an Award in a broker-assisted or
similar transaction in which the exercise price is not received
by the Company until promptly after exercise.

          
(b)     Reserved.

          
(c)     Cashless Exercise. If
permitted in any case by the Administrator in its discretion,
the exercise price for Awards may be paid by capital stock of
the Company delivered in transfer to the Company by or on behalf
of the person exercising the Award and duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, with
signatures guaranteed in accordance with the Exchange Act if
required by the Administrator; or retained by the Company from
the stock otherwise issuable upon exercise or surrender of
vested and/or exercisable Awards or other equity awards
previously granted to the Recipient and being exercised (if
applicable) (in either case valued at Fair Market Value as of
the exercise date); or such other consideration as the
Administrator may from time to time in the exercise of its
discretion deem acceptable in any particular instance.

          
(d)     No Precedent. Recipients
will have no rights to the exercise techniques described in
Section 5.3(c), and the Company may offer or permit such
assistance or techniques on an ad hoc basis to any
Recipient without incurring any obligation to offer or permit
such assistance or techniques on other occasions or to other
Recipients.

     
5.4     No Employment Rights.
Nothing contained in this Plan (or in Award Documents or in any
other documents related to this Plan or to Awards) will confer
upon any Eligible Person or Recipient any right to continue in
the employ of or engagement by the Company or any Affiliated
Entity or constitute any contract or agreement of employment or
engagement, or interfere in any way with the right of the
Company or any Affiliated Entity to reduce such person’s
compensation or other benefits or to terminate the employment or
engagement of such Eligible Person or Recipient, with or without
cause. Except as expressly provided in this Plan or in any
statement evidencing the grant of an Award, the Company has the
right to deal with each Recipient in the same manner as if this
Plan and any such statement evidencing the grant of an Award did
not exist, including, without limitation, with respect to all
matters related to the hiring, discharge, compensation and
conditions of the employment or engagement of the Recipient.
Unless otherwise set forth in a written agreement binding upon
the Company or an Affiliated Entity, all employees of the
Company or an Affiliated Entity are “at will”
employees whose employment may be terminated by the Company or
the Affiliated Entity at any time for any reason or no reason,
without payment or penalty of any kind. Any question(s) as to
whether and when there has been a termination of a
Recipient’s employment or engagement, the reason (if any)
for such termination, and/ or the consequences thereof under the
terms of this Plan or any statement evidencing the grant of an
Award pursuant to this Plan will be determined by the
Administrator and the Administrator’s determination thereof
will be final and binding.

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5.5     Restrictions Under
Applicable Laws and Regulations.

          
(a)     Government Approvals.
All Awards will be subject to the requirement that, if at any
time the Company determines, in its discretion, that the
listing, registration or qualification of the securities subject
to Awards granted under this Plan upon any securities exchange
or interdealer quotation system or under any federal, state or
foreign law, or the consent or approval of any government or
regulatory body, is necessary or desirable as a condition of, or
in connection with, the granting of such an Award or the
issuance, if any, or purchase of shares in connection therewith,
such Award may not be exercised as a whole or in part unless and
until such listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions
not acceptable to the Company. During the term of this Plan, the
Company will use its reasonable efforts to seek to obtain from
the appropriate governmental and regulatory agencies any
requisite qualifications, consents, approvals or authorizations
in order to issue and sell such number of shares of its Common
Stock as is sufficient to satisfy the requirements of this Plan.
The inability of the Company to obtain any such qualifications,
consents, approvals or authorizations will relieve the Company
of any liability in respect of the nonissuance or sale of such
stock as to which such qualifications, consents, approvals or
authorizations pertain.

          
(b)     No Registration Obligation;
Recipient Representations. The Company will be under no
obligation to register or qualify the issuance of Awards or
underlying securities under the Securities Act or applicable
state securities laws. Unless the issuance of Awards and
underlying securities have been registered under the Securities
Act and qualified or registered under applicable state
securities laws, the Company shall be under no obligation to
issue any Awards or underlying securities unless the Awards and
underlying securities may be issued pursuant to applicable
exemptions from such registration or qualification requirements.
In connection with any such exempt issuance, the Administrator
may require the Recipient to provide a written representation
and undertaking to the Company, satisfactory in form and scope
to the Company, that such Recipient is acquiring such Awards and
underlying securities for such Recipient’s own account as
an investment and not with a view to, or for sale in connection
with, the distribution of any such securities, and that such
person will make no transfer of the same except in compliance
with any rules and regulations in force at the time of such
transfer under the Securities Act and other applicable law, and
that if securities are issued without registration, a legend to
this effect (together with any other legends deemed appropriate
by the Administrator) may be endorsed upon the securities so
issued, and to the effect of any additional representations that
are appropriate in light of applicable securities laws and
rules. The Company may also order its transfer agent to stop
transfers of such shares. The Administrator may also require the
Recipient to provide the Company such information and other
documents as the Administrator may request in order to satisfy
the Administrator as to the investment sophistication and
experience of the Recipient and as to any other conditions for
compliance with any such exemptions from registration or
qualification.

     
5.6     No Rights or Privileges
Regarding Stock Ownership or Specific Assets. Except as
otherwise set forth herein, a Recipient or a permitted
transferee of an Award will have no rights as a stockholder with
respect to any shares issuable or issued in connection with the
Award until the Recipient has delivered to the Company all
amounts payable and performed all obligations required to be
performed in connection with exercise of the Award and the
Company has issued such shares. During any time that this Plan
is a California Regulated Plan, the Company will comply with
Section 260.140.1 of Title 10 of the California
Securities Rules, unless and to the extent that this requirement
is waived by the California Commissioner. No person will have
any right, title or interest in any fund or in any specific
asset (including shares of capital stock) of the Company by
reason of any Award granted hereunder. Neither this Plan (or any
documents related hereto) nor any action taken pursuant hereto
is to be construed to create a trust of any kind or a fiduciary
relationship between the Company and any person. To the extent
that any person acquires a right to receive an Award hereunder,
such right shall be no greater than the right of any unsecured
general creditor of the Company.

     
5.7     Nonassignability. No
Award is assignable or transferable except: (a) by will or
by the laws of descent and distribution; or (b) subject to
the final sentence of this Section 5.7, upon dissolution of
marriage pursuant to a qualified domestic relations order or, in
the discretion of the Administrator and under circumstances that
would not adversely affect the interests of the Company,
transfers for estate planning purposes or pursuant to a nominal
transfer that does not result in a change in beneficial
ownership. Subject to

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the succeeding sentence of this Section 5.7, during the
lifetime of a Recipient, an Award granted to such person will be
exercisable only by the Recipient (or the Recipient’s
permitted transferee) or such person’s guardian or legal
representative. Notwithstanding the foregoing, Stock Options and
other rights to purchase stock under the Plan that are
California Regulated Securities may not be transferred other
than by will or the laws of descent and distribution at any time
that this Plan is a California Regulated Plan, unless and to the
extent that this requirement is waived by the California
Commissioner, and Stock Options intended to be treated as
Incentive Stock Options (or other Awards subject to transfer
restrictions under the IRC): (i) may not be assigned or
transferred in violation of Section 422(b)(5) of the IRC or
the regulations thereunder, and nothing herein is intended to
allow such assignment or transfer, and (ii) will be
exercisable during a Recipient’s lifetime only by the
Recipient.

     
5.8     Information To
Recipients.

          
(a)     Provision of
Information. The Administrator in its sole discretion may
determine what, if any, financial and other information is to be
provided to Recipients and when such financial and other
information is to be provided after giving consideration to
applicable federal and state laws, rules and regulations,
including, without limitation, applicable federal and state
securities laws, rules and regulations, provided, however,
that during any time that this Plan is a California
Regulated Plan, holders of California Regulated Securities will
receive financial statements of the Company at least annually to
the extent required by the California Securities Rules, unless
and to the extent that this requirement is waived by the
California Commissioner.

          
(b)     Confidentiality. The
furnishing of financial and other information that is
confidential to the Company is subject to the Recipient’s
agreement to maintain the confidentiality of such financial and
other information, and not to use the information for any
purpose other than evaluating the Recipient’s position
under this Plan. The Administrator may impose other restrictions
on the access to and use of such confidential information and
may require a Recipient to acknowledge the Recipient’s
obligations under this Section 5.8(b) (which acknowledgment
is not to be a condition to Recipient’s obligations under
this Section 5.8(b)).

     
5.9     Withholding Taxes.
Whenever the granting, vesting or exercise of any Award, or the
issuance of any Common Stock or other securities upon exercise
of any Award or transfer thereof, gives rise to tax or tax
withholding liabilities or obligations, the Administrator will
have the right as a condition thereto to require the Recipient
to remit to the Company an amount sufficient to satisfy any
federal, state and local withholding tax requirements arising in
connection therewith. The Administrator may, in the exercise of
its discretion, allow satisfaction of tax withholding
requirements by accepting delivery of stock of the Company or by
withholding a portion of the stock otherwise issuable in
connection with an Award, in each case valued at Fair Market
Value as of the date of such delivery or withholding, as the
case may be.

     
5.10     Legends on Awards and Stock
Certificates. Each Award Document and each certificate
representing securities acquired upon vesting or exercise of an
Award must be endorsed with all legends, if any, required by
applicable federal and state securities and other laws to be
placed on the Award Document and/or the certificate. The
determination of which legends, if any, will be placed upon
Award Documents or the certificates will be made by the
Administrator in its discretion and such decision will be final
and binding.

     
5.11     Effect of Termination of
Employment or Service on Awards.

          
(a)     Termination of Vesting.
Notwithstanding anything to the contrary herein, but subject to
Section 5.11(b) Awards will be exercisable by a Recipient
(or the Recipient’s successor in interest) following such
Recipient’s termination of employment or service only to
the extent that installments thereof had become exercisable on
or prior to the date of such termination.

          
(b)     Alteration of Vesting and
Exercise Periods. Notwithstanding anything to the contrary
herein, the Administrator may in its discretion
(i) designate shorter or longer periods following a
Recipient’s termination of employment or service during
which Awards may vest or be exercised; provided, however,
that any shorter periods determined by the Administrator
will be effective only if provided for in this Plan or the
instrument that evidences the grant to the Recipient of the
affected Award or if such shorter period is agreed

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to in writing by the Recipient, and (ii) accelerate the
vesting of all or any portion of any Awards by increasing the
number of shares purchasable at any time.

          
(c)     Leave of Absence. In the
case of any employee on an approved leave of absence, the
Administrator may make such provision respecting continuance of
Awards granted to such employee as the Administrator in its
discretion deems appropriate, except that in no event will an
Award be exercisable after the date such Award would expire in
accordance with its terms had the Recipient remained
continuously employed.

          
(d)     General Cessation.
Except as otherwise set forth in this Plan or an Award Document,
or a written agreement between the Company and a Recipient, or
as determined by the Administrator in its discretion, all Awards
granted to a Recipient, and all of such Recipient’s rights
thereunder, will terminate upon termination for any reason of
such Recipient’s employment or service with the Company or
any Affiliated Entity (or cessation of any other service
relationship between the Recipient and the Company or any
Affiliated Entity in place as of the date the Award was granted).

     
5.12     Lock-Up Agreements.
Each Recipient agrees as a condition to receipt of an Award
that, in connection with any public offering by the Company of
its equity securities and upon the request of the Company and
the principal underwriter (if any) in such public offering, any
shares of Common Stock acquired or that may be acquired upon
exercise or vesting of an Award may not be sold, offered for
sale, encumbered, or otherwise disposed of or subjected to any
transaction that will involve any sales of securities of the
Company, without the prior written consent of the Company or
such underwriter, as the case may be, for a period of not more
than 365 days after the effective date of the registration
statement for such public offering. Each Recipient will, if
requested by the Company or the principal underwriter, enter
into a separate agreement to the effect of this
Section 5.12.

     
5.13     Restrictions on Common
Stock and Other Securities. Common Stock or other securities
of the Company issued or issuable in connection with any Award
will be subject to all of the restrictions imposed under this
Plan upon Common Stock issuable or issued upon exercise of Stock
Options, except as otherwise determined by the Administrator.

     
5.14     Limits on Awards to Certain
Eligible Persons. Notwithstanding any other provision of
this Plan, no one Eligible Person shall be granted any Awards
with respect to more than 750,000 shares of Common Stock in
any one calendar year; provided, however, that this
limitation shall not apply if it is not required in order for
the compensation attributable to Awards hereunder to qualify as
Performance-Based Compensation. The limitation set forth in this
Section 5.14 shall be subject to adjustment as provided in
Section 3.4 or under Article VII, but only to the
extent such adjustment would not affect the status of
compensation attributable to Awards hereunder as
Performance-Based Compensation.

ARTICLE VI

AWARDS

     
6.1     Stock Options.

          
(a)     Nature of Stock Options.
Stock Options may be Incentive Stock Options or Nonqualified
Stock Options.

          
(b)     Option Exercise Price.
The exercise price for each Stock Option will be determined by
the Administrator as of the date such Stock Option is granted.
The exercise price may be greater than or less than the Fair
Market Value of the Common Stock subject to the Stock Option as
of the date of grant, provided, however, that in no event
may the exercise price per share be less than the par value, if
any, per share of the Common Stock subject to the Stock Option,
and provided further that the exercise price of Stock
Options that are California Regulated Securities granted while
this Plan is a California Regulated Plan, if any, may not be
less than 85% of the Fair Market Value of the Common Stock as of
the date of grant, or 110% of the Fair Market Value of the
Common Stock as of the date of grant in the case of Stock
Options granted to Recipients owning stock possessing more than
10% of the total combined voting power of all classes of stock of

8

 

the Company or its parent or subsidiary corporations, unless and
to the extent that this requirement is waived by the California
Commissioner.

          
(c)     Option Period and
Vesting. Stock Options granted hereunder will vest and may
be exercised as determined by the Administrator, except that
(i) Stock Options granted to any Recipient other than an
officer, director or consultant of the Company or an Affiliated
Entity, that are California Regulated Securities granted while
this Plan is a California Regulated Plan (if any) will vest and
become exercisable at the rate of at least 20% per year
over five years from the date of grant, unless and to the extent
that this requirement is waived by the California Commissioner,
and (ii) exercise of Stock Options after termination of the
Recipient’s employment or service shall be subject to
Section 5.11 and Section 6.1(e). Each Stock Option
granted hereunder and all rights or obligations thereunder shall
expire on such date as may be determined by the Administrator,
but not later than ten (10) years after the date the Stock
Option is granted and may be subject to earlier termination as
provided herein or in the Award Document. Except as otherwise
provided herein, a Stock Option will become exercisable, as a
whole or in part, on the date or dates specified by the
Administrator and thereafter will remain exercisable until the
exercise, expiration or earlier termination of the Stock Option.

          
(d)     Exercise of Stock
Options. The exercise price for Stock Options will be paid
as set forth in Section 5.3. No Stock Option will be
exercisable except in respect of whole shares, and fractional
share interests shall be disregarded. Not fewer than
100 shares of Common Stock may be purchased at one time and
Stock Options must be exercised in multiples of 100 unless the
number purchased is the total number of shares for which the
Stock Option is exercisable at the time of exercise. A Stock
Option will be deemed to be exercised when the Secretary or
other designated official of the Company receives written notice
of such exercise from the Recipient in the form of
Exhibit A hereto or such other form as the Company may
specify from time to time, together with payment of the exercise
price in accordance with Section 5.3 and any amounts
required under Section 5.9 or, with permission of the
Administrator, arrangement for such payment. Notwithstanding any
other provision of this Plan, the Administrator may impose, by
rule and/or in Award Documents, such conditions upon the
exercise of Stock Options (including, without limitation,
conditions limiting the time of exercise to specified periods)
as may be required to satisfy applicable regulatory
requirements, including, without limitation, Rule 16b-3 and
Rule 10b-5 under the Exchange Act, and any amounts required
under Section 5.9, or any applicable section of or
regulation under the IRC.

          
(e)     Termination of Employment or
Service.

               
(i)     Termination for Just Cause.
Subject to Section 5.11 and except as otherwise provided in
a written agreement between the Company or an Affiliated Entity
and the Recipient, which may be entered into at any time before
or after termination of employment, or, with respect to
California Regulated Securities, as required by the California
Securities Rules while this Plan is a California Regulated Plan
(unless waived by the California Commissioner), in the event of
a Just Cause Dismissal of a Recipient all of the
Recipient’s unexercised Stock Options, whether or not
vested, will expire and become unexercisable as of the date of
such Just Cause Dismissal.

               
(ii)     Termination Other Than for
Just Cause. Subject to Section 5.11 and except as otherwise
provided in a written agreement between the Company or an
Affiliated Entity and the Recipient, which may be entered into
at any time before or after termination of employment or
service, if a Recipient’s employment or service with the
Company or any Affiliated Entity terminates for:

                    
(A)     any reason other than for Just
Cause Dismissal, death, Permanent Disability or Retirement, the
Recipient’s Awards, whether or not vested, will expire and
become unexercisable as of the earlier of: (A) the date
such Stock Options would expire in accordance with their terms
had the Recipient remained employed or in service; and
(B) 30 days after the date of termination of
employment or service.

                    
(B)     death or Permanent Disability
or Retirement, the Recipient’s unexercised Awards will,
whether or not vested, expire and become unexercisable as of the
earlier of: (A) the date such Awards would expire in
accordance with their terms had the Recipient remained employed
or in service; and (B) six months after the date of
termination of employment or service.

9

 

          
(f)     Special Provisions Regarding
Incentive Stock Options. Notwithstanding anything herein to
the contrary,

               
(i)     The exercise price and vesting
period of any Stock Option intended to be treated as an
Incentive Stock Option must comply with the provisions of
Section 422 of the IRC and the regulations thereunder. As
of the Effective Date, such provisions require, among other
matters, that: (A) the exercise price must not be less than
the Fair Market Value of the underlying stock as of the date the
Incentive Stock Option is granted, and not less than 110% of the
Fair Market Value as of such date in the case of a grant to a
Significant Stockholder; and (B) that the Incentive Stock
Option not be exercisable after the expiration of ten
(10) years from the date of grant or the expiration of five
(5) years from the date of grant in the case of an
Incentive Stock Option granted to a Significant Stockholder.

               
(ii)     The aggregate Fair Market
Value (determined as of the respective date or dates of grant)
of the Common Stock for which one or more Stock Options granted
to any Recipient under this Plan (or any other option plan of
the Company or of any Parent Corporation or Subsidiary
Corporation) may for the first time become exercisable as
Incentive Stock Options under the federal tax laws during any
one calendar year may not exceed $100,000.

               
(iii)     Any Stock Options granted as
Incentive Stock Options pursuant to this Plan that for any
reason fail or cease to qualify as such will be treated as
Nonqualified Stock Options. If the limit described in
Section 6.1(f)(ii) is exceeded, the earliest granted Stock
Options will be treated as Incentive Stock Options, up to such
limit.

     
6.2     Performance Awards.

          
(a)     Grant of Performance
Award. The Administrator will determine in its discretion
the pre-established, objective performance goals (which need not
be identical and may be established on an individual or group
basis) governing Performance Awards, the terms thereof, and the
form and time of payment of Performance Awards.

          
(b)     Payment of Award. Upon
satisfaction of the conditions applicable to a Performance
Award, payment will be made to the Recipient in cash, in shares
of Common Stock valued at Fair Market Value as of the date
payment is due, or in a combination of Common Stock and cash, as
the Administrator in its discretion may determine.

          
(c)     Maximum Amount of
Compensation. The maximum amount payable pursuant to that
portion of a Performance Award granted for any calendar year to
any Recipient that is intended to satisfy the requirements for
Performance-Based Compensation shall not exceed $2,000,000.

     
6.3     Restricted Stock.

          
(a)     Award of Restricted
Stock. The Administrator will determine the Purchase Price
(if any), the terms of payment of the Purchase Price, the
restrictions upon the Restricted Stock, and when such
restrictions will lapse, provided, however, that the
Purchase Price (if any) for Restricted Stock that constitutes
California Regulated Securities granted while this Plan is a
California Regulated Plan may not be less than 85% of the Fair
Market Value of the Common Stock as of the date of grant or
purchase, or 100% of the Fair Market Value of the Common Stock
as of the date of grant to or purchase by Recipients owning
stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its parent or
subsidiary corporations, unless and to the extent that this
requirement is waived by the California Commissioner.

          
(b)     Requirements of Restricted
Stock. All shares of Restricted Stock granted or sold
pursuant to this Plan will be subject to the following
conditions:

               
(i)     No Transfer. The shares may not
be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of, alienated or encumbered until the
restrictions are removed or expire;

10

 

               
(ii)     Certificates. The
Administrator may require that the certificates representing
Restricted Stock granted or sold to a Recipient remain in the
physical custody of an escrow holder or the Company until all
restrictions are removed or expire;

               
(iii)     Restrictive Legends. Each
certificate representing Restricted Stock granted or sold to a
Recipient pursuant to this Plan will bear such legend or legends
making reference to the restrictions imposed upon such
Restricted Stock as the Administrator in its discretion deems
necessary or appropriate to enforce such restrictions; and

               
(iv)     Other Restrictions. The
Administrator may impose such other conditions on Restricted
Stock as the Administrator may deem advisable, including,
without limitation, restrictions under the Securities Act, under
the Exchange Act, under the requirements of any stock exchange
or interdealer quotation system upon which such Restricted Stock
or other securities of the Company are then listed or traded and
under any blue sky or other securities laws applicable to such
shares, provided, however, that so long as the Restricted
Stock constitutes California Regulated Securities granted while
this Plan is a California Regulated Plan, such other conditions
shall not be inconsistent with the California
Commissioner’s guidelines for options granted to and shares
purchases by employees, directors and consultants as set forth
in the California Securities Rules Section 260.140.41
and Section 260.140.42.

          
(c)     Lapse of Restrictions.
The restrictions imposed upon Restricted Stock will lapse in
accordance with such terms or other conditions as are determined
by the Administrator, except that the Company’s right to
repurchase shares of Restricted Stock that are California
Regulated Securities granted or sold to any Recipient, other
than an officer, director or consultant of the Company or an
Affiliated Entity, while this Plan is a California Regulated
Plan (if any) at the Purchase Price (if any) paid by the
Recipient to the Company will lapse at the rate of at least
20% per year over five years from the date of grant or
sale, unless and to the extent that this requirement is waived
by the California Commissioner.

          
(d) Rights of Recipient. Subject to the provisions
of Section 6.3(b) and any restrictions imposed upon the
Restricted Stock, the Recipient will have all rights of a
stockholder with respect to the Restricted Stock granted or sold
to such Recipient under this Plan, including, without
limitation, the right to vote the shares and receive all
dividends and other distributions paid or made with respect
thereto.

          
(e) Termination of Employment or Service. Unless the
Administrator in its discretion determines otherwise, if a
Recipient’s employment or service with the Company or any
Affiliated Entity terminates for any reason, all of the
Recipient’s Restricted Stock remaining subject to
restrictions on the date of such termination of employment or
service will be repurchased by the Company at the Purchase Price
(if any) paid by the Recipient to the Company, without interest
or premium, and otherwise returned to the Company without
consideration. Except in the case of Restricted Stock granted or
sold to officers, directors, or consultants of the Company or
any Affiliated Entity, in the case of shares of Restricted Stock
that are California Regulated Securities granted or sold while
this Plan is a California Regulated Plan, the Company must
exercise its right to repurchase within 90 days of the
termination of employment, and must pay the Purchase Price (if
any) in cash or by cancellation of purchase money indebtedness,
unless and to the extent that this requirement is waived by the
California Commissioner.

     
6.4     Stock Appreciation
Rights.

          
(a)     Granting of Stock
Appreciation Rights. The Administrator may at any time and
from time to time approve the grant to Eligible Persons of Stock
Appreciation Rights, related or unrelated to Stock Options.

          
(b)     SARs Related to Options.

               
(i)     A Stock Appreciation Right
related to a Stock Option will entitle the holder of the related
Stock Option, upon exercise of the Stock Appreciation Right, to
surrender such Stock Option, or any portion thereof to the
extent previously vested but unexercised, with respect to the
number of shares as to which such Stock Appreciation Right is
exercised, and to receive payment of an amount computed pursuant
to Section 6.4(b)(iii). Such Stock Option will, to the
extent surrendered, then cease to be exercisable.

11

 

               
(ii)     A Stock Appreciation Right
related to a Stock Option hereunder will be exercisable at such
time or times, and only to the extent that, the related Stock
Option is exercisable, and will not be transferable except to
the extent that such related Stock Option may be transferable
(and under the same conditions), will expire no later than the
expiration of the related Stock Option, and may be exercised
only when the market price of the Common Stock subject to the
related Stock Option exceeds the exercise price of the Stock
Option.

               
(iii)     Upon the exercise of a Stock
Appreciation Right related to a Stock Option, the Recipient will
be entitled to receive payment of an amount determined by
multiplying: (A) the difference obtained by subtracting the
exercise price of a share of Common Stock specified in the
related Stock Option from the Fair Market Value of a share of
Common Stock on the date of exercise of such Stock Appreciation
Right (or as of such other date or as of the occurrence of such
event as may have been specified in the instrument evidencing
the grant of the Stock Appreciation Right), by (B) the
number of shares as to which such Stock Appreciation Right is
exercised.

          
(c)     SARs Unrelated to
Options. The Administrator may grant Stock Appreciation
Rights unrelated to Stock Options. Section 6.4(b)(iii) will
govern the amount payable at exercise under such Stock
Appreciation Right, except that in lieu of an option exercise
price the initial base amount specified in the Award shall be
used.

          
(d) Limits. Notwithstanding the foregoing, the
Administrator, in its discretion, may place a dollar limitation
on the maximum amount that will be payable upon the exercise of
a Stock Appreciation Right.

          
(e) Payments. Payment of the amount determined under
the foregoing provisions may be made solely in whole shares of
Common Stock valued at their Fair Market Value on the date of
exercise of the Stock Appreciation Right or, alternatively, at
the discretion of the Administrator, in cash or in a combination
of cash and shares of Common Stock as the Administrator deems
advisable. The Administrator has full discretion to determine
the form in which payment of a Stock Appreciation Right will be
made and to consent to or disapprove the election of a Recipient
to receive cash in full or partial settlement of a Stock
Appreciation Right. If the Administrator decides to make full
payment in shares of Common Stock, and the amount payable
results in a fractional share, payment for the fractional share
will be made in cash.

     
6.5     Stock Payments. The
Administrator may approve Stock Payments to any Eligible Person
on such terms and conditions as the Administrator may determine.
Stock Payments will replace cash compensation at the Fair Market
Value of the Common Stock on the date payment is due.

     
6.6     Dividend Equivalents.
The Administrator may grant Dividend Equivalents to any
Recipient who has received a Stock Option, Stock Appreciation
Right or other Award denominated in shares of Common Stock.
Dividend Equivalents may be paid in cash, Common Stock or other
Awards; the amount of Dividend Equivalents paid other than in
cash will be determined by the Administrator by application of
such formula as the Administrator may deem appropriate to
translate the cash value of dividends paid to the alternative
form of payment of the Dividend Equivalent. Dividend Equivalents
will be computed as of each dividend record date and will be
payable to recipients thereof at such time as the Administrator
may determine. Notwithstanding the foregoing, if it is intended
that an Award qualify as Performance-Based Compensation, and the
amount of compensation a Recipient could receive under the Award
is based solely on an increase in value of the underlying shares
of Common Stock after the date of the grant or award, then the
payment of any Dividend Equivalents related to the Award shall
not be made contingent on the exercise of the Award.

     
6.7     Stock Bonuses. The
Administrator may issue Stock Bonuses to Eligible Persons on
such terms and conditions as the Administrator may determine.

     
6.8     Stock Sales. The
Administrator may sell to Eligible Persons shares of Common
Stock on such terms and conditions as the Administrator may
determine.

     
6.9     Phantom Stock. The
Administrator may grant Awards of Phantom Stock to Eligible
Persons. Phantom Stock is a cash payment measured by the Fair
Market Value of a specified number of shares of

12

 

Common Stock on a specified date, or measured by the excess of
such Fair Market Value over a specified minimum, which may but
need not include a Dividend Equivalent.

     
6.10     Other Stock-Based
Benefits. The Administrator is authorized to grant Other
Stock-Based Benefits. Other Stock-Based Benefits are any
arrangements granted under this Plan not otherwise described
above that: (a) by their terms might involve the issuance
or sale of Common Stock or other securities of the Company; or
(b) involve a benefit that is measured, as a whole or in
part, by the value, appreciation, dividend yield or other
features attributable to a specified number of shares of Common
Stock or other securities of the Company.

ARTICLE VII

CHANGE IN CONTROL

     
7.1     Provision for Awards Upon
Change in Control. As of the effective time and date of any
Change in Control, this Plan and any then outstanding Awards
(whether or not vested) will automatically terminate unless:
(a) provision is made in writing in connection with such
transaction for the continuance of this Plan and for the
assumption of such Awards, or for the substitution for such
Awards of new awards covering the securities of a successor
entity or an affiliate thereof, with appropriate adjustments as
to the number and kind of securities and exercise prices or
other measurement criteria, in which event this Plan and such
outstanding Awards will continue or be replaced, as the case may
be, in the manner and under the terms so provided; or
(b) the Board otherwise provides in writing for such
adjustments as it deems appropriate in the terms and conditions
of the then-outstanding Awards (whether or not vested),
including, without limitation, (i) accelerating the vesting
of outstanding Awards, and/or (ii) providing for the
cancellation of Awards and their automatic conversion into the
right to receive the securities, cash or other consideration
that a holder of the shares underlying such Awards would have
been entitled to receive upon consummation of such Change in
Control had such shares been issued and outstanding immediately
prior to the effective date and time of the Change in Control
(net of the appropriate option exercise prices). If, pursuant to
the foregoing provisions of this Section 7.1, this Plan and
the Awards terminate by reason of the occurrence of a Change in
Control without provision for any of the action(s) described in
clause (a) or (b) hereof, then subject to
Section 5.11 and Section 6.1(e), any Recipient holding
outstanding Awards will have the right, at such time prior to
the consummation of the Change in Control as the Board
designates, to exercise or receive the full benefit of the
Recipient’s Awards to the full extent not theretofore
exercised, including any installments which have not yet become
vested.

ARTICLE VIII

DEFINITIONS

Capitalized terms used in this Plan and not otherwise defined
have the meanings set forth below:

		
	 	
    “Administrator” means the Board as long as no
    Committee has been appointed and is in effect and also means the
    Committee to the extent that the Board has delegated authority
    thereto.
	 
	 	
    “Affiliated Entity” means any Parent
    Corporation of the Company or Subsidiary Corporation of the
    Company or any other entity controlling, controlled by, or under
    common control with the Company.
	 
	 	
    “Applicable Dividend Period” means (i) the
    period between the date a Dividend Equivalent is granted and the
    date the related Stock Option, Stock Appreciation Right, or
    other Award is exercised, terminates, or is converted to Common
    Stock, or (ii) such other time as the Administrator may
    specify in the written instrument evidencing the grant of the
    Dividend Equivalent.
	 
	 	
    “Award” means any Stock Option, Performance
    Award, Restricted Stock, Stock Appreciation Right, Stock
    Payment, Stock Bonus, Stock Sale, Phantom Stock, Dividend
    Equivalent, or Other Stock-Based Benefit granted or sold to an
    Eligible Person under this Plan.
	 
	 	
    “Award Document” means the agreement or
    confirming memorandum setting forth the terms and conditions of
    an Award.

13

 

		
	 	
    “Board” means the Board of Directors of the
    Company.
	 
	 	
    “California Commissioner” means the
    Commissioner of Corporations of the State of California.
	 
	 	
    “California Regulated Plan” means this Plan at
    any time that Awards and securities underlying Awards are
    California Regulated Securities and (i) the issuance of
    Awards and securities underlying Awards is not exempt from
    qualification under the California Securities Law, and the
    issuance of securities under the Plan is the subject of a
    qualification permit issued by the California Commissioner, or
    (ii) the Company relies upon any exemption imposing
    comparable requirements to those provided by
    Section 25102(o) of the California Securities Law to exempt
    the issuance of securities under this Plan from qualification
    under the California Securities Law.
	 
	 	
    “California Regulated Securities” means Awards
    and securities underlying Awards that are subject to the
    California Securities Law or the California Securities Rules.
	 
	 	
    “California Securities Law” means the
    California Corporate Securities Law of 1968, as amended.
	 
	 	
    “California Securities Rules” means the Rules
    of the California Commissioner adopted under the California
    Securities Law.
	 
	 	
    “Change in Control” means the following and
    shall be deemed to occur if any of the following events occurs:

			
	 	(i)  	
    Any Person becomes the beneficial owner (within the meaning of
    Rule 13d-3 promulgated under the Exchange Act) of 50% or
    more of either the then outstanding shares of Common Stock or
    the combined voting power of the Company’s then outstanding
    securities entitled to vote generally in the election of
    directors; or
	 
	 	(ii)  	
    At any time that the Company is an Exchange Act Registered
    Company, Individuals who, as of the effective date hereof,
    constitute the Board (the “Incumbent Board”)
    cease for any reason to constitute at least a majority of the
    Board, provided that any individual who becomes a
    director after the effective date hereof whose election, or
    nomination for election by the Company’s stockholders, is
    approved by a vote of at least a majority of the directors then
    comprising the Incumbent Board shall be considered to be a
    member of the Incumbent Board unless that individual was
    nominated or elected by any person, entity or group (as defined
    above) having the power to exercise, through beneficial
    ownership, voting agreement and/or proxy, twenty percent (20%)
    or more of either the outstanding shares of Common Stock or the
    combined voting power of the Company’s then outstanding
    voting securities entitled to vote generally in the election of
    directors, in which case that individual shall not be considered
    to be a member of the Incumbent Board unless such
    individual’s election or nomination for election by the
    Company’s stockholders is approved by a vote of at least
    two-thirds of the directors then comprising the Incumbent
    Board; or

			
	 	(iii) 	
    Consummation by the Company of the sale or other disposition by
    the Company of all or substantially all of the Company’s
    assets or a Reorganization of the Company with any other person,
    corporation or other entity, other than:

			
	 	(A) 	
    a Reorganization that would result in the voting securities of
    the Company outstanding immediately prior thereto (or, in the
    case of a Reorganization that is preceded or accomplished by an
    acquisition or series of related acquisitions by any Person, by
    tender or exchange offer or otherwise, of voting securities
    representing 5% or more of the combined voting power of all
    securities of the Company, immediately prior to such acquisition
    or the first acquisition in such series of acquisitions)
    continuing to represent, either by remaining outstanding or by
    being converted into voting securities of another entity, more
    than 50% of the combined voting power of the voting securities
    of the Company or such other entity outstanding immediately
    after such Reorganization (or series of related transactions
    involving such a Reorganization), or

14

 

			
	 	(B)  	
    a Reorganization effected to implement a recapitalization or
    reincorporation of the Company (or similar transaction) that
    does not result in a material change in beneficial ownership of
    the voting securities of the Company or its successor; or

			
	 	(iv) 	
    Approval by the stockholders of the Company or an order by a
    court of competent jurisdiction of a plan of liquidation of the
    Company.

		
	 	
    “Committee” means any committee appointed by
    the Board to administer this Plan pursuant to Section 4.1.
	 
	 	
    “Common Stock” means the common stock of the
    Company, as constituted on the Effective Date, and as thereafter
    adjusted under Section 3.4.
	 
	 	
    “Company” means I-Flow Corporation, a Delaware
    corporation.
	 
	 	
    “Dividend Equivalent” means a right granted by
    the Company under Section 6.6 to a holder of a Stock
    Option, Stock Appreciation Right or other Award denominated in
    shares of Common Stock to receive from the Company during the
    Applicable Dividend Period payments equivalent to the amount of
    dividends payable to holders of the number of shares of Common
    Stock underlying such Stock Option, Stock Appreciation Right, or
    other Award.
	 
	 	
    “Effective Date” means May 17, 2001, which
    is the date this Plan was approved by the Company’s
    stockholders.
	 
	 	
    “Eligible Person” includes directors (including
    Non-Employee Directors), officers, employees, consultants and
    advisors of the Company or of any Affiliated Entity;
    provided, however, that such consultants and advisors
    render bona fide services to the Company or any Affiliated
    Entity that are not in connection with capital-raising.
	 
	 	
    “Exchange Act” means the Securities Exchange
    Act of 1934, as amended.
	 
	 	
    “Exchange Act Registered Company” means that
    the Company has any class of any equity security registered
    pursuant to Section 12 of the Exchange Act.
	 
	 	
    “Expiration Date” means the tenth (10th)
    anniversary of the Effective Date.
	 
	 	
    “Fair Market Value” of a share of the Common
    Stock as of a particular date means: (i) if the stock is
    listed on an established stock exchange or exchanges (including
    for this purpose, the Nasdaq National Market), the arithmetic
    mean of the highest and lowest sale prices of the stock for such
    trading day on the primary exchange upon which the stock trades,
    as measured by volume, as published in The Wall Street
    Journal, or, if no sale price was quoted for such date, then
    as of the next preceding date on which such a sale price was
    quoted; or (ii) if the stock is not then listed on an
    exchange or the Nasdaq National Market, the average of the
    closing bid and asked prices per share for the stock in the
    over-the-counter market on such date (in the case of (i) or
    (ii), subject to adjustment as and if necessary and appropriate
    to set an exercise price not less than 100% of the fair market
    value of the stock on the date an Award is granted); or
    (iii) if the stock is not then listed on an exchange or
    quoted in the over-the-counter market, an amount determined in
    good faith by the Administrator; provided, however, that
    (A) when appropriate, the Administrator in determining Fair
    Market Value of capital stock of the Company shall consider such
    factors as may be required by the California Securities Law and
    the California Securities Rules while this Plan is a California
    Regulated Plan, and may take into account such other factors as
    it may deem appropriate under the circumstances, and (B) if
    the stock is traded on the Nasdaq SmallCap Market and both sales
    prices and bid and asked prices are quoted or available, the
    Administrator may elect to determine Fair Market Value under
    either clause (i) or (ii) above. Notwithstanding the
    foregoing, the Fair Market Value of capital stock for purposes
    of grants of Incentive Stock Options must be determined in
    compliance with applicable provisions of the IRC. The Fair
    Market Value of rights or property other than capital stock of
    the Company means the fair market value thereof as determined by
    the Administrator on the basis of such factors as it may deem
    appropriate.

15

 

		
	 	
    “Incentive Stock Option” means a Stock Option
    that qualifies as an incentive stock option under
    Section 422 of the IRC.
	 
	 	
    “IRC” means the Internal Revenue Code of 1986,
    as amended.
	 
	 	
    “Just Cause Dismissal” means a termination of a
    Recipient’s employment for any of the following reasons:
    (i) the Recipient violates any reasonable rule or
    regulation of the Board, the Company’s Chief Executive
    Officer or the Recipient’s superiors that results in damage
    to the Company or any Affiliated Entity or which, after written
    notice to do so, the Recipient fails to correct within a
    reasonable time not exceeding 15 days; (ii) any
    willful misconduct or gross negligence by the Recipient in the
    responsibilities assigned to the Recipient; (iii) any
    willful failure to perform the Recipient’s job as required
    to meet the objectives of the Company or any Affiliated Entity;
    (iv) any wrongful conduct of a Recipient which has an
    adverse impact on the Company or any Affiliated Entity or which
    constitutes a misappropriation of assets of the Company or any
    Affiliated Entity; (v) the Recipient’s performing
    services for any other person or entity which competes with the
    Company or any Affiliated Entity while the Recipient is employed
    by the Company or any Affiliated Entity, without the written
    approval of the Chief Executive Officer of the Company; or
    (vi) any other conduct that the Administrator reasonably
    determines constitutes Just Cause for Dismissal; provided,
    however, that if a Recipient is party to an employment
    agreement with the Company or any Affiliated Entity providing
    for just cause dismissal (or termination for cause or some
    comparable concept) of Recipient from Recipient’s
    employment with the Company or any Affiliated Entity, “Just
    Cause Dismissal” for purposes of this Plan will have the
    same meaning as ascribed thereto or to such comparable concept
    in such employment agreement.
	 
	 	
    “Non-Employee Director” means any director of
    the Company who qualifies as a “Non-Employee Director”
    under Rule 16b-3 of the Exchange Act.
	 
	 	
    “Nonqualified Stock Option” means a Stock
    Option that is not an Incentive Stock Option.
	 
	 	
    “Other Stock-Based Benefits” means an Award
    granted under Section 6.10.
	 
	 	
    “Outside Director” means an “outside
    director” as defined in the regulations adopted under
    Section 162(m) of the IRC.
	 
	 	
    “Parent Corporation” means any Parent
    Corporation as defined in Section 424(e) of the IRC.
	 
	 	
    “Performance Award” means an Award under
    Section 6.2, payable in cash, Common Stock or a combination
    thereof, that vests and becomes payable over a period of time
    upon attainment of preestablished, objective performance goals
    established in connection with the grant of the Award. For this
    purpose a preestablished, objective performance goal may include
    one or more of the following performance criteria: (a) cash
    flow, (b) earnings per share (including earnings before
    interest, taxes, and amortization), (c) return on equity,
    (d) total stockholder return, (e) return on capital,
    (f) return on assets or net assets, (g) income or net
    income, (h) operating income or net operating income,
    (i) operating margin, (j) return on operating revenue,
    and (k) any other similar performance criteria.
	 
	 	
    “Performance-Based Compensation” means
    performance-based compensation as described in
    Section 162(m) of the IRC and the regulations issued
    thereunder. If the amount of compensation an Eligible Person
    will receive under an Award is not based solely on an increase
    in the value of shares of Common Stock after the date of grant
    or award, the Administrator, in order to qualify an Award as
    performance-based compensation under Section 162(m) of the
    IRC, can condition the grant, award, vesting, or exercisability
    of such an Award on the attainment of preestablished, objective
    performance goals established in connection with the grant of
    the Award, including, but not limited to, those preestablished,
    objective performance goals described in the definition of
    “Performance Award” above.
	 
	 	
    “Permanent Disability” means that the Recipient
    becomes physically or mentally incapacitated or disabled so that
    the Recipient is unable to perform substantially the same
    services as the Recipient performed prior to incurring such
    incapacity or disability (the Company, at its option and
    expense, being entitled to retain a physician to confirm the
    existence of such incapacity or disability, and the
    determination of such physician to be binding upon the Company
    and the Recipient), and such

16

 

		
	 	
    incapacity or disability continues for a period of three
    (3) consecutive months or six (6) months in any
    12-month period or such other period(s) as may be determined by
    the Administrator with respect to any Award, provided
    that for purposes of determining the period during which an
    Incentive Stock Option may be exercised pursuant to
    Section 6.1(e), Permanent Disability shall mean
    “permanent and total disability” as defined in
    Section 22(e) of the IRC.
	 
	 	
    “Person” means any person, entity or group,
    within the meaning of Section 13(d) or 14(d) of the
    Exchange Act, but excluding (i) the Company and its
    subsidiaries, (ii) any employee stock ownership or other
    employee benefit plan maintained by the Company and
    (iii) an underwriter or underwriting syndicate that has
    acquired the Company’s securities solely in connection with
    a public offering thereof.
	 
	 	
    “Phantom Stock” means an Award granted under
    Section 6.9.
	 
	 	
    “Plan” means this 2001 Equity Incentive Plan of
    the Company.
	 
	 	
    “Plan Term” means the period during which this
    Plan remains in effect (commencing the Effective Date and ending
    on the Expiration Date).
	 
	 	
    “Purchase Price” means the purchase price (if
    any) to be paid by a Recipient for Restricted Stock as
    determined by the Administrator (which price shall be at least
    equal to the minimum price required under applicable laws and
    regulations for the issuance of Common Stock which is
    nontransferable and subject to a substantial risk of forfeiture
    until specific conditions are met).
	 
	 	
    “Recipient” means a person who has received an
    Award.
	 
	 	
    “Reorganization” means any merger,
    consolidation or other reorganization.
	 
	 	
    “Restricted Stock” means Common Stock that is
    the subject of an Award made under Section 6.3 and that is
    nontransferable and subject to a substantial risk of forfeiture
    until specific conditions are met, as set forth in this Plan and
    in any statement evidencing the grant of such Award.
	 
	 	
    “Retirement” of a Recipient means the
    Recipient’s resignation from the Company or any Affiliated
    Entity after reaching age 60 and at least five years of
    full-time employment by the Company or any Affiliated Entity
    without any circumstances that would justify a Just Cause
    Dismissal of the Recipient.
	 
	 	
    “Securities Act” means the Securities Act of
    1933, as amended.
	 
	 	
    “Significant Stockholder” is an individual who,
    at the time a Stock Option or other Award is granted to such
    individual under this Plan, owns stock possessing more than ten
    percent (10%) of the total combined voting power of all classes
    of stock of the Company or of any Parent Corporation or
    Subsidiary Corporation (after application of the attribution
    rules set forth in Section 424(d) of the IRC).
	 
	 	
    “Stock Appreciation Right” or
    “SAR” means a right granted under
    Section 6.4 to receive a payment that is measured with
    reference to the amount by which the Fair Market Value of a
    specified number of shares of Common Stock appreciates from a
    specified date, such as the date of grant of the SAR, to the
    date of exercise.
	 
	 	
    “Stock Bonus” means an issuance or delivery of
    unrestricted or restricted shares of Common Stock under
    Section 6.7 as a bonus for services rendered or for any
    other valid consideration under applicable law.
	 
	 	
    “Stock Payment” means a payment in shares of
    the Company’s Common Stock under Section 6.5 to
    replace all or any portion of the compensation or other payment
    (other than base salary) that would otherwise become payable to
    the Recipient in cash.
	 
	 	
    “Stock Option” means a right to purchase stock
    of the Company granted under Section 6.1 of this Plan.
	 
	 	
    “Stock Sale” means a sale of Common Stock to an
    Eligible Person under Section 6.8.
	 
	 	
    “Subsidiary Corporation” means any Subsidiary
    Corporation as defined in Section 424(f) of the IRC.

17

 

EXHIBIT A

I-FLOW CORPORATION

2001 EQUITY INCENTIVE PLAN

FORM OF NOTICE OF EXERCISE

I-Flow Corporation

20202 Windrow Drive

Lake Forest, California 92630

     
Re: Nonqualified Stock Option [Incentive Stock Option]

Notice is hereby given that I elect to purchase the number of
shares (“Shares”) set forth below pursuant to
the stock option referenced below at the exercise price
applicable thereto:

	 	 	 	 	 
	 	 	
    Option Grant Date:	 	
     

	 
	 	 	
    Total Number of Shares

    Underlying Original Option:	 	
     

	 
	 	 	
    Number of Shares for

    which Option has been

    Previously Exercised:	 	
     

	 
	 	 	
    Exercise Price Per Share:	 	
     

	 
	 	 	
    Number of Shares Being

    Acquired With This Exercise:	 	
     

A check in the amount of the aggregate price of the shares being
purchased [and applicable withholding taxes] is attached.

[I understand that the exemption from taxable income at the time
of exercise is dependent upon my holding such stock for a period
of at least one year from the date of exercise and two years
from the date of grant of the Option.]

I agree to provide to the Company such additional documents or
information as may be required pursuant to the Company’s
2001 Equity Incentive Plan.

		
	 	
      

     _______________________________________ 

     (Signature)
	 
	 	
      

     _______________________________________ 

     (Printed Name of Optionee)

18

 

FORM OF STOCK OPTION AWARD CONFIRMING MEMORANDUM

	 	 	 
	
    
    I-Flow Corporation

    	 	
    Optionee: 
	 	 	 
	 	 	
    Option Grant
    Date:  

	 	 	
    Number of
    Shares:  

	 	 	
    Exercise Price Per
    Share:  

	 	 	
    Type of Option (Incentive/
    Nonqualified):  

	
    Stock Option Award

    Confirming Memorandum	 	
    Plan: 2001 Equity Incentive Plan (the
    “Plan”) 

     
Congratulations! I-Flow Corporation, a Delaware corporation (the
“Company”), has elected to grant to you, the
Optionee named above, an option to purchase shares of the
Company’s Common Stock on the terms and conditions set
forth below. Terms not otherwise defined in this Confirming
Memorandum will have the meanings ascribed to them in the Plan
identified above.

     
1.     Governing Plan. Optionee
has received a copy of the Plan. This Confirming Memorandum is
subject in all respects to the applicable provisions of the
Plan, which are incorporated herein by reference. In the case of
any conflict between the provisions of the Plan and this
Confirming Memorandum, the provisions of the Plan will control.

     
2.     Grant of Option.
Effective as of the Option Grant Date identified above, the
Company has granted to the Optionee a stock option (the
“Option”) to purchase the number of shares of
the Company’s Common Stock identified above at the Exercise
Price Per Share identified above.

     
3.     Vesting and Exercise of
Option. The Option will vest and become exercisable
cumulatively as follows:

	 	 	 
	Number of Shares	 	Vesting Date
	 
	 	 	 
	 
	 	 	 
	 
	 	 	 
	 
	 	 	 
	 
	 	 	 

     
4.     No Right to Continued
Employment. This Confirming Memorandum does not confer upon
Optionee any right to continue as an employee of the Company or
an Affiliated Company, nor does it limit in any way the right of
the Company or an Affiliated Entity to terminate Optionee’s
services to the Company or the Affiliated Entity at any time,
with or without cause. Unless otherwise set forth in a written
Confirming Memorandum binding upon the Company or the Affiliated
Entity, Optionee’s employment by the Company or an
Affiliated Entity is “at will.”

     
5.     Restrictions on Option
Grant. This Confirming Memorandum, the Option and shares are
subject to the Plan. SALE, TRANSFER OR HYPOTHECATION OF THE
OPTION REFERRED TO HEREIN AND SHARES ISSUABLE UNDER SUCH OPTION
ARE RESTRICTED BY THE PLAN, ADDITIONAL COPIES OF WHICH ARE
AVAILABLE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.

     
6.     Termination. The
unexercised portion of the Option (whether or not vested)
automatically expires and become unexercisable under certain
circumstances as set forth in the Plan. In addition, the Board
of Directors or Committee administering the Plan reserves the
right to accelerate the vesting schedule under certain
circumstances (in which case, the Board of Directors or
Committee may impose whatever conditions it considers
appropriate on the accelerated portion).

     
7.     Governing Law. This Stock
Option Grant and the Option will be governed by, interpreted
under, and construed and enforced in accordance with the
internal laws, and not the laws pertaining to conflicts or
choice of laws, of the State of Delaware.

19

 

     
IN WITNESS WHEREOF, the Company has executed this Stock Option
Award Confirming Memorandum effective as of the Option Grant
Date.

		
	 	
    I-Flow Corporation,
    
	 	
    a Delaware corporation

			
	 	By: 	
     

		
	 	
     

	 	
    Name: 

			
	 		
     

		
	 	
    Its: 

			
	 		
     

20

 

I-FLOW CORPORATION

2001 EQUITY INCENTIVE PLAN

FORM OF STOCK OPTION AGREEMENT

     
This Stock Option Agreement (“Agreement”) is
made effective as of the Option Grant Date set forth below, by
and between I-Flow Corporation, a Delaware corporation
(“Company”), and
                    
(“Optionee”). Terms not otherwise defined in
this Agreement shall have the meanings ascribed to them in the
I-Flow Corporation 2001 Equity Incentive Plan
(“Plan”). The parties agree as follows:

     
1.     Governing Plan. Optionee
has received a copy of the Plan. This Agreement is subject in
all respects to the applicable provisions of the Plan, which are
incorporated herein by reference. In the case of any conflict
between the provisions of the Plan and this Agreement, the
provisions of the Plan will control.

     
2.     Grant of Option. The
Company hereby grants to Optionee as of the Option Grant Date
identified below, a stock option (the “Option”)
to purchase the number of shares of the Company’s Common
Stock identified below at the exercise price per share
identified below upon the following terms and conditions:

	 	 	 
	
    
    Option Grant Date:

    	 	
     

	 
	
    
    Type of Option (Incentive/ Nonqualified):

    	 	
     

	 
	
    Maximum Number of Shares of Common Stock Issuable Upon
    Exercise of the Option:	 	
     

	 
	
    
    Exercise Price Per Share:

    	 	
    $
                     per share
	 	 	 
	 
	
    
    Expiration Date:

    	 	
     

     
3.     Vesting and Exercise of
Option. The Option will vest and become exercisable
cumulatively as follows:

	 	 	 
	Number of Shares	 	Vesting Date
	 
	 	 	 
	 
	 	 	 
	 
	 	 	 
	 
	 	 	 
	 
	 	 	 

     
4.     No Right to Continued
Employment. This Agreement does not confer upon Optionee any
right to continue as an employee of the Company or an Affiliated
Company, nor does it limit in any way the right of the Company
or an Affiliated Entity to terminate Optionee’s services to
the Company or the Affiliated Entity at any time, with or
without cause. Unless otherwise set forth in a written agreement
binding upon the Company or the Affiliated Entity,
Optionee’s employment by the Company or an Affiliated
Entity is “at will.”

     
5.     Restrictions on Option
Grant. This Confirming Memorandum, the Option and shares are
subject to the Plan. SALE, TRANSFER OR HYPOTHECATION OF THE
OPTION REFERRED TO HEREIN AND SHARES ISSUABLE UNDER SUCH OPTION
ARE RESTRICTED BY THE PLAN, ADDITIONAL COPIES OF WHICH ARE
AVAILABLE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.

     
6.     Termination. The
unexercised portion of the Option (whether or not vested)
automatically expires and become unexercisable under certain
circumstances as set forth in the Plan. In addition, the Board
of Directors or Committee administering the Plan reserves the
right to accelerate the vesting schedule under certain
circumstances (in which case, the Board of Directors or
Committee may impose whatever conditions it considers
appropriate on the accelerated portion).

21

 

     
7.     Governing Law. This
Agreement shall be governed by, interpreted under, and construed
and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of
Delaware applicable to agreements made or to be performed wholly
within the State of Delaware.

     
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement effective as of the Option Grant Date.

	 	 	 
	
    
    The Company:

    	 	
    Optionee:
	 
	
    
    By: 

    	 	
    By: 
	 	 	 
	
    
    Name: 

    	 	
    (Signature)
	 	 	 
	
    
    Title:  

    	 	
     (Printed Name and Title)

22

 

I-FLOW CORPORATION

FORM OF RESTRICTED STOCK GRANT

     
I-Flow Corporation, a Delaware corporation
(“Company”), has elected to grant
to                     (“Grantee”)
an award of restricted stock on the terms and conditions set
forth below:

     
1.     Grant of Restricted
Stock. The Company hereby grants to
Grantee                      (                    )
shares of the Company’s common stock (“Granted
Stock”), subject to the terms, conditions and
restrictions set forth below (“Restricted Stock
Grant”). As a condition to this grant, Grantee is
required to pay to the Company
$          for
each share of the Granted Stock that Grantee acquires pursuant
to this Restricted Stock Grant (“Acquisition
Consideration”). There is no requirement that Grantee
acquire all or any portion of the Granted Stock; provided,
however, that Grantee may purchase no fewer than One Hundred
(100) shares at any one time unless Grantee purchases all
remaining shares of Granted Stock.

     
2.     Restrictions on the Granted
Stock. Any Granted Stock acquired by Grantee will be subject
to the following restrictions:

			
	 	(a)	
    No Transfer. The shares of Granted Stock may not be sold,
    assigned, transferred, pledged, hypothecated or otherwise
    disposed of, alienated or encumbered until the restrictions set
    forth in Section 2(b) are removed or expire as provided in
    Section 2(c), and any additional requirements or
    restrictions contained in this Restricted Stock Grant have been
    satisfied, terminated or expressly waived by the Company in
    writing.
	 
	 	(b)	
    Restrictions. In the event Grantee’s service as an
    employee of the Company terminates for any reason, the Company
    will have the right, which must be exercised not later than
    ninety (90) days following such termination, to buy, for
    cash and at the price per share that Grantee paid to the
    Company, all shares of Granted Stock acquired hereunder that
    are, at the date of such termination, still subject to the
    vesting restrictions imposed under this Section 2.

			
	 	(c)	
    Removal of Restrictions. The restrictions imposed under
    the foregoing provisions of this Section 2 will expire and
    be removed, and the shares of Granted Stock acquired by Grantee
    under this Restricted Stock Grant will vest, in accordance with
    the following rules:

			
	 	(i)	
    The restrictions imposed under Section 2(b) above will
    lapse and be removed at the rate
    of                                 (“Vesting
    Schedule”).
	 
	 	(ii)	
    In the event that Grantee’s employment with the Company is
    terminated for any reason before Grantee is fully vested in the
    Granted Stock, the restrictions imposed under Section 2(b)
    will expire and be removed if the Company does not elect to
    repurchase the Granted Stock within ninety (90) days of
    such termination.

     
3.     Voting and Other Rights.
Notwithstanding anything to the contrary in the foregoing,
during the period prior to the lapse and removal of the
restrictions set forth in Section 2, except as otherwise
provided herein, Grantee will have all of the rights of a
stockholder with respect to all of the Granted Stock Grantee
purchased, including without limitation the right to vote such
Granted Stock and the right to receive all dividends or other
distributions with respect to such Granted Stock. In connection
with the payment of such dividends or other distributions, the
Company will be entitled to deduct any taxes or other amounts
required by any governmental authority to be withheld and paid
over to such authority for Grantee’s account.

     
4.     Expiration of
Restrictions. As soon as practicable after the lapse and
removal of the restrictions applicable to all or any portion of
the Granted Stock as provided in Section 2, the Company
will release the certificate(s) representing such Granted Stock
to Grantee, provided that (a) Grantee has paid to
the Company, by cash or check, the Acquisition Consideration and
an amount sufficient to satisfy any taxes or other amounts
required by any governmental authority to be withheld and paid
over to such authority for Grantee’s account, or otherwise
made arrangements satisfactory to the Company for the payment of
such amounts through withholding or otherwise, and
(b) Grantee has, if requested by the Company, made
appropriate representations in a form satisfactory to the
Company that such Granted Stock will not be sold other than
(i) pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or

23

 

an applicable exemption from the registration requirements of
such Act; (ii) in compliance with all applicable state
securities laws and regulations; and (iii) in compliance
with all terms and conditions of the Plan.

     
5.     Section 83(b)
Election. Grantee will be entitled to make an election
pursuant to Section 83(b) of the Internal Revenue Code, or
comparable provisions of any state tax law, to include in
Grantee’s gross income the amount by which the fair market
value (as of the date of acquisition) of the Granted Stock
Grantee acquired exceeds the Acquisition Consideration only
if, prior to making any such election, Grantee
(i) notifies the Company of Grantee’s intention to
make such election, by delivering to the Company a copy of the
fully-executed Section 83(b) Election Form attached hereto
as Exhibit A, and (b) pay to the Company an amount
sufficient to satisfy any taxes or other amounts required by any
governmental authority to be withheld or paid over to such
authority for Grantee’s account, or otherwise makes
arrangements satisfactory to the Company for the payment of such
amounts through withholding or otherwise.

     
6.     Merger, Consolidation or
Reorganization. In the event of a merger, consolidation or
other reorganization of the Company in which the Common Stock of
the Company is exchanged for cash, securities or other property
(“Exchange Consideration”), Grantee will be
entitled to receive a proportionate share the Exchange
Consideration in exchange for the Granted Stock Grantee
acquired; provided, however, that Grantee’s share of
the Exchange Consideration shall be subject to the vesting
restrictions imposed under Section 2, unless the Board of
Directors, in its discretion, accelerates the Vesting Schedule.

     
7.     No Right to Continued
Employment. This Restricted Stock Grant does not confer upon
Grantee any right to continue as an employee of the Company or
an Affiliated Entity, nor does it limit in any way the right of
the Company or an Affiliated Entity to terminate Grantee’s
services to the Company or the Affiliated Entity at any time,
with or without cause. Unless otherwise set forth in a written
agreement binding upon the Company or the Affiliated Entity,
Grantee’s employment by the Company or an Affiliated Entity
is “at will.”

     
8.     No Assignment. Neither
this Restricted Stock Grant nor any rights granted herein are
assignable by Grantee.

     
9.     Governing Law. This
Restricted Stock Grant will be governed by and construed in
accordance with the laws of the State of Delaware.

     
10.     Governing Plan. This
Restricted Stock Grant is subject in all respects to the
applicable provisions of the Company’s 2001 Equity
Incentive Plan (“Plan”), which are incorporated
herein by reference. In the case of any conflict between the
provisions of the Plan and this Restricted Stock Grant, the
provisions of the Plan shall control. Terms not otherwise
defined in this Restricted Stock Grant shall have the meanings
ascribed to them in the Plan.

	 	 	 
	
    
    COMPANY

    	 	
    OPTIONEE
	 
	
    
    I-Flow Corporation,

    	 	 
	 
	
    By:  
(Signature)	 	
    By:  
(Signature)
	 
	
     
(Printed
    Name and Title)	 	
     (Printed Name and Title)

24

 

EXHIBIT A

to Restricted Stock Grant

ELECTION TO INCLUDE VALUE OF RESTRICTED PROPERTY

IN GROSS INCOME IN YEAR OF TRANSFER

INTERNAL REVENUE CODE § 83(b)

     
The undersigned hereby elects pursuant to Section 83(b) of
the Internal Revenue Code with respect to the property described
below, and supplies the following information in accordance with
the regulations promulgated thereunder:

		
	1.	
    Name, address and taxpayer identification number of the
    undersigned: 

     ______________________________________________________________
    

     ______________________________________________________________
    

     ______________________________________________________________
    

     Taxpayer I.D.
    No.:  

	 
	2.	
    Description of property with respect to which the election is
    being made: 

     

     

     _________________ shares of Common Stock of I-Flow
    Corporation, a Delaware corporation (the “Company”)
	 
	3.	
    Date on which property was
    transferred:  

	 
	4.	
    Taxable year to which this election
    relates:  

	 
	5.	
    Nature of the restrictions to which the property is
    subject: 

     

     

     If the taxpayer’s service as a ____________________ of the
    Company terminates for any reason before the Common Stock vests,
    the Company will have the right to repurchase the Common Stock
    from the taxpayer at $
    ____________________________________ per share. The Common
    Stock vests according to the following schedule:

		
	 	
     

		
	        	
    The Common Stock is non-transferable in the taxpayer’s
    hands, by virtue of language to that effect stamped on the stock
    certificate.

		
	6.	
    Fair market value of the property: 

     

     

     The fair market value at the time of transfer (determined
    without regard to any restrictions other than restrictions that
    by their terms will never lapse) of the property with respect to
    which this election is being made is
    $                     per
    share.
	 
	7.	
    Amount paid for the property: 

     

     

     The amount paid by the taxpayer for said property is
    $                     per
    share.
	 
	8.	
    Furnishing statement to employer: 

     

     

     A copy of this statement has been furnished to
                                            

	 	 	 
	
    
    Date:  

    	 	 
	 	 	

    Signature
	 
	 	 	

    Printed Name

25exv10w1

 

SOVEREIGN BANCORP, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

Effective January 1, 1996

(reflecting all amendments through May 24, 2005)

     1. Purpose. The purpose of the Sovereign Bancorp, Inc. Non-Employee Director
Compensation Plan (the “Plan”) is to advance the interests of Sovereign Bancorp, Inc. (the
“Company”) and its shareholders by closely aligning the interests of the Company and its
shareholders with “Non-Employee Directors,” who collectively include (i) members of the Board of
Directors of the Company who are not employees of the Company, Sovereign Bank (the “Bank”) or any
other Subsidiary (the “Company Non-Employee Directors”); (ii) members of the Board of Directors of
the Bank (the “Bank Board”) who are not employees of the Company, the Bank or any other Subsidiary
(the “Bank Non-Employee Directors”); and (iii) members of the Board of Directors of any Subsidiary
designated by resolution of the Board of Directors of the Company to participate in this Plan who
are not employees of the Company, the Bank or any Subsidiary (the “Subsidiary Non-Employee
Directors”). Therefore, this Plan requires the payment of a material portion of the annually
established compensation payable to Non-Employee Directors for service on the Board and the Bank
Board and their respective committees to be in shares of the Company’s common stock, no par value
(the “Common Stock”). Common Stock issuable under this Plan may be either authorized but unissued
shares, treasury shares, or shares purchased in the open market.

     2. Administration. The Plan shall be administered by the Board of Directors of the
Company (the “Board”). The Board shall, subject to the provisions of the Plan, have the power to
construe the Plan, to determine all questions arising thereunder and to adopt and amend such rules
and regulations for the administration of the Plan as it may deem desirable. Any decisions of the
Board in the administration of the Plan, as described herein, shall be final and conclusive. The
Board may authorize any one or more of its members or the secretary of the Board or any Officer,
appointed vice president or employee of the Company to execute and deliver documents on behalf of
the Board. No member of the Board shall be liable for anything done or omitted to be done by him
or her or by any other member of the Board in connection with the Plan, except for his or her own
willful misconduct or as expressly provided by statute.

1

 

     3. Definition of Subsidiaries. As used herein, the term “Subsidiary” means any
corporation, joint venture or other business entity of which (i) if a corporation, a majority of
the total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by the Company or one or more of the other
Subsidiaries of the Company or a combination thereof, or (ii) if a joint venture or other business
entity, a majority of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by the Company or one or more Subsidiaries of the
Company or a combination thereof.

     4. Participation; Amount of Non-Employee Director Compensation. Each Non-Employee
Director shall participate in the Plan. The Board annually shall approve the amount of
compensation payable for services (including the annual retainer fee, meeting attendance fees, and
any fees payable for services on the Board, the Bank Board or their respective committees) to be
performed by Company Non-Employee Directors, Bank Non-Employee Directors, the Chairman of the
Company, and, if applicable, Subsidiary Non-Employee Directors. As of 2003, such fees shall be
payable in cash and shares of Common Stock as follows:

          (a) Each Company Non-Employee Director shall be entitled to receive the following compensation
for service on the Board:

     (i) 5,000 shares of Common Stock paid annually in quarterly installments of 1,250
shares; plus

     (ii) 1,000 shares of Common Stock paid annually in quarterly installments of 250 shares
for each Board committee that such Company Non-Employee Director serves as chairperson; plus

     (iii) 1,000 shares of Common Stock paid annually in quarterly installments of 250
shares if such Company Non-Employee Director serves as Chairperson of the Audit Committee or
as “lead director” (as designated by the Company Non-Employee Directors); plus

     (iv) $1,000 in cash paid monthly for each Board meeting and Executive

2

 

Committee meeting attended by such Company Non-Employee Director during such calendar
month.

          (b) Each Bank Non-Employee Director shall be entitled to receive the following compensation
for service on the Bank Board:

     (i) 1,500 shares of Common Stock paid annually in quarterly installments of 375 shares;
plus

     (ii) 400 shares of Common Stock paid annually in quarterly installments of 100 shares
if such Bank Non-Employee Director is a member of the Executive Committee of the Bank and is
not also a Company Non-Employee Director; plus

     (iii) $600 in cash paid monthly for each Bank Board meeting attended in such calendar
month by such Bank Non-Employee Director, provided, however, that effective July 1, 2003,
each Bank Non-Employee Director who is not a member of the Executive Committee of the Bank
and is not also a Company Non-Employee Director shall be entitled to receive $1,000 in cash
paid monthly for each such Bank Board meeting attended; plus

     (iv) $600 in cash paid monthly for each Executive Committee of the Bank meeting
attended by such Bank Non-Employee Director during such calendar month if no regular meeting
of the Bank Board is held during such calendar month and such Bank Non-Employee Director is
a member of the Executive Committee of the Bank and is not also a Company Non-Employee
Director.

          (c) Non-Employee Directors who are both Company Non-Employee Directors and Bank Non-Employee
Directors shall be entitled to receive compensation for service in both capacities.

          (d) Notwithstanding anything contained herein to the contrary, the amount of cash payable to
any Non-Employee Director may be reduced or withheld by the Chairman or the President of the
Company for failure to attend meetings of any Board of Directors or failure to otherwise perform
the duties of such Non-Employee Director’s office.

          (e) If the directors of any other Subsidiary are designated by resolution of the

3

 

Board of Directors of the Company to participate in the Plan, then each such Subsidiary
Non-Employee Director, shall receive such number of shares of Common Stock and cash as shall be
specified by resolution of the Board of Directors of the Company.

     5. Payment of Non-Employee Director Compensation. There shall be issued to each
Non-Employee Director the number of shares of Common Stock payable to such Non-Employee Director as
determined pursuant to Section 4 above as of the last business day of each calendar quarter and
such shares shall be delivered as soon as administratively feasible thereafter. There shall be
paid to each Non-Employee Director on the last business day of each calendar month, the cash
compensation payable to such Non-Employee Director as determined pursuant to Section 4 above.

     6. Number of Shares of Common Stock Issuable Under the Plan. The maximum number of
shares of Common Stock that may be issued under the Plan shall be 500,000 (720,000 shares as
adjusted below), provided, however, that if the Company shall at any time increase or decrease the
number of its outstanding shares of Common Stock or change in any way the rights and privileges of
such shares by means of a payment of a stock dividend or any other distribution upon such shares
payable in Common Stock, or through a stock split, reverse stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving Common Stock, then the numbers, rights
and privileges of the shares issuable under Section 4 and this Section 6 of Plan shall be
increased, decreased or changed in like manner. To the extent that the application of this Section
would result in fractional shares of Common Stock being issuable, cash will be paid to the
Non-Employee Director or the number of shares will be rounded up in lieu of such fractional shares
at the discretion of the Board.

     7. Miscellaneous Provisions.

          (a) Neither the Plan nor any action taken hereunder shall be construed as giving any
Non-Employee Director any right to be elected as a director of the Company or the Bank.

          (b) A participant’s rights and interest under the Plan may not be assigned or transferred,
hypothecated or encumbered in whole or in part either directly or by operation of law

4

 

or otherwise (except in the event of a participant’s death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution, levy, garnishment, attachment,
pledge, bankruptcy or in any other manner, and no such right or interest of any participant in the
Plan shall be subject to any obligation or liability of such participant.

          (c) No shares of Common Stock shall be issued hereunder unless counsel for the Company shall
be satisfied that such issuance will be in compliance with applicable federal, state, local, and
foreign securities, securities exchange, and other applicable laws and requirements.

          (d) It shall be a condition to the obligation of the Company to issue shares of Common Stock
hereunder, that the participant pay to the Company, to the extent required by law and upon its
demand, such amount as may be requested by the Company for the purpose of satisfying any liability
to withhold federal, state, local or foreign income or other taxes. A participant in the Plan may
satisfy the withholding obligation, in whole or in part, by electing to have the Company withhold
shares of Common Stock, otherwise issuable under the Plan, having a fair market value equal to the
amount required to be withheld. If the amount requested is not paid, the Company shall have no
obligation to issue, and the participant shall have no right to receive, shares of Common Stock.

          (e) The Plan shall be unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the issuance of shares
hereunder.

          (f) By accepting any Common Stock hereunder or other benefit under the Plan, each participant
and each person claiming under or through him or her shall be conclusively deemed to have indicated
his or her acceptance and ratification of, and consent to, any action taken under the Plan by the
Company or the Board.

          (g) The appropriate officers of the Company shall cause to be filed any registration statement
required by the Securities Act of 1933, as amended, and any reports, returns or other information
regarding any shares of Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the

5

 

“Exchange Act”), or any other applicable statute, rule or regulation.

          (h) The provisions of this Plan shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania.

          (i) Headings are given to the sections of this Plan solely as a convenience to facilitate
reference. Such headings, numbering and paragraphing shall not in any case be deemed in any way
material or relevant to the construction of this Plan or any provisions thereof. The use of the
singular shall also include within its meaning the plural, where appropriate, and vice versa.

     8. Amendment. The Plan may be amended at any time and from time to time by resolution
of the Board as the Board shall deem advisable; provided, however, that no amendment shall become
effective without shareholder approval if such shareholder approval is required by law, rule or
regulation, and provided further, to the extent required by Rule 16b-3 under Section 16 of the
Exchange Act, in effect from time to time, Plan provisions shall not be amended more than once
every six months, except that the foregoing shall not preclude any amendment to comport with
changes in the Internal Revenue Code of 1986, the Employee Retirement Income Security Act of 1974
or the rules thereunder in effect from time to time. No amendment of the Plan shall materially and
adversely affect any right of any participant with respect to any shares of Common Stock
theretofore issued without such participant’s written consent.

     9. Termination. This Plan shall terminate upon the earlier of the following dates or
events to occur:

          (a) upon the adoption of a resolution of the Board terminating the Plan; or

          (b) April 18, 2006, which is ten years from the date the Plan was initially approved and
adopted by the shareholders of the Company in accordance with Paragraph 10 below.

     No termination of the Plan shall materially and adversely affect any of the rights or
obligations of any person without his or her consent with respect to any shares of Common Stock

6

 

theretofore earned and issuable under the Plan.

     10. Shareholder Approval and Adoption. The Plan shall be effective as of January 1,
1996, contingent upon shareholder approval and adoption at the 1996 annual meeting of shareholders
of the Company. The shareholders shall be deemed to have approved and adopted the Plan only if it
is approved and adopted at a meeting of the shareholders duly held by vote taken in the manner
required by the laws of the Commonwealth of Pennsylvania.

7

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