Document:

STRATTEC December 31, 2006 Form 10-Q

    Exhibit
      4.4

    PROMISSORY
      NOTE

    

    
      	
              Principal

            	
              Loan
                Date

            	
              Maturity

            	
              Loan
                No

            	
              Call
                / Coll

            	
              Account

            	
              Officer

            	
              Initials

            

    

    

    
      	
              $50,000,000.00

            	
              11-01-2006

            	
              10-31-2007

            	
              1440055-10001

            	
              M100
                / A4

            	
              00000992919

            	
              6137

            	
               

            

    

    

    References
      in the shaded area are for Lender's use only and do not limit the applicability
      of this document to any particular loan or item.

     

    Any
      item
      above containing "***" has been omitted due to text length
      limitations.

    

    
      	
              Borrower:

            	
              STRATTEC
                SECURITY CORPORATION

              3333
                W Good Hope Rd

              Milwaukee,
                WI 53209-2043

            	
              Lender:

            	
              M&I
                Marshall & Ilsley Bank

              SE
                Wisconsin Region Commercial Lending

              770
                North Water Street

              Milwaukee,
                WI 53202

            

    

    

    
      	
              Principal
                Amount: $50,000,000.00

            	
              Date
                of Note: November 1, 2006

            

    

     

    PROMISE
      TO PAY. STRATTEC SECURITY CORPORATION ("Borrower") promises to pay to M&I
      Marshall & Ilsley Bank ("Lender"), or order, in lawful money of the United
      States of America, the principal amount of Fifty Million & 00/100 Dollars
      ($50,000,000.00) or so much as may be outstanding, together with interest on
      the
      unpaid outstanding principal balance of each advance. Interest shall be
      calculated from the date of each advance until repayment of each
      advance.

     

    PAYMENT.
      Borrower will pay this loan in one payment of all outstanding principal plus
      all
      accrued unpaid interest on October 31, 2007. In addition, Borrower will pay
      regular monthly payments of all accrued unpaid interest due as of each payment
      date, beginning November 30, 2006, with all subsequent interest payments to
      be
      due on the last day of each month after that. Unless otherwise agreed or
      required by applicable law, payments will be applied to accrued interest, credit
      life premiums, principal, late charges, and escrow. The annual interest rate
      for
      this Note is computed on a 365/360 basis; that is, by applying the ratio of
      the
      annual interest rate over a year of 360 days, multiplied by the outstanding
      principal balance, multiplied by the actual number of days the principal balance
      is outstanding. Borrower will pay Lender at Lender's address shown above or
      at
      such other place as Lender may designate in writing.

     

    VARIABLE
      INTEREST RATE.
      The
      interest rate on this Note is subject to change from time to time based on
      changes in an independent index which is the British Bankers Association (BBA)
      LIBOR and reported by a major news service selected by Lender (such as Reuters,
      Bloomberg or Moneyline Telerate). If BBA LIBOR for the one month period is
      not
      provided or reported on the first day of a month because, for example, it is
      a
      weekend or holiday or for another reason, the One Month LIBOR Rate shall be
      established as of the preceding day on which a BBA LIBOR rate is provided for
      the one month period and reported by the selected news service (the "Index").
      The Index is not necessarily the lowest rate charged by Lender on its loans.
      If
      the Index becomes unavailable during the term of this loan, Lender may designate
      a substitute index after notice to Borrower. Lender will tell Borrower the
      current Index rate upon Borrower's request. The interest rate change will not
      occur more often than each first day of each calendar month. Borrower
      understands that Lender may make loans based on other rates as well. The
      interest rate to be applied to the unpaid principal balance of this Note will
      be
      at a rate of 0.750 percentage points over the Index. NOTICE: Under no
      circumstances will the interest rate on this Note be more than the maximum
      rate
      allowed by applicable law.

     

    PREPAYMENT.
      Borrower
      may pay without penalty all or a portion of the amount owed earlier than it
      is
      due. Early payments will not, unless agreed to by Lender in writing, relieve
      Borrower of Borrower's obligation to continue to make payments of accrued unpaid
      interest. Rather, early payments will reduce the principal balance due. Borrower
      agrees not to send Lender payments marked "paid in full", "without recourse",
      or
      similar language. If Borrower sends such a payment, Lender may accept it without
      losing any of Lender's rights under this Note, and Borrower will remain
      obligated to pay any further amount owed to Lender. All written communications
      concerning disputed amounts, including any check or other payment instrument
      that indicates that the payment constitutes "payment in full" of the amount
      owed
      or that is tendered with other conditions or limitations or as full satisfaction
      of a disputed amount must be mailed or delivered to: M&I Marshall &
Ilsley Bank, P.O. 3114 Milwaukee, WI 53201-3114.

     

    INTEREST
      AFTER DEFAULT.
      Upon
      default, including failure to pay upon final maturity, Lender, at its option,
      may, if permitted under applicable law, increase the variable interest rate
      on
      this Note to 2.00 percentage points over the Index. The interest rate will
      not
      exceed the maximum rate permitted by applicable law.

     

    DEFAULT.
      Each of
      the following shall constitute an event of default ("Event of Default") under
      this Note:

     

    Payment
      Default.
      Borrower
      fails to make any payment when due under this Note.

     

    Other
      Defaults.
      Borrower
      fails to comply with or to perform any other term, obligation, covenant or
      condition contained in this Note or in any of the related documents or to comply
      with or to perform any term, obligation, covenant or condition contained in
      any
      other agreement between Lender and Borrower.

     

    Default
      in Favor of Third Parties.
      Borrower
      or any Grantor defaults under any loan, extension of credit, security agreement,
      purchase or sales agreement, or any other agreement, in favor of any other
      creditor or person that may materially affect any of Borrower's property or
      Borrower's ability to repay this Note or perform Borrower's obligations under
      this Note or any of the related documents.

     

    False
      Statements.
      Any
      warranty, representation or statement made or furnished to Lender by Borrower
      or
      on Borrower's behalf under this Note or the related documents is false or
      misleading in any material respect, either now or at the time made or furnished
      or becomes false or misleading at any time thereafter.

     

    Insolvency.
      The
      dissolution or termination of Borrower's existence as a going business, the
      insolvency of Borrower, the appointment of a receiver for any part of Borrower's
      property, any assignment for the benefit of creditors, any type of creditor
      workout, or the commencement of any proceeding under any bankruptcy or
      insolvency laws by or against Borrower.

     

    Creditor
      or Forfeiture Proceedings.
      Commencement of foreclosure or forfeiture proceedings, whether by judicial
      proceeding, self-help, repossession or any other method, by any creditor of
      Borrower or by any governmental agency against any collateral securing the
      loan.
      This includes a garnishment of any of Borrower's accounts, including deposit
      accounts, with Lender. However, this Event of Default shall not apply if

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    there
      is
      a good faith dispute by Borrower as to the validity or reasonableness of the
      claim which is the basis of the creditor or forfeiture proceeding and if
      Borrower gives Lender written notice of the creditor or forfeiture proceeding
      and deposits with Lender monies or a surety bond for the creditor or forfeiture
      proceeding, in an amount determined by Lender, in its sole discretion, as being
      an adequate reserve or bond for the dispute.

     

    Events
      Affecting Guarantor.
      Any of
      the preceding events occurs with respect to any guarantor, endorser, surety,
      or
      accommodation party of any of the indebtedness or any guarantor, endorser,
      surety, or accommodation party dies or becomes incompetent, or revokes or
      disputes the validity of, or liability under, any guaranty of the indebtedness
      evidenced by this Note. In the event of a death, Lender, at its option, may,
      but
      shall not be required to, permit the guarantor's estate to assume
      unconditionally the obligations arising under the guaranty in a manner
      satisfactory to Lender, and, in doing so, cure any Event of
      Default.

     

    Change
      In Ownership.
      Any
      change in ownership of fifty-one percent (51%) or more of the common stock
      of
      Borrower.

     

    Adverse
      Change.
      A
      material adverse change occurs in Borrower's financial condition, or Lender
      believes the prospect of payment or performance of this Note is
      impaired.

     

    LENDER'S
      RIGHTS.
      Upon
      default, Lender may declare the entire unpaid principal balance on this Note
      and
      all accrued unpaid interest immediately due, and then Borrower will pay that
      amount. 

     

    ATTORNEYS'
      FEES; EXPENSES.
      Lender
      may hire or pay someone else to help collect this Note if Borrower does not
      pay.
      Borrower will pay Lender that amount. This includes, subject to any limits
      under
      applicable law, Lender's attorneys' fees and Lender's legal expenses, whether
      or
      not there is a lawsuit, including attorneys' fees, expenses for bankruptcy
      proceedings (including efforts to modify or vacate any automatic stay or
      injunction), and appeals. If not prohibited by applicable law, Borrower also
      will pay any court costs, in addition to all other sums provided by
      law.

     

    JURY
      WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
      action, proceeding, or counterclaim brought by either Lender or Borrower against
      the other.

     

    GOVERNING
      LAW. This Note will be governed by federal law applicable to Lender and, to
      the
      extent not preempted by federal law, the laws of the State of Wisconsin without
      regard to its conflicts of law provisions. This Note has been accepted by Lender
      in the State of Wisconsin.

     

    CHOICE
      OF VENUE.
      If there
      is a lawsuit, Borrower agrees upon Lender's request to submit to the
      jurisdiction of the courts of Milwaukee County, State of Wisconsin.

     

    RIGHT
      OF SETOFF.
      To the
      extent permitted by applicable law, Lender reserves a right of setoff in all
      Borrower's accounts with Lender (whether checking, savings, or some other
      account). This includes all accounts Borrower holds jointly with someone else
      and all accounts Borrower may open in the future. However, this does not include
      any IRA or Keogh accounts, or any trust accounts for which setoff would be
      prohibited by law. Borrower authorizes Lender, to the extent permitted by
      applicable law, to charge or setoff all sums owing on the debt against any
      and
      all such accounts.

     

    LINE
      OF CREDIT.
      This
      Note evidences a revolving line of credit. Advances under this Note, as well
      as
      directions for payment from Borrower's accounts, may be requested orally or
      in
      writing by Borrower or by an authorized person. Lender may, but need not,
      require that all oral requests be confirmed in writing. Borrower agrees to
      be
      liable for all sums either: (A) advanced in accordance with the instructions
      of
      an authorized person or (B) credited to any of Borrower's accounts with Lender.
      The unpaid principal balance owing on this Note at any time may be evidenced
      by
      endorsements on this Note or by Lender's internal records, including daily
      computer print-outs. Lender will have no obligation to advance funds under
      this
      Note if: (A) Borrower or any guarantor is in default under the terms of this
      Note or any agreement that Borrower or any guarantor has with Lender, including
      any agreement made in connection with the signing of this Note; (B) Borrower
      or
      any guarantor ceases doing business or is insolvent; (C) any guarantor seeks,
      claims or otherwise attempts to limit, modify or revoke such guarantor's
      guarantee of this Note or any other loan with Lender; (D) Borrower has applied
      funds provided pursuant to this Note for purposes other than those authorized
      by
      Lender.

     

    INTEREST
      RATE.
      LIBOR
      plus .75% for initial $20,000,000.00 increasing to LIBOR plus 1.25% for
      remaining $30,000,000.00.

     

    SUCCESSOR
      INTERESTS.
      The
      terms of this Note shall be binding upon Borrower, successors and assigns,
      and
      shall inure to the benefit of Lender and its successors and
      assigns.

     

    GENERAL
      PROVISIONS.
      This
      Note benefits Lender and its successors and assigns, and binds Borrower,
      successors and assigns. Lender may delay or forgo enforcing any of its rights
      or
      remedies under this Note without losing them. Borrower and any other person
      who
      signs, guarantees or endorses this Note, to the extent allowed by law, waive
      presentment, demand for payment, and notice of dishonor. Upon any change in
      the
      terms of this Note, and unless otherwise expressly stated in writing, no party
      who signs this Note, whether as maker, guarantor, accommodation maker or
      endorser, shall be released from liability. All such parties agree that Lender
      may renew or extend (repeatedly and for any length of time) this loan or release
      any party or guarantor or collateral; or impair, fail to realize upon or perfect
      Lender's security interest in the collateral; and take any other action deemed
      necessary by Lender without the consent of or notice to anyone. All such parties
      also agree that Lender may modify this loan without the consent of or notice
      to
      anyone other than the party with whom the modification is made. 

     

    PRIOR
      TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS
      NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE
      TERMS OF THE NOTE.

     

    BORROWER
      ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY
      NOTE.

     

    BORROWER:

     

    STRATTEC
      SECURITY CORPORATION

     

    
      	
              By: 
                /s/ Patrick J.
                Hansen                                            
                

              Patrick
                J. Hansen, Senior Vice President of 

              STRATTEC
                SECURITY CORPORATION

            	
              By: 
                /s/ Harold M. Stratton
                II                                           

                     
Harold
                M. Stratton II, Chairman & CEO of 

              STRATTEC
                SECURITY CORPORATIONExhibit 10.2

 

LIFEWATCH
CORP.

 

 

2006
STOCK INCENTIVE PLAN

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  I

  	
  PURPOSE

  	
  1

  
	
  ARTICLE
  II

  	
  DEFINITIONS

  	
  1

  
	
  ARTICLE
  III

  	
  ADMINISTRATION

  	
  8

  
	
  ARTICLE
  IV

  	
  SHARE
  LIMITATION

  	
  11

  
	
  ARTICLE
  V

  	
  ELIGIBILITY

  	
  14

  
	
  ARTICLE
  VI

  	
  STOCK
  OPTIONS

  	
  15

  
	
  ARTICLE
  VII

  	
  STOCK
  APPRECIATION RIGHTS

  	
  19

  
	
  ARTICLE
  VIII

  	
  RESTRICTED
  STOCK

  	
  23

  
	
  ARTICLE
  IX

  	
  PERFORMANCE
  SHARES

  	
  25

  
	
  ARTICLE
  X

  	
  PERFORMANCE
  UNITS

  	
  27

  
	
  ARTICLE
  XI

  	
  OTHER
  STOCK-BASED AWARDS

  	
  29

  
	
  ARTICLE
  XII

  	
  CHANGE IN
  CONTROL PROVISIONS

  	
  30

  
	
  ARTICLE
  XIII

  	
  TERMINATION
  OR AMENDMENT OF PLAN

  	
  32

  
	
  ARTICLE
  XIV

  	
  COMPANY CALL
  RIGHTS; RIGHTS OF FIRST REFUSAL

  	
  33

  
	
  ARTICLE
  XV

  	
  UNFUNDED
  PLAN

  	
  34

  
	
  ARTICLE
  XVI

  	
  GENERAL
  PROVISIONS

  	
  34

  
	
  ARTICLE
  XVII

  	
  EFFECTIVE
  DATE OF PLAN

  	
  38

  
	
  ARTICLE
  XVIII

  	
  TERM OF PLAN

  	
  38

  
	
  ARTICLE
  XIX

  	
  NAME OF PLAN

  	
  38

  

 

i

 

ARTICLE I

PURPOSE

 

The purpose of
this LifeWatch Corp. 2006 Stock Incentive Plan is to enhance the profitability
and value of the Company for the benefit of its stockholders by enabling the
Company to offer Eligible Employees, Consultants and Non-Employee Directors stock-based
incentives in the Company, thereby creating a means to raise the level of
equity ownership by such individuals in order to attract, retain and reward
such individuals and strengthen the mutuality of interests between such
individuals and the Company’s stockholders. 
The Plan is effective as of the date set forth in Article XVII.

 

ARTICLE II

DEFINITIONS

 

For purposes
of this Plan, the following terms shall have the following meanings:

 

2.1          “Acquisition
Event” has
the meaning set forth in Section 4.2(d).

 

2.2          “Affiliate” means each of the following:
(a) any Subsidiary; (b) any Parent; (c) any corporation, trade or
business (including, without limitation, a partnership or limited liability
company) which is directly or indirectly controlled 50% or more (whether by
ownership of stock, assets or an equivalent ownership interest or voting
interest) by the Company or one of its Affiliates; (d) any trade or business
(including, without limitation, a partnership or limited liability company)
which directly or indirectly controls 50% or more (whether by ownership of
stock, assets or an equivalent ownership interest or voting interest) of the
Company; and (e) any other entity in which the Company or any of its Affiliates
has a material equity interest and which is designated as an “Affiliate” by
resolution of the Committee; provided that, unless otherwise determined by the
Committee, the Common Stock subject to any Award constitutes “service recipient
stock” for purposes of Section 409A of the Code or otherwise does not subject
the Award to Section 409A of the Code.

 

2.3          “Award” means any award under this Plan
of any Stock Option, Stock Appreciation Right, Restricted Stock, Performance
Shares, Performance Units or Other Stock-Based Award.  All Awards shall be granted by, confirmed by,
and subject to the terms of, a written agreement executed by the Company and
the Participant.

 

 

2.4          “Board” means the Board of Directors of
the Company.

 

2.5          “Cause” means with respect to a
Participant’s Termination of Employment or Termination of Consultancy, the
following: (a) in the case where there is no employment agreement, consulting
agreement, change in control agreement or similar agreement in effect between
the Company or an Affiliate and the Participant at the time of the grant of the
Award (or where there is such an agreement but it does not define “cause” (or
words of like import)), termination due to a Participant’s insubordination,
dishonesty, fraud, incompetence, moral turpitude, willful misconduct, refusal
to perform his or her duties or responsibilities for any reason other than
illness or incapacity or materially unsatisfactory performance of his or her
duties for the Company or an Affiliate, as determined by the Committee in its
sole discretion; or (b) in the case where there is an employment agreement, consulting
agreement, change in control agreement or similar agreement in effect between
the Company or an Affiliate and the Participant at the time of the grant of the
Award that defines “cause” (or words of like import), “cause” as defined under
such agreement; provided, however, that with regard to any agreement under
which the definition of “cause” only applies on occurrence of a change in
control, such definition of “cause” shall not apply until a change in control
actually takes place and then only with regard to a termination
thereafter.  With respect to a
Participant’s Termination of Directorship, “cause” means an act or failure to
act that constitutes cause for removal of a director under applicable Delaware
law.

 

2.6          “Change in
Control” has
the meaning set forth in Article XII.

 

2.7          “Change in
Control Price”
has the meaning set forth in Section 12.1.

 

2.8          “Code” means the Internal Revenue Code
of 1986, as amended.  Any reference to
any section of the Code shall also be a reference to any successor provision
and any Treasury Regulation promulgated thereunder.  

 

2.9          “Committee” means:  (a) with respect to the application of
this Plan to Eligible Employees and Consultants, a committee or subcommittee of
the Board appointed from time to time by the Board, which committee or
subcommittee shall consist of two or more non-employee directors, each of whom
is intended to be, to the extent required by Rule 16b-3 promulgated under Section
16(b) of the Exchange Act, a “non-employee director” as defined in Rule 16b-3;
to the extent required by Section 162(m) of the Code for Awards under the Plan
to qualify as “performance-based compensation,” an “outside director” as
defined under Section 162(m) of the Code; and to the extent required by the
rules adopted by The Nasdaq Global Market, an “independent director” as defined
under NASD Rule 4200(a)(15) or such other applicable stock exchange rule; and
(b) with respect to the application of this Plan to Non-Employee
Directors, the Board.  To the extent that
no Committee exists which has the authority to administer this Plan, the
functions of the Committee shall be exercised by the Board.  If for any reason the appointed Committee does
not meet the requirements of Rule 16b-3, Section 162(m) of the Code, or the
rules adopted by The Nasdaq Global Market or such other applicable stock
exchange rule, such noncompliance shall not affect the validity of Awards,
grants, interpretations or other actions of the Committee.

 

2

 

2.10        “Common
Stock”
means the Common Stock, $.01 par value per share, of the Company.

 

2.11        “Company” means LifeWatch Corp., a
Delaware corporation, and its successors by operation of law.

 

2.12        “Consultant” means any natural person who is
an advisor or consultant to the Company or its Affiliates.

 

2.13        “Detrimental
Activity” means:
 (a) the disclosure to anyone outside the
Company or its Affiliates, or the use in any manner other than in the
furtherance of the Company’s or its Affiliate’s business, without written
authorization from the Company, of any confidential information or proprietary
information, relating to the business of the Company or its Affiliates that is
acquired by a Participant prior to the Participant’s Termination; (b) activity
while employed or performing services that results, or if known could result,
in the Participant’s Termination that is classified by the Company as a
termination for Cause; (c) any attempt, directly or indirectly, to solicit,
induce or hire (or the identification for solicitation, inducement or hiring
of) any non-clerical employee of the Company or its Affiliates to be employed
by, or to perform services for, the Participant or any Person with which the
Participant is associated (including, but not limited to, due to the
Participant’s employment by, consultancy for, equity interest in, or creditor
relationship with such Person) or any Person from which the Participant
receives direct or indirect compensation or fees as a result of such
solicitation, inducement or hire (or the identification for solicitation,
inducement or hire) without, in all cases, written authorization from the
Company; (d) any attempt, directly or indirectly, to solicit in a competitive
manner any current or prospective customer of the Company or its Affiliates
without, in all cases, written authorization from the Company; (e) the
Participant’s Disparagement, or inducement of others to do so, of the Company
or its Affiliates or their past and present officers, directors, employees or
products; (f) without written authorization from the Company, the rendering of
services for any organization, or engaging, directly or indirectly, in any
business, which is competitive with the Company or its Affiliates, or the
rendering of services to such organization or business if such organization or
business is otherwise prejudicial to or in conflict with the interests of the
Company or its Affiliates provided, however, that competitive activities shall
only be those competitive with any business unit or Affiliate of the Company
with regard to which the Participant performed services at any time within the
two years prior to the Participant’s Termination; or (g) breach of any agreement
between the Participant and the Company or an Affiliate (including, without
limitation, any employment agreement or noncompetition or nonsolicitation
agreement).  For purposes of sub-sections
(a), (c), (d) and (f) above, the General Counsel or the Chief Executive Officer
of the Company shall have authority to provide the Participant with written
authorization to engage in the activities contemplated thereby and no other
person shall have authority to provide the Participant with such authorization.

 

2.14        “Disability” means with respect to a
Participant’s Termination, a permanent and total disability as defined in
Section 22(e)(3) of the Code.  A
Disability shall only be deemed to occur at the time of the determination by
the Committee of the Disability.  Notwithstanding
the foregoing, for Awards that are subject to Section 409A of the Code,
Disability shall mean that a Participant is disabled under Section
409A(a)(2)(C)(i) or (ii) of the Code.

 

3

 

2.15        “Disparagement” means making comments or
statements to the press, the Company’s or its Affiliates’ employees,
consultants or any individual or entity with whom the Company or its Affiliates
has a business relationship which could reasonably be expected to adversely
affect in any manner: (a) the conduct of the business of the Company or its
Affiliates (including, without limitation, any products or business plans or
prospects); or (b) the business reputation of the Company or its Affiliates, or
any of their products, or their past or present officers, directors or
employees.

 

2.16        “Effective
Date” means
the effective date of this Plan as defined in Article XVII.

 

2.17        “Eligible
Employees”
means each employee of the Company or an Affiliate.

 

2.18        “Exchange
Act”means
the Securities Exchange Act of 1934, as amended.  Any references to any section of the Exchange
Act shall also be a reference to any successor provision.

 

2.19        “Fair Market
Value” means,
for purposes of this Plan, unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, as of any date and
except as provided below, the last sales price reported for the Common Stock on
the applicable date:  (a) as reported on
the principal national securities exchange in the United States on which it is
then traded or The Nasdaq Global Market; or (b) if not traded on any such
national securities exchange or The Nasdaq Global Market, as quoted on an
automated quotation system sponsored by the National Association of Securities
Dealers, Inc. or if the Common Stock shall not have been reported or quoted on
such date, on the first day prior thereto on which the Common Stock was
reported or quoted; or (c) if the Common Stock is not traded, listed or
otherwise reported or quoted, the Committee shall determine in good faith the
Fair Market Value in whatever manner it considers appropriate.  For purposes of the grant of any Award, the applicable date
shall be the trading day immediately prior to the date on which the Award is
granted.  For purposes of the exercise of
any Award, the applicable date shall be the date a notice of exercise is
received by the Committee or, if not a day on which the applicable market is
open, the next day that it is open.

 

2.20        “Family
Member”
means “family member” as defined in Section A.1.(5) of the general instructions
of Form S-8.

 

2.21        “Good Reason” means,
with respect to a Participant’s Termination of Employment: (a) in the case
where there is no employment agreement, change in control agreement or similar agreement
in effect between the Company or an Affiliate and the Participant at the time
of the grant of the Award (or where there is such an agreement but it does not
define “good reason” (or words or a concept of like import)), a voluntary
termination due to good reason, as the Committee, in its sole discretion,
decides to treat as a Good Reason termination; or (b) in the case where there
is an employment agreement, change in control agreement or similar agreement in
effect between the Company or an Affiliate and the Participant at the time of
the grant of the Award that defines “good reason” (or words or a concept of
like import), a termination due to good reason (or words or a concept of like
import), as defined in such agreement at the time of the grant of the Award,
and, for purposes of the Plan, as determined by the Committee in its sole
discretion; provided that any definition that is

 

4

 

effective under an employment agreement, change in control agreement or
similar agreement after a change in control shall only be effective for
purposes of this Plan after a change in control.

 

2.22        “Incentive
Stock Option”
means any Stock Option awarded to an Eligible Employee of the Company, its
Subsidiaries and its Parents (if any) under this Plan intended to be and
designated as an “Incentive Stock Option” within the meaning of Section 422 of
the Code.

 

2.23        “Non-Employee
Director”
means a director or a member of the advisory board of the Company or any
Affiliate who is not an active employee of the Company or any Affiliate.

 

2.24        “Non-Qualified
Stock Option”
means any Stock Option awarded under this Plan that is not an Incentive Stock
Option.

 

2.25        “Other
Stock-Based Award”
means an Award under Article XI of this Plan that is valued in whole or in part
by reference to, or is payable in or otherwise based on, Common Stock,
including, without limitation, an Award valued by reference to an Affiliate.

 

2.26        “Parent” means any parent corporation of
the Company within the meaning of Section 424(e) of the Code.

 

2.27        “Participant” means an Eligible Employee,
Non-Employee Director or Consultant to whom an Award has been granted pursuant
to this Plan.

 

2.28        “Performance
Cycle” has the
meaning set forth in Section 10.1.

 

2.29        “Performance
Period” has
the meaning set forth in Section 9.1.

 

2.30        “Performance
Share” means
an Award made pursuant to Article IX of this Plan of the right to receive
Common Stock or cash of an equivalent value at the end of a specified
Performance Period.

 

2.31        “Performance
Unit” means
an Award made pursuant to Article X of this Plan of the right to receive a
fixed dollar amount, payable in cash or Common Stock or a combination of both.

 

2.32        “Person” means any individual,
corporation, partnership, limited liability company, firm, joint venture,
association, joint-stock company, trust, incorporated organization,
governmental or regulatory or other entity.

 

2.33        “Plan” means this LifeWatch Corp. 2006
Stock Incentive Plan, as amended from time to time.

 

2.34        “Reference
Stock Option”
has the meaning set forth in Section 7.1.

 

2.35        “Registration
Date” means
the date on which the Company sells its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement under the Securities
Act.

 

5

 

2.36        “Restricted
Stock” means
an Award of shares of Common Stock under this Plan that is subject to restrictions
under Article VIII.

 

2.37        “Restriction
Period” has
the meaning set forth in Section 8.3(a) with respect to Restricted Stock.

 

2.38        “Retirement” means a Termination of
Employment or Termination of Consultancy other than a termination for Cause at
or after age 65 or such earlier date after age 50 as may be approved by the
Committee with regard to such Participant, in its sole discretion, at the time
of grant, or thereafter provided that the exercise of such discretion does not
make the applicable Award subject to Section 409A of the Code.  With respect to a Participant’s Termination
of Directorship, Retirement means the failure to stand for reelection or the
failure to be reelected on or after a Participant has attained age 65 or, with
the consent of the Board, provided that the exercise of such discretion does
not make the applicable Award subject to Section 409A of the Code, before age
65 but after age 50.

 

2.39        “Rule 16b-3” means Rule 16b-3 under Section
16(b) of the Exchange Act as then in effect or any successor provision.

 

2.40        “Section
162(m) of the Code”
means the exception for performance-based compensation under Section 162(m) of
the Code and any applicable treasury regulations thereunder.

 

2.41        “Section
409A of the Code”
means the nonqualified deferred compensation rules under Section 409A of the
Code and any applicable treasury regulations and other official guidance
thereunder.

 

2.42        “Securities
Act” means
the Securities Act of 1933, as amended and all rules and regulations
promulgated thereunder.  Any reference to
any section of the Securities Act shall also be a reference to any successor
provision.

 

2.43        “Stock
Appreciation Right”
shall mean the right pursuant to an Award granted under Article VII.  A Tandem Stock Appreciation Right shall mean
the right to surrender to the Company all (or a portion) of a Stock Option in
exchange for an amount in cash and/or stock equal to the difference between (i) the
Fair Market Value on the date such Stock Option (or such portion thereof) is
surrendered, of the Common Stock covered by such Stock Option (or such portion
thereof), and (ii) the aggregate exercise price of such Stock Option (or
such portion thereof).  A Non-Tandem
Stock Appreciation Right shall mean the right to receive an amount in cash
and/or stock equal to the difference between (x) the Fair Market Value of
a share of Common Stock on the date such right is exercised, and (y) the aggregate
exercise price of such right, otherwise than on surrender of a Stock Option.

 

2.44        “Stock
Option” or “Option” means any option to
purchase shares of Common Stock granted to Eligible Employees, Non-Employee
Directors or Consultants granted pursuant to Article VI.

 

2.45        “Subsidiary” means any subsidiary
corporation of the Company within the meaning of Section 424(f) of the Code.

 

6

 

2.46        “Ten Percent
Stockholder”
means a person owning stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, its Subsidiaries or its
Parent.

 

2.47        “Termination” means a Termination of
Consultancy, Termination of Directorship or Termination of Employment, as
applicable.

 

2.48        “Termination
of Consultancy”
means:  (a) that the Consultant is no
longer acting as a consultant to the Company or an Affiliate; or (b) when an
entity which is retaining a Participant as a Consultant ceases to be an
Affiliate unless the Participant otherwise is, or thereupon becomes, a
Consultant to the Company or another Affiliate at the time the entity ceases to
be an Affiliate.  In the event that a
Consultant becomes an Eligible Employee or a Non-Employee Director upon the
termination of his or her consultancy, unless otherwise determined by the
Committee, in its sole discretion, no Termination of Consultancy shall be
deemed to occur until such time as such Consultant is no longer a Consultant,
an Eligible Employee or a Non-Employee Director.  Notwithstanding the foregoing, the Committee
may otherwise define Termination of Consultancy in the Award agreement or, if
no rights of a Participant are reduced, may otherwise define Termination of
Consultancy thereafter.

 

2.49        “Termination
of Directorship”
means that the Non-Employee Director has ceased to be a director of the
Company; except that if a Non-Employee Director becomes an Eligible Employee or
a Consultant upon the termination of his or her directorship, his or her
ceasing to be a director of the Company shall not be treated as a Termination
of Directorship unless and until the Participant has a Termination of
Employment or Termination of Consultancy, as the case may be.

 

2.50        “Termination
of Employment”
means:  (a) a termination of
employment (for reasons other than a military or personal leave of absence
granted by the Company) of a Participant from the Company and its Affiliates;
or (b) when an entity which is employing a Participant ceases to be an
Affiliate, unless the Participant otherwise is, or thereupon becomes, employed
by the Company or another Affiliate at the time the entity ceases to be an
Affiliate.  In the event that an Eligible
Employee becomes a Consultant or a Non-Employee Director upon the termination
of his or her employment, unless otherwise determined by the Committee, in its
sole discretion, no Termination of Employment shall be deemed to occur until
such time as such Eligible Employee is no longer an Eligible Employee, a
Consultant or a Non-Employee Director. 
Notwithstanding the foregoing, the Committee may otherwise define
Termination of Employment in the Award agreement or, if no rights of a
Participant are reduced, may otherwise define Termination of Employment
thereafter.

 

2.51        “Transfer” means:  (a) when used as a noun, any direct or
indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or
other disposition (including the issuance of equity in a Person), whether for
value or no value and whether voluntary or involuntary (including by operation
of law), and (b) when used as a verb, to directly or indirectly transfer, sell,
assign, pledge, encumber, charge, hypothecate or otherwise dispose of
(including the issuance of equity in a Person) whether for value or for no value
and whether voluntarily or involuntarily (including by operation of law).  “Transferred” and “Transferable” shall have a
correlative meaning.

 

7

 

2.52        “Transition
Period”
means the period beginning with the Registration Date and ending on the date of
the first regularly scheduled meeting of stockholders of the Company that
occurs more than twelve months following the Registration Date in accordance
with the provisions of Treasury Regulation Section 1.162-27(f)(4)(iii).

 

ARTICLE III

ADMINISTRATION

 

3.1          The Committee.  The Plan shall be
administered and interpreted by the Committee.

 

3.2          Grants of Awards.  The Committee shall have full authority to
grant, pursuant to the terms of this Plan, to Eligible Employees, Consultants
and Non-Employee Directors: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Performance Shares,
(v) Performance Units; and (vi) Other Stock-Based Awards.  In particular, the Committee shall have the
authority:

 

(a)                                  to select the Eligible Employees,
Consultants and Non-Employee Directors to whom Awards may from time to time be
granted hereunder;

 

(b)                                 to determine whether and to what
extent Awards, or any combination thereof, are to be granted hereunder to one or
more Eligible Employees, Consultants or Non-Employee Directors;

 

(c)                                  to determine the number of
shares of Common Stock to be covered by each Award granted hereunder;

 

(d)                                 to determine the terms and
conditions, not inconsistent with the terms of this Plan, of any Award granted
hereunder (including, but not limited to, the exercise or purchase price (if
any), any restriction or limitation, any vesting schedule or acceleration
thereof, or any forfeiture restrictions or waiver thereof, regarding any Award
and the shares of Common Stock relating thereto, based on such factors, if any,
as the Committee shall determine, in its sole discretion);

 

(e)                                  to determine whether, to what
extent and under what circumstances grants of Options and other Awards under
this Plan are to operate on a tandem basis and/or in conjunction with or apart
from other awards made by the Company outside of this Plan;

 

(f)                                    to determine whether and under
what circumstances a Stock Option may be settled in cash, Common Stock and/or
Restricted Stock under Section 6.4(d); 

 

(g)                                 to determine whether a Stock
Option is an Incentive Stock Option or Non-Qualified Stock Option;

 

8

 

(h)                                 to determine whether to require
a Participant, as a condition of the granting of any Award, to not sell or
otherwise dispose of shares acquired pursuant to the exercise of an Award for a
period of time as determined by the Committee, in its sole discretion,
following the date of the acquisition of such Award;

 

(i)                                     to modify, extend or renew an
Award, subject to Article XIII and Section 6.4(m), provided, however, that such
action does not subject the Award to Section 409A of the Code without the
consent of the Participant; and

 

(j)                                     solely to the extent permitted
by applicable law, to determine whether, to what extent and under what
circumstances to provide loans (which may be on a recourse basis and shall bear
interest at the rate the Committee shall provide) to Participants in order to
exercise Options under the Plan.

 

3.3          Guidelines.  Subject to Article XIII hereof, the Committee
shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan and perform all acts, including
the delegation of its responsibilities (to the extent permitted by applicable
law and applicable stock exchange rules), as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of this Plan and
any Award issued under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan.  The Committee may correct any defect, supply
any omission or reconcile any inconsistency in this Plan or in any agreement
relating thereto in the manner and to the extent it shall deem necessary to effectuate
the purpose and intent of this Plan.  The
Committee may adopt special guidelines and provisions for persons who are
residing in or employed in, or subject to, the taxes of, any domestic or
foreign jurisdictions to comply with applicable tax and securities laws of such
domestic or foreign jurisdictions.  Notwithstanding
the foregoing, no action of the Committee under this Section 3.3 shall impair
the rights of any Participant without the Participant’s consent.  To the extent applicable, this Plan is
intended to comply with the applicable requirements of Rule 16b-3, and with
respect to Awards intended to be “performance-based,” the applicable provisions
of Section 162(m) of the Code, and this Plan shall be limited, construed and
interpreted in a manner so as to comply therewith.

 

3.4          Decisions Final.  Any decision, interpretation or other action
made or taken in good faith by or at the direction of the Company, the Board or
the Committee (or any of its members) arising out of or in connection with this
Plan shall be within the absolute discretion of all and each of them, as the
case may be, and shall be final, binding and conclusive on the Company and all
employees and Participants and their respective heirs, executors,
administrators, successors and assigns.

 

3.5          Procedures.  If the Committee is appointed, the Board
shall designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company, at such
times and places as it shall deem advisable, including, without limitation, by
telephone conference or by written consent to the extent permitted by
applicable law.  A majority of the
Committee members shall constitute a quorum. 
All determinations of the Committee shall be made by a majority of its
members.  Any decision or determination
reduced to writing and signed by all the Committee members in accordance with
the By-Laws of the

 

9

 

Company, shall be
fully effective as if it had been made by a vote at a meeting duly called and
held.  The Committee shall keep minutes
of its meetings and shall make such rules and regulations for the conduct of
its business as it shall deem advisable.

 

3.6          Designation of
Consultants/Liability.  

 

(a)                                  The Committee may designate
employees of the Company and professional advisors to assist the Committee in
the administration of this Plan and (to the extent permitted by applicable law
and applicable exchange rules) may grant authority to officers to grant Awards
and/or execute agreements or other documents on behalf of the Committee.

 

(b)                                 The Committee may employ such
legal counsel, consultants and agents as it may deem desirable for the
administration of this Plan and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such
consultant or agent.  Expenses incurred
by the Committee or the Board in the engagement of any such counsel, consultant
or agent shall be paid by the Company. 
The Committee, its members and any person designated pursuant to sub-section
(a) above shall not be liable for any action or determination made in good
faith with respect to this Plan.  To the
maximum extent permitted by applicable law, no officer of the Company or member
or former member of the Committee or of the Board shall be liable for any
action or determination made in good faith with respect to this Plan or any
Award granted under it.

 

3.7          Indemnification.  To the maximum extent permitted by applicable
law and the Certificate of Incorporation and By-Laws of the Company and to the
extent not covered by insurance directly insuring such person, each officer or
employee of the Company or any Affiliate and member or former member of the
Committee or the Board shall be indemnified and held harmless by the Company
against any cost or expense (including reasonable fees of counsel reasonably
acceptable to the Committee) or liability (including any sum paid in settlement
of a claim with the approval of the Committee), and advanced amounts necessary
to pay the foregoing at the earliest time and to the fullest extent permitted,
arising out of any act or omission to act in connection with the administration
of this Plan, except to the extent arising out of such officer’s, employee’s, member’s
or former member’s own fraud or bad faith. 
Such indemnification shall be in addition to any rights of
indemnification the employees, officers, directors or members or former
officers, directors or members may have under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or any Affiliate.  Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made by an
individual with regard to Awards granted to him or her under this Plan.

 

10

 

ARTICLE IV

SHARE LIMITATION

 

4.1          Shares.  (a)  The
aggregate number of shares of Common Stock that may be issued or used for reference
purposes or with respect to which Awards may be granted under this Plan shall
not exceed 1,000,000 shares (subject to any increase or decrease pursuant to
Section 4.2), which may be either authorized and unissued Common Stock or
Common Stock held in or acquired for the treasury of the Company or both.  With respect to Stock Appreciation Rights
settled in Common Stock, upon settlement, only the number of shares of Common
Stock delivered to a Participant (based on the difference between the Fair
Market Value of the shares of Common Stock subject to such Stock Appreciation
Right on the date such Stock Appreciation Right is exercised and the exercise
price of each Stock Appreciation Right on the date of such Stock Appreciation
Right was awarded) shall count against the aggregate and individual share
limitations set forth under Sections 4.1(a) and 4.1(b).  If any Option, Stock Appreciation Right or
Other Stock-Based Awards granted under this Plan expires, terminates or is
canceled for any reason without having been exercised in full, the number of
shares of Common Stock underlying any unexercised Award shall again be
available for the purpose of Awards under the Plan.  If any shares of Restricted Stock,
Performance Units, Performance Shares or Other Stock-Based Awards denominated
in shares of Common Stock awarded under this Plan to a Participant are
forfeited for any reason, the number of forfeited shares of Restricted Stock,
Performance Units, Performance Shares or Other Stock-Based Awards denominated
in shares of Common Stock shall again be available for the purposes of Awards
under the Plan.  If a Tandem Stock
Appreciation Right or a Limited Stock Appreciation Right is granted in tandem
with an Option, such grant shall only apply once against the maximum number of
shares of Common Stock which may be issued under this Plan.

 

(b)                                 Individual Participant
Limitations.  To the extent required by Section 162(m) of
the Code for Awards under the Plan to qualify as “performance-based
compensation,” the following individual Participant limitations shall
apply.  The following limitations shall
not apply prior to the Registration Date.

 

(i)          The maximum number of
shares of Common Stock subject to any Award of Stock Options, or Stock
Appreciation Rights, or shares of Restricted Stock, or Other Stock-Based Awards
for which the grant of such Award or the lapse of the relevant Restriction
Period is subject to the attainment of Performance Goals in accordance with
Section 8.3(a)(ii) which may be granted under this Plan during any fiscal year
of the Company to each Eligible Employee or Consultant shall be 250,000 shares
per type of Award (which shall be subject to any further increase or decrease
pursuant to Section 4.2), provided that the maximum number of shares of Common
Stock for all types of Awards does not exceed 1,000,000 (which shall be subject
to any further increase or decrease pursuant to Section 4.2) during any fiscal
year of the Company.  If a Tandem Stock
Appreciation Right is granted or a Limited Stock Appreciation Right is granted
in tandem with a Stock Option, it shall apply against the Eligible Employee’s
or Consultant’s individual share limitations for both Stock Appreciation Rights
and Stock Options.

 

11

 

(ii)         The maximum number of
shares of Common Stock subject to any Award which may be granted under this
Plan during any fiscal year of the Company to each Non-Employee Director shall
be 250,000 shares (which shall be subject to any further increase or decrease
pursuant to Section 4.2).

 

(iii)        There are no annual
individual Eligible Employee or Consultant share limitations on Restricted
Stock for which the grant of such Award or the lapse of the relevant
Restriction Period is not subject to attainment of Performance Goals in
accordance with Section 8.3(a)(ii).

 

(iv)       The maximum number of
shares of Common Stock subject to any Award of Performance Shares which may be
granted under this Plan during any fiscal year of the Company to each Eligible
Employee or Consultant shall be 250,000 shares (which shall be subject to any
further increase or decrease pursuant to Section 4.2) with respect to any
fiscal year of the Company.  Each
Performance Share shall be referenced to one share of Common Stock.

 

(v)        The maximum value of the
payment of Performance Units which may be granted under this Plan with respect
to any fiscal year of the Company to each Eligible Employee or Consultant shall
be $2,000,000.

 

(vi)       The individual Participant
limitations set forth in this Section 4.1(b) (other than Section 4.1(b)(v))  shall be cumulative; that is, to the extent
that shares of Common Stock for which Awards are permitted to be granted to an
Eligible Employee or a Consultant during a fiscal year are not covered by an
Award to such Eligible Employee or Consultant in a fiscal year, the number of
shares of Common Stock available for Awards to such Eligible Employee or
Consultant shall automatically increase in the subsequent fiscal years during
the term of the Plan until used.

 

4.2          Changes.

 

(a)                                  The existence of this Plan and
the Awards granted hereunder shall not affect in any way the right or power of
the Board or the stockholders of the Company to make or authorize (i) any
adjustment, recapitalization, reorganization or other change in the Company’s
capital structure or its business, (ii) any merger or consolidation of the
Company or any Affiliate, (iii) any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock, (iv) the
dissolution or liquidation of the Company or any Affiliate, (v) any sale or
transfer of all or part of the assets or business of the Company or any
Affiliate or (vi) any other corporate act or proceeding.

 

(b)                                 Subject to the provisions of
Section 4.2(d), in the event of any such change in the capital structure or
business of the Company by reason of any stock split, reverse stock split,
stock dividend, extraordinary dividend (whether cash or stock), combination or
reclassification of shares,

 

12

 

recapitalization,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase any Common Stock or
securities convertible into Common Stock, any sale or transfer of all or part
of the Company’s assets or business, or any other corporate transaction or
event having an effect similar to any of the foregoing and effected without
receipt of consideration by the Company and the Committee determines in good
faith that an adjustment is necessary or appropriate under the Plan to prevent
substantial dilution or enlargement of the rights granted to, or available for,
Participants under the Plan, then the aggregate number and kind of shares that
thereafter may be issued under this Plan, the number and kind of shares or
other property (including cash) to be issued upon exercise of an outstanding Award
or under other Awards granted under this Plan and the purchase price thereof
shall be appropriately adjusted consistent with such change in such manner as
the Committee may deem equitable to prevent substantial dilution or enlargement
of the rights granted to, or available for, Participants under this Plan, and
any such adjustment determined by the Committee in good faith shall be final,
binding and conclusive on the Company and all Participants and employees and
their respective heirs, executors, administrators, successors and assigns.  In connection with any event described in
this paragraph, the Committee may provide, in its sole discretion, for the
cancellation of any outstanding Awards and payment in cash or other property in
exchange therefor.  Except as provided in
this Section 4.2 or in the applicable Award agreement, a Participant shall have
no rights by reason of any issuance by the Company of any class of stock or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend, any other increase or
decrease in the number of shares of stock of any class, any sale or transfer of
all or part of the Company’s assets or business or any other change affecting
the Company’s capital structure or business.

 

(c)                                  Fractional shares of Common
Stock resulting from any adjustment in Awards pursuant to Section 4.2(a) or 4.2(b)
shall be aggregated until, and eliminated at, the time of exercise by
rounding-down for fractions less than one-half and rounding-up for fractions
equal to or greater than one-half.  No
cash settlements shall be made with respect to fractional shares eliminated by
rounding.  Notice of any adjustment shall
be given by the Committee to each Participant whose Award has been adjusted and
such adjustment (whether or not such notice is given) shall be effective and
binding for all purposes of this Plan.

 

(d)                                 In the event of a merger or
consolidation in which the Company is not the surviving entity or in the event
of any transaction that results in the acquisition of substantially all of the
Company’s outstanding Common Stock by a single person or entity or by a group
of persons and/or entities acting in concert, or in the event of the sale or
transfer of all or

 

13

 

substantially all of
the Company’s assets (all of the foregoing being referred to as an “Acquisition
Event”), then the Committee may, in its sole discretion, terminate all
outstanding and unexercised Stock Options, Stock Appreciation Rights, or any
Other Stock-Based Award that provides for a Participant elected exercise, effective
as of the date of the Acquisition Event, by delivering notice of termination to
each Participant at least 20 days prior to the date of consummation of the
Acquisition Event, in which case during the period from the date on which such
notice of termination is delivered to the consummation of the Acquisition
Event, each such Participant shall have the right to exercise in full all of
his or her Awards that are then outstanding (without regard to any limitations
on exercisability otherwise contained in the Award agreements), but any such
exercise shall be contingent on the occurrence of the Acquisition Event, and,
provided that, if the Acquisition Event does not take place within a specified
period after giving such notice for any reason whatsoever, the notice and
exercise pursuant thereto shall be null and void.

 

If an
Acquisition Event occurs but the Committee does not terminate the outstanding Awards
pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) and Article
XII shall apply.

 

4.3          Minimum Purchase
Price.  Notwithstanding any provision of this Plan to
the contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall not be issued for a consideration
that is less than as permitted under applicable law.

 

ARTICLE V

ELIGIBILITY

 

5.1          General
Eligibility.  All Eligible Employees, prospective employees
and Consultants of the Company and its Affiliates, and Non-Employee Directors
of the Company, are eligible to be granted Awards.  Eligibility for the grant of Awards and
actual participation in this Plan shall be determined by the Committee in its
sole discretion.

 

5.2          Incentive Stock
Options.  Notwithstanding the foregoing, only Eligible
Employees of the Company, its Subsidiaries and its Parent (if any) are eligible
to be granted Incentive Stock Options under this Plan.  Eligibility for the grant of an Incentive
Stock Option and actual participation in this Plan shall be determined by the
Committee in its sole discretion.

 

5.3          General
Requirement.  The vesting and exercise of Awards granted to
a prospective employee or consultant are conditioned upon such individual
actually becoming an Eligible Employee or Consultant.

 

14

 

ARTICLE VI

STOCK OPTIONS

 

6.1          Options.  Stock Options may be granted alone or in
addition to other Awards granted under this Plan.  Each Stock Option granted under this Plan
shall be of one of two types: (a) an Incentive Stock Option or (b) a
Non-Qualified Stock Option.

 

6.2          Grants.  The Committee shall have the authority to
grant to any Eligible Employee one or more Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options.  The Committee shall have the authority to
grant any Consultant or Non-Employee Director one or more Non-Qualified Stock
Options.  To the extent that any Stock
Option does not qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or otherwise), such Stock
Option or the portion thereof which does not qualify shall constitute a
separate Non-Qualified Stock Option.  

 

6.3          Incentive Stock
Options.  Notwithstanding anything in the Plan to the
contrary, no term of this Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the Participants
affected, to disqualify any Incentive Stock Option under such Section 422.

 

6.4          Terms of
Options.  Options granted under this Plan shall be
subject to the following terms and conditions and shall be in such form and
contain such additional terms and conditions, not inconsistent with the terms
of this Plan, as the Committee shall deem desirable:

 

(a)                                  Exercise Price.  The exercise price per share of Common Stock subject
to a Stock Option shall be determined by the Committee at the time of grant,
provided that the per share exercise price of a Stock Option shall not be less
than 100% (or, in the case of an Incentive Stock Option granted to a Ten Percent
Stockholder, 110%) of the Fair Market Value of the Common Stock at the time of grant.

 

(b)                                 Stock Option Term.  The term of each Stock Option shall be fixed
by the Committee, provided that no Stock Option shall be exercisable more than
10 years after the date the Option is granted; and provided further that the
term of an Incentive Stock Option granted to a Ten Percent Stockholder shall
not exceed five years.

 

(c)                                  Exercisability.  Unless otherwise provided by the Committee in
accordance with the provisions of this Section 6.4, Stock Options granted under
the Plan shall become vested and exercisable, subject to the Participant’s
continued employment or other service relationship with the Company or any
Subsidiary, over a period of four years with 50% of such Stock Options granted
becoming vested and exercisable on the second anniversary of the date of grant,
and 25% of such Stock Options granted becoming vested and exercisable on each
of the third and fourth anniversaries of the date of grant.  If the Committee provides, in its discretion,
that any Stock Option is exercisable subject to certain limitations (including,
without limitation, that such Stock Option is exercisable only in installments
or within certain time periods), the

 

15

 

Committee may waive
such limitations on the exercisability at any time at or after grant in whole
or in part (including, without limitation, waiver of the installment exercise
provisions or acceleration of the time at which such Stock Option may be
exercised), based on such factors, if any, as the Committee shall determine, in
its sole discretion.  Unless otherwise
determined by the Committee at grant, the Option agreement shall provide that
(i) in the event the Participant engages in Detrimental Activity prior to any
exercise of the Stock Option, all Stock Options held by the Participant shall
thereupon terminate and expire, (ii) as a condition of the exercise of a Stock
Option, the Participant shall be required to certify (or shall be deemed to
have certified) at the time of exercise in a manner acceptable to the Company
that the Participant is in compliance with the terms and conditions of the Plan
and that the Participant has not engaged in, and does not intend to engage in,
any Detrimental Activity, and (iii) in the event the Participant engages in
Detrimental Activity during the one year period commencing on the date the
Stock Option is exercised or becomes vested, the Company shall be entitled to
recover from the Participant at any time within one year after such exercise or
vesting, and the Participant shall pay over to the Company, an amount equal to
any gain realized as a result of the exercise (whether at the time of exercise
or thereafter).  The foregoing provisions
described in subsections (i), (ii) and (iii) shall cease to apply upon a Change
in Control. 

 

(d)                                 Method of Exercise.  Subject to whatever installment exercise and
waiting period provisions apply under Section 6.4(c), to the extent vested, Stock
Options may be exercised in whole or in part at any time during the Option
term, by giving written notice of exercise to the Company specifying the number
of shares of Common Stock to be purchased. 
Such notice shall be accompanied by payment in full of the purchase
price as follows:  (i) in cash or by
check, bank draft or money order payable to the order of the Company; (ii) solely
to the extent permitted by applicable law, if the Common Stock is traded on a
national securities exchange, The Nasdaq Global Market or quoted on a national
quotation system sponsored by the National Association of Securities Dealers,
and the Committee authorizes, through a procedure whereby the Participant
delivers irrevocable instructions to a broker reasonably acceptable to the
Committee to deliver promptly to the Company an amount equal to the purchase
price; or (iii) on such other terms and conditions as may be acceptable to the
Committee (including, without limitation, the relinquishment of Stock Options
or by payment in full or in part in the form of Common Stock owned by the
Participant based on the Fair Market Value of the Common Stock on the payment
date as determined by the Committee).  No
shares of Common Stock shall be issued until payment therefor, as provided
herein, has been made or provided for.

 

(e)                                  Non-Transferability of Options.  No Stock Option shall be Transferable by the
Participant otherwise than by will or by the laws of descent and

 

16

 

distribution, and
all Stock Options shall be exercisable, during the Participant’s lifetime, only
by the Participant.  Notwithstanding the
foregoing, the Committee may determine, in its sole discretion, at the time of
grant or thereafter that a Non-Qualified Stock Option that is otherwise not Transferable
pursuant to this Section is Transferable to a Family Member in whole or in part
and in such circumstances, and under such conditions, as specified by the
Committee.  A Non-Qualified Stock Option
that is Transferred to a Family Member pursuant to the preceding sentence (i)
may not be subsequently Transferred otherwise than by will or by the laws of
descent and distribution and (ii) remains subject to the terms of this Plan and
the applicable Award agreement.  Any
shares of Common Stock acquired upon the exercise of a Non-Qualified Stock
Option by a permissible transferee of a Non-Qualified Stock Option or a
permissible transferee pursuant to a Transfer after the exercise of the
Non-Qualified Stock Option shall be subject to the terms of this Plan and the
applicable Award agreement.

 

(f)                                    Termination by Retirement.  Unless otherwise determined by the Committee
at grant, or if no rights of the Participant are reduced, thereafter, if
Participant’s Termination is by reason of Retirement, all Stock Options that
are held by such Participant that are vested and exercisable at the time of the
Participant’s Termination may be exercised by the Participant at any time
within a period of ninety days from the date of such Termination, but in no
event beyond the expiration of the stated term of such Stock Options; provided,
however, that if the Participant dies within such exercise period, all
unexercised Stock Options held by such Participant shall thereafter be
exercisable, to the extent to which they were exercisable at the time of death,
for a period of ninety days from the date of such death, but in no event beyond
the expiration of the stated term of such Stock Options.

 

(g)                                 Termination by Death or
Disability.  Unless otherwise determined by the Committee
at grant, or if no rights of the Participant are reduced, thereafter, if
Participant’s Termination is by reason of death or Disability, all Stock
Options that are held by such Participant that are vested and exercisable at
the time of the Participant’s Termination may be exercised by the Participant
(or, in the case of death, by the legal representative of the Participant’s
estate) at any time within a period of one year from the date of such
Termination, but in no event beyond the expiration of the stated term of such
Stock Options.

 

(h)                                 Involuntary Termination Without
Cause or for Good Reason.  Unless otherwise determined by the Committee
at grant, or if no rights of the Participant are reduced, thereafter, if a
Participant’s Termination is by involuntary termination without Cause or for
Good Reason, all Stock Options that are held by such Participant that are
vested and exercisable at the time of the Participant’s Termination may be
exercised by the

 

17

 

Participant at any time
within a period of 90 days from the date of such Termination, but in no event
beyond the expiration of the stated term of such Stock Options.

 

(i)                                     Voluntary Termination.  Unless otherwise determined by the Committee
at grant, or if no rights of the Participant are reduced, thereafter, if a
Participant’s Termination is voluntary (other than a voluntary termination
described in Section 6.4(j)(y) below), all Stock Options that are held by such
Participant that are vested and exercisable at the time of the Participant’s
Termination may be exercised by the Participant at any time within a period of
30 days from the date of such Termination, but in no event beyond the
expiration of the stated term of such Stock Options.

 

(j)                                     Termination for Cause.  Unless otherwise determined by the Committee
at grant, or if no rights of the Participant are reduced, thereafter, if a
Participant’s Termination (x) is for Cause or (y) is a voluntary Termination
(as provided in Section 6.4(i)) after the occurrence of an event that would be
grounds for a Termination for Cause, all Stock Options, whether vested or not
vested, that are held by such Participant shall thereupon terminate and expire
as of the date of such Termination.

 

(k)                                  Unvested Stock Options.  Unless otherwise determined by the Committee
at grant, or if no rights of the Participant are reduced, thereafter, Stock
Options that are not vested as of the date of a Participant’s Termination for
any reason shall terminate and expire as of the date of such Termination.

 

(l)                                     Incentive Stock Option
Limitations.  To the extent that the aggregate Fair Market
Value (determined as of the time of grant) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by an Eligible
Employee during any calendar year under this Plan and/or any other stock option
plan of the Company, any Subsidiary or any Parent exceeds $100,000, such
Options shall be treated as Non-Qualified Stock Options.  Should any provision of this Plan not be
necessary in order for the Stock Options to qualify as Incentive Stock Options,
or should any additional provisions be required, the Committee may amend this
Plan accordingly, without the necessity of obtaining the approval of the
stockholders of the Company.

 

(m)                               Form, Modification, Extension
and Renewal of Stock Options.  Subject to the terms and conditions and
within the limitations of this Plan, Stock Options shall be evidenced by such
form of agreement or grant as is approved by the Committee, and the Committee may
(i) modify, extend or renew outstanding Stock Options granted under this Plan
(provided that the rights of a Participant are not reduced without his or her
consent and provided further that such action does not subject the Stock
Options to Section 409A of the Code without the consent of the Participant),
and (ii) accept the surrender of outstanding Stock Options (up to the extent
not

 

18

 

theretofore
exercised) and authorize the granting of new Stock Options in substitution
therefor (to the extent not theretofore exercised).  Notwithstanding the foregoing, an outstanding
Option may not be modified to reduce the exercise price thereof nor may a new
Option at a lower price be substituted for a surrendered Option (other than
adjustments or substitutions in accordance with Section 4.2), unless such
action is approved by the stockholders of the Company.

 

(n)                                 Deferred
Delivery of Common Shares.  The Committee may in its discretion permit
Participants to defer delivery of Common Stock acquired pursuant to a
Participant’s exercise of an Option in accordance with the terms and conditions
established by the Committee in the applicable Award agreement.

 

(o)                                 Early Exercise.  The Committee may provide that a Stock Option
include a provision whereby the Participant may elect at any time before the
Participant’s Termination to exercise the Stock Option as to any part or all of
the shares of Common Stock subject to the Stock Option prior to the full
vesting of the Stock Option and such shares shall be subject to the provisions
of Article VIII and treated as Restricted Stock.  Any unvested shares of Common Stock so
purchased may be subject to a repurchase option in favor of the Company or to
any other restriction the Committee determines to be appropriate.

 

(p)                                 Other Terms and Conditions.  Stock Options may contain such other
provisions, which shall not be inconsistent with any of the terms of this Plan,
as the Committee shall deem appropriate including, without limitation, permitting
“reloads” such that the same number of Stock Options are granted as the number
of Stock Options exercised, shares used to pay for the exercise price of Stock
Options or shares used to pay withholding taxes (“Reloads”).  With respect to Reloads, the exercise price
of the new Stock Option shall be the Fair Market Value on the date of the “reload”
and the term of the Stock Option shall be the same as the remaining term of the
Stock Options that are exercised, if applicable, or such other exercise price and
term as determined by the Committee.

 

ARTICLE VII

STOCK APPRECIATION RIGHTS

 

7.1          Tandem Stock Appreciation Rights.  Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option (a “Reference Stock Option”)
granted under this Plan (“Tandem Stock Appreciation Rights”).  In the case of a Non-Qualified Stock Option,
such rights may be granted either at or after the time of the grant of such
Reference Stock Option.  In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Reference Stock Option.

 

19

 

7.2          Terms and Conditions of Tandem Stock Appreciation Rights.  Tandem Stock Appreciation Rights granted
hereunder shall be subject to such terms and conditions, not inconsistent with
the provisions of this Plan, as shall be determined from time to time by the
Committee, and the following:

 

(a)                                  Exercise Price.  The exercise price per share of Common Stock
subject to a Tandem Stock Appreciation Right shall be determined by the
Committee at the time of grant, provided that the per share exercise price of a
Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market
Value of the Common Stock at the time of grant.

 

(b)                                 Term.  A Tandem Stock Appreciation Right or
applicable portion thereof granted with respect to a Reference Stock Option
shall terminate and no longer be exercisable upon the termination or exercise
of the Reference Stock Option, except that, unless otherwise determined by the
Committee, in its sole discretion, at the time of grant, a Tandem Stock
Appreciation Right granted with respect to less than the full number of shares
covered by the Reference Stock Option shall not be reduced until and then only
to the extent the exercise or termination of the Reference Stock Option causes
the number of shares covered by the Tandem Stock Appreciation Right to exceed
the number of shares remaining available and unexercised under the Reference
Stock Option.

 

(c)                                  Exercisability.  Tandem Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the Reference
Stock Options to which they relate shall be exercisable in accordance with the
provisions of Article VI, and shall be subject to the provisions of Section 6.4(c).

 

(d)                                 Method of Exercise.  A Tandem Stock Appreciation Right may be
exercised by the Participant by surrendering the applicable portion of the
Reference Stock Option.  Upon such
exercise and surrender, the Participant shall be entitled to receive an amount
determined in the manner prescribed in this Section 7.2.  Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Tandem Stock Appreciation Rights have been exercised.

 

(e)                                  Payment.  Upon the exercise of a Tandem Stock
Appreciation Right, a Participant shall be entitled to receive up to, but no
more than, an amount in cash and/or Common Stock (as chosen by the Committee in
its sole discretion) equal in value to the excess of the Fair Market Value of
one share of Common Stock over the Option exercise price per share specified in
the Reference Stock Option agreement multiplied by the number of shares in
respect of which the Tandem Stock Appreciation Right shall have been exercised,
with the Committee having the right to determine the form of payment.

 

20

 

(f)                                    Deemed Exercise of Reference
Stock Option.  Upon the exercise of a Tandem Stock
Appreciation Right, the Reference Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Article IV of the Plan on the number
of shares of Common Stock to be issued under the Plan.

 

(g)                                 Non-Transferability.  Tandem Stock Appreciation Rights shall be
Transferable only when and to the extent that the underlying Stock Option would
be Transferable under Section 6.4(e) of the Plan.

 

7.3          Non-Tandem Stock Appreciation Rights.  Non-Tandem Stock Appreciation Rights may also
be granted without reference to any Stock Options granted under this Plan.

 

7.4          Terms and Conditions of Non-Tandem Stock Appreciation Rights.  Non-Tandem Stock Appreciation Rights granted
hereunder shall be subject to such terms and conditions, not inconsistent with
the provisions of this Plan, as shall be determined from time to time by the
Committee, and the following:

 

(a)                                  Exercise Price.  The exercise price per share of Common Stock
subject to a Non-Tandem Stock Appreciation Right shall be determined by the
Committee at the time of grant, provided that the per share exercise price of a
Non-Tandem Stock Appreciation Right shall not be less than 100% of the Fair
Market Value of the Common Stock at the time of grant.

 

(b)                                 Term.  The term of each Non-Tandem Stock
Appreciation Right shall be fixed by the Committee, but shall not be greater
than 10 years after the date the right is granted.

 

(c)                                  Exercisability.  Unless otherwise provided by the Committee in
accordance with the provisions of this Section 7.4, Non-Tandem Stock
Appreciation Rights granted under the Plan shall become vested and exercisable,
subject to the Participant’s continued employment or other service relationship
with the Company or any Subsidiary, over a period of four years with 50% of
such Non-Tandem Stock Appreciation Rights granted becoming vested and
exercisable on the second anniversary of the date of grant, and 25% of such
Non-Tandem Stock Appreciation Rights granted becoming vested and exercisable on
each of the third and fourth anniversaries of the date of grant.  Non-Tandem Stock Appreciation Rights shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at grant. 
If the Committee provides, in its discretion, that any such right is
exercisable subject to certain limitations (including, without limitation, that
it is exercisable only in installments or within certain time periods), the
Committee may waive such limitations on the exercisability at any time at or
after grant in whole or in part (including, without limitation, waiver of the
installment exercise provisions or acceleration of the time at which

 

21

 

such right may be
exercised), based on such factors, if any, as the Committee shall determine, in
its sole discretion.  Unless otherwise
determined by the Committee at grant, the Award agreement shall provide that
(i) in the event the Participant engages in Detrimental Activity prior to any
exercise of the Non-Tandem Stock Appreciation Right, all Non-Tandem Stock
Appreciation Rights held by the Participant shall thereupon terminate and
expire, (ii) as a condition of the exercise of a Non-Tandem Stock Appreciation
Right, the Participant shall be required to certify (or shall be deemed to have
certified) at the time of exercise in a manner acceptable to the Company that
the Participant is in compliance with the terms and conditions of the Plan and
that the Participant has not engaged in, and does not intend to engage in, any
Detrimental Activity, and (iii) in the event the Participant engages in
Detrimental Activity during the one year period commencing on the date the
Non-Tandem Stock Appreciation Right is exercised or becomes vested, the Company
shall be entitled to recover from the Participant at any time within one year
after such exercise or vesting, and the Participant shall pay over to the
Company, an amount equal to any gain realized as a result of the exercise
(whether at the time of exercise or thereafter).  The foregoing provisions described in
subsections (i), (ii) and (iii) shall cease to apply upon a Change in Control. 

 

(d)                                 Method of Exercise.  Subject to whatever installment exercise and
waiting period provisions apply under Section 7.4(c), Non-Tandem Stock
Appreciation Rights may be exercised in whole or in part at any time in
accordance with the applicable Award agreement, by giving written notice of
exercise to the Company specifying the number of Non-Tandem Stock Appreciation
Rights to be exercised.

 

(e)                                  Payment.  Upon the exercise of a Non-Tandem Stock
Appreciation Right a Participant shall be entitled to receive, for each right
exercised, up to, but no more than, an amount in cash and/or Common Stock (as
chosen by the Committee in its sole discretion) equal in value to the excess of
the Fair Market Value of one share of Common Stock on the date the right is
exercised over the Fair Market Value of one share of Common Stock on the date
the right was awarded to the Participant.

 

(f)                                    Non-Transferability.  No Non-Tandem Stock Appreciation Rights shall
be Transferable by the Participant otherwise than by will or by the laws of
descent and distribution, and all such rights shall be exercisable, during the
Participant’s lifetime, only by the Participant. 

 

7.5          Limited Stock Appreciation Rights.  The Committee may, in its sole discretion,
grant Tandem and Non-Tandem Stock Appreciation Rights either as a general Stock
Appreciation Right or as a Limited Stock Appreciation Right.  Limited Stock Appreciation Rights may be
exercised only upon the occurrence of a Change in Control or such other event
as the Committee may, in its sole discretion, designate at the time of grant or
thereafter.  Upon the exercise of Limited
Stock Appreciation Rights, except as otherwise provided in an Award

 

22

 

agreement, the
Participant shall receive in cash and/or Common Stock, as determined by the
Committee, an amount equal to the amount (i) set forth in Section 7.2(e) with
respect to Tandem Stock Appreciation Rights or (ii) set forth in Section 7.4(e)
with respect to Non-Tandem Stock Appreciation Rights.

 

ARTICLE VIII

RESTRICTED STOCK

 

8.1          Awards of
Restricted Stock.  Shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan.  The Committee shall determine the Eligible
Employees, Consultants and Non-Employee Directors, to whom, and the time or
times at which, grants of Restricted Stock shall be made, the number of shares
to be awarded, the price (if any) to be paid by the Participant (subject to
Section 8.2), the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards.

 

Unless
otherwise determined by the Committee at grant, each Award of Restricted Stock
shall provide that in the event the Participant engages in Detrimental Activity
prior to, or during the one year period after, any vesting of Restricted Stock,
the Committee may direct that all unvested Restricted Stock shall be
immediately forfeited to the Company and that the Participant shall pay over to
the Company an amount equal to the Fair Market Value at the time of vesting of
any Restricted Stock which had vested in the period referred to above.  The foregoing provision shall cease to apply
upon a Change in Control.

 

The Committee
may condition the grant or vesting of Restricted Stock upon the attainment of
specified performance targets (including, the Performance Goals specified in
Exhibit A hereto) or such other factor as the Committee may determine in its
sole discretion, including to comply with the requirements of Section 162(m) of
the Code.

 

8.2          Awards and
Certificates.  Eligible Employees, Consultants and
Non-Employee Directors selected to receive Restricted Stock shall not have any
rights with respect to such Award, unless and until such Participant has
delivered a fully executed copy of the agreement evidencing the Award to the Company
and has otherwise complied with the applicable terms and conditions of such
Award.  Further, such Award shall be
subject to the following conditions:

 

(a)                                  Purchase Price.  The purchase price of Restricted Stock shall
be fixed by the Committee.  Subject to
Section 4.3, the purchase price for shares of Restricted Stock may be zero to
the extent permitted by applicable law, and, to the extent not so permitted,
such purchase price may not be less than par value.

 

(b)                                 Acceptance.  Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the Committee may specify
at grant) after the grant date, by executing a Restricted Stock agreement and
by paying whatever price (if any) the Committee has designated thereunder.

 

23

 

(c)                                  Legend.  Each Participant receiving Restricted Stock
shall be issued a stock certificate in respect of such shares of Restricted
Stock, unless the Committee elects to use another system, such as book entries
by the transfer agent, as evidencing ownership of shares of Restricted Stock.  Such certificate shall be registered in the
name of such Participant, and shall, in addition to such legends required by
applicable securities laws, bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:

 

“The
anticipation, alienation, attachment, sale, transfer, assignment, pledge,
encumbrance or charge of the shares of stock represented hereby are subject to
the terms and conditions (including forfeiture) of the LifeWatch Corp. (the “Company”)
2006 Stock Incentive Plan (the “Plan”) and an Agreement entered into between
the registered owner and the Company dated                     .  Copies of such Plan and Agreement are on file
at the principal office of the Company.”

 

(d)                                 Custody.  If stock certificates are issued in respect
of shares of Restricted Stock, the Committee may require that any stock
certificates evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any grant
of Restricted Stock, the Participant shall have delivered a duly signed stock
power, endorsed in blank, relating to the Common Stock covered by such Award.

 

8.3          Restrictions
and Conditions.  The shares of Restricted Stock awarded
pursuant to this Plan shall be subject to the following restrictions and
conditions:

 

(a)                                  Restriction Period.  (i)  The
Participant shall not be permitted to Transfer shares of Restricted Stock
awarded under this Plan during the period or periods set by the Committee (the “Restriction
Period”) commencing on the date of such Award, as set forth in the
Restricted Stock Award agreement and such agreement shall set forth a vesting
schedule and any events which would accelerate vesting of the shares of
Restricted Stock.  Within these limits,
based on service, attainment of performance goals pursuant to Section 8.3(a)(ii)
and/or such other factors or criteria as the Committee may determine in its
sole discretion, the Committee may condition the grant or provide for the lapse
of such restrictions in installments in whole or in part, or may accelerate the
vesting of all or any part of any Restricted Stock Award and/or waive the
deferral limitations for all or any part of any Restricted Stock Award.

 

(ii)           Objective Performance Goals, Formulae or Standards.  If the grant of shares of Restricted Stock or
the lapse of restrictions is based on the attainment of performance goals, the
Committee shall establish the objective performance goals and the applicable
vesting percentage of the Restricted Stock applicable to each Participant or
class of Participants in

 

24

 

writing prior to the beginning of the
applicable fiscal year or at such later date as otherwise determined by the
Committee and while the outcome of the performance goals are substantially
uncertain.  Such performance goals may
incorporate provisions for disregarding (or adjusting for) changes in
accounting methods, corporate transactions (including, without limitation,
dispositions and acquisitions) and other similar type events or
circumstances.  With regard to a
Restricted Stock Award that is intended to comply with Section 162(m) of the
Code, to the extent any such provision would create impermissible discretion
under Section 162(m) of the Code or otherwise violate Section 162(m) of the
Code, such provision shall be of no force or effect.  The applicable performance goals shall be
based on one or more of the performance goals set forth in Exhibit A
hereto.

 

(b)                                 Rights as a Stockholder.  Except as provided in Section 8.3(a) and this
Section 8.3(b) and as otherwise determined by the Committee, the Participant
shall have, with respect to the shares of Restricted Stock, all of the rights
of a holder of shares of Common Stock of the Company including, without
limitation, the right to receive any dividends, the right to vote such shares
and, subject to and conditioned upon the full vesting of shares of Restricted
Stock, the right to tender such shares. 
The Committee may, in its sole discretion, determine at the time of grant
that the payment of dividends shall be deferred until, and conditioned upon,
the expiration of the applicable Restriction Period.

 

(c)                                  Termination.  Unless otherwise determined by the Committee
at grant or, if no rights of the Participant are reduced, thereafter, subject
to the applicable provisions of the Restricted Stock Award agreement and this
Plan, upon a Participant’s Termination for any reason during the relevant
Restriction Period, all Restricted Stock still subject to restriction will vest
or be forfeited in accordance with the terms and conditions established by the
Committee at grant or thereafter.

 

(d)                                 Lapse of Restrictions.  If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock, the certificates for such
shares shall be delivered to the Participant. 
All legends shall be removed from said certificates at the time of
delivery to the Participant, except as otherwise required by applicable law or
other limitations imposed by the Committee.

 

ARTICLE IX

PERFORMANCE SHARES

 

9.1          Award of
Performance Shares.  Performance Shares may be awarded either
alone or in addition to other Awards granted under this Plan.  The Committee shall determine the Eligible
Employees, Consultants and Non-Employee Directors, to whom, and the time or
times

 

25

 

at which,
Performance Shares shall be awarded, the number of Performance Shares to be
awarded to any person, the duration of the period (the “Performance Period”)
during which, and the conditions under which, receipt of the Shares will be
deferred, and the other terms and conditions of the Award in addition to those
set forth in Section 9.2.

 

Unless
otherwise determined by the Committee at grant, each Award of Performance
Shares shall provide that in the event the Participant engages in Detrimental
Activity prior to, or during the one year period after, any vesting of
Performance Shares, the Committee may direct (at any time within one year
thereafter) that all unvested Performance Shares shall be immediately forfeited
to the Company and that the Participant shall pay over to the Company an amount
equal to any gain the Participant realized from any Performance Shares which
had vested in the period referred to above. 
The foregoing provision shall cease to apply upon a Change in Control.

 

Except as
otherwise provided herein, the Committee shall condition the right to payment
of any Performance Share upon the attainment of objective performance goals
established pursuant to Section 9.2(c).

 

9.2          Terms and
Conditions.  Performance Shares awarded pursuant to this Article
IX shall be subject to the following terms and conditions:

 

(a)                                  Earning of Performance Share
Award.  At the expiration of the applicable
Performance Period, the Committee shall determine the extent to which the
performance goals established pursuant to Section 9.2(c) are achieved and the
percentage of each Performance Share Award that has been earned.

 

(b)                                 Non-Transferability.  Subject to the applicable provisions of the
Award agreement and this Plan, Performance Shares may not be Transferred during
the Performance Period.

 

(c)                                  Objective Performance Goals,
Formulae or Standards.  The Committee shall establish the objective
performance goals for the earning of Performance Shares based on a Performance
Period applicable to each Participant or class of Participants in writing prior
to the beginning of the applicable Performance Period or at such later date as
permitted under Section 162(m) of the Code and while the outcome of the
performance goals are substantially uncertain. 
Such performance goals may incorporate, if and only to the extent
permitted under Section 162(m) of the Code, provisions for disregarding (or
adjusting for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisitions) and other
similar type events or circumstances.  To
the extent that any such provision would create impermissible discretion under
Section 162(m) of the Code or otherwise violate Section 162(m) of the Code,
such provision shall be of no force or effect. 
The applicable performance goals shall be based on one or more of the
performance criteria set forth in Exhibit A hereto.

 

26

 

(d)                                 Dividends.  Unless otherwise determined by the Committee
at the time of grant, amounts equal to any dividends declared during the
Performance Period with respect to the number of shares of Common Stock covered
by a Performance Share Award will not be paid to the Participant.

 

(e)                                  Payment.  Following the Committee’s determination in
accordance with 9.2(a), shares of Common Stock or, as determined by the
Committee in its sole discretion, the cash equivalent of such shares shall be
delivered to the Eligible Employee, Consultant or Non-Employee Director, or his
legal representative, in an amount equal to such individual’s earned Performance
Shares.  Notwithstanding the foregoing,
the Committee may, in its sole discretion, award an amount less than the earned
Performance Shares and/or subject the payment of all or part of any Performance
Shares to additional vesting, forfeiture and deferral conditions as it deems
appropriate.

 

(f)                                    Termination.  Subject to the applicable provisions of the
Award agreement and this Plan, upon a Participant’s Termination for any reason
during the Performance Period for a given Award, the Performance Shares in
question will vest or be forfeited in accordance with the terms and conditions
established by the Committee at grant.

 

(g)                                 Accelerated Vesting.  Based on service, performance and/or such
other factors or criteria, if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any part of
any Performance Share Award.

 

ARTICLE X

PERFORMANCE UNITS

 

10.1        Award of
Performance Units.  Performance Units may be awarded either alone
or in addition to other Awards granted under this Plan.  The Committee shall determine the Eligible
Employees, Consultants and Non-Employee Directors, to whom, and the time or
times at which, Performance Units shall be awarded, the number of Performance
Units to be awarded to any person, the duration of the period (the “Performance
Cycle”) during which, and the conditions under which, a Participant’s right
to Performance Units will be vested, the ability of Participants to defer the
receipt of payment of such Performance Units, and the other terms and
conditions of the Award in addition to those set forth in Section 10.2.

 

A Performance
Unit shall have a fixed dollar value.

 

Unless
otherwise determined by the Committee at grant, each Award of Performance Units
shall provide that in the event the Participant engages in Detrimental Activity
prior to, or during the one year period after, any vesting of Performance
Units, the Committee may direct (at any time within one year thereafter) that
all unvested Performance Units shall be immediately forfeited to the Company
and that the Participant shall pay over to the Company an amount equal

 

27

 

to any gain the Participant realized from any Performance Units which
had vested in the period referred to above. 
The foregoing provision shall cease to apply upon a Change in Control.

 

Except as
otherwise provided herein, the Committee shall condition the vesting of
Performance Units upon the attainment of objective performance goals established
pursuant to Section 10.2(a).

 

10.2        Terms and
Conditions.  The Performance Units awarded pursuant to
this Article X shall be subject to the following terms and conditions:

 

(a)                                  Performance Goals.  The Committee shall establish the objective
performance goals for the earning of Performance Units based on a Performance
Cycle applicable to each Participant or class of Participants in writing prior
to the beginning of the applicable Performance Cycle or at such later date as
permitted under Section 162(m) of the Code and while the outcome of the
performance goals are substantially uncertain. 
Such performance goals may incorporate, if and only to the extent
permitted under Section 162(m) of the Code, provisions for disregarding (or
adjusting for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisitions) and other
similar type events or circumstances.  To
the extent any such provision would create impermissible discretion under
Section 162(m) of the Code or otherwise violate Section 162(m) of the Code,
such provision shall be of no force or effect. 
The applicable performance goals shall be based on one or more of the
performance goals set forth in Exhibit A hereto.

 

(b)                                 Non-Transferability.  Subject to the applicable provisions of the
Award agreement and this Plan, Performance Unit Awards may not be Transferred.

 

(c)                                  Vesting.  At the expiration of the Performance Cycle,
the Committee shall determine the extent to which the performance goals have
been achieved, and the percentage of the Performance Unit Award of each
Participant that has vested.

 

(d)                                 Payment.  Subject to the applicable provisions of the
Award agreement and this Plan, at the expiration of the Performance Cycle, cash
and/or share certificates of an equivalent value (as the Committee may
determine in its sole discretion) shall be delivered to the Participant, or his
legal representative, in payment of the vested Performance Units covered by the
Performance Unit Award.

 

(e)                                  Termination.  Subject to the applicable provisions of the
Award agreement and this Plan, upon a Participant’s Termination for any reason
during the Performance Cycle for a given Award, the Performance Units in
question will vest or be forfeited in accordance with the terms and conditions
established by the Committee at grant.

 

28

 

(f)                                    Accelerated Vesting.  Based on service, performance and/or such
other factors or criteria, if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any part of
any Performance Unit Award and/or waive the deferral limitations for all or any
part of such Award.

 

ARTICLE XI

OTHER STOCK-BASED AWARDS

 

11.1        Other Awards.  The Committee is authorized to grant to
Eligible Employees, Consultants and Non-Employee Directors Other Stock-Based
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Common Stock, including but not
limited to, shares of Common Stock awarded purely as a bonus and not subject to
any restrictions or conditions, shares of Common Stock in payment of the
amounts due under an incentive or performance plan sponsored or maintained by
the Company or an Affiliate, stock equivalent units, restricted stock units,
and Awards valued by reference to book value of shares of Common Stock.  Other Stock-Based Awards may be granted
either alone or in addition to or in tandem with other Awards granted under the
Plan.

 

Subject to the
provisions of this Plan, the Committee shall have authority to determine the
Eligible Employees, Consultants and Non-Employee Directors, to whom, and the
time or times at which, such Awards shall be made, the number of shares of
Common Stock to be awarded pursuant to such Awards, and all other conditions of
the Awards.  The Committee may also
provide for the grant of Common Stock under such Awards upon the completion of
a specified performance period.

 

The Committee
may condition the grant or vesting of Other Stock-Based Awards upon the
attainment of specified performance criteria set forth on Exhibit A
hereto as the Committee may determine, in its sole discretion; provided that to
the extent that such Other Stock-Based Awards are intended to comply with
Section 162(m) of the Code, the Committee shall establish the objective
performance goals for the grant or vesting of such Other Stock-Based Awards
based on a performance period applicable to each Participant or class of
Participants in writing prior to the beginning of the applicable performance
period or at such later date as permitted under Section 162(m) of the Code and
while the outcome of the performance goals are substantially uncertain.  Such performance goals may incorporate, if
and only to the extent permitted under Section 162(m) of the Code, provisions
for disregarding (or adjusting for) changes in accounting methods, corporate
transactions (including, without limitation, dispositions and acquisitions) and
other similar type events or circumstances. 
To the extent any such provision would create impermissible discretion
under Section 162(m) of the Code or otherwise violate Section 162(m) of the
Code, such provision shall be of no force or effect.  The applicable performance goals shall be
based on one or more of the performance criteria set forth in Exhibit A
hereto.

 

11.2        Terms and
Conditions.  Other Stock-Based Awards made pursuant to
this Article XI shall be subject to the following terms and conditions:

 

29

 

(a)                                  Non-Transferability.  Subject to the applicable provisions of the
Award agreement and this Plan, shares of Common Stock subject to Awards made
under this Article XI may not be Transferred prior to the date on which the
shares are issued, or, if later, the date on which any applicable restriction,
performance or deferral period lapses.

 

(b)                                 Dividends.  Unless otherwise determined by the Committee
at the time of Award, subject to the provisions of the Award agreement and this
Plan, the recipient of an Award under this Article XI shall not be entitled to
receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the number of shares of Common Stock covered by the Award, as
determined at the time of the Award by the Committee, in its sole discretion.

 

(c)                                  Vesting.  Any Award under this Article XI and any
Common Stock covered by any such Award shall vest or be forfeited to the extent
so provided in the Award agreement, as determined by the Committee, in its sole
discretion.

 

(d)                                 Price.  Common Stock issued on a bonus basis under
this Article XI may be issued for no cash consideration; Common Stock purchased
pursuant to a purchase right awarded under this Article XI shall be priced, as
determined by the Committee in its sole discretion.

 

ARTICLE XII

CHANGE IN CONTROL PROVISIONS

 

12.1        Benefits.  In the event of a Change in Control of the
Company (as defined below), and except as otherwise provided by the Committee in
an Award agreement, a Participant’s unvested Award shall not vest and a
Participant’s Award shall be treated in accordance with one of the following
methods as determined by the Committee:

 

(a)                                  Awards, whether or not then
vested, shall be continued, assumed, have new rights substituted therefor or be
treated in accordance with Section 4.2(d) hereof, as determined by the
Committee, and restrictions to which any shares of Restricted Stock or any other
Award granted prior to the Change in Control are subject shall not lapse upon a
Change in Control and the Restricted Stock or other Award shall, where
appropriate in the sole discretion of the Committee, receive the same
distribution as other Common Stock on such terms as determined by the
Committee; provided that, the Committee may decide to award additional
Restricted Stock or other Award in lieu of any cash distribution.  Notwithstanding anything to the contrary
herein, for purposes of Incentive Stock Options, any assumed or substituted
Stock Option shall comply with the requirements of Treasury Regulation §1.424-1
(and any amendments thereto).

 

30

 

(b)                                 The Committee, in its sole
discretion, may provide for the purchase of any Awards by the Company or an
Affiliate for an amount of cash equal to the excess of the Change in Control
Price (as defined below) of the shares of Common Stock covered by such Awards,
over the aggregate exercise price of such Awards.  For purposes of this Section 12.1, “Change
in Control Price” shall mean the highest price per share of Common Stock
paid in any transaction related to a Change in Control of the Company.

 

(c)                                  Notwithstanding anything else
herein, the Committee may, in its sole discretion, provide for accelerated
vesting or lapse of restrictions, of an Award at any time.

 

12.2        Change in
Control.  Unless otherwise determined by the Committee
in the applicable Award agreement or other written agreement approved by the
Committee, a “Change in Control” shall be deemed to occur if:

 

(a)                                  any “person” as such term is
used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company,
any trustee or other fiduciary holding securities under any employee benefit
plan of the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their ownership
of Common Stock of the Company), becoming the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 75% or more of the combined voting power of the
Company’s then outstanding securities;

 

(b)                                 during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction described in
paragraph (a), (c), or (d) of this Section 12.2 or a director whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such term is used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the Board) whose
election by the Board or nomination for election by the Company’s stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two-year period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board;

 

(c)                                  a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 25%
of the combined voting power of the voting securities of the Company or

 

31

 

such surviving entity
outstanding immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person (other than those covered
by the exceptions in Section 12.2(a)) acquires more than 75% of the combined
voting power of the Company’s then outstanding securities shall not constitute
a Change in Control of the Company; or

 

(d)                                 the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company’s
assets other than the sale or disposition of all or substantially all of the
assets of the Company to a person or persons who beneficially own, directly or
indirectly, 25% or more of the combined voting power of the outstanding voting
securities of the Company at the time of the sale.

 

12.3        Initial Public
Offering not a Change in Control.  Notwithstanding the
foregoing, for purposes of the Plan, the occurrence of the Registration Date or
any change in the composition of the Board within one year following the
Registration Date shall not be considered a Change in Control.

 

ARTICLE XIII

TERMINATION OR AMENDMENT OF PLAN

 

13.1        Termination or
Amendment.  Notwithstanding any other provision of this
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any regulatory requirement
referred to in Article XVI or Section 409A of the Code), or suspend or
terminate it entirely, retroactively or otherwise; provided, however, that,
unless otherwise required by law or specifically provided herein, the rights of
a Participant with respect to Awards granted prior to such amendment,
suspension or termination, may not be impaired without the consent of such
Participant and, provided further, without the approval of the holders of the
Company’s Common Stock entitled to vote in accordance with applicable law, no
amendment may be made which would (i) increase the aggregate number of
shares of Common Stock that may be issued under this Plan (except by operation
of Section 4.2); (ii) increase the maximum individual Participant limitations
for a fiscal year under Section 4.1(b) (except by operation of Section 4.2);
(iii) change the classification of individuals eligible to receive Awards under
this Plan; (iv) decrease the minimum option price of any Stock Option or Stock
Appreciation Right; (v) extend the maximum option period under Section 6.4;
(vi)  alter the performance goals for Restricted Stock, Performance Units,
Performance Shares or Other Stock-Based Awards as set forth in Exhibit A
hereto; (vii) award any Stock Option or Stock Appreciation Right in replacement
of a canceled Stock Option or Stock Appreciation Right with a higher exercise
price than the replacement award, except in accordance with Section 6.4(m); or
(viii) require stockholder approval in order for this Plan to continue to
comply with the applicable provisions of Section 162(m) of the Code or, to the
extent applicable to Incentive Stock Options, Section 422 of the Code.  In no event may this Plan be amended without
the

 

32

 

approval of the
stockholders of the Company in accordance with the applicable laws of the State
of Delaware to increase the aggregate number of shares of Common Stock that may
be issued under this Plan, decrease the minimum exercise price of any Award, or
to make any other amendment that would require stockholder approval under NASD
Rule 4350(i)(1)(A) or such other rules of any exchange or system on which the
Company’s securities are listed or traded at the request of the Company.  Notwithstanding anything herein to the
contrary, the Board may amend the Plan or any Award agreement at any time
without a Participant’s consent to comply with applicable law including
Section 409A of the Code.

 

The Committee
may amend the terms of any Award theretofore granted, prospectively or
retroactively, but, subject to Article IV or as otherwise specifically provided
herein, no such amendment or other action by the Committee shall impair the
rights of any holder without the holder’s consent.

 

ARTICLE XIV

COMPANY CALL RIGHTS; RIGHTS OF FIRST REFUSAL

 

14.1        Company Call
Rights.

 

(a)                                  In the event of Termination for
Cause or the discovery that the Participant engaged in Detrimental Activity,
the Company may at any time after six (6) months following such Termination for
Cause (or the discovery that the Participant engaged in Detrimental Activity)
repurchase from the Participant any shares of Common Stock previously acquired
by the Participant through the grant of an Award under this Plan at a
repurchase price equal to the lesser of (i) the original purchase price or
exercise price (as applicable), if any, and (ii) Fair Market Value as of the
date of repurchase.

 

(b)                                 In the event of a Termination
for any reason other than for Cause (including termination due to Retirement,
death, Disability, involuntary termination without Cause or resignation), the
Company may at any time after six (6) months following the date on which a
Participant incurs a Termination or acquires shares of Common Stock pursuant to
an Award hereunder following his or her Termination for any reason other than
for Cause:  (i) repurchase from the
Participant each outstanding vested Stock Option based on the difference
between the exercise price of a share of Common Stock relating to such Option
and the Fair Market Value of a share of Common Stock on the date of repurchase,
and (ii) repurchase from the Participant any shares of Common Stock previously
acquired by the Participant pursuant to an Award under this Plan at a
repurchase price equal to Fair Market Value as of the date of repurchase.

 

14.2        Right of First
Refusal.  No Participant shall, directly or indirectly,
Transfer any shares of Common Stock acquired by the Participant (or his or her
estate or legal representative) pursuant to an Award under this Plan, unless in
each such instance the Participant (or his or her

 

33

 

estate or legal
representative) shall have first offered the Common Stock proposed to be
Transferred pursuant to a bona fide offer to a third party to the Company.  The right of first refusal must be exercised
by the Company by delivering to the Participant (or his or her estate or legal
representative) written notice of such exercise within twenty (20) business
days of the Company’s receipt of written notification of the proposed
sale.  Upon the exercise of a right of
first refusal, the Common Stock proposed to be sold shall be purchased by the
Company at the price per share offered to be paid by the prospective
transferee, subject to Section 14.1 in the case of a Participant’s
Termination.  The notice of exercise of
the right of first refusal shall specify the date and location for the closing
of such purchase.

 

14.3        Effect of
Public Offering.  Notwithstanding the foregoing, the Company
shall cease to have rights pursuant to this Article XIV following the Registration
Date.

 

ARTICLE XV

UNFUNDED PLAN

 

15.1        Unfunded Status
of Plan.  This Plan is intended to constitute an “unfunded”
plan for incentive and deferred compensation. 
With respect to any payments as to which a Participant has a fixed and
vested interest but which are not yet made to a Participant by the Company,
nothing contained herein shall give any such Participant any rights that are
greater than those of a general unsecured creditor of the Company.

 

ARTICLE XVI

GENERAL PROVISIONS

 

16.1        Legend.  The Committee may require each person
receiving shares of Common Stock pursuant to a Stock Option or other Award
under the Plan to represent to and agree with the Company in writing that the
Participant is acquiring the shares without a view to distribution
thereof.  In addition to any legend
required by this Plan, the certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on Transfer.

 

All
certificates for shares of Common Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common Stock
is then listed or any national securities exchange system upon whose system the
Common Stock is then quoted, any applicable Federal or state securities law,
and any applicable corporate law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.

 

16.2        Other Plans.  Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases.

 

34

 

16.3        No Right to Employment/Directorship/Consultancy.  Neither this Plan nor the grant of any Option
or other Award hereunder shall give any Participant or other employee,
Consultant or Non-Employee Director any right with respect to continuance of
employment, consultancy or directorship by the Company or any Affiliate, nor
shall they be a limitation in any way on the right of the Company or any
Affiliate by which an employee is employed or a Consultant or Non-Employee
Director is retained to terminate his or her employment, consultancy or
directorship at any time.

 

16.4        Withholding of
Taxes.  The Company shall have the right to deduct
from any payment to be made pursuant to this Plan, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash hereunder, payment by the Participant of, any Federal, state or
local taxes required by law to be withheld. 
Upon the vesting of Restricted Stock (or other Award that is taxable
upon vesting), or upon making an election under Section 83(b) of the Code, a
Participant shall pay all required withholding to the Company.  Any statutorily required withholding
obligation with regard to any Participant may be satisfied, subject to the
consent of the Committee, by reducing the number of shares of Common Stock
otherwise deliverable or by delivering shares of Common Stock already
owned.  Any fraction of a share of Common
Stock required to satisfy such tax obligations shall be disregarded and the
amount due shall be paid instead in cash by the Participant.

 

16.5        No Assignment
of Benefits.  No Award or other benefit payable under this
Plan shall, except as otherwise specifically provided by law or permitted by
the Committee, be Transferable in any manner, and any attempt to Transfer any
such benefit shall be void, and any such benefit shall not in any manner be
liable for or subject to the debts, contracts, liabilities, engagements or
torts of any person who shall be entitled to such benefit, nor shall it be
subject to attachment or legal process for or against such person.

 

16.6        Listing and
Other Conditions.

 

(a)                                  Unless otherwise determined by
the Committee, as long as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities association, the issuance
of any shares of Common Stock pursuant to an Award shall be conditioned upon
such shares being listed on such exchange or system.  The Company shall have no obligation to issue
such shares unless and until such shares are so listed, and the right to exercise
any Option or other Award with respect to such shares shall be suspended until
such listing has been effected.

 

(b)                                 If at any time counsel to the
Company shall be of the opinion that any sale or delivery of shares of Common
Stock pursuant to an Option or other Award is or may in the circumstances be
unlawful or result in the imposition of excise taxes on the Company under the
statutes, rules or regulations of any applicable jurisdiction, the Company
shall have no obligation to make such sale or delivery, or to make any
application or to effect or to maintain any qualification or registration under
the Securities Act or otherwise, with respect to shares of Common Stock or
Awards, and the right to exercise any Option or other Award shall be suspended
until,

 

35

 

in the opinion of
said counsel, such sale or delivery shall be lawful or will not result in the
imposition of excise taxes on the Company.

 

(c)                                  Upon termination of any period
of suspension under this Section 16.6, any Award affected by such suspension
which shall not then have expired or terminated shall be reinstated as to all
shares available before such suspension and as to shares which would otherwise
have become available during the period of such suspension, but no such
suspension shall extend the term of any Award.

 

(d)                                 A Participant shall be required
to supply the Company with any certificates, representations and information
that the Company requests and otherwise cooperate with the Company in obtaining
any listing, registration, qualification, exemption, consent or approval the
Company deems necessary or appropriate.

 

16.7        Stockholders
Agreement and Other Requirements.  Notwithstanding
anything herein to the contrary, as a condition to the receipt of shares of
Common Stock pursuant to an Award under this Plan, to the extent required by
the Committee, the Participant shall execute and deliver a stockholder’s
agreement or such other documentation which shall set forth certain
restrictions on transferability of the shares of Common Stock acquired upon
exercise or purchase, and such other terms as the Board or Committee shall from
time to time establish.  Such stockholder’s
agreement or other documentation shall apply to the Common Stock acquired under
the Plan and covered by such stockholder’s agreement or other
documentation.  The Company may require,
as a condition of exercise, the Participant to become a party to any other
existing stockholder agreement (or other agreement).

 

16.8        Governing Law.  This Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Delaware (regardless of the law that might otherwise govern under
applicable Delaware principles of conflict of laws).

 

16.9        Construction.  Wherever any words are used in this Plan in
the masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever any
words are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so apply.

 

16.10      Other Benefits.  No Award granted or paid out under this Plan
shall be deemed compensation for purposes of computing benefits under any retirement
plan of the Company or its Affiliates nor affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation.

 

16.11      Costs.  The Company shall bear all expenses
associated with administering this Plan, including expenses of issuing Common
Stock pursuant to any Awards hereunder.

 

16.12      No Right to
Same Benefits.  The provisions of Awards need not be the same
with respect to each Participant, and such Awards to individual Participants
need not be the same in subsequent years.

 

36

 

16.13      Death/Disability.  The Committee may in its discretion require
the transferee of a Participant to supply it with written notice of the
Participant’s death or Disability and to supply it with a copy of the will (in
the case of the Participant’s death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Award.  The Committee may also require that the
agreement of the transferee to be bound by all of the terms and conditions of
the Plan.

 

16.14      Section 16(b)
of the Exchange Act.  All elections and transactions under this
Plan by persons subject to Section 16 of the Exchange Act involving shares of
Common Stock are intended to comply with any applicable exemptive condition
under Rule 16b-3.  The Committee may
establish and adopt written administrative guidelines, designed to facilitate
compliance with Section 16(b) of the Exchange Act, as it may deem necessary or
proper for the administration and operation of this Plan and the transaction of
business thereunder.

 

16.15      Section 409A of
the Code.  The Plan is intended to comply with the
applicable requirements of Section 409A of the Code and shall be limited,
construed and interpreted in accordance with such intent.  To the extent that any Award is subject to
Section 409A of the Code, it shall be paid in a manner that will comply with
Section 409A of the Code, including proposed, temporary or final regulations or
any other guidance issued by the Secretary of the Treasury and the Internal
Revenue Service with respect thereto. 
Notwithstanding anything herein to the contrary, any provision in the
Plan that is inconsistent with Section 409A of the Code shall be deemed to be
amended to comply with Section 409A of the Code and to the extent such
provision cannot be amended to comply therewith, such provision shall be null
and void.

 

16.16      Successor and
Assigns.  The Plan shall be binding on all successors
and permitted assigns of a Participant, including, without limitation, the
estate of such Participant and the executor, administrator or trustee of such
estate.

 

16.17      Severability of
Provisions.  If any provision of the Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as if
such provisions had not been included.

 

16.18      Payments to
Minors, Etc.  Any benefit payable to or for the benefit of
a minor, an incompetent person or other person incapable of receipt thereof
shall be deemed paid when paid to such person’s guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Committee, the Board, the Company, its
Affiliates and their employees, agents and representatives with respect
thereto.  

 

16.19      Agreement.  As a condition to the grant of an Award, if
requested by the Company and the lead underwriter of any public offering of the
Common Stock (the “Lead Underwriter”), a Participant shall irrevocably agree not to sell, contract
to sell, grant any option to purchase, transfer the economic risk of ownership
in, make any short sale of, pledge or otherwise transfer or dispose of, any
interest in any Common Stock or any securities convertible into, derivative of,
or exchangeable or exercisable for, or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during such period of time following
the effective date of a registration statement of the Company filed under the
Securities Act that the Lead Underwriter

 

37

 

shall specify (the “Lock-up
Period”).  The Participant shall
further agree to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agree that the Company may impose
stop-transfer instructions with respect to Common Stock acquired pursuant to an
Award until the end of such Lock-up Period.

 

16.20      Headings and
Captions.  The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.

 

16.21      Section 162(m)
of the Code.  Notwithstanding any other provision of the
Plan to the contrary, prior to the Registration Date and during the Transition
Period, the provisions of the Plan requiring compliance with Section 162(m) of
the Code for Awards intended to qualify as “performance-based compensation” shall
only apply to the extent required by Section 162(m) of the Code.

 

16.22      Post-Transition
Period.  Following the Transition Period, any Award
granted under the Plan that is intended to be “performance-based compensation”
under Section 162(m) of the Code, shall be subject to the approval of the
material terms of the Plan by a majority of the stockholders of the Company in
accordance with Section 162(m) of the Code and the treasury regulations
promulgated thereunder.

 

ARTICLE XVII

EFFECTIVE DATE OF PLAN

 

The Plan shall
become effective on October 26, 2006, which is the date of its adoption by the
Board, subject to the approval of the Plan by the stockholders of the Company
in accordance with the requirements of the laws of the State of Delaware.

 

ARTICLE XVIII

TERM OF PLAN

 

No Award shall
be granted pursuant to the Plan on or after the tenth anniversary of the
earlier of the date the Plan is adopted or the date of stockholder approval,
but Awards granted prior to such tenth anniversary may extend beyond that date.

 

ARTICLE XIX

NAME OF PLAN

 

This Plan
shall be known as the “LifeWatch Corp. 2006 Stock Incentive Plan.”

 

38

 

EXHIBIT A

PERFORMANCE GOALS

 

1.                                       Performance
goals established for purposes of the vesting of performance-based Awards of
Restricted Stock, Other Stock-Based Awards, Performance Units and/or
Performance Shares shall be based on one or more of the following performance
goals (“Performance Goals”):  

 

(a)                                  the attainment of certain target
levels of, or a specified increase in, enterprise value or value creation
targets of the Company (or any subsidiary, division or other operational unit
of the Company);

 

(b)                                 the attainment of certain target
levels of, or a percentage increase in after-tax or pre-tax profits of the
Company, including without limitation that attributable to continuing and/or
other operations of the Company (or in either case a subsidiary, division, or
other operational unit of the Company);

 

(c)                                  the attainment of certain target
levels of, or a specified increase in, operational cash flow of the Company (or
a subsidiary, division, or other operational unit of the Company);

 

(d)                                 the attainment of a certain
level of reduction of, or other specified objectives with regard to limiting
the level of increase in all or a portion of, the Company’s bank debt or other
long-term or short-term public or private debt or other similar financial obligations
of the Company, which may be calculated net of cash balances and/or other
offsets and adjustments as may be established by the Committee;

 

(e)                                  the attainment of a specified
percentage increase in earnings per share or earnings per share from continuing
operations of the Company (or a subsidiary, division or other operational unit
of the Company); 

 

(f)                                    the attainment of certain target
levels of, or a specified percentage increase in, net sales, revenues, net
income or earnings before income tax or other exclusions of the Company (or a
subsidiary, division, or other operational unit of the Company);

 

(g)                                 the attainment of certain target
levels of, or a specified increase in, return on capital employed or return on
invested capital of the Company (or any subsidiary, division or other
operational unit of the Company);

 

(h)                                 the attainment of certain target
levels of, or a percentage increase in, after-tax or pre-tax return on
stockholder equity of the Company (or any subsidiary, division or other operational
unit of the Company);

 

A-1

 

(i)                                     the attainment of certain target
levels in the fair market value of the shares of the Company’s Common Stock; 

 

(j)                                     the growth in the value of an
investment in the Company’s Common Stock assuming the reinvestment of
dividends; or 

 

(k)                                  a transaction that results in
the sale of all or substantially all of the Common Stock or assets of the
Company.

 

2.                                       The Committee
may, in its sole discretion, also exclude, or adjust to reflect, the impact of
an event or occurrence which the Committee determines should be appropriately
excluded or adjusted, including: 

 

(a)                                  restructurings, discontinued
operations, extraordinary items or events, and other unusual or non-recurring
charges; 

 

(b)                                 an event either not directly
related to the operations of the Company or not within the reasonable control
of the Company’s management; or 

 

(c)                                  a change in tax law or
accounting standards required by generally accepted accounting principles.  

 

3.                                       Performance
Goals may also be based upon individual Participant performance goals, as
determined by the Committee, in its sole
discretion.

 

4.                                       In addition,
such Performance Goals may be based upon the attainment of specified levels of
Company (or subsidiary, division, other operational unit or administrative
department of the Company) performance under one or more of the measures
described above relative to the performance of other corporations.  To the extent permitted under
Section 162(m) of the Code, but only to the extent permitted under
Section 162(m) of the Code (including, without limitation, compliance with
any requirements for stockholder approval), the Committee may:

 

(a)                                  designate additional business
criteria on which the performance goals may be based; or 

 

(b)                                 adjust, modify or amend the
aforementioned business criteria.

 

A-2

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