Document:

Exhibit 10.2

 

Exhibit 10.2

I-FLOW CORPORATION

AMENDED AND RESTATED

2001 EQUITY INCENTIVE PLAN

ARTICLE I

PURPOSE OF PLAN

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

ARTICLE II

EFFECTIVE DATE AND TERM OF PLAN

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

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

ARTICLE III

SHARES SUBJECT TO PLAN

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

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

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

     3.4 Adjustment Provisions.

          (a) Adjustments. If the Company consummates any Reorganization in
which holders of shares of Common Stock are entitled to receive in respect of
such shares any additional shares or new or different

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

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

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

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

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

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

ARTICLE IV

ADMINISTRATION OF PLAN

     4.1 Administrator.

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

          (b) Administration by Committee.

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

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

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     4.2 Authority of Administrator.

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

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

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

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

     4.4 Amendments.

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

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

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

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

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

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

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

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

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

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

ARTICLE V

GENERAL AWARD PROVISIONS

     5.1 Participation in Plan.

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

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

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

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

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provided to each Recipient and incorporated by reference into each Award
Document. Any Award Document may contain such other terms, provisions and
conditions not inconsistent with this Plan as may be determined by the
Administrator. In case of any conflict between this Plan and any Award
Document, this Plan shall control.

     5.3 Payment For Awards.

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

          (b) Company Assistance. The Company may assist any person to whom
an Award is granted (including, without limitation, any officer or director of
the Company) in the payment of the purchase price or other amounts payable in
connection with the receipt or exercise of that Award, by lending such amounts
to such person on such terms and at such rates of interest and upon such
security (if any) as may be consistent with applicable law and approved by the
Administrator. In case of such a loan, the Administrator may require that the
exercise be followed by a prompt sale of some or all of the underlying shares
and that a portion of the sale proceeds be dedicated to full payment of the
exercise price and amounts required pursuant to Section 5.9.

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

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

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

     5.5 Restrictions Under Applicable Laws and Regulations.

          (a) Government Approvals. All Awards will be subject to the
requirement that, if at any time the Company determines, in its discretion,
that the listing, registration or qualification of the securities subject to
Awards granted under this Plan upon any securities exchange or interdealer
quotation system or under any

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federal, state or foreign law, or the consent or approval of any
government or regulatory body, is necessary or desirable as a condition of, or
in connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised as
a whole or in part unless and until such listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions not
acceptable to the Company. During the term of this Plan, the Company will use
its reasonable efforts to seek to obtain from the appropriate governmental and
regulatory agencies any requisite qualifications, consents, approvals or
authorizations in order to issue and sell such number of shares of its Common
Stock as is sufficient to satisfy the requirements of this Plan. The inability
of the Company to obtain any such qualifications, consents, approvals or
authorizations will relieve the Company of any liability in respect of the
non-issuance or sale of such stock as to which such qualifications, consents,
approvals or authorizations pertain.

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

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

     5.7 Nonassignability. No Award is assignable or transferable
except: (a) by will or by the laws of descent and distribution; or (b) subject
to the final sentence of this Section 5.7, upon dissolution of marriage
pursuant to a qualified domestic relations order or, in the discretion of the
Administrator and under circumstances that would not adversely affect the
interests of the Company, transfers for estate planning purposes or pursuant to
a nominal transfer that does not result in a change in beneficial ownership.
Subject to the succeeding sentence of this Section 5.7, during the
lifetime of a Recipient, an Award granted to such person will be exercisable
only by the Recipient (or the Recipient’s permitted transferee) or such
person’s guardian or legal representative. Notwithstanding the foregoing,
Stock Options and other rights to purchase stock under the Plan that are
California Regulated Securities may not be transferred other than by will or
the laws of descent and distribution at any time that this Plan is a California
Regulated Plan, unless and to the extent that this requirement is waived by the
California Commissioner, and Stock Options intended to be treated as Incentive
Stock Options (or other Awards subject to transfer restrictions under the IRC):
(i) may not be assigned or transferred in violation of Section 422(b)(5) of the
IRC or the regulations thereunder, and nothing herein is intended to allow such
assignment or transfer, and (ii) will be exercisable during a Recipient’s
lifetime only by the Recipient.

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     5.8 Information To Recipients.

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

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

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

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

     5.11 Effect of Termination of Employment or Service on Awards.

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

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

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

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

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cessation of any other service relationship between the Recipient and the
Company or any Affiliated Entity in place as of the date the Award was
granted).

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

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

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

ARTICLE VI

AWARDS

     6.1 Stock Options.

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

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

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

8

 

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

          (e) Termination of Employment or Service.

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

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

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

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

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

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

               (ii) The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which one or
more Stock Options granted to any Recipient under this

9

 

Plan (or any other option plan of the Company or of any Parent
Corporation or Subsidiary Corporation) may for the first time become
exercisable as Incentive Stock Options under the federal tax laws during
any one calendar year may not exceed $100,000.

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

     6.2 Performance Awards.

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

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

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

     6.3 Restricted Stock.

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

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

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

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

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

               (iv) Other Restrictions. The Administrator may impose such
other conditions on Restricted Stock as the Administrator may deem
advisable, including, without limitation, restrictions under the
Securities Act, under the Exchange Act, under the requirements of any
stock exchange or interdealer quotation system upon which such Restricted
Stock or other securities of the

10

 

Company are then listed or traded and under any blue sky or other
securities laws applicable to such shares, provided, however, that so
long as the Restricted Stock constitutes California Regulated Securities
granted while this Plan is a California Regulated Plan, such other
conditions shall not be inconsistent with the California Commissioner’s
guidelines for options granted to and shares purchases by employees,
directors and consultants as set forth in the California Securities Rules
Section 260.140.41 and Section 260.140.42.

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

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

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

     6.4 Stock Appreciation Rights.

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

          (b) SARs Related to Options.

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

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

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

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

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

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

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

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

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

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

     6.9 Phantom Stock. The Administrator may grant Awards of Phantom
Stock to Eligible Persons. Phantom Stock is a cash payment measured by the
Fair Market Value of a specified number of shares of Common Stock on a
specified date, or measured by the excess of such Fair Market Value over a
specified minimum, which may but need not include a Dividend Equivalent.

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

ARTICLE VII

CHANGE IN CONTROL

     7.1 Provision for Awards Upon Change in Control. As of the
effective time and date of any Change in Control, this Plan and any then
outstanding Awards (whether or not vested) will automatically terminate unless:
(a) provision is made in writing in connection with such transaction for the
continuance of this

12

 

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

ARTICLE VIII

DEFINITIONS

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

     “Administrator” means the Board as long as no Committee has been appointed
and is in effect and also means the Committee to the extent that the Board has
delegated authority thereto.

     “Affiliated Entity” means any Parent Corporation of the Company or
Subsidiary Corporation of the Company or any other entity controlling,
controlled by, or under common control with the Company.

     “Applicable Dividend Period” means (i) the period between the date a
Dividend Equivalent is granted and the date the related Stock Option, Stock
Appreciation Right, or other Award is exercised, terminates, or is converted to
Common Stock, or (ii) such other time as the Administrator may specify in the
written instrument evidencing the grant of the Dividend Equivalent.

     “Award” means any Stock Option, Performance Award, Restricted Stock, Stock
Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock,
Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an
Eligible Person under this Plan.

     “Award Document” means the agreement or confirming memorandum setting
forth the terms and conditions of an Award.

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

     “California Commissioner” means the Commissioner of Corporations of the
State of California.

     "California Regulated Plan” means this Plan at any time that Awards and
securities underlying Awards are California Regulated Securities and (i) the
issuance of Awards and securities underlying Awards is not exempt from
qualification under the California Securities Law, and the issuance of
securities under the Plan is the subject of a qualification permit issued by
the California Commissioner, or (ii) the Company relies upon any exemption
imposing comparable requirements to those provided by Section 25102(o) of the
California Securities Law to exempt the issuance of securities under this Plan
from qualification under the California Securities Law.

     “California Regulated Securities” means Awards and securities underlying
Awards that are subject to the California Securities Law or the California
Securities Rules.

     “California Securities Law” means the California Corporate Securities Law
of 1968, as amended.

13

 

“California Securities Rules” means the Rules of the California
Commissioner adopted under the California Securities Law.

     “Change in Control” means the following and shall be deemed to occur if
any of the following events occurs:

          (i) Any Person becomes the beneficial owner (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either
the then outstanding shares of Common Stock or the combined voting power
of the Company’s then outstanding securities entitled to vote generally
in the election of directors; or

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

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

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

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

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

     “Committee” means any committee appointed by the Board to administer this
Plan pursuant to Section 4.1.

     “Common Stock” means the common stock of the Company, as constituted on
the Effective Date, and as thereafter adjusted under Section 3.4.

     “Company” means I-Flow Corporation, a Delaware corporation.

     “Dividend Equivalent” means a right granted by the Company under
Section 6.6 to a holder of a Stock Option, Stock Appreciation Right or
other Award denominated in shares of Common Stock to receive from

14

 

the Company during the Applicable Dividend Period payments equivalent to
the amount of dividends payable to holders of the number of shares of Common
Stock underlying such Stock Option, Stock Appreciation Right, or other Award.

     “Effective Date” means May 17, 2001, which is the date this Plan was
approved by the Company’s stockholders.

     “Eligible Person” includes directors (including Non-Employee Directors),
officers, employees, consultants and advisors of the Company or of any
Affiliated Entity; provided, however, that such consultants and advisors render
bona fide services to the Company or any Affiliated Entity that are not in
connection with capital-raising.

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

     “Exchange Act Registered Company” means that the Company has any class of
any equity security registered pursuant to Section 12 of the Exchange Act.

     “Expiration Date” means the tenth (10th) anniversary of the Effective
Date.

     “Fair Market Value” of a share of the Common Stock as of a particular date
means: (i) if the stock is listed on an established stock exchange or
exchanges (including for this purpose, the Nasdaq National Market), the
arithmetic mean of the highest and lowest sale prices of the stock for such
trading day on the primary exchange upon which the stock trades, as measured by
volume, as published in The Wall Street Journal, or, if no sale price was
quoted for such date, then as of the next preceding date on which such a sale
price was quoted; or (ii) if the stock is not then listed on an exchange or the
Nasdaq National Market, the average of the closing bid and asked prices per
share for the stock in the over-the-counter market on such date (in the case of
(i) or (ii), subject to adjustment as and if necessary and appropriate to set
an exercise price not less than 100% of the fair market value of the stock on
the date an Award is granted); or (iii) if the stock is not then listed on an
exchange or quoted in the over-the-counter market, an amount determined in good
faith by the Administrator; provided, however, that (A) when appropriate, the
Administrator in determining Fair Market Value of capital stock of the Company
shall consider such factors as may be required by the California Securities Law
and the California Securities Rules while this Plan is a California Regulated
Plan, and may take into account such other factors as it may deem appropriate
under the circumstances, and (B) if the stock is traded on the Nasdaq SmallCap
Market and both sales prices and bid and asked prices are quoted or available,
the Administrator may elect to determine Fair Market Value under either clause
(i) or (ii) above. Notwithstanding the foregoing, the Fair Market Value of
capital stock for purposes of grants of Incentive Stock Options must be
determined in compliance with applicable provisions of the IRC. The Fair
Market Value of rights or property other than capital stock of the Company
means the fair market value thereof as determined by the Administrator on the
basis of such factors as it may deem appropriate.

     “Incentive Stock Option” means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC.

     “IRC” means the Internal Revenue Code of 1986, as amended.

     “Just Cause Dismissal” means a termination of a Recipient’s employment for
any of the following reasons: (i) the Recipient violates any reasonable rule
or regulation of the Board, the Company’s Chief Executive Officer or the
Recipient’s superiors that results in damage to the Company or any Affiliated
Entity or which, after written notice to do so, the Recipient fails to correct
within a reasonable time not exceeding 15 days; (ii) any willful misconduct or
gross negligence by the Recipient in the responsibilities assigned to the
Recipient; (iii) any willful failure to perform the Recipient’s job as required
to meet the objectives of the Company or any Affiliated Entity; (iv) any
wrongful conduct of a Recipient which has an adverse impact on the Company or
any Affiliated Entity or which constitutes a misappropriation of assets of the
Company or any Affiliated Entity; (v) the Recipient’s performing services for
any other person or entity which competes with the Company or any Affiliated
Entity while the Recipient is employed by the Company or any Affiliated Entity,
without the written approval of the Chief Executive Officer of the Company; or
(vi) any other conduct that the Administrator reasonably determines constitutes
Just Cause for Dismissal; provided, however, that if a Recipient is party to an
employment agreement with the Company or any Affiliated Entity providing for
just cause dismissal (or termination for cause or some comparable concept) of
Recipient from Recipient’s employment with the Company or any Affiliated
Entity, “Just Cause Dismissal” for

15

 

purposes of this Plan will have the same meaning as ascribed thereto or to
such comparable concept in such employment agreement.

     “Non-Employee Director” means any director of the Company who qualifies as
a “Non-Employee Director” under Rule 16b-3 of the Exchange Act.

     “Nonqualified Stock Option” means a Stock Option that is not an Incentive
Stock Option.

     “Other Stock-Based Benefits” means an Award granted under Section
6.10.

     “Outside Director” means an “outside director” as defined in the
regulations adopted under Section 162(m) of the IRC.

     “Parent Corporation” means any Parent Corporation as defined in Section
424(e) of the IRC.

     “Performance Award” means an Award under Section 6.2, payable in
cash, Common Stock or a combination thereof, that vests and becomes payable
over a period of time upon attainment of preestablished, objective performance
goals established in connection with the grant of the Award. For this purpose
a preestablished, objective performance goal may include one or more of the
following performance criteria: (a) cash flow, (b) earnings per share
(including earnings before interest, taxes, and amortization), (c) return on
equity, (d) total stockholder return, (e) return on capital, (f) return on
assets or net assets, (g) income or net income, (h) operating income or net
operating income, (i) operating margin, (j) return on operating revenue, and
(k) any other similar performance criteria.

     “Performance-Based Compensation” means performance-based compensation as
described in Section 162(m) of the IRC and the regulations issued thereunder.
If the amount of compensation an Eligible Person will receive under an Award is
not based solely on an increase in the value of shares of Common Stock after
the date of grant or award, the Administrator, in order to qualify an Award as
performance-based compensation under Section 162(m) of the IRC, can condition
the grant, award, vesting, or exercisability of such an Award on the attainment
of preestablished, objective performance goals established in connection with
the grant of the Award, including, but not limited to, those preestablished,
objective performance goals described in the definition of “Performance Award”
above.

     “Permanent Disability” means that the Recipient becomes physically or
mentally incapacitated or disabled so that the Recipient is unable to perform
substantially the same services as the Recipient performed prior to incurring
such incapacity or disability (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such incapacity or
disability, and the determination of such physician to be binding upon the
Company and the Recipient), and such incapacity or disability continues for a
period of three (3) consecutive months or six (6) months in any 12-month period
or such other period(s) as may be determined by the Administrator with respect
to any Award, provided that for purposes of determining the period during which
an Incentive Stock Option may be exercised pursuant to Section 6.1(e),
Permanent Disability shall mean “permanent and total disability” as defined in
Section 22(e) of the IRC.

     “Person” means any person, entity or group, within the meaning of Section
13(d) or 14(d) of the Exchange Act, but excluding (i) the Company and its
subsidiaries, (ii) any employee stock ownership or other employee benefit plan
maintained by the Company and (iii) an underwriter or underwriting syndicate
that has acquired the Company’s securities solely in connection with a public
offering thereof.

     “Phantom Stock” means an Award granted under Section 6.9.

     “Plan” means this 2001 Equity Incentive Plan of the Company.

     “Plan Term” means the period during which this Plan remains in effect
(commencing the Effective Date and ending on the Expiration Date).

16

 

     “Purchase Price” means the purchase price (if any) to be paid by a
Recipient for Restricted Stock as determined by the Administrator (which price
shall be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).

     “Recipient” means a person who has received an Award.

     “Reorganization” means any merger, consolidation or other reorganization.

     “Restricted Stock” means Common Stock that is the subject of an Award made
under Section 6.3 and that is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met, as set forth
in this Plan and in any statement evidencing the grant of such Award.

     “Retirement” of a Recipient means the Recipient’s resignation from the
Company or any Affiliated Entity after reaching age 60 and at least five years
of full-time employment by the Company or any Affiliated Entity without any
circumstances that would justify a Just Cause Dismissal of the Recipient.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Significant Stockholder” is an individual who, at the time a Stock Option
or other Award is granted to such individual under this Plan, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of any Parent Corporation or Subsidiary
Corporation (after application of the attribution rules set forth in Section
424(d) of the IRC).

     “Stock Appreciation Right” or “SAR” means a right granted under Section
6.4 to receive a payment that is measured with reference to the amount by
which the Fair Market Value of a specified number of shares of Common Stock
appreciates from a specified date, such as the date of grant of the SAR, to the
date of exercise.

     “Stock Bonus” means an issuance or delivery of unrestricted or restricted
shares of Common Stock under Section 6.7 as a bonus for services
rendered or for any other valid consideration under applicable law.

     “Stock Payment” means a payment in shares of the Company’s Common Stock
under Section 6.5 to replace all or any portion of the compensation or
other payment (other than base salary) that would otherwise become payable to
the Recipient in cash.

     “Stock Option” means a right to purchase stock of the Company granted
under Section 6.1 of this Plan.

     “Stock Sale” means a sale of Common Stock to an Eligible Person under
Section 6.8.

     “Subsidiary Corporation” means any Subsidiary Corporation as defined in
Section 424(f) of the IRC.

17

 

EXHIBIT A to

I-Flow Corporation

2001 Equity Incentive Plan

FORM OF NOTICE OF EXERCISE

I-Flow Corporation

20202 Windrow Drive

Lake Forest, California 92630

Re: Nonqualified Stock Option [Incentive Stock Option]

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

	 	 	 	 	 
	Option Grant Date:
	 	 	 	 
	 
	 	 	
 	 
	Total Number of Shares
Underlying Original Option:
	 	 	 	 
	 
	 	 	
 	 
	Number of Shares for
which Option has been
Previously Exercised:
	 	 	 	 
	 
	 	 	
 	 
	Exercise Price Per Share:
	 	 	 	 
	 
	 	 	
 	 
	Number of Shares Being
Acquired With This Exercise:
	 	 	 	 
	 
	 	 	
 	 

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

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

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

	 	 	 	 	 
	 	

(Signature)

(Printed Name of Optionee)

 	 
	 	 	 
	 	 	 
	 	 	 

18

 

	 	 	 	 	 

FORM OF STOCK OPTION AWARD CONFIRMING MEMORANDUM

	 	 	 
	I-Flow Corporation

	 	Optionee:
	

	 	
 
	

	 	Option Grant Date:
	

	 	
 
	

	 	Number of Shares:
	

	 	
 
	

	 	Exercise Price Per Share:
	

	 	
 
	

	 	Type of Option (Incentive/Nonqualified):
	

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

	 	
 
	Stock Option Award

Confirming Memorandum

	 	

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

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

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

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

	 	 	 
	Number of
Shares
	 	Vesting
Date

	 
	 
	
 

	 	
 
	 
	 
	
 

	 	
 
	 
	 
	
 

	 	
 
	 
	 
	
 

	 	
 
	 
	 
	
 

	 	
 

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

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

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

19

 

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

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

	 	 	 	 	 
	 	I-FLOW CORPORATION,

a Delaware corporation

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Its:  	 	 

20

 

	 	 	 	 	 

I-FLOW CORPORATION

2001 EQUITY INCENTIVE PLAN

FORM OF STOCK OPTION AGREEMENT

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

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

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

	 	 	 
	Option Grant Date:
	 	 
	

	 	
 
	Type of Option (Incentive/Nonqualified):
	 	 
	

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

	 	
 
	Exercise Price Per Share:

	 	$                                     per share
	

	 	
 
	Expiration Date:
	 	 
	

	 	
 

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

	 	 	 
	Number of
Shares
	 	Vesting Date

	 
	 
	
 
	 	
 
	 
	 
	
 
	 	
 
	 
	 
	
 
	 	
 
	 
	 
	
 
	 	
 
	 
	 
	
 
	 	
 

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

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

21

 

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

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

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

	 	 	 	 
	The Company:

	 	Optionee:

	By:

	 	 	By:    
		
 		
 
	Name:
	 	 	(Signature)
		
 
	Title:

	
 	 	
(Printed Name and Title)

22

 

I-FLOW CORPORATION

FORM OF RESTRICTED STOCK GRANT

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

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

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

          (a) No Transfer. The shares of Granted Stock may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of, alienated or encumbered until the restrictions set forth in
Section 2(b) are removed or expire as provided in Section
2(c), and any additional requirements or restrictions contained in
this Restricted Stock Grant have been satisfied, terminated or expressly
waived by the Company in writing.

          (b) Restrictions. In the event Grantee’s service as an
employee of the Company terminates for any reason, the Company will have
the right, which must be exercised not later than ninety (90) days
following such termination, to buy, for cash and at the price per share
that Grantee paid to the Company, all shares of Granted Stock acquired
hereunder that are, at the date of such termination, still subject to the
vesting restrictions imposed under this Section 2.

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

          (i) The restrictions imposed under Section 2(b) above
will lapse and be removed at the rate of  ___________________________ (“Vesting
Schedule").

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

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

     4. Expiration of Restrictions. As soon as practicable after the
lapse and removal of the restrictions applicable to all or any portion of the
Granted Stock as provided in Section 2, the Company will release the
certificate(s) representing such Granted Stock to Grantee, provided that (a)
Grantee has paid to the

23

 

Company, by cash or check, the Acquisition Consideration and an amount
sufficient to satisfy any taxes or other amounts required by any governmental
authority to be withheld and paid over to such authority for Grantee’s account,
or otherwise made arrangements satisfactory to the Company for the payment of
such amounts through withholding or otherwise, and (b) Grantee has, if
requested by the Company, made appropriate representations in a form
satisfactory to the Company that such Granted Stock will not be sold other than
(i) pursuant to an effective registration statement under the Securities Act of
1933, as amended, or an applicable exemption from the registration requirements
of such Act; (ii) in compliance with all applicable state securities laws and
regulations; and (iii) in compliance with all terms and conditions of the Plan.

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

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

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

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

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

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

	 	 	 
	COMPANY

	 	OPTIONEE
	

	 	 
	I-Flow Corporation,
	 	 
	

	 	 
	By:

	 	By:
	
 

	 	
 
	(Signature)

	 	(Signature)
	

	 	 
	
 

	 	
 
	(Printed Name and Title)

	 	(Printed Name and Title)

24

 

EXHIBIT A

to Restricted Stock Grant

ELECTION TO INCLUDE VALUE OF RESTRICTED PROPERTY

IN GROSS INCOME IN YEAR OF TRANSFER

INTERNAL REVENUE CODE § 83(b)

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

	 	 	 
	1.

	 	Name, address and taxpayer identification number of the undersigned:
	 
	

	 	
 
	 
	

	 	
 
	 
	

	 	
 
	

	 	Taxpayer I.D. No.:
	

	 	
 
	 
	2.

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

	 	____________ shares of Common Stock of I-Flow Corporation, a Delaware
corporation (the “Company”)
	 
	3.

	 	Date on which property was transferred: _______________________________________________________
	 
	4.

	 	Taxable year to which this election relates:_________________________________________________________
	 
	5.

	 	Nature of the restrictions to which the property is subject:
	 
	

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

	 	
 
	 
	

	 	The Common Stock is non-transferable in the taxpayer’s hands, by virtue
of language to that effect stamped on the stock certificate.
	 
	6.

	 	Fair market value of the property:
	 
	

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

	 	Amount paid for the property:
	 
	

	 	The amount paid by the taxpayer for said property is $________ per share.
	 
	8.

	 	Furnishing statement to employer:
	 
	

	 	A copy of this statement has been furnished to ______________________

	 	 	 	 
	Date:

	 	 	 
		
	 	

	 	 	 	Signature
	 
	 	 	 	

	 	 	 	Printed Name

25exv10w1

 

Exhibit 10.1

TWELFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT

     THIS TWELFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT dated as of April 1,
2004 (“Amendment”), is between FIRST OAK BROOK BANCSHARES, INC., a Delaware
corporation (the “Company”), having an address of 1400 West 16th Street, Oak
Brook, Illinois 60523, and LASALLE BANK NATIONAL ASSOCIATION, a national
banking association (the “Bank”), having an address of 135 South LaSalle
Street, Chicago, Illinois 60603.

RECITALS:

     WHEREAS, the parties have previously entered into, among other things, a
Revolving Credit Agreement dated as of December 1, 1991, as amended from time
to time and most recently by an Eleventh Amendment to Revolving Credit
Agreement dated as of April 1, 2003 (collectively, the “Agreement”), evidenced
by that certain Extension Promissory Note dated as of April 1, 2003 in the
principal amount of Fifteen Million Dollars ($15,000,000); and

     WHEREAS, at the present time the Company requests and the Bank is
agreeable to amending the Agreement pursuant to the terms and conditions set
forth herein;

     NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, it is agreed by the parties hereto as
follows:

AGREEMENTS:

	1.	 	RECITALS. The foregoing Recitals are hereby made a part of this Amendment.
	 
	2.	 	DEFINITIONS. All capitalized terms used herein without definition shall
have the respective meanings set forth in the Agreement.
	 
	3.	 	AMENDMENTS TO AGREEMENT.

	 	3.1.	 	Maturity Date. Section 1 of the Agreement is hereby amended by
changing the maturity date of the Bank’s commitment for the Revolving
Credit Loan to be “April 1, 2005.”
	 
	 	3.2.	 	Revolving Note. All references in the Agreement to the term
“Revolving Note” shall be deemed to be references to the Extension
Revolving Note of even date herewith in the form of Exhibit A
attached hereto and made a part hereof.
	 
	 	3.3.	 	Compliance with Federal Law. A new Section 8(M) is hereby
added to the Agreement to read as follows:
	 
	 	 	 	“The Company shall (a) use its reasonable efforts, and cause its
subsidiaries to use reasonable efforts, to prevent and notify the
Bank in the event that any person who owns a controlling interest in
or otherwise controls the Company or any subsidiary is or shall be
listed on the Specially Designated Nationals and Blocked Person List
of other similar lists maintained by the Office of Foreign Assets
Control (“OFAC”), the Department of the Treasury or included in any
Executive Orders, (b) not use or permit the use of the proceeds of
the Revolving Credit Loan to violate any of the foreign asset control
regulations of OFAC or any enabling stature or Executive Order
relating thereto, and (C) comply, and cause each subsidiary to
comply, with all applicable Bank Secrecy Act laws and regulations, as
amended. As required by federal law and

44

 

	 	 	 	Bank’s policies and practices, the Bank may need to obtain, verify
and record certain customer identification information and
documentation in connection with opening or maintaining accounts, or
establishing or continuing to provide services.”

	4.	 	REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Amendment, the Company warrants that:

	 	4.1.	 	Authorization. The Company is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized
to borrow monies under the Agreement, as amended hereby, and to
perform its obligations under the Agreement, as amended hereby. No
consent of any public authority or regulatory body or any other
person or entity is required as a condition to the validity or
enforceability of this Amendment.
	 
	 	4.2.	 	No Conflicts. The execution and delivery of this Amendment and
the performance by the Company of its obligations under the
Agreement, as amended hereby, do not and will not conflict with any
provision of law or of the charter of by-laws of the Company or of
any agreement binding upon the Company.
	 
	 	4.3.	 	Validity and Binding Effect. The Agreement, as amended hereby,
is a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of
creditors’ rights or by general principles of equity limiting the
availability of equitable remedies.
	 
	 	4.4.	 	Compliance with Agreement. The representations and warranties
set forth in Section 6 of the Agreement, as amended hereby, are true
and correct with the same effect as if such representations and
warranties had been made on the date hereof, with the exception that
all references to the financial statements shall mean the financial
statements most recently delivered to the Bank and except for such
changes as are specifically permitted under the Agreement. In
addition, the Borrower has complied with and is in compliance with
all of the covenants set forth in the Agreement.
	 
	 	4.5.	 	No Event of Default. As of the date hereof, no Event of
Default under Section 9 of the agreement, as amended hereby, or event
or condition which, with the giving of notice or the passage of time,
or both, would constitute an Event of Default, has occurred or is
continuing.

	5.	 	CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date above first written after receipt by the Bank of the following
documents:

	 	(a)	 	This Amendment duly executed by the Company;
	 
	 	(b)	 	An Extension Revolving Note, executed by the Company
and made payable to the order of the Bank, substantially in the
form of Exhibit A attached hereto; and
	 
	 	(c)	 	Such other documents and/or opinions of counsel as
the Bank may request.

	6.	 	GENERAL.

	 	6.1.	 	Governing Law; Severability. This Amendment shall be construed
in accordance with and governed by the laws of the State of Illinois.
Wherever possible each provision of the Agreement and this Amendment
shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Agreement and this
Amendment shall be

45

 

	 	 	 	prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition of invalidity, without
invalidating the remainder of such provision or the remaining
provisions of the Agreement and this Amendment.
	 
	 	6.2.	 	Successors and Assigns. This Amendment shall be binding upon
the Company and the Bank and their respective successors and assigns,
and shall inure to the benefits of the Company and the Bank and the
successors and assigns of the Bank.
	 
	 	6.3.	 	Continuing Force and Effect of Agreement. Except as
specifically modified or amended hereby, the Agreement shall remain
in full force and effect and is hereby ratified and confirmed in all
respects.
	 
	 	6.4.	 	Reference to Loan Agreement. Each reference in the Agreement
to “this Agreement,” “hereunder,” “hereof,” or words of like import,
and each reference to the Agreement in any and all instruments or
documents delivered in connection therewith, shall be deemed to refer
to the Agreement as amended hereby.

IN WITNESS WHEREOF, the parties hereto have executed this Twelfth Amendment to
Revolving Credit Agreement as of the date first above written.

	 	 	 	 	 
	 	FIRST OAK BROOK BANCSHARES, INC.,

       a Delaware corporation

 	 
	 	By:  	/s/  Rosemarie Bouman
 	 
	 	Its:	  Vice President and Chief Financial Officer 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	LASALLE BANK NATIONAL ASSOCIATION, 
        a national
banking association

	 
	 	By:  	/s/  Jeff Bachler
 	 
	 	Its:	 Vice President 	 
	 	 	 	 
	 

46

 

EXHIBIT A

EXTENSION REVOLVING NOTE

	 	 	 
	$15,000,000

	 	as of April 1, 2004

     FIRST OAK BROOK BANCSHARES, INC., a Delaware corporation (the “Maker”),
for value received, promises to pay to the order of LASALLE BANK NATIONAL
ASSOCIATION, a national banking association (the “Bank”), the lesser of: the
principal sum of Fifteen Million Dollars ($15,000,000), or the aggregate unpaid
principal amount outstanding under that certain Revolving Credit Agreement date
December 1, 1991 between the Maker and the Bank, as amended from time to time
and most recently by that certain Twelfth Amendment to Revolving Credit
Agreement of even date herewith (collectively, the “Loan Agreement”), made
available by the Bank to the Maker at the maturity or maturities and in the
amount or amounts as stated on the records of the Bank together with interest
(computed on actual days elapsed on the basis of a 360-day year) on any and all
principal amounts outstanding hereunder from time to time from the date hereof
until maturity. Interest shall be payable at the Maker’s option at the rates
and times set forth in the Loan Agreement/ In no event shall any principal
amount have a maturity later than April 1, 2005.

     This Note shall be available for direct advances and for Bankers’
Acceptances.

     Principal and interest shall be paid to the Bank at its office at 135
South LaSalle Street, Chicago, Illinois, or at such other place as the holder
of this Note may designate in writing to the undersigned. This Note may be
prepaid in whole or in part as provided for in the Loan Agreement.

     This Note evidences indebtedness incurred under the Loan Agreement (and if
amended, under all amendments thereto) to which reference is hereby made for a
statement of the terms and conditions under which the due date of the Note or
any payment thereon may be accelerated. The holder of this Note is entitled to
all of the benefits and security provided for in said Loan Agreement.

     The undersigned aggress that in any action or proceeding instituted to
collect or enforce collection of this Note, the amount endorsed by the Bank on
the reverse side of this Note shall be prima facie evidence of the unpaid
principal balance of this Note.

     This Note is in substitution for, but not in repayment of, that certain
Extension Promissory Note dated April 1, 2003 in the amount of $15,000,000,
executed by the Maker in favor of the Bank, and does not constitute a novation
therefor.

	 	 	 	 	 
	 	FIRST OAK BROOK BANCSHARES, INC.,

       a Delaware corporation

 	 
	 	By:  	/s/ Rosemarie Bouman
 	 
	 
	 	Its:	 Vice President and Chief Financial Officer 	 
	 	 	 	 
	 

47

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