Document:

exv10w4

 

Exhibit 10.4

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

DIGITAL RECORDERS, INC.

WARRANT

      

			
	Warrant No. 2004-14
	 	Original Issue Date: October 6, 2004

     Digital Recorders, Inc., a North Carolina corporation (the “Company”),
hereby certifies that, for value received, ROTH CAPITAL PARTNERS, LLC or its
registered assigns (the “Holder”), is entitled to purchase from the Company up
to a total of 120,773 shares of Common Stock (each such share, a “Warrant
Share” and all such shares, the “Warrant Shares”), at any time and from time to
time from and after the sixth-month anniversary of the Original Issue Date and
through and including October 5, 2009 (the “Expiration Date”), and subject to
the following terms and conditions:

     1. Definitions. As used in this Warrant, the following terms shall have
the respective definitions set forth in this Section 1. Capitalized terms that
are used and not defined in this Warrant that are defined in the Purchase
Agreement (as defined below) shall have the respective definitions set forth in
the Purchase Agreement.

     “Business Day” means any day except Saturday, Sunday and any day that is a
federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or
other government action to close.

     “Common Stock” means the common stock of the Company, par value $0.10 per
share, and any securities into which such common stock may hereafter be
reclassified.

     “Exercise Price” means $5.28, subject to adjustment in accordance with
Section 9.

 

 

     “New York Courts” means the state and federal courts sitting in the City
of New York, Borough of Manhattan.

     “Original Issue Date” means the Original Issue Date first set forth on the
first page of this Warrant.

     “Purchase Agreement” means the Securities Purchase Agreement, dated
October 5, 2004, to which the Company and the investor listed on the signature
thereto are parties.

     “Trading Day” means (i) a day on which the Common Stock is traded on a
Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock
is not listed on a Trading Market (other than the OTC Bulletin Board), a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.

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

     3. Registration of Transfers. The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company at its address specified herein. Upon any such registration or
transfer, a new Warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant
by the transferee thereof shall be deemed the acceptance by such transferee of
all of the rights and obligations of a holder of a Warrant.

     4. Exercise and Duration of Warrants. This Warrant shall be exercisable
by the registered Holder at any time and from time to time on or after the six
month anniversary of the Original Issue Date through and including the
Expiration Date. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void
and of no value. The Company may not call or redeem any portion of this
Warrant without the prior written consent of the affected Holder.

     5. Delivery of Warrant Shares.

         (a) To effect exercises hereunder, the Holder shall not be required to
physically surrender this Warrant unless the aggregate Warrant Shares
represented by this Warrant is being exercised. Upon delivery of the Exercise
Notice (in the form attached hereto)

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to the Company (with the attached Warrant Shares Exercise Log) at its
address for notice set forth herein and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to purchase
hereunder, the Company shall promptly (but in no event later than three Trading
Days after the Date of Exercise (as defined herein)) issue and deliver to the
Holder, a certificate for the Warrant Shares issuable upon such exercise,
which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. The Company shall, upon request of the Holder and
subsequent to the date on which a registration statement covering the resale of
the Warrant Shares has been declared effective by the Securities and Exchange
Commission, use its reasonable best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if
its current transfer agent cannot deliver Warrant Shares electronically through
the Depository Trust Corporation. A “Date of Exercise” means the date on which
the Holder shall have delivered to the Company: (i) the Exercise Notice (with
the Warrant Exercise Log attached to it), appropriately completed and duly
signed and (ii) if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, payment of the Exercise Price for the
number of Warrant Shares so indicated by the Holder to be purchased.

         (b) If by the third Trading Day after a Date of Exercise the Company fails
to deliver the required number of Warrant Shares in the manner required
pursuant to Section 5(a), then the Holder will have the right to rescind such
exercise.

         (c) If by the third Trading Day after a Date of Exercise the Company fails
to deliver the required number of Warrant Shares in the manner required
pursuant to Section 5(a), and if after such third Trading Day and prior to the
receipt of such Warrant Shares, the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number of
Warrant Shares that the Company was required to deliver to the Holder in
connection with the exercise at issue by (B) the closing bid price of the
Common Stock on the date of the sale giving rise to such purchase obligation
and (2) at the option of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for which such exercise was not
honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.

         (d) The Company’s obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or
any violation or alleged violation of law by the Holder or any other Person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with

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

     6. Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares
upon exercise of this Warrant shall be made without charge to the Holder for
any issue or transfer tax, withholding tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

     7. Reissuance of Warrant.

         (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

         (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

         (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Warrant or Warrants (in accordance with Section 7(d)) representing in
the aggregate the right to purchase the number of Warrant Shares then
underlying this Warrant, and each such new Warrant will represent the right to
purchase such portion of such Warrant Shares as is designated by the Holder at
the time of such surrender; provided, however, that no Warrants for fractional
shares of Common Stock shall be given.

         (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder

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which, when added to the number of shares of Common Stock underlying the
other new Warrants issued in connection with such issuance, does not exceed the
number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which is the same
as the Issuance Date, and (iv) shall have the same rights and conditions as
this Warrant.

     8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and
the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and
nonassessable.

     9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

         (a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of
this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.

         (b) Fundamental Transactions. If, at any time while this Warrant is
outstanding, (1) the Company effects any merger or consolidation of the Company
with or into another Person, (2) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (3)
any tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to tender
or exchange their shares for other securities, cash or property, or (4) the
Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate

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Consideration”). For purposes of any such exercise, the determination of
the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. If any successor to the Company or surviving entity
in such Fundamental Transaction shall fail to issue, not later than the earlier
of 15 days after consummation of such Fundamental Transaction or three days
after written request therefor by the Holder, to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing
provisions and evidencing the Holder’s right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof, then the
Holder shall have the right to require such successor or surviving entity to
purchase the Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request, equal to the Black Scholes value
of the remaining unexercised portion of this Warrant on the date of such
request. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (b) and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

         (c) Number of Warrant Shares. Simultaneously with any adjustment to the
Exercise Price pursuant to this Section 9, the number of Warrant Shares that
may be purchased upon exercise of this Warrant shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price
payable hereunder for the adjusted number of Warrant Shares shall be the same
as the aggregate Exercise Price in effect immediately prior to such adjustment.

         (d) Calculations. All calculations under this Section 9 shall be made to
the nearest cent or the nearest 1/100th of a share, as applicable. The number
of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.

         (e) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the
adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing
the transactions giving rise to such adjustments and showing in detail the
facts upon which such adjustment is based. Upon written request, the Company
will promptly deliver a copy of each such certificate to the Holder and to the
Company’s Transfer Agent.

         (f) Notice of Corporate Events. If the Company (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Common Stock, including

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without limitation any granting of rights or warrants to subscribe for or
purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or
approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and
conditions of such transaction (but only to the extent such disclosure would
not result in the dissemination of material, non-public information to the
Holder) at least 10 calendar days prior to the applicable record or effective
date on which a Person would need to hold Common Stock in order to participate
in or vote with respect to such transaction, and the Company will take all
steps reasonably necessary in order to insure that the Holder is given the
practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however,
that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.

     10. Payment of Exercise Price. The Holder may pay the Exercise Price in
one of the following manners:

         (a) Cash Exercise. The Holder may deliver immediately available funds; or

         (b) Cashless Exercise. If an Exercise Notice is delivered at a time when
a registration statement permitting the Holder to resell the Warrant Shares is
not then effective or the prospectus forming a part thereof is not then
available to the Holder for the resale of the Warrant Shares, then the Holder
may notify the Company in an Exercise Notice of its election to utilize
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:

X = Y [(A-B)/A]

where:

X = the number of Warrant Shares to be issued to the

Holder.

Y = the number of Warrant Shares with respect to which

this Warrant is being exercised.

A = the average of the closing prices for the five

Trading Days immediately prior to (but not including)

the Exercise Date.

B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.

         (c) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to

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the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 13.

     11. Limitations on Exercise.

         (a) Beneficial Ownership. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this Warrant,
to the extent that after giving effect to such exercise, such Person (together
with such Person’s affiliates) would beneficially own in excess of 9.99% of the
shares of Common Stock outstanding immediately after giving effect to such
exercise. For purposes of the foregoing sentence, the aggregate number of
shares of Common Stock beneficially owned by such Person and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of
this Warrant with respect to which the determination of such sentence is being
made, but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes
of this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Warrant, in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Current
Report on Form 8-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer Agent setting
forth the number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this
Warrant, by the Holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.

         (b) Principal Market Regulation. The Company shall not be obligated to
issue any shares of Common Stock upon exercise of this Warrant if the issuance
of such shares of Common Stock would exceed that number of shares of Common
Stock which the Company may issue upon exercise of this Warrant (including, as
applicable, any shares of Common Stock issued upon exercise of this Warrant)
without breaching the Company’s obligations under the rules or regulations of
the Principal Market (the “Exchange Cap”), except that such limitation shall
not apply in the event that the Company (A) obtains the approval of its
shareholders as required by the applicable rules of the Principal Market for
issuances of shares of Common Stock in excess of such amount or (B) obtains a
written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, no Investor shall
be issued, upon exercise or conversion, as applicable, of any Warrant or any
Securities, shares of Common Stock in an amount greater than the product of the
Exchange Cap multiplied by a

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fraction, the numerator of which is the total number of shares of Common
Stock issued to such Investor pursuant to the Purchase Agreement on the
Issuance Date and the denominator of which is the aggregate number of shares of
Common Stock issued to the Investors pursuant to the Purchase Agreement on the
Issuance Date (with respect to each Investor, the “Exchange Cap Allocation”).
In the event that any Investor shall sell or otherwise transfer any of such
Investor’s Warrants, the transferee shall be allocated a pro rata portion of
such Investor’s Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder’s Warrants into a number
of shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of Warrants on a pro rata basis in proportion to the shares
of Common Stock underlying the Warrants then held by each such holder.

     12. No Fractional Shares. No fractional Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares
which would otherwise be issuable, the Company shall pay cash equal to the
product of such fraction multiplied by the closing price of one share of Common
Stock as reported by the applicable Trading Market on the date of exercise.

     13. Dispute Resolution. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within two Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two Business Days submit via facsimile (a) the
disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

     14. Remedies, Other Obligations, Breaches and Injunctive Relief. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction
Documents, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of
the Holder to pursue actual damages for any failure by the Company to comply
with the terms of this Warrant. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that
the remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder
of this Warrant shall be entitled, in addition to all other available remedies,
to

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an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

     15. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day
or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The addresses for such communications
shall be: (i) if to the Company, to Digital Recorders, Inc., Attn: President,
or to Facsimile No.: (214) 378-8437 (or such other address as the Company
shall indicate in writing in accordance with this Section), or (ii) if to the
Holder, to the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section.

     16. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 10 days’ notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.

     17. Miscellaneous.

         (a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.

         (b) All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York (except for
matters governed by corporate law in the State of North Carolina), without
regard to the principles of conflicts of law thereof. Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense
of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees
or agents) shall be commenced exclusively in the New York Courts. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York
Courts for the adjudication of any dispute hereunder or in

10

 

connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in
any Proceeding, any claim that it is not personally subject to the jurisdiction
of any New York Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Warrant and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right to trial
by jury in any legal proceeding arising out of or relating to this Warrant or
the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party
in such Proceeding shall be reimbursed by the other party for its attorney’s
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such Proceeding.

         (c) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

         (d) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

         (e) Prior to exercise of this Warrant, the Holder hereof shall not, by
reason of by being a Holder, be entitled to any rights of a stockholder with
respect to the Warrant Shares

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

11

 

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

	 	 	 	 	 
	 	DIGITAL RECORDERS, INC.

 	 
	 	By:  	/s/ DAVID L. TURNEY	 
	 	 	Name:  	David L. Turney	 
	 	 	Title:  	Chairman, CEO and President	 
	 

12

 

EXERCISE NOTICE

DIGITAL RECORDERS, INC.

WARRANT DATED OCTOBER 6, 2004

The undersigned Holder hereby irrevocably elects to purchase                                         
shares of Common Stock pursuant to the above referenced Warrant. Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

(1) The undersigned Holder hereby exercises its right to purchase
                                         Warrant Shares pursuant to the Warrant.

(2) The Holder intends that payment of the Exercise Price shall be made as
(check one):

                     “Cash Exercise” under Section 10

                     “Cashless Exercise” under Section 10

(3) If the holder has elected a Cash Exercise, the holder shall pay the sum of
$                                         to the Company in accordance with the terms of the Warrant.

(4) Pursuant to this Exercise Notice, the Company shall deliver to the holder
                                         Warrant Shares in accordance with the terms of the Warrant.

(5) By its delivery of this Exercise Notice, the undersigned represents and
warrants to the Company that in giving effect to the exercise evidenced hereby
the Holder will not beneficially own in excess of the number of shares of
Common Stock (determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934) permitted to be owned under Section 11 of this Warrant to
which this notice relates.

	 	 	 
	Dated:                                         ,                     

	 	Name of Holder:
	

	 	(Print)                                                                       
         
	

	 	By:                                                                       
              
	

	 	Name:                                                                       
         
	

	 	Title:                                                                       
           
	

	 	(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)

13

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of Warrant	 	 	 	 	 	Number of Warrant
	 	 	Shares Available to	 	Number of Warrant	 	Shares Remaining to
	Date
	 	be Exercised
	 	Shares Exercised
	 	be Exercised

	 
	 	 	 	 	 	 	 	 	 	 	 	 

14

 

DIGITAL RECORDERS, INC.

WARRANT ORIGINALLY ISSUED OCTOBER 6, 2004

WARRANT NO. 2004-14

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto                                                                                  the right represented by the
above-captioned Warrant to purchase                                         shares of Common Stock to
which such Warrant relates and appoints                                          attorney to transfer
said right on the books of the Company with full power of substitution in the
premises.

Dated:                                         ,                     

                                                                     
                               

(Signature must conform in all respects to name of

holder as specified on the face of the Warrant)

                                                                     
                               

Address of Transferee

                                                                     
                               

                                                                     
                               

In the presence of:

                                                            

15exv10w1

 

 

Exhibit 10.1

FAIRCHILD SEMICONDUCTOR STOCK PLAN

 

		
	SECTION 1.     	
    Purpose; Definitions

     
The purpose of the Fairchild Semiconductor Stock
Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers, employees,
Non-Employee Directors and individual consultants and to provide
the Company and its Subsidiaries and Affiliates with a stock
plan providing incentives for future performance of services
directly linked to the profitability of the Company’s
businesses and increases in Company stockholder value.

     
For purposes of the Plan, the following terms are
defined as set forth below. In addition, certain other terms
used herein have definitions given to them in the first place in
which they are used.

     
(a) “Administration Agent”
means the person or entity designated by the Company to
administer any portion of the Plan or transactions contemplated
by the Plan as instructed by the Company. If no such person or
entity has been so designated, then “Administration
Agent” means the Company.

     
(b) “Affiliate” means a
corporation or other entity controlled by, controlling or under
common control with the Company.

     
(c) “Award” means a Stock
Appreciation Right, Stock Option, Restricted Stock, Deferred
Stock Unit, or Other Stock-Based Award.

     
(d) “Award Cycle” means a
period of consecutive fiscal years or portions thereof
designated by the Committee over which Deferred Stock Units are
to be earned.

     
(e) “Award Agreement” means
any written agreement, contract or other instrument or document
evidencing the grant of an Award.

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

     
(g) “Cause” means, unless
otherwise provided by the Committee in the terms and conditions
of a particular Award, (i) “Cause” pursuant to
any Individual Agreement to which the Participant is a party
that is then in effect, or (ii) if there is no such
Individual Agreement or if it does not define Cause, termination
of the Participant’s employment by the Company or any of
its Affiliates or Subsidiaries because of (A) the
Participant’s commission or conviction of a felony under
federal law or the law of the state in which such action
occurred, (B) the Participant’s dishonesty in the
course of fulfilling the Participant’s employment duties,
(C) the Participant’s willful and deliberate failure
to perform his or her employment duties in any material respect,
or (D) in the case of a termination prior to a Change in
Control, such other events as shall be determined by the
Committee. The Committee shall, unless otherwise provided in an
Individual Agreement with the Participant, have the sole
discretion to determine whether “Cause” exists, and
its determination shall be final.

     
(h) “Change in Control” and
“Change in Control Price” have the meanings set
forth in Sections 11(b) and (c), respectively.

     
(i) “Code” means the
Internal Revenue Code of 1986, as amended from time to time, and
any successor thereto.

     
(j) “Commission” means the
Securities and Exchange Commission or any successor agency.

     
(k) “Committee” means the
Committee referred to in Section 2.

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

     
(m) “Company” means
Fairchild Semiconductor International, Inc., a Delaware
corporation.

     
(n) “Covered Employee”
means a Participant designated prior to the grant of
Restricted Stock, Deferred Stock Units or Other Stock-Based
Awards granted pursuant to Section 10 or, if granted
subject to

 

Performance Goals, Stock Options or Stock
Appreciation Rights, by the Committee who is or may be a
“covered employee” within the meaning of
Section 162(m)(3) of the Code in the year in which the
Company is expected to be entitled to a federal income tax
deduction with respect to the Award.

     
(o) “Deferred Stock Units”
means an Award granted under Section 8.

     
(p) “Disability” means,
unless otherwise provided by the Committee in the terms and
conditions of a particular Award,
(i) “Disability” as defined in any Individual
Agreement to which the Participant is a party, or (ii) if
there is no such Individual Agreement or it does not define
“Disability,” disability as determined under the
Company’s disability plans and related policies applicable
to the Participant.

     
(q) “Early Retirement”
means the termination of a Participant’s employment, by
the Participant or the Company, following which the Participant
has no intention of engaging in, and does not in fact
subsequently engage in, full-time employment, after attaining
age 55, if the Participant’s elapsed years of
continuous full-time service plus 55 equals 65 or more.

     
(r) “Effective Date” shall
mean the date of approval of this plan by the stockholders of
the Company at their 2004 annual meeting.

     
(s) “Eligible Individuals”
means Non-Employee Directors, officers, employees and
consultants of the Company or any of its Subsidiaries or
Affiliates, and prospective officers, employees and consultants
who have accepted offers of employment or consultancy from the
Company or its Subsidiaries or Affiliates.

     
(t) “Exchange Act” means
the Securities Exchange Act of 1934, as amended from time to
time, and any successor thereto.

     
(u) “Exercise Price” shall
have the meaning set forth in Section 5(d).

     
(v) “Freestanding Stock Appreciation
Right” shall have the meaning set forth in
Section 6(a).

     
(w) “Fair Market Value”
means, as of any given date, the closing sales price on such
date during normal trading hours (or, if there are no reported
sales on such date, on the last date prior to such date on which
there were sales) of the Common Stock on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on
any other national securities exchange on which the Common Stock
is listed or on NASDAQ, in any case, as reporting in such source
as the Committee shall select. If there is no regular public
trading market for such Common Stock, the Fair Market Value of
the Common Stock shall be determined by the Committee in good
faith.

     
(x) “Good Reason” means a
Termination of Employment for “Good Reason” pursuant
to an Individual Agreement to which the Participant is a party
that is then in effect. If a Participant does not have an
Individual Agreement, or if it does not define Good Reason, no
termination of that Participant’s employment shall be
considered to be for “Good Reason.”

     
(y) “Incentive Stock Option”
means any Stock Option designated as, and qualified as, an
“incentive stock option” within the meaning of
Section 422 of the Code.

     
(z) “Individual Agreement”
means a written employment, consulting or similar agreement
between a Participant and the Company or one of its Subsidiaries
or Affiliates.

     
(aa) “Non-Employee Director”
means a member of the Board of the Company who is not also
an employee or an officer of the Company or any of its
Subsidiaries or Affiliates.

     
(bb) “NonQualified Stock
Option” means any Stock Option that is not an Incentive
Stock Option.

     
(cc) “Normal Retirement”
means retirement from active employment with the Company, a
Subsidiary or Affiliate at or after age 65.

     
(dd) “Other Stock-Based Award”
means an Award granted pursuant to Section 10.

2

 

     
(ee) “Outside Director”
means a member of the Board who qualifies as an “outside
director” within the meaning of Section 162(m) of the
Code and as a “non-employee director” within the
meaning of Rule 16b-3 promulgated under the Exchange Act.

     
(ff) “Performance Goals”
means the performance goals which may be established by the
Committee in connection with the grant of Restricted Stock,
Deferred Stock Units, Stock Options, Stock Appreciation Rights
or Other Stock-Based Awards granted pursuant to Section 10.
In the case of Qualified Performance-Based Awards, (i) such
goals shall be based on the attainment of specified levels of
one or more of the following measures: earnings per share,
revenues, net profit after tax, gross profit, operating profit,
earnings before interest, taxes, depreciation and amortization
(EBITDA), EBIT, cash flow, asset quality, stock price
performance, unit volume, return on equity, change in working
capital, return on capital or shareholder return, and
(ii) such Performance Goals shall be set by the Committee
within the time period prescribed by Section 162(m) of the
Code and related regulations.

     
(gg) “Participant” means an
Eligible Individual who has been granted an Award.

     
(hh) “Plan” means the
Fairchild Semiconductor Stock Plan, as set forth herein and as
hereinafter amended in accordance herewith.

     
(ii) “Pre-Existing Plan”
means this plan, as amended up to the Effective Date, but not
including amendments made on the Effective Date.

     
(jj) “Qualified Performance-Based
Award” means an Award of Restricted Stock, Deferred
Stock Units, Stock Options, Stock Appreciation Rights or Other
Stock-Based Awards granted pursuant to Section 10 subject
to Performance Goals designated as such by the Committee at the
time of grant, based upon a determination that (i) the
recipient is or may be a “covered employee” within the
meaning of Section 162(m)(3) of the Code in the year in
which the Company would expect to be able to claim a tax
deduction with respect to such Restricted Stock or Deferred
Stock Units and (ii) the Committee wishes such Award to
qualify for the Section 162(m) Exemption.

     
(kk) “Restricted Stock”
means an Award granted under Section 7.

     
(ll) “Retirement” means
Normal Retirement or Early Retirement. For the avoidance of
doubt, the definitions of Retirement herein are solely for the
purposes of the Plan and for no other purpose.

     
(mm) “Rule 16b-3”
means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from
time to time.

     
(nn) “Section 162(m)
Exemption” means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is
set forth in Section 162(m)(4)(C) of the Code.

     
(oo) “Stock Appreciation Right”
means an Award granted under Section 6.

     
(pp) “Stock Option” means
an Award granted under Section 5.

     
(qq) “Strike Price” shall
have the meaning set forth in Section 6(c)(ii).

     
(rr) “Subsidiary” means any
corporation, partnership, joint venture or other entity during
any period in which at least a 50% voting or profits interest is
owned, directly or indirectly, by the Company or any successor
to the Company.

     
(ss) “Tandem Stock Appreciation
Right” shall have the meaning set forth in
Section 6(a).

     
(tt) “Termination of
Employment” means the termination of the
Participant’s employment with, or performance of services
for, the Company and any of its Subsidiaries or Affiliates. A
Participant employed by, or performing services for, a
Subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the Subsidiary or Affiliate ceases
to be such a Subsidiary or an Affiliate, as the case may be, and
the Participant does not immediately thereafter become an
employee of, or service-provider for, the Company or another
Subsidiary or Affiliate. Temporary absences from employment
because of illness, vacation or leave of absence and transfers
among the Company and its Subsidiaries and Affiliates shall not
be

3

 

considered Terminations of Employment. For
avoidance of doubt, a Participant who is an Eligible Individual
and, without a break-in-service, becomes an Eligible Individual
of another type under the Plan (e.g., an employee becomes
a consultant) shall not be treated as having a Termination of
Employment under the Plan.

 

		
	SECTION 2.     	
    Administration

     
(a) The Plan shall be administered by the
Compensation Committee or such other committee of the Board as
the Board may from time to time designate (the
“Committee”), which shall be composed of not
less than three Outside Directors, each of whom shall be
appointed by and serve at the pleasure of the Board and be an
“independent director” within the meaning of any
New York Stock Exchange rule or listing requirements with
respect to such director’s duties hereunder.

     
(b) The Committee shall have plenary
authority to grant Awards, pursuant and subject to the terms of
the Plan, to Eligible Individuals.

     
(c) Among other things, the Committee shall
have the authority, subject to the terms of the Plan:

		
	 	     
    (i) To select the Eligible Individuals to
    whom Awards may be granted;
    
	 
	 	     
    (ii) To determine whether and to what extent
    Incentive Stock Options, NonQualified Stock Options, Stock
    Appreciation Rights, Restricted Stock, Deferred Stock Units and
    Other Stock-Based Awards or any combination thereof are to be
    granted hereunder;
    
	 
	 	     
    (iii) To determine the number of shares of
    Common Stock to be covered by each Award granted hereunder;
    
	 
	 	     
    (iv) To determine the terms and conditions
    of any Award granted hereunder (including, but not limited to,
    the Exercise Price of a Stock Option (subject to
    Section 5(d)(i)) or the Strike Price of a Freestanding
    Stock Appreciation Right (subject to Section 6(c)(ii)), any
    vesting condition, restriction or limitation, which may be
    related to the performance of the Participant, the Company or
    any Subsidiary or Affiliate and any vesting acceleration or
    forfeiture waiver regarding any Award and the shares of Common
    Stock relating thereto, based on such factors as the Committee
    shall determine, subject, in the case of Restricted Stock, to
    Section 7(c)(i) and (ii) and, in the case of Deferred
    Stock Units, to Section 8(b)(i) and (ii);
    
	 
	 	     
    (v) Subject to the other terms of this Plan,
    including without limitation Section 13 and 14, to modify,
    amend or adjust the terms and conditions of any Award from time
    to time, including but not limited to Performance Goals;
    provided, however, that the Committee may not adjust
    upwards the amount payable with respect to a Qualified
    Performance-Based Award or waive or alter the Performance Goals
    associated therewith in a manner that would violate
    Section 162(m) of the Code;
    
	 
	 	     
    (vi) To determine to what extent and under
    what circumstances Common Stock and other amounts payable with
    respect to an Award shall be deferred; and
    
	 
	 	     
    (vii) To determine under what circumstances
    an Award may be settled in cash or Common Stock under
    Sections 5(m), 5(n), 6(b)(ii), 6(c)(iv), 6(c)(xi) and
    8(b)(iv).
    

     
(d) The Committee shall have the authority
to adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan as it shall from time to time
deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement
relating thereto) and to otherwise supervise the administration
of the Plan.

     
(e) The Committee may act only by a majority
of its members then in office. Except to the extent prohibited
by applicable law or the applicable rules of a stock exchange,
the Committee may (i) allocate all or any portion of its
responsibilities and powers to any one or more of its members
and (ii) delegate all or any part of its responsibilities
and powers to any person or persons selected by it (provided
that no such delegation may be made that would cause Awards
or other transactions under the Plan to cease to be exempt from
Section 16(b) of the Exchange Act or cause an Award
designated as a Qualified Performance-Based Award

4

 

not to qualify for, or to cease to qualify for,
the Section 162(m) Exemption). Any such allocation or
delegation may be revoked by the Committee at any time.

     
(f) Any determination made by the Committee
or pursuant to delegated authority pursuant to the provisions of
the Plan with respect to any Award shall be made in the sole
discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express
term of the Plan, at any time thereafter. All decisions made by
the Committee or any appropriately delegated officer pursuant to
the provisions of the Plan shall be final and binding on all
persons, including the Company, its Subsidiaries, Affiliates,
stockholders and Participants.

     
(g) Any authority granted to the Committee
may also be exercised by the full Board, except to the extent
that the grant or exercise of such authority would cause any
Award or transaction to become subject to (or lose an exemption
under) the short-swing profit recovery provisions of
Section 16 of the Exchange Act or cause an Award designated
as a Qualified Performance-Based Award not to qualify for, or to
cease to qualify for, the Section 162(m) Exemption. To the
extent that any permitted action taken by the Board conflicts
with action taken by the Committee, the Board action shall
control.

SECTION 3.     Common
Stock Subject to Plan

     
(a) The maximum number of shares of Common
Stock that may be delivered to Participants and their
beneficiaries under the Plan shall be equal to
24,398,489 shares, which is comprised of
(i) 22,505,320 shares, the maximum number of shares
authorized for issuance under outstanding awards and awards
available for grant on March 10, 2004, plus
(ii) 1,893,169 shares, the number of shares subject to
stockholder approval on the Effective Date. No Participant may
be granted Stock Options and Stock Appreciation Rights covering
in excess of 2,000,000 shares of Common Stock in any fiscal
year of the Company. The total number of shares of Common Stock
that can be delivered under the Plan in connection with Awards
of Restricted Stock, Deferred Stock Units, and Other Stock-Based
Awards granted pursuant to Section 10, shall not exceed
610,000 during the term of the Plan. Shares subject to an Award
under the Plan may be authorized and unissued shares or may be
treasury shares.

     
(b) If any Award is forfeited, or if any
Stock Option (and related Stock Appreciation Right, if any)
terminates, expires or lapses without being exercised, or if any
Stock Appreciation Right is exercised for cash, shares of Common
Stock subject to such Awards shall again be available for
distribution in connection with Awards under the Plan. If the
Exercise Price of any Stock Option granted under the Plan is
satisfied by delivering shares of Common Stock to the Company
(by either actual delivery or by attestation), only the number
of shares of Common Stock issued net of the shares of Common
Stock delivered or attested to shall be deemed delivered for
purposes of determining the maximum numbers of shares of Common
Stock available for delivery pursuant to Awards other than
Incentive Stock Options under the Plan. To the extent any shares
of Common Stock subject to an Award are not delivered to a
Participant because such shares are used to satisfy an
applicable tax-withholding obligation, such shares shall not be
deemed to have been delivered for purposes of determining the
maximum number of shares of Common Stock available for delivery
under the Plan. In addition, in the event that any option or
award granted under the Pre-Existing Plan is exercised through
the tendering of shares of Common Stock or in the event that
withholding tax liabilities arising from such options or awards
are satisfied by the tendering of shares of Common Stock or the
withholding of shares of Common Stock by the Company, the shares
so tendered or withheld shall be available for Awards under the
Plan. If any shares of Common Stock subject to an award under
the Pre-Existing Plan are forfeited or if any award under the
Pre-Existing Plan based on shares of Common Stock is settled for
cash, or expires or otherwise is terminated without issuance of
such shares, the Common Stock subject to such award shall, to
the extent of such cash settlement, forfeiture or termination,
be available for Awards under the Plan. The maximum number of
shares of Common Stock that may be issued pursuant to Stock
Options intended to be Incentive Stock Options shall be
1,000,000 shares.

     
(c) In the event of any change in corporate
capitalization (including, but not limited to, a change in the
number of shares of Common Stock outstanding), such as a stock
split or a corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other
distribution of stock or property of the

5

 

Company, any reorganization (whether or not such
reorganization comes within the definition of such term in
Section 368 of the Code) or any partial or complete
liquidation of the Company or any extraordinary cash or stock
dividend, the Committee or Board may make such substitution or
adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan, and the maximum limitation upon
Stock Options and Stock Appreciation Rights to be granted to any
Participant, in the number, kind and Exercise Price of shares
subject to outstanding Stock Options and Stock Appreciation
Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other
equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion (including without limitation
the payment of an amount in cash therefor); provided,
however, that the number of shares subject to any Award
shall always be a whole number. Such adjusted Exercise Price
shall also be used to determine the amount payable by the
Company upon the exercise of any Stock Appreciation Right
associated with any Stock Option. Any adjustment under this
Section 3(c) need not necessarily be the same for all
Participants.

SECTION 4.     Eligibility

     
Awards may be granted under the Plan to Eligible
Individuals, provided that the only Awards that may be
granted to Non-Employee Directors shall be (a) Stock
Options in accordance with Section 5(e), and
(b) Deferred Stock Units in accordance with
Section 8(c).

SECTION 5.     Stock
Options

     
(a) Stock Options may be granted alone or in
addition to other Awards granted under the Plan and may be of
two types: Incentive Stock Options and NonQualified Stock
Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve,
subject to the terms of the Plan.

     
(b) The Committee shall have the authority
to grant any Participant Incentive Stock Options, NonQualified
Stock Options or both types of Stock Options (in each case with
or without Stock Appreciation Rights); provided, however,
that grants hereunder are subject to the aggregate limit on
grants to individual Participants set forth in Section 3.
Incentive Stock Options may be granted only to employees of the
Company and its subsidiaries or parent corporation (within the
meaning of Section 424(f) of the Code). To the extent that
any Stock Option is not designated as an Incentive Stock Option
or even if so designated does not qualify as an Incentive Stock
Option on or subsequent to its grant date, it shall constitute a
NonQualified Stock Option.

     
(c) Stock Options shall be evidenced by an
Award Agreement, the terms and provisions of which may differ.
An Award Agreement shall indicate on its face whether it is
intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall
occur on the date or dates specified by the Committee for
individuals to receive grants of Stock Options. The Company
shall notify an Eligible Individual of any grant of a Stock
Option and a written Award Agreement or agreements shall be duly
executed and delivered by the Company to the Participant. Such
agreement or agreements shall become effective upon execution by
the Company and the Participant. If such an agreement is not
executed by the Eligible Individual and returned to the Company
on or prior to 90 days after the date the Award Agreement
is received by the Eligible Individual (or such earlier date as
the Committee may specify), such Stock Option shall terminate
unless the Committee shall determine otherwise.

     
(d) Stock Options granted under the Plan
shall be subject to the following terms and conditions and shall
contain such additional terms and conditions as the Committee
shall deem desirable:

		
	 	     
     (i) Exercise price. The
    exercise price per share of Common Stock purchasable under a
    Stock Option shall be determined by the Committee and set forth
    in the Award Agreement (the “Exercise Price”).
    The Exercise Price for any Stock Option under the Plan shall not
    be less than the Fair Market Value of the Common Stock subject
    to that Stock Option on the date of grant, except that the
    Exercise Price of a Stock Option may be less than the Fair
    Market Value of the underlying Common Stock on the date of grant
    if such Exercise Price is determined after the date of grant
    based on the achievement of
    

6

 

		
	 	
    Performance Goals or the relative value of the
    Common Stock as compared to an index of the capital stock of
    other companies determined by the Committee.
    
	 
	 	     
     (ii) Option Term. The term of
    each Stock Option shall be fixed by the Committee, but no Stock
    Option shall be exercisable more than 10 years after the
    date the Stock Option is granted.
    
	 
	 	     
    (iii) Exercisability. Except as
    otherwise provided herein, Stock Options shall be exercisable at
    such time or times and subject to such terms and conditions as
    shall be determined by the Committee. If the Committee provides
    that any Stock Option is exercisable only in installments, the
    Committee may at any time waive such installment exercise
    provisions, in whole or in part, based on such factors as the
    Committee may determine, and the Committee may at any time
    accelerate the exercisability of any Stock Option.
    

     
(e) Grants of Stock Options to
Non-Employee Directors. Each Non-Employee Director shall
receive an Award of Stock Options to purchase not more than
20,000 shares of Common Stock upon his or her first
election or appointment to the Board, which Award shall be
immediately exercisable in full on the grant date. In addition,
each Non-Employee Director shall receive an annual Award of
Stock Options to purchase not more than 15,000 shares of
Common Stock, which Award will be exercisable in full beginning
one year following the date of grant. Awards of Stock Options to
Non-Employee Directors shall be made only in accordance with the
foregoing terms, and, except as specifically provided in this
Plan, neither the Committee nor the Board shall have any
authority or discretion with respect to such Awards.

     
(f) Method of Exercise. Subject to
the provisions of this Section 5, Stock Options may be
exercised, in whole or in part, at any time during the option
term by giving notice of exercise to the Administration Agent,
specifying, by such written, electronic or other means as the
Administration Agent may specify with the agreement of the
Company, the number of shares of Common Stock subject to the
Stock Option to be purchased. Such notice shall be accompanied
by payment in full of the Exercise Price by certified or bank
check or such other instrument or means as the Company may
accept. If approved by the Committee, payment, in full or in
part, may also be made in the form of unrestricted Common Stock
(by delivery of such shares or by attestation) already owned by
the Participant of the same class as the Common Stock subject to
the Stock Option (based on the Fair Market Value of the Common
Stock on the date the Stock Option is exercised); provided,
however, that, in the case of an Incentive Stock Option, the
right to make a payment in the form of already owned shares of
Common Stock of the same class as the Common Stock subject to
the Stock Option may be authorized only at the time the Stock
Option is granted and provided, further, that such
already owned shares have been held by the Participant for at
least six months at the time of exercise or had been purchased
on the open market. If approved by the Committee and permitted
by applicable law, payment in full or in part may also be made
by delivering a properly executed exercise notice to the
Administration Agent, together with instructions to the
Administration Agent to deliver promptly to the Company the
amount of sale or loan proceeds necessary to pay the Exercise
Price, and, if requested, by the amount of any federal, state,
local or foreign withholding taxes. To facilitate the foregoing,
the Company may enter into agreements for coordinated procedures
with one or more brokerage firms, including but limited to the
Administration Agent. In addition, if approved by the Committee,
payment in full or in part may also be made by instructing the
Committee to withhold a number of such shares having a Fair
Market Value on the date of exercise equal to the aggregate
Exercise Price of such Stock Option. No shares of Common Stock
shall be issued until full payment therefor has been made.
Except as otherwise provided in Section 5(o) below, a
Participant shall have all of the rights of a stockholder of the
Company holding the class or series of Common Stock that is
subject to such Stock Option (including, if applicable, the
right to vote the shares and the right to receive dividends),
when the Participant has given written notice of exercise, has
paid in full for such shares and, if requested, has given the
representation described in Section 16(a).

     
(g) Nontransferability of Stock
Options. No Stock Option shall be transferable by the
Participant other than (i) by will or by the laws of
descent and distribution (or other testamentary distribution) or
(ii) in the case of a NonQualified Stock Option granted to
a Non-Employee Director or member of the Company’s
Executive Committee, if permitted by the Committee, pursuant to
a transfer to a trust or partnership solely for the benefit of a
“family member” for estate planning purposes. For
purposes hereof, “family member” shall

7

 

have the meaning given to such term in General
Instructions A.1(a)(5) to Form S-8 under the Securities Act
of 1933 as amended, or any successor thereto. All Stock Options
shall be exercisable, subject to the terms of this Plan, only by
the Participant, the guardian or legal representative of the
Participant, or any person to whom such option is transferred
pursuant to this paragraph, it being understood that the term
“holder” and “Participant” include such
guardian, legal representative and other transferee;
provided, however, that Termination of Employment shall
continue to refer to the Termination of Employment of the
original Participant.

     
(h) Termination by Death. Unless
otherwise determined by the Committee (including under an
Individual Agreement), if a Participant incurs a Termination of
Employment by reason of death, any Stock Option held by such
Participant may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Committee may
determine, for a period of five years (or such other period as
the Committee may specify in the Award Agreement) from the date
of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.

     
(i) Termination by Reason of
Disability. Unless otherwise determined by the Committee
(including under an Individual Agreement), if a Participant
incurs a Termination of Employment by reason of Disability, any
Stock Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable
at the time of termination, or on such accelerated basis as the
Committee may determine, for a period of five years (or such
other period as the Committee may specify in the Award
Agreement) from the date of such Termination of Employment or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that
if the Participant dies within such period, any unexercised
Stock Option held by such Participant shall, notwithstanding the
expiration of such period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a
period of at least 12 months from the date of such death or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of Termination of
Employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a NonQualified Stock Option.

     
(j) Termination by Reason of
Retirement. Unless otherwise determined by the Committee
(including under an Individual Agreement), if a Participant
incurs a Termination of Employment by reason of Retirement, any
Stock Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable
at the time of such Retirement, or on such accelerated basis as
the Committee may determine, for a period of five years (or such
other period as the Committee may specify in the Award
Agreement) from the date of such Termination of Employment or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that
if the Participant dies within such period any unexercised Stock
Option held by such Participant shall, notwithstanding the
expiration of such period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a
period of at least 12 months from the date of such death or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of Termination of
Employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a NonQualified Stock Option.

     
(k) Involuntary Termination Not for
Cause. Unless otherwise determined by the Committee
(including under an Individual Agreement), if a Participant
incurs a Termination of Employment that is involuntary on the
part of the Participant and not for Cause or a result of death,
Disability or Retirement, any Stock Option held by such
Participant may thereafter be exercised by the Participant, to
the extent it was exercisable at the time of such termination,
or on such accelerated basis as the Committee may determine, for
a period of 90 days (or such other period as the Committee
may specify in the Award Agreement) from the date of such
Termination of Employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.

     
(l) Other Termination. Unless
otherwise determined by the Committee (including under an
Individual Agreement): (A) if a Participant incurs a
Termination of Employment for Cause, all Stock Options held by
such Participant shall thereupon terminate; (B) if a
Participant incurs a Termination of Employment for any

8

 

reason other than for Cause, death, Disability,
Retirement or as provided in the preceding Section 5(k),
including a Termination of Employment that is voluntary on the
part of the Participant and not involving Retirement, any Stock
Option held by such Participant may thereafter be exercised by
the Participant, to the extent it was exercisable at the time of
such termination, or on such accelerated basis as the Committee
may determine, for a period of 30 days (or such other
period as the Committee may specify in the Award Agreement) from
the date of such Termination of Employment or until the
expiration of the stated term of such Stock Option, whichever
period is the shorter. Notwithstanding any other provision of
this Plan to the contrary, in the event that, during the
24-month period following a Change in Control, a Participant
incurs a Termination of Employment (1) by the Company other
than for Cause or (2) by reason of the Participant’s
resignation for Good Reason, any Stock Option held by such
Participant may thereafter be exercised by the Participant, to
the extent it was exercisable at the time of termination, or on
such accelerated basis as the Committee may determine, for
(x) the longer of (i) one year from such date of
termination or (ii) such other period as may be provided in
the Plan for such Termination of Employment or as the Committee
may provide in the Award Agreement or any Individual Agreement,
or (y) until expiration of the stated term of such Stock
Option, whichever period is the shorter. If an Incentive Stock
Option is exercised after the expiration of the post-termination
exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a
NonQualified Stock Option.

     
(m) Cashing Out of Stock Option. On
receipt of written notice of exercise, the Committee may elect
to cash out all or part of the portion of the shares of Common
Stock for which a Stock Option is being exercised by paying the
Participant an amount, in cash or Common Stock, equal to the
excess of the Fair Market Value of the Common Stock over the
Exercise Price times the number of shares of Common Stock for
which the Option is being exercised on the effective date of
such cash-out.

     
(n) Change in Control Cash-Out.
Notwithstanding any other provision of the Plan, during the
60-day period from and after a Change in Control (the
“Exercise Period”), if the Committee shall
determine at the time of grant or thereafter, a Participant
shall have the right, whether or not the Stock Option is fully
exercisable and in lieu of the payment of the Exercise Price for
the shares of Common Stock being purchased under the Stock
Option and by giving notice to the Company, to elect (within the
Exercise Period) to surrender all or part of the Stock Option to
the Company and to receive cash, within 30 days of such
election, in an amount equal to the amount by which the Change
in Control Price per share of Common Stock on the date of such
election shall exceed the Exercise Price per share of Common
Stock under the Stock Option multiplied by the number of shares
of Common Stock granted under the Stock Option as to which the
right granted under this Section 5(n) shall have been
exercised.

     
(o) Deferral of Option Shares. The
Committee may from time to time establish procedures pursuant to
which a Participant may elect to defer, until a time or times
later than the exercise of an Option, receipt of all or a
portion of the shares of Common Stock subject to such Option
and/or to receive cash at such later time or times in lieu of
such deferred shares, all on such terms and conditions as the
Committee shall determine. If any such deferrals are permitted,
then, notwithstanding Section 5(f) above, a Participant who
elects such deferral shall not have any rights as a stockholder
with respect to such deferred shares unless and until shares are
actually delivered to the Participant with respect thereto,
except to the extent otherwise determined by the Committee.

SECTION 6.     Stock
Appreciation Rights

     
(a) Grant and Exercise. Stock
Appreciation Rights may be granted alone (“Freestanding
Stock Appreciation Rights”) or in conjunction with all
or part of any Stock Option granted under the Plan
(“Tandem Stock Appreciation Rights”).

     
(b) Terms and Conditions of Tandem Stock
Appreciation Rights. Tandem Stock Appreciation Rights shall
be subject to such terms and conditions as shall be determined
by the Committee, including the following:

		
	 	     
     (i) Relationship to Related Stock
    Option. A Stock Appreciation Right granted in conjunction
    with a NonQualified Stock Option may be granted either at or
    after the time of grant of such Stock
    

9

 

		
	 	
    Option. A Stock Appreciation Right granted in
    conjunction with an Incentive Stock Option may be granted only
    at the time of grant of such Stock Option. Tandem Stock
    Appreciation Rights shall be exercisable only at such time or
    times and to the extent that the Stock Options to which they
    relate are exercisable in accordance with the provisions of
    Section 5.
    
	 
	 	     
     (ii) Settlement. Upon the
    exercise of a Tandem Stock Appreciation Right, a Participant
    shall be entitled to receive an amount in cash, shares of Common
    Stock or a combination of cash and shares, equal to (A) the
    excess of the Fair Market Value of one share of Common Stock on
    the date of exercise over the Exercise Price per share specified
    in the related Stock Option multiplied by (B) the number of
    shares of Common Stock in respect of which such Stock
    Appreciation Right shall have been exercised, with the Committee
    having the right to determine the form of payment. The Committee
    may from time to time establish procedures pursuant to which a
    Participant may elect to further defer receipt of cash or shares
    in settlement of Tandem Stock Appreciation Rights for a
    specified period or until a specified event, all on such terms
    and conditions as the Committee shall determine.
    
	 
	 	     
    (iii) Nontransferability. Tandem
    Stock Appreciation Rights shall be transferable only to the
    extent that the underlying Stock Option is transferable pursuant
    to Section 5(g).
    
	 
	 	     
     (iv) Method of Exercise. A
    Tandem Stock Appreciation Right may be exercised by a
    Participant by surrendering the applicable portion of the
    related Stock Option in accordance with procedures established
    by the Committee. Upon such exercise and surrender, the
    Participant shall be entitled to receive an amount determined in
    the manner prescribed by Section 6(b)(ii). Stock Options
    which have been so surrendered shall no longer be exercisable to
    the extent the related Stock Appreciation Rights have been
    exercised. Any Tandem Stock Appreciation Right shall terminate
    and no longer be exercisable upon the termination or exercise of
    the related Stock Option.
    

     
(c) Terms and Conditions of Freestanding
Stock Appreciation Rights. Freestanding Stock Appreciation
Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:

		
	 	     
     (i) Term. The Committee shall
    determine the stated term of each Freestanding Stock
    Appreciation Right granted under this Plan but no Freestanding
    Stock Appreciation Right shall be exercisable more than ten
    years after the date that the Freestanding Stock Appreciation
    Right is granted.
    
	 
	 	     
     (ii) Strike Price. Unless
    provided otherwise by the Committee, the strike price (the
    “Strike Price”) per share of Common Stock
    subject to a Freestanding Stock Appreciation Right shall be
    determined by the Committee and set forth in the Award
    Agreement. The Strike Price for any Freestanding Stock
    Appreciation Right under the Plan shall not be less than the
    Fair Market Value of the Common Stock subject to that
    Freestanding Stock Appreciation Right on the date of grant,
    except that (1) the Strike Price may be less than the Fair
    Market Value of the Common Stock underlying the Freestanding
    Stock Appreciation Right on the date of grant and equal to or
    greater than 85% of the Fair Market Value of the Common Stock
    underlying the Freestanding Stock Appreciation Right on the date
    of grant if the Freestanding Stock Appreciation Right is
    expressly granted in lieu of an amount of salary or cash bonus
    equal to or greater than the difference between (A) the
    aggregate Fair Market Value of the Common Stock underlying the
    Freestanding Stock Appreciation Right on the date of grant and
    (B) the aggregate Strike Price of the Freestanding Stock
    Appreciation Right and (2) the Strike Price of a
    Freestanding Stock Appreciation Right may be less than the Fair
    Market Value of the underlying Common Stock on the date of grant
    if such Strike Price is determined after the date of grant based
    on the achievement of Performance Goals or the relative value of
    the Common Stock as compared to an index of the capital stock of
    other companies determined by the Committee.
    
	 
	 	     
    (iii) Exercisability. Except as
    otherwise provided herein, Freestanding Share Appreciation
    Rights shall be exercisable at such time or times and subject to
    such terms and conditions as shall be determined by the
    Committee, and the Committee may at any time accelerate the
    exercisability of any Stock Appreciation Right. If the Committee
    provides that any Stock Appreciation Right is exercisable only in
    

10

 

		
	 	
    installments, the Committee may at any time waive
    such installment exercise provisions, in whole or in part, based
    on such factors as the Committee may determine.
    
	 
	 	     
     (iv) Settlement. Upon the
    exercise of a Freestanding Stock Appreciation Right, a
    Participant shall be entitled to receive an amount in cash,
    shares of Common Stock or a combination of cash and shares,
    equal to (A) the excess of the Fair Market Value of one share of
    Common Stock over the applicable Strike Price multiplied by
    (B) the number of shares of Common Stock in respect of
    which the Freestanding Stock Appreciation Right shall have been
    exercised, with the Committee having the right to determine the
    form of payment.
    
	 
	 	     
     (v) Nontransferability. No
    Freestanding Stock Appreciation Right shall be transferable by a
    Participant other than (i) by will or by the laws of
    descent and distribution (or other testamentary distribution) or
    (ii) if permitted by the Committee, pursuant to a transfer
    by a Non-Employee Director or member of the Company’s
    Executive Committee to a trust or partnership solely for the
    benefit of a “family member” for estate planning
    purposes. All Freestanding Stock Appreciation Rights shall be
    exercisable, subject to the terms of this Plan, only by the
    Participant, the guardian or legal representative of the
    Participant, or any person to whom such Freestanding Stock
    Appreciation Right is transferred pursuant to this paragraph, it
    being understood that the terms “holder” and
    “Participant” include such guardian, legal
    representative and other transferee; provided, however,
    that the term “Termination of Employment” shall
    continue to refer to the Termination of Employment of the
    original Participant.
    
	 
	 	     
     (vi) Termination by Death.
    Unless otherwise determined by the Committee (including under an
    Individual Agreement), if a Participant incurs a Termination of
    Employment by reason of death, any Freestanding Stock
    Appreciation Right held by such Participant may thereafter be
    exercised, to the extent then exercisable, or on such
    accelerated basis as the Committee may determine, for a period
    of five years (or such other period as the Committee may specify
    in the Award Agreement) from the date of such death or until the
    expiration of the stated term of such Stock Appreciation Right,
    whichever period is the shorter.
    
	 
	 	     
    (vii) Termination by Reason of
    Disability. Unless otherwise determined by the Committee
    (including under an Individual Agreement), if a Participant
    incurs a Termination of Employment by reason of Disability, any
    Freestanding Stock Appreciation Right held by such Participant
    may thereafter be exercised by the Participant, to the extent it
    was exercisable at the time of termination, or on such
    accelerated basis as the Committee may determine, for a period
    of five years (or such other period as the Committee may specify
    in the Award Agreement) from the date of such Termination of
    Employment or until the expiration of the stated term of such
    Freestanding Stock Appreciation Right, whichever period is the
    shorter; provided, however, that if the Participant dies
    within such period, any unexercised Freestanding Stock
    Appreciation Right held by such Participant shall,
    notwithstanding the expiration of such period, continue to be
    exercisable to the extent to which it was exercisable at the
    time of death for a period of at least 12 months from the
    date of such death or until the expiration of the stated term of
    such Freestanding Stock Appreciation Right, whichever period is
    the shorter.
    
	 
	 	     
    (viii) Termination by Reason of
    Retirement. Unless otherwise determined by the Committee
    (including under an Individual Agreement), if a Participant
    incurs a Termination of Employment by reason of Retirement, any
    Freestanding Stock Appreciation Right held by such Participant
    may thereafter be exercised by the Participant, to the extent it
    was exercisable at the time of such Retirement, or on such
    accelerated basis as the Committee may determine, for a period
    of five years (or such other period as the Committee may specify
    in the Award Agreement) from the date of such Termination of
    Employment or until the expiration of the stated term of such
    Freestanding Stock Appreciation Right, whichever period is the
    shorter; provided, however, that if the Participant dies
    within such period any unexercised Freestanding Stock
    Appreciation Right held by such Participant shall,
    notwithstanding the expiration of such period, continue to be
    exercisable to the extent to which it was exercisable at the
    time of death for a period of at least 12 months from the
    date of such death or until the expiration of the stated term of
    such Freestanding Stock Appreciation Right, whichever period is
    the shorter.
    

11

 

\

		
	 	     
    (ix) Involuntary Termination Not for
    Cause. Unless otherwise determined by the Committee
    (including under an Individual Agreement), if a Participant
    incurs a Termination of Employment that is involuntary on the
    part of the Participant and not for Cause or a result of death,
    Disability or Retirement, any Freestanding Stock Appreciation
    Right held by such Participant may thereafter be exercised by
    the Participant, to the extent it was exercisable at the time of
    such termination, or on such accelerated basis as the Committee
    may determine, for a period of 90 days (or such other
    period as the Committee may specify in the Award Agreement) from
    the date of such Termination of Employment or until the
    expiration of the stated term of such Freestanding Stock
    Appreciation Right, whichever period is the shorter.
    
	 
	 	     
    (x) Other Termination. Unless
    otherwise determined by the Committee (including under an
    Individual Agreement): (A) if a Participant incurs a
    Termination of Employment for Cause, all Freestanding Stock
    Appreciation Rights held by such Participant shall thereupon
    terminate; (B) if a Participant incurs a Termination of
    Employment for any reason other than for Cause, death,
    Disability, Retirement or as provided in the preceding
    Section 6(c)(ix), including a Termination of Employment
    that is voluntary on the part of the Participant and not
    involving Retirement, any Freestanding Stock Appreciation Right
    held by such Participant may thereafter be exercised by the
    Participant, to the extent it was exercisable at the time of
    such termination, or on such accelerated basis as the Committee
    may determine, for a period of 30 days (or such other
    period as the Committee may specify in the Award Agreement) from
    the date of such Termination of Employment or until the
    expiration of the stated term of such Freestanding Stock
    Appreciation Right, whichever period is the shorter.
    Notwithstanding any other provision of this Plan to the
    contrary, in the event that, during the 24-month period
    following a Change in Control, a Participant incurs a
    Termination of Employment (1) by the Company other than for
    Cause or (2) by reason of the Participant’s
    resignation for Good Reason, any Freestanding Stock Appreciation
    Right held by such Participant may thereafter be exercised by
    the Participant, to the extent it was exercisable at the time of
    termination, or on such accelerated basis as the Committee may
    determine, for (x) the longer of (i) one year from
    such date of termination or (ii) such other period as may
    be provided in the Plan for such Termination of Employment or as
    the Committee may provide in the Award Agreement or any
    Individual Agreement, or (y) until expiration of the stated
    term of such Freestanding Stock Appreciation Right, whichever
    period is the shorter.
    
	 
	 	     
    (xi) Change in Control Cash-Out.
    Notwithstanding any other provision of the Plan, during the
    Exercise Period, if the Committee shall determine at the time of
    grant or thereafter, a holder of a Freestanding Stock
    Appreciation Right shall have the right, whether or not such
    Stock Appreciation Right is fully exercisable, to surrender
    (during the Exercise Period) all or part of such Stock
    Appreciation Right to the Company and to receive cash, within
    30 days of such election, in an amount equal to
    (A) the amount by which the Change in Control Price per
    share of Common Stock on the date of such election shall exceed
    the Strike Price under such Stock Appreciation Right multiplied
    by (B) the number of shares of Common Stock subject to the
    Stock Appreciation Right as to which the right granted under
    this Section 6(c)(xi) shall have been exercised.
    
	 
	 	     
    (xii) Deferral. The Committee may
    from time to time establish procedures pursuant to which a
    Participant may elect to further defer receipt of cash or shares
    in settlement of Freestanding Stock Appreciation Rights for a
    specified period or until a specified event, subject in each
    case to the Committee’s approval and to such terms as are
    determined by the Committee.
    

 

		
	SECTION 7.	
    Restricted Stock

     
(a) Administration. Shares of
Restricted Stock may be awarded either alone or in addition to
other Awards granted under the Plan. The Committee shall
determine Eligible Individuals to whom and the time or times at
which grants of Restricted Stock will be awarded, the number of
shares to be awarded to any Eligible Individual, the conditions
for vesting, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the
Awards, in addition to those contained in Section 7(c). The
total number of shares of Common Stock that can be delivered
under the Plan in connection with Awards of Restricted Stock,
Deferred Stock Units, and Other Stock-Based Awards granted
pursuant to Section 10, shall

12

 

not exceed 610,000 during the term of the Plan.
No more than 500,000 shares of Restricted Stock that are
Qualified Performance Based Awards may be granted to any
Participant in any fiscal year of the Company.

     
(b) Awards and Certificates. Shares
of Restricted Stock shall be evidenced in such manner as the
Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock
shall be registered in the name of such Participant and shall
bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such Award, substantially in the
following form:

		
	 	
    “The transferability of this certificate and
    the shares of stock represented hereby are subject to the terms
    and conditions (including forfeiture) of the Fairchild
    Semiconductor Stock Incentive Plan and a Award Agreement. Copies
    of such Plan and Agreement are on file at the offices of
    Fairchild Semiconductor International, Inc.,
    82 Running Hill Road, South Portland, Maine.
    

The Committee may require that the certificates
evidencing such shares be held in custody by the Company until
the restrictions thereon shall have lapsed and that, as a
condition of any Award of Restricted Stock, the Participant
shall have delivered a stock power, endorsed in blank, relating
to the Common Stock covered by such Award.

     
(c) Terms and Conditions. Shares of
Restricted Stock shall be subject to the following terms and
conditions:

		
	 	     
    (i) The Committee may, prior to or at the
    time of grant, designate an Award of Restricted Stock as a
    Qualified Performance-Based Award, in which event it shall
    condition the grant or vesting, as applicable, of such
    Restricted Stock upon the attainment of Performance Goals and
    may also condition the grant or vesting thereof upon the
    continued service of the Participant with the Company, its
    Subsidiaries or Affiliates. If the Committee does not designate
    an Award of Restricted Stock as a Qualified Performance-Based
    Award, it may nonetheless condition the grant or vesting thereof
    upon the attainment of Performance Goals and/or the continued
    service of the Participant with the Company, its Subsidiaries or
    Affiliates. The conditions for grant or vesting and the other
    provisions of Restricted Stock Awards (including without
    limitation any applicable Performance Goals) need not be the
    same with respect to each recipient. The Committee shall not
    waive, in whole or in part, any Performance Goals or any
    restrictions applicable to a Restricted Stock Award, except
    pursuant to Section 11 or in connection with the
    Participant’s Termination of Employment by reason of the
    Participant’s death, Disability, or Termination of
    Employment by the Company without Cause or by the Participant
    for Good Reason.
    
	 
	 	     
    (ii) Subject to the terms of the Plan, any
    Award of Restricted Stock shall be subject to vesting during a
    restriction period (the “Restriction Period”)
    of at least three years following the date of grant, provided
    that an Award may vest in installments ratably over the
    course of the Restriction Period (except that, if vesting is
    based on Performance Goals, no part of the Award may vest before
    the first anniversary of the date of grant). In addition,
    continued service with the Company or any of its Subsidiaries or
    Affiliates through the vesting date or dates shall also be a
    condition to vesting, except pursuant to Section 11 or in
    connection with the Participant’s Termination of Employment
    by reason of the Participant’s death, Disability, or
    Termination of Employment by the Company without Cause or by the
    Participant for Good Reason. During the Restriction Period, and
    until the later of (i) the expiration of the Restriction
    Period and (ii) the date the applicable Performance Goals
    (if any) are satisfied, the Participant shall not be permitted
    to sell, assign, transfer, pledge or otherwise encumber unvested
    shares of Restricted Stock; provided that, to the extent
    permitted by law, the foregoing shall not prevent a Participant
    from pledging Restricted Stock as security for a loan, the sole
    purpose of which is to provide funds to pay the Exercise Price
    for Stock Options.
    
	 
	 	     
    (iii) Except as provided in this paragraph
    (iii) and Sections 7(c)(i) and 7(c)(ii) and the Award
    Agreement, the Participant shall have, with respect to the
    shares of Restricted Stock, all of the rights of a stockholder
    of the Company holding the class or series of Common Stock that
    is the subject of the Restricted Stock, including, if
    applicable, the right to vote the shares and the right to
    receive any cash dividends. If so determined by the Committee in
    the applicable Award Agreement and subject to Section 16(e)
    of the Plan,
    

13

 

		
	 	
    (A) cash dividends on the class or series of
    Common Stock that is the subject of the Restricted Stock Award
    shall be automatically deferred and reinvested in additional
    Restricted Stock, held subject to the vesting of the underlying
    Restricted Stock, or held subject to meeting Performance Goals
    applicable only to dividends, and (B) dividends payable in
    Common Stock (or other securities) shall be paid in the form of
    Restricted Stock of the same class as the Common Stock (or other
    securities) with which such dividend was paid, held subject to
    the vesting of the underlying Restricted Stock, or held subject
    to meeting Performance Goals applicable only to dividends;
    provided, that, to the extent provided in an Award
    Agreement, the Committee may determine to treat such dividends
    in a different manner.
    
	 
	 	     
    (iv) Except to the extent otherwise provided
    in the applicable Award Agreement or Section 7(c)(i),
    7(c)(ii) or 11(a)(ii), upon a Participant’s Termination of
    Employment for any reason during the Restriction Period or
    before the applicable Performance Goals are satisfied, all
    shares still subject to restriction shall be forfeited by the
    Participant.
    
	 
	 	     
    (v) If and when any applicable Performance
    Goals are satisfied and the Restriction Period expires without a
    prior forfeiture of the Restricted Stock, unlegended
    certificates for such shares shall be delivered to the
    Participant upon surrender of the legended certificates.
    
	 
	 	     
    (vi) Each Award shall be confirmed by, and
    be subject to, the terms of a Award Agreement.
    

 

		
	SECTION 8.	
    Deferred Stock Units

     
(a) Administration. Deferred Stock
Units may be awarded either alone or in addition to other Awards
granted under the Plan. The Committee shall determine the
Eligible Individuals to whom and the time or times at which
Deferred Stock Units shall be awarded, the number of Deferred
Stock Units to be awarded to any Eligible Individual, the
conditions for vesting, the time or times within which such
Awards may be subject to forfeiture, the duration of the Award
Cycle and any other terms and conditions of the Award, in
addition to those contained in Section 8(b). The total
number of shares of Common Stock that can be delivered under the
Plan in connection with Awards of Restricted Stock, Deferred
Stock Units, and Other Stock-Based Awards granted pursuant to
Section 10, shall not exceed 610,000 during the term of the
Plan. No more than 500,000 Deferred Stock Units that are
Qualified Performance Based Awards may be granted to any
Participant in any fiscal year of the Company.

     
(b) Terms and Conditions. Deferred
Stock Units Awards shall be subject to the following terms and
conditions:

		
	 	     
    (i) The Committee may, prior to or at the
    time of the grant, designate Deferred Stock Units as Qualified
    Performance-Based Awards, in which event it shall condition the
    grant, vesting or settlement thereof upon the attainment of
    Performance Goals and may also condition the grant, vesting or
    settlement thereof upon the continued service of the Participant
    with the Company, its Subsidiaries or Affiliates. If the
    Committee does not designate Deferred Stock Units as Qualified
    Performance-Based Awards, it may nonetheless condition the
    grant, vesting or settlement thereof upon the attainment of
    Performance Goals and/or the continued service of the
    Participant with the Company, its Subsidiaries or Affiliates.
    The provisions of such Awards (including without limitation any
    applicable Performance Goals) need not be the same with respect
    to each recipient. The Committee shall not waive, in whole or in
    part, any Performance Goals or any restrictions applicable to a
    Deferred Stock Unit, except pursuant to Section 11 or in
    connection with the Participant’s Termination of Employment
    by reason of the Participant’s death, Disability, or
    Termination of Employment by the Company without Cause or by the
    Participant for Good Reason.
    
	 
	 	     
    (ii) Subject to the terms of the Plan, any
    Award of Deferred Stock Units shall be subject to vesting during
    a restriction period (the “Restriction Period”)
    of at least three years following the date of grant, provided
    that an Award may vest in installments ratably over the
    course of the Restriction Period (except that, if vesting is
    based on Performance Goals, no part of the Award may vest before
    the first anniversary of the date of grant). In addition,
    continued service with the Company or any of its Subsidiaries or
    Affiliates through the vesting date or dates shall also be a
    condition to vesting, except pursuant to
    

14

 

		
	 	
    Section 11 or in connection with the
    Participant’s Termination of Employment by reason of the
    Participant’s death, Disability, or Termination of
    Employment by the Company without Cause or by the Participant
    for Good Reason.
    
	 
	 	     
    (iii) A Participant may elect to further
    defer receipt of cash or shares in settlement of Deferred Stock
    Units for a specified period or until a specified event, subject
    in each case to the Committee’s approval and to such terms
    as are determined by the Committee. Subject to any exceptions
    adopted by the Committee, such election must generally be made
    prior to commencement of the Award Cycle for the Deferred Stock
    Units in question.
    
	 
	 	     
    (iv) At the expiration of the Award Cycle,
    the Committee shall evaluate the Company’s performance in
    light of any Performance Goals for such Award, and shall
    determine the number of Deferred Stock Units granted to the
    Participant which have been earned, and the Committee shall then
    cause to be delivered (A) a number of shares of Common
    Stock equal to the number of Deferred Stock Units determined by
    the Committee to have been earned, or (B) cash equal to the
    Fair Market Value of such number of shares of Common Stock, or
    (C) a combination of cash and shares of Common Stock equal
    to the Fair Market Value of the number of Deferred Stock Units
    determined by the Committee to have been earned, as the
    Committee shall elect (subject to any deferral pursuant to
    Section 8(b)(iii)).
    
	 
	 	     
    (v) Each Award shall be confirmed by, and be
    subject to, the terms of a Award Agreement.
    

     
(c) Deferred Stock Units for Non-Employee
Directors. A Non-Employee Director may, at his or her
option, elect not to receive 100% of his or her annual cash
retainer for services as a director in exchange for an Award of
Deferred Stock Units subject to the following terms. Any
election under this Section 8(c) must be made in writing by
the Non-Employee Director no later than October 31 of the
year preceding the fiscal year to which the compensation
relates. The number of shares of Common Stock underlying
Deferred Stock Units awarded under this Section 8(c) will
be equal to (i) the pre-tax dollar value of cash
compensation the Non-Employee Director elects not to receive,
divided by (ii) the Fair Market Value on the date of grant
less a discount of 25%, provided, that, the benefit of
such discount shall be forfeited by the Non-Employee Director,
and the number of such underlying shares shall be adjusted
downward accordingly, if the Non-Employee Director’s
service on the Board terminates for any reason other than his or
her death or Disability prior to the first anniversary of the
date of grant.

 

		
	SECTION 9.	
    Tax Offset Bonuses

     
At the time an Award is made hereunder or at any
time thereafter, the Committee may grant to the Participant
receiving such Award the right to receive a cash payment in an
amount specified by the Committee, to be paid at such time or
times (if ever) as the Award results in compensation income to
the Participant, for the purpose of assisting the Participant to
pay the resulting taxes, all as determined by the Committee and
on such other terms and conditions as the Committee shall
determine.

 

		
	SECTION 10.	
    Other Stock-Based Awards

     
Other Awards of Common Stock and other Awards
that are valued in whole or in part by reference to, or are
otherwise based upon, Common Stock, including (without
limitation) dividend equivalents and convertible debentures, may
be granted either alone or in conjunction with other Awards
granted under the Plan. The total number of shares of Common
Stock that can be delivered under the Plan in connection with
Awards of Restricted Stock, Deferred Stock Units, and Other
Stock-Based Awards granted pursuant to this Section 10,
shall not exceed 610,000 during the term of the Plan. No more
than 500,000 shares of Common Stock subject to Other
Stock-Based Awards that are Qualified Performance Based Awards
may be granted to any Participant in any fiscal year of the
Company. In addition, any Other Stock-Based Award granted
pursuant to this Section 10 must, subject to the other
terms of the Plan, either (i) be subject to vesting during
a restriction period (the “Restriction Period”)
of at least three years following the date of grant, provided
that such an Award may vest in installments ratably over the
course of the Restriction Period (except that, if vesting is
based on Performance Goals, no part of the Award may vest before
the first anniversary of the date of grant) or (ii) be
granted in lieu of cash compensation payable to the Participant.

15

 

 

		
	SECTION 11.	
    Change in Control Provisions

     
(a) Impact of Event. Notwithstanding
any other provision of the Plan to the contrary, unless
otherwise provided in an Award Agreement, in the event of a
Change in Control:

		
	 	     
    (i) any Stock Options and Stock Appreciation
    Rights outstanding as of the date such Change in Control occurs,
    and which are not then exercisable and vested, shall become
    fully exercisable and vested;
    
	 
	 	     
    (ii) the restrictions and deferral
    limitations applicable to any Restricted Stock outstanding as of
    the date such Change in Control shall lapse, and such Restricted
    Stock shall become free of all restrictions and become fully
    vested and transferable; and
    
	 
	 	     
    (iii) all Deferred Stock Units outstanding
    as of the date such Change in Control shall be considered to be
    earned and payable in full, and any deferral or other
    restrictions shall lapse and such Deferred Stock Units shall be
    settled in cash as promptly as is practicable following the
    Change in Control.
    

     
(b) Definition of Change in Control.
For purposes of the Plan, a “Change in Control”
shall mean the happening of any of the following events:

		
	 	     
    (i) An acquisition by any individual, entity
    or group (within the meaning of Section 13(d)(3) or
    14(d)(2) of the Exchange Act) (a “Person”)
    resulting in such Person having beneficial ownership (within the
    meaning of Rule 13d-3 promulgated under the Exchange Act)
    of 20% or more of either (1) the then-outstanding shares of
    common stock of the Company (the “Outstanding Company
    Common Stock”) or (2) the combined voting power of
    the then-outstanding voting securities of the Company entitled
    to vote generally in the election of directors (the
    “Outstanding Company Voting Securities”);
    excluding, however, the following: (1) Any acquisition
    directly from the Company, other than an acquisition by virtue
    of the exercise of a conversion privilege unless the security
    being so converted was itself acquired directly from the
    Company, (2) Any acquisition by the Company, (3) Any
    acquisition by any employee benefit plan (or related trust)
    sponsored or maintained by the Company or any entity controlled
    by the Company, or (4) Any acquisition pursuant to a
    transaction which complies with clauses (1), (2) and
    (3) of subsection (iii) of this
    Section 11(b); or
    
	 
	 	     
    (ii) A change in the composition of the
    Board such that the individuals who, as of the Effective Date,
    constitute the Board (such Board shall be hereinafter referred
    to as the “Incumbent Board”) cease for any
    reason to constitute at least a majority of the Board;
    provided, however, for purposes of this
    Section 11(b), that any individual who becomes a member of
    the Board subsequent to the Effective Date, whose election, or
    nomination for election by the Company’s stockholders, was
    approved by a vote of at least a majority of those individuals
    who are members of the Board and who were also members of the
    Incumbent Board (or deemed to be such pursuant to this proviso)
    shall be considered as though such individual were a member of
    the Incumbent Board; but, provided further, that any such
    individual whose initial assumption of office occurs as a result
    of either an actual or threatened election contest (as such
    terms are used in Rule 14a-12(c) of Regulation 14A
    promulgated under the Exchange Act) or other actual or
    threatened solicitation of proxies or consents by or on behalf
    of a Person other than the Board shall not be so considered as a
    member of the Incumbent Board; or
    
	 
	 	     
    (iii) Consummation of a reorganization,
    merger or consolidation or sale or other disposition of all or
    substantially all of the assets of the Company or the
    acquisition of the shares or assets of another entity
    (“Corporate Transaction”); excluding, however,
    such a Corporate Transaction pursuant to which (1) all or
    substantially all of the individuals and entities who are the
    beneficial owners, respectively, of the Outstanding Company
    Common Stock and Outstanding Company Voting Securities
    immediately prior to such Corporate Transaction will
    beneficially own, directly or indirectly, more than 50% of,
    respectively, the outstanding shares of common stock (or equity
    interests), and the combined voting power of the then
    outstanding voting securities entitled to vote generally in the
    election of directors (or equivalent governing body, if
    applicable), as the case may be, of the entity resulting from
    such Corporate Transaction (including, without limitation, an
    entity which as a result of such transaction owns the Company or
    all or substantially all of the Company’s assets either
    directly or through one or more subsidiaries) in substantially
    the same proportions as their ownership, immediately prior to
    such Corporate Transaction,
    

16

 

		
	 	
    of the Outstanding Company Common Stock and
    Outstanding Company Voting Securities, as the case may be,
    (2) no Person (other than the Company, any employee benefit
    plan (or related trust) of the Company or such entity resulting
    from such Corporate Transaction) will beneficially own, directly
    or indirectly, 20% or more of, respectively, the outstanding
    shares of common stock (or equity interests) of the entity
    resulting from such Corporate Transaction or the combined voting
    power of the outstanding voting securities of such corporation
    entitled to vote generally in the election of directors (or
    equivalent governing body, if applicable) except to the extent
    that such ownership existed prior to the Corporate Transaction,
    and (3) individuals who were members of the Incumbent Board
    will constitute at least a majority of the members of the board
    of directors (or equivalent governing body, if applicable) of
    the entity resulting from such Corporate Transaction; or
    
	 
	 	     
    (iv) The approval by the stockholders of the
    Company of a complete liquidation or dissolution of the Company.
    

     
(c) Change in Control Price. For
purposes of the Plan, “Change in Control Price”
means the higher of (i) the highest reported sales price,
regular way, of a share of Common Stock in any transaction
reported on the New York Stock Exchange Composite Tape or
other national exchange on which such shares are listed or on
NASDAQ during the 60-day period prior to and including the date
of a Change in Control or (ii) if the Change in Control is
the result of a tender or exchange offer or a Corporate
Transaction, the highest price per share of Common Stock paid in
such tender or exchange offer or Corporate Transaction;
provided, however, that in the case of Incentive Stock
Options and Stock Appreciation Rights relating to Incentive
Stock Options, the Change in Control Price shall be in all cases
the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised.
To the extent that the consideration paid in any such
transaction described above consists all or in part of
securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined in
the sole discretion of the Board.

SECTION 12.     Forfeiture
of Awards

     
Notwithstanding anything in the Plan to the
contrary, the Committee may, in its sole discretion, in the
event of serious misconduct by a Participant (including, without
limitation, any misconduct prejudicial to or in conflict with
the Company or its Subsidiaries or Affiliates, or any
Termination of Employment for Cause or in the event that a
Participant incurs a Termination of Employment for Early
Retirement and subsequently engages in full-time employment), or
any activity of a Participant in competition with the business
of the Company or any Subsidiary or Affiliate, (a) cancel
any outstanding Award granted to such Participant, in whole or
in part, whether or not vested or deferred, or
(b) following the exercise or payment of an Award within a
period specified by the Committee, require such Participant to
repay to the Company any gain realized or payment received upon
the exercise or payment of such Award (with such gain or payment
valued as of the date of exercise or payment). Such cancellation
or repayment obligation shall be effective as of the date
specified by the Committee. Any repayment obligation may be
satisfied in Common Stock or cash or a combination thereof
(based upon the Fair Market Value of Common Stock on the day of
payment), and the Committee may provide for an offset to any
future payments owed by the Company or any Subsidiary or
Affiliate to the Participant if necessary to satisfy the
repayment obligation. The determination of whether a Participant
has engaged in a serious breach of conduct or any activity in
competition with the business of the Company or any Subsidiary
or Affiliate shall be determined by the Committee in good faith
and in its sole discretion. This Section 12 shall have no
application following a Change in Control.

 

		
	SECTION 13.	
    Prohibition on Repricing Stock Options
    Without Stockholder Approval

     
Except for adjustments pursuant to
Section 3(c), in no event may any Stock Option granted
under this Plan (a) be amended to decrease the Exercise
Price thereof, or cancelled (either immediately or after any
period of time) in conjunction with the grant of any new Stock
Option with a lower Exercise Price, whether or not such actions
would be considered a “repricing” for accounting
purposes, or (b) be subject to any action that would be
treated, for accounting purposes, as a “repricing” of
such Stock Option, unless such amendment, cancellation or action
under either of clauses (a) or (b) is duly approved by
the stockholders of

17

 

the Company in accordance with all applicable
laws, regulations and stock exchange rules and listing standards.

 

		
	SECTION 14.	
    Term; Replacement of Pre-Existing Plan;
    Amendment and Termination

     
(a) The Plan will terminate on the tenth
anniversary of the Effective Date. Under the Plan, Awards
outstanding as of such date shall not be affected or impaired by
the termination of the Plan.

     
(b) As of the Effective Date, the Plan
amends and replaces the Pre-Existing Plan to the extent
permitted by the terms of the Pre-Existing Plan. The Board may
amend, alter, suspend, discontinue or terminate the Plan or any
portion thereof at any time; provided, however, that
(i) no material amendment or alteration shall be made
without stockholder approval, (ii) no immaterial amendment
or alteration, or any suspension, discontinuation or termination
shall be made without stockholder approval, if such approval is
required by law, regulation or applicable stock exchange rule,
or if the Board deems such approval to be necessary or desirable
to qualify for or comply with any tax, applicable law, stock
exchange, accounting or regulatory requirement, and
(iii) except as required by applicable law or stock
exchange or accounting rules, no amendment, alteration,
suspension, discontinuation or termination shall be made without
the consent of the affected Participant, if such action would
impair the rights of such Participant under any outstanding
Award, or shall cause a Qualified Performance-Based Award to
cease to qualify for the Section 162(m) Exemption.
Notwithstanding anything to the contrary herein, the Committee
or Board may amend or alter the Plan in such manner as may be
necessary so as to have the Plan conform to local rules and
regulations in any jurisdiction outside the United States.

 

		
	SECTION 15.	
    Unfunded Status of Plan

     
It is presently intended that the Plan constitute
an “unfunded” plan for incentive and deferred
compensation. The Committee may authorize the creation of trusts
or other arrangements to meet the obligations created under the
Plan to deliver Common Stock or make payments; provided,
however, that unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent
with the “unfunded” status of the Plan.

 

		
	SECTION 16.	
    General Provisions

     
(a) Representation. The Committee may
require each person purchasing or receiving shares pursuant to
an Award to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.

     
Notwithstanding any other provision of the Plan
or agreements made pursuant thereto, the Company shall not be
required to issue or deliver any certificate or certificates for
shares of Common Stock under the Plan prior to fulfillment of
all of the following conditions:

		
	 	     
    (1) Listing or approval for listing upon
    notice of issuance, of such shares on the New York Stock
    Exchange, Inc., or such other securities exchange as may at
    the time be the principal market for the Common Stock;
    
	 
	 	     
    (2) Any registration or other qualification
    of such shares of the Company under any state or federal law or
    regulation, or the maintaining in effect of any such
    registration or other qualification which the Committee shall,
    in its absolute discretion upon the advice of counsel, deem
    necessary or advisable; and
    
	 
	 	     
    (3) Obtaining any other consent, approval,
    or permit from any state or federal governmental agency which
    the Committee shall, in its absolute discretion after receiving
    the advice of counsel, determine to be necessary or advisable.
    

     
(b) No Limit on Other Arrangements.
Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Affiliate from adopting other or additional
compensation arrangements for its employees.

18

 

     
(c) No Contract of Employment. The
Plan shall not constitute a contract of employment, and adoption
of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the
right of the Company or any Subsidiary or Affiliate to terminate
the employment of any employee at any time.

     
(d) Tax Withholding. No later than
the date as of which an amount first becomes includible in the
gross income of the Participant for federal income tax purposes
with respect to any Award under the Plan, the Participant shall
pay to the Company, or make arrangements satisfactory to the
Company regarding the payment of, any federal, state, local or
foreign taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the
Company, withholding obligations may be settled with Common
Stock, including Common Stock that is part of the Award that
gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment
or arrangements, and the Company, its Subsidiaries and its
Affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment otherwise due to the
Participant. The Committee may establish such procedures as it
deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Common Stock.

     
(e) Dividends. Reinvestment of
dividends in additional Restricted Stock at the time of any
dividend payment shall only be permissible if sufficient shares
of Common Stock are available under Section 3 for such
reinvestment (taking into account then outstanding Stock Options
and other Awards).

     
(f) Death Beneficiaries. The
Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom
any amounts payable in the event of the Participant’s death
are to be paid or by whom any rights of the Participant, after
the Participant’s death, may be exercised.

     
(g) Subsidiary Employee. In the case
of a grant of an Award to any employee of a Subsidiary of the
Company, the Company may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the
Award to the Subsidiary, for such lawful consideration as the
Committee may specify, upon the condition or understanding that
the Subsidiary will transfer the shares of Common Stock to the
employee in accordance with the terms of the Award specified by
the Committee pursuant to the provisions of the Plan. All shares
of Common Stock underlying Awards that are forfeited or canceled
should revert to the Company.

     
(h) Governing Law. The Plan and all
Awards made and actions taken thereunder shall be governed by
and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws.

     
(i) Nontransferability. Except as
otherwise provided in Section 5(g), 6(b)(iii), 6(c)(v) or
by the Committee, Awards under the Plan are not transferable
except by will or by laws of descent and distribution.

     
(j) Foreign Employees. In the event
an Award is granted to an Eligible Individual who is employed or
providing services outside the United States and who is not
compensated from a payroll maintained in the United States, the
Committee may, in its sole discretion, modify the provisions of
the Plan as they pertain to such individual to comply with
applicable foreign law or to recognize differences in local law,
currency or tax policy. The Committee may also impose conditions
on the exercise or vesting of Awards in order to minimize the
Company’s obligations with respect to tax equalization for
Eligible Individuals on assignments outside their home country.

     
(k) Inclusion of Awards as Part of
Mandatory Holdings. The Board or the Committee may establish
policies or make such provisions as either deems necessary or
appropriate relating to Awards or portions thereof that may be
included as part of a Participant’s holdings for purposes
of any stock ownership requirements implemented from time to
time.

 

		
	SECTION 17.	
    Effective Date of Plan

     
This Plan, as amended, shall be effective as of
the date of approval by the stockholders of the Company at their
2004 annual meeting.

19

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