Document:

Exhibit 4.2

 

EXECUTION COPY

 

REGISTRATION RIGHTS AGREEMENT

by and among

KEMET Corporation,

 

the guarantors party hereto,

and

Banc of America Securities LLC,

KeyBanc Capital Markets Inc. and

UBS Securities LLC

 

 

Dated as of May 5, 2010

 

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of May 5, 2010,
by and among KEMET Corporation, a Delaware corporation (the “Company”), the guarantors party hereto (the “Guarantors”) and Banc of America Securities LLC, KeyBanc
Capital Markets Inc. and UBS Securities LLC (collectively, the “Initial Purchasers”), each of whom has agreed to purchase
pursuant to the Purchase Agreement (as defined below) the Company’s 101⁄2% Senior
Notes due 2018 (the “Initial Notes”)
which are fully and unconditionally guaranteed by the Guarantors (the “Guarantees”).  The
Initial Notes and the Guarantees attached thereto are herein collectively referred
to as the “Initial Securities.”  Banc of America Securities LLC has agreed to
act as representative of the several Initial Purchasers (the “Representative”) in connection with the offering and sale of
the Initial Securities.

 

This Agreement is made pursuant to the Purchase
Agreement, dated April 21, 2010 (the “Purchase Agreement”),
among the Company, the Guarantors and the Initial Purchasers (i) for the
benefit of the Initial Purchasers and (ii) for the benefit of the holders
from time to time of the Initial Securities, including the Initial
Purchasers.  In order to induce the Initial
Purchasers to purchase the Initial Securities, the Company has agreed to
provide the registration rights set forth in this Agreement.  The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers as set forth in Section 5(f) of
the Purchase Agreement.

 

The parties hereby agree as follows:

 

SECTION 1.              Definitions.  As used in this Agreement, the following
capitalized terms shall have the following meanings:

 

Additional Interest:  As defined in Section 5 hereof.

 

Advice:  As defined
in the last paragraph of Section 6 hereof.

 

Broker-Dealer:  Any broker or dealer registered
with the Commission under the Exchange Act.

 

Business Day:  Any day other than a Saturday,
Sunday or U.S. federal holiday or a day on which banking institutions or trust
companies located in New York, New York are authorized or obligated to be
closed.

 

Closing Date:  The date of this Agreement.

 

Commission:  The Securities and Exchange
Commission.

 

Consummate:  A registered Exchange Offer shall
be deemed “Consummated” for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Securities Act of the Exchange Offer
Registration Statement relating to the Exchange Securities to be issued in the
Exchange Offer, (ii) the maintenance of such Registration Statement as
being continuously effective and the keeping of the Exchange Offer open for a
period not less than the minimum period required pursuant to Section 3(b) hereof
and (iii) the delivery by the Company to the Registrar under the Indenture
of Exchange Securities in the same aggregate principal amount as the aggregate
principal amount of Transfer Restricted Securities that were validly tendered
and not withdrawn by Holders thereof pursuant to the Exchange Offer prior to
the expiration thereof.

 

 

Exchange Act:  The Securities Exchange Act of
1934, as amended, including the rules and regulations promulgated
thereunder.

 

Exchange Offer:  An offer registered under the
Securities Act by the Company and the Guarantors pursuant to a Registration
Statement pursuant to which the Company offers the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Exchange Securities in
an aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.

 

Exchange Offer Registration Statement:  The Registration Statement
relating to the Exchange Offer, including the related Prospectus.

 

Exchange Securities:  The 101⁄2% Senior Notes due 2018, of
the same series under the Indenture as the Initial Notes, and the Guarantees
attached thereto, to be issued to Holders in exchange for Transfer Restricted
Securities pursuant to this Agreement.

 

FINRA:  Financial Industry Regulatory Authority, Inc.,
an independent regulatory organization.

 

Holders:  As defined in Section 2(b) hereof.

 

Indemnified Holder:  As defined in Section 8(a) hereof.

 

Indenture:  The Indenture, dated as of May 5,
2010, by and among the Company, the Guarantors and Wilmington Trust Company, in
its capacity as trustee (the “Trustee”) and
in its capacity as collateral agent, pursuant to which the Securities are to be
issued, as such Indenture is amended or supplemented from time to time in accordance
with the terms thereof.

 

Initial Notes: As defined in the preamble hereto.

 

Initial Placement:  The issuance and sale by the
Company of the Initial Securities to the Initial Purchasers pursuant to the
Purchase Agreement.

 

Initial Purchasers:  As defined in the preamble hereto.

 

Initial Securities:  As defined in the preamble hereto.

 

Interest Payment Date:  As defined in the Indenture and the
Securities.

 

Person:  An individual, partnership, corporation,
limited liability company, trust or unincorporated organization or other legal
entity, or a government or agency or political subdivision thereof.

 

Prospectus:  The prospectus included in a
Registration Statement, as amended or supplemented by any prospectus supplement
and by all other amendments thereto, including post-effective amendments, and
all material incorporated by reference into such prospectus.

 

Registration Default:  As defined in Section 5
hereof.

 

Registration Statement:  Any Exchange Offer Registration
Statement or Shelf Registration Statement, which is filed pursuant to the
provisions of this Agreement, in each case, including the Prospectus 

 

2

 

included therein, all
amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.

 

Securities:  The Initial Securities and the
Exchange Securities.

 

Securities Act:  The Securities Act of 1933, as
amended, including the rules and regulations promulgated thereunder.

 

Shelf Filing Deadline:  As defined in Section 4(a) hereof.

 

Shelf Registration Statement:  As defined in Section 4(a) hereof.

 

Suspension Period: As defined in the final paragraph of Section 6
hereof.

 

Transfer Restricted Securities:  Each (i) Initial Security,
until the earliest to occur of (a) the date on which such Initial Security
is exchanged in the Exchange Offer for an Exchange Security entitled to be
resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (b) the date on
which such Initial Security has been effectively registered under the
Securities Act and disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Initial Security is actually sold
pursuant to Rule 144 (or any similar rule then in effect other than Rule 144A)
under the Securities Act and (d) the date such Initial Security ceases to
be outstanding and (ii) Exchange Security issued to a Broker Dealer until
the date on which such Exchange Security is distributed by a Broker-Dealer
pursuant to the “Plan of Distribution” contemplated by the Exchange Offer Registration
Statement (including delivery of the Prospectus contained therein).

 

Trust Indenture Act:  The Trust Indenture Act of 1939,
as amended, including the rules and regulations promulgated thereunder.

 

Underwritten Registration or Underwritten Offering:  A registration in
which securities of the Company are sold to an underwriter for reoffering to
the public.

 

SECTION 2.              Securities Subject to this
Agreement.

 

(a)           Transfer Restricted Securities.  The securities
entitled to the benefits of this Agreement are the Transfer Restricted
Securities.

 

(b)           Holders of Transfer Restricted Securities.  A Person is deemed
to be a holder of Transfer Restricted Securities (each, a “Holder”)
whenever such Person owns Transfer Restricted Securities.

 

SECTION 3.              Registered Exchange Offer.

 

(a)           Unless the Exchange Offer
shall not be permissible under applicable law or Commission policy (after the
procedures set forth in Section 6(a) hereof have been complied with),
each of the Company and the Guarantors shall (i) use its commercially
reasonable efforts to cause to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 210 days
after the Closing Date (or if such 210th day is not a Business Day, the next
succeeding Business Day) (such date, the “Filing Date”),
a Registration Statement under the Securities Act relating to the Exchange
Securities and the Exchange Offer, (ii) use its commercially reasonable
efforts to cause such Registration Statement to become effective as promptly as
possible, (iii) in connection with the foregoing, file (A) all
pre-effective amendments to such Registration Statement as may be necessary in
order to cause such Registration Statement to become effective, (B) if
applicable, a post-effective amendment to such Registration 

 

3

 

Statement pursuant to Rule 430A under
the Securities Act and (C) cause all necessary filings in connection with
the registration and qualification of the Exchange Securities to be made under
the state securities or blue sky laws of such jurisdictions as are necessary to
permit Consummation of the Exchange Offer and (iv) upon the effectiveness
of such Registration Statement, commence the Exchange Offer.  The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Securities to be offered
in exchange for the Transfer Restricted Securities and to permit resales of
Initial Securities held by Broker-Dealers as contemplated by Section 3(c) hereof.

 

(b)           If an Exchange Offer
Registration Statement is required to be filed by the Company pursuant to Section 3(a) above,
the Company and the Guarantors shall cause the Exchange Offer Registration
Statement to be effective continuously and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided, however, that
in no event shall such period be less than 20 Business Days after the date
notice of the Exchange Offer is mailed to Holders.  The Company shall cause the Exchange Offer to
comply with all applicable federal and state securities laws.  No securities other than the Exchange Securities
shall be included in the Exchange Offer Registration Statement.  Unless the Exchange Offer shall not be
permissible under applicable law or Commission policy (after the procedures set
forth in Section 6(a) hereof have been complied with), the Company
shall use its commercially reasonable efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer Registration
Statement has become effective, but in no event later than 270 days after
the Closing Date (or if such 270th day is not a Business Day, the next
succeeding Business Day).

 

(c)           The Company shall indicate
in a “Plan of Distribution” section contained in the Prospectus forming a part
of the Exchange Offer Registration Statement that any Broker-Dealer who holds
Initial Securities that are Transfer Restricted Securities and that were
acquired for its own account as a result of market-making activities or other
trading activities (other than Transfer Restricted Securities acquired directly
from the Company), may exchange such Initial Securities pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an “underwriter”
within the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales
of the Exchange Securities received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery
by such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement.  Such “Plan of
Distribution” section shall also contain all other information with respect to
such resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such “Plan of Distribution” shall not
name any such Broker-Dealer or disclose the amount of Initial Securities held
by any such Broker-Dealer except to the extent required by the Commission.

 

If an Exchange Offer Registration Statement is
required to be filed by the Company pursuant to Section 3(a) above,
each of the Company and the Guarantors shall use its commercially reasonable
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section 6(c) hereof
to the extent necessary to ensure that it is available for resales of Initial
Securities acquired by Broker-Dealers for their own accounts as a result of
market-making activities or other trading activities, and to ensure that it
conforms with the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced from time
to time, for a period ending on the earlier of (i) 180 days from the
date on which the Exchange Offer Registration Statement is declared effective
and (ii) the date on which a Broker-Dealer is no longer required to
deliver a prospectus in connection with market-making or other trading activities.

 

4

 

The Company shall provide sufficient copies of the
latest version of such Prospectus to Broker-Dealers promptly upon request at
any time during such 180-day (or shorter as provided in the foregoing
paragraph) period in order to facilitate such resales.

 

SECTION 4.              Shelf Registration.

 

(a)           Shelf Registration.  If (i) the Company is
not required to file an Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy (after the procedures set forth in Section 6(a) hereof
have been complied with), (ii) for any reason the Exchange Offer is not Consummated
within 270 days after the Closing Date (or if such 270th day is not a
Business Day, the next succeeding Business Day), or (iii) with respect to
any Holder of Transfer Restricted Securities, such Holder notifies the Company
prior to the 20th calendar day following the Consummation of the Exchange Offer
that: (A) such Holder is prohibited by applicable law or Commission policy
from participating in the Exchange Offer, (B) such Holder may not resell
the Exchange Securities acquired by it in the Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales
by such Holder, or (C) such Holder is a Broker-Dealer and holds Initial
Securities acquired directly from the Company or one of its affiliates, then,
upon such Holder’s request, the Company and the Guarantors shall:

 

(x)            cause to be filed a shelf registration statement
pursuant to Rule 415 under the Securities Act, which may be an amendment
to the Exchange Offer Registration Statement (in either event, the “Shelf Registration Statement”), on or prior to the later of (i) 210
days following the Closing Date (or if such 210th day is not a Business Day,
the next succeeding Business Day) and (ii) 90 days after such filing
obligation arises (or if such 90th day is not a Business Day, the next
succeeding Business Day (such date being the “Shelf Filing
Deadline”)) (provided, however, that except where the Company is not required to
file an Exchange Offer Registration Statement because the Exchange offer is not
permitted by applicable law or Commission policy, no obligation to file a Shelf
Registration Statement shall accrue until after the Exchange Offer Registration
Statement has been filed), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities as to which the Holders thereof
shall have provided the information required pursuant to Section 4(b) hereof;
and

 

(y)           use their commercially reasonable efforts to cause
such Shelf Registration Statement to be declared effective by the Commission on
or before the 180th day after such filing obligation arises (or if such 180th
day is not a Business Day, the next succeeding Business Day).

 

Each of the Company and the Guarantors shall use its
commercially reasonable efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for resales of Initial Securities by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission
as announced from time to time, for a period of at least two years following
the effective date of such Shelf Registration Statement (or shorter period that
will terminate when all the Initial Securities covered by such Shelf Registration
Statement have been sold pursuant to such Shelf Registration Statement or are
otherwise no longer Transfer Restricted Securities).

 

(b)           Provision by Holders of Certain
Information in Connection with the Shelf Registration Statement.  No Holder of Transfer
Restricted Securities may include any of its Transfer Restricted Securities in
any Shelf Registration Statement pursuant to this Agreement unless and until
such Holder furnishes 

 

5

 

to the Company in writing, within 10 Business
Days after receipt of a request therefor, such information as the Company may
reasonably request for use in connection with any Shelf Registration Statement
or Prospectus or preliminary Prospectus included therein.  Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.

 

SECTION 5.              Additional Interest.  If (i) the Company and
the Guarantors fail to file with the Commission any of the Registration
Statements required by this Agreement on or prior to the date specified for
such filing in this Agreement, (ii) any Shelf Registration Statement required
by this Agreement has not been declared effective by the Commission on or prior
to the date specified for such effectiveness in this Agreement, (iii) the
Company and the Guarantors fail to Consummate the Exchange Offer within 270
days of the Closing Date or (iv) any Registration Statement required by
this Agreement is filed and declared effective but thereafter ceases to be
effective or usable in connection with resales or exchanges, as applicable, of
Transfer Restricted Securities during the periods required under this Agreement
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself immediately
declared effective (each such event referred to in clauses (i) through
(iv), a “Registration Default”), as liquidated
damages for such Registration Default, the Company hereby agrees that the
interest rate borne by the Transfer Restricted Securities shall be increased by
0.25% per annum during the first 90-day period immediately following the
occurrence of any Registration Default and shall increase by 0.25% per annum at
the end of each subsequent 90-day period (such increases, “Additional
Interest”), but in no event shall such increases exceed 1.00% per annum
in the aggregate.  Any amounts of
Additional Interest due pursuant to this Section 5 will be paid in cash on
the relevant Interest Payment Date to Holders of record of Transfer Restricted
Securities on the relevant regular record date. 
As of the earlier of (x) the cure of all Registration Defaults
relating to any particular Transfer Restricted Securities and (y) the
particular Transfer Restricted Securities having ceased to be Transfer Restricted
Securities, the accrual of Additional Interest shall cease and the interest
rate borne by the relevant Transfer Restricted Securities will be reduced to
the original interest rate borne by such Transfer Restricted Securities; provided, however, that,
if after any such reduction in interest rate, a different Registration Default
occurs, the interest rate borne by the relevant Transfer Restricted Securities
shall again be increased pursuant to the foregoing provisions.  Additional Interest will accrue and be
payable only with respect to a single Registration Default at any given time,
notwithstanding the fact that multiple Registration Defaults may exist at such
time.  The accrual of Additional Interest
shall be the sole and exclusive remedy available to the Holders of Transfer
Restricted Securities for any Registration Default, and a Registration Default
shall not constitute a default under the Indenture.

 

All obligations of the Company and the Guarantors
set forth in the preceding paragraph that are outstanding with respect to any
Transfer Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations with
respect to such security shall have been satisfied in full.

 

SECTION 6.              Registration Procedures.

 

(a)           Exchange Offer Registration Statement.  In connection with the Exchange Offer, the
Company and the Guarantors shall comply with all of the applicable provisions
of Section 6(c) hereof, shall use their commercially reasonable
efforts to effect such exchange to permit the sale of Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof and shall comply with all of the following
provisions.  As a condition to its
participation in the Exchange Offer pursuant to the terms of this Agreement,
each Holder of Transfer Restricted Securities shall furnish, upon the request
of the Company, prior to the Consummation thereof, a written representation to
the 

 

6

 

Company (which may be contained in the letter
of transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an affiliate (within the meaning of Rule 405
under the Securities Act) of the Company, (B) it is not engaged in, and
does not intend to engage in, and has no arrangement or understanding with any
Person to participate in, a distribution (within the meaning of the Securities
Act) of the Exchange Securities to be issued in the Exchange Offer and (C) it
is acquiring the Exchange Securities in its ordinary course of business.  In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company’s preparations for the
Exchange Offer.  Each Holder will be
required to acknowledge and agree that any Broker-Dealer and any such Holder
using the Exchange Offer to participate in a distribution of the securities to
be acquired in the Exchange Offer (1) could not under Commission policy as
in effect on the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5,
1991) and Exxon Capital Holdings Corporation (available May 13,
1988), as interpreted in the Commission’s letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters, and (2) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction and that such
a secondary resale transaction should be covered by an effective registration
statement containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K if the resales are of Exchange
Securities obtained by such Holder in exchange for Transfer Restricted Securities
acquired by such Holder directly from the Company.

 

(b)           Shelf Registration
Statement.  In connection
with any Shelf Registration Statement required by this Agreement, each of the
Company and the Guarantors shall comply with all the provisions of Section 6(c) hereof
and shall use its commercially reasonable efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto each of the Company and the Guarantors will, within the time
periods required by Section 4(a)(x), prepare and file with the Commission
a Shelf Registration Statement relating to the registration on any appropriate
form under the Securities Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.

 

(c)           General Provisions.  In connection with any
Registration Statement and any Prospectus required by this Agreement to permit
the sale or resale of Transfer Restricted Securities (including, without
limitation, any Registration Statement and the related Prospectus required to
permit resales of Transfer Restricted Securities by Broker-Dealers), each of
the Company and the Guarantors shall:

 

(i)      use its commercially
reasonable efforts to keep such Registration Statement continuously effective
and provide all requisite financial statements (including, if required by the Securities
Act or any regulation thereunder, financial statements of the Guarantors for
the period specified in Section 3 or 4 hereof, as applicable) upon the
occurrence of any event that would cause any such Registration Statement, or
the Prospectus contained therein (A) to contain a material misstatement or
omission or (B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration Statement, in the case
of clause (A), correcting any such misstatement or omission, and, in the case
of either clause (A) or (B), use its commercially reasonable efforts to
cause such amendment to be declared effective and such Registration Statement
and the related Prospectus to become usable for their intended purpose(s) as
soon as practicable thereafter;

 

(ii)     prepare and file with the
Commission such amendments and post-effective amendments to the applicable
Registration Statement as may be necessary to keep such Registration Statement
effective for the applicable period set forth in Section 3 or 4 hereof, as
applicable, 

 

7

 

or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold or otherwise cease to be
Transfer Restricted Securities; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Securities Act in a timely manner; and comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to the
Prospectus;

 

(iii)    during the
applicable period set forth in Section 3 or 4 hereof, advise the underwriter(s) or
Broker-Dealer(s) who have requested copies of the Prospectus included in
any Registration Statement, if any, and selling Holders named in any Shelf
Registration Statement promptly and, if requested by such Persons, to confirm
such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to
such Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to such Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness of
such Registration Statement under the Securities Act or of the suspension by
any state securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, (D) of the existence of any
fact or the happening of any event that makes any statement of a material fact
made in such Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein untrue,
or that requires the making of any additions to or changes in such Registration
Statement or the Prospectus in order to make the statements therein (with respect
to the Prospectus, in light of the circumstances under which they were made)
not misleading.  If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
blue sky laws, each of the Company and the Guarantors shall use its
commercially reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;

 

(iv)    furnish without charge to
each of the Initial Purchasers, each selling Holder named in any Shelf
Registration Statement, and each of the underwriter(s), if any, five Business
Days before filing with the Commission, copies of any Shelf Registration
Statement or any Prospectus included therein or any amendments or supplements
to any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the reasonable review and
comment of such Holders and underwriter(s) in connection with such sale,
if any, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to which an
Initial Purchaser of Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s), if any, shall reasonably object
in writing within five Business Days after the receipt thereof (such objection
to be deemed timely made upon confirmation of telecopy transmission within such
period).  The objection of an Initial
Purchaser, a Holder, or underwriter, if any, shall be deemed to be reasonable
if such Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material misstatement or omission.  This clause (iv) shall not apply to any
filing by the Company or the Guarantors of any annual

 

8

 

report
on Form 10-K, quarterly report on Form 10-Q or Current Report on Form 8-K
with respect to matters unrelated to the Transfer Restricted Securities and the
offering thereof or exchange therefor;

 

(v)     in the case of a Shelf
Registration Statement, make available at reasonable times for inspection by
the Initial Purchasers, the managing underwriter(s), if any, participating in
any disposition pursuant to such Registration Statement and any attorney or
accountant retained by such Initial Purchasers or any of the underwriter(s),
all financial and other records, pertinent corporate documents and properties
of each of the Company and the Guarantors and cause the Company’s and the
Guarantors’ officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its effectiveness and to
participate in meetings with investors to the extent reasonably requested by
the managing underwriter(s), if any;

 

(vi)    if reasonably requested by
any selling Holder named in a Shelf Registration Statement or the
underwriter(s), if any, promptly incorporate in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if necessary,
such information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without limitation,
information relating to the “Plan of Distribution” of the Transfer Restricted
Securities, information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the purchase price
being paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment;

 

(vii)   use
commercially reasonable efforts to cause the Transfer Restricted Securities
covered by the Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate principal
amount of Initial Securities covered thereby or the underwriter(s), if any;

 

(viii)  in the case of
a Shelf Registration Statement, furnish to each Initial Purchaser, each selling
Holder and the underwriter(s), if any, without charge, at least one copy of the
Shelf Registration Statement, as first filed with the Commission, and of each
amendment thereto, including financial statements and schedules, all documents
incorporated by reference therein (upon request) and all exhibits (including
exhibits incorporated therein by reference), which requirements shall be deemed
satisfied through the filing with the Commission on EDGAR;

 

(ix)    deliver to each selling
Holder and each of the underwriter(s), if any, without charge, as many copies
of the Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; each of the Company
and the Guarantors hereby consents to the use of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;

 

(x)     to the extent the offering
under the Shelf Registration Statement is an Underwritten Registration, enter
into such agreements (including an underwriting agreement in form, scope and
substance as is customary in Underwritten Registrations of debt securities similar
to the Initial 

 

9

 

Securities,
as may be appropriate under the circumstances), and make such customary representations
and warranties, and take all such other actions, all to such extent as may be
reasonably requested by any Initial Purchaser or by any Holder of Transfer
Restricted Securities or underwriter in connection with any sale or resale
pursuant to any Shelf Registration Statement contemplated by this Agreement;
and whether or not an underwriting agreement is entered into and whether or not
the registration is an Underwritten Registration, each of the Company and the Guarantors
shall:

 

(A)          furnish to each
Initial Purchaser, each selling Holder and each underwriter, if any, in such
substance and scope as they may reasonably request and as are customarily made
by issuers to underwriters in primary underwritten offerings, upon the effectiveness
of the Shelf Registration Statement:

 

(1)           a certificate,
dated the date of effectiveness of the Shelf Registration Statement, signed by (y) the
Chairman of the Board of Directors, the Chief Executive Officer, the President
or any Vice President and (z) a principal financial or accounting officer
of each of the Company and the Guarantors, confirming, as of the date thereof,
matters similar to those set forth in Section 5(e) of the Purchase
Agreement and such other matters as such parties may reasonably request;

 

(2)           an opinion,
dated the date of effectiveness of the Shelf Registration Statement, of counsel
for the Company and the Guarantors, covering matters similar to those set forth
in Section 5(c) of the Purchase Agreement; and

 

(3)           a customary
comfort letter, dated the date of effectiveness of the Shelf Registration
Statement, from the Company’s independent accountants, in the customary form
and covering matters of the type customarily requested to be covered in comfort
letters by underwriters in connection with primary underwritten offerings, and
covering or affirming matters similar to those set forth in the comfort letters
delivered pursuant to Section 5(a) of the Purchase Agreement, without
exception;

 

(B)           set forth in
full or incorporate by reference in the underwriting agreement, if any, the
indemnification provisions and procedures of Section 8 hereof with respect
to all parties to be indemnified pursuant to said Section; and

 

(C)           deliver such
other documents and certificates as may be reasonably requested by the Initial
Purchasers, the underwriters, if any, and the Holders of a majority in
aggregate principal amount of Initial Securities to evidence compliance with Section 6(c)(x)(A) hereof
and with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company or any of the Guarantors pursuant
to this Section 6(c)(x), if any.

 

If at any time the representations and
warranties of the Company and the Guarantors contemplated in Section 6(c)(x)(A)(1) hereof
cease to be true and correct, the Company or the Guarantors shall so advise the
Initial Purchasers and the underwriter(s), if any, and each selling Holder
promptly;

 

(xi)           prior to any
public offering of Transfer Restricted Securities, use commercially reasonable
efforts to cause the registration and qualification of the Transfer Restricted
Securities 

 

10

 

under
the state securities or blue sky laws of such jurisdictions as the selling
Holders or underwriter(s), if any, may reasonably request and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however, that neither the Company nor the Guarantors shall
be required to register or qualify as a foreign entity where it is not then so
qualified or to take any action that would subject it to service of process in
suits or to taxation in any jurisdiction where it is not then so subject;

 

(xii)          shall issue,
upon the request of any Holder of Initial Securities covered by the Shelf
Registration Statement, Exchange Securities having an aggregate principal
amount equal to the aggregate principal amount of Initial Securities
surrendered to the Company by such Holder in exchange therefor or being sold by
such Holder; such Exchange Securities to be registered in the name of such
Holder or in the name of the purchaser(s) of such Securities, as the case
may be; in return, the Initial Securities held by such Holder shall be
surrendered to the Company for cancellation;

 

(xiii)         in the case of
a Shelf Registration Statement, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold and not
bearing any restrictive legends; and enable such Transfer Restricted Securities
to be in such denominations and registered in such names as the Holders or the
underwriter(s), if any, may request, at least two Business Days prior to any
sale of Transfer Restricted Securities made by such Holders or underwriter(s);

 

(xiv)        use its
commercially reasonable efforts to cause the Transfer Restricted Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in Section 6(c)(xi) hereof;

 

(xv)         if any fact or
event contemplated by Section 6(c)(iii)(D) hereof shall exist or have
occurred, prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading;

 

(xvi)        provide a CUSIP
number for all Securities not later than the effective date of the Registration
Statement covering such Securities and provide the Trustee under the Indenture
with printed certificates for such Securities which are in a form eligible for
deposit with the Depository Trust Company and take all other action necessary
to ensure that all such Securities are eligible for deposit with the Depository
Trust Company;

 

(xvii)       cooperate and
assist in any filings required to be made with the FINRA and in the performance
of any due diligence investigation by any underwriter (including any “qualified
independent underwriter” as defined within the rules and regulations of
the FINRA) that is required to be retained in accordance with the rules and
regulations of the FINRA;

 

(xviii)      otherwise use
its commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make generally available to its security
holders, as 

 

11

 

 

soon
as practicable, a consolidated earnings statement meeting the requirements of Rule 158
under the Securities Act (which need not be audited) for the twelve-month
period (A) commencing at the end of any fiscal quarter in which Transfer
Restricted Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering or (B) if not sold to underwriters in such
an offering, beginning with the first month of the Company’s first fiscal
quarter commencing after the effective date of such Registration Statement;

 

(xix)         cause the
Indenture to be qualified under the Trust Indenture Act not later than the
effective date of the first Registration Statement required by this Agreement,
and, in connection therewith, cooperate with the Trustee and the Holders of
Securities to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the Trust
Indenture Act; and to execute and use its commercially reasonable efforts to
cause the Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the Commission
to enable such Indenture to be so qualified in a timely manner;

 

(xx)          cause all
Securities covered by such Registration Statement to be listed on each
securities exchange or automated quotation system on which similar securities
issued by the Company are then listed if requested by the Holders of a majority
in aggregate principal amount of Initial Securities or the managing
underwriter(s), if any; and

 

(xxi)         provide
promptly to each Holder upon request each document filed with the Commission
pursuant to the requirements of Section 13 and Section 15 of the
Exchange Act, which requirement shall be deemed satisfied upon filing with the
Commission on EDGAR.

 

Notwithstanding the foregoing, the Company may
suspend the offering and sale under the Shelf Registration Statement (the “Suspension Period”) for a period or periods if (i) the
board of directors reasonably determines that the continued use of such
Registration Statement would (A) require the Company to make a public
disclosure of material non-public information, which disclosure in the good
faith judgment of the board of directors of the Company (1) would be required
to be made in such Registration Statement so that such Registration Statement
would not be materially misleading and (2) would not be required to be
made at such time but for the continued use of such Registration Statement or (B) would
in the good faith and judgment of the board of directors of the Company be
expected to have a material adverse effect on the Company or its business or on
the Company’s ability to effect a planned or proposed acquisition, disposition,
financing, reorganization, recapitalization or similar transaction and (ii) the
Company notifies the underwriters, if any, and the Holders of Transfer
Restricted Securities within five days after the board of directors makes the
relevant determination set forth in clause (i); provided
that the period or periods of suspension under clause (i) above shall not
exceed, in the aggregate, 90 days in any twelve-month period during which the
Shelf Registration Statement is required to be effective. Each Holder agrees by
acquisition of a Transfer Restricted Security that, upon receipt of any notice
from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof
or any Suspension Period, such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until such Holder’s receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(xv) hereof, or until it is
advised in writing (the “Advice”) by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus.  If so directed by the
Company, each Holder will deliver to the Company (at the Company’s expense) all
copies, other than permanent file copies then in such Holder’s possession, of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of such notice.  In
the event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth 

 

12

 

in Section 3 or 4
hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) hereof
or notice of any Suspension Period to and including the date when each selling
Holder covered by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv)
hereof or shall have received the Advice; provided, however,
that no such extension shall be taken into account in determining whether
Additional Interest is due pursuant to Section 5 hereof or the amount of
such Additional Interest, it being agreed that the Company’s option to suspend
use of a Registration Statement pursuant to this paragraph shall be treated as
a Registration Default for purposes of Section 5 hereof.

 

SECTION 7.              Registration Expenses.

 

(a)           All expenses incident to the
Company’s and the Guarantors’ performance of or compliance with this Agreement
will be borne by the Company and the Guarantors, jointly and severally, regardless
of whether a Registration Statement becomes effective, including, without
limitation: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the FINRA (and, if
applicable, the fees and expenses of any “qualified independent underwriter”
and its counsel that may be required by the rules and regulations of the
FINRA)); (ii) all fees and expenses of compliance with federal securities
and state securities or blue sky laws; (iii) all expenses of printing (including
printing certificates for the Exchange Securities to be issued in the Exchange
Offer and printing of Prospectuses), messenger and delivery services and
telephone; (iv) all reasonable fees and disbursements of counsel for the
Company and the Guarantors, and, subject to Section 7(b) hereof, the
Holders of Transfer Restricted Securities; (v) all application and filing
fees in connection with listing the Exchange Securities on a securities exchange
or automated quotation system pursuant to the requirements thereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and the Guarantors (including the expenses of any special audit and
comfort letters required by or incident to such performance).

 

Each of the Company and the Guarantors will, in any
event, bear its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expenses of any annual audit and the fees and expenses of any
Person, including special experts, retained by the Company or the Guarantors.

 

Notwithstanding the foregoing, the Holders of
Transfer Restricted Securities being registered shall pay all agency fees and
commissions and underwriting discounts and commissions, if any, and transfer
taxes, if any, attributable to the sale of such Transfer Restricted Securities,
and the fees and disbursements of any counsel or other advisors or experts
retained by such Holders (severally or jointly), other than the counsel and
experts specifically referred to above or below.

 

(b)           In connection with any
Registration Statement required by this Agreement (including, without
limitation, the Exchange Offer Registration Statement and the Shelf Registration
Statement), the Company and the Guarantors, jointly and severally, will reimburse
the Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the “Plan of
Distribution” contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel for the Holders
of Transfer Restricted Securities and the Initial Purchasers, who shall be Cahill
Gordon & Reindel LLP or such other counsel as may be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.

 

13

 

SECTION 8.              Indemnification.

 

(a)           The Company and the
Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each
Holder and (ii) each Person, if any, who controls (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) any Holder (any
of the Persons referred to in this clause (ii) being hereinafter referred
to as a “controlling person”) and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any Person referred to in clause (i), (ii) or
(iii) may hereinafter be referred to as an “Indemnified
Holder”), to the fullest extent lawful, from and against any and all
losses, claims, damages, liabilities, judgments, actions and expenses
(including, without limitation, and as incurred, reimbursement of all
reasonable costs of investigating, preparing, pursuing, settling, compromising,
paying or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder), joint or
several, directly or indirectly caused by, related to, based upon, arising out
of or in connection with any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (or any
amendment or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders furnished in writing
to the Company by any of the Holders expressly for use therein.  This indemnity agreement shall be in addition
to any liability which the Company or any of the Guarantors may otherwise have.

 

In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be brought or
asserted against any of the Indemnified Holders with respect to which indemnity
may be sought against the Company or the Guarantors, such Indemnified Holder
(or the Indemnified Holder controlled by such controlling person) shall
promptly notify the Company and the Guarantors in writing; provided, however, that the failure to give such notice shall not
relieve any of the Company or the Guarantors of its obligations pursuant to
this Agreement except to the extent they are prejudiced (through the forfeiture
of substantive rights or defenses) by such failure.  Such Indemnified Holder shall have the right
to employ not more than one counsel of its own choosing in any such action and
the reasonable and documented fees and expenses of such counsel shall be paid,
as incurred, by the Company and the Guarantors, subject to the limitations on
the Company’s and the Guarantors’ indemnification obligations set forth in the
preceding paragraph.  The Company and the
Guarantors shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for such
Indemnified Holders, which firm shall be designated by the Holders.  The Company and the Guarantors shall be
liable for any settlement of any such action or proceeding effected with the
Company’s and the Guarantors’ prior written consent, which consent shall not be
withheld unreasonably, and each of the Company and the Guarantors agrees to
indemnify and hold harmless any Indemnified Holder from and against any loss,
claim, damage, liability or expense by reason of any settlement of any action
effected with the written consent of the Company and the Guarantors. The
Company and the Guarantors shall not, without the prior written consent of each
Indemnified Holder, settle or compromise or consent to the entry of judgment in
or otherwise seek to terminate any pending or threatened action, claim,
litigation or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not any Indemnified Holder is a party
thereto), unless such settlement, compromise, consent or termination includes
an unconditional release of each Indemnified Holder from all liability arising
out of such action, claim, litigation or proceeding.

 

14

 

(b)           Each Holder of Transfer
Restricted Securities agrees, severally and not jointly, to indemnify and hold
harmless the Company, the Guarantors and their respective directors and officers
who sign a Registration Statement, and any Person controlling (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) the Company or any of the Guarantors, and the respective officers,
directors, partners, employees, representatives and agents of each such Person,
to the same extent as the foregoing indemnity from the Company and the
Guarantors to each of the Indemnified Holders, but only with respect to claims
and actions based on information relating to such Holder furnished in writing
by such Holder expressly for use in any Registration Statement.  In case any action or proceeding shall be
brought against the Company, the Guarantors or their respective directors or
officers or any such controlling person in respect of which indemnity may be
sought against a Holder of Transfer Restricted Securities, such Holder shall
have the rights and duties given to the Company and the Guarantors, and the Company,
the Guarantors and their respective directors and officers and such controlling
person shall have the rights and duties given to each Holder by the preceding
paragraph.

 

(c)           If the indemnification
provided for in this Section 8 is unavailable to an indemnified party
under Section 8(a) or (b) hereof (other than by reason of
exceptions provided in those Sections) in respect of any losses, claims,
damages, liabilities, judgments, actions or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other
hand, from the Initial Placement (which in the case of the Company and the
Guarantors shall be deemed to be equal to the total net proceeds (before
deducting expenses) to the Company and the Guarantors from the Initial
Placement), the amount of Additional Interest which did not become payable as a
result of the filing of the Registration Statement resulting in such losses,
claims, damages, liabilities, judgments actions or expenses, and such
Registration Statement, or if such allocation is not permitted by applicable
law, the relative fault of the Company and the Guarantors, on the one hand, and
the Holders, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations.  The relative fault of the Company and the
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or any
of the Guarantors, on the one hand, or the Indemnified Holders, on the other
hand, and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.  The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities or expenses referred to
above shall be deemed to include, subject to the limitations set forth in Section 8(a) hereof,
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.

 

The Company, the Guarantors and each Holder of
Transfer Restricted Securities agree that it would not be just and equitable if
contribution pursuant to this Section 8(c) were determined by pro
rata allocation (even if the Holders were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph.  The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities or
expenses referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 8,
none of the Holders (and its related Indemnified Holders) shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total discount received by such Holder with respect to the Initial Securities
exceeds the amount of any damages which 

 

15

 

such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.  No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.  The Holders’ obligations to contribute
pursuant to this Section 8(c) are several in proportion to the
respective principal amount of Initial Securities held by each of the Holders
hereunder and not joint.

 

SECTION 9.              Rule 144A.  Each
of the Company and the Guarantors hereby agrees with each Holder,
for so long as any Transfer Restricted Securities remain outstanding, to make
available to any Holder or beneficial owner of Transfer Restricted Securities
in connection with any sale thereof and any prospective purchaser of such
Transfer Restricted Securities from such Holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Securities Act in
order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A
under the Securities Act.

 

SECTION 10.            Participation in Underwritten
Registrations.  No Holder may
participate in any Underwritten Registration hereunder unless such Holder (a) agrees
to sell such Holder’s Transfer Restricted Securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents required under the terms of such
underwriting arrangements.

 

SECTION 11.            Selection of Underwriters.  The Holders of Transfer
Restricted Securities covered by the Shelf Registration Statement who desire to
do so may sell such Transfer Restricted Securities in an Underwritten
Offering.  In any such Underwritten
Offering, the investment banker(s) and managing underwriter(s) that
will administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, however,
that such investment banker(s) and managing underwriter(s) must be
reasonably satisfactory to the Company.

 

SECTION 12.            Miscellaneous.

 

(a)           Remedies.  Each of the Company and the Guarantors hereby
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agree to waive the defense in any action for specific performance that a
remedy at law would be adequate.

 

(b)           No Inconsistent Agreements.  Each
of the Company and the Guarantors will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. 
Other than the Registration Rights Agreement, dated as of November 1,
2006, by and among the Company, Credit Suisse Securities (USA) LLC, and
Deutsche Bank Securities Inc., neither the Company nor any of the Guarantors
has previously entered into any agreement granting any registration rights with
respect to its debt securities to any Person. 
The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company’s or any of the Guarantors’ securities under any agreement in effect on
the date hereof.

 

(c)           Adjustments Affecting the
Securities.  The Company
will not take any action, or permit any change to occur, with respect to the
Initial Securities that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.

 

(d)           Amendments and Waivers.  The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to or departures from the provisions hereof may not be 

 

16

 

given unless the Company has (i) in the
case of Section 5 hereof and this Section 12(d)(i), obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, obtained the written
consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding any Transfer Restricted Securities
held by the Company or its Affiliates). 
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted Securities
being tendered or registered; provided, however,
that, with respect to any matter that directly or indirectly affects the rights
of any Initial Purchaser hereunder, the Company shall obtain the written
consent of each such Initial Purchaser with respect to which such amendment,
qualification, supplement, waiver, consent or departure is to be effective.

 

(e)           Notices.  All notices and other
communications provided for or permitted hereunder shall be made in writing by
hand-delivery, first-class mail (registered or certified, return receipt requested),
facsimile or air courier guaranteeing overnight delivery:

 

 (i)           if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the Trustee under
the Indenture; and

 

(ii)           if to the
Company:

 

KEMET
Corporation

2835 KEMET Way

Simpsonville, South Carolina 29681

Facsimile: (864) 228-4161

Attention: Chief Financial Officer

 

With a copy to:

 

Kirkland &
Ellis LLP

300 North LaSalle Street 

Chicago, Illinois 60654

Facsimile: (312) 862-2200

Attention: H. Kurt von Moltke, P.C. and William Burke

 

All such notices and communications shall be deemed
to have been duly given:  at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged,
if sent by facsimile; and on the next Business Day, if timely delivered to an
air courier guaranteeing overnight delivery.

 

Copies of all such notices, demands or other
communications shall be concurrently delivered by the Person giving the same to
the Trustee at the address specified in the Indenture.

 

(f)            Successors and Assigns.  This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign
acquired Transfer Restricted Securities from such Holder.

 

17

 

(g)           Counterparts.  This Agreement may be
executed in any number of counterparts (including by facsimile or other method
of electronic transmission) and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.

 

(h)           Headings.  The headings in this
Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.

 

(i)            Governing Law.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF.

 

(j)            Severability.  In the event that any one or
more of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.

 

(k)           Entire Agreement.  This Agreement is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Securities.  This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.

 

(l)            Waiver of Jury Trial.  EACH OF THE PARTIES HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT.

 

[Signature Pages Follow]

 

18

 

IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.

 

	
   

  	
  KEMET
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William M. Lowe, Jr.

  
	
   

  	
   

  	
  Name:
  William M. Lowe, Jr.

  
	
   

  	
   

  	
  Title:
  EVP and CFO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  KEMET
  ELECTRONICS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William M. Lowe, Jr.

  
	
   

  	
   

  	
  Name:
  William M. Lowe, Jr.

  
	
   

  	
   

  	
  Title:
  EVP and CFO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KEMET
  SERVICES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Conrado Hinojosa

  
	
   

  	
   

  	
  Name:
  Conrado Hinojosa

  
	
   

  	
   

  	
  Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KRC
  TRADE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William M. Lowe, Jr.

  
	
   

  	
   

  	
  Name:
  William M. Lowe, Jr.

  
	
   

  	
   

  	
  Title:
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE
  FOREST ELECTRIC COMPANY

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles C. Meeks, Jr.

  
	
   

  	
   

  	
  Name: Charles C. Meeks, Jr.

  
	
   

  	
   

  	
  Title: President

  

 

 

[Registration
Rights Agreement]

 

 

The foregoing Registration Rights Agreement is
hereby confirmed and accepted as of the date first above written:

 

BANC
OF AMERICA SECURITIES LLC

Acting
on behalf of itself and as the

Representative
of the several Initial Purchasers

 

	
  By:

  	
  Banc
  of America Securities LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  William Pegler

  	
   

  
	
   

  	
  Name:
  William Pegler

  
	
   

  	
  Title:
  Director

  

 

 

[Registration Rights
Agreement]Exhibit 10.3

 

THERAVANCE, INC.

2004 EQUITY INCENTIVE PLAN

(AS AMENDED AND RESTATED FEBRUARY 10, 2010)

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I.

  	
  INTRODUCTION

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.

  	
  ADMINISTRATION

  	
  1

  
	
  2.1

  	
  Committee Composition

  	
  1

  
	
  2.2

  	
  Committee Responsibilities

  	
  1

  
	
  2.3

  	
  Committee for
  Non-Officer Grants

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE III.

  	
  SHARES AVAILABLE FOR
  GRANTS

  	
  2

  
	
  3.1

  	
  Basic Limitation

  	
  2

  
	
  3.2

  	
  Additional Shares

  	
  2

  
	
  3.3

  	
  Shares Subject to
  Substituted Awards

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV.

  	
  ELIGIBILITY

  	
  3

  
	
  4.1

  	
  Incentive Stock Options

  	
  3

  
	
  4.2

  	
  Other Grants

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE V.

  	
  OPTIONS

  	
  3

  
	
  5.1

  	
  Stock Option Agreement

  	
  3

  
	
  5.2

  	
  Number of Shares

  	
  3

  
	
  5.3

  	
  Exercise Price

  	
  4

  
	
  5.4

  	
  Exercisability and Term

  	
  4

  
	
  5.5

  	
  Modification or
  Assumption of Options

  	
  4

  
	
  5.6

  	
  Buyout Provisions

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI.

  	
  PAYMENT FOR OPTION SHARES

  	
  4

  
	
  6.1

  	
  General Rule

  	
  4

  
	
  6.2

  	
  Surrender of Stock

  	
  5

  
	
  6.3

  	
  Exercise/Sale

  	
  5

  
	
  6.4

  	
  Exercise/Pledge

  	
  5

  
	
  6.5

  	
  Promissory Note

  	
  5

  
	
  6.6

  	
  Other Forms of Payment

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII.

  	
  STOCK APPRECIATION
  RIGHTS

  	
  5

  
	
  7.1

  	
  SAR Agreement

  	
  5

  
	
  7.2

  	
  Number of Shares

  	
  5

  
	
  7.3

  	
  Exercise Price

  	
  6

  
	
  7.4

  	
  Exercisability and Term

  	
  6

  
	
  7.5

  	
  Exercise of SARs

  	
  6

  
	
  7.6

  	
  Modification or
  Assumption of SARs

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII.

  	
  RESTRICTED SHARES

  	
  7

  
	
  8.1

  	
  Restricted Stock
  Agreement

  	
  7

  
	
  8.2

  	
  Payment for Awards

  	
  7

  
	
  8.3

  	
  Vesting Conditions

  	
  7

  

 

i

 

	
  8.4

  	
  Voting and Dividend
  Rights

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX.

  	
  STOCK UNITS AND
  PERFORMANCE CASH AWARDS

  	
  8

  
	
  9.1

  	
  Stock Unit Agreement

  	
  8

  
	
  9.2

  	
  Payment for Awards

  	
  8

  
	
  9.3

  	
  Vesting Conditions

  	
  8

  
	
  9.4

  	
  Voting and Dividend
  Rights

  	
  8

  
	
  9.5

  	
  Form and Time of
  Settlement of Stock Units

  	
  8

  
	
  9.6

  	
  Death of Recipient

  	
  9

  
	
  9.7

  	
  Creditors’ Rights

  	
  9

  
	
  9.8

  	
  Performance Cash Awards

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE X.

  	
  CHANGE IN CONTROL

  	
  9

  
	
  10.1

  	
  Effect of Change in
  Control

  	
  9

  
	
  10.2

  	
  Acceleration

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI.

  	
  PROTECTION AGAINST
  DILUTION

  	
  10

  
	
  11.1

  	
  Adjustments

  	
  10

  
	
  11.2

  	
  Dissolution or
  Liquidation

  	
  10

  
	
  11.3

  	
  Reorganizations

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII.

  	
  DEFERRAL OF AWARDS

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII.

  	
  AWARDS UNDER OTHER
  PLANS

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV.

  	
  PAYMENT OF FEES IN
  SECURITIES

  	
  12

  
	
  14.1

  	
  Effective Date

  	
  12

  
	
  14.2

  	
  Elections to Receive
  NSOs, Restricted Shares or Stock Units

  	
  12

  
	
  14.3

  	
  Number and Terms of
  NSOs, Restricted Shares or Stock Units

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XV.

  	
  LIMITATION ON RIGHTS

  	
  13

  
	
  15.1

  	
  Retention Rights

  	
  13

  
	
  15.2

  	
  Stockholders’ Rights

  	
  13

  
	
  15.3

  	
  Regulatory Requirements

  	
  13

  
	
  15.4

  	
  Transferability of
  Awards

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVI.

  	
  WITHHOLDING TAXES

  	
  13

  
	
  16.1

  	
  General

  	
  13

  
	
  16.2

  	
  Share Withholding

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVII.

  	
  FUTURE OF THE PLAN

  	
  14

  
	
  17.1

  	
  Term of the Plan

  	
  14

  
	
  17.2

  	
  Amendment or
  Termination

  	
  14

  
	
  17.3

  	
  Stockholder Approval

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVIII.

  	
  DEFINITIONS

  	
  15

  

 

ii

 

THERAVANCE, INC.

2004 EQUITY INCENTIVE PLAN

 

ARTICLE
I.                                                        INTRODUCTION.

 

The Plan was adopted by
the Board on May 27, 2004 to be effective at the IPO, and the amendment
and restatement of the Plan was approved by the Board and the Compensation
Committee of the Board on February 10, 2010 to be effective on the date of
the Corporation’s 2010 Annual Meeting of Stockholders assuming the Plan is
approved by the Corporation’s stockholders at such meeting. The purpose of the
Plan is to promote the long-term success of the Corporation and the creation of
stockholder value by (a) encouraging Employees, Outside Directors and
Consultants to focus on critical long-range objectives, (b) encouraging
the attraction and retention of Employees, Outside Directors and Consultants
with exceptional qualifications, and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership.  The Plan seeks to achieve
this purpose by providing for the following Awards:  (i) Options (which may constitute
incentive stock options or nonstatutory stock options), (ii) stock
appreciation rights, (iii) Restricted Shares, (iv) Stock Units and (v) Performance
Cash Awards.

 

The Plan shall be
governed by, and construed in accordance with, the laws of the State of
Delaware (except their choice-of-law provisions).

 

ARTICLE
II.                                                    ADMINISTRATION.

 

2.1                                 Committee Composition. 
The Committee shall administer the Plan. 
The Committee shall consist exclusively of two or more directors of the
Corporation, who shall be appointed by the Board.  In addition, each member of the Committee
shall meet the following requirements:

 

(a)                                  Any listing standards prescribed by the
principal securities market on which the Corporation’s equity securities are
traded;

 

(b)                                 Such requirements as the Internal Revenue
Service may establish for outside directors acting under plans intended to
qualify for exemption under section 162(m)(4)(C) of the Code;

 

(c)                                  Such requirements as the Securities and
Exchange Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor)
under the Exchange Act; and

 

(d)                                 Any other requirements imposed by
applicable law, regulations or rules.

 

2.2                                 Committee Responsibilities. 
The Committee shall (a) select the Employees, Outside Directors and
Consultants who are to receive Awards under the Plan, (b) determine the
type, number, vesting requirements and other features and conditions of such
Awards, (c) interpret the Plan, (d) make all other decisions relating
to the operation of the Plan and

 

 

(e) carry out
any other duties delegated to it by the Board. 
The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan.  The Committee’s
determinations under the Plan shall be final and binding on all persons.

 

2.3                                 Committee for Non-Officer Grants. 
The Board may also appoint a secondary committee of the Board, which
shall be composed of one or more directors of the Corporation who need not
satisfy the requirements of Section 2.1. 
Such secondary committee may administer the Plan with respect to
Employees and Consultants who are not Outside Directors and are not considered
executive officers of the Corporation under section 16 of the Exchange
Act, may grant Awards under the Plan to such Employees and Consultants and may
determine all features and conditions of such Awards.  Within the limitations of this Section 2.3,
any reference in the Plan to the Committee shall include such secondary
committee.

 

ARTICLE
III.                                                SHARES AVAILABLE FOR GRANTS.

 

3.1                                 Basic Limitation. 
Shares of Common Stock issued pursuant to the Plan may be authorized but
unissued shares or treasury shares.  The
aggregate number of shares of Common Stock that may be awarded pursuant to
Stock Awards granted under the Plan on or after January 1, 2010 shall not
exceed (a) 7,600,000 shares (which includes 1,541,428 shares remaining
available for issuance under the Plan as of January 1, 2010) and (b) the
additional shares of Common Stock described in Sections 3.2 and
3.3(1).  The number of shares of Common
Stock that may be awarded pursuant to ISOs granted under the Plan on or after January 1,
2010 shall not exceed 7,600,000 shares. 
The number of shares of Common Stock that may be awarded under the Plan
on or after January 1, 2010 shall be reduced by (a) one share for
every option and stock appreciation right granted under the Plan or the
Corporation’s 2008 New Employee Equity Incentive Plan on or after January 1,
2010 and (b) 1.45 shares for every stock award other than an option or
stock appreciation right granted under the Plan or the Corporation’s 2008 New
Employee Equity Incentive Plan on or after January 1, 2010.  The limitations of this Section 3.1
shall be subject to adjustment pursuant to Article 11.  The number of shares of Common Stock that are
subject to Options or other rights outstanding at any time under the Plan shall
not exceed the number of shares of Common Stock that then remain available for
issuance under the Plan.   No further
awards shall be granted under the Predecessor Plans after the dates specified
in Section 17.1.

 

3.2                                 Additional Shares. 
If restricted shares or shares of Common Stock issued upon the exercise
of options under this Plan or the Predecessor Plans are forfeited or
repurchased, then such shares of Common Stock shall again become available for
Stock Awards under this Plan.  If stock
units, options or stock appreciation rights under this Plan or the Predecessor
Plans are forfeited, settled in cash (in whole or in part) or terminate for any
other reason before being exercised, then the corresponding shares of Common
Stock shall again become available for

 

(1) The history of the Plan’s share reserve prior to January 1, 2010
includes the following: (i) an initial share reserve of 13,034,369 shares
(consisting of 3,700,000 shares plus 9,334,369 shares remaining available for
issuance under the Pre-IPO Plans on the date of effectiveness of the IPO) and
(ii) an increase of 3,500,000 shares approved by the Compensation Committee of
the Board of Directors on November 29, 2006 and the Board of Directors on
December 6, 2006 (all  share numbers in
clause (i) reflect the reverse stock split approved in connection with the
Corporation’s IPO).

 

2

 

Stock Awards under
this Plan.  Notwithstanding anything to
the contrary contained herein, on or after January 1, 2010, the following
shares of Common Stock shall not be added back to the number of shares
available for Stock Awards under Section 3.1:  (i) shares tendered by a Participant or
withheld by the Corporation in payment of the exercise price of an option
granted under this Plan or the Predecessor Plans, or to satisfy any tax
withholding obligation with respect to a stock award granted under this Plan or
the Predecessor Plans, (ii) shares subject to a stock appreciation right
issued under this Plan or the Predecessor Plans that are not issued in
connection with the stock settlement of the stock appreciation right on
exercise thereof and (iii) shares reacquired by the Corporation on the
open market or otherwise using cash proceeds from the exercise of an option
granted under this Plan or the Predecessor Plans.  On or after January 1, 2010, any shares
that again become available for Stock Awards under this Section 3.2 shall
be added back as (i) one share if such shares were subject to options or
stock appreciation rights granted under this Plan or the Predecessor Plans and (ii) 1.45
shares if such shares were subject to stock awards other than options or stock
appreciation rights that were granted under this Plan or the Predecessor Plans.

 

3.3                                 Shares Subject to Substituted
Awards.  The number of shares of Common Stock subject to
Substitute Awards granted by the Corporation shall not reduce the number of
shares of Common Stock that may be issued under Section 3.1, nor shall
shares subject to Substitute Awards again be available for Awards under the
Plan to the extent of any forfeiture, expiration or cash settlement as provided
under Section 3.2.

 

ARTICLE
IV.                                               ELIGIBILITY.

 

4.1                                 Incentive Stock Options. 
Only Employees who are common-law employees of the Corporation, a Parent
or a Subsidiary shall be eligible for the grant of ISOs.  In addition, an Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Corporation or any of its Parents or Subsidiaries shall not be eligible for
the grant of an ISO unless the requirements set forth in section 422(c)(6) of
the Code are satisfied.

 

4.2                                 Other Grants. 
Awards other than ISOs may only be granted to Employees, Outside
Directors and Consultants.

 

ARTICLE
V.                                                   OPTIONS.

 

5.1                                 Stock Option Agreement. 
Each grant of an Option under the Plan shall be evidenced by a Stock
Option Agreement between the Optionee and the Corporation.  Such Option shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO.  The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.  Options may be granted in consideration of a
reduction in the Optionee’s other compensation.

 

5.2                                 Number of Shares. 
Each Stock Option Agreement shall specify the number of shares of Common
Stock subject to the Option and shall provide for the adjustment of such number
in accordance with Article 11. 
Options granted to any Optionee in a single fiscal year of

 

3

 

the Corporation
shall not cover more than 1,500,000 shares of Common Stock, except that Options
granted to a new Employee in the fiscal year of the Corporation in which his or
her service as an Employee first commences shall not cover more than 2,000,000
shares of Common Stock.  The limitations
set forth in the preceding sentence shall be subject to adjustment in
accordance with Article 11.

 

5.3                                 Exercise Price. 
Each Stock Option Agreement shall specify the Exercise Price; provided
that the Exercise Price shall in no event be less than 100% of the Fair Market
Value of a share of Common Stock on the date of grant.   This Section 5.3 shall not apply to an
Option granted pursuant to an assumption of, or substitution for, another
option in a manner that complies with Section 424(a) of the Code
(whether or not the Option is an ISO).

 

5.4                                 Exercisability and Term. 
Each Stock Option Agreement shall specify the date or event when all or
any installment of the Option is to become exercisable.  The Stock Option Agreement shall also specify
the term of the Option; provided that the term of an Option shall in no event
exceed 10 years from the date of grant. 
A Stock Option Agreement may provide for accelerated exercisability in
the event of  a Change in Control, the
Optionee’s death, disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee’s service.  Options may be awarded
in combination with SARs, and such an Award may provide that the Options will
not be exercisable unless the related SARs are forfeited.

 

5.5                                 Modification or Assumption of
Options.  Within the limitations of the Plan, the
Committee may modify, extend, or assume outstanding options.  The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee,
alter or impair his or her rights or obligations under such Option.  Notwithstanding anything in this Plan to the
contrary, and except for the adjustments provided in Articles 10 and 11,
neither the Committee nor any other person may (a) decrease the exercise
price for any outstanding Option after the date of grant, (b) cancel or
allow an optionee to surrender an outstanding Option to the Corporation in
exchange for cash or as consideration for the grant of a new Option with a
lower exercise price or the grant of another type of Award the effect of which
is to reduce the exercise price of any outstanding Option or (c) take any
other action with respect to an Option that would be treated as a repricing
under the rules and regulations of the NASDAQ Stock Market (or such other
principal U.S. national securities exchange on which the Corporation’s Common
Stock is traded).

 

5.6                                 Buyout Provisions. 
Except to the extent prohibited by Section 5.5, the Committee may
at any time (a) offer to buy out for a payment in cash or cash equivalents
an Option previously granted or (b) authorize an Optionee to elect to cash
out an Option previously granted, in either case at such time and based upon
such terms and conditions as the Committee shall establish.

 

ARTICLE VI.                                               PAYMENT FOR OPTION SHARES.

 

6.1                                 General Rule. 
The entire Exercise Price of shares of Common Stock issued upon exercise
of Options shall be payable in cash or cash equivalents at the time such shares
of Common Stock are purchased, except that the Committee at its sole discretion
may accept

 

4

 

payment of the
Exercise Price in any other form(s) described in this Article 6.  However, if the Optionee is an Outside
Director or executive officer of the Corporation, he or she may pay the
Exercise Price in a form other than cash or cash equivalents only to the extent
permitted by section 13(k) of the Exchange Act.

 

6.2                                 Surrender of Stock. 
With the Committee’s consent, all or any part of the Exercise Price may
be paid by surrendering, or attesting to the ownership of, shares of Common
Stock that are already owned by the Optionee. 
Such shares of Common Stock shall be valued at their Fair Market Value
on the date the new shares of Common Stock are purchased under the Plan.  The Optionee shall not surrender, or attest
to the ownership of, shares of Common Stock in payment of the Exercise Price if
such action would cause the Corporation to recognize compensation expense (or
additional compensation expense) with respect to the Option for financial
reporting purposes.

 

6.3                                 Exercise/Sale. 
With the Committee’s consent, all or any part of the Exercise Price and
any withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to a securities broker approved by the
Corporation to sell all or part of the shares of Common Stock being purchased
under the Plan and to deliver all or part of the sales proceeds to the
Corporation.

 

6.4                                 Exercise/Pledge. 
With the Committee’s consent, all or any part of the Exercise Price and
any withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to pledge all or part of the shares of
Common Stock being purchased under the Plan to a securities broker or lender
approved by the Corporation, as security for a loan, and to deliver all or part
of the loan proceeds to the Corporation.

 

6.5                                 Promissory Note. 
To the extent permitted by Section 13(k) of the Exchange Act,
with the Committee’s consent, all or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) a full-recourse promissory note. 
However, the par value of the shares of Common Stock being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.

 

6.6                                 Other Forms of Payment. 
With the Committee’s consent, all or any part of the Exercise Price and
any withholding taxes may be paid in any other form that is consistent with
applicable laws, regulations and rules.

 

ARTICLE
VII.                                           STOCK APPRECIATION RIGHTS.

 

7.1                                 SAR Agreement. 
Each grant of an SAR under the Plan shall be evidenced by an SAR
Agreement between the Optionee and the Corporation.  Such SAR shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The
provisions of the various SAR Agreements entered into under the Plan need not
be identical.  SARs may be granted in
consideration of a reduction in the Optionee’s other compensation.

 

7.2                                 Number of Shares. 
Each SAR Agreement shall specify the number of shares of Common Stock to
which the SAR pertains and shall provide for the adjustment of such number in
accordance with Article 11.  SARs
granted to any Optionee in a single fiscal year shall in no

 

5

 

event pertain to
more than 1,500,000 shares of Common Stock, except that SARs granted to a new
Employee in the fiscal year of the Corporation in which his or her service as
an Employee first commences shall not pertain to more than 2,000,000 shares of
Common Stock.  The limitations set forth
in the preceding sentence shall be subject to adjustment in accordance with Article 11.

 

7.3                                 Exercise Price. 
Each SAR Agreement shall specify the Exercise Price which, except with
respect to Substitute Awards, shall not be less than Fair Market Value.  An SAR Agreement may specify an Exercise
Price that varies in accordance with a predetermined formula while the SAR is
outstanding.

 

7.4                                 Exercisability and Term. 
Each SAR Agreement shall specify the date all or any installment of the
SAR is to become exercisable.  The SAR
Agreement shall also specify the term of the SAR; provided that the term of a
SAR shall in no event exceed 10 years from the date of grant.  An SAR Agreement may provide for accelerated
exercisability in the event of a Change in Control, the Optionee’s death,
disability or retirement or other events and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee’s
service.  SARs may be awarded in
combination with Options, and such an Award may provide that the SARs will not
be exercisable unless the related Options are forfeited.  An SAR may be included in an ISO only at the
time of grant but may be included in an NSO at the time of grant or
thereafter.  An SAR granted under the
Plan may provide that it will be exercisable only in the event of a Change in
Control.

 

7.5                                 Exercise of SARs. 
Upon exercise of an SAR, the Optionee (or any person having the right to
exercise the SAR after his or her death) shall receive from the Corporation (a) shares
of Common Stock, (b) cash or (c) a combination of shares of Common
Stock and cash, as the Committee shall determine.  The amount of cash and/or the Fair Market
Value of shares of Common Stock received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date
of surrender) of the shares of Common Stock subject to the SARs exceeds the
Exercise Price.  If, on the date an SAR
expires, the Exercise Price under such SAR is less than the Fair Market Value
on such date but any portion of such SAR has not been exercised or surrendered,
then such SAR shall automatically be deemed to be exercised as of such date
with respect to such portion.

 

7.6                                 Modification or Assumption of
SARs.  Within the limitations of the Plan, the
Committee may modify, extend or assume outstanding SARs.  The foregoing notwithstanding, no
modification of an SAR shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such SAR.  Notwithstanding anything in
this Plan to the contrary, and except for the adjustments provided in Articles
10 and 11, neither the Committee nor any other person may (a) decrease the
exercise price for any outstanding SAR after the date of grant, (b) cancel
or allow an Optionee to surrender an outstanding SAR to the Corporation in
exchange for cash or as consideration for the grant of a new SAR with a lower
exercise price or the grant of another type of Award the effect of which is to
reduce the exercise price of any outstanding SAR or (c) take any other
action with respect to a SAR that would be treated as a repricing under the rules and
regulations of the NASDAQ Stock Market (or such other principal U.S. national
securities exchange on which the Corporation’s Common Stock is traded).

 

6

 

ARTICLE
VIII.                                       RESTRICTED SHARES.

 

8.1                                 Restricted Stock Agreement. 
Each grant of Restricted Shares under the Plan shall be evidenced by a
Restricted Stock Agreement between the recipient and the Corporation.  Such Restricted Shares shall be subject to
all applicable terms of the Plan and may be subject to any other terms that are
not inconsistent with the Plan.  The
provisions of the various Restricted Stock Agreements entered into under the
Plan need not be identical.

 

8.2                                 Payment for Awards. 
Subject to the following two sentences, Restricted Shares may be sold or
awarded under the Plan for such consideration as the Committee may determine,
including (without limitation) cash, cash equivalents, property, full-recourse
promissory notes, past services and future services.  To the extent that an Award consists of newly
issued Restricted Shares, the consideration shall consist exclusively of cash,
cash equivalents, property or past services rendered to the Corporation (or a
Parent or Subsidiary) or, for the amount in excess of the par value of such
newly issued Restricted Shares, full-recourse promissory notes.  If the Participant is an Outside Director or
executive officer of the Corporation, he or she may pay for Restricted Shares
with a promissory note only to the extent permitted by section 13(k) of
the Exchange Act.  Within the limitations
of the Plan, the Committee may accept the cancellation of outstanding options
in return for the grant of Restricted Shares.

 

8.3                                 Vesting Conditions. 
Each Award of Restricted Shares may or may not be subject to
vesting.  Vesting shall occur, in full or
in installments, upon satisfaction of the conditions specified in the Restricted
Stock Agreement.  The Committee may
include among such conditions the requirement that the performance of the
Corporation or a business unit of the Corporation for a specified period of one
or more fiscal years equal or exceed a target determined in advance by the
Committee.  The Committee shall determine
such performance.  Such target shall be
based on one or more of the criteria set forth in Appendix A.  The Committee shall identify such target not
later than the 90th day of such period.  Subject to adjustment in accordance with Article 11,
in no event shall more than 1,500,000 Restricted Shares that are subject to
performance-based vesting conditions be granted to any Participant in a single
fiscal year of the Corporation, except that 2,000,000 Restricted Shares may be
granted to a new Employee in the fiscal year of the Corporation in which his or
her service as an Employee first commences. 
A Restricted Stock Agreement may provide for accelerated vesting in the
event of a Change in Control, the Participant’s death, disability or retirement
or other events.

 

8.4                                 Voting and Dividend Rights. 
The holders of Restricted Shares awarded under the Plan shall have the
same voting, dividend and other rights as the Corporation’s other
stockholders.  A Restricted Stock
Agreement, however, may require that the holders of Restricted Shares invest
any cash dividends received in additional Restricted Shares.  Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.  Cash
dividends with respect to any Restricted Shares and any other property (other
than cash) distributed as a dividend or otherwise with respect to Restricted
Shares that vest based on the achievement of performance goals shall be
accumulated, shall be subject to restrictions and risk of forfeiture to the
same extent as the Restricted Shares with respect to which such cash, shares or
other property has been distributed and shall be paid at the time such
restrictions and risk of forfeiture lapse.

 

7

 

ARTICLE
IX.                                               STOCK UNITS AND PERFORMANCE CASH
AWARDS.

 

9.1                                 Stock Unit Agreement. 
Each grant of Stock Units under the Plan shall be evidenced by a Stock
Unit Agreement between the recipient and the Corporation.  Such Stock Units shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The
provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical.  Stock Units may
be granted in consideration of a reduction in the recipient’s other
compensation.

 

9.2                                 Payment for Awards. 
To the extent that an Award is granted in the form of Stock Units, no
cash consideration shall be required of the Award recipients.

 

9.3                                 Vesting Conditions. 
Each Award of Stock Units may or may not be subject to vesting.  Vesting shall occur, in full or in
installments, upon satisfaction of the conditions specified in the Stock Unit
Agreement.  The Committee may include
among such conditions the requirement that the performance of the Corporation
or a business unit of the Corporation for a specified period of one or more
fiscal years equal or exceed a target determined in advance by the Committee.  The Committee shall determine such
performance.  Such target shall be based
on one or more of the criteria set forth in Appendix A.  The Committee shall identify such target not
later than the 90th day of such period.  Subject to adjustment in accordance with Article 11,
in no event shall more than 1,500,000 Stock Units that are subject to
performance-based vesting conditions be granted to any Participant in a single
fiscal year of the Corporation, except that up to 2,000,000 Stock Units subject
to performance-based vesting conditions may be granted to a new Employee in the
fiscal year of the Corporation in which his or her Service first
commences.  A Stock Unit Agreement may
provide for accelerated vesting in the event of a Change in Control, the
Participant’s death, disability or retirement or other events.

 

9.4                                 Voting and Dividend Rights. 
The holders of Stock Units shall have no voting rights.  Prior to settlement or forfeiture, any Stock
Unit awarded under the Plan may, at the Committee’s discretion, carry with it a
right to dividend equivalents.  Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one share of Common Stock while the Stock Unit is
outstanding.  Dividend equivalents may be
converted into additional Stock Units. 
Settlement of dividend equivalents may be made in the form of cash, in
the form of shares of Common Stock, or in a combination of both.  Prior to distribution, any dividend
equivalents which are not paid shall be subject to the same conditions and
restrictions as the Stock Units to which they attach.  Notwithstanding the foregoing, dividend
equivalents with respect to any Stock Units that vest based on the achievement
of performance goals shall be subject to the same conditions and restrictions
as the Stock Units to which they attach.

 

9.5                                 Form and Time of Settlement
of Stock Units.  Settlement of vested Stock Units may be made
in the form of (a) cash, (b) shares of Common Stock or (c) any
combination of both, as determined by the Committee.  The actual number of Stock Units eligible for
settlement may be larger or smaller than the number included in the original
Award, based on predetermined performance factors.  Methods of converting Stock Units into cash
may include (without limitation) a method based on the average Fair Market
Value of shares of Common Stock over a series of trading days.  Vested Stock Units may be settled in a lump
sum or in installments.  The distribution
may occur or commence when all vesting conditions applicable to

 

8

 

the Stock Units
have been satisfied or have lapsed, or it may be deferred to any later
date.  The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents.  Until an Award of Stock Units is settled, the
number of such Stock Units shall be subject to adjustment pursuant to Article 11.

 

9.6                                 Death of Recipient. 
Any Stock Units Award that becomes payable after the recipient’s death
shall be distributed to the recipient’s beneficiary or beneficiaries.  Each recipient of a Stock Units Award under
the Plan shall designate one or more beneficiaries for this purpose by filing
the prescribed form with the Corporation. 
A beneficiary designation may be changed by filing the prescribed form
with the Corporation at any time before the Award recipient’s death.  If no beneficiary was designated or if no
designated beneficiary survives the Award recipient, then any Stock Units Award
that becomes payable after the recipient’s death shall be distributed to the
recipient’s estate.

 

9.7                                 Creditors’ Rights. 
A holder of Stock Units shall have no rights other than those of a
general creditor of the Corporation. 
Stock Units represent an unfunded and unsecured obligation of the Corporation,
subject to the terms and conditions of the applicable Stock Unit Agreement.

 

9.8                                 Performance Cash Awards. 
A Performance Cash Award is a cash award that may be granted upon the
attainment of certain performance goals for a specified performance period of
one or more fiscal years.  The Committee
shall determine such performance.  The
goals applicable to a Performance Cash Award shall be based on one or more of
the criteria set forth in Appendix A. 
The Committee shall determine such goals no later than the 90th day of such
period.  Each Performance Cash Award
shall be set forth in a written agreement or in a resolution duly adopted by
the Committee which shall contain provisions determined by the Committee and
not inconsistent with the Plan.  The
terms of various Performance Cash Awards need not be identical.  The maximum amount that may be paid to any
Participant for each fiscal year of the Corporation in a performance period
attributable to Performance Cash Awards shall not exceed $2,000,000.  The Committee may determine, at the time of
granting a Performance Cash Award or thereafter, that all or part of such
Performance Cash Award shall become earned and payable in the event that the
Corporation is subject to a Change in Control before the Participant’s service
terminates or as otherwise determined by the Committee in special
circumstances.

 

ARTICLE
X.                                                   CHANGE IN CONTROL.

 

10.1                           Effect of Change in Control. 
Unless the Committee provides otherwise in a Stock Option Agreement, SAR
Agreement, Restricted Stock Agreement or Stock Unit Agreement, in the event of
any Change in Control, each outstanding Stock Award shall automatically
accelerate so that each such Stock Award shall, immediately prior to the
effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such Stock Award and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock.  However, an outstanding Stock
Award shall not so accelerate if and to the
extent such Stock Award is, in connection with the Change in Control, either to
be assumed by the successor corporation (or parent thereof) or to be replaced
with a comparable Stock Award for shares of the capital stock of the successor
corporation (or parent

 

9

 

thereof).  The determination of award comparability
shall be made by the Committee, and its determination shall be final, binding
and conclusive.

 

10.2                           Acceleration.   The Committee shall have the discretion, exercisable
either at the time the Stock Award is granted or at any time while the Stock
Award remains outstanding, to provide for the automatic acceleration of vesting
upon the occurrence of a Change in Control, whether or not the Stock Award is
to be assumed or replaced in the Change in Control.

 

ARTICLE
XI.                                               PROTECTION AGAINST DILUTION.

 

11.1                           Adjustments. 
In the event of a subdivision of the outstanding shares of Common Stock,
a declaration of a dividend payable in shares of Common Stock, a declaration of
a dividend payable in a form other than shares of Common Stock in an amount
that has a material affect on the price of shares of Common Stock, a
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock,
a recapitalization, a spin-off or a similar occurrence, corresponding
adjustments shall automatically be made in each of the following:

 

(a)                                  The number of Options, SARs, Restricted
Shares and Stock Units available for future Stock Awards under Article 3,
including the limitation on the number of ISOs in Section 3.1;

 

(b)                                 The limitations set forth in
Sections 5.2, 7.2, 8.3 and 9.3;

 

(c)                                  The number of shares of Common Stock
covered by each outstanding Option and SAR;

 

(d)                                 The Exercise Price under each outstanding
Option and SAR; or

 

(e)                                  The number of Stock Units included in any
prior Award which has not yet been settled.

 

Except as provided in this Article 11, a
Participant shall have no rights by reason of any issue by the Corporation of
stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.

 

11.2                           Dissolution or Liquidation. 
To the extent not previously exercised or settled, Options, SARs and
Stock Units shall terminate immediately prior to the dissolution or liquidation
of the Corporation.

 

11.3                           Reorganizations. 
In the event that the Corporation is a party to a merger or
consolidation, all outstanding Stock Awards shall be subject to the agreement
of merger or consolidation.  Such
agreement shall provide for one or more of the following:

 

(a)                                  The continuation of such outstanding
Stock Awards by the Corporation (if the Corporation is the surviving
corporation).

 

10

 

(b)                                 The assumption of such outstanding Stock
Awards by the surviving corporation or its parent (in a manner that complies
with section 424(a) of the Code with respect to Options).

 

(c)                                  The substitution by the surviving
corporation or its parent of new awards for such outstanding Stock Awards (in a
manner that complies with section 424(a) of the Code with respect to
Options).

 

(d)                                 Full exercisability of such outstanding
Stock Awards and full vesting of the shares of Common Stock subject to such
Stock Awards, followed by the cancellation of such Stock Awards.  The full exercisability of such Stock Awards
and full vesting of the shares of Common Stock subject to such Stock Awards may
be contingent on the closing of such merger or consolidation.  The Participants shall be able to exercise
such Stock Awards during a period of not less than five full business days
preceding the closing date of such merger or consolidation, unless (i) a
shorter period is required to permit a timely closing of such merger or
consolidation and (ii) such shorter period still offers the Participants a
reasonable opportunity to exercise such Stock Awards.  Any exercise of such Stock Awards during such
period may be contingent on the closing of such merger or consolidation.

 

(e)                                  The cancellation of such outstanding
Stock Awards and a payment to the Participants equal to the excess of (i) the
Fair Market Value of the shares of Common Stock subject to such Stock Awards
(whether or not such Stock Awards are then exercisable or such shares of Common
Stock are then vested) as of the closing date of such merger or consolidation
over (ii) their Exercise Price.  Such payment shall be made in the form of
cash, cash equivalents, or securities of the surviving corporation or its
parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and
may be deferred until the date or dates when such Stock Awards would have
become exercisable or such shares of Common Stock would have vested.  Such payment may be subject to vesting based
on the Optionee’s continuing service, provided that the vesting schedule shall
not be less favorable to the Participants than the schedule under which such
Stock Awards would have become exercisable or such shares of Common Stock would
have vested.  If the Exercise Price of
the shares of Common Stock subject to such Stock Awards exceeds the Fair Market
Value of such shares of Common Stock, then such Stock Awards may be cancelled
without making a payment to the Participants. 
For purposes of this Subsection (e), the Fair Market Value of any
security shall be determined without regard to any vesting conditions that may
apply to such security.

 

ARTICLE
XII.                                           DEFERRAL OF AWARDS.

 

The Committee (in its sole discretion) may permit or
require a Participant to:

 

(a)                                  Have cash that otherwise would be paid to
such Participant as a result of the exercise of an SAR or the settlement of
Stock Units credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Corporation’s books;

 

11

 

(b)                                 Have shares of Common Stock that otherwise
would be delivered to such Participant as a result of the exercise of an Option
or SAR converted into an equal number of Stock Units; or

 

(c)                                  Have shares of Common Stock that
otherwise would be delivered to such Participant as a result of the exercise of
an Option or SAR or the settlement of Stock Units converted into amounts
credited to a deferred compensation account established for such Participant by
the Committee as an entry on the Corporation’s books.  Such amounts shall be determined by reference
to the Fair Market Value of such shares of Common Stock as of the date they
otherwise would have been delivered to such Participant.

 

A deferred compensation account established under this
Article 12 may be credited with interest or other forms of investment
return, as determined by the Committee. 
A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation.  Such an account shall represent an unfunded
and unsecured obligation of the Corporation and shall be subject to the terms
and conditions of the applicable agreement between such Participant and the
Corporation.  If the deferral or
conversion of Awards is permitted or required, the Committee (in its sole
discretion) may establish rules, procedures and forms pertaining to such
Awards, including (without limitation) the settlement of deferred compensation
accounts established under this Article 12.

 

ARTICLE
XIII.                                       AWARDS UNDER OTHER PLANS.

 

The Corporation may grant awards under other plans or
programs.  Such awards may be settled in
the form of shares of Common Stock issued under this Plan.  Such shares of Common Stock shall be treated
for all purposes under the Plan like shares of Common Stock issued in
settlement of Stock Units and shall, when issued, reduce the number of shares
of Common Stock available under Article 3.

 

ARTICLE
XIV.                                      PAYMENT OF FEES IN SECURITIES.

 

14.1                           Effective Date. 
No provision of this Article 14 shall be effective unless and until
the Board has determined to implement such provision.

 

14.2                           Elections to Receive NSOs,
Restricted Shares or Stock Units.  An Outside
Director may elect to receive his or her annual retainer payments or meeting
fees from the Corporation in the form of cash, NSOs, Restricted Shares or Stock
Units, or a combination thereof, as determined by the Board.  Such NSOs, Restricted Shares and Stock Units
shall be issued under the Plan.  An
election under this Article 14 shall be filed with the Corporation on the
prescribed form.

 

14.3                           Number and Terms of NSOs,
Restricted Shares or Stock Units.  The number of
NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in
lieu of annual retainers or meeting fees that would otherwise be paid in cash
shall be calculated in a manner determined by the Board.  The Board shall also determine the terms of
such NSOs, Restricted Shares or Stock Units.

 

12

 

ARTICLE
XV.                                          LIMITATION ON RIGHTS.

 

15.1                           Retention Rights. 
Neither the Plan nor any Award granted under the Plan shall be deemed to
give any individual a right to remain an Employee, Outside Director or
Consultant.  The Corporation and its
Parents, Subsidiaries and Affiliates reserve the right to terminate the service
of any Employee, Outside Director or Consultant at any time, with or without
cause, subject to applicable laws, the Corporation’s certificate of
incorporation and by-laws and a written employment agreement (if any).

 

15.2                           Stockholders’ Rights. 
A Participant shall have no dividend rights, voting rights or other
rights as a stockholder with respect to any shares of Common Stock covered by
his or her Award prior to the time a stock certificate for such shares of
Common Stock is issued or, if applicable, the time he or she becomes entitled
to receive such shares of Common Stock by filing any required notice of
exercise and paying any required Exercise Price.  No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.

 

15.3                           Regulatory Requirements. 
Any other provision of the Plan notwithstanding, the obligation of the
Corporation to issue shares of Common Stock under the Plan shall be subject to
all applicable laws, rules and regulations and such approval by any
regulatory body as may be required.  The
Corporation reserves the right to restrict, in whole or in part, the delivery
of shares of Common Stock pursuant to any Award prior to the satisfaction of
all legal requirements relating to the issuance of such shares of Common Stock,
to their registration, qualification or listing or to an exemption from
registration, qualification or listing.

 

15.4                           Transferability of Awards. 
Except as provided below, no Award and no shares subject to Awards that
have not been issued or as to which any applicable restriction, performance or
deferral period has not lapsed, may be sold, assigned, transferred, pledged or
otherwise encumbered, other than by a beneficiary designation, will or the laws
of descent and distribution, and such Award may be exercised during the life of
a Participant only by the Participant or the Participant’s guardian or legal
representative.  To the extent and under
such terms and conditions as determined by the Committee, a Participant may
assign or transfer an Award (each transferee there, a “Permitted Assignee”)
other than an ISO to a “family member” as such term is defined in the General
Instructions to Form S-8 (whether by gift or a domestic relations order);
provided that such Permitted Assignee shall be bound by and subject to all of
the terms and conditions of the Plan and the Award Agreement relating to the
transferred Award and shall execute an agreement satisfactory to the
Corporation evidencing such obligations; and provided further that such
Participant shall remain bound by the terms and conditions of the Plan.

 

ARTICLE
XVI.                                      WITHHOLDING TAXES.

 

16.1                           General. 
To the extent required by applicable federal, state, local or foreign
law, a Participant or his or her successor shall make arrangements satisfactory
to the Corporation for the satisfaction of any withholding tax obligations that
arise in connection with the Plan.  The
Corporation shall not be required to issue any shares of Common Stock or make
any cash payment under the Plan until such obligations are satisfied.

 

13

 

16.2                           Share Withholding. 
To the extent that applicable law subjects a Participant to tax
withholding obligations, the Committee may permit a Participant to satisfy all
or part of his or her withholding or income tax obligations by having the
Corporation withhold all or a portion of any shares of Common Stock that
otherwise would be issued to him or her or by surrendering all or a portion of
any shares of Common Stock that he or she previously acquired.  Such shares of Common Stock shall be valued
at their Fair Market Value on the date they are withheld or surrendered.

 

ARTICLE
XVII.                                  FUTURE OF THE PLAN.

 

17.1                           Term of the Plan. 
The Plan shall remain in effect until it is terminated under Section 17.2,
except that no ISOs shall be granted on or after the 10th anniversary of the later of (a) the date
the Board adopted the Plan or (b) the date the Board adopted the most
recent increase in the number of shares of Common Stock available under Article 3
which was approved by the Corporation’s stockholders.  No further option grants shall be made under
the Pre-IPO Plans after the Plan effective date.  No further awards shall be made under the
Corporation’s 2008 New Employee Equity Incentive Plan after the date of the
Corporation’s 2010 Annual Meeting of Stockholders, assuming this Plan is
re-approved by the stockholders at such meeting.  All awards outstanding under the Predecessor
Plans as of such dates shall, immediately upon effectiveness of the Plan,
remain outstanding in accordance with their terms.  Each outstanding award under the Predecessor
Plans shall continue to be governed solely by the terms of the documents
evidencing such award, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such awards
with respect to their acquisition of shares of Common Stock, except that the
following vesting acceleration provisions relating to Change in Control shall
be extended to the options outstanding under the Pre-IPO Plans at the IPO: if
the optionee experiences an involuntary termination within three months before
or twenty-four months following a Change in Control, each of such optionee’s
outstanding options shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the termination, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock.

 

17.2                           Amendment or Termination. 
The Board may, at any time and for any reason, amend or terminate the
Plan.  No Awards shall be granted under
the Plan after the termination thereof. 
The termination of the Plan, or any amendment thereof, shall not affect
any Award previously granted under the Plan.

 

17.3                           Stockholder Approval. 
An amendment of the Plan shall be subject to the approval of the
Corporation’s stockholders only to the extent required by applicable laws,
regulations or rules.  However, an
amendment of the last sentence of Section 5.5 or 7.6 is subject to the
approval of the Corporation’s stockholders and section 162(m) of the
Code may require that the Corporation’s stockholders approve:

 

(a)                                  The Plan not later than the first regular
meeting of stockholders that occurs in the fourth calendar year following the
calendar year in which the Corporation’s initial public offering occurred; and

 

14

 

(b)                                 The performance criteria set forth on
Appendix A not later than the first meeting of stockholders that occurs in the
fifth year following the year in which the Corporation’s stockholders
previously approved such criteria.

 

ARTICLE
XVIII.                              DEFINITIONS.

 

18.1                           “Affiliate”
means any entity other than a Subsidiary, if the Corporation and/or one or more
Subsidiaries own not less than 50% of such entity.

 

18.2                           “Award” means
any award of a Stock Award or a Performance Cash Award under the Plan.

 

18.3                           “Board” means
the Corporation’s Board of Directors, as constituted from time to time.

 

18.4                           “Change in Control”
shall mean:

 

(a)                                  The consummation of a merger or
consolidation of the Corporation with or into another entity or any other
corporate reorganization, if persons who were not stockholders of the
Corporation immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding securities of
each of (i) the continuing or surviving entity and (ii) any direct or
indirect parent corporation of such continuing or surviving entity;

 

(b)                                 The sale, transfer or other disposition
of all or substantially all of the Corporation’s assets;

 

(c)                                  A change in the composition of the Board,
as a result of which fewer than 50% of the incumbent directors are directors
who either:

 

(i)                                     Had been directors of the Corporation on
the date 24 months prior to the date of such change in the composition of the
Board (the “Original Directors”) or

 

(ii)                                  Were appointed to the Board, or nominated
for election to the Board, with the affirmative votes of at least a majority of
the aggregate of (A) the Original Directors who were in office at the time
of their appointment or nomination and (B) the directors whose appointment
or nomination was previously approved in a manner consistent with this
Paragraph (ii); or

 

(d)                                 Any transaction as a result of which any
person is the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing at least 50% of the total voting power represented by the
Corporation’s then outstanding voting securities.  For purposes of this Paragraph (d), the
term “person” shall have the same meaning as when used in sections 13(d) and
14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the Corporation
or of a Parent or Subsidiary and (ii) a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of the common stock of the Corporation.

 

15

 

Except with respect to a GSK Change In Control
(defined below), (i) any stock purchase by SmithKline Beecham Corporation,
a Pennsylvania corporation (“GSK”), pursuant to the Class A Common Stock
Purchase Agreement dated as of March 30, 2004 or (ii) the exercise by
GSK of any of its rights under the Amended and Restated Governance Agreement
dated as of June 4, 2004 among the Corporation, GSK, GlaxoSmithKline plc
and Glaxo Group Limited, as amended (the “Governance Agreement”) to
representation on the Board (and its committees) or (iii) any acquisition
by GSK of securities of the Corporation (whether by merger, tender offer,
private or market purchases or otherwise) not prohibited by the Governance
Agreement shall not constitute a Change in Control.  A transaction shall not constitute a Change
in Control if its sole purpose is to change the state of the Corporation’s
incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Corporation’s
securities immediately before such transaction. A “GSK Change In Control” shall
mean the acquisition by GSK of the Corporation’s Voting Stock (as defined in
the Governance Agreement) that would bring GSK’s Percentage Interest (as
defined in the Governance Agreement) to 100% in compliance with the provisions
of the Governance Agreement.

 

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

 

18.6                           “Committee”
means a committee of the Board, as described in Article 2.

 

18.7                           “Common Stock”
means the common stock of the Corporation.

 

18.8                           “Corporation”
means Theravance, Inc., a Delaware corporation.

 

18.9                           “Consultant”
means a consultant or adviser who provides bona fide services to the
Corporation, a Parent, a Subsidiary or an Affiliate as an independent
contractor.  Service as a Consultant
shall be considered employment for all purposes of the Plan, except as provided
in Section 4.1.

 

18.10                     “Employee” means
a common-law employee of the Corporation, a Parent, a Subsidiary or an
Affiliate.

 

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

 

18.12                     “Exercise Price,”
in the case of an Option, means the amount for which one share of Common Stock
may be purchased upon exercise of such Option, as specified in the applicable
Stock Option Agreement.  “Exercise Price,”
in the case of an SAR, means an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one share of
Common Stock in determining the amount payable upon exercise of such SAR.

 

18.13                     “Fair Market Value”
means the closing selling price of one share of Common Stock as reported on
Nasdaq, and if not available, then it shall be determined by the Committee in
good faith on such basis as it deems appropriate.  Whenever possible, the determination of Fair
Market Value by the Committee shall be based on the prices reported in The
Wall Street Journal.  Such
determination shall be conclusive and binding on all persons.

 

18.14                     “IPO” means the
initial public offering of the Corporation’s Common Stock.

 

16

 

18.15                     “ISO” means an
incentive stock option described in section 422(b) of the Code.

 

18.16                     “NSO” means a
stock option not described in sections 422 or 423 of the Code.

 

18.17                     “Option” means
an ISO or NSO granted under the Plan and entitling the holder to purchase
shares of Common Stock.

 

18.18                     “Optionee” means
an individual who or estate that holds an Option or SAR.

 

18.19                     “Outside Director”
shall mean a member of the Board who is not an Employee.  Service as an Outside Director shall be
considered employment for all purposes of the Plan, except as provided in Section 4.1.

 

18.20                     “Parent” means
any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation, if each of the corporations other
than the Corporation owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.  A corporation that attains the
status of a Parent on a date after the adoption of the Plan shall be considered
a Parent commencing as of such date.

 

18.21                     “Participant”
means an individual who or estate that holds an Award.

 

18.22                     “Performance Cash Award”
means an award of cash granted under Section 9.8 of the Plan.

 

18.23                     “Plan” means
this Theravance, Inc. 2004 Equity Incentive Plan, as amended from time to
time.

 

18.24                     “Predecessor Plans” means the Corporation’s 1997 Stock Plan,
Long-Term Stock Option Plan and 2008 New Employee Equity Incentive Plan.

 

18.25                     “Pre-IPO Plans”
means the Corporation’s 1997 Stock Plan and Long-Term Stock Option Plan.

 

18.26                     “Restricted Share”
means a share of Common Stock awarded under Article 8 of the Plan.

 

18.27                     “Restricted Stock Agreement”
means the agreement between the Corporation and the recipient of a Restricted
Share that contains the terms, conditions and restrictions pertaining to such
Restricted Share.

 

18.28                     “SAR” means a
stock appreciation right granted under the Plan.

 

18.29                     “SAR Agreement”
means the agreement between the Corporation and an Optionee which contains the
terms, conditions and restrictions pertaining to his or her SAR.

 

18.30                     “Stock Award” means
any award of an Option, an SAR, a Restricted Share or a Stock Unit under the
Plan.

 

17

 

18.31                     “Stock Option Agreement”
means the agreement between the Corporation and an Optionee that contains the
terms, conditions and restrictions pertaining to his or her Option.

 

18.32                     “Stock Unit”
means a bookkeeping entry representing the equivalent of one share of Common
Stock, as awarded under the Plan.

 

18.33                     “Stock Unit Agreement”
means the agreement between the Corporation and the recipient of a Stock Unit
which contains the terms, conditions and restrictions pertaining to such Stock
Unit.

 

18.34                     “Subsidiary”
means any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.  A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.

 

18.35                     “Substitute Awards”
means Awards or shares of Common Stock issued by the Corporation in assumption
of, or substitution or exchange for, Awards previously granted, or the right or
obligation to make future awards, in each case by a corporation acquired by the
Corporation or any Affiliate or with which the Corporation or any Affiliates
combines to the extent permitted by NASDAQ Marketplace Rule 5635 or any
successor thereto.

 

18

 

Appendix A

 

PERFORMANCE CRITERIA

FOR RESTRICTED SHARES, STOCK UNITS AND PERFORMANCE
CASH AWARDS

 

The performance goals
that may be used by the Committee for such awards shall consist of:  stock price; net sales; revenue; revenue
growth or product revenue growth; operating income (before or after taxes);
pre- or after-tax income or loss (before or after allocation of corporate
overhead and bonus); earnings or loss per share; net income or loss (before or
after taxes); return on equity; total stockholder return; return on assets or
net assets; appreciation in and/or maintenance of the price of the Shares or
any other publicly-traded securities of the Corporation; market share; gross
profits; net profits; earnings or losses (including earnings or losses before
taxes, before interest and taxes, or before interest, taxes, depreciation and
amortization); economic value-added models or equivalent metrics; comparisons
with various stock market indices; reductions in costs; cash flow or cash flow
per share (before or after dividends); return on capital (including return on
total capital or return on invested capital); cash flow return on investment;
improvement in or attainment of expense levels or working capital levels,
including cash, inventory and accounts receivable; operating margin; gross
margin; year-end cash; cash margin; debt reduction; stockholders equity;
operating efficiencies; market share; customer satisfaction; customer growth;
employee satisfaction; drug development milestones; regulatory achievements
(including submitting or filing applications or other documents with regulatory
authorities, successfully executing an advisory committee meeting, or receiving
approval of any such applications or other documents and passing pre-approval
inspections (whether of the Corporation or the Corporation’s third-party
manufacturer) and validation of manufacturing processes (whether the
Corporation’s or the Corporation’s third-party manufacturer’s); initiation or
completion of pre-clinical studies; clinical achievements (including initiating
clinical studies; initiating enrollment, completing enrollment or enrolling
particular numbers of subjects in clinical studies; completing phases of a
clinical study (including the treatment phase); or announcing or presenting
preliminary or final data from clinical studies; in each case, whether on
particular timelines or generally); strategic partnerships or transactions
(including in-licensing and out-licensing of intellectual property;
establishing relationships with commercial entities with respect to the
marketing, distribution and sale of the Corporation’s products or development
candidates (including with group purchasing organizations, distributors and
other vendors); supply chain achievements (including establishing relationships
with manufacturers or suppliers of component materials and manufacturers of the
Corporation’s products or development candidates); co-development,
co-marketing, profit sharing, joint venture or other similar arrangements);
financial ratios, including those measuring liquidity, activity, profitability
or leverage; cost of capital or assets under management; financing and other
capital raising transactions (including sales of the Corporation’s equity or
debt securities; factoring transactions; sales or licenses of the Corporation’s
assets, including its intellectual property, whether in a particular
jurisdiction or territory or globally; or through partnering transactions);
implementation, completion or attainment of measurable objectives with respect
to research (including nominating a development candidate or initiating a new
full discovery program), development, manufacturing (including initiating
formulation or device development work or finalizing API or drug product
processes), commercialization, development candidates, products

 

19

 

or projects, safety,
production volume levels, acquisitions and divestitures; factoring
transactions; and recruiting and maintaining personnel.  In the areas of development, regulatory
progress and commercialization, the achievements described above performed by a
third party with which the Corporation has a licensing or collaborative
agreement (a “Partner”) shall apply to the Corporation.  For example, if a Partner accomplishes
development milestones, regulatory achievements, commercialization or sales
targets with an asset within a program that is a subject of the licensing or
collaboration agreement between the Corporation and the Partner, then such
Partner’s accomplishments shall constitute achievements of the
Corporation.  Such performance goals also
may be based solely by reference to the Corporation’s performance or the
performance of a Subsidiary, division, business segment or business unit of the
Corporation, or based upon the relative performance of other companies or upon
comparisons of any of the indicators of performance relative to other
companies.  To the extent consistent with
section 162(m) of the Code, the Committee may adjust the results
under any performance criterion to exclude any of the following events that
occurs during a performance measurement period: (a) asset write-downs, (b) litigation,
claims, judgments or settlements, (c) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (d) accruals for reorganization and restructuring programs and (e) any
extraordinary, unusual or non-recurring items.

 

20

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