Document:

Ex-10.21

 

Exhibit 10.21

GNC CORPORATION

2006 STOCK INCENTIVE PLAN

     1. ESTABLISHMENT OF PLAN. GNC Corporation establishes the “GNC Corporation 2006 Stock
Incentive Plan,” effective as of July 27, 2006. Awards granted under the Plan shall be subject to
the terms and conditions of the Plan as set forth herein, as it may be amended from time to time.

     2. PURPOSE. The purposes of the Plan are (i) to offer selected Employees, including
Officers, Directors and Consultants of the Company and its Affiliates an equity ownership interest
and opportunity to participate in the growth and financial success of the Company, (ii) to provide
the Company an opportunity to attract and retain the best available personnel for positions of
substantial responsibility, (iii) to create long-term value and to provide incentives to such
Employees, Directors and Consultants by means of market-driven and performance-related stock-based
awards to achieve long-term performance goals, and (iv) to promote the growth and success of the
Company’s business by aligning the financial interests of Employees, Directors and Consultants with
that of the other stockholders of the Company. Toward these objectives, this Plan provides for the
grant of Options, Stock Appreciation Rights and Restricted Stock Awards, some of which may be
Performance Awards.

     3. DEFINITIONS. As used herein, unless the context requires otherwise, the following
terms shall have the meanings indicated below:

     (a) “Affiliate” means (i) any corporation, partnership or other entity which owns,
directly or indirectly, a majority of the voting equity securities of the Company, (ii) any
corporation, partnership or other entity of which a majority of the voting equity securities or
equity interest is owned, directly or indirectly, by the Company, and (iii) with respect to an
Option that is intended to be an Incentive Stock Option, (A) any “parent corporation” of the
Company, as defined in Section 424(e) of the Code, (B) any “subsidiary corporation” of the Company
as defined in Section 424(f) of the Code, (C) any other entity that is taxed as a corporation under
Section 7701(a)(3) of the Code and is a member of the “affiliated group” as defined in Section
1504(a) of the Code of which the Company is the common parent, and (D) any other entity as may be
permitted from time to time by the Code or by the Internal Revenue Service to be an employer of
Employees to whom Incentive Stock Options may be granted.

     (b) “Award” means any right granted under the Plan, including an Option, a Restricted
Stock Award (whether or not granted as a Performance Award), and a Stock Appreciation Right,
whether granted singly or in combination, to a Grantee pursuant to the terms, conditions and
limitations that the Committee may establish in order to fulfill the objectives of the Plan.

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

 

 

     (d) “Cause” means:

     (i) in the case of a Director or a Consultant, the commission of an act of fraud or
intentional misrepresentation or an act of embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any Affiliate;

     (ii) in the case of a Grantee whose employment with the Company or an Affiliate is
subject to the terms of an employment agreement between such Grantee and the Company or
Affiliate, which employment agreement includes a definition of “Cause,” the term “Cause” as
used in the Plan or any agreement establishing an Award shall have the meaning set forth in
such employment agreement during the period that such employment agreement remains in
effect; and

     (iii) in all other cases, (A) an intentional failure to perform reasonably assigned
duties, (B) dishonesty or willful misconduct in the performance of duties, (C) an
intentional violation of material Company or Affiliate policies, (D) involvement in a
transaction or act in connection with the performance of duties to the Company or any
Affiliate which transaction or act is adverse to the interests of the Company or any
Affiliate, or (E) the willful violation of any law, rule or regulation in connection with
the performance of duties (other than traffic violations or similar offenses).

     (e) “Change in Control” of the Company means the occurrence of any of the following
events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50 percent or more of the combined voting
power of the Company’s then outstanding securities; (ii) as a result of, or in connection with, any
tender offer or exchange offer, merger or other business combination (a “Transaction”), the
persons who were directors of the Company immediately before the Transaction shall cease to
constitute a majority of the Board of Directors of the Company or any successor to the Company;
(iii) the Company is merged or consolidated with another corporation and as a result of the merger
or consolidation less than 50 percent of the outstanding voting securities of the surviving or
resulting corporation shall then be owned in the aggregate by the former stockholders of the
Company; (iv) a tender offer or exchange offer is made and consummated for the ownership of
securities of the Company representing 50 percent or more of the combined voting power of the
Company’s then outstanding voting securities; or (v) the Company transfers substantially all of its
assets to another corporation that is not controlled by the Company.

     (f) “Chief Executive Officer” means the individual serving at any relevant time as the
chief executive officer of the Company.

     (g) “Code” means the Internal Revenue Code of 1986, as amended, and any successor
statute. Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any Treasury regulations promulgated under
such section.

	 	 	 
	 
	 	 
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     (h) “Committee” means the Compensation Committee, as constituted from time to time, of
the Board that is appointed by the Board to administer the Plan, or if no such committee is
appointed (or no such committee shall be in existence at any relevant time), the term “Committee”
for purposes of the Plan shall mean the Board; provided, however, that while the Common Stock is
publicly traded, the Committee shall be a committee of the Board consisting solely of two or more
Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3, as necessary in each case to satisfy such
requirements with respect to Awards granted under the Plan. Within the scope of such authority,
the Committee may (i) delegate to a committee of one or more members of the Board who are not
Outside Directors the authority to grant Options to eligible persons who are either (A) not then
Covered Employees and are not expected to be Covered Employees at the time of recognition of income
resulting from such Options or (B) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the
Board who are not Non-Employee Directors the authority to grant Options to eligible persons who are
not then subject to Section 16 of the Exchange Act.

     (i) “Common Stock” means the Common Stock, $0.01 par value per share, of the Company
or the common stock that the Company may in the future be authorized to issue (as long as the
common stock varies from that currently authorized, if at all, only in amount of par value).

     (j) “Company” means GNC Corporation, a Delaware corporation.

     (k) “Consultant” means any person (other than an Employee or a Director, solely with
respect to rendering services in such person’s capacity as a Director) who is engaged by the
Company or any Affiliate to render consulting or advisory services to the Company or such Affiliate
and who is a “consultant or advisor” within the meaning of Rule 701 promulgated under the
Securities Act or Form S-8 promulgated under the Securities Act.

     (l) “Continuous Service” means the provision of services to the Company or an
Affiliate as an Employee, Director or Consultant which is not interrupted or terminated. Except as
otherwise provided in a particular Option Agreement, Restricted Stock Agreement or Stock
Appreciation Right Agreement, service shall not be considered interrupted or terminated for this
purpose in the case of (i) any approved leave of absence, (ii) transfers among the Company, any
Affiliate, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change in status as long as the individual remains in the service of the Company or an Affiliate as
an Employee, Director or Consultant. An approved leave of absence shall include sick leave,
military leave or any other authorized personal leave. For purposes of each Incentive Stock
Option, if such leave exceeds ninety (90) days, and re-employment upon expiration of such leave is
not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a
Non-Qualified Stock Option on the day that is three (3) months and one (1) day following the
expiration of such ninety (90)-day period.

     (m) “Covered Employee” means the Chief Executive Officer and the four other most
highly compensated officers of the Company for whom total compensation is required to be

	 	 	 
	 
	 	 
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reported to stockholders under Regulation S-K, as determined for purposes of Section 162(m) of
the Code.

     (n) “Director” means a member of the Board or the board of directors of an Affiliate.

     (o) “Disability” means the “disability” of a person as defined in a then effective
long-term disability plan maintained by the Company that covers such person or, if such a plan does
not exist at any relevant time, the permanent and total disability of a person within the meaning
of Section 22(e)(3) of the Code. For purposes of determining the time during which an Incentive
Stock Option may be exercised under the terms of an Option Agreement, “Disability” means the
permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.
Section 22(e)(3) of the Code provides that an individual is totally and permanently disabled if he
is unable to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve (12) months.

     (p) “Effective
Date” means July 27, 2006.

     (q) “Employee” means any person, including an Officer or Director, who is employed by
the Company or an Affiliate. The payment of compensation by the Company or an Affiliate to a
Director or Consultant solely with respect to such individual rendering services in the capacity of
a Director or Consultant, however, shall not be sufficient to constitute “employment” by the
Company or that Affiliate.

     (r) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any
successor statute. Reference in the Plan to any section of the Exchange Act shall be deemed to
include any amendments or successor provisions to such section and any rules and regulations
relating to such section.

     (s) “Fair Market Value” means, as of any date, the value of the Common Stock
determined as follows:

     (i) If the Common Stock has an established market by virtue of being listed on any
established stock exchange, traded on the NASDAQ National Market or the NASDAQ SmallCap
Market or reported on the Over-the-Counter Bulletin Board published by the National
Quotation Bureau, Inc., the Fair Market Value of a share of Common Stock shall be the
closing sales price for such a share of Common Stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or, if the Common Stock is listed or traded
on more than one exchange or market, the exchange or market with the greatest volume of
trading in the Common Stock) or reported on the Over-the Counter Bulletin Board on the day
of determination (or if no such price or bid is reported on that day, on last market trading
day prior to the day of determination), as reported in The Wall Street Journal or such other
source as the Committee deems reliable.

     (ii) In the absence of any such established markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Committee.

	 	 	 
	 
	 	 
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     (t) “Grantee” means an Employee, Director or Consultant to whom an Award has been
granted under the Plan.

     (u) “Incentive Stock Option” means an Option granted to an Employee under the Plan
that meets the requirements of Section 422 of the Code.

     (v) “Non-Employee Director” means a Director of the Company who either (i) is not an
Employee or Officer, does not receive compensation (directly or indirectly) from the Company or an
Affiliate in any capacity other than as a Director (except for an amount as to which disclosure
would not be required under Item 404(a) of Regulation S-K), does not possess an interest in any
other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and
is not engaged in a business relationship as to which disclosure would be required under Item
404(b) of Regulation S-K or (ii) is otherwise considered a “non-employee director” for purposes of
Rule 16b-3.

     (w) “Non-Qualified Stock Option” means an Option granted under the Plan that is not
intended to be an Incentive Stock Option.

     (x) “Officer” means a person who is an “officer” of the Company or any Affiliate
within the meaning of Section 16 of the Exchange Act (whether or not the Company is subject to the
requirements of the Exchange Act).

     (y) “Option” means an Award granted pursuant to Section 8 of the Plan to purchase a
specified number of shares of Common Stock during the Option period for a specified exercise price,
whether granted as an Incentive Stock Option or as a Non-Qualified Stock Option.

     (z) “Option Agreement” means the written agreement evidencing the grant of an Option
executed by the Company and the Optionee, including any amendments thereto. Each Option Agreement
shall be subject to the terms and conditions of the Plan.

     (aa) “Optionee” means an individual to whom an Option has been granted under the Plan.

     (bb) “Outside Director” means a Director of the Company who either (i) is not a
current employee of the Company or an “affiliated corporation” (within the meaning of the Treasury
regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company
or an “affiliated corporation” receiving compensation for prior services (other than benefits under
a tax qualified pension plan), has not been an officer of the Company or an “affiliated
corporation” at any time and is not currently receiving (within the meaning of the Treasury
regulations promulgated under Section 162(m) of the Code) direct or indirect remuneration from the
Company or an “affiliated corporation” for services in any capacity other than as a Director, or
(ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

     (cc) “Performance Award” shall mean a Restricted Stock Award granted under Section 12
of the Plan to a Grantee who is an Employee that becomes vested and earned solely

	 	 	 
	 
	 	 
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on account of the attainment of a specified performance target in relation to one or more
Performance Goals.

     (dd) “Performance Goals” shall mean, with respect to any Performance Award, the
business criteria (and related factors) selected by the Committee at the time of grant to measure
the level of performance of the Company during the Performance Period, in each case, prepared on
the same basis as the financial statements published for financial reporting purposes, except as
adjusted pursuant to Section 12(f). The Committee may select as the Performance Goals for a
Performance Period any one or combination of the following business criteria that apply to the
Grantee of the Performance Award, one or more business units, divisions or Affiliates or the
applicable sector of the Company, or the Company as a whole, and if so desired by the Committee, by
comparison with a peer group of companies, as interpreted and defined, in each case, by the
Committee, which business criteria (to the extent applicable) will be determined in accordance with
generally accepted accounting principles:

     (i) Net income as a percentage of revenue;

     (ii) Earnings per share of Common Stock;

     (iii) Earnings before interest, taxes, depreciation and amortization;

     (iv) Return on net assets employed before interest and taxes;

     (v) Operating margin as a percentage of revenue;

     (vi) Safety performance relative to industry standards and the Company annual target;

     (vii) Strategic team goals;

     (viii) Net operating profit after taxes;

     (ix) Net operating profit after taxes per share of Common Stock;

     (x) Return on invested capital;

     (xi) Return on assets or net assets;

     (xii) Total stockholder return;

     (xiii) Relative total stockholder return (as compared with a peer group of the
Company);

     (xiv) Earnings before income taxes;

     (xv) Net income;

     (xvi) Free cash flow;

	 	 	 
	 
	 	 
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     (xvii) Free cash flow per share of Common Stock;

     (xviii) Revenue (or any component thereof);

     (xix) Revenue growth; or

     (xx) Any other performance objective approved by the stockholders of the Company in
accordance with Section 162(m) of the Code.

     (ee) “Performance Period” shall mean that period established by the Committee at the
time any Performance Award is granted or, except in the case of any grant to a Covered Employee, at
any time thereafter, during which any Performance Goals specified by the Committee with respect to
such Award are to be measured.

     (ff) “Plan” means this GNC Corporation 2006 Stock Incentive Plan, as set forth herein
and as it may be amended from time to time.

     (gg) “Qualifying Shares” means shares of Common Stock which either (i) have been owned
by the Grantee for more than six (6) months and have been “paid for” within the meaning of Rule 144
promulgated under the Securities Act, or (ii) were obtained by the Grantee in the public market.

     (hh) “Regulation S-K” means Regulation S-K promulgated under the Securities Act, as it
may be amended from time to time, and any successor to Regulation S-K. Reference in the Plan to
any item of Regulation S-K shall be deemed to include any amendments or successor provisions to
such item.

     (ii) “Restriction Period” means the period during which the Common Stock under a
Restricted Stock Award is nontransferable and subject to “Forfeiture Restrictions” as defined in
Section 11(a) of this Plan and set forth in the related Restricted Stock Agreement.

     (jj) “Restricted Stock Agreement” means the written agreement evidencing the grant of
a Restricted Stock Award executed by the Company and the Grantee, including any amendments thereto.
Each Restricted Stock Agreement shall be subject to the terms and conditions of the Plan.

     (kk) “Restricted Stock Award” means an Award granted under Section 11 of the Plan to a
Grantee of shares of Common Stock issued to the Grantee for such consideration, if any, and subject
to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture
provisions and other terms and conditions as are established by the Committee.

     (ll) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as it may be
amended from time to time, and any successor to Rule 16b-3.

     (mm) “Section” means a section of the Plan unless otherwise stated or the context
otherwise requires.

	 	 	 
	 
	 	 
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     (nn) “Securities Act” means the Securities Act of 1933, as amended, and any successor
statute. Reference in the Plan to any section of the Securities Act shall be deemed to include any
amendments or successor provisions to such section and any rules and regulations relating to such
section.

     (oo) “Stock Appreciation Right” means a right to receive all or some portion of the
increase in the value of the shares of Common Stock to which such right relates as provided in
Section 10 hereof.

     (pp) “Stock Appreciation Right Agreement” means the written agreement evidencing the
award of a Stock Appreciation Right. Each Stock Appreciation Right Agreement shall be subject to
the terms and conditions of the Plan.

     (qq) “Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant
to Section 424(d) of the Code) at the time an Option is granted stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the Company or of any
of its Affiliates.

     4. INCENTIVE AWARDS AVAILABLE UNDER THE PLAN. Awards granted under this Plan may be
(a) Incentive Stock Options, (b) Non-Qualified Stock Options, (c) Stock Appreciation Rights, and
(d) Restricted Stock Awards. An Option may be granted in tandem with a Stock Appreciation Right.

     5. SHARES SUBJECT TO PLAN.

     (a) Maximum Shares Subject to Plan. Subject to adjustment pursuant to Section 13(a)
hereof, the total amount of Common Stock with respect to which Awards may be granted under the Plan
shall not exceed the greater of (i) 3,800,000 shares or
(ii) 5.0% of the total number of shares of
Common Stock, determined at the time of a particular Award, outstanding; provided, however, that
the total amount of Common Stock with respect to which Incentive Stock Options may be granted under
the Plan shall not exceed 100,000 shares. Any shares of Common Stock covered by an Award (or a
portion of an Award) that is forfeited or canceled, or that expires shall be deemed not to have
been issued for purposes of determining the maximum aggregate number of shares of Common Stock
which may be issued under the Plan and shall again be available for Awards under the Plan. At all
times during the term of the Plan, the Company shall reserve and keep available such number of
shares of Common Stock as will be required to satisfy the requirements of outstanding Awards under
the Plan. Nothing in this Section 5 shall impair the right of the Company to reduce the number of
outstanding shares of Common Stock pursuant to repurchases, redemptions or otherwise; provided,
however, that no reduction in the number of outstanding shares of Common Stock shall (i) impair the
validity of any outstanding Award, whether or not that Award is fully exercisable or fully vested,
or (ii) impair the status of any shares of Common Stock previously issued pursuant to an Award as
duly authorized, validly issued, fully paid and nonassessable. The shares to be delivered under
the Plan shall be made available from (i) authorized but unissued shares of Common Stock, (ii)
Common Stock held in the treasury of the Company, or (iii) previously issued shares of

	 	 	 
	 
	 	 
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Common Stock reacquired by the Company, including shares purchased on the open market, in each
case as the Committee may determine from time to time in its sole discretion.

     (b) Registration and Listing of Shares. From time to time, the Board and appropriate
Officers shall be and are authorized to take whatever actions are necessary to file required
documents with governmental authorities, stock exchanges and other appropriate persons to register,
list and otherwise make shares of Common Stock available for issuance pursuant to Awards.

     6. ELIGIBILITY. Awards other than Incentive Stock Options may be granted to
Employees, Officers, Directors and Consultants. Incentive Stock Options may be granted only to
Employees (including Officers and Directors who are also Employees), as limited by clause (iii) of
Section 3(a). The Committee, in its sole discretion, shall select the recipients of Awards. A
Grantee may be granted more than one Award under the Plan, and Awards may be granted at any time or
times during the term of the Plan. The grant of an Award to an Employee, Officer, Director or
Consultant shall not be deemed either to entitle that individual to, or to disqualify that
individual from, participation in any other grant of Awards under the Plan.

     7. LIMITATION ON INDIVIDUAL AWARDS. Subject to the provisions of Section 13(a), the
maximum number of shares of Common Stock that may be subject to Awards granted to any one person
under the Plan during any calendar year shall not exceed 400,000 shares of Common Stock. The
limitation set forth in the preceding sentence shall be applied in a manner that will permit
compensation generated under the Plan to constitute “performance-based” compensation for purposes
of Section 162(m) of the Code, including counting against such maximum number of shares, to the
extent required under Section 162(m) of the Code and applicable interpretive authority thereunder,
any shares of Common Stock subject to Options that are canceled or repriced.

     8. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine (i) whether each
Option shall be granted as an Incentive Stock Option or a Non-Qualified Stock Option and (ii) the
provisions, terms and conditions of each Option including, but not limited to, the vesting
schedule, the number of shares of Common Stock subject to the Option, the exercise price of the
Option, the period during which the Option may be exercised, repurchase provisions, forfeiture
provisions, methods of payment, and all other terms and conditions of the Option, subject to the
following:

     (a) Form of Option Grant. Each Option granted under the Plan shall be evidenced by a
written Option Agreement in such form (which need not be the same for each Optionee) as the
Committee from time to time approves, but which is not inconsistent with the Plan, including any
provisions that may be necessary to assure that any Option that is intended to be an Incentive
Stock Option will comply with Section 422 of the Code.

     (b) Date of Grant. The date of grant of an Option will be the date on which the
Committee makes the determination to grant such Option unless otherwise specified by the Committee.
The Option Agreement evidencing the Option will be delivered to the Optionee

	 	 	 
	 
	 	 
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with a copy of the Plan and other relevant Option documents, within a reasonable time after
the date of grant.

     (c) Exercise Price. The exercise price of any Option shall be not less than the Fair
Market Value of the shares of Common Stock on the date of grant of the Option. In addition, the
exercise price of any Incentive Stock Option granted to a Ten Percent Stockholder shall not be less
than 110% of the Fair Market Value of the shares of Common Stock on the date of grant of the
Option.

     (d) Exercise Period. Options shall be exercisable within the time or times or upon
the event or events determined by the Committee and set forth in the Option Agreement; provided,
however, that no Option shall be exercisable later than the day prior to the expiration of ten (10)
years from the date of grant of the Option, and provided further, that no Incentive Stock Option
granted to a Ten Percent Stockholder shall be exercisable after the expiration of five (5) years
from the date of grant of the Option.

     (e) Limitations on Incentive Stock Options. The aggregate Fair Market Value
(determined as of the date of grant of an Option) of Common Stock which any Employee is first
eligible to purchase during any calendar year by exercise of Incentive Stock Options granted under
the Plan and by exercise of incentive stock options (within the meaning of Section 422 of the Code)
granted under any other incentive stock option plan of the Company or an Affiliate shall not exceed
$100,000. If the Fair Market Value of stock with respect to which all incentive stock options
described in the preceding sentence held by any one Optionee are exercisable for the first time by
such Optionee during any calendar year exceeds $100,000, the Options (that are intended to be
Incentive Stock Options on the date of grant thereof) for the first $100,000 worth of shares of
Common Stock to become exercisable in such year shall be deemed to constitute incentive stock
options within the meaning of Section 422 of the Code and the Options (that are intended to be
Incentive Stock Options on the date of grant thereof) for the shares of Common Stock in the amount
in excess of $100,000 that become exercisable in that calendar year shall be treated as
Non-Qualified Stock Options. If the Code is amended after the effective date of the Plan to
provide for a different limit than the one described in this Section 8(e), such different limit
shall be incorporated herein and shall apply to any Options granted after the effective date of
such amendment.

     (f) Transferability of Options. Options granted under the Plan, and any interest
therein, shall not be transferable or assignable by the Optionee, and may not be made subject to
execution, attachment or similar process, otherwise than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the Optionee only by the Optionee;
provided, that the Optionee may, however, designate persons who or which may exercise his Options
following his death.

     (g) Acquisitions and Other Transactions. The Committee may, from time to time, assume
outstanding options granted by another entity, whether in connection with an acquisition of such
other entity or otherwise, by either (i) granting an Option under the Plan in replacement of or in
substitution for the option assumed by the Company, or (ii) treating the assumed option as if it
had been granted under the Plan if the terms of such assumed option could be applied to

	 	 	 
	 
	 	 
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an Option granted under the Plan. Such assumption shall be permissible if the holder of the
assumed option would have been eligible to be granted an Option hereunder if the other entity had
applied the rules of the Plan to such grant. The Committee also may grant Options under the Plan
in settlement of or substitution for, outstanding options or obligations to grant future options in
connection with the Company or an Affiliate acquiring another entity, an interest in another entity
or an additional interest in an Affiliate whether by merger, stock purchase, asset purchase or
other form of transaction. Notwithstanding the foregoing provisions of this Section 8, in the case
of an Option issued or assumed pursuant to this Section 8(g), the exercise price for the Option
shall be determined in accordance with the principles of Section 424(a) of the Code.

     9. EXERCISE OF OPTIONS.

     (a) Notice. Options may be exercised only by delivery to the Company of a written
exercise notice approved by the Committee (which need not be the same for each Optionee), stating
the number of shares of Common Stock being purchased, the method of payment, and such other matters
as may be deemed appropriate by the Company in connection with the issuance of shares of Common
Stock upon exercise of the Option, together with payment in full of the exercise price for the
number of shares of Common Stock being purchased. Such exercise notice may be part of an
Optionee’s Option Agreement.

     (b) Payment. Payment for the shares of Common Stock to be purchased upon exercise of
an Option may be made in cash (by check) or, if elected by the Optionee and approved by the
Committee, in one or more of the following methods which must be stated in the Option Agreement (at
the date of grant with respect to any Option granted as an Incentive Stock Option) and where
permitted by law: (i) by surrender for cancellation of Qualifying Shares at the Fair Market Value
per share at the time of exercise (provided that the surrender does not result in an accounting
charge for the Company) or (ii) if a public market for the Common Stock exists, (A) through a “same
day sale” arrangement between the Optionee and a broker-dealer that is a member of the National
Association of Securities Dealers, Inc. (an “NASD Dealer”) whereby the Optionee elects to
exercise the Option and to sell a portion of the shares of Common Stock so purchased to pay for the
exercise price and whereby the NASD Dealer commits upon receipt of such shares of Common Stock to
forward the exercise price directly to the Company or (B) through a “margin” commitment from the
Optionee and an NASD Dealer whereby the Optionee elects to exercise the Option and to pledge the
shares of Common Stock so purchased to the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer commits upon
receipt of such shares of Common Stock to forward the exercise price directly to the Company. No
shares of Common Stock may be issued until full payment of the purchase price therefor has been
made.

     (c) Withholding Taxes. The Committee may establish such rules and procedures as it
considers desirable in order to satisfy any obligation of the Company to withhold the statutory
prescribed minimum amount of federal or state income taxes or other taxes with respect to the
exercise of any Option granted under the Plan, including procedures for an Optionee to have shares
of Common Stock withheld from the total number of shares of Common Stock to be purchased upon
exercise of an Option. Prior to issuance of the shares of Common Stock upon exercise of an Option,
the Optionee shall pay or make adequate provision acceptable to the

	 	 	 
	 
	 	 
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Committee for the satisfaction of the statutory minimum prescribed amount of any federal or
state income or other tax withholding obligations of the Company, if applicable. Upon exercise of
an Option, the Company shall withhold or collect from the Optionee an amount sufficient to satisfy
such tax withholding obligations.

     (d) Exercise of Option Following Termination of Continuous Service.

     (i) An Option may not be exercised after the expiration date of such Option set forth
in the Option Agreement and may be exercised following the termination of an Optionee’s
Continuous Service only to the extent provided in the Option Agreement.

     (ii) Where the Option Agreement permits an Optionee to exercise an Option following the
termination of the Optionee’s Continuous Service for a specified period, the Option shall
terminate to the extent not exercised on the last day of the specified period or the last
day of the original term of the Option, whichever occurs first.

     (iii) Any Option designated as an Incentive Stock Option, to the extent not exercised
within the time permitted by law for the exercise of incentive stock options following the
termination of an Optionee’s Continuous Service, shall convert automatically to a
Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent
exercisable by its terms for the period specified in the Option Agreement.

     (iv) The Committee shall have discretion to determine whether the Continuous Service of
an Optionee has terminated and the effective date on which such Continuous Service
terminates and whether the Optionee’s Continuous Service terminated as a result of the
Disability of the Optionee.

     (e) Limitations on Exercise.

     (i) The Committee may specify a reasonable minimum number of shares of Common Stock or
a percentage of the shares subject to an Option that may be purchased on any exercise of an
Option; provided, that such minimum number will not prevent Optionee from exercising the
full number of shares of Common Stock as to which the Option is then exercisable.

     (ii) The obligation of the Company to issue any shares of Common Stock pursuant to the
exercise of any Option shall be subject to the condition that such exercise and the issuance
and delivery of such shares pursuant thereto comply with the Securities Act, all applicable
state securities laws and the requirements of any stock exchange or national market system
upon which the shares of Common Stock may then be listed or quoted, as in effect on the date
of exercise. The Company shall be under no obligation to register the shares of Common
Stock with the Securities and Exchange Commission or to effect compliance with the
registration, qualification or listing requirements of any state securities laws or stock
exchange or national market system, and the Company shall have no liability for any
inability or failure to do so.

	 	 	 
	 
	 	 
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     (iii) As a condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased only for investment and without any present
intention to sell or distribute such shares of Common Stock if, in the opinion of counsel
for the Company, such a representation is required by any securities or other applicable
laws.

     (f) Modification, Extension And Renewal of Options. The Committee shall have the
power to modify, cancel, extend or renew outstanding Options and to authorize the grant of new
Options and/or Restricted Stock Awards in substitution therefor (regardless of whether any such
action would be treated as a repricing for financial accounting or other purposes), provided that
(except as permitted by Section 13(a) of the Plan) any such action may not, without the written
consent of any Optionee, (i) impair any rights under any Option previously granted to such
Optionee, (ii) cause the Option or the Plan to become subject to Section 409A of the Code, or (iii)
cause any Option to lose its status as “performance-based” compensation under Section 162(m) of the
Code. Any outstanding Incentive Stock Option that is modified, extended, renewed or otherwise
altered will be treated in accordance with Section 424(h) of the Code.

     (g) Privileges of Stock Ownership. No Optionee will have any of the rights of a
stockholder with respect to any shares of Common Stock subject to an Option until such Option is
properly exercised and the purchased shares are issued and delivered to the Optionee, as evidenced
by an appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company. No adjustment shall be made for dividends or distributions or other rights for which the
record date is prior to such date of such issuance and delivery, except as provided in the Plan.

     (h) Proceeds of Option Exercise. The proceeds received by the Company from the sale
of shares of its Common Stock pursuant to Options exercised under the Plan shall be used for
general corporate purposes.

     10. STOCK APPRECIATION RIGHTS.

     (a) Terms and Conditions of Stock Appreciation Rights. At any time that the Common
Stock is traded on an established market, the Committee, from time to time, subject to the terms
and provisions of the Plan, may grant to an eligible Employee, Director or Consultant Stock
Appreciation Rights if (i) the exercise price of the Stock Appreciation Right is not less than the
Fair Market Value of the Common Stock on the grant date of the Award, (ii) the Stock Appreciation
Right will be settled only in shares of Common Stock (unless settlement in the form of cash would
not cause a Stock Appreciation Right or the Plan to become subject to Section 409A of the Code),
and (iii) the Stock Appreciation Right does not include any feature for the deferral of
compensation other than the time between the Stock Appreciation Right grant and exercise or any
other feature that would cause the Stock Appreciation Right or the Plan to become subject to
Section 409A of the Code. In addition, a Stock Appreciation Right may be related to an Option, or
issued “in tandem” with an Option, only if such an arrangement would not cause the Stock
Appreciation Right, the Option or the Plan to become subject to Section 409A of the Code. The
terms and conditions of a Stock Appreciation Right shall be set forth in a

	 	 	 
	 
	 	 
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Stock Appreciation Right Agreement (which need not be the same for each Grantee) in such form
as the Committee approves, but which is not inconsistent with the Plan. A Stock Appreciation Right
may be granted (i) if unrelated to an Option, at any time or (ii) if related to an Option, either
at the time of grant or at any time thereafter during the term of the Option.

     (b) Stock Appreciation Right Related to an Option. If permitted pursuant to the
conditions and limitations contained in Section 10(a), a Stock Appreciation Right granted in
connection with an Option shall cover the same shares of Common Stock covered by the Option (or
such lesser number of shares of Common Stock as the Committee may determine) and shall, except as
provided in this Section 10(b), be subject to the same terms and conditions as the related Option
and the following:

     (i) Exercise. A Stock Appreciation Right granted in connection with an Option
shall be exercisable at such time or times and only to the extent that the related Option is
exercisable, and will not be transferable except to the extent the related Option may be
transferable.

     (ii) Amount Payable. Upon the exercise of a Stock Appreciation Right related
to an Option, the Grantee shall be entitled to receive an amount payable in whole shares of
Common Stock determined by multiplying (A) the excess of the Fair Market Value of a share of
Common Stock on the date of exercise of such Stock Appreciation Right over the Option
exercise price of the Stock Appreciation Right, by (B) the number of shares of Common Stock
as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing,
the Committee may limit in any manner the amount payable with respect to any Stock
Appreciation Right by including such a limit in the applicable Stock Appreciation Right
Agreement.

     (iii) Treatment of Related Options and Stock Appreciation Rights Upon Exercise.
Upon the exercise of a Stock Appreciation Right granted in connection with an Option, the
Option shall be canceled to the extent of the number of shares of Common Stock as to which
the Stock Appreciation Right is exercised, and upon the exercise of an Option granted in
connection with a Stock Appreciation Right, the Stock Appreciation Right shall be canceled
to the extent of the number of shares of Common Stock as to which the Option is exercised or
surrendered.

     (c) Stock Appreciation Right Unrelated to an Option. A Stock Appreciation Right
unrelated to an Option shall cover such number of shares of Common Stock as the Committee shall
determine.

     (i) Terms; Duration. Stock Appreciation Rights unrelated to Options shall
contain such terms and conditions as to exercisability, vesting and duration as the
Committee shall determine, but in no event shall they have a term of greater than ten (10)
years. However, each Stock Appreciation Right shall be exercisable only during such portion
of its term as the Committee shall determine and, unless provided otherwise by the specific
provisions of the Stock Appreciation Right Agreement, only if the Grantee’s Continuous
Service has not terminated at the time of such exercise.

	 	 	 
	 
	 	 
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     (ii) Amount Payable. Upon exercise of a Stock Appreciation Right unrelated to
an Option, the Grantee shall be entitled to receive an amount payable in whole shares of
Common Stock determined by multiplying (A) the excess of the Fair Market Value of a share of
Common Stock on the date of exercise of such Stock Appreciation Right over the Fair Market
Value of a share of Common Stock on the date the Stock Appreciation Right was granted, by
(B) the number of shares of Common Stock as to which the Stock Appreciation Right is being
exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by including such a limit in the
applicable Stock Appreciation Right Agreement.

     (iii) Non-Transferability. No Stock Appreciation Right unrelated to an Option
shall be transferable by the Grantee otherwise than by will or the laws of descent and
distribution, and such Stock Appreciation Right shall be exercisable during the lifetime of
such Grantee only by the Grantee or his guardian or legal representative.

     (d) Method of Exercise. Stock Appreciation Rights shall be exercised by the Grantee
only by giving written notice to the Company at its principal place of business or other address
designated by the Company, specifying the number of shares of Common Stock with respect to which
the Stock Appreciation Right is being exercised. If requested by the Committee, the Grantee shall
deliver the applicable Stock Appreciation Right Agreement being exercised and the related Option
Agreement, if any, to the Company, which shall endorse thereon a notation of such exercise and
return such agreements to the Grantee.

     (e) Form of Payment. Payment of the amount determined under Section 10(b) or 10(c)
shall be made solely in whole shares of Common Stock in a number determined by their Fair Market
Value on the date of exercise of the Stock Appreciation Right. If the amount payable results in a
fractional share of Common Stock, the amount payable for the fractional share will be withheld
pursuant to Section 10(f) hereof by the Company in connection with satisfying its tax withholding
obligations with respect to the exercise of the Stock Appreciation Right. Notwithstanding the
foregoing provisions of this Section 10(e), payment of the amount determined under Section 10(b) or
10(c) in connection with the exercise of a Stock Appreciation Right may be paid in cash, if such
form of payment would not cause the Stock Appreciation Right or the Plan to be subject to Section
409A of the Code.

     (f) Withholding Taxes. The Committee may establish such rules and procedures as it
considers desirable in order to satisfy any obligation of the Company to withhold the statutory
prescribed minimum amount of federal or state income taxes or other taxes with respect to the
exercise of any Stock Appreciation Right granted under the Plan, including procedures for a Grantee
to have shares of Common Stock withheld from the total number of shares of Common Stock to be
issued upon exercise of the Stock Appreciation Rights. Prior to issuance of the shares of Common
Stock or, if applicable, payment of cash, upon exercise of a Stock Appreciation Right, the Grantee
shall pay or make adequate provision acceptable to the Committee for the satisfaction of the
statutory minimum prescribed amount of any federal or state income or other tax withholding
obligations of the Company, if applicable. Upon exercise of a Stock Appreciation Right, the
Company shall withhold or collect from the Grantee an amount sufficient to satisfy such tax
withholding obligations.

	 	 	 
	 
	 	 
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     (g) Exercise of Stock Appreciation Right Following Termination of Continuous Service.

     (i) A Stock Appreciation Right may not be exercised after the expiration date of such
Stock Appreciation Right set forth in the Stock Appreciation Right Agreement and may be
exercised following the termination of a Grantee’s Continuous Service only to the extent
provided in the Stock Appreciation Right Agreement.

     (ii) Where the Stock Appreciation Right Agreement permits Grantee to exercise a Stock
Appreciation Right following the termination of the Grantee’s Continuous Service for a
specified period, the Stock Appreciation Right shall terminate to the extent not exercised
on the last day of the specified period or the last day of the original term of the Stock
Appreciation Right, whichever occurs first.

     (iii) The Committee shall have discretion to determine whether the Continuous Service
of Grantee has terminated and the effective date on which such Continuous Service terminates
and whether the Grantee’s Continuous Service terminated as a result of the Disability of the
Grantee.

     (h) Limitations on Exercise.

     (i) The Committee may specify a reasonable minimum number of shares of Common Stock
covered by a Stock Appreciation Right or a percentage of the shares subject to a Stock
Appreciation Right that may be acquired upon any exercise of a Stock Appreciation Right;
provided, that such minimum number will not prevent Grantee from exercising the full number
of shares of Common Stock as to which the Stock Appreciation Right is then exercisable.

     (ii) The obligation of the Company to issue any shares of Common Stock pursuant to the
exercise of any Stock Appreciation Right shall be subject to the condition that such
exercise and the issuance and delivery of such shares pursuant thereto comply with Section
409A of the Code, the Securities Act, all applicable state securities laws and the
requirements of any stock exchange or national market system upon which the shares of Common
Stock may then be listed or quoted, as in effect on the date of exercise. The Company shall
be under no obligation to register the shares of Common Stock with the Securities and
Exchange Commission or to effect compliance with the registration, qualification or listing
requirements of any state securities laws or stock exchange or national market system, and
the Company shall have no liability for any inability or failure to do so.

     (iii) As a condition to the exercise of a Stock Appreciation Right, the Company may
require the person exercising such Stock Appreciation Right to represent and warrant at the
time of any such exercise that the shares of Common Stock are being purchased only for
investment and without any present intention to sell or distribute such shares of Common
Stock if, in the opinion of counsel for the Company, such a representation is required by
any securities or other applicable laws.

	 	 	 
	 
	 	 
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     (i) Privileges of Stock Ownership. No Grantee will have any of the rights of a
stockholder with respect to any shares of Common Stock subject to a Stock Appreciation Right until
such Stock Appreciation Right is properly exercised and the related shares are issued and delivered
to the Grantee, as evidenced by an appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date of issuance and
delivery, except as provided in the Plan.

     11. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. Each Restricted Stock Agreement
shall be in such form and shall contain such terms and conditions as the Committee shall deem
appropriate. The terms and conditions of such Restricted Stock Agreements may change from time to
time, and the terms and conditions of separate Restricted Stock Agreements need not be identical,
but each such Restricted Stock Agreement shall be subject to the terms and conditions of this
Section 11.

     (a) Forfeiture Restrictions. Shares of Common Stock that are the subject of a
Restricted Stock Award shall be subject to restrictions on disposition by the Grantee and to an
obligation of the Grantee to forfeit and surrender the shares to the Company under certain
circumstances (the “Forfeiture Restrictions”). The Forfeiture Restrictions shall be
determined by the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse on the passage of time, the attainment of one or more
performance targets established by the Committee or the occurrence of such other event or events
determined to be appropriate by the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award (which may differ from any other such Restricted Stock Award)
shall be stated in the Restricted Stock Agreement.

     (b) Restricted Stock Awards. At the time any Restricted Stock Award is granted under
the Plan, the Company and the Grantee shall enter into a Restricted Stock Agreement setting forth
each of the matters addressed in this Section 11 and such other matters as the Committee may
determine to be appropriate. Shares of Common Stock awarded pursuant to a Restricted Stock Award
shall be represented by a stock certificate registered in the name of the Grantee of such
Restricted Stock Award or by a book entry account with the Company’s transfer agent. The Grantee
shall have the right to receive dividends with respect to the shares of Common Stock subject to a
Restricted Stock Award, to vote the shares of Common Stock subject thereto and to enjoy all other
stockholder rights with respect to the shares of Common Stock subject thereto, except that, unless
provided otherwise in the Restricted Stock Agreement, (i) the Grantee shall not be entitled to
delivery of the stock certificates evidencing the shares of Common Stock until the Forfeiture
Restrictions have expired, (ii) the Company or an escrow agent shall retain custody of the stock
certificates evidencing the shares of Common Stock (or such shares shall be held in a book entry
account with the Company’s transfer agent) until the Forfeiture Restrictions have expired, (iii)
the Grantee may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the
shares of Common Stock until the Forfeiture Restrictions have expired, and (iv) a breach of the
terms and conditions established by the Committee pursuant to the Restricted Stock Agreement shall
cause a forfeiture of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions relating to Restricted
Stock Award, including rules

	 	 	 
	 
	 	 
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pertaining to the termination of the Grantee’s Continuous Service (by retirement, Disability,
death or otherwise) prior to expiration of the Forfeiture Restrictions. Such additional terms,
conditions or restrictions shall also be set forth in a Restricted Stock Agreement made in
connection with the Restricted Stock Award.

     (c) Rights and Obligations of Grantee. One or more stock certificates representing
shares of Common Stock, free of Forfeiture Restrictions, shall be delivered to the Grantee promptly
after, and only after, the Forfeiture Restrictions have expired and Grantee has satisfied all
applicable federal, state and local income and employment tax withholding requirements. Each
Restricted Stock Agreement shall require that (i) the Grantee, by his acceptance of the Restricted
Stock Award, shall irrevocably grant to the Company a power of attorney to transfer any shares so
forfeited to the Company and agrees to execute any documents requested by the Company in connection
with such forfeiture and transfer, and (ii) such provisions regarding transfers of forfeited shares
of Common Stock shall be specifically performable by the Company in a court of equity or law.

     (d) Restriction Period. The Restriction Period for a Restricted Stock Award shall
commence on the date of grant of the Restricted Stock Award and, unless otherwise established by
the Committee and stated in the Restricted Stock Award Agreement, shall expire upon satisfaction of
the conditions set forth in the Restricted Stock Agreement pursuant to which the Forfeiture
Restrictions will lapse.

     (e) Securities Restrictions. The Committee may impose other conditions on any shares
of Common Stock subject to a Restricted Stock Award as it may deem advisable, including (i)
restrictions under applicable state or federal securities laws, and (ii) the requirements of any
stock exchange or national market system upon which shares of Common Stock are then listed or
quoted.

     (f) Payment for Restricted Stock. The Committee shall determine the amount and form
of any payment for shares of Common Stock received pursuant to a Restricted Stock Award; provided,
that in the absence of such a determination, the Grantee shall not be required to make any payment
for shares of Common Stock received pursuant to a Restricted Stock Award, except to the extent
required by law.

     (g) Forfeiture of Restricted Stock. Subject to the provisions of the particular
Restricted Stock Agreement, upon termination of the Grantee’s Continuous Service during the
Restriction Period, the shares of Common Stock subject to the Restricted Stock Award shall be
forfeited by the Grantee. Upon any forfeiture, all rights of the Grantee with respect to the
forfeited shares of the Common Stock subject to the Restricted Stock Award shall cease and
terminate, without any further obligation on the part of the Company, except that if so provided in
the Restricted Stock Agreement applicable to the Restricted Stock Award, the Company shall
repurchase each of the shares of Common Stock forfeited for the purchase price per share, if any,
paid by the Grantee. The Committee will have discretion to determine whether the Continuous
Service of a Grantee has terminated and the date on which such Continuous Service terminates and
whether the Grantee’s Continuous Service terminated as a result of the Disability of the Grantee.

	 	 	 
	 
	 	 
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     (h) Lapse of Forfeiture Restrictions in Certain Events; Committee’s Discretion.
Notwithstanding the provisions of Section 11(g) or any other provision in the Plan to the contrary,
the Committee may, in its discretion and as of a date determined by the Committee, fully vest any
or all Common Stock awarded to the Grantee pursuant to a Restricted Stock Award, and upon such
vesting, all Forfeiture Restrictions applicable to such Restricted Stock Award shall lapse or
terminate. Any action by the Committee pursuant to this Section 11(h) may vary among individual
Grantees and may vary among the Restricted Stock Awards held by any individual Grantee.
Notwithstanding the preceding provisions of this Section 11(h), the Committee may not take any
action described in this Section 11(h) with respect to a Restricted Stock Award that has been
granted to a Covered Employee if such Award has been designed to meet the exception for
performance-based compensation under Section 162(m) of the Code.

     (i) Withholding Taxes. The Committee may establish such rules and procedures as it
considers desirable in order to satisfy any obligation of the Company to withhold applicable
federal, state and local income and employment taxes with respect to the lapse of Forfeiture
Restrictions applicable to Restricted Stock Awards, including procedures for a Grantee to have
shares of Common Stock withheld from the total number of shares of Common Stock to be issued or
purchased upon the grant or exercise of a Restricted Stock Award. Prior to delivery of shares of
Common Stock upon the lapse of Forfeitures Restrictions applicable to a Restricted Stock Award, the
Grantee shall pay or make adequate provision acceptable to the Committee for the satisfaction of
all tax withholding obligations of the Company.

     (j) Notice of Election Under 83(b). Each Grantee making an election under Section
83(b) of the Code will provide a copy thereof to the Company within thirty (30) days of the filing
of such election with the Internal Revenue Service.

     12. PERFORMANCE AWARDS.

     (a) Designation as a Performance Award. The Committee shall have the right to
designate any Restricted Stock Award as a Performance Award. Performance Awards may be granted
only to Employees.

     (b) Performance Awards. In the case of any Restricted Stock Awards to any person who
is or may become a Covered Employee during the Performance Period or before payment of the Award,
the Committee may grant such Awards as Performance Awards that are intended to comply with the
requirements of Section 162(m) of the Code, as determined by the Committee, in the amounts and
pursuant to the terms and conditions that the Committee may determine and set forth in the
Restricted Stock Agreement, subject to the provisions of this Section 12.

     (c) Performance Period. Performance Awards will be awarded in connection with a
Performance Period, as determined by the Committee in its discretion; provided, however, that a
Performance Period may be no shorter than twelve (12) months.

     (d) Eligible Grantees. Prior to the commencement of a Performance Period, the
Committee will determine the Employees who will be eligible to receive a Performance Award with
respect to that Performance Period; provided that the Committee may determine the eligibility of
any Employee, other than a Covered Employee, after the commencement of the

	 	 	 
	 
	 	 
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Performance Period. The Committee shall provide a Restricted Stock Agreement, as applicable,
to each Grantee who receives a grant of a Performance Award under this Plan as soon as
administratively feasible after such Grantee receives such Award. A Restricted Stock Agreement for
a Performance Award shall specify the applicable Performance Period, and the Performance Goals,
specific performance factors and targets related to the Performance Goals, award criteria and the
targeted amount of his Performance Award, as well as any other applicable terms of the Performance
Award for which he is eligible.

     (e) Performance Goals; Specific Performance Targets; Award Criteria. Prior to the
commencement of each Performance Period, the Committee shall fix and establish in writing (i) the
Performance Goals that will apply to that Performance Period with respect to each Performance
Award; (ii) with respect to Performance Goals, the specific performance factors and targets related
to each Grantee and, if achieved, the targeted amount of his Performance Award; and (iii) subject
to Section 12(f) below, the criteria for computing the amount that will be paid with respect to
each level of attained performance. The Committee shall also set forth the minimum level of
performance, based on objective factors and criteria, that must be attained during the Performance
Period before any Performance Goal is deemed to be attained and any Performance Award will be
earned and become payable, and the percentage of the Performance Award that will become earned and
payable upon attainment of various levels of performance that equal or exceed the minimum required
level.

     (f) Adjustments.

     (i) In order to assure the incentive features of this Plan and to avoid distortion in
the operation of this Plan, the Committee may make adjustments in the Performance Goals,
specific performance factors and targets related to those Performance Goals and award
criteria established by it for any Performance Period under this Section 12(f) whether
before or after the end of the Performance Period to the extent it deems appropriate in its
sole discretion, which shall be conclusive and binding upon all parties concerned, to
compensate for or reflect any extraordinary changes which may have occurred during the
Performance Period which significantly affect factors that formed part of the basis upon
which such Performance Goals, specific performance targets related to those Performance
Goals and award criteria were determined. Such changes may include, without limitation,
changes in accounting practices, tax, regulatory or other laws or regulations or economic
changes not in the ordinary course of business cycles. The Committee also reserves the
right to adjust Performance Awards to insulate them from the effects of unanticipated,
extraordinary, major business developments, e.g., unusual events such as a special asset
writedown, sale of a division, etc. The determination of financial performance achieved for
any Performance Period may, but need not be, adjusted by the Committee to reflect such
extraordinary, major business developments. Any such determination shall not be affected by
subsequent adjustments or restatements.

     (ii) In the event of any change in outstanding shares of the Company by reason of any
stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Committee shall make such

	 	 	 
	 
	 	 
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adjustments, if any, that it deems appropriate in the Performance Goals, specific
performance factors and targets related to those Performance Goals and award criteria
established by it under this Section 12(f) for any Performance Period not then completed.
Any and all such adjustments shall be conclusive and binding upon all parties concerned.

     (iii) Notwithstanding the foregoing provisions of this Section 12(f), the Committee
shall have no discretion to modify or waive the Performance Goals or conditions to the grant
or vesting of a Performance Award or to increase the amount payable to any Grantee that
would otherwise be due upon attainment of the Performance Goals, unless such Award is not
intended to qualify as qualified performance-based compensation under Section 162(m) of the
Code and the relevant Restricted Stock Agreement provides for such discretion.

     (g) Section 162(m) of the Code. If the Committee intends for a Performance Award to
be granted and administered in a manner designed to preserve the deductibility of the compensation
resulting from such Award in accordance with Section 162(m) of the Code, it is the intent of the
Company and the Committee that this Section 12 be interpreted in a manner that satisfies the
applicable requirements of Section 162(m)(4)(C) of the Code and related regulations, and that this
Plan be operated so that the Company may take a full tax deduction for such Performance Awards. If
any provision of this Plan or any Performance Award would otherwise frustrate or conflict with this
intent, that provision shall be interpreted and deemed amended so as to avoid this conflict and
such terms or provisions shall be deemed inoperative to the extent necessary to avoid the conflict
with the requirements of Section 162(m) of the Code without invalidating the remaining provisions
hereof. Without limiting the generality of the preceding provisions of this Section 12(g), the
Committee may apply any restrictions it deems appropriate to the payment of dividends declared with
respect to shares of Common Stock covered by a Performance Award, such that the dividends and/or
the shares of Common Stock maintain eligibility for the “performance-compensation exception” under
Section 162(m) of the Code. In the event that any dividend constitutes a derivative security or an
equity security pursuant to the rules under Section 16 of the Exchange Act, if applicable, such
dividend shall be subject to a vesting period equal to the remaining vesting period of the shares
of Common Stock subject to the Performance Award with respect to which the dividend is paid.

     13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION AND CORPORATE EVENTS.

     (a) Capital Adjustments. The number of shares of Common Stock (i) covered by each
outstanding Award granted under the Plan, the exercise or purchase price of such outstanding Award
and any other terms of the Award that the Committee determines requires adjustment and (ii)
available for issuance under Sections 5 and 7 shall be proportionately adjusted or an equitable
substitution shall be made with respect to such shares to reflect, as determined by the Committee
in its sole discretion, any increase or decrease in the number of shares of Common Stock resulting
from a stock dividend, stock split, reverse stock split, combination, reclassification or similar
change in the capital structure of the Company without receipt of consideration, subject to any
required action by the Board or the stockholders of the Company and compliance with applicable
securities laws; provided, however, that a fractional

	 	 	 
	 
	 	 
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share will not be issued upon exercise of any Award, and either (i) the value of any fraction
of a share of Common Stock that would have resulted will be cashed out at Fair Market Value or (ii)
the number of shares of Common Stock issuable under the Award will be rounded down to the nearest
whole number, as determined by the Committee. Except as the Committee determines, no issuance by
the Company of shares of capital stock of any class, or securities convertible into shares of
capital stock of any class, shall affect, and no adjustment by reason hereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Award. Notwithstanding the
foregoing provisions of this Section 13, no adjustment may be made by the Committee with respect to
an outstanding Award that would cause such Award and/or the Plan to become subject to Section 409A
of the Code.

     (b) Dissolution or Liquidation. The Committee shall notify the Grantee at least
twenty (20) days prior to any proposed dissolution or liquidation of the Company. Unless provided
otherwise in an individual Option Agreement, Stock Appreciation Right Agreement or Restricted Stock
Agreement or in a then-effective written employment agreement between the Grantee and the Company
or an Affiliate, to the extent that an Award has not been previously exercised, the Company’s
repurchase rights relating to an Award have not expired or the Forfeiture Restrictions have not
lapsed, any such Award that is an Option or Stock Appreciation Right shall expire and any such
Award that is a Restricted Stock Award shall be forfeited and the shares of Common Stock subject to
such Award shall be returned to the Company, in each case, immediately prior to consummation of
such dissolution or liquidation, and such Award shall terminate immediately prior to consummation
of such dissolution or liquidation.

     (c) Change in Control. Unless specifically provided otherwise with respect to Change
in Control events in an individual Option Agreement, Stock Appreciation Right Agreement or
Restricted Stock Agreement or in a then-effective written employment agreement between the Grantee
and the Company or an Affiliate, if, during the effectiveness of the Plan, a Change in Control
occurs, (i) each Option and each Stock Appreciation Right which is at the time outstanding under
the Plan shall automatically become fully vested and exercisable immediately prior to the specified
effective date of such Change in Control for all of the shares of Common Stock at the time
represented by such Option or such Stock Appreciation Right and (ii) the Forfeiture Restrictions
applicable to all outstanding Restricted Stock Awards shall lapse and shares of Common Stock
subject to such Restricted Stock Awards shall be released from escrow (or transferred from book
entry with the Company’s transfer agent, if applicable), and delivered (subject to the Grantees’
satisfaction of the requirements of Section 11(i)) to the Grantees of the Awards free of any
Forfeiture Restriction.

     To the extent that a Grantee exercises his Option or Stock Appreciation Right before or on the
effective date of the Change in Control, (i) the Company shall issue all Common Stock purchased or
deliverable by exercise of that Option or Stock Appreciation Right (subject to the provisions of
Section 10(b) and Grantee’s satisfaction of the requirements of Sections 9(c) and 10(f)), and those
shares of Common Stock shall be treated as issued and outstanding for purposes of the Change in
Control and (ii) with respect to a Stock Appreciation Right that is to be settled in the form of a
cash payment, the Company shall make such payment to the Grantee (subject to Grantee’s satisfaction
of the requirements of Section 10(f)).

	 	 	 
	 
	 	 
	GNC Corporation 2006 Stock Incentive Plan

	 	Page 22

 

 

     14. STOCKHOLDER APPROVAL. The Company shall obtain the approval of the Plan by the
Company’s stockholders to the extent required to satisfy Sections 162(m) or 422 of the Code or to
satisfy or comply with any applicable laws or the rules of any stock exchange or national market
system on which the Common Stock may be listed or quoted. No Award that is issued as a result of
any increase in the number of shares of Common Stock authorized to be issued under the Plan may be
exercised or forfeiture restrictions lapse prior to the time such increase has been approved by the
stockholders of the Company, and all such Awards granted pursuant to such increase will similarly
terminate if such stockholder approval is not obtained.

     15. ADMINISTRATION. This Plan shall be administered by the Committee. The Committee
shall interpret the Plan and any Awards granted pursuant to the Plan and shall prescribe such rules
and regulations in connection with the operation of the Plan as it determines to be advisable for
the administration of the Plan. The Committee may rescind and amend its rules and regulations from
time to time. The interpretation by the Committee of any of the provisions of the Plan or any
Award granted under the Plan shall be final and binding upon the Company and all persons having an
interest in any Option or any shares of Common Stock acquired pursuant to an Award.
Notwithstanding the authority hereby delegated to the Committee to grant Awards to Employees,
Directors and Consultants under the Plan, the Board shall have full authority, subject to the
express provisions of the Plan, to grant Awards to Employees, Directors and Consultants under the
Plan, to interpret the Plan, to provide, modify and rescind rules and regulations relating to the
Plan, to determine the terms and provision of Awards granted to Employees, Consultants and
Directors under the Plan and to make all other determinations and perform such actions as the Board
deems necessary or advisable to administer the Plan. No member of the Committee or the Board shall
be liable for any action taken or determination made in good faith with respect to the Plan or any
Award granted hereunder.

     16. EFFECT OF PLAN. Neither the adoption of the Plan nor any action of the Board or
the Committee shall be deemed to give any Employee, Director or Consultant any right to be granted
an Award or any other rights except as may be evidenced by the Option Agreement or Restricted Stock
Agreement, or any amendment thereto, duly authorized by the Committee, and executed on behalf of
the Company, and then only to the extent and on the terms and conditions expressly set forth
therein. The existence of the Plan and the Awards granted hereunder shall not affect in any way
the right of the Board, the Committee or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company’s capital structure or
its business, any merger or consolidation or other transaction involving the Company, any issue of
bonds, debentures or shares of preferred stock ahead of or affecting the Common Stock or the rights
thereof, the dissolution or liquidation of the Company or any sale or transfer of all or any part
of the Company’s assets or business, or any other corporate act or proceeding by or for the
Company. Nothing contained in the Plan or in any Option Agreement, Restricted Stock Agreement or
in other related documents shall confer upon any Employee, Director or Consultant any right with
respect to such person’s Continuous Service or interfere or affect in any way with the right of the
Company or an Affiliate to terminate such person’s Continuous Service at any time, with or without
cause.

	 	 	 
	 
	 	 
	GNC Corporation 2006 Stock Incentive Plan

	 	Page 23

 

 

     17. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS. Except as specifically provided
in a retirement or other benefit plan of the Company or an Affiliate, Awards shall not be deemed
compensation for purposes of computing benefits or contributions under any retirement plan of the
Company or an Affiliate, and shall not affect any benefits under any other benefit plan of any kind
or any benefit plan subsequently instituted under which the availability or amount of benefits is
related to level of compensation. The Plan is not a “retirement plan” or “welfare plan” under the
Employee Retirement Income Security Act of 1974, as amended.

     18. AMENDMENT OR TERMINATION OF PLAN. The Board in its discretion may, at any time or
from time to time after the date of adoption of the Plan, terminate or amend the Plan in any
respect, including amendment of any form of Option Agreement, Stock Appreciation Right Agreement,
Restricted Stock Agreement, exercise agreement or instrument to be executed pursuant to the Plan;
provided, however, to the extent necessary to comply with the Code, including Sections 162(m) and
422 of the Code, other applicable laws, or the applicable requirements of any stock exchange or
national market system, the Company shall obtain stockholder approval of any Plan amendment in such
manner and to such a degree as required. No Award may be granted after termination of the Plan.
Any amendment or termination of the Plan shall not affect Awards previously granted, and such
Awards shall remain in full force and effect as if the Plan had not been amended or terminated,
unless mutually agreed otherwise in a writing (including an Option Agreement or Restricted Stock
Agreement) signed by the Grantee and the Company.

     19. TERM OF PLAN. Unless sooner terminated by action of the Board, the Plan shall
terminate on the earlier of (i) the tenth (10th) anniversary of the Effective Date or (ii) the date
on which no shares of Common Stock subject to the Plan remain available to be granted as Awards
under the Plan according to its provisions.

     20. SEVERABILITY AND REFORMATION. The Company intends all provisions of the Plan to
be enforced to the fullest extent permitted by law. Accordingly, should a court of competent
jurisdiction determine that the scope of any provision of the Plan is too broad to be enforced as
written, the court should reform the provision to such narrower scope as it determines to be
enforceable. If, however, any provision of the Plan is held to be wholly illegal, invalid or
unenforceable under present or future laws, such provision shall be fully severable and severed,
and the Plan shall be construed and enforced as if such illegal, invalid or unenforceable provision
were never a part hereof, and the remaining provisions of the Plan shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable provision or by its
severance.

     21. GOVERNING LAW. The Plan shall be construed and interpreted in accordance with the
laws of the State of Delaware.

     22. INTERPRETIVE MATTERS. Whenever required by the context, pronouns and any
variation thereof shall be deemed to refer to the masculine, feminine or neuter, and the singular
shall include the plural, and visa versa. The term “include” or “including” does not

	 	 	 
	 
	 	 
	GNC Corporation 2006 Stock Incentive Plan

	 	Page 24

 

 

denote or imply any limitation. The captions and headings used in the Plan are inserted for
convenience and shall not be deemed a part of the Plan for construction or interpretation.

	 	 	 
	 
	 	 
	GNC Corporation 2006 Stock Incentive Plan

	 	Page 25exv10w1

 

EXHIBIT 10.1

EMPLOYMENT AND SEPARATION AGREEMENT

     THIS EMPLOYMENT AND SEPARATION AGREEMENT (the “Agreement”) is made and entered into effective
as of August 1, 2006 (the “Effective Date”), by and between MicroMed Cardiovascular, Inc. and
Travis E. Baugh (“Employee”);

W I T N E S S E T H:

     WHEREAS, the Employee and the MicroMed Technology, Inc., the wholly owned subsidiary of
MicroMed Cardiovascular, Inc. (together with MicroMed Technology, Inc., the “Company”), are parties
to that certain Employment Agreement dated as of July 11, 1996, as amended (the “Employment
Agreement”); and

     WHEREAS, in consideration of the mutual promises contained herein, the parties hereto are
willing to enter into this Agreement upon the terms and conditions herein set forth.

     NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein,
the mutual benefits to be gained by the performance thereof and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     1. Resignation of Officer Positions; Term and Extent of Services as an Employee. As of
the Effective Date, Employee hereby resigns as President and Chief Executive Officer of the Company
and from such other officer positions has he may hold with the Company and its affiliates, but
shall remain as an employee of the Company until the earlier of i) the date a successor President
and Chief Executive Officer of the Company is named or ii) September 30, 2006 (the “Separation
Date”). From the Effective Date until the Separation Date (the “Term”), Employee shall continue to
be employed by the Company and make himself available to provide such advisory and other services
to the Board of Directors and the Company as may be mutually agreed by the Employee and Company
from time to time, which is generally agreed by the parties to require Employee to be at work three
days per week, but from time to time may require more than three days per week, as reasonably
agreed amongst the parties hereto. During the Term, Employee agrees to perform to the best of his
ability and with reasonable diligence the duties and responsibilities, as mutually agreed by the
Employee and Company, assigned to him, at the time and in the manner assigned to him, by the Board.
In addition, Employee agrees to use his best efforts to maintain the continuing employment of all
current employees; however, the resignations of any such employees will not impact Company’s
obligations under this Agreement. After the Separation Date, Employee shall be free to pursue
employment elsewhere, subject to his obligations set forth in Sections 5 and 6; however, Employee
agrees to make himself available for six months following the Separation Date, and beyond that date
as mutually agreeable to Employee and the Company, to provide consulting services to the Company as
reasonably requested by the Company in order to provide for an orderly transition for the successor
to Employee, with such consulting services not to exceed eight hours per month unless mutually
agreed by Employee and Company.

 

 

     2. Compensation and Benefits. In consideration for the Employee’s execution of and
compliance with this Agreement, including but not limited to the restrictive covenants described in
Sections 5 and 6 and the execution of the Waiver and Release attached hereto as Attachment A, the
Company shall provide the consideration set forth below in this Section 2. This consideration is
provided subject to the binding execution by the Employee of the attached Waiver and Release
agreement at the time of execution of this Agreement. The Company’s obligation to make any further
payments otherwise due under Section 2 shall cease in the event the Employee fails to comply with
the obligations set forth in Sections 5 and 6 of this Agreement or the Waiver and Release. As a
condition of receiving severance pay contemplated under this Agreement, Employee agrees to execute
an identical Waiver and Release form (but dated October 13, 2006) upon the Separation Date.

     DURING THE TERM

     (a) Salary: Employee’s base salary shall remain unchanged.

     (b) Welfare and Retirement Benefits: Employee shall be eligible to continue to
participate in the Company’s health and welfare plans and qualified retirement plans on a
basis comparable to that of other employees of the Company.

     (c) Incentive Plans: Employee shall not be eligible to participate in any new
awards under the Company’s annual or long-term incentive plans or programs, and Employee
shall not be eligible to receive an annual bonus for 2006. Employee will continue to vest
in stock options granted to Employee under the Company’s stock option plans in accordance
with the terms of those plans and any applicable agreements.

     (d) Vacation: Employee shall be eligible to accrue additional vacation pay
during the Term.

     (e) Expense Reimbursement: Employee shall be entitled to reimbursement of
reasonable expenses incurred in the performance of his employment duties hereunder in
accordance with the Company’s policies regarding employee expense reimbursement.

     AFTER THE SEPARATION DATE

     (a) Severance: Employee shall be paid $250,000.00 in severance pay at a rate of $
$9,615.39 per pay period (payment to be made over twelve months, the “Severance Period”), paid
bi-weekly in accordance with the Company’s normal payroll practices, with the final payment due
September 26, 2007 (Final Payment Date).

     (b) Welfare and Retirement Benefits: Employee shall not be eligible to
participate in the Company’s health and welfare plans and qualified retirement plans of the
Company during the period in which he receives severance payments hereunder; however, during
the six month Severance Period, the Company shall pay for the cost of any COBRA premiums
for the Employee’s current family coverage under the Company’s health and dental insurance
plans, if the Employee elects to continue coverage under COBRA.

-2-

 

     (c) Incentive Plans: Employee shall not be eligible to participate in any new
awards under the Company’s annual or long-term incentive plans or programs, and Employee
shall not be eligible to receive an annual bonus for 2006. Employee will not continue to
vest in stock options granted to Employee under the Company’s stock option plans.

     (d) Vacation: Employee shall not accrue additional vacation pay after the
Separation Date.

     (e) Expense Reimbursement: Employee shall be entitled to reimbursement of
reasonable expenses incurred in the performance of his consulting duties hereunder in
accordance with the Company’s policies regarding employee expense reimbursement.

     3. Resignation of Employment. Effective as of the Separation Date, Employee agrees to
voluntarily terminate his employment with the Company and all affiliates, and to resign as a member
of the Board.

     4. Compensation Following Separation Date and Final Payment Date. Following the
Separation Date, Employee shall only be entitled to receive the compensation and benefits expressly
set forth in this Agreement. After the Final Payment Date, no additional compensation or benefits
shall be payable to the Employee; provided however:

     (a) Employee shall be entitled to continuation of group health plan benefits as
required under COBRA, provided that Employee pays the full premium required for COBRA
continuation coverage; and

     (b) Employee’s outstanding options shall remain exercisable only to the extent
permitted in accordance with the terms of their underlying option agreement(s).

     5. Restrictive Covenants. As a material inducement to Company to enter into this
Agreement and in exchange for the additional consideration provided herein, which includes but is
not limited to (i) access to confidential and trade secret information, (ii) employment for the
defined period, including the consulting arrangement, and (iii) compensation and benefits as
described herein, Employee agrees to reaffirm the provisions of Sections 4 and 5 of his Employment
Agreement, and acknowledges that the following restrictions are in force and effect in
consideration of the Company’s prior and future provision of confidential information and other
consideration to Employee during the course of his employment:

     (a) During the Term and for a period of 12 months after the Separation Date, Employee
shall not, acting alone or in conjunction with others, directly or indirectly, invest or
engage, directly or indirectly, in any business which is competitive with that of the
Company or accept employment with or render services to such a competitor as a director,
officer, agent, employee or consultant, or take any action inconsistent with the fiduciary
relationship of an employee to his employer; provided, however, that the beneficial
ownership by Employee of up to three percent of the voting stock of any

-3-

 

corporation subject to the periodic reporting requirements of the Securities and Exchange
Act of 1934 shall not violate this Section 5.

     (b) In addition to the other obligations agreed to by Employee in this Agreement,
Employee agrees that during the Term and for a period of 12 months after the Separation
Date, he shall not at any time, directly or indirectly, (i) induce, entice or solicit any
employee of the Company to leave his employment, (ii) contact, communicate or solicit any
customer or acquisition prospect of the Company for any competitive purposes, or (iii) in
any other manner use any customer lists or customer leads, mail, telephone numbers, printed
material, technology, patents, proprietary information or other information of the Company
relating thereto.

     (c) It is understood between the Company and Employee that Employee may engage in other
consulting relationships that do not conflict with Employee’s responsibilities under this
Agreement.

     (d) Employee agrees that he will not disclose to any other person, firm or corporation
or use for his own personal gain, any confidential trade, ideas, or other Company
information, except for such disclosures as required in the performance of his duties
hereunder. If Employee shall during his employment hereunder discover, conceive, develop or
improve any inventions, techniques, methods, trade secrets or products related to the
business of the Company, such discovery shall belong to and be the sole property of the
Company or its designee, whether or not copyright or patent applications or other procedures
for establishing proprietary rights are available or commenced. Upon any such discovery,
Employee shall communicate the same to the Company and shall cooperate fully in establishing
and maintaining all such rights of the Company or its designee at the Company’s expense.
Notwithstanding anything herein to the contrary, the provisions of this Section 5(d) shall
survive and be in effect during the term hereof and for three years after the Separation
Date.

     (e) As a condition of receiving the severance payment set forth in Section 2, Employee
agrees to return to the Company on the Separation Date all Company property in his
possession, custody or control, including, but not limited to, all documents, files, disks,
tapes, CD’s or other storage devices containing any information relating to Company or its
products and customers; all keys, cards or other access devices; and any other property,
equipment or electronic devices of the Company in his possession, except that Employee may
keep and is not required to return the Company-owed laptop computer and related accessories
in his possession. As a condition of keeping the laptop, Employee represents and agrees
that he will delete all files and information stored on the laptop relating to the Company,
including any confidential information relating to the products or customers of the Company.
Employee agrees to provide written confirmation to the Company prior to receiving the first
severance payment that all such files and information have been deleted.

-4-

 

     6. Nondisparagement. Employee and the Company agree to refrain from any criticisms or
disparaging comments about each other or in any way relating to Employee’s separation from
employment, and Employee agrees not to take any action, or assist any person in taking any other
action, that is adverse to the interests of the Company or any affiliate or inconsistent with
fostering the goodwill of the Company and its affiliates; provided, however, that nothing in this
Agreement shall apply to or restrict in any way the communication of information by the Company or
Employee to any state or federal law enforcement agency or require notice to the Company or
Employee thereof, and neither Employee nor the Company will be in breach of the covenant contained
above solely by reason of testimony which is compelled by process of law.

     7. Enforcement. Employee and the Company each hereby agree that a violation of the
provisions of Section 5 or 6 would cause irreparable injury to the Company and its affiliates and,
in the case of a violation of Section 6, to the Employee, in each case for which they may have no
adequate remedy at law. The Company and Employee specifically retain the right to seek injunctive
relief from a court having jurisdiction for any actual or threatened breach of Section 5 or 6
without necessity of complying with any requirement as to the posting of a bond or other security
(it being understood that Employee and the Company hereby waive any such requirement). Any such
injunctive relief shall be in addition to any other remedies to which Employee or the Company may
be entitled at law or in equity or otherwise.

     8. Interpretation. If any provision of Section 5 or 6 is found by a court of
competent jurisdiction to be unreasonably broad, oppressive or unenforceable, such court (i) shall
narrow the scope of the Agreement in order to ensure that the application thereof is not
unreasonably broad, oppressive or unenforceable and (ii) to the fullest extent permitted by law,
shall enforce such Agreement as though reformed. As used in Sections 5 and 6, the term “Company”
includes the Company and any affiliate of the Company.

     9. Assistance with Litigation. The Employee agrees that for a period of two years
after the Separation Date and in each case as may be reasonably necessary, the Employee will make
himself reasonably available at the Company’s expense and will furnish such information and proper
assistance in connection with testifying in any litigation to which he has personal knowledge as a
witness in which the Company or any affiliate or subsidiary is then or may become involved. In
addition, if Employee is requested by Company to provide consulting, advice, strategy or background
information in connection with any Company related litigation, Company agrees to compensate
Employee at an hourly rate of $300 per hour plus expenses for each such case.

     10. Nonassignability. Except as set forth in the Waiver and Release, neither this
Agreement nor any right or interest hereunder shall be subject, in any manner, to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, by operation of law or otherwise, any attempt at such shall be void; and further
provided, that any such benefit shall not in any way be subject to the debts, contract,
liabilities, engagements or torts of the Employee, nor shall it be subject to attachment or legal
process for or against the Employee.

-5-

 

     11. Amendment of Agreement. This Agreement may not be modified or amended except by
an instrument in writing signed by the parties hereto.

     12. Waiver. No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement,
except by written instrument of the party charged with such waiver or estoppel.

     13. Notices. All notices or communications hereunder shall be in writing, addressed
as follows:

	 	 	 
	 

	 	To the Company:
	 
	 	 
	 

	 	MicroMed Cardiovascular, Inc.

8965 Interchange Drive

Houston, Texas 77054

FAX: 713-838-9214
	 
	 	 
	 

	 	Attention:     President and Chief Executive Officer
	 
	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	Todd Ficeto

Hunter World Markets

9300 Wilshire Blvd.

Penthouse Suite

Beverly Hills, CA 90212
	 
	 	 
	 

	 	To Employee:
	 
	 	 
	 

	 	Travis E. Baugh,

[                         ]

Houston, Texas 77095

All such notices shall be conclusively deemed to be received and shall be effective; (i) if sent by
hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation
of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on
the fifth day after the day on which such notice is mailed.

     14. Source of Payments. All cash payments provided in this Agreement will be paid
from the general funds of the Company. The Employee’s status with respect to amounts owed under
this Agreement will be that of a general unsecured creditor of the Company, and the Employee will
have no right, title or interest whatsoever in or to any investments which the Company may make to
aid the Company in meeting its obligations hereunder. Nothing contained in this Agreement, and no
action taken pursuant to this provision, will create or be construed to create a trust of any kind
or a fiduciary relationship between the Company and the Employee or any other person.

-6-

 

     15. Tax Withholding. The Company may withhold from any benefits payable under this
Agreement all federal, state, city or other taxes that will be required pursuant to any law or
governmental regulation or ruling.

     16. Severability. If any provision of this Agreement is held to be invalid, illegal
or unenforceable, in whole or part, such invalidity will not affect any otherwise valid provision,
and all other valid provisions will remain in full force and effect.

     17. Counterparts. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original, and all of which together will constitute one document.

     18. Titles. The titles and headings preceding the text of the paragraphs and
subparagraphs of this Agreement have been inserted solely for convenience of reference and do not
constitute a part of this Agreement or affect its meaning, interpretation or effect.

     19. Governing Law. This Agreement will be construed and enforced in accordance with
the laws of the State of Texas.

     20. Entire Agreement; Effect of Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and supersedes the Employment Agreement and any other
prior employment agreement or severance plan or agreement between the Company or any predecessor of
the Company and the Employee, except that the terms and conditions of: (i) Sections 4 and 5 of the
Employment Agreement shall continue as set forth in Section 5 of this Agreement; (ii) the
Indemnification Agreement between Employee and the Company shall remain in effect though the
Separation Date and shall also apply to any consulting work done by Employee pursuant to this
Agreement; and (iii) any stock option agreements between the Company and Employee, which shall be
governed by the terms and conditions of those agreements.

     21. Venue. Any suit, action or other legal proceeding arising out of this Agreement
shall be brought in the United States District Court for the Southern District of Texas, Houston
Division, or, if such court does not have jurisdiction or will not accept jurisdiction, in any
court of general jurisdiction in Harris County, Texas. Each of the Employee and the Company
consents to the jurisdiction of any such court in any such suit, action, or proceeding and waives
any objection that it may have to the laying of venue of any such suit, action, or proceeding in
any such court.

[SIGNATURE PAGE TO FOLLOW]

-7-

 

     IN WITNESS WHEREOF, the parties have executed this Agreement in multiple counterparts, all of
which shall constitute one agreement, effective as of the date and year first above written.

	 	 	 	 	 
	 	MICROMED CARDIOVASCULAR, INC.

 	 
	 	By:  	/s/
Clarice Motter	 
	 	 	Name:  	Clarice Motter 	 
	 	 	Title:  	Corporate Secretary and Authorized
Signatory, as authorized by the Board of
Directors 	 
	 

	 	 	 	 	 
	 	TRAVIS E. BAUGH

 	 
	 	/s/
Travis E. Baugh	 
	 	 	 	 
	 	 	 	 
	 

-8-

 

Attachment A

WAIVER AND RELEASE

     In exchange for the consideration offered under the Employment and Separation Agreement
between me and MicroMed Cardiovascular, Inc. (the “Company”), dated effective August 1, 2006 (the
“Agreement”), I hereby waive all of my claims and release the Company, its affiliates, and each of
their directors and officers, executives, employees and agents, and benefit plans and the
fiduciaries and agents of said plans (collectively referred to as the “Corporate Group”) from any
and all claims, demands, actions, liabilities and damages.

     I understand that signing this Waiver and Release is an important legal act. I acknowledge
that the Company has advised me in writing to consult an attorney before signing this Waiver and
Release. I understand that I have until 21 calendar days after August 1, 2006 to consider whether
to sign and return this Waiver and Release to the Company by first-class mail or by hand delivery
in order for it to be effective.

     In exchange for the consideration offered to me by the Agreement, which I acknowledge provides
consideration to which I would not otherwise be entitled, I agree not to sue or file any complaint,
or any other action or proceeding with any local, state and/or federal court regarding or relating
in any way to the Company, and I knowingly and voluntarily waive all claims and release the
Corporate Group from any and all claims, demands, actions, liabilities, and damages, whether known
or unknown, arising out of or relating in any way to the Corporate Group, except with respect to
rights under the Agreement, rights under employee benefit plans or programs other than those
specifically addressed in the Agreement, and such rights or claims as may arise after the date this
Waiver and Release is executed. This Waiver and Release includes, but is not limited to, claims
and causes of action under: Title VII of the Civil Rights Act of 1964, as amended; the Age
Discrimination in Employment Act of 1967, as amended; the Civil Rights Act of 1866, as amended; the
Civil Rights Act of 1991; the Americans with Disabilities Act of 1990; the Older Workers Benefit
Protection Act of 1990; the Employee Retirement Income Security Act of 1974, as amended; the Family
and Medical Leave Act of 1993; the Texas Human Rights Act; and/or contract, tort, defamation,
slander, wrongful termination or other claims or any other state or federal statutory or common
law.

     Should any of the provisions set forth in this Waiver and Release be determined to be invalid
by a court, agency or other tribunal of competent jurisdiction, it is agreed that such
determination shall not affect the enforceability of other provisions of this Waiver and Release.

     I acknowledge that this Waiver and Release and the Agreement set forth the entire
understanding and agreement between me and the Company or any other member of the Corporate Group
concerning the subject matter of this Waiver and Release and supersede any prior or contemporaneous
oral and/or written agreements or representations, if any, between me and the Company or any other
member of the Corporate Group.

     I understand that for a period of seven (7) calendar days following my signing this Waiver and
Release (the “Waiver Revocation Period”), I may revoke my acceptance of the offer

-9-

 

by delivering a written statement to the Company by hand or by registered mail, addressed to
the address for the Company specified in the Agreement, in which case the Waiver and Release will
not become effective. In the event I revoke my acceptance of this offer, the Company shall have no
obligation to provide me the consideration offered under the Agreement to which I would not
otherwise have been entitled. I understand that failure to revoke my acceptance of the offer
within the Waiver Revocation Period will result in this Waiver and Release being permanent and
irrevocable.

     I acknowledge that I have read this Waiver and Release, have had an opportunity to ask
questions and have it explained to me and that I understand that this Waiver and Release will have
the effect of knowingly and voluntarily waiving any action I might pursue, including breach of
contract, personal injury, retaliation, discrimination on the basis of race, age, sex, national
origin or disability and any other claims arising prior to the date of this Waiver and Release.

     By execution of this document, I do not waive or release or otherwise relinquish any legal
rights I may have which are attributable to or arise out of acts, omissions or events of the
Company or any other member of the Corporate Group which occur after the date of execution of this
Waiver and Release.

     I understand and agree that this Waiver and Release and all of its terms shall be binding upon
my representatives, heirs, executors, administrators, successors and assigns, and shall enure to
the benefit of any successors or assigns of the Company.

AGREED TO AND ACCEPTED this

                        day of                                    , 2006.

 

 

                                                           

TRAVIS E. BAUGH

-10-

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