Document:

Exhibit 10.16

 

* * – 
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. 
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED
PORTIONS.

 

COMPANION ANIMAL AAHA MARKETLINK MANAGEMENT AGREEMENT

 

This Agreement
dated and effective as of July 1, 2008 is made by and between Pfizer Inc., 235 East 42nd Street, New York, New York 10017
(hereinafter, “PFIZER”) and MWI Veterinary Supply Co.,
651 S. Stratford Drive, Ste 100, Meridian, ID 83642 (“MWI”).

 

1.             PFIZER hereby agrees to supply MWI
as a designated product supplier for the PFIZER companion animal Products set
forth on Exhibit A (the “Products”), to purchase from PFIZER and to resell
to certain selected Veterinary Hospitals serviced by MWI who are members of the
AAHA/MarketLink arrangement and listed in Exhibit E hereto, subject to the
following terms and conditions.

 

2.             MWI recognizes and agrees to the
following:

 

(a) PFIZER
has elected to work with MWI as a designated supplier to MWI serviced hospitals
at the request of MWI. MWI agrees to work closely with PFIZER to coordinate
logistics for the supply of Products to such hospitals;

 

(b)           PFIZER intends to sell to MWI as the
logistics supplier for the hospitals. MWI understands and agrees that PFIZER
has, and may in the future, run promotions and other activities that would be
seriously prejudiced if MWI resells the Products to distributors or
veterinarians who will resell the Products as a distributor. Incentive payments
under Exhibit D hereto will only be paid by PFIZER to MWI for sales to the
hospitals listed on Exhibit B below or such customers who are added to Exhibit B
by mutual agreement of Pfizer and MWI.

 

3.             MWI agrees to:

 

(a)           use its reasonable best efforts to
sell the Products by focusing its primary effort at reselling to veterinary
hospitals associated with MWI and to pet owner pharmaceutical customers of MWI
serviced hospitals.

 

(b)           store and handle its inventory of
Products under conditions that will ensure that such Products retain their potency,
purity, quality, and identity;

 

(c)           accept shipments from Pfizer of
Product at MWI 12 warehouse locations and provide all appropriate shipment and
delivery options to the accounts serviced by MWI under this Agreement;

 

(d)           not sell the Products to distributors,
manufacturers or to veterinarians who will resell any PFIZER Companion Animal
Products outside an established veterinary/client/patient relationship, nor
shall MWI sell the Products through brokers or non-employee agents;

 

(e)           set its resale prices for the
Products independently and at its sole discretion;

 

(f)            provide PFIZER a projected monthly
purchase schedule by the end of the second week of each month;

 

(g)           cooperate fully with PFIZER by actively participating in such strategy
sessions as PFIZER reasonably may require, for the purpose of developing
programs to increase use of the Products; and to cooperate fully with PFIZER in
implementing all promotions and sales campaigns for the Products;

 

(h)           distribute the Products only under
the labeling provided by PFIZER; prescribe, recommend, suggest, and advertise
each Product for use only under the conditions stated in the labeling provided
by PFIZER; and observe all federal, state, and local laws governing the
distribution of animal drugs. In the case of Products bearing the legend, “CAUTION:
FEDERAL LAW RESTRICTS THIS DRUG TO USE BY OR ON THE 

 

 

ORDER OF A LICENSED VETERINARIAN,” or any
similar legend, sell such Products only to or on the order of a licensed
veterinarian for use in the course of his or her  professional practice or to another person or
entity regularly and lawfully engaged in the use, distribution or dispensing of
such legend drugs;

 

(i)            MWI agrees that credit limits established by PFIZER shall be subject to
change by PFIZER in its sole discretion and that no shipments will be made to
MWI in excess of the established credit limits;

 

(j)            take no action, whether or not
identified above, that would harm the goodwill or name of PFIZER, or damage the
interests of PFIZER or the Products;

 

(k)           MWI shall immediately notify PFIZER
in the event MWI obtains information indicating that any of the Products may
have to be recalled either by virtue of applicable law or regulation or good
business judgment. PFIZER shall control all efforts necessary to conduct any
such recall. MWl shall cooperate with PFIZER, at PFIZER’s expense, and MWI
agrees to maintain adequate records to conduct such recall, including the name,
address and Product purchases of all purchasers of PFIZER Products;

 

(l)            Make payment to PFIZER for all
product purchased from PFIZER /**/;

 

(m)          Provide to PFIZER by the close of business on the last business day of
each PFIZER Accounting Period (as set forth in Exhibit F hereto) an
inventory report covering all inventory purchased from PFIZER.

 

(n)           Provide Pfizer with a monthly
accounting of sales via EDI for purposes of allowing Pfizer proper credit to
its sale professionals and provide to Covansys by the close of business on the
last day of each Pfizer Accounting Period an inventory report covering all
Product inventory purchased from Pfizer and setting forth in dollars at MWI’s
acquisition cost from Pfizer the amount of inventory by Product. MWI agrees
that Pfizer shall have the right,
upon reasonable advance notice and during business hours to audit inventory in
the possession of MWI to confirm compliance with this paragraph 4(n) and
to confirm the accuracy of the data contained in the report.

 

(o)           Provide to Covansys its Health Industry Number, Customer Health Industry
Number, Pfizer Product number, transaction date, ship to zip code, number of
units and price with respect to each sale of Product, and unit inventories on each Pfizer Product sku
that MWI sells.

 

(p)           MWI will also provide to Pfizer the information, services and opportunities
set forth in Exhibit B hereto. MWI represents and warrants to Pfizer that
it will only provide data to Pfizer, including specific patient and animal
owner information that is allowable by law.

 

4.             PFIZER shall:

 

(a)           sell the Products to MWI at the prices
provided for in Exhibit A. PFIZER shall have the unrestricted right to
revise the prices, terms and conditions of the Price List, and to add or delete
Products or package sizes, at anytime, and the revisions shall be effective on
all orders submitted after the effective date of the price revisions. In all
cases of orders received for other than immediate shipment, the price for the
Products shall be that in effect at the time of shipment. Nothing herein shall
prohibit PFIZER from raising or amending prices for Products. PFIZER agrees to
provide MWI /**/
notice of any price increases. PFIZER shall be free to limit sales of Products
to MWI in advance of any price increases;

 

(b)           Compensate MWI in accordance with Exhibit D
hereto;

 

(c)           allow MWI credit on prepaid returns
in accordance with PFIZER’s Outdated Products Policy which is in effect at the
time;

 

5.             Nothing in this Agreement shall be
deemed to limit PFIZER’s ability to sell Products to any other party.

 

6.             All purchases by MWI pursuant to
this Agreement shall be in accordance with the terms of PFIZER’s Pricing and
Shipping Policies, as may be amended by PFIZER from time to time.

 

7.             The following standard conditions
shall apply to all sales under this Agreement:

 

 

(a)           all orders are subject to acceptance by PFIZER’s Home Office. Title to
the goods shall pass to MWI once they have been property delivered to the
address designated by MWI. Products requiring temperature control will be
shipped F.O.B. destination;

 

(b)           any tax or other charge upon the sale
and/or shipment of the goods now or hereafter imposed by federal, state or
municipal authorities (other than PFIZER’S income taxes) shall be paid by MWI.
In the event that the price of any article includes transportation charges, any
increase or decrease in transportation charges shall be for MWI’s account;

 

(c)           EXCEPT AS SET FORTH IN THIS AGREEMENT, OR IN THE LABELING OF THE
PRODUCTS SOLD HEREUNDER, PFIZER MAKES NO EXPRESS OR IMPLIED WARRANTIES WITH
RESPECT TO THE PRODUCTS;

 

(d)           Pfizer shall defend, indemnify, and
hold MWI harmless from all liabilities, claims, demands, damages, costs and
expenses, or money judgments incurred by MWI or rendered against it resulting
from (a) any breach by Pfizer of this Agreement, (b) third party
claims or actions for personal injury or property damage  which arise out of the distribution or sale of
Pfizer products or the failure to warn, except to the extent that such personal
injury or property damage arises out of the negligence or willful misconduct of
MWI, and (c) any claim that the
Products, as sold by Pfizer, were defective, or (d) any claim that a
Product or its associated labeling or advertising prepared by Pfizer infringes
any patent, trademark, trademark, copyright or other
intellectual property right of any third party. Pfizer shall assume the defense of each such
claim promptly after written notice from MWI. In the event Pfizer is found by any court of
competent jurisdiction to be liable for any claim based in products liability,
then Pfizer shall reimburse MWI’s
reasonable legal fees incurred in the course of cooperating with Pfizer’s
defense. To be covered by this defense and indemnity, MWI must: promptly notify
Pfizer of any such claim; allow Pfizer to fully control the defense and/or resolution of the claim; and cooperate fully
with Pfizer in the matter. This defense, indemnity and payment for legal fees shall not apply to claims alleging:
MWI alteration, negligent handling or improper storage of the Products; sale of
outdated Products; sale or recommendation of the Products for uses or in a
manner not set forth in either the labeling supplied by Pfizer or as otherwise
specified by Pfizer in writing; or sale of the Products after receipt of
written notice from Pfizer that such sales should be halted;

 

(e)           in no event shall either party be
liable to the other for special, collateral, incidental, or consequential
damages in connection with or arising out of the purchase, resale, or use of
the Products. Except as provided under subparagraph 7(d), above, total damages
recoverable against PFIZER by MWI shall be exclusively limited to the purchase
price of the Products with respect to which damages are claimed;

 

(f)            failure of PFIZER to make or of MWI
to take, when due, any delivery (or portion thereof) pursuant to an order
hereunder, if occasioned by any circumstance or condition beyond the control of
the party so failing, shall not subject the failing party to any liability to
the other and, at the option of either party, that order or portion thereof not
delivered may be canceled;

 

(g)           acceptance of MWI’s order by PFIZER
is expressly made conditional upon the MWI’s acceptance of the conditions of
sale as set forth herein, and the prices, terms and conditions of the Price
List then in effect, notwithstanding acknowledgment or receipt of MWI’s
purchase order containing additional or different provisions, or conflicting
oral representations by any agent of PFIZER.

 

(h)           All orders to MWI will receive free
shipping regardless of order size.

 

(i)            Payment Due Date: /**/. Payment Discount: None.

 

8.             This Agreement shall not be binding
upon PFIZER until it is approved by PFIZER at its New York, New York
headquarters.

 

9.             This Agreement shall be effective
as of the date first written above and shall continue in force until December 31,
2008. Either party may terminate this agreement prior to the expiration date (i) with
or without cause, 

 

 

upon thirty (30) days written notice to the
other party, or (ii) immediately upon written notice, in the event of a
material breach by the other party. In addition, PFIZER may terminate this
Agreement at any time on 15 days written notice to MWI in the event that PFIZER
determines, in its sole discretion, that MWI has failed to comply with the
terms and conditions set forth in paragraph 3 above.

 

10.           MWI and PFIZER acknowledge that in
the performance of their duties hereunder MWI and PFIZER may obtain access to “Confidential
Information” (as defined below) of each other. MWI and PFIZER agree that during
the term of this Agreement and for a period of three (3) years after the
termination of this Agreement, unless specifically permitted in writing by the
other party, to (a) retain in confidence and not disclose to any third
party and (b) use only for the purpose of carrying out their duties hereunder,
any such Confidential Information. As used herein the term “Confidential
Information” means any information, or data, whether of a business or
scientific nature and whether in written, oral or tangible form, relating to
PFIZER’s and MWI’s business or potential business or its research and
development activities, not generally available to or known to the public, and
not otherwise known to the receiving party, that is disclosed to or learned by
the other party pursuant hereto. Upon completion of the work provided for
hereunder or other termination of this Agreement each party will return to the
other party any documents, or copies thereof, or any product samples,
containing or constituting Confidential Information disclosed to or generated
by either party in connection with this Agreement.

 

11.           This Agreement shall be governed by
the laws of the State of New York applicable to contracts to be fully performed
therein. This Agreement is not assignable without the express written consent
of PFIZER, and may be modified or amended only in writing signed by the party
to be bound.

 

12.           This Agreement and documents referred
to herein embody the entire understanding between the parties hereto, will
supersede prior agreements relating to the Products, and may be modified only
in writing and signed by the parties to be bound. No activities conducted
pursuant to this Agreement or related thereto, including but not limited to the
future planning activities of the parties, shall be deemed to give rise to any
obligations on the part of either party other than as expressly provided for
herein.

 

IN WITNESS
WHEREOF, intending to be legally bound, the parties have executed this
Agreement.

 

	
  MWI VETERINARY SUPPLY CO. 

  	
  PFIZER INC.

  
	
   

  	
   

  
	
  BY:

  	
  /s/ James F. Cleary Jr. 

  	
   

  	
  BY:

  	
  /s/ Clinton A. Lewis

  
	
   

  	
   

  	
   

  	
  Clinton A. Lewis

  
	
  Print Name: James
  F. Cleary Jr. 

  	
   

  	
  President

  
	
   

  	
   

  	
  U.S. Operations, Pfizer Animal Health

  
	
   

  	
   

  
	
  Title: President
  and CEO

  	
   

  
	
  Date: July 30,
  2008 

  	
  Date: 8/4/08Exhibit 10.7

 

DIGIMARC CORPORATION

 

2008 INCENTIVE PLAN

 

SECTION 1.
PURPOSE

 

The purpose of the Digimarc Corporation 2008 Incentive
Plan is to attract, retain and motivate employees, officers, directors,
consultants, agents, advisors and independent contractors of the Company and
its Related Companies by providing them the opportunity to acquire a
proprietary interest in the Company and to align their interests and efforts to
the long-term interests of the Company’s stockholders.

 

SECTION 2.
DEFINITIONS

 

Certain capitalized terms used in the Plan have the
meanings set forth in Appendix A.

 

SECTION 3.
ADMINISTRATION

 

3.1          Administration of the Plan

 

The Plan shall be administered by the Board or the
Compensation Committee, which shall be composed of two or more directors, each
of whom is a “non-employee director” within the meaning of Rule 16b-3(b)(3) promulgated
under the Exchange Act, or any successor definition adopted by the Securities
and Exchange Commission, an “outside director” within the meaning of Section 162(m) of
the Code, or any successor provision thereto.

 

3.2          Delegation

 

Notwithstanding the foregoing, the Board or the
Compensation Committee may delegate responsibility for administering the Plan,
including with respect to designated classes of Eligible Persons, to different
committees consisting of one or more members of the Board, subject to such
limitations as the Board deems appropriate, except with respect to Awards to
Participants who are subject to Section 16 of the Exchange Act or Awards
granted pursuant to Section 16 of the Plan. Members of any committee shall
serve for such term as the Board may determine, subject to removal by the Board
at any time. To the extent consistent with applicable law, the Board or the
Compensation Committee may authorize one or more officers of the Company to
grant Awards to designated classes of Eligible Persons, within limits
specifically prescribed by the Board or the Compensation Committee; provided,
however, that no such officer shall have or obtain authority to grant Awards to
himself or herself or to any person subject to Section 16 of the Exchange
Act. All references in the Plan to the “Committee” shall be, as applicable, to
the Compensation Committee or any other committee or any officer to whom the
Board or the Compensation Committee has delegated authority to administer the
Plan.

 

 

3.3          Administration and Interpretation by
Committee

 

(a)           Except
for the terms and conditions explicitly set forth in the Plan and to the extent
permitted by applicable law, the Committee shall have full power and exclusive
authority, subject to such orders or resolutions not inconsistent with the
provisions of the Plan as may from time to time be adopted by the Board or a
Committee composed of members of the Board, to (i) select the Eligible
Persons to whom Awards may from time to time be granted under the Plan; (ii) determine
the type or types of Award to be granted to each Participant under the Plan; (iii) determine
the number of shares of Common Stock to be covered by each Award granted under
the Plan; (iv) determine the terms and conditions of any Award granted
under the Plan; (v) approve the forms of notice or agreement for use under
the Plan; (vi) determine whether, to what extent and under what
circumstances Awards may be settled in cash, shares of Common Stock or other
property or canceled or suspended; (vii) determine whether, to what extent
and under what circumstances cash, shares of Common Stock, other property and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the Participant, subject to Section 409A
of the Code and in accordance with Section 6.3 of the Plan; (viii) interpret
and administer the Plan and any instrument evidencing an Award, notice or
agreement executed or entered into under the Plan; (ix) establish such rules and
regulations as it shall deem appropriate for the proper administration of the
Plan; (x) delegate ministerial duties to such of the Company’s employees
as it so determines; and (xi) make any other determination and take any
other action that the Committee deems necessary or desirable for administration
of the Plan.

 

(b)           In
no event, however, shall the Committee have the right, without stockholder
approval, to (i) cancel or amend outstanding Options or SARs for the
purpose of repricing, replacing or regranting such Options or SARs with Options
or SARs that have a purchase or grant price that is less than the purchase or
grant price for the original Options or SARs except in connection with adjustments
provided in Section 15, or (ii) issue an Option or SAR or amend an
outstanding Option or SAR to provide for the grant or issuance of a new Option
or SAR on exercise of the original Option or SAR.

 

(c)           The
effect on the vesting of an Award of a Company-approved leave of absence or a
Participant’s working less than full-time shall be determined by the Company’s
chief human resources officer or other person performing that function or, with
respect to directors or executive officers, by the Compensation Committee,
whose determination shall be final.

 

(d)           Decisions
of the Committee shall be final, conclusive and binding on all persons,
including the Company, any Participant, any stockholder and any Eligible
Person. A majority of the members of the Committee may determine its actions.

 

SECTION 4.
SHARES SUBJECT TO THE PLAN

 

4.1          Authorized Number of Shares

 

Subject to adjustment from time to time as provided in
Section 15.1, a maximum of 2,500,000 shares of Common Stock shall be
available for issuance under the Plan.

 

2

 

Shares issued under the Plan shall be drawn from
authorized and unissued shares or shares now held or subsequently acquired by
the Company as treasury shares.

 

4.2          Share Usage

 

(a)           Shares
of Common Stock covered by an Award shall not be counted as used unless and
until they are actually issued and delivered to a Participant. If any Award
lapses, expires, terminates or is canceled prior to the issuance of shares
thereunder or if shares of Common Stock are issued under the Plan to a
Participant and thereafter are forfeited to or otherwise reacquired by the
Company, the shares subject to such Awards and the forfeited or reacquired
shares shall again be available for issuance under the Plan. Any shares of
Common Stock (i) tendered by a Participant or retained by the Company as
full or partial payment to the Company for the purchase price of an Award or to
satisfy tax withholding obligations in connection with an Award, or (ii) covered
by an Award that is settled in cash, or in a manner such that some or all of
the shares of Common Stock covered by the Award are not issued, shall be
available for Awards under the Plan. The number of shares of Common Stock
available for issuance under the Plan shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional shares of
Common Stock or credited as additional shares of Common Stock subject or paid
with respect to an Award.

 

(b)           The
Committee shall also, without limitation, have the authority to grant Awards as
an alternative to or as the form of payment for grants or rights earned or due
under other compensation plans or arrangements of the Company.

 

(c)           Notwithstanding
anything in the Plan to the contrary, the Committee may grant Substitute Awards
under the Plan. Substitute Awards shall not reduce the number of shares
authorized for issuance under the Plan. In the event that an Acquired Entity
has shares available for awards or grants under one or more preexisting plans
not adopted in contemplation of such acquisition or combination, then, to the
extent determined by the Board or the Compensation Committee, the shares
available for grant pursuant to the terms of such preexisting plan (as
adjusted, to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition or
combination to determine the consideration payable to holders of common stock
of the entities that are parties to such acquisition or combination) may be
used for Awards under the Plan and shall not reduce the number of shares of
Common Stock authorized for issuance under the Plan; provided, however, that
Awards using such available shares shall not be made after the date awards or
grants could have been made under the terms of such preexisting plans, absent
the acquisition or combination, and shall only be made to individuals who were
not employees or directors of the Company or a Related Company prior to such
acquisition or combination. In the event that a written agreement between the
Company and an Acquired Entity pursuant to which a merger or consolidation  is completed is approved by the Board and that agreement
sets forth the terms and conditions of the substitution for or assumption of
outstanding awards of the Acquired Entity, those terms and conditions shall be
deemed to be the action of the Committee without any further action by the
Committee, except as may be required for

 

3

 

compliance with Rule 16b-3 under the Exchange
Act, and the persons holding such awards shall be deemed to be Participants.

 

(d)           Notwithstanding
the other provisions in this Section 4.2, the maximum number of shares
that may be issued upon the exercise of Incentive Stock Options shall equal the
aggregate share number stated in Section 4.1, subject to adjustment as
provided in Section 15.1.

 

SECTION 5.
ELIGIBILITY

 

An Award may be granted to any employee, officer or
director of the Company or a Related Company whom the Committee from time to
time selects. An Award may also be granted to any consultant, agent, advisor or
independent contractor for bona fide services rendered to the Company or any
Related Company that (a) are not in connection with the offer and sale of
the Company’s securities in a capital-raising transaction and (b) do not
directly or indirectly promote or maintain a market for the Company’s
securities.

 

SECTION 6.
AWARDS

 

6.1          Form, Grant and Settlement of Awards

 

The Committee shall have the authority, in its sole
discretion, to determine the type or types of Awards to be granted under the
Plan. Such Awards may be granted either alone or in addition to or in tandem
with any other type of Award. Any Award settlement may be subject to such
conditions, restrictions and contingencies as the Committee shall determine.

 

6.2          Evidence of Awards

 

Awards granted under the Plan shall be evidenced by a
written, including an electronic, instrument that shall contain such terms,
conditions, limitations and restrictions as the Committee shall deem advisable
and that are not inconsistent with the Plan.

 

6.3          Deferrals

 

The Committee may permit or require a Participant to
defer receipt of the payment of any Award if and to the extent set forth in the
instrument evidencing the Award at the time of grant. If any such deferral
election is permitted or required, the Committee, in its sole discretion, shall
establish rules and procedures for such payment deferrals, which may
include the grant of additional Awards or provisions for the payment or
crediting of interest or dividend equivalents, including converting such
credits to deferred stock unit equivalents; provided, however, that the terms
of any deferrals under this Section 6.3 shall comply with all applicable
law, rules and regulations, including, without limitation, Section 409A
of the Code.

 

4

 

6.4          Dividends and Distributions

 

Participants may, if and to the extent the Committee
so determines and sets forth in the instrument evidencing the Award at the time
of grant, be credited with dividends paid with respect to shares of Common
Stock underlying an Award in a manner determined by the Committee in its sole
discretion. The Committee may apply any restrictions to the dividends or dividend
equivalents that the Committee deems appropriate. The Committee, in its sole
discretion, may determine the form of payment of dividends or dividend
equivalents, including cash, shares of Common Stock, Restricted Stock or Stock
Units. Notwithstanding the foregoing, the right to any dividends or dividend
equivalents declared and paid on the number of shares underlying an Option or
Stock Appreciation Right may not be contingent, directly or indirectly, on the
exercise of the Option or a Stock Appreciation Right, and an Award providing a
right to dividends or dividend equivalents declared and paid on the number of
shares underlying an Option or a Stock Appreciation Right, the payment of which
is not contingent upon, or otherwise payable on, the exercise of the Option or
a Stock Appreciation Right, must comply with or qualify for an exemption under Section 409A
of the Code.

 

SECTION 7.
OPTIONS

 

7.1          Grant of Options

 

The Committee may grant Options designated as
Incentive Stock Options or Nonqualified Stock Options.

 

7.2          Option Exercise Price

 

The exercise price for shares purchased under an
Option shall be at least 100% of the Fair Market Value of the Common Stock on
the Grant Date (and shall not be less than the minimum exercise price required
by Section 422 of the Code with respect to Incentive Stock Options),
except in the case of Substitute Awards.

 

7.3          Term of Options

 

Subject to earlier termination in accordance with the
terms of the Plan and the instrument evidencing the Option, the maximum term of
an Option shall be ten years from the Grant Date.

 

7.4          Exercise of Options

 

The Committee shall establish and set forth in each
instrument that evidences an Option the time at which, or the installments in
which, the Option shall vest and become exercisable, any of which provisions
may be waived or modified by the Committee at any time.

 

To the extent an Option has vested and become
exercisable, the Option may be exercised in whole or from time to time in part
by delivery to or as directed or approved by the Company

 

5

 

of a properly executed stock option exercise agreement
or notice, in a form and in accordance with procedures established by the
Committee, setting forth the number of shares with respect to which the Option
is being exercised, the restrictions imposed on the shares purchased under such
exercise agreement or notice, if any, and such representations and agreements
as may be required by the Committee, accompanied by payment in full as
described in Sections 7.5 and 13. An Option may be exercised only for
whole shares and may not be exercised for less than a reasonable number of
shares at any one time, as determined by the Committee.

 

7.5          Payment of Exercise Price

 

The exercise price for shares purchased under an
Option shall be paid in full to the Company by delivery of consideration equal
to the product of the Option exercise price and the number of shares purchased.
Such consideration must be paid before the Company will issue the shares being
purchased and must be in a form or a combination of forms acceptable to the
Committee for that purchase, which forms may include:

 

(a)           cash;

 

(b)           check
or wire transfer;

 

(c)           having
the Company withhold shares of Common Stock that would otherwise be issued on
exercise of the Option that have an aggregate Fair Market Value equal to the
aggregate exercise price of the shares being purchased under the Option;

 

(d)           tendering
(either actually or, so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) shares of Common Stock owned by
the Participant that have an aggregate Fair Market Value equal to the aggregate
exercise price of the shares being purchased under the Option;

 

(e)           so
long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, and to the extent permitted by law, delivery of a properly
executed exercise agreement or notice, together with irrevocable instructions
to a brokerage firm designated or approved by the Company to deliver promptly
to the Company the aggregate amount of proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection with the
exercise, all in accordance with the regulations of the Federal Reserve Board (i.e., a “cashless” exercise); or

 

(f)            such
other consideration as the Committee may permit.

 

7.6          Effect of Termination of Service

 

The Committee shall establish and set forth in each
instrument that evidences an Option whether the Option shall continue to be
exercisable, and the terms and conditions of such exercise, after a Termination
of Service, any of which provisions may be waived or modified

 

6

 

by the Committee at any time; provided, however, that
any such waiver or modification shall satisfy the requirements for exemption
under Section 409A of the Code.

 

If the exercise of the Option following a
Participant’s Termination of Service, but while the Option is otherwise
exercisable, would be prohibited solely because the issuance of Common Stock
would violate either the registration requirements under the Securities Act or
the Company’s insider trading policy, then the Option shall remain exercisable
until the earlier of the Option Expiration Date and the expiration of a period
of three months (or such other period of time as determined by the Committee in
its sole discretion) after the Participant’s Termination of Service during
which the exercise of the Option would not be in violation of the Securities
Act or the Company’s insider trading policy requirements.

 

SECTION 8.
INCENTIVE STOCK OPTION LIMITATIONS

 

Notwithstanding any other provisions of the Plan, the
terms and conditions of any Incentive Stock Options shall in addition comply in
all respects with Section 422 of the Code, or any successor provision, and
any applicable regulations thereunder.

 

SECTION 9.
STOCK APPRECIATION RIGHTS

 

9.1          Grant of Stock Appreciation Rights

 

The Committee may grant Stock Appreciation Rights to
Participants at any time on such terms and conditions as the Committee shall
determine in its sole discretion. A SAR may be granted in tandem with an Option
or alone (“freestanding”). The grant
price of a tandem SAR shall be equal to the exercise price of the related
Option. The grant price of a freestanding SAR shall be established in
accordance with procedures for Options set forth in Section 7.2. A SAR may
be exercised upon such terms and conditions and for the term as the Committee
determines in its sole discretion; provided, however, that, subject to earlier
termination in accordance with the terms of the Plan and the instrument
evidencing the SAR, the maximum term of a freestanding SAR shall be ten years,
and in the case of a tandem SAR, (a) the term shall not exceed the term of
the related Option and (b) the tandem SAR may be exercised for all or part
of the shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option, except that the tandem
SAR may be exercised only with respect to the shares for which its related
Option is then exercisable.

 

9.2          Payment of SAR Amount

 

Upon the exercise of an SAR, a Participant shall be
entitled to receive payment in an amount determined by multiplying (a) the
difference between the Fair Market Value of the Common Stock on the date of
exercise over the grant price of the SAR by (b) the number of shares with
respect to which the SAR is exercised. At the discretion of the Committee as
set forth in the instrument evidencing the Award, the payment upon exercise of
an SAR may be in cash, in shares, in some combination thereof or in any other
manner approved by the Committee in its sole discretion.

 

7

 

9.3          Post-Termination
Exercise

 

The Committee shall establish
and set forth in each instrument that evidences a freestanding SAR whether the
SAR shall continue to be exercisable, and the terms and conditions of such
exercise, after a Termination of Service, any of which provisions may be waived
or modified by the Committee at any time; provided, that any such waiver or
modification shall satisfy the requirements under Section 409A of the
Code.

 

9.4          Waiver of Restrictions

 

Subject to Section 18.5, the Committee, in its
sole discretion, may waive any other terms, conditions or restrictions on any
SAR under such circumstances and subject to such terms and conditions as the
Committee shall deem appropriate; provided, that any such waiver shall satisfy
the requirements under Section 409A of the Code.

 

SECTION 10.
STOCK AWARDS, RESTRICTED STOCK AND

STOCK UNITS

 

10.1        Grant of Stock Awards, Restricted Stock
and Stock Units

 

The Committee may grant Stock Awards, Restricted Stock
and Stock Units on such terms and conditions and subject to such repurchase or
forfeiture restrictions, if any, which may be based on continuous service with
the Company or a Related Company or the achievement of any performance goals,
as the Committee shall determine in its sole discretion, which terms,
conditions and restrictions shall be set forth in the instrument evidencing the
Award.

 

10.2        Vesting of Restricted Stock and Stock
Units

 

Upon the satisfaction of any terms, conditions and
restrictions prescribed with respect to Restricted Stock or Stock Units, or
upon a Participant’s release from any terms, conditions and restrictions of
Restricted Stock or Stock Units, as determined by the Committee, and subject to
the provisions of Section 13, (a) the shares of Restricted Stock
covered by each Award of Restricted Stock shall become freely transferable by
the Participant, and (b) Stock Units shall be paid in shares of Common
Stock or, if set forth in the instrument evidencing the Awards, in cash or a
combination of cash and shares of Common Stock. Any fractional shares subject
to such Awards shall be paid to the Participant in cash.

 

10.3        Waiver of Restrictions

 

Subject to Section 18.5, the Committee, in its
sole discretion, may waive the repurchase or forfeiture period and any other
terms, conditions or restrictions on any Restricted Stock or Stock Unit under
such circumstances and subject to such terms and conditions as the Committee
shall deem appropriate.

 

8

 

SECTION 11. PERFORMANCE AWARDS

 

11.1        Performance Shares

 

The Committee may grant Awards of Performance Shares,
designate the Participants to whom Performance Shares are to be awarded and
determine the number of Performance Shares and the terms and conditions of each
such Award. Performance Shares shall consist of a unit valued by reference to a
designated number of shares of Common Stock, the value of which may be paid to
the Participant by delivery of shares of Common Stock or, if set forth in the
instrument evidencing the Award, of such property as the Committee shall
determine, including, without limitation, cash, shares of Common Stock, other
property, or any combination thereof, upon the attainment of performance goals,
as established by the Committee, and other terms and conditions specified by
the Committee. Subject to Section 18.5, the amount to be paid under an
Award of Performance Shares may be adjusted on the basis of such further
consideration as the Committee shall determine in its sole discretion.

 

11.2        Performance Units

 

The Committee may grant Awards of Performance Units,
designate the Participants to whom Performance Units are to be awarded and
determine the number of Performance Units and the terms and conditions of each
such Award. Performance Units shall consist of a unit valued by reference to a
designated amount of property other than shares of Common Stock, which value
may be paid to the Participant by delivery of such property as the Committee
shall determine, including, without limitation, cash, shares of Common Stock,
other property, or any combination thereof, upon the attainment of performance
goals, as established by the Committee, and other terms and conditions
specified by the Committee. Subject to Section 18.5, the amount to be paid
under an Award of Performance Units may be adjusted on the basis of such
further consideration as the Committee shall determine in its sole discretion.

 

SECTION 12.
OTHER STOCK OR CASH-BASED AWARDS

 

Subject to the terms of the Plan and such other terms
and conditions as the Committee deems appropriate, the Committee may grant
other incentives payable in cash or in shares of Common Stock under the Plan.

 

SECTION 13.
WITHHOLDING

 

The Company may require the Participant to pay to the
Company the amount of (a) any taxes that the Company is required by
applicable federal, state, local or foreign law to withhold with respect to the
grant, vesting or exercise of an Award (“tax withholding
obligations”) and (b) any amounts due from the Participant
to the Company or to any Related Company (“other obligations”)
to the extent such amounts are not “deferred compensation” within the meaning
of Section 409A. The Company shall not be required to issue any shares of

 

9

 

Common Stock or otherwise settle an Award under the
Plan until such tax withholding obligations and other obligations are
satisfied.

 

The Committee may permit or require a Participant to
satisfy all or part of the Participant’s tax withholding obligations and other
obligations by (a) paying cash to the Company, (b) having the Company
withhold an amount from any cash amounts otherwise due or to become due from
the Company to the Participant, (c) having the Company withhold a number
of shares of Common Stock that would otherwise be issued to the Participant (or
become vested, in the case of Restricted Stock) having a Fair Market Value
equal to the tax withholding obligations and other obligations, or (d) surrendering
a number of shares of Common Stock the Participant already owns having a value
equal to the tax withholding obligations and other obligations. To the extent
required to avoid adverse financial accounting consequences to the Company, the
value of the shares so withheld or tendered may not exceed the employer’s
minimum required tax withholding rate.

 

SECTION 14.
ASSIGNABILITY

 

No Award or interest in an Award may be sold,
assigned, pledged (as collateral for a loan or as security for the performance
of an obligation or for any other purpose) or transferred by a Participant or
made subject to attachment or similar proceedings otherwise than by will or by
the applicable laws of descent and distribution, except to the extent permitted
by the Company, the Participant may designate one or more beneficiaries on a
Company-approved form who may exercise the Award or receive payment under the
Award after the Participant’s death. During a Participant’s lifetime, an Award
may be exercised only by the Participant. Notwithstanding the foregoing and to
the extent permitted by Section 422 of the Code, the Committee, in its
sole discretion, may permit a Participant to assign or transfer an Award
subject to such terms and conditions as the Committee shall specify.

 

SECTION 15.
ADJUSTMENTS

 

15.1        Adjustment of Shares

 

In the event, at any time or from time to time, a
stock dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to stockholders other
than a normal cash dividend, or other change in the Company’s corporate or
capital structure results in (a) the outstanding shares of Common Stock,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or kind of securities of the Company or (b) new,
different or additional securities of the Company or any other company being
received by the holders of shares of Common Stock, then the Committee shall
make proportional adjustments in (i) the maximum number and kind of
securities available for issuance under the Plan; (ii) the maximum number
and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2;
(iii) the maximum number and kind of securities set forth in Section 4.3;
(iv) the maximum numbers and kind of securities set forth in Section 16.3;
and (v) the number and kind of securities that are subject to any
outstanding Award and the per share price of such securities, without any
change in

 

10

 

the aggregate price to be paid therefor. The
determination by the Committee, as to the terms of any of the foregoing
adjustments shall be conclusive and binding.

 

Notwithstanding the foregoing, the issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services rendered,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, outstanding Awards.
Also notwithstanding the foregoing, a dissolution or liquidation of the Company
or a Company Transaction shall not be governed by this Section 15.1 but
shall be governed by Sections 15.2 and 15.3, respectively.

 

15.2        Dissolution or Liquidation

 

To the extent not previously exercised or settled, and
unless otherwise determined by the Committee in its sole discretion, Awards
shall terminate immediately prior to the dissolution or liquidation of the
Company. To the extent a vesting condition, forfeiture provision or repurchase
right applicable to an Award has not been waived by the Committee, the Award
shall be forfeited immediately prior to the consummation of the dissolution or
liquidation.

 

15.3        Change in Control

 

Notwithstanding any other provision of the Plan to the
contrary, unless the Committee shall determine otherwise in the instrument
evidencing the Award or in a written employment, services or other agreement
between the Participant and the Company or a Related Company, in the event of a
Change in Control:

 

(a)           All
outstanding Awards, other than Performance Shares and Performance Units, shall
become fully and immediately vested and exercisable, and all applicable
deferral and restriction limitations or forfeiture provisions shall lapse,
immediately prior to the Change in Control and shall terminate at the effective
time of the Change in Control, and any such Awards constituting “deferred
compensation” within the meaning of Section 409A of the Code shall be paid
within 60 days following the effective date of the Change in Control; provided,
however, that with respect to a Change in Control that is a Company
Transaction, such Awards, other than Awards constituting “deferred
compensation” within the meaning of Section 409A of the Code, shall become
fully and immediately exercisable, and all applicable deferral and restriction
limitations or forfeiture provisions shall lapse, only if and to the extent
such Awards are not converted, assumed or replaced by the Successor Company.

 

For the purposes of this Section 15.3(a), an
Award shall be considered converted, assumed or replaced by the Successor
Company if following the Company Transaction the option or right confers the
right to purchase or receive, for each share of Common Stock subject to the
Award immediately prior to the Company Transaction, the consideration (whether
stock, cash or other securities or property) received in the Company
Transaction by holders of Common Stock for each share held on the effective
date of the transaction (and if holders

 

11

 

were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares);
provided, however, that if such consideration received in the Company
Transaction is not solely common stock of the Successor Company, the Committee
may, with the consent of the Successor Company, provide for the consideration
to be received upon the exercise of the Option, for each share of Common Stock
subject thereto, to be solely common stock of the Successor Company
substantially equal in fair market value to the per share consideration
received by holders of Common Stock in the Company Transaction. The
determination of such substantial equality of value of consideration shall be
made by the Committee, and its determination shall be conclusive and binding.

 

(b)           The
target payout opportunities attainable under all outstanding Stock Awards and
Stock Units with restrictions based on performance criteria, Performance
Shares, and Performance Units shall be deemed to have been fully earned based
on targeted performance being attained as of the effective date of the Change
in Control, and such Awards shall be paid within 60 days following the
effective date of the Change in Control.

 

(c)           Notwithstanding the foregoing, the Committee, in its sole discretion,
may instead provide in the event of a Change in Control that is a Company
Transaction that a Participant’s outstanding Awards shall terminate upon or
immediately prior to such Company Transaction and that such Participant shall
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (x) the value of the per share consideration received by holders of
Common Stock in the Company Transaction, or, in the event the Company
Transaction is one of the transactions listed under subsection (c) in the
definition of Company Transaction or otherwise does not result in direct
receipt of consideration by holders of Common Stock, the value of the deemed
per share consideration received, in each case as determined by the Committee
in its sole discretion, multiplied by the number of shares of Common Stock
subject to such outstanding Awards (to the extent then vested and exercisable
or whether or not then vested and exercisable, as determined by the Committee
in its sole discretion) exceeds (y) if applicable, the respective
aggregate exercise price or grant price for such Awards.

 

15.4        Further Adjustment of Awards

 

Subject to Sections 15.2 and 15.3, the Committee
shall have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation, dissolution or change in control of
the Company, as defined by the Committee, to take such further action as it
determines to be necessary or advisable with respect to Awards. Such authorized
action may include (but shall not be limited to) establishing, amending or
waiving the type, terms, conditions or duration of, or restrictions on, Awards
so as to provide for earlier, later, extended or additional time for exercise,
lifting restrictions and other modifications, and the Committee may take such
actions with respect to all Participants, to certain categories of Participants
or only to individual Participants. The Committee may take such action before
or after granting Awards to which the action relates and before or after any
public

 

12

 

announcement with respect to such sale, merger,
consolidation, reorganization, liquidation, dissolution or change in control
that is the reason for such action.

 

15.5        No Limitations

 

The grant of Awards shall in no way affect the
Company’s right to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

 

15.6        Fractional Shares

 

In the event of any adjustment in the number of shares
covered by any Award, each such Award shall cover only the number of full
shares resulting from such adjustment.

 

15.7        Section 409A of the Code

 

Notwithstanding anything in this Plan to the contrary,
(a) any adjustments made pursuant to this Section 15 to Awards that
are considered “deferred compensation” within the meaning of Section 409A
of the Code shall be made in compliance with the requirements of Section 409A
of the Code and (b) any adjustments made pursuant to this Section 15
to Awards that are not considered “deferred compensation” subject to Section 409A
of the Code shall be made in such a manner as to ensure that after such
adjustment the Awards either (i) continue not to be subject to Section 409A
of the Code or (ii) comply with the requirements of Section 409A of
the Code.

 

SECTION 16.
CODE SECTION 162(m) PROVISIONS

 

Notwithstanding any other provision of the Plan, the
Compensation Committee may, at the time of grant of an Award (other than an
Option or SAR) to a Participant who is then a Covered Employee, or is likely to
be a Covered Employee as of the end of the tax year in which the Company would
claim a tax deduction in connection with such Award, specify that all or any
portion of such Award is intended to satisfy the requirements for
performance-based compensation under Section 162(m) and be subject to
this Section 16. With respect to each such Award, the Compensation
Committee shall establish, in writing, that the vesting and/or payment pursuant
to the Award shall be conditioned on the attainment for the specified
Performance Period of specified performance targets related to designated
performance goals for such period selected by the Compensation Committee from
among the Performance Criteria specified in Section 16.1. Such performance
goals shall be set by the Compensation Committee within the time period
prescribed by, and shall otherwise comply with the requirements of, Section 162(m),
or any successor provision thereto, and the regulations thereunder.

 

16.1        Performance Criteria

 

If an Award is subject to this Section 16, then
the lapsing of restrictions thereon and the distribution of cash, shares of
Common Stock or other property pursuant thereto, as 

 

13

 

applicable, shall be subject to the achievement of one
or more objective performance goals established by the Compensation Committee,
which shall be based on the attainment of specified levels of one of or any
combination of the following “performance criteria” for the Company as a whole
or any business unit of the Company, as reported or calculated by the Company:  net earnings or net income (before or after
taxes); earnings per share (basic or fully diluted); net sales growth or
bookings growth; revenues; operating profit or income (including or excluding
depreciation, amortization, extraordinary items, restructuring charges or other
expenses); return measures (including, but not limited to, return on assets,
capital, net capital utilized, equity or sales); working capital; cash flow
(including, but not limited to, operating cash flow, free cash flow or cash
flow return on capital); earnings before or after taxes, interest, depreciation
and/or amortization; gross or operating profit; cost control; strategic
initiatives; market share; improvements in capital structure; productivity
ratios; share price (including, but not limited to, growth measures and total
stockholder return); expense targets; margins; operating efficiency or margins;
capital efficiency; strategic targets; economic profit; employee or customer
satisfaction, services performance, subscriber, cash management or asset management
metrics; working capital targets; cash value added; or market or economic value
added (together, the “Performance Criteria”).

 

Such performance goals also may be based on the
achievement of specified levels of Company performance (or performance of an
applicable affiliate or business unit of the Company) under one or more of the
Performance Criteria described above relative to the performance of other
corporations.

 

The Compensation Committee
may provide in any such Award that any evaluation of performance may include or
exclude any of the following events that occurs during a Performance
Period:  (i) asset write-downs, (ii) litigation
or claim judgments or settlements, (iii) the effect of changes in tax
laws, accounting principles, or other laws or provisions affecting reported
results, (iv) any reorganization and restructuring programs, (v) extraordinary
nonrecurring items as described in Accounting Principles Board Opinion No. 30
and/or in Management’s Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company’s annual report to stockholders
for the applicable year, (vi) acquisitions or divestitures, (vii) foreign
exchange gains and losses, and (viii) gains and losses on asset sales. To
the extent such inclusions or exclusions affect Awards to Covered Employees,
they shall be prescribed in a form that satisfies the requirements for
“performance-based compensation” within the meaning of Section 162(m)(4)(C) of
the Code, or any successor provision thereto.

 

16.2        Compensation Committee Certification and
Authority

 

After the completion of each Performance Period, the
Compensation Committee shall certify the extent to which any Performance
Criteria has been satisfied, and the amount payable as a result thereof, prior to
payment, settlement or vesting of any Award subject to this Section 16.
Notwithstanding any provision of the Plan other than Section 15, with
respect to any Award that is subject to this Section 16, the Compensation
Committee may adjust downward, but not upward, the amount payable pursuant to
such Award, and the 

 

14

 

Compensation Committee may not waive the achievement
of the applicable performance goals except in the case of the death or
Disability of the Covered Employee.

 

The Compensation Committee shall have the power to
impose such other restrictions on Awards subject to this Section 16 as it
may deem necessary or appropriate to ensure that such Awards satisfy all
requirements for “performance-based” compensation with the meaning of Section 162(m).

 

16.3        Limitations

 

Subject to adjustment from time to time as provided in
Section 15.1, no Covered Employee may be granted Awards other than
Performance Units subject to this Section 16 in any calendar year period
with respect to more than 750,000 shares of Common Stock for such Awards,
except that the Company may make additional one time grants of such Awards for
up to 1,000,000 shares to newly hired or newly promoted individuals, and
the maximum dollar value payable with respect to Performance Units or other
awards payable in cash subject to this Section 16 granted to any Covered
Employee in any one calendar year is $2,500,000.

 

The Compensation Committee shall have the power to
impose such other restrictions on Awards subject to this Section 16 as it
may deem necessary or appropriate to ensure that such Awards satisfy all
requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of
the Code, or any successor provision thereto.

 

SECTION 17.
AMENDMENT AND TERMINATION

 

17.1        Amendment, Suspension or Termination

 

The Board or the Compensation Committee may amend,
suspend or terminate the Plan or any portion of the Plan at any time and in
such respects as it shall deem advisable; provided, however, that, to the
extent required by applicable law, regulation or stock exchange rule,
stockholder approval shall be required for any amendment to the Plan; and
provided, further, that any amendment that requires stockholder approval may be
made only by the Board. Subject to Section 17.3, the Compensation
Committee may amend the terms of any outstanding Award, prospectively or
retroactively.

 

17.2        Term of the Plan

 

Unless sooner terminated as provided herein, the Plan
shall terminate ten years from the Effective Date. After the Plan is
terminated, no future Awards may be granted, but Awards previously granted
shall remain outstanding in accordance with their applicable terms and
conditions and the Plan’s terms and conditions. Notwithstanding the foregoing,
no Incentive Stock Options may be granted more than ten years after the later
of (a) the Effective Date and (b) the date of approval by the
stockholders of any amendment to the Plan that constitutes the adoption of a
new plan for purposes of Section 422 of the Code.

 

15

 

17.3        Consent of Participant

 

The amendment, suspension or termination of the Plan
or a portion thereof or the amendment of an outstanding Award shall not,
without the Participant’s consent, materially adversely affect any rights under
any Award theretofore granted to the Participant under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Participant, be made in a manner so as to constitute a
“modification” that would cause such Incentive Stock Option to fail to continue
to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any
adjustments made pursuant to Section 15 shall not be subject to these
restrictions.

 

Subject to Section 18.5, the Board shall have
broad authority to amend the Plan or any outstanding Award without the consent
of a Participant to the extent the Board deems necessary or advisable to (i) comply
with, or take into account, changes in applicable tax laws, securities laws,
accounting rules and other applicable law, rules and regulations or (ii) to
ensure that an Award is not subject to additional taxes, interest or penalties
under Section 409A of the Code.

 

SECTION 18.
GENERAL

 

18.1        No Individual Rights

 

No individual or Participant shall have any claim to
be granted any Award under the Plan, and the Company has no obligation for
uniformity of treatment of Participants under the Plan.

 

Furthermore, nothing in the Plan or any Award granted
under the Plan shall be deemed to constitute an employment contract or confer
or be deemed to confer on any Participant any right to continue in the employ
of, or to continue any other relationship with, the Company or any Related
Company or limit in any way the right of the Company or any Related Company to
terminate a Participant’s employment or other relationship at any time, with or
without cause.

 

18.2        Issuance of Shares

 

Notwithstanding any other provision of the Plan, the
Company shall have no obligation to issue or deliver any shares of Common Stock
under the Plan or make any other distribution of benefits under the Plan
unless, in the opinion of the Company’s counsel, such issuance, delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act or the laws of any state or
foreign jurisdiction) and the applicable requirements of any securities
exchange or similar entity.

 

The Company shall be under no obligation to any
Participant to register for offering or resale or to qualify for exemption
under the Securities Act, or to register or qualify under the laws of any state
or foreign jurisdiction, any shares of Common Stock, security or interest in a 

 

16

 

security paid or issued under, or created by, the Plan,
or to continue in effect any such registrations or qualifications if made.

 

As a condition to the exercise of an Option or any
other receipt of Common Stock pursuant to an Award under the Plan, the Company
may require (a) the Participant to represent and warrant at the time of
any such exercise or receipt that such shares are being purchased or received
only for the Participant’s own account and without any present intention to
sell or distribute such shares and (b) such other action or agreement by the
Participant as may from time to time be necessary to comply with the federal,
state and foreign securities laws. At the option of the Company, a
stop-transfer order against any such shares may be placed on the official stock
books and records of the Company, and a legend indicating that such shares may
not be pledged, sold or otherwise transferred, unless an opinion of counsel is
provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on
stock certificates to ensure exemption from registration. The Committee may
also require the Participant to execute and deliver to the Company a purchase
agreement or such other agreement as may be in use by the Company at such time
that describes certain terms and conditions applicable to the shares.

 

To the extent the Plan or any instrument evidencing an
Award provides for issuance of stock certificates to reflect the issuance of
shares of Common Stock, the issuance may be effected on a noncertificated
basis, to the extent not prohibited by applicable law or the applicable rules of
any stock exchange.

 

18.3        Indemnification

 

Each person who is or shall have been a member of the
Board, or a committee appointed by the Board, or an officer of the Company to
whom authority was delegated in accordance with Section 3 of the Plan,
shall be indemnified and held harmless by the Company against and from any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim, action,
suit or proceeding to which such person may be a party or in which such person
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by such person in settlement
thereof, with the Company’s approval, or paid by such person in satisfaction of
any judgment in any such claim, action, suit or proceeding against such person;
provided, however, that such person shall give the Company an opportunity, at
its own expense, to handle and defend the same before such person undertakes to
handle and defend it on such person’s own behalf, unless such loss, cost,
liability or expense is a result of such person’s own willful misconduct or except
as expressly provided by statute.

 

The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person may be
entitled under the Company’s certificate of incorporation or bylaws, as a
matter of law, or otherwise, or of any power that the Company may have to
indemnify or hold harmless.

 

17

 

18.4        No Rights as a Stockholder

 

Unless otherwise provided by the Committee or in the
instrument evidencing the Award or in a written employment, services or other
agreement, no Award, other than a Stock Award, shall entitle the Participant to
any cash dividend, voting or other right of a stockholder unless and until the
date of issuance under the Plan of the shares that are the subject of such
Award.

 

18.5        Compliance with Laws and Regulations

 

In interpreting and applying the provisions of the
Plan, any Options granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an “incentive stock
option” within the meaning of Section 422 of the Code, although the
Company makes no representations that Options granted as Incentive Stock will
maintain such qualification.

 

Notwithstanding anything contained in the Plan to the
contrary, the Company intends that any and all Awards and compensation payable
under the Plan shall satisfy the requirements for exemption from, or compliance
with, Section 409A of the Code and that all terms and provisions shall be
interpreted to satisfy such requirements. If the Committee determines that an
Award, payment, distribution, deferral election, transaction or any other
action or arrangement contemplated by the provisions of the Plan would, if
undertaken, cause a Participant to become subject to Section 409A of the
Code, the Committee, to the extent it deems necessary or advisable in its sole
discretion, reserves the right, but shall not be required, to unilaterally
amend or modify the Plan and any Award granted under the Plan so that the Award
qualifies for exemption from, or compliance with, Section 409A of the
Code.

 

Furthermore, any payment or distribution that is to be
made under the Plan (or pursuant to an Award under the Plan) to a Participant
who is a “specified employee” of the Company within the meaning of that term
under Section 409A and as determined by the Committee, on account of a
“separation from service” within the meaning of that term under Section 409A
of the Code, may not be made before the date which is six months after the date
of such “separation from service,” unless the payment or distribution is exempt
from the application of Section 409A of the Code by reason of the
short-term deferral exemption or otherwise.

 

Notwithstanding any other provision in the Plan, the
Committee makes no representations that Awards granted under the Plan shall be
exempt from, or comply with, Section 409A of the Code and makes no
undertaking to preclude Section 409A of the Code from applying to Awards
granted under the Plan.

 

Awards not deferred under Section 6.3
and not otherwise exempt from the requirements of Section 409A of the Code
are intended to qualify for the short-term deferral exemption to Section 409A
of the Code, and payment shall be made as soon as administratively feasible
after the Award became vested, but in no event shall such payment be made later
than 21⁄2 months after the end of the calendar year in which the Award
becomes vested unless otherwise permitted under the exemption provisions of Section 409A
of the Code.

 

18

 

18.6        Participants in Other Countries or
Jurisdictions

 

Without amending the Plan, the Committee may grant
Awards to Eligible Persons who are foreign nationals on such terms and
conditions different from those specified in the Plan as may, in the judgment
of the Committee, be necessary or desirable to foster and promote achievement
of the purposes of the Plan and shall have the authority to adopt, amend or
rescind such modifications, procedures or subplans under the Plan as may be
necessary or desirable to comply with provisions of the laws or regulations of
other countries or jurisdictions in which the Company or any Related Company
may operate or where Participants may reside to ensure the viability of the
benefits from Awards granted to Participants employed in such countries or
jurisdictions, meet the requirements that permit the Plan to operate in a
qualified or tax-efficient manner, comply with applicable foreign laws or
regulations and meet the objectives of the Plan.

 

18.7        No Trust or Fund

 

The Plan is intended to constitute an “unfunded” plan.
Nothing contained herein shall require the Company to segregate any monies or
other property, or shares of Common Stock, or to create any trusts, or to make
any special deposits for any immediate or deferred amounts payable to any
Participant, and no Participant shall have any rights that are greater than
those of a general unsecured creditor of the Company.

 

18.8        Successors

 

All obligations of the Company under the Plan with respect
to Awards shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all the business
and/or assets of the Company.

 

18.9        Severability

 

If any provision of the Plan or any Award is
determined to be invalid, illegal or unenforceable in any jurisdiction, or as
to any person, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or, if it cannot be so construed or
deemed amended without, in the Committee’s determination, materially altering
the intent of the Plan or the Award, such provision shall be stricken as to
such jurisdiction, person or Award, and the remainder of the Plan and any such
Award shall remain in full force and effect.

 

18.10      Choice of Law and Venue

 

The Plan, all Awards granted thereunder and all
determinations made and actions taken pursuant hereto, to the extent not
otherwise governed by the laws of the United States, shall be governed by the
laws of the State of Oregon without giving effect to principles of conflicts 

 

19

 

of law. Participants irrevocably consent to the
nonexclusive jurisdiction and venue of the state and federal courts located in
the State of Oregon.

 

18.11      Legal Requirements

 

The granting of Awards and the issuance of shares of
Common Stock under the Plan are subject to all applicable laws, rules and
regulations and to such approvals by any governmental agencies or national
securities exchanges as may be required.

 

SECTION 19.
EFFECTIVE DATE

 

The effective date (the “Effective Date”) is the date on which the Plan is approved
by the stockholders of the Company. If the stockholders of the Company do not
approve the Plan within 12 months after the Board’s adoption of the Plan,
any Incentive Stock Options granted under the Plan will be treated as
Nonqualified Stock Options.

 

20

 

APPENDIX A

 

DEFINITIONS

 

As used in the Plan,

 

“Acquired Entity” means any entity acquired by the Company or a Related
Company or with which the Company or a Related Company merges or combines.

 

“Award” means any Option, Stock Appreciation Right, Stock
Award, Restricted Stock, Stock Unit, Performance Share, Performance Unit,
cash-based award or other incentive payable in cash or in shares of Common
Stock as may be designated by the Committee from time to time.

 

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

 

“Cause,” unless
otherwise defined in the instrument evidencing an Award or in a written
employment, services or other agreement between the Participant and the Company
or a Related Company, means dishonesty, fraud, serious or willful misconduct,
unauthorized use or disclosure of confidential information or trade secrets, or
conduct prohibited by law (except minor violations), in each case as determined
by the Company’s chief human resources officer or other person performing that
function or, in the case of directors and executive officers, the Compensation
Committee, whose determination shall be conclusive and binding.

 

“Change in Control,” unless the Committee determines otherwise
with respect to an Award at the time the Award is granted or unless otherwise
defined for purposes of an Award in a written employment, services or other
agreement between the Participant and the Company or a Related Company, means
the occurrence of any of the following events:

 

(a)           an
acquisition by any Entity of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 40% or more of either (1) the then
outstanding shares of common stock of the Company (the “Outstanding
Company Common Stock”) or (2) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the “Outstanding Company
Voting Securities”), provided, however, that the following
acquisitions shall not constitute a Change in Control:  (i) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a conversion
privilege where the security being so converted was not acquired directly from
the Company by the party exercising the conversion privilege, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any Related
Company, (iv) an acquisition by any Entity pursuant to a transaction that
meets the conditions of clauses (i), (ii) and (iii) set forth in the
definition of Company Transaction, or (v) any acquisition approved by the
Board;

 

A-1

 

(b)           a
change in the composition of the Board during any two-year period such that the
individuals who, as of the beginning of such two-year period, constitute the
Board (the “Incumbent Board”) cease for any
reason to constitute at least a majority of the Board; provided, however, that
for purposes of this definition, any individual who becomes a member of the
Board subsequent to the beginning of the two-year period, whose election, or
nomination for election by the Company’s stockholders, was approved by a vote
of at least a majority of those individuals who are members of the Board and
who were also members of the Incumbent Board (or deemed to be such pursuant to
this proviso) shall be considered as though such individual were a member of
the Incumbent Board; and provided further, however, that any such individual
whose initial assumption of office occurs as a result of or in connection with
an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of an Entity other than the Board shall not be
considered a member of the Incumbent Board; or

 

(c)           consummation
of a Company Transaction.

 

“Code” means the Internal Revenue Code of 1986, as amended
from time to time.

 

“Committee” has the meaning set forth in Section 3.2.

 

“Common Stock” means the common stock, par value $0.001 per share, of
the Company.

 

“Company” means Digimarc Corporation, a Delaware corporation.

 

“Company
Transaction,” unless
the Committee determines otherwise with respect to an Award at the time the
Award is granted or unless otherwise defined for purposes of an Award in a
written employment, services or other agreement between the Participant and the
Company or a Related Company, means consummation of:

 

(a)           a merger or consolidation of the
Company with or into any other company;

 

(b)           a sale in one transaction or a series
of transactions undertaken with a common purpose of at least 50% of the
Company’s outstanding voting securities; or

 

(c)           a sale, lease, exchange or other
transfer in one transaction or a series of related transactions undertaken with
a common purpose of all or substantially all of the Company’s assets,

 

excluding,
however, in each case, a transaction pursuant to which

 

(i)            the
Entities who are the beneficial owners of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such Company
Transaction will beneficially own, directly or indirectly, at least 50% of the
outstanding shares of common stock, and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, of the Successor 

 

A-2

 

Company in substantially the same proportions as their
ownership, immediately prior to such Company Transaction, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities;

 

(ii)           no
Entity (other than the Company, any employee benefit plan (or related trust) of
the Company, a Related Company or a Successor Company) will beneficially own,
directly or indirectly, 40% or more of, respectively, the outstanding shares of
common stock of the Successor Company or the combined voting power of the
outstanding voting securities of the Successor Company entitled to vote
generally in the election of directors unless such ownership resulted solely
from ownership of securities of the Company prior to the Company Transaction;
and

 

(iii)          individuals
who were members of the Incumbent Board will immediately after the consummation
of the Company Transaction constitute at least a majority of the members of the
board of directors of the Successor Company.

 

Where
a series of transactions undertaken with a common purpose is deemed to be a
Company Transaction, the date of such Company Transaction shall be the date on
which the last of such transactions is consummated.

 

“Compensation Committee” means the Compensation Committee of the
Board.

 

“Covered Employee” means a “covered employee” as that term is defined for
purposes of Section 162(m)(3) of the Code or any successor provision.

 

“Disability,” unless
otherwise defined by the Committee for purposes of the Plan in the instrument
evidencing the Award or in a written employment, services or other agreement
between the Participant and the Company or a Related Company, means a mental or
physical impairment of the Participant that is expected to result in death or
that has lasted or is expected to last for a continuous period of
12 months or more and that causes the Participant to be unable to perform
his or her material duties for the Company or a Related Company and to be
engaged in any substantial gainful activity, in each case as determined by the
Company’s chief human resources officer or other person performing that
function or, in the case of directors and executive officers, the Compensation
Committee, whose determination shall be conclusive and binding. Notwithstanding
the foregoing, with respect to Incentive Stock Options, “Disability” shall have
the meaning attributed to that term for purposes of Section 422 of the
Code.

 

“Effective Date” has the meaning set forth in Section 19.

 

“Eligible Person” means any person eligible to receive an Award as set
forth in Section 5.

 

“Entity” means any individual, entity or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act).

 

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

 

A-3

 

“Fair Market Value” means the closing price  for
the Common Stock on any given date during regular trading, or if not trading on
that date, such price on the last preceding date on which the Common Stock was
traded, unless determined otherwise by the Committee using such methods or
procedures as it may establish.

 

“Grant Date” means the later of (a) the date on which the
Committee completes the corporate action authorizing the grant of an Award or
such later date specified by the Committee and (b) the date on which all
conditions precedent to an Award have been satisfied, provided that conditions
to the exercisability or vesting of Awards shall not defer the Grant Date.

 

“Incentive Stock Option” means an Option granted with the
intention that it qualify as an “incentive stock option” as that term is
defined for purposes of Section 422 of the Code or any successor
provision.

 

“Nonqualified Stock Option” means an Option other than an Incentive
Stock Option.

 

“Option” means a right to purchase Common Stock granted under Section 7.

 

“Option Expiration Date” means the last day of the maximum term of
an Option.

 

“Outstanding Company Common Stock” has the meaning set forth in the
definition of “Change in Control.”

 

“Outstanding Company Voting Securities” has the meaning set forth in the definition
of “Change in Control.”

 

“Parent Company” means a company or other entity which as a result of
a Company Transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more subsidiaries.

 

“Participant” means any Eligible Person to whom an Award is
granted.

 

“Performance Award” means an Award of Performance Shares or
Performance Units granted under Section 11.

 

“Performance Criteria” has the meaning set forth in Section 16.1.

 

“Performance Period” means the period of time during which
the Performance Criteria must be met in order to determine the degree of payout
and/or vesting with respect to an Award. The Compensation Committee may
establish different Performance Periods for different Participants, and the
Compensation Committee may establish concurrent or overlapping Performance
Periods.

 

“Performance Share” means an Award of units denominated in shares of
Common Stock granted under Section 11.1.

 

A-4

 

“Performance Unit” means an Award of units denominated in cash or property other than shares of Common Stock granted under Section 11.2.

 

“Plan” means the Digimarc Corporation 2008 Incentive Plan.

 

“Related Company” means any entity that is directly or indirectly
controlled by,  in control of or under common
control with the Company.

 

“Restricted Stock” means an Award of shares of Common Stock granted
under Section 10, the rights of ownership of which are subject to
restrictions prescribed by the Committee.

 

“Retirement,” unless
otherwise defined in the instrument evidencing the Award or in a written
employment, services or other agreement between the Participant and the Company
or a Related Company, means “Retirement” as defined for purposes of the Plan by
the Committee or the Company’s chief human resources officer or other person
performing that function or, if not so defined, means Termination of Service on
or after the date the Participant reaches “normal retirement age,” as that term
is defined in Section 411(a)(8) of the Code.

 

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

 

“Stock Appreciation Right” or “SAR” means a
right granted under Section 9.1 to receive the excess of the Fair Market
Value of a specified number of shares of Common Stock over the grant price.

 

“Stock Award”  means an Award of
shares of Common Stock granted under Section 10, the rights of ownership
of which are not subject to restrictions prescribed by the Committee.

 

“Stock Unit” means an Award denominated in units of Common Stock
granted under Section 10.

 

“Substitute Awards” means Awards granted or shares of Common Stock issued
by the Company in substitution or exchange for awards previously granted by an
Acquired Entity.

 

“Successor Company” means the surviving company, the
successor company or Parent Company, as applicable, in connection with a
Company Transaction.

 

“Termination of Service” means a termination of employment or
service relationship with the Company or a Related Company for any reason,
whether voluntary or involuntary, including by reason of death, Disability or
Retirement. Any question as to whether and when there has been a Termination of
Service for the purposes of an Award and the cause of such Termination of
Service shall be determined by the Company’s chief human resources officer or
other person performing that function or, with respect to directors and
executive officers, by the Compensation Committee, whose determination shall be
conclusive and binding. Transfer of a Participant’s employment or service
relationship between the Company and any Related Company shall not be
considered a Termination of Service for purposes of an 

 

A-5

 

Award. Unless the Compensation Committee determines
otherwise, a Termination of Service shall be deemed to occur if the
Participant’s employment or service relationship is with an entity that has
ceased to be a Related Company. A Participant’s change in status from an
employee of the Company or a Related Company to a nonemployee director,
consultant, advisor, or independent contractor of the Company or a Related
Company or a change in status from a nonemployee director, consultant, advisor
or independent contractor of the Company or a Related Company to an employee of
the Company or a Related Company, shall not be considered a Termination of
Service.

 

“Vesting Commencement Date” means the Grant Date or such other date
selected by the Committee as the date from which an Award begins to vest.

 

A-6

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