Document:

Exhibit 10.1

 

UNITED ONLINE,  INC.

2010 INCENTIVE COMPENSATION PLAN

 

ARTICLE ONE

 

GENERAL
PROVISIONS

 

I.              PURPOSE OF THE PLAN

 

This 2010 Incentive Compensation Plan is intended to
promote the interests of United Online, Inc., a Delaware corporation, by
providing eligible persons in the Corporation’s service with the opportunity to
participate in one or more cash or equity incentive compensation programs
designed to encourage them to continue their service relationship with the
Corporation.

 

Capitalized terms shall have the meanings assigned to
such terms in the attached Appendix.

 

II.            STRUCTURE OF THE PLAN

 

A.            The
Plan shall be divided into a series of separate incentive compensation
programs:

 

·              the
Discretionary Grant Program under which eligible persons may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common
Stock or stock appreciation rights tied to the value of such Common Stock,

 

·              the
Stock Issuance Program under which eligible persons may, at the discretion of the
Plan Administrator, be issued shares of Common Stock pursuant to restricted
stock awards, restricted stock units, performance shares or other stock-based
awards which vest upon the completion of a designated service period or the
attainment of pre-established performance milestones, or such shares of Common
Stock may be issued through direct purchase or as a bonus for services rendered
the Corporation (or any Parent or Subsidiary), 
and

 

·              the
Incentive Bonus Program under which eligible persons may, at the discretion of
the Plan Administrator, be provided with incentive bonus opportunities through
performance unit awards and special cash incentive programs tied to the
attainment of pre-established performance milestones or the appreciation in the
Fair Market Value of the Common Stock.

 

B.            The
provisions of Articles One and Five shall apply to all incentive compensation
programs under the Plan and shall govern the interests of all persons under the
Plan.

 

 

III.           ADMINISTRATION OF THE PLAN

 

A.            The
Compensation Committee (whether acting directly or through a subcommittee of
two or more members thereof) shall have sole and exclusive authority to
administer the Discretionary Grant, Stock Issuance and Incentive Bonus Programs
with respect to Section 16 Insiders. 
Administration of the Discretionary Grant, Stock Issuance and Incentive
Bonus Programs with respect to all other persons eligible to participate in
those programs may, at the Board’s discretion, be vested in the Compensation
Committee or a Secondary Board Committee, or the Board may retain the power to
administer those programs with respect to all such persons.  All Awards to non-employee Board members
shall be made by the Board on the basis of the recommendations of the
Compensation Committee or by the Compensation Committee (or subcommittee
thereof) which shall at the time of any such Award be comprised solely of two
or more independent Board members, as determined in accordance with the
independence standards established by the Stock Exchange on which the Common
Stock is at the time primarily traded.

 

B.            Members
of the Compensation Committee or any Secondary Board Committee shall serve for
such period of time as the Board may determine and may be removed by the Board
at any time.  The Board may also at any
time terminate the functions of any Secondary Board Committee and reassume all
powers and authority previously delegated to such committee.

 

C.            Each
Plan Administrator shall, within the scope of its administrative functions
under the Plan, have full power and authority (subject to the provisions of the
Plan) to establish such rules and regulations as it may deem appropriate
for proper administration of the Discretionary Grant, Stock Issuance and
Incentive Bonus Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding Awards
thereunder as it may deem necessary or advisable.  Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Grant, Stock
Issuance and Incentive Bonus Programs under its jurisdiction or any Award
thereunder.

 

D.            Service
as a Plan Administrator by the members of the Compensation Committee or the
Secondary Board Committee shall constitute service as Board members, and the
members of each such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
committee.  No member of the Compensation
Committee or the Secondary Board Committee shall be liable for any act or
omission made in good faith with respect to the Plan or any Award thereunder.

 

IV.           ELIGIBILITY

 

A.            The
persons eligible to participate in the Plan are as follows:

 

(i)            Employees,

 

(ii)           non-employee
members of the Board or the board of directors of any Parent or Subsidiary, and

 

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(iii)          consultants
and other independent advisors who provide services to the Corporation (or any
Parent or Subsidiary).

 

B.            The
Plan Administrator shall have full authority to determine, (i) with
respect to Awards made under the Discretionary Grant Program, which eligible
persons are to receive such Awards, the time or times when those Awards are to
be made, the number of shares to be covered by each such Award, the time or
times when the Award is to become exercisable, the vesting schedule (if any)
applicable to the Award, the maximum term for which such Award is to remain
outstanding and the status of a granted option as either an Incentive Option or
a Non-Statutory Option; (ii) with respect to Awards under the Stock
Issuance Program, which eligible persons are to receive such Awards, the time
or times when the Awards are to be made, the number of shares subject to each
such Award, the vesting and issuance schedules applicable to the shares which
are the subject of such Award, the cash consideration (if any) payable for
those shares and the form (cash or shares of Common Stock) in which the Award
is to be settled; and (iii) with respect to Awards under the Incentive
Bonus Program, which eligible persons are to receive such Awards, the time or
times when the Awards are to be made, the performance objectives for each such
Award, the amounts payable at designated levels of attained performance, any
applicable service vesting requirements, the payout schedule for each such
Award and the form (cash or shares of Common Stock) in which the Award is to be
settled.

 

C.            The
Plan Administrator shall have the absolute discretion to grant options or stock
appreciation rights in accordance with the Discretionary Grant Program, to
effect stock issuances and other stock-based awards in accordance with the
Stock Issuance Program and to grant incentive bonus awards in accordance with
the Incentive Bonus Program.

 

V.            STOCK SUBJECT TO THE PLAN

 

A.            The
stock issuable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be limited to Twenty
Three Million Six Hundred Thousand (23,600,000) shares, subject to adjustment
from time to time pursuant to the provisions of Section V.I of this Article One.   However, such share reserve shall be reduced
for the shares subject to any awards made under the Predecessor Plans during
the period commencing January 1, 2010 and continuing through the date the
new Plan is approved by the Corporation’s stockholders at the 2010 Annual
Meeting. The actual number of shares by which the share reserve under the Plan
shall be reduced for such awards under the Predecessor Plans shall be
determined in accordance with the parameters of Section V.D of this Article One,
as if those awards had in fact been made under the Plan.

 

B.            The
Plan shall serve as the successor to the various Predecessor Plans, and no
further stock option grants, restricted stock unit awards or other stock-based
awards shall be made under any of the Predecessor Plans on or after the date
the Plan is approved by the Corporation’s stockholders at the 2010 Annual
Meeting. However, all option grants and restricted stock unit awards
outstanding under the Predecessor Plans on the date of the 2010 Annual Meeting
shall continue in full force and effect in accordance with their terms, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of 

 

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the holders of those awards
with respect to their acquisition of shares of Common Stock thereunder.

 

C.            To
the extent any options that are outstanding under the Predecessor Plans on or
after December 31, 2009 expire, are forfeited or cancelled or terminate
unexercised or any unvested restricted stock unit awards outstanding under the
Predecessor Plans on or after December 31, 2009 are forfeited or
cancelled, the number of shares of Common Stock at the time subject to those
expired, forfeited, cancelled or terminated options and the number of shares of
Common Stock at the time subject to those forfeited or cancelled restricted
stock unit awards shall be added to the share reserve under this Plan and shall
accordingly be available for award and issuance hereunder in accordance with
the following parameters:

 

(i)            for
each share of Common Stock subject to such expired, forfeited, cancelled or
unexercised option grant, the share reserve shall be increased by one share;
and

 

(ii)           for
each share of Common Stock subject to such forfeited or cancelled restricted
stock unit award, the share reserve shall be increased by 2.5 shares.

 

D.            The
number of shares of Common Stock reserved for award and issuance under this
Plan pursuant to Section V.A of this Article One shall be reduced on
a one-for-one basis for each share of Common Stock subject to an Award made
under the Discretionary Grant Program and by a fixed ratio of 2.5 shares of
Common Stock for each share of Common Stock subject to a Full Value Award made
under the Stock Issuance or Incentive Bonus Program.

 

E.             The
maximum number of shares of Common Stock which may be issued pursuant to
Incentive Options granted under the Plan shall not exceed 23,600,000 shares in
the aggregate, subject to adjustment from time to time under Section V.I
of this Article One.

 

F.             Each
person participating in the Plan other than a non-employee Board member shall
be subject to the following limitations:

 

·              for
Awards denominated in terms of shares of Common Stock (whether payable in
Common Stock, cash or a combination of both), the maximum number of shares of
Common Stock for which such Awards may be made to such person in any calendar
year shall not exceed in the aggregate Five Million (5,000,000) shares of
Common Stock under the Discretionary Grant Program and an additional Three
Million (3,000,000) shares of Common Stock in the aggregate under the Stock
Issuance and Incentive Bonus Programs; and

 

·              for
Awards denominated in cash (whether payable in cash, Common Stock or a
combination of both) and subject to one or more performance-vesting conditions,
the maximum dollar amount for which such Awards may be made in the aggregate to
such person shall not exceed Seven Million Five Hundred Thousand dollars
($7,500,000.00) for each calendar year within the applicable performance
measurement period, with any such performance period not to exceed

 

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five (5) years and with
pro-ration based on the foregoing dollar amount in the event of any fractional
calendar year included within such performance period.

 

G.            Shares
of Common Stock subject to outstanding Awards made under the Plan shall be
available for subsequent award and issuance under the Plan to the extent those
Awards expire, are forfeited or cancelled or terminate for any reason prior to
the issuance of the shares of Common Stock subject to those Awards.  Such shares shall be added back to the number
of shares of Common Stock reserved for award and issuance under the Plan as
follows:

 

(i)            for
each share of Common Stock subject to such an expired, forfeited, cancelled or
terminated Award made under the Discretionary Grant Program, one share of
Common Stock shall become available for subsequent award and issuance under the
Plan,

 

(ii)           for
each share subject to a forfeited or cancelled Full Value Award made under the
Stock Issuance or Incentive Bonus Program, 2.5 shares shall become available
for subsequent award and issuance, and

 

(iii)          for
each unvested share issued under the Discretionary Grant or Stock Issuance
Program for cash consideration not less than the Fair Market Value per share of
Common Stock on the Award date and subsequently repurchased by the Corporation,
at a price per share not greater than the original issue price paid per share,
pursuant to the Corporation’s repurchase rights under the Plan, one share shall
become available for subsequent award and issuance under the Plan.

 

H.            Should
the exercise price of an option under the Plan be paid with shares of Common
Stock (whether through the withholding of a portion of the otherwise issuable
shares or through the tender of actual outstanding shares), then the authorized
reserve of Common Stock under the Plan shall be reduced by the gross number of
shares for which that option is exercised, and not by the net number of shares
issued under the exercised stock option. 
Upon the exercise of any stock appreciation right under the Plan, the
share reserve shall be reduced by the gross number of shares as to which such
right is exercised, and not by the net number of shares actually issued by the
Corporation upon such exercise. If shares of Common Stock otherwise issuable
under the Plan are withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the issuance, vesting or
settlement of an Award, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced on the basis of the gross number of
shares issued, vested or settled under such Award, calculated in each instance
prior to any such share withholding.

 

I.              Should
any change be made to the Common Stock by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares, spin-off
transaction or other change affecting the outstanding Common Stock as a class
without the Corporation’s receipt of consideration, or should the value of
outstanding shares of Common Stock be substantially reduced as a result of a
spin-off transaction or an extraordinary dividend or distribution, or should
there occur any merger, consolidation or other reorganization (including, without
limitation, a Change in Control transaction), then equitable adjustments shall 

 

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be made by the Plan
Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of
securities that may be issued under the Plan pursuant to Incentive Options, (iii) the
maximum number and/or class of securities for which any one person may be
granted Common Stock-denominated Awards under the Discretionary Grant Program
or under the Stock Issuance and Incentive Bonus Programs per calendar year, (iv) the
number and/or class of securities and the exercise or base price per share in
effect under each outstanding Award under the Discretionary Grant Program, (v) the
number and/or class of securities subject to each outstanding Award under the
Stock Issuance Program and the cash consideration (if any) payable per share, (vi) the
number and/or class of securities subject to each outstanding Award under the
Incentive Bonus Program denominated in shares of Common Stock and (vii) the
number and/or class of securities subject to the Corporation’s outstanding
repurchase rights under the Plan and the repurchase price payable per
share.  The adjustments shall be made in
such manner as the Plan Administrator deems appropriate and such adjustments
shall be final, binding and conclusive.

 

J.             Outstanding
Awards granted pursuant to the Plan shall in no way affect the right of the
Corporation 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.

 

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ARTICLE TWO

 

DISCRETIONARY
GRANT PROGRAM

 

I.              OPTION TERMS

 

Each option shall be evidenced by one or more
documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified
below.  Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

 

A.            Exercise
Price.

 

1.             The
exercise price per share shall be fixed by the Plan Administrator; provided, however, that such
exercise price shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the grant date.

 

2.             The
exercise price shall become immediately due upon exercise of the option and
shall, subject to the provisions of the documents evidencing the option, be
payable in one or more of the forms specified below:

 

(i)            cash
or check made payable to the Corporation,

 

(ii)           shares
of Common Stock (whether delivered in the form of actual stock certificates or
through attestation of ownership) held for the requisite period (if any)
necessary to avoid any resulting charge to the Corporation’s earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date,

 

(iii)          shares
of Common Stock otherwise issuable under the option but withheld by the
Corporation in satisfaction of the exercise price, with such withheld shares to
be valued at Fair Market Value on the exercise date, and

 

(iv)          to
the extent the option is exercised for vested shares, through a special sale
and remittance procedure pursuant to which the Optionee shall concurrently
provide instructions to (a) a brokerage firm (reasonably satisfactory to
the Corporation for purposes of administering such procedure in compliance with
the Corporation’s pre-clearance/pre-notification policies) to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all applicable
income and employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm on such
settlement date in order to complete the sale.

 

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Except to the extent such sale and remittance
procedure is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.

 

B.            Exercise
and Term of Options.

 

1.             Each
option shall be exercisable at such time or times, during such period and for
such number of shares as shall be determined by the Plan Administrator and set
forth in the documents evidencing the option. 
However, no option shall have a term in excess of ten (10) years measured
from the option grant date.

 

2.             The
Plan Administrator shall also have the discretionary authority to structure one
or more Awards under the Discretionary Grant Program so that those Awards shall
vest and become exercisable only after the achievement of pre-established
corporate performance objectives based on one or more Performance Goals and
measured over the performance period specified by the Plan Administrator at the
time of the Award.

 

C.            Effect of
Termination of Service.

 

1.             The
following provisions shall govern the exercise of any options granted pursuant
to the Discretionary Grant Program that are outstanding at the time of the
Optionee’s cessation of Service or death:

 

(i)            Any
option outstanding at the time of the Optionee’s cessation of Service for any
reason shall remain exercisable for such period of time thereafter as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the expiration of the
option term.

 

(ii)           Any
option held by the Optionee at the time of the Optionee’s death and exercisable
in whole or in part at that time may be subsequently exercised by the personal
representative of the Optionee’s estate or by the person or persons to whom the
option is transferred pursuant to the Optionee’s will or the laws of
inheritance or by the Optionee’s designated beneficiary or beneficiaries of
that option.

 

(iii)          Should
the Optionee’s Service be terminated for Cause or should the Optionee otherwise
engage in conduct constituting grounds for a termination for Cause while
holding one or more outstanding options granted under this Article Two,
then all of those options shall terminate immediately and cease to be
outstanding.

 

(iv)          During
the applicable post-Service exercise period, the option may not be exercised
for more than the number of vested shares for which the option is at the time
exercisable; provided, however, that one
or more options under the Discretionary Grant Program may be structured so that
those options will continue to vest in whole or part during the applicable
post-Service exercise period. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the option shall
terminate and 

 

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cease to be outstanding for
any shares for which the option has not been exercised.

 

2.             The
Plan Administrator shall have complete discretion, exercisable either at the
time an option is granted or at any time while the option remains outstanding,
to:

 

(i)            extend
the period of time for which the option is to remain exercisable following the
Optionee’s cessation of Service from the limited exercise period otherwise in
effect for that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the option
term,

 

(ii)           include
an automatic extension provision whereby the specified post-Service exercise
period in effect for any option granted under the Discretionary Grant Program
shall automatically be extended by an additional period of time equal in
duration to any interval within the specified post-Service exercise period
during which the exercise of that option or the immediate sale of the shares acquired
under such option could not be effected in compliance with applicable federal
and state securities laws, but in no event shall such an extension result in
the continuation of such option beyond the expiration date of the term of that
option, and/or

 

(iii)          permit
the option to be exercised, during the applicable post-Service exercise period,
not only with respect to the number of vested shares of Common Stock for which
such option is exercisable at the time of the Optionee’s cessation of Service
but also with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.

 

D.            Stockholder
Rights.  The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.

 

E.             Repurchase
Rights.  The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock.  Should the Optionee cease
Service while such shares are unvested, the Corporation shall have the right to
repurchase any or all of those unvested shares at a price per share equal to
the lower of (i) the exercise price
paid per share or (ii) the Fair Market Value per share of Common Stock at
the time of repurchase.  The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.

 

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F.             Transferability
of Options. The transferability of
options granted under the Plan shall be governed by the following provisions:

 

(i)            Incentive
Options.   During the lifetime of the Optionee, Incentive
Options shall be exercisable only by the Optionee and shall not be assignable
or transferable other than by will or the laws of inheritance following the
Optionee’s death.

 

(ii)           Non-Statutory
Options.  Non-Statutory Options shall be subject to the
same limitation on transfer as Incentive Options, except that the Plan
Administrator may structure one or more Non-Statutory Options so that the
option may be transferred gratuitously in whole or in part during the Optionee’s
lifetime to one or more Family Members of the Optionee or to a trust
established exclusively for the Optionee and/or such Family Members or may be
transferred to one or more Family Member pursuant to a domestic relations
order. The transferred portion may only be exercised by the person or persons
who acquire a proprietary interest in the option pursuant to the transfer.  The terms applicable to the transferred
portion shall be the same as those in effect for the option immediately prior
to such transfer and shall be set forth in such documents issued to the
transferee as the Plan Administrator may deem appropriate.

 

(iii)          Beneficiary
Designations.  Notwithstanding the foregoing, the Optionee
may designate one or more persons as the beneficiary or beneficiaries of his or
her outstanding options under the Discretionary Grant Program (whether
Incentive Options or Non-Statutory Options), and those options shall, in accordance
with such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee’s death while holding those options.  Such beneficiary or beneficiaries shall take
the transferred options subject to all the terms and conditions of the
applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee’s death.

 

II.            INCENTIVE OPTIONS

 

The terms specified below shall be applicable to all
Incentive Options.  Except as modified by
the provisions of this Section II, all the provisions of Articles One, Two
and Six shall be applicable to Incentive Options.  Options which are specifically designated as
Non-Statutory Options when issued under the Plan shall not be subject to
the terms of this Section II.

 

A.            Eligibility.  Incentive Options may only be granted to
Employees.

 

B.            Dollar
Limitation.  The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000).

 

To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, then for purposes of the foregoing limitations on the
exercisability of those options as Incentive Options, such options shall be
deemed to become first exercisable in that calendar year on the basis of the

 

10

 

chronological order in which they were granted, except
to the extent otherwise provided under applicable law or regulation.

 

C.            10%
Stockholder.  If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.

 

III.           STOCK APPRECIATION RIGHTS

 

A.            Authority.  The Plan Administrator shall
have full power and authority, exercisable in its sole discretion, to grant
stock appreciation rights in accordance with this Section III to selected
Optionees or other individuals eligible to receive option grants under the
Discretionary Grant Program.

 

B.            Types.  Two types of stock appreciation
rights shall be authorized for issuance under this Section III: (i) tandem
stock appreciation rights (“Tandem Rights”) and (ii) stand-alone stock
appreciation rights (“Stand-alone Rights”).

 

C.            Tandem
Rights.  The following terms and conditions shall
govern the grant and exercise of Tandem Rights.

 

1.             One
or more Optionees may be granted a Tandem Right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to elect between the exercise
of the underlying option for shares of Common Stock or the surrender of that
option in exchange for a distribution from the Corporation in an amount equal
to the excess of (i) the Fair Market Value (on the option surrender date)
of the number of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (ii) the
aggregate exercise price payable for such vested shares.

 

2.             Any
distribution to which the Optionee becomes entitled upon the exercise of a
Tandem Right may be made in (i) shares of Common Stock valued at Fair
Market Value on the option surrender date, (ii) cash or (iii) a
combination of cash and shares of Common Stock, as specified in the applicable
Award agreement.

 

D.            Stand-Alone
Rights.  The following terms and conditions shall
govern the grant and exercise of Stand-alone Rights:

 

1.             One
or more individuals eligible to participate in the Discretionary Grant Program
may be granted a Stand-alone Right not tied to any underlying option. The
Stand-alone Right shall relate to a specified number of shares of Common Stock
and shall be exercisable upon such terms and conditions as the Plan
Administrator may establish.  In no
event, however, may the Stand-alone Right have a maximum term in excess of ten (10) years
measured from the grant date.  The
provisions and limitations of Paragraphs C.1 and C.2 of Section I of this Article Two
shall also be applicable to any Stand-Alone Right awarded under the Plan.

 

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2.             Upon
exercise of the Stand-alone Right, the holder shall be entitled to receive a
distribution from the Corporation in an amount equal to the excess of (i) the
aggregate Fair Market Value (on the exercise date) of the shares of Common
Stock underlying the exercised right over (ii) the aggregate base price in
effect for those shares.

 

3.             The
number of shares of Common Stock underlying each Stand-alone Right and the base
price in effect for those shares shall be determined by the Plan Administrator
in its sole discretion at the time the Stand-alone Right is granted.  In no event, however, may the base price per
share be less than the Fair Market Value per underlying share of Common Stock
on the grant date.

 

4.             Stand-alone
Rights shall be subject to the same transferability restrictions applicable to
Non-Statutory Options and may not be transferred during the holder’s lifetime,
except for a gratuitous transfer to one or more Family Members of the holder or
to a trust established for the holder and/or one or more such Family Members or
a transfer to one or more such Family Members pursuant to a domestic relations
order covering the Stand-alone Right as marital property.  In addition, one or more beneficiaries may be
designated for an outstanding Stand-alone Right in accordance with
substantially the same terms and provisions as set forth in Section I.F of
this Article Two.

 

5.             The
distribution with respect to an exercised Stand-alone Right may be made in (i) shares
of Common Stock valued at Fair Market Value on the exercise date, (ii) cash
or (iii) a combination of cash and shares of Common Stock, as specified in
the applicable Award agreement.

 

6.             The
holder of a Stand-alone Right shall have no stockholder rights with respect to
the shares subject to the Stand-alone Right unless and until such person shall
have exercised the Stand-alone Right and become a holder of record of the
shares of Common Stock issued upon the exercise of such Stand-alone Right.

 

E.             Post-Service
Exercise.  The provisions governing the exercise of
Tandem and Stand-alone Rights following the cessation of the recipient’s
Service shall be substantially the same as those set forth in Section I.C.1
of this Article Two for the options granted under the Discretionary Grant
Program, and the Plan Administrator’s discretionary authority under Section I.C.2
of this Article Two shall also extend to any outstanding Tandem or
Stand-alone Appreciation Rights.

 

IV.           CHANGE IN CONTROL

 

A.            In
the event of an actual Change in Control transaction, each outstanding Award
under the Discretionary Grant Program may be (i) assumed by the successor
corporation (or parent thereof) or otherwise continued in full force and effect
pursuant to the terms of the Change in Control transaction or (ii) replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Change in Control on any shares as to which
the Award is not otherwise at that time exercisable and provides for the
subsequent vesting and concurrent payment of that spread in accordance with the
same exercise/vesting schedule in effect for that Award, but only if such
replacement cash program 

 

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would not result in the
treatment of the Award as an item of deferred compensation subject to Code Section 409A.
However, to the extent the Award is not to be so assumed, continued or
replaced, that Award shall immediately prior to the effective date of the
Change in Control transaction, become exercisable as to all the shares of
Common Stock at the time subject to that Award and may be exercised as to any
or all of those shares as fully vested shares of Common Stock, except to the
extent the acceleration of such Award is subject to other limitations imposed
by the Plan Administrator. Notwithstanding the foregoing, any Award outstanding
under the Discretionary Grant Program on the date of such Change in Control
shall be subject to cancellation and termination, without cash payment or other
consideration due the Award holder, if the Fair Market Value per share of
Common Stock on such date of the Change in Control (or any earlier date
specified in the definitive agreement for the Change in Control transaction) is
less than the per share exercise or base price in effect for such Award.

 

B.            All
repurchase rights outstanding under the Discretionary Grant Program shall
automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, immediately prior to the
effective date of an actual Change in Control transaction, except to the
extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) or are otherwise to continue in full force and
effect pursuant to the terms of the Change in Control transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator.

 

C.            Immediately
following the consummation of the Change in Control, all outstanding Awards
under the Discretionary Grant Program shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control transaction.

 

D.            Each
Award under the Discretionary Grant Program that is assumed in connection with
a Change in Control or otherwise continued in effect shall be appropriately
adjusted, immediately after such Change in Control, to apply to the number and
class of securities into which the shares of Common Stock subject to that Award
would have been converted in consummation of such Change in Control had those
shares actually been outstanding at that time. 
Appropriate adjustments to reflect such Change in Control shall also be
made to the exercise or base price per share in effect under each outstanding
Award, provided the aggregate exercise or base price in effect for such
securities shall remain the same. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor
corporation may, in connection with the assumption or continuation of the
outstanding Awards under the Discretionary Grant Program and with the consent
of the Plan Administrator obtained prior to the Change in Control, substitute,
for the securities underlying those assumed rights, one or more shares of its
own common stock with a fair market value equivalent to the cash consideration
paid per share of Common Stock in such Change in Control transaction, provided
such common stock is readily traded on an established U.S. securities exchange
or market.

 

13

 

E.             The
Plan Administrator shall have the discretionary authority to structure one or
more outstanding Awards under the Discretionary Grant Program so that those
Awards shall, immediately prior to the effective date of an actual Change in
Control transaction, become exercisable as to all the shares of Common Stock at
the time subject to those Awards and may be exercised as to any or all of those
shares as fully vested shares of Common Stock, whether or not those Awards are
to be assumed in the Change in Control transaction or otherwise continued in
effect.  In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation’s repurchase rights under the Discretionary Grant Program so
that those rights shall terminate immediately prior to the effective date of an
actual Change in Control transaction, and the shares subject to those
terminated rights shall thereupon vest in full.

 

F.             The
Plan Administrator shall have full power and authority to structure one or more
outstanding Awards under the Discretionary Grant Program so that those Awards
shall become exercisable as to all the shares of Common Stock at the time
subject to those Awards in the event the Optionee’s Service is subsequently
terminated by reason of an Involuntary Termination within a designated period
(not to exceed twenty-four (24) months) following the effective date of any
Change in Control transaction in which those Awards do not otherwise fully
accelerate.  In addition, the Plan
Administrator may structure one or more of the Corporation’s repurchase rights
so that those rights shall immediately terminate with respect to any shares
held by the Optionee at the time of such Involuntary Termination, and the
shares subject to those terminated repurchase rights shall accordingly vest in
full at that time.

 

G.            The
portion of any Incentive Option accelerated in connection with a Change in
Control shall remain exercisable as an Incentive Option only to the extent the
applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded.  To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-statutory Option under the Federal tax laws.

 

V.            PROHIBITION ON REPRICING PROGRAMS

 

The Plan Administrator shall not (i) implement
any cancellation/regrant program pursuant to which outstanding options or stock
appreciation rights under the Plan are cancelled and new options or stock
appreciation rights are granted in replacement with a lower exercise price per
share, (ii) cancel outstanding options or stock appreciation rights under
the Plan with exercise or base prices per share in excess of the then current
Fair Market Value per share of Common Stock for consideration payable in cash,
equity securities of the Corporation or in the form of any other Award under
the Plan, except in connection with a Change in Control transaction, or (iii) otherwise
directly reduce the exercise price in effect for outstanding options or stock
appreciation rights under the Plan, without in each such instance obtaining
stockholder approval.

 

14

 

ARTICLE THREE

 

STOCK
ISSUANCE PROGRAM

 

I.              STOCK ISSUANCE TERMS

 

Shares of Common Stock may be issued under the Stock
Issuance Program, either as vested or unvested shares, through direct and immediate
issuances.  Each such stock issuance
shall be evidenced by a Stock Issuance Agreement which complies with the terms
specified below.  Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to performance
shares or restricted stock units which entitle the recipients to receive the
shares underlying those Awards upon the attainment of designated performance
goals or the satisfaction of specified Service requirements or upon the
expiration of a designated time period following the vesting of those Awards.

 

A.            Issue
Price.

 

1.             Shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

 

(i)            cash
or check made payable to the Corporation;

 

(ii)           past
services rendered to the Corporation (or any Parent or Subsidiary); or

 

(iii)          any
other valid consideration under the State in which the Corporation is at the
time incorporated.

 

However, if the consideration for the shares is
to be paid in the form of a cash purchase price, then the cash consideration
payable per share shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

 

B.            Vesting
Provisions.

 

1.             Shares
of Common Stock issued under the Stock Issuance Program may, in the discretion
of the Plan Administrator, be fully and immediately vested upon issuance as a
bonus for Service rendered or may vest in one or more installments over the
Participant’s period of Service or upon the attainment of specified performance
objectives.  The elements of the vesting
schedule applicable to any unvested shares of Common Stock issued under the
Stock Issuance Program shall be determined by the Plan Administrator and
incorporated into the Stock Issuance Agreement. 
Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to performance shares or restricted stock units which entitle
the recipients to 

 

15

 

receive the shares underlying those Awards upon the
attainment of designated performance goals or the satisfaction of specified
Service requirements or upon the expiration of a designated time period
following the vesting of those Awards, including (without limitation) a
deferred distribution date following the termination of the Participant’s
Service.

 

2.             The
Plan Administrator shall also have the discretionary authority, consistent with
Code Section 162(m), to structure one or more Awards under the Stock
Issuance Program so that the shares of Common Stock subject to those Awards
shall vest (or vest and become issuable) upon the achievement of
pre-established corporate performance objectives based on one or more
Performance Goals and measured over the performance period (not to exceed five (5) years)
specified by the Plan Administrator at the time of the Award.

 

3.             Any
new, substituted or additional securities or other property (including money
paid other than as a regular cash dividend) which the Participant may have the
right to receive with respect to the Participant’s unvested shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares, spin-off transaction, extraordinary
dividend or distribution or other change affecting the outstanding Common Stock
as a class without the Corporation’s receipt of consideration shall be issued
subject to (i) the same vesting requirements applicable to the Participant’s
unvested shares of Common Stock and (ii) such escrow arrangements as the
Plan Administrator shall deem appropriate. 
Equitable adjustments to reflect each such transaction shall also be
made by the Plan Administrator to the repurchase price payable per share by the
Corporation for any unvested securities subject to its existing repurchase
rights under the Plan; provided the aggregate repurchase price shall in each
instance remain the same.

 

4.             The
Participant shall have full stockholder rights with respect to any shares of
Common Stock issued to the Participant under the Stock Issuance Program,
whether or not the Participant’s interest in those shares is vested.  Accordingly, the Participant shall have the
right to vote such shares and to receive any dividends paid on such shares,
subject to any applicable vesting requirements. 
The Participant shall not have any stockholder rights with respect to
the shares of Common Stock subject to a performance share or restricted stock
unit Award until that Award vests and the shares of Common Stock are actually
issued thereunder.  However,
dividend-equivalent units may be paid or credited, either in cash or in actual
or phantom shares of Common Stock, on outstanding Awards of performance shares
or restricted stock units, subject to such terms and conditions as the Plan
Administrator may deem appropriate.  In
no event, however, shall any dividends or dividend-equivalent units relating to
Awards subject to performance-vesting conditions vest or otherwise become
payable prior to the time the underlying Award (or portion thereof to which
such dividend or dividend-equivalents units relate) vests and shall accordingly
be subject to cancellation and forfeiture to the same extent as the underlying
Award in the event those performance conditions are not attained.

 

5.             Should
the Participant cease to remain in Service while holding one or more unvested
shares of Common Stock issued under the Stock Issuance Program or should the
performance objectives not be attained with respect to one or more such
unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares.  To the extent the surrendered shares were
previously issued to the Participant for 

 

16

 

consideration paid in cash or cash equivalent, the
Corporation shall repay to the Participant the lower
of (i) the cash consideration paid for the surrendered
shares or (ii) the Fair Market Value of those shares at the time of
cancellation.

 

6.             The
Plan Administrator may in its discretion waive the surrender and cancellation
of one or more unvested shares of Common Stock which would otherwise occur upon
the cessation of the Participant’s Service or the non-attainment of the
performance objectives applicable to those shares.  Any such waiver shall result in the immediate
vesting of the Participant’s interest in the shares of Common Stock as to which
the waiver applies. However, no vesting requirements tied to the attainment of
performance objectives may be waived with respect to Awards which were intended
at the time of grant to qualify as performance-based compensation under Code Section 162(m),
except in the event of the Participant’s cessation of Service by reason of
death or Permanent Disability or as otherwise provided in Section II of
this Article Three.

 

7.             Outstanding
Awards of performance shares or restricted stock units under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those Awards, if the performance goals or
Service requirements established for those Awards are not attained or
satisfied.  The Plan Administrator, however,
shall have the discretionary authority to issue vested shares of Common Stock
under one or more outstanding Awards of performance shares or restricted stock
units as to which the designated performance goals or Service requirements have
not been attained or satisfied.  Any such
waiver shall result in the immediate vesting of the Participant’s interest in
the shares of Common Stock as to which the waiver applies. However, no vesting
requirements tied to the attainment of performance objectives may be waived
with respect to Awards which were intended at the time of grant to qualify as
performance-based compensation under Code Section 162(m), except in the
event of the Participant’s cessation of Service by reason of death or Permanent
Disability or as otherwise provided in Section II of this Article Three.

 

8.             The
following additional requirements shall be in effect for any performance shares
awarded under this Article Three:

 

(i)            At
the end of the performance period, the Plan Administrator shall determine the
actual level of attainment for each performance objective and the extent to
which the performance shares awarded for that period are to vest and become
payable based on the attained performance levels.

 

(ii)           The
performance shares which so vest shall be paid as soon as practicable following
the end of the performance period, unless such payment is to be deferred for
the period specified by the Plan Administrator at the time the performance
shares are awarded or the period selected by the Participant in accordance with
the applicable requirements of Code Section 409A.

 

(iii)          Performance
shares may be paid in (i) cash, (ii) shares of Common Stock or (iii) any
combination of cash and shares of Common Stock, as set forth in the applicable
Award Agreement.

 

17

 

(iv)          Performance
shares may also be structured so that the shares are convertible into shares of
Common Stock, but the rate at which each performance share is to so convert
shall be based on the attained level of performance for each applicable
performance objective.

 

II.            CHANGE IN CONTROL

 

A.            Each
Award outstanding under the Stock Issuance Program on the effective date of an
actual Change in Control transaction may be (i) assumed by the successor
corporation (or parent thereof) or otherwise continued in full force and effect
pursuant to the terms of the Change in Control transaction or (ii) replaced
with a cash incentive program of the successor corporation which preserves the
Fair Market Value of the underlying shares of Common Stock at the time of the
Change in Control and provides for the subsequent vesting and payment of that
value in accordance with the same vesting schedule in effect for those shares
at the time of such Change in Control. 
If any such Award is subject to a performance-vesting condition tied to
the attainment of one or more specified performance goals, then upon the
assumption, continuation or replacement of that Award, the performance vesting
condition shall automatically be cancelled, and such Award shall thereupon be
converted into a Service-vesting Award that will vest upon the completion of a
Service period co-terminous with the portion of the performance period (and any
subsequent Service vesting component that was originally part of that Award)
remaining at the time of the Change in Control. However, to the extent any
Award outstanding under the Stock Issuance Program on the effective date of
such Change in Control Transaction is not to be so assumed, continued or
replaced, that Award shall vest in full immediately prior to the effective date
of the actual Change in Control transaction and the shares of Common Stock
underlying the portion of the Award that vests on such accelerated basis shall
be issued in accordance with the applicable Award Agreement, unless such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

 

B.            Each
outstanding Award under the Stock Issuance Program which is assumed in
connection with a Change in Control or otherwise continued in effect shall be
adjusted immediately after the consummation of that Change in Control so as to
apply to the number and class of securities into which the shares of Common
Stock subject to that Award immediately prior to the Change in Control would
have been converted in consummation of such Change in Control had those shares
actually been outstanding at that time, and appropriate adjustments shall also
be made to the cash consideration (if any) payable per share thereunder,  provided the aggregate amount of such cash consideration
shall remain the same.  To the extent the
actual holders of the Corporation’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption or
continuation of the outstanding Awards and with the consent of the Plan
Administrator obtained prior to the Change in Control, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Change in Control
transaction, provided such common stock is readily traded on an established
U.S. securities exchange or market.

 

C.            The
Plan Administrator shall have the discretionary authority to structure one or
more unvested Awards under the Stock Issuance Program so that the shares of
Common Stock subject to those Awards shall automatically vest (or vest and
become issuable) in whole or 

 

18

 

in part immediately prior to
the effective date of an actual Change in Control transaction or upon the
subsequent termination of the Participant’s Service by reason of an Involuntary
Termination within a designated period (not to exceed twenty-four (24) months)
following the effective date of that Change in Control transaction. The Plan
Administrator’s authority under this Section II.C shall also extend to any
Awards intended to qualify as performance-based compensation under Code Section 162(m),
even though the actual vesting of those Awards pursuant to this Section II.C
may result in their loss of performance-based status under Code Section 162(m).

 

19

 

ARTICLE FOUR

 

INCENTIVE
BONUS PROGRAM

 

I.              INCENTIVE BONUS TERMS

 

The Plan Administrator shall have full power
and authority to implement one or more of the following incentive bonus
programs under the Plan:

 

(i)            cash bonus awards (“Cash
Awards”),

 

(ii)           performance unit awards (“Performance
Unit Awards”), and

 

(iii)          dividend equivalent rights (“DER
Awards”).

 

A.            Cash
Awards.  The Plan Administrator shall
have the discretionary authority under the Plan to make Cash Awards which are
to vest in one or more installments over the Participant’s continued Service
with the Corporation or upon the attainment of specified performance
goals.  Each such Cash Award shall be
evidenced by one or more documents in the form approved by the Plan
Administrator; provided however, that each
such document shall comply with the terms specified below.

 

1.             The
elements of the vesting schedule applicable to each Cash Award shall be
determined by the Plan Administrator and incorporated into the Incentive Bonus
Award Agreement.

 

2.             The
Plan Administrator shall also have the discretionary authority, consistent with
Code Section 162(m), to structure one or more Cash Awards so that those
Awards shall vest upon the achievement of pre-established corporate performance
objectives based upon one or more Performance Goals measured over the performance
period (not to exceed five (5) years) specified by the Plan Administrator
at the time of the Award.

 

3.             Outstanding
Cash Awards shall automatically terminate, and no cash payment or other
consideration shall be due the holders of those Awards, if the performance
goals or Service requirements established for those Awards are not attained or
satisfied. The Plan Administrator may in its discretion waive the cancellation
and termination of one or more unvested Cash Awards which would otherwise occur
upon the cessation of the Participant’s Service or the non-attainment of the
performance objectives applicable to those Awards. Any such waiver shall result
in the immediate vesting of the Participant’s interest in the Cash Award as to
which the waiver applies.  However, no
vesting requirements tied to the attainment of Performance Goals may be waived
with respect to Awards which were intended, at the time those Awards were made,
to qualify as performance-based compensation under Code Section 162(m),
except in the event of the Participant’s cessation of Service by reason of
death or Permanent Disability or as otherwise provided in Section II of
this Article Four.

 

20

 

4.             Cash
Awards which become due and payable following the attainment of the applicable
performance goals or satisfaction of the applicable Service requirement (or the
waiver of such goals or Service requirement) may be paid in (i) cash, (ii) shares
of Common Stock valued at Fair Market Value on the payment date or (iii) a
combination of cash and shares of Common Stock, 
as set forth in the applicable Award Agreement.

 

B.            Performance Unit Awards.  The Plan Administrator shall have the
discretionary authority to make Performance Unit Awards in accordance with the
terms of the Incentive Bonus Program. 
Each such Performance Unit Award shall be evidenced by one or more
documents in the form approved by the Plan Administrator; provided
however, that each such document shall comply with the terms
specified below.

 

1.             A
Performance Unit shall represent either (i) a unit with a dollar value
tied to the level at which pre-established corporate performance objectives
based on one or more Performance Goals are attained or (ii) a
participating interest in a special bonus pool tied to the attainment of
pre-established corporate performance objectives based on one or more
Performance Goals. The amount of the bonus pool may vary with the level at
which the applicable performance objectives are attained, and the value of each
Performance Unit which becomes due and payable upon the attained level of
performance shall be determined by dividing the amount of the resulting bonus
pool (if any) by the total number of Performance Units issued and outstanding
at the completion of the applicable performance period.

 

2.             Performance
Units may also be structured to include a Service requirement which the
Participant must satisfy following the completion of the performance period in
order to vest in the Performance Units awarded with respect to that performance
period.

 

3.             Performance
Units which become due and payable following the attainment of the applicable
performance objectives and the satisfaction of any applicable Service
requirement may be paid in (i) cash, (ii) shares of Common Stock
valued at Fair Market Value on the payment date or (iii) a combination of
cash and shares of Common Stock, as set forth in the applicable Award
Agreement.

 

C.            DER
Awards.  The Plan Administrator shall have the
discretionary authority to make DER Awards in accordance with the terms of the
Incentive Bonus Program.  Each such DER
Award shall be evidenced by one or more documents in the form approved by the
Plan Administrator; provided however, that each
such document shall comply with the terms specified below.

 

1.             The
DER Awards may be made as stand-alone awards or in tandem with other Awards
made under the Plan.  The term of each
such DER Award shall be established by the Plan Administrator at the time of
grant, but no DER Award shall have a term in excess of ten (10) years.

 

2.             Each
DER shall represent the right to receive the economic equivalent of each
dividend or distribution, whether paid in cash, securities or other property
(other than shares of Common Stock), which is made per issued and outstanding
share of Common Stock during the term the DER remains outstanding. A special
account on the books of 

 

21

 

the Corporation shall be maintained for each
Participant to whom a DER Award is made, and that account shall, for each DER
subject to the Award, be credited with each dividend or distribution made per
issued and outstanding share of Common Stock during the term that DER remains
outstanding.

 

3.             Payment
of the amounts credited to such book account may be made to the Participant
either concurrently with the actual dividend or distribution made per issued
and outstanding share of Common Stock or upon the satisfaction of any
applicable vesting schedule in effect for the DER Award, or such payment may be
deferred beyond the vesting date for a period specified by the Plan
Administrator at the time the DER Award is made or selected by the Participant
in accordance with the requirements of Code Section 409A.  In no event, however, shall any DER Award
made with respect to an Award subject to performance-vesting conditions under
the Stock Issuance or Incentive Bonus Program vest or become payable prior to
the vesting of that Award (or the portion thereof to which the DER Award
relates) and shall accordingly be subject to cancellation and forfeiture to the
same extent as the underlying Award in the event those performance conditions
are not attained.

 

4.             Payment
may be paid in (i) cash, (ii) shares of Common Stock or (iii) a
combination of cash and shares of Common Stock, as set forth in the applicable
Award Agreement. If payment is to be made in the form of Common Stock, the
number of shares of Common Stock into which the cash dividend or distribution
amounts are to be converted for purposes of the Participant’s book account may
be based on the Fair Market Value per share of Common Stock on the date of
conversion, a prior date or an average of the Fair Market Value per share of
Common Stock over a designated period, as set forth in the applicable Award
Agreement.

 

5.             The
Plan Administrator shall also have the discretionary authority, consistent with
Code Section 162(m), to structure one or more DER Awards so that those
Awards shall vest only after the achievement of pre-established corporate
performance objectives based upon one or more Performance Goals measured over
the performance period (not to exceed five (5) years) specified by the
Plan Administrator at the time the Award is made.

 

II.            CHANGE IN CONTROL

 

A.            The
Plan Administrator shall have the discretionary authority to structure one or
more Awards under the Incentive Bonus Program so that those Awards shall
automatically vest in whole or in part immediately prior to the effective date
of an actual Change in Control transaction or upon the subsequent termination
of the Participant’s Service by reason of an Involuntary Termination within a
designated period (not to exceed twenty-four (24) months) following the
effective date of such Change in Control. 
To the extent any such Award is, at the time of such Change in Control,
subject to a performance-vesting condition tied to the attainment of one or
more specified performance goals, then that performance vesting condition shall
automatically be cancelled on the effective date of such Change in Control, and
such Award shall thereupon be converted into a Service-vesting Award that will
vest upon the completion of a Service period co-terminous with the portion of
the performance period (and any subsequent Service vesting component that was
originally part of that Award) remaining at the time of the Change in Control.

 

22

 

B.            The
Plan Administrator’s authority under Paragraph A of this Section II shall
also extend to any Award under the Incentive Bonus Program intended to qualify
as performance-based compensation under Code Section 162(m), even though
the actual vesting of that Award may result in the loss of performance-based
status under Code Section 162(m).

 

23

 

ARTICLE FIVE

 

MISCELLANEOUS

 

I.              DEFERRED COMPENSATION

 

A.            The
Plan Administrator may, in its sole discretion, 
structure one or more Awards under the Stock Issuance or Incentive Bonus
Programs so that the Participants may be provided with an election to defer the
compensation associated with those Awards for federal income tax purposes. Any
such deferral opportunity shall comply with all applicable requirements of Code
Section 409A.

 

B.            The
Plan Administrator may implement a non-employee Board member retainer fee
deferral program under the Plan so as to allow the non-employee Board members
the opportunity to elect, prior to the start of each calendar year, to convert
the Board and Board committee retainer fees to be earned for such year into
restricted stock units under the Stock Issuance Program that will defer the
issuance of the shares of Common Stock that vest under those restricted stock
units until a permissible date or event under Code Section 409A.  If such program is implemented, the Plan
Administrator shall have the authority to establish such rules and
procedures as it deems appropriate for the filing of such deferral elections
and the designation of the permissible distribution events under Code Section 409A.

 

C.            To the extent the
Corporation maintains one or more separate non-qualified deferred compensation
arrangements which allow the participants the opportunity to make notional
investments of their deferred account balances in shares of Common Stock, the
Plan Administrator may authorize the share reserve under the Plan to serve as
the source of any shares of Common Stock that become payable under those
deferred compensation arrangements.  In
such event, the share reserve under the Plan shall be reduced on a
share-for-share basis for each share of Common Stock issued under the Plan in
settlement of the deferred compensation owed under those separate arrangements.

 

II.            TAX WITHHOLDING

 

A.            The
Corporation’s obligation to deliver shares of Common Stock upon the exercise,
issuance or vesting of an Award under the Plan shall be subject to the
satisfaction of all applicable income and employment tax withholding
requirements.

 

B.            The
Plan Administrator may, in its discretion, structure one or more Awards so that
shares of Common Stock may be used as follows to satisfy all or part of the
Withholding Taxes to which such holders of those Awards may become subject in
connection with the issuance, exercise, vesting or settlement of those Awards:

 

1.             Stock
Withholding:  The Corporation may be given the right to withhold,
from the shares of Common Stock otherwise issuable upon the issuance, exercise,
vesting or settlement of such Award, a portion of those shares with an
aggregate Fair Market 

 

24

 

Value equal to the applicable Withholding Taxes. The
shares of Common Stock so withheld shall reduce the number of shares of Common
Stock authorized for issuance under the Plan.

 

2.             Stock
Delivery:  The holder of the Award may be given the
right to deliver to the Corporation, at the time of the issuance, exercise,
vesting or settlement of such Award, one or more shares of Common Stock
previously acquired by such individual with an aggregate Fair Market Value at
the time of delivery equal to the percentage of the Withholding Taxes (not to
exceed one hundred percent (100%)) designated by the individual.  The shares of Common Stock so delivered shall
neither reduce the number of shares of Common Stock authorized for issuance
under the Plan nor be added to the number of shares of Common Stock authorized
for issuance under the Plan.

 

III.           SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s
discretion, be held in escrow by the Corporation until the Participant’s
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing those unvested shares.

 

IV.           EFFECTIVE DATE AND TERM OF THE PLAN

 

A.            The
Plan shall become effective on the Plan Effective Date, subject to the approval
of the Corporation’s stockholders at the 2010 Annual Meeting.

 

B.            The
Plan shall serve as the successor to each of the Predecessor Plans, and no
further option grants or restricted stock unit awards shall be made under any
of the Predecessor Plans if this Plan is approved by the stockholders at the
2010 Annual Meeting. Such stockholder approval shall not affect the option
grants and restricted stock unit awards outstanding under the Predecessor Plans
at the time of the 2010 Annual Meeting, and those option grants and restricted stock
unit awards shall continue in full force and effect in accordance with their
terms.  However, should any of those
options expire or terminate unexercised or any unvested restricted stock units
be forfeited, the shares of Common Stock subject to those options at the time
of expiration or termination and the shares subject to those forfeited
restricted stock units shall be added to the share reserve of this Plan in
accordance with the provisions of Section V.B of Article I.

 

C.            The
Plan shall terminate upon the earliest to
occur of (i) the tenth anniversary of the Plan Effective Date,
(ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully vested shares or (iii) the termination of
all outstanding Awards in connection with a Change in Control.  Should the Plan terminate on the tenth
anniversary of the Plan Effective Date, then all Awards outstanding at that
time shall continue to have force and effect in accordance with the provisions
of the documents evidencing those Awards.

 

V.            AMENDMENT OF THE PLAN

 

A.            The
Board shall have complete and exclusive power and authority to amend or modify
the Plan in any or all respects; provided, however,
that stockholder approval shall be required for any amendment to the Plan which
(i) materially increases the number of 

 

25

 

shares of Common Stock
authorized for issuance under the Plan (other than pursuant to Section V.I
of Article One), (ii) materially increases the benefits accruing to
Optionees or Participants, (iii) materially expands the class of
individuals eligible to participate in the Plan, (iv) expands the types of
awards which may be made under the Plan or extends the term of the Plan or (v) would
reduce or limit the scope of the prohibition on repricing programs set forth in
Section V of Article Two or otherwise eliminate such prohibition, or (vi) effect
any other change or modification to the Plan for which stockholder approval is
required under applicable law or regulation or pursuant to the listing
standards of the Stock Exchange on which the Common Stock is at the time
primarily traded. However, no such amendment or modification shall adversely
affect the rights and obligations with respect to Awards at the time outstanding
under the Plan unless the Optionee or the Participant consents to such
amendment or modification.

 

B.            The
Compensation Committee shall have the discretionary authority to adopt and
implement from time to time such addenda or subplans to the Plan as it may deem
necessary in order to bring the Plan into compliance with applicable laws and
regulations of any foreign jurisdictions in which Awards are to be made under
the Plan and/or to obtain favorable tax treatment in those foreign
jurisdictions for the individuals to whom the Awards are made.

 

C.            Awards
may be made under the Plan that involve shares of Common Stock in excess of the
number of shares then available for issuance under the Plan, provided no shares
shall actually be issued pursuant to those Awards until the number of shares of
Common Stock available for issuance under the Plan is sufficiently increased by
stockholder approval of an amendment of the Plan authorizing such
increase.  If such stockholder approval
is not obtained within twelve (12) months after the date the first excess Award
is made, then all Awards granted on the basis of such excess shares shall
terminate and cease to be outstanding.

 

D.            The
provisions of the Plan and the outstanding Awards under the Plan shall, in the
event of any ambiguity, be construed, applied and interpreted in a manner so as
to ensure that all Awards and Award Agreements provided to Optionees or
Participants who are subject to U.S. income taxation either qualify for an
exemption from the requirements of Section 409A of the Code or comply with
those requirements; provided, however, that the Corporation shall not make any
representations that any Awards made under the Plan will in fact be exempt from
the requirements of Section 409A of the Code or otherwise comply with
those requirements, and each Optionee and Participant shall accordingly be
solely responsible for any taxes, penalties or other amounts which may become
payable with respect to his or her Awards by reason of Section 409A of the
Code.

 

VI.           USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from the
sale of shares of Common Stock under the Plan shall be used for general
corporate purposes.

 

VII.         REGULATORY
APPROVALS

 

A.            The
implementation of the Plan, the granting of any Award under the Plan and the
issuance of any shares of Common Stock in connection with the issuance,
exercise,  vesting or settlement of any
Award under the Plan shall be subject to the Corporation’s 

 

26

 

procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the Awards made under the Plan and the shares of Common Stock issuable
pursuant to those Awards.

 

B.            No
shares of Common Stock or other assets shall be issued or delivered under the
Plan unless and until there shall have been compliance with all applicable
requirements of applicable securities laws, including the filing and
effectiveness of the Form S-8 registration statement for the shares of
Common Stock issuable under the Plan, and all applicable listing requirements
of any Stock Exchange on which Common Stock is then listed for trading.

 

VIII.        NO
EMPLOYMENT/SERVICE RIGHTS

 

Nothing in the Plan shall confer upon the Optionee or
the Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person’s Service at any time for any reason, with or
without cause.

 

27

 

APPENDIX

 

The following definitions shall be in effect under the
Plan:

 

A.            Award shall mean any of the following awards authorized for issuance or grant
under the Plan: stock options, stock appreciation rights, direct stock
issuances, restricted stock or restricted stock unit awards, performance
shares, performance units, dividend-equivalent rights and cash incentive
awards.

 

B.            Award
Agreement shall mean the agreement(s) between
the Corporation and the Optionee or Participant evidencing a particular Award
made to that individual under the Plan, as such agreement(s) may be in
effect from time to time

 

C.            Board shall mean the Corporation’s Board of Directors.

 

D.            Cause shall, with respect to each Award made under the Plan, be defined in
accordance with the following provisions:

 

·              Cause
shall have the meaning assigned to such term in the Award Agreement for the
particular Award or in any other agreement incorporated by reference into the
Award Agreement for purposes of defining such term.

 

·              In
the absence of any other Cause definition in the Award Agreement for a
particular Award (or in any other agreement incorporated by reference into the
Award Agreement), an individual’s termination of Service shall be deemed to be
for Cause if such termination occurs by reason his or her commission of any act
of fraud, embezzlement or dishonesty, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner.

 

E.             Change in
Control  shall, with respect to each Award made under the Plan, be defined in
accordance with the following provisions:

 

·              Change
in Control shall have the meaning assigned to such term in the Award Agreement
for the particular Award or in any other agreement incorporated by reference
into the Award Agreement for purposes of defining such term.

 

·              In
the absence of any other Change in Control definition in the Award Agreement
(or in any other agreement incorporated by reference into the Award Agreement),
Change in Control shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:

 

(i)            the
closing of a merger, consolidation or other reorganization approved by the
Corporation’s stockholders in which a change in ownership or control of the
Corporation is effected through the acquisition by any person or group of
persons comprising a “group” within the meaning of Rule 13d-

 

A-1

 

5(b)(1) of the 1934 Act
(other than the Corporation or a person that, prior to such transaction,
directly or indirectly controls, is controlled by or is under common control
with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation’s outstanding securities (as
measured in terms of the power to vote with respect to the election of Board
members),

 

(ii)           the
closing of a sale, transfer or other disposition of all or substantially all of
the Corporation’s assets,

 

(iii)          the
closing of any transaction or series of related transactions pursuant to which
any person or any group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of
the 1934 Act (other than the Corporation or a person that, prior to such
transaction or series of related transactions, directly or indirectly controls,
is controlled by or is under common control with, the Corporation) acquires
directly or indirectly (whether as a result of a single acquisition or by
reason of one or more acquisitions within the twelve (12)-month period ending
with the most recent acquisition) beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation’s securities (as measured in
terms of the power to vote with respect to the election of Board members)
outstanding immediately after the consummation of such transaction or series of
related transactions, whether such transaction involves a direct issuance from
the Corporation or the acquisition of outstanding securities held by one or
more of the Corporation’s existing stockholders,

 

(iv)          a
merger, recapitalization, consolidation, or other transaction to which the
Corporation is a party or the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets if, in either case, the members
of the Board immediately prior to consummation of the transaction do not, upon
consummation of the transaction, constitute at least a majority of the board of
directors of the surviving entity or the entity acquiring the Corporation’s
assets, as the case may be, or a parent thereof, or

 

(v)           a
change in the composition of the Board over a period of thirty-six (36)
consecutive months or less such that a majority of the Board members ceases for
any reason to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or nomination, but
excluding for purposes of both clauses (A) and (B) any person
appointed or elected to the Board in connection with an actual or threatened
proxy contest for Board membership or any other actual or threatened
solicitation of proxies for the election of Board members.

 

A-2

 

F.             Code  shall mean the Internal
Revenue Code of 1986, as amended.

 

G.            Common
Stock shall mean the Corporation’s
common stock.

 

H.            Compensation
Committee  shall mean the Compensation Committee of the Board comprised of two (2) or
more non-employee Board members.

 

I.              Corporation  shall mean United Online, Inc.,
a Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of United Online, Inc. which has by
appropriate action assumed the Plan.

 

J.             Discretionary Grant Program  shall mean the discretionary
grant program in effect under Article Two of the Plan pursuant to which
stock options and stock appreciation rights may be granted to one or more
eligible individuals.

 

K.            Employee  shall mean an individual who
is in the employ of the Corporation (or any Parent or Subsidiary, whether now
existing or subsequently established), subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.

 

L.             Exercise
Date  shall
mean the date on which the Corporation shall have received written notice of
the option exercise.

 

M.           Fair
Market Value  per share of Common Stock on any relevant date shall be the closing
price per share of Common Stock at the close of regular trading hours (i.e.,
before after-hours trading begins) on the date in question on the Stock
Exchange serving as the primary market for the Common Stock, as such price is
reported by the National Association of Securities Dealers (if primarily traded
on the Nasdaq Global or Global Select Market) or as officially quoted in the
composite tape of transactions on any other Stock Exchange on which the Common
Stock is then primarily traded.  If there
is no closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.

 

N.            Family
Member means, with respect to a
particular Optionee or Participant, any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law.

 

O.            Full
Value Award means any of the following
Awards made under the Stock Issuance or Incentive Bonus Programs that are
settled in shares of Common Stock: restricted stock awards (unless issued for
cash consideration equal to the Fair Market Value of the shares of Common Stock
on the award date), restricted stock unit awards, performance shares,
performance units, cash incentive awards and any other Awards under the Plan
other than stock options and stock appreciation rights issued under the
Discretionary Grant Program and dividend equivalent rights under the Incentive
Bonus Program.

 

A-3

 

P.             Good
Reason shall, with respect to each
Award made under the Plan, be defined in accordance with the following
provisions:

 

·              Good
Reason shall have the meaning assigned to such term in the Award Agreement for
the particular Award or in any other agreement incorporated by reference into
the Award Agreement for purposes of defining such term.

 

·              In
the absence of any other Good Reason definition in the Award Agreement (or in
any other agreement incorporated by reference into the Award Agreement), Good
Reason shall mean an individual’s voluntary resignation following

 

(A)         a
material reduction in the scope of the duties, responsibilities and authority
of his or her position with the Corporation (or any Parent or Subsidiary), it
being understood that a change in such individual’s title shall not, in and of
itself, be deemed a material reduction,

 

(B)           a
materially adverse change in his or her reporting requirements so that such
individual is required to report to a person whose duties, responsibilities and
authority are materially less than the person to whom he or she previously
reported,

 

(C)           a
material reduction in such individual’s base salary or the aggregate of his or
her base salary and target bonus under any corporate-performance based bonus or
incentive programs, with a reduction of fifteen percent (15%) or more to the
his or her base salary or aggregate base salary and target bonus to be deemed a
material, or

 

(D)          a
relocation of such individual’s place of employment by more than
fifty (50) miles;

 

provided and only if such change, reduction or
relocation is effected by the Corporation (or any Parent or Subsidiary) without
the individual’s consent.

 

Q.            Incentive
Bonus Program shall mean the incentive
bonus program in effect under Article Four of the Plan.

 

R.            Incentive
Option shall mean an option which
satisfies the requirements of Code Section 422.

 

S.             Involuntary
Termination  shall mean the termination of the Service of any individual which occurs
by reason of:

 

(i)            such
individual’s involuntary dismissal or discharge by the Corporation (or any
Parent or Subsidiary) for reasons other than for Cause, or

 

(ii)           such
individual’s voluntary resignation for Good Reason.

 

T.            1934 Act shall mean the Securities Exchange Act of 1934, as amended.

 

A-4

 

U.            Non-Statutory
Option  shall mean an option not intended to satisfy the requirements of Code Section 422.

 

V.            Optionee  shall mean any person to
whom an option is granted under the Discretionary Grant Program.

 

W.           Parent  shall mean any corporation
(other than the Corporation) in an unbroken chain of corporations ending with
the Corporation, provided each corporation in the unbroken chain (other than
the Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

 

X.            Participant  shall mean any person who is
issued (i) shares of Common Stock, restricted stock units, performance
shares, performance units or other stock-based awards under the Stock Issuance
Program or (ii) an incentive bonus award under the Incentive Bonus
Program.

 

Y.            Permanent
Disability or Permanently Disabled  shall mean the inability of the Optionee or the Participant to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more..

 

Z.            Performance
Goals shall mean any of the
following performance criteria upon which the vesting of one or more Awards
under the Plan may be based: (i) earnings or operating income before
interest, taxes, depreciation, amortization and/or charges for stock-based
compensation; (ii) earnings per share; (iii) growth in earnings or
earnings per share; (iv) market price of the Common Stock; (v) return
on equity or average stockholder equity; (vi) total stockholder return or
growth in total stockholder return, either directly or in relation to a
comparative group; (vii) return on capital; (viii) return on assets
or net assets; (ix) invested capital, rate of return on capital or return
on invested capital; (x) revenue, growth in revenue or return on sales;
(xi) income or net income; (xii) operating income or net operating
income; (xiii) operating profit or net operating profit;
(xiv) operating margin; (xvi) return on operating revenue or return
on operating profit; (xvi) cash flow or cash flow per share (before or
after dividends); (xvii) market share; (xviii) collections and
recoveries; (xix) debt reduction; (xx) litigation and regulatory resolution
goals; (xxi) expense control goals; (xxii) budget comparisons;
(xxiii) development and implementation of strategic plans and/or
organizational restructuring goals; (xxiv) productivity goals; (xxv) workforce
management and succession planning goals; (xxvi) economic value added; (xxvii) measures
of customer satisfaction; (xxviii) formation of joint ventures or
marketing or customer service collaborations or the completion of other
corporate transactions intended to enhance the Corporation’s revenue or
profitability or enhance its customer base;  and (xxix) merger and
acquisitions. In addition, such performance criteria may be based upon the
attainment of specified levels of the Corporation’s performance under one or
more of the measures described above relative to the performance of other
entities and may also be based on the performance of any of the Corporation’s
business units or divisions or any Parent or Subsidiary.  Each applicable Performance Goal may include
a minimum threshold 

 

A-5

 

level of performance below which no Award will be
earned, levels of performance at which specified portions of an Award will be
earned and a maximum level of performance at which an Award will be fully
earned. Each applicable performance goal may be structured at the time of the
Award to provide for appropriate adjustments or exclusions for one or more of
the following items: (A) asset impairments or write-downs;
(B) litigation or governmental investigation expenses and judgments,
verdicts and settlements in connection therewith; (C) the effect of
changes in tax law, accounting principles or other such laws or provisions
affecting reported results; (D) accruals for reorganization and
restructuring programs; (E) costs and expenses incurred in connection with
mergers and acquisitions; (F) costs and expenses incurred in connection
with the relocation of the principal offices of the Corporation or any Parent
or Subsidiary; (G) any extraordinary or nonrecurring items; (H) bonus
or incentive compensation costs and expenses associated with cash-based awards
made under the Plan or other bonus or incentive compensation plans of the
Corporation or any Parent or Subsidiary; (I) items of income, gain, loss
or expense attributable to the operations of any business acquired by the
Corporation or any Parent or Subsidiary; (J) items of income, gain, loss
or expense attributable to one or more business operations divested by the
Corporation or any Parent or Subsidiary or the gain or loss realized upon the
sale of any such business or assets thereof and (K) the impact of foreign
currency fluctuations or changes in exchange rates.

 

AA.        Plan  shall mean the Corporation’s
2010 Incentive Compensation Plan, as set forth in this document and as subsequently
amended or modified from time to time.

 

BB.          Plan
Administrator  shall mean the particular entity, whether the Compensation Committee,
the Board or the Secondary Board Committee, which is authorized to administer
the Discretionary Grant, Stock Issuance and Incentive Bonus Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction.

 

CC.          Plan
Effective Date shall mean the April 9,
2010, date on which the Plan is approved by the Board.

 

DD.         Predecessor
Plans shall mean (i) the
Corporation’s 2001 Stock Incentive Plan, (ii) the Corporation’s 2001
Supplemental Stock Incentive Plan, (iii) the Classmates Online, Inc. 2004
Plan, and (iv) the FTD Group, Inc. 2005 Equity Incentive Plan

 

EE.          Secondary
Board Committee  shall mean a committee of one or more Board members appointed by the
Board to administer the Plan with respect to eligible persons other than Section 16
Insiders.

 

FF.          Section 16
Insider  shall mean an officer or director of the Corporation subject to the
short-swing profit liabilities of Section 16 of the 1934 Act.

 

GG.          Service  shall mean the performance
of services for the Corporation (or any Parent or Subsidiary, whether now
existing or subsequently established) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.  For purposes of the Plan, an Optionee or 

 

A-6

 

Participant shall be deemed to cease Service
immediately upon the occurrence of the either of the following events: (i) the
Optionee or Participant no longer performs services in any of the foregoing
capacities for the Corporation or any Parent or Subsidiary or (ii) the
entity for which the Optionee or Participant is performing such services ceases
to remain a Parent or Subsidiary of the Corporation, even though the Optionee
or Participant may subsequently continue to perform services for that
entity.  Service shall not be deemed to
cease during a period of military leave, sick leave or other personal leave
approved by the Corporation; provided, however,
that should such leave of absence exceed three (3) months, then for
purposes of determining the period within which an Incentive Option may be
exercised as such under the federal tax laws, the Optionee’s Service shall be
deemed to cease on the first day immediately following the expiration of such
three (3)-month period, unless Optionee is provided with the right to return to
Service following such leave either by statute or by written contract.  Except to the extent otherwise required by
law or expressly authorized by the Plan Administrator or by the Corporation’s
written policy on leaves of absence, no Service credit shall be given for
vesting purposes for any period the Optionee or Participant is on a leave of
absence.

 

HH.         Stock
Exchange  shall mean the American Stock Exchange, the Nasdaq Global or Global
Select Market or the New York Stock Exchange.

 

II.            Stock
Issuance Agreement  shall mean the agreement entered into by the Corporation and the
Participant at the time of issuance of shares of Common Stock under the Stock
Issuance Program.

 

JJ.            Stock
Issuance Program  shall mean the stock issuance program in effect under Article Three
of the Plan.

 

KK.         Subsidiary shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation, provided each corporation
(other than the last corporation) in the unbroken chain owns, at the time of
the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

 

LL.          10%
Stockholder shall mean the owner of
stock (as determined under Code Section 424(d)) possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation (or any Parent or Subsidiary).

 

MM.       Withholding
Taxes shall mean the applicable
federal and state income and employment withholding taxes to which the holder
of an Award under the Plan may become subject in connection with the issuance,
exercise, vesting or settlement of that Award.

 

A-7QuickLinks
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  Exhibit 10.1    
    

SEPARATION
AGREEMENT AND RELEASE 

        This
Separation Agreement and Release ("Separation Agreement") is entered into by and between Mark V. Hurd ("Executive" or "you") and Hewlett-Packard Company (the "Company"), and
confirms the agreement that has been reached with you in connection with your separation from the Company. 

        1.    Termination of Employment.    You agree that your separation shall be effective as of August 6, 2010 (the
"Separation Date") and as of such date you shall cease to be employed by the Company and each and every subsidiary or affiliate of the Company in any capacity. As of the Separation Date you shall also
resign as a member of the Board of Directors of the Company (as well as of the Board of Directors of any of the Company's subsidiaries). You further agree to execute promptly upon request by the
Company any additional documents necessary to effectuate the provisions of this paragraph 1. 

        2.    Separation Pay and Benefits.    In consideration of your execution of this Separation Agreement and your
compliance with its terms and conditions, the Company agrees to pay or provide you (subject to the terms and conditions set forth in this Separation Agreement) with the benefits described in this
paragraph 2, which exceed any payment and benefits to which you are otherwise entitled. 

        a.     Within
thirty (30) days following the Separation Date, the Company shall pay you an aggregate of $12,224,693 (the "Separation Amount"), less applicable
withholdings, in full satisfaction of the
Company's obligations under the Severance Plan for Executive Officers of Hewlett-Packard Company (the "Severance Plan"). 

        b.     If
you timely elect continued group medical and dental coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") the Company
will either pay directly or reimburse you for the COBRA premium payments for you and your eligible dependents under the Company's group medical and dental plans for the period of eighteen
(18) months following the Separation Date. 

        c.     Each
of your outstanding options to acquire Company common stock that is vested and exercisable as of the Separation Date may be exercised by you during the Company's
next open trading window, tentatively scheduled to commence August 23, 2010 and end September 7, 2010, in accordance with the terms thereof and the terms of the Hewlett-Packard Company
2004 Stock Incentive Plan. Any such option that you fail to exercise prior to the close of business on the last day of the Company's next open trading window, tentatively scheduled to be
September 7, 2010, will expire and be forfeited at such time without consideration. Each of your outstanding options to acquire Company common stock that are unvested as of the Separation Date
shall expire and be forfeited on the Separation Date without consideration. 

        d.     The
performance-based restricted stock units granted to you on January 17, 2008 shall become eligible to vest and be settled in shares of Company common stock as
described on Exhibit A hereto. 

        e.     The
time-based restricted stock units granted to you on December 11, 2009 shall be settled in shares of Company common stock on December 11,
2010 with respect to that number of shares of Company common stock having an aggregate value on December 11, 2010 (determined based on the per share closing trading price for Company common
stock on December 11, 2010) equal to the product of 15,853 multiplied by the lesser of (i) the per share closing trading price of Company common stock on the Separation Date or
(ii) the per share closing trading price of Company common stock on December 11, 2010, rounded to the nearest whole share of Company common stock, subject to applicable withholdings.
Except with respect to those restricted stock units that become eligible to vest and be settled as provided in paragraph 2.d. and this paragraph 2.e., each other outstanding restricted
stock unit held by you as of the Separation Date, whether eligible to vest based on service or the attainment of performance goals, shall expire and be forfeited on the Separation Date without
consideration. 

 

        3.    Accrued Benefits.    Whether or not you choose to sign this Separation Agreement or exercise your revocation
right referenced in Section 10.d hereof, you will be entitled to receive (i) unpaid base salary accrued up to the Separation Date, (ii) any accrued but unused vacation days, and
(iii) unreimbursed business expenses (in accordance with usual Company policies and practice), to the extent not theretofore paid, and (iv) vested amounts payable to you under the
Company's 401(k) plan and other retirement and deferred compensation plans in accordance with the terms of such plans and applicable law, in each event subject to applicable withholdings. You will
also be entitled to any rights to contribution, advancement of expenses, defense or indemnification you may have under the Company's Articles of Incorporation, Bylaws, any separate indemnification
agreement, as applicable, or as provided under applicable law. Other than as set forth in this Agreement, after the Separation Date, you shall not receive any base salary, annual bonus, long term
incentive award, welfare, retirement, perquisite, fringe benefit, or other benefit plan coverage or coverage under any other practice, policy or program as may be in effect from time to time, applying
to senior officers or other employees of the Company; provided; however, that the foregoing shall not provide for any right to indemnification or advancement for any expenses or liabilities incurred
by you, including, but not limited to any attorney's fees, amounts paid in settlement and any related costs, arising out of or resulting from any litigation matters settled or otherwise resolved by
you prior to the date hereof without the Company's consent. 

        4.    No Other Payments or Benefits.    You acknowledge and agree that, other than the payments and benefits expressly
set forth in this Agreement, you have received all compensation to which you are entitled from the Company, and you are not entitled to any other payments or benefits from the Company. 

        5.    Continuing Obligations.    You acknowledge and affirm your continuing obligations under the HP Agreement
Regarding Confidential Information and Proprietary Developments you signed on February 6, 2008, February 26, 2009 and February 12, 2010, (the "Confidentiality Agreements");  provided,
however, that you hereby agree that Section 7 of the Confidentiality Agreement
(Protective Covenants) shall apply for the period of twenty-four (24) months commencing on the Separation Date and; provided,  further, that you agree
that Section 2 of the Confidentiality Agreement (Confidential Information) shall apply at all times following the
Separation Date. 

        6.    Nondisparagement.    You agree that you will not, with intent to damage, disparage or encourage or induce others
to disparage any of the Company, its subsidiaries and affiliates, together with all of their respective past and present directors and officers and each of their successors and assigns (collectively,
the "Company Entities and Persons"). Nothing in this Separation Agreement is intended to or shall prevent you from providing, or limiting testimony in response to a valid subpoena, court order,
regulatory request or other judicial, administrative or legal process or otherwise as required by law. You agree that you will notify the Company in writing as promptly as practicable after receiving
any request for testimony or information in response to a subpoena, court order, regulatory request or other judicial, administrative or legal process or otherwise as required by law, regarding the
anticipated testimony or information to be provided and at least ten (10) days prior to providing such testimony or information (or, if such notice is not possible under the circumstances, with
as much prior notice as is possible). 

        7.    Cooperation.    Prior to and after the Separation Date, you agree that you will reasonably cooperate with the
Company, its subsidiaries and affiliates, at any level, and any of their officers, directors, shareholders, or employees: (A) concerning requests for information about the business of the
Company or its subsidiaries or affiliates or your involvement and participation therein, (B) in connection with any investigation or review by the Company or any federal, state or local
regulatory, quasi-regulatory or self-governing authority (including, without limitation, the Securities and Exchange Commission) as any such investigation or review relates to events or
occurrences that transpired while you were employed by the Company and (C) with respect to transition and succession matters. Your cooperation shall include, but not be limited to (taking into
account your personal and professional 

2

 

obligations,
including those to any new employer or entity to which you provide services), being available to meet and speak with officers or employees of the Company and/or the Company's counsel at
reasonable times and locations, executing accurate and truthful documents and taking such other actions as may reasonably be requested by the Company and/or the Company's counsel to effectuate the
foregoing. You shall be entitled to reimbursement, upon receipt by the Company of suitable documentation, for reasonable and necessary travel and other expenses which you may incur at the specific
request of the Company and as approved by the Company in advance and in accordance with its policies and procedures established from time to time. 

        8.    Company Property.    On or prior to the Separation Date, you shall return to the Company all Company property in
your possession or use, including, without limitation, all automobiles, fax machines, printers, cell phones, credit cards, building-access cards and keys, other electronic equipment, and any records,
software or other data from your personal computers or laptops which are not themselves Company property, however stored, relating to the Company's confidential information. 

        9.    Taxes.    The parties acknowledge and agree that: the form and timing of the Separation Amount and the other
payments and benefits to be provided pursuant to this Agreement are intended to be exempt from or to comply with one or more exceptions to the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended, and applicable Treasury Regulations thereunder ("Section 409A"), including the requirement for a six-month suspension on payments to "specified
employees" as defined in Section 409A that are not otherwise permitted to be paid within the six-month suspension period. The parties further acknowledge and agree that for purposes
of Section 409A you do not have discretion with respect to the timing of the payment of any amounts provided under this Separation Agreement. Notwithstanding any provision of this Agreement to
the contrary, the Company, its affiliates, subsidiaries, successors, and each of their respective officers, directors, employees and representatives, neither represent nor warrant the tax treatment
under any federal, state, local, or foreign laws or regulations thereunder (individually and collectively referred to as the "Tax Laws") of any payment or benefits contemplated by this Separation
Agreement including, but not limited to, when and to what extent such payments or benefits may be subject to tax, penalties and interest under the Tax Laws. 

        10.   Release. 

        a.     You
agree that, in consideration of this Separation Agreement, you hereby waive, release and forever discharge any and all claims and rights which you ever had, now have
or may have against the Company and any of its subsidiaries or affiliated companies, and their respective successors and assigns, current and former officers, agents, directors, representatives and
employees, various benefits committees, and their respective successors and assigns, heirs, executors and personal and legal representatives, based on any act, event or omission occurring before you
execute this Separation Agreement arising out of, during or relating to your employment or services with the Company or the termination of such employment or services, except as provided below. This
waiver and release includes, but is not limited to, any claims which could be asserted now or in the future, under: common law, including, but not limited to, breach of express or implied duties,
wrongful termination, defamation, or violation of public policy; any policies, practices, or procedures of the Company; any federal or state statutes or regulations including, but not limited to,
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §2000e et seq., the Civil Rights Act of 1866 and 1871, the Americans With
Disabilities Act, 42 U.S.C. §12101 et seq., the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §1001  et seq. (excluding those
rights relating exclusively to employee pension benefits as governed by ERISA), the Family and Medical Leave Act, 29 U.S.C.
§2601 et. seq., the California Family Rights Act, as amended, the California Fair Employment and Housing Act, as amended, California Labor
Code Section 1400 et seq., any contract of employment, express or implied; any provision of any other law, common or statutory, of the United
States, California or any applicable state. 

3

 

Notwithstanding
the foregoing, nothing contained in this paragraph 10.a. shall (i) subject to paragraphs 10.c and 10.d and the ADEA Release at Exhibit B, impair any rights
or potential claims that you may have under the federal Age Discrimination in Employment Act of 1967 (the "ADEA"); (ii) waive, release or otherwise discharge any claim or cause of action that
cannot legally be waived, including, but not limited to, any claim for unpaid wages, workers' compensation benefits, unemployment benefits and any claims under section 2802 of the California
Labor Code; (iii) be construed to prohibit you from bringing appropriate proceedings to enforce this Separation Agreement; (iv) subject to the limitations set forth in Section 3
herein, affect any rights of defense or indemnification, or to be held harmless, or any coverage under directors and officers liability insurance or any other insurance or rights or claims of
contribution or advancement of expenses that you have; or (v) affect any rights as a shareholder of the Company that you have. 

        b.     For
the purpose of implementing a full and complete release, you understand and agree that this Separation Agreement is intended to waive and release all claims, if any,
which you may have and which you may not now know or suspect to exist in your favor against the Company and any of its subsidiaries or affiliated companies, and their respective successors and
assigns, current and former officers, agents, directors, representatives and employees, various benefits committees, and their respective successors and assigns, heirs, executors and personal and
legal representatives and this Separation Agreement extinguishes those claims. Accordingly, you expressly waive all rights afforded by Section 1542 of the Civil Code of the State of California
("Section 1542") and any similar statute or regulation in any other applicable jurisdiction. Section 1542 states as follows: 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

        c.     By
signing this Separation Agreement, you represent that you have not and will not in the future commence any action or proceeding arising out of the matters released
hereby, and that you will not seek or be entitled to any award of legal or equitable relief in any such action or proceeding that may be commenced on your behalf. This Separation Agreement shall not
prevent you from filing a charge with the Equal Employment Opportunity Commission (or similar state or local agency) or participating in any investigation conducted by the Equal Employment Opportunity
Commission (or similar state or local agency); provided, however, you acknowledge and agree that any
claims for personal relief in connection with such a charge or investigation (such as reinstatement or monetary damages) would be and hereby are barred. The Company has advised you to consult with an
attorney of your choosing prior to signing this Separation Agreement. You represent that you understand and agree that you have the right and have been given the opportunity to review this Separation
Agreement and the ADEA Release (defined below), with an attorney. You further represent that you understand and agree that the Company is under no obligation to offer this Separation Agreement, and
that you are under no obligation to consent to this waiver and release of claims. 

        d.     In
accordance with the ADEA release contained in Exhibit B hereto (the "ADEA Release"), you shall have twenty-one (21) days from the date of
this Agreement to consider the ADEA Release and, once you have signed the ADEA Release, you shall have seven (7) additional days from the date of execution to revoke your consent to the ADEA
Release. Any such revocation shall be made in writing so as to be received by the Company prior to the eighth (8th) day following your execution of the ADEA Release. If no such
revocation occurs, the ADEA Release shall become effective on the eighth (8th) day following your execution, no earlier than the Separation Date, of the ADEA Release (the "Effective
Date"). 

4

 

        11.    Enforcement.    If any provision of this Separation Agreement is held by a court of competent jurisdiction to
be illegal, void or unenforceable, such provision shall have no effect; however, the remaining provisions shall be enforced to the maximum extent possible. Further, if a court should determine that
any portion of this Separation Agreement is overbroad or unreasonable, such provision shall be given effect to the maximum extent possible by narrowing or enforcing in part that aspect of the
provision found overbroad or unreasonable. In addition, you agree that your willful and knowing failure to return Company property that relates to the maintenance of security of the Company Entities
and Persons shall entitle the Company to injunctive and other equitable relief. 

        12.    No Admission.    This Separation Agreement is not intended, and shall not be construed, as an admission that
either you or the Company Entities and Persons have violated any federal, state or local
law (statutory or decisional), ordinance or regulation, breached any contract or committed any wrong whatsoever. 

        13.    Successors.    This Separation Agreement is binding upon, and shall inure to the benefit of, the parties and
their respective heirs, executors, administrators, successors and assigns. 

        14.    Choice of Law.    This Separation Agreement shall be construed and enforced in accordance with the laws of the
State of California without regard to the principles of conflicts of law. 

        15.    Entire Agreement.    You acknowledge that this Separation Agreement constitutes the complete understanding
between the Company and you regarding its subject matter and supersedes any and all agreements, understandings, and discussions, whether written or oral, between you and any of the Company Entities
and Persons, including your prior employment agreement dated March 29, 2005; provided, however,
that notwithstanding the foregoing, the Confidentiality Agreements shall remain in full force and effect in accordance with their terms as modified by this Separation Agreement. No other promises or
agreements shall be binding on the Company unless in writing and signed by both the Company and you after the date of this Separation Agreement. 

        16.    Effective Date.    You may accept this Separation Agreement by signing it and returning it to the Company's
General Counsel at Hewlett-Packard Company, 3000 Hanover Street, Palo Alto, CA 94304. The effective date of this Separation Agreement shall be the date it is signed by both parties, provided that the
provisions of paragraph 2 shall not become effective until the Effective Date, as defined in paragraph 10.d. In the event you do not accept this Separation Agreement (including the ADEA
Release) as set forth in this paragraph 16, this Separation Agreement, including but not limited to the obligation of the Company hereunder to provide the payments and other benefits described
herein, shall be deemed automatically null and void. 

        17.    Headings.    The headings used herein are for the convenience of reference only, do not constitute part of this
Separation Agreement and shall not be deemed to limit or otherwise affect any of the provisions of this Separation Agreement. 

        18.    Counterparts.    This Agreement may be executed in one or more counterparts, including emailed or telecopied
facsimiles, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 

5

 

        IN
WITNESS WHEREOF, the parties have executed this Separation Agreement as of the date set forth below. 

 

 

							
	 
	 	 
	 	 
	 	 

	Signature:	 	/s/ MARK V. HURD  	 	Date:	 	8/6/2010
	 	 	

  Mark V. Hurd	 	 	 	

  
	
 By:	
 	
/s/ CATHERINE A. LESJAK  	
 	
Date:	
 	
8/6/2010
	 	 	

  Catherine A. Lesjak	 	 	 	

  
	
 Title:	
 	
Interim Chief Executive Officer	
 	
 	
 	
 

 

 6

 
EXHIBIT A 

        On
the date that performance-based restricted stock units granted on January 17, 2008 relating to the 2008-2010 fiscal year performance
period are settled for employees of the Company generally, you will be entitled to receive a number of shares of Company Common Stock equal to the sum of (i) your Banked PRUs and
(ii) the product of (x) your Ongoing PRUs and (y) 0.75, subject to applicable withholdings. 

        The
defined terms on this Exhibit A shall have the following meanings: 

        2008
Performance-Based Stock Unit Award—Your award of performance-based restricted stock units representing hypothetical shares of Company common stock granted to you
pursuant to the Award Agreement. 

        Award
Agreement—The Stock Notification and Award Agreement, outlining the terms of your grant of performance-based restricted stock units on January 17, 2008. 

        Banked
PRUs—The portion of your 2008 Performance-Based Stock Unit Award treated as a Conditional PRU Award (as defined in your Award Agreement) relating to cash flow
milestones achieved for the Company's 2008 and 2009 fiscal years, multiplied by the Total Shareholder Return Multiplier. 

        Ongoing
PRUs—The portion of the 2008 Performance-Based Stock Unit Award (other than the Banked PRUs) that would have become a Conditional PRU Award had you remained employed
with the Company through October 31, 2010, based on actual Company performance through such date, multiplied by the lesser of (i) the Total Shareholder Return Multiplier and
(ii) what the Total Shareholder Return Multiplier would have been if the per share price of Company common stock on October 31, 2010 was the per share closing trading price of Company
common stock on the Separation Date. 

        Total
Shareholder Return Multiplier—The total shareholder return multiplier applicable to the 2008 Performance-Based Stock Unit Award, calculated in accordance with the terms
of the Award Agreement. 

7

 
EXHIBIT B 

WAIVER OF RIGHTS UNDER THE

AGE DISCRIMINATION AND EMPLOYMENT ACT

        1.     Mark
V. Hurd ("Executive" or "you") knowingly and voluntarily, on behalf of yourself and your agents, attorneys, successors, assigns, heirs and executors, releases and
forever discharges Hewlett-Packard Company (the "Company") and all of their subsidiaries and affiliates, together with all of their respective past and present directors, managers, officers,
shareholders, partners, employees, agents, attorneys and servants, representatives, administrators and fiduciaries (except that in the case of agents, representatives, administrators, attorneys and
fiduciaries, only to the extent in any way related to his or her employment with, or the business affairs of the Company) and each of their predecessors, successors and assigns (collectively, the
"Releasees") from any and all claims, charges, complaints, promises, agreements, controversies, liens, demands, causes of action, obligations, suits, disputes, judgments, debts, bonds, bills,
covenants, contracts, variances, trespasses, executions, damages and liabilities of any nature whatsoever relating in any way to your rights under the Age Discrimination in Employment Act of 1967, as
amended (the "ADEA"), whether known or unknown, suspected or unsuspected, which you or your executors, administrators, successors or assigns ever had, now have, or may hereafter claim to have against
the Releasees in law or equity, arising on or before the date this ADEA Release (as defined below) is executed by you, and whether or not previously asserted before any state or federal court or
before any state or federal agency or governmental entity (the "ADEA Release"). This ADEA Release includes, without limitation, any rights or claims relating in any way to your employment relationship
with the Company or any of the Releasees, or the termination thereof, arising under the ADEA, including compensatory damages, punitive damages, attorney's fees, costs, expenses, and any other type of
damage or relief. You represent that you have not commenced or joined in any claim, charge, action or proceeding whatsoever against the Company or any of the Releasees arising out of or relating any
of the matters set forth in this ADEA Release. You further agree that you shall not be entitled to any personal recovery in any claim, charge, action or proceeding whatsoever against the Company or
any of the Releasees for any of the matters set forth in this ADEA Release. 

        2.     The
Company has advised you to consult with an attorney of your choosing prior to signing this ADEA Release. You represent that you understand and agree that you have the
right and have been given the opportunity to review this ADEA Release with an attorney. You further represent that you understand and agree that the Company is under no obligation to offer you this
ADEA Release, and that you are under no obligation to consent to the ADEA Release, and that you have entered into this ADEA Release freely and voluntarily. 

        3.     You
shall have twenty-one (21) days to consider this ADEA Release, and once you have signed this ADEA Release, you shall have seven
(7) additional days from the date of execution to revoke your consent to this ADEA Release. Any such revocation shall be made in writing so as to be received by the Company's General Counsel
prior to the eighth (8th) day following your execution of this ADEA Release. If no such revocation occurs, this ADEA Release shall become effective on the eighth (8th) day
following your execution of this ADEA Release (the "Effective Date"). In the event that you revoke your consent, this ADEA Release shall be null and void. 

8

 

IN
WITNESS WHEREOF, the Executive has executed this ADEA Release as of the date set forth below. 

 

 

			
	 
	 	 

	 	 	/s/ MARK V. HURD

  Mark V. Hurd
	

 	
 	
8/6/2010

  Date

 

 9

QuickLinks

Exhibit 10.1

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