Document:

DIGITAL LIGHTWAVE, INC

DIGITAL LIGHTWAVE, INC. 

SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

This Seventh Amended and Restated Security Agreement (this “Agreement”) is made as of May 19, 2003, by and between Digital Lightwave, Inc., a Delaware corporation (the “Debtor”), in favor of Optel, LLC (the “Secured Party”). 

RECITALS

The Debtor and the Secured Party are parties to (i) that certain Secured Promissory Note dated as of February 14, 2003 in the original principal amount of $800,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (ii) that certain Secured Promissory Note dated as of February 26, 2003 in the original principal amount of $650,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (iii) that certain Secured Promissory Note dated as of March 28, 2003 in the original principal amount of $450,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (iv) that certain Secured Promissory Note dated as of April 2, 2003 in the original principal amount of $60,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (v) that certain Secured Promissory Note dated as of April 29, 2003 in the original principal amount of $500,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (vi) that certain Secured Promissory Note dated as of May 14, 2003 in the original principal amount of $400,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time and (vii) that certain Secured Promissory Note dated as of the date hereof in the original principal amount of $620,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time (collectively, the “Notes”).  The parties intend that the Debtor’s obligations to repay the Notes be secured by all of the assets of the Debtor.

AGREEMENT

In consideration of the purchase of the Notes by the Secured Party and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Debtor hereby agrees with the Secured Party as follows:

1.

Grant of Security Interest.  

(a)

To secure the Debtor’s full and timely performance of the Obligations, the Debtor hereby grants to the Secured Party a continuing Lien on and security interest (the “Security Interest”) in, all of the Debtor’s right, title and interest in and to all of its personal property and assets (both tangible and intangible), including, without limitation, the following, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles; (e) all Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all Cash; (i) all other Goods of the Debtor; (j) all Intellectual Property; and (l) all Proceeds of each of the foregoing and all accessions to, and replacements for, each of the foregoing (collectively, the “Collateral”).  The Security Interest shall be a first and prior interest in all of the Collateral, provided, however, that the Security Interest shall be subordinated with respect to any Collateral that is subject to the Prior Security Interests (as defined below).

(b)

The following terms shall have the following meanings for purposes of this Agreement:

“Account” means any “Account,” as such term is defined in the UCC now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts, rights to payment and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to the Debtor whether or not arising out of goods or software sold or services rendered by the Debtor or from any other transaction, whether or not the same involves the sale of goods or services by the Debtor and all of the Debtor’s rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of the Debtor’s rights to any goods represented by any of the foregoing, and all monies due or to become due to the Debtor under all purchase orders and contracts for the sale of goods or the performance of services or both by the Debtor or in connection with any other transaction (whether or not yet earned by performance on the part of the Debtor), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. 

“Cash” means all cash, money, currency, and liquid funds, wherever held, in which the Debtor now or hereafter acquires any right, title, or interest. 

“Chattel Paper” means any “Chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“Commercial Tort Claim” shall have the meaning given to that term in Section 2(e) of this Agreement.

“Credit Documents” means this Agreement, the Notes and any UCC-1 Financing Statement filed herewith.

“Deposit Accounts” means any “Deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“Documents” means any “Documents,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“Electronic Chattel Paper” means any “Electronic chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Equipment” means any “Equipment,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest and any and all additions, upgrades, substitutions and replacements of any of the foregoing, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires interest. 

“Fixtures” means any “Fixtures,” as such term is defined in the UCC, together with all right, title and interest of the Debtor in and to all extensions, improvements, betterments, accessions, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“General Intangible” means any “General intangible,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest that the Debtor may now or hereafter have in or under any contracts, rights to payment, payment intangibles, confidential information, interests in partnerships, limited liability companies, corporations, joint ventures and other business associations, permits, goodwill, claims in or under insurance policies, including unearned premiums and premium adjustments, uncertificated securities, deposit, checking and other bank accounts, but shall not include any Intellectual Property (including the right to receive all proceeds and damages therefrom), rights to receive tax refunds and other payments and rights of indemnification.

“Goods” means any “Goods,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“Instruments” means any “Instrument,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Intellectual Property” means, collectively, all rights, priorities and privileges of the Debtor relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, inventions, patents, patent licenses, trademarks, trademark licenses and trade secrets (including customer lists), domain names, Web sites and know-how, including, but not limited to, the patents, trademarks and copyrights set forth on Schedule  2 .

“Inventory” means any “Inventory,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property that are held by or on behalf of the Debtor for sale or lease or are furnished or are to be furnished under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in the Debtor’s business, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the same is in transit or in the constructive, actual or exclusive possession of the Debtor or is held by others for the Debtor’s account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all such property that may be in the possession or custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other Persons. 

“Investment Property” means any “Investment property,” as such term is defined in the UCC, and includes certificated securities, uncertificated securities, money market funds and U.S. Treasury bills or notes, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“Letter of Credit Right” means any “Letter of credit right,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest, including any right to payment or performance under any letter of credit. 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. 

“Obligations” shall mean and include all loans, advances, debts, liabilities and obligations, however arising, owed by the Debtor to the Secured Party of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of the Notes, or any of the other Credit Documents or otherwise, including without limitation all interest, fees, charges, expenses, attorneys’ fees and accountants’ fees chargeable to the Debtor or payable by the Debtor there under.

“Permitted Liens” shall mean (a) Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with generally accepted accounting principals, (b) Liens of carriers, warehousemen, mechanics, material men, vendors, and landlords and other similar Liens imposed by law incurred in the ordinary course of business for sums not overdue more than 45 days or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with generally accepted accounting principals, (c) deposits under workers' compensation, unemployment insurance and social security laws or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or to secure statutory obligations of surety or appeal bonds or to secure indemnity, performance or other similar bonds in the ordinary course of business, (d) zoning restrictions, easements, rights-of-way, title irregularities and other similar encumbrances, which alone or in the aggregate are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Debtor, (e) banker's Liens and similar Liens (including set-off rights) in respect of bank deposits, (f)  Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of the Debtor’s business, (g) Liens on the property or assets of any subsidiary of the Debtor in favor of the Debtor, (h) purchase money Liens that will be discharged upon the Debtor’s payment of the purchase price for the applicable property, to the extent such Liens relate solely to the property so purchased and (j) the security interests set forth on Schedule 1 (the “Prior Security Interests”); provided, however, that except for the Prior Security Interests, that in each case, such Lien is not senior or prior to the Security Interest created hereunder.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof). 

“Proceeds” means “Proceeds,” as such term is defined in the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to the Debtor from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Debtor from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) the proceeds, damages, or recovery based on any claim of the Debtor against third parties (i) for past, present or future infringement of any copyright, patent or patent license or (ii) for past, present or future infringement or dilution of any trademark or trademark license or for injury to the goodwill associated with any trademark, trademark registration or trademark licensed under any trademark license and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 

“Receivables” means all of the Debtor’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, and letters of credit and Letter of Credit Rights. 

“Supporting Obligation” means any “Supporting obligation,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest. 

“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Florida; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Secured Party’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Florida, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.  

Unless otherwise defined herein, all capitalized terms used herein and defined in the Notes shall have the respective meaning given to those terms in the Notes, and terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC.

2.

Representations and Warranties.  The Debtor hereby represents and warrants to the Secured Party that:

(a)

Ownership of Collateral.  The Debtor is the legal and beneficial owner of the Collateral (or, in the case of after-acquired Collateral, at the time the Debtor acquires rights in the Collateral, will be the legal and beneficial owner thereof).  Except for the Security Interest granted to the Secured Party pursuant to this Agreement, the Debtor has rights in or the power to transfer the Collateral free and clear of any adverse Lien, security interest or encumbrance except as created by this Security Interest, except for Permitted Liens.  Except for the financing statements listed in Schedule 3, no financing statements covering any Collateral or any proceeds thereof are on file in any public office (other than filings listing the Secured Party as the secured party).  

(b)

Valid Security Interest.  The Security Interest granted pursuant to this Agreement will constitute a valid and continuing first priority, perfected security interest in favor of the Secured Party in the Collateral for which perfection is governed by the UCC or filing with the United States Copyright Office or United States Patent and Trademark Office.  Such Security Interest will be prior to all other Liens on the Collateral, except for Permitted Liens.

(c)

Organization and Good Standing.  The Debtor has been duly incorporated, and is validly existing and in good standing, under the laws of the State of Delaware.

(d)

Location, State of Organization and Name of the Debtor.  The Debtor’s state of organization is Delaware and the Debtor’s exact legal name as it appears in the official filings in the State of Delaware is as set forth in the first paragraph of this Agreement.  The Debtor has only one jurisdiction of organization.

(e)

Location of Equipment and Inventory.  All Equipment and Inventory are (i) located at the locations indicated on Schedule 4 (ii) in transit to such locations or (iii) in transit to a third party purchaser which will become obligated on a Receivable to the Debtor upon receipt.  Except for Equipment and Inventory referred to in clauses (ii) and (iii) of the preceding sentence, the Debtor has exclusive possession and control of the Inventory and Equipment.

(g)

Delivery of Items.  Schedule 5 lists all Instruments (other than checks received in the ordinary course of business), letter-of-credit rights, Electronic Chattel paper and Chattel Paper of the Debtor as of the date hereof.  The Debtor has delivered to the Secured Party, together with all necessary stock powers, endorsements, assignments and other necessary instruments of transfer, the originals of all Receivables consisting of instruments and Chattel Paper and the originals of all certificated securities owned directly by the Debtor.

(h)

Receivables.  Each Receivable is genuine and enforceable against the party obligated to pay the same (an “Account Debtor”) free from any right of rescission, defense, setoff or discount.

(i)

Insurance.  Each insurance policy maintained by the Debtor is validly existing and is in full force and effect.  The Debtor is not in default in any material respect under the provisions of any insurance policy, and there are no facts which, with the giving of notice or passage of time (or both), would result in such a default under any material provision of any such insurance policy.  Set forth in Schedule 6 is a complete and accurate list of the insurance of the Debtor in effect on the date of this Agreement covering fire, public liability, property damage and worker’s compensation, showing as of such date, (i) the type of insurance carried, (ii) the name of the insurance carrier, and (iii) the amount of each type of insurance carried.

(j)

This Agreement is effective to create a valid and continuing Lien upon the Collateral.  All action by the Debtor necessary to protect and perfect such Lien on each item of the Collateral has been duly taken.

3.

Covenants.  The Debtor covenants and agrees with the Secured Party that, from and after the date of this Agreement until the Obligations are paid in full:

(a)

Other Liens.  Except for the Security Interest and Permitted Liens, the Debtor has rights in or the power to transfer the Collateral and its title and will be able to do so hereafter free from any adverse Lien, security interest or encumbrance, and the Debtor will defend the Collateral against the claims and demands of all persons at any time claiming the same or any interest therein.  

(b)

Further Documentation.  At any time and from time to time, upon the writ­ten request of the Secured Party, and at the sole expense of the Debtor, the Debtor will promptly and duly authenticate and deliver such further instruments and documents and take such further action as the Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted including, without limitation, filing any financing or continuation statements under the UCC in effect with respect to the Liens created hereby.  The Debtor also hereby authorizes the Secured Party to file any such financing, amendment or continuation statement without the authentication of the Debtor to the extent permitted by applicable law.  A reproduction of this Agreement shall be sufficient as a financing statement (or as an exhibit to a financing statement on form UCC-1) for filing in any jurisdiction.

(c)

Indemnification.  The Debtor agrees to defend, indemnify and hold harmless the Secured Party against any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (“Liabilities”): (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any law, rule, regu­lation or order of any governmental authority applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Agreement. 

(d)

Maintenance of Records.  The Debtor will keep and maintain at its own expense complete and satisfactory, in all material respects, records of the Collateral.

(e)

Inspection Rights.  The Secured Party shall have full access during normal business hours, and upon prior notice, to all the books, corre­spondence and other records of the Debtor relating to the Collateral.  The Secured Party or its repre­sentatives may examine such records and make photocopies or otherwise take extracts from such records.  The Debtor agrees to render to the Secured Party, at the Debtor’s expense, such clerical and other assistance as the Secured Party may request with regard to the exercise of its rights pursuant to this paragraph.

(f)

Compliance with Laws, etc.  The Debtor (i) will comply with all laws, rules, regulations and orders of any governmental authority applicable to any part of the Collateral or to the operation of the Debtor’s business, the failure of which to comply with will have a material adverse effect on the Debtor, and (ii) shall not use or permit any Collateral to be used in violation of any provision of any Credit Document, any law, rule or obligation or order of any governmental authority, or any policy of insurance covering the Collateral; provided, however, that in each case, the Debtor may contest any such law, rule, regulation or order; in any reasonable manner which does not, in the reasonable opinion of the Secured Party, adversely affect the Secured Party’s rights or the priority of its Liens on the Collateral.

(g)

Payment of Obligations.  The Debtor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or with respect to any its income or profits derived from the Collateral, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral.

(h)

Limitation on Liens on Collateral.  The Debtor will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Security Interest and Permitted Liens, and will defend the right, title and interest of the Secured Party in and to any of the Collateral against the claims and demands of all other persons.

(i)

Limitations on Dispositions of Collateral.  The Debtor will not sell, transfer, lease, or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so other than dispositions of Inventory in the ordinary course of the Debtor’s business; provided, however that the Debtor will be allowed to grant licenses to its products and related documentation in the ordinary course of business and to establish or provide for escrows of related intellectual property in connection therewith.

(j)

Further Identification of Collateral.  The Debtor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may request, all in detail acceptable to the Secured Party.

(k)

Notice of Change of State of Incorporation.  Without 30 days’ prior written notice to the Debtor shall not (i) change the Debtor’s name, state of incorporation or organization, organizational identification number or place of business (or, if the Debtor has more than one place of business, its chief executive office), or the office in which the Debtor’s records relating to Receivables are kept, or (ii) keep Collateral consisting of Chattel Paper and documents at any location other than its chief executive office.

(l)

Future Commercial Tort Claims.  The Debtor will promptly give notice to the Secured Party upon the initiation of any Commercial Tort Claim.  The Debtor hereby authorizes the Secured Party to amend this Agreement (without any further action or consent from the Debtor) to include any such Commercial Tort Claim as Collateral hereunder.

(m)

Deposit Accounts.  For each deposit account maintained by the Debtor, the Debtor shall, along with the bank or other depository institution at which such deposit account is maintained (the “Depositary Bank”), execute and deliver to the Secured Party a Deposit Account Control Agreement in form and substance reasonably satisfactory to the Secured Party.  If requested by the Secured Party, the Debtor shall also obtain a blocked account, lockbox or similar agreement with all or certain Depository Banks.  Without ten days prior written notice to the Secured Party, the Debtor shall not establish any deposit account not set forth on Schedule 6.

(n)

Collection of Receivables.  The Debtor shall collect, enforce and receive delivery of the Receivables in accordance with past practice.

(q)

Insurance. The Debtor shall (i) maintain and keep in force insurance of the types and in amounts customarily carried from time to time during the term of this Agreement in its lines of business, including fire, public liability, property damage and worker’s compensation, such insurance to be carried with companies and in amounts satisfactory to the Secured Party, (ii) deliver to the Secured Party from time to time, as the Secured Party may request, schedules setting forth all insurance then in effect, and (iii) deliver to the Secured Party copies of each policy of insurance which replaces, or evidences the renewal of, each existing policy of insurance at least 15 days prior to the expiration of such policy.  The Secured Party shall be named as additional insured or additional loss payee, as appropriate, on all liability and property insurance of the Debtor and such policies shall contain such additional endorsements as shall be required by the Secured Party.  

(r)

Mortgagee Waivers.  The Debtor shall use its best efforts to obtain waivers or subordinations of Liens from landlords and mortgagees, and the Debtor shall, in all instances, obtain signed acknowledgements of the Secured Party’s Liens from bailees having possession of any of the Debtor’s Collateral that they hold such Collateral for the benefit of the Secured Party pursuant to Section 9313(c) of the UCC.

(s)

Letters of Credit.  If the Debtor is or becomes the beneficiary of a letter of credit, the Debtor shall promptly, and in any event within two business days after becoming a beneficiary, notify the Secured Party thereof and enter into a tri-party agreement with the Secured Party and the issuer or confirmation bank with respect to such Letter of Credit Rights assigning such Letter of Credit Rights to the Secured Party and directing all payments thereunder to the Secured Party, all in form and substance satisfactory to the Secured Party.

(t)

Electronic Chattel Paper.  The Debtor shall take all steps reasonably necessary to grant the Secured Party control of all Electronic Chattel Paper in accordance with the UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

(u)

Intellectual Property Matters.  The Debtor shall notify the Secured Party immediately if it knows or has reason to know (i) that any application or registration relating to any of its Intellectual Property that is material to the operation of its business may become abandoned or dedicated, or (ii) of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding the Debtor’s ownership of any Intellectual Property that is material to the operation of its business, its right to register the same, or to keep and maintain the same.

(v)

Intellectual Property Applications.  In no event shall the Debtor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any patent, trademark or copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving the Secured Party prior written notice thereof, and, upon request of the Secured Party, the Debtor shall execute and deliver any and all security documents as the Secured Party may request to evidence the Secured Party’s Lien on such Intellectual Property and the general intangibles of the Debtor relating thereto or represented thereby.  The Debtor hereby authorizes the Secured Party to amend this Agreement (without any further action or consent from the Debtor) to include any such patent, trademark or copyright as Collateral hereunder.

(w)

Intellectual Property Abandonment.  The Debtor shall take all actions reasonably necessary or requested by the Secured Party to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of its Intellectual Property, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings.

(x)

Protection of Intellectual Property.  In the event that any of the Debtor’s Intellectual Property is infringed upon, or misappropriated or diluted by a third party, the Debtor shall notify the Secured Party promptly after the Debtor learns thereof.  The Debtor shall, unless the Secured Party shall determine that such Intellectual Property is in no way material to the conduct of its business or operations, promptly sue for, and seek recovery of any and all damages resulting from such infringement, misappropriation or dilution, and shall take such other actions as the Secured Party shall deem necessary under the circumstances to protect such Intellectual Property.

(y)

Chattel Paper.  The Debtor shall type, print or stamp conspicuously on the face of all original copies of all Collateral consisting of Chattel Paper and Documents not in the possession of the Secured Party having a value in excess of $100,000 a legend satisfactory to the Secured Party indicating that such Chattel Paper is subject to the security interest granted hereby.

(z)

Limitation on Filing of Financing Statements.  The Debtor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Secured Party and agrees that it will not do so without the prior written consent of the Secured Party, subject to the Debtor’s rights under Section 9509(d)(2) of the UCC.

4.

Event of Default; the Secured Party’s Appointment as Attorney-in-Fact.

(a)

Event of Default.  For purposes of this Agreement, the occurrence of any one of the following events (each, an “Event of Default”) shall constitute a default hereunder and under the Notes or any of the other Credit Documents:

(i)

The Debtor’s failure to pay or discharge the Obligations in full in accordance with the terms of the Notes or any of the other Credit Documents;

(ii)

A breach of any representation or warranty made by the Debtor under the this Agreement, the Notes or any of the other Credit Documents as of the date thereof or any other document or instrument entered into between the Debtor and the Secured Party in connection herewith.

(iii)

The Debtor’s failure to observe or perform any other covenant, obligation, condition or agreement contained in this Agreement, the Notes or any of the other Credit Documents and such failure shall continue for 10 days after the earlier of (i) the Debtor’s written acknowledgement of such failure and (ii) written notice by the Secured Party to the Debtor of such failure.

(iv)

The insolvency of the Debtor, the commission of any act of bankruptcy by the Debtor, the execution by the Debtor of a general assignment for the benefit of creditors, the filing by or against the Debtor of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of 90 days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Debtor.

(v)

A default shall occur under the Notes or any of the other Credit Documents, or any other agreement entered into between the Debtor and the Secured Party in connection herewith.

(b)

Powers.  The Debtor hereby appoints the Secured Party and any officer or agent of the Secured Party, with full power of substitution, as its attorney-in-fact with full irrevocable power and authority in the place of the Debtor and in the name of the Debtor or its own name, from time to time in the Secured Party’s discretion so long as an Event of Default has occurred and is continuing, for the purpose of carrying out the terms of this Agreement, to take any appropriate action and to authenticate any instrument which may be necessary or desirable to accomplish the purposes of this Agreement.  Without limiting the foregoing, so long as an Event of Default has occurred and is continuing, the Secured Party shall have the right, without notice to, or the consent of, the Debtor, to do any of the following on the Debtor’s behalf:

(i)

to pay or discharge any taxes or Liens levied or placed on or threatened against the Collateral;

(ii)

to direct any party liable for any payment under any of the Collateral to make payment of any and all amounts due or to become due thereunder directly to the Secured Party or as the Secured Party directs;

(iii)

to ask for or demand, collect, and receive payment of and receipt for, any payments due or to become due at any time in respect of or arising out of any Collateral;

(iv)

to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to enforce any right in respect of any Collateral;

(v)

to defend any suit, action or proceeding brought against the Debtor with respect to any Collateral;

(vi)

to settle, compromise or adjust any suit, action or proceeding described in subsection (v) above and to give such discharges or releases in connection therewith as the Secured Party may deem appropriate;

(vii)

to assign any patent right included in the Collateral of the Debtor (along with the goodwill of the business to which any such patent right pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Secured Party shall in its sole discretion determine; and

(viii)

generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral and to take, at the Secured Party’s option and the Debtor’s expense, any actions which the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the Secured Party’s Liens on the Collateral and to carry out the intent of this Agreement, in each case to the same extent as if the Secured Party were the absolute owner of the Collateral for all purposes.

The Debtor hereby ratifies whatever actions the Secured Party shall lawfully do or cause to be done in accordance with this Section 4.  This power of attorney shall be a power coupled with an interest and shall be irrevocable.

(c)

No Duty on the Secured Party’s Part.  The powers conferred on the Secured Party by this Section 4 are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon it to exercise any such powers.  The Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Secured Party nor any of its officers, directors, employees or agents shall, in the absence of willful misconduct or gross negligence, be responsible to the Debtor for any act or failure to act pursuant to this Section 4.

5.

Performance by the Secured Party of the Debtor’s Obligations.  If the Debtor fails to per­form or comply with any of its agreements or covenants contained in this Agreement and the Secured Party performs or complies, or otherwise causes performance or compliance, with such agreement or covenant in accordance with the terms of this Agreement, then the expenses of the Secured Party incurred in connection with such performance or compliance shall be payable by the Debtor to the Secured Party on demand and shall constitute Obligations secured by this Agreement.

6.

Remedies.  If an Event of Default has occurred and is continuing, the Secured Party may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement relating to the Obligations, all rights and remedies of a secured party under the UCC.  Without limiting the foregoing, the Secured Party, without demand of performance or other demand, present­ment, protest, advertisement or notice of any kind (except any notice required by law) to or upon the Debtor or any other person (all of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances collect, receive, appropriate and realize upon any or all of the Collateral, and/or may sell, lease, assign, give an option or options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the foregoing), in one or more parcels at a public or private sale or sales, at any exchange, broker’s board or office of the Secured Party or elsewhere upon such terms and conditions as the Secured Party may deem advisable, for cash or on credit or for future delivery without assumption of any credit risk.  The Secured Party shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase all or any part of the Collateral so sold, free of any right or equity of redemption in the Debtor, which right or equity is hereby waived or released.  The Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable expenses incurred therein or in connection with the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Secured Party under this Agreement (including, without limitation, reasonable attorneys’ fees and expenses) to the payment in whole or in part of the Obligations, in such order as the Secured Party may elect, and only after such application and after the payment by the Secured Party of any other amount required by any provision of law, need the Secured Party account for the surplus, if any, to the Debtor.  To the extent permitted by applicable law, the Debtor waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by the Secured Party of any of its rights hereunder.  If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten days before such sale or other disposition.  The Debtor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Secured Party to collect such deficiency. 

7.

Limitation on Duties Regarding Preservation of Collateral.  The Secured Party’s sole duty with respect to the custody, safekeeping and preservation of the Collateral, under Section 9207 of the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account.  Neither the Secured Party nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Debtor or otherwise.

8.

Powers Coupled with an Interest.  All authorizations and agencies contained in this Agreement with respect to the Collateral are irrevocable and are powers coupled with an interest.

9.

No Waiver; Cumulative Remedies.  The Secured Party shall not by any act (except by a written instrument pursuant to Section 11(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Notes or any of the other Credit Documents or in any breach of any of the terms and conditions of this Agreement.  No failure to exer­cise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  A waiver by the Secured Party of any right or remedy under this Agreement on any one occasion shall not be construed as a bar to any right or remedy which the Secured Party would otherwise have on any subsequent occasion.  The rights and remedies provided in this Agreement are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law.

10.

Termination of Security Interest.  Upon satisfaction of the Debtor’s obligations pursuant to the Notes, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Debtor.  Upon any such termination, the Secured Party shall authenticate and deliver to the Debtor such documents as the Debtor may reasonably request to evidence such termination.

11.

Miscellaneous.

(a)

Amendments and Waivers.  Any term of this Agreement may be amended with the written consent of the parties or their respective successors and assigns.  Any amendment or waiver effected in accordance with this Section 11(a) shall be binding upon the parties and their respective successors and assigns.

(b)

Transfer; Successors and Assigns.  The terms and conditions of this Agreement shall be binding upon the Debtor and its successors and assigns, as well as all persons who become bound as a debtor to this Agreement and inure to the benefit of the Secured Party and its successors and assigns.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(c)

Governing Law.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

(d)

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

(e)

Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(f)

Notices.  Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 48 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below or as subsequently modified by written notice.

(h)

Payments Free of Taxes, Etc.  All payments made by the Debtor under this Agreement shall be made by the Debtor free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions and withholdings.  In addition, the Debtor shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance and enforcement of this Agreement.  Upon request by the Secured Party, the Debtor shall furnish evidence satisfactory to the Secured Party that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies and charges have been paid.

(i)

Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable.  In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(j)

Entire Agreement.  This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto concerning such subject matter are expressly canceled.

(k)

Amendment and Restatement.  Effective upon execution of this Agreement by both parties, the Sixth Amended and Restated Security Agreement dated as of May 14, 2003 between the Debtor and the Secured Party is hereby amended and restated in its entirety to read as set forth in this Agreement.

[Signature Page Follows]

The Debtor and the Secured Party have caused this Agreement to be duly executed and delivered as of the date first above written.

DEBTOR:

DIGITAL LIGHTWAVE, INC.

By:  ____________________________

Name:___________________________

Title:  ___________________________

SECURED PARTY:

OPTEL, LLC

By:  ____________________________

Name:___________________________

Title:  ___________________________2002 Equity Participation Plan of Varco International, Inc.

 
EXHIBIT 10.3

 
THE 2003 
EQUITY PARTICIPATION PLAN 
OF 
VARCO INTERNATIONAL, INC. 
 
VARCO INTERNATIONAL, INC., a Delaware corporation, has adopted
this 2003 Equity Participation Plan of Varco International, Inc., (the “Plan”), which amends and restates the Amended and Restated 1996 Equity Participation Plan of Varco International, Inc. for the benefit of its eligible employees,
consultants and directors. 
 
The purposes of this
Plan are as follows: 
 
(1)  To provide
an additional incentive for Directors, (as defined herein) key Employees (as defined herein), and consultants to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company stock
and/or rights which recognize such growth, development and financial success. 
 
(2)  To enable the Company to obtain and retain the services of Directors, key Employees and consultants considered essential to the long range success of the Company by offering them an
opportunity to own stock in the Company and/or rights which will reflect the growth, development and financial success of the Company. 
 
This plan was originally approved by the Company’s stockholders on April 24, 1996, was first amended with stockholder approval on May
13, 1999, and was amended and restated with stockholder approval on May 30, 2000. 
 
ARTICLE I. 
DEFINITIONS 
 
1.1    General.    Wherever the following terms are used in this Plan they shall have the meaning specified below, unless the context clearly indicates otherwise. The masculine pronoun
shall include the feminine and the neuter, and the singular pronoun shall include the plural where the context so indicates. 
 
1.2    Administrator.    “Administrator” shall mean the entity that conducts the
general administration of the Plan (including the grant of Awards) as provided herein. With reference to the administration of the Plan with respect to an Award granted or to be granted to Independent Directors, the term “Administrator”
shall refer to the Board. With reference to the administration of the Plan with respect to an Award granted or to be granted to Employees or consultants, the term “Administrator” shall refer to the Committee, unless and to the extent (a)
the Board has assumed the authority for administration of all or any part of the Plan as permitted in Section 10.2 or (b) the Committee has delegated the authority for administration of all or part of the Plan as permitted by Section 10.5. With
reference to the administration of the Plan with respect to an Award granted or to be granted to Section 162(m) Participants and intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, as described in
Section 3.2 the term “Administrator” shall refer to the Committee comprised solely of two or more Directors each of whom qualify as an “outside director” under Section 162(m) of the Code. 
 
1.3    Award.    “Award” shall mean an Option, a Restricted Stock award, a Performance Award, a Stock Appreciation Right, a Dividend Equivalents award, a Deferred Stock award
or Stock Payment which may be awarded or granted under the Plan (collectively, “Awards”). 
 

1 

 
1.4    Award Agreement.    “Award Agreement” shall mean a written agreement executed by an authorized executive officer of the Company and the Holder which shall contain such
terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan. 
 
1.5    Award Limit.    “Award Limit” shall mean four hundred thousand (400,000)
shares of Common Stock, or for Performance Awards granted pursuant to Section 8.1(b), “Award Limit” shall mean one million five hundred thousand dollars ($1,500,000); provided, however, that commencing January 1, 2003, to the extent the
400,000 share limit is not awarded to any Holder with respect to any fiscal year, the amount not so awarded but permitted for such Holder shall be available for award to such Holder during any subsequent fiscal year. As a result, the maximum number
of shares pursuant to which Awards may be granted during any fiscal year hereunder to any Holder may be greater than the 400,000 share limit specified above only to the extent that such shares were not awarded to such Holder during any preceding
year, commencing with 2003. The method of counting such shares shall conform to any requirements applicable to performance-based compensation under Section 162(m) of the Code or the rules and regulations promulgated thereunder. 
 
1.6    Board.    “Board” shall mean the Board of Directors of the Company. 
 
1.7    Code.    “Code” shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto. 
 
1.8    Committee.    “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 10.1.

 
1.9    Common
Stock.    “Common Stock” shall mean the common stock of the Company, par value $0.01 per share, and any equity security of the Company issued or authorized to be issued in the future, but excluding any warrants,
options or other rights to purchase Common Stock. Debt securities of the Company convertible into Common Stock shall be deemed equity securities of the Company. 
 
1.10    Company.    “Company” shall mean Varco
International, Inc., a Delaware corporation, or any successor entity. 
 
1.11    Corporate Transaction.    “Corporate Transaction” shall mean any of the following stockholder-approved transactions to which the Company is a party:

 

	 	(a)	 	a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which
the Company is incorporated, form a holding company or effect a similar reorganization as to form whereupon this Plan and all Awards are assumed by the successor entity; 

 

	 	(b)	 	the sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, in complete liquidation or dissolution of the Company in
a transaction not covered by the exceptions to clause (a), above; or 

 

	 	(c)	 	any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power
of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. 

 
1.12    Deferred Stock.    “Deferred Stock” shall
mean Common Stock awarded under Article VIII of this Plan. 
 
1.13    Director.    “Director” shall mean a member of the Board. 
 
1.14    Dividend Equivalent.    “Dividend Equivalent” shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Article VIII of this Plan. 
 

2 

 
1.15    Employee.    “Employee” shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which
is a Subsidiary. 
 
1.16    Exchange Act.    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. 
 
1.17    Fair Market Value.    “Fair Market Value” of
a share of Common Stock as of a given date shall be (i) the closing price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any (or as reported on any composite index which includes such
principal exchange), on such date, or if shares were not traded on such date, then on the next succeeding date on which a trade occurred, or (ii) if Common Stock is not traded on an exchange but is quoted on Nasdaq or a successor quotation
system, the mean between the closing representative bid and asked prices for the Common Stock on such date as reported by Nasdaq or such successor quotation system; or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of Common Stock as established by the Administrator acting in good faith. 
 
1.18    Holder.    “Holder” shall mean a person who has been granted or awarded
an Award. 
 
1.19    Incentive Stock Option.    “Incentive Stock Option” shall mean an option which conforms to the applicable provisions of Section 422 of the Code and which is designated
as an Incentive Stock Option by the Administrator. 
 
1.20    Independent Director.    “Independent Director” shall mean a member of the Board who is not an Employee of the Company. 
 
1.21    Non-Qualified Stock
Option.    “Non-Qualified Stock Option” shall mean an Option which is not designated as an Incentive Stock Option by the Administrator. 
 
1.22    Option.    “Option” shall mean a right to
purchase shares of Common Stock granted under Article IV, and subject to the terms specified in Article V, of this Plan. An Option granted under this Plan shall, as determined by the Administrator, be either a Non-Qualified Stock Option or an
Incentive Stock Option; provided, however, that Options granted to Independent Directors and consultants shall be Non-Qualified Stock Options. 
 
1.23    Performance Award.    “Performance Award” shall mean a cash bonus, stock
bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VIII of the Plan. 
 
1.24    Performance Criteria.    “Performance Criteria” shall mean the following
business criteria with respect to the Company, any Subsidiary or any division or operating unit: (a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return on invested
capital or assets, (h) cost reductions, controls or savings, (i) net cash provided by operating activities, (j) appreciation in the fair market value of Common Stock, (k) earnings before any one or more of the following items: interest, taxes,
depreciation or amortization, (l) total stockholder return, (m) earnings per share from operations, (n) revenues, (o) economic value added, (p) strategic initiatives, (q) market share, or (r) operating margins. Such performance goals also may be
based on the achievement of the specified levels of performance under one or more of the measures described above relative to the performance of one or more other corporations. The foregoing criteria will be computed without recognition of (i)
unusual or nonrecurring events affecting the Company or its financial statements or (ii) changes in applicable laws, regulations or accounting principles, as determined by the Administrator. 
 
1.25    Plan.    “Plan” shall mean the 2003 Equity Participation Plan, as amended and/or restated from time to time, as successor to the Amended and Restated 1996 Equity
Participation Plan of Varco International, Inc. 
 

3 

 
1.26    QDRO.    “QDRO” shall mean a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder. 
 
1.27    Restricted Stock.    “Restricted Stock” shall mean Common Stock awarded under Article VII of this Plan, that is subject to such restrictions, which may lapse separately
or in combination, at such time or times, in installments or otherwise, as the Administrator may determine, subject to the applicable provisions of this Plan 
 
1.28    Rule 16b-3.    “Rule 16b-3” shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time. 
 
1.29    Section 162(m) Participant.    “Section 162(m) Participant” shall mean any key Employee designated by the Administrator as a key Employee whose compensation for the
fiscal year in which the key Employee is so designated or a future fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. 
 
1.30    Stock Appreciation Right.    “Stock Appreciation
Right” shall mean a stock appreciation right granted under Article IX of this Plan. 
 
1.31    Stock Payment.    “Stock Payment” shall mean (i) a payment in the form of shares of Common Stock, or (ii) an option or other right to
purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses, commissions or fees, that would otherwise become payable to a
Holder in cash, awarded under Article VIII of this Plan. 
 
1.32    Subsidiary.    “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 
 
1.33    Termination of Consultancy.    “Termination of
Consultancy” shall mean the time when the engagement of Holder as a consultant to the Company or a Subsidiary is terminated for any reason, with or without cause, including without limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment with the Company or any Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a consultant’s service at any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing. 
 
1.34    Termination of Directorship.    “Termination of Directorship” shall mean the time when an Holder, Holder or Holders who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement, but excluding any termination of Directorship where there is simultaneous employment by the Company (or any
Subsidiary of the Company) of such person. The Board, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors. 
 
1.35    Termination of
Employment.    “Termination of Employment” shall mean the time when the employee-employer relationship between the Holder and the Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (i) terminations where there is a simultaneous reemployment or continuing employment of an Holder by the Company or any
Subsidiary, (ii) at the discretion of the 

 

4 

Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (iii) at the discretion of the
Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former Employee. The Administrator, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of
absence constitute Terminations of Employment. 
 
ARTICLE II. 
SHARES SUBJECT TO PLAN 
 
2.1    Shares Subject to Plan. 
 
(a)  The shares of stock subject to Options, awards
of Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock Payments or Stock Appreciation Rights shall be the Company’s Common Stock, par value $0.01 per share. The aggregate number of such shares which may
be issued upon exercise of such Awards under the Plan shall not exceed twelve million one hundred and fifty thousand (12,150,000) shares. The shares of Common Stock issuable upon exercise of such Awards may be either previously authorized but
unissued shares or treasury shares. 
 
(b)  The maximum number of shares which may be subject to Awards granted under the Plan to any individual in any calendar year shall not exceed the Award Limit. 
 
(c)  The maximum number of shares which may be issued after May 30, 2000 upon exercise of
Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock or Stock Payments shall not exceed one million two hundred thousand (1,200,000) shares. 
 
2.2    Add-back of Options and Other Rights.    If any Option,
or other right to acquire shares of Common Stock under any other Award under this Plan, expires or is canceled without having been fully exercised or is exercised or settled in whole or in part for cash as permitted by this Plan, the number of
shares subject to such Option or other Award but as to which such Option or other Award was not exercised prior to its expiration, cancellation, exercise or settlement may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to Section 11.3 and become exercisable with respect to shares of stock of another corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common Stock which are actually or constructively delivered by the Holder or withheld by the Company upon the exercise of any Option or other Award under this Plan in payment of
the exercise price thereof or tax withholding thereon may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. If any share of Restricted Stock is forfeited by the Holder or repurchased by the Company pursuant
to Section 6.6 hereof, such share may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. 
 
ARTICLE III. 
GRANTING OF AWARDS 
 
3.1    Award Agreement.    Each Award shall be evidenced by an Award Agreement. Award Agreements evidencing Awards intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions
as may be necessary to meet the applicable provisions of Section 422 of the Code. 
 

5 

 
3.2    Provisions Applicable to Section 162(m) Participants. 
 
(a)  The Administrator, in its discretion, may determine whether an Award is to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code. 
 
(b)  Notwithstanding anything in the Plan to the contrary, the Administrator may grant any Award to a Section 162(m) Participant, including Restricted Stock that is granted or the restrictions with respect to which lapse
upon the attainment of performance goals which are related to one or more of the Performance Criteria and any performance or incentive award described in Article VII or Article VIII that is awarded or vests or becomes exercisable or payable upon the
attainment of performance goals which are related to one or more of the Performance Criteria. 
 
(c)  To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles VII and VIII
which may be granted to one or more Section 162(m) Participants, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Administrator shall, in writing: 
 
(i)  designate one or more Section 162(m) Participants; 
 
(ii)  select the Performance Criteria applicable to the fiscal year or other designated fiscal period or period of service
governing the achievement of the Performance Criteria; 
 
(iii)  establish the various performance targets, in terms of an objective formula or standard, and amounts of such Awards, which may be earned for such fiscal year or other designated fiscal period or period of service,
upon the achievement of the performance targets; and 
 
(iv)  specify the relationship between Performance Criteria and the performance targets and the amounts of such Awards to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period
or period of service, upon the achievement of the performance targets. 
 
(d)  Following the completion of each fiscal year or other designated fiscal period or period of service, the Administrator shall certify in writing whether the applicable performance targets have been achieved for
such fiscal year or other designated fiscal period or period of service. In determining the amount earned by a Section 162(m) Participant as performance-based compensation as described in Section 162(m)(4)(C) of the Code, the Administrator shall
have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the
fiscal year or other designated fiscal period or period of service. 
 
(e)  The maximum Award granted or paid under Articles VII and VIII to a Section 162(m) Participant as performance-based compensation as described in Section 162(m)(4)(C) of the Code for any fiscal year shall not
exceed $1,500,000 for cash Awards and 400,000 shares for Awards payable in stock (with any or no purchase price for such shares) with respect to any fiscal year of the Company; provided, however, that commencing January 1, 2003, to the extent the
foregoing fiscal year share limit is not awarded to any Holder with respect to such fiscal period, the amount not so awarded but permitted shall be available for award to such Holder during any other subsequent fiscal year. As a result, the maximum
number of shares as to which Awards may be granted during any fiscal year hereunder to any Holder may be greater than the 400,000 share limit specified above only to the extent that such 400,000 share limit was not awarded to such Holder during any
preceding fiscal year, commencing with 2003. 
 
(f)  Furthermore, notwithstanding any other provision of the Plan or any Award which is granted to a Section 162(m) Participant and is intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that 

 

6 

are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be
deemed amended to the extent necessary to conform to such requirements. 
 
3.3    Consideration.    In consideration of the granting of an Award under the Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of (or to consult
for or to serve as an Independent Director of, as applicable) the Company or any Subsidiary for a period of at least one year (or such shorter period as may be fixed in the Award Agreement or by action of the Administrator following grant of the
Award) after the Award is granted (or, in the case of an Independent Director, until the next annual meeting of stockholders of the Company). 
 
3.4    At-Will Employment.    Nothing in the Plan or in any Award Agreement hereunder shall
confer upon any Holder any right to continue in the employ of, or as a Consultant for, the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Holder and the Company and any
Subsidiary. 
 
ARTICLE IV. 
GRANTING OF OPTIONS 
 
4.1    Eligibility.    Any Employee or consultant selected by the Administrator pursuant to
Section 4.2(a)(i) shall be eligible to be granted an Option. Each Independent Director of the Company shall be automatically granted Options at the times and in the manner set forth in Section 4.2(c) and, shall be eligible to be granted Options at
the discretion of the Board pursuant to Section 4.4(d). 
 
4.2    Granting of Options. 
 
(a)  The Administrator shall from time to time, in its absolute discretion, and subject to applicable limitations of this Plan: 
 
(i)  Determine which Employees are key Employees and select from among the key Employees or
consultants (including Employees or consultants who have previously received Options or other Awards under this Plan) such of them as in its opinion should be granted Options; 
 
(ii)  Subject to the Award Limit, determine the number of shares to be subject to such Options
granted to the selected key Employees or consultants; 
 
(iii)  Determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options and whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the
Code; provided, however that Incentive Stock Options may be granted only to Employees and shall not be granted to any consultant or Independent Director; and 
 
(iv)  Determine the terms and conditions of such Options, consistent with this Plan; provided, however, that the
terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable
provisions of Section 162(m) of the Code. 
 
(b)  Any Incentive Stock Option granted under this Plan may be modified by the Administrator, with the consent of the Holder, to disqualify such option from treatment as an “Incentive Stock Option” under Section
422 of the Code. 
 
(c)  During the term
of the Plan, (i) a person who is an Independent Director as of April 24, 1996 automatically shall be granted an option to purchase four thousand (4,000) shares of Common Stock (subject to 

 

7 

adjustment as provided in Section 11.3) on the date of each annual meeting of stockholders at which the Independent Director is reelected to
the Board, and (ii) a person who is initially elected or appointed to the Board and is at the time of election or appointment an Independent Director automatically shall be granted (A) an option to purchase four thousand (4,000) shares of Common
Stock (subject to adjustment as provided in Section 11.3) on the date of such initial election or appointment and (B) an option to purchase four thousand (4,000) shares of Common Stock (subject to adjustment as provided in Section 11.3) on the date
of each annual meeting of stockholders after such initial election or appointment at which the Independent Director is reelected to the Board. Members of the Board who are Employees of the Company who subsequently retire from the Company and remain
on the Board will not receive an initial Option grant pursuant to clause (ii)(A) of the preceding sentence, but to the extent that they are otherwise eligible, will receive, after retirement from the Company, Options as described in the clause
(ii)(B) of the preceding sentence. 
 
(d)  Notwithstanding Section 4.2(c), the Administrator may from time to time, in its absolute discretion, and subject to applicable limitations of the Plan: 
 
(i)  Select from among the Independent Directors (including Independent Directors who have
previously received Options under the Plan) such of them as in its opinion should be granted Options; 
 
(ii)  Determine the number of shares to be subject to such Options granted to the selected Independent Directors; and

 
(iii)  Determine the terms and
conditions of such Options, consistent with the Plan. 
 
ARTICLE V. 
TERMS OF OPTIONS 
 
5.1    Option Price.    The price per share of the shares
subject to each Option shall be set by the Administrator; provided, however, that such price shall be not be less than Fair Market Value of a share of Common Stock; provided, further that in the case of Incentive Stock Options granted
to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary, such price shall not be less than 110% of the Fair Market
Value of a share of Common Stock. 
 
5.2    Option Term.    The term of an Option shall be set by the Administrator in its discretion; provided, however, that, (i) in the case of Non-Qualified Stock Options,
the term shall be not more than (10) years from the date the Option is granted, and (ii) in the case of Incentive Stock Options, the term shall not be more than ten (10) years from the date the Incentive Stock Option is granted, or five (5) years
from such date if the Incentive Stock Option is granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary. Except
as limited by requirements of Section 422 of the Code and regulations and rulings thereunder applicable to Incentive Stock Options, the Administrator may extend the term or exercise period of any outstanding Option in connection with any Termination
of Employment, Termination of Consultancy, or Termination of Directorship of the Holder, or amend any other term or condition of such Option relating to such a termination. 
 
5.3    Option Vesting. 
 
(a)  The period during which the right to exercise
an Option in whole or in part vests in the Holder shall be set by the Administrator who may determine that an Option may not be exercised in whole or in part for a specified period after it is granted. At any time after grant of an Option, the
Administrator may, in its sole and absolute discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option vests. 
 

8 

 
(b)  No portion of an Option which is unexercisable at Termination of Employment, Termination of Directorship or Termination of Consultancy, as applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Administrator either in the Award Agreement or by action following the grant of the Option. 
 
(c)  To the extent that the aggregate Fair Market Value of stock with respect to which “Incentive Stock Options”
(within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by an Holder during any calendar year (under the Plan and all other incentive stock option plans of the Company and
any Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options into account in the order in
which they were granted. For purposes of this Section 4.4(c), the Fair Market Value of stock shall be determined as of the time the Option with respect to such stock is granted. 
 
5.4    No Repricing.    Without stockholder approval, the
Administrator shall not have the authority to amend any then outstanding Option to reduce the exercise price payable for such Option, or to require as a condition to the grant of a new Award, the surrender of previously granted Option that has an
exercise price in excess of the exercise price of the proposed new Option or other Award. 
 
ARTICLE VI. 
EXERCISE OF OPTIONS 
 
6.1    Partial
Exercise.    An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares. 
 
6.2    Manner of Exercise.    All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his office:

 
(a)  A written notice complying with
the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion; 
 
(b)  Such representations and documents as the
Administrator, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal or state securities laws or regulations. The Administrator
may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

 
(c)  In the event that the Option
shall be exercised pursuant to Section 11.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option; 
 
(d)  Full cash payment to the Secretary of the Company for the shares with respect to which the
Option, or portion thereof, is exercised. However, the Administrator, may in its discretion, to the extent not prohibited by and subject to the restrictions contained in any applicable law, (i) allow a delay in payment up to thirty (30) days from
the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the actual or constructive delivery of shares of Common Stock owned by the Holder, duly endorsed for transfer to the Company with a Fair Market
Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of the Option
having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, 

 

9 

through the delivery of property of any kind which constitutes good and valuable consideration; (v) allow payment, in whole or in part,
through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Administrator; (vi) allow
payment, in whole or in part, through the delivery of a notice that the Holder has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and the broker pays a sufficient portion of
the net proceeds of the sale to the Company in satisfaction of the Option exercise price; or (vii) allow payment through any combination of the consideration provided in the foregoing subparagraphs (i), (ii), (iii), (iv), (v) and (vi). In the case
of a promissory note, the Administrator may also prescribe the form of such note and the security to be given for such note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such
loan or other extension of credit is prohibited by law; and 
 
(e)  Full payment in cash or deduction from other compensation payable to the Holder of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting or exercise of any Award. The
Administrator may in its discretion and in whole or partial satisfaction of the foregoing requirement, require that the Company withhold shares of Common Stock otherwise issuable under such Award (or allow the surrender by the Holder of shares of
Common Stock) having a Fair Market Value in an amount not to exceed the sums necessary to pay the tax withholding based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to
such supplemental taxable income. 
 
6.3    Conditions to Issuance of Stock Certificates.    The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the
exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: 
 
(a)  The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; 
 
(b)  The completion of any registration or other
qualification of such shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its absolute discretion, deem
necessary or advisable; 
 
(c)  The
obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; 
 
(d)  The lapse of such reasonable period of time
following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and 
 
(e)  The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which in
the discretion of the Administrator may be in the form of consideration used by the Holder to pay for such shares pursuant to Section 5.2(d). 
 
6.4    Rights as Stockholders.    The Holders of Options shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders.

 
6.5    Ownership and
Transfer Restrictions.    The Administrator, in its absolute discretion, may impose such restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any
such restriction shall be set forth in the respective Award Agreement and may be referred to on the certificates evidencing such shares. The Administrator may require the Employee to give the Company prompt notice of any disposition of shares of
Common Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of granting such Option to such Employee or (ii) one year after the transfer of such shares to such Employee. The Administrator may direct that the
certificates evidencing shares acquired by exercise of an Option refer to such requirement to give prompt notice of disposition. 
 

10 

 
ARTICLE VII.

AWARD OF RESTRICTED STOCK 
 
7.1    Award of Restricted Stock. 
 
(a)  The Administrator shall from time to time, in
its absolute discretion: 
 
(i)  Select
from among the key Employees, consultants or Independent Directors (including those who have previously received other Awards under this Plan) such of them as in its opinion should be awarded Restricted Stock; and 
 
(ii)  Determine the restrictions and other terms
and conditions applicable to such Restricted Stock, consistent with this Plan. 
 
(b)  The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that such purchase price shall be no less than
the par value of the Common Stock to be purchased. In all cases, legal consideration shall be required for each issuance of Restricted Stock. 
 
(c)  Upon the selection of a key Employee, consultant or Independent Director to be awarded Restricted Stock, the Administrator
shall instruct the Secretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate. 
 
7.2    Rights as Stockholders.    Upon delivery of the shares
of Restricted Stock to the escrow holder pursuant to Section 7.5, the Holder shall have, unless otherwise provided by the Administrator, all the rights of a stockholder with respect to said shares, subject to the restrictions in his Award Agreement,
including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that in the discretion of the Administrator, any extraordinary distributions with respect to the Common
Stock shall be subject to the restrictions set forth in Section 7.3. 
 
7.3    Restriction.    All shares of Restricted Stock issued under this Plan (including any shares received by Holders thereof with respect to shares of Restricted Stock as a
result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions as the Administrator shall provide, which restrictions may include, without
limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment with the Company, Company performance and individual performance; provided, however, that, unless the Administrator
otherwise provides, no share of Restricted Stock granted to a person subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise transferred until at least six months have elapsed from (but excluding) the date on which the
Restricted Stock was issued, and provided, further, that by action taken after the Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. Unless provided otherwise by the Administrator, if no consideration was paid by the Holder upon
issuance, a Holder’s rights in unvested Restricted Stock shall lapse and such Restricted Stock shall be surrendered without consideration upon Termination of Employment, Termination of Consultancy or Termination of Directorship, as applicable.

 
7.4    Repurchase of
Restricted Stock.    The Administrator shall provide in the terms of each individual Award Agreement evidencing Restricted Stock that the Company shall have the right to repurchase from the Holder the Restricted Stock then
subject to restrictions under the Award Agreement immediately upon a Termination of Employment, Termination of Consultancy or Termination of Directorship, as applicable, between the Holder and the Company, at a cash price per share equal to the
price paid by the Holder for such Restricted Stock; provided, however, that provision may be made that no such right of repurchase shall exist in the event of a Termination of Employment, Termination of Consultancy or Termination of
Directorship without cause, or following a change in control of the Company or because of the Holder’s retirement, death or disability, or otherwise. 
 

11 

 
7.5    Escrow.    At the discretion of the Administrator, the Secretary of the Company or such other escrow holder the Administrator may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed under the Award Agreement with respect to the shares evidenced by such certificate expire or shall have been removed. 
 
7.6    Legend.    In order to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Administrator may require a legend or legends to be placed on certificates
representing all shares of Restricted Stock that are still subject to restrictions under Award Agreements, which legend or legends shall make appropriate reference to the conditions imposed thereby. 
 
ARTICLE VIII. 
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, 
DEFERRED STOCK, STOCK PAYMENTS 
 
8.1    Performance Awards. 
 
(a) Any key Employee, consultant or Independent Director selected by the Administrator may be granted one or more Performance Awards. The
value of such Performance Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Administrator, in each case on a specified date or dates or over any period or periods
determined by the Administrator. In making such determinations, the Administrator shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the
particular key Employee, consultant or Independent Director. 
 
(b) Without limiting Section 8.1(a), the Administrator may grant Performance Awards to any 162(m) Participant in the form of a cash bonus payable upon the attainment of objective performance goals which are established by the
Administrator and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Administrator. Any such bonuses paid to 162(m) Participants shall be based upon
objectively determinable bonus formulas established in accordance with the provisions of Section 3.2. The maximum amount of any Performance Award payable to a 162(m) Participant under this Section 8.1(b) shall not exceed the Award Limit with respect
to any fiscal year of the Company. Unless otherwise specified by the Administrator at the time of grant, the Performance Criteria with respect to a Performance Award payable to a 162(m) Participant shall be determined on the basis of generally
accepted accounting principles, without recognition of (i) unusual or nonrecurring events affecting the Company or its financial statements or (ii) changes in applicable laws, regulations or accounting principles, as determined by the Administrator.

 
8.2    Dividend
Equivalents.    Any key Employee, consultant or Independent Director selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option, Stock Appreciation Right, Deferred Stock or Performance Award is granted, and the date such Option, Stock Appreciation Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator. 
 
8.3    Stock
Payments.    Any key Employee, consultant or Independent Director selected by the Administrator may receive Stock Payments in the manner determined from time to time by the Administrator. The number of shares shall be
determined by the Administrator and may be based upon the Fair Market Value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by the Administrator, determined on the
date such Stock Payment is made or on any date thereafter. 
 

12 

 
8.4    Deferred Stock.    Any key Employee, consultant or Independent Director selected by the Administrator may be granted an award of Deferred Stock in the manner determined from time
to time by the Administrator. The number of shares of Deferred Stock shall be determined by the Administrator and may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other specific performance
criteria determined to be appropriate by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Common Stock underlying a Deferred Stock award will not be issued until the Deferred
Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Administrator. Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall have no rights as a Company stockholder with respect to such
Deferred Stock until such time as the award has vested and the Common Stock underlying the award has been issued. 
 
8.5    Term.    The term of a Performance Award, Dividend Equivalent, award of Deferred
Stock and/or Stock Payment shall be set by the Administrator in its discretion. 
 
8.6    Exercise Upon Termination.    A Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or payable only
while the Holder is an Employee, consultant or Independent Director; provided that the Administrator may determine that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to
Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company, or because of the Holder’s retirement, death or disability, or otherwise. 
 
8.7    Payment on
Exercise.     Payment of the amount determined under Section 8.1 or 8.2 above shall be in cash, in Common Stock or a combination of both, as determined by the Administrator. 
 
ARTICLE IX. 
STOCK APPRECIATION RIGHTS 
 
9.1    Grant of Stock Appreciation Rights.    A Stock Appreciation Right may be granted to
any key Employee, consultant or Independent Director selected by the Administrator. A Stock Appreciation Right may be granted (i) in connection and simultaneously with the grant of an Option, (ii) with respect to a previously granted Option, or
(iii) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with this Plan as the Administrator shall impose and shall be evidenced by an Award Agreement. The Administrator, in its
discretion, may determine whether a Stock Appreciation Right is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code and Award Agreements evidencing Stock Appreciation Rights intended to so qualify shall
contain such terms and conditions as may be necessary to meet the applicable provisions of section 162(m) of the Code. 
 
9.2    Coupled Stock Appreciation Rights. 
 
(a)    A Coupled Stock Appreciation Right (“CSAR”) shall be related to a
particular Option and shall be exercisable only when and to the extent the related Option is exercisable. 
 
(b)    A CSAR may be granted to the Holder for no more than the number of shares subject to the simultaneously or
previously granted Option to which it is coupled. 
 
(c)    A CSAR shall entitle the Holder (or other person entitled to exercise the Option pursuant to this Plan) to surrender to the Company unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefore an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Common
Stock on the date of exercise of the CSAR by the number of shares of Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Administrator may impose. 
 

13 

 
9.3    Independent Stock Appreciation Rights. 
 
(a)    An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by the Administrator. An ISAR shall be exercisable in
such installments as the Administrator may determine. An ISAR shall cover such number of shares of Common Stock as the Administrator may determine. The exercise price per share of Common Stock subject to each ISAR shall be set by the Administrator,
which shall not be less than Fair Market Value of a share of Common Stock. An ISAR is exercisable only while the Holder is an Employee, consultant or Independent Director; provided that the Administrator may determine that the ISAR may be exercised
subsequent to Termination of Employment, Termination of Consultancy or Termination of Directorship without cause, or following a change in control of the Company, or because of the Holder’s retirement, death or disability, or otherwise.

 
(b)    An ISAR shall entitle
the Holder (or other person entitled to exercise the ISAR pursuant to this Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by
multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Common Stock on the date of exercise of the ISAR by the number of shares of Common Stock with respect to which the
ISAR shall have been exercised, subject to any limitations the Administrator may impose. 
 
9.4    Payment and Limitations on Exercise.    Payment of the amount determined under Section 9.2(c) and 9.3(b) above shall be in cash, in Common Stock
(based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Administrator. To the extent such payment is effected in Common Stock it shall be made subject to satisfaction
of all provisions of Section 6.3 hereinabove. 
 
ARTICLE X. 
ADMINISTRATION 
 
10.1    Committee.    The Compensation Committee of the Board
(or another committee or a subcommittee of the Board assuming the functions of the Administrator under this Plan) shall serve as the Committee and shall consist of two or more Directors appointed by and holding office at the pleasure of the Board,
provided, however, that grants to Employees who are considered reporting persons under Section 16 of the Exchange Act are to be administered by a committee or subcommittee consisting of two or more Directors each of whom satisfies the applicable
requirements of Rule 16b-3 and Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board. 
 
10.2    Duties and Powers of Administrator.    It shall be the duty of the Administrator to conduct the general administration of this Plan in accordance with its provisions. The
Administrator shall have the power to interpret this Plan and the Award Agreements pursuant to which Awards are granted or awarded, and to adopt such rules for the administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any Award under this Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under this Plan, except with respect to matters which under Rule 16b-3 or
Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. 
 
10.3    Majority Rule; Unanimous Written Consent.    The Administrator shall act by a
majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Administrator. 
 

14 

 
10.4    Compensation; Professional Assistance; Good Faith Actions.    Administrators and their members shall receive such compensation for their services as members as may be determined
by the Board. All expenses and liabilities which the Administrator may incur in connection with the administration of this Plan shall be borne by the Company. The Administrator may employ attorneys, consultants, accountants, appraisers, brokers, or
other persons. The Administrator, the Company and the Company’s officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by
the Administrator in good faith shall be final and binding upon all Holders, the Company and all other interested persons. No members of the Administrator shall be personally liable for any action, determination or interpretation made in good faith
with respect to this Plan or any Awards, and all members of the Administrator shall be fully protected by the Company in respect of any such action, determination or interpretation. 
 
10.5    Delegation of Authority to Grant Awards.    The
Committee or the Board may, but need not, delegate from time to time some or all of its authority to grant (and administer the terms of) Awards under the Plan to a committee consisting solely of one or more members of the Committee or consisting
solely of one or more executive officers of the Company; provided, however, that the Committee or Board may not delegate its authority to grant or administer any such Awards to individuals (i) who are subject on the date of the grant to the
reporting rules under Section 16(a) of the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are executive officers of the Company. Any delegation hereunder shall be subject to the restrictions and limits that the Committee or
Board specifies at the time of such delegation of authority and may be rescinded at any time by the Committee or Board. At all times, any committee appointed under this Section 10.5 shall serve in such capacity at the pleasure of the Committee or
Board. 
 
ARTICLE XI. 
MISCELLANEOUS PROVISIONS 
 
11.1    Not Transferable. 
 
(a)    Awards under this Plan may not be sold, pledged, assigned, or transferred in any
manner, other than by will or the laws of descent and distribution or pursuant to a QDRO or pursuant to paragraph (b) of this Section 11.1, unless and until such Awards have been exercised, or the shares underlying such Awards have been issued, and
all restrictions applicable to such shares have lapsed. No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. 
 
(b)    Notwithstanding the foregoing provisions of this Section 11.1, the Administrator,
in its sole discretion, may determine to grant an Award, which, by its terms or by resolution of the Administrator after its grant, may be transferred by the Holder, in writing and with prior written notice to the Administrator, by gift or
contribution, to a “family member” of the Holder (as defined under the instructions to use of Form S-8), provided, that an Award that has been so transferred shall continue to be subject to all of the terms and conditions as applicable to
the original Holder, and the transferee shall execute any and all such documents requested by the Administrator in connection with the transfer, including without limitation to evidence the transfer and to satisfy any requirements for an exemption
for the transfer under applicable federal and state securities laws. 
 
(c)    During the lifetime of the Holder, only he may exercise an Award (or any portion thereof) granted to him under the Plan unless it has been disposed of pursuant to a QDRO or transferred pursuant to
the foregoing paragraph (b). After the death of the Holder, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his 

 

15 

personal representative or by any person empowered to do so under the deceased Holder’s will or under the then applicable laws of
descent and distribution. 
 
11.2    Amendment, Suspension or Termination of this Plan.    This Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time
by the Administrator. However, without approval of the Company’s stockholders given within twelve months before or after the action by the Administrator, no action of the Administrator may, except as provided in Section 11.3, increase the
limits imposed in Section 2.1 on the maximum number of shares which may be issued under this Plan or modify the Award Limit, and no action of the Administrator may be taken that would otherwise require stockholder approval as a matter of applicable
law, regulation or rule. No amendment, suspension or termination of this Plan shall, without the consent of the holder of an Award, adversely alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. No Award may be granted or awarded during any period of suspension or after termination of this Plan, and in no event may any Incentive Stock Option be granted under this Plan after March 29, 2010.

 
11.3    Changes in Common
Stock or Assets of the Company; Acquisition or Liquidation of the Company and Other Corporate Events. 
 
(a)    Subject to Section 11.3(e), in the event that the Administrator determines that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase,
liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator’s sole discretion affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:

 
(i)    the number and kind
of shares of Common Stock (or other securities or property) with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may
be issued and adjustments of the Award Limit), 
 
(ii)    the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards, and 
 
(iii)    the grant or exercise price with respect to any Award. 
 
(b)    Subject to Section 11.3(e), in the
event of any Corporate Transaction or other event described in Section 11.3(a) which results in shares of Common Stock being exchanged for or converted into cash, securities (including securities of another corporation) or other property, the
Administrator will have the right to terminate this Plan as of the date of the event or transaction, in which case all Awards granted under this Plan shall become the right to receive such cash, securities or other property, net of any applicable
exercise price. 
 
(c)    Subject to Sections 11.3(c)(vii) and 11.3(e), in the event of any Corporate Transaction or other event described in Section 11.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it
deems appropriate, is authorized to take any one or more of the following actions or determinations, in the terms of the Award, by action taken prior to the occurrence of the event, or at any other time, whenever the Administrator determines that
such action is appropriate in order to prevent dilution or enlargement of the 

 

16 

benefits or potential benefits intended to be made available under the Plan or with respect to any Award under this Plan, to facilitate such
transactions or events, or to give effect to such changes in laws, regulations or principles: 
 
(i)    That the Award shall be purchased for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or the realization of the
Holder’s rights had such Award been currently exercisable or payable; 
 
(ii)    That the Award shall be replaced with other rights or property selected by the Administrator in its sole discretion; 
 
(iii)    That the Award cannot be
exercised after such event; 
 
(iv)    That, for a specified period of time prior to such transaction or event, such Award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in (i) Section 5.3 or
(ii) the provisions of such Award; 
 
(v)    That upon such event, such Award shall be assumed by the successor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar Awards covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; 
 
(vi)    Make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to
outstanding Awards and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards and Awards which may be granted in the future; 
 
(vii)    That, for a specified period of
time prior to such event, the restrictions imposed under the Award Agreement upon some or all of any Awards may be terminated, and/or any Awards may cease to be subject to repurchase by the Company after such event; and 
 
(viii)    In the event of a Corporate
Transaction, to the extent that the Board does not have the ability under Rule 16b-3 to take or to refrain from taking the discretionary actions set forth above, each Option granted to an Independent Director shall be exercisable as to all shares
covered thereby during the five days immediately preceding the consummation of such Corporation Transaction. 
 
(d)    Subject to Section 11.3(e) and 11.8, the Administrator may, in its discretion, include such further provisions
and limitations in any Award Agreement or certificate, as it may deem equitable and in the best interests of the Company. 
 
(e)    With respect to Incentive Stock Options and Options and Stock Appreciation Rights intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action described in this Section 11.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Option or Stock Appreciation Right to fail to so qualify under Section 162(m), as the case may be, or any successor provisions thereto. Furthermore, no such adjustment or action shall be authorized
to the extent such adjustment or action would result in a violation of Section 16. The number of shares of Common Stock subject to any such Award shall always be rounded to the next whole number. 
 
11.4    Tax
Withholding.    The Company shall be entitled to require payment in cash or deduction from other compensation payable to each Holder of any sums required by federal, state or local tax law to be withheld with respect to the
issuance, vesting or exercise of any Award. The Administrator may in its discretion and in whole or partial satisfaction of the foregoing requirement, require that the Company withhold shares of Common Stock otherwise issuable under such Award (or
allow the surrender by the Holder of shares of Common Stock) having a Fair Market Value in an amount not to exceed the sums necessary to pay the tax withholding based on the minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable income. 
 

17 

 
11.5    Loans.    The Administrator may in its discretion, except to the extent prohibited by and subject to the restrictions of any applicable law, extend one or more loans to key
Employees in connection with the exercise or receipt of an Award under this Plan. The terms and conditions of any such loan shall be set by the Administrator and be in full compliance with applicable law. 
 
11.6    Forfeiture
Provisions.    Pursuant to its general authority to determine the terms and conditions applicable to awards under the Plan, the Administrator shall have the right (to the extent consistent with the requirements of Rule 16b-3)
to provide, in the terms of Awards made under the Plan, or to require the recipient to agree by separate written instrument, that (i) any proceeds, gains or other economic benefit actually or constructively received by the recipient upon any receipt
or exercise of the Award, or upon the receipt or resale of any Common Stock underlying such Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of such award (whether or not vested) shall be forfeited,
if (a) a Termination of Employment, Termination of Consultancy or Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt or exercise of the award, or (b) the recipient at any time, or during
a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator. 
 
11.7    Limitations Applicable to
Section 16 Persons and Performance-Based Compensation.    Notwithstanding any other provision of this Plan, this Plan, and any Award granted or awarded, to any individual who is then subject to Section 16 of the Exchange Act,
shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan, the Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. Furthermore, notwithstanding any other provision of this
Plan, any Award intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent necessary to
conform to such requirements. 
 
11.8    Effect of Plan Upon Options and Compensation Plans.    The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Company or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the Company (i) to establish any other forms of incentives or compensation for Employees, Directors or consultants of the Company or any Subsidiary or (ii) to grant or assume
options or other rights otherwise than under this Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation, partnership, firm or association. 
 
11.9    Compliance with Laws.    This Plan, the granting and vesting of Awards under this
Plan and the issuance and delivery of shares of Common Stock and the payment of money under this Plan or under any Award granted or awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable
in connection therewith. Any securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan and the Awards granted or awarded hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations. 
 
11.10    Titles.    Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Plan. 
 

18 

 
11.11    Governing Law.    This Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Texas without regard to
conflicts of laws thereof. 
 
* * * 
 
I hereby certify that the foregoing Plan, as amended and
restated, was duly adopted by the Board of Directors of Varco International, Inc. on March 18, 2003 and was approved by the requisite number of votes by the stockholders of Varco International, Inc. on May 15, 2003. 
 
Executed on this 15th day of May 2003. 
 

	
	 	 	 	 	 	 	 	 	 /s/ JAMES F. MARONEY, III

	 	 	 	 	 	 	 	 	 James F. Maroney, III

	 	 	 	 	 	 	 	 	 Vice President, Secretary
 and General Counsel

 
 

19

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