Section 13(d) of the Securities Exchange Act of 1934, and “affiliate” shall have the same meaning as in Rule 405 of the Securities Exchange Commission adopted under the Securities Act of 1933.

 

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

 

2.6                                “ Committee ” means the committee of the Board described in Article 12.

 

2.7                                “ Consultant ” means any consultant or adviser if:  (a) the consultant or adviser renders bona fide services to the Company; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Company to render such services.

 

2.8                                “ Covered Employee ” means an Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.

 

2.9                                “ Deferred Stock ” means a right to receive a specified number of shares of Stock during specified time periods pursuant to Section 8.5.

 

2.10                         “ Disability ” means that the Participant qualifies to receive long-term disability payments under the Company’s long-term disability insurance program, as it may be amended from time to time.

 

2.11                         “ Dividend Equivalents ” means a right granted to a Participant pursuant to Section 8.3 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.

 

2.12                         “ Effective Date ” shall have the meaning set forth in Section 13.1.

 

2.13                         “ Eligible Individual ” means any person who is an Employee, a Consultant or an Independent Director, as determined by the Committee.

 

2.14                         “ Employee ” means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary.

 

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

 

2.16                         “ Fair Market Value ” means, as of any given date, (a) if Stock is traded on an exchange, the closing price of a share of Stock as reported in the Wall Street Journal for such date (or, if no sale occurred on such date, for the first trading date immediately prior to such date during which a sale occurred); or (b) if Stock is not traded on an exchange but is quoted on a quotation system, the mean between the closing representative bid and asked prices for the Stock on such date as reported by such quotation system (or, if no bid and asked prices for the Stock were reported on such date, on the date immediately prior to such date on which bid and asked prices are reported by such quotation system); or (c) if Stock is not publicly traded, the fair market value established by the Committee acting in good faith.

 

2.17                         “ Incentive Stock Option ” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

 

2.18                         “ Independent Director ” means a member of the Board who is not an Employee of the Company.

 

2.19                         “ Non-Employee Director ” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) under the Exchange Act, or any successor rule.

 

2.20                         “ Non-Qualified Stock Option ” means an Option that is not intended to be an Incentive Stock Option.

 

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2.21                         “ Option ” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods.  An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

 

2.22                         “ Participant ” means any Eligible Individual who, as a member of the Board, Consultant or Employee, has been granted an Award pursuant to the Plan.

 

2.23                         “ Performance-Based Award ” means an Award granted to selected Covered Employees pursuant to Section 8.7, but which is subject to the terms and conditions set forth in Article 9.

 

2.24                         “ Performance Bonus Award ” has the meaning set forth in Section 8.7.

 

2.25                         “ Performance Criteria ” means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period.  The Performance Criteria that will be used to establish Performance Goals are limited to the following:  net earnings (either before or after interest, taxes, depreciation and amortization), economic value-added, sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.  The Committee shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant.

 

2.26                         “ Performance Goals ” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria.  Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual.  The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

 

2.27                         “ Performance Period ” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.

 

2.28                         “ Performance Share ” means a right granted to a Participant pursuant to Section 8.1, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.

 

2.29                         “ Performance Stock Unit ” means a right granted to a Participant pursuant to Section 8.2, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.

 

2.30                         “ Prior Plan ” means the ChromaVision Medical Systems, Inc. 1996 Equity Compensation Plan, as such plan may be amended from time to time.

 

2.31                         “ Plan ” means this Clarient, Inc. 2007 Incentive Award Plan and any Appendixes attached hereto, as it may be amended from time to time.

 

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2.32                         “ Qualified Performance-Based Compensation ” means any compensation that is intended to qualify as “qualified performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

 

2.33                         “ Restricted Stock ” means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.

 

2.34                         “ Restricted Stock Unit ” means an Award granted pursuant to Section 8.6.

 

2.35                         “ Securities Act ” shall mean the Securities Act of 1933, as amended.

 

2.36                         “ Stock ” means the common stock of the Company, par value $0.01 per share, and such other securities of the Company that may be substituted for Stock pursuant to Article 11.

 

2.37                         “ Stock Appreciation Right ” or “ SAR ” means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.

 

2.38                         “ Stock Payment ” means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Section 8.4.

 

2.39                         “ Subsidiary ” means any “subsidiary corporation” as defined in Section 424(f) of the Code and any applicable regulations promulgated thereunder or any other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.

 

ARTICLE 3

SHARES SUBJECT TO THE PLAN

 

3.1                                Number of Shares .

 

(a)                                   Subject to Article 11 and Section 3.1(b), the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be the sum of (i) 5,000,000 shares and (ii) any shares of Stock which are subject to any award under the Prior Plan as of the Effective Date and which award thereafter terminates, expires or lapses for any reason; provided, however, that no more than 5,000,000 shares of Stock may be delivered upon the exercise of Incentive Stock Options.

 

(b)                                  To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan.  Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available for the grant of an Award pursuant to the Plan.  To the extent permitted by applicable law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan.  The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan.  Notwithstanding the provisions of this Section 3.1(b), no shares of common stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

3.2                                Stock Distributed .  Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.

 

3.3                                Limitation on Number of Shares Subject to Awards .  Notwithstanding any provision in the Plan to the contrary, and subject to Article 11, the maximum number of shares of Stock with respect to one or more

 

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Awards that may be granted to any one Participant during any one calendar year period (measured from the date of any grant) shall be 750,000 and the maximum amount that may be paid in cash during any one calendar year period (measured from the date of any payment) with respect to any Performance-Based Award (including, without limitation, any Performance Bonus Award) shall be $750,000.

 

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

 

4.1                                Eligibility .  Each Eligible Individual shall be eligible to be granted one or more Awards pursuant to the Plan.

 

4.2                                Participation .  Subject to the provisions of the Plan, the Committee may, from time to time, select from among all Eligible Individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award.  No Eligible Individual shall have any right to be granted an Award pursuant to this Plan.

 

4.3                                Foreign Participants .  Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have Eligible Individuals, the Committee, in its sole discretion, shall have the power and authority to:  (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Sections 3.1 and 3.3 of the Plan; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals.  Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law.

 

ARTICLE 5

STOCK OPTIONS

 

5.1                                General .  The Committee is authorized to grant Options to Participants on the following terms and conditions:

 

(a)                                   Exercise Price .  The exercise price per share of Stock subject to an Option shall be determined by the Committee and set forth in the Award Agreement; provided, that, subject to Section 5.2(d), the exercise price for any Option shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant.

 

(b)                                  Time and Conditions of Exercise .  The Committee shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten years.  The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.

 

(c)                                   Payment .  The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation:  (i) cash, (ii) shares of Stock which have been held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences to the Company and which have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares as to which such Option shall be exercised or (iii) other property acceptable to the Committee, and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants.  Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to

 

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pay the exercise price of an Option, or continue any extension of credit with respect to the exercise price of an Option with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

 

(d)                                  Evidence of Grant .  All Options shall be evidenced by an Award Agreement between the Company and the Participant.  The Award Agreement shall include such additional provisions as may be specified by the Committee.

 

5.2                                Incentive Stock Options .  Incentive Stock Options shall be granted only to Employees and the terms of any Incentive Stock Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the provisions of this Section 5.2.

 

(a)                                   Expiration .  Subject to Section 5.2(c), an Incentive Stock Option shall expire and may not be exercised to any extent by anyone after the first to occur of the following events:

 

(i)                                      Ten years from the date it is granted, unless an earlier time is set in the Award Agreement;

 

(ii)                                   Three months after the Participant’s termination of employment as an Employee; and

 

(iii)                                One year after the date of the Participant’s termination of employment or service on account of Disability or death.  Upon the Participant’s Disability or death, any Incentive Stock Options exercisable at the Participant’s Disability or death may be exercised by the Participant’s legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution.

 

(b)                                  Dollar Limitation .  The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision.  To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

 

(c)                                   Ten Percent Owners .  An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.

 

(d)                                  Notice of Disposition .  The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such shares of Stock to the Participant.

 

(e)                                   Right to Exercise .  During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.

 

(f)                                     Failure to Meet Requirements .  Any Option (or portion thereof) purported to be an Incentive Stock Option, which, for any reason, fails to meet the requirements of Section 422 of the Code shall be considered a Non-Qualified Stock Option.

 

5.3                                Substitution of Stock Appreciation Rights .  The Committee may provide in the Award Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have to right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option;

 

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provided, that such Stock Appreciation Right shall be exercisable with respect to the same number of shares of Stock for which such substituted Option would have been exercisable.

 

5.4                                Granting of Options to Independent Directors .  The Board may from time to time, in its sole discretion, and subject to the limitations of the Plan:

 

(a)                                   Select from and grant Options to any Independent Directors (including Independent Directors who have previously been granted Options under the Plan);

 

(b)                                  Subject to Section 3.3, determine the number of shares of Stock that may be purchased upon exercise of the Options granted to such selected Independent Directors; and

 

(c)                                   Subject to the provisions of this Article 5, determine the terms and conditions of such Options, consistent with the Plan.

 

Options granted to Independent Directors shall be Non-Qualified Stock Options.

 

ARTICLE 6

RESTRICTED STOCK AWARDS

 

6.1                                Grant of Restricted Stock .  The Committee is authorized to make Awards of Restricted Stock to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee.  All Awards of Restricted Stock shall be evidenced by an Award Agreement.

 

6.2                                Issuance and Restrictions .  Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock).  These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

 

6.3                                Forfeiture .  Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.

 

6.4                                Certificates for Restricted Stock .  Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine.  If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

 

ARTICLE 7

STOCK APPRECIATION RIGHTS

 

7.1                                Grant of Stock Appreciation Rights .

 

(a)                                   A Stock Appreciation Right may be granted to any Participant selected by the Committee.  A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement.

 

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(b)                                  A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount equal to the product of (i) the excess of (A) the Fair Market Value of the Stock on the date the Stock Appreciation Right is exercised over (B) the Fair Market Value of the Stock on the date the Stock Appreciation Right was granted and (ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised, subject to any limitations the Committee may impose.

 

7.2                                Payment and Limitations on Exercise .

 

(a)                                   Subject to Section 7.2(b), payment of the amounts determined under Section 7.1(b) above shall be in cash, in 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 Committee in the Award Agreement.

 

(b)                                  To the extent any