54
PROPOSAL 3
ADVISORY VOTE TO APPROVE
NAMED EXECUTIVE OFFICER COMPENSATION
As required by Section 14A of the Exchange Act, we are requesting stockholder approval of the compensation of our Named Executive Officers in fiscal 2019,2020, which is described in the “Compensation Discussion and Analysis” section, the compensation tables and the related narrative discussion of this Proxy Statement. This approval is not intended to address any specific item or element of compensation or the compensation of any particular Named Executive Officer, but rather the overall compensation of the Company’s Named Executive Officers and the philosophy, principles and policies used to determine compensation.
Stockholders were most recently asked to approve the compensation of the Company’s Named Executive Officers at our 20192020 annual meeting of stockholders, and stockholders approved the Company’s Named Executive Officer compensation with more than 88%approximately 94% of the votes cast in favor. At the Company’s 2017 annual meeting of stockholders, we asked stockholders to indicate whether future advisory stockholder votes on Named Executive Officer compensation should occur every one, two or three years. Because the Board views it as a good corporate governance practice, and because at the 2017 annual meeting of stockholders a majority of the votes cast were in favor of an annual advisory vote, the Board adopted a policy that the Company will include an advisory stockholder vote on Named Executive Officer compensation in the Company’s proxy materials on an annual basis until the next required advisory stockholder vote on the frequency of advisory stockholder votes on Named Executive Officer compensation, which will occur no later than the Company’s annual meeting of stockholders in 2023.
Our compensation policies and procedures are competitive, are focused primarily on pay-for-performance principles and are intended to align with the long-term interests of our stockholders. We encourage you to carefully review the “Compensation Discussion and Analysis” section beginning on page 2931 of this Proxy Statement for additional details on Sonic’s executive compensation, including Sonic’s compensation philosophy and objectives, as well as the processes our Compensation Committee used to determine the compensation of our Named Executive Officers in fiscal 2019.2020.
Accordingly, the Company is asking stockholders to vote, on an advisory basis, “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the compensation paid to Sonic’s Named Executive Officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the “Compensation Discussion and Analysis” section, the compensation tables and the related narrative discussion set forth on pages 2931 to 5258 of this Proxy Statement, is hereby approved.”
This vote is advisory, which means that the stockholder vote on this proposal will not be binding on Sonic, the Compensation Committee or the Board. However, the Compensation Committee and the Board value the opinions of the Company’s stockholders and will carefully consider the outcome of the vote when making future compensation decisions for Sonic’s Named Executive Officers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE APPROVAL, ON AN ADVISORY BASIS, OF
THE COMPENSATION OF SONIC’S NAMED EXECUTIVE OFFICERS IN
FISCAL 2019
2020AS DISCLOSED IN THIS PROXY STATEMENT.
PROPOSAL 4
APPROVAL OF THE AMENDMENT TO
SONIC’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board has unanimously declared advisable, adopted and recommends that Sonic’s stockholders approve, an amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”) designating the exclusive forums in which certain claims against Sonic may be brought. Prior to February 10, 2021, both Sonic’s Amended and Restated Bylaws and its Amended and Restated Certificate of Incorporation were silent as to the forum in which stockholders may bring claims against Sonic. As a corporation organized under the laws of the State of Delaware, Delaware law governs the relationship among Sonic’s directors, officers and stockholders (also known as the “internal affairs doctrine”). However, federal law gives the federal courts of the United States and the courts of the several states concurrent jurisdiction over claims arising under the Securities Act of 1933, as amended (the “Securities Act”). Federal law gives the federal courts of the United States exclusive jurisdiction over claims brought under the Exchange Act. State law claims may also be brought together with Securities Act and Exchange Act claims as well, including claims under the internal affairs doctrine. As more fully described below (such description being qualified in its entirety by the full text of the amendment attached to this Proxy Statement as Appendix A), the Amendment provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for claims brought under the internal affairs doctrine. The Amendment further specifies that, to the extent permitted by applicable law, the United States District Court for the District of Delaware shall be the sole and exclusive forum for claims brought under the Securities Act and the Exchange Act. The exclusive forum provisions only regulate the forums in which our stockholders may file claims relating to the specified disputes. The provisions do not restrict the ability of plaintiffs to bring such claims or the remedies available if the claims are ultimately successful.
By designating the forums in which certain claims can be brought, the Company intends to promote the efficient resolution of such claims and avoid duplicative lawsuits being brought in multiple jurisdictions. Further, the ability to litigate internal claims governed by Delaware law in state courts outside the State of Delaware may mean that claims are brought in jurisdictions which do not apply Delaware law to the Company’s internal affairs in the same manner as the Court of Chancery of the State of Delaware would do. Even if such jurisdictions sought to apply Delaware law in a manner consistent with the courts of the State of Delaware, the outcomes of those cases and cases brought in other forums could be inconsistent with each other and with the manner in which the Delaware courts would decide such cases.
The Board considered the fact that the Delaware courts are widely regarded as the leading courts for the determination of disputes involving a company’s internal affairs in terms of precedent, experience and focus. The courts’ considerable expertise has led to the development of a substantial and influential body of case law interpreting Delaware law. This provides Sonic and our stockholders with more predictability regarding the outcome of corporate disputes. The Board also considered that the Court of Chancery of the State of Delaware is a specialized court addressing corporate matters with streamlined procedures and processes which help provide relatively quick decisions, which we believe can minimize the time, cost and uncertainty of litigation for all parties. The Court of Chancery of the State of Delaware has developed considerable expertise with respect to corporate law issues, as well as a substantial and influential body of case law construing Delaware’s corporate law and long-standing precedent regarding corporate governance. This provides stockholders and the Company with more predictability regarding the outcome of intra-corporate disputes.
In addition, the Board believes that designating the United States District Court for the District of Delaware as the exclusive forum for claims brought under the Securities Act and the Exchange Act promotes many of the same benefits to Sonic and its stockholders as discussed above. The District of Delaware is a common venue for claims brought under both the Securities Act and the Exchange Act and is experienced with handling such claims. Further, to the extent that state law claims might be asserted in the same lawsuit, the Board believes the federal courts of the District of Delaware are best able to interpret the General Corporation Law of the State of Delaware consistently with the state courts of Delaware. The designation of a single venue for claims brought under the Securities Act and the Exchange Act also promotes the efficient disposition of claims and the avoidance of contradictory outcomes. While the Board believes the designation of the District of Delaware as the exclusive forum for claims brought under the Securities Act and the Exchange Act is permitted under applicable law, there is no controlling legal authority that states that such provision would be enforceable.
In reaching its conclusion to adopt the Amendment and recommend that stockholders approve the Amendment, the Board considered that the exclusive forum provisions contemplated by the Amendment may in some instances impose additional litigation costs on stockholders in pursuing certain claims, particularly if a stockholder does not reside in or near the State of Delaware. The Board also weighed the possibility that an exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Although some plaintiffs might prefer to litigate claims under the Securities Act in a state court because it may be more convenient or viewed as being more favorable to them, or for other reasons, the Board believes that the substantial benefits to the Company and its stockholders as a whole from designating the Unites States District Court for the District of Delaware as the exclusive forum for litigation arising under the Securities Act outweigh these concerns.
While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions requiring claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether courts in other jurisdictions will enforce provisions such as those contemplated in the Amendment, including whether a court would enforce the provision requiring claims arising under the Securities Act or the Exchange Act to be brought in the United States District Court for the District of Delaware. If the exclusive forum provision contemplated by the Amendment is found to be unenforceable in a particular action, we may incur additional costs associated with resolving such an action or the validity of the exclusive forum provision on appeal. Conversely, the provision contemplated by the Amendment might impose additional litigation costs on stockholders who assert that the provision is not enforceable or is invalid. The Delaware courts or the United States District Court for the District of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than to our stockholders.
On February 10, 2021, the Board adopted Amended and Restated Bylaws that include an exclusive forum provision substantially identical to the provision contemplated in the Amendment. The Board adopted the exclusive forum bylaw provision in order to ensure the efficient resolution of claims and to reduce the cost and uncertainty of litigation for all parties prior to the time when our stockholders have an opportunity to vote to approve the Amendment. To the extent the Amendment is not approved by our stockholders at the Annual Meeting, the Board will promptly act to further amend and restate the Bylaws to remove the exclusive forum bylaw provision from the Bylaws.
Accordingly, in light of the foregoing and for the reasons stated above, the Board has unanimously declared advisable, adopted and recommends that Sonic’s stockholders approve, an amendment adding a new Article XI to our Amended and Restated Certificate of Incorporation to provide
that, unless Sonic otherwise consents in writing, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any state law claims for:
| | | | | | | | | | | |
| • | | any derivative action or proceeding brought on behalf of Sonic (other than derivative actions brought to enforce any duty or liability created by the Exchange Act or the rules and regulations promulgated thereunder); |
| • | | any action asserting a claim of a breach of, or based on, a fiduciary duty owed by any current or former director, officer or other employee of Sonic to Sonic or Sonic’s stockholders; |
| • | | any action asserting a claim against Sonic or any current or former director, officer or other employee or stockholder of Sonic arising pursuant to any provision of the General Corporation Law of the State of Delaware or Sonic’s Amended and Restated Certificate of Incorporation or Sonic’s Amended and Restated Bylaws; or |
| • | | any action asserting a claim against Sonic governed by the internal affairs doctrine of the State of Delaware. |
The amendment also provides that, unless Sonic consents in writing, but only to the extent permitted by applicable law, the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, or any ancillary claims related thereto which are subject to the ancillary jurisdiction of the federal courts.
A copy of the amendment to our Amended and Restated Certificate of Incorporation is attached as Appendix A to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”THE APPROVAL OF THE AMENDMENT TO
SONIC’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL 5
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE
SONIC AUTOMOTIVE, INC. 2012 FORMULA RESTRICTED STOCK AND
DEFERRALINCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS
On February 12, 2020, the Board of Directors approved an amendment and restatement of the 2012 Formula Plan, subject to and effective upon the approval of stockholders at the Annual Meeting. The 2012 Formula Plan provides for formula grants of restricted stock awards to Sonic’s non-employee directors. The amendment and restatement of the 2012 Formula Plan provides for an increase in the dollar value of the annual stock award to each eligible non-employee director from $130,000 to $145,000, reflecting an increase of $15,000.
The 2012 FormulaStock Incentive Plan was firstoriginally adopted by the Board of Directors on February 22, 2012 and approved by ourthe Company’s stockholders at the 2012 annual meeting of stockholders. The 2012 FormulaStock Incentive Plan washas been previously amended and restated, most recently effective as of April 18, 2017 upon stockholder approval29, 2019 and approved by the Company’s stockholders at the 20172019 annual meeting of stockholders. On February 10, 2021, the Board of Directors, with the recommendation of the Compensation Committee, approved an amendment and restatement of the 2012 Stock Incentive Plan, subject to the requisite approval of the Company’s stockholders at the Annual Meeting. We are asking that stockholders approve the amendment and restatement of the 2012 Stock Incentive Plan to increase the number of shares of the Company’s Class A Common Stock authorized for issuance thereunder from 6,000,000 to 8,000,000, reflecting an increase of 2,000,000 shares. No other amendments are proposed for stockholder approval.
The proposed increase in the dollar valuenumber of shares of the annual stock awardCompany’s Class A Common Stock authorized for issuance under the 2012 FormulaStock Incentive Plan followed a review and evaluation of Sonic’s existing compensation program for our non-employee directors and is intended to adjustallow the Company to continue to offer equity-based incentive compensation in an effort to attract, retain, motivate and reward key employees and, when appropriate, consultants, as well as to align their interests with those of the Company’s stockholders. The Board of Directors believes that the 2012 Stock Incentive Plan helps to strengthen the incentive for participants to achieve the objectives of the Company and its stockholders. We also believe these additional shares are necessary to sustain equity compensation as an integral component of our compensation philosophy and the continued link between overall compensation and increases in lightstockholder value. In addition, the grant of those offeredequity awards as a form of compensation helps to allow us to manage cash resources. The proposed additional shares under the 2012 Stock Incentive Plan also are intended and necessary to support awards of performance-based restricted stock units under the 2012 Stock Incentive Plan to 96 designated key employees (including our Named Executive Officers) that were approved by the Compensation Committee on February 10, 2021, subject to stockholder approval of the amendment and restatement.
As of February 24, 2021, and without considering the proposed 2,000,000 share increase, approximately 111,710 shares of the Company’s Class A Common Stock remained available for future awards under the 2012 Stock Incentive Plan. The shares that remain available are not sufficient to support our peer group companiesannual grant of equity awards approved by the Compensation Committee in February 2021, and, therefore, these awards were made contingent on stockholder approval of the retail automotive sector.
Theamendment and restatement. In addition, if the amendment and restatement of the 2012 FormulaStock Incentive Plan would become effective as of April 29, 2020 upon requisite approval by our stockholders. If the amendment and restatement is not approved by our stockholders, we will not be able to make awards in the current 2012 Formula Plan will continue in effect.coming years which we anticipate would materially affect our ability to attract and retain highly qualified individuals and place us at a competitive disadvantage.
The following is a summary of the 2012 FormulaStock Incentive Plan, as amended and restated, submitted for stockholder approval. The summary describes the principal features of the 2012 FormulaStock Incentive Plan, but it is qualified by reference to the full text of the amendment and restatement of the 2012 FormulaStock Incentive Plan, which is included inattached as Appendix B to this Proxy Statement as Appendix A.Statement.
Summary of Amendment and Restatement of the 2012 FormulaStock Incentive Plan
Administration
Awards under the
The 2012 Formula Plan generally are intended to occur automatically without any discretion or additional approval necessary for grants to occur. Otherwise, the 2012 FormulaStock Incentive Plan is administered by the BoardCompensation Committee. The Compensation Committee has the full authority to grant awards under the 2012 Stock Incentive Plan, to select the recipients of Directors. Subjectawards under the 2012 Stock Incentive Plan, to determine the type and size of awards, and to determine and amend the terms, restrictions and conditions of awards. Among other things, the 2012 Formula Plan (which dictates the recipients, amount and timing of restricted stock awards to be granted), the Board of DirectorsCompensation Committee also has the full authority to construe and interpret the 2012 FormulaStock Incentive Plan and any related award agreement, to establish rules and regulations relating to planthe administration of the 2012 Stock Incentive Plan, to reviewdelegate administrative responsibilities and determineto make all claims made underother determinations and take any other actions that may be necessary or with respectadvisable for the administration of the 2012 Stock Incentive Plan. The Compensation Committee also has the discretion to vary or amend the terms of awards and to establish administrative rules, procedures and sub-plans to conform to or accommodate differences in laws, rules, regulations, customs or policies of applicable non-U.S. jurisdictions.
The amendment and restatement of the 2012 Stock Incentive Plan also includes more detailed provisions regarding the authority of the Compensation Committee to delegate its authority. To the extent permitted by applicable law and to the extent that any such action will not prevent the 2012 FormulaStock Incentive Plan or any award from satisfying certain regulatory exemptions and requirements, the Compensation Committee may delegate to determine all questions arisinga subcommittee or executive officers of the Company (or other such persons it deems appropriate) the authority to perform such functions that the Compensation Committee determines; provided, that awards to executive officers and related substantive matters will be determined solely by the Compensation Committee or an appropriate subcommittee.
Eligibility
The Compensation Committee may grant awards under the 2012 FormulaStock Incentive Plan to employees and consultants providing services to delegate routine administrativethe Company. In selecting recipients of awards and recordkeeping responsibilities. Determinations made with respectdetermining the applicable terms and conditions, the Compensation Committee may take into account any factors it deems appropriate, including, among other things, their duties and the Compensation Committee’s assessment of their present and potential contributions to an individual non-employee director will be made without participation by such director.
Eligibility
Membersthe success of the BoardCompany. The number of Directors who are not employed by Sonic or any of its subsidiaries are eligible to participate in the 2012 Formula Plan. Sonic currently has seven non-employee directorsindividuals who are eligible to participate in the 2012 Formula Plan.Stock Incentive Plan will vary and, in light of the Compensation Committee’s discretion, the actual number of individuals who will be granted an award in the future cannot be determined. As of February 24, 2021, the Company had approximately 8,200 employees.
Types of Awards
Awards under the 2012 Stock Incentive Plan may be granted in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock awards. Each type of award is discussed in more detail below.
Shares Subject to 2012 Stock Incentive Plan and Award Limits
If the stockholders approve the amendment and restatement of the 2012 FormulaStock Incentive Plan,
The maximum the number of shares of Sonic’sthe Company’s Class A Common Stock available for issuance under the 2012 FormulaStock Incentive Plan is 500,000will be 8,000,000 shares, subject to adjustment as described below. Taking into accountShares of Class A
Common Stock covered by awards that expire or are forfeited, canceled, settled in cash or otherwise terminated without the delivery of the full number of covered shares previously issuedwill be available for further awards under the 2012 FormulaStock Incentive Plan there currently are 251,707shares that remain available for grants underto the 2012 Formula Plan. Sharesextent of such expiration, forfeiture, cancellation, cash settlement, etc. However, shares of Class A Common Stock covered by restricted stock awardssubject to an award that are forfeited, canceled(i) withheld or otherwise terminatedretained by the Company in wholepayment of the exercise or purchase price of an award (including shares withheld or retained by the Company or not issued in partconnection with the net settlement or net exercise of an award) or (ii) tendered to, withheld or retained by the Company in payment of tax withholding obligations relating to an award will not become available again for any reason will be available for further grantsawards under the 2012 FormulaStock Incentive Plan.
The maximum number of shares of Class A Common Stock that may be issued pursuant to incentive stock options under the 2012 Stock Incentive Plan is 2,000,000 shares, subject to adjustment as described below.
No individual may be granted options and/or stock appreciation rights under the 2012 Stock Incentive Plan with respect to an aggregate of more than 500,000 shares of Class A Common Stock during any calendar year. With respect to all other types of awards, the 2012 Stock Incentive Plan provides that no individual may be granted awards (whether such awards may be settled in shares of Class A Common Stock and/or cash) consisting of, covering or relating to in the aggregate more than 1,100,000 shares of Class A Common Stock during any calendar year. These limits apply regardless of whether the award is intended to be treated as performance-based compensation under the Section 162(m) Exception (see “—Section 162(m) Performance Awards” below).
In the event of a reorganization, recapitalization, stock split, stock dividend, extraordinary dividend, spin-off, combination of shares, merger, consolidation or similar transaction or other change in corporate capitalization affecting the Class A Common Stock, equitable adjustments and/or substitutions, as applicable, to prevent the dilution or enlargement of rights willshall be made by the BoardCompensation Committee, including adjustments to the number and kind of shares thatof Class A Common Stock which may be issued under the 2012 FormulaStock Incentive Plan, and that are subject to outstanding awards under the 2012 Formula Plan.
Restricted Stock Award Elections
The 2012 Formula Plan provides that annual restricted stock awards will be granted in the form of restricted stock unless the non-employee director makes an irrevocable written election to instead receive such annual grant in the form of deferred restricted stock units. A deferred restricted stock unit is a non-voting unit that represents the contingent right to receive a share of Class A Common Stock in the future. Subject to vesting of the deferred restricted stock units, receipt of the corresponding shares of Class A Common Stock would then be deferred to a later date. A non-employee director who wishes to be granted deferred restricted stock units for a particular year must make a written election no later than December 31 of the prior calendar year. Deferral elections become irrevocable as of such December 31. Deferral elections apply to the full restricted stock award; no partial elections can be made. Interim grants of restricted stock awards during a year to newly appointed non-employee directors will be made in the form of restricted stock, with no deferral election available.
Formula Restricted Stock Awards — Grants of Restricted Stock or Deferred Restricted Stock Units
An annual restricted stock award – either in the form of restricted stock, or, subject to the non-employee director’s timely election, deferred restricted stock units – will be granted to each eligible non-employee director on the first business day following each annual meeting of Sonic’s stockholders. If the amended and restated 2012 Formula Plan is approved by stockholders, the number of restricted shares of Class A Common Stock or deferred restricted stock units, as applicable, to be granted to an eligible non-employee director will equal $145,000 (increased from $130,000) divided by the average closing sale price of the Class A Common Stock on the NYSE for the 20 trading days immediately prior to the grant date (rounded up to the nearest whole share). Generally, subject to the director’s continued service on the Board of Directors, the restricted stock award (whether restricted stock or deferred restricted stock units) will vest in full on the first anniversary of the grant date or, if earlier, the day before the next annual meeting of Sonic’s stockholders following the grant date.
The 2012 Formula Plan also provides that if a non-employee director initially becomes a member of the Board of Directors after the annual meeting of Sonic’s stockholders has been held for the year in which such initial appointment occurs, the non-employee director will receive a restricted stock grant effective on the date of his or her initial appointment to the Board. If the amended and restated 2012 Formula Plan is approved by stockholders, the number of restricted shares of Class A Common Stock subject to the award will equal $145,000 (increasedlimits under the 2012 Stock Incentive Plan, and the number, kind and price of shares of Class A Common Stock subject to outstanding awards under the 2012 Stock Incentive Plan.
Stock Options
Stock options may be granted under the 2012 Stock Incentive Plan in the form of either incentive stock options (also referred to as “ISOs”) intended to qualify under Section 422 of the Code or nonstatutory stock options. Incentive stock options can be granted only to employees of the Company and certain subsidiaries. Stock options give the recipient an opportunity to purchase shares of the Company’s Class A Common Stock from $130,000) dividedthe Company at a designated exercise price.
The exercise price of options granted under the 2012 Stock Incentive Plan is determined at the discretion of the Compensation Committee, but the exercise price per share generally may not be less than the fair market value of a share of the Company’s Class A Common Stock on the grant date of the option. In the case of incentive stock options granted to any holder on the grant date of more than 10% (directly or by attribution through relatives or entities in which the averageholder has an ownership interest) of the total combined voting power of all classes of stock of the Company or a parent or subsidiary corporation (a “10% Stockholder”), the exercise price per share may not be less than 110% of the fair market value of a share of the Company’s Class A Common Stock on the grant date. For this purpose, fair market value under the 2012 Stock Incentive Plan generally is based on the closing sale price of the Company’s
Class A Common Stock on the NYSE for the 20 trading days immediately prior toon the grant date (rounded upof the option (or, if there is no such sale on the grant date, then on the last previous day on which a sale was reported).
The Compensation Committee establishes the time period within which options must be exercised, but this period may not exceed 10 years from the grant date of the option or, in the case of incentive stock options granted to a 10% Stockholder, five years from the grant date of the option. Options may expire before the end of the option period if the option holder’s service with the Company terminates. Stock options will be exercisable at such time or times and subject to such restrictions as determined by the Compensation Committee. Such restrictions may, but are not required to, include performance goals for financial or other business objectives. To the extent that the fair market value of incentive stock options (determined based on the fair market value on the grant date) that become exercisable for the first time in a calendar year exceeds $100,000, such options generally will be deemed nonstatutory stock options.
To exercise an option, the option holder must deliver a written notice of exercise to the nearest whole share). Generally, subject toCompany (or its delegate) in the director’s continued service onmanner directed by the Board of Directors, the restricted stock will vest in full on the first anniversary of the grant date.
If, on any grant date,Company, specifying the number of shares of Class A Common Stock attributablewith respect to restricted stock awardswhich the option is to be granted exceedsexercised, accompanied by the numberaggregate exercise price (or provision for the aggregate exercise price). Unless otherwise provided by the Compensation Committee, the exercise price of shares then available for issuance underan option generally may be paid in cash and, subject to applicable law and such rules as may be established by the 2012 Formula Plan, the number ofCompensation Committee, (i) by tendering previously acquired shares of restricted stock and deferred restricted stock units to be grantedClass A Common Stock having an aggregate fair market value equal to the non-employee directors ontotal exercise price as long as certain requirements are met and/or (ii) by means of a “cashless exercise” through an approved broker. The Compensation Committee also may provide that grant date willoptions may be reduced onexercised using a pro rata basis.“net share settlement” procedure or by other means consistent with applicable law.
Except inas otherwise provided by the event of a termination ofCompensation Committee, the following rules apply if an option holder’s service immediately prior to or upon a change in control (as described below), if a director’swith the Company and its subsidiaries terminates. If the option holder’s service on the Board terminates for any reason other than cause, involuntary termination without cause, disability or death, the option holder generally may exercise his or disability, all ofher stock options (to the director’s shares of restricted stock or deferred restricted units, as applicable, not vested atextent vested) within the time of60-day period following such termination are forfeited.termination. If the director’soption holder is terminated for cause, the option holder’s stock options will immediately expire and can no longer be exercised. If the option holder is involuntarily terminated without cause, options (to the extent vested) generally may be exercised during the 90-day period following termination. If the option holder’s service on the Board terminates due to his death or her disability, options (to the extent vested) generally may be exercised during the one-year period following termination. If the option holder dies while employed or immediately prior to or upon a change in controlduring the applicable exercise period following termination as described above, options (to the extent vested) generally may be exercised during the one-year period following the option holder’s death. In no event can an option be exercised after the expiration of its term (i.e., the Company,option period fixed by the director’s restricted stock or deferred restricted stock units will become fully vested.Compensation Committee).
Shares of restricted stock
Options generally may not be sold,transferred except by will or the laws of descent and distribution and options generally may be exercised during the lifetime of the option holder only by the option holder. However, the Compensation Committee, in its discretion, may permit the transfer of nonstatutory stock options in certain circumstances.
Stock Appreciation Rights
Stock appreciation rights (or “SARs”) allow a recipient to receive upon exercise an amount equal to the excess of the fair market value at that time of the shares of the Company’s Class A Common Stock with respect to which the SARs are being exercised over the initial value assigned pledgedto such SARs. This
amount may be payable in cash, shares of Class A Common Stock or otherwise transferreda combination thereof, as determined by the Compensation Committee. The initial value of SARs granted under the 2012 Stock Incentive Plan is determined at the discretion of the Compensation Committee, but the initial value per share of Class A Common Stock covered by the SARs may not be less than the fair market value of a share of the Company’s Class A Common Stock on the grant date of the SARs. For this purpose, fair market value under the 2012 Stock Incentive Plan generally is based on the closing sale price of the Company’s Class A Common Stock on the NYSE on the grant date of the SARs (or, if there is no such sale on the grant date, then on the last previous day on which a sale was reported).
SARs may be granted in tandem with stock options or independently. The Compensation Committee will establish the time period within which SARs must be exercised, but this period cannot exceed 10 years from the grant date of the SARs. SARs granted in tandem with stock options must have the same term as the options to which they relate. SARs may expire before the end of the exercise period if the recipient’s service with the Company ends. SARs will be exercisable at such time or times and subject to such restrictions as determined by the Compensation Committee. Such restrictions may, but are not required to, include performance goals for financial or other business objectives. SARs granted in tandem with stock options may be exercised only with respect to the shares of Class A Common Stock for which their related stock options are then exercisable. The exercise of either options or SARs that are granted in tandem will result in the termination of the other to the extent they remain unvested. Deferredof the number of shares of Class A Common Stock with respect to which such options or SARs are exercised.
If an individual’s service with the Company terminates, SARs then held by such individual will terminate on the same terms and conditions that apply to stock options as described above, unless otherwise provided by the Compensation Committee.
SARs generally may not be transferred except by will or the laws of descent and distribution and SARs generally may be exercised during the lifetime of the recipient only by the recipient. However, the Compensation Committee, in its discretion, may permit the transfer of SARs in certain circumstances.
Restricted Stock and Restricted Stock Units
Restricted stock is an award of shares of the Company’s Class A Common Stock that is subject to restrictions and other terms and conditions set by the Compensation Committee. Restricted stock units are non-voting units of measurement that represent the contingent right to receive shares of Class A Common Stock or the value of shares of Class A Common Stock in the future, but no shares are actually awarded to recipients on the grant date. Once applicable restrictions lapse or have been satisfied, restricted stock units may be payable in cash, shares of Class A Common Stock or a combination thereof, as determined by the Compensation Committee.
The Compensation Committee determines the type of restrictions applicable to the award, which can include restrictions based on the achievement of financial or other business objectives, the occurrence of a specific event, continued service for a period of time or other time-based restrictions. The Compensation Committee also determines the purchase price, if any, to be paid for the restricted stock or restricted stock units. Restricted stock units are not transferable and restricted stock generally may not be sold, assigned, pledgedtransferred until all restrictions applicable to the award have lapsed or otherwise transferred, whether vestedbeen satisfied.
If the recipient’s service with the Company ends, all shares of Class A Common Stock or unvested. A director holding restricted stock units, as the case may be, that are still subject to restrictions generally will be forfeited unless the Compensation Committee provides otherwise.
Except as otherwise provided by the Compensation Committee, a recipient of restricted stock generally will have certain rights and privileges of a stockholder, including the right to vote such shares of restricted stock and to receive cash dividends, (if and when declared byif any (although the BoardCompensation Committee may require that any dividends be reinvested in additional shares of Directors), although dividends paid in shares will be considered restricted stock.stock). A director with deferredrecipient of restricted stock units will not have any voting or any other stockholder rights or ownership interestrights. However, the Compensation Committee may provide in its discretion that, if the Board of Directors declares a dividend with respect to the Class A Common Stock, a recipient of restricted stock units will receive dividend equivalents on terms set by the Compensation Committee.
Other Stock Awards
The Compensation Committee may grant other types of stock awards that involve the issuance of shares of Class A Common Stock or that are denominated in or valued by reference to shares of Class A Common Stock. The terms and conditions applicable to such stock awards will be determined by the Compensation Committee in its discretion.
Section 162(m) Performance Awards
Section 162(m) of the Code generally limits the Company’s annual federal income tax deduction for compensation paid to “covered employees” to $1 million with respect to each such covered employee. Prior to enactment of the Tax Act, an exception to this deduction limit applied for compensation that qualifies as performance-based compensation (the “Section 162(m) Exception”). The 2012 Stock Incentive Plan generally was intended to allow the Compensation Committee to grant certain awards intended to meet the Section 162(m) Exception (and continues to do so to the extent the Section 162(m) Exception remains available).
For performance awards, the Compensation Committee establishes in writing the performance goals upon which the deferredperformance award is contingent, the period over which such goals will be measured and any other applicable conditions. These terms are established within 90 days after the beginning of the applicable period (or, if earlier, by the date on which 25% of the period has been completed).
The performance goals established by the Compensation Committee must be objectively determinable. The 2012 Stock Incentive Plan provides that the performance goals may be based on one or more of the following: (i) stock price; (ii) market share; (iii) earnings per share (basic or diluted); (iv) net earnings; (v) operating or other earnings; (vi) gross or net profits; (vii) revenues; (viii) financial return ratios; (ix) stockholder return; (x) cash flow measures (including operating cash flow, free cash flow, and cash flow return on investment); (xi) cash position; (xii) return on equity; (xiii) return on investment; (xiv) debt rating; (xv) sales (including Company-wide sales and dealership sales); (xvi) expense reduction levels; (xvii) debt levels (including borrowing capacity); (xviii) return on assets (gross or net); (xix) debt to equity ratio; (xx) debt to capitalization ratio; (xxi) consummation of debt offerings; (xxii) consummation of equity offerings; (xxiii) growth in assets, sales or market share; (xxiv) customer satisfaction; (xxv) reducing, retiring or refinancing all or a portion of the Company’s long-term or short-term public or private debt or similar financial obligations (including the attainment of a certain level of reduction in such debt); (xxvi) share count reduction; (xxvii) gross or operating margins; (xxviii) contractual compliance (including maintaining compliance with financial and other covenants, obtaining waivers of non-compliance or obtaining amendments of contractual covenants); or (xxix) strategic business objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets, or goals relating to acquisitions or divestitures.
Performance goals may be based on the performance of (A) the Company; (B) one or more of the Company’s divisions, business units or subsidiaries; (C) the Company and its subsidiaries as a whole; or (D) any combination of the foregoing. Performance goals also may be expressed by reference to an individual’s performance relating to any of the criteria.
The 2012 Stock Incentive Plan provides that performance goals may be expressed in such form as the Compensation Committee determines, including in either absolute or relative terms (including, but not limited to, by relative comparison to a pre-established target, to previous years or to other companies or other external measures), in percentages, in terms of growth over time or otherwise. Performance goals do not have to be based upon an increase or positive result under one of the above criteria and could include, for example, maintaining the status quo or the limitation of economic losses (measured in such case by reference to the specific criteria). When establishing the performance goals, the Compensation Committee may specify that they will be determined either before or after taxes and adjusted to exclude items such as (i) asset write-downs or impairment charges; (ii) the effect of unusual or extraordinary charges or income items or other events, including acquisitions or dispositions of businesses or assets, restructurings, discontinued operations, reductions in force, refinancing/restructuring of short-term and/or long-term debt, or other extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (iii) litigation or claim expenses, judgments or settlements; or (iv) changes in accounting principles or tax laws or other laws or provisions affecting reported results.
The Compensation Committee also can establish subjective performance goals, but the subjective performance goals may be used only to reduce, and not to increase, an award.
Following completion of the applicable performance period, the Compensation Committee certifies in writing the extent to which the performance goals have been reached. The Compensation Committee cannot waive the performance goal requirements for a covered officer except in its discretion in the case of the death or disability of the recipient or in the event of a change in control.
As noted previously, the amendment and restatement of the 2012 Stock Incentive Plan provides that no individual may be granted restricted stock, restricted stock units are granted. However, dividend equivalents may apply, as described below under “— Additional Provisions for Deferred Restricted Stock Units.”
All restrictedor stock awards grantedwith respect to an aggregate of more than 1,100,000 shares of Class A Common Stock during any calendar year. In addition, the maximum cash payment that may be paid under the 2012 Formula Plan are subjecta cash-based stock award during a calendar year to the terms and conditions of any applicable policy regarding clawbacks, forfeitures or recoupments adopted by Sonic.a participant is $4 million.
Change in Control for Vesting Purposes
Upon either the consummation of a tender offer or exchange offerThere is no guarantee that constitutes a change in control of Sonic or the third business day prior to the effective date of any other change in control of Sonic, all outstanding restricted stock awards under the 2012 FormulaStock Incentive Plan generallythat are intended to qualify as tax deductible under the Section 162(m) Exception will become fully vested. ultimately be determined as such by the IRS.
The amendment and restatement of the 2012 Stock Incentive Plan provides that it is not intended to modify in any material respect any award pursuant to a written binding contract in effect on November 2, 2017 that is intended to satisfy the Section 162(m) Exception.
Change in Control
Under the 2012 FormulaStock Incentive Plan, a “change in control” generally means any merger or consolidation in which Sonicthe Company is not the surviving corporation and which results in the holders of the outstanding voting securities of Sonicthe Company (determined immediately prior to such merger or
consolidation) owning less than a majority of the outstanding voting securities of the surviving corporation, any sale or transfer by Sonicthe Company of all or substantially all of its assets or the consummation of any tender offer or exchange offer for, or the acquisition, directly or indirectly, by any person or group of, all or a majority of the then-outstanding voting securities of Sonic.
Additional Provisions for Deferred Restricted Stock Units
SonicUpon either the consummation of a tender offer or exchange offer that constitutes a change in control or the third business day prior to the effective date of any other change in control, as the case may be, (i) outstanding stock options and SARs will maintain a notional bookkeeping account to track a non-employee director’sbecome fully vested deferredand exercisable; (ii) outstanding restricted stock and restricted stock units (including performance awards other than those described below) will become fully vested with all restrictions and any dividend equivalents attributable to such deferredconditions related thereto being deemed satisfied; (iii) outstanding performance awards of restricted stock units.and restricted stock units (as adjusted, if applicable) for which the performance period has ended, but which otherwise remain subject to additional vesting or other restrictions, will become vested with all restrictions and conditions related thereto being deemed satisfied based upon achievement of the applicable target performance goals; and (iv) outstanding performance awards of restricted stock and restricted stock units for which the performance period has not yet ended will be adjusted, as applicable, and become vested with all restrictions and conditions related thereto being deemed satisfied on a pro rata basis based upon an assumed achievement of the applicable target performance goals and the length of time within the performance period that has elapsed prior to the change in control. The applicable award agreement will specify the effect of a change in control on other stock awards.
If
Forfeiture and Clawback
The 2012 Stock Incentive Plan provides that, in addition to forfeitures due to vesting schedules or termination of service, the Board of Directors declaresCompensation Committee may specify in an award agreement that an award and/or a cash dividend during a calendar yearparticipant’s rights, payments and benefits with respect to an award (including, but not limited to, the right to receive an award, to exercise an award, to retain an award, to retain cash or Class A Common Stock andacquired in connection with an award and/or to retain the non-employee director becomes vestedprofit or gain realized in his deferred restricted stock units, the non-employee director’s deferred accountconnection with an award) will be credited with an amount equalsubject to reduction, rescission, forfeiture or recoupment by the Company upon certain events, such as termination of service for cause, breach of confidentiality or other restrictive covenants, engaging in competition against the Company or other conduct or activity that is detrimental to the dividend paid with respect to a share of Class A Common Stock for each of hisbusiness or her deferred restricted stock units that are outstanding on the applicable record date. Dividend equivalents accumulate without interest.
A non-employee director’s vested deferred restricted stock units credited to his deferred account will be settled in the form of a single lump sum paymentreputation of the equivalent number of shares of Class A CommonCompany. The 2012 Stock and any dividend equivalents will be paid in cash, upon the earliest of the following to occur: (i) the non-employee director’s separation from service, (ii) a “change in control event,” (iii) a specific payment date designated by the non-employee director in the applicable deferral election, or (iv) the non-employee director’s death. A “change in control event” means a change in control as described aboveIncentive Plan also provides that also constitutes a change in the ownership or effective control of Sonic or a change in the ownership of a substantial portion of the assets of Sonic within the meaning of Section 409A of the Code. Payment also may be available earlier in the event of an unforeseen financial emergency beyond the non-employee director’s control.
If the non-employee director’s initial deferral election designated a specific payment date, the director may make a subsequent election to further defer settlement of his or her deferred restricted stock units (and payment of related dividend equivalents) if such election is made at least one year prior to the originally selected payment date and the subsequent payment date is at least five years after the originally selected payment date. In any event, payment still would be made earlier upon separation from service, a “change in control event” or death.
The deferred accounts for the 2012 Formula Plan are unfunded and unsecured. Directors are unsecured general creditors of Sonic with respect to payment of their benefitsall awards granted under the 2012 Formula Plan.Stock Incentive Plan are intended to be subject to the terms and conditions of any policy regarding clawbacks, forfeitures or recoupments adopted by the Company.
Amendment, Suspension or Termination
The Board of Directors may at any time amend, suspend or terminate the 2012 FormulaStock Incentive Plan in whole or in part for any reason, althoughreason; provided, that such action may be subject to stockholder approval if necessary to comply with legal, regulatory or securities exchange listing requirements.requirements or the action is intended to allow the exercise price of outstanding stock options to be reduced by repricing or replacing such options. Unless terminated earlier, the 2012 FormulaStock Incentive Plan is scheduled towill terminate at 11:59 p.m. on April 17, 2027. NoFebruary 22, 2027; provided, that no incentive stock options may be granted under the 2012 Stock Incentive Plan on or after February 22, 2022. The Compensation Committee also may amend the terms of an outstanding award. Generally, no amendment, suspension or termination of the 2012 FormulaStock Incentive Plan (or amendment of an outstanding award) may adversely affect in any material way the rights of a director under anythe holder of an outstanding award without the director’shis or her consent. Notwithstanding the foregoing,However, the Board of the Directors may terminate the 2012 Formula Plan with respect to deferred restricted stock units and pay directors their deferred restricted stock units and related dividend equivalents in a single lump sum to the extent permitted by and in accordance with Section 409A of the Code. The Board of Directors also may amend the 2012 FormulaStock Incentive Plan andand/or the Compensation Committee may amend any
outstanding awards in any respectaward without obtaining the holder’s consent if it deems the amendment necessary or advisable to comply with securities exchange listing requirements, applicable law or address other regulatory requirements without obtaining the individual consent of any director who holds an outstanding award.
Market Price of Class A Common Stock
The closing price of a share of Sonic’sthe Company’s Class A Common Stock on the NYSE on March 9, 2020February 24, 2021 was $23.75.$44.02.
Plan Benefits
As described above, only non-employee directors of Sonic are eligible to participate in
Awards under the 2012 Formula Plan. Accordingly, noneStock Incentive Plan are made at the discretion of ourthe Compensation Committee. Future awards that may be received by any executive officers (including our named executive officers) or other employees are eligibleothers pursuant to participate in the 2012 Formula Plan. TheStock Incentive Plan are not presently determinable. However, the following table sets forthprovides information about theregarding awards of performance-based restricted stock awardsunits approved by the Compensation Committee on February 10, 2021 that will automatically be madeare subject to non-employee directors following the Annual Meeting ifstockholder approval of the amendment and restatement of the 2012 FormulaStock Incentive Plan.
New Plan is approved by our stockholders.
NEW PLAN BENEFITS
Sonic Automotive, Inc.Benefits
2012 Formula Restricted Stock and DeferralIncentive Plan for Non-Employee Directors
| | | | | | | | | | | | | | |
Name and PositionPosition(s) | | Dollar Value ($)(1) | | Number of Units (#)(2)(1)
|
All | | | | |
O. Bruton Smith | | — | | 50,753 | |
Executive Chairman | | | | |
David Bruton Smith | | — | | 68,887 |
Chief Executive Officer | | | | |
Jeff Dyke | | — | | 39,142 |
President | | | | |
Heath R. Byrd | | — | | 30,507 |
Executive Vice President and Chief Financial Officer | | | | |
Executive Group | | — | | 219,206 |
(current non-employee directorsexecutive officers as a groupgroup) | | $ | 1,015,000 | |
Non-Executive Director Group | | — | | — | |
(current directors who are not executive officers as a group) | | | | |
Non-Executive Officer Employee Group | | — | | 170,921 |
(current employees other than executive officers as a group) | | | | |
________
(1)The dollar value shown is based on the formula for determining the number of restricted shares of Class A Common Stock or deferred restricted stock units, as applicable, to be granted to each non-employee director following the Annual Meeting. Each grant would consist of that number of shares, or a corresponding number of deferred restricted stock units, that equals $145,000 divided by the average closing sale price of a share of the Company’s Class A Common Stock on the NYSE on February 24, 2021 was $44.02.
(2) Grants of performance-based restricted stock units awarded on February 10, 2021, contingent on stockholder approval of the amendment and restatement of the 2012 Stock Incentive Plan. These restricted stock units remain subject to forfeiture based upon Sonic’s achievement of defined Adjusted EPS objective levels for the 20 trading days immediately prior2021 calendar year. Subject to adjustment based on the grant date (rounded upextent to the nearest whole share). The numberwhich such performance condition is met for 2021, each award of restricted stock units will vest in three annual installments subject to continued service, with 25% vesting on March 31, 2022, 30% vesting on February 10, 2023 and 45% vesting on February 10, 2024. Upon vesting, restricted stock units are settled in shares of Class A Common Stock.
The following table provides information about the stock options that previously have been granted to various individuals and groups under the 2012 Stock or numberIncentive Plan:
| | | | | | | | | | | |
Name and Position(s) | | | Number of Stock Options(1) |
| | | |
O. Bruton Smith | | | 336,851 |
Executive Chairman | | | |
David Bruton Smith | | | 457,203 |
Chief Executive Officer | | | |
Jeff Dyke | | | 259,787 |
President | | | |
Heath R. Byrd | | | 202,479 |
Executive Vice President and Chief Financial Officer | | | |
Executive Group | | | 1,256,320 |
Non-Executive Director Group | | | — |
Associates of directors or executive officers | | | — |
Each other person who received or is to receive 5% of such options | | | — |
Non-Executive Officer Employee Group | | | 1,010,276 |
(1) These nonstatutory stock options have an exercise price of deferred restricted stock units for each such grant is not determinable as$16.76 per share and will vest in annual installments over a three-year period generally subject to continued service, with 1/3 of the datestock options vesting on each of this Proxy Statement due to fluctuating market prices.April 10, 2021, April 10, 2022 and April 10, 2023. The stock options terminate on April 10, 2030 unless they expire earlier in connection with termination of employment.
Certain Federal Income Tax Consequences
The following is a brief summary of the current U.S. federal income tax consequences that generally apply with respect to restricted stock awards that may be granted under the 2012 FormulaStock Incentive Plan. Applicable laws and regulations may change in the future. This summary is not intended to be exhaustive and does not describe a number of various tax rules, including any foreign, state or local tax consequences, tax withholding requirements or various other rules that could apply to a particular individual or to Sonicthe Company and its subsidiaries under certain circumstances. This summary is not intended or written to be used (and cannot be used by any taxpayer) to avoid penalties that may be imposed on a taxpayer. Tax implications may vary due to individual circumstances. Award recipients are urged toParticipants should consult their independentpersonal tax advisorsadvisers about the tax consequences related to restricted stock awards under the 2012 FormulaStock Incentive Plan.
Nonstatutory Stock Options
The grant of nonstatutory stock options generally should have no federal income tax consequences to the Company or the option holder. Upon the exercise of a nonstatutory stock option, the option holder will recognize ordinary income equal to the excess of the fair market value of the acquired shares on the date of exercise over the exercise price paid for the shares. The Company generally will be allowed a federal income tax deduction equal to the same amount that the option holder recognizes as ordinary income (subject to deduction limitations under Section 162(m) of the Code). In the event of the disposition of the acquired shares of Class A Common Stock, any additional gain or loss generally will be
taxed to the option holder as either short-term or long-term capital gain or loss depending on how long the shares were held.
Incentive Stock Options
The grant and exercise of incentive stock options generally should have no federal income tax consequences to the Company. The grant and exercise of incentive stock options generally have no ordinary income tax consequences to the option holder. However, upon the exercise of an incentive stock option, the option holder treats the excess of the fair market value of the acquired shares on the date of exercise over the exercise price paid for the shares as an item of tax adjustment for alternative minimum tax purposes, which may result in alternative minimum tax liability.
If the option holder retains the shares of Class A Common Stock acquired upon the exercise of an incentive stock option for at least two years following the grant date of the option and one year following exercise of the option, the subsequent disposition of such shares will ordinarily result in long-term capital gains or losses to the option holder equal to the difference between the amount realized on disposition of the shares and the exercise price. The Company will not be entitled to any deduction in such case. If the holding period requirements described above are not met, the option holder will recognize ordinary income upon disposition of the Class A Common Stock equal to the excess of the fair market value of the shares on the date of exercise (or, if less, the sale price received on disposition of the shares) over the exercise price.
The Company will be entitled to a corresponding tax deduction in the same amount. Any additional gain or loss realized by the option holder on the disposition of the Class A Common Stock will be taxed as short-term or long-term capital gain or loss, as applicable.
Stock Appreciation Rights
The grant of SARs generally should have no federal income tax consequences to the Company or the recipient. Upon the exercise of SARs, the recipient will recognize ordinary income equal to the amount of cash received and the fair market value of any shares of Class A Common Stock received. The Company generally will be allowed a federal income tax deduction equal to the same amount that the recipient recognizes as ordinary income (subject to deduction limitations under Section 162(m) of the Code).
Restricted Stock
The directorrecipient of restricted stock normally will recognize ordinary income when the restrictions on the restricted stock lapse (i.e., at the time the restricted shares are no longer subject to a substantial risk of forfeiture or become transferable, whichever occurs first). However, a directorrecipient instead may elect to recognize ordinary income at the time of grantthe restricted stock is granted by making an election under Section 83(b) of the Code within 30 days after the grant date. In either case, the directorrecipient will recognize as ordinary income equal to the fair market value of such
shares of stock at the time the income is recognized and Sonic(reduced by the amount, if any, the recipient paid for the stock). The Company generally will be entitled to a corresponding tax deduction. If the directorrecipient subsequently disposes of the shares of Class A Common Stock, any additional gain or loss should be eligible for short-term or long-term capital gain or loss tax treatment depending on how long the shares were held after the ordinary income was recognized. If a directorrecipient makes an “83(b) election” and then forfeits the shares of Class A Common Stock, the director generallyrecipient normally will not be entitled to a tax deduction or refund with respect to the tax
already paid. An award agreement may include provisions that require a participant to make, or to refrain from making, an election under Section 83(b) of the Code.
Deferred
Restricted Stock Units
The grant of deferred restricted stock units generally hasshould have no federal income tax consequences to Sonicthe Company or the non-employee director.recipient. When the deferred restricted stock units vest and any related dividend equivalents become payable, the director recipient will recognize ordinary income equal to the amount of cash received and the fair market value of theany shares of Class A Common Stock received and the amount of cash received. SonicThe Company generally will be allowed a federal income tax deduction equal to the same amount that the directorrecipient recognizes as ordinary income.income (subject to deduction limitations under Section 162(m) of the Code).
Other Stock Awards
The federal income tax consequences of other stock awards will depend on the form of such awards.
Section 162(m) of the Code
The above discussion regarding the Company’s federal income tax deductions is subject to Section 162(m) of the Code. Section 162(m) of the Code generally limits the Company’s annual federal income tax deduction for compensation paid to certain current and former executive officers to $1.0 million with respect to each such officer, except certain grandfathered payments pursuant to written binding contracts in effect on November 2, 2017 that meet the requirements of the Section 162(m) Exception. There is no guarantee that awards under the 2012 Stock Incentive Plan that are intended to meet the Section 162(m) Exception will ultimately be determined as such by the IRS.
Section 409A of the Code
Section 409A of the Code provides requirements for certain nonqualified deferred compensation arrangements. If applicable, Section 409A of the Code also imposes penalties (including an additional 20% tax) on the recipient of deferred compensation in the event such compensation fails to comply with Section 409A of the Code. Deferred restricted stock unitsUnless otherwise provided by the Compensation Committee, awards granted under the 2012 FormulaStock Incentive Plan generally are intended to either comply with or meet the requirements for an exemption from Section 409A of the Code. However, SonicThe Company does not guarantee to any participant that the 2012 FormulaStock Incentive Plan or any award granted under the 2012 FormulaStock Incentive Plan complies with or is exempt from Section 409A of the Code and Sonicthe Company will not have any liability to, indemnify or hold harmless any individual with respect to any tax consequences that arise from any such failure to comply with or meet the requirements for an exemption underfrom Section 409A of the Code.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF
THE SONIC AUTOMOTIVE, INC. 2012 FORMULA RESTRICTED STOCK AND
DEFERRAL PLAN FOR NON-EMPLOYEE DIRECTORS.
INCENTIVE PLAN.
ADDITIONAL CORPORATE GOVERNANCE AND OTHER INFORMATION
Corporate Governance Guidelines, Code of Business Conduct and Ethics and Committee Charters
The Board of Directors has adopted a Code of Business Conduct and Ethics applicable to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This Code of Business Conduct and Ethics, along with our Corporate Governance Guidelines, the Categorical Standards and the charters for the Audit Committee, the Compensation Committee and the NCG Committee, are available on our website, www.sonicautomotive.com. Copies of these documents are also available without charge upon written request to Mr. Stephen K. Coss, Senior Vice President, General Counsel and Secretary, at Sonic Automotive, Inc., 4401 Colwick Road, Charlotte, North Carolina 28211.
We will disclose information regarding amendments to, or waivers from, our Code of Business Conduct and Ethics (to the extent required to be disclosed pursuant to Form 8-K) by posting this information on our website, www.sonicautomotive.com. The information on our website is not a part of this Proxy Statement.
Other Matters that May Be Considered at the Annual Meeting
In the event that any matters other than those referred to in the accompanying Notice of 20202021 Annual Meeting of Stockholders should properly come before and be considered at the Annual Meeting, it is intended that proxies in the accompanying form will be voted thereon in accordance with the judgment of the person or persons voting such proxies.
Stockholder Proposals for the 20212022 Annual Meeting of Stockholders
Any stockholder proposal intended to be included in Sonic’s proxy statement and form of proxy relating to the 20212022 annual meeting of stockholders must be in writing and received by Sonic not later than November 18, 2020.17, 2021. Any such stockholder proposal must also comply with Rule 14a-8 of the Exchange Act, which lists the requirements for the inclusion of stockholder proposals in company-sponsored proxy materials. Stockholder proposals should be addressed to the attention of Mr. Stephen K. Coss, Senior Vice President, General Counsel and Secretary, at Sonic Automotive, Inc., 4401 Colwick Road, Charlotte, North Carolina 28211, or faxed to his attention at (704) 973-9304. Pursuant to the SEC rules, submitting a proposal will not guarantee that it will be included in the Company’s proxy materials.
In addition, any stockholder proposal intended to be presented at the 20212022 annual meeting of stockholders, but that will not be included in Sonic’s proxy statement and form of proxy relating to the 20212022 annual meeting of stockholders, must be delivered to, or mailed and received at, Sonic’s principal executive offices not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the Annual Meeting. As a result, any proposals submitted by a stockholder pursuant to the provisions of Sonic’s Amended and Restated Bylaws (other than proposals submitted pursuant to Rule 14a-8) must be delivered, or mailed and received, no earlier than December 30, 202029, 2021 and no later than January 29, 2021.28, 2022. However, in the event that the date of the 20212022 annual meeting of stockholders is more than 30 days before or more than 60 days after April 29, 2021,28, 2022, notice by the stockholder to be timely must be so delivered or received no earlier than the close of business on the 120th day prior to the date of the 20212022 annual meeting of stockholders and no later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Company.
Stockholder proposals must include the specified information concerning the proposal and the stockholder submitting the proposal as set forth in Sonic’s Amended and Restated Bylaws. A copy of the Amended and Restated Bylaws may be obtained by writing to Mr. Stephen K. Coss, Senior Vice President, General Counsel and Secretary, at Sonic Automotive, Inc., 4401 Colwick Road, Charlotte, North Carolina 28211.
Expenses of Solicitation
Sonic will pay the entire cost of solicitation of proxies, including the cost of preparing, printing and mailing this Proxy Statement, the accompanying proxy card, the notice letter and any additional soliciting materials sent by Sonic to stockholders. Further, Sonic may reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to stockholders and obtaining their votes. In addition to solicitations by mail and the Internet, certain of Sonic’s directors, officers and employees, without additional compensation, may solicit proxies personally or by telephone, facsimile and e-mail.
Delivery of Proxy Materials
As permitted by the SEC rules, only one copy of this Proxy Statement and the annual report,2020 Annual Report to Stockholders, or notice letter, as applicable, is being delivered to stockholders residing at the same address, unless one or more of such stockholders have notified Sonic of their desire to receive multiple copies of proxy statements, annual reports or notice letters.
Sonic will promptly deliver, upon oral or written request, a separate copy of this Proxy Statement and the annual report,2020 Annual Report to Stockholders, or notice letter, as applicable, to any stockholder residing at a shared address to which only one copy was mailed. Requests for additional copies of this Proxy Statement, the annual report2020 Annual Report to Stockholders or the notice letter, requests to receive multiple copies of future proxy statements, annual reports or notice letters, and requests to receive only one copy of future proxy statements, annual reports or notice letters should be directed to Mr. Stephen K. Coss, Senior Vice President, General Counsel and Secretary, at Sonic Automotive, Inc., 4401 Colwick Road, Charlotte, North Carolina 28211 or by telephone at (704) 566-2400.
ARTICLE XI OF SONIC AUTOMOTIVE, INC.’S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AS MODIFIED BY PROPOSED AMENDMENT
ARTICLE XI
Exclusive Jurisdiction of Delaware Courts or the United States District Court for the District of Delaware
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any state law claims for (i) any derivative action or proceeding brought on behalf of the Corporation (other than derivative actions brought to enforce any duty or liability created by the Securities Exchange Act of 1934 or the rules and regulations promulgated thereunder), (ii) any action asserting a claim of breach of, or based on, a fiduciary duty owed by any current or former director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any current or former director, officer, or other employee or stockholder of the Corporation arising pursuant to any provision of the General Corporation Law of the State of Delaware or this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Unless the Corporation consents in writing to the selection of an alternative forum, but only to the extent permitted by applicable law, the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder, or any ancillary claims related thereto which are subject to the ancillary jurisdiction of the federal courts.
SONIC AUTOMOTIVE, INC.
2012 STOCK INCENTIVE PLAN
AMENDED AND RESTATED AS OF FEBRUARY 10, 2021
SONIC AUTOMOTIVE, INC.
2012 FORMULA RESTRICTED STOCK AND DEFERRAL PLAN
FOR NON-EMPLOYEE DIRECTORS
Amended and Restated Effective as of April 29, 2020
ARTICLE 1.PURPOSE AND EFFECTIVE DATEDATES
1.1 PurposePurposes of the Plan. The purpose of theSonic Automotive, Inc. (the “Company”) has established this Sonic Automotive, Inc. 2012 Formula Restricted Stock and DeferralIncentive Plan for Non-Employee Directors (the “Plan”) is to promote the interests of the Company and its stockholders bystockholders. The purposes of the Plan are to provide key employees and consultants providing Non-Employee Directorsservices to the Company and its Subsidiaries with an opportunityincentives to acquirecontribute to the Company’s performance and growth, to offer such persons stock ownership in the Company in order to more closely alignor other compensation that aligns their interests with those of the Company’s stockholders and to enhance the Company’s ability to attract, reward and retain highly qualified Non-Employee Directors. The Plan is intended to constitute a “formula plan” withinsuch persons upon whose efforts the meaning of Rule 16b-3 promulgated by the SecuritiesCompany’s success and Exchange Commission under the Exchange Act and shall be construed accordingly. As amended and restated, the Plan also is intended to permit Non-Employee Directors to defer receipt of awards granted under the Plan.future growth depends.
1.2 Original Effective Date. The Plan was originallyinitially adopted by the Board of Directors on February 22, 2012 as the Sonic Automotive, Inc. 2012 Formula Restricted Stock Plan for Non-Employee Directors, and becamewas effective upon the requisite approval of the Company’s stockholders at the 2012 Annual Meeting of Stockholders. At that time, the Sonic Automotive, Inc. 2005 Formula Restricted Stock Plan for Non-Employee Directors, amended and restated as of May 11, 2009, automatically terminated and no further restricted stock awards mayStockholders on April 18, 2012. No Awards could be granted thereunder.prior to stockholder approval of the Plan.
1.3 Restatement Effective Dates. The Plan was previously amended and restated with the Plan renamed as the Sonic Automotive, Inc. 2012 Formula Restricted Stock and Deferral Plan for Non-Employee Directors, effective as of April 18, 2017 upon the requisite approval of the Company’s stockholders at the 2017 Annual Meeting of Stockholders. This further amendment and restatement is a continuation of the Plan, and it shall be effective as of April 29, 2020, provided that this amendment and restatement of the Plan shall beFebruary 11, 2015, subject to the requisite approval of the Company’s stockholders at the 20202015 Annual Meeting of Stockholders.
1.3 Deferral ComponentStockholders which was obtained on April 14, 2015. The Plan was again amended and restated effective as of Plan. The deferral componentApril 24, 2019, subject to the requisite approval of the Company’s stockholders at the 2019 Annual Meeting of Stockholders which was obtained on April 24, 2019. This third amendment and restatement is a continuation of the Plan is an unfunded, nonqualified plan intendedand shall be effective as of February 10, 2021, subject to comply with Section 409Athe requisite approval of the Code.Company’s stockholders at the 2021 Annual Meeting of Stockholders. For the avoidance of doubt, this third amendment and restatement shall not materially affect the terms or conditions of any Award subject to the Section 162(m) Exception to the extent that compliance with the Section 162(m) Exception is required for the deductibility of such Award, and any such Awards made pursuant to a written binding contract in effect on November 2, 2017 shall not be deemed to be modified in any material respect as a result of this second amendment and restatement of the Plan.
ARTICLE 2. DEFINITIONS
2.1 Definitions.Definitions. As used in the Plan, the following capitalized terms shall have the meanings set forth below:
(a) “Average Market Value”“Award” means, the averageindividually or collectively, a grant under this Plan of the closing sale price of the CommonIncentive Stock on the principal securities exchange on which the CommonOptions, Nonqualified Stock is then traded for the twenty (20) trading days immediately preceding the Grant Date.Options, SARs, Restricted Stock, Restricted Stock Units, or Stock Awards.
(b) “Award Agreement” means an agreement between the Company and a Participant, setting forth the terms and conditions applicable to an Award granted to the Participant under this Plan. The Award Agreement may be in such form as the Committee shall determine, including a
master agreement with respect to all or any types of Awards supplemented by an Award notice issued by the Company.
(c) “Board” or “Board of Directors” means the Board of Directors of the Company.
(c)(d) “Cause” means, except to the extent the applicable Award Agreement provides otherwise or incorporates a different definition of “Cause,” any act, action or series of acts or actions or any omission, omissions, or series of omissions that result in, or that have the effect of resulting in, (i) the commission by the Participant of a crime involving moral turpitude, which crime has a material adverse impact on the Company or a Subsidiary or which is intended to result in the personal enrichment of the Participant at the expense of the Company or a Subsidiary; (ii) the Participant’s material violation of his or her responsibilities, or the Participant’s gross negligence or willful misconduct; or (iii) the continuous and willful failure by the Participant to follow the reasonable directives of the Board of Directors. In any event, the existence of “Cause” shall be determined by the Committee (or its delegate).
(e) “Change in Control” means, except to the extent the applicable Award Agreement provides otherwise or incorporates a different definition of “Change in Control,” any merger or consolidation in which the Company is not the surviving corporation and which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning less than a majority of the outstanding voting securities of the surviving corporation (determined immediately following such merger or consolidation), or any sale or transfer by the Company of all or substantially all of its assets or
any tender offer or exchange offer for, or the acquisition, directly or indirectly, by any person or group of persons of, all or a majority of the then-outstanding voting securities of the Company.
(d) “Change in Control Event” means Notwithstanding the foregoing, to the extent necessary to comply with Section 409A of the Code, the foregoing events shall constitute a Change in Control thatto the extent an Award constitutes or provides nonqualified deferred compensation subject to Section 409A of the Code only if such events also constitutesconstitute a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A of the Code.
(e)(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor act thereto. Reference to any section of the Code shall be deemed to include reference to applicable regulations or other authoritative guidance thereunder, and any amendments or successor provisions to such section, regulations or guidance.
(f)(g) “Committee” means (i) the committee appointed by the Board to administer the Plan or (ii) in the absence of such appointment, the Board itself. Notwithstanding the foregoing, to the extent required for Awards to be exempt from Section 16 of the Exchange Act pursuant to Rule 16b-3, the Committee shall consist of two or more Directors who are “non-employee directors” within the meaning of such Rule 16b-3, and to the extent required for Awards to satisfy the requirements for the Section 162(m) Exception, the Committee shall consist of two or more Directors who meet the requirements for “outside directors” within the meaning of the Section 162(m) Exception. The Compensation Committee of the Board of Directors shall constitute the Committee until otherwise determined by the Board of Directors.
(h) “Common Stock” means the Class A common stockCommon Stock of the Company, par value $0.01 per share.
(i) “Company” means Sonic Automotive, Inc., a Delaware corporation, or any successor thereto.
(h) “Deferred Restricted Stock Unit” or “Deferred RSU” means a non-voting unit of measurement that represents the contingent right to receive a share of Common Stock in the future. Deferred Restricted Stock Units are not actual shares of Common Stock.
(i) “Deferred RSU Account” means a notional bookkeeping account maintained by the Company with respect to a Non-Employee Director’s vested Deferred RSUs in accordance with Section 5.2 and Article 7.
(j) “Director” means any individual who is a member of the Board of Directors.Directors of the Company.
(k) “Disability” means, for purposesexcept to the extent the applicable Award Agreement provides otherwise or incorporates a different definition of vesting,“Disability,” a permanent and total disability as described in Section 22(e)(3) of the Code and determined by the Committee. Notwithstanding the foregoing, to the extent an Award constitutes or provides nonqualified deferred compensation subject to Section 409A of the Code, Disability shall mean that a Participant is disabled within the meaning of Section 409A(a)(2)(C)(i) or (ii) of the Code.
(l) “Employee” means any employee of the Company or any Subsidiary. Directors who are not otherwise employed by the Company or a Subsidiary are not considered Employees under this Plan.
(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. Reference to any section of (or rule promulgated under) the Exchange Act shall be deemed to include reference to applicable rules, regulations or other authoritative guidance thereunder, and any amendments or successor provisions to such section, rules, regulations and guidance.
(m) “Grant Date”(n) “Fair Market Value” means, as of a particular date, the value of the Common Stock determined as follows:
(i) If the Common Stock is traded on a national or regional securities exchange or on the Nasdaq National Market System (“Nasdaq”), Fair Market Value shall be determined on the basis of the closing sale price on the principal securities exchange on which the Common Stock may then be traded on the date as of which Fair Market Value is to be determined or, if there is no such sale on the relevant date, then on the last previous day on which a grantsale was reported;
(ii) If the Common Stock is not listed on any securities exchange or traded on Nasdaq, but nevertheless is publicly traded and reported on Nasdaq without closing sale prices for the Common Stock being customarily quoted, Fair Market Value shall be determined on the basis of the mean between the closing high bid and low asked quotations in such other over-the-counter market as reported by Nasdaq on the date as of which Fair Market Value is to be determined (or, if there are no bid and asked quotations in the over-the-counter market as reported by Nasdaq on that date, then on the immediately preceding day such bid and asked prices were quoted); or
(iii) If the Common Stock is not publicly traded as described in (i) or (ii) above, Fair Market Value shall be determined by the Committee in good faith and, with respect to an Option or SAR intended to be exempt from Section 409A of the Code, in a manner consistent with Section 409A of the Code.
(o) “Family Members” means the Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, or any person sharing the Participant’s household (other than a tenant or employee).
(p) “Incentive Stock Option” or “ISO” means an option to purchase shares of Common Stock granted under Article 6, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.
(q) “Involuntary Termination Without Cause” means the dismissal, or the request for the resignation, of a Restricted Stock Award is made toParticipant by either (i) a Non-Employee Director pursuant to Section 6.1.
(n) “Non-Employee Director” means a membercourt order, order of any court-appointed liquidator or trustee of the BoardCompany, or the order or request of Directors who is not an employeeany creditors’ committee of the Company constituted under the federal bankruptcy laws, provided that such order or request contains no specific reference to actions or omissions that would constitute Cause; or (ii) a duly authorized corporate officer of the Company or any Subsidiary, or by the Board, for any reason other than for Cause.
(r) “Named Executive Officer” means a Participant who is considered a “covered employee” for purposes of its Subsidiaries.the Section 162(m) Exception.
(o)(s) “Nonqualified Stock Option” or “NSO” means an option to purchase shares of Common Stock granted under Article 6, and which is not intended or otherwise fails to meet the requirements of Section 422 of the Code.
(t) “Option” means an Incentive Stock Option or a Nonqualified Stock Option.
(u) “Option Price” means the price at which a share of Common Stock may be purchased by a Participant pursuant to an Option, as determined by the Committee in accordance with Article 6.
(v) “Participant” means an Employee or consultant who performs services for the Company or a Subsidiary who has been granted an Award under the Plan and which Award is outstanding.
(w) “Performance Period” means the period designated by the Committee during which the Section 162(m) Performance Goals with respect to a Section 162(m) Performance Award will be measured.
(x) “Plan” means this Sonic Automotive, Inc. 2012 Formula Restricted Stock and DeferralIncentive Plan, for Non-Employee Directors, as amended from time to time.
(p)(y) “Restricted Period” means the period beginning on the grant date of an Award of Restricted Stock or Restricted Stock Units and ending on the date the shares of Common Stock subject to such Restricted Stock Award or the Restricted Stock Units, as the case may be, are no longer restricted and subject to forfeiture.
(z) “Restricted Stock” means a share of Common Stock granted to Non-Employee Directors pursuant toin accordance with the terms of Article 6,8, which Common Stock is nontransferable and subject to a substantial risk of forfeiture.forfeiture and such other restrictions as determined by the Committee.
(aa) “Restricted Stock Unit” means a non-voting unit of measurement that represents the contingent right to receive a share of Common Stock (or the value of a share of Common Stock) in the future granted in accordance with the terms of Article 8, which right is subject to a substantial risk of forfeiture and/or such other restrictions as determined by the Committee. Restricted Stock Units are not actual shares of Common Stock.
(q) “Restricted Stock(bb) “SAR” means a stock appreciation right granted pursuant to Article 7.
(cc) “Section 162(m) Exception” means the exception under Section 162(m) of the Code for “qualified performance-based compensation,” as such exception existed for taxable years beginning prior to January 1, 2018 before the amendments made to Section 162(m) of the Code by the Tax Cuts and Jobs Act of 2017.
(dd) “Section 162(m) Performance Award” means an Award granted upon or subject to the attainment of one or more Section 162(m) Performance Goals during a grant of Restricted Stock or Deferred Restricted Stock Units,Performance Period, as applicable.established by the Committee in its sole discretion in accordance with Article 10.
(r) “Separation from Service”(ee) “Section 162(m) Performance Goals” means the date oncriteria and objectives designated by the Committee that must be met during the Performance Period in connection with a Section 162(m) Performance Award, as described in Section 10.1(b).
(ff) “Stock Award” means an equity-based award granted pursuant to Article 9.
(gg) “Subsidiary” means a corporation, partnership, limited liability company, joint venture or other entity in which the Director ceases to be a memberCompany directly or indirectly controls more than fifty percent (50%) of the Board and incursvoting power or equity or profits interests; provided, that for purposes of Incentive Stock Options, Subsidiary means a “separation from service”“subsidiary corporation” within the meaning of Section 424(f) of the Code. Unless the Committee provides otherwise, for purposes of granting Options or SARs, an entity shall not be considered a Subsidiary if such Options or SARs would then be considered to provide for a deferral of compensation within the meaning of Section 409A of the Code. However, in applying Sections 1563(a)(1), (2) and (3)
(hh) “Ten Percent Stockholder” means a Participant who owns (directly or by attribution within the meaning of Section 424(d) of the CodeCode) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, any Subsidiary or a parent of the Company.
(ii) “Termination of Service” means, except to the extent the applicable Award Agreement provides otherwise or incorporates a different definition of “Termination of Service” (and which may instead use the term “Separation from Service,” including for purposes of determining whether another organization is treated together with the Company as a single “service recipient” under Section 414(b) of the Code, and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining whether another organization is treated together with the Company as a single “service recipient” under Section 414(c) of the Code, 80% shall remain the applicable percentage in making such determinations. Whether a Separation from Service has occurred shall be determined in accordancecompliance with Section 409A of the Code.
(s) “Unforeseeable Emergency” meansCode), the termination of a severe financial hardshipParticipant’s service with the Company and its Subsidiaries as an Employee or consultant for any reason other than a change in the capacity in which the Participant renders service to the Director resulting from (i)Company or a Subsidiary or a transfer between or among the Company and its Subsidiaries. Unless otherwise determined by the Committee, an illnessEmployee shall be considered to have incurred a Termination of Service if his or accidenther employer ceases to be a Subsidiary. All determinations relating to whether a Participant has incurred a Termination of Service and the Director,effect thereof shall be made by the Director’s spouse or the Director’s dependent (as definedCommittee in Section 152its sole discretion, including whether a leave of the Code, without regardabsence shall constitute a Termination of Service, subject to Section 152(b)(1), (b)(2), and (d)(1)(B)); (ii) loss of the Director’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, as a result of a natural disaster); or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Director.applicable law.
ARTICLE 3. ADMINISTRATION
3.1 Authority of the Committee. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the BoardCommittee shall have full and exclusive power to administerselect the individuals to whom Awards may from time to time be granted under the Plan; grant Awards; determine the size and types of Awards; determine the terms, restrictions and conditions of Awards in a manner consistent with the Plan (including, but not limited to, the number of shares of Common Stock subject to an Award; vesting and/or exercise conditions applicable to an Award; the duration of an Award; whether an Award
is intended to qualify as a Section 162(m) Performance Award; restrictions on transferability of an Award and any shares of Common Stock issued thereunder; whether, to what extent and under what circumstances Awards may be settled in cash, Common Stock or otherwise; subject to applicable law, the effect of a suspension of employment or leave of absence on an Award; and other restrictions and covenants upon which a Participant’s rights to receive, exercise or retain an Award or cash, Common Stock or other gains related thereto shall be contingent); construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend or waive rules and regulations for the Plan’s administration; to review and determine all claims for payments or otherwise made under or with respect to the Plan; to correct any defect, supply any omission and reconcile any inconsistency in the Plan or any agreement or instrument entered into under the Plan; toAward Agreement and determine all questions and settle all controversies arising under the Plan or any Award Agreement; establish, amend, waive or rescind rules and regulations for the Plan’s administration (including, without limitation, rules and regulations relating to sub-plans established for the purposes of satisfying applicable foreign laws or qualifying for favorable tax treatment under applicable foreign laws, as provided in Section 15.13); delegate administrative responsibilities under the Plan; and (subject to delegate routine administrativethe provisions of Article 13) amend the terms and record keeping responsibilities underconditions of any outstanding Award to the Plan; provided, however, that in no eventextent such terms and conditions are within the discretion of the Committee, including accelerating the time any Option or SAR may be exercised, waiving restrictions and conditions on Awards and establishing different terms and conditions relating to the effect of a Termination of Service. The Committee also shall the Board have the powerabsolute discretion to make all other determinations and to take any other actions that may be necessary or authority to determineadvisable in the recipients, amount, price or timingCommittee’s opinion for the administration of Restricted Stock Awards to bethe Plan.
3.2 Award Agreements. Each Award granted under the Plan. Determinations made with respect to an individual Non-Employee DirectorPlan shall be made without participationevidenced by an Award Agreement in such Non-Employee Director.form as the Committee shall determine. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and incorporate any other terms and conditions, not inconsistent with the Plan (except when necessary to comply with Section 409A of the Code or other applicable law), as may be directed by the Committee. Except to the extent prohibited by applicable law, the Committee may, but need not, require as a condition of any such Award Agreement’s effectiveness that the Agreement be signed by the Participant.
3.3 Delegation. To the extent not prohibited by applicable law and only to the extent that any such action will not prevent the Plan or any Award from satisfying an exemption under Rule 16b-3 of the Exchange Act, or the rules of any applicable securities exchange or any other applicable law, the Committee may delegate to a subcommittee of the Committee or to the Company’s executive officers (or other such persons as it deems appropriate) the authority, subject to such terms as the Committee shall determine, to perform such functions, including but not limited to administrative functions, as the Committee may determine appropriate; provided that, Awards to executive officers and substantive matters related thereto shall be determined solely by the Committee or an appropriate subcommittee thereof. For the avoidance of doubt and notwithstanding the foregoing, the authority to grant Restricted Stock or other Awards may not be delegated unless permitted by Delaware law. Nothing in the Plan shall be construed as obligating the Committee to delegate authority to anyone, and the Committee may at any time rescind any delegated authority.
3.4 Decisions Binding. All determinations, decisions and interpretations made by the BoardCommittee pursuant to the provisions of the Plan and all related resolutions of the Board shall be final, conclusive and binding on all parties,persons, including Non-Employee Directors, the Company, the Company’s stockholders, and Participants and their estates and beneficiaries.
3.5 Indemnification. In addition to such other rights they may have as Directors or members of the Committee under the Company’s Certificate of Incorporation or Bylaws or otherwise, each person who is or shall have been a member of the Committee shall be indemnified and held harmless by the
Company against any other interested persons.loss, cost, liability or expense (including settlement amounts paid with the approval of the Committee) that may be imposed upon or reasonably incurred by the Committee member in connection with or resulting from any claim, action, suit or proceeding to which the member may be a party or in which the member may be otherwise involved by reason of any action taken or failure to act under or in connection with the Plan or any Award, except with respect to matters as to which the Committee member has been grossly negligent or engaged in willful misconduct or as prohibited by applicable law; provided, however, that the member shall give the Company an opportunity, at its own expense, to handle and defend the same before the member undertakes to handle and defend it on the member’s own behalf.
3.6 Electronic Delivery. Any reference herein to a “written” agreement or document shall include any agreement or document delivered electronically by the Company or the Committee (or the delegate of either) or posted on the Company’s intranet.
ARTICLE 4. STOCK SUBJECT TO THE PLANPLAN; LIMITS
4.1 Stock Available Under the Plan. Subject to adjustmentsadjustment as provided in Section 4.2,4.3, the aggregate number of shares of Common Stock that may be issued in connection with Restricted Stockpursuant to Awards granted under the Plan is Five Hundred Thousand (500,000)shares of Common Stock.Eight Million (8,000,000) shares. Shares of Common Stock issued under the Plan may be shares of original issuance, shares held in the treasury of the Company or shares purchased in the open market or otherwise. Shares of Common Stock covered by Restricted Stock Awards that expire or are forfeited or canceled for any reason or that are settled in cash or otherwise are terminated in wholewithout the delivery of the full number of shares of Common Stock underlying the Award or in part for any reasonto which the Award relates shall be available for further grantsAwards under the Plan to the extent of such expiration, forfeiture, cancellation, cash settlement, etc. However, shares of Common Stock subject to an Award that are (a) withheld or retained by the Company in payment of the Option Price or other exercise or purchase price of an Award (including shares of Common Stock withheld or retained by the Company or not issued in connection with the net settlement or net exercise of an Award), or (b) tendered to, withheld or retained by the Company in payment of tax withholding obligations relating to an Award shall not become available again for Awards under the Plan.
Notwithstanding the other provisions of this Section 4.1, the maximum number of shares of Common Stock that may be issued pursuant to ISOs under this Plan shall be Two Million (2,000,000) shares, subject to adjustment as provided in Section 4.3. No fractional shares shall be issued, and the Committee shall determine the manner in which fractional share value shall be treated.
4.2Individual Award Limits. Notwithstanding any provision in the Plan to the contrary, the following limitations shall apply (subject to adjustment as provided in Section 4.3):
(a) Individual Option and SAR Limit. No Participant shall be granted, during any one (1) calendar year, Options and/or SARs (whether such SARs may be settled in shares of Common Stock, cash or a combination thereof) covering in the aggregate more than Five Hundred Thousand (500,000) shares of Common Stock.
(b) Individual Limit on Other Awards. With respect to any Awards other than Options and SARs, no Participant shall be granted, during any one calendar year, such Awards (whether such Awards may be settled in shares of Common Stock, cash or a combination thereof) consisting of, covering or relating to in the aggregate more than One Million One Hundred Thousand (1,100,000) shares of Common Stock. With respect
to any cash-based Stock Award that is intended to be a Section 162(m) Performance Award, the maximum cash payment that may be paid during any one (1) calendar year to a Participant shall be $4,000,000.
The foregoing limitations shall apply to all Awards and also shall be applied in a manner that will permit Awards that are intended to satisfy the Section 162(m) Exception to meet the applicable requirements thereunder.
4.3 Adjustments. In the event of a reorganization, recapitalization, stock split, stock dividend, extraordinary dividend, spin-off, combination of shares, merger, consolidation or similar
transaction or other change in corporate capitalization affecting the Common Stock, equitable adjustments and/or substitutions, as applicable, to prevent the dilution or enlargement of rights shall be made by the BoardCommittee to (a) the maximum number and kind of shares of Common Stock that may be issued under the Plan as set forth in Section 4.1; and (b)4.1, the number and kind of shares that are subject to thenthe ISO limit in Section 4.1, the number of shares of Common Stock subject to the Award limits set forth in Section 4.2 (to the extent such adjustment to a Section 162(m) Performance Award would not cause a failure to comply with the Section 162(m) Exception) and the number, kind and price of shares of Common Stock subject to outstanding Restricted Stock Awards (including Deferred Restricted Stock Units).granted under the Plan. In addition, the Committee, in its sole discretion, shall have the right to make such similar adjustments as described above in the event of any corporate transaction to which Section 424(a) of the Code applies or such other event that in the judgment of the Committee necessitates an adjustment as may be determined to be appropriate and equitable by the Committee. Adjustments under this Section 4.3 shall, to the extent practicable and applicable, be made in a manner consistent with the requirements of Section 409A of the Code and, in the case of ISOs, Sections 422 and 424(a) of the Code, and in the case of a Section 162(m) Performance Award, the Section 162(m) Exception. Notwithstanding the foregoing, the Board,number of shares of Common Stock subject to any Award shall always be a whole number and the Committee, in its sole discretion, shall make such adjustments as are necessary to eliminate fractional shares that may result from any adjustments made pursuant hereto. Except as expressly provided herein, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock covered bysubject to an outstanding Restricted Stock Award. Notwithstanding the foregoing, adjustments under this Section 4.2 shall, to the extent practicable and applicable, be made in a manner consistent with the requirements of Section 409A of the Code.
ARTICLE 5. PARTICIPATIONELIGIBILITY AND RESTRICTED STOCK AWARD ELECTIONSPARTICIPATION
5.1 Eligibility. Each Non-Employee DirectorAwards under the Plan may be granted to Employees and consultants providing services to the Company or a Subsidiary (provided such consultants are natural persons who render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction and which services do not directly or indirectly promote or maintain a market for the Company’s securities) as selected by the Committee. In determining the individuals to whom such an Award shall be eligiblegranted and the terms and conditions of such Award, the Committee may take into account any factors it deems relevant, including the duties of the individual, the Committee’s assessment of the individual’s present and potential contributions to receive Restricted Stock Awardsthe success of the Company or its Subsidiaries and such other factors as described belowthe Committee shall deem appropriate in Article 6 during his tenure as a Non-Employee Director.
5.2 Restricted Stock Award Elections.
(a) Annual Grants. An annual grantconnection with accomplishing the purposes of a Restricted Stock Award to a Non-Employee Director pursuant to Section 6.1(a) below shallthe Plan. Such determinations made by the Committee under the Plan need not be uniform and may be made inselectively among eligible individuals under the form of Restricted Stock unless the Non-Employee Director makes an irrevocable written election to receivePlan, whether or not such annual grant in the form of Deferred Restricted Stock Units and, subject to vesting of such Deferred Restricted Stock Units, thereby to defer receipt of the corresponding shares of Common Stock to a future date in accordance with Article 7. For the avoidance of doubt, such an election will apply to the Restricted Stock Award in its entirety and no partial elections may be made. A Non-Employee Director who wishes to be granted Deferred Restricted Stock Units for a particular year must make a written election no later than December 31 of the calendar year prior to the calendar year in which the Restricted Stock Award will be granted pursuant to this Plan. All deferral elections must be in such form as the Company may prescribe and shall become irrevocable as of such December 31. Any such election shall be effective only for the Restricted Stock Award made in the following calendar year and shall not carry over to any subsequent calendar year. A new separate election must be submitted with respect to each Restricted Stock Award.
(b) Interim Grants to New Non-Employee Directors. An interim grant of a Restricted Stock Award to a Non-Employee Director shall be made in the form of Restricted Stock pursuant to Section 6.1(b) below. No election shall be available to receive such interim grant in the form of Deferred Restricted Stock Units or to defer receipt of the corresponding shares of Common Stock to a future date.
ARTICLE 6. FORMULA GRANTS OF RESTRICTED STOCK AWARDS
6.1 Formula Grants of Restricted Stock.individuals are similarly situated. Subject to the terms of the Plan, Restricted Stock shallAward limits set forth in Section 4.2, a Participant may be granted to Non-Employee Directors automatically and without further action ofmore than one (1) Award under the Board of Directors as follows:
(a) Annual Grants. On the first business day following each annual meeting of the Company’s stockholders, each Non-Employee Director who is then a member of the Board shall receivePlan; however, a grant of Restricted Stock consisting ofmade hereunder in any one (1) year to a Participant shall neither guarantee nor preclude a further grant to such Participant in that number of shares that equals $145,000 divided by the Average Market Value of the Common Stock as of the Grant Date, rounded up to the nearest whole share;year or any subsequent years.
provided, however, that ifARTICLE 6. STOCK OPTIONS
6.1 Grants of Stock Options. Subject to the Non-Employee Director timely madeprovisions of the Plan, the Committee may grant Options upon the following terms and conditions:
(a) Award Agreement. Each grant of an irrevocable electionOption shall be evidenced by an Award Agreement in such form as the Committee shall determine. The Award Agreement shall specify the number of shares of Common Stock to insteadwhich the Option pertains, whether the Option is an ISO or a NSO, the Option Price, the term of the Option, the conditions upon which the Option shall become vested and exercisable, and such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. ISOs may be granted Deferred Restricted Stock Units, the Non-Employee Director instead shall be credited with that same number of Deferred Restricted Stock Units. The shares or Deferred Restricted Stock Units, as applicable, covered by such Restricted Stock Award shall vest in full on the earlier of (i) the first anniversaryonly to Employees of the Grant DateCompany or (ii) the day before the next annual meeting of the Company’s stockholders following the Grant Date. Vesting on any such date is subject to continued service as a Director (whether or not in the capacity of a Non-Employee Director) through such date.Subsidiary.
(b) Interim Grants to New Non-Employee DirectorsOption Price. If a Non-Employee Director initially becomes a memberThe Option Price per share of Common Stock shall be determined by the Committee but shall not be less than the Fair Market Value per share of Common Stock on the date of grant of the Board duringOption. In the case of an ISO granted to a calendar year but afterTen Percent Stockholder, the annual meetingOption Price per share of Common Stock shall not be less than one hundred ten percent (110%) of the Company’s stockholders has been held for such year,Fair Market Value per share of Common Stock on the Non-Employee Director shall receive adate of grant of Restrictedthe Option. Notwithstanding the foregoing, an Option may be granted with an Option Price per share of Common Stock effectiveless than that set forth above if such Option is granted pursuant to an assumption of, or substitution for, another option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Exercise of Options. An Option shall be exercisable in whole or in part (including periodic installments) at such time or times, and subject to such restrictions and conditions, as the Committee shall determine. Such restrictions and conditions may, but are not required to, include one or more of the Section 162(m) Performance Goals described in Section 10.1(b) and/or other performance metrics, which may include subjective metrics, as the Committee deems appropriate. Except as otherwise provided in the Award Agreement, the right to purchase shares of Common Stock under the Option that become exercisable in periodic installments shall be cumulative so that such shares of Common Stock (or any part thereof) may be purchased thereafter until the expiration or termination of the Option.
(d) Option Term. The term of an Option shall be determined by the Committee, but in no event shall an ISO be exercisable more than ten (10) years from the date of its grant or in the case of any ISO granted to a Ten Percent Stockholder, more than five (5) years from the date of its grant.
(e) Termination of Service. Except to the extent an Option remains exercisable as provided below or as otherwise set forth in the Award Agreement, an Option shall immediately terminate upon the Participant’s Termination of Service with the Company and its Subsidiaries for any reason.
(i) General Rule. In the event that a Participant incurs a Termination of Service for any reason other than Cause, Involuntary Termination Without Cause, or his or her death or Disability, the Participant may exercise an Option to the extent that the Participant was entitled to exercise such Option as of the date of termination, but only within such initial appointmentperiod of time ending on the earlier of (A) sixty (60) days following such Termination of Service or (B) the expiration of the term of the Option as set forth in the Award Agreement.
(ii) Involuntary Termination Without Cause. In the event that a Participant incurs a Termination of Service that constitutes an Involuntary Termination Without Cause, the Participant may exercise an Option to the Board, consisting ofextent that number of shares that equals $145,000 divided by the Average Market Value of the Common StockParticipant was entitled to exercise such Option as of the Grant Date, rounded update of termination, but only within such period of time ending on the earlier of (A) ninety (90)
days following such Termination of Service or (B) the expiration of the term of the Option as set forth in the Award Agreement.
(iii) Disability. In the event that a Participant incurs a Termination of Service as a result of the Participant’s Disability, the Participant may exercise an Option to the nearest whole share. The shares covered byextent that the Participant was entitled to exercise such grantOption as of Restricted Stock shall vest in fullthe date of termination, but only within such period of time ending on the first anniversaryearlier of (A) one (1) year following such Termination of Service or (B) the expiration of the Grant Date. Vesting on such date is subject to continued serviceterm of the Option as a Director (whether or notset forth in the capacityAward Agreement.
(iv) Death. In the event that a Participant’s Termination of Service is caused by the Participant’s death, or in the event of the Participant’s death following the Participant’s Termination of Service but during the exercise period following termination described in subparagraph (i), (ii) or (iii) above, as applicable, then an Option may be exercised to the extent that the Participant was entitled to exercise such Option as of the date of death by the person or persons to whom the Participant’s rights to exercise the Option passed by will or the laws of descent and distribution (or by the executor or administrator of the Participant’s estate), but only within such period of time ending on the earlier of (A) one (1) year following the date of death or (B) the expiration of the term of the Option as set forth in the Award Agreement.
(f) ISO Limitation. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of the shares of Common Stock with respect to which a Participant’s ISOs are exercisable for the first time during any calendar year (under all plans of the Company and its Subsidiaries) exceeds $100,000 or such other applicable limitation set forth in Section 422 of the Code, such ISOs shall be treated as NSOs. The determination of which ISOs shall be treated as NSOs generally shall be based on the order in which such ISOs were granted and shall be made in accordance with applicable rules and regulations under the Code.
(g) Payment. Options shall be exercised by the delivery of a Non-Employee Director) through such date.
(c) Pro Rata Allocation. If, on any Grant Date,written notice of exercise to the Company (or its delegate) in the manner prescribed by the Company (or its delegate), specifying the number of shares of Common Stock with respect to which the Option is to be exercised, accompanied by the aggregate Option Price (or provision for the aggregate Option Price) for the shares of Common Stock. Unless otherwise provided by the Committee, the aggregate Option Price shall be payable to the Company in full (i) in cash or cash equivalents acceptable to the Company, (ii) subject to applicable law and such rules and procedures as may be established by the Committee, by tendering previously acquired shares of Common Stock (or delivering a certification of ownership of such shares) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that accepting such shares will not result in any adverse accounting consequences to the Company, as the Committee determines in its sole discretion), (iii) subject to applicable law and such rules and procedures as may be established by the Committee, by means of a “cashless exercise” facilitated by a securities broker approved by the Company through the irrevocable direction to sell all or part of the shares of Common Stock being purchased and to deliver the Option Price (and any applicable withholding taxes) to the Company, or (iv) a combination of the foregoing. The Committee also may provide that Options may be exercised using a “net share settlement” procedure, or by any other means it determines to be consistent with the Plan’s purpose and applicable law (including the tendering of Awards having an aggregate Fair Market Value at the time of exercise equal to the total Option Price, as determined by the Committee).
(h) Transfer Restrictions. Except as otherwise set forth herein, Options may not be sold, transferred, pledged, assigned, alienated, hypothecated or disposed of in any manner other than by
will or the laws of descent and distribution, and Options shall be exercisable during the Participant’s lifetime only by the Participant (or, to the extent permitted by applicable law, the Participant’s guardian or legal representative in the event of the Participant’s legal incapacity). Notwithstanding the foregoing, the Committee, in its absolute discretion, may permit a Participant to transfer NSOs, in whole or in part, for no consideration to (i) one or more Family Members; (ii) a trust in which Family Members have more than fifty percent (50%) of the beneficial interest; (iii) a foundation in which Family Members (or the Participant) control the management of assets; or (iv) any other entity in which Family Members (or the Participant) own more than fifty percent (50%) of the voting interests; provided that in all cases, such transfer is permitted under applicable tax laws and Rule 16b-3 of the Exchange Act as in effect from time to time. In all cases, the Committee must be notified in advance in writing of the terms of any proposed transfer to a permitted transferee and such transfers may occur only with the consent of and subject to the rules and conditions imposed by the Committee. The transferred NSOs shall continue to be subject to the same terms and conditions in the hands of the transferee as were applicable immediately prior to the transfer (including the provisions of the Plan and the Award Agreement relating to the expiration or termination of the NSOs). The NSOs shall be exercisable by the permitted transferee only to the extent and for the periods specified herein and in any applicable Award Agreement.
(i) No Stockholder Rights. No Participant shall have any rights as a stockholder of the Company with respect to shares of Common Stock subject to the Participant’s Option until the issuance of such shares to the Participant pursuant to the exercise of such Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grants of SARs. Subject to the provisions of the Plan, the Committee may grant SARs upon the following terms and conditions:
(a) Award Agreement. Each grant of a SAR shall be evidenced by an Award Agreement in such form as the Committee shall determine. The Award Agreement shall specify the number of shares of Common Stock to which the SAR pertains, the term of the SAR, the conditions upon which the SAR shall become vested and exercisable, and such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. Such conditions may, but are not required to, include one or more of the Section 162(m) Performance Goals described in Section 10.1(b) and/or other performance metrics, which may include subjective metrics, as the Committee deems appropriate. The Committee may grant SARs in tandem with or independently from Options.
(b) Initial Value of SARs. The Committee shall assign an initial value to each SAR, provided that the initial value may not be less than the aggregate Fair Market Value on the date of grant of the shares of Common Stock to which the SAR pertains.
(c) Exercise of SARs. A SAR shall be exercisable in whole or in part (including periodic installments) at such time or times, and subject to such restrictions and conditions, as the Committee shall determine. Notwithstanding the foregoing, in the case of a SAR that is granted in tandem with an Option, the SAR may be exercised only with respect to the shares of Common Stock for which its related Option is then exercisable. The exercise of either an Option or a SAR that are granted in tandem shall result in the termination of the other to the extent of the number of shares of Common Stock with respect to which such Option or SAR is exercised.
(d) Term of SARs. The term of a SAR granted independently from an Option shall be determined by the Committee, but in no event shall such a SAR be exercisable more than ten (10)
years from the date of its grant. A SAR granted in tandem with an Option shall have the same term as the Option to which it relates.
(e) Termination of Service. In the event that a Participant incurs a Termination of Service, the Participant’s SARs shall terminate in accordance with the provisions specified in Article 6 with respect to Options.
(f) Payment of SAR Value. Upon the exercise of a SAR, a Participant shall be entitled to receive (i) the excess of the Fair Market Value on the date of exercise of the shares of Common Stock with respect to which the SAR is being exercised, over (ii) the initial value of the SAR on the date of grant, as determined in accordance with Section 7.1(b) above. Notwithstanding the foregoing, the Committee may specify in an Award Agreement that the amount payable upon the exercise of a SAR shall not exceed a designated amount. As specified by the Committee in the Award Agreement, the amount payable as a result of the exercise of a SAR may be settled in cash, shares of Common Stock of equivalent value, or a combination of cash and Common Stock. A fractional share of Common Stock shall not be deliverable upon the exercise of a SAR, but a cash payment shall be made in lieu thereof.
(g) Nontransferability. Except as otherwise set forth herein, SARs granted under the Plan may not be sold, transferred, pledged, assigned, alienated, hypothecated or disposed of in any manner other than by will or the laws of descent and distribution, and SARs shall be exercisable during the Participant’s lifetime only by the Participant (or, to the extent permitted by applicable law, the Participant’s guardian or legal representative in the event of the Participant’s legal incapacity). Notwithstanding the foregoing, the Committee, in its absolute discretion, may permit a Participant to transfer SARs, in whole or in part, for no consideration to (i) one or more Family Members; (ii) a trust in which Family Members have more than fifty percent (50%) of the beneficial interest; (iii) a foundation in which Family Members (or the Participant) control the management of assets; or (iv) any other entity in which Family Members (or the Participant) own more than fifty percent (50%) of the voting interests; provided, that such transfer is permitted under applicable tax laws and Rule 16b-3 of the Exchange Act as in effect from time to time. In all cases, the Committee must be notified in advance in writing of the terms of any proposed transfer to a permitted transferee and such transfers may occur only with the consent of and subject to the rules and conditions imposed by the Committee. The transferred SARs shall continue to be subject to the same terms and conditions in the hands of the transferee as were applicable immediately prior to the transfer (including the provisions of the Plan and the Award Agreement relating to the expiration or termination of the SARs). The SARs shall be exercisable by the permitted transferee only to the extent and for the periods specified herein and in any applicable Award Agreement.
(h) No Stockholder Rights. No Participant shall have any rights as a stockholder of the Company with respect to shares of Common Stock subject to a SAR until the issuance of shares (if any) to the Participant pursuant to the exercise of such SAR.
ARTICLE 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grants of Restricted Stock and DeferredRestricted Stock Units. Subject to the provisions of the Plan, the Committee may grant Restricted Stock and/or Restricted Stock Units upon the following terms and conditions:
(a) Award Agreement. Each grant of Restricted Stock or Restricted Stock Units shall be granted pursuant to this Section 6.1 exceedsevidenced by an Award Agreement in such form as the number of shares then available for issuance under the Plan,Committee shall determine. The Award Agreement shall specify the number of shares of Restricted Stock and number of Deferred granted or with respect to which the
Restricted Stock Units are granted, the Restricted Period, the conditions upon or the time at which the Restricted Period shall lapse, and such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine.
(b) Purchase Price. The Committee shall determine the purchase price, if any, to be grantedpaid for each share of Restricted Stock or each Restricted Stock Unit, subject to such minimum consideration as may be required by applicable law.
(c) Nontransferability. Except as otherwise set forth in the Award Agreement, shares of Restricted Stock may not be sold, transferred, pledged, assigned, alienated, hypothecated or disposed of in any manner until the end of the Restricted Period applicable to such shares and the satisfaction of any and all other conditions prescribed by the Committee. Restricted Stock Units may not be sold, transferred, pledged, assigned, alienated, hypothecated or disposed of in any manner until the end of the Restricted Period applicable to such Restricted Stock Units and the satisfaction of any and all other conditions prescribed by the Committee.
(d) Other Restrictions. The Committee may impose such conditions and restrictions on the grant, vesting or retention of Restricted Stock and Restricted Stock Units as it determines, including based upon the occurrence of a specific event, continued service for a period of time or other time-based restrictions, or the achievement of financial or other business objectives. For Awards that are not intended to be Section 162(m) Performance Awards, the conditions and restrictions may relate to one or more Section 162(m) Performance Goals described in Section 10.1 and/or other performance metrics, which may include subjective metrics, as the Committee deems appropriate. The Committee may provide that such restrictions may lapse separately or in combination at such time or times and with respect to all shares of Restricted Stock and Restricted Stock Units or in installments or otherwise as the Committee may deem appropriate.
(e) Settlement of Restricted Stock Units. After the expiration of the Restricted Period and all conditions and restrictions applicable to Restricted Stock Units have been satisfied or lapsed, the Participant shall be entitled to receive the then Fair Market Value of the shares of Common Stock with respect to which the Restricted Stock Units were granted. Such amount shall be paid in accordance with the terms of the Award Agreement and shall be paid in cash, shares of Common Stock (which shares of Common Stock themselves may be shares of Restricted Stock) or a combination thereof as determined by the Committee and specified in the Award Agreement.
(f) Section 83(b) Election. The Committee may provide in an Award Agreement that an Award of Restricted Stock is subject to the Non-Employee Directors on such Grant DateParticipant making or refraining from making an election under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to Restricted Stock, the Participant shall be reduced onrequired to promptly file a pro rata basis.copy of such election with the Company as required under Section 83(b) of the Code.
6.2(g) Termination of Service. ExceptNotwithstanding anything herein to the contrary and except as provided in Section 6.3 below which shall applyotherwise determined by the Committee, in the event of a terminationthe Participant’s Termination of service immediatelyService prior to or upon a Change in Control, if a Director’s service on the Board terminates for any reason other thanexpiration of the Director’s death or Disability,Restricted Period, all shares of Restricted Stock or, if applicable, all Deferredand Restricted Stock Units with respect to which the applicable restrictions have not vested at the time of such terminationyet lapsed shall be immediately and automatically forfeited by such Director. If a Director’s service on the Board terminates by reason of the Director’s death or Disability, the Restricted Stock or Deferred Restricted Stock Units held by the Director shall vest in full as of the date of such termination.forfeited.
6.3 Change in Control. Notwithstanding any other provision of the Plan, all outstanding shares of Restricted Stock and Deferred Restricted Stock Units shall be deemed vested as of (a) the date of consummation of a tender offer or exchange offer that constitutes a Change in Control or (b) the third business day prior to the effective date of any other Change in Control.
6.4(h) Stockholder Rights.
(i) Restricted Stock. Except asto the extent otherwise provided by the Plan,Committee, a Non-Employee Director whoParticipant that has been granted Restricted Stock shall have the rights and privileges of a
stockholder as to such Restricted Stock, including the right to vote such Restricted Stock and the right to receive dividends, if and when declared by the Board of Directors. With respect toDirectors, provided, that the Committee may require that any cash dividends shall be automatically reinvested in additional shares of Restricted Stock received as a result of adjustments under Section 4.2 hereof and also any shares of Common Stock that result from dividends declared on the Common Stock, the Non-Employee Director shall have the same rights and privileges, and be subject to the same restrictions, as apply generally to Stock.
(ii) Restricted Stock under the Plan.Units. A DirectorParticipant shall have no voting or other stockholder rights or ownership interest in shares of Common Stock with respect to which Deferred Restricted Stock Units are granted. Notwithstanding the foregoing, the Committee may, in its sole discretion, provide in an Award Agreement that, if the Board of Directors declares a dividend with respect to the Common Stock, Participants shall receive dividend equivalents with respect to their Restricted Stock Units. Subject to Section 409A of the Code, the Committee may determine the form, time of payment and other terms of such dividend equivalents, which may include cash or Restricted Stock Units.
6.5(iii) Award AgreementAdjustments and Dividends Subject to Plan. Each grantWith respect to any shares of a Restricted Stock Awardor Restricted Stock Units received as a result of adjustments under Section 4.3 hereof and also any shares of Common Stock, Restricted Stock or Restricted Stock Units that result from dividends declared on the Common Stock, the Participant shall have the same rights and privileges, and be evidenced by an award agreement betweensubject to the Non-Employee Director andsame restrictions, as are set forth in this Article 8 except to the Company.extent the Committee otherwise determines.
6.6(i) Issuance of Restricted Stock/Stock Certificates. A grant of Restricted Stock may be evidenced in such manner as the CompanyCommittee shall deem appropriate, including, without limitation, book-entry registration or the issuance of a stock certificate (or certificates) representing the number of shares of Restricted Stock granted to the Non-Employee Director,Participant, containing such legends as the CompanyCommittee deems appropriate and held in custody by the Company or on its behalf, in which case the grant of Restricted Stock shall be accompanied by appropriate stop-transfer instructions to the transfer agent for the Common Stock, until (1) the restrictions lapse andexpiration or termination of the Restricted Period for such shares of Restricted Stock become vested.and the satisfaction of any and all other conditions prescribed by the Committee or (2) the forfeiture of such shares of Restricted Stock. The CompanyCommittee may require the Directora Participant to deliver to the Company aone or more stock power,powers, endorsed in blank, relating to the shares of Restricted Stock to be held in custody by or for the Company.
ARTICLE 7. DEFERRED RESTRICTED9. STOCK UNITSAWARDS
7.1 Deferral and Payment Election for Deferred RSUs.
(a) Irrevocable Election. In accordance with Section 5.2(a), a Non-Employee Director who wishes to receive Deferred RestrictedThe Committee may grant other types of Stock Units for a particular year must make a written election no later than December 31Awards that involve the issuance of the calendar year prior to the calendar year in which the Restricted Stock Award will be granted pursuant to this Plan. By making such election, the Non-Employee Director shall thereby make an irrevocable election to defer the settlement of all, but not less than all, of the Deferred Restricted Stock Units to be granted to such Non-Employee Director and, subject to vesting of such Deferred Restricted Stock Units, thereby defer receipt of the corresponding shares of Common Stock or that are denominated in or valued by reference to a future date as describedshares of Common Stock, including, but not limited to, the grant of shares of Common Stock or the right to acquire or purchase shares of Common Stock. Stock Awards may be granted either alone or in Section 7.1(b) afteraddition to other Awards under the Deferred RestrictedPlan. Stock Units vest. All deferral elections mustAwards shall be evidenced by an Award Agreement in such form as the Company may prescribe andCommittee shall become irrevocable as of such December 31. Any deferral electiondetermine. The Award Agreement shall be effective only forspecify the Restricted Stock Award made in the following calendar year and shall not carry over to any subsequent calendar year. A new separate election must be submitted with respect to each Restricted Stock Award.
(b) Time and Form of Settlement for Deferred RSUs. A Non-Employee Director’s vested Deferred Restricted Stock Units and any related dividend equivalents credited to his Deferred RSU Account pursuant to Section 7.2 shall be settled in accordance with Section 7.3 in the form of a single lump sum payment of the equivalent number of shares of Common Stock uponto which the earliest to occurStock Award pertains (or cash equivalent thereof), the form in which the Stock Award shall be paid and such additional terms and conditions, not inconsistent with the provisions of the following: (i)Plan, as the Non-Employee Director’s Separation from Service, (ii) a Change in Control Event, (iii) a specified payment date designated byCommittee shall determine.
ARTICLE 10. SECTION 162(m) PERFORMANCE AWARDS
10.1 Section 162(m) Performance Awards. Subject to the Non-Employee Director in his deferral election (which date must be a permitted payment date under Section 409Aterms of the Code), or (iv)Plan (including the Non-Employee Director’s death.
If the Non-Employee Director’s initial deferral election included a specified payment date as described aboveshare limit in Section 7.1(b)(iii)4.2), the Non-Employee DirectorCommittee previously may make a subsequent election to further defer settlementhave approved an Award of such vested DeferredRestricted Stock or Restricted Stock Units (and payment of related dividend equivalents) ifor a Stock Award intended to meet the Section 162(m) Exception based upon a determination that the Participant is or may become a Named Executive Officer. For such election is made at least one (1) year prior toAwards, the originally selected specified payment date and the subsequent specified payment date is at least five (5) years after the originally selected specified payment date. In such case, the Non-Employee Director’s vested Deferred Restricted Stock Units and any related dividend equivalents credited to his Deferred RSU Account pursuant to Section 7.2 shall be settled in accordance with Section 7.3 in the form of a single lump sum payment of the equivalent number of shares of Common Stock upon the earliest to occur of the following: (i) the Non-Employee Director’s Separation from Service, (ii) a Change in Control Event, (ii) the specified payment date designated by the Non-Employee Director in his subsequent deferral election (which date must be a permitted payment date under Section 409A of the Code), or (iv) the Non-Employee Director’s death.
(c) Deferred RSU Account. A Deferred RSU Accountprovisions of this Article 10 shall control to the extent inconsistent with Articles 8 and 9 and such Section 162(m) Performance Awards shall be established and maintained by the Company on behalf of each Non-Employee Director who is credited with vested Deferred Restricted Stock Units. Upon the vesting of such Deferred Restricted Stock Units, the Non-Employee Director’s Deferred RSU Account shall be credited with that same number of Deferred Restricted Stock Units and, in accordance with Section 7.2, any dividend equivalents attributable to such Deferred Restricted Stock Units as of such vesting date. Thereafter, the Non-Employee Director’s Deferred RSU Account shall be credited with any additional applicable dividend equivalents attributable to such Deferred Restricted Stock Units in accordance with Section 7.2.
7.2 Dividend Equivalents. If the Board of Directors of the Company declares a cash dividend during a calendar year with respectsubject to the Common Stockfollowing terms and the Non-Employee Director becomes vested in his Deferred Restricted Stock Units, the Non-Employee Director’s Deferred RSU Account shall be credited with an amount equal to the dividend paid with respect to a share of Common Stock for each of his Deferred Restricted Stock Units that are outstanding on (and have not been forfeited or settled prior to) the applicable record date. Dividend equivalents shall be paid in a single cash lump sum at the same time that the vested Deferred Restricted Stock Units are settled in accordance with Section 7.1(b) and Section 7.3. Dividend equivalents credited to a Deferred RSU Account shall be credited and accumulate without interest.
7.3 Settlement of Deferred Restricted Stock Units.conditions:
(a) Separation from ServiceAward Agreement. IfEach grant of a Non-Employee Director’s vested Deferred Restricted Stock Units become payable upon a Separation from Service (other than due to death), then within sixty (60) days after the Director’s Separation from Service, such Deferred Restricted Stock UnitsSection 162(m) Performance Award shall be settledevidenced by an Award Agreement in a single complete distribution and paid tosuch form as the Director inCommittee shall determine. The Award Agreement shall specify the form of an equivalent number of whole shares of Common Stock to which the Section 162(m) Performance Award pertains, the applicable Section 162(m) Performance Goals and any dividend equivalents attributable to the Deferred Restricted Stock Units shall be paid to the Director in cash in a single lump sum; provided, however, that the Director isPerformance Period, and such additional terms and conditions, not permitted, directly or indirectly, to designate the taxable year of the payment.
Notwithstanding the foregoing, if a Director is deemed by the Company at the time of the Director’s Separation from Service to be a “specified employee” within the meaning of Section 409A of the Code (and determined in accordanceinconsistent with the provisions of the Company’s Deferred Compensation Plan) for purposes of this Plan, as the payment of his vested Deferred Restricted Stock Units (and any unpaid accumulated dividend equivalents)Committee shall not be made until the first day of the seventh month after the Director’s Separation from Service (or upon the Director’s death, if earlier). Such a delay shall apply only to the extent required under Section 409A of the Code.determine.
(b) Change in Control EventSection 162(m) Performance Goals. IfThe Committee shall establish one or more Section 162(m) Performance Goals for the Participant that are objectively determinable (i.e., such that a Non-Employee Director’s vested Deferred Restricted Stock Units become payable upon a Changethird party with knowledge of the relevant facts could determine whether the goals have been met). Such Section 162(m) Performance Goals must be established in Control Event, thenwriting by the Committee within thirty (30)ninety (90) days after the Changebeginning of the Performance Period (or, if earlier, by the date on which twenty-five percent (25%) of the Performance Period has elapsed) or within such other time period prescribed by the Section 162(m) Exception; provided, that achievement of the Section 162(m) Performance Goals must be substantially uncertain at the time they are established. Such Section 162(m) Performance Goals shall be based on one or more of the following, as determined in Control Event,the sole discretion of the Committee: stock price; market share; earnings per share (basic or diluted); net earnings; operating or other earnings; gross or net profits; revenues; financial return ratios; stockholder return; cash flow measures (including operating cash flow, free cash flow, and cash flow return on investment); cash position; return on equity; return on investment; debt rating; sales (including Company-wide sales and dealership sales); expense reduction levels; debt levels (including borrowing capacity); return on assets (gross or net); debt to equity ratio; debt to capitalization ratio; consummation of debt offerings; consummation of equity offerings; growth in assets, sales, or market share; customer satisfaction; reducing, retiring or refinancing all or a portion of the Company’s long-term or short-term public or private debt or similar financial obligations (including the attainment of a certain level of reduction in such Deferred Restricted Stock Units crediteddebt); share count reduction; gross or operating margins; contractual compliance (including maintaining compliance with financial and other covenants, obtaining waivers of non-compliance, or obtaining amendments of contractual covenants); or strategic business objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets, or goals relating to acquisitions or divestitures. Section 162(m) Performance Goals may be based on the performance of (i) the Company; (ii) the Participant’s division, business unit or employing Subsidiary; (iii) one or more of the Company’s divisions, business units or Subsidiaries; (iv) the Company and its Subsidiaries as a whole; or (v) any combination of the foregoing. Section 162(m) Performance Goals also may be expressed by reference to the Participant’s individual performance with respect to any of the foregoing criteria.
Section 162(m) Performance Goals may be expressed in such form as the Committee shall determine, including either in absolute or relative terms (including, but not by way of limitation, by relative comparison to a Non-Employee Directorpre-established target, to previous years or to other companies or other external measures), in percentages, in terms of growth over time or otherwise, provided that the Section 162(m) Performance Goals meet the requirements hereunder. Section 162(m) Performance Goals need not be based upon an increase or positive result under one of the above criteria and could include, for example, maintaining the status quo or the limitation of economic losses (measured in such case by reference to the specific criteria). When establishing the Section 162(m) Performance Goals, the Committee may specify that the Section 162(m) Performance Goals shall be settled in a single complete distributiondetermined either before or after taxes and paid to the Director in the form of an equivalent number of whole shares of Common Stock and any dividend equivalents attributable to the Deferred Restricted Stock Units shall be paidadjusted to exclude items such as (i) asset write-downs or impairment charges; (ii) the Director in cash in a single lump sum; provided, however, that the Director is not permitted, directlyeffect of unusual or indirectly, to designate the taxable yearextraordinary charges or income items or other events, including acquisitions or dispositions of the payment.
(c) Specified Payment Date. If a Non-Employee Director’s vested Deferred Restricted Stock Units become payable upon a specified payment date, then within sixty (60) days after such specified payment date, such vested Deferred Restricted Stock Units shall be settled in a single complete distribution and paid to the Director in the form of an equivalent number of whole shares ofbusinesses
Common Stockor assets, restructurings, discontinued operations, reductions in force, refinancing/restructuring of short-term and/or long-term debt, or other extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (iii) litigation or claim expenses, judgments or settlements; or (iv) changes in accounting principles or tax laws or other laws or provisions affecting reported results. The Section 162(m) Performance Goals established by the Committee may be (but need not be) particular to a Participant and/or different each Performance Period.
The Committee also may establish subjective Section 162(m) Performance Goals for Participants, provided that for Named Executive Officers, the subjective Section 162(m) Performance Goals may be used only to reduce, and not to increase, the Section 162(m) Performance Award otherwise payable under the Plan. The Committee can establish other performance measures for Awards granted to Participants to the extent they are not intended to qualify for the Section 162(m) Exception.
(c) Payment. Prior to the vesting, settlement, payment or delivery, as the case may be, of a Section 162(m) Performance Award, the Committee shall certify in writing the extent to which the applicable Section 162(m) Performance Goals and any dividend equivalents attributable to the Deferred Restricted Stock Units shall be paid to the Director in cash in a single lump sum; provided, however, that the Director is not permitted, directly or indirectly, to designate the taxable yearother material terms of the payment.Section 162(m) Performance Award have been achieved or exceeded for the applicable Performance Period. In no event may the Committee waive achievement of the Section 162(m) Performance Goal requirements for a Named Executive Officer except in its sole discretion in the case of the death or Disability of the Participant or a Change in Control.
(d) DeathOther Restrictions. If a Non-Employee Director’s vested Deferred Restricted Stock Units become payable uponThe Committee shall have the Non-Employee Director’s death, then within ninety (90) days afterpower to impose such other restrictions on Section 162(m) Performance Awards as it may deem necessary or appropriate for Section 162(m) Performance Awards that are intended satisfy the Director’s death, such Deferred Restricted Stock UnitsSection 162(m) Exception. Nothing contained in the Plan shall be settled in a single complete distribution inconstrued to limit the formauthority of the Company or the Committee to adopt other compensation arrangements, including an equivalent numberarrangement not intended to or that does not meet the Section 162(m) Exception.
10.2 Section 162(m) Exception. It is intended that the Plan comply fully with and meet all of whole shares of Common Stock and any dividend equivalents attributable to the Deferred Restricted Stock Units shall be paid in cash in a single lump sum, in each case paid torequirements for the Director’s designated beneficiary, or if there is no designated beneficiary, then to the Director’s estate. If the Non-Employee Director’s vested Deferred Restricted Stock Units become payable under Sections 7.3(a), (b) or (c) but the Non-Employee Director dies before complete paymentSection 162(m) Exception with respect to his Deferred RSU AccountOptions and SARs granted hereunder prior to November 2, 2017. At all times when the Committee determines that compliance with the Section 162(m) Exception is made, any remaining payment shall berequired or desired, it is intended that Section 162(m) Performance Awards granted under this Plan comply with the requirements for the Section 162(m) Exception. In addition, in the event that changes are made to the Director’s designated beneficiary,Section 162(m) Exception to permit greater flexibility with respect to any Award or if there is no designated beneficiary, then to the Director’s estate.
A Non-Employee Director may designate (in such form and manner determined by the Company) a beneficiary to receive shares of Common Stock and cash payment for dividend equivalents that may be payableAwards under the Plan, following the Director’s death.Committee may make any adjustments it deems appropriate. The Non-Employee DirectorCommittee may, change such designation from time to time, and the last written designation properly executed and delivered (as directed by the Company) prior to the Director’s death will control. If a Non-Employee Director does not properly designate a beneficiary, or if no designated beneficiary survives the Non-Employee Director, or if the designated beneficiary survives the Non-Employee Director but dies before payment is made, then payment shall be made to the estate of the Non-Employee Director. The Board (or its authorized delegate) may determine the identity of such beneficiaries as necessary and shall incur no responsibility by reason of the delivery of a payment in accordance with any such determination made in good faith.
(e) Fractional Deferred RSUs. At the time of settlement and payment of a Non-Employee Director’s Deferred RSU Account, any fractional Deferred Restricted Stock Units then credited to the Non-Employee Director’s Deferred RSU Account shall be paid in cash.
7.4 Unforeseeable Emergency. A Director who experiences an Unforeseeable Emergency may submit a written request to the Board to receive payment of all or a portion of his vested Deferred Restricted Stock Units in the form of shares of Common Stock and accumulated but unpaid dividend equivalent amounts in the form of cash. Any such written request must set forth the circumstances constituting such Unforeseeable Emergency. Whether a Director is faced with an Unforeseeable Emergency permitting an emergency payment and the amount payable shall be determined by the Board in its sole discretion, based ongrant Awards that do not qualify for the relevant facts and circumstances of each case, but, in any case, a distribution on account of Unforeseeable EmergencySection 162(m) Exception. In addition, the Section 162(m) Exception will no longer be available for new Awards after November 2, 2017 (unless such Awards qualify for applicable transition relief under the Section 162(m) Exception). Therefore, Awards granted under the Plan may not be madetax deductible, in whole or in part, to the extent that such emergency is or may be reimbursed through insurance or otherwise, or by liquidation of the Director’s assets, to the extent the liquidation of such assets would not cause severe financial hardship. If an emergency payment is approved by the Board, the amount of the payment shall not exceed the amount reasonably necessary to satisfy the need, including amounts necessary to pay any taxes or penalties that the Director reasonably anticipates will result from the payment. Emergency payments with respect to Deferred Restricted Stock Units and dividend equivalent amounts shall be made within sixty (60) days following the date the payment is approved by the Board (provided, however, that the Director is not permitted, directly or indirectly, to designate the taxable year of the payment).Company.
7.5 Acceleration of or Delay in Payments. The Board, in its sole and absolute discretion, may elect to accelerate the time of payment of a benefit owed to the Director under this Article 7, provided such acceleration is permitted under Treasury Regulation Section 1.409A-3(j)(4). The Board may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Director under this Article 7, to the extent permitted under Treasury Regulation Section 1.409A-2(b)(7).
7.6 Nonqualified Deferred Compensation Plan. The provisionsNotwithstanding any other provision of the Plan, as they applythis amendment and restatement of the Plan shall not modify in any material respect the terms or conditions of any Award made pursuant to Deferreda written binding contract in effect on November 2, 2017 that is intended to meet the Section 162(m) Exception.
ARTICLE 11. CHANGE IN CONTROL
11.1 Impact on Options and SARs. Notwithstanding any other provision of the Plan, all outstanding Options and SARs shall become fully vested and exercisable on and after (a) the date of consummation of a tender offer or exchange offer that constitutes a Change in Control or (b) the third business day prior to the effective date of any other Change in Control.
11.2 Impact on Restricted Stock and Restricted Stock Units. Notwithstanding any other provision of the Plan, all Awards of Restricted Stock and Restricted Stock Units are intended(including Section 162(m) Performance Awards other than Section 162(m) Performance Awards described below) shall be deemed vested, all restrictions shall be deemed lapsed, all terms and conditions shall be deemed satisfied and the Restricted Period with respect thereto shall be deemed to constitute an unfunded, nonqualified deferred compensation planhave ended as of (a) the date of consummation of a tender offer or exchange offer that complies withconstitutes a Change in Control or (b) the requirementsthird business day prior to the effective date of any other Change in Control (“Change in Control Vesting”). For Section 409A162(m) Performance Awards of Restricted Stock and Restricted Stock Units for which the Performance Period has ended, but which remain subject to additional vesting or other restrictions, Change in Control Vesting also shall apply to such Section 162(m) Performance Awards as adjusted (if necessary) based upon achievement of the Code.applicable Section 162(m) Performance Goals. For Section 162(m) Performance Awards of Restricted Stock and Restricted Stock Units for which the Performance Period has not yet ended, Change in Control Vesting shall apply to such Awards of Restricted Stock and Restricted Stock Units on a pro rata basis based upon an assumed achievement of the applicable target Section 162(m) Performance Goals and the length of time within the Performance Period that has elapsed prior to the Change in Control.
11.3 Stock Awards. Stock Awards shall be subject to the terms of the applicable Award Agreement regarding a Change in Control.
ARTICLE 8.12. FORFEITURE AND CLAWBACK
12.1 Forfeiture and Recoupment. Notwithstanding any other provision of the Plan to the contrary, an Award Agreement may provide that an Award and/or a Participant’s rights, payments and benefits with respect to an Award (including Awards that have become vested and exercisable), including, without limitation, the right to receive an Award, to exercise an Award, to retain an Award or other Awards, to retain cash or Common Stock acquired in connection with an Award and/or to retain the profit or gain realized by the Participant in connection with an Award shall be subject to reduction, rescission, forfeiture or recoupment upon the occurrence of certain events (including, but not limited to, Termination of Service for Cause, breach of confidentiality or other restrictive covenants that apply to the Participant, engaging in competition against the Company, or other conduct or activity by the Participant that is detrimental to the business or reputation of the Company), whether during or after termination, in addition to any forfeitures due to a vesting schedule or Termination of Service and any other penalties or restrictions that may apply under any employment agreement, state law, or otherwise.
12.2 Company Policies. All Awards granted under the Plan also shall be subject to the terms and conditions of any policy regarding clawbacks, forfeitures or recoupments adopted by the Company
from time to time. Without limiting the foregoing, by acceptance of any Award, each Participant agrees to repay to the Company any amount that may be required to be repaid under any such policy.
ARTICLE 13. AMENDMENT, SUSPENSION AND TERMINATION
13.1 Amendment, Suspension and Termination of Plan. The Board may at any time, and from time to time, amend, suspend or terminate the Plan in whole or in part; provided that, any such amendment, suspension or termination of the Plan shall be subject to the requisite approval of the stockholders of the Company (a) to the extent stockholder approval is necessary to satisfy the applicable requirements of the Code (including, but not limited to, Section 422 thereof and the Section 162(m) Exception), the Exchange Act or Rule 16b-3 thereunder, any New York Stock Exchange, NASDAQNasdaq or other securities exchange listing requirements or any other law or regulation.regulation; or (b) if such amendment is intended to allow the Option Price of outstanding Options to be reduced by repricing or replacing such Options. Unless sooner terminated by the Board, the Plan shall terminate at 11:59 p.m. on April 17, 2027, a term of ten years from the date the amendment and restatement ofFebruary 22, 2027; provided, that no Incentive Stock Options may be granted under the Plan became effective upon the requisite approval of the Company’s stockholders.on or after February 22, 2022. No further Restricted Stock Awards may be granted after the termination of the Plan, but the Plan shall remain effective with respect to any then outstanding Restricted Stock Awards. Except as otherwise provided herein, noAwards previously granted. No amendment, suspension or termination of the Plan shall adversely affect in any material way the rights of a Non-Employee DirectorParticipant under any outstanding Restricted Stock Award without the Non-Employee Director’sParticipant’s consent.
13.2. Amendment of Awards. Subject to Section 13.1 above, the Committee may at any time amend the terms of an Award previously granted to a Participant, but no such amendment shall adversely affect in any material way the rights of the Participant without the Participant’s consent except as otherwise provided in the Plan or the Award Agreement.
13.3 Compliance Amendments. Notwithstanding any other provision of the foregoing, it is expressly contemplated thatPlan to the contrary, the Board may amend the Plan and/or the terms ofCommittee may amend any outstanding Restricted Stock Award in any respect it deems necessary or advisable to comply with any exchange listing requirement, applicable law or to address other regulatory requirements,matters without obtaining a Participant’s consent, including, but not limited to, reforming (including on a retroactive basis, if permissible and applicable) any terms of an outstanding Award to comply with or meet an exemption from Section 409A of the Code without obtainingor to comply with any other applicable laws, regulations or exchange listing requirements (including changes thereto).
ARTICLE 14. WITHHOLDING
14.1 Tax Withholding Requirements. The Company and its Subsidiaries shall have the individual consent of any Non-Employee Director who holds an outstanding Restricted Stock Award. Notwithstandingpower and the foregoing, the Board may terminate the Plan with respectright to Deferred Restricted Stock Units and pay Directors their Deferred Restricted Stock Units and related dividend equivalents in a single lump sum onlydeduct or withhold from cash payments or, subject to Section 14.2, other property to be paid to the extent permitted by and in accordance with Treasury Regulation Section 1.409A-3(j)(4)(ix).
ARTICLE 9. TAX MATTERS
9.1 Withholding. To the extent applicable,Participant, or require a Director that has received a Restricted Stock Award under this Plan shall pay or make provision for paymentParticipant to remit to the Company theor a Subsidiary, an amount necessarysufficient to satisfy any federal, state, local or local withholding requirements applicableforeign taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising in connection with the Restricted Stock Award. The determination of the withholding amounts due in such event shall be made by the Company and shall be binding upon the Director.an Award under this Plan. The Company shall not be required to issue, deliver or release restrictions on any shares of Common Stock unlessor to settle any Awards payable hereunder if such withholding requirements have not been satisfied.
14.2 Withholding Arrangements. With respect to withholding required upon the Director has made acceptable arrangementsexercise of Options, or upon any other taxable event arising as a result of Awards granted hereunder that are to be paid in the form of cash or shares of Common Stock, at the sole discretion of the Committee and pursuant to such procedures as it may specify, the Committee may require or permit the Participant to satisfy any suchthe Participant’s withholding requirements. Notwithstanding the foregoing, nothing in this Section shall be construed to impose onobligations (a) by delivering cash or having the Company a duty to withhold whereor the applicable law does not require such withholding.
9.2 Section 83(b) Election. If a Non-Employee Director makes an election pursuant to Section 83(b) of the Code with respect to Restricted Stock, the Non-Employee Director shall be required to promptly file a copy of such election with the Company as required under Section 83(b) of the Code.
Subsidiary withhold an amount from cash otherwise due the Participant; and/or (b) by having the Company or the applicable Subsidiary withhold or retain from an Award shares of Common Stock, or by the Participant delivering sufficient shares of Common Stock the Participant already owns (which are not subject to any pledge or security interest), sufficient to cover the amount required to be withheld, as determined by the Company using rates of up to the maximum applicable statutory rate in a Participant’s jurisdiction; provided, that (i) any such share withholding or delivery can be effected without causing liability under Section 16(b) of the Exchange Act and (ii) the Committee may permit share withholding in excess of the minimum required statutory amount so long as such share withholding will not trigger classification of the Award as a liability for financial accounting purposes. Notwithstanding the foregoing, the Committee shall have the right to restrict a Participant’s ability to satisfy tax obligations through share withholding and delivery as it may deem necessary or appropriate.
ARTICLE 10.15. GENERAL PROVISIONS
10.115.1 Restrictions on Stock Ownership/Legends. Notwithstanding anything in the Plan to the contrary, the Board,Committee, in its sole discretion, may establish guidelines applicable to the ownership of any shares of Common Stock acquired pursuant to the exercise of an Option or SAR or in connection with any other Award under this Plan as it may deem desirable or advisable, including, but not limited to, time-based or other restrictions on transferability regardless of whether or not the Common StockParticipant is otherwise vested.vested in such Common Stock. All stock certificates representing shares of Common Stock issued pursuant to this Plan shall be subject to such stock transfer orders and other restrictions as the BoardCommittee may deem advisable and the BoardCommittee may cause any such certificates to have legends affixed thereto to make appropriate references to any applicable restrictions.
10.215.2 Company PoliciesDeferrals. All RestrictedSubject to Section 15.9, the Committee may require or permit a Participant to defer receipt of the delivery of shares of Common Stock or other payments pursuant to Awards granted under the Plan that otherwise would be due to such Participant. Subject to Section 15.9, any deferral elections shall be subject to such terms, conditions, rules and procedures as the terms and conditions of any applicable policy regarding clawbacks, forfeitures, or recoupments adopted by the Company.Committee shall determine.
10.315.3 No Guarantee of ContinuedEmployment or Future Service on the BoardRights. Nothing in the Plan or any award agreementAward Agreement shall be construed to confer upon any DirectorParticipant any right to continuedcontinue in the employ or future service onof the BoardCompany or a Subsidiary nor interfere with or limit in any way the right of Directors.the Company or a Subsidiary to terminate any Participant’s employment by, or performance of services for, the Company or Subsidiary at any time for any reason.
10.415.4 No Participation Rights. No person shall have the right to be selected to receive an Award under this Plan and there is no requirement for uniformity of treatment among Participants.
15.5 No Trust or Fund Created. To the extent that any person acquires a right to receive Common Stock, cash payments or other property under the Plan, such right shall be only contractual in nature unsecured by any assets of the Company or any subsidiary. Deferred RSUs and dividend equivalents with respect thereto shall at all times be maintained by the Company as bookkeeping entries evidencing unfunded and unsecured general obligations of the Company, and a Director (and any person claiming through him or her) shall have only the status of an unsecured general creditor of the Company with respect thereto.Subsidiary. Neither the Company nor any subsidiarySubsidiary shall be required to segregate any specific funds, assets or other property from its general assets with respect to any Restricted Stock Awards or other benefits under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company or any Subsidiary, on the one hand, and any DirectorParticipant or other person, on the other hand.
10.5 Compliance with Code Section 409A. It is generally intended that the Plan and all Restricted Stock Awards hereunder either comply with or meet the requirements for an exemption from Section 409A of the Code and the Plan Participants shall be operated and administered accordingly. Notwithstanding anything in the Plan to the contrary, the Board may amend or vary the terms of Restricted Stock Awardshave no rights under the Plan in order to conform such terms to the requirements of Section 409Aother than as unsecured general creditors of the Code. Notwithstanding any other provisions of the Plan or any award agreement, the Company does not guarantee to any Director (or any other person with an interest in a Restricted Stock Award) that the Plan or any Restricted Stock Award hereunder complies with or is exempt from Section 409A of the Code and shall not have any liability to or indemnify or hold harmless any individual with respect to any tax consequences that arise from any such failure to comply with or meet an exemption under Section 409A of the Code.
10.6 Nontransferability. Except as otherwise provided herein, Restricted Stock Awards (and any related dividend equivalents) may not be sold, assigned, conveyed, pledged, exchanged, hypothecated, alienated or otherwise disposed of or transferred in any manner (other than by will or the laws of descent or distribution). Any attempted transfer in violation of the Plan shall relieve the Company from any obligations to the Director (or any person claiming through a Director) hereunder.applicable Subsidiary.
10.715.6 Restrictions on Transferability. Except as otherwise provided herein or in an Award Agreement, no Award or any shares of Common Stock subject to an Award that have not been issued, or as to which any applicable restrictions have not lapsed, may be sold, transferred, pledged, assigned, alienated, hypothecated or disposed of in any manner. Any attempt to transfer an Award or any shares of Common Stock in violation of the Plan or an Award Agreement shall relieve the Company and its Subsidiaries from any obligations to the Participant thereunder.
15.7 Requirements of Law. The granting of RestrictedAwards and the issuance of shares of Common Stock Awards under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. ToWith respect to Participants who are subject to Section 16 of the extent applicable, theExchange Act, this Plan and Restricted Stock Awards granted hereunder are intended to comply with the provisions of and satisfy the requirements for exemption under Rule 16b-3 or any successor rule under the Exchange Act.
10.815.8 Approvals and Listing. The Company shall not be required to grant, issue or settle any Restricted Stock Awards or issue any certificate or certificates for shares of Common Stock under the Plan prior to (a) obtaining any required approval from the stockholders of the Company; (b) obtaining any approval from any governmental agency that the Company shall, in its sole discretion, determine to be necessary or advisable; (c) the admission of such shares of Common Stock to listing on any national securities exchange on which the Company’s Common Stock may be listed; and (d) the completion of any registration or other qualification of such shares of Common Stock under any state or federal law or ruling or regulation of any governmental or regulatory body that the Company shall, in its sole discretion, determine to be necessary or advisable. The Company may require that any Non-Employee Director granted a Restricted Stockrecipient of an Award hereunder make such representations and agreements and furnish such information as it deems appropriate to assure compliance with the foregoing or any other applicable legal requirement. Notwithstanding the foregoing, the Company shall not be obligated at any time to file or maintain a registration statement under the Securities Act of 1933, as amended, or to effect similar compliance under any applicable state laws with respect to the Common Stock that may be issued pursuant to this Plan.
10.1915.9 Compliance with Code Section 409A. It is generally intended that the Plan and all Awards granted hereunder either comply with or meet the requirements for an exemption from Section 409A of the Code and the Plan shall be operated, interpreted and administered accordingly. No Award (or modification thereof) shall provide for a deferral of compensation (within the meaning of and subject to Section 409A of the Code) that does not comply with Section 409A of the Code and the Award Agreement shall incorporate the terms and conditions required by Section 409A of the Code, unless the Committee, at the time of grant (or modification, as the case may be), provides that the Award is not intended to comply with Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, the Committee may amend or vary the terms of Awards under the Plan in order to conform such terms to the requirements of Section 409A of the Code. Except as may be provided in an Award Agreement, to the extent that any Award provides for a deferral of compensation subject to Section 409A of the Code and the Participant is a “specified employee” (within the meaning of Section 409A of the Code and determined by the Company in accordance with its procedures), benefits payable under the Award that are required to be postponed under Section 409A of the Code following the Participant’s “separation from service” (within the meaning of Section 409A of the Code) shall not be paid until after six (6) months following such separation from service (except as Section 409A of the Code may permit), but shall instead be accumulated and paid in a lump sum on the first business day following expiration of such six (6)-month period. To the extent an Award does not provide for a deferral of compensation subject to Section 409A of the Code, but may be deferred under a nonqualified deferred compensation plan established by the Company, the terms of such nonqualified deferred compensation plan shall govern
such deferral, and to the extent necessary, are incorporated herein by reference. Notwithstanding any other provisions of the Plan or any Award Agreement, the Company does not guarantee to any Participant (or any other person with an interest in an Award) that the Plan or any Award granted hereunder complies with or is exempt from Section 409A of the Code, and the Company shall not have any liability to or indemnify or hold harmless any individual with respect to any tax consequences that arise from any such failure to comply with or meet an exemption under Section 409A of the Code.
15.10 Other Corporate Actions. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Company to adopt other compensation arrangements or the right of the Company to authorize any adjustment, reclassification, reorganization, or other change in its capital or business structure, any merger or consolidation of the Company, the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its business or assets.
10.1015.11 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein shall also include the feminine, and the plural shall include the singular and the singular shall include the plural.
10.1115.12 Severability. The invalidity or unenforceability of any particular provision of this Plan shall not affect the other provisions hereof, and the BoardCommittee may elect in its sole discretion to construe such invalid or unenforceable provision in a manner that conforms to applicable law or as if such provision was omitted.
10.1215.13 Participants Outside of the United States. Notwithstanding anything in the Plan to the contrary, the Committee may, in its sole discretion, (a) adopt such rules and procedures as it determines are necessary or appropriate to permit participation in the Plan by Participants who are foreign nationals or employed outside of the United States; and/or (b) vary, modify or amend the terms of Awards made to or held by a Participant in any manner deemed by the Committee to be necessary or appropriate in order that such Award shall conform to or accommodate differences in laws, rules, regulations, customs or policies of each jurisdiction outside of the United States where the Participant is located or employed or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of such Award to a Participant who is a resident or primarily employed in the United States. The Committee also may establish administrative rules and procedures to facilitate the operation of the Plan in such foreign jurisdictions. The Committee also is authorized to adopt sub-plans to achieve the purposes of this Section 15.13. An Award made pursuant to this Section 15.13 may have terms that are inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or regulation or result in actual liability under Section 16(b) of the Exchange Act for the affected Participant.
15.14 Non-Exempt Employees. No Option or SAR granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act shall be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option or SAR. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay, and the provisions of this Section 15.14 will apply to all such relevant Awards and are hereby incorporated by reference into such Award Agreements.
15.15 Governing Law. To the extent not preempted by federal law, the Plan, and all award agreementsAward Agreements hereunder, shall be construed in accordance with and governed by the laws of the State of North Carolina (excluding the principles of conflict of law thereof). The jurisdiction and venue for any disputes arising under, or any action brought to enforce (or otherwise relating to), this Plan or any Restricted Stock Awards granted hereunder will be exclusively in the courts of the State of North Carolina, County of Mecklenburg, including the federal courts located therein (should federal jurisdiction exist).
10.1315.16 Successors. All obligations of the Company under the Plan with respect to Restricted Stock Awards granted hereunder shall be binding on any successor of the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of the Company or other transaction.
10.1415.17 Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.