1993 STOCK COMPENSATION PLAN OFELECTRO ENERGY, INC.
SECTION 1. Introduction.
1.1 Purposes. The purposes of the Electro Energy,Inc. Stock Compensation Plan (the "Plan") are to (i) enhance the growth in value of the Corporation and its Subsidiaries by providing a stock and financial incentive to certain executive level employees, consultants and directors who are capable of having a significant impact on the performance of the Corporation and its Subsidiaries; and (ii) attract, motivate and retain suchkey employees who are critical to the long term success of thebusiness.
1.2 Definitions. The following definitions areapplicable to the Plan:
"Award" means the grant of any Option by the Committeeto a Participant.
"Beneficiary" means the beneficiary or beneficiariesdesignated in accordance with Section 4.10 to receive the amount,if any, payable under the Plan upon the death of a Participant.
"Board of Directors" means the Board of Directors ofthe corporation.
"Code" means the Internal Revenue Code of 1986 asamended or renumbered from time to time.
"Committee" means the Compensation Committee of the Board of Directors;provided,however, no member of the Committeeshall be a Participant in the Plan.
"Common Shares" means the common stock ($0 par value)of the Corporation.
"Corporation" means Electro Energy, Inc. and anySubsidiary which is designated by the Board of Directors as eligible to have its employees participate in the plan.
"Disability" means any physical or mental condition that, in the opinion of the Committee, renders any employeeincapable of engaging in any employment or occupation for whichhe or she is suited by reason of education or training for aperiod of six months or greater.
"Fair Market Value" means the fair market value of ashare of common stock of the Corporation as determined in accordance with Proposed Regulation 1.421-7 and Regulation20.2031-2, if the common stock of the Corporation is not publiclytraded. This value is determined as of December 31 of each yearby the Board of Directors. If the common stock of the Corporation is listed on a national securities exchange, is quoted in the National Market List of NASDAQ, or is otherwise traded then the Fair Market Value will be the average closing price of those shares over the ten trading days prior to anytermination.
"Incentive Stock Option" means an option to purchaseCommon Shares that qualifies as an incentive stock option within the meaning of Section 422 of the Code.
"Key Employee" means any employee of the Corporation,including officers and directors who are also employees andconsultants and advisors, who, in the judgment of the Committee,is considered important to the future of the Corporation.
"Nonqualified Stock Option" means an option to purchase Common Shares that does not qualify as an incentive Stock Option.
"Option" means an incentive Stock Option or aNonqualified Stock Option.
"Participant" means a Key Employee of the corporationwho is selected to participate in the Plan in the mannerdescribed in Section 1.4.
"Subsidiary" means any subsidiary or affiliate of theCorporation as defined in Section 424(f) of the code,
1.3 Administration. The Plan shall be administered bythe Committee, except as otherwise provided herein. In no event shall a member of the Committee be eligible for an Award underthe Plan. A majority of the members of the Committee shallconstitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of themembers present, or without a meeting by unanimous written consent. The Committee shall have the authority to select Participants, grant Options, establish from time to timeguidelines or regulations for the administration of the Plan, interpret the plan, cause appropriate records to be established,
and make all determinations and take all other actions considered necessary or advisable for the administration of the Plan.
All decisions, actions or interpretations of the Committee that are within the scope of this Section 1.3 shall befinal,binding and conclusive upon all parties.
1.4 Participation. Participants in the Plan shall belimited to those Key Employees who have received writtennotification from the committee, or from a person designated bythe Committee, that they have been selected to participate in thePlan. No employee shall at any time have the automatic right tobe selected as a Participant. No Participant, having beengranted an Award, shall have the automatic right to be granted anadditional Award in the future.
1.5 Maximum number of Common Shares Available for Awards. Notwithstanding any other provision of the Plan, theaggregate maximum number of Common Shares that may be distributedto Participants during the term of the Plan shall be 350 CommonShares. In the event any Option granted under the plan shallterminate or expire, the number of Common Shares no longer subject to such Option, shall thereupon be released and shallthereafter be available for new Awards under the Plan. The Common Shares distributed under the Plan may be authorized andunissued shares, shares held in the treasury of the Corporation,or shares purchased on the open market by the Corporation (atsuch time or times and in such manner as it may determine). The
Corporation shall be under no obligation to acquire Common Sharesfor distribution to Participants before payment in Common Sharesis due.
SECTION 2. Stock Options
2.1 Awards of Options. The maximum number of optionsto be granted under the Plan shall be 350;provided,however,that the aggregate Fair Market Value (determined at the time theOption is granted) of the Common Shares with respect to which the Incentive Stock Options are exercisable for the first time by anyParticipant during any calendar year (under all incentive stock option plans of the Corporation and its Subsidiaries) shall notexceed one hundred thousand dollars ($100,000).
2.2 Terms and Conditions of Options. Each Optiongranted under the Plan shall be evidenced by an agreement, in aform approved by the Committee. Such agreement shall be subjectto the following express terms and conditions and to such otherterms and conditions as the Committee may deem appropriate:
(A) Option Period. Each Option agreement shallspecify the period for which the Option thereunder is granted(which in no event shall exceed ten (10) years from the date of grant) and shall provide that the Option shall expire at the endof such period. With respect to Incentive Stock Options, in nocase shall such period, including any such extensions, exceed (i)ten (10) years from the date of grant, or (ii) in the case of
Incentive Stock Options granted to a Participant who, at the timethe Incentive Stock Option is granted, owns shares possessing more than ten (10) percent of the total combined voting power of all classes of shares of his or her employer corporation or of its parent or subsidiary corporation (a "Ten PercentShareholder"), five (5) years from the date of grant.
(B) Purchase Price. The purchase price perCommon Share shall be determined by the Committee at the time any Option is granted, and shall be not less than (i) the Fair MarketValue, or (ii) in the case of Incentive stock Options granted toa Ten Percent shareholder (as defined in Section 422 (b) of theCode), 110 percent of the fair market value (but in no event lessthan the par value) of a Common Share on the date the Incentive Stock Option is granted as determined by the Committee.
(C) Exercise of option. Except as otherwiseprovided under the Plan, no part of any Option may be exercised until the Participant shall have remained in the employ of theCorporation for such period after the date on which the option isgranted as the Committee may specify in the option agreement orotherwise and the Option agreement may provide for exercisabilityin installments.
(D) Payment of Purchase Price upon Exercise.Each Option shall provide that the purchase price of the Common Shares shall be paid to the Corporation at the time of exerciseeither in cash or in such other consideration as the Committee
deems appropriate, including, but not limited to, Common Shares already owned by the Participant having a total Fair Market Value, as determined by the Committee, equal to the purchase price, or a combination of cash and Common Shares having a total Fair Market Value, as so determined, equal to the purchase price.The Committee in its sole discretion may also provide that the purchase price may be paid by delivering a properly executedexercise notice in a form approved by the Committee together with irrevocable instructions to a broker to promptly deliver to the Corporation the amount of applicable sale or loan proceeds to paythe purchase price.
(E)Vesting Upon Termination of Employment. Inthe event that a Participant's employment terminates for anyreason including his or her death or disability, any Options heldby such Participant shall vest according to the terms of his orher Option Agreement,
(F)Transferability of Options. No Optiongranted under the Plan shall be transferable other than by willor by the laws of descent and distribution. During the lifetimeof the Participant, an Option shall be exercisable only by him orher.
(G)Investment Representation. Each optionagreement may provide that, upon demand by the committee for sucha representation, the Participant (or any person acting under Paragraph E of this Section 2.2) shall deliver to the committee,
at the time of any exercise of an Option or portion thereof, a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale orwith a view to the distribution thereof. Upon such demand,delivery of such representation prior to the delivery of any Common Shares issued upon exercise of an Option and prior to theexpiration of the Option period shall be a condition precedent to the right of the Participant or such other person to purchase any Common Shares. In the event certificates for Common shares are delivered under the Plan with respect to which such an investment representation has been obtained, the Committee may cause a legend or legends to be placed on such certificates to makeappropriate reference to such representations and to restrict transfer in the absence of compliance with applicable federal orstate securities law s.
(H) Participants to Have no Rights asShareholders. No Participant shall have any rights as ashareholder with respect to any Common Shares subject to his orher Option prior to the date of issuance to him or her of suchCommon Shares.
SECTION 3. General Provisions
3.1 Certain Adjustments to Plan Shares. In the eventof any change in the Common Shares by reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares, or any rights offering to purchase Common Shares at a price substantially below fair market value, or of any similar change affecting the Common Shares, the number and kind of shares available for Awards under the Plan, and the number and kind of shares subject to Restrictions or subject to Options in outstanding Option agreements and the purchase price per share thereof shall be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable toprevent substantial dilution or enlargement of the rights grantedto, or available for, the Participants hereunder. Any adjustmentof an Incentive Stock Option pursuant to this Section shall be made only to the extent not constituting a "modification" within the meaning of section 424(h)(3 ) of the Code, unless the holderof such Option shall agree otherwise. The Committee shall givenotice to each participant of any adjustment made pursuant tothis Section and, upon notice, such adjustment shall be effective and binding for all purposes of the Plan.
3.2 Successor corporation. The obligations of theCorporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger,consolidation or other reorganization of the Corporation, or uponany successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision
for the preservation of Participants' rights under the Plan in any agreement or plan which it may enter into or adopt to effectany such merger, consolidation, reorganization or transfer ofassets.
3.3 General Creditor Status. Participants shall haveno right,title, or interest whatsoever in or to any investmentswhich the Corporation may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and noaction taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciaryrelationship between the Corporation and any Participant,Beneficiary, legal representative or any other person. To theextent that any person acquires a right to receive payments from the Corporation under the Plan, such right shall be no greater than the right of an unsecured general creditor of theCorporation. All payments to be made hereunder shall be paidfrom the general funds of the Corporation and no special orseparate fund shall be established and no segregation of assetsshall be made to assure payment of such amounts except as expressly set forth in the Plan. In its sole discretion, the Compensation Committee may authorize the creation of trusts orother arrangements to meet the obligations created under the Plan to deliver Common Shares or pay cash;provided,however, that, unless the committee otherwise determines with the consent of theaffected Participant, the existence of such trusts or other
arrangements shall be consistent with the "unfunded" status ofthe Flan.
3.4No claim or Right Under the Plan. Neither the Plan nor any action taken thereunder shall be construed as giving any employee any right to be retained in the employ of the Corporation.
3.5Awards Not Treated as compensation Under BenefitPlans. No Award shall be considered as compensation under any employee benefit plan of the Corporation, except as specifically provided in any such plan or as otherwise determined by the Board of Directors.
3.6Listing and Qualification of Common Shares.TheCorporation, in its discretion, may postpone the issuance or delivery of Common Shares upon any exercise of an Option until completion of such stock exchange listing or other qualificationof such shares under any state or federal law, rule or regulation as the Corporation may consider appropriate, and may require anyParticipant, Beneficiary or legal representative to make such representations and furnish such information as it may considerappropriate in connection with the issuance or delivery of the shares in compliance with applicable laws, rules andregulations. If the Common Shares have not been registered underthe Securities Act of 1933, they will be issued pursuant to the applicable shareholder agreement between the Corporation and theshareholder.
3.7 Taxes. The Corporation may make such provisionsand take such steps as it may deem necessary or appropriate forthe withholding of all federal, state and local taxes required by law to be withheld with respect to Awards granted pursuant to theplan including, but not limited to (i) deducting the amount required to be withheld from any other amount then or thereafterpayable to a Participant, Beneficiary or legal representative,and (ii) requiring a Participant, Beneficiary or legal representative to pay to the Corporation the amount required to be withheld as a condition of releasing Common Shares. In addition, subject to such rules and regulations as the committee shall fromtime to time establish, Partici pants shall be permitted to satisfy federal, state and local taxes, if any, imposed upon the payment of Awards in Common Shares at a rate up to such Participant's maximum marginal tax rate with respect to each such tax by (i) irrevocably electing to have the Corporation deduct from thenumber of Common Shares otherwise deliverable in payment of anAward such number of Common Shares as shall have a value equal tothe amount of tax to be withheld, (ii) delivering to the Corporation such portion of the Common Shares delivered inpayment of the Award as shall have a value equal to the amount oftax to be withheld, or (iii) delivering to the Corporation such number of Common Shares or combination of Common Shares and cashas shall have a value equal to the amount of tax to be withheld.
3.8 Designation and Change of Beneficiary. EachParticipant shall file with the Committee a written designationof one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his orher death. A Participant may, from time to time, revoke orchange his or her Beneficiary designation without the consent ofany prior Beneficiary by filing a new designation with theCommittee. The last such designation received by the Committeeshall be controlling;provided,however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant's death, and in noevent shall it be effective as of a date prior to such receipt.
3.9 Payments to Persons Other Than Participant. Ifthe Committee shall find that any person to whom any amount ispayable under the Plan is unable to care for his or her affairsbecause of illness or accident, or is a minor, or has died, then any payment due to such person or his or her estate (unless aprior claim therefor has been made by a duly appointed legalrepresentative), may, if the Committee so directs theCorporation, be paid to his or her spouse, a child, a relative,an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipienton behalf of such person otherwise entitled to payment. Any suchpayment sha ll be a complete discharge of the liability of theCommittee and the Corporation therefor.
3.10 No Liability of Committee Members. No member of the Committee shall be personally liable by reason of anycontract or other instrument executed by such member or on his orher behalf in his or her capacity as a member of the Committee nor for any mistake of judgment made in good faith, and theCorporation shall indemnify and hold harmless each employee,officer or director of the Corporation to whom any duty or powerrelating to the administration or interpretation of the Plan maybe allocated or delegated, against any cost or expense (includingcounsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board of Directors) arising out of any act or omission to act in connect ion with the Plan unless arising out of such person's own fraud or bad faith. Theindemnification provided for in this section shall be in additionto any rights of indemnification such Committee member has as a director or officer pursuant to law, under the Certificate ofIncorporation or By-Laws of the Corporation.
3.11 Amendment or Termination. Except as to mattersthat In the opinion of the Corporation's legal counsel require shareholder approval, any provision of the Plan may be modified as to a participant by an individual agreement approved by theBoard of Directors. The Board of Directors may, with prospectiveor retroactive effect, amend, suspend or terminate the Plan orany portion thereof at any time;provided, however, that (i) noamendment that would materially increase the cost of the Plan to
the Corporation may be made by the Board of Directors without theapproval of the shareholders of the Corporation and (ii) no amendment, suspension or termination of the Plan shall depriveany Participant of any rights to Awards previously made under thePlan without his or her written consent. Subject to earliertermination pursuant to the provisions of this Section, andunless the shareholders of the corporation shall have approved anextension of the Plan beyond such date, no further Awards shallbe made under the Plan after the expiration of ten years fromthe effective date of the Plan specified in Section 4.15.
3.12 Governing Law. The Plan shall be governed by andconstrued in accordance with the laws of the State of New York,without reference to the principles of conflicts of law thereof.
3.14 Effective Date. The Plan is effective as ofJanuary l, 1993 subject to approval by the holders of a majorityof the Common Shares outstanding and entitled to vote at the annual meeting of the Company's shareholders in 1993. Notwithstanding the foregoing, if the Plan has been approved bythe Board prior to such shareholder approval, Awards may be madeby the Committee as provided herein subject to such subsequentshareholder approval. In the event that such shareholderapproval is not obtained, any such Awards shall be cancelled and all rights of Participants with respect to such Awards shallthereupon cease.
