ENERGY RESEARCH CORPORATION
1998 EQUITY INCENTIVE PLAN
Section 1. Purpose
The purpose of the Energy Research Corporation 1998 Equity Incentive Plan
(the "Plan") is to attract and retain key employees, directors, advisors and
consultants, to provide an incentive for them to assist Energy Research
Corporation (the "Corporation") to achieve long-range performance goals, and to
enable them to participate in the long-term growth of the Corporation.
Section 2. Definitions
(a) "Affiliate" means any business entity in which the Corporation owns directly
or indirectly 50% or more of the total combined voting power or has a
significant financial interest as determined by the Committee. (b) "Annual
Meeting" means the annual meeting of shareholders or special meeting in lieu of
annual meeting of shareholders at which one or more directors are elected. (c)
"Award" means any Option, Stock Appreciation Right or Restricted Stock awarded
under the Plan. (d) "Board" means the Board of Directors of the Corporation. (e)
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
(f) "Committee" means the Compensation Committee of the Board, or such other
committee of not less than two members of the Board appointed by the Board to
administer the Plan, provided that the members of such Committee must be
Non-Employee Directors as defined in Rule 16b-3(b) promulgated under the
Securities Exchange Act of 1934, as amended. (g) "Common Stock" or "Stock" means
the Common Stock, par value $.0001 per share, of the Corporation. (h)
"Corporation" means Energy Research Corporation (i) "Designated Beneficiary"
means the beneficiary designated by a Participant, in a manner determined by the
Board, to receive amounts due or exercise rights of the Participant in the event
of the Participant's death. In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate. (j)
"Fair Market Value" means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Board in good faith
or in the manner established by the Board from time to time. (k) "Incentive
Stock Option" means an option to purchase shares of Common Stock, awarded to a
Participant under Section 6, which is intended to meet the requirements of
Section 422 of the Code or any successor provision. (l) "Nonqualified Stock
Option" means an option to purchase shares of Common Stock, awarded to a
Participant under Section 6, which is not intended to be an Incentive Stock
Option. (m) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option. (n) "Participant" means a person selected by the Board to receive an
Award under the Plan. (o) "Restricted Period" means the period of time selected
by the Board during which an award of Restricted Stock may be forfeited to the
Corporation. (p) "Restricted Stock" means shares of Common Stock subject to
forfeiture, awarded to a Participant under Section 8. (q) "Stock Appreciation
Right" or "SAR" means a right to receive any excess in value of shares of Common
Stock over the reference price, awarded to a Participant under Section 7.
Section 3. Administration
The Plan shall be administered by the Committee, which shall initially be
the Stock Option Committee. The Board, including any duly authorized committee
of the Board, shall have authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation of the
Plan as it shall from time to time consider advisable, and to interpret the
provisions of the Plan. The Board's decisions shall be final and binding. To the
extent permitted by applicable law, the Board may delegate to the Committee the
power to make Awards to Participants and all determinations under the Plan with
respect thereto.
Section 4. Eligibility
All employees and, in the case of Awards other than Incentive Stock
Options, directors, advisors and consultants of the Corporation or any Affiliate
capable of contributing significantly to the successful performance of the
Corporation, other than a person who has irrevocably elected not to be eligible,
are eligible to be Participants in the Plan.
Section 5. Stock Available for Awards
(a) Subject to adjustment under subsection (b), Awards may be made under the
Plan covering of up to a maximum of 500,000 shares of Common Stock. If any Award
in respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, including without limitation the
surrender of shares in payment for the Award or any tax obligation thereon, the
shares subject to such Award or so surrendered, as the case may be, to the
extent of such expiration, termination, forfeiture or decrease, shall again be
available for award under the Plan, subject, however, in the case of Incentive
Stock Options, to any limitation required under the Code. Common Stock issued
through the assumption or substitution of outstanding grants from an acquired
corporation shall not reduce the shares available for Awards under the Plan.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares. (b) In the event that the Board determines
that any stock dividend, extraordinary cash dividend, creation of a class of
equity securities, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, warrants or rights offering
to purchase Common Stock at a price substantially below fair market value, or
other similar transaction affects the Common Stock such that an adjustment is
required in order to preserve the benefits or potential benefits intended to be
made available under the Plan, then the Board, subject, in the case of Incentive
Stock Options, to any limitation required under the Code, shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Board may
make provision for a cash payment with respect to an outstanding Award, provided
that the number of shares subject to any Award shall always be a whole number.
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Board may award Incentive Stock
Options and Nonqualified Stock Options and determine the number of shares to be
covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The terms and conditions
of Incentive Stock Options shall be subject to and comply with Section 422 of
the Code, or any successor provision, and any regulations thereunder.
(b) The Board shall establish the option price at the time each Option is
awarded, which price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of award with respect to Incentive Stock Options. (c)
Each Option shall be exercisable at such times and subject to such terms and
conditions as the Board may specify in the applicable Award or thereafter. The
Board may impose such conditions with respect to the exercise of Options,
including conditions relating to applicable federal or state securities laws, as
it considers necessary or advisable. (d) No shares shall be delivered pursuant
to any exercise of an Option until payment in full of the option price therefor
is received by the Corporation. Such payment may be made in whole or in part in
cash or, to the extent permitted by the Board at or after the award of the
Option, by delivery of a note or shares of Common Stock owned by the option
holder, including Restricted Stock, valued at their Fair Market Value on the
date of delivery, by the reduction of the shares of Common Stock that the
optionholder would be entitled to receive upon exercise of the Option, such
shares to be valued at their Fair Market Value on the date of exercise, less
their option price (a so-called "cashless exercise"), or such other lawful
consideration as the Board may determine. (e) The Board may provide for the
automatic award of an Option upon the delivery of shares to the Corporation in
payment of an Option for up to the number of shares so delivered. (f) In the
case of Incentive Stock Options the following additional conditions shall apply
to the extent required under Section 422 of the Code for the options to qualify
as Incentive Stock Options:
(i) Such options shall be granted only to employees of the Corporation, and
shall not be granted to any person who owns stock that possesses more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or of its parent or subsidiary corporation (as those terms are
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder), unless, at the time of such grant, the
exercise price of such option is at least 110% of the fair market value of the
stock that is subject to such option and the option shall not be exercisable
more than five years after the date of grant; (ii) Such options shall, by their
terms, be transferable by the optionholder only by the laws of descent and
distribution, and shall be exercisable only by such optionholder during his
lifetime. (iii) Such options shall not be granted more than ten years from the
effective date of this Plan or any subsequent amendment to the Plan approved by
the stockholders of the Corporation which extends this Incentive Stock Option
expiration date, and shall not be exercisable more than ten years from the date
of grant.
Section 7. Stock Appreciation Rights
Subject to the provisions of the Plan, the Board may award SARs in tandem
with an Option (at or after the award of the Option), or alone and unrelated to
an Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised.
Section 8. Restricted Stock
(a) Subject to the provisions of the Plan, the Board may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Corporation and the other terms and conditions of such Awards. Shares of
Restricted Stock may be issued for no cash consideration or such minimum
consideration as may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Board, during the Restricted
Period. Shares of Restricted Stock shall be evidenced in such manner as the
Board may determine. Any certificates issued in respect of shares of Restricted
Stock shall be registered in the name of the Participant and unless otherwise
determined by the Board, deposited by the Participant, together with a stock
power endorsed in blank, with the Corporation. At the expiration of the
Restricted Period, the Corporation shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
Section 9. General Provisions Applicable to Awards
(a) Documentation. Each Award under the Plan shall be evidenced by a written
document delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Board considers necessary or advisable to achieve
the purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles. (b) Board Discretion. Each type of Award may be made
alone, in addition to or in relation to any other type of Award. The terms of
each type of Award need not be identical, and the Board need not treat
Participants uniformly. Except as otherwise provided by the Plan or a particular
Award, any determination with respect to an Award may be made by the Board at
the time of award or at any time thereafter. Without limiting the foregoing, an
Award may be made by the Board, in its discretion, to any 401(k), savings,
pension, profit sharing or other similar plan of the Corporation in lieu of or
in addition to any cash or other property contributed or to be contributed to
such plan. (c) Settlement. The Board shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Corporation,
Awards, other property or such other methods as the Board may deem appropriate.
The Board may permit a Participant to defer all or any portion of a payment
under the Plan, including the crediting of interest on deferred amounts
denominated in cash and dividend equivalents on amounts denominated in Common
Stock. If shares of Common Stock are to be used in payment pursuant to an Award
and such shares were acquired upon the exercise of a stock option (whether or
not granted under this Plan), such shares must have been held by the Participant
for at least six months. (d) Dividends and Cash Awards. In the discretion of the
Board, any Award under the Plan may provide the Participant with (I) dividends
or dividend equivalents payable currently or deferred with or without interest,
and (ii) cash payments in lieu of or in addition to an Award. (e) Termination of
Employment. The Board shall determine the effect on an Award of the disability,
death, retirement or other termination of employment of a Participant and the
extent to which, and the period during which, the Participant's legal
representative, guardian or Designated Beneficiary may receive payment of an
Award or exercise rights thereunder. (f) Change in Control. In order to preserve
a Participant's rights under an Award in the event of a change in control of the
Corporation, the Board in its discretion may, at the time an Award is made or at
any time thereafter, take one or more of the following actions: (I) provide for
the acceleration of any time period relating to the exercise or realization of
the Award, (ii) provide for the purchase of the Award upon the Participant's
request for an amount of cash or other property that could have been received
upon the exercise or realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award in a manner
determined by the Board to reflect the change in control, (iv) cause the Award
to be assumed, or new rights substituted therefor, by another entity, or (v)
make such other provision as the Board may consider equitable and in the best
interests of the Corporation.
(g) Withholding. The Corporation shall have the power and the right to deduct or
withhold, or require a Participant to remit to the Corporation an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to an Award
or any dividends or other distributions payable with respect thereto. In the
Board's discretion, such tax obligations may be paid in whole or in part in
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value on the date of delivery. The
Corporation and its Affiliates may, to the extent permitted by law, deduct any
such tax obligations from any payment of any kind otherwise due to the
Participant. (h) Amendment of Award. The Board may amend, modify or terminate
any outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonqualified Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant. (i) Except as otherwise
provided by the Board, Awards under the Plan are not transferable other than as
designated by the participant by will or by the laws of descent and
distribution.
Section 10. Miscellaneous
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Corporation expressly
reserves the right at any time to dismiss a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable Award,
no Participant or Designated Beneficiary shall have any rights as a shareholder
with respect to any shares of Common Stock to be distributed under the Plan
until he or she becomes the holder thereof. A Participant to whom Common Stock
is awarded shall be considered the holder of the Stock at the time of the Award
except as otherwise provided in the applicable Award. (c) Effective Date.
Subject to the approval of the shareholders of the Corporation, the Plan shall
be effective on March 11, 1998. Prior to such approval, Awards may be made under
the Plan expressly subject to such approval. (d) Amendment of Plan. The Board
may amend, suspend or terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without shareholder approval if such
approval is necessary to comply with any applicable requirement of the laws of
the jurisdiction of incorporation of the Corporation, any applicable tax
requirement, any applicable rules or regulation of the Securities and Exchange
Commission, including Rule 16(b)-3 (or any successor rule thereunder), or the
rules and regulations of the American Stock Exchange or any other exchange or
stock market over which the Corporation's securities are listed. (e) Governing
Law. The provisions of the Plan shall be governed by and interpreted in
accordance with the laws of the jurisdiction of incorporation of the
Corporation. (f) Indemnity. Neither the Board nor the Committee, nor any members
of either, nor any employees of the Corporation or any parent, subsidiary, or
other affiliate, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with their
responsibilities with respect to this Plan, and the Corporation hereby agrees to
indemnify the members of the Board, the members of the Committee, and the
employees of the Corporation and its parent or subsidiaries in respect of any
claim, loss, damage, or expense (including
reasonable counsel fees) arising from any such act, omission, interpretation,
construction or determination to the full extent permitted by law.