EXHIBIT 10.3
THE 2006 INCENTIVE AWARD PLAN
OF
NNN APARTMENT REIT, INC.
NNN Apartment REIT, Inc., a Maryland corporation, has adopted the 2006
Incentive Award Plan of NNN Apartment REIT, Inc., (the "Plan"), effective
______, 2006 (the "Effective Date"), for the benefit of its eligible officers,
employees, consultants and directors and the eligible officers, employees and
consultants of its Subsidiaries (as defined below).
The purposes of the Plan are as follows:
(1) To provide an additional incentive for Directors, Officers, key
Employees and Consultants (as such terms are defined below) to further the
growth, development and financial success of the Company by personally
benefiting through the ownership of Company stock and/or rights which recognize
such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of Directors,
Officers, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise. The
singular pronoun shall include the plural where the context so indicates.
1.1. "Administrator" shall mean the entity that conducts the general
administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to Options and Restricted Stock granted
to Independent Directors, the term "Administrator" shall refer to the Board.
With reference to the administration of the Plan with respect to any other
Award, the term "Administrator" shall refer to the Committee unless the Board
has assumed the authority for administration of the Plan generally as provided
in Section 10.1.
1.2. "Award" shall mean an Option, a Restricted Stock award, a Performance
Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment
award or a Stock Appreciation Right which may be awarded or granted under the
Plan.
1.3. "Award Agreement" shall mean a written agreement executed by an
authorized officer of the Company and the Holder which shall contain such terms
and conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.
1.4. "Award Limit" shall mean 250,000 shares of Common Stock, as adjusted
pursuant to Section 11.3; provided, however, that solely with respect to
Performance Awards granted pursuant to Section 8.2(b), Award Limit shall mean
$1,000,000.
1.5. "Board" shall mean the Board of Directors of the Company.
1.6. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.7. "Committee" shall mean the Compensation Committee of the Board, or
another committee or subcommittee of the Board, appointed as provided in Section
10.1.
1.8. "Common Stock" shall mean the common stock of the Company, par value
$0.01 per share.
1.9. "Company" shall mean NNN Apartment REIT, Inc., a Maryland corporation.
1.10. "Consultant" shall mean any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the
Company or any Subsidiary;
(b) The services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising transaction
and do not directly or indirectly promote or maintain a market for the Company's
securities; and
(c) The consultant or adviser is a natural person who has contracted
directly with the Company to render such services.
Notwithstanding the foregoing, the term "Consultant" shall include any
executive officer or key employee of NNN Apartment REIT Advisor, LLC.
1.11. "Deferred Stock" shall mean Common Stock awarded under Article VIII
of the Plan.
1.12. "Director" shall mean a member of the Board.
1.13. "Dividend Equivalent" shall mean a right to receive the equivalent
value (in cash or Common Stock) of dividends paid on Common Stock awarded under
Article VIII of the Plan.
1.14. "DRO" shall mean a domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.
1.15. "Employee" shall mean any employee of the Company or of any
Subsidiary.
1.16. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.17. "Fair Market Value" of a share of Common Stock as of a given date
shall be (a) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on the
trading day previous to such date, or if shares were not traded on the trading
day previous to such date, then on the next preceding date on which a trade
occurred, or (b) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system,
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Administrator acting in good faith.
1.18. "Holder" shall mean a person who has been granted or awarded an
Award.
1.19. "Incentive Stock Option" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.
1.20. "Independent Director" shall mean a member of the Board who is not an
Officer or Employee.
1.21. "Non-Qualified Stock Option" shall mean an Option which is not
designated as an Incentive Stock Option by the Administrator or which does not
conform to the applicable provisions of Section 422 of the Code.
1.22. "Officer" shall mean any officer of the Company, or of any
Subsidiary.
1.23. "Option" shall mean a stock option granted under Article IV of the
Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
Consultants shall be Non-Qualified Stock Options.
1.24. "Ownership Limit" shall mean the ownership of not more than 9.9% of
the outstanding shares of Common Stock (as defined in the Company's Amended and
Restated Articles of Incorporation) of the Company.
1.25. "Performance Award" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VIII of the Plan.
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1.26. "Performance Criteria" shall mean the following business criteria
with respect to the Company, any Subsidiary or any division or operating unit:
(a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock, and (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization; each as determined in accordance with generally accepted
accounting principles or subject to such adjustments as may be specified by the
Committee with respect to an Award.
1.27. "Plan" shall mean the 2006 Incentive Award Plan of NNN Apartment
REIT, Inc.
1.28. "Restricted Stock" shall mean Common Stock awarded under Article VII
of the Plan.
1.29. "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as such Rule may be amended from time to time.
1.30. "Section 162(m) Participant" shall mean any Officer or key Employee
designated by the Administrator as an Officer or key Employee whose compensation
for the fiscal year in which the Officer or key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.31. "Securities Act" shall mean the Securities Act of 1933, as amended.
1.32. "Stock Appreciation Right" shall mean a stock appreciation right
granted under Article IX of the Plan.
1.33. "Stock Payment" shall mean (a) a payment in the form of shares of
Common Stock, or (b) an option or other right to purchase shares of Common
Stock, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including without limitation, salary, bonuses
and commissions, that would otherwise become payable to an Officer, key Employee
or Consultant in cash, awarded under Article VIII of the Plan.
1.34. "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. "Subsidiary" shall also mean any
partnership or limited liability company in which the Company, or any
Subsidiary, owns a partnership or membership interest representing fifty percent
(50%) or more of the capital or profit interests of such partnership or limited
liability company.
1.35. "Substitute Award" shall mean an Option granted under this Plan upon
the assumption of, or in substitution for, outstanding equity awards previously
granted by a company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property or
stock; provided, however, that in no event shall the term "Substitute Award" be
construed to refer to an award made in connection with the cancellation and
repricing of an Option.
1.36. "Termination of Consultancy" shall mean the time when the engagement
of a Holder as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Administrator, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
1.37. "Termination of Directorship" shall mean the time when a Holder who
is an Independent Director ceases to be a Director for any reason, including,
but not by way of limitation, a termination by resignation, failure to be
elected, death or retirement. The Board, in its sole and absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Directorship with respect to Independent Directors.
1.38. "Termination of Employment" shall mean the time when the
employee-employer relationship between a Holder and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment
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or continuing employment of a Holder by the Company or any Subsidiary, (b) at
the discretion of the Administrator, terminations which result in a temporary
severance of the employee-employer relationship, and (c) at the discretion of
the Administrator, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the former employee. The Administrator, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Employment, including, but not by way of limitation, the question of whether a
Termination of Employment resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Employment; provided, however, that, with respect to Incentive Stock Options,
unless otherwise determined by the Administrator in its discretion, a leave of
absence, change in status from an employee to an independent contractor or other
change in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Awards initially shall be Common
Stock. Subject to adjustment as provided in Section 11.3, the aggregate number
of such shares which may be issued upon exercise of such Options or rights or
upon any such Awards under the Plan shall not exceed 2,000,000. The shares of
Common Stock issuable upon exercise of such Options or rights or upon any such
awards may be either previously authorized but unissued shares or treasury
shares.
(b) The maximum number of shares which may be subject to Awards
granted under the Plan to any individual in any calendar year shall not exceed
the Award Limit. To the extent required by Section 162(m) of the Code, shares
subject to Options which are canceled continue to be counted against the Award
Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other right to
acquire shares of Common Stock under any other Award under the Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 11.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.5
or 7.6 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
(a) The Committee, in its discretion, may determine whether an Award
is to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code.
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(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock, the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria, and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable upon the attainment of
performance goals which are related to one or more of the Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
any Award granted under Articles VII and VIII which may be granted to one or
more Section 162(m) Participants, no later than ninety (90) days following the
commencement of any fiscal year in question or any other designated fiscal
period or period of service (or such other time as may be required or permitted
by Section 162(m) of the Code), the Committee shall, in writing, (i) designate
one or more Section 162(m) Participants, (ii) select the Performance Criteria
applicable to the fiscal year or other designated fiscal period or period of
service, (iii) establish the various performance targets, in terms of an
objective formula or standard, and amounts of such Awards, as applicable, which
may be earned for such fiscal year or other designated fiscal period or period
of service, and (iv) specify the relationship between Performance Criteria and
the performance targets and the amounts of such Awards, as applicable, to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the completion of each
fiscal year or other designated fiscal period or period of service, the
Committee shall certify in writing whether the applicable performance targets
have been achieved for such fiscal year or other designated fiscal period or
period of service. In determining the amount earned by a Section 162(m)
Participant, the Committee shall have the right to reduce (but not to increase)
the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant to the assessment of
individual or corporate performance for the fiscal year or other designated
fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the Plan or
any Award which is granted to a Section 162(m) Participant and is intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent
necessary to conform to such requirements.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
3.4. Consideration. In consideration of the granting of an Award under the
Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of
(or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter
period as may be fixed in the Award Agreement or by action of the Administrator
following grant of the Award) after the Award is granted (or, in the case of an
Independent Director, until the next annual meeting of shareholders of the
Company).
3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a Consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.
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ARTICLE IV.
GRANTING OF OPTIONS TO OFFICERS, EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. Eligibility. Any Officer, Employee, Consultant or Independent Director
selected by the Administrator pursuant to Section 4.4(a)(i) shall be eligible to
be granted an Option.
4.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any then
existing Subsidiary or parent corporation (within the meaning of Section 422 of
the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
4.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Officer or Employee.
4.4. Granting of Options to Officers, Employees and Consultants.
(a) The Committee shall from time to time, in its absolute discretion,
and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select from
among the Officers, key Employees or Consultants (including Officers,
Employees or Consultants who have previously received Awards under the
Plan) such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares
to be subject to such Options granted to the selected Officers, key
Employees or Consultants;
(iii) Subject to Section 4.3, determine whether such Options are
to be Incentive Stock Options or Non-Qualified Stock Options and whether
such Options are to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and conditions
of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be
limited to, such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of an Officer, key Employee or Consultant to be
granted an Option, the Committee shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option as it
deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be modified
by the Committee, with the consent of the Holder, to disqualify such Option from
treatment as an "incentive stock option" under Section 422 of the Code.
4.5. Granting of Options to Independent Directors. The Board shall from
time to time, in its absolute discretion, and subject to applicable limitations
of the Plan:
(a) Select from among the Independent Directors (including Independent
Directors who have previously received Options under the Plan) such of them as
in its opinion should be granted Options;
(b) Determine the number of shares to be subject to such Options
granted to the selected Independent Directors;
(c) Subject to the provisions of Article 5, determine the terms and
conditions of such Options, consistent with the Plan.
4.6. Options in Lieu of Cash Compensation. Options may be granted under the
Plan to Officers, Employees and Consultants in lieu of cash bonuses which would
otherwise be payable to such Officers, Employees and Consultants, pursuant to
such policies which may be adopted by the Administrator from time to time.
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ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each Option
granted to Officers, Employees and Consultants shall be set by the Committee;
provided, however, that such price shall be no less than 100% of the Fair Market
Value of a share of Common Stock on the date the Option is granted, and:
(a) In the case of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted;
(b) In the case of Incentive Stock Options such price shall not be
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code);
(c) In the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code), such price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the Option is granted (or the date the Option
is modified, extended or renewed for purposes of Section 424(h) of the Code).
5.2. Option Term. The term of an Option granted to an Officer, Employee or
Consultant shall be set by the Committee in its discretion; provided, however,
that, in the case of Incentive Stock Options, the term shall not be more than 10
years from the date the Incentive Stock Option is granted, or five years from
the date the Incentive Stock Option is granted if the Incentive Stock Option is
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code). Except as limited by the requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options, the Committee may extend the term of any outstanding
Option in connection with any Termination of Employment or Termination of
Consultancy of the Holder, or amend any other term or condition of such Option
relating to such a termination.
5.3. Option Vesting.
(a) The period during which the right to exercise, in whole or in
part, an Option granted to an Officer, Employee or a Consultant vests in the
Holder shall be set by the Committee and the Committee may determine that an
Option may not be exercised in whole or in part for a specified period after it
is granted. At any time after grant of an Option, the Committee may, in its sole
and absolute discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option granted to an Officer, Employee or
Consultant vests.
(b) No portion of an Option granted to an Officer, Employee or
Consultant which is unexercisable at Termination of Employment or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as may
be otherwise provided by the Committee either in the Award Agreement or by
action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by a Holder during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or subsidiary
corporation, within the meaning of Section 422 of the Code) of the Company,
exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options
to the extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in the order
in which they were granted. For purposes of this Section 5.3(c), the Fair Market
Value of stock shall be determined as of the time the Option with respect to
such stock is granted.
5.4. Terms of Options Granted to Independent Directors. The price per share
of the shares subject to each Option granted to an Independent Director shall
equal 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted. Options granted to Independent Directors shall be subject to
such other terms and conditions as are determined by the Administrator,
consistent with the Plan.
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5.5. Substitute Awards. Notwithstanding the foregoing provisions of this
Article V to the contrary, in the case of an Option that is a Substitute Award,
the price per share of the shares subject to such Option may be less than the
Fair Market Value per share on the date of grant, provided, that the excess of:
(a) The aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award; over
(b) The aggregate exercise price thereof; does not exceed the excess
of:
(c) The aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair market
value to be determined by the Committee) of the shares of the predecessor entity
that were subject to the grant assumed or substituted for by the Company; over
(d) The aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his or her office:
(a) A written notice complying with the applicable rules established
by the Administrator stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Holder or other person then
entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Administrator may, in its absolute
discretion, also take whatever additional actions it deems appropriate to effect
such compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Holder, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised. However, the
Administrator may, in its discretion, (i) allow a delay in payment up to 30 days
from the date the Option, or portion thereof, is exercised; (ii) allow payment,
in whole or in part, through the delivery of shares of Common Stock which have
been owned by the Holder for at least six months, duly endorsed for transfer to
the Company with a Fair Market Value on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; (iii) allow
payment, in whole or in part, through the surrender of shares of Common Stock
then issuable upon exercise of the Option having a Fair Market Value on the date
of Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through the
delivery of property of any kind which constitutes good and valuable
consideration; (v) allow payment, in whole or in part, through the delivery of a
full recourse promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code) and payable upon
such terms as may be prescribed by the Administrator; (vi) allow payment, in
whole or in part, through the delivery of a notice that the Holder has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price, provided that payment of such
proceeds is then made to the Company upon settlement of such sale; or (vii)
allow payment through any combination of the consideration provided in the
foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a
promissory note, the Administrator may also prescribe the form of such note and
the security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company when or
where such loan or other extension of credit is prohibited by law.
8
6.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory body
which the Administrator shall, in its absolute discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Administrator shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Administrator may establish from time to time for reasons
of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the discretion of
the Administrator may be in the form of consideration used by the Holder to pay
for such shares under Section 6.2(d).
6.4. Rights as Shareholders. Holders shall not be, nor have any of the
rights or privileges of, shareholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder, or (b) one year after the transfer of such shares to such
Holder.
6.6. Additional Limitations on Exercise of Options. Holders may be required
to comply with any timing or other restrictions with respect to the settlement
or exercise of an Option, including a window-period limitation, as may be
imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit, Restricted Stock may be
awarded to any Officer or Employee who the Committee determines is an Officer,
key Employee or any Consultant who the Committee determines should receive such
an Award. Each Independent Director shall be eligible to be granted shares of
Restricted Stock at the times and in the manner set forth in Section 7.3.
7.2. Award of Restricted Stock to Officers, Employees and Consultants.
(a) The Committee may from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from
among the Officers, key Employees or Consultants (including Officers,
Employees or Consultants who have previously received other awards under
the Plan) such of them as in its opinion should be awarded Restricted
Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the Plan.
9
(b) The Committee shall establish the purchase price, if any, and form
of payment for Restricted Stock; provided, however, that such purchase price
shall be no less than the par value of the Common Stock to be purchased, unless
otherwise permitted by applicable state law. In all cases, legal consideration
shall be required for each issuance of Restricted Stock.
(c) Upon the selection of an Officer, key Employee or Consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
7.3. Award of Restricted Stock to Independent Directors.
(a) Restricted Stock shall be awarded to Independent Directors in
accordance with the following formula:
(i) Each person who is an Independent Director as of the
Effective Date automatically shall be granted (i) 1,000 shares of
Restricted Stock (subject to adjustment as provided in Section 11.3) on the
Effective Date and (ii) 1,000 shares of Restricted Stock (subject to
adjustment as provided in Section 11.3) on the date of each annual meeting
of the shareholders occurring after the Effective Date; provided, such
person is an Independent Director as of such date and has continuously
served an Independent Director during such period.
(ii) Each person who is elected, re-elected or appointed by the
Board as an Independent Director after the Effective Date, automatically
shall be granted: (i) 1,000 shares of Restricted Stock (subject to
adjustment as provided in Section 11.3) on the date such Independent
Director is first elected or appointed, and (ii) 1,000 shares of Restricted
Stock (subject to adjustment as provided in Section 11.3) on the date of
each annual meeting of the shareholders occurring after such initial
election or appointment; provided, such person is an Independent Director
as of such date and has continuously served as an Independent Director
during such period.
(b) Independent Directors shall not be required to pay any purchase
price for the shares of Common Stock to be acquired pursuant to an award of
Restricted Stock under Section 7.3(a), unless otherwise required under
applicable law, in which case the purchase price shall be the minimum purchase
price required by such law, as determined by the Board in its sole discretion.
To the extent a purchase price is so required, such purchase price shall be paid
in cash or by check at the time such award of Restricted Stock is granted.
(c) The restrictions imposed under Sections 7.5 and 7.6 on Restricted
Stock awarded to Independent Directors shall lapse and be removed (and the
shares of Common Stock acquired by a Participant pursuant to a Restricted Stock
award shall vest) immediately at the time of grant with respect to 20% of such
award of Restricted Stock and, thereafter, in 20% increments on each of the
first four anniversaries of the date the shares of Restricted Stock is granted,
provided that the Independent Director is a Director on the date of such
anniversary. The restrictions imposed under Sections 7.5 and 7.6 shall not lapse
or be removed with respect to any portion of the Restricted Stock granted to an
Independent Director after termination of Directorship.
7.4. Rights as Shareholders. Subject to Section 7.5, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 7.7, the
Holder shall have, unless otherwise provided by the Administrator, all the
rights of a shareholder with respect to said shares, subject to the restrictions
in his or her Award Agreement, including the right to receive all dividends and
other distributions paid or made with respect to the shares; provided, however,
that in the discretion of the Administrator, any extraordinary distributions
with respect to the Common Stock shall be subject to the restrictions set forth
in Section 7.5.
7.5. Restriction. Except as otherwise provided in Section 7.3, all shares
of Restricted Stock issued under the Plan (including any shares received by
holders thereof with respect to shares of Restricted Stock as a result of stock
dividends, stock splits or any other form of recapitalization) shall, in the
terms of each individual Award Agreement, be subject to such restrictions as the
Administrator shall provide, which restrictions may include, without limitation,
restrictions concerning voting rights and transferability and restrictions based
on duration of employment or service with the Company, Company performance and
individual performance; provided, however, that, except with respect to shares
of Restricted Stock granted to Section 162(m) Participants, by action taken
after the Restricted Stock is issued, the Administrator may, on such terms and
conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Award Agreement. Restricted Stock may
not be sold or encumbered until all restrictions are terminated or expire. If no
consideration was paid by the Holder upon issuance, a Holder's rights in
unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy or Termination of
Directorship with the Company. Notwithstanding the foregoing, the Administrator
in its sole and absolute discretion may provide that such rights shall not lapse
in the
10
event of a Termination of Employment following a "change of ownership or
control" (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Holder's
death or disability; provided, further, except with respect to shares of
Restricted Stock granted to Section 162(m) Participants, the Administrator in
its sole and absolute discretion may provide that no such lapse or surrender
shall occur in the event of a Termination of Employment, Termination of
Consultancy, or Termination of Directorship, without cause or following any
change in control of the Company or because of the Holder's retirement, or
otherwise.
7.6. Repurchase of Restricted Stock. The Administrator shall provide in the
terms of each individual Award Agreement that the Company shall have the right
to repurchase from the Holder the Restricted Stock then subject to restrictions
under the Award Agreement immediately upon a Termination of Employment or, if
applicable, upon a Termination of Consultancy or Termination of Directorship,
between the Holder and the Company, at a cash price per share equal to the price
paid, if any, by the Holder for such Restricted Stock; provided, however, that
the Administrator in its sole and absolute discretion may provide that no such
right of repurchase shall exist in the event of a Termination of Employment
following a "change of ownership or control" (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company or because of the Holder's death or disability; provided, further, that,
except with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Administrator in its sole and absolute discretion may provide
that no such right of repurchase shall exist in the event of a Termination of
Employment, Termination of Consultancy or Termination of Directorship, without
cause or following any change in control of the Company or because of the
Holder's retirement, or otherwise.
7.7. Escrow. The Secretary of the Company or such other escrow holder as
the Administrator may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed. With respect to shares of Restricted Stock granted
or awarded to the Company's Officers, Employees, Consultants and Independent
Directors, upon the expiration or removal of such restrictions, the Secretary of
the Company, or other escrow holder, shall transfer the shares to the Holder.
With respect to shares of Restricted Stock granted to a Subsidiary's Officers or
Employees, upon the expiration or removal of such restrictions, the Secretary of
the Company, or other escrow holder, shall transfer the shares to the
Subsidiary. As soon as practicable after the receipt of such shares by the
Subsidiary, the Subsidiary shall transfer such shares to the Holder for no
additional consideration.
7.8. Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Administrator shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.
7.9. Section 83(b). A Holder may not make an election under Section 83(b)
of the Code with respect to any share of Restricted Stock granted or awarded
hereunder without the consent of the Company, which the Company may grant or
withhold in its sole discretion.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may
be granted to any Officer or Employee whom the Committee determines is an
Officer, key Employee or any Consultant whom the Committee determines should
receive such an Award.
8.2. Performance Awards.
(a) Any Officer, key Employee or Consultant selected by the Committee
may be granted one or more Performance Awards. The value of such Performance
Awards may be subject to the achievement of performance goals which are related
to any one or more of the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, in each case on a specified
date or dates or over any period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular
Officer, key Employee or Consultant.
(b) Without limiting Section 8.2(a), the Committee may grant
Performance Awards to any Section 162(m) Participant in the form of a cash bonus
payable upon the attainment of objective performance goals which are established
by the Committee and relate
11
to one or more of the Performance Criteria, in each case on a specified date or
dates or over any period or periods determined by the Committee. Any such
bonuses paid to 162(m) Participants shall be based upon objectively determinable
bonus formulas established in accordance with the provisions of Section 3.2. The
maximum amount of any Performance Award payable to a Section 162(m) Participant
under this Section 8.2(b) shall not exceed the Award Limit with respect to any
calendar year of the Company. Unless otherwise specified by the Committee at the
time of grant, the Performance Criteria with respect to a Performance Award
payable to a Section 162(m) Participant shall be determined on the basis of
generally accepted accounting principles.
8.3. Dividend Equivalents.
(a) Any Officer, key Employee or Consultant selected by the Committee
may be granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period between
the date a Stock Appreciation Right, Deferred Stock or Performance Award is
granted, and the date such Stock Appreciation Right, Deferred Stock or
Performance Award is exercised, vests or expires, as determined by the
Committee. Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Committee.
(b) Any Holder of an Option who is an Officer, Employee or Consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment dates,
during the period between the date an Option is granted, and the date such
Option is exercised, vests or expires, as determined by the Committee. Such
Dividend Equivalents shall be converted to cash or additional shares of Common
Stock by such formula and at such time and subject to such limitations as may be
determined by the Committee.
(c) Any Holder of an Option who is an Independent Director selected by
the Board may be granted Dividend Equivalents based on the dividends declared on
Common Stock, to be credited as of dividend payment dates, during the period
between the date an Option is granted and the date such Option is exercised,
vests or expires, as determined by the Board. Such Dividend Equivalents shall be
converted to cash or additional shares of Common Stock by such formula and at
such time and subject to such limitations as may be determined by the Board.
(d) Dividend Equivalents granted with respect to Options intended to
be qualified performance-based compensation for purposes of Section 162(m) of
the Code shall be payable, with respect to pre-exercise periods, regardless of
whether such Option is subsequently exercised.
8.4. Stock Payments. Any Officer, key Employee or Consultant selected by
the Committee may receive Stock Payments in the manner determined from time to
time by the Committee. The number of shares shall be determined by the Committee
and may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
8.5. Deferred Stock. Any Officer, key Employee or Consultant selected by
the Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock shall
be determined by the Committee and may be linked to the Performance Criteria or
other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company shareholder with respect to such Deferred Stock until such
time as the Award has vested and the Common Stock underlying the Award has been
issued.
8.6. Term. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.
8.7. Exercise or Purchase Price. The Committee may establish the exercise
or purchase price of a Performance Award, shares of Deferred Stock or shares
received as a Stock Payment; provided, however, that such price shall not be
less than the par value of a share of Common Stock, unless otherwise permitted
by applicable state law.
8.8. Exercise Upon Termination of Employment, Termination of Consultancy or
Termination of Directorship. A Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment is exercisable or payable only while the
Holder is an Officer, Employee, or Consultant, as applicable; provided, however,
that the Administrator in its sole and absolute discretion may
12
provide that the Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment may be exercised or paid subsequent to a Termination of
Employment following a "change of control or ownership" (within the meaning of
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company;
provided, further, that except with respect to Performance Awards granted to
Section 162(m) Participants, the Administrator in its sole and absolute
discretion may provide that Performance Awards may be exercised or paid
following a Termination of Employment or a Termination of Consultancy without
cause, or following a change in control of the Company, or because of the
Holder's retirement, death or disability, or otherwise.
8.9. Form of Payment. Payment of the amount determined under Section 8.2 or
8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.4.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any Officer, key Employee or Consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the number of
shares subject to the simultaneously or previously granted Option to which it is
coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.
9.3. Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine. The exercise price per share of Common Stock subject to each ISAR
shall be set by the Committee. An ISAR is exercisable only while the Holder is
an Officer, Employee or Consultant; provided, that the Committee may determine
that the ISAR may be exercised subsequent to Termination of Employment or
Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Holder's retirement, death or disability, or
otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified portion
of the ISAR (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from the Fair
Market Value of a share of Common Stock on the date of exercise of the ISAR by
the number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
9.4. Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 9.2(c) and 9.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as of
the date the Stock Appreciation Right is exercised) or a combination of both, as
determined by the
13
Committee. To the extent such payment is effected in Common Stock it shall be
made subject to satisfaction of all provisions of Section 6.4 above pertaining
to Options.
(b) Holders of Stock Appreciation Rights may be required to comply
with any timing or other restrictions with respect to the settlement or exercise
of a Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.
10.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith, to interpret, amend or
revoke any such rules and to amend any Award Agreement provided that the rights
or obligations of the Holder of the Award that is the subject of any such Award
Agreement are not affected adversely. Any such grant or award under the Plan
need not be the same with respect to each Holder. Any such interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee under the Plan except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options, Dividend Equivalents and Restricted Stock granted to
Independent Directors.
10.3. Majority Rule; Unanimous Written Consent. The Committee shall act by
a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
10.5. Delegation of Authority to Grant Awards. The Committee may, but need
not, delegate from time to time some or all of its authority to grant Awards
under the Plan to a committee consisting of one or more members of the Committee
or of one or more officers of the Company; provided, however, that the Committee
may not delegate its authority to grant Awards to individuals (a) who are
subject on the date of the grant to the reporting rules under Section 16(a) of
the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 10.5 shall serve in such capacity at the pleasure of the
Committee.
14
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable.
(a) Except as otherwise provided in Section 11.1(b):
(i) No Award under the Plan may be sold, pledged, assigned or
transferred in any manner other than by will or the laws of descent and
distribution or, subject to the consent of the Administrator, pursuant to a
DRO, unless and until such Award has been exercised, or the shares
underlying such Award have been issued, and all restrictions applicable to
such shares have lapsed.
(ii) No Award or interest or right therein shall be liable for
the debts, contracts or engagements of the Holder or his or her successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether
such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect, except to the extent that such
disposition is permitted by the preceding sentence.
(iii) During the lifetime of the Holder, only he or she may
exercise an Option or other Award (or any portion thereof) granted to him
or her under the Plan, unless it has been disposed of with the consent of
the Administrator pursuant to a DRO. After the death of the Holder, any
exercisable portion of an Option or other Award may, prior to the time when
such portion becomes unexercisable under the Plan or the applicable Award
Agreement, be exercised by his or her personal representative or by any
person empowered to do so under the deceased Holder's will or under the
then applicable laws of descent and distribution.
(b) Notwithstanding Section 11.1(a), in the case of Options granted to
Independent Directors, an Optionee who is an Independent Director may transfer
an Option to a Permitted Transferee (as defined below) subject to the following
terms and conditions: (i) an Option transferred to a Permitted Transferee shall
not be assignable or transferable by the Permitted Transferee other than by will
or the laws of descent and distribution or, subject to the consent of the
Administrator, pursuant to a DRO; (ii) any Option which is transferred to a
Permitted Transferee shall continue to be subject to all the terms and
conditions of the Option as applicable to the original Holder (other than the
ability to further transfer the Option); and (iii) the Holder and the Permitted
Transferee shall execute any and all documents requested by the Administrator,
including, without limitation documents to (A) confirm the status of the
transferee as a Permitted Transferee, (B) satisfy any requirements for an
exemption for the transfer under applicable federal and state securities laws
and (C) evidence the transfer. Shares of Common Stock acquired by a Permitted
Transferee through the exercise of an Option have not been registered under the
Securities Act or any state securities act and may not be transferred, nor will
any assignee or transferee thereof be recognized as an owner of such shares of
Common Stock for any purpose, unless a registration statement under the
Securities Act and any applicable state securities act with respect to such
shares shall then be in effect or unless the availability of an exemption from
registration with respect to any proposed transfer or disposition of such shares
shall be established to the satisfaction of counsel for the Company. For
purposes of this Section 11.1(b), "Permitted Transferee" shall mean, with
respect to a Holder, any 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, any person sharing the Holder's household
(other than a tenant or employee), a trust in which these persons (or the
Holder) control the management of assets, and any other entity in which these
persons (or the Holder) own more than fifty percent of the voting interests, or
any other transferee specifically approved by the Administrator after taking
into account any state or federal tax or securities laws applicable to
transferable Options.
11.2. Amendment, Suspension or Termination of the Plan. Except as otherwise
provided in this Section 11.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Administrator (including, but not limited to, an amendment to the number of
shares that may be subject to future awards of Restricted Stock pursuant to
Section 7.3). However, without approval of the Company's shareholders given
within 12 months before or after the action by the Administrator, no action of
the Administrator may, except as provided in Section 11.3, increase the limits
imposed in Section 2.1 on the maximum number of shares which may be issued under
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Award be granted under
the Plan after the first to occur of the following events:
15
(a) The expiration of 10 years from the date the Plan is adopted by
the Board; or
(b) The expiration of 10 years from the date the Plan is approved by
the Company's shareholders under Section 11.4.
11.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 11.3(e), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's sole discretion, affects
the Common Stock such that an adjustment is determined by the Administrator to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Award, then the Administrator shall, in such manner as it may deem
equitable, adjust any or all of:
(i) The number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued
and adjustments of the Award Limit);
(ii) The number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Awards; and
(iii) The grant or exercise price with respect to any Award.
(b) Subject to Sections 11.3(c) and 11.3(e), in the event of any
transaction or event described in Section 11.3(a) or any unusual or nonrecurring
transactions or events affecting the Company, any affiliate of the Company, or
the financial statements of the Company or any affiliate, or of changes in
applicable laws, regulations or accounting principles, the Administrator, in its
sole and absolute discretion, and on such terms and conditions as it deems
appropriate, either by the terms of the Award or by action taken prior to the
occurrence of such transaction or event and either automatically or upon the
Holder's request, is hereby authorized to take any one or more of the following
actions whenever the Administrator determines that such action is appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any Award under
the Plan, to facilitate such transactions or events or to give effect to such
changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Award for an
amount of cash equal to the amount that could have been attained upon the
exercise of such Award or realization of the Holder's rights had such Award
been currently exercisable or payable or fully vested or the replacement of
such Award with other rights or property selected by the Administrator in
its sole discretion;
(ii) To provide that the Award cannot vest, be exercised or
become payable after such event;
(iii) To provide that such Award shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in Section
5.3 or the provisions of such Award;
(iv) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of
the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices; and
(v) To make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding
Awards, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of (including the grant
or exercise price), and the criteria included in, outstanding options,
rights and awards and options, rights and awards which may be granted in
the future.
(vi) To provide that, for a specified period of time prior to
such event, the restrictions imposed under an Award Agreement upon some or
all shares of Restricted Stock or Deferred Stock may be terminated, and, in
the case of Restricted Stock, some or all shares of such Restricted Stock
may cease to be subject to repurchase under Section 7.6 or forfeiture under
Section 7.5 after such event.
16
(c) Subject to Sections 11.3(e), 3.2 and 3.3, the Administrator may,
in its discretion, include such further provisions and limitations in any Award,
agreement or certificate, as it may deem equitable and in the best interests of
the Company.
(d) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation under
Section 162(m)(4)(C), no adjustment or action described in this Section 11.3 or
in any other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. No adjustment or action
described in this Section 11.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Administrator determines that the Award is
not to comply with such exemptive conditions. The number of shares of Common
Stock subject to any Award shall always be rounded to the next whole number.
(e) The existence of the Plan, the Award Agreement and the Awards
granted hereunder shall not affect or restrict in any way the right or power of
the Company or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of stock or of options, warrants or rights to purchase stock or of
bonds, debentures, preferred or prior preference stocks whose rights are
superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
11.4. Approval of Plan by Shareholders. The Plan will be submitted for the
approval of the Company's shareholders at the next annual shareholder's meeting
following the date of the Board's initial adoption of the Plan. Awards may be
granted or awarded prior to such shareholder approval, provided that such Awards
shall not be exercisable nor shall such Awards vest prior to the time when the
Plan is approved by the shareholders, and provided further that if such approval
has not been obtained at the next annual shareholder's meeting, all Awards
previously granted or awarded under the Plan shall thereupon be canceled and
become null and void. In addition, if the Board determines that Awards other
than Options or Stock Appreciation Rights which may be granted to Section 162(m)
Participants should continue to be eligible to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria
must be disclosed to and approved by the Company's shareholders no later than
the first shareholder meeting that occurs in the fifth year following the year
in which the Company's shareholders previously approved the Performance
Criteria.
11.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld. Notwithstanding
any other provision of the Plan, the number of shares of Common Stock which may
be withheld with respect to the issuance, vesting, exercise or payment of any
Award (or which may be repurchased from the Holder of such Award within six
months after such shares of Common Stock were acquired by the Holder from the
Company) in order to satisfy the Holder's federal and state income and payroll
tax liabilities with respect to the issuance, vesting, exercise or payment of
the Award shall be limited to the number of shares which have a Fair Market
Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal
and state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.
11.6. Restrictions on Awards. This Plan shall be interpreted and construed
in a manner consistent with the Company's status as a real estate investment
trust ("REIT"), within the meaning of Sections 856 through 860 of the Code. No
Award shall be granted or awarded, and with respect to an Award already granted
under the Plan, such Award shall not vest, or be exercisable, distributable or
payable:
(a) to the extent such Award could cause the Holder to be in violation
of the Ownership Limit; or
(b) if, in the discretion of the Administrator, such Award could
impair the Company's status as a REIT.
11.7. Loans. To the extent permitted under applicable law, the Committee
may, in its discretion, extend one or more loans to Officers or key Employees in
connection with the exercise or receipt of an Award granted or awarded under the
Plan, or the issuance of Restricted Stock or Deferred Stock awarded under the
Plan; provided, however, that no such loan shall be an extension or maintenance
of credit, an arrangement for the extension of credit, or a renewal of an
extension of credit in the form of a personal loan
17
to or for any Director or executive officer of the Company that is prohibited by
Section 13(k) of the Exchange Act or other applicable law. The terms and
conditions of any such loan shall be set by the Committee.
11.8. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to Awards under the Plan, the Administrator
shall have the right to provide, in the terms of Awards made under the Plan, or
to require a Holder to agree by separate written instrument, that (a)(i) any
proceeds, gains or other economic benefit actually or constructively received by
the Holder upon any receipt or exercise of the Award, or upon the receipt or
resale of any Common Stock underlying the Award, must be paid to the Company,
and (ii) the Award shall terminate and any unexercised portion of the Award
(whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator or (iii) the Holder incurs a Termination of
Employment, Termination of Consultancy or Termination of Directorship for cause.
11.9. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Officers, Employees, Directors or Consultants of the Company or
any Subsidiary, or (b) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
11.10. Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
11.11. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
11.12. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Maryland without regard to conflicts of laws thereof.
ARTICLE XII.
SPECIAL PROVISIONS RELATED TO SECTION 409A OF THE CODE.
12.1. Compliance with Section 409A. Notwithstanding anything in the Plan or
in any Award Agreement to the contrary, to the extent that any amount or benefit
that would constitute "deferred compensation" for purposes of Section 409A of
the Code would otherwise be payable or distributable under the Plan or any Award
Agreement by reason of the occurrence of a change in control of the Company, or
because of the Holder's disability, or separation from service, such amount or
benefit will not be payable or distributable to the Holder by reason of such
circumstance unless (i) the circumstances giving rise to such change of control,
disability or separation from service meet the description or definition of
"change in control event", "disability" or "separation from service", as the
case may be, in Section 409A of the Code and applicable proposed or final
regulations, or (ii) the payment or distribution of such amount or benefit would
be exempt from the application of Section 409A of the Code by reason of the
short-term deferral exemption or otherwise. This provision does not prohibit the
vesting of any Award or the vesting of any right to eventual payment or
distribution of any amount or benefit under the Plan or any Award Agreement.
12.2. Amendments in Violation of Section 409A. Notwithstanding anything in
the Plan or in any Award Agreement to the contrary, to the extent necessary to
avoid the application of Section 409A of the Code, (i) the Committee may not
amend an outstanding Option, Stock Appreciation Right or similar Award to extend
the time to exercise such Award beyond the later of the 15th day of the third
month following the date at which, or December 31 of the calendar year in which,
the Award would otherwise have
18
expired if the Award had not been extended, based on the terms of the Award at
the original grant date under the Award Agreement (the "Safe Harbor Extension
Period"), and (ii) any purported extension of the exercise period of an
outstanding Award beyond the Safe Harbor Extension Period shall be deemed to be
an amendment to the last day of the Safe Harbor Extension Period and no later.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of NNN Apartment REIT, Inc. on January 6, 2006.
Executed on this ____ day of _______________, 2006.
--------------------------
Secretary
* * *
I hereby certify that the foregoing Plan was approved by the shareholders
of NNN Apartment REIT, Inc. on ____, 2006.
Executed on this ____ day of _______________, 2006.
--------------------------
Secretary
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