EXHIBIT 4.1
THE 1995 EQUITY PARTICIPATION PLAN
OF
MERCURY GENERAL CORPORATION
Mercury General Corporation, a California corporation, has adopted The
1995 Equity Participation Plan of Mercury General Corporation (the "Plan"),
effective April 10, 1995, for the benefit of its eligible employees.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for key Employees 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 key
Employees 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
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1.1 General. Wherever the following terms are used in this Plan
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they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2 Board. "Board" shall mean the Board of Directors of the
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Company.
1.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as
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amended.
1.4 Committee. "Committee" shall mean the Compensation Committee
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of the Board, or a subcommittee of the Board, appointed as provided in Section
9.1.
1.5 Common Stock. "Common Stock" shall mean the common stock of
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the Company, without par value, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.
1.6 Company. "Company" shall mean Mercury General Corporation, a
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California corporation.
1.7 Deferred Stock. "Deferred Stock" shall mean Common Stock
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awarded under Article VII of this Plan.
1.8 Director. "Director" shall mean a member of the Board.
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1.9 Dividend Equivalent. "Dividend Equivalent" shall mean a right
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to receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.10 Employee. "Employee" shall mean any officer or other employee
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(as defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
1.11 Exchange Act. "Exchange Act" shall mean the Securities
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Exchange Act of 1934, as amended.
1.12 Fair Market Value. "Fair Market Value" of a share of Common
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Stock as of a given date shall be (i) the mean between the highest and lowest
selling price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on such date, or if shares were
not traded on such date, then on the closest preceding date on which a trade
occurred, or (ii) if Common Stock is not traded on an exchange, the mean between
the closing representative bid and asked prices for the Common Stock on such
date as reported by NASDAQ or, if NASDAQ is not then in existence, by its
successor quotation system; or (iii) if Common Stock is not publicly traded, the
Fair Market Value of a share of Common Stock as established by the Committee
acting in good faith.
1.13 Grantee. "Grantee" shall mean an Employee granted a
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Performance Award, Dividend Equivalent, Stock Payment or Stock Appreciation
Right, or an award of Deferred Stock, under this Plan.
1.14 Incentive Stock Option. "Incentive Stock Option" shall mean an
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option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.15 Independent Director. "Independent Director" shall mean a
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member of the Board who is not an Employee of the Company.
1.16 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall
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mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.17 Option. "Option" shall mean a stock option granted under
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Article III of this Plan. An Option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Stock Option or an
Incentive Stock Option.
1.18 Optionee. "Optionee" shall mean an Employee granted an Option
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under this Plan.
1.19 Performance Award. "Performance Award" shall mean a cash
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bonus, stock bonus or other performance or incentive award that is paid in cash,
Common Stock or a combination of both, awarded under Article VII of this Plan.
1.20 Plan. "Plan" shall mean The 1995 Equity Participation Plan of
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Mercury General Corporation.
1.21 Restricted Stock. "Restricted Stock" shall mean Common Stock
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awarded under Article VI of this Plan.
1.22 Restricted Stockholder. "Restricted Stockholder" shall mean an
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Employee granted an award of Restricted Stock under Article VI of this Plan.
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1.23 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
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under the Exchange Act, as such Rule may be amended from time to time.
1.24 Stock Appreciation Right. "Stock Appreciation Right" shall
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mean a stock appreciation right granted under Article VIII of this Plan.
1.25 Stock Payment. "Stock Payment" shall mean (i) a payment in the
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form of shares of Common Stock, or (ii) 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 a key
Employee in cash, awarded under Article VII of this Plan.
1.26 Subsidiary. "Subsidiary" shall mean any corporation in an
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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 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.27 Termination of Employment. "Termination of Employment" shall
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mean the time when the employee-employer relationship between the Optionee,
Grantee or Restricted Stockholder and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment or
continuing employment of an Optionee, Grantee or Restricted Stockholder by the
Company or any Subsidiary and (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship. The Committee, 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 particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
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absence or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence 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.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
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2.1 Shares Subject to Plan. The shares of stock subject to
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Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents,
awards of Deferred Stock, Stock Payments or Stock Appreciation Rights shall be
Common Stock, initially shares of the Company's Common Stock, without par value.
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 Two
Million Seven Hundred Thousand (2,700,000). Furthermore, the maximum number of
shares which may be subject to options, rights or other awards granted under the
Plan to any individual in any calendar year shall not exceed One Hundred
Thousand (100,000), and the method of counting such shares shall conform to any
requirements applicable to performance-based compensation under Section 162(m)
of the Code. The shares of
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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.
2.2 Unexercised Options and Other Rights. If any Option, or other
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right to acquire shares of Common Stock under any other award under this Plan,
expires or is cancelled without having been fully exercised, 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 or cancellation may again
be optioned, granted or awarded hereunder, subject to the limitations of Section
2.1.
ARTICLE III
GRANTING OF OPTIONS
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3.1 Eligibility. Any Employee selected by the Committee pursuant
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to Section 3.4(a)(i) shall be eligible to be granted an Option.
3.2 Disqualification for Stock Ownership. No person may be granted
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an Incentive Stock Option under this Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary unless such Incentive Stock Option conforms to
the applicable provisions of Section 422 of the Code.
3.3 Qualification of Incentive Stock Options. No Incentive Stock
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Option shall be granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code. No Incentive Stock
Option shall be granted to any person who is not an Employee.
3.4 Granting of Options
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(a) The Committee shall from time to time, in its absolute discretion,
and subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from
among the key Employees (including Employees who have previously received
Options or other awards under this Plan) such of them as in its opinion
should be granted Options;
(ii) Determine the number of shares to be subject to such Options
granted to the selected key Employees;
(iii) 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 this Plan.
(b) Upon the selection of a key Employee 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.
Without limiting the generality of the preceding sentence, the Committee may, in
its discretion and on such terms as it deems appropriate, require as a condition
on the grant of an Option to an Employee that the Employee surrender for
cancellation some or all of the
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unexercised Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or
other rights which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender,
may have an option price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under this Plan may be modified
by the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
ARTICLE IV
TERMS OF OPTIONS
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4.1 Option Agreement. Each Option shall be evidenced by a written
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Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan. Stock
Option 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.
4.2 Option Price. The price per share of the shares subject to each
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Option shall be set by the Committee; provided, however, that such price shall
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be no less than the par value of a share of Common Stock and in the case of
Incentive Stock Options such price shall not be less than the greater of: (i)
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted, or (ii) 110% of the fair market value of a share of Common Stock on
the date such Option is granted in the case of 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.
4.3 Option Term. The term of an Option shall be set by the
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Committee in its discretion; provided, however, that, in the case of Incentive
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Stock Options, the term shall not be more than ten (10) years from the date the
Incentive Stock Option is granted, or five (5) years from such date 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. Except
as limited by 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 of the Optionee, or amend any other term or condition of such Option
relating to such a termination.
4.4 Option Vesting
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(a) The period during which the right to exercise an Option in whole
or in part vests in the Optionee 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 discretion and subject to whatever terms and
conditions it selects, accelerate the period during which an Option vests.
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(b) No portion of an Option which is unexercisable at Termination of
Employment, shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Stock Option Agreement or in a
resolution adopted 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 an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified 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 4.4(c), the Fair Market Value
of stock shall be determined as of the time the Option with respect to such
stock is granted.
4.5 Consideration. In consideration of the granting of an Option,
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the Optionee shall agree, in the written Stock Option Agreement, to remain in
the employ of the Company or any Subsidiary for a period of at least one year
after the Option is granted. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in the
employ of the Company or any Subsidiary, 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 Optionee at any time for any reason whatsoever, with
or without good cause.
ARTICLE V
EXERCISE OF OPTIONS
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5.1 Partial Exercise. An exercisable Option may be exercised in
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whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option
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shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his office:
(a) A written notice complying with the applicable rules established
by the Committee or the Board stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee or the Board,
in its absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act of 1933, as amended, and
any other federal or state securities laws or regulations. The Committee or
Board 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 10.1 by any person or persons other than the Optionee, 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, at
the discretion of the Committee, the
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terms of the Option may (i) allow a delay in payment up to thirty (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 owned by the
Optionee, 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) subject to the timing requirements of Section
5.3, 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 Committee, or (vi) allow
payment through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv) and (v). In the case of a promissory note, the
Committee 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.
5.3 Certain Timing Requirements. At the discretion of the
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Committee, shares of Common Stock issuable to the Optionee upon exercise of the
Option may be used to satisfy the Option exercise price or the tax withholding
consequences of such exercise, in the case of persons subject to Section 16 of
the Exchange Act, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
Optionee to use shares of Common Stock issuable to the Optionee upon exercise of
the Option to pay all or part of the Option price or the withholding taxes made
at least six months prior to the payment of such Option price or withholding
taxes.
5.4 Conditions to Issuance of Stock Certificates. The Company shall
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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 Committee or Board 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 Committee or Board 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 Committee or Board 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.
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5.5 Rights as Stockholders. The holders of Options shall not be, nor
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have any of the rights or privileges of, stockholders 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.
5.6 Ownership and Transfer Restrictions. The Committee, in its
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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
Stock Option Agreement and may be referred to on the certificates evidencing
such shares. The Committee may require the Employee to give the Company prompt
notice of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
ARTICLE VI
AWARD OF RESTRICTED STOCK
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6.1 Award of Restricted Stock
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(a) The Committee shall from time to time, in its absolute discretion:
(i) Select from among the key Employees (including Employees who
have previously received other awards under this 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 this Plan.
(b) The Committee shall establish the purchase price, if any, and form
of payment for Restricted Stock. In all cases, however, legal consideration
shall be required for each issuance of Restricted Stock.
(c) Upon the selection of a key Employee 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.
6.2 Restricted Stock Agreement. Restricted Stock shall be issued
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only pursuant to a written Restricted Stock Agreement, which shall be executed
by the selected key Employee and an authorized officer of the Company and which
shall contain such terms and conditions as the Committee shall determine,
consistent with this Plan.
6.3 Consideration. As consideration for the issuance of Restricted
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Stock, in addition to payment of any purchase price, the Restricted Stockholder
shall agree, in the written Restricted Stock Agreement, to remain in the employ
of the Company or any Subsidiary for a period of at least one year after the
Restricted Stock is issued. Nothing in this Plan or in any Restricted Stock
Agreement hereunder shall confer on any Restricted Stockholder any right to
continue in the employ of the Company or any Subsidiary or shall interfere with
or restrict in any way the rights of the Company and any Subsidiary,
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which are hereby expressly reserved, to discharge any Restricted Stockholder at
any time for any reason whatsoever, with or without good cause.
6.4 Rights as Stockholders. Upon delivery of the shares of
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Restricted Stock to the escrow holder pursuant to Section 6.7, the Restricted
Stockholder shall have, unless otherwise provided by the Committee, all the
rights of a stockholder with respect to said shares, subject to the restrictions
in his Restricted Stock Agreement, including the right to receive all dividends
and other distributions paid or made with respect to the shares; provided,
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however, that in the discretion of the Committee, any extraordinary
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distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
6.5 Restriction. All shares of Restricted Stock issued under this
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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 Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
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that by a resolution adopted after the Restricted Stock is issued, the Committee
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 Restricted Stock
Agreement. Restricted Stock may not be sold or encumbered until all
restrictions are terminated or expire. Unless provided otherwise by the
Committee, if no consideration was paid by the Restricted Stockholder upon
issuance, a Restricted Stockholder's rights in unvested Restricted Stock shall
lapse upon Termination of Employment.
6.6 Repurchase of Restricted Stock. The Committee shall provide in
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the terms of each individual Restricted Stock Agreement that the Company shall
have the right to repurchase from the Restricted Stockholder the Restricted
Stock then subject to restrictions under the Restricted Stock Agreement
immediately upon a Termination of Employment, at a cash price per share equal to
the price paid by the Restricted Stockholder for such Restricted Stock;
provided, however, that provision may be made that no such right of repurchase
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shall exist in the event of a Termination of Employment without cause, or
following a change in control of the Company or because of the Restricted
Stockholder's retirement, death or disability, or otherwise.
6.7 Escrow. The Secretary of the Company or such other escrow
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holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Restricted Stock Agreement with respect to the shares evidenced by
such certificate expire or shall have been removed.
6.8 Legend. In order to enforce the restrictions imposed upon
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shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Restricted Stock Agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
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7.1 Performance Awards. Any key Employee selected by the Committee
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may be granted one or more Performance Awards. The value of such Performance
Awards may be linked to the
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market value, book value, net profits or other measure of the value of Common
Stock 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, or may be based upon the appreciation in
the market value, book value, net profits or other measure of the value of a
specified number of shares of Common Stock over a fixed 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 key Employee.
7.2 Dividend Equivalents. Any key Employee selected by the
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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, Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Option, 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.
7.3 Stock Payments. Any key Employee selected by the Committee may
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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 Fair Market Value, book value, net profits or other measure of
the value of Common Stock or other specific performance criteria determined
appropriate by the Committee, determined on the date such Stock Payment is made
or on any date thereafter.
7.4 Deferred Stock. Any key Employee selected by the Committee may
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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 market value, book value, net profits or
other measure of the value of Common Stock or other specific performance
criteria, 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 Grantee of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the award has vested and the Common Stock underlying the award has been
issued.
7.5 Performance Award Agreement, Dividend Equivalent Agreement,
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Deferred Stock Agreement, Stock Payment Agreement. Each Performance Award,
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Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be
evidenced by a written agreement, which shall be executed by the Grantee and an
authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
7.6 Term. The term of a Performance Award, Dividend Equivalent,
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award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
7.7 Exercise Upon Termination of Employment. A Performance Award,
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Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable
only while the Grantee is an Employee; provided that the Committee may determine
that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment may be exercised subsequent to Termination
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of Employment without cause, or following a change in control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
7.8 Payment on Exercise. Payment of the amount determined under
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Section 7.1 or 7.2 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 VII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 5.4.
7.9 Consideration. In consideration of the granting of a
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Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment, the Grantee shall agree, in a written agreement, to remain in the
employ of, the Company or any Subsidiary for a period of at least one year after
such Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment is granted. Nothing in this Plan or in any agreement hereunder
shall confer on any Grantee any right to continue in the employ of, the Company
or any Subsidiary 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 Grantee at any time for any reason whatsoever, with or without
good cause.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
-------------------------
8.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right
----------------------------------
may be granted to any key Employee selected by the Committee. A Stock
Appreciation Right may be granted (i) in connection and simultaneously with the
grant of an Option, (ii) with respect to a previously granted Option, or (iii)
independent of an Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with this Plan as the Committee shall
impose and shall be evidenced by a written Stock Appreciation Right Agreement,
which shall be executed by the Grantee and an authorized officer of the Company.
The Committee, in its discretion, may determine whether a Stock Appreciation
Right is to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code. Without limiting the generality of the foregoing, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition of the grant of a Stock Appreciation Right to an Employee
that the Employee surrender for cancellation some or all of the unexercised
Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments, or other rights
which have been previously granted to him under this Plan or otherwise. A Stock
Appreciation Right, the grant of which is conditioned upon such surrender, may
have an exercise price lower (or higher) than the exercise price of the
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
8.2 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 Grantee for no more than the number
of shares subject to the simultaneously or previously granted Option to which it
is coupled.
11
(c) A CSAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this 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.
8.3 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 Grantee is
an Employee; provided that the Committee may determine that the ISAR may be
exercised subsequent to Termination of Employment without cause, or following a
change in control of the Company, or because of the Grantee's retirement, death
or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to
exercise the ISAR pursuant to this 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.
8.4 Payment and Limitations on Exercise
-----------------------------------
(a) Payment of the amount determined under Section 8.2(c) and 8.3(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 Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section 5.4
hereinabove pertaining to Options.
(b) Grantees of Stock Appreciation Rights who are subject to Section
16 of the Exchange Act may, in the discretion of the Board or Committee, be
required to comply with any timing or other restrictions under Rule 16b-3
applicable to the settlement or exercise of a Stock Appreciation Right.
8.5 Consideration. In consideration of the granting of a Stock
-------------
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of the Company or any Subsidiary for a
period of at least one year after the Stock Appreciation Right is granted.
Nothing in this Plan or in any Stock Appreciation Right Agreement hereunder
shall confer on any Grantee any right to continue in the employ of, the Company
or any Subsidiary 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 Grantee at any time for any reason whatsoever, with or without
good cause.
12
ARTICLE IX
ADMINISTRATION
--------------
9.1 Compensation Committee. The Compensation Committee (or a
----------------------
subcommittee of the Board assuming the functions of the Committee under this
Plan) shall consist of two or more Independent Directors appointed by and
holding office at the pleasure of the Board, each of whom is both a
"disinterested person" 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.
9.2 Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such grant or
award under this Plan need not be the same with respect to each Optionee,
Grantee or Restricted Stockholder. 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 this 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.
9.3 Majority Rule. 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.
9.4 Compensation; Professional Assistance; Good Faith Actions.
---------------------------------------------------------
Members of the Committee shall receive such compensation 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 this
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 in good faith shall be final and binding upon all Optionees,
Grantees, Restricted Stockholders, 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 this Plan,
Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments, and all members of
the Committee shall be fully protected by the Company in respect of any such
action, determination or interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
10.1 Not Transferable. Options, Restricted Stock awards, Deferred
----------------
Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution, unless and until such rights or awards have been exercised, or
the shares
13
underlying such rights or awards have been issued, and all restrictions
applicable to such shares have lapsed. No Option, Restricted Stock award,
Deferred Stock award, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment or interest or right therein shall be liable for the
debts, contracts or engagements of the Optionee, Grantee or Restricted
Stockholder or his 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.
During the lifetime of the Optionee or Grantee, only he may exercise
an Option or other right or award (or any portion thereof) granted to him under
the Plan. After the death of the Optionee or Grantee, any exercisable portion
of an Option or other right or award may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement or
other agreement, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's or Grantee's will or under the
then applicable laws of descent and distribution.
10.2 Amendment, Suspension or Termination of this Plan. This Plan
-------------------------------------------------
may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Committee. However, without
approval of the Company's stockholders given within twelve months before or
after the action by the Committee, no action of the Committee may, except as
provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Committee may be taken that would otherwise require stockholder approval as
a matter of applicable law, regulation or rule. No amendment, suspension or
termination of this Plan shall, without the consent of the holder of Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments, alter or impair any
rights or obligations under any Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments theretofore granted or awarded, unless the award itself otherwise
expressly so provides. No Options, Restricted Stock, Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments may be granted or awarded during any period of suspension or after
termination of this Plan, and in no event may any Incentive Stock Option be
granted under this Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 10.5.
10.3 Changes in Common Stock or Assets of the Company. In the event
------------------------------------------------
that the outstanding shares of Common Stock are hereafter changed into or
exchanged for cash or a different number or kind of shares or other securities
of the Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock splitup, stock
dividend, or combination of shares, appropriate adjustments shall be made by the
Committee in the number and kind of shares for which Options, Restricted Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
Deferred Stock awards or Stock Payments may be granted, including adjustments of
the limitation in Section 2.1 on the maximum number and kind of shares which may
be issued.
In the event of such a change or exchange, other than for shares or
securities of another corporation or by reason of reorganization, the Committee
shall also make an appropriate and equitable
14
adjustment in the number and kind of shares as to which all outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, or portions thereof then unexercised, shall be exercisable and in the
number and kind of shares of outstanding Restricted Stock or Deferred Stock.
Such adjustment shall be made with the intent that after the change or exchange
of shares, each Optionee's and each Grantee's and each Restricted Stockholder's
proportionate interest shall be maintained as before the occurrence of such
event. Such adjustment in an outstanding Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment may include a necessary
or appropriate corresponding adjustment in Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment exercise price, but
shall be made without change in the total price applicable to the Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment, or the unexercised portion thereof (except for any change in the
aggregate price resulting from rounding-off of share quantities or prices).
Where an adjustment of the type described above is made to an
Incentive Stock Option under this Section, the adjustment will be made in a
manner which will not be considered a "modification" under the provisions of
subsection 424(h)(3) of the Code.
Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock splitup, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or converted into cash, securities or other
property, the Company will have the right to terminate this Plan as of the date
of the exchange or conversion, in which case all options, rights and other
awards under this Plan shall become the right to receive such cash, securities
or other property, net of any applicable exercise price.
In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Committee may in its discretion
make an appropriate and equitable adjustment to the Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent or Stock Payment exercise price to
reflect such diminution.
10.4 Merger of the Company. In the event of the merger or
---------------------
consolidation of the Company with or into another corporation, the exchange of
all or substantially all of the assets of the Company for the securities of
another corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company:
(a) At the discretion of the Committee, the terms of an Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment may provide that it cannot be exercised after such event.
(b) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by the terms of such Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment or by a resolution adopted prior to the occurrence of such event that,
for a specified period of time prior to such event, such Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment shall be
exercisable as to all shares covered thereby, notwithstanding anything to the
contrary in this Plan or in the provisions of such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent or Stock Payment.
15
(c) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by the terms of such Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment or by a resolution adopted prior to the occurrence of such event that
upon such event, such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment shall be assumed by the successor
corporation, or a parent or subsidiary thereof, or shall be substituted for by
similar options, rights or awards covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices.
(d) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by the terms of a Restricted Stock
award or Deferred Stock award or by a resolution adopted prior to the occurrence
of such event that, for a specified period of time prior to such event, the
restrictions imposed under a Restricted Stock Agreement or a Deferred Stock
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 6.6 after
such event.
10.5 Approval of Plan by Stockholders. This Plan will be submitted
--------------------------------
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted
and Restricted Stock or Deferred Stock may be awarded prior to such stockholder
approval, provided that such Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments shall not be exercisable and such
Restricted Stock or Deferred Stock shall not vest prior to the time when this
Plan is approved by the stockholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments previously granted and all Restricted Stock or Deferred Stock
previously awarded under this Plan shall thereupon be cancelled and become null
and void.
10.6 Tax Withholding. The Company shall be entitled to require
---------------
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted Stockholder of any sums required by federal, state or
local tax law to be withheld with respect to the issuance, vesting or exercise
of any Option, Restricted Stock, Deferred Stock, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment. Subject to the timing
requirements of Section 5.3, the Committee may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee, Grantee or
Restricted Stockholder to elect to have the Company withhold shares of Common
Stock (or allow the return of shares of Common Stock) having a Fair Market Value
equal to the sums required to be withheld.
10.7 Loans. The Committee may, in its discretion, extend one or more
-----
loans to key Employees in connection with the exercise or receipt of an Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment granted under this Plan, or the issuance of Restricted Stock or Deferred
Stock awarded under this Plan. The terms and conditions of any such loan shall
be set by the Committee.
10.8 Limitations Applicable to Section 16 Persons and Performance-
------------------------------------------------------------
Based Compensation. Notwithstanding any other provision of this Plan, any
- ------------------
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to a key
Employee or Director who is then subject to Section 16 of the Exchange Act,
16
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, and this Plan shall be deemed amended to the extent
necessary to conform to such limitations. Furthermore, notwithstanding any
other provision of this Plan, any Option or Stock Appreciation Right 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 this Plan shall be deemed amended to the extent
necessary to conform to such requirements.
10.9 Effect of Plan Upon Options and Compensation Plans. The
--------------------------------------------------
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees of the Company or any Subsidiary or
(ii) to grant or assume options or other rights otherwise than under this 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, firm or association.
10.10 Compliance with Laws. This Plan, the granting and vesting of
--------------------
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this
Plan and the issuance and delivery of shares of Common Stock and the payment of
money under this Plan or under Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or
Deferred Stock 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 this 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,
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
10.11 Titles. Titles are provided herein for convenience only and are
------
not to serve as a basis for interpretation or construction of this Plan.
10.12 Governing Law. This Plan and any agreements hereunder shall be
-------------
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.
17