WATERSTONE, INC.
EQUITY INCENTIVE PLAN
(AS AMENDED AND RESTATED OCTOBER 2, 2000)
(COMPANY NAME CHANGE FROM NEOVATION TO WATERSTONE MARCH 9, 2001)
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Waterstone, Inc. (the "Company") hereby establishes the
Waterstone, Inc. Equity Incentive Plan (the "Plan") for certain officers,
employees and consultants of the Company.
1.2 PURPOSES. The purposes of the Plan are to provide the officers,
employees and consultants of the Company selected for participation in the Plan
with added incentives to continue in the long-term service of the Company and to
create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value, so that the income of such persons is more closely aligned
with the income of the Company's stockholders. The Plan is also designed to
enhance the ability of the Company to attract, retain and motivate officers,
employees and consultants by providing an opportunity for investment in the
Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "AFFILIATED CORPORATION" means (i) any corporation or other
entity (including but not limited to a partnership) that directly, or through
one or more intermediaries controls, is controlled by, or is under common
control with, the Company, or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) "AWARD" means a grant made under this Plan in the form of Stock,
Options, Restricted Stock, Performance Shares, or Performance Units.
(c) "BOARD" means the Board of Directors of the Company.
(d) "COMMITTEE" means (i) the Board, or (ii) one or more committees
of the Board to whom the Board has delegated all or part of its authority under
this Plan. Any committee under clause (ii) hereof which makes grants to
"officers" of the Company (as that term is defined in Rule 16a-1(f) promulgated
under the Exchange Act) shall be composed of not less than the minimum number of
persons from time to time required by Rule 16b-3, each of whom, to the extent
necessary to comply with Rule 16b-3 only, shall be a "non-employee director"
within the meaning of Rule 16b-3(b)(3)(i).
(e) "COMPANY" means Waterstone, Inc., a Delaware corporation,
together with its Affiliated Corporations except where the context otherwise
requires.
(f) "EFFECTIVE DATE" means December 2, 1999.
(g) "ELIGIBLE EMPLOYEES" means full-time key employees (including,
without limitation, officers (whether or not full-time) and directors who are
also employees) of the Company or any Affiliated Corporation or any division
thereof, upon whose judgment, initiative and efforts the Company is, or will be,
important to the successful conduct of its business.
(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of the Stock
determined as follows:
(i) If the Stock is listed on any established stock exchange or
a national market system, its Fair Market Value shall be the closing sales price
for such Stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Committee deems reliable;
(ii) If the Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share
shall be the mean between the high bid and low asked prices for the Stock on the
last market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other source as the Committee deems reliable;
(iii) In the absence of an established market for the Stock, the
Fair Market Value shall be determined in good faith by the Committee.
(j) "Incentive Stock Option" means any Option designated as such and
granted in accordance with the requirements of Section 422 of the Internal
Revenue Code.
(k) "Internal Revenue Code" means the Internal Revenue Code of 1986,
as it may be amended from time to time, and the rules and regulations
promulgated thereunder.
(l) "Non-Statutory Option" means any Option other than an Incentive
Stock Option.
(m) "Option" means a right to purchase Stock at a stated price for a
specified period of time.
(n) "Option Price" means the price at which shares of Stock subject
to an Option may be purchased, determined in accordance with Section 7.2(b).
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(o) "Participant" means an Eligible Employee or part-time employee
of, or consultant or director to, the Company designated by the Committee from
time to time during the term of the Plan to receive one or more Awards under the
Plan.
(p) "Performance Cycle" means the period of time as specified by the
Committee over which Performance Share or Performance Units are to be earned.
(q) "Performance Shares" means an Award made pursuant to Section 9
which entitles a Participant to receive Shares, their cash equivalent or a
combination thereof based on the achievement of performance targets during a
Performance Cycle.
(r) "Performance Units" means an Award made pursuant to Section 9
which entitles a Participant to receive cash, Stock or a combination thereof
based on the achievement of performance targets during a Performance Cycle.
(s) "Plan Year" means each 12-month period beginning July 1 and
ending the following June 30, except that for the first year of the Plan it
shall begin on the Effective Date and extend to June 30 of that year.
(t) "Restricted Stock" means Stock granted under Section 8 that is
subject to restrictions imposed pursuant to said Section.
(u) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Securities and Exchange Commission under the Exchange Act, or any successor rule
or regulation thereto as in effect from time to time.
(v) "Service Provider" means an employee or director of or consultant
to the Company.
(w) "Share" means a share of Stock.
(x) "Stock" means the common stock, $.01 par value, of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 AUTHORITY OF COMMITTEE. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in addition
to other express powers and authorizations conferred on the Committee by the
Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to
eligible Participants; (iii) determine the number of Shares to be covered by, or
with respect to
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which payments, rights, or other matters are to be calculated in connection
with, Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee; (vii) correct any defect, supply any
omission, reconcile any inconsistency and otherwise interpret and administer the
Plan and any instrument or agreement relating to the Plan or any Award
hereunder; (viii) establish, amend, suspend, or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. To the extent necessary or appropriate, the
Committee may adopt sub-plans consistent with the Plan to conform to applicable
state or foreign securities or tax laws. A majority of the members of the
Committee may determine its actions and fix the time and place of its meetings.
3.2 DETERMINATIONS UNDER THE PLAN. Unless otherwise expressly provided in
the Plan all designations, determinations, interpretations, and other decisions
under or with respect to the Plan or any Award shall be within the sole
discretion of the Committee, may be made at any time and shall be final,
conclusive, and binding upon all persons, including the Company, any Affiliated
Corporation, any Participant, any holder or beneficiary of any Award, and any
shareholder. No member of the Committee shall be liable for any action,
determination or interpretation made in good faith, and all members of the
Committee shall, in addition to their rights as directors, be fully protected by
the Company with respect to any such action, determination or interpretation.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3,
3,000,000 Shares are authorized for issuance under the Plan in accordance with
the provisions of the Plan and subject to such restrictions or other provisions
as the Committee may from time to time deem necessary; provided, however, that
no Participant may be granted Awards in any one calendar year with respect to
more than 500,000 Shares. The Shares may be divided among the various Plan
components as the Committee shall determine. Shares which may be issued upon
the exercise of Options shall be applied to reduce the maximum number of
Shares remaining available for use under the Plan. The Company shall at all
times during the term of the Plan and while any Options are outstanding
retain as authorized and un-issued Stock, or as treasury Stock, at least the
number of Shares from time to time required under the provisions of the Plan,
or otherwise assure itself of its ability to perform its obligations
hereunder.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Award
under this Plan which are not used because the terms and conditions of the Award
are not met, including
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any Shares that are subject to an Option which expires or is terminated for any
reason, any Shares which are used for full or partial payment of the purchase
price of Shares with respect to which an Option is exercised and any Shares
retained by the Company pursuant to Section 15.2 shall automatically become
available for use under the Plan. Notwithstanding the foregoing, any Shares used
for full or partial payment of the purchase price of the Shares with respect to
which an Option is exercised and any Shares retained by the Company pursuant to
Section 15.2 that were originally Incentive Stock Option Shares must still be
considered as having been granted for purposes of determining whether the Share
limitation provided for in Section 4.1 has been reached for purposes of
Incentive Stock Option grants.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company shall
at any time increase or decrease the number of its outstanding Shares of Stock
or change in any way the rights and privileges of such Shares by means of the
payment of a stock dividend or any other distribution upon such Shares payable
in Stock, or through a stock split, subdivision, consolidation, combination,
reclassification or re-capitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of (i) the shares of Stock as to which Awards may be
granted under the Plan, and (ii) the Shares of Stock then included in each
outstanding Option, Performance Share or Performance Unit granted hereunder,
shall be increased, decreased or changed in like manner as if they had been
issued and outstanding, fully paid and non-assessable at the time of such
occurrence.
4.4 DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the Company
shall at any time pay or make any dividend or other distribution upon the Stock
payable in securities of another corporation or other property (except money or
Stock), a proportionate part of such securities or other property shall be set
aside and delivered to any Participant then holding an Award for the particular
type of Stock for which the dividend or other distribution was made, upon
exercise thereof in the case of Options, and the vesting thereof in the case of
other Awards. Prior to the time that any such securities or other property are
delivered to a Participant in accordance with the foregoing, the Company shall
be the owner of such securities or other property and shall have the right to
vote the securities, receive any dividends payable on such securities, and in
all other respects shall be treated as the owner. If securities or other
property which have been set aside by the Company in accordance with this
Section are not delivered to a Participant because an Award is not exercised or
otherwise vested, then such securities or other property shall remain the
property of the Company and shall be dealt with by the Company as it shall
determine in its sole discretion.
4.5 OTHER CHANGES IN STOCK. In the event there shall be any change, other
than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding
shares of Stock or of any stock or other securities into which the Stock shall
be changed or for which it shall have been exchanged, and if the Committee shall
in its discretion determine that such change equitably requires an adjustment in
the number or kind of Shares subject to outstanding Awards or which have been
reserved for issuance pursuant to the Plan but are not then subject to an Award,
then such adjustments shall be made by the Committee and shall be effective for
all purposes of the Plan and on each outstanding Award that involves the
particular type of stock for which a change was effected.
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4.6 RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to the
holders of its Stock rights to subscribe pro rata for additional shares thereof
or for any other securities of the Company or of any other corporation, there
shall be reserved with respect to the Shares then subject to an Award held by
any Participant of the particular class of Stock involved, the Stock or other
securities which the Participant would have been entitled to subscribe for if
immediately prior to such grant the Participant had exercised his entire Option,
or otherwise vested in his entire Award. If, upon exercise of any such Option or
the vesting of any other Award, the Participant subscribes for the additional
Stock or other securities, the Participant shall pay to the Company the price
that is payable by the Participant for such Stock or other securities.
4.7 GENERAL ADJUSTMENT RULES. If any adjustment or substitution provided
for in this Section 4 shall result in the creation of a fractional Share under
any Award, the Company shall, in lieu of selling or otherwise issuing such
fractional Share, pay to the Participant a cash sum in an amount equal to the
product of such fraction multiplied by the Fair Market Value of a Share on the
date the fractional Share would otherwise have been issued. In the case of any
such substitution or adjustment affecting an Option, the total Option Price for
the shares of Stock then subject to an Option shall remain unchanged but the
Option Price per shall under each such Option shall be equitably adjusted by the
Committee to reflect the greater or lesser number of shares of Stock or other
securities into which the Stock subject to the Option may have been changed.
4.8 DETERMINATION BY COMMITTEE, ETC. Adjustments under this Section 4
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all persons.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets or
more than 50% of the outstanding voting stock of the Company is acquired by any
other corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
10 do not apply, the Committee, or the board of directors of any corporation
assuming the obligations of the Company, shall, have the power and discretion to
prescribe the terms and conditions for the exercise, or modification, of any
outstanding Awards granted hereunder. By way of illustration, and not by way of
limitation, the Committee may provide for the complete or partial acceleration
of the dates of exercise of the Options, or may provide that such Options will
be exchanged or converted into options to acquire securities of the surviving or
acquiring corporation, or may provide for a payment or distribution in respect
of outstanding Options (or the portion thereof that is currently exercisable) in
cancellation thereof.
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The Committee may remove restrictions on Restricted Stock and may modify the
performance requirements for any other Awards. The Committee may provide that
Stock or other Awards granted hereunder must be exercised in connection with the
closing of such transaction, and that if not so exercised such Awards will
expire. Any such determinations by the Committee may be made generally with
respect to all Participants, or may be made on a case-by-case basis with respect
to particular Participants. The provisions of this Section 5 shall not apply to
any transaction undertaken for the purpose of reincorporating the Company under
the laws of another jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company's capital stock.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees, part-time
employees or consultants who, in the judgment of the Committee, are performing,
or during the term of their incentive arrangement will perform, important
services in the management, operation and development of the Company, and
significantly contribute, or are expected to significantly contribute, to the
achievement of long-term corporate economic objectives. Participants may be
granted from time to time one or more Awards; provided, however, that the grant
of each such Award shall be separately approved by the Committee, and receipt of
one such Award shall not result in automatic receipt of any other Award, written
notice shall be given to such person, specifying the terms, conditions, rights
and duties related thereto; and further provided that Incentive Stock Options
shall not be granted to (i) Eligible Employees of any partnership or other
entity which is included within the definition of an Affiliated Corporation but
whose employees are not permitted to receive Incentive Stock Options under the
Internal Revenue Code or (ii) consultants. Each Participant shall enter into an
agreement with the Company, in such form as the Committee shall determine and
which is consistent with the provisions of the Plan, specifying such terms,
conditions, rights and duties. Awards shall be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date shall be the
date of any related agreement with the Participant. In the event of any
inconsistency between the provisions of the Plan and any such agreement entered
into hereunder, the provisions of the Plan shall govern.
SECTION 7
STOCK OPTIONS
7.1 GRANT OF OPTIONS. Coincident with or following designation for
participation in the Plan, a Participant may be granted one or more Options. The
Committee in its sole discretion shall designated whether an Option is to be
considered an Incentive Stock Option or a Non-Statutory Option. The Committee
may grant both an Incentive Stock Option and a Non-Statutory Option to the same
Participant at the same time or at different times. Incentive Stock Options and
Non-Statutory Options, whether granted at the same or different times, shall be
deemed to have been awarded in separate grants, shall be clearly identified, and
in no event shall the exercise of one Option affect the right to exercise any
other Option or affect the number of Shares for which any other Option may be
exercised.
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7.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Participant to whom the Option is granted (the "Option Holder"),
and which shall contain the following terms and conditions, as well as such
other terms and conditions not inconsistent therewith, as the Committee may
consider appropriate in each case.
(a) NUMBER OF SHARES. Each stock option agreement shall state that it
covers a specified number of Shares, as determined by the Committee. To the
extent that the aggregate Fair Market Value of Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the first time
by any Participant during any year (under all plans of the Company and any
Affiliated Corporation) exceeds $100,000, such Options shall be treated as not
being Incentive Stock Options. The foregoing shall be applied by taking Options
into account in the order in which they were granted. For the purposes of the
foregoing, the Fair Market Value of any Share shall be determined as of the time
the Option with respect to such Share is granted. In the event the foregoing
results in a portion of an Option designated as an Incentive Stock Option
exceeding the $100,000 limitation, only such excess shall be treated as not
being an Incentive Stock Option.
(b) PRICE. The price at which each Share covered by an Option may be
purchased shall be determined in each case by the Committee and set forth in the
stock option agreement, but in no event shall the Option Price for each Share
covered by an Incentive Stock Option be less than the Fair Market Value of the
Stock on the date the Option is granted; provided, however, that the Option
Price for each Share covered by a Non-Statutory Option may be granted at any
price less than Fair Market Value, in the sole discretion of the Committee; and
provided further that the Option Price for each Share covered by an Incentive
Stock Option granted to an Eligible Employee who then owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company must be at least
110% of the Fair Market Value of the Stock subject to the Incentive Stock Option
on the date the Option is granted.
(c) DURATION OF OPTIONS. Each stock option agreement shall state the
period of time, determined by the Committee, within which the Option may be
exercised by the Option Holder (the "Option Period"). The Option Period must
expire, in all cases, not more than ten years from the date an Option is
granted; provided, however, that the Option Period of an Incentive Stock Option
granted to an Eligible Employee who then owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company must expire not more than five
years from the date such an Option is granted. Each stock option agreement shall
also state the periods of time, if any, as determined by the Committee, when
incremental portions of each Option shall vest. If any Option is not exercised
during its Option Period, it shall be deemed to have been forfeited and or no
further force or effect.
(d) TERMINATION OF SERVICE, DEATH, DISABILITY, ETC. Except as
otherwise determined by the Committee, each stock option agreement shall provide
as follows with respect
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to the exercise of the Option upon an Option Holder ceasing to be a Service
Provider or on the death or disability of the Option Holder:
(i) If the Option Holder ceases to be a Service Provider within
the Option Period for cause, as determined by the Company, the Option shall
thereafter be void for all purposes. As used in this Section 7.2(d), "cause"
shall mean a gross violation, as determined by the Company, of the Company's
established policies and procedures. The effect of this Section 7.2(d)(i) shall
be limited to determining the consequences of a termination, and nothing in this
Section 7.2(d)(i) shall restrict or otherwise interfere with the Company's
discretion with respect to the termination of any Service Provider.
(ii) If the Option Holder ceases to be a Service Provider with
the Company in a manner determined by the Board, in its sole discretion, to
constitute retirement (which determination shall be communicated to the Option
Holder within 10 days of such termination), the Option may be exercised by the
Option Holder, or in the case of death by the persons specified in clause (iii)
of this Section 7.2(d), within three months following his or her retirement if
the Option is an Incentive Stock Option or within twelve months following his or
her retirement if the Option is a Non-Statutory Stock Option (provided in each
case that such exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only as to the Shares
as to which the Option had become exercisable on or before the date the Option
Holder ceases to be a Service Provider.
(iii) If the Option Holder dies (A) while he or she is a Service
Provider, (B) within the three-month period referred to in clause (v) below, or
(C) within the three or twelve-month period referred to in clause (ii) above,
the Option may be exercised by those entitled to do so under the Option Holder's
will or by the laws of descent and distribution within twelve months following
the Option Holder's death (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of the Option Holder's death or at such time as the Option
Holder ceased to be a Service Provider, whichever is earlier.
(iv) If the Option Holder becomes disabled (within the meaning of
Section 22(e) of the Internal Revenue Code) while a Service Provider, Incentive
Stock Options held by the Option Holder may be exercised by the Option Holder
within twelve months following the date the Option Holder ceases to be a Service
Provider (provided that such exercise must occur within the Option Period), but
not thereafter. If the Option Holder becomes disabled (within the meaning of
Section 22(e) of the Internal Revenue Code) while a Service Provider or within
three-month period referred to in clause (v) below or within the twelve month
period following his or her retirement as provided in clause (ii) above,
Non-Statutory Options held by the Option Holder may be exercised by the Option
Holder within twelve months following the date of the Option Holder's disability
(provided that such exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only as to the Shares
as to which the Option had become exercisable on or before the date the Option
Holder ceased to be a Service Provider.
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(v) If the Option Holder ceases to be a Service Provider (which
for this purpose means that the Option Holder is no longer employed by, a
director of, or consulting with the Company or an Affiliated Corporation) within
the Option Period for any reason other than cause, retirement as provided in
clause (ii) above, disability as provided in clause (iv) above or the Option
Holder's death, the Option may be exercised by the Option Holder within three
months following the date of such cessation (provided that such exercise must
occur within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date that the Option Holder ceases to be a Service
Provider
(e) TRANSFERABILITY. Except as otherwise determined by the Committee,
Options shall not be transferable by the Option Holder except by will or
pursuant to the laws of descent and distribution or pursuant to a "qualified
domestic relations order" as defined by the Internal Revenue Code or Title I of
the Employee Retirement Income Security Act of 1974 ("ERISA"); each Option shall
be exercisable during the Option Holder's lifetime only by him or her, or in the
event of disability or incapacity, by his or her guardian or legal
representative; and Shares issuable pursuant to any Option shall be delivered
only to or for the account of the Option Holder, or in the event of disability
or incapacity, by his or her guardian or legal representative.
(f) EXERCISE, PAYMENTS, ETC.
(i) Each stock option agreement shall provide that the method
for exercising the Option granted therein shall be by delivery to the Corporate
Secretary of the Company of written notice specifying the number of Shares with
respect to which such Option is exercised (which may be required to be a minimum
number of Shares as established by the Committee in its discretion) and payment
of the Option Price. Such notice shall be in a form satisfactory to the
Committee and shall specify the particular Option (or portion thereof) which is
being exercised and the number of Shares with respect to which the Option is
being exercised. The exercise of the Option shall be deemed effective upon
receipt of such notice by the Corporate Secretary and payment to the Company.
The purchase of such Stock shall take place at the principal offices of the
Company upon delivery of such notice, at which time the purchase price of the
Stock shall be paid in full by any of the methods or any combination of the
methods set forth in (ii) below. A properly executed certificate or certificates
representing the Stock shall be issued by the Company and delivered to the
Option Holder. If certificates representing Stock are used to pay all or part of
the Option Price, separate certificates for the same number of shares of Stock
shall be issued by the Company and delivered to the Option Holder representing
each certificate used to pay the Option Price, and an additional certificate
shall be issued by the Company and delivered to the Option Holder representing
the additional shares, in excess of the Option Price, to which the Option Holder
is entitled as a result of the exercise of the Option.
(ii) The exercise price shall be paid by any of the following
methods or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
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(C) if authorized by the Committee, in its sole discretion,
by delivery to the Company of certificates representing the number of Shares
then owned by the Option Holder, the Fair Market Value of which equals the
purchase price of the Stock purchased pursuant to the Option, properly endorsed
for transfer to the Company; provided however, that Shares used for this purpose
must have been held by the Option Holder for such minimum period of time as may
be established from time to time by the Committee; and provided further that the
Fair Market Value of any Shares delivered in payment of the purchase price upon
exercise of the Option shall be the Fair Market Value as of the exercise date,
which shall be the date of delivery of the certificates for the Stock used as
payment of the Option Price; or
(D) if authorized by the Committee, in its sole discretion,
by delivery to the Company of a properly executed notice of exercise together
with irrevocable instructions to a broker to deliver to the Company promptly the
amount of the proceeds of the sale of all or a portion of the Stock or of a loan
from the broker to the Option Holder necessary to pay the exercise price.
(iii) In the discretion of the Committee, the Company may
guaranty a third-party loan obtained by a Participant to pay part or all of the
Option Price of the Shares provided that such loan or the Company's guaranty is
secured by the Shares.
(g) DATE OF GRANT. An option shall be considered as having been
granted on the date specified in the grant resolution of the Committee.
(h) WITHHOLDING.
(A) NON-STATUTORY OPTIONS. Each stock option agreement
covering Non-Statutory Options shall provide that, upon exercise of the Option,
the Option Holder shall make appropriate arrangements with the Company to
provide for the amount of additional withholding required by applicable federal
and state income tax laws, including payment of such taxes through delivery of
Stock or by withholding Stock to be issued under the Option, as provided in
Section 15.
(B) INCENTIVE OPTIONS. In the event that a Participant
makes a disposition (as defined in Section 424(c) of the Internal Revenue Code)
of any Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to the later of (i) the expiration of two years from the date on which the
Incentive Stock Option was granted or (ii) the expiration of one year from the
date on which the Option was exercised, the Participant shall send written
notice to the Company at its principal office in Denver, Colorado (Attention:
Corporate Secretary) of the date of such disposition, the number of shares
disposed of, the amount of proceeds received from such disposition, and any
other information relating to such disposition as the Company may reasonably
request. The Participant shall, in the event of such a disposition, make
appropriate arrangements with the Company to provide for the amount of
additional withholding, if any, required by applicable federal and state income
tax laws.
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(i) ADJUSTMENT OF OPTIONS. Subject to the limitations contained in
Sections 7 and 14, the Committee may make any adjustment in the Option Price,
the number of shares subject to, or the terms of, an outstanding Option and a
subsequent granting of an Option by amendment or by substitution of an
outstanding Option. Such amendment, substitution, or re-grant may result in
terms and conditions (including Option Price, number of shares covered, vesting
schedule or exercise period) that differ from the terms and conditions of the
original Option. The Committee may not, however, adversely affect the rights of
any Participant to previously granted Options without the consent of such
Participant. If such action is affected by amendment, the effective date of such
amendment shall be the date of the original grant.
7.3 STOCKHOLDER PRIVILEGES. No Option Holder shall have any rights as a
stockholder with respect to any Shares covered by an Option until the Option
Holder becomes the holder of record of such Stock, and no adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of record
of such Stock, except as provided in Section 4.
SECTION 8
RESTRICTED STOCK AWARDS
8.1 AWARDS GRANTED BY COMMITTEE. Coincident with or following designation
for participation in the Plan, a Participant may be granted one or more
Restricted Stock Awards consisting of Shares. The number of Shares granted as a
Restricted Stock Award shall be determined by the Committee.
8.2 RESTRICTIONS. A Participant's right to retain a Restricted Stock Award
granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuing to perform as a Service Provider for
a restriction period specified by the Committee, or the attainment of specified
performance goals and objectives, as may be established by the Committee with
respect to such Award. The Committee may in its sole discretion require
different periods of service or different performance goals and objectives with
respect to (i) different Participants, (ii) different Restricted Stock Awards,
or (iii) separate, designated portions of the Shares constituting a Restricted
Stock Award.
8.3 PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant shall have
all voting, dividend, liquidation and other rights with respect to Stock in
accordance with its terms received by him as a Restricted Stock Award under this
Section 8 upon his becoming the holder of record of such Stock; provided,
however, that the Participant's right to sell, encumber or otherwise transfer
such Stock shall be subject to the limitations of Section 11.2 hereof.
8.4 ENFORCEMENT OF RESTRICTIONS. The Committee may in its sole discretion
require one or more of the following methods of enforcing the restrictions
referred to in Section 8.2 and 8.3:
(a) placing a legend on the stock certificates referring to the
restrictions;
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(b) requiring the Participant to keep the stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in effect;
or
(c) requiring that the stock certificates, duly endorsed, be held in
the custody of a third party while the restrictions remain in effect.
8.5 TERMINATION OF SERVICE, DEATH, DISABILITY, ETC. In the event of the
death or disability (within the meaning of Section 22(e) of the Internal Revenue
Code) of a Participant, or the retirement of a Participant as provided in
Section 7.2(d)(ii), all service period and other restrictions applicable to
Restricted Stock Awards then held by him shall lapse, and such Awards shall
become fully non-forfeitable. Subject to Sections 5 and 10, in the event a
Participant ceases to be a Service Provider for any other reason, any Restricted
Stock Awards as to which the service period or other restrictions have not been
satisfied shall be forfeited.
SECTION 9
PERFORMANCE SHARES AND PERFORMANCE UNITS
9.1 AWARDS GRANTED BY COMMITTEE. Coincident with or following designation
for participation in the Plan, a Participant may be granted Performance Shares
or Performance Units.
9.2 AMOUNT OF AWARD. The Committee shall establish a maximum amount of a
Participant's Award, which amount shall be denominated in Shares in the case of
Performance Shares or in dollars in the case of Performance Units.
9.3 COMMUNICATION OF AWARD. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the Committee shall
be given to a Participant as soon as practicable after approval of the Award by
the Committee.
9.4 AMOUNT OF AWARD PAYABLE. The Committee shall establish maximum and
minimum performance targets to be achieved during the applicable Performance
Cycle. Performance targets established by the Committee shall relate to
corporate, group, unit or individual performance and may be established in terms
of earnings, growth in earnings, ratios of earnings to equity or assets, or such
other measures or standards determined by the Committee. Multiple performance
targets may be used and the components of multiple performance targets may be
given the same or different weighting in determining the amount of an Award
earned, and may relate to absolute performance or relative performance measured
against other groups, units, individuals or entities. Achievement of the maximum
performance target shall entitle the Participant to payment (subject to Section
9.6) at the full or maximum amount specified with respect to the Award;
provided, however, that notwithstanding any other provisions of this Plan, in
the case of an Award of Performance Shares the Committee in its discretion may
establish an upper limit on the amount payable (whether in cash or Stock) as a
result of the achievement of the maximum performance target. The Committee may
also establish that a portion of a full or maximum amount of a Participant's
Award will be paid (subject to Section 9.6) for performance which exceeds the
minimum performance target but falls below the maximum performance target
applicable to such Award.
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9.5 ADJUSTMENTS. At any time prior to payment of a Performance Share or
Performance Unit Award, the Committee may adjust previously established
performance targets or other terms and conditions to reflect events such as
changes in laws, regulations, or accounting practice, or mergers, acquisitions
or divestitures.
9.6 PAYMENTS OF AWARDS. Following the conclusion of each Performance
Cycle, the Committee shall determine the extent to which performance targets
have been attained, and the satisfaction of any other terms and conditions with
respect to an Award relating to such Performance Cycle. The Committee shall
determine what, if any, payment is due with respect to an Award and whether such
payment shall be made in cash, Stock or some combination. Payment shall be made
in a lump sum or installments, as determined by the Committee, commencing as
promptly as practicable following the end of the applicable Performance Cycle,
subject to such terms and conditions and in such form as may be prescribed by
the Committee.
9.7 TERMINATION OF EMPLOYMENT. If a Participant ceases to be a Service
Provider before the end of a Performance Cycle by reason of his death,
disability as provided in Section 7.2(d)(iv), or retirement as provided in
Section 7.2(d)(ii), the Performance Cycle for such Participant for the purpose
of determining the amount of the Award payable shall end at the end of the
calendar quarter immediately preceding the date on which such Participant ceased
to be a Service Provider. The amount of an Award payable to a Participant to
whom the preceding sentence is applicable shall be paid at the end of the
Performance Cycle and shall be that fraction of the Award computed pursuant to
the preceding sentence the numerator of which is the number of calendar quarters
during the Performance Cycle during all of which said Participant was a Service
Provider and the denominator of which is the number of full calendar quarters in
the Performance Cycle. Upon any other termination of Participant's services as a
Service Provider during a Performance Cycle, participation in the Plan shall
cease and all outstanding Awards of Performance Shares or Performance Units to
such Participant shall be canceled.
SECTION 10
CHANGE IN CONTROL
10.1 OPTIONS, RESTRICTED STOCK. In the event of a change in control of the
Company as defined in Section 10.3, then the Committee may, in its sole
discretion, without obtaining stockholder approval, to the extent permitted in
Section 14, take any or all of the following actions: (a) accelerate the
exercise dates of any outstanding Options or make all such Options fully vested
and exercisable; (b) grant a cash bonus award to any Option Holder in an amount
necessary to pay the Option Price of all or any portion of the Options then held
by such Option Holder; (c) pay cash to any or all Option Holders in exchange for
the cancellation of their outstanding Options in an amount equal to the
different between the Option Price of such Options and the greater of the tender
offer price for the underlying Stock or the Fair Market Value of the Stock on
the date of the cancellation of the Options; (d) make any other adjustments or
amendments to the outstanding Options; and (e) eliminate all restrictions with
respect to Restricted Stock and deliver Shares free of restrictive legends to
any Participant.
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10.2 PERFORMANCE SHARES AND PERFORMANCE UNITS. Under the circumstances
described in Section 10.1, the Committee may, in its sole discretion, and
without obtaining stockholder approval, to the extent permitted in Section 14,
provide for payment of outstanding Performance Shares and Performance Units at
the maximum award level or any percentage thereof.
10.3 DEFINITION. For purposes of the Plan, a "change in control" shall be
deemed to have occurred if: (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
under a trust, the grantor of which is Bobby G. Stevenson, or Bobby G.
Stevenson, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of more than 33_% of the then
outstanding voting stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board (and any
new director whose election by the Board or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
SECTION 11
RIGHTS OF EMPLOYEES; PARTICIPANTS
11.1 EMPLOYMENT. Nothing contained in the Plan or in any Award granted
under the Plan shall confer upon any Participant any right with respect to the
continuation of his or her services as a Service Provider, or interfere in any
way with the right of the Company, subject to the terms of any separate
employment or consulting agreement to the contrary, at any time to terminate
such services or to increase or decrease the compensation of the Participant
from the rate in existence at the time of the grant of an Award. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute a termination of Participant's services as a Service Provider shall
be determined by the Committee at the time.
11.2 NON-TRANSFERABILITY. Except as provided in Section 11.3, no right or
interest of any Participant in an Award granted pursuant to the Plan shall be
assignable or transferable during the lifetime of the Participant except
pursuant to a "qualified domestic relations order" as defined by the Internal
Revenue Code or Title I of ERISA, either voluntarily or involuntarily, or be
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event or a Participant's
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death, a Participant's rights and interests in Options shall, to the extent
provided in Section 7, be transferable by testamentary will or the laws of
descent and distribution, and payment of any amounts due under the Plan shall be
made to, and exercise of any Options may be made by, the Participant's legal
representatives, heirs or legatees. If, in the opinion of the Committee, a
person entitled to payments or to exercise rights with respect to the Plan is
disabled from caring for his affairs because of mental condition, physical
condition or age, payment due such person may be made to, and such rights shall
be exercised by, such person's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status. Transfers shall not be deemed to include transfers to
the Company or "cashless exercise" procedures with third parties who provide
financing for the purpose of (or who otherwise facilitate) the exercise of
Awards consistent with applicable laws and the authorization of the Committee.
11.3 PERMITTED TRANSFERS. Pursuant to conditions and procedures established
by the Committee from time to time, the Committee may permit Awards to be
transferred to, exercised by and paid to certain persons or entities related to
a Participant, including but not limited to members of the Participant's
immediate family, charitable institutions, or trusts or other entities whose
beneficiaries or beneficial owners are members of the Participant's immediate
family and/or charitable institutions. In the case of initial Awards, at the
request of the Participant, the Committee may permit the naming of the related
person or entity as the Award recipient. Any permitted transfer shall be subject
to the condition that the Committee receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes on a gratuitous
or donative basis and without consideration (other than nominal consideration).
Notwithstanding the foregoing, Incentive Stock Options shall only be
transferable to the extent permitted by Section 422 of the Internal Revenue Code
and the treasury regulations thereunder.
SECTION 12
GENERAL RESTRICTIONS
12.1 INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an Option or other Award is granted, as a condition of exercising such Option or
receiving Stock under the Award, to give written assurances in substance and
form satisfactory to the Company and its counsel to the effect that such person
is acquiring the Stock subject to the Option or the Award for his own account
for investment and not with any present intention or selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws. Legends evidencing such restrictions may be placed on the certificates
evidencing the Stock.
12.2 COMPLIANCE WITH SECURITIES LAWS. Each Award shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the Shares subject to such Award upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of Shares thereunder, such Award
may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions
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acceptable to the Committee. Nothing herein shall be deemed to require the
Company to apply for or to obtain such listing, registration or qualification.
12.3 STOCK RESTRICTION AGREEMENT. The Committee may provide that shares of
Stock issuable upon the exercise of an Option shall, under certain conditions,
be subject to restrictions whereby the Company has a right of first refusal with
respect to such shares or a right or obligation to repurchase all or a portion
of such shares, which restrictions may survive a Participant's cessation or
termination as a Service Provider.
SECTION 13
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the grant or vesting of any other Award
shall not constitute "earnings" with respect to which any other benefits of such
Participant are determined, including without limitation benefits under any
pension, profit sharing, life insurance or salary continuation plan.
SECTION 14
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan; provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary
or desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Awards theretofore granted under the Plan, without the
consent of the Participant holding such Awards.
SECTION 15
WITHHOLDING
15.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver Shares
upon the exercise of an Option, or upon the vesting of any other Award, shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and other tax withholding requirements.
15.2 WITHHOLDING WITH STOCK. At the time the Committee grants an Award, it
may, in its sole discretion, grant the Participant an election to pay all such
amounts of tax withholding, or any part thereof, by electing to transfer to the
Company, or to have the Company withhold from Shares otherwise issuable to the
Participant, Shares having a value equal to the amount required
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to be withheld or such lesser amount as may be elected by the Participant. All
elections shall be subject to the approval or disapproval of the Committee. The
value of Shares to be withheld shall be based on the Fair Market Value of the
Stock on the date that the amount of tax to be withheld is to be determined (the
"Tax Date"). Any such elections by Participants to have Shares withheld for this
purpose will be subject to the following restrictions:
(a) All elections must be made prior to the Tax Date;
(b) All elections shall be irrevocable; and
(c) If the Participant is an officer or director of the Company
within the meaning of Section 16 of the Exchange Act ("Section 16"), the
Participant must satisfy the requirements of such Section 16 and any applicable
rules thereunder with respect to the use of Stock to satisfy such tax
withholding obligation.
SECTION 16
SECTION 162(m) PROVISIONS
16.1 LIMITATIONS. Notwithstanding any other provision of this Plan, if the
Committee determines at the time any Restricted Stock Award or Performance Award
is granted to a Participant that such Participant is, or is likely to be at the
time he or she recognizes income for federal income tax purposes in connection
with such Award, a Covered Employee (within the meaning of Section 162(m)(3) of
the Internal Revenue Code), then the Committee may provide that this Section 16
is applicable to such Award.
16.2 PERFORMANCE GOALS. If an Award is subject to this Section 16, then the
lapsing of restrictions thereon and the distribution of cash, Shares or other
property pursuant thereto, as applicable, shall be subject to the achievement of
one or more objective performance goals established by the Committee, which
shall be based on the attainment of one or any combination of the following:
specified levels of earnings per share from continuing operations, operating
income, revenues, gross margin, return on operating assets, return on equity,
economic value added, stock price appreciation, total stockholder return
(measured in terms of stock price appreciation and dividend growth), or cost
control, of the Company or Affiliated Corporation (or any division thereof) for
or within which the Participant is primarily employed. Such performance goals
also may be based upon the attaining specified levels of Company performance
under one or more of the measures described above relative to the performance of
other corporations. Such performance goals shall be set by the Committee within
the time period prescribed by, and shall otherwise comply with the requirements
of, Section 162(m) of the Internal Revenue Code and the regulations thereunder.
16.3 ADJUSTMENTS. Notwithstanding any provision of the Plan other than
Section 10, with respect to any Award that is subject to this Section 16, the
Committee may not adjust upwards the amount payable pursuant to such Award, nor
may it waive the achievement of the applicable performance goals except in the
case of the death or disability of the Participant.
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16.4 OTHER RESTRICTIONS. The Committee shall have the power to impose such
other restrictions on Awards subject to this Section 16 as it may deem necessary
or appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(B) of
the Internal Revenue Code or any successor thereto.
SECTION 17
BROKERAGE ARRANGEMENTS
The Committee, in its discretion, may enter into arrangements with one or
more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options, including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and sale of the Shares acquired upon such exercise.
SECTION 18
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees or consultants generally, or to any class or group
of employees or consultants, which the Company or any Affiliated Corporation now
has lawfully put into effect, including, without limitation, any retirement,
pension, savings and stock purchase plan, insurance, death and disability
benefits and executive short-term incentive plans.
SECTION 19
REQUIREMENTS OF LAW
19.1 REQUIREMENTS OF LAW. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
19.2 RULE 16b-3. Transactions under the Plan and within the scope of Rule
16b-3 are intended to comply with all applicable conditions of Rule 16b-3. To
the extent any provision of the Plan or any action by the Committee under the
Plan fails to so comply, such provision or action shall, without further action
by any person, be deemed to be automatically amended to the extent necessary to
effect compliance with Rule 16b-3; provided, however, that if such provision or
action cannot be amended to effect such compliance, such provision or action
shall be deemed null and void to the extent permitted by law and deemed
advisable by the Committee.
19.3 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
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SECTION 20
DURATION OF THE PLAN
No Award shall be granted under the Plan after ten years from the Effective
Date; provided, however, that any Award theretofore granted may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, extend beyond such date.
This plan was originally approved by the Board and became effective on
December 2, 1999, and was approved by the Company's stockholders on that same
date. The plan was amended and restated effective on October 2, 2000. The
Company changed its name on March 9, 2001 and the name change has been reflected
in all copies of the plan published since March 9, 2001.
WATERSTONE, INC.
By: /s/ DAVID G. DURHAM
--------------------------------
David G. Durham
Executive Vice President
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