EXHIBIT 4.1
Franklin Credit Management Corporation
1996 Stock Incentive Plan, as amended
ARTICLE I
GENERAL
-------
1.1 Purpose
-------
The purpose of the Franklin Credit Management Corporation 1996 Stock
Incentive Plan (the "Plan") is to provide for officers, directors and other
employees of, and consultants to, Franklin Credit Management Corporation (the
"Company") an incentive (a) to enter into and remain in the service of the
Company, (b) to enhance the long-term performance of the Company, and (c) to
acquire a proprietary interest in the success of the Company.
1.2 Administration
--------------
1.2.1 All determinations under the Plan concerning the selection of
persons eligible to receive awards with respect to the timing, pricing and
amount of an award shall be made by the administrator (the "Administrator") of
the Plan. The Administrator shall be either: (a) the Board of Directors or (b)
in the discretion of the Board of Directors, a committee (the "Committee") of
not less than two members of the Board of Directors. In the event the Plan is
administered by the Committee, the Committee shall select one of its members to
serve as the chairman thereof and shall hold its meetings at such times and
places as it may determine. In such case, a majority of the total number of
members of the Committee shall be necessary to constitute a quorum; and (i) the
affirmative act of a majority of the members present at any meeting at which a
quorum is present, or (ii) the approval in writing by a majority of the members
of the Committee, shall be necessary to constitute action by the Committee.
1.2.2 The Administrator shall have the authority
(a) to exercise all of the powers granted to it under the Plan, (b) to
construe, interpret and implement the Plan and any Plan Agreements executed
pursuant to Section 2.1, (c) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules governing its own operations,
(d) to make all determinations necessary or advisable in administering the Plan,
(e) to correct any defect, supply any omission and reconcile any inconsistency
in the Plan, and (f) to amend the Plan to reflect changes in applicable law.
1.2.3 The determination of the Administrator on all matters relating to
the Plan or any Plan Agreement shall be final, binding and conclusive.
1.2.4 Neither the Administrator nor any member thereof shall be liable for
any action or determination made in good faith with respect to the Plan or any
award thereunder.
1.3 Persons Eligible for Awards
---------------------------
Awards under the Plan may be made to such officers, directors and
employees of the Company, and to such consultants to the Company (collectively,
"key persons"), as the Administrator shall in its sole discretion select.
1.4 Types of Awards Under Plan
--------------------------
Awards may be made under the Plan in the form of (a) incentive stock
options, and/or (b) nonqualified stock options, all as more fully set forth in
Article II. The term "award" means any of the foregoing. No incentive stock
option may be granted to a person who is not an employee of the Company on the
date of grant.
1.5 Shares Available for Awards
---------------------------
1.5.1 The total number of shares of common stock of the Company, par value
$.01 per share ("Common Stock"), with respect to which awards may be granted
pursuant to the Plan shall not exceed one million six hundred
thousand (1,600,000) shares. Such shares may be authorized but unissued Common
Stock or authorized and issued Common Stock held in the Company's treasury or
acquired by the Company for the purposes of the Plan. The Administrator may
direct that any stock certificate evidencing shares issued pursuant to the Plan
shall bear a legend setting forth such restrictions on transferability as may
apply to such shares pursuant to the Plan.
1.5.2 If there is any change in the outstanding shares of Common Stock by
reason of a stock dividend or distribution, stock split-up, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spin-off or other corporate reorganization in which the Company is the surviving
corporation, the number of shares available for issuance both in the aggregate
and with respect to each outstanding award, and the purchase price per share
under outstanding awards, shall be equitably adjusted by the Administrator,
whose determination shall be final, binding and conclusive. After any adjustment
made pursuant to this Section 1.5.2, the number of shares subject to each
outstanding award shall be rounded to the nearest whole number.
1.5.3 Any shares subject to an award under the Plan that remain unissued
upon the cancellation or termination of such award for any reason whatsoever
shall again become available for awards under the Plan. Except as provided in
this Section 1.5 and in Section 2.2.4, there shall be no limit on the number or
the value of the shares of Common Stock issuable to any individual under the
Plan.
1.5.4 In no event shall the number of shares of Common Stock subject to
options awarded during the term of the Plan to any employee exceed 480,000
shares.
1.6 Definitions of Certain Terms
----------------------------
1.6.1 The "Fair Market Value" of a share of Common Stock on any day shall
be determined as follows.
(a) If the principal market for the Common Stock (the "Market") is a
national securities exchange or the Nasdaq National Market, the last sale price
or, if no reported sales take place on the applicable date, the average of the
high bid and low asked price of Common Stock as reported for such Market on such
date or, if no such quotation is made on such date, on the next preceding day on
which there were quotations, provided that such quotations shall have been made
within the ten (10) business days preceding the applicable date;
(b) If the Market is the Nasdaq Small Cap Market or another market, the
average of the high bid and low asked price for Common Stock on the applicable
date, or, if no such quotations shall have been made on such date, on the next
preceding day on which there were quotations, provided that such quotations
shall have been made within the ten (10) business days preceding the applicable
date; or,
(c) In the event that neither paragraph (a) nor (b) shall apply, the Fair
Market Value of a share of Common Stock on any day shall be determined by the
Administrator.
1.6.2 The term "incentive stock option" means an option that is intended
to qualify for special federal income tax treatment pursuant to sections 421 and
422 of the Internal Revenue Code of 1986, as now constituted or subsequently
amended (the "Code"), or pursuant to a successor provision of the Code, and
which is so designated in the applicable Plan Agreement. Any option that is not
specifically designated as an incentive stock option shall under no
circumstances be considered an incentive stock option. Any option that is not an
incentive stock option is referred to herein as a "nonqualified stock option."
1.6.3 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company as a director, consultant or otherwise.
1.6.4 A grantee shall be deemed to have a "termination of employment" upon
ceasing to be employed by the Company and all of its subsidiaries or by a
corporation assuming awards in a transaction to which section 424(a) of the Code
applies. The Administrator may in its discretion determine (a) whether any leave
of absence constitutes a termination of employment for purposes of the Plan, (b)
the impact, if any, of any such leave of absence on awards theretofore made
under the Plan, and (c) when a change in a non-employee's association with the
Company constitutes a termination of employment for purposes of the Plan. The
Administrator shall have the right to determine whether the termination of a
grantee's employment is a dismissal for cause and the date of termination in
such case, which date the Administrator may retroactively deem to be the date of
the action that is cause for dismissal. Such determinations of the Administrator
shall be final, binding and conclusive.
2
1.6.5 The terms "parent corporation" and "subsidiary corporation" have the
meanings given them in section 424(e) and (f) of the Code, respectively.
ARTICLE II
AWARDS UNDER THE PLAN
---------------------
2.1 Agreements Evidencing Awards
----------------------------
Each award granted under the Plan shall be evidenced by a written
agreement ("Plan Agreement") which shall contain such provisions as the
Administrator may in its sole discretion deem necessary or desirable. By
accepting an award pursuant to the Plan, a grantee thereby agrees that the award
shall be subject to all of the terms and provisions of the Plan and the
applicable Plan Agreement.
2.2 Grant of Stock Options
----------------------
2.2.1 The Administrator may grant incentive stock options and nonqualified
stock options (collectively, "options") to purchase shares of Common Stock from
the Company, to such key persons, and in such amounts and subject to such terms
and conditions, as the Administrator shall determine in its sole discretion,
subject to the provisions of the Plan.
2.2.2 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Administrator in its sole discretion; provided,
however, that the option exercise price of an incentive stock option shall be at
least 100% of the Fair Market Value of a share of Common Stock on the date the
option is granted, and provided further that in no event shall the option
exercise price be less than the par value of a share of Common Stock.
2.2.3 Each Plan Agreement with respect to an option shall set forth the
periods during which the award evidenced thereby shall be exercisable, whether
in whole or in part. Such periods shall be determined by the Administrator in
its sole discretion; provided, however, that no incentive stock option shall be
exercisable more than 10 years after the date of grant.
2.2.4 To the extent that the aggregate Fair Market Value (determined as of
the time the option is granted) of the stock with respect to which incentive
stock options are first exercisable by any employee during any calendar year
shall exceed $100,000, or such higher amount as may be permitted from time to
time under section 422 of the Code, such options shall be treated as
nonqualified stock options. In applying this provision, there shall be taken
into account solely incentive stock options granted after December 31, 1986 to
the employee under this Plan and under all other plans of the Company and any
subsidiary thereof.
2.2.5 Notwithstanding the provisions of Section 2.2.2 and 2.2.3, an
incentive stock option may not be granted under the Plan to an individual who,
at the time the option is granted, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of his employer corporation
or of its parent or subsidiary corporations (as such ownership may be determined
for purposes of section 422(b)(6) of the Code) unless (a) at the time such
incentive stock option is granted the option exercise price is at least 110% of
the Fair Market Value of the shares subject thereto and (b) the incentive stock
option by its terms is not exercisable after the expiration of 5 years from the
date it is granted.
2.3 Exercise of Options
-------------------
Subject to the provisions of this Article II, each option granted
under the Plan shall be exercisable as follows:
3
2.3.1 Unless the applicable Plan Agreement otherwise provides, an option
shall become exercisable in four substantially equal installments, the first of
which shall become exercisable on the first anniversary of the date of grant and
the remaining three of which shall become exercisable, respectively, on the
second, third and fourth anniversaries of the date of grant.
2.3.2 Unless the applicable Plan Agreement otherwise provides, once an
installment becomes exercisable, it shall remain exercisable until expiration,
cancellation or termination of the award.
2.3.3 Unless the applicable Plan Agreement otherwise provides, an option
may be exercised from time to time as to all or part of the shares as to which
such award is then exercisable.
2.3.4 An option shall be exercised by the filing of a written notice with
the Company, on such form and in such manner as the Administrator shall in its
sole discretion prescribe.
2.3.5 Any written notice of exercise of an option shall be accompanied by
payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; or (b) with the consent of the
Administrator, by delivery of shares of Common Stock having a Fair Market Value
(determined as of the exercise date) equal to all or part of the option exercise
price (but only if held by the grantee for a period of time sufficient to
prevent a pyramid exercise that would create a charge to the Company's earnings)
and a certified or official bank check (or the equivalent thereof acceptable to
the Company) for any remaining portion of the full option exercise price; or (c)
at the discretion of the Administrator and to the extent permitted by law, by
such other provision, consistent with the terms of the Plan, as the
Administrator may from time to time prescribe.
2.3.6 Promptly after receiving payment of the full option exercise price,
the Company shall, subject to the provisions of Section 3.2, deliver to the
grantee or to such other person as may then have the right to exercise the
award, a certificate or certificates for the shares of Common Stock for which
the award has been exercised. If the method of payment employed upon option
exercise so requires, and if applicable law permits, an optionee may direct the
Company to deliver the certificate(s) to the optionee's stockbroker.
2.3.7 No grantee of an option (or other person having the right to
exercise such award) shall have any of the rights of a stockholder of the
Company with respect to shares subject to such award until the issuance of a
stock certificate to such person for such shares. Except as otherwise provided
in Section 1.5.2, no adjustment shall be made for dividends, distributions or
other rights (whether ordinary or extraordinary, and whether in cash, securities
or other property) for which the record date is prior to the date such stock
certificate is issued.
2.4 Termination of Employment; Death
--------------------------------
2.4.1 Except to the extent otherwise provided in Section 2.4.2 or 2.4.3 or
in the applicable Plan Agreement, all options not theretofore exercised shall
terminate upon termination of the grantee's employment for any reason (including
death).
2.4.2 If a grantee's employment terminates for any reason other than death
or dismissal for cause, the grantee may exercise any outstanding option on the
following terms and conditions: (a) exercise may be made only to the extent that
the grantee was entitled to exercise the award on the date of employment
termination; and (b) exercise must occur within three months after employment
terminates, except that the three-month period shall be increased to one year if
the termination is by reason of disability, but in no event after the expiration
date of the award as set forth in the Plan Agreement. The term "Disability"
shall be defined as determined by the Administrator in its sole discretion
provided, however, that if any such determination in the case of an Incentive
Stock Option does not meet the requirements of Section 422(c)(6) of the Code,
the option shall be converted to a non-qualified stock option.
2.4.3 If a grantee dies while employed by the Company or any subsidiary,
or after employment termination but during the period in which the grantee's
awards are exercisable pursuant to Section 2.4.2, any outstanding option shall
be exercisable on the following terms and conditions: (a) exercise may be made
only to the extent that the grantee was entitled to exercise the award on the
date of death; and (b) exercise must occur by the earlier of the first
anniversary of the grantee's death or the expiration date of the award. Any such
exercise of an award following a grantee's death shall be made only by the
grantee's executor or administrator or personal
4
representative, unless the grantee's will specifically disposes of such award,
in which case such exercise shall be made only by the recipient of such specific
disposition. If a grantee's personal representative or the recipient of a
specific disposition under the grantee's will shall be entitled to exercise any
award pursuant to the preceding sentence, such representative or recipient shall
be bound by all the terms and conditions of the Plan and the applicable Plan
Agreement which would have applied to the grantee including, without limitation,
the provisions of Sections 3.2 and 3.7 hereof.
ARTICLE III
MISCELLANEOUS
-------------
3.1 Amendment of the Plan; Modification of Awards
---------------------------------------------
3.1.1 The Board may from time to time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the grantee (or,
upon the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Administrator
that alters or affects the tax treatment of any award shall not be considered to
materially impair any rights of any grantee.
3.1.2 Shareholder approval shall be required with respect to any amendment
which: (a) increases the aggregate number of shares which may be issued pursuant
to incentive stock options or changes the class of employees eligible to receive
such options; or (b) materially increases the benefits under the Plan to persons
whose transactions in Common Stock are subject to Section 16(b) of the
Securities Exchange Act of 1934 (the "1934 Act"), materially increases the
number of shares which may be issued to such persons, or materially modifies the
eligibility requirements affecting such persons.
3.1.3 The Administrator may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would (a) accelerate the time
or times at which the award may be exercised, or (b) waive or amend any goals,
restrictions or conditions set forth in the Plan Agreement, or (c) extend the
scheduled expiration date of the award. However, any such cancellation or
amendment that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 Restrictions
------------
3.2.1 If the Administrator shall at any time determine that any Consent
(as hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Administrator.
3.2.2 The term "Consent" as used herein with respect to any Plan Action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (b) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Administrator shall deem necessary or desirable to
comply with the terms of any such listing, registration or qualification or to
obtain an exemption from the requirement that any such listing, qualification or
registration be made and (c) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory bodies.
3.3 Nonassignability
----------------
No award or right granted to any person under the Plan or under any
Plan Agreement shall be assignable or transferable other than by will or by the
laws of descent and distribution. All rights granted under the Plan or any Plan
Agreement shall be exercisable during the life of the grantee only by the
grantee or the grantee's legal representative.
5
3.4 Requirement of Notification of Election Under Section 83(b) of the Code
-----------------------------------------------------------------------
If any grantee shall, in connection with the acquisition of shares
of Common Stock under the Plan, make the election permitted under section 83(b)
of the Code (i.e., an election to include in gross income in the year of
transfer the amounts specified in section 83(b)), such grantee shall notify the
Company of such election within 10 days of filing notice of the election with
the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code section
83(b).
3.5 Requirement of Notification Upon Disqualifying Disposition Under Section
421(b) of the Code
------------------------------------------------------------------------
Each Plan Agreement with respect to an incentive stock option shall
require the grantee to notify the Company of any disposition of shares of Common
Stock issued pursuant to the exercise of such option under the circumstances
described in section 421(b) of the Code (relating to certain disqualifying
dispositions), within 10 days of such disposition.
3.6 Withholding Taxes
-----------------
3.6.1 Whenever shares of Common Stock are to be delivered pursuant to an
award under the Plan, the Company shall be entitled to require as a condition of
delivery that the grantee remit to the Company an amount sufficient in the
opinion of the Company to satisfy all federal, state and other governmental tax
withholding requirements related thereto. With the approval of the
Administrator, which it shall have sole discretion to grant, the grantee may
satisfy the foregoing condition by electing to have the Company withhold from
delivery shares having a value equal to the amount of tax to be withheld. Such
shares shall be valued at their Fair Market Value on the date as of which the
amount of tax to be withheld is determined (the "Tax Date"). Fractional share
amounts shall be settled in cash. Such a withholding election may be made with
respect to all or any portion of the shares to be delivered pursuant to an
award.
3.7 Right of Discharge Reserved
---------------------------
Nothing in the Plan or in any Plan Agreement shall confer upon any
grantee the right to continue in the employ of the Company or affect any right
which the Company may have to terminate such employment.
3.8 Nature of Payments
------------------
3.8.1 Any and all grants of awards and issuances of shares of Common Stock
under the Plan shall be in consideration of services performed for the Company
by the grantee.
3.8.2 All such grants and issuances shall constitute a special incentive
payment to the grantee and shall not be taken into account in computing the
amount of salary or compensation of the grantee for the purpose of determining
any benefits under any pension, retirement, profit-sharing, bonus, life
insurance or other benefit plan of the Company or under any agreement between
the Company and the grantee, unless such plan or agreement specifically provides
otherwise.
3.9 Non-Uniform Determinations
--------------------------
The Administrator's determinations under the Plan need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Administrator shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective Plan
Agreements, as to (a) the persons to receive awards under the Plan, (b) the
terms and provisions of awards under the Plan, and (c) the treatment of leaves
of absence pursuant to Section 1.6.4.
3.10 Other Payments or Awards
------------------------
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
6
3.11 Section Headings
----------------
The section headings contained herein are for the purpose of
convenience only and are not intended to define or limit the contents of said
sections.
3.12 Effective Date and Term of Plan
-------------------------------
3.12.1 The Plan was adopted by the Board in May 1996, subject to approval
by the Company's shareholders. All awards under the Plan prior to such
shareholder approval are subject in their entirety to such approval. If such
approval is not obtained prior to the first anniversary of the date of adoption
of the Plan, the Plan and all awards thereunder shall terminate on that date.
3.12.2 Unless sooner terminated by the Board, the provisions of the Plan
respecting the grant of incentive stock options shall terminate on the tenth
anniversary of the adoption of the Plan by the Board, and no incentive stock
option awards shall thereafter be made under the Plan. All such awards made
under the Plan prior to its termination shall remain in effect until such awards
have been satisfied or terminated in accordance with the terms and provisions of
the Plan and the applicable Plan Agreements.
3.12.3 Governing Law
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
7