EXHIBIT 10.1
Appendix A
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HALLMARK FINANCIAL SERVICES, INC.
2005 LONG TERM INCENTIVE PLAN
Section 1 Purpose
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HALLMARK FINANCIAL SERVICES, INC. (the "Corporation") establishes this
2005 LONG TERM INCENTIVE PLAN (the "2005 Plan") to:
(a) attract and retain key executive and managerial employees;
(b) motivate participating employees, by means of appropriate
incentives, to achieve long-range goals;
(c) attract and retain well-qualified individuals to serve as members
of the Corporation's Board of Directors (the "Board");
(d) provide incentive compensation opportunities that are competitive
with those of other corporations; and
(e) further identify the interests of directors and eligible employees
with those of the Corporation's other stockholders through compensation
alternatives based on the Corporation's Common Stock;
and thereby promote the long-term financial interest of the Corporation,
including the growth in value of the Corporation's equity and enhancement of
long-term stockholder return.
Section 2 Scope
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Awards under the 2005 Plan may be granted in the form of (a) incentive
stock options ("incentive stock options") as provided in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), (b) non-qualified
stock options ("non-qualified options") (unless otherwise indicated,
references in the 2005 Plan to "options" include incentive stock options and
non-qualified options), or (c) shares of the Common Stock of the Corporation
(the "Common Stock") that are restricted as provided in Section 12 hereof
("restricted shares"). Stock appreciation rights ("rights") may accompany
options. Rights may also be granted without accompanying options. The
maximum aggregate number of shares of Common Stock with respect to which
options and restricted shares, and rights granted without accompanying
options, may be granted from time to time under the 2005 Plan shall be
5,000,000 shares (subject to adjustment as described in Section 17 hereof).
Shares of Common Stock with respect to which awards are granted may be, in
whole or in part, authorized and unissued shares or authorized and issued
shares reacquired and held in the treasury of the Corporation, as the Board
shall from time to time determine. If for any reason (other than the
surrender of options or Deemed Options (as defined in Section 9(b)) upon
exercise of rights as provided in Section 9 hereof) any shares as to which
an option has been granted cease to be subject to purchase thereunder, or
any restricted shares are forfeited to the Corporation, or any right issued
without accompanying options terminates or expires without being exercised,
then the shares in respect of which such option or right was granted,
or which relate to such restricted shares, shall become available for
subsequent awards under the 2005 Plan.
Section 3 Effective Date
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The 2005 Plan shall become effective on the calendar day immediately
following the date the 2005 Plan is approved by the stockholders of the
Corporation. If the stockholders of the Corporation approve the 2005 Plan,
it shall terminate on the tenth anniversary of its effective date.
Section 4 Administration
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(a) The 2005 Plan shall be administered, construed and interpreted
solely by the Compensation Committee, or any successor thereto, of the Board
(the "Committee"). The Committee shall consist of two or more directors.
Unless otherwise determined by the Board, each member of the Compensation
Committee shall be (i) a "non-employee director" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and (ii) an "outside director" as defined under Section 162(m) of the
Code, unless administration of this Plan by "outside directors" is not then
required in order to qualify for tax deductibility under Section 162(m) of
the Code.
(b) Subject to the express provisions of Rule 16b-3 promulgated under
the 1934 Act and Treasury regulation S1.162-27, the Committee shall have
plenary authority in its sole discretion, and subject to the express
provisions of the 2005 Plan, to grant options, to determine the purchase
price of the Common Stock covered by each option (the "exercise price"), the
term of each option, the employees to whom, and the time or times at which,
options shall be granted and the number of shares to be covered by each
option; to designate options as incentive stock options or non-qualified
options and to determine which options shall be accompanied by rights; to
grant rights without accompanying options; to determine the employees to
whom and the time or times at which such rights shall be granted and the
exercise price, term, and number of shares of Common Stock covered by any
Deemed Option corresponding thereto; to grant restricted shares and to
determine the term of the restricted period and other conditions applicable
to such restricted shares, the employees to whom and the time or times at
which restricted shares shall be granted and the number of restricted shares
to be covered by each grant; to interpret the 2005 Plan; to prescribe, amend
and rescind rules and regulations relating to the 2005 Plan; to determine
the terms and provisions of the option, right and restricted share
agreements entered into in connection with awards under the 2005 Plan; to
prepare and distribute in such manner as the Committee determines to be
appropriate information concerning the 2005 Plan; and to make all other
determinations deemed necessary or advisable for the administration of the
2005 Plan. The Committee may delegate to one (1) or more of its members or
to one (1) or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has delegated duties
as aforesaid may employ one or more persons to render advice with respect to
any responsibility the Committee or such person may have under the 2005
Plan; provided, however, that the Committee shall not delegate its authority
to construe and interpret the 2005 Plan, to determine which employees may
participate in the 2005 Plan, or its authority to make grants of options,
restricted shares and rights or any authority which pertains to awards
granted to persons subject to Section 16(b) of the 1934 Act or Section
162(m) of the Code.
(c) Subject to the express provisions of Rule 16b-3 promulgated under
the 1934 Act and Treasury regulation S1.162-27, the Committee may adopt such
rules as it deems necessary, desirable or appropriate. The Committee may act
at a meeting or in writing without a meeting. The Committee shall elect one
of its members as chairman, appoint a secretary (who may or may not be a
Committee member) and advise the Board of such actions. The secretary shall
keep a record of all minutes and forward all necessary communications to the
Corporation. A majority of the Committee shall constitute a quorum. All
decisions of the Committee shall be made by a vote of not less than a
majority of the Committee members present at a meeting of the Committee at
which a quorum is present or by a written consent signed by all of the
members of the Committee. A dissenting Committee member who, within a
reasonable time after he has knowledge of any action or failure to act in
accordance with the preceding sentence, registers his dissent in writing
delivered to the other Committee members and to the Board, shall not be
responsible for any such action or failure to act.
(d) The Corporation shall pay all usual and reasonable expenses of the
Committee, and no member shall receive compensation with respect to his
services for the Committee except as may be authorized by the Board. The
Committee may employ attorneys, consultants, accountants or other persons,
and the Committee, the Corporation and its 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 employees
who have received awards, the Corporation and all other interested persons.
No member of the Committee shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to
the 2005 Plan or awards made thereunder, and the Corporation shall indemnify
and hold harmless each member of the Committee against all loss, cost,
expenses or damages occasioned by any act or omission to act in connection
with any such action, determination or interpretation under or of the 2005
Plan, consistent with the Corporation's articles of incorporation and
bylaws.
(e) Subject to such limitations or restrictions as may be imposed by
the Code or other applicable law, the Committee may grant to an employee who
has been granted an award under the 2005 Plan or any other benefit plan
maintained by the Corporation or any of its subsidiaries, or any predecessor
or successor thereto, in exchange for the surrender and cancellation of such
prior award, a new award with such terms and conditions as the Committee may
deem appropriate and consistent with the provisions of the 2005 Plan.
(f) At any time that a member of the Committee is not a "qualified
member," which shall mean a member who is (i) a "non-employee director"
within the meaning of Rule 16b-3(b)(3) promulgated under the 1934 Act and
(ii) an "outside director" within the meaning of Treasury regulation S1.162-
27, any action of the Committee relating to an award granted or to be
granted to an employee who is then subject to Section 16 of the 1934 Act in
respect of the Corporation, or relating to an award intended by the
Committee to qualify as "performance-based compensation" within the meaning
of Section 162(m) of the Code and regulations thereunder, may be taken
either (A) by a subcommittee, designated by the Committee, composed solely
of two or more qualified members, or (B) by the Committee but with each such
member who is not a qualified member abstaining or recusing himself or
herself from such action; provided, however, that, upon such abstention or
recusal, the Committee remains composed solely of two or more qualified
members. Such action, authorized by such a subcommittee or by the Committee
upon the abstention or recusal of such non-qualified member(s), shall be the
action of the Committee for purposes of this Plan. Any action of the
Committee shall be final, conclusive and binding on all persons.
(g) Notwithstanding the powers of the Committee set forth in this
Section 4, no award may be repriced, replaced, regranted through
cancellation, or modified without approval of the Corporation's stockholders
(except in connection with a change in the Corporation's capitalization as
described in Section 17) if the effect would be to reduce the exercise price
for the shares of Common Stock underlying such award.
Section 5 Eligibility Factors To Be Considered in Granting Awards
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(a) Awards shall be granted only to persons who are employees of the
Corporation or one (1) or more of its subsidiaries (as defined below) or
directors of the Corporation who are not employees of the Corporation ("non-
employee directors"). In determining the individuals to whom awards shall be
granted, the number of shares of Common Stock with respect to which each
award shall be granted, and the terms and conditions of each award, the
Committee shall take into account the nature of the individual's duties, his
or her present and potential contributions to the growth and success of the
Corporation, and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the 2005 Plan.
(b) For purposes of the 2005 Plan, the term "subsidiary" means any
corporation (other than the Corporation) or other entity of which the
Corporation owns, directly or indirectly, a majority of the voting power of
the voting equity securities or equity interest.
(c) Unless a different meaning is indicated or required by the context
and except in the case of application of Section 10, the term "employee" as
used in the Plan shall include a non-employee director of the Corporation,
and the term "employed" or "employment" shall include service by a non-
employee director as a member of the Board.
Section 6 Option Price; Fair Market Value
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The per share exercise price of each option for shares of Common Stock
shall be determined by the Committee, but shall not in any event be less
than the Fair Market Value per Share on the date the option is granted. For
purposes of the 2005 Plan, the term "Fair Market Value per Share" as of any
date shall mean for shares of Common Stock with respect to which restricted
shares, options and rights shall be granted, the closing price of the Common
Stock on such date (or if there are no sales on such date, on the next
preceding date on which there were sales), as reported on the principal
consolidated transaction reporting system for the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or if the Common Stock is not listed or admitted to trading on any
national securities exchange, the closing price of the Common Stock as
reported on the National Market System of the National Association of
Securities Dealers, Inc Automated Quotation System ("NASDAQ"), or if the
Common Stock is not listed or admitted to trading on the NASDAQ National
Market System, the last quoted sales price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as
reported by the NASDAQ System or such other system as may then be in use, or
if the Common Stock is not reported on any such system and is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board, or if no such
market maker is making a market in the Common Stock, the fair value of the
Common Stock as determined in good faith by the Board; provided, however,
that in any event the Fair Market Value per Share shall be appropriately
adjusted to reflect events described in Section 17 hereof. The Committee
shall determine the date on which an option is granted, provided that such
date is consistent with the Code and any applicable rules or regulations
thereunder. In the absence of such determination, the date on which the
Committee adopts a resolution granting an option shall be considered the
date on which such option is granted, provided that the employee to whom the
option is granted is promptly notified of the grant and a written option
agreement is duly executed as of the date of the resolution. The exercise
price so determined shall also be applicable in connection with the exercise
of any related right.
Section 7 Term of Options
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The term of each option granted under the 2005 Plan shall be as the
Committee shall determine, but in no event shall any option have a term of
more than 10 years from the date of grant, subject to earlier termination as
provided in Sections 14 and 15 hereof. If the holder of an incentive stock
option owns, at the time the incentive stock option is granted, stock of the
Corporation possessing more than 10% of the combined voting power of all
classes of stock of the Corporation or any subsidiary, the term of such
incentive stock option shall not exceed five (5) years from the date of
grant.
Section 8 Exercise of Options
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(a) Subject to the provisions of the 2005 Plan and unless otherwise
provided in the option agreement, an option granted under the 2005 Plan
shall become 100% vested at the earliest of (i) the employee's retirement
from employment at or after Retirement Age (as defined in Section 14
hereof), or (ii) the employee's death or total and permanent disability (as
defined in Section 15 hereof), or (iii) a Change in Control (as defined in
Section 22 hereof). Prior to becoming 100% vested, each option shall become
exercisable in such cumulative installments and upon such events as the
Committee may determine in its sole discretion. The Committee may also, in
its sole discretion, accelerate the exercisability of any option or
installment thereof at any time.
(b) An option may be exercised at any time or from time to time
(subject, in the case of an incentive stock option, to such restrictions as
may be imposed by the Code), as to any or all full shares of Common Stock as
to which the option has become exercisable; provided, however, that an
option shall not be exercised at any time as to less than 100 shares (or
less than the number of full shares of Common Stock as to which the option
is then exercisable, if that number is less than 100 shares).
(c) At the time of exercise of any option, the per share exercise
price of such option shall be paid in full for each share of Common Stock
with respect to which such option is exercised. Payment may be made in cash
or, with the approval of the Committee, in shares of the Common Stock,
valued at the Fair Market Value per Share on the date of exercise. An option
holder may also make payment at the time of exercise of an option, with the
approval of the Committee, by delivering to the Corporation a properly
executed exercise notice together with irrevocable instructions to a broker
approved by the Corporation, that upon such broker's sale of shares with
respect to which such option is exercised, it is to deliver promptly to the
Corporation the amount of sale proceeds necessary to satisfy the option
exercise price and any required withholding taxes; provided, however, that
the right to facilitate an option exercise by the use of a broker
transaction shall, for individuals subject to Section 16 of the 1934 Act and
members of the Board, be available only to the extent allowed pursuant to
the Sarbanes-Oxley Act of 2002 and applicable rules and regulations of the
Securities and Exchange Commission.
(d) Upon the exercise of an option or portion thereof in accordance
with the 2005 Plan, the option agreement and such rules and regulations as
may be established by the Committee, the holder thereof shall have the
rights of a stockholder with respect to the Common Stock issued as a result
of such exercise.
Section 9 Award and Exercise of Rights
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(a) The Committee may grant a right as a primary right or an
additional right in the manner set forth in this Section 9. A right granted
in connection with an option must be granted at the time the option is
granted. Each right shall be subject to the same terms and conditions as the
related option or Deemed Option (as described in Section 9(b)) and shall be
exercisable only to the extent the option or Deemed Option is exercisable.
(b) The Committee may award a primary right either alone or in
connection with any option granted under the 2005 Plan. Each primary right
granted without a corresponding option shall nevertheless be deemed for
certain purposes described in this Section 9 to have been accompanied by an
option (a "Deemed Option"). A Deemed Option shall have no value, and no
shares of Common Stock (or other consideration) shall be delivered upon
exercise thereof, but such Deemed Option shall serve solely to establish the
terms and conditions of the corresponding primary right. At the time of
grant of a primary right not granted in connection with an option, the
Committee shall set forth the terms and conditions of the corresponding
Deemed Option. The terms and conditions of such Deemed Option shall include
all terms and conditions that at the time of grant are required, and, in the
discretion of the Committee, may include any additional terms and conditions
that at such time are permitted, to be included in options granted under the
2005 Plan. A primary right shall entitle the employee to surrender
unexercised the related option or Deemed Option (or any portion or portions
thereof that the employee determines to surrender) and to receive in
exchange, subject to the provisions of the 2005 Plan and such rules and
regulations as from time to time may be established by the Committee, a
payment having an aggregate value equal to (i) the excess of (A) the Fair
Market Value per Share on the exercise date over (B) the per share exercise
price of the option or Deemed Option, multiplied by (ii) the number of
shares of Common Stock subject to the option, Deemed Option or portion
thereof that is surrendered. Surrender of an option or Deemed Option or
portion thereof in exchange for a payment as described in this Section is
referred to as the "exercise of a primary right." Upon exercise of a primary
right, payment shall be made in the form of cash, shares of Common Stock, or
a combination thereof, as elected by the employee. Shares of Common Stock
paid upon exercise of a primary right will be valued at the Fair Market
Value per Share on the exercise date. Cash will be paid in lieu of any
fractional share of Common Stock based upon the Fair Market Value per Share
on the exercise date. Subject to Section 19 hereof, no payment will be
required from the employee upon exercise of a primary right.
(c) The Committee may award an additional right in connection with any
option granted under the 2005 Plan. An additional right shall entitle the
employee to receive, upon the exercise of a related option, a cash payment
equal to (i) the product determined by multiplying (A) the excess of (x) the
Fair Market Value per Share on the date of exercise of the related option
over (y) the option price per share at which such option is exercisable by
(B) the number of shares of Common Stock with respect to which the related
option is being exercised, multiplied by (ii) a percentage factor (which may
be any percentage factor equal to or greater than 10% and equal to or less
than 100%) as determined by the Committee at the time of the grant of such
additional right or as determined in accordance with a formula for
determination of such percentage factor established by the Committee at the
time of the grant of such additional right. If the Committee specifies no
other percentage factor or formula at the time of grant of such additional
right, the percentage factor shall be deemed to be 100%. The Committee at
any time, or from time to time, after the time of grant may in its
discretion increase such percentage factor (or amend such formula so as to
increase such factor) to not more than 100%.
(d) Upon exercise of a primary right, the number of shares of Common
Stock subject to exercise under the related option or Deemed Option shall
automatically be reduced by the number of shares of Common Stock represented
by the option, Deemed Option or portion thereof surrendered. Shares of
Common Stock subject to options, Deemed Options or portions thereof
surrendered upon the exercise of rights shall not be available for
subsequent awards under the 2005 Plan.
(e) If neither the right nor, in the case of a right (whether primary
or additional) with a related option, the related option is exercised
before the end of the day on which the right ceases to be exercisable, such
right shall be deemed exercised as of such date and, subject to Section 19
hereof, a payment in the amount prescribed by Section 9(b) or Section 9(c),
as the case may be, shall be paid to the employee in cash.
Section 10 Incentive Stock Options
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(a) The Committee shall designate the employees to whom incentive
stock options, as described in Section 422 of the Code or any successor
section thereto, are to be awarded under the 2005 Plan and shall determine
the number of shares of Common Stock to be covered by each incentive stock
option. Incentive stock options shall be awarded only to employees of the
Corporation or of its corporate subsidiaries, and non-employee directors
shall not be eligible to receive awards of incentive stock options. In no
event shall the aggregate Fair Market Value Per Share of all Common Stock
(determined at the time the option is awarded) with respect to which
incentive stock options are exercisable for the first time by an individual
during any calendar year (under all plans of the Corporation and its
subsidiaries) exceed $100,000.
(b) The purchase price of a share of Common Stock under each incentive
stock option shall be determined by the Committee; provided, however, that
in no event shall such price be less than 100% of the Fair Market Value Per
Share as of the date of grant (or 110% of such Fair Market Value Per Share
if the holder of the incentive stock option owns stock of the Corporation
possessing more than 10% of the combined voting power of all classes of
stock of the Corporation or any subsidiary).
(c) Except as provided in Sections 14 and 15 hereof, no incentive
stock option shall be exercised at any time unless the holder thereof is
then an employee of the Corporation or one of its subsidiaries. For this
purpose, "subsidiary" shall include an entity that becomes a subsidiary
after the grant of an incentive stock option and which subsequently employs
the grantee as long as the grantee was, from the date of grant of the
incentive stock option until the date of transfer to the new subsidiary, an
employee of either the Corporation or a subsidiary of the Corporation.
(d) In the event of amendments to the Code or applicable rules or
regulations relating to incentive stock options subsequent to the date
hereof, the Corporation shall amend the provisions of the 2005 Plan, and the
Corporation and the employees holding such incentive stock options shall
agree to amend outstanding option agreements to conform to such amendments.
Section 11 Transferability of Awards
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(a) The Committee may, in its discretion, permit a holder of an award,
other than an incentive stock option, to transfer all or any portion of the
award, or authorize all or a portion of such award granted to be on terms
which permit transfer by such holder; provided that, in either case, the
transferee or transferees must be any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships, in each case with
respect to the original holder of the award (the "original holder"), any
person sharing the original holder's household (other than a tenant or
employee of the Corporation), a trust in which these persons have more than
fifty percent of the beneficial interest, a foundation in which these
persons (or the original holder) control the management of assets, or
any other entity in which these persons (or the original holder) own more
than fifty percent of the voting interests (collectively, "permitted
transferees"); provided further that, (i) there may be no consideration for
any such transfer and (ii) subsequent transfers of awards transferred as
provided above shall be prohibited except subsequent transfers back to the
original holder and transfers to other permitted transferees of the original
holder.
(b) An award may, in the Committee's discretion, be transferred to a
permitted transferee, pursuant to a domestic relations order entered or
approved by a court of competent jurisdiction only upon delivery to the
Corporation of written notice of such transfer and a certified copy of such
order.
(c) Notwithstanding anything to the contrary in this Section 11, an
incentive stock option shall not be transferable other than by will or the
laws of descent and distribution. Except as expressly permitted by Section
11(a) and Section 11(b), awards shall not be transferable other than by will
or the laws of descent and distribution.
(d) Following the transfer of any award as contemplated by this
Section 11, such award shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that
the provisions of the award relating to exercisability shall continue to be
applied with respect to the original holder and, following the occurrence of
any such events described therein, the award shall be exercisable by the
permitted transferee, the recipient under a qualified domestic relations
order, the estate or heirs of a deceased award holder, or other transferee,
as applicable, only to the extent and for the periods that would have been
applicable in the absence of the transfer.
(e) Any award holder desiring to transfer an award as permitted under
this Section 11 shall make application therefor in the manner and time
specified by the Committee and shall comply with such other requirements
as the Committee may require to assure compliance with all applicable
securities laws. The Committee shall not give permission for such a transfer
if it may not be made in compliance with all applicable federal, state and
foreign securities laws.
(f) To the extent the issuance to any permitted transferee of any
shares of Common Stock issuable pursuant to awards transferred as permitted
in this Section 11 is not registered pursuant to an effective registration
statement of the Corporation generally covering the shares to be issued
pursuant to the 2005 Plan, the Corporation shall not have any obligation to
register the issuance of any such shares of Common Stock to any such
transferee.
Section 12 Award and Delivery of Restricted Shares
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(a) At the time an award of restricted shares is made, the Committee
shall establish a period or periods of time (each a "Restricted Period")
applicable to such award that shall not be more than 10 years. Each award of
restricted shares may have a different Restricted Period or Restricted
Periods. The Committee may, in its sole discretion, at the time an award is
made, provide for the incremental lapse of Restricted Periods with respect
to a portion or portions of the restricted shares awarded, and for the lapse
or termination of restrictions upon all or any portion of the restricted
shares upon the satisfaction of other conditions in addition to or other
than the expiration of the applicable Restricted Period. The Committee may
also, in its sole discretion, shorten or terminate a Restricted Period or
waive any conditions for the lapse or termination of restrictions with
respect to all or any portion of the restricted shares. Notwithstanding the
foregoing, all restrictions shall lapse or terminate with respect to all
restricted shares upon the earliest of (i) the employee's retirement from
employment at or after Retirement Age (as defined in Section 14 hereof), or
(ii) the employee's death or total and permanent disability (as defined in
Section 15 hereof), or (iii) a Change in Control (as defined in Section 22
hereof).
(b) At the time a grant of restricted shares is made to an employee, a
stock certificate representing a number of shares of Common Stock equal to
the number of such restricted shares shall be registered in the employee's
name but shall be held in custody by the Corporation for such employee's
account. The employee shall generally have the rights and privileges of a
stockholder as to such restricted shares, including, without limitation, the
right to vote such restricted shares, except that, subject to the earlier
lapse or termination of restrictions as herein provided, the following
restrictions shall apply: (i) the employee shall not be entitled to delivery
of the stock certificate evidencing restricted shares until the expiration
or termination of the Restricted Period applicable to such shares and
the satisfaction of any other conditions prescribed by the Committee;
(ii) none of the shares then subject to a Restricted Period shall be sold,
transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period applicable to such shares and until the
satisfaction of any other conditions prescribed by the Committee; and
(iii) all of the shares then subject to a Restricted Period shall be
forfeited and all rights of the employee to such restricted shares shall
terminate without further obligation on the part of the Corporation if the
employee ceases to be an employee of the Corporation or any of its
subsidiaries before the expiration or termination of such Restricted Period
and the satisfaction of any other conditions prescribed by the Committee
applicable to such restricted shares. Dividends in respect of restricted
shares shall be currently paid; provided, however, that in lieu of paying
currently a dividend of shares of Common Stock in respect of restricted
shares, the Committee may, in its sole discretion, register in the name of
an employee a stock certificate representing such shares of Common Stock
issued as a dividend in respect of restricted shares, and may cause the
Corporation to hold such certificate in custody for the employee's account
subject to the same terms and conditions as such restricted shares. Upon the
forfeiture of any restricted shares, such forfeited restricted shares shall
transfer to the Corporation without further action by the employee. The
employee shall have the same rights and privileges, and be subject to
the same restrictions, with respect to any shares received pursuant to
Section 17 hereof.
(c) Upon the expiration or termination of the Restricted Period
applicable to such shares and the satisfaction of any other conditions
prescribed by the Committee or at such earlier time as provided for herein,
the restrictions applicable to the shares subject to such Restricted Period
shall lapse and a certificate for a number of shares of Common Stock equal
to the number of restricted shares with respect to which the restrictions
have expired or terminated shall be delivered, free of all such
restrictions, except any that may be imposed by law, to the employee or the
employee's Beneficiary (as defined below). The Corporation shall not be
required to deliver any fractional share of Common Stock but shall pay to
the employee or the employee's Beneficiary, in lieu thereof, the product of
(i) the Fair Market Value per Share (determined as of the date the
restrictions expire or terminate), and (ii) the fraction of a share to which
such employee would otherwise be entitled. Subject to Section 19 hereof, no
payment will be required from the employee upon the issuance or delivery of
any Common Stock upon the expiration or termination of a Restricted Period
with respect to restricted shares. An employee's "Beneficiary" is a person
or persons (natural or otherwise) designated by such employee, pursuant to a
written instrument executed by such employee and filed with the Committee,
to receive any benefits payable hereunder in the event of such employee's
death.
Section 13 [DELETED]
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Section 14 Termination of Employment
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(a) Unless otherwise determined by the Committee, in the event that
the employment of an employee to whom an option or right has been granted
under the 2005 Plan shall be terminated (except as set forth in Section 15
hereof), such option or right may, subject to the provisions of the 2005
Plan, be exercised (to the extent that the employee was entitled to do so at
the termination of his employment) at any time within three (3) months after
such termination or, in the case of a non-employee director who ceases to
serve as a member of the Board or an employee whose termination results from
retirement from employment at or after the attainment of age 65 (the
"Retirement Age"), within five (5) years after such cessation of service or
termination, but in no event later than the date on which the option or
right expires; provided, however, that, unless otherwise determined by the
Committee, any option or right held by an employee whose employment is
terminated for cause (as determined by the Board in its sole discretion) or
an employee who leaves the employ of the Corporation voluntarily shall, to
the extent not theretofore exercised, terminate upon the date of termination
of employment; and provided further, that (except as set forth in Section 15
hereof) no incentive stock option may be exercised more than three
(3) months after the employee's termination of employment.
(b) Unless otherwise determined by the Committee, if an employee to
whom restricted shares have been granted ceases to be an employee of the
Corporation or of a subsidiary prior to the end of the Restricted Period
applicable to such shares and the satisfaction of any other conditions
prescribed by the Committee for any reason other than death, total and
permanent disability (as defined in Section 15 hereof), or retirement from
employment at or after the Retirement Age, the employee shall immediately
forfeit all shares then subject to such Restricted Period.
(c) Awards granted under the 2005 Plan shall not be affected by any
change of duties or position so long as the holder continues to be an
employee of the Corporation or any subsidiary thereof. Any option, right or
restricted share agreement, and any rules and regulations relating to the
2005 Plan, may contain such provisions as the Committee shall approve with
reference to the determination of the date employment terminates and the
effect of leaves of absence. Any such rules and regulations with reference
to any award agreement shall be consistent with the provisions of the Code
and any applicable rules and regulations thereunder. Nothing in the 2005
Plan or in any award granted pursuant to the 2005 Plan shall confer upon any
employee any right to continue in the employ of the Corporation or any
subsidiary or interfere in any way with the right of the Corporation or any
subsidiary to terminate such employment at any time.
Section 15 Death or Total and Permanent Disability of Employee
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If an employee to whom an option or right has been granted under the
2005 Plan shall die or suffer a total and permanent disability while
employed by the Corporation or a subsidiary, such option or right may be
exercised, to the extent that the employee was entitled to do so at the
termination of employment (including by reason of death or total and
permanent disability), as set forth herein by the employee, legal guardian
of the employee (unless such exercise would disqualify an option as an
incentive stock option), a legatee or legatees of the employee under the
employee's last will, or by the employee's personal representatives or
distributees, whichever is applicable, at any time within one (1) year after
the date of the employee's death or total and permanent disability, but in
no event later than the date on which the option or right terminates.
Notwithstanding the above, if an employee who terminates employment by
reason of total and permanent disability shall die, a legatee or legatees of
such employee under the employee's last will, or the executor of such
employee's estate, shall only have the right to exercise such option or
right, to the extent that the employee was entitled to do so at the
termination of employment, during the period ending one (1) year after the
date of the employee's termination of employment by reason of total and
permanent disability. For purposes hereof, "total and permanent disability"
shall have the meaning set forth in the Corporation's long-term disability
policy.
Section 16 [DELETED]
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Section 17 Adjustments upon Changes in Capitalization, etc.
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Notwithstanding any other provision of the 2005 Plan, the Committee may
at any time make or provide for such adjustments to the 2005 Plan, to the
number and class of shares available thereunder or to any outstanding
options, rights or restricted shares as it shall deem appropriate to prevent
dilution or enlargement, including adjustments in the event of changes in
the outstanding Common Stock by reason of stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of
shares, separations, reorganizations, liquidations and the like. In the
event of any offer to holders of Common Stock generally relating to the
acquisition of their shares, the Committee may make such adjustment as it
deems equitable in respect to outstanding options, rights and restricted
shares including, in the Committee's discretion, revision of outstanding
options, rights and restricted shares so that they may be exercisable or
redeemable for or payable in the consideration payable in the acquisition
transaction. Any such determination by the Committee shall be conclusive.
Any fractional shares resulting from such adjustments to options, rights, or
restricted shares shall be eliminated.
Section 18 Termination and Amendment
-------------------------
The Board shall have the right to amend, suspend or terminate the 2005
Plan at any time; provided, however, that an amendment shall be subject to
stockholder approval if such approval is required to comply with the Code,
the rules of any securities exchange or market system on which securities of
the Company are listed or admitted to trading at the time such amendment is
adopted or any other applicable laws. The Board may delegate to the
Committee all or any portion of its authority under this Section 18. If the
2005 Plan is terminated, the terms of the 2005 Plan shall, notwithstanding
such termination, continue to apply to awards granted prior to such
termination. In addition, except in the case of adjustments made pursuant to
Section 17 hereof, no suspension, termination, modification or amendment of
the 2005 Plan may, without the consent of the employee to whom an award
shall theretofore have been granted, adversely affect the rights of such
employee under such award.
Section 19 Withholding Tax
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(a) The Corporation shall have the right to deduct from all amounts
paid in cash in consequence of the exercise of an option or right under the
2005 Plan any taxes required by law to be withheld with respect to such cash
payments. Where an employee or other person is entitled to receive shares of
Common Stock pursuant to the exercise of an option or a right pursuant to
the 2005 Plan, the Corporation shall have the right to require the employee
or such other person to pay to the Corporation the amount of any taxes that
the Corporation is required to withhold with respect to such shares or, in
lieu thereof, to retain, or sell without notice, a sufficient number of such
shares to cover the amount required to be withheld. Upon the disposition
(within the meaning of Section 424(c) of the Code) of shares of Common Stock
acquired pursuant to the exercise of an incentive stock option prior to the
expiration of the holding period requirements of Section 422(a)(1) of the
Code, the employee shall be required to give notice to the Corporation of
such disposition and the Corporation shall have the right to require the
payment of the amount of any taxes that are required by law to be withheld
with respect to such disposition.
(b) Upon termination of the Restricted Period with respect to any
restricted shares (or such earlier time, if any, as an election is made by
the employee under Section 83(b) of the Code, or any successor provisions
thereto, to include the value of such shares in taxable income), the
Corporation shall have the right to require the employee or other person
receiving shares of Common Stock in respect of such restricted shares to pay
to the Corporation the amount of taxes that the Corporation is required to
withhold with respect to such shares of Common Stock or, in lieu thereof, to
retain or sell without notice a sufficient number of shares of Common Stock
held by it to cover the amount required to be withheld. The Corporation
shall have the right to deduct from all dividends paid with respect to
restricted shares the amount of taxes that the Corporation is required to
withhold with respect to such dividend payments.
Section 20 Written Agreements
------------------
Each award of options, rights or restricted shares shall be evidenced
by a written agreement, executed by the employee and the Corporation, which
shall contain such restrictions, terms and conditions as the Committee may
require.
Section 21 Effect on Other Stock Plans
---------------------------
The adoption of the 2005 Plan shall have no effect on awards made or to
be made pursuant to other plans covering employees of the Corporation or its
subsidiaries, or any predecessors or successors thereto.
Section 22 Change in Control
-----------------
(a) For purposes of this 2005 Plan, the phrase "Change in Control"
means a change in ownership or control of the Corporation effected through
any of the following means:
(i) a merger or consolidation of the Corporation with or into
another entity, or the exchange of securities (other than a merger
or consolidation) by the holders of the voting securities of the
Corporation and the holders of voting securities of any other entity,
in either case in which the stockholders of the Corporation immediately
before the transaction do not own 50% or more of the combined voting
power of the voting securities of the surviving entity or its parent
immediately after the transaction;
(ii) any merger in which the Corporation is the surviving
entity but in which securities possessing more than 50% of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such merger;
(iii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation;
(iv) the acquisition, at any time after the date hereof, by any
"person" or "group" of "beneficial ownership" (as each such term is
used in Regulation 13D promulgated under the 1934 Act) of securities
possessing more than 50% of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made to the Corporation's stockholders the acceptance of which
the Board has not recommended; or
(v) a change in the composition of the Board such that
individuals who on the day immediately following the effective date of
the 2005 Plan (the "Determination Date") constitute the members of the
Board and any new director, whose election to the Board or nomination
for election to the Board by the Corporation's stockholders was
approved by a vote of at least a majority of the directors then in
office who either were directors at the Determination Date or whose
election or nomination for election was previously so approved, cease
for any reason to constitute at least a majority of the Board.
(b) Upon the occurrence of a Change in Control, with respect only to
awards held by individuals who are employees or directors of the Corporation
(and their permitted transferees pursuant to Section 11) at the occurrence
of the Change in Control, (i) all outstanding rights and options shall
immediately become fully vested and exercisable in full, including that
portion of any right or option that pursuant to the terms and provisions of
the applicable award agreement had not yet become exercisable (the total
number of shares of Common Stock to which a right or an option relates is
referred to herein as the "Total Shares"); and (ii) the Restricted Period of
any restricted shares shall immediately be accelerated and the restrictions
shall expire. Nothing in this Section 22(b) shall impose on a holder the
obligation to exercise any award immediately before or upon the Change of
Control, nor shall the holder forfeit the right to exercise the award during
the remainder of the original term of the award because of a Change in
Control or because the holder's employment is terminated for any reason
following a Change in Control.
(c) The Corporation shall attempt to keep all holders informed with
respect to any Change in Control to the same extent that the Corporation
informs its stockholders of any such event.
Section 23 Headings
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Headings in this 2005 Plan are inserted for convenience only and are
not to be considered in the construction of the provisions hereof.