FOURTH AMENDED AND RESTATED
1992 STOCK OPTION PLAN OF
GLOBAL TELESYSTEMS GROUP, INC.
(As Of April 9, 1998)
1. Purposes of the Plan.
The purposes of the Fourth Amended and Restated 1992 Stock Option Plan
of Global TeleSystems Group, Inc. are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to Employees of the Company and its Parent or Subsidiaries, and to
promote the success of the business of the Company and its Parent or
Subsidiaries. At the discretion of the Committee, Options granted hereunder may
be either Incentive Stock Options or Nonstatutory Stock Options. Each Option
shall be a Nonstatutory Stock Option unless such Option is granted to an
Employee and is specifically designated at the time of grant as being an
Incentive Stock Option.
2. Definitions.
As used herein, and in any Option granted hereunder, the following
definitions shall apply:
"Board" shall mean the Board of Directors of GTS.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the Common Stock of GTS, par value $.10 per
share.
"Company" shall mean GTS, any Parent, Subsidiary or affiliate of GTS,
and except as provided in Section 11 below, any successors in interest to GTS or
such Parent, Subsidiary or affiliate.
"Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Section 4 of the Plan. If the Board does not appoint or
ceases to maintain a Committee, the term "Committee" shall refer to the Board.
"Continuous Employment" shall mean the absence of any interruption or
termination of service as an Employee, independent contractor or director with
the Company. For purposes of the preceding sentence, service shall not be
considered interrupted during any period of vacation, sick leave, military leave
or any other absence approved by the Board and shall not be considered
terminated as a result of a transfer between locations within the Company.
"Director" shall mean any person serving on the Board of Directors of
the Company or analogous governing body in the case of entities organized in
jurisdictions outside the United States.
"Employee" shall mean any person, including any officer (whether or not
he or she is a director of the Company), employed by the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"GTS" shall mean Global TeleSystems Group, Inc., a Delaware
corporation, and except as provided in Section 11 below, its successors in
interest.
"Incentive Stock Option" shall mean any option granted under this Plan
and any other option granted to an Employee in accordance with the provisions of
Section 422 of the Code and the regulations promulgated thereunder.
"Non-Employee Director" shall mean a "non-employee director" of GTS
within the meaning of Rule 16b-3 promulgated under the Exchange Act who is an
"outside director" for purposes of Section 162(m) of the Code.
"Nonstatutory Stock Option" shall mean any Option granted under the
Plan that is not an Incentive Stock Option.
"Option" shall mean a stock option granted pursuant to the Plan.
1
"Option Agreement" shall mean a written agreement between the Company
and the Optionee or the Trust regarding the grant and exercise of Options to
purchase Shares and the terms and conditions thereof as determined by the
Committee pursuant to the Plan.
"Optioned Shares" shall mean the Common Stock subject to an Option.
"Optionee" shall mean an Employee, independent contractor or director
who receives an Option under the Plan, either directly or as a beneficiary of
the Trust.
"Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Plan" shall mean this Fourth Amended and Restated 1992 Stock Option
Plan of GTS
"Registration Date" shall mean February 5, 1998, the effective date of
the first registration statement filed by GTS, pursuant to Section 12(g) of the
Exchange Act, with respect to any class of equity securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
"Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
"Trust" shall mean the GTS Employee Stock Option Plan Trust, as may be
amended from time to time.
"Trustee" shall mean the trustee of the Trust, as may be designated
from time to time in accordance with the terms and provisions of the Trust.
3. Stock Subject to the Plan.
Without limiting the application of Section 11 of the Plan, the maximum
aggregate number of Shares which may be subject to Options and sold under the
Plan is the greater of 9,568,688 or 18.5% of the total number of Shares
outstanding at the time of the grant of such Options or on any other relevant
date. The number of Shares that may be issued pursuant to Incentive Stock
Options granted under the Plan shall not exceed in the aggregate 1 million
Shares, subject to adjustment as provided in Section 11 below (the "Incentive
Option Pool"). Incentive Stock Options shall be granted under the Plan only to
the extent that Shares remain available in the Incentive Option Pool. Unless
otherwise specified by the Committee at the time of the grant of a Nonstatutory
Stock Option, Nonstatutory Stock Options shall be granted only with respect to
Shares available under this Section 3 in excess of the number of Shares in the
Incentive Option Pool. If any Incentive Stock Option or any Nonstatutory Stock
Option that was designated at the time of grant as having been granted from the
Incentive Option Pool expires, terminates, or is terminated or becomes
unexercisable for any reason (other than settlement in cash) prior to exercise
in full, the Shares that were subject to the unexercised portion of such Option
shall be restored to the Incentive Option Pool and shall be available for future
Incentive Stock Option grants under the Plan, unless the Plan shall have been
terminated. If an Option is surrendered to the Company for cash or other
consideration (including Shares withheld in payment of taxes relating to awards
or in payment of the exercise price of Options), if Shares are surrendered to
the Company in payment of the exercise price of Options or taxes relating to
awards, or if a Nonstatutory Stock Option that was not designated as having been
granted from the Incentive Option Pool expires, terminates, or is terminated or
becomes unexercisable for any reason without having been exercised in full, the
Shares that were subject to the unexercised portion of such Option and the
Shares surrendered to the Company shall become available for future Nonstatutory
Stock Option grants under the Plan, unless the Plan shall have been terminated,
but such Shares shall not be included in the Incentive Option Pool. The Shares
may include authorized but unissued or reacquired Common Stock.
The Committee may adopt reasonable counting procedures to ensure appropriate
counting, avoid double counting and make adjustments if the number of Shares
actually delivered differs from the number of Shares previously counted in
connection with an award.
2
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board. The Board
may appoint a Stock Option Committee consisting of not less than two members of
the Board to administer the Plan, subject to the direction of the Board and such
terms and conditions as the Board may prescribe. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. In the discretion
of the Board, the Committee may be comprised of members each of whom qualifies
as a Non-Employee Director.
From time to time, the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and, thereafter, directly administer the Plan.
Members of the Board or Committee who are either eligible for Options or have
been granted Options (either directly or as a beneficiary of the Trust) may vote
on any matters affecting the administration of the Plan or the grant of Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to such member (either directly or as a beneficiary of the Trust) but
any such member may be counted in determining the existence of a quorum at any
meeting of the Board or the Committee during which action is taken with respect
to the granting of an Option to such member (either directly or as a beneficiary
of the Trust).
The Committee shall meet at such times and places and upon such notice as the
Chairperson determines. A majority of the Committee shall constitute a quorum.
Any acts by the Committee may be taken at any meeting at which a quorum is
present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.
(b) Procedure After Registration Date. After the Registration Date, the
Board shall take all action necessary to administer the Plan in accordance with
the then effective provisions of Rule 16b-3 promulgated under the Exchange Act,
provided that any amendment to the Plan required for compliance with such
provisions shall be made in accordance with Section 13 of the Plan.
(c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have discretionary authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii) to
determine the exercise price of Options to be granted, the persons (including
the Trust) to whom and the time or times at which Options shall be granted, and
the number of Shares to be represented by each Option; (iii) to interpret the
Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the
Plan; (v) to establish the terms and conditions of each Option granted under the
Plan (which terms and conditions need not be identical in any two Options) and,
with the consent of the holder thereof, to modify or amend any Option; (vi) to
authorize any person to execute on behalf of the Company any instruments
required to effect the grant of an Option awarded by the Committee; (vii) to
accelerate or (with the consent of an Optionee) to defer an exercise date of any
Option subject to the provisions of Section 9(a) of the Plan; (viii) to
determine whether Options granted under the Plan will be Incentive Stock Options
or Nonstatutory Stock Options; and (ix) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(d) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all potential or
actual Optionees, any other holder of an Option or other equity security of the
Company and all other persons. In any controversy regarding the administration
of the Plan, any arbitrator or court reviewing any decision, determination or
interpretation by the Committee shall not set aside or modify such decision,
determination or interpretation unless it is arbitrary, capricious or clearly
contrary to the terms of the Plan.
3
5. Eligibility.
(a) Persons Eligible to Participate. Options under the Plan may be
granted only to (i) Employees, (ii) the Trust for the benefit of Employees;
(iii) independent contractors performing services for the Company, whom the
Committee may designate from time to time and (iv) Directors of the Company who
are not Employees. Each Employee in certain jurisdictions, as designated by the
Committee from time to time, must be a beneficiary of the Trust in order to be a
participant under this Plan. Incentive Stock Options may be granted only to
Employees. An Optionee who has been granted an Option may receive an additional
Option or Options, if he or she is otherwise eligible for such grant. Such
additional Option or Options may be granted to the Trust for the benefit of such
eligible Optionee. However, an Option intended to constitute an Incentive Stock
Option (and so designated at the time of grant) shall qualify as an Incentive
Stock Option only to the extent that the aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year (under the Plan and all other plans of the Optionee's employer
corporation and its parent and subsidiary corporations within the meaning of
Section 422(d) of the Code) does not exceed $100,000. This limitation shall be
applied by taking Options into account in the order in which they were granted.
(b) No Right to Continuing Employment or Service. Neither the
establishment nor operation of the Plan or the Trust shall confer upon any
Optionee or any other person any right with respect to continuation of
employment or other service with the Company, nor shall the Plan or the Trust
interfere in any way with the right of the Optionee or other person or the right
of the Company to terminate such employment or service at any time.
6. Term of Plan.
This Fourth Amended and Restated Plan shall become effective upon its
adoption by the Board. The Plan shall continue until April 9, 2008 unless sooner
terminated under Section 11 or 13 of the Plan.
7. Term of Option.
Unless the Committee determines otherwise, at the time of the grant of
an Option, the term of each Nonstatutory Stock Option granted under the Plan
shall be 10 years and one day from the date of grant; and the term of each
Incentive Stock Option shall be 10 years from the date of grant. No Option shall
be exercisable after the expiration of its term. In all cases the terms of an
Option shall be set forth in the Option Agreement.
8. Option Price, Consideration and Restrictions.
(a) Option Price. Except as provided in subsection 8(b), the option
price for the Shares to be issued pursuant to any Option shall be such price as
is determined by the Committee which, in the case of Incentive Stock Options,
shall in no event be less than the fair market value of such Shares on the date
the Option is granted. Fair market value of the Common Stock shall be determined
by the Committee using such criteria as it deems relevant; provided, however,
that where there is a public market for the Common Stock, the fair market value
per Share shall be the average of the last reported bid and asked prices of the
Common Stock on the date of grant, as reported in The Wall Street Journal (or,
if not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System; or, in the event the
Common Stock is listed on a national securities exchange, within the meaning of
Section 6 of the Exchange Act, the fair market value per Share shall be the
closing price on such exchange on the date of grant of the Option, as reported
in The Wall Street Journal.
(b) Ten Percent Shareholders. No Incentive Stock Option shall be
granted to any Employee who, at the date such Option is granted, owns (within
the meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company, unless the option price for
the Shares to be issued pursuant to such Incentive Stock Option is equal to at
least 110% of the fair market value of such Shares on the grant date as
determined by the Committee in the manner set forth in subsection (a) above.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option shall be payment in cash or by check or with
Shares of the Company's Common Stock. The Committee may also, in its discretion,
authorize at the time of the grant of the Option payment in some other
consideration or
4
method (such as by promissory note) for the issuance of Shares as may be
permitted under Section 157 of the General Corporation Law of the State of
Delaware. Any cash or other property received by the Company from the sale of
Common Stock pursuant to the Plan shall constitute part of the general assets of
the Company.
(d) Code Section 162(m). The maximum number of Shares subject to
Options that may be granted during any calendar year under the Plan to any
executive officer or other Employee whose compensation is or may be subject to
Code Section 162(m) is 1,500,000 shares (subject to adjustment as provided in
Section 11 hereof).
9. Exercise of Option.
(a) Vesting Period. Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Committee and as
shall be permissible under the terms of the Plan, which times and conditions
shall be specified in the Option Agreement evidencing the grant of the Option.
Unless the Committee specifically determines otherwise in the Option Agreement,
each Option shall vest and become exercisable, cumulatively, by an Optionee or
by the Trust on behalf of an Optionee, to the extent of (i) one-fourth of the
Optioned Shares as of the first anniversary of the date on which the Option is
granted, (ii) one- half of the Optioned Shares as of the second anniversary of
the date on which the Option is granted, (iii) three-fourths of the Optional
Shares as of the third anniversary of the date on which the Option is granted,
and (iv) all of the Optioned Shares as of the fourth anniversary of the date on
which the Option is granted, subject to the Optionee's Continuous Employment;
provided, however, that the Optionee must complete 12 months of employment to
exercise an Incentive Stock Option. An Option may not be exercised for
fractional Shares or for less than 10 Shares.
(b) Exercise Procedures. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option Agreement by an Optionee or by the Trust on behalf of an
Optionee and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. As soon as administratively
practicable following the exercise of an Option in the manner set forth above,
the Company shall issue or cause its transfer agent to issue stock certificates
representing the Shares purchased. Until the issuance of such stock certificates
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to the Optioned
Shares notwithstanding the exercise of the Option. Except as provided in Section
11 below, no adjustment will be made for a dividend or other rights for which
the record date occurs prior to the date the stock certificates are issued.
(c) Exercise of Option with Stock, by Cashless Exercise or Net of
Exercise Price. The consideration to be paid for the Shares to be issued upon
exercise of an Option shall be made (i) in cash or in cash equivalents; (ii)
through the tender to the Company of Shares, which Shares shall be valued, for
purposes of determining the extent to which the Option price has been paid
thereby, as provided below, and which Shares have been held by the Optionee for
at least six months; (iii) by delivering a written direction to the Company that
the Option be exercised pursuant to a "cashless" exercise/sale procedure
(pursuant to which funds to pay for exercise of the Option are delivered to the
Company by a broker upon receipt of stock certificates from the Company) or a
cashless exercise/loan procedure (pursuant to which the Optionee would obtain a
margin loan from a broker to fund the exercise) through a licensed broker
acceptable to the Company whereby the stock certificate or certificates for the
Shares for which the Option is exercised will be delivered to such broker as the
agent for the person exercising the Option and the broker will deliver to the
Company cash (or cash equivalents acceptable to the Company) equal to the option
price for the Shares purchased pursuant to the exercise of the Option, plus the
amount (if any) of federal and other taxes that the Company, may, in its
judgment, be required to withhold with respect to the exercise of the Option; or
(iv) by a combination of the methods described in (i), (ii) and (iii). The
Committee, in its discretion, may permit an Optionee or the Trust on behalf of
an Optionee to exercise an Option in whole or in part by delivering that number
of whole Shares, that have been held by the Optionee for at least six months,
having a fair market value equal to the Option price. Shares of the Company's
Common Stock so delivered shall be valued at their fair market value at the
close of the last business day immediately preceding the date of exercise of the
Option, as determined by the Committee. Any balance of the Option price shall be
paid in cash. Any Shares delivered in accordance with this provision shall again
become available for purposes of the Plan and for Nonstatutory Stock Options
subsequently granted thereunder.
5
(d) Termination of Status as Employee, Contractor or Director. If an
Optionee shall cease to be an Employee, independent contractor or director of
the Company for any reason other than permanent and total disability (within the
meaning of Section 22(e)(3) of the Code as determined in the sole discretion of
the Committee), retirement, death or, in the case of an Employee or independent
contractor, involuntary termination for "cause," such individual's Option
(irrespective of whether such Option has been transferred to the Trust) shall
automatically terminate 90 days following the date he or she ceases to be an
Employee, independent contractor or director of the Company, unless the
Committee, in its discretion, determines to provide a different post-termination
exercise period under the Option Agreement with respect to such Option or any
amendment thereto (which period shall in no event extend beyond the term of the
relevant Option).
(1) If an Optionee's employment or service as an independent
contractor of the Company is terminated involuntarily by the Company for
"cause," such individual's Option (irrespective of whether such Option has been
transferred to the Trust) shall automatically terminate on the date he or she
ceases to be an Employee or independent contractor of the Company, unless the
Committee, in its discretion, determines to determines to provide a different
post-termination exercise period under the Option Agreement with respect to such
Option or any amendment thereto (which shall in no event extend beyond the term
of the relevant Option). Prior to such termination of the Option, the Optionee
or the Trust on behalf of an Optionee may exercise such Option to the extent
that the Optionee or the Trust on behalf of an Optionee was entitled to exercise
on the exercise date, subject to the condition that no Option shall be exercised
after the expiration of the term of the Option. For this purpose, "cause" shall
have the meaning set out in the Option Agreement relating to a particular
Option, or, in the absence of such a definition, shall mean:
(i) fraud, embezzlement, or any other illegal act in
connection with the Optionee's duties as an Employee of the Company which causes
or may reasonably be expected to cause substantial economic injury to or
substantial injury to the reputation of the Company,
(ii) conviction of any crime which causes or may reasonably be
expected to cause substantial economic injury to or substantial injury to the
reputation of the Company,
(iii) material breach of any fiduciary duty owed to the
Company,
(iv) willful misconduct in connection with the Optionee's
duties to the Company which causes or may reasonably be expected to cause
substantial economic injury to or substantial injury to the reputation of the
Company,
(v) willful failure to perform assigned duties as an Employee
of the Company,
(vi) misrepresentation of qualifications for position, (vii)
the commission of any other act which causes or may reasonably be expected to
cause substantial economic injury to or substantial injury to the reputation of
the Company, including, without limitation, any material violation of the
Foreign Corrupt Practices Act, as described herein below;
(viii) a continuing conflict of interest or continuing failure
to perform duties or to follow reasonable directions or instructions of the
Optionee's superiors. For purposes of this provision, a conflict of interest or
failure to perform or follow directions shall be deemed to be "continuing" if
the Optionee does not correction the conflict or failure within ten (10) days of
receipt of written notice of such conflict or failure; or
(ix) an extended period of absence or repeated absences by the
Optionee from the performance of Optionee's duties, which absence shall be for a
reason other than vacation, illness or disability, or which has not been
approved by the Optionee's immediate supervisor; or
(x) material breach of a material provision of any employment
agreement by the Optionee.
(e) Disability of Optionee. In the event of the permanent and total
disability (within the meaning of Section 22(e)(3) of the Code as determined in
the sole discretion of the Committee) during the term of the Option of an
Optionee who is at the time of such disability, or was within the 90-day period
prior thereto, an Employee, independent contractor or Director of the Company
and who was in Continuous Employment as such from the date of the grant of the
Option until the date of disability or termination, the Option may be exercised
at any time within one year following the date of disability, unless the
Committee, in its discretion, determines to provide a
6
different post-termination exercise period under the Option Agreement with
respect to such Option or any amendment thereto, but only to the extent that the
Optionee or the Trust was entitled to exercise the Option at the time of the
termination or disability, whichever comes first, unless otherwise determined by
the Committee in its discretion, and subject to the condition that no Option
shall be exercised after the expiration of the term of the Option.
(f) Retirement of Optionee. In the event of the retirement during the
Option period of an Optionee who is at the time of such retirement, or was
within the 90-day period prior thereto, an Employee and who was in Continuous
Employment as such from the date of the grant of the Option until the date of
the retirement, the Option may be exercised by the Optionee or the Trust on
behalf of an Optionee at any time within one year following the retirement date,
unless the Committee, in its discretion, determines to provide a different
post-termination exercise period under the Option Agreement with respect to such
Option or any amendment thereto, but only to the extent that the Optionee or the
Trust was entitled to exercise the Option at the time of the Optionee's
retirement, unless otherwise determined by the Committee in its discretion, and
subject to the condition that no Option shall be exercised after the expiration
of the Option period. For purposes of this Section 9, the term "retirement"
shall mean voluntary termination of employment by an Employee who is at least
age 55 and who has completed five years of employment with the Company.
(g) Death of Optionee. In the event of the death during the term of the
Option of an Optionee who is at the time of his or her death, or was within the
90-day period immediately prior thereto, an Employee, independent contractor or
Director of the Company and who was in Continuous Employment as such from the
date of the grant of the Option until the date of death, the Option may be
exercised for a period up to one year following the date of death, unless the
Committee, in its discretion, determines to provide a different post-termination
exercise period under the Option Agreement with respect to such Option or any
amendment thereto, at any time prior to the expiration of the term of the
Option, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest, inheritance or otherwise as a result of the
Optionee's death, or by the Trust for the benefit of such estate or person, but
only to the extent that the Optionee or Trust was entitled to exercise the
Option at the time of the death, unless otherwise determined by the Committee in
its discretion, and subject to the condition that no Option shall be exercised
after the expiration of the Option period.
(h) Tax Withholding. When an Optionee or the Trust on behalf of an
Optionee is required to pay to the Company an amount with respect to income or
employment tax withholding obligations in connection with the exercise of an
Option granted under the Plan, the Optionee or the Trust on behalf of an
Optionee may elect, prior to the date the amount of such withholding is
determined (the "Tax Date") to make such payment, or such increased payment as
the Optionee or the Trust on behalf of an Optionee elects to make up to the
maximum federal, state and local marginal tax rates (including any related
obligation under the Federal Insurance Contribution Act) applicable to the
Optionee and the particular transaction, by (i) delivering cash; (ii) delivering
part or all of the payment in previously owned stock (whether or not acquired
through the prior exercise of a stock option); or (iii) subject to the consent
of the Committee, irrevocably directing the Company to withhold from the Shares
that would otherwise be issued upon exercise of the Option that number of whole
Shares having a fair market value equal to the amount of tax required or elected
to be withheld (a "Withholding Election"). If an Optionee's Tax Date is deferred
beyond the date of exercise and the Optionee or the Trust on behalf of an
Optionee makes a Withholding Election, the Optionee or the Trust on behalf of an
Optionee will receive the full amount of Shares otherwise issuable upon exercise
of the Option minus the number of Shares necessary to satisfy the minimum
withholding requirements measured on the date the Option is exercised (or such
higher payment as the Optionee or the Trust may have elected to make) with
adjustments to be made in cash after the Tax Date. Any adverse consequences
incurred by an Optionee with respect to his or her participation in the Plan or
the Trust, the use of Shares to pay any part of the Option price or income or
employment tax arising in connection with the exercise of an Option (including
without limitation any adverse tax consequences arising as result of a
disqualifying disposition within the meaning of Section 422 of the Code) shall
be the sole responsibility of the Optionee or Trust. The Company does not
warrant or represent to the Optionee any tax consequence of any transaction
under this Plan or the Trust, including the initial and continuing satisfaction
of the conditions for an Incentive Stock Option under Section 422 of the Code.
10. Non-Transferability of Options and Shares of Common Stock.
(a) Options. An Option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution and may be exercised, during the
7
lifetime of the Optionee, only by the Optionee. Notwithstanding the preceding
sentence, (i) an Optionee who is eligible to participate in the Trust may
transfer or direct the Company to transfer Nonstatutory Stock Options or
Optioned Shares to the Trust, subject to the terms and conditions of this Plan
and the Trust, and (ii) a Nonstatutory Stock Option may be transferred to a
spouse of the Optionee only upon approval of the Committee, providing all the
conditions of exercisability and vesting have been met. If the Option Agreement
permits, the Optionee may designate a beneficiary who may (i) exercise an Option
under Section 9(g) above, or (ii) receive Shares issued pursuant to the exercise
of an Option where the death of an Optionee occurs between the date on which the
Optionee exercises the Option and the date the Company issues the Shares.
(b) Shares of Common Stock. The Committee may impose such other
restrictions on Shares issued under this Plan as it deems advisable. The
certificates representing the Optioned Shares shall bear a legend which shall
give notice of such restrictions.
11. Adjustments Upon Changes in Capitalization.
Subject to any required action by the shareholders of the Company, the
number of Shares of Common Stock covered by each outstanding Option and the per
share price thereof in each such Option, shall be proportionately adjusted for
any increase or decrease in the number of issued Shares of Common Stock
resulting from a stock split, reverse stock split, combination,
reclassification, the payment of a stock dividend on the Common Stock or any
other increase or decrease in the number of such Shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect (and no adjustment by reason thereof shall
be made with respect to) the number or price of Shares subject to an Option.
The Committee may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the number or class of securities covered by
any Option, as well as the price to be paid therefor, in the event of the
Company's effecting one or more reorganizations, recapitalizations, rights
offerings, spin-offs, or other increases or reductions of the number of Shares
of its outstanding Common Stock, or in the event of the Company's being
consolidated with or merged into any other corporation.
Unless otherwise determined by the Committee, upon the dissolution or
liquidation of the Company, or upon a merger, consolidation or reorganization of
the Company with one or more other corporations in which the Company is not the
surviving corporation, or upon a sale of all or substantially all of the assets
of the Company to another corporation, or upon any transaction (including,
without limitation, a merger or reorganization in which the Company is the
surviving corporation) approved by the Board which results in any person or
entity owning 80% or more of the combined voting power of all classes of stock
of the Company, the Plan and all Options outstanding hereunder shall terminate,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan and/or the assumption of the
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. Except as otherwise
provided in the Option Agreement with respect to such Option, in the event of
any such termination of the Plan, each person holding an Option shall have the
right (subject to the general limitations on exercise set forth herein),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Committee in its sole discretion
shall determine and designate, to exercise such Option in whole or in part, and
the exercisability of each outstanding Option shall be accelerated so that the
Optionee and the Trust may within such period exercise up to the entire
unexercised portion of their respective Options. The Committee shall send
written notice of an event that will result in such a termination to the Trust
and all persons who hold Options not later than the time at which the Company
gives notice thereof to its stockholders and, in any event, not less than 10
days before such event. Upon the occurrence of any such event, any Option not
exercised prior thereto shall terminate.
12. Time of Granting Options.
Unless otherwise specified by the Committee or as may be required by
applicable law, regulation or rule (including rules of stock exchanges or other
self-regulatory organizations), the date of grant of an Option under the
8
Plan shall be the date on which the Committee makes the determination to grant
such Option or, if later, the date on which are satisfied any conditions
precedent to such grant. As soon as feasible after the Committee makes its
determination regarding the grant of an Option, the Committee shall notify the
person or class of persons who are the recipients of the grant.
13. Amendment and Termination of the Plan.
The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable, except that amendments or
modifications to the Plan shall be subject to shareholder approval (a) if such
amendment or modification increases the Shares available for issuance under
Incentive Stock Options granted under the Plan or changes the requirements as to
eligibility to receive Incentive Stock Options or (b) to the extent required by
applicable law, regulation or rule (including rules of stock exchanges or other
self-regulatory organizations). Any amendment or termination of the Plan shall
not adversely affect any Option already granted without the relevant Optionee's
consent; and if no such consent is secured such Option shall remain in full
force and effect as if the Plan had not been amended or terminated.
14. Conditions Upon Issuance of Shares.
Shares shall not be issued with respect to an Option granted under the
Plan unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the Optionee to
represent and warrant, at the time of any such exercise, that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
15. Reservation of Shares.
During the term of this Plan, the Company will at all times reserve and
keep available the number of Shares as shall be sufficient to satisfy the
requirements of the Plan. Inability of the Company to obtain from any regulatory
body having jurisdiction and authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect to the nonissuance or sale of such
Shares as to which such requisite authority shall not have been obtained.
16. Information to Optionee.
During the term of any Option granted under the Plan, the Company shall
provide or otherwise make available to each Optionee and the Trust a copy of its
annual report to shareholders and financial information which is provided to its
shareholders in accordance with the provisions of the Company's Bylaws and
applicable law.
17. Option Agreement.
All Options granted under the Plan shall be evidenced by Option
Agreements.
18. Best Payments.
If the gross amount of any payment or benefit under the Plan, either
separately or in combination with any other payment or benefit payable by the
Company or pursuant to a plan of the Company would constitute a parachute
payment within the meaning of Code Section 280G, then the total payments and
benefits accrued and payable under this Plan shall not exceed the amount
necessary to maximize the amount received by the Optionee after payment of all
employment, income and excise taxes imposed on the Optionee with respect to such
payments and benefits. The Optionee may elect, by written notice to the
Committee, which items of compensation, if any, shall be reduced so as to meet
the requirements of the preceding sentence. If there is a dispute between the
Company and the Optionee regarding (i) the extent, if any, to which any payments
or benefits to the Optionee are parachute payments or excess parachute payments,
under Code Section 280G, (ii) the base amount of such Optionee's compensation,
under Code Section 280G, or (iii) the status of such Optionee as a disqualified
9
individual, under Code Section 280G, such dispute shall be resolved as provided
in Section 19 below. Within 30 days of the Optionee's receiving notice of (a) a
change of control of the Company within the meaning of Code Section 280G or (b)
the Optionee's termination of service with the Company or the Company's
receiving notice of such termination, either the Optionee or the Company may
request, in accordance with Section 19 below, (a) a determination of the amount
of any parachute payment, excess parachute payment, or base amount of
compensation, or (b) a determination of the reduction necessary to maximize the
amount receivable by the Optionee as described above. Any fees, costs or
expenses incurred by the Optionee or the Trust in connection with such
determinations shall be paid by the Optionee.
19. Mandatory Arbitration.
Any dispute arising out of or relating to this Plan or any Option
Agreement shall be resolved solely by arbitration before one arbitrator in
accordance with the Employee Benefit Plan Claim Rules of the American
Arbitration Association. The location of the arbitration proceeding shall be in
McLean, Virginia. Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction. Each party to any dispute regarding
the Plan or an Option Agreement shall pay the costs and fees (including
attorneys' fees) of presenting his, her or its case in arbitration. All other
costs of arbitration, including the costs of any transcript of the proceedings,
administrative fees and the arbitrator's fees, shall be borne equally by the
parties. All statutes of limitation which would otherwise be applicable shall
apply to any arbitration proceeding. The provisions of this Section 19 are
exclusive for all purposes and applicable to any and all disputes arising out of
or relating to the Plan or any Option Agreement. The arbitrator who hears and
decides any dispute shall have jurisdiction and authority to award only
compensatory damages to make whole a person or entity sustaining foreseeable
economic loss, and shall not have jurisdiction or authority to make any other
award of any type, including, without limitation, punitive damages,
unforeseeable economic damages, adverse tax consequences, damages for pain,
suffering or emotional distress, or any other kind or form of damages. The
remedy, if any, awarded by the arbitrator shall be the sole and exclusive remedy
for any dispute which is subject to arbitration under this Plan.
20. Governing Law.
The validity, construction and effect of the Plan and any agreement
hereunder shall be determined in accordance with the laws of the State of
Delaware and applicable federal law.
* * *
This Plan was duly adopted and approved by the Board of Directors of the Company
by resolution at a meeting held on the 9th day of April, 1998.
/s/ GRIER C. RACLIN
- ------------------------------------------------------------------------
Secretary of the Company
This Plan was duly approved by the stockholders of the Company at a meeting held
on the 20th day of May , 1998.
/s/ GRIER C. RACLIN
- ------------------------------------------------------------------------
Secretary of the Company
10