NEOSE TECHNOLOGIES, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(Amended and Restated as of March 16, 1996
and as of April 23, 1997)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1995 Stock Option/Stock Issuance Plan (the "Plan") is
intended to promote the interests of Neose Technologies, Inc., a Delaware
corporation (the "Corporation"), by providing eligible individuals with the
opportunity to obtain an equity interest, or otherwise increase their equity
interest, in the Corporation. This Plan shall serve as the successor equity
incentive program to the Corporation's 1992 Stock Option Plan and 1991 Stock
Option Plan.
B. The Discretionary Option Grant and Stock Issuance Programs
of the Plan became effective immediately upon the adoption of the Plan by the
Corporation's Board of Directors. Such date is hereby designated the "Plan
Effective Date." The Automatic Option Grant Program became effective upon the
execution and final pricing of the Underwriting Agreement for the initial public
offering of the Corporation's Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Automatic Option Program
Effective Date. The Director Fee Option Grant Program became effective on March
16, 1996.
II. DEFINITIONS
A. For the purposes of this Plan, the following definitions
shall be in effect:
Board: the Corporation's Board of Directors.
Change in Control: a change in ownership or control of the
Corporation effected through either of the following transactions:
-- the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's shareholders which
the Board does not recommend such shareholders to accept, or
-- a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members ceases,
by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (a) have been Board members continuously
since the beginning of such period or (b) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (a) who were still in office at the time such
election or nomination was approved by the Board.
Code: the Internal Revenue Code of 1986, as amended.
Committee: the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Plan.
Common Stock: shares of the Corporation's common stock.
Corporate Transaction: either of the following shareholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which
securities possessing more than fifty percent (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 transaction, or
(ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets in
complete liquidation or dissolution of the Corporation.
Employee: an individual who performs services while in the
employ of the Corporation or one or more parent or subsidiary corporations,
subject to the control and direction of the employer entity not only as to the
work to be performed but also as to the manner and method of performance.
Exercise Date: the date on which the Corporation shall have
written notice of the option exercise.
Fair Market Value: the Fair Market Value per share of Common
Stock determined in accordance with the following provisions:
-- If the Common Stock is at the time traded on the Nasdaq
National Market, the Fair Market Value shall be the closing selling price per
share on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no reported closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
-- If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such exchange
on the date in question, then the Fair Market Value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
-- If the Common Stock is on the date in question neither
listed nor admitted to trading on any national securities exchange nor traded on
the Nasdaq National Market, then the Fair Market Value of the Common Stock on
such date shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
Hostile Take-Over: a change in ownership of the Corporation
effected through the following transaction:
-- the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's shareholder's which
the Board does not recommend such shareholders to accept, and
-- the acceptance of more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer from holders other than
the officers and directors of the Corporation subject to the short-swing profit
restrictions of Section 16 of the 1934 Act.
Incentive Option: a stock option which satisfies the
requirements of Code Section 422.
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Involuntary Termination: the termination of the Service of any
Optionee or Participant which occurs by reason of:
-- such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-discretionary
and objective-standard incentive payment or bonus award) by more than ten
percent (10%) in the aggregate or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the individual's
consent.
Misconduct: the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such individual of confidential information or trade secrets of the
Corporation or its parent or subsidiary corporations, any failure to perform
specific lawful direction of the Corporation's Board or officers of the
Corporation, any refusal or neglect to perform such individual's duties, any
conviction of, or entering of a plea of nolo contendere to, a crime which
constitutes a felony or any other Misconduct by such individual adversely
affecting the business or affairs of the Corporation. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation or any parent or subsidiary may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other individual in the
Service of the Corporation.
1934 Act: the Securities Exchange Act of 1934, as amended.
Non-Statutory Option: a stock option not intended to meet the
requirements of Code Section 422.
Optionee: a person to whom an option is granted under the
Discretionary Option Grant Program, the Automatic Option Grant Program or the
Director Fee Option Grant Program.
Participant: a person who is issued Common Stock under the
Stock Issuance Program.
Permanent Disability: the inability of an individual to engage
in any substantial gainful activity, by reason of any medically determinable
physical or mental impairment which is expected to result in death or which has
lasted or can be expected to last for a period of not less than twelve (12)
months.
Plan Administrator: either the Board or the Committee, to the
extent the Committee is at the time responsible for the administration of the
Plan in accordance with Section IV of Article One.
Predecessor Plans: the Corporation's 1992 Stock Option Plan
and 1991 Stock Option Plan.
Service: the performance of services on a periodic basis for
the Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant, except to the extent otherwise specifically provided in the
applicable stock option or stock issuance agreement.
Section 12(g) Registration Date: the date on which the initial
registration of the Common Stock under Section 12(g) of the 1934 Act became
effective.
Take-Over Price: the greater of (a) the Fair Market Value per
share of Common Stock on the date the particular option to purchase such stock
is surrendered to the Corporation in connection with a Hostile Take-Over or (b)
the highest reported price per share of Common Stock paid by the tender offeror
in effecting such Hostile Take-Over. However, if the canceled option is an
Incentive Option, then the Take-Over Price shall not exceed the clause (a) price
per share.
10% Shareholder: the owner of stock (as determined under Code
Section 424(d)) possessing ten (10%) percent or more of the total combined
voting power of all classes of stock of the Corporation or any parent or
subsidiary corporation.
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B. The following provisions shall be applicable in determining
the parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation
shall be considered to be a parent of the Corporation,
provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total
combined voting power of all classes or stock in one of the
other corporations in such chain.
Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation
shall be considered to be a subsidiary of the Corporation,
provided each such corporation (other than the last
corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one
of the other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate components:
the Discretionary Option Grant Program specified in Article Two, the Stock
Issuance Program specified in Article Three, the Automatic Option Grant Program
specified in Article Four and the Director Fee Option Grant Program specified in
Article Five. Under the Discretionary Option Grant Program, eligible individuals
may at the discretion of the Plan Administrator be granted options to purchase
shares of Common Stock in accordance with the provisions of Article Two at a
price not less than eighty-five percent (85%) of the Fair Market Value of such
shares on the grant date. Under the Stock Issuance Program, eligible individuals
may be issued shares of Common Stock directly, either through the immediate
purchase of the shares (at Fair Market Value or at discounts of up to 15%) or as
a bonus tied to the individual's performance of services or the Corporation's
attainment of prescribed milestones. Under the Automatic Option Grant Program,
each individual serving as a non-employee Board member on the Automatic Option
Grant Program Effective Date and each individual who first joins the Board as a
non-employee director at any time after such Effective Date shall at periodic
intervals receive option grants to purchase shares of Common Stock in accordance
with the provisions of Article Four, with the first such grants to be made on
such Effective Date. Under the Director Fee Option Grant Program, each
non-employee Board member may elect to apply all or a portion of his or her
annual retainer fee otherwise payable in cash to a special below market option
grant.
B. Unless the context clearly indicates otherwise, the
provisions of Articles One and Six shall apply to all equity programs under the
Plan and shall accordingly govern the interests of all individuals under the
Plan.
IV. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance Programs
shall be administered solely and exclusively by the Committee, subject to such
conditions and limitations as the Board may decide, to the extent permissible
under applicable securities and tax laws requirements. No non-employee Board
member shall be eligible to serve on the Committee if such individual has,
within the relevant period designated below received an option grant or direct
stock issuance under this Plan or any other stock plan of the Corporation (or
any parent or subsidiary corporation), other than pursuant to the Automatic
Option Grant or Director Fee Option Grant Program:
--- for each of the initial members of the Committee, the
period commencing with the Section 12(g) Registration Date and ending
with the date of his or her appointment to the Committee, or
--- for any successor or substitute member, the twelve (12)
month period immediately preceding the date of his or her appointment
to the Committee or (if shorter) the period commencing with the Section
12(g) Registration Date and ending with the date of his or her
appointment to the Committee.
B. Members of the Committee shall serve for such period of
time as the Board may determine and shall be subject to removal by the Board at
any time.
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C. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance Program
or any outstanding option grant or share issuance thereunder.
D. Administration of the Automatic Option Grant and Director
Fee Option Grant Programs shall be self-executing in accordance with the express
terms and conditions of those programs, and the Plan Administrator shall
exercise no discretionary functions with respect to option grants made pursuant
to those programs.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary
Option Grant Program under Article Two and the Stock Issuance Program under
Article Three shall be limited to the following
(i) officers and other employees of the
Corporation (or any parent or subsidiary corporation);
(ii) non-employee members of the Board or
the non-employee members of the board of directors of any parent or subsidiary
corporation; and
(iii) consultants who provide valuable
services to the Corporation (or any parent or subsidiary corporation).
B. The non-employee Board members serving as Plan
Administrator shall not, during their period of service from and after the
Section 12(g) Registration Date, be eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs or in any other stock option, stock
purchase, stock bonus or other stock plan of the Corporation (or its parent or
subsidiary corporations). Such individuals shall, however, be eligible to
receive automatic option grants pursuant to Article Four and to participate in
the Director Fee Option Grant Program pursuant to Article Five.
C. The Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the time or times when such grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding, and (ii) with respect to stock issuances under
the Stock Issuance Program, the number of shares to be issued to each
Participant, the vesting schedule (if any) to be applicable to the issued
shares, and the consideration to be paid by the Participant for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance
under the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock which may be issued over the term of the Plan
shall not exceed 1,878,706* shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI. Such authorized share reserve
is comprised of (i) the number of shares which remained for issuance, as of the
Plan Effective Date, under the Predecessor Plans as last approved by the
Corporation's shareholders, including the shares subject to the outstanding
options incorporated into this Plan and any
- --------
* Reflects the 1-for-3 stock split that was effected immediately prior to the
consummation of the initial public offering of the Common Stock.
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other shares which would have been available for future option grant under the
Predecessor Plans as last approved by the shareholders, plus (ii) an additional
increase of 333,333* shares authorized by the Board on the Plan Effective Date,
(iii) an additional increase of 600,000* shares authorized by the Board on
December 6, 1995, and (iv) an additional increase of 500,000 shares authorized
by the Board on March 19, 1997. As one or more outstanding options under the
Plan are exercised, the number of shares issued with respect to each such option
shall reduce, on a share-for-share basis, the number of shares available for
issuance under this Plan.
B. In no event shall the aggregate number of shares of Common
Stock for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances for any given year exceed fifty percent (50%) of the total number of
shares for which stock options, separately exercisable stock appreciation rights
and direct stock issuances may be granted over the term of the Plan.
C. Should one or more outstanding options under this Plan
(including options incorporated from the Predecessor Plans) expire or terminate
for any reason prior to exercise in full (including any option canceled in
accordance with the cancellation-regrant provisions of Section IV of Article Two
of the Plan), then the shares subject to the portion of each option not so
exercised shall be available for subsequent issuance under the Plan. Shares
subject to any stock appreciation rights exercised under the Plan and all share
issuances under the Plan, whether or not the shares are subsequently repurchased
by the Corporation pursuant to its repurchase rights under the Plan, shall
reduce on a share-for-share basis the number of shares of Common Stock available
for subsequent issuance under the Plan. In addition, should the exercise price
of an outstanding option under the Plan be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an outstanding option under the Plan or the vesting of a
direct share issuance made under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the share
issuance, and not by the net number of shares of Common Stock actually issued to
the holder of such option or share issuance.
D. Should any change be made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
amount and/or class of securities for which any one individual participating in
the Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances for any given year under the Plan, (iii) the
number and/or class of securities for which automatic option grants are to be
subsequently made per eligible non-employee Board member under the Automatic
Option Grant Program, (iv) the number and/or class of securities and price per
share in effect under each option outstanding under the Discretionary Option
Grant, Automatic Option Grant or Director Fee Option Grant Program and (v) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plans. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant
Program shall be authorized by action of the Plan Administrator and may, at the
Plan Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted Non-Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
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A. Exercise Price.
1. The exercise price per share shall be fixed by
the Plan Administrator in accordance with the following provisions:
(i) The exercise price per share of Common
Stock subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value of such Common Stock on the grant date.
(ii) The exercise price per share of Common
Stock subject to a Non-Statutory Option shall in no event be less than
eighty-five percent (85%) of the Fair Market Value of such Common Stock on the
grant date.
(iii) If any individual to whom an
Incentive Option is granted is a 10% Shareholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six, be payable in one or more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) in shares of Common Stock held by the
Optionee for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written instructions
(a) to a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale transaction.
3. Except to the extent such sale and
remittance procedure is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
B. Term and Exercise of Options. Each option granted under
this Plan shall be exercisable at such time or times and during such period as
is determined by the Plan Administrator and set forth in the instrument
evidencing the grant. No such option, however, shall have a maximum term in
excess of ten (10) years measured from the grant date. During the lifetime of
the Optionee, the option, together with any related stock appreciation right,
shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee, except for a transfer of the option by will or by
the laws of descent and distribution following the Optionee's death.
C. Termination of Service.
1. Except to the extent otherwise provided
pursuant to subsection C.2 below, the following provisions shall govern the
exercise period applicable to any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain in
Service for any reason other than death, Permanent Disability or Misconduct,
then the period during which each outstanding option held by such Optionee is to
remain exercisable shall be limited to the three (3)-month period following the
date of such
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cessation of Service.
(ii) Should the Optionee's Service
terminate by reason of Permanent Disability, then the period during which each
outstanding option held by the Optionee is to remain exercisable shall be
limited to the twelve (12)-month period following the date of such cessation of
Service.
(iii) Should the Optionee die while holding
one or more outstanding options, then the period during which each such option
is to remain exercisable shall be limited to the twelve (12)-month period
following the date of the Optionee's death. During such limited period, the
option may be exercised by the personal representative of the Optionee's estate
or by the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to be outstanding.
(v) Under no circumstances, however, shall
any such option be exercisable after the specified expiration date of the option
term.
(vi) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be exercisable for any vested shares for
which the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Service, terminate and cease to be outstanding
with respect to any option shares for which the option is not at that time
exercisable or in which the Optionee is not otherwise at that time vested.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time the option is granted or at any time
while the option remains outstanding,
- to extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of
Service or death from the limited period in effect under
subsection C.1 of this Section I of Article Two to such
greater period of time as the Plan Administrator shall deem
appropriate; provided that in no event shall such option be
exercisable after the specified expiration date of the option
term; and/or
- to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited
post-Service exercise period applicable under this paragraph
C, not only with respect to the number of vested shares of
Common Stock for which each such option is exercisable at the
time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments for which the
option would otherwise have become exercisable had such
cessation of Service not occurred.
D. Shareholder Rights. An Optionee shall have no
shareholder rights with respect to any shares covered by the option until such
individual shall have exercised the option and paid the exercise price for the
purchased shares.
E. Unvested Shares. The Plan Administrator shall have the
discretion to authorize the issuance of unvested shares of Common Stock under
the Plan. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms and conditions upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
agreement evidencing such repurchase right. All outstanding repurchase rights
under the Plan shall terminate automatically upon the occurrence of any
Corporate Transaction, except to the extent the repurchase rights are expressly
assigned to the successor corporation (or parent thereof) in connection with the
Corporate
8
Transaction.
F. First Refusal Rights. Until such time as the Corporation's
outstanding shares of Common Stock are first registered under Section 12(g) of
the 1934 Act, the Corporation shall have the right of first refusal with respect
to any proposed sale or other disposition by the Optionee (or any successor in
interest by reason of purchase, gift or other transfer) of any shares of Common
Stock issued under the Plan. Such right of first refusal shall be exercisable in
accordance with the terms and conditions established by the Plan Administrator
and set forth in the agreement evidencing such right.
II. INCENTIVE OPTIONS
Incentive Options may only be granted to individuals who are
Employees, and the terms and conditions specified below shall be applicable to
all Incentive Options granted under the Plan. Except as modified by the
provisions of this Section II, all the provisions of Articles One, Two and Six
of the Plan shall be applicable to all Incentive Options granted hereunder. Any
Options specifically designated as Non-Statutory shall not be subject to the
terms and conditions of this Section II.
A. Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations) may for
the first time become exercisable as incentive stock options under the Federal
tax laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a Non-Statutory Option under the Federal tax
laws.
B. 10% Shareholder. If any individual to whom an
Incentive Option is granted is a 10% Shareholder, then the option term shall not
exceed five (5) years measured from the grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option
which is at the time outstanding under this Article Two shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for such Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares. However, an outstanding option under this Article Two shall
not so accelerate if and to the extent: (i) such option is, in connection with
such Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of such
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option, (iii) such option is to be
replaced by another incentive program which the Plan Administrator determines is
reasonably equivalent in value to the program contemplated by either clause (i)
or (ii) above, or (iv) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
However, upon an Optionee's cessation of Service by reason of an Involuntary
Termination (other than for Misconduct) within eighteen (18) months after a
Corporate Transaction in which his or her outstanding options are assumed or
replaced pursuant to clause (i), (ii) or (iii) above, each such option under
clause (i) shall automatically accelerate and become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares, the cash incentive program under clause (ii) shall become
fully vested and the benefits under a clause (iii) replacement program shall
become fully vested. The option as so accelerated shall remain exercisable until
the earlier of (i) the expiration of the option term or (ii) the expiration of a
ninety (90)-day period measured from the date of such Involuntary Termination.
The determination of option comparability under clause (i) or program
comparability under clause (iii) above shall be made by the Plan
9
Administrator, and its determination shall be final, binding and conclusive.
B. Immediately following the consummation of a Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to remain outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two that is
assumed in connection with a Corporate Transaction shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply and pertain to
the number and class of securities which would have been issued to the option
holder in consummation of such Corporate Transaction. had such person exercised
the option immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share, provided
the aggregate exercise price payable for such securities shall remain the same.
In addition, the class and number of securities available for issuance under the
Plan on both an aggregate and participant basis following the consummation of
such Corporate Transaction shall be appropriately adjusted.
D. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one or more outstanding options under this Article Two (and the termination
of one or more of the Corporation's outstanding repurchase rights under this
Article Two) upon the occurrence of a Change in Control. The Plan Administrator
shall also have full power and authority to condition any such option
acceleration (and the termination of any outstanding repurchase rights) upon the
Optionee's cessation of Service by reason of an Involuntary Termination (other
than for Misconduct) within a specified period following such Change in Control.
E. Any options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term or the surrender of such option in accordance
with Section V of this Article Two.
F. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
G. The portion of any Incentive Option accelerated under this
Section III in connection with a Corporate Transaction or Change in Control
shall remain exercisable as an incentive stock option under the Federal tax laws
only to the extent the dollar limitation of Section II of this Article Two is
not exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a non-statutory option under the
Federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected Optionees, the
cancellation of any, or all outstanding options under this Article Two
(including outstanding options under the Predecessor Plans incorporated into
this Plan) and to grant in substitution new options under the Plan covering the
same or different numbers of shares of Common Stock but with an exercise price
per share not less than (i) one hundred percent (100%) of the Fair Market Value
on the new grant date in the case of a grant of an Incentive Option, (ii) one
hundred ten percent (110%) of such Fair Market Value in the case of an Incentive
Option grant to a 10% Shareholder or (iii) eighty-five percent (85%) of such
Fair Market Value in the case of all other grants.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section V, one or more Optionees may be granted the right, exercisable upon such
terms and conditions as the Plan Administrator may establish, to surrender all
or part of an unexercised option under this Article Two in exchange for a
distribution from the Corporation in an amount equal to the excess of (i) the
Fair Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the
10
surrendered option (or surrendered portion thereof) over (ii) the aggregate
exercise price payable for such vested shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall accordingly become
entitled under this Section V may be made in shares of Common Stock valued at
Fair Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over at a time when the Corporation's outstanding
Common Stock is registered under Section 12(g) of the 1934 Act, each such
officer holding one or more options with such a limited stock appreciation right
in effect for at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the option is at
the time exercisable for fully vested shares of Common Stock. The officer shall
in return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to each surrendered option (or surrendered portion of
such option) over (ii) the aggregate exercise price payable for such vested
shares. Such cash distribution shall be made within five (5) days following the
option surrender date. Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution. Any unsurrendered portion of the option shall continue to
remain outstanding and become exercisable in accordance with the terms of the
instrument evidencing such grant.
E. The shares of Common Stock subject to any option
surrendered for an appreciation distribution pursuant to this Section V shall
not be available for subsequent issuance under the Plan.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Three.
A. Consideration.
1. Shares of Common Stock may be issued under
the Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) full payment in cash or check made
payable to the Corporation's order;
(ii) a promissory note payable to the
Corporation's order in one or more installments; or
11
(iii) past services rendered to the
Corporation or any parent or subsidiary corporation.
2. The shares may, in the absolute discretion
of the Plan Administrator, be issued for consideration with a value less than
one hundred percent (100%) of the Fair Market Value of such shares at the time
of issuance, but in no event less than eighty-five percent (85%) of such Fair
Market Value.
B. Vesting Provisions.
1. Shares of Common Stock issued under the
Stock Issuance Program may, in the absolute discretion of the Plan
Administrator, be fully and immediately vested upon issuance (as a bonus for
past services) or may vest in one or more installments over the Participant's
period of Service or the Corporation's attainment of performance milestones. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed
by the Participant or the performance objectives to be achieved by the
Corporation,
(ii) the number of installments in which
the shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule, shall be determined by the Plan
Administrator and incorporated into the Issuance Agreement executed by
the Corporation and the Participant at the time such unvested shares
are issued.
2. The Participant shall have full shareholder rights
with respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration or by reason of any Corporate Transaction, shall be
issued subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock under the Stock
Issuance Program, then the Corporation shall have the right to require the
Participant to surrender those shares immediately to the Corporation for
cancellation, and the Participant shall cease to have any further shareholder
rights with respect to the surrendered shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money promissory
note), the Corporation shall repay to the Participant the cash consideration
paid for the surrendered shares and shall cancel the unpaid principal balance of
any outstanding purchase-money note of the Participant attributable to such
surrendered shares.
4. The Plan Administrator may in its discretion elect
to waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. First Refusal Rights. Until such time as the
Corporation's outstanding shares of Common Stock
12
are first registered under Section 12(g) of the 1934 Act, the Corporation shall
have a right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest by reason of purchase, gift or other
transfer) of any shares of Common Stock issued under this Article Three. Such
right of first refusal shall be exercisable in accordance with the terms and
conditions established by the Plan Administrator and set forth in the agreement
evidencing such right.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights
under this Article Three shall automatically terminate upon the occurrence of a
Corporate Transaction, except to the extent the Corporation's outstanding
repurchase rights are expressly assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction. However, any assigned
repurchase rights covering the unvested shares held by a Participant under this
Article Three shall immediately terminate should there occur an Involuntary
Termination of that Participant's Service (other than for Misconduct) within
eighteen (18) months after such Corporate Transaction.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the shares are issued under this
Article Three or at any time while those shares remain outstanding, to provide
for the automatic termination of the Corporation's repurchase rights with
respect to those shares should there occur a Change in Control. The Plan
Administrator shall also have full power and authority to condition the
termination of those repurchase rights upon the Participant's cessation of
Service by reason of an Involuntary Termination (other than for Misconduct)
within a specified period following such Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing such unvested shares. To the
extent an escrow arrangement is utilized, the unvested shares and any securities
or other assets distributed with respect to such shares (other than regular cash
dividends) shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such (or the distributed securities or assets) vests.
B. The Participant shall have no right to transfer any
unvested shares of Common Stock issued to him or her under the Stock Issuance
Program. For purposes of this restriction, the term "transfer" shall include
(without limitation) any sale, pledge, assignment, encumbrance, gift or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be canceled in
accordance with substantially the same procedure in effect under Section I.B.3
of this Article Three, and neither the Participant nor the proposed transferee
shall have any rights with respect to such canceled shares. However, the
Participant shall have the right to make a gift of unvested shares acquired
under the Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the transferee of such shares delivers to the Corporation a written agreement to
be bound by all the provisions of the Stock Issuance Program and the Issuance
Agreement applicable to the gifted shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Four program shall be limited to (i)
those individuals who are serving as non-employee Board members on the Automatic
Option Grant Program Effective Date, (ii) those individuals who are first
elected or appointed as non-employee Board members on or after such Effective
Date, whether through appointment by the Board or election by the Corporation's
shareholders, and (iii) those individuals who are re-elected to serve as
non-employee Board members at one or more Annual Shareholders Meetings held
after the Section 12(g) Registration Date. In no event, however, shall a
non-employee Board member be eligible to receive an automatic option grant
pursuant to clause (i) or (ii) above if such individual has
13
at any time been in the prior employ of the Corporation (or any parent or
subsidiary corporation), but such individual shall be eligible to receive one or
more automatic option grants pursuant to clause (iii). Each non-employee Board
member eligible to receive one or more automatic option grants pursuant to the
foregoing criteria shall be designated an Eligible Director for purposes of the
Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION
A. Grant Dates. Option grants shall be made under this
Article Four on the dates specified below:
1. Initial Grant. Each Eligible Director who is first
elected or appointed as a non-employee Board member after the Automatic Option
Grant Program Effective Date shall automatically be granted, on the date of such
initial election or appointment (as the case may be), a Non-Statutory Option to
purchase 16,666 shares of Common Stock upon terms and conditions of this Article
Four.
2. Annual Grant. On the date of each Annual
Shareholders Meeting, beginning with the first Annual Meeting held after the
Section 12(g) Registration Date, each individual who will continue to serve as
an Eligible Director shall automatically be granted, whether or not such
individual is standing for re-election as a Board member at that Annual Meeting,
a Non-Statutory Option to purchase an additional 3,333 shares of Common Stock
upon the terms and conditions of this Article Four, provided he or she has
served as a non-employee Board member for at least six (6) months prior to the
date of such Annual Meeting.
3. No Limitation. There shall be no limit on the
number of shares for which any one Eligible Director may be granted stock
options under this Article Four over his or her period of Board service.
B. Exercise Price. The exercise price per share of Common
Stock subject to each automatic option grant made under this Article Four shall
be equal to one hundred percent (100%) of the Fair Market Value per share of
Common Stock, on the automatic grant date.
C. Payment. The exercise price shall be payable in one of the
alternative forms specified below. To the extent the option is exercised for any
unvested shares, the Optionee must execute and deliver to the Corporation a
stock purchase agreement for those unvested shares which provides the
Corporation with the right to repurchase, at the exercise price paid per share,
any unvested shares held by the Optionee at the time of cessation of Board
service and which precludes the sale, transfer or other disposition of the
purchased shares at any time while those shares remain subject to the
Corporation's repurchase right.
(i) full payment in cash or check drawn
to the Corporation's order;
(ii) full payment in shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date;
(iii) full payment in a combination of
shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date and cash
or check drawn to the Corporation's order; or
(iv) to the extent the option is exercised
for vested shares, full payment through a sale and remittance
procedure pursuant to which the Optionee shall provide irrevocable
written instructions to (a) a Corporation designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale transaction.
Except to the extent the sale and remittance
procedure specified above is used for the exercise of the option for vested
shares, payment of the exercise price for the purchased shares must accompany
the exercise
14
notice.
D. Option Term. Each automatic grant under this Article
Four shall have a maximum term of ten (10) years measured from the automatic
grant date.
E. Exercisability/Vesting. Each automatic grant shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares in accordance with the applicable
schedule below:
Initial Grant. Each initial 16,666-share automatic grant shall
vest, and the Corporation's repurchase right shall lapse, in a series
of four successive and equal annual installments over the Optionee's
period of continued service as a Board member, with the first such
installment to vest upon Optionee's completion of one (1) year of Board
service measured from the automatic grant date.
Annual Grant. Each additional 3,333-share automatic grant
shall vest, and the Corporation's repurchase right shall lapse, upon
the Optionee's completion of one (1) year of Board service measured
from the automatic grant date.
Vesting of the option shares shall be subject to acceleration,
as provided in Section II.G.3 and Section III of this Article Four. In no event
shall any additional option shares vest after the Optionee's cessation of Board
service, except as otherwise provided in Section II.G.3 of this Article Four.
F. Non-Transferability. During the lifetime of the Optionee,
each automatic option grant, together with the limited stock appreciation right
pertaining to that option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee, except for a transfer of the
option by will or by the laws of descent and distribution following Optionee's
death.
G. Effect of Termination of Board Service.
1. Should the Optionee cease to serve as a Board
member for any reason (other than death or Permanent Disability) while holding
one or more automatic option grants under this Article Four, then such
individual shall have a six (6)-month period following the date of such
cessation of Board service in which to exercise each such option for any or all
of the shares of Common Stock in which the Optionee is vested at the time of
such cessation of Board service. However, each such option shall immediately
terminate and cease to be outstanding at the time of such cessation of Board
service, with respect to any shares in which the Optionee is not otherwise at
that time vested under that option.
2. Should the Optionee die within six (6) months
after cessation of Board service, then any automatic option grant held by the
Optionee at the time of death may subsequently be exercised. for any or all of
the shares of Common Stock in which the Optionee is vested at the time of his or
her cessation of Board service (less any option shares subsequently purchased by
the Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
The right to exercise such option shall lapse upon the expiration of a twelve
(12)- month period measured from the date of the Optionee's death.
3. Should the Optionee die or become Permanently
Disabled while serving as a Board member, then the shares of Common Stock at the
time subject to each automatic option grant held by such Optionee under this
Article Four which are vested may be purchased by the Optionee (or the
representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) pursuant to the option for a
twelve (12)-month period following the date of the Optionee's cessation of
Board service.
4. In no event shall any automatic grant under this
Article Four remain exercisable after the expiration date of the ten (10)-year
option term. Upon the expiration of the applicable post-service exercise period
15
under subparagraphs 1 through 3 above or (if earlier) upon the expiration of the
ten (10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any option shares in which the Optionee was vested at the time
of his or her cessation of Board service but for which such option was not
subsequently exercised.
H. Shareholder Rights. The holder of an automatic option grant
under this Article Four shall have none of the rights of a shareholder with
respect to any shares subject to such option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form of Automatic Stock
Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option under this Article
Four but not otherwise vested shall automatically vest in full so that each such
option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for all or any
portion of those shares as fully-vested shares. Immediately following the
consummation of the Corporate Transaction, all automatic option grants under
this Article Four shall terminate and cease to be outstanding, except to the
extent one or more of those grants are assumed by the acquiring entity or its
parent corporation.
B. In connection with any Change in Control of the
Corporation, the shares of Common Stock at the time subject to each outstanding
option under this Article Four but not otherwise vested shall automatically vest
in full so that each such option shall, immediately prior to the specified
effective date for the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to that option and may be
exercised for all or any portion of those shares as fully-vested shares. Each
such option shall remain so exercisable for all the option shares following the
Change in Control, until the expiration or sooner termination of the option
term.
C. Should a Hostile Take-Over occur at any time following the
Section 12(g) Registration Date, then the Optionee shall have a thirty (30)-day
period in which to surrender to the Corporation each option held by him or her
under this Article Four for a period of at least six (6) months. The optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to the surrendered option (whether or not those shares
are otherwise at the time fully vested) over (ii) the aggregate exercise price
payable for such shares. The cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. Neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option surrender and cash distribution. The
shares of Common Stock subject to each option surrendered in connection with the
Hostile Take-Over shall not be available for subsequent issuance under the Plan.
D. The automatic option grants outstanding under this Article
Four shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program,
together with the automatic option grants outstanding under this Article Four,
may not be amended at intervals more frequently than once every six (6) months,
other than to the extent necessary to comply with applicable Federal income tax
laws and regulations.
16
ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of July in the calendar
year immediately preceding the calendar year for which the annual retainer fee
which is the subject of that election is otherwise payable. Each non-employee
Board member who files such a timely election shall automatically be granted an
option under this Director Fee Option Grant Program on the first trading day in
January in the calendar year for which the annual retainer fee which is the
subject of that election would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedures specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Number of Option Shares: The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3 %), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. Exercise and Term of Options. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Board service in the
calendar year for which the annual retainer fee which is the subject of his or
her election under this Article Five would otherwise be payable. Each option
shall have a maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
Board service for any reason (other than death or Permanent Disability) while
holding one or more options under this Article Five, then each such option shall
remain exercisable, for any or all of the shares for which the option is
exercisable at the time of such cessation of Board service, until the earlier of
(i) the expiration of the ten (10)-year option term or (ii) the expiration of
the three (3)-year period measured from the date of such cessation of Board
service. However, each option held by the Optionee under this Article Five at
the time of his or her cessation of Board service shall immediately terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable.
17
E. Death or Permanent Disability. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Article Five shall immediately
become exercisable for all the shares of Common Stock at the time subject to
that option, and the option may, during the three (3)-year period following such
cessation of Board service, be exercised for any or all of those shares as
fully-vested shares.
Should the Optionee die while holding one or more options
under this Article Five, then each such option may be exercised, for any or all
of the shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Each such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier or (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
ARTICLE SIX
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant and Automatic Option Grant
Programs or the purchase of one or more shares issued to such Participant under
the Stock Issuance Program, including the satisfaction of any Federal, state and
local income and employment tax obligations arising therefrom, by:
(i) authorizing the extension of a loan
from the Corporation to such Optionee
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or Participant, or
(ii) permitting the Optionee or
Participant to pay the exercise price or purchase price for the
purchased Common Stock in installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate at the time such exercise price or purchase price
becomes due and payable. Loans or installment payments may be authorized with or
without security or collateral. In all events, the maximum credit available to
the Optionee or Participant may not exceed the option or purchase price of the
acquired shares (less the par value of such shares) plus any Federal, state and
local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this Section I shall be subject
to forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may in its discretion deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, (i) no such amendment or modification shall adversely
affect rights and obligations with respect to options at the time outstanding
under the Plan, nor adversely affect the rights of any Participant with respect
to Common Stock issued under the Stock Issuance Program prior to such action,
unless the Optionee or Participant consents to such amendment. In addition, the
Board may not, without the approval of the Corporation's shareholders, amend the
Plan to (i) increase the maximum number of shares issuable under the Plan or the
maximum amount of shares for which any one individual participating in the Plan
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances for any given year under the Plan, except for
permissible adjustments under Article One, (ii) materially modify the
eligibility requirements for Plan participation, or (iii) otherwise materially
increase the benefits accruing to Plan participants.
B. (i) Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and (ii) shares of Common
Stock may be issued under the Stock Issuance Program, which are in both
instances in excess of the number of shares then available for issuance under
the Plan, provided any excess shares actually issued under the Discretionary
Option Grant or the Stock Issuance Programs are held in escrow until shareholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
share issuances are made, then (i) any unexercised excess options shall
terminate and cease to be exercisable and (ii) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of any stock options granted under Article Two or upon
the issuance of any shares under Article Three shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section III of Article Six and such
supplemental rules as the Plan Administrator may from time to time adopt
(including the applicable safe-harbor provisions of Rule 16b-3 of the Securities
and Exchange Commission), provide any or all holders of Non-Statutory Options or
unvested shares under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Federal, state and local income and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares (the "Taxes"). Such
right may be provided to any such holder in either or both of the following
formats:
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-- The holder of the Non-Statutory Option or unvested shares
may be provided with the election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of
such Non-Statutory Option or the vesting of such shares, a portion of
those shares with an aggregate Fair Market Value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
-- The Plan Administrator may, in its discretion, provide
the holder of the Non-Statutory Option or the unvested shares with the
election to deliver to the Corporation, at the time the Non-Statutory
Option is exercised or the shares vest, one or more shares of Common
Stock previously acquired by such individual (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes
incurred in connection with such option exercise or share vesting (not
to exceed one hundred percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Discretionary Option Grant and Stock Issuance Programs
of this Plan became effective immediately upon adoption of the Plan by the Board
on March 23, 1995 (the "Plan Effective Date"). The Plan was approved by the
Corporation's shareholders on April 12, 1995. On December 9, 1995, the Board
approved an increase of 600,000 shares (which number reflects the 1-for-3
reverse stock split that was effected immediately prior to the consummation of
the initial public offering of the Common Stock) in the aggregate number of
shares issuable under the Plan; such increase was approved by the Corporation's
shareholders on December 19, 1995. The Automatic Option Grant Program of this
Plan became effective on the Automatic Option Grant Program Effective Date. On
March 19, 1997, the Board approved an increase of 500,000 shares in the
aggregate number of shares issuable under the Plan, and on April 23, 1997, the
Board approved a change in the aggregate number of shares of Common Stock for
which any one individual participating in the Plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances,
from a limitation of 250,000 shares over the term of the Plan, to an annual
limitation not in excess of 50% of the total number of shares for which stock
options, separately exercisable stock appreciation rights and direct stock
issuances may be granted over the term of the Plan. Both of such amendments
became effective on April 23, 1997, and are subject to the approval of
stockholders at the 1997 Annual Stockholders Meeting.
B. The Plan was amended by the Board on March 16, 1996 to
implement the Director Fee Option Grant Program, subject to approval of the
amendment at the 1996 Annual Stockholders Meeting. If such stockholder approval
is not obtained, then the Director Fee Option Grant Program will terminate.
C. Each stock option grant outstanding under the Predecessor
Plans immediately prior to the Plan Effective Date shall be incorporated into
this Plan and treated as an outstanding option under this Plan, but each such
option shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant, and nothing in this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
options with respect to their acquisition of shares of Common Stock thereunder.
However, the Plan Administrator shall have complete discretion to extend, under
such circumstances as it may deem appropriate, one or more provisions of this
Plan to any or all of the stock options which are incorporated into this Plan
from the Predecessor Plans but which do not otherwise contain such provisions.
D. No further option grants or stock issuances shall be
made under the Predecessor Plans from and after the Plan Effective Date.
E. The Plan shall terminate upon the earlier of (i) February
28, 2005 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options or stock
appreciation rights granted under the Plan or the issuance of shares (whether
vested or unvested) under the Stock Issuance Program. If the date of termination
is determined under clause (i) above, then all option grants and unvested share
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
option grants or share issuances.
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V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or share issuances under the Plan shall be used
for general corporate purposes.
VII. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
under the Plan, the issuance of any shares under the Stock Issuance Program, and
the issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any Optionee
or Participant.
B. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the
Commonwealth of Pennsylvania as such laws are applied to contracts entered into
and performed in such Commonwealth.
C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
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