Exhibit 10.1
NEOWARE SYSTEMS, INC.
2004 EQUITY INCENTIVE PLAN
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SECTION 1. PURPOSE OF THE PLAN; EFFECTIVE DATE.
1.1. PURPOSE. This 2004 Equity Incentive Plan (the "Plan") is intended
to promote the interests of Neoware Systems, Inc., a Delaware corporation (the
"Company"), by: (a) enabling the Company and its subsidiaries to recruit and
retain highly qualified employees, directors and consultants; (b) providing
those employees, directors and consultants with an incentive for productivity;
and (c) providing those employees, directors and consultants with an opportunity
to share in the growth and value of the Company.
1.2 EFFECTIVE DATE. The Plan was approved by the Board on October 19,
2004 and will become effective immediately upon its adoption by the stockholders
of the Company. The date of its approval by the stockholders is hereby
designated the "Plan Effective Date."
SECTION 2. DEFINITIONS. For the purposes of the Plan, the following definitions
shall be in effect:
2.1. AWARD: a grant of Options, SARs, Restricted Shares or Restricted
Share Units pursuant to the provisions of the Plan.
2.2. AWARD AGREEMENT: with respect to any particular Award, the written
document that sets forth the terms of that Award.
2.3. BOARD: the Company's Board of Directors.
2.4. CHANGE IN CONTROL: a change in ownership or control of the Company
effected through any of the following transactions:
2.4.1. the direct or indirect acquisition by any person or
related group of persons (other than the Company or any majority-owned
subsidiary or any employee benefit plan sponsored by the Company or any trust or
investment manager for the account of such a plan) of beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing
more than 50% of the total combined voting power of the Company's outstanding
securities;
2.4.2. a change in the composition of the Board over a period
of 24 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;
2.4.3. the consummation of any consolidation, share exchange
or merger of the Company (a) in which the stockholders of the Company
immediately prior to such transaction do not own at least a majority of the
voting power of the entity which survives/results from that transaction, or (b)
in which a stockholder of the Company who does not own a majority of the voting
stock of the Company immediately prior to such transaction, owns a majority of
the Company's voting stock immediately after such transaction; or
2.4.4. the liquidation or dissolution of the Company or any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company,
including stock held in subsidiary corporations or interests held in subsidiary
ventures.
2.5. CODE: the Internal Revenue Code of 1986, as amended.
2.6 COMMITTEE: the committee appointed by the Board to administer and
interpret the Plan in accordance with Section 3.1.
2.7. COMMON STOCK: shares of the Company's common stock.
2.8 EMPLOYEE: an individual who performs services while in the employ
of the Company or any of its Subsidiaries, 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.
2.9. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended.
2.10 EXERCISE DATE: the date on which all conditions for exercise,
including without limitation the giving of written notice to the Company and
payment of the exercise price, have been satisfied.
2.11 FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
2.11.1. NASDAQ. 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.
2.11.2 OTHER NATIONAL SECURITIES EXCHANGE. 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 Committee to be
the primary market for the Common Stock, as such price is officially quoted in
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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.
2.11.3 NOT PUBLICLY TRADED. 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 Committee in its sole
and absolute discretion.
2.12. INCENTIVE STOCK OPTION: an Option intended to be and designated
as an "Incentive Stock Option" within the meaning of Section 422 of the Code.
2.13. MISCONDUCT: (a) the commission of any act of fraud, embezzlement
or dishonesty by the Participant, (b) any unauthorized use or disclosure by such
individual of confidential information or trade secrets of the Company or of any
Subsidiary, (c) any failure to perform any specific lawful direction of the
Company's Board or officers of the Company, (d) any refusal or neglect to
perform such individual's duties in connection with his or her employment, (e)
any conviction of, or entering of a plea of nolo contendere to, a crime which
constitutes a felony, or (f) any other misconduct by such individual adversely
affecting the business or affairs of the Company, each as determined by the
Committee in its sole and absolute discretion; provided, however that if a
Participant and the Company or any of its Subsidiaries have entered into an
employment agreement, consulting agreement or other similar agreement that
specifically defines "misconduct," "cause" or another similar term, then with
respect to that Participant, "Misconduct" shall have the meaning ascribed to
such term in that agreement. The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Company or any Subsidiary may
consider as grounds for the dismissal or discharge of any Participant or other
individual in the Service of the Company.
2.14. NON-QUALIFIED OPTION: an Option that is not an Incentive Stock
Option.
2.15. OPTION: an option to purchase shares of Common Stock (including
Restricted Shares, if the Committee so determines) granted pursuant to Section
6, 7 or 8 hereof.
2.16. OPTIONEE: a person to whom an Option is granted under the Plan.
2.17. PARTICIPANT: a person who is issued an Award under the Plan.
2.18. PERMANENT DISABILITY: a permanent and total disability as defined
in Section 22(e)(3) of the Code.
2.19 QUALIFYING PERFORMANCE CRITERIA: the performance criteria set
forth in Section 13.3.2.
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2.20. RESTRICTED SHARES: shares that are granted under and subject to
restrictions pursuant to Section 10 of the Plan.
2.21. RESTRICTED SHARE UNIT: a right granted under and subject to
restrictions pursuant to Section 11 of the Plan.
2.22. SAR: a stock appreciation right granted under and described in
Section 9 of the Plan.
2.23. SERVICE: the performance of services on a periodic basis for the
Company (or any Subsidiary) in the capacity of an Employee, a non-employee
member of the Board or an independent consultant, except to the extent otherwise
specifically provided in the applicable Award Agreement.
2.24. SUBSIDIARY: each corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided each such
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
2.25 TEN PERCENT STOCKHOLDER: a stockholder owning 10% or more of the
total combined voting power of all classes of stock of the Company or any
related corporation of the Company.
SECTION 3. ADMINISTRATION OF THE PLAN.
3.1. THE COMMITTEE. The Board shall appoint a Committee to administer
and interpret the Plan. The Committee shall consist of two or more Board
members, each of whom is "independent" as defined in the rules of the Nasdaq
Stock Market, is an "outside director" as defined under Code Section 162(m) and
related Treasury Regulations and may be a "non-employee director" as defined
under Rule 16b-3 of the Exchange Act. Members of the Committee shall serve for
such period as the Board may decide. The Committee shall have full power and
authority (subject to the express provisions of the Plan, including without
limitation Sections 3.2, 3.3 and 3.4 below) to establish rules and regulations
for the proper administration of the Plan and to make such determinations under,
and issue such interpretations of, the provisions of the Plan and any
outstanding Award thereunder as it may deem necessary or advisable. Decisions of
the Committee shall be final and binding on all parties. No member of the Board,
or delegate thereof, will be liable for any good faith determination or act in
connection with the Plan or any Award.
3.2. DELEGATION OF AUTHORITY. The Board may appoint one or more
officers of the Company, Board members, or a committee of officers and/or Board
members to act individually or jointly, as set forth in the delegating
resolution. To the extent permitted in accordance with Section 157 of the
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Delaware General Corporation Law and within the limits established by the Board
at the time of the delegation, each such person shall have the authority to
grant Awards to Participants who are not subject, as a result of their
relationship to the Company or ownership of the Company's securities, to Section
16 of the Exchange Act, and solely with respect to any Awards so granted,
references in the Plan to the Committee will be deemed also to refer to such
persons to whom authority has been granted.
3.3. APPROVAL OF DISCRETIONARY DIRECTOR GRANTS. The Board must ratify
any grants of Awards under the Plan (other than those made pursuant to Section
7) to any non-employee Board member.
3.4. ADMINISTRATION OF NON-EMPLOYEE DIRECTOR GRANTS. Administration of
the grants made pursuant to Section 7 of the Plan shall be self-executing, and
the Committee shall exercise no discretionary functions with respect to such
option grants. Administration of discretionary grants made to non-employee Board
members under Section 8 shall be administered by the Committee, subject to
Section 3.3.
SECTION 4. ELIGIBILITY.
4.1. ELIGIBLE PERSONS. Subject to the terms of the Plan, the persons
eligible to participate in the Plan shall be limited to the following:
4.1.1 officers and other Employees of the Company (or any
Subsidiary);
4.1.2. non-employee members of the Board and the non-employee
members of the board of directors of any Subsidiary; and
4.1.3. consultants who provide Services to the Company (or any
Subsidiary), provided such Services are not in connection with the offer or sale
of securities in a capital-raising transaction.
4.2. DETERMINATION OF ELIGIBILITY. Subject to the terms of the Plan,
the Committee and, to the extent consistent with the Plan and the Board's
delegation, the persons to whom authority has been delegated under Section 3.2,
shall have full authority to determine which eligible individuals are to receive
Awards.
SECTION 5. STOCK SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES AVAILABLE FOR GRANT. The maximum number of shares
of Common Stock which may be issued under the Plan shall not exceed 1,500,000
shares, plus up to an aggregate maximum of 1,750,000 shares subject to options
outstanding as of December 1, 2004 under the Company's 1995 Stock Option Plan
and 2002 Non-Qualified Stock Option Plan that terminate, expire or are canceled
without having been exercised on or after December 1, 2004, subject to
adjustment from time to time in accordance with the provisions of Section 5.4.
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5.2. ANNUAL PER-PARTICIPANT LIMIT. The aggregate number of shares of
Common Stock subject to Options or SARs granted under the Plan in any fiscal
year of the Company to any one Participant in the Plan shall not exceed 500,000
shares. The aggregate number of shares subject to Restricted Share or Restricted
Share Units granted under the Plan during any fiscal year of the Company to any
one Participant shall not exceed 250,000. Notwithstanding the foregoing
limitations, no non-employee Board member may receive Awards in any given fiscal
year of the Company (not including automatic grants of Options under Section 7)
with respect to more than 100,000 shares. Notwithstanding anything to the
contrary in the Plan, the foregoing limitations shall be subject to adjustment
under Section 5.4.
5.3. FORFEITED AWARDS AND OTHER SHARES AGAIN AVAILABLE FOR GRANT. If
and to the extent that an Option, SAR or Restricted Share Unit expires,
terminates or is canceled, surrendered or forfeited for any reason without
having been exercised or settled in full, the shares of Common Stock associated
with that Option, SAR or Restricted Share Unit will again become available for
grant under the Plan. Similarly, if and to the extent any Restricted Share is
canceled, forfeited or repurchased for any reason, that share will again be
available for grant under the Plan. Further, if any share that would otherwise
be issued to a Participant in connection with (a) his or her exercise of an
Option or (b) settlement of an SAR or Restricted Share Unit is instead withheld
or surrendered by the Company pursuant to Section 13.2 in settlement of a tax
withholding obligation associated with an Option, SAR or Restricted Share Unit
or is withheld by the Company in satisfaction of the exercise price payable upon
exercise of an Option or SAR, that share will again become available for grant
under the Plan. The number of shares that will be considered issued under the
Plan shall equal the number of shares issued upon exercise or settlement of an
Award and shall not include the number of shares returned to the Company upon
cancellation, expiration, forfeiture, surrender or repurchase of an Award, or
the number of shares delivered to the Company in payment or satisfaction of the
purchase price, exercise price or tax withholding obligation resulting from an
Award.
5.4. ADJUSTMENT. 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 Company's receipt of
consideration, then appropriate adjustments shall be made to (a) the maximum
number and/or class of securities issuable under the Plan, (b) the maximum
amount and/or class of securities for which any one individual participating in
the Plan may be granted Options, separately exercisable SARs, Restricted Shares
and Restricted Share Units for any given year under the Plan, (c) the number
and/or class of securities for which automatic Option grants are to be
subsequently made per eligible non-employee Board member under Section 7 of the
Plan, (d) the number and/or class of securities and price per share in effect
under each Option and SAR outstanding under the Plan, and (e) the number of
Restricted Share Units outstanding under the Plan and/or the class of securities
referenced for determining payment in respect thereof. Such adjustments to
outstanding Awards are to be effected in a manner intended to avoid the
enlargement or dilution of rights and benefits under such Awards. The
adjustments determined by the Committee shall be final, binding and conclusive.
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SECTION 6. STOCK OPTIONS; IN GENERAL
6.1. OPTION GRANT AND AWARD AGREEMENT. Subject to the terms of the
Plan, the Committee and, subject further to the delegating resolution, the
persons who are delegated authority under Section 3.2, are authorized to grant
Incentive Stock Options and Non-Qualified Options (including Options to purchase
Restricted Shares) to eligible individuals. Each granted Option shall be
evidenced by an Award Agreement in the form that is approved by the Committee
and that is not inconsistent with the terms and conditions of the Plan.
6.1.1. NO ISOS FOR NON-EMPLOYEES. Individuals who are not
Employees may only be granted Non-Qualified Options.
6.1.2. $100,000 ISO LIMIT. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more Incentive Stock Options granted to any Employee under the Plan
(or any other option plan of the Company or any Parent or Subsidiary) may for
the first time become exercisable during any one calendar year shall not exceed
the sum of $100,000. To the extent the Employee holds two 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 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
Stock Option first becomes exercisable in any calendar year exceed the
applicable $100,000 limitation, then that Option may nevertheless be exercised
in that calendar year (or thereafter in accordance with its terms) for the
excess number of shares as a Non-Qualified Option.
6.2. EXERCISE PRICE. The exercise price per share of each option
granted under the Plan shall be fixed by the Committee, in accordance with the
following provisions: The exercise price per share of Common Stock subject to an
Option shall in no event be less than 100% of the Fair Market Value of such
Common Stock on the grant date; provided that, if the individual to whom an
Incentive Stock Option is granted is a Ten Percent Stockholder, then the
exercise price per share shall not be less than 110% of the Fair Market Value
per share of Common Stock on the grant date.
6.3 EXERCISABILITY AND TERM OF OPTIONS. Each option granted under the
Plan shall be exercisable at such time or times and during such period as is
determined by the Committee and set forth in the Award Agreement evidencing the
grant. No such option, however, shall have a maximum term in excess of ten years
measured from the grant date (five years if the option is an Incentive Stock
Option granted to a Ten Percent Stockholder).
6.4. PAYMENT OF THE EXERCISE PRICE. The exercise price shall become
immediately due upon exercise of the Option and shall be payable in one or more
of the forms specified below as permitted by the Committee:
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6.4.1 by cash or check made payable to the Company;
6.4.2. in shares of Common Stock held by the Optionee;
6.4.3. pursuant to a broker assisted exercise; or
6.4.4 by such other forms of consideration as determined by
the Committee.
6.5. TRANSFER OF AN OPTION.
6.5.1 IN GENERAL; NO TRANSFERS. During the lifetime of the
Optionee, the Option, together with any related SAR, 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 or, with respect to Options other
than Incentive Stock Options, if permitted in any specific case by the
Committee, pursuant to a domestic relations order (as defined under the Code or
Treasury Regulations).
6.5.2. COMMITTEE MAY PERMIT TRANSFER OF NON-QUALIFIED OPTIONS.
Notwithstanding the foregoing provisions of this Section 6.5, the Committee may
provide that an Optionee may transfer Non-Qualified Options to family members or
other persons or entities according to such terms as the Committee may
determine, provided that the Optionee receives no consideration for the transfer
of an Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.
6.6. NO STOCKHOLDER RIGHTS. An Optionee shall have no stockholder
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.
6.7. EXERCISE AND FORFEITURE FOLLOWING TERMINATION OF SERVICE.
6.7.1. IN GENERAL. Upon a Participant's death or termination
of Service, all Options and SARs held by the Participant that are not
exercisable immediately prior to the death or termination of Service shall
terminate immediately.
6.7.2. EXERCISE PERIOD FOLLOWING TERMINATION. In the event of
a Participant's death or termination of Service, the following provisions shall
govern the exercise period applicable to the portion of Options and SARs held by
the Participant that is exercisable immediately prior to the Participant's death
or termination of Service:
(a) Other than Death, Permanent Disability or
Misconduct. If a Participant terminates Service for any reason other than death,
Permanent Disability or Misconduct, then each outstanding Option and SAR held by
such Participant shall remain exercisable during the three-month period
following the date of such termination of Service.
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(b) Disability. If a Participant terminates Service
by reason of his or her Permanent Disability, then each outstanding Option and
SAR held by the Participant shall remain exercisable during the 12-month period
following the date of such termination of Service.
(c) Death. If a Participant dies while holding one or
more outstanding Options or SARs, then each such Option and SAR shall remain
exercisable during the 12-month period following the date of the Participant's
death. During such limited period, the Options and SARs may be exercised by the
personal representative of the Participant's estate or by the person or persons
to whom the Options and SARs are transferred pursuant to the Participant's will
or in accordance with the laws of descent and distribution.
(d) Misconduct. Upon termination of the Participant's
Service for Misconduct, all outstanding Options and SARs held by the Participant
shall terminate immediately and cease to be outstanding.
(e) Expiration. Subject to the discretion of the
Committee under Section 6.7.4, upon the expiration of the applicable exercise
period provided for in this Section 6.7.2 or (if earlier) upon the expiration of
the term of the Option or SAR, the Option or SAR shall terminate and cease to be
exercisable for any shares for which the Option or SAR has not been exercised.
(f) Change of Control Agreements. Notwithstanding any
other provision of this Section 6.7, with respect to a particular Participant,
if there is any conflict between this Section 6.7 and any employment agreement
or change of control agreement between the Participant and the Company, such
agreement will control.
6.7.3. NO EXERCISE AFTER EXPIRATION OF TERM. Notwithstanding
the foregoing or any other provision of this Plan, under no circumstances shall
any Option or SAR be exercisable after the specified expiration date of the
Option's term.
6.7.4. COMMITTEE DISCRETION. The Committee shall have complete
discretion, exercisable either at the time the Option is granted or at any time
while the Option remains outstanding:
(a) to extend the period of time for which the Option
(other than Options granted pursuant to Section 7) or SAR is to remain
exercisable following the Participant's death or cessation of Service other than
for cause from the limited period in effect under Section 6.7.2 to such greater
period of time as the Committee shall deem appropriate; provided that in no
event shall such option be exercisable after the specified expiration date of
the Option or SAR term; and/or
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(b) to permit one or more Options or SARs held by the
Participant (other than Options granted pursuant to Section 7) to be exercised,
during the limited post-Service exercise period applicable under this Section
6.7, not only with respect to the number of vested shares of Common Stock for
which each such Option or SAR is exercisable at the time of the Participant's
cessation of Service but also with respect to any other shares subject to that
Option or SAR.
6.8 NO REPRICING. Other than in connection with a change in the
Company's capitalization (as described in Section 5.4), the exercise price of an
Option may not be reduced without stockholder approval (including canceling
previously awarded Options and regranting them with a lower exercise price).
SECTION 7. STOCK OPTIONS; AUTOMATIC GRANTS FOR NON-EMPLOYEE DIRECTORS.
7.1. ELIGIBILITY. The individuals eligible to receive automatic option
grants pursuant to the provisions of this Section 7 shall be limited to (a)
those individuals who are serving as non-employee Board members on the Plan
Effective Date, (b) those individuals who are first elected or appointed as
non-employee Board members on or after the Plan Effective Date, whether through
appointment by the Board or election by the Company's stockholders, and (c)
those individuals who are re-elected to serve as non-employee Board members at
one or more annual meeting of the Company's stockholders (each an "Annual
Stockholders Meeting") held on or after the Plan Effective Date. 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.
7.2. GRANT DATES. Option grants shall be made under this Section 7 on
the dates specified below:
7.2.1. INITIAL GRANT. Each Eligible Director who is first
elected or appointed as a non-employee Board member on or after the Plan
Effective Date shall automatically be granted, on the date of such initial
election or appointment (as the case may be), a Non-Qualified Option to purchase
10,000 shares of Common Stock upon terms and conditions of this Section 7.
7.2.2. ANNUAL GRANT. On the date of each Annual Stockholders
Meeting, beginning with the first Annual Stockholders Meeting held on the Plan
Effective Date, each individual who will continue to serve after such meeting as
an Eligible Director shall automatically be granted a Non-Qualified Option to
purchase an additional 7,500 shares of Common Stock upon the terms and
conditions of this Section 7, provided he or she has served as a non-employee
Board member for at least six months prior to the date of such Annual
Stockholders Meeting.
7.3. NO LIMITATION. There shall be no limit on the number of shares of
Common Stock for which any one Eligible Director may be granted Options under
this Section 7 over his or her period of Board service.
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7.4. EXERCISE PRICE. The exercise price per share of Common Stock
subject to each Option grant made under this Section 7 shall be equal to 100% of
the Fair Market Value per share of Common Stock, on the automatic grant date.
7.5. OPTION TERM. Each Option grant under this Section 7 shall have a
term of ten years measured from the automatic grant date, subject to earlier
termination in accordance with Section 7.7 below.
7.6. EXERCISABILITY AND VESTING. Each Option grant under this Section 7
shall vest and be exercisable for any or all of the shares subject thereto, as
follows.
7.6.1. INITIAL GRANT. The shares of Common Stock subject to
each Option granted pursuant to Section 7.2.1 shall vest and be exercisable in
full six months from the date of grant. The right to exercise such Options will
expire on the tenth anniversary of the date on which the Options were granted.
7.6.2. ANNUAL GRANT. The shares subject to each Option granted
pursuant to Section 7.2.2 shall vest and be exercisable on a cumulative basis as
to 3,750 shares beginning six months from the date of grant and 3,750 additional
shares of Common Stock beginning on the first anniversary of the date of grant.
The right to exercise such Options will expire on the tenth anniversary of the
date on which the Options were granted.
7.7. EFFECT OF TERMINATION OF BOARD SERVICE. Upon cessation of Service
as a non-employee Board member (for reasons other than retirement or death),
only those Options exercisable at the date of cessation of service shall be
exercisable by the non-employee Board member. Such Options shall be exercisable
for a period of three months from cessation of Service of the non-employee Board
member or the expiration of the Option, whichever period is shorter.
Upon the retirement or death of a non-employee Board member, Options
shall be exercisable as follows:
7.7.1 RETIREMENT. Upon retirement as a non-employee Board
member after the non-employee Board member has served for at least six
consecutive years as a director, all Options shall continue to be exercisable
during their terms as if such person had remained a non-employee Board member.
7.7.2 DEATH. In the event of the death of a non-employee Board
member while a member of the Board, the Options granted to him or her shall be
exercisable, to the extent then exercisable, for a period of one year from the
date of the non-employee Board member's death, or until the expiration of the
Option, whichever period is shorter.
7.8. OTHER OPTION TERMS APPLY. Except to the extent inconsistent with
the terms of this Section 7, all Options granted pursuant to this Section 7
shall be subject to the terms and conditions of Sections 1 through 6 and
Sections 12 and 13 of the Plan.
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SECTION 8. DISCRETIONARY OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
8.1. OPTION GRANTS. The Committee, upon ratification by the Board,
shall have the authority to grant discretionary Non-Qualified Options to
non-employee Board members under this Section 8. Participants granted Options
under this Section 8 may be selected from among those non-employee Board members
who, in the opinion of the Committee and the Board, have the capacity to devote
themselves to the Company's success.
8.2. OPTION TERMS. Except to the extent inconsistent with the terms of
this Section 8, each Option granted pursuant to this Section 8 shall be a
Non-Qualified Option governed by the terms and conditions specified under
Sections 1 through 6 and 12 and 13 of the Plan.
8.2.4. EFFECT OF TERMINATION OF SERVICE. Subject to the
discretion of the Committee under Section 6.7.4, Section 7.7 of the Plan shall
apply to the termination of Options granted to non-employee Board members under
this Section 8, except that upon termination of the non-employee Board member's
Service for Misconduct, all outstanding Options held by the non-employee Board
member shall terminate immediately and cease to be outstanding.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1. IN GENERAL. Subject to the terms of the Plan, the Committee and,
subject further to the delegating resolution, the persons authorized under
Section 3.2, are authorized to grant SARs to eligible individuals. Each granted
SAR shall be evidenced by an Award Agreement in the form that is approved by the
Committee and that is not inconsistent with the terms and conditions of the
Plan. The grant of an SAR provides the holder the right to receive the
appreciation in value of shares of Common Stock between the date of grant and
the date of exercise. SARs may be granted alone ("Stand-Alone SARs") or in
conjunction with all or part of any Option ("Tandem SARs"). In the case of a
Non-Qualified Option, a Tandem SAR may be granted either at or after the time of
the grant of such Option. In the case of an Incentive Stock Option, a Tandem SAR
may be granted only at the time of the grant of such Option.
9.2. EXERCISE. An SAR may be exercised by a Participant by giving
notice of intent to exercise to the Company to the extent that the SAR is then,
by its terms, exercisable. Upon the exercise of a Stand-Alone SAR, a Participant
will be entitled to receive, in either cash and/or shares of Common Stock, as
specified in the Award Agreement or determined by the Committee, an amount equal
to the excess, if any, of (a) the Fair Market Value, as of the date the SAR (or
portion thereof) is exercised, of the shares covered by the SAR (or portion
thereof) over (b) the Fair Market Value of the shares covered by the SAR (or a
portion thereof) as of the date the SAR was granted.
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9.2.1. OTHER TERMS.
(a) Term of SAR. Unless otherwise provided in the
applicable Award Agreement at the time of grant, the term of an SAR will be ten
years, and in any event shall not exceed ten years.
(b) Exercisability. SARs will vest and become
exercisable at such time or times and subject to such terms and conditions as
will be determined by the Committee at the time of grant.
(c) Termination of Service. Unless otherwise provided
by the Committee at the time of grant, SARs will be subject to the terms of
Section 6.7 with respect to exercise following termination of Service.
SECTION 10. RESTRICTED SHARES.
10.1. IN GENERAL. Subject to the other terms of the Plan, the Committee
and, subject further to the delegating resolution, the persons authorized under
Section 3.2 may grant Restricted Shares to eligible individuals and may impose
conditions, including continued employment or performance conditions, on such
shares as it deems appropriate. Each issued Restricted Share shall be evidenced
by an Award Agreement in the form that is approved by the Committee and that is
not inconsistent with the terms and conditions of the Plan. The terms and
conditions applicable to a Restricted Share issuance, including the vesting
periods and conditions, the form of consideration payable, if any, and the
Company's right to repurchase unvested Restricted Shares upon a Participant's
termination of employment shall be determined by the Committee; provided,
however, that in no event shall the grant, issuance, retention, vesting and/or
settlement of Restricted Shares that are based on performance criteria and level
of achievement versus such criteria be subject to a performance period of less
than one year and no condition that is based upon continued employment or the
passage of time shall provide for vesting or settlement in full of a Restricted
Share Award over a period of less than three years from the date the Award is
made, other than as determined by the Committee in its sole discretion upon a
Change in Control or upon the Participant's death or cessation of Service other
than for cause.
10.2. STOCKHOLDER RIGHTS. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to him or her as
Restricted Shares 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 Company's receipt of consideration or by reason of any Change in Control,
shall be issued subject to (i) the same vesting requirements applicable to his
or her unvested shares and (ii) such escrow arrangements as the Committee shall
deem appropriate.
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10.3. UNVESTED SHARES MAY BE ESCROWED. Unvested Restricted Shares,
including any unvested Restricted Shares purchased pursuant to the exercise of
an Option, may, in the Committee's discretion, be held in escrow by the Company
until the Participant's interest in such Restricted Shares vests or may be
issued directly to the Participant with restrictive legends on the certificates
evidencing such unvested shares.
10.4. TRANSFERABILITY OF SHARES. The Participant shall have no right to
transfer any unvested shares of Common Stock issued to him or her under this
Section 10. 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. However, the
Participant shall have the right to make a gift of unvested shares issued to him
or her under this Section 10 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 Company a written agreement to be
bound by all the provisions of the Plan, including without limitation this
Section 10, and the Award Agreement applicable to the gifted shares.
SECTION 11. RESTRICTED SHARE UNITS. Subject to the other terms of the Plan, the
Committee and, subject further to the delegating resolution, the persons
authorized under Section 3.2, may grant Restricted Share Units to eligible
individuals and may impose conditions, including continued employment or
performance conditions, on such units as it may deem appropriate. Each granted
Restricted Share Unit shall be evidenced by an Award Agreement in the form that
is approved by the Committee and that is not inconsistent with the terms and
conditions of the Plan. Each granted Restricted Share Unit shall entitle the
Participant to whom it is granted to a distribution from the Company in an
amount equal to the Fair Market Value (at the time of the distribution) of one
share of Common Stock. Distributions may be made in cash and/or shares of Common
Stock. All other terms governing Restricted Share Units, such as number of units
granted, vesting, performance criteria, if any, time and form of payment and
termination of units shall be set forth in the Award Agreement; provided,
however, that in no event shall the grant, issuance, retention, vesting and/or
settlement of Restricted Share Units that is based on performance criteria and
level of achievement versus such criteria be subject to a performance period of
less than one year and no condition that is based upon continued employment or
the passage of time shall provide for vesting or settlement in full of a
Restricted Share Award over a period of less than three years from the date the
Award is made, other than as determined by the Committee upon a Change in
Control or upon the Participant's death or cessation of Service other than for
cause.
SECTION 12. CHANGE IN CONTROL. Notwithstanding anything to the contrary set
forth in this Plan, upon or in anticipation of any Change in Control, the Board
may (but shall not be required to), in its sole and absolute discretion and
without the need for the consent of any Optionee or Participant, take one or
more of the following actions contingent upon the occurrence of that Change in
Control:
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12.1. cause any or all outstanding Options and SARs held by
Participants affected by the Change in Control to become fully vested and
immediately exercisable, in whole or in part;
12.2. cause any or all outstanding Restricted Shares and Restricted
Share Units held by Participants affected by the Change in Control to become
non-forfeitable, in whole or in part;
12.3. cancel any Option held by a Participant affected by the Change in
Control in exchange for an option to purchase common stock of any successor
corporation;
12.4. cancel any or all Restricted Shares or Restricted Share Units
held by Participants affected by the Change in Control in exchange for
restricted shares of or restricted share units in respect of the common stock of
any successor corporation;
12.5. redeem any or all Restricted Shares held by Participants affected
by the Change in Control for cash and/or other substitute consideration with a
value equal to the (a) the number of Restricted Shares to be redeemed multiplied
by (b) the Fair Market Value of an unrestricted share of Common Stock on the
date of the Change in Control;
12.6. cancel any Option or SAR held by a Participant affected by the
Change in Control in exchange for cash and/or other substitute consideration
with a value equal to (a) the number of shares subject to that Option or SAR,
multiplied by (b) the difference between the Fair Market Value per share of
Common Stock on the date of the Change in Control and the exercise price of that
Option or SAR; and
12.7. cancel any Restricted Share Unit held by a Participant affected
by the Change in Control in exchange for cash and/or other substitute
consideration with a value equal to (a) the number of Restricted Share Units,
multiplied by (b) the Fair Market Value per share of Common Stock on the date of
the Change in Control.
SECTION 13. MISCELLANEOUS PROVISIONS.
13.1. AMENDMENT AND TERMINATION OF THE PLAN AND AWARDS. Except as
provided herein, the Board has complete and exclusive power and authority to
amend, modify or terminate the Plan (or any component thereof) in any or all
respects whatsoever at any time. No such amendment, modification or termination
shall adversely affect the material economic rights with respect to Awards then
outstanding under the Plan, unless the Participant consents to such amendment,
modification or termination. In addition, the Board may not, without the
approval of the Company's stockholders, amend the Plan to (a) increase the total
number of shares reserved for the purposes of the Plan and the maximum number of
shares for which any one individual may be granted Awards for any given year
under the Plan, except for permitted adjustments under Section 5.4 of the Plan,
(b) change the persons or class of persons eligible to receive Awards, (c) other
than in connection with an adjustment under Section 5.4, reduce the exercise
price of outstanding Options (including canceling previously awarded Options and
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regranting them with a lower exercise price), or (d) otherwise amend the Plan in
any manner requiring stockholder approval by law or under the listing
requirements of the NASDAQ National Market or other market or exchange on which
the Common Stock is at the time listed or admitted to trading.
13.2. TAX WITHHOLDING. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for federal
income tax purposes with respect to any Award under the Plan, the Participant
will pay to the Company, or make arrangements satisfactory to the Board
regarding the payment of any federal, state or local taxes of any kind required
by law to be withheld with respect to such amount. If determined by the Board,
the minimum required withholding obligations may be settled with shares of
Common Stock, including shares of Common Stock that are part of the Award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan will be conditioned on such payment or arrangements, and the Company
will, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
13.3. QUALIFYING PERFORMANCE-BASED COMPENSATION.
13.3.1 GENERAL. The Committee may establish performance
criteria and level of achievement versus such criteria that shall determine the
number of shares of Common Stock to be granted, retained, vested, issued or
issuable under or in settlement of or the amount payable pursuant to an Award,
which criteria may be based on Qualifying Performance Criteria or other
standards of financial performance and/or personal performance evaluations. In
addition, the Committee may specify a percentage of an Award that is intended to
satisfy the requirements for "performance-based compensation" under Section
162(m) of the Code, provided that the performance criteria for any portion of an
Award that is intended by the Committee to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code shall be a
measure based on one or more Qualifying Performance Criteria selected by the
Committee and specified in writing at the time the Award is granted not later
than ninety (90) days after the commencement of the period of service to which
the performance goals relates, provided that the outcome is substantially
uncertain at that time. The Committee shall certify the extent to which any
Qualifying Performance Criteria has been satisfied, and the amount payable as a
result thereof, prior to payment, settlement or vesting of any Award that is
intended to satisfy the requirements for "performance-based compensation" under
Section 162(m) of the Code. Notwithstanding satisfaction of any performance
goals, the number of shares of Common Stock issued under or the amount paid
under an Award may, to the extent specified in the Award Agreement, be reduced
by the Committee on the basis of such further considerations as the Committee in
its sole discretion shall determine.
13.3.2 QUALIFYING PERFORMANCE CRITERIA. For purposes of this
Plan, the term "Qualifying Performance Criteria" shall mean any one or more of
the following performance criteria, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a business unit,
Subsidiary or business segment, either individually, alternatively or in any
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combination, and measured either annually or cumulatively over a period of
years, on an absolute basis or relative to a pre-established target, to previous
years' results or to a designated comparison group, in each case as specified by
the Committee in the Award: (i) cash flow; (ii) earnings (including gross
margin, earnings before interest and taxes, earnings before taxes, and net
earnings); (iii) earnings per share; (iv) growth in earnings or earnings per
share; (v) stock price; (vi) return on equity or average stockholder's equity;
(vii) total stockholder return; (viii) return on capital; (ix) return on assets
or net assets; (x) return on investment; (xi) revenue; (xii) income or net
income; (xiii) operating income or net operating income; (xiv) operating profit
or net operating profit; (xv) operating margin; (xvi) return on operating
revenue; (xvii) market share; (xviii) contract awards or backlog; (xix) overhead
or other expense reduction; (xx) growth in stockholder value relative to the
moving average of a peer group index; (xxi) credit rating; (xxii) strategic plan
development and implementation; (xxiii) improvement in workforce diversity, and
(xxiv) any other similar criteria. The Committee may appropriately adjust any
evaluation of performance under a Qualifying Performance Criteria to exclude any
of the following events that occurs during a performance period: (A) asset
write-downs; (B) litigation or claim judgments or settlements; (C) the effect of
changes in tax law, accounting principles or other such laws or provisions
affecting reported results; (D) accruals for reorganization and restructuring
programs; and (E) any extraordinary non-recurring items as described in
Accounting Principles Board Opinion No. 30 and/or in management's discussion and
analysis of financial condition and results of operations appearing in the
Company's annual report to stockholders for the applicable year.
13.4. EFFECTIVE DATE AND TERM OF PLAN.
13.4.1. EFFECTIVE DATE. The Plan will become effective on the
Plan Effective Date (as defined in Section 1.2).
13.4.2. TERM OF THE PLAN. The Plan will continue in effect
until the 10th anniversary of the Plan Effective Date; provided that any Option
that is granted prior to such 10th anniversary may extend beyond that date.
13.5. NO EMPLOYMENT OR SERVICE RIGHTS. Neither the action of the
Company in establishing the Plan, nor any action taken by the Committee
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 Company (or any
Subsidiary) for any period of specific duration, and the Company (or any
Subsidiary 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. Nothing in the Plan will prevent the Board from adopting other or
additional compensation arrangements, subject to stockholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases.
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13.6 UNFUNDED STATUS OF PLAN. The Plan is intended to be "unfunded."
With respect to any payments not yet made to a Participant by the Company,
nothing contained herein will give any such Participant any rights that are
greater than those of a general creditor of the Company. In its sole discretion,
the Committee may authorize the creation of grantor trusts or other arrangements
to meet the obligations created under the Plan with respect to Awards.
13.7. REPRESENTATIONS; LEGENDS. The Board may require each Participant
to represent to and agree with the Company in writing that the Participant is
acquiring securities of the Company for investment purposes and without a view
to distribution thereof and as to such other matters as the Board believes are
appropriate. The certificate evidencing any Award and any securities issued
pursuant thereto may include any legend which the Board deems appropriate to
reflect any restrictions on transfer and compliance with securities laws.
13.8. REGULATORY MATTERS. The implementation of the Plan, the granting
of any Award under the Plan and the issuance of any shares under the Plan shall
be subject to the Company's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the Awards granted
under it, and the Common Stock issued pursuant to it. All certificates for
Common Stock or other securities delivered under the Plan shall be subject to
such share-transfer orders and other restrictions as the Board may deem
advisable under the rules, regulations, and other requirements of the Securities
Act of 1933, as amended, the Exchange Act, any stock exchange or automated
quotation system upon which the Common Stock is then listed or quoted, and any
other applicable federal or state securities laws.
13.9. INVALID PROVISIONS. In the event that any provision of the Plan
is found to be invalid or otherwise enforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provision contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained in the Plan.
13.10. BOARD ACTION. Notwithstanding anything to the contrary set forth
in the Plan, any and all actions of the Committee, taken under or in connection
with the Plan and any agreements, instruments, documents, certificates or other
writings entered into, executed, granted, issued and/or delivered pursuant to
the terms hereof, will be subject to and limited by any and all votes, consents,
approvals, waivers or other actions of all or certain stockholders of the
Company or other persons required by:
13.10.1. the Company's Certificate of Incorporation (as the
same may be amended and/or restated from time to time);
13.10.2. the Company's Bylaws (as the same may be amended
and/or restated from time to time); and
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13.10.3. any other agreement, instrument, document or writing
now or hereafter existing, between or among the Company and its stockholders or
other persons (as the same may be amended from time to time).
13.11. GOVERNING LAW. The Plan and all Awards granted hereunder shall
be governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania without regard to the application of the principles of conflicts of
laws.
13.12. SUCCESSORS AND ASSIGNS. The provisions of the Plan shall inure
to the benefit of, and be binding upon, the Company and its successors or
assigns and the Participants and Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
13.13. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal executive office, and any notice to be given to a Participant
will be delivered personally or addressed to him or her at the address given
beneath his or her signature on his or her Award Agreement, or at such other
address as such Participant may hereafter designate in writing to the Company.
Any such notice will be deemed duly given on the date and at the time delivered
via personal, courier or recognized overnight delivery service or, if sent via
facsimile, on the date and at the time faxed with confirmation of delivery or,
if mailed, on the date five days after the date of the mailing (which will be by
regular, registered or certified mail). Delivery of a notice by telecopy (with
confirmation) will be permitted and will be considered delivery of a notice
notwithstanding that it is not an original that is received.
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