1
EXHIBIT 10.3
NEMATRON CORPORATION
LONG-TERM INCENTIVE PLAN
I. GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the Plan is to promote the best
interests of the Corporation and its shareholders by attracting and motivating
highly qualified individuals to serve as Employees and to encourage Employees to
acquire an ownership interest in the Corporation, thus identifying their
interests with those of shareholders and encouraging Employees to make greater
efforts on behalf of the Corporation to achieve the Corporation's long-term
business plans and objectives.
1.2 DEFINITIONS. As used in this Plan, the following terms have
the meaning described below:
(a) "AGREEMENT" means the written agreement that sets forth
the terms of a Participant's Option, Restricted Stock grant or Performance Share
Award.
(b) "BOARD" means the Board of Directors of the Corporation.
(c) "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Company is then subject to such reporting requirement;
provided that, without limitation, a Change in Control shall be deemed to have
occurred if (i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity (other than a Subsidiary or
an employee benefit plan or employee benefit plan trust maintained by the
Company or a Subsidiary), or any syndicate or group deemed to be a person under
Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities entitled to
vote in the election of directors of the Company, provided that a person shall
not be deemed to beneficially own shares solely because such person has the
right to vote such shares pursuant to a revocable proxy or proxies given in
response to a public solicitation made in accordance with the applicable rules
promulgated under the Exchange Act; (ii) consummation of any merger or
consolidation with respect to which the Company or any Parent is a constituent
corporation (other than a transaction for the purpose of changing the Company's
corporate domicile), any liquidation or dissolution of the Company or any sale
of all or substantially all of the Company's assets; and (iii) a change in the
identity of a majority of the members of the Company's Board of Directors within
any twelve-month period, which change or changes are not recommended by the
incumbent directors immediately prior to any such change or changes.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
(e) "COMMITTEE" means a committee of two or more directors
of the Company, each of whom is a "non-employee
director" as defined in Rule 16b-3 of the Exchange Act.
(f) "COMMON STOCK" means shares of the Corporation's
authorized common stock, no par value.
(g) "CORPORATION" means Nematron Corporation, a Michigan
corporation.
(h) "DIRECTOR" means a member of the Corporation's Board of
Directors.
(i) "DISABILITY" means total and permanent disability, as
defined in Code Section 22(e).
(j) "EFFECTIVE DATE" means January 12, 1999.
2
(k) "EMPLOYEE" means a full-time salaried employee of the
Corporation or its Subsidiaries, who has an "employment
relationship" with the Corporation or its Subsidiaries,
as defined in Treasury Regulation 1.421-7(h), and the
term "employment" means employment with the Corporation
or its subsidiaries.
(l) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended from time to time and any successor
thereto.
(m) "EXPIRATION DATE" means the date set forth in the
Agreement relating to an Option on which the right to
exercise shall expire absent a termination of the
Participant's employment. Unless otherwise provided in
the Agreement, the Expiration Date for an Option shall
be the tenth anniversary of its Grant Date.
(n) "FAIR MARKET VALUE" means the average of the high and
low sale prices per share of the Common Stock reported
in the Wall Street Journal (or if high and low sale
prices are not reported, the last sale price reported in
the Wall Street Journal or, if the last sale price is
not reported, the last bid price per share reported in
the Wall Street Journal) for the last preceding day on
which the Common Stock was traded prior to the date with
respect to which the fair market value is to be
determined, as determined by the Committee in its sole
discretion.
(o) "GRANT DATE" means the date on which the Committee
authorizes an individual Option, Restricted Stock grant
or Performance Share Award, or such later date as shall
be designated by the Committee.
(p) "INCENTIVE STOCK OPTION" means an Option that is
intended to meet the requirements of Section 422 of the
Code.
(q) [reserved]
(r) "NONQUALIFIED STOCK OPTION" means an Option that is not
intended to constitute an Incentive Stock Option.
(s) "OPTION" means either an Incentive Stock Option or a
Nonqualified Stock Option to purchase Common Stock.
(t) "PARTICIPANT" shall have the meaning ascribed in Section
1.4 of the Plan.
(u) "PERFORMANCE SHARE AWARD" means an award granted in
accordance with Article IV of the Plan.
(v) "PLAN" means the Nematron Corporation Long-Term
Incentive Plan, the terms of which are set forth herein,
and amendments thereto.
(w) "RESTRICTION PERIOD" means the period or periods of time
during which a Participant's Restricted Stock grant is
subject to restrictions on transferability.
(x) "RESTRICTED STOCK" means Common Stock that is subject to
restrictions on transferability.
(y) "RETIREMENT" means retirement at age 65 or older.
(z) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
in effect from time to time.
3
(aa) "SUBSIDIARY" means a corporation defined in Code
Section 424(f).
1.3 ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall interpret the Plan, prescribe, amend, and rescind
rules and regulations relating to the Plan, and make all other determinations
necessary or advisable for its administration. The decision of the Committee on
any question concerning the interpretation of the Plan or its administration
with respect to any Option, Restricted Stock grant or Performance Share Award
granted under the Plan shall be final and binding upon all Participants.
1.4 PARTICIPANTS. Participants in the Plan shall be such
Employees (including Employees who are Directors) as the Committee may select
from time to time. The Committee may grant Options, Restricted Stock and
Performance Share Awards to an individual upon the condition that the individual
become an Employee, provided that the Option, Restricted Stock grant or
Performance Share Award shall be deemed to be granted only on the date that the
individual becomes an Employee.
1.5 STOCK. The total number of shares of Common Stock available
for grants and awards under the Plan shall not, in the aggregate, exceed
1,250,000 shares of Common Stock, as adjusted from time to time in accordance
with Article VI. Shares subject to any unexercised portion of a terminated,
forfeited, canceled or expired Option granted hereunder, and shares subject to
any terminated, forfeited, canceled or expired portion of a Performance Share
Award or Restricted Stock grant made hereunder shall be available for subsequent
grants and awards under the Plan.
1.6 AGREEMENT. No person shall have any rights under any grant
or award made pursuant to the Plan unless and until the Corporation and the
recipient of the grant or award have executed and delivered an agreement
expressly granting or awarding benefits to such person pursuant to the Plan and
containing the provisions required under the Plan to be set forth in the
Agreement. The terms of the Plan shall govern in the event any provision of any
Agreement conflicts with any term in this Plan as constituted on the Grant Date.
II. STOCK OPTIONS FOR EMPLOYEES
2.1 GRANT OF OPTIONS. The Committee, at any time and from time
to time, subject to Section 7.7, may grant Options to such Employees and for
such number of shares of Common Stock as it shall designate. Any Participant may
hold more than one Option under the Plan and any other Plan of the Corporation.
The Committee shall determine, in its discretion, subject to the limitations set
forth in the Plan, the general terms and conditions of the Option, including,
without limitation, the number of shares which the Option entitles the holder to
purchase, the exercise price, the time or times during which the Option shall be
exercisable and the Expiration Date of the Option, which terms shall be set
forth in a Participant's Agreement; provided that, during any three year period,
no salaried Employee shall receive Options to purchase more than 500,000 shares
of Common Stock. The Committee may designate any Option granted as either an
Incentive Stock Option or a Nonqualified Stock Option, or the Committee may
designate a portion of an Option as an Incentive Stock Option or a Nonqualified
Stock Option.
2.2 INCENTIVE STOCK OPTIONS. Any Option intended to constitute
an Incentive Stock Option shall comply with the requirements of this Section 2.2
in addition to the other requirements of this Article II. No Incentive Stock
Option shall be granted with an exercise price below its Fair Market Value on
the Grant Date or with an exercise term that extends beyond 10 years from the
Grant Date. An Incentive Stock Option shall not be granted to any Participant
who owns (within the meaning of Code Section 424(d)) stock of the Corporation
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation unless, at the Grant Date, the exercise price for the
Option is at least 110% of the Fair Market Value of the shares subject to the
Option and the Option, by its terms, is not exercisable more than five years
after the Grant Date. The aggregate Fair Market Value of the underlying Common
Stock (determined at the Grant Date) as to which Incentive Stock Options granted
under the Plan may first be exercised by a Participant in any one calendar year
shall not exceed $100,000. To the extent that an Option intended to constitute
an Incentive Stock Option shall violate the foregoing $100,000 limitation, the
portion of the Option that exceeds the $100,000 limitation shall be deemed to
constitute a Nonqualified Stock Option.
4
2.3 OPTION PRICE. The Committee shall determine the per share
exercise price for each Option granted under the Plan; provided, that the
exercise price shall not be less than the Fair Market Value on the Grant Date.
2.4 PAYMENT FOR OPTION SHARES. The purchase price for shares of
Common Stock to be acquired upon exercise of an option granted hereunder shall
be paid in full, at the time of exercise, in any of the following ways: (a) in
cash, (b) by certified check, bank draft or money order, (c) by tendering to the
Company shares of Common Stock then owned by the Participant, duly endorsed for
transfer or with duly executed stock power attached, which shares shall be
valued at their Fair Market Value as of the date of such exercise and payment or
(d) by delivery to the Company of a properly executed exercise notice,
acceptable to the Company, together with irrevocable instructions to the
Participant's broker to deliver to the Company a sufficient amount of cash to
pay the exercise price and any applicable income and employment withholding
taxes, in accordance with a written agreement between the Company and the
brokerage firm ("Cashless Exercise") if, at the time of exercise, the Company
has entered into such an agreement.
III. RESTRICTED STOCK
3.1 GRANT OF RESTRICTED STOCK. Subject to the terms and
conditions of the Plan, the Committee, at any time and from time to time, may
grant shares of Restricted Stock under this Plan to such Employees in such
amounts as it shall determine.
3.2 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Stock
shall be evidenced by an Agreement that shall specify the terms of the
restrictions, including the Restriction Period, the number of shares subject to
the grant, and such other provisions, including performance goals, if any, as
the Committee may determine.
3.3 TRANSFERABILITY. Except as provided in this Article III of
the Plan, the shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated, hypothecated or
encumbered until the termination of the applicable Restriction Period
established by the Committee and specified in the Agreement, or upon the earlier
satisfaction of other conditions as specified by the Committee in its sole
discretion and set forth in such Agreement. The Committee may, but is not
required to, specify more than one set of restrictions applicable to a
Restriction Period with respect to a Restricted Stock grant. All rights with
respect to the Restricted Stock granted to a Participant shall be exercised
during a Participant's lifetime only by the Participant or the Participant's
legal representative.
3.4 OTHER RESTRICTIONS. The Committee may impose such other
restrictions on any shares of Restricted Stock granted under the Plan as it may
deem advisable including, without limitation, restrictions under applicable
Federal or State securities laws, and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.
3.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Sections 3.3 and 3.4, each certificate representing
shares of Restricted Stock shall bear the following legend:
The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary or by operation
of law, is subject to certain restrictions on transfer set forth
in the Nematron Corporation Long-Term Incentive Plan ("Plan"),
rules and administrative guidelines adopted pursuant to such Plan
and a Restricted Stock Agreement dated April 6, 1999. A copy of
the Plan, such rules and such Restricted Stock Agreement may be
obtained from Nematron Corporation.
3.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in
this Article III of the Plan, and subject to applicable federal and state
securities laws, shares covered by each Restricted Stock grant made under the
Plan shall become freely transferable by the Participant after the last day of
the Restriction Period. Once the shares are released from the restrictions, the
Participant shall be entitled to have the legend required by Section 3.6 of the
Plan removed from the certificate representing such shares. The Committee shall
have discretion to waive the applicable Restriction Period with respect to all
or any part of a Restricted Stock grant.
5
3.7 VOTING RIGHTS. During the Restriction Period, Participants
holding shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to the Restricted Stock.
3.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Restriction
Period, a Participant shall be entitled to receive all dividends and other
distributions paid with respect to shares of Restricted Stock. If any dividends
or distributions are paid in shares of Common Stock during the Restriction
Period, the dividend or other distribution shares shall be subject to the same
restrictions on transferability as the shares of Restricted Stock with respect
to which they were paid.
IV. PERFORMANCE SHARE AWARDS
4.1 GRANT OF PERFORMANCE SHARE AWARDS. The Committee, at its
discretion, may grant Performance Share Awards (including, but not limited to,
stock appreciation rights and phantom shares) to Employees and may determine, on
an individual or group basis, the performance goals to be attained pursuant to
each Performance Share Award.
4.2 TERMS OF PERFORMANCE SHARE AWARDS. In general, Performance
Share Awards shall consist of rights to receive cash, Common Stock or a
combination of each, if designated performance goals are achieved. The terms of
a Participant's Performance Share Award shall be set forth in the Agreement
relating to such Award. Each Agreement shall specify the performance goals
applicable to the Participant, the period over which the goals are to be
attained, the payment schedule if the goals are attained, and any other terms,
conditions and restrictions applicable to an individual Performance Share Award
and not inconsistent with the provisions of the Plan. The Committee, at its
discretion, may waive all or part of the conditions, goals and restrictions
applicable to the receipt of full or partial payment of a Performance Share
Award.
V. TERMINATION
5.1. OPTIONS.
The time or times at which an Option shall terminate prior to
its Expiration Date shall be determined by the Committee in its discretion and
set forth in the Agreement relating to such Option. If a Participant's Agreement
does not specify such time or times, the following shall apply:
(A) If a Participant's employment is terminated for
any reason prior to the date that an Option or a portion thereof first becomes
exercisable, such Option or portion thereof shall terminate and all rights
thereunder shall cease.
(B) To the extent an Option is exercisable and
unexercised on the date a Participant's employment is terminated
(I) for any reason other than death, Disability
or Retirement, the Option shall terminate on the earlier of (A) the Expiration
Date of the Option, and (B) three months after the Participant's termination.
(II) because the Participant has died or become
subject to a Disability, the Option shall terminate on the earlier of (A) the
Expiration Date of the Option and (B) the first anniversary of the date of such
Participant's termination.
(III) due to Retirement, the Option shall
terminate on the earlier of (A) the Expiration Date of the Option, and (B) the
second anniversary of such Participant's termination.
(C) During the period from the Participant's
termination until the termination of the Option, the Participant, or the person
or persons to whom the Option shall have been transferred by will or by the laws
of descent and distribution, may exercise the Option only to the extent that
such Option was exercisable on the date of the Participant's termination.
6
(D) The Committee may, at any time, accelerate the
right of a Participant to exercise an Option or extend the exercise period of
such an Option; provided, that no Option exercise period may be extended beyond
the Option's Expiration Date.
5.2 RESTRICTED STOCK. If a Participant's employment is
terminated for any reason, any shares of Common Stock owned by a Participant
which were the subject of a Restricted Stock grant under the Plan and at the
time of such termination are subject to a Restriction Period shall be forfeited
by the Participant to the Corporation upon such termination; provided, that the
Committee, in its sole discretion, may waive the restrictions remaining on any
or all shares of Restricted Stock as it deems appropriate.
5.3 PERFORMANCE SHARES. Performance Share Awards shall expire
and be forfeited by a Participant upon termination of the Participant's
employment for any reason; provided, that the Committee, in its discretion, may
waive all or part of the conditions, goals and restrictions applicable to the
receipt of full or partial payment of a Performance Share Award.
5.4 OTHER PROVISIONS. The transfer of an Employee from one
corporation to another among the Corporation and any of its Subsidiaries, or a
leave of absence under the Corporation's leave policy, shall not be a
termination of employment for purposes of the Plan.
VI. ADJUSTMENTS AND CHANGE IN CONTROL
6.1 ADJUSTMENTS. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the
Corporation, issuance of warrants or other rights to purchase Common Stock or
other securities of the Corporation, or other similar corporate transaction or
event affects the Common Stock such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (a) the number and type of shares of Common Stock which thereafter may be
made the subject of grants and awards under the Plan, (b) the number and type of
shares of Common Stock subject to outstanding grants and awards, (c) the
exercise price with respect to any Option, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Option and (d) any
performance-related conditions of any outstanding grants and awards based upon
the price of Common Stock; provided, in each case, that with respect to
Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422 of the Code or
any successor provision thereto; and provided further, that any such adjustment
shall provide for the elimination of any fractional share which might otherwise
become subject to an Option, Restricted Stock grant or Performance Share Award.
6.2 CHANGE IN CONTROL. Notwithstanding anything contained herein
to the contrary, upon a Change in Control, (i) any outstanding Option granted
hereunder immediately shall become exercisable in full, regardless of any
installment provision applicable to such Option, (ii) the remaining Restriction
Period on any Restricted Stock granted hereunder immediately shall lapse and the
shares shall become fully transferable, subject to any applicable federal or
state securities laws, and (iii) all performance goals and conditions shall be
deemed to have been satisfied and all restrictions shall lapse on any
outstanding Performance Share Awards, which immediately shall become payable in
full.
VII. MISCELLANEOUS
7.1 PARTIAL EXERCISE/FRACTIONAL SHARES. The Committee shall
permit, and shall establish procedures for, the partial exercise of Options
under the Plan. No fractional shares shall be issued in connection with the
exercise of a Performance Share Award; instead, the Fair Market Value of the
fractional shares shall be paid in cash, or at the discretion of the Committee,
the number of shares shall be rounded down to the nearest whole number of shares
and any fractional shares shall be disregarded.
7.2 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision
of the Plan, the Committee may impose such conditions on the exercise of an
Option, or the grant of Restricted Stock or
7
a Performance Share Award (including, without limitation, the right of the
Committee to limit the time of exercise to specified periods) as may be required
to satisfy the requirements of Rule 16b-3.
7.3 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall
have any rights as a shareholder with respect to shares covered by an Option,
Restricted Stock grant or Performance Share Award until, in the case of an
Option, the Option is exercised or, in the case of a Restricted Stock grant or a
Performance Share Award, the issuance of a stock certificate for such shares.
7.4 NON-ASSIGNABILITY. No Option, Restricted Stock grant or
Performance Share Award shall be transferable by a Participant except by will or
the laws of descent and distribution. During the lifetime of a Participant, an
Option shall be exercised only by the Participant. No transfer of an Option,
Restricted Stock grant or Performance Share Award by will or the laws of descent
and distribution shall be effective to bind the Corporation unless the
Corporation shall have been furnished with written notice thereof and a copy of
the will or such evidence as the Corporation may deem necessary to establish the
validity of the transfer and the acceptance by the transferee of the terms and
conditions of the Option, Restricted Stock grant or Performance Share Award.
7.5. SECURITIES LAWS.
(A) Anything to the contrary herein notwithstanding, the
Corporation's obligation to sell and deliver Common Stock pursuant to the
exercise of an Option or deliver Common Stock pursuant to a Restricted Stock
grant or Performance Share Award is subject to such compliance with federal and
state laws, rules and regulations applying to the authorization, issuance or
sale of securities as the Corporation deems necessary or advisable. The
Corporation shall not be required to sell and deliver Common Stock unless and
until it receives satisfactory assurance that the issuance or transfer of such
shares shall not violate any of the provisions of the Securities Act of 1933 or
the Exchange Act, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder or those of the National Association of
Securities Dealers, Inc. or any stock exchange on which the Common Stock may be
listed, the provisions of any state laws governing the sale of securities, or
that there has been compliance with the provisions of such acts, rules,
regulations and laws.
(B) The Committee may impose such restrictions on any
shares of Common Stock acquired pursuant to the exercise of an Option or the
grant of Restricted Stock or a Performance Share Award under the Plan as it may
deem advisable, including, without limitation, restrictions (i) under applicable
federal securities laws, (ii) required by the Nasdaq Stock Market (including,
without limitation, with respect to securities traded on the Nasdaq National
Market or the Nasdaq SmallCap Market) or any stock exchange or other recognized
trading market upon which such shares of Common Stock are then listed or traded,
and (iii) under any blue sky or state securities laws applicable to such shares.
No shares shall be issued until counsel for the Corporation has determined that
the Corporation has complied with all requirements under appropriate securities
laws.
7.6 WITHHOLDING TAXES. The Corporation shall have the right to
withhold from a Participant's compensation or require a Participant to remit
sufficient funds to satisfy applicable withholding for income and employment
taxes upon the exercise of an Option or the lapse of the Restriction Period on a
Restricted Stock grant or the payment of a Performance Share Award. The cashless
exercise procedure described in Section 2.4 may be utilized to satisfy the
withholding requirements related to the exercise of an Option.
7.7 TERMINATION AND AMENDMENT.
(A) The Board may terminate the Plan, or the granting of
Options, Restricted Stock or Performance Share Awards under the Plan, at any
time. No new grants or awards shall be made under the Plan after the tenth
anniversary date of the Effective Date.
(B) The Board may amend or modify the Plan at any time and
from time to time.
(C) No amendment, modification, or termination of the Plan
shall adversely affect any Option, Restricted Stock grant or Performance Share
Award granted under the Plan
8
without the consent of the Participant holding the Option, Restricted Stock
grant or Performance Share Award.
7.8 EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor
the granting of any Option, Restricted Stock or Performance Share Award pursuant
to the Plan shall be deemed to create any right in any individual to be retained
or continued as an Employee.
7.9 USE OF PROCEEDS. The proceeds received from the sale of
Common Stock pursuant to the Plan shall be used for general corporate purposes
of the Corporation.
7.10 APPROVAL OF PLAN. The Plan shall be subject to the approval
of the holders of at least a majority of the shares of Common Stock of the
Corporation present and entitled to vote at a meeting of shareholders of the
Corporation held within 12 months after adoption of the Plan by the Board. Any
Option, Restricted Stock or Performance Share Award granted under the Plan on or
after January 12, 1999 prior to such stockholder approval shall be conditioned
upon receipt of such approval and may not be exercised in whole or in part
unless the Plan has been approved by the shareholders as provided herein. If not
approved by shareholders within 12 months after approval by the Board, the Plan
shall be rescinded and any Options, Restricted Stock grants and Performance
Share Awards granted under the Plan shall be void retroactive to the Grant Date.
BOARD APPROVAL: 1/12/99
STOCKHOLDER APPROVAL: 4/6/99