EXHIBIT 10.12
PORTFOLIO RECOVERY ASSOCIATES, INC.
2002 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purposes of the Portfolio Recovery Associates, Inc. 2002
Stock Option Plan (the "Plan") are to encourage selected employees, key
consultants and directors of Portfolio Recovery Associates, Inc., a Delaware
corporation (together with any successor thereto, the "Company"), or any present
or future Subsidiary Corporation (as defined below) of the Company to acquire a
proprietary interest in the growth and performance of the Company, to enhance
the ability of the Company to attract, retain and reward qualified individuals
upon whom, in large measure, the sustained progress, growth and profitability of
the Company depend and to motivate such individuals to contribute to the
achievement of the Company's business objectives and to align the interest of
such individuals with the longer term interests of the Company's stockholders.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(c) "Committee" shall mean a committee of the Board
designated by the Board to administer the Plan and comprised of not less than
two (2) Independent Directors, provided that, prior to the Company's initial
public offering, the Committee shall be comprised of David Roberts only).
(d) "Fair Market Value" shall mean, with respect to
Shares or other securities, the fair market value of the Shares or other
securities determined by such methods or procedures as shall be established from
time to time by the Committee in good faith or in accordance with applicable
law. Unless otherwise determined by the Committee, the Fair Market Value of
Shares shall mean (i) the closing price per Share of the Shares on the principal
exchange on which the Shares are then trading, if any, on such date, or, if the
Shares were not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Shares are not traded on an
exchange but are quoted on the Nasdaq Stock Market or a successor quotation
system, (1) the last sales price (if the Shares are then listed as a National
Market Issue on the Nasdaq Stock Market) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Shares on such
date as reported by the Nasdaq Stock Market or such successor quotation system;
or (iii) if the Shares are not publicly traded on an exchange and not
quoted on the Nasdaq Stock Market or a successor quotation system, the mean
between the closing bid and asked prices for the Shares on such date as
determined in good faith by the Committee. Notwithstanding the foregoing, the
Fair Market Value of any Options granted prior to the Company's initial public
offering shall be deemed to be the initial public offering price as determined
by the Company's underwriters.
(e) "Incentive Stock Option" shall mean an option granted
under the Plan that is designated as an incentive stock option within the
meaning of Section 422 of the Code or any successor provision thereto.
(f) "Independent Director" shall mean each member of the
Board who meets the test for an "independent" director as promulgated by the
Securities and Exchange Commission and the stock exchange or quotation system on
which the Shares are then listed or quoted.
(g) "Key Employee" shall mean any officer, director or
other employee who is a regular full-time employee of the Company or its present
and future Subsidiary Corporations.
(h) "Non-Qualified Stock Option" shall mean an Option
granted under the Plan that is not designated as an Incentive Stock Option.
(i) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(j) "Option Agreement" shall mean a written agreement,
contract or other instrument or document evidencing an Option granted under the
Plan.
(k) "Participant" shall mean a Key Employee, key
consultant (as determined by the Committee) or non-employee Director who has
been granted an Option under the Plan.
(l) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization or government or political subdivision thereof.
(m) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or any successor rule or regulation thereto.
(n) "Shares" shall mean the common stock of the Company,
$0.01 par value, and such other securities or property as may become the subject
of Options pursuant to an adjustment made under Section 4(b) of the Plan.
(o) "Subsidiary Corporation" shall have the meaning
ascribed thereto in Code Section 424(f).
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(p) "Ten Percent Stockholder" shall mean a Person, who
together with his or her spouse, children and trusts and custodial accounts for
their benefit, immediately at the time of the grant of an Option and assuming
its immediate exercise, would beneficially own, within the meaning of Section
424(d) of the Code, Shares possessing more than ten percent (10%) of the total
combined voting power of all of the outstanding capital stock of the Company or
any Subsidiary Corporation of the Company.
SECTION 3. ADMINISTRATION
(a) Generally. The Plan shall be administered by the
Committee. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Option shall be within the sole discretion of the Committee, may be
made at any time, and shall be final, conclusive, and binding upon all Persons,
including the Company, any Participant, any holder or beneficiary of any Option,
any stockholder of the Company and any employee of the Company.
(b) Powers. Subject to the terms of the Plan and
applicable law and except as provided in Section 7 hereof, the Committee shall
have full power and authority to: (i) designate Participants; (ii) determine the
type or types of Options to be granted to each Participant under the Plan; (iii)
determine the number of Shares to be covered by Options; (iv) determine the
terms and conditions of any Option; (v) determine whether, to what extent, and
under what circumstances Options may be settled or exercised in cash, Shares,
other Options, or other property, or canceled, forfeited, or suspended, and the
method or methods by which Options may be settled, exercised, canceled,
forfeited, or suspended; (vi) interpret and administer the Plan and any
instruments or agreements relating to, or Options granted under, the Plan; (vii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (viii) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
SECTION 4. SHARES AVAILABLE FOR OPTIONS
(a) Shares Available. Subject to adjustment as provided
in Section 4(b):
(i) Limitation on Number of Shares. Options issuable
under the Plan are limited such that the maximum aggregate number of Shares
which may issued pursuant to, or by reason of, Options is 2,000,000. Further, no
Participant shall be granted Options to purchase more than 200,000 Shares in any
one fiscal year; provided, however, that the Committee may adopt procedures for
the counting of Shares relating to any grant of Options to ensure appropriate
counting, avoid double counting, and provide for adjustments in any case in
which the number of Shares actually distributed differs from the number of
Shares previously counted in connection with such grant. To the extent that an
Option granted or ceases to remain outstanding by reason of termination of
rights granted thereunder, forfeiture or otherwise, the Shares subject to such
Option shall again become available for award under the Plan.
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(ii) Sources of Shares Deliverable Under Options. Any
Shares delivered pursuant to an Option may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall
determine that any change in corporate capitalization, such as a dividend or
other distribution of Shares, or a corporate transaction, such as a merger,
consolidation, reorganization or partial or complete liquidation of the Company
or other similar corporate transaction or event, affects the Shares 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 necessary to prevent dilution or enlargement of the benefits or
potential benefits intended to be made under the Plan, adjust any or all of (x)
the number and type of Shares which thereafter may be made the subject of
Options, (y) the number and type of Shares subject to outstanding Options, and
(z) the grant, purchase, or exercise price with respect to any Option or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Option; provided, however, in each case, that (i) with respect to
Incentive Stock Options no such adjustment shall be authorized to the extent
that such adjustment would cause the Plan to violate Section 422 of the Code or
any successor provision thereto; (ii) such adjustment shall be made in such
manner as not to adversely affect the status of any Option as "performance-based
compensation" under Section 162(m) of the Code; and (iii) the number of Shares
subject to any Option denominated in Shares shall always be a whole number.
SECTION 5. ELIGIBILITY
In determining the Persons to whom Options shall be granted
and the number of Shares to be covered by each Option, the Committee shall take
into account the nature of the Person's duties, such Person's present and
potential contributions to the success of the Company and such other factors as
it shall deem relevant in connection with accomplishing the purposes of the
Plan. A Key Employee who has been granted an Option or Options under the Plan
may be granted an additional Option or Options, subject to such limitations as
may be imposed by the Code on the grant of Incentive Stock Options.
Notwithstanding anything herein to the contrary, Incentive Stock Options may be
granted only to Key Employees of the Company or any Parent Corporation or
Subsidiary Corporation.
SECTION 6. OPTIONS
The Committee is hereby authorized to grant Options to
Participants upon the following terms and the conditions (except to the extent
otherwise provided in Section 7) and with such additional terms and conditions,
in either case not inconsistent with the provisions of the Plan, as the
Committee shall determine:
(a) Exercise Price. The exercise price per Share
purchasable under Options shall be determined by the Committee at the time the
Option is granted but generally shall not be less than the Fair Market Value of
the Shares covered thereby at the time the Option is granted.
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(b) Option Term. The term of each Non-Qualified Stock
Option shall be fixed by the Committee but generally shall not exceed ten (10)
years from the date of grant.
(c) Time and Method of Exercise. The Committee shall
determine the time or times at which the right to exercise an Option may vest,
and the method or methods by which, and the form or forms in which, payment of
the option price with respect to exercises of such Option may be made or deemed
to have been made (including, without limitation, (i) cash, Shares, outstanding
Options or other consideration, or any combination thereof, having a Fair Market
Value on the exercise date equal to the relevant option price and (ii) a
broker-assisted cashless exercise program established by the Committee, provided
that any such cashless exercise program established by the Committee shall not
be applicable to executive officers and directors unless and until the Committee
shall have received advice of counsel that participation by executive officers
and directors in such program is permissible), provided in each case that such
methods avoid "short-swing" profits to the Participant under Section 16(b) of
the Securities Exchange Act of 1934, as amended. The payment of the exercise
price of an Option may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case in accordance with rules and procedures
established by the Committee.
(d) Incentive Stock Options. All terms of any Incentive
Stock Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision thereto, and
any regulations promulgated thereunder including that, (i)(A) in the case of a
grant to a Person that is not a Ten Percent Stockholder the purchase price per
Share purchasable under Incentive Stock Options shall not be less than the Fair
Market Value of a Share on the date of grant and (B) in the case of a grant to a
Ten Percent Stockholder the purchase price per Share purchasable under Incentive
Stock Options shall not be less than 110% of the Fair Market Value of a Share on
the date of grant and (ii) the term of each Incentive Stock Option shall be
fixed by the Committee but shall in no event be more than ten (10) years from
the date of grant, or in the case of an Incentive Stock Option granted to a Ten
Percent Stockholder, five (5) years from the date of grant.
(e) Limits on Transfer of Options. Subject to Code
Section 422, no Option and no right under any such Option, shall be assignable,
alienable, saleable or transferable by a Participant otherwise than by will or
by the laws of descent and distribution, and such Option, and each right under
any such Option, shall be exercisable during the Participant's lifetime, only by
the Participant or, if permissible under applicable law (including Code Section
422, in the case of an Incentive Stock Option), by the Participant's guardian or
legal representative. No Option and no right under any such Option, may be
pledged, alienated, attached, or otherwise encumbered, and any purported pledge,
alienation, attachment, or encumbrance thereof shall be void and unenforceable
against the Company. Notwithstanding the foregoing, the Committee may, in its
discretion, provide that Non-Qualified Stock Options be transferable, without
consideration, to immediate family members (i.e., children, grandchildren or
spouse), to trusts for the benefit of such immediate family members and to
partnerships in which such family members are the only partners. The Committee
may attach to such transferability feature such terms and conditions as it deems
advisable. In addition, a Participant may, in the manner established by the
Committee, designate a beneficiary (which may be a person or a trust) to
exercise the rights of the Participant, and to receive any distribution, with
respect to any Option
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upon the death of the Participant. A beneficiary, guardian, legal representative
or other person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of the Plan and any
Option Agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional restrictions deemed necessary or
appropriate by the Committee.
(f) Tax Withholding. The Company or any Subsidiary is
authorized to withhold from any Option granted any payment relating to an Option
under the Plan, including from the exercise of an Option, amounts of withholding
and other taxes due in connection with any transaction involving an Option, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Option. This authority shall
include authority to withhold or receive Shares or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations.
(g) Loan Provisions. With the consent of the Committee,
and subject at all times to laws and regulations and other binding obligations
or provisions applicable to the Company, the Company may make, guarantee, or
arrange for a loan or loans to a Participant with respect to the exercise of any
Option, including the payment by a Participant of any or all federal, state, or
local income or other taxes due in connection with the exercise of any Option.
Subject to such limitations, the Committee shall have full authority to decide
whether to make a loan or loans hereunder and to determine the amount, terms,
and provisions of any such loan or loans, including the interest rate to be
charged in respect of any such loan or loans, whether the loan or loans are to
be with or without recourse against the borrower, the terms on which the loan is
to be repaid and the conditions, if any, under which the loan or loans may be
forgiven.
SECTION 7. OPTIONS AWARDED TO NON-EMPLOYEE DIRECTORS
Each non-employee Director who is a member of the Board shall
automatically be granted annually a Non-Qualified Stock Option to purchase 5,000
Shares. Such Shares shall be granted at the time such Independent Director joins
the Board (which for current directors shall be deemed to be the date of the
Company's initial public offering) and each anniversary thereof. All Options
granted pursuant to this Section 7 shall (a) be at an exercise price per Share
equal to 100% of the Fair Market Value of a Share on the date of the grant; (b)
have a term of ten (10) years; (c) terminate (i) upon termination of an
non-employee Director's service as a director of the Company for any reason
other than mental or physical disability or death, (ii) three (3) months after
the date the non-employee Director ceases to serve as a director of the Company
due to physical or mental disability or (iii)(A) twelve (12) months after the
date the non-employee Director ceases to serve as a director due to the death of
the non-employee Director or (B) three (3) months after the death of the
non-employee Director if such death shall occur during the three (3) month
period following the date the non-employee Director ceased to serve as a
director of the Company due to physical or mental disability; and (d) be
otherwise on the same terms and conditions as all other Options granted pursuant
to the Plan.
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SECTION 8. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Plan may be wholly or
partially amended or otherwise modified, suspended or terminated at any time or
from time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if such amendment would be required
under Sections 162(m) or 422 of the Code, Rule 16b-3 or any other law or rule of
any governmental authority, stock exchange or other self-regulatory organization
to which the Company may then be subject. Neither the amendment, suspension nor
termination of the Plan shall, without the consent of the holder of such Option,
alter or impair any rights or obligations under any Option theretofore granted.
(b) Correction of Defects, Omissions, and
Inconsistencies. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option in the manner and to the
extent it shall deem desirable to carry the Plan into effect.
SECTION 9. GENERAL PROVISIONS
(a) No Rights to Awards. No Key Employee shall have any
claim to be granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Key Employees or holders or beneficiaries of Options
under the Plan. The terms and conditions of Options need not be the same with
respect to each recipient.
(b) No Right to Employment. The grant of an Option shall
not be construed as giving a Participant the right to be retained in the employ
of the Company. Further, the Company may at any time dismiss a Participant from
employment, free from any liability, or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Option Agreement.
(c) Governing Law. The validity, construction, and effect
of the Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of Delaware and applicable
Federal law.
(d) Severability. If any provision of the Plan or any
Option is or becomes or is deemed to be invalid, illegal, or unenforceable in
any jurisdiction, or would disqualify the Plan or any Option under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan, such provision shall be deemed void, stricken and the
remainder of the Plan and any such Option shall remain in full force and effect.
(e) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Option, and the Committee shall
determine whether cash, other
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securities, or other property shall be paid or transferred in lieu of any
fractional Shares or whether such fractional Shares or any rights thereto shall
be cancelled, terminated, or otherwise eliminated.
(f) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision hereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN
The Plan is effective as of November 4, 2002, subject to
stockholder approval of the Plan prior to such date.
SECTION 11. TERM OF THE PLAN
The Plan shall continue until the earlier of (i) the date on
which all Options issuable hereunder have been issued, (ii) the termination of
the Plan by the Board or (iii) the 10th anniversary of the effective date of the
Plan. However, unless otherwise expressly provided in the Plan or in an
applicable Option Agreement, any Option theretofore granted may extend beyond
such date and the authority of the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Option or to waive any conditions or rights
under any such Option, and the authority of the Board to amend the Plan, shall
extend beyond such date.
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