1
EXHIBIT 10.55
MCLEOD, INC.
1996 EMPLOYEE STOCK OPTION PLAN
2
TABLE OF CONTENTS
PAGE
----
1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2. No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. EFFECTIVE DATE AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. GRANT OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. LIMITATION ON INCENTIVE STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. OPTION AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. OPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. TERM AND EXERCISE OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11.2. Exercise by Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11.3. Option Period and Limitations on Exercise . . . . . . . . . . . . . . . . . . . . . 6
11.4. Method of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12. TRANSFERABILITY OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. TERMINATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14.1. Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14.2. Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
15. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
16. SECURITIES LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
i
3
17. EXCHANGE ACT: RULE 16b-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.2. Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.3. Restriction on Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.4. Requirement of Stockholders' Approval . . . . . . . . . . . . . . . . . . . . . . 10
18. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
19. EFFECT OF CHANGES IN CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
19.1 Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
19.2. Reorganization With Corporation Surviving . . . . . . . . . . . . . . . . . . . . 11
19.3. Other Reorganizations; Sale of Assets or Stock . . . . . . . . . . . . . . . . . . 11
19.4. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
19.5. No Limitations on Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 12
20. WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
21. DISCLAIMER OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
22. NONEXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
23. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ii
4
MCLEOD, INC.
1996 EMPLOYEE STOCK OPTION PLAN
McLEOD, INC., a Delaware corporation (the "Corporation"), sets forth
herein the terms of the 1996 Employee Stock Option Plan (the "Plan") as
follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 5 hereof) an
opportunity to acquire or increase a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries and will encourage
such eligible individuals to continue to service the Corporation. Each stock
option granted under the Plan is intended to be an Incentive Stock Option
within the meaning of Section 422 of the Code, except (a) to the extent that
any such Option would exceed the limitations set forth in Section 8 hereof and
(b) for Options specifically designated at the time of grant as not being
Incentive Stock Options.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Option Agreements), the following definitions shall apply:
2.1 "Affiliate" means McLeod, Inc. and any company or other trade or
business that is controlled by or under common control with the Corporation,
(determined in accordance with the principles of Section 414(b) and 414(c) of
the Code and the regulations thereunder) or is an affiliate of the Corporation
within the meaning of Rule 405 of Regulation C under the 1933 Act.
2.2 "Board" means the Board of Directors of the Corporation.
2.3 "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended.
2.4 "Committee" means the Compensation Committee of the Board which
must consist of no fewer than two members of the Board and shall be appointed
by the Board.
2.5 "Corporation" means McLeod, Inc.
2.6 "Effective Date" means the date of adoption of the Plan by the
Board.
2.7 "Employer" means McLeod, Inc. or other Affiliate which employs
the designated recipient of an Option.
5
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.
2.9 "Fair Market Value" means the value of each share of Stock
subject to the Plan determined as follows: if on the Grant Date or other
determination date the shares of Stock are listed on an established national or
regional stock exchange, are admitted to quotation on the National Association
of Securities Dealers Automated Quotation System, or are publicly traded on an
established securities market, the Fair Market Value of the shares of Stock
shall be the closing price of the shares of Stock on such exchange or in such
market (the highest such closing price if there is more than one such exchange
or market) on the trading day immediately preceding the Grant Date or such
other determination date (or if there is no such reported closing price, the
Fair Market Value shall be the mean between the highest bid and lowest asked
prices or between the high and low sale prices on such trading day) or, if no
sale of the shares of Stock is reported for such trading day, on the next
preceding day on which any sale shall have been reported. If the shares of
Stock are not listed on such an exchange, quoted on such System or traded on
such a market, Fair Market Value shall be determined by the Board in good
faith.
2.10 "Grant Date" means the later of (i) the date as of which the
Committee approves the grant and (ii) the date as of which the Optionee and the
Corporation or Affiliate enter the relationship resulting in the Optionee being
eligible for grants.
2.11 "Incentive Stock Option" means an "incentive stock option"
within the meaning of section 422 of the Code.
2.12 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.13 "Option Agreement" means the written agreement evidencing the
grant of an Option hereunder.
2.14 "Optionee" means a person who holds an Option under the Plan.
2.15 "Option Period" means the period during which Options may be
exercised as defined in Section 11.
2.16 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.17 "Plan" means the McLeod, Inc. 1996 Employee Stock Option Plan.
2.18 "1933 Act" means the Securities Act of 1933, as now in effect or
as hereafter amended.
2.19 "Stock" mean the shares of Class A common stock, par value $.01
per share, of the Corporation.
2
6
2.20 "Subsidiary" means any "subsidiary corporation" of the
Corporation within the meaning of Section 425(f) of the Code.
3. ADMINISTRATION
3.1. COMMITTEE
The Plan shall be administered by the Committee appointed by the
Board, which shall have the full power and authority to take all actions and
to make all determinations required or provided for under the Plan or any
Option granted or Option Agreement entered into hereunder and all such other
actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate
to the administration of the Plan or any Option granted or Option Agreement
entered into hereunder. The interpretation and construction by the Committee
of any provision of the Plan or of any Option granted or Option Agreement
entered into hereunder shall be final and conclusive.
3.2. NO LIABILITY
No member of the Board or of the Committee shall be liable for any
action or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan or any Option granted or
Option Agreement entered into hereunder.
4. STOCK
The stock that may be issued pursuant to Options granted under the
Plan shall be Stock, which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 4,525,000
shares of Stock, which number of shares is subject to adjustment as provided in
Section 19 hereof. If any Option expires, terminates or is terminated for any
reason prior to exercise in full, the shares of Stock that were subject to the
unexercised portion of such Option shall be available for future Options
granted under the Plan. It is the intention of the Board that the shares of
Stock that are subject to unexercised Options granted under the Plan, and all
other plans of the Corporation pursuant to which stock options can be granted,
shall not exceed 15% of the then-issued and outstanding shares of Stock and the
then-granted and outstanding options.
5. ELIGIBILITY
Options may be granted under the Plan to (i) any officer or key
employee of the Corporation or any Subsidiary (including any such officer or
key employee who is also a director of the Corporation or any Subsidiary) or
(ii) any other individual whose participation in the Plan is determined to be
in the best interests of the Corporation by the Committee and who is not
3
7
subject to Section 16 of the Exchange Act. An individual may hold more than
one Option, subject to such restrictions as are provided herein.
6. EFFECTIVE DATE AND TERM
6.1. EFFECTIVE DATE
The Plan shall become effective as of the date of adoption by the
Board, subject to stockholders' approval of the Plan within one year of such
effective date by a majority of the votes cast at a duly held meeting of the
stockholders of the Corporation at which a quorum representing a majority of
all outstanding stock is present, either in person or by proxy, and voting on
the matter, or by written consent in accordance with applicable state law and
the Certificate of Incorporation and By-Laws of the Corporation and in a manner
that satisfies the requirements of Rule 16b-3(b) of the Exchange Act; provided,
however, that upon approval of the Plan by the stockholders of the Corporation,
all Options granted under the Plan on or after the effective date shall be
fully effective as if the stockholders of the Corporation had approved the Plan
on the effective date. If the stockholders fail to approve the Plan within one
year of such effective date, any Options granted hereunder shall be null, void
and of no effect.
6.2. TERM
The Plan shall terminate on the date 10 years after the effective
date.
7. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may, at
any time and from time to time prior to the date of termination of the Plan,
grant to such eligible individuals as the Committee may determine Options to
purchase such number of shares of Stock on such terms and conditions as the
Committee may determine, including any terms or conditions which may be
necessary to qualify such Options as Incentive Stock Options. Without limiting
the foregoing, the Committee may at any time, with the consent of the Optionee,
amend the terms of outstanding Options or issue new Options in exchange for the
surrender and cancellation of outstanding Options. The date on which the
Committee approves the grant of an Option (or such later date as is specified
by the Committee) shall be considered the date on which such Option is granted.
The maximum number of shares of Stock subject to Options that can be awarded
under the Plan to any person is 2,000,000 shares.
8. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option (other than an Option described in Section 1 hereof) shall
constitute an Incentive Stock Option only to the extent that the aggregate fair
market value (determined at the time the Option is granted) of the Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under the Plan and all
4
8
other plans of the Optionee's employer corporation and its parent and
subsidiary corporations within the meaning of Section 422(d) of the Code) does
not exceed $100,000. This limitation shall be applied by taking Options into
account in the order in which such Options were granted.
9. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements to be executed by the Corporation and the Optionee, in such form or
forms as the Committee shall from time to time determine. Option Agreements
covering Options granted from time to time or at the same time need not contain
similar provisions; provided, however, that all such Option Agreements shall
comply with all terms of the Plan.
10. OPTION PRICE
The purchase price of each share of Stock subject to an Option shall
be fixed by the Committee and stated in each Option Agreement. In the case of
an Option that is intended to constitute an Incentive Stock Option, the Option
Price shall be not less than the greater of par value or 100 percent of the
Fair Market Value of a share of the Stock covered by the Option on the date the
Option is granted (as determined in good faith by the Committee); provided,
however, that in the event the Optionee would otherwise be ineligible to
receive an Incentive Stock Option by reason of the provisions of Sections
422(b)(6) and 424(d) of the Code (relating to stock ownership of more than 10
percent), the Option Price of an Option which is intended to be an Incentive
Stock Option shall be not less than the greater of par value or 110 percent of
the Fair Market Value of a share of the Stock covered by the Option at the time
such Option is granted. In the case of an Option not intended to constitute an
Incentive Stock Option, the Option Price shall be not less than the greater of
par value or 50 percent of the Fair Market Value of a share of the Stock
covered by the Option on the date the Option is granted (as determined in good
faith by the Committee).
11. TERM AND EXERCISE OF OPTIONS
11.1. TERM
Each Option granted under the Plan shall terminate and all rights to
purchase shares thereunder shall cease upon the expiration of 10 years from the
date such Option is granted, or on such date prior thereto as may be fixed by
the Committee and stated in the Option Agreement relating to such Option;
provided, however, that in the event the Optionee would otherwise be ineligible
to receive an Incentive Stock Option by reason of the provisions of Sections
422(b)(6) and 424(d) of the Code (relating to stock ownership of more than 10
percent), an Option granted to such Optionee which is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.
5
9
11.2. EXERCISE BY OPTIONEE
Only the Optionee receiving an Option (or, in the event of the
Optionee's legal incapacity or incompetency, the Optionee's guardian or legal
representative, and in the case of the Optionee's death, the Optionee's estate)
may exercise the Option.
11.3. OPTION PERIOD AND LIMITATIONS ON EXERCISE
Each Option granted under the Plan shall be exercisable in whole or in
part at any time and from time to time over a period commencing on or after the
date of grant of the Option and ending upon the expiration or termination of
the Option, as the Committee shall determine and set forth in the Option
Agreement relating to such Option. Without limitation of the foregoing, the
Committee, subject to the terms and conditions of the Plan, may in its sole
discretion provide that an Option may not be exercised in whole or in part for
any period or periods of time during which such Option is outstanding as the
Committee shall determine and set forth in the Option Agreement relating to
such Option. Any such limitation on the exercise of an Option contained in any
Option Agreement may be rescinded, modified or waived by the Committee, in its
sole discretion, at any time and from time to time after the date of grant of
such Option. Notwithstanding any other provisions of the Plan, no Option shall
be exercisable in whole or in part prior to the date the Plan is approved by
the stockholders of the Corporation as provided in Section 6.1 hereof.
11.4. METHOD OF EXERCISE
An Option that is exercisable hereunder may be exercised by delivery
to the Corporation on any business day, at its principal office addressed to
the attention of the Committee, of written notice of exercise, which notice
shall specify the number of shares for which the Option is being exercised, and
shall be accompanied by payment in full of the Option Price of the shares for
which the Option is being exercised. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made,
as determined by the Committee and set forth in the Option Agreement pertaining
to an Option, (a) in cash or by certified check payable to the order of the
Corporation; (b) through the tender to the Corporation of shares of Stock,
which shares shall be valued, for purposes of determining the extent to which
the Option Price has been paid thereby, at their Fair Market Value on the date
of exercise; or (c) by a combination of the methods described in Sections
11.4(a) and 11.4(b) hereof; provided, however, that the Committee may in its
discretion impose and set forth in the Option Agreement pertaining to an Option
such limitations or prohibitions on the use of shares of Stock to exercise
Options as it deems appropriate. Payment in full of the Option Price need not
accompany the written notice of exercise provided the notice directs that the
Stock certificate or certificates for the shares for which the Option is
exercised be delivered to a licensed broker acceptable to the Corporation as
the agent for the individual exercising the Option and, at the time such Stock
certificate or certificates are delivered, the broker tenders to the
Corporation cash (or cash equivalents acceptable to the Corporation) equal to
the Option Price plus the amount (if any) of federal and/or other taxes which
the Corporation may, in its judgment, be required to withhold with respect to
the exercise of the Option. An attempt to exercise any Option granted
hereunder
6
10
other than as set forth above shall be invalid and of no force and effect.
Promptly after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the individual exercising the
Option shall be entitled to the issuance of a Stock certificate or certificates
evidencing such individual's ownership of such shares. A separate Stock
certificate or certificates shall be issued for any shares purchased pursuant
to the exercise of an Option which is an Incentive Stock Option, which
certificate or certificates shall not include any shares which were purchased
pursuant to the exercise of an Option which is not an Incentive Stock Option.
An individual holding or exercising an Option shall have none of the rights of
a stockholder until the shares of Stock covered thereby are fully paid and
issued to such individual and, except as provided in Section 19 hereof, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.
12. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to whom
it is granted, other than by will or the laws of descent and distribution.
13. TERMINATION OF EMPLOYMENT
The Committee may provide, by inclusion of appropriate language in any
Option Agreement, that an Optionee may (subject to the general limitations on
exercise set forth in Section 11.3 hereof), in the event of termination of
employment of the Optionee with the Corporation or a Subsidiary, exercise an
Option, in whole or in part, at any time subsequent to such termination of
employment and prior to termination of the Option pursuant to Section 11.1
hereof, either subject to or without regard to any installment limitation on
exercise imposed pursuant to Section 11.3 hereof, as the Committee, in its sole
and absolute discretion, shall determine and set forth in the Option Agreement.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment for purposes of the Plan shall be
determined by the Committee, which determination shall be final and conclusive.
For purposes of the Plan, a termination of employment with the Corporation or a
Subsidiary shall not be deemed to occur if the Optionee is immediately
thereafter employed with the Corporation or any other Subsidiary.
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
14.1. DEATH
If an Optionee dies while employed by the Corporation or a Subsidiary
or within the period following the termination of employment during which the
Option is exercisable under Section 13 or 14.2 hereof, the executors,
administrators, legatees or distributees of such Optionee's estate shall have
the right (subject to the general limitations on exercise set forth in Section
11.3 hereof), at any time within three months after the date of such Optionee's
death and prior to termination of the Option pursuant to Section 11.1 hereof,
to exercise any Option held by such Optionee at the date of such Optionee's
death, to the extent such Option was exercisable
7
11
immediately prior to such Optionee's death; provided, however, that the
Committee may provide by inclusion of appropriate language in any Option
Agreement that, in the event of the death of an Optionee, the executors,
administrators, legatees or distributees of such Optionee's estate may exercise
an Option (subject to the general limitations on exercise set forth in Section
11.3 hereof), in whole or in part, at any time subsequent to such Optionee's
death and prior to termination of the Option pursuant to Section 11.1 hereof,
either subject to or without regard to any installment limitation on exercise
imposed pursuant to Section 11.3 hereof, as the Committee, in its sole and
absolute discretion, shall determine and set forth in the Option Agreement.
14.2. DISABILITY
If an Optionee terminates employment with the Corporation or a
Subsidiary by reason of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) of such Optionee, then such Optionee
shall have the right (subject to the general limitations on exercise set forth
in Section 11.3 hereof), at any time within three months after such termination
of employment and prior to termination of the Option pursuant to Section 11.1
hereof, to exercise, in whole or in part, any Option held by such Optionee at
the date of such termination of employment, to the extent such Option was
exercisable immediately prior to such termination of employment; provided,
however, that the Committee may provide, by inclusion of appropriate language
in any Option Agreement, that an Optionee may (subject to the general
limitations on exercise set forth in Section 11.3 hereof), in the event of the
termination of employment of the Optionee with the Corporation or a Subsidiary
by reason of the "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code) of such Optionee, exercise an Option, in whole or
in part, at any time subsequent to such termination of employment and prior to
termination of the Option pursuant to Section 11.1 hereof, either subject to or
without regard to any installment limitation on exercise imposed pursuant to
Section 11.3 hereof, as the Committee, in its sole and absolute discretion,
shall determine and set forth in the Option Agreement. Whether a termination
of employment is to be considered by reason of "permanent and total disability"
for purposes of the Plan shall be determined by the Committee, which
determination shall be final and conclusive.
15. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to Options granted under the Plan shall constitute general funds of
the Corporation.
16. SECURITIES LAWS
The Corporation shall not be required to sell or issue any shares of
Stock under any Option if the sale or issuance of such shares would constitute
a violation by the individual exercising the Option or by the Corporation of
any provisions of any law or regulation of any governmental authority,
including, without limitation, any federal or state securities laws or
regulations. If at any time the Corporation shall determine, in its
discretion, that the listing,
8
12
registration or qualification of any shares subject to the Option upon any
securities exchange or under any state or federal law, or the consent of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Corporation, and any delay caused thereby shall in no way
affect the date of termination of the Option. Specifically in connection with
the Securities Act, upon exercise of any Option, unless a registration
statement under the Securities Act is in effect with respect to the shares of
Stock covered by such Option, the Corporation shall not be required to sell or
issue such shares unless the Corporation has received evidence satisfactory to
the Corporation that the Optionee may acquire such shares pursuant to an
exemption from registration under the Securities Act. Any determination in
this connection by the Corporation shall be final and conclusive. The
Corporation may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act. The Corporation shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable
unless and until the shares of Stock covered by such Option are registered or
are subject to an available exemption from registration, the exercise of such
Option (under circumstances in which the laws of such jurisdiction apply) shall
be deemed conditioned upon the effectiveness of such registration or the
availability of such an exemption.
17. EXCHANGE ACT: RULE 16b-3
17.1. GENERAL
The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3") (and any
successor thereto) under the Exchange Act. Any provision inconsistent with
Rule 16b-3 shall, to the extent permitted by law and determined to be advisable
by the Committee (constituted in accordance with Section 17.2 hereof), be
inoperative and void.
17.2. COMPENSATION COMMITTEE
The Committee appointed in accordance with Section 3.1 hereof shall
consist of not fewer than two members of the Board each of whom shall qualify
(at the time of appointment to the Committee and during all periods of service
on the Committee) in all respects as a "disinterested person" as defined in
Rule 16b-3.
17.3. RESTRICTION ON TRANSFER OF STOCK
No director, officer or other "insider" of the Corporation subject to
Section 16 of the Exchange Act shall be permitted to sell Stock (which such
"insider" had received upon exercise of an Option) during the six months
immediately following the grant of such Option.
9
13
17.4. REQUIREMENT OF STOCKHOLDERS' APPROVAL
No amendment by the Board shall, without approval by a majority of the
votes cast at a duly held meeting of the stockholders of the Corporation at
which a quorum representing a majority of all outstanding stock is present,
either in person or by proxy, and voting on the amendment, or by written
consent in accordance with applicable state law and the Certificate of
Incorporation and By-Laws of the Corporation, materially increase the benefits
accruing to Section 16 "insiders" under the Plan or take any other action that
would require the approval of such stockholders pursuant to Rule 16b-3.
18. AMENDMENT AND TERMINATION
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes cast at a duly held meeting of the
stockholders of the Corporation at which a quorum representing a majority of
all outstanding stock is present, either in person or by proxy, and voting on
the amendment, or by written consent in accordance with applicable state law
and the Certificate of Incorporation and By-Laws of the Corporation, materially
change the requirements as to eligibility to receive Options or increase the
maximum number of shares of Stock in the aggregate that may be sold pursuant to
Options granted under the Plan (except as permitted under Section 19 hereof).
The Corporation also may retain the right in an Option Agreement to cause a
forfeiture of the shares or gain realized by an Optionee on account of the
Optionee taking actions in "competition with the Corporation," as defined in
the applicable Option Agreement. Furthermore, the Corporation may, in the
Option Agreement, retain the right to annul the grant of an Option if the
holder of such grant was an employee of the Corporation or a Subsidiary and is
terminated "for cause," as defined in the applicable Option Agreement. Except
as permitted under Section 19 hereof, no amendment, suspension or termination
of the Plan shall, without the consent of the Optionee, alter or impair rights
or obligations under any Option theretofore granted under the Plan.
19. EFFECT OF CHANGES IN CAPITALIZATION
19.1 CHANGES IN STOCK
If the number of outstanding shares of Stock is increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration
by the Corporation, occurring after the effective date of the Plan, a
proportionate and appropriate adjustment shall be made by the Corporation in
the number and kind of shares for which Options are outstanding, so that the
proportionate interest of the Optionee immediately following such event shall,
to the extent practicable, be the same as immediately prior to such event. Any
such adjustment in outstanding Options shall not change the aggregate Option
Price payable with respect to shares subject to the
10
14
unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
19.2. REORGANIZATION WITH CORPORATION SURVIVING
Subject to Section 19.3 hereof, if the Corporation shall be the
surviving entity in any reorganization, merger or consolidation of the
Corporation with one or more other entities, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger or consolidation.
19.3. OTHER REORGANIZATIONS; SALE OF ASSETS OR STOCK
Upon the dissolution or liquidation of the Corporation, or upon a
merger, consolidation or reorganization of the Corporation with one or more
other entities in which the Corporation is not the surviving entity, or upon a
sale of substantially all of the assets of the Corporation to another entity,
or upon any transaction (including, without limitation, a merger or
reorganization in which the Corporation is the surviving entity) approved by
the Board that results in any person or entity (other than persons who are
holders of stock of the Corporation at the time the Plan is approved by the
Stockholders and other than an Affiliate) owning 80 percent or more of the
combined voting power of all classes of stock of the Corporation, the Plan and
all Options outstanding hereunder shall terminate, except to the extent
provision is made in connection with such transaction for the continuation of
the Plan and/or the assumption of the Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
entity, or a parent or subsidiary thereof, with appropriate adjustments as to
the number and kinds of shares and exercise prices, in which event the Plan and
Options theretofore granted shall continue in the manner and under the terms so
provided. In the event of any such termination of the Plan, each Optionee
shall have the right (subject to the general limitations on exercise set forth
in Section 11.3 hereof and except as otherwise specifically provided in the
Option Agreement relating to such Option), immediately prior to the occurrence
of such termination and during such period occurring prior to such termination
as the Committee in its sole discretion shall designate, to exercise such
Option in whole or in part, to the extent such Option was otherwise exercisable
at the time such termination occurs, but subject to any additional provisions
that the Committee may, in its sole discretion, include in any Option
Agreement. The Committee shall send written notice of an event that will
result in such a termination to all Optionees not later than the time at which
the Corporation gives notice thereof to its stockholders.
19.4. ADJUSTMENTS
Adjustments under this Section 19 relating to stock or securities of
the Corporation shall be made by the Committee, whose determination in that
respect shall be final
11
15
and conclusive. No fractional shares of Stock or units of other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share or unit.
19.5. NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or limit
in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
20. WITHHOLDING
The Corporation or a Subsidiary may be obligated to withhold federal
and local income taxes and Social Security taxes to the extent that an Optionee
realizes ordinary income in connection with the exercise of an Option. The
Corporation or a Subsidiary may withhold amounts needed to cover such taxes
from payments otherwise due and owing to an Optionee, and upon demand the
Optionee will promptly pay to the Corporation or a Subsidiary having such
obligation any additional amounts as may be necessary to satisfy such
withholding tax obligation. Such payment shall be made in cash or cash
equivalents.
21. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the Corporation or any
Subsidiary, or to interfere in any way with the right and authority of the
Corporation or any Subsidiary either to increase or decrease the compensation
of any individual at any time, or to terminate any employment or other
relationship between any individual and the Corporation or any Subsidiary. The
obligation of the Corporation to pay any benefits pursuant to the Plan shall be
interpreted as a contractual obligation to pay only those amounts described
herein, in the manner and under the conditions prescribed herein. The Plan
shall in no way be interpreted to require the Corporation to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any participant or beneficiary under the terms of the
Plan.
22. NONEXCLUSIVITY
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
12
16
23. GOVERNING LAW.
This Plan and all Options to be granted hereunder shall be governed by
the laws of the State of Delaware (but not including the choice of law rules
thereof).
13
17
The Plan was duly adopted and approved by the Board on March 28, 1996
and was duly approved by the stockholders of the Corporation on April 30, 1996.
------------------------
Casey D. Mahon, Esq.
Secretary
14