Exhibit No. 10(O)
THE PROGRESSIVE CORPORATION
2003 INCENTIVE PLAN
SECTION 1. ESTABLISHMENT; PURPOSE; DEFINITIONS.
(a) The Progressive Corporation, an Ohio corporation (the
"Company"), hereby establishes an incentive compensation plan for key employees,
to be known as "The Progressive Corporation 2003 Incentive Plan" (the "Plan"),
as set forth in this document. The Plan permits the grant of Restricted Stock
and Stock Options to key employees of the Company and its Subsidiaries and
Affiliates.
(b) The purpose of the Plan is to enable the Company to
attract, retain and reward key employees of the Company and its Subsidiaries and
Affiliates and strengthen the mutuality of interests between such key employees
and the Company's shareholders by offering such key employees equity or
equity-based incentives.
(c) For purposes of the Plan, the following terms shall have
the meanings set forth below:
"Affiliate" means any entity (other than the Company and its
Subsidiaries) that is designated by the Board as a participating
employer under the Plan.
"Award" means any award of Restricted Stock or Stock Options
under the Plan.
"Award Agreement" means an agreement setting forth the terms
and conditions applicable to an Award granted to a Participant under
the Plan.
"Board" means the Board of Directors of the Company.
"Book Value" means, as of any given date, on a per share basis
(1) the shareholders' equity in the Company as of the end of the
immediately preceding fiscal year as reflected in the Company's audited
consolidated balance sheet as of such year-end date, subject to such
adjustments as the Committee shall specify at or after grant, divided
by (2) the number of outstanding shares of Stock as of such year-end
date, subject to such adjustments as the Committee shall specify for
events subsequent to such year-end date.
"Change in Control" has the meaning assigned to it in Section
7(b).
"Change in Control Price" has the meaning assigned to it in
Section 7(d).
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
"Committee" means the Compensation Committee of the Board.
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"Company" means The Progressive Corporation, an Ohio
corporation, or any successor corporation.
"Disability" means a mental or physical condition which, in
the opinion of the Committee, renders a Participant unable or
incompetent to carry out the job responsibilities held by such
Participant or the duties assigned to such Participant at the time such
condition arose or was incurred, and which is expected to be permanent
or for an indefinite duration.
"Eligible Persons" has the meaning assigned to it in Section
4.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expiration Date" means the date upon which an Award, or any
portion thereof, is scheduled to expire or terminate if not exercised
or vested prior thereto, as determined by the Committee.
"Fair Market Value" means, as of any given date, the mean
between the highest and lowest quoted selling price of the Stock on
such date on the New York Stock Exchange or, if no such sale of the
Stock occurs on the New York Stock Exchange on such date, then such
mean price on the next preceding day on which the Stock was traded. If
the Stock is no longer traded on the New York Stock Exchange, then the
Fair Market Value of the Stock shall be determined by the Committee in
good faith.
"Family Member" means a Participant's child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, including adoptive relationships, a
trust in which any of these persons (and/or the Participant) holds more
than 50% of the beneficial interest, a foundation in which any of these
persons (and/or the Participant) controls the management of assets and
any other entity in which any of these persons (and/or the Participant)
owns more than 50% of the voting interests.
"Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option", which satisfies the
requirements of Section 422 of the Code or any successor section
thereto.
"Non-Employee Director" shall have the meaning set forth in
Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange
Commission under the Exchange Act, or any successor definition adopted
by the Commission.
"Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
"Option Exercise Price" means the price at which a share of
Stock may be purchased by a Participant pursuant to the exercise of an
Option, as determined by the Committee and set forth in the related
Option Award Agreement.
"Option Term" shall have the meaning assigned to it in Section
6(b)(2).
"Outside Director" shall have the meaning set forth in Section
162(m) of the Code and the regulations promulgated thereunder.
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"Participant" means an Eligible Person who holds an
outstanding Award granted under the Plan.
"Performance-Based Restricted Stock" means an Award of
Restricted Stock, which will vest upon the achievement of Performance
Goals established by or under the direction of the Committee and set
forth in the related Award Agreement and which is intended to qualify
for the exemption from the limitation on deductibility imposed by
Section 162(m) of the Code.
"Performance Goals" means the performance goals established by
the Committee with respect to any Award, which shall be based on one or
more of the following measures: earned premiums, operating income, net
income, combined ratio, underwriting income and/or operating ratios
(including loss ratio, loss adjustment expense ratio and/or expense
ratio). Performance goals may be measured on a corporate, subsidiary or
business unit basis, or any combination thereof. Performance goals may
reflect absolute entity performance or a relative comparison of entity
performance to the performance of a peer group of entities or other
external measure.
"Plan" means The Progressive Corporation 2003 Incentive Plan,
as amended from time to time.
"Potential Change in Control" has the meaning assigned to it
in Section 7(c).
"Restricted Stock" means an Award of shares of Stock that is
made pursuant to Section 5 and is subject to restrictions.
"Restriction Period" and "Minimum Restriction Period" shall
have the meanings assigned to them in Section 5(b)(6).
"Section 16 Participant" means a Participant under the Plan
who is then subject to Section 16 of the Exchange Act.
"Stock" means the Common Shares, $1.00 par value per share, of
the Company.
"Stock Option" or "Option" means any option to purchase shares
of Stock that is granted pursuant to Section 6.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns 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.
"Time-based Restricted Stock" means an Award of Restricted
Stock that will vest upon the lapse of a time period determined by or
under the direction of the Committee and specified in the related Award
Agreement.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee
shall consist of not less than three directors of the Company, all of whom shall
be Non-Employee Directors and Outside
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Directors. Committee members shall be appointed by the Board and shall serve on
the Committee at the pleasure of the Board. The functions of the Committee
specified in the Plan shall be exercised by the Board if and to the extent that
no Committee exists which has the authority to so administer the Plan.
The Committee shall have full power to interpret and
administer the Plan and full authority to select the individuals to whom Awards
will be granted and to determine the type and amount of Awards to be granted to
each Participant, the consideration, if any, to be paid for such Awards, the
timing of such Awards, the terms and conditions of Awards granted under the Plan
and the terms and conditions of the related Award Agreements which will be
entered into with Participants. As to the selection of and grant of Awards to
Participants who are not Section 16 Participants, the Committee may delegate its
responsibilities to members of the Company's management consistent with
applicable law.
The Committee shall have the authority to adopt, alter, change
and repeal such rules, regulations, guidelines and practices governing the Plan,
from time to time, as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award issued under the Plan (and any Award
Agreement relating thereto); to direct employees of the Company or other
advisors to prepare such materials or perform such analyses as the Committee
deems necessary or appropriate; and otherwise to supervise the administration of
the Plan.
Any interpretation and administration of the Plan by the
Committee, and all actions and determinations of the Committee, shall be final,
binding and conclusive on the Company, its shareholders, Subsidiaries,
Affiliates, all Participants in the Plan, their respective legal
representatives, successors and assigns and all persons claiming under or
through any of them. No member of the Board or of the Committee shall incur any
liability for any action taken or omitted, or any determination made, in good
faith in connection with the Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
(a) Aggregate Stock Subject to the Plan. Subject to adjustment
as provided in Section 3(c) below, the total number of shares of Stock
reserved and available for Awards under the Plan is 5,000,000. Any
Stock issued hereunder may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
(b) Forfeiture or Termination of Awards or Stock. If any Stock
subject to any Award granted hereunder is forfeited or an Award
otherwise terminates or expires without the issuance of Stock, the
Stock that is subject to such Award shall again be available for
distribution in connection with future Awards under the Plan as set
forth in Section 3(a), unless the Participant who had been awarded such
forfeited Stock or the expired or terminated Award has theretofor
received dividends or other benefits of ownership with respect to such
Stock. For purposes hereof, a Participant shall not be deemed to have
received a benefit of ownership with respect to such Stock by the
exercise of voting rights or the accumulation of dividends which are
not realized due to the forfeiture of such Stock or the expiration or
termination of the related Award without issuance of such Stock.
(c) Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split, reverse
share split, combination of shares or other change in the corporate or
capital structure of the Company affecting the Stock, such substitution
or adjustment shall be made in the aggregate number of shares of Stock
reserved for issuance under the Plan, in the maximum number of shares
that may be subject to Awards granted to any
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Participant during any calendar year or other period, in the number and
Option Exercise Price of shares subject to outstanding Options granted
under the Plan and in the number of shares subject to Restricted Stock
Awards granted under the Plan as may be approved by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights;
provided that the number of shares subject to any Award shall always be
a whole number. Any fractional shares shall be eliminated.
(d) Annual Award Limitation. No Participant may be granted
Awards under the Plan with respect to an aggregate of more than 200,000
shares of Stock (subject to adjustment as provided in Section 3(c)
hereof) during any calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its
Subsidiaries and Affiliates (but excluding members of the Committee and any
other person who serves only as a director) who are responsible for or
contribute to the management, growth or profitability of the business of the
Company or its Subsidiaries or Affiliates ("Eligible Persons") are eligible to
be granted Awards under the Plan.
SECTION 5. RESTRICTED STOCK.
(a) Grant. Subject to the terms and conditions of the Plan,
Restricted Stock may be awarded to Eligible Persons at any time and
from time to time as shall be determined by the Committee. The
Committee shall determine the individuals to whom, and the time or
times at which, grants of Restricted Stock will be made; the number of
shares of Restricted Stock to be awarded to each Participant; the price
(if any) to be paid by the Participant (subject to Section 5(b));
whether the Awards will consist of Performance-Based Restricted Stock
or Time-Based Restricted Stock or a combination thereof; the date or
dates or conditions upon which Restricted Stock Awards will vest,
whether through lapse of time or the achievement of specified
Performance Goals; the Performance Goal or Goals, if any, that must be
satisfied as a condition to the vesting of any Restricted Stock Award;
the period or periods within which such Restricted Stock Awards may be
subject to forfeiture; and the other terms and conditions of such
Awards in addition to those set forth in Section 5(b).
The Committee may condition the grant or vesting of Restricted
Stock upon the lapse of time or the attainment of specified Performance
Goals or such other factors as the Committee may determine in its sole
discretion.
(b) Terms and Conditions. Restricted Stock awarded under the
Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable. A
Participant who receives a Restricted Stock Award shall not have any
rights with respect to such Award, unless and until such Participant
has executed an Award Agreement evidencing the Award in the form
approved from time to time by the Committee and has delivered a fully
executed copy thereof to the Company, and has otherwise complied with
the applicable terms and conditions of such Award.
(1) The purchase price for shares of Restricted Stock shall be
determined by the Committee at the time of grant and may be
equal to their par value or zero.
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(2) Awards of Restricted Stock must be accepted by executing
the related Restricted Stock Award Agreement, delivering an
executed copy of such Restricted Stock Award Agreement to the
Company and paying whatever price (if any) is required under
Section 5(b)(1).
(3) Subject to Section 5(b)(5), each Participant receiving a
Restricted Stock Award shall be issued a stock certificate in
respect of such shares of Restricted Stock. Such certificate
shall be registered in the name of such Participant, and shall
bear an appropriate legend referring to the terms, conditions
and restrictions applicable to such Award.
(4) Subject to Section 5(b)(5), the stock certificates
evidencing such shares of Restricted Stock shall be delivered
to and held in custody by the Company, or its designee, until
the restrictions thereon shall have lapsed or any conditions
to the vesting of such Award have been satisfied. As a
condition of any Restricted Stock Award, the Participant shall
deliver to the Company a stock power, endorsed in blank,
relating to the Stock covered by such Award.
(5) In the discretion of the Company, any shares of Restricted
Stock awarded to any Participant may be issued and held in
book entry form. In such event, no stock certificates
evidencing such shares will be issued and the applicable
restrictions will be noted in the records of the Company's
transfer agent and in the book entry system.
(6) A Participant may be granted an Award of Time-Based
Restricted Stock or Performance-Based Restricted Stock, or a
combination thereof. Time-Based Restricted Stock Awards will
vest and all restrictions thereon will terminate upon the
lapse of a period of time specified by the Committee, provided
all other conditions to vesting have been met.
Performance-Based Restricted Stock Awards will vest and all
restrictions thereon will terminate upon the certification by
the Committee of the achievement of the specified Performance
Goals, provided all other conditions to vesting have been met.
(7) Subject to the provisions of this Plan and the related
Restricted Stock Award Agreement, during the period set by the
Committee commencing with the date of a Restricted Stock Award
(the "Restriction Period"), the Participant who has received
such Award shall not be permitted to sell, transfer, pledge,
assign or otherwise encumber the shares of Restricted Stock
which are subject to such Award. The Restriction Period shall
not be less than six months and one day in duration ("Minimum
Restriction Period") and may be a function of time or the
achievement of Performance Goals, or both, as determined by
the Committee at the time of grant. Subject to these
limitations and the Minimum Restriction Period requirement,
the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate
or waive such restrictions, in whole or in part, based on
service, performance or such other factors and criteria as the
Committee may determine, in its sole discretion; provided that
any such action does not affect any Award held by any
Participant who is subject to Section 162(m) of the Code.
(8) Except as provided in this Section 5(b)(8), Section
5(b)(7) or Section 5(b)(9), the Participant shall have, with
respect to the shares of Restricted Stock awarded, all of the
rights of a shareholder of the Company, including the right to
vote the Stock and the right to receive any dividends. The
Committee, in its sole discretion, as determined at the time
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of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines,
reinvested, subject to Section 10(f), in additional Restricted
Stock to the extent shares are available under Section 3, or
otherwise reinvested. Stock dividends issued with respect to
Restricted Stock shall be treated as additional shares of
Restricted Stock that are subject to the same restrictions and
other terms and conditions that apply to the shares with
respect to which such dividends are issued.
(9) No Restricted Stock shall be transferable by any
Participant other than by will or by the laws of descent and
distribution, except that, if determined by the Committee at
the time of grant and so provided in the applicable Award
Agreement, a Participant may transfer Restricted Stock during
his or her lifetime to one or more of his or her Family
Members, provided that no consideration is paid for the
transfer and that the transfer would not result in the loss of
any exemption under Rule 16b-3 of the Exchange Act with
respect to any Restricted Stock. The transferee of Restricted
Stock will be subject to all restrictions, terms and
conditions applicable to the Restricted Stock prior to its
transfer, except that the Restricted Stock will not be further
transferable by the transferee other than by will or by the
laws of descent and distribution.
(10) If a Participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any
Restricted Stock held by such Participant at the time of death
shall thereafter vest or any restrictions lapse, to the extent
such Restricted Stock would have become vested or no longer
subject to restriction within one year from the time of death
had the Participant continued to fulfill all of the conditions
of the Restricted Stock Award during such period; provided
that, if the vesting of such Award is conditioned on or
subject to the achievement of specified Performance Goals,
such Performance Goals are achieved prior to the earlier of
the expiration of such one year period or the Expiration Date
of the Award, subject in all cases to the Minimum Restriction
Period requirement. The balance of the Restricted Stock shall
be forfeited.
(11) If a Participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability,
any Restricted Stock then held by such Participant shall
thereafter vest or any restriction lapse, to the extent such
Restricted Stock would have become vested or no longer subject
to restrictions within one year from the time of such
termination had the Participant continued to fulfill all of
the conditions of the Restricted Stock Award during such
period; provided that, if the vesting of such Award is
conditioned on or subject to the achievement of specified
Performance Goals, such Performance Goals are achieved prior
to the earlier of the expiration of such one year period or
the Expiration Date of the Award, subject in all cases to the
Minimum Restriction Period requirement. The balance of the
Restricted Stock shall be forfeited.
(12) Unless otherwise determined by the Committee at or after
the time of granting any Restricted Stock Award, and except as
provided in Section 5(b)(13) hereof, if a Participant's
employment by the Company or any Subsidiary or Affiliate
terminates for any reason other than death or Disability, all
Restricted Stock held by such Participant which is unvested or
subject to restriction at the time of such termination shall
thereupon be forfeited.
(13) If a Participant's employment with the Company (or any of
its Subsidiaries or Affiliates) terminates due to a Qualified
Retirement (as defined below), the following provisions shall
apply (subject in all cases to Section 5(b)(13)(C) hereof):
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(A) if and to the extent that any Award Installment (as
defined below) is vested as of the Qualified
Retirement Date (as defined below), all shares of
Restricted Stock held by the Participant in
connection with such Award Installment shall be free
of applicable restrictions and delivered to the
Participant (subject to Section 5(b)(5));
(B) (i) with respect to all Time-Based Restricted Stock
Awards held by the Participant on his or her
Qualified Retirement Date, if and to the extent that
any Award Installment is not vested as of such
Qualified Retirement Date, such Award Installment (a)
shall remain in effect with respect to fifty percent
(50%) of the shares of Stock covered thereby and, as
to such shares, shall immediately vest on the
Participant's Qualified Retirement Date, and shall
thereafter be free of applicable restrictions and
delivered to the Participant (subject to Section
5(b)(5)); and (b) shall terminate, effective as of
the Qualified Retirement Date, with respect to the
remaining fifty percent (50%) of the shares covered
by such Award Installment.
(ii) with respect to all Performance-Based Restricted
Stock Awards held by the Participant on his or her
Qualified Retirement Date, if and to the extent that
any Award Installment is not vested as of the
Qualified Retirement Date, such Award Installment (a)
shall remain in effect with respect to fifty percent
(50%) of the shares of Stock covered thereby and, as
to such shares, shall vest upon the achievement of
the related Performance Goals (unless such
Performance Goals are not achieved prior to the
Expiration Date applicable to such Award Installment,
in which event the Award Installment will terminate,
and all shares of Restricted Stock covered by such
Award Installment will be forfeited, as of such
Expiration Date), and (b) shall terminate, effective
as of the Qualified Retirement Date, with respect to
the remaining fifty percent (50%) of the shares
covered by such Award Installment; provided that,
with respect to any member of the Company's Senior
Management Group (as defined below) who has given the
Company at least one (1) full year's prior written
notice of his or her retirement, upon any Qualified
Retirement of such individual, no portion of any
Performance-Based Restricted Stock Awards held by
such Participant on his or her Qualified Retirement
Date will terminate on such date, but such Awards
will remain in effect and one hundred percent (100%)
of the shares subject to each such Award held by such
Participant on his or her Qualified Retirement Date
shall vest as of the date on which the applicable
Performance Goals have been achieved (unless such
Performance Goals are not achieved prior to the
Expiration Date applicable to such Award, in which
event the Award will terminate, and all shares of
Restricted Stock covered by such Award will be
forfeited, as of such Expiration Date).
(C) if the Committee determines that the Participant is
or has engaged in any Disqualifying Activity (as
defined below), then (1) to the extent that any
Restricted Stock Award held by such Participant has
vested as of the
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Disqualification Date (as defined below), the
Participant shall have the right to receive all
shares of Restricted Stock which are vested as of
such date (subject to Section 5(b)(5)) and (2) to the
extent that any Restricted Stock Award held by such
Participant has not vested as of the Disqualification
Date, the Award shall terminate, and all related
shares shall be forfeited, as of such date. Any
determination by the Committee, which may act upon
the recommendation of the Chief Executive Officer or
other senior officer of the Company, that the
Participant is or has engaged in any Disqualifying
Activity, and as to the Disqualification Date, shall
be final and conclusive.
(D) For purposes of Section 5(b)13, the following terms
are defined as follows:
(i) Qualified Retirement - any termination of a
Participant's employment with the Company or its
Subsidiaries or Affiliates for any reason (other than
death, Disability or an involuntary termination for
Cause) if, at or immediately prior to the date of
such termination, the Participant satisfies both of
the following conditions:
(a) the Participant is 55 year of age
or older; and
(b) the sum of the Participant's age
and completed years of service as
an employee of the Company or its
Subsidiaries or Affiliates
(disregarding fractions in both
cases) shall total 70 or more.
(ii)Qualified Retirement Date - the date as of which
the Participant's employment with the Company or its
Subsidiaries or Affiliates shall terminate pursuant
to a Qualified Retirement.
(iii) Disqualifying Activity - means any of the
following acts or activities:
(a) directly or indirectly serving as a
principal, shareholder, partner, director,
officer, employee or agent of, or as a
consultant, advisor or in any other capacity
to, any business or entity which competes
with the Company or its Subsidiaries or
Affiliates in any business or activity then
conducted by the Company or any of its
Subsidiaries or Affiliates to an extent
deemed material by the Committee; or
(b) any disclosure by the Participant, or
any use by the Participant for his or her
own benefit or for the benefit of any other
person or entity (other than the Company or
its Subsidiaries or Affiliates), of any
confidential information or trade secret of
the Company or any of its Subsidiaries or
Affiliates without the consent of the
Company; or
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(c) any material violation of any of the
provisions of the Company's Code of Business
Conduct and Ethics ("Code of Conduct") or
any agreement between the Participant and
the Company;
(d) making any other disclosure or taking
any other action which is determined by the
Committee to be materially detrimental to
the business, prospects or reputation of the
Company or any of its Subsidiaries or
Affiliates; or
(e) the Participant fails, in any material
respect, to perform his or her assigned
responsibilities as an employee of the
Company or any of its Subsidiaries or
Affiliates, as determined by the Committee,
in its sole judgment, after consulting with
the Chief Executive Officer.
The ownership of less than 2% of the outstanding voting
securities of a publicly traded corporation which competes
with the Company or any of its Subsidiaries or Affiliates
shall not constitute a Disqualifying Activity.
(iv) Cause - means a felony conviction of a
Participant or the failure of a Participant to
contest prosecution for a felony, or a Participant's
willful misconduct or dishonesty, any of which, in
the judgment of the Committee, is harmful to the
business or reputation of the Company or any
Subsidiary or Affiliate; or any material violation of
the Code of Conduct or any agreement between the
Participant and the Company.
(v) Disqualification Date - the earliest date as of
which the Participant engaged in any Disqualifying
Activity, as determined by the Committee.
(vi)Award Installment - if the Restricted Stock Award
consists of multiple Awards, each with a separate
Vesting Date and/or separate Expiration Date, any one
of such Awards or, if the Restricted Stock Award
consists of a single Award, with a single Vesting
Date and a single Expiration Date, then the entire
Award.
(vii) Vesting Date - the date on which any
restrictions on a Restricted Stock Award terminate
and such Award vests, whether by reason of lapse of
time, the achievement of specified Performance Goals
or both.
(viii) Senior Management Group - means the Chief
Executive Officer and other members of the executive
management team, (i.e. the Chief Executive Officer's
Direct Reporting Group) determined, with respect to
any Participant, on the date of his or her retirement
from the Company.
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(14) Any Participant who is then eligible to participate in
The Progressive Corporation Executive Deferred Compensation
Plan or any other deferral plan hereafter adopted or
maintained by the Company (a "Deferral Plan") may elect to
defer all or any portion of any Restricted Stock Awards
granted to him or her under this Plan, subject to and in
accordance with the terms of the applicable Deferral Plan.
SECTION 6. STOCK OPTIONS.
(a) Grant. Subject to the terms and conditions of the Plan,
Stock Options may be granted to Eligible Persons at any time and from
time to time, as shall be determined by the Committee. The Committee
shall determine the individuals to whom, and the time or times at
which, grants of Stock Options will be made; the number of shares
purchasable under each Stock Option; and the other terms and conditions
of the Stock Options in addition to those set forth in Sections 6(b)
and 6(c). Any Stock Option granted under the Plan shall be in such form
as the Committee may from time to time approve.
Stock Options granted under the Plan may be either of two
types, which shall be indicated on their face: (i) Incentive Stock
Options or (ii) Non-Qualified Stock Options. Subject to Section 6(c)
hereof, the Committee shall have the authority to grant to any
Participant Incentive Stock Options, Non-Qualified Stock Options or a
combination thereof.
(b) Terms and Conditions. Options granted under the Plan shall
be evidenced by Option Award Agreements, shall be subject to the
following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(1) Option Exercise Price. The Option Exercise Price per share
of Stock purchasable under a Non-Qualified Stock Option shall
be determined by the Committee at the time of grant and shall
not be less than 100% of the Fair Market Value of the Stock on
the date of grant. The Option Exercise Price per share of
Stock purchasable under an Incentive Stock Option shall be
determined by the Committee at the time of grant and shall be
not less than 100% of the Fair Market Value of the Stock at
the date of grant (or 110% of the Fair Market Value of the
Stock at the date of grant in the case of a Participant who at
the date of grant owns shares possessing more than ten percent
of the total combined voting power of all classes of stock of
the Company or its parent or subsidiary corporations (as
determined under Section 424(d), (e) and (f) of the Code)(a
"10% Participant")).
(2) Option Term. The term of each Stock Option ("Option Term")
shall be determined by the Committee at the time of grant and
may not exceed ten years from the date the Option is granted
(or, with respect to Incentive Stock Options, five years in
the case of a 10% Participant).
(3) Exercise. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions (which may
include, without limitation, the achievement of one or more
Performance Goals) as shall be determined by the Committee at
or after grant; provided, however, that, except as provided in
Section 7, unless otherwise determined by the Committee at or
after grant, no Stock Option shall be exercisable prior
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to six months and one day following the date of grant. If any
Stock Option is exercisable only in installments or only after
a specified vesting date, the Committee may accelerate or
waive, in whole or in part, such installment exercise
provisions or vesting date, at any time at or after grant
based on such factors as the Committee shall determine, in its
sole discretion.
(4) Method of Exercise. Subject to whatever installment
exercise provisions apply with respect to such Stock Option,
and the six month and one day holding period set forth in
Section 6(b)(3) and any other conditions to vesting, Stock
Options may be exercised in whole or in part, at any time
during the Option Term, by giving to the Company written
notice of exercise specifying the number of shares of Stock to
be purchased.
Such notice shall be accompanied by payment in full
of the Option Exercise Price of the shares of Stock for which
the Option is exercised, in cash or by check or such other
instrument as the Committee may accept. Subject to the
following sentence, unless otherwise determined by the
Committee, in its sole discretion, at or after grant, payment,
in full or in part, of the Option Exercise Price of (i)
Incentive Stock Options may be made in the form of
unrestricted Stock then owned by the Participant and (ii)
Non-Qualified Stock Options may be made in the form of
unrestricted Stock then owned by the Participant or Stock that
is part of the Non-Qualified Stock Option being exercised.
Notwithstanding the foregoing, any election by a Section 16
Participant to satisfy such payment obligation, in whole or in
part, with unrestricted Stock then owned by such Participant
or Stock that is part of the Non-Qualified Stock Option being
exercised shall be subject to prior approval by the Committee,
in its sole discretion. The value of each such share
surrendered or withheld shall be equal to the Fair Market
Value of the Stock on the date the Option is exercised.
No Stock shall be issued pursuant to an exercise of
an Option until full payment has been made therefor. A
Participant shall not have rights to dividends or any other
rights of a shareholder with respect to any Stock subject to
an Option unless and until the Participant has given written
notice of exercise, has paid in full for such shares, has
given, if requested, the representation described in Section
10(a) and such shares have been issued to the Participant.
(5) Non-Transferability of Options. Except as provided in the
following sentence, no Stock Option shall be transferable by
the Participant other than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable,
during the Participant's lifetime, only by the Participant or,
subject to Sections 6(b)(3) and 6(c), by the Participant's
authorized legal representative if the Participant is unable
to exercise an Option as a result of the Participant's
Disability. Notwithstanding the foregoing, if determined by
the Committee at the time of grant and so provided in the
applicable Award Agreement, a Participant may transfer a
Non-Qualified Stock Option during his or her lifetime to one
or more of his or her Family Members, provided that no
consideration is paid for the transfer and that the transfer
would not result in the loss of any exemption under Rule 16b-3
of the Exchange Act with respect to any Stock Option. The
transferee of a Stock Option will be subject to all
restrictions, terms and conditions applicable to the Stock
Option prior to its transfer, except that the Stock Option
will not be further transferable by the transferee other than
by will or by the laws of descent and distribution.
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(6) Termination by Death. Subject to Section 6(c), if any
Participant's employment by the Company or any Subsidiary or
Affiliate terminates by reason of death, any Stock Option held
by such Participant may thereafter be exercised, to the extent
such Option was exercisable at the time of death or would have
become exercisable within one year from the time of death had
the Participant continued to fulfill all conditions of the
Option during such period (or on such accelerated basis as the
Committee may determine at or after grant), by the estate of
the Participant (acting through its fiduciary) for a period of
one year (or such other period as the Committee may specify at
or after grant) from the date of such death; provided that, if
the vesting of such Option is conditioned on or subject to the
achievement of specified Performance Goals, such Performance
Goals are achieved prior to the earlier of the expiration of
such one year period or the Expiration Date of such Option.
The balance of the Stock Option shall be forfeited.
(7) Termination by Reason of Disability. Subject to Sections
6(b)(3) and 6(c), if a Participant's employment by the Company
or any Subsidiary or Affiliate terminates by reason of
Disability, any Stock Option held by such Participant may
thereafter be exercised, to the extent such Option was
exercisable at the time of termination or would have become
exercisable within one year from the time of termination had
the Participant continued to fulfill all conditions of the
Option during such period (or on such accelerated basis as the
Committee may determine at or after grant), by the Participant
or by the Participant's duly authorized legal representative
if the Participant is unable to exercise the Option as a
result of the Participant's Disability, for a period of one
year (or such other period as the Committee may specify at or
after grant) from the date of such termination of employment;
provided that, if the vesting of such Option is conditioned on
or subject to the achievement of specified Performance Goals,
such Performance Goals are achieved prior to the earlier of
the expiration of such one year period or the Expiration Date
of such Option; and provided, further, that if the Participant
dies within such one-year period (or such other period as the
Committee shall specify at or after grant), any unexercised
Stock Option held by such Participant shall thereafter be
exercisable by the estate of the Participant (acting through
its fiduciary) to the same extent to which it was exercisable
at the time of death for a period of one year from the date of
such termination of employment. The balance of the Stock
Option shall be forfeited.
(8) Other Termination. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option,
if a Participant's employment by the Company or any Subsidiary
or Affiliate terminates for any reason other than death or
Disability, all Stock Options held by such Participant shall
thereupon immediately terminate, except that if the
Participant is involuntarily terminated by the Company or any
Subsidiary or Affiliate without Cause, any such Stock Option
may be exercised, to the extent otherwise exercisable at the
time of such termination, at any time during the lesser of two
months from the date of such termination or the balance of
such Stock Option's term. For purposes of this Section,
"Cause" has the meaning set forth in Section 5(b)(13)(D)(iv).
(c) Incentive Stock Options. Notwithstanding Section 4, only employees
of the Company or a Subsidiary shall be eligible to receive Incentive
Stock Options. Notwithstanding Sections 6(b)(6) and (7), an Incentive
Stock Option shall be exercisable by (i) a Participant's authorized
legal representative (if the Participant is unable to exercise the
Incentive Stock Option as a result of the Participant's Disability)
only if, and to the extent, permitted by Section 422 of the Code and
Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder and (ii) by
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the Participant's estate, in the case of death, or authorized legal
representative, in the case of Disability, no later than 10 years from
the date the Incentive Stock Option was granted (or 5 years in the case
of a 10% Participant) (in addition to any other restrictions or
limitations which may apply). Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without the
consent of the Participant(s) affected, to disqualify any Incentive
Stock Option under such Section 422 or any successor Section thereto.
(d) Buyout Provisions. The Committee may at any time buy out, for a
payment in cash, Stock or Restricted Stock, any Option previously
granted, based on such terms and conditions as the Committee shall
establish and agree upon with the Participant, provided that no such
transaction involving a Section 16 Participant shall be structured or
effected in a manner that would violate, or result in any liability on
the part of the Participant under, Section 16 of the Exchange Act or
the rules and regulations promulgated thereunder.
SECTION 7. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. In the event of and upon: (1) a "Change
in Control" as defined in Section 7(b) or (2) a "Potential Change in
Control" as defined in Section 7(c), the following acceleration and
valuation provisions shall apply:
(1) Any Stock Options awarded under the Plan not
previously exercisable and vested shall become fully
exercisable and vested;
(2) All restrictions, limitations and Performance
Goals, if any, applicable to any Restricted Stock or Stock
Options shall terminate and such Stock or Stock Options shall
be deemed fully vested; and
(3) The value of all outstanding Awards, in each case
to the extent vested, shall, unless otherwise determined by
the Committee in its sole discretion at or after grant but
prior to any Change in Control or Potential Change in Control,
be cashed out on the basis of the "Change in Control Price",
as defined in Section 7(d), as of the date such Change in
Control or such Potential Change in Control is determined to
have occurred.
(b) Definition of Change in Control. For purposes of Section
7(a), a "Change in Control" means the happening of any of the
following:
(1) When any "person" as defined in Section 3(a)(9)
of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of
the Exchange Act, but excluding the Company and any Subsidiary
and any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of
the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
provided, however, that the terms "person" and "group" shall
not include any "Excluded Director", and the term "Excluded
Director" means any director who, on the effective date of the
Plan, is
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the beneficial owner of or has the right to acquire an amount
of Stock equal to or greater than five percent of the number
of shares of Stock outstanding on such effective date; and
further provided that, unless otherwise determined by the
Board or any committee thereof, the terms "person" and "group"
shall not include any entity or group of entities which has
acquired Stock of the Company in the ordinary course of
business for investment purposes only and not with the purpose
or effect of changing or influencing the control of the
Company, or in connection with or as a participant in any
transaction having such purpose or effect, ("Investment
Intent"), as demonstrated by the filing by such entity or
group of a statement on Schedule 13G (including amendments
thereto) pursuant to Regulation 13D under the Exchange Act, as
long as such entity or group continues to hold such Stock with
an Investment Intent;
(2) When, during any period of 24 consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of
such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by
prior operation of this Section 7(b)(2); or
(3) The occurrence of a transaction requiring
shareholder approval for the acquisition of the Company, or
any portion of the outstanding equity securities or voting
power of the Company, by an entity other than the Company or a
Subsidiary through purchase of Stock or assets, by merger or
otherwise;
provided, however, a change in control shall not be deemed to be a
Change in Control for purposes of the Plan if the Board approves such
change prior to either (i) the commencement of any of the events
described in Section 7(b)(l), (2), or (3) or 7(c)(l) or (ii) the
commencement by any person other than the Company of a tender offer for
Stock.
(c) Definition of Potential Change in Control. For purposes of
Section 7(a), a "Potential Change in Control" means the happening of
any one of the following:
(1) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in
Control of the Company as defined in Section 7(b); or
(2) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the
Company or a Subsidiary or any Company employee benefit plan
(including any trustee of such plan acting as such trustee))
of securities of the Company representing five percent or more
of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to
the effect that a Potential Change in Control of the Company
has occurred for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 7,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the New York Stock Exchange Composite Index, or
paid or offered in any bona fide transaction related to a Change in
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Control or Potential Change in Control of the Company, at any time
during the 60-day period immediately preceding the occurrence of the
Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee.
SECTION 8. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend,
supplement, alter or discontinue the Plan, but no such amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under an Award theretofore granted, without the Participant's consent. The
Company shall submit to the shareholders of the Company for their approval any
amendments to the Plan which are required to be approved by shareholder by law
or the rules and regulations of any governmental authority or any stock exchange
upon which the Stock is then traded.
Subject to changes in law or other legal requirements that
would permit otherwise, the Plan may not be amended without the approval of the
shareholders, to (a) increase the total number of shares of Stock that may be
issued under the Plan or to any Participant during any calendar year (except for
adjustments pursuant to Section 3(c)), (b) permit the granting of Stock Options
with Option Exercise Prices lower than those specified in Section 6(b)(1), (c)
modify the Plan's eligibility requirements, or (d) change the Performance Goals
specified in Section 1(c). Further, no Performance-Based Award may be amended if
such amendment would adversely affect the Award's qualification as qualified
performance-based compensation under Section 162(m) of the Code.
The Committee may at any time, in its sole discretion, amend
the terms of any outstanding Award, but no such amendment shall be made which
would impair the rights of a Participant under an Award theretofore granted,
without the Participant's consent; nor, in the case of any Award of a Stock
Option, shall any such amendment reduce the Option Exercise Price relating to
such Stock Option or, in any other case, reduce the purchase price (if any) of
the Stock which is subject to an outstanding Award; nor shall any such amendment
be made which would make the applicable exemptions provided by Rule 16b-3 under
the Exchange Act unavailable to any Section 16 Participant holding an Award
without the Participant's consent.
Subject to the above provisions, the Board shall have all
necessary authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.
SECTION 10. GENERAL PROVISIONS.
(a) The Committee may require each Participant acquiring Stock
pursuant to an Award under the Plan to represent to and agree with the
Company in writing that the Participant is acquiring the Stock
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without a view to distribution thereof. Any certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
All shares of Stock or other securities issued under
the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and
any applicable federal or state securities laws, and the Committee may
cause a legend or legends to be placed on any certificates for such
shares to make appropriate reference to such restrictions or to cause
such restrictions to be noted in the records of the Company's stock
transfer agent and any applicable book entry system.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor
any document describing, implementing or referring to the Plan, or any
part thereof, shall confer upon any Participant under the Plan any
right to continue in the employ, or as a director, of the Company or
any Subsidiary or Affiliate, or shall in any way affect the right and
power of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, or change the job title, duties,
authority, position or compensation of any Participant in the Plan at
any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a Participant
between the Company and any of its Subsidiaries or Affiliates, or
between such Subsidiaries or Affiliates, shall not be deemed a
termination of employment or adversely affect or enlarge the rights of
any Participant under this Plan or with respect to any Award.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the Participant for federal income
tax purposes with respect to any Award under the Plan, the Participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any federal, state or local taxes
or other items of any kind required by law to be withheld with respect
to such amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled
with Stock, including unrestricted Stock previously owned by the
Participant or Stock that is part of the Award that gives rise to the
withholding requirement. Notwithstanding the foregoing, any election by
a Section 16 Participant to settle such tax withholding obligation with
Stock that is previously owned by the Participant or part of such Award
shall be subject to prior approval by the Committee, in its sole
discretion. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and its
Subsidiaries and Affiliates to the extent permitted by law shall have
the right to deduct any such taxes from any payment of any kind
otherwise due to the Participant.
(f) The actual or deemed reinvestment of dividends in
additional Stock or Restricted Stock at the time of any dividend
payment shall only be permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment (taking into account
the then outstanding and previously granted Restricted Stock and Stock
Options).
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(g) The Plan, all Awards made and all actions taken thereunder
and any agreements relating thereto, shall be governed by and construed
in accordance with the laws of the State of Ohio.
(h) In the event any Award is transferred or assigned pursuant
to a court order, such transfer or assignment shall be without
liability to the Company and the Company shall have the right to offset
against such Award any expenses (including attorneys' fees) incurred by
the Company in connection with such transfer or assignment.
(i) All Award Agreements entered into with Participants
pursuant to the Plan shall be subject to the Plan. A Participant who
receives an Award under the Plan shall not have any rights with the
respect to such Award, unless and until such Participant has executed
an Award Agreement evidencing the Award, in the form approved by the
Committee; has delivered a fully-executed copy of such Award Agreement
to the Company; and has otherwise complied with the applicable terms
and conditions of such Award.
(j) The provisions of Awards need not be the same with respect
to each Participant.
SECTION 11. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on January 31, 2003 and is
subject to approval by the holders of the Company's outstanding Stock, in
accordance with applicable law. The Plan will become effective on the date of
such approval.
SECTION 12. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after
January 31, 2013, but Awards granted prior to such date may extend beyond that
date.
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