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TELEGROUP, INC.
SECOND AMENDED AND RESTATED
1996 STOCK OPTION PLAN
1. PURPOSE
This Amended and Restated 1996 Stock Option Plan for Telegroup, Inc.
(the "COMPANY") is intended to provide incentive to directors, officers, key
employees, and agents of the Company and its Subsidiaries by providing those
persons with opportunities to purchase shares of the Company's Common Stock
under (a) Incentive Stock Options and (b) other stock options.
2. DEFINITION
Except as otherwise expressly provided herein or unless the context
otherwise requires, as used in this Plan, the following words and phrases shall
have the meanings set forth in this Section 2.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock, no par value, of
the Company.
(d) "COMPANY" shall mean Telegroup, Inc., the employer which has
established this Plan.
(e) "DISINTERESTED" shall mean disinterested within the meaning of
any applicable regulatory requirements, including Rule 16b-3, as
amended from time to time, as promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934,
as amended from time to time.
(f) "FAIR MARKET VALUE" per share as of a particular date shall
mean (i) the closing sales price per share of Common Stock on the
principal national securities exchange, if any, on which the Common
Stock shall then be listed for the last preceding date on which there
was a sale of such Common Stock on such exchange, or (ii) if the
Common Stock is not then listed on a national securities exchange,
the last sales price per share of Common Stock entered on a national
inter-dealer quotation system for the last preceding date on which
there was a sale of such Common Stock on such national inter-dealer
quotation system, or (iii) if no closing or last sales price per share
of Common Stock is entered on a national inter-dealer quotation system,
the average of the closing bid and asked prices for the Common Stock in
the over-the-counter market for the, last preceding dam on which there
was a quotation for such Common Stock in such market or (iv) if no
price can be determined under the preceding alternatives, then the
price per share as determined by the Committee in good faith.
(g) "INCENTIVE STOCK OPTION" shall mean one or more options to
purchase Common Stock which, at the time such options are granted under
this Plan or any other such plan of the Company, qualify as incentive
stock options under Section 422 of the Code.
(h) "IPO" shall mean the initial public offering of the Company's
Common Stock.
(i) "NON-INCENTIVE STOCK OPTION" shall any option or options that
are not Incentive Stock Options.
(j) "OPTION" shall mean any option, including any Incentive Stock
Option or other option issued pursuant to this Plan.
(k) "OPTIONEE" shall mean any person to whom an Option is granted
under this Plan.
(l) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the
time of granting an Option, each of the corporations other than
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the Company owns stock possessing fifty-one percent (51%) or more of
the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(m) "PLAN" shall mean this Second Amended and Restated 1996 Stock
Option Plan.
(n) "RELIANCE PERIOD TERMINATION DATE" shall mean the date that is
the earlier of:
(1) The date of expiration or termination of the Plan;
(2) The, date of any material modification of the Plan, within
the meaning of Treasury Regulation section 1.162-27(h)(I)(iii);
(3) The first date as of which all Options provided for under
the Plan have been issued; and
(4) The date of the first meeting of shareholders of the
Company at which Directors are to be elected that occurs after the
year 2000.
(o) "SUBSIDIARY" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if, at the time of granting an Option, each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing fifty-one percent (51%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
(p) "TEN PERCENT SHAREHOLDER" shall mean an Optionee who, at the
time an Option is granted, owns directly or indirectly (within the
meaning of Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company, its Parent or a Subsidiary.
3. GENERAL ADMINISTRATION
(a) The Plan shall be administered by the Compensation Committee
(the "Committee"), consisting of not less than two members of the
Board. From and after the consummation of the IPO, no person may serve
as a member of the Committee unless such person is both a Disinterested
person as well as an "outside director" within the meaning of Treasury
Regulation section 1.162-27(e)(3)(i).
(b) The Committee shall have the authority in its discretion,
subject to the terms and conditions hereof, to administer this Plan and
to exercise all the powers and authorities either specifically granted
to it hereunder or that are necessary or that are advisable in the
administration of the Plan, including, without limitation, the
authority to grant Options; to determine the purchase price of shares
of Common Stock covered by each Option (the "OPTION PRICE"); to
determine the persons to whom, and the time or times at which, Options
shall be granted; to determine the number of shares of Common Stock to
be covered by each Option, to interpret the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan; and to
determine the terms and provisions of the Option agreements (which need
not be identical) entered into in connection with Options granted under
the Plan ("OPTION AGREEMENTS").
(c) The Board shall fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional members
to the Committee and may at any time, under the terms and conditions of
the Company's Bylaws, remove, one, or more Committee members and
substitute others.
(d) No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to this
Plan or any Option granted hereunder.
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4. RESTRICTIONS AND GRANTS TO COMMITTEE MEMBERS
From and after the IPO, directors serving on the Committee are
not eligible to receive Options pursuant to the Plan.
5. GRANTING OF OPTIONS
Options may be granted under this Plan at any time prior to
April 1, 2007.
6. ELIGIBILITY
(a) Subject to Section 4, Options may be granted to any director,
officer, key employee or agent of the Company or any Subsidiary,
however, incentive stock options will be available only to employees of
the Company. In determining from time to time the directors, officers,
employees and agents to whom Options shall be granted and the number of
shares of Common Stock to be covered by each Option, the Committee
shall consider the duties of the respective directors, officers,
employees and agents, their present and potential contributions to the
success of the Company and its Subsidiaries and such other factors as
the Committee shall deem relevant in connection with accomplishing the
purposes of the Plan.
(b) At the time each Option is granted under the Plan the Committee
shall determine whether such Option is to be designated as an Incentive
Stock Option. Incentive Stock Options shall not be granted to a
director who is not an employee of the Company.
(c) An Option designated an Incentive Stock Option can, prior to
its exercise, be changed to a non-incentive Option if the Optionee,
consents to amend his Option Agreement to provide that the exercise
period of such Option will be governed by Section 8(e)(2) hereof.
7. STOCK
(a) The stock subject to the Options shall be shares of Common
Stock. Such shares may, in whole or in part, be authorized but unissued
shares contributed directly by the Company or shares which shall have
been or which may be acquired by the Company. The aggregate number of
shares of Common Stock for which Options may be granted from time to
time under this Plan shall be four million (4,750,000) shares
(determined after the Company's planned split in connection with the
IPO), subject to adjustment as provided in Section 8(g) hereof. The
maximum number of shares of Common Stock for which any one person may
be granted Options under the Plan is six hundred sixty-six thousand,
six hundred sixty-seven (666,667) shares (determined after the
Company's planned split in connection with the IPO), subject to
adjustment as provided in Section 8(g) hereof.
(b) If any outstanding Option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares of
Common Stock allocable to the unexercised portion of such Option shall
(unless this Plan shall have been terminated) become available for
subsequent grants of Options hereunder.
8. TERMS AND CONDITIONS OF OPTIONS
Each Option granted pursuant to this Plan shall be evidenced by one or
more Option Agreements in such form as the Committee may from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:
(a) INCENTIVE STOCK OPTION PRICE. Each Incentive Stock Option shall
state, the Option Price, which, shall be not less than one hundred
percent (100%) of the Fair Market Value of the shares of Common Stock
on the date of grant of the Option; provided, however, in the case of
an Incentive Stock Option granted to a Ten Percent Shareholder, the
Option Price shall not be less than one hundred ten percent (110%) of
such Fair Market Value. The Option Price shall be subject to adjustment
as provided in Section 8(h) hereof. The date
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on which the Committee adopts a resolution expressly granting an Option
shall be considered the day on which such Option is granted.
(b) NON-INCENTIVE STOCK OPTION PRICE. Each Option that is not an
Incentive Stock Option shall state the Option Price. In the case of
Non-Incentive Stock Options granted on or before the Reliance Period
Termination Date, the Option Price shall not be less than fifty percent
(50%) of the Fair Market Value of the shares of Common Stock on the
date of grant of the Option. In the case of Non-incentive Stock Options
granted after the Reliance Period Termination Date, the Option Price
shall not be less than one hundred percent (100%) of the, Fair Market
Value of the shares of Common Stock on the date of grant of the Option.
The Option Price shall be subject to adjustment as provided in Section
8(h) hereof. The date on which the Committee adopts a resolution
expressly granting an Option shall be considered the day on which such
Option is granted.
(c) RESTRICTIONS. Any Common Stock issued under this Plan may
contain restrictions and limitations including, but not limited to,
limitations an transferability that may constitute substantial risks of
forfeiture, as the Committee may determine.
(d) VALUE OF SHARES. Options may be granted to any eligible person
for shares of Common Stock of any value, provided that the aggregate
Fair Market Value (determined at the time the Option is granted) of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all the plans of the Company, its Parent and its Subsidiaries)
shall not exceed $100,000.
(e) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in
full, at the time of exercise, in cash or, with the approval of the
Committee, in shares of Common Stock having a Fair Market Value in the
aggregate equal to such Option Price or in a combination of cash and
such shares.
(f) TERM AND EXERCISE OF OPTIONS.
(1) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be
exercisable over the exercise period specified by the Committee in
an Option Agreement, but in no event shall such period exceed ten
(10) years from the date of the grant of each such Incentive Stock
Option; provided, however, that in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder, the exercise period
shall not exceed five (5) years from the date such Option is
granted. An Incentive Stock Option may be exercised, as to any or
all full shares of Common Stock as to which the Incentive Stock
Option has become exercisable, by giving written notice of such
exercise to the Committee; provided, that an Incentive Stock Option
may not be exercised at any one (1) time for less than one hundred
(100) shares of Common Stock (or such number of shares as to which
the Incentive Stock Option is then exercisable if such number of
shares is less than 100).
(2) NON-INCENTIVE STOCK OPTIONS. Options which have not been
designated by the Committee as Incentive Stock Options shall be
exercisable over a period of ten (10) years.
(g) NONTRANSFERABILITY OF OPTIONS. Options granted under this Plan
are not transferable other than by will or by the laws of descent and
distribution, and, during Optionee's lifetime, Options may be exercised
only by the Optionee.
(h) EFFECT OF CERTAIN CHANGES.
(1) if there is any change in the number of shares of Common
Stock through the declaration of stock dividends, recapitalization
resulting in stock splits, or combinations or exchanges of such
shares, then the number of shares of Common Stock available for
Options, the number of such shares covered by outstanding Options,
and the Option Price of such Options shall be proportionately
adjusted to reflect any increase or decrease in the number of
issued shares of Common Stock, provided, however, that any
fractional shaves resulting from such adjustment shall be
eliminated.
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(2) in the event of a proposed dissolution or liquidation of
the Company, each Option granted under this Plan shall terminate as
of a date to be fixed by the Committee, provided, however, that
each Optionee shall have the right, immediately prior to such
termination, to exercise the Options as to all or any pan of the
shares of Common Stock covered thereby, including shares as to
which such Options would not otherwise be exercisable.
(3) In the event of any merger, consolidation or reorganization
of the Company, the Committee shall promptly make an appropriate
adjustment to the number and class of shaves of Common Stock
available for Options, and to the amount and kind of shares or
other securities or property receivable upon exercise of any
outstanding Options after the effective date of such transaction,
and the price thereof (subject to the limitations of Section 424 of
the Code), to preserve each Optionee's proportionate interest
therein and to preserve unchanged the aggregate Option Price.
(4) In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its authorized
shares without par value into the same number of shares with a par
value or, if such shares have a par value, then with a different
par value, the shares resulting from any such change shall be
deemed to be Common Stock within the meaning of the Plan.
(5) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made
by the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each Option granted
pursuant to this Plan and designated an Incentive Stock Option
shall not be adjusted in a manner that causes the Option to fail to
continue to qualify as an Incentive Stock Option within the meaning
of Section 422 of the Code.
(6) Except as expressly provided in this Section 8(h), the
Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation, and any issue by the Company
of shares of stock of any class, or securities convertible into or
exchangeable for shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect to,
the number or Option Price of shares of Common Stock subject to an
Option. The grant of an Option pursuant to this Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, or
dissolve, liquidate, sell or transfer all or any part of its
business or assets.
(i) RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an
Option shall have no rights as a shareholder with respect to any shares
covered by an Option until the date of the issuance of a stock
certificate to such Optionee for such shares. No adjustments shall be
made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is
issued, except as expressly provided in Section 8(h) hereof.
(j) OTHER PROVISIONS. The Option Agreements authorized under this
Plan shall contain such other provisions, including, without
limitation, (i) the imposition of restrictions upon the exercise of an
Option and (ii) the inclusion of any condition not inconsistent with
such Option qualifying as an Incentive Stock Option, as the Committee
shall deem advisable, including provisions with respect to compliance
with federal and applicable state securities laws.
9. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES
(a) No later than the date of exercise of any Option granted
hereunder, the Optionee will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state
and/or local taxes of any kind required by law to be withheld upon the
exercise of such Option, and
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(b) The Company shall, to the extent permitted or required by law,
have the right to deduct from any payment of any kind otherwise due to
the, Optionee any federal, state and/or local taxes of any kind
required by law to be withheld upon the exercise of such Option.
10. TERM OF PLAN
Options may be granted pursuant to this Plan from time to time within a
period of ten (10) years from the date on which this Plan is adopted by the
Board, provided that no Options granted under this Plan shall become exercisable
unless and until this Plan shall have been approved by the Company's
shareholders.
11. SAVINGS CLAUSE
Notwithstanding any other provision hereof, this Plan is intended to
qualify as a plan pursuant to which Incentive Stock Options may be issued under
Section 422 of the Code. If this Plan or any provision of this Plan shall be
hold to be invalid or to fail to meet the requirements of Section 422 of the
Code or the regulations promulgated thereunder, such invalidity or failure shall
not effect the remaining parts of this Plan, but rather it shall be construed
and enforced as if the Plan or the affected provision thereof, as the case may
be, complied in all respects with the requirements of Section 422 of the Code.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Committee may at any time and from time to time suspend, terminate,
modify or amend this Plan, provided that any amendment that would increase the
aggregate number of shares of Common Stock as to which Options may be granted
under this Plan or the maximum number that may be granted to any individual
person shall be subject to the approval of the holders of a majority of the
Common Stock issued and outstanding, except that any such increase or
modification that may result from adjustments authorized by Section 9(h) hereof
shall not require, such approval. Except as provided in Section 8 hereof, no
suspension, termination, modification or amendment of this Plan may adversely
affect any Option previously granted unless the written consent of the Optionee
is obtained.
Adopted by the Board of Directors on April 4, 1998.
Attest:
/s/ Robert E. Steinberg
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Secretary
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