EXHIBIT 99.2
ZANY BRAINY, INC.
AMENDED AND RESTATED
1998 EQUITY COMPENSATION PLAN
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The purpose of the Zany Brainy, Inc. Amended and Restated 1998 Equity
Compensation Plan (the "Plan") is to provide (i) designated employees of Zany
Brainy, Inc. (the "Company") and its subsidiaries, (ii) certain consultants and
advisors who perform services for the Company or its subsidiaries and (iii) non-
employee members of the Board of Directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.
1. Administration
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(a) Committee. The Plan shall be administered and interpreted by the Board
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or by a committee appointed by the Board (the "Committee"). After an initial
public offering of the Company's stock as described in Section 21(b) (a "Public
Offering"), the Plan shall be administered by a Committee, which may consist of
two or more persons who are "outside directors" as defined under Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), and related
Treasury regulations and "non-employee directors" as defined under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
However, the Board may ratify or approve any grants as it deems appropriate. If
the Board administers the Plan, references in the Plan to the "Committee" shall
be deemed to refer to the Board.
(b) Committee Authority. The Committee shall have the sole authority to
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(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv) amend
the terms of any previously issued grant, and (v) deal with any other matters
arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
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authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers
vested in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
2. Grants
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Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 ("Restricted Stock"),
stock appreciation rights as described in Section 7 ("SARs"), and performance
units as described in Section 8 ("Performance Units") (hereinafter collectively
referred to as "Grants"). All Grants shall be subject to the terms and
conditions set forth herein and to such other terms and conditions consistent
with this Plan as the Committee deems appropriate and as are specified in
writing by the Committee to the individual in a grant instrument or an amendment
to the grant instrument (the "Grant Instrument"). The Committee shall approve
the form and provisions of each Grant Instrument. Grants under a particular
Section of the Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
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(a) Shares Authorized. Subject to the adjustment specified in Section 3(c)
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below, the aggregate number of shares of common stock of the Company ("Company
Stock") that may be issued or transferred under the Plan is 3,000,000 shares.
The shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company on the open
market for purposes of the Plan. If and to the extent Options or SARs granted
under the Plan terminate, expire, or are canceled, forfeited, exchanged or
surrendered without having been exercised, or if any shares of Restricted Stock
or Performance Units are forfeited, the shares subject to such Grants shall
again be available for purposes of the Plan. In addition, if shares of Company
Stock are used to pay the Exercise Price of an Option, only the net number of
shares received by the Grantee (as defined in Section 4(b)) pursuant to such
exercise shall be considered to have been issued or transferred under the Plan
with respect to such Option, and the remaining number of shares subject to such
Option shall again be available for purposes of the Plan.
(b) Individual Limit. After a Public Offering, no individual may be
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granted Options or other Grants under the Plan during any calendar year that, in
the aggregate, may be settled by delivery of more than 500,000 shares of Company
Stock, subject to adjustment as provided in Section 3(c). In addition, with
respect to Grants the value of which is based on the Fair Market Value of
Company Stock and that may be settled in cash (in whole or in part), after a
Public Offering no individual may be paid during any calendar year cash amounts
relating to such Grants that exceed the greater of the Fair Market Value (as
defined in Section 5(b)(iii)) of the
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number of shares of Company Stock set forth in the preceding sentence either at
the date of grant or at the date of settlement. This provision sets forth two
separate limitations, so that Grants that may be settled solely by delivery of
Company Stock will not operate to reduce the amount or value of cash-only
Grants, and vice versa; nevertheless, Grants that may be settled in Company
Stock or cash must not exceed either limitation.
With respect to Grants, the value of which is not based on Fair Market
Value of Company Stock, after a Public Offering no individual may receive during
any calendar year cash or shares of Company Stock with a Fair Market Value at
date of settlement that, in the aggregate, exceeds $2,000,000.
(c) Adjustments. If there is any change in the number or kind of shares of
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Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in the kind or value of, issued shares of Company
Stock to preclude, to the extent practicable, the enlargement or dilution of
rights and benefits under such Grants; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated. Any adjustments
determined by the Committee shall be final, binding and conclusive. If and to
the extent that any such change in the number or kind of shares of Company Stock
outstanding is effected solely by application of a mathematical formula (e.g., a
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2-for-1 stock split), the adjustment described in this Section 3(c) shall be
made and shall occur automatically by application of such formula, without
further action by the Committee.
4. Eligibility for Participation
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(a) Eligible Persons. All employees of the Company and its subsidiaries
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("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
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(b) Selection of Grantees. The Committee shall select the Employees, Non-
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Employee Directors and Key Advisors to receive Grants and shall determine the
number of shares of Company Stock, the number of SARs or the number of
Performance Units subject to a particular Grant, and/or shall establish such
other terms and conditions applicable to such Grant, in such manner as the
Committee determines. Employees, Non-Employee Directors and Key Advisors and
who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
5. Granting of Options
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(a) Number of Shares. The Committee shall determine the number of shares
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of Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors and Key Advisors.
(b) Type of Option and Price
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(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal to,
greater than, or less than the Fair Market Value of a share of Company Stock on
the date the Option is granted; provided, however, that (x) the Exercise Price
of an Incentive Stock Option shall be equal to, or greater than, the Fair Market
Value of a share of Company Stock on the date the Incentive Stock Option is
granted and (y) an Incentive Stock Option may not be granted to an Employee who,
at the time of grant, owns stock possessing more than 10% percent of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, unless the Exercise Price per share is not less than
110% of the Fair Market Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date or
(if there were no trades on that date) the latest preceding date upon which a
sale was reported, or (y) if the Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and "asked" prices
of Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly traded or, if
publicly
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traded, is not subject to reported transactions or "bid" or "asked" quotations
as set forth above, the Fair Market Value per share shall be as determined by
the Committee.
(c) Option Term. The Committee shall determine the term of each Option.
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The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any parent or subsidiary of the
Company, may not have a term that exceeds five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
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accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(e) Termination of Employment, Disability or Death
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(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by, or providing service to, the Company as an Employee,
Key Advisor or member of the Board. In the event that a Grantee ceases to be
employed by, or provide service to, the Company for any reason other than a
"disability," death, or termination for "cause," any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within 90 days after
the date on which the Grantee ceases to be employed by, or provide service to,
the Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided by the Committee, any of the Grantee's
Options that are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by, or provide service to, the Company shall terminate as
of such date.
(ii) In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a termination for "cause" by the Company,
any Option held by the Grantee shall terminate as of the date the Grantee ceases
to be employed by, or provide service to, the Company. In addition,
notwithstanding any other provisions of this Section 5, if the Committee
determines that the Grantee has engaged in conduct that constitutes "cause" at
any time while the Grantee is employed by, or providing service to, the Company
or after the Grantee's termination of employment or service, any Option held by
the Grantee shall immediately terminate.
(iii) In the event the Grantee ceases to be employed by, or provide
service to, the Company because the Grantee is "disabled," any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration
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of the Option term. Except as otherwise provided by the Committee, any of the
Grantee's Options which are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by, or provide service to, the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to be
employed or provide service on account of a termination specified in Section
5(e)(i) above (or within such other period of time as may be specified by the
Committee), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within one year after the date on which the Grantee
ceases to be employed by, or provide service to, the Company (or within such
other period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by, or
provide service to, the Company shall terminate as of such date.
(v) For purposes of this Section 5(e) and Sections 6, 7, 8 and 9:
(A) The term "Company" shall mean the Company and its parent
and subsidiary corporations.
(B) "Employed by, or provide service to, the Company" shall
mean employment or service as an Employee, Key Advisor or member of the
Board (so that, for purposes of exercising Options and SARs and satisfying
conditions with respect to Restricted Stock and Performance Units, a
Grantee shall not be considered to have terminated employment or service
until the Grantee ceases to be an Employee, Key Advisor and member of the
Board), unless the Committee determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled
within the meaning of Section 22(e)(3) of the Code.
(D) "Cause" as used herein shall mean the failure of the
Grantee to perform or observe any of the terms or provisions of this
Agreement or to fully comply with any of the lawful directives of the Board
of Directors of the Company, dishonesty, conviction of a crime involving
moral turpitude, substance abuse, misappropriation of funds, or
disparagement of the Company, its products, management or employees. In the
event a Grantee's employment or service is terminated for cause, in
addition to the immediate termination of all Grants, the Grantee shall
automatically forfeit all shares underlying any exercised portion of an
Option for which the Company has not yet delivered the share certificates,
upon refund by the Company of the Exercise Price paid by the Grantee for
such shares. Notwithstanding anything herein to the contrary, upon any
purported exercise of an Option, the Company may withhold delivery of share
certificates pending resolution of an inquiry that could lead to a finding
resulting in a forfeiture.
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(f) Exercise of Options. A Grantee may exercise an Option that has become
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exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or (z) by such other method as the Committee may approve, including attestation
(on a form prescribed by the Committee) to ownership of shares of Company Stock
having a Fair Market Value on the date of exercise equal to the Exercise Price,
or after a Public Offering payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board. In addition,
the Committee may authorize loans by the Company to Grantees in connection with
the exercise of an Option, upon such terms and conditions that the Committee, in
its sole discretion, deems appropriate. Shares of Company Stock used to exercise
an Option shall have been held by the Grantee for the requisite period of time
to avoid adverse accounting consequences to the Company with respect to the
Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 11) at the time of exercise. Shares of
Company Stock shall not be issued upon exercise of an Option until the Exercise
Price is fully paid and any required withholding is made. In the event that
shares of Company Stock are used to exercise an Option, the terms of such Option
may provide for a Grant of additional Options, or the Committee may grant
additional Options, to purchase, at Fair Market Value as of the date of exercise
of the Option or the date of grant of such additional Options, whichever is
later, or at such other Exercise Price as the Committee may establish, for a
term equal to the unexpired term of the exercised Option, a number of shares of
Company Stock equal to the sum of the number of whole shares used to exercise
the Option and the number of whole shares, if any, withheld in payment of any
taxes.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall
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provide that, if the aggregate Fair Market Value of Company Stock on the date of
the grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
Section 424(f) of the Code).
(h) Dividend Equivalents. The Committee may grant dividend equivalents in
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connection with Options granted under the Plan. Such amounts may be paid
currently or accrued as contingent cash obligations and may be payable in cash
or shares of Company Stock, upon such terms as the Committee may establish,
including after a Public Offering the achievement of specific performance goals.
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6. Restricted Stock Grants
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The Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Grant of Restricted Stock, upon
such terms as the Committee deems appropriate. The following provisions are
applicable to Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or transferred
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pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate, including without limitation, after
a Public Offering, restrictions based upon the achievement of specific
performance goals. The period of time during which the Restricted Stock will
remain subject to restrictions will be designated in the Grant Instrument as the
"Restriction Period."
(b) Number of Shares. The Committee shall determine the number of shares
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of Company Stock to be issued or transferred pursuant to a Restricted Stock
Grant and the restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Grantee ceases to be
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employed by, or provide service to, the Company (as defined in Section 5(e))
during a period designated in the Grant Instrument as the Restriction Period, or
if other specified conditions are not met, the Restricted Stock Grant shall
terminate as to all shares covered by the Grant as to which the restrictions
have not lapsed as of the close of business on the Grantee's last day of
employment or service, and those shares of Company Stock must be immediately
returned to the Company. The Committee may, however, provide for complete or
partial exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
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Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 12(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
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determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee, including after a Public Offering the achievement
of specific performance goals.
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(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
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shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
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(a) General Requirements. The Committee may grant SARs to an Employee,
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Non-Employee Director or Key Advisor separately or in tandem with any Option
(for all or a portion of the applicable Option). Tandem SARs may be granted
either at the time the Option is granted or at any time thereafter while the
Option remains outstanding; provided, however, that, in the case of an Incentive
Stock Option, SARs may be granted only at the time of the Grant of the Incentive
Stock Option. The Committee shall establish the base amount of the SAR at the
time the SAR is granted. Unless the Committee determines otherwise, the base
amount of each SAR shall be equal to the per share Exercise Price of the related
Option or, if there is no related Option, the Fair Market Value of a share of
Company Stock as of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted
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to a Grantee that shall be exercisable during a specified period shall not
exceed the number of shares of Company Stock that the Grantee may purchase upon
the exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
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specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Grantee is
employed by, or providing service to, the Company or during the applicable
period after termination of employment or service as described in Section 5(e).
A tandem SAR shall be exercisable only during the period when the Option to
which it is related is also exercisable.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
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receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
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appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair
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Market Value on the date of exercise of the SAR. If shares of Company Stock are
to be received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
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(a) General Requirements. The Committee may grant performance units
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("Performance Units") to an Employee or Key Advisor. Each Performance Unit
shall represent the right of the Grantee to receive an amount based on the value
of the Performance Unit, if performance goals established by the Committee are
met. A Performance Unit shall be based on the Fair Market Value of a share of
Company Stock or on such other measurement base as the Committee deems
appropriate. The Committee shall determine the number of Performance Units to
be granted and the requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units are
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granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
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Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met, the value of the
Performance Units (if applicable), and the amount, if any, to be paid with
respect to the Performance Units. Payments with respect to Performance Units
shall be made in cash, in Company Stock, or in a combination of the two, as
determined by the Committee.
(d) Requirement of Employment or Service. If the Grantee ceases to be
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employed by, or provide service to, the Company (as defined in Section 5(e))
during a Performance Period, or if other conditions established by the Committee
are not met, the Grantee's Performance Units shall be forfeited. The Committee
may, however, provide for complete or partial exceptions to this requirement as
it deems appropriate.
9. Qualified Performance-Based Compensation
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(a) Designation as Qualified Performance-Based Compensation. After a
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Public Offering, the Committee may determine that Performance Units, Restricted
Stock, dividends on Restricted Stock, or dividend equivalents on Options granted
to an Employee shall be considered "qualified performance-based compensation"
under Section 162(m) of the Code. The provisions of this Section 9 shall apply
to such Grants that are to be considered "qualified performance-based
compensation" under Section 162(m) of the Code.
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(b) Performance Goals. When Grants that are to be considered "qualified
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performance-based compensation" are granted, the Committee shall establish in
writing (i) the objective performance goals that must be met in order for
restrictions on the Restricted Stock to lapse, amounts to be paid under the
Performance Units, dividends to be paid on Restricted Stock, or dividend
equivalents to be paid on Options, (ii) the Performance Period during which the
performance goals must be met, (iii) the threshold, target and maximum amounts,
as applicable, that may be paid if the performance goals are met, and (iv) any
other conditions that the Committee deems appropriate and consistent with the
Plan and Section 162(m) of the Code. The performance goals may relate to the
Employee's business unit or the performance of the Company and its subsidiaries
as a whole, or any combination of the foregoing. The Committee shall use
objectively determinable performance goals based on one or more of the following
criteria: stock price, earnings per share, net earnings, operating earnings,
return on assets, shareholder return, return on equity, growth in assets, unit
volume, sales, market share or strategic business criteria consisting of one or
more objectives based on meeting specified revenue goals, market penetration
goals, geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the performance
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goals in writing either before the beginning of the Performance Period or during
a period ending no later than the earlier of (i) 90 days after the beginning of
the Performance Period or (ii) the date on which 25% of the Performance Period
has been completed, or such other date as may be required or permitted under
applicable regulations under Section 162(m) of the Code. The performance goals
shall satisfy the requirements for "qualified performance-based compensation,"
including the requirement that the achievement of the goals be substantially
uncertain at the time they are established and that the goals be established in
such a way that a third party with knowledge of the relevant facts could
determine whether and to what extent the performance goals have been met. The
Committee shall not have discretion to increase the amount of compensation, but
may in its discretion reduce the amount of compensation, that is payable upon
achievement of the designated performance goals.
(d) Announcement of Grants. The Committee shall certify and announce the
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results for each Performance Period to all Grantees immediately following the
announcement of the Company's financial results for the Performance Period. If
and to the extent that the Committee does not certify that the performance goals
have been met, the Grants subject to the performance goals for the Performance
Period shall be forfeited.
(e) Death, Disability or Change of Control. The Committee may provide
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that Performance Units, dividends on Restricted Stock, or dividend equivalents
on Options shall be payable, or restrictions on Restricted Stock shall lapse, in
whole or in part, in the event of the Grantee's death or disability (as defined
in Section 5(e) above) during the Performance Period, and the provisions of
Section 14 shall apply in the event of a Change of Control.
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10. Deferrals
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The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of shares that would otherwise be due to such
Grantee by virtue of the exercise of any Option or SAR, the lapse or waiver of
restrictions applicable to Restricted Stock, or the satisfaction of any
requirements or objectives with respect to Performance Units. If any such
deferral election is permitted or required, the Committee shall, in its sole
discretion, establish rules and procedures for such deferrals.
11. Withholding of Taxes
--------------------
(a) Required Withholding. All Grants under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid
in cash, or from other wages paid to the Grantee, any federal, state or local
taxes required by law to be withheld with respect to such Grants. In the case
of Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee
---------------------------
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option, SAR, Restricted Stock or Performance Units paid in Company
Stock by having shares withheld up to an amount that does not exceed the
Grantee's minimum applicable withholding tax rate for federal (including FICA),
state and local tax liabilities. The election must be in a form and manner
prescribed by the Committee and shall be subject to the prior approval of the
Committee, which approval may be given in connection with approval of a Grant
that expressly permits such an election.
12. Transferability of Grants
-------------------------
(a) Nontransferability of Grants. Except as provided below, only the
----------------------------
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
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(b) Transfer of Nonqualified Stock Options and Restricted Stock Grants.
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Notwithstanding the foregoing, the Committee may provide, in a Grant Instrument,
that a Grantee may transfer Nonqualified Stock Options or Restricted Stock
Grants to family members, according to such terms as the Committee may
determine; provided that the Option or Restricted Stock Grant is not transferred
to the family member for value. For purposes of the Plan, "family member"
includes any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former 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, any person sharing the employee's household (other than
a tenant or employee), a trust in which these persons have more than fifty
percent of the beneficial interest, a foundation in which these persons (or the
employee) control the management of assets, and any other entity in which these
persons (or the employee) own more than fifty percent of the voting interests.
The following transactions are not deemed to be transfers for value for purposes
of the Plan:
(i) a transfer under a domestic relations order in settlement of
marital property rights; and
(ii) a transfer to an entity in which more than fifty percent of the
voting interests are owned by family members (or the employee) in exchange for
an interest in that entity.
13. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred in
the event of both of the following:
(a) Any of (i) the direct or indirect sale or exchange by the shareholders
of the Company of the stock of the Company, in a single or series of related
transactions, after which sale or exchange the shareholders of the Company
immediately prior to such transactions do not retain, directly or indirectly, at
least a majority of the beneficial interest in the voting stock of the Company;
(ii) a merger in which the Company is a party after which merger the
shareholders of the Company do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the surviving company
or (iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets (other than a sale, exchange, or transfer to one or more
corporations where the shareholders of the Company before such sale, exchange,
or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred); and
(b) A change in either the composition or size of the Board of Directors
of the Company after which change a majority of members of the Board of
Directors immediately preceding such change are no longer members of the Board
of Directors.
As used herein, "Voting Stock" shall include both the common stock and the
preferred stock of the Company, determined on a fully converted basis.
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14. Consequences of a Change of Control
-----------------------------------
(a) Notice and Acceleration. Upon a Change of Control, unless the
-----------------------
Committee determines otherwise, (i) the Company shall provide each Grantee with
outstanding Grants written notice of such Change of Control, (ii) 50% of all
unvested Options and SARs shall automatically accelerate and become fully
exercisable, (iii) the restrictions and conditions on all outstanding Restricted
Stock shall immediately lapse and (iv) Grantees holding Performance Units shall
receive a payment in settlement of such Performance Units, in an amount
determined by the Committee, based on the Grantee's target payment for the
Performance Period and the portion of the Performance Period that precedes the
Change of Control.
(b) Assumption of Grants. Upon a Change of Control where the Company is
--------------------
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, subject to
------------------
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options and SARs in exchange for a payment
by the Company, in cash or Company Stock as determined by the Committee, in an
amount equal to the amount by which the then Fair Market Value of the shares of
Company Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as applicable, or
(ii) after giving Grantees an opportunity to exercise their outstanding Options
and SARs, terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate. Such surrender or termination shall take place as
of the date of the Change of Control or such other date as the Committee may
specify.
(d) Committee. The Committee making the determinations under this Section
---------
14 following a Change of Control must comprise the same members as those on the
Committee immediately before the Change of Control. If the Committee members do
not meet this requirement, the automatic provisions of Subsections (a) and (b)
shall apply, and the Committee shall not have discretion to vary them.
(e) Limitations. Notwithstanding anything in the Plan to the contrary, in
-----------
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
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15. Requirements for Issuance or Transfer of Shares
-----------------------------------------------
(a) Shareholder's Agreement. The Committee may require that a Grantee
-----------------------
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock issued or distributed prior to a
Public Offering pursuant to this Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company Stock shall
---------------------------------------------
be issued or transferred in connection with any Grant hereunder unless and until
all legal requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
16. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required in order to meet the requirements for
Incentive Stock Options under Section 422 of the Code or, after a Public
Offering, such approval is required in order to exempt compensation under the
Plan from the deduction limit under Section 162(m) of the Code.
(b) Shareholder Approval for "Qualified Performance-Based Compensation."
------------------------------------------------------------------
If Grants are "qualified performance-based compensation" under Section 10 above,
the Plan must be reapproved by the shareholders no later than the first
shareholders meeting that occurs in the fifth year following the year in which
the shareholders previously approved the provisions of Section 10, if required
by Section 162(m) of the Code or the regulations thereunder.
(c) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the shareholders.
(d) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 22(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
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terminated or amended under Section 22(b) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.
(e) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
17. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
18. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.
19. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
20. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
21. Effective Date of the Plan
--------------------------
(a) Effective Date. Subject to approval by the Company's shareholders,
--------------
the Plan shall be effective as of July 22, 1998.
(b) Public Offering. The provisions of the Plan that refer to a Public
---------------
Offering, or that refer to, or are applicable to persons subject to, Section 16
of the Exchange Act or Section 162(m) of the Code, shall be effective, if at
all, upon the initial registration of the Company
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Stock under Section 12(g) of the Exchange Act, and shall remain effective
thereafter for so long as such stock is so registered.
22. Miscellaneous
-------------
(a) Grants in Connection with Corporate Transactions and Otherwise.
--------------------------------------------------------------
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from
the terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the
substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs and
-------------------
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, after a Public Offering it is the
intent of the Company that the Plan and all transactions under the Plan comply
with all applicable provisions of Rule 16b-3 or its successors under the
Exchange Act. In addition, it is the intent of the Company that the Plan and
applicable Grants under the Plan comply with the applicable provisions of
Section 162(m) of the Code, after a Public Offering, and Section 422 of the
Code. To the extent that any legal requirement of Section 16 of the Exchange
Act or Section 162(m) or 422 of the Code as set forth in the Plan ceases to be
required under Section 16 of the Exchange Act or Section 162(m) or 422 of the
Code, that Plan provision shall cease to apply. The Committee may revoke any
Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Committee may also
adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.
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