EXHIBIT 10.3

 

HEALTH NET, INC.

2005 LONG-TERM INCENTIVE PLAN

 

I. INTRODUCTION

 

This Health Net, Inc. 2005 Long-Term Incentive Plan (the “Plan”) is an amendment
and restatement of the Health Net, Inc. 2002 Stock Option Plan and the Health
Net, Inc. 1997 Stock Option Plan. The purposes of the Plan are (i) to align the
interests of the stockholders of Health Net, Inc., a Delaware corporation (the
“Company”), and the recipients of awards under the Plan by increasing the
proprietary interest of such recipients in the Company’s growth and success,
(ii) to advance the interests of the Company by attracting and retaining key
salaried employees of the Company and its subsidiaries and (iii) to motivate
such employees to act in the long-term best interests of the Company’s
stockholders.

 

II. DEFINITIONS

 

For purposes of the Plan, the following capitalized terms shall have the
meanings set forth in this Article.

 

“Agreement” shall mean the written instrument evidencing an award hereunder
between the Company and the recipient of such award, the terms of which may be
amended or modified as provided in Section 8.3.

 

“Board” shall mean the Board of Directors of the Company.

 

“Bonus Stock” shall mean shares of Common Stock which are not subject to a
Restriction Period.

 

“Bonus Stock Award” shall mean an award of Bonus Stock.

 

“Cash Award” shall have the meaning set forth in Section 5.2(e).

 

“Cause” shall have the meaning set forth in Section 8.10(b).

 

“Change in Control” shall have the meaning set forth in Section 8.9(a).

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Committee” shall mean the Compensation Committee of the Board or a subcommittee
thereof that consists solely of two or more members of the Board of Directors
who shall qualify as “outside directors” within the meaning of Section 162(m) of
the Code.

 

“Common Stock” shall mean the Common Stock, $.001 par value, of the Company and
any other equity security which (i) is designated by the Board to be available
for awards under the Plan or (ii) becomes available for awards under the Plan by
reason of a conversion, stock split, stock dividend, recapitalization,
reclassification, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event or any distribution to holders of shares of Common Stock.

 

“Company” shall mean Health Net, Inc., a Delaware corporation, or any successor
thereto.

 

“Disability” shall mean the inability, as determined solely by the Committee, of
the holder of an award to perform substantially such holder’s duties and
responsibilities for a continuous period of at least six months.

 

“Eligible Employee” shall mean those individuals described in Section 3.1.

 

“Employer” shall mean the Company or any Subsidiary.

 

1

--------------------------------------------------------------------------------

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

“Fair Market Value” shall mean the closing price of a share of Common Stock as
reported in The Wall Street Journal on the New York Stock Exchange Composite
Transactions list for the date as of which such value is being determined or, if
there shall be no reported transaction for such date or if such date is not a
trading day, on the next immediately preceding date for which a transaction was
reported or which was a trading day; provided, however, that if Fair Market
Value for any date cannot be so determined, Fair Market Value shall be
determined by the Committee by whatever means or method as the Committee, in the
good faith exercise of its discretion, shall at such time deem appropriate.

 

“Incentive Stock Option” shall mean an option to purchase shares of Common Stock
that meets the requirements of Section 422 of the Code, or any successor
provision, which is intended by the Committee to constitute an Incentive Stock
Option.

 

“Mature Shares” shall mean previously acquired shares of Common Stock for which
the holder thereof has good title, free and clear of all liens and encumbrances
and which such holder either (i) has held for at least six months (or such
shorter period as the Committee may permit, provided that the Company will not
be required to recognize an increased compensation expense under applicable
accounting principles) or (ii) has purchased on the open market.

 

“Maturity Value” shall mean, unless the Committee shall determine otherwise, the
average of the Fair Market Value of a share of Common Stock for a period of
sixty consecutive trading days ending on the Valuation Date with respect to each
Restricted Stock Award, or if the Valuation Date is not a trading day, the sixty
consecutive trading days ending on the last trading day before the Valuation
Date.

 

“Merger” shall mean any merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of
common stock of the surviving or resulting parent corporation immediately after
the merger.

 

“Nonqualified Stock Option” shall mean an option to purchase shares of Common
Stock which is not an Incentive Stock Option.

 

“Permanent and Total Disability” shall have the meaning set forth in Section
22(e)(3) of the Code or any successor thereto.

 

“Performance Measures” shall mean the criteria and objectives, established by
the Committee, which shall be satisfied or met (i) as a condition to the grant
or exercisability of all or a portion of an option or SAR, (ii) as a condition
to the grant of a Stock Award or a Restricted Stock Unit Award or (iii) during
the applicable Restriction Period or Performance Period as a condition to the
holder’s receipt, in the case of a Restricted Stock Award, of the shares of
Common Stock subject to such award, or, in the case of a Restricted Stock Unit
Award or a Performance Award, of the shares of Common Stock subject to such
award or the cash amount payable with respect to such award. To the extent
necessary for an award to be qualified performance-based compensation under
Section 162(m) of the Code, such criteria and objectives shall include one or
more of the following: the attainment by a share of Common Stock of a specified
Fair Market Value for a specified period of time; total shareholder return over
a specified period of time (which may be relative to a peer group); earnings per
share; earnings before interest, taxes, depreciation or amortization (or any
combination thereof); direct margin; expense reduction; customer satisfaction
survey results; employee satisfaction survey results; member retention; net
income; operating income; revenues; profit margin; cash flow(s); financial
return ratios; return on equity; and strategic business criteria, consisting of
one or more objectives based on achieving specified revenue, market penetration,
or geographic business expansion goals, or cost targets, or goals relating to
acquisitions or divestitures, or any combination of the foregoing. Each such
goal may be expressed on an absolute or relative basis and may include
comparisons based on current internal targets, the past performance of the
Company

 

2

--------------------------------------------------------------------------------

(including the performance of one or more subsidiaries, divisions, or operating
units) or the past or current performance of other companies (or a combination
of such past and current performance). In the case of earnings-based measures,
performance goals may include comparisons relating to capital (including, but
limited to, the cost of capital), shareholders’ equity, shares outstanding,
assets or net assets, or any combination thereof. Performance goals shall be
subject to such other special rules and conditions as the Committee may
establish at any time within the Performance Period. The Performance Measures
for any given Performance Period shall be determined in accordance with
generally accepted accounting principles (“GAAP”) and in a manner consistent
with the methods used in the Company’s audited financial statements, without
regard to (i) extraordinary items as determined by the Company’s independent
public accountants in accordance with GAAP or (ii) changes in accounting,
unless, in each case, the Committee decides otherwise within the Performance
Period. If the Committee desires that compensation payable pursuant to any award
subject to Performance Measures be qualified performance-based compensation
within the meaning of Section 162(m) of the Code, the Performance Measures (i)
shall be established in writing by the Committee no later than 90 days after the
beginning of the Performance Period or Restriction Period, as applicable (or
such other time designated by the Internal Revenue Service) and (ii) shall
satisfy all other applicable requirements imposed under Treasury Regulations
promulgated under Section 162(m) of the Code, including the requirement that
such Performance Measures be stated in terms of an objective formula or
standard. Subject to Section 162(m) of the Code with respect to an award that is
intended to be qualified performance-based compensation, the Committee, in its
sole discretion, may amend or adjust the Performance Measures or other terms and
conditions of an outstanding award in recognition of unusual or nonrecurring
events affecting the Company or its financial statements or changes in law or
accounting principles.

 

“Performance Period” shall mean any period designated by the Committee during
which the Performance Measures applicable to a Performance Award shall be
measured.

 

“Performance Award” shall mean a right, contingent upon the attainment of
specified Performance Measures within a specified Performance Period, to receive
payment in cash or in shares of Common Stock of a specified amount.

 

“Restricted Stock” shall mean shares of Common Stock which are subject to a
Restriction Period.

 

“Restricted Stock Award” shall mean an award of Restricted Stock.

 

“Restricted Stock Unit” shall mean a right which entitles the holder thereof to
receive, upon vesting, shares of Common Stock, cash, or a combination thereof,
with an aggregate valve equal to the Fair Market Value of one share of Common
Stock on the date of vesting.

 

“Restricted Stock Unit Award” shall mean an award of Restricted Stock Units.

 

“Restriction Period” shall mean any period designated by the Committee during
which (i) Common Stock subject to a Restricted Stock Award shall not be sold,
transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed
of, except as provided in the Plan or the Agreement relating to such award or
(ii) the restrictions applicable to a Restricted Stock Unit Award shall remain
in effect.

 

“SAR” shall mean a stock appreciation right which is granted in tandem with, or
by reference to, an option (including a Nonqualified Stock Option granted prior
to the date of grant of the SAR), which entitles the holder thereof to receive,
upon exercise of such SAR and surrender for cancellation of all or a portion of
such option, shares of Common Stock, cash or a combination thereof with an
aggregate value equal to the excess of the Fair Market Value of one share of
Common Stock on the date of exercise over the base price of such SAR, multiplied
by the number of shares of Common Stock subject to such option, or portion
thereof, which is surrendered.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

3

--------------------------------------------------------------------------------

“Stock Award” shall mean a Restricted Stock Award or a Bonus Stock Award.

 

“Subsidiary” shall mean any corporation other than the Company in an unbroken
chain of corporations beginning with the Company if, at the time of reference,
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50 percent or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

 

“Tax Date” shall have the meaning set forth in Section 8.6.

 

“Ten Percent Holder” shall have the meaning set forth in Section 4.2(a).

 

“Valuation Date” with respect to any Restricted Stock Award shall mean the date
designated in the Agreement with respect to each Restricted Stock Award pursuant
to Section 5.2(a).

 

III. ELIGIBILITY AND ADMINISTRATION

 

3.1 Eligibility.    Participants in the Plan shall consist of such key salaried
employees and persons expected to become key salaried employees (“Eligible
Employees”) of an Employer as the Committee in its sole discretion may select
from time to time. The Committee’s selection of an employee to participate in
the Plan at any time shall not require the Committee to select such employee to
participate in the Plan at any other time.

 

3.2 Administration. (a) In General.    The Plan shall be administered by the
Committee. The Committee may grant to Eligible Employees any one or a
combination of the following awards under the Plan: (i) options to purchase
shares of Common Stock in the form of Incentive Stock Options or Nonqualified
Stock Options, (ii) SARs, (iii) Stock Awards in the form of Restricted Stock or
Bonus Stock, (iv) Restricted Stock Unit Awards and (v) Performance Awards. The
Committee shall, subject to the terms of the Plan, select Eligible Employees for
participation in the Plan and determine the form, amount and timing of each
award to such employees and, if applicable, the number of shares of Common
Stock, the number of SARs and the number of Restricted Stock Units subject to
such an award, the exercise price or base price associated with the award, the
time and conditions of exercise or settlement of the award and all other terms
and conditions of the award, including, without limitation, the form of the
Agreement evidencing the award. The Committee may, in its sole discretion and
for any reason at any time, subject to the requirements imposed under Section
162(m) of the Code and regulations promulgated thereunder in the case of an
award intended to be qualified performance-based compensation, take action such
that (i) any or all outstanding options and SARs shall become exercisable in
part or in full, (ii) all or a portion of the Restriction Period applicable to
any outstanding Restricted Stock Award or Restricted Stock Unit Award shall
lapse, (iii) all or a portion of the Performance Period applicable to any
outstanding Performance Award shall lapse, and (iv) the Performance Measures
applicable to any outstanding award (if any) shall be deemed to be satisfied at
the maximum or any other level. The Committee shall, subject to the terms of the
Plan, interpret the Plan and the application thereof, establish rules and
regulations it deems necessary or desirable for the administration of the Plan,
make any determinations necessary or desirable to effectuate the purposes of the
Plan and may impose, incidental to the grant of an award, conditions with
respect to the award, such as limiting competitive employment or other
activities. All such interpretations, rules, regulations, determinations and
conditions shall be final, binding and conclusive. The acts of the Committee
shall be either (i) acts of a majority of the members of the Committee present
at any meeting at which a majority of the Committee members is present or (ii)
acts approved in writing by a majority of the members of the Committee without a
meeting.

 

(b) Delegation.    To the extent permitted by applicable law, the Committee may
delegate some or all of its power and authority hereunder to such executive
officer or officers of the Company as the Committee deems appropriate; provided,
however, that the Committee may not delegate its power and authority with regard
to

 

4

--------------------------------------------------------------------------------

(i) the grant of an award to any person who is a “covered employee” within the
meaning of Section 162(m) of the Code or who, in the Committee’s judgment, is
likely to be a covered employee at any time during the period an award hereunder
to such employee would be outstanding or (ii) the selection for participation in
the Plan of an officer or other person subject to Section 16 of the Exchange Act
or decisions concerning the timing, pricing or amount of an award to such an
officer or other person.

 

(c) Indemnification.    No member of the Board of Directors or Committee, nor
any executive officer to whom the Committee delegates any of its power and
authority hereunder, shall be liable for any act, omission, interpretation,
construction or determination made in connection with the Plan in good faith,
and the members of the Board of Directors and the Committee and any such
executive officer shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including attorneys’
fees) arising therefrom to the full extent permitted by law, except as otherwise
may be provided in the Company’s Certificate of Incorporation or By-laws, and
under any directors’ and officers’ liability insurance of the Company that may
be in effect from time to time.

 

(3.3) Shares Available.    Subject to adjustment as provided in Section 8.8,
15,000,000 shares of Common Stock shall be available under the Plan. Such shares
of Common Stock and shares of each other class of stock which become available
under the Plan shall be reduced by the sum of the aggregate number of shares of
such stock then subject to awards under the Plan (which shall be deemed to
include shares subject to or issued pursuant to awards under the Health Net,
Inc. 2002 Stock Option Plan or the Health Net, Inc. 1997 Stock Option Plan). To
the extent that shares of Common Stock subject to an outstanding award are not
issued or delivered by reason of the (i) expiration, termination, cancellation
or forfeiture of such award or (ii) the settlement of such award in cash, then
such shares of Common Stock shall again be available under the Plan. Subject to
adjustment as provided in Section 8.8, the total number of shares of Common
Stock available under this Plan for Incentive Stock Option Awards shall not
exceed 350,000 shares of Common Stock. Shares of Common Stock shall be made
available from authorized and unissued shares of Common Stock, or authorized and
issued shares of Common Stock reacquired and held as treasury shares or
otherwise or a combination thereof.

 

Subject to adjustment as provided in Section 8.8, the total number of shares of
Common Stock available under the Plan for all Stock Awards shall not exceed
850,000 shares of Common Stock. To the extent necessary for an award to be
qualified performance-based compensation under Section 162(m) of the Code and
the regulations thereunder, the maximum number of shares of Common Stock with
respect to which options, Stock Awards, SARs, Restricted Stock Unit Awards,
Performance Awards (or the Fair Market Value thereof if paid in cash) or any
combination thereof may be granted during the term of the Plan to any employee
shall be 3,000,000, subject to adjustment as provided in Section 8.8.

 

IV. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

 

4.1 Stock Options.    The Committee may, in its discretion, grant options to
purchase shares of Common Stock to such Eligible Employees as may be selected by
the Committee. Each option, or portion thereof, that is not an Incentive Stock
Option, shall be a Nonqualified Stock Option. Each Incentive Stock Option shall
be granted within ten years of the date of this amended and restated Plan is
adopted by the Board. To the extent that the aggregate Fair Market Value
(determined as of the date of grant) of shares of Common Stock with respect to
which options designated as Incentive Stock Options are exercisable for the
first time by an option holder during any calendar year (under the Plan or any
other plan of the Company or any subsidiary corporation as defined in section
424 of the Code and the regulations thereunder) exceeds $100,000 (or any other
applicable dollar limitation established under the federal tax laws), such
options shall constitute Nonqualified Stock Options.

 

4.2 Terms of Stock Options.    Options 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 advisable.

 

(a) Number of Shares and Purchase Price.    The number of shares of Common Stock
subject to an option and the purchase price per share of Common Stock
purchasable upon exercise of the option shall be

 

5

--------------------------------------------------------------------------------

determined by the Committee; provided, however, that the purchase price per
share of Common Stock purchasable upon exercise of an option shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date of
grant of such option; provided further, that if an Incentive Stock Option shall
be granted to an employee who, at the time such option is granted, owns capital
stock possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any subsidiary corporation as
defined in section 424 of the Code and the regulations thereunder) (a “Ten
Percent Holder”), then the purchase price per share of Common Stock shall not be
less than the price (currently 110% of Fair Market Value) required under the
Code in order to constitute an Incentive Stock Option.

 

(b) Exercise Period and Exercisability.    The period during which an option may
be exercised shall be determined by the Committee; provided, however, that no
Incentive Stock Option shall be exercised later than ten years after its date of
grant; provided further, that if an Incentive Stock Option shall be granted to a
Ten Percent Holder, such option shall not be exercised later than five years
after its date of grant. The Committee may, in its discretion, establish
performance measures which must be satisfied as a condition either to a grant of
an option or to the exercisability of all or a portion of an option. The
Committee shall determine whether an option shall become exercisable in
cumulative or noncumulative installments and in part or in full at any time. An
exercisable option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock.

 

(c) Method of Exercise.    An option may be exercised (i) by giving written
notice to the Company specifying the number of whole shares of Common Stock to
be purchased and accompanied by payment therefore in full (or arrangement made
for such payment to the Company’s satisfaction) either (A) in cash, (B) by
delivery (either actual delivery or by attestation procedures established by the
Company) of Mature Shares having an aggregate Fair Market Value, determined as
of the date of exercise, equal to the aggregate purchase price payable by reason
of such exercise, (C) authorizing the Company to withhold whole shares of Stock
which would otherwise be delivered having a Fair Market Value, determined as of
the date of exercise, equal to the amount necessary to satisfy such obligation,
provided that the Committee determines that such withholding of shares does not
cause the Company to recognize an increased compensation expense under
applicable accounting principles, (D) to the extent legally permissible, in cash
by a broker-dealer acceptable to the Company to whom the optionee has submitted
an irrevocable notice of exercise or (E) a combination of (A), (B) and (C), in
each case, except as otherwise set forth in the Agreement relating to the
option, (ii) if applicable, by surrendering to the Company any SARs which are
canceled by reason of the exercise of the option and (iii) by executing such
documents and taking any other actions as the Company may reasonably request.
Cash payments shall be made by wire transfer, certified or bank check or
personal check, in each case payable to the order of the Company. Any fraction
of a share of Common Stock which would be required to pay such purchase price
shall be disregarded and the remaining amount due shall be paid in cash by the
optionee. The Company shall not be required to deliver certificates representing
shares of Common Stock until the Company has confirmed the receipt of good and
available funds in payment of the full purchase price therefor and any
withholding taxes thereon, as described in Section 8.6.

 

4.3 Stock Appreciation Rights.    The Committee may, in its discretion, grant
SARs to such Eligible Employees as may be selected by the Committee. Any SAR
related to an Incentive Stock Option shall be granted at the same time that such
Incentive Stock Option is granted.

 

4.4 Terms of SARs.    SARs 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 advisable.

 

(a) Number of SARs and Base Price.    The number of SARs subject to an award
shall be determined by the Committee. The base price of an SAR shall be the
purchase price per share of Common Stock of the related option.

 

6

--------------------------------------------------------------------------------

(b) Exercise Period and Exercisability.    The Agreement relating to an award of
SARs shall specify whether such award may be settled in shares of Common Stock
(including shares of Restricted Stock) or cash or a combination thereof. The
period for the exercise of an SAR shall be determined by the Committee;
provided, however, that no SAR shall be exercised later than the expiration,
cancellation, forfeiture or other termination of the related option. The
Committee may, in its discretion, establish Performance Measures which shall be
satisfied as a condition to the grant of an SAR or to the exercisability of all
or a portion of an SAR. The Committee shall determine whether an SAR may be
exercised in cumulative or non-cumulative installments and in part or in full at
any time. An exercisable SAR, or portion thereof, may be exercised only with
respect to whole shares of Common Stock. Prior to the exercise of an SAR for
shares of Common Stock, the holder of such SAR shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject to
such SAR.

 

(c) Method of Exercise.    An SAR may be exercised (i) by giving written notice
to the Company specifying the number of whole SARs which are being exercised,
(ii) by surrendering to the Company any options which are canceled by reason of
the exercise of the SAR and (iii) by executing such documents as the Company may
reasonably request.

 

4.5 Termination of Employment.

 

(a) In General.    Subject to Sections 8.10 and 4.4(b) and paragraph (b) below
in the case of an Incentive Stock Option, all of the terms relating to the
exercise, cancellation or other disposition of an option or SAR in the event the
holder of such option or SAR is no longer employed by an Employer, whether by
reason of Permanent and Total Disability, retirement, death or other termination
of employment, shall be determined by the Committee. Such determination shall be
made at the time of the grant of such option or SAR, as the case may be, and
shall be specified in the Agreement relating to such option or SAR.

 

(b) Incentive Stock Options.    Each Incentive Stock Option held by an optionee
who ceases to be employed by any Employer by reason of Permanent and Total
Disability or death shall be exercisable only to the extent that such option is
exercisable on the date of such optionee’s termination of employment. In the
case of the optionee’s Permanent and Total Disability, the option may thereafter
be exercised by such optionee (or such optionee’s legal representative or
similar person) for a period of one year (or such shorter period as the
Committee may specify in the Agreement) after the effective date of such
optionee’s termination of employment by reason of Permanent and Total Disability
or until the expiration of the term of such Incentive Stock Option, whichever
period is shorter. In the case of the optionee’s death, the option may
thereafter be exercised by the beneficiary or beneficiaries duly designated by
the optionee or, if none, the executor or administrator of the optionee’s estate
or, if none, the person to whom the optionee’s rights under such option shall
pass by will or by the applicable laws of descent and distribution for a period
of one year (or such other period as the Committee may specify in the Agreement)
after the date of such optionee’s death or until the expiration of the term of
such Incentive Stock Option, whichever period is shorter.

 

Each Incentive Stock Option held by an optionee who ceases to be employed by any
Employer for any reason other than Permanent and Total Disability or death shall
be exercisable only to the extent such option is exercisable on the effective
date of such optionee’s termination of employment, and may thereafter be
exercised by such optionee (or such optionee’s legal representative or similar
person) for a period of three months after the effective date of such optionee’s
termination of employment or until the expiration of the term of the Incentive
Stock Option, whichever period is shorter.

 

If an optionee dies during the exercise period specified in the Agreement
evidencing the award of such option following the termination of the optionee’s
employment by reason of Permanent and Total Disability, or if the optionee dies
during the three-month period following termination of employment for any reason
other than death or Permanent and Total Disability, each Incentive Stock Option
held by such optionee shall be exercisable only to the extent such option is
exercisable on the date of the optionee’s death and may thereafter be exercised

 

7

--------------------------------------------------------------------------------

by the beneficiary or beneficiaries duly designated by the optionee or, if none,
the executor or administrator of the optionee’s estate or, if none, the person
to whom the optionee’s rights under such option shall pass by will or by the
applicable laws of descent and distribution for a period of one year (or such
shorter period as the Committee may specify in the Agreement) after the date of
death or until the expiration of the term of such Incentive Stock Option,
whichever period is shorter.

 

V. STOCK AWARDS

 

5.1 Stock Awards.    The Committee may, in its discretion, grant Stock Awards to
such Eligible Employees as may be selected by the Committee. The Agreement
relating to a Stock Award shall specify whether the Stock Award is a Restricted
Stock Award or Bonus Stock Award.

 

5.2 Terms of Stock Awards.    Stock Awards 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 advisable.

 

(a) Number of Shares and Other Terms.    The Committee shall determine the
number of shares of Common Stock subject to a Restricted Stock Award or Bonus
Stock Award. The Committee may determine that the grant of a Stock Award is
contingent upon the satisfaction of one or more Performance Measures. In the
case of a Restricted Stock Award, the Committee shall designate a Valuation Date
and shall determine the price, if any, to be paid by the holder for each share
of Restricted Stock subject to the Award.

 

(b) Vesting and Forfeiture.    The Agreement relating to a Restricted Stock
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of the Plan, (i) for the vesting of
the shares of Common Stock subject to such award (x) if specified Performance
Measures are satisfied during the specified Restriction Period or (y) if the
holder of such award remains continuously in the employment of any one or more
Employers through the specified Restriction Period and satisfies any other
applicable conditions and (ii) for the forfeiture of all or a portion the shares
of Common Stock subject to such award (v) if specified Performance Measures are
not satisfied during the specified Restriction Period or (w) the holder of such
award does not remain continuously in the employment of any one or more
Employers through the specified Restriction Period or does not satisfy any other
applicable conditions. Bonus Stock Awards shall not be subject to any
Restriction Periods.

 

(c) Share Certificates.    During the Restriction Period, at the Company’s sole
discretion, the shares of Common Stock subject to a Restricted Stock Award
either (i) shall be held be the Company in book entry form, with the
restrictions on the shares duly noted, or (ii) shall by represented by a
certificate or certificates registered in the holder’s name, which may bear a
legend, in addition to any legend which may be required pursuant to Section 8.6,
indicating that the ownership of the shares of Common Stock represented by such
certificate is subject to the restrictions, terms and conditions of the Plan and
the Agreement relating to the Restricted Stock Award. All such certificates
shall be deposited with the Company or its agent, together with stock powers or
other instruments of assignment (including a power of attorney), each endorsed
in blank with a guarantee of signature if deemed necessary or appropriate by the
Company, which would permit transfer to the Company of all or a portion of the
shares of Common Stock subject to the Restricted Stock Award in the event such
award is forfeited in whole or in part. Upon termination of any applicable
Restriction Period (and the satisfaction or attainment of any applicable
conditions), or upon the grant of a Bonus Stock Award, in each case subject to
the Company’s right to require payment of any taxes in accordance with Section
8.6, either (i) a certificate or certificates evidencing ownership of the
requisite number of shares of Common Stock shall be delivered to the holder of
such award or (ii) a notation of noncertificated shares shall be made on the
stock records of the Company.

 

(d) Rights With Respect to Restricted Stock Awards.    Unless otherwise set
forth in the Agreement relating to a Restricted Stock Award, and subject to the
terms and conditions of a Restricted Stock Award

 

8

--------------------------------------------------------------------------------

and the Plan, the holder of such award shall have all rights as a stockholder of
the Company, including, but not limited to, voting rights, the right to receive
dividends or other distributions and the right to participate in any capital
adjustment applicable to all holders of Common Stock; provided, however, that a
dividend or distribution with respect to shares of Common Stock, other than a
regular cash dividend or any other distribution as the Committee may in its sole
discretion designate, shall be deposited with the Company and shall be subject
to the same restrictions as the shares of Common Stock with respect to which
such dividend or distribution was made. Any such dividends and distributions on
deposit with the Company shall not be segregated in separate accounts and shall
not bear interest. Any breach of any restrictions, terms or conditions
applicable to a Restricted Stock Award by the holder of such award shall cause a
forfeiture of Restricted Stock, any related distributions, and all rights under
the Agreement.

 

(e) Cash Awards.    In connection with any Restricted Stock Award, the Committee
may authorize (either at the time such award is made or subsequently) the
payment of a cash amount (a “Cash Award”) to the holder of such Restricted Stock
at any time after such Restricted stock shall have become vested; provided,
however, that the amount of the cash payment, if any, that a holder shall be
entitled to receive shall not exceed 100 percent of the aggregate Maturity Value
of the Restricted Stock Award. Such Cash Awards shall be payable in accordance
with such additional restrictions, terms and conditions as shall be prescribed
by the Committee and shall be in addition to any other salary, incentive, bonus
or other compensation payments which holders shall be otherwise entitled or
eligible to receive from the Company.

 

5.3 Termination of Employment.    Subject to Section 8.10, all of the terms
relating to the termination of the Restriction Period or other conditions
relating to a Restricted Stock Award, or any cancellation or forfeiture of such
Restricted Stock Award in the event the holder of such Restricted Stock Award is
no longer employed by an Employer, whether by reason of Disability, retirement,
death or other termination of employment, shall be specified in the Agreement
relating to such Restricted Stock Award.

 

VI. RESTRICTED STOCK UNIT AWARDS

 

6.1 Restricted Stock Unit Awards.    The Committee may, in its discretion, grant
Restricted Stock Unit Awards to such eligible employees as may be selected by
the Committee.

 

6.2 Terms of Restricted Stock Unit Awards.    Restricted Stock Unit Awards 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 advisable.

 

(a) Number of Restricted Stock Units and Other Terms.    The Committee shall
determine the number of Restricted Stock Units subject to a Restricted Stock
Unit Award and the Performance Measures (if any) and Restriction Period
applicable to a Restricted Stock Unit Award.

 

(b) Vesting and Forfeiture.    The Agreement relating to a Restricted Stock Unit
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of the Plan, (i) for the vesting of
such award (w) if specified Performance Measures are satisfied or met during the
specified Restriction Period or (x) if the holder of such award remains
continuously in the employment of or service to the Company during the specified
Restriction Period and (ii) for the forfeiture of such award (y) if specified
Performance Measures are not satisfied or met during the specified Restriction
Period or (z) if the holder of such award does not remain continuously in the
employment of or service to the Company during the specified Restriction Period.

 

(c) Settlement of Vested Restricted Stock Unit Awards.    The Agreement relating
to a Restricted Stock Unit Award (i) shall specify whether such award may be
settled in shares of Common Stock or cash or a combination thereof and (ii) may
specify whether the holder thereof shall be entitled to receive, on a current or
deferred basis, dividend equivalents, and, if determined by the Committee,
interest on or the deemed

 

9

--------------------------------------------------------------------------------

reinvestment of, any deferred dividend equivalents, with respect to the number
of shares of Common Stock subject to such award. Prior to the settlement of a
Restricted Stock Unit Award in shares of Common Stock, the holder of such award
shall have no rights as a stockholder of the Company with respect to the shares
of Common Stock subject to such award.

 

VII. PERFORMANCE AWARDS

 

7.1 Performance Awards.    The Committee may, in its discretion, grant
Performance Awards to such eligible employees as may be selected by the
Committee.

 

7.2 Terms of Performance Awards.    Performance Awards 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 advisable.

 

(a) Amount of Performance Award, Performance Measures and Performance
Period.    The Committee shall determine the amount of a Performance Award and
the Performance Measures and Performance Period applicable to such award.

 

(b) Vesting and Forfeiture.    The Agreement relating to a Performance Award
shall provide, in the manner determined by the Committee, in its discretion, and
subject to the provisions of the Plan, for the vesting of such award, if
specified Performance Measures are satisfied or met during the specified
Performance Period, and for the forfeiture of such award, if specified
Performance Measures are not satisfied or met during the specified Performance
Period.

 

(c) Settlement of Vested Performance Awards.    The Agreement relating to a
Performance Award (i) shall specify whether such award may be settled in shares
of Common Stock (including shares of Restricted Stock) or cash or a combination
thereof and (ii) may specify whether the holder thereof shall be entitled to
receive, on a current or deferred basis, dividend equivalents, and, if
determined by the Committee, interest on or the deemed reinvestment of, any
deferred dividend equivalents, with respect to the number of shares of Common
Stock subject to such award. Prior to the settlement of a Performance Award in
shares of Common Stock, the holder of such award shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject to
such award.

 

VIII. GENERAL

 

8.1 Effective Date and Term of Plan.    This amended and restated Plan shall be
submitted to the stockholders of the Company for approval and, if approved by
the affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy at the 2005 annual meeting of stockholders,
provided that, the total vote cast on the amended and restated Plan represents
over 50% in interest of all securities entitled to vote on the amended and
restated Plan, shall become effective on the date of such meeting. The Plan
shall terminate ten years after its effective date, unless terminated earlier by
the Board. Termination of the Plan shall not affect the terms or conditions of
any award granted prior to termination.

 

In the event that the Plan is not approved by the stockholders of the Company
within twelve months of the date the Board adopts the Plan, subject to
stockholder approval, the Plan and any awards granted hereunder shall be null
and void.

 

8.2 Amendments.    The Board may amend the Plan as it shall deem advisable,
subject to any requirement of stockholder approval required by applicable law,
rule or regulation, including Section 162(m) and Section 422 of the Code;
provided, however, that no amendment shall be made without stockholder approval
if such amendment would (a) increase the maximum number of shares of Common
Stock available under the Plan (subject to Section 8.8), (b) effect any change
inconsistent with Section 422 of the Code or (c) extend the term of the Plan. No
amendment may impair the rights of a holder of an outstanding award without the
consent of such holder.

 

10

--------------------------------------------------------------------------------

8.3 Agreement.    Each award under the Plan shall be evidenced by an Agreement
setting forth the terms and conditions applicable to such award. No award shall
be valid until an Agreement is executed by a duly authorized representative of
the Company and the recipient of such award and, upon execution by each party
and delivery of the Agreement to the Company, such award shall be effective as
of the effective date set forth in the Agreement. No award under the Plan shall
be effective unless the Agreement evidencing such award is executed by the
recipient and delivered to the Company. An Agreement may be modified or amended
at any time by the Committee, provided that no modification or amendment may
adversely affect the rights of the holder of the award evidenced by the
Agreement without the holder’s consent.

 

8.4 Designation of Beneficiaries.    Each employee may designate a beneficiary
or beneficiaries with respect to each of his or her awards by executing and
filing with the Company during his or her lifetime a written beneficiary
designation on a form prescribed by the Committee. The employee may change or
revoke any such designation by executing and filing with the Company during his
or her lifetime a new beneficiary designation. If all designated beneficiaries
predecease the employee or, in the case of corporations, partnerships, trusts or
other entities which are designated beneficiaries, are terminated, dissolved,
become insolvent or are adjudicated bankrupt prior to the date of the employee’s
death, or if the employee fails to designate a beneficiary, then the following
persons in the order set forth below shall be the employee’s beneficiaries:

 

(i) Employee’s spouse, if living; or if none,

 

(ii) Employee’s then living descendants, per stirpes; or if none,

 

(iii) Employee’s estate.

 

8.5 Transferability of Awards.    No Incentive Stock Option shall be
transferable other than pursuant to a beneficiary designation effective on the
optionee’s death. No other award shall be transferable other than (a) pursuant
to a beneficiary designation effective on the holder’s death or (b) to the
extent permitted under securities laws relating to the registration of
securities subject to employee benefit plans. Each option and each SAR may be
exercised during the optionee’s or holder’s lifetime only by the optionee or
holder (or the optionee’s or holder’s legal representative). Except as permitted
by the preceding sentences, no award may be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation
of law or otherwise) or be subject to execution, attachment or similar process.
Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any award, such an award and all rights thereunder shall
immediately become null and void.

 

8.6 Tax Withholding.    The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock or the payment of any
cash pursuant to an award made hereunder, payment by the holder of such award of
any federal, state, local or other taxes which may be required to be withheld or
paid in connection with such award. The holder may satisfy any such obligation
by any of the following means: (A) a cash payment to the Company, (B)
authorizing the Company to withhold whole shares of Common Stock which would
otherwise be delivered having an aggregate Fair Market Value, determined as of
the date the obligation to withhold or pay taxes arises in connection with the
award (the “Tax Date”), or withhold an amount of cash which would otherwise be
payable to a holder, equal to the amount necessary to satisfy any such
obligation, (C) by delivery (either actual delivery or by attestation procedures
established by the Company) of shares of Common Stock having an aggregate Fair
Market Value, determined as of the Tax Date, equal to the amount necessary to
satisfy any such obligation, (D) in the case of the exercise of an option, to
the extent legally permissable, a cash payment by a broker-dealer acceptable to
the Company to whom the optionee has submitted an irrevocable notice of exercise
or (E) a combination of (A), (B) and (C); in each case, except as otherwise set
forth in the Agreement relating to the award. Shares of Common Stock to be
delivered or withheld may not have an aggregate Fair Market Value in excess of
the amount determined by applying the minimum statutory withholding rate. Any
fraction of a share of Common Stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the holder.

 

11

--------------------------------------------------------------------------------

8.7 Restrictions on Shares.    Each award made hereunder shall be subject to the
requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the exercise or settlement
of such award or the delivery of shares thereunder, such award shall not be
exercised or settled and such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act and the rules and regulations thereunder.

 

8.8 Adjustment.    In the event of any conversion, stock split, stock dividend,
recapitalization, reclassification, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar change
in capitalization or event, or any distribution to holders of Common Stock other
than a regular cash dividend, the number and class of securities available under
the Plan, the maximum number of securities with respect to which options or SARs
or a combination thereof, or Restricted Stock Awards, Restricted Stock Unit
Awards or Performance Awards, may be granted during any calendar year to any
employee, the number and class of securities subject to each outstanding option
and SAR and the purchase price per security, the maximum number of securities
with respect to which Stock Awards or options or SARs, or a combination thereof,
may be granted during any calendar year to any person, the terms of each
outstanding SAR, the terms of each outstanding Restricted Stock Award,
Restricted Stock Unit Award, and Performance Award, and the number and class of
securities subject to each outstanding Stock Award and Restricted Stock Unit
Award shall be appropriately adjusted by the Committee, such adjustments to be
made in the case of outstanding options and SARs without an increase in the
aggregate purchase price or base price. The decision of the Committee regarding
any such adjustment shall be final, binding and conclusive. If any such
adjustment would result in a fractional security being (a) available under the
Plan, such fractional security shall be disregarded, or (b) subject to an award
under the Plan, the Company shall pay the holder of such award, in connection
with the first vesting, exercise or settlement of such award in whole or in part
occurring after such adjustment, an amount in cash determined by multiplying (i)
the fraction of such security (rounded to the nearest hundredth) by (ii) the
excess, if any, of (A) the Fair Market Value on such vesting, exercise or
settlement date over (B) the exercise or base price, if any, of such award.

 

8.9 Acceleration of Awards.

 

Notwithstanding any provision in the Plan, upon the occurrence of a Change in
Control, as defined below, (i) all outstanding options and SARs shall
immediately become exercisable in full, (ii) the Restriction Period applicable
to any outstanding Restricted Stock Award or Restricted Stock Unit Award shall
lapse, (iii) the Performance Period applicable to any outstanding Performance
Award shall lapse, (iv) the Performance Measures applicable to any outstanding
award shall be deemed satisfied, as determined by the Board, at the minimum,
target or maximum level, except as otherwise provided in the applicable
Agreement.

 

(a) Definition of Change in Control.    A “Change in Control” shall mean:

 

(i) Consummated Transaction.    Consummation of (A) any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Common Stock are converted into cash,
securities or other property, other than a Merger, or (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or (C)
the liquidation or dissolution of the Company;

 

(ii) Control Purchase.    The purchase by any person (as such term is defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity
(other than the Company or any

 

12

--------------------------------------------------------------------------------

employee benefit plan sponsored by an Employer) of any Common Stock of the
Company (or securities convertible into the Company’s Common Stock) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Board and, after such purchase, such
person shall be the “beneficial owner” (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors (calculated as provided in Section (d) of such Rule 13d-3 in the case
of rights to acquire the Company’s securities);

 

(iii) Board Change.    A change in the composition of the Board during any
period of two consecutive years, such that individuals who at the beginning of
such period constitute the entire Board shall cease for any reason to constitute
a majority thereof unless the election, or the nomination for election by the
Company’s stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period; or Other Transactions. The occurrence of such other
transactions involving a significant issuance of voting stock or change in the
composition of the Board that the Board determines to be a Change in Control for
purposes of the Plan.

 

(iv) Other Transactions.    The occurrence of such other transactions involving
a significant issuance of voting stock or change in the composition of the Board
that the Board determines to be a Change in Control for purposes of the Plan.

 

The Agreement evidencing options, SARs or Restricted Stock granted under the
Plan may contain such provisions limiting the acceleration of the exercisability
of options, SARs and the acceleration of the vesting of Restricted Stock as
provided in this Section as the Committee deems appropriate to ensure that the
penalty provisions of Section 4999 of the Code, or any successor thereto in
effect at the time of such acceleration, will not apply to any stock, cash or
other property received by the holder from the Company.

 

(b) Certain Business Combinations.    (i) With respect to any optionee who is
subject to Section 16 of the Exchange Act, (A) notwithstanding the exercise
periods set forth in any Agreement to which such optionee is a party, and (B)
notwithstanding the expiration date of the term of such option, in the event the
Company is involved in a business combination pursuant to which such optionee
receives a substitute option to purchase securities of any entity, including an
entity directly or indirectly acquiring the Company, then each such substitute
option held by such optionee shall be exercisable to the extent set forth in the
Agreement evidencing such option until and including the later of (y) the
expiration date of the term of the option or, in the event of such optionee’s
termination of employment, the last exercise date prescribed by the optionee’s
Agreement and (z) the date which is six months and one day after the
consummation of such business combination; and

 

(ii) With respect to any holder of an SAR (other than an SAR which may be
settled only for cash) who is subject to Section 16 of the Exchange Act, (A)
notwithstanding the exercise periods set forth in any Agreement to which such
holder is a party, and (B) notwithstanding the expiration date of the term of
such SAR, in the event the Company is involved in a transaction pursuant to
which such holder receives a substitute SAR relating to any entity, including an
entity directly or indirectly acquiring the Company, then each such substitute
SAR held by such holder shall be exercisable to the extent set forth in the
Agreement evidencing such SAR until and including the later of (y) the date set
forth in the optionee’s Agreement or, the expiration date of the term of such
SAR, as the case may be and (z) the date which is six months and one day after
the consummation of such business combination.

 

8.10 Termination of Employment.

 

(a) Acceleration of Exercisability or Vesting.    Notwithstanding any provisions
to the contrary in an Agreement, if the employment of the holder of an award
shall terminate for any reason (including, without

 

13

--------------------------------------------------------------------------------

limitation, the holder’s death, Permanent and Total Disability, retirement
(either pursuant to any retirement plan of the Company or any Subsidiary or, in
the absence of any such plan, pursuant to the Committee’s discretionary
determination that such termination of employment shall be treated as retirement
for purposes of the Plan), resignation or voluntary termination other than for
Cause (as defined in subsection (b) hereof) as determined by the Committee in
its sole discretion), the Committee may determine the following:

 

(i) All of the terms relating to the satisfaction of Performance Measures shall
be deemed to be satisfied and any Restriction Period applicable to any
Restricted Stock Award or Restricted Stock Unit Award shall be deemed to have
expired upon the holder’s termination of employment, and all Restricted Stock
subject to such award shall become vested, and any Cash Award payable pursuant
to the applicable Restricted Stock Award or Restricted Stock Unit Award shall be
adjusted in such manner as is provided in the Agreement;

 

(ii) Any option shall become exercisable in full upon the holder’s termination
of employment; and

 

(iii) All of the terms relating to the satisfaction of Performance Measures and
the termination of the Performance Period relating to a Performance Award shall
be deemed to be satisfied.

 

(b) Termination By Company For Cause.    If the employment with an Employer of a
holder of a Restricted Stock Award shall terminate for Cause during the
Restriction Period, then all Restricted Stock and any Cash Awards shall be
forfeited immediately on the effective date of such holder’s termination of
employment. If the employment with an Employer of a holder of an option shall
terminate for Cause, all options and SARs held by such holder shall immediately
terminate and be canceled on the effective date of such holder’s termination of
employment. For purposes of this Section 8.10, “Cause” shall have the meaning
ascribed thereto in any employment agreement to which such holder is a party or,
in the absence thereof, shall include, but not be limited to, insubordination,
dishonesty, incompetence, moral turpitude, other misconduct of any kind and the
refusal to perform his or her duties and responsibilities for any reason other
than illness or incapacity; provided, however, “Cause” shall mean only a felony
conviction for fraud, misappropriation or embezzlement, regardless of whether
the holder has an employment agreement with an Employer, if the holder’s
employment termination occurs within 12 months after a Consummated Transaction,
Control Purchase or Board Change (as such events are described in Section
8.9(a)).

 

(c) General.    For purposes of the Plan, a leave of absence, unless otherwise
determined by the Committee prior to the commencement thereof, shall not be
considered a termination of employment. Awards made under the Plan shall not be
affected by any change of employment so long as the holder continues to be an
employee of an Employer.

 

8.11 No Right of Participation or Employment.    No person shall have any right
to participate in the Plan. Neither the Plan nor any award made hereunder shall
confer upon any person any right to continued employment by any Employer or
affect in any manner the right of an Employer to terminate the employment of any
person at any time without liability hereunder.

 

8.12 Rights As Stockholder.    Subject to Section 5.2(d), no person shall have
any right as a stockholder of the Company with respect to any shares of Common
Stock or other equity security of the Company which is subject to an award
hereunder unless and until such person becomes a stockholder of record with
respect to such shares of Common Stock or equity security.

 

8.13 Non-Exclusivity.    The Plan shall not be construed as creating any
limitations on the Company or the Committee to adopt such other incentive
arrangements as it may deem desirable, including the granting of stock options
and the awards of either shares of Common Stock or cash to any individual.

 

8.14 Governing Law.    The Plan, each award hereunder and the related Agreement,
and all determinations made and actions taken pursuant thereto, to the extent
not otherwise governed by the Code or the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to principles of conflicts of laws.

 

14