Exhibit 10.1

 

AMENDED AND RESTATED

AAMES INVESTMENT CORPORATION

2004 EQUITY INCENTIVE PLAN

 

SECTION 1

 

GENERAL

 

1.1. Purpose. The Amended and Restated Aames Investment Corporation 2004 Equity
Incentive Plan (the “Plan”) has been established by Aames Investment Corporation
(the “Company”) to (i) attract and retain persons eligible to participate in the
Plan; (ii) motivate Participants, by means of appropriate incentives, to achieve
long-range goals; (iii) provide incentive compensation opportunities that are
competitive with those of other similar companies; and (iv) further identify
Participants’ interests with those of the Company’s other stockholders through
compensation that is based on the Company’s common stock; and thereby promote
the long-term financial interest of the Company and the Subsidiaries, including
the growth in value of the Company’s equity and enhancement of long-term
stockholder return.

 

1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individual, those persons who will be granted one or more Awards under
the Plan, and thereby become “Participants” in the Plan.

 

1.3. Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 5 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 9).

 

SECTION 2

 

OPTIONS AND SARS

 

2.1. Definitions.

 

(a) The grant of an “Option” entitles the Participant to purchase shares of
Stock at an Exercise Price established by the Committee. Any Option granted
under this Section 2 may be either an incentive stock option (an “ISO”) or a
non-qualified option (an “NQO”),

 

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as determined in the discretion of the Committee. An “ISO” is an Option that is
intended to satisfy the requirements applicable to an “incentive stock option”
described in section 422(b) of the Code. An “NQO” is an Option that is not
intended to be an “incentive stock option” as that term is described in section
422(b) of the Code.

 

(b) A stock appreciation right (an “SAR”) entitles the Participant to receive,
in cash or Stock (as determined in accordance with subsection 5.7), value equal
to (or otherwise based on) the excess of: (a) the Fair Market Value of a
specified number of shares of Stock at the time of exercise; over (b) an
Exercise Price established by the Committee.

 

2.2. Exercise Price. The “Exercise Price” of each Option and SAR granted under
this Section 2 shall be established by the Committee or shall be determined by a
method established by the Committee at the time the Option or SAR is granted.
The Exercise Price shall not be less than 100% of the Fair Market Value of a
share of Stock on the date of grant (or, if greater, the par value of a share of
Stock); provided, however, that the Committee, in its discretion, may establish
an Exercise Price of an Option or SAR granted under this Section 2 that varies
based on the stock price of a comparator group of companies or such other index
as is selected by the Committee (resulting in an Exercise Price that may at
times be less than the Fair Market Value of a share of Stock on the date of
grant); and further provided that such variable price shall not be used if the
Committee intends that the Options or SARs be Performance-Based Compensation
and/or the Options be Incentive Stock Options, and the use of such variable
pricing would preclude such treatment.

 

2.3. Exercise. An Option and an SAR shall be exercisable in accordance with such
terms and conditions and during such periods as may be established by the
Committee. In no event, however, shall an Option or SAR expire later than ten
years after the date of its grant.

 

2.4. Payment of Option Exercise Price. The payment of the Exercise Price of an
Option granted under this Section 2 shall be subject to the following:

 

(a) Subject to the following provisions of this subsection 2.4, the full
Exercise Price for shares of Stock purchased upon the exercise of any Option
shall be paid at the time of such exercise (except that, in the case of an
exercise arrangement approved by the Committee and described in paragraph
2.4(c), payment may be made as soon as practicable after the exercise).

 

(b) Subject to applicable law, the Exercise Price shall be payable in cash, by
promissory note, or by tendering, by either actual delivery of shares or by
attestation, shares of Stock acceptable to the Committee, and valued at Fair
Market Value as of the day of exercise, or in any combination thereof, as
determined by the Committee; provided that, except as otherwise provided by the
Committee, payments made with

 

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shares of Stock in accordance with this paragraph (b) shall be limited to shares
held by the Participant for not less than six months prior to the payment date.

 

(c) Subject to applicable law, the Committee may permit a Participant to elect
to pay the Exercise Price upon the exercise of an Option by irrevocably
authorizing a third party to sell shares of Stock (or a sufficient portion of
the shares) acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise Price and any
tax withholding resulting from such exercise.

 

2.5. No Repricing. Except for either adjustments pursuant to paragraph 5.2(f)
(relating to the adjustment of shares), or reductions of the Exercise Price
approved by the Company’s stockholders, the Exercise Price for any outstanding
Option may not be decreased after the date of grant nor may an outstanding
Option granted under the Plan be surrendered to the Company as consideration for
the grant of a replacement Option with a lower exercise price.

 

2.6. Grants of Options and SARs. An Option may but need not be in tandem with an
SAR, and an SAR may but need not be in tandem with an Option (in either case,
regardless of whether the original award was granted under this Plan or another
plan or arrangement). If an Option is in tandem with an SAR, the exercise price
of both the Option and SAR shall be the same, and the exercise of the Option or
SAR with respect to a share of Stock shall cancel the corresponding tandem SAR
or Option right with respect to such share. If an SAR is in tandem with an
Option but is granted after the grant of the Option, or if an Option is in
tandem with an SAR but is granted after the grant of the SAR, the later granted
tandem Award shall have the same exercise price as the earlier granted Award,
but the exercise price for the later granted Award may be less than the Fair
Market Value of the Stock at the time of such grant.

 

SECTION 3

 

FULL VALUE AWARDS

 

3.1. Definition. A “Full Value Award” is a grant of one or more shares of Stock
or a right to receive one or more shares of Stock in the future, with such grant
subject to one or more of the following, as determined by the Committee:

 

(a) The grant shall be in consideration of a Participant’s previously performed
services, or surrender of other compensation that may be due.

 

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(b) The grant shall be contingent on the achievement of performance or other
objectives during a specified period.

 

(c) The grant shall be subject to a risk of forfeiture or other restrictions
that will lapse upon the achievement of one or more goals relating to completion
of service by the Participant, or achievement of performance or other
objectives.

 

The grant of Full Value Awards may also be subject to such other conditions,
restrictions and contingencies, as determined by the Committee.

 

3.2. Restrictions on Awards.

 

(a) The Committee may designate a Full Value Award granted to any Participant as
Performance-Based Compensation. To the extent required by Code section 162(m),
any Full Value Award so designated shall be conditioned on the achievement of
one or more performance objectives. The performance objectives shall be based on
the Performance Measures selected by the Committee. For Awards under this
Section 3 intended to be Performance-Based Compensation, the grant of the Awards
and the establishment of the Performance Measures shall be made during the
period required under Code section 162(m).

 

(b) If the right to become vested in a Full Value Award is conditioned on the
completion of a specified period of service with the Company or the
Subsidiaries, without achievement of Performance Measures or other performance
objectives (whether or not related to Performance Measures) being required as a
condition of vesting, and without it being granted in lieu of other
compensation, then the required period of service for full vesting shall be not
less than one year (subject to acceleration of vesting, to the extent permitted
by the Committee, in the event of the Participant’s death, disability,
retirement, change in control or termination).

 

SECTION 4

 

CASH INCENTIVE AWARDS

 

A Cash Incentive Award is the grant of a right to receive a payment of cash (or
in the discretion of the Committee, Stock having value equivalent to the cash
otherwise payable) that is contingent on achievement of performance objectives
over a specified period established by the Committee. The grant of Cash
Incentive Awards may also be subject to such other conditions, restrictions and
contingencies, as determined by the Committee. The Committee may designate a
Cash Incentive Award granted to any Participant as Performance-Based
Compensation. To the extent required by Code section 162(m), any such Award so
designated shall be conditioned on the achievement of one or more Performance
Measures, as selected by the Committee. For Awards under this Section 4 intended
to be Performance-Based Compensation, the grant of the Awards and

 

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the establishment of the Performance Measures shall be made during the period
required under Code section 162(m).

 

 

SECTION 5

 

OPERATION AND ADMINISTRATION

 

5.1. Effective Date. The Plan shall be effective as of the “Effective Date,”
which shall be the date immediately prior to the date of the Public Offering. In
the event of Plan termination, the terms of the Plan shall remain in effect as
long as any Awards under it are outstanding; provided, however, that no Awards
may be granted under the Plan after the ten-year anniversary of the Effective
Date.

 

5.2. Shares and Other Amounts Subject to Plan. The shares of Stock for which
Awards may be granted under the Plan shall be subject to the following:

 

(a) The shares of Stock with respect to which Awards may be made under the Plan
shall be shares currently authorized but unissued or, to the extent permitted by
applicable law, currently held or acquired by the Company as treasury shares,
including shares purchased in the open market or in private transactions.

 

(b) Subject to the following provisions of this subsection 5.2, the maximum
number of shares of Stock that may be delivered to Participants and their
beneficiaries under the Plan shall be equal to 5,550,000 shares of Stock. Each
share of Stock issued as a Full Value Award will reduce the amount of Stock
available for issuance under the Plan by 2.5 shares. In addition, each Award
settled in cash will reduce the amount of Stock available for issuance under the
Plan by 2.5 shares.

 

(c) To the extent provided by the Committee, any Award may be settled in cash
rather than Stock.

 

(d) Only shares of Stock, if any, actually delivered to the Participant or
beneficiary on an unrestricted basis with respect to an Award shall be treated
as delivered for purposes of the determination under paragraph (b) above,
regardless of whether the Award is denominated in Stock or cash. Consistent with
the foregoing:

 

(i) To the extent any shares of Stock covered by an Award are not delivered to a
Participant or beneficiary because the Award is forfeited or canceled, or the
shares of Stock are not delivered on an unrestricted basis (including, without
limitation, by reason of the Award being settled in cash or used to satisfy the
applicable tax

 

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withholding obligation), such shares shall not be deemed to have been delivered
for purposes of the determination under paragraph (b) above.

 

(ii) If the exercise price of any Option granted under the Plan, or the tax
withholding obligation with respect to any Award granted under the Plan, is
satisfied by tendering shares of Stock to the Company (by either actual delivery
or by attestation), only the number of shares of Stock issued net of the shares
of Stock tendered shall be deemed delivered for purposes of determining the
number of shares of Stock available for delivery under the Plan.

 

(e) Subject to paragraph 5.2(f), the following additional maximums are imposed
under the Plan.

 

(i) The maximum number of shares of Stock that may be delivered to Participants
and their beneficiaries with respect to ISOs granted under the Plan shall be
5,550,000 shares; provided, however, that to the extent that shares not
delivered must be counted against this limit as a condition of satisfying the
rules applicable to ISOs, such rules shall apply to the limit on ISOs granted
under the Plan.

 

(ii) The maximum number of shares that may be covered by Awards granted to any
one Participant during any one calendar-year period pursuant to Section 2
(relating to Options and SARs) shall be 1,125,000 shares, reduced by 2.5 times
the number of Full Value Awards issued to that Participant during that
calendar-year period pursuant to paragraph 5.2(e)(iv) below. For purposes of
this paragraph (ii), if an Option is in tandem with an SAR, such that the
exercise of the Option or SAR with respect to a share of Stock cancels the
tandem SAR or Option right, respectively, with respect to such share, the tandem
Option and SAR rights with respect to each share of Stock shall be counted as
covering but one share of Stock for purposes of applying the limitations of this
paragraph (ii).

 

(iii) The maximum number of shares of Stock that may be issued in conjunction
with Awards granted pursuant to Section 3 (relating to Full Value Awards) shall
be 2,220,000 shares.

 

(iv) For Full Value Awards that are intended to be Performance-Based
Compensation, no more than 450,000 shares of Stock, reduced by 0.4 times the
number of Awards issued to that Participant during the calendar-year period
pursuant to paragraph 5.2(e)(ii) above, may be delivered pursuant to such Awards
granted to any one Participant during any one-calendar-year period (regardless
of whether settlement of the Award is to occur prior to, at the time of, or
after the time of vesting); provided that Awards described in this paragraph
(iv) that are intended to be Performance-Based Compensation shall be subject to
the following:

 

(A) If the Awards are denominated in Stock but an equivalent amount of cash is
delivered in lieu of delivery of shares of Stock, the foregoing limit shall

 

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be applied based on the methodology used by the Committee to convert the number
of shares of Stock into cash.

 

(B) If delivery of Stock or cash is deferred until after shares of Stock have
been earned, any adjustment in the amount delivered to reflect actual or deemed
investment experience after the date the shares are earned shall be disregarded.

 

(v) For Cash Incentive Value Awards that are intended to be Performance-Based
Compensation, the maximum amount payable to any Participant with respect to any
performance period shall equal $3,750 multiplied by the number of calendar
months included in that performance period, reduced by the value of Full Value
Awards or Awards granted to that Participant during the calendar-year period
pursuant to paragraphs 5.2(e)(ii) and (iv) above; provided that Awards described
in this paragraph (v) that are intended to be Performance-Based Compensation,
shall be subject to the following:

 

(A) If the Awards are denominated in cash but an equivalent amount of Stock is
delivered in lieu of delivery of cash, the foregoing limit shall be applied to
the cash based on the methodology used by the Committee to convert the cash into
shares of Stock.

 

(B) If delivery of Stock or cash is deferred until after cash has been earned,
any adjustment in the amount delivered to reflect actual or deemed investment
experience after the date the cash is earned shall be disregarded.

 

(f) In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or exchange of shares), the Committee may adjust Awards to
preserve the benefits or potential benefits of the Awards. Action by the
Committee may include: (i) adjustment of the number and kind of shares which may
be delivered under the Plan; (ii) adjustment of the number and kind of shares
subject to outstanding Awards; (iii) adjustment of the Exercise Price of
outstanding Options and SARs; and (iv) any other adjustments that the Committee
determines to be equitable (which may include, without limitation, (I)
replacement of Awards with other Awards which the Committee determines have
comparable value and which are based on stock of a company resulting from the
transaction, and (II) cancellation of the Award in return for cash payment of
the current value of the Award, determined as though the Award is fully vested
at the time of payment, provided that in the case of an Option or SAR, the
amount of such payment may be the excess of value of the Stock subject to the
Option or SAR at the time of the transaction over the exercise price).

 

5.3. General Restrictions. Delivery of shares of Stock or other amounts under
the Plan shall be subject to the following:

 

(a) Notwithstanding any other provision of the Plan, the Company shall have no
obligation to deliver any shares of Stock or make any other distribution of
benefits under

 

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the Plan unless such delivery or distribution complies with all applicable laws
(including, without limitation, the requirements of the Securities Act of 1933),
and the applicable requirements of any securities exchange or similar entity.

 

(b) To the extent that the Plan provides for issuance of stock certificates to
reflect the issuance of shares of Stock, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.

 

5.4. Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. Except as otherwise provided by the
Committee, such withholding obligations may be satisfied (i) through cash
payment by the Participant; (ii) through the surrender of shares of Stock which
the Participant already owns (provided, however, that to the extent shares
described in this clause (ii) are used to satisfy more than the minimum
statutory withholding obligation, as described below, then, except as otherwise
provided by the Committee, payments made with shares of Stock in accordance with
this clause (ii) shall be limited to shares held by the Participant for not less
than six months prior to the payment date); or (iii) through the surrender of
shares of Stock to which the Participant is otherwise entitled under the Plan,
provided, however, that such shares under this clause (iii) may be used to
satisfy not more than the Company’s minimum statutory withholding obligation
(based on minimum statutory withholding rates for Federal and state tax
purposes, including payroll taxes, that are applicable to such supplemental
taxable income).

 

5.5. Grant and Use of Awards. In the discretion of the Committee, a Participant
may be granted any Award permitted under the provisions of the Plan, and more
than one Award may be granted to a Participant. Subject to subsection 2.5
(relating to repricing), Awards may be granted as alternatives to or replacement
of awards granted or outstanding under the Plan, or any other plan or
arrangement of the Company or a Subsidiary (including a plan or arrangement of a
business or entity, all or a portion of which is acquired by the Company or a
Subsidiary). Subject to the overall limitation on the number of shares of Stock
that may be delivered under the Plan, the Committee may use available shares of
Stock as the form of payment for compensation, grants or rights earned or due
under any other compensation plans or arrangements of the Company or a
Subsidiary, including the plans and arrangements of the Company or a Subsidiary
assumed in business combinations. Notwithstanding the provisions of subsection
2.2, Options and SARs granted under the Plan in replacement for awards under
plans and arrangements of the Company or a Subsidiary assumed in business
combinations may provide for exercise prices that are less than the Fair Market
Value of the Stock at the time of the replacement grants, if the Committee
determines that such exercise price is appropriate to preserve the economic
benefit of the award.

 

5.6. Dividends and Dividend Equivalents. An Award (including without limitation
an Option or SAR Award) may provide the Participant with the right to receive
dividend or

 

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dividend equivalent payments with respect to Stock subject to the Award (both
before and after the Stock subject to the Award is earned, vested, or acquired),
which payments may be either made currently or credited to an account for the
Participant, and may be settled in cash or Stock, as determined by the
Committee. Any such settlements, and any such crediting of dividends or dividend
equivalents or reinvestment in shares of Stock, may be subject to such
conditions, restrictions and contingencies as the Committee shall establish,
including the reinvestment of such credited amounts in Stock equivalents.

 

5.7. Settlement of Awards. The obligation to make payments and distributions
with respect to Awards may be satisfied through cash payments, the delivery of
shares of Stock, the granting of replacement Awards, or combination thereof as
the Committee shall determine. Satisfaction of any such obligations under an
Award, which is sometimes referred to as “settlement” of the Award, may be
subject to such conditions, restrictions and contingencies as the Committee
shall determine. The Committee may permit or require the deferral of any Award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest or dividend
equivalents, and may include converting such credits into deferred Stock
equivalents. Each Subsidiary shall be liable for payment of cash due under the
Plan with respect to any Participant to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Participant.
Any disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.

 

5.8. Transferability. Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.

 

5.9. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.

 

5.10. Agreement With Company. An Award under the Plan shall be subject to such
terms and conditions, not inconsistent with the Plan, as the Committee shall, in
its sole discretion, prescribe. The terms and conditions of any Award to any
Participant shall be reflected in such form of written (including electronic)
document as is determined by the Committee. A copy of such document shall be
provided to the Participant, and the Committee may, but need not require that
the Participant sign a copy of such document. Such document is referred to in
the Plan as an “Award Agreement” regardless of whether any Participant signature
is required.

 

5.11. Action by Company or Subsidiary. Any action required or permitted to be
taken by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or (except
to the extent prohibited by applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.

 

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5.12. Gender and Number. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.

 

5.13. Limitation of Implied Rights.

 

(a) Neither a Participant nor any other person shall, by reason of participation
in the Plan, acquire any right in or title to any assets, funds or property of
the Company or any Subsidiary whatsoever, including, without limitation, any
specific funds, assets, or other property which the Company or any Subsidiary,
in its sole discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right to the Stock or amounts,
if any, payable under the Plan, unsecured by any assets of the Company or any
Subsidiary, and nothing contained in the Plan shall constitute a guarantee that
the assets of the Company or any Subsidiary shall be sufficient to pay any
benefits to any person.

 

(b) The Plan does not constitute a contract of employment, and selection as a
Participant will not give any participating employee the right to be retained in
the employ of the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no Award
under the Plan shall confer upon the holder thereof any rights as a stockholder
of the Company prior to the date on which the individual fulfills all conditions
for receipt of such rights.

 

5.14. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.

 

 

SECTION 6

 

CHANGE IN CONTROL

 

Subject to the provisions of paragraph 5.2(f) (relating to the adjustment of
shares), the occurrence of a Change in Control shall have the effect, if any,
with respect to any Award as set forth in the Award Agreement or, to the extent
not prohibited by the Plan or the Award Agreement, as provided by the Committee.

 

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SECTION 7

 

COMMITTEE

 

7.1. Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the “Committee”) in
accordance with this Section 7. The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board. If the Committee
does not exist, or for any other reason determined by the Board, and to the
extent not prohibited by applicable law or the applicable rules of any stock
exchange, the Board may take any action under the Plan that would otherwise be
the responsibility of the Committee.

 

7.2. Powers of Committee. The Committee’s administration of the Plan shall be
subject to the following:

 

(a) Subject to the provisions of the Plan, the Committee will have the authority
and discretion to select from among the Eligible Individuals those persons who
shall receive Awards, to determine the time or times of receipt, to determine
the types of Awards and the number of shares covered by the Awards, to establish
the terms, conditions, performance criteria, restrictions, and other provisions
of such Awards, and (subject to the restrictions imposed by Section 8) to amend,
cancel, or suspend Awards.

 

(b) To the extent that the Committee determines that the restrictions imposed by
the Plan preclude the achievement of the material purposes of the Awards in
jurisdictions outside the United States, the Committee will have the authority
and discretion to modify those restrictions as the Committee determines to be
necessary or appropriate to conform to applicable requirements or practices of
jurisdictions outside of the United States.

 

(c) The Committee will have the authority and discretion to interpret the Plan,
to establish, amend, and rescind any rules and regulations relating to the Plan,
to determine the terms and provisions of any Award Agreement made pursuant to
the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.

 

(d) Any interpretation of the Plan by the Committee and any decision made by it
under the Plan is final and binding on all persons.

 

(e) In controlling and managing the operation and administration of the Plan,
the Committee shall take action in a manner that conforms to the articles and
by-laws of the Company, and applicable state corporate law.

 

7.3. Delegation by Committee. Except to the extent prohibited by applicable law
or the applicable rules of a stock exchange, the Committee may allocate all or
any portion of its responsibilities and powers to any one or more of its members
and may delegate all or

 

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any part of its responsibilities and powers to any person or persons selected by
it. Any such allocation or delegation may be revoked by the Committee at any
time.

 

7.4. Information to be Furnished to Committee. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an employee’s or Participant’s employment, termination of
employment, leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers desirable to carry out the terms
of the Plan.

 

 

SECTION 8

 

AMENDMENT AND TERMINATION

 

The Board may, at any time, amend or terminate the Plan, and the Board or the
Committee may amend any Award Agreement, provided that no amendment or
termination may, in the absence of written consent to the change by the affected
Participant (or, if the Participant is not then living, the affected
beneficiary), adversely affect the rights of any Participant or beneficiary
under any Award granted under the Plan prior to the date such amendment is
adopted by the Board (or the Committee, if applicable); and further provided
that adjustments pursuant to paragraph 5.2(f) shall not be subject to the
foregoing limitations of this Section 8; and further provided that the
provisions of subsection 2.5 (relating to Option repricing) cannot be amended
unless the amendment is approved by the Company’s stockholders.

 

 

SECTION 9

 

DEFINED TERMS

 

In addition to the other definitions contained herein, the following definitions
shall apply:

 

(a) Award. The term “Award” means any award or benefit granted under the Plan,
including, without limitation, the grant of Options, SARs, Full Value Awards,
and Cash Incentive Awards.

 

(b) Board. The term “Board” means the Board of Directors of the Company.

 

(c) Change in Control. For purposes of the Plan, the term “Change in Control”
means the occurrence of the events described in any of paragraphs (i), (ii),
(iii) or (iv) below:

 

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(i) Acquisition of Securities. The acquisition (disregarding any Excluded
Acquisitions) by any Person of ownership of any Voting Securities if,
immediately after such acquisition, such Person has ownership of more than
[twenty-five percent (25%)] of either the Outstanding Company Common Stock, or
the combined voting power of the Outstanding Company Voting Securities.

 

(ii) Change in Board. Individuals who constitute the Incumbent Board cease for
any reason to represent greater than 50% of the voting power of the members of
the Board.

 

(iii) Corporate Transaction. Consummation of (A) a Corporate Transaction or (B)
the sale or other disposition of more than fifty percent (50%) of the operating
assets of the Company (determined on a consolidated basis), but not including an
Internal Reorganization.

 

(iv) Liquidation. Approval by the shareholders of the Company of a plan of
complete liquidation or dissolution of the Company.

 

(v) Definitions. The terms used in the definition of “Change in Control” shall
have the following meanings:

 

(A) The term “Company Plan” means an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company.

 

(B) The term “Corporate Transaction” means any reorganization, merger,
consolidation, or other business combination involving the Company.

 

(C) The following shall constitute “Excluded Acquisitions” of Stock or Voting
Securities (whichever is applicable):

 

(I) Any acquisition of Stock or Voting Securities (whichever is applicable) by a
Company Plan.

 

(II) Any acquisition of Stock or Voting Securities (whichever is applicable) by
an underwriter temporarily holding securities pursuant to an offering of such
securities.

 

(III) Any acquisition of Stock or Voting Securities (whichever is applicable) by
any Person pursuant to an Internal Reorganization.

 

(IV) Any acquisition of Stock or Voting Securities (whichever is applicable)
directly from the Company (excluding any acquisition resulting from the

 

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exercise of an exercise, conversion or exchange privilege unless the security
being so exercised, converted or exchanged was acquired directly from the
Company).

 

(V) Any acquisition of Stock or Voting Securities (whichever is applicable) by
the Company.

 

(D) The members of the “Incumbent Board” shall mean the members of the Board of
Directors as of the Effective Date of this Agreement and shall also mean any
individual becoming a director after that date whose election, or nomination for
election by the Company shareholders, was approved by a vote of a least a
majority of the directors then comprising the Incumbent Board; provided,
however, that there shall be excluded for this purpose any such individual whose
initial assumption of office occurs as a result of an actual or publicly
threatened election contest (as such terms are used in Rule 14a-11 promulgated
under the Exchange Act) or other actual or publicly threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board.

 

(E) The term “Internal Reorganization” means a sale-leaseback or other
arrangement resulting in the continued utilization of the assets being sold or
otherwise transferred (or the operating products of such assets) by the Company.
The term “Internal Reorganization” also means a Corporate Transaction to which
all of paragraphs (I), (II), and (III) below are applicable:

 

(I) All or substantially all of the individuals and entities who have ownership,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction have ownership
of more than fifty percent (50%) of, respectively, the then outstanding shares
of common equity securities and the combined voting power of the then
outstanding Voting Securities entitled to vote generally in the election of
directors, as the case may be, of the ultimate parent entity resulting from such
Corporate Transaction (including, without limitation, an entity which, as a
result of such transaction, has ownership of the Company or all or substantially
all of the assets of the Company either directly or through one or more
subsidiaries) in substantially the same relative proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be.

 

(II) No Person (other than the Company, any Company Plan or related trust, the
corporation resulting from such Corporate Transaction, and any Person having
ownership, immediately prior to such Corporate Transaction, directly or
indirectly, of more than twenty-five percent (25%) of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, as the case may be)
will have ownership of more than twenty-five percent (25%) of, respectively, the
then outstanding common stock of the ultimate parent entity resulting from such
Corporate Transaction or the combined voting power of the then outstanding
Voting Securities of such entity.

 

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(III) Individuals who were members of the Incumbent Board immediately prior to
the Corporate Transaction will constitute at least a majority of the members of
the board of directors of the ultimate parent entity resulting from such
Corporate Transaction.

 

(F) The term “Outstanding Company Common Stock” as of any date means the then
outstanding shares of common stock, of whatever class, of the Company.

 

(G) The term “Outstanding Company Voting Securities” as of any date means the
then outstanding Voting Securities (which shall be counted based on the number
of votes that may be cast per share).

 

(H) The term “ownership” means beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act.

 

(I) The term “Person” means an individual, entity or group as that term is used
in Section 13(d)(3) or 14(d)(2) of the Exchange Act.

 

(J) The term “Voting Securities” as of any date means any of the outstanding
securities of the Company entitled to vote generally in the election of the
Company’s Board of Directors.

 

(d) Code. The term “Code” means the Internal Revenue Code of 1986, as amended. A
reference to any provision of the Code shall include reference to any successor
provision of the Code.

 

(e) Eligible Individual. For purposes of the Plan, the term “Eligible
Individual” means any employee of the Company or a Subsidiary, and any
consultant, director, or other person providing services to the Company or a
Subsidiary; provided, however, that an incentive stock option may only be
granted to an employee of the Company or a Subsidiary. An Award may be granted
to an employee, in connection with hiring, retention or otherwise, prior to the
date the employee first performs services for the Company or the Subsidiaries,
provided that such Awards shall not become vested prior to the date the employee
first performs such services.

 

(f) Fair Market Value. Except as otherwise provided by the Committee, for
purposes of determining the “Fair Market Value” of a share of Stock as of any
date, the following rules shall apply:

 

(i) If the principal market for the Stock is a national securities exchange or
the Nasdaq stock market, then the “Fair Market Value” as of that date shall be
the mean between the lowest and highest reported sale prices of the Stock on
that date on the principal exchange or market on which the Stock is then listed
or admitted to trading.

 

(ii) If sale prices are not available or if the principal market for the Stock
is not a national securities exchange and the Stock is not quoted on the Nasdaq
stock

 

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market, then the “Fair Market Value” as of that date shall be the mean between
the highest bid and lowest asked prices for the Stock on such day as reported on
the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau,
Incorporated or a comparable service.

 

(iii) If the day is not a business day, and as a result, paragraphs (i) and (ii)
above are inapplicable, the Fair Market Value of the Stock shall be determined
as of the next earlier business day. If paragraphs (i) and (ii) above are
otherwise inapplicable, then the Fair Market Value of the Stock shall be
determined in good faith by the Committee.

 

(g) Performance-Based Compensation. The term “Performance-Based Compensation”
shall have the meaning ascribed to it under Code section 162(m) and the
regulations thereunder.

 

(h) Performance Measures. The “Performance Measures” shall be based on any one
or more of the following Company, Subsidiary, operating unit or division
performance measures:                 ; or any combination thereof. Each goal
may be expressed on an absolute and/or relative basis, may be based on or
otherwise employ comparisons based on internal targets, the past performance of
the Company and/or the past or current performance of other companies, and in
the case of earnings-based measures, may use or employ comparisons relating to
capital, stockholders equity and/or shares outstanding, investments or to assets
or net assets.

 

(i) Subsidiary. For purposes of the Plan, the term “Subsidiary” means any
corporation, partnership, joint venture or other entity during any period in
which at least a fifty percent voting or profits interest is owned, directly or
indirectly, by the Company (or by any entity that is a successor to the
Company), and any other business venture designated by the Committee in which
the Company (or any entity that is a successor to the Company) has a significant
interest, as determined in the discretion of the Committee.

 

(j) Stock. The term “Stock” means shares of common stock of the Company.

Possible Performance Measures

 

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These are alternatives for the definition of “Performance Measures.”

 

core earnings

 

earnings per share

 

growth in earnings

 

ratio of earnings to equity or assets

 

earnings before income taxes and depreciation

 

earnings before interest, taxes, depreciation and amortization (“EDITDA”)

 

operating earnings (earnings before transaction-related expense) per diluted
share of common stock, either before or after amortization of intangible assets
(goodwill)

 

cash flow

 

return on total capital

 

return on assets

 

total shareholder return

 

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return on equity

 

return on average common equity

 

return on average equity

 

return on average assets

 

return on invested capital

 

economic value added

 

increase in surplus

 

reductions in operating expenses

 

increases in operating margins

 

net worth

 

asset quality

 

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efficiency ratio

 

loan origination

 

deposit growth

 

interest rate risk

 

net operating expense, either before or after amortization of intangible assets
(goodwill)

 

ratio of non-performing assets to total assets

 

customer service

 

regulatory compliance

 

cost reductions and savings

 

pre-tax operating income

 

productivity improvements

 

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