EXHIBIT 10.8

 

 

URBAN OUTFITTERS

 

2004

 

STOCK INCENTIVE PLAN

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TABLE OF CONTENTS

 

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SECTION 1

  

- PURPOSE AND DEFINITIONS

   1

SECTION 2

  

- ADMINISTRATION

   3

SECTION 3

  

- ELIGIBILITY

   4

SECTION 4

  

- STOCK

   4

SECTION 5

  

- GRANTING OF AWARDS

   5

SECTION 6

  

- TERMS AND CONDITIONS OF DISCRETIONARY OPTIONS

   5

SECTION 7

  

- FORMULA NQSOS FOR NONEMPLOYEE DIRECTORS

   8

SECTION 8

  

- SARS

   10

SECTION 9

  

- RESTRICTED STOCK

   11

SECTION 10

  

- RSUS

   11

SECTION 11

  

- AWARD AGREEMENTS — OTHER PROVISIONS

   12

SECTION 12

  

- ADJUSTMENT IN CASE OF CHANGES IN COMMON STOCK

   12

SECTION 13

  

- CHANGE IN CONTROL

   13

SECTION 14

  

- CERTAIN CORPORATE TRANSACTIONS

   13

SECTION 15

  

- AMENDMENT OF THE PLAN AND OUTSTANDING AWARDS

   14

SECTION 16

  

- TERMINATION OF PLAN; CESSATION OF ISO GRANTS

   15

SECTION 17

  

- SHAREHOLDER APPROVAL

   16

SECTION 18

  

- MISCELLANEOUS

   16

 

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URBAN OUTFITTERS

 

2004

STOCK INCENTIVE PLAN

 

WHEREAS, Urban Outfitters, Inc. desires to grant equity incentive awards to
certain of its employees, consultants and non-employee directors;

 

NOW, THEREFORE, the Urban Outfitters 2004 Stock Incentive Plan is hereby adopted
under the following terms and conditions:

 

SECTION 1 - PURPOSE AND DEFINITIONS

 

(a) Purpose. The Plan is intended to provide a means whereby the Company may,
through the grant of Awards to Employees, Consultants and Non-Employee
Directors, attract and retain such individuals and motivate them to exercise
their best efforts on behalf of the Company and of any Related Corporation.

 

(b) Definitions.

 

(1) “Administrator” shall mean:

 

(A) The Chairman of the Board, with respect to an Award which (i) covers 20,000
or fewer shares of Common Stock, and (ii) is granted to an individual who is not
subject to section 16(b) of the Exchange Act; or

 

(B) The Committee.

 

(2) “Award” shall mean an ISO, NQSO, SAR, Restricted Stock or RSU awarded by the
Company to an Employee, a Consultant or a Non-Employee Director.

 

(3) “Award Agreement” shall mean a written document evidencing the grant of an
Award, as described in Section 11.

 

(4) “Board” shall mean the Board of Directors of the Company.

 

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

 

(6) “Common Stock” shall mean the common stock of the Company, par value $0.0001
per share.

 

(7) “Committee” shall mean a committee which consists solely of not fewer than
two directors of the Company who shall be appointed by, and serve at the
pleasure of, the Board (taking into consideration the rules under section 16(b)
of the Exchange Act and the requirements of section 162(m) of the Code), or the
entire Board.

 

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(8) “Company” shall mean Urban Outfitters, Inc.

 

(9) “Consultant” shall mean an individual who is not an Employee or a
Non-Employee Director and who has entered into a consulting arrangement with the
Company or a Related Corporation to provide services that (i) are not in
connection with the offer or sale of securities in a capital-raising
transaction, and (ii) do not directly or indirectly promote or maintain a market
for the Company’s securities.

 

(10) “Employee” shall mean an officer or other employee of the Company or a
Related Corporation.

 

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

 

(12) “Fair Market Value” shall mean:

 

(A) The arithmetic average of the highest and lowest quoted selling price, if
there is a market for the Common Stock on a registered securities exchange or in
an over the counter market, on the applicable date; or

 

(B) Fair market value determined under such other method as shall be authorized
by the Code, or the rules or regulations thereunder, and adopted by the
Committee.

 

(13) “Grantee” shall mean an Employee, a Consultant or a Non-Employee Director
who has been granted an Award under the Plan.

 

(14) “ISO” shall mean an Option which, at the time such Option is granted,
qualifies as an incentive stock option within the meaning of section 422 of the
Code, unless the Award Agreement states that the Option will not be treated as
an ISO.

 

(15) “Non-Employee Director” shall mean a director of the Company who:

 

(A) Is not an Employee; and

 

(B) Has not been an Employee during the immediately preceding 12-month period.

 

(16) “NQSO” shall mean an Option which, at the time such Option is granted, does
not qualify as an ISO, whether or not it is designated as a nonqualified stock
option in the Award Agreement.

 

(17) “Options” shall mean ISOs and NQSOs which entitle the Grantee on exercise
thereof to purchase shares of Common Stock at a specified exercise price.

 

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(18) “Plan” shall mean the Urban Outfitters 2004 Stock Incentive Plan as set
forth herein and as amended from time to time.

 

(19) “Related Corporation” shall mean either a “subsidiary corporation” of the
Company, as defined in section 424(f) of the Code, or the “parent corporation”
of the Company, as defined in section 424(e) of the Code.

 

(20) “Restricted Stock” shall mean Common Stock subject to restrictions
determined by the Administrator pursuant to Section 9.

 

(21) “RSU” shall mean a restricted stock unit granted pursuant to Section 10.

 

(22) “SAR” shall mean an Award entitling the recipient on exercise to receive an
amount, in cash or Common Stock or in a combination thereof (such form to be
determined by the Administrator), determined in whole or in part by reference to
appreciation in the value of Common Stock.

 

(23) “Termination of Service” shall mean (a) with respect to an Award granted to
an Employee, the termination of the employment relationship between the Employee
and the Company and all Related Corporations; (b) with respect to an Award
granted to a Consultant, the termination of the consulting arrangement between
the Consultant and the Company and all Related Corporations; and (c) with
respect to an Award granted to a Non-Employee Director, the cessation of the
provision of services as a director of the Company and all Related Corporations;
provided, however, that if the Grantee’s status changes from Employee,
Consultant or Non-Employee Director to any other status eligible to receive an
Award under the Plan, the Administrator (subject to Section 15(a)) may provide
that no Termination of Service occurs for purposes of the Plan until the
Grantee’s new status with the Company and all Related Corporations terminates.
For purposes of this paragraph, if a Grantee’s relationship is with a Related
Corporation and not the Company, the Grantee shall incur a Termination of
Service when such corporation ceases to be a Related Corporation, unless the
Committee determines otherwise.

 

SECTION 2 - ADMINISTRATION

 

The Plan shall be administered by the Administrator. The Administrator (and
members thereof), while serving as such, shall be deemed to be acting in his or
her capacity as a director or an officer of the Company.

 

The Administrator shall have full authority, subject to the terms of the Plan,
to select the Employees, Consultants and Non-Employee Directors, to be granted
Awards under the Plan, to grant Awards on behalf of the Company, and to set the
date of grant and the other terms of such Awards in accordance with the Plan;
provided, however, that Consultants and Non-Employee Directors shall not be
eligible to receive ISOs under the Plan. The Committee may correct any defect,
supply any omission, and reconcile any inconsistency in the Plan, and the
Administrator may do so with respect to any Award granted hereunder, in the
manner and to the extent it (or he) deems desirable. The Committee also shall
have the authority (1) to establish

 

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such rules and regulations, not inconsistent with the provisions of the Plan,
for the proper administration of the Plan, and to amend, modify, or rescind any
such rules and regulations, (2) to adopt modifications, amendments, procedures,
sub-plans and the like, which may be inconsistent with the provisions of the
Plan, as are necessary to comply with the laws and regulations of other
countries in which the Company operates in order to assure the viability of
Awards granted under the Plan to individuals in such other countries, and (3) to
make such determinations and interpretations under, or in connection with, the
Plan, as it deems necessary or advisable. All such rules, regulations,
determinations, and interpretations shall be binding and conclusive upon the
Company, its shareholders, and all Grantees, upon their respective legal
representatives, beneficiaries, successors, and assigns, and upon all other
persons claiming under or through any of them. Except as otherwise required by
the bylaws of the Company or by applicable law, no member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award granted under it.

 

Notwithstanding the foregoing, the terms and conditions of formula NQSOs granted
to Non-Employee Directors under Section 7 are intended to be fixed in advance.
Consequently, neither the Administrator nor the Board shall have discretionary
authority with respect to formula NQSOs granted pursuant to Section 7.

 

SECTION 3 - ELIGIBILITY

 

Employees, Non-Employee Directors and Consultants shall be eligible to receive
Awards under the Plan. However, Employees and Consultants shall not be eligible
to receive formula NQSOs under Section 7, and Non-Employee Directors and
Consultants shall not be eligible to receive ISOs. More than one Award may be
made to a Grantee under the Plan.

 

SECTION 4 - STOCK

 

The aggregate number of shares of Common Stock that may be delivered under the
Plan is 2,500,000 shares, subject to the following limits:

 

(a) The aggregate number of shares of Common Stock subject to Options and SARs
granted to an Employee during any calendar year under the Plan shall not exceed
600,000 shares; and

 

(b) No more than 1,000,000 shares of Common Stock shall be available for the
granting of Restricted Stock and RSUs under the Plan.

 

Each limit in the preceding sentence shall be subject to the adjustment
described in Section 12. Shares issuable under the Plan may be authorized but
unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.

 

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If any Award expires, terminates for any reason, is cancelled, is forfeited or
is settled in cash rather than Common Stock, the number of shares of Common
Stock with respect to which such Award expired, terminated, was cancelled, was
forfeited or was settled in cash, shall continue to be available for future
Awards granted under the Plan. However, if an Option or SAR is cancelled, the
shares of Common Stock covered by the cancelled Option or SAR shall be counted
against the maximum number of shares specified above for which Options and SARs
may be granted to a single Employee. If any Option is exercised by surrendering
Common Stock to the Company as full or partial payment or if tax withholding
requirements are satisfied by withholding or surrendering Common Stock to the
Company, only the number of shares issued net of Common Stock withheld or
surrendered shall be deemed delivered for purposes of determining the maximum
number of shares available for grant under the Plan.

 

SECTION 5 - GRANTING OF AWARDS

 

From time to time until the expiration or earlier suspension or discontinuance
of the Plan, the Administrator may, on behalf of the Company, grant to
Employees, Consultants and Non-Employee Directors such Awards as it determines
are warranted. However:

 

(a) Grants of ISOs and NQSOs shall be separate and not in tandem;

 

(b) Consultants and Non-Employee Directors shall not be eligible to receive ISOs
under the Plan; and

 

(c) Grants to Non-Employee Directors under Section 7 of the Plan shall be made
as provided in such Section.

 

A member of the Committee shall not participate in a vote approving the grant of
an Award to himself or herself to the extent provided under the laws of
Pennsylvania governing corporate self-dealing. In making any determination as to
whether an Employee, a Consultant or a Non-Employee Director shall be granted an
Award, the type of Award to be granted, the number of shares to be covered by
the Award, and other terms of the Award, the Administrator may take into account
the duties of the Employee, Consultant or Non-Employee Director, his or her
present and potential contributions to the success of the Company or a Related
Corporation, the tax implications to the Company and the Grantee, and such other
factors as the Administrator may deem relevant in accomplishing the purposes of
the Plan. Moreover, the Administrator may provide in an Option or an SAR that
the Option or SAR may be exercised only if certain conditions (such as
performance-based requirements), as determined by the Administrator, are
fulfilled.

 

SECTION 6 - TERMS AND CONDITIONS OF DISCRETIONARY OPTIONS

 

Discretionary Options granted to Employees, Non-Employee Directors and
Consultants pursuant to this Section 6 shall include expressly or by reference
the following terms and conditions, as well as such other provisions not
inconsistent with the provisions of the Plan (and, for ISOs, the provisions of
section 422(b) of the Code), as the Administrator shall deem desirable —

 

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(a) Number of Shares. The Option shall state the number of shares of Common
Stock to which it pertains.

 

(b) Price. The Option shall state the option price which shall be determined and
fixed by the Administrator in its (or his) discretion, but:

 

(1) With respect to an ISO, the option price shall not be less than 100 percent
(110 percent in the case of a more-than-10-percent shareholder, as provided in
subsection (i) below) of the Fair Market Value of the shares of Common Stock
subject to the Option on the date the ISO is granted; and

 

(2) In no case may the option price be less than the par value per share of
Common Stock.

 

(c) Term. The term of each Option shall be determined by the Administrator, in
its (or his) discretion; provided, however, that the term of each ISO shall be
not more than 10 years (five years in the case of a more-than-10-percent
shareholder, as discussed in subsection (i) below) from the date of grant of the
ISO. Each Option shall be subject to earlier termination as provided in
subsections (f), (g), and (h) below and in Section 14 hereof.

 

(d) Exercise. An Option shall be exercisable in such installments, upon
fulfillment of such other conditions, and on such dates as the Administrator may
specify. The Administrator may accelerate the exercise date of an outstanding
Option, in its (or his) discretion, if the Administrator deems such acceleration
to be desirable.

 

Any exercisable Option may be exercised at any time up to the expiration or
termination of the Option. Exercisable Options may be exercised, in whole or in
part and from time to time, by giving notice of exercise to the Company at its
principal office, specifying the number of shares to be purchased and
accompanied by payment in full of the aggregate Option exercise price for such
shares (except that, in the case of an exercise arrangement approved by the
Administrator and described in paragraph (3) below, payment may be made as soon
as practicable after the exercise). Only full shares shall be issued, and any
fractional share which might otherwise be issuable upon exercise of an Option
granted hereunder shall be forfeited.

 

The Award Agreement shall set forth, from among the following alternatives, how
the option price is to be paid —

 

(1) in cash or its equivalent;

 

(2) in shares of Common Stock previously acquired by the Grantee; provided that
such shares have been held by the Grantee for such period of time as required to
be considered “mature” shares for purposes of accounting treatment;

 

(3) by delivering a properly executed notice of exercise of the Option to the
Company and a broker, with irrevocable instructions to the broker promptly to
deliver to the Company the amount of sale or loan proceeds necessary to pay the
exercise price of the Option; or

 

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(4) in any combination of paragraphs (1), (2) and (3) above.

 

In the event the option price is paid, in whole or in part, with shares of
Common Stock, the portion of the option price so paid shall be equal to the
aggregate Fair Market Value (determined as of the date of exercise of the
Option) of the Common Stock so surrendered in payment of the option price.

 

(e) ISO Annual Limit. The aggregate Fair Market Value (determined as of the date
the ISO is granted) of the Common Stock with respect to which ISOs are
exercisable for the first time by an Employee during any calendar year (counting
ISOs under this Plan and under any other stock option plan of the Company or a
Related Corporation) shall not exceed $100,000. If an Option intended as an ISO
is granted to an Employee and the Option may not be treated in whole or in part
as an ISO pursuant to the $100,000 limitation, the Option shall be treated as an
ISO to the extent it may be so treated under the limitation and as an NQSO as to
the remainder. For purposes of determining whether an ISO would cause the
limitation to be exceeded, ISOs shall be taken into account in the order
granted.

 

(f) Termination of Service for a Reason Other Than Death or Disability. If a
Grantee’s Termination of Service occurs prior to the expiration date fixed for
his or her Option for any reason other than death or disability, such Option may
be exercised, to the extent of the number of shares with respect to which the
Grantee could have exercised it on the date of such Termination of Service, or
to any greater extent permitted by the Administrator, by the Grantee at any time
prior to the earlier of (i) the expiration date specified in the Award
Agreement, or (ii) thirty days after the date of such Termination of Service
(unless the Award Agreement provides a different expiration date in the case of
such a Termination).

 

(g) Disability. If a Grantee becomes disabled (within the meaning of section
22(e)(3) of the Code) prior to the expiration date fixed for his or her Option,
and the Grantee’s Termination of Service occurs as a consequence of such
disability, such Option may be exercised, to the extent of the number of shares
with respect to which the Grantee could have exercised it on the date of such
Termination of Service, or to any greater extent permitted by the Administrator,
by the Grantee at any time prior to the earlier of (i) the expiration date
specified in the Award Agreement, or (ii) six months after the date of such
Termination of Service (unless the Award Agreement provides a different
expiration date in the case of such a Termination). In the event of the
Grantee’s legal disability, such Option may be exercised by the Grantee’s legal
representative.

 

(h) Death. If a Grantee’s Termination of Service occurs as a result of death,
prior to the expiration date fixed for his or her Option, or if the Grantee dies
following his or her Termination of Service but prior to the expiration of the
period determined under subsections (f) or (g) above (including any extension of
such period provided in the Award Agreement), such Option may be exercised, to
the extent of the number of shares with respect to which the Grantee could have
exercised it on the date of his or her death, or to any greater extent permitted
by the Administrator, by the Grantee’s estate, personal representative, or
beneficiary who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the Grantee. Such post-death exercise
may occur at any time prior to the earlier of (i) the expiration date specified
in the Award Agreement, or (ii) six months after the date of the Grantee’s death
(unless the Award Agreement provides a different expiration date in the case of
death).

 

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(i) More-Than-Ten-Percent Shareholder. If, after applying the attribution rules
of section 424(d) of the Code, the Grantee owns more than 10 percent of the
total combined voting power of all shares of stock of the Company or of a
Related Corporation at the time an ISO is granted to him, the option price for
the ISO shall be not less than 110 percent of the Fair Market Value of the
optioned shares of Common Stock on the date the ISO is granted, and such ISO, by
its terms, shall not be exercisable after the expiration of five years from the
date the ISO is granted. The conditions set forth in this subsection shall not
apply to NQSOs.

 

SECTION 7 - FORMULA NQSOs FOR NONEMPLOYEE DIRECTORS

 

(a) Granting of Formula NQSOs to Non-Employee Directors.

 

(1) Initial Grant. An NQSO to purchase 20,000 shares of Common Stock (as
adjusted pursuant to Section 12) automatically shall be granted to a
Non-Employee Director on the date he or she becomes a Non-Employee Director
(whether by reason of his or her election by shareholders, appointment by the
Board or expiration of the 12-month period specified in Section 1(b)(15)(B)) if:

 

(A) The Non-Employee Director was not a Non-Employee Director prior to the
Company’s 2004 annual shareholders’ meeting; and

 

(B) the Non-Employee Director did not previously receive an initial NQSO grant
under Section 8(a) of the Urban Outfitters 2000 Stock Incentive Plan, Section
5(a) of the Urban Outfitters, Inc. 1993 Non-Employee Directors’ Non-Qualified
Stock Option Plan, Section 7(a)(1) of the Urban Outfitters, Inc. 1997 Stock
Option Plan or Section 7(a)(1) of this Plan.

 

(2) Subsequent Grants. On the first business day immediately following each of
the dates on which an incumbent Non-Employee Director is elected or reelected to
the Board by shareholders subsequent to the Company’s 2003 annual shareholders’
meeting, he or she shall automatically be granted an NQSO to purchase 20,000
shares of Common Stock (as adjusted pursuant to Section 12), except that in the
case of the first election or reelection following the date of the Non-Employee
Director’s initial election or appointment to the Board, no grant shall be made
on account of such first election or reelection unless at least six months have
elapsed since such initial election or appointment. The grant under this Section
7(a)(2) shall be in addition to the initial grant pursuant to any plan listed in
Section 7(a)(1)(B).

 

(b) Terms and Conditions of Formula Options. Formula Options granted to
Non-Employee Directors under this Section 7 shall expressly specify that they
are NQSOs. In addition, such NQSOs shall include expressly or by reference the
following terms and conditions, as well as such other provisions not
inconsistent with the provisions of the Plan:

 

(1) Number of Shares. A statement of the number of shares of Common Stock to
which the NQSO pertains.

 

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(2) Price. A statement of the NQSO exercise price, which shall be the higher of
one hundred percent (100%) of the Fair Market Value per share of the Common
Stock, or the par value thereof, on the date the NQSO is granted.

 

(3) Term. Subject to earlier termination as provided in Section 7(b)(5) and
Section 14 below, the term of each NQSO granted under this Section 7 shall be
ten years from the date of grant.

 

(4) Exercise. An NQSO granted under this Section 7 shall be exercisable on the
business day immediately preceding the annual meeting of shareholders next
succeeding the date of grant of such NQSO. Except as otherwise provided in
Section 7(b)(5), below, NQSOs shall only be exercisable by a Non-Employee
Director while he or she remains a director of the Company. Any NQSO shares, the
right to the purchase of which has accrued, may be purchased at any time up to
the expiration or termination of the NQSO. Any exercisable NQSO may be
exercised, in whole or in part, from time to time by giving written notice of
exercise to the Company at its principal office, specifying the number of shares
to be purchased and, except as provided in Section 6(d)(3), accompanied by
payment in full of the aggregate price for such shares. Only full shares shall
be issued, and any fractional shares which might otherwise be issuable upon
exercise of an NQSO granted hereunder shall be forfeited.

 

The NQSO exercise price shall be payable in any of the methods set forth in
Section 6(d)(1) through (4).

 

(5) Termination of Services as a Director. If a Non-Employee Director’s
Termination of Service occurs prior to the expiration date fixed for his or her
NQSO under this Section 7 for any reason (such as, without limitation,
disability, death or failure to be reelected by the Company’s shareholders),
such NQSO may be exercised, to the extent of the number of shares of Common
Stock with respect to which he or she could have exercised it on the date of
such Termination of Service, by the Non-Employee Director at any time prior to
the earlier of:

 

(A) The expiration date of such NQSO; or

 

(B) One year after the date of such Termination of Service.

 

If a Non-Employee Director whose Termination of Service occurs for any reason
other than death shall die following his or her Termination of Service, but
prior to the earlier of (A) or (B) above, such NQSO may be exercised, to the
extent of the number of shares of Common Stock with respect to which he or she
could have exercised it on the date of his or her death at any time prior to the
earlier of:

 

(C) The expiration date fixed for his or her NQSO; or

 

(D) One year after the date of death.

 

In the event of the Non-Employee Director’s legal disability, such NQSO may be
so exercised by his or her legal representative. In the event of the
Non-Employee

 

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Director’s death, such NQSO may be so exercised by the Non-Employee Director’s
estate, personal representative or beneficiary who acquired the right to
exercise such NQSO by bequest or inheritance or by reason of the death of the
Non-Employee Director.

 

SECTION 8 - SARS

 

(a) Nature of SARs. An SAR entitles the Grantee to receive, with respect to each
share of Common Stock as to which the SAR is exercised, the excess of the
share’s Fair Market Value on the date of exercise over its Fair Market Value on
the date the SAR was granted. Such excess shall be paid in cash, shares of
Common Stock, or a combination thereof, as determined by the Administrator.

 

(b) Grant of SARs. SARs may be granted in tandem with, or independently of,
Options granted under the Plan. An SAR granted in tandem with an Option that is
not an ISO may be granted either at or after the time the Option is granted. An
SAR granted in tandem with an ISO may be granted only at the time the Option is
granted.

 

(c) Rules Applicable to Tandem Awards. When SARs are granted in tandem with
Options, the number of SARs granted to a Grantee that shall be exercisable
during a specified period shall not exceed the number of shares of Common Stock
that the Grantee may purchase upon the exercise of the related Option during
such period. Upon the exercise of an Option, the SAR relating to the shares of
Common Stock covered by such Option will terminate. Upon the exercise of an SAR,
the related Option will terminate to the extent of an equal number of shares of
Common Stock. The SAR will be exercisable only at such time or times, and to the
extent, that the related Option is exercisable and will be exercisable in
accordance with the procedure required for exercise of the related Option. The
SAR will be transferable only when the related Option is transferable, and under
the same conditions. An SAR granted in tandem with an ISO may be exercised only
when the Fair Market Value of the shares of Common Stock subject to the Option
exceeds the exercise price of such Option.

 

(d) Exercise of Independent SARs. An SAR not granted in tandem with an Option
shall become exercisable at such time or times, and on such conditions, as the
Administrator may specify in the Award Agreement. The Administrator may at any
time accelerate the time at which all or any part of the SAR may be exercised.
Any exercise of an independent SAR must be in writing, signed by the proper
person, and delivered or mailed to the Company, accompanied by any other
documents required by the Administrator.

 

(e) Termination of Service. If a Grantee’s Termination of Service occurs prior
to the expiration date fixed for his or her SAR, Section 6(f), (g) and (h) shall
be applied to determine the extent to which and the period during which the SAR
may be exercised. For purposes of this Section 8(e), the term “SAR” shall
replace the term “Option” in each place such term appears in Section 6(f), (g)
and (h).

 

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SECTION 9 - RESTRICTED STOCK

 

(a) General Requirements. Restricted Stock may be issued or transferred for
consideration or for no consideration, as determined by the Administrator. If
for consideration, payment may be in cash or check (acceptable to the
Administrator), bank draft, or money order payable to the order of the Company.

 

(b) Rights as a Stockholder. Unless the Administrator determines otherwise, a
Grantee who receives Restricted Stock shall have certain rights of a stockholder
with respect to the Restricted Stock, including voting and dividend rights,
subject to the restrictions described in subsection (c) below and any other
conditions imposed by the Administrator at the time of grant. Unless the
Administrator determines otherwise, certificates evidencing shares of Restricted
Stock will remain in the possession of the Company until such shares are free of
all restrictions under the Plan and the Grantee has satisfied any federal, state
and local tax withholding obligations applicable to such shares.

 

(c) Restrictions. Except as otherwise specifically provided by the Plan,
Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise
encumbered or disposed of, and if the Grantee incurs a Termination of Service
for any reason, must be offered to the Company for purchase for the amount paid
for the shares of Common Stock, or forfeited to the Company if nothing was so
paid. These restrictions will lapse at such time or times, and on such
conditions, as the Administrator may specify in the Award Agreement. Upon the
lapse of all restrictions, shares of Common Stock will cease to be Restricted
Stock for purposes of the Plan. The Administrator may at any time accelerate the
time at which the restrictions on all or any part of the shares of Restricted
Stock will lapse.

 

(d) Notice of Tax Election. Any Grantee making an election under section 83(b)
of the Code for the immediate recognition of income attributable to the award of
Restricted Stock must provide a copy thereof to the Company within 10 days of
the filing of such election with the Internal Revenue Service.

 

SECTION 10 - RSUs

 

(a) Nature of RSUs. An RSU entitles the Grantee to receive, subject to the
restrictions and vesting rules determined by the Administrator, one share of
Common Stock with respect to each RSU granted; any fractional RSU shall be
payable in cash. During the applicable restriction period, the Company shall
establish a bookkeeping account in the Grantee’s name which reflects the number
of RSUs standing to the credit of the Grantee. The Company shall credit to the
Grantee’s bookkeeping account, on each date that the Company pays a cash
dividend to holders of Common Stock generally, an additional number of RSUs
equal to the total number of RSUs credited to the Grantee’s bookkeeping account
on such date, multiplied by the dollar amount of the per share cash dividend,
and divided by the Fair Market Value of a share of Common Stock on such date.
RSUs attributable to such dividend equivalent rights shall be subject to the
same terms and conditions as the RSUs to which such dividend equivalent rights
relate.

 

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(b) Grant of RSUs. The Administrator shall determine:

 

(1) The number of RSUs subject to the Award;

 

(2) The purchase price (if any) to be paid for each RSU;

 

(3) When such RSUs shall vest (i.e., the end of the restriction period); and

 

(4) Any conditions (such as continued employment or performance measures) that
must be met in order for such RSUs to vest at the end of the applicable
restriction period.

 

The Administrator may at any time accelerate the time at which RSUs shall vest.

 

SECTION 11 - AWARD AGREEMENTS — OTHER PROVISIONS

 

Awards granted under the Plan shall be evidenced by Award Agreements in such
form as the Administrator shall from time to time approve, and containing such
provisions not inconsistent with the provisions of the Plan (and, for ISOs, not
inconsistent with section 422(b) of the Code), as the Administrator shall deem
advisable. The Award Agreements shall specify the type of Award granted. Each
Grantee shall enter into, and be bound by, an Award Agreement as soon as
practicable after the grant of an Award.

 

SECTION 12 - ADJUSTMENT IN CASE OF CHANGES IN COMMON STOCK

 

The following shall be adjusted, as may be deemed appropriate by the Committee,
to reflect any stock dividend, stock split, spin-off, share combination, or
similar change in the capitalization of the Company:

 

(a) The maximum number and type of shares under the limits set forth in Section
4 (regarding shares available under the Plan, shares subject to grants to
Employees in any calendar year and shares available for Restricted Stock and
RSUs);

 

(b) The number and type of shares subject to a formula NQSO to be granted to a
Non-Employee Director under Section 7; and/or

 

(c) The number and type of shares issuable upon exercise or vesting of
outstanding Awards under the Plan (as well as the option price per share under
such outstanding Awards); provided, however, that no such adjustment shall be
made to an outstanding ISO if such adjustment would constitute a modification
under section 424(h) of the Code, unless the Grantee consents to such
adjustment.

 

In the event any such change in capitalization cannot be reflected in a straight
mathematical adjustment of the number of shares issuable upon the exercise or
vesting of outstanding Awards (and a straight mathematical adjustment of the
exercise price thereof), the Committee shall make such adjustments as are
appropriate to reflect most nearly such straight mathematical adjustment. Such
adjustments shall be made only as necessary to maintain the proportionate
interest of Grantees, and preserve, without exceeding, the value of Awards. Any
adjustments authorized by the Committee under Section 12(b) shall be subject to
approval by the Board.

 

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SECTION 13 - CHANGE IN CONTROL

 

(a) Full Vesting. Notwithstanding any other provision of this Plan, all
outstanding Awards shall become fully vested and exercisable upon a Change in
Control; provided, however, that this Section 13 shall not increase the extent
to which an Award is vested or exercisable if the Grantee’s Termination of
Service occurs prior to the Change in Control.

 

(b) Definitions.

 

(1) For purposes of this Plan, a “Change in Control” with respect to the Company
shall mean any of the following events:

 

(A) a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation resulting in the voting power of the securities
(as described in clause (D) below) of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting stock of the surviving entity) more than a majority of the
combined voting power of the securities of the Company (or such surviving
entity) outstanding immediately after such merger of consolidation;

 

(B) any sale, lease, exchange, or other transfer (in one transaction or in a
series of related transactions) of all, or substantially all, of the assets of
the Company;

 

(C) the dissolution and liquidation of the Company; or

 

(D) any person or “group” (other than a benefit plan sponsored by either the
Company or a subsidiary of the Company and other than Richard A. Hayne or his
estate, personal representative or the beneficiaries under his will), becoming
after February 24, 2004 the “beneficial owner,” directly or indirectly, of
securities representing a majority of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from the rights
accruing under special circumstances) having the right to vote in the election
of directors (calculated as provided in paragraph (d) of Rule 13d-3 in the case
of rights to acquire such securities).

 

(2) For purposes hereof, the terms “group” and “beneficial owner” shall have the
meanings given to them in Rule 13d-3; and Rule 13d-3 shall mean Rule 13d-3 of
the Securities and Exchange Commission promulgated under the Exchange Act.

 

SECTION 14 - CERTAIN CORPORATE TRANSACTIONS

 

In the event of a corporate transaction (such as, for example, a merger,
consolidation, acquisition of property or stock, separation, reorganization, or
liquidation), the surviving or successor corporation shall assume each
outstanding Award or substitute a new award of the same type for each
outstanding Award; provided, however, that, in the event of a proposed corporate
transaction, the Committee may terminate all or a portion of the outstanding
Awards, effective upon the closing of the corporate transaction, if it
determines that such

 

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termination is in the best interests of the Company. If the Committee decides so
to terminate outstanding Options and SARs, the Committee shall give each Grantee
holding an Option or SAR to be terminated not fewer than seven days’ notice
prior to any such termination, and any Option or SAR which is to be so
terminated may be exercised (if and only to the extent that it is then
exercisable under the terms of the Award Agreement and Section 13) up to, and
including the date immediately preceding such termination. Further, as provided
in Sections 6(d), 8(d), 9(c) and 10(b) hereof, the Administrator, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Awards become exercisable or vested (to the extent such Award is not fully
exercisable or vested pursuant to the Award Agreement or Section 13).

 

The Committee also may, in its discretion, change the terms of any outstanding
Award to reflect any such corporate transaction, provided that, in the case of
ISOs, such change would not constitute a “modification” under section 424(h) of
the Code, unless the Grantee consents to the change.

 

Notwithstanding the foregoing, in the event of a corporate transaction (as
described above) in which holders of Common Stock are to receive cash,
securities or other property, and provision is not made for the continuance and
substitution or assumption of formula NQSOs granted to Non-Employee Directors
under Section 7, all such outstanding NQSOs shall terminate as of the last
business day immediately preceding the closing date of such corporate
transaction and the Company shall pay to each Non-Employee Director an amount in
cash with respect to each share to which a terminated NQSO pertains equal to the
difference between the NQSO exercise price and the value of the consideration to
be received by the holders of Common Stock in connection with such transaction.

 

SECTION 15 - AMENDMENT OF THE PLAN AND OUTSTANDING AWARDS

 

(a) In General. The Board, pursuant to resolution, may amend or suspend the
Plan, and, except as provided below, the Administrator may amend an outstanding
Award in any respect whatsoever; except that the following amendments shall
require the approval of shareholders (given in the manner set forth in
subsection (b) below) —

 

(1) a change in the class of employees eligible to participate in the Plan with
respect to ISOs;

 

(2) except as permitted under Section 12 hereof, an increase in the maximum
number of shares of Common Stock with respect to which ISOs may be granted under
the Plan;

 

(3) an extension of the date, under Section 16 hereof, as of which no ISOs shall
be granted hereunder;

 

(4) a modification of the material terms of the “performance goal,” within the
meaning of Treas. Reg. § 1.162-27(e)(4)(vi) or any successor thereto (to the
extent compliance with section 162(m) of the Code is desired); and

 

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(5) any amendment for which shareholder approval is required under the rules of
the exchange or market on which the Common Stock is listed or traded.

 

If the Fair Market Value of Common Stock subject to an Option or SAR has
declined since the Option or SAR was granted, the Committee, in its sole
discretion, may reduce the exercise price of any (or all) such Option(s) or
SAR(s), or cancel any (or all) such Option(s) or SAR(s) in exchange for cash or
the grant of new Awards. Except as provided in Section 14, no amendment or
suspension shall alter or impair any outstanding Awards or cause the
modification (within the meaning of section 424(h) of the Code) of an ISO,
without the consent of the Grantee affected thereby.

 

(b) Manner of Shareholder Approval. The approval of shareholders must comply
with all applicable provisions of the corporate charter and bylaws of the
Company, and applicable state law prescribing the method and degree of
shareholder approval required for the issuance of corporate stock or options. If
the applicable state law does not prescribe a method and degree of shareholder
approval in such case, the approval of shareholders must be effected —

 

(1) by a method and in a degree that would be treated as adequate under
applicable state law in the case of an action requiring shareholder approval
(i.e., an action on which shareholders would be entitled to vote if the action
were taken at a duly held shareholders’ meeting); or

 

(2) by a majority of the votes cast at a duly held shareholders’ meeting at
which a quorum representing a majority of all outstanding voting stock is,
either in person or by proxy, present and voting on the Plan.

 

(c) Amendments Affecting Formula Awards to Non-Employee Directors.
Notwithstanding the foregoing, no amendment to any provision of the Plan that
would affect NQSOs to be awarded to Non-Employee Directors under Section 7 shall
be made if such amendment would cause the terms and conditions of grants made
under Section 7 to fail to be fixed in advance, within the meaning of Securities
and Exchange Commission interpretations under section 16(b) of the Exchange Act.

 

SECTION 16 - TERMINATION OF PLAN; CESSATION OF ISO GRANTS

 

The Board, pursuant to resolution, may terminate the Plan at any time and for
any reason. No ISOs shall be granted hereunder after February 23, 2014, which
date is within 10 years after the date the Plan was adopted by the Board, or the
date the Plan was approved by the shareholders of the Company, whichever is
earlier. Nothing contained in this Section, however, shall terminate or affect
the continued existence of rights created under Awards granted hereunder, and
outstanding on the date the Plan is terminated, which by their terms extend
beyond such date.

 

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SECTION 17 - SHAREHOLDER APPROVAL

 

This Plan shall become effective on February 24, 2004 (the date the Plan was
adopted by the Board); provided, however, that if the Plan is not approved by
the shareholders, in the manner described in Section 15(b) hereof, within 12
months before or after the date the Plan was adopted by the Board, the Plan and
all Awards granted hereunder shall be null and void and no additional Awards
shall be granted hereunder.

 

SECTION 18 - MISCELLANEOUS

 

(a) Rights. Neither the adoption of the Plan nor any action of the Board or the
Administrator shall be deemed to give any individual any right to be granted an
Award, or any other right hereunder, unless and until the Administrator shall
have granted such individual an Award, and then his or her rights shall be only
such as are provided in the Award Agreement. Notwithstanding any provisions of
the Plan or the Award Agreement with an Employee, the Company and any Related
Corporation shall have the right, in its discretion but subject to any
employment contract entered into with the Employee, to retire the Employee at
any time pursuant to its retirement rules or otherwise to terminate his or her
employment at any time for any reason whatsoever, or for no reason. A Grantee
shall have no rights as a shareholder with respect to any shares covered by his
or her Award until the issuance of a stock certificate to him or her for such
shares, except as otherwise provided under Section 9(b) (regarding Restricted
Stock).

 

(b) Indemnification of Board and Committee. Without limiting any other rights of
indemnification which they may have from the Company and any Related
Corporation, the members of the Board and the members of the Committee shall be
indemnified by the Company against all costs and expenses reasonably incurred by
them in connection with any claim, action, suit, or proceeding to which they or
any of them may be a party by reason of any action taken or failure to act
under, or in connection with, the Plan, or any Award granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit, or proceeding, except a
judgment based upon a finding of willful misconduct or recklessness on their
part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing,
giving the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his or her
own behalf. The provisions of this Section shall not give members of the Board
or the Committee greater rights than they would have under the Company’s by-laws
or Pennsylvania law.

 

(c) Transferability; Registration. No ISO, Restricted Stock or RSU shall be
assignable or transferable by the Grantee other than by will or by the laws of
descent and distribution. During the lifetime of the Grantee, an ISO shall be
exercisable only by the Grantee or, in the event of the Grantee’s legal
disability, by the Grantee’s guardian or legal representative.

 

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Except as provided in a Grantee’s Award Agreement, such limits on assignment,
transfer and exercise shall also apply to discretionary NQSOs granted under
Section 6 and SARs granted under Section 8.

 

A Non-Employee Director may transfer an NQSO granted under Section 7 for no
consideration to (1) the Non-Employee Director’s child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, and
sister-in-law, including adoptive relationships, and any person sharing the
Non-Employee Director’s household (other than a tenant or employee) (“Permitted
Transferees”), (2) a trust in which one or more Permitted Transferees in the
aggregate have more than 50% of the beneficial interest, (3) a foundation in
which one or more Permitted Transferees (and the Non-Employee Director) in the
aggregate control the management of assets, and (4) any other entity in which
one or more Permitted Transferees (and the Non-Employee Director) in the
aggregate own more than 50% of the voting interests. Except as provided in the
preceding sentence, or by will or the laws of descent and distribution, formula
NQSOs granted under Section 7 shall not be assignable or transferable by the
Non-Employee Director, and during the lifetime of the Non-Employee Director, the
NQSO shall be exercisable only by the Non-Employee Director or by his guardian
or legal representative. Any formula NQSO transferred by a Non-Employee Director
shall not be assignable or transferable by the transferee.

 

If the Grantee so requests at the time of exercise of an Option or an SAR, or at
the time of grant of Restricted Stock or vesting of an RSU, the certificate(s)
shall be registered in the name of the Grantee and the Grantee’s spouse jointly,
with right of survivorship.

 

(d) Deferrals. The Committee may permit or require Grantees to defer receipt of
any Common Stock issuable upon exercise of an Option or the lapse of the
restriction period applicable to Restricted Stock or RSUs, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred Common Stock equivalents.

 

(e) Listing and Registration of Shares. Each Award shall be subject to the
requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration, or qualification of the shares of
Common Stock covered thereby upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Award or the purchase of shares of Common Stock thereunder, or that action
by the Company, its shareholders, or the Grantee should be taken in order to
obtain an exemption from any such requirement or to continue any such listing,
registration, or qualification, no such Award may be exercised, in whole or in
part, and no Restricted Stock or RSU may be awarded, unless and until such
listing, registration, qualification, consent, approval, or action shall have
been effected, obtained, or taken under conditions acceptable to the Committee.
Without limiting the generality of the foregoing, each Grantee or his or her
legal representative or beneficiary may also be required to give satisfactory
assurance that such person is an eligible purchaser under applicable securities
laws, and that the shares purchased or granted pursuant to the Award shall be
for investment purposes and not with a view to distribution; certificates
representing such shares may be legended accordingly.

 

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(f) Withholding and Use of Shares to Satisfy Tax Obligations. The obligation of
the Company to deliver shares of Common Stock upon the exercise of any Award or
upon the vesting of Restricted Stock or RSU shall be subject to applicable
federal, state, and local tax withholding requirements.

 

If the exercise of any Award or the vesting of Restricted Stock or RSU is
subject to the withholding requirements of applicable federal, state or local
tax law, the Administrator, in its (or his) discretion, may permit or require
the Grantee to satisfy the federal, state and/or local withholding tax, in whole
or in part, by electing to have the Company withhold shares of Common Stock (or
by returning previously acquired shares of Common Stock to the Company);
provided, however, that the Company may limit the number of shares withheld to
satisfy the tax withholding requirements with respect to any Option to the
extent necessary to avoid adverse accounting consequences. Shares of Common
Stock shall be valued, for purposes of this subsection, at their Fair Market
Value (determined as of the date the amount attributable to the exercise or
vesting of the Award is includible in income by the Grantee under section 83 of
the Code (the “Determination Date”)).

 

The Committee shall adopt such withholding rules as it deems necessary to carry
out the provisions of this subsection.

 

(g) Application of Funds. Any cash received in payment for shares pursuant to an
Award shall be added to the general funds of the Company. Any Common Stock
received in payment for shares shall become treasury stock.

 

(h) No Obligation to Exercise Award. The granting of an Award shall impose no
obligation upon a Grantee to exercise such Award.

 

(i) Governing Law. The Plan shall be governed by the applicable Code provisions
to the maximum extent possible. Otherwise, the laws of the Commonwealth of
Pennsylvania (without reference to principles of conflicts of laws) shall govern
the operation of, and the rights of Grantees under, the Plan, and Awards granted
thereunder.

 

(j) Unfunded Plan. The Plan, insofar as it provides for Awards, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by Awards under the Plan. Any liability of the
Company to any person with respect to any Award under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to the
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.

 

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