Exhibit 10.1

 

FLOW INTERNATIONAL CORPORATION

 

2005 EQUITY INCENTIVE PLAN

 

1. Purposes of the Plan. The purposes of this Plan are to further the growth,
development and financial success of the Company by attracting and retaining the
most talented Employees, Consultants and Directors available, and by aligning
the long-term interests of Employees, Consultants and Directors with those of
the shareholders by providing an opportunity to acquire an ownership interest in
the Company and by providing both performance rewards and long term incentives
for future contributions to the success of the Company.

 

The Plan permits the grant of Incentive Stock Options, Nonqualified Stock
Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, or
cash awards, at the discretion of the Committee and as reflected in the terms of
the Award Agreement. Each Award will be subject to conditions specified in the
Plan, such as continued employment or satisfaction of performance criteria, as
well as any conditions specified in the Award Agreement.

 

This Plan will serve as a framework for the Committee to establish sub-plans or
procedures governing the grants to Employees, Directors, Consultants and
Employees working for the Company outside of the United States. The options
granted under the Former Plan shall continue to be administered under the Former
Plan until such time as those options are exercised, expire or become
unexercisable for any reason.

 

2. Definitions. As used herein, the following definitions shall apply:

 

(a) “Award” shall mean any award or benefits granted under the Plan, including
Options, Shares, Restricted Stock, Restricted Stock Units, SARs and cash.

 

(b) “Award Agreement” shall mean a written or electronic agreement between the
Company and the Participant setting forth the terms of the Award.

 

(c) “Beneficial Ownership” shall have the meaning set forth in Rule 13d-3
promulgated under the Exchange Act.

 

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

 

(e) “Change in Control” shall mean any of the following: (1) Approval by the
holders of the Company’s Common Stock of any merger or consolidation of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of common stock are converted into cash, securities or
other property, other than a merger of the Company in which the holders of the
Common Stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger; (2) Approval by the holders of the common stock of any sale,
lease, exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company’s assets other than a
transfer of the Company’s assets to a majority-owned subsidiary of the Company;
or (3) Approval by the holders of the Common Stock of any plan or proposal for
the liquidation or dissolution of the Company.

 

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

 

(g) “Committee” shall mean the Compensation and Plan Administrator Committee of
the Board, which at all times shall consist of two (2) or more members of the
Board, each of whom must qualify as an Independent Director.

 

(h) “Common Stock” shall mean the common stock of the Company, $0.01 par value
per share.

 

(i) “Company” shall mean Flow International Corporation., a Washington
corporation and any successor thereto.

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(j) “Consultant” shall mean any person, except an Employee, engaged by the
Company or any Subsidiary of the Company, to render personal services to such
entity, including as an advisor, pursuant to the terms of a written agreement.

 

(k) “Continuous Status as a Participant” shall mean (i) for Employees, the
absence of any interruption or termination of service as an Employee, (ii) for
Directors, the absence of any interruption or termination of service as a
Director, and (iii) for Consultants, the absence of any interruption,
expiration, or termination of such person’s consulting or advisory relationship
with the Company or the occurrence of any termination event as set forth in such
person’s Award Agreement. Continuous Status as a Participant shall not be
considered interrupted (A) for an Employee on leave under any recognized form of
leave under policies of the Company or any applicable Subsidiary as may be in
effect from time to time, and (B) for a Consultant, in the case of any temporary
interruption in such person’s availability to provide services to the Company
which has been authorized in writing by a vice president of the Company prior to
its commencement.

 

(l) “Director” shall mean a member of the Board.

 

(m) “Disability” shall mean (i) in the case of a Participant whose employment
with the Company or a Subsidiary is subject to the terms of an employment or
consulting agreement that includes a definition of “Disability” as used in this
Plan shall have the meaning set forth in such employment or consulting agreement
during the period that such employment or consulting agreement remains in
effect; and (ii) in all other cases, the term “Disability” as used in this Plan
shall mean a “permanent and total disability” as the term is defined for
purposes of Section 22(e)(3) of the Code.

 

(n) “Effective Date” shall mean the date on which the Company’s shareholders
have approved this Plan in accordance with applicable NASDAQ rules.

 

(o) “Employee” shall mean any person, including an officer, who is a common law
employee of, receives remuneration for personal services to, is reflected on the
official human resources database as an employee of, and is on the payroll of
the Company or any Subsidiary of the Company. A person is on the payroll if he
or she is paid from or at the direction of the payroll department of the
Company, or any Subsidiary of the Company. Persons providing services to the
Company, or to any Subsidiary of the Company, pursuant to an agreement with a
staff leasing organization, temporary workers engaged through or employed by
temporary or leasing agencies, and workers who hold themselves out to the
Company, or a Subsidiary to which they are providing services as being
independent contractors, or as being employed by or engaged through another
company while providing the services, and persons covered by a collective
bargaining agreement (unless the collective bargaining agreement applicable to
the person specifically provides for participation in this Plan) are not
Employees for purposes of this Plan and do not and cannot participate in this
Plan, whether or not such persons are, or may be reclassified by the courts, the
Internal Revenue Service, the U. S. Department of Labor, or other person or
entity, as common law employees of the Company, or any Subsidiary, either solely
or jointly with another person or entity.

 

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

 

(q) “Executive Officers” shall mean the officers of the Company as such term is
defined in Rule 16a-1 under the Exchange Act.

 

(r) “Fair Market Value” shall mean the closing price per share of the Common
Stock on the Nasdaq National Market or the Nasdaq SmallCap Market as to the date
specified (or the previous trading day if the date specified is a day on which
no trading occurred), or if the Nasdaq National Market or the Nasdaq SmallCap
Market shall cease to be the principal exchange or quotation system upon which
the shares of Common Stock are listed or quoted, then such exchange or quotation
system as the Company elects to list or quote its shares of Common Stock and
that the Committee designates as the Company’s principal exchange or quotation
system.

 

(s) “Former Plan” shall mean the 1995 Long-Term Incentive Compensation Plan.

 

(t) “Incentive Stock Option” shall mean any Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

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(u) “Independent Director” shall mean a Director who: (1) meets the independence
requirements set forth in NASD Rule 4200(a)(15), or any successor rule, as in
effect from time to time; (2) qualifies as an “outside director” under
Section 162(m) of the Code and the Treasury Regulations promulgated thereunder;
(3) qualifies as a “non-employee director” under Rule 16b-3 promulgated under
the Exchange Act; and (4) satisfies independence criteria under any other
applicable laws or regulations relating to the issuance of Shares to Employees.

 

(v) “Maximum Annual Cash Award” shall have the meaning set forth in Section 10.

 

(w) “Maximum Annual Participant Stock Award” shall have the meaning set forth in
Section 6(b).

 

(x) “Non-Employee Director” shall mean a Director who is not an Employee.

 

(y) “Nonqualified Stock Option” shall mean an Option that is not an Incentive
Stock Option.

 

(z) “Option” shall mean a stock option granted pursuant to Section 7 of the
Plan.

 

(aa) “Option Price” shall mean the per share purchase price of a Share purchased
pursuant to an Option.

 

(bb) “Parent” shall mean a “parent corporation,” whether now or hereafter
existing, as defined in Section 424(e) of the Code.

 

(cc) “Participant” shall mean an Employee, Director or Consultant.

 

(dd) “Performance Criteria” shall have the meaning set forth in Section 8(c).

 

(ee) “Plan” shall mean this Flow International Corporation 2005 Equity Incentive
Plan, including any amendments thereto.

 

(ff) “Reprice” shall mean the adjustment or amendment of the exercise price of
Options or SARs previously awarded whether through amendment, cancellation,
replacement of grants or any other means.

 

(gg) “Restricted Stock” shall mean a grant of Shares pursuant to Section 8 of
the Plan.

 

(hh) “Restricted Stock Units” shall mean a grant of the right to receive Shares
in the future or their cash equivalent (or both) pursuant to Section 8 of the
Plan.

 

(ii) “SAR” shall mean a stock appreciation right awarded pursuant to Section 9
of the Plan.

 

(jj) “SEC” shall mean the Securities and Exchange Commission.

 

(kk) “Share” shall mean one share of Common Stock, as adjusted in accordance
with Section 4 of the Plan.

 

(ll) “Stand-Alone SARs” shall have the meaning set forth in Section 9(c) of the
Plan.

 

(mm) “Subcommittee” shall have the meaning set forth in Section 5(d).

 

(nn) “Subsidiary” shall mean (1) in the case of an Incentive Stock Option a
“subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code, and (2) in the case of a Nonqualified Stock Option,
Restricted Stock, a Restricted Stock Unit or a SAR, in addition to a subsidiary
corporation as defined in (1), (A) a limited liability company, partnership or
other entity in which the Company controls fifty percent (50%) or more of the
voting power or equity interests, or (B) an entity with respect to which the
Company possesses the power, directly or indirectly, to direct or cause the
direction of the management and policies of that entity, whether through the
Company’s ownership of voting securities, by contract or otherwise.

 

(oo) “Tandem SARs” shall have the meaning set forth in Section 9(a) of the Plan.

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(pp) “Ten Percent Shareholder” shall mean a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock comprising more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary.

 

3. Shares Subject to the Plan.

 

(a) Reservation of Shares. The shares of Common Stock reserved under this Plan
will include reserved shares of Common Stock that are not subject to a grant or
as to which the option award granted has been forfeited under the Former Plan,
and an additional One Million Seven Hundred Thousand (1,700,000) Shares of
Common Stock. Subject to the provisions of Section 4, the maximum aggregate
number of Shares which may be awarded and delivered under the Plan shall not
exceed Two Million Five Hundred Thousand (2,500,000) Shares (adjusted,
proportionately, in the event of any stock split or stock dividend with respect
to the Shares), and the maximum number which may be granted as Incentive Stock
Options under the Plan shall not exceed One Million (1,000,000) Shares. The
Company, during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan. Shares available for issuance under the Plan shall be
increased by any shares of Common Stock subject to outstanding awards under the
Former Plan on the date of shareholder approval of the Plan that later cease to
be subject to such awards for any reason other than such awards having been
exercised, subject to adjustment from time to time as provided in Section 5,
which shares of Common Stock shall, as of the date such shares cease to be
subject to such awards, cease to be available for grant and issuance under the
Former Plan, but shall be available for issuance under the Plan. The number of
shares of Common Stock underlying an Award not issued as a result of any of the
following actions shall again be available for issuance under the Plan: (i) a
payout of a Stand-Alone SAR, or a performance-based award of Restricted Stock or
Restricted Stock Units in the form of cash; (ii) a cancellation, termination,
expiration, forfeiture, or lapse for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Options, or the
termination of a related Option upon exercise of the corresponding Tandem SAR)
of any Stock Award; or (iii) payment of the Option exercise price and/or payment
of any taxes arising upon exercise of the Option by withholding shares of Common
Stock which otherwise would be acquired on exercise or issued upon such payout.
The Shares may be authorized but unissued, or reacquired shares of Common Stock.

 

(b) Substitutions and Assumptions. The Board or the Committee shall have the
right to substitute or assume Awards in connection with mergers,
reorganizations, separations, or other transactions to which Section 424(a) of
the Code applies, provided such substitutions and assumptions are permitted by
Section 424 of the Code and the regulations promulgated thereunder. The number
of Shares reserved pursuant to Section 3(a) (but not the maximum number of
Shares which may be granted as Incentive Stock Options under the Plan) may be
increased by a corresponding number of Awards assumed and, in the case of
substitution, by the net increase in the number of Shares subject to Awards
before and after the substitution.

 

(c) Securities Law Compliance. Shares shall not be issued pursuant to the
exercise of an Award unless the exercise of such Award and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated under either
such Act, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.

 

4. Adjustments to Shares Subject to the Plan.

 

(a) Capitalization Adjustments. If any change is made to the Shares by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Shares as a class
without the Company’s receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities and/or the price per Share
covered by outstanding Awards under the Plan, (iii) the Maximum Annual
Participant Stock Award and (iv) the maximum number of Shares which may be
granted as Incentive Stock Options under the Plan. The Committee may also make
adjustments described in (i)-(iv) of the previous sentence in the event of any
distribution of assets to shareholders other than a normal cash dividend. In
determining adjustments to be made under this Section 4, the Committee may take
into account such factors as it deems appropriate, including the restrictions of
applicable law and the potential tax consequences of an

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adjustment, and in light of such factors may make adjustments that are not
uniform or proportionate among outstanding Awards. Adjustments, if any, and any
determinations or interpretations, including any determination of whether a
distribution is other than a normal cash dividend, made by the Committee shall
be final, binding and conclusive. The Committee in its discretion may provide
holders of Restricted Stock or Restricted Stock Units a dividend equivalent
right with respect to the Shares the Participant shall be entitled to receive or
purchase. For purposes of this Section 4, conversion of any convertible
securities of the Company shall not be deemed to have been “effected without
receipt of consideration.”

 

(b) Change in Control. In the event of Change in Control, then, to the extent
permitted by applicable law: (1) any surviving corporation may assume any Awards
outstanding under the Plan or may substitute similar stock awards (including an
award to acquire the same consideration paid to the shareholders in the
transaction described in this Section 4(b)) for those outstanding under the
Plan, or (2) in the event any surviving corporation does not agree to assume or
continue such Awards, or to substitute similar stock awards for those
outstanding under the Plan in accordance with the preceding clause, then the
time during which such Awards may be exercised automatically will be accelerated
and become fully vested and exercisable immediately prior to the consummation of
such transaction, and the Awards shall automatically terminate upon consummation
of such transaction if not exercised prior to such event.

 

(c) No Limitations. Except as expressly provided herein, no issuance by the
Company of shares of any class, or securities convertible into shares of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Award.

 

5. Plan Administration.

 

(a) Authority. The Plan shall be administered by the Committee. The Committee
shall have full and exclusive power to administer the Plan on behalf of the
Board, subject to such terms and conditions as the Committee may prescribe.
Notwithstanding anything herein to the contrary, the Committee’s power to
administer the Plan, and actions the Committee takes under the Plan, shall be
consistent with the provisions set forth in the Committee’s charter, as such
charter may be amended from time to time.

 

(b) Powers of the Committee. Subject to the other provisions of this Plan, the
Committee shall have the authority, in its discretion:

 

(i) to grant Incentive Stock Options, Nonqualified Stock Options, Shares,
Restricted Stock, Restricted Stock Units, cash awards and SARs to Participants
and to determine the terms and conditions of such Awards, including the
determination of the Fair Market Value of the Shares and the exercise price
(subject to Section 7(b)), and to modify or amend each Award, with the consent
of the Participant when required;

 

(ii) to determine the Participants to whom Awards, if any, will be granted
hereunder, additional eligibility requirements for such awards, the timing of
such Awards, and the number of Shares (if any) to be represented by each Award;

 

(iii) to construe and interpret the Plan, the Awards granted hereunder, and any
Award Agreement;

 

(iv) to prescribe, amend, and rescind rules and regulations relating to the
Plan, including the form of Award Agreement, and manner of acceptance of an
Award, such as correcting a defect or supplying any omission, or reconciling any
inconsistency so that the Plan or any Award Agreement complies with applicable
law, regulations and listing requirements and to avoid unanticipated
consequences deemed by the Committee to be inconsistent with the purposes of the
Plan or any Award Agreement;

 

(v) to establish performance, conduct and other criteria for Awards made
pursuant to the Plan in accordance with a methodology established by the
Committee, and to determine whether performance, conduct and other goals have
been attained;

 

(vi) to accelerate or defer (with the consent of the Participant) the exercise
or vested date of any Award;

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(vii) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Award previously granted by the
Committee;

 

(viii) to establish subplans, procedures or guidelines for the grant of Awards
to Employees, Directors and Consultants;

 

(ix) to determine eligibility for an Award and to authorize the cancellation,
forfeiture or suspension of an Award; and

 

(x) to make all other determinations deemed necessary or advisable for the
administration of the Plan;

 

Provided that, no consent of a Participant is necessary under clauses (i) or
(vi) if a modification, amendment, acceleration, or deferral, in the reasonable
judgment of the Committee confers a benefit on the Participant or is made
pursuant to an adjustment in accordance with Section 4. Furthermore, with
respect to outstanding Awards granted to a Participant who violates any legal
obligation owed to the Company, including contractual obligations, or who
otherwise acts in a manner detrimental to the Company’s interests, the Committee
has the authority to cancel any such outstanding Awards as of the date such
violation is discovered and to have the Participant return any gains realized
with respect to such Awards in the twelve months prior to the violation.

 

(c) Effect of Committee’s Decision. All decisions, determinations, and
interpretations of the Committee shall be final, conclusive and binding on all
Participants, the Company, any shareholder and all other persons.

 

(d) Delegation and Administration. Consistent with the Committee’s charter, as
such charter may be amended from time to time, the Committee may delegate to one
or more subcommittees consisting of members of the Committee or other Directors
who are Independent Directors (any such committee a “Subcommittee”) the
administration of the Plan, and such administrator(s) may have the authority to
directly, or under their supervision, execute and distribute agreements or other
documents evidencing or relating to Awards granted by the Committee under this
Plan, to maintain records relating to the grant, vesting, exercise, forfeiture
or expiration of Awards, to process or oversee the issuance of Shares upon the
exercise, vesting and/or settlement of an Award, to interpret the terms of
Awards and to take such other actions as the Committee may specify. Any action
by any such Subcommittee within the scope of such delegation shall be deemed for
all purposes to have been taken by the Committee.

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6. General Eligibility.

 

(a) Awards. Awards may be granted to Participants, provided that additional
eligibility requirements may be set forth in specific arrangements that limit or
narrow the category of Participants, and further provided that Incentive Stock
Options may only granted to Employees. A Consultant shall not be eligible for
the grant of an Award (other than a cash award) if, at the time of grant, a Form
S-8 Registration Statement under the Securities Act (“Form S-8”) is not
available to register either the offer or the sale of the Company’s securities
to such Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (1) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(2) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.
Form S-8 generally is available to consultants and advisors only if (I) they are
natural persons, (II) they provide bona fide services to the issuer, its
parents, its majority-owned subsidiaries or majority-owned subsidiaries of the
issuer’s parent, and (III) the services are not in connection with the offer or
sale of securities in a capital-raising transaction, and do not directly or
indirectly promote or maintain a market for the issuer’s securities.

 

(b) Maximum Annual Participant Stock Award. The aggregate number of Shares with
respect to which an Award or Awards may be granted to any one Participant in any
one fiscal year of the Company (the “Maximum Annual Participant Stock Award”)
shall not exceed one million (1,000,000) shares of Common Stock (adjusted,
proportionately, in the event of any stock split or stock dividend with respect
to the Shares). If an Option is in tandem with a SAR, such that the exercise of
the Option or SAR with respect to a Share cancels the tandem SAR or Option
right, respectively, with respect to each Share, the tandem Option and SAR
rights with respect to each Share shall be counted as covering but one Share for
purposes of the Maximum Annual Participant Stock Award. If the number of Shares
that will be issued under an Award depends upon the performance of the Company
or the individual receiving the Award, then for purposes of applying the Maximum
Annual Participant Stock Award, the number of Shares considered granted under
the Award shall be the maximum number of shares that the individual could
receive under the Award, and those Shares shall be considered granted at the
beginning of the performance period over which the Award is earned, not during
or after the end of the performance period when the amount of Shares actually
earned by the Participant is determined and Shares are issued to the
Participant. However, for purposes of Section 3, only the number of Shares
actually issued to the Participant, and not the maximum potential number of
Shares that could have been earned by and issued to the Participant under the
Award, will count against the reserve amount. This one million (1,000,000) Share
maximum per Company fiscal year is in addition to (and not reduced by) cash
incentives awarded pursuant to Section 10 or Shares granted in satisfaction of
such cash Awards. The Maximum Annual Participant Stock Award limit shall only
apply to awards made after April 30, 2005.

 

(c) No Employment/Service Rights. Nothing in the Plan shall confer upon any
Participant the right to an Award or to continue in service as an Employee or
Consultant for any period of specific duration, or interfere with or otherwise
restrict in any way the rights of the Company (or any Subsidiary employing or
retaining such person), or of any Participant, which rights are hereby expressly
reserved by each, to terminate such person’s services at any time for any
reason, with or without cause (as such term is defined in a Company subplan or
an Award Agreement, as applicable).

 

7. Grant, Terms and Conditions of Options.

 

(a) Designation. Each Option shall be designated in an Award Agreement as either
an Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding the foregoing, if an Option is not designated as an Incentive
Stock Option, such Option will be deemed to be a Nonqualified Stock Option. To
the extent that the aggregate Fair Market Value (determined at the time of
grant) of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Employee during any calendar
year exceeds $100,000, such excess Options shall be treated as Nonqualified
Stock Options. For this purpose, Options shall be taken into account in the
order in which they were granted.

 

(b) Option Price. The per Share exercise price under an Incentive Stock Option
(i) granted to a Ten Percent Shareholder, shall be no less than 110% of the Fair
Market Value per Share on the date of grant, or (ii)

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granted to any other Participant, shall be no less than 100% of the Fair Market
Value per Share on the date of grant. The per Share exercise price under a
Nonqualified Stock Option or SAR shall be no less than one hundred percent
(100%) of the Fair Market Value per Share on the date of grant. In no event
shall the Board or the Committee be permitted to Reprice an Option after the
date of grant.

 

(c) Term of Options. The term of each Incentive Stock Option shall be no more
than ten (10) years from the date of grant. However, in the case of an Incentive
Stock Option granted to a Ten Percent Shareholder, the term of the Option shall
be no more than five (5) years from the date of grant. The term of all
Nonqualified Options shall be seven (7) years unless otherwise provided by the
Committee in its discretion.

 

(d) Vesting. To the extent Options vest and become exercisable in increments,
unless otherwise provided in the applicable Award Agreement or any severance
agreement (i) such Options shall cease to vest upon a Participant’s Disability
or termination of such Participant’s Continuous Status as a Participant (other
than upon a Participant’s death), and (ii) such Options shall immediately vest
in full upon a Participant’s death.

 

(e) Substitution of SARs for Options. The Committee may provide in the Award
Agreement evidencing the grant of an Option that the Committee shall have the
sole discretion to substitute without receiving Participants’ permission, SARs
paid only in stock for outstanding Options; provided, the terms of the
substituted stock SARs are the same as the terms of the Options, the number of
shares underlying the number of stock SARs equals the number of shares
underlying the Options and the difference between the Fair Market Value of the
underlying Shares and the grant price of the SARs is equivalent to the
difference between the Fair Market Value of the underlying Shares and the
exercise price of the Options.

 

(f) Exercise. Any Option granted hereunder shall be exercisable at such times
and under such conditions as determined by the Committee at the time of grant,
and as shall be permissible under the terms of the Plan. No fractional Shares
may be issued or delivered pursuant to the Plan or any Award.

 

8. Grant, Terms and Conditions of Stock Awards.

 

(a) Designation. Restricted Stock or Restricted Stock Units may be granted under
the Plan. Restricted Stock or Restricted Stock Units may include a dividend
equivalent right, as permitted by Section 4. After the Committee determines that
it will offer Restricted Stock or Restricted Stock Units, it will advise the
Participant in writing or electronically, by means of an Award Agreement, of the
terms, conditions and restrictions, including vesting, if any, related to the
offer, including the number of Shares that the Participant shall be entitled to
receive or purchase, the price to be paid, if any, and, if applicable, the time
within which the Participant must accept the offer. The offer shall be accepted
by execution of an Award Agreement or as otherwise directed by the Committee.
Restricted Stock Units may be paid as permitted by Section 11(b). The term of
each award of Restricted Stock or Restricted Stock Units shall be at the
discretion of the Committee.

 

(b) Restrictions. Subject to Section 8(c), the Committee may impose such
conditions or restrictions on the Restricted Stock or Restricted Stock Units
granted pursuant to the Plan as it may determine advisable, including the
achievement of specific performance goals, time based restrictions on vesting,
conduct criteria or others. If the Committee established performance or other
goals, the Committee shall determine whether a Participant has satisfied the
performance of such goals.

 

(c) Performance Criteria. Restricted Stock, Restricted Stock Units and cash
awards granted pursuant to the Plan that are intended to qualify as “performance
based compensation” under Section 162(m) of the Code shall be subject to the
attainment of performance goals relating to the Performance Criteria selected by
the Committee and specified at the time such Restricted Stock, Restricted Stock
Units and cash awards are granted. For purposes of this Plan, “Performance
Criteria” means one or more of the following (as selected by the Committee):
(i) cash flow; (ii) earnings per share; (iii) earnings per share growth;
(iv) earnings before interest, taxes, and amortization; (v) return on equity;
(vi) market share; (vii) total shareholder return; (viii) share price
performance; (ix) return on capital; (x) return on assets, net assets or
invested assets; (xi) revenue; (xii) revenue growth; (xiii) earnings growth;
(xiv) operating income; (xvi) operating profit; (xvii) growth in operating
income or profit; (xviii) profit margin; (xix) return on operating revenue;
(xx) return on invested capital; (xxi) market price of Shares; (xxii) brand
recognition; (xxiii) customer satisfaction; (xxiv) operating

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efficiency; (xxv) productivity; or (xxvi) reduction in costs. Any of these
Performance Criteria may be used to measure the performance of the Company as a
whole or any business unit or division of the Company.

 

(d) Vesting. Unless the Committee determines otherwise, the Award Agreement
shall provide for the forfeiture of the non-vested Shares underlying Restricted
Stock or the termination of Restricted Stock Units upon cessation of a
Participant’s Continuous Status as a Participant. Unless the Committee
determines otherwise, non-vested Shares underlying Restricted Stock and
Restricted Stock Units shall vest in full immediately upon death. To the extent
that the Participant purchased the Shares granted under any such Restricted
Stock award and any such Shares remain non-vested at the time of cessation of a
Participant’s Continuous Status as a Participant, the cessation of Participant’s
Continuous Status as a Participant shall cause an immediate sale of such
non-vested Shares to the Company at the original price per Share paid by the
Participant.

 

9. Grant, Terms and Conditions of SARs.

 

(a) Grants. The Committee shall have the full power and authority, exercisable
in its sole discretion, to grant SARs to selected Participants. The Committee is
authorized to grant both tandem stock appreciation rights consisting of SARs
with underlying Options (“Tandem SARs”) and stand-alone stock appreciation
rights consisting of SARs not tied to underlying Options (“Stand-Alone SARs”).
The term of a SAR shall be at the discretion of the Committee. In no event shall
the Board or the Committee be permitted to Reprice a SAR after the date of grant
without shareholder approval.

 

(b) Tandem SARs.

 

(i) Participants may be granted a Tandem SAR, exercisable upon such terms and
conditions as the Committee shall establish, to elect between the exercise of
the underlying Option for Shares or the surrender of the Option in exchange for
a distribution from the Company in an amount equal to the excess of (A) the Fair
Market Value (on the Option surrender date) of the number of Shares in which the
Participant is at the time vested under the surrendered Option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such vested
Shares.

 

(ii) No such Option surrender shall be effective unless it is approved by the
Committee, either at the time of the actual Option surrender or at any earlier
time. If the surrender is so approved, then the distributions to which the
Participant shall become entitled under this Section 9(b) may be made in Shares
valued at Fair Market Value (on the Option surrender date), in cash, or partly
in Shares and partly in cash, as the Committee shall deem appropriate.

 

(iii) If the surrender of an Option is not approved by the Committee, then the
Participant shall retain whatever rights he or she had under the surrendered
Option (or surrendered portion thereof) on the Option surrender date and may
exercise such rights at any time prior to the later of (A) five (5) business
days after the receipt of the rejection notice or (B) the last day on which the
Option is otherwise exercisable in accordance with the terms of the instrument
evidencing such Option, but in no event may such rights be exercised more than
ten (10) years after the date of the Option grant.

 

(c) Stand-Alone SARs.

 

(i) A Participant may be granted a Stand-Alone SAR not tied to any underlying
Option under Section 7 of the Plan. The Stand-Alone SAR shall cover a specified
number of Shares and shall be exercisable upon such terms and conditions as the
Committee shall establish. Upon exercise of the Stand-Alone SAR, the holder
shall be entitled to receive a distribution from the Company in an amount equal
to the excess of (A) the aggregate Fair Market Value (on the exercise date) of
the Shares underlying the exercised right over (B) the aggregate base price in
effect for those Shares.

 

(ii) The number of Shares underlying each Stand-Alone SAR and the base price in
effect for those Shares shall be determined by the Committee at the time the
Stand-Alone SAR is granted. In no event, however, may the base price per Share
be less than the Fair Market Value per underlying Share on the grant date.

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(iii) The distribution with respect to an exercised Stand-Alone SAR may be made
in Shares valued at Fair Market Value on the exercise date, in cash, or partly
in Shares and partly in cash, as the Committee shall deem appropriate.

 

10. Cash Awards. Cash awards that are intended to qualify as “performance based
compensation” under Section 162(m) of the Code may be made under the Plan and
will be paid in cash upon the achievement, in whole or part, of performance
goals relating to one or more of the Performance Criteria selected by the
Committee and specified at the time such cash awards are granted. These criteria
shall be selected and calculated under a methodology established in writing by
the Committee prior to the issuance of a cash Award. Such writing may be a plan
or other arrangement established by the Committee hereunder, which shall set
forth the terms and conditions of the performance-based cash Awards, and may
combine cash Awards with other forms of grants described in this Plan. Such plan
or arrangement shall not expand the class of individuals entitled to participate
under the Plan, add to any of the Performance Criteria, or increase the maximum
amount payable to any single Participant with respect to any fiscal year of the
Company, as set forth below. The maximum amount of total payments of cash (or
Shares in lieu of cash) that can be awarded under plans or arrangements
established by the Committee pursuant to this Section 10 to any single
Participant in any fiscal year of the Company will not exceed a value of two
million dollars ($2,000,000) (the “Maximum Annual Cash Award”). For purposes of
applying the Maximum Annual Cash Award, cash Awards shall be considered awarded
at the beginning of the performance period over which the Award is earned, not
during or after the end of the performance period when the amount of cash
actually earned by the Participant is determined and cash is paid (or Shares are
issued) to the Participant. For incentive programs (other than SARs) where the
final amount of the Award is first calculated in cash and then paid in whole or
in part in Shares, the entire amount of the Award shall be treated as a cash
incentive award that is subject to the Maximum Annual Cash Award limitation in
this Section 10, not the Maximum Annual Participant Stock Award limitation in
Section 6(b).

 

11. Procedure for Exercise; Rights as a Shareholder.

 

(a) Procedure. An Award shall be exercised when written, electronic or verbal
notice of exercise has been given to the Company, or the brokerage firm or firms
approved by the Company to facilitate exercises and sales under this Plan, in
accordance with the terms of the Award by the person entitled to exercise the
Award and full payment for the Shares with respect to which the Award is
exercised has been received by the Company or the brokerage firm or firms, as
applicable. The notification to the brokerage firm shall be made in accordance
with procedures of such brokerage firm approved by the Company. Full payment
may, as authorized by the Committee, consist of any consideration and method of
payment allowable under the terms of this Plan. The Company shall issue (or
cause to be issued) such share certificate promptly upon exercise of the Award.
In the event that the exercise of an Award is treated in part as the exercise of
an Incentive Stock Option and in part as the exercise of a Nonqualified Stock
Option pursuant to Section 7(a), the Company shall issue a share certificate
evidencing the Shares treated as acquired upon the exercise of an Incentive
Stock Option and a separate share certificate evidencing the Shares treated as
acquired upon the exercise of a Nonqualified Stock Option, and shall identify
each such certificate accordingly in its share transfer records. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the share certificate is issued, except as provided in Section 4 of the
Plan.

 

(b) Method of Payment. The consideration to be paid for any Shares to be issued
upon exercise or other required settlement of an Award, including a method of
payment, shall be determined by the Committee at the time of settlement, and
which forms may include: (i) check; (ii) wire transfer; (iii) tender of shares
of Common Stock owned by the Participant in accordance with rules established by
the Committee from time to time; and (iv) a request that the Company or a
designated brokerage firm conduct a cashless exercise of the Option. Shares used
to pay the Option Price shall be valued at their Fair Market Value on the
exercise date. Payment of the aggregate Option Price by means of tendering
previously-owned shares of Common Stock shall not be permitted when the same
may, in the reasonable opinion of the Company, cause the Company to record a
loss or expense as a result thereof.

 

(c) Withholding Obligations. To the extent required by applicable federal,
state, local or foreign law, the Committee may and/or a Participant shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise with respect to any Incentive Stock Option,

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Nonqualified Stock Option, SAR, Restricted Stock or Restricted Stock Units, cash
awards or any sale of Shares. The Company shall not be required to issue Shares
or to recognize the disposition of such Shares until such obligations are
satisfied. These obligations may be satisfied by having the Company withhold a
portion of the Shares that otherwise would be issued to a Participant under such
Award (provided, however, that no Shares are withheld with a value exceeding the
minimum amount of tax required to be withheld by law) or by tendering Shares
previously acquired by the Participant in accordance with rules established by
the Committee from time to time.

 

(d) Shareholder Rights. Except as otherwise provided in this Plan, until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the share certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Shares subject to the
Award, notwithstanding the exercise of the Award.

 

(e) Non-Transferability of Awards. An Award may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in exchange for consideration, and may
not be transferred other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Participant, only by the
Participant; unless the Committee permits further transferability, on a general
or specific basis, in which case the Committee may impose conditions and
limitations on any permitted transferability.

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12. Expiration of Awards.

 

(a) Expiration, Termination or Forfeiture of Awards. Unless otherwise provided
in the applicable Award Agreement or any severance agreement, vested Awards
granted under this Plan shall expire, terminate, or otherwise be forfeited as
follows:

 

(i) ninety (90) days after the date of termination of a Participant’s Continuous
Status as a Participant other than in circumstances covered by (ii), (iii),
(iv) or (v) below;

 

(ii) immediately upon termination of a Participant’s Continuous Status as a
Participant for cause (as defined in a Company subplan or Award Agreement, as
applicable);

 

(iii) twelve (12) months after the date on which a Participant ceased performing
services as a result of his or her Disability; and

 

(iv) twelve (12) months after the date of the death of a Participant who was a
Participant whose Continuous Status as a Participant terminated as a result of
his or her death.

 

(b) Extension of Term. Notwithstanding subsection (a) above, the Committee shall
have the authority to extend the expiration date of any outstanding Options or
SARs other than an Incentive Stock Option in circumstances in which it deems
such action to be appropriate (provided that no such extension shall extend the
term of an Option or SAR beyond the date on which the Award would have expired
or been forfeited if there had been no termination of the Employee’s Continuous
Status as a Participant).

 

13. Term, Amendment and Termination of the Plan.

 

(a) Term of Plan. The Plan shall become effective as of the Effective Date. It
shall continue in effect until the tenth anniversary of the Effective Date or
until terminated under this Section 13 of the Plan or extended by an amendment
approved by the shareholders of the Company pursuant to Section 13(a).

 

(b) Amendment and Termination. The Board or the Committee may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable
(including, but not limited to amendments which the Board deems appropriate to
enhance the Company’s ability to claim deductions related to stock option
exercises); provided that to the extent required by the Code or any Nasdaq or
SEC requirements, shareholder approval shall be required for any amendment of
the Plan. Subject to the foregoing, it is specifically intended that the Board
or Committee may amend the Plan without shareholder approval to comply with
legal, regulatory and listing requirements and to avoid unanticipated
consequences deemed by the Committee to be inconsistent with the purpose of the
Plan or any Award Agreement.

 

(c) Participants in Foreign Countries. The Committee shall have the authority to
adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Subsidiaries may operate to assure the viability of the
benefits from Awards granted to Participants performing services in such
countries and to meet the objectives of the Plan.

 

(d) Effect of Amendment or Termination. Any such amendment or termination of the
Plan shall not affect Awards already granted and such Awards shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Participant and the Committee, which
agreement must be in writing and signed by the Participant and the Company.

 

(e) Code Section 409A. Notwithstanding anything to the contrary in this
Section 13, the Committee may amend the Plan and the Award Agreements without
any additional consideration to affected Participants to the extent necessary to
avoid penalties arising under Code Section 409A, even if those amendments
reduce, restrict or eliminate rights granted under the Plan or Award Agreement
(or both) before those amendments.

 

14. Shareholder Approval. The Plan is subject to approval by the shareholders of
the Company in accordance with applicable Nasdaq rules.