Exhibit 10.1

 

PROTO LABS, INC.

2012 LONG-TERM INCENTIVE PLAN

(As Amended August 5, 2015)

 

1.     Purpose. The purpose of the Proto Labs, Inc. 2012 Long-Term Incentive
Plan (the “Plan”) is to help attract and retain the best available people for
positions of responsibility with the Company, to provide additional incentives
to them and align their interests with those of the Company’s shareholders, and
to thereby promote the Company’s long-term business success.

 

2.     Definitions. In this Plan, the following definitions will apply.

 

(a)     “Affiliate” means any entity that is a Subsidiary or Parent of the
Company.

 

(b)     “Agreement” means the written or electronic agreement containing the
terms and conditions applicable to an Award granted under the Plan. An Agreement
is subject to the terms and conditions of the Plan.

 

(c)     “Award” means the grant of a compensatory award under the Plan in the
form of an Option, Stock Appreciation Rights, Restricted Stock, Stock Units, an
Other Stock-Based Award or a Cash Incentive Award.

 

(d)     “Board” means the Board of Directors of the Company.

 

(e)     “Cash Incentive Award” means an Award described in Section 11 of the
Plan.

 

(f)     “Cause” means what the term is expressly defined to mean in a
then-effective written agreement (including an Agreement) between a Participant
and the Company or any Affiliate or, in the absence of any such then-effective
agreement or definition, means a Participant’s (i) failure or refusal to perform
satisfactorily the duties reasonably required of the Participant by the Company
(other than by reason of Disability); (ii) material violation of any law, rule,
regulation, court order or regulatory directive (other than traffic violations,
misdemeanors or other minor offenses); (iii) material breach of any Company code
of conduct, of any agreement with the Company or any Affiliate or of any
nondisclosure, non-solicitation, non-competition or similar obligation owed to
the Company or any Affiliate; (iv) engaging in any act or practice that involves
personal dishonesty on the part of the Participant or demonstrates a willful and
continuing disregard for the best interests of the Company and its Affiliates;
or (v) engaging in conduct that would be reasonably expected to harm or bring
disrepute to the Company, any of its Affiliates, or any of their customers,
employees or vendors.

 

(g)     “Change in Control” means one of the following:

 

(1)     An Exchange Act Person becomes the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of securities of the Company representing
more than 50% of the combined voting power of the Company’s then outstanding
Voting Securities, except that the following will not constitute a Change in
Control:

 

(A)     any acquisition of securities of the Company by an Exchange Act Person
directly or indirectly from the Company for the purpose of providing financing
to the Company;

 

(B)     any formation of a Group consisting solely of beneficial owners of the
Company's Voting Securities as of the effective date of this Plan; or 

  

(C)     any Exchange Act Person becomes the beneficial owner of more than 50% of
the combined voting power of the Company’s outstanding Voting Securities as the
result of any repurchase or other acquisition by the Company of its Voting
Securities.

 

 

 
 

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If, however, an Exchange Act Person or Group referenced in clause (A), (B) or
(C) above acquires beneficial ownership of additional Company Voting Securities
after initially becoming the beneficial owner of more than 50% of the combined
voting power of the Company’s outstanding Voting Securities by one of the means
described in those clauses, then a Change in Control shall be deemed to have
occurred.

 

(2)     Individuals who are Continuing Directors cease for any reason to
constitute a majority of the members of the Board.

 

(3)     The consummation of a Corporate Transaction unless, immediately
following such Corporate Transaction, all or substantially all of the
individuals and entities who were the beneficial owners of the outstanding
Company Voting Securities immediately prior to such Corporate
Transaction beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding Voting Securities of the of the
surviving or acquiring entity (or its Parent) resulting from such Corporate
Transaction in substantially the same proportions as their ownership,
immediately before such Corporate Transaction, of the outstanding Company Voting
Securities.

 

Notwithstanding the foregoing, to the extent that any Award constitutes a
deferral of compensation subject to Code Section 409A, and if that Award
provides for a change in the time or form of payment upon a Change in Control,
then no Change in Control shall be deemed to have occurred upon an event
described in Section 2(g) unless the event would also constitute a change in
ownership or effective control of, or a change in the ownership of a substantial
portion of the assets of, the Company under Code Section 409A.

 

(h)     “Code” means the Internal Revenue Code of 1986, as amended and in effect
from time to time, and the regulations promulgated thereunder.

 

(i)     “Committee” means two or more Non-Employee Directors designated by the
Board to administer the Plan under Section 3, each member of which shall (i)
satisfy the independence requirements for independent directors and members of
compensation committees as set forth from time to time in the Listing Rules of
the Nasdaq Stock Market, (ii) be a non-employee director within the meaning of
Exchange Act Rule 16b-3, and (iii) be an outside director for purposes of Code
Section 162(m).

 

(j)     “Company” means Proto Labs, Inc., a Minnesota corporation, or any
successor thereto.

 

(k)     “Continuing Director” means an individual (A) who is, as of the
effective date of the Plan, a director of the Company, or (B) who is elected as
a director of the Company subsequent to the effective date of the Plan and whose
initial election, or nomination for initial election by the Company’s
shareholders, was approved by at least a majority of the then Continuing
Directors, but excluding, for purposes of this clause (B), any such individual
whose initial assumption of office occurs as a result of an actual or threatened
election contest.

 

(l)     “Corporate Transaction” means a reorganization, merger, consolidation or
statutory share exchange involving the Company, or a sale or other disposition
(in one or a series of transactions) of all or substantially all of the assets
of the Company.

 

(m)     “Disability” means “total and permanent disability” within the meaning
of Code Section 22(e)(3).

 

(n)     “Employee” means an employee of the Company or an Affiliate.

 

(o)     “Exchange Act” means the Securities Exchange Act of 1934, as amended and
in effect from time to time.

 

(p)     “Exchange Act Person” means any natural person, entity or Group other
than (i) the Company or any Subsidiary of the Company; (ii) any employee benefit
plan (or related trust) sponsored or maintained by the Company or any Affiliate;
or (iii) an underwriter temporarily holding securities in connection with a
registered public offering of such securities.

 

(q)     “Fair Market Value” means the fair market value of a Share determined as
follows:

 

(1)     If the Shares are readily tradable on an established securities market
(as determined under Code Section 409A), then Fair Market Value will be the
closing sales price for a Share on the principal securities market on which it
trades on the date for which it is being determined, or if no sale of Shares
occurred on that date, on the next preceding date on which a sale of Shares
occurred, as reported in The Wall Street Journal or such other source as the
Committee deems reliable; or

 

 

 
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(2)     If the Shares are not then readily tradable on an established securities
market (as determined under Code Section 409A), then Fair Market Value will be
determined by the Committee as the result of a reasonable application of a
reasonable valuation method that satisfies the requirements of Code Section
409A.

 

(r)     “Full Value Award” means an Award other than an Option Award, Stock
Appreciation Rights Award or Cash Incentive Award.

 

(s)     “Grant Date” means the date on which the Committee approves the grant of
an Award under the Plan, or such later date as may be specified by the Committee
on the date the Committee approves the Award.

 

(t)     “Group” means two or more persons acting as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding or
disposing of securities of an entity.

 

(u)     “Non-Employee Director” means a member of the Board who is not an
Employee.

 

(v)     “Option” means a right granted under the Plan to purchase a specified
number of Shares at a specified price during a specified period of time. An
“Incentive Stock Option” or “ISO” means any Option designated as such and
granted in accordance with the requirements of Code Section 422. A
“Non-Statutory Stock Option” means an Option other than an Incentive Stock
Option.

 

(w)     “Other Stock-Based Award” means an Award described in Section 11 of this
Plan.

 

(x)     “Parent” means a “parent corporation,” as defined in Code Section
424(e).

  

(y)     “Participant” means a person to whom an Award is or has been made in
accordance with the Plan.

 

(z)     “Performance-Based Compensation” means an Award to a person who is, or
is determined by the Committee to likely become, a “covered employee” (as
defined in Code Section 162(m)(3)) and that is intended to constitute
“performance-based compensation” within the meaning of Code Section
162(m)(4)(C).

 

(aa)     “Plan” means this Proto Labs, Inc. 2012 Long-Term Incentive Plan, as
amended and in effect from time to time.

 

(bb)     “Prior Plan” means the ProtoMold Company, Inc. 2000 Stock Option Plan.

 

(cc)     “Restricted Stock” means Shares issued to a Participant that are
subject to such restrictions on transfer, vesting conditions and other
restrictions or limitations as may be set forth in this Plan and the applicable
Agreement.

 

(dd)     “Service” means the provision of services by a Participant to the
Company or any Affiliate in any Service Provider capacity. A Service Provider’s
Service shall be deemed to have terminated either upon an actual cessation of
providing services or upon the entity for which the Service Provider provides
services ceasing to be an Affiliate. Except as otherwise provided in this Plan
or any Agreement, Service shall not be deemed terminated in the case of (i) any
approved leave of absence; (ii) transfers among the Company and any Affiliates
in any Service Provider capacity; or (iii) any change in status so long as the
individual remains in the service of the Company or any Affiliate in any Service
Provider capacity.

 

(ee)     “Service Provider” means an Employee, a Non-Employee Director, or any
consultant or advisor who is a natural person and who provides services (other
than in connection with (i) a capital-raising transaction or (ii) promoting or
maintaining a market in Company securities) to the Company or any Affiliate.

 

(ff)     “Share” means a share of Stock.

 

(gg)     “Stock” means the common stock, par value $0.001 per share, of the
Company.

 

 

 
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(hh)     “Stock Appreciation Right” or “SAR” means a right granted under the
Plan to receive, in cash and/or Shares as determined by the Committee, an amount
equal to the appreciation in value of a specified number of Shares between the
Grant Date of the SAR and its exercise date.

 

(ii)     “Stock Unit” means a right granted under the Plan to receive, in cash
and/or Shares as determined by the Committee, the Fair Market Value of a Share,
subject to such restrictions on transfer, vesting conditions and other
restrictions or limitations as may be set forth in this Plan and the applicable
Agreement.

 

(jj)     “Subsidiary” means a “subsidiary corporation,” as defined in Code
Section 424(f), of the Company.

 

(kk)     “Substitute Award” means an Award granted upon the assumption of, or in
substitution or exchange for, outstanding awards granted by a company or other
entity acquired by the Company or any Affiliate or with which the Company or any
Affiliate combines.

 

(ll)     “Voting Securities” of an entity means the outstanding securities
entitled to vote generally in the election of directors (or comparable equity
interests) of such entity.

 

3.     Administration of the Plan.

 

(a)     Administration. The authority to control and manage the operations and
administration of the Plan shall be vested in the Committee in accordance with
this Section 3. Notwithstanding the foregoing sentence, the Board shall perform
the duties and have the responsibilities of the Committee with respect to Awards
made to Non-Employee Directors.

 

(b)     Scope of Authority. Subject to the terms of the Plan, the Committee
shall have the authority, in its discretion, to take such actions as it deems
necessary or advisable to administer the Plan, including:

 

(1)     determining the Service Providers to whom Awards will be granted, the
timing of each such Award, the types of Awards and the number of Shares or
amount of cash covered by each Award, the terms, conditions, performance
criteria, restrictions and other provisions of Awards, and the manner in which
Awards are paid or settled;

 

(2)     cancelling or suspending an Award or the exercisability of an Award,
accelerating the vesting or extending the exercise period of an Award, or
otherwise amending the terms and conditions of any outstanding Award, subject to
the requirements of Sections 15(d) and 15(e);

 

(3)     establishing, amending or rescinding rules to administer the Plan,
interpreting the Plan and any Award or Agreement made under the Plan, and making
all other determinations necessary or desirable for the administration of the
Plan; and

 

(4)     taking such actions as are described in Section 3(c) with respect to
Awards to foreign Service Providers.

 

(c)     Awards to Foreign Service Providers. The Committee may grant Awards to
Service Providers who are foreign nationals, who are located outside of the
United States or who are not compensated from a payroll maintained in the United
States, or who are otherwise subject to (or could cause the Company to be
subject to) legal or regulatory requirements of countries outside of the United
States, on such terms and conditions different from those specified in the Plan
as may, in the judgment of the Committee, be necessary or desirable to comply
with applicable foreign laws and regulatory requirements and to promote
achievement of the purposes of the Plan. In connection therewith, the Committee
may establish such subplans and modify exercise procedures and other Plan rules
and procedures to the extent such actions are deemed necessary or desirable, and
may take any other action that it deems advisable to obtain local regulatory
approvals or to comply with any necessary local governmental regulatory
exemptions.

 

(d)     Acts of the Committee; Delegation. A majority of the members of the
Committee shall constitute a quorum for any meeting of the Committee, and any
act of a majority of the members present at any meeting at which a quorum is
present or any act unanimously approved in writing by all members of the
Committee shall be the act of the Committee. Any such action of the Committee
shall be valid and effective even if the members of the Committee at the time of
such action are later determined not to have satisfied all of the criteria for
membership in clauses (i), (ii) and (iii) of Section 2(i). To the extent not
inconsistent with applicable law or stock exchange rules, the Committee may
delegate all or any portion of its authority under the Plan to any one or more
of its members or, as to Awards to Participants who are not subject to Section
16 of the Exchange Act, to one or more executive officers of the Company. The
Committee may also delegate non-discretionary administrative responsibilities in
connection with the Plan to such other persons as it deems advisable.

  

 

 
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(e)     Finality of Decisions. The Committee’s interpretation of the Plan and of
any Award or Agreement made under the Plan and all related decisions or
resolutions of the Board or Committee shall be final and binding on all parties
with an interest therein.

 

(f)     Indemnification. Each person who is or has been a member of the
Committee or of the Board, and any other person to whom the Committee delegates
authority under the Plan, shall be indemnified by the Company, to the maximum
extent permitted by law, against liabilities and expenses imposed upon or
reasonably incurred by such person in connection with or resulting from any
claims against such person by reason of the performance of the individual’s
duties under the Plan. This right to indemnification is conditioned upon such
person providing the Company an opportunity, at the Company’s expense, to handle
and defend the claims before such person undertakes to handle and defend them on
such person’s own behalf. The Company will not be required to indemnify any
person for any amount paid in settlement of a claim unless the Company has first
consented in writing to the settlement. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
person or persons may be entitled under the Company’s Articles of Incorporation
or Bylaws, as a matter of law, or otherwise.

 

4.     Shares Available Under the Plan.

 

(a)     Maximum Shares Available. Subject to Section 4(b) and to adjustment as
provided in Section 12(a), the number of Shares that may be the subject of
Awards and issued under the Plan shall be 5,652,734. After the effective date of
the Plan, no additional awards may be granted under the Prior Plan. Shares to be
issued under the Plan shall be authorized and unissued Shares. In determining
the number of Shares to be counted against this share reserve in connection with
any Award, the following rules shall apply:

 

(1)     Where the number of Shares subject to an Award is variable on the Grant
Date, the number of Shares to be counted against the share reserve prior to the
settlement of the Award shall be the maximum number of Shares that could be
received under that particular Award.

 

(2)     Where two or more types of Awards are granted to a Participant in tandem
with each other, such that the exercise of one type of Award with respect to a
number of Shares cancels at least an equal number of Shares of the other, the
number of Shares to be counted against the share reserve shall be the largest
number of Shares that would be counted against the share reserve under either of
the Awards.

 

(3)     Substitute Awards shall not be counted against the share reserve, nor
shall they reduce the Shares authorized for grant to a Participant in any
calendar year.

 

(b)     Effect of Forfeitures and Other Actions. Any Shares subject to an Award,
or to an award granted under the Prior Plan that is outstanding on the effective
date of this Plan (a “Prior Plan Award”), that is forfeited or expires or is
settled for cash shall, to the extent of such forfeiture, expiration or cash
settlement, again become available for Awards under this Plan, and
correspondingly increase the total number of Shares available for grant and
issuance under Section 4(a). The following Shares shall not, however, again
become available for Awards or increase the number of Shares available for grant
under Section 4(a): (i) Shares tendered by the Participant or withheld by the
Company in payment of the purchase price of a stock option issued under this
Plan or the Prior Plan, (ii) Shares tendered by the Participant or withheld by
the Company to satisfy any tax withholding obligation with respect to an Award
or Prior Plan Award, (iii) Shares repurchased by the Company with proceeds
received from the exercise of an option issued under this Plan or the Prior
Plan, and (iv) Shares subject to a stock appreciation right issued under this
Plan or the Prior Plan that are not issued in connection with the stock
settlement of that stock appreciation right upon its exercise.

 

 

 
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(c)     Effect of Plans Operated by Acquired Companies. If a company acquired by
the Company or any Subsidiary or with which the Company or any Subsidiary
combines has shares available under a pre-existing plan approved by shareholders
and not adopted in contemplation of such acquisition or combination, the shares
available for grant pursuant to the terms of such pre-existing plan (as
adjusted, to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition or combination
to determine the consideration payable to the holders of common stock of the
entities party to such acquisition or combination) may be used for Awards under
the Plan and shall not reduce the Shares authorized for grant under the Plan.
Awards using such available shares shall not be made after the date awards or
grants could have been made under the terms of the pre-existing plan, absent the
acquisition or combination, and shall only be made to individuals who were not
Employees or Non-Employee Directors prior to such acquisition or combination.

 

(d)     No Fractional Shares. Unless otherwise determined by the Committee, the
number of Shares subject to an Award shall always be a whole number. No
fractional Shares may be issued under the Plan, and in connection with any
calculation under the Plan that would otherwise result in the issuance or
withholding of a fractional Share, the number of Shares shall be rounded down to
the nearest whole Share.

 

(e)     Individual Option and SAR Limit. The aggregate number of Shares subject
to Options and/or Stock Appreciation Rights granted during any calendar year to
any one Participant shall not exceed 700,000 Shares.

 

5.     Eligibility. Participation in the Plan is limited to Service Providers.
Incentive Stock Options may only be granted to Employees.

 

6.     General Terms of Awards.

 

(a)     Award Agreement. Except for any Award that involves only the immediate
issuance of unrestricted Shares, each Award shall be evidenced by an Agreement
setting forth the number of Shares subject to the Award together with such other
terms and conditions applicable to the Award (and not inconsistent with the
Plan) as determined by the Committee. An Award will not become effective unless
acceptance of the Agreement in a manner permitted by the Committee is received
by the Company within 30 days of the date the Agreement is delivered to the
Participant. An Award to a Participant may be made singly or in combination with
any form of Award. Two types of Awards may be made in tandem with each other
such that the exercise of one type of Award with respect to a number of Shares
reduces the number of Shares subject to the related Award by at least an equal
amount.

  

(b)     Vesting and Term. Each Agreement shall set forth the period until the
applicable Award is scheduled to expire (which shall not be more than ten years
from the Grant Date), and any applicable performance period. The Committee may
provide in an Agreement for such vesting conditions as it may determine, subject
to the following limitations applicable to awards granted on or after November
12, 2014:

 

(1)     A Full Value Award that vests solely as the result of the passage of
time and continued Service by the Participant shall be subject to a vesting
period of not less than three years from the applicable Grant Date (but
permitting pro rata vesting over such vesting period); and

 

(2)     A Full Value Award whose vesting is subject to the satisfaction of
performance goals over a performance period shall be subject to a performance
period of not less than one year.

 

The minimum vesting periods specified in clauses (1) and (2) above will not,
however, apply: (i) to Awards made in payment of or exchange for other earned
compensation (including performance-based Awards); (ii) upon a Change in
Control; (iii) to termination of Service due to death or Disability; (iv) to a
Substitute Award that does not reduce the vesting period of the award being
replaced; (v) to Awards made to Non-Employee Directors; or (vi) to Awards
involving an aggregate number of Shares not in excess of 5% of the number of
Shares available for Awards under Section 4(a).

 

(c)     Transferability. Except as provided in this Section 6(c), (i) during the
lifetime of a Participant, only the Participant or the Participant’s guardian or
legal representative may exercise an Option or SAR, or receive payment with
respect to any other Award; and (ii) no Award may be sold, assigned,
transferred, exchanged or encumbered other than by will or the laws of descent
and distribution. Any attempted transfer in violation of this Section 6(c) shall
be of no effect. The Committee may, however, provide in an Agreement or
otherwise that an Award (other than an Incentive Stock Option) may be
transferred pursuant to a qualified domestic relations order or may be
transferable by gift to any “family member” (as defined in General Instruction
A(5) to Form S-8 under the Securities Act of 1933) of the Participant. Any Award
held by a transferee shall continue to be subject to the same terms and
conditions that were applicable to that Award immediately before the transfer
thereof. For purposes of any provision of the Plan relating to notice to a
Participant or to acceleration or termination of an Award upon the death or
termination of employment of a Participant, the references to “Participant”
shall mean the original grantee of an Award and not any transferee.

 

 

 
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(d)     Designation of Beneficiary. The Committee may permit each Participant to
designate a beneficiary or beneficiaries to exercise any Award or receive a
payment under any Award payable on or after the Participant’s death. Any such
designation shall be on a written or electronic form approved by the Committee
and shall be effective upon its receipt by the Company or an agent selected by
the Company.

 

(e)     Termination of Service. Unless otherwise provided in an Agreement, and
subject to Sections 6(i) and 12 of this Plan, if a Participant’s Service with
the Company and all of its Affiliates terminates, the following provisions shall
apply (in all cases subject to the originally scheduled expiration of an Option
or Stock Appreciation Right, as applicable):

 

(1)     Upon termination of Service for Cause, all unexercised Options and SARs
and all unvested portions of any other outstanding Awards shall be immediately
forfeited without consideration.

  

(2)     Upon termination of Service due to death or Disability, any unvested
portion of an Award shall immediately become vested (and exercisable, if
applicable), and the vested and exercisable portions of Options or SARs may be
exercised for a period of twelve months after the date of such termination and
shall terminate upon the expiration of such period.

 

(3)     Upon a termination of Service for any reason other than Cause, death or
Disability, all unvested and unexercisable portions of any outstanding Awards
shall be immediately forfeited without consideration, but the currently vested
and exercisable portions of Options and SARs may be exercised for a period of
three months after the date of such termination and shall, subject to the
following sentence, terminate upon the expiration of such period. However, if a
Participant dies during such three-month post-termination exercise period, then
the applicable post-termination exercise period shall be extended to twelve
months after the date of such termination.

 

(f)     Rights as Shareholder. No Participant shall have any rights as a
shareholder with respect to any Shares covered by an Award unless and until the
date the Participant becomes the holder of record of the Shares, if any, to
which the Award relates.

 

(g)     Performance-Based Awards. Any Award may be granted as a
performance-based Award if the Committee establishes one or more measures of
corporate, Subsidiary, business unit or individual performance which must be
attained, and the performance period over which the specified performance is to
be attained, as a condition to the vesting, exercisability, lapse of
restrictions and/or settlement in cash or Shares of such Award. In connection
with any such Award, the Committee shall determine the extent to which
performance measures have been attained and other applicable terms and
conditions have been satisfied, and the degree to which vesting, exercisability,
lapse of restrictions and/or settlement in cash or Shares of such Award has been
earned. Any performance-based Award that is intended by the Committee to qualify
as Performance-Based Compensation shall additionally be subject to the
requirements of Section 17 of this Plan. Except as provided in Section 17 with
respect to Performance-Based Compensation, the Committee shall also have the
authority to provide, in an Agreement or otherwise, for the modification of a
performance period and/or an adjustment or waiver of the achievement of
performance goals upon the occurrence of certain events, which may include a
Change of Control, a Corporate Transaction, a recapitalization, a change in the
accounting practices of the Company, or the Participant’s death or Disability.

 

(h)     Dividends and Dividend Equivalents. Any dividends or distributions paid
with respect to Shares that are subject to the unvested portion of a Restricted
Stock Award will be subject to the same restrictions as the Shares to which such
dividends or distributions relate, except for regular cash dividends on Shares
subject to the unvested portion of a Restricted Stock Award. In its discretion,
the Committee may provide in an Agreement for a Stock Unit Award or an Other
Stock-Based Award that the Participant will be entitled to receive dividend
equivalents on the units or other Share equivalents subject to the Award based
on dividends actually declared on outstanding Shares. The terms of any dividend
equivalents will be as set forth in the applicable Award Agreement, including
the time and form of payment and whether such dividend equivalents will be
credited with interest or deemed to be reinvested in additional units or Share
equivalents. The Committee may, in its discretion, provide in Award Agreements
for restrictions on dividends and dividend equivalents in addition to those
specified in this Section 6(h).

 

 

 
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(i)     Extension of Termination Date. If a Participant would otherwise be
precluded from exercising an Option or SAR prior to the expiration of its
scheduled term or prior to its termination following the termination of the
Participant’s Service solely because the issuance of the Shares upon such
exercise would violate applicable registration requirements under the Securities
Act, then the Committee may provide that the period during which the Option or
SAR may be exercised and the termination date of the Option or SAR shall be
extended until the date that is 30 days after the exercise of the Option or SAR
would no longer violate the registration requirements of the Securities Act.

  

7.     Stock Option Awards.

 

(a)     Type and Exercise Price. The Agreement pursuant to which an Option is
granted shall specify whether the Option is an Incentive Stock Option or a
Non-Statutory Stock Option. The exercise price at which each Share subject to an
Option may be purchased shall be determined by the Committee and set forth in
the Agreement, and shall not be less than the Fair Market Value of a Share on
the Grant Date, except in the case of Substitute Awards (to the extent
consistent with Code Section 409A).

 

(b)     Payment of Exercise Price. The purchase price of the Shares with respect
to which an Option is exercised shall be payable in full at the time of
exercise. The purchase price may be paid in cash or in such other manner as the
Committee may permit, including payment under a broker-assisted sale and
remittance program acceptable to the Committee or by withholding Shares
otherwise issuable to the Participant upon exercise of the Option or by delivery
to the Company of Shares (by actual delivery or attestation) already owned by
the Participant (in each case, such Shares having a Fair Market Value as of the
date the Option is exercised equal to the purchase price of the Shares being
purchased).

 

(c)     Exercisability and Expiration. Each Option shall be exercisable in whole
or in part on the terms provided in the Agreement. No Option shall be
exercisable at any time after its scheduled expiration. When an Option is no
longer exercisable, it shall be deemed to have terminated.

 

(d)     Incentive Stock Options.

 

(1)     An Option will constitute an Incentive Stock Option only if the
Participant receiving the Option is an Employee, and only to the extent that (i)
it is so designated in the applicable Agreement and (ii) the aggregate Fair
Market Value (determined as of the Option’s Grant Date) of the Shares with
respect to which Incentive Stock Options held by the Participant first become
exercisable in any calendar year (under the Plan and all other plans of the
Company and its Affiliates) does not exceed $100,000. To the extent an Option
granted to a Participant exceeds this limit, the Option shall be treated as a
Non-Statutory Stock Option. The maximum number of Shares that may be issued upon
the exercise of Incentive Stock Options shall equal the maximum number of Shares
that may be the subject of Awards and issued under the Plan as provided in the
first sentence of Section 4(a).

 

(2)     No Participant may receive an Incentive Stock Option under the Plan if,
immediately after the grant of such Award, the Participant would own (after
application of the rules contained in Code Section 424(d)) Shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or an Affiliate, unless (i) the option price for that Incentive Stock
Option is at least 110% of the Fair Market Value of the Shares subject to that
Incentive Stock Option on the Grant Date and (ii) that Option will expire no
later than five years after its Grant Date.

 

(3)     For purposes of continued Service by a Participant who has been granted
an Incentive Stock Option, no approved leave of absence may exceed three months
unless reemployment upon expiration of such leave is provided by statute or
contract. If reemployment is not so provided, then on the date six months
following the first day of such leave, any Incentive Stock Option held by the
Participant shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Non-Statutory Stock Option.

  

 

 
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(4)     If an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Code Section 422, such Option shall
thereafter be treated as a Non-Statutory Stock Option.

 

(5)     The Agreement covering an Incentive Stock Option shall contain such
other terms and provisions that the Committee determines necessary to qualify
the Option as an Incentive Stock Option.

 

8.     Stock Appreciation Rights.

 

(a)     Nature of Award. An Award of Stock Appreciation Rights shall be subject
to such terms and conditions as are determined by the Committee, and shall
provide a Participant the right to receive upon exercise of the SAR all or a
portion of the excess of (i) the Fair Market Value as of the date of exercise of
the SAR of the number of Shares as to which the SAR is being exercised, over
(ii) the aggregate exercise price for such number of Shares. The per Share
exercise price for any SAR Award shall be determined by the Committee and set
forth in the applicable Agreement, and shall not be less than the Fair Market
Value of a Share on the Grant Date, except in the case of Substitute Awards (to
the extent consistent with Code Section 409A).

 

(b)     Exercise of SAR. Each SAR may be exercisable in whole or in part at the
times, on the terms and in the manner provided in the Agreement. No SAR shall be
exercisable at any time after its scheduled expiration. When a SAR is no longer
exercisable, it shall be deemed to have terminated. Upon exercise of a SAR,
payment to the Participant shall be made at such time or times as shall be
provided in the Agreement in the form of cash, Shares or a combination of cash
and Shares as determined by the Committee. The Agreement may provide for a
limitation upon the amount or percentage of the total appreciation on which
payment (whether in cash and/or Shares) may be made in the event of the exercise
of a SAR.

 

9.     Restricted Stock Awards.

 

(a)     Vesting and Consideration. Shares subject to a Restricted Stock Award
shall be subject to vesting conditions, and the corresponding lapse of
forfeiture conditions and other restrictions, based on such factors and
occurring over such period of time as the Committee may determine in its
discretion. The Committee may provide whether any consideration other than
Services must be received by the Company or any Affiliate as a condition
precedent to the grant of a Restricted Stock Award, and may correspondingly
provide for Company reacquisition or repurchase rights if such additional
consideration has been required and some or all of a Restricted Stock Award does
not vest.

 

(b)     Shares Subject to Restricted Stock Awards. Unvested Shares subject to a
Restricted Stock Award shall be evidenced by a book-entry in the name of the
Participant with the Company’s transfer agent or by one or more Stock
certificates issued in the name of the Participant. Any such Stock certificate
shall be deposited with the Company or its designee, together with an assignment
separate from the certificate, in blank, signed by the Participant, and bear an
appropriate legend referring to the restricted nature of the Restricted Stock
evidenced thereby. Any book-entry shall be subject to transfer restrictions and
accompanied by a similar legend. Upon the vesting of Shares of Restricted Stock
and the corresponding lapse of the restrictions and forfeiture conditions, the
corresponding transfer restrictions and restrictive legend will be removed from
the book-entry evidencing such Shares or the certificate evidencing such Shares,
and any such certificate shall be delivered to the Participant. Such vested
Shares may, however, remain subject to additional restrictions as provided in
Section 18(c). Except as otherwise provided in the Plan or an applicable
Agreement, a Participant with a Restricted Stock Award shall have all the rights
of a shareholder, including the right to vote the Shares of Restricted Stock.

  

10.     Stock Unit Awards.

 

(a)     Vesting and Consideration. A Stock Unit Award shall be subject to
vesting conditions, and the corresponding lapse of forfeiture conditions and
other restrictions, based on such factors and occurring over such period of time
as the Committee may determine in its discretion. The Committee may provide
whether any consideration other than Services must be received by the Company or
any Affiliate as a condition precedent to the settlement of a Stock Unit Award.

 

 

 
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(b)     Payment of Award. Following the vesting of a Stock Unit Award,
settlement of the Award and payment to the Participant shall be made at such
time or times in the form of cash, Shares (which may themselves be considered
Restricted Stock under the Plan subject to restrictions on transfer and
forfeiture conditions) or a combination of cash and Shares as determined by the
Committee. If the Stock Unit Award is not by its terms exempt from the
requirements of Code Section 409A, then the applicable Agreement shall contain
terms and conditions intended to avoid adverse tax consequences specified in
Code Section 409A.

 

11.     Cash-Based and Other Stock-Based Awards.

 

(a)     Cash Incentive Awards. A Cash Incentive Award shall be considered a
performance-based Award for purposes of, and subject to, Section 6(g), the
payment of which shall be contingent upon the degree to which one or more
specified performance goals have been achieved over the specified performance
period. Cash Incentive Awards may be granted to any Participant in such amounts
and upon such terms and at such times as shall be determined by the Committee,
and may be denominated in units that have a dollar value established by the
Committee as of the Grant Date. Following the completion of the applicable
performance period and the vesting of a Cash Incentive Award, payment of the
settlement amount of the Award to the Participant shall be made at such time or
times in the form of cash, Shares or other forms of Awards under the Plan
(valued for these purposes at their grant date fair value) or a combination of
cash, Shares and other forms of Awards as determined by the Committee and
specified in the applicable Agreement. If a Cash Incentive Award is not by its
terms exempt from the requirements of Code Section 409A, then the applicable
Agreement shall contain terms and conditions intended to avoid adverse tax
consequences specified in Code Section 409A.

 

(b)     Other Stock-Based Awards. The Committee may from time to time grant
Stock and other Awards that are valued by reference to and/or payable in whole
or in part in Shares under the Plan. The Committee, in its sole discretion,
shall determine the terms and conditions of such Awards, which shall be
consistent with the terms and purposes of the Plan. The Committee may, in its
sole discretion, direct the Company to issue Shares subject to restrictive
legends and/or stop transfer instructions that are consistent with the terms and
conditions of the Award to which the Shares relate.

 

12.     Changes in Capitalization and Other Corporate Events.

 

(a)     Adjustments for Changes in Capitalization. In the event of any equity
restructuring (within the meaning of FASB ASC Topic 718 - Stock Compensation)
that causes the per share value of Shares to change, such as a stock dividend,
stock split, spinoff, rights offering or recapitalization through an
extraordinary dividend, the Committee shall make such adjustments as it deems
equitable and appropriate to (i) the aggregate number and kind of Shares or
other securities issued or reserved for issuance under the Plan, (ii) the number
and kind of Shares or other securities subject to outstanding Awards, (iii) the
exercise price of outstanding Options and SARs, and (iv) any maximum limitations
prescribed by the Plan with respect to certain types of Awards or the grants to
individuals of certain types of Awards. In the event of any other change in
corporate capitalization, including a merger, consolidation, reorganization, or
partial or complete liquidation of the Company, such equitable adjustments
described in the foregoing sentence may be made as determined to be appropriate
and equitable by the Committee to prevent dilution or enlargement of rights of
Participants.  In either case, any such adjustment shall be conclusive and
binding for all purposes of the Plan.  No adjustment shall be made pursuant to
this Section 12(a) in connection with the conversion of any convertible
securities of the Company, or in a manner that would cause Incentive Stock
Options to violate Section 422(b) of the Code or cause an Award to be subject to
adverse tax consequences under Section 409A of the Code.

  

(b)     Corporate Transactions. Unless otherwise provided in an applicable
Agreement, in the event of a Change in Control that involves a Corporate
Transaction, the Board or the Committee shall take one or more of the following
actions with respect to outstanding Awards, which actions may vary among
individual Participants and among Awards held by an individual Participant, and
are conditioned in each case upon the closing or completion of the Corporate
Transaction:

 

 

 
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(1)     Continuation, Assumption or Replacement of Awards. Arrange for the
surviving or successor entity (or its Parent) to continue, assume or replace
Awards outstanding as of the date of the Corporate Transaction, with such Awards
or replacements therefor to remain outstanding and be governed by their
respective terms. For purposes of this Section 12(b)(1), an Award shall be
considered assumed or replaced if, in connection with the Corporate Transaction
and in a manner consistent with Code Sections 409A and 424, either (i) the
contractual obligations represented by the Award are expressly assumed by the
surviving or successor entity (or its Parent) with appropriate adjustments to
the number and type of securities subject to the Award and the exercise price
thereof that preserves the intrinsic value of the Award existing at the time of
the Corporate Transaction, or (ii) the Participant has received a comparable
award that preserves the intrinsic value of the Award existing at the time of
the Corporate Transaction and is subject to substantially similar terms and
conditions as the Award.

 

(2)     Acceleration. Accelerate the vesting (and exercisability, if applicable)
of (i) some or all outstanding Options and SARs so that such Awards may be
exercised in full for such limited period of time prior to the effective time of
the Corporate Transaction as is deemed fair and equitable by the Board or
Committee, with such Awards then terminating to the extent not exercised at the
effective time of the Corporate Transaction, and (ii) some or all outstanding
Full Value Awards or Cash Incentive Awards immediately prior to the effective
time of the Corporate Transaction. In the case of performance-based Awards, the
number of Shares or the amount of a Cash Incentive Award subject to such
accelerated vesting shall be based on a determination by the Board or Committee
of the degree to which any performance-based vesting or payment conditions will
be deemed satisfied. The Board or Committee shall provide written notice of the
period of accelerated exercisability of Options and SARs to all affected
Participants, and any exercise of such accelerated Awards shall be effective
only immediately before the effective time of the Corporate Transaction.

 

(3)     Payment for Awards. Cancel some or all outstanding Awards at or
immediately prior to the effective time of the Corporate Transaction in exchange
for payments to the holders as provided in this Section 12(b)(3). The payment
for any Award canceled shall be in an amount equal to the difference, if any,
between (i) the fair market value (as determined in good faith by the Board or
Committee) of the consideration that would otherwise be received in the
Corporate Transaction for the number of Shares remaining subject to the Award,
and (ii) the aggregate exercise price (if any) for the number of Shares
remaining subject to such Award. If the amount determined pursuant to clause (i)
of the preceding sentence is less than or equal to the amount determined
pursuant to clause (ii) of the preceding sentence with respect to any Award,
such Award may be canceled without payment of any kind to the affected
Participant. The payment for any canceled Cash Incentive Award that was to be
settled in Shares shall be in an amount equal to the settlement amount that was
to form the basis for the calculation of the number of Shares to be issued. In
the case of performance-based Awards, the number of Shares remaining subject to
an Award or the settlement amount of a Cash Incentive Award shall be calculated
based on a determination by the Board or Committee of the degree to which any
performance-based vesting or payment conditions will be deemed satisfied.
Payment of any amount under this Section 12(b)(3) shall be made in such form
(including in shares of the surviving or successor entity or its Parent), on
such terms and subject to such conditions as the Board or Committee determines
in its discretion, which may or may not be the same as the form, terms and
conditions applicable to payments to the Company’s shareholders in connection
with the Corporate Transaction, and may, in the discretion of the Board or
Committee, include subjecting such payments to vesting conditions comparable to
those of the Award canceled, subjecting such payments to escrow or holdback
terms comparable to those imposed upon the Company’s shareholders under the
Corporate Transaction, or calculating and paying the present value of payments
that would otherwise be subject to escrow or holdback terms.

  

(4)     Termination After a Corporate Transaction. Provide that with respect to
any Award that is continued, assumed or replaced under the circumstances
described in Section 12(b)(1), if within 18 months after the Corporate
Transaction the Participant experiences an involuntary termination of Service
from the surviving or successor entity (or its Parent or subsidiary) for reasons
other than Cause, then (i) outstanding Options and SARs issued to the
Participant that are not yet fully exercisable shall immediately become
exercisable in full and shall remain exercisable for one year following the
Participant’s termination of Service, and (ii) any Full Value Awards that are
not yet fully vested shall immediately vest in full.

 

(5)     Adjustments to Awards. Make such adjustments to some or all outstanding
Awards as may be required or permitted by Sections 12(a) and 6(g).

 

 

 
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(c)     Change in Control. In connection with a Change in Control that does not
involve a Corporate Transaction, the Board or Committee may provide (in the
applicable Agreement or otherwise) for one or more of the following: (i) that
any Award shall become fully vested (and exercisable, if applicable) upon the
occurrence of the Change in Control or upon the involuntary termination of the
Participant without Cause within 18 months of the Change in Control, (ii) that
any Option or SAR shall remain exercisable during all or some specified portion
of its remaining term, or (iii) that Awards shall be canceled in exchange for
payments in a manner similar to that provided in Section 12(b)(3). The Committee
will not be required to treat all Awards similarly in such circumstances.

 

(d)     Dissolution or Liquidation. Unless otherwise provided in an applicable
Agreement, in the event the shareholders of the Company approve the complete
dissolution or liquidation of the Company, all outstanding Awards shall vest and
become fully exercisable, and will terminate immediately prior to the
consummation of any such proposed action. The Committee will notify each
Participant as soon as practicable of such accelerated vesting and
exercisability and pending termination.

 

(e)     Limitation on Change in Control Payments. If any payments to a
Participant pursuant to Awards made under this Plan (including, for this
purpose, the acceleration of the vesting and exercisability of any Award or the
payment of cash or other property in exchange for all or part of any Award),
taken together with any payments or benefits otherwise paid or distributed to
the Participant by the Company or any corporation that is a member of an
“affiliated group” (as defined in Section 1504 of the Code without regard to
Section 1504(b) of the Code) of which the Company is a member (the “other
arrangements”) would collectively constitute a “parachute payment” (as defined
in Section 280G(b)(2) of the Code), and if the net after-tax amount of such
parachute payment to the Participant is less than what the net after-tax amount
to the Participant would be if the aggregate payments and benefits otherwise
constituting the parachute payment were limited to three times the Participant’s
“base amount” (as defined in Section 280G(b)(3) of the Code) less $1.00, then
the aggregate payments and benefits otherwise constituting the parachute payment
shall be reduced to an amount that shall equal three times the Participant’s
base amount, less $1.00. Should such a reduction in payments and benefits be
required, the Participant shall be entitled, subject to the following sentence,
to designate those payments and benefits under this Plan or the other
arrangements that will be reduced or eliminated (including, as applicable, a
reduction in the number of Shares subject to Awards that will vest on an
accelerated basis) so as to achieve the specified reduction in aggregate
payments and benefits to the Participant and avoid characterization of such
aggregate payments and benefits as a parachute payment. To the extent that the
Participant’s ability to make such a designation would cause any of the payments
and benefits to become subject to any additional tax under Code Section 409A, or
if the Participant fails to make such a designation within the time prescribed
by the Committee, then the Committee shall achieve the necessary reduction in
such payments and benefits by first reducing or eliminating the portion of the
payments and benefits that are payable in cash and then by reducing or
eliminating the non-cash portion of the payments and benefits, in each case in
reverse order beginning with payments and benefits which are to be paid or
provided the furthest in time from the date of the Committee’s determination.
For purposes of this Section 12(e), a net after-tax amount shall be determined
by taking into account all applicable income, excise and employment taxes,
whether imposed at the federal, state or local level, including the excise tax
imposed under Section 4999 of the Code.

 

13.     Plan Participation and Service Provider Status. Status as a Service
Provider shall not be construed as a commitment that any Award will be made
under the Plan to that Service Provider or to eligible Service Providers
generally. Nothing in the Plan or in any Agreement or related documents shall
confer upon any Service Provider or Participant any right to continued Service
with the Company or any Affiliate, nor shall it interfere with or limit in any
way any right of the Company or any Affiliate to terminate the person’s Service
at any time with or without Cause or change such person’s compensation, other
benefits, job responsibilities or title.

 

14.     Tax Withholding. The Company or any Affiliate, as applicable, shall have
the right to (i) withhold from any cash payment under the Plan or any other
compensation owed to a Participant an amount sufficient to cover any required
withholding taxes related to the grant, vesting, exercise or settlement of an
Award, and (ii) require a Participant or other person receiving Shares under the
Plan to pay a cash amount sufficient to cover any required withholding taxes
before actual receipt of those Shares. In lieu of all or any part of a cash
payment from a person receiving Shares under the Plan, the Committee may permit
the individual to cover all or any part of the required withholdings (up to the
Participant’s minimum required tax withholding rate) through a reduction in the
number of Shares delivered or a delivery or tender to the Company of Shares held
by the Participant or other person, in each case valued in the same manner as
used in computing the withholding taxes under applicable laws.

 

 

 
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15.     Effective Date, Duration, Amendment and Termination of the Plan.

 

(a)     Effective Date. The Plan shall become effective on the date it is
approved by the Company’s shareholders, which shall be considered the date of
its adoption for purposes of Treasury Regulation §1.422-2(b)(2)(i). No Awards
shall be made under the Plan prior to its effective date. If the Company’s
shareholders fail to approve the Plan within 12 months of its approval by the
Board, the Plan shall be of no further force or effect.

  

(b)     Duration of the Plan. The Plan shall remain in effect until all Shares
subject to it shall be distributed, the Plan is terminated pursuant to Section
15(c), or the tenth anniversary of the effective date of the Plan, whichever
occurs first (the “Termination Date”). Awards made before the Termination Date
shall continue to be outstanding in accordance with their terms unless limited
in the applicable Agreements.

 

(c)     Amendment and Termination of the Plan. The Board may at any time
terminate, suspend or amend the Plan. The Company shall submit any amendment of
the Plan to its shareholders for approval only to the extent required by
applicable laws or regulations or the rules of any securities exchange on which
the Shares may then be listed. No termination, suspension, or amendment of the
Plan may materially impair the rights of any Participant under a previously
granted Award without the Participant’s consent, unless such action is necessary
to comply with applicable law or stock exchange rules.

 

(d)     Amendment of Awards. Subject to Section 15(e), the Committee may
unilaterally amend the terms of any Agreement previously granted, except that no
such amendment may materially impair the rights of any Participant under the
applicable Award without the Participant’s consent, unless such amendment is
necessary to comply with applicable law or stock exchange rules or any
compensation recovery policy as provided in Section 18(i)(2).

 

(e)     No Option or SAR Repricing. Except as provided in Section 12(a), no
Option or Stock Appreciation Right Award granted under the Plan may be (i)
amended to decrease the exercise price thereof, (ii) cancelled in conjunction
with the grant of any new Option or Stock Appreciation Right Award with a lower
exercise price, (iii) cancelled in exchange for cash, other property or the
grant of any Full Value Award at a time when the per share exercise price of the
Option or Stock Appreciation Right Award is greater than the current Fair Market
Value of a Share, or (iv) otherwise subject to any action that would be treated
under accounting rules as a “repricing” of such Option or Stock Appreciation
Right Award, unless such action is first approved by the Company’s stockholders.

 

16.     Substitute Awards. The Committee may also grant Awards under the Plan in
substitution for, or in connection with the assumption of, existing awards
granted or issued by another corporation and assumed or otherwise agreed to be
provided for by the Company pursuant to or by reason of a transaction involving
a merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or an Affiliate is a party.
The terms and conditions of the Substitute Awards may vary from the terms and
conditions set forth in the Plan to the extent that the Committee at the time of
the grant may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.

 

17.     Performance-Based Compensation.

 

(a)     Designation of Awards. If the Committee determines at the time a Full
Value Award or a Cash Incentive Award is granted to a Participant that such
Participant is, or is likely to be, a “covered employee” for purposes of Code
Section 162(m) as of the end of the tax year in which the Company would
ordinarily claim a tax deduction in connection with such Award, then the
Committee may provide that this Section 17 will be applicable to such Award,
which shall be considered Performance-Based Compensation.

  

(b)     Compliance with Code Section 162(m). If an Award is subject to this
Section 17, then the lapsing of restrictions thereon and the distribution of
cash, Shares or other property pursuant thereto, as applicable, shall be subject
to the achievement over the applicable performance period of one or more
performance goals based on one or more of the performance measures specified in
Section 17(d). The Committee will select the applicable performance measure(s)
and specify the performance goal(s) based on those performance measures for any
performance period, specify in terms of an objective formula or standard the
method for calculating the amount payable to a Participant if the performance
goal(s) are satisfied, and certify the degree to which applicable performance
goals have been satisfied and any amount payable in connection with an Award
subject to this Section 17, all within the time periods prescribed by and
consistent with the other requirements of Code Section 162(m). In specifying the
performance goals applicable to any performance period, the Committee may
provide that one or more objectively determinable adjustments shall be made to
the performance measures on which the performance goals are based, which may
include adjustments that would cause such measures to be considered “non-GAAP
financial measures” within the meaning of Rule 101 under Regulation G
promulgated by the Securities and Exchange Commission. The Committee may also
adjust performance measures for a performance period to the extent permitted by
Code Section 162(m) in connection with an event described in Section 12(a) to
prevent the dilution or enlargement of a Participant’s rights with respect to
Performance-Based Compensation. The Committee may adjust downward, but not
upward, any amount determined to be otherwise payable in connection with such an
Award. The Committee may also provide, in an Agreement or otherwise, that the
achievement of specified performance goals in connection with an Award subject
to this Section 17 may be waived upon the death or Disability of the Participant
or under any other circumstance with respect to which the existence of such
possible waiver will not cause the Award to fail to qualify as
“performance-based compensation” under Code Section 162(m).

 

 

 
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(c)     Limitations. With respect to Awards of Performance-Based Compensation,
the maximum number of Shares that may be the subject of any Full Value Awards
that are denominated in Shares or Share equivalents and that are granted to any
one Participant during any calendar year shall not exceed 280,000 Shares
(subject to adjustment as provided in Section 12(a)). The maximum amount payable
with respect to any Cash Incentive Awards and Full Value Awards that are
denominated other than in Shares or Share equivalents and that are granted to
any one Participant during any calendar year shall not exceed $5,000,000
multiplied by the number of full or partial years in the applicable performance
period.

 

(d)     Performance Measures. For purposes of any Full Value Award considered
Performance-Based Compensation subject to this Section 17, the performance
measures to be utilized shall be limited to one or a combination of two or more
of the following: revenue or net sales; gross profit; operating profit; net
income; earnings before income taxes; earnings before one or more of interest,
taxes, depreciation, amortization and other adjustments; profitability as
measured by return ratios (including, but not limited to, return on assets,
return on equity, return on investment and return on revenues or gross profit)
or by the degree to which any of the foregoing earnings measures exceed a
percentage of revenues or gross profit; cash flow; market share; margins
(including one or more of gross, operating and net earnings margins); stock
price; total stockholder return; asset quality; non-performing assets; operating
assets; operating expenses; balance of cash, cash equivalents and marketable
securities; improvement in or attainment of expense levels or cost savings;
inventory levels; inventory or operating asset turnover; accounts receivable
levels (including measured in terms of days sales outstanding); economic value
added; improvement in or attainment of working capital levels; employee
retention; customer satisfaction; and implementation or completion of critical
projects; and growth in customer base. Any performance goal based on one or more
of the foregoing performance measures may, in the Committee’s discretion, be
expressed in absolute amounts, on a per share basis (basic or diluted), relative
to one or more other performance measures, as a growth rate or change from
preceding periods, or as a comparison to the performance of specified companies
or a published or special index (including stock market indices) or other
external measures, and may relate to one or any combination of Company,
Affiliate or business unit performance.

  

18.     Other Provisions.

 

(a)     Unfunded Plan. The Plan 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. Neither the Company, its Affiliates, the Committee, nor the
Board shall be deemed to be a trustee of any amounts to be paid under the Plan
nor shall anything contained in the Plan or any action taken pursuant to its
provisions create or be construed to create a fiduciary relationship between the
Company and/or its Affiliates, and a Participant. To the extent any person has
or acquires a right to receive a payment in connection with an Award under the
Plan, this right shall be no greater than the right of an unsecured general
creditor of the Company.

 

(b)     Limits of Liability. Except as may be required by law, neither the
Company nor any member of the Board or of the Committee, nor any other person
participating (including participation pursuant to a delegation of authority
under Section 3(c) of the Plan) in any determination of any question under the
Plan, or in the interpretation, administration or application of the Plan, shall
have any liability to any party for any action taken, or not taken, in good
faith under the Plan.

 

 

 
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(c)     Compliance with Applicable Legal Requirements. No Shares distributable
pursuant to the Plan shall be issued and delivered unless the issuance of the
Shares complies with all applicable legal requirements, including compliance
with the provisions of applicable state and federal securities laws, and the
requirements of any securities exchanges on which the Company’s Shares may, at
the time, be listed. The Committee may, in its discretion, suspend the right to
exercise Options or SARs to be settled in Shares, or delay the payment or
settlement of any other Awards to be paid or settled in Shares, during any
period in which the issuance of such Shares would not be in compliance with any
applicable legal or securities exchange requirements. During any period in which
the offering and issuance of Shares under the Plan are not registered under
federal or state securities laws, Participants shall acknowledge that they are
acquiring Shares under the Plan for investment purposes and not for resale, and
that Shares may not be transferred except pursuant to an effective registration
statement under, or an exemption from the registration requirements of, such
securities laws.  Any book-entry or stock certificate evidencing Shares issued
under the Plan that are subject to such securities law restrictions shall be
accompanied by or bear an appropriate restrictive legend.

 

(d)     Other Benefit and Compensation Programs. Payments and other benefits
received by a Participant under an Award made pursuant to the Plan shall not be
deemed a part of a Participant’s regular, recurring compensation for purposes of
the termination, indemnity or severance pay laws of any country or state and
shall not be included in, nor have any effect on, the determination of benefits
under any other employee benefit plan, contract or similar arrangement provided
by the Company or an Affiliate unless expressly so provided by such other plan,
contract or arrangement, or unless the Committee expressly determines that an
Award or portion of an Award should be included to accurately reflect
competitive compensation practices or to recognize that an Award has been made
in lieu of a portion of competitive cash compensation.

 

(e)     Governing Law. To the extent that federal laws do not otherwise control,
the Plan and all determinations made and actions taken pursuant to the Plan
shall be governed by the laws of the State of Minnesota without regard to its
conflicts-of-law principles and shall be construed accordingly.

 

(f)     Severability. If any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.

  

(g)     Code Section 409A. It is intended that (i) all Awards of Options, SARs
and Restricted Stock under the Plan will not provide for the deferral of
compensation within the meaning of Code Section 409A and thereby be exempt from
Code Section 409A, and (ii) all other Awards under the Plan will either not
provide for the deferral of compensation within the meaning of Code Section
409A, or will comply with the requirements of Code Section 409A, and the
Committee shall endeavor to structure Awards and administer and interpret the
Plan in accordance with this intent. The Plan and any Agreement may be
unilaterally amended by the Company in any manner deemed necessary or advisable
by the Committee or Board in order to maintain such exemption from or compliance
with Code Section 409A, and any such amendment shall conclusively be presumed to
be necessary to comply with applicable law. Notwithstanding anything to the
contrary in the Plan or any Agreement, with respect to any Award
that constitutes a deferral of compensation subject to Code Section 409A:

 

(1)     If any amount is payable under such Award upon a termination of Service,
a termination of Service will be deemed to have occurred only at such time as
the Participant has experienced a “separation from service” as such term is
defined for purposes of Code Section 409A; and

 

(2)     If any amount shall be payable with respect to any such Award as a
result of a Participant’s “separation from service” at such time as the
Participant is a “specified employee” within the meaning of Code Section 409A,
then no payment shall be made, except as permitted under Code Section 409A,
prior to the first business day after the earlier of (i) the date that is six
months after the Participant’s separation from Service or (ii) the Participant’s
death. Unless the Committee has adopted a specified employee identification
policy as contemplated by Code Section 409A, specified employees will be
identified in accordance with the default provisions specified under Code
Section 409A.

 

 

 
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Neither the Company, the Committee or any other person involved with the
administration of this Plan shall in any way be responsible for ensuring the
exemption of any Award from, or compliance by any Award with, the requirements
of Code Section 409A. By accepting an Award under this Plan, each Participant
acknowledges that the Company has no duty or obligation to design or administer
the Plan or Awards granted thereunder in a manner that minimizes a Participant’s
tax liabilities, including the avoidance of any additional tax liabilities under
Code Section 409A.

 

(h)     Rule 16b-3. It is intended that the Plan and all Awards granted pursuant
to it shall be administered by the Committee so as to permit the Plan and Awards
to comply with Exchange Act Rule 16b-3. If any provision of the Plan or of any
Award would otherwise frustrate or conflict with the intent expressed in this
Section 18(h), that provision to the extent possible shall be interpreted and
deemed amended in the manner determined by the Committee so as to avoid the
conflict. To the extent of any remaining irreconcilable conflict with this
intent, the provision shall be deemed void as applied to Participants subject to
Section 16 of the Exchange Act to the extent permitted by law and in the manner
deemed advisable by the Committee.

 

(i)     Forfeiture and Compensation Recovery.

 

(1)     The Committee may specify in an Agreement that the Participant's rights,
payments, and benefits with respect to an Award will be subject to reduction,
cancellation, forfeiture or recovery by the Company upon the occurrence of
certain specified events, in addition to any otherwise applicable vesting or
performance conditions of an Award. Such events may include termination of
Service for Cause, violation of any material Company or Affiliate policy, breach
of noncompetition, non-solicitation or confidentiality provisions that apply to
the Participant, a determination that the payment of the Award was based on an
incorrect determination that financial or other criteria were met or other
conduct by the Participant that is detrimental to the business or reputation of
the Company or its Affiliates.

  

(2)     Awards and any compensation associated therewith may be made subject
to forfeiture, recovery by the Company or other action pursuant to any
compensation recovery policy adopted by the Board or the Committee at any time,
including in response to the requirements of Section 10D of the Exchange Act and
any implementing rules and regulations thereunder, or as otherwise required by
law. Any Agreement may be unilaterally amended by the Committee to comply with
any such compensation recovery policy.

 

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