Exhibit 10.31

 

CAREMARK RX, INC.

 

1997 LONG TERM INCENTIVE COMPENSATION PLAN

 

CONTENTS

 

ARTICLE 1 ESTABLISHMENT, OBJECTIVES AND DURATION

   1

1.1 ESTABLISHMENT OF THE PLAN

   1

1.2 OBJECTIVES OF THE PLAN

   1

1.3 DURATION OF THE PLAN

   1

ARTICLE 2 DEFINITIONS

   2

2.1 “AFFILIATE”

   2

2.2 “AWARD”

   2

2.3 “AWARD AGREEMENT”

   2

2.4 “BENEFICIAL OWNER” or “BENEFICIAL OWNERSHIP”

   2

2.5 “BOARD” or “BOARD OF DIRECTORS”

   2

2.6 “CAUSE”

   3

2.7 “CHANGE IN CONTROL”

   5

2.8 “CODE”

   5

2.9 “COMMITTEE”

   5

2.10 “COMPANY”

   5

2.11 “DIRECTOR”

   5

2.12 “DISABILITY”

   5

2.13 “EFFECTIVE DATE”

   5

2.14 “ELIGIBLE PERSON”

   5

2.15 “EMPLOYEE”

   6

2.16 “EXCHANGE ACT”

   6

2.17 “FAIR MARKET VALUE”

   6

2.18 “IMMEDIATE FAMILY MEMBERS”

   6

2.19 “INCENTIVE STOCK OPTION” or “ISO”

   6

2.20 “INSIDER”

   6

 

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2.21 “NONEMPLOYEE DIRECTOR”

   6

2.22 “NONQUALIFIED STOCK OPTION” or “NQSO”

   6

2.23 “OPTION”

   7

2.24 “OPTION PRICE”

   7

2.25 “PARTICIPANT”

   7

2.26 “PERIOD OF RESTRICTION”

   7

2.27 “PERSON”

   7

2.28 “PLAN”

   7

2.29 “RESTRICTED STOCK”

   7

2.30 “RETIREMENT”

   7

2.31 “SHARES”

   8

2.32 “SUBSIDIARY”

   8

ARTICLE 3 ADMINISTRATION

   8

3.1 THE COMMITTEE

   8

3.2 AUTHORITY OF THE COMMITTEE

   8

3.3 DECISIONS BINDING

   8

3.4 COSTS OF PLAN

   9

ARTICLE 4 SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

   9

4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS

   9

4.2 ADJUSTMENTS IN AUTHORIZED SHARES

   10

ARTICLE 5 ELIGIBILITY AND PARTICIPATION

   10

5.1 ELIGIBILITY

   10

5.2 ACTUAL PARTICIPATION

   10

ARTICLE 6 STOCK OPTIONS

   10

6.1 GRANT OF OPTIONS

   10

6.2 AWARD AGREEMENT

   10

6.3 OPTION PRICE

   11

6.4 VESTING OF OPTIONS

   11

 

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6.5 DURATION OF OPTIONS

   12

6.6 EXERCISE OF OPTIONS

   12

6.7 PAYMENT

   12

6.8 RESTRICTIONS ON SHARE TRANSFERABILITY

   13

6.9 TERMINATION OF EMPLOYMENT

   13

6.10 NONTRANSFERABILITY OF OPTIONS

   14     

    (a)    INCENTIVE STOCK OPTIONS

   14     

    (b)    NONQUALIFIED STOCK OPTIONS

   14

ARTICLE 7 RESTRICTED STOCK

   15

7.1 GRANT OF RESTRICTED STOCK

   15

7.2 RESTRICTED STOCK AGREEMENT

   16

7.3 TRANSFERABILITY

   16

7.4 OTHER RESTRICTIONS

   16

7.5 VOTING RIGHTS

   16

7.6 DIVIDENDS AND OTHER DISTRIBUTIONS

   17

7.7 TERMINATION OF EMPLOYMENT

   17

ARTICLE 8 BENEFICIARY DESIGNATION

   18

ARTICLE 9 DEFERRALS

   18

ARTICLE 10 RIGHTS OF EMPLOYEES

   18

10.1 EMPLOYMENT

   18

10.2 PARTICIPATION

   18

ARTICLE 11 CHANGE IN CONTROL

   19

11.1 TREATMENT OF OUTSTANDING AWARDS

   19

11.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS

   19

ARTICLE 12 SALE OF BUSINESS UNIT OF COMPANY

   19

ARTICLE 13 AMENDMENT, MODIFICATION, AND TERMINATION

   20

13.1 AMENDMENT, MODIFICATION, AND TERMINATION

   20

13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING
EVENTS

   20

13.3 AWARDS PREVIOUSLY GRANTED

   20

 

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ARTICLE 14 WITHHOLDING

   21

14.1 TAX WITHHOLDING

   21

14.2 SHARE WITHHOLDING

   21

ARTICLE 15 INDEMNIFICATION

   21

ARTICLE 16 SUCCESSORS

   22

ARTICLE 17 LEGAL CONSTRUCTION

   22

17.1 GENDER AND NUMBER

   22

17.2 SEVERABILITY

   22

17.3 REQUIREMENTS OF LAW

   22

17.4 SECURITIES LAW COMPLIANCE

   22

17.5 GOVERNING LAW

   23

 

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CAREMARK RX, INC.

1997 LONG TERM INCENTIVE COMPENSATION PLAN

 

ARTICLE 1

 

ESTABLISHMENT, OBJECTIVES AND DURATION

 

1.1 ESTABLISHMENT OF THE PLAN. Caremark Rx, Inc., a Delaware corporation
(hereinafter referred to as the “Company”), hereby establishes an incentive
compensation plan to be known as the “Caremark Rx, Inc. 1997 Long Term Incentive
Compensation Plan” (hereinafter referred to as the “Plan”), as set forth in this
document. The Plan permits the grant of Incentive Stock Options, Nonqualified
Stock Options and Restricted Stock.

 

The Plan shall become effective as of February 25, 1997 (the “Effective Date”)
and shall remain in effect as provided in Section 1.3 hereof.

 

1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through the use of incentives which are
consistent with the Company’s objectives and which link the interests of
Participants to those of the Company’s stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.

 

The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company’s success and to allow Participants to
share in the success of the Company.

 

1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors or the Committee to amend or terminate the Plan
at any time pursuant to Article 12 hereof, until all Shares subject to it shall
have been purchased or acquired according to the Plan’s provisions. However, in
no event may an Incentive Stock Option be granted under the Plan on or after
February 25, 2007.

 

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ARTICLE 2

 

DEFINITIONS

 

Whenever used in the Plan, the following terms shall have the meanings set forth
below, and when the meaning is intended, the initial letter of the word shall be
capitalized:

 

2.1 “AFFILIATE” means a “parent corporation” or “subsidiary corporation” as
defined in Section 424 of the Code.

 

2.2 “AWARD” means, individually or collectively, a grant under this Plan of
Incentive Stock Options, Nonqualified Stock Options or Restricted Stock.

 

2.3 “AWARD AGREEMENT” means an agreement entered into by the Company and each
Participant setting forth the terms and provisions applicable to Awards granted
under this Plan.

 

2.4 “BENEFICIAL OWNER” or “BENEFICIAL OWNERSHIP” shall have the meaning ascribed
to such term in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.

 

2.5 “BOARD” or “BOARD OF DIRECTORS” means the Board of Directors of the Company.

 

2.6 “CAUSE” shall be determined by the Committee, exercising good faith and
reasonable judgment, and shall mean the occurrence of any one or more of the
following:

 

(a) The willful and continued failure by the Participant to substantially
perform his duties (other than any such failure resulting from the Participant’s
Disability) after a written demand for substantial performance is delivered by
the Committee to the Participant that specifically identifies the

 

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manner in which the Committee believes that the Participant has not
substantially performed his duties, and the Participant has failed to remedy the
situation within 30 calendar days of receiving such notice; or

 

(b) The Participant’s conviction for committing an act of fraud, embezzlement,
theft or another act constituting a felony; or

 

(c) The willful engaging by the Participant in gross misconduct materially and
demonstrably injurious to the Company, as determined by the Committee. However,
no act or failure to act on the Participant’s part shall be considered “willful”
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company.

 

2.7 “CHANGE IN CONTROL” of the Company shall be deemed to have occurred as of
the first day that any one or more of the following conditions shall have been
satisfied:

 

(a) The acquisition by any Person of Beneficial Ownership of 20% or more of
either (i) the then outstanding Shares, or (ii) the combined voting power of the
outstanding voting securities of the Company entitled to vote generally in the
selection of Directors; provided, however, that for purposes of this subsection,
the following transactions shall not constitute a Change of Control: (A) any
acquisition directly from the Company through a public offering of Shares,
(B) any acquisition by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (D) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) below;

 

(b) The cessation, for any reason, of the individuals who constitute the
Company’s Board of Directors as of the date hereof (“Incumbent Board”) to
constitute at least a majority of the Company’s Board of Directors; provided,
however, that any individual becoming a Director following the date hereof whose
election, or nomination for election by the Company’s stockholders, was approved
by a vote of at least a majority of the Directors then comprising the Incumbent
Board shall be considered as though such individual was a member of the
Incumbent Board, but

 

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excluding, for this purpose, any such individual whose initial assumption of
office occurs because of an actual or threatened election contest with respect
to the election or removal of Directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Company’s Board of Directors;

 

(c) The consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
(“Business Combination”) unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the Beneficial
Owners, respectively, of the outstanding Shares and the outstanding voting
securities of the Company immediately before such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding Shares and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of Directors, as
the case may be, of the Company resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company’s assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately before such Business Combination of
the outstanding Shares and the outstanding voting securities of the Company, as
the case may be; (ii) no party (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
before the Business Combination; and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Company’s Board of Directors at the time of the
execution of the initial agreement, or of the action of the Company’s Board of
Directors, providing for such Business Combination; or

 

(a) The approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

 

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(b) Any other condition or event (i) that the Committee determines to be a
“Change in Control” within the meaning of this Section 2.7 and (ii) that is set
forth as a supplement to this Section 2.7 in the Award Agreement.

 

2.8 “CODE” means the Internal Revenue Code of 1986, as amended from time to
time.

 

2.9 “COMMITTEE” means the Compensation Committee of the Board, as specified in
Article 3 herein, or such other Committee appointed by the Board to administer
the Plan with respect to grants of Awards.

 

2.10 “COMPANY” means Caremark Rx, Inc., and also means any corporation of which
a majority of the voting capital stock is owned directly or indirectly by
Caremark Rx, Inc. or by any of its Subsidiaries, and any other corporation
designated by the Committee as being a Company hereunder (but only during the
period of such ownership or designation).

 

2.11 “DIRECTOR” means any individual who is a member of the Board of Directors
of the Company.

 

2.12 “DISABILITY”, as applied to a Participant, means that the Participant
(a) has established to the satisfaction of the Committee that the Participant is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to last for a
continuous period of not less than 12 months (all within the meaning of
Section 22(e)(3) of the Code), and (b) has satisfied any requirement imposed by
the Committee in regard to evidence of such disability.

 

2.13 “EFFECTIVE DATE” shall have the meaning ascribed to such term in
Section 1.1 hereof.

 

2.14 “ELIGIBLE PERSON” shall mean all Employees, Directors or consultants of the
Company or any Affiliate; provided, however, that no Award may be granted to
anyone who is not an “employee” as that term is defined in General Instruction
A.(1)(a) of Form S-8, as such definition may be amended from time to time,
without first receiving advice and guidance from the Company’s outside counsel
as to the effect of such grant.

 

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2.15 “EMPLOYEE” means any officer or employee of the Company.

 

2.16 “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.

 

2.17 “FAIR MARKET VALUE” Except as otherwise determined by the Committee, the
“Fair Market Value” of a Share as of any date shall be equal to the closing sale
price of a Share as reported on The National Association of Securities Dealers’
New York Stock Exchange Composite Reporting Tape (or if the Shares are not
traded on The New York Stock Exchange, the closing sale price on the exchange on
which it is traded or as reported by an applicable automated quotation system)
(the “Composite Tape”), on the applicable date or, if no sales of Shares are
reported on such date, the closing sale price of a Share on the date the Shares
was last reported on the Composite Tape (or such other exchange or automated
quotation system, if applicable).

 

2.18 “IMMEDIATE FAMILY MEMBERS” means the spouse, children and grandchildren of
a Participant.

 

2.19 “INCENTIVE STOCK OPTION” or “ISO” means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.

 

2.20 “INSIDER” shall mean an individual who is, on the relevant date, a
Director, a 10% Beneficial Owner of any class of the Company’s equity securities
that is registered pursuant to Section 12 of the Exchange Act or an officer of
the Company, as defined under Section 16 of the Exchange Act and as determined
by the Board of Directors from time to time.

 

2.21 “NONEMPLOYEE DIRECTOR” means an individual who is a member of the Board of
Directors of the Company but who is not an Employee of the Company.

 

2.22 “NONQUALIFIED STOCK OPTION” or “NQSO” means an option to purchase Shares
granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.

 

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2.23 “OPTION” means an Incentive Stock Option or a Nonqualified Stock Option, as
described in Article 6 herein.

 

2.24 “OPTION PRICE” means the price at which a Share may be purchased by a
Participant pursuant to an Option.

 

2.25 “PARTICIPANT” means an Eligible Person who has outstanding an Award granted
under the Plan.

 

2.26 “PERIOD OF RESTRICTION” means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance objectives, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares of
Restricted Stock are subject to a substantial risk of forfeiture, as provided in
Article 7 herein.

 

2.27 “PERSON” shall have the meaning ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) thereof.

 

2.28 “PLAN” means the Caremark Rx, Inc. 1997 Long Term Incentive Compensation
Plan.

 

2.29 “RESTRICTED STOCK”means an Award granted to a Participant pursuant to
Article 7 herein.

 

2.30 “RETIREMENT” as applied to a Participant, means the Participant’s
termination of employment in a manner which qualifies the Participant to receive
immediately payable retirement benefits under the applicable retirement plan
maintained by the Company (the “Retirement Plan”), under the successor or
replacement of such Retirement Plan if it is then no longer in effect, or under
any other retirement plan maintained or adopted by the Company which is
determined by the Committee to be the functional equivalent of such Retirement
Plan; or, with respect to a Participant who may not or has not participated in a
retirement plan maintained by the Company or an Affiliate, “Retirement” shall
have the meaning determined by the Committee from time to time.

 

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2.31 “SHARES” means Common Stock of Caremark Rx, Inc., par value $.001 per
share.

 

2.32 “SUBSIDIARY” means any corporation, partnership, joint venture or other
entity in which the Company has a majority voting interest.

 

ARTICLE 3

 

ADMINISTRATION

 

3.1 THE COMMITTEE. The Plan shall be administered by the Committee, or by any
other committee appointed by the Board, which Committee shall consist solely of
two or more “Nonemployee Directors” within the meaning of Rule 16b-3 under the
Exchange Act, or any successor provision. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors.

 

3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate
of Incorporation or Bylaws of the Company, and subject to the provisions herein,
the Committee shall have full power to select Employees who shall participate in
the Plan; determine the sizes and types of Awards; determine the terms and
conditions of Awards in a manner not inconsistent with the Plan; construe and
interpret the Plan and any Award Agreement or other instrument entered into
under the Plan as they apply to Participants; establish, amend, or waive rules
and regulations for the Plan’s administration as they apply to Participants;
alter, amend, suspend or terminate the Plan in whole or in part; and (subject to
the provisions of Article 13 herein) amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan, as the Plan applies to Participants. As permitted by
law, the Committee may delegate its authority as identified herein.

 

3.3 DECISIONS BINDING. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan and all related orders and

 

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resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.

 

3.4 COSTS OF PLAN. The costs and expenses incurred in the operation and
administration of the Plan shall be borne by the Company.

 

ARTICLE 4

 

SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

 

4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as provided in
Section 4.2 herein, the number of Shares hereby reserved for issuance to
Participants under the Plan shall be 6,725,000.

 

The number of Shares reserved for issuance under the Plan shall automatically
increase on the first day of each calendar year during the term of this Plan,
beginning with the 1998 calendar year, by an amount equal to 1% of the Shares
outstanding on December 31 of the immediately preceding year. However, such
additional Shares shall not be available for grants of Incentive Stock Options,
unless and until the increase in the number of Shares provided for herein is
subsequently approved by the stockholders of the Company in accordance with
Section 422 of the Code.

 

Shares issued upon exercise of Options or Awards of Restricted Stock under the
Plan may be either authorized but unissued Shares or Shares re-acquired by the
Company. If, on or prior to the termination of the Plan, an Award granted
thereunder expires or is terminated for any reason without having been exercised
or vested in full, the unpurchased or unvested Shares covered thereby will again
become available for the grant of Awards under the Plan. Shares covered by
Options surrendered in connection with the exercise of other Options shall not
be deemed to have been exercised and shall again become available for the grant
of awards under the Plan.

 

Notwithstanding the foregoing, the maximum number of Shares of Restricted Stock
granted pursuant to Article 7 herein shall be an amount equal to one-fifth of
the total number of Shares reserved for issuance under the Plan.

 

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4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate
capitalization, such as a stock split, or a corporate transaction, such as any
merger, consolidation, separation, including a spin-off, or other distribution
of stock or property (excluding cash dividends) of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368) or any partial or complete liquidation of the
Company, such adjustment shall be made in the number and class of Shares which
may be delivered under Section 4.1, in the number and class of and/or price of
Shares subject to outstanding Awards granted under the Plan, and in the Award
limits set forth in Section 4.1, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.

 

ARTICLE 5

 

ELIGIBILITY AND PARTICIPATION

 

5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in this Plan.

 

5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee
may, from time to time, select from all Eligible Persons, those to whom Awards
shall be granted and shall determine the nature and amount of each Award.

 

ARTICLE 6

 

STOCK OPTIONS

 

6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options
may be granted to Participants in such number, and upon such terms, and at any
time and from time to time as shall be determined by the Committee.

 

6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an

 

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Award Agreement that shall specify the Option Price, the duration of the Option,
the number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine. Each such Award Agreement shall incorporate by
reference the terms and provisions of the Plan as in effect at the time of its
execution and may contain such other terms and provisions not contrary to the
Plan as shall be approved and adopted by the Committee. The Award Agreement also
shall specify whether the Option is intended to be an ISO within the meaning of
Code Section 422, or an NQSO whose grant is intended not to fall under the
provisions of Code Section 422.

 

6.3 OPTION PRICE. The Option Price for each grant of an Option under this Plan
shall be at least equal to 100% of the Fair Market Value of a Share on the date
the Option is granted; provided, however, that the exercise price of an ISO
granted to any person who owns, directly or indirectly, (or is treated as owning
by reason of attribution rules, currently set forth in Code Section 424), stock
of the Company constituting more than 10% of the total combined voting power of
the Company’s outstanding stock, or the stock of any of its corporate
subsidiaries, shall in no event be less than 110% of the Fair Market Value of
such Shares.

 

6.4 VESTING OF OPTIONS. Except as provided by the Committee in the applicable
Award Agreement, Options will vest and become exercisable as follows:

 

(a) 34% of the Options shall vest on the date such options are granted;

 

(b) 33% of the Options granted shall vest on each of the first anniversary and
second anniversary of the date such Options are granted; provided, however, that
if during the first year after the date such Secondary Options are granted, the
stock price of the Shares closes at or above $12.00 (or such other price
determined by the Committee and set forth in the applicable Award Agreement) for
any twenty (20) out of thirty (30) consecutive trading days, the 33% of the
Options due to vest on the first anniversary of the date such Secondary Options
are granted shall vest immediately at the end of such 20th day, and provided,
however, that if during the second year after the date such Options are granted,
the stock price of the Shares closes at or above $18.00 (or such other price
determined by the

 

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Committee and set forth in the applicable Award Agreement) for any twenty
(20) out of thirty (30) consecutive trading days, the 33% of the Options due to
vest on the second anniversary of the date such Options are granted shall vest
immediately at the end of such 20th day.

 

6.5 DURATION OF OPTIONS. Each Option granted to a Participant shall expire at
such time as the Committee shall determine at the time of grant; provided,
however, that no Incentive Stock Option shall be exercisable later than the
tenth anniversary date of its grant. Furthermore, each Stock Option granted to
any person who owns, directly or indirectly (or is treated as owning by reason
of attribution rules, currently set forth in Internal Revenue Code Section 424),
stock of the Company constituting more than 10% of the total combined voting
power of the Company’s outstanding stock, or the stock of any of its corporate
subsidiaries, is not exercisable after the expiration of five years from the
date such Option is granted.

 

6.6 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times as set forth in the vesting schedule in Section 6.4
hereof, unless otherwise set forth in the Award Agreement, and be subject to
such restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each Participant.
Notwithstanding any contrary provisions contained in this Plan, the aggregate
Fair Market Value (determined as of the time each ISO is granted) of the Shares
with respect to which ISO’s issued to any one person thereunder are exercisable
for the first time during any calendar year shall not exceed $100,000.

 

6.7 PAYMENT. Options granted under this Article 6 shall be exercised by the
delivery of a proper notice of exercise to the Company, setting forth the number
of Shares with respect to which the Option is to be exercised.

 

No shares of Common Stock shall be issued on the exercise of an Option unless
the Option Price is paid for in full at the time of exercise. Payment shall be
made in cash, which may be paid by check or other instrument acceptable to the
Company. In addition, subject to compliance with applicable laws and regulations
and such conditions as the Committee may impose, the Committee may elect to
accept payment in shares of Common Stock of the Company which are

 

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already owned by the Participant, valued at the Fair Market Value thereof on the
date of exercise. The Committee may also allow a Participant to exercise an
Option by use of proceeds to be received from the sale of Common Stock issuable
pursuant to the Option being exercised.

 

As soon as practicable after receipt of proper notification of exercise and full
payment, the Company shall deliver to the Participant, in the Participant’s
name, Share certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).

 

6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.

 

6.9 TERMINATION OF EMPLOYMENT.

 

(a) Except as otherwise provided in an Award Agreement or as provided in
paragraphs (b) and (c) below and except as otherwise specifically provided in
the Award Agreement, each Option, to the extent it has not been previously
exercised, shall terminate upon the earliest to occur of: (a) the expiration of
the Option period set forth in the Option Award Agreement; (b) for ISOs, the
expiration of three months following the Participant’s Retirement (following the
Participant’s Retirement, NQSOs shall terminate upon the expiration of the
Option period set forth in the Option Award Agreement); (c) the expiration of 12
months following the Participant’s death or Disability; (d) immediately upon the
Participant ceasing to be an employee, officer, consultant, director or
otherwise affiliated with the Company for Cause; or (e) the expiration of 90
days following the Participant ceasing to be an employee, officer, consultant,
director or otherwise affiliated with the Company for any reason other than
Cause, death, Disability, or Retirement.

 

(b) Except as otherwise provided in an Award Agreement, any Option granted after
September 21, 1998 (a “Secondary Option”), to the extent it has

 

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not been previously exercised, shall terminate upon the earliest to occur of:
(a) the expiration of the Secondary Option period set forth in the Award
Agreement; (b) the expiration of 12 months following the Participant’s death or
Disability; (c) immediately upon termination for Cause (as defined below); or
(d) the expiration of 90 days following the Participant’s termination of
employment for any reason other than Cause (as defined below), Change in
Control, death or Disability.

 

For purposes of the preceding sentence only, Cause means the Company, Subsidiary
or an Affiliate having cause to terminate a Participant’s status as an employee,
officer, consultant, or director or other affiliation with the Company under any
existing employment agreement between the Participant and the Company, a
Subsidiary or an Affiliate or, in the absence of such an employment agreement,
upon (i) the determination by the Committee that the Participant has ceased to
perform his duties to the Company, a Subsidiary or an Affiliate (other than as a
result of his incapacity due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect of his duties to such
party, (ii) the Committee’s determination that the Participant has engaged or is
about to engage in conduct materially injurious to the Company, a Subsidiary or
an Affiliate, or (iii) the Participant having been convicted of a felony.

 

(c) Notwithstanding the foregoing, any Secondary Option, to the extent it has
not been previously exercised prior to a Change in Control shall remain
exercisable for its full original term upon and following such Change in
Control.

 

6.10 NONTRANSFERABILITY OF OPTIONS.

 

(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.

 

(b) NONQUALIFIED STOCK OPTIONS. No NSO granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated,

 

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other than by will or by the laws of descent and distribution. Notwithstanding
the foregoing, to the extent not prohibited by any statute, rule or regulation
applicable to the Plan, the Options, or the registration with the Securities and
Exchange Commission of the Shares to be issued upon exercise of the Options, the
Committee may, in its discretion, authorize all or a portion of NQSOs granted to
a Participant to be on terms which permit transfer by such Participant to
(i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (A) there may be no
consideration for any such transfer, (B) the Award Agreement pursuant to which
such Options are granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Section, and
(C) subsequent transfers of transferred Options shall be prohibited except those
by will or the laws of descent and distribution. Following transfer, any such
Options shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of this
Plan, the term “Participant” shall be deemed to refer to the transferee. The
events of termination of employment shall continue to be applied with respect to
the original Participant, following which the Options shall be exercisable by
the transferee only to the extent, and for the periods specified in this
Section 6.9. Notwithstanding the foregoing, should the Committee provide that
Options granted be transferable, the Company by such action incurs no obligation
to notify or otherwise provide notice to a transferee of early termination of
the Option. In the event of a transfer, as set forth above, the original
Participant is and will remain subject to and responsible for any applicable
withholding taxes upon the exercise of such Options.

 

ARTICLE 7

 

RESTRICTED STOCK

 

7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the Plan,
the Committee, at any time and from time to time, may grant Shares of Restricted
Stock to Participants in such amounts as the Committee shall determine. Without
limiting the generality of the foregoing, Restricted Shares may be granted in
connection with payouts under other compensation programs of the Company.

 

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7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be evidenced
by a Restricted Stock Award Agreement that shall specify the Period(s) of
Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine.

 

7.3 TRANSFERABILITY. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Award Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.

 

7.4 OTHER RESTRICTIONS. Subject to Article 8 herein, the Committee shall impose
such other conditions and/or restrictions on any Shares of Restricted Stock
granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance objectives (Company-wide, business unit, and/or
individual), time-based restrictions on vesting following the attainment of the
performance objectives, and/or restrictions under applicable federal or state
securities laws.

 

At the discretion of the Committee, the Company may retain the certificates
representing Shares of Restricted Stock in the Company’s possession until such
time as all conditions and/or restrictions applicable to such Shares have been
satisfied.

 

Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.

 

7.5 VOTING RIGHTS. During the Period of Restriction, Participants holding Shares
of Restricted Stock granted hereunder may exercise full voting rights with
respect to those Shares.

 

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7.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. Such dividends may be paid currently, accrued as
contingent cash obligations, or converted into additional shares of Restricted
Stock, upon such terms as the Committee establishes.

 

The Committee may apply any restrictions to the dividends that the Committee
deems appropriate.

 

In the event that any dividend constitutes a “derivative security” or an “equity
security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be
subject to a vesting period equal to the remaining vesting period of the Shares
of Restricted Stock with respect to which the dividend is paid.

 

7.7 TERMINATION OF EMPLOYMENT. Upon a Participant’s death, Disability, or
Retirement, all Restricted Shares shall vest immediately. Each Restricted Stock
Award Agreement shall set forth the extent to which the Participant shall have
the right to retain unvested Restricted Shares following the date the
Participant ceases to be an employee, officer, consultant, director or otherwise
affiliated with the Company in all other circumstances. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with each Participant, need not be uniform among
all Shares of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment.

 

ARTICLE 8

 

BENEFICIARY DESIGNATION

 

A Participant under the Plan may make written designation of a beneficiary on
forms prescribed by and filed with the Corporate Secretary of the Company. Such
beneficiary, or if no such designation of any beneficiary has been

 

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made, the legal representative of such Participant or such other person entitled
thereto as determined by a court of competent jurisdiction, may exercise, in
accordance with and subject to the provisions of Article 6, any unterminated and
unexpired Option granted to such Participant to the same extent that the
Participant himself could have exercised such Option were he alive or able;
provided, however, that no Option granted under the Plan shall be exercisable
for more Shares than the Participant could have purchased thereunder on the date
his employment by, or other relationship with, the Company and its Subsidiaries
was terminated.

 

ARTICLE 9

 

DEFERRALS

 

The Committee may permit or require a Participant to defer such Participant’s
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option, the lapse or
waiver of restrictions with respect to Restricted Stock, or the satisfaction of
any requirements or objectives with respect to performance measures, if any. If
any such deferral election is required or permitted, the Committee shall, in its
sole discretion, establish rules and procedures for such payment deferrals.

 

ARTICLE 10

 

RIGHTS OF EMPLOYEES

 

10.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant’s employment at any time,
nor confer upon any Participant any right to continue in the employ of the
Company.

 

10.2 PARTICIPATION. No Employee shall have the right to be selected to receive
an Award under this Plan, or, having been so selected, to be selected to receive
a future Award.

 

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ARTICLE 11

 

CHANGE IN CONTROL

 

11.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges,:

 

(a) Any and all Options granted hereunder shall become immediately vested and
exercisable and shall remain exercisable throughout their entire term; and

 

(b) Any restriction periods and restrictions imposed on Shares of Restricted
Stock shall lapse; provided, however, that the degree of vesting associated with
Restricted Stock which has been conditioned upon the achievement of performance
conditions pursuant to Section 7.4 herein shall be determined in the manner set
forth in Section 7.4 herein.

 

11.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS.
Notwithstanding any other provision of this Plan or any Award Agreement
provision, the provisions of this Article 11 may not be terminated, amended, or
modified on or after the date of a Change in Control to affect adversely any
Award theretofore granted under the Plan without the prior written consent of
the Participant with respect to said Participant’s outstanding Awards.

 

ARTICLE 12

 

SALE OF BUSINESS UNIT OF COMPANY

 

The Committee, in connection with the sale of any Subsidiary, Affiliate,
division or other business unit of the Company, may within the Committee’s sole
and absolute discretion (1) cause any or all Options granted hereunder to
Participants whose Options or rights under Options will be adversely affected by
such transaction (a) to become immediately exercisable, or

 

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(b) to remain exercisable after such transaction for such period as the
Committee deems appropriate under the circumstances, or both (a) and (b), or
(2) cause the restrictions on any or all Shares of Restricted Stock awarded
hereunder to Participants whose Restricted Stock will be adversely affected by
such transaction to lapse immediately. The provision of this Article 12 and the
actions of the Committee taken pursuant to this Article 12 shall be effective
upon action of the Committee alone without amendment to any Award Agreement or
the consent of any Participant.

 

ARTICLE 13

 

AMENDMENT, MODIFICATION, AND TERMINATION

 

13.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 11.2 herein,
the Board or the Committee may at any time and from time to time, alter, amend,
suspend or terminate the Plan in whole or in part, except that, without approval
of the stockholders of the Company, no such revision or amendment shall increase
the number of shares available for grants of ISOs under the Plan or alter the
class of participants in the Plan.

 

Notwithstanding the foregoing, and subject to Section 11.2 herein, neither the
Company nor the Board or Committee on its behalf may cancel outstanding Awards
and issue substitute Awards in replacement thereof or reduce the exercise price
of any outstanding Options without stockholder approval.

 

13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING
EVENTS. The Committee may make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events (including, without limitation, the events described in Section 4.2
hereof) affecting the Company or the financial statements of the Company or of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan.

 

13.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or

 

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modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.

 

ARTICLE 14

 

WITHHOLDING

 

14.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.

 

14.2 SHARE WITHHOLDING. To the extent provided by the Committee, a Participant
may elect to have any distribution to be made under this Plan to be withheld or
to surrender to the Company Shares already owned by the Participant to fulfill
any tax withholding obligation.

 

ARTICLE 15

 

INDEMNIFICATION

 

Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company’s approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons

 

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may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.

 

ARTICLE 16

 

SUCCESSORS

 

All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation or otherwise.

 

ARTICLE 17

 

LEGAL CONSTRUCTION

 

17.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular; and, the singular shall include the plural.

 

17.2 SEVERABILITY. In the event 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.

 

17.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.

 

17.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the Exchange Act. To the extent any provision of the Plan
or action by the Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.

 

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17.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with and governed by
the laws of the state of Delaware.

 

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