Exhibit 10.1

ARC DOCUMENT SOLUTIONS, INC.

2014 STOCK INCENTIVE PLAN

(Adopted by the Board of Directors on March 13, 2014)

 

ARC DOCUMENT SOLUTIONS, INC.

2014 STOCK INCENTIVE PLAN

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Table of Contents

 

              Page  

SECTION 1. ESTABLISHMENT AND PURPOSE.

     5   

SECTION 2. DEFINITIONS.

     5     

(a)

   “Affiliate”      5     

(b)

   “Award”      5     

(c)

   “Award Agreement”      5     

(d)

   “Board of Directors” or “Board”      5     

(e)

   “Change in Control”      5     

(f)

   “Code”      7     

(g)

   “Committee”      7     

(h)

   “Company”      7     

(i)

   “Consultant”      7     

(j)

   “Employee”      7     

(k)

   “Exchange Act”      7     

(l)

   “Exercise Price”      7     

(m)

   “Fair Market Value”      7     

(n)

   “ISO”      8     

(o)

   “Nonstatutory Option”      8     

(p)

   “Option”      8     

(q)

   “Outside Director”      8     

(r)

   “Parent”      9     

(s)

   “Participant”      9     

(t)

   “Performance Based Award”      9     

(u)

   “Plan”      9     

(v)

   “Purchase Price”      9     

(w)

   “Restricted Share”      9     

(x)

   “SAR”      9     

(y)

   “Service”      9     

(z)

   “Share”      10     

(aa)

   “Stock”      10   

 

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(bb)

   “Stock Unit”      10     

(cc)

   “Subsidiary”      10     

(dd)

   “Total and Permanent Disability”      10    SECTION 3. ADMINISTRATION.     
10     

(a)

   Committee Composition      10     

(b)

   Committee for Non-Officer Grants      10     

(c)

   Committee Procedures      11     

(d)

   Committee Responsibilities      11     

(e)

   Cancellation and Re-Grant of Stock Awards.      12    SECTION 4. ELIGIBILITY.
     13     

(a)

   General Rule      13     

(b)

   Automatic Grants to Outside Directors      13     

(c)

   Ten-Percent Stockholders      13     

(d)

   Attribution Rules      13     

(e)

   Outstanding Stock      14    SECTION 5. STOCK SUBJECT TO PLAN.      14     

(a)

   Basic Limitation      14     

(b)

   Section 162(m) Award Limitation      14     

(c)

   Additional Shares      14     

(d)

   Substitution and Assumption of Awards      15    SECTION 6. RESTRICTED
SHARES.      15     

(a)

   Restricted Share Award Agreement      15     

(b)

   Payment for Awards      15     

(c)

   Vesting      15     

(d)

   Voting and Dividend Rights      16     

(e)

   Restrictions on Transfer of Shares      16    SECTION 7. TERMS AND CONDITIONS
OF OPTIONS.      16     

(a)

   Stock Option Award Agreement      16     

(b)

   Number of Shares      16     

(c)

   Exercise Price      16     

(d)

   Withholding Taxes      17     

(e)

   Exercisability and Term      17   

 

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(f)

   Exercise of Options      17     

(g)

   Effect of Change in Control      17     

(h)

   No Rights as a Stockholder      17     

(i)

   Modification, Extension and Renewal of Options      18     

(j)

   Restrictions on Transfer of Shares      18     

(k)

   Buyout Provisions      18    SECTION 8. PAYMENT FOR SHARES.      18     

(a)

   General Rule      18     

(b)

   Surrender of Stock      18     

(c)

   Cashless Exercise      19     

(d)

   Exercise/Pledge      19     

(e)

   Net Exercise      19     

(f)

   Other Forms of Payment      19     

(g)

   Limitations under Applicable Law      19    SECTION 9. STOCK APPRECIATION
RIGHTS.      19     

(a)

   SAR Award Agreement      19     

(b)

   Number of Shares      20     

(c)

   Exercise Price      20     

(d)

   Exercisability and Term      20     

(e)

   Effect of Change in Control      20     

(f)

   Exercise of SARs      20     

(g)

   Modification or Assumption of SARs      21     

(h)

   Buyout Provisions      21    SECTION 10. STOCK UNITS.      21     

(a)

   Stock Unit Award Agreement      21     

(b)

   Payment for Awards      21     

(c)

   Vesting Conditions      21     

(d)

   Voting and Dividend Rights      21     

(e)

   Form and Time of Settlement of Stock Units      22     

(f)

   Death of Participant      22     

(g)

   Creditors’ Rights      22    SECTION 11. CASH-BASED AWARDS      22   

 

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SECTION 12. ADJUSTMENT OF SHARES.      23     

(a)

   Adjustments      23     

(b)

   Dissolution or Liquidation      23     

(c)

   Reorganizations      23     

(d)

   Reservation of Rights      24    SECTION 13. AWARDS UNDER OTHER PLANS.     
24    SECTION 14. LEGAL AND REGULATORY REQUIREMENTS.      24    SECTION 15.
TAXES.      25     

(a)

   Withholding Taxes      25     

(b)

   Share Withholding      25     

(c)

   Section 409A.      25    SECTION 16. TRANSFERABILITY.      25    SECTION 17.
PERFORMANCE BASED AWARDS      26    SECTION 18. NO EMPLOYMENT RIGHTS.      27   
SECTION 19. DURATION AND AMENDMENTS.      28     

(a)

   Term of the Plan      28     

(b)

   Right to Amend the Plan      28     

(c)

   Effect of Termination      28    SECTION 20. EXECUTION.      29   

 

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ARC DOCUMENT SOLUTIONS, INC.

2014 STOCK INCENTIVE PLAN

SECTION 1. ESTABLISHMENT AND PURPOSE.

The Plan was adopted by the Board of Directors on March 13, 2014, and shall be
effective upon approval by the stockholders at the annual meeting on May 1, 2014
(the “Effective Date”).

The purpose of the Plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging Employees, Consultants and
Outside Directors to focus on critical long-range objectives, (b) encouraging
the attraction and retention of Employees, Consultants and Outside Directors
with exceptional qualifications and (c) linking Employees, Consultants and
Outside Directors directly to stockholder interests through increased stock
ownership. The Plan seeks to achieve this purpose by providing for Awards in the
form of restricted shares, stock units, options (which may constitute incentive
stock options or nonstatutory stock options) or stock appreciation rights.

SECTION 2. DEFINITIONS.

 

  (a) “Affiliate”

shall mean any entity other than a Subsidiary, if the Company and/or one or more
Subsidiaries own not less than 50% of such entity.

 

  (b) “Award”

shall mean any award of an Option, a SAR, a Restricted Share or a Stock Unit
Award under the Plan.

 

  (c) “Award Agreement”

shall mean the agreement between the Company and the recipient of an Award which
contains the terms, conditions and restrictions pertaining to such Award.

 

  (d) “Board of Directors” or “Board”

shall mean the Board of Directors of the Company, as constituted from time to
time.

 

  (e) “Change in Control”

shall mean the occurrence of any of the following events:

 

  (i) A change in the composition of the Board of Directors occurs, as a result
of which fewer than one-half of the incumbent directors are directors who
either:

 

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  (A) Had been directors of the Company on the “look-back date” (as defined
below) (the “original directors”); or

 

  (B) Were elected, or nominated for election, to the Board of Directors with
the affirmative votes of at least a majority of the aggregate of the original
directors who were still in office at the time of the election or nomination and
the directors whose election or nomination was previously so approved (the
“continuing directors”);

provided, however, that for this purpose, the “original directors” and
“continuing directors” shall not include any individual whose initial assumption
of office occurred as a result 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
Board; or

 

  (ii) Any “person” (as defined below) who by the acquisition or aggregation of
securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company’s then
outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the “Base
Capital Stock”); except that any change in the relative beneficial ownership of
the Company’s securities by any person resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock, and any decrease
thereafter in such person’s ownership of securities, shall be disregarded until
such person increases in any manner, directly or indirectly, such person’s
beneficial ownership of any securities of the Company; or

 

  (iii) The consummation of a merger or consolidation of the Company or a
Subsidiary of the Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company immediately
prior to such merger, consolidation or other reorganization own immediately
after such merger, consolidation or other reorganization more than 50% of the
voting power of the outstanding securities of each of (A) the Company (or its
successor) and (B) any direct or indirect parent corporation of the Company (or
its successor); or

 

  (iv) The sale, transfer or other disposition of all or substantially all of
the Company’s assets.

For purposes of subsection (e)(i) above, the term “look-back” date shall mean
the later of (1) the Effective Date or (2) the date 24 months prior to the date
of the event that may constitute a Change in Control.

 

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For purposes of subsection (e)(ii) above, the term “person” shall have the same
meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall
exclude (1) a trustee or other fiduciary holding securities under an employee
benefit plan maintained by the Company or a Parent or Subsidiary and (2) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the Stock.

Any other provision of this Section 2(e) notwithstanding, a transaction shall
not constitute a Change in Control if its sole purpose is to change the state of
the Company’s incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s
securities immediately before such transaction, and a Change in Control shall
not be deemed to occur if the Company files a registration statement with the
United States Securities and Exchange Commission for the initial or secondary
public offering of securities or debt of the Company to the public.

 

  (f) “Code”

shall mean the Internal Revenue Code of 1986, as amended.

 

  (g) “Committee”

shall mean the Compensation Committee as designated by the Board of Directors,
which is authorized to administer the Plan, as described in Section 3 hereof.

 

  (h) “Company”

shall mean ARC Document Solutions, Inc., a Delaware corporation.

 

  (i) “Consultant”

shall mean a consultant or advisor who provides bona fide services to the
Company, a Parent, a Subsidiary or an Affiliate as an independent contractor
(not including service as a member of the Board of Directors) or a member of the
board of directors of a Parent or a Subsidiary, in each case who is not an
Employee.

 

  (j) “Employee”

shall mean any individual who is a common-law employee of the Company, a Parent,
a Subsidiary or an Affiliate. However, service solely as an Outside Director, or
payment of a fee for such services, shall not cause an Outside Director to be
considered an “Employee” for purposes of the Plan.

 

  (k) “Exchange Act”

shall mean the Securities Exchange Act of 1934, as amended.

 

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  (l) “Exercise Price”

shall mean, in the case of an Option, the amount for which one Share may be
purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement. “Exercise Price,” in the case of a SAR, shall mean an amount,
as specified in the applicable SAR Agreement, which is subtracted from the Fair
Market Value of one Share in determining the amount payable upon exercise of
such SAR.

 

  (m) “Fair Market Value”

with respect to a Share, shall mean the market price of one Share, determined by
the Committee as follows:

 

  (i) If the Stock was traded on the New York Stock Exchange or any established
stock exchange (such as The Nasdaq Global Market or The Nasdaq Global Select
Market) or national market system on the date in question, then the Fair Market
Value shall be equal to the closing price reported on the last market trading
day by the applicable exchange or system on or prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Committee deems reliable;

 

  (ii) If the Stock was traded over-the-counter on the date in question, then
the Fair Market Value shall be equal to the last transaction price quoted for
such date by the OTC Bulletin Board or, if not so quoted, shall be equal to the
mean between the last reported representative bid and asked prices quoted for
such date by the principal automated inter-dealer quotation system on which the
Stock is quoted or, if the Stock is not quoted on any such system, by the Pink
Quote system; and

 

  (iii) If none of the foregoing provisions is applicable, then the Fair Market
Value shall be determined by the Committee in good faith on such basis as it
deems appropriate.

In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.

 

  (n) “ISO”

shall mean an employee incentive stock option described in Section 422 of the
Code.

 

  (o) “Nonstatutory Option”

or “NSO” shall mean an employee stock option that is not an ISO.

 

  (p) “Option”

shall mean an ISO or Nonstatutory Option granted under the Plan and entitling
the holder to purchase Shares.

 

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  (q) “Outside Director”

shall mean a member of the Board of Directors who is not a common-law employee
of, or paid consultant to, the Company, a Parent or a Subsidiary.

 

  (r) “Parent”

shall mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be a Parent commencing as of such date.

 

  (s) “Participant”

shall mean a person who holds an Award.

 

  (t) “Performance Based Award”

shall mean any Award granted to a Participant that is intended to qualify as
“performance-based compensation” under Section 162(m) of the Code.

 

  (u) “Plan”

shall mean this ARC Document Solutions, Inc. 2014 Stock Incentive Plan, as
amended from time to time.

 

  (v) “Purchase Price”

shall mean the consideration for which one Share may be acquired under the Plan
(other than upon exercise of an Option), as specified by the Committee.

 

  (w) “Restricted Share”

shall mean a Share awarded under the Plan.

 

  (x) “SAR”

shall mean a stock appreciation right granted under the Plan.

 

  (y) “Service”

shall mean service as an Employee. Consultant or Outside Director, subject to
such further limitations as may be set forth in the Plan or the applicable Award
Agreement. Service does not terminate when an Employee goes on a bona fide leave
of absence, that was approved by the Company in writing, if the terms of the
leave provide for continued Service crediting, or when continued Service
crediting is required by applicable law. However, for purposes of determining
whether an Option is entitled to ISO status, an Employee’s employment will be
treated as terminating three months after such Employee went on leave, unless
such Employee’s right to return to active work is guaranteed by law or by a
contract. Service terminates in any event when

 

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the approved leave ends, unless such Employee immediately returns to active
work. The Company determines which leaves of absence count toward Service, and
when Service terminates for all purposes under the Plan.

 

  (z) “Share”

shall mean one share of Stock, as adjusted in accordance with Section 12 (if
applicable).

 

  (aa) “Stock”

shall mean the Common Stock of the Company.

 

  (bb) “Stock Unit”

shall mean a bookkeeping entry representing the Company’s obligation to deliver
one Share (or distribute cash) on a future date in accordance with the
provisions of a Stock Unit Award Agreement.

 

  (cc) “Subsidiary”

shall mean any corporation, if the Company and/or one or more other Subsidiaries
own not less than 50% of the total combined voting power of all classes of
outstanding stock of such corporation. A corporation that attains the status of
a Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.

 

  (dd) “Total and Permanent Disability”

shall mean any permanent and total disability as defined by Section 22(e)(3) of
the Code.

SECTION 3. ADMINISTRATION.

 

  (a) Committee Composition.

The Plan shall be administered by the Committee, or by the Board acting as the
Committee. The Committee shall consist of two or more directors of the Company.
In addition, to the extent required by the Board, the composition of the
Committee shall satisfy (i) such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and (ii) such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption under
Section 162(m)(4)(C) of the Code.

 

  (b) Committee for Non-Officer Grants.

The Board may also appoint one or more separate committees of the Board, each
composed of one or more directors of the Company who need not satisfy the
requirements of Section 3(a), who may administer the Plan with respect to
Employees who are not considered officers or directors of the Company under
Section 16 of the Exchange Act, may grant Awards

 

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under the Plan to such Employees and may determine all terms of such grants.
Within the limitations of the preceding sentence, any reference in the Plan to
the Committee shall include such committee or committees appointed pursuant to
the preceding sentence. To the extent permitted by applicable laws, the
Committee may also authorize one or more officers of the Company to designate
Employees, other than officers under Section 16 of the Exchange Act, to receive
Awards and/or to determine the number of such Awards to be received by such
persons; provided, however, that the Committee shall specify the total number of
Awards that such officers may so award.

 

  (c) Committee Procedures.

The Board of Directors shall designate one of the members of the Committee as
chairman. The Committee may hold meetings at such times and places as it shall
determine. The acts of a majority of the Committee members present at meetings
at which a quorum exists, or acts reduced to or approved in writing (including
via email) by all Committee members, shall be valid acts of the Committee.

 

  (d) Committee Responsibilities.

Subject to the provisions of the Plan, the Committee shall have full authority
and discretion to take the following actions:

 

  (i) To interpret the Plan and to apply its provisions;

 

  (ii) To adopt, amend or rescind rules, procedures and forms relating to the
Plan;

 

  (iii) To adopt, amend or terminate sub-plans established for the purpose of
satisfying applicable foreign laws including qualifying for preferred tax
treatment under applicable foreign tax laws;

 

  (iv) To authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the Plan;

 

  (v) To determine when Awards are to be granted under the Plan;

 

  (vi) To select the Participants to whom Awards are to be granted;

 

  (vii) To determine the type of Award and number of Shares or amount of cash to
be made subject to each Award;

 

  (viii) To prescribe the terms and conditions of each Award, including (without
limitation) the Exercise Price and Purchase Price, and the vesting or duration
of the Award (including accelerating the vesting of Awards, either at the time
of the Award or thereafter, without the consent of the Participant), to
determine whether an Option is to be classified as an ISO or as a Nonstatutory
Option, and to specify the provisions of the agreement relating to such Award;

 

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  (ix) To amend any outstanding Award Agreement, subject to applicable legal
restrictions and to the consent of the Participant if the Participant’s rights
or obligations would be materially impaired;

 

  (x) To prescribe the consideration for the grant of each Award or other right
under the Plan and to determine the sufficiency of such consideration;

 

  (xi) To determine the disposition of each Award or other right under the Plan
in the event of a Participant’s divorce or dissolution of marriage;

 

  (xii) To determine whether Awards under the Plan will be granted in
replacement of other grants under an incentive or other compensation plan of an
acquired business;

 

  (xiii) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award Agreement;

 

  (xiv) To establish or verify the extent of satisfaction of any performance
goals or other conditions applicable to the grant, issuance, exercisability,
vesting and/or ability to retain any Award; and

 

  (xv) To take any other actions deemed necessary or advisable for the
administration of the Plan.

Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Awards under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Participants and all persons deriving their rights from a Participant. No
member of the Committee shall be liable for any action that he has taken or has
failed to take in good faith with respect to the Plan or any Award under the
Plan.

 

  (e) Cancellation and Re-Grant of Stock Awards.

Notwithstanding any contrary provision of the Plan, neither the Board nor the
Committee, nor their designees, shall have the authority to: (i) amend the terms
of outstanding Options or SARs to reduce the Exercise Price thereof, (ii) cancel
outstanding Options or SARs in exchange for Options or SARs with an Exercise
Price that is less than the exercise price of such cancelled Options or SARs, or
(iii) cancel outstanding Options or SARs with an Exercise Price above the
current Fair Market Value per Share in exchange for cash, another Award or other
securities, in each case unless the stockholders of the Company have previously
approved such an action or such action relates to an adjustment pursuant to
Section 12.

 

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SECTION 4. ELIGIBILITY.

 

  (a) General Rule.

Only Employees, Consultants and Outside Directors shall be eligible for the
grant of Awards. Only common-law employees of the Company, a Parent or a
Subsidiary shall be eligible for the grant of ISOs.

 

  (b) Automatic Grants to Outside Directors.

 

  (i) On the date of each regular annual meeting of the Company’s stockholders,
commencing with the first annual meeting occurring on or after the Effective
Date, each Outside Director shall receive a Restricted Stock Award for a number
of shares of Common Stock (rounded to the nearest whole share) having a Fair
Market Value equal to $60,000, which award shall vest at 100% 12 months after
the date of such annual meeting subject to the Outside Directors continuous
Service. Notwithstanding the foregoing, each Option granted under this
Section 4(b)(i) shall become vested if a Change in Control occurs with respect
to the Company during the Participant’s Service.

 

  (ii) The Board of Directors or the Committee in its discretion may change and
otherwise revise the terms of the Restricted Stock Awards granted to Outside
Directors under this Section 4(b), including, without limitation, the number of
Shares subject thereto, the type of Award to be granted under this Section 4(b),
for Awards granted on or after the date the Board of Directors or Committee
determines to make any such change or revision.

 

  (c) Ten-Percent Stockholders.

An Employee who owns more than 10% of the total combined voting power of all
classes of outstanding stock of the Company, a Parent or Subsidiary shall not be
eligible for the grant of an ISO unless such grant satisfies the requirements of
Section 422(c)(5) of the Code.

 

  (d) Attribution Rules.

For purposes of Section 4(c) above, in determining stock ownership, an Employee
shall be deemed to own the stock owned, directly or indirectly, by or for such
Employee’s brothers, sisters, spouse, ancestors and lineal descendants. Stock
owned, directly or indirectly, by or for a corporation, partnership, estate or
trust shall be deemed to be owned proportionately by or for its stockholders,
partners or beneficiaries.

 

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  (e) Outstanding Stock.

For purposes of Section 4(c) above, “outstanding stock” shall include all stock
actually issued and outstanding immediately after the grant. “Outstanding stock”
shall not include shares authorized for issuance under outstanding options held
by the Employee or by any other person.

SECTION 5. STOCK SUBJECT TO PLAN.

 

  (a) Basic Limitation.

Shares offered under the Plan shall be authorized but unissued Shares or
treasury Shares. The aggregate number of Shares authorized for issuance as
Awards under the Plan shall not exceed the sum of (x) 6,319,624 Shares, plus
(y) the sum of the number of Shares subject to outstanding awards under the
Company’s 2005 Stock Plan (the “Predecessor Plan”) on the Effective Date that
are subsequently forfeited or terminated for any reason before being exercised
or settled, plus the number of Shares subject to vesting restrictions under the
Predecessor Plan on the Effective Date that are subsequently forfeited, plus the
number of reserved Shares not issued or subject to outstanding grants under the
Predecessor Plan on the Effective Date, in an aggregate amount not to exceed
7,000,000 Shares. Notwithstanding the foregoing, (i) the number of Shares that
may be delivered in the aggregate pursuant to Restricted Shares and Stock Units
awarded under the Plan shall not exceed 2,000,000 Shares, and (ii) the number of
Shares that may be delivered in the aggregate pursuant to the exercise of ISOs
granted under the Plan shall not exceed 7,000,000 Shares plus, to the extent
allowable under Section 422 of the Code and the Treasury Regulations promulgated
thereunder, any Shares that become available for issuance under the Plan
pursuant to Section 5(c). The limitations of this Section 5(a) shall be subject
to adjustment pursuant to Section 12. The number of Shares that are subject to
Awards outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company
shall at all times reserve and keep available sufficient Shares to satisfy the
requirements of the Plan.

 

  (b) Section 162(m) Award Limitation.

Notwithstanding any contrary provisions of the Plan, and subject to the
provisions of Section 12, with respect to any Option or SAR that is intended to
qualify as “performance-based compensation” under Section 162(m) of the Code, no
Participant may receive Options or SARs under the Plan in any calendar year that
relate to an aggregate of more than 500,000 Shares, and no more than two times
this amount in the first year of employment. To the extent required by
Section 162(m) of the Code or the regulations thereunder, in applying the
foregoing limitation with respect to a Participant, if any Option or SAR is
canceled, the canceled Option or SAR shall continue to count against the maximum
number of Shares with respect to which Options and SARs may be granted to the
Participant. For this purpose, the repricing of an Option or SAR shall be
treated as the cancellation of the existing Option or SAR and the grant of a new
Option or SAR.

 

  (c) Additional Shares.

If Restricted Shares or Shares issued upon the exercise of Options are
forfeited, then such Shares shall again become available for Awards under the
Plan. If Stock Units, Options or SARs are forfeited, expire or terminate for any
reason before being exercised or settled, or an

 

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Award is settled in cash without the delivery of Shares to the holder, then any
Shares subject to the Award shall again become available for Awards under the
Plan. Only the number of Shares (if any) actually issued in settlement of Awards
(and not forfeited) shall reduce the number available in Section 5(a) and the
balance shall again become available for Awards under the Plan. Notwithstanding
the foregoing provisions of this Section 5(c), Shares that have actually been
issued shall not again become available for Awards under the Plan, except for
Shares that are forfeited and do not become vested.

 

  (d) Substitution and Assumption of Awards.

The Committee may make Awards under the Plan by assumption, substitution or
replacement of stock options, stock appreciation rights, stock units or similar
awards granted by another entity (including a Parent or Subsidiary), if such
assumption, substitution or replacement is in connection with an asset
acquisition, stock acquisition, merger, consolidation or similar transaction
involving the Company (and/or its Parent or Subsidiary) and such other entity
(and/or its affiliate). The terms of such assumed, substituted or replaced
Awards shall be as the Committee, in its discretion, determines is appropriate.
Any such substitute or assumed Awards shall not count against the Share
limitation set forth in Section 5(a).

SECTION 6. RESTRICTED SHARES.

 

  (a) Restricted Share Award Agreement.

Each grant of Restricted Shares under the Plan shall be evidenced by a
Restricted Share Award Agreement between the Participant and the Company. Such
Restricted Shares shall be subject to all applicable terms of the Plan and may
be subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Restricted Share Award Agreements entered into under
the Plan need not be identical.

 

  (b) Payment for Awards.

Restricted Shares may be sold or awarded under the Plan for such consideration
as the Committee may determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, past services and future services.

 

  (c) Vesting.

Unless the Committee specifies an alternative vesting schedule (including that
such Award shall not be subject to vesting) in the applicable Restricted Share
Award Agreement, thirty-three and one-third percent (33 1/3%) of the Shares
subject to each Award of Restricted Shares shall vest annually on the
anniversary of the date of grant beginning with the first anniversary of the
date of grant. Any other vesting schedule, as determined by the Committee, shall
occur, in full or in installments, upon satisfaction of the conditions specified
in the Restricted Share Award Agreement. A Restricted Share Award Agreement may
provide for accelerated vesting in the event of the Participant’s death,
disability or retirement or other events. The Committee may determine, at the
time of granting Restricted Shares or thereafter, that all or part of such
Restricted Shares shall become vested in the event that a Change in Control
occurs with respect to the Company.

 

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  (d) Voting and Dividend Rights.

The holders of Restricted Shares awarded under the Plan shall have the same
voting, dividend and other rights as the Company’s other stockholders. A
Restricted Share Award Agreement, however, may require that the holders of
Restricted Shares invest any cash dividends received in additional Restricted
Shares. Such additional Restricted Shares shall be subject to the same
conditions and restrictions as the Award with respect to which the dividends
were paid.

 

  (e) Restrictions on Transfer of Shares.

Restricted Shares shall be subject to such rights of repurchase, rights of first
refusal or other restrictions as the Committee may determine. Such restrictions
shall be set forth in the applicable Restricted Share Award Agreement and shall
apply in addition to any general restrictions that may apply to all holders of
Shares.

SECTION 7. TERMS AND CONDITIONS OF OPTIONS.

 

  (a) Stock Option Award Agreement.

Each grant of an Option under the Plan shall be evidenced by a Stock Option
Award Agreement between the Participant and the Company. Such Option shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Option Award
Agreement. The Stock Option Award Agreement shall specify whether the Option is
an ISO or an NSO. The provisions of the various Stock Option Award Agreements
entered into under the Plan need not be identical.

 

  (b) Number of Shares.

Each Stock Option Award Agreement shall specify the number of Shares that are
subject to the Option and shall provide for the adjustment of such number in
accordance with Section 12.

 

  (c) Exercise Price.

Each Stock Option Award Agreement shall specify the Exercise Price. The Exercise
Price of an ISO shall not be less than 100% of the Fair Market Value of a Share
on the date of grant, except as otherwise provided in 4(c), and the Exercise
Price of an NSO shall not be less 100% of the Fair Market Value of a Share on
the date of grant. Notwithstanding the foregoing, Options may be granted with an
Exercise Price of less than 100% of the Fair Market Value per Share on the date
of grant pursuant to a transaction described in, and in a manner consistent
with, Section 424(a) of the Code. Subject to the foregoing in this Section 7(c),
the Exercise Price under any Option shall be determined by the Committee in its
sole discretion. The Exercise Price shall be payable in one of the forms
described in Section 8.

 

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  (d) Withholding Taxes.

As a condition to the exercise of an Option, the Participant shall make such
arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with such exercise. The Participant shall also make such arrangements as the
Committee may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.

 

  (e) Exercisability and Term.

Each Stock Option Award Agreement shall specify the date when all or any
installment of the Option is to become exercisable. Unless the Committee
specifies otherwise in the applicable Stock Option Award Agreement, thirty-three
and one-third percent (33 1⁄3%) of the Shares subject to each Award of Options
shall vest and become exercisable annually on the anniversary of the date of
grant beginning with the first anniversary of the date of grant. The Stock
Option Award Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed 10 years from the date of grant
(five years for ISOs granted to Employees described in Section 4(c)). A Stock
Option Award Agreement may provide for accelerated exercisability in the event
of the Participant’s death, disability, or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Participant’s Service. Options may be awarded in combination
with SARs, and such an Award may provide that the Options will not be
exercisable unless the related SARs are forfeited. Subject to the foregoing in
this Section 7(e), the Committee at its sole discretion shall determine when all
or any installment of an Option is to become exercisable and when an Option is
to expire.

 

  (f) Exercise of Options.

Each Stock Option Award Agreement shall set forth the extent to which the
Participant shall have the right to exercise the Option following termination of
the Participant’s Service with the Company and its Subsidiaries, and the right
to exercise the Option of any executors or administrators of the Participant’s
estate or any person who has acquired such Option(s) directly from the
Participant by bequest or inheritance. Such provisions shall be determined in
the sole discretion of the Committee, need not be uniform among all Options
issued pursuant to the Plan, and may reflect distinctions based on the reasons
for termination of Service.

 

  (g) Effect of Change in Control.

The Committee may determine, at the time of granting an Option or thereafter,
that such Option shall become exercisable as to all or part of the Shares
subject to such Option in the event that a Change in Control occurs with respect
to the Company.

 

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  (h) No Rights as a Stockholder.

A Participant shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for
such Shares. No adjustments shall be made, except as provided in Section 12.

 

  (i) Modification, Extension and Renewal of Options.

Within the limitations of the Plan, the Committee may modify, extend or renew
outstanding options or may accept the cancellation of outstanding options (to
the extent not previously exercised), whether or not granted hereunder, in
return for the grant of new Options for the same or a different number of Shares
and at the same or a different Exercise Price, or in return for the grant of a
different Award for the same or a different number of Shares, without
stockholder approval; provided that the Committee may not take any such action
that would be treated as a repricing under generally accepted accounting
principles without stockholder approval. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Participant,
materially impair his or her rights or obligations under such Option.

 

  (j) Restrictions on Transfer of Shares.

Any Shares issued upon exercise of an Option shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Committee may determine. Such restrictions shall be
set forth in the applicable Stock Option Award Agreement and shall apply in
addition to any general restrictions that may apply to all holders of Shares.

 

  (k) Buyout Provisions.

The Committee may at any time (a) offer to buy out for a payment in cash or cash
equivalents an Option previously granted or (b) authorize a Participant to elect
to cash out an Option previously granted, in either case at such time and based
upon such terms and conditions as the Committee shall establish.

SECTION 8. PAYMENT FOR SHARES.

 

  (a) General Rule.

The entire Exercise Price or Purchase Price of Shares issued under the Plan
shall be payable in lawful money of the United States of America at the time
when such Shares are purchased, except as provided in Section 8(b) through
Section 8(h) below.

 

  (b) Surrender of Stock.

To the extent that a Stock Option Award Agreement so provides, payment may be
made all or in part by surrendering, or attesting to the ownership of, Shares
which have already been owned by the Participant or his representative. Such
Shares shall be valued at their Fair Market Value on the date when the new
Shares are purchased under the Plan. The Participant shall not surrender, or
attest to the ownership of, Shares in payment of the Exercise Price if such
action would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.

 

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  (c) Cashless Exercise.

To the extent that a Stock Option Award Agreement so provides, payment may be
made all or in part by delivery (on a form prescribed by the Committee) of an
irrevocable direction to a securities broker to sell Shares and to deliver all
or part of the sale proceeds to the Company in payment of the aggregate Exercise
Price.

 

  (d) Exercise/Pledge.

To the extent that a Stock Option Award Agreement so provides, payment may be
made all or in part by delivery (on a form prescribed by the Committee) of an
irrevocable direction to a securities broker or lender to pledge Shares, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of the aggregate Exercise Price.

 

  (e) Net Exercise.

To the extent that a Stock Option Award Agreement so provides, by a “net
exercise” arrangement pursuant to which the number of Shares issuable upon
exercise of the Option shall be reduced by the largest whole number of Shares
having an aggregate Fair Market Value that does not exceed the aggregate
exercise price (plus tax withholdings, if applicable) and any remaining balance
of the aggregate exercise price (and/or applicable tax withholdings) not
satisfied by such reduction in the number of whole Shares to be issued shall be
paid by the Optionee in cash other form of payment permitted under the Stock
Option Agreement.

 

  (f) Other Forms of Payment.

To the extent that a Stock Option Award Agreement or Restricted Share Award
Agreement so provides, payment may be made in any other form that is consistent
with applicable laws, regulations and rules.

 

  (g) Limitations under Applicable Law.

Notwithstanding anything herein or in a Stock Option Award Agreement or
Restricted Share Award Agreement to the contrary, payment may not be made in any
form that is unlawful, as determined by the Committee in its sole discretion.

SECTION 9. STOCK APPRECIATION RIGHTS.

 

  (a) SAR Award Agreement.

Each grant of a SAR under the Plan shall be evidenced by a SAR Award Agreement
between the Participant and the Company. Such SAR shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various SAR Award Agreements
entered into under the Plan need not be identical.

 

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  (b) Number of Shares.

Each SAR Award Agreement shall specify the number of Shares to which the SAR
pertains and shall provide for the adjustment of such number in accordance with
Section 12.

 

  (c) Exercise Price.

Each SAR Award Agreement shall specify the Exercise Price. The Exercise Price of
a SAR shall not be less than 100% of the Fair Market Value of a Share on the
date of grant. Notwithstanding the foregoing, SARs may be granted with an
Exercise Price of less than 100% of the Fair Market Value per Share on the date
of grant pursuant to a transaction described in, and in a manner consistent
with, Section 424(a) of the Code. Subject to the foregoing in this Section 9(c),
the Exercise Price under any SAR shall be determined by the Committee in its
sole discretion.

 

  (d) Exercisability and Term.

Each SAR Award Agreement shall specify the date when all or any installment of
the SAR is to become exercisable. Unless the Committee specifies otherwise in
the applicable SAR Award Agreement, thirty-three and one-third percent (33 1⁄3%)
of the SAR shall vest and become exercisable annually on the anniversary of the
date of grant beginning with the first anniversary of the date of grant. The SAR
Award Agreement shall also specify the term of the SAR. A SAR Award Agreement
may provide for accelerated exercisability in the event of the Participant’s
death, disability or retirement or other events and may provide for expiration
prior to the end of its term in the event of the termination of the
Participant’s service. SARs may be awarded in combination with Options, and such
an Award may provide that the SARs will not be exercisable unless the related
Options are forfeited. A SAR may be included in an ISO only at the time of grant
but may be included in an NSO at the time of grant or thereafter. A SAR granted
under the Plan may provide that it will be exercisable only in the event of a
Change in Control.

 

  (e) Effect of Change in Control.

The Committee may determine, at the time of granting a SAR or thereafter, that
such SAR shall become fully exercisable as to all Common Shares subject to such
SAR in the event that a Change in Control occurs with respect to the Company.

 

  (f) Exercise of SARs.

Upon exercise of a SAR, the Participant (or any person having the right to
exercise the SAR after his or her death) shall receive from the Company
(a) Shares, (b) cash or (c) a combination of Shares and cash, as the Committee
shall determine. The amount of cash and/or the Fair Market Value of Shares
received upon exercise of SARs shall, in the aggregate, be equal to the amount
by which the Fair Market Value (on the date of surrender) of the Shares subject
to the SARs exceeds the Exercise Price.

 

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  (g) Modification or Assumption of SARs.

Within the limitations of the Plan, the Committee may modify, extend or assume
outstanding SARs or may accept the cancellation of outstanding SARs (whether
granted by the Company or by another issuer) in return for the grant of new SARs
for the same or a different number of shares and at the same or a different
exercise price, or in return for the grant of a different Award for the same or
a different number of Shares, without stockholder approval. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of the
holder, materially impair his or her rights or obligations under such SAR.

 

  (h) Buyout Provisions.

The Committee may at any time (a) offer to buy out for a payment in cash or cash
equivalents a SAR previously granted, or (b) authorize a Participant to elect to
cash out a SAR previously granted, in either case at such time and based upon
such terms and conditions as the Committee shall establish.

SECTION 10. STOCK UNITS.

 

  (a) Stock Unit Award Agreement.

Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit
Award Agreement between the Participant and the Company. Such Stock Units shall
be subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
Stock Unit Award Agreements entered into under the Plan need not be identical.

 

  (b) Payment for Awards.

To the extent that an Award is granted in the form of Stock Units, no cash
consideration shall be required of the Award recipients.

 

  (c) Vesting Conditions.

Each Award of Stock Units may or may not be subject to vesting. Vesting shall
occur, in full or in installments, upon satisfaction of the conditions specified
in the Stock Unit Award Agreement. Unless the Committee specifies otherwise in
the applicable Stock Unit Award Agreement, thirty-three and one-third percent
(33 1/3%) of such Award shall vest annually on the anniversary of the date of
grant beginning with the first anniversary of the date of grant. A Stock Unit
Award Agreement may provide for accelerated vesting in the event of the
Participant’s death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that a Change in Control
occurs with respect to the Company.

 

  (d) Voting and Dividend Rights.

The holders of Stock Units shall have no voting rights. Prior to settlement or
forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s
discretion, carry with it a right to dividend equivalents. Such right entitles
the holder to be credited with an amount equal to all

 

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cash dividends paid on one Share while the Stock Unit is outstanding. Dividend
equivalents may be converted into additional Stock Units. Settlement of dividend
equivalents may be made in the form of cash, in the form of Shares, or in a
combination of both. Prior to distribution, any dividend equivalents which are
not paid shall be subject to the same conditions and restrictions (including
without limitation, any forfeiture conditions) as the Stock Units to which they
attach.

 

  (e) Form and Time of Settlement of Stock Units.

Settlement of vested Stock Units may be made in the form of (a) cash, (b) Shares
or (c) any combination of both, as determined by the Committee. The actual
number of Stock Units eligible for settlement may be larger or smaller than the
number included in the original Award, based on predetermined performance
factors. Methods of converting Stock Units into cash may include (without
limitation) a method based on the average Fair Market Value of Shares over a
series of trading days. A Stock Unit Award Agreement may provide that vested
Stock Units may be settled in a lump sum or in installments. A Stock Unit Award
Agreement may provide that the distribution may occur or commence when all
vesting conditions applicable to the Stock Units have been satisfied or have
lapsed, or it may be deferred to any later date, subject to compliance with
Section 409A of the Code. The amount of a deferred distribution may be increased
by an interest factor or by dividend equivalents. Until an Award of Stock Units
is settled, the number of such Stock Units shall be subject to adjustment
pursuant to Section 12.

 

  (f) Death of Participant.

Any Stock Unit Award that becomes payable after the Participant’s death shall be
distributed to the Participant’s beneficiary or beneficiaries. Each recipient of
a Stock Unit Award under the Plan shall designate one or more beneficiaries for
this purpose by filing the prescribed form with the Company. A beneficiary
designation may be changed by filing the prescribed form with the Company at any
time before the Participant’s death. If no beneficiary was designated or if no
designated beneficiary survives the Participant, then any Stock Units Award that
becomes payable after the Participant’s death shall be distributed to the
Participant’s estate.

 

  (g) Creditors’ Rights.

A holder of Stock Units shall have no rights other than those of a general
creditor of the Company. Stock Units represent an unfunded and unsecured
obligation of the Company, subject to the terms and conditions of the applicable
Stock Unit Award Agreement.

SECTION 11. CASH-BASED AWARDS

The Committee may, in its sole discretion, grant Cash-Based Awards to any
Participant in such number or amount and upon such terms, and subject to such
conditions, as the Committee shall determine at the time of grant and specify in
an applicable Award Agreement. The Committee shall determine the maximum
duration of the Cash-Based Award, the amount of cash which may be payable
pursuant to the Cash-Based Award, the conditions upon which the Cash-Based Award
shall become vested or payable, and such other provisions as the Committee shall
determine. Each Cash-Based Award shall specify a cash-denominated payment
amount,

 

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formula or payment ranges as determined by the Committee. Payment, if any, with
respect to a Cash-Based Award shall be made in accordance with the terms of the
Award and may be made in cash or in shares of Stock, as the Committee
determines.

SECTION 12. ADJUSTMENT OF SHARES.

 

  (a) Adjustments.

In the event of a subdivision of the outstanding Stock, a declaration of a
dividend payable in Shares, a declaration of a dividend payable in a form other
than Shares in an amount that has a material effect on the price of Shares, a
combination or consolidation of the outstanding Stock (by reclassification or
otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a
similar occurrence, the Committee shall make appropriate and equitable
adjustments in:

 

  (i) The number of Shares available for future Awards under Section 5;

 

  (ii) The limitations set forth in Sections 5(a) and (b) and Section 18;

 

  (iii) The number of Shares covered by each outstanding Award; and

 

  (iv) The Exercise Price under each outstanding Option and SAR.

 

  (b) Dissolution or Liquidation.

To the extent not previously exercised or settled, Options, SARs and Stock Units
shall terminate immediately prior to the dissolution or liquidation of the
Company.

 

  (c) Reorganizations.

In the event that the Company is a party to a merger or other reorganization,
outstanding Awards shall be subject to the agreement of merger or
reorganization. Subject to compliance with Section 409A of the Code, such
agreement shall provide for:

 

  (i) The continuation of the outstanding Awards by the Company, if the Company
is a surviving corporation;

 

  (ii) The assumption of the outstanding Awards by the surviving corporation or
its parent or subsidiary;

 

  (iii) The substitution by the surviving corporation or its parent or
subsidiary of its own awards for the outstanding Awards;

 

  (iv) Immediate vesting, exercisability and settlement of outstanding Awards
followed by the cancellation of such Awards upon or immediately prior to the
effectiveness of such transaction; or

 

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  (v) Settlement of the intrinsic value of the outstanding Awards (whether or
not then vested or exercisable) in cash or cash equivalents or equity (including
cash or equity subject to deferred vesting and delivery consistent with the
vesting restrictions applicable to such Awards or the underlying Shares)
followed by the cancellation of such Awards (and, for the avoidance of doubt, if
as of the date of the occurrence of the transaction the Committee determines in
good faith that no amount would have been attained upon the exercise of such
Award or realization of the Participant’s rights, then such Award may be
terminated by the Company without payment); in each case without the
Participant’s consent. Any acceleration of payment of an amount that is subject
to section 409A of the Code will be delayed, if necessary, until the earliest
time that such payment would be permissible under Section 409A without
triggering any additional taxes applicable under Section 409A.

The Company will have no obligation to treat all Awards, all Awards held by a
Participant, or all Awards of the same type, similarly.

 

  (d) Reservation of Rights.

Except as provided in this Section 12, a Participant shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class, the
payment of any dividend or any other increase or decrease in the number of
shares of stock of any class. Any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or Exercise Price of Shares subject to an Award. The grant of an Award
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets. In the
event of any change affecting the Shares or the Exercise Price of Shares subject
to an Award, including a merger or other reorganization, for reasons of
administrative convenience, the Company in its sole discretion may refuse to
permit the exercise of any Award during a period of up to thirty (30) days prior
to the occurrence of such event.

SECTION 13. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards may be
settled in the form of Shares issued under this Plan. Such Shares shall be
treated for all purposes under the Plan like Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Shares available under
Section 5.

SECTION 14. LEGAL AND REGULATORY REQUIREMENTS.

Shares shall not be issued under the Plan unless the issuance and delivery of
such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations and the regulations of any stock exchange on

 

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which the Company’s securities may then be listed, and the Company has obtained
the approval or favorable ruling from any governmental agency which the Company
determines is necessary or advisable. The Company shall not be liable to a
Participant or other persons as to: (a) the non-issuance or sale of Shares as to
which the Company has not obtained from any regulatory body having jurisdiction
the authority deemed by the Company’s counsel to be necessary to the lawful
issuance and sale of any Shares under the Plan; and (b) any tax consequences
expected, but not realized, by any Participant or other person due to the
receipt, exercise or settlement of any Award granted under the Plan.

SECTION 15. TAXES.

 

  (a) Withholding Taxes.

To the extent required by applicable federal, state, local or foreign law, a
Participant or his or her successor shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise in
connection with the Plan. The Company shall not be required to issue any Shares
or make any cash payment under the Plan until such obligations are satisfied.

 

  (b) Share Withholding.

The Committee may permit a Participant to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold all or a
portion of any Shares that otherwise would be issued to him or her or by
surrendering all or a portion of any Shares that he or she previously acquired.
Such Shares shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash. In no event may a Participant have Shares
withheld that would otherwise be issued to him or her in excess of the number
necessary to satisfy the minimum legally required tax withholding.

 

  (c) Section 409A.

Each Award that provides for “nonqualified deferred compensation” within the
meaning of Section 409A of the Code shall be subject to such additional rules
and requirements as specified by the Committee from time to time in order to
comply with Section 409A. If any amount under such an Award is payable upon a
“separation from service” (within the meaning of Section 409A) to a Participant
who is then considered a “specified employee” (within the meaning of
Section 409A), then no such payment shall be made prior to the date that is the
earlier of (i) six months and one day after the Participant’s separation from
service, or (ii) the Participant’s death, but only to the extent such delay is
necessary to prevent such payment from being subject to interest, penalties
and/or additional tax imposed pursuant to Section 409A. In addition, the
settlement of any such Award may not be accelerated except to the extent
permitted by Section 409A.

SECTION 16. TRANSFERABILITY.

Unless the agreement evidencing an Award (or an amendment thereto authorized by
the Committee) expressly provides otherwise, no Award granted under this Plan,
nor any interest in

 

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such Award, may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner (prior to the vesting and lapse of any and
all restrictions applicable to Shares issued under such Award), other than by
will or the laws of descent and distribution; provided, however, that an ISO may
be transferred or assigned only to the extent consistent with Section 422 of the
Code. Any purported assignment, transfer or encumbrance in violation of this
Section 17 shall be void and unenforceable against the Company.

SECTION 17. PERFORMANCE BASED AWARDS.

The number of Shares or other benefits granted, issued, retainable and/or vested
under an Award may be made subject to the attainment of performance goals. The
Committee may utilize any performance criteria selected by it in its sole
discretion to establish performance goals; provided, however, that in the case
of any Performance Based Award, the following conditions shall apply:

 

  (i) The amount potentially available under a Performance Based Award shall be
subject to the attainment of pre-established, objective performance goals
relating to a specified period of service based on one or more of the following
performance criteria: (a) cash flow, (b) earnings per share, (c) earnings before
interest, taxes and amortization, (d) return on equity, (e) total stockholder
return, (f) share price performance, (g) return on capital, (h) return on assets
or net assets, (i) revenue, (j) income or net income, (k) operating income or
net operating income, (l) operating profit or net operating profit,
(m) operating margin or profit margin, (n) return on operating revenue,
(o) return on invested capital, (p) market segment shares, (q) costs,
(r) expenses, (s) regulatory body approval for commercialization of a product,
or (t) implementation or completion of critical projects (“Qualifying
Performance Criteria”), any of which may be measured either individually,
alternatively or in any combination, applied to either the Company as a whole or
to a business unit or Subsidiary, either individually, alternatively or in any
combination, and measured either annually or cumulatively over a period of
years, on an absolute basis or relative to a pre-established target, to previous
years’ results or to a designated comparison group or index, in each case as
specified by the Committee in the Award;

 

  (ii) Unless specified otherwise by the Committee at the time the performance
goals are established or otherwise within the time prescribed by Section 162(m)
of the Code, the Committee shall appropriately adjust the method of evaluating
performance under a Qualifying Performance Criteria for a performance period as
follows: (i) to exclude asset write-downs, (ii) to exclude litigation or claim
judgments or settlements, (iii) to exclude the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (iv) to exclude accruals for reorganization and restructuring programs,
(v) to exclude any

 

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  extraordinary nonrecurring items as determined under generally accepted
accounting principles and/or described in managements’ discussion and analysis
of financial condition and results of operations appearing in the Company’s
annual report to stockholders for the applicable year, (vi) to exclude the
dilutive effects of acquisitions or joint ventures, (vii) to assume that any
business divested by the Company achieved performance objectives at targeted
levels during the balance of a performance period following such divestiture,
(viii) to exclude the effect of any change in the outstanding shares of common
stock of the Company by reason of any stock dividend or split, stock repurchase,
reorganization, recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other similar corporate change, or any distributions to
common stockholders other than regular cash dividends, (ix) to exclude the
effects of stock based compensation and the award of bonuses under the Company’s
bonus plans; and (x) to exclude costs incurred in connection with potential
acquisitions or divestitures that are required to be expensed under generally
accepted accounting principles, in each case in compliance with Section 162(m);

 

  (iii) The Committee shall establish the applicable performance goals in
writing and an objective method for determining the Award earned by a
Participant if the goals are attained, while the outcome is substantially
uncertain and not later than the 90th day of the performance period (but in no
event after 25% of the period of service with respect to which the performance
goals relate has elapsed), and shall determine and certify in writing, for each
Participant, the extent to which the performance goals have been met prior to
payment or vesting of the Award; and

 

  (iv) The Committee may not in any event increase the amount of compensation
payable under the Plan upon the attainment of the pre-established performance
goals to a Participant who is a “covered employee” within the meaning of
Section 162(m) of the Code.

 

  (v) The maximum aggregate number of Shares that may be subject to Performance
Based Awards granted to a Participant in any calendar year is 500,000 Shares or
two times such amount in the Participant’s first year of employment (subject to
adjustment under Section 12). The maximum aggregate amount of cash that may be
payable under Performance Based Awards granted to a Participant in any calendar
year is $2,800,000.

SECTION 18. NO EMPLOYMENT RIGHTS.

No provision of the Plan, nor any Award granted under the Plan, shall be
construed to give any person any right to become, to be treated as, or to remain
an Employee or Consultant. The Company and its Subsidiaries reserve the right to
terminate any person’s Service at any time and for any reason, with or without
notice.

 

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SECTION 19. DURATION AND AMENDMENTS.

 

  (a) Term of the Plan.

The Plan, as set forth herein, shall come into existence on the date of its
adoption by the Board of Directors; provided, however, that no Award may be
granted hereunder prior to the Effective Date. The Board of Directors may
suspend or terminate the Plan at any time. No ISOs may be granted after the
tenth anniversary of the earlier of (i) the date the Plan is adopted by the
Board of Directors, or (ii) the date the Plan is approved the stockholders of
the Company.

 

  (b) Right to Amend the Plan.

The Board of Directors may amend the Plan at any time and from time to time.
Rights and obligations under any Award granted before amendment of the Plan
shall not be materially impaired by such amendment, except with consent of the
Participant. An amendment of the Plan shall be subject to the approval of the
Company’s stockholders only to the extent required by applicable laws,
regulations or rules.

 

  (c) Effect of Termination.

No Awards shall be granted under the Plan after the termination thereof. The
termination of the Plan shall not affect Awards previously granted under the
Plan.

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SECTION 20. EXECUTION.

To record the adoption of the Plan by the Board of Directors, the Company has
caused its authorized officer to execute the same.

 

ARC DOCUMENT SOLUTIONS, INC.

By  

  /John E.D. Toth/

Name  

  John E.D. Toth

Title  

  Chief Financial Officer

 

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