Exhibit 10.1

 
[COSTAR LOGO]
 
COSTAR GROUP, INC.
2007 STOCK INCENTIVE PLAN
 
1.  Purpose
 
The purpose of the CoStar Group, Inc. 2007 Stock Incentive Plan (the “Plan”) is
to advance the interests of CoStar Group, Inc. (the “Company”) by enabling the
Company and its subsidiaries to attract, retain and motivate employees of the
Company by providing for or increasing the proprietary interests of such
individuals in the Company, and by enabling the Company to attract, retain and
motivate its nonemployee directors and further align their interests with those
of the shareholders of the Company by providing for or increasing the
proprietary interests of such directors in the Company. The Plan provides for
the grant of Incentive and Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock and Restricted Stock Units, any of which may be
performance-based, as determined by the Committee.
 
2.  Definitions
 
As used in the Plan, the following terms shall have the meanings set forth
below:
 
(a)  “Award” means an Incentive Stock Option, Nonqualified Stock Option, Stock
Appreciation Right, Restricted Stock, or Restricted Stock Unit granted to a
Participant pursuant to the provisions of the Plan, any of which the Committee
may structure to qualify in whole or in part as a Performance Award.
 
(b)  “Award Agreement” means a written agreement or other instrument as may be
approved from time to time by the Committee implementing the grant of each
Award. An Agreement may be in the form of an agreement to be executed by both
the Participant and the Company (or an authorized representative of the Company)
or certificates, notices or similar instruments as approved by the Committee.
 
(c)  “Board” means the board of directors of the Company.
 
(d)  “Code” means the Internal Revenue Code of 1986, as amended from time to
time, and the rulings and regulations issues thereunder.
 
(e)  “Committee” means the Committee delegated the authority to administer the
Plan in accordance with Section 16.
 
(f)  “Common Share” means a share of the Company’s common stock, subject to
adjustment as provided in Section 11.
 
(g)  “Company” means CoStar Group, Inc., a Delaware corporation.
 

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(h)  “Fair Market Value” means, as of any given date, the closing sales price on
such date during normal trading hours (or, if there are no reported sales on
such date, on the last date prior to such date on which there were sales) of the
Common Shares on NASDAQ, the New York Stock Exchange Composite Tape or, if not
listed on such exchanges, on any other national securities exchange on which the
Common Shares are listed, in any case, as reporting in such source as the
Committee shall select. If there is no regular public trading market for such
Common Shares, the Fair Market Value of the Common Shares shall be determined by
the Committee in good faith and in compliance with Section 409A of the Code.
 
(i)  “Incentive Stock Option” means a stock option that is intended to qualify
as an “incentive stock option” within the meaning of Section 422 of the Code.
 
(j)  “Nonemployee Director” means each person who is, or is elected to be, a
member of the Board or the board of directors of any Subsidiary and who is not
an employee of the Company or any Subsidiary.
 
(k)  “Nonqualified Stock Option” means a stock option that is not intended to
qualify as an “incentive stock option” within the meaning of Section 422 of the
Code.
 
(l)  “Option” means an Incentive Stock Option and/or a Nonqualified Stock Option
granted pursuant to Section 6 of the Plan.
 
(m)  “Participant” means any individual described in Section 3 to whom Awards
have been granted from time to time by the Committee and any authorized
transferee of such individual.
 
(n)  “Performance Award” means an Award, the grant, issuance, retention, vesting
or settlement of which is subject to satisfaction of one or more performance
criteria pursuant to Section 12.
 
(o)  “Plan” means the CoStar Group, Inc. 2007 Stock Incentive Plan as set forth
herein and as amended from time to time.
 
(p)  “Prior Plan” means the CoStar Group, Inc. 1998 Stock Incentive Plan.
 
(q)  “Qualifying Performance Criteria” has the meaning set forth in
Section 12(b).
 
(r)  “Restricted Stock” means Common Shares granted pursuant to Section 8 of the
Plan.
 
(s)  “Restricted Stock Unit” means an Award granted to a Participant pursuant to
Section 8 pursuant to which Common Shares or cash in lieu thereof may be issued
in the future.
 
(t)  “Stock Appreciation Right” means a right granted pursuant to Section 7 of
the Plan that entitles the Participant to receive, in cash or Common Shares or a
combination thereof, as determined by the Committee, value equal to or otherwise
based on the excess of (i) the market price of a specified number of Common
Shares at the time of exercise over (ii) the exercise price of the right, as
established by the Committee on the date of grant.
 
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(u)  “Subsidiary” means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company where each of the corporations
in the unbroken chain other than the last corporation owns stock possessing at
least 50 percent or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain, and if specifically
determined by the Committee in the context other than with respect to Incentive
Stock Options, may include an entity in which the Company has a significant
ownership interest or that is directly or indirectly controlled by the Company.
 
(v)  “Substitute Awards” means Awards granted or Common Shares issued by the
Company in assumption of, or in substitution or exchange for, awards previously
granted, or the right or obligation to make future awards, by a corporation
acquired by the Company or any Subsidiary or with which the Company or any
Subsidiary combines.
 
3.  Eligibility
 
Any person who is an officer or employee of the Company or of any Subsidiary
(including any director who is also an employee, in his or her capacity as such)
shall be eligible for selection by the Committee for the grant of Awards
hereunder. In addition, Nonemployee Directors shall be eligible for the grant of
Awards hereunder as determined by the Committee. In addition any service
provider who has been retained to provide consulting, advisory or other services
to the Company or to any Subsidiary shall be eligible for selection by the
Committee for the grant of Awards hereunder. Options intending to qualify as
Incentive Stock Options may only be granted to employees of the Company or any
Subsidiary within the meaning of the Code, as selected by the Committee.
 
4.  Effective Date and Termination of Plan
 
This Plan was adopted by the Board and became effective as of April 26, 2007
(the “Effective Date”), subject to the approval by the Company’s stockholders.
All Awards granted under this Plan are subject to, and may not be exercised
before, the approval of this Plan by the stockholders prior to the first
anniversary date of the effective date of the Plan by the affirmative vote of
the holders of a majority of the outstanding Common Shares of the Company
present, or represented by proxy, and entitled to vote, at a meeting of the
Company’s stockholders or by written consent in accordance with the laws of the
State of Delaware; provided that if such approval by the stockholders of the
Company is not forthcoming, all Awards previously granted under this Plan shall
be void. The Plan shall remain available for the grant of Awards until the tenth
(10th) anniversary of the Effective Date. Notwithstanding the foregoing, the
Plan may be terminated at such earlier time as the Board may determine.
Termination of the Plan will not affect the rights and obligations of the
Participants and the Company arising under Awards theretofore granted and then
in effect.
 
5.  Common Shares Subject to the Plan and to Awards
 
(a)  Aggregate Limits. The aggregate number of Shares issuable pursuant to all
Awards shall not exceed 1,000,000 shares, plus (i) any Shares that were
authorized for issuance under the Prior Plan that, as of June 7, 2007, remain
available for issuance under the Prior Plan (not including any Shares that are
subject to, as of June 7, 2007, outstanding awards under the
 
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Prior Plan or any Shares that prior to June 7, 2007 were issued pursuant to
awards granted under the Prior Plan) and (ii) any Shares subject to outstanding
awards under the Prior Plan as of June 7, 2007 that on or after such date cease
for any reason to be subject to such awards (other than by reason of exercise or
settlement of the awards to the extent they are exercised for or settled in
vested and nonforfeitable shares). The aggregate number of Common Shares
available for grant under this Plan and the number of Common Shares subject to
outstanding Awards shall be subject to adjustment as provided in Section 11. The
Common Shares issued pursuant to Awards granted under this Plan may be shares
that are authorized and unissued or shares that were reacquired by the Company,
including shares purchased in the open market.
 
(b)  Issuance of Common Shares. For purposes of this Section 5, the aggregate
number of Common Shares available for Awards under this Plan at any time shall
not be reduced by (i) shares subject to Awards that have been terminated,
expired unexercised, forfeited or settled in cash, (ii) shares subject to Awards
that have been retained by the Company in payment or satisfaction of the
exercise price, purchase price or tax withholding obligation of an Award, or
(iii) shares subject to Awards that otherwise do not result in the issuance of
Common Shares in connection with payment or settlement of an Award. In addition,
Common Shares that have been delivered (either actually or by attestation) to
the Company in payment or satisfaction of the exercise price, purchase price or
tax withholding obligation of an Award shall be available for Awards under this
Plan.
 
(c)  Tax Code Limits. The aggregate number of Common Shares subject to Awards
granted under this Plan during any calendar year to any one Participant shall
not exceed 200,000, which number shall be calculated and adjusted pursuant to
Section 11 only to the extent that such calculation or adjustment will not
affect the status of any Award intended to qualify as “performance based
compensation” under Section 162(m) of the Code but which number shall not count
any tandem SARs (as defined in Section 7). Any Common Shares that may be
issued under this Plan may be issued pursuant to the exercise of Incentive Stock
Options.
 
(d)  Substitute Awards. Substitute Awards shall not reduce the Common Shares
authorized for issuance under the Plan or authorized for grant to a Participant
in any calendar year. Additionally, in the event that a corporation acquired by
the Company or any Subsidiary, or with which the Company or any Subsidiary
combines, has shares available under a pre-existing plan approved by
shareholders and not adopted in contemplation of such acquisition or
combination, the shares available for grant pursuant to the terms of such
pre-existing plan (as adjusted, to the extent appropriate, using the exchange
ratio or other adjustment or valuation ratio or formula used in such acquisition
or combination to determine the consideration payable to the holders of common
stock of the entities party to such acquisition or combination) may be used for
Awards under the Plan and shall not reduce the Common Shares authorized for
issuance under the Plan; provided that Awards using such available shares shall
not be made after the date awards or grants could have been made under the terms
of the pre-existing plan, absent the acquisition or combination, and shall only
be made to individuals who were not employees, directors or consultants of the
Company or its Subsidiaries immediately before such acquisition or combination.
 
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6.  Options
 
(a)  Option Awards. Options may be granted at any time and from time to time
prior to the termination of the Plan to Participants as determined by the
Committee. No Participant shall have any rights as a stockholder with respect to
any Common Shares subject to Option hereunder until said Common Shares have been
issued, except that the Committee may authorize dividend equivalent accruals
with respect to such Common Shares. Each Option shall be evidenced by an Award
Agreement. Options granted pursuant to the Plan need not be identical but each
Option must contain and be subject to the terms and conditions set forth below.
 
(b)  Price. The Committee will establish the exercise price per Common Share
under each Option, which, in no event will be less than the Fair Market Value of
the Common Shares on the date of grant; provided, however, that the exercise
price per Common Share with respect to an Option that is granted in connection
with a merger or other acquisition as a substitute or replacement award for
options held by optionees of the acquired entity may be less than 100% of the
market price of the Common Shares on the date such Option is granted if such
exercise price is based on a formula set forth in the terms of the options held
by such optionees or in the terms of the agreement providing for such merger or
other acquisition. The exercise price of any Option may be paid in Common
Shares, cash, certified check, money order or a combination thereof, as
determined by the Committee, including an irrevocable commitment by a broker to
pay over such amount from a sale of the Common Shares issuable under an Option,
the delivery of previously owned Common Shares and withholding of Common Shares
deliverable upon exercise.
 
(c)  No Repricing. Other than in connection with a change in the Company’s
capitalization (as described in Section 11) the exercise price of an Option may
not be reduced without stockholder approval (including canceling previously
awarded Options and regranting them with a lower exercise price).
 
(d)  Provisions Applicable to Options. The date on which Options become
exercisable shall be determined at the sole discretion of the Committee and set
forth in an Award Agreement. Unless provided otherwise in the applicable Award
Agreement, to the extent that the Committee determines that an approved leave of
absence or employment on a less than full-time basis is not a Termination of
employment, the vesting period and/or exercisability of an Option shall be
adjusted by the Committee during or to reflect the effects of any period during
which the Participant is on an approved leave of absence or is employed on a
less than full-time basis.
 
(e)  Term of Options and Termination of Employment: The Committee shall
establish the term of each Option, which in no case shall exceed a period of ten
(10) years from the date of grant. Unless an Option earlier expires upon the
expiration date established pursuant to the foregoing sentence, upon the
termination of the Participant’s employment, his or her rights to exercise an
Option then held shall be determined by the Committee and set forth in an Award
Agreement.
 
(f)  Incentive Stock Options. Notwithstanding anything to the contrary in this
Section 6, in the case of the grant of an Option intending to qualify as an
Incentive Stock Option: (i) if the Participant owns stock possessing more than
10 percent of the combined voting power
 
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of all classes of stock of the Company (a “10% Common Shareholder”), the
exercise price of such Option must be at least 110 percent of the Fair Market
Value of the Common Shares on the date of grant and the Option must expire
within a period of not more than five (5) years from the date of grant, and
(ii) termination of employment will occur when the person to whom an Award was
granted ceases to be an employee (as determined in accordance with
Section 3401(c) of the Code and the regulations promulgated thereunder) of the
Company and its Subsidiaries. Notwithstanding anything in this Section 6 to the
contrary, options designated as Incentive Stock Options shall not be eligible
for treatment under the Code as Incentive Stock Options (and will be deemed to
be Nonqualified Stock Options) to the extent that either (a) the aggregate Fair
Market Value of Common Shares (determined as of the time of grant) with respect
to which such Options are exercisable for the first time by the Participant
during any calendar year (under all plans of the Company and any Subsidiary)
exceeds $100,000, taking Options into account in the order in which they were
granted, or (b) such Options otherwise remain exercisable but are not exercised
within three (3) months of Termination of employment (or such other period of
time provided in Section 422 of the Code).
 
7.  Stock Appreciation Rights
 
Stock Appreciation Rights may be granted to Participants from time to time
either in tandem with or as a component of other Awards granted under the Plan
(“tandem SARs”) or not in conjunction with other Awards (“freestanding SARs”)
and may, but need not, relate to a specific Option granted under Section 6. The
provisions of Stock Appreciation Rights need not be the same with respect to
each grant or each recipient. Any Stock Appreciation Right granted in tandem
with an Award may be granted at the same time such Award is granted or at any
time thereafter before exercise or expiration of such Award. All freestanding
SARs shall be granted subject to the same terms and conditions applicable to
Options as set forth in Section 6 and all tandem SARs shall have the same
exercise price, vesting, exercisability, forfeiture and termination provisions
as the Award to which they relate. Subject to the provisions of Section 6 and
the immediately preceding sentence, the Committee may impose such other
conditions or restrictions on any Stock Appreciation Right as it shall deem
appropriate. Stock Appreciation Rights may be settled in Common Shares, cash or
a combination thereof, as determined by the Committee and set forth in the
applicable Award Agreement. Other than in connection with a change in the
Company’s capitalization (as described in Section 11) the exercise price of
Stock Appreciation Rights may not be reduced without stockholder approval
(including canceling previously awarded Stock Appreciation Rights and regranting
them with a lower exercise price).
 
8.  Restricted Stock and Restricted Stock Units
 
(a)  Restricted Stock and Restricted Stock Unit Awards. Restricted Stock and
Restricted Stock Units may be granted at any time and from time to time prior to
the termination of the Plan to Participants as determined by the Committee.
Restricted Stock is an award or issuance of Common Shares the grant, issuance,
retention, vesting and/or transferability of which is subject during specified
periods of time to such conditions (including continued employment or
performance conditions) and terms as the Committee deems appropriate. Restricted
Stock Units are Awards denominated in units of Common Shares under which the
issuance of Common Shares is subject to such conditions (including continued
employment or performance conditions) and terms as the Committee deems
appropriate. Each grant of Restricted Stock and
 
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Restricted Stock Units shall be evidenced by an Award Agreement. Unless
determined otherwise by the Committee, each Restricted Stock Unit will be equal
to one Common Share and will entitle a Participant to either the issuance of
Common Shares or payment of an amount of cash determined with reference to the
value of Common Shares. To the extent determined by the Committee, Restricted
Stock and Restricted Stock Units may be satisfied or settled in Common Shares,
cash or a combination thereof. Restricted Stock and Restricted Stock Units
granted pursuant to the Plan need not be identical but each grant of Restricted
Stock and Restricted Stock Units must contain and be subject to the terms and
conditions set forth below.
 
(b)  Contents of Agreement. Each Award Agreement shall contain provisions
regarding (i) the number of Common Shares or Restricted Stock Units subject to
such Award or a formula for determining such number, (ii) the purchase price of
the Common Shares, if any, and the means of payment, (iii) the performance
criteria, if any, and level of achievement versus these criteria that shall
determine the number of Common Shares or Restricted Stock Units granted, issued,
retainable and/or vested, (iv) such terms and conditions on the grant, issuance,
vesting and/or forfeiture of the Common Shares or Restricted Stock Units as may
be determined from time to time by the Committee, (v) the term of the
performance period, if any, as to which performance will be measured for
determining the number of such Common Shares or Restricted Stock Units, and (vi)
restrictions on the transferability of the Common Shares or Restricted Stock
Units. Common Shares issued under a Restricted Stock Award may be issued in the
name of the Participant and held by the Participant or held by the Company, in
each case as the Committee may provide.
 
(c)  Vesting and Performance Criteria. The grant, issuance, retention, vesting
and/or settlement of shares of Restricted Stock and Restricted Stock Units will
occur when and in such installments as the Committee determines or under
criteria the Committee establishes, which may include Qualifying Performance
Criteria; provided, however, that, except in the case of a change of control of
the Company or the death or disability of the Participant, vesting of Restricted
Stock and Restricted Stock Units shall be no earlier than three (3) years from
the date of grant for Awards not subject to vesting based on performance
criteria and one (1) year from the date of grant for Awards that vest based on
the achievement of performance criteria. Notwithstanding anything in this Plan
to the contrary, the performance criteria for any Restricted Stock or Restricted
Stock Unit that is intended to satisfy the requirements for “performance-based
compensation” under Section 162(m) of the Code will be a measure based on one or
more Qualifying Performance Criteria selected by the Committee and specified
when the Award is granted.
 
(d)  Discretionary Adjustments and Limits. Subject to the limits imposed under
Section 162(m) of the Code for Awards that are intended to qualify as
“performance based compensation,” notwithstanding the satisfaction of any
performance goals, the number of Common Shares granted, issued, retainable
and/or vested under an Award of Restricted Stock or Restricted Stock Units on
account of either financial performance or personal performance evaluations may,
to the extent specified in the Award Agreement, be reduced by the Committee on
the basis of such further considerations as the Committee shall determine.
 
(e)  Voting Rights. Unless otherwise determined by the Committee, Participants
holding shares of Restricted Stock granted hereunder may exercise full voting
rights with respect
 
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to those shares during the period of restriction. Participants shall have no
voting rights with respect to Common Shares underlying Restricted Stock Units
unless and until such Common Shares are reflected as issued and outstanding
shares on the Company’s stock ledger.
 
(f)  Dividends and Distributions. Participants in whose name Restricted Stock is
granted shall be entitled to receive all dividends and other distributions paid
with respect to those Common Shares, unless determined otherwise by the
Committee. The Committee will determine whether any such dividends or
distributions will be automatically reinvested in additional shares of
Restricted Stock and subject to the same restrictions on transferability as the
Restricted Stock with respect to which they were distributed or whether such
dividends or distributions will be paid in cash. Common Shares underlying
Restricted Stock Units shall be entitled to dividends or dividend equivalents
only to the extent provided by the Committee.
 
9.  Deferral of Gains
 
The Committee may, in an Award Agreement or otherwise, provide for the deferred
delivery of Common Shares upon settlement, vesting or other events with respect
to Restricted Stock or Restricted Stock Units. Notwithstanding anything herein
to the contrary, in no event will any deferral of the delivery of Common Shares
or any other payment with respect to any Award be allowed if the Committee
determines, in its sole discretion, that the deferral would result in the
imposition of the additional tax under Section 409A(a)(1)(B) of the Code.
 
10.  Conditions and Restrictions Upon Securities Subject to Awards
 
The Committee may provide that the Common Shares issued upon exercise of an
Option or Stock Appreciation Right or otherwise subject to or issued under an
Award shall be subject to such further agreements, restrictions, conditions or
limitations as the Committee in its discretion may specify prior to the exercise
of such Option or Stock Appreciation Right or the grant, vesting or settlement
of such Award, including without limitation, conditions on vesting or
transferability, forfeiture or repurchase provisions and method of payment for
the Common Shares issued upon exercise, vesting or settlement of such Award
(including the actual or constructive surrender of Common Shares already owned
by the Participant) or payment of taxes arising in connection with an Award.
Without limiting the foregoing, such restrictions may address the timing and
manner of any resales by the Participant or other subsequent transfers by the
Participant of any Common Shares issued under an Award, including without
limitation (i) restrictions under an insider trading policy or pursuant to
applicable law, (ii) restrictions designed to delay and/or coordinate the timing
and manner of sales by Participant and holders of other Company equity
compensation arrangements, (iii) restrictions as to the use of a specified
brokerage firm for such resales or other transfers, and (iv) provisions
requiring Common Shares to be sold on the open market or to the Company in order
to satisfy tax withholding or other obligations.
 
11.  Adjustment of and Changes in the Stock
 
The number and kind of Common Shares available for issuance under this Plan
(including under any Awards then outstanding), and the number and kind of Common
Shares subject to the limits set forth in Section 5 of this Plan, shall be
equitably adjusted by the
 
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Committee to reflect any reorganization, reclassification, combination of
shares, stock split, reverse stock split, spin-off, dividend or distribution of
securities, property or cash (other than regular, quarterly cash dividends), or
any other equity restructuring transaction, as that term is defined in Statement
of Financial Accounting Standards No. 123 (revised). Such adjustment may be
designed to comply with Section 425 of the Code or, except as otherwise
expressly provided in Section 5(c) of this Plan, may be designed to treat the
Common Shares available under the Plan and subject to Awards as if they were all
outstanding on the record date for such event or transaction or to increase the
number of such Common Shares to reflect a deemed reinvestment in Common Shares
of the amount distributed to the Company’s securityholders. The terms of any
outstanding Award shall also be equitably adjusted by the Committee as to price,
number or kind of Common Shares subject to such Award, vesting, and other terms
to reflect the foregoing events, which adjustments need not be uniform as
between different Awards or different types of Awards.
 
In the event there shall be any other change in the number or kind of
outstanding Common Shares, or any stock or other securities into which such
Common Shares shall have been changed, or for which it shall have been
exchanged, by reason of a change of control, other merger, consolidation or
otherwise in circumstances that do not involve an equity restructuring
transaction, as that term is defined in Statement of Financial Accounting
Standards No. 123 (revised), then the Committee shall determine the appropriate
adjustment, if any, to be effected. In addition, in the event of such change
described in this paragraph, the Committee may accelerate the time or times at
which any Award may be exercised and may provide for cancellation of such
accelerated Awards that are not exercised within a time prescribed by the
Committee in its sole discretion.
 
No right to purchase fractional shares shall result from any adjustment in
Awards pursuant to this Section 11. In case of any such adjustment, the Common
Shares subject to the Award shall be rounded down to the nearest whole share.
The Company shall notify Participants holding Awards subject to any adjustments
pursuant to this Section 11 of such adjustment, but (whether or not notice is
given) such adjustment shall be effective and binding for all purposes of the
Plan.
 
12.  Qualifying Performance-Based Compensation
 
(a)  General. The Committee may establish performance criteria and level of
achievement versus such criteria that shall determine the number of Common
Shares, units, or cash to be granted, retained, vested, issued or issuable under
or in settlement of or the amount payable pursuant to an Award, which criteria
may be based on Qualifying Performance Criteria or other standards of financial
performance and/or personal performance evaluations. In addition, the Committee
may specify that an Award or a portion of an Award is intended to satisfy the
requirements for “performance-based compensation” under Section 162(m) of the
Code, provided that the performance criteria for such Award or portion of an
Award that is intended by the Committee to satisfy the requirements for
“performance-based compensation” under Section 162(m) of the Code shall be a
measure based on one or more Qualifying Performance Criteria selected by the
Committee and specified at the time the Award is granted. The Committee shall
certify the extent to which any Qualifying Performance Criteria has been
satisfied, and the amount payable as a result thereof, prior to payment,
settlement or vesting of
 
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any Award that is intended to satisfy the requirements for “performance-based
compensation” under Section 162(m) of the Code. Notwithstanding satisfaction of
any performance goals, the number of Common Shares issued under or the amount
paid under an award may, to the extent specified in the Award Agreement, be
reduced by the Committee on the basis of such further considerations as the
Committee in its sole discretion shall determine.
 
(b)  Qualifying Performance Criteria. For purposes of this Plan, the term
“Qualifying Performance Criteria” shall mean any one or more of the following
performance criteria, 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, in each case as specified by the Committee: (i)
cash flow (before or after dividends), (ii) earnings or earnings per share
(including earnings before interest, taxes, depreciation and amortization),
(iii) stock price, (iv) return on equity, (v) total stockholder return, (vi)
return on capital or investment (including return on total capital, return on
invested capital, or return on investment), (vii) return on assets or net
assets, (viii) market capitalization, (ix) economic value added, (x) debt
leverage (debt to capital), (xi) revenue, (xii) income or net income, (xiii)
operating income, (xiv) operating profit or net operating profit, (xv) operating
margin or profit margin, (xvi) return on operating revenue, (xvii) cash from
operations, (xviii) operating ratio, (xix) operating revenue, or (xx) customer
service. To the extent consistent with Section 162(m) of the Code, the Committee
(A) shall appropriately adjust any evaluation of performance under a Qualifying
Performance Criteria to eliminate the effects of charges for restructurings,
discontinued operations, extraordinary items and all items of gain, loss or
expense determined to be extraordinary or unusual in nature or related to the
acquisition or disposal of a segment of a business or related to a change in
accounting principle all as determined in accordance with standards established
by opinion No. 30 of the Accounting Principles Board (APA Opinion No. 30) or
other applicable or successor accounting provisions, as well as the cumulative
effect of accounting changes, in each case as determined in accordance with
generally accepted accounting principles or identified in the Company’s
financial statements or notes to the financial statements, and (B) may
appropriately adjust any evaluation of performance under a Qualifying
Performance Criteria to exclude any of the following events that occurs during a
performance period: (i) asset write-downs, (ii) litigation, claims, judgments or
settlements, (iii) the effect of changes in tax law or other such laws or
provisions affecting reported results, (iv) accruals for reorganization and
restructuring programs and (v) accruals of any amounts for payment under this
Plan or any other compensation arrangement maintained by the Company.
 
13.  Transferability
 
Unless the Committee provides otherwise, each Award may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated by a
Participant other than by will or the laws of descent and distribution, and each
Option or Stock Appreciation Right shall be exercisable only by the Participant
during his or her lifetime.
 
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14.  Compliance with Laws and Regulations
 
This Plan, the grant, issuance, vesting, exercise and settlement of Awards
thereunder, and the obligation of the Company to sell, issue or deliver Common
Shares under such Awards, shall be subject to all applicable foreign, federal,
state and local laws, rules and regulations, stock exchange rules and
regulations, and to such approvals by any governmental or regulatory agency as
may be required. The Company shall not be required to register in a
Participant’s name or deliver any Common Shares prior to the completion of any
registration or qualification of such shares under any foreign, federal, state
or local law or any ruling or regulation of any government body which the
Committee shall determine to be necessary or advisable. To the extent the
Company is unable to or the Committee deems it infeasible to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the
Company’s counsel to be necessary to the lawful issuance and sale of any Common
Shares hereunder, the Company and its Subsidiaries shall be relieved of any
liability with respect to the failure to issue or sell such Common Shares as to
which such requisite authority shall not have been obtained. No Option shall be
exercisable and no Common Shares shall be issued and/or transferable under any
other Award unless a registration statement with respect to the Common Shares
underlying such Option is effective and current or the Company has determined
that such registration is unnecessary.
 
15.  Withholding
 
To the extent required by applicable federal, state, local or foreign law, a
Participant shall be required to satisfy, in a manner satisfactory to the
Company, any withholding tax obligations that arise by reason of an Option
exercise, disposition of Common Shares issued under an Incentive Stock Option,
the vesting of or settlement of an Award, an election pursuant to Section 83(b)
of the Code or otherwise with respect to an Award. The Company and its
Subsidiaries shall not be required to issue Common Shares, make any payment or
to recognize the transfer or disposition of Common Shares until such obligations
are satisfied. The Committee may provide for or permit the minimum statutory
withholding obligations to be satisfied through the mandatory or elective sale
of Common Shares and/or by having the Company withhold a portion of the Common
Shares that otherwise would be issued to him or her upon exercise of the Option
or the vesting or settlement of an Award, or by tendering Common Shares
previously acquired.
 
16.  Administration of the Plan
 
(a)  Committee of the Plan. The Plan shall be administered by the Compensation
Committee of the Board or the Board itself. Any power of the Committee may also
be exercised by the Board, except to the extent that the grant or exercise of
such authority would cause any Award or transaction to become subject to (or
lose an exemption under) the short-swing profit recovery provisions of
Section 16 of the Securities Exchange Act of 1934 or cause an Award designated
as a Performance Award not to qualify for treatment as performance-based
compensation under Section 162(m) of the Code. To the extent that any permitted
action taken by the Board conflicts with action taken by the Committee, the
Board action shall control. The Compensation Committee may by resolution
authorize one or more officers of the Company to perform any or all things that
the Committee is authorized and empowered to do or perform
 
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under the Plan, and for all purposes under this Plan, such officer or officers
shall be treated as the Committee; provided, however, that the resolution so
authorizing such officer or officers shall specify the total number of Awards
(if any) such officer or officers may award pursuant to such delegated
authority, and any such Award shall be subject to the form of Award Agreement
theretofore approved by the Compensation Committee. No such officer shall
designate himself or herself as a recipient of any Awards granted under
authority delegated to such officer. In addition, the Compensation Committee may
delegate any or all aspects of the day-to-day administration of the Plan to one
or more officers or employees of the Company or any Subsidiary, and/or to one or
more agents.
 
(b)  Powers of Committee. Subject to the express provisions of this Plan, the
Committee shall be authorized and empowered to do all things that it determines
to be necessary or appropriate in connection with the administration of this
Plan, including, without limitation: (i) to prescribe, amend and rescind rules
and regulations relating to this Plan and to define terms not otherwise defined
herein; (ii) to determine which persons are Participants, to which of such
Participants, if any, Awards shall be granted hereunder and the timing of any
such Awards; (iii) to grant Awards to Participants and determine the terms and
conditions thereof, including the number of Common Shares subject to Awards and
the exercise or purchase price of such Common Shares and the circumstances under
which Awards become exercisable or vested or are forfeited or expire, which
terms may but need not be conditioned upon the passage of time, continued
employment, the satisfaction of performance criteria, the occurrence of certain
events (including events which constitute a change of control), or other
factors; (iv) to establish and 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; (v) to prescribe and
amend the terms of the agreements or other documents evidencing Awards made
under this Plan (which need not be identical) and the terms of or form of any
document or notice required to be delivered to the Company by Participants under
this Plan; (vi) to determine the extent to which adjustments are required
pursuant to Section 11; (vii) to interpret and construe this Plan, any rules and
regulations under this Plan and the terms and conditions of any Award granted
hereunder, and to make exceptions to any such provisions in good faith and for
the benefit of the Company; and (viii) to make all other determinations deemed
necessary or advisable for the administration of this Plan.
 
(c)  Determinations by the Committee. All decisions, determinations and
interpretations by the Committee regarding the Plan, any rules and regulations
under the Plan and the terms and conditions of or operation of any Award granted
hereunder, shall be final and binding on all Participants, beneficiaries, heirs,
assigns or other persons holding or claiming rights under the Plan or any Award.
The Committee shall consider such factors as it deems relevant, in its sole and
absolute discretion, to making such decisions, determinations and
interpretations including, without limitation, the recommendations or advice of
any officer or other employee of the Company and such attorneys, consultants and
accountants as it may select.
 
17.  Amendment of the Plan or Awards
 
The Board may amend, alter or discontinue this Plan and the Committee may amend,
or alter any agreement or other document evidencing an Award made under this
Plan but, except as specifically provided for hereunder, no such amendment
shall, without the approval of the
 
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stockholders of the Company (a) reduce the exercise price of outstanding Options
or Stock Appreciation Rights, (b) reduce the price at which Options may be
granted below the price provided for in Section 6 or (c) otherwise amend the
Plan in any manner requiring stockholder approval by law or under the NASDAQ’s
listing requirements. No amendment or alteration to the Plan or an Award or
Award Agreement shall be made which would impair the rights of the holder of an
Award, without such holder’s consent, provided that no such consent shall be
required if the Committee determines in its sole discretion and prior to the
date of any change of control that such amendment or alteration either is
required or advisable in order for the Company, the Plan or the Award to satisfy
any law or regulation or to meet the requirements of or avoid adverse financial
accounting consequences under any accounting standard.
 
18.  Miscellaneous
 
(a)  No Liability of Company. The Company and any Subsidiary or affiliate which
is in existence or hereafter comes into existence shall not be liable to a
Participant or any other person as to: (i) the non-issuance or sale of Common
Shares as to which the Company has been unable to obtain 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 Common Shares hereunder; and
(ii) any tax consequence expected, but not realized, by any Participant or other
person due to the receipt, exercise or settlement of any Award granted
hereunder.
 
(b)  Non-Exclusivity of Plan. Neither the adoption of this Plan by the Board nor
the submission of this Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or the
Committee to adopt such other incentive arrangements as either may deem
desirable, including without limitation, the granting of restricted stock or
stock options otherwise than under this Plan or an arrangement not intended to
qualify under Code Section 162(m), and such arrangements may be either generally
applicable or applicable only in specific cases.
 
(c)  Governing Law. This Plan and any agreements or other documents hereunder
shall be interpreted and construed in accordance with the laws of the Delaware
and applicable federal law.
 
(d)  No Right to Employment, Reelection or Continued Service. Nothing in this
Plan or an Award Agreement shall interfere with or limit in any way the right of
the Company, its Subsidiaries and/or its affiliates to terminate any
Participant’s employment, service on the Board or service for the Company at any
time or for any reason not prohibited by law, nor shall this Plan or an Award
itself confer upon any Participant any right to continue his or her employment
or service for any specified period of time. Neither an Award nor any benefits
arising under this Plan shall constitute an employment contract with the
Company, any Subsidiary and/or its affiliates.
 
(e)  Unfunded Plan. The Plan is intended to be an unfunded plan. Participants
are and shall at all times be general creditors of the Company with respect to
their Awards. If the Committee or the Company chooses to set aside funds in a
trust or otherwise for the payment of Awards under the Plan, such funds shall at
all times be subject to the claims of the creditors of the Company in the event
of its bankruptcy or insolvency.
 
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