Exhibit 10.1
HEALTH GRADES, INC.
2006 EQUITY COMPENSATION PLAN
The purpose of the Health Grades, Inc. 2006 Equity Compensation Plan (the
“Plan”) is to provide (i) designated employees of Health Grades, Inc. (the
“Company”) and its subsidiaries, (ii) certain consultants and advisors who
perform services for the Company or its subsidiaries and (iii) non-employee
members of the Board of Directors of the Company with the opportunity to receive
grants of incentive stock options, nonqualified stock options, stock
appreciation rights, stock awards, stock units and other stock-based awards. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefitting the Company’s
stockholders, and will align the economic interests of the participants with
those of the stockholders.
The Plan is an amendment and restatement of the Health Grades, Inc. 1996 Equity
Compensation Plan. The Plan, as amended herein, shall be effective when approved
by the stockholders of the Company, provided that such approval is obtained no
later than September 30, 2006. Outstanding grants under the 1996 Equity
Compensation Plan will continue in effect according to their terms.
Section 1. Definitions
The following terms shall have the meanings set forth below for purposes of the
Plan:
(a) “Board” shall mean the Board of Directors of the Company.
(b) “Cause” shall mean, except to the extent specified otherwise by the
Committee, a finding by the Committee that the Grantee (i) has breached his or
her employment or service contract with the Employer, (ii) has engaged in
disloyalty to the Company, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty, (iii) has disclosed trade
secrets or confidential information of the Employer to persons not entitled to
receive such information, (iv) has breached any written non-competition or
non-solicitation agreement between the Grantee and the Employer or (v) has
engaged in such other behavior detrimental to the interests of the Employer as
the Committee determines.
(c) “Change of Control” shall be deemed to have occurred in accordance with the
Grant Instrument or, if no definition of Change of Control is contained in the
Grant Instrument, if:
(i) After the Effective Date, any “person” (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the voting power of the then outstanding
securities of the Company, except where the acquisition is approved by the
Board; provided that, with respect to any stockholder that, as of the Effective
Date, is such a beneficial owner of more than 10% of the voting outstanding
securities of the Company, a change of control shall be deemed to occur if such
stockholder becomes a beneficial owner, directly or indirectly, of securities of
the Company representing 35% of the then outstanding securities of the Company,
except where the acquisition is approved by the Board;

 

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(ii) The consummation of (i) a merger or consolidation of the Company with
another corporation where the stockholders of the Company, immediately prior to
the merger or consolidation, will not beneficially own, immediately after the
merger or consolidation, and on a pro rata basis substantially equivalent to
their respective beneficial ownership of voting securities immediately prior to
the merger or consolidation, shares entitling such stockholders to a majority of
all votes to which all stockholders of the surviving corporation would be
entitled in the election of directors, or where the members of the Board,
immediately prior to the merger or consolidation, would not, immediately after
the merger or consolidation, constitute a majority of the board of directors of
the surviving corporation, (ii) a sale or other disposition of all or
substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company;
(iii) Any person has commenced a tender offer or exchange offer for 10% or more
of the voting power of the then outstanding shares of the Company; or
(iv) After this Plan is approved by the stockholders of the Company, directors
are elected such that a majority of the members of the Board shall have been
members of the Board for less than two years, unless the election or nomination
for election of each new director who was not a director at the beginning of
such two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period.
(d) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(e) “Committee” shall mean the Board or the committee that administers the Plan,
as described in Section 2.
(f) “Company” shall mean Health Grades, Inc. and shall include its successors.
(g) “Company Stock” shall mean a share of common stock of the Company.
(h) “Disability” or “Disabled” shall mean a Grantee’s becoming disabled within
the meaning of section 22(e)(3) of the Code, within the meaning of the
Employer’s long-term disability plan applicable to the Grantee, or as otherwise
determined by the Committee.
(i) “Effective Date” shall mean the date on which the stockholders approve the
amendment and restatement of the Company’s 1996 Equity Compensation Plan.

 

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(j) “Employee” shall mean an employee of the Company or a subsidiary of the
Company.
(k) “Employed by, or providing service to, the Employer” shall mean employment
or service as an Employee, Key Advisor or member of the Board (so that, for
purposes of exercising Options and SARs and satisfying conditions with respect
to other Grants, a Grantee shall not be considered to have terminated employment
or service until the Grantee ceases to be an Employee, Key Advisor or member of
the Board), unless the Committee determines otherwise with respect to a Key
Advisor.
(l) “Employer” shall mean the Company and its subsidiaries and other related
entities, as determined by the Committee.
(m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(n) “Executive Officer” shall have the same meaning as under Rule 3b-7 of the
Exchange Act.
(o) “Exercise Price” shall mean the purchase price of Company Stock subject to
an Option.
(p) “Fair Market Value” shall mean:
(i) If Company Stock is publicly traded, then the Fair Market Value per share
shall be determined as follows: (x) if the principal trading market for the
Company Stock is a national securities exchange or Nasdaq, the last reported
sale price thereof on the relevant date or, if there were no trades on that
date, the latest preceding date upon which a sale was reported, or (y) if the
Company Stock is not listed on a national securities exchange or Nasdaq, the
last reported sale price on the OTC Bulletin Board on the relevant date or, if
there were no trades on that date, the latest preceding date (but no earlier
than five days preceding the relevant date) upon which a sale was reported, or
(z) if the Company Stock is not listed on a national securities exchange or
Nasdaq, and if transaction information is not available on the OTC Bulletin
Board, the mean between the last reported “bid” and “asked” prices of Company
Stock on the relevant date, as reported on Pink Sheets LLC’s Electronic
Quotation System or, if not so reported, as reported in a recognized financial
reporting service, as applicable and as the Committee determines.
(ii) If the Company Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or “bid” or “asked” quotations as set forth
above, the Fair Market Value per share shall be as determined by the Committee.
(q) “Grant” shall mean a grant of Options, SARs, Stock Awards, Stock Units or
Other Stock-Based Awards under the Plan.

 

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(r) “Grant Instrument” shall mean the agreement that sets forth the terms of a
Grant, including any amendments.
(s) “Grantee” shall mean an Employee, Non-Employee Director or Key Advisor who
receives a Grant under the Plan.
(t) “Incentive Stock Option” shall mean an option to purchase Company Stock that
is intended to meet the requirements of section 422 of the Code.
(u) “Key Advisor” shall mean a consultant or advisor of the Company or a
subsidiary of the Company.
(v) “1996 Plan” means the Health Grades, Inc. 1996 Equity Compensation Plan, as
in effect before the Effective Date.
(w) “Non-Employee Director” shall mean a member of the Board who is not an
Employee.
(x) “Non-Executive Officer Grant Committee” shall mean the Committee described
in Section 2(d).
(y) “Nonqualified Stock Option” shall mean an option to purchase Company Stock
that is not intended to meet the requirements of section 422 of the Code.
(z) “Option” shall mean an Incentive Stock Option or Nonqualified Stock Option
granted under the Plan, as described in Section 6.
(aa) “Other Stock-Based Award” shall mean any Grant based on, measured by or
payable in Company Stock, as described in Section 10.
(bb) “SAR” shall mean a stock appreciation right with respect to a share of
Company Stock, as described in Section 9.
(cc) “Stock Award” shall mean an award of a share of Company Stock, with or
without restrictions, as described in Section 7.
(dd) “Stock Unit” shall mean a unit that represents a hypothetical share of
Company Stock, as described in Section 8.

 

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Section 2. Administration
(a) Committee. The Plan shall be administered and interpreted by the Board or by
one or more committees appointed by the Board. To the extent that the Board or a
committee makes or administers Grants, as applicable, references in the Plan to
the “Committee” shall be deemed to refer to such Board or committee. The Board
shall approve and administer all Grants made to Non-Employee Directors. The
Committee that administers the Plan with respect to Grants to executive officers
of the Company shall consist solely of two or more Board members who are
“non-employee directors” as defined in Rule 16b-3 under the Exchange Act. The
Committee that administers the Plan with respect to Grants that are intended to
comply with the requirements of section 162(m) of the Code shall consist of two
or more Board members who are “outside directors” as defined in section 162(m)
of the Code. The Board may appoint a separate Non-Executive Officer Grant
Committee, as described in subsection (d) below, to make some or all Grants to
persons who are not members of the Board or executive officers, and which are
not intended to comply with the requirements of section 162(m) of the Code. The
Non-Executive Officer Grant Committee shall have only the authority set forth in
subsection (d), and references in the Plan to the “Committee” shall include the
Non-Executive Officer Grant Committee only with respect to the approval of
Grants as described in subsection (d). The Board may ratify or approve any
Grants as it deems appropriate.
(b) Committee Authority. Subject to subsection (d) below, the Committee shall
have the sole authority to (i) determine the individuals to whom Grants shall be
made under the Plan, (ii) determine the type, size and terms of the Grants to be
made to each such individual, (iii) determine the time when the Grants will be
made and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of
exercisability, (iv) amend the terms of any previously issued Grant, subject to
the provisions of Section 16 below, and (v) deal with any other matters arising
under the Plan.
(c) Committee Determinations. The Committee shall have full power and express
discretionary authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee’s
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
(d) Non-Executive Officer Grant Committee. The Board may establish a
Non-Executive Officer Grant Committee, which shall have the power, solely with
respect to Employees who are not executive officers of the Company, to make
Grants under the Plan, subject to the following terms and limitations:
(i) The Non-Executive Officer Grant Committee may make Grants only in connection
with the hiring of new Employees who are not executive officers of the Comapny
or in connection with the promotion of employees to non-executive officer
positions.

 

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(ii) The maximum number of shares of Company Stock underlying Grants made to any
individual Employee by the Non-Executive Officer Grant Committee may not exceed
75,000 shares in any calendar year, subject to adjustment as described in
Section 4(d).
(iii) When granting Options, the Non-Executive Officer Grant Committee shall
grant Incentive Stock Options to the extent permissible under the Code;
otherwise, such Options shall be Nonqualified Stock Options.
(iv) The Non-Executive Officer Grant Committee may set such vesting terms with
respect to Grants as it deems appropriate.
(v) The Exercise Price per share of any Options granted by the Non-Executive
Officer Grant Committee shall be at least equal to the Fair Market Value of a
share of Company Stock on the date of grant.
(vi) The Non-Executive Officer Grant Committee may provide for an Option term
shorter than ten years.
(vii) In all other respects, the Grants made by the Non-Executive Officer Grant
Committee shall be governed by the terms of the Grant Instruments in the form
then authorized by the Committee that otherwise administers the Plan.
(viii) The Non-Executive Officer Grant Committee’s powers shall be as enumerated
in this Section. The Non-Executive Officer Grant Committee shall not otherwise
perform the functions of the Committee under this Plan.
(ix) The Committee that otherwise administers the Plan may also make Grants to
non-executive officer Employees in accordance with the provisions of the Plan.
(x) The maximum number of shares underlying Grants made by the Non-Executive
Officer Grant Committee in any calendar quarter shall not exceed 300,000 shares,
subject to adjustment as described in Section 4(d).
(xi) The Non-Executive Officer Grant Committee may not make Grants that are
intended to be exempt from the tax deduction limitation of section 162(m) of the
Code as “performance-based compensation.”

 

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Section 3. Grants
Awards under the Plan may consist of grants of Options as described in
Section 6, Stock Awards as described in Section 7, Stock Units as described in
Section 8, SARs as described in Section 9, and Other Stock-Based Awards as
described in Section 10. All Grants shall be subject to the terms and conditions
set forth herein and to such other terms and conditions consistent with this
Plan as the Committee deems appropriate and as are specified in writing by the
Committee to the individual in the Grant Instrument. All Grants shall be made
conditional upon the Grantee’s acknowledgement, in writing or by acceptance of
the Grant, that all decisions and determinations of the Committee shall be final
and binding on the Grantee, his or her beneficiaries and any other person having
or claiming an interest under such Grant. Grants under a particular Section of
the Plan need not be uniform as among the Grantees.
Section 4. Shares Subject to the Plan
(a) Shares Authorized. Subject to adjustment as described in subsection
(d) below, the aggregate number of shares of Company Stock that may be issued or
transferred under the Plan is 13,000,000 shares. The maximum number of
authorized shares includes shares to be issued or transferred pursuant to
outstanding grants under the 1996 Plan as of the Effective Date, but does not
include shares issued pursuant to the exercise of grants under the 1996 Plan
that occur prior to the Effective Date.
(b) Source of Shares; Share Counting. Shares issued or transferred under the
Plan may be authorized but unissued shares of Company Stock or reacquired shares
of Company Stock, including shares purchased by the Company on the open market
for purposes of the Plan. If and to the extent Options or SARs granted under the
Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered
without having been exercised, and if and to the extent any Stock Awards, Stock
Units or Other Stock-Based Awards are forfeited, terminated or otherwise not
paid in full, the shares subject to such Grants shall again be available for
purposes of the Plan.
(c) Individual Limits. All Grants under the Plan shall be expressed in shares of
Company Stock. The maximum aggregate number of shares of Company Stock that may
be subject to Grants made under the Plan to any individual during any calendar
year shall be 750,000 shares, subject to adjustment as described in subsection
(d) below. The individual limits of this subsection (c) shall apply without
regard to whether the Grants are to be paid in Company Stock or cash. All cash
payments shall equal the Fair Market Value of the shares of Company Stock to
which the cash payments relate on or immediately before the date of payment.
(d) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation, (iii) by reason of a
reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company’s receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of a
spinoff or the Company’s payment of an extraordinary dividend or distribution,
the maximum number of shares of Company Stock available for issuance under the
Plan, the maximum number of shares of Company Stock for which any individual may
receive Grants in any year, the maximum number of shares of Company Stock
underlying Options that may be granted by the Non-Executive Officer Grant
Committee per calendar year to any individual or in the aggregate per calendar
quarter, the number of shares covered by outstanding Grants, the kind of shares
issued under the Plan, and the price per share or the applicable market value of
such Grants may be appropriately adjusted by the Committee to reflect any
increase or decrease in the number of, or change in the kind or value of, issued
shares of Company Stock to preclude, to the extent practicable, the enlargement
or dilution of rights and benefits under such Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.

 

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Section 5. Eligibility for Participation
(a) Eligible Persons. All Employees and Non-Employee Directors shall be eligible
to participate in the Plan. Key Advisors shall be eligible to participate in the
Plan if the Key Advisors render bona fide services to the Company or its
subsidiaries, the services are not in connection with the offer and sale of
securities in a capital-raising transaction and the Key Advisors do not directly
or indirectly promote or maintain a market for the Company’s securities.
(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to each Grant.
Section 6. Options
The Committee may grant Options to an Employee, Non-Employee Director or Key
Advisor, upon such terms as the Committee deems appropriate. The following
provisions are applicable to Options:
(a) Number of Shares. The Committee shall determine the number of shares of
Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors and Key Advisors.

 

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(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options or Nonqualified Stock
Options or any combination of the two, all in accordance with the terms and
conditions set forth herein. Incentive Stock Options may be granted only to
Employees of the Company or its subsidiary corporations, as defined in section
424 of the Code. No Incentive Stock Options may be granted after the date that
is the day before the 10th anniversary of the Effective Date. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The Exercise Price of Company Stock subject to an Option shall be
determined by the Committee and may be equal to or greater than the Fair Market
Value of a share of Company Stock on the date the Option is granted. If an
Incentive Stock Option is granted to an Employee who, at the time of grant, owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiary of the Company, as defined in section
424 of the Code, the Exercise Price per share may not be less than 110% of the
Fair Market Value of Company Stock on the date of grant.
(c) Option Term. The Committee shall determine the term of each Option, which
shall not exceed ten years from the date of grant. However, an Incentive Stock
Option that is granted to an Employee who, at the time of grant, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, or any subsidiary of the Company, as defined in section
424 of the Code, may not have a term that exceeds five years from the date of
grant.
(d) Exercisability of Options. Options shall become exercisable in accordance
with such terms and conditions, consistent with the Plan, as may be determined
by the Committee and specified in the Grant Instrument. The Committee may
accelerate the exercisability of any or all outstanding Options at any time for
any reason.
(e) Grants to Non-Exempt Employees. Notwithstanding the foregoing, Options
granted to persons who are non-exempt employees under the Fair Labor Standards
Act of 1938, as amended, may not be exercisable for at least six months after
the date of grant (except that such Options may become exercisable, as
determined by the Committee, upon the Grantee’s death, Disability or retirement,
or upon a Change of Control or other circumstances permitted by applicable
regulations).
(f) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised while the Grantee
is employed by, or providing service to, the Employer as an Employee, Key
Advisor or member of the Board.

 

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(ii) In the event that a Grantee ceases to be employed by, or provide service
to, the Employer for any reason other than Disability, death, or termination for
Cause, any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by, or provide service to, the Employer (or within such other period of
time as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Except as otherwise provided by the
Committee, any of the Grantee’s Options that are not otherwise exercisable as of
the date on which the Grantee ceases to be employed by, or provide service to,
the Employer shall terminate as of such date.
(iii) In the event the Grantee ceases to be employed by, or provide service to,
the Company on account of a termination for Cause by the Employer, any Option
held by the Grantee shall terminate as of the date the Grantee ceases to be
employed by, or provide service to, the Employer. In addition, notwithstanding
any other provisions of this Section 6, if the Committee determines that the
Grantee has engaged in conduct that constitutes Cause at any time while the
Grantee is employed by, or providing service to, the Employer or after the
Grantee’s termination of employment or service, any Option held by the Grantee
shall immediately terminate and the Grantee shall automatically forfeit all
shares underlying any exercised portion of an Option for which the Company has
not yet delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a forfeiture.
(iv) In the event the Grantee ceases to be employed by, or provide service to,
the Employer because the Grantee is Disabled, any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by, or provide service
to, the Employer (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided by the Committee, any of the Grantee’s
Options which are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by, or provide service to, the Employer shall terminate as
of such date.
(v) If the Grantee dies while employed by, or providing service to, the Employer
or within 90 days after the date on which the Grantee ceases to be employed or
provide service on account of a termination specified in Section 6(f)(i) above
(or within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by, or provide service to, the Employer (or within such other period of
time as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Except as otherwise provided by the
Committee, any of the Grantee’s Options that are not otherwise exercisable as of
the date on which the Grantee ceases to be employed by, or provide service to,
the Employer shall terminate as of such date.

 

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(g) Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company. The Grantee shall pay the Exercise Price for an Option as specified by
the Committee (w) in cash, (x) with the approval of the Committee, by delivering
shares of Company Stock owned by the Grantee (including Company Stock acquired
in connection with the exercise of an Option, subject to such restrictions as
the Committee deems appropriate) and having a Fair Market Value on the date of
exercise equal to the Exercise Price or by attestation (on a form prescribed by
the Committee) to ownership of shares of Company Stock having a Fair Market
Value on the date of exercise equal to the Exercise Price, (y) payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board, or (z) by such other method as the Committee may approve. Shares
of Company Stock used to exercise an Option shall have been held by the Grantee
for the requisite period of time to avoid adverse accounting consequences to the
Company with respect to the Option. Payment for the shares pursuant to the
Option, and any required withholding taxes, must be received by the time
specified by the Committee depending on the type of payment being made, but in
all cases prior to the issuance of the Company Stock.
(h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide
that, if the aggregate Fair Market Value of the Company Stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a subsidiary, as defined in section 424 of
the Code, exceeds $100,000, then the Option, as to the excess, shall be treated
as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted
to any person who is not an Employee of the Company or subsidiary, as defined in
section 424 of the Code.
Section 7. Stock Awards
The Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Stock Award, upon such terms as the
Committee deems appropriate. The following provisions are applicable to Stock
Awards:
(a) General Requirements. Shares of Company Stock issued or transferred pursuant
to Stock Awards may be issued or transferred for consideration or for no
consideration, and subject to restrictions or no restrictions, as determined by
the Committee. The Committee may, but shall not be required to, establish
conditions under which restrictions on Stock Awards shall lapse over a period of
time or according to such other criteria as the Committee deems appropriate,
including, without limitation, restrictions based upon the achievement of
specific performance goals. The period of time during which the Stock Awards
will remain subject to restrictions will be designated in the Grant Instrument
as the “Restriction Period.”
(b) Number of Shares. The Committee shall determine the number of shares of
Company Stock to be issued or transferred pursuant to a Stock Award.
(c) Requirement of Employment or Service. If the Grantee ceases to be employed
by, or provide service to, the Employer during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Stock Award shall terminate as to all shares covered by the Grant as to
which the restrictions have not lapsed, and those shares of Company Stock must
be immediately returned to the Company. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.

 

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(d) Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of a Stock Award except to a successor under
Section 13(a). Each certificate for a share of a Stock Award shall contain a
legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend pertaining to the restrictions in the Grant
removed from the stock certificate covering shares subject to restrictions when
the applicable restrictions on such shares have lapsed. The Committee may
determine that the Company will not issue certificates for Stock Awards until
the restrictions on such shares have lapsed, or that the Company will retain
possession of certificates for shares of Stock Awards until the restrictions on
such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee determines
otherwise, during the Restriction Period, the Grantee shall have the right to
vote shares of Stock Awards and to receive any dividends or other distributions
paid on such shares, subject to any restrictions deemed appropriate by the
Committee, including, without limitation, the achievement of specific
performance goals.
(f) Lapse of Restrictions. All restrictions imposed on Stock Awards shall lapse
upon the expiration of the applicable Restriction Period and the satisfaction of
all conditions imposed by the Committee. The Committee may determine, as to any
or all Stock Awards, that the restrictions shall lapse without regard to any
Restriction Period.
Section 8. Stock Units
The Committee may grant Stock Units, each of which shall represent one
hypothetical share of Company Stock, to an Employee, Non-Employee Director or
Key Advisor, upon such terms and conditions as the Committee deems appropriate.
The following provisions are applicable to Stock Units:
(a) Crediting of Units. Each Stock Unit shall represent the right of the Grantee
to receive an amount based on the value of a share of Company Stock, if
specified conditions are met. All Stock Units shall be credited to bookkeeping
accounts established on the Company’s records for purposes of the Plan.
(b) Terms of Stock Units. The Committee may grant Stock Units that are payable
if specified performance goals or other conditions are met, or under other
circumstances. Stock Units may be paid at the end of a specified performance
period or other period, or payment may be deferred to a date authorized by the
Committee and set forth in the Grant Instrument. The Committee shall determine
the number of Stock Units to be granted and the requirements applicable to such
Stock Units.

 

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(c) Requirement of Employment or Service. If the Grantee ceases to be employed
by, or provide service to, the Employer during a specified period, or if other
conditions established by the Committee are not met, the Grantee’s Stock Units
shall be forfeited. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
(d) Payment With Respect to Stock Units. Payments with respect to Stock Units
shall be made in cash, in Company Stock, or in a combination of the two, as
determined by the Committee.
Section 9. Stock Appreciation Rights
The Committee may grant stock appreciation rights (“SARs”) to an Employee,
Non-Employee Director or Key Advisor. The following provisions are applicable to
SARs:
(a) General Requirements. The Committee may grant SARs to an Employee,
Non-Employee Director or Key Advisor. The Committee shall establish the base
amount of the SAR at the time the SAR is granted. The base amount of each SAR
shall be equal to or greater than the Fair Market Value of a share of Company
Stock as of the date of grant of the SAR.
(b) Exercisability. An SAR shall be exercisable during the period specified by
the Committee in the Grant Instrument and shall be subject to such vesting and
other restrictions as may be specified in the Grant Instrument. The Committee
may accelerate the exercisability of any or all outstanding SARs at any time for
any reason. SARs may only be exercised while the Grantee is employed by, or
providing service to, the Employer or during the applicable period after
termination of employment or service as described in Section 6(f).
(c) Grants to Non-Exempt Employees. Notwithstanding the foregoing, SARs granted
to persons who are non-exempt employees under the Fair Labor Standards Act of
1938, as amended, may not be exercisable for at least six months after the date
of grant (except that such SARs may become exercisable, as determined by the
Committee, upon the Grantee’s death, Disability or retirement, or upon a Change
of Control or other circumstances permitted by applicable regulations).
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall receive in
settlement of such SARs an amount equal to the value of the stock appreciation
for the number of SARs exercised. The stock appreciation for an SAR is the
amount by which the Fair Market Value of the underlying Company Stock on the
date of exercise of the SAR exceeds the base amount of the SAR as established by
the Committee pursuant to Section 9(a) above.
(e) Form of Payment. The Committee shall determine whether the appreciation in
an SAR shall be paid in the form of cash, shares of Company Stock, or a
combination of the two, in such proportion as the Committee deems appropriate.
For purposes of calculating the number of shares of Company Stock to be
received, shares of Company Stock shall be valued at their Fair Market Value on
the date of exercise of the SAR. If shares of Company Stock are to be received
upon exercise of an SAR, cash shall be delivered in lieu of any fractional
share.

 

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Section 10. Other Stock-Based Awards
The Committee may grant Other Stock-Based Awards, which are awards (other than
those described in Sections 6, 7, 8 and 9 of the Plan) that are based on,
measured by or payable in Company Stock to any Employee, Non-Employee Director
or Key Advisor, on such terms and conditions as the Committee shall determine.
Other Stock-Based Awards may be awarded subject to the achievement of
performance goals or other conditions and may be payable in cash, Company Stock
or any combination of the two, as the Committee shall determine.
Section 11. Qualified Performance-Based Compensation
The Committee may determine that Stock Awards, Stock Units and Other Stock-Based
Awards granted to an Employee shall be considered “qualified performance-based
compensation” under section 162(m) of the Code, in which case the provisions of
this Section 11 shall apply to such Grants. The Committee may also grant Options
and SARs under which the exercisability of the Options is subject to achievement
of performance goals as described in this Section 11 or otherwise. The following
provisions shall apply to Grants of Stock Awards, Stock Units and Other
Stock-Based Awards that are to be considered “qualified performance-based
compensation” under section 162(m) of the Code:
(a) Performance Goals. When Stock Awards, Stock Units and Other Stock-Based
Awards that are to be considered “qualified performance-based compensation” are
granted, the Committee shall establish in writing (A) the objective performance
goals that must be met, (B) the performance period during which performance will
be measured, (C) the maximum amounts that may be paid if the performance goals
are met, and (D) any other conditions that the Committee deems appropriate and
consistent with the Plan and section 162(m) of the Code. The Committee shall
establish the performance goals in writing either before the beginning of the
performance period or during a period ending no later than the earlier of
(i) 90 days after the beginning of the performance period or (ii) the date on
which 25% of the performance period has been completed, or such other date as
may be required or permitted under applicable regulations under section 162(m)
of the Code. The performance goals shall satisfy the requirements for “qualified
performance-based compensation,” including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the goals be established in such a way that a third party with knowledge of
the relevant facts could determine whether and to what extent the performance
goals have been met. The Committee shall not have discretion to increase the
amount of compensation that is payable upon achievement of the designated
performance goals.

 

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(b) Criteria Used for Performance Goals. The Committee shall use objectively
determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, price-earnings multiples, net income, operating
income, revenue, number of days sales outstanding in accounts receivable,
productivity, margin, EBITDA (earnings before interest, taxes, depreciation and
amortization), net capital employed, return on assets, stockholder return,
return on equity, return on capital employed, growth in assets, unit volume,
sales, cash flow, market share, relative performance to a comparison group
designated by the Committee, or strategic business criteria consisting of one or
more objectives based on meeting specified revenue goals, market penetration
goals, customer growth, geographic business expansion goals, cost targets or
goals relating to acquisitions or divestitures (which may include acquisitions
or divestitures that involve a Change of Control). The performance goals may
relate to one or more business units or the performance of the Company as a
whole, or any combination of the foregoing. Performance goals need not be
uniform as among Grantees.
(c) Certification of Results. The Committee shall certify the performance
results for each performance period after the announcement of the Company’s
financial results for the performance period. The Committee shall determine the
amount, if any, to be paid pursuant to each Grant under this Section 11 based on
the achievement of the performance goals and the satisfaction of all other terms
of the Grant Instrument. If and to the extent that the Committee does not
certify that the performance goals have been met, the grants of Stock Awards,
Stock Units and Other Stock-Based Awards for the performance period shall be
forfeited or shall not be made, as applicable.
(d) Death, Disability or Other Circumstances. The Committee may provide in the
Grant Instrument that Grants under this Section 11 shall be payable or
restrictions on such Grants shall lapse, in whole or in part, in the event of
the Grantee’s death or Disability, a Change of Control, or under other
circumstances consistent with the Treasury regulations and rulings under section
162(m) of the Code.
Section 12. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Employer may require that the Grantee or other person
receiving or exercising Grants pay to the Employer the amount of any federal,
state or local taxes that the Employer is required to withhold with respect to
such Grants, or the Employer may deduct from wages paid by the Employer the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee may
elect to satisfy the Employer’s tax withholding obligation with respect to
Grants paid in Company Stock by having shares withheld, at the time such Grants
become taxable, up to an amount that does not exceed the Grantee’s minimum
applicable withholding tax rate for federal (including FICA), state and local
tax liabilities. The election must be in a form and manner prescribed by the
Committee and may be subject to the prior approval of the Committee.

 

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Section 13. Transferability of Grants
(a) Restrictions on Transfers. Except as described in subsection (b) below, only
the Grantee may exercise rights under a Grant during the Grantee’s lifetime. A
Grantee may not transfer those rights except (i) by will or by the laws of
descent and distribution or (ii) with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant to a
domestic relations order or otherwise as permitted by the Committee. When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee may exercise such rights. Any such successor must
furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee’s will or under the applicable laws of descent and
distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing, the
Committee may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members, or one or more trusts or other
entities for the benefit of or owned by family members, consistent with the
applicable securities laws, according to such terms as the Committee may
determine; provided that the Grantee receives no consideration for the transfer
of an Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.
Section 14. Consequences of a Change of Control
(a) Notice and Acceleration. Upon a Change of Control, unless the Committee
determines otherwise as set forth in subsection (b) below, (i) all outstanding
Options and SARs shall automatically accelerate and become fully exercisable,
(ii) the restrictions and conditions on all outstanding Stock Awards shall
immediately lapse, and (iii) all Stock Units and Other Stock-Based Awards shall
be paid at their target value, or in such other amounts as the Committee may
determine.
(b) Other Alternatives. Notwithstanding the foregoing, in the event of a Change
of Control, the Committee may take one or more of the following actions with
respect to any or all outstanding Grants: the Committee may (i) require that
Grantees surrender their outstanding Options and SARs in exchange for one or
more payments by the Company, in cash or Company Stock as determined by the
Committee, in an amount equal to the amount by which the then Fair Market Value
of the shares of Company Stock subject to the Grantee’s unexercised Options and
SARs exceeds the Exercise Price of the Options or the base amount of the SARs,
as applicable, (ii) after giving Grantees a period of at least ten days to
exercise their outstanding Options and SARs, terminate any or all unexercised
Options and SARs at such time as the Committee deems appropriate, (iii)
determine that all outstanding Options and SARs that are not exercised shall be
assumed by, or replaced with comparable options or rights by, the surviving
corporation (or a parent or subsidiary of the surviving corporation), and other
outstanding Grants that remain in effect after the Change of Control shall be
converted to similar grants of the surviving corporation (or a parent or
subsidiary of the surviving corporation), or (iv) determine that outstanding
Grants shall remain in effect according to their terms, if the Company is the
surviving corporation.

 

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(c) Committee. If the Committee makes determinations under this Section 14
following a Change of Control, the Committee making such determinations must be
comprised of the same members as those on the Committee immediately before the
Change of Control. If the Committee members do not meet this requirement, the
Committee as in effect after the Change of Control shall not have discretion to
change the automatic provisions of subsection (a) or, if applicable, vary the
determinations made by the Committee under this Section 14 before the Change of
Control (including any decision to follow the automatic provisions of subsection
(a)).
Section 15. Requirements for Issuance or Transfer of Shares
No Company Stock shall be issued or transferred in connection with any Grant
hereunder unless and until all legal and self-regulatory organization
requirements (including registration, qualification and listing requirements)
applicable to the issuance or transfer of such Company Stock have been complied
with to the satisfaction of the Committee. The Committee shall have the right to
condition any Grant made to any Grantee hereunder on such Grantee’s undertaking
in writing to comply with such restrictions on his or her subsequent disposition
of such shares of Company Stock as the Committee shall deem necessary or
advisable, and certificates representing such shares may be legended to reflect
any such restrictions. Certificates representing shares of Company Stock issued
or transferred under the Plan will be subject to such stop-transfer orders and
other restrictions as may be required by the Plan, the applicable Grant
Instrument, or applicable laws, regulations and interpretations, including any
requirement that a legend be placed thereon. No Participant shall have any right
as a stockholder with respect to Company Stock covered by a Grant until shares
have been issued pursuant to the Grant.
Section 16. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time; provided,
however, that the Board shall not amend the Plan without stockholder approval if
such approval is required in order to comply with the Code or applicable laws,
or to comply with applicable requirements of a stock exchange or national
securities association.
(b) No Repricing Without Stockholder Approval. Notwithstanding anything in the
Plan to the contrary, the Committee may not reprice Options granted under the
Plan, nor may the Board amend the Plan to permit repricing of Options granted
under the Plan, unless the stockholders of the Company provide prior approval
for such repricing. Adjustments pursuant to Section 4 shall not be considered a
repricing.
(c) Stockholder Approval for “Qualified Performance-Based Compensation.” If
Stock Awards, Stock Units and Other Stock-Based Awards are granted as “qualified
performance-based compensation” under Section 11 above, the Plan must be
reapproved by the stockholders no later than the first stockholders meeting that
occurs in the fifth year following the year in which the stockholders previously
approved the provisions of Section 11, if additional Grants are to be made under
Section 11 and if required by section 162(m) of the Code or the regulations
thereunder.

 

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(d) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of the Effective Date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the stockholders. On the Effective Date, the amendment and restatement of the
Health Grades, Inc. 1996 Equity Compensation Plan into the Health Grades, Inc.
2006 Equity Compensation Plan shall be treated as a new plan for purposes of the
Incentive Stock Option requirements of Code Sec. 422(b)(2) and Treas. Reg. Sec.
1.422-2(a)(2)(ii).
(e) Termination and Amendment of Outstanding Grants. A termination or amendment
of the Plan that occurs after a Grant is made shall not materially impair the
rights of a Grantee unless the Grantee consents or unless the Committee acts
under Section 17(f). The termination of the Plan shall not impair the power and
authority of the Committee with respect to an outstanding Grant. Whether or not
the Plan has terminated, an outstanding Grant may be terminated or amended under
Section 17(f) or may be amended by agreement of the Company and the Grantee
consistent with the Plan.
(f) Effective Date of the Plan. The Plan shall be effective as of the date of
stockholder approval, provided that such approval must be obtained no later than
September 30, 2006.
Section 17. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise. Nothing
contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees, or for other proper corporate purposes, or (ii) limit the
right of the Company to grant stock options or make other awards outside of this
Plan. The Committee may make a Grant to an employee of another corporation who
becomes an Employee by reason of a corporate merger, consolidation, acquisition
of stock or property, reorganization or liquidation involving the Company in
substitution for a stock option or stock awards grant made by such corporation.
Notwithstanding anything in the Plan to the contrary, the Committee may
establish such terms and conditions of the substitute grants as it deems
appropriate, including setting the Exercise Price of Options at a price
necessary to retain for the Grantee the same economic value as the substituted
Option.
(b) Governing Document. The Plan shall be the controlling document. No other
statements, representations, explanatory materials or examples, oral or written,
may amend the Plan in any manner. The Plan shall be binding upon and enforceable
against the Company and its successors and assigns.

 

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(c) Funding of the Plan; Limitation on Rights. This Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of assets to assure the payment of any Grants under
this Plan. Nothing contained in the Plan and no action taken pursuant hereto
shall create or be construed to create a fiduciary relationship between the
Company and any Grantee or any other person. No Grantee or any other person
shall under any circumstances acquire any property interest in any specific
assets of the Company. To the extent that any person acquires a right to receive
payment from the Company hereunder, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(d) Rights of Participants. Nothing in this Plan shall entitle any Employee, Key
Advisor, Non-Employee Director or other person to any claim or right to be
granted a Grant under this Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any individual any rights to be retained
by or in the employ of the Employer or any other employment rights.
(e) No Fractional Shares. No fractional shares of Company Stock shall be issued
or delivered pursuant to the Plan or any Grant. The Committee shall determine
whether cash, other awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated
(f) Compliance with Law. The Plan, the exercise of Options and SARs and the
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that Incentive Stock Options comply with the
applicable provisions of section 422 of the Code, that Grants of “qualified
performance-based compensation” comply with the applicable provisions of section
162(m) of the Code and that, to the extent applicable, Grants comply with the
requirements of section 409A of the Code. To the extent that any legal
requirement of section 422, 162(m) or 409A of the Code as set forth in the Plan
ceases to be required under section 422, 162(m) or 409A of the Code, that Plan
provision shall cease to apply. The Committee may revoke any Grant if it is
contrary to law or modify a Grant to bring it into compliance with any law or
mandatory government regulation. The Committee may also adopt rules regarding
the withholding of taxes on payments to Participants. The Committee may, in its
sole discretion, agree to limit its authority under this Section.
(g) Changes in Accounting Rules. Except as provided otherwise at the time of a
Grant, notwithstanding any other provision of the Plan to the contrary, if,
during the term of the Plan, any changes in the financial or tax accounting
rules applicable to Grants shall occur that, in the sole judgment of the
Committee, may have a material adverse effect on the reported earnings, assets
or liabilities of the Company, the Committee shall have the right and power to
modify as necessary, any then outstanding and unexercised Grants to address such
changes.

 

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(h) Employees Subject to Taxation Outside the United States. With respect to
Grantees who are subject to taxation in countries other than the United States,
the Committee may make Grants on such terms and conditions as the Committee
deems appropriate to comply with the laws of the applicable countries, and the
Committee may create such procedures, addenda and subplans and make such
modifications as may be necessary or advisable to comply with such laws.
(i) Governing Law. The validity, construction, interpretation and effect of the
Plan and Grant Instruments issued under the Plan shall be governed and construed
by and determined in accordance with the laws of the state of Delaware, without
giving effect to the conflict of laws provisions thereof.

 

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