Exhibit 10.3
 
INTERACTIVE INTELLIGENCE, INC.
 
1999 STOCK OPTION AND INCENTIVE PLAN
 
(Restated to reflect all amendments adopted through February 22, 2000)
 
 
1.  Plan Purpose.  The purpose of the Plan is to promote the long-term interests
of the Company and its shareholders by providing a means for attracting and
retaining officers and key employees of the Company and its Affiliates.
 
2.  Definitions.  The following definitions are applicable to the Plan:
 
"Affiliate"—means any "parent corporation" or "subsidiary corporation" of the
Company as such terms are defined in Section 424(e) and (f), respectively, of
the Code and any other corporation or other entity (including partnerships,
limited liability companies, and joint ventures) controlled by or under common
control with the Company.
 
"Award"—means, individually or collectively, the grant by the Committee of an
Incentive Stock Option, a Non-Qualified Stock Option, or Restricted Stock, or
any combination thereof, as provided in the Plan.
 
"Board or Board of Directors"—means the Board of Directors of the Company.
 
"Cashless Exercise"—means, if there is a public market for the Shares, the
payment of the Exercise Price (a) through a "same day sale" commitment from the
Participant and an NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased in order to
pay the Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such stock to forward the Exercise Price directly to the Company, or
(b) through a "margin" commitment from the Participant and an NASD Dealer
whereby the Participant irrevocably elects to exercise the Option and to pledge
the Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company.
 
"Cause"—means, for purposes of determining whether and when a Participant has
incurred a Termination of Continuous Service for Cause, any act or failure to
act which permits the Company to terminate the written agreement or arrangement
between the Participant and the Company or an Affiliate for "cause" as defined
in such agreement or arrangement or, in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then "Cause" for purposes of the Plan shall mean any act or failure to act
deemed to constitute "cause" under the Company's established and applied
practices, policies or guidelines applicable to the Participant.
 
"Change in Control"—means each of the events specified in the following clauses
(i) through (iii): (i) any third person, including a "group" as defined in
Section 13(d)(3) of the Exchange Act shall, after the date of the adoption of
the Plan by the Board, first become the beneficial owner of Shares of the
Company with respect to which 25% or more of the total number of votes for the
election of the Board of Directors of the Company may be cast, (ii) as a result
of, or in connection with, any cash tender offer, exchange offer, merger or
other business combination, sale of assets or contested election, or combination
of the foregoing, the persons who were directors of the Company shall cease to
constitute a majority of the Board of Directors of the Company or (iii) the
stockholders of the Company shall approve an agreement providing either for a
transaction in which the Company will cease to be an independent publicly owned
entity or for a sale or other disposition of all or substantially all the assets
of the Company.
 
"Code"—means the Internal Revenue Code of 1986, as amended.
 
"Committee"—means the Committee referred to in Section 3 hereof.
 
"Company"—means Interactive Intelligence, Inc., an Indiana corporation.
 
"Continuous Service"—means the absence of any interruption or termination of
service as an employee of the Company or an Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Company or in the case of any transfer between
the Company and an Affiliate or any successor to the Company.
 

 
 

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"Disability"—means a mental or physical illness that entitles the Participant to
receive benefits under the long-term disability plan of the Company or an
Affiliate. Notwithstanding the foregoing, a Disability shall not qualify under
the Plan if it is the result, as determined by the Committee, of (a) an
intentionally self-inflicted injury or an intentionally self-induced sickness,
or (b) an injury or disease contracted, suffered or incurred while participating
in a criminal offense. The determination of a Disability for purposes of the
Plan shall not be construed to be an admission of a disability for any other
purpose.
 
"Employee"—means any person, including an officer or director, who is employed
by the Company or any Affiliate.
 
"Exchange Act"—means the Securities Exchange Act of 1934, as amended.
 
"Exercise Price"—means the price per Share at which the Shares subject to an
Option may be purchased upon exercise of such Option.
 
"Incentive Stock Option"—means an option to purchase Shares granted by the
Committee pursuant to the terms of the Plan which is intended to qualify under
Section 422 of the Code.
 
"Market Value"—means the last reported sale price on the date in question (or,
if there is no reported sale on such date, on the last preceding date on which
any reported sale occurred) of one Share on the principal exchange on which the
Shares are listed for trading, or if the Shares are not listed for trading on
any exchange, on the NASDAQ National Market System or any similar system then in
use, or, if the Shares are not listed on the NASDAQ National Market System, the
mean between the closing high bid and low asked quotations of one Share on the
date in question as reported by NASDAQ or any similar system then in use, or, if
no such quotations are available, the fair market value on such date of one
Share as the Committee shall determine.
 
"NASD Dealer"—means a broker-dealer who is a member of the National Association
of Securities Dealers, Inc.
 
"Non-Qualified Stock Option"—means an option to purchase Shares granted by the
Committee pursuant to the terms of the Plan, which option is not intended to
qualify under Section 422 of the Code.
 
"Option"—means an Incentive Stock Option or a Non-Qualified Stock Option.
 
"Participant"—means any officer, key employee, or consultant of the Company or
any Affiliate or any other individual who is selected by the Committee to
receive an Award.
 
"Plan"—means the Interactive Intelligence, Inc. 1999 Stock Option and Incentive
Plan, as set forth in this instrument and as hereafter amended from time to
time.
 
"Reorganization"—means the liquidation or dissolution of the Company or any
merger, consolidation or combination of the Company (other than a merger,
consolidation or combination in which the Company is the continuing entity and
which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property or any combination
thereof).
 
"Restricted Period"—means the period of time selected by the Committee for the
purpose of determining when restrictions are in effect under Section 10 hereof
with respect to Restricted Stock awarded under the Plan.
 
"Restricted Stock"—means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in
Section 10 hereof, so long as such restrictions are in effect.
 
"Retirement"—means the date on which a Participant attains age sixty-five
(65) or such other "normal retirement age" as the Company shall specify in its
written policies.
 
"Securities Act"—means the Securities Act of 1933, as amended.
 
"Shares"—means the common stock, $.01 par value, of the Company and shall
include common stock as it may be changed from time to time as described in
Section 11 hereof.
 
 
 

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"Termination of Continuous Service"—means the occurrence of any act or event or
any failure to act whether pursuant to an employment agreement or otherwise that
actually or effectively causes or results in a Participant ceasing, for whatever
reason, to be an Employee of the Company or an Affiliate, including, but not
limited to, death, Disability, Retirement, termination by the Company or an
Affiliate of the Participant's employment with the Company or an Affiliate
(whether with or without Cause), and voluntary resignation or termination by the
Participant of his or her employment with the Company or an Affiliate. A
Termination of Continuous Service also shall occur with respect to an Employee
who is employed by an Affiliate if the Affiliate shall cease to be an Affiliate
of the Company and the Participant shall not immediately thereafter become an
Employee of the Company or another Affiliate. For purposes of the Plan,
transfers or changes of employment of a Participant between the Company and an
Affiliate (or between Affiliates) shall not be deemed a Termination of
Continuous Service.
 
3.  Administration.  The Plan shall be administered by the Committee, which
shall consist of two or more members of the Board, each of whom shall be a
"non-employee director" as provided under Rule 16b-3 of the Exchange Act, and an
"outside director" as provided under Section 162(m) of the Code. Failure by the
Committee to be so comprised shall not result in the cancellation, termination,
expiration, or lapse of any Award. The members of the Committee shall be
appointed by the Board. If the Committee does not exist, or for any other reason
determined by the Board, the Board may take any action under the Plan that would
otherwise be the responsibility of the Committee. Except as limited by the
express provisions of the Plan, the Committee shall have sole and complete
authority and discretion to (a) select Participants and grant Awards;
(b) determine the number of Shares to be subject to and the types of Awards
generally, as well as to individual Awards granted under the Plan; (c) determine
the terms and conditions upon which Awards shall be granted under the Plan;
(d) prescribe the form and terms of instruments evidencing such grants;
(e) establish procedures and regulations for the administration of the Plan;
(f) construe and interpret the Plan, any Award agreement executed in connection
therewith, and any other agreements or instruments entered into under the Plan;
(g) make all determinations deemed necessary or advisable for the administration
of the Plan; and (h) establish, amend, or waive rules and regulations for the
administration of the Plan.
 
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all members of the Committee without a meeting,
shall be acts of the Committee. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding on all persons, and shall be given the maximum deference permitted by
law. Each Award shall be evidenced by a written agreement between the Company
and the Participant and shall contain such terms and conditions established by
the Committee consistent with the provisions of the Plan. Any notice or document
required to be given to or filed with the Committee will be properly given or
filed if hand delivered (and a delivery receipt is received) or mailed by
certified mail, return receipt requested, postage paid, to the Committee at
8909 Purdue Road, Suite 300, Indianapolis, Indiana 46268.
 
4.  Participants.  The Committee may select from time to time Participants from
those officers, key employees and consultants of the Company or its Affiliates
and such other individuals who, in the opinion of the Committee, have the
capacity for contributing in a substantial measure to the successful performance
of the Company or its Affiliates. Neither the Plan nor any Award agreement
executed under the Plan shall constitute a contract of employment between a
Participant and the Company or an Affiliate, and participation in the Plan shall
not give a Participant the right to be rehired by or retained in the employment
of the Company or an Affiliate.
 
5.  Shares Subject to Plan.  Subject to adjustment by the operation of
Sections 11 and 12 hereof, the maximum number of Shares with respect to which
Awards may be granted under the Plan is Three Million Seven Hundred Fifty
Thousand (3,750,000) Shares. The number of Shares which may be granted under the
Plan to any Participant during any calendar year of the Plan, under all forms of
Awards, shall not exceed Two Hundred Fifty Thousand (250,000) Shares. The Shares
with respect to which Awards may be made under the Plan may either be authorized
and unissued Shares or unissued Shares heretofore or hereafter reacquired and
held as treasury Shares. With respect to any Option which terminates or is
surrendered for cancellation or with respect to Restricted Stock which is
forfeited, new Awards may be granted under the Plan with respect to the number
of Shares as to which such termination or forfeiture has occurred.
 
Subject to the limitations set forth in the Plan, the Committee shall have full
authority to determine the number of Shares available for Awards, and in its
discretion may include (without limitation) as available for distribution any
Shares that have ceased to be subject to an Award, any Shares subject to an
Award that have been previously forfeited, and any Shares under an Award that
otherwise terminates without the issuance of Shares being made to a Participant.
 

 
 

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Shares issued upon exercise of an Award shall be subject to the terms and
conditions specified herein and to such other terms, conditions and restrictions
as the Committee in its discretion may determine or provide in the Award
agreement. The Company shall not be required to issue or deliver any
certificates for Shares or other property prior to (a) the listing of such
Shares on any stock exchange (or other public market) on which the Shares may
then be listed (or regularly traded); and (b) the completion of any registration
or qualification of such Shares under federal, state, local or other law, or any
ruling or regulation of any government body which the Committee determines to be
necessary or advisable. The Company may cause any certificate for any Shares to
be delivered hereunder to be properly marked with a legend or other notation
reflecting the limitations on transfer of such Shares as provided in the Plan or
as the Committee may otherwise require. Participants, or any other persons
entitled to benefits under the Plan, must furnish to the Committee such
documents, evidence, data, or other information as the Committee considers
necessary or desirable for the purpose of administering the Plan. The benefits
under the Plan for each Participant, and each other person who is entitled to
benefits hereunder, are to be provided on the condition that he furnish full,
true, and complete data, evidence, or other information, and that he will
promptly sign any document reasonably related to the administration of the Plan
requested by the Committee. No fractional Shares shall be issued under the Plan;
rather, fractional Shares shall be aggregated and then rounded to the next lower
whole Share.
 
6.  General Terms and Conditions of Options.  The Committee shall have full and
complete authority and discretion, except as expressly limited by the Plan, to
grant Options and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (a) the type of Option; (b) the
Exercise Price; (c) the number of Shares subject to, and the expiration date of,
any Option; (d) the manner, time and rate (cumulative or otherwise) of exercise
of such Option; (e) the restrictions, if any, to be placed upon such Option or
upon Shares which may be issued upon exercise of such Option; and (f) such other
terms and conditions consistent with the Plan as the Committee determines in its
discretion. The Committee may, as a condition of granting any Option, require
that a Participant agree to surrender for cancellation one or more Options
previously granted to such Participant.
 
7.  Exercise of Options.  
 
(a)  Restriction on Exercise.  Except as provided in Section 14, all Options
granted under the Plan shall be exercisable during the lifetime of the
Participant to whom such Option was granted only by such Participant, and except
as provided in Section 8, no Option may be exercised unless, at the time the
Participant exercises the Option, the Participant has maintained Continuous
Service since the date of the grant of the Option. Except as provided in
Section 13, or as otherwise determined by the Committee, all Options granted
under the Plan shall vest and become exercisable in accordance with the
following schedule:
 

   
Percentage of Option
Shares Vested
and Exercisable
 
Date of Vesting
 
Percent Vested
   
Cumulative
 
First anniversary of date of Option grant
    25 %     25 %
Second anniversary of date of Option grant
    25 %     50 %
Third anniversary of date of Option grant
    25 %     75 %
Fourth anniversary of date of Option grant
    25 %     100 %

 
(b)  Method of Exercise.  To exercise an Option under the Plan, the Participant
must give written notice to the Company specifying the number of Shares with
respect to which the Participant elects to exercise the Option together with
full payment of the Exercise Price. The date of exercise shall be the date on
which the notice is received by the Company. Payment may be made either (i) in
cash (including check, bank draft, or money order), (ii) by tendering Shares
already owned by the Participant for more than six months and having a Market
Value on the date of exercise equal to the Exercise Price, (iii) the delivery of
cash by a broker-dealer as a Cashless Exercise, or (iv) by any other means
determined by the Committee in its sole discretion.
 
(c)  Reload Provision.  In the event a Participant exercises an Option and pays
all or a portion of the Exercise Price in Shares, in the manner permitted by
Section 7(b), such Participant may (either pursuant to terms of the Award
agreement or pursuant to the sole discretion of the Committee at the time the
Option is exercised) be issued a new Option to purchase additional Shares equal
to the number of Shares surrendered to the Company in such payment. Such new
Option shall (a) have an Exercise Price equal to the Market Value per Share on
the grant date of the new Option, (b) first be exercisable six (6) months from
such grant date, and (c) expire on the same date as the original Option so
exercised by payment of the Exercise Price in Shares.
 

 
 

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8.  Termination of Options.  Unless otherwise specifically provided by the
Committee in the Award agreement between the Participant and the Company, each
Option granted under the Plan shall terminate as provided in this Section 8.
 
(a)  Maximum Term.  Unless sooner terminated under the provisions of this
Section 8, Options shall expire on the earlier of the date specified by the
Committee or the expiration of ten (10) years from the date of grant.
 
(b)  Termination for Cause.  If the Participant incurs a Termination of
Continuous Service for Cause, all rights under any Options granted to the
Participant shall terminate immediately upon the Participant's Termination of
Continuous Service, and the Participant shall (if the Committee in its sole
discretion exercises its rights under this Section 8(b) within ten (10) days of
such Termination of Continuous Service) repay to the Company within ten
(10) days of the Committee's demand therefor the amount of any gain realized by
the Participant upon any exercise within the 90-day period prior to the
Termination of Continuous Service of any Options granted to such Participant
under the Plan.
 
(c)  Termination Due to Retirement or Without Cause or Voluntary
Termination.  If the Continuous Service of a Participant is terminated by reason
of Retirement, terminated by the Company without Cause, or by Voluntary
Termination, the Participant may exercise outstanding Options to the extent that
the Participant was entitled to exercise the Options at the date of Termination
of Continuous Service, but only within the period of one (1) month immediately
succeeding the Participant's Termination of Continuous Service, and in no event
after the applicable expiration dates of the Options. Any Option that is not
exercisable on the date of Termination of Continuous Service shall terminate and
be forfeited effective on such date.
 
(d)  Termination Due to Death or Disability.  In the event of the Participant's
death or Disability, the Participant or the Participant's beneficiary, as the
case may be, may exercise outstanding Options to the extent that the Participant
was entitled to exercise the Options at the date of Termination of Continuous
Service, but only within the one (1)-year period immediately succeeding the
Participant's Termination of Continuous Service in the case of Disability, and
in no event after the applicable expiration date of the Options. Any Option that
is not exercisable on the date of Termination of Continuous Service shall
terminate and be forfeited effective on such date.
 
(e)  Committee Discretion.  Notwithstanding the provisions of the foregoing
paragraphs of this Section 8, the Committee may, in its sole discretion,
establish different terms and conditions pertaining to the effect of the
Termination of Continuous Service, to the extent permitted by applicable federal
and state law.
 
9.  Incentive Stock Options.  Incentive Stock Options may be granted only to
Participants who are Employees. Any provisions of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
(10) years from the date the Plan is adopted by the Board of Directors of the
Company and no Incentive Stock Option shall be exercisable more than ten
(10) years from the date such Incentive Stock Option is granted, (ii) the
Exercise Price of any Incentive Stock Option shall not be less than the Market
Value per Share on the date such Incentive Stock Option is granted, (iii) any
Incentive Stock Option shall not be transferable by the Participant to whom such
Incentive Stock Option is granted other than by will or the laws of descent and
distribution and shall be exercisable during such Participant's lifetime only by
such Participant, and (iv) no Incentive Stock Option shall be granted which
would permit a Participant to acquire, through the exercise of Incentive Stock
Options in any calendar year, Shares or Shares of any capital stock of the
Company or any Affiliate thereof having an aggregate Market Value (determined as
of the time any Incentive Stock Option is granted) in excess of One Hundred
Thousand Dollars ($100,000). The foregoing limitation shall be determined by
assuming that the Participant will exercise each Incentive Stock Option on the
date that such Option first becomes exercisable. Notwithstanding the foregoing,
in the case of any Participant who, at the date of grant, owns stock possessing
more than Ten Percent (10%) of the total combined voting power of all classes of
capital stock of the Company or any Affiliate, the Exercise Price of any
Incentive Stock Option shall not be less than One Hundred Ten Percent (110%) of
the Market Value per Share on the date such Incentive Stock Option is granted
and such Incentive Stock Option shall not be exercisable more than five
(5) years from the date such Incentive Stock Option is granted.
 
10.  Terms and Conditions of Restricted Stock.  The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant awards
of Restricted Stock and, in addition to the terms and conditions contained in
paragraphs (a) through (g) of this Section 10, to provide such other terms and
conditions (which need not be identical among Participants) in respect of such
Awards as the Committee shall determine and provide in the agreement referred to
in paragraph (d) of this Section 10.
 

 
 

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(a)  Restricted Period.  At the time of an Award of Restricted Stock, the
Committee shall establish for each Participant a Restricted Period during which,
or at the expiration of which, the Shares of Restricted Stock shall vest. The
Committee may also restrict or prohibit the sale, assignment, transfer, pledge,
or other encumbrance of the Shares of Restricted Stock by the Participant during
the Restricted Period. Except for such restrictions, and subject to
paragraphs (c), (d) and (e) of this Section 10 and Section 11 hereof, the
Participant as owner of such Shares shall have all the rights of a stockholder,
including but not limited to the right to receive all dividends paid on such
Shares and the right to vote such Shares. Except in the case of grants of
Restricted Stock which are intended to qualify as "performance-based
compensation" under Section 162(m) of the Code, the Committee shall have the
authority, in its discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to any Shares of Restricted Stock prior to
the expiration of the Restricted Period with respect thereto, or to remove any
or all of such restrictions, whenever it may determine that such action is
appropriate by reason of changes in applicable tax or other laws or other
changes in circumstances occurring after the commencement of such Restricted
Period.
 
(b)  Lapse and Forfeiture.  Except as provided in Section 13 hereof, if a
Participant incurs a Termination of Continuous Service for any reason (other
than death, Disability or Retirement), unless the Committee shall otherwise
determine, all Shares of Restricted Stock theretofore awarded to such
Participant and which at the time of such Termination of Continuous Service are
subject to the restrictions imposed by paragraph (a) of this Section 10 shall
upon such Termination of Continuous Service be forfeited and returned to the
Company. If a Participant incurs a Termination of Continuous Service by reason
of death or Disability, then the restrictions with respect to the Ratable
Portion of the Shares of Restricted Stock shall lapse and such Shares shall be
free of restrictions and shall not be forfeited. The Ratable Portion shall be
determined with respect to each separate Award of Restricted Stock issued and
shall be equal to (i) the number of Shares of Restricted Stock awarded to the
Participant multiplied by the portion of the Restricted Period that expired at
the date of the Participant's death or Disability reduced by (ii) the number of
Shares of Restricted Stock awarded with respect to which the restrictions had
lapsed as of the date of the death or Disability of the Participant. Likewise,
on the date set forth in the applicable Award agreement, the Restricted Stock
for which restrictions have not lapsed by the last day of the Restricted Period
shall be forfeited and returned to the Company and thereafter shall be available
for the grant of new Awards under the Plan.
 
(c)  Legend on Certificates.  Each certificate issued in respect of Shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Participant and deposited by the Participant, together with a stock power
endorsed in blank, with the Company and shall bear the following (or a similar)
legend:
 
"The sale, pledge or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law is subject to
the terms and conditions (including forfeiture) contained in the Interactive
Intelligence, Inc. 1999 Stock Option and Incentive Plan and an Award agreement
entered into between the registered owner and Interactive Intelligence, Inc.
Copies of such Plan and Award agreement are on file in the office of the
Secretary of Interactive Intelligence, Inc."
 
(d)  Award Agreement.  At the time of an Award of Shares of Restricted Stock,
the Participant shall enter into an Agreement with the Company in a form
specified by the Committee, agreeing to the terms and conditions of the Award,
and to such other matters as the Committee shall in its sole discretion
determine.
 
(e)  Dividend Rights.  At the time of an Award of Shares of Restricted Stock,
the Committee may, in its discretion, determine that the payment to the
Participant of dividends declared or paid on such Shares by the Company or a
specified portion thereof, shall be deferred until the earlier to occur of
(i) the lapsing of the restrictions imposed under paragraph (a) of this
Section 10, or (ii) the forfeiture of such Shares under paragraph (b) of this
Section 10, and shall be held by the Company for the account of the Participant
until such time. In the event of such deferral, there shall be credited at the
end of each year (or portion thereof) interest on the amount of the account at
the beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends, together with interest
accrued thereon as aforesaid, shall be made upon the earlier to occur of the
events specified in (i) and (ii) of the immediately preceding sentence.
 
(f)  Lapse of Restrictions.  At the expiration of the restrictions imposed by
paragraph (a) of this Section 10, the Company shall redeliver to the Participant
(or where the relevant provision of paragraph (b) of this Section 10 applies in
the case of a deceased Participant, to his legal representative, beneficiary or
heir) the certificate(s) and stock power deposited with it pursuant to
paragraph (c) of this Section 10 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph (a) of
this Section 10. Notwithstanding any other provision of this Section 10 and
Section 12 to the contrary, in the case of grants of Restricted Stock that are
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code, no Shares of Restricted Stock shall become vested unless the
performance goals with respect to such Restricted Stock shall have been
satisfied. If the vesting of Shares of Restricted Stock is accelerated after the
applicable performance goals have been met, the amount of Restricted Stock
distributed shall be discounted by the Committee to reasonably reflect the time
value of money in connection with such early vesting.
 

 
 

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(g)  Section 162(m) Performance Restrictions.  Notwithstanding any other
provision of this Section 10 to the contrary, for purposes of qualifying grants
of Restricted Stock as "performance-based compensation" under Section 162(m) of
the Code, the Committee shall establish restrictions based upon the achievement
of performance goals. The specific targets under the performance goals that must
be satisfied for the Restricted Period to lapse or terminate shall be set by the
Committee on or before the latest date permissible to enable the Restricted
Stock to qualify as "performance-based compensation" under Section 162(m) of the
Code. The business criteria for performance goals under this Section 10 shall be
one or more of the return on equity, total revenues, net earnings, or earnings
per share of the Company as selected by the Committee on, where applicable, a
consolidated basis, for a calendar year calculated in accordance with generally
accepted accounting principles consistently applied. In granting Restricted
Stock that is intended to qualify under Section 162(m), the Committee shall
follow any procedures determined by it in its sole discretion from time to time
to be necessary, advisable or appropriate to ensure qualification of the
Restricted Stock under Section 162(m) of the Code.
 
11.  Adjustments Upon Changes in Capitalization.  In the event of any change in
the Shares by virtue of any stock dividends, stock splits, recapitalizations, or
reclassifications or any acquisition, merger, consolidation, share exchange,
tender offer, or other combination involving the Company that does not
constitute a Change in Control but that results in the acquisition of a
subsidiary by the Company, or in the event that other stock shall be substituted
for the Shares as the result of any merger, consolidation, share exchange, or
reorganization or any similar transaction which constitutes a Change in Control
of the Company, the Committee shall correspondingly adjust (a) the number, kind,
and class of Shares which may be delivered under the Plan; (b) the number, kind,
class, and price of Shares subject to outstanding Awards (except for mergers or
other combinations in which the Company is the surviving entity); and (c) the
numerical limits of Section 5, all in such manner as the Committee in its sole
discretion shall determine to be advisable or appropriate to prevent the
dilution or diminution of such Awards; provided, however, in no event shall the
One Hundred Thousand Dollar ($100,000) limit on Incentive Stock Options
contained in Section 9 be affected by an adjustment under this Section 11. The
Committee's determination in this respect shall be final and conclusive.
 
12.  Effect of Reorganization.  Awards will be affected by a Reorganization as
follows:
 
(a) If the Reorganization is a dissolution or liquidation of the Company then
(i) the restrictions of Section 10(a) on Shares of Restricted Stock shall lapse,
and (ii) each outstanding Option shall terminate, but each Participant to whom
the Option was granted shall have the right, immediately prior to such
dissolution or liquidation to exercise his Option in full, notwithstanding the
provisions of Section 9, and the Company shall notify each Participant of such
right within a reasonable period of time prior to any such dissolution or
liquidation.
 
(b) If the Reorganization is a merger or consolidation, upon the effective date
of such Reorganization (i) each Optionee shall be entitled, upon exercise of his
Option in accordance with all of the terms and conditions of the Plan, to
receive in lieu of Shares, Shares of such stock or other securities or
consideration as the holders of Shares shall be entitled to receive pursuant to
the terms of the Reorganization; and (ii) each holder of Restricted Stock shall
receive Shares of such stock or other securities as the holders of Shares
received which shall be subject to the restrictions set forth in Section 10(a)
unless the Committee accelerates the lapse of such restrictions and the
certificate(s) or other instruments representing or evidencing such Shares or
securities shall be legended and deposited with the Company in the manner
provided in Section 10 hereof.
 
The adjustments contained in this Section 12 and the manner of application of
such provisions shall be determined solely by the Committee.
 
13.  Effect of Change in Control.  Unless the Committee shall have otherwise
provided in the Award agreement reflecting the applicable Award, upon the
occurrence of a Change in Control (a) any Restricted Period with respect to
Restricted Stock theretofore awarded to a Participant shall lapse and all Shares
awarded as Restricted Stock shall become fully vested in the Participant to whom
such Shares were awarded and (b) all Options theretofore granted and not fully
exercisable shall become exercisable in full and shall remain so exercisable in
accordance with their terms; provided, however, that no Option which has
previously been exercised or otherwise terminated shall become exercisable.
 
14.  Assignments and Transfers.  Except as otherwise determined by the
Committee, no Award nor any right or interest of a Participant under the Plan in
any instrument evidencing any Award under the Plan may be assigned, encumbered,
or transferred except, in the event of the death of a Participant, by will or
the laws of descent and distribution.
 

 
 

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15.  Employee Rights Under Plan.  No officer, Employee or other person shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no officer, Employee or other person shall
have any claim or right to be granted an Award under the Plan or under any other
incentive or similar plan of the Company or any Affiliate. Neither the Plan nor
any action taken thereunder shall be construed as giving any Employee any right
to be retained in the employ of the Company or any Affiliate.
 
16.  Delivery and Registration of Stock.  Except with respect to Restricted
Stock as provided in Section 10, no person shall have any rights of a
shareholder (including, but not limited to, voting and dividend rights) as to
Shares subject to an Option until, after proper exercise of the Option or other
action as may be required by the Committee in its discretion, such Shares shall
have been recorded on the Company's official shareholder records (or the records
of its transfer agents or registrars) as having been issued and transferred to
the Participant. Upon exercise of the Option or any portion thereof, the Company
will have a reasonable period in which to issue and transfer the Shares to the
Participant, and the Participant will not be treated as a shareholder for any
purpose whatsoever prior to such issuance and transfer. No payment or adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date such Shares are recorded as issued and transferred in the
Company's official shareholder records (or the records of its transfer agents or
registrars), except as provided herein or in an Award agreement. The Company's
obligation to deliver Shares with respect to an Award shall, if the Committee so
determines, be conditioned upon the receipt of a representation as to the
investment intention of the Participant to whom such Shares are to be delivered,
in such form as the Company shall determine to be necessary or advisable to
comply with the provisions of the Securities Act or any other applicable federal
or state securities legislation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under the Securities Act
or other securities legislation. The Company shall not be required to deliver
any Shares under the Plan prior to (i) the admission of such Shares to listing
on any stock exchange or system on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule, or regulation, as the Company shall determine to be
necessary or advisable.
 
17.  Withholding Tax.  Upon the termination of the Restricted Period with
respect to any Shares of Restricted Stock or the issuance of Shares pursuant to
the exercise of any Option (or at any such earlier time, if any, that an
election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such Shares in income), the
Company may, in lieu of requiring the Participant or other person receiving such
Shares, to pay the Company the amount of any taxes which the Company is required
to withhold with respect to such Shares, retain a sufficient number of Shares
held by it to cover the amount required to be withheld. The Company shall have
the right to deduct from all dividends paid with respect to Shares of Restricted
Stock the amount of any taxes which the Company is required to withhold with
respect to such dividend payments.
 
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option pursuant to the Plan, the Company may, in lieu of
requiring the Participant or such other person to pay the Company the amount of
any taxes which the Company is required to withhold with respect to such Shares,
retain a number of such Shares sufficient to cover the amount required to be
withheld.
 
18.  Loans.  
 
(a)  Loans Authorized.  The Company may make loans to a Participant in
connection with Restricted Stock or the exercise of Options subject to the
following terms and conditions and such other terms and conditions not
inconsistent with the Plan, including the rate of interest, if any, as the
Company shall impose from time to time.
 
(b)  Limitations on Loans.  No loan made under the Plan shall exceed (i) with
respect to Options, the sum of (A) the aggregate option price payable upon
exercise of the Option in relation to which the loan is made, plus (B) the
amount of the reasonably estimated income taxes payable by the Participant, and
(ii) with respect to Restricted Stock, the amount of reasonably estimated income
taxes payable by the Participant. In no event may any such loan exceed the
Market Value of the related Shares at the time of the loan.
 
(c)  Minimum Terms.  No loan shall have an initial term exceeding three
(3) years; provided, that loans under the Plan shall be renewable at the
discretion of the Committee; and, provided, further, that the indebtedness under
each loan shall become due and payable on a date no later than (i) one year
after Termination of Continuous Service by the Participant due to death,
Disability or Retirement, or (ii) the day of Termination of Continuous Service
by the Participant for any reason other than death, Disability or Retirement.
 
(d)  Payment of Loans.  Loans under the Plan may be satisfied by the
Participant, as determined by the Committee, in cash or, with the consent of the
Committee, in whole or in part in Shares at Market Value on the date of such
payment.
 

 
 

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(e)  Collateral.  When a loan shall have been made, Shares having an aggregate
Market Value equal to the amount of the loan may, in the discretion of the
Committee, be required to be pledged by the Participant to the Company as
security for payment of the unpaid balance of the loan. Portions of such Shares
may, in the discretion of the Committee, be released from time to time as it
deems not to be needed as security.
 
(f)  Legal Requirements.  Every loan shall meet all applicable laws,
regulations, and rules of the Federal Reserve Board and any other governmental
agency having jurisdiction.
 
19.  Amendment, Suspension or Termination.  The Board may supplement, amend,
alter, or discontinue the Plan in its sole discretion at any time and from time
to time, but no supplement, amendment, alteration, or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except that any supplement,
amendment, alteration, or discontinuation may be made to (a) avoid a material
charge or expense to the Company or an Affiliate; (b) cause the Plan to comply
with applicable law; or (c) permit the Company or an Affiliate to claim a tax
deduction under applicable law. In addition, subject to the provisions of this
Section 19, the Board, in its sole discretion at any time and from time to time,
may supplement, amend, alter, or discontinue the Plan without the approval of
the Company's shareholders (a) to the extent such approval is not required by
applicable law or the terms of a written agreement; and (b) so long as any such
amendment or alteration does not increase the number of Shares subject to the
Plan (other than pursuant to Section 11) or increase the maximum number of
Options or Shares of Restricted Stock that the Committee may award to an
individual Participant under the Plan. The Committee may supplement, amend,
alter, or discontinue the terms of any Award theretofore granted, prospectively
or retroactively, on the same conditions and limitations (and exceptions to
limitations) as apply to the Board under the foregoing provisions of this
Section 19, and further subject to any approval or limitations the Board may
impose. Notwithstanding any provision of the Plan to the contrary, if any right,
Award or Award agreement under the Plan would cause a transaction of or
acquisition by the Company to be ineligible for "pooling of interest" accounting
treatment that would, but for such right hereunder, otherwise be eligible for
such accounting treatment, the Committee may amend, modify, or adjust the right,
the Award or the Award agreement of a Participant (without the prior consent,
approval, or authorization of the Participant) so that pooling of interest
accounting treatment shall be available with respect to such transaction or
acquisition even if any such amendment, modification, or adjustment would be
detrimental to or impair the rights of a Participant under the Plan.
 
20.  Effective Date and Term of Plan.  The Plan shall become effective upon its
approval by the holders of at least a majority of the outstanding Shares at a
meeting at which approval of the Plan is considered and shall continue in effect
for a term of ten (10) years from the date of adoption unless sooner terminated
under Section 19 hereof.
 
21.  Legal Construction.  
 
(a)  Gender and Number.  Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
 
(b)  Severability.  In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had never been included herein.
 
(c)  Requirements of Law.  The grant of Awards and the issuance of Shares under
the Plan shall be subject to all applicable statutes, laws, rules, and
regulations and to such approvals and requirements as may be required from time
to time by any governmental authorities or any securities exchange or market on
which the Shares are then listed or traded.
 
(d)  Governing Law.  Except to the extent preempted by the Federal laws of the
United States of America, the Plan and all Award agreements shall be construed
in accordance with and governed by the laws of the State of Indiana without
giving effect to any choice or conflict of law provisions, principles or rules
(whether of the State of Indiana or any other jurisdiction) that would cause the
application of any laws of any jurisdiction other than the State of Indiana.
 
(e)  Headings.  The descriptive headings, sections, and paragraphs of the Plan
are provided herein for convenience of reference only and shall not serve as a
basis for interpretation or construction of the Plan.
 
(f)  Mistake of Fact.  Any mistake of fact or misstatement of facts shall be
corrected when it becomes known by a proper adjustment to an Award or Award
agreement.
 

 
 

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(g)  Evidence.  Evidence required of anyone under the Plan may be by
certificate, affidavit, document, or other information which the person relying
thereon considers pertinent and reliable, and signed, made, or presented by the
proper party or parties.
 
22.  No Effect on Employment or Service.  Neither the Plan nor the grant of any
Awards or the execution of any Award agreement shall confer upon any Participant
any right to continued employment by the Company or shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment or service at any time, with or without Cause. Employment with the
Company and its Affiliates is on an at-will basis only, unless otherwise
provided by a written employment or severance agreement, if any, between the
Participant and the Company or an Affiliate, as the case may be. If there is any
conflict between the provisions of the Plan and an employment or severance
agreement between a Participant and the Company, the provisions of such
employment or severance agreement shall control, including, but not limited to,
the vesting and nonforfeiture of any Awards.
 
23.  No Company Obligation.  Unless required by applicable law, the Company, an
Affiliate, the Board of Directors, and the Committee shall not have any duty or
obligation to affirmatively disclose material information to a record or
beneficial holder of Shares or an Award, and such holder shall have no right to
be advised of any material information regarding the Company or any Affiliate at
any time prior to, upon, or in connection with the receipt, exercise, or
distribution of an Award. In addition, the Company, an Affiliate, the Board of
Directors, the Committee, and any attorneys, accountants, advisors, or agents
for any of the foregoing shall not provide any advice, counsel, or
recommendation to any Participant with respect to, without limitation, any
Award, any exercise of an Option, or any tax consequences relating to an Award.
 
24.  Participation.  No Employee or consultant shall have the right to be
selected to receive an Award under the Plan or, having been selected, to be
selected to receive a future Award. Participation in the Plan will not give any
Participant any right or claim to any benefit under the Plan, unless such right
or claim has specifically accrued under the terms of the Plan.
 
25.  Liability and Indemnification.  No member of the Board, the Committee, or
any officer or Employee of the Company or any Affiliate shall be personally
liable for any action, failure to act, decision, or determination made in good
faith in connection with the Plan. By participating in the Plan, each
Participant agrees to release and hold harmless the Company and its Affiliates
(and their respective directors, officers, and employees) and the Committee from
and against any tax liability, including, but not limited to, interest and
penalties, incurred by the Participant in connection with his receipt of Awards
under the Plan and the payment and exercise thereof. Each person who is or shall
have been a member of the Committee, or of the Board, shall be indemnified and
held harmless by the Company against and from (a) any loss, cost, liability, or
expense (including, but not limited to, attorneys' fees) that may be imposed
upon or reasonably incurred by him in connection with or resulting from any
claim, action, suit, or proceeding to which he may be a party or in which he may
be involved by reason of any action taken or failure to act under the Plan or
any Award agreement; and (b) any and all amounts paid by him in settlement
thereof, with the Company's prior written approval, or paid by him in
satisfaction of any judgment in any such claim, action, suit, or proceeding
against him; provided, however, that he shall give the Company an opportunity,
at the Company's expense, to handle and defend such claim, action, suit, or
proceeding before he undertakes to handle and defend the same on his own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or By-Laws, by contract, as a matter of law,
or otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
 
26.  Successors.  All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the Company,
whether or not the existence of such successor is the result of a Change in
Control. The Company shall not, and shall not permit its Affiliates to,
recommend, facilitate, agree, or consent to a transaction or series of
transactions which would result in a Change in Control of the Company unless and
until the person or persons or entity or entities acquiring control of the
Company as a result of such Change in Control agree(s) to be bound by the terms
of the Plan insofar as it pertains to Awards theretofore granted and agrees to
assume and perform the obligations of the Company and its successor.
 
27.  Beneficiary Designations.  Any Participant may designate, on such forms as
may be provided by the Committee for such purpose, a beneficiary to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Award agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
 
28.  Funding.  Benefits payable under the Plan to any person will be paid by the
Company from its general assets. Shares to be distributed hereunder shall be
issued directly by the Company from its authorized but unissued Shares or
acquired by the Company on the open market, or a combination thereof. Neither
the Company nor any of its Affiliates shall be required to segregate on their
books or otherwise establish any funding procedure for any amount to be used for
the payment of benefits under the Plan. The Company or any of its Affiliates
may, however, in their sole discretion, set funds aside in investments to meet
any anticipated obligations under the Plan. Any such action or set-aside shall
not be deemed to create a trust of any kind between the Company or any of its
Affiliates and any Participant or other person entitled to benefits under the
Plan or to constitute the funding of any Plan benefits. Consequently, any person
entitled to a payment under the Plan will have no rights greater than the rights
of any other unsecured general creditor of the Company or its Affiliates.