Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PAETEC HOLDING CORP.

2007 OMNIBUS INCENTIVE PLAN

 

 

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TABLE OF CONTENTS

 

               Page

1.

  

PURPOSE

   1

2.

  

DEFINITIONS

   1

3.

  

ADMINISTRATION OF THE PLAN

   4   

3.1.

  

Board

   4   

3.2.

  

Committee

   5   

3.3.

  

Terms of Awards

   5   

3.4.

  

Deferral Arrangement

   6   

3.5.

  

No Liability

   6   

3.6.

  

Share Issuance/Book-Entry

   6

4.

  

STOCK SUBJECT TO THE PLAN

   6

5.

  

EFFECTIVE DATE, DURATION AND AMENDMENTS

   7   

5.1.

  

Effective Date

   7   

5.2.

  

Term

   7   

5.3.

  

Amendment and Termination of the Plan

   7

6.

  

AWARD ELIGIBILITY AND LIMITATIONS

   7   

6.1.

  

Service Providers and Other Persons

   7   

6.2.

  

Successive Awards and Substitute Awards

   7   

6.3.

  

Limitation on Shares of Stock Subject to Awards and Cash Awards

   7

7.

  

AWARD AGREEMENT

   8

8.

  

TERMS AND CONDITIONS OF OPTIONS

   8   

8.1.

  

Option Price

   8   

8.2.

  

Vesting

   8   

8.3.

  

Term

   8   

8.4.

  

Termination of Service

   9   

8.5.

  

Limitations on Exercise of Option

   9   

8.6.

  

Method of Exercise

   9   

8.7.

  

Rights of Holders of Options

   9   

8.8.

  

Delivery of Stock Certificates

   9   

8.9.

  

Transferability of Options

   9   

8.10.

  

Family Transfers

   9   

8.11.

  

Limitations on Incentive Stock Options

   10   

8.12.

  

Notification of Disqualifying Disposition

   10

9.

  

TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS

   10   

9.1.

  

Right to Payment and Grant Price

   10   

9.2.

  

Other Terms

   10

10.

  

TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS

   10   

10.1

  

Grant of Restricted Stock or Stock Units

   10   

10.2.

  

Restrictions

   11   

10.3.

  

Restricted Stock Certificates

   11   

10.4.

  

Rights of Holders of Restricted Stock

   11   

10.5.

  

Rights of Holders of Stock Units

   11      

10.5.1. Voting and Dividend Rights

   11      

10.5.2 Creditor’s Rights

   11   

10.6.

  

Termination of Service

   11   

10.7.

  

Purchase of Restricted Stock

   12   

10.8.

  

Delivery of Stock

   12

 

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               Page

11.

  

TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS

   12

12.

  

FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

   12   

12.1.

  

General Rule

   12   

12.2.

  

Surrender of Stock

   12   

12.3.

  

Cashless Exercise

   12   

12.4.

  

Other Forms of Payment

   13

13.

  

TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS

   13   

13.1.

  

Dividend Equivalent Rights

   13   

13.2.

  

Termination of Service

   13

14.

   TERMS AND CONDITIONS OF PERFORMANCE SHARES, PERFORMANCE UNITS, PERFORMANCE
AWARDS AND ANNUAL INCENTIVE AWARDS    13   

14.1.

  

Grant of Performance Units/Performance Shares

   13   

14.2.

  

Value of Performance Units/Performance Shares

   13   

14.3.

  

Earning of Performance Units/Performance Shares

   13   

14.4.

  

Form and Timing of Payment of Performance Units/Performance Shares

   14   

14.5.

  

Performance Conditions

   14   

14.6.

  

Performance Awards or Annual Incentive Awards Granted to Designated Covered
Employees

   14      

14.6.1. Performance Goals Generally

   14      

14.6.2. Timing For Establishing Performance Goals

   14      

14.6.3. Settlement of Awards; Other Terms

   14      

14.6.4. Performance Measures

   15      

14.6.5. Evaluation of Performance

   16      

14.6.6. Adjustment of Performance-Based Compensation

   16      

14.6.7. Board Discretion

   16   

14.7.

  

Status of Section Awards Under Code Section 162(m)

   16

15.

  

PARACHUTE LIMITATIONS

   17

16.

  

REQUIREMENTS OF LAW

   17   

16.1.

  

General

   17   

16.2.

  

Rule 16b-3

   18

17.

  

EFFECT OF CHANGES IN CAPITALIZATION

   18   

17.1.

  

Changes in Stock

   18   

17.2.

  

Reorganization in Which the Company Is the Surviving Entity Which does not
Constitute a Corporate Transaction

   18   

17.3.

  

Corporate Transaction

   19   

17.4.

  

Adjustments

   19   

17.5.

  

No Limitations on Company

   19

18.

  

GENERAL PROVISIONS

   20   

18.1.

  

Disclaimer of Rights

   20   

18.2.

  

Nonexclusivity of the Plan

   20   

18.3.

  

Withholding Taxes

   20   

18.4.

  

Captions

   20   

18.5.

  

Other Provisions

   21   

18.6.

  

Number and Gender

   21   

18.7.

  

Severability

   21   

18.8.

  

Governing Law

   21   

18.9.

  

Section 409A of the Code

   21

 

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PAETEC HOLDING CORP.

2007 OMNIBUS INCENTIVE PLAN

PAETEC Holding Corp., a Delaware corporation (the “Company”), sets forth herein
the terms of its 2007 Omnibus Incentive Plan (the “Plan”), as follows:

 

1. PURPOSE

The Plan is intended to enhance the Company’s and its Affiliates’ (as defined
herein) ability to attract and retain highly qualified officers, directors, key
employees, and other persons, and to motivate such persons to serve the Company
and its Affiliates and to expend maximum effort to improve the business results
and earnings of the Company, by providing to such persons an opportunity to
acquire or increase a direct proprietary interest in the operations and future
success of the Company. To this end, the Plan provides for the grant of stock
options, stock appreciation rights, restricted stock, stock units, unrestricted
stock, dividend equivalent rights, performance shares, performance units and
cash awards. Any of these awards may, but need not, be made as performance
incentives to reward attainment of annual or long-term performance goals in
accordance with the terms hereof. Stock options granted under the Plan may be
non-qualified stock options or incentive stock options, as provided herein,
except that stock options granted to outside directors and any consultant or
adviser currently providing services to the Company or an Affiliate shall in all
cases be non-qualified stock options.

 

2. DEFINITIONS

For purposes of interpreting the Plan and related documents (including Award
Agreements), the following definitions shall apply:

2.1 “Affiliate” means, with respect to the Company, any company or other trade
or business that controls, is controlled by or is under common control with the
Company within the meaning of Rule 405 of Regulation C under the Securities Act,
including, without limitation, any Subsidiary.

2.2 “Annual Incentive Award” means an Award made subject to attainment of
performance goals (as described in Section 14) over a performance period of up
to one year (the Company’s fiscal year, unless otherwise specified by the
Committee).

2.3 “Award” means a grant of an Option, Stock Appreciation Right, Restricted
Stock, Unrestricted Stock, Stock Unit, Dividend Equivalent Rights, or cash award
under the Plan.

2.4 “Award Agreement” means the written agreement between the Company and a
Grantee that evidences and sets out the terms and conditions of an Award.

2.5 “Board” means the Board of Directors of the Company.

2.6 “Cause” means, as determined by the Board and unless otherwise provided in
an applicable agreement with the Company or an Affiliate, (i) gross negligence
or willful misconduct in connection with the performance of duties;
(ii) conviction of a criminal offense (other than minor traffic offenses); or
(iii) material breach of any term of any employment, consulting or other
services, confidentiality, intellectual property or non-competition agreements,
if any, between the Service Provider and the Company or an Affiliate.

2.7 “Code” means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.

2.8 “Committee” means a committee of, and designated from time to time by
resolution of, the Board, which shall be constituted as provided in Section 3.2.

2.9 “Company” means PAETEC Holding Corp., a Delaware corporation.

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2.10 “Corporate Transaction” means (i) the dissolution or liquidation of the
Company or a merger, consolidation, or reorganization of the Company with one or
more other entities in which the Company is not the surviving entity, (ii) a
sale of substantially all of the assets of the Company to another person or
entity, or (iii) any transaction (including without limitation a merger or
reorganization in which the Company is the surviving entity) which results in
any person or entity (other than persons who are stockholders or Affiliates
immediately prior to the transaction) owning 50% or more of the combined voting
power of all classes of stock of the Company.

2.11 “Covered Employee” means a Grantee who is a covered employee within the
meaning of Section 162(m)(3) of the Code.

2.12 “Disability” means the Grantee is unable to perform each of the essential
duties of such Grantee’s position by reason of a medically determinable physical
or mental impairment which is potentially permanent in character or which can be
expected to last for a continuous period of not less than 12 months; provided,
however, that, with respect to rules regarding expiration of an Incentive Stock
Option following termination of the Grantee’s Service, Disability shall mean the
Grantee is unable to engage in any substantial gainful activity by reason of a
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.

2.13 “Dividend Equivalent Right” means a right, granted to a Grantee under
Section 13 hereof, to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.

2.14 “Effective Date” means January 25, 2007, the date the Plan is approved by
the Board.

2.15 “Exchange Act” means the Securities Exchange Act of 1934, as now in effect
or as hereafter amended.

2.16 “Fair Market Value” means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed on
an established national or regional stock exchange, including The NASDAQ Stock
Market, LLC, or is publicly traded on an established securities market, the Fair
Market Value of a share of Stock shall be the closing price of the Stock on such
exchange or in such market (if there is more than one such exchange or market
the Board shall determine the appropriate exchange or market) on the Grant Date
or such other determination date (or if there is no such reported closing price,
the Fair Market Value shall be the mean between the highest bid and lowest asked
prices or between the high and low sale prices on such trading day) or, if no
sale of Stock is reported for such trading day, on the next preceding day on
which any sale shall have been reported. If the Stock is not listed on such an
exchange, quoted on such system or traded on such a market, Fair Market Value
shall be the value of the Stock as determined by the Board in good faith in a
manner consistent with Code Section 409A.

2.17 “Family Member” means a person who is a spouse, former spouse, child,
stepchild, grandchild, parent, stepparent, grandparent, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister,
brother-in-law, or sister-in-law, including adoptive relationships, of the
Grantee, any person sharing the Grantee’s household (other than a tenant or
employee), a trust in which any one or more of these persons have more than
fifty percent of the beneficial interest, a foundation in which any one or more
of these persons (or the Grantee) control the management of assets, and any
other entity in which one or more of these persons (or the Grantee) own more
than fifty percent of the voting interests.

2.18 “Grant Date” means, as determined by the Board, the latest to occur of
(i) the date as of which the Board approves an Award, (ii) the date on which the
recipient of an Award first becomes eligible to receive an Award under Section 6
hereof, or (iii) such other later date as may be specified by the Board.

2.19 “Grantee” means a person who receives or holds an Award under the Plan.

 

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2.20 “Incentive Stock Option” means an “incentive stock option” within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.

2.21 “Non-qualified Stock Option” means an Option that is not an Incentive Stock
Option.

2.22 “Option” means an option to purchase one or more shares of Stock pursuant
to the Plan.

2.23 “Option Price” means the exercise price for each share of Stock subject to
an Option.

2.24 “Other Agreement” shall have the meaning set forth in Section 15 hereof.

2.25 “Outside Director” means a member of the Board who is not an officer or
employee of the Company.

2.26 “Performance Award” means a cash-based Award made subject to the attainment
of performance goals (as described in Section 14) over a performance period of
up to ten (10) years.

2.27 “Performance-Based Compensation” means compensation under an Award that is
intended to satisfy the requirements of Code Section 162(m) for certain
performance-based compensation paid to Covered Employees. Notwithstanding the
foregoing, nothing in this Plan shall be construed to mean that an Award which
does not satisfy the requirements for performance-based compensation under Code
Section 162(m) does not constitute performance-based compensation for other
purposes, including Code Section 409A.

2.28 “Performance Measures” means measures as described in Section 14 on which
the performance goals are based and which are approved by the Company’s
shareholders pursuant to this Plan in order to qualify Awards as
Performance-Based Compensation.

2.29 “Performance Period” means the period of time during which the performance
goals must be met in order to determine the degree of payout and/or vesting with
respect to an Award.

2.30 “Performance Share” means an Award under Section 14 herein and subject to
the terms of this Plan, denominated in Shares, the value of which at the time it
is payable is determined as a function of the extent to which corresponding
performance criteria have been achieved.

2.31 “Performance Unit” means an Award under Section 14 herein and subject to
the terms of this Plan, denominated in units, the value of which at the time it
is payable is determined as a function of the extent to which corresponding
performance criteria have been achieved.

2.32 “Period of Restriction” means the period when Restricted Stock or
Restricted Stock Units are subject to a substantial risk of forfeiture (based on
the passage of time, the achievement of performance goals, or upon the
occurrence of other events as determined by the Committee, in its discretion),
as provided in Section 10.

2.33 “Plan” means this PAETEC Holding Corp. 2007 Omnibus Incentive Plan, as
amended from time to time.

2.34 “Plan Year” means the fiscal year of the Company: May 1 to April 30.

2.35 “Purchase Price” means the purchase price for each share of Stock pursuant
to a grant of Restricted Stock or Unrestricted Stock.

2.36 “Reporting Person” means a person who is required to file reports under
Section 16(a) of the Exchange Act.

 

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2.37 “Restricted Stock” means shares of Stock, awarded to a Grantee pursuant to
Section 10 hereof.

2.38 “SAR Exercise Price” means the per share exercise price of an SAR granted
to a Grantee under Section 9 hereof.

2.39 “Securities Act” means the Securities Act of 1933, as now in effect or as
hereafter amended.

2.40 “Service” means service as a Service Provider to the Company or an
Affiliate. Unless otherwise stated in the applicable Award Agreement, a
Grantee’s change in position or duties shall not result in interrupted or
terminated Service, so long as such Grantee continues to be a Service Provider
to the Company or an Affiliate. Subject to the preceding sentence, whether a
termination of Service shall have occurred for purposes of the Plan shall be
determined by the Board, which determination shall be final, binding and
conclusive.

2.41 “Service Provider” means an employee of or consultant or adviser (who is a
natural person) to the Company or any Subsidiary, a manager (who is a natural
person) of the Company’s or a Subsidiary’s properties or affairs, or other
similar service provider to an Affiliate of the Company or any Subsidiary (in
each case, who is a natural person), as such persons may be designated from time
to time by the Board pursuant to Section 6 hereof.

2.42 “Stock” means the common stock, par value $.01 per share, of the Company.

2.43 “Stock Appreciation Right” or “SAR” means a right granted to a Grantee
under Section 9 hereof.

2.44 “Stock Unit” means a bookkeeping entry representing the equivalent of one
share of Stock awarded to a Grantee pursuant to Section 10 hereof.

2.45 “Subsidiary” means any “subsidiary corporation” of the Company within the
meaning of Section 424(f) of the Code.

2.46 “Substitute Awards” means Awards granted upon assumption of, or in
substitution for, outstanding awards previously granted by a company or other
entity acquired by the Company or any Affiliate or with which the Company or any
Affiliate combines.

2.47 “Termination Date” means the date upon which an Option shall terminate or
expire, as set forth in Section 8.3 hereof.

2.48 “Ten Percent Stockholder” means an individual who owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company, its parent or any of its Subsidiaries. In determining
stock ownership, the attribution rules of Section 424(d) of the Code shall be
applied.

2.49 “Unrestricted Stock” means an Award pursuant to Section 11 hereof.

 

3. ADMINISTRATION OF THE PLAN

 

  3.1. Board.

The Board shall have such powers and authorities related to the administration
of the Plan as are consistent with the Company’s certificate of incorporation
and by-laws and applicable law. The Board shall have full power and authority to
take all actions and to make all determinations required or provided for under
the Plan, any Award or any Award Agreement, and shall have full power and
authority to take all such other actions and make all such other determinations
not inconsistent with the specific terms and provisions of the Plan that the
Board deems to be necessary or appropriate to the administration of the Plan,
any Award or any Award Agreement. All

 

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such actions and determinations shall be by the affirmative vote of a majority
of the members of the Board present at a meeting or by unanimous consent of the
Board executed in writing in accordance with the Company’s certificate of
incorporation and by-laws and applicable law. The interpretation and
construction by the Board of any provision of the Plan, any Award or any Award
Agreement shall be final, binding and conclusive. As permitted by law, the Board
may delegate its authority under the Plan to a member of the Board or an
executive officer of the Company; provided, however, that, unless otherwise
provided by resolution of the Board, only the Board or the Committee may make an
Award to an executive officer of the Company and establish the number of shares
of Stock that may be subject to Awards with respect to any fiscal period.

 

  3.2. Committee.

The Board from time to time may delegate to the Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 above and other applicable provisions, as the Board shall
determine, consistent with the certificate of incorporation and by-laws of the
Company and applicable law.

(i) Except as provided in Subsection (ii) and except as the Board may otherwise
determine, the Committee, if any, appointed by the Board to administer the Plan
shall consist of two or more Outside Directors of the Company who: (a) qualify
as “outside directors” within the meaning of Section 162(m) of the Code,
(b) meet such other requirements as may be established from time to time by the
Securities and Exchange Commission for plans intended to qualify for exemption
under Rule 16b-3 (or its successor) under the Exchange Act, and (c) comply with
the independence requirements of the stock exchange on which the Common Stock is
listed. The Committee shall be the Compensation Committee.

(ii) The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not be Outside
Directors, who may administer the Plan with respect to employees or other
Service Providers who are not officers or directors of the Company, may grant
Awards under the Plan to such employees or other Service Providers, and may
determine all terms of such Awards.

In the event that the Plan, any Award or any Award Agreement entered into
hereunder provides for any action to be taken by or determination to be made by
the Board, such action may be taken or such determination may be made by the
Committee if the power and authority to do so has been delegated to the
Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final, binding and conclusive. To the extent permitted by
law, the Committee may delegate its authority under the Plan to a member of the
Board.

 

  3.3. Terms of Awards.

Subject to the other terms and conditions of the Plan, the Board shall have full
and final authority to:

(i) designate Grantees,

(ii) determine the type or types of Awards to be made to a Grantee,

(iii) determine the number of shares of Stock to be subject to an Award,

(iv) establish the terms and conditions of each Award (including, but not
limited to, the exercise price of any Option, the nature and duration of any
restriction or condition (or provision for lapse thereof) relating to the
vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock
subject thereto, and any terms or conditions that may be necessary to qualify
Options as Incentive Stock Options),

(v) prescribe the form of each Award Agreement evidencing an Award, and

(vi) amend, modify, or supplement the terms of any outstanding Award. Such
authority specifically includes the authority, in order to effectuate the
purposes of the Plan but without amending the Plan, to modify Awards to eligible
individuals who are foreign nationals or are individuals who are employed
outside the United States to

 

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recognize differences in local law, tax policy, or custom. Notwithstanding the
foregoing, no amendment, modification or supplement of any Award shall, without
the consent of the Grantee, impair the Grantee’s rights under such Award and no
amendment or modification to an Award that would treated as a repricing under
the rules of the stock exchange on which the Stock is listed shall be made
without approval of the Company’s shareholders.

The Company may retain the right in an Award Agreement to cause a forfeiture of
the gain realized by a Grantee on account of actions taken by the Grantee in
violation or breach of or in conflict with any employment agreement,
non-competition agreement, any agreement prohibiting solicitation of employees
or clients of the Company or any Affiliate thereof or any confidentiality
obligation with respect to the Company or any Affiliate thereof or otherwise in
competition with the Company or any Affiliate thereof, to the extent specified
in such Award Agreement applicable to the Grantee. Furthermore, the Company may
annul an Award if the Grantee is an employee of the Company or an Affiliate
thereof and is terminated for Cause as defined in the applicable Award Agreement
or the Plan, as applicable. The grant of any Award may be made contingent upon
the Grantee executing the appropriate Award Agreement.

 

  3.4. Deferral Arrangement.

The Board may permit or require the deferral of any award payment into a
deferred compensation arrangement, subject to such rules and procedures as it
may establish, which may include provisions for the payment or crediting of
interest or dividend equivalents, including converting such credits into
deferred Stock equivalents, or restricting deferrals to comply with hardship
distribution rules affecting 401(k) plans. Any such deferrals shall be made in a
manner that complies with Code Section 409A.

 

  3.5. No Liability.

No member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award or Award
Agreement.

 

  3.6. Share Issuance/Book-Entry.

Notwithstanding any provision of this Plan to the contrary, the issuance of the
Stock under the Plan may be evidenced in such a manner as the Board, in its
discretion, deems appropriate, including, without limitation, book-entry
registration or issuance of one or more Stock certificates.

 

4. STOCK SUBJECT TO THE PLAN

Subject to adjustment as provided in Section 17 hereof, the number of shares of
Stock available for issuance under the Plan shall be ten million (10,000,000).
The number of shares that may be issued as Incentive Stock Options shall not
exceed ten million (10,000,000). Stock issued or to be issued under the Plan
shall be authorized but unissued shares; or, to the extent permitted by
applicable law, issued shares that have been reacquired by the Company. If any
shares covered by an Award are not purchased or are forfeited, or if an Award
otherwise terminates without delivery of any Stock subject thereto, then the
number of shares of Stock counted against the aggregate number of shares
available under the Plan with respect to such Award shall, to the extent of any
such forfeiture or termination, again be available for making Awards under the
Plan. The difference between the total shares of Stock exercised and the net
shares delivered shall again be available for grant under this Plan, with the
result being that only the number of shares of stock issued upon exercise of an
SAR are counted against the shares available.

If the Option Price of any Option granted under the Plan, or if pursuant to
Section 18.3 the withholding obligation of any Grantee with respect to an Option
or other Award, is satisfied by tendering shares of Stock to the Company (by
either actual delivery or by attestation) or by withholding shares of Stock, the
number of shares of Stock issued net of the shares of Stock tendered or withheld
shall be deemed delivered for purposes of determining the maximum number of
shares of Stock available for delivery under the Plan.

 

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The Board shall have the right to substitute or assume Awards in connection with
mergers, reorganizations, separations, or other transactions to which
Section 424(a) of the Code applies. The number of shares of Stock reserved
pursuant to Section 4 may be increased by the corresponding number of Awards
assumed and, in the case of a substitution, by the net increase in the number of
shares of Stock subject to Awards before and after the substitution.

 

5. EFFECTIVE DATE, DURATION AND AMENDMENTS

 

  5.1. Effective Date.

The Plan shall be effective as of the Effective Date, subject to approval of the
Plan by the Company’s stockholders within one year of the Effective Date. Upon
approval of the Plan by the stockholders of the Company as set forth above, all
Awards made under the Plan on or after the Effective Date shall be fully
effective as if the stockholders of the Company had approved the Plan on the
Effective Date. If the stockholders fail to approve the Plan within one year of
the Effective Date, any Awards made hereunder shall be null and void and of no
effect.

 

  5.2. Term.

The Plan shall terminate automatically ten (10) years after its adoption by the
Board and may be terminated on any earlier date as provided in Section 5.3.

 

  5.3. Amendment and Termination of the Plan

The Board may, at any time and from time to time, amend, suspend, or terminate
the Plan as to any shares of Stock as to which Awards have not been made. An
amendment shall be contingent on approval of the Company’s stockholders to the
extent stated by the Board, required by applicable law or required by applicable
stock exchange listing requirements. No Awards shall be made after termination
of the Plan. No amendment, suspension, or termination of the Plan shall, without
the consent of the Grantee, impair rights or obligations under any Award
theretofore awarded under the Plan.

 

6. AWARD ELIGIBILITY AND LIMITATIONS

 

  6.1. Service Providers and Other Persons.

Subject to this Section 6, Awards may be made under the Plan to: (i) any Service
Provider to the Company or of any Affiliate, including any Service Provider who
is an officer or director of the Company, or of any Affiliate, as the Board
shall determine and designate from time to time and (ii) any other individual
whose participation in the Plan is determined to be in the best interests of the
Company by the Board.

 

  6.2. Successive Awards and Substitute Awards.

An eligible person may receive more than one Award, subject to such restrictions
as are provided herein. Notwithstanding Sections 8.1 and 9.1, the Option Price
of an Option or the grant price of an SAR that is a Substitute Award may be less
than 100% of the Fair Market Value of a share of Common Stock on the original
date of grant; provided, that, the Option Price or grant price is determined in
accordance with the principles of Code Section 424 and the regulations
thereunder.

 

  6.3. Limitation on Shares of Stock Subject to Awards and Cash Awards.

During any time when the Company has a class of equity security registered under
Section 12 of the Exchange Act:

(i) the maximum number of shares of Stock subject to Options that can be awarded
under the Plan to any person eligible for an Award under Section 6 hereof is two
million (2,000,000) per calendar year except that in

 

7

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the case of a newly hired employee, such limit shall be three million
(3,000,000) shares of Stock (in each case, subject to adjustment as provided in
Section 17 hereof);

(ii) the maximum number of shares of Stock subject to SARs that can be awarded
under the Plan to any person eligible for an Award under Section 6 hereof is two
million (2,000,000) per calendar year except that in the case of a newly hired
employee, such limit shall be three million (3,000,000) shares of Stock (in each
case, subject to adjustment as provided in Section 17 hereof);

(iii) the maximum number of shares that can be awarded under the Plan, other
than pursuant to an Option or SARs, to any person eligible for an Award under
Section 6 hereof is one million (1,000,000) per calendar year except that in the
case of a newly hired employee, such limit shall be one million five hundred
thousand (1,500,000) shares of Stock (in each case, subject to adjustment as
provided in Section 17 hereof); and

(iv) The maximum aggregate Award of Performance Units or Performance Shares that
a Participant may receive in any one Plan Year shall be one million
(1,000,000) Shares or Performance Units, or equal to the value of one million
(1,000,000) Shares, determined as of the date of vesting or payout, as
applicable.

(v) The maximum amount that may be earned as an Annual Incentive Award or other
cash Award in any calendar year by any one Grantee shall be three million
dollars ($3,000,000) and the maximum amount that may be earned as a Performance
Award or other cash Award in respect of a performance period of greater than one
year by any one Grantee shall be five million dollars ($5,000,000).

The preceding limitations in this Section 6.3 are subject to adjustment as
provided in Section 17 hereof.

 

7. AWARD AGREEMENT

Each Award granted pursuant to the Plan shall be evidenced by an Award
Agreement, in such form or forms as the Board shall from time to time determine.
Award Agreements granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan. Each
Award Agreement evidencing an Award of Options shall specify whether such
Options are intended to be Non-qualified Stock Options or Incentive Stock
Options, and in the absence of such specification such options shall be deemed
Non-qualified Stock Options.

 

8. TERMS AND CONDITIONS OF OPTIONS

 

  8.1. Option Price.

The Option Price of each Option shall be fixed by the Board and stated in the
Award Agreement evidencing such Option. The Option Price of each Option shall be
at least the Fair Market Value on the Grant Date of a share of Stock; provided,
however, that in the event that a Grantee is a Ten Percent Stockholder, the
Option Price of an Option granted to such Grantee that is intended to be an
Incentive Stock Option shall be not less than 110 percent of the Fair Market
Value of a share of Stock on the Grant Date. In no case shall the Option Price
of any Option be less than the par value of a share of Stock.

 

  8.2. Vesting.

Subject to Sections 8.3 and 17.3 hereof, each Option granted under the Plan
shall become exercisable at such times and under such conditions as shall be
determined by the Board and stated in the Award Agreement. For purposes of this
Section 8.2, fractional numbers of shares of Stock subject to an Option shall be
rounded down to the next nearest whole number.

 

  8.3. Term.

Each Option granted under the Plan shall terminate, and all rights to purchase
shares of Stock thereunder shall cease, upon the expiration of ten years from
the date such Option is granted, or under such circumstances

 

8

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and on such date prior thereto as is set forth in the Plan or as may be fixed by
the Board and stated in the Award Agreement relating to such Option (the
“Termination Date”); provided, however, that in the event that the Grantee is a
Ten Percent Stockholder, an Option granted to such Grantee that is intended to
be an Incentive Stock Option shall not be exercisable after the expiration of
five years from its Grant Date.

 

  8.4. Termination of Service.

Each Award Agreement shall set forth the extent to which the Grantee shall have
the right to exercise the Option following termination of the Grantee’s Service.
Such provisions shall be determined in the sole discretion of the Board, need
not be uniform among all Options issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of Service.

 

  8.5. Limitations on Exercise of Option.

Notwithstanding any other provision of the Plan, in no event may any Option be
exercised, in whole or in part, prior to the date the Plan is approved by the
stockholders of the Company as provided herein or after the occurrence of an
event referred to in Section 17 hereof which results in termination of the
Option.

 

  8.6. Method of Exercise.

An Option that is exercisable may be exercised by the Grantee’s delivery to the
Company of written notice of exercise on any business day, at the Company’s
principal office, on the form specified by the Company. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised plus the amount (if any) of
federal and/or other taxes which the Company may, in its judgment, be required
to withhold with respect to an Award. The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of (i) 100 shares or such lesser number set forth in the
applicable Award Agreement and (ii) the maximum number of shares available for
purchase under the Option at the time of exercise.

 

  8.7. Rights of Holders of Options.

Unless otherwise stated in the applicable Award Agreement, an individual holding
or exercising an Option shall have none of the rights of a stockholder (for
example, the right to receive cash or dividend payments or distributions
attributable to the subject shares of Stock or to direct the voting of the
subject shares of Stock ) until the shares of Stock covered thereby are fully
paid and issued to him. Except as provided in Section 17 hereof, no adjustment
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such issuance.

 

  8.8. Delivery of Stock Certificates.

Promptly after the exercise of an Option by a Grantee and the payment in full of
the Option Price, such Grantee shall be entitled to the issuance of a stock
certificate or certificates evidencing his or her ownership of the shares of
Stock subject to the Option.

 

  8.9. Transferability of Options.

Except as provided in Section 8.10, during the lifetime of a Grantee, only the
Grantee (or, in the event of legal incapacity or incompetency, the Grantee’s
guardian or legal representative) may exercise an Option. Except as provided in
Section 8.10, no Option shall be assignable or transferable by the Grantee to
whom it is granted, other than by will or the laws of descent and distribution.

 

  8.10. Family Transfers.

If authorized in the applicable Award Agreement, a Grantee may transfer, not for
value, all or part of an Option which is not an Incentive Stock Option to any
Family Member. For the purpose of this Section 8.10, a

 

9

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“not for value” transfer is a transfer which is (i) a gift, (ii) a transfer
under a domestic relations order in settlement of marital property rights; or
(iii) a transfer to an entity in which more than fifty percent of the voting
interests are owned by Family Members (or the Grantee) in exchange for an
interest in that entity. Following a transfer under this Section 8.10, any such
Option shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer. Subsequent transfers of transferred
Options are prohibited except to Family Members of the original Grantee in
accordance with this Section 8.10 or by will or the laws of descent and
distribution. The events of termination of Service of Section 8.4 hereof shall
continue to be applied with respect to the original Grantee, following which the
Option shall be exercisable by the transferee only to the extent, and for the
periods specified, in Section 8.4.

 

  8.11. Limitations on Incentive Stock Options.

An Option shall constitute an Incentive Stock Option only (i) if the Grantee of
such Option is an employee of the Company or any Subsidiary of the Company;
(ii) to the extent specifically provided in the related Award Agreement; and
(iii) to the extent that the aggregate Fair Market Value (determined at the time
the Option is granted) of the shares of Stock with respect to which all
Incentive Stock Options held by such Grantee become exercisable for the first
time during any calendar year (under the Plan and all other plans of the
Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation
shall be applied by taking Options into account in the order in which they were
granted.

 

  8.12. Notification of Disqualifying Disposition.

If any Participant shall make any disposition of Shares issued pursuant to the
exercise of an ISO under the circumstances described in Code Section 421(b)
(relating to certain disqualifying dispositions), such Participant shall notify
the Company of such disposition within ten (10) days thereof.

 

9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS

 

  9.1. Right to Payment and Grant Price.

An SAR shall confer on the Grantee to whom it is granted a right to receive,
upon exercise thereof, the excess of (A) the Fair Market Value of one share of
Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Board. The Award Agreement for an SAR shall specify the grant price of
the SAR, which shall be at least the Fair Market Value of a share of Stock on
the date of grant. SARs may be granted in conjunction with all or part of an
Option granted under the Plan or at any subsequent time during the term of such
Option, in conjunction with all or part of any other Award or without regard to
any Option or other Award; provided that an SAR that is granted subsequent to
the Grant Date of a related Option must have an SAR Price that is no less than
the Fair Market Value of one share of Stock on the SAR Grant Date.

 

  9.2. Other Terms.

The Board shall determine at the date of grant or thereafter, the time or times
at which and the circumstances under which an SAR may be exercised in whole or
in part (including based on achievement of performance goals and/or future
service requirements), the time or times at which SARs shall cease to be or
become exercisable following termination of Service or upon other conditions,
the method of exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed to be
delivered to Grantees, whether or not an SAR shall be in tandem or in
combination with any other Award, and any other terms and conditions of any SAR.
SARs may not be sold, transferred, pledged, assigned, hypothecated or otherwise
alienated, other than by will or the laws of descent and distribution.

 

10. TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS

 

  10.1. Grant of Restricted Stock or Stock Units.

Awards of Restricted Stock or Stock Units may be made for no consideration
(other than par value of the shares which is deemed paid by Services already
rendered).

 

10

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  10.2. Restrictions.

At the time a grant of Restricted Stock or Stock Units is made, the Board may,
in its sole discretion, establish a period of time (a “restricted period”)
applicable to such Restricted Stock or Stock Units. Each Award of Restricted
Stock or Stock Units may be subject to a different restricted period. The Board
may, in its sole discretion, at the time a grant of Restricted Stock or Stock
Units is made, prescribe restrictions in addition to or other than the
expiration of the restricted period, including the satisfaction of corporate or
individual performance objectives, which may be applicable to all or any portion
of the Restricted Stock or Stock Units in accordance with Section 14.1 and 14.6.
Notwithstanding the foregoing, Restricted Stock and Stock Units that vest solely
by the passage of time shall not vest in full in less than three (3) years from
the Grant Date. Restricted Stock and Stock Units for which vesting may be
accelerated by achieving performance targets shall not vest in full in less than
one (1) year from the Grant Date. Neither Restricted Stock nor Stock Units may
be sold, transferred, assigned, pledged or otherwise encumbered or disposed of
during the restricted period or prior to the satisfaction of any other
restrictions prescribed by the Board with respect to such Restricted Stock or
Stock Units.

 

  10.3. Restricted Stock Certificates.

The Company shall issue, in the name of each Grantee to whom Restricted Stock
has been granted, stock certificates representing the total number of shares of
Restricted Stock granted to the Grantee, as soon as reasonably practicable after
the Grant Date. The Board may provide in an Award Agreement that either (i) the
Secretary of the Company shall hold such certificates for the Grantee’s benefit
until such time as the Restricted Stock is forfeited to the Company or the
restrictions lapse, or (ii) such certificates shall be delivered to the Grantee,
provided, however, that such certificates shall bear a legend or legends that
comply with the applicable securities laws and regulations and makes appropriate
reference to the restrictions imposed under the Plan and the Award Agreement.

 

  10.4. Rights of Holders of Restricted Stock.

Unless the Board otherwise provides in an Award Agreement, holders of Restricted
Stock shall have the right to vote such Stock and the right to receive any
dividends declared or paid with respect to such Stock. The Board may provide
that any dividends paid on Restricted Stock must be reinvested in shares of
Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any,
received by a Grantee with respect to Restricted Stock as a result of any stock
split, stock dividend, combination of shares, or other similar transaction shall
be subject to the restrictions applicable to the original Grant.

 

  10.5. Rights of Holders of Stock Units.

 

  10.5.1. Voting and Dividend Rights.

Holders of Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a grant of Stock Units that
the holder of such Stock Units shall be entitled to receive, upon the Company’s
payment of a cash dividend on its outstanding Stock, a cash payment for each
Stock Unit held equal to the per-share dividend paid on the Stock. Such Award
Agreement may also provide that such cash payment will be deemed reinvested in
additional Stock Units at a price per unit equal to the Fair Market Value of a
share of Stock on the date that such dividend is paid.

 

  10.5.2. Creditor’s Rights.

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

 

  10.6. Termination of Service.

Unless the Board otherwise provides in an Award Agreement or in writing after
the Award Agreement is issued, upon the termination of a Grantee’s Service, any
Restricted Stock or Stock Units held by such Grantee

 

11

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that have not vested, or with respect to which all applicable restrictions and
conditions have not lapsed, shall immediately be deemed forfeited. Upon
forfeiture of Restricted Stock or Stock Units, the Grantee shall have no further
rights with respect to such Award, including but not limited to any right to
vote Restricted Stock or any right to receive dividends with respect to shares
of Restricted Stock or Stock Units.

 

  10.7. Purchase of Restricted Stock.

The Grantee shall be required, to the extent required by applicable law, to
purchase the Restricted Stock from the Company at a Purchase Price equal to the
greater of (i) the aggregate par value of the shares of Stock represented by
such Restricted Stock or (ii) the Purchase Price, if any, specified in the Award
Agreement relating to such Restricted Stock. The Purchase Price shall be payable
in a form described in Section 12 or, in the discretion of the Board, in
consideration for past Services rendered to the Company or an Affiliate.

 

  10.8. Delivery of Stock.

Upon the expiration or termination of any restricted period and the satisfaction
of any other conditions prescribed by the Board, the restrictions applicable to
shares of Restricted Stock or Stock Units settled in Stock shall lapse, and,
unless otherwise provided in the Award Agreement, a stock certificate for such
shares shall be delivered, free of all such restrictions, to the Grantee or the
Grantee’s beneficiary or estate, as the case may be. Neither the Grantee, nor
the Grantee’s beneficiary or estate, shall have any further rights with regard
to a Stock Unit once the share of Stock represented by the Stock Unit has been
delivered. Notwithstanding any other provision of this Plan to the contrary, the
Company may elect to satisfy any requirement under this Plan for the delivery of
stock certificates through the use of book-entry.

 

11. TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS

The Board may, in its sole discretion, grant (or sell at par value or such other
higher purchase price determined by the Board) an Unrestricted Stock Award to
any Grantee pursuant to which such Grantee may receive shares of Stock free of
any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted Stock
Awards may be granted or sold as described in the preceding sentence in respect
of past services and other valid consideration, or in lieu of, or in addition
to, any cash compensation due to such Grantee.

 

12. FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

 

  12.1. General Rule.

Payment of the Option Price for the shares purchased pursuant to the exercise of
an Option or the Purchase Price for Restricted Stock shall be made in cash or in
cash equivalents acceptable to the Company.

 

  12.2. Surrender of Stock.

To the extent the Award Agreement so provides, payment of the Option Price for
shares purchased pursuant to the exercise of an Option or the Purchase Price for
Restricted Stock may be made all or in part through the tender to the Company of
shares of Stock, which shall be valued, for purposes of determining the extent
to which the Option Price or Purchase Price has been paid thereby, at their Fair
Market Value on the date of exercise or surrender.

 

  12.3. Cashless Exercise.

With respect to an Option only (and not with respect to Restricted Stock), to
the extent permitted by law and to the extent the Award Agreement so provides,
payment of the Option Price for shares purchased pursuant to the exercise of an
Option may be made all or in part by delivery (on a form acceptable to the
Board) of an irrevocable direction to a licensed securities broker acceptable to
the Company to sell shares of Stock and to deliver all or part of the sales
proceeds to the Company in payment of the Option Price and any withholding taxes
described in Section 18.3.

 

12

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  12.4. Other Forms of Payment.

To the extent the Award Agreement so provides, payment of the Option Price for
shares purchased pursuant to exercise of an Option or the Purchase Price for
Restricted Stock or Restricted Stock Units may be made in any other form that is
consistent with applicable laws, regulations and rules.

 

13. TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS

 

  13.1. Dividend Equivalent Rights.

A Dividend Equivalent Right is an Award entitling the recipient to receive
credits based on cash distributions that would have been paid on the shares of
Stock specified in the Dividend Equivalent Right (or other award to which it
relates) if such shares had been issued to and held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any Grantee. The terms and
conditions of Dividend Equivalent Rights shall be specified in the grant.
Dividend equivalents credited to the holder of a Dividend Equivalent Right may
be paid currently or may be deemed to be reinvested in additional shares of
Stock, which may thereafter accrue additional equivalents. Any such reinvestment
shall be at Fair Market Value on the date of reinvestment. Dividend Equivalent
Rights may be settled in cash or Stock or a combination thereof, in a single
installment or installments, all determined in the sole discretion of the Board.
A Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement,
or payment of, or lapse of restrictions on, such other award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other award.

Dividend Equivalent Rights may not be sold, transferred, pledged, assigned,
hypothecated or otherwise alienated, other than by will or the laws of descent
and distribution.

 

  13.2. Termination of Service.

Except as may otherwise be provided by the Board either in the Award Agreement
or in writing after the Award Agreement is issued, a Grantee’s rights in all
Dividend Equivalent Rights or interest equivalents shall automatically terminate
upon the Grantee’s termination of Service for any reason.

 

14. TERMS AND CONDITIONS OF PERFORMANCE SHARES, PERFORMANCE UNITS, PERFORMANCE
AWARDS AND ANNUAL INCENTIVE AWARDS

 

  14.1. Grant of Performance Units/Performance Shares.

Subject to the terms and provisions of this Plan, the Board, at any time and
from time to time, may grant Performance Units and/or Performance Shares to
Participants in such amounts and upon such terms as the Committee shall
determine.

 

  14.2. Value of Performance Units/Performance Shares.

Each Performance Unit shall have an initial value that is established by the
Board at the time of grant. Each Performance Share shall have an initial value
equal to the Fair Market Value of a Share on the date of grant. The Board shall
set performance goals in its discretion which, depending on the extent to which
they are met, will determine the value and/or number of Performance
Units/Performance Shares that will be paid out to the Participant.

 

  14.3. Earning of Performance Units/Performance Shares.

Subject to the terms of this Plan, after the applicable Performance Period has
ended, the holder of Performance Units/Performance Shares shall be entitled to
receive payout on the value and number of

 

13

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Performance Units/Performance Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.

 

  14.4. Form and Timing of Payment of Performance Units/Performance Shares.

Payment of earned Performance Units/Performance Shares shall be as determined by
the Board and as evidenced in the Award Agreement. Subject to the terms of this
Plan, the Board, in its sole discretion, may pay earned Performance
Units/Performance Shares in the form of cash or in shares (or in a combination
thereof) equal to the value of the earned Performance Units/Performance Shares
at the close of the applicable Performance Period, or as soon as practicable
after the end of the Performance Period. Any Shares may be granted subject to
any restrictions deemed appropriate by the Committee. The determination of the
Committee with respect to the form of payout of such Awards shall be set forth
in the Award Agreement pertaining to the grant of the Award.

 

  14.5. Performance Conditions.

The right of a Grantee to exercise or receive a grant or settlement of any
Award, and the timing thereof, may be subject to such performance conditions as
may be specified by the Board. The Board may use such business criteria and
other measures of performance as it may deem appropriate in establishing any
performance conditions. If and to the extent required under Code Section 162(m),
any power or authority relating to an Award intended to qualify under Code
Section 162(m), shall be exercised by the Committee and not the Board.

 

  14.6. Performance Awards or Annual Incentive Awards Granted to Designated
Covered Employees.

If and to the extent that the Board determines that an Award to be granted to a
Grantee who is designated by the Committee as likely to be a Covered Employee
should qualify as “performance-based compensation” for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Award shall be
contingent upon achievement of pre-established performance goals and other terms
set forth in this Section 14.6.

 

  14.6.1. Performance Goals Generally.

The performance goals for such Awards shall consist of one or more business
criteria and a targeted level or levels of performance with respect to each of
such criteria, as specified by the Committee consistent with this Section 14.6.
Performance goals shall be objective and shall otherwise meet the requirements
of Code Section 162(m) and regulations thereunder including the requirement that
the level or levels of performance targeted by the Committee result in the
achievement of performance goals being “substantially uncertain.” The Committee
may determine that such Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the performance
goals must be achieved as a condition to grant, exercise and/or settlement of
such Awards. Performance goals may differ for Awards granted to any one Grantee
or to different Grantees.

 

  14.6.2. Timing For Establishing Performance Goals.

Performance goals shall be established not later than 90 days after the
beginning of any performance period applicable to such Awards, or at such other
date as may be required or permitted for “performance-based compensation” under
Code Section 162(m).

 

  14.6.3. Settlement of Awards; Other Terms.

Settlement of such Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in connection
with such Awards. The Committee shall specify the circumstances in which such
Performance or Annual Incentive Awards shall be paid or forfeited in the event
of termination of Service by the Grantee prior to the end of a performance
period or settlement of Awards.

 

14

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  14.6.4. Performance Measures.

The performance goals upon which the payment or vesting of an Award to a Covered
Employee that is intended to qualify as Performance-Based Compensation shall be
limited to the following Performance Measures:

 

  (a) net earnings or net income;

 

  (b) operating earnings;

 

  (c) pretax earnings;

 

  (d) earnings per share;

 

  (e) share price, including growth measures and total stockholder return;

 

  (f) earnings before interest and taxes;

 

  (g) earnings before interest, taxes, depreciation and/or amortization;

 

  (h) earnings before interest, taxes, depreciation and/or amortization as
adjusted to exclude any one or more of the following:

 

  •  

non-cash compensation expense;

 

  •  

income from discontinued operations;

 

  •  

gain on cancellation of debt;

 

  •  

restructuring and/or integration charges and costs;

 

  •  

reorganization and/or recapitalization items;

 

  •  

impairment charges; and

 

  •  

gain or loss related to investments;

 

  (i) sales or revenue growth, whether in general, by type of product or
service, or by type of customer;

 

  (j) gross or operating margins;

 

  (k) return measures, including return on assets, capital, investment, equity,
sales or revenue;

 

  (l) cash flow, including:

 

  •  

operating cash flow;

 

  •  

free cash flow, defined as earnings before interest, taxes, depreciation and/or
amortization (as adjusted to exclude any one or more of the exclusions set forth
above) less capital expenditures;

 

  •  

levered free cash flow, defined as free cash flow less interest expense;

 

  •  

cash flow return on equity;

 

  •  

cash flow return on investment;

 

  (m) productivity ratios;

 

  (n) expense targets;

 

  (o) market share;

 

  (p) financial ratios as provided in credit agreements of the Company and its
subsidiaries;

 

  (q) working capital targets;

 

  (r) completion of acquisitions of businesses or companies;

 

15

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  (s) completion of divestitures and asset sales;

 

  (t) customer satisfaction as measured using the Net Promoter Score (NPS)
metric (based on surveys of customers of the Company and its subsidiaries); or

 

  (u) any combination of any of the foregoing business criteria.

Any Performance Measure(s) may be used to measure the performance of the
Company, Subsidiary, and/or Affiliate as a whole or any business unit of the
Company, Subsidiary, and/or Affiliate or any combination thereof, as the
Committee may deem appropriate, or any of the above Performance Measures as
compared to the performance of a group of comparator companies, or published or
special index that the Committee, in its sole discretion, deems appropriate, or
the Company may select Performance Measure (e) above as compared to various
stock market indices. Performance Measures may also be used to measure
performance on a per share basis. The Committee also has the authority to
provide for accelerated vesting of any Award based on the achievement of
performance goals pursuant to the Performance Measures specified in this
Section 14.

 

  14.6.5. Evaluation of Performance.

The Committee may provide in any such Award that any evaluation of performance
may include or exclude any of the following events that occur during a
Performance Period: (a) asset write-downs; (b) litigation or claim judgments or
settlements; (c) the effect of changes in tax laws, accounting principles, or
other laws or provisions affecting reported results; (d) any reorganization and
restructuring programs; (e) extraordinary nonrecurring items as described in
Accounting Principles Board Opinion No. 30 and/or in management’s discussion and
analysis of financial condition and results of operations appearing in the
Company’s annual report to shareholders for the applicable year;
(f) acquisitions or divestitures; and (g) foreign exchange gains and losses. To
the extent such inclusions or exclusions affect Awards to Covered Employees,
they shall be prescribed in a form that meets the requirements of Code
Section 162(m) for deductibility.

 

  14.6.6. Adjustment of Performance-Based Compensation.

Awards that are intended to qualify as Performance-Based Compensation may not be
adjusted upward. The Board shall retain the discretion to adjust such Awards
downward, either on a formula or discretionary basis, or any combination as the
Committee determines.

 

  14.6.7. Board Discretion.

In the event that applicable tax and/or securities laws change to permit Board
discretion to alter the governing Performance Measures without obtaining
shareholder approval of such changes, the Board shall have sole discretion to
make such changes without obtaining shareholder approval provided the exercise
of such discretion does not violate Code Section 409A. In addition, in the event
that the Committee determines that it is advisable to grant Awards that shall
not qualify as Performance-Based Compensation, the Committee may make such
grants without satisfying the requirements of Code Section 162(m) and base
vesting on Performance Measures other than those set forth in Section 12.1.

 

  14.7. Status of Section Awards Under Code Section 162(m).

It is the intent of the Company that Awards under Section 14.6 hereof granted to
persons who are designated by the Committee as likely to be Covered Employees
within the meaning of Code Section 162(m) and regulations thereunder shall, if
so designated by the Committee, constitute “qualified performance-based
compensation” within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Section 14.6, including the definitions of
Covered Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder. The foregoing
notwithstanding, because the Committee cannot determine with certainty whether a
given Grantee will be a Covered Employee with respect to a fiscal year that has
not yet been completed, the term Covered Employee as used herein shall

 

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mean only a person designated by the Committee, at the time of grant of an
Award, as likely to be a Covered Employee with respect to that fiscal year. If
any provision of the Plan or any agreement relating to such Awards does not
comply or is inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or deemed amended to
the extent necessary to conform to such requirements.

 

15. PARACHUTE LIMITATIONS

Except to the extent provided in any other agreement, contract, or understanding
heretofore or hereafter entered into by a Grantee with the Company or any
Affiliate (an “Other Agreement”), if the Grantee is a “disqualified individual,”
as defined in Section 280G(c) of the Code, any Option, Restricted Stock or Stock
Unit held by that Grantee and any right to receive any payment or other benefit
under this Plan shall not become exercisable or vested (i) to the extent that
such right to exercise, vesting, payment, or benefit, taking into account all
other rights, payments, or benefits to or for the Grantee under this Plan, all
Other Agreements, and all benefit arrangements, would cause any payment or
benefit to the Grantee under this Plan to be considered a “parachute payment”
within the meaning of Section 280G(b)(2) of the Code as then in effect (a
“Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment,
the aggregate after-tax amounts received by the Grantee from the Company under
this Plan, all Other Agreements, and all benefit arrangements would be less than
the maximum after-tax amount that could be received by the Grantee without
causing any such payment or benefit to be considered a Parachute Payment. In the
event that the receipt of any such right to exercise, vesting, payment, or
benefit under this Plan, in conjunction with all other rights, payments, or
benefits to or for the Grantee under any Other Agreement or any benefit
arrangement would cause the Grantee to be considered to have received a
Parachute Payment under this Plan that would have the effect of decreasing the
after-tax amount received by the Grantee as described in clause (ii) of the
preceding sentence, then the Grantee shall have the right, in the Grantee’s sole
discretion, to designate those rights, payments, or benefits under this Plan,
any Other Agreements, and any benefit arrangements that should be reduced or
eliminated so as to avoid having the payment or benefit to the Grantee under
this Plan be deemed to be a Parachute Payment.

 

16. REQUIREMENTS OF LAW

 

  16.1. General.

The Company shall not be required to sell or issue any shares of Stock under any
Award if the sale or issuance of such shares would constitute a violation by the
Grantee, any other individual exercising an Option, or the Company of any
provision of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. If at
any time the Company shall determine, in its discretion, that the listing,
registration or qualification of any shares subject to an Award upon any
securities exchange or under any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance or purchase of
shares hereunder, no shares of Stock may be issued or sold to the Grantee or any
other individual exercising an Option pursuant to such Award unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company, and
any delay caused thereby shall in no way affect the date of termination of the
Award. Specifically, in connection with the Securities Act, upon the exercise of
any Option or the delivery of any shares of Stock underlying an Award, unless a
registration statement under such Act is in effect with respect to the shares of
Stock covered by such Award, the Company shall not be required to sell or issue
such shares unless the Board has received evidence satisfactory to it that the
Grantee or any other individual exercising an Option may acquire such shares
pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under

 

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circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.

 

  16.2. Rule 16b-3.

During any time when the Company has a class of equity security registered under
Section 12 of the Exchange Act, it is the intent of the Company that Awards
pursuant to the Plan and the exercise of Options granted hereunder will qualify
for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent
that any provision of the Plan or action by the Board does not comply with the
requirements of Rule 16b-3, it shall be deemed inoperative to the extent
permitted by law and deemed advisable by the Board, and shall not affect the
validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the
Board may exercise its discretion to modify this Plan in any respect necessary
to satisfy the requirements of, or to take advantage of any features of, the
revised exemption or its replacement.

 

17. EFFECT OF CHANGES IN CAPITALIZATION

 

  17.1. Changes in Stock.

If the number of outstanding shares of Stock is increased or decreased or the
shares of Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which grants of Options and other Awards may be made under the Plan shall be
adjusted proportionately and accordingly by the Company. In addition, the number
and kind of shares for which Awards are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the
Grantee immediately following such event shall, to the extent practicable, be
the same as immediately before such event. Any such adjustment in outstanding
Options or SARs shall not change the aggregate Option Price or SAR Exercise
Price payable with respect to shares that are subject to the unexercised portion
of an outstanding Option or SAR, as applicable, but shall include a
corresponding proportionate adjustment in the Option Price or SAR Exercise Price
per share. The conversion of any convertible securities of the Company shall not
be treated as an increase in shares effected without receipt of consideration.
Notwithstanding the foregoing, in the event of any distribution to the Company’s
stockholders of securities of any other entity or other assets (including an
extraordinary dividend but excluding a non-extraordinary dividend of the
Company) without receipt of consideration by the Company, the Company shall, in
such manner as the Company deems appropriate, adjust (i) the number and kind of
shares subject to outstanding Awards and/or (ii) the exercise price of
outstanding Options and Stock Appreciation Rights to reflect such distribution.

 

  17.2. Reorganization in Which the Company Is the Surviving Entity Which does
not Constitute a Corporate Transaction.

Subject to Section 17.3 hereof, if the Company shall be the surviving entity in
any reorganization, merger, or consolidation of the Company with one or more
other entities which does not constitute a Corporate Transaction, any Option or
SAR theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option or SAR would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the Option Price or SAR Exercise Price per share so that the
aggregate Option Price or SAR Exercise Price thereafter shall be the same as the
aggregate Option Price or SAR Exercise Price of the shares remaining subject to
the Option or SAR immediately prior to such reorganization, merger, or
consolidation. Subject to any contrary language in an Award Agreement evidencing
an Award, any restrictions applicable to such Award shall apply as well to any
replacement shares received by the Grantee as a result of the reorganization,
merger or consolidation. In the event of a transaction described in this
Section 17.2, Stock Units shall be adjusted so as to apply to the securities
that a holder of the number of shares of Stock subject to the Stock Units would
have been entitled to receive immediately following such transaction.

 

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  17.3. Corporate Transaction.

Subject to the exceptions set forth in the last sentence of this Section 17.3
and the last sentence of Section 17.4, upon the occurrence of a Corporate
Transaction:

(i) all outstanding shares of Restricted Stock shall be deemed to have vested,
and all Stock Units shall be deemed to have vested and the shares of Stock
subject thereto shall be delivered, immediately prior to the occurrence of such
Corporate Transaction, and

(ii) either of the following two actions shall be taken:

(A) fifteen (15) days prior to the scheduled consummation of a Corporate
Transaction, all Options and SARs outstanding hereunder shall become immediately
exercisable and shall remain exercisable for a period of fifteen (15) days, or

(B) the Board may elect, in its sole discretion, to cancel any outstanding
Awards of Options, Restricted Stock, Stock Units, and/or SARs and pay or
deliver, or cause to be paid or delivered, to the holder thereof an amount in
cash or securities having a value (as determined by the Board acting in good
faith), in the case of Restricted Stock or Stock Units, equal to the formula or
fixed price per share paid to holders of shares of Stock and, in the case of
Options or SARs, equal to the product of the number of shares of Stock subject
to the Option or SAR (the “Award Shares”) multiplied by the amount, if any, by
which (I) the formula or fixed price per share paid to holders of shares of
Stock pursuant to such transaction exceeds (II) the Option Price or SAR Exercise
Price applicable to such Award Shares.

With respect to the Company’s establishment of an exercise window, (i) any
exercise of an Option or SAR during such fifteen-day period shall be conditioned
upon the consummation of the event and shall be effective only immediately
before the consummation of the event, and (ii) upon consummation of any
Corporate Transaction, the Plan and all outstanding but unexercised Options and
SARs shall terminate. The Board shall send written notice of an event that will
result in such a termination to all individuals who hold Options and SARs not
later than the time at which the Company gives notice thereof to its
stockholders. This Section 17.3 shall not apply to any Corporate Transaction to
the extent that provision is made in writing in connection with such Corporate
Transaction for the assumption or continuation of the Options, SARs, Stock Units
and Restricted Stock theretofore granted, or for the substitution for such
Options, SARs, Stock Units and Restricted Stock for new common stock options and
stock appreciation rights and new common stock units and restricted stock
relating to the stock of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number of shares (disregarding any
consideration that is not common stock) and option and stock appreciation right
exercise prices, in which event the Plan, Options, SARs, Stock Units and
Restricted Stock theretofore granted shall continue in the manner and under the
terms so provided.

 

  17.4. Adjustments.

Adjustments under this Section 17 related to shares of Stock or securities of
the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share. The Board shall determine the effect of a Corporate
Transaction upon Awards other than Options, SARs, Stock Units and Restricted
Stock, and such effect shall be set forth in the appropriate Award Agreement.
The Board may provide in the Award Agreements at the time of grant, or any time
thereafter with the consent of the Grantee, for different provisions to apply to
an Award in place of those described in Sections 17.1, 17.2 and 17.3.

 

  17.5. No Limitations on Company.

The making of Awards pursuant to the Plan shall not affect or limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.

 

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18. GENERAL PROVISIONS

 

  18.1. Disclaimer of Rights.

No provision in the Plan or in any Award or Award Agreement shall be construed
to confer upon any individual the right to remain in the employ or service of
the Company or any Affiliate, or to interfere in any way with any contractual or
other right or authority of the Company either to increase or decrease the
compensation or other payments to any individual at any time, or to terminate
any employment or other relationship between any individual and the Company. In
addition, notwithstanding anything contained in the Plan to the contrary, unless
otherwise stated in the applicable Award Agreement, no Award granted under the
Plan shall be affected by any change of duties or position of the Grantee, so
long as such Grantee continues to be a director, officer, consultant or employee
of the Company or an Affiliate. The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to require
the Company to transfer any amounts to a third party trustee or otherwise hold
any amounts in trust or escrow for payment to any Grantee or beneficiary under
the terms of the Plan.

 

  18.2. Nonexclusivity of the Plan.

Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.

 

  18.3. Withholding Taxes.

The Company or an Affiliate, as the case may be, shall have the right to deduct
from payments of any kind otherwise due to a Grantee any federal, state, or
local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock upon the exercise of an Option or pursuant to an
Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to
the Company or the Affiliate, as the case may be, any amount that the Company or
the Affiliate may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Company or the
Affiliate, which may be withheld by the Company or the Affiliate, as the case
may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the Affiliate to
withhold shares of Stock otherwise issuable to the Grantee or (ii) by delivering
to the Company or the Affiliate shares of Stock already owned by the Grantee.
The shares of Stock so delivered or withheld shall have an aggregate Fair Market
Value equal to such withholding obligations. The Fair Market Value of the shares
of Stock used to satisfy such withholding obligation shall be determined by the
Company or the Affiliate as of the date that the amount of tax to be withheld is
to be determined. A Grantee who has made an election pursuant to this
Section 18.3 may satisfy his or her withholding obligation only with shares of
Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting,
or other similar requirements. The maximum number of shares of Stock that may be
withheld from any Award to satisfy any federal, state or local tax withholding
requirements upon the exercise, vesting, lapse of restrictions applicable to
such Award or payment of shares pursuant to such Award, as applicable, cannot
exceed such number of shares having a Fair Market Value equal to the minimum
statutory amount required by the Company to be withheld and paid to any such
federal, state or local taxing authority with respect to such exercise, vesting,
lapse of restrictions or payment of shares.

 

  18.4. Captions.

The use of captions in this Plan or any Award Agreement is for the convenience
of reference only and shall not affect the meaning of any provision of the Plan
or such Award Agreement.

 

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  18.5. Other Provisions.

Each Award granted under the Plan may contain such other terms and conditions
not inconsistent with the Plan as may be determined by the Board, in its sole
discretion.

 

  18.6. Number and Gender.

With respect to words used in this Plan, the singular form shall include the
plural form, the masculine gender shall include the feminine gender, etc., as
the context requires.

 

  18.7. Severability.

If any provision of the Plan or any Award Agreement shall be determined to be
illegal or unenforceable by any court of law in any jurisdiction, the remaining
provisions hereof and thereof shall be severable and enforceable in accordance
with their terms, and all provisions shall remain enforceable in any other
jurisdiction.

 

  18.8. Governing Law.

The validity and construction of this Plan and the instruments evidencing the
Awards hereunder shall be governed by the laws of the State of Delaware, other
than any conflicts or choice of law rule or principle that might otherwise refer
construction or interpretation of this Plan and the instruments evidencing the
Awards granted hereunder to the substantive laws of any other jurisdiction.

 

  18.9. Section 409A of the Code.

The Board intends to comply with Section 409A of the Code (“Section 409A”), or
an exemption to Section 409A, with regard to Awards hereunder that constitute
nonqualified deferred compensation within the meaning of Section 409A. To the
extent that the Board determines that a Grantee would be subject to the
additional 20% tax imposed on certain nonqualified deferred compensation plans
pursuant to Section 409A as a result of any provision of any Award granted under
this Plan, such provision shall be deemed amended to the minimum extent
necessary to avoid application of such additional tax. The nature of any such
amendment shall be determined by the Board.

The Plan was adopted by the Board as of January 25, 2007 and approved by the
stockholders on January 26, 2007. To record adoption of the amendment to the
Plan by the Board on March 26, 2008, and approval of the amendment to the Plan
by the stockholders on May 20, 2008, the Company has caused its authorized
officer to execute the Plan, as amended.

 

PAETEC HOLDING CORP.

By:

 

/s/ CHARLES E. SIEVING

Name:

  Charles E. Sieving

Title:

 

Secretary

 

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