Exhibit 10.1

Career Education Corporation

2008 Incentive Compensation Plan

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Table of Contents

 

         Page Section 1. Establishment, Purpose and Duration    1   1.1   
Effective Date and Purpose    1   1.2    Duration of the Plan.    1 Section 2.
Definitions    1   2.1    Annual Incentive Award    1   2.2    Award    1   2.3
   Award Agreement    1   2.4    Beneficiary    1   2.5    Board    1   2.6   
Bonus Opportunity    1   2.7    Cause    2   2.8    Change in Control    2   2.9
   Code    4   2.10    Committee    4   2.11    Common Stock    4   2.12   
Company    4   2.13    Covered Employee    4   2.14    Deferred Compensation
Award    4   2.15    Deferred Stock    4   2.16    Disability    4   2.17   
Dividend Equivalent    4   2.18    Effective Date    5   2.19    Eligible Person
   5   2.20    Employer    5   2.21    Exchange Act    5   2.22    Exercise Date
   5   2.23    Fair Market Value    5   2.24    Grant Date    5   2.25   
Grantee    5   2.26    Incentive Stock Option    5   2.27    including    5  
2.28    Non-Qualified Stock Option    5   2.29    Option    6   2.30    Option
Price    6   2.31    Performance-Based Exception    6   2.32    Performance Goal
   6   2.33    Performance Measures    6   2.34    Performance Period    6  
2.35    Performance Unit    6   2.36    Person    6   2.37    Plan    6   2.38
   Restricted Stock    6   2.39    Restricted Stock Unit or RSU    6

 

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  2.40    Restrictions    7   2.41    Retirement    7   2.42    Rule 16b-3    7
  2.43    SEC    7   2.44    Section 16 Non-Employee Director    7   2.45   
Section 16 Person    7   2.46    Settlement Date    7   2.47    Share    7  
2.48    Stock Appreciation Right or SAR    7   2.49    Strike Price    7   2.50
   Subsidiary    7   2.51    Substitute Award    7   2.52    Term    8   2.53   
Termination of Service    8   2.54    Year    8 Section 3. Administration    8  
3.1    Committee    8   3.2    Powers of the Committee    8 Section 4. Shares
Subject to the Plan and Adjustments    11   4.1    Number of Shares Available
for Grants    11   4.2    Adjustments in Authorized Shares and Awards    12  
4.3    Compliance With Code Section 162(m)    12   4.4    Performance Based
Exception Under Section 162(m)    13 Section 5. Eligibility and General
Conditions of Awards    15   5.1    Eligibility    15   5.2    Award Agreement
   15   5.3    General Terms and Termination of Service    15   5.4   
Nontransferability of Awards    17   5.5    Cancellation and Rescission of
Awards    17   5.6    Substitute Awards    17   5.7    Exercise by Non-Grantee
   18   5.8    No Cash Consideration for Awards    18 Section 6. Stock Options
   18   6.1    Grant of Options    18   6.2    Award Agreement    18   6.3   
Option Price    18   6.4    Vesting    19   6.5    Grant of Incentive Stock
Options    19   6.6    Exercise and Payment    20 Section 7. Stock Appreciation
Rights    21   7.1    Grant of SARs    21   7.2    Award Agreements    21   7.3
   Strike Price    21   7.4    Vesting    21

 

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  7.5    Exercise and Payment    21   7.6    Grant Limitations    22 Section 8.
Restricted Stock    22   8.1    Grant of Restricted Stock    22   8.2    Award
Agreement    22   8.3    Consideration for Restricted Stock    22   8.4   
Vesting    22   8.5    Effect of Forfeiture    22   8.6    Escrow; Legends    22
  8.7    Stockholder Rights in Restricted Stock    23 Section 9. Restricted
Stock Units    23   9.1    Grant of Restricted Stock Units    23   9.2    Award
Agreement    23   9.3    Crediting Restricted Stock Units    23 Section 10.
Deferred Stock    24   10.1    Grant of Deferred Stock    24   10.2    Award
Agreement    24   10.3    Deferred Stock Elections    24   10.4    Deferral
Account    25 Section 11. Performance Units    26   11.1    Grant of Performance
Units    26   11.2    Value/Performance Goals    26   11.3    Earning of
Performance Units    26   11.4    Adjustment on Change of Position    27   11.5
   Dividend Rights    27 Section 12. Annual Incentive Awards    27   12.1   
Annual Incentive Awards    27   12.2    Determination of Amount of Annual
Incentive Awards    27   12.3    Time of Payment of Annual Incentive Awards   
28   12.4    Form of Payment of Annual Incentive Awards    28 Section 13. Change
in Control    28   13.1    Acceleration of Vesting    28   13.2    Special
Treatment In the Event of a Change in Control    28 Section 14. Dividend
Equivalents    29 Section 15. Amendments and Termination    29   15.1   
Amendment and Termination    29   15.2    Previously Granted Awards    30
Section 16. Beneficiary Designation    30 Section 17. Withholding    30   17.1
   Required Withholding    30   17.2    Notification under Section 83(b) of the
Code    31

 

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Section 18. General Provisions    31   18.1    Governing Law    31   18.2   
Severability    31   18.3    Successors    31   18.4    Requirements of Law   
31   18.5    Securities Law Compliance    32   18.6    Section 409A    32   18.7
   Mitigation of Excise Tax    33   18.8    No Rights as a Stockholder    33  
18.9    Awards Not Taken Into Account for Other Benefits    33   18.10   
Employment Agreement Supersedes Award Agreement    33   18.11    Non-Exclusivity
of Plan    33   18.12    No Trust or Fund Created    34   18.13    No Right to
Continued Employment or Awards    34   18.14    Military Service    34   18.15
   Construction    34   18.16    No Fractional Shares    34   18.17    Plan
Document Controls    34

 

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Career Education Corporation

2008 Incentive Compensation Plan

Section 1.

Establishment, Purpose and Duration

1.1 Effective Date and Purpose. Career Education Corporation, a Delaware
corporation (the “Company”), hereby establishes the Career Education Corporation
2008 Incentive Compensation Plan (the “Plan”). The Plan is intended to attract
and retain exceptionally qualified employees, consultants and directors upon
whom, in large measure, the sustained progress, growth and profitability of the
Company depend. By encouraging employees, consultants and directors of the
Company and its subsidiaries to acquire a proprietary interest in the Company’s
growth and performance, the Company intends to motivate employees, consultants
and directors to achieve long-term Company goals and to more closely align such
persons’ interests with those of the Company’s other stockholders. The Plan was
approved by the Board on March 20, 2008, subject to approval by the Company’s
stockholders. The Plan became effective on May 13, 2008 (the “Effective Date”),
which was the date approval by the Company’s stockholders was obtained.

1.2 Duration of the Plan. The Plan shall commence on the Effective Date and
shall remain in effect, subject to the right of the Board of Directors of the
Company to amend or terminate the Plan at any time pursuant to Section 15
hereof, until the earlier to occur of (a) the date all Shares subject to the
Plan shall have been purchased or acquired and the Restrictions on all
Restricted Stock granted under the Plan shall have lapsed, according to the
Plan’s provisions, and (b) ten (10) years from the Effective Date of the Plan.
The termination of the Plan shall not adversely affect any Awards outstanding on
the date of such termination.

Section 2.

Definitions

As used in the Plan, in addition to terms elsewhere defined in the Plan, the
following terms shall have the meanings set forth below:

2.1 “Annual Incentive Award” means a performance bonus determined under Section
12.

2.2 “Award” means any Option (including a Non-Qualified Stock Option and an
Incentive Stock Option), Stock Appreciation Right, Restricted Stock, Share,
Restricted Stock Unit, Deferred Stock, Performance Unit, Substitute Award,
Dividend Equivalent or Annual Incentive Award.

2.3 “Award Agreement” means any written agreement, contract, or other instrument
or document evidencing any Award granted hereunder between the Company and the
Grantee.

2.4 “Beneficiary” means the Person designated to receive Plan benefits, if any,
following the Grantee’s death in accordance with Section 16.

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

2.6 “Bonus Opportunity” means a Grantee’s threshold, target and maximum bonus
opportunity for a Year, provided that such bonus opportunity shall be either
(i) to the extent that the Grantee has entered into an employment agreement with
the Company, the

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threshold, target and maximum bonus levels, if any, specified in the employment
agreement for such Year based on the Grantee’s base salary in effect on the
first day of such Year, or (ii) if there is no employment agreement in effect
between the Company and the Grantee as of the first day of such Year or if the
employment agreement does not specify such bonus levels, the percentage of such
Grantee’s base salary in effect on the first day of such Year (or such later
date as such person is designated as a Grantee) as determined by the Committee
in its sole discretion within the first ninety (90) days of such Year (or before
such later date as such person is designated as a Grantee).

2.7 “Cause” means, as determined by the Committee, the occurrence of any one of
the following: (i) any act of dishonesty, willful misconduct, gross negligence,
intentional or conscious abandonment or neglect of duty; (ii) a violation of the
Company’s Code of Conduct or Code of Ethics, as applicable; (iii) commission of
a criminal activity, fraud or embezzlement; (iv) a failure to reasonably
cooperate in any investigation or proceeding concerning CEC; (v) any
unauthorized disclosure or use of confidential information or trade secrets; or
(vi) any violation of any restrictive covenant, such as a non-compete,
non-solicit or non-disclosure agreement, between an Eligible Person and any
Employer; provided, however, that in the event a Grantee is party to an
employment agreement with the Company or a Subsidiary that contains a different
definition of Cause, the definition of Cause contained in such employment
agreement shall be controlling.

2.8 “Change in Control” means, with respect to Awards other than Deferred
Compensation Awards, the occurrence of any one or more of the following: (i) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, or an employee benefit
plan (or related trust) sponsored or maintained by the Company), including a
“group” as defined in Section 13(d)(3) of the Exchange Act, becomes the
beneficial owner of stock representing more than thirty-five percent (35%) of
the combined voting power of the Company’s then outstanding securities;
(ii) (A) the stockholders of the Company approve a definitive agreement to merge
or consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company’s assets, and (B) the persons who were the
members of the Board prior to such approval do not represent a majority of the
directors of the surviving, resulting or acquiring entity or parent thereof;
(iii) the consummation of a plan of liquidation; or (iv) within any period of 24
consecutive months, persons who were members of the Board immediately prior to
such 24-month period, together with persons who were first elected as directors
(other than as a result of any settlement of a proxy or consent solicitation
contest or any action taken to avoid such a contest) during such 24-month period
by or upon the recommendation of persons who were members of the Board
immediately prior to such 24-month period and who constituted a majority of the
Board at the time of such election, cease to constitute a majority of the Board.

“Change in Control” means, with respect to Deferred Compensation Awards, the
occurrence of one or more of any of the following:

(a) A Change in the Ownership of the Company. A change in ownership of the
Company shall occur on the date that any one Person, or more than one Person
acting as a “Group” (as defined below), acquires ownership of stock of the
Company that, together

 

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with stock held by such Person or Group, constitutes more than 50% of the total
fair market value or total voting power of the stock of the Company; provided,
however, that, if any one Person, or more than one Person acting as a Group, is
considered to own more than 50% of the total fair market value or total voting
power of the stock of the Company, the acquisition of additional stock by the
same Person or Persons is not considered to cause a change in the ownership of
the Company.

(b) A Change in the Effective Control of the Company. A change in the effective
control of the Company occurs on the date that any one Person, or more than one
Person acting as a Group, acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person or Persons)
ownership of stock of the Company possessing 35% or more of the total voting
power of the stock of the Company; provided, however, that, if any one Person,
or more than one Person acting as a Group, is considered to effectively control
the Company, the acquisition of additional control of the Company by the same
Person or Persons is not considered a change in the effective control of the
Company.

(c) A Change in the Ownership of a Substantial Portion of the Company’s Assets.
A change in the ownership of a substantial portion of the Company’s assets
occurs on the date that any one Person, or more than one Person acting as a
Group, acquires (or has acquired during the 12-month period ending on the date
of the most recent acquisition by such Person or Persons) assets from the
Company that have a total Gross Fair Market Value (as defined below) equal to
all or substantially all of the total Gross Fair Market Value of all of the
assets of the Company immediately prior to such acquisition or acquisitions;
provided, however, that, a transfer of assets by the Company is not treated as a
change in the ownership of such assets if the assets are transferred to:

(i) a stockholder of the Company (immediately before the asset transfer) in
exchange for or with respect to its stock;

(ii) an entity, 50% or more of the total Fair Market Value or voting power of
which is owned, directly or indirectly, by the Company;

(iii) a Person, or more than one Person acting as a Group, that owns, directly
or indirectly, 50% or more of the total Fair Market Value or voting power of all
the outstanding stock of the Company; or

(iv) an entity, at least 50% of the total Fair Market Value or voting power of
which is owned, directly or indirectly, by a Person described in clause (iii) of
this paragraph 2.8(c).

For purposes of this definition, Gross Fair Market Value means the value of the
assets of the Company, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets.

For purposes of this definition, “Group” shall have the meaning ascribed to such
term in Treas. Reg. Sections 1.409A-3(i)(5)(v)(B), (vi)(D) or (vii)(C), as
applicable.

 

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For all purposes of the latter definition of Change in Control that applies to
Deferred Compensation Awards, stock ownership is determined under Code
Section 409A. This latter definition of Change in Control is intended to comply
with Code Section 409A for purposes of payment of any Deferred Compensation
Awards. Accordingly, any interpretation or determination of the Committee
regarding the payment of such Deferred Compensation Awards in connection with a
Change in Control shall take into account any applicable guidance and
regulations under Code Section 409A.

2.9 “Code” means the Internal Revenue Code of 1986 (and any successor thereto),
as amended from time to time. References to a particular section of the Code
include references to regulations and rulings thereunder and to successor
provisions.

2.10 “Committee” has the meaning set forth in Section 3.1(a).

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

2.12 “Company” has the meaning set forth in Section 1.1.

2.13 “Covered Employee” means a Grantee who, as of the last day of the fiscal
year in which the value of an Award is includable in income for federal income
tax purposes, is one of the group of “covered employees,” within the meaning of
Code Section 162(m), with respect to the Company.

2.14 “Deferred Compensation Award” means an Award that could be subject to
liability under Code Section 409A and does not qualify for an exemption from
Code Section 409A coverage.

2.15 “Deferred Stock” means a right, granted as an Award under Section 10, to
receive payment in the form of Shares (or measured by the value of Shares) at
the end of a specified deferral period.

2.16 “Disability” means, as determined by the Committee, a mental or physical
illness that entitles the Grantee to receive benefits under the long-term
disability plan of an Employer, or if the Grantee is not covered by such a plan
or the Grantee is not an employee of an Employer, a mental or physical illness
that renders a Grantee totally and permanently incapable of performing the
Grantee’s duties for the Company or a Subsidiary. Notwithstanding the foregoing,
a Disability shall not qualify under this Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred while participating in a
felony criminal offense. Notwithstanding the foregoing, with respect to any
Deferred Compensation Award, Disability shall mean a Grantee’s inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, as determined by the Committee.

2.17 “Dividend Equivalent” means any right to receive payments equal to
dividends or property, if and when paid or distributed, on Shares or Restricted
Stock Units.

 

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2.18 “Effective Date” has the meaning set forth in Section 1.1.

2.19 “Eligible Person” means any employee of an Employer, non-employee director
of the Company or consultant engaged by an Employer.

2.20 “Employer” means the Company or any Subsidiary.

2.21 “Exchange Act” means the Securities and Exchange Act of 1934, as amended,
or any successors thereto, and the rules and regulations promulgated thereunder,
all as shall be amended from time to time.

2.22 “Exercise Date” means the date the holder of an Award that is subject to
exercise delivers notice of such exercise to the Company, accompanied by such
payment, attestations, representations and warranties or other documentation as
required hereunder, under the applicable Award Agreement or as the Committee may
otherwise specify.

2.23 “Fair Market Value” means, as of any applicable date, (a) the closing sales
price for one Share on such date as reported on the Nasdaq National Market or,
if the foregoing does not apply, on such other market system or stock exchange
on which the Company’s Common Stock is then listed or admitted to trading, or on
the last previous day on which a sale was reported if no sale of a Share was
reported on such date, or (b) if the foregoing subsection (a) does not apply,
the fair market value of a Share as reasonably determined in good faith by the
Board in accordance with Code Section 409A. For purposes of subsection (b), the
determination of such Fair Market Value by the Board will be made no less
frequently than every twelve (12) months and will either (x) use one of the safe
harbor methodologies permitted under Treasury Regulation
Section 1.409-1(b)(5)(iv)(B)(2) (or such other similar regulation provision as
may be provided) or (y) include, as applicable, the value of tangible and
intangible assets of the Company, the present value of future cash flows of the
Company, the market value of stock or other equity interests in similar
corporations and other entities engaged in trades or businesses substantially
similar to those engaged in by the Company, the value of which can be readily
determined through objective means (such as through trading prices or an
established securities market or an amount paid in an arms’ length private
transaction), and other relevant factors such as control premiums or discounts
for lack of marketability and whether the valuation method is used for other
purposes that have a material economic effect on the Company, its stockholders
or its creditors.

2.24 “Grant Date” means the date on which an Award is granted, which date may be
specified in advance by the Committee.

2.25 “Grantee” means an Eligible Person who has been granted an Award.

2.26 “Incentive Stock Option” means an Option granted under Section 6 that is
intended to meet the requirements of Code Section 422.

2.27 “including” or “includes” means “including, but not limited to,” or
“includes, but is not limited to,” respectively.

2.28 “Non-Qualified Stock Option” means an Option granted under Section 6 that
is not intended to be an Incentive Stock Option.

 

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2.29 “Option” means an Incentive Stock Option or Non-Qualified Stock Option.

2.30 “Option Price” means the price at which a Share may be purchased by a
Grantee pursuant to an Option.

2.31 “Performance-Based Exception” means the performance-based exception from
the tax deductibility limitations of Code Section 162(m) contained in Code
Section 162(m)(4)(C) (including, to the extent applicable, the special provision
for options thereunder).

2.32 “Performance Goal” means the objective or subjective criteria determined by
the Committee, the degree of attainment of which will affect (a) in the case of
an Award other than an Annual Incentive Award, the amount of the Award the
Grantee is entitled to receive or retain, and (b) in the case of an Annual
Incentive Award, the portion of the individual’s Bonus Opportunity potentially
payable as an Annual Incentive Award. Performance Goals may contain threshold,
target and maximum levels of achievement and, to the extent the Committee
intends an Award (including an Annual Incentive Award) to comply with the
Performance-Based Exception, the Performance Goals shall be chosen from among
the Performance Measures set forth in Section 4.4(a).

2.33 “Performance Measures” has the meaning set forth in Section 4.4(a).

2.34 “Performance Period” means that period established by the Committee at the
time any Performance Unit is granted or at any time thereafter during which any
performance goals specified by the Committee with respect to such Award are to
be measured.

2.35 “Performance Unit” means any grant pursuant to Section 11 of (i) a bonus
consisting of cash or other property the amount or value of which, and/or the
entitlement to which, is conditioned upon the attainment of any performance
goals specified by the Committee, or (ii) a unit valued by reference to a
designated amount of property other than Shares.

2.36 “Person” means any individual, sole proprietorship, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization, institution, public benefit
corporation, entity or government instrumentality, division, agency, body or
department.

2.37 “Plan” has the meaning set forth in Section 1.1 of this Plan, and also
includes any appendices hereto.

2.38 “Restricted Stock” means any Share issued as an Award under the Plan that
is subject to Restrictions.

2.39 “Restricted Stock Unit” or “RSU” means the right granted as an Award under
the Plan to receive a Share, conditioned on the satisfaction of Restrictions
imposed by the Committee, which Restrictions may be time-based,
performance-based or based upon the occurrence of one or more events or
conditions.

 

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2.40 “Restrictions” means any restriction on a Grantee’s free enjoyment of the
Shares or other rights underlying Awards, including (a) that the Grantee or
other holder may not sell, transfer, pledge, or assign a Share or right, and
(b) such other restrictions as the Committee may impose in the Award Agreement
(including any restriction on the right to vote such Share and the right to
receive any dividends). Restrictions may be based upon the passage of time or
the satisfaction of performance criteria or the occurrence of one or more events
or conditions, and shall lapse separately or in combination upon such conditions
and at such time or times, in installments or otherwise, as the Committee shall
specify. Awards subject to a Restriction shall be forfeited if the Restriction
does not lapse prior to such date or the occurrence of such event or the
satisfaction of such other criteria as the Committee shall determine.

2.41 “Retirement” means a Termination of Service, other than for Cause, death or
Disability, on or after reaching age 55 with five (5) years of service with an
Employer, as determined by the Committee.

2.42 “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange
Act, as amended from time to time, together with any successor rule.

2.43 “SEC” means the United States Securities and Exchange Commission, or any
successor thereto.

2.44 “Section 16 Non-Employee Director” means a member of the Board who
satisfies the requirements to qualify as a “non-employee director” under Rule
16b-3.

2.45 “Section 16 Person” means a person who is subject to potential liability
under Section 16(b) of the Exchange Act with respect to transactions involving
equity securities of the Company.

2.46 “Settlement Date” means the payment date for Restricted Stock Units or
Deferred Stock, as set forth in Section 9.3(b) or 10.4(c), as applicable.

2.47 “Share” means a share of the Common Stock.

2.48 “Stock Appreciation Right” or “SAR” means a right granted as an Award under
the Plan to receive, as of the date specified in the Award Agreement, an amount
equal to the number of Shares with respect to which the SAR is exercised,
multiplied by the excess of (a) the Fair Market Value of one Share on the
Exercise Date over (b) the Strike Price.

2.49 “Strike Price” means the per Share price used as the baseline measure for
the value of an SAR, as specified in the applicable Award Agreement.

2.50 “Subsidiary” means any Person that directly, or through one (1) or more
intermediaries, is controlled by the Company and that would be treated as part
of a single controlled group of corporations with the Company under Sections
414(b) and 414(c) of the Code if the language “at least 50 percent” is used
instead of “at least 80 percent” each place it appears in Code Sections
1563(a)(1), (2) and (3) and Treasury Regulation Section 1.414(c)-2.

2.51 “Substitute Award” has the meaning set forth in Section 5.6.

 

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2.52 “Term” means the period beginning on the Grant Date of an Option or SAR and
ending on the date such Option or SAR expires, terminates or is cancelled.

2.53 “Termination of Service” occurs (i) on the first day on which an individual
is for any reason no longer providing services to an Employer in the capacity of
an employee, director or consultant or (ii) with respect to an individual who is
an employee or consultant to a Subsidiary, the first day on which such entity
ceases to be a Subsidiary of the Company and such individual is no longer
providing services to the Company or another Subsidiary; provided, however, that
the Committee shall have the discretion to determine when a Grantee, who
terminates services as an employee, but continues to provide services in the
capacity of a consultant immediately following such termination, has incurred a
Termination of Service. Notwithstanding the foregoing, in the case of a Deferred
Compensation Award, Termination of Service shall mean a “separation from
service” within the meaning of Code Section 409A or as otherwise set forth in an
Award Agreement or deferral election form pursuant to the Plan.

2.54 “Year” means a calendar year.

Section 3.

Administration

3.1 Committee.

(a) Subject to Section 3.2, the Plan shall be administered by the Compensation
Committee of the Board unless otherwise determined by the Board (the
“Committee”). The members of the Committee shall be appointed by the Board from
time to time and may be removed by the Board from time to time. To the extent
the Board considers it desirable to comply with Rule 16b-3 or meet the
Performance-Based Exception, the Committee shall consist of two or more
directors of the Company, all of whom qualify as “outside directors” within the
meaning of Code Section 162(m) and Section 16 Non-Employee Directors. The number
of members of the Committee shall from time to time be increased or decreased,
and shall be subject to such conditions, in each case if and to the extent the
Board deems it appropriate to permit transactions in Shares pursuant to the Plan
to satisfy such conditions of Rule 16b-3 and the Performance-Based Exception as
then in effect.

(b) Subject to Section 4.4(c), the Committee may delegate, to the fullest extent
permitted under Delaware General Corporation Law, to the Chief Executive Officer
or Chief Financial Officer of the Company any or all of the authority of the
Committee with respect to the grant of Awards to Grantees, other than Grantees
who are executive officers, or are (or are expected to be) Covered Employees
and/or are Section 16 Persons at the time any such delegated authority is
exercised.

3.2 Powers of the Committee. Subject to and consistent with the provisions of
the Plan, the Committee shall have full power and authority and sole discretion
as follows:

(a) to determine when, to whom (i.e., what Eligible Persons) and in what types
and amounts Awards should be granted;

(b) to grant Awards to Eligible Persons in any number, and to determine the
terms and conditions applicable to each Award

 

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(including conditions intended to comply with Code Section 409A, the number of
Shares or the amount of cash or other property to which an Award will relate,
any Option Price or Strike Price, grant price or purchase price, any limitation
or Restriction, any schedule for or performance conditions relating to the
earning of the Award or the lapse of limitations, forfeiture restrictions,
restrictive covenants, restrictions on exercisability or transferability, any
performance goals, including those relating to the Company and/or a Subsidiary
and/or any division thereof and/or an individual, and/or vesting based on the
passage of time, based in each case on such considerations as the Committee
shall determine);

(c) to determine the benefit (including any Bonus Opportunity) payable under any
Award and to determine whether any performance or vesting conditions, including
Performance Measures or Performance Goals, have been satisfied;

(d) to determine whether or not specific Awards shall be granted in connection
with other specific Awards;

(e) to determine the Term, as applicable;

(f) to determine the amount, if any, that a Grantee shall pay for Restricted
Stock, whether to permit or require the payment of cash dividends thereon to be
deferred and the terms related thereto, when Restricted Stock (including
Restricted Stock acquired upon the exercise of an Option) shall be forfeited and
whether such Shares shall be held in escrow or other custodial arrangement;

(g) to determine whether, to what extent and under what circumstances an Award
may be settled in, or the exercise price of an Award may be paid in, cash,
Shares, other Awards or other property, or an Award may be accelerated, vested,
canceled, forfeited or surrendered or any terms of the Award may be waived, and
to accelerate the exercisability of, and to accelerate or waive any or all of
the terms and conditions applicable to, any Award or any group of Awards for any
reason and at any time or to extend the period subsequent to the Termination of
Service within which an Award may be exercised;

(h) to determine with respect to Awards granted to Eligible Persons, whether, to
what extent and under what circumstances cash, Shares, other Awards, other
property and other amounts payable with respect to an Award will be deferred,
either at the election of the Grantee or if and to the extent specified in the
Award Agreement automatically or at the election of the Committee (for purposes
of limiting loss of deductions pursuant to Code Section 162(m) or otherwise) and
to provide for the payment of interest or other rate of return determined with
reference to a predetermined actual investment or independently set interest
rate, or with respect to other bases permitted under Code Sections 162(m), 409A
or otherwise, for the period between the date of exercise and the date of
payment or settlement of the Award;

(i) to make such adjustments or modifications to Awards to Grantees who are
working outside the United States as are advisable to fulfill the purposes of
the Plan or to comply with applicable local law and to establish sub-plans for
an Eligible Person outside the United States with such provisions as are
consistent with the Plan as may be suitable in other jurisdictions;

 

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(j) to determine whether a Grantee has a Disability or a Retirement;

(k) to determine whether and under what circumstances a Grantee has incurred a
Termination of Service (e.g., whether Termination of Service was for Cause);

(l) to make, amend, suspend, waive and rescind rules and regulations relating to
the Plan;

(m) without the consent of the Grantee, to make adjustments in the terms and
conditions of, and the criteria in, Awards in recognition of unusual or
nonrecurring events (including events described in Section 4.2) affecting an
Employer or the financial statements of an Employer, or in response to changes
in applicable laws, regulations or accounting principles; provided, however,
that in no event shall such adjustment increase the value of an Award for a
person expected to be a Covered Employee for whom the Committee desires to have
the Performance-Based Exception apply;

(n) to appoint such agents as the Committee may deem necessary or advisable to
administer the Plan;

(o) to determine the terms and conditions of all Award Agreements applicable to
Eligible Persons (which need not be identical) and, with the consent of the
Grantee (except as provided in this Section 3.2(o) and Sections 5.5 and 15.2),
to amend any such Award Agreement at any time; provided that the consent of the
Grantee shall not be required for any amendment (i) which does not adversely
affect the rights of the Grantee, or (ii) which is necessary or advisable (as
determined by the Committee) to carry out the purpose of the Award as a result
of any new applicable law or regulation or change in an existing applicable law
or regulation or interpretation thereof, or (iii) to the extent the Award
Agreement specifically permits amendment without consent;

(p) to impose such additional terms and conditions upon the grant, exercise or
retention of Awards as the Committee may, before or concurrently with the grant
thereof, deem appropriate, including limiting the percentage of Awards which may
from time to time be exercised by a Grantee, and including requiring the Grantee
to enter into restrictive covenants;

(q) to correct any defect or supply any omission or reconcile any inconsistency,
and to construe and interpret the Plan, the rules and regulations, and Award
Agreement or any other instrument entered into or relating to an Award under the
Plan; and

(r) to take any other action with respect to any matters relating to the Plan
for which it is responsible and to make all other decisions and determinations,
including factual determinations, as may be required under the terms of the Plan
or as the Committee may deem necessary or advisable for the administration of
the Plan.

Any action of the Committee with respect to the Plan shall be final, conclusive
and binding on all Persons, including the Company, its Subsidiaries, any
Grantee, any Eligible Person, any Person claiming any rights under the Plan from
or through any Grantee, and stockholders, except to the extent the Committee may
subsequently modify, or take further action not consistent with, its prior
action. If not specified in the Plan, the time at which the Committee must or
may make any determination shall be determined

 

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by the Committee, and any such determination may thereafter be modified by the
Committee. The express grant of any specific power to the Committee, and the
taking of any action by the Committee, shall not be construed as limiting any
power or authority of the Committee.

All determinations of the Committee shall be made by a majority of its members;
provided that any determination affecting any Awards made or to be made to a
member of the Committee may, at the Board’s election, be made by the Board.

Section 4.

Shares Subject to the Plan and Adjustments

4.1 Number of Shares Available for Grants.

(a) Subject to adjustment as provided in Section 4.2, the aggregate number of
Shares which may be delivered under the Plan shall not exceed the sum of (i) six
million (6,000,000), plus (ii) the number of remaining Shares under the Career
Education Corporation 1998 Employee Incentive Compensation Plan (the “1998
Plan”) and the Career Education Corporation 1998 Non-Employee Directors’ Stock
Option Plan (the “Director Plan”) (not subject to outstanding awards under the
1998 Plan and the Director Plan and not delivered out of the Shares reserved
thereunder) as of the Effective Date of this Plan, plus (iii) the number of
Shares that became available under the 1998 Plan and the Director Plan after the
Effective Date of this Plan pursuant to forfeiture, termination, lapse or
satisfaction of an Award in cash or property other than Shares (the combined
total of (i), (ii) and (iii) being referred to as the “Available Shares”). For
purposes of this Section 4.1(a), (x) each Share delivered pursuant to the
exercise of an Option shall reduce the Available Shares by one (1) Share; (y) a
number equal to the greater of each Share delivered upon exercise of a SAR and
the number of Shares underlying such SAR (whether the distribution is made in
cash, Shares or a combination of cash and Shares) shall reduce the Available
Shares by one (1) Share, other than an SAR that, by its terms, from and after
the Grant Date thereof is payable only in cash, in which case the Available
Shares shall not be reduced; and (z) each Share delivered pursuant to an Award,
other than an Option, SAR or Substitute Award, shall reduce the Available Shares
by 1.67 Shares. If any Shares subject to an Award granted hereunder are
forfeited or such Award otherwise terminates without the delivery of such
Shares, the Shares subject to such Award, to the extent of any such forfeiture
or termination, shall again be available for grant under the Plan. If any Award
is settled in cash, the Shares subject to such Award that are not delivered
shall be again available for grants under the Plan.

(b) The Committee shall from time to time determine the appropriate methodology
for calculating the number of Shares that have been delivered pursuant to the
Plan. Shares delivered pursuant to the Plan may be, in whole or in part,
authorized and unissued Shares, or treasury Shares, including Shares repurchased
by the Company for purposes of the Plan.

(c) The maximum number of shares of Common Stock that may be issued under the
Plan in this Section 4.1 shall not be affected by (i) the payment in cash of
dividends or Dividend Equivalents in connection with outstanding Awards; or
(ii) any Shares required to satisfy Substitute Awards.

 

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4.2 Adjustments in Authorized Shares and Awards.

(a) In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Shares, or other securities or
property), stock split or combination, forward or reverse merger,
reorganization, subdivision, consolidation or reduction of capital,
recapitalization, consolidation, scheme of arrangement, split-up, spin-off or
combination involving the Company or repurchase or exchange of Shares, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of: (a) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(b) the number and type of Shares (or other securities or property) subject to
outstanding Awards, (c) the grant or exercise price with respect to any Award
or, if deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award, (d) the number and kind of Shares of outstanding Restricted
Stock or relating to any other outstanding Award in connection with which Shares
are subject, and (e) the number of Shares with respect to which Awards may be
granted to a Grantee; provided, in each case, that with respect to Awards of
Incentive Stock Options intended to continue to qualify as Incentive Stock
Options after such adjustment, no such adjustment shall be authorized to the
extent that such adjustment would cause the Incentive Stock Option to fail to
continue to qualify under Section 424(a) of the Code; and provided further that
the number of Shares subject to any Award denominated in Shares shall always be
a whole number.

(b) Notwithstanding Section 4.2(a), any adjustments made pursuant to
Section 4.2(a) shall be made in such a manner as to ensure that after such
adjustment, the Awards continue not to be deferred compensation subject to Code
Section 409A (or if such Awards are already subject to Code Section 409A, so as
not to give rise to liability under Code Section 409A).

4.3 Compliance With Code Section 162(m).

(a) Section 162(m) Compliance. To the extent the Committee determines that
compliance with the Performance-Based Exception is desirable with respect to an
Award, Sections 4.3 and 4.4 shall apply. In the event that changes are made to
Code Section 162(m) to permit flexibility with respect to any Awards available
under the Plan, the Committee may, subject to this Section 4.3, make any
adjustments to such Awards as it deems appropriate.

(b) Annual Individual Limitations. No Grantee may be granted Awards for Options,
or SARs with respect to a number of Shares in any one (1) calendar year
exceeding 500,000 Shares. No Grantee may be granted Awards for Restricted Stock,
Deferred Stock, Restricted Stock Units or Performance Units (or any other Award
other than Options or SARs which is determined by reference to the value of
Shares or appreciation in the value of Shares) with respect to a number of
Shares in any one (1) calendar year exceeding 250,000 Shares. If an Award
denominated in Shares is cancelled, the Shares subject to the cancelled Award
continue to count against the maximum number of Shares which may be granted to a
Grantee in any calendar year. All Shares specified in this Section 4.3(b) shall
be adjusted to the extent necessary to reflect adjustments to Shares required by
Section 4.2. No Grantee may be granted a cash

 

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Award, the maximum payout for which would exceed $3,000,000 during any calendar
year. No Grantee may be granted a cash Award for a Performance Period of more
than one (1) Year, the maximum payout for which would exceed $5,000,000.

4.4 Performance Based Exception Under Section 162(m).

(a) Performance Measures. Subject to Section 4.4(d), unless and until the
Committee proposes for stockholder vote and stockholders approve a change in the
general Performance Measures set forth in this Section 4.4(a), for Awards (other
than Options and SARs) designed to qualify for the Performance-Based Exception,
the objective performance criteria shall be based upon one or more of the
following (each a “Performance Measure”):

(i) Earnings before any or all of interest, tax, depreciation or amortization
(actual and adjusted and either in the aggregate or on a per-Share basis);

(ii) Earnings (either in the aggregate or on a per-Share basis);

(iii) Net income or loss (either in the aggregate or on a per-Share basis);

(iv) Operating profit;

(v) Cash flow (either in the aggregate or on a per-Share basis);

(vi) Free cash flow (either in the aggregate on a per-Share basis);

(vii) Costs;

(viii) Gross revenues;

(ix) Reductions in expense levels;

(x) Operating and maintenance cost management and employee productivity;

(xi) Share price or total shareholder return (including growth measures and
total stockholder return or attainment by the Shares of a specified value for a
specified period of time);

(xii) Net economic value;

(xiii) Economic value added;

(xiv) Aggregate product unit and pricing targets;

(xv) Strategic business criteria, consisting of one or more objectives based on
meeting specified revenue, market share, market penetration, geographic business
expansion goals, objectively identified project milestones, production volume
levels, cost targets, and goals relating to acquisitions or divestitures;

 

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(xvi) Achievement of educational, accreditation or compliance (Institutional
Self Assessments) goals;

(xvii) Achievement of objectives relating to diversity, employee turnover,
student retention rates, student graduation rates and/or student placement
rates;

(xviii) Results of customer satisfaction surveys; and/or

(xix) Debt ratings, debt leverage and debt service;

provided that applicable Performance Measures may be applied on a pre- or
post-tax basis; and provided further that the Committee may, on the Grant Date
of an Award intended to comply with the Performance-Based Exception, and in the
case of other Awards, at any time, provide that the formula for such Award may
include or exclude items to measure specific objectives, such as losses from
discontinued operations, extraordinary gains or losses, the cumulative effect of
accounting changes, acquisitions or divestitures, foreign exchange impacts and
any unusual, nonrecurring gain or loss.

(b) Flexibility in Setting Performance Measures. For Awards intended to comply
with the Performance-Based Exception, the Committee shall set the Performance
Measures within the time period prescribed by Section 162(m) of the Code. The
levels of performance required with respect to Performance Measures may be
expressed in absolute or relative levels and may be based upon a set increase,
set positive result, maintenance of the status quo, set decrease or set negative
result. Performance Measures may differ for Awards to different Grantees. The
Committee shall specify the weighting (which may be the same or different for
multiple objectives) to be given to each performance objective for purposes of
determining the final amount payable with respect to any such Award. Any one or
more of the Performance Measures may apply to the Grantee, a department, unit,
division or function within the Company or any one or more Subsidiaries; and may
apply either alone or relative to the performance of other businesses or
individuals (including industry or general market indices).

(c) Adjustments. The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the pre-established performance
goals; provided, however, that Awards which are designed to qualify for the
Performance-Based Exception may not (unless the Committee determines to amend
the Award so that it no longer qualified for the Performance-Based Exception) be
adjusted upward (the Committee shall retain the discretion to adjust such Awards
downward). The Committee may not, unless the Committee determines to amend the
Award so that it no longer qualifies for the Performance-Based Exception,
delegate any responsibility with respect to Awards intended to qualify for the
Performance-Based Exception. All determinations by the Committee as to the
achievement of the Performance Measure(s) shall be in writing prior to payment
of the Award.

(d) Changes to Performance Measures. In the event that applicable laws, rules or
regulations change to permit Committee discretion to alter the governing
Performance Measures without obtaining stockholder approval of such changes, and
still qualify for the Performance-Based Exception, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval.

 

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Section 5.

Eligibility and General Conditions of Awards

5.1 Eligibility. The Committee may in its discretion grant Awards to any
Eligible Person, whether or not he or she has previously received an Award.

5.2 Award Agreement. To the extent not set forth in the Plan, the terms and
conditions of each Award shall be set forth in an Award Agreement.

5.3 General Terms and Termination of Service. Except as provided in an Award
Agreement or as otherwise provided below in this Section 5.3, all Options or
SARs that have not been exercised, or any other Awards that remain subject to
Restrictions or which are not otherwise vested or exercisable, at the time of a
Termination of Service shall be cancelled and forfeited to the Company. Any
Restricted Stock that is forfeited by the Grantee upon Termination of Service
shall be reacquired by the Company, and the Grantee shall sign any document and
take any other action required to assign such Shares back to the Company.

(a) Options and SARS. Except as otherwise provided in an Award Agreement:

(i) If the Grantee incurs a Termination of Service due to his or her Disability,
the Options or SARs shall become fully vested and exercisable at the time of
such Termination of Service, and such Options or SARs shall remain exercisable
for a period of one (1) year from the date of such Termination of Service (but
not beyond the original Term). To the extent the Options or SARs are not
exercised at the end of such one (1) year period, the Options or SARs shall be
immediately cancelled and forfeited to the Company.

(ii) If the Grantee incurs a Termination of Service due to his or her
Retirement, (A) the Options or SARs shall continue to vest during the three
(3) year period following such Termination of Service, and (B) to the extent
vested, such Options or SARs shall remain exercisable for the three (3) year
period following such Termination of Service (but not beyond the original Term).
To the extent the Options or SARs are not exercised at the end of the three
(3) year period following a Termination of Service due to the Grantee’s
Retirement, the Options or SARs shall be immediately cancelled and forfeited to
the Company.

(iii) If the Grantee incurs a Termination of Service due to his or her death,
the Options or SARs shall become fully vested and exercisable at the time of
such Termination of Service, and such Options or SARs shall remain exercisable
for a period of one (1) year (but not beyond the original Term). To the extent
the Options or SARs are not exercised at the end of such one (1) year period,
the Options or SARs shall be immediately cancelled and forfeited to the Company.

(iv) If the Grantee incurs a Termination of Service by an Employer without
Cause, the Options and SARs may thereafter be exercised, to the extent they were
vested and exercisable at the time of such Termination of Service, for a period
of ninety (90) days from the date of such Termination of Service (but not beyond
the original Term). To the extent the Options or SARs are not exercised at the
end of such 90 day period, the Options or SARs shall be immediately cancelled
and forfeited to the

 

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Company. To the extent the Options and SARs are not vested and exercisable at
the date of such Termination of Service, they shall be immediately cancelled and
forfeited to the Company.

(v) If the Grantee incurs a Termination of Service which is voluntary on the
part of the Grantee (and not due to Disability, death or Retirement), the
Options and SARs may thereafter be exercised, to the extent they were vested and
exercisable at the time of such Termination of Service, for a period of thirty
(30) days from the date of such Termination of Service (but not beyond the
original Term). To the extent the Options or SARs are not exercised at the end
of such 30 day period, the Options or SARs shall be immediately cancelled and
forfeited to the Company. To the extent the Options and SARs are not vested and
exercisable at the date of such Termination of Service, they shall be
immediately cancelled and forfeited to the Company.

(vi) If the Grantee incurs a Termination of Service for Cause or a Termination
of Service by the Grantee other than due to Disability, death or Retirement, all
Options and SARs shall be immediately canceled and forfeited to the Company.

(b) Restricted Stock. Except as otherwise provided in an Award Agreement:

(i) If Termination of Service occurs by reason of the Grantee’s death or
Disability, such Grantee’s Restricted Stock shall become immediately vested and
no longer subject to the applicable Restrictions.

(ii) If Termination of Service occurs for any reason other than the Grantee’s
death or Disability while the Grantee’s Restricted Stock is subject to a
Restriction(s), all of such Grantee’s Restricted Stock that is unvested or still
subject to Restrictions shall be forfeited by the Grantee.

(c) Dividend Equivalents. If Dividend Equivalents have been credited with
respect to any Award and such Award (in whole or in part) is forfeited, all
Dividend Equivalents issued in connection with such forfeited Award (or portion
of an Award) shall also be forfeited to the Company.

(d) Waiver by Committee. Notwithstanding the foregoing provisions of this
Section 5.3, the Committee may in its sole discretion as to all or part of any
Award as to any Grantee, at the time the Award is granted or thereafter,
determine that Awards shall become exercisable or vested upon a Termination of
Service, determine that Awards shall continue to become exercisable or vested in
full or in installments after Termination of Service, extend the period for
exercise of Options or SARs following Termination of Service (but not beyond the
original Term), or provide that any Award shall in whole or in part not be
forfeited upon such Termination of Service. Notwithstanding the preceding
sentence, the Committee shall not have the authority under this Section 5.3(d)
to take any action with respect to an Award to the extent that such action would
cause an Award that is not intended to be deferred compensation subject to Code
Section 409A to be subject thereto (or if such Awards are already subject to
Code Section 409A, so as not to give rise to liability under Code Section 409A).

 

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5.4 Nontransferability of Awards.

(a) Each Award and each right under any Award shall be exercisable only by the
Grantee during the Grantee’s lifetime, or, if permissible under applicable law,
by the Grantee’s guardian or legal representative.

(b) No Award (prior to the time, if applicable, Shares are delivered in respect
of such Award), and no right under any Award, may be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by a Grantee
other than by will or by the laws of descent and distribution (or, in the case
of Restricted Stock, to the Company), and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Subsidiary; provided that the
designation of a Beneficiary to receive benefits in the event of the Grantee’s
death shall not constitute an assignment, alienation, pledge, attachment, sale,
transfer or encumbrance for purposes of this Section 5.4(b). If so determined by
the Committee, a Grantee may, in the manner established by the Committee,
designate a Beneficiary or Beneficiaries to exercise the rights of the Grantee,
and to receive any distribution with respect to any Award upon the death of the
Grantee. A transferee, Beneficiary, guardian, legal representative or other
person claiming any rights under the Plan from or through any Grantee shall be
subject to the provisions of the Plan and any applicable Award Agreement, except
to the extent the Plan and Award Agreement otherwise provide with respect to
such persons, and to any additional restrictions or limitations deemed necessary
or appropriate by the Committee.

(c) Notwithstanding subsections (a) and (b) above, to the extent provided in the
Award Agreement, Non-Qualified Stock Options, may be transferred, without
consideration, to a Permitted Transferee. For this purpose, a “Permitted
Transferee” in respect of any Grantee means any member of the Immediate Family
of such Grantee, any trust of which all of the primary beneficiaries are such
Grantee or members of his or her Immediate Family, or any partnership, limited
liability company, corporation or and similar entity of which all of the
partners, members or stockholders are such Grantee or members of his or her
Immediate Family; and the “Immediate Family” of a Grantee means the Grantee’s
spouse, former spouse, children, stepchildren, grandchildren, parents,
stepparents, siblings, grandparents, nieces and nephews, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships. Such Award may be exercised by such Permitted
Transferee in accordance with the terms of such Award.

(d) Nothing herein shall be construed as requiring the Committee to honor the
order of a domestic relations court regarding an Award, except to the extent
required under applicable law.

5.5 Cancellation and Rescission of Awards. Unless the Award Agreement specifies
otherwise, the Committee may cancel, rescind, suspend, withhold, or otherwise
limit or restrict any unexercised or unsettled Award at any time if the Grantee
is not in compliance with all applicable provisions of the Award Agreement and
the Plan or is in violation of any restrictive covenant or other agreement with
an Employer.

5.6 Substitute Awards. The Committee may, in its discretion and on such terms
and conditions as the Committee considers

 

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appropriate in the circumstances, grant Substitute Awards under the Plan. For
purposes of this Section 5.6, “Substitute Award” means an Award granted under
the Plan in substitution for stock and stock-based awards (“Acquired Entity
Awards”) held by current and former employees or non-employee directors of, or
consultants to, another corporation or entity who become Eligible Persons as the
result of a merger, consolidation or combination of the employing corporation or
other entity (the “Acquired Entity”) with the Company or a Subsidiary or the
acquisition by the Company or a Subsidiary of property or stock of the Acquired
Entity immediately prior to such merger, consolidation, acquisition or
combination (“Acquisition Date”) in order to preserve for the Grantee the
economic value of all or a portion of such Acquired Entity Award at such price
as the Committee determines necessary to achieve preservation of economic value.

5.7 Exercise by Non-Grantee. If any Award is exercised as permitted by the Plan
by any Person other than the Grantee, the exercise notice shall be accompanied
by such documentation as may reasonably be required by the Committee, including,
without limitation, evidence of authority of such Person or Persons to exercise
the Award and, if the Committee so specifies, evidence satisfactory to the
Company that any death taxes payable with respect to such Shares have been paid
or provided for.

5.8 No Cash Consideration for Awards. Awards may be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.

Section 6.

Stock Options

6.1 Grant of Options. Subject to and consistent with the provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee.

6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement
in such form as the Committee may approve that shall specify the Grant Date, the
Option Price, the Term (not to exceed ten (10) years from its Grant Date unless
the Committee otherwise specifies in the Award Agreement), the number of Shares
to which the Option pertains, the time or times at which such Option shall be
exercisable and such other provisions (including Restrictions) not inconsistent
with the provisions of the Plan as the Committee shall determine.

6.3 Option Price. The purchase price per Share purchasable under an Option shall
be determined by the Committee; provided, however, that such purchase price
shall not be less than one hundred percent (100%) of the Fair Market Value of a
Share on the Grant Date. Subject to the adjustment allowed in Section 4.2,
neither the Committee nor the Board shall have the authority or discretion to
change the Option Price of any outstanding Option. Without the approval of
shareholders, neither the Committee nor the Board will amend or replace
previously granted Options or SARs in a transaction that constitutes
“repricing,” which for this purpose means any of the following or any action
that has the same effect: (i) lowering the exercise price of an Option or SAR
after it is granted; (ii) any other action that is treated as a repricing under
generally accepted accounting principles; (iii) cancelling an Option or SAR at a
time when its exercise prices exceeds the Fair Market Value of the underlying
Stock, in exchange for another Option or SAR, Restricted Stock, other equity,
cash or other property; provided, however, that the foregoing transactions shall
not be deemed a repricing if done pursuant to an adjustment authorized under
Section 4.2

 

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6.4 Vesting. Shares subject to an Option shall become vested and exercisable as
specified in the applicable Award Agreement.

6.5 Grant of Incentive Stock Options. At the time of the grant of any Option,
the Committee may in its discretion designate that such Option shall be made
subject to additional restrictions to permit it to qualify as an Incentive Stock
Option. Any Option designated as an Incentive Stock Option:

(a) shall be granted only to an employee of the Company or a Subsidiary
Corporation (as defined below);

(b) shall have an Option Price of not less than one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date, and, if granted to a person
who owns capital stock (including stock treated as owned under Section 424(d) of
the Code) possessing more than ten percent (10%) of the total combined voting
power of all classes of capital stock of the Company or any Subsidiary
Corporation (a “10% Owner”), have an Option Price not less than one hundred ten
percent (110%) of the Fair Market Value of a Share on its Grant Date;

(c) shall have a Term of not more than ten (10) years (five (5) years if the
Grantee is a 10% Owner) from its Grant Date, and shall be subject to earlier
termination as provided herein or in the applicable Award Agreement;

(d) shall not have an aggregate Fair Market Value (as of the Grant Date) of the
Shares with respect to which Incentive Stock Options (whether granted under the
Plan or any other equity incentive plan of the Grantee’s employer or any parent
or Subsidiary Corporation (“Other Plans”)) are exercisable for the first time by
such Grantee during any calendar year (“Current Grant”), determined in
accordance with the provisions of Section 422 of the Code, which exceeds
$100,000 (the “$100,000 Limit”);

(e) shall, if the aggregate Fair Market Value of the Shares (determined on the
Grant Date) with respect to the Current Grant and all Incentive Stock Options
previously granted under the Plan and any Other Plans which are exercisable for
the first time during a calendar year (“Prior Grants”) would exceed the $100,000
Limit, be, as to the portion in excess of the $100,000 Limit, exercisable as a
separate option that is not an Incentive Stock Option at such date or dates as
are provided in the Current Grant;

(f) shall require the Grantee to notify the Committee of any disposition of any
Shares delivered pursuant to the exercise of the Incentive Stock Option under
the circumstances described in Section 421(b) of the Code (relating to holding
periods and certain disqualifying dispositions) (“Disqualifying Disposition”),
within ten (10) days of such a Disqualifying Disposition;

(g) shall by its terms not be assignable or transferable other than by will or
the laws of descent and distribution and may be

 

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exercised, during the Grantee’s lifetime, only by the Grantee; provided,
however, that the Grantee may, to the extent provided in the Plan in any manner
specified by the Committee, designate in writing a Beneficiary to exercise his
or her Incentive Stock Option after the Grantee’s death; and

(h) shall, if such Option nevertheless fails to meet the foregoing requirements,
or otherwise fails to meet the requirements of Section 422 of the Code for an
Incentive Stock Option, be treated for all purposes of this Plan, except as
otherwise provided in subsections (d) and (e) above, as an Option that is not an
Incentive Stock Option.

For purposes of this Section 6.5, “Subsidiary Corporation” means a corporation
other than the Company in an unbroken chain of corporations beginning with the
Company if, at the time of granting the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. Notwithstanding the foregoing
and Sections 3.2(o) or 15.2, the Committee may, without the consent of the
Grantee, at any time before the exercise of an Option (whether or not an
Incentive Stock Option), take any action necessary to prevent such Option from
being treated as an Incentive Stock Option.

6.6 Exercise and Payment.

(a) Except as may otherwise be provided by the Committee in an Award Agreement,
Options shall be exercised by the delivery of a written notice (“Notice”) to the
Company setting forth the number of Shares to be exercised, accompanied by full
payment (including any applicable tax withholding) for the Shares made by any
one or more of the following means on the Exercise Date (or such other date as
may be permitted in writing by the Secretary of the Company):

(i) cash, personal check or wire transfer;

(ii) with the approval of the Committee, Shares or Shares of Restricted Stock
valued at the Fair Market Value of a Share on the Exercise Date; or

(iii) subject to applicable law, through the sale of the Shares acquired on
exercise of the Option through a broker-dealer to whom the Grantee has submitted
an irrevocable notice of exercise and irrevocable instructions to deliver
promptly to the Company the amount of sale or loan proceeds sufficient to pay
for such Shares, together with, if requested by the Company, the amount of
applicable withholding taxes payable by Grantee by reason of such exercise.

(b) The Committee may in its discretion specify that, if any Shares of
Restricted Stock (“Tendered Restricted Shares”) are used to pay the Option
Price, (x) all the Shares acquired on exercise of the Option shall be subject to
the same restrictions as the Tendered Restricted Shares, determined as of the
date of exercise of the Option, or (y) a number of Shares acquired on exercise
of the Option equal to the number of Tendered Restricted Shares shall be subject
to the same restrictions as the Tendered Restricted Shares, determined as of the
date of exercise of the Option.

 

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(c) At the discretion of the Committee and subject to applicable law, the
Company may loan a Grantee all or any portion of the amount payable by the
Grantee to the Company upon exercise of the Option on such terms and conditions
as the Committee may determine.

(d) If the Option is exercised as permitted by the Plan by any Person other than
the Grantee, the Notice shall be accompanied by documentation as may reasonably
be required by the Company, including, evidence of authority of such Person or
Persons to exercise the Option.

(e) At the time a Grantee exercises an Option or to the extent provided by the
Committee in the applicable Award Agreement, in lieu of accepting payment of the
Option Price of the Option and delivering the number of Shares of Common Stock
for which the Option is being exercised, the Committee may direct that the
Company either (i) pay the Grantee a cash amount, or (ii) issue a lesser number
of Shares of Common Stock, in any such case, having a Fair Market Value on the
Exercise Date equal to the amount, if any, by which the aggregate Fair Market
Value (or such other amount as may be specified in the applicable Award
Agreement, in the case of an exercise occurring concurrent with a Change in
Control) of the Shares of Common Stock as to which the Option is being exercised
exceeds the aggregate Option Price for such Shares, based on such terms and
conditions as the Committee shall establish.

Section 7.

Stock Appreciation Rights

7.1 Grant of SARs. Subject to and consistent with the provisions of the Plan,
the Committee, at any time and from time to time, may grant SARs to any Eligible
Person on a standalone basis only (i.e., not in tandem with an Option). The
Committee may impose such conditions or restrictions on the exercise of any SAR
as it shall deem appropriate.

7.2 Award Agreements. Each SAR shall be evidenced by an Award Agreement in such
form as the Committee may approve, which shall contain such terms and conditions
not inconsistent with the provisions of the Plan as shall be determined from
time to time by the Committee. Unless otherwise provided in the Award Agreement,
no SAR grant shall have a Term of more than ten (10) years from the date of
grant of the SAR.

7.3 Strike Price. The Strike Price of an SAR shall be determined by the
Committee in its sole discretion; provided that the Strike Price shall not be
less than 100% of the Fair Market Value of a Share on the Grant Date of the SAR.

7.4 Vesting. Shares subject to an SAR shall become vested and exercisable as
specified in the applicable Award Agreement.

7.5 Exercise and Payment. Except as may otherwise be provided by the Committee
in an Award Agreement, SARs shall be exercised by the delivery of a written
notice to the Company, setting forth the number of Shares with respect to which
the SAR is to be exercised. No payment of an SAR shall be made unless applicable
tax withholding requirements have been satisfied in accordance with Section 17.1
or otherwise. Any payment by the Company in respect of an SAR may be made in
cash, Shares, other property, or any combination thereof, as the Committee, in
its sole discretion, shall determine.

 

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7.6 Grant Limitations. The Committee may at any time impose any other
limitations or Restrictions upon the exercise of SARs which it deems necessary
or desirable in order to achieve desirable tax results for the Grantee or the
Company.

Section 8.

Restricted Stock

8.1 Grant of Restricted Stock. Subject to and consistent with the provisions of
the Plan, the Committee, at any time and from time to time, may grant Restricted
Stock to any Eligible Person in such amounts as the Committee shall determine.

8.2 Award Agreement. Each grant of Restricted Stock shall be evidenced by an
Award Agreement that shall specify the Restrictions, the number of Shares
subject to the Restricted Stock Award, and such other provisions not
inconsistent with the provisions of this Plan as the Committee shall determine.
The Committee may impose such Restrictions on any Award of Restricted Stock as
it deems appropriate, including time-based Restrictions, Restrictions based upon
the achievement of specific performance goals, Restrictions based on the
occurrence of a specified event, and/or Restrictions under applicable securities
laws.

8.3 Consideration for Restricted Stock. The Committee shall determine the
amount, if any, that a Grantee shall pay for Restricted Stock.

8.4 Vesting. Shares subject to a Restricted Stock Award shall become vested as
specified in the applicable Award Agreement (thereafter being referred to as
“Unrestricted Stock”). For purposes of calculating the number of Shares of
Restricted Stock that become Unrestricted Stock as set forth above, Share
amounts shall be rounded to the nearest whole Share amount. Except as otherwise
provided pursuant to Sections 5.3(b) or 13, (a) in the case of a Restricted
Stock Award which is conditioned upon the attainment of specified performance
goals by the Grantee with the Company or a Subsidiary (including a division or
business unit of the Company or a Subsidiary), the Restrictions shall last for
no less than one (1) year, or (b) in the case of a Restricted Stock Award which
is conditioned solely upon the continuous employment by the Grantee with the
Company or a Subsidiary, the Restrictions shall last for no less than three
(3) years. During the mandated one-year and three-year period of Restrictions,
as applicable, the Committee may not waive the restrictions for all or any part
of such Award.

8.5 Effect of Forfeiture. If Restricted Stock is forfeited, and if the Grantee
was required to pay for such Shares or acquired such Restricted Stock upon the
exercise of an Option, the Grantee shall be deemed to have resold such
Restricted Stock to the Company at a price equal to the lesser of (x) the amount
paid by the Grantee for such Restricted Stock or the exercise price of the
Option, as applicable, and (y) the Fair Market Value of a Share on the date of
such forfeiture. The Company shall pay to the Grantee the deemed sale price as
soon as is administratively practical. Such Restricted Stock shall cease to be
outstanding, and shall no longer confer on the Grantee thereof any rights as a
stockholder of the Company, from and after the date of the event causing the
forfeiture, whether or not the Grantee accepts the Company’s tender of payment
for such Restricted Stock.

8.6 Escrow; Legends. The Committee may provide that the certificates for any
Restricted Stock (x) shall be held (together with

 

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a stock power executed in blank by the Grantee) in escrow by the Secretary of
the Company until such Restricted Stock becomes nonforfeitable or is forfeited
and/or (y) shall bear an appropriate legend restricting the transfer of such
Restricted Stock under the Plan. If any Restricted Stock becomes nonforfeitable,
the Company shall cause certificates for such Shares to be delivered without
such legend or shall cause a release of restrictions on a book entry account
maintained by the Company’s transfer agent.

8.7 Stockholder Rights in Restricted Stock. Restricted Stock, whether held by a
Grantee or in escrow or other custodial arrangement by the Secretary of the
Company, shall confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan or Award Agreement. At the time of a
grant of Restricted Stock, the Committee may require the payment of cash
dividends thereon to be deferred and, if the Committee so determines, reinvested
in additional Shares of Restricted Stock. Stock dividends and deferred cash
dividends issued with respect to Restricted Stock shall be subject to the same
restrictions and other terms as apply to the Shares of Restricted Stock with
respect to which such dividends are issued. The Committee may in its discretion
provide for payment of interest on deferred cash dividends.

Section 9.

Restricted Stock Units

9.1 Grant of Restricted Stock Units. Subject to and consistent with the
provisions of the Plan and applicable requirements of Sections 409A(2), (3) and
(4) of the Code, the Committee, at any time and from time to time, may grant
Restricted Stock Units to any Eligible Person, in such amount and upon such
terms as the Committee shall determine. A Grantee shall have no voting rights in
Restricted Stock Units.

9.2 Award Agreement. Each grant of Restricted Stock Units shall be evidenced by
an Award Agreement that shall specify the Restrictions, the number of Shares
subject to the Restricted Stock Units granted, and such other provisions as the
Committee shall determine in accordance with the Plan and Code Section 409A. The
Committee may impose such Restrictions on Restricted Stock Units, including
time-based Restrictions based on the achievement of specific performance goals,
time-based Restrictions following the achievement of specific performance goals,
Restrictions based on the occurrence of a specified event, and/or Restrictions
under applicable securities laws.

9.3 Crediting Restricted Stock Units. The Company shall establish an account
(“RSU Account”) on its books for each Eligible Person who receives a grant of
Restricted Stock Units. Restricted Stock Units shall be credited to the
Grantee’s RSU Account as of the Grant Date of such Restricted Stock Units. RSU
Accounts shall be maintained for recordkeeping purposes only and the Company
shall not be obligated to segregate or set aside assets representing securities
or other amounts credited to RSU Accounts. The obligation to make distributions
of securities or other amounts credited to RSU Accounts shall be an unfunded,
unsecured obligation of the Company.

(a) Crediting of Dividend Equivalents. Except as otherwise provided in an Award
Agreement, whenever dividends are paid or distributions made with respect to
Shares, Dividend Equivalents shall be credited to RSU Accounts on all Restricted
Stock Units

 

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credited thereto as of the record date for such dividend or distribution. Such
Dividend Equivalents shall be credited to the RSU Account in the form of
additional Restricted Stock Units in a number determined by dividing the
aggregate value of such Dividend Equivalents by the Fair Market Value of a Share
at the payment date of such dividend or distribution.

(b) Settlement of RSU Accounts. The Company shall settle an RSU Account by
delivering to the holder thereof (which may be the Grantee or his or her
Beneficiary, as applicable) a number of Shares equal to the whole number of
Shares underlying the Restricted Stock Units then credited to the Grantee’s RSU
Account (or a specified portion in the event of any partial settlement);
provided that any fractional Shares underlying Restricted Stock Units remaining
in the RSU Account on the Settlement Date shall be distributed in cash in an
amount equal to the Fair Market Value of a Share as of the Settlement Date
multiplied by the remaining fractional Restricted Stock Unit. Unless otherwise
provided in an Award Agreement, the Settlement Date for all Restricted Stock
Units credited to a Grantee’s RSU Account shall be the as soon as
administratively practical following when Restrictions applicable to an Award of
Restricted Stock Units have lapsed, but in no event shall such Settlement Date
be later than March 15 of the calendar year following the calendar year in which
the Restrictions applicable to an Award of Restricted Stock Units have lapsed.
Unless otherwise provided in an Award Agreement, in the event of a Grantee’s
Termination of Service prior to the lapse of such Restrictions, such Grantee’s
Restricted Stock Units shall be immediately cancelled and forfeited to the
Company.

Section 10.

Deferred Stock

10.1 Grant of Deferred Stock. Subject to and consistent with the provisions of
the Plan and applicable requirements of Sections 409A(a)(2), (3), and (4) of the
Code, the Committee, at any time and from time to time, may grant Deferred Stock
to any Eligible Person in such number, and upon such terms, as the Committee, at
any time and from time to time, shall determine (including, to the extent
allowed by the Committee, grants at the election of a Grantee to convert Shares
to be acquired upon lapse of restrictions on Restricted Stock or Restricted
Stock Units into such Deferred Stock). A Grantee shall have no voting rights in
Deferred Stock.

10.2 Award Agreement. Each grant of Deferred Stock shall be evidenced by an
Award Agreement that shall specify the number of Shares underlying the Deferred
Stock subject to an Award, the Settlement Date such Shares of Deferred Stock
shall be settled and such other provisions as the Committee shall determine that
are in accordance with the Plan and Code Section 409A.

10.3 Deferred Stock Elections.

(a) Making of Deferral Elections. If and to the extent permitted by the
Committee, an Eligible Person may elect (a “Deferral Election”) at such times
and in accordance with rules and procedures adopted by the Committee (which
shall comport with Code Section 409A), to receive all or any portion of his
salary, and/or bonus (including any cash or Share Award, other than Options or
SARs) either in the form of a number of shares of Deferred Stock equal to the
quotient of the amount of salary and/or bonus or other

 

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permissible Award to be paid in the form of Deferred Stock divided by the Fair
Market Value of a Share on the date such salary, bonus or other such Award would
otherwise be paid in cash or distributed in Shares or pursuant to such other
terms and conditions as the Committee may determine. The Grant Date for an Award
of Deferred Stock made pursuant to a Deferral Election shall be the date the
deferrable amount subject to a Deferral Election would otherwise have been paid
to the Grantee in cash or Shares.

(b) Timing of Deferral Elections. An initial Deferral Election must be filed
with the Secretary of the Company no later than December 31 of the year
preceding the calendar year in which the amounts subject to the Deferral
Election would otherwise be earned, subject to such restrictions and advance
filing requirements as the Company may impose. A Deferral Election shall be
irrevocable as of the filing deadline, unless the Company has specified an
earlier time at which it will be irrevocable. Each Deferral Election shall
remain in effect with respect to subsequently earned amounts unless the Eligible
Person revokes or changes such Deferral Election. Any such revocation or change
shall have prospective application only and must be made at a time at which the
Deferral Election is permitted.

(c) Subsequent Deferral Elections. A Deferral Election (other than an initial
Deferral Election) made with respect to a Deferred Compensation Award must meet
the timing requirements for a subsequent deferral election as specified in
Treasury Regulation § 1.409A-2(b).

10.4 Deferral Account.

(a) Establishment of Deferral Accounts. The Company shall establish an account
(“Deferral Account”) on its books for each Eligible Person who receives a grant
of Deferred Stock or makes a Deferral Election. Deferred Stock shall be credited
to the Grantee’s Deferral Account as of the Grant Date of such Deferred Stock.
Deferral Accounts shall be maintained for recordkeeping purposes only and the
Company shall not be obligated to segregate or set aside assets representing
securities or other amounts credited to Deferral Accounts. The obligation to
make distributions of securities or other amounts credited to Deferral Accounts
shall be an unfunded, unsecured obligation of the Company.

(b) Crediting of Dividend Equivalents. Except as otherwise provided in an Award
Agreement, whenever dividends are paid or distributions made with respect to
Shares, Dividend Equivalents shall be credited to Deferral Accounts on all
Deferred Stock credited thereto as of the record date for such dividend or
distribution. Such Dividend Equivalents shall be credited to the Deferral
Account in the form of additional Deferred Stock in a number determined by
dividing the aggregate value of such Dividend Equivalents by the Fair Market
Value of a Share at the payment date of such dividend or distribution.

(c) Settlement of Deferral Accounts. The Company shall settle a Deferral Account
by delivering to the holder thereof (which may be the Grantee or his or her
Beneficiary or estate, as applicable) a number of Shares equal to the whole
number of Shares of Deferred Stock then credited to the Grantee’s Deferral
Account (or a specified portion in the event of any partial settlement);
provided that any fractional Shares of Deferred Stock remaining in the Deferral
Account on the Settlement Date shall be distributed in cash in an amount equal
to the Fair Market Value of a Share as of the Settlement Date multiplied by the
remaining fractional Share. The

 

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Settlement Date for all Deferred Stock credited in a Grantee’s Deferral Account
shall be determined in accordance with Code Section 409A and shall be specified
in the applicable Award Agreement or Deferral Election. The Settlement Date for
Deferred Stock, as may be permitted by the Committee in its discretion and as
specified in the Award Agreement or Deferral Election, is limited to one or more
of the following events: (1) a specified date (as contemplated by applicable
guidance under Code Section 409A), (2) a Change in Control (within the meaning
of the definition that applies to Deferred Compensation Awards), (3) the
Grantee’s “separation from service” as provided in Code Section 409A(2)(A)(i),
(4) the Grantee’s death, (5) the Grantee’s Disability or (6) an “unforeseeable
emergency” of the Grantee as provided in Code Section 409A(2)(A)(vi).

Section 11.

Performance Units

11.1 Grant of Performance Units. Subject to and consistent with the provisions
of the Plan, Performance Units may be granted to any Eligible Person in such
number and upon such terms, and at any time and from time to time, as shall be
determined by the Committee. Performance Units shall be evidenced by an Award
Agreement in such form as the Committee may approve, which shall contain such
terms and conditions not inconsistent with the provisions of the Plan as shall
be determined from time to time by the Committee.

11.2 Value/Performance Goals. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met during a
Performance Period, will determine the number or value of Performance Units that
will be paid to the Grantee at the end of the Performance Period. Each
Performance Unit shall have an initial value that is established by the
Committee at the time of grant. The performance goals for Awards of Performance
Units shall be set by the Committee at threshold, target and maximum performance
levels with the number or value of the Performance Units payable tied to the
degree of attainment of the various performance levels during the Performance
Period. No payment shall be made with respect to a Performance Unit Award if the
threshold performance level is not satisfied. If performance goals are attained
between the threshold and target performance levels or between the target and
maximum performance levels, the number or value of Performance Units under such
Award shall be determined by linear interpolation, unless otherwise provided in
an Award Agreement. With respect to Covered Employees and to the extent the
Committee deems it appropriate to comply with Section 162(m) of the Code, all
performance goals shall be based on objective Performance Measures satisfying
the requirements for the Performance-Based Exception, and shall be set by the
Committee within the time period prescribed by Section 162(m) of the Code and
related regulations.

11.3 Earning of Performance Units. Except as provided in Section 13, after the
applicable Performance Period has ended, the holder of Performance Units shall
be entitled to payment based on the level of achievement of performance goals
set by the Committee and as described in Section 11.2. If the Performance Unit
is intended to comply with the Performance-Based Exception, the Committee shall
certify the level of achievement of the performance goals in writing before the
Award is settled. At the discretion of the Committee, the Award Agreement may
specify that an Award of Performance Units is payable in cash, Shares,
Restricted Stock or Restricted Stock Units.

 

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11.4 Adjustment on Change of Position. If a Grantee is promoted, demoted or
transferred to a different business unit of the Company during a Performance
Period, then, to the extent the Committee determines that the Award, the
performance goals, or the Performance Period are no longer appropriate, the
Committee may adjust, change, eliminate or cancel the Award, the performance
goals, or the applicable Performance Period, as it deems appropriate in order to
make them appropriate and comparable to the initial Award, the performance
goals, or the Performance Period.

11.5 Dividend Rights. At the discretion of the Committee, a Grantee may be
entitled to receive any dividends or Dividend Equivalents declared with respect
to Shares deliverable in connection with grants of Performance Units which have
been earned, but not yet delivered to the Grantee.

Section 12.

Annual Incentive Awards

12.1 Annual Incentive Awards. Subject to and consistent with the provisions of
the Plan, Annual Incentive Awards may be granted to any Eligible Person in
accordance with the provisions of this Section 12. The Committee shall designate
the individuals eligible to be granted an Annual Incentive Award for a Year. In
the case of an Annual Incentive Award intended to qualify for the
Performance-Based Exception, such designation shall occur within the first
ninety (90) days of such year. The Committee may designate an Eligible Person as
eligible for a full Year or for a period of less than a full Year. The
opportunity to be granted an Annual Incentive Award shall be evidenced by an
Award Agreement or in such form as the Committee may approve, which shall
specify the individual’s Bonus Opportunity, the Performance Goals, and such
other terms not inconsistent with the Plan as the Committee shall determine.

12.2 Determination of Amount of Annual Incentive Awards.

(a) Aggregate Maximum. The Committee may establish guidelines as to the maximum
amount of Annual Incentive Awards payable for any Year.

(b) Establishment of Performance Goals and Bonus Opportunities. The Committee
shall establish Performance Goals for the Year (which may be the same or
different for some or all Eligible Persons) and shall establish the threshold,
target and maximum Bonus Opportunity for each Grantee for the attainment of
specified threshold, target and maximum Performance Goals. In the case of an
Annual Incentive Award intended to qualify for the Performance-Based Exception,
such designation shall occur within the first ninety (90) days of the Year.
Performance Goals and Bonus Opportunities may be weighted for different factors
and measures as the Committee shall determine.

(c) Committee Certification and Determination of Amount of Annual Incentive
Award. The Committee shall determine and certify in writing the degree of
attainment of Performance Goals as soon as administratively practicable after
the end of each Year but not later than sixty (60) days after the end of such
Year. The Committee shall determine an individual’s maximum Annual Incentive

 

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Award based on the level of attainment of the Performance Goals (as certified by
the Committee) and the individual’s Bonus Opportunity. The Committee reserves
the discretion to reduce (but not below zero) the amount of an individual’s
Annual Incentive Award below the maximum Annual Incentive Award. The
determination of the Committee to reduce (or not pay) an individual’s Annual
Incentive Award for a Year shall not affect the maximum Annual Incentive Award
payable to any other individual. No Annual Incentive Award intended to qualify
for the Performance-Based Exception shall be payable to an individual unless at
least the threshold Performance Goal is attained.

(d) Termination of Service. If a Grantee has a Termination of Service during the
Year, the Committee may, in its absolute discretion and under such rules as the
Committee may from time to time prescribe, authorize the payment of an Annual
Incentive Award to such Grantee in accordance with the foregoing provisions of
this Section 12.2 and in the absence of such determination by the Committee the
Grantee shall receive no Annual Incentive Award for such Year.

12.3 Time of Payment of Annual Incentive Awards. Annual Incentive Awards shall
be paid as soon as administratively practicable after the Committee determines
the amount of the Award payable under Section 12 but not later than two and
one-half months after the end of such Year.

12.4 Form of Payment of Annual Incentive Awards. (a) An individual’s Annual
Incentive Award for a Year shall be paid in cash, Shares, Restricted Stock,
Options or any other form of an Award or any combination thereof as provided in
the Award Agreement or in such form as the Committee may approve.

Section 13.

Change in Control

13.1 Acceleration of Vesting. Unless otherwise provided in the applicable Award
Agreement, upon the occurrence of (i) an event satisfying the definition of
“Change in Control” with respect to a particular Award, and (ii) during the two
(2) year period immediately following such event, an involuntary Termination of
Service of a Grantee who holds such Award by an Employer for a reason other than
Cause, such Award shall become vested, all Restrictions shall lapse and all
Performance Goals shall be deemed to be met, as applicable; provided, however,
that no payment of an Award shall be accelerated to the extent such payment
would cause such Award to be subject to the adverse consequences described in
Code Section 409A. The Committee may, in its discretion, include such further
provisions and limitations in any Award Agreement as it may deem desirable.

13.2 Special Treatment In the Event of a Change in Control. In order to maintain
the Grantee’s rights upon the occurrence of any event satisfying the definition
of “Change in Control” with respect to an Award, the Committee, as constituted
before such event, may, in its sole discretion, as to any such Award, either at
the time the Award is made hereunder or any time thereafter, take any one or
more of the following actions: (i) make such adjustment to any such Award then
outstanding as the Committee deems appropriate to reflect such Change in
Control; or (ii) cause any such Award then outstanding to be assumed, or new
rights substituted therefore,

 

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by the acquiring or surviving entity after such Change in Control. Additionally,
in the event of any Change in Control with respect to Options and SARs, the
Committee, as constituted before such Change in Control, may, in its sole
discretion (except as may be otherwise provided in the Award Agreement):
(a) cancel any outstanding unexercised Options or SARs (whether or not vested)
that have a per Share Option Price or Strike Price (as applicable) which is
greater than the Change in Control Price; or (b) cancel any outstanding
unexercised Options or SARs (whether or not vested) that have a per Share Option
Price or Strike Price (as applicable) which is less than or equal to the Change
in Control Price in exchange for a cash payment of an amount equal to (x) the
difference between the Change in Control Price and the Option Price or Strike
Price, multiplied by (y) the total number of Shares underlying such Option or
SAR that are vested and exercisable at the time of the Change in Control. The
Committee may, in its discretion, include such further provisions and
limitations in any Award Agreement as it may deem desirable. The “Change in
Control Price” means the lower of (i) the per Share Fair Market Value as of the
date of the Change in Control, or (ii) the price paid per Share as part of the
transaction which constitutes the Change in Control.

Section 14.

Dividend Equivalents

The Committee is authorized to grant Awards of Dividend Equivalents alone or in
conjunction with other Awards (other than Options and SARs), on such terms and
conditions as the Committee shall determine in accordance with Code
Section 409A. Unless otherwise provided in the Award Agreement or in Sections 9
and 10 of the Plan, Dividend Equivalents shall be paid immediately when accrued
and, in no event, later than March 15 of the calendar year following the
calendar year in which such Dividend Equivalents accrue. Unless otherwise
provided in the Award Agreement or in Sections 9 and 10 of the Plan, if the
Grantee incurs a Termination of Service prior to the date such Dividend
Equivalents accrue, the Grantee’s right to such Dividend Equivalents shall be
immediately forfeited.

Section 15.

Amendments and Termination

15.1 Amendment and Termination. Subject to Section 15.2, the Board may at any
time amend, alter, suspend, discontinue or terminate the Plan in whole or in
part without the approval of the Company’s stockholders, provided that (a) any
amendment shall be subject to the approval of the Company’s stockholders if such
approval is required by any federal or state law or regulation or any stock
exchange or automated quotation system on which the Shares may then be listed or
quoted, and (b) any Plan amendment or termination will not accelerate the timing
of any payments that constitute deferred compensation under Code Section 409A
unless such acceleration of payment is permitted by Code Section 409A. Subject
to the foregoing, the Committee may amend the Plan at any time provided that
(i) no amendment shall impair the rights of any Grantee under any Award
theretofore granted without such Grantee’s consent, and (ii) any amendment shall
be subject to approval or rejection of the Board. The Committee may amend the
terms of any Award, prospectively or retroactively, but no such amendment shall
impair the rights of any Grantee without such Grantee’s consent, nor shall any
such amendment reduce an Option Price or the period of Restrictions.
Notwithstanding the foregoing, the Board shall have the authority to amend the
Plan and outstanding Awards to take into account changes in law and tax and
accounting rules, as well as other developments, and to grant Awards which
qualify for beneficial treatment under such rules without a Grantee’s consent
and without stockholder approval.

 

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15.2 Previously Granted Awards. Except as otherwise specifically provided in the
Plan (including Sections 3.2(o), 5.5, 15.1 and this Section 15.2) or an Award
Agreement, no termination, amendment or modification of the Plan shall adversely
affect in any material way any Award previously granted under the Plan without
the written consent of the Grantee of such Award.

Section 16.

Beneficiary Designation

Each Grantee under the Plan may, from time to time, name any Beneficiary or
Beneficiaries (who may be named contingently or successfully) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Grantee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Grantee in writing with
the Company during the Grantee’s lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee’s death shall be paid to
the Grantee’s estate.

Section 17.

Withholding

17.1 Required Withholding.

(a) The Committee in its sole discretion may provide that when taxes are to be
withheld in connection with the exercise of an Option or an SAR or upon the
lapse of Restrictions on an Award or upon payment of any benefit or right under
this Plan (the Exercise Date, the date such Restrictions lapse or such payment
of any other benefit or right occurs hereinafter referred to as the “Tax Date”),
the Grantee may be required or may be permitted to elect to make payment for the
withholding of federal, state and local taxes, including Social Security and
Medicare (“FICA”) taxes, by one or a combination of the following methods:

(i) payment of an amount in cash equal to the amount to be withheld;

(ii) requesting the Company to withhold from those Shares that would otherwise
be received upon exercise of the Option or an SAR or upon the lapse of
Restrictions on, or upon settlement of, any other Award, a number of Shares
having a Fair Market Value on the Tax Date equal to the amount to be withheld;
or

(iii) withholding from any compensation otherwise due to the Grantee.

The Committee in its sole discretion may provide that the maximum amount of tax
withholding upon exercise of an Option or an SAR or in connection with the
settlement of any other Award to be satisfied by withholding Shares pursuant to
clause (iii) above shall not exceed the minimum amount of taxes, including FICA
taxes, required to be withheld under federal, state and local law. An election
by Grantee under this subsection is irrevocable. Any fractional share amount and
any additional withholding not paid by the

 

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withholding or surrender of Shares must be paid in cash. If no timely election
is made, the Grantee must deliver cash to satisfy all tax withholding
requirements, unless otherwise provided in the Award Agreement.

(b) Any Grantee who makes a Disqualifying Disposition (as defined in
Section 6.5(f)) or an election under Section 83(b) of the Code shall remit to
the Company an amount sufficient to satisfy all resulting tax withholding
requirements in the same manner as set forth in subsection (a).

(c) No Award shall be settled, whether in cash or in Shares, unless the
applicable tax withholding requirements have been met to the satisfaction of the
Committee.

17.2 Notification under Section 83(b) of the Code. If the Grantee, in connection
with the exercise of any Option, or the grant of Restricted Stock, makes the
election permitted under Section 83(b) of the Code to include in such Grantee’s
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within ten
(10) days of filing the notice of the election with the Internal Revenue
Service, in addition to any filing and notification required pursuant to
regulations issued under Section 83(b) of the Code. The Committee may, in
connection with the grant of an Award or at any time thereafter, prohibit a
Grantee from making the election described above.

Section 18.

General Provisions

18.1 Governing Law. The validity, construction, and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware, other than its law respecting choice of
laws and applicable federal law.

18.2 Severability. If any provision of this Plan or any Award is or becomes or
is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to
any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, it shall be stricken and the remainder of the
Plan and any such Award shall remain in full force and effect.

18.3 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 the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.

18.4 Requirements of Law. The granting of Awards and the delivery of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges or markets as may be required. Notwithstanding any provision of the
Plan or any Award, Grantees shall not be entitled to exercise, or receive
benefits under, any Award, and the Company (or any Subsidiary) shall not be
obligated to deliver any Shares or deliver benefits to a Grantee, if such
exercise or delivery would constitute a violation by the Grantee, the Company or
a Subsidiary of any applicable law or regulation.

 

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18.5 Securities Law Compliance. If the Committee deems it necessary to comply
with any applicable securities law, or the requirements of any securities
exchange or market upon which Shares may be listed, the Committee may impose any
restriction on Awards or Shares acquired pursuant to Awards under the Plan as it
may deem advisable. All evidence of Share ownership delivered pursuant to any
Award or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations or other requirements of the SEC, any securities exchange or market
upon which Shares are then listed, and any applicable securities law. If so
requested by the Company, the Grantee shall make a written representation and
warranty to the Company that he or she will not sell or offer to sell any Shares
unless a registration statement shall be in effect with respect to such Shares
under the Securities Act of 1933, as amended, and any applicable state
securities law or unless he or she shall have furnished to the Company an
opinion of counsel, in form and substance satisfactory to the Company, that such
registration is not required.

If the Committee determines that the exercise or nonforfeitability of, or
delivery of benefits pursuant to, any Award would violate any applicable
provision of securities laws or the listing requirements of any national
securities exchange or national market system on which are listed any of the
Company’s equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery to comply with all such provisions at the earliest
practicable date.

18.6 Section 409A. To the extent applicable and notwithstanding any other
provision of this Plan, this Plan and Awards hereunder shall be administered,
operated and interpreted in accordance with Code Section 409A and Department of
Treasury regulations and other interpretive guidance issued thereunder,
including without limitation, any such regulations or other guidance that may be
issued after the date on which the Board approves the Plan; provided, however,
in the event that the Committee determines that any amounts payable hereunder
may be taxable to a Grantee under Code Section 409A and related Department of
Treasury guidance prior to the payment and/or delivery to such Grantee of such
amount, the Company may (i) adopt such amendments to the Plan and related Award,
and appropriate policies and procedures, including amendments and policies with
retroactive effect, that the Committee determines necessary or appropriate to
preserve the intended tax treatment of the benefits provided by the Plan and
Awards hereunder and/or (ii) take such other actions as the Committee determines
necessary or appropriate to comply with or exempt the Plan and/or Awards from
the requirements of Code Section 409A and related Department of Treasury
guidance, including such Department of Treasury guidance and other interpretive
materials as may be issued after the date on which the Board approves the Plan.
The Company and its Subsidiaries make no guarantees to any Person regarding the
tax treatment of Awards or payments made under the Plan, and, notwithstanding
the above provisions and any agreement or understanding to the contrary, if any
Award, payments or other amounts due to a Grantee (or his or her beneficiaries,
as applicable) results in, or causes in any manner, the application of an
accelerated or additional tax, fine or penalty under Code Section 409A or
otherwise to be imposed, then the Grantee (or his or her beneficiaries, as
applicable) shall be solely liable for the payment of, and the Company and its
Subsidiaries shall have no obligation or liability to pay or reimburse (either
directly or otherwise) the Grantee (or his or her beneficiaries, as applicable)
for, any such additional taxes, fines or penalties. In the case of any Deferred
Compensation Award (in addition to Deferred Stock), the provisions of
Section 10.4 relating to permitted times of settlement shall apply to such
Award.

 

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18.7 Mitigation of Excise Tax. If any payment or right accruing to a Grantee
under this Plan (without the application of this Section 18.7), either alone or
together with other payments or rights accruing to the Grantee from an Employer
(“Total Payments”), would constitute a “parachute payment” (as defined in
Section 280G of the Code and regulations thereunder), such payment or right
shall be reduced to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan being subject to
an excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code. The determination of whether any reduction in
the rights or payments under this Plan is to apply shall be made by the
Committee in good faith after consultation with the Grantee, and such
determination shall be conclusive and binding on the Grantee. The Grantee shall
cooperate in good faith with the Committee in making such determination and
providing the necessary information for this purpose. The foregoing provisions
of this Section 18.7 shall apply with respect to any person only if, after
reduction for any applicable Federal excise tax imposed by Section 4999 of the
Code and Federal income tax imposed by the Code, the Total Payments accruing to
such person would be less than the amount of the Total Payments as reduced, if
applicable, under the foregoing provisions of the Plan and after reduction for
only Federal income taxes. Notwithstanding the foregoing, in the event a Grantee
is a party to a written agreement with the Company or a Subsidiary that provides
for more favorable treatment for the Grantee regarding Section 280G of the Code,
including, but not limited to, the right to receive a gross-up payment for the
excise tax under Section 4999 of the Code, such agreement shall be controlling.

18.8 No Rights as a Stockholder. No Grantee shall have any rights as a
stockholder of the Company with respect to the Shares (except as provided in
Section 8.7 with respect to Restricted Stock) which may be deliverable upon
exercise or payment of such Award until such Shares have been delivered to him
or her.

18.9 Awards Not Taken Into Account for Other Benefits. Awards shall be special
incentive payments to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee for purposes of
determining any pension, retirement, death or other benefit under (a) any
pension, retirement, profit-sharing, bonus, insurance or other employee benefit
plan of an Employer, except as such plan shall otherwise expressly provide, or
(b) any agreement between an Employer and the Grantee, except as such agreement
shall otherwise expressly provide.

18.10 Employment Agreement Supersedes Award Agreement. In the event a Grantee is
a party to an employment agreement with the Company or a Subsidiary that
provides for vesting or extended exercisability of equity compensation Awards on
terms more favorable to the Grantee than the Grantee’s Award Agreement or this
Plan, the employment agreement shall be controlling; provided that (a) if the
Grantee is a Section 16 Person, any terms in the employment agreement requiring
Compensation Committee of the Board, Board or stockholder approval in order for
an exemption from Section 16(b) of the Exchange Act to be available shall have
been approved by the Compensation Committee of the Board, the Board or the
stockholders, as applicable, and (b) the employment

 

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agreement shall not be controlling to the extent the Grantee and Grantee’s
Employer agree it shall not be controlling, and (c) an employment agreement or
modification to an employment agreement shall be deemed to modify the terms of
any pre-existing Award only if the terms of the employment agreement expressly
so provide.

18.11 Non-Exclusivity of Plan. Neither the adoption of the Plan by the Board nor
its submission to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements for employees as it may deem desirable.

18.12 No Trust or Fund Created. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Subsidiary and a Grantee or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Subsidiary pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Subsidiary.

18.13 No Right to Continued Employment or Awards. No employee shall have the
right to be selected to receive an Award under this Plan or, having been so
selected, to be selected to receive a future Award. The grant of an Award shall
not be construed as giving a Grantee the right to be retained in the employ of
the Company or any Subsidiary or to be retained as a director of the Company or
any Subsidiary. Further, the Company or a Subsidiary may at any time terminate
the employment of a Grantee free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

18.14 Military Service. Awards shall be administered in accordance with
Section 414(u) of the Code and the Uniformed Services Employment and
Reemployment Rights Act of 1994.

18.15 Construction. The following rules of construction will apply to the Plan:
(a) the word “or” is disjunctive but not necessarily exclusive, and (b) words in
the singular include the plural, words in the plural include the singular, and
words in the neuter gender include the masculine and feminine genders and words
in the masculine or feminine genders include the other neuter genders. The
headings of sections and subsections are included solely for convenience of
reference, and if there is any conflict between such headings and the text of
this Plan, the text shall control.

18.16 No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares, or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.

18.17 Plan Document Controls. This Plan and each Award Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof; provided
that in the event of any inconsistency between this Plan and such Award
Agreement, the terms and conditions of the Plan shall control.

 

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