Exhibit 10.2


 


LONGS DRUG STORES CORPORATION

1995 LONG-TERM INCENTIVE PLAN

(As amended on February 25, 2003)


 


1.


PURPOSE


 


The purpose of the 1995 Long-Term Incentive Plan is to provide a means
through which Longs Drug Stores Corporation, a Maryland Corporation, and its
Subsidiaries, may attract and retain the employment of able persons and to
provide a means whereby such persons can acquire and maintain stock ownership
thereby strengthening their commitment to the welfare of the Company. A further
purpose of the Plan is to provide key employees with incentive and reward
opportunities designed to enhance the profitable growth of the Company.


 


2.


DEFINITIONS


 


The
following definitions shall be applicable throughout the Plan:


 


a.    “Award” means,
individually or collectively, any Option, Stock Appreciation Right (SAR),
Restricted Stock Award or Performance Share Award.


 


b.    “Award Period” means a
period set by the Committee for Performance Share Awards.


 


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


 


d.    “Change in Corporate
Control” except as may otherwise be provided in the Award agreement or other
applicable agreement, means the occurrence of any of the following:


 


(1)  The consummation of a merger or
consolidation of the Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the continuing
or surviving entity’s securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who are not part of
the same controlled group of the Company immediately prior to such merger,
consolidation or other reorganization, and who directly or indirectly in the
aggregate owned less than 25% of the Company’s combined voting power
represented by the Company’s outstanding securities immediately prior to such
merger, consolidation or other reorganization;


 


(2)  The sale, transfer or other
disposition of all or substantially all of the Company’s assets;


 


(3)  A change in the composition of the
Board over a period of 24 consecutive months or less such that a majority of
the members of the Board (rounded up to the next whole number) cease, by reason
of one or more proxy contests for the election of directors, to be comprised of
individuals who either (i) have been directors continuously since the
beginning of such period or (ii) have been elected, or nominated for
election, as directors during such period by at least a majority of the
directors described in clause (i) 


 

















 


who
were still in office at the time such election or nomination was approved by
the Board; or


 


(4)  The shareholders of the Company
approve the dissolution or liquidation of the Company or the commencement by or
against the Company of a case under the federal bankruptcy laws or any other proceeding
under any other laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief or there is an involuntary
dissolution of the Company; or


 


(5)  Any transaction as a result of which
any person becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934 (“Exchange Act”)), directly or indirectly,
of securities of the Company representing at least 50% of the total voting
power represented by the Company’s then outstanding voting securities. For
purposes of this Paragraph (v), the term “person” shall have the same
meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall
exclude:


 


(A)  A trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a Subsidiary of the
Company;


 


(B)  A corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company;


 


(C)  The Company; and


 


(D)  Longs Drug Stores
California, Inc.


 


A
transaction shall not constitute a Change in Corporate Control if its sole
purpose is to change the state of the Company’s incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company’s securities immediately before such transaction.


 


e.    “Code” means the Internal
Revenue Code of 1986, as amended from time to time. Reference in the Plan to
any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations under such
section.


 


f.    “Committee” means the
committee of the Board appointed to administer the Plan as referred to in
Section 4.


 


g.    “Company” means Longs Drug
Stores Corporation.


 


h.    “Date of Grant” means the
date on which the granting of an Award is authorized by the Committee or such
later date as may be specified by the Committee in such authorization.


 


i.    “Eligible Employee” means
any person who satisfies the requirements of Section 6.


 


j.    “Fair Market Value” means
the fair market value of a share of Stock, to be determined as follows:


 


(1)  For Options and SARs, it shall be the
closing price on the New York Stock Exchange (“NYSE”) as reported in the
Pacific Edition of the Wall Street Journal on a specified date.


 


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(2)  For Performance Share Awards, it
shall be the average of the closing prices of the Stock reported in the Pacific
Edition of the Wall Street Journal on the NYSE for the 30 consecutive trading
days prior to the “Valuation Date.” The “Valuation Date” for the purpose of
granting Performance Share Awards shall be the first day of the year in which
the Award is made. The “Valuation Date” for the purpose of Performance Share
Payments shall be the first business day following the end of the Award Period.


 


(3)  If the Stock is not regularly traded
on the NYSE, then “Fair Market Value” shall be determined by the Committee on a
uniform basis in good faith.


 


k.    “Holder” means a person
who has been granted an Option, an SAR, a Restricted Stock Award, or a
Performance Share Award or who has succeeded to such Award.


 


l.    “Normal Retirement” means,
unless the Award agreement or other applicable agreement provides otherwise,
Termination by resignation of employment with the Company and any Subsidiary
after attaining age 65 or Termination by resignation of employment with the
Company and any Subsidiary after attaining age 55 with 10 or more years of
employment with the Company or any Subsidiary. With respect to members of the
Board who are not also employees of the Company or a Subsidiary, “Normal
Retirement” shall have the meaning under the Board policy, if any, applicable
to the Board.


 


m.    “Option” means an Award
granted under Section 7 of the Plan.


 


n.    “Performance Share” means
an Award granted under Section 9 of the Plan.


 


o.    “Plan” means this 1995
Long-Term Incentive Plan.


 


p.    “Restricted Stock Award”
means an Award granted under Section 10 of the Plan.


 


q.    “ROE” means return on
average shareholders’ equity which is defined as the Company’s consolidated net
earnings, before extraordinary items, divided by the average of the
shareholders’ equity at the beginning and end of the year, as set forth in the
Company’s consolidated statement of earnings and balance sheet for such year.
The Committee may, at its sole discretion, include or exclude any extraordinary
or unusual items in calculation of ROE. “Average ROE” means, with respect to
any one Award Period, the sum of the ROE’s achieved in each of the years of the
Award Period divided by the number of years in the Award Period.


 


r.    “SEC” means the Securities
and Exchange Commission.


 


s.    “Service” means employment
with the Company or a Subsidiary or service as a member of the Board.


 


t.    “Stock” means Common
Shares of the Company and, after substitution, such other stock as shall be
substituted therefor as provided in Section 12.


 


u.    “Stock Appreciation Right”
(SAR) means an Award granted under Section 8, whether or not granted in
conjunction with an Option.


 


v.    “Subsidiary” means any
“subsidiary corporation” as defined in Code Section 424(f). Subsidiary
also includes any entity of which the Company and/or one or more Subsidiaries
own not less than 50%.


 


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w.    “Termination” means, with
respect to any person, ceasing to be an employee of the Company or any
Subsidiary and a member of the Board. An individual who ceases to be an
employee of the Company or a Subsidiary but remains (or becomes prior to such
cessation) a member of the Board or who ceases to serve on the Board but
remains (or becomes prior to such cessation) an employee shall not be treated
as having had a Termination.


 


3.


EFFECTIVE
DATE, DURATION AND SHAREHOLDER APPROVAL


 


The
Plan originally became effective on May 17, 1994, when the shareholders of
the Company approved the Plan and authorized Awards under the Plan for a period
of 10 years following such date. The Plan was amended effective on
May 21, 2002, when the shareholders of the Company approved an extension
for five years of the period during which Awards are authorized to be made
under the Plan and was subsequently amended on August 20, 2002 (the “Prior
Plan”). This Plan as amended and restated on February 25, 2003 (the
“Restatement Date”) shall become effective only upon shareholder approval. The
Prior Plan shall remain in effect pursuant to its terms until such shareholder
approval. Following such shareholder approval and subject to the provisions of
Section 13, Awards may be made under the Plan until ten years after the
Restatement Date. The Plan shall continue in effect until all matters relating
to the payment of Awards and administration of the Plan have been settled.


 


4.


ADMINISTRATION


 


a.    COMMITTEE COMPOSITION. A
Committee appointed by the Board shall administer the Plan. Unless the Board
determines otherwise, the Board’s Compensation Committee shall be the
Committee. Members of the Committee shall serve for such period of time as the
Board may determine and shall be subject to removal by the Board at any time.
The Board may also at any time terminate the functions of the Committee and
reassume all powers and authority previously delegated to the Committee.


 


The
Committee shall consist either (i) of those individuals who shall satisfy
the requirements of Rule 16b-3 (or its successor) under the Exchange Act
with respect to Options to persons who are officers or directors of the Company
under Section 16 of the Exchange Act or (ii) of the Board itself. The
Committee shall comply with the requirements of Code Section 162(m) with
respect to Awards intended to meet the qualified performance based compensation
exception under Code Section 162(m).


 


The
Board may also appoint one or more separate committees of the Board, each
composed of directors of the Company who need not qualify under
Rule 16b-3, who may administer the Plan with respect to Eligible Employees
who are not considered officers or directors of the Company under
Section 16 of the Exchange Act, may grant Awards under the Plan to such
Eligible Employees and may determine all terms of such Awards. Notwithstanding
the foregoing, the Board shall constitute the Committee with respect to Awards
granted to directors who are not employees of the Company or any Subsidiary
(“Non-Employee Directors”).


 


b.    AUTHORITY OF THE
COMMITTEE. Subject to the provisions of the Plan, the Committee shall have full
authority and discretion to take any actions it deems necessary or advisable
for the administration of the Plan. Such actions shall include:


 


(1)  selecting Eligible Employees who are
to receive Awards under the Plan;


 


(2)  determining the type, number, vesting
requirements and other features and conditions of such Awards;


 


(3)  interpreting the Plan;


 


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(4)  making all other decisions relating
to the operation of the Plan; and


 


(5)  establishing such plans or sub-plans
under the Plan for the purpose of facilitating Awards to Eligible Employees who
are not United States citizens or taxpayers.


 


The
Committee may adopt such rules or guidelines, as it deems appropriate to
implement the Plan. The Committee’s determinations under the Plan shall be
final and binding on all persons.


 


5.


GRANT
OF OPTIONS, STOCK APPRECIATION RIGHTS, RESTRICTED STOCK AWARDS, AND PERFORMANCE
SHARE AWARDS; SHARES SUBJECT TO THE PLAN


 


The
Committee may, from time to time, grant Awards to one or more persons
determined by it to be eligible for participation in the Plan in accordance
with the provisions of Section 6; provided however that:


 


a.    TOTAL SHARES. Subject to
Section 12, the aggregate number of shares of Stock made subject to Awards
may not exceed 3,400,000 (which includes 1,400,000 shares previously authorized
for issuance under the terms of the original Plan, as adjusted for changes in
the Company’s capitalization). Subject to Section 12, no Eligible Employee
shall receive Options and/or SARs during any fiscal year covering in excess of
500,000 shares of Stock (750,000 shares of Stock in connection with the
individual’s initial employment).


 


b.    USE OF SHARES. Such shares
shall be deemed to have been used in payment of Performance Shares and SARs
only if actually delivered or the Fair Market Value equivalent of such shares
is paid in cash. To the extent that an Award lapses or the rights of its Holder
terminate, any shares of Stock subject to such Award shall again be available
for the grant of an Award.


 


c.    ELIGIBLE SHARES. Stock
delivered by the Company in settlement under the Plan may be authorized and
unissued Stock or Stock held in the treasury of the Company or may be purchased
on the open market or by private purchase.


 


6.


ELIGIBILITY


 


Officers
and key employees of the Company or a Subsidiary who, in the opinion of the
Committee, are mainly responsible for the continued growth and development and
financial success of the business of the Company or any Subsidiary shall be
eligible to be granted Awards under the Plan. Non-Employee Directors shall also
be eligible to be granted Awards under the Plan.


 


7.


STOCK
OPTIONS


 


One
or more Options can be granted to any Eligible Employee. Options may be granted
as Incentive Stock Options (“ISOs”) or nonqualified stock options. Only
Eligible Employees employed by the Company or a “subsidiary corporation” of the
Company as defined in Code Section 424(f) may be granted ISOs. Options
shall be subject to the following terms and conditions:


 


a.    OPTION PRICE. The option
price per share of Stock shall be set by the grant but in the case of ISOs
shall in no instance be less than Fair Market Value on the Date of Grant.
Notwithstanding the previous sentence, in the event Options are granted in a
corporate transaction in replacement of options of another entity, the option
price of such Options may be less than the Fair Market Value and the principles
of Code Section 424 shall apply to replacement ISOs.


 


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b.    FORM OF PAYMENT. At the
time of the exercise of the Option, the option price shall be payable in cash
and/or shares of Stock valued at the Fair Market Value at the time the Option
is exercised, and at the discretion of and on terms acceptable to the
Committee, by any other legal means.


 


c.    OTHER TERMS AND CONDITIONS.
Each Option shall become exercisable in cumulative installments in such manner
and within such period or periods, not to exceed 10 years from its Date of
Grant, as set forth in the Stock Option Agreement. No Option shall be
exercisable after the expiration of ten years from the date it is granted.
Except as set forth below, an Option shall terminate in the event of the
Holder’s Termination.


 


Unless
otherwise provided in the Stock Option Agreement, in the event of a
Termination, the Holder shall have the right to exercise the Option for the
following periods after such Termination, but only to the extent that the
Option was exercisable at the date of the Termination and does not otherwise
expire by its terms.


 


(1)  In the event of Normal Retirement,
three years after the date of Termination.


 


(2)  In the event of (a) discharge by
the Company or any Subsidiary (except for Cause) within two years after the
date of a Change in Corporate Control, or (b) resignation of the Holder
within the period commencing 180 days after the date of a Change in
Corporate Control and ending two years from the date of a Change in Corporate
Control, one year after the date of Termination.


 


(3)  In the event of the Holder’s
Termination (except as provided in Section 7c(2) hereof) with the prior
written consent of the Company or any Subsidiary or by the Company (or
Subsidiary) without Cause, ninety (90) days after the date of such
Termination. Such prior written consent may be given only by the Chief
Executive Officer of the Company or any Subsidiary or any such officer
delegated by the Chief Executive Officer (other than the resigning person) and
must specify that it is given for the purpose of the Holder’s exercise of the
Option.


 


(4)  In the event of (a) discharge by
the Company or any Subsidiary with Cause (except as provided in
Section 7c(2), hereof), or (b) resignation without the prior written
consent of the Company or any Subsidiary, on the date of such discharge or
resignation.


 


For
purposes of this Plan, unless otherwise provided for in the Award agreement or
other applicable agreement, “Cause” shall mean a commission of any act of
fraud, embezzlement or dishonesty; any unauthorized use or disclosure of
confidential information or trade secrets of the Company (or any Subsidiary);
or any other intentional misconduct adversely affecting the business or affairs
of the Company (or any Subsidiary) in a material manner. In the event of
Holder’s Termination due to death, or death within three months of a Normal
Retirement, the Option may be exercised for a period of one year after the date
of Holder’s death or, if shorter, the remaining term of the Option.


 


d.    SPECIAL RULES GOVERNING
INCENTIVE STOCK OPTIONS (ISOS). Notwithstanding the foregoing, any ISO granted
under the Plan shall be subject to such terms and conditions not inconsistent
with the Plan as the Committee shall impose, including the following:


 


(1)  No individual will be granted an ISO
if that individual owns stock of the Company or any of its Subsidiaries possessing
more than ten percent of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, unless the option price shall
not be less than 110% of the Fair Market Value of such stock on the date such
Option is granted and the Option by its terms is not exercisable more than five
years from the date it is granted;


 


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(2)  The aggregate Fair Market Value
(determined at the time the ISO is granted) of the stock with respect to which
ISOs are exercisable for the first time by any Holder during any calendar year
(under all incentive stock option plans of the Company) shall not exceed
$100,000; provided, however, that all or any portion of an Option which cannot
be exercised as an ISO because of such limitation shall be treated as a
nonqualified stock option; and


 


(3)  An ISO that is exercised more than
three months after the Holder ceases to be an employee of the Company or a
“subsidiary corporation” (as defined in Code Section 424(f)) (one year if
the termination of employment was due to “disability” (as defined in Code
Section 22(e)(3)) shall be treated as a nonqualified stock option.
Notwithstanding the foregoing, if the Holder of an ISO dies, the Option shall
continue to be treated as an ISO.


 


e.    STOCK OPTION AGREEMENT.
Each Option granted under the Plan shall be evidenced by a “Stock Option
Agreement” between the Company and the Holder of the Option containing
provisions not inconsistent with the Plan as determined by the Committee, and
shall be subject to the following additional terms and conditions:


 


(1)  Any Option or portion thereof that is
exercisable shall be exercisable for the full amount or for any part thereof,
except as otherwise determined by the Stock Option Agreement.


 


(2)  Each Option shall cease to be
exercisable, as to any share, when the Holder purchases the share or exercises
a related SAR or when the Option lapses.


 


(3)  Leaves of absence, approved by the
Company or a Subsidiary, shall not constitute the Termination of the Holder.


 


f.    EXPIRED OPTIONS. If any
Options awarded under the Plan shall be forfeited, cancelled, or not exercised
in full, the Stock subject to such Options may again be awarded under the Plan.


 


g.    TENDER OFFER OR MERGER.
Notwithstanding any other provision, in the event of a public tender offer for
all or any portion of the Stock or in the event that a proposal to merge,
consolidate, or otherwise combine with, or sell all or a substantial portion of
the assets of the Company or a Subsidiary to, another company is submitted for
shareholder approval, the Committee may in its sole discretion declare any or
all previously granted Options to be immediately exercisable.


 


h.    NON-EMPLOYEE DIRECTOR
FEES. The Board, in its sole discretion, may permit a Non-Employee Director to
elect to receive Options in lieu of director cash fees. Any such elections
shall be subject to such rules and procedures as shall be determined by the
Board in its sole discretion.


 


8.


STOCK
APPRECIATION RIGHTS


 


Any
Option granted under the Plan may include an SAR, either at the time of grant
or by amendment. SARs may also be granted to an Eligible Employee independent
of any prior or contemporaneous Option grant and shall be exercisable as
provided therein without regard to any Option. In addition to such terms and
conditions not inconsistent with the Plan as the Committee shall impose, SARs
shall be subject to the following terms:


 


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a.    RIGHT TO EXERCISE. An SAR
granted with an Option shall be exercisable to the extent and only to the
extent the Option is exercisable. An SAR not included in an Option shall have a
“purchase price” ascribed thereto by the Committee in granting such SAR, which
shall not be less than the Fair Market Value of the Stock on the Date of Grant.


 


b.    PAYMENT. An exercisable
SAR shall entitle the Holder to surrender unexercised the SAR or the Option in
which it is included, as the case may be, or any portion thereof, and, to
receive in exchange therefore that number of shares of Stock having an
aggregate Fair Market Value, as hereinafter defined, equal to the excess of the
Fair Market Value of one share over the purchase price per share specified in
such SAR or Option times the number of shares called for by the SAR or Option,
or portion thereof, which is so surrendered.


 


The
Committee shall be entitled to elect to settle the Company’s obligation arising
out of the exercise of an SAR by the payment of cash or partially by the
payment of cash and partially by the delivery of shares, the total value of
which shall be in either case equal to the aggregate Fair Market Value of the
shares it would otherwise be obligated to deliver. The Committee shall also
have the right to place such limitations and restrictions on the obligation to
make such cash payments or deliver shares under SARs as it, in its sole
discretion, deems to be in the best interest of the Company. The Fair Market
Value for SAR exercise purposes of shares shall be determined on the basis of
prices on the trading day next preceding the date on which the SAR is
exercised. To the extent that an SAR included in an Option is exercised, such
Option shall be deemed to have been exercised, and shall not be deemed to have
lapsed.


 


c.    SPECIAL RULES GOVERNING
SARS. An SAR not included in an Option shall be evidenced by an agreement
between the Company and the Holder in a form approved by the Committee. Any SAR
granted under the Plan shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose, including the
following:


 


(1)  The SAR will lapse no later than the
underlying Option for SARs accompanying an Option or, for freestanding SARs, no
later than 10 years from its Date of Grant;


 


(2)  An SAR accompanying an Option may be
exercised only when the Fair Market Value of the Stock exceeds the option price
of the Stock subject to the SAR.


 


d.    OTHER LIMITATIONS. An SAR
shall be subject to such other limitations as the Committee shall impose.


 


9.


PERFORMANCE
SHARES


 


One
or more Awards of Performance Shares may be made to an Eligible Employee.
Performance Shares shall be credited to a Performance Share account to be
maintained for each such Holder. Each Performance Share shall be deemed to be
the equivalent of one share of Stock of the Company. The Award of Performance
Shares under the Plan shall not entitle the Holder to any interest in or to any
dividend, voting, or other rights of a shareholder. The value of the
Performance Shares in a Holder’s Performance Share account at the time of Award
or the time of payment shall be the Fair Market Value at any such time of an
equivalent number of shares of the Stock (subject to the limitation provided in
Section 9c).


 


If
any Performance Shares awarded under the Plan shall be forfeited, cancelled, or
not paid out in full, such Performance Shares may again be awarded under the
Plan. Shares of Stock delivered upon payment of Performance Shares may be
either treasury shares, shares purchased for the account of the Holder or
authorized and unissued shares, or any combination thereof.


 


a.    AWARD GRANTS. Grants of
Performance Shares may be made by the Committee in any fiscal year during the
term of the Plan. Such shares will be paid out in full or in part on the 


 


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basis
of the Company’s performance in terms of (i) ROE over the Award Period
following the beginning of the Company’s fiscal year in which the Award is made
as hereinafter set forth or (ii) such other criteria as determined by the
Committee. In determining the size of Awards, the Committee shall take into
account a Holder’s responsibility level, performance, potential, cash
compensation level, and the Fair Market Value of the Company’s Stock at the
time of Awards, as well as such other considerations as it deems appropriate.
For purposes of meeting the qualified performance based compensation exception
of Code Section 162(m), such criteria shall be based on one or a
combination of the “Performance Goals.” Performance Goals may be any of the
following: economic value added (“EVA”), operating income before provisions for
LIFO accounting, taxes, contributions to the Company’s profit sharing plan, and
executive bonuses; cash flow return on investment; sales revenue; operating
cash flow; pre-tax earnings; earnings; profit; earnings before taxes; earnings
before interest, depreciation, taxes and amortization; working capital; ROE;
net income; operating income; revenue; earnings per share and stock price,
stock price/earnings; return on assets (or total assets), return on earnings
assets; operating expenses; selling, general and administrative expenses;
inventory (or inventory turnover); debt; profit margin (net income/sales);
accounts receivable (accounts receivable turnover, collection periods);
writeoffs; cash; cost of goods sold; liquidity (current assets/current
liabilities); and debt to equity.


 


Unless
the Award agreement or applicable agreement provides otherwise, in the event
there is a Termination of the Holder during an Award Period, payout would be as
follows:


 


(1)  Normal
Retirement. Payout would be at the end of the Award Period and
prorated for service during the Award Period.


 


(2)  Resignation
or discharge. For resignation with the prior written consent of the
Company or a Subsidiary, the payout would be at the end of the Award Period and
prorated for service during the Award Period. For resignation other than with
such consent (and not constituting Normal Retirement) or for discharge with or
without Cause, the Award would be completely forfeited.


 


(3)  Death
or Disability. Payout would be at the end of the Award Period and
prorated for service during the Award Period.


 


Subject
to Section 12, no Eligible Employee shall receive Performance Shares
during any fiscal year in excess of 300,000 Performance Shares (500,000
Performance Shares in connection with the individual’s initial employment).
Awards cancelled or portions of Awards not paid out in full for any single
Holder shall not be included for purposes of this limitation.


 


b.    RIGHT TO PAYMENT OF
PERFORMANCE SHARES. Following the end of the Award Period, the Holder of a
Performance Share shall be entitled to receive payment of an amount based on
terms of the applicable Award agreement and the achievement of the performance
measures for such Award Period, as determined by the Committee.


 


c.    FORM AND TIMING OF
PAYMENT. No payment of Performance Shares shall be made prior to the end of an
Award Period. Payment therefore shall be made as soon as practicable after the
receipt of audited financial statements relating to the last year of such
period. The payment to which a Holder shall be entitled at the end of an Award
Period shall be a dollar amount equal to the Fair Market Value at the Valuation
Date (as defined in Section 2j(2) hereof) of the number of shares of Stock
equal to the number of Performance Shares earned and payable to him/her in
accordance with Section 9b. Payment shall normally be made one-half in
cash and one-half in Stock; however, the Committee may authorize payment in
such other combinations of cash 


 


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and
Stock or all in cash or all in Stock, as it deems appropriate. Issuance of
Stock shall be subject to the authorization of the Board.


 


The
number of shares of Stock to be paid in lieu of cash will be based on the
quotient of the portion of the payment not paid in cash and the Fair Market
Value of a share of Stock on the date of entitlement.


 


d.    TENDER OFFER OR MERGER.
Notwithstanding any other provision of the Plan, in the event of any public
tender offer for all or any portion of the Stock or in the event that a
proposal to merge, consolidate or otherwise combine with, or sell all or a
substantial portion of the assets of the Company or a Subsidiary to, another
company is submitted for shareholder approval, the Committee may in its sole
discretion declare any Award Period ended as of a specific date and accelerate
full payments of such awards accordingly.


 


10.


RESTRICTED
STOCK AWARDS.


 


a.    RESTRICTION PERIOD TO BE
ESTABLISHED BY THE COMMITTEE. One or more Awards of Restricted Stock may be
made to an Eligible Employee. At the time a Restricted Stock Award is made, the
Committee shall establish a period of time (the “Restriction Period”) applicable
to such Award which shall be not less than one (1) year. Each Restricted
Stock Award may have a different Restriction Period, at the discretion of the
Committee. In the event of a public tender offer for all or any portion of the
Stock or in the event that any proposal to merge, consolidate or otherwise
combine with, or sell all or a substantial portion of the assets of the Company
or a Subsidiary to, another company is submitted for approval, the Committee
may in its sole discretion change or eliminate the Restriction Period. Except
as permitted above or pursuant to Section 12, the Restriction Period
applicable to a particular Restricted Stock Award shall not be changed.


 


b.    OTHER TERMS AND
CONDITIONS. Subject to Section 12, no Eligible Employee shall receive
Restricted Stock Awards during any fiscal year in excess of 300,000 shares of
Stock (500,000 shares of Stock in connection with the individual’s initial
employment). Stock awarded pursuant to a Restricted Stock Award shall be
represented by a stock certificate registered in the name of the Holder of such
Restricted Stock Award. The Holder shall have the right to enjoy all
shareholder rights during the Restriction Period with the exception that:


 


(1)  The Holder shall not be entitled to
delivery of the stock certificate until the Restriction Period shall have
expired and arrangements satisfactory to the Company for the satisfaction of
applicable tax or other withholding shall have been made.


 


(2)  The Company may either issue shares
subject to such restrictive legends and/or stop-transfer instructions as it
deems appropriate or provide for retention of custody of the Stock during the
Restriction Period.


 


(3)  A breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Award shall cause
an immediate forfeiture of the Restricted Stock Award, and any dividends
withheld thereon.


 


(4)  Cash and stock dividends may be
either currently paid or withheld by the Company for the Holder’s account until
the Restriction Period expires. At the discretion of the Committee, interest
may be paid on the amount of cash dividends withheld, including cash dividends
on stock dividends, at a rate and subject to such terms as determined by the
Committee.


 


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At
the discretion of the Committee, Restricted Stock Awards may be granted, or
their Restriction Periods may be based upon, criteria including the Performance
Goals.


 


c.    FORFEITURE PROVISIONS. In
the event there is a Termination of Holder during a Restriction Period, unless
the Award agreement or other applicable agreement provides otherwise, an Award
would be forfeited as follows:


 


(1)  Normal
Retirement. The Award would be prorated for service during the
period and would be received as soon as practicable following retirement.


 


(2)  Resignation
or discharge. For resignation with the prior written consent of the
Company or a Subsidiary, the Award would be prorated for service during the
Award Period and received as soon as practicable following resignation. For
resignation other than with such consent (and not constituting Normal
Retirement) or for discharge with or without Cause, the Award would be
completely forfeited.


 


(3)  Death
or Disability. The Award would be prorated for service during the
Award Period and received as soon as practicable following death or disability.


 


Dividends
withheld by the Company on Restricted Stock that is forfeited shall be retained
by the Company.


 


d.    PAYMENT FOR RESTRICTED
STOCK. A Holder may or may not be required to make any payment for Stock
received pursuant to a Restricted Stock Award.


 


e.    NON-EMPLOYEE DIRECTOR
FORMULA AWARDS. Non-Employee Directors shall be eligible to receive restricted
stock awards as described in this Section 7e from and after the date the
Board has determined to implement this provision.


 


(1)  Upon the conclusion of each regular
annual meeting of the Company’s shareholders following his or her initial
election or appointment, each eligible Non-Employee Director who will continue
serving as a member of the Board thereafter shall receive a restricted stock
award of up to 5,000 shares of Stock (subject to adjustment under
Section 12) or such lesser number of shares as may be determined by the
Board. All Stock granted pursuant to this Section 10e shall vest with
respect to one-third (1⁄3) of the shares on each of the first three
(3) anniversaries of the date of grant, provided the individual has not
sustained a Termination prior to each such vesting date.


 


(2)  All Stock granted to Non-Employee
Directors under this Section 10e shall become vested in full in the event
of a Change in Corporate Control with respect to the Company or upon a
Non-Employee Director’s Normal Retirement.


 


(3)  All Unvested Stock granted to a
Non-Employee Director under this Section 10e shall be forfeited on
Termination (except for Normal Retirement).


 


In
lieu of the restricted stock grants under this Section 10e, the Board in
its discretion may elect to have the Formula Awards issued in the form of
nonqualified stock options (with an option grant value equivalent to that of
the restricted shares as determined by the Company’s stock option pricing
model) with terms and conditions similar to those specified in this
Section 10e.


 


f.    NON-EMPLOYEE DIRECTOR FEES.
The Board, in its sole discretion, may permit a Non-Employee Director to elect
to receive shares of Stock in lieu of director cash fees. Any such


 


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elections
shall be subject to such rules and procedures as shall be determined by the
Board in its sole discretion.


 


11.


GENERAL


 


a.    GOVERNMENT AND OTHER
REGULATIONS. The obligation of the Company to make payment of Awards in Stock
or otherwise shall be subject to all applicable laws, rules, and regulations,
and to such approvals by governmental agencies as may be required. The Company
shall be under no obligation to register under the Securities Act of 1933, as
amended (“Act”), any of the shares of Stock issued under the Plan. If the
shares issued under the Plan may in certain circumstances be exempt from
registration under the Act, the Company may restrict the transfer of such
shares in such manner as it deems advisable to ensure the availability of any
such exemption.


 


b.    TAX WITHHOLDING. The
Company or a Subsidiary, as appropriate, shall have the right to deduct from
all Awards paid in cash any federal, state or local taxes as required by law to
be withheld with respect to such cash payments. In the case of Awards paid in
Stock, the employee or other person receiving such Stock may be required to pay
to the Company or a Subsidiary, as appropriate, the amount of any such taxes
which the Company or Subsidiary is required to withhold with respect to such
Stock. Stock withholding may be permitted in the discretion of the Committee to
cover minimum withholding requirements.


 


c.    CLAIM TO AWARDS AND
EMPLOYMENT RIGHTS. No employee or other person shall have any claim or right to
be granted an Award under the Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any employee any right to be retained in
the employ of the Company or a Subsidiary or limit the right of the Company or
any Subsidiary to terminate an employee at anytime, with or without cause. A
holder of any right hereunder to receive cash or Stock in respect of any Award
shall have no rights other than those of a general unsecured creditor of the
Company. Awards represent unfunded and unsecured obligations of the Company,
subject to the terms and conditions of the applicable Award.


 


d.    BENEFICIARIES. To the
extent that the Committee allows beneficiary designations, any payment of
Awards due under this Plan to a deceased Holder shall be paid to the
beneficiary duly designated by the Holder in accordance with the Company’s
practices. If no such beneficiary has been designated or survives the Holder,
payment shall be made to the Holder’s legal representative. A beneficiary
designation may be changed or revoked by a Holder at any time provided the
change or revocation is filed with the Committee.


 


e.    NONTRANSFERABILITY. Unless
otherwise permitted in the Award agreement and then only to the extent
allowable by applicable law, a person’s rights and interests under the Plan,
including any Award previously made to such person or any amounts payable under
the Plan, may not be assigned, pledged, or transferred except, in the event of
a Holder’s death, to a designated beneficiary as provided in the Plan, or in
the absence of such designation, by will or the laws of descent and distribution,
or, for any Award other than an ISO (or an SAR granted in tandem with an ISO),
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder.


 


f.    INDEMNIFICATION. Each
person who is or shall have been a member of the Committee or of the Board
shall be indemnified and held harmless by the Company from and against any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him/her in connection with or resulting from any claim, action,
suit, or proceeding to which he/she may be a party or in which he/she may be
involved by reason of any action or failure to act under the Plan and against
and from any and all amounts paid by him/her in satisfaction of judgment in 


 


12

















 


any
such action, suit, or proceeding against him/her. He/she shall give the Company
an opportunity, at its own expense, to handle and defend the same before he/she
undertakes to handle and defend it on his/her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s
Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.


 


g.    RELIANCE ON REPORTS. Each
member of the Committee and each member of the Board shall be fully justified
in relying or acting in good faith upon any report made by the independent
public accountant of the Company and its Subsidiaries and upon any other
information furnished in connection with the Plan by any person or persons
other than himself. In no event shall any person who is or shall have been a
member of the Committee or of the Board be liable for any determination made or
other action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information,
or failure to act, if in good faith.


 


h.    RELATIONSHIP TO OTHER
BENEFITS. No payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit sharing, group insurance or
other benefit plan of the Company or any Subsidiary.


 


i.    EXPENSES. The expenses of
administering the Plan shall be borne by the Company and its Subsidiaries.


 


j.    PRONOUNS. Masculine
pronouns and other words of masculine gender shall refer to both men and women.


 


k.    TITLES AND HEADINGS. The
titles and headings of the sections in the Plan are for convenience of
reference only, and in the event of any conflict, the text of the Plan, rather
than such titles or headings, shall control.


 


12.


CHANGES
IN CAPITAL STRUCTURE


 


Options,
SARs, Restricted Stock Awards, Performance Share Awards and any agreements
evidencing such Awards shall be subject to adjustment by the Committee as to
the number and type (or class) and price per share of Stock or other
considerations subject to such Awards in the event of changes in the
outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the Date
of Grant of any such Awards. In the event of any such change in the outstanding
Stock, the aggregate number and type (or class) of shares available under the
Plan (and pursuant to individual to Award limits) shall be appropriately
adjusted by the Committee, whose determination shall be conclusive.


 


13.


AMENDMENTS
AND TERMINATION


 


The
Board may at any time and for any reason terminate the Plan or, with the
express written consent of a Holder for any changes that are detrimental to
such Holder, cancel or reduce or otherwise alter his outstanding Awards
thereunder if, in its judgment, the tax, accounting, or other effects of the
Plan or potential payouts thereunder would not be in the best interest of the
Company. The Board may, at any time, or from time to time, amend or suspend
and, if suspended, reinstate, the Plan in whole or in part, provided, however,
that any amendment of the Plan shall be subject to the approval of the
Company’s shareholders to the extent required by applicable laws, regulations
or rules. The Committee may permit Awards to be 


 


13

















 


granted
in exchange for the cancellation of other Awards. The Committee may permit the
amendment of Awards, subject to the express written consent of a Holder for any
changes that are detrimental to such Holder.


 


14.


GOVERNING
LAW


 


The
Plan shall be governed by, and construed in accordance with, the laws of the
State of California (except its choice-of-law provisions). Capitalized terms
shall have the meaning provided in Section 2 unless otherwise provided in
this Plan or applicable Award agreement.


 


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