EXHIBIT 10.3

 

 

 

 

 

 

 

Sun Healthcare Group, Inc.

2002 Management Equity Incentive Plan

Effective as of February 28, 2002

 

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SUN HEALTHCARE GROUP, INC.

2002 MANAGEMENT EQUITY INCENTIVE PLAN

               1.     **Purpose**.The Sun Healthcare Group, Inc. 2002 Management Equity Incentive Plan (the "Plan")is intended to provide incentives which will attract, retain and motivate highly competentpersons as officers and key employees of, and consultants to, Sun Healthcare Group, Inc.(the "Company") and its subsidiaries and affiliates, by providing themopportunities to acquire shares of the Company's common stock, par value $.01 per share(the "Common Stock") or to receive monetary payments based on the valueof such shares pursuant to the Benefits (as defined in Section 4 below) described herein.Capitalized terms are defined when first used, as described in the Index of Defined Termsat the end of this document.

               2.     **Administration**.

               (a)     Committee.The Plan will be administered by a committee (the "Committee") appointedby the Board of Directors of the Company from among its members (which may be theCompensation Committee) and shall be comprised, unless otherwise determined by theCompany's Board of Directors, solely of not less than two (2) members who shall be(i) "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) (orany successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the"Exchange Act") and (ii) "outside directors" within the meaningof Treasury Regulation Section 1.162-27(e)(3) under Section 162(m) of the Internal RevenueCode of 1986, as amended (the "Code"). 

               (b)     Authority.The Committee is authorized, subject to the provisions of the Plan, to establish suchrules and regulations as it deems necessary for the proper administration of the Plan andto make such determinations and interpretations and to take such action in connection withthe Plan and any Benefits granted hereunder as it deems necessary or advisable. Alldeterminations and interpretations made by the Committee shall be binding and conclusiveon all participants and their legal representatives. 

               (c)     Indemnification.No member of the Committee and no employee of the Company shall be liable for any act orfailure to act hereunder, except in circumstances involving his or her bad faith, grossnegligence or willful misconduct, or for any act or failure to act hereunder by any othermember or employee or by any agent to whom duties in connection with the administration ofthis Plan have been delegated. The Company shall indemnify members of the Committee andany agent of the Committee who is an employee of the Company, a subsidiary or an affiliateagainst any and all liabilities or expenses to which they may be subjected by reason ofany act or failure to act with respect to their duties on behalf of the Plan, except incircumstances involving such person's bad faith, gross negligence or willful misconduct.

               (d)     Delegationand Advisers. The Committee may delegate to one or more of its members, or to one ormore agents, such administrative duties as it may deem 

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advisable, and the Committee, or any person to whom it has delegatedduties as aforesaid, may employ one or more persons to render advice with respect to anyresponsibility the Committee or such person may have under the Plan. The Committee mayemploy such legal or other counsel, consultants and agents as it may deem desirable forthe administration of the Plan and may rely upon any opinion or computation received fromany such counsel, consultant or agent. Expenses incurred by the Committee in theengagement of such counsel, consultant or agent shall be paid by the Company, or thesubsidiary or affiliate whose employees have benefited from the Plan, as determined by theCommittee.

               3.     **Participants**.Participants will consist of such officers and key employees of, and such consultants to,the Company and its subsidiaries and affiliates as the Committee in its sole discretiondetermines to be significantly responsible for the success and future growth andprofitability of the Company and whom the Committee may designate from time to time toreceive Benefits under the Plan. Designation of a participant in any year shall notrequire the Committee to designate such person to receive a Benefit in any other year or,once designated, to receive the same type or amount of Benefit as granted to theparticipant in any other year. The Committee shall consider such factors as it deemspertinent in selecting participants and in determining the type and amount of theirrespective Benefits, including, without limitation, the effectiveness of an individual inlimiting quality of healthcare issues at Company facilities for which a participant has orshares responsibility.

               4.     **Typeof Benefits**. Benefits under the Plan may be granted in any one or a combination of (a)Stock Options, (b) Stock Appreciation Rights, (c) Stock Awards, and (d) Stock Units (eachas described below, and collectively, the "Benefits"). Stock Awards andStock Units may, as determined by the Committee in its discretion, constitutePerformance-Based Awards, as described in Section 10 hereof. Benefits shall beevidenced by agreements (which need not be identical) in such forms as the Committee mayfrom time to time approve; *provided*, *however*, that in the event of anyconflict between the provisions of the Plan and any such agreements, the provisions of thePlan shall prevail.

               5.     **CommonStock Available Under the Plan.**

               (a)     BasicLimitations. The aggregate number of shares of Common Stock that may be subject toBenefits, including Stock Options, granted under this Plan shall be 900,000 shares ofCommon Stock, which may be authorized and unissued or treasury shares, subject to anyadjustments made in accordance with Section 12 hereof. The maximum number of shares ofCommon Stock with respect to which Benefits (including Stock Options and StockAppreciation Rights) may be granted or measured to any individual participant under thePlan during the term of the Plan shall not exceed 600,000 (in each case, subject toadjustments made in accordance with Section 12 hereof).

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               (b)     AdditionalShares. Any shares of Common Stock subject to a Stock Option or Stock AppreciationRight which for any reason is cancelled or terminated without having been exercised, orany shares subject to Stock Awards or Stock Units which are forfeited, or any sharesdelivered to the Company as part or full payment for the exercise of a Stock Option, StockAppreciation Right or Stock Award shall again be available for award as Benefits under thePlan. The preceding sentence shall apply only for purposes of determining the aggregatenumber of shares of Common Stock subject to Benefits but shall not apply for purposes ofdetermining the maximum number of shares of Common Stock with respect to which Benefits(including the maximum number of shares of Common Stock subject to Stock Options and StockAppreciation Rights) may be granted to any individual participant under the Plan.

               (c)     Acquisitions.In connection with the acquisition of any business by the Company or any of itssubsidiaries or affiliates, any outstanding grants, awards or sales of options or othersimilar rights pertaining to such business may be assumed or replaced by Benefits underthe Plan upon such terms and conditions as the Committee determines. The date of any suchgrant or award shall relate back to the date of the initial grant or award being assumedor replaced, and service with the acquired business shall constitute service with theCompany or its subsidiaries or affiliates for purposes of such grant or award. Any sharesof Common Stock underlying any grant or award or sale pursuant to any such acquisitionshall be disregarded for purposes of applying the limitations under and shall not reducethe number of shares of Common Stock available under Section 5(a) above.

               6.     **StockOptions**. 

               (a)     Generally.Stock Options will consist of awards from the Company that will enable the holder topurchase a number of shares of Common Stock, at set terms. Stock Options may be "incentivestock options" ("Incentive Stock Options"), within the meaningof Section 422 of the Code, or Stock Options which do not constitute Incentive StockOptions ("Nonqualified Stock Options"). The Committee will have theauthority to grant to any participant one or more Incentive Stock Options, NonqualifiedStock Options, or both types of Stock Options (in each case with or without StockAppreciation Rights). Each Stock Option shall be subject to such terms and conditionsconsistent with the Plan as the Committee may impose from time to time, subject to thefollowing limitations:

               (b)     ExercisePrice. Each Stock Option granted hereunder shall have such per-share exercise price asthe Committee may determine at the date of grant.

               (c)     Paymentof Exercise Price. The option exercise price may be paid in cash or, in the discretionof the Committee, by the delivery of shares of Common Stock of the Company then owned bythe participant, by the withholding of shares of Common Stock for which a Stock Option isexercisable or by a combination of these methods. In the discretion of the Committee,payment may also be made by delivering a properly executed exercise notice to the Companytogether with a copy of irrevocable instructions

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to a broker to deliver promptly to the Company the amount of sale orloan proceeds to pay the exercise price. To facilitate the foregoing, the Company mayenter into agreements for coordinated procedures with one or more brokerage firms. TheCommittee may prescribe any other method of paying the exercise price that it determinesto be consistent with applicable law and the purpose of the Plan, including, withoutlimitation, in lieu of the exercise of a Stock Option by delivery of shares of CommonStock of the Company then owned by a participant, providing the Company with a notarizedstatement attesting to the number of shares owned, where upon verification by the Company,the Company would issue to the participant only the number of incremental shares to whichthe participant is entitled upon exercise of the Stock Option. 

               (d)     ExercisePeriod. Stock Options granted under the Plan shall be exercisable at such time ortimes and subject to such terms and conditions as shall be determined by the Committee; *provided,however,* that no Stock Option shall be exercisable later than ten (10) years after thedate it is granted except in the event of a participant's death, in which case, theexercise period of such participant's Stock Options may be extended beyond such period butno later than one (1) year after the participant's death. All Stock Options shallterminate at such earlier times and upon such conditions or circumstances as the Committeeshall in its discretion set forth in such option agreement at the date of grant. 

               (e)     Restorationof Stock Options. The Committee may, at the time of grant, provide for the grant of asubsequent Restoration Stock Option if the exercise price is paid for by deliveringpreviously owned shares of Common Stock of the Company. Restoration Stock Options (i) maybe granted in respect of no more than the number of shares of Common Stock tendered inexercising the predecessor Stock Option, (ii) shall have an exercise price equal to theFair Market Value (as defined in Section 15 below) on the date the Restoration StockOption is granted, and (iii) may have an exercise period that does not extend beyond theremaining term of the predecessor Stock Option. In determining which methods a participantmay utilize to pay the exercise price, the Committee may consider such factors as itdetermines are appropriate.

               (f)     Limitationson Incentive Stock Options. Incentive Stock Options may be granted only toparticipants who are employees of the Company or of a "Parent Corporation"or "Subsidiary Corporation" (as defined in Sections 424(e) and (f) of theCode, respectively) at the date of grant. The aggregate Fair Market Value (determined asof the time the Stock Option is granted) of the Common Stock with respect to whichIncentive Stock Options are exercisable for the first time by a participant during anycalendar year (under all option plans of the Company and of any Parent Corporation orSubsidiary Corporation ) shall not exceed one hundred thousand dollars ($100,000). Forpurposes of the preceding sentence, Incentive Stock Options will be taken into account inthe order in which they are granted. The per-share exercise price of an Incentive StockOption shall not be less than one hundred percent (100%) of the Fair Market Value of theCommon Stock on the date of grant, and no Incentive Stock Option may be exercised 

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later than ten (10) years after the date it is granted. In addition, noIncentive Stock Option may be issued to a participant in tandem with a Nonqualified StockOption.

               (g)     AdditionalLimitations on Incentive Stock Options for Ten Percent Shareholders. Incentive StockOptions may not be granted to any participant who, at the time of grant, owns stockpossessing (after the application of the attribution rules of Section 424(d) of the Code)more than ten percent (10%) of the total combined voting power of all classes of stock ofthe Company or any Parent Corporation or Subsidiary Corporation, unless the exercise priceof the option is fixed at not less than one hundred ten percent (110%) of the Fair MarketValue of the Common Stock on the date of grant and the exercise of such option isprohibited by its terms after the expiration of five (5) years from the date of grant ofsuch option. 

               7.     **StockAppreciation Rights**. 

               (a)     Generally.The Committee may, in its discretion, grant Stock Appreciation Rights, including aconcurrent grant of Stock Appreciation Rights in tandem with any Stock Option grant. AStock Appreciation Right means a right to receive a payment in cash, Common Stock or acombination thereof, in an amount equal to the excess of (i) the Fair Market Value, orother specified valuation, of a specified number of shares of Common Stock on the date theright is exercised over (ii) the Fair Market Value, of such shares of Common Stock on thedate the right is granted, or other specified amount, all as determined by the Committee; *provided*,*however*, that if a Stock Appreciation Right is granted in tandem with or insubstitution for a Stock Option, the designated Fair Market Value in the award agreementmay be the Fair Market Value on the date such Stock Option was granted. Each StockAppreciation Right shall be subject to such terms and conditions as the Committee shallimpose from time to time.

               (b)     ExercisePeriod. Stock Appreciation Rights granted under the Plan shall be exercisable at suchtime or times and subject to such terms and conditions as shall be determined by theCommittee; *provided, however,* that no Stock Appreciation Rights shall beexercisable later than ten (10) years after the date it is granted except in the event ofa participant's death, in which case, the exercise period of such participant's StockAppreciation Rights may be extended beyond such period but no later than one (1) yearafter the participant's death. All Stock Appreciation Rights shall terminate at suchearlier times and upon such conditions or circumstances as the Committee shall in itsdiscretion set forth in such right at the date of grant.

               8.     **StockAwards.**
               (a)     Generally.The Committee may, in its discretion, grant Stock Awards (which may include mandatorypayment of any bonus in stock) consisting of Common Stock issued or transferred toparticipants with or without other payments therefor. A Stock Award shall be construed asan offer by the Company to the participant to purchase the number of shares of CommonStock subject to the Stock Award at the purchase price, if any, established therefor. Anyright to acquire the shares under the Stock Award that is 

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not exercised by the participant within thirty (30) days after thegrant is communicated shall automatically expire.

               (b)     Paymentof the Purchase Price. If the Stock Award requires payment therefor, the purchaseprice of any shares of Common Stock subject to a Stock Award may be paid in any mannerauthorized by the Committee, which may include any manner authorized under the Plan forthe payment of the exercise price of a Stock Option. Stock Awards may also be made inconsideration of services rendered to the Company or its subsidiaries or affiliates.

               (c)     AdditionalTerms. Stock Awards may be subject to such terms and conditions as the Committeedetermines appropriate, including, without limitation, restrictions on the sale or otherdisposition of such shares, the right of the Company to reacquire such shares for noconsideration upon termination of the participant's employment within specified periods,and may constitute Performance-Based Awards, as described in Section 10 hereof. TheCommittee may require the participant to deliver a duly signed stock power, endorsed inblank, relating to the Common Stock covered by such an Award. The Committee may alsorequire that the stock certificates evidencing such shares be held in custody or bearrestrictive legends until the restrictions thereon shall have lapsed. 

               (d)     Rightsas a Shareholder. The Stock Award shall specify whether the participant shall have,with respect to the shares of Common Stock subject to a Stock Award, all of the rights ofa holder of shares of Common Stock of the Company, including the right to receivedividends and to vote the shares.

               9.     **StockUnits.**

               (a)     Generally.The Committee may, in its discretion, grant Stock Units (as defined in subsection (d)below) to participants hereunder. The Committee shall determine the criteria for thevesting of Stock Units. Stock Units may constitute Performance-Based Awards, as describedin Section 10 hereof. A Stock Unit granted by the Committee shall provide payment inshares of Common Stock at such time as the award agreement shall specify. Shares of CommonStock issued pursuant to this Section 9 may be issued with or without other paymentstherefor as may be required by applicable law or such other consideration as may bedetermined by the Committee. The Committee shall determine whether a participant granted aStock Unit shall be entitled to a Dividend Equivalent Right (as defined in subsection (d)below).

               (b)     Settlementof Stock Units. Upon vesting of a Stock Unit, unless the Committee has determined todefer payment with respect to such unit or a participant has elected to defer paymentunder subsection (c) below, shares of Common Stock representing the Stock Units shall bedistributed to the participant unless the Committee provides for the payment of the StockUnits in cash equal to the value of the shares of Common Stock which would otherwise bedistributed to the participant or partly in cash and partly in shares of Common Stock.

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               (c)     Deferralof Stock Units. Prior to the year with respect to which a Stock Unit may vest, theparticipant may elect, in accordance with rules prescribed by the Committee, not toreceive a distribution upon the vesting of such Stock Unit and instead have the Companycontinue to maintain the Stock Unit on its books of account. In such event, the value of aStock Unit shall be payable in shares of Common Stock pursuant to the agreement ofdeferral.

               (d)     Definitions.A "Stock Unit" means a notional account representing one (1) share ofCommon Stock. A "Dividend Equivalent Right" means the right to receivethe amount of any dividend paid on the share of Common Stock underlying a Stock Unit,which shall be payable in cash or in the form of additional Stock Units.

               10.     **Performance-BasedAwards**. 

               (a)     Generally.Any Benefits granted under the Plan may be granted in a manner such that the Benefitsqualify for the performance-based compensation exemption of Section 162(m) of the Code("Performance-Based Awards"). As determined by the Committee in its solediscretion, either the granting or vesting of such Performance-Based Awards shall be basedon achievement of hurdle rates and/or growth rates in one or more business criteria thatapply to the individual participant, one or more business units or the Company as a whole.

               (b)     BusinessCriteria. The business criteria shall be as follows, individually or in combination:(i) net earnings; (ii) earnings per share; (iii) net sales growth; (iv) market share;(v) net operating profit; (vi) expense targets; (vii) working capital targetsrelating to inventory and/or accounts receivable; (viii) operating margin; (ix) return onequity; (x) return on assets; (xi) planning accuracy (as measured by comparing plannedresults to actual results); (xii) market price per share; (xiii) total return tostockholders, and (xiv) limiting quality of health care issues at Company facilities. Inaddition, Performance-Based Awards may include comparisons to the performance of othercompanies, such performance to be measured by one or more of the foregoing businesscriteria. 

               (c)     Establishmentof Performance Goals. With respect to Performance-Based Awards, the Committee shallestablish in writing (i) the performance goals applicable to a given period, and suchperformance goals shall state, in terms of an objective formula or standard, the methodfor computing the amount of compensation payable to the participant if such performancegoals are obtained and (ii) the individual employees or class of employees to which suchperformance goals apply no later than ninety (90) days after the commencement of suchperiod (but in no event after twenty-five percent (25%) of such period has elapsed). 

               (d)     Certificationof Performance. No Performance-Based Awards shall be payable to or vest with respectto, as the case may be, any participant for a given period 

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until the Committee certifies in writing that the objective performancegoals (and any other material terms) applicable to such period have been satisfied. 

               (e)     Modificationof Performance-Based Awards. With respect to any Benefits intended to qualify asPerformance-Based Awards, after establishment of a performance goal, the Committee shallnot revise such performance goal or increase the amount of compensation payable thereunder(as determined in accordance with Section 162(m) of the Code) upon the attainment of suchperformance goal. Notwithstanding the preceding sentence, the Committee may reduce oreliminate the number of shares of Common Stock or cash granted or the number of shares ofCommon Stock vested upon the attainment of such performance goal.

               11.     **ForeignLaws**. The Committee may grant Benefits to individual participants who are subject tothe tax laws of nations other than the United States, which Benefits may have terms andconditions as determined by the Committee as necessary to comply with applicable foreignlaws. The Committee may take any action which it deems advisable to obtain approval ofsuch Benefits by the appropriate foreign governmental entity; *provided, however,*that no such Benefits may be granted pursuant to this Section 11 and no action may betaken which would result in a violation of the Exchange Act, the Code or any otherapplicable law.

               12.     **AdjustmentProvisions; Change in Control.**
               (a)     AdjustmentGenerally. If there shall be any change in the Common Stock of the Company, throughmerger, consolidation, reorganization, recapitalization, stock dividend, stock split,reverse stock split, split up, spin-off, combination of shares, exchange of shares,dividend in kind or other like change in capital structure or distribution (other thannormal cash dividends) to stockholders of the Company, an adjustment shall be made to eachoutstanding Stock Option and Stock Appreciation Right such that each such Stock Option andStock Appreciation Right shall thereafter be exercisable for such securities, cash and/orother property as would have been received in respect of the Common Stock subject to suchStock Option or Stock Appreciation Right had such Stock Option or Stock Appreciation Rightbeen exercised in full immediately prior to such change or distribution, and such anadjustment shall be made successively each time any such change shall occur. 

               (b)     Modificationof Benefits. In the event of any change or distribution described in subsection (a)above, in order to prevent dilution or enlargement of participants' rights under the Plan,the Committee will have authority to adjust, in an equitable manner, the number and kindof shares that may be issued under the Plan, the number and kind of shares subject tooutstanding Benefits, the exercise price applicable to outstanding Benefits, and the FairMarket Value of the Common Stock and other value determinations applicable to outstandingBenefits; *provided, however,* that any such arithmetic adjustment to aPerformance-Based Award shall not cause the amount of compensation payable thereunder tobe increased from what otherwise would have been due upon attainment of the unadjustedaward. Appropriate adjustments may also be 

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made by the Committee in the terms of any Benefits under the Plan toreflect such changes or distributions and to modify any other terms of outstandingBenefits on an equitable basis, including modifications of performance targets and changesin the length of performance periods; *provided, however,* that any such arithmeticadjustment to a Performance-Based Award shall not cause the amount of compensation payablethereunder to be increased from what otherwise would have been due upon attainment of theunadjusted award. In addition, other than with respect to Stock Options, StockAppreciation Rights, and other awards intended to constitute Performance-Based Awards, theCommittee is authorized to make adjustments to the terms and conditions of, and thecriteria included in, Benefits in recognition of unusual or nonrecurring events affectingthe Company or the financial statements of the Company, or in response to changes inapplicable laws, regulations, or accounting principles. Notwithstanding the foregoing, (i)each such adjustment with respect to an Incentive Stock Option shall comply with the rulesof Section 424(a) of the Code, and (ii) in no event shall any adjustment be made whichwould render any Incentive Stock Option granted hereunder other than an incentive stockoption for purposes of Section 422 of the Code.

               (c)     Effectof a Change in Control. Notwithstanding any other provision of this Plan, if there isa Change in Control (as defined in subsection (d) below) of the Company, all thenoutstanding Stock Options, Stock Appreciation Rights and Stock Units shall immediatelyvest and become exercisable and any restrictions on Stock Awards or Stock Units shallimmediately lapse. Thereafter, all Benefits shall be subject to the terms of any agreementeffecting the Change in Control, which agreement, may provide, without limitation, thateach Stock Option and Stock Appreciation Right outstanding hereunder shall terminatewithin a specified number of days after notice to the holder, and that such holder shallreceive, with respect to each share of Common Stock subject to such Stock Option or StockAppreciation Right, an amount equal to the excess of the Fair Market Value of such sharesof Common Stock immediately prior to the occurrence of such Change in Control over theexercise price per share underlying such Stock Option or Stock Appreciation Right withsuch amount payable in cash, in one or more kinds of property (including the property, ifany, payable in the transaction) or in a combination thereof, as the Committee, in itsdiscretion, shall determine. A provision like the one contained in the preceding sentenceshall be inapplicable to a Stock Option or Stock Appreciation Right granted within six (6)months before the occurrence of a Change in Control if the holder of such Stock Option orStock Appreciation Right is subject to the reporting requirements of Section 16(a) of theExchange Act and no exception from liability under Section 16(b) of the Exchange Act isotherwise available to such holder.

               (d)     Definitions.For purposes of this Section 12, a "Change in Control" of the Companyshall be deemed to have occurred if any of the following events occurs:

      (i)     Any    "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)    of the Exchange Act), other than a trustee or other fiduciary holding securities under an    employee benefit plan of the Company (an "Acquiring Person"), is or becomes the    "beneficial owner" (as defined in Rule 13d-3 under 

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the Exchange Act), directly or indirectly, of more than 33 1/3% of the    then outstanding voting stock of the Company;

     (ii)     A    merger or consolidation of the Company with any other corporation, other than a merger or    consolidation which would result in the voting securities of the Company outstanding    immediately prior thereto continuing to represent (either by remaining outstanding or by    being converted into voting securities of the surviving entity) at least 51% of the    combined voting power of the voting securities of the Company or surviving entity    outstanding immediately after such merger or consolidation;

     (iii)     A sale    or other disposition by the Company of all or substantially all of the Company's assets;

     (iv)     During    any period of two (2) consecutive years (beginning on or after the Effective Date),    individuals who at the beginning of such period constitute the Board of Directors of the    Company and any new director (other than a director who is a representative or nominee of    an Acquiring Person) whose election by the Company's Board of Directors or nomination for    election by the Company's shareholders was approved by a vote of at least a majority of    the directors then still in office who either were directors at the beginning of the    period or whose election or nomination was previously so approved, no longer constitute a    majority of the Company's Board of Directors;
*provided, however, in no event shall any acquisition of securities,a change in the composition of the Company's Board of Directors or a merger or otherconsolidation pursuant to a plan of reorganization under chapter 11 of the Bankruptcy Codewith respect to the Company ("Chapter 11 Plan"), or a liquidation under theBankruptcy Code constitute a Change in Control. In addition, notwithstanding Sections12(d)(1), 12(d)(2), 12(d)(3) and 12(d)(4) hereof, a Change in Control shall not be deemedto have occurred in the event of a sale or conveyance in which the Company continues as aholding company of an entity or entities that conduct the business or businesses formerlyconducted by the Company, or any transaction undertaken for the purpose of reincorporatingthe Company under the laws of another jurisdiction, if such transaction does notmaterially affect the beneficial ownership of the Company's capital stock.

               13.     **Nontransferability**.Each Benefit granted under the Plan to a participant shall not be transferable otherwisethan by will or the laws of descent and distribution, and shall be exercisable, during theparticipant's lifetime, only by the participant. In the event of the death of aparticipant, each Stock Option or Stock Appreciation Right theretofore granted to him orher shall be exercisable during such period after his or her death as the Committee shallin its discretion set forth in such option or right at the date of grant and then only bythe executor or administrator of the estate of the deceased participant or the person orpersons to whom the deceased participant's rights under the Stock Option or StockAppreciation Right shall pass by will or the laws of descent and distribution.Notwithstanding the foregoing, at the discretion of the Committee, an award of a Benefitother than an Incentive Stock Option may permit the transferability of a 

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Benefit by a participant solely to the participant's spouse, siblings,parents, children and grandchildren or trusts for the benefit of such persons orpartnerships, corporations, limited liability companies or other entities owned solely bysuch persons, including trusts for such persons, subject to any restriction included inthe award of the Benefit.

               14.     **OtherProvisions**. The award of any Benefit under the Plan may also be subject to such otherprovisions (whether or not applicable to the Benefit awarded to any other participant) asthe Committee determines appropriate, including, without limitation, for the installmentpurchase of Common Stock under Stock Options, for the installment exercise of StockAppreciation Rights, to assist the participant in financing the acquisition of CommonStock, for the forfeiture of, or restrictions on resale or other disposition of, CommonStock acquired under any form of Benefit, for the acceleration of exercisability orvesting of Benefits in the event of a change in control of the Company, for the payment ofthe value of Benefits to participants in the event of a change in control of the Company,or to comply with federal and state securities laws, or understandings or conditions as tothe participant's employment in addition to those specifically provided for under thePlan.

               15.     **FairMarket Value**. For purposes of this Plan and any Benefits awarded hereunder, FairMarket Value shall be the closing price of the Company's Common Stock on the date ofcalculation (or on the last preceding trading date if Common Stock was not traded on suchdate) if the Company's Common Stock is readily tradable on a national securities exchangeor other market system, and if the Company's Common Stock is not readily tradable, FairMarket Value shall mean the amount determined in good faith by the Committee as the fairmarket value of the Common Stock of the Company.

               16.     **Withholding**.All payments or distributions of Benefits made pursuant to the Plan shall be net of anyamounts required to be withheld pursuant to applicable federal, state and local taxwithholding requirements. If the Company proposes or is required to distribute CommonStock pursuant to the Plan, it may require the recipient to remit to it or to thecorporation that employs such recipient an amount sufficient to satisfy such taxwithholding requirements prior to the delivery of any certificates for such Common Stock.In lieu thereof, the Company or the employing corporation shall have the right to withholdthe amount of such taxes from any other sums due or to become due from such corporation tothe recipient as the Committee shall prescribe. The Committee may, in its discretion andsubject to such rules as it may adopt (including any as may be required to satisfyapplicable tax and/or non-tax regulatory requirements), permit an optionee or award orright holder to pay all or a portion of the federal, state and local withholding taxesarising in connection with any Benefit consisting of shares of Common Stock by electing tohave the Company withhold shares of Common Stock having a Fair Market Value equal to theamount of tax to be withheld, such tax calculated at rates required by statute orregulation.

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               17.     **Tenure**.A participant's right, if any, to continue to serve the Company or any of its subsidiariesor affiliates as an officer, employee, or otherwise, shall not be enlarged or otherwiseaffected by his or her designation as a participant under the Plan.

               18.     **UnfundedPlan**. Participants shall have no right, title, or interest whatsoever in or to anyinvestments which the Company may make to aid it in meeting its obligations under thePlan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shallcreate or be construed to create a trust of any kind, or a fiduciary relationship betweenthe Company and any participant, beneficiary, legal representative or any other person. Tothe extent that any person acquires a right to receive payments from the Company under thePlan, such right shall be no greater than the right of an unsecured general creditor ofthe Company. All payments to be made hereunder shall be paid from the general funds of theCompany and no special or separate fund shall be established and no segregation of assetsshall be made to assure payment of such amounts except as expressly set forth in the Plan.The Plan is not intended to be subject to the Employee Retirement Income Security Act of1974, as amended.

               19.     **NoFractional Shares**. No fractional shares of Common Stock shall be issued or deliveredpursuant to the Plan or any Benefit. The Committee shall determine whether cash, orBenefits, or other property shall be issued or paid in lieu of fractional shares orwhether such fractional shares or any rights thereto shall be forfeited or otherwiseeliminated.

               20.     **Duration,Amendment and Termination**. No Benefit shall be granted more than ten (10) years afterthe Effective Date. The Committee may amend the Plan from time to time or suspend orterminate the Plan at any time. No amendment of the Plan may be made without approval ofthe majority of the stockholders of the Company if the amendment will: (i) disqualify anyIncentive Stock Options granted under the Plan; (ii) increase the aggregate number ofshares of Common Stock that may be delivered through Stock Options under the Plan;(iii) increase either of the maximum amounts which can be paid to an individualparticipant under the Plan as set forth in Section 5 hereof; (iv) change the types ofbusiness criteria on which Performance-Based Awards are to be based under the Plan; or(v) modify the requirements as to eligibility for participation in the Plan.

               21.     **GoverningLaw**. This Plan, Benefits granted hereunder and actions taken in connection herewithshall be governed and construed in accordance with the laws of the State of Delaware(regardless of the law that might otherwise govern under applicable Delaware principles ofconflict of laws).

               22.     **EffectiveDate**. The Plan shall be effective as of [ ], the date the date the Company emergesfrom the bankruptcy it filed under title 11, chapter 11 of the United States Code (the"Effective Date"), provided that the Plan is approved by a majority ofthe stockholders of the Company within twelve (12) months of the Effective Date, and suchapproval of stockholders shall be a condition to the right of each 

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participant to receive any Benefits hereunder. Any Benefits grantedunder the Plan prior to such approval of stockholders shall be effective as of the date ofgrant (unless, with respect to any Benefit, the Committee specifies otherwise at the timeof grant), but no such Benefit may be exercised or settled and no restrictions relating toany Benefit may lapse prior to such stockholder approval, and if stockholders fail toapprove the Plan as specified hereunder, any such Benefit shall be cancelled.

 

 

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**Index of Defined Terms****Term**Section Where Defined or First Used
Acquiring Person
12(d)(i)
Beneficial Owner
12(d)(i)
Benefits
4
Change in Control
12(d)
Chapter 11 Plan
12(d)
Code
2(a)
Committee
2(a)
Common Stock
1
Company
1
Dividend Equivalent Right
10(d)
Effective Date
22
Exchange Act
2(a)
Fair Market Value
15
Incentive Stock Option
6(a)
Non-Employee Director
2(a)
Nonqualified Stock Option
6(a)
Parent Corporation
6(f)
Performance-Based Awards
10(a)
Plan
1
Restoration Stock Options
6(e)
Stock Appreciation Rights
7
Stock Award
8
Stock Options
6
Stock Unit
9(d)
Subsidiary Corporation
6(f)
 

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