**Exhibit 10.1**

 

FRIENDLY ICE CREAMCORPORATION

 

2003 INCENTIVE PLAN

 

 

As Amended onJuly 23, 2003

 

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FRIENDLY ICECREAM CORPORATION2003 INCENTIVE PLAN

 

SECTION 1GENERAL

 

1.1                                 Purpose. The Friendly Ice Cream Corporation 2003 Incentive Plan (the “Plan”) hasbeen established by Friendly Ice Cream Corporation (the “Company”) to (i)attract and retain persons eligible to participate in the Plan; (ii) motivateParticipants, by means of appropriate incentives, to achieve long-range goals;(iii) provide incentive compensation opportunities that are competitive withthose of other similar companies; and (iv) further align Participants’interests with those of the Company’s other shareholders through compensationthat is based on the growth in value of the Company’s equity and achievement offactors that contribute to the enhancement of long-term shareholder return.

 

1.2                                 Participation. Subject to the terms and conditions of the Plan, the Committee shalldetermine and designate, from time to time, from among the Eligible Individuals(including transferees of Eligible Individuals to the extent the transfer ispermitted by the Plan and the applicable Award Agreement), those persons whowill be granted one or more Awards under the Plan, and thereby become“Participants” in the Plan.

 

1.3                                 Operation, Administration, and Definitions.  The operation and administration of thePlan, including the Awards made under the Plan, shall be subject to theprovisions of Section 5 (relating to operation and administration).Capitalized terms in the Plan shall be defined as set forth in the Plan(including the definition provisions of Section 8).

 

SECTION 2

 

OPTIONS AND SARS

 

2.1                                 Definitions.

 

(a)                                  Thegrant of an “Option” entitles the Participant to purchase shares of Stock at anExercise Price established by the Committee. Any Option granted under thisSection 2 may be either an incentive stock option (an “ISO”) or anon-qualified option (an “NQO”), as determined in the discretion of theCommittee. An “ISO” is an Option that is intended to satisfy the requirementsapplicable to an “incentive stock option” described in section 422(b) ofthe Code. An ISO may only be granted to an Employee. An “NQO” is an Option thatis not intended to be an “incentive stock option” as that term is described insection 422(b) of the Code.

 

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(b)                                 Astock appreciation right (an “SAR”) entitles the Participant to receive, incash or Stock (as determined in accordance with subsection 2.5), valueequal to (or otherwise based on) the excess of: (a) the Fair Market Value of aspecified number of shares of Stock at the time of exercise; over (b) anExercise Price established by the Committee.

 

2.2                                 Exercise Price. The “Exercise Price” of each Option and SAR granted under thisSection 2 shall be established by the Committee or shall be determined bya method established by the Committee at the time the Option or SAR is granted;provided that the Exercise Price shall not be less than 100% of the Fair MarketValue of a share of Stock on the date of grant (or, if greater, the par valueof a share of Stock).

 

2.3                                 Exercise. An Option and an SAR shall be exercisable in accordance with such termsand conditions and during such periods as may be established by the Committee.

 

2.4                                 Payment of Option Exercise Price.  The payment of the Exercise Price of anOption granted under this Section 2 shall be subject to the following:

 

(a)                                  Subjectto the following provisions of this subsection 2.4, the full ExercisePrice for shares of Stock purchased upon the exercise of any Option shall bepaid at the time of such exercise (except that, in the case of an exercisearrangement approved by the Committee and described in paragraph 2.4(c),payment may be made as soon as practicable after the exercise).

 

(b)                                 TheExercise Price shall be payable in cash, by promissory note (if permitted bylaw), or by tendering, by either actual delivery of shares or by attestation,shares of Stock acceptable to the Committee, and valued at Fair Market Value asof the day of exercise, or in any combination thereof, as determined by theCommittee.

 

(c)                                  TheCommittee may permit a Participant to elect to pay the Exercise Price upon theexercise of an Option by irrevocably authorizing a third party to sell sharesof Stock (or a sufficient portion of the shares) acquired upon exercise of theOption and remit to the Company a sufficient portion of the sale proceeds topay the entire Exercise Price and any tax withholding resulting from suchexercise.

 

2.5                                 Settlement of Award.  Settlement of Options and SARs is subject to subsection 5.7.

 

2.6                                 Repricing. Except for either adjustments pursuant to paragraph 5.2(f) (relating tothe adjustment of shares), or decreases approved by the Company’s stockholders,the Exercise Price for any outstanding Option granted under the Plan may not bedecreased after the date of grant nor may an outstanding Option granted underthe Plan be surrendered to the Company as consideration for the grant of a newOption with a lower exercise price in a transaction which would constitute arepricing for accounting purposes.

 

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SECTION 3

 

OTHER AWARDS

 

3.1                                 Definitions.

 

(a)                                  A“Bonus Stock” Award is a grant of shares of Stock in return for previouslyperformed services, or in return for the Participant surrendering rights toother compensation that may be due.

 

(b)                                 A“Stock Unit” Award is the grant of a right to receive shares of Stock in thefuture.

 

(c)                                  A“Performance Share” Award is a grant of a right to receive shares of Stock orStock Units which is contingent on the achievement of performance or otherobjectives during a specified period.

 

(d)                                 A“Performance Unit” Award is a grant of a right to receive a designated dollarvalue which is contingent on the achievement of performance or other objectivesduring a specified period, the settlement of which may be in the form of cash,Stock or any combination thereof.

 

(e)                                  A“Restricted Stock” Award is a grant of shares of Stock, and a “Restricted StockUnit” Award is the grant of a right to receive shares of Stock in the future,with such shares of Stock or right to future delivery of such shares of Stocksubject to a risk of forfeiture or other restrictions that will lapse upon theachievement of one or more goals relating to completion of service by the Participant,or achievement of performance or other objectives, as determined by theCommittee.

 

3.2                                 Restrictions on Awards.  Each Bonus Stock Award, Stock Unit Award, Restricted Stock Award,Restricted Stock Unit Award, Performance Share Award, and Performance UnitAward shall be subject to the following:

 

(a)                                  Anysuch Award shall be subject to such conditions, restrictions and contingenciesas the Committee shall determine.

 

(b)                                 TheCommittee may designate whether any such Award being granted to any Participantis intended to be “performance-based compensation” as that term is used insection 162(m) of the Code. Any such Awards designated as intended to be“performance-based compensation” shall be conditioned on the achievement of oneor more Performance Measures, to the extent required by Codesection 162(m). The Performance Measures shall be established in writingby the Committee not later than 90 days after the beginning of the performanceperiod (but in no event after 25% of the performance period has elapsed), andwhile the outcome as to the performance goals is substantially uncertain. Theperformance goals established by the Committee may be with respect to corporateperformance, operating group or sub-group performance, individual companyperformance, other group or individual performance, or division performance,

 

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shall be basedon one or more of the Performance Measures, may be measured gross or net andmay be on a total or per share basis. The “Performance Measures” that may be used by the Committee for suchAwards shall be based on any one or more of the following, as selected by theCommittee: earnings (e.g., earnings before income taxes, or “EBIT”; earningsbefore income taxes, depreciation and amortization, or “EBITDA”; earnings pershare, or “EPS”), financial return ratios (e.g., return on investment, or“ROI”; return on invested capital, or “ROIC”; return on equity, or “ROE”),revenue, operating or net cash flows, total shareholder return, market share,operating income or net income, debt load reduction, expense management, stockprice and strategic business objectives, consisting of one or more objectivesbased on meeting specific cost targets, business expansion goals and goalsrelating to acquisitions or divestitures.

 

(c)                                  ForAwards under this Section 3 which are intended to be “performance-basedcompensation,” the grant of the Awards and the establishment of the PerformanceMeasures shall be made during the period required under Code section 162(m).

 

(d)                                 Ifthe right to become vested in a Restricted Stock Award or Restricted Stock UnitAward granted under this Section 3 is conditioned on the completion of aspecified period of service with the Company or the Subsidiaries, withoutachievement of Performance Measures or other performance objectives beingrequired as a condition of vesting, and without it being granted in lieu ofother compensation, then the required period of service for full vesting shallbe not less than three years (subject to acceleration of vesting, to the extentpermitted by the Committee, in the event of a change in control or theParticipant’s death, disability, retirement, or involuntary termination).

 

(e)                                  Uponthe occurrence of significant events or changes that occur during theperformance period, the Committee shall have the sole discretion to determinewhether any revision to the Performance Measures should be made; provided,however, that if the Award is intended to satisfy the requirements for“performance-based compensation,” any such revisions occurring after theestablishment of the Performance Measures may not result in an increase in theamount of settlement of the Award.

 

(f)                                    Exceptas otherwise provided by the Committee, if a Participant’s employmentterminates because of death or disability, or if a Change in Control occursprior to the Participant’s termination of employment, the Participant’sPerformance Unit Award shall become vested without regard to whether such Awardwould be performance-based compensation, based on a target level performance,or as otherwise provided by the Committee in the Award Agreement.

 

(g)                                 Nothingin this Section 3 shall preclude the Committee, the Company, or anySubsidiary from granting performance Awards that are not intended to be“performance-based compensation”; provided, however, that, at the time of grantof performance Awards by the Committee, the Committee shall designate whethersuch amounts are intended to constitute “performance-based compensation.” To

 

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the extentthat the provisions of this Section 3 reflect the requirements applicableto performance-based compensation, such provisions shall not apply to theportion of the award, if any, which is not intended to satisfy theperformance-based compensation requirements.

 

SECTION 4

 

OPERATION AND ADMINISTRATION

 

4.1                                 Effective Date. Subject to the approval of the shareholders of the Company at theCompany’s 2003 annual meeting of its shareholders, the Plan shall be effective asof March 30, 2003 (the “Effective Date”); provided, however, that to theextent that Awards are granted under the Plan prior to its approval byshareholders, the Awards shall be contingent on approval of the Plan by theshareholders of the Company at such annual meeting. The Plan shall be unlimitedin duration and, in the event of Plan termination, shall remain in effect aslong as any Awards under it are outstanding; provided, however, that no Awardsmay be granted under the Plan after the ten-year anniversary of the EffectiveDate (except for Awards granted pursuant to commitments entered into prior tosuch ten-year anniversary).

 

4.2                                 Shares Subject to Plan.  The shares of Stock for which Awards may be granted under thePlan shall be subject to the following:

 

(a)                                  Theshares of Stock with respect to which Awards may be made under the Plan shallbe shares currently authorized but unissued or currently held or, to the extentpermitted by applicable law, subsequently acquired by the Company as treasuryshares, including shares purchased in the open market or in privatetransactions.

 

(b)                                 Subjectto the following provisions of this subsection 4.2, the maximum number ofshares of Stock that may be delivered to Participants and their beneficiariesunder the Plan shall be 307,000 shares of Stock.

 

(c)                                  Tothe extent provided by the Committee, any Award may be settled in cash ratherthan Stock. To the extent any shares of Stock covered by an Award are notdelivered to a Participant or beneficiary because the Award is forfeited orcanceled, or the shares of Stock are not delivered because the Award is settledin cash or used to satisfy the applicable tax withholding obligation, suchshares shall not be deemed to have been delivered for purposes of determiningthe maximum number of shares of Stock available for delivery under the Plan.

 

(d)                                 Ifthe exercise price of any stock option granted under the Plan is satisfied bytendering shares of Stock to the Company (by either actual delivery or byattestation), only the number of shares of Stock issued net of the shares ofStock tendered shall be deemed delivered for purposes of determining themaximum number of shares of Stock available for delivery under the Plan.

 

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(e)                                  Subjectto paragraph 4.2(f), the following additional maximums are imposed under thePlan.

 

(i)                                     Themaximum number of shares of Stock that may be issued pursuant to Optionsintended to be ISOs shall be 307,000****shares.

 

(ii)                                  Themaximum number of shares that may be covered by Awards granted to any oneindividual pursuant to Section 2 (relating to Options and SARs) shall be****150,000shares during any calendar year. If an Option is in tandem with an SAR, suchthat the exercise of the Option or SAR with respect to a share of Stock cancelsthe tandem SAR or Option right, respectively, with respect to such share, thetandem Option and SAR rights with respect to each share of Stock shall becounted as covering but one share of Stock for purposes of applying the limitationsof this paragraph (ii).

 

(iii)                               Themaximum number of shares of Stock that may be issued in conjunction with Awardsgranted pursuant to Section 3 (relating to Other Stock Awards) shall be150,000 shares.

 

(iv)                              ForBonus Stock Awards, Stock Unit Awards, Restricted Stock Awards, RestrictedStock Unit Awards and Performance Share Awards that are intended to be“performance-based compensation” (as that term is used for purposes of Codesection 162(m)), no more than 75,000 shares of stock may be subject to suchAwards granted to any one individual during any calendar year.  If, after shares have been earned, thedelivery is deferred, any additional shares attributable to dividends duringthe deferral period shall be disregarded.

 

(v)                                 ForPerformance Unit Awards that are intended to be “performance-basedcompensation” (as that term is used for purposes of Code section 162(m)),no more than $3,000,000 may be subject to such Awards granted to any oneindividual during any calendar year. If, after amounts have been earned withrespect to Performance Unit Awards, the delivery of such amounts is deferred,any additional amounts attributable to earnings on deferred amounts during thedeferral period shall be disregarded

 

(vi)                              Themaximum number of shares that may be covered by Awards granted to any oneindividual non-employee director pursuant to Section 2 (relating toOptions and SARs) shall be 75,000 shares during any calendar year and themaximum number of shares that may be covered by Awards granted to any one individualnon-employee director pursuant to Section 3 (relating to Other StockAwards) shall be 37,500 shares during any calendar year.

 

(f)                                    Inthe event of a corporate transaction involving the Company (including, withoutlimitation, any stock dividend, stock split, reverse stock split, extraordinarycash dividend, recapitalization, reorganization, merger, consolidation,split-up, spin-off,

 

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combination or exchange of shares), theCommittee may adjust Awards to preserve the benefits or potential benefits ofthe Awards. Action by the Committee may include: (i) adjustment of the numberand kind of shares which may be delivered under the Plan; (ii) adjustment ofthe number and kind of shares subject to outstanding Awards; (iii) adjustmentof the Exercise Price of outstanding Options and SARs; and (iv) any otheradjustments that the Committee determines to be equitable (which may include,without limitation, (I) replacement of Awards with other Awards which the Committeedetermines have comparable value and which are based on stock of a companyresulting from the transaction, and (II) cancellation of the vested andunvested portion of such Award in return for cash payment of the current valueof Award, determined as though the Award is fully vested at the time ofpayment, provided that in the case of an Option, the amount of such payment maybe the excess of value of the Stock subject to the Option at the time of thetransaction over the exercise price).

 

4.3                                 General Restrictions.  Delivery of shares of Stock or other amounts under the Plan shallbe subject to the following:

 

(a)                                  Notwithstandingany other provision of the Plan, the Company shall have no liability to deliverany shares of Stock under the Plan or make any other distribution of benefitsunder the Plan unless such delivery or distribution would comply with allapplicable laws (including, without limitation, the requirements of theSecurities Act of 1933), and the applicable requirements of any securities exchangeor similar entity.

 

(b)                                 Tothe extent that the Plan provides for issuance of stock certificates to reflectthe issuance of shares of Stock, the issuance may be effected on anon-certificated basis, to the extent not prohibited by applicable law or theapplicable rules of any stock exchange.

 

4.4                                 Tax Withholding. All distributions under the Plan are subject to withholding of allapplicable taxes, and the Committee may condition the delivery of any shares orother benefits under the Plan on satisfaction of the applicable withholdingobligations. Except as otherwise provided by the Committee, such withholdingobligations may be satisfied (i) through cash payment by the Participant (or bysuch third party as may be permitted in Section 2.4(c)); (ii) through thesurrender of shares of Stock which the Participant already owns (provided,however, that to the extent shares described in this clause (ii) are used tosatisfy more than the minimum statutory withholding obligation, as describedbelow, then, except as otherwise provided by the Committee, payments made withshares of Stock in accordance with this clause (ii) above shall be limited toshares held by the Participant for not less than six months prior to thepayment date); or (iii) through the surrender of shares of Stock to which theParticipant is otherwise entitled under the Plan; provided, however, that suchshares under this clause (iii) may be used to satisfy not more than theCompany’s minimum statutory withholding obligation (based on minimum statutorywithholding rates for Federal and state tax purposes, including payroll taxes,that are applicable to such supplemental taxable income).

 

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4.5                                 Grant and Use of Awards.  In the discretion of the Committee, aParticipant may be granted any Award permitted under the provisions of thePlan, and more than one Award may be granted to a Participant. Awards may begranted as alternatives to or replacement of awards granted or outstandingunder the Plan, or any other plan or arrangement of the Company or a Subsidiary(including a plan or arrangement of a business or entity, all or a portion ofwhich is acquired by the Company or a Subsidiary). Subject to the overalllimitation on the number of shares of Stock that may be delivered under thePlan, the Committee may use available shares of Stock as the form of paymentfor compensation, grants or rights earned or due under any other compensationplans or arrangements of the Company or a Subsidiary, including the plans andarrangements of the Company or a Subsidiary assumed in business combinations.

 

4.6                                 Dividends and Dividend Equivalents.  An Award (including without limitation anOption or SAR Award) may provide the Participant with the right to receivedividend payments or dividend equivalent payments with respect to Stock subjectto the Award (both before and after the Stock subject to the Award is earned,vested, or acquired), which payments may be either made currently or creditedto an account for the Participant, and may be settled in cash or Stock, asdetermined by the Committee. Any such settlements, and any such crediting ofdividends or dividend equivalents or reinvestment in shares of Stock, may besubject to such conditions, restrictions and contingencies as the Committeeshall establish, including the reinvestment of such credited amounts in Stockequivalents.

 

4.7                                 Settlement of Awards.  The obligation to make payments and distributions with respect toAwards may be satisfied through cash payments, the delivery of shares of Stock,the granting of replacement Awards, or any combination thereof as the Committeeshall determine. Satisfaction of any such obligations under an Award, which issometimes referred to as “settlement” of the Award, may be subject to suchconditions, restrictions and contingencies as the Committee shall determine.The Committee may permit or require the deferral of any Award payment, subjectto such rules and procedures as it may establish, which may include provisionsfor the payment or crediting of interest or dividend equivalents, and mayinclude converting such credits into deferred Stock equivalents. EachSubsidiary shall be liable for payment of cash due under the Plan with respectto any Participant to the extent that such benefits are attributable to theservices rendered for that Subsidiary by the Participant. Any disputes relatingto liability of a Subsidiary for cash payments shall be resolved by theCommittee.

 

4.8                                 Transferability. Except as otherwise provided by the Committee, Awards under the Plan arenot transferable except as designated by the Participant by will or by the lawsof descent and distribution.

 

4.9                                 Form and Time of Elections.  Unless otherwise specified herein, eachelection required or permitted to be made by any Participant or other personentitled to benefits under the Plan, and any permitted modification, orrevocation thereof, shall be in writing filed with the Committee at such times,in such form, and subject to such restrictions and limitations, not inconsistentwith the terms of the Plan, as the Committee shall require.

 

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4.10                           Agreement With Company.  An Award under the Plan shall be subject to such terms andconditions, not inconsistent with the Plan, as the Committee shall, in its solediscretion, prescribe. The terms and conditions of any Award to any Participantshall be reflected in such form of written document as is determined by theCommittee. A copy of such document shall be provided to the Participant, andthe Committee may, but need not, require that the Participant sign a copy ofsuch document. Such document is referred to in the Plan as an “Award Agreement”regardless of whether any Participant signature is required.

 

4.11                           Action by Company or Subsidiary.  Any action required or permitted to be takenby the Company or any Subsidiary shall be by resolution of its board ofdirectors, or by action of one or more members of the board (including acommittee of the board) who are duly authorized to act for the board, or(except to the extent prohibited by applicable law or applicable rules of anystock exchange) by a duly authorized officer of such company.

 

4.12                           Gender and Number.  Where the context admits, words in any gender shall include anyother gender, words in the singular shall include the plural and the pluralshall include the singular.

 

4.13                           Limitation of Implied Rights.

 

(a)                                  Neithera Participant nor any other person shall, by reason of participation in thePlan, acquire any right in or title to any assets, funds or property of theCompany or any Subsidiary whatsoever, including, without limitation, anyspecific funds, assets, or other property which the Company or any Subsidiary,in its sole discretion, may set aside in anticipation of a liability under thePlan. A Participant shall have only a contractual right to the Stock oramounts, if any, payable under the Plan, unsecured by any assets of the Companyor any Subsidiary, and nothing contained in the Plan shall constitute aguarantee that the assets of the Company or any Subsidiary shall be sufficientto pay any benefits to any person.

 

(b)                                 ThePlan does not constitute a contract of employment, and selection as aParticipant will not give any participating employee the right to be retainedin the employ of the Company or any Subsidiary, nor any right or claim to anybenefit under the Plan, unless such right or claim has specifically accruedunder the terms of the Plan. Except as otherwise provided in the Plan, no Awardunder the Plan shall confer upon the holder thereof any rights as a shareholderof the Company prior to the date on which the individual fulfills allconditions for receipt of such rights and is issued shares.

 

4.14                           Evidence. Evidence required of anyone under the Plan may be by certificate,affidavit, document or other information which the person acting on itconsiders pertinent and reliable, and signed, made or presented by the properparty or parties.

 

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SECTION 5

 

CHANGE IN CONTROL

 

Subject to the provisions of paragraph 4.2(f)(relating to the adjustment of shares), and except as otherwise provided in thePlan or the Award Agreement reflecting the applicable Award:

 

(a)                                  Ifa Participant who is employed by the Company or an Affiliate at the time of aChange in Control then holds one or more outstanding Options, all such Options(regardless of whether in tandem with SARs) then held by the Participant shallbecome fully exercisable on and after the date of the Change in Control(subject to the expiration provisions otherwise applicable to the Options), andany Stock purchased by the Participant under such Option following such Changein Control shall be fully vested upon exercise.

 

(b)                                 Ifa Participant who is employed by the Company or an Affiliate at the time of aChange in Control then holds one or more outstanding SARs, all such SARs(regardless of whether in tandem with Options) then held by the Participantshall become fully exercisable on and after the date of the Change in Control(subject to the expiration provisions otherwise applicable to the SARs), andany cash or stock acquired by the Participant under such SAR following suchChange in Control shall be fully vested upon exercise.

 

(c)                                  Ifa Participant who is employed by the Company or an Affiliate at the time of aChange in Control then holds one or more shares of Bonus Stock, Stock Units,Restricted Stock, Restricted Stock Units, Performance Shares, or PerformanceUnits, all such Bonus Stock, Restricted Stock, Performance Shares, and unitsshall become fully vested on the date of the Change in Control; provided that,if the amount of the award or the vesting is to be determined based on thelevel of performance achieved, the target level of performance shall be deemedto have been achieved.

 

SECTION 6

 

COMMITTEE

 

6.1                                 Administration. The authority to control and manage the operation and administration ofthe Plan shall be vested in a committee (the “Committee”) in accordance withthis Section 6. The Committee shall be selected by the Board, and shallconsist solely of two or more members of the Board who are not employees of theCompany or any Subsidiary. If the Committee does not exist, or for any otherreason determined by the Board, the Board may take any action under the Planthat would otherwise be the responsibility of the Committee.

 

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6.2                                 Powers of Committee.  The Committee’s administration of the Plan shall be subject tothe following:

 

(a)                                  Subjectto the provisions of the Plan, the Committee will have the authority anddiscretion to select from among the Eligible Individuals those persons whoshall receive Awards, to determine the time or times of receipt, to determinethe types of Awards and the number of shares covered by the Awards, toestablish the terms, conditions, performance criteria, restrictions, and otherprovisions of such Awards, and (subject to the restrictions imposed bySection 7) to cancel or suspend Awards.

 

(b)                                 Tothe extent that the Committee determines that the restrictions imposed by thePlan preclude the achievement of the material purposes of the Awards injurisdictions outside the United States, the Committee will have the authorityand discretion to modify those restrictions as the Committee determines to benecessary or appropriate to conform to applicable requirements or practices ofjurisdictions outside of the United States.

 

(c)                                  TheCommittee will have the authority and discretion to interpret the Plan, toestablish, amend, and rescind any rules and regulations relating to the Plan,to determine the terms and provisions of any Award Agreement made pursuant tothe Plan, and to make all other determinations that may be necessary oradvisable for the administration of the Plan.

 

(d)                                 Anyinterpretation of the Plan by the Committee and any decision made by it underthe Plan is final and binding on all persons.

 

(e)                                  Incontrolling and managing the operation and administration of the Plan, theCommittee shall take action in a manner that conforms to the articles andby-laws of the Company, applicable state corporate law and applicable stockexchange requirements.

 

6.3                                 Delegation by Committee.  Except to the extent prohibited byapplicable law or the applicable rules of a stock exchange, the Committee mayallocate all or any portion of its responsibilities and powers to any one ormore of its members and may delegate all or any part of its responsibilitiesand powers to any person or persons selected by it. Any such allocation ordelegation may be revoked by the Committee at any time.

 

6.4                                 Information to be Furnished to Committee.  The Company and Subsidiaries shall furnishthe Committee with such data and information as it determines may be requiredfor it to discharge its duties. The records of the Company and Subsidiaries asto an employee’s or Participant’s employment, termination of employment, leaveof absence, reemployment and compensation shall be conclusive on all personsunless determined to be incorrect. Participants and other persons entitled to benefits under the Plan mustfurnish the Committee such evidence, data or information as the Committeeconsiders desirable to carry out the terms of the Plan.

 

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SECTION 7

 

AMENDMENT AND TERMINATION

 

The Board may, at any time, amend or terminate thePlan, and may amend any Award Agreement, provided, that no amendment ortermination may, in the absence of written consent to the change by theaffected Participant (or, if the Participant is not then living, the affectedbeneficiary), adversely affect the rights of any Participant or beneficiaryunder any Award granted under the Plan prior to the date such amendment isadopted by the Board; further provided, that adjustments pursuant to paragraph4.2(f) shall not be subject to the foregoing limitations of thisSection 7; and further provided, that no amendment may (i) remove theprovisions of subsection 2.6 (relating to Option repricing), (ii)materially increase the benefits accruing to Participants under the Plan, (iii)materially increase the number of securities which may be issued under thePlan, or (iv) materially modify the requirements for participation in the Plan,unless the amendment is approved by the Company’s stockholders.

 

SECTION 8

 

DEFINED TERMS

 

In addition to the other definitions contained herein,the following definitions shall apply:

 

(a)                                  Award. The term “Award” means any award or benefit granted under the Plan,including, without limitation, the grant of Options, SARs, Bonus Stock Awards,Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards,Performance Unit Awards and Performance Share Awards.

 

(b)                                 Board.  The term “Board” means the Board ofDirectors of the Company.

 

(c)                                  Changein Control.  A “Change in Control”shall be deemed to occur on the earliest of the existence of one of thefollowing events:

 

(i)                                     any“person” (as such term is used in Sections 13(d) or 14(d) of the Exchange Act),other than one or more Permitted Holders (as defined below), is or becomes thebeneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),directly or indirectly, of more than 35% of the total voting power of theVoting Stock (as defined below) of the Company and (ii) the Permitted Holders“beneficially own” (as defined in Rules 13d-3 and 13d-5 under the ExchangeAct), directly or indirectly, in the aggregate a lesser percentage of thevoting power of the Voting Stock of the Company than such other person and donot have the right or ability by voting power, contract or otherwise to elector designate for election a majority of the Board of Directors of the Company;

 

(ii)                                  individualswho, as of the date hereof, constitute the Board (as of the date hereof the“Incumbent Board”) cease for any reason to constitute at least a majority ofthe Board, provided that any individual becoming a director subsequent to thedate hereof whose election, or nomination for election

 

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by theCompany’s shareholders, was approved by a vote of at least a majority of thedirectors then comprising the Incumbent Board shall be considered as thoughsuch individual were a member of the Incumbent Board, but excluding, for thispurpose, any such individual whose initial assumption of office is inconnection with an actual or threatened election contest relating to theelection of the directors of the Company; or

 

(iii)                               approval by the Company’s shareholders of areorganization, merger or consolidation of the Company, in each case, withrespect to which all or substantially all of the individuals and entities whowere the respective beneficial owners of the common stock and voting securitiesof the Company immediately prior to such reorganization, merger orconsolidation do not, following such reorganization, merger or consolidation,beneficially own, directly and indirectly, more than 70% of the thenoutstanding shares of common stock or the combined voting power of the thenoutstanding voting securities entitled to vote generally in the election ofdirectors of the corporation resulting from such reorganization, merger orconsolidation, or of a complete liquidation or dissolution of the Company or ofthe sale or other disposition of all or substantially all of the assets of theCompany.

 

For purposes of this subparagraph (c), the term “Permitted Holders”means Donald N. Smith and/or the Company’s then existing senior management andtheir respective Affiliates (as defined under the Exchange Act). The term“Voting Stock” of the Company means all classes of capital stock of the Companythen outstanding and normally entitled to vote in the election of directors.

 

(d)                                 Code.  Theterm “Code” means the Internal Revenue Code of 1986, as amended. A reference toany provision of the Code shall include reference to any successor provision ofthe Code.

 

(e)                                  Eligible Individual.  The term “Eligible Individual” means any employee of the Companyor a Subsidiary and any consultant, director or other person providing bonafide services to the Company or a Subsidiary. An Award may be granted to anemployee, in connection with hiring, retention or otherwise, prior to the datethe employee first performs services for the Company or the Subsidiaries,provided that such Awards shall not become vested prior to the date theemployee first performs such services.

 

(f)                                    ExchangeAct.  The term “Exchange Act” means theSecurities Exchange Act of 1934, as amended.

 

(g)                                 Fair Market Value.  For purposes of determining the “Fair Market Value” of a share ofStock as of any date, the following rules shall apply:

 

(i)                                     Ifthe principal market for the Stock is a national securities exchange or theNasdaq stock market, then the “Fair Market Value” as of that date shall be

 

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the reportedclosing price of the Stock on that date on the principal exchange or market onwhich the Stock is then listed or admitted to trading.

 

(ii)                                  Ifclosing prices are not available or if the principal market for the Stock isnot a national securities exchange and the Stock is not quoted on the Nasdaqstock market, then the “Fair Market Value” as of that date shall be the mean ofthe highest bid and lowest asked prices for the Stock on such day as reportedon the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau,Incorporated or a comparable service.

 

(iii)                               Ifthe day is not a business day and, as a result, paragraphs (i) and (ii) nextabove are inapplicable, the Fair Market Value of the Stock shall be determinedas of the next earlier business day. If paragraphs (i) and (ii) next above areotherwise inapplicable, then the Fair Market Value of the Stock shall bedetermined in good faith by the Committee.

 

(h)                                 Subsidiary. The term “Subsidiary” means any company during any period in which it isa “subsidiary corporation” (as that term is defined in Codesection 424(f)) with respect to the Company.

 

(i)                                     Stock. The term “Stock” means shares of common stock of the Company.

 

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SUPPLEMENT AELECTIVE DEFERRAL

 

SECTION 1

 

DEFERRAL ELECTION

 

1.1                                 General. A Participant who is otherwise entitled to receive shares of Stock or acash payment in settlement of an Award under the terms of the Plan may elect todefer delivery of all or a portion of such shares of Stock or such cash,subject to the following terms of this Supplement A.

 

1.2                                 Deferral Election. An election to defer the receipt of shares of Stock or a cashpayment shall be filed prior to the first day of the calendar year in which theStock or cash would otherwise have been delivered (or the year of vestingof  a restricted stock Award) to theParticipant. The election to defer the delivery of shares of Stock or a cashpayment shall be made on a form as may be determined by the Committee (theDeferral Election”).

 

SECTION 2

 

ACCOUNTS

 

2.1                                 Stock Account. A Stock Account shall be maintained on behalf of each Participant whoelects to defer the distribution of shares of Stock under this Supplement A,for the period during which delivery of shares of Stock is deferred. AParticipant’s Stock Account shall be subject to the following adjustments:

 

(a)                                  TheStock Account will be credited with Share Units equal to the number of sharesof Stock as to which the Participant has elected deferred receipt, with such ShareUnits to be credited as of the date on which the shares would otherwise havebeen delivered to him in the absence of the deferral.

 

(b)                                 Asof each dividend record date for the Stock following the date any Share Unitsare credited to the Participant’s Stock Account, and prior to the date ofdistribution of shares of Stock with respect to those Share Units, theParticipant’s Stock Account shall be credited with additional Share Units(including fractional Share Units) equal to (i) the amount of the dividend thatwould be payable with respect to the number of shares of Stock equal to thenumber of Share Units credited to the Participant’s Stock Account on thedividend record date, divided by (ii) theFair Market Value of a share of Stock on the date of payment of the dividend.

 

(c)                                  Asof the date of any distribution of shares of Stock with respect to aParticipant’s Stock Account under Section 3 of this Supplement, the ShareUnits credited to a

 

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Participant’sStock Account shall be reduced by the number of Shares so distributed to theParticipant.

 

2.2                                 Cash Account. A Cash Account shall be maintained on behalf of each Participant whoelects to defer the distribution of cash under this Supplement A, for the periodduring which delivery of cash is deferred. A Participant’s Cash Account shallbe credited with a notional rate of return based upon investment(s) selected bythe Committee in its sole discretion. As of the date of any distribution withrespect to a Participant’s Account under Section 3 of this Supplement, thebalance credited to a Participant’s Account shall be reduced by the amount ofthe distribution to the Participant.

 

2.3                                 Statement of Accounts.  As soon as practicable after the end of each Plan Year, theCompany shall provide each Participant having one or more Accounts under thePlan with a statement of the transactions in his Accounts during that year andhis Account balances as of the end of the year.

 

SECTION 3

 

DISTRIBUTIONS

 

3.1                                 General.

 

(a)                                  Subjectto the terms of this Section 3, a Participant shall specify, as part ofhis Deferral Election with respect to Stock Awards, and as part of his DeferralElection with respect to cash payments, the time of distribution of the amountsdeferred pursuant to such election; provided, however, that distribution ofshares of Stock, and of cash, shall be made in a lump sum not later than thefirst anniversary of the date on which the individual ceases to be an EligibleIndividual; and further provided, that, unless otherwise provided for by theCommittee, a Participant may elect only a single date for distribution of allof his Stock Account and only a single date for distribution of all of his CashAccount under the Plan, provided that the distribution date for theParticipant’s Stock Account and Cash Account may differ.

 

(b)                                 Atthe time of distribution of deferred shares in accordance with theParticipant’s Deferral Election, the Participant shall receive a distributionof shares of Stock equal to the number of share units credited to his StockAccount immediately prior to such distribution. If the scheduled distributiondate would otherwise occur after a dividend record date but before the paymentof the dividend, distribution shall be deferred (not more than 30 days) untilthe dividend is paid.

 

(c)                                  Atthe time of distribution of the Cash Account in accordance with theParticipant’s Deferral Election, the Participant shall receive the amount thencredited to the Participant’s Cash Account as of the date of distribution.

 

(d)                                 Indetermining a Participant’s right to distributions of stock under thisSection 3, the vesting provisions of subsection 2.3 of the Plan shallapply to the share units

 

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credited to theParticipant’s Stock Account as though each unit represented one share of Stock,and with all units attributable to payment of dividends being fully vested asof the date they are credited to the Participant’s Stock Account.

 

(e)                                  Notwithstandingthe foregoing provisions of this Section 3, if any share units arecredited to a Participant’s Stock Account as of the date of a Change inControl, the Participant shall receive a distribution of shares of Stock equalto the number of such share units. Such distribution shall be in settlement ofthe Participant’s rights to a distribution under this Section 3, providedthat if the record date for a dividend is prior to a Change in Control, but thedividend payment is to occur after such Change in Control, the additionalshares attributable to such dividends shall be distributed as soon aspracticable thereafter.

 

3.2                                 Limitation of Implied Rights.  Neither the Participant nor any other personshall, by reason of deferral of shares of Stock or the deferral of a cash payment,under this Supplement A, acquire any right in or title to any assets, funds orproperty of the Company whatsoever prior to the date such shares or cash aredistributed. A Participant shall have only a contractual right to the sharesand cash, if any, distributable under the Plan, unsecured by any assets of theCompany. Nothing contained in the Plan shall constitute a guarantee by theCompany that the assets of the Company shall be sufficient to provide anybenefits to any person. The Company may, but shall not be obligated to,establish a trust to hold assets for the purpose of satisfying obligationsunder this Supplement A. The Board shall retain the right to terminate, at anytime, for any reason, or no reason, the deferral provisions under this SupplementA (which may, but need not, be in conjunction with a termination of the Plan),and shall immediately distribute all, but not less than all, of the StockAccounts and Cash Accounts as of the date of such termination.

 

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