| **Exhibit 10.4** |
|------------------|

*** ***

***SOURCECORP*****, Incorporated**

 

**2002 LONG-TERM INCENTIVE PLAN**

 

 

1.             Purpose.  The purpose of this 2002 Long-Term IncentivePlan (the “Plan”) of *SOURCECORP*, Incorporated, a Delawarecorporation (the “Company”), is to advance the interests of the Company and itsstockholders by providing a means to attract, retain, motivate and rewardpresent and prospective directors, officers, employees and consultants of andservice providers to the Company and its subsidiaries and to enable suchpersons to acquire or increase a proprietary interest in the Company, therebypromoting a closer identity of interests between such persons and the Company’sstockholders.

 

2.             Definitions.  The definitions of awards under the Plan,including Options, SARs (including Limited SARs), Restricted Stock, DeferredStock, Stock granted as a bonus or in lieu of other awards, DividendEquivalents and Other Stock–Based Awards are set forth in Section 6 ofthe Plan.  Such awards, together withany other right or interest granted to a Participant under the Plan, are termed“Awards.”  For purposes of the Plan, thefollowing additional terms shall be defined as set forth below:

 

(a)           “Award Agreement” means any writtenagreement, contract, notice or other instrument or document evidencing anAward.

 

(b)           “Beneficiary” shall mean theindividuals or entities which have been designated by a Participant in his orher most recent written beneficiary designation filed with the Committee toreceive the benefits specified under the Plan upon such Participant’s death or,if there is no designated Beneficiary or surviving designated Beneficiary, thenthe individuals or entities entitled by will or the laws of descent anddistribution to receive such benefits.

 

(c)           “Board” means the Board of Directorsof the Company.

 

(d)           A “Change in Control” shall be deemedto have occurred:

 

(i)            when any person, other than theCompany or an employee benefit plan of the Company, acquires directly orindirectly the Beneficial Ownership (as defined in Rule 13d-3 under the ExchangeAct) of any voting security of the Company and immediately after suchacquisition such Person is, directly or indirectly, the Beneficial Owner ofvoting securities representing 30% or more of the total voting power of all ofthe then-outstanding voting securities of the Company.

 

(ii)           when the individuals (A) who, as ofthe effective date of the Plan, constitute the Board (the “Original Directors”)or (B) who thereafter are elected to the Board and whose election, ornomination for election, to the Board was approved by a vote of at leasttwo-thirds (2/3) of the Original Directors then still in office (such directorsbecoming “Additional Original Directors” immediately following their election)or (C) who are elected to the Board and whose election, or nomination forelection, to the 

 

----

 

Board was approvedby a vote of at least two-thirds (2/3) of the Original Directors and AdditionalOriginal Directors then still in office (such directors also becoming“Additional Original Directors” immediately following their election) (suchindividuals being the “Continuing Directors”), cease for any reason toconstitute a majority of the members of the Board;

 

(iii)          upon the consummation of a merger,consolidation, recapitalization or reorganization of the Company, a reversestock split of outstanding voting securities, other than any such transaction which would result in at least 75% ofthe total voting power represented by the voting securities of the survivingentity outstanding immediately after such transaction being Beneficially Ownedby holders of at least 75% of outstanding voting securities of the Companyimmediately prior to the transaction, with the voting power of each suchcontinuing holder relative to other such continuing holders not substantiallyaltered in the transaction; or

 

(iv)            upon the consummation of a completeliquidation of the Company or a sale or disposition by the Corporation of allor a substantial portion of the Company’s assets (i.e., 50% or more of thetotal assets of the Company).

 

(e)           “Code” means the Internal RevenueCode of 1986, as amended from time to time. References to any provision of theCode shall be deemed to include regulations thereunder and successor provisionsand regulations thereto.

 

(f)            “Committee” means the committeeappointed by the Board to administer the Plan, or if no committee is appointed,the Board.

 

(g)           “Exchange Act” means the SecuritiesExchange Act of 1934, as amended from time to time.  References to any provision of the Exchange Act shall be deemed toinclude rules thereunder and successor provisions and rules thereto.

 

(h)           “ISO” means any Option intended to beand designated as an incentive stock option within the meaning of Section 422of the Code, and qualifies as such.

 

(i)            “NQSO” means any Option that is notan ISO.

 

(j)            “Participant” means a person who, ata time when eligible under Section 5 hereof, has been granted an Award underthe Plan.

 

(k)           “Stock” means the Common Stock, parvalue $.01, of the Company and such other securities as may be substituted forStock or such other securities pursuant to Section 4.

 

3.             Administration.

 

(a)           Authority of the Committee.  Except as otherwise provided below, the Planshall be administered by the Committee. The Committee shall have full and final authority to take the followingactions, in each case subject to and consistent with the provisions of thePlan:

 

2

----

 

(i)            to select persons to whom Awards maybe granted;

 

(ii)           to determine the type or types of Awardsto be granted to each such person;

 

(iii)          to determine the number of Awards tobe granted, the number of shares of Stock to which an Award will relate, theterms and conditions of any Award granted under the Plan (including, but notlimited to, any exercise price, grant price or purchase price, any restrictionor condition, any schedule for lapse of restrictions or conditions relating totransferability or forfeiture, exercisability or settlement of an Award, andwaivers or accelerations thereof, performance conditions relating to an Award(including performance conditions relating to Awards not intended to begoverned by Section 7(d) and waivers and modifications thereof), based in eachcase on such considerations as the Committee shall determine), and all othermatters to be determined in connection with an Award;

 

(iv)          to determine whether, to what extentand under what circumstances an Award may be settled, or the exercise price ofan Award may be paid, in cash, Stock, other Awards or other property, or anAward may be canceled, forfeited or surrendered;

 

(v)           to determine whether, to what extentand under what circumstances cash, Stock, other Awards or other propertypayable with respect to an Award will be deferred either automatically, at theelection of the Committee or at the election of the Participant;

 

(vi)          to determine the restrictions, if any,to which Stock received upon exercise or settlement of an Award shall besubject (including lock–ups and other transfer restrictions), maycondition the delivery of such Stock upon the execution by the Participant ofany agreement providing for such restrictions;

 

(vii)         to prescribe the form of each AwardAgreement, which need not be identical for each Participant;

 

(viii)        to adopt, amend, suspend, waive andrescind rules and regulations and appoint such agents as the Committee may deemnecessary or advisable to administer the Plan;

 

(ix)           to correct any defect or supply anyomission or reconcile any inconsistency in the Plan and to construe andinterpret the Plan and any Award, rules and regulations, Award Agreement orother instrument hereunder; and

 

(x)            to make all other decisions anddeterminations as may be required under the terms of the Plan or as theCommittee may deem necessary or advisable for the administration of the Plan.

 

3

----

 

Other provisionsof the Plan notwithstanding, the Board (or a committee designated by the Board)shall perform the functions of  theCommittee for purposes of granting awards to directors who serve on theCommittee, and the Board (or a committee designated by the Board) may performany function of the Committee under the Plan for any other purpose.  In any case in which the Board (or a committeedesignated by the Board) is performing a function of the Committee under thePlan, each reference to the Committee herein shall be deemed to refer to theBoard (or the committee designated by the Board), except where the contextotherwise requires.

 

(b)           Manner of Exercise of Committee Authority.  Any action of the Committee with respect tothe Plan shall be final, conclusive and binding on all persons, including theCompany, subsidiaries of the Company, Participants, any person claiming anyrights under the Plan from or through any Participant and stockholders, exceptto the extent the Committee may subsequently modify, or take further action notconsistent with, its prior action.  Ifnot specified in the Plan, the time at which the Committee must or may make anydetermination shall be determined by the Committee, and any such determinationmay thereafter be modified by the Committee (subject to Section 8(e)).  The express grant of any specific power tothe Committee, and the taking of any action by the Committee, shall not beconstrued as limiting any power or authority of the Committee. Except asotherwise provided under Section 7(d), the Committee may delegate to officersor managers of the Company or any subsidiary of the Company the authority,subject to such terms as the Committee shall determine, to perform suchfunctions as the Committee may determine, to the extent permitted underapplicable law.

 

(c)           Limitation of Liability.  Each member of the Committee shall beentitled to, in good faith, rely or act upon any report or other informationfurnished to him by any officer or other employee of the Company or anysubsidiary, the Company’s independent certified public accountants or anyexecutive compensation consultant, legal counsel or other professional retainedby the Company to assist in the administration of the Plan.  No member of the Committee, or any officeror employee of the Company acting on behalf of the Committee, shall bepersonally liable for any action, determination or interpretation taken or madein good faith with respect to the Plan, and all members of the Committee andany officer or employee of the Company acting on its behalf shall, to theextent permitted by law, be fully indemnified and protected by the Company withrespect to any such action, determination or interpretation.

 

4.             Stock Subject to Plan.

 

(a)           Amount of Stock Reserved.  The total number of shares of Stock that maybe subject to outstanding Awards (but determined without regard to Awardsdesignated pursuant to the following sentence), when added to options thenoutstanding under the Company’s 1995 Stock Option Plan, in each case determinedimmediately after the grant of any such Award, shall not exceed the greater of650,000 or 16% of the total number of shares of Stock outstanding at theeffective time of such grant.  At thetime of grant of an Award, the Committee may designate that the shares of Stocksubject to such Award shall not be taken into account for purposes of thelimitation contained in the preceding sentence; provided, however,that the total number of shares of Stock that may be subject to outstandingAwards so designated shall not exceed 600,000.  In no event shall thenumber of shares of Stock that may be issued upon the exercise of 

 

4

----

 

ISOs exceed650,000.  For purposes of the foregoinglimits, with respect to Awards that may be settled only in cash by reference toa specified number of shares of Stock, the number of shares so referenced shallbe treated as shares of Stock subject to outstanding Awards.  Any shares of Stock delivered pursuant to anAward may consist, in whole or in part, of authorized and unissued shares,treasury shares or shares acquired in the market for a Participant’s account.  For purposes of the first sentence above, anAward shall not be treated as outstanding if the shares of Stock subjectthereto have be issued to the Participant, and such shares are not subject to asubstantial risk of forfeiture, within the meaning of Section 83(c) of theCode, or if the Award has otherwise been exercised, settled, cancelled,terminated or has expired.

 

(b)           Annual Per–ParticipantLimitations.  During any calendaryear, no Participant may be granted Awards that may be settled by delivery ofmore than 500,000 shares of Stock, or, in the case of Awards that may besettled in cash, by payment of cash that exceeds the fair market value of500,000 shares of Stock, determined either at the time of grant or the time ofpayment, whichever is greater.

 

(c)           Adjustments.  In the event that the Committee shalldetermine that any recapitalization, forward or reverse split, reorganization,merger, consolidation, spin–off, combination, repurchase or exchange ofStock or other securities, Stock dividend or other special, large andnon-recurring dividend or distribution (whether in the form of cash, securitiesor other property), liquidation, dissolution or other similar corporatetransaction or event affects the Stock such that an adjustment is appropriatein order to prevent dilution or enlargement of the rights of Participants underthe Plan, then the Committee shall, in such manner as it may deem equitable,adjust any or all of (i) the number and kind of shares of Stock that may besubject to outstanding Awards or otherwise reserved and available for issuancepursuant to Awards under Section 4(a), (ii) the number and kind of shares ofStock specified in the Annual Per–Participant Limitations under Section4(b), (iii) the number and kind of shares of outstanding Restricted Stock orother outstanding Award in connection with which shares have been issued, (iv)the number and kind of shares that may be issued in respect of otheroutstanding Awards and (v) the exercise price, grant price or purchase pricerelating to any Award. In addition, the Committee is authorized to makeadjustments in the terms and conditions of, and the criteria included in,Awards (including, without limitation, canceling an Option or other Award inexchange for the intrinsic (i.e., in-the-money) value thereof, if any, or substitutionof an Award using securities of a successor or other entity) in recognition ofunusual or nonrecurring events (including, without limitation, events describedin the preceding sentence or a Change in Control) affecting the Company or anysubsidiary or the financial statements of the Company or any subsidiary, or inresponse to changes in applicable laws, regulations or accounting principles

 

5.             Eligibility.  Directors, officers and employees of theCompany and its subsidiaries, and persons who provide consulting or otherservices to the Company deemed by the Committee to be of substantial value tothe Company, are eligible to be granted Awards under the Plan.  In addition, persons who have been offeredemployment by the Company or its subsidiaries, and persons employed by anentity that the Committee reasonably expects to become a subsidiary of theCompany, are eligible to be granted an Award under the Plan.

 

6.             Specific Terms of Awards.

 

5

----

 

(a)           General.  Awards may be granted on the terms andconditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercisethereof such additional terms and conditions, not inconsistent with theprovisions of the Plan, as the Committee shall determine, including termsrequiring forfeiture of Awards in the event of termination of employment orservice of the Participant.  Except asexpressly provided by the Committee (including for purposes of complying withthe requirements of the Delaware General Corporation Law relating to lawfulconsideration for the issuance of shares), no consideration other than serviceswill be required as consideration for the grant (but not the exercise) of anyAward.

 

(b)           Options.  The Committee is authorized to grant optionsto purchase Stock (including “reload” options automatically granted to offsetspecified exercises of Options) on the following terms and conditions(“Options”):

 

(i)            Exercise Price.  The exercise price per share of Stockpurchasable under an Option shall be determined by the Committee, but shall beno less than 100% of the fair market value of a share of Stock on the date theOption is granted.

 

(ii)           Time and Method of Exercise.  The Committee shall determine and shall setforth in an Award Agreement, the time or times at which an Option may beexercised in whole or in part, the methods by which such exercise price may bepaid or deemed to be paid, the form of such payment, including, withoutlimitation, cash, Stock, Awards or awards granted under other Company plans orother property (including notes or other contractual obligations ofParticipants to make payment on a deferred basis, such as through “cashlessexercise” arrangements, to the extent permitted by applicable law), and the methodsby which Stock will be delivered or deemed to be delivered to Participants.

 

(iii)          Termination ofEmployment/Director/Consultant Status. Unless otherwise determined by the Committee and set forth in an AwardAgreement, upon a Participant’s termination of employment relationship,consultant status and director status with the Company and its subsidiaries,(i) all Options which are not then exercisable shall terminate, (ii) allOptions which are then exercisable shall remain exercisable until, and shallterminate upon, the 91st day following the date of such termination (or, ifearlier, the end of the Option term), provided that if such termination is forcause, as determined in the discretion of the Committee, all Options held bythe Participant shall immediately terminate. For this purpose, any sale of a subsidiary of the Company pursuant towhich it ceases to be a subsidiary of the Company shall be deemed to be atermination of employment by any Participant employed by such subsidiary, or,as applicable, termination of the non-employee directorship by any Participantwho serves on the board of such subsidiary.

 

(iv)          ISOs.  The Committee shall have the authority to grant ISOs under thePlan. If Stock acquired by exercise of an ISO is sold or otherwise disposed ofwithin two years after the date of grant of the ISO or within one year afterthe transfer of such Stock to the Participant, the holder of the Stockimmediately prior to the disposition shall 

 

6

----

 

promptly notifythe Company in writing of the date and terms of the disposition and shallprovide such other information regarding the disposition as the Company mayreasonably require in order to secure any deduction then available against theCompany’s or any other corporation’s taxable income, or to satisfy anywithholding tax obligation.  The Companymay impose such procedures as it determines may be necessary to ensure thatsuch notification is made.  Each Optiongranted as an ISO shall be designated as such in the Award Agreement relatingto such Option.  An option notdesignated and qualified as an ISO shall be an NQSO.

 

(c)           Stock Appreciation Rights.  The Committee is authorized to grant stockappreciation rights on the following terms and conditions (“SARs”):

 

(i)            Right to Payment.  An SAR shall confer on the Participant towhom it is granted a right to receive, upon exercise thereof, the excess of (A)the fair market value of one share of Stock on the date of exercise (or, if theCommittee shall so determine in the case of any such right other than onerelated to an ISO, the fair market value of one share at any time during aspecified period before or after the date of exercise), over (B) the grantprice of the SAR as determined by the Committee as of the date of grant of theSAR.

 

(ii)           Other Terms.  The Committee shall determine the time ortimes at which an SAR may be exercised in whole or in part, the method ofexercise, method of settlement, form of consideration payable in settlement,method by which Stock will be delivered or deemed to be delivered toParticipants, whether or not an SAR shall be in tandem with any other Award,and any other terms and conditions of any SAR. Limited SARs that may only be exercised upon the occurrence of a Change inControl may be granted on such terms, not inconsistent with this Section 6(c),as the Committee may determine.  LimitedSARs may be either freestanding or in tandem with other Awards.

 

(d)           Restricted Stock.  The Committee is authorized to grant Stockthat is subject to restrictions based on continued employment on the followingterms and conditions (“Restricted Stock”):

 

(i)            Grant and Restrictions.  Restricted Stock shall be subject to suchrestrictions on transferability and other restrictions, if any, as theCommittee may impose, which restrictions may lapse separately or in combinationat such times, under such circumstances, in such installments, or otherwise, asthe Committee may determine.  Except tothe extent restricted under the terms of the Plan and any Award Agreementrelating to the Restricted Stock, a Participant granted Restricted Stock shallhave all of the rights of a stockholder including, without limitation, theright to vote Restricted Stock or the right to receive dividends thereon.

 

(ii)           Forfeiture.  Except as otherwise determined by theCommittee, upon termination of employment or service (as determined undercriteria established by the Committee) during the applicable restrictionperiod, any portion of Restricted Stock that is at that time subject torestrictions shall be forfeited and reacquired by the Company; 

 

7

----

 

provided, however, that the Committee may provide, by ruleor regulation or in any Award Agreement, or may determine in any individualcase, that restrictions or forfeiture conditions relating to Restricted Stockwill be waived in whole or in part in the event of termination resulting fromspecified causes.

 

(iii)          Certificates for Stock.  Restricted Stock granted under the Plan maybe evidenced in such manner as the Committee shall determine.  If certificates representing RestrictedStock are registered in the name of the Participant, such certificates may bearan appropriate legend referring to the terms, conditions and restrictionsapplicable to such Restricted Stock and the Company may retain physicalpossession of the certificate, in which case the Participant shall be requiredto have delivered a stock power to the Company, endorsed in blank, relating tothe Restricted Stock.

 

(iv)          Dividends.  Dividends paid on Restricted Stock shall beeither paid at the dividend payment date in cash or in shares of unrestrictedStock having a fair market value equal to the amount of such dividends, or thepayment of such dividends shall be deferred and/or the amount or value thereofautomatically reinvested in additional Restricted Stock, other Awards, or otherinvestment vehicles, as the Committee shall determine or permit the Participantto elect.  Stock distributed inconnection with a Stock split or Stock dividend, and other property distributedas a dividend, shall be subject to restrictions and a risk of forfeiture to thesame extent as the Restricted Stock with respect to which such Stock or otherproperty has been distributed, unless otherwise determined by the Committee.

 

(e)           Deferred Stock.  The Committee is authorized to grant Awardsrepresenting the right to receive Stock at a future date subject to thefollowing terms and conditions (“Deferred Stock”):

 

(i)            Award and Restrictions.  Delivery of Stock will occur upon expirationof the deferral period specified for an Award of Deferred Stock by theCommittee (or, if permitted by the Committee, as elected by the Participant).  In addition, Deferred Stock shall be subjectto such restrictions as the Committee may impose, if any, which restrictionsmay lapse at the expiration of the deferral period or at earlier specifiedtimes, separately or in combination, in installments or otherwise, as theCommittee may determine.

 

(ii)           Forfeiture.  Except as otherwise determined by theCommittee, upon termination of employment or service (as determined undercriteria established by the Committee) during the applicable deferral period orportion thereof to which forfeiture conditions apply (as provided in the AwardAgreement evidencing the Deferred Stock), the portion of all Deferred Stockthat is at that time subject to such forfeiture conditions shall be forfeited; provided,however, that the Committee may provide, by rule or regulation or in anyAward Agreement, or may determine in any individual case, that restrictions orforfeiture conditions relating to Deferred Stock will be waived in whole or inpart in the event of termination resulting from specified causes.

 

8

----

 

(f)            Bonus Stock and Awards in Lieu ofCash Obligations.  The Committee isauthorized to grant Stock as a bonus, or to grant Stock or other Awards in lieuof Company obligations to pay cash under other plans or compensatoryarrangements.

 

(g)           Dividend Equivalents.  The Committee is authorized to grant awardsentitling the Participant to receive cash, Stock, other Awards or otherproperty equal in value to dividends paid with respect to a specified number ofshares of Stock (“Dividend Equivalents”). Dividend Equivalents may be awarded on a free-standing basis or inconnection with another Award.  TheCommittee may provide that Dividend Equivalents shall be paid or distributedwhen accrued or shall be deemed to have been reinvested in additional Stock,Awards or other investment vehicles, and subject to such restrictions ontransferability and risks of forfeiture, as the Committee may specify.

 

(h)           Other Stock–Based Awards.  The Committee is authorized, subject tolimitations under applicable law, to grant such other Awards that may bedenominated or payable in, valued in whole or in part by reference to, orotherwise based on, or related to, Stock and factors that may influence thevalue of Stock, as deemed by the Committee to be consistent with the purposesof the Plan, including, without limitation, convertible or exchangeable debtsecurities, other rights convertible or exchangeable into Stock, purchaserights for Stock, Awards with value and payment contingent upon performance ofthe Company or any other factors designated by the Committee and Awards valuedby reference to the book value of Stock or the value of securities of or theperformance of specified subsidiaries (“Other Stock Based Awards”).  The Committee shall determine the terms andconditions of such Awards.  Stock issuedpursuant to an Award in the nature of a purchase right granted under thisSection 6(h) shall be purchased for such consideration, paid for at such times,by such methods, and in such forms, including, without limitation, cash, Stock,Awards or other property, as the Committee shall determine.  Cash awards, as an element of or supplementto any other Award under the Plan, may be granted pursuant to this Section6(h).

 

7.             Certain Provisions Applicable toAwards.

 

(a)           Stand-Alone, Additional, Tandem,and Substitute Awards.  Awardsgranted under the Plan may, in the discretion of the Committee, be grantedeither alone or in addition to, in tandem with or in substitution for any otherAward granted under the Plan or any award granted under any other plan of theCompany, any subsidiary or any business entity to be acquired by the Company ora subsidiary, or any other right of a Participant to receive payment from theCompany or any subsidiary.  Awardsgranted in addition to or in tandem with other Awards or awards may be grantedeither as of the same time as or a different time from the grant of such otherAwards or awards.  NotwithstandingSection 6(b)(i), substitute Awards granted as Options may have an exerciseprice per share of Stock that is below the fair market value of a share ofStock on the date of grant if necessary to preserve the in-the-money value ofthe option for which they are being substituted.

 

(b)           Term of Awards.  The term of each Award shall be for suchperiod as may be determined by the Committee; provided, however,that in no event shall the term of any ISO or an SAR granted in tandemtherewith exceed a period of 10 years from the date of its grant (or 5 

 

9

----

 

years with respectto an ISO granted to a 10% shareholder, within the meaning of Section 422 ofthe Code).

 

(c)           Loan Provisions.  With the consent of the Committee, andsubject at all times to, and only to the extent, if any, permitted under and inaccordance with, laws and regulations and other binding obligations orprovisions applicable to the Company, the Company may make, guarantee orarrange for a loan or loans to a Participant with respect to the exercise ofany Option or other payment in connection with any Award, including the paymentby a Participant of any or all federal, state or local income or other taxesdue in connection with any Award. Subject to such limitations, the Committee shall have full authority todecide whether to make a loan or loans hereunder and to determine the amount,terms and provisions of any such loan or loans, including the interest rate tobe charged in respect of any such loan or loans, whether the loan or loans areto be with or without recourse against the borrower, the terms on which theloan is to be repaid and the conditions, if any, under which the loan or loansmay be forgiven.

 

(d)           Performance–Based Awards.  Other than Options or SARs that have anexercise price or grant price equal to the fair market value of the shares ofStock subject thereto at the time of grant, which are not subject to therequirements of this Section 7(d), the Committee may, in its discretion,designate any Award the exercisability or settlement of which is subject to theachievement of performance conditions as a performance–based Awardsubject to this Section 7(d), in order to qualify such Award as “qualifiedperformance–based compensation” within the meaning of Code Section 162(m)and regulations thereunder.  Theperformance objectives for an Award subject to this Section 7(d) shall consistof one or more business criteria and a targeted level or levels of performancewith respect to such criteria, as specified by the Committee but subject tothis Section 7(d).  Performance objectivesshall be objective and shall otherwise meet the requirements of Section162(m)(4)(C) of the Code.  Businesscriteria used by the Committee in establishing performance objectives forAwards subject to this Section 7(d) shall be selected from among the following:

 

(i)            Annual return on capital;

 

(ii)           Annual earnings or earnings pershare;

 

(iii)          Annual cash flow provided byoperations;

 

(iv)          Increase in stock price;

 

(v)           Changes in annual revenues; and/or

 

(vi)          Strategic business criteria,consisting of one or more objectives based on meeting specified revenue, marketpenetration, geographic business expansion goals, cost targets and goalsrelating to acquisitions or divestitures.

 

The levels ofperformance required with respect to such business criteria may be expressed inabsolute or relative levels. Performance objectives may differ for such Awards to differentParticipants.  The Committee shallspecify the weighting to be given to each performance 

 

10

----

 

objective forpurposes of determining the final amount payable with respect to any suchAward.  The Committee may, to the extentset forth in an Award Agreement, reduce the amount of a payout otherwise to bemade in connection with an Award subject to this Section 7(d), but may notexercise discretion to increase such amount, and the Committee may considerother performance criteria in exercising such discretion.  All determinations by the Committee as tothe achievement of performance objectives shall be in writing.  The Committee may not delegate anyresponsibility with respect to an Award subject to this Section 7(d).

 

(e)           Acceleration upon a Change ofControl.   Notwithstanding anythingcontained herein to the contrary, except to the extent otherwise set forth inan Award Agreement, all outstanding Options shall become fully vested andexercisable in full, and all conditions and/or restrictions relating to thepassage of time, the continued performance of services and/or the achievementof performance objectives with respect to the exercisability or full enjoymentof any other outstanding Awards shall lapse, immediately prior to a Change inControl, or such earlier time as may be necessary to enable a Participant toexercise any right to acquire all of the shares of Stock subject to such Awardand immediately thereafter resell such shares.

 

8.             General Provisions.

 

(a)           Compliance With Laws andObligations.  The Company shall notbe obligated to issue or deliver Stock in connection with any Award or take anyother action under the Plan in a transaction subject to the requirements of anyapplicable securities law, any requirement under any listing agreement betweenthe Company and any national securities exchange or automated quotation systemor any other law, regulation or contractual obligation of the Company until theCompany is satisfied that such laws, regulations and other obligations of theCompany have been complied with in full. Certificates representing shares of Stock issued under the Plan will besubject to such stop–transfer orders and other restrictions as may beapplicable under such laws, regulations and other obligations of the Company,including any requirement that a legend or legends be placed thereon.

 

(b)           Limitations on Transferability.  Awards and other rights under the Plan willnot be transferable by a Participant except by will or the laws of descent anddistribution or to a Beneficiary in the event of the Participant’s death, shallnot be pledged, mortgaged, hypothecated or otherwise encumbered, or otherwisesubject to the claims of creditors, and, in the case of ISOs and SARs in tandemtherewith, shall be exercisable during the lifetime of a Participant only bysuch Participant or his guardian or legal representative; provided, however,that such Awards and other rights (other than ISOs and SARs in tandemtherewith) may be transferred to one or more transferees during the lifetime ofthe Participant to the extent and on such terms as then may be permitted by theCommittee.

 

(c)           No Right to Continued Employmentor Service.  Neither the Plan norany action taken hereunder shall be construed as giving any employee, directoror other person the right to be retained in the employ or service of theCompany or any of its subsidiaries, nor shall it interfere in any way with theright of the Company or any of its subsidiaries to terminate any employee’semployment or other person’s service at any time or with the right of the Boardor stockholders to remove any director.

 

11

----

 

(d)           Taxes.  The Company and any subsidiary are eachauthorized to withhold from any Award granted or to be settled any delivery ofStock in connection with an Award, any other payment relating to an Award orany payroll or other payment to a Participant amounts of withholding and othertaxes due or potentially payable in connection with any transaction involvingan Award, and to take such other action as the Committee may deem advisable toenable the Company and Participants to satisfy obligations for the payment ofwithholding taxes and other tax obligations relating to any Award.  This authority shall include authority towithhold or receive Stock or other property and to make cash payments inrespect thereof in satisfaction of a Participant’s tax obligations.

 

(e)           Changes to the Plan and Awards.  The Board may amend, alter, suspend,discontinue or terminate the Plan or the Committee’s authority to grant Awardsunder the Plan without the consent of stockholders or Participants, except thatany such action shall be subject to the approval of the Company’s stockholdersat or before the next annual meeting of stockholders for which the record dateis after such Board action if such stockholder approval is required by anyfederal or state law or regulation or the rules of any stock exchange orautomated quotation system on which the Stock may then be listed or quoted, andthe Board may otherwise, in its discretion, determine to submit other suchchanges to the Plan to stockholders for approval; provided, however,that, without the consent of an affected Participant, no such action maymaterially impair the rights of such Participant under any Award theretoforegranted to him (as such rights are set forth in the Plan and the Award Agreement).  The Committee may waive any conditions orrights under, or amend, alter, suspend, discontinue or terminate any Awardtheretofore granted and any Award Agreement relating thereto; provided, however,that, without the consent of an affected Participant, no such action maymaterially impair the rights of such Participant under such Award (as suchrights are set forth in the Plan and the Award Agreement).  Notwithstanding the foregoing, the Board orthe Committee may take any action (including actions affecting or terminatingoutstanding Awards): (i) permitted by Section 4(c), or (ii) to avoidlimitations related to the availability of a tax deduction in respect of Awards(e.g., pursuant to Code Sections 162(m) and 280G).

 

(f)            No Rights to Awards; No StockholderRights.  No person shall have anyclaim to be granted any Award under the Plan, and there is no obligation foruniformity of treatment of Participants and employees.  No Award shall confer on any Participant anyof the rights of a stockholder of the Company unless and until Stock is dulyissued or transferred and delivered to the Participant in accordance with theterms of the Award or, in the case of an Option, the Option is duly exercised.

 

(g)           Unfunded Status of Awards;Creation of Trusts.  The Plan isintended to constitute an “unfunded” plan for incentive and deferredcompensation.  With respect to anypayments not yet made to a Participant pursuant to an Award, nothing containedin the Plan or any Award shall give any such Participant any rights that aregreater than those of a general creditor of the Company; provided, however,that the Committee may authorize the creation of trusts or make otherarrangements to meet the Company’s obligations under the Plan to deliver cash,Stock, other Awards or other property pursuant to any Award, which trusts orother 

 

12

----

 

arrangements shallbe consistent with the “unfunded” status of the Plan, unless the Committeeotherwise determines with the consent of each affected Participant.

 

(h)           Nonexclusivity of the Plan.  Neither the adoption of the Plan by theBoard nor any submission of the Plan or amendments thereto to the stockholdersof the Company for approval shall be construed as creating any limitations onthe power of the Board to adopt such other compensatory arrangements as it maydeem desirable, including, without limitation, the granting of stock optionsotherwise than under the Plan, and such arrangements may be either applicablegenerally or only in specific cases.

 

(i)            No Fractional Shares.  No fractional shares of Stock shall beissued or delivered pursuant to the Plan or any Award.  The Committee shall determine whether cash,other Awards or other property shall be issued or paid in lieu of such fractionalshares or whether such fractional shares or any rights thereto shall beforfeited or otherwise eliminated.

 

(j)            Compliance with Code Section162(m).  It is the intent of theCompany that employee Options, SARs and other Awards designated as Awards subjectto Section 7(d) shall constitute “qualified performance-based compensation”within the meaning of Code Section 162(m). Accordingly, if any provision of the Plan or any Award Agreementrelating to such an Award does not comply or is inconsistent with therequirements of Code Section 162(m), such provision shall be construed ordeemed amended to the extent necessary to conform to such requirements, and noprovision shall be deemed to confer upon the Committee or any other persondiscretion to increase the amount of compensation otherwise payable inconnection with any such Award upon attainment of the performance objectives.

 

(k)           Governing Law.  The validity, construction and effect of thePlan, any rules and regulations relating to the Plan and any Award Agreementshall be determined in accordance with the laws of the State of Delaware,without giving effect to principles of conflicts of laws, and applicablefederal law.

 

(l)            Effective Date; Plan Termination.  The Plan shall become effective as of the dateof its adoption by the Board and approved by the Company’s stockholders, andshall continue in effect until terminated by the Board.

 

 

13

----