EXHIBIT 10.1


 


RLI Corp.


Omnibus Stock Plan


 


1.             Purpose  The purpose of the RLI Corp. Omnibus Stock
Plan (the “Plan”) is to promote the interests of the Company and its
shareholders by providing key personnel of the Company and its Affiliates with
an opportunity to acquire a proprietary interest in the Company and reward them
for achieving a high level of corporate performance and thereby develop a
stronger incentive to put forth maximum effort for the continued success and
growth of the Company and its Affiliates. 
In addition, the opportunity to acquire a proprietary interest in the
Company will aid in attracting and retaining key personnel of outstanding
ability.  The Plan is also intended to
provide Outside Directors with an opportunity to acquire a proprietary interest
in the Company, to compensate Outside Directors for their contribution to the
Company and to aid in attracting and retaining Outside Directors.


 


2.             Definitions


 


2.1           The capitalized terms used elsewhere in the Plan have the meanings set
forth below.


 


(a)           “Affiliate” means any corporation that is a “parent corporation” or “subsidiary
corporation” of the Company, as those terms are defined in Code
Sections 424(e) and (f), or any successor provisions, and, for
purposes other than the grant of Incentive Stock Options, any joint venture in
which the Company or any such “parent corporation” or “subsidiary corporation”
owns an equity interest.


 


(b)           “Agreement” means a written contract (i) consistent with the terms of
the Plan entered into between the Company or an Affiliate and a Participant and
(ii) containing the terms and conditions of an Award in such form and not
inconsistent with the Plan as the Committee shall approve from time to time,
together with all amendments thereto, which amendments may be unilaterally made
by the Company (with the approval of the Committee) unless such amendments are
deemed by the Committee to be materially adverse to the Participant and not
required as a matter of law.


 


(c)           “Award” or “Awards” means a grant made under the Plan in the form of
Restricted Stock, Options, Stock Appreciation Rights, Performance Units, Stock
or any other stock-based award.


 


(d)           “Board” means the Board of Directors of the Company.


 


(e)           “Code” means the Internal Revenue Code of 1986, as amended and in effect
from time to time or any successor statute.


 


(f)            “Committee” means the Executive Resources Committee of the Board, or any
other committee of the Board consisting of two or more Non-Employee Directors
designated by the Board to administer the Plan under Plan Section 3.1 and
constituted so as to permit


 





















 


grants thereby to comply with Exchange Act Rule 16b-3 and Code
Section 162(m).


 


(g)           “Company” means RLI Corp., an Illinois corporation, or any successor to
all or substantially all of its businesses by merger, consolidation, purchase
of assets or otherwise.


 


(h)           “Effective Date” means the date specified in Plan Section 12.1.


 


(i)            “Employee” means an employee (including an officer or director who is also
an employee) of the Company or an Affiliate.


 


(j)            “Exchange Act” means the Securities Exchange Act of 1934, as amended and
in effect from time to time or any successor statute.


 


(k)           “Exchange Act Rule 16b-3” means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act, as now in force and
in effect from time to time or any successor regulation.


 


(l)            “Fair Market Value” as of any date means, unless otherwise expressly
provided in the Plan:


 


(i)            the closing sale price of a Share on such
date or on the next business day, if such date is not a business day:


 


(A)          as reflected in The Wall Street Journal,
or


 


(B)           if the Shares shall not have been traded
on the New York Stock Exchange for more than ten days immediately preceding
such date, on the principal United States Securities Exchange registered under
the Exchange Act on which the Shares are listed, or


 


(C)           if the Shares are not listed on any such
exchange, on the National Association of Securities Dealers, Inc.
Automated Quotations National Market System or any system then in use, or


 


(ii)           if clause (i) is inapplicable, the mean
between the closing “bid” and the closing “asked” quotation of a Share on the
date immediately preceding that date, or, if no closing bid or asked quotation
is made on that date, on the next preceding day on which a closing bid and
asked quotation is made, on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or


 


(iii)          if clauses (i) and (ii) are
inapplicable, what the Committee determines in good faith to be 100% of the
Fair Market Value of a Share on that date, using such criteria as it shall
determine, in its sole discretion, to be appropriate for valuation.


 





















 


The
determination of Fair Market Value shall be subject to adjustment as provided
in Plan Section 16.


 


(m)          “Fundamental Change” means a dissolution or liquidation of the Company; a
sale of substantially all of the assets of the Company; a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation; or a statutory share exchange
involving capital stock of the Company.


 


(n)           “Incentive Stock Option” means any Option designated as such and granted
in accordance with the requirements of Code Section 422 or any successor
provision.


 


(o)           “Insider” as of a particular date means any person who, as of that date is
an officer of the Company as defined under Exchange Act Rule 16a-1(f) or
its successor provision.


 


(p)           “Non-Employee Director” means a member of the Board who is considered a
non-employee director within the meaning of Exchange Act Rule 16b-3(b)(3) or
its successor provision and an outside director for purposes of Code Section 162(m).


 


(q)           “Non-Statutory Stock Option” means an Option other than an Incentive Stock
Option.


 


(r)            “Option” means a right to purchase Stock, including both Non-Statutory
Stock Options and Incentive Stock Options.


 


(s)           “Outside Director” means a director who is not an Employee.


 


(t)            “Participant” means a person or entity to whom an Award is or has been
made in accordance with the Plan.


 


(u)           “Performance Cycle” means the period of time as specified in an Agreement
over which Performance Units are to be earned.


 


(v)           “Performance Goals” means the performance goals established by the Committee
in connection with the grant of an Award. 
In the case of such grants to “covered employees” under Code Section 162(m),
the Performance Goals shall be based on specified levels of one or more of the
following measures with respect to the performance of the Company or a group,
unit, Affiliate or an individual: 
specified levels of the Company’s stock price, market share, sales,
revenue, premiums, underwriting profit, market value potential, earnings per
share, return on equity, costs, cash flow, dividends paid, operating income,
return on assets, expense ratios, loss ratios or combined ratios.  Such performance goals shall be set by the
Committee within the time period prescribed by Code Section 162(m) and
related regulations.


 


(w)          “Performance Units” means an Award made pursuant to Plan Section 11.


 


(x)            “Plan” means this RLI Corp. Omnibus Stock Plan, as may be amended and in
effect from time to time.


 





















 


(y)           “Restricted Stock” means Stock granted under Plan Section 7 so long
as such Stock remains subject to one or more restrictions.


 


(z)            “Retirement” means the retirement of a Participant when the Participant’s
age plus years of service equal at least 75.


 


(aa)         “Section 16” or “Section 16(b)” means Section 16 or Section 16(b),
respectively, of the Exchange Act or any successor statute and the rules and
regulations promulgated thereunder as in effect and as amended from time to
time.


 


(bb)         “Share” means a share of Stock.


 


(cc)         “Stock” means the common stock, par value $1.00 per share, of the Company.


 


(dd)         “Stock Appreciation Right” means a right, the value of which is determined
in relation to the appreciation in value of Shares pursuant to an Award granted
under Plan Section 10.


 


(ee)         “Subsidiary” means a “subsidiary corporation,” as that term is defined in
Code Section 424(f) or any successor provision.


 


(ff)           “Successor” with respect to a Participant means the legal representative
of an incompetent Participant, and if the Participant is deceased, the estate
of the Participant or the person or persons who may, by bequest or inheritance,
or pursuant to the terms of an Award, acquire the right to exercise an Option
or Stock Appreciation Right or to receive cash and/or Shares issuable in
satisfaction of an Award in the event of the Participant’s death.


 


(gg)         “Term” means the period during which an Option or Stock Appreciation Right
may be exercised or the period during which the restrictions or terms and
conditions placed on Restricted Stock or any other Award are in effect.


 


(hh)         “Transferee” means any member of the Participant’s immediate family (i.e., his or her children, step-children, grandchildren and
spouse) or one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners.


 


2.2           Gender and Number. 
Except when otherwise indicated by the context, reference to the
masculine gender shall include, when used, the feminine gender and any term
used in the singular shall also include the plural.


 


3.             Administration and Indemnification


 


3.1           Administration.


 


(a)           The Committee shall administer the Plan. 
The Committee shall have exclusive power to:


 


(i)            make Awards,


 





















 


(ii)           determine when and to whom Awards will be granted, the form of each Award,
the amount of each Award, and any other terms or conditions of each Award
consistent with the Plan, and


 


(iii)          determine whether, to what extent and under what circumstances Awards may
be settled, paid or exercised in cash, Shares or other Awards, or other
property or canceled, forfeited or suspended. 
Each Award shall be subject to an Agreement authorized by the
Committee.  A majority of the members of
the Committee shall constitute a quorum for any meeting of the Committee, and
acts of a majority of the members present at any meeting at which a quorum is
present or the acts unanimously approved in writing by all members of the
Committee shall be the acts of the Committee. 
Notwithstanding the foregoing, the Board shall have the sole and
exclusive power to administer the Plan with respect to Awards granted to
Outside Directors.


 


(b)           Solely for purposes of determining and administering Awards to
Participants who are not Insiders, the Committee may delegate all or any
portion of its authority under the Plan to one or more persons who are not Non-Employee
Directors.


 


(c)           To the extent within its discretion and subject to Plan Sections 15
and 16, other than price, the Committee may amend the terms and conditions of
any outstanding Award.


 


(d)           It is the intent that the Plan and all Awards granted pursuant to it shall
be administered by the Committee so as to permit the Plan and Awards to comply
with Exchange Act Rule 16b-3, except in such instances as the Committee,
in its discretion, may so provide.  If
any provision of the Plan or of any Award would otherwise frustrate or conflict
with the intent expressed in this Section 3.1(d), that provision to the
extent possible shall be interpreted and deemed amended in the manner
determined by the Committee so as to avoid the conflict.  To the extent of any remaining irreconcilable
conflict with this intent, the provision shall be deemed void as applicable to
Insiders to the extent permitted by law and in the manner deemed advisable by
the Committee.


 


(e)           The Committee’s interpretation of the Plan and of any Award or Agreement
made under the Plan and all related decisions or resolutions of the Board or
Committee shall be final and binding on all parties with an interest
therein.  Consistent with its terms, the
Committee shall have the power to establish, amend or waive regulations to administer
the Plan.  In carrying out any of its
responsibilities, the Committee shall have discretionary authority to construe
the terms of the Plan and any Award or Agreement made under the Plan.


 


3.2           Indemnification.  Each
person who is or shall have been a member of the Committee, or of the Board,
and any other person to whom the Committee delegates authority under the Plan,
shall be indemnified and


 





















 


held
harmless by the Company, to the extent permitted by law, against and from any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim, action,
suit or proceeding to which such person may be a party or in which such person
may be involved by reason of any action taken or failure to act, made in good
faith, under the Plan and against and from any and all amounts paid by such
person in settlement thereof, with the Company’s approval, or paid by such
person in satisfaction of any judgment in any such action, suit or proceeding
against such person, provided such person shall give the Company an
opportunity, at the Company’s expense, to handle and defend the same before
such person undertakes to handle and defend it on such person’s own
behalf.  The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
person or persons may be entitled under the Company’s Articles of Incorporation
or By-Laws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.


 


4.             Shares Available Under the Plan


 


4.1           The number of Shares available for distribution under the Plan shall not
exceed 1,500,000 (subject to adjustment pursuant to Plan Section 16).


 


4.2           Any Shares subject to the terms and conditions of an Award under the Plan
that are not used because the terms and conditions of the Award are not met may
again be used for an Award under the Plan.


 


4.3           Any unexercised or undistributed portion of any terminated, expired,
exchanged, or forfeited Award, or any Award settled in cash in lieu of Shares
shall be available for further Awards.


 


4.4           If the purchase price of any Shares with
respect to an Option is satisfied by delivering Shares to the Company (by
either actual delivery or attestation), only the number of Shares delivered to
the Participant, net of the Shares delivered to the Company or attested to,
shall be deemed delivered for purposes of determining the number of Shares
available for further Awards.


 


4.5           For the purposes of computing the total
number of Shares granted under the Plan, the following rules shall apply
to Awards payable in Shares where appropriate:


 





















 


a              each Option shall be deemed to be the equivalent of the maximum number of
Shares that may be issued upon exercise of the particular Option;


 


b.             an Award (other than an Option) payable in some other security shall be
deemed to be equal to the number of Shares to which it relates;


 


c.             where the number of Shares available under the Award is variable on the
date it is granted, the number of Shares shall be deemed to be the maximum
number of Shares that could be received under that particular Award; and


 


d.             where two or more types of Awards (all of which are payable in Shares) are
granted to a Participant in tandem with each other, such that the exercise of
one type of Award with respect to a number of Shares cancels at least an equal
number of Shares of the other, each such joint Award shall be deemed to be the
equivalent of the maximum number of Shares available under the largest single
Award.


 


Additional
rules for determining the number of Shares granted under the Plan may be
made by the Committee as it deems necessary or desirable.


 


4.6           No fractional Shares may be issued under the Plan; however, cash shall be
paid in lieu of any fractional Share in settlement of an Award.


 


4.7           The maximum number of Shares that may be awarded to a Participant in any
calendar year in the form of Options is 250,000 and the maximum number of
Shares that may be awarded to a Participant in any calendar year in the form of
Stock Appreciation Rights is 250,000.


 


4.8           The maximum number of Shares that may be issued
pursuant to Options intended to be Incentive Stock Options shall be 750,000.


 


5.             Eligibility 
Participation in the Plan shall be limited to Employees and to
individuals or entities who are not Employees but who provide services to the
Company or an Affiliate, including services provided in the capacity of a
consultant, advisor or director.  The
granting of Awards is solely at the discretion of the Committee, except that
Incentive Stock Options may only be granted to Employees.  References herein to “employed,” “employment”
or similar terms (except “Employee”) shall include the providing of services in
any capacity or as a director. Neither the transfer of employment of a
Participant between any of the Company or its Affiliates, nor a leave of
absence granted to such Participant and approved by the Committee, shall be
deemed a termination of employment for purposes of the Plan.


 


6.             General Terms of Awards


 


6.1           Amount and Conditions of Award.  Each Agreement shall set forth the number of
Shares of Restricted Stock, Stock or Performance Units subject to the
Agreement, or the number of Shares to which the Option subject to the Agreement
applies or with respect to which payment upon the exercise of the Stock
Appreciation Right subject to the Agreement is to be determined, as the case
may be, together with such other terms and conditions applicable to the Award
as determined by the Committee


 





















 


acting
in its sole discretion, which may include conditions on Options or Stock
Appreciation Rights becoming exercisable or the lapsing of restrictions on
Restricted Stock that are tied to Performance Goals.


 


6.2           Term. 
Each Agreement, other than those relating solely to Awards of Shares
without restrictions, shall set forth the Term of the Option, Stock
Appreciation Right, Restricted Stock or other Award or the Performance Cycle
for the Performance Units, as the case may be. 
Acceleration of the expiration of the applicable Term is permitted, upon
such terms and conditions as shall be set forth in the Agreement, which may,
but need not, include, without limitation, acceleration in the event of the
Participant’s death, disability or retirement. 
Acceleration of the Performance Cycle of Performance Units shall be
subject to Plan Section 11.2.


 


6.3           Transferability.  Except as provided in this Section, during
the lifetime of a Participant to whom an Award is granted, only that
Participant (or that Participant’s legal representative) may exercise an Option
or Stock Appreciation Right, or receive payment with respect to Performance
Units or any other Award.  No Award of
Restricted Stock (before the expiration of the restrictions), Options, Stock
Appreciation Rights or Performance Units or other Award may be sold, assigned,
transferred, exchanged or otherwise encumbered other than to a Successor in the
event of a Participant’s death or pursuant to a qualified domestic relations
order as defined in the Code or Title 1 of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), or the rules thereunder; any
attempted transfer in violation of this Section 6.3 shall be of no
effect.  Notwithstanding the immediately
preceding sentence, the Committee, in an Agreement or otherwise at its
discretion, may provide that the Award (other than Incentive Stock Options) may
be transferable to a Transferee if the Participant does not receive any
consideration for the transfer.  Any Award
held by a Transferee shall continue to be subject to the same terms and
conditions that were applicable to that Award immediately before the transfer
thereof to the Transferee.  For purposes
of any provision of the Plan relating to notice to a Participant or to
acceleration or termination of an Award upon the death, disability or
termination of employment of a Participant, the references to “Participant”
shall mean the original grantee of an Award and not any Transferee.


 


6.4           Termination of Employment.  Except as otherwise determined by the Committee
or provided by the Committee in an Agreement, in case of a Participant’s
termination of employment, the following provisions shall apply:


 


(a)           Options and Stock Appreciation Rights.


 


(i)            If a Participant’s employment or other
relationship with the Company and its Affiliates terminates because of the
Participant’s death, then any Option or Stock Appreciation Right that has not
expired or been terminated shall become exercisable in full if the Participant’s
employment or other relationship with the Company and its Affiliates has been
continuous between the date the Option or Stock Appreciation Right was granted
and a date not more than three months prior to such death, and may be exercised
by the Participant’s


 





















 


Successor
at any time, or from time to time, within one year after the date of the
Participant’s death.


 


(ii)           If a Participant’s employment or other
relationship with the Company and its Affiliates terminates because the
Participant is disabled (within the meaning of Section 22(e)(3) of
the Code), then any Option or Stock Appreciation Right that has not expired or
been terminated shall become exercisable in full if the Participant’s
employment or other relationship with the Company and its Affiliates has been
continuous between the date the Option or Stock Appreciation Right was granted
and the date of such disability, and the Participant or the Participant’s
Successor may exercise such Option or Stock Appreciation Right at any time, or
from time to time, within three years after the date of the Participant’s
disability.


 


(iii)          If a Participant’s employment or other
relationship with the Company and its Affiliates terminates because of the
Participant’s Retirement, then any Option or Stock Appreciation Right that has
not expired or been terminated shall remain exercisable for three years after
the Participant’s Retirement, but, unless otherwise provided in the Agreement,
only to the extent that such Option or Stock Appreciation Right was exercisable
immediately prior to such Participant’s termination of employment; provided,
however, that if the Participant is an Outside Director, the Option or Stock
Appreciation Right shall remain exercisable until the expiration of the Term
after such Outside Director ceases to be a director of the Company, but, unless
otherwise provided in the Agreement, only to the extent that such Option or
Stock Appreciation Right was exercisable immediately prior to such Outside
Director ceasing to be a director.


 


(iv)          If a Participant’s employment terminates for
any reason other than death, disability or Retirement, then any Option or Stock
Appreciation Right that has not expired or been terminated shall, unless the
Committee shall otherwise provide in the Agreement, remain exercisable for
three months after termination of the Participant’s employment, but, unless
otherwise provided in the Agreement, only to the extent that such Option or
Stock Appreciation Right was exercisable immediately prior to such Participant’s
termination of employment; provided, however, that if the Participant is an
Outside Director, the Option or Stock Appreciation Right shall remain
exercisable until the expiration of the Term after such Outside Director ceases
to be a director of the Company, but, unless otherwise provided in the
Agreement, only to the extent that such Option or Stock Appreciation Right was
exercisable immediately prior to such Outside Director ceasing to be a
director.


 


(v)           Notwithstanding the foregoing Plan Sections
6.4(a)(i), (ii), (iii) and (iv) in no event shall an Option or a
Stock Appreciation Right be exercisable after the expiration of the Term of
such Award.  Any Option or Stock
Appreciation Right that is not exercised within the periods set forth in Plan
Sections 6.4 (i), (ii), (iii) and (iv) except as otherwise


 





















 


provided by the Committee in the Agreement, shall
terminate as of the end of the periods described in such Sections.


 


(b)           Performance Units.  If a
Participant’s employment or other relationship with the Company and its
Affiliates terminates during a Performance Cycle because of the Participant’s
death or disability, or under other circumstances provided by the Committee in
its discretion in the Agreement or otherwise, the Participant, unless the
Committee shall otherwise provide in the Agreement, shall be entitled to a
payment with respect to Performance Units at the end of the Performance Cycle
based upon the extent to which achievement of performance targets was satisfied
at the end of the Performance Cycle and prorated for the portion of the
Performance Cycle during which the Participant was employed by the Company or
its Affiliates.  Except as provided in
this Section 6.4(b) or in the Agreement, if a Participant’s
employment or other relationship with the Company and its Affiliates terminates
during a Performance Cycle, then such Participant shall not be entitled to any
payment with respect to that Performance Cycle.


 


(c)           Restricted Stock Awards.  If a
Participant’s employment or other relationship with the Company and its
Affiliates terminates during the Term of a Restricted Stock Award because of
the Participant’s death or disability, or under other circumstances provided by
the Committee in its discretion in the Agreement or otherwise, the Participant,
unless the Committee shall otherwise provide in the Agreement, shall be
entitled to receive a number of Shares of Restricted Stock under the Award that
has been prorated for the portion of the Term of the Award during which the
Participant was employed by the Company and its Affiliates, and, with respect
to such Shares, all restrictions shall lapse. 
Any Shares of Restricted Stock as to which restrictions do not lapse
under the preceding sentence or under the Agreement shall terminate at the date
of the Participant’s termination of employment and such Shares of Restricted
Stock shall be forfeited to the Company.


 


6.5           Rights as Shareholder.  Each
Agreement shall provide that a Participant shall have no rights as a
shareholder with respect to any securities covered by an Award unless and until
the date the Participant becomes the holder of record of the Stock, if any, to
which the Award relates.


 


7.             Restricted Stock Awards


 


7.1           An Award of Restricted Stock under the Plan shall consist of Shares
subject to restrictions on transfer and conditions of forfeiture, which restrictions
and conditions shall be included in the applicable Agreement.  The Committee may provide for the lapse or
waiver of any such restriction or condition based on such factors or criteria
as the Committee, in its sole discretion, may determine.


 


7.2           Except as otherwise provided in the applicable Agreement, each Stock
certificate issued with respect to an Award of Restricted Stock shall either be
deposited with the Company or its designee, together with an assignment
separate from the certificate, in blank, signed by the Participant, or bear
such legends with respect to the restricted nature of the Restricted Stock
evidenced thereby as shall be provided for in the applicable Agreement.


 





















 


7.3           The Agreement shall describe the terms and conditions by which the
restrictions and conditions of forfeiture upon awarded Restricted Stock shall
lapse.  Upon the lapse of the
restrictions and conditions, Shares free of restrictive legends, if any,
relating to such restrictions shall be issued to the Participant or a Successor
or Transferee.


 


7.4           A Participant or a Transferee with a Restricted Stock Award shall have all
the other rights of a shareholder including, but not limited to, the right to
receive dividends and the right to vote the Shares of Restricted Stock.


 


7.5           No more than 750,000 of the total number of Shares available for Awards
under the Plan shall be issued during the term of the Plan as Restricted
Stock.  This limitation shall be
calculated pursuant to the applicable provisions of Plan Sections 4 and
16.


 


8.             Other Awards  The
Committee may from time to time grant Stock and other Awards under the Plan
including, without limitation, those Awards pursuant to which Shares are or may
in the future be acquired, Awards denominated in Stock units, restricted stock
units, securities convertible into Stock and phantom securities.  The Committee, in its sole discretion, shall
determine the terms and conditions of such Awards provided that such Awards
shall not be inconsistent with the terms and purposes of the Plan.  The Committee may, at its sole discretion,
direct the Company to issue Shares subject to restrictive legends and/or stop
transfer instructions that are consistent with the terms and conditions of the
Award to which the Shares relate.  No
more than 750,000 of the total number of Shares available for Awards under the
Plan shall be issued during the term of the Plan in the form of Stock without
restrictions.


 


9.             Stock Options


 


9.1           Terms of All Options.


 


(a)           An Option shall be granted pursuant to an Agreement as either an Incentive
Stock Option or a Non-Statutory Stock Option. 
The purchase price of each Share subject to an Option shall be
determined by the Committee and set forth in the Agreement, but shall not be
less than 100% of the Fair Market Value of a Share as of the date the Option is
granted (except as provided in Plan Sections 9.2 and 19).


 


(b)           The purchase price of the Shares with respect to which an Option is
exercised shall be payable in full at the time of exercise, provided that to
the extent permitted by law, the Agreement may permit some or all Participants
to simultaneously exercise Options and sell the Shares thereby acquired
pursuant to a brokerage or similar relationship and use the proceeds from the
sale as payment of the purchase price of the Shares.  The purchase price may be payable in cash, by
delivery or tender of Shares (by actual delivery or attestation) having a Fair
Market Value as of the date the Option is exercised equal to the purchase price
of the Shares being purchased pursuant to the Option, or a combination thereof,
as determined by the Committee, but no fractional Shares will be issued or
accepted.  Provided, however, that a
Participant exercising a stock option shall not be permitted to pay any portion


 





















 


of the purchase price with Shares if, in the opinion of the
Committee, payment in such manner could have adverse financial accounting
consequences for the Company.


 


(c)           Each Option shall be exercisable in whole or in part on the terms provided
in the Agreement.  In no event shall any
Option be exercisable at any time after the expiration of its Term.  When an Option is no longer exercisable, it
shall be deemed to have lapsed or terminated.


 


(d)           Upon receipt of notice of exercise, the
Committee may elect to cash out all or part of the portion of the Shares for
which an Option is being exercised by paying the Participant an amount, in cash
or Shares, equal to the excess of the Fair Market Value of the Shares over the
aggregate purchase price for the Shares for which the Option is being exercised
on the effective date of such cash-out.


 


9.2           Incentive Stock Options.  In
addition to the other terms and conditions applicable to all Options:


 


(a)           the purchase price of each Share subject to an Incentive Stock Option
shall not be less than 100% of the Fair Market Value of a Share as of the date
the Incentive Stock Option is granted if this limitation is necessary to
qualify the Option as an Incentive Stock Option (except as provided in Plan Section 19);


 


(b)           the aggregate Fair Market Value (determined as of the date the Option is
granted) of the Shares with respect to which Incentive Stock Options held by an
individual first become exercisable in any calendar year (under the Plan and
all other incentive stock option plans of the Company and its Affiliates) shall
not exceed $100,000 (or such other limit as may be required by the Code) if
this limitation is necessary to qualify the Option as an Incentive Stock Option
and to the extent an Option or Options granted to a Participant exceed this
limit the Option or Options shall be treated as a Non-Statutory Stock Option;


 


(c)           an Incentive Stock Option shall not be exercisable more than 10 years
after the date of grant (or such other limit as may be required by the Code) if
this limitation is necessary to qualify the Option as an Incentive Stock
Option;


 


(d)           an Incentive Stock Option shall not be
exercisable more than one year after termination of the Participant’s
employment with the Company and its Affiliates if the Participant’s employment
with the Company and its Affiliates terminates because of the Participant’s
death or disability or more than three months after termination of the
Participant’s employment if the Participant’s employment terminates for any
reason other than death or disability.


 


(e)           the Agreement covering an Incentive Stock
Option shall contain such other terms and provisions that the Committee


 





















 


determines
necessary to qualify this Option as an Incentive Stock Option; and


 


(f)            notwithstanding any other provision of the
Plan to the contrary, no Participant may receive an Incentive Stock Option
under the Plan if, at the time the Award is granted, the Participant owns
(after application of the rules contained in Code Section 424(d), or
its successor provision), Shares possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its Subsidiaries, unless
(i) the option price for that Incentive Stock Option is at least 110% of
the Fair Market Value of the Shares subject to that Incentive Stock Option on
the date of grant and (ii) that Option is not exercisable after the date
five years from the date that Incentive Stock Option is granted.


 


10.          Stock Appreciation Rights  An Award of
a Stock Appreciation Right shall entitle the Participant (or a Successor or
Transferee), subject to terms and conditions determined by the Committee, to
receive upon exercise of the Stock Appreciation Right all or a portion of the
excess of the Fair Market Value of a specified number of Shares as of the date of
exercise of the Stock Appreciation Right over a specified price that shall not
be less than 100% of the Fair Market Value of such Shares as of the date of
grant of the Stock Appreciation Right.  A
Stock Appreciation Right may be granted in connection with part or all of, in
addition to, or completely independent of an Option or any other Award under
the Plan.  If issued in connection with a
previously or contemporaneously granted Option, the Committee may impose a condition
that exercise of a Stock Appreciation Right cancels a pro rata portion of the
Option with which it is connected and vice versa.  Each Stock Appreciation Right may be
exercisable in whole or in part on the terms provided in the Agreement.  No Stock Appreciation Right shall be
exercisable at any time after the expiration of its Term.  When a Stock Appreciation Right is no longer
exercisable, it shall be deemed to have lapsed or terminated.  Upon exercise of a Stock Appreciation Right,
payment to the Participant or a Successor or Transferee shall be made at such
time or times as shall be provided in the Agreement in the form of cash, Shares
or a combination of cash and Shares as determined by the Committee.  The Agreement may provide for a limitation upon
the amount or percentage of the total appreciation on which payment (whether in
cash and/or Shares) may be made in the event of the exercise of a Stock
Appreciation Right.


 


11.          Performance Units


 


11.1         Initial Award.


 


(a)           An Award of Performance Units under the Plan shall entitle the Participant
(or a Successor or Transferee) to future payments of cash, Shares or a
combination of cash and Shares, as determined by the Committee, based upon the
achievement of Performance Goals.  The
Agreement may establish that a portion of a Participant’s Award will be paid
for performance that exceeds the minimum target but falls below the maximum
target applicable to the Award.  The
Agreement shall also provide for the timing of the payment.


 


(b)           Following the conclusion or acceleration of each Performance Cycle, the
Committee shall determine the extent to which


 





















 


(i) performance targets have been attained, (ii) any
other terms and conditions with respect to an Award relating to the Performance
Cycle have been satisfied and (iii) payment is due with respect to an
Award of Performance Units.


 


11.2         Acceleration and Adjustment.  The
Agreement may permit an acceleration of the Performance Cycle and an adjustment
of performance targets and payments with respect to some or all of the
Performance Units awarded to a Participant, upon the occurrence of certain
events, which may, but need not include, without limitation, a Fundamental
Change; a recapitalization; a change in the accounting practices of the
Company; a change in the Participant’s title or employment responsibilities;
the Participant’s death, disability or Retirement or; with respect to payments
in Shares with respect to Performance Units, a reclassification, stock
dividend, stock split or stock combination as provided in Plan Section 16.  The Agreement also may provide for a
limitation on the value of an Award of Performance Units that a Participant may
receive.


 


12.          Effective Date and Duration of the Plan


 


12.1         Effective Date.  The
Plan shall become effective as of May 5, 2005, if the Plan is approved by
the requisite vote of shareholders at the 2005 Annual Meeting of Shareholders
or any adjournment thereof.


 


12.2         Duration of the Plan.  The
Plan shall remain in effect until all Stock subject to it shall be distributed,
all Awards have expired or lapsed, the Plan is terminated pursuant to Plan Section 15,
or May 5, 2015 (the “Termination Date”); provided, however, that Awards
made before the Termination Date may be exercised, vested or otherwise
effectuated beyond the Termination Date unless limited in the Agreement or
otherwise.  No Award of an Incentive
Stock Option shall be made more than 10 years after the Effective Date (or such
other limit as may be required by the Code) if this limitation is necessary to
qualify the Option as an Incentive Stock Option.  The date and time of approval by the
Committee of the granting of an Award shall be considered the date and time at
which the Award is made or granted.


 


13.          Plan Does Not Affect Employment Status


 


13.1         Status as an eligible Employee shall not be construed as a commitment that
any Award will be made under the Plan to that eligible Employee or to eligible
Employees generally.


 


13.2         Nothing in the Plan or in any Agreement or related documents shall confer
upon any Employee or Participant any right to continue in the employment of the
Company or any Affiliate or constitute any contract of employment or affect any
right that the Company or any Affiliate may have to change such person’s
compensation, other benefits, job responsibilities, title, or to terminate the
employment of such person with or without cause.


 


14.          Tax Withholding  The Company
shall have the right to withhold from any cash payment under the Plan to a
Participant or other person (including a Successor or a Transferee) an amount
sufficient to cover any required


 





















 


withholding taxes.  The Company shall have the right to require a
Participant or other person receiving Shares under the Plan to pay the Company
a cash amount sufficient to cover any required withholding taxes before actual
receipt of those Shares.  In lieu of all
or any part of a cash payment from a person receiving Shares under the Plan,
the Committee may permit the individual to cover all or any part of the
required withholdings through a reduction of the number of Shares delivered or
delivery or tender return to the Company of Shares held by the Participant or
other person, in each case valued in the same manner as used in computing the
withholding taxes under the applicable laws.


 


15.          Amendment, Modification and Termination of the Plan


 


15.1         The Board may at any time and from time to time terminate, suspend or
modify the Plan.  Except as limited in
15.2 below, the Committee may at any time alter or amend any or all Agreements
under the Plan to the extent permitted by law.


 


15.2         No termination, suspension, or modification of the Plan will materially
and adversely affect any right acquired by any Participant or Successor or
Transferee under an Award granted before the date of termination, suspension,
or modification, unless otherwise agreed to by the Participant in the Agreement
or otherwise, or required as a matter of law; but it will be conclusively
presumed that any adjustment for changes in capitalization provided for in Plan
Sections 11.2 or 16 does not adversely affect these rights.


 


16.          Adjustment for Changes in Capitalization  Subject to
any required action by the Company’s shareholders, appropriate adjustments, so
as to prevent enlargement of rights or inappropriate dilution — (i) in the
aggregate number and type of Shares available for Awards under the Plan, (ii) in
the limitations on the number of Shares that may be issued to an individual
Participant as an Option or a Stock Appreciation Right in any calendar year or
that may be issued in the form of Restricted Stock or Shares without
restrictions, (iii) in the number and type of Shares and amount of cash
subject to Awards then outstanding, (iv) in the Option price as to any
outstanding Options and, (v) subject to Plan Section 11.2, in
outstanding Performance Units and payments with respect to outstanding
Performance Units — may be made by the Committee, in its sole discretion, to
give effect to adjustments made in the number or type of Shares through a
Fundamental Change (subject to Plan Section 17), recapitalization,
reclassification, stock dividend, stock split, stock combination or other
relevant change, provided that fractional Shares shall be rounded to the
nearest whole Share.


 


17.          Fundamental Change


 


In the event of a proposed
Fundamental Change, the Committee may, but shall not be obligated to take the
following actions:


 


17.1         if the Fundamental Change is a merger or consolidation or statutory share
exchange, make appropriate provision for the protection of the outstanding
Options and Stock Appreciation Rights by the substitution of options, stock
appreciation rights and appropriate voting common stock of the corporation
surviving any merger or consolidation or, if appropriate, the parent
corporation of the Company or such surviving corporation; or


 





















 


17.2         at least ten days before the occurrence of the Fundamental Change,
declare, and provide written notice to each holder of an Option or Stock
Appreciation Right of the declaration, that each outstanding Option and Stock
Appreciation Right, whether or not then exercisable, shall be canceled at the
time of, or immediately before the occurrence of the Fundamental Change in
exchange for payment to each holder of an Option or Stock Appreciation Right,
within ten days after the Fundamental Change, of cash equal to (i) for
each Share covered by the canceled Option, the amount, if any, by which the
Fair Market Value (as defined in this Section) per Share exceeds the exercise
price per Share covered by such Option, or (ii) for each Stock
Appreciation Right, the price determined pursuant to Section 10, except
that Fair Market Value of the Shares as of the date of exercise of the Stock
Appreciation Right, as used in clause (i) of Plan Section 10, shall
be deemed to mean Fair Market Value for each Share with respect to which the
Stock Appreciation Right is calculated determined in the manner hereinafter
referred to in this Section.  At the time
of the declaration provided for in the immediately preceding sentence, each
Stock Appreciation Right and each Option shall immediately become exercisable
in full and each person holding an Option or a Stock Appreciation Right shall
have the right, during the period preceding the time of cancellation of the
Option or Stock Appreciation Right, to exercise the Option as to all or any
part of the Shares covered thereby or the Stock Appreciation Right in whole or
in part, as the case may be.  In the
event of a declaration pursuant to Plan Section 17(2), each outstanding
Option and Stock Appreciation Right granted pursuant to the Plan that shall not
have been exercised before the Fundamental Change shall be canceled at the time
of, or immediately before, the Fundamental Change, as provided in the
declaration.  Notwithstanding the
foregoing, no person holding an Option or a Stock Appreciation Right shall be
entitled to the payment provided for in this Section 17(2) if such
Option or Stock Appreciation Right shall have terminated, expired or been
cancelled.  For purposes of this Section only,
“Fair Market Value” per Share means the cash plus the Fair Market Value, as
determined in good faith by the Committee, of the non-cash consideration to be
received per Share by the shareholders of the Company upon the occurrence of
the Fundamental Change.


 


18.          Forfeitures  An Agreement
may provide that if a Participant has received or been entitled to payment of
cash, delivery of Shares, or a combination thereof pursuant to an Award within
six months before the Participant’s termination of employment with the Company
and its Affiliates, the Committee, in its sole discretion, may require the
Participant to return or forfeit the cash and/or Shares received with respect
to the Award (or its economic value as of (i) the date of the exercise of
Options or Stock Appreciation Rights, (ii) the date of, and immediately
following, the lapse of restrictions on Restricted Stock or the receipt of
Shares without restrictions, or (iii) the date on which the right of the
Participant to payment with respect to Performance Units vests, as the case may
be, in the event of certain occurrences specified in the Agreement.  The Committee’s right to require forfeiture
must be exercised within 90 days after discovery of such an occurrence but in
no event later than 15 months after the Participant’s termination of employment
with the Company and its Affiliates.  The
occurrences may, but need not, include competition with the Company or any
Affiliate, unauthorized disclosure of material proprietary information of the
Company or any Affiliate, a violation of applicable business ethics policies of
the Company or Affiliate or any other occurrence specified in the Agreement
within the period or periods of time specified in the Agreement.


 





















 


19.          Corporate Mergers, Acquisitions, Etc.  The
Committee may also grant Options, Stock Appreciation Rights, Restricted Stock or
other Awards under the Plan in substitution for, or in connection with the
assumption of, existing options, stock appreciation rights, restricted stock or
other award granted, awarded or issued by another corporation and assumed or
otherwise agreed to be provided for by the Company pursuant to or by reason of
a transaction involving a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation to which the
Company or a Subsidiary is a party.  The
terms and conditions of the substitute Awards may vary from the terms and
conditions set forth in the Plan to the extent as the Board at the time of the
grant may deem appropriate to conform, in whole or in part, to the provisions
of the awards in substitution for which they are granted.


 


20.          Unfunded Plan  The Plan
shall be unfunded and the Company shall not be required to segregate any assets
that may at any time be represented by Awards under the Plan.  Neither the Company, its Affiliates, the
Committee, nor the Board shall be deemed to be a trustee of any amounts to be
paid under the Plan nor shall anything contained in the Plan or any action
taken pursuant to its provisions create or be construed to create a fiduciary
relationship between the Company and/or its Affiliates, and a Participant or
Successor or Transferee.  To the extent
any person acquires a right to receive an Award under the Plan, this right
shall be no greater than the right of an unsecured general creditor of the
Company.


 


21.          Limits of Liability


 


21.1         Any liability of the Company to any
Participant with respect to an Award shall be based solely upon contractual
obligations created by the Plan and the Award Agreement.


 


21.2         Except as may be required by law, neither the
Company nor any member of the Board or of the Committee, nor any other person
participating in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have any
liability to any party for any action taken, or not taken, in good faith under
the Plan.


 


22.          Compliance with Applicable Legal Requirements  No
certificate for Shares distributable pursuant to the Plan shall be issued and
delivered unless the issuance of the certificate complies with all applicable
legal requirements including, without limitation, compliance with the
provisions of applicable state securities laws, the Securities Act of 1933, as
amended and in effect from time to time, or any successor statute, the Exchange
Act and the requirements of the exchanges on which the Company’s Shares may, at
the time, be listed.


 


23.          Deferrals and Settlements  The
Committee may require or permit Participants to elect to defer the issuance of
Shares or the settlement of Awards in cash under such rules and procedures
as it may establish under the Plan.  It
may also provide that deferred settlements include the payment or crediting of
interest on the deferral amounts.


 


24.          Other Benefit and Compensation Programs  Payments and
other benefits received by a Participant under an Award made pursuant to the
Plan shall not be deemed a part of a Participant’s regular, recurring
compensation for


 





















 


purposes of the termination,
indemnity or severance pay laws of any country and shall not be included in,
nor have any effect on, the determination of benefits under any other employee
benefit plan, contract or similar arrangement provided by the Company or an
Affiliate unless expressly so provided by such other plan, contract or
arrangement, or unless the Committee expressly determines that an Award or
portion of an Award should be included to accurately reflect competitive
compensation practices or to recognize that an Award has been made in lieu of a
portion of competitive cash compensation.


 


25.          Beneficiary Upon Participant’s Death  To the
extent that the transfer of a Participant’s Award at his or her death is
permitted under an Agreement, a Participant’s Award shall be transferable at
death to the estate or to the person who acquires the right to succeed to the
Award by bequest or inheritance.


 


26.          Requirements of Law


 


26.1         To the extent that federal laws do not
otherwise control, the Plan and all determinations made and actions taken
pursuant to the Plan shall be governed by the laws of the State of Illinois
without regard to its conflicts-of-law principles and shall be construed
accordingly.


 


26.2         If any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
effect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.


 


27.           Repricing; Shareholder Approval 
Except as provided in Plan Section 16, neither the Board nor any
committee thereof shall cause the Company to adjust or amend the exercise price
of any outstanding Award, whether through amendment, replacement grant, or
other means, without the prior approval of the shareholders of the Company.