Exhibit 10.1


 


WADDELL & REED
FINANCIAL, INC.


1998 STOCK INCENTIVE PLAN


As Amended and Restated


 


                Waddell & Reed Financial,
Inc., previously established the Waddell & Reed Financial, Inc. 1998 Stock
Incentive Plan, as Amended and Restated, as amended effective December 12, 2002
and as further amended effective on each of January 16, 2003 (which January 16,
2003 amendment was submitted to and approved by the Company’s stockholders at
the Company’s 2003 Annual Meeting of Stockholders), January 1, 2004 and October
14, 2004 (as amended, the “Original Plan”). 
Pursuant to the powers reserved in Section 11 of the
Original Plan, the Original Plan is amended and restated effective
October 19, 2005 as follows (the Original Plan as amended and restated
hereby, the “Plan”).


 


SECTION 1.  Purposes of the Plan;
Definitions.


 


                The
purposes of the Plan are to enable the Company, its Subsidiaries and Affiliates
to attract and retain employees, directors and consultants who contribute to
the Company’s success by their ability, ingenuity and industry, and to enable
such employees, directors and consultants to participate in the long-term
success and growth of the Company through an equity interest in the Company.


                For
purposes of the Plan, the following terms shall be defined as set forth below:


                “Accounting Firm”
has the meaning assigned to such term in Section 12(b).


 


                “Affiliate” means
(a) any corporation (other than a Subsidiary), partnership, joint venture
or any other entity in which the Company owns, directly or indirectly, at least
a 10% beneficial ownership interest, and (b) the Company’s parent company,
if any.


 


                “Annual SORP
Exercise Date” has the meaning assigned to such term in Section 5(n).


 


                “Award Agreement”
means a written agreement by and between the Company and an awardee evidencing
an award of Stock Options, Director Stock Options, Stock Appreciation Rights,
Restricted Stock, Director Restricted Stock or Deferred Stock, as applicable,
under the Plan.


 


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


 


                “Business Day”
means a day on which the New York Stock Exchange or other national securities
exchange or over-the-counter market on which the Shares are then
traded is open for business.


 


                “Cause” means a
participant’s willful misconduct or dishonesty, either of which is directly and
materially harmful to the business or reputation of the Company or any
Subsidiary or Affiliate; provided, however, that in the case where there is an
employment or


 





















 


consulting agreement between a participant and the Company or any Subsidiary
or Affiliate at the time of grant which defines “cause” (or words of like
import), it shall have the meaning ascribed to such term (or words of like
import) under such agreement.


 


                “Change of Control”
has the meaning assigned to such term in Section 11(b).


 


                “Change of Control Price” has
the meaning assigned to such term in Section 11(d).


 


                “Code” means the
Internal Revenue Code of 1986, as amended, and any successor thereto.


 


                “Committee” means
the Compensation Committee of the Board.


 


                “Commission” means
the United States Securities and Exchange Commission.


 


                “Company” means
Waddell & Reed Financial, Inc., a Delaware corporation, and its
successors.


 


                “Covered Employee” means (a) the
chief executive officer of the Company, and (b) a person designated by the
Committee, at the time of grant of Performance Awards, whom the Committee
believes is likely to be a “covered employee” (within the meaning of Section
162(m)(3) of the Code) with respect to the fiscal year during which the
Performance Award is granted or in the foreseeable future.


 


                “Deferral Period”
means the period of time during which the receipt of Shares underlying a
Deferred Stock award is deferred.


 


                “Deferred Stock” means an award
of the right to receive Shares at the end of a specified Deferral Period
granted pursuant to Section 9.


 


                “Director Restricted Stock”
means any Shares of Restricted Stock granted pursuant to Section 6
to an Outside Director.


 


                “Director Stock Option” means
any option to purchase Shares granted pursuant to Section 6 to an
Outside Director.


 


                “Disability” means
total and permanent disability as determined under the Company’s long-term
disability program,
whether or not the participant is covered under such program.  If no such
program is in effect, the Disability of a director shall be determined in good
faith by the Board (excluding such director).


 


                “Early Retirement”
means retirement from active employment with the Company, any Subsidiary, or
any Affiliate pursuant to the early retirement provisions of the applicable
tax-qualified Company pension plan.


 


2





















 


                “Excess Parachute
Payment” has the meaning assigned to such term in Section 12(a).


 


                “Exchange Act”
means the Securities Exchange Act of 1934, as amended, and any successor
thereto.


 


                “Fair Market Value”
means, unless otherwise determined in good faith by the Committee or required
by applicable law, as of any given date, the closing sale price of a Share on
such date on the New York Stock Exchange or other principal national securities
exchange or over-the-counter market on which the Shares are then
traded or, if there is no sale on that day, then on the last previous Business
Day on which a sale was reported.


 


                “Gross-Up
Payment” has the meaning assigned to such term in Section 12(a).


 


                “Immediate Family”
means the children, grandchildren or spouse of any optionee.


 


                “Incentive Stock
Option” means any Stock Option intended to be, and designated as, an “incentive
stock option” within the meaning of Section 422 of the Code.


 


                “Non-Qualified
Stock Option” means any Stock Option that is not an Incentive Stock Option.


 


                “Normal Retirement”
means retirement from active employment with the Company, any Subsidiary, or
any Affiliate pursuant to the normal retirement provisions specified in the
applicable tax-qualified Company pension plan.


 


                “Outside Director”
means any director of the Company who is not an officer or employee of the
Company, any Subsidiary or any Affiliate.


 


                “Performance Award”
means any Stock Option (other than an Incentive Stock Option), Stock
Appreciation Right, or Restricted Stock or Deferred Stock award to a Covered
Employee that the Committee intends to be “performance-based compensation”
under Section 162(m)(4)(C) of the Code.


 


                “Plan” means the Waddell
& Reed Financial, Inc. 1998 Stock Incentive Plan, as Amended and Restated,
as set forth herein and as may be amended, modified or supplemented from time
to time.


 


                “Potential Change
of Control” has the meaning assigned to such term in Section 11(c).


 


                “Restricted Stock”
means Shares that are subject to certain restrictions and/or a risk of
forfeiture granted pursuant to Section 8.


 


                “SAR/Option
Performance Award” means any Performance Award that is a Stock Option or Stock
Appreciation Right.


 


3





















 


                “Shares” means the
Company’s Class A common stock, par value $.01.


 


                “SORP” has the
meaning assigned to such term in Section 5(n).


 


                “SORP Option” has
the meaning assigned to such term in Section 5(n).


 


                “Stock Appreciation
Right” means a right to surrender to the Company all or a portion of a Stock
Option in exchange for an amount in cash or Shares as determined in the manner
prescribed in Section 7(b)(ii), granted pursuant to Section 7.


 


                “Stock Option”
means an option to purchase Shares granted pursuant to Section 5.


 


                “Stock Performance
Award” means any Performance Award other than a SAR/Option Performance Award.


 


                “Subsidiary” means
any corporation (other than the Company) in an unbroken chain of corporations beginning
with the Company if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.


 


                “Tax Counsel” has
the meaning assigned to such term in Section 12(a).


 


 


SECTION 2.  Administration.


 


                The
Plan shall be administered by the Committee which shall at all times comply
with any applicable requirements of Rule 16b-3 of the Exchange Act. All
members of the Committee shall also be “outside directors” within the meaning
of Section 162(m) of the Code.  If at any time no Committee shall be in office,
then the functions of the Committee specified in the Plan shall be exercised by
the Board.


                The
Board shall have the power and authority to determine all terms, conditions and
provisions of Director Stock Option and Director Restricted Stock awards
pursuant to Section 6.


                The
Committee shall have the power and authority to grant to eligible persons,
pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock and/or (iv) Deferred
Stock.  In particular, the Committee
shall have the authority:


                                                                (a)           to select the consultants, officers and other key
employees of the Company, its Subsidiaries, and its Affiliates to whom Stock
Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock, or a
combination of the foregoing, from time to time will be granted hereunder;


 


4





















 


                                                                (b)           to determine whether and to what extent Stock Options
(including Incentive Stock Options and Non-Qualified Stock Options), Stock
Appreciation Rights, Restricted Stock or Deferred Stock, or a combination of
the foregoing, are to be granted hereunder;


 


                                                                (c)           to determine the number of Shares to be covered by each
such award granted hereunder; and


 


                                                                (d)           to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, including, but not
limited to, any restriction on any award and/or the Shares relating thereto
based on performance and/or such other factors as the Committee may determine,
in its sole discretion, and any vesting acceleration features based on
performance and/or such other factors as the Committee may determine, in its
sole discretion.


 


                The
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan, any award issued thereunder, and any Award Agreements relating thereto;
and to otherwise supervise the administration of the Plan.


                All
decisions made by the Committee pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.


                Each award
granted under the Plan shall be evidenced by, and subject to terms of, an Award
Agreement, in such form as the Committee shall from time to time approve, which
shall be executed by an authorized officer of the Company and the awardee.
 Director Stock Options and Director Restricted Stock under the Plan shall
be evidenced by an Award Agreement, in such form as the Committee shall from
time to time approve, in conformity with the terms and conditions the Board has
specified with respect to such awards and the terms of Section 6 and the
Plan.  The Award Agreement shall contain
provisions regarding (i) the number of Shares subject to the award, (ii) the
exercise price per Share, if any, of the award and the means of payment
therefor, (iii) the term of the award, and (iv) such other terms and conditions
not inconsistent with the Plan as may be determined from time to time by the
Committee.  A prospective awardee shall not have any rights with respect
to any such award, unless and until such awardee has executed an Award
Agreement evidencing the award, has delivered a fully executed copy thereof to
the Company, and has otherwise complied with the then applicable terms and conditions.


SECTION 3.  Shares Subject to
Plan.


 


                Subject to adjustment as provided in this Section
3, the total number of Shares reserved and available for issuance in
connection with awards under the Plan shall not exceed 30,000,000 Shares.  In no event shall more than such maximum
number of Shares be issued pursuant to Incentive Stock Options.


                If
any Shares subject to any award granted pursuant to the Plan are forfeited or
such award otherwise terminates, such Shares shall again be available for
distribution in connection with future awards under the Plan.


 


5





















 


                In
the case of Stock Options exercised with payment in Shares under a SORP
provision, the number of Shares transferred by the optionee in payment of the
exercise price plus the number of Shares withheld to cover income and
employment taxes (plus any selling commissions) on such exercise will be netted
against the number of Shares issued to the optionee in the exercise, and only
the net number of Shares shall be charged against the 30,000,000 share
limitation set forth above.


                In
the event of any merger, reorganization, consolidation, recapitalization, stock
dividend, or other change in corporate structure affecting the Shares, an
equitable substitution or adjustment shall be made in (i) the aggregate
number of Shares reserved for issuance under the Plan, (ii) the number and
exercise price of Shares subject to outstanding Stock Options granted under the
Plan, (iii) the number of Shares subject to Restricted Stock or Deferred
Stock awards granted under the Plan, (iv) the aggregate number of Shares
available for issuance as Incentive Stock Options, (v) the aggregate
number of Shares available for issuance to any participant pursuant to Section 4A(a),
and (vi) the number and exercise price, if any, of Shares subject to Director
Stock Option and Director Restricted Stock awards to be granted each year
pursuant to Section 6, as may be determined to be appropriate by
the Committee, in its sole discretion, provided that the number of Shares
subject to any award shall always be a whole number. Such adjusted number and
exercise price of Shares shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation Right associated with
any Stock Option.


SECTION 4.  Eligibility.


 


                                                                (a)           Consultants and
Employees.  Consultants, officers and other key
employees of the Company, its Subsidiaries or its Affiliates who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company, its Subsidiaries, or its Affiliates are eligible
to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock.  Only employees of the
Company and its Subsidiaries are eligible to be granted Incentive Stock
Options.  Except as provided in Section 6,
Plan participants shall be selected from time to time by the Committee, in its
sole discretion, from among those eligible, and the Committee shall determine,
in its sole discretion and subject to Section 4A(a), the number of
Shares covered by each award.


 


                                                                (b)           Outside Directors.  Each Outside Director is eligible to receive
Director Stock Option and/or Director Restricted Stock awards pursuant to Section
6.


 


SECTION 4A.  Performance Awards and Award Limit.


 


                                                                (a)           Individual Award Limitations.  The Committee may grant awards to a Covered
Employee that are either Performance Awards or not Performance Awards.  In any calendar year during any part of which
the Plan is in effect, a participant (whether or not a Covered Employee) may
not be granted awards under the Plan (Performance Awards or otherwise) that
have, in the aggregate, more than 3,750,000 “points,” with each Stock
Appreciation Right and Stock Option having one “point” for each Share granted
with respect thereto, and each Restricted Stock and Deferred Stock award having
three “points” with respect to each Share granted with respect thereto.  For illustrative


 


6





















 


purposes, a grant
of a Stock Option for 10 Shares has 10 “points,” and a grant of 10 Shares of
Restricted Stock has 30 “points.”  If an
award is canceled, such award continues to be counted against the maximum
number of Shares for which awards may be granted to the participant under the Plan,
as set forth in this Section 4A(a).


 


                                                                (b)           Performance Goals for Performance Awards.  Each Performance Award shall be structured so
as to qualify as “performance-based compensation” under
Section 162(m)(4)(C) of the Code, as described below.


 


                                                                                                                                (i)            SAR/Option
Performance Awards.  The
exercise price (in the case of a Stock Option) or the base price (in the case
of a Stock Appreciation Right) of a SAR/Option Performance Award shall not be
less than 100% of the Fair Market Value of the Shares on the date of grant of
such SAR/Option Performance Award.


 


                                                                                                                                (ii)           Stock
Performance Awards.  The
grant, vesting and/or settlement of a Stock Performance Award shall be
contingent upon achievement of pre-established performance goals and
other terms set forth in this Section 4A(b)(ii).


 


                                                                                                                                                                                                (A)          Performance Goals Generally.  The performance goals for such Performance
Awards shall consist of one or more business criteria and a targeted level or
levels of performance with respect to each such criteria, as specified by the
Committee consistent with this Section 4A(b)(ii).  Performance goals shall be objective and
shall otherwise meet the requirements of Section 162(m) of the Code, including
the requirement that the level or levels of performance targeted by the
Committee result in the achievement of such performance goals being “substantially
uncertain.”  The Committee may condition
the grant, vesting, exercise and/or settlement of any Performance Award upon
achievement of any one or more performance goals.  Performance goals may differ for Performance
Awards granted to any one awardee or to different awardees.


 


                                                                                                                                                                                                (B)           Business Criteria.  One or more of the following business
criteria (including or excluding extraordinary and/or non-recurring items to be
determined by the Committee in advance) for the Company, on a consolidated
basis, and/or for specified Subsidiaries or business or geographical units of
the Company (except with respect to the total stockholder return and earnings
per share criteria), shall be used by the Committee in establishing performance
goals for Performance Awards:  (1)
earnings per share; (2) increase in revenues; (3) increase in cash flow;
(4) increase in cash flow return; (5) return on net assets; (6) return on
assets; (7) return on investment; (8) return on capital; (9) return
on equity; (10) economic value added; (11) operating margin;
(12) contribution margin; (13) net income; (14) pre-tax
earnings; (15) pre-tax earnings before interest, depreciation and
amortization; (16) pre-tax operating


 


7





















 


earnings after
interest expense and before incentives, service fees, and extraordinary or
special items; (17) operating income; (18) total stockholder return;
(19) debt reduction; and (20) any of the above goals determined on an
absolute or relative basis, or as adjusted in any manner which may be
determined in the discretion of the Committee, or as compared to the
performance of a published or special index deemed applicable by the Committee
including, but not limited to, the Standard & Poor’s 500 Stock Index or a
group of competitor companies, including the group selected by the Company for
purposes of the stock performance graph contained in the proxy statement for
the Company’s most recent annual meeting of stockholders.


 


                                                                                                                                                                                                (C)           Performance Period; Timing for
Establishing Performance Goals. 
Achievement of performance goals shall be measured over a performance
period of up to ten years, as specified by the Committee.  Performance goals shall be established not
later than 90 days (or, for performance periods of less than 1 year, the
passage of 25% of the performance period) after the beginning of any
performance period applicable to such Performance Award, or at such other date
as may be required or permitted for “performance-based compensation” under
Section 162(m) of the Code.


 


                                                                                                                                                                                                (D)          Settlement of Performance Awards; Other
Terms.  After the end of
each performance period, the Committee shall determine the amount, if any, of
such Performance Award payable to a Covered Employee.  Settlement of such Performance Awards shall
be in cash, Shares, or other awards or property, as determined in the sole
discretion of the Committee.  The Committee
may, in its discretion, reduce the amount of any Performance Award to be
settled upon achievement of the associated performance goal or goals, but may
not exercise discretion to increase any such amount payable to a Covered
Employee with respect to such Performance Award.


 


                                                                (c)           General.  The Committee shall retain full power and
discretion to accelerate, waive or modify, at any time, any term or condition
of a Performance Award that is not mandatory under the Plan; provided, however,
that notwithstanding any other provision of the Plan, the Committee shall not
have any discretion to accelerate, waive or modify any term or condition of an
award that is intended to qualify as “performance-based compensation” for
purposes of Section 162(m) of the Code if such discretion would cause such
Performance Award not to so qualify.


 


                                                                (d)           Written Determinations.  The Committee may not delegate any
responsibility relating to Performance Awards. 
All determinations by the Committee as to the establishment of
performance goals, the amount of any potential individual Performance Award,
and the achievement of performance goals relating to Stock Performance Awards
shall be made in writing in the case of any award intended to qualify


 


8





















 


as “performance-based
compensation” under Section 162(m) of the Code.  The determination as to whether any
performance goal, with respect to any Performance Award, has been satisfied
shall be made prior to the payment of any compensation relating to a
Performance Award.


 


                                                                (e)           Performance Awards under Section 162(m) of
the Code.  It is
the intent of the Company that Performance Awards granted to persons who are or
likely will become “covered employees” within the meaning of Section 162(m) of
the Code shall constitute “performance-based compensation” within such Section
of the Code.  Accordingly, the terms of
this Section 4A, including the definitions of “Covered Employee” and
other terms used herein, shall be interpreted in a manner consistent with
Section 162(m) of the Code.  If any
provision of the Plan as in effect on the date of adoption thereof or as of the
date of any Award Agreements relating to Performance Awards intended to comply
with Section 162(m) of the Code does not comply or is inconsistent with the
requirements of such Section of the Code, then such provision shall be
construed or deemed amended to the extent necessary to conform to such
requirements.


 


                                                                (f)            Conflicts
Among Plan Provisions.  To
the extent this Section 4A conflicts with any other provision of the
Plan, this Section 4A shall control.


 


SECTION 5.  Stock Options for Consultants and Employees.


 


                Stock
Options may be granted either alone or in addition to other awards granted
under the Plan. Any Stock Option granted under the Plan shall be in such form
as the Committee may from time to time approve, and the provisions thereof need
not be the same with respect to each optionee.


                The
Committee shall have the authority to grant any consultant, officer or key
employee Incentive Stock Options, Non-Qualified Stock Options, or both types of
Stock Options (in each case with or without Stock Appreciation Rights), except
that Incentive Stock Options may only be granted to employees of the Company or
a Subsidiary.


                Stock
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:


                                                                (a)           Exercise Price.  The exercise price per Share of any Stock
Option shall be determined by the Committee at the time of grant but shall not
be less than 100% of the Fair Market Value of the Shares on the date of grant,
and shall be indicated in the Award Agreement.


 


                                                                (b)           Option Term.  The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable more than
ten years after the date such Incentive Stock Option is granted.


 


9





















 


                                                                (c)           Exercisability.  Subject to Section 5(l) with
respect to Incentive Stock Options, Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Committee; provided, however, that except as provided in Sections 5(f),
5(g), 5(h) or 11, no Stock Option shall be exercisable
prior to six months from the date of grant. 
Notwithstanding the limitations set forth in the preceding sentence, the
Committee may accelerate the exercisability of any Stock Option, at any time in
whole or in part, based on performance and/or such other factors as the
Committee may determine in its sole discretion.


 


                                                                (d)           Exercise of Stock Options.  A Stock Option, or portion thereof, may be
exercised in whole or in part only with respect to whole Shares.  Stock Options may be exercised in whole or in
part at any time during the exercise period by giving written notice of
exercise to the Company specifying the number of Shares to be purchased,
accompanied by payment in full of the exercise price, in cash, by check or such
other instrument as may be acceptable to the Committee (including instruments
providing for “cashless exercise”).  To
the extent provided by the Committee, payment in full or in part may also be
made in the form of unrestricted Shares already owned by the optionee (based on
the Fair Market Value of the Shares on the date the Stock Option is
exercised).  An optionee shall have
rights to dividends and other stockholder rights with respect to Shares subject
to a Stock Option only after the optionee has given written notice of exercise
and has paid in full for such Shares.


 


                                                                (e)           Transferability of Options.  A Non-Qualified Stock Option Award Agreement
may permit an optionee to transfer such Stock Option to members of his or her
Immediate Family, to one or more trusts for the benefit of such Immediate Family
members, or to one or more partnerships where such Immediate Family members are
the only partners if (i) the Award Agreement setting forth such Stock
Option expressly provides for the transfer thereof with the express written
consent of the Committee, and (ii) the optionee does not receive any
consideration in any form whatsoever for such transfer.  Any Non-Qualified Stock Option so
transferred shall continue to be subject to the same terms and conditions in
the hands of the transferee as were applicable to such Stock Option immediately
prior to the transfer thereof.  Any Non-Qualified
Stock Option (A) not granted pursuant to an Award Agreement expressly
allowing the transfer of such Stock Option, or (B) that the Award
Agreement for which has not been amended expressly to permit its transfer shall
not be transferable by the optionee other than by will or by the laws of
descent and distribution.  No Incentive
Stock Option shall be transferable by the optionee otherwise than by will or by
the laws of descent and distribution, and all Incentive Stock Options shall be
exercisable, during the optionee’s lifetime, only by the optionee.


 


                                                                (f)            Termination by Death.  Unless otherwise determined by the Committee,
if an optionee’s employment with the Company, any Subsidiary, or any Affiliate
terminates by reason of death, any Stock Option held by such optionee shall
become immediately exercisable, and thereupon (or if an optionee dies following
termination of employment by reason of Disability or Early or Normal Retirement),
such Stock Option may thereafter be exercised by the legal representative of
the estate or by the legatee of the optionee under the will of the optionee
during the period ending on the first anniversary of the optionee’s death.


 


10





















 


                                                                (g)           Termination by Reason of
Disability.  Unless
otherwise determined by the Committee, if an optionee’s employment with the
Company, any Subsidiary or any Affiliate terminates by reason of Disability,
any Stock Option held by such optionee shall be immediately exercisable and may
thereafter be exercised during the period ending on the expiration of the
stated term of such Stock Option. In the event of termination of employment by
reason of Disability, any Incentive Stock Option exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code
will thereafter be treated as a Non-Qualified Stock Option.


 


                                                                (h)           Termination by Reason of
Retirement.  Unless
otherwise determined by the Committee, if an optionee’s employment with the
Company, any Subsidiary or any Affiliate terminates by reason of
(i) Normal Retirement, any Stock Option held by such optionee shall become
immediately exercisable and shall expire at the end of the stated term of such
Stock Option, or (ii) Early Retirement, any Stock Option held by such
optionee shall terminate three years from the date of such Early Retirement or
upon the expiration of the stated term of the Stock Option, whichever is
earlier.  In the event of Early
Retirement, there shall be no acceleration of vesting of the Stock Option,
unless otherwise determined by the Committee at or after grant, and such Stock
Option may only be exercised to the extent it is or has become exercisable
prior to termination of the Stock Option. 
In the event of termination of employment by reason of Normal or Early
Retirement, any Incentive Stock Option exercised after the exercise periods
that apply for purposes of Section 422 of the Code will thereafter be
treated as a Non-Qualified Stock Option.


 


                                                                (i)            Termination for Cause.  If the optionee’s employment with the
Company, any Subsidiary or any Affiliate is terminated for Cause, any Stock
Option held by such optionee shall immediately be terminated upon the giving of
notice of termination of employment.


 


                                                                (j)            Other Termination.  Unless otherwise determined by the Committee,
if the optionee’s employment with the Company, any Subsidiary or any Affiliate
is (i) involuntarily terminated by the optionee’s employer without Cause,
any Stock Option held by such optionee shall terminate three months from the
date of termination of employment or upon the expiration of the stated term of
the Stock Option, whichever is earlier, or (ii) voluntarily terminated for
any reason, any Stock Option held by such optionee shall terminate one month
from the date of termination of employment or upon the expiration of the stated
term of the Stock Option, whichever is earlier. 
In either event, there shall be no acceleration of vesting of the Stock
Option unless otherwise determined by the Committee and such Stock Option may
only be exercised to the extent it is or has become exercisable prior to
termination of the Stock Option.


 


                                                                (k)           Termination upon Change of
Control.  Notwithstanding
the provisions of Section 5(j), but subject to Section 11,
if the optionee’s employment with the Company, any Subsidiary or any Affiliate
is involuntarily terminated by the optionee’s employer without Cause by reason
of, or within three months after, a Change of Control, any Stock Option held by
such optionee shall terminate six months and one day after such Change of
Control.


 


11





















 


                                                                (l)            Limit on Value of
Incentive Stock Options First Exercisable Annually.  The aggregate Fair Market Value (determined
at the time of grant) of Incentive Stock Options that are exercisable for the
first time by an optionee during any single calendar year under the Plan
(and/or any other stock option plans of the Company, any Subsidiary or any Affiliate)
shall not exceed $100,000. Notwithstanding the preceding sentence, the
exercisability of Incentive Stock Options may be accelerated by the Committee
and shall be accelerated as provided for in Sections 5(f), 5(g), 5(h),
and 11, in which case Incentive Stock Options that exceed such $100,000
limit shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options granted earliest shall be applied first to the $100,000
limit. In the event that only a portion of the Incentive Stock Options granted
at the same time can be applied to the $100,000 limit, the Company shall issue
separate stock certificates for such number of Shares as does not exceed the
$100,000 limit, and shall designate such Shares as “Incentive Stock Option
Stock” in its stock transfer records.


 


                                                                (m)          For purposes of the Plan, all references to termination of
employment shall be construed to mean termination of all employment and
consultancy relationships with the Company and its Subsidiaries and Affiliates;
provided, however, that nothing in the Plan shall be construed to create or
continue a common law employment relationship with any individual characterized
by the Company, a Subsidiary or an Affiliate as an independent contractor or
consultant.


 


                                                                (n)           The Committee, in its discretion, may include in any
Non-Qualified Stock Option Award Agreement, a “stock option restoration program”
(“SORP”) provision. Such provision shall provide, without limitation, that, if
payment on exercise of a Non-Qualified Stock Option is made in the form
of Shares, and the exercise occurs on the Annual SORP Exercise Date, an
additional Non-Qualified Stock Option to purchase Shares (a “SORP Option”)
will automatically be granted to the optionee effective as of the Annual SORP
Exercise Date.  A SORP Option shall
(i) have an exercise price equal to 100% of the Fair Market Value of the
Shares on the Annual SORP Exercise Date, (ii) have a term equal to that of
the originally exercised Non-Qualified Stock Option giving rise to the SORP
Option, not to exceed a maximum term of 10 years and two days from the
issuance date of the SORP Option (subject to any forfeiture provision or
shorter limitation on exercise required under the Plan), (iii) have an
initial vesting date no earlier than six months after the date of its issuance,
and (iv) cover a number of Shares equal to the number of Shares used to pay the
exercise price of the originally exercised Non-Qualified Stock Option, plus the
number of Shares (if any) withheld or sold to cover income and employment taxes
(plus any selling commissions) with respect to such original exercise.  “Annual SORP Exercise Date” shall mean
August 1, or if August 1 is not a Business Day, “Annual SORP Exercise
Date” shall mean the next succeeding Business Day. Notwithstanding the
foregoing, the Committee may delay the Annual SORP Exercise Date to the extent
it determines necessary to comply with regulatory or administrative
requirements.


 


SECTION 6.  Director Stock Options and Director
Restricted Stock.


 


                                                                (a)           Awards.  Except to the extent otherwise provided in
this Section 6 and Section 11, all terms and conditions of
Director Stock Option and Director Restricted


 


12





















 


Stock awards shall be established by the Board in
its sole discretion including, without limitation, the nontransferability
thereof and the time or times within which such
Restricted Stock may be subject to forfeiture. 
Director Stock Options awarded under the Plan shall
be Non-Qualified Stock Options.  Director
Restricted Stock shall be subject to the provisions of Sections 8(b)
and 8(c).


 


                                                                                                                                (i)            Formula-based Director
Stock Options and Director Restricted Stock.  For
each calendar year, either (A) Director Stock Options for 4,500 Shares, or
(B) an award of 1,500 Shares of Director Restricted Stock shall be
automatically granted to each Outside Director on the first Business Day of
each calendar year.  The determination as
to whether an award is made pursuant to clause (A) or (B) of this
Section 6(a)(i) shall be made in the sole discretion of the Board.  The exercise price per Share of any Director
Stock Option granted pursuant to this Section 6(a)(i) shall be 100%
of the Fair Market Value per Share on the date of grant.  Subject to Sections 6(d) and 11,
(1) Director Stock Options granted pursuant to this Section 6(a)(i)
shall become exercisable six months from the date of grant for a term of ten
years and two days from the date of grant, and (2) the price, if any, to
be paid, and the time or times within which Director Restricted Stock may be
subject to forfeiture, or may be nontransferable, will be determined by the
Board in its sole discretion.


 


                                                                                                                                (ii)           Non-Formula Based Director Stock Options and Director
Restricted Stock.  In its sole discretion, the Board may, from
time to time, award Director Stock Options and/or Director Restricted Stock on
a non-formula basis to individual Outside Directors as it shall select.  Director Stock Options or Director Restricted
Stock granted pursuant to this Section 6(a)(ii) may be awarded at
such times and for such number of Shares as the Board in its sole discretion
determines.  The exercise price of such
Director Stock Options shall be 100% of the Fair Market Value of the Shares on
the date of grant.  Director Stock
Options granted pursuant to this Section 6(a)(ii) shall become first
exercisable and have a term as determined by the Board in its sole discretion;
provided, however, that subject to Sections 6(d) and 11, no
Director Stock Option shall be first exercisable until six months from the date
of grant.  Subject to Sections 6(d)
and 11, the price, if any, to be paid, and the time or times within
which Director Restricted Stock may be subject to forfeiture, or may be
nontransferable, will be determined by the Board in its sole discretion.


 


                                                                (b)           Exercise
of Director Stock Options. 
Any Director Stock Option, or portion thereof, granted pursuant to the
Plan may be exercised in whole or in part only with respect to whole
Shares.  Director Stock Options may be
exercised in whole or in part at any time during the exercise period by giving
written notice of exercise to the Company specifying the number of Shares to be
purchased, accompanied by payment in full of the exercise price, in cash, by
check or such other instrument as may be acceptable to the Committee (including
instruments providing for “cashless exercise”). 
As determined by the Committee, in its sole discretion, payment in full
or in part may also be made in the form of unrestricted Shares already owned by
the optionee (based on the Fair


 


13





















 


Market Value of the Shares on the date the Director
Stock Option is exercised).  An optionee
shall have rights to dividends and other stockholder rights with respect to
Shares subject to a Director Stock Option only after the optionee has given
written notice of exercise and has paid in full for such Shares.


 


                                                                (c)           Transferability.  No Director Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, and all Director Stock Options shall be exercisable, during the
optionee’s lifetime, only by the optionee; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes, in its sole discretion, that such transferability (i) does not
result in accelerated taxation, and (ii) is otherwise appropriate and
desirable, taking into account any factors considered relevant by the
Committee, including, without limitation, any state or Federal securities laws
applicable to transferable options.


 


                                                                (d)           Termination
of Service. 
Upon an optionee’s termination of status as an Outside Director for any
reason, any Director Stock Options held by such optionee shall become
immediately exercisable and may thereafter be exercised during the period
ending on the expiration of the stated term of such Director Stock Option or,
upon such optionee’s death, during the period ending on the first anniversary
thereof.  Notwithstanding the foregoing
sentence, but subject to Section 11, if the optionee’s status as an
Outside Director terminates by reason of or within three months after a Change
of Control, each Director Stock Option held by such optionee shall terminate
upon the latest of (i) six months and one day after the Change in Control,
or (ii) the expiration of the stated term of such Director Stock
Option.  Upon the termination of an
awardee’s status as an Outside Director by reason of death or Disability, all
restrictions, including restrictions regarding forfeiture and
nontransferability, placed upon any Director Restricted Stock held by such
awardee shall immediately lapse and such shares shall be deemed fully vested
and nonforfeitable.  Upon the termination
of an awardee’s status as an Outside Director for any reason other than death
or Disability, all Shares of Director Restricted Stock granted pursuant to this
Section 6 still subject to restriction shall be forfeited by such
Outside Director, and the Outside Director shall only receive the amount, if
any, paid by the Outside Director for such forfeited Director Restricted Stock.


 


SECTION 7.  Stock Appreciation Rights.


 


                                                                (a)           Grant and Exercise.  Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of the grant of such
Stock Option.


 


                                                                A
Stock Appreciation Right, or applicable portion thereof, granted with respect
to a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Committee at the time of grant, a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Stock Option shall only be reduced if


 


14





















 


and to the extent
that the number of Shares covered by the exercise or termination of the related
Stock Option exceeds the number of Shares not covered by the Stock Appreciation
Right.


 


                                                                A
Stock Appreciation Right may be exercised by an optionee in accordance with Section 7(b),
by surrendering the applicable portion of the related Stock Option. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 7(b).  Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.


 


                                                                (b)           Terms and Conditions.  Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the
following:


 


                                                                                                                                (i)            Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the related Stock
Options shall be exercisable in accordance with the provisions of Section 5
and this Section 7; provided, however, that any Stock Appreciation
Right granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of the term of the Stock Appreciation
Right, except that this additional limitation shall not apply in the event of
death or Disability of the optionee prior to the expiration of the six-month
period.


 


                                                                                                                                (ii)           Upon the exercise of a Stock
Appreciation Right, an optionee shall be entitled to receive up to, but not
more than, an amount in cash or Shares equal in value to the excess of the Fair
Market Value of one Share over the exercise price per Share specified in the
related Stock Option Award Agreement multiplied by the number of Shares with
respect to which the Stock Appreciation Right shall have been exercised, with
the Committee having the right to determine the form of payment.


 


                                                                                                                                (iii)          Stock Appreciation Rights shall be
transferable only when and to the extent that the underlying Stock Option would
be transferable under Section 5(e) of the Plan.


 


                                                                                                                                (iv)          Upon the exercise of a Stock
Appreciation Right, the related Stock Option or part thereof shall be deemed to
have been exercised for the purpose of the limitation set forth in Section 3
on the number of Shares to be issued under the Plan.


 


                                                                                                                                (v)           A Stock Appreciation Right granted in
connection with an Incentive Stock Option may be exercised only if and when the
Fair Market Value of the Shares subject to the Incentive Stock Option exceeds
the exercise price of such Incentive Stock Option.


 


15





















 


                                                                                                                                (vi)          In its sole discretion, the Committee
may provide, at the time of grant of a Stock Appreciation Right, that such
Stock Appreciation Right can be exercised only in the event of a Change of
Control and/or a Potential Change of Control and that upon such event, the
amount to be paid upon the exercise of a Stock Appreciation Right shall be
based on the Change of Control Price.


 


SECTION 8.  Restricted Stock.


 


                                                                (a)           Administration.  Shares of Restricted Stock may be granted
either alone or in addition to other awards granted under the Plan.  Any Restricted Stock award granted under the
Plan shall be in such form as the Committee may from time to time approve, and
the provisions thereof need not be the same with respect to each awardee.  The Committee shall determine the
consultants, officers, and key employees of the Company and its Subsidiaries
and Affiliates to whom, and the time or times at which, Restricted Stock will
be awarded; the number of Shares of Restricted Stock to be awarded to any
awardee; the price, if any, to be paid by the awardee; the time or times within
which such awards may be subject to forfeiture and nontransferability; and all
other terms and conditions of the awards (subject to this Section 8
and Section 11). The Committee may also condition the grant and/or
vesting of Restricted Stock upon the attainment of one or more specified
performance goals, or such other criteria as the Committee may determine, in
its sole discretion.


 


                                                                (b)           Restrictions and
Conditions.  Shares of
Restricted Stock awarded shall be subject to the following restrictions and
conditions:


 


                                                                                                                                (i)            Subject to the provisions of the
Plan and the applicable Award Agreement, during such period as may be set by
the Committee commencing on the grant date, Restricted Stock awarded pursuant
to the Plan shall not be sold, assigned, transferred, pledged or otherwise
encumbered.  The Committee may, in its
sole discretion, provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part, before or after
the awardee’s termination of employment, based on performance and/or such other
factors as the Committee may determine, in its sole discretion.


 


                                                                                                                                (ii)           Except as provided in clause (i)
above, the awardee shall have, with respect to the Shares of Restricted Stock,
all of the rights of a stockholder of the Company, including the right to
receive any dividends. Dividends paid in stock of the Company or stock received
in connection with a stock split with respect to Restricted Stock shall be
subject to the same restrictions as on such Restricted Stock.  Certificates, if issued, for unrestricted
Shares, shall be delivered to the awardee promptly after, and only after, the
period of forfeiture shall expire without forfeiture with respect to such
Shares of Restricted Stock.


 


                                                                (c)           Book-Entry Accounts;
Certificates for Restricted Stock.  An account for each awardee shall be opened
with the Company’s transfer agent or such other administrator designated by the
Committee for the deposit of the Shares of Restricted Stock subject to the


 


16





















 


award, or, in the sole discretion of the Committee, each awardee may be
issued a stock certificate registered in the name of the awardee evidencing
such Shares of Restricted Stock. The Committee shall specify that any such
certificate bear a legend, as provided in clause (i) below, and/or be
held in custody by the Company, as provided in clause (ii) below.


 


                                                                                                                                (i)            Any certificate evidencing
Restricted Stock shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock, substantially
in the following form:


 


“The transferability of
this certificate and the shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) of the Waddell & Reed
Financial, Inc. 1998 Stock Incentive Plan, as Amended and Restated (the “Plan”)
and a Restricted Stock Award Agreement entered into between the registered
owner and Waddell & Reed Financial, Inc. (the “Agreement”).  Copies of the Plan and Agreement are on file
in the offices of Waddell & Reed Financial, Inc., 6300 Lamar
Avenue, Overland Park, Kansas 66202.”


 


                                                                                                                                (ii)           The Committee shall require that
stock certificates evidencing such Restricted Stock be held in custody by the
Company or the transfer agent or such other administrator designated by the
Committee until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award, the awardee shall have delivered to
the Company a stock power, endorsed in blank, relating to the Shares covered by
such award.


 


                                                                (d)           Termination.  Subject to the provisions of the Award
Agreement and this Section 8, upon termination of employment by
reason of death or Disability, the restrictions upon any Restricted Stock
granted pursuant to Section 8(a) held by the awardee shall
immediately lapse and such shares shall become fully vested and
nonforfeitable.  Upon termination of
employment for any reason other than death or Disability, all Shares of
Restricted Stock granted pursuant to Section 8(a) still subject to
restriction shall be forfeited by the awardee, and the awardee shall only
receive the amount, if any, paid by the awardee for such forfeited Restricted
Stock.


 


SECTION 9.  Deferred Stock Awards.


 


                                                                (a)           Administration.  Deferred Stock may be granted either alone or
in addition to other awards granted under the Plan.  Any Deferred Stock granted under the Plan
shall be in such form as the Committee may from time to time approve, and the
provisions thereof need not be the same with respect to each awardee.  The Committee shall determine the
consultants, officers and key employees of the Company, its Subsidiaries or
Affiliates to whom, and the time or times at which, Deferred Stock shall be
awarded; the number of Shares of Deferred Stock to be awarded to any awardee;
the Deferral Period during which, and the conditions under which, receipt of
the Shares will be deferred; and all other terms and conditions of the award
(subject to this Section 9 and Section 11).  The Committee may also condition the grant
and/or vesting of Deferred Stock upon the attainment of specified


 


17





















 


performance goals, or such other criteria as the Committee shall
determine, in its sole discretion.


 


                                                                (b)           Terms and Conditions.  Shares of Deferred Stock awarded pursuant to
this Section 9 shall be subject to the following terms and
conditions:


 


                                                                                                                                (i)            Subject to the provisions of the
Plan and the applicable Award Agreement, during the Deferral Period, Deferred
Stock awarded pursuant to the Plan may not be sold, assigned, transferred,
pledged or otherwise encumbered.  At the
expiration of the Deferral Period, stock certificates shall be delivered to the
awardee, or his legal representative, in a number equal to the Shares covered
by the Deferred Stock award.


 


                                                                                                                                (ii)           At the time of the award, the
Committee may, in its sole discretion, determine that amounts equal to any
dividends declared during the Deferral Period with respect to the number of
Shares covered by a Deferred Stock award will be paid to the awardee currently,
deferred and deemed to be reinvested, or that such awardee has no rights with
respect thereto.


 


                                                                                                                                (iii)          Subject to the provisions of the
applicable Award Agreement and this Section 9, upon termination of
employment for any reason during the Deferral Period, the Deferred Stock held
by such awardee shall be forfeited by the awardee.


 


                                                                                                                                (iv)          Based on performance and/or such other
criteria as the Committee may determine, the Committee may, at or after grant
(including after the awardee’s termination of employment), accelerate the
vesting of all or any part of any Deferred Stock award and/or waive the
deferral limitations for all or any part of such award.


 


SECTION 10.  Amendments and Termination.


 


                The
Board may amend, alter, or discontinue the Plan, but no such amendment, alteration,
or discontinuation shall be made which would impair the right of an optionee or
awardee under a Stock Option,
Director Stock Option, Stock Appreciation Right, Restricted Stock, Director
Restricted Stock or Deferred Stock award granted prior thereto, without the
optionee’s or awardee’s consent.


                Amendments
may be made without stockholder approval except as required to satisfy
Sections 162(m) and 422 of the Code, stock exchange listing requirements,
or other applicable law or regulatory requirements.


                The Committee may
amend the terms of any Stock Option, Stock Appreciation Right, Restricted Stock
or Deferred Stock award granted, and the Board may amend the terms of any
Director Stock Option or Director
Restricted Stock award, prospectively or retroactively, but no such
amendment shall be made which would impair the rights of an optionee or awardee
without the optionee’s or awardee’s consent.


 


18





















 


SECTION 11.  Change of Control.


 


                The
following acceleration and valuation provisions shall apply in the event of a
Change of Control or Potential Change of Control:


                                                                (a)           In the event of (1) a Change of Control, unless otherwise
determined by the Committee in writing at or after grant, but prior to the
occurrence of such Change of Control, or (2) a Potential Change of Control,
only if and to the extent so determined by the Committee in writing at or after
grant (subject to any right of approval expressly reserved by the Committee at
the time of such determination):


 


                                                                                                                                (i)            any Stock Appreciation Rights, Stock
Options and Director Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;


 


                                                                                                                                (ii)           the restrictions and deferral
limitations applicable to any Restricted Stock, Director Restricted Stock and
Deferred Stock awards under the Plan shall lapse and such Shares and awards
shall be deemed fully vested and nonforfeitable; and


 


                                                                                                                                (iii)          the value of all outstanding Stock
Option, Director Stock Option, Stock Appreciation Right, Restricted Stock, Director Restricted Stock and Deferred Stock awards,
shall, to the extent determined by the Committee at or after grant, be settled
on the basis of the Change of Control Price as of the date the Change of
Control occurs or Potential Change of Control is determined to have occurred,
or such other date as the Committee may determine prior to the Change of
Control or Potential Change of Control. In the sole discretion of the
Committee, such settlements may be made in cash, stock or other property, or
any combination thereof; provided, however, to the extent any such settlement
is made in Shares, such Shares will be deemed to have been distributed under
the Plan.


 


                                                                (b)           A “Change of Control” means the occurrence of any of the
following:


 


                                                                                                                                (i)            when any “person,” as such term is
used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or
a Subsidiary or any Company employee benefit plan), is or becomes the “beneficial
owner” (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company’s then outstanding securities;


 


                                                                                                                                (ii)           the effective date of any transaction
or event relating to the Company required to be described pursuant to the
requirements of Item 6(e) of Schedule 14A of the Exchange Act;


 


19





















 


                                                                                                                                (iii)          when, during any period of two
consecutive years during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board cease, for any reason other than
death, to constitute at least a majority thereof, unless each director who was
not a director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the directors at the beginning of
such period; or


 


                                                                                                                                (iv)          the effective date of a transaction
requiring stockholder approval for the acquisition of the Company by an entity
other than the Company or a Subsidiary through purchase of assets, or by
merger, or otherwise.


 


                                                                (c)           A “Potential Change of Control” means the occurrence of
any of the following:


 


                                                                                                                                (i)            the entering into of an agreement by
the Company, the consummation of which would result in a Change of Control; or


 


                                                                                                                                (ii)           the acquisition of beneficial
ownership, directly or indirectly, by any entity, person or group (other than
the Company or a Subsidiary or any Company employee benefit plan) of securities
of the Company representing 5% or more of the combined voting power of the
Company’s then outstanding securities and the adoption by the Board of
Directors of a resolution to the effect that a Potential Change of Control of
the Company has occurred for purposes of the Plan.


 


                                                                (d)           “Change of Control Price” means the highest price per
Share paid in any transaction reported on the New York Stock Exchange or other
national securities exchange or over-the-counter market on which the Shares are
then traded, or paid or offered in any transaction related to a potential or actual
Change of Control at any time during the preceding 60-day period as
determined by the Committee, except that (i) in the case of Incentive
Stock Options and Stock Appreciation Rights relating to Incentive Stock
Options, such price shall be based only on transactions reported for the date
on which the Committee elects to settle such Incentive Stock Options, and
(ii) in the case of Director Stock Options and Director Restricted Stock,
the 60-day period shall be the period immediately prior to a potential or
actual Change of Control.


 


SECTION 12.  Limitations on Payments.


 


                                                                (a)           Notwithstanding any other provision of the Plan or any
other agreement, arrangement or plan, in no event shall the Company pay or be
obligated to pay any participant an amount which would be an Excess Parachute
Payment, except as provided in Section 12(f) and except as the
Committee specifically provides otherwise in the participant’s Award
Agreement.  For purposes of the Plan, the
term “Excess Parachute Payment” shall mean any payment or any portion thereof
which would be an “excess parachute payment” within the meaning of
Section 280G(b)(1) of the Code, and would result in the imposition of an
excise tax under Section 4999 of the Code, in the opinion of tax counsel
selected by the Company (“Tax Counsel”). 
In the event it is determined that an


 


20





















 


Excess Parachute Payment would result if the full acceleration of
vesting and exercisability provided in Section 11 were made (when
added to any other payments or benefits contingent on a change of control under
any other agreement, arrangement or plan), the payments due under Section 11(a)
shall be reduced to the minimum extent necessary to prevent an Excess Parachute
Payment; then, if necessary to prevent an Excess Parachute Payment, benefits or
payments under any other plan, agreement or arrangement shall be reduced. If it
is established pursuant to a final determination of a court or an Internal
Revenue Service administrative appeals proceeding that, notwithstanding the
good faith of the participant and the Company in applying the terms of this Section 12(a),
a payment (or portion thereof) made is an Excess Parachute Payment, then, the
Company shall pay to the participant an additional amount in cash (a “Gross-Up
Payment”) equal to the amount necessary to cause the amount of the aggregate
after-tax compensation and benefits received by the participant hereunder
(after payment of the excise tax under Section 4999 of the Code with
respect to any Excess Parachute Payment, and any state and Federal income taxes
with respect to the Gross-Up Payment) to be equal to the aggregate after-tax
compensation and benefits the participant would have received as if Sections
280G and 4999 of the Code had not been enacted.


 


                                                                (b)           Subject to the provisions of Section 12(c),
the amount of any Gross-Up Payment and the assumptions to be utilized in
arriving at such amount shall be determined by a nationally recognized
certified public accounting firm designated by the Company (the “Accounting
Firm”). All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to Section 12(a),
shall be paid by the Company to the participant within five Business Days after
the receipt of the Accounting Firm’s determination. Any determination by the
Accounting Firm shall be binding upon the Company and the participant.


 


                                                                (c)           A participant shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be given
no later than ten Business Days after the participant is informed in writing of
such claim and shall apprise the Company of the nature of the claim and the
date of requested payment.  A participant
shall not pay the claim prior to the expiration of the 30-day period
following the date on which it gives notice to the Company. If the Company
notifies such participant in writing prior to the expiration of the 30-day
period that it desires to contest such claim, the participant shall:


 


                                                                                                                                (i)            provide the Company with any
information reasonably requested by the Company relating to such claim;


 


                                                                                                                                (ii)           take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to the participant;


 


                                                                                                                                (iii)          cooperate with the Company in good
faith in order to effectively contest such claim; and


 


21





















 


                                                                                                                                (iv)          permit the Company to participate in
any proceedings relating to such claim.


 


Without
limitation on the foregoing provisions of this Section 12(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority with
respect to such claim and may, at its sole option, either direct the
participant to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the participant agrees to prosecute such contest to
a determination before any administration tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the participant
harmless, on an after-tax basis, for any excise tax or income tax (including
interest and penalties with respect thereto) imposed as a result of the
contest; provided, further, that if the Company directs the participant to pay
any claim and sue for a refund, the Company shall advance the amount of the
payment to the participant, on an interest-free basis, and shall indemnify and
hold the participant harmless, on an after-tax basis, from any excise tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to the advance or with respect to any imputed income with respect to
the advance.


 


                                                                (d)           In the event the Company exhausts its remedies pursuant to
Section 12(c) and the participant thereafter is required to make a
payment of any excise tax, the Accounting Firm shall determine the amount of
the Gross-Up Payment required and such payment shall be promptly paid by the
Company to or for the benefit of such participant.


 


                                                                (e)           If, after the receipt by the participant of an amount
advanced by the Company pursuant to Section 12(c), the participant
becomes entitled to receive any refund with respect to such claim, the
participant shall promptly, after receiving such refund, pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).  If,
after the receipt by the participant of an amount paid by the Company pursuant
to Section 12(c), a determination is made that the participant
shall not be entitled to any refund with respect to such claim and the Company
does not notify the participant in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then
such payment shall be forgiven and shall not be required to be repaid and the
amount of such payment shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.


 


                                                                (f)            Notwithstanding the foregoing, the limitation set forth
in Section 12(a) shall not apply to a participant if, in the
opinion of Tax Counsel or the Accounting Firm, the total amounts payable to the
participant hereunder and under any other agreement, arrangement or plan as a
result of a change of control (calculated without regard to the limitation of Section 12(a)),
reduced by the amount of excise tax imposed on the participant under
Section 4999 of the Code with respect to all such amounts and reduced by
the state and


 


22





















 


Federal income taxes on amounts paid in excess of the limitation set
forth in Section 12(a), would exceed such total amounts payable
after application of the limitation of Section 12(a). No Gross-Up
Payment shall be made in such case.


 


SECTION 13.  General Provisions.


 


                                                                (a)           All certificates for Shares delivered under the Plan shall
be subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Shares are then listed, and any
applicable Federal or state securities law, and the Committee may cause a
legend or legends to be placed on any such certificates to make appropriate
reference thereto.


 


                                                                (b)           Nothing set forth in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required. 
The adoption of the Plan shall not confer upon any employee or director
of the Company, any Subsidiary or any Affiliate, any right to continued
employment (or, in the case of a director, continued retention as a director)
with the Company, a Subsidiary or an Affiliate, as the case may be, nor shall
it interfere in any way with the right of the Company, a Subsidiary or an
Affiliate to terminate the employment of any of its employees at any time.


 


                                                                (c)           Each participant shall, no later than the date as of which
the value of an award first becomes includible in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee, in its sole discretion, regarding
payment of, any Federal, FICA, state, or local taxes of any kind required by
law to be withheld with respect to such award. 
The obligations of the Company under the Plan shall be conditional on
such payment or arrangements.  The Committee
may permit participants to elect to satisfy their Federal, and where applicable,
FICA, state and local tax withholding obligations with respect to all awards,
other than Stock Options which have related Stock Appreciation Rights, by the
reduction, in an amount necessary to pay all such withholding tax obligations,
of the number of Shares or amount of cash otherwise issuable or payable to such
participants with respect to an award. The Company and, where applicable, its
Subsidiaries and Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes owed hereunder by a participant from any payment
of any kind otherwise due to such participant.


 


                                                                (d)           At the time of grant or purchase, the Committee may
provide, in connection with any grant or purchase made under the Plan, that the
Shares received as a result of such grant or purchase shall be subject to a
right of first refusal, pursuant to which the participant shall be required to
offer to the Company any Shares that the participant wishes to sell, with the
price being the then Fair Market Value of the Shares, subject to the provisions
of Section 11 and to such other terms and conditions as the
Committee may specify at the time of grant.


 


23





















 


                                                                (e)           No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Committee and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.


 


                                                                (f)            The Plan is not intended to be a “non-qualified
deferred compensation plan” under Section 409A of the Code and shall not
be construed or administered accordingly. 
If any term or provision contained herein would otherwise cause the Plan
to be characterized as a “nonqualified deferred compensation plan” under
Section 409A of the Code, then, without further action by the Company,
such term or provision shall automatically be modified to the extent necessary
to avoid such characterization.


 


SECTION 14.  Effective Date of Plan.


 


                The Plan became
effective on March 3, 1998, the date it was originally approved by a majority
vote of the Company’s stockholders.


 


SECTION 15.  Term of Plan.


 


                No Stock Option,
Director Stock Option, Stock Appreciation Right, or Restricted Stock, Director
Restricted Stock or Deferred Stock award shall be granted pursuant to the Plan
on or after March 2, 2008, but awards previously granted may extend beyond
that date.


 


24