EXHIBIT
10.5


 


HARDINGE
INC.


 


2002
INCENTIVE STOCK PLAN


 


1.  Establishment
of Plan.


 


Hardinge Inc.
(hereafter referred to as the “Company”) proposes to grant to selected
employees of the Company and its subsidiaries: 
(a) Incentive Stock Options, (b) Non-Qualified Stock Options, (c) Stock
Appreciation Rights, (d) Restricted Stock Incentives, and (e) Performance
Share Incentives (collectively hereinafter sometimes referred to as “Incentives”)
for the purpose of enhancing the profitability and value of the Company for the
benefit of its shareholders by providing stock awards to attract, retain and
motivate officers and other key employees who make important contributions to
the success of the Company.


 


The Company also
proposes to grant to Outside Directors options to purchase common stock of the
Company pursuant to the Plan.  The
purpose of such Director Options is to provide incentives for highly qualified
individuals to stand for election to the Board and to continue service on the
Board and to encourage increased stock ownership by Outside Directors in order
to promote long-term stockholder value. 
Restricted Stock Incentives, Incentive Stock Options (as defined in Section 422A
of the Internal Revenue Code), Stock Appreciation Rights, Performance Share
Incentives and Dividend Equivalents will not be granted to Outside Directors
under the Plan.


 


Incentives
shall be granted pursuant to the plan herein set forth, which shall be known as
the Hardinge Inc. 2002 Incentive Stock Plan (hereinafter referred to as
the “Plan”).


 


2.  Definitions
of Certain Terms Used in the Plan.


 


a.  “Affiliate”
means any subsidiary, whether directly or indirectly owned, or parent of the Company,
or any other entity designated by the Committee.


b.  “Board”
means the Company’s Board of Directors. 


c.  “Change
of Control” is defined in Section 18 of the Plan.


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


e.  “Committee”
means the Incentive Compensation Committee of the Board of Directors of the Company
or any successor committee the Board of Directors may designate to administer
the Plan.


f.  “Common
Stock” means the Hardinge Inc. Common Stock, par value $.01 per share.


g.  “Competition”
means to manage, operate, join, control, participate in, provide consulting
advice to, act as an agent or director of, or have any financial interest in
(as a partner, stockholder, investor or otherwise), any firm, corporation,
partnership, association, joint stock company, joint venture,  unincorporated organization, limited
liability company or any such similar business operation or activity (or any
portion thereof), directly or indirectly, in competition with any of the
business operations or activities of the Company or its Affiliates or affecting
or attempting to affect a Change of Control.


h.  “Director
Stock Option” means a Nonqualified Option granted to Outside Directors pursuant
to Section 7 of the Plan.


i.  “Employee”
means any person who is employed by the Company or a subsidiary of the Company.


j.  “Exchange
Act” means the Securities Exchange Act of 1934, as amended.


k.  “Fair
Market Value” of Stock means the fair and reasonable value thereof as
determined by the Committee according to prices in trades as reported on the
NASDAQ National Market.  If there are no
prices so reported or if, in the opinion of the Committee, such reported prices
do not represent the fair and reasonable value of the Stock, then the Committee
shall determine Fair Market Value by any means it deems reasonable under the
circumstances.


 

















 


l.  “Incentive
Stock Options” means stock options granted under the Plan that meet the
definition of Incentive Stock Options under Section 422 of the Code.


m.  “Nonqualified
Options” means stock options granted under the Plan that are not Incentive Stock
Options.


n.  “Outside
Director” means any member of the Company’s Board of Directors who is not also
an Employee.


o.  “Participant” shall mean any employee or
director selected to receive a grant under the Plan.


p.  “Performance Share Incentives” means
Incentives granted under Section 9 of the Plan.


q.  “Restricted Stock Incentives” means
Incentives granted under Section 10 of the Plan.


r.   “Retirement” means retirement under any
pension or retirement plan of the Company or of a subsidiary, or termination of
employment with the Company or a subsidiary, by action of the employing
company, because of disability.


s. 
“Stock” means the Common Stock or any other authorized class or series
of common stock or any such other security outstanding upon the reclassification
of any of such classes or series of common stock, including, without
limitation, any stock split-up, stock dividend, creation of targeted stock, or
other distributions of stock in respect of stock, or any reverse stock
split-up, or recapitalization of the Company or any merger or consolidation of
the Company with any Affiliate.


t.  “Stock Appreciation Rights” means Incentives
granted under Section 8 of the Plan.


u.  “Stock Options” means Incentive Stock Options
and Nonqualified Options granted under the Plan.


v. 
A “subsidiary” means any corporation in which the Company owns, directly
or indirectly, at least thirty-five percent (35%) of the total combined voting
power of all classes of stock; excep that for purposes of any option subject to
the provisions of Section 424 of the Internal Revenue Code, as amended,
the term “subsidiary” means any corporation in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of an Option, each
of the corporations, other than the last corporation in the unbroken chain,
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock of one of the other corporations in such chain.


w. 
“Termination for Cause” means an Employee’s termination of employment
with the Company or an Affiliate or an Outside Director’s removal from office
as a director of the Company, in each case because of such person’s willful
engaging in gross misconduct; provided, however, that a Termination for Cause shall
not include termination attributable to (i) poor work performance, bad
judgment or negligence, (ii) an act or omission believed by such person in
good faith to have been in or not opposed to the best interests of the Company
and reasonably believed by such person to be lawful, or (iii) the good
faith conduct of such person in connection with a Change of Control (including
opposition to or support of such Change of Control).


 


3.  Stock
Reserved for Incentives.


 


A maximum of
450,000 shares of Common Stock or the number of securities to which said number
of shares may be adjusted in accordance with Section 4 below, may be
issued upon granting of Restricted Stock Incentives, Performance Share
Incentives, and the exercise of Stock Options and Stock Appreciation Rights
under the Plan.  Such shares may be
either authorized and unissued shares or previously issued shares purchased by
the Company for purposes of the Plan. 
Subject to adjustment in accordance with Section 4 below, a maximum
of one percent (1%) of the outstanding shares of the Company’s Common
Stock as of the first business day of any calendar year may be the subject of
Incentives granted under the Plan in that calendar year.  The shares available for granting Incentives
in any year shall be increased by the number of shares available under the Plan
in previous years but not covered by Incentives granted under the Plan in those
years plus any shares as to which options or other benefits granted under the
Plan have lapsed, expired, terminated or been cancelled.  Any shares subject to stock options, grants
or Incentives may thereafter be subject to new stock options, grants or
Incentives under the Plan if there is a forfeiture of any such grants or
Incentives, or the lapse, expiration or termination of any such option but not
if there is a surrender of an option or portion thereof pursuant to a Stock
Appreciation Right as provided hereafter in Section 8.  The maximum number of shares in respect of
which Incentives may be granted during the term of the Plan to an individual
recipient of Incentives shall be 112,500.


 


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The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which counsel to Company deems necessary to the proper issuance
and sale of any shares hereunder, shall relieve the Company from any liability
for failure to issue or sell such shares as to which such authority has not
been obtained.


 


4.  Adjustment
Provisions


 


In the event of
any extraordinary dividend, reorganization, recapitalization, stock dividend,
stock split-up, change in par or no par value, combination of shares, merger,
consolidation, sale of all or substantially all of the assets of the Company,
warrant or rights offering or combination, exchange or reclassification of
Common Stock or any other similar event or any other change in the corporate
structure or shares of the Company, the Committee or its delegate shall cause
such equitable adjustment as it deems appropriate to be made in the number and
kind of shares then remaining available for issue under the Plan, and in the
terms of the outstanding Incentives to reflect such event and preserve the
value of such Incentives.  In the event
the Committee determines that any such event has a minimal effect on the value
of Incentives, it may elect not to cause any such adjustments to be made.  In all events, the determination of the
Committee or its delegee shall be conclusive. 
If any such adjustment would result in a fractional security being issuable
or awarded under the Plan, such fractional security shall be disregarded.  Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect and no adjustment
by reason hereof shall be made with respect to the number or price of shares
subject to a grant.


 


5.  Administration
of the Plan.


 


The authority to
grant Incentives to employees under the Plan shall be vested in the Committee;
provided, however, that the Committee shall have no authority regarding the
granting of Director Stock Options to Outside Directors, which grants shall be
non-discretionary.  The Committee shall
determine those eligible to receive Incentives and the amount, type and terms
of each Incentive, subject to the provisions of the Plan.  Each member of the Committee shall be (i) an
“outside director” within the meaning of Section 162(m) of the Code,
subject to any transitional rules applicable to the definition of outside
director, and (ii) a “disinterested person” within the meaning of Rule 16b-3
under the Exchange Act, or otherwise qualified to administer this Plan as
contemplated by that Rule or any successor Rule under the Exchange
Act.  In making any determinations under
the Plan, the Committee shall be entitled to rely on reports, opinions or
statements of officers or employees of the Company, as well as those of
counsel, public accountants and other professional or expert persons.  All determinations, interpretations and other
decisions under or with respect to the Plan or any Incentives by the Committee
shall be final, conclusive and binding upon all parties, including without
limitation, the Company, any Employee, and any other person with rights to any
Incentive under the Plan, and no member of the Committee shall be subject to
individual liability with respect to the Plan.


 


Subject to the
provisions of the Plan, the Committee from time to time shall determine the
individuals to whom, and the time or times at which, Incentives shall be
granted and the terms thereof.  In the
case of officers to whom Incentives may be granted, the selection of such
officers and all of the foregoing determinations shall be made directly by the
Committee in its sole discretion.  In the
case of key employees other than officers, the selection of such employees and
all of the foregoing determinations may be delegated by the Committee to an
administrative group of officers chosen by the Committee.  Incentives granted to one employee need not
be identical to those granted other employees.


 


The Committee
shall administer and shall have full power to construe and interpret the Plan;
prescribe, amend and rescind rules and regulations relating to the Plan;
and make all other determinations and take all other actions that the Committee
believes reasonable and proper, including the power to delegate responsibility
to others to assist it in administering the Plan.  The determinations of the Committee shall be
made in accordance with its judgment as to the best interests of the Company
and its stockholders and in accordance with the purposes of the Plan.  The Committee’s determinations shall in all
cases be conclusive.


 


A majority of the
members of the Committee shall constitute a quorum, and all determinations of
the Committee shall be made by a majority of the entire Committee.  Any determination of the Committee may be
made, without notice or meeting, by the written consent of a majority of the
Committee members.


 


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6.  Eligibility.


 


Any
Employee selected by the Committee, except a member of the Committee, shall be
eligible for any Incentive contemplated under the Plan.  In making its determination, the Committee
shall take into account the present and potential contributions of the
Employees to the success of the Company and such other such factors as the
Committee shall deem relevant.  Outside
Directors of the Company shall be eligible for grants of Director Stock Options
under Section 7 of the Plan.  An
Employee or Director who has been granted an Incentive under this or any other
plan of the Company or any of its Affiliates may or may not be granted
additional Incentives under the Plan at the discretion of the Committee.  As a condition to the exercise of a grant,
the Company may require the Participant exercising the grant to represent and
warrant that at the time of exercise the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel to the Company, such a representation is required
by applicable law.


 


7.  Stock
Options.


 


The Committee may
grant Incentive Stock Options, other statutory options under the Code, and
Nonqualified Options to eligible Employees, and such Stock Options shall be
subject to the terms and conditions of this Section 7 of the Plan and such
other terms and conditions as the Committee may prescribe.


 


(a)  Option Price.  The option price per share with respect to
each Stock Option shall be determined by the Committee, but shall not be less
than 100% of the fair market value of the Common Stock on the date the Stock
Option is granted, as determined by the Committee.  Except as provided in Section 4 hereof,
under no circumstances shall the Board or the Committee lower the exercise
price of outstanding options issued under the Plan.


 


(b)  Period of Option.  The period of each Stock Option shall be
fixed by the Committee; provided, however, that such period shall not exceed
ten (10) years from the grant date in the case of Incentive Stock Options.


 


(c)  Payment. 
The option price shall be payable at the time the Stock Option or the
Director Stock Option is exercised in cash or, at the discretion of the
Committee, in whole or in part in the form of shares of Common Stock already
owned by the grantee (based on the fair market value of the Common Stock on the
date the option is exercised by the Committee). 
No shares shall be issued until full payment therefor has been made.  A grantee of a Stock Option or a Director
Stock Option shall have none of the rights of a stockholder until the shares
are issued.


 


(d)  Exercise of Option.  The shares covered by a Stock Option may be
purchased in such installments and on such exercise dates as the Committee may
determine.  Any shares not purchased on
the applicable exercise date may be purchased thereafter at any time prior to
the final expiration of the Stock Option. 
In no event (including those specified in paragraphs (e), (f) and (g) of
this section below) shall any Stock Option or any Director Stock Option be
exercisable after its specified expiration period and in no event shall a Stock
Option or Director Stock Option be exercised after the expiration of ten (10) years
from the date such option is granted. 
The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery of shares of Common Stock to the
Company in payment of the exercise price of a Stock Option, the grantee of such
Stock Option automatically be awarded a Stock Option for up to the number of
shares of Common Stock so delivered.


 


(e)  Retirement and Termination.  Upon Retirement or termination of employment  of the Stock Option
grantee for reasons other than those described in Section 14 of the Plan,
Stock Option privileges shall apply only to those Options immediately
exercisable at the date of such Retirement or termination.  The Committee, however, in its discretion,
may provide on a case by case basis that any Stock Options outstanding but not
yet exercisable upon such Retirement or termination of the Stock Option grantee
may become exercisable in accordance with a schedule to be determined by the
Committee.  Options exercisable upon
Retirement shall remain exercisable for three (3) years after Retirement;
Options exercisable upon termination for reasons other than Retirement or those
described in Section 14 of the Plan shall remain exercisable for six (6) months
after such termination.


 


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(f)  Death. 
Upon the death of a Stock Option or Director Stock Option grantee, Stock
Option or Director Stock Option privileges shall apply only to those shares
which were immediately exercisable at the time of death, and options
exercisable upon death shall remain exercisable for three (3) years after
death.  The Committee, in its discretion,
may provide that any Stock Options or Director Stock Options outstanding but
not yet exercisable upon the death of a Stock Option or Director Stock Option
grantee may become exercisable in accordance with a schedule to be determined
by the Committee.  Such privileges shall
expire unless exercised by legal representatives within such period of time as
determined by the Committee but in no event later than the date of the
expiration of the Stock Option or Director Stock Option.


 


(g)  Limits on Incentive Stock Options.  Except as may otherwise be permitted by the
Code, the Committee shall not, in the aggregate, grant to any Employee
Incentive Stock Options that are first exercisable during any one calendar year
(under all such plans of such Employee’s employer corporation and its parent
and subsidiary corporations) to the extent that the aggregate fair market value
of the Common Stock, at the time the Incentive Stock Options are granted,
exceeds $100,000.


 


Commencing with
the 2002 annual meeting of the stockholders of the Company, Director Stock
Options with an option period of ten (10) years and an option price equal
to 100% of the fair market value of the Common Stock on the date the Director
Stock Option is granted, shall be granted to each Outside Director for 750
shares of the Company’s Common Stock effective as of the close of each annual
meeting of the stockholders of the Company (i) at which such individual is
elected a director, or (ii) following which such individual will continue
to serve as a director or member of a continuing class of directors, and except
as specifically provided in this paragraph, such Director Stock Options shall
be subject to the terms and conditions of this Section 7 of the Plan.


 


8.  Stock
Appreciation Rights.


 


The Committee may,
in its discretion, grant a right to receive the appreciation in the fair market
value of shares of Common Stock either singly or in combination with an
underlying Stock Option granted hereunder.  Such Stock Appreciation Rights shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:


 


(a)  Time and Period of Grant.  If a Stock Appreciation Right is granted in
connection with an underlying Stock Option, it may be granted at the time of
the Stock Option Grant or at any time thereafter but prior to the expiration of
the Stock Option Grant.  If a Stock
Appreciation Right is granted in connection with an underlying Stock Option, at
the time the Stock Appreciation Right is granted the Committee may limit the
exercise period for such Stock Appreciation Right, before and after which
period no Stock Appreciation Right shall attach to the underlying Stock Option.  In no event shall the exercise period for a
Stock Appreciation Right granted with respect to an underlying Stock Option
exceed the exercise period for such Stock Option.  If a Stock Appreciation Right is granted
without an underlying Stock Option, the period for exercise of the Stock Appreciation
Right shall be set by the Committee.


 


(b)  Value of Stock Appreciation Right.  If a Stock Appreciation Right is granted in
connection with an underlying Stock Option, the grantee will be entitled to
surrender the Stock Option which is then exercisable and receive in exchange
therefor an amount equal to the excess of the fair market value of the Common
Stock on the date the election to surrender is received by the Company over the
Stock Option price multiplied by the number of shares covered by the Stock
Options which are surrendered.  If a
Stock Appreciation Right is granted without an underlying Stock Option, the
grantee will receive upon exercise of the Stock Appreciation Right an amount
equal to the excess of the fair market value of the Common Stock on the date
the election to surrender such Stock Appreciation Right is received by the
Company over the fair market value of the Common Stock on the date of grant
multiplied by the number of shares covered by the grant of the Stock
Appreciation Right.


 


(c)  Payment of Stock Appreciation Right.  Payment of a Stock Appreciation Right shall
be in the form of shares of Common Stock, cash, or any combination of shares
and cash.  The form of payment upon
exercise of such a right shall be determined by the Committee either at the
time of the grant of the Stock Appreciation Right or at the time of exercise of
the Stock Appreciation Right.


 


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9.  Performance
Share Incentives.


 


The Committee may
grant awards under which payment may be made in shares of Common Stock, cash or
any combination of shares and cash if the performance of the grantee, the  Company or any subsidiary or division of
the Company selected by the Committee during the award period meets certain goals
established by the Committee.  Such
Performance Share Incentives shall be subject to the following terms and
conditions and such other terms and conditions as the Committee may prescribe.


 


(a)  Incentive Period and Performance Goals.  The Committee shall determine and include in
a Performance Share Incentive grant the period of time for which a Performance
Share Incentive is made (“Incentive Period”), which period must be a minimum of
one year.  The Committee shall also
establish performance objectives (“Performance Goals”) to be met by the
Company, subsidiary or division or the grantee during the Incentive Period as a
condition to payment of the Performance Share Incentive.  The Performance Goals may include earnings
per share, return on stockholders’ equity, return on assets, net income,
Company earnings performance compared to its domestic competition or any other
financial or other measurement established by the Committee.  The Performance Goal may include minimum and
optimum objectives or a single set of objectives.


 


(b)  Payment of Performance Share Incentives.  The Committee shall establish the method of
calculating the amount of payment to be made under a Performance Share
Incentive if the Performance Goals are met, including the fixing of a maximum
payment.  The Performance Share Incentive
shall be expressed in terms of shares of Common Stock referred to as “Performance
Shares”.  After the completion of an
Incentive Period, the performance of the grantee, the Company, subsidiary or
division shall be measured against the Performance Goals and the Committee
shall determine whether all, none or any portion of a Performance Share
Incentive shall be paid.  The Committee,
in its discretion, may elect to make payment in shares of Common Stock, cash or
a combination of shares and cash.  Any
cash payment shall be based on the fair market value of Performance Shares on,
or as soon as practicable prior to, the date of payment.


 


(c)  Revision of Performance Goals.  At any time prior to the end of an Incentive
Period, the Committee may revise the Performance Goals and the computation of
payment if unforeseen events occur which have a substantial effect on the
performance of the Company, subsidiary or division and which in the judgment of
the Committee make the application of the Performance Goals unfair unless a
revision is made.


 


(d)  Requirement of Employment.  A grantee of a Performance Share Incentive
must remain in the employment of the Company until the completion of the
Incentive Period in order to be entitled to payment under the Performance Share
Incentive; provided that the Committee may, in its sole discretion, provide for
a partial payment where such an exception is deemed equitable.


 


(e)  Dividends. 
The Committee may, in its discretion, at the time of the granting of a
Performance Share Incentive, provide that any dividends declared on the Common
Stock during the Incentive Period, and which would have been paid with respect
to the Performance Shares had they been owned by a grantee, be (i) paid to
the grantee, or (ii) accumulated for the benefit of the grantee and used
to increase the number of Performance Shares of the grantee.


 


10.  Restricted
Stock Incentives.


 


The Committee may
issue shares of Common Stock to a grantee which shares shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee may prescribe:


 


(a)  Requirement of Employment.  A grantee of a Restricted Stock Incentive
must remain in the employment of the Company during a period designated by the
Committee (“Restriction Period”).  If the
grantee leaves the employment of the Company prior to the end of the
Restriction Period, the Restricted Stock Incentive shall terminate and the
shares of Common Stock shall be returned immediately to the Company; provided
that the Committee may, at the time of the grant, provide for the employment
restriction to lapse with respect to a portion or portions of the Restricted
Stock Incentive at different times during the Restriction Period.  The Committee may, in its discretion, also
provide for such complete or partial 


 


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exceptions to the
employment restriction as it deems equitable, but in no event shall the
Restriction Period be less than three years.


 


(b)  Restrictions on Transfer and Legend on Stock
Certificates.  During the
Restriction Period, the grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock except as provided under Section 11
hereof.  Each certificate for shares of
Common Stock issued hereunder shall contain a legend giving appropriate notice
of the restrictions in the grant.


 


(c)  Escrow Agreement.  The Committee may require the grantee to
enter into an escrow agreement providing that the certificates representing the
Restricted Stock Incentive will remain in the physical custody of an escrow
holder until all restrictions are removed or expire.


 


(d)  Lapse of Restrictions.  All restrictions imposed under the Restricted
Stock Incentive shall lapse upon the expiration of the Restriction Period if
the conditions as to employment set forth above have been met.  The grantee shall then be entitled to have
the legend removed from the certificates.


 


(e)  Dividends. 
The Committee shall, in its discretion, at the grant of the Restricted
Stock Incentive, provide that any dividends declared on the Common Stock during
the Restriction Period shall either be (i) paid to the grantee, or (ii) accumulated
for the benefit of the grantee and paid to the grantee only after the expiration
of the Restriction Period.


 


11.   Dividend
Equivalents.


 


The Committee is
hereby authorized to grant to eligible employees Dividend Equivalents under
which the employee shall be entitled to receive payments in cash equivalent to
the amount of cash dividends paid by the Company to holders of Common Stock
with respect to a number of shares of Common Stock granted under the Plan as
determined by the Committee.  Subject to
the terms of the Plan and any applicable agreement, such Dividend Equivalents
may have such terms and conditions as the Committee shall determine.


 


12.  Nontransferability.


 


Each Incentive
granted under the Incentive Stock Plan shall not be transferable other than by
Will or the laws of descent and distribution, and with respect to Stock
Options, shall be exercisable during the grantee’s lifetime by the grantee only
or the grantee’s guardian or legal representative.


 


13.  No Right
of Employment.


 


The Incentive
Stock Plan and the Incentives granted hereunder shall not confer upon any eligible
employee the right to continued employment with the Company or affect in any
way the right of the Company to terminate the employment of an eligible
employee at any time and for any reason.


 


14.  Taxes.


 


The Company shall
be entitled to withhold, or otherwise collect from the recipient, the amount of
any tax attributable to any amount payable or shares deliverable under the Plan
after giving the person entitled to receive such amount or shares notice as far
in advance as practicable.  The recipient
may elect, subject to approval by the Committee, to have shares withheld by the
Company in satisfaction of such taxes, or to deliver other shares of Stock
owned by the recipient in satisfaction of such taxes.  With respect to officers of the Company or a
subsidiary or other recipients subject to Section 16(b) of the
Exchange Act, the Committee may impose such other conditions on the recipient’s
election as it deems necessary or appropriate in order to exempt such
withholding from the penalties set forth in said Section.  The number of shares to be withheld or
delivered shall be calculated by reference to the Fair Market Value of the
appropriate class or series of Stock on the date that such taxes are
determined.


 


15.  Forfeiture
of Incentives.


 


Unless the Committee
shall have determined otherwise, the recipient of an Incentive shall forfeit
all amounts not payable or privileges with respect to Stock Options not
immediately exercisable upon the occurrence of any of the following events:


 


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a. 
The recipient is Terminated for Cause.


b. 
The recipient voluntarily terminates his or her employment other than by
Retirement after attainment of age 55, or such other age as may be provided for
in the Incentive.


c. 
The recipient engages in Competition with the Company or any Affiliate.


d. 
The recipient engages in any activity or conduct contrary to the best
interests of the Company or any Affiliate.


 


Stock Options and
Director Stock Options immediately exercisable upon the occurrence of any of
the preceding events shall remain exercisable for seven (7) days after the
occurrence of such event unless the Committee in its sole discretion shall
provide that such Stock Options and Director Stock Options shall remain
exercisable for a longer period.


 


The Committee may
include in any Incentive any additional or different conditions of forfeiture
it may deem appropriate.  The Committee
also, after taking into account the relevant circumstances, may waive any
condition of forfeiture stated above or in the Incentive contract.


 


In the event of
forfeiture, the recipient shall lose all rights in and to the Incentive.  Except in the case of Restricted Stock
Incentives as to which the restrictions have not lapsed, this provision,
however, shall not be invoked to force any recipient to return any Stock
already received under an Incentive.


 


Such
determinations as may be necessary for application of this Section, including
any grant of authority to others to make determinations under this Section,
shall be at the sole discretion of the Committee, and its determinations shall
be conclusive.


 


16.  Acceleration.


 


The Committee may,
in its sole discretion, accelerate the date of exercise, vesting, lapse of
restrictions or other receipt of any Incentive, provided that in no event shall
the Restriction Period for Restricted Stock Incentives be less than three
years.


 


17.  Rights as
a Shareholder.


 


A recipient of an
Incentive shall, unless the terms of the Incentive provide otherwise, have no
rights as a shareholder, with respect to any options or shares which may be
issued in connection with the Incentive until the issuance of a Stock
certificate for such shares, and no adjustment other than as stated herein
shall be made for dividends or other rights for which the record date is prior
to the issuance of such Stock certificate. 
In addition, with respect to Restricted Stock Incentives, recipients
shall have only such rights as a shareholder as may be set forth on the
certificate or in the terms of the Incentive.


 


18.  Foreign
Nationals.


 


Incentives may be
awarded to persons who are foreign nationals or employed outside the United
States on such terms and conditions different from those specified in the Plan
as the Committee considers necessary or advisable to achieve the purposes of
the Plan or to comply with applicable laws.


 


19.  Change in
Control Provisions.


 


(a)  Impact
of Event.  Notwithstanding any other
provision of the Plan to the contrary, in the event of a Change in Control, any
Incentives outstanding as of the date such Change in Control is determined to
have occurred and not then exercisable and vested shall become fully
exercisable and vested to the full extent of the original grant and all
restrictions on Incentives shall immediately lapse.


 


(b)  Change
in Control Cash Out.  Notwithstanding any
other provision of the Plan, upon the occurrence of a Change of Control all
outstanding Stock Options shall immediately become 


 


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fully exercisable,
and during the 60-day period from and after such Change in Control (the “Exercise
Period”), an optionee shall have the right, in lieu of the payment of the
exercise price for the shares of Stock being purchased under the Stock Option
or Director Stock Option and by giving notice to the Company, to elect (within
the Exercise Period) to surrender all or part of the Stock Option or Director
Stock Option to the Company and to receive cash, within 30 days of such notice,
in an amount equal to the amount by which the Change in Control Price per share
of Stock on the date of such election shall exceed the exercise price per share
of Stock under the Stock Option or Director Stock Option (the “Spread”)
multiplied by the number of shares of Stock granted under the Stock Option or
Director Stock Option as to which the right granted under this section shall
have been exercised; provided, however, that if the end of such 60-day period
from and after a Change in Control is within six months of the date of grant of
a Stock Option or Director Stock Option held by an optionee who is an officer
or director of the Company and is subject to Section 16(b) of the
Exchange Act, such Stock Option or Director Stock Option shall be cancelled in
exchange for a cash payment to the optionee, effected on the day which is six
months and one day after the date of grant of such Option, equal to the Spread
multiplied by the number of shares of Stock granted under the Stock Option or
Director Stock Option.  For purposes of
this paragraph only, the date of grant of any Stock Option or Director Stock
Option approved by the Committee prior to the date on which the Plan is
approved by the Company’s shareholders shall be deemed to be the date on which
the Plan is approved by the Company’s shareholders.


 


(c) 
Definition of Change in Control.  For
purposes of the Plan, a “Change in Control” shall mean the happening of any of
the following events:


 


(i)             An acquisition by any individual, entity or group
within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a “Person”) resulting in beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (x) the then
outstanding shares of Common Stock of the Company (the “Outstanding Company
Common Stock”) or (y) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); excluding, however,
the following acquisitions of Outstanding Company Common Stock and Outstanding
Company Voting Securities:  (1) any
acquisition directly from the Company (other than an acquisition pursuant to
the exercise of a conversion privilege), (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation or other
entity controlled by the Company or (4) any acquisition by any person
pursuant to a reorganization, merger or consolidation if, following such reorganization,
merger or consolidation, the conditions described in clauses (1), (2) and (3) of
subsection (iii) of this section are satisfied, or


 


(ii)          Individuals
who, as of the effective date of the Plan, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual who becomes a member of the Board
subsequent to such effective date, whose election, or nomination for election
by the Company’s shareholders, was approved by a vote of at least a majority of
directors then comprising the Incumbent Board, shall be considered as though
such individual were a member of the incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person other
than the Board shall not be so considered as a member of the Incumbent Board;
or


 


(iii)       Approval by
the shareholders of the Company of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the 


 


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Company
(“Business Combination”); excluding, however, such a Business Combination
pursuant to which (1) all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination own, directly or indirectly, more than 60%
of, respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation or other
entity resulting from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no
person (other than the Company, any employee benefit plan or related trust
sponsored or maintained by the Company or any corporation or other entity
controlled by the Company or such corporation resulting from such Business
Combination and any person beneficially owning, immediately prior to such
Business Combination, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation or
other entity resulting from such Business Combination or the combined voting
power of the outstanding voting securities of such corporation or other entity
entitled to vote generally in the election of directors and (3) at least a
majority of the members of the board of directors of the corporation or other
entity resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or


 


(iv)                              The approval by the shareholders of the Company
of a plan of partial or complete liquidation or dissolution of the Company.


 


(d)  Change
in Control Price.  For purposes of the
Plan, “Change in Control Price” means the higher of (i) the highest
reported sales price, regular way, of a share of Stock in any transaction
reported on the NASDAQ National Market or other national securities exchange on
which such shares are listed, as applicable, during the 60-day period prior to
and including the date of a Change in Control and (ii) if the Change in
Control is the result of a tender or exchange offer or a Business Combination,
the highest price per share of Stock paid in such tender or exchange offer or
Business Combination; provided, however, that in the case of a Stock Option
which (A) is held by an optionee who is an officer or director of the
Company and is subject to Section 16(b) of the Exchange Act and (B) was
granted within 240 days of the Change in Control, then the Change in Control
Price for such Stock Option shall be the Fair Market Value of the Stock on the
date such Stock Option is exercised, cancelled or cashed out pursuant to
the terms of the Plan.  To the extent
that the consideration paid in any such transaction described above consists
all or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Board.


 


20.   Amendment of Incentive.


 


The Committee may amend, modify or terminate any
outstanding Incentive, including substituting therefor another Incentive of the
same or a different type, changing the date of exercise or realization and
converting an Incentive Stock Option to a Nonstatutory Stock Option, provided
that the holder’s consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Employee and provided further that under no
circumstances, except as provided in Section 4 hereof, shall the exercise
price of outstanding stock options issued under the Plan be reduced.


 


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21.                               Amendment to Prior Plan.


 


No grants shall be
made under the Company’s 1996 Incentive Stock Plan on or after shareholder
approval of the Plan.


 


22.  Effective
Date and Term.


 


This
Plan shall be effective upon adoption by the shareholders of the Company at its
2002 Annual Meeting to be held on May 7, 2002.  The Plan shall continue in effect until May 6,
2012, when it shall terminate.  Upon
termination, any balances of shares reserved for issuance under the Plan shall
be cancelled, and no Incentives shall be granted under the Plan
thereafter.  The Plan shall continue in
effect, however, insofar as is necessary to complete all of the Company’s
obligations under outstanding Incentives to conclude the administration of the
Plan.


 


23.          Termination
and Amendment of Plan.


 


The Plan may be
terminated at any time by the Board of Directors except with respect to any
Stock Options, Director Stock Options, Restricted Stock Incentives, Stock
Appreciation Rights or Performance Share Incentives then outstanding.  Also, the Board may, from time to time, amend
the Plan as it may deem proper and in the best interests of the Company or as
may be necessary to comply with any applicable laws or regulations, provided
that no such amendment shall, without approval of the holders of a majority of
the outstanding shares of Common stock, (i) increase the total number of
shares which may be issued under the Plan, (ii) reduce the minimum
purchase price or otherwise materially increase the benefits under the Plan, (iii) change
the basis for valuing Stock Appreciation Rights, (iv) impair any
outstanding Incentives without the consent of the holder, (v) alter the
class of employees eligible to receive Incentives, or (vi) withdraw the
administration of the Plan from the Committee.


 


24.          Construction
of Plan.


 


The place of
administration of the Plan shall be in the State of New York, and the validity,
construction, interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws, but not the laws pertaining to choice of laws, of the
State of New York.


 


25.                               Other Laws.


 


The Committee may
refuse to issue or transfer any shares or other consideration under a grant if,
acting in its sole discretion, it determines that the issuance or transfer of
such shares or such other consideration might violate any applicable law or
regulation or entitle the Company to recover the same under Section 16(b) of
the Exchange Act, and any payment tendered to the Company by a Participant,
other holder or beneficiary in connection with the exercise of such grant shall
be promptly refunded to the relevant Participant, holder, or beneficiary.  Without limiting the generality of the
foregoing, no grant granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws and any other laws to which such offer, if made, would
be subject.


 


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