Document:

exv10w3

Exhibit 10.3

WAIVER AGREEMENT

     This Waiver
Agreement (the “Agreement”) dated as of
August 25, 2010 among Emisphere
Technologies, Inc., a Delaware corporation (the “Company”), and each of the investors
identified on the signature pages hereto (collectively, “MHR”).

     WHEREAS, concurrently herewith the Company has entered into two Securities Purchase Agreements
with those certain investors listed on the “Schedule of Buyers” thereto (collectively, the
“Securities Purchase Agreements”) pursuant to which the Company has agreed to issue and
sell to the investors (the “Investors”) thereto and the Investors have agreed to purchase, in each
case subject to the conditions therein, an aggregate of 3,497,528 shares (the “Shares”) of its
common stock, par value $0.01 per share (the “Common Stock”), and warrants to purchase
2,623,146 shares of Common Stock (the “Warrants”, and together with the Shares, the
“Securities”) in a private placement (the “Private Placement”).

     WHEREAS, as a result of prior transactions and agreements between MHR and the Company, the
issuance of the Securities in connection with the Private Placement would trigger certain
anti-dilution adjustments provided to MHR pursuant to the 11% Senior Secured Convertible Notes,
dated as of September 26, 2005, as amended (the “Notes”) and Warrant Nos. A12, A13, A14 and
A15, each dated as of September 21, 2006, issued by Company (the “2006 Warrants”).

     WHEREAS, the provisions of the Registration Rights Agreements between the Company and MHR,
dated as of September 30, 2005 (the “Registration Rights Agreement”) restrict the ability
of the Company to grant registration rights.

     WHEREAS, in exchange for the consideration provided herein, MHR agrees to, in connection with
the Private Placement to the Investors, waive its Adjustment and Registration Right Restriction (as
defined below).

     NOW, THEREFORE, in consideration of the terms and conditions contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:

     A. This Agreement will become effective upon the Closing (as such term is defined in the
Securities Purchase Agreements) (the “Effective Date”). If a Closing does not occur or if
the Securities Purchase Agreements are terminated in accordance with their terms and provisions
prior to the occurrence of the Closing this Agreement will become void ab initio, without any
liability of any of the parties hereto under this Agreement.

     B. In consideration for MHR’s waiver of its Adjustment and Registration Right Restriction, the
Company shall: (1) issue to MHR Warrants to purchase 975,000 shares of Common Stock on the same
terms and conditions as the Warrants issued in the Private Placement to MHR; and (2) reimburse MHR
for fifty percent (50%) of MHR’s reasonable and documented fees and expenses incurred for legal
services in connection with the Private

 

 

Placement, the Securities Purchase Agreements and this Agreement up to a maximum aggregate
reimbursement amount of $50,000, against delivery of such documentation of expenses as may be
reasonably requested by the Company (which such documentation shall not include descriptions of
time entries and related information).

     C. Each of the undersigned hereby waives, solely to the extent such provisions would be
triggered or otherwise implicated in connection with the sale and issuance of the Securities
pursuant to the Private Placement or upon any issuance by the Company of shares of Common Stock
upon exercise of such Warrants, the following rights:

	 	1.	 	the application of any anti-dilution adjustments to the rate of
conversion or conversion price of the Notes as set forth in Sections 3(d)(iv)
and 3(d)(vi) of the Notes; and
	 
	 	2.	 	the application of any anti-dilution adjustments to the rate of
exchange or exercise price of the 2006 Warrants as set forth in Sections
7(e)(iii) and 7(e)(iv) of the 2006 Warrants.

          (such anti-dilution adjustments, the “Adjustment”).

     D. Each of the undersigned hereby waives, solely to the extent such provisions would be
implicated in connection with the registration rights being granted by the Company to the Investors
concurrently with the consummation of the Private Placement, the application of the restriction on
the grant of registration rights as set forth in Section 10.1 of the Registration Rights Agreement
(the “Registration Right Restriction”).

     E. Except as expressly provided herein, the execution, delivery and effectiveness of this
Waiver Agreement shall not operate as a waiver of any right, adjustment, restriction, power or
remedy of the undersigned or any one of them under any agreement or document, including but not
limited to the Notes, the 2006 Warrants or the Registration Rights Agreement. The Company
acknowledges that nothing in this waiver shall be construed as a waiver of MHR’s rights with
respect to any future issuance, sale, conversion or exercise of securities of the Company (except
for the issuance of Common Stock upon exercise of the Warrants) or any other transaction or upon
any other event.

     F. This Agreement shall in all respects be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without giving effect to any choice or conflict
of law provision or rule that would cause the application of laws of any jurisdiction other than
those of the State of New York.

     G. This Agreement may be executed in multiple counterparts each of which shall be deemed an
original, but all of which will constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile or .pdf transmission.

[Signature Page Follows]

 

 

     IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed as of the date
first indicated above.

	 	 	 	 	 
	 	COMPANY

EMISPHERE TECHNOLOGIES, INC.

 	 
	 	By:  	/s/ Michael R. Garone	 
	 	 	Name:  	Michael R. Garone	 
	 	 	Title:  	Chief Financial Officer	 
	 

[Signature Page to Waiver Agreement]

 

 

	 	 	 	 	 
	 	INVESTORS

MHR CAPITAL PARTNERS (100) LP

 	 
	 	By:  	/s/ Hal Goldstein	 
	 	 	Name:  	Hal Goldstein	 
	 	 	Title:  	Authorized Signatory	 
	 
	 	MHR INSTITUTIONAL PARTNERS II LP

 	 
	 	By:  	/s/ Hal Goldstein	 
	 	 	Name:  	Hal Goldstein	 
	 	 	Title:  	Authorized Signatory	 
	 
	 	MHR INSTITUTIONAL PARTNERS IIA LP

 	 
	 	By:  	/s/
Hal Goldstein	 
	 	 	Name:  	Hal Goldstein	 
	 	 	Title:  	Authorized Signatory	 
	 
	 	MHR CAPITAL PARTNERS MASTER ACCOUNT LP

 	 
	 	By:  	/s/
Hal Goldstein	 
	 	 	Name:  	Hal Goldstein	 
	 	 	Title:  	Authorized Signatory	 
	 

[Signature Page to Waiver Agreement]exv4w1

Exhibit 4.1

Hastings Entertainment, Inc.

2010 Incentive Stock Plan

1. Purposes of the Plan

     This Hastings Entertainment, Inc. 2010 Incentive Stock Plan (the “Plan”) is intended to
attract, retain and provide incentives to employees, officers, directors and consultants of the
Company, and to thereby increase overall shareholders’ value. The Plan generally provides for the
granting of stock Options, Stock Appreciation Rights, Restricted Shares, Restricted Stock Units,
Performance Shares, other stock-based awards or any combination of the foregoing.

2. Definitions and Rules of Construction

     For purposes of the Plan, the following capitalized words shall have the meanings set forth
below:

     “Award” means an Option, Stock Appreciation Right, Restricted Share, Restricted Stock Unit,
Performance Award, or Other Award granted by the Committee pursuant to the terms of the Plan.

     “Award Agreement” means an agreement, certificate or other type or form of document or
documentation approved by the Committee that sets forth the terms and conditions of an Award. An
Award Agreement may be written or electronic and, unless the Committee requires otherwise, need not
be signed by a representative of the Company or a Participant.

     “Beneficial Owner” and “Beneficially Owned” have the meaning set forth in Rule 13d-3 under the
Exchange Act.

     “Board” means the Board of Directors of the Company, as constituted from time to time.

     “Cause” means termination of Participant’s employment for “cause” as defined in any employment
or severance agreement the Participant may have with the Company or a Subsidiary or, if no such
agreement exists, “cause” means a violation of the Company’s policies or procedures, unless
otherwise provided in an Award Agreement.

     “Change of Control” means:

          (i) An acquisition by any person (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act), who is not as of the Effective Date the beneficial holder of at least ten percent
(10%) of the Company’s then outstanding Common Stock, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (x) the
then outstanding Common Stock (the “Outstanding Company Common Stock”) or (y) the combined voting
power of the then outstanding Common Stock entitled to vote generally in the election of directors
(the “Outstanding Company Voting Securities”); excluding, however, the following: (1) any
acquisition of Outstanding Company Common Stock by the Company, (2) any acquisition of Outstanding
Company Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (3) any acquisition of Outstanding Company
Common

 

 

Stock by any person pursuant to a transaction that complies with clauses (1), (2) and (3) of
subsection (iii) of this definition; or

          (ii) A change in the composition of the Board such that the individuals who, as of the
Effective Date, constitute the Board (such Board shall be hereinafter referred to as the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board; provided, however, for
purposes of this definition, that any individual who becomes a director subsequent to the Effective
Date whose election, or nomination for election by the Company’s shareholders, is approved by a
vote of at least a majority of those individuals who are members of the Incumbent Board (or deemed
to be such pursuant to this proviso) 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 or legal entity other
than the Board shall not be so considered as a member of the Incumbent Board; or

          (iii) The consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (“Corporate Transaction”);
excluding, however, such a Corporate Transaction 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 Corporate
Transaction will beneficially own, directly or indirectly, more than fifty percent (50%) of,
respectively, the outstanding common stock, and the combined voting power of the then outstanding
common stock entitled to vote generally in the election of directors, as the case may be, of the
company resulting from such Corporate Transaction (including, without limitation, a corporation
that as a result of such transaction owns the Company or all or substantially all or more
subsidiaries) in substantially the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no person (other then the Company, any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation controlled by the
Company or such corporation resulting from such Corporate Transaction) will beneficially own,
directly or indirectly, thirty percent (30%) or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction or the combined voting
power of the outstanding voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership existed with respect to the Company
prior to the Corporate Transaction and (3) individuals who were members of the Incumbent Board will
constitute at least a majority of the board of directors of the corporation resulting from such
Corporate Transaction; or

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

     Notwithstanding the foregoing, with respect to an Award that is subject to Section 409A of the
Code and under the terms of which the payment or settlement of such Award will accelerate upon a
Change of Control, no event set forth herein will constitute a Change of Control for purposes of
the Plan or any Award Agreement unless such event also constitutes a

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“change in ownership,” “change in effective control,” or “change in the ownership of a
substantial portion of the Company’s assets” as defined under Section 409A of the Code.

     “Code” means the Internal Revenue Code of 1986, as amended, and the applicable rulings and
regulations promulgated thereunder.

     “Committee” means the Compensation Committee of the Board, any successor committee thereto or
any other committee appointed from time to time by the Board to administer the Plan, which
committee shall meet the requirements of Section 162(m) of the Code, Section 16(b) of the Exchange
Act and the applicable rules of the NASDAQ National Market System or by the principal exchange on
which the Stock is traded; provided, however, that, if any Committee member is found not to have
met the qualification requirements of Section 162(m) of the Code and Section 16(b) of the Exchange
Act, any actions taken or Awards granted by the Committee shall not be invalidated by such failure
to so qualify.

     “Common Stock” means the common stock of the Company, par value $.01 per share, or such other
class of share or other securities as may be applicable under Section 13 of the Plan.

     “Company” means Hastings Entertainment, Inc., a Texas corporation.

     “Disability” means a Participant being considered “disabled” within the meaning of Section
409A of the Code, unless otherwise provided in an Award Agreement.

     “Effective Date” means the date on which the Plan is adopted by the Board.

     “Eligible Individuals” means the individuals described in Section 4(a) of the Plan who are
eligible for Awards under the Plan.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

     “Fair Market Value” means, with respect to a share of Common Stock, the fair market value
thereof as of the relevant date of determination, as determined in accordance with the valuation
methodology approved by the Committee. In the absence of any alternative valuation methodology
approved by the Committee, the Fair Market Value of a share of Common Stock shall equal the average
of the high and low sales price as reported on the date of grant by the NASDAQ National Market
System or by the principal exchange on which the Common Stock is traded or, in the event that the
Common Stock is not listed for trading on the NASDAQ National Market System or such other national
securities exchange as may be designated by the Committee but is quoted on an automated system, in
any such case on the valuation date (or, if there were no sales on the valuation date, the average
of the highest and lowest quoted selling prices as reported on said composite tape or automated
system for the most recent day during which a sale occurred), provided, that in the absence of such
markets for Common Stock, the Fair Market Value shall be determined by the Committee in good faith
and, in the case of an Incentive Stock Option, in accordance with Section 42 of the Code, and, in
the case of a Nonqualified Stock Option or Stock Appreciation Right, in accordance with Section
409A of the

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Code.

     “Incentive Stock Option” means an Option that is intended to comply with the requirements of
Section 422 of the Code or any successor provision thereto.

     “Non-Employee Director” means any member of the Board who is not an officer or employee of the
Company or any Subsidiary.

     “Nonqualified Stock Option” means an Option that is not intended to comply with the
requirements of Section 422 of the Code or any successor provision thereto.

     “Option” means an Incentive Stock Option or Nonqualified Stock Option granted pursuant to
Section 7 of the Plan.

     “Other Award” means an Award granted pursuant to Section 11 of the Plan.

     “Participant” means an Eligible Individual who has been granted an Award under the Plan.

     “Performance Period” means the period established by the Committee and set forth in the
applicable Award Agreement over which Performance Targets are measured.

     “Performance Award” means a Performance Share or Performance Unit granted pursuant to Section
10 of the Plan.

     “Performance Goals” means the performance goals established by the Committee, from among the
performance criteria provided in Section 6(g), and set forth in the applicable Award Agreement.

     “Performance Share” means a Performance Award denominated in Shares granted pursuant to
Section 10 of the Plan.

     “Performance Unit” means a Performance Award denominated in cash granted pursuant to Section
10 of the Plan.

     “Permanent Disability” has the meaning provided for that term in Section 22(e)(3) of the Code.

     “Permitted Transferees” means (i) a Participant’s family member, (ii) one or more trusts
established in whole or in part for the benefit of one or more of such family members, (iii) one or
more entities which are beneficially owned in whole or in part by one or more such family members,
or (iv) a charitable or not-for-profit organization.

     “Plan” means this Hastings Entertainment, Inc. 2010 Incentive Stock Plan, as amended or
restated from time to time.

     “Plan Limit” means the maximum aggregate number of Shares that may be issued for all purposes
under the Plan as set forth in Section 5(a) of the Plan.

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     “Prior Plans” means the Hastings Entertainment, Inc. 1996, 2002 and 2006 Incentive Stock
Plans, each as amended from time to time, and any other prior equity stock plans of the Company.

     “Restricted Share” means a Share granted pursuant to Section 8(a) of the Plan.

     “Restricted Stock Unit” means a right to receive one or more Shares (or cash, if applicable)
in the future granted pursuant to Section 8(b) of the Plan.

     “Retirement” means, unless otherwise provided in an Award Agreement, (i) termination of
Participant’s employment by reason of “retirement” as defined in any employment or severance
agreement the Participant may have with the Company or a Subsidiary or (ii), if no such employment
or severance agreement exists, a date otherwise determined by the Committee.

     “Shares” means shares of Common Stock, as may be adjusted pursuant to Section 13(b).

     “Stock Appreciation Right” means a right, granted pursuant to Section 9 of the Plan, to
receive, upon satisfaction of the conditions to payment specified in the applicable Award
Agreement, an amount equal to the excess, if any, of the Fair Market Value on the exercise date of
the number of Shares for which the Stock Appreciation Right is exercised over the grant price for
such Stock Appreciation Right specified in the applicable Award Agreement.

     “Subsidiary” means (i) a corporation or other entity with respect to which the Company,
directly or indirectly, has the power, whether through the ownership of voting securities, by
contract or otherwise, to elect at least a majority of the members of such corporation’s board of
directors or analogous governing body, or (ii) any other corporation or other entity in which the
Company, directly or indirectly, has an equity or similar interest and that the Committee
designates as a Subsidiary for purposes of the Plan. For purposes of determining eligibility for
the grant of Incentive Stock Options under the Plan, the term “Subsidiary” shall be defined in the
manner required by Section 424(f) of the Code.

     “Substitute Award” means any Award granted upon assumption of, or in substitution or exchange
for, outstanding employee equity awards previously granted by a company or other entity acquired by
the Company or with which the Company combines pursuant to the terms of an equity compensation plan
that was approved by the shareholders of such company or other entity.

     “Target Number” means the target number of Shares or dollar-denominated units of a Performance
Award established by the Committee and set forth in the applicable Award Agreement.

     “Tax Date” means the date on which the amount of tax to be withheld is determined.

3. Administration

     (a) Committee. The Plan shall be administered by the Committee, which shall have full
power and authority, subject to the express provisions hereof, to:

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          (i) select the Participants from the Eligible Individuals;

          (ii) grant Awards in accordance with the Plan;

          (iii) determine the number of Shares subject to each Award or the cash amount payable in
connection with an Award;

          (iv) determine the terms and conditions of each Award, including, without limitation, those
related to term, permissible methods of exercise, vesting, cancellation, payment, settlement,
exercisability, Performance Periods, Performance Goals, and the effect, if any, of a Participant’s
termination of employment with the Company or any of its Subsidiaries or, subject to Section 6(d),
a Change of Control of the Company;

          (v) subject to Sections 16 and 17(e) of the Plan, amend the terms and conditions of an Award
after the granting thereof;

          (vi) specify and approve the provisions of the Award Agreements delivered to Participants in
connection with their Awards;

          (vii) construe and interpret any Award Agreement delivered under the Plan;

          (viii) make factual determinations in connection with the administration or interpretation of
the Plan;

          (ix) adopt, prescribe, amend, waive and rescind administrative regulations, rules and
procedures relating to the Plan;

          (x) employ such legal counsel, independent auditors and consultants as it deems desirable for
the administration of the Plan and to rely upon any advice, opinion or computation received
therefrom;

          (xi) vary the terms of Awards to take account of tax and securities law and other regulatory
requirements or to procure favorable tax treatment for Participants;

          (xii) correct any defects, supply any omission or reconcile any inconsistency in any Award
Agreement or the Plan; and

          (xiii) make all other determinations and take any other action desirable or necessary to
interpret, construe or implement properly the provisions of the Plan or any Award Agreement.

     (b) Plan Construction and Interpretation. The Committee shall have full power and
authority, subject to the express provisions hereof, to construe and interpret the Plan.

     (c) Determinations of Committee Final and Binding. All determinations by the Committee
in carrying out and administering the Plan and in construing and interpreting the Plan shall be
made in the Committee’s sole discretion and shall be final, binding and conclusive for

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all purposes and upon all persons interested herein.

     (d) Delegation of Authority. To the extent not prohibited by applicable laws, rules
and regulations, the Committee may, from time to time, delegate some or all of its authority under
the Plan to a subcommittee or subcommittees thereof or other persons or groups of persons as it
deems necessary, appropriate or advisable under such conditions or limitations as it may set at the
time of such delegation or thereafter; provided, however, that the Committee may not delegate its
authority (i) to make Awards to employees (A) who are subject on the date of the Award to the
reporting rules under Section 16(a) of the Exchange Act, (B) whose compensation for such fiscal
year may be subject to the limit on deductible compensation pursuant to Section 162(m) of the Code
or (C) who are officers of the Company who are delegated authority by the Committee hereunder, or
(ii) pursuant to Section 16 of the Plan. For purposes of the Plan, reference to the Committee shall
be deemed to refer to any subcommittee, subcommittees, or other persons or groups of persons to
whom the Committee delegates authority pursuant to this Section 3(d).

     (e) Liability of Committee. Subject to applicable laws, rules and regulations: (i) no
member of the Board or Committee (or its delegates) shall be liable for any good faith action or
determination made in connection with the operation, administration or interpretation of the Plan
and (ii) the members of the Board or the Committee (and its delegates) shall be entitled to
indemnification and reimbursement in the manner provided in the Company’s Certificate of Formation
as it may be amended from time to time. In the performance of its responsibilities with respect to
the Plan, the Committee shall be entitled to rely upon information and/or advice furnished by the
Company’s officers or employees, the Company’s accountants, the Company’s counsel and any other
party the Committee deems necessary, and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such information and/or advice.

     (f) Action by the Board. Anything in the Plan to the contrary notwithstanding, subject
to applicable laws, rules and regulations, any authority or responsibility that, under the terms of
the Plan, may be exercised by the Committee may alternatively be exercised by the Board.

4. Eligibility

     (a) Eligible Individuals. Awards may be granted to officers, employees, directors,
Non-Employee Directors, consultants, advisors and independent contractors of the Company or any of
its Subsidiaries; provided, however, that only employees of the Company or a Subsidiary may be
granted Incentive Stock Options. The Committee shall have the authority to select the persons to
whom Awards may be granted and to determine the type, number and terms of Awards to be granted to
each such Participant. Under the Plan, references to “employment” or “employed” include the
engagement of Participants who are consultants, advisors and independent contractors of the Company
or its Subsidiaries and the service of Participants who are Non-Employee Directors, except for
purposes of determining eligibility to be granted Incentive Stock Options.

     (b) Grants to Participants. The Committee shall have no obligation to grant any
Eligible Individual an Award or to designate an Eligible Individual as a Participant solely by

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reason of such Eligible Individual having received a prior Award or having been previously
designated as a Participant. The Committee may grant more than one Award to a Participant and may
designate an Eligible Individual as a Participant for overlapping periods of time.

5. Shares Subject to the Plan

     (a) Plan Limit. Subject to adjustment in accordance with Section 13 of the Plan, the
maximum aggregate number of Shares that may be issued for all purposes under the Plan shall be Five
Hundred Thousand (500,000) plus any Shares that are available for issuance under the Prior Plans.
Shares to be issued under the Plan may be authorized and unissued shares, issued shares that have
been reacquired by the Company (in the open-market or in private transactions) and that are being
held in treasury, or a combination thereof. All of the Shares subject to the Plan Limit may be
issued pursuant to Incentive Stock Options.

     (b) Rules Applicable to Determining Shares Available for Issuance. The number of
Shares remaining available for issuance will be reduced by the maximum number of Shares subject to
outstanding Awards. Notwithstanding the foregoing, the number of Shares corresponding to Awards
under the Plan and the Prior Plans that are forfeited or cancelled or otherwise expire for any
reason without having been exercised or settled, or are settled in cash or withheld to pay the
exercise price or taxes associated with any Award shall be added back to the Plan Limit and again
be available for the grant of Awards; provided, however, that this provision shall not be
applicable with respect to (i) the cancellation of a Stock Appreciation Right granted in tandem
with an Option upon the exercise of the Option or (ii) the cancellation of an Option granted in
tandem with a Stock Appreciation Right upon the exercise of the Stock Appreciation. For the
avoidance of doubt, upon the exercise of a Stock Appreciation Right, only the number of shares of
Common Stock actually issued in connection with the exercise of such Stock Appreciation Right (and
not the corresponding number of shares of Common Stock related to the Stock Appreciation Right (or
portion thereof) being exercised) shall be treated as issued under the Plan and, for the purpose of
the limitation set forth in this Section 5 in regard to the number of shares of Common Stock
issuable under the Plan, the remaining number of shares of Common Stock related to such exercised
Stock Appreciation Right (or portion thereof) shall again be available for issuance under the Plan.
In the event that the Company distributes cash in lieu of issuing shares of Common Stock in
connection with the exercise of a Stock Appreciation Right, the corresponding number of shares of
Common Stock related to the Stock Appreciation Right (or portion thereof) being exercised shall
again be available for issuance under the Plan.

     (c) Individual Limits. Anything to the contrary in Section 5(a) above notwithstanding,
but subject to adjustment under Section 13 of the Plan, the maximum number of Shares that may be
issued pursuant to Awards granted to any Eligible Individual in any calendar year shall not exceed
50,000 Shares and the maximum value of any Performance Unit granted to any Eligible Individual in
any calendar year shall not exceed $250,000.

     (d) Substitute Awards. Any Shares underlying Substitute Awards shall not be counted
against the number of Shares remaining for issuance and shall not be subject to Section 5(c).

6. Awards in General

     (a) Types of Awards. Awards under the Plan may consist of Options, Stock

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Appreciation Rights, Restricted Shares, Restricted Stock Units, Performance Awards and Other
Awards. Any Award described in Sections 7 through 11 of the Plan may be granted singly or in
combination or tandem with any other Award, as the Committee may determine. Awards under the Plan
may be made in combination with, in replacement of, or as alternatives to awards or rights under
any other compensation or benefit plan of the Company, including the plan of any acquired entity.

     (b) Terms Set Forth in Award Agreement. The terms and conditions of each Award shall
be set forth in an Award Agreement in a form approved by the Committee for such Award, which Award
Agreement shall contain terms and conditions not inconsistent with the Plan. Notwithstanding the
foregoing, and subject to applicable laws, rules and regulations, including, without limitation,
Section 409A of the Code and the regulations and guidance thereunder, the Committee may accelerate
(i) the vesting or payment of any Award, (ii) the lapse of restrictions on any Award or (iii) the
date on which any Award first becomes exercisable. The terms of Awards may vary among Participants,
and the Plan does not impose upon the Committee any requirement to make Awards subject to uniform
terms.

     (c) Termination of Employment. The provisions in this Section 6(c) shall be subject to
the provisions of Sections 8 and 10 and, notwithstanding Section 6(b) above or Section 17(k) below,
the provisions of any Award Agreement. In the event a Participant ceases to be an Eligible
Individual, for any reason other than death, Retirement, Permanent Disability, or Cause or pursuant
to a right of termination under an Eligible Individual’s employment agreement with the Company, (1)
the Committee shall have the ability to accelerate the vesting of the Participant’s Awards, in its
sole discretion, subject to applicable laws, rules and regulations, including, without limitation,
Section 409A of the Code and the regulations and guidance thereunder, and (2) any Option or Stock
Appreciation Right held by such Participant shall be exercisable (to the extent exercisable on the
date of termination of employment, or, if the vesting of such Option or Stock Appreciation Right
has been accelerated, to the extent exercisable following such acceleration) at any time within
three months after the date of termination of employment, unless by its terms the Option or Stock
Appreciation Right expires earlier or unless, with respect to a Nonqualified Stock Option or Stock
Appreciation Right, the Committee agrees, in its sole discretion, to extend its term further;
provided, however, that the term of any such Option or Stock Appreciation Right shall not be
extended beyond its initial term. In the event a Participant ceases to serve as an employee or
director of the Company or its Subsidiaries due to death, Permanent Disability, Retirement, or
Cause or pursuant to a right of termination under a Participant’s employment agreement with the
Company, (x) the Committee shall have the ability to accelerate the vesting of the Participant’s
Awards, in its sole discretion, subject to applicable laws, rules and regulations, including,
without limitation, Section 409A of the Code and the regulations and guidance thereunder, and (y)
the Participant’s Options or Stock Appreciation Right may be exercised as follows:

          (i) Death. Except as otherwise limited by the Committee at the time of the grant of an Option
or Stock Appreciation Right, if a Participant dies while serving as an employee or director of the
Company or its Subsidiaries or within three months after ceasing to be an employee or director of
the Company or its Subsidiaries, his or her Options and/or Stock Appreciation Rights shall become
fully (100%) vested on the date of his or her death and shall expire twelve months thereafter,
unless by their terms they expire sooner or unless, with respect to a Nonqualified Stock Option or
Stock Appreciation Right, the Committee agrees, in its sole

9

 

discretion, to extend its term further; provided, however, that the term of any such
Nonqualified Stock Option shall not be extended beyond its initial term. During such period, the
Option or Stock Appreciation Right may be fully exercised, to the extent that it remains
unexercised on the date of death, by the Participant’s personal representative or by the
distributees to whom the Participant’s rights under the Option or Stock Appreciation Right pass by
will or by the laws of descent and distribution.

          (ii) Retirement. If a Participant ceases to serve as an employee or director of the Company or
its Subsidiaries as a result of Retirement, (1) the Committee shall have the ability to accelerate
the vesting of the Participant’s Awards, in its sole discretion, and (2) the Participant’s Options
and/or Stock Appreciation Rights shall be exercisable (to the extent exercisable on the effective
date of such Retirement or, if the vesting of such Options and/or Stock Appreciation Rights has
been accelerated, to the extent exercisable following such acceleration) only at any time within
three months after the effective date of such Retirement, unless by their terms the Options and/or
Stock Appreciation Rights expire earlier or unless, with respect to a Nonqualified Stock Option or
Stock Appreciation Right, the Committee agrees, in its sole discretion, to extend its term further;
provided that the term of any such Option or Stock Appreciation Right shall not be extended beyond
its initial term.

          (iii) Disability. If a Participant ceases to serve as an employee or director of the Company
or its Subsidiaries as a result of Permanent Disability, the Participant’s Awards shall become
fully (100%) vested and shall expire twelve months thereafter, unless by their terms they expire
sooner or, unless, with respect to a Nonqualified Stock Option or Stock Appreciation Right, the
Committee agrees, in its sole discretion, to extend its term; provided, however, that the term of
any such Option or Stock Appreciation Right shall not be extended beyond its initial term.

          (iv) Cause. If a Participant ceases to be employed by the Company or a Subsidiary or ceases to
serve as a director because the Participant’s employment with the Company or a Subsidiary is
terminated for Cause, the Participant’s Awards (other than Restricted Stock or Stock Unit Award
that has already vested), and any rights related thereto, shall automatically expire on the date of
such termination. If any facts that would constitute Cause for termination or removal of a
Participant are discovered after the Participant’s employment with the Company has ended, any
Awards then held by the Participant (other than Restricted Stock or a Stock Unit Awards that have
already vested) may be immediately terminated by the Committee. Notwithstanding the foregoing, if
a Participant is an employee of the Company or its Subsidiaries employed pursuant to a written
employment agreement with the Company or a Subsidiary, the Participant’s relationship with the
Company or a Subsidiary shall be deemed terminated for Cause for purposes of the Plan only if the
Participant is considered under the circumstances to have been terminated “for cause” for purposes
of such written agreement or the Participant voluntarily ceases to be an employee in breach of his
employment agreement with the Company or a Subsidiary.

          (v) Notice. If a Participant’s employment agreement with the Company or an Affiliate is
terminated by either the Company, an Affiliate, or the Participant by providing a required or
permitted notice of termination thereunder, the Awards that are exercisable as of the date of
termination shall remain exercisable for a period of twelve months (or for a period of three months
if such Awards are Incentive Stock Options) after the date of termination and shall

10

 

expire at the end of such twelve-month period (or such three-month period if such Awards are
Incentive Stock Options).

     (d) Change of Control.

          (i) The Committee shall have full authority to determine the effect, if any, of a Change of
Control of the Company or any Subsidiary on the vesting, exercisability, settlement, payment or
lapse of restrictions applicable to an Award, which effect may be specified in the applicable Award
Agreement. Subject to applicable laws, rules and regulations, the Board or the Committee shall, at
any time prior to, coincident with or after the effective time of a Change of Control, take such
actions as it may consider appropriate, including, without limitation: (A) providing for the
acceleration of any vesting conditions relating to the exercise or settlement of an Award or that
an Award shall terminate or expire unless exercised or settled in full on or before a date fixed by
the Committee; (B) making such adjustments to the Awards then outstanding as the Committee deems
appropriate to reflect such Change of Control; (C) causing the Awards then outstanding to be
assumed, or new rights substituted therefor, by the surviving corporation in such Change of
Control; or (D) permit or require Participants to surrender outstanding Options in exchange for a
cash payment equal to the difference between the highest price paid for a Share in the Change of
Control transaction and the Exercise Price of the Options.

          (ii) Subject to applicable laws, rules and regulations, the Committee may provide, in an Award
Agreement or subsequent to the grant of an Award, for the accelerated vesting, exercisability
and/or the deemed attainment of a performance goal with respect to an Award upon specified events
similar to a Change of Control.

          (iii) Notwithstanding any other provision of the Plan or any Award Agreement, the provisions
of this Section 6(d) may not be terminated, amended, or modified upon or after a Change of Control
in a manner that would adversely affect a Participant’s rights with respect to an outstanding Award
without the prior written consent of the Participant. Subject to Section 16, the Board, upon
recommendation of the Committee, may terminate, amend or modify this Section 6(d) at any time and
from time to time prior to a Change of Control.

     (e) Dividends and Dividend Equivalents. The Committee may, at its sole discretion,
provide Participants with the right to receive dividends or payments equivalent to dividends or
interest with respect to an outstanding Award, which payments can either be paid currently or
deemed to have been reinvested in Shares, and can be made in Shares, cash or a combination thereof,
as the Committee shall determine. Notwithstanding the foregoing, no dividends or dividend
equivalents shall be paid with respect to Options or Stock Appreciation Rights.

     (f) Rights of a Shareholder. A Participant shall have no rights as a shareholder with
respect to Shares covered by an Award (including voting rights) until the date the Participant or
his nominee becomes the holder of record of such Shares.

     (g) Performance-Based Awards.

          (i) The Committee may determine whether any Award under the Plan is intended to be
“performance-based compensation” as that term is used in Section 162(m) of the Code. Awards
designated to be “performance-based compensation” shall be conditioned on the

11

 

achievement of one or more Performance Goals. The Performance Goals will be comprised of
specified levels of achievement of various performance criteria, including, without limitation, the
achievement of specific financial, production, sales, cost or earnings performance objectives that
the Committee believes to be relevant to the Company’s business, remaining in the employ or active
service of the Company for a specified period of time or the Company’s performance or the
performance of its shares of Common Stock measured against the performance of the market, the
Company’s industry segment or its direct competitors, in each case determined in accordance with
generally accepted accounting principles (subject to modifications approved by the Committee)
consistently applied on a business unit, divisional, subsidiary or consolidated basis or any
combination thereof. The Performance Goals may be described in terms of objectives that are related
to the individual Participant or objectives that are Company-wide or related to a Subsidiary,
division, department, region, function or business unit and may be measured on an absolute or
cumulative basis or on the basis of percentage of improvement over time or measured relative to
selected peer companies or a market index. For Awards not intended to qualify as “performance-based
compensation” under Section 162(m), the Committee may use additional criteria as it deems
appropriate.

          (ii) The Participants will be designated, and the applicable Performance Goals and the number
of shares that can be earned upon achievement of the Performance Goals will be established, by the
Committee within ninety (90) days following the commencement of the applicable Performance Period
(or such earlier or later date permitted or required by Section 162(m) of the Code). Any payment of
an Award granted with Performance Goals shall be conditioned on the written certification of the
Committee in each case that the Performance Goals and any other material conditions were satisfied.
The Committee retains the right to reduce any Award notwithstanding the attainment of the
Performance Goals.

     (h) Deferrals. In accordance with the procedures authorized by, and subject to the
approval of, the Committee, Participants may be given the opportunity to defer the payment or
settlement of an Award to one or more dates selected by the Participant; provided, however, that
the terms of any deferrals must comply with all applicable laws, rules and regulations, including,
without limitation, Section 409A of the Code and the regulations and guidance thereunder. No
deferral opportunity shall exist with respect to an Award unless explicitly permitted by the
Committee on or after the time of grant.

     (i) Repricing of Options and Stock Appreciation Rights. Notwithstanding anything in
the Plan to the contrary, an Option or Stock Appreciation Right shall not be granted in
substitution for a previously granted Option or Stock Appreciation Right being canceled or
surrendered as a condition of receiving a new Award, if the new Award would have a lower exercise
price than the Award it replaces, nor shall the exercise price of an Option or Stock Appreciation
Right be reduced once the Option or Stock Appreciation Right is granted. The foregoing shall not
(i) prevent adjustments pursuant to Section 13, (ii) apply to grants of Substitute Awards or (iii)
apply to grants of Awards pursuant to any exchange program providing for the exchange of previously
granted Awards for newly granted Awards to the extent that such program is approved by the
affirmative vote of shareholders of the Company holding at least a majority of the outstanding
Common Stock.

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7. Terms and Conditions of Options

     (a) General. The Committee, in its discretion, may grant Options to Eligible
Individuals and shall determine whether such Options shall be Incentive Stock Options or
Nonqualified Stock Options. Each Option shall be evidenced by an Award Agreement that shall
expressly identify the Option as an Incentive Stock Option or Nonqualified Stock Option and be in
such form and contain such provisions as the Committee shall from time to time deem appropriate.

     (b) Exercise Price. The exercise price of an Option shall be fixed by the Committee at
the time of grant or shall be determined by a method specified by the Committee at the time of
grant. Except with respect to Substitute Awards, in no event shall the exercise price of an Option
be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.

     (c) Term. An Option shall be effective for such term as shall be determined by the
Committee and as set forth in the Award Agreement relating to such Option; provided, however, that
the term of an Option may in no event extend beyond the tenth anniversary of the date of grant of
such Option.

     (d) Exercise; Payment of Exercise Price. Options granted to employees shall vest and
become exercisable over a period of time approved by the Board. Options shall be exercised by
delivery of a notice of exercise in a form approved by the Company. Subject to the provisions of
the applicable Award Agreement, the exercise price of an Option may be paid (i) in cash or cash
equivalents, (ii) by actual delivery or attestation to ownership of freely transferable Shares
already owned by the person exercising the Option, (iii) by a combination of cash and Shares equal
in value to the exercise price, (iv) through net share settlement or similar procedure involving
the withholding of Shares subject to the Option with a value equal to the exercise price or (v) by
such other means as the Committee may authorize. In addition, the Option may be exercised through a
“cashless exercise” procedure to the extent, and in accordance with any procedures, authorized by
the Committee.

     (e) Incentive Stock Options. No Incentive Stock Option may be issued pursuant to the
Plan to any individual who, at the time the Incentive Stock Option is granted, owns Common Stock
possessing more than ten percent (10%) of the total combined voting power of all classes of stock
of the Company or any of its Subsidiaries, unless (i) the exercise price determined as of the date
of grant is at least one hundred ten percent (110%) of the Fair Market Value on the date of grant
of the Shares subject to such Incentive Stock Option and (ii) the Incentive Stock Option is not
exercisable more than five (5) years from the date of grant thereof. Any Incentive Stock Option
granted that would result in such Participant receiving a grant of Incentive Stock Options that
would have an aggregate Fair Market Value in excess of one hundred thousand dollars ($100,000),
determined as of the time of grant, that would be exercisable for the first time by such
Participant during any calendar year shall be automatically converted into a Nonqualified Stock
Option. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects
with the provisions of Section 422 of the Code, or any successor provision thereto, as amended from
time to time.

8. Terms and Conditions of Restricted Shares and Restricted Stock Units

     (a) Restricted Shares. The Committee, in its discretion, may grant Restricted Shares

13

 

to Eligible Individuals. An Award of Restricted Shares shall be subject to the terms,
conditions and restrictions set forth in the Plan and established by the Committee in connection
with the Award and specified in the applicable Award Agreement. Restricted Shares may, among other
things, be subject to restrictions on transferability, vesting requirements or other specified
circumstances under which they may be forfeited.

     (b) Restricted Stock Units. The Committee, in its discretion, may grant Restricted
Stock Units to Eligible Individuals. A Restricted Stock Unit shall entitle a Participant to
receive, subject to the terms, conditions and restrictions set forth in the Plan and the applicable
Award Agreement, one or more Shares. Restricted Stock Units may, among other things, be subject to
restrictions on transferability, vesting requirements or other specified circumstances under which
they may be forfeited. If and when the forfeiture provisions lapse, Restricted Stock Units shall be
settled in Shares or, at the sole discretion of the Committee, cash, or a combination of cash and
Shares, with a value equal to the Fair Market Value of the Shares at the time of payment.

     (c) Vesting. Restricted Shares and Restricted Stock Units granted to employees shall
vest and become exercisable over a period of time approved by the Board.

9. Stock Appreciation Rights

     (a) General. The Committee, in its discretion, may grant Stock Appreciation Rights to
Eligible Individuals. A Stock Appreciation Right shall entitle a Participant to receive, upon
satisfaction of the conditions to payment specified in the applicable Award Agreement, an amount
equal to the excess, if any, of the Fair Market Value on the exercise date of the number of Shares
for which the Stock Appreciation Right is exercised over the grant price for such Stock
Appreciation Right specified in the applicable Award Agreement. The grant price per share of Shares
covered by a Stock Appreciation Right shall be fixed by the Committee at the time of grant or,
alternatively, shall be determined by a method specified by the Committee at the time of grant.
Except with respect to Substitute Awards, in no event shall the grant price of a Stock Appreciation
Right be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of
grant and Stock Appreciation Rights granted to employees shall vest and become exercisable over a
period of time approved by the Board. Payments to a Participant upon exercise of a Stock
Appreciation Right may be made in cash or Shares, in each case having an aggregate Fair Market
Value as of the date of exercise equal to the excess, if any, of the Fair Market Value on the
exercise date of the number of Shares for which the Stock Appreciation Right is exercised over the
grant price for such Stock Appreciation Right. The term of a Stock Appreciation Right settled in
Shares shall not exceed ten years.

     (b) Stock Appreciation Rights in Tandem with Options. A Stock Appreciation Right may
be granted in tandem with an Option. If granted in tandem with an Option, a Stock Appreciation
Right shall cover the same number of Shares as covered by the Option (or such lesser number of
shares as the Committee may determine) and shall be exercisable only at such time or times and to
the extent the related Option shall be exercisable, and shall have the same term as the related
Option. The grant price of a Stock Appreciation Right granted in tandem with an Option shall equal
the per-share exercise price of the Option to which it relates. Upon exercise of a Stock
Appreciation Right granted in tandem with an Option, the related Option shall be canceled
automatically to the extent of the number of Shares covered by such exercise; conversely, if the
related Option is exercised as to some or all of the shares covered by the

14

 

tandem grant, the tandem Stock Appreciation Right shall be canceled automatically to the
extent of the number of Shares covered by the Option exercise.

10. Terms and Conditions of Performance Awards

     The Committee may grant Performance Awards to Eligible Individuals. An Award of Performance
Shares shall consist of a Target Number of Shares, and an Award of Performance Units shall consist
of a Target Number of units granted to an Eligible Individual based on the achievement of
Performance Goals over the applicable Performance Period. An Award of Performance Shares or
Performance Units shall, in either case, be subject to the terms, conditions and restrictions set
forth in the Plan and established by the Committee in connection with the Award and specified in
the applicable Award Agreement. The Committee may provide that, if performance relative to the
Performance Goals exceeds targeted levels, then the number of Performance Awards earned shall be a
multiple of the Target Number; provided that, in the case of Performance Awards intended to
constitute “performance-based compensation” under Section 162(m) of the Code, the number or value,
as applicable of Shares or Units earned cannot exceed the limits set forth in Section 5(c).
Performance Awards may be settled in Shares or, at the sole discretion of the Committee, cash, or a
combination of cash and Shares, with a value equal to the Fair Market Value of the Shares at the
time of payment, provided, however, that such settlement shall be made in all cases no later than a
date that is two and one half (2 1/2) months after the fiscal year in which the Performance Goals
were met for such Performance Award.

11. Other Awards

     The Committee shall have the authority to specify the terms and provisions of other forms of
equity-based or equity-related Awards not described above that the Committee determines to be
consistent with the purpose of the Plan and the interests of the Company, which Awards may provide
for cash payments based in whole or in part on the value or future value of Shares, for the
acquisition or future acquisition of Shares, or any combination thereof. To the extent that Section
409A of the Code is applicable to such Awards, all actions pursuant to this Section 11 must satisfy
the requirements of Section 409A of the Code and the regulations and guidance thereunder.

12. Certain Restrictions

     (a) Transfers. No Award shall be transferable other than pursuant to a beneficiary
designation under Section 12(c), by last will and testament or by the laws of descent and
distribution or, except in the case of an Incentive Stock Option or Stock Appreciation Right,
pursuant to a qualified domestic relations order, as defined by the Code or Title I of ERISA, as
the case may be; provided, however, that the Committee may, subject to applicable laws, rules and
regulations and such terms and conditions as it shall specify, permit the transfer of an Award,
other than an Incentive Stock Option, for no consideration to a Permitted Transferee. Any Award
transferred to a Permitted Transferee shall be further transferable only by last will and testament
or the laws of descent and distribution or, for no consideration, to another Permitted Transferee
of the Participant.

     (b) Award Exercisable Only by Participant. During the lifetime of a Participant, an
Award shall be exercisable only by the Participant or by a Permitted Transferee to whom such

15

 

Award has been transferred in accordance with Section 12(a) above. The grant of an Award shall
impose no obligation on a Participant to exercise or settle the Award.

     (c) Beneficiary Designation. A Participant may, from time to time, name any
beneficiary or beneficiaries to receive any benefit in case of death. Each such designation shall
revoke all prior designations by the same Participant and will be effective only when filed by the
Participant in writing (in such form or manner as may be prescribed by the Committee) with the
Company during the Participant’s lifetime. In the absence of a valid designation, the Participant’s
beneficiary shall be the Participant’s estate.

13. Recapitalization or Reorganization

     (a) Authority of the Company and Shareholders. The existence of the Plan, the Award
Agreements and the Awards granted hereunder shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital structure or business,
any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are
superior to or affect the Shares or the rights thereof or that are convertible into or exchangeable
for Shares, or the dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding, whether of a similar
character or otherwise.

     (b) Change in Capitalization. Notwithstanding any provision of the Plan or any Award
Agreement, the number and kind of Shares authorized for issuance under Section 5 of the Plan,
including the maximum number of Shares available under the special limits provided for in
Section 5(c), may be equitably adjusted in the sole discretion of the Committee in the event of a
stock split, reverse stock spit, stock dividend, recapitalization, reorganization, partial or
complete liquidation, reclassification, merger, consolidation, separation, extraordinary cash
dividend, split-up, spin-off, combination, exchange of Shares, warrants or rights offering to
purchase Shares at a price substantially below Fair Market Value, or any other corporate event or
distribution of stock or property of the Company affecting the Shares in order to preserve, but not
increase, the benefits or potential benefits intended to be made available under the Plan. In
addition, upon the occurrence of any of the foregoing events, the number and kind of Shares subject
to any outstanding Award and the exercise price per Share (or the grant price per Share, as the
case may be), if any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to preserve the benefits
or potential benefits intended to be made available to Participants. Such adjustments shall be made
by the Committee. Unless otherwise determined by the Committee, such adjusted Awards shall be
subject to the same restrictions and vesting or settlement schedule to which the underlying Award
is subject.

14. Terms of the Plan

     Unless earlier terminated pursuant to Section 16, the Plan shall terminate on the tenth
anniversary of the Effective Date, except with respect to Awards then outstanding. No Awards may be
granted under the Plan after the tenth anniversary of the Effective Date.

16

 

15. Effective Date

     The Plan shall become effective on the Effective Date, subject to approval by the shareholders
of the Company.

16. Amendment and Termination

     Subject to applicable laws, rules and regulations, the Board may at any time terminate or,
from time to time, amend, modify or suspend the Plan; provided, however, that no termination,
amendment, modification or suspension (i) will be effective without the approval of the
shareholders of the Company if such approval is required under applicable laws, rules and
regulations, including the rules of the NASDAQ National Market System or, if the Common Stock is
not traded on the NASDAQ National Market System and is traded on one or more national securities
exchanges, the principal exchange on which the Common Stock is traded or (ii) shall materially and
adversely alter or impair the rights of a Participant in any Award previously made under the Plan
without the consent of the holder thereof.

     Notwithstanding the foregoing, the Board may amend the Plan or any Award under the Plan
without the consent of a Participant to the extent the Board deems necessary or desirable (a) to
comply with, take into account changes in, or interpretations of, applicable tax laws, securities
laws, employment laws, accounting rules and other applicable laws, rules and regulations, (b) to
take into account unusual or nonrecurring events or market conditions (including, without
limitation, the events described in Section 13(b)), or (c) to take into account significant
acquisitions or dispositions of assets or other property by the Company.

17. Miscellaneous

     (a) Tax Withholding.

          (i) Condition Precedent. The issuance of Common Stock pursuant to the exercise of any Option
or Stock Appreciation Right or in connection with a Performance Award, and the vesting of any
Restricted Stock or Stock Unit Award, is subject to the condition that if at any time the Committee
shall determine, in its discretion, that the satisfaction of withholding tax or other withholding
liabilities under any federal, state, or local law is necessary or desirable as a condition of, or
in connection with such issuance, vesting or payment, then the issuance, vesting or payment shall
not be effected unless the withholding shall have been effected or obtained in a manner acceptable
to the Committee.

          (ii) Manner of Satisfying Withholding Obligation. When the Committee requires a Participant to
pay to the Company an amount required to be withheld under applicable income tax laws in connection
with Section 17(a)(i) above, such payment shall be made, as the Committee may in each case in its
discretion determine, (i) in cash, (ii) by check, (iii) by delivery to the Company of shares of
Common Stock already owned by the Participant having a Fair Market Value on the Tax Date equal to
the amount required to be withheld, (iv) through the withholding by the Company of a portion (but
no more than the portion as so calculated) of the Common Stock acquired upon the exercise of an
Option or Stock Appreciation Right having a Fair Market Value on the Tax Date equal to the amount
required to be withheld, or (v) in any other form of valid consideration permitted by the Committee
in its discretion.

17

 

          (iii) Notice of Disposition of Stock Acquired Pursuant to Incentive Stock Options. The Company
may require as a condition to the issuance of Common Stock covered by any Incentive Stock Option
that the party exercising such Option give a written representation to the Company, satisfactory in
form and substance to its counsel and upon which the Company may reasonably rely, that he or she
shall report to the Company any disposition of such shares prior to the expiration of the holding
periods specified by Section 422(a)(l) of the Code. If and to the extent the realization of income
in such a disposition imposes upon the Company federal, state, or local withholding tax
requirements or any such withholding is required to secure for the Company an otherwise available
tax deduction, the Company shall have the right to require that the recipient remit to the Company
an amount sufficient to satisfy those requirements; and the Company may require as a condition to
the issuance of Common Stock covered by an Incentive Stock Option that the party exercising such
Option give a satisfactory written representation promising to make such a remittance.

          (iv) Tax Reporting. The Company shall file, and shall furnish the Participant a copy of, all
federal, state, and local tax information returns that it deems to be required in connection with
the grant, exercise, or vesting of any Award.

     (b) No Right to Awards or Employment. No person shall have any claim or right to
receive Awards under the Plan. Neither the Plan, the grant of Awards under the Plan nor any action
taken or omitted to be taken under the Plan shall be deemed to create or confer on any Eligible
Individual any right to be retained in the employ of the Company or any Subsidiary or other
affiliate thereof, or to interfere with or to limit in any way the right of the Company or any
Subsidiary or other affiliate thereof to terminate the employment of such Eligible Individual at
any time. No Award shall constitute salary, recurrent compensation or contractual compensation for
the year of grant, any later year or any other period of time. Payments received by a Participant
under any Award made pursuant to the Plan shall not be included in, nor have any effect on, the
determination of employment-related rights or benefits under any other employee benefit plan or
similar arrangement provided by the Company and the Subsidiaries, unless otherwise specifically
provided for under the terms of such plan or arrangement or by the Committee.

     (c) Securities Law Restrictions. An Award may not be exercised or settled, and no
Shares may be issued in connection with an Award, unless the issuance of such shares (i) has been
registered under the Securities Act of 1933, as amended, (ii) has qualified under applicable state
“blue sky” laws (or the Company has determined that an exemption from registration and from
qualification under such state “blue sky” laws is available) and (iii) complies with all applicable
foreign securities laws. The Committee may require each Participant purchasing or acquiring Shares
pursuant to an Award under the Plan to represent to and agree with the Company in writing that such
Eligible Individual is acquiring the Shares for investment purposes and not with a view to the
distribution thereof. All certificates for Shares delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission, any exchange upon
which the Shares are then listed, and any applicable securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate reference to such
restrictions.

18

 

     (d) Section 162(m) of the Code. The Plan is intended to comply in all respects with
Section 162(m) of the Code; provided, however, that in the event the Committee determines that
compliance with Section 162(m) of the Code is not desired with respect to a particular Award,
compliance with Section 162(m) of the Code will not be required. In addition, if any provision of
this Plan would cause Awards that are intended to constitute “qualified performance-based
compensation” under Section 162(m) of the Code, to fail to so qualify, that provision shall be
severed from, and shall be deemed not to be a part of, the Plan, but the other provisions hereof
shall remain in full force and effect.

     (e) Section 409A of the Code. To the extent that the Committee determines that any
Award granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing
such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the
extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section
409A of the Code and Department of Treasury regulations and other interpretive guidance issued
thereunder, including, without limitation, any such regulations or other guidance that may be
issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the
event that following the Effective Date the Committee determines that any Award may be subject to
Section 409A of the Code and related Department of Treasury guidance (including such Department of
Treasury guidance as may be issued after the Effective Date), the Committee may adopt such
amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures
(including amendments, policies and procedures with retroactive effect), or take any other actions,
all without the consent of the Participant, that the Committee determines are necessary or
appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax
treatment of the benefits provided with respect to the Award, or (b) comply with the requirements
of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the
application of any penalty taxes under such Section. In making such modifications the Committee
shall attempt, but shall not be obligated, to maintain, to the maximum extent practicable, the
original intent of the applicable provision without contravening the provisions of Section 409A of
the Code. Moreover, any discretionary authority that the Committee may have pursuant to the Plan
shall not be applicable to an Award that is subject to Section 409A of the Code to the extent such
discretionary authority would contravene Section 409A of the Code or the guidance promulgated
thereunder.

     (f) Satisfaction of Obligations. Subject to applicable law, the Company may apply any
cash, Shares, securities or other consideration received upon exercise or settlement of an Award to
any obligations a Participant owes to the Company and the Subsidiaries in connection with the Plan
or otherwise, including, without limitation, any tax obligations or obligations under a currency
facility established in connection with the Plan.

     (g) No Limitation on Corporate Actions. Nothing contained in the Plan shall be
construed to prevent the Company or any Subsidiary from taking any corporate action, whether or not
such action would have an adverse effect on any Awards made under the Plan. No Participant,
beneficiary or other person shall have any claim against the Company or any Subsidiary as a result
of any such action.

     (h) Unfunded Plan. The Plan is intended to constitute an unfunded plan for incentive
compensation. Prior to the issuance of Shares, cash or other form of payment in connection with

19

 

an Award, nothing contained herein shall give any Participant any rights that are greater than
those of a general unsecured creditor of the Company. The Committee may, but is not obligated, to
authorize the creation of trusts or other arrangements to meet the obligations created under the
Plan to deliver Shares with respect to awards hereunder.

     (i) Successors. All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of
all or substantially all of the business and/or assets of the Company.

     (j) Application of Funds. The proceeds received by the Company from the sale of Shares
pursuant to Awards will be used for general corporate purposes.

     (k) Award Agreement. In the event of any conflict or inconsistency between the Plan
and any Award Agreement, the Plan shall govern and the Award Agreement shall be interpreted to
minimize or eliminate any such conflict or inconsistency.

     (l) Business Days. In the event that the last day of any time period set forth herein
or in any Award Agreement falls on a Saturday, Sunday or federal holiday, such time period shall be
deemed to be reduced in a manner such that the last day of such time period shall fall on the
business day next preceding such Saturday, Sunday or federal holiday.

     (m) Headings. The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning of any of the provisions of the Plan.

     (n) Severability. If any provision of this Plan is held unenforceable, the remainder
of the Plan shall continue in full force and effect without regard to such unenforceable provision
and shall be applied as though the unenforceable provision were not contained in the Plan.

     (o) Expenses. The costs and expenses of administering the Plan shall be borne by the
Company.

     (p) Governing Law. Except as to matters of federal law, the Plan and all actions taken
thereunder shall be governed by and construed in accordance with the laws of the State of Texas.

(q) No Representations or Covenants with respect to Tax Qualification. Although the Company
may endeavor to (1) qualify an Award for favorable tax treatment under the laws of the United
States or jurisdictions outside of the United States (e.g., Incentive Stock Options under Section
422 of the Code) or (2) avoid adverse tax treatment (e.g., under Section 409A of the Code), the
Company makes no representation to that effect and expressly disavows any covenant to maintain
favorable or avoid unfavorable tax treatment, anything to the contrary in this Plan
notwithstanding. The Company shall be unconstrained in its corporate activities without regard to
the potential negative tax impact on holders of Awards under the Plan.

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