Document:

Exhibit 10.63

 

GUARANTY

OF

ADCARE HEALTH SYSTEMS, INC.

 

THIS GUARANTY is made by AdCare Health Systems, Inc., a corporation validly organized and existing in the State of Ohio (“Guarantor”) in favor of KMJ Management, LLC d/b/a Pinnacle Healthcare, LLC (“Lender”).

 

W-I-T-N-E-S-S-E-T-H

 

For valuable consideration, the receipt and adequacy of which are hereby acknowledged and to secure the prompt and complete payment and performance of the Obligations, as defined below, Lender and Guarantor, intending to be legally bound, agree as follows:

 

1.             Guaranty.  Guarantor hereby absolutely, unconditionally, and irrevocably guarantees the prompt and complete payment and performance of all of the Obligations.

 

2.             Payment.  After the occurrence of a default under the terms of the Promissory Note or Mortgage by Borrower, Guarantor shall pay the Obligations to Lender within thirty (30) days after demand by Lender.

 

3.             Liability.  The liability of Guarantor pursuant to this Guaranty shall be absolute, unconditional, irrevocable, unlimited, and joint and several, and shall not be affected by any circumstance that might constitute a discharge of a surety or guarantor.  The liability of Guarantor pursuant to this Guaranty is independent of and separate from any obligation of Borrower or any other Person to Lender.  Specifically, the liability of Guarantor shall not be affected by any of the following:

 

(a)           The exercise or enforcement of any remedy Lender may have against any Person.

 

(b)           The failure or delay to exercise or enforce any remedy Lender may have against any Person.

 

(c)           Any dispute or Litigation threatened or pending among Lender and any Person.

 

(d)           The partial payment of the Obligations by any Person.

 

(e)           The acceptance of any late payment pursuant to the Loan Documents.

 

(f)            Any insolvency, bankruptcy, reorganization, assignment for the benefit of creditors, liquidation, winding up, or dissolution of any Person.

 

(g)           Any merger, reorganization, or consolidation of any Person, or the sale or transfer of all or substantially all of the interest of any owner of Borrower.

 

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(h)           The sale of all or substantially all of the assets of any Person.

 

(i)            The assignment or transfer of any of rights pursuant to this Guaranty or the Loan Documents to any Person.

 

(j)            Any extension, renewal, rescission, waiver, amendment, or modification of any provision of this Guaranty or the Loan Documents.

 

(k)           The failure to perfect any Lien in the Collateral.

 

(l)            The sale, exchanging, enforcing, waiving, and releasing of the Collateral.

 

(m)          The settling, releasing, compromising, collecting, or otherwise liquidating any amount due pursuant to the Loan Documents.

 

(n)           The marshaling of assets in favor of any Person.

 

(o)           The subordination of all or any part of the Liens of Lender in the Collateral to the rights of any Person.

 

(p)           The impairment of any right of subrogation against any Person.

 

(q)           Any act by any Person that would discharge an obligation to pay money under a simple contract.

 

(r)            The lack, absence, or inadequacy of consideration.

 

4.             Waiver of Defenses.  In recognition of the liability of Guarantor pursuant to this Guaranty, Guarantor waives and relinquishes any and all rights, defenses, and benefits limiting or exonerating the liability of Guarantor including, but not limited to:

 

(a)           Any right of offset in favor of any Person.

 

(b)           The rights and defenses of an “accommodation party” pursuant to the Arkansas Uniform Commercial Code, Ark. Code Ann. §4-3-101 et. seq.

 

(c)           The incapacity or lack of authority of any Person to execute and deliver the Loan Documents or this Guaranty.

 

(d)           The marshaling of assets in favor of any Person.

 

(e)           Any defense relating to clerical errors and omissions with respect to the Loan Documents or this Guaranty.

 

(f)            Any defense of any Person that would discharge an obligation to pay money under a simple contract.

 

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(g)           Any defense relating to an election of remedies by Lender.

 

(h)           Any defense relating to the impairment of any right of subrogation against any Person.

 

(i)            Any defense relating to the lack, absence, or inadequacy of consideration.

 

(j)            Any defense arising out of those matters identified in this Guaranty.

 

5.             Waiver of Certain Other Rights.  Guarantor waives and relinquishes all rights of presentment for payment, notice of non-payment, protest, notice of protest, notice of intent to accelerate, notice of dishonor, notice of acceptance, and demand.

 

6.             Consents.  Guarantor hereby consents to and agrees that any of the following actions may be taken by Lender without notice to or consent of Guarantor and without the requirement of any amendment to this Guaranty:

 

(a)           The Principal or Interest Rate of the Promissory Note may be increased or decreased.

 

(b)           The Loan Documents may be amended or modified in any respect.

 

(c)           The Loan Documents may be renewed or extended.

 

(d)           The time, manner, or place of any payment of the Obligations may be extended, modified, or waived.

 

(e)           The time for the performance of the Obligations may be extended, modified, or waived.

 

(f)            Lender may discharge or release, in whole or in part, any Person from any liability pursuant to the Loan Documents.

 

(g)           Lender may discharge or release, in whole or in part, the Collateral.

 

(h)           Lender may exchange the Collateral for any other collateral, whether of greater or lesser value.

 

(i)            Lender may sell the Collateral after a default of any Loan Document.

 

(j)            Lender may compromise, settle, or offset any liability of any Person to Lender.

 

(k)           Lender may accept any partial or late payment of the Obligations by any Person.

 

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(l)            Lender may consent to any merger, reorganization, or consolidation of any Person, or the sale or transfer of any interest of any member or manager of Borrower.

 

(m)          Lender may consent to the sale of all or substantially all of the assets of any Person.

 

(n)           Lender may transfer any of Lender’s rights pursuant to the Loan Documents or this Guaranty to any Person.

 

(o)           Lender may marshal the assets of any Person and apply any amounts collected among the liabilities of Guarantor or Borrower, as Lender may elect in its sole and absolute discretion.

 

(p)           Lender may subordinate all or any part of the Liens of Lender in the Collateral to the rights of any Person.

 

7.             Guaranty of Payment.  This Guaranty represents a guaranty of payment and performance of the Obligations and shall not be merely a guaranty of collection of the Obligations.

 

8.             Continuation; Reinstatement.  This Guaranty shall be a continuing guaranty and shall continue in effect until payment in full of the Obligations and the performance of all other obligations of Borrower to Lender pursuant to the Loan Documents.  This Guaranty shall be effective or shall be reinstated if for any reason any payment of the Obligations shall be rescinded or must otherwise be returned, whether as a result of proceedings in bankruptcy or reorganization or otherwise.

 

9.             Subrogation.  Until the Obligations shall be paid in full, Guarantor shall not exercise, directly or indirectly, any rights of subrogation, contribution, indemnification, reimbursement or similar suretyship claims against Borrower.  Guarantor acknowledges that Borrower is not currently indebted to Guarantor.  Any amount paid to Guarantor by any Person in consideration of any subrogation, contribution, indemnification, reimbursement, or similar suretyship claim shall be promptly remitted to Lender.

 

10.           Representations and Warranties.  Guarantor hereby represents and warrants as follows:

 

(a)           Binding Obligation. Guarantor is an affiliate  of Borrower, being the owner of each of the sole members of Borrower.  Guarantor is validly organized and existing in the state of Ohio.  All required consents and authorizations have been made such that this Guaranty constitutes the legal, valid, and binding obligation of Guarantor and shall be enforceable in accordance with its provisions.

 

(b)           Conflict; Consent.  The execution, delivery, and performance of this Guaranty does not, and shall not, conflict with, breach, or result in a default under any material agreement between Guarantor and any Person.  No consent of any 

 

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Person, including any Governmental Authority, is required before Guarantor may lawfully enter into this Guaranty.

 

(c)           Solvency.  Guarantor is now solvent and has never in the past been the subject of any bankruptcy, insolvency, reorganization, liquidation proceeding or any other similar proceeding.

 

(d)           Litigation.  There is no, pending or, to the knowledge of Guarantor, threatened, Litigation involving the Collateral or Guarantor.

 

(e)           Disclosure.  No statement made or document delivered by Guarantor in connection with this Guaranty contains any untrue statement of a material fact or omits a material fact necessary to make the statements in this Guaranty not misleading in light of the circumstances in which the statement was made or the document delivered.  There is no fact known to Guarantor that Guarantor has not disclosed to Lender in writing and that is reasonably likely to cause a material adverse change to the Collateral or Guarantor.

 

11.           Covenants.  Until the Obligations shall be paid in full, Guarantor shall perform the obligations pursuant to this Guaranty, including but not limited to, the following:

 

(a)           Indemnification.  Guarantor shall indemnify Lender from and against any and all costs, expenses, demands, actions, claims, losses and liabilities, including but not limited to, reasonable attorneys’ fees arising from any default, breach, violation, or failure to comply with any provision of the Loan Documents, or this Guaranty (without regard to fault or intent of Borrower) or otherwise arising from the Obligations and the Loan Documents, except costs, expenses, demands, actions, claims, losses or liabilities resulting solely and directly from the gross negligence or willful misconduct of Lender.  The indemnification provided for in this Section shall survive the payment in full of the Obligations, for the maximum period of time permitted by Applicable Law.

 

(b)           Material Adverse Change.  Guarantor shall notify Lender of any one or more changes which, alone or in the aggregate, has had or is reasonably likely to result in a Material Adverse Change.

 

12.           Definitions.  The following terms shall have the following definitions for purposes of this Guaranty, which shall supplement any definition of any term stated elsewhere in this Guaranty:

 

(a)           Accrued Interest shall mean the interest at the Interest Rate that shall accrue on the outstanding and unpaid Principal.

 

(b)           Applicable Law shall mean the constitutions, statutes, codes, ordinances, rules, regulations, orders, decisions, judgments and decrees of Governmental Authorities of the State of Arkansas and other Governmental Authorities having jurisdiction over the Parties or the Collateral.

 

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(c)           Borrower shall mean collectively Benton Property Holdings, LLC, Valley River Property Holdings, LLC, Homestead Property Holdings, LLC, Park Heritage Property Holdings, LLC and Home Office Property Holdings, LLC, each a limited liability company organized pursuant to the laws of the State of Georgia.

 

(d)           Collateral shall mean the Property, as well as all proceeds therefrom, additions, accessions, and substitutions thereto or therefor, whether now owned or hereafter acquired.

 

(e)           Fees and Expenses shall mean all of the costs paid or incurred by Lender with respect to the Obligations.

 

(f)            Governmental Authority shall mean any executive, legislative, and judicial body, and any agency, department, board, commission, council, court, tribunal, official, or other entity exercising governmental or quasi-governmental powers, of the United States of America, the State of Arkansas, and any other state, county, parish, city, community, town, borough, village, district or other jurisdiction having jurisdiction over a Party or the Collateral.

 

(g)           Guarantor shall mean AdCare Health Systems, Inc., a corporation validly organized and existing in the State of Ohio.

 

(h)           Guaranty shall mean this document.

 

(i)            Interest Rate shall mean the rate of interest that shall accrue on the Principal as provided in the Promissory Note.

 

(j)            Lender shall mean KMJ Management, LLC d/b/a Pinnacle Healthcare, LLC.

 

(k)           Lien shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lease, conditional sale or title retention agreement, hypothecation, right of way, easement, encroachment, servitude, charge, claim, option, right of first offer, right of first refusal, equitable interest, community or marital property interest, dower or curtesy, and any other legal or equitable lien or restriction whatsoever.

 

(l)            Litigation shall mean any pending or threatened lawsuit, action, cause of action, claim for relief, mediation, arbitration, governmental investigation, audit, contest or other proceeding of any nature or character whatsoever involving Borrower, Guarantor, or the Collateral.

 

(m)          Loan Documents shall mean collectively this Guaranty, the Promissory Note and the Mortgage.

 

(n)           Mortgage shall mean the second mortgage on the Property executed by Borrower in favor of Lender that secures the Obligations and which is 

 

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subordinated to The PrivateBank and Trust Company pursuant to that certain Subordination Agreement of even date herewith.

 

(o)           Obligations shall mean collectively: (a) the prompt and complete payment of the Principal, Accrued Interest, and Fees and Expenses as and when required by the Loan Documents and any and all extensions, modifications, amendments, substitutions, replacements, and renewals thereof; (b) the prompt and complete performance of and compliance with and accuracy of the representations, warranties, covenants and the other provisions of the Loan Documents or this Guaranty; and (c) the payment of each indebtedness and performance of each obligation of Borrower and Guarantor to Lender or an affiliate of Lender whether now existing or hereafter arising, voluntarily or involuntarily, by operation of law or otherwise, joint or several, primary or subordinate, absolute or contingent, or liquidated or un-liquidated.

 

(p)           Party shall mean all or any of Lender, Borrower or Guarantor.

 

(q)           Person shall mean any entity, corporation, company, association, limited liability company, joint venture, joint stock company, general partnership, limited partnership, limited liability limited partnership, trust, organization, individual, personal representative, executor, guardian, trustee, receiver, liquidator, or Governmental Authority, and shall include Borrower and Guarantor.

 

(r)            Principal shall mean the amount up to Two Million Four Hundred Thousand Dollars ($2,400,000.00).

 

(s)           Promissory Note shall mean that certain secured promissory note dated as of August 31, 2011 made by Borrower to the order of Lender evidencing indebtedness in the amount of the Principal with Accrued Interest thereon, and any and all future advances, extensions, modifications, substitutions, replacements or renewals thereof.

 

(t)            Property shall mean that certain real property owned by Borrower, located in Bentonville, Benton County, Fort Smith, Sebastian County and Rogers, Benton County, Arkansas, together with the personal property located at the real property that is the collateral security for the Obligations pursuant to, and defined within, the Mortgage and the Promissory Note.

 

13.           General Provisions.

 

(a)           Governing Law.  The Loan Documents and this Guaranty shall be subject to and governed by the laws of the State of Arkansas without regard to principles of conflicts of laws that would require or permit the application of any other law.

 

(b)           Litigation Forum.  Any Litigation among Borrower and Guarantor regarding the Obligations and any Litigation commenced by Guarantor against

 

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Lender shall be in the courts of Benton or Sebastian County, Arkansas, whichever the case may be, except the forum for any Litigation subject to federal jurisdiction shall be in the United States District Court for the Western District of Arkansas, Fayetteville Division.  Guarantor irrevocably submits to the jurisdiction of such courts and hereby waives any objection as to venue or to convenience of forum.  Lender may commence Litigation against Borrower or Guarantor or the Collateral in such jurisdictions as Lender may desire in its sole and absolute discretion.

 

(c)           Rights and Remedies Cumulative.  All rights, remedies or elections pursuant to the Loan Documents or this Guaranty shall not be deemed exclusive and each shall be cumulative with all other rights, remedies and elections available at law or equity.

 

(d)           Assignment; Assumption.  The Loan Documents, this Guaranty and the rights and obligations of Borrower or Guarantor pursuant to the Loan Documents or this Guaranty shall not be assigned, delegated, or otherwise transferred by Borrower or Guarantor.  The Loan Documents or this Guaranty and the rights and obligations of Borrower or Guarantor pursuant to the Loan Documents or this Guaranty may not be assumed by any Person without the prior written approval of Lender in its sole and absolute discretion.  Any purported assignment, delegation, transfer or assumption of the Loan Documents or this Guaranty or the rights and obligations of Borrower or Guarantor pursuant to the Loan Documents or this Guaranty shall not release Borrower or Guarantor of any of the obligations of Borrower or Guarantor pursuant to the Loan Documents or this Guaranty.  Lender may assign, participate or transfer all or any part of the Obligations, the Loan Documents or this Guaranty, and any rights and obligations pursuant to the Loan Documents or this Guaranty without notice to or the consent from Borrower or Guarantor.  In connection with any proposed assignment, participation and transfer by Lender, Borrower and Guarantor hereby consent to the disclosure of all information pertaining to the Obligations, the Loan Documents or this Guaranty to prospective assignees, participants, and transferees.

 

(e)           Further Assurances.  Promptly after request by Lender, Borrower and Guarantor shall execute and deliver such other documents and take such further actions as may be necessary or desirable in the sole and absolute discretion of Lender.

 

(f)            Modification; Waiver.  The Loan Documents or this Guaranty may be modified, amended or waived only by a written agreement signed by Lender and Borrower and Guarantor.  The course of dealing among the Parties shall not modify or amend the Loan Documents or this Guaranty in any respect.  Any delay by Lender in the exercise of any of its rights pursuant to the Loan Documents or this Guaranty shall not be construed as a waiver or release of any of the provisions of the Loan Documents or this Guaranty.  A waiver by Lender of a breach of any provision of the Loan Documents or this Guaranty or any waiver by Lender of an Event of Default shall not:  (1) operate or be construed as a waiver of any subsequent breach or Event of Default; (2) limit or restrict any right or remedy otherwise available to Lender; or

 

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(3) operate or be construed as a waiver of compliance by Lender as to any other provision of the Loan Documents or this Guaranty.

 

(g)           Binding Effect and Benefit.  The Parties have executed and delivered the Loan Documents or this Guaranty with the intent to be legally bound to their provisions.  The Loan Documents or this Guaranty shall inure to the benefit of, shall be binding on and shall be enforceable by the heirs, successors and assigns of the Parties.

 

(h)           Notice.  All notices, requests, demands, and other communications required by the Loan Documents or this Guaranty sent by the Parties shall be in writing, and:  (1) delivered by hand delivery; (2) sent by express mail or other overnight delivery service providing receipt of delivery; or (3) mailed by certified or registered mail, postage prepaid, return receipt requested, restricted delivery to the relevant party.  Any notice or communication permitted or required by this Agreement shall be deemed received by a Party one day after delivery of the notice and other communications in compliance with the requirements of this Section.  All such notices and other communications shall be delivered to the Parties at the following addresses or such other addresses designated by a Party by notice in compliance with the requirements of this Section:

 

If to Lender:

 

KMJ Management, LLC d/b/a Pinnacle Healthcare, LLC

Attn: Don Schaap

21 Wimbledon Way

Rogers, AR 72758

 

With a copy to:

 

Tami C. Threet

Lax, Vaughan, Fortson, Jones & Rowe, P.A.

11300 Cantrell Road, Suite 201

Little Rock, Arkansas  72201

 

If to Guarantor:

 

AdCare Health Systems, Inc.

5057 Troy Road

Springfield, Ohio 45502

Attn: Boyd P. Gentry

 

(i)            Business Day.  If any provision of the Loan Documents or this Guaranty requires the performance of an obligation on a date that shall not be a business day of Lender, the performance by a Party shall be postponed until the next regular business day.

 

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(j)            Time.  Time shall be of the essence with respect to the Loan Documents and this Guaranty.

 

(k)           Third Party Beneficiaries.  The Parties do not intend to create any rights for the benefit of any third party pursuant to the Loan Documents or this Guaranty.

 

(l)            Attorneys’ Fees.  Borrower and Guarantor shall jointly and severally pay all attorneys’ fees paid or incurred by Lender to enforce any provision of the Loan Documents or this Guaranty, and if Lender shall file or commence any Litigation to protect its rights or to enforce any provision of the Loan Documents or this Guaranty.

 

(m)          Survival.  All representations and warranties of Borrower and Guarantor in the Loan Documents or this Guaranty shall survive the execution and delivery of the Loan Documents or this Guaranty and shall continue to be binding on Borrower and Guarantor until the earlier of the Maturity Date or until the Obligations shall be paid in full.

 

(n)           Severability.  Each provision of the Loan Documents and this Guaranty shall be severable from all other provisions of the Loan Documents and this Guaranty.  If any Governmental Authority shall determine, during or at the conclusion of any Litigation, that any provision of the Loan Documents or this Guaranty shall be invalid or unenforceable, the provision shall be deemed modified only to the extent necessary to render it valid and enforceable, and all remaining provisions of the Loan Documents or this Guaranty.

 

(o)           Interpretation.  The provisions of the Loan Documents or this Guaranty shall be interpreted as follows: (1) as though the Parties shared equally in the negotiation and preparation of such documents; (2) captions, headings, and titles shall be for convenience and reference only and shall not affect the interpretation of such documents; (3) references to “the Loan Documents or this Guaranty” shall refer to either or all of the Loan Documents or this Guaranty; (4) the definition of any terms in the Loan Documents or this Guaranty shall apply to all uses of such terms and phrases whenever capitalized or whenever the context shall otherwise require; and (5) to the extent there may be an irreconcilable conflict between the provisions of the Loan Documents or this Guaranty, the provisions of this Guaranty shall prevail, and the conflict shall be resolved by reference only to the provisions of this Guaranty.

 

(p)           Joint and Several.  The obligations of Guarantor pursuant to the Loan Documents or this Guaranty shall be joint and several with Borrower.

 

(q)           Entire Agreement.  The Loan Documents and this Guaranty contain the entire agreement of the Parties regarding the Promissory Note, the Obligations, and the attendant subject matter, and no other oral or written agreements shall be binding on Lender.  The Loan Documents and this Guaranty supersede all prior oral

 

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or written agreements regarding the Obligations.  Guarantor represents and warrants that Guarantor has neither been influenced by any Person to enter into the Loan Documents or this Guaranty, nor relied on any representation, warranty, or covenant of any Person except for those representations, warranties, and covenants set forth in such documents.

 

	
EXECUTED   and DELIVERED as of August 31, 2011.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
GUARANTOR
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
AdCare   Health Systems, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/Boyd   P. Gentry
    
	
 
    	
 
    	
Boyd   P. Gentry, Chief Executive Officer
    

 

11Exhibit 10.1

 

DIGITAL GENERATION, INC.
 2011 INCENTIVE AWARD PLAN

 

ARTICLE 1.

 

PURPOSE

 

The purpose of the Digital Generation, Inc. 2011 Incentive Award Plan (as it may be amended or restated from time to time, the “Plan”) is to promote the success and enhance the value of Digital Generation, Inc. (the “Company”) by linking the individual interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders.  The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.  The Plan provides a mechanism through which the Company may grant equity and equity-based awards as well as cash bonus and other cash awards to Eligible Individuals.

 

ARTICLE 2.

 

DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise.  The singular pronoun shall include the plural where the context so indicates.

 

2.1           “Administrator” shall mean the entity that conducts the general administration of the Plan as provided in Article 12.  With reference to the duties of the Committee under the Plan which have been delegated to one or more persons pursuant to Section 12.6, or as to which the Board has assumed, the term “Administrator” shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.

 

2.2           “Affiliate” shall mean (a) Subsidiary; and (b) any domestic eligible entity that is disregarded, under Treasury Regulation Section 301.7701-3, as an entity separate from either (i) the Company or (ii) any Subsidiary.

 

2.3           “Applicable Accounting Standards” shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.

 

2.4           “Applicable Law” shall mean the applicable provisions of the Code, the Securities Act, the Exchange Act any other federal, state or foreign corporate, securities or tax or other laws, rules, requirements or regulations, the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded and any other applicable law.

 

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2.5           “Automatic Exercise Date” shall mean, with respect to an Option or a Stock Appreciation Right, the last business day of the applicable Option Term or Stock Appreciation Right Term that was initially established by the Administrator for such Option or Stock Appreciation Right (e.g., the last business day prior to the tenth anniversary of the date of grant of such Option or Stock Appreciation Right if the Option or Stock Appreciation Right initially had a ten-year Option Term or Stock Appreciation Right Term, as applicable).

 

2.6           “Award” shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award, a Performance Award, a Dividend Equivalents award, a Stock Payment award or a Stock Appreciation Right, which may be awarded or granted under the Plan (collectively, “Awards”).

 

2.7           “Award Agreement” shall mean any written notice, agreement, terms and conditions, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine consistent with the Plan.

 

2.8           “Award Limit” shall mean with respect to Awards that shall be payable in Shares or in cash, as the case may be, the respective limit set forth in Section 3.3.

 

2.9           “Board” shall mean the Board of Directors of the Company.

 

2.10         “Cause” shall mean the occurrence of any of, but not limited to, the following: (a) conviction of a Holder of any felony or any crime involving fraud or dishonesty; (b) a Holder’s participation (whether by affirmative act or omission) in a fraud, act or dishonesty or other act of misconduct against the Company and/or any Affiliate; (c) conduct by a Holder which, based upon a good faith and reasonable factual investigation by the Company (or, if a Holder is an executive officer, by the Board), demonstrates such Holder’s unfitness to serve; (d) a Holder’s violation of any statutory or fiduciary duty, or duty of loyalty owed to the Company and/or any Affiliate; (e) a Holder’s violation of state or federal law in connection with the Holder’s performance of his or her job which has an adverse effect on the Company and/or any Affiliate; and (f) a Holder’s violation of Company policy which has a material adverse effect on the Company and/or any Affiliate. Notwithstanding the foregoing, a Holder’s Disability shall not constitute Cause as set forth herein. The determination that a termination is for Cause shall be by the Administrator it its sole and exclusive judgment and discretion. Notwithstanding the foregoing, if a Holder is a party to an employment or severance agreement with the Company or any Affiliate in effect as of the date of grant of an Award which defines “Cause” or a similar term, or if an Award Agreement defined “Cause” in a manner that differs from the foregoing definition, “Cause” for purposes of the Plan and such Award shall have the meaning given to such term in such employment or severance agreement or Award Agreement (and if “Cause” or a similar term is defined in both an employment or severance agreement with the Company or any Affiliate in effect as of the date of grant of an Award and in the Award Agreement, the definition of “Cause” in the employment or severance agreement shall take precedence unless expressly otherwise provided in the Award Agreement).

 

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2.11         “Change in Control” shall mean and includes each of the following:

 

(a)           any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities;

 

(b)           the majority of the Board is composed of members who (A) have served less than twelve months and (B) were not approved by a majority of the Board at the time of their election or appointment;

 

(c)           the merger or consolidation of the Company with or into another entity or the merger of another entity into the Company or any subsidiary thereof with the effect that immediately after such transaction the stockholders of the Company immediately prior to such transaction (or their affiliates) hold less than 50% of the total voting power of all securities generally entitled to vote in the election of directors, managers or trustees of the entity surviving such merger or consolidation;

 

(d)           a tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding voting securities; or

 

(e)           the sale, lease or other transfer of all or substantially all of the assets of the Company to any person or group (as such term is used in Section 13(d)(3) of the Exchange Act).

 

In addition, if a Change in Control constitutes a payment event with respect to any portion of an Award which provides for the deferral of compensation and is subject to Section 409A of the Code, the transaction or event described in subsection (a), (b), (c) or (d) with respect to such Award (or portion thereof) must also constitute a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5) to the extent required by Section 409A.

 

The Committee shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters relating thereto.

 

2.12         “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder.

 

2.13         “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 12.1.

 

2.14         “Common Stock” shall mean the common stock of the Company, par value $0.001 per share.

 

2.15         “Company” shall have the meaning set forth in Article 1.

 

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2.16         “Consultant” shall mean any consultant or adviser engaged to provide services to the Company or any Affiliate that qualifies as a consultant under the applicable rules of the Securities and Exchange Commission for registration of shares on a Form S-8 Registration Statement.

 

2.17         “Covered Employee” shall mean any Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.

 

2.18         “Director” shall mean a member of the Board, as constituted from time to time.

 

2.19         “Disability” shall mean that the Holder is either (a) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, or (b) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company.  For purposes of the Plan, a Holder shall be deemed to have incurred a Disability if the Holder is determined to be totally disabled by the Social Security Administration or in accordance with the applicable disability insurance program of the Company’s, provided that the definition of “disability” applied under such disability insurance program complies with the requirements of this definition

 

2.20         “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 9.2.

 

2.21         “DRO” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.

 

2.22         “Effective Date” shall mean the date the Plan is approved by the Committee or the Board, subject to approval of the Plan by the Company’s stockholders.

 

2.23         “Eligible Individual” shall mean any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Administrator.

 

2.24         “Employee” shall mean any officer or other employee (as determined in accordance with Section 3401(c) of the Code and the Treasury Regulations thereunder) of the Company or of any Affiliate.

 

2.25         “Equity Restructuring” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares of Common Stock (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.

 

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2.26         “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

2.27         “Expiration Date” shall have the meaning given to such term in Section 13.1.

 

2.28         “Fair Market Value” shall mean, as of any given date, the value of a Share determined as follows:

 

(a)           If the Common Stock is listed on any (i) established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) national market system or (iii) automated quotation system on which the Shares are listed, quoted or traded, its Fair Market Value shall be the closing sales price for a share of Common Stock as quoted on such exchange or system for such date or, if there is no closing sales price for a share of Common Stock on the date in question, the closing sales price for a share of Common Stock on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(b)           If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a share of Common Stock on such date, the high bid and low asked prices for a share of Common Stock on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

(c)           If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

 

2.29         “Greater Than 10% Stockholder” shall mean an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation (as defined in Section 424(f) of the Code) or parent corporation thereof (as defined in Section 424(e) of the Code).

 

2.30         “Holder” shall mean a person who has been granted an Award.

 

2.31         “Incentive Stock Option” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.

 

2.32         “Non-Employee Director” shall mean a Director of the Company who is not an Employee.

 

2.33         “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.

 

2.34         “Option” shall mean a right to purchase Shares at a specified exercise price, granted under Article 6.  An Option shall be either a Non-Qualified Stock Option or an Incentive

 

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Stock Option; provided, however, that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Stock Options.

 

2.35         “Option Term” shall have the meaning set forth in Section 6.6.

 

2.36         “Parent” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities ending with the Company if each of the entities other than the Company beneficially owns, at the time of the determination, securities or interests representing at least fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.37         “Performance Award” shall mean a cash bonus award, stock bonus award, performance award or incentive award that is paid in cash, Shares or a combination of both, awarded under Section 9.1.

 

2.38         “Performance-Based Compensation” shall mean any compensation that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

 

2.39         “Performance Criteria” shall mean the criteria (and adjustments) that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:

 

(a)           The Performance Criteria that shall be used to establish Performance Goals are limited to the following:  (i) net earnings (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation and (D) amortization); (ii) gross or net sales or revenue; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit; (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital or return on invested capital; (ix) return on stockholders’ equity; (x) total stockholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) operating or other costs and expenses; (xiv) improvements in expense levels; (xv) working capital; (xvi) earnings per share or adjusted earnings per share; (xvii) total shareholder return; (xviii) price per share of Common Stock; (xix) regulatory body approval for commercialization of a product; (xx) implementation or completion of critical projects; (xxi) market share; (xxii) economic value, (xxiiii) comparisons with various stock market indices; (xxiv) stockholders’ equity; (xxv) market recognition (including but not limited to awards and analyst ratings); (xxvi) financial ratios; and (xxvii) strategic team goals, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

(b)           The Administrator may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals.  Such adjustments may include one or more of the following:  (i) items related to a change in accounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the disposal of a business or segment of a business;

 

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(viii) items related to discontinued operations that do not qualify as a segment of a business under Applicable Accounting Standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii)  items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.  For all Awards intended to qualify as Performance-Based Compensation, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

 

2.40         “Performance Goals” shall mean, for a Performance Period, one or more goals established in writing by the Administrator for the Performance Period based upon one or more Performance Criteria.  Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a Subsidiary, division, business unit, or an individual.  The achievement of each Performance Goal shall be determined, to the extent applicable, with reference to Applicable Accounting Standards.

 

2.41         “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Holder’s right to, and the payment of, an Award.

 

2.42         “Performance Stock Unit” shall mean a Performance Award awarded under Section 9.1 which is denominated in units of value including dollar value of shares of Common Stock.

 

2.43         “Permitted Transferee” shall mean, with respect to a Holder, any “family member” of the Holder, as defined under the instructions to use the Form S-8 Registration Statement under the Securities Act or any other transferee specifically approved by the Administrator, after taking into Applicable Law.

 

2.44         “Plan” shall have the meaning set forth in Article 1.

 

2.45         “Prior Plan” shall mean the Company’s 2006 Long-Term Stock Incentive Plan, as such plan may be amended from time to time.

 

2.46         “Prior Plan Award” shall mean an award outstanding under the Prior Plan as of the Effective Date.

 

2.47         “Program” shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.

 

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2.48         “Restricted Stock” shall mean Common Stock awarded under Article 7 that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.

 

2.49         “Restricted Stock Units” shall mean the right to receive Shares or cash awarded under Article 9.

 

2.50         “Securities Act” shall mean the Securities Act of 1933, as amended.

 

2.51         “Shares” shall mean shares of Common Stock.

 

2.52         “Stock Appreciation Right” shall mean a stock appreciation right granted under Article 11.

 

2.53         “Stock Appreciation Right Term” shall have the meaning set forth in Section 11.4.

 

2.54         “Stock Payment” shall mean (a) a payment in the form of Shares, or (b) an option or other right to purchase Shares, as part of a bonus, deferred compensation or other arrangement, awarded under Section 9.3.

 

2.55         “Subsidiary” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.56         “Substitute Award” shall mean an Award granted under the Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.

 

2.57         “Termination of Service” shall mean:

 

(a)           As to a Consultant, the time when the engagement of a Holder as a Consultant to the Company or an Affiliate is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company or any Affiliate.

 

(b)           As to a Non-Employee Director, the time when a Holder who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company or any Affiliate.

 

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(c)           As to an Employee, the time when the employee-employer relationship between a Holder and the Company or any Affiliate is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement; but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company or any Affiliate.

 

The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to Terminations of Service, including, without limitation, the question of whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service; provided, however, that, with respect to Incentive Stock Options, unless the Administrator otherwise provides in the terms of the Program, the Award Agreement or otherwise, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section.   For purposes of the Plan, a Holder’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Holder ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).

 

ARTICLE 3.

 

SHARES SUBJECT TO THE PLAN

 

3.1           Number of Shares.

 

(a)           Subject to Section 13.2 and Section 3.1(b), the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan is the sum of (i) 2,300,000 and (ii) any Shares which as of the Effective Date are available for issuance under the Prior Plan, or are subject to Prior Plan Awards which become available for future grants of Awards under the Plan following the Effective Date pursuant to Section 3.1(b).  As of the Effective Date of the Plan, the aggregate number of Shares reserved for issuance under the Prior Plan was 2,200,000, and therefore the maximum number of Shares that may become available for issuance under the Plan pursuant to clause (ii) above shall not exceed such number of Shares.  Notwithstanding anything in this Section 3.1 to the contrary, the number of shares of Common Stock that may be issued or transferred pursuant to Awards under the Plan shall not exceed an aggregate 4,500,000 Shares, subject to adjustment pursuant to Section 13.2.  From and after the Effective Date, no awards shall be granted under the Prior Plan; however, any Prior Plan Award shall continue to be subject to the terms and conditions of the Prior Plan.

 

(b)           To the extent all or a portion of an Award or Prior Plan Award is forfeited, expires or such Award, Prior Plan Award or portion thereof, is settled for cash (in whole or in part), the Shares subject to such Award, Prior Plan Award, or portion thereof, shall, to the extent of such forfeiture, expiration or cash settlement, again be available for future grants of Awards under the Plan.  In addition, the following Shares shall be added to the Shares authorized for grant under Section 3.1(a) and will be available for future grants of Awards: (i) Shares tendered

 

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by a Holder or withheld by the Company in payment of the exercise price of an Option or a Prior Plan Award; (ii) Shares tendered by the Holder or withheld by the Company to satisfy any tax withholding obligation with respect to an Award or a Prior Plan Award; (iii) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iv) Shares purchased on the open market with the cash proceeds from the exercise of Options.  Any Shares repurchased by the Company under Section 7.4 or under the Prior Plan at the same price paid by the Holder, or less, so that such Shares are returned to the Company will again be available for Awards.  The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan.  Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

(c)           Substitute Awards shall not reduce the Shares authorized for grant under the Plan.  Additionally, in the event that a company acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.

 

3.2           Stock Distributed.  Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.

 

3.3           Limitation on Number of Shares Subject to Awards.  Notwithstanding any provision in the Plan to the contrary, and subject to Section 13.2, the maximum aggregate number of Shares with respect to one or more Awards that may be granted to any one person during any fiscal year of the Company shall be 1,500,000 and the maximum aggregate amount of cash that may be paid in cash to any one person during any fiscal year of the Company with respect to one or more Awards payable in cash shall be $5,000,000.

 

ARTICLE 4.

 

GRANTING OF AWARDS

 

4.1           Participation.  The Administrator may, from time to time, select from among all Eligible Individuals, those to whom an Award shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan.  No Eligible Individual shall have any right to be granted an Award pursuant to the Plan.

 

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4.2           Award Agreement.  Unless otherwise determined by the Administrator, each Award shall be evidenced by an Award Agreement that sets forth the terms, conditions and limitations for such Award, which may include the term of the Award, the provisions applicable in the event of the Holder’s Termination of Service, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.  Award Agreements evidencing Awards intended to qualify as Performance-Based Compensation shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code.  Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.

 

4.3           Limitations Applicable to Section 16 Persons.  Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule.  To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

 

4.4           At-Will Employment; Voluntary Participation.  Nothing in the Plan or in any Program or Award Agreement shall confer upon any Holder any right to continue in the employ of, or as a Director or Consultant for, the Company or any Affiliate, or shall interfere with or restrict in any way the rights of the Company and any Affiliate, which rights are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Holder and the Company or any Affiliate.  Participation by each Holder in the Plan shall be voluntary and nothing in the Plan shall be construed as mandating that any Eligible Individual shall participate in the Plan.

 

4.5           Stand-Alone and Tandem Awards.  Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan.  Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

 

ARTICLE 5.

 

PROVISIONS APPLICABLE TO AWARDS INTENDED TO QUALIFY AS PERFORMANCE-BASED COMPENSATION.

 

5.1           Purpose.  The Committee, in its sole discretion, may determine at the time an Award is granted or at any time thereafter whether such Award is intended to qualify as Performance-Based Compensation. If the Committee, in its sole discretion, decides to grant such an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation, then the provisions of this Article 5 shall control over any contrary provision contained in the Plan.  The Administrator may in its sole discretion grant Awards to other

 

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Eligible Individuals that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 5 and that are not intended to qualify as Performance-Based Compensation.  Unless otherwise specified by the Administrator at the time of grant, the Performance Criteria with respect to an Award intended to be Performance-Based Compensation payable to a Covered Employee shall be determined on the basis of Applicable Accounting Standards.

 

5.2           Applicability.  The grant of an Award to an Eligible Individual for a particular Performance Period shall not require the grant of an Award to such Individual in any subsequent Performance Period and the grant of an Award to any one Eligible Individual shall not require the grant of an Award to any other Eligible Individual in such period or in any other period.

 

5.3           Types of Awards.  Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to an Eligible Individual intended to qualify as Performance-Based Compensation, including, without limitation, Restricted Stock the restrictions with respect to which lapse upon the attainment of specified Performance Goals, Restricted Stock Units that vest and become payable upon the attainment of specified Performance Goals and any Performance Awards described in Article 9 that vest or become exercisable or payable upon the attainment of one or more specified Performance Goals.

 

5.4           Procedures with Respect to Performance-Based Awards.  To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted to one or more Eligible Individuals which is intended to qualify as Performance-Based Compensation, no later than 90 days following the commencement of any Performance Period or any designated fiscal period or period of service (or such earlier time as may be required under Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Eligible Individuals, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Criteria, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period.  Following the completion of each Performance Period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period.

 

5.5           Payment of Performance-Based Awards.  Unless otherwise provided in the applicable Program or Award Agreement and only to the extent otherwise permitted by Section 162(m)(4)(C) of the Code, as to an Award that is intended to qualify as Performance-Based Compensation, the Holder must be employed by the Company or an Affiliate throughout the Performance Period.  Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Holder shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such period are achieved.

 

5.6           Additional Limitations.  Notwithstanding any other provision of the Plan and except as otherwise determined by the Administrator, any Award which is granted to an Eligible Individual and is intended to qualify as Performance-Based Compensation shall be subject to any

 

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additional limitations set forth in Section 162(m) of the Code or any regulations or rulings issued thereunder that are requirements for qualification as Performance-Based Compensation, and the Plan, the Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.

 

ARTICLE 6.

 

OPTIONS

 

6.1           Granting of Options to Eligible Individuals.  The Administrator is authorized to grant Options to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine which shall not be inconsistent with the Plan.

 

6.2           Option Exercise Price.  The exercise price per Share subject to each Option shall be set by the Administrator, but shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted (or, as to Incentive Stock Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).  In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than 110% of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).

 

6.3           Option Vesting.

 

(a)           The period during which the right to exercise, in whole or in part, an Option vests in the Holder shall be set by the Administrator and the Administrator may determine that an Option may not be exercised in whole or in part for a specified period after it is granted.  Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria, or any other criteria selected by the Administrator.

 

(b)           No portion of an Option which is unexercisable at a Holder’s Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Program, the Award Agreement or by action of the Administrator following the grant of the Option.

 

6.4           Manner of Exercise.  All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a)           A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised.  The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;

 

(b)           Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law.  The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

 

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(c)           In the event that the Option shall be exercised by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and

 

(d)           Full payment of the exercise price and applicable withholding taxes to the stock administrator of the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by Section 11.1 and 11.2.

 

6.5           Partial Exercise.  An exercisable Option may be exercised in whole or in part.  However, an Option shall not be exercisable with respect to fractional Shares unless determined by the Administrator, and the Administrator may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.

 

6.6           Option Term.  The term of each Option (the “Option Term”) shall be set by the Administrator in its sole discretion; provided, however, that the Option Term shall not be more than 10 years from the date the Option is granted, or 5 years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder.  The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Holder has the right to exercise the vested Options, which time period may not extend beyond the last day of the Option Term.  Except as limited by the requirements of Section 409A or Section 422 of the Code and regulations and rulings thereunder, the Administrator may extend the Option Term of any outstanding Option, and may extend the time period during which vested Options may be exercised, in connection with any Termination of Service of the Holder, and may amend any other term or condition of such Option relating to such a Termination of Service.

 

6.7           Expiration of Option Term:  Automatic Exercise of In-The-Money Options.  Unless otherwise provided by the Administrator (in an Award Agreement or otherwise) or as otherwise directed by an Option Holder in writing to the Company, each Option outstanding on the Automatic Exercise Date with an exercise price per share that is less than the Fair Market Value per share of Common Stock as of such date shall automatically and without further action by the Option Holder or the Company be exercised on the Automatic Exercise Date.  In the discretion of the Administrator, payment of the exercise price of any such Option shall be made pursuant to Section 11.1(b) or 11.1(c) and the Company or any Affiliate shall deduct or withhold an amount sufficient to satisfy all taxes associated with such exercise in accordance with Section 11.2.  Unless otherwise determined by the Administrator, this Section 6.7 shall not apply to an Option if the Holder of such Option experiences a Termination of Service on or before the Automatic Exercise Date.  For the avoidance of doubt, no Option with an exercise price per share that is equal to or greater than the Fair Market Value per share of Common Stock on the Automatic Exercise Date shall be exercised pursuant to this Section 6.7.

 

6.8           Qualification of Incentive Stock Options.  No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any subsidiary corporation (as defined in Section 424(f) of the Code) of the Company.  No person who qualifies as a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code.  Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section

 

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422 of the Code.  To the extent that the aggregate Fair Market Value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year under the Plan, and all other plans of the Company and any subsidiary or parent corporation thereof (each as defined in Section 424(f) and (e) of the Code, respectively), exceeds $100,000, the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code.  The rule set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the Fair Market Value of stock shall be determined as of the time the respective options were granted.

 

6.9           Notification Regarding Disposition.  The Holder shall give the Company prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) 2 years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Holder, or (b) one year after the transfer of such Shares to such Holder.

 

6.10         Substitute Awards.  Notwithstanding the foregoing provisions of this Article 6 to the contrary, in the case of an Option that is a Substitute Award, the price per share of the Shares subject to such Option may be less than the Fair Market Value per share on the date of grant; provided that the excess of:  (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares.

 

ARTICLE 7.

 

RESTRICTED STOCK

 

7.1           Award of Restricted Stock.

 

(a)           The Administrator is authorized to grant Restricted Stock to Eligible Individuals, and shall determine the terms and conditions, including the restrictions applicable to each award of Restricted Stock, which terms and conditions shall not be inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.

 

(b)           The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that if a purchase price is charged, such purchase price shall be no less than the par value, if any, of the Shares to be purchased, unless otherwise permitted by Applicable Law.  In all cases, legal consideration shall be required for each issuance of Restricted Stock.

 

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7.2           Rights as Stockholders.  Subject to Section 7.4, upon issuance of Restricted Stock, the Holder shall have, unless otherwise provided by the Administrator, all the rights of a stockholder with respect to said Shares, subject to the restrictions in the applicable Program or in each individual Award Agreement, including the right to vote and the right to receive all dividends and other distributions paid or made with respect to the Shares; provided, however, that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the Shares shall be subject to the restrictions set forth in Section 7.3.  In addition, with respect to a share of Restricted Stock with performance-based vesting, dividends which are paid prior to vesting shall only be paid out to the Holder to the extent that the performance-based vesting conditions are subsequently satisfied and the share of Restricted Stock vests.

 

7.3           Restrictions.  All shares of Restricted Stock (including any shares received by Holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of the applicable Program or in each individual Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide.  Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Administrator, including, without limitation, criteria based on the Holder’s duration of employment, directorship or consultancy with the Company, the Performance Criteria, Company performance, individual performance or other criteria selected by the Administrator.  By action taken after the Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, accelerate the vesting of such Restricted Stock by removing any or all of the restrictions imposed by the terms of the Program or the Award Agreement.  Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire.

 

7.4           Repurchase or Forfeiture of Restricted Stock.  Except as otherwise determined by the Administrator at the time of the grant of the Award or thereafter, (i) if no price was paid by the Holder for the Restricted Stock, upon a Termination of Service during the applicable restriction period, the Holder’s rights in unvested Restricted Stock then subject to restrictions shall lapse, and such Restricted Stock shall be surrendered to the Company and cancelled without consideration, and (ii) if a price was paid by the Holder for the Restricted Stock, upon a Termination of Service during the applicable restriction period, the Company shall have the right to repurchase from the Holder the unvested Restricted Stock then subject to restrictions at a cash price per share equal to the price paid by the Holder for such Restricted Stock or such other amount as may be specified in the Program or the Award Agreement.

 

7.5           Certificates for Restricted Stock.  Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine.  Certificates or book entries evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.  The Company may, in it sole discretion, (a) retain physical possession of any stock certificate evidencing shares of Restricted Stock until the restrictions thereon shall have lapsed and/or (b) require that the stock certificates evidencing shares of Restricted Stock be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the Holder deliver a stock power, endorsed in blank, relating to such Restricted Stock.

 

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7.6           Section 83(b) Election.  If a Holder makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of the Code, the Holder shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

 

ARTICLE 8.

 

RESTRICTED STOCK UNITS

 

8.1           Grant of Restricted Stock Units.  The Administrator is authorized to grant Awards of Restricted Stock Units to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator.

 

8.2           Purchase Price.  The Administrator shall specify the purchase price, if any, to be paid by the Holder to the Company with respect to any Restricted Stock Unit award; provided, however, that value of the consideration shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

 

8.3           Vesting of Restricted Stock Units.  At the time of grant, the Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including, without limitation, vesting based upon the Holder’s duration of service to the Company or any Affiliate, one or more Performance Criteria, Company performance, individual performance or other specific criteria, in each case on a specified date or dates or over any period or periods, as determined by the Administrator, subject to Section 3.4.

 

8.4           Maturity and Payment.  At the time of grant, the Administrator shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the Holder (if permitted by the applicable Award Agreement); provided that, except as otherwise expressly  set forth in an applicable Award Agreement, and subject to compliance with Section 409A of the Code, in no event shall the maturity date relating to each Restricted Stock Unit occur following the later of (a) the 15th day of the third month following the end of calendar year in which the applicable portion of the Restricted Stock Unit vests; or (b) the 15th day of the third month following the end of the Company’s fiscal year in which the applicable portion of the Restricted Stock Unit vests.  On the maturity date, the Company shall, subject to Section 11.4(e), transfer to the Holder one unrestricted, fully transferable Share for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited, or in the sole discretion of the Administrator, an amount in cash equal to the Fair Market Value of such Shares on the maturity date or a combination of cash and Common Stock as determined by the Administrator.

 

8.5           No Rights as a Stockholder.  Unless otherwise determined by the Administrator,  a Holder of Restricted Stock Units shall possess no incidents of ownership with respect to the Shares represented by such Restricted Stock Units, unless and until such Shares are transferred to the Holder pursuant to the terms of this Plan and the Award Agreement.

 

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ARTICLE 9.

 

PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, STOCK PAYMENTS

 

9.1           Performance Awards.

 

(a)           The Administrator is authorized to grant Performance Awards, including Awards of Performance Stock Units and Awards of cash bonuses or other cash awards determined in the Administrator’s discretion from time to time, to any Eligible Individual and to determine whether such Performance Awards shall be Performance-Based Compensation.  The value of Performance Awards, including Performance Stock Units and any cash awards, may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.  Performance Awards, including Performance Stock Unit awards may be paid in cash, Shares, or a combination of cash and Shares, as determined by the Administrator.

 

(b)           Without limiting Section 9.1(a), the Administrator may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the attainment of Performance Goals, or such other criteria, whether or not objective, which are established by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.  Any such bonuses paid to a Holder which are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article 5.

 

9.2           Dividend Equivalents.

 

(a)           Dividend Equivalents may be granted by the Administrator based on dividends declared on the Common Stock, during the period between the date an Award is granted to a Holder and the date such Award vests, is exercised, is distributed or expires, as determined by the Administrator.  Such Dividend Equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Administrator.  In addition, Dividend Equivalents with respect to an Award with performance-based vesting that are based on dividends paid prior to the vesting of such Award shall only be paid out to the Holder to the extent that the performance-based vesting conditions are subsequently satisfied and the Award vests.

 

(b)           Notwithstanding the foregoing, no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights.

 

9.3           Stock Payments.  The Administrator is authorized to make Stock Payments to any Eligible Individual.  Stock Payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.  The number or value of Shares of any Stock Payment shall be determined by the Administrator and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Administrator.  Shares underlying a Stock Payment which is subject to a vesting schedule or other conditions or criteria set by the Administrator will not be issued until those conditions have been satisfied.  Unless otherwise provided by the Administrator, a Holder of a Stock Payment shall have no rights as a Company

 

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stockholder with respect to such Stock Payment until such time as the Stock Payment has vested and the Shares underlying the Award have been issued to the Holder.

 

9.4           Term.  The term of a Performance Award, Dividend Equivalent award and/or Stock Payment award shall be set by the Administrator in its sole discretion.

 

9.5           Purchase Price.  The Administrator may establish the purchase price of a Performance Award or Shares distributed as a Stock Payment award; provided, however, that value of the consideration shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

 

ARTICLE 10.

 

STOCK APPRECIATION RIGHTS

 

10.1         Grant of Stock Appreciation Rights.

 

(a)           The Administrator is authorized to grant Stock Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine consistent with the Plan.

 

(b)           A Stock Appreciation Right shall entitle the Holder (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the Stock Appreciation Right from the Fair Market Value on the date of exercise of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, subject to any limitations the Administrator may impose.  Except as described in (c) below, the exercise price per Share subject to each Stock Appreciation Right shall be set by the Administrator, but shall not be less than 100% of the Fair Market Value on the date the Stock Appreciation Right is granted.

 

(c)           Notwithstanding the foregoing provisions of Section 10.1(b) to the contrary, in the case of an Stock Appreciation Right that is a Substitute Award, the price per share of the Shares subject to such Stock Appreciation Right may be less than 100% of the Fair Market Value per share on the date of grant; provided that the excess of:  (i) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the Shares subject to the Substitute Award, over (ii) the aggregate exercise price thereof does not exceed the excess of:  (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares.

 

10.2             Stock Appreciation Right Vesting.

 

(a)           The period during which the right to exercise, in whole or in part, a Stock Appreciation Right vests in the Holder shall be set by the Administrator and the Administrator

 

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may determine that a Stock Appreciation Right may not be exercised in whole or in part for a specified period after it is granted.  Such vesting may be based on service with the Company or any Affiliate, or any other criteria selected by the Administrator, such as performance criteria.  At any time after grant of a Stock Appreciation Right, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which a Stock Appreciation Right vests.

 

(b)           No portion of a Stock Appreciation Right which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the applicable Program or Award Agreement or by action of the Administrator following the grant of the Stock Appreciation Right.

 

10.3             Manner of Exercise.  All or a portion of an exercisable Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the stock administrator of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a)           A written or electronic notice complying with the applicable rules established by the Administrator stating that the Stock Appreciation Right, or a portion thereof, is exercised.  The notice shall be signed by the Holder or other person then entitled to exercise the Stock Appreciation Right or such portion of the Stock Appreciation Right;

 

(b)           Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law.  The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance; and

 

(c)           In the event that the Stock Appreciation Right shall be exercised by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Stock Appreciation Right.

 

10.4             Stock Appreciation Right Term.  The term of each Stock Appreciation Right (the “Stock Appreciation Right Term”) shall be set by the Administrator in its sole discretion; provided, however, that the term shall not be more than 10 years from the date the Stock Appreciation Right is granted.  The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Holder has the right to exercise a vested Stock Appreciation Right, which time period may not extend beyond the expiration date of the Stock Appreciation Right Term applicable to such Stock Appreciation Right.  Except as limited by the requirements of Section 409A of the Code and regulations and rulings thereunder, the Administrator may extend the Stock Appreciation Right Term of any outstanding Stock Appreciation Right, and may extend the time period during which vested Stock Appreciation Rights may be exercised, in connection with any Termination of Service of the Holder, and may amend any other term or condition of such Stock Appreciation Right relating to such a Termination of Service.

 

10.5             Payment.  Payment of the amounts payable with respect to Stock Appreciation Rights pursuant to this Article 10 shall be in cash, Shares (based on its Fair Market Value as of

 

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the date the  Stock Appreciation Right is exercised), or a combination of both, as determined by the Administrator.

 

10.6             Expiration of Stock Appreciation Right Term:  Automatic Exercise of In-The-Money Stock Appreciation Rights.  Unless otherwise provided by the Administrator (in an Award Agreement or otherwise) or as otherwise directed by a Stock Appreciation Right Holder in writing to the Company, each Stock Appreciation Right outstanding on the Automatic Exercise Date with an exercise price per share that is less than the Fair Market Value per share of Common Stock as of such date shall automatically and without further action by the Stock Appreciation Right Holder or the Company be exercised on the Automatic Exercise Date.  In the discretion of the Administrator, the Company or any Affiliate shall deduct or withhold an amount sufficient to satisfy all taxes associated with such exercise in accordance with Section 11.2.  Unless otherwise determined by the Administrator, this Section 10.6 shall not apply to a Stock Appreciation Right if the Holder of such Stock Appreciation Right experiences a Termination of Service on or before the Automatic Exercise Date.  For the avoidance of doubt, no Stock Appreciation Right with an exercise price per share that is equal to or greater than the Fair Market Value per share of Common Stock on the Automatic Exercise Date shall be exercised pursuant to this Section 10.6.

 

ARTICLE 11.

 

ADDITIONAL TERMS OF AWARDS

 

11.1         Payment.  The Administrator shall determine the methods by which payments by any Holder with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) or Shares held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) other form of legal consideration acceptable to the Administrator.  The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Holders.  Notwithstanding any other provision of the Plan to the contrary, no Holder who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

 

11.2         Tax Withholding.  The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s FICA or employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Holder arising as a result of the Plan.  The Administrator may in its sole discretion and in satisfaction of

 

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the foregoing requirement withhold, or allow a Holder to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.

 

11.3         Transferability of Awards.

 

(a)           Except as otherwise provided in Section 11.3(b):

 

(i)            No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;

 

(ii)           No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence; and

 

(iii)          During the lifetime of the Holder, only the Holder may exercise an Award (or any portion thereof) granted to such Holder under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Holder, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by the Holder’s personal representative or by any person empowered to do so under the deceased Holder’s will or under the then applicable laws of descent and distribution.

 

(b)           Notwithstanding Section 11.3(a), the Administrator, in its sole discretion, may determine to permit a Holder to transfer an Award other than an Incentive Stock Option to any one or more Permitted Transferees, subject to the following terms and conditions:  (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution or pursuant to a DRO; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Holder (other than the ability to further transfer the Award); (iii) any transfer of an Award to a Permitted Transferee shall be without consideration; and (iv) the Holder and the Permitted Transferee shall execute any and all

 

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documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under Applicable Law and (C) evidence the transfer.

 

(c)           Notwithstanding Section 11.3(a), a Holder may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Holder and to receive any distribution with respect to any Award upon the Holder’s death.  A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Holder, except to the extent the Plan, the Program and the Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator.  If the Holder is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a community property state, a designation of a person other than the Holder’s spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than 50% of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’s spouse or domestic partner.  If no beneficiary has been designated or survives the Holder, payment shall be made to the person entitled thereto pursuant to the Holder’s will or the laws of descent and distribution.  Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time; provided that the change or revocation is filed with the Administrator prior to the Holder’s death.

 

11.4         Conditions to Issuance of Shares.

 

(a)           Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such Shares is in compliance with Applicable Law and the Shares are covered by an effective registration statement or applicable exemption from registration.  In addition to the terms and conditions provided herein, the Board or the Committee may require that a Holder make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with Applicable Law.

 

(b)           All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with Applicable Law.  The Administrator may place legends on any Share certificate or book entry to reference restrictions applicable to the Shares.

 

(c)           The Administrator shall have the right to require any Holder to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.

 

(d)           No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.

 

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(e)           Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by Applicable Law, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

 

11.5         Forfeiture and Claw-Back Provisions.  Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in an Award Agreement or otherwise, or to require a Holder to agree by separate written or electronic instrument, that all Awards (including any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of Applicable Law or the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such claw-back policy and/or in the applicable Award Agreement.

 

11.6         Prohibition on Repricing.  Subject to Section 13.2, the Administrator shall not, without the approval of the stockholders of the Company, (i) authorize the amendment of any outstanding Option or Stock Appreciation Right to reduce its price per share, or (ii) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the Option or Stock Appreciation Right price per share exceeds the Fair Market Value of the underlying Shares.  Subject to Section 13.2, the Administrator shall have the authority, without the approval of the stockholders of the Company, to amend any outstanding Award to increase the price per share or to cancel and replace an Award with the grant of an Award having a price per share that is greater than or equal to the price per share of the original Award.  Furthermore, for purposes of this Section 11.6, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be amended to reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights without the approval of the stockholders of the Company.

 

ARTICLE 12.

 

ADMINISTRATION

 

12.1         Administrator.  The Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall administer the Plan (except as otherwise permitted herein) and, unless otherwise determined by the Board, shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as both a “non-employee director” as defined by Rule 16b-3 of the Exchange Act or any successor rule, an “outside director” for purposes of

 

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Section 162(m) of the Code and an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded; provided that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 12.l or otherwise provided in any charter of the Committee.  Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment.  Committee members may resign at any time by delivering written or electronic notice to the Board.  Vacancies in the Committee may only be filled by the Board.  Notwithstanding the foregoing, (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted to Non-Employee Directors and, with respect to such Awards, the terms “Administrator” and “Committee” as used in the Plan shall be deemed to refer to the Board and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 12.6.

 

12.2         Duties and Powers of Committee.  It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions.  The Committee shall have the power to interpret the Plan, the Program  and the Award Agreement, and to adopt such rules for the administration, interpretation and application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement; provided that the rights or obligations of the Holder of the Award that is the subject of any such Program or Award Agreement are not affected adversely by such amendment, unless the consent of the Holder is obtained or such amendment is otherwise permitted under Section 13.10.  Any such grant or award under the Plan need not be the same with respect to each Holder.  Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code.  In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act or any successor rule, or Section 162(m) of the Code, or any regulations or rules issued thereunder, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.

 

12.3         Action by the Committee.  Unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.  Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

12.4         Authority of Administrator.  Subject to the Company’s Bylaws, the Committee’s Charter and any specific designation in the Plan, the Administrator has the exclusive power, authority and sole discretion to:

 

(a)           Designate Eligible Individuals to receive Awards;

 

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(b)           Determine the type or types of Awards to be granted to Eligible Individuals;

 

(c)           Determine the number of Awards to be granted and the number of Shares to which an Award will relate;

 

(d)           Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any performance criteria, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;

 

(e)           Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

 

(f)            Prescribe the form of each Award Agreement, which need not be identical for each Holder;

 

(g)           Decide all other matters that must be determined in connection with an Award;

 

(h)           Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

 

(i)            Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement;

 

(j)            Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan; and

 

(k)           Accelerate wholly or partially the vesting or lapse of restrictions of any Award or portion thereof at any time after the grant of an Award, subject to whatever terms and conditions it selects and Sections 3.4 and 13.2(d).

 

12.5         Decisions Binding.  The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

 

12.6         Delegation of Authority.  To the extent permitted by Applicable Law, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Article 12; provided,  however, that in no event shall an officer of the Company be delegated the authority to grant awards to, or amend awards held

 

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by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, (b) Covered Employees, or (c) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder; provided, further, that any delegation of administrative authority shall only be permitted to the extent it is permissible under Section 162(m) of the Code and other Applicable Law.  Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee.  At all times, the delegatee appointed under this Section 12.6 shall serve in such capacity at the pleasure of the Board and the Committee.

 

ARTICLE 13.

 

MISCELLANEOUS PROVISIONS

 

13.1         Amendment, Suspension or Termination of the Plan.  Except as otherwise provided in this Section 13.1, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee.  However, without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Administrator, no action of the Administrator may, except as provided in Section 13.2, (a) increase the limits imposed in Section 3.1 on the maximum number of Shares which may be issued under the Plan, or (b) reduce the price per share of any outstanding Option or Stock Appreciation Right granted under the Plan or take any action prohibited under Section 11.6, or (c) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the Option or Stock Appreciation Right price per share exceeds the Fair Market Value of the underlying Shares.  Except as provided in Section 13.10, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides.  No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Award be granted under the Plan after the tenth (10th) anniversary of the Effective Date (the “Expiration Date”).  Any Awards that are outstanding on the Expiration Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

 

13.2         Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.

 

(a)           In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares of the Company’s stock or the share price of the Company’s stock other than an Equity Restructuring, the Administrator may make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of Shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 on the maximum number and kind of Shares which may be issued under the Plan and adjustments of the Award Limit; (ii) the number and kind of Shares (or other securities or property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iv) the grant or exercise price per share

 

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for any outstanding Awards under the Plan.  Any adjustment affecting an Award intended as Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code.

 

(b)           In the event of any transaction or event described in Section 13.2(a) or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate of the Company, or the financial statements of the Company or any Affiliate, or of changes in Applicable Law or accounting principles, the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

 

(i)            To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Holder’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 13.2 the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion having an aggregate value not exceeding the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested;

 

(ii)           To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

(iii)          To make adjustments in the number and type of Shares of the Company’s stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards and Awards which may be granted in the future;

 

(iv)          To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Program or Award Agreement; and

 

(v)           To provide that the Award cannot vest, be exercised or become payable after such event.

 

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(c)           In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 13.2(a) and 13.2(b):

 

(i)            The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or

 

(ii)           The Administrator shall make such equitable adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of Shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 on the maximum number and kind of Shares which may be issued under the Plan and adjustments of the Award Limit).  The adjustments provided under this Section 13.2(c) shall be nondiscretionary and shall be final and binding on the affected Holder and the Company.

 

(d)           Notwithstanding any other provision of the Plan, in the event of a Change in Control, each outstanding Award shall continue in effect or be assumed or an equivalent Award substituted by the successor corporation or a parent or subsidiary of the successor corporation.

 

(e)           In the event that the successor corporation in a Change in Control refuses to assume or substitute for an Award upon the Change of Control, each Award which is at the time outstanding under the Plan shall (i) except as provided otherwise in an individual Award or Award Agreement, automatically become, subject to all other terms of the Award or Award Agreement, fully vested and exercisable or payable, as appropriate, and be released from any repurchase or forfeiture provisions, immediately prior to the specified effective date of such Change in Control, for all of the shares of Common Stock at the time represented by such Award, (ii) the forfeiture or repurchase restrictions applicable to all outstanding Awards shall lapse and shares of Common Stock subject to such Awards shall be released from escrow (or transferred from book entry with the Company’s transfer agent, if applicable), and delivered to the Holders of the Awards free of any such restrictions, (iii) all other Awards shall become fully vested and payment thereof shall be accelerated using, if applicable, the then-current Fair Market Value to measure any payment that is based on the value of the Common Stock or using such higher amount as the Administrator may determine to be more reflective of the actual value of such stock.

 

(f)            For the purposes of this Section 13.2, an Award shall be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the Change in Control was not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share subject to an Award,

 

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to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

 

(g)           The Administrator may, in its sole discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.

 

(h)           With respect to Awards which are granted to Covered Employees and are intended to qualify as Performance-Based Compensation, no adjustment or action described in this Section 13.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Performance-Based Compensation, unless the Administrator determines that the Award should not so qualify.  No adjustment or action described in this Section 13.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code.  Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Administrator determines that the Award is not to comply with such exemptive conditions.

 

(i)            The existence of the Plan, the Program, any Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its 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 Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, 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.

 

(j)            No action shall be taken under this Section 13.2 which shall cause an Award to fail to comply with Section 409A of the Code or the Treasury Regulations thereunder, to the extent applicable to such Award.

 

(k)           In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Common Stock or the share price of the Common Stock including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of 30 days prior to the consummation of any such transaction.

 

13.3         Approval of Plan by Stockholders.  The Plan will be submitted for the approval of the Company’s stockholders within 12 months after the date of the Board’s initial adoption of the Plan.

 

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13.4         No Stockholders Rights.  Except as otherwise provided herein, a Holder shall have none of the rights of a stockholder with respect to Shares covered by any Award until the Holder becomes the record owner of such Shares.

 

13.5         Paperless Administration.  In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an online website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system.

 

13.6         Effect of Plan upon Other Compensation Plans.  The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate.  Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate:  (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate, or (b) except as otherwise provided herein, to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

 

13.7         Compliance with Laws.  The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Laws (including but not limited to margin requirements), and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith.  Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all Applicable Laws.  To the extent permitted by Applicable Laws, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such Applicable Laws.

 

13.8         Titles and Headings, References to Sections of the Code or Exchange Act.  The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.

 

13.9         Governing Law.  The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Texas without regard to conflicts of laws thereof or of any other jurisdiction.

 

13.10       Section 409A.  To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Program pursuant to which such Award is granted and 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, the Program and any Award Agreements shall be interpreted in accordance with Section 409A of

 

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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 Administrator 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 Administrator may adopt such amendments to the Plan and the applicable Program and Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator 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.

 

13.11       No Rights to Awards.  No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Holders or any other persons uniformly.

 

13.12       Unfunded Status of Awards.  The Plan is intended to be an “unfunded” plan for incentive compensation.  With respect to any payments not yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Holder any rights that are greater than those of a general creditor of the Company or any Affiliate.

 

13.13       Indemnification.  To the extent allowable pursuant to Applicable Law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

 

13.14       Relationship to other Benefits.  No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

 

13.15       Expenses.  The expenses of administering the Plan shall be borne by the Company and its Affiliates.

 

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DIGITAL GENERATION, INC.

2011 INCENTIVE AWARD PLAN

 

SUB-PLAN FOR ISRAELI HOLDERS

 

ARTICLE 1.

 

GENERAL

 

1.1           This sub-plan (the “Sub-Plan”) shall apply only to Holders who are residents of the state of Israel upon the date of grant of the Award, as defined below in Article 2, or who are deemed Israeli tax residents (collectively, “Israeli Holders”). The provisions specified hereunder shall form an integral part of the Digital Generation, Inc. 2011 Incentive Award Plan (hereinafter the “Plan”).

 

1.2           This Sub-Plan is to be read as a continuation of the Plan and modifies Awards granted to Israeli Holders only to the extent necessary to comply with the requirements set by the Israeli law in general, and in particular, with the provisions of the Israeli Income Tax Ordinance [New Version] 1961, as may be amended or replaced from time to time. This Sub-Plan does not add to or modify the Plan in respect of any other category of Holders.

 

1.3           The Plan and this Sub-Plan are complimentary to each other and shall be deemed as one. In the event of any conflict, whether explicit or implied, between the provisions of this Sub-Plan and the Plan, the provisions set out in the Sub-Plan shall prevail.

 

1.4           Any capitalized term not specifically defined in this Sub-Plan shall be construed according to the interpretation given to it in the Plan.

 

ARTICLE 2.

 

DEFINITIONS

 

2.1           “102 Award” means any Award granted to an Approved Israeli Holder pursuant to Section 102 of the Ordinance.

 

2.2           “Approved Israeli Holder” means an Israeli Holder who is an employee, director or an officer of the Israel resident Affiliate of the Company, excluding any Controlling Share Holder of the Company, provided that the Affiliate is an Israeli resident company or otherwise meets the definition of an Employing Company under Section 102.

 

2.3           “Award”  solely  for the purpose of this Sub-Plan means any Award of Options, Restricted Stock, Restricted Stock Units, Dividend Equivalents, Stock Payments or Stock Appreciation Rights granted by the Company to an Israeli Holder, in accordance with the provisions of the Plan, provided that they are payable only or settled only using Shares.

 

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2.4           “Capital Gain Award”  or “CGA”  means a Trustee 102 Award elected and designated by the Company to qualify under the capital gain tax treatment in accordance with the provisions of Section 102(b)(2) of the Ordinance.

 

2.5           “Controlling Share Holder” shall have the meaning ascribed to it in Section 32(9) of the Ordinance.

 

2.6           “ITA”  means the Israeli Tax Authority.

 

2.7           “Israeli Award Agreement” means the Agreement between the Company and an Israeli Holder that sets out the terms and conditions of an Award.

 

2.8           “Non-Trustee 102 Award” means a 102 Award granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee.

 

2.9           “Ordinary Income Award” or  “OIA” means a Trustee 102 Award elected and designated by the Company to qualify under the ordinary income tax treatment in accordance with the provisions of Section 102(b)(1) of the Ordinance.

 

2.10         “Ordinance”  means the Israeli Income Tax Ordinance [New Version] 1961 as now in effect or as hereafter amended.

 

2.11         “Section 102”  means Section 102 of the Ordinance and any regulations, rules, orders or procedures promulgated thereunder as now in effect or as hereafter amended.

 

2.12         “Tax” means any applicable tax and other compulsory payments such as social security and health tax contributions under any applicable law.

 

2.13        “Trustee” means any person or entity appointed by the Company to serve as a trustee and approved by the ITA, all in accordance with the provisions of Section 102(a) of the Ordinance, as may be replaced from time to time.

 

2.14         “Trustee 102 Award” means a 102 Award granted to an Approved Israeli Holder pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit of an Approved Israeli Holder.

 

2.15         “Unapproved Israeli Holder”  means an Israeli Holder who is not an Approved Israeli Holder, including a consultant or a Controlling Share Holder of the Company.

 

ARTICLE 3.

 

ISSUANCE OF AWARDS

 

3.1           The persons eligible for participation in the Plan as Israeli Holders shall include Approved Israeli Holder s and Unapproved Israeli Holder s, provided, however, that only Approved Israeli Holder s may be granted 102 Awards.

 

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3.2           The Company may designate Awards granted to Approved Israeli Holders pursuant to Section 102 as Trustee 102 Awards or Non-Trustee 102 Awards.

 

3.3           The grant of Trustee 102 Awards shall be made under this Sub-Plan shall not be made until thirty days from the date the Plan has been submitted for approval by the ITA and shall be conditioned upon the approval of the Plan and this Sub-Plan by the ITA.

 

3.4           Trustee 102 Awards may either be classified as Capital Gain Awards (CGAs) or Ordinary Income Awards (OIAs).

 

3.5           No Trustee 102 Award may be granted under this Sub-Plan to any Approved Israeli Holder, unless and until the Company has filed with the ITA its election regarding the type of Trustee 102 Awards, whether CGAs or OIAs, that will be granted under the Plan and this Sub-Plan (the “Election”).  Such Election shall become effective beginning the first date of grant of a Trustee 102 Award under this Sub-Plan and shall remain in effect at least until the end of the year following the year during which the Company first granted Trustee 102 Awards. The Election shall obligate the Company to grant only the type of Trustee 102 Award it has elected, and shall apply to all Israeli Holders who are granted Trustee 102 Awards during the period indicated herein, all in accordance with the provisions of Section 102(g) of the Ordinance. The Election shall not prevent the Company from granting Non-Trustee 102 Awards simultaneously.

 

3.6           All Trustee 102 Awards must be held in trust by, or subject to the approval of the ITA, under the control or supervision of a Trustee, as described in Article 4 below.

 

3.7           The designation of Non-Trustee 102 Awards and Trustee 102 Awards shall be subject to the terms and conditions set forth in Section 102.

 

3.8           Awards granted to Unapproved Israeli Holders shall be subject to tax according to the provisions of the Ordinance and shall not be subject to the Trustee arrangement detailed herein.

 

ARTICLE 4.

 

TRUSTEE

 

4.1           Trustee 102 Awards which shall be granted under this Sub-Plan and/or any Share allocated or issued upon exercise or vesting of a Trustee 102 Award and/or other Shares received following any realization of rights under the Plan, including Dividend Equivalents, shall be allocated or issued to the Trustee or controlled by the Trustee, for the benefit of the Approved Israeli Holders, in accordance with the provisions of Section 102. In the event that the requirements for Trustee 102 Awards are not met, the Trustee 102 Awards may be regarded as Non-Trustee 102 Awards or as Awards which are not subject to Section 102, all in accordance with the provisions of Section 102.

 

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4.2           With respect to any Trustee 102 Award, subject to the provisions of Section 102, an Approved Israeli Holder shall not sell or release from trust any Share received upon the exercise or vesting of a Trustee 102 Award and/or any Share received following any realization of rights, including, without limitation, stock dividends, under the Plan at least until the lapse of the period of time required under Section 102 or any shorter period of time determined by the ITA (the “Holding Period”). Notwithstanding the above, if any such sale or release occurs during the Holding Period, the sanctions under Section 102 shall apply to and shall be borne by such Approved Israeli Holder.

 

4.3           Notwithstanding anything to the contrary, the Trustee shall not release or sell any Shares allocated or issued upon exercise or vesting of a Trustee 102 Award unless the Company, its Israeli Affiliate and the Trustee are satisfied that the full amounts of Tax due have been paid or will be paid.

 

4.4           Upon receipt of any Trustee 102 Award, the Approved Israeli Holder will consent to the grant of the Award under Section 102 and undertake to comply with the terms of Section 102 and the trust arrangement between the Company and the Trustee.

 

ARTICLE 5.

 

THE AWARDS

 

The terms and conditions upon which the Awards shall be issued and exercised or vest, as applicable, shall be specified in the Israeli Award Agreement to be executed pursuant to the Plan and to this Sub-Plan.  Each Israeli Award Agreement shall state, inter alia, the number of Shares to which the Award relates, the type of Award granted thereunder (i.e., a CGA, OIA or Non-Trustee 102 Award), and any applicable vesting provisions and exercise price that may be payable.

 

ARTICLE 6.

 

EXERCISE AND VESTING OF AWARDS

 

Vesting and exercise of Awards granted to Israeli Holders shall be subject to the terms and conditions and, with respect to exercise, the method, as may be determined by the Company (including the provisions of the Plan) and, when applicable, by the Trustee, in accordance with the requirements of Section 102.  Notwithstanding Section 3.2 of the Plan, Shares distributed pursuant to a 102 Award may consist only of, in whole or in part, authorized and unissued Common Stock or treasury Common Stock.

 

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ARTICLE 7.

 

ASSIGNABILITY, DESIGNATION AND SALE OF AWARDS

 

7.1.          Notwithstanding any other provision of the Plan, no Award or any right with respect thereto, or purchasable hereunder, whether fully paid or not, shall be assignable, transferable or given as collateral, or any right with respect to any Award given to any third party whatsoever, and during the lifetime of the Israeli Holder, each and all of such Israeli Holder’s rights with respect to an Award shall belong only to the Israeli Holder. Any such action made directly or indirectly, for an immediate or future validation, shall be void.

 

7.2           As long as Awards or Shares issued or purchased hereunder are held by the Trustee on behalf of the Israeli Holder, all rights of the Israeli Holder over the Shares cannot be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.

 

7.3           It is hereby clarified that any transfer executed in accordance with Section 11.3 of the Plan shall constitute a taxable event.

 

ARTICLE 8.

 

INTEGRATION OF SECTION 102 AND TAX ASSESSING OFFICER’S APPROVAL

 

8.1.          With regard to Trustee 102 Awards, the provisions of the Plan and/or the Sub-Plan and/or the Israeli Award Agreement shall be subject to the provisions of Section 102 and any approval issued by the ITA and the said provisions shall be deemed an integral part of the Plan, the Sub-Plan and the Israeli Award Agreement.

 

8.2.          Any provision of Section 102 and/or said approval issued by the ITA which must be complied with in order to receive and/or to maintain any tax Award pursuant to Section 102, which is not expressly specified in the Plan, the Sub-Plan or the Israeli Award Agreement, shall be considered binding upon the Company, the Israeli Affiliate and the Israeli Holders.

 

ARTICLE 9.

 

DIVIDEND

 

Subject to the provisions of the Plan, with respect to all Shares allocated or issued upon the exercise or vesting of Awards granted to the Israeli Holder and held by the Israeli Holder or by the Trustee, as the case may be, the Israeli Holder shall be entitled to receive dividends, if any, in accordance with the quantity of such Shares, subject to the provisions of the Company’s Certificate of Incorporation (and all amendments thereto) and subject to any applicable taxation on distribution of dividends, and when applicable subject to the provisions of Section 102 and the rules, regulations or orders promulgated thereunder.

 

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ARTICLE 10.

 

TAX CONSEQUENCES

 

10.1         Any tax consequences arising from the grant, exercise, vesting or sale of any Award, from the payment for Shares covered thereby or from any other event or act (of the Company, and/or its Subsidiaries, and the Trustee or the Israeli Holder), hereunder, shall be borne solely by the Israeli Holder. The Company and/or its Affiliates, and/or the Trustee shall withhold Tax according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the Israeli Holder agrees to indemnify the Company and/or its Affiliates and/or the Trustee and hold them harmless against and from any and all liability for any such Tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such Tax from any payment made to the Israeli Holder.

 

10.2         The Company and/or, when applicable, the Trustee shall not be required to release any Award or Share to an Israeli Holder until all required Tax payments have been fully made.

 

10.3         With respect to Non-Trustee 102 Awards, if the Israeli Holder ceases to be employed by the Company or any Affiliate, or otherwise if so requested by the Company or the Affiliate, the Israeli Holder shall extend to the Company and/or the Affiliate a security or guarantee for the payment of Tax due at the time of sale of Shares, in accordance with the provisions of Section 102.

 

ARTICLE 11.

 

TERM OF PLAN AND SUB-PLAN

 

Notwithstanding anything to the contrary in the Plan and in addition thereto, the Company shall obtain all approvals for the adoption of this Sub-Plan or for any amendment to this Sub-Plan as are necessary to comply with any Applicable Law, applicable to Awards granted to Israeli Holders under this Sub-Plan or with the Company’s incorporation documents.

 

ARTICLE 12.

 

ONE TIME AWARD

 

The Awards and underlying Shares are extraordinary, one-time Awards granted to the Holders, and are not and shall not be deemed a salary component for any purpose whatsoever, including in connection with calculating severance compensation under Applicable Law.

 

A-6

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