Document:

Summary of V.P. Compensation Program

 

Exhibit 10.2

August 12, 2002

Description of eLoyalty Corporation

Vice President Compensation Program

     On February 25, 2002, the Compensation Committee of the Board of Directors of eLoyalty Corporation
approved, and the entire Board of Directors subsequently ratified, a new Vice President Compensation Program (the
“VP Compensation Program”) for eLoyalty’s Vice Presidents, including those who had held the title of Senior Vice
President prior to the Company’s elimination of that title, also in February 2002. All executive officers of the
Company, other than the Chief Executive Officer, are Vice Presidents and participants in the VP Compensation
Program.

     The VP Compensation Program established five compensation tiers for eLoyalty Vice Presidents. Each
such tier has associated with it a target annual cash compensation amount (consisting of annual base salary
component and a target annual bonus component) and a target equity position in eLoyalty that is the same for each
Vice President within the tier. The target equity position is expressed as a dollar amount and includes all
equity granted by eLoyalty to the Vice President in his or her capacity as an eLoyalty employee, whether in the
form of Common Stock, the right to receive future grants of Common Stock or options to purchase Common Stock.

     Under the VP Compensation Program, bonus targets established by the Compensation Committee will be
funded based on overall eLoyalty performance. For each participant, bonuses will be paid based on individual
performance against predetermined personal and team goals. The VP Compensation Program includes limitations
on the funding of cash bonus pools for Vice Presidents, including limits relating to eLoyalty profitability,
requiring that all non-Vice President bonus pools be fully funded before the funding of any Vice President bonus
pool begins, and requiring that bonus pools for Vice Presidents in higher compensation tiers be funded at a
substantially slower rate than the funding of bonus pools for Vice Presidents in lower compensation tiers. Where
established goals are not reached, these elements decrease the likelihood of cash bonuses being paid to Vice
Presidents as a group and decrease the likelihood that any cash bonuses paid to Vice Presidents will reach their
targeted amounts. In addition, those Vice Presidents placed in higher compensation tiers, presumably those most
capable of influencing eLoyalty’s performance, are those least likely to have their cash bonuses fully funded in
the absence of overall strong performance.

     In general, eLoyalty expects that equity targets under the VP Compensation Program will be funded
through grants of restricted stock that vest either ratably over five years (for Vice Presidents at the time the
program was adopted) or ratably over four years commencing on the anniversary of the grant date (for newly hired
or promoted Vice Presidents). Non-U.S. Vice Presidents receive an installment stock award that provides for the
issuance, in the aggregate, of the same number of shares of Common Stock as would have been issued to them as
restricted stock had they been U.S. employees, in quarterly
installments corresponding to the vesting of the restricted stock grants. Shares granted under the VP Compensation Plan will be issued under one of eLoyalty’s
stock incentive plans.1999 Stock Incentive Plan

 

Exhibit 10.3

eLOYALTY CORPORATION

1999 STOCK INCENTIVE PLAN

(as Amended and Restated as of May 16, 2002)

I. INTRODUCTION

     
1.1 Purposes. The purposes of the
1999 Stock Incentive Plan (the “Plan”) of eLoyalty
Corporation, a Delaware corporation (the “Company”),
are to (i) align the interests of the Company’s
stockholders and the recipients of awards under this Plan by
increasing the proprietary interest of such recipients in the
Company’s growth and success, (ii) advance the
interests of the Company by attracting and retaining directors
(including Non-Employee Directors), officers, other key
employees, consultants, independent contractors and agents and
(iii) motivate such persons to act in the long-term best
interests of the Company’s stockholders.

     
1.2 Certain Definitions.

     
“Agreement”
shall mean the written agreement
evidencing an award hereunder between the Company and the
recipient of such award.

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

     
“Bonus Stock”
shall mean shares of Common Stock
which are not subject to a Restriction Period or Performance
Measures.

     
“Bonus Stock Award”
shall mean an award of Bonus Stock
under this Plan.

     
“Change in Control”
shall have the meaning set forth in
Section 6.8(b).

     
“Code”
shall mean the Internal Revenue Code
of 1986, as amended.

     
“Committee”
shall mean (i) prior to the date
that the Company shall become a separate publicly held
corporation for purposes of section 162(m) of the Code, the
Committee under the Technology Solutions Company 1996 Stock
Incentive Plan and (ii) on or after such date, one or more
committees of the Board that have been designated by the Board
to carry out certain respective actions under this Plan on
behalf of the Board, subject to the limitations provided by the
Board in any such designations; provided, however, that where
necessary for compliance with Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder, or
where the Board deems it to be advisable for any reason
whatsoever, such committee will consist of two or more members
of the Board, each of whom shall be a “Non-Employee
Director” within the meaning of Rule 16b-3 under the
Exchange Act; and provided further, that where the grant of an
award is being made to any person who at the time of the grant
is a “covered employee,” or who is then believed
likely to be a “covered employee” at any time during
the period an award hereunder to such person would be
outstanding, and where necessary for such grant to qualify as
performance based compensation under the provisions of
section 162(m) of the Code, such committee will consist of
two or more members of the Board, each of whom shall be an
“outside director” within the meaning of
section 162(m) of the Code. Notwithstanding any such
committee designations, the Board retains the right to assume
full authority to administer the Plan in all respects hereunder
pursuant to Section 1.3 hereof.

     
“Common Stock”
shall mean the common stock, $.01 par
value, of the Company.

     
“Company”
shall have the meaning set forth in
Section 1.1.

     
“Exchange Act”
shall mean the Securities Exchange Act
of 1934, as amended.

     
“Fair Market Value”
shall mean the closing transaction
price of a share of Common Stock as reported by The Nasdaq Stock
Market or the principal national securities exchange on which
the Common Stock is then

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traded, on the date as of which such value is
being determined, or, if there shall be no reported transactions
for such date, on the next preceding date for which transactions
were reported; provided, however, that if (i) the
determination date occurs prior to the initial date that shares
of Common Stock are traded on The Nasdaq Stock Market or a
national securities exchange or (ii) the Fair Market Value
for any date cannot be so determined, Fair Market Value shall be
determined by the Committee by whatever means or method as the
Committee, in the good faith exercise of its discretion, shall
at such time deem appropriate.

     
“Free-Standing SAR”
shall mean an SAR which is not issued
in tandem with, or by reference to, an option and which entitles
the holder thereof to receive, upon exercise, shares of Common
Stock (which may be Restricted Stock), cash or a combination
thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of
exercise over the base price of such SAR, multiplied by the
number of such SARs which are exercised.

     
“Incentive Stock Option”
shall mean an option to purchase
shares of Common Stock that meets the requirements of
Section 422 of the Code, or any successor provision, and
which is designated as an Incentive Stock Option.

     
“Incumbent Board”
shall have the meaning set forth in
Section 6.8(b)(2) hereof.

     
“Mature Shares”
shall mean shares of Common Stock for
which the holder thereof has good title, free and clear of all
liens and encumbrances and which such holder has held for at
least six months.

     
“Non-Employee Director”
shall mean any director of the Company
who is not an officer or employee of the Company or any
Subsidiary; provided, however, that prior to the Reference Date,
“Non-Employee Director” shall mean any director of the
Company who is not an officer or employee of the Company, TSC,
any subsidiary of TSC or any Subsidiary.

     
“Non-Statutory Stock Option”
shall mean a stock option which is not
an Incentive Stock Option.

     
“Outstanding Common Stock”
shall have the meaning set forth in
Section 6.8(b)(1) hereof.

     
“Outstanding Voting Securities”
shall have the meaning set forth in
Section 6.8(b)(1) hereof.

     
“Performance Measures”
shall mean the criteria and
objectives, established by the Committee, which shall be
satisfied or met (i) as a condition to the exercisability
of all or a portion of an option or SAR, (ii) as a
condition to the grant of a Stock Award or (iii) during the
applicable Restriction Period or Performance Period as a
condition to the holder’s receipt, in the case of a
Restricted Stock Award, of the shares of Common Stock subject to
such award, or, in the case of a Performance Share Award, of the
shares of Common Stock subject to such award and/or of payment
with respect to such award. In the sole discretion of the
Committee, the Committee may amend or adjust the Performance
Measures or other terms and conditions of an outstanding award
in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in law or
accounting principles. Such criteria and objectives may include
one or more of the following: the attainment by a share of
Common Stock of a specified Fair Market Value for a specified
period of time, earnings per share, return to stockholders
(including dividends), operating income, operating income
margin, return on equity, earnings of the Company, revenues,
market share, cash flow or cost reduction goals, or any
combination of the foregoing. If the Committee desires that
compensation payable pursuant to any award subject to
Performance Measures be “qualified performance-based
compensation” within the meaning of Section 162(m) of
the Code, the Performance Measures (i) shall be established
by the Committee no later than 90 days after the beginning
of the Performance Period or Restriction Period, as applicable
(or such other time designated by the Internal Revenue Service)
and (ii) shall satisfy all other applicable requirements
imposed under Treasury Regulations promulgated under
Section 162(m) of the Code, including the requirement that
such Performance Measures be stated in terms of an objective
formula or standard.

     
“Performance Period”
shall mean any period designated by
the Committee during which the Performance Measures applicable
to a Performance Share Award shall be measured.

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“Performance Share”
shall mean a right, contingent upon
the attainment of specified Performance Measures within a
specified Performance Period, to receive one share of Common
Stock, which may be Restricted Stock, or in lieu of all or a
portion thereof, the Fair Market Value of such Performance Share
in cash.

     
“Performance Share Award”
shall mean an award of Performance
Shares under this Plan.

     
“Permanent and Total Disability”
shall have the meaning set forth in
Section 22(e)(3) of the Code or any successor thereto.

     
“Reference Date”
shall mean the initial date that the
Company shall be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.

     
“Restricted Stock”
shall mean shares of Common Stock
which are subject to a Restriction Period.

     
“Restricted Stock Award”
shall mean an award of Restricted
Stock under this Plan.

     
“Restriction Period”
shall mean any period designated by
the Committee during which the Common Stock subject to a
Restricted Stock Award may not be sold, transferred, assigned,
pledged, hypothecated or otherwise encumbered or disposed of,
except as provided in this Plan or the Agreement relating to
such award.

     
“SAR”
shall mean a stock appreciation right
which may be a Free-Standing SAR or a Tandem SAR.

     
“Spin-Off”
shall mean a pro rata distribution by
TSC to its stockholders of all of the shares of Common Stock
then owned by TSC.

     
“Stock
Award” shall mean a Restricted
Stock Award or a Bonus Stock Award.

     
“Subsidiary”
shall have the meaning set forth in
Section 1.4.

     
“Substitute Options”
shall have the meaning set forth in
Section 2.4.

     
“Tandem SAR”
shall mean an SAR which is granted in
tandem with, or by reference to, an option (including a
Non-Statutory Stock Option granted prior to the date of grant of
the SAR), which entitles the holder thereof to receive, upon
exercise of such SAR and surrender for cancellation of all or a
portion of such option, shares of Common Stock (which may be
Restricted Stock), cash or a combination thereof with an
aggregate value equal to the excess of the Fair Market Value of
one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of shares of Common
Stock subject to such option, or portion thereof, which is
surrendered.

     
“Tax Date”
shall have the meaning set forth in
Section 6.5.

     
“Ten Percent Holder”
shall have the meaning set forth in
Section 2.1(a).

     
“TSC”
shall mean Technology Solutions
Company, a Delaware corporation, and its successors.

     
“TSC Options”
shall have the meaning set forth in
Section 2.4.

     
1.3 Administration. This Plan shall
be administered by the Committee, pursuant to and subject to the
terms of the Board’s designation thereof and delegation
thereto in accordance with Section 1.2 hereof.
Notwithstanding any such Committee designation, the Board
retains the right to assume full authority to administer the
Plan in all respects hereunder. Any one or a combination of the
following awards may be made under this Plan to eligible
persons: (i) options to purchase shares of Common Stock in
the form of Incentive Stock Options or Non-Statutory Stock
Options, (ii) SARs in the form of Tandem SARs or
Free-Standing SARS, (iii) Stock Awards in the form of
Restricted Stock or Bonus Stock and (iv) Performance
Shares. The Board or, if applicable, the Committee shall,
subject to the terms of this Plan, select eligible persons for
participation in this Plan and determine the form, amount and
timing of each award to such persons and, if applicable, the
number of shares of Common Stock, the number of SARs and the
number of Performance Shares subject to such an award, the
exercise price or base price associated with the award, the time
and conditions of exercise or settlement of the award and all
other terms and conditions of the award, including, without
limitation, the form of the Agreement evidencing the award. The
Board or, if applicable, the

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Committee may, in its sole discretion and for any
reason at any time, subject to the requirements imposed under
Section 162(m) of the Code and regulations promulgated
thereunder in the case of an award intended to be qualified
performance-based compensation, take action such that
(i) any or all outstanding options and SARs shall become
exercisable in part or in full, (ii) all or a portion of
the Restriction Period applicable to any outstanding Restricted
Stock Award shall lapse, (iii) all or a portion of the
Performance Period applicable to any outstanding Performance
Share Award shall lapse and (iv) the Performance Measures
applicable to any outstanding Restricted Stock Award (if any)
and to any outstanding Performance Share Award shall be deemed
to be satisfied at the maximum or any other level. The Board or,
if applicable, the Committee shall, subject to the terms of this
Plan, interpret this Plan and the application thereof, establish
rules and regulations it deems necessary or desirable for the
administration of this Plan and may impose, incidental to the
grant of an award, conditions with respect to the award, such as
limiting competitive employment or other activities. All such
interpretations, rules, regulations and conditions shall be
final, binding and conclusive.

     
1.4 Eligibility. Participants in this
Plan shall consist of such directors, officers, other key
employees, consultants, independent contractors and agents of
the Company and its subsidiaries (individually a
“Subsidiary” and collectively the
“Subsidiaries”) and, prior to the Spin-Off, directors,
officers and other key employees of TSC and its subsidiaries, as
the Committee in its sole discretion may select from time to
time and such other persons receiving Substitute Options. For
purposes of this Plan, references to employment shall also mean
service as a director or pursuant to an agency or independent
contractor relationship, and references to employment by the
Company shall also mean employment by a Subsidiary or such other
employer designated in the Agreement evidencing the award.
Notwithstanding the preceding sentence, in the case of
(i) options granted hereunder prior to the Reference Date
and (ii) Substitute Options, references to employment with
the Company shall include all employment with TSC or any of its
subsidiaries. The Committee’s selection of a person to
participate in this Plan at any time shall not require the
Committee to select such person to participate in this Plan at
any other time. Without limiting their eligibility for
discretionary awards under the Plan, as described above,
Non-Employee Directors of the Company shall be eligible to
participate in this Plan in accordance with Section V.
Notwithstanding anything contained herein to the contrary, no
person other than an employee of the Company or a Subsidiary may
be granted an Incentive Stock Option hereunder.

     
1.5 Shares Available. Subject to
adjustment as provided in Section 6.7, the total number of
shares of Common Stock initially available for all grants of
awards over the term of the Plan, other than Substitute Options,
was 534,000. As of the first day of each fiscal year of the
Company beginning on or after January 1, 2000, the total
number of shares of Common Stock available for all grants under
this Plan, other than Incentive Stock Options, shall
automatically increase by an amount equal to five percent (5%)
of the number of shares of Common Stock then outstanding.
Effective upon approval by the Company’s stockholders of
the amendment to increase by 500,000 the maximum number of
shares under the plan (which amendment is submitted to such
stockholders for their approval at the Company’s 2002
Annual Meeting of stockholders), the maximum number of shares of
Common Stock authorized for all grants of awards under this
Plan, subject to adjustment as provided in Section 6.7, is
2,510,834, including a total of 738,078 shares which became
available on the first day of fiscal years 2000-2002 pursuant to
the automatic increase feature contained in the Plan as noted
above and 738,756 shares initially made available pursuant to
the Substitute Options granted in connection with the Spin-Off.
If approved, a maximum of 1,034,000 shares will be available for
grants of Incentive Stock Options.

     
To the extent that shares of Common Stock subject
to an outstanding option granted hereunder (except to the extent
shares of Common Stock are issued or delivered by the Company in
connection with the exercise of a Tandem SAR), Free-Standing
SAR, Stock Award or Performance Share are not issued or
delivered by reason of the expiration, termination, cancellation
or forfeiture of such award or by reason of the delivery or
withholding of shares of Common Stock to pay all or a portion of
the exercise price of an award, if any, or to satisfy all or a
portion of the tax withholding obligations relating to an award,
then such shares of Common Stock shall again be available under
this Plan.

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Shares of Common Stock shall be made available
from authorized and unissued shares of Common Stock, or
authorized and issued shares of Common Stock reacquired and held
as treasury shares or otherwise or a combination thereof.

     
To the extent required by Section 162(m) of
the Code and the rules and regulations thereunder, the maximum
number of shares of Common Stock with respect to which options
or SARS, Stock Awards or Performance Share Awards or a
combination thereof may be granted to any person during
(i) the 1999 fiscal year shall be 75,000 and (ii) any
other fiscal year of the Company shall be 30,000, subject to
adjustment as provided in Section 6.7.

II. STOCK OPTIONS AND STOCK APPRECIATION
RIGHTS

     
2.1 Stock Options. The Committee may,
in its discretion, grant options to purchase shares of Common
Stock to such eligible persons as may be selected by the
Committee. Each option, or portion thereof, that is granted to a
person other than an employee of the Company or a Subsidiary or
that is otherwise not an Incentive Stock Option, shall be a
Non-Statutory Stock Option. Each Incentive Stock Option shall be
granted within ten years of the effective date of this Plan. To
the extent that the aggregate Fair Market Value (determined as
of the date of grant) of shares of Common Stock with respect to
which options designated as Incentive Stock Options are
exercisable for the first time by a participant during any
calendar year (under this Plan or any other plan of the Company,
or any parent or subsidiary as defined in Section 424 of
the Code) exceeds the amount (currently $100,000) established by
the Code, such options shall constitute Non-Statutory Stock
Options.

     
Options shall be subject to the following terms
and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem advisable:

		
	 	     
    (a) Number of Shares and Purchase
    Price. The number of shares of Common Stock subject to an
    option and the purchase price per share of Common Stock
    purchasable upon exercise of the option shall be determined by
    the Committee; provided, however, that the purchase price per
    share of Common Stock purchasable upon exercise of an Incentive
    Stock Option shall not be less than 100% of the Fair Market
    Value of a share of Common Stock on the date of grant of such
    option; provided further, that if an Incentive Stock Option
    shall be granted to any person who, at the time such option is
    granted, owns capital stock possessing more than ten percent of
    the total combined voting power of all classes of capital stock
    of the Company (or of any parent or subsidiary) (a “Ten
    Percent Holder”), the purchase price per share of Common
    Stock shall be the price (currently 110% of Fair Market Value)
    required by the Code in order to constitute an Incentive Stock
    Option.
    
	 
	 	     
    (b) Option Period and Exercisability.
    The period during which an option may be exercised shall be
    determined by the Committee; provided, however, that no
    Incentive Stock Option shall be exercised later than ten years
    after its date of grant; provided further, that if an Incentive
    Stock Option shall be granted to a Ten Percent Holder, such
    option shall not be exercised later than five years after its
    date of grant. The Committee may, in its discretion, establish
    Performance Measures which shall be satisfied or met as a
    condition to the grant of an option or to the exercisability of
    all or a portion of an option. The Committee shall determine
    whether an option shall become exercisable in cumulative or
    non-cumulative installments and in part or in full at any time.
    An exercisable option, or portion thereof, may be exercised only
    with respect to whole shares of Common Stock.
    
	 
	 	     
    (c) Method of Exercise. An option may
    be exercised (i) by giving written notice to the Company
    specifying the number of whole shares of Common Stock to be
    purchased and accompanied by payment therefor in full (or
    arrangement made for such payment to the Company’s
    satisfaction) either (A) in cash, (B) by delivery of
    Mature Shares having an aggregate Fair Market Value, determined
    as of the date of exercise, equal to the aggregate purchase
    price payable by reason of such exercise, (C) in cash by a
    broker-dealer acceptable to the Company to whom the optionee has
    submitted an irrevocable notice of exercise or (D) a
    combination of (A) and (B), in each case to the extent set
    forth in the Agreement relating to the option, (ii) if
    applicable, by surrendering to the Company any Tandem SARs which
    are
    

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    cancelled by reason of the exercise of the option
    and (iii) by executing such documents as the Company may
    reasonably request. The Company shall have sole discretion to
    disapprove of an election pursuant to any of
    clauses (B)-(D) and in the case of an optionee who is
    subject to Section 16 of the Exchange Act, the Company may
    require that the method of making such payment be in compliance
    with Section 16 and the rules and regulations thereunder.
    Any fraction of a share of Common Stock which would be required
    to pay such purchase price shall be disregarded and the
    remaining amount due shall be paid in cash by the optionee. No
    certificate representing Common Stock shall be delivered until
    the full purchase price therefor has been paid (or arrangement
    made for such payment to the Company’s satisfaction).
    

     
2.2 Stock Appreciation Rights. The
Committee may, in its discretion, grant SARs to such eligible
persons as may be selected by the Committee. The Agreement
relating to an SAR shall specify whether the SAR is a Tandem SAR
or a Free-Standing SAR.

     
SARs shall be subject to the following terms and
conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem advisable:

		
	 	     
    (a) Number of SARs and Base Price.
    The number of SARs subject to an award shall be determined by
    the Committee. Any Tandem SAR related to an Incentive Stock
    Option shall be granted at the same time that such Incentive
    Stock Option is granted. The base price of a Tandem SAR shall be
    the purchase price per share of Common Stock of the related
    option. The base price of a Free-Standing SAR shall be
    determined by the Committee.
    
	 
	 	     
    (b) Exercise Period and
    Exercisability. The Agreement relating to an award of SARs
    shall specify whether such award may be settled in shares of
    Common Stock (including shares of Restricted Stock) or cash or a
    combination thereof. The period for the exercise of an SAR shall
    be determined by the Committee; provided, however, that no
    Tandem SAR shall be exercised later than the expiration,
    cancellation, forfeiture or other termination of the related
    option. The Committee may, in its discretion, establish
    Performance Measures which shall be satisfied or met as a
    condition to the grant of an SAR or to the exercisability of all
    or a portion of an SAR. The Committee shall determine whether an
    SAR may be exercised in cumulative or non-cumulative
    installments and in part or in full at any time. An exercisable
    SAR, or portion thereof, may be exercised, in the case of a
    Tandem SAR, only with respect to whole shares of Common Stock
    and, in the case of a Free-Standing SAR, only with respect to a
    whole number of SARs. If an SAR is exercised for shares of
    Restricted Stock, a certificate or certificates representing
    such Restricted Stock shall be issued in accordance with
    Section 3.2(c) and the holder of such Restricted Stock
    shall have such rights of a stockholder of the Company as
    determined pursuant to Section 3.2(d). Prior to the
    exercise of an SAR for shares of Common Stock, including
    Restricted Stock, the holder of such SAR shall have no rights as
    a stockholder of the Company with respect to the shares of
    Common Stock subject to such SAR and shall have rights as a
    stockholder of the Company in accordance with Section 6.10.
    
	 
	 	     
    (c) Method of Exercise. A Tandem SAR
    may be exercised (i) by giving written notice to the
    Company specifying the number of whole SARs which are being
    exercised, (ii) by surrendering to the Company any options
    which are cancelled by reason of the exercise of the Tandem SAR
    and (iii) by executing such documents as the Company may
    reasonably request. A Free-Standing SAR may be exercised
    (i) by giving written notice to the Company specifying the
    whole number of SARs which are being exercised and (ii) by
    executing such documents as the Company may reasonably request.
    

     
2.3 Termination of Employment or
Service. Subject to Section 1.4, all of the terms
relating to the exercise, cancellation or other disposition of
an option or SAR upon a termination of employment with or
service to the Company of the holder of such option or SAR, as
the case may be, whether by reason of disability, retirement,
death or other termination, shall be determined by the
Committee. Such determination shall be made at the time of the
grant of such option or SAR, as the case may be, and shall be
specified in the Agreement relating to such option or SAR.

     
2.4 Substitute Awards. In the event
of a Spin-Off, the Committee shall be authorized to grant
substitute options (“Substitute Options”) to purchase
Common Stock, in accordance with the terms hereof, to holders

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of options to acquire common stock of TSC
(“TSC Options”). The number of shares of Common Stock
subject to Substitute Options shall be determined as follows:

		
	 	     
    (a) eLoyalty Employees and Directors.
    A Substitute Option shall be granted to each holder of a TSC
    Option who, immediately after the Spin-Off, is an employee or
    director of the Company (but who is not also a director of TSC).
    The number of shares of Common Stock subject to such Substitute
    Option shall be determined by multiplying the number of shares
    subject to the TSC Option to which such Substitute Option
    relates by a ratio, the numerator of which is the trading price
    of a share of TSC common stock, traded “regular way,”
    and the denominator of which is the trading price of a share of
    Common Stock, traded on a “when-issued” basis, in each
    case over a fixed period of time determined by the Committee on
    or around the record date of the Spin-Off.
    
	 
	 	     
    (b) Other TSC Option Holders. A
    Substitute Option shall be granted to each holder of a
    nonqualified TSC Option granted prior to June 22, 1999 who,
    immediately after the Spin-Off, is either (i) an employee
    or director of TSC or (ii) an employee or director of
    neither TSC nor the Company. The number of shares of Common
    Stock subject to such Substitute Option shall equal the number
    of shares of Common Stock that would be distributed in the
    Spin-Off with respect to a number of shares of TSC common stock
    equal to the number of shares subject to the TSC Option to which
    such Substitute Option relates immediately prior to the Spin-Off.
    

     
The Committee shall determine the exercise price
of each Substitute Option in a manner that preserves the
economic value of the TSC Option to which such Substitute Option
relates. The terms and conditions of each Substitute Option,
including, without limitation, the expiration date of the
option, the time or times when, and the manner in which, such
Substitute Option shall be exercisable, the duration of the
exercise period, the method of exercise, settlement and payment,
and, subject to Section 1.4, the rules in the event of
termination of employment, shall be the same as those of the TSC
Option to which the Substitute Option relates.

     
Pursuant to its authority provided under this
Section, the Committee granted a total of 738,756 shares of
Substitute Options in connection with the spin-off of eLoyalty
from TSC on February 15, 2000.

III. STOCK AWARDS

     
3.1 Stock Awards. The Committee may,
in its discretion, grant Stock Awards to such eligible persons
as may be selected by the Committee. The Agreement relating to a
Stock Award shall specify whether the Stock Award is a
Restricted Stock Award or Bonus Stock Award.

     
3.2 Terms of Stock Awards. Stock
Awards shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall
deem advisable.

		
	 	     
    (a) Number of Shares and Other Terms.
    The number of shares of Common Stock subject to a Restricted
    Stock Award or Bonus Stock Award and the Performance Measures
    (if any) and Restriction Period applicable to a Restricted Stock
    Award shall be determined by the Committee.
    
	 
	 	     
    (b) Vesting and Forfeiture. The
    Agreement relating to a Restricted Stock Award shall provide, in
    the manner determined by the Committee, in its discretion, and
    subject to the provisions of this Plan, for the vesting of the
    shares of Common Stock subject to such award (i) if
    specified Performance Measures are satisfied or met during the
    specified Restriction Period or (ii) if the holder of such
    award remains continuously in the employment of or service to
    the Company during the specified Restriction Period and for the
    forfeiture of the shares of Common Stock subject to such award
    (x) if specified Performance Measures are not satisfied or
    met during the specified Restriction Period or (y) if the
    holder of such award does not remain continuously in the
    employment of or service to the Company during the specified
    Restriction Period.
    

     
Bonus Stock Awards shall not be subject to any
Performance Measures or Restriction Periods.

7

 

		
	 	     
    (c) Share Certificates. During the
    Restriction Period, a certificate or certificates representing a
    Restricted Stock Award may be registered in the holder’s
    name and may bear a legend, in addition to any legend which may
    be required pursuant to Section 6.6, indicating that the
    ownership of the shares of Common Stock represented by such
    certificate is subject to the restrictions, terms and conditions
    of this Plan and the Agreement relating to the Restricted Stock
    Award. All such certificates shall be deposited with the
    Company, together with stock powers or other instruments of
    assignment (including a power of attorney), each endorsed in
    blank with a guarantee of signature if deemed necessary or
    appropriate by the Company, which would permit transfer to the
    Company of all or a portion of the shares of Common Stock
    subject to the Restricted Stock Award in the event such award is
    forfeited in whole or in part. Upon termination of any
    applicable Restriction Period (and the satisfaction or
    attainment of applicable Performance Measures), or upon the
    grant of a Bonus Stock Award, in each case subject to the
    Company’s right to require payment of any taxes in
    accordance with Section 6.5, a certificate or certificates
    evidencing ownership of the requisite number of shares of Common
    Stock shall be delivered to the holder of such award.
    
	 
	 	     
    (d) Rights with Respect to Restricted
    Stock Awards. Unless otherwise set forth in the Agreement
    relating to a Restricted Stock Award, and subject to the terms
    and conditions of a Restricted Stock Award, the holder of such
    award shall have all rights as a stockholder of the Company,
    including, but not limited to, voting rights, the right to
    receive dividends and the right to participate in any capital
    adjustment applicable to all holders of Common Stock; provided,
    however, that a distribution with respect to shares of Common
    Stock, other than a regular cash dividend, shall be deposited
    with the Company and shall be subject to the same restrictions
    as the shares of Common Stock with respect to which such
    distribution was made.
    
	 
	 	     
    (e) Awards to Certain Executive
    Officers. Notwithstanding any other provision of this
    Article III, and only to the extent necessary to ensure the
    deductibility of the award to the Company, the Fair Market Value
    of the number of shares of Common Stock subject to a Stock Award
    granted to a “covered employee” within the meaning of
    Section 162(m) of the Code shall not exceed $250,000
    (i) at the time of grant in the case of a Stock Award
    granted upon the attainment of Performance Measures or
    (ii) in the case of a Restricted Stock Award with
    Performance Measures which shall be satisfied or met as a
    condition to the holder’s receipt of the shares of Common
    Stock subject to such award, on the earlier of (x) the date
    on which the Performance Measures are satisfied or met and
    (y) the date the holder makes an election under
    Section 83(b) of the Code.
    

     
3.3 Termination of Employment or
Service. All of the terms relating to the satisfaction of
Performance Measures and the termination of the Restriction
Period relating to a Restricted Stock Award, or any cancellation
or forfeiture of such Restricted Stock Award upon a termination
of employment with or service to the Company of the holder of
such Restricted Stock Award, whether by reason of disability,
retirement, death or other termination, shall be set forth in
the Agreement relating to such Restricted Stock Award.

IV. PERFORMANCE SHARE AWARDS

     
4.1 Performance Share Awards. The
Committee may, in its discretion, grant Performance Share Awards
to such eligible persons as may be selected by the Committee.

     
4.2 Terms of Performance Share
Awards. Performance Share Awards shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this
Plan, as the Committee shall deem advisable.

		
	 	     
    (a) Number of Performance Shares and
    Performance Measures. The number of Performance Shares
    subject to any award and the Performance Measures and
    Performance Period applicable to such award shall be determined
    by the Committee.
    
	 
	 	     
    (b) Vesting and Forfeiture. The
    Agreement relating to a Performance Share Award shall provide,
    in the manner determined by the Committee, in its discretion,
    and subject to the provisions of this Plan, for the vesting of
    such award, if specified Performance Measures are satisfied or
    met during the specified
    

8

 

		
	 	
    Performance Period, and for the forfeiture of
    such award, if specified Performance Measures are not satisfied
    or met during the specified Performance Period.
    
	 
	 	     
    (c) Settlement of Vested Performance
    Share Awards. The Agreement relating to a Performance Share
    Award (i) shall specify whether such award may be settled
    in shares of Common Stock (including shares of Restricted Stock)
    or cash or a combination thereof and (ii) may specify
    whether the holder thereof shall be entitled to receive, on a
    current or deferred basis, dividend equivalents, and, if
    determined by the Committee, interest on or the deemed
    reinvestment of any deferred dividend equivalents, with respect
    to the number of shares of Common Stock subject to such award.
    If a Performance Share Award is settled in shares of Restricted
    Stock, a certificate or certificates representing such
    Restricted Stock shall be issued in accordance with
    Section 3.2(c) and the holder of such Restricted Stock
    shall have such rights of a stockholder of the Company as
    determined pursuant to Section 3.2(d). Prior to the
    settlement of a Performance Share Award in shares of Common
    Stock, including Restricted Stock, the holder of such award
    shall have no rights as a stockholder of the Company with
    respect to the shares of Common Stock subject to such award and
    shall have rights as a stockholder of the Company in accordance
    with Section 6.10.
    

     
4.3 Termination of Employment or
Service. All of the terms relating to the satisfaction of
Performance Measures and the termination of the Performance
Period relating to a Performance Share Award, or any
cancellation or forfeiture of such Performance Share Award upon
a termination of employment with the Company of the holder of
such Performance Share Award, whether by reason of disability,
retirement, death or other termination, shall be set forth in
the Agreement relating to such Performance Share Award.

V. PROVISIONS RELATING TO NON-EMPLOYEE
DIRECTORS

     
5.1 Eligibility. Each
Non-Employee Director shall be granted options to purchase
shares of Common Stock in accordance with this Article V.
All options granted under this Article V (“Automatic
Non-Employee Director’s Options”) shall constitute
Non-Statutory Stock Options. Notwithstanding anything to the
contrary herein, any Non-Employee Director who was granted an
option pursuant to Section 2.1 hereof on or around
July 1, 1999 shall not be eligible to receive Automatic
Non-Employee Director’s Options hereunder.

     
5.2 Grants of Stock
Options. Except as provided otherwise in
Section 5.1, each Non-Employee Director shall be granted
Automatic Non-Employee Director’s Options as follows:

		
	 	     
    (a) Automatic Initial Grant of
    Options. Each person who becomes a Non-Employee
    Director shall be automatically awarded and issued on the date
    of his or her first election to the Board, without further
    action of the Board or the Committee, an Automatic Non-Employee
    Director’s Option to purchase 5,000 shares of Common Stock.
    An option described in this Section 5.2(a) shall
    hereinafter be referred to as an “Initial Grant.”
    
	 
	 	     
    (b) Automatic Annual Grant of
    Options. On the day immediately following the date of
    each annual meeting of stockholders of the Company (the
    “Current Annual Meeting”), beginning with the annual
    meeting that occurs in 2000, each Non-Employee Director (other
    than a Non-Employee Director who received an Initial Grant at
    the Current Annual Meeting) shall be automatically awarded and
    issued on such date, without further action of the Board or the
    Committee, an Automatic Non-Employee Director’s Option to
    purchase 1,200 shares of Common Stock (an “Annual
    Grant”); provided that in the case of an Annual Grant to a
    Non-Employee Director who received an Initial Grant within the
    twelve-month period ending on the date of the Current Annual
    Meeting, the number of shares subject to such Annual Grant shall
    be 1,200 multiplied by a fraction, the numerator of which is the
    number of days in the period beginning on the day after the date
    of such Initial Grant and ending on the day of the Current
    Annual Meeting, and the denominator of which is 365.
    
	 
	 	     
    (c) Option Price. The purchase
    price per share of Common Stock subject to each Automatic
    Non-Employee Director’s Option shall be 100 percent of
    the Fair Market Value of a share of Common Stock on the date
    such option is automatically granted.
    

9

 

		
	 	     
    (d) Exercisability. Except as
    otherwise provided herein, each Automatic Non-Employee
    Director’s Option shall not be exercisable until the last
    day of the calendar month following the calendar month in which
    such option is granted (the “Initial Date of
    Exercisability”). Each Initial Grant shall become
    exercisable incrementally on its Initial Date of Exercisability
    and on the last day of each of the next 47 calendar months
    following the Initial Date of Exercisability with respect to
    1/48 of the shares of Common Stock subject to the Initial Grant
    on the date of its grant. Each Annual Grant shall become
    exercisable incrementally on its Initial Date of Exercisability
    and on the last day of each of the next 11 calendar months
    following the Initial Date of Exercisability with respect to
    one-twelfth of the shares of Common Stock subject to such Annual
    Grant on the date of its grant. An exercisable option, or
    portion thereof, may be exercised in whole or in part only with
    respect to whole shares of Common Stock. Automatic Non-Employee
    Director’s Options shall be exercisable in accordance with
    Section 2.1(c).
    
	 
	 	     
    (e) Options Granted Prior to Reference
    Date. Notwithstanding Section 5.2(d), no option
    granted prior to the Reference Date pursuant to this
    Article V shall be exercisable until the Reference Date, at
    which time such option shall become exercisable for the same
    number of shares for which such option would have been
    exercisable under Section 5.2(d) as of the Reference Date.
    Such option shall thereafter continue to become exercisable in
    accordance with Section 5.2(d). The number of shares of
    Common Stock subject to each such option, and the exercise price
    thereof, shall be adjusted in accordance with the Agreement
    setting forth the terms of such option.
    

     
5.3 Option Period and Termination of
Directorship.

     
(a) Term and Termination of
Option. The maximum term of each Automatic Non-Employee
Director’s Option shall be the date which is 10 years
after the date on which it was granted (the “Expiration
Date”). Each Automatic Non-Employee Director’s Option
shall terminate, to the extent not exercised or earlier
terminated pursuant to the terms of this Article V, on its
Expiration Date. In no event may an Automatic Non-Employee
Director’s Option be exercised, in whole or in part, after
it terminates.

     
(b) Termination of Directorship Other
than by Death, Disability or Retirement. If the holder
of an Automatic Non-Employee Director’s Option ceases to be
a director of the Company for any reason other than death,
Disability, or Retirement, the option shall remain exercisable
with respect to the number of shares subject to such option that
are exercisable upon the effective date of such holder’s
ceasing to be a director and may thereafter be exercised for a
period of five years from the effective date of such
holder’s ceasing to be a director or until the Expiration
Date, whichever period is shorter, after which the Automatic
Non-Employee Director’s Option shall terminate in its
entirety.

     
(c) Death. If the holder of an
Automatic Non-Employee Director’s Option ceases to be a
director of the Company by reason of death, the option shall
become exercisable as of the date of death with respect to any
or all of the shares subject to such option and may thereafter
be exercised for a period of one year from the date of death or
until the Expiration Date, whichever period is shorter, after
which the Automatic Non-Employee Director’s Option shall
terminate in its entirety.

     
(d) Disability. If the holder of
an Automatic Non-Employee Director’s Option ceases to be a
director of the Company by reason of Disability, the option
shall become exercisable as of the effective date of such
holder’s ceasing to be a director with respect to any or
all of the shares subject to such option and may thereafter be
exercised for a period of five years from the effective date of
such holder’s ceasing to be a director or until the
Expiration Date, whichever period is shorter, after which the
Automatic Non-Employee Director’s Option shall terminate in
its entirety. For purposes of this Article V,
“Disability” shall mean the inability of an individual
to fully perform the duties of a director of the Company for a
continuous period in excess of 360 days, as determined by the
Board in its sole discretion.

     
(e) Retirement. If the holder of
an Automatic Non-Employee Director’s Option ceases to be a
director of the Company by reason of retirement after such
holder has completed five years of service as a director of the
Company and is at least 55 years of age
(“Retirement”), the option shall remain exercisable
with respect to the number of shares subject to such option that
are exercisable upon the effective date of such Retirement, and
may thereafter be exercised for a period of five years from the
effective date of such Retirement or until

10

 

the Expiration Date, whichever period is shorter,
after which the Automatic Non-Employee Director’s Option
shall terminate in its entirety.

     
(f) Death After Termination of
Directorship. If the holder of an Automatic
Non-Employee Director’s Option dies after he or she has
ceased to be a director of the Company, the option shall be
exercisable only to the extent that it is exercisable on the
date of such holder’s death and may thereafter be exercised
only for that period of time for which the option is exercisable
immediately prior to the holder’s death pursuant to
Sections 5.3(b) through (e).

VI. GENERAL

     
6.1 Effective Date and Term of
Plan. This Plan was initially adopted by the Board of
Directors and approved by the stockholders on June 22, 1999
(the “Effective Date”). This Plan shall terminate ten
years after its Effective Date, unless terminated earlier by the
Board. Termination of this Plan shall not affect the terms or
conditions of any award granted prior to termination.

     
6.2 Amendments. The Board may
amend this Plan as it shall deem advisable, subject to any
requirement of stockholder approval required by applicable law,
rule or regulation, including Section 162(m) and
Section 422 of the Code; provided, however, that no
amendment shall be made without stockholder approval if such
amendment would (a) increase the maximum number of shares
of Common Stock available under this Plan (subject to
Section 6.7), (b) effect any change inconsistent with
Section 422 of the Code or (c) extend the term of this
Plan. No amendment may impair the rights of a holder of an
outstanding award without the consent of such holder.

     
6.3 Agreement. Each award under
this Plan shall be evidenced by an Agreement setting forth the
terms and conditions applicable to such award. A copy of such
document shall be provided to the recipient, and the Committee
may, but need not, require that the recipient sign a copy of
such document. Such document is referred to in the Plan as an
“Agreement” regardless of whether any recipient
signature is required.

     
6.4 Non-Transferability of
Awards. Unless otherwise specified in the Agreement
relating to an award, no award shall be transferable other than
by will, the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company.
Except to the extent permitted by the first sentence of this
Section 6.4, or the Agreement relating to an award, each
award may be exercised or settled during the holder’s
lifetime only by the holder or the holder’s legal
representative or similar person. Except to the extent permitted
by the first sentence of this Section 6.4 or the Agreement
relating to an award, no award may be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise
disposed of (whether by operation of law or otherwise) or be
subject to execution, attachment or similar process. Upon any
attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise dispose of any such award, other than as
permitted by the first sentence of this Section 6.4 or the
Agreement relating to an award, such award and all rights
thereunder shall immediately become null and void.

     
6.5 Tax Withholding. The Company
shall have the right to require, prior to the issuance or
delivery of any shares of Common Stock or the payment of any
cash pursuant to an award made hereunder, payment by the holder
of such award of any Federal, state, local or other taxes which
may be required to be withheld or paid in connection with such
award. An Agreement may provide that (i) the Company shall
withhold whole shares of Common Stock which would otherwise be
delivered to a holder, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay
taxes arises in connection with an award (the “Tax
Date”), or withhold an amount of cash which would otherwise
be payable to a holder, in the minimum amount necessary to
satisfy any such obligation or (ii) the holder may satisfy
any such obligation by any of the following means: (A) a
cash payment to the Company, (B) delivery to the Company of
Mature Shares having an aggregate Fair Market Value, determined
as of the Tax Date, equal to the amount necessary to satisfy any
such obligation, (C) authorizing the Company to withhold
whole shares of Common Stock which would otherwise be delivered
having an aggregate Fair Market Value, determined as of the Tax
Date, or withhold an amount of cash which would otherwise be
payable to a holder, equal to the minimum amount necessary to
satisfy any such obligation, (D) in the case of the
exercise of any option, a cash payment by a

11

 

broker-dealer acceptable to the Company to whom
the optionee has submitted an irrevocable notice of exercise or
(E) any combination of (A), (B), and (C), in each case to
the extent set forth in the Agreement relating to the award;
provided, however, that the Company shall have sole discretion
to disapprove of an election pursuant to any of
clauses (B) – (E) and that in the case of a
holder who is subject to Section 16 of the Exchange Act,
the Company may require that the method of satisfying such an
obligation be in compliance with Section 16 and the rules
and regulations thereunder. Any fraction of a share of Common
Stock which would be required to satisfy such an obligation
shall be disregarded and the remaining amount due shall be paid
in cash by the holder.

     
6.6 Restrictions on Shares. Each
award made hereunder shall be subject to the requirement that if
at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock
subject to such award upon any securities exchange or under any
law, or the consent or approval of any governmental body, or the
taking of any other action is necessary or desirable as a
condition of, or in connection with, the delivery of shares
thereunder, such shares shall not be delivered unless such
listing, registration, qualification, consent, approval or other
action shall have been effected or obtained, free of any
conditions not acceptable to the Company. The Company may
require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend
indicating that the sale, transfer or other disposition thereof
by the holder is prohibited except in compliance with the
Securities Act of 1933, as amended, and the rules and
regulations thereunder.

     
6.7 Adjustment. In the event of
any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of
shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of
Common Stock other than a regular cash dividend, the number and
class of securities available under this Plan, the number and
class of securities subject to each outstanding option and the
purchase price per security, the number of securities subject to
each option to be granted to Non-Employee Directors pursuant to
Article V, the terms of each outstanding SAR, the number
and class of securities subject to each outstanding Stock Award,
and the terms of each outstanding Performance Share Award shall
be appropriately adjusted by the Committee. The decision of the
Committee regarding any such adjustment shall be final, binding
and conclusive. If any such adjustment would result in a
fractional security being (a) available under this Plan,
such fractional security shall be disregarded, or
(b) subject to an award under this Plan, the Company shall
pay the holder of such award, in connection with the first
vesting, exercise or settlement of such award in whole or in
part occurring after such adjustment, an amount in cash
determined by multiplying (i) the fraction of such security
(rounded to the nearest hundredth) by (ii) the excess, if
any, of (A) the Fair Market Value on the vesting, exercise
or settlement date over (B) the exercise or base price, if
any, of such award.

     
6.8 Change in Control.

     
(a) (1) Notwithstanding any provision
in this Plan or any Agreement, in the event of a Change in
Control, the Board may, but shall not be required to, make such
adjustments to outstanding awards hereunder as it deems
appropriate, including, without limitation, electing that each
outstanding award shall be surrendered to the Company by the
holder thereof, and that each such award shall immediately be
cancelled by the Company, and that the holder shall receive,
within a specified period of time from the occurrence of the
Change in Control, a cash payment from the Company in an amount
equal to:

		
	 	     
    (i) in the case of an option, the number of
    shares of Common Stock then subject to such option, multiplied
    by the excess, if any, of the greater of (A) the highest
    per share price offered to stockholders of the Company in any
    transaction whereby the Change in Control takes place or
    (B) the Fair Market Value of a share of Common Stock on the
    date of occurrence of the Change in Control, over the purchase
    price per share of Common Stock subject to the option,
    
	 
	 	     
    (ii) in the case of a Free-Standing SAR, the
    number of shares of Common Stock then subject to such SAR,
    multiplied by the excess, if any, of the greater of (A) the
    highest per share price offered to stockholders of the Company
    in any transaction whereby the Change in Control takes place or
    (B) the Fair Market Value of a share of Common Stock on the
    date of occurrence of the Change in Control, over the base price
    of the SAR, and
    

12

 

		
	 	     
    (iii) in the case of a Restricted Stock
    Award or Performance Award, the number of shares of Common Stock
    or the number of Performance Shares, as the case may be, then
    subject to such award, multiplied by the greater of (A) the
    highest per share price offered to stockholders of the Company
    in any transaction whereby the Change in the Control takes place
    or (B) the Fair Market Value of a share of Common Stock on
    the date of occurrence of the Change in Control.
    

     
In the event of a Change in Control in which
options are cancelled, each Tandem SAR related to a cancelled
option shall be surrendered by the holder thereof and shall be
cancelled simultaneously with the cancellation of the related
option. The Company may, but is not required to, cooperate with
any person who is subject to Section 16 of the Exchange Act
to assure that any cash payment in accordance with the foregoing
to such person is made in compliance with Section 16 and the
rules and regulations thereunder.

     
In the event of a Change in Control, the Board
may, but shall not be required to, substitute for each share of
Common Stock available under this Plan, whether or not then
subject to an outstanding award, the number and class of shares
into which each outstanding share of Common Stock shall be
converted pursuant to such Change in Control. In the event of
any such substitution, the purchase price per share in the case
of an option and the base price in the case of an SAR shall be
appropriately adjusted by the Committee.

     
(b) Prior to the consummation of a Spin-Off,
“Change in Control” shall mean any event, other than a
Spin-Off, after which TSC is the beneficial owner of less than a
majority of the Outstanding Voting Securities. After the
consummation of a Spin-Off, “Change in Control” shall
mean one or more of the following events:

		
	 	     
    (1) the acquisition by any individual,
    entity or group (a “Person”), including any
    “person” within the meaning of Section 13(d)(3)
    or 14(d)(2) of the Exchange Act, of beneficial ownership within
    the meaning of Rule 13d-3 promulgated under the Exchange
    Act, of 25% or more of either (i) the then outstanding
    shares of common stock of the Company (the “Outstanding
    Common Stock”) or (ii) the combined voting power of
    the then outstanding securities of the Company entitled to vote
    generally in the election of directors (the “Outstanding
    Voting Securities”); excluding, however, the following:
    (A) any acquisition directly from the Company (excluding
    any acquisition resulting from the exercise of an exercise,
    conversion or exchange privilege unless the security being so
    exercised, converted or exchanged was acquired directly from the
    Company), (B) any acquisition by the Company, (C) any
    acquisition by an employee benefit plan (or related trust)
    sponsored or maintained by the Company or any corporation
    controlled by the Company or (D) any acquisition by a
    corporation pursuant to a transaction which complies with
    clauses (i), (ii) and (iii) of subsection (3) of this
    Section 6.8(b); provided further, that for purposes of
    clause (B), if any Person (other than the Company or any
    employee benefit plan (or related trust) sponsored or maintained
    by the Company or any corporation controlled by the Company)
    shall become the beneficial owner of 25% or more of the
    Outstanding Common Stock or 25% or more of the Outstanding
    Voting Securities by reason of an acquisition by the Company,
    and such Person shall, after such acquisition by the Company,
    become the beneficial owner of any additional shares of the
    Outstanding Common Stock or any additional Outstanding Voting
    Securities and such beneficial ownership is publicly announced,
    such additional beneficial ownership shall constitute a Change
    in Control;
    
	 
	 	     
    (2) individuals who, as of the date of the
    Spin-Off constitute the Board (the “Incumbent Board”)
    cease for any reason to constitute at least a majority of such
    Board; provided that any individual who becomes a director of
    the Company subsequent to the date of the Spin-Off whose
    election, or nomination for election by the Company’s
    stockholders, was approved by the vote of at least a majority of
    the directors then comprising the Incumbent Board shall be
    deemed a member of the Incumbent Board; and provided further,
    that any individual who was initially elected as a director of
    the Company as a result of an actual or threatened election
    contest, as such terms are used in Rule 14a-11 of
    Regulation 14A promulgated under the Exchange Act, or any
    other actual or threatened solicitation of proxies or consents
    by or on behalf of any Person other than the Board shall not be
    deemed a member of the Incumbent Board;
    
	 
	 	     
    (3) the consummation of a reorganization,
    merger or consolidation of the Company or sale or other
    disposition of all or substantially all of the assets of the
    Company (a “Corporate Transaction”);
    

13

 

		
	 	
    excluding, however, a Corporate Transaction
    pursuant to which (i) all or substantially all of the
    individuals or entities who are the beneficial owners,
    respectively, of the Outstanding Common Stock and the
    Outstanding Voting Securities immediately prior to such
    Corporate Transaction will beneficially own, directly or
    indirectly, more than 60% of, respectively, the outstanding
    shares of common stock, and the combined voting power of the
    outstanding securities of such corporation entitled to vote
    generally in the election of directors, as the case may be, of
    the corporation resulting from such Corporate Transaction
    (including, without limitation, a corporation which as a result
    of such transaction owns the Company or all or substantially all
    of the Company’s assets either directly or indirectly) in
    substantially the same proportions relative to each other as
    their ownership, immediately prior to such Corporate
    Transaction, of the Outstanding Common Stock and the Outstanding
    Voting Securities, as the case may be, (ii) no Person
    (other than: the Company; any employee benefit plan (or related
    trust) sponsored or maintained by the Company or any corporation
    controlled by the Company; the corporation resulting from such
    Corporate Transaction; and any Person which beneficially owned,
    immediately prior to such Corporate Transaction, directly or
    indirectly, 25% or more of the Outstanding Common Stock or the
    Outstanding Voting Securities, as the case may be) will
    beneficially own, directly or indirectly, 25% or more of,
    respectively, the outstanding shares of common stock of the
    corporation resulting from such Corporate Transaction or the
    combined voting power of the outstanding securities of such
    corporation entitled to vote generally in the election of
    directors and (iii) individuals who were members of the
    Incumbent Board will constitute at least a majority of the
    members of the board of directors of the corporation resulting
    from such Corporate Transaction; or
    
	 
	 	     
    (4) the consummation of a plan of complete
    liquidation or dissolution of the Company.
    

     
(c) (1) With respect to any optionee
who is subject to Section 16 of the Exchange Act,
notwithstanding the exercise period contained in any Agreement
to which such optionee is a party and notwithstanding the
expiration date of the term of such option (other than an
Incentive Stock Option), in the event the Company is involved in
a business combination which is intended to be treated as a
pooling of interests for financial accounting purposes (a
“Pooling Transaction”) or pursuant to which such
optionee receives a substitute option to purchase securities of
any entity, including an entity directly or indirectly acquiring
the Company, then each option (or option in substitution
thereof) held by such optionee shall be exercisable to the
extent set forth in the Agreement evidencing such option until
and including the latest of (x) the expiration date of the
term of the option, (y) the date which is six months and
one day after the consummation of such business combination and
(z) the date which is ten business days after the date of
expiration of any period during which such optionee may not
dispose of a security issued in the Pooling Transaction in order
for the Pooling Transaction to be accounted for as a pooling of
interests; and

     
(2) With respect to any holder of an SAR
(other than an SAR which may be settled only for cash) who is
subject to Section 16 of the Exchange Act, notwithstanding
the exercise periods set forth in any Agreement to which such
holder is a party, and notwithstanding the expiration date of
the term of such SAR (other than a Tandem SAR which is related
to an Incentive Stock Option), in the event the Company is
involved in a Pooling Transaction or pursuant to which such
holder receives a substitute SAR relating to any entity,
including an entity directly or indirectly acquiring the
Company, then each such SAR (or SAR in substitution thereof)
held by such holder shall be exercisable to the extent set forth
in the Agreement evidencing such SAR until and including the
latest of (x) the expiration date of the term of such SAR,
(y) the date which is six months and one day after the
consummation of such business combination and (z) the date
which is ten business days after the date of expiration of any
period during which such holder many not dispose of a security
issued in the Pooling Transaction in order for the Pooling
Transaction to be accounted for as a pooling of interests.

     
6.9 No Right of Participation or
Employment. No person shall have any right to
participate in this Plan. Neither this Plan nor any award made
hereunder shall confer upon any person any right to continued
employment by the Company, TSC, or any of their subsidiaries or
affiliates or affect in any manner the right of the Company,
TSC, or any of their subsidiaries or affiliates to terminate the
employment of any person at any time without liability hereunder.

14

 

     
6.10 Rights as Stockholder. No
person shall have any right as a stockholder of the Company with
respect to any shares of Common Stock or other equity security
of the Company which is subject to an award hereunder unless and
until such person becomes a stockholder of record with respect
to such shares of Common Stock or equity security.

     
6.11 Governing Law. This Plan,
each award hereunder and the related Agreement, and all
determinations made and actions taken pursuant thereto, to the
extent not otherwise governed by the Code or the laws of the
United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving
effect to the principles of conflicts of laws.

15

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