Document:

Exhibit 10.14

 

STIFEL

NICOLAUS

 

June 1, 2007

 

PERSONAL AND CONFIDENTIAL

 

Mr. A. J. Piscitelli 

Chief Executive Officer 

American Defense Systems, Inc. 

230 Duffy Avenue 

Unit C 

Hicksville, NY 11801

 

Dear Mr. Piscitelli:

 

Reference is made to that
certain engagement letter agreement dated August 8, 2006 between Stifel,
Nicolaus & Company, Incorporated (“Stifel Nicolaus”) and American
Defense Systems, Inc. (the “Prior Agreement”). This letter agreement (this
“Agreement”) is intended to and shall supersede the Prior Agreement and, upon
execution of this Agreement, the Prior Agreement will terminate and be of no
further force and effect with the exception of Section II(F) and the
related Attachment A thereof which will survive such termination of the Prior
Agreement.

 

American Defense Systems, Inc.
(together with any present and future subsidiaries and affiliates of American
Defense Systems, Inc., the “Company”) hereby engages Stifel Nicolaus to
act as: (a) financial advisor and exclusive financing agent for the
Company in seeking, arranging, negotiating and generally advising with respect
to the placement, in one or a series of transactions, of equity and/or debt
securities (such transaction or transactions, the “Financing”) and (b) the
Company’s sole and exclusive agent in connection with a potential “Sale” (as
defined below) of the Company.

 

I.              Services of Stifel Nicolaus

 

With respect to a Financing,
Stifel Nicolaus will endeavor to obtain one or more commitments for the
Financing (individually a “Commitment” and collectively the “Commitments”) from
one or more financial institutions or other sources (the “Investors”). The
major terms of the Financing which Stifel Nicolaus will seek to obtain will be
deemed acceptable to the Company as evidenced by the Company’s acceptance of a
Commitment. With respect to a Sale, Stifel Nicolaus will assist the Company in:
(i) identifying opportunities for the Sale of the Company; (ii) advising
the Company concerning opportunities for such Sale, whether or not identified
by Stifel Nicolaus; and (iii) as requested by the Company, participating
on the Company’s behalf in negotiations concerning such Sale. During the term
of the Agreement, Stifel Nicolaus will perform or cause one or more of its
affiliates to perform, and the Company 

 

 

 

 

hereby
grants Stifel Nicolaus and its affiliates the exclusive right and authority to
perform, the following services:

 

1.             Assist the Company in the preparation of materials
(collectively, the “Documents”) that include select business and financial
information about the Company and a description of the proposed Financing
and/or Sale, as the case may be, with proposed terms and conditions, and other
relevant information as Investors or potential purchasers (“Purchasers”) may
request.

 

2.             Contact and seek to elicit interest from multiple
Investors or Purchasers to participate in the Financing or Sale, as the case
may be.

 

3.             Coordinate inquiries from and assist in the preparation
of additional Documents providing such information and analyses as may be
requested by Investors or Purchasers.

 

4.             Advise the Company as to the procedures to obtain
favorable Financing and/or consummate a Sale, and assist the Company in
evaluating and negotiating the terms and conditions of any Commitment or Sale.

 

5.             Assist the Company in closing a Financing or Sale.

 

II.            Representations, Warranties, Terms and Conditions

 

The Company hereby
represents and warrants to, and agrees with, Stifel Nicolaus as follows:

 

(A)          This Agreement has been duly
authorized and represents the legal, valid, binding and enforceable obligation
of the Company and that neither this Agreement nor the consummation of the
transactions contemplated hereby requires the approval or consent of any
governmental or regulatory agency or violates any law, regulation, contract or
order binding on the Company. The Company further represents and warrants that
the Company is in all respects qualified and authorized to accept the
Commitments being arranged by Stifel Nicolaus.

 

(B)           Stifel Nicolaus is hereby granted the
sole and exclusive right and authority to locate Financing sources, obtain
Commitments and contact Purchasers during the term of this Agreement. If the
Company accepts or otherwise enters into any Commitment or preliminary or
definitive agreement relating to a Sale during the term of this Agreement and
the Company closes the Financing under such Commitment or the Sale contemplated
by such agreement, whether or not such Financing, Commitment or Sale was
arranged through Stifel Nicolaus (although such closing may occur subsequent to
the expiration of this Agreement), the Company expressly agrees that Stifel
Nicolaus’ services have been fully performed as outlined herein, and the
Company shall pay Stifel Nicolaus compensation as outlined herein. In order that
the Company and Stifel Nicolaus can best 

 

 

 

 

coordinate efforts to consummate a transaction
satisfactory to the Company, the Company agrees that it will not initiate or
engage in discussions relating to a Financing or a Sale during the term of this
Agreement except through Stifel Nicolaus; provided, however, that this
provision shall not limit the Company’s ability to engage in preliminary
discussions with any potential Investor(s) or Purchaser(s) that
contact the Company directly regarding a Financing or Sale, respectively, so
long as the Company promptly directs any such Investor(s) or Purchaser(s) to
Stifel Nicolaus for any substantive discussions or negotiations regarding a
Financing or Sale, as the case may be, and for inclusion on the List (as defined
below).

 

(C)           Stifel Nicolaus and the Company shall
jointly develop and maintain a list (the “List”) of potential Investors or
Purchasers with whom either Stifel Nicolaus or the Company has had contact with
respect to (i) a Sale of the Company over the past five years and/or (ii) any
Financing during the term of this Agreement; provided, however, that Stifel
Nicolaus will be allowed to include on the List those potential Investors that
were previously contacted regarding a Financing during the term of the Prior
Agreement. In this regard, the Company shall present to Stifel Nicolaus the
names of all potential Investors and/or Purchasers with whom the Company has
had contact with respect to a Financing or a Sale during the term of this
Agreement or during the term of the Prior Agreement and all such parties shall
be included on the List.

 

(D)          The Company will furnish Stifel
Nicolaus with all information and material concerning the Company, the
Financing and the Sale which Stifel Nicolaus reasonably requests in connection
with the performance of its obligations hereunder. The Company represents and
warrants, to the best of its knowledge after due inquiry, that all information
made available to Stifel Nicolaus by the Company or contained in the Documents
will, at all times during the period of the engagement of Stifel Nicolaus
hereunder, be complete and correct in all material respects and will not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in light
of the circumstances under which such statements are made. The Company further
represents and warrants that any projections provided to Stifel Nicolaus or
contained in the Documents will have been prepared in good faith and will be
based upon assumptions which, in light of the circumstances under which they
are made, are reasonable. The Company acknowledges and agrees that in rendering
its services hereunder, Stifel Nicolaus will be using and relying upon, without
any independent investigation or verification thereof, all information that is
or will be furnished to Stifel Nicolaus by or on behalf of the Company and on
publicly available information, and Stifel Nicolaus will not in any respect be
responsible for the accuracy or completeness of any of the foregoing kinds of
information, and that Stifel Nicolaus will not undertake to make an independent
appraisal of any of the assets of the Company. The Company understands that in
rendering services hereunder Stifel Nicolaus does not provide accounting, legal
or tax advice and will rely upon the advice of counsel to the Company and other
advisors to the Company as to 

 

 

 

accounting, legal, tax and other matters relating to a
Financing, a Sale or any other transaction contemplated by this Agreement.

 

(E)           In connection with engagements of the
nature covered by this Agreement, it is Stifel Nicolaus’ practice to provide
for indemnification, contribution, and limitation of liability. By signing this
Agreement, the Company agrees to the provisions attached to this Agreement
(Attachment A), which provisions are expressly incorporated by reference
herein.

 

(F)           The Company shall make or cause to be
made state “blue sky” applications in such states and jurisdictions as shall be
required by law in connection with the Financing. It shall be the Company’s
obligation to bear all blue sky counsel fees and expenses.

 

(G)           It is understood that the offer and
sale of the securities sold in the Financing (the “Securities”) will be exempt
from the registration requirements of the Securities Act of 1933, as amended
(the “Act”), pursuant to Section 4(2) thereof. The Company will not,
directly or indirectly, make any offer or sale of Securities or of securities
of the same or a similar class as the Securities if as a result the offer and
sale of Securities contemplated hereby would fail to be entitled to the
exemption from the registration requirements of the Act provided for in such Section 4(2).
The Company represents and warrants that it has not, directly or indirectly,
made any offers or sales of the Securities or securities of the same or similar
class as the Securities during the six month period ending on the date of this
letter, and has no intention of making an offer or sale of the Securities or
securities of the same or similar class as the Securities for a period of six
months after completion of the private placement contemplated hereby. As used
herein, the terms “offer” and “sale” have the meanings specified in Section 2(3) of
the Act.

 

(H)          In
connection with all offers and sales of the Securities the Company will:

 

(a)           not offer or sell the Securities by
means of any form of general solicitation or general advertising. The Company
will not at any time during the term of this engagement, or for a period of six
months following completion of the placement of Securities contemplated hereby,
make any reference publicly to the transactions contemplated hereby, by way of
the issuance of a press release, the placement of an advertisement or otherwise,
without the prior written consent of Stifel Nicolaus;

 

(b)           not offer or sell the Securities to
any person who is not an “accredited investor” as defined in Rule 501
under the Act; and

 

(c)           exercise reasonable care to ensure
that the purchasers of the Securities are not underwriters within the meaning
of Section 2(11) of the Act.

 

 

 

I.              For the purposes of this Agreement:

 

 

(a)           A “Sale” of the Company shall mean
any transaction or series or combination of related transactions, other than in
the ordinary course of trade or business, whereby, directly or indirectly,
control of the Company or all or substantially all of its businesses (a
“Business”) or assets is transferred for Consideration, including, without
limitation, a sale or exchange of capital stock or assets, a lease of assets
with or without a purchase option, a merger or consolidation, a
recapitalization, a tender or exchange offer, a leveraged buy-out, or any
similar transaction. For purposes of the foregoing, “control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and business of the Company, whether through the
ownership of voting securities, by contract or otherwise.

 

(b)           Except as provided in subsection (c) below,
“Consideration” shall mean the full transaction value of any Sale of the
Company including, without limitation, the total value of all cash (including
any escrowed funds), securities, other property and any contingent, earned or
other consideration paid or payable, directly or indirectly, by an acquiring
party to a selling party or to a participant in the transaction in connection
with a Sale of the Company. The value of any such securities (whether debt or
equity) or other property or items of value shall be determined as follows: (i) the
value of securities that are freely tradeable in an established public market
shall be the 10 trading day trailing average of the closing market price of
such securities prior to the public announcement of the Sale; (ii) the
value of securities which are not freely tradeable or which have no established
public market, or if the Consideration utilized consists of property other than
securities, the value of such securities or other property shall be the fair
market value thereof (without any discount for minority interest or
non-marketability); and (iii) the sum of the present value of all lease
payments. Consideration shall also include the face value of any indebtedness
(except to trade creditors) to which the Sale of the Company is subject or to
which the Company (or portion thereof) to be sold remains obligated, or
indebtedness that is assumed in connection therewith, the value of any
consulting, severance or employment agreements received by the principals of
the Company in excess of 120% of their historical salary levels, the value of
any termination or break-up fees received by the Company, and the value of any
payments to be received by the principals of the Company for entering into
non-compete, no-shop, standstill or similar agreements. In the case of a
recapitalization, Consideration shall include the aggregate amount of
indebtedness incurred or equity raised by the Company or a successor thereof in
connection with such recapitalization. If a Sale of the Company is structured such
that it involves a direct or indirect transfer of more than half of the
outstanding equity interests in the Company, the Consideration involved in that
transaction shall be deemed increased to include the value of any equity
interests in the Company that are not transferred in the

 

 

transaction by the owners thereof, with such value
calculated at the price or implied price per share paid for or with respect to
interests of the same class in the transaction (without any discount for
minority interest or for non-marketability). If any Consideration to be paid is
computed in a foreign currency, the value of such foreign currency shall, for
purposes hereof, be converted into U.S. Dollars at the prevailing exchange rate
on the date or dates on which such Consideration is paid.

 

(c)           If the Sale of the Company is
structured in such a way as to provide for the transfer of only part of the
assets of the Company or one or more of the Businesses of the Company and the
retention of other assets or Business(es), including, but not limited to, cash,
cash equivalents, investments, inventories and receivables, such retained
assets or Businesses shall be deemed to be part of the Consideration received
in connection with the Sale of the Company, as follows: (A) with respect
to investments, in an amount equal to the market value of such investments, (B) with
respect to inventories and receivables, in an amount equal to the book value
thereof, and (C) with respect to any other assets or Businesses, in an
amount to be reasonably determined by the parties.

 

III.           Compensation/Payment for Services Performed

 

In consideration for Stifel
Nicolaus’ services hereunder, the Company shall compensate Stifel Nicolaus as
follows:

 

(A)          The Company shall pay or cause Stifel
Nicolaus to be paid as follows:

 

(a)           In consideration of Stifel Nicolaus’
services pursuant to the Prior Agreement in connection with the Company’s
recently closed financing from Commerce Bank, a fee of $700,000, payable
immediately upon the execution of this Agreement provided that $400,000 of such
fee shall be credited against any  other
Placement Fee (as defined below) that may subsequently become payable pursuant
to subsection (b) below.

 

(b)           If a Financing occurs, or the Company
receives a Commitment in respect of such Financing, either:

 

(i)                                     during the term of Stifel Nicolaus’
engagement hereunder, regardless of whether the Investors in the Financing were
identified by Stifel Nicolaus or whether Stifel Nicolaus rendered advice
concerning the Financing, or

 

(ii)                                  at any time during a period of 12 months
following the effective date of termination of Stifel Nicolaus’ engagement
hereunder, and the Financing involves an Investor (or an affiliate of an
Investor) included (or which should have been included) on the List,

 

 

 

then, upon closing of the
Financing, Stifel Nicolaus will be entitled to and the Company shall pay to
Stifel Nicolaus a placement fee (the “Placement Fee”) equal to (x) 7.0%
percent (700 basis points) of the amount of the equity portion of the
Financing, plus (y) 5.5% (550 basis points) of the subordinated debt
portion of the Financing, plus (z) 2.0% (200 basis points) of the senior
debt portion of the Financing; provided, however, that in the event of a sale
or transfer of equity securities by an existing shareholder(s) of the
Company to a third party that does not constitute a Sale of the Company (a
“Shareholder Financing”), the applicable Placement Fee shall be 2.0% (200 basis
points) of the aggregate gross proceeds received by the selling Company
shareholder(s) in connection with such Shareholder Financing. The
Placement Fee is due and payable to Stifel Nicolaus on the date of the first
closing or funding of the Financing; no Placement Fee shall be due and payable
unless and until a closing occurs.

 

(c)           Warrants to purchase a number of
shares of the same equity security of the Company as is issued in any equity
Financing (or a security with substantially identical terms) such that the
aggregate fair market value, as determined in the Financing, of the securities
purchasable under the warrants equals the Placement Fee (the “Warrants”);
provided, however, that no Warrants shall be issued to Stifel Nicolaus solely
in connection with a Shareholder Financing. The Warrants shall be earned as of,
and shall be issued to Stifel Nicolaus or its designated affiliates on, the
date of the first closing of the Financing and shall be exercisable at a price
of 100% of the price per share as established in the Financing. The Warrants
shall be for a term of 7 years and shall have standard anti-dilution rights for
stock splits, stock dividends or other 
distributions, subdivisions or combinations of stock, and mergers,
acquisitions, consolidations or other corporate reorganizations (but not future
financings), cashless exercise (as described below), “piggyback” registration
rights and such other provisions as are customary for warrants of this nature.
The term “cashless exercise” as used herein means the right to either (i) exercise
by delivering to the Company that number of securities of the Company having an
aggregate market value equal to the aggregate exercise price for the number of
securities for which the Warrants are being exercised, or (ii) receive
from the Company in exchange for the Warrants a number of securities of the
class covered by the Warrants having an aggregate market value equal to the
difference between the aggregate market value and exercise price of the
securities covered by the Warrants.

 

(d)           If a Sale of the Company occurs, or
the parties to a Sale reach a preliminary understanding or definitive agreement
in respect of such Sale, either:

 

(i)                  during the term of Stifel Nicolaus’ engagement
hereunder, regardless of whether the party or parties to the Sale were
identified by Stifel Nicolaus or whether Stifel Nicolaus rendered advice
concerning the Sale, or

 

 

 

(ii)               at any time during a period of 12 months following the
effective date of termination of Stifel Nicolaus’ engagement hereunder, and the
Sale involves a party (or an affiliate of a party) included (or which should
have been included) on the List,

 

then, upon consummation of
the Sale, the Company shall pay to Stifel Nicolaus the greater of (X) $700,000
and (Y) the following percentages of the Consideration involved in the
Sale (the “Sale Fee”):

 

 

	
  Consideration

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  On the first $50
  million

  	
   

  	
  2.00

  	
  %

  
	
  Plus on the next $50
  million

  	
   

  	
  3.00

  	
  %

  
	
  Plus on the amount over
  $100 million

  	
   

  	
  4.00

  	
  %

  

 

Notwithstanding
the foregoing, any transaction in which securities of the Company are issued
shall constitute a Financing and not a Sale of the Company.

 

(e)           Notwithstanding anything herein to
the contrary, any Sale Fee attributable to that part of the Consideration
involved in the Sale which is contingent upon future earnings or other
financial performance or the occurrence of some other event or circumstance
(“Contingent Consideration”) shall be paid by the Company to Stifel Nicolaus
upon the receipt of such Contingent Consideration.

 

(f)            If either the Placement Fee or the
Sale Fee is not fully paid when due or the Warrants are not issued as provided
in subsection (c) above, the Company agrees to pay all costs of collection
or other enforcement of Stifel Nicolaus’ rights hereunder, including but not
limited to reasonable attorneys’ fees and expenses, whether collected or
enforced by suit or otherwise. The Placement Fee and the Sale Fee are not
negotiable and are not subject to any reduction, set-off, counterclaim or
refund for any reason or matter whatsoever.

 

(g)           The Company hereby grants Stifel
Nicolaus a right of first refusal to act as the Company’s lead book-running
managing underwriter in the event the Company retains or otherwise uses (or
seeks to retain or use) the services of an investment bank or similar financial
advisor or underwriter to pursue at any time during the term of this Agreement
or within 18 months after the expiration or termination of this Agreement, a
registered, underwritten public offering of securities. Nothing contained
herein, however, constitutes an obligation of Stifel Nicolaus to serve as lead
book-running managing underwriter or in any other similar capacity.

 

(B)           The Company understands that an
Investor providing the Financing may be interested in providing other financing
for the benefit of the Company. The Company

 

 

 

agrees to compensate Stifel Nicolaus in the same
manner and in the same percentage as the Placement Fee provided in Section III
(A) above of the amount of any financing from the Investor or any
affiliate of the Investor which, within 12 months from the expiration or
termination date of this Agreement, may be committed to or paid to the Company,
or to any other person or entity that currently is or hereafter may be owned by
or owning, or controlled by, controlling or under common control with the
Company.

 

(C)           In addition to the fees described in
Sections III(A) and III(B) above and the obligation of the Company to
pay certain expenses set forth in Section II(E) above, and whether or
not any Financing or Sale is consummated, the Company will pay all of Stifel
Nicolaus’ reasonable out-of-pocket expenses (including, without limitation,
expenses related to document and presentation materials, travel, external
database and communications services, courier and delivery services, and the
fees and expenses of its outside legal counsel) incurred in connection with
this engagement. Such out-of-pocket expenses shall be payable as they are
incurred upon request by Stifel Nicolaus.

 

IV.           Miscellaneous

 

(A)          The term of this engagement will
continue until the earlier of 12 months from the date hereof or until
terminated in the manner provided for in this Section. Either party may
terminate Stifel Nicolaus’ engagement hereunder at any time by giving the other
party at least 30 days’ prior written notice, provided, however, that the Company
may not terminate this Agreement prior to six months from the date hereof. The
provisions of Sections II(C), II(D) (other than the first sentence
thereof), II(E), II(G), II(H), III (A), III (B), III
(C), IV(C), IV(D), IV(E), IV(F), IV(G) and IV(H) hereof shall survive
any expiration or termination of this Agreement.

 

(B)           Stifel Nicolaus is being retained to
serve as financial advisor and financing agent solely to the Company, and it is
agreed that the engagement of Stifel Nicolaus is not, and shall not be deemed
to be, on behalf of, and is not intended to, and will not, confer rights or
benefits upon any shareholder or creditor of the Company or upon any other
person or entity. No one other than the Company is authorized to rely upon this
engagement of Stifel Nicolaus or any statements, conduct or advice of Stifel
Nicolaus, and no one other than the Company is intended to be a beneficiary of
this engagement. All opinions, advice or other assistance (whether written or
oral) given by Stifel Nicolaus in connection with this engagement are intended
solely for the benefit and use of the Company and will be treated by the
Company as confidential, and no opinion, advice or other assistance of Stifel
Nicolaus shall be used for any other purpose or reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor shall
any public or other references to Stifel Nicolaus (or to such opinions, advice
or other assistance) be made without the express prior written consent of
Stifel Nicolaus.

 

(C)           The Company agrees that, following
the closing or consummation of a Financing, Sale or other transaction, Stifel
Nicolaus has the right to place advertisements in financial and other
newspapers and journals at its own expense, describing its services

 

 

 

to the Company and a general description of the
subject Financing, Sale or other transaction, as the case may be.

 

(D)          The Company represents and warrants
that there are no brokers, representatives or other persons that have an
interest in any compensation due to Stifel Nicolaus from any transaction
contemplated herein.

 

(E)           The terms and provisions of this
Agreement are solely for the benefit of the Company and Stifel Nicolaus and the
other Indemnified Persons and their respective successors, assigns, heirs and
personal representatives, and no other person shall acquire or have any right
by virtue of this Agreement. The Company and Stifel Nicolaus acknowledge and
agree that Stifel Nicolaus is acting as an independent contractor, and is not a
fiduciary of, nor will its engagement hereunder give rise to fiduciary duties
to, theCompany. This Agreement represents the entire understanding between the
Company and Stifel Nicolaus with respect to the Financing and the Sale and
Stifel Nicolaus’ engagement hereunder, and all prior discussions are merged
herein including, without limitation, the Prior Agreement, with the exception
of Section II(F) and the related Attachment A thereof which will
survive termination of the Prior Agreement with respect to actions, omissions
or transactions prior to the date of this Agreement that may give rise to a
claim for indemnification or contribution pursuant to those provisions of the
Prior Agreement. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD TO SUCH
STATE’S PRINCIPLES OF CONFLICTS OF LAWS, AND MAY BE AMENDED, MODIFIED OR
SUPPLEMENTED ONLY BY WRITTEN INSTRUMENT EXECUTED BY EACH OF THE PARTIES HERETO.

 

(F)           It is understood that Stifel
Nicolaus’ obligation under this Agreement is to use its commercially reasonable
efforts throughout the period for which it acts as the Company’s exclusive
agent as described herein. Stifel Nicolaus’ engagement is not intended to
provide the Company or any other person or entity with any assurances that any
Financing, Sale or other transaction will be consummated, and in no event will
Stifel Nicolaus be obligated to purchase Securities for its own account or the
accounts of its customers.

 

(G)           The parties hereby submit to the
jurisdiction of and venue in the federal courts located in the City of
Baltimore, Maryland in connection with any dispute related to this Agreement,
any transaction contemplated hereby, or any other matter contemplated hereby.
If for any reason jurisdiction and/or venue is unavailable in such federal
courts, then the parties hereby submit to the jurisdiction of and venue in the
state courts located in such city in connection with any such dispute or
matter. In addition, the parties hereby waive any right to a trial by jury with
respect to any such dispute or matter.

 

 

 

If the foregoing correctly
sets forth the entire understanding and agreement between Stifel Nicolaus and
the Company, please so indicate in the space provided for that purpose below
and return an executed copy to us, whereupon this letter shall constitute a
binding agreement as of the date first above written.

 

	
   

  	
  STIFEL,
  NICOLAUS & COMPANY, INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/

  
	
   

  	
   

  	
  Daniel M. Cornell

  
	
   

  	
   

  	
  Managing Director

  

 

	
  AGREED:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AMERICAN DEFENSE SYSTEMS,
  INC.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/

  	
   

  
	
   

  	
  A. J. Piscitelli

  	
   

  
	
   

  	
  Chief Executive Officer

  	
   

  
					

 

 

 

ATTACHMENT A

 

STIFEL, NICOLAUS & COMPANY, INCORPORATED

INDEMNIFICATION, CONTRIBUTION AND

LIMITATION OF LIABILITY PROVISIONS

 

(a)                                  The Company
agrees to indemnify and hold harmless Stifel Nicolaus and its affiliates and
their respective officers, directors, employees and agents, and any persons
controlling Stifel Nicolaus or any of its affiliates within the meaning of Section 15
of the Securities Act of 1933 or Section 20 of the Securities Exchange Act
of 1934 (Stifel Nicolaus and each such other person or entity being referred to
herein as an “Indemnified Person”), from and against all claims, liabilities,
losses or damages (or actions in respect thereof) or other expenses which (A) are
related to or arise out of (i) actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
the Company or its affiliates or (ii) actions taken or omitted to be taken
by an Indemnified Person with the consent or in conformity with the actions or
omissions of the Company or its affiliates or (B) are otherwise related to
or arise out of Stifel Nicolaus’ activities on behalf of the Company. The
Company will not be responsible, however, for any losses, claims, damages,
liabilities or expenses pursuant to clause (B) of the preceding sentence
which are finally judicially determined to have resulted solely from such
Indemnified Person’s gross negligence or willful misconduct. In addition, the
Company agrees to reimburse each Indemnified Person for all out-of-pocket
expenses (including reasonable fees and expenses of counsel) as they are
incurred by such Indemnified Person in connection with investigating,
preparing, conducting or defending any such action or claim, whether or not in
connection with litigation in which any Indemnified Person is a named party, or
in connection with enforcing the rights of such Indemnified Person under this
Agreement.

 

(b)                                 If for any
reason the foregoing indemnity is unavailable to an Indemnified Person or
insufficient to hold an Indemnified Person harmless, then the Company shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such claim, liability, loss, damage or expense in such proportion as is
appropriate to reflect not only the relative benefits received by the Company
on the one hand and Stifel Nicolaus on the other, but also the relative fault
of the Company and Stifel Nicolaus, as well as any relevant equitable
considerations, subject to the limitation that in any event the aggregate
contribution of all Indemnified Persons to all losses, claims, liabilities,
damages and expenses shall not exceed the amount of fees actually received by
Stifel Nicolaus pursuant to this Agreement. It is hereby further agreed that
the relative benefits to the Company on the one hand and Stifel Nicolaus on the
other with respect to any transaction or proposed transaction contemplated by
this Agreement shall be deemed to be in the same proportion as (i) the
total value the transaction or proposed transaction bears to (ii) the fees
paid to Stifel Nicolaus with respect to such transaction.

 

(c)                                  No Indemnified
Person shall have any liability to the Company or any other person in
connection with the services rendered pursuant to this Agreement, except for
any liability 

 

 

 

                                                for losses,
claims, damages or liabilities finally judicially determined to have resulted
solely from such Indemnified Person’s gross negligence or willful misconduct.

 

(d)                                 The Company agrees
that it will not settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought from the Company by any Indemnified Person
(whether any Indemnified Person is an actual or potential party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of Indemnified Persons hereunder from all
liability arising out of such claim, action, suit or proceeding.

 

(e)                                  To the extent
officers or employees of Stifel Nicolaus appear as witnesses, are deposed, or
otherwise are involved in or assist with any action, hearing or proceeding
related to or arising from any transaction or proposed transaction contemplated
by this Agreement or Stifel Nicolaus’ engagement hereunder, or in a situation
where such appearance, involvement or assistance results from Stifel Nicolaus’
engagement hereunder, the Company will pay Stifel Nicolaus, in addition to the
fees set forth above, Stifel Nicolaus’ customary per diem charges. In addition,
if any Indemnified Person appears as a witness, is deposed or otherwise is
involved in any action relating to or arising from any transaction or proposed
transaction contemplated by this Agreement or Stifel Nicolaus’ engagement
hereunder, or in a situation where such appearance, involvement or assistance
results from Stifel Nicolaus’ engagement hereunder, the Company will reimburse
such Indemnified Person for all expenses (including reasonable fees and
expenses of counsel) incurred by it by reason of it or any of its personnel
being involved in any such action.

 

(f)                                    The Company
waives any right to a trial by jury with respect to any claim or action arising
out of this Agreement or the actions of Stifel Nicolaus, and consents to
personal jurisdiction, service of process and venue in any court in which any
claim covered by the provisions of this Attachment A may be brought against an
Indemnified Person.

 

(g)                                 The provisions
of this Attachment A shall be in addition to any liability the Company may have
to any Indemnified Person at common law or otherwise, and shall survive the
expiration or termination of this Agreement and the closing or consummation of
any transaction or proposed transaction contemplated by this Agreement.Exhibit
10.16

 

 

AMERICAN
DEFENSE SYSTEMS, INC.

2007
INCENTIVE COMPENSATION PLAN

 

 

 

AMERICAN
DEFENSE SYSTEMS, INC.

2007
INCENTIVE COMPENSATION PLAN

	
  1.

  	
  Purpose

  	
  1

  
	
  2.

  	
  Definitions

  	
  1

  
	
  3.

  	
  Administration.

  	
  6

  
	
  4.

  	
  Shares Subject to Plan.

  	
  7

  
	
  5.

  	
  Eligibility; Per-Person Award
  Limitations

  	
  8

  
	
  6.

  	
  Specific Terms of Awards.

  	
  8

  
	
  7.

  	
  Certain Provisions Applicable
  to Awards.

  	
  13

  
	
  8.

  	
  Code Section 162(m) Provisions.

  	
  15

  
	
  9.

  	
  Change in Control.

  	
  17

  
	
  10.

  	
  General Provisions.

  	
  19

  

 

 

 

AMERICAN
DEFENSE SYSTEMS, INC.

2007
INCENTIVE COMPENSATION PLAN

1.             Purpose.  The
purpose of this 2007 INCENTIVE COMPENSATION PLAN (the “Plan”) is to assist
AMERICAN DEFENSE SYSTEMS, INC., a Delaware corporation (the “Company”) and its
Related Entities (as hereinafter defined) in attracting, motivating, retaining
and rewarding high-quality executives and other employees, officers, directors,
consultants and other persons who provide services to the Company or its
Related Entities by enabling such persons to acquire or increase a proprietary
interest in the Company in order to strengthen the mutuality of interests
between such persons and the Company’s shareholders, and providing such persons
with performance incentives to expend their maximum efforts in the creation of
shareholder value.

2.             Definitions.  For purposes
of the Plan, the following terms shall be defined as set forth below, in
addition to such terms defined in Section 1 hereof and elsewhere herein.

(a)           “Award” means any Option, Stock
Appreciation Right, Restricted Stock Award, Deferred Stock Award, Share granted
as a bonus or in lieu of another Award, Dividend Equivalent, Other Stock-Based
Award or Performance Award, together with any other right or interest, granted
to a Participant under the Plan.

(b)           “Award Agreement” means any written
agreement, contract or other instrument or document evidencing any Award
granted by the Committee hereunder.

(c)           “Beneficiary” and “Beneficial
Ownership” means the person, persons, trust or trusts that have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under
the Plan upon such Participant’s death or to which Awards or other rights are
transferred if and to the extent permitted under Section 10(b) hereof.  If, upon a Participant’s death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.

(d)           “Beneficial Owner” shall have the
meaning ascribed to such term in Rule 13d-3 under the Exchange Act and
any successor to such Rule.

(e)           “Board” means the Company’s Board of
Directors.

(f)            “Cause” shall, with respect to any
Participant, have the meaning specified in the Award Agreement.  In the absence of any definition in the Award
Agreement, “Cause” shall have the equivalent meaning or the same meaning as “cause”
or “for cause” set forth in any employment, consulting, or other agreement for
the performance of services between the Participant and the Company or a
Related Entity or, in the absence of any such agreement or any such definition
in such agreement, such term shall mean (i) the failure by the Participant to
perform, in a reasonable manner, his or her duties as assigned by the Company
or a Related Entity, (ii) any violation or breach by the Participant of his or
her employment, consulting or other similar agreement with the Company or a
Related Entity, if any, (iii) any violation or

 

 

breach
by the Participant of any non-competition, non-solicitation, non-disclosure
and/or other similar agreement with the Company or a Related Entity, (iv) any
act by the Participant of dishonesty or bad faith with respect to the Company
or a Related Entity, (v) use of alcohol, drugs or other similar substances in a
manner that adversely affects the Participant’s work performance, or (vi) the
commission by the Participant of any act, misdemeanor, or crime reflecting
unfavorably upon the Participant or the Company or any Related Entity.  The good faith determination by the Committee
of whether the Participant’s Continuous Service was terminated by the Company
for “Cause” shall be final and binding for all purposes hereunder.

(g)           “Change in Control” means a Change in
Control as defined in Section 9(b) of the Plan.

(h)           “Code” means the Internal Revenue
Code of 1986, as amended from time to time, including regulations thereunder
and successor provisions and regulations thereto.

(i)            “Committee” means a committee
designated by the Board to administer the Plan; provided, however, that if the
Board fails to designate a committee or if there are no longer any members on
the committee so designated by the Board, then the Board shall serve as the
Committee. In
the event that the Company becomes a Publicly Held Corporation (as hereinafter
defined), then the Committee shall consist of at least two directors, and each
member of the Committee shall be (i) a “non-employee director” within the
meaning of  Rule 16b-3 (or any successor
rule) under the Exchange Act, unless administration of the Plan by “non-employee
directors” is not then required in order for exemptions under Rule 16b-3 to
apply to transactions under the Plan, (ii) an “outside director” within the
meaning of Section 162(m) of the Code, and (iii) “Independent”.

(j)            “Consultant” means any person (other
than an Employee or a Director, solely with respect to rendering services in
such person’s capacity as a director) who is engaged by the Company or any
Related Entity to render consulting or advisory services to the Company or such
Related Entity.

(k)           “Continuous Service” means the
uninterrupted provision of services to the Company or any Related Entity in any
capacity of Employee, Director, Consultant or other service provider.  Continuous Service shall not be considered to
be interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entities, or any successor entities, in any
capacity of Employee, Director, Consultant or other service provider, or (iii)
any change in status as long as the individual remains in the service of the
Company or a Related Entity in any capacity of Employee, Director, Consultant
or other service provider (except as otherwise provided in the Award
Agreement).  An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave.

(l)            “Deferred Stock” means a right to
receive Shares, including Restricted Stock, cash measured based upon the value
of Shares or a combination thereof, at the end of a specified deferral period.

(m)          “Deferred
Stock Award” means an Award of Deferred Stock granted to a
Participant under Section 6(e) hereof.

 

 

2

 

(n)           “Director” means a member of the Board
or the board of directors of any Related Entity.

(o)           “Disability” means a permanent and
total disability (within the meaning of Section 22(e) of the Code), as
determined by a medical doctor satisfactory to the Committee.

(p)           “Dividend Equivalent” means a right,
granted to a Participant under Section 6(g) hereof, to receive cash, Shares,
other Awards or other property equal in value to dividends paid with respect to
a specified number of Shares, or other periodic payments.

(q)           “Effective Date” means the effective
date of the Plan, which shall be                                    ,
2007.

(r)            “Eligible Person” means each officer,
Director, Employee, Consultant and other person who provides services to the
Company or any Related Entity.  The
foregoing notwithstanding, only employees of the Company, or any parent
corporation or subsidiary corporation of the Company (as those terms are
defined in Sections 424(e) and (f) of the Code, respectively), shall be
Eligible Persons for purposes of receiving any Incentive Stock Options.  An Employee on leave of absence may be
considered as still in the employ of the Company or a Related Entity for
purposes of eligibility for participation in the Plan.

(s)           “Employee” means any person,
including an officer or Director, who is an employee of the Company or any
Related Entity.  The payment of a
director’s fee by the Company or a Related Entity shall not be sufficient to
constitute “employment” by the Company.

(t)            “Exchange Act” means the Securities
Exchange Act of 1934, as amended from time to time, including rules thereunder
and successor provisions and rules thereto.

(u)           “Fair Market Value” means the fair
market value of Shares, Awards or other property as determined by the
Committee, or under procedures established by the Committee.  Unless otherwise determined by the Committee,
the Fair Market Value of a Share as of any given date after which the Company
is a Publicly Held Corporation shall be the closing sale price per Share
reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Shares are traded on the date immediately preceding
the date as of which such value is being determined or, if there is no sale on
that date, then on the last previous day on which a sale was reported.

(v)           “Good Reason” shall, with respect to
any Participant, have the meaning specified in the Award Agreement.  In the absence of any definition in the Award
Agreement, “Good Reason” shall have the equivalent meaning or the same meaning
as “good reason” or “for good reason” set forth in any employment, consulting
or other agreement for the performance of services between the Participant and
the Company or a Related Entity or, in the absence of any such agreement or any
such definition in such agreement, such term shall mean the occurrence
of any of the following: (i) a material diminution in the Participant’s base
compensation; (ii) a material diminution in the Participant’s authority,
duties, or responsibilities; (iii) a material change in the geographic location
at which the Participant must perform the services under this Agreement; or
(iv) any other action or inaction that constitutes a material breach by the
Company of any employment

 

3

agreement with the Participant.  For purposes of this Plan, Good Reason shall
not be deemed to exist unless the Participant’s termination of employment for
Good Reason occurs within 2 years following the initial existence of one of the
conditions specified in clauses (i) through (iv) above, the Participant
provides the Company with written notice of the existence of such condition
within 90 days after the initial existence of the condition, and the Company
fails to remedy the condition within 30 days after its receipt of such notice.

(w)          “Incentive
Stock Option” means any Option intended to be designated as an
incentive stock option within the meaning of Section 422 of the Code or any
successor provision thereto.

(x)            “Independent”, when referring to
either the Board or members of the Committee, shall have the same meaning as
used in the rules of the Nasdaq Stock Market or any national securities
exchange on which any securities of the Company are listed for trading, and if
not listed for trading, by the rules of the Nasdaq Stock Market.

(y)           “Incumbent Board” means the Incumbent
Board as defined in Section 9(b)(ii) of the Plan.

(z)            “Option” means a right granted to a
Participant under Section 6(b) hereof, to purchase Shares or other Awards at a
specified price during specified time periods.

(aa)         “Optionee”
means a person to whom an Option is granted under this Plan or any person who
succeeds to the rights of such person under this Plan.

(bb)         “Other
Stock-Based Awards” means Awards granted to a Participant under
Section 6(i) hereof.

(cc)         “Participant”
means a person who has been granted an Award under the Plan which remains
outstanding, including a person who is no longer an Eligible Person.

(dd)         “Performance
Award” shall mean any Award of Performance Shares or Performance
Units granted pursuant to Section 6(h).

(ee)         “Performance
Period” means that period established by the Committee at the
time any Performance Award is granted or at any time thereafter during which
any performance goals specified by the Committee with respect to such Award are
to be measured.

(ff)           “Performance Share” means any grant
pursuant to Section 6(h) of a unit valued by reference to a designated number
of Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including cash, Shares, other
property, or any combination thereof, upon achievement of such performance
goals during the Performance Period as the Committee shall establish at the
time of such grant or thereafter.

(gg)         “Performance
Unit” means any grant pursuant to Section 6(h) of a unit valued
by reference to a designated amount of property (including cash) other than
Shares, which value may be paid to the Participant by delivery of such property
as the Committee shall

 

4

determine,
including cash, Shares, other property, or any combination thereof, upon
achievement of such performance goals during the Performance Period as the
Committee shall establish at the time of such grant or thereafter.

(hh)         “Person”
shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group”
as defined in Section 13(d) thereof.

(ii)           “Prior Plan” means the 2003 Stock
Option Plan.

(jj)           “Publicly Held Corporation” shall
mean a publicly held corporation as that term is used under Section 162(m)(2)
of the Code.

(kk)         “Related
Entity” means any Subsidiary, and any business, corporation,
partnership, limited liability company or other entity designated by the Board,
in which the Company  or a Subsidiary
holds a  substantial ownership interest,
directly or indirectly.

(ll)           “Restricted Stock” means any Share
issued with the restriction that the holder may not sell, transfer, pledge or
assign such Share and with such risks of forfeiture and other restrictions as
the Committee, in its sole discretion, may impose (including any restriction on
the right to vote such Share and the right to receive any dividends), which
restrictions may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.

(mm)       “Restricted
Stock Award” means an Award granted to a Participant under
Section 6(d) hereof.

(nn)         “Rule
16b-3” means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.

(oo)         “Shares”
means the shares of common stock of the Company, par value $.001 per share, and
such other securities as may be substituted (or resubstituted) for Shares
pursuant to Section 10(c) hereof.

(pp)         “Stock
Appreciation Right” means a right granted to a Participant under
Section 6(c) hereof.

(qq)         “Subsidiary”
means any corporation or other entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined voting power
of the then outstanding securities or interests of such corporation or other
entity entitled to vote generally in the election of directors or in which the
Company has the right to receive 50% or more of the distribution of profits or
50% or more of the assets on liquidation or dissolution.

(rr)           “Substitute Awards” means Awards
granted or Shares issued by the Company in assumption of, or in substitution or
exchange for, Awards previously granted, or the right or obligation to make
future Awards, by a company acquired by the Company or any Related Entity or
with which the Company or any Related Entity combines.

 

5

3.             Administration.

(a)           Authority of the
Committee.  The Plan shall
be administered by the Committee; provided,
however, that except as otherwise expressly provided in this Plan, the Board
may exercise any power or authority granted to the Committee under this Plan
and in that case, references herein shall be deemed to include references to
the Board.  The Committee shall have full
and final authority, subject to and consistent with the provisions of the Plan,
to select Eligible Persons to become Participants, grant Awards, determine the
type, number and other terms and conditions of, and all other matters relating
to, Awards, prescribe Award Agreements (which need not be identical for each
Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award Agreements and correct defects,
supply omissions or reconcile inconsistencies therein, and to make all other
decisions and determinations as the Committee may deem necessary or advisable
for the administration of the Plan.  In
exercising any discretion granted to the Committee under the Plan or pursuant
to any Award, the Committee shall not be required to follow past practices, act
in a manner consistent with past practices, or treat any Eligible Person or
Participant in a manner consistent with the treatment of other Eligible Persons
or Participants.

(b)           Manner of Exercise of
Committee Authority. In the event that the Company becomes
a Publicly Held Corporation, the Committee, and not the Board, shall exercise sole
and exclusive discretion on any matter relating to a Participant then subject
to Section 16 of the Exchange Act with respect to the Company to the
extent necessary in order that transactions by such Participant shall be exempt
under Rule 16b-3 under the Exchange Act. 
Any action of the Committee shall be final, conclusive and binding on
all persons, including the Company, its Related Entities, Eligible Persons,
Participants, Beneficiaries, transferees under Section 10(b) hereof or other
persons claiming rights from or through a Participant, and shareholders.  The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee.  The Committee may delegate to officers or
managers of the Company or any Related Entity, or committees thereof, the
authority, subject to such terms as the Committee shall determine, to perform
such functions, including administrative functions as the Committee may
determine to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to
Section 16 of the Exchange Act in respect of the Company and will not cause
Awards intended to qualify as “performance-based compensation” under Code
Section 162(m) to fail to so qualify. 
The Committee may appoint agents to assist it in administering the Plan.

(c)           Limitation of Liability.  The Committee and the Board, and each member
thereof, shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or Employee, the
Company’s independent auditors, Consultants or any other agents assisting in
the administration of the Plan.  Members
of the Committee and the Board, and any officer or Employee acting at the
direction or on behalf of the Committee or the Board, shall not be personally
liable for any action or determination taken or made in good faith with respect
to the Plan, and shall, to the extent permitted by law, be fully indemnified
and protected by the Company with respect to any such action or determination.

 

6

4.             Shares
Subject to Plan.

(a)           Limitation on Overall Number of
Shares Available for Delivery Under Plan.  Subject to adjustment as provided in Section
10(c) hereof, the total number of Shares reserved and available for delivery
under the Plan shall be 5,000,000.  Any
Shares delivered under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares.

(b)           Application of Limitation
to Grants of Award.  No
Award may be granted if the number of Shares to be delivered in
connection with such an Award or, in the case of an Award relating to Shares
but settled only in cash (such as cash-only Stock Appreciation Rights), the
number of Shares to which such Award relates, exceeds the number of Shares
remaining available for delivery under the Plan, minus the number of Shares
deliverable in settlement of or relating to then outstanding Awards.  The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if
the number of Shares actually delivered differs from the number of Shares
previously counted in connection with an Award.

(c)           Availability of Shares Not Delivered under
Awards and Adjustments to Limits.

(i)            If any Shares subject to an Award are forfeited, expire
or otherwise terminate without issuance of such Shares, or any Award is settled
for cash or otherwise does not result in the issuance of all or a portion of
the Shares subject to such Award, the Shares shall, to the extent of such
forfeiture, expiration, termination, cash settlement or non-issuance, again be
available for Awards under the Plan, subject to Section 4(c)(v) below.

(ii)           In the event that any Option or other Award granted
hereunder is exercised through the tendering of Shares (either actually or by
attestation) or by the withholding of Shares by the Company, or withholding tax
liabilities arising from such option or other award are satisfied by the
tendering of Shares (either actually or by attestation) or by the withholding
of Shares by the Company, then only the number of Shares issued net of the
Shares tendered or withheld shall be counted for purposes of  determining the maximum number of Shares available for
grant under the Plan.

(iii)          Substitute Awards shall not reduce the Shares authorized
for grant under the Plan or authorized for grant to a Participant in any
period.  Additionally, in the event that
a company acquired by the Company or any Related Entity or with which the
Company or any Related Entity combines has shares available under a pre-existing
plan approved by shareholders and not adopted in contemplation of such
acquisition or combination, the shares available for delivery 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 delivery 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,

 

7

and shall only be made to individuals who were not Employees or
Directors prior to such acquisition or combination.

(iv)          Any Share that again become available for delivery pursuant
to this Section 4(c) shall be added back as one (1) Share.

(v)           Notwithstanding anything in this Section 4(c) to the
contrary but subject to adjustment as provided in Section 10(c) hereof, the
maximum aggregate number of Shares that may be issued under the Plan as a result
of the exercise of the Incentive Stock Options shall be 5,000,000 shares.

(d)           No Further Awards Under Prior
Plan.  In light of the adoption of this Plan, no
further Awards shall be made under the Prior Plan after the Effective Date.

5.             Eligibility;
Per-Person Award Limitations.  Awards
may be granted under the Plan only to Eligible Persons.  Subject to adjustment as provided in Section
10(c), in any fiscal year of the Company during any part of which the Plan is
in effect, no Participant may be granted (i) Options or Stock Appreciation
Rights with respect to more than 500,000 Shares or (ii) Restricted Stock,
Deferred Stock, Performance Shares and/or Other Stock-Based Awards with respect
to more than 500,000 Shares.  In
addition, the maximum dollar value payable to any one Participant with respect
to Performance Units is (x) $2,500,000 with respect to any 12 month Performance
Period (pro-rated for any Performance Period that is less than 12 months based
upon the ratio of the number of days in the Performance Period as compared to
365), and (y) with respect to any Performance Period that is more than 12
months, $2,500,000 multiplied by the number of full 12 months periods that are
in the Performance Period.

6.             Specific
Terms of Awards.

(a)           General.  Awards may be granted on the terms and
conditions set forth in this Section 6. 
In addition, the Committee may impose on any Award or the exercise
thereof, at the date of grant or thereafter (subject to Section 10(e)), such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine, including terms requiring forfeiture of
Awards in the event of termination of the Participant’s Continuous Service and
terms permitting a Participant to make elections relating to his or her
Award.  The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term or
condition of an Award that is not mandatory under the Plan.  Except in cases in which the Committee is
authorized to require other forms of consideration under the Plan, or to the
extent other forms of consideration must be paid to satisfy the requirements of
Delaware law, no consideration other than services may be required for the
grant (as opposed to the exercise) of any Award.

(b)           Options.  The Committee is authorized to grant Options
to any Eligible Person on the following terms and conditions:

(i)            Exercise Price.  Other
than in connection with Substitute Awards, the exercise price per Share
purchasable under an Option shall be determined by the Committee, provided that
such exercise price shall not, in the case of Incentive Stock Options, be less
than

 

8

100% of the Fair Market Value of a Share on the date of grant of the
Option and shall not, in any event, be less than the par value of a Share on
the date of grant of the Option.  If an
Employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company (or any parent corporation
or subsidiary corporation of the Company, as those terms are defined in
Sections 424(e) and (f) of the Code, respectively) and an Incentive Stock
Option is granted to such employee, the exercise price of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
less than 110% of the Fair Market Value of a Share on the date such Incentive
Stock Option is granted.

(ii)           Time and
Method of Exercise.  The
Committee shall determine the time or times at which or the circumstances under
which an Option may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the time
or times at which Options shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions, the methods by
which the exercise price may be paid or deemed to be paid (including in the
discretion of the Committee a cashless exercise procedure), the form of such
payment, including, without limitation, cash, Shares (including without
limitation the withholding of Shares otherwise deliverable pursuant to the
Award), other Awards or awards granted under other plans of the Company or a
Related Entity, or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis provided that
such deferred payments are not in violation of the Sarbanes-Oxley Act of 2002,
or any rule or regulation adopted thereunder or any other applicable law), and
the methods by or forms in which Shares will be delivered or deemed to be
delivered to Participants.

(iii)          Incentive Stock Options.  The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code.  Anything in the
Plan to the contrary notwithstanding, no term of the Plan relating to Incentive
Stock Options (including any Stock Appreciation Right issued in tandem
therewith) shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be exercised, so as to disqualify either
the Plan or any Incentive Stock Option under Section 422 of the Code, unless
the Participant has first requested, or consents to, the change that will
result in such disqualification.  Thus,
if and to the extent required to comply with Section 422 of the Code, Options
granted as Incentive Stock Options shall be subject to the following special
terms and conditions:

(A)          the Option shall not be exercisable for more than ten years
after the date such Incentive Stock Option is granted; provided, however, that
if a Participant owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company (or any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Sections 424(e) and
(f) of the Code, respectively) and the Incentive Stock Option is granted to
such Participant, the term of the Incentive Stock Option shall be (to the
extent required by the Code at the time of the grant) for no more than five
years from the date of grant; and

(B)           The aggregate Fair Market Value (determined as of the date
the Incentive Stock Option is granted) of the Shares with respect to which
Incentive Stock

 

9

Options granted under the Plan and all other option plans of the
Company (and any parent corporation or subsidiary corporation of the Company,
as those terms are defined in Sections 424(e) and (f) of the Code,
respectively) that become exercisable for the first time by the Participant
during any calendar year shall not (to the extent required by the Code at the time
of the grant) exceed $100,000.

(c)           Stock Appreciation Rights.  The Committee may grant Stock Appreciation
Rights to any Eligible Person in conjunction with all or part of any Option
granted under the Plan or at any subsequent time during the term of such Option
(a “Tandem Stock Appreciation Right”), or without regard to any Option (a “Freestanding
Stock Appreciation Right”), in each case upon such terms and conditions as the
Committee may establish in its sole discretion, not inconsistent with the
provisions of the Plan, including the following:

(i)            Right to Payment.  A Stock Appreciation Right shall confer on
the Participant to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one Share on the date of
exercise over (B) the grant price of the Stock Appreciation Right as determined
by the Committee.  The grant price of a
Stock Appreciation Right  shall not be
less than 100% of the Fair Market Value of a Share on the date of grant, in the
case of a Freestanding Stock Appreciation Right, or less than the associated
Option exercise price, in the case of a Tandem Stock Appreciation Right.

(ii)           Other Terms.  The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances under
which a Stock Appreciation Right may be exercised in whole or in part
(including based on achievement of performance goals and/or future service
requirements), the time or times at which Stock Appreciation Rights shall cease
to be or become exercisable following termination of Continuous Service or upon
other conditions, the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Shares will be
delivered or deemed to be delivered to Participants, whether or not a Stock
Appreciation Right shall be in tandem or in combination with any other Award,
and any other terms and conditions of any Stock Appreciation Right.

(iii)          Tandem
Stock Appreciation Rights.
Any Tandem Stock Appreciation Right may be granted at the same time as
the related Option is granted or, for Options that are not Incentive Stock
Options, at any time thereafter before exercise or expiration of such
Option.  Any Tandem Stock Appreciation
Right related to an Option may be exercised only when the related Option would
be exercisable and the Fair Market Value of the Shares subject to the related
Option exceeds the exercise price at which Shares can be acquired pursuant to
the Option.  In addition, if a Tandem
Stock Appreciation Right exists with respect to less than the full number of
Shares covered by a related Option, then an exercise or termination of such
Option shall not reduce the number of Shares to which the Tandem Stock
Appreciation Right applies until the number of Shares then exercisable under
such Option equals the number of Shares to which the Tandem Stock Appreciation
Right applies. Any Option related to a Tandem Stock Appreciation Right shall no
longer be exercisable to the extent the Tandem Stock Appreciation Right has
been exercised, and any Tandem Stock Appreciation Right shall no longer be
exercisable to the extent the related Option has been exercised.

 

10

(d)           Restricted Stock Awards.  The Committee is authorized to grant
Restricted Stock Awards to any Eligible Person on the following terms and
conditions:

(i)            Grant and Restrictions.  Restricted Stock Awards shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, or as otherwise provided in
this Plan, covering a period of time specified by the Committee (the “Restriction
Period”).  The terms of any Restricted
Stock Award granted under the Plan shall be set forth in a written Award Agreement
which shall contain provisions determined by the Committee and not inconsistent
with the Plan.  The restrictions may
lapse separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the Committee may
determine at the date of grant or thereafter. 
Except to the extent restricted under the terms of the Plan and any
Award Agreement relating to a Restricted Stock Award, a Participant granted
Restricted Stock shall have all of the rights of a shareholder, including the
right to vote the Restricted Stock and the right to receive dividends thereon
(subject to any mandatory reinvestment or other requirement imposed by the
Committee).  During the Restriction
Period, subject  to Section 10(b) below,
the Restricted Stock may not be sold, transferred, pledged, hypothecated,
margined or otherwise encumbered by the Participant.

(ii)           Forfeiture.  Except as otherwise determined by the
Committee, upon termination of a Participant’s Continuous Service during the
applicable Restriction Period, the Participant’s Restricted Stock that is at
that time subject to a risk of forfeiture that has not lapsed or otherwise been
satisfied shall be forfeited and reacquired by the Company; provided that the
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that forfeiture conditions relating to
Restricted Stock Awards shall be waived in whole or in part in the event of
terminations resulting from specified causes.

(iii)          Certificates for Stock.  Restricted Stock granted under the Plan may
be evidenced in such manner as the Committee shall determine.  If certificates representing Restricted Stock
are registered in the name of the Participant, the Committee may require that
such certificates bear an appropriate legend referring to the terms, conditions
and restrictions applicable to such Restricted Stock, that the Company retain
physical possession of the certificates, and that the Participant deliver a
stock power to the Company, endorsed in blank, relating to the Restricted
Stock.

(iv)          Dividends and Splits.  As a condition to the grant of a Restricted
Stock Award, the Committee may require or permit a Participant to elect that
any cash dividends paid on a Share of Restricted Stock be automatically
reinvested in additional Shares of Restricted Stock or applied to the purchase
of additional Awards under the Plan. 
Unless otherwise determined by the Committee, Shares distributed in
connection with a stock split or stock dividend, and other property distributed
as a dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Shares or other
property have been distributed.

(e)           Deferred Stock Award.  The Committee is authorized to grant Deferred
Stock Awards to any Eligible Person on the following terms and conditions:

 

11

(i)            Award and Restrictions.  Satisfaction of a Deferred Stock Award shall
occur upon expiration of the deferral period specified for such Deferred Stock
Award by the Committee (or, if permitted by the Committee, as elected by the
Participant).  In addition, a Deferred
Stock Award shall be subject to such restrictions (which may include a risk of
forfeiture) as the Committee may impose, if any, which restrictions may lapse
at the expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise, as
the Committee may determine.  A Deferred
Stock Award may be satisfied by delivery of Shares, cash equal to the Fair Market
Value of the specified number of Shares covered by the Deferred Stock, or a
combination thereof, as determined by the Committee at the date of grant or
thereafter.  Prior to satisfaction of a
Deferred Stock Award, a Deferred Stock Award carries no voting or dividend or
other rights associated with Share ownership.

(ii)           Forfeiture.  Except as otherwise determined by the
Committee, upon termination of a Participant’s Continuous Service during the
applicable deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award Agreement evidencing the Deferred Stock Award),
the Participant’s Deferred Stock Award that is at that time subject to a risk
of forfeiture that has not lapsed or otherwise been satisfied shall be forfeited;
provided that the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that forfeiture conditions
relating to a Deferred Stock Award shall be waived in whole or in part in the
event of terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of any Deferred Stock
Award.

(iii)          Dividend Equivalents.  Unless otherwise determined by the Committee
at date of grant, any Dividend Equivalents that are granted with respect to any
Deferred Stock Award shall be either (A) paid with respect to such Deferred
Stock Award at the dividend payment date in cash or in Shares of unrestricted
stock having a Fair Market Value equal to the amount of such dividends, or (B)
deferred with respect to such Deferred Stock Award and the amount or value
thereof automatically deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles, as the Committee shall determine or permit
the Participant to elect.

(f)            Bonus Stock and Awards in
Lieu of Obligations.  The
Committee is authorized to grant Shares to any Eligible Persons as a
bonus, or to grant Shares or other Awards in lieu of obligations to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, provided that, in the case of Eligible Persons subject to Section
16 of the Exchange Act, the amount of such grants remains within the discretion
of the Committee to the extent necessary to ensure that acquisitions of Shares
or other Awards are exempt from liability under Section 16(b) of the Exchange
Act.  Shares or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee.

(g)           Dividend Equivalents.  The Committee is authorized to grant Dividend
Equivalents to any Eligible Person entitling the Eligible Person to receive
cash, Shares, other Awards, or other property equal in value to the dividends
paid with respect to a specified number of Shares, or other periodic
payments.  Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award.  The Committee may provide that Dividend

 

12

Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Shares, Awards, or other
investment vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify.

(h)           Performance Awards.  The Committee is
authorized to grant Performance Awards to any Eligible Person payable in cash,
Shares, or other Awards, on terms and conditions established by the Committee,
subject to the provisions of Section 8 if and to the extent that the Committee
shall, in its sole discretion, determine that an Award shall be subject to
those provisions.  The performance
criteria to be achieved during any Performance Period and the length of the
Performance Period shall be determined by the Committee upon the grant of each
Performance Award.  Except as provided in
Section 9 or as may be provided in an Award Agreement, Performance Awards will
be distributed only after the end of the relevant Performance Period.  The performance goals to be achieved for each
Performance Period shall be conclusively determined by the Committee and may be
based upon the criteria set forth in Section 8(b), or in the case of an Award
that the Committee determines shall not be subject to Section 8 hereof, any
other criteria that the Committee, in its sole discretion, shall determine
should be used for that purpose.  The
amount of the Award to be distributed shall be conclusively determined by the
Committee.  Performance Awards may be
paid in a lump sum or in installments following the close of the Performance
Period or, in accordance with procedures established by the Committee, on a
deferred basis.

(i)            Other Stock-Based Awards.  The Committee is authorized, subject to
limitations under applicable law, to grant to any Eligible Person such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan.  Other Stock-Based Awards may be granted to
Participants either alone or in addition to other Awards granted under the
Plan, and such Other Stock-Based Awards shall also be available as a form of
payment in the settlement of other Awards granted under the Plan.  The Committee shall determine the terms and conditions
of such Awards.  Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 6(i) shall be purchased for such consideration, (including without limitation loans from the Company or a Related Entity
provided that such loans are not in violation of the Sarbanes Oxley Act of
2002, or any rule or regulation adopted thereunder or any other applicable law)
paid for at such times, by such methods, and in such forms, including,
without limitation, cash, Shares, other Awards or other property, as the
Committee shall determine.

7.             Certain
Provisions Applicable to Awards.

(a)           Stand-Alone, Additional,
Tandem, and Substitute Awards. 
Awards granted under the Plan may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under
another plan of the Company, any Related Entity, or any business entity to be
acquired by the Company or a Related Entity, or any other right of a
Participant to receive payment from the Company or any Related Entity.  Such additional, tandem, and substitute or
exchange Awards may be granted at any time. 
If an Award is granted in substitution or exchange for another Award or
award, the Committee shall require the surrender of such other Award or award
in consideration for the grant of the new Award.  In addition, Awards may be

 

13

granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Related Entity, in which the
value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Deferred Stock or Restricted Stock), or in which the
exercise price, grant price or purchase price of the Award in the nature of a
right that may be exercised is equal to the Fair Market Value of the underlying
Stock minus the value of the cash compensation surrendered (for example,
Options or Stock Appreciation Right granted with an exercise price or grant
price “discounted” by the amount of the cash compensation surrendered).

(b)           Term of Awards.  The term of each Award shall be for such
period as may be determined by the Committee; provided that in no event shall
the term of any Option or Stock Appreciation Right exceed a period of ten years
(or in the case of an Incentive Stock Option such shorter term as may be
required under Section 422 of the Code).

(c)           Form and Timing of Payment
Under Awards; Deferrals. 
Subject to the terms of the Plan and any applicable Award Agreement,
payments to be made by the Company or a Related Entity upon the exercise of an
Option or other Award or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Shares,
other Awards or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis.  Any installment or deferral provided for in
the preceding sentence shall, however, be subject to the Company’s compliance
with the provisions of the Sarbanes-Oxley Act of 2002, the rules and
regulations adopted by the Securities and Exchange Commission thereunder, and
all applicable rules of the Nasdaq Stock Market or any national securities
exchange on which the Company’s securities are listed for trading and, if not
listed for trading on either the Nasdaq Stock Market or a national securities
exchange, then the rules of the Nasdaq Stock Market.  The settlement of any Award may be accelerated,
and cash paid in lieu of Shares in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more specified events
(in addition to a Change in Control). 
Installment or deferred payments may be required by the Committee
(subject to Section 10(e) of the Plan, including the consent provisions thereof
in the case of any deferral of an outstanding Award not provided for in the
original Award Agreement) or permitted at the election of the Participant on
terms and conditions established by the Committee.  The Committee may, without limitation, make
provision for the payment or crediting of a reasonable interest rate on
installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Shares.

(d)           Exemptions from Section
16(b) Liability. If  the
Company becomes a Publicly Held Corporation, it is the intent of the Company
that the grant of any Awards to or other transaction by a Participant who is subject
to Section 16 of the Exchange Act shall be exempt from Section 16 pursuant to
an applicable exemption (except for transactions acknowledged in writing to be
non-exempt by such Participant). 
Accordingly, if any provision of this Plan or any Award Agreement does
not comply with the requirements of Rule 16b-3 then applicable to any such
transaction, such provision shall be construed or deemed amended to the extent
necessary to conform to the applicable requirements of Rule 16b-3 so that such
Participant shall avoid liability under Section 16(b).

 

14

(e)           Code Section 409A.  

(i)            If any Award
constitutes a “nonqualified deferred compensation plan” under Section 409A of
the Code (a “Section 409A Plan”), then the Award shall be subject to the
following additional requirements, if and to the extent required to comply with
Section 409A of the Code:

(A)          Payments under the
Section 409A Plan may not be made earlier than (u) the Participant’s separation
from service, (v) the date the Participant becomes disabled, (w) the
Participant’s death, (x) a specified time (or pursuant to a fixed schedule)
specified in the Award Agreement at the date of the deferral of such
compensation, (y) a change in the ownership or effective control of the
corporation, or in the ownership of a substantial portion of the assets of the
corporation, or (z) the occurrence of an unforeseeble emergency;

(B)           The time or schedule
for any payment of the deferred compensation may not be accelerated, except to
the extent provided in applicable Treasury Regulations or other applicable
guidance issued by the Internal Revenue Service;

(C)           Any elections with
respect to the deferral of such compensation or the time and form of
distribution of such deferred compensation shall comply with the requirements
of Section 409A(a)(4) of the Code; and

(D)          In the case of any
Participant who is specified employee, a distribution on account of a
separation from service may not be made before the date which is six months after
the date of the Participant’s separation from service (or, if earlier, the date
of the Participant’s death).

For
purposes of the foregoing, the terms “separation from service”, “disabled”, and
“specified employee”, all shall be defined in the same manner as those terms
are defined for purposes of Section 409A of the Code, and the limitations set
forth herein shall be applied in such manner (and only to the extent) as shall
be necessary to comply with any requirements of Section 409A of the Code that are
applicable to the Award.

(ii)           The Award Agreement
for any Award that the Committee reasonably determines to constitute a Section
409A Plan, and the provisions of the Plan applicable to that Award, shall be
construed in a manner consistent with the applicable requirements of Section
409A, and the Committee, in its sole discretion and without the consent of any
Participant, may amend any Award Agreement (and the provisions of the Plan
applicable thereto) if and to the extent that the Committee determines that
such amendment is necessary or appropriate to comply with the requirements of
Section 409A of the Code.

8.             Code
Section 162(m) Provisions.

(a)           Covered Employees. If the Company
becomes a Publicly Held Corporation, the Committee, in its discretion, may determine
at the time an Award is granted to an Eligible Person who is, or is likely to
be, as of the end of the tax year in which the Company

 

15

would claim a tax deduction in connection with such Award, a Covered
Employee, that the provisions of this Section 8 shall be applicable to such
Award.

(b)           Performance Criteria.  If an Award is subject to this Section 8,
then the lapsing of restrictions thereon and the distribution of cash, Shares
or other property pursuant thereto, as applicable, shall be contingent upon
achievement of one or more objective performance goals.  Performance goals shall be objective and
shall otherwise meet the requirements of Section 162(m) of the Code and
regulations thereunder including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance
goals being “substantially uncertain.” 
One or more of the following business criteria for the Company, on a
consolidated basis, and/or for Related Entities, or for business or
geographical units of the Company and/or a Related Entity (except with respect
to the total shareholder return and earnings per share criteria), shall be used
by the Committee in establishing performance goals for such Awards:
(1) earnings per share; (2) revenues or margins; (3) cash flow;
(4) operating margin; (5) return on net assets, investment, capital,
or equity; (6) economic value added; (7) direct contribution; (8) net
income; pretax earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; earnings after interest expense
and before extraordinary or special items; operating income; income before
interest income or expense, unusual items and income taxes, local, state or
federal and excluding budgeted and actual bonuses which might be paid under any
ongoing bonus plans of the Company; (9) working capital;
(10) management of fixed costs or variable costs; (11) identification
or consummation of investment opportunities or completion of specified projects
in accordance with corporate business plans, including strategic mergers,
acquisitions or divestitures; (12) total shareholder return;
(13) debt reduction; (14) market share; (15) entry into new markets, either
geographically or by business unit; (16) customer retention and satisfaction;
(17) strategic plan development and implementation, including turnaround plans;
and/or (18) the Fair Market Value of a Share. 
Any of the above goals may be determined on an absolute or relative
basis or as compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Standard &
Poor’s 500 Stock Index or a group of companies that are comparable to the
Company.  The Committee shall exclude the
impact of an event or occurrence which the Committee determines should
appropriately be excluded, including without limitation (i) restructurings,
discontinued operations, extraordinary items, and other unusual or non-recurring
charges, (ii) an event either not directly related to the operations of the
Company or not within the reasonable control of the Company’s management, or
(iii) a change in accounting standards required by generally accepted
accounting principles.

(c)           Performance Period; Timing For
Establishing Performance Goals.  Achievement of performance goals in respect
of Performance Awards shall be measured over a Performance Period as specified
by the Committee.  Performance goals
shall be established not later than 90 days after the beginning of any
Performance Period applicable to such Performance Awards, or at such other date
as may be required or permitted for “performance-based compensation” under Code
Section 162(m).

(d)           Adjustments.  The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with Awards
subject to this Section 8, but may not exercise discretion to increase any such
amount payable to a Covered Employee in respect

 

16

of an Award subject to this Section 8. 
The Committee shall specify the circumstances in which such Awards shall
be paid or forfeited in the event of termination of Continuous Service by the
Participant prior to the end of a Performance Period or settlement of Awards.

(e)           Committee Certification.  No Participant shall receive any payment
under the Plan that is subject to this Section 8 unless the Committee has
certified, by resolution or other appropriate action in writing, that the performance
criteria and any other material terms previously established by the Committee
or set forth in the Plan, have been satisfied to the extent necessary to
qualify as “performance based compensation” under Code Section 162(m).

9.             Change
in Control.

(a)           Effect of “Change in Control.”  Subject to Section 9(a)(iv), and if and only
to the extent provided in the Award Agreement, or to the extent otherwise
determined by the Committee, upon the occurrence of a “Change in Control,” as
defined in Section 9(b):

(i)            Any Option or Stock Appreciation Right that was not
previously vested and exercisable as of the time of the Change in Control,
shall become immediately vested and exercisable, subject to applicable
restrictions set forth in Section 10(a) hereof.

(ii)           Any restrictions, deferral of settlement, and forfeiture
conditions applicable to a Restricted Stock Award, Deferred Stock Award or an
Other Stock-Based Award subject only to future service requirements granted
under the Plan shall lapse and such Awards shall be deemed fully vested as of
the time of the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in Section 10(a)
hereof.

(iii)          With respect to any outstanding Award subject to achievement
of performance goals and conditions under the Plan, the Committee may, in its
discretion, deem such performance goals and conditions as having been met as of
the date of the Change in Control.

(iv)          Notwithstanding the foregoing or any provision in any Award
Agreement to the contrary, if in the event of a Change in Control the successor
company assumes or substitutes for an Option, Stock Appreciation Right,
Restricted Stock Award, Deferred Stock Award or Other Stock-Based Award, then
each such outstanding Option, Stock Appreciation Right, Restricted Stock Award,
Deferred Stock Award or Other Stock-Based Award shall not be accelerated as
described in Sections 9(a)(i), (ii) and (iii). 
For the purposes of this Section 9(a)(iv), an Option, Stock Appreciation
Right, Restricted Stock Award, Deferred Stock Award or Other Stock-Based Award
shall be considered assumed or substituted for if following the Change in
Control the Award confers the right to purchase or receive, for each Share
subject to the Option, Stock Appreciation Right, Restricted Stock Award,
Deferred Stock Award or Other Stock-Based Award immediately prior to the Change
in Control, the consideration (whether stock, cash or other securities or
property) received in the transaction constituting a Change in Control by
holders of Shares for each Share held on the effective date of such 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 transaction
constituting a Change in Control is not solely common

 

17

stock of the successor company or its parent or subsidiary, the
Committee may, with the consent of the successor company or its parent or
subsidiary, provide that the consideration to be received upon the exercise or
vesting of an Option, Stock Appreciation Right, Restricted Stock Award,
Deferred Stock Award or Other Stock-Based Award, for each Share subject
thereto, will be solely common stock of the successor company or its parent or
subsidiary substantially equal in fair market value to the per share
consideration received by holders of Shares in the transaction constituting a
Change in Control.  The determination of
such substantial equality of value of consideration shall be made by the
Committee in its sole discretion and its determination shall be conclusive and
binding.

(b)           Definition of “Change in
Control”.  Unless
otherwise specified in an Award Agreement, a “Change in Control” shall mean the
occurrence of any of the following:

(i)            The acquisition by any Person of Beneficial Ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more
than fifty percent (50%) of either (A) the then outstanding equity securities
of the Company (the “Outstanding Company value of Stock”) or (B) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the “Outstanding Company Voting
Securities) (the foregoing Beneficial Ownership hereinafter being referred to
as a “Controlling Interest”); provided, however, that for purposes of this
Section 9(b), the following acquisitions shall not constitute or result in a
Change in Control:  (v) any acquisition
directly from the Company; (w) any acquisition by the Company; (x) any
acquisition by any Person that as of the Effective Date owns Beneficial
Ownership of a Controlling Interest; (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Related Entity; or (z) any acquisition by any entity pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii) below; or

(ii)           During any period of two (2) consecutive years (not
including any period prior to the Effective Date) individuals who constitute
the Board on the Effective Date (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective Date whose election,
or nomination for election by the Company’s shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or

(iii)          Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar transaction involving the Company or any
of its Related Entities, a sale or other disposition of all or substantially
all of the assets of the Company, or the acquisition of assets or equity of
another entity by the Company or any of its Related Entities (each a “Business
Combination”), in each case, unless, following such Business Combination, (A)
all or substantially all of the individuals and entities who were the
Beneficial Owners, respectively, of the Outstanding Company Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more

 

18

than fifty percent (50%) of the value of the then outstanding equity
securities and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of members of the board
of directors (or comparable governing body of an entity that does not have such
a board), as the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any employee benefit
plan (or related trust) of the Company or such entity resulting from such
Business Combination or any Person that as of the Effective Date owns
Beneficial Ownership of a Controlling Interest) beneficially owns, directly or
indirectly, fifty percent (50%) or more of the value of the then outstanding
equity securities of the entity resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such entity
except to the extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the Board of
Directors or other governing body of the entity resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or

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

10.           General
Provisions.

(a)           Compliance With Legal and
Other Requirements.  The
Company may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Shares or payment of other benefits under
any Award until completion of such registration or qualification of such Shares
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Shares or other Company securities
are listed or quoted, or compliance with any other obligation of the Company,
as the Committee, may consider appropriate, and may require any Participant to
make such representations, furnish such information and comply with or be
subject to such other conditions as it may consider appropriate in connection
with the issuance or delivery of Shares or payment of other benefits in
compliance with applicable laws, rules, and regulations, listing requirements,
or other obligations.

(b)           Limits on Transferability;
Beneficiaries.  No
Award or other right or interest granted under the Plan shall be
pledged, hypothecated or otherwise encumbered or subject to any lien,
obligation or liability of such Participant to any party, or assigned or
transferred by such Participant otherwise than by will or the laws of descent
and distribution or to a Beneficiary upon the death of a Participant, and such
Awards or rights that may be exercisable shall be exercised during the lifetime
of the Participant only by the Participant or his or her guardian or legal
representative, except that Awards and other rights (other than Incentive Stock
Options and Stock Appreciation Rights in tandem therewith) may be transferred
to one or more Beneficiaries or other transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance with the
terms of such Award, but only if and to the

 

19

extent such transfers are permitted by the Committee pursuant to the
express terms of an Award Agreement (subject to any terms and conditions which the
Committee may impose thereon).  A
Beneficiary, transferee, or other person claiming any rights under the Plan
from or through any Participant shall be subject to all terms and conditions of
the Plan and any Award Agreement applicable to such Participant, except as
otherwise determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.

(c)           Adjustments.

(i)            Adjustments
to Awards.  In the event that any extraordinary
dividend or other distribution (whether in the form of cash, Shares, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Shares
and/or such other securities of the Company or any other issuer such that a
substitution, exchange, or adjustment is determined by the Committee to be
appropriate, then the Committee shall, in such manner as it may deem equitable,
substitute, exchange or adjust any or all of (A) the number and kind of
Shares which may be delivered in connection with Awards granted thereafter,
(B) the number and kind of Shares by which annual per-person Award
limitations are measured under Section 5 hereof, (C) the number and kind
of Shares subject to or deliverable in respect of outstanding Awards,
(D) the exercise price, grant price or purchase price relating to any
Award and/or make provision for payment of cash or other property in respect of
any outstanding Award, and (E) any other aspect of any Award that the Committee
determines to be appropriate.

(ii)           Adjustments
in Case of Certain Transactions.  In the event of any
merger, consolidation or other reorganization in which the Company does not
survive, or in the event of any Change in Control, any outstanding Awards may
be dealt with in accordance with any of the following approaches, as determined
by the agreement effectuating the transaction or, if and to the extent not so
determined, as determined by the Committee: (a) the continuation of the
outstanding Awards by the Company, if the Company is a surviving entity, (b)
the assumption or substitution for, as those terms are defined in Section
9(b)(iv) hereof, the outstanding Awards by the surviving entity or its parent
or subsidiary, (c) full exercisability or vesting and accelerated expiration of
the outstanding Awards, or (d) settlement of the value of the outstanding
Awards in cash or cash equivalents or other property followed by cancellation
of such Awards (which value, in the case of Options or Stock Appreciation
Rights, shall be measured by the amount, if any, by which the Fair Market Value
of a Share exceeds the exercise or grant price of the Option or Stock
Appreciation Right as of the effective date of the transaction).  The Committee shall give written notice of
any proposed transaction referred to in this Section 10(c)(ii) a reasonable
period of time prior to the closing date for such transaction (which notice may
be given either before or after the approval of such transaction), in order
that Participants may have a reasonable period of time prior to the closing
date of such transaction within which to exercise any Awards that are then
exercisable (including any Awards that may become exercisable upon the closing
date of such transaction).  A Participant
may condition his exercise of any Awards upon the consummation of the
transaction.

(iii)          Other
Adjustments.  The Committee (and the Board if and only to
the extent such authority is not required to be exercised by the Committee to
comply with

 

20

Section 162(m) of the Code) is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Awards (including Performance
Awards, or performance goals relating thereto) in recognition of unusual or
nonrecurring events (including, without limitation, acquisitions and
dispositions of businesses and assets) affecting the Company, any Related
Entity or any business unit, or the financial statements of the Company or any
Related Entity, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee’s assessment of the business strategy of the Company, any
Related Entity or business unit thereof, performance of comparable
organizations, economic and business conditions, personal performance of a
Participant, and any other circumstances deemed relevant.

(d)           Taxes.  The Company and any Related Entity are
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Shares, or any payroll or
other payment to a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company or any
Related Entity and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award.  This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of a Participant’s tax obligations, either on a
mandatory or elective basis in the discretion of the Committee.

(e)           Changes to the Plan and
Awards.  The
Board may amend, alter, suspend, discontinue or terminate the Plan, or
the Committee’s authority to grant Awards under the Plan, without the consent
of shareholders or Participants, except that any amendment or alteration to the
Plan shall be subject to the approval of the Company’s shareholders not later
than the annual meeting next following such Board action if such shareholder
approval is required by any federal or state law or regulation (including,
without limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any
stock exchange or automated quotation system on which the Shares may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to shareholders for approval; provided
that, without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any previously
granted and outstanding Award.  The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue or terminate any Award theretofore granted and any Award Agreement
relating thereto, except as otherwise provided in the Plan; provided that,
without the consent of an affected Participant, no such Committee or the Board
action may materially and adversely affect the rights of such Participant under
such Award.  Notwithstanding anything to
the contrary, the Committee shall be authorized to amend any outstanding Option
and/or Stock Appreciation Right to reduce the exercise price or grant price
without the prior approval of the shareholders of the Company.  In addition, the Committee shall be
authorized to cancel outstanding Options and/or Stock Appreciation Rights
replaced with Awards having a lower exercise price without the prior approval
of the shareholders of the Company.

(f)            Limitation on Rights
Conferred Under Plan. 
Neither the Plan nor any action taken hereunder or under any
Award shall be construed as (i) giving any Eligible Person or Participant
the right to continue as an Eligible Person or Participant or in the employ or

 

21

service of the Company or a Related Entity; (ii) interfering in
any way with the right of the Company or a Related Entity to terminate any
Eligible Person’s or Participant’s Continuous Service at any time,
(iii) giving an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other Participants and
Employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company including, without limitation, any right to receive
dividends or distributions, any right to vote or act by written consent, any
right to attend meetings of shareholders or any right to receive any
information concerning the Company’s business, financial condition, results of
operation or prospects, unless and until such time as the Participant is duly
issued Shares on the stock books of the Company in accordance with the terms of
an Award.  None of the Company, its
officers or its directors shall have any fiduciary obligation to the
Participant with respect to any Awards unless and until the Participant is duly
issued Shares pursuant to the Award on the stock books of the Company in
accordance with the terms of an Award. 
Neither the Company nor any of the Company’s officers, directors,
representatives or agents are granting any rights under the Plan to the Participant
whatsoever, oral or written, express or implied, other than those rights
expressly set forth in this Plan or the Award Agreement.

(g)           Unfunded Status of Awards;
Creation of Trusts.  The
Plan is intended to constitute an “unfunded” plan for incentive and
deferred compensation.  With respect to
any payments not yet made to a Participant or obligation to deliver Shares
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor
of the Company; provided that the Committee may authorize the creation of
trusts and deposit therein cash, Shares, other Awards or other property, or
make other arrangements to meet the Company’s obligations under the Plan.  Such trusts or other arrangements shall be
consistent with the “unfunded” status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.  The trustee of such trusts may be authorized
to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee may specify
and in accordance with applicable law.

(h)           Nonexclusivity of the
Plan.  Neither the
adoption of the Plan by the Board nor its submission to the shareholders of the
Company for approval shall be construed as creating any limitations on the
power of the Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive arrangements and
awards which do not qualify under Section 162(m) of the Code.

(i)            Payments in the Event of
Forfeitures; Fractional Shares.  Unless otherwise determined by the Committee,
in the event of a forfeiture of an Award with respect to which a Participant
paid cash or other consideration, the Participant shall be repaid the amount of
such cash or other consideration.  No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award.  The Committee shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

(j)            Governing Law.  The validity, construction and effect of the
Plan, any rules and regulations under the Plan, and any Award Agreement shall
be determined in

 

22

accordance with the laws of the State of Delaware without giving effect
to principles of conflict of laws, and applicable federal law.

(k)           Non-U.S. Laws.  The Committee shall have the authority to
adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Related Entities may operate to assure the viability of the
benefits from Awards granted to Participants performing services in such
countries and to meet the objectives of the Plan.

(l)            Plan Effective Date and
Shareholder Approval; Termination of Plan.  The Plan shall become effective on the
Effective Date, subject to subsequent approval, within 12 months of its
adoption by the Board, by shareholders of the Company eligible to vote in the
election of directors, by a vote sufficient to meet the requirements of Code
Sections 162(m) (if applicable) and 422, Rule 16b-3 under the Exchange Act (if
applicable), applicable  requirements
under the rules of any stock exchange or automated quotation system on which
the Shares may be listed or quoted, and other laws, regulations, and
obligations of the Company applicable to the Plan.  Awards may be granted subject to shareholder
approval, but may not be exercised or otherwise settled in the event the
shareholder approval is not obtained. 
The Plan shall terminate at the earliest of (a) such time as no Shares
remain available for issuance under the Plan, (b) termination of this Plan
by the Board, or (c) the tenth anniversary of the Effective Date.  Awards outstanding upon expiration of the
Plan shall remain in effect until they have been exercised or terminated, or
have expired.

 

23

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