Document:

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Exhibit 10.4

MICRUS ENDOVASCULAR CORPORATION

2005 EMPLOYEE STOCK PURCHASE PLAN

(amended as of June 13, 2005)

     1. Establishment of Plan.

     Micrus Endovascular Corporation (the “Company”) proposes to grant options for purchase of the
Company’s Common Stock (the “Common Stock”) to eligible employees of the Company and its
Participating Subsidiaries (as hereinafter defined) pursuant to this 2005 Employee Stock Purchase
Plan (this “Plan”). For the purposes of this Plan, “Parent Corporation” and “Subsidiary” shall
have the same meanings as “parent corporation” and “subsidiary corporation” in Sections 424(e) and
424(f), respectively, of the Internal Revenue Code of 1986, as amended (the “Code”).
“Participating Subsidiaries” are Parent Corporations or Subsidiaries that the Board of Directors of
the Company (the “Board”) designates from time to time as corporations that shall participate in
this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under
Section 423 of the Code (including any amendments to or replacements of such Section), and this
Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes
of Section 423 of the Code shall have the same definition herein.

     2. Number of Shares.

     The total number of shares of Common Stock initially reserved and available for issuance
pursuant to this Plan shall be 222,222 (the “Share Limit”), subject to adjustments effected in
accordance with Section 15 of this Plan. Notwithstanding the foregoing and subject to Section 15,
the Share Limit shall automatically increase on April 1, 2006 and April 1 of each year thereafter
until and including April 1, 2015 (unless the Plan is terminated earlier in accordance with the
provisions hereof) by the “Annual Increase” which shall consist of a number of shares equal to the
lesser of (i) 222,222 shares, (ii) two percent (2%) of the number of shares of common stock of the
Company Shares issued and outstanding on the immediately preceding March 31, or (iii) a lesser
number determined by the Committee, (as hereinafter defined) prior to such April 1, provided,
however, that the total number of shares available for issuance under the Plan shall not exceed the
initial Share Limit plus the maximum potential cumulative Annual Increase. The Board may at such
time as it deems necessary implement a substantially similar plan for employees resident outside
the United States (“Foreign Plan”) in which case the Share Limit shall be reduced by the number of
shares issued under the Foreign Plan. Shares issued under this Plan may consist, in whole or in
part, of authorized and unissued shares or treasury shares reacquired in private transactions or
open market purchases, but all shares issued under this Plan and the Foreign Plan shall be counted
against the Share Limit.

     3. Purpose.

     The purpose of this Plan is to provide eligible employees of the Company and Participating
Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll
deductions, to enhance such employees’ sense of participation in the

 

 

affairs of the Company and Participating Subsidiaries, and to provide an incentive for
continued employment. For the purposes of this Plan, “employee” shall mean any individual who is
an employee of the Company or a Participating Subsidiary. Whether an individual qualifies as an
employee shall be determined by the Committee, in its sole discretion. The Committee shall be
guided by the provisions of Treasury Regulation Section 1.421-7 and Section 3401(c) of the Code and
the Treasury Regulations thereunder, with the intent that the Plan cover all “employees” within the
meaning of those provisions other than those who are not eligible to participate in the Plan,
provided, however, that any determinations regarding whether an individual is an “employee” shall
be prospective only, unless otherwise determined by the Committee (as hereinafter defined). Unless
the Committee makes a contrary determination, the employees of the Company shall, for all purposes
of this Plan, be those individuals who are carried as employees of the Company or a Participating
Subsidiary for regular payroll purposes or are on a leave of absence for not more than 90 days. Any
inquiries regarding eligibility to participate in the Plan shall be directed to the Committee,
whose decision shall be final.

     4. Administration.

     This Plan shall be administered by the Compensation Committee of the Board (the “Committee”).
Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any
successor provision in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon all participants.
Members of the Committee shall receive no compensation for their services in connection with the
administration of this Plan, other than standard fees as established from time to time by the Board
for services rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.

     5. Eligibility.

     Any employee of the Company or the Participating Subsidiaries is eligible to participate in an
Offering Period (as hereinafter defined) under this Plan except the following:

          (a) employees who are not employed by the Company or a Participating Subsidiary prior to the
beginning of such Offering Period or prior to such other time period as specified by the Committee,
except that, subject to Section 5(b) – (f) below, employees who are employed on the effective date
of the registration statement filed by the Company with the Securities and Exchange Commission
(“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) registering the initial
public offering of the Company’s Common Stock shall be eligible to participate in the first
Offering Period under the Plan;

          (b) employees who are customarily employed for twenty (20) hours or less per week;

          (c) employees who are customarily employed for five (5) months or less in a calendar year;

          (d) employees who, together with any other person whose stock would be attributed to such
employee pursuant to Section 424(d) of the Code, own stock or hold options to

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purchase stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a
result of being granted an option under this Plan with respect to such Offering Period, would own
stock or hold options to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of its Participating
Subsidiaries;

          (e) individuals who provide services to the Company or any of its Participating Subsidiaries
as independent contractors who are reclassified as common law employees for any reason except for
federal income and employment tax purposes; and

          (f) employees who reside in countries for whom such employees’ participation in the Plan would
result in a violation under any corporate or securities laws of such country of residence.

     6. Offering Dates.

     Except as otherwise provided below, the offering periods of this Plan (each, an “Offering
Period”) shall be of twelve (12) months duration commencing on or about October 1 and April 1 of
each year, respectively (or at such other time or times as may be determined by the Board of
Directors). Within each twelve month Offering Period, there shall be two consecutive “Purchase
Periods” each of approximately six (6) months duration (or of such other number and duration as may
be determined by the Board of Directors) which cover the entire duration of the Offering Period.
Notwithstanding the foregoing, the first such Offering Period (and first such Purchase Period)
shall commence on the first business day on which price quotations for the Company’s Common Stock
are available on the Nasdaq National Market (the “First Offering Period” and “First Purchase
Period”, respectively, and the first offering date for the First Offering Period is the “First
Offering Date”). The First Purchase Period shall end on September 30, 2005 and there was no
Offering Period commencing on April 1, 2005. The first business day of each Offering Period is
referred to as the “Offering Date.” The last business day of each Purchase Period is referred to
as the “Purchase Date.” The Committee shall have the power to change the Offering Dates, the
Purchase Dates and the duration of Offering Periods and Purchase Periods without stockholder
approval if such change is announced prior to the relevant Offering Period or Purchase Period (as
applicable) or prior to such other time period as specified by the Committee.

     7. Participation in this Plan.

     Eligible employees may become participants in an Offering Period under this Plan on the
Offering Date, after satisfying the eligibility requirements, by delivering a subscription
agreement to the Company prior to such Offering Date, or such other time period as specified by the
Committee, provided, however, that all eligible employees employed as of the First Offering Date
shall be automatically enrolled in the First Offering Period. Notwithstanding the foregoing, (i)
after the filing of an effective Registration Statement pursuant to Form S-8 for shares under the
Plan, an eligible employee may elect to decrease the number of shares of Common Stock that such
employee would otherwise be permitted to purchase pursuant to Section 8 below for the First
Offering Period and/or may elect or may as a condition to remaining in the Plan be required

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to elect to purchase shares of Common Stock for the First Offering Period through payroll
deductions by delivering a subscription agreement to the Company within thirty (30) days following
the First Offering Date; and (ii) the Committee may set a later time for delivering the
subscription agreement authorizing payroll deductions for all eligible employees with respect to a
given Offering Period. Except as provided above with respect to the First Offering Period, an
eligible employee who does not deliver a subscription agreement to the Company after becoming
eligible to participate in an Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by delivering a subscription
agreement with the Company prior to such Offering Period, or such other time period as specified by
the Committee. Once an employee becomes a participant in an Offering Period by filing a
subscription agreement, such employee shall automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering Period unless the employee
withdraws or is deemed to withdraw from this Plan or terminates further participation in the
Offering Period as set forth in Section 12 below. Such participant is not required to file any
additional subscription agreement in order to continue participation in this Plan.

     8. Grant of Option on Enrollment.

     Enrollment by an eligible employee in this Plan with respect to an Offering Period shall
constitute the grant (as of the Offering Date) by the Company to such employee of an option to
purchase on the Purchase Date up to that number of shares of Common Stock determined by a fraction,
the numerator of which is the amount accumulated in such employee’s payroll deduction account
during such Purchase Period and the denominator of which is eighty-five percent (85%) of the lesser
of the fair market value of a share of the Company’s Common Stock on the (i) Offering Date or (ii)
Purchase Date (but in no event less than the par value of a share of the Company’s Common Stock),
provided, however, that for the First Offering Period the numerator shall be fifteen percent (15%)
of the eligible employee’s compensation for such Purchase Period, unless the employee otherwise
elects to decrease the percentage of such employee’s compensation as provided in Section 7 above,
and provided, further, that the number of shares of Common Stock subject to any option granted
pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the
Committee pursuant to Section 11(b) below with respect to the applicable Purchase Date, or (y) the
maximum number of shares which may be purchased pursuant to Section 11(c) below with respect to the
applicable Purchase Date. The fair market value of a share of the Company’s Common Stock shall be
determined as provided in Section 9 below. Notwithstanding the foregoing, in the event of a change
in generally accepted accounting principles which would adversely affect the accounting treatment
applicable to any current Offering Period, the Committee may make such changes to the number of
Shares purchased at the end of the Purchase Period or the purchase price paid as are allowable
under generally accepted accounting principles and as it deems necessary in the sole discretion of
the Committee to avoid or minimize adverse accounting consequences. In the event that the fair
market value of a share of the Company’s Common Stock on an Offering Date is less than the fair
market value of a share of the Company’s Common Stock for the immediately preceding Offering
Period’s Offering Date then all participants in the prior Offering Period shall be automatically
enrolled in such Offering Period (and removed from the prior Offering Period). A participant may
be enrolled in only one Offering Period at any time.

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     9. Purchase Price.

          (a) The purchase price per share at which a share of Common Stock shall be sold in any
Purchase Period shall be eighty-five percent (85%) of the lesser of the fair market value of a
share of the Company’s Common Stock on the (i) Offering Date or (ii) Purchase Date.

     For the purposes of this Plan, the term “fair market value” means, as of any date, the value
of a share of the Company’s Common Stock determined as follows:

          (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on
the Nasdaq National Market on the date of determination as reported in The Wall Street Journal;

          (b) if such Common Stock is publicly traded and is then listed on a national securities
exchange, its closing price on the date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street
Journal; or

          (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market
nor listed or admitted to trading on a national securities exchange, the average of the closing bid
and asked prices on the date of determination as reported in The Wall Street Journal.

     Notwithstanding the foregoing, for purposes of the First Offering Period, the fair market
value with respect to the First Offering Date shall be the price per share at which shares of the
Company’s Common Stock are initially offered for sale to the public by the Company’s underwriters
in the initial public offering of the Company’s Common Stock pursuant to a registration statement
filed with the SEC under the Securities Act.

     10. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of Shares.

          (a) The purchase price of the shares is accumulated by regular payroll deductions made during
each Purchase Period; provided, however, that for the First Offering Period, the purchase price of
the shares shall be paid by the eligible employee in cash on the Purchase Date for the First
Offering Period unless the eligible employee elects to purchase such shares through payroll
deductions, after the filing of an effective Form S-8 registration statement pursuant to the second
sentence of Section 7 above, within thirty (30) days following the First Offering Date. The
deductions are made as a percentage of the participant’s compensation in one percent (1%)
increments, not less than one percent (1%), nor greater than fifteen percent (15%), or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation, including, but not
limited to, base salary, wages, bonuses, incentive compensation, commissions, overtime, shift
premiums, plus draws against commissions, provided, however that compensation shall not include any
long term disability or workmens compensation payments, car allowances, relocation payments or
expense reimbursements and further provided, however, that for purposes of determining a
participant’s compensation, any election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did
not make such election. Except as otherwise provided in this Plan, payroll

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deductions shall commence on the first payday of the Offering Period and shall continue to the
end of the Offering Period unless sooner altered or terminated as provided in this Plan.

          (b) A participant may increase or decrease the rate of payroll deductions during an Offering
Period by filing with the Company a new authorization for payroll deductions, in which case the new
rate shall become effective for the next payroll period commencing after the Company’s receipt of
the authorization and shall continue for the remainder of the Offering Period unless changed as
described below. Such change in the rate of payroll deductions may be made at any time during an
Offering Period, but not more than one (1) change to increase and one (1) change to decrease
deductions may be made effective during any Offering Period; provided however that a change to
decrease payroll deductions to zero shall be governed by Section 10(c) below. A participant may
increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing
with the Company a new authorization for payroll deductions prior to the beginning of such Offering
Period, or such other time period as specified by the Committee.

          (c) A participant may reduce his or her payroll deduction percentage to zero during an
Offering Period by filing with the Company a request for cessation of payroll deductions. Such
reduction shall be effective beginning with the next payroll period after the Company’s receipt of
the request and no further payroll deductions shall be made for the duration of the Offering
Period. Payroll deductions credited to the participant’s account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in accordance with
Section 10(e) below. A participant may not resume making payroll deductions during the Offering
Period in which he or she reduced his or her payroll deductions to zero.

          (d) All payroll deductions made for a participant are credited to his or her account under
this Plan and are deposited with the general funds of the Company. No interest accrues on the
payroll deductions. All payroll deductions received or held by the Company may be used by the
Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll
deductions.

          (e) On each Purchase Date, for so long as this Plan remains in effect and provided that the
participant has not submitted a signed and completed withdrawal form before that date, which
notifies the Company that the participant wishes to withdraw from that Offering Period under this
Plan and have all payroll deductions accumulated in the account maintained on behalf of the
participant, as of that date returned to the participant, the Company shall apply the funds then in
the participant’s account to the purchase of whole shares of Common Stock reserved under the option
granted to such participant with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 9
of this Plan. Any cash remaining in a participant’s account after such purchase of shares shall be
refunded to such participant in cash, without interest, provided, however, that any amount
remaining in such participant’s account on a Purchase Date which is less than the amount necessary
to purchase a full share of Common Stock shall be carried forward, without interest, into the next
Purchase Period, as the case may be. In the event that this Plan has been oversubscribed, all
funds not used to purchase shares on the Purchase Date shall be returned to the participant,
without interest. No Common Stock shall be purchased on a

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Purchase Date on behalf of any employee whose participation in this Plan has terminated prior
to such Purchase Date.

          (f) As soon as practicable after the Purchase Date, the Company shall issue shares for the
participant’s benefit representing the shares purchased upon exercise of his or her option.

          (g) During a participant’s lifetime, his or her option to purchase shares hereunder is
exercisable only by him or her. The participant shall have no interest or voting rights in shares
covered by his or her option until such option has been exercised.

     11. Limitations on Shares to be Purchased.

          (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when
aggregated with his or her rights to purchase stock under all other employee stock purchase plans
of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the
Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend the payroll
deductions of any participant as necessary to enforce such limit provided that when the Company
automatically resumes such payroll deductions, the Company must apply the rate in effect
immediately prior to such suspension.

          (b) No participant shall be entitled to purchase more than the Maximum Share Amount (as
defined below) on any single Purchase Date. Prior to the commencement of any Offering Period or
prior to such time period as specified by the Committee, the Committee may, in its sole discretion,
set a maximum number of shares which may be purchased by any employee at any single Purchase Date
(hereinafter the “Maximum Share Amount”) or change the Maximum Share Amount. The initial Maximum
Share Amount shall be 1,111 shares. If a new Maximum Share Amount is set, then all participants
must be notified of such Maximum Share Amount prior to the commencement of the next Offering
Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Offering
Periods unless revised by the Committee as set forth above.

          (c) If the number of shares to be purchased on a Purchase Date by all employees participating
in this Plan exceeds the number of shares then available for issuance under this Plan, then the
Company shall make a pro rata allocation of the remaining shares in as uniform a manner as shall be
reasonably practicable and as the Committee shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to be purchased under a
participant’s option to each participant affected.

          (d) Any payroll deductions accumulated in a participant’s account which are not used to
purchase stock due to the limitations in this Section 11 shall be returned to the participant as
soon as practicable after the end of the applicable Purchase Period, without interest.

     12. Withdrawal.

          (a) Each participant may withdraw from an Offering Period under this Plan by signing and
delivering to the Company a written notice to that effect on a form provided for such

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purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period,
or such other time period as specified by the Committee.

          (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to
the withdrawn participant, without interest, and his or her interest in this Plan shall terminate.
In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume
his or her participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date subsequent to such
withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in
Section 7 above for initial participation in this Plan.

     13. Termination of Employment.

     Termination of a participant’s employment for any reason, including retirement, death or the
failure of a participant to remain an eligible employee of the Company or of a Participating
Subsidiary, shall immediately terminate his or her participation in this Plan. In such event, the
payroll deductions credited to the participant’s account shall be returned to him or her or, in the
case of his or her death, to his or her legal representative, without interest. For purposes of
this Section 13, an employee shall not be deemed to have terminated employment or failed to remain
in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave,
military leave, or any other leave of absence approved by the Board, provided, however that such
leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.

     14. Return of Payroll Deductions.

     In the event a participant’s interest in this Plan is terminated by withdrawal, termination of
employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall
deliver to the participant all payroll deductions credited to such participant’s account. No
interest shall accrue on the payroll deductions of a participant in this Plan.

     15. Capital Changes.

     Subject to any required action by the stockholders of the Company, the number and type of
shares of Common Stock covered by each option under this Plan which has not yet been exercised and
the number and type of shares of Common Stock which have been authorized for issuance under this
Plan, including the Annual Increase, but have not yet been placed under option (collectively, the
“Reserves”), as well as the price per share of Common Stock covered by each option under this Plan
which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in
the number of issued and outstanding shares of Common Stock of the Company resulting from a stock
split or the payment of a stock dividend (but only on the Common Stock), any other increase or
decrease in the number of issued and outstanding shares of Common Stock effected without receipt of
any consideration by the Company or other change in the corporate structure or capitalization
affecting the Company’s present Common Stock, provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been “effected without receipt of
consideration.” Such adjustment shall be made by the Committee, whose determination shall be
final, binding and conclusive. Except as

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expressly provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common Stock subject to an
option.

     In the event of the proposed dissolution or liquidation of the Company, the Offering Period
shall terminate immediately prior to the consummation of such proposed action, unless otherwise
provided by the Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each
participant the right to purchase shares under this Plan prior to such termination. In the event
of (i) a merger or consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a
different jurisdiction, or other transaction in which there is no substantial change in the
stockholders of the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption shall be binding on
all participants), (ii) a merger in which the Company is the surviving corporation but after which
the stockholders of the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the Company in such merger)
cease to own their shares or other equity interest in the Company, (iii) the sale of all or
substantially all of the assets of the Company, or (iv) the acquisition, sale, or transfer of more
than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan
shall continue with regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares shall be purchased based on the Fair Market Value of the surviving
corporation’s stock on an upcoming Purchase Date, unless otherwise provided by the Committee.

     The Committee may, if it so determines in the exercise of its sole discretion, also make
provision for adjusting the Reserves, as well as the price per share of Common Stock covered by
each outstanding option, in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of shares of its outstanding
Common Stock, or in the event of the Company being consolidated with or merged into any other
corporation.

     16. Nonassignability.

     Neither payroll deductions credited to a participant’s account nor any rights with regard to
the exercise of an option or to receive shares under this Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by shall, the laws of descent and
distribution or as provided in Section 23 below) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be void and without effect.

     17. Reports.

     Individual accounts shall be maintained for each participant in this Plan. Each participant
shall receive, as soon as practicable after the end of each Purchase Period, a report of his or her
account setting forth the total payroll deductions accumulated, the number of shares purchased,

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the per share price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period.

     18. Notice of Disposition.

     Each participant shall notify the Company in writing if the participant disposes of any of the
shares purchased in a Purchase Period pursuant to this Plan if such disposition occurs within two
(2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the “Notice Period”). The Company may, at any time during the Notice Period, place
a legend or legends on any certificate representing shares acquired pursuant to this Plan
requesting the Company’s transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue notwithstanding the placement
of any such legend on the certificates.

     19. No Rights to Continued Employment.

     Neither this Plan nor the grant of any option hereunder shall confer any right on any employee
to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee’s employment.

     20. Equal Rights And Privileges.

     All eligible employees shall have equal rights and privileges with respect to this Plan so
that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or
any successor provision of the Code and the related regulations. Any provision of this Plan which
is inconsistent with Section 423 or any successor provision of the Code shall, without further act
or amendment by the Company, the Committee or the Board, be reformed to comply with the
requirements of Section 423. This Section 20 shall take precedence over all other provisions in
this Plan.

     21. Notices.

     All notices or other communications by a participant to the Company under or in connection
with this Plan shall be deemed to have been duly given when received in the form specified by the
Company at the location, or by the person, designated by the Company for the receipt thereof.

     22. Term; Stockholder Approval.

     After this Plan is adopted by the Board, this Plan shall become effective on the First
Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company,
in any manner permitted by applicable corporate law, within twelve (12) months before or after the
date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur
prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a)
termination of this Plan by the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c)
twenty (20) years from the adoption of this Plan by the Board.

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     23. Designation of Beneficiary.

          (a) A participant may file a written designation of a beneficiary who is to receive any shares
and cash, if any, from the participant’s account under this Plan in the event of such participant’s
death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and
cash. In addition, a participant may file a written designation of a beneficiary who is to receive
any cash from the participant’s account under this Plan in the event of such participant’s death
prior to a Purchase Date.

          (b) Such designation of beneficiary may be changed by the participant at any time by written
notice. In the event of the death of a participant and in the absence of a beneficiary validly
designated under this Plan who is living at the time of such participant’s death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of the participant, or
if no such executor or administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.

     24. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.

     Shares shall not be issued with respect to an option unless the exercise of such option and
the issuance and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the Securities Act, the
Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange or automated quotation system upon which the shares may then
be listed, and shall be further subject to the approval of counsel for the Company with respect to
such compliance.

     25. Applicable Law.

     The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of
the State of Delaware.

     26. Amendment or Termination.

     The Board may at any time amend, terminate or extend the term of this Plan, except that any
such termination cannot affect options previously granted under this Plan, nor may any amendment
make any change in an option previously granted which would adversely affect the right of any
participant, nor may any amendment be made without approval of the stockholders of the Company
obtained in accordance with Section 22 above within twelve (12) months of the adoption of such
amendment (or earlier if required by Section 22) if such amendment would:

          (a) increase the number of shares that may be issued under this Plan;

          (b) change the designation of the employees (or class of employees) eligible for participation
in this Plan; or

-11-

 

     (c) otherwise require stockholder approval under applicable law or the requirements of any
stock exchange or consolidated listing system on which the Company’s stock is then listed.

     Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board
determines to be advisable and which do not cause unfavorable accounting treatment, including
termination of or changes with respect to current Offering Periods, if the continuation of the Plan
or any Offering Period would result in financial accounting treatment for the Plan that is
different from the financial accounting treatment in effect on the date this Plan is adopted by the
Board.

-12-exv10w1

 

EXHIBIT 10.1

PFSWEB, INC. 2005 EMPLOYEE STOCK AND INCENTIVE PLAN

     WHEREAS, PFSweb, Inc., a Delaware corporation (the “Company”) has adopted that certain 1999
Employee Stock Option Plan (the “1999 Plan”); and

     WHEREAS, the Company has authorized and adopted certain amendments to the 1999 Plan;

     NOW, THEREFORE, in order to implement and effectuate said amendments, the 1999 Plan is hereby
amended and restated as follows:

ARTICLE 1

PURPOSE

     1.1. GENERAL. The PFSweb, Inc. 2005 Employee Stock and Incentive Plan is designed to
focus management on business performance that creates stockholder value; encourage innovative
approaches to the business of the Company; reward for results; and encourage ownership of Company
common stock by management.

ARTICLE 2

DEFINITIONS

     2.1. DEFINITIONS. As used herein the following words and phrases shall have the
following meanings:

     (a) “Affiliate” means (i) any Subsidiary or Parent, or (ii) any entity of which the Company
owns or controls, directly or indirectly, 10% of more of the outstanding shares of stock entitled
to vote for the election of directors, or of comparable equity participation and voting power.

     (b) “Award” means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted
Stock Unit Award, Deferred Stock Unit Award, Performance Award, Dividend Equivalent Award, Other
Stock-Based Award, Performance-Based Cash Awards, or any other right or interest relating to Stock
or cash, granted to a Participant under the Plan.

     (c) “Award Certificate” means a written document, in such form as the Committee prescribes
from time to time, setting forth the terms and conditions of an Award. Award Certificates may be in
the form of individual award agreements or certificates or a program document describing the terms
and provisions of an Awards or series of Awards under the Plan.

     (d) “Board” means the Board of Directors of the Company.

     (e) “Cause” means, with respect to a Participant’s termination of employment or termination of
consultancy, the following: (a) in the case where there is no employment agreement, consulting
agreement, change in control agreement or similar agreement in effect between the Company or an
Affiliate and the Participant at the time of determination (or such an agreement does not define
“cause” (or words of like import)), (i) a Participant’s gross negligence or willful misconduct with
regard to the Company or an Affiliate or their assets, (ii) a Participant’s misappropriation or
fraud with regard to the Company or an Affiliate or their assets (other than good-faith expense
account disputes), (iii) a Participant’s willful and continued failure to substantially perform the
Participant’s duties (other than any such failure resulting from incapacity due to physical or
mental illness), which is not remedied within 10 days of delivery of notice to the Participant
thereof, (iv) a Participant’s conviction of, or the pleading of guilty or nolo contendere to, a
felony or criminal offense punishable by a term of imprisonment (other than a traffic violation),
or (v) the Participant’s willful violation of any written policy of the Company or an Affiliate or
breach of any confidentiality or non-competition covenant entered into between the Participant and
the Company or an Affiliate; or (b) in the case where there is an employment agreement, consulting
agreement,

 

 

change in control agreement or similar agreement in effect between the Company or an Affiliate
and the Participant at the time of determination that defines “cause” (or words of like import),
“cause” as defined under such agreement; provided, however, that with regard to any agreement under
which the definition of “cause” only applies on occurrence of a Change in Control, such definition
of “cause” shall not apply until a Change in Control actually takes place and then only with regard
to a termination thereafter, and prior to a Change in Control “cause” shall be defined as provided
in subsection (a) above. With respect to a Participant’s termination of directorship, “cause” means
an act or failure to act that constitutes cause for removal of a director under applicable Delaware
law. The determination of the Committee as to the existence of “Cause” shall be conclusive on the
Participant and the Company.

     (f) “Change in Control” unless otherwise determined by the Committee in the applicable Award
Certificate, a “Change in Control” shall be deemed to have occurred after the Effective Date:

     (1) upon any “person” as such term is used in Sections 13(d) and 14(d) of the 1934 Act (other
than the Company, any trustee or other fiduciary holding securities under any employee benefit plan
of the Company, or any company owned, directly or indirectly, by all of the stockholders of the
Company in substantially the same proportions as their ownership of Stock of the Company), becoming
the owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the combined voting power of the
Company’s then outstanding securities (including, without limitation, securities owned at the time
of any increase in ownership);

     (ii) during any period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than (x) a director designated by a person
who has entered into an agreement with the Company to effect a transaction described in paragraph
(i) or (iii) of this section, or (y) a director whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than the Board) whose election by the Board
or nomination for election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at the beginning of the
two-year period or whose election or nomination for election was previously so approved (the
“Incumbent Board”), cease for any reason to constitute at least a majority of the Board;

     (iii) upon the merger or consolidation of the Company with, or the sale of all or
substantially all of the assets of the Company to, any other corporation or other entity, in each
case, unless, following such merger, consolidation or sale (A) the voting securities of the Company
outstanding immediately prior thereto continue to represent (either by remaining outstanding or by
being converted into voting securities of the surviving or purchasing entity (the “Surviving
Entity”)) more than fifty percent (50%) of the combined voting power of the voting securities of
the Company or the Surviving Entity outstanding immediately after such merger, consolidation or
sale; and (B) at least a majority of the members of the board of directors of the Surviving Entity
were Incumbent Directors at the time of the execution of the initial agreement, or of the action of
the Board, providing for such merger, consolidation or sale; or

     (iv) upon the approval by the Company’s stockholders of a plan of complete liquidation or
dissolution of the Company.

     Notwithstanding the foregoing, for any Awards that constitute a nonqualified deferred
compensation plan within the meaning of Section 409A(d) of the Code, Change in Control shall have
the same meaning as set forth in any regulations, revenue procedure or revenue rulings issued by
the Secretary of the United States Treasury applicable to such plans.

     (g) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and includes
a reference to the underlying final regulations.

     (h) “Committee” means the committee of the Board described in Article 4.

     (i) “Company” means PFSweb, Inc., a Delaware corporation, or any successor corporation.

 

 

     (j) “Continuous Status as a Participant” means the absence of any interruption or termination
of service as an employee, officer, consultant or director of the Company or any Affiliate, as
applicable; provided, however, that for purposes of an Incentive Stock Option, or a Stock
Appreciation Right issued in tandem with an Incentive Stock Option, “Continuous Status as a
Participant” means the absence of any interruption or termination of service as an employee of the
Company or any Parent or Subsidiary, as applicable, pursuant to applicable tax regulations.
Continuous Status as a Participant shall continue to the extent provided in a written severance or
employment agreement during any period for which severance compensation payments are made to an
employee, officer, consultant or director and shall not be considered interrupted in the case of
any short-term disability or leave of absence authorized in writing by the Company prior to its
commencement; provided, however, that for purposes of Incentive Stock Options, no such leave may
exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Participant shall
cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Notwithstanding the foregoing, for any Awards that constitute a
nonqualified deferred compensation plan within the meaning of Section 409A(d) of the Code,
Continuous Status as a Participant shall mean the absence of any “separation from service” or
similar concept as set forth in any regulations, revenue procedure or revenue rulings issued by the
Secretary of the United States Treasury applicable to such plans.

     (k) “Covered Employee” means a covered employee as defined in Code Section 162(m)(3).

     (l) “Deferred Stock Unit” means a right granted to a Participant under Article 11.

     (m) “Disability” or “Disabled” has the same meaning as provided in the long-term disability
plan or policy maintained by the Company or if applicable, most recently maintained, by the Company
or if applicable, an Affiliate, for the Participant, whether or not such Participant actually
receives disability benefits under such plan or policy. If no long-term disability plan or policy
was ever maintained on behalf of Participant or if the determination of Disability relates to an
Incentive Stock Option, or a Stock Appreciation Right issued in tandem with an Incentive Stock
Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of the Code.
In the event of a dispute, the determination whether a Participant is Disabled will be made by the
Committee and may be supported by the advice of a physician competent in the area to which such
Disability relates. Notwithstanding the foregoing, for any Awards that constitute a nonqualified
deferred compensation plan within the meaning of Section 409A(d) of the Code, Disability shall have
the same meaning as set forth in any regulations, revenue procedure or revenue rulings issued by
the Secretary of the United States Treasury applicable to such plans.

     (n) “Dividend Equivalent” means a right granted to a Participant under Article 12.

     (o) “Effective Date” has the meaning assigned such term in Section 3.1.

     (p) “Eligible Participant” means an employee, officer, consultant or director of the Company
or any Affiliate.

     (q) “Exchange” means the Nasdaq National Market, Small Cap Market or any other national
securities exchange on which the Stock may from time to time be listed or traded.

     (r) “Fair Market Value”, on any date, means (i) if the Stock is listed on a securities
exchange or is traded over the Nasdaq National Market or Small Cap Market, the closing sales price
on such exchange or over such system on such date or, in the absence of reported sales on such
date, the closing sales price on the immediately preceding date on which sales were reported, or
(ii) if the Stock is not listed on a securities exchange or traded over the Nasdaq National Market
or Small Cap Market, the mean between the bid and offered prices as quoted by Nasdaq for such date,
provided that if it is determined that the fair market value is not properly reflected by such
Nasdaq quotations, Fair Market Value will be determined by such other method as the Committee
determines in good faith to be reasonable.

 

 

     (s) “Good Reason” means, with respect to a Participant’s termination of employment or
termination of consultancy, the following: (a) in the case where there is no employment agreement,
consulting agreement, change in control agreement or similar agreement in effect between the
Company or an Affiliate and the Participant at the time of determination (or such an agreement does
not define “good reason” (or words of like import)), without the Participant’s consent: (i) a
reduction in the Participant’s base salary as then in effect, or (ii) a material reduction,
measured in terms of aggregate value rather than on an individual benefit basis, of employee
benefits to which the Participant is entitled (other than an overall reduction in benefits that
affects substantially all full-time employees of the Company and its Affiliates); provided that any
event described in clause (i) or (ii) above shall constitute Good Reason only if the Company fails
to cure such event within 20 days after receipt from the Participant of written notice of the event
which constitutes Good Reason; and provided, further, that Good Reason shall cease to exist for an
event on the 60th day following the later of its occurrence or the Participant’s knowledge thereof,
unless the Participant has given the Company written notice thereof prior to such date; or (b) in
the case where there is an employment agreement, consulting agreement, change in control agreement
or similar agreement in effect between the Company or an Affiliate and the Participant at the time
of determination that defines “good reason” (or words of like import), “good reason” as defined
under such agreement; provided, however, that with regard to any agreement under which the
definition of “good reason” only applies on occurrence of a Change in Control, such definition of
“good reason” shall not apply until a Change in Control actually takes place and then only with
regard to a termination thereafter, and prior to a change in control “good reason” shall be defined
as provided in subsection (a) above.

     (t) “Grant Date” of an Award means the first date on which all necessary corporate action has
been taken to approve the grant of the Award as provided in the Plan, or such later date as is
determined and specified as part of that authorization process.

     (u) “Incentive Stock Option” means an Option that is intended to be an incentive stock option
and meets the requirements of Section 422 of the Code or any successor provision thereto.

     (v) “Non-Employee Director” means a director of the Company who is not a common law employee
of the Company or an Affiliate.

     (w) “Nonstatutory Stock Option” means an Option that is not an Incentive Stock Option.

     (x) “Option” means a right granted to a Participant under Article 7 of the Plan to purchase
Stock at a specified price during specified time periods. An Option may be either an Incentive
Stock Option or a Nonstatutory Stock Option.

     (y) “Other Stock-Based Award” means a right, granted to a Participant under Article 13, that
relates to or is valued by reference to Stock or other Awards relating to Stock.

     (z) “Parent” means a corporation, limited liability company, partnership or other entity which
owns or beneficially owns a majority of the outstanding voting stock or voting power of the
Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall have
the meaning set forth in Section 424(e) of the Code.

     (aa) “Participant” means a person who, as an employee, officer, director or consultant of the
Company or any Affiliate, has been granted an Award under the Plan; provided that in the case of
the death of a Participant, the term “Participant” refers to a beneficiary designated pursuant to
Section 15.5 or the legal guardian or other legal representative acting in a fiduciary capacity on
behalf of the Participant under applicable state law.

     (bb) “Performance Award” means Performance Shares, Performance Units or Performance-Based Cash
Awards granted pursuant to Article 9.

 

 

     (cc) “Performance-Based Cash Award” means a right granted to a Participant under Article 9 to
a cash award to be paid upon achievement of such performance goals as the Committee establishes
with regard to such Award.

     (dd) “Performance Share” means any right granted to a Participant under Article 9 to a share
to be valued by reference to a designated number of Shares to be paid upon achievement of such
performance goals as the Committee establishes with regard to such Performance Share.

     (ee) “Performance Unit” means a right granted to a Participant under Article 9 to a unit
valued by reference to a designated amount of cash or property other than Shares, to be paid to the
Participant upon achievement of such performance goals as the Committee establishes with regard to
such Performance Unit.

     (ff) “Person” means any individual, entity or group, within the meaning of Section 3(a)(9) of
the 1934 Act and as used in Section 13(d)(3) or 14(d)(2) of the 1934 Act.

     (gg) “Plan” means this PFSweb, Inc. 2005 Employee Stock and Incentive Plan, as amended or
supplemented from time to time.

     (hh) “Qualified Performance-Based Award” means an Award granted to an officer of the Company
that is either (i) intended to qualify for the Section 162(m) Exemption and is made subject to
performance goals based on Qualified Business Criteria as set forth in Section 14.2, or (ii) an
Option or SAR having an exercise price equal to or greater than the Fair Market Value of the
underlying Stock as of the Grant Date.

     (ii) “Qualified Business Criteria” means one or more of the Business Criteria listed in
Section 14.2 upon which performance goals for certain Qualified Performance-Based Awards may be
established by the Committee.

     (jj) “Restricted Stock Award” means Stock granted to a Participant under Article 10 that is
subject to certain restrictions and to risk of forfeiture.

     (kk) “Restricted Stock Unit Award” means the right granted to a Participant under Article 10
to receive Shares (or the equivalent value in cash or other property) in the future, which right is
subject to certain restrictions and to risk of forfeiture.

     (ll) “Retirement” means a Participant’s voluntary termination of employment or consultancy at
or after age sixty-five (65) or such earlier retirement date as may be approved by the Committee
with regard to such Participant. With respect to a Participant’s termination of service as a
director, Retirement means the failure to stand for reelection or other retirement as a director
after a Participant has attained age sixty-five (65) or such earlier retirement date as may be
approved by the Committee with regard to such Participant.

     (mm) “Section 162(m) Exemption” means the exemption from the limitation on deductibility
imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code or any
successor provision thereto.

     (nn) “Shares” means shares of the Company’s Stock. If there has been an adjustment or
substitution pursuant to Section 16.1, the term “Shares” shall also include any shares of stock or
other securities that are substituted for Shares or into which Shares are adjusted pursuant to
Section 16.1.

     (oo) “Stock” means the common stock of the Company and such other securities of the Company as
may be substituted for Stock pursuant to Article 16.

 

 

     (pp) “Stock Appreciation Right” or “SAR” means a right granted to a Participant under Article
8 to receive a payment equal to the difference between the Fair Market Value of a Share as of the
date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article
8.

     (qq) “Subsidiary” means any corporation, limited liability company, partnership or other
entity of which a majority of the outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive
Stock Option, Subsidiary shall have the meaning set forth in Section 424(f) of the Code.

     (rr) “1933 Act” means the Securities Act of 1933, as amended from time to time.

     (ss) “1934 Act” means the Securities Exchange Act of 1934, as amended from time to time.

ARTICLE 3

EFFECTIVE DATE

     3.1 EFFECTIVE DATE. The Plan shall be effective as of the date it is approved by the
stockholders of the Company (the “Effective Date”). No further grants may be made under this Plan
after December 31, 2014.

ARTICLE 4

ADMINISTRATION

     4.1. COMMITTEE. The Plan shall be administered by a Committee appointed by the Board
(which Committee shall consist of at least two directors) or, at the discretion of the Board from
time to time, the Plan may be administered by the Board. Unless otherwise designated by the Board,
the Compensation Committee of the Board shall serve as the Committee administering the Plan. The
Board may reserve to itself any or all of the authority and responsibility of the Committee under
the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board
has reserved any authority and responsibility or during any time that the Board is acting as
administrator of the Plan, it shall have all the powers of the Committee hereunder, and any
reference herein to the Committee (other than in this Section 4.1) shall include the Board. To the
extent any action of the Board under the Plan conflicts with actions taken by the Committee, the
actions of the Board shall control.

     4.2. ACTION AND INTERPRETATIONS BY THE COMMITTEE. For purposes of administering the
Plan, the Committee may from time to time adopt rules, regulations, guidelines and procedures for
carrying out the provisions and purposes of the Plan and make such other determinations, not
inconsistent with the Plan, as the Committee may deem appropriate. The Committee’s interpretation
of the Plan, any Awards granted under the Plan, any Award Certificate and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and conclusive on all
parties. Each member of the Committee is entitled to, in good faith, rely or act upon any report or
other information furnished to that member by any officer or other employee of the Company or any
Affiliate, the Company’s or an Affiliate’s independent certified public accountants, Company
counsel or any executive compensation consultant or other professional retained by the Company to
assist in the administration of the Plan.

     4.3. AUTHORITY OF COMMITTEE. Except as provided below, the Committee has the
exclusive power, authority and discretion to: (a) grant Awards; (b) designate Participants; (c)
determine the type or types of Awards to be granted to each Participant; (d) determine the number
of Awards to be granted and the number of Shares or dollar amount to which an Award will relate;
(e) determine the terms and conditions of any Award granted under the Plan, including but not
limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on
the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on such considerations as the
Committee in its sole discretion determines; (f) determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash,
Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; (g)
prescribe the form of each Award Certificate, which need not be identical for

 

 

each Participant; (h) decide all other matters that must be determined in connection with an
Award; (i) establish, adopt or revise any rules, regulations, guidelines or procedures as it may
deem necessary or advisable to administer the Plan; (j) make all other decisions and determinations
that may be required under the Plan or as the Committee deems necessary or advisable to administer
the Plan; (k) amend the Plan or any Award Certificate as provided herein; and (l) adopt such
modifications, procedures, and subplans as may be necessary or desirable to comply with provisions
of the laws of non-U.S. jurisdictions in which the Company or any Affiliate may operate, in order
to assure the viability of the benefits of Awards granted to participants located in such other
jurisdictions and to meet the objectives of the Plan.

     Notwithstanding the above, the Board or the Committee may, by resolution, expressly delegate
to a special committee, consisting of one or more directors who are also officers of the Company,
the authority, within specified parameters, to (i) designate Eligible Participants to be recipients
of Awards under the Plan, and (ii) to determine the number of such Awards to be granted to any such
Participants; provided that such delegation of duties and responsibilities to such special
committee may not be made with respect to the grant of Awards to eligible participants (a) who are
subject to Section 16(a) of the 1934 Act at the Grant Date, or (b) who as of the Grant Date are
reasonably anticipated to be become Covered Employees during the term of the Award. The acts of
such delegates shall be treated hereunder as acts of the Board and such delegates shall report
regularly to the Board or the Committee regarding the delegated duties and responsibilities and any
Awards so granted.

     4.4. AWARD CERTIFICATES. Each Award shall be evidenced by an Award Certificate. Each
Award Certificate shall include such provisions, not inconsistent with the Plan, as may be
specified by the Committee.

ARTICLE 5

SHARES SUBJECT TO THE PLAN

     5.1. NUMBER OF SHARES. Subject to adjustment as provided in Sections 5.2 and 16.1,
the aggregate number of Shares reserved and available for issuance pursuant to Awards granted under
the Plan shall be (i) 2,500,000, plus (ii) a number of additional Shares equal to the number of
Shares remaining available for issuance pursuant to the Company’s 1999 Plan as of the Effective
Date, plus (iii) a number of additional Shares underlying awards outstanding as of the Effective
Date under the Company’s 1999 Plan that thereafter terminate or expire unexercised, or are
cancelled, forfeited or lapse for any reason. The maximum number of Shares that may be issued upon
exercise of Incentive Stock Options granted under the Plan shall be the number determined in the
preceding sentence.

     5.2. SHARE COUNTING.

     (a) To the extent that an Award is canceled, terminates, expires, is forfeited or lapses for
any reason, any unissued Shares from such Award will again be available for issuance pursuant to
Awards granted under the Plan.

     (b) Shares subject to Awards settled in cash will again be available for issuance pursuant to
Awards granted under the Plan.

     (c) Shares withheld from an Award to satisfy minimum tax withholding requirements will again
be available for issuance pursuant to Awards granted under the Plan (but Shares delivered by a
Participant to satisfy tax withholding requirements shall not be added back to the number of Shares
available for issuance under the Plan).

     (d) If the exercise price of an Option is satisfied by delivering Shares to the Company (by
either actual delivery or attestation), only the net number of Shares actually issued shall be
considered for purposes of determining the number of Shares remaining available for issuance
pursuant to Awards granted under the Plan.

 

 

     (e) To the extent that the full number of Shares subject to an Award is not issued for any
reason, only the number of Shares issued and delivered shall be considered for purposes of
determining the number of Shares remaining available for issuance pursuant to Awards granted under
the Plan. Nothing in this subsection shall imply that any particular type of cashless exercise of
an Option is permitted under the Plan, that decision being reserved to the Committee or other
provisions of the Plan.

     (f) Substitute Awards granted pursuant to Section 15.13 of the Plan shall not count against
the Shares otherwise available for issuance under the Plan under Section 5.1.

     5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in
whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open
market.

     5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the
contrary (but subject to adjustment as provided in Section 16.1), the maximum number of Shares with
respect to one or more Options and/or SARs that may be granted during any one calendar year under
the Plan to any one Participant shall be 250,000. The maximum aggregate grant with respect to
Awards of Restricted Stock, Restricted Stock Units, Deferred Stock Units, Performance Shares or
other Stock-Based Awards (other than Options or SARs) granted in any one calendar year to any one
Participant shall be 250,000. The aggregate dollar value of any Performance-Based Cash Award or
other cash-based award that may be paid to any one Participant during any one calendar year under
the Plan shall be $2,500,000.

ARTICLE 6

ELIGIBILITY

     6.1. GENERAL. Awards may be granted only to Eligible Participants; except as limited
for Incentive Stock Options under Section 7.2 (g).

ARTICLE 7

STOCK OPTIONS

     7.1. GENERAL. The Committee is authorized to grant Options to Participants on the
following terms and conditions:

     (a) Exercise Price. The exercise price per Share under an Option shall be determined by the
Committee; provided, however, that the exercise price of an Option (other than an Option issued as
a substitute Award pursuant to Section 15.13) shall not be less than the Fair Market Value as of
the Grant Date.

     (b) Time and Conditions of Exercise. The Committee shall determine the time or times at which
an Option may be exercised in whole or in part, subject to Section 7.1(d). The Committee shall also
determine the performance or other conditions, if any, that must be satisfied before all or part of
an Option may be exercised or vested.

     (c) Payment. The Committee shall determine the methods by which the exercise price of an
Option may be paid, the form of payment, including, without limitation, cash, Shares, or other
property (including “cashless exercise” arrangements), and the methods by which Shares shall be
delivered or deemed to be delivered to Participants, subject, however, to compliance with
applicable law.

     (d) Exercise Term. In no event may any Option be exercisable for more than ten years from the
Grant Date.

     7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options granted under
the Plan must comply with the following additional rules:

     (a) Exercise Price. The exercise price of an Incentive Stock Option shall not be less than the
Fair Market Value as of the Grant Date.

 

 

     (b) Lapse Of Option. Subject to any earlier termination provision contained in the Award
Certificate, an Incentive Stock Option shall lapse upon the earliest of the following
circumstances; provided, however, that the Committee may, prior to the lapse of the Incentive Stock
Option under the circumstances described in subsections (3), (4) or (5) below, provide in writing
that the Option will extend until a later date, but if an Option is so extended and is exercised
after the dates specified in subsections (3) and (4) below, it will automatically become a
Nonstatutory Stock Option:

	 	(1)  	The expiration date set forth in the Award Certificate.
	 
	 	(2)  	The tenth anniversary of the Grant Date.
	 
	 	(3)  	Three months after termination of the Participant’s Continuous Status as a
Participant for any reason other than the Participant’s Disability or death.
	 
	 	(4)  	One year after the Participant’s Continuous Status as a Participant by reason
of the Participant’s Disability.
	 
	 	(5)  	One year after the Participant’s death if the Participant dies while
employed, or during the three-month period described in paragraph (3) or during the
one-year period described in paragraph (4) and before the Option otherwise lapses.

     Unless the exercisability of the Incentive Stock Option is accelerated as provided in Article
15, if a Participant exercises an Option after termination of employment, the Option may be
exercised only with respect to the Shares that were otherwise vested on the Participant’s
termination of employment. Upon the Participant’s death, any exercisable Incentive Stock Options
may be exercised by the Participant’s beneficiary, determined in accordance with Section 15.5.

     (c) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the Grant
Date) of all Shares with respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00.

     (d) Ten Percent Owners. No Incentive Stock Option shall be granted to any individual who, at
the Grant Date, owns stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary unless the exercise price per share
of such Option is at least 110% of the Fair Market Value per Share at the Grant Date and the Option
expires no later than five years after the Grant Date.

     (e) Expiration of Authority to Grant Incentive Stock Options. No Incentive Stock Option may be
granted pursuant to the Plan after the day immediately prior to the tenth anniversary of the
Effective Date of the Plan, or the termination of the Plan, if earlier.

     (f) Right To Exercise. During a Participant’s lifetime, an Incentive Stock Option may be
exercised only by the Participant or, in the case of the Participant’s Disability, by the
Participant’s guardian or legal representative.

     (g) Eligible Grantees. The Committee may not grant an Incentive Stock Option to a person who
is not at the Grant Date an employee of the Company or a Parent or Subsidiary.

ARTICLE 8

STOCK APPRECIATION RIGHTS

     8.1. GRANT OF STOCK APPRECIATION RIGHTS. The Committee is authorized to grant Stock
Appreciation Rights to Participants on the following terms and conditions:

 

 

     (a) Right To Payment. Upon the exercise of a Stock Appreciation Right, the Participant to whom
it is granted has the right to receive upon exercise, a payment in cash or Shares equal to the
excess, if any, of:

	 	(1)  	The Fair Market Value of one Share on the date of exercise; over
	 
	 	(2)  	The base value of the Stock Appreciation Right as determined by the
Committee, which shall not be less than the Fair Market Value of one Share on the
Grant Date (unless the SAR is granted in tandem with an Option after the Grant Date of
the Option, in which case, the base price of the SAR may equal the exercise price of
the related Option even if less than the Fair Market Value of one Share on the Grant
Date of the SAR).

     (b) Other Terms. The terms, methods of exercise, methods of settlement, form of consideration
payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be
determined by the Committee.

ARTICLE 9

PERFORMANCE AWARDS

     9.1. GRANT OF PERFORMANCE AWARDS. The Committee is authorized to grant Performance
Shares, Performance Units or Performance-Based Cash Awards to Participants on such terms and
conditions as may be selected by the Committee.

     9.2. PERFORMANCE GOALS. The Committee may establish performance goals for
Performance Awards which may be based on any criteria selected by the Committee. Such performance
goals may be described in terms of Company-wide objectives or in terms of objectives that relate to
the performance of the Participant, an Affiliate or a division, region, department or function
within the Company or an Affiliate. If the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company or the manner in which the
Company or an Affiliate conducts its business, or other events or circumstances render performance
goals to be unsuitable, the Committee may modify such performance goals in whole or in part, as the
Committee deems appropriate. If a Participant is promoted, demoted or transferred to a different
business unit or function during a performance period, the Committee may determine that the
performance goals or performance period are no longer appropriate and may (i) adjust, change or
eliminate the performance goals or the applicable performance period as it deems appropriate to
make such goals and period comparable to the initial goals and period, or (ii) make a cash payment
to the participant in amount determined by the Committee. The foregoing two sentences shall not
apply with respect to a Performance Award that is intended to be a Qualified Performance-Based
Award.

     9.3. RIGHT TO PAYMENT. The grant of a Performance Share to a Participant will
entitle the Participant to receive at a specified later time a specified number of Shares, or the
equivalent cash value, if the performance goals established by the Committee are achieved and the
other terms and conditions thereof are satisfied. The grant of a Performance Unit to a Participant
will entitle the Participant to receive at a specified later time a specified dollar value, which
may be settled in cash or other property, including Shares, variable under conditions specified in
the Award, if the performance goals in the Award are achieved and the other terms and conditions
thereof are satisfied. The grant of a Performance-Based Cash Award to a Participant will entitle
the Participant to receive at a specified later time a specified dollar value in cash variable
under conditions specified in the Award, if the performance goals in the Award are achieved and the
other terms and conditions thereof are satisfied. The Committee shall set performance goals and
other terms or conditions to payment of the Performance Awards in its discretion which, depending
on the extent to which they are met, will determine the value of the Performance Awards that will
be paid to the Participant.

     9.4. OTHER TERMS. The terms, methods of exercise, methods of settlement, form of
consideration payable in settlement, and any other terms and conditions of any Performance Awards
shall be determined by the Committee. For purposes of determining the number of Shares to be used
in payment of a Performance Award denominated in cash but payable in whole or in part in Shares or
Restricted Stock,

 

 

the number of Shares to be so paid will be determined by dividing the cash value of the Award
to be so paid by the Fair Market Value of a Share on the date of determination by the Committee of
the amount of the payment under the Award, or, if the Committee so directs, the date immediately
preceding the date the Award is paid.

ARTICLE 10

RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS

     10.1. GRANT OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is
authorized to make Awards of Restricted Stock or Restricted Stock Units to Participants in such
amounts and subject to such terms and conditions as may be selected by the Committee, subject to
Section 5.4.

     10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock or Restricted Stock Units shall be
subject to such restrictions on transferability and other restrictions as the Committee may impose
(including, without limitation, limitations on the right to vote Restricted Stock or the right to
receive dividends on the Restricted Stock or dividend equivalents on the Restricted Stock Units)
covering a period of time specified by the Committee (the “Restriction Period”). These restrictions
may lapse separately or in combination at such times, under such circumstances, in such
installments, upon the satisfaction of performance goals or otherwise, as the Committee determines
at the time of the grant of the Award or thereafter. Except as otherwise provided in an Award
Certificate, the Participant shall have all of the rights of a stockholder with respect to the
Restricted Stock, and the Participant shall have none of the rights of a stockholder with respect
to Restricted Stock Units until such time as Shares of Stock are paid in settlement of the
Restricted Stock Units.

     10.3. FORFEITURE. Except as provided in an Award Certificate or otherwise determined
by the Committee at the time of the grant of the Award or thereafter, immediately after termination
of Continuous Status as a Participant during the applicable Restriction Period or upon failure to
satisfy a performance goal during the applicable Restriction Period, Restricted Stock or Restricted
Stock Units that are at that time subject to restrictions shall be forfeited.

     10.4. DELIVERY OF RESTRICTED STOCK. Shares of Restricted Stock shall be delivered to
the Participant at the time of grant either by book-entry registration or by delivering to the
Participant, or a custodian or escrow agent (including, without limitation, the Company or one or
more of its employees) designated by the Committee, a stock certificate or certificates registered
in the name of the Participant. If physical certificates representing shares of Restricted Stock
are registered in the name of the Participant, such certificates must bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such Restricted Stock.

ARTICLE 11

DEFERRED STOCK UNITS

     11.1. GRANT OF DEFERRED STOCK UNITS. The Committee is authorized to grant Deferred
Stock Units to Participants subject to such terms and conditions as may be selected by the
Committee. Deferred Stock Units shall entitle the Participant to receive Shares of Stock (or the
equivalent value in cash or other property if so determined by the Committee) at a future time as
determined by the Committee, or as determined by the Participant within guidelines established by
the Committee in the case of voluntary deferral elections.

ARTICLE 12

DIVIDEND AND INTEREST EQUIVALENTS

     12.1. GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to Participants subject to such terms and conditions as may be selected by the
Committee. Dividend Equivalents shall entitle the Participant to receive payments equal in value to
the cash dividends that would have been paid with respect to all or a portion of the number of
Shares subject to any Award, if

 

 

such Shares had been outstanding, as determined by the Committee. The Committee may provide
that Dividend Equivalents be paid or distributed when accrued or be deemed to have been reinvested
in additional Shares or units equivalent to Shares, or otherwise reinvested.

     12.2 GRANT OF INTEREST EQUIVALENTS. The Committee is authorized to grant Interest
Equivalents to Participants subject to such terms and conditions as may be selected by the
Committee. Interest Equivalents shall entitle the Participant to receive payments equal to a stated
rate of return on the value of an outstanding Award, as determined by the Committee. The Committee
may provide that Interest Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional Shares or units equivalent to Shares, or otherwise reinvested.

ARTICLE 13

STOCK OR OTHER STOCK-BASED AWARDS

     13.1. GRANT OF STOCK OR OTHER STOCK-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other Awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares
or other property, as deemed by the Committee to be consistent with the purposes of the Plan,
including without limitation Shares awarded purely as a “bonus” and not subject to any restrictions
or conditions, convertible or exchangeable debt securities, other rights convertible or
exchangeable into Shares, and Awards valued by reference to book value of Shares or the value of
securities of or the performance of specified Parents or Affiliates (“Other Stock-Based Awards”).
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
Other Stock-Based Awards.

ARTICLE 14

QUALIFIED PERFORMANCE-BASED AWARDS

     14.1. OPTIONS AND STOCK APPRECIATION RIGHTS. The provisions of the Plan are intended
to ensure that all Options and Stock Appreciation Rights granted hereunder to any Covered Employee
shall qualify for the Section 162(m) Exemption.

     14.2. OTHER AWARDS. When granting an Award other than an Option or a Stock
Appreciation Right, the Committee may designate such Award as a Qualified Performance-Based Award,
based upon a determination that the recipient is or may be a Covered Employee with respect to such
Award, and the Committee wishes such Award to qualify for the Section 162(m) Exemption. If an Award
is so designated, the Committee shall establish performance goals for such Award within the time
period prescribed by Section 162(m) of the Code based on one or more of the following Qualified
Business Criteria, which may be expressed in terms of Company-wide objectives or in terms of
objectives that relate to the performance of an Affiliate or a division, region, department,
function or combination thereof within the Company or an Affiliate: revenue; sales; profit (net
profit, gross profit, operating profit, economic profit, profit margins or other corporate profit
measures); earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures); net
income (before or after taxes, operating income or other income measures); cash (cash flow, cash
generation or other cash measures); stock price or performance; total stockholder return (stock
price appreciation plus reinvested dividends divided by beginning share price); return measures
(including, but not limited to, return on assets, capital, equity, or sales, and cash flow return
on assets, capital, equity, or sales); market share; improvements in capital structure; expenses
(expense management, expense ratio, expense efficiency ratios or other expense measures); business
expansion or consolidation (acquisitions and divestitures); internal rate of return or increase in
net present value; working capital targets relating to inventory and/or accounts receivable; or
planning accuracy (as measured by comparing planned results to actual results).

     Performance goals with respect to the foregoing Qualified Business Criteria may be specified
in absolute terms, in percentages, or in terms of growth from period to period or growth rates over
time, as well as measured relative to an established or specially-created performance index of
Company competitors or peers. Any member of a specially-created performance index that undergoes a
corporate event or

 

 

transaction of a kind described in Article 16 or that files a petition for bankruptcy during a
measurement period shall be disregarded from and after such event. Performance goals need not be
based upon an increase or positive result under a business criterion and could include, for
example, the maintenance of the status quo or the limitation of economic losses (measured, in each
case, by reference to a specific business criterion).

     14.3. PERFORMANCE GOALS. Each Qualified Performance-Based Award (other than a
market-priced Option or SAR) shall be earned, vested and payable (as applicable) only upon the
achievement of performance goals established by the Committee based upon one or more of the
Qualified Business Criteria, together with the satisfaction of any other conditions, such as
continued employment, as the Committee may determine to be appropriate; provided, however, that the
Committee may provide, either in connection with the grant thereof or by amendment thereafter, that
achievement of such performance goals will be waived upon the death or Disability of the
Participant, or upon a Change in Control. Performance periods established by the Committee for any
such Qualified Performance-Based Award may be as short as three months and may be any longer
period. In addition, the Committee may reserve the right, in connection with the grant of a
Qualified Performance-Based Award, to exercise negative discretion to determine that the portion of
such Award actually earned, vested and/or payable (as applicable) shall be less than the portion
that would be earned, vested and/or payable based solely upon application of the applicable
performance goals.

     14.4. INCLUSIONS AND EXCLUSIONS FROM PERFORMANCE CRITERIA. The Committee may
provide in any Qualified Performance-Based Award that any evaluation of performance may include or
exclude any of the following events that occurs during a performance period: asset write-downs or
impairment charges; litigation or claim judgments or settlements; the effect of changes in tax
laws, accounting principles or other laws or provisions affecting reported results; accruals for
reorganization and restructuring programs; extraordinary nonrecurring items as described in
Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of
financial condition and results of operations appearing in the Company’s annual report to
stockholders for the applicable year; acquisitions or divestitures; and foreign exchange gains and
losses. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall
be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.

     14.5. CERTIFICATION OF PERFORMANCE GOALS. Any payment of a Qualified
Performance-Based Award granted with performance goals pursuant to Section 14.3 above shall be
conditioned on the written certification of the Committee in each case that the performance goals
and any other material conditions were satisfied. Except as specifically provided in Section 14.3,
no Qualified Performance-Based Award held by a Covered Employee or by an employee who in the
reasonable judgment of the Committee may be a Covered Employee on the date of payment, may be
amended, nor may the Committee exercise any discretionary authority it may otherwise have under the
Plan with respect to a Qualified Performance-Based Award under the Plan, in any manner to waive the
achievement of the applicable performance goal based on Qualified Business Criteria or to increase
the amount payable pursuant thereto or the value thereof, or otherwise in a manner that would cause
the Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.

ARTICLE 15

PROVISIONS APPLICABLE TO AWARDS

     15.1. STAND-ALONE AND TANDEM AWARDS. Awards granted under the Plan may, in the
discretion of the Committee, be granted either alone or in addition to, in tandem with, any other
Award granted under the Plan. Subject to Section 17.2, Awards granted in addition to or in tandem
with other Awards may be granted either at the same time as or at a different time from the grant
of such other Awards.

     15.2. TERM OF AWARD. The term of each Award shall be for the period as determined by
the Committee, provided that in no event shall the term of any Option or a Stock Appreciation Right
exceed a period of ten years from its Grant Date (or, if Section 7.2(d) applies, five years from
its Grant Date).

 

 

     15.3. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Certificate, payments or transfers to be made by the Company or an
Affiliate on the grant or exercise of an Award may be made in such form as the Committee determines
at or after the Grant Date, including without limitation, cash, Stock, other Awards, or other
property, or any combination, and may be made in a single payment or transfer, in installments, or
on a deferred basis, in each case determined in accordance with rules adopted by, and at the
discretion of, the Committee.

     15.4. LIMITS ON TRANSFER. No right or interest of a Participant in any unexercised
or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other
than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such
Participant to any other party other than the Company or an Affiliate. No unexercised or restricted
Award shall be assignable or transferable by a Participant other than by will or the laws of
descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a
domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section
applied to an Award under the Plan; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does not result in
accelerated taxation, (ii) does not cause any Option intended to be an Incentive Stock Option to
fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable,
taking into account any factors deemed relevant, including without limitation, state or federal tax
or securities laws applicable to transferable Awards. Any purported transfer in violation of this
Section 15.4 shall be null and void.

     15.5. BENEFICIARIES. Notwithstanding Section 15.4, a Participant may, in the manner
determined by the Committee, designate a beneficiary to exercise the rights of the Participant and
to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary,
legal guardian, legal representative, or other person claiming any rights under the Plan is subject
to all terms and conditions of the Plan and any Award Certificate applicable to the Participant,
except to the extent the Plan and Award Certificate otherwise provide, and to any additional
restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been
designated or survives the Participant, payment shall be made to the Participant’s estate. Subject
to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time
provided the change or revocation is filed with the Company.

     15.6. STOCK CERTIFICATES. All Stock issuable under the Plan is subject to any
stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply
with federal or state securities laws, rules and regulations and the rules of any national
securities exchange or automated quotation system on which the Stock is listed, quoted, or traded.
The Committee may place legends on any Stock certificate or issue instructions to the transfer
agent to reference restrictions applicable to the Stock.

     15.7. ACCELERATION UPON DEATH, DISABILITY OR RETIREMENT. Except as otherwise
provided in the Award Certificate or any special Plan document governing an Award, upon a
Participant’s death, Disability or Retirement during his or her Continuous Status as a Participant,
(i) all of such Participant’s outstanding Options, SARs, and other Awards in the nature of rights
that may be exercised shall become fully exercisable, (ii) all time-based vesting restrictions on
the Participant’s outstanding Awards shall lapse, and (iii) the target payout opportunities
attainable under all of such Participant’s outstanding performance-based equity Awards shall be
deemed to have been fully earned as of the date of termination based upon an assumed achievement of
all relevant performance goals at the “target” level and there shall be a pro rata payout to the
Participant or his or her estate within thirty (30) days following the date of termination based
upon the length of time within the performance period that has elapsed prior to the date of
termination. In addition, upon a Participant’s death, Disability or Retirement of a Participant,
the Committee may determine that any performance-based criteria with respect to any
Performance-Based Cash Awards held by that Participant shall be deemed to be wholly or partially
satisfied, in each case, as of such date as the Committee may, in its sole discretion, declare. Any
Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and
the Award Certificate. To the extent that this provision causes Incentive Stock Options to exceed
the dollar limitation set forth in Section 7.2(c), the excess Options shall be deemed to be
Nonstatutory Stock Options.

 

 

     15.8. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise provided in the
Award Certificate or in an employment agreement, consulting agreement, change in control agreement
or similar agreement in effect between the Company or an Affiliate and the Participant, in the
event of a Change in Control or if a Participant’s employment is terminated without Cause or the
Participant resigns for Good Reason within six months after the effective date of a Change in
Control, then, in the discretion of the Committee (which may be exercised prior to or following any
Change in Control), the Committee may determine (which determination may be selective and
non-uniform among Participants) that: (i) all of that Participant’s outstanding Options, SARs and
other Awards in the nature of rights that may be exercised may be terminated or may be accelerated
to become fully exercisable, (ii) all time-based vesting restrictions on the Participant’s
outstanding Awards shall lapse, and/or (iii) the target payout opportunities attainable under all
outstanding of that Participant’s performance-based Awards shall be deemed to have been fully
earned based upon an assumed achievement of all relevant performance goals at the “target” level
and there shall be pro rata payout to such Participant within thirty (30) days following the date
of Change in Control or termination of employment based upon the length of time within the
performance period that has elapsed prior to the date of Change in Control or termination of
employment.

     15.9. DISCRETIONARY ACCELERATION. Regardless of whether an event has occurred as
described in Section 15.7 or 15.8 above, and subject to Article 14 as to Qualified
Performance-Based Awards, the Committee may in its sole discretion at any time determine that, upon
the termination of service of a Participant, or the occurrence of a Change in Control, all or a
portion of such Participant’s Options, SARs and other Awards in the nature of rights that may be
exercised shall terminate or become fully or partially exercisable, that all or a part of the
restrictions on all or a portion of the Participant’s outstanding Awards shall lapse, and/or that
any performance-based criteria with respect to any Awards held by that Participant shall be deemed
to be wholly or partially satisfied, in each case, as of such date as the Committee may, in its
sole discretion, declare. The Committee may be selective and non-uniform among Participants and
among Awards granted to a Participant in exercising its discretion pursuant to this Section 15.9.

     15.10. TERMINATION OF EMPLOYMENT. Whether military, government or other service or
other leave of absence shall constitute a termination of employment shall be determined by the
Committee at its discretion, and any determination by the Committee shall be final and conclusive.
A Participant’s Continuous Status as a Participant shall not be deemed to terminate (i) in a
circumstance in which a Participant transfers from the Company to an Affiliate, transfers from an
Affiliate to the Company, or transfers from one Affiliate to another Affiliate, or (ii) in the
discretion of the Committee as specified at or prior to such occurrence, in the case of a spin-off,
sale or disposition of the Participant’s employer from the Company or any Affiliate. To the extent
that this provision causes Incentive Stock Options to extend beyond three months from the date a
Participant is deemed to cease to be an employee of the Company, a Parent or Subsidiary for
purposes of Sections 424(e) and 424(f) of the Code, the Options held by such Participant shall be
deemed to be Nonstatutory Stock Options.

     15.11. DEFERRAL. Subject to applicable law, the Committee may permit or require a
Participant to defer such Participant’s receipt of the payment of cash or the delivery of Shares or
other property that would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock or Restricted
Stock Units, or the satisfaction of any requirements or goals with respect to Performance Awards,
and Other Stock-Based Awards. If any such deferral election is required or permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such payment deferrals.

     15.12. FORFEITURE EVENTS. The Committee may specify in an Award Certificate that the
Participant’s rights, payments and benefits with respect to an Award shall be subject to reduction,
cancellation, forfeiture or recoupment upon the occurrence of certain specified events. Such events
may include, but are not limited to, termination of employment for cause, violation of material
Company or Affiliate policies, breach of non-competition, confidentiality or other restrictive
covenants that may apply to the Participant, or other conduct by the Participant that is
detrimental to the business or reputation of the Company or any Affiliate.

 

 

     15.13. SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and stock-based awards held by employees of another entity who become
employees of the Company or an Affiliate as a result of a merger or consolidation of the former
employing entity with the Company or an Affiliate or the acquisition by the Company or an Affiliate
of property or stock of the former employing corporation. The Committee may direct that the
substitute awards be granted on such terms and conditions as the Committee considers appropriate in
the circumstances.

ARTICLE 16

CHANGES IN CAPITAL STRUCTURE

     16.1. GENERAL. In the event of a corporate event or transaction involving the
Company (including, without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination
or exchange of shares), the authorization limits under Section 5.1 and 5.4 shall be adjusted
proportionately, and the Committee may adjust the Plan and Awards to preserve the benefits or
potential benefits of the Awards. Action by the Committee may include: (i) adjustment of the number
and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of
shares subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding Awards
or the measure to be used to determine the amount of the benefit payable on an Award; and (iv) any
other adjustments that the Committee determines to be equitable. In addition, the Committee may, in
its sole discretion, provide (i) that Awards will be settled in cash rather than Stock, (ii) that
Awards will become immediately vested and exercisable and will expire after a designated period of
time to the extent not then exercised, (iii) that Awards will be assumed by another party to a
transaction or otherwise be equitably converted or substituted in connection with such transaction,
(iv) that outstanding Awards may be settled by payment in cash or cash equivalents equal to the
excess of the Fair Market Value of the underlying Stock, as of a specified date associated with the
transaction, over the exercise price of the Award, (v) that performance targets and performance
periods for Performance Awards will be modified, consistent with Code Section 162(m) where
applicable, or (vi) any combination of the foregoing. The Committee’s determination need not be
uniform and may be different for different Participants whether or not such Participants are
similarly situated. Without limiting the foregoing, in the event of a subdivision of the
outstanding Stock (stock-split), a declaration of a dividend payable in Shares, or a combination or
consolidation of the outstanding Stock into a lesser number of Shares, the authorization limits
under Section 5.1 and 5.4 shall automatically be adjusted proportionately, and the Shares then
subject to each Award shall automatically be adjusted proportionately without any change in the
aggregate purchase price therefor. To the extent that any adjustments made pursuant to this Article
16 cause Incentive Stock Options to cease to qualify as Incentive Stock Options, such Options shall
be deemed to be Nonstatutory Stock Options.

ARTICLE 17

AMENDMENT, MODIFICATION AND TERMINATION

     17.1. AMENDMENT, MODIFICATION AND TERMINATION.

     (a) The Board or the Committee may, at any time and from time to time, amend, modify or
terminate the Plan without stockholder approval; provided, however, that if an amendment to the
Plan would, in the reasonable opinion of the Board or the Committee, (i) materially increase the
benefits accruing to Participants, (ii) materially increase the number of Shares available under
the Plan, (iii) expand the types of awards under the Plan, (iv) materially expand the class of
participants eligible to participate in the Plan, (v) materially extend the term of the Plan, or
(vi) otherwise constitute a material change requiring stockholder approval under applicable laws or
the applicable listing or other requirements of an Exchange, then such amendment shall be subject
to stockholder approval; and provided, further, that the Board or Committee may condition any
amendment or modification on the approval of stockholders of the Company for any reason, including
by reason of such approval being necessary or deemed advisable to (i) to comply with the listing or
other requirements of an Exchange, or (ii) to satisfy any other tax, securities or other applicable
laws, policies or regulations.

 

 

     (b) No termination, amendment, or modification of the Plan shall adversely affect any Award
previously granted under the Plan, without the written consent of the Participant affected thereby.
An outstanding Award shall not be deemed to be “adversely affected” by a Plan amendment if such
amendment would not reduce or diminish the value of such Award determined as if the Award had been
exercised, vested, cashed in or otherwise settled on the date of such amendment (with the per-share
value of an Option or Stock Appreciation Right for this purpose being calculated as the excess, if
any, of the Fair Market Value as of the date of such amendment over the exercise price or base
value of such Award).

     17.2. AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the Committee
may amend, modify or terminate any outstanding Award without approval of the Participant; provided,
however:

     (a) Subject to the terms of the applicable Award Certificate, such amendment, modification or
termination shall not, without the Participant’s consent, reduce or diminish the value of such
Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the
date of such amendment or termination (with the per-share value of an Option or Stock Appreciation
Right for this purpose being calculated as the excess, if any, of the Fair Market Value as of the
date of such amendment or termination over the exercise or base price of such Award);

     (b) The original term of an Option may not be extended without the prior approval of the
stockholders of the Company; and

     (c) Except as otherwise provided in Article 16, the exercise price of an Option may not be
reduced, directly or indirectly, without the prior approval of the stockholders of the Company.

ARTICLE 18

GENERAL PROVISIONS

     18.1. NO RIGHTS TO AWARDS; NON-UNIFORM DETERMINATIONS. No Participant or any
Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the
Company, its Affiliates nor the Committee is obligated to treat Participants or Eligible
Participants uniformly, and determinations made under the Plan may be made by the Committee
selectively among Eligible Participants who receive, or are eligible to receive, Awards (whether or
not such Eligible Participants are similarly situated).

     18.2. NO STOCKHOLDER RIGHTS. No Award gives a Participant any of the rights of a
stockholder of the Company unless and until Shares are in fact issued to such Participant in
connection with the Award.

     18.3. WITHHOLDING. The Company or any Affiliate shall have the authority and the
right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient
to satisfy federal, state, and local taxes (including the Participant’s FICA obligation) required
by law to be withheld with respect to any exercise, lapse of restriction or other taxable event
arising as a result of the Plan or an Award. If Shares are permitted to be surrendered to the
Company to satisfy tax obligations in excess of the minimum tax withholding obligation, such Shares
must have been held by the Participant as fully vested shares for such period of time, if any, as
the Committee may determine. The Company shall have the authority to require a Participant to remit
cash to the Company in lieu of the surrender of Shares for tax withholding obligations if the
Committee so determines. With respect to withholding required upon any taxable event under the
Plan, the Committee may, at the time the Award is granted or thereafter, require or permit that any
such withholding requirement be satisfied, in whole or in part, by withholding from the Award
Shares having a Fair Market Value on the date of withholding equal to the minimum amount (and not
any greater amount) required to be withheld for tax purposes.

 

 

     18.4. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan, any Award Certificate or
any other document or statement made with respect to the Plan, shall interfere with or limit in any
way the right of the Company or any Affiliate to terminate any Participant’s employment or status
as an officer, director or consultant at any time, nor confer upon any Participant any right to
continue as an employee, officer, director or consultant of the Company or any Affiliate, whether
for the duration of a Participant’s Award or otherwise.

     18.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an “unfunded” plan for
incentive and deferred compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give the
Participant any rights that are greater than those of a general creditor of the Company or any
Affiliate. This Plan is not intended to be subject to ERISA.

     18.6. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into
account in determining any benefits under any pension, retirement, savings, profit sharing, group
insurance, welfare or benefit plan of the Company or any Affiliate unless specifically provided
otherwise in such other plan.

     18.7. EXPENSES. The expenses of administering the Plan shall be borne by the Company
and its Affiliates.

     18.8. TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are
for convenience of reference only, and in the event of any conflict, the text of the Plan, rather
than such titles or headings, shall control.

     18.9. GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall include the singular
and the singular shall include the plural.

     18.10. FRACTIONAL SHARES. No fractional Shares shall be issued and the Committee
shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or
whether such fractional Shares shall be eliminated by rounding up or down.

     18.11. GOVERNMENT AND OTHER REGULATIONS.

     (a) Notwithstanding any other provision of the Plan, no Participant who acquires Shares
pursuant to the Plan may, during any period of time that such Participant is an affiliate of the
Company (within the meaning of the rules and regulations of the Securities and Exchange Commission
under the 1933 Act), sell such Shares, unless such offer and sale is made (i) pursuant to an
effective registration statement under the 1933 Act, which is current and includes the Shares to be
sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the 1933
Act, such as that set forth in Rule 144 promulgated under the 1933 Act.

     (b) Notwithstanding any other provision of the Plan, if at any time the Committee shall
determine that the registration, listing or qualification of the Shares covered by an Award upon
any Exchange or under any foreign, federal, state or local law or practice, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no
Shares may be purchased, delivered or received pursuant to such Award unless and until such
registration, listing, qualification, consent or approval shall have been effected or obtained free
of any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares
pursuant to an Award shall make such representations and agreements and furnish such information as
the Committee may request to assure compliance with the foregoing or any other applicable legal
requirements. The Company shall not be required to issue or deliver any certificate or certificates
for Shares under the Plan prior to the Committee’s determination that all related requirements have
been fulfilled. The Company shall in no event be obligated to register any securities pursuant to
the

 

 

1933 Act or applicable state or foreign law or to take any other action in order to cause the
issuance and delivery of such certificates to comply with any such law, regulation or requirement.

     18.12. GOVERNING LAW. To the extent not governed by federal law, the Plan and all
Award Certificates shall be construed in accordance with and governed by the laws of the State of
Delaware.

     18.13. ADDITIONAL PROVISIONS. Each Award Certificate may contain such other terms
and conditions as the Committee may determine; provided that such other terms and conditions are
not inconsistent with the provisions of the Plan.

     18.14. NO LIMITATIONS ON RIGHTS OF COMPANY. The grant of any Award shall not in any
way affect the right or power of the Company to make adjustments, reclassification or changes in
its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer
all or any part of its business or assets. The Plan shall not restrict the authority of the
Company, for proper corporate purposes, to draft or assume awards, other than under the Plan, to or
with respect to any person. If the Committee so directs, the Company may issue or transfer Shares
to an Affiliate, for such lawful consideration as the Committee may specify, upon the condition or
understanding that the Affiliate will transfer such Shares to a Participant in accordance with the
terms of an Award granted to such Participant and specified by the Committee pursuant to the
provisions of the Plan.

     18.15. INDEMNIFICATION. Each person who is or shall have been a member of the
Committee, or of the Board, or an officer of the Company to whom authority was delegated in
accordance with Article 4 shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her
in connection with or resulting from any claim, action, suit, or proceeding to which he or she may
be a party or in which he or she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him or her in settlement thereof,
with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such
action, suit, or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a
result of his or her own willful misconduct or except as expressly provided by statute. The
foregoing right of indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company’s charter or bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them harmless.

     18.16. FOREIGN PARTICIPANTS. In order to facilitate the granting of Awards to
Eligible Participants who are foreign nationals or who are employed outside of the United States of
America, the Committee may provide for such special terms and conditions, including without
limitation substitutes for Awards, as the Committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. The Committee may approve any
supplements to, or amendments, restatements or alternative versions of this Plan as it may consider
necessary or appropriate for the purposes of this Section 18.16 without thereby affecting the terms
of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of
the Company may certify any such documents as having been approved and adopted pursuant to properly
delegated authority; provided, that no such supplements, amendments, restatements or alternative
versions shall include any provisions that are inconsistent with the spirit of this Plan, as then
in effect. Participants subject to the laws of a foreign jurisdiction may request copies of, or the
right to view, any materials that are required to be provided by the Company pursuant to the laws
of such jurisdiction.

     18.17. NOTICE. Except as otherwise provided in this Plan, all notices or other
communications required or permitted to be given under this Plan to the Company shall be in writing
and shall be deemed to have been duly given if delivered personally or mailed, postage pre-paid, as
follows: (i) if to the Company, at its principal business address to the attention of the
Secretary; and (ii) if to any Participant, at the last address of the Participant known to the
sender at the time the notice or other communication is sent.

 

 

     18.18. INUREMENT OF RIGHTS AND OBLIGATIONS. The rights and obligations under this
Plan and any related documents shall inure to the benefit of, and shall be binding upon, the
Company, its successors and assigns, and the Participants and their beneficiaries.

     18.19. COSTS AND EXPENSES. Except as otherwise provided herein, the costs and
expenses of administering this Plan shall be borne by the Company, and shall not be charged to any
Award nor to any Participant receiving an Award. Costs and expenses associated with the redemption
or exercise of any Award under this Plan, including, but not limited to, commissions charged by any
agent of the Company, may be charged to the Participant.

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