Document:

Exhibit 10.1

 

August 11, 2005

 

Mr. Kelly Flock

441 Bridoon Terrace

Encinitas, CA 92024

 

Dear Kelly:

 

We are pleased to offer you the position of Executive Vice President,
Worldwide Publishing reporting to Brian Farrell, President and Chief Executive
Officer.  Your start date will be August
29, 2005.  We look forward to a mutually
beneficial and successful business relationship.  This letter sets out the terms and conditions
of your employment with THQ.

 

Kelly, please note that the terms of your compensation package in all
categories are the same or better than the rest of the Executive Team, with the
exception of Brian Farrell.

 

The Compensation Plan and Benefits Package for your position is
summarized on page two of this letter. 
These terms may be modified at a later date; also, THQ may from time to
time establish other policies and conditions regarding your employment.

 

In addition, this offer is made contingent upon your reading and
signing the standard THQ’s Policy on Confidentiality of Information and Securities
Trading and upon THQ receiving positive confirmation on a background screening
that is conducted for all newly hired employees.

 

If you accept this offer, please sign at the spaces provided on both
pages of this letter, indicating your acceptance.  If you do not do so within seven days from
the date of this letter, this offer will expire.

 

By signing this letter, you understand and agree that your employment
with THQ is at will.  Your employment
with THQ is voluntarily entered into and we recognize you are free to resign at
any time.  Similarly, it is recognized
that THQ is free to conclude an employment relationship at any time we feel is
appropriate.  While other terms of your
employment may change with or without notice, this at will relationship can be
changed only in a written agreement signed by you and an officer of THQ.

 

On your first day of work we will need evidence of your U.S.
citizenship, or proof of your legal right to live and work in this country.

 

Welcome to the THQ team, Kelly.

 

Sincerely,

 

 

Bill Goodmen

Executive Vice President

Human Resources and Administration

 

 

Acceptance:

 

 

	
   

  	
   

  	
   

  	
   

  
	
  Kelly Flock

  	
  Date

  	
   

  	
  Start Date: August 29, 2005

  	
   

  
					

 

 

Kelly Flock

 

	
   

  	
   

  	
  Compensation Plan and Benefits Package

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Executive Vice
  President, Worldwide Publishing, reporting to President and Chief Executive
  Officer.

  
	
   

  	
   

  	
   

  
	
  Base Salary:

  	
   

  	
  $400,000 per year
  payable bi-weekly at the rate of $15,384.62. (26 pay periods/year)

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Exempt

  
	
   

  	
   

  	
   

  
	
  Health Insurance:

  	
   

  	
  Blue Cross HMO, Blue
  Cross PPO, or Kaiser HMO. Eligibility begins on date of hire. In addition,
  you and your eligible dependents will be covered by Exec-U-Care at no cost to
  you.

  
	
   

  	
   

  	
   

  
	
  Dental:

  	
   

  	
  Coverage through
  MetLife. Eligibility begins on date of hire.

  
	
   

  	
   

  	
   

  
	
  Vision:

  	
   

  	
  Coverage through V.S.P.
  Eligibility begins on date of hire.

  
	
   

  	
   

  	
   

  
	
  Life Insurance:

  	
   

  	
  Three times base pay
  (capped at $1 million) — Eligibility effective on date of hire.

  
	
   

  	
   

  	
   

  
	
  Short/Long Term
  Disability:

  	
   

  	
  Eligibility effective
  on date of hire.

  
	
   

  	
   

  	
   

  
	
  Vacation/Holidays:

  	
   

  	
  Twenty (20) days per year vacation. Eight (8) paid
  holidays, plus two floating days per year.

  
	
   

  	
   

  	
   

  
	
  401k Plan:

  	
   

  	
  All full time regular
  employees are eligible to participate at the beginning of each quarter
  (January 1, April 1, July 1, and October 1) after 30 days of employment. 100%
  company match on first 4%. Six year vesting schedule for company match.

  
	
   

  	
   

  	
   

  
	
  Bonus:

  	
   

  	
  80% Target Bonus. Bonus
  will be based upon certain quantitative and qualitative performance measures
  and bonus will be determined annually by the Compensation Committee.

  
	
   

  	
   

  	
   

  
	
  Profit Sharing:

  	
   

  	
  Contributions are based
  on profitability, are generally made once each year and are up to the
  discretion of management.

  
	
   

  	
   

  	
   

  
	
  Stock Options:

  	
   

  	
  Board has approved
  175,000 stock options (pre-split) and 25,000 PARS (pre-split). Will be
  eligible for annual stock grants as approved by the Board of Directors.

  
	
   

  	
   

  	
   

  
	
  Deferred Compensation:

  	
   

  	
  Eligible to participate
  in THQ’s Executive Deferred Compensation Plan.

  
	
   

  	
   

  	
   

  
	
  Severance:

  	
   

  	
  If, at any time during
  the eighteen (18) months following your first day of employment, your
  employment is terminated by the Company for reasons other than cause, as
  determined in the attached exhibit, you will be entitled to a severance
  payment equal to 18 months of pay, minus the number of days already worked
  within the 18 month period, with a minimum of 9 months pay.

  
	
   

  	
   

  	
   

  
	
  Signing Bonus:

  	
   

  	
  A $50,000 signing bonus
  will be paid within 30 days of employment.

  
	
   

  	
   

  	
   

  
	
  Change of Control:

  	
   

  	
  Eligible to participate
  in the attached Change of Control agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Acceptance:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Kelly Flock

  	
  Date

  
					

 

 

Attachment A

 

Termination by the Company for Cause.

 

The Company may, at its option, terminate Executive’s employment under
this Agreement for any one or more of the following reasons:

 

(a)                                  Executive’s
material breach of any confidentiality, non-competition, non-solicitation or
assignment of inventions agreement between the Company and Executive;

 

(b)                                 Executive’s
conviction of or entry of a plea of nolo contendere in any court for any
business or financial crime or any felony;

 

(c)                                  Executive’s
commission of an act of fraud, misappropriation or embezzlement upon the
Company or any of its subsidiaries;

 

(d)                                 Executive’s
repeated disregard of lawful and commercially reasonable instructions of the
Company’s Chairman of the Board, Chief Executive Officer or Board of Directors
consistent with Executive’s position relating to the business of the Company or
any of its subsidiaries; or “after written notification thereof) Executive’s
neglect of duties or failure to act which has, or is intended to have, a
material adverse affect on the business or affairs of the Company or any of its
subsidiaries;

 

(e)                                  Executive’s
abuse of alcohol or other drugs or controlled substances that interferes with
Executive’s performance of his obligations hereunder or which has had or can
reasonably be expected to have a material adverse affect on the business or
affairs of the Company;

 

(f)                                    Executive’s
failure to apprise the Company’s Chairman of the Board of Chief Executive
Officer of any material developments concerning the business and affairs of the
Company or any of its subsidiaries within a reasonable time after the
occurrence of such development; or Executive’s failure to truthfully and fully
answer to the best of his knowledge and ability any questions asked of
Executive concerning the business and affairs of the Company or any of its
subsidiaries or Executive’s services posted to Executive by the Company’s
Chairman of the Board, Chief Executive Officer or Board of Directors; or

 

(g)                                 Executive’s
violation of any material Company policy.

 

Acceptance:

 

 

	
   

  	
   

  	
  Date:

  
	
  Kelly FlockEXHIBIT 10.2

 

AMENDED AND RESTATED

1997 STOCK OPTION PLAN

 

(Amended and Restated as of August 18, 2005)

(Amended and Restated as of January 28, 2005)

(Amended and Restated as of June 26, 2003)

(Amended and Restated as of May 19, 2001)

(Amended and Restated as of June 14, 2000)

(Amended and Restated as of April 29, 1999)

(Amended and Restated as of June 15 and July 30,
1998)

(Adopted in March 1997
and Approved in June 1997)

 

I.  INTRODUCTION

 

1.1.                            Purposes. 
The purposes of the 1997 Stock Option Plan (this “Plan”) of THQ
Inc. (the “Company”), and its subsidiaries (individually a “Subsidiary”
and collectively the “Subsidiaries”) are (i) to align the interests
of the Company’s stockholders and the recipients of awards under this Plan by
increasing the proprietary interest of such recipients in the Company’s growth
and success, (ii) to advance the interests of the Company by attracting
and retaining officers, other employees, consultants, advisors and
well-qualified persons who are not officers or employees of the Company for
service as directors of the Company, and (iii) to motivate such persons to
act in the long-term best interests of the Company’s stockholders. For purposes
of this Plan, references to employment by the Company shall also mean
employment by a Subsidiary and, in the case of a consultant or advisor who is
not an employee, the rendering of services to the Company or a Subsidiary.

 

1.2.                            Administration.  This Plan
shall be administered either by the Board of Directors of the Company (the “Board”)
or by a committee (the “Committee”) designated by the Board consisting
of two or more members of the Board each of whom shall be a “Non-Employee
Director” within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and (if the Board wishes
to qualify awards under the Plan as qualified performance-based compensation
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
“Code”)) an “outside director” within the meaning of Section 162(m)
of the Code.  As used herein, the term “Committee”
shall mean the Board if no such committee is designated, and shall mean such
committee during such times as it is so designated.

 

The Committee
shall, subject to the terms of this Plan, select eligible persons for
participation in this Plan and shall determine the type of award and the number
of shares of Common Stock subject to each award granted hereunder, the exercise
price of each option award, the time and conditions of vesting or
exercisability of each award and all other terms and conditions of each award,
including, without limitation, the form of the written award agreement between
the Company and the recipient that evidences each award and sets forth the
terms and conditions of such award (the “Agreement”).  The Committee shall, subject to the terms of
this Plan, interpret this Plan and the application thereof, establish such rules and
regulations it deems necessary or desirable for the administration of this Plan
and may impose, incidental to the grant of an award, conditions with respect to
the grant, such as limiting competitive employment or other activities.  All such interpretations, rules, regulations
and conditions shall be final, binding and conclusive.  The Committee may, in its sole discretion and
for any reason at any time, subject to the requirements imposed under Section 162(m)
of the Code and regulations promulgated thereunder in the case of an award
intended to be qualified performance-based compensation, take action such that
any or all outstanding awards shall become vested or exercisable in part or in
full.

 

The Committee may
delegate some or all of its power and authority hereunder to the Chief
Executive Officer or other executive officer of the Company as the Committee
deems appropriate; provided, however,
that the Committee may not delegate its power and authority with regard to the
selection for participation in this Plan of an officer or other person subject
to Section 16 of the Exchange Act or decisions concerning the timing,
pricing or amount of an award grant to such an officer or other person.

 

 

No member of the
Board of Directors or the Committee, and neither the Chief Executive Officer
nor other executive officer to whom the Committee delegates any of its power
and authority hereunder, shall be liable for any act, omission, interpretation,
construction or determination made in connection with this Plan in good faith,
and the members of the Board of Directors and the Committee and the Chief
Executive Officer or other executive officer shall be entitled to
indemnification and reimbursement by the Company in respect of any claim, loss,
damage or expense (including attorneys’ fees) arising therefrom to the full
extent permitted by law and under any directors’ and officers’ liability insurance
that may be in effect from time to time.

 

A majority of the
Committee shall constitute a quorum.  The
acts of the Committee shall be either (i) acts of a majority of the
members of the Committee present at any meeting at which a quorum is present or
(ii) acts approved in writing by all of the members of the Committee
without a meeting.

 

1.3.                            Eligibility.  Participants
in this Plan shall consist of such officers, other employees,  non-employee directors, consultants and
advisors of the Company and its Subsidiaries from time to time as the Committee
in its sole discretion may select from time to time.  The Committee’s selection of a person to
participate in this Plan at any time shall not require the Committee to select
such person to participate in this Plan at any other time.  Non-employee directors of the Company shall
be eligible to participate in this Plan in accordance with Articles III and IV.

 

1.4.                            Shares Available.  Subject to
adjustment as provided in Section 4.7, 14,357,500 shares of the common
stock, par value $0.01 per share, of the Company (“Common Stock”), shall
be available for grants of awards under this Plan, reduced by the sum of the
aggregate number of shares of Common Stock which become subject to outstanding
awards.  Not more than twenty percent
(20%) of the shares of Common Stock authorized for issuance under the Plan may
be granted in the form of performance accelerated restricted stock or
performance accelerated restricted stock unit awards.  To the extent that shares of Common Stock
subject to an outstanding award are not issued or delivered by reason of the
expiration, termination, cancellation or forfeiture of such award, then such
shares of Common Stock shall again be available under this Plan.

 

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

 

The maximum
aggregate number of shares of Common Stock for which new option award grants
may be made in any one fiscal year to any one single participant shall be four
hundred fifty thousand (450,000) and the maximum aggregate number of shares of
Common Stock for which replacement option grants may be made in any one fiscal
year to any one single participant shall be four hundred fifty thousand
(450,000).

 

II.  STOCK OPTIONS

 

2.1.                            Grants of Stock Options.  The Committee
may, in its discretion, grant options to purchase shares of Common Stock to
such eligible persons as may be selected by the Committee.  Each option, or portion thereof, that is not
an incentive stock option, shall be a non-qualified stock option.  An incentive stock option shall mean an
option to purchase shares of Common Stock that meets the requirements of Section 422
of the Code, or any successor provision, which is intended by the Committee to
constitute an incentive stock option. 
Each incentive stock option shall be granted within ten years of the
effective date of this Plan.  To the
extent that the aggregate Fair Market Value (determined as of the date of
grant) of shares of Common Stock with respect to which options designated as
incentive stock options are exercisable for the first time by a participant
during any calendar year (under this Plan or any other plan of the Company, or
any Subsidiary as defined in Section 424 of the Code) exceeds the amount
(currently $100,000) established by the Code, such options shall constitute
non-qualified stock options.  “Fair
Market Value” shall mean the closing transaction price of a share of Common
Stock as reported in the NASDAQ National Market System, or other exchange where
the Common Stock is listed, on the date as of which such value is being
determined or, if there shall be no reported transactions on such date, on the
next preceding date for which transactions were reported; provided that if Fair
Market Value for any date cannot be determined as above provided, Fair Market
Value shall be determined by the Committee by whatever means or method as the Committee,
in the good faith exercise of its discretion, shall at such time deem
appropriate.

 

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

 

(a)                                  Number of Shares and Purchase Price. 
The number of shares of Common Stock subject to an option and the
purchase price per share of Common Stock purchasable upon exercise of the option
shall be determined by the Committee; provided, however,
that such purchase price shall not be less than 100% of the Fair Market Value
of a share of Common Stock on the date of grant of such option; provided further, that if an incentive stock option shall be
granted to any person who, at the time such option is granted, owns capital
stock possessing more than ten percent of the total combined

 

 

voting power of all classes of capital stock of the Company (or of any
Subsidiary) (a “Ten Percent Holder”), the purchase price per share of
Common Stock shall be the price (currently 110% of Fair Market Value) required
by the Code in order to constitute an incentive stock option; provided further, that the purchase price per share of
Common Stock purchasable upon exercise of a replacement option shall not be
less than 100% of the purchase price per share of Common Stock purchasable upon
exercise of the original option that is replaced by such replacement option.

 

(b)                                 Option Period and Exercisability. 
The period during which an option may be exercised shall be determined
by the Committee; provided, however, that no stock
option shall be exercisable later than five years after its date of grant.  The Committee may, in its discretion,
establish performance measures or other criteria which shall be satisfied or
met as a condition to the grant of an option or to the exercisability of all or
a portion of an option.  The Committee
shall determine whether an option shall become exercisable in cumulative or
non-cumulative installments and in part or in full at any time.  An exercisable option, or portion thereof,
may be exercised only with respect to whole shares of Common Stock.  Notwithstanding Section 2.3 hereof or
the provisions of any Agreement, the Committee may in its sole and absolute
discretion extend the time for the exercise of any option.

 

(c)                                  Method of Exercise. 
An option may be exercised (i) by giving written notice to the
Company specifying the number of whole shares of Common Stock to be purchased
and accompanied by payment therefor in full (or arrangement made for such
payment to the Company’s satisfaction) either (A) in cash, (B) by
delivery of previously owned whole shares of Common Stock (which the optionee
has held for at least six months prior to the delivery of such shares or which
the optionee purchased on the open market and in each case for which the
optionee has good title, free and clear of all liens and encumbrances) having
an aggregate Fair Market Value, determined as of the date of exercise, equal to
the aggregate purchase price payable by reason of such exercise, (C) in
cash by a broker-dealer acceptable to the Company to whom the optionee has
submitted an irrevocable notice of exercise, or (D) a combination of (A), (B) and
(C), in each case to the extent not prohibited by the Agreement relating to the
option and (ii) by executing such documents as the Company may reasonably
request; provided, however, that notwithstanding
the foregoing or anything in the Agreement relating to such option to the
contrary, the Company shall have sole discretion to disapprove of an election
pursuant to clauses (B)-(D).  Any
fraction of a share of Common Stock which would be required to pay such
purchase price shall be disregarded and the remaining amount due shall be paid
in cash by the optionee.  No certificate
representing Common Stock shall be delivered until the full purchase price
therefor has been paid (or arrangement made for such payment to the Company’s
satisfaction).

 

2.3.                            Termination of Employment.

 

(a)                                  Total Disability. 
Unless otherwise specified in the Agreement relating to an option, if an
optionee’s employment with the Company terminates by reason of Total
Disability, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the effective date of such optionee’s
termination of employment and may thereafter be exercised by such optionee (or
such optionee’s legal representative or similar person) until and including the
earliest to occur of (i) the date which is one year (or such other period
as set forth in the Agreement relating to such option) after the effective date
of such optionee’s termination of employment, and (ii) the expiration date
of the term of such option.  For purposes
of this Plan, “Total Disability” shall, with respect to any award
recipient who at such time has a written employment agreement with the Company,
mean the permanent and total disability of such award recipient as described in
such agreement; and otherwise shall mean the inability of such award recipient
substantially to perform such award recipient’s duties and responsibilities for
a continuous period of six months.

 

(b)                                 Death.  Unless
otherwise specified in the Agreement relating to an option, if an optionee’s
employment with the Company terminates by reason of death, each option held by
such optionee shall be exercisable only to the extent that such option is
exercisable on the date of such optionee’s death and may thereafter be
exercised by such optionee’s executor, administrator, legal representative,
beneficiary or similar person until and including the earliest to occur of (i) the
date which is one year (or such other period as set forth in the Agreement
relating to such option) after the date of death and (ii) the expiration
date of the term of such option.

 

(c)                                  Other Termination by Optionee. 
Unless otherwise specified in the Agreement relating to an option, if an
optionee’s employment with the Company is terminated by the optionee for any
reason other than Total Disability or death, each option held by such optionee
shall be exercisable only to the extent that such option is exercisable on the
effective date of such optionee’s termination of employment and may thereafter
be exercised by such optionee (or such optionee’s legal representative or
similar person) until and including the earliest to occur of (i) the date
which is 90 days (or such other period as set forth in the Agreement relating
to such option) after the effective date of such optionee’s termination of employment,
and (ii) the expiration date of the term of such option.

 

(d)                                 Termination by Company for Cause. 
Unless otherwise specified in the Agreement relating to an option, if an
optionee’s employment is terminated by the Company for Cause, each option held
by such optionee shall terminate automatically on the date of such
termination.  For purposes of this Plan, “Cause”
shall, with respect to any award recipient

 

 

who at such time has a written employment agreement with the Company,
have the meaning ascribed thereto in such agreement, but shall not include
termination by reason of an award recipient’s Total Disability notwithstanding
any language to the contrary in such employment agreement; and otherwise shall
mean the willful and continued failure to substantially perform the duties with
the Company (other than a failure resulting from the award recipient’s Total
Disability), the willful engaging in conduct which is demonstrably injurious to
the Company or any Subsidiary, monetarily or otherwise, including conduct that,
in the reasonable judgment of the Company, does not conform to the standard of
the Company’s executives, any act of dishonesty, commission of a felony or a
significant violation of any statutory or common law duty of loyalty to the
Company.

 

(e)                                  Termination by Company Without Cause. 
Unless otherwise specified in the Agreement relating to an option, if an
optionee’s employment with the Company is terminated by the Company without
Cause, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the effective date of such optionee’s
termination of employment and may thereafter be exercised by such optionee (or
such optionee’s legal representative or similar person) until and including the
earliest to occur of (i) the date which is 90 days (or such other period
as set forth in the Agreement relating to such option) after the effective date
of such optionee’s termination of employment, and (ii) the expiration date
of the term of such option; provided, however, that if the optionee’s employment with the Company
is terminated by the Company without Cause within the nine-month period
following the consummation of a Transaction (as defined in Section 5.8(a)),
each option held by such optionee shall become fully exercisable, and may
thereafter be exercised by such holder (or such holder’s legal representative
or similar person) until and including the earliest to occur of (i) the
date which is 90 days after the effective date of such optionee’s termination
of employment and (ii) the expiration date of the term of such option; provided further, that if the optionee’s employment with the
Company is terminated by the Company without Cause at any other time, the
Committee may, in its sole and absolute discretion, provide that each option
held by such optionee shall become fully exercisable and may thereafter be
exercised by such holder (or such holder’s legal representative or similar
person) until and including the earliest to occur of (i) the date which is
90 days after the effective date of such optionee’s termination of employment
and (ii) the expiration date of the term of such option.

 

(f)                                    Death Following Termination of Employment. 
Unless otherwise specified in the Agreement relating to an option, if an
optionee dies during the period set forth in Section 2.3(a) following
termination of employment by reason of Total Disability, or if an optionee dies
during the period set forth in Section 2.3(c) or 2.3(e) following
termination of employment by the optionee for any reason other than Total
Disability or death or termination by the Company without Cause, each option
held by such optionee shall be exercisable only to the extent that such option
is exercisable on the date of such optionee’s death and may thereafter be
exercised by such optionee’s executor, administrator, legal representative,
beneficiary or similar person, as the case may be, until and including the
earliest to occur of (i) the date which is one year (or such other period
as set forth in the Agreement relating to such option) after the date of death
and (ii) the expiration date of the term of such option.

 

III.  PERFORMANCE ACCELERATED RESTRICTED STOCK and

PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS

 

3.1.                            Definitions. 
In this Article III:

 

(a)                                  “Performance
Accelerated Restricted Stock”, or PARS, means shares of
Common Stock awarded to a participant pursuant to this Article III;

 

(b)                                 “Performance Accelerated
Restricted Stock Unit”, or PARSU, means a contingent obligation of the Company to deliver one
share of Common Stock to the participant; and

 

(c)           “Vesting Date” with respect to any PARS or PARSU awarded
hereunder means the date when such PARS or PARSU shall become unconditionally
vested as designated by the Committee at the time such PARS or PARSU are
awarded.

 

3.2.                            Grants of PARS and PARSU.  The Committee
may, in its discretion, grant PARS or PARSU awards to such non-employee
directors, officers at or above the level of Vice-President, General Managers,
Studio Heads and Managing Directors of the Company, as may be selected by the
Committee.

 

3.3.                            Terms of Awards.  Awards granted
under this Article III shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem
advisable:

 

(a)                                  Number of Shares. 
The number of shares of Common Stock covered by each PARS or PARSU award
shall be determined by the Committee.

 

 

(b)                                 Restriction Period. 
The Committee shall designate a Vesting Date with respect to each award
of PARS and PARSU and may prescribe restrictions, terms and conditions
applicable to the vesting of such PARS and PARSU in addition to those provided
in the Plan; provided, however, all awards of PARS and PARSU shall be subject
to a substantial risk of forfeiture.

 

(c)                                  Performance Acceleration Measures and
Targets.  The performance measures and targets which
shall be satisfied or met as a condition to the accelerated vesting of a PARS
award or a PARSU award shall be determined by the Committee.  The performance measures shall be chosen from
among the following business criteria, or such other business criteria as the
Committee deems appropriate:

 

(i)            earnings before interest, taxes,
depreciation and amortization (“EBITDA”);

(ii)           consolidated pre-tax earnings;

(iii)          revenues;

(iv)          net earnings;

(v)           operating income;

(vi)          earnings before interest and taxes;

(vii)         cash flow measures;

(viii)        return on equity;

(ix)           return on net assets employed;

(x)            earnings per share;

(xi)           net income excluding special or
non-recurring items;

(xii)          total shareholder return; and

(xiii)         operating margin.

 

The
Committee shall have the discretion to change such performance measures, to
establish the performance targets applicable to such performance measures on a
grant-by-grant basis and to adjust the determinations of the degree of
attainment of preestablished performance targets.

 

(d)                                 Voting Rights.  Except as otherwise provided in
the Agreement relating to a PARS award, the recipient of a PARS award granted
hereunder shall have the right to exercise full voting rights with respect to
the shares of Common Stock subject to such PARS award immediately upon grant of
such award.  The recipient of a PARSU
award shall have no voting rights until the award vests and underlying shares
of Common Stock are delivered to the recipient of such PARSU award.

 

(e)                                  Dividends and Other Distributions.  Except as otherwise provided in the
Agreement relating to a PARS award, the recipient of a current PARS award
granted hereunder shall be credited with any regular cash dividends that may be
paid with respect to the underlying shares of Common Stock subject to such PARS
award.  The recipient of a PARSU award
shall be credited with dividend equivalents equal to the amount of any regular
cash dividends that would have been paid with respect to the underlying shares
of Common Stock subject to such PARSU award if such award had been a PARS
award.  The Committee may apply any
restrictions to such dividends or dividend equivalents that the Committee deems
appropriate.

 

3.4.                            Termination of Employment
or Service.

 

(a)                                  Disability,
Death and Termination Without Cause.

 

(i)                                     Except
to the extent otherwise set forth in the Agreement relating to a PARS award, if
the employment of the recipient of a PARS award or his or her service as a
director terminates by reason of Total Disability, death or termination by the
Company without Cause, the PARS award shall be unconditionally vested as of the
effective date of such recipient’s termination of employment or service, and
any applicable performance measures shall be computed through such date.

 

(ii)                                  Except
to the extent otherwise set forth in the Agreement relating to a PARSU award,
if the service as a director of the recipient of a PARSU award terminates by
reason of death, the PARSU shall be unconditionally vested as of the date of
death of the recipient.

 

(b)                                 Other
Termination.

 

(i)                                     Except
to the extent otherwise set forth in the Agreement relating to a PARS award, if
the recipient’s employment with the Company or service as a director terminates
for any reason other than Total Disability, death or involuntary termination
without Cause, the portion of such award which is not vested on the effective
date of such recipient’s termination of employment or service shall be
forfeited to and canceled by the Company.

 

 

(ii)                                  Except
to the extent otherwise set forth in the Agreement relating to a PARSU award,
if the recipient’s service as a director with the Company terminates for any
reason other than death, the portion of such award which is not vested on the
effective date of such recipient’s termination of service shall be forfeited to
and canceled by the Company.

 

IV.  ANNUAL OPTION GRANTS TO NON-EMPLOYEE
DIRECTORS

 

4.1.                            Eligibility.  Each member of
the Board of Directors of the Company who is not an employee, either full-time
or part-time, of the Company or any Subsidiary (a “non-employee director”)
shall be granted options to purchase shares of Common Stock in accordance with
this Article IV.  All options
granted under this Article IV shall constitute non-qualified stock
options.

 

4.2.                            Grants of Stock Options.  Each
non-employee director shall be granted non-qualified stock options as follows:

 

(a)                                  Time of Grant. 
Commencing on April 1, 2005, each non-employee director shall be
automatically be granted pursuant to this Article IV of the Plan, as of
the conclusion of each annual meeting of stockholders of the Company (the “Grant
Date”) an option to purchase 8,000 shares of Common Stock at a purchase price per
share equal to the Fair Market Value of the Common Stock on the date of grant
of such option; provided, however, in the year 2005, the grant date shall be
set by the Board of Directors and shall be a date which is at least thirty (30)
days after the annual meeting of stockholders of the Company.  An individual who shall become a non-employee
director subsequent to the date of the annual meeting of stockholders of the
Company for any year shall first become eligible to receive options pursuant to
this Article IV commencing on the date on which such individual becomes a
non-employee director of the Company and such individual shall receive a grant
of options to purchase 8,000 shares of Common Stock on such date.

 

(b)                                 Option Period and Exercisability. 
Each option granted under this Article IV shall be fully
exercisable on and after its date of grant. 
Each option granted under this Article IV shall expire five years
after its date of grant.  An exercisable
option, or portion thereof, may be exercised in whole or in part only with
respect to whole shares of Common Stock. 
Options granted under this Article IV shall be exercisable in
accordance with Section 4.2(c).

 

(c)                                  Termination of Directorship.

 

(i)                                     Total Disability. 
Unless otherwise specified in the Agreement relating to an option, if a
non-employee director’s directorship with the Company terminates by reason of
Total Disability, each option held by such non-employee director shall be
exercisable only to the extent that such option is exercisable on the effective
date of such non-employee director’s termination of directorship and may
thereafter be exercised by such non-employee director (or such non-employee
director’s legal representative or similar person) until and including the
earliest to occur of (i) the date which is one year (or such other period
as set forth in the Agreement relating to such option) after the effective date
of such non-employee director’s termination of directorship and (ii) the
expiration date of the term of such option. 
For purposes of this Plan, “Total Disability” of a non-employee
director shall mean the inability of such non-employee director substantially
to perform such non-employee director’s duties and responsibilities as a
director for a continuous period of six months.

 

(ii)                                  Death.  Unless
otherwise specified in the Agreement relating to an option, if a non-employee
director’s directorship with the Company terminates by reason of death, each
option held by such non-employee director shall be exercisable only to the extent
that such option is exercisable on the date of such non-employee director’s
death and may thereafter be exercised by such non-employee director’s executor,
administrator, legal representative, beneficiary or similar person until and
including the earliest to occur of (i) the date which is one year (or such
other period as set forth in the Agreement relating to such option) after the
date of death and (ii) the expiration date of the term of such option.

 

(iii)                               Other Termination by Non-Employee
Director.  Unless otherwise specified in the Agreement
relating to an option, if a non-employee director’s directorship with the
Company is terminated by the non-employee director for any reason other than
Total Disability or death, each option held by such non-employee director shall
be exercisable only to the extent that such option is exercisable on the
effective date of such non-employee director’s termination of directorship and
may thereafter be exercised by such non-employee director (or such non-employee
director’s legal representative or similar person) until and including the
earliest to occur of (i) the date which is 90 days (or such other period
as set forth in the Agreement relating to such option) after the effective date
of such non-employee director’s termination of directorship and (ii) the
expiration date of the term of such option.

 

 

(iv)                              Termination for Cause. 
Unless otherwise specified in the Agreement relating to an option
granted to a non-employee director, if the non-employee director is removed
from the Board of Directors for Cause, such option shall terminate
automatically on the date of such termination.

 

(v)                                 Termination by Company Without Cause. 
Unless otherwise specified in the Agreement relating to an option, if a
non-employee director’s directorship with the Company is terminated by the
Company without Cause, each option held by such non-employee director shall be
exercisable only to the extent that such option is exercisable on the effective
date of such non-employee director’s termination of directorship and may
thereafter be exercised by such non-employee director (or such non-employee
director’s legal representative or similar person) until and including the
earliest to occur of (i) the date which is 90 days (or such other period
as set forth in the Agreement relating to such option) after the effective date
of such non-employee director’s termination of directorship and (ii) the
expiration date of the term of such option.

 

(vi)                              Death Following Termination. 
Unless otherwise specified in the Agreement relating to an option, if a
non-employee director dies during the period set forth in Section 4.2(c)(i) following
termination of directorship by reason of Total Disability, or if a non-employee
director dies during the period set forth in Section 4.2(c)(iii) or
4.2(c)(v) following termination of directorship by the non-employee
director for any reason other than Total Disability or death or termination of
directorship by the Company without Cause, each option held by such
non-employee director shall be exercisable only to the extent that such option
is exercisable on the date of such non-employee director’s death and may
thereafter be exercised by such non-employee director’s executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the earliest to occur of (i) the date which is
one year (or such other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of the term
of such option.

 

(d)                                 Adjustment of Option Grants. 
All options granted under this Article IV shall be adjusted
pursuant to Section 5.7 of the Plan.

 

V.  GENERAL

 

5.1.                            Effective Date and Term of
Plan. 
This Plan became effective as of March 28, 1997, the date of approval
of this Plan by the Board of Directors. 
This Plan shall terminate ten years after its effective date, unless
terminated earlier by the Board. 
Termination of this Plan shall not affect the terms or conditions of any
award granted prior to termination.

 

5.2.                            Amendments.

 

(a)                                  The Board may amend this Plan as it shall
deem advisable, subject to any requirement of stockholder approval required by
applicable law, rule or regulation; provided, however,
that no amendment shall be made without stockholder approval if such amendment
would (a) increase the maximum number of shares of Common Stock available
under this Plan (subject to Section 5.7), or (b) extend the term of
this Plan.  No amendment may impair the
rights of a recipient of an outstanding award without the consent of such
recipient or, in the case of an outstanding incentive stock option, effect any
change inconsistent with Section 422 of the Code; provided
further, that the number of shares of Common Stock subject to an
option granted to non-employee directors pursuant to Article IV, the
purchase price therefor, the date of grant of any such option, the termination
provisions relating thereto, and the category of persons eligible to be granted
such options shall not be amended more than once every six months, other than
to comply with changes in the Code, or the rules and regulations
thereunder.

 

(b)                                 Without the prior approval of the
stockholders of the Company, except as provided in Exhibit A or Section 5.7
hereof, no option issued under this Plan shall be repriced or regranted at a
lower option price or replaced by an option with a lower option price.

 

5.3.                            Agreement.  No award shall
be valid until an Agreement is executed by the Company and the award recipient
and, upon execution by the Company and the award recipient and delivery of the
Agreement to the Company, such award shall be effective as of the effective
date set forth in the Agreement.

 

5.4.                            Non-Transferability.  Unless
otherwise specified in the Agreement relating to an award, no award hereunder
shall be transferable other than (i) by will or the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company or (ii) as otherwise permitted under Rule 16b-3 under the
Exchange Act as set forth in the Agreement relating to such award.  Except to the extent permitted by the
foregoing sentence, each option may be exercised during the optionee’s lifetime
only by the optionee or the optionee’s legal representative or similar
person.  Except as permitted by the
second preceding sentence, no award hereunder shall be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether
by operation of law or otherwise) or be subject to execution,

 

 

attachment or similar process. 
Upon any attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise dispose of any award hereunder, such award and all rights
thereunder shall immediately become null and void.

 

5.5.                            Tax Withholding.  The Company
shall have the right to require, prior to the issuance or delivery of any
shares of Common Stock, payment by the award recipient of any Federal, state,
local or other taxes which may be required to be withheld or paid in connection
with an award hereunder.  Unless
otherwise provided in an Agreement relating to an award, (i) the recipient
may elect that the Company shall withhold whole shares of Common Stock which
would otherwise be delivered upon exercise or vesting of the award having an
aggregate Fair Market Value determined as of the date the obligation to
withhold or pay taxes arises in connection with the award (the “Tax Date”)
in the minimum statutory amount necessary to satisfy any such obligation or (ii) the
recipient may satisfy any such obligation by any of the following means:  (A) a cash payment to the Company, (B) delivery
to the Company of previously owned whole shares of Common Stock (which the
recipient has held for at least six months prior to the delivery of such shares
or which the recipient purchased on the open market and in each case for which
the recipient has good title, free and clear of all liens and encumbrances)
having an aggregate Fair Market Value determined as of the Tax Date, equal to
the minimum statutory amount necessary to satisfy any such obligation, (C) a
cash payment by a broker-dealer acceptable to the Company to whom the recipient
of an option has submitted an irrevocable notice of exercise, or (D) any
combination of (A), (B) and (C), in each case to the extent not prohibited
by the Agreement relating to the award. 
Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the recipient; provided, however,
that the Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (i) or (ii)(B)-(D) and that in the case of
a recipient who is subject to Section 16 of the Exchange Act, the Company
may require that the method of satisfying any such obligation be in compliance
with Section 16 and the rules and regulations thereunder.  Any fraction of a share of Common Stock which
would be required to satisfy such an obligation shall be disregarded and the
remaining amount due shall be paid in cash by the recipient.

 

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

 

5.7.                            Adjustment.  In the event
of any stock split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off or other
similar change in capitalization or event, or any distribution to holders of
Common Stock other than a regular cash dividend, the number and class of
securities available under this Plan, the limitation on award grants set forth
in Section 1.4, the number and class of securities for which options are
to be granted to non-employee directors pursuant to Article IV, the number
and class of securities subject to each outstanding award and the purchase
price per security subject to an option shall be appropriately adjusted by the
Committee, such adjustments to be made in the case of outstanding options
without an increase in the aggregate purchase price.  The decision of the Committee regarding any
such adjustment shall be final and binding. 
If any adjustment would result in a fractional security being (a) available
under this Plan, such fractional security shall be disregarded, or (b) subject
to an option under this Plan, the Company shall pay the recipient, in
connection with the first exercise of the option in whole or in part occurring
after such adjustment, an amount in cash determined by multiplying (A) the
fraction of such security (rounded to the nearest hundredth) by (B) the
excess, if any, of (x) the Fair Market Value on the exercise date over (y) the
exercise price of the option.

 

5.8.                            Effect of Certain
Transactions.

 

(a)                                  In the event that the Company enters into
an agreement (a) to dispose of all or substantially all of its assets, in
contemplation of the distribution of the net proceeds of such sale to the
Company’s shareholders, or (b) to consummate a merger or consolidation in
which the Company is not the surviving or resulting corporation, or in the
event the persons who, as of the date of the adoption of this Plan by the Board
of Directors, hold 60% or more of the outstanding capital stock of the Company
enter into an agreement to sell all of such stock (such distribution, merger,
consolidation or sale being hereinafter referred to as a “Transaction”),
then (unless otherwise specified in the Agreement relating to an option), the
Committee shall provide, at its election made in its sole and absolute
discretion, for one or more of the following: (i) for each outstanding
award, whether or not then vested or exercisable, to be replaced with a
comparable award with respect to shares of capital stock of a successor or
purchasing corporation or parent thereof, or (ii) for each outstanding
award, whether or not then vested or exercisable, to be assumed by a successor
or purchasing corporation or parent thereof (and, in the event of such
assumption, each outstanding award shall continue to be vested or exercisable,
on the terms and subject to the conditions set

 

 

forth in, and in cumulative amounts at the times provided in, the
Agreement relating to such award but shall, from and after the consummation of
such Transaction, be with respect to the capital stock, cash and/or other
property received by the common stockholders of the Company in such Transaction
in an amount equal to what the recipient of such award would have received had
the award vested or been exercised immediately prior to the consummation of
such Transaction), or (iii) for each outstanding award, whether or not
then vested or exercisable, to become vested or exercisable during such period
prior to the scheduled consummation of such Transaction as may be specified by
the Committee; provided, however, that such
elections of the Committee shall apply identically, by their terms, to all
recipients of awards granted under this Plan (unless otherwise required by an
Agreement).  In the event the Committee
elects to cause the options not then otherwise exercisable to become
exercisable prior to such Transaction (an “Accelerated Option”), any
exercise of an Accelerated Option shall be conditioned upon, and shall be
effective only concurrently with, the consummation of such Transaction; and if
such Transaction is not consummated, the exercise of such Accelerated Options
shall be of no further force or effect (and an optionee may elect, with respect
to the exercise during such period of an option that was otherwise exercisable,
to so condition such exercise upon the consummation of the Transaction).  All options not exercised prior to the
consummation of such Transaction (and which are not being assumed by a
successor or purchasing corporation or parent thereof) shall terminate and be
of no further force or effect as of the consummation of such Transaction.

 

(b)                                 With respect to any optionee who is
subject to Section 16 of the Exchange Act, (i) notwithstanding the
exercise periods set forth in Section 2.3 and 4.2(c), or as set forth pursuant
to such Section in any Agreement to which such optionee is a party, and (ii) notwithstanding
the expiration date of the term of such option, in the event the Company is
involved in a business combination pursuant to which such optionee receives a
substitute option with respect to securities of any entity, including an entity
directly or indirectly acquiring the Company, then each option (or option in
substitution thereof) held by such optionee shall be exercisable to the extent
set forth in the Agreement evidencing such option until and including the
latest of (x) the date set forth pursuant to the then applicable paragraph of Section 2.3,
4.2 (c) or the expiration date of the term of the option, as the case may
be, and (y) the date which is six months and one day after the consummation of
such business combination.

 

5.9.                            No Right of Participation
or Employment.  No person shall have any right to participate
in this Plan.  Neither this Plan nor any
award granted hereunder shall confer upon any person any right to continued
employment by the Company, any Subsidiary or any affiliate of the Company or
affect in any manner the right of the Company, any Subsidiary or any affiliate
of the Company to terminate the employment of any person at any time without liability
hereunder.

 

5.10.                     Rights as Stockholder.  No person
shall have any rights as a stockholder of the Company with respect to any
shares of Common Stock which are subject to an award hereunder until such
person becomes a stockholder of record with respect to such shares of Common
Stock.

 

5.11.                     Designation of Beneficiary.  If permitted
by the Company, an award recipient may file with the Committee a written
designation of one or more persons as such recipient’s beneficiary or
beneficiaries (both primary and contingent) in the event of the recipient’s
death.  To the extent an outstanding
option granted hereunder is exercisable, such beneficiary or beneficiaries
shall be entitled to exercise such option.

 

Each beneficiary
designation shall become effective only when filed in writing with the
Committee during the recipient’s lifetime on a form prescribed by the
Committee.  The spouse of a married
recipient domiciled in a community property jurisdiction shall join in any
designation of a beneficiary other than such spouse.  The filing with the Committee of a new
beneficiary designation shall cancel all previously filed beneficiary
designations.

 

If an optionee
fails to designate a beneficiary, or if all designated beneficiaries of an
optionee predecease the optionee, then each outstanding option hereunder held
by such optionee, to the extent exercisable, may be exercised by such optionee’s
executor, administrator, legal representative or similar person.

 

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

 

5.13.                     Foreign Employees.  Without
amending this Plan, the Committee may grant awards to eligible persons who are
foreign nationals on such terms and conditions different from those specified
in this Plan as may in the judgment of the Committee be necessary or desirable
to foster and promote achievement of the purposes of this Plan and, in
furtherance of such purposes the Committee may make such modifications,
amendments, procedures, subplans and the like as may be necessary or advisable
to comply with provisions of laws in other countries or jurisdictions in which
the Company or its Subsidiaries operates or has employees.

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