Document:

2005 Equity and Incentive Plan

 

EXHIBIT 10.1

THE ULTIMATE SOFTWARE GROUP, INC.

2005 EQUITY AND INCENTIVE PLAN

		
	1.	
    PURPOSE

     
The Ultimate Software Group, Inc., a Delaware corporation
(together with its affiliates and subsidiaries, the
“Company”), hereby establishes an equity and incentive
plan to be known as The Ultimate Software Group, Inc. 2005
Equity and Incentive Plan (the “Plan”), as set forth
in this document. The objectives of the Plan are (i) to
provide a vehicle for compensating the Company’s key
personnel by giving them the opportunity to acquire a
proprietary interest in the Company’s Common Stock by
receiving equity-based incentive compensation; (ii) to
provide management with an equity ownership in the Company
commensurate with Company performance, as reflected in increased
stockholder value; (iii) to attract, motivate and retain
key employees, non-employee directors and other service
providers by maintaining competitive compensation levels; and
(iv) to provide an incentive to management for continuous
employment with or service to the Company.

		
	2.	
    DEFINITIONS

     
Wherever the following capitalized terms are used in the Plan,
they shall have the meanings specified below:

		
	 	     
    (a) “Award” means an award of an Option,
    Stock Appreciation Right, Restricted Stock Award, Stock Unit
    Award, Stock Award or Performance Award granted under the Plan.
	 
	 	     
    (b) “Award Agreement” means an agreement
    entered into between the Company and a Participant setting forth
    the terms and conditions of an Award granted to a Participant.
	 
	 	     
    (c) “Board” means the Board of Directors
    of the Company.
	 
	 	     
    (d) “Change in Control” shall have the
    meaning set forth in Section 14.2 hereof.
	 
	 	     
    (e) “Code” means the Internal Revenue Code
    of 1986, as amended.
	 
	 	     
    (f) “Committee” means the Compensation
    Committee of the Board or a successor thereof, or any other
    committee of the Board appointed by the Board to administer the
    Plan from time to time.
	 
	 	     
    (g) “Common Stock” means the
    Company’s Common Stock, par value $.01 per share.
	 
	 	     
    (h) “Company” means The Ultimate Software
    Group, Inc., a Delaware corporation.
	 
	 	     
    (i) “Date of Grant” means the date on
    which an Award under the Plan is made by the Committee, or such
    later date as the Committee may specify to be the effective date
    of the Award.
	 
	 	     
    (j) “Director Fee Option” means an Option
    granted in lieu of certain directors’ fees under
    Section 13 of the Plan.
	 
	 	     
    (k) “Disability” means a condition in
    which a Participant is considered “disabled” within
    the meaning of Section 409A(a)(2)(C) of the Code, unless
    otherwise provided in an Award Agreement.
	 
	 	     
    (l) “Eligible Person” means any person who
    is an employee, officer, director, consultant or advisor of the
    Company or any Subsidiary, as determined by the Committee, or
    any person who is determined by the Committee to be a
    prospective employee, officer, director, consultant or advisor
    of the Company or any Subsidiary.
	 
	 	     
    (m) “Exchange Act” means the Securities
    Exchange Act of 1934, as amended.

 

 

		
	 	     
    (n) “Fair Market Value” with respect to
    the value of a share of Common Stock as of a particular day,
    shall mean the last reported sale price (as reported on the
    NASDAQ) of the Common Stock on such day (unless such day is not
    a trading day, in which case, on the last trading day
    immediately preceding such day on which the Common Stock is
    traded on the NASDAQ). If the Common Stock is not listed on the
    NASDAQ, the Committee shall determine in good faith the Fair
    Market Value in whatever manner it considers appropriate.
	 
	 	     
    (o) “Incentive Stock Option” means an
    Option to purchase shares of Common Stock granted under
    Section 422 hereof that is intended to meet the requirements
    of Section 422 of the Code and the regulations promulgated
    thereunder.
	 
	 	     
    (p) “NASDAQ” means The Nasdaq Stock
    Market’s National Market.
	 
	 	     
    (q) “Non-Employee Director” means any
    member of the Board who is not an officer or employee of the
    Company.
	 
	 	     
    (r) “Nonqualified Stock Option” means an
    Option to purchase shares of Common Stock granted under
    Section 6 hereof that is not an Incentive Stock Option.
	 
	 	     
    (s) “Option” means an Incentive Stock
    Option or a Nonqualified Stock Option granted under the Plan.
	 
	 	     
    (t) “Participant” means any Eligible
    Person who holds an outstanding Award under the Plan.
	 
	 	     
    (u) “Performance Awards” means an Award
    under Section 11 hereof entitling a Participant to a
    payment in cash at the end of a performance period, if the
    performance and other conditions established by the Committee
    are satisfied.
	 
	 	     
    (v) “Plan” means The Ultimate Software
    Group, Inc. 2005 Equity and Incentive Plan as set forth herein,
    as amended from time to time.
	 
	 	     
    (w) “Prior Plan” means The Ultimate
    Software Group, Inc. Nonqualified Stock Option Plan, as amended
    and restated as of December 20, 2002.
	 
	 	     
    (x) “Restricted Stock Award” means an
    Award under Section 8 hereof entitling a Participant to
    shares of Common Stock that are nontransferable and subject to
    forfeiture until specific conditions established by the
    Committee are satisfied.
	 
	 	     
    (y) “Section 162(m) Award” means any
    Award that is intended to qualify for the performance-based
    compensation exception under Section 162(m) of the Code and
    the regulations promulgated thereunder.
	 
	 	     
    (z) “Stock Appreciation Right” means an
    Award under Section 7 hereof entitling a Participant to
    receive a payment, representing the difference between a base
    price per share and the Fair Market Value of a share of Common
    Stock on the date of exercise.
	 
	 	     
    (aa) “Stock Award” means an Award under
    Section 10 hereof entitling a Participant to shares of
    Common Stock that are free of transfer restrictions and
    forfeiture conditions imposed by the Plan.
	 
	 	     
    (bb) “Stock Unit Award” means an Award
    under Section 9 hereof entitling a Participant to a payment
    of a unit value based on the Fair Market Value of a share of
    Common Stock.
	 
	 	     
    (cc) “Subsidiary” means an entity (whether
    or not a corporation) that is wholly or majority owned or
    controlled, directly or indirectly, by the Company, or any other
    affiliate of the Company that is so designated, from time to
    time, by the Committee; provided, however, that with respect to
    Incentive Stock Options, the term “Subsidiary” shall
    include only an entity that qualifies under Section 424(f)
    of the Code as a “subsidiary corporation” with respect
    to the Company.

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	3.	
    ADMINISTRATION

     
Section 3.1     Committee
Members. The Plan shall be administered by a Committee
comprised of no fewer than two members of the Board. Solely to
the extent deemed necessary or advisable by the Board, each
Committee member shall satisfy the requirements for (i) an
“independent director” under rules adopted by the
NASDAQ, (ii) a “nonemployee director” for
purposes of such Rule 16b-3 under the Exchange Act and
(iii) an “outside director” under
Section 162(m) of the Code. The Committee shall have such
powers and authority as may be necessary or appropriate for the
Committee to carry out its functions as described in the Plan.
No member of the Committee shall be liable for any action or
determination made in good faith by the Committee with respect
to the Plan or any Award thereunder.

     
Section 3.2     Committee
Authority. Subject to the express limitations of the Plan,
the Committee shall have authority in its discretion to
determine the Eligible Persons to whom, and the time or times at
which, Awards may be granted, the number of shares, units or
other rights subject to each Award, the exercise, base or
purchase price of an Award (if any), the time or times at which
an Award will become vested, exercisable or payable, the
performance criteria, performance goals and other conditions of
an Award, the duration of the Award, and all other terms of the
Award. Subject to the terms of the Plan, the Committee shall
have the authority to amend the terms of an Award in any manner
that is permitted by the Plan for the grant of an Award,
provided that no such action shall adversely affect the rights
of a Participant with respect to an outstanding Award without
the Participant’s consent. The Committee shall also have
discretionary authority to interpret the Plan, to make all
factual determinations under the Plan, and to make all other
determinations necessary or advisable for Plan administration,
including, without limitation, to correct any defect, to supply
any omission or to reconcile any inconsistency in the Plan or
any Award Agreement hereunder. The Committee may prescribe,
amend, and rescind rules and regulations relating to the Plan.
The Committee’s determinations under the Plan need not be
uniform and may be made by the Committee selectively among
Participants and Eligible Persons, whether or not such persons
are similarly situated. All interpretations, determinations, and
actions by the Committee shall be final, conclusive, and binding
upon all parties.

     
Section 3.3     Delegation
of Authority. The Committee shall have the right, from time
to time, to delegate to one or more officers of the Company the
authority of the Committee to grant and determine the terms and
conditions of Awards granted under the Plan, subject to the
requirements of Section 157(c) of the Delaware General
Corporation Law and such other limitations as the Committee
shall determine. In no event shall such authority be delegated
with respect to Awards to any members of the Board or any
Participant who the Committee determines may be subject to
Rule 16b-3 under the Exchange Act or Section 162(m) of
the Code. In the event that authority is delegated to an officer
or officers in accordance with the foregoing, all provisions of
the Plan relating to the Committee shall be interpreted in a
manner consistent with the foregoing by treating any such
reference as a reference to such officer or officers for such
purpose.

     
Section 3.4     Grants
to Committee Members. Any Awards under the Plan made to
Non-Employee Directors shall be approved by the Board. With
respect to awards to such directors, all rights, powers and
authorities vested in the Committee under the Plan shall instead
be exercised by the Board, and all provisions of the Plan
relating to the Committee shall be interpreted in a manner
consistent with the foregoing by treating any such reference as
a reference to the Board for such purpose.

		
	4.	
    SHARES SUBJECT TO THE PLAN

     
Section 4.1     Share
Limitation. Upon approval of the Plan by the stockholders of
the Company, no further grants may be made under the Prior Plan,
but awards made under the Prior Plan shall remain outstanding in
accordance with their terms. Subject to adjustment pursuant to
Section 4.2
hereof, the maximum aggregate number of shares of Common Stock
which may be issued under all Awards granted to Participants
under the Plan shall be the lesser of (i) the number of
shares of Common Stock that remain authorized for issuance and
that are not subject to outstanding stock options under the
Prior Plan on the date the Plan is approved by the
Company’s stockholders and (ii) 2,500,000 shares.
Shares of Common

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Stock issued under the Plan may be either authorized but
unissued shares or shares held in the Company’s treasury.
To the extent that any Award under the Plan or any stock option
under the Prior Plan payable in shares of Common Stock is
forfeited, cancelled, returned to the Company for failure to
satisfy vesting requirements or upon the occurrence of other
forfeiture events, or otherwise terminates without payment being
made thereunder, the shares of Common Stock covered thereby will
no longer be counted against the foregoing maximum share
limitation and may again be made subject to Awards under the
Plan pursuant to such limitation. In addition, any shares of
Common Stock exchanged by a Participant or withheld from a
Participant as full or partial payment to the Company of the
exercise price or tax withholding upon exercise or payment of an
Award under the Plan or any stock option under the Prior Plan
shall be added to the foregoing maximum share limitation and may
be made subject to Awards under the Plan pursuant to such
limitation. Any Awards under the Plan settled in cash shall not
be counted against the foregoing maximum share limitation.
Notwithstanding the foregoing, the maximum number of shares of
Common Stock that may be returned or added to the aggregate
share reserve under the Plan upon the termination, forfeiture,
cancellation or other disposition of a stock option granted
under the Prior Plan shall be limited to 6,000,000 shares.

     
Section 4.2     Adjustments.
If there shall occur any recapitalization, reclassification,
stock dividend, extraordinary dividend, stock split, reverse
stock split, or other distribution with respect to the shares of
Common Stock, or any merger, reorganization, consolidation or
other change in corporate structure affecting the Common Stock,
the Committee shall, in the manner and to the extent that it
deems appropriate and equitable to the Participants and
consistent with the terms of the Plan, cause an adjustment to be
made in (i) the maximum number and kind of shares provided
in Section 4.1 hereof, (ii) the maximum number and kind of shares or
units set forth in Sections 6.1, 7.1, 8.1, 9.1 and 10.1
hereof, (iii) the number and kind of shares of Common
Stock, units, or other rights subject to then outstanding
Awards, (iv) the price for each share or unit or other
right subject to then outstanding Awards, (v) the
performance measures or goals relating to an Award and
(v) any other terms of an Award that are affected by the
event to prevent dilution or enlargement of a Participant’s
rights under an Award. Notwithstanding the foregoing, in the
case of Incentive Stock Options, any such adjustments shall be
made in a manner consistent with the requirements of
Section 424(a) of the Code.

		
	5.	
    ELIGIBILITY AND AWARDS

     
All Eligible Persons are eligible to be designated by the
Committee to receive an Award under the Plan. The Committee has
the authority, in its sole discretion, to determine and
designate from time to time those Eligible Persons who are to be
granted Awards, the types of Awards to be granted and the number
of shares or units subject to the Awards that are granted under
the Plan. To the extent deemed necessary by the Committee, an
Award will be evidenced by an Award Agreement as described in
Section 15.1 hereof.

		
	6.	
    STOCK OPTIONS

     
Section 6.1     Grant
of Option. An Option may be granted to any Eligible Person
selected by the Committee. Subject to the provisions of
Section 6.6 hereof
and Section 422 of the Code, each Option shall be
designated, in the discretion of the Committee, as an Incentive
Stock Option or a Nonqualified Stock Option. The maximum number
of shares of Common Stock that may be subject to Options granted
to any Participant during any calendar year shall be limited to
500,000 shares (subject to adjustment as provided in
Section 4.2 hereof).

     
Section 6.2     Exercise
Price. The exercise price under any Option granted to
Participants under the Plan shall be equal to 100 percent
of the Fair Market Value per share of the Common Stock on the
Date of Grant, or such other amount as may be determined by the
Committee.

     
Section 6.3     Vesting;
Term of Option. The Committee, in its sole discretion, shall
prescribe the time or times at which, or the conditions upon
which, an Option or portion thereof shall become vested and/or
exercisable, and may accelerate the exercisability of any Option
at any time. The period during

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which a vested Option may be exercised shall be ten years from
the Date of Grant, unless a shorter exercise period is specified
by the Committee in an Award Agreement. An Option may be earlier
terminated as specified by the Committee and set forth in an
Award Agreement upon or following the termination of a
Participant’s employment or other service with the Company
or any Subsidiary, including by reason of voluntary resignation,
death, Disability, termination for cause or any other reason.

     
Section 6.4     Option
Exercise; Tax Withholding. Subject to such terms and
conditions as shall be specified in an Award Agreement, an
Option may be exercised in whole or in part at any time during
the term thereof by notice in the form required by the Company,
together with payment of the aggregate exercise price therefor.
Payment of the exercise price shall be made in the manner set
forth in the Award Agreement, unless otherwise provided by the
Committee: (i) in cash or by cash equivalent acceptable to
the Committee, (ii) by payment in shares of Common Stock
that have been held by the Participant for at least six months
(or such other period as the Committee may deem appropriate for
purposes of applicable accounting rules), valued at the Fair
Market Value of such shares on the date of exercise,
(iii) through an open-market broker-assisted transaction,
(iv) by a combination of the foregoing methods, or
(v) by such other method as may be approved by the
Committee and set forth in the Award Agreement. In addition to
and at the time of payment of the exercise price, the
Participant shall pay to the Company the full amount of any and
all applicable income tax and employment tax amounts required to
be withheld in connection with such exercise, payable under such
of the methods described above for the payment of the exercise
price of the Options as may be approved by the Committee and set
forth in the Award Agreement.

     
Section 6.5     Limited
Transferability of Nonqualified Options. All Options shall
be nontransferable except (i) upon the Participant’s
death, by the Participant’s will or the laws of descent and
distribution or (ii) in the case of Nonqualified Stock
Options only, on a case-by-case basis as may be approved by the
Committee in its discretion, in accordance with the terms
provided below. An award for a Nonqualified Stock Option may
provide that the Participant shall be permitted to, during his
or her lifetime and subject to the prior approval of the
Committee at the time of proposed transfer, transfer all or part
of the Option to the Participant’s “family
member,” as defined in the Award Agreement in a manner
consistent with the requirements for the Form S-8
registration statement under the Securities Act of 1933, which
may include a trust for the benefit of a Participant and/or a
Participant’s family member. The transfer of a Nonqualified
Stock Option may be subject to such other terms and conditions
as the Committee may in its discretion impose from time to time.
Subsequent transfers of an Option shall be prohibited other than
by will or the laws of descent and distribution upon the death
of the transferee.

     
Section 6.6     Additional
Rules for Incentive Stock Options.

     
(i) Eligibility. An Incentive Stock Option may only
be granted to an Eligible Person who is considered an employee
of the Company or any Subsidiary for purposes of Treasury
Regulation §1.421-7(h).

     
(ii) Annual Limits. No Incentive Stock Option shall
be granted to a Participant as a result of which the aggregate
Fair Market Value (determined as of the Date of Grant) of the
stock with respect to which Incentive Stock Options are
exercisable for the first time in any calendar year under the
Plan and any other stock option plans of the Company or any
Subsidiary would exceed $100,000, determined in accordance with
Section 422(d) of the Code. This limitation shall be
applied by taking Incentive Stock Options into account in the
order in which granted.

     
(iii) Ten Percent Stockholders. If an Option granted
under the Plan is intended to be an Incentive Stock Option, and
if the Participant, at the time of grant, owns stock possessing
ten percent or more of the total combined voting power of all
classes of Common Stock of the Company or any Subsidiary, then
(a) the Option exercise price per share shall in no event
be less than 110 percent of the Fair Market Value of the
Common Stock on the date of such grant and (b) such Option
shall not be exercisable after the expiration of five years
following the date such Option is granted.

     
(iv) Termination of Employment. An Award of an
Incentive Stock Option may provide that such Option may be
exercised not later than 3 months following termination of
employment of the Participant

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with the Company and all Subsidiaries, or not later than one
year following death or a permanent and total disability within
the meaning of Section 22(e)(3) of the Code, as and to the
extent determined by the Committee to comply with the
requirements of Section 422 of the Code.

     
(v) Other Terms and Conditions; Nontransferability.
Any Incentive Stock Option granted hereunder shall contain such
additional terms and conditions, not inconsistent with the terms
of the Plan, as are deemed necessary or desirable by the
Committee, which terms, together with the terms of the Plan,
shall be intended and interpreted to cause such Incentive Stock
Option to qualify as an “incentive stock option” under
Section 422 of the Code. An Award Agreement for an
Incentive Stock Option may provide that such Option shall be
treated as a Nonqualified Stock Option to the extent that
certain requirements applicable to “incentive stock
options” under the Code shall not be satisfied. An
Incentive Stock Option shall by its terms be nontransferable
other than by will or by the laws of descent and distribution,
and shall be exercisable during the lifetime of a Participant
only by such Participant.

     
(vi) Disqualifying Dispositions. If shares of Common
Stock acquired by exercise of an Incentive Stock Option are
disposed of within two years following the Date of Grant or one
year following the issuance of such shares to the Participant
upon exercise, the Participant shall, promptly following such
disposition, notify the Company in writing of the date and terms
of such disposition and provide such other information regarding
the disposition as the Company may reasonably require.

     
Section 6.7     Repricing
of Stock Options Prohibited. The Committee shall not cause
the cancellation, substitution or amendment of an Option that
would have the effect of reducing the exercise price of an
Option previously granted under the Plan, or otherwise approve
any modification to an Option that would be treated as a
“repricing” under the then applicable rules,
regulations or listing requirements adopted by the NASDAQ,
except in accordance with an adjustment permitted under
Section 4.2 hereof.

		
	7.	
    STOCK APPRECIATION RIGHTS

     
Section 7.1     Grant
of Stock Appreciation Rights. A Stock Appreciation Right may
be granted to any Eligible Person selected by the Committee. A
Stock Appreciation Right granted to an Eligible Person is an
Award in the form of a right to receive, upon settlement or
exercise of the right but without other payment, an amount based
on appreciation in the Fair Market Value of shares of Common
Stock over a base price established for the Award. Stock
Appreciation Rights shall be settled or exercisable at such time
or times and upon conditions as may be approved by the
Committee, provided that the Committee may accelerate the
settlement or exercisability of a Stock Appreciation Right at
any time. The maximum number of shares of Common Stock that may
be subject to Stock Appreciation Rights granted to any
Participant during any calendar year shall be limited to
500,000 shares (subject to adjustment as provided in
Section 4.2 hereof).

     
Section 7.2     Vesting;
Term; Base Price of Stock Appreciation Rights. A Stock
Appreciation Right shall be settled or exercisable at such time
or times as determined by the Committee, but in no event after
10 years from the Date of Grant. The base price of a Stock
Appreciation Right shall be determined by the Committee in its
sole discretion; provided, however, that the base price per
share of any such Stock Appreciation Right shall not be less
than 100 percent of the Fair Market Value of the shares of
Common Stock on the Date of Grant.

     
Section 7.3     Payment
of Stock Appreciation Rights. A Stock Appreciation Right
will entitle the holder, upon settlement or exercise of the
Stock Appreciation Right, as applicable, to receive payment of
an amount determined by multiplying: (i) the excess of the
Fair Market Value of a share of Common Stock on the date of
settlement or exercise of the Stock Appreciation Right over the
base price of such Stock Appreciation Right, by (ii) the
number of shares as to which such Stock Appreciation Right is
settled or exercised. Payment of the amount determined under the
foregoing may be made, as approved by the Committee and set
forth in the Award Agreement, in cash, in shares of Common Stock
valued at their Fair Market Value on the date of settlement or
exercise, as applicable, or in a combination of cash and shares
of Common Stock, subject to applicable tax withholding
requirements.

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Section 7.4     Repricing
of Stock Appreciation Rights Prohibited. The Committee shall
not cause the cancellation, substitution or amendment of a Stock
Appreciation Right that would have the effect of reducing the
base price of a Stock Appreciation Right previously granted
under the Plan, or otherwise approve any modification to a Stock
Appreciation Right that would be treated as a
“repricing” under the then applicable rules,
regulations or listing requirements adopted by the NASDAQ,
except in accordance with an adjustment permitted under
Section 4.2 hereof.

		
	8.	
    RESTRICTED STOCK AWARDS

     
Section 8.1     Grant
of Restricted Stock Awards. A Restricted Stock Award may be
granted to any Eligible Person selected by the Committee. A
Restricted Stock Award granted to an Eligible Person represents
shares of Common Stock that are issued subject to such vesting
and transfer restrictions as the Committee shall determine and
set forth in an Award Agreement. The Committee may, in
connection with any Restricted Stock Award, require the payment
of a specified purchase price. The Committee may grant
Restricted Stock Awards that are Section 162(m) Awards, as
well as Restricted Stock Awards that are not Section 162(m)
Awards. The maximum number of shares of Common Stock that may be
subject to Restricted Stock Awards granted to a Participant
during any one calendar year shall be limited to
250,000 shares (subject to adjustment as provided in
Section 4.2 hereof).

     
Section 8.2     Vesting
Requirements. The restrictions imposed on shares granted
under a Restricted Stock Award shall lapse in accordance with
the vesting requirements specified by the Committee in the Award
Agreement, provided that the Committee may accelerate the
vesting of a Restricted Stock Award at any time. Such vesting
requirements may be based on the continued employment of the
Participant with the Company or its Subsidiaries for a specified
time period or periods. Such vesting requirements may also be
based on the attainment of specified performance goals or
measures established by the Committee in its sole discretion. In
the case of any Restricted Stock Award that is a
Section 162(m) Award, any such performance-based vesting
requirements shall be based upon the performance criteria
identified in Section 12.2 hereof, and the terms of the
Award shall otherwise comply with the requirements described in
Section 12.3 hereof. If the vesting requirements of a
Restricted Stock Award shall not be satisfied, the Award shall
be forfeited and returned to the Company, with any purchase
price paid by the Participant to be refunded, unless otherwise
provided by the Committee.

     
Section 8.3     Restrictions.
Shares granted under any Restricted Stock Award may not be
transferred, assigned or subject to any encumbrance, pledge, or
charge until all applicable restrictions are removed or have
expired, unless otherwise allowed by the Committee. Failure to
satisfy any applicable restrictions shall result in the subject
shares of the Restricted Stock Award being forfeited and
returned to the Company, with any purchase price paid by the
Participant to be refunded, unless otherwise provided by the
Committee. The Committee may require in an Award Agreement that
certificates representing the shares granted under a Restricted
Stock Award bear a legend making appropriate reference to the
restrictions imposed, and that certificates representing the
shares granted or sold under a Restricted Stock Award will
remain in the physical custody of an escrow holder until all
restrictions are removed or have expired.

     
Section 8.4     Rights
as Stockholder. Subject to the foregoing provisions of this
Section 8 and the applicable Award Agreement, the
Participant will have all rights of a stockholder with respect
to the shares granted to the Participant under a Restricted
Stock Award, including the right to vote the shares and receive
all dividends and other distributions paid or made with respect
thereto, unless the Committee determines otherwise at the time
the Restricted Stock Award is granted.

     
Section 8.5     Section 83(b)
Election. If a Participant makes an election pursuant to
Section 83(b) of the Code with respect to a Restricted
Stock Award, the Participant shall be required to file, within
30 days following the Date of Grant, a copy of such
election with the Company and with the Internal Revenue Service,
in accordance with the regulations under Section 83 of the
Code. The Committee may provide in an Award Agreement that the
Restricted Stock Award is conditioned upon the
Participant’s refraining from making an election with
respect to the Award under Section 83(b) of the Code.

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	9.	
    STOCK UNIT AWARDS

     
Section 9.1     Grant
of Stock Unit Awards. A Stock Unit Award may be granted to
any Eligible Person selected by the Committee. A Stock Unit
Award is an Award to an Eligible Person of a number of
hypothetical share units with respect to shares of Common Stock
that are granted subject to such vesting and transfer
restrictions and conditions of payment as the Committee shall
determine and set forth in an Award Agreement. The value of each
unit under a Stock Unit Award is equal to the Fair Market Value
of the Common Stock on any applicable date of determination. The
Committee may grant Stock Unit Awards that are
Section 162(m) Awards, as well as a Stock Unit Awards that
are not Section 162(m) Awards. The maximum number of units
that may be subject to Stock Unit Awards granted to a
Participant during any one calendar year shall be limited to
250,000 units (subject to adjustment as provided in
Section 4.2 hereof). A Stock Unit Award shall be subject to
such restrictions and conditions as the Committee shall
determine. A Stock Unit Award may be granted, at the discretion
of the Committee, together with a dividend equivalent right with
respect to the same number of shares of Common Stock.

     
Section 9.2     Vesting
of Stock Unit Awards. On the Date of Grant, the Committee
shall determine, in its sole discretion, any vesting
requirements with respect to a Stock Unit Award, which shall be
set forth in the Award Agreement, provided that the Committee
may accelerate the vesting of a Stock Unit Award at any time.
Vesting requirements may be based on the continued employment of
the Participant with the Company or its Subsidiaries for a
specified time period or periods. Vesting requirements may also
be based on the attainment of specified performance goals or
measures established by the Committee in its sole discretion. In
the case of any Stock Unit Award that is a Section 162(m)
Award, any such performance-based vesting requirements shall be
based upon the performance criteria identified in
Section 12.2 hereof, and the terms of the Award shall
otherwise comply with the requirements described in
Section 12.3 hereof. A Stock Unit Award may also be granted
on a fully vested basis, with a deferred payment date.

     
Section 9.3     Payment
of Stock Unit Awards. A Stock Unit Award shall become
payable to a Participant at the time or times determined by the
Committee and set forth in the Award Agreement, which may be
upon or following the vesting of the Award. The payment with
respect to each share unit under a Stock Unit Award shall be
determined by reference to the Fair Market Value of one share of
Common Stock on each applicable payment date. Payment may be
made, at the discretion of the Committee, in cash or in shares
of Common Stock, or in a combination thereof, subject to
applicable tax withholding requirements. In accordance with
Section 15.4 hereof, the Committee may permit a Participant
to defer the receipt of payment under a Stock Unit Award until
such date or event as may be elected by the Participant in
accordance with rules established by the Committee.

     
Section 9.4     No
Rights as Stockholder. The Participant shall not have any
rights as a stockholder with respect to the shares subject to a
Stock Unit Award until such time as shares of Common Stock are
delivered to the Participant pursuant to the terms of the Award
Agreement.

		
	10.	
    STOCK AWARDS

     
Section 10.1     Grant
of Stock Awards. A Stock Award may be granted to any
Eligible Person selected by the Committee. A Stock Award may be
granted for past services, in lieu of bonus or other cash
compensation, directors’ fees or for any other valid
purpose as determined by the Committee. A Stock Award granted to
an Eligible Person represents shares of Common Stock that are
issued free of restrictions on transfer and other incidents of
ownership and free of forfeiture conditions, except as otherwise
provided in the Plan and the Award Agreement. The Committee may,
in connection with any Stock Award, require the payment of a
specified purchase price. The Committee may grant Stock Awards
that are Section 162(m) Awards, as well as Stock Awards
that are not Section 162(m) Awards. The maximum number of
shares of Common Stock that may be subject to Stock Awards
granted to a Participant during any one calendar year shall be
limited to 250,000 shares (subject to adjustment as
provided in Section 4.2 hereof).

8

 

     
Section 10.2     Rights
as Stockholder. Subject to the foregoing provisions of this
Section 10 and the applicable Award Agreement, the
Participant will have all rights of a stockholder with respect
to the shares granted to him under a Stock Award, including the
right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.

		
	11.	
    PERFORMANCE AWARDS

     
Section 11.1     Grant
of Performance Awards. The Committee may grant Performance
Awards under the Plan, which shall represent the right to
receive a payment in cash if performance goals established by
the Committee for a performance period are satisfied. The
Committee may grant Performance Awards that are
Section 162(m) Awards, as well as Performance Awards that
are not Section 162(m) Awards. At the time a Performance
Award is granted, the Committee shall determine, in its sole
discretion, the applicable performance period and performance
goals to be achieved during the performance period, as well as
such other conditions as the Committee deems appropriate. The
Committee may also determine a target payment amount or a range
of payment amounts for each Award. The performance goals
applicable to a Performance Award grant may be subject to
adjustments as the Committee shall deem appropriate to reflect
significant unforeseen events, such as changes in law,
accounting practices or unusual or nonrecurring items or
occurrences. The Committee’s authority to make such
adjustments shall be subject to such limitations as the
Committee deems appropriate in the case of a Performance Award
that is a Section 162(m) Award. In the case of any
Performance Award that is a Section 162(m) Award,
performance goals shall be based upon the performance criteria
identified in Section 12.2 hereof, and the terms of the
Award shall otherwise comply with the requirements described in
Section 12.3 hereof. The maximum amount of cash
compensation that may be paid to a Participant during any one
calendar year under Performance Awards shall be $2,000,000.

     
Section 11.2     Payment
of Performance Awards. At the end of the performance period,
the Committee shall determine the extent to which performance
goals have been attained, or a degree of achievement between
minimum and maximum levels, in order to establish the level of
payment to be made, if any. Payments of Performance Awards shall
generally be made as soon as practicable following the end of
the performance period, subject to any tax withholding
requirements.

		
	12.	
    SECTION 162(m) AWARDS

     
Section 12.1     Awards.
Awards of Options and Stock Appreciation Rights granted under
the Plan are intended by their terms to qualify as
Section 162(m) Awards. Restricted Stock Awards, Stock Unit
Awards, Stock Awards and Performance Awards granted under the
Plan may qualify as Section 162(m) Awards if the Awards are
granted or become payable or vested based upon pre-established
performance goals in accordance with this Section 12.

     
Section 12.2     Performance
Criteria. In the case of a Restricted Stock Award, Stock
Unit Award, Stock Award or Performance Award that is intended to
be a Section 162(m) Award, the performance criteria upon
which the grant, payment or vesting may be based shall be
limited to one or more of the following performance measures,
which may be applied with respect to the Company, any Subsidiary
or any business unit: annual recurring revenues; recurring
revenues; services revenues; license revenues; net or gross
revenue; operating expenses; cash flow; total earnings; earnings
per share, diluted or basic; earnings before interest and taxes;
earnings before interest, taxes, depreciation, and amortization;
gross or operating margin; return on equity; return on capital;
return on investment; market share; economic value added; stock
price; and total stockholder return. The foregoing performance
criteria shall have any reasonable definitions that the
Committee may specify, which may include or exclude any items
specified by the Committee, including but not limited to any or
all of the following items: discontinued operations,
extraordinary, unusual or non-recurring items, effects of
accounting changes, effects of currency or interest rate
fluctuations, effects of financing activities (e.g., effect on
earnings per share of issuing convertible debt securities),
changes in tax rates, expenses for restructuring or productivity
initiatives, litigation losses, non-operating items, effects of
acquisitions or divestitures and changes of law or regulation
affecting the Company’s business. The foregoing performance
measures may be determined on an absolute basis or

9

 

relative to internal goals or relative to levels attained in
prior years, or related to other companies or indices, or as
ratios expressing relationships between two or more performance
measures. In the case of Awards that are not Section 162(m)
Awards, the Committee may designate performance criteria from
among the foregoing or such other performance criteria as it
shall determine in its sole discretion.

     
Section 12.3     Section 162(m)
Requirements. In the case of a Restricted Stock Award, Stock
Unit Award, Stock Award or Performance Award that is intended to
be a Section 162(m) Award, the Committee shall make such
determinations with respect to an Award as required by
Section 162(m) of the Code within 90 days after the
beginning of the performance period (or such other time period
as is required under Section 162(m) of the Code). As and to
the extent required by Section 162(m) of the Code, the
terms of an Award that is a Section 162(m) Award must
state, in terms of an objective formula or standard, the method
of computing the amount of compensation payable under the Award,
and must preclude discretion to increase the amount of
compensation payable under the terms of the Award (but may allow
the Committee discretion to decrease the amount of compensation
payable).

		
	13.	
    DIRECTOR FEE OPTIONS

     
Section 13.1     Board
Discretion. Subject to the express limitations of the Plan,
the Board shall have authority in its discretion to determine
the Non-Employee Directors of the Company to whom, and the time
or times at which, Options may be granted, the number of shares
subject to each Option, the exercise price of an Option, the
time or times at which an Option will become vested and
exercisable, the duration of an Option, and all other terms of
an Option. Unless otherwise provided by the Board and set forth
in an Award Agreement, Non-Employee Directors of the Company
shall be granted Director Fee Options in accordance with the
provisions of this Section 13.

     
Section 13.2     Grant
of Director Fee Option. Subject to Sections 13.1 and
13.7 hereof, as of each Date of Grant (determined under
Section 13.3 hereof), each Non-Employee Director of the
Company shall receive a grant of a Director Fee Option at an
exercise price (determined under Section 13.4 hereof) to
purchase a number of shares of Common Stock (determined under
Section 13.5 hereof) in lieu of directors’ fees which
such Non-Employee Director earned during the calendar quarter
ending immediately prior to such Date of Grant.

     
Section 13.3     Date
of Grant. The Date of Grant of a Director Fee Option shall
be the first business day of the calendar quarter immediately
following the calendar quarter during which directors’ fees
are earned by a Non-Employee Director, with the first such Date
of Grant to be January 3, 2005.

     
Section 13.4     Exercise
Price. The exercise price of each share of Common Stock
subject to a Director Fee Option shall be 30% of the Fair Market
Value of a share of Common Stock on the applicable Date of
Grant, or such other amount as may be determined by the Board.
Payment of the exercise price shall be determined in accordance
with the provisions of Section 6.4 hereof.

     
Section 13.5     Number
of Shares. The number of shares of Common Stock subject to
any Director Fee Option shall equal (i) the dollar amount
of the Non-Employee Director’s fees which were earned
during the calendar quarter ending immediately prior to the Date
of Grant, divided by (ii) the excess of the Fair Market
Value of a share of Common Stock on the applicable Date of Grant
over the exercise price of the Director Fee Option (determined
in accordance with Section 13.4 hereof), rounded to the
nearest whole share.

     
Section 13.6     Vesting.
Each Director Fee Option shall be fully vested on the Date of
Grant.

     
Section 13.7     Exercise.
A Director Fee Option shall first become exercisable on the
earliest to occur of the following events: (i) the fifth
anniversary of the Date of Grant, (ii) the date on which
the Non-Employee Director ceases to be a member of the Board,
and (iii) the effective date of a Change in Control; and
shall remain exercisable for the period specified in the Award
Agreement as provided by the Committee at the time of grant. To
the extent that a Director Fee Option is not exercised within
the applicable time period (or is not otherwise settled in
accordance with Section 13.8 hereof), such Director

10

 

Fee Option shall be terminated and the Non-Employee
Director’s rights thereunder shall be automatically
forfeited.

     
Section 13.8     Cash
Settlement. Notwithstanding the provisions of Section 13.7 hereof, the
Committee may, in its discretion, cancel the right of a
Non-Employee Director to exercise a Director Fee Option upon or
following the occurrence of an exercise event as described in
Section 13.7 hereof in exchange for a cash payment to the
Non-Employee Director equal to the product of (i) the
number of shares of Common Stock subject to the Director Fee
Option being cancelled, multiplied by (ii) the excess of
the per share Fair Market Value of the Common Stock on the date
of cancellation of the Director Fee Option over the exercise
price per share of the Director Fee Option.

		
	14.	
    CHANGE IN CONTROL

     
Section 14.1     Effect
of Change in Control. The Committee may, at the time of the
grant of an Award and as set forth in an Award Agreement,
provide for the effect of a “Change in Control” (as
defined below) on an Award. Such provisions may include any one
or more of the following: (i) the acceleration or extension
of time periods for purposes of exercising, vesting in, or
realizing gain from any Award, (ii) the elimination or
modification of performance or other conditions related to the
payment or other rights under an Award, (iii) provision for
the cash settlement of an Award for an equivalent cash value, as
determined by the Committee, or (iv) such other
modification or adjustment to an Award as the Committee deems
appropriate to maintain and protect the rights and interests of
Participants upon or following a Change in Control. Unless
otherwise provided by the Committee and set forth in the Award
Agreement, upon a Change in Control, (i) each outstanding
Option and Stock Appreciation Right, to the extent that it shall
not otherwise have become vested and exercisable, shall
automatically become fully and immediately vested and
exercisable, without regard to any otherwise applicable vesting
requirement, (ii) each Restricted Stock Award shall become
fully and immediately vested and all forfeiture and transfer
restrictions thereon shall lapse, and (iii) each
outstanding Stock Unit Award, Stock Award and Performance Award
shall become immediately and fully vested and payable.

     
Section 14.2     Definition
of Change in Control. For purposes of this Agreement, a
“Change in Control” shall be deemed to have occurred
upon:

          
(i) the consummation of any consolidation or merger of the
Company pursuant to which the stockholders of the Company
immediately prior to the merger or consolidation do not
represent, immediately after the merger or consolidation, the
beneficial owners (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934 (the “Exchange
Act”)) of 50% or more of the combined voting power of the
Company’s (or the surviving entity’s) then outstanding
securities ordinarily (and apart from rights occurring in
special circumstances) having the right to vote in the election
of directors;

          
(ii) the consummation of any sale, lease, exchange or
transfer (in any single transaction or series of related
transactions) of all or substantially all of the assets or
business of the Company and its Subsidiaries; or

          
(iii) the occurrence of any event the result of which is
that any “person” (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other
than (A) the Company or any Subsidiary, or (B) any
employee benefit plan sponsored by the Company or any
Subsidiary, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities
of the Company representing more than 50% of the combined voting
power of the Company’s then outstanding securities
ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of
directors, as a result of a tender, leveraged buyout or exchange
offer, open market purchases, privately negotiated purchases,
other arrangements or understandings or otherwise.

		
	15.	
    GENERAL PROVISIONS

     
Section 15.1     Form
of Agreement. To the extent deemed necessary by the
Committee, an Award under the Plan shall be evidenced by an
Award Agreement in a form approved by the Committee setting

11

 

forth the number of shares of Common Stock or units subject to
the Award, the exercise price, base price, or purchase price of
the Award, the time or times at which an Award will become
vested, exercisable or payable and the term of the Award. The
Award Agreement shall also set forth the effect on an Award of
termination of employment under certain circumstances. The Award
Agreement shall be subject to and incorporate, by reference or
otherwise, all of the applicable terms and conditions of the
Plan, and may also set forth other terms and conditions
applicable to the Award as determined by the Committee
consistent with the limitations of the Plan. Award Agreements
evidencing Incentive Stock Options shall contain such terms and
conditions as may be necessary to meet the applicable provisions
of Section 422 of the Code.

     
Section 15.2     Forfeiture
Events. The Committee may specify in an Award Agreement at
the time of the Award 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, in addition to any
otherwise applicable vesting or performance conditions of an
Award. Such events shall include, but shall not be limited to,
termination of employment for cause, violation of material
Company policies, breach of noncompetition, 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.

     
Section 15.3     No
Assignment or Transfer; Beneficiaries. Except as provided in
Section 6.5 hereof, Awards under the Plan shall not be
assignable or transferable, except by will or by the laws of
descent and distribution, and during the lifetime of a
Participant, an Award shall be exercised only by such
Participant or by his guardian or legal representative.
Notwithstanding the foregoing, the Committee may provide in the
terms of an Award Agreement that the Participant shall have the
right to designate a beneficiary or beneficiaries who shall be
entitled to any rights, payments or other benefits specified
under an Award following the Participant’s death.

     
Section 15.4     Deferrals
of Payment. The Committee may permit a Participant to defer
the receipt of payment of cash or delivery of shares of Common
Stock that would otherwise be due to the Participant by virtue
of the exercise of a right or the satisfaction of vesting or
other conditions with respect to an Award. If any such deferral
is to be permitted by the Committee, the Committee shall
establish the rules and procedures relating to such deferral,
including, without limitation, the period of time in advance of
payment when an election to defer may be made, the time period
of the deferral and the events that would result in payment of
the deferred amount, the interest or other earnings attributable
to the deferral and the method of funding, if any, attributable
to the deferred amount.

     
Section 15.5     Rights
as Stockholder. A Participant shall have no rights as a
holder of shares of Common Stock with respect to any unissued
securities covered by an Award until the date the Participant
becomes the holder of record of such securities. Except as
provided in Section 4.2 hereof, no adjustment or other provision shall be
made for dividends or other stockholder rights, except to the
extent that the Award Agreement provides for dividend payments
or dividend equivalent rights.

     
Section 15.6     Employment
or Service. Nothing in the Plan, in the grant of any Award
or in any Award Agreement shall confer upon any Eligible Person
any right to continue in the service of the Company or any of
its Subsidiaries, or to serve as a director thereof, or
interfere in any way with the right of the Company or any of its
Subsidiaries to terminate the Participant’s employment or
other service relationship for any reason at any time.

     
Section 15.7     Securities
Laws. No shares of Common Stock will be issued or
transferred pursuant to an Award unless and until all then
applicable requirements imposed by Federal and state securities
and other laws, rules and regulations and by any regulatory
agencies having jurisdiction, and by any exchanges upon which
the shares of Common Stock may be listed, have been fully met.
As a condition precedent to the issuance of shares pursuant to
the grant or exercise of an Award, the Company may require the
Participant to take any reasonable action to meet such
requirements. The Committee may impose such conditions on any
shares of Common Stock issuable under the Plan as it may deem
advisable, including, without limitation, restrictions under the
Securities Act of 1933, as amended, under the requirements of
any exchange upon which such shares of the same class are then
listed, and under any blue sky or other

12

 

securities laws applicable to such shares. The Committee may
also require the Participant to represent and warrant at the
time of issuance or transfer that the shares of Common Stock are
being acquired only for investment purposes and without any
current intention to sell or distribute such shares.

     
Section 15.8     Tax
Withholding. The Participant shall be responsible for
payment of any taxes or similar charges required by law to be
withheld from an Award or an amount paid in satisfaction of an
Award, which shall be paid by the Participant on or prior to the
payment or other event that results in taxable income in respect
of an Award. The Award Agreement shall specify the manner in
which the withholding obligation shall be satisfied with respect
to the particular type of Award.

     
Section 15.9     Unfunded
Plan. The adoption of the Plan and any setting aside of cash
amounts or shares of Common Stock by the Company with which to
discharge its obligations hereunder shall not be deemed to
create a trust or other funded arrangement. The benefits
provided under the Plan shall be a general, unsecured obligation
of the Company payable solely from the general assets of the
Company, and neither a Participant nor the Participant’s
permitted transferees or estate shall have any interest in any
assets of the Company by virtue of the Plan, except as a general
unsecured creditor of the Company. Notwithstanding the
foregoing, the Company shall have the right to implement or set
aside funds in a grantor trust, subject to the claims of the
Company’s creditors, to discharge its obligations under the
Plan.

     
Section 15.10     Other
Compensation and Benefit Plans. The adoption of the Plan
shall not affect any other share incentive or other compensation
plans in effect for the Company or any Subsidiary, nor shall the
Plan preclude the Company from establishing any other forms of
share incentive or other compensation for employees of the
Company or any Subsidiary. The amount of any compensation deemed
to be received by a Participant pursuant to an Award shall not
constitute compensation with respect to which any other employee
benefits of such Participant are determined, including, without
limitation, benefits under any bonus, pension, profit sharing,
life insurance or salary continuation plan, except as otherwise
specifically provided by the terms of any such plan.

     
Section 15.11     Plan
Binding on Transferees. The Plan shall be binding upon the
Company, its transferees and assigns, and the Participant, his
or her executor, administrator and permitted transferees and
beneficiaries.

     
Section 15.12     Construction
and Interpretation. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun
shall include the feminine gender. Headings of Sections hereof
are inserted for convenience and reference and constitute no
part of the Plan.

     
Section 15.13     Severability.
If any provision of the Plan or any Award Agreement shall be
determined to be illegal or unenforceable by any court of law in
any jurisdiction, the remaining provisions hereof and thereof
shall be severable and enforceable in accordance with their
terms, and all provisions shall remain enforceable in any other
jurisdiction.

     
Section 15.14     Foreign
Jurisdictions. The Committee may adopt, amend and terminate
such arrangements and grant such Awards, not inconsistent with
the intent of the Plan, as it may deem necessary or desirable to
comply with any tax, securities, regulatory or other laws of
other jurisdictions with respect to Awards that may be subject
to such laws. The terms and conditions of such Awards may vary
from the terms and conditions that would otherwise be required
by the Plan solely to the extent the Committee deems necessary
for such purpose. Moreover, the Board may approve such
supplements to or amendments, restatements or alternative
versions of the Plan, not inconsistent with the intent of the
Plan, as it may consider necessary or appropriate for such
purposes, without thereby affecting the terms of the Plan as in
effect for any other purpose.

     
Section 15.15     Governing
Law. The Plan and all rights hereunder shall be subject to
and interpreted in accordance with the laws of the State of
Delaware, without reference to the principles of conflicts of
laws, and to applicable Federal securities laws.

13

 

		
	16.	
    EFFECTIVE DATE, AMENDMENT AND TERMINATION

     
Section 16.1     Effective
Date. The Plan shall become effective following its adoption
by the Board and upon its approval by the Company’s
stockholders. The term of the Plan shall be 10 years from
the date of such adoption by the Board, subject to
Section 16.3 hereof.

     
Section 16.2     Amendment.
The Board may at any time and from time to time and in any
respect, amend or modify the Plan; provided, however, that the
Board may seek the approval of any amendment or modification by
the Company’s stockholders to the extent it deems necessary
or advisable in its sole discretion for purposes of compliance
with Section 162(m) or Section 422 of the Code, the
listing requirements of the NASDAQ or other exchange or
securities market or for any other purpose. No amendment or
modification of the Plan shall adversely affect any Award
theretofore granted without the consent of the Participant or
the permitted transferee of the Award.

     
Section 16.3     Termination.
The Plan shall terminate on December 15, 2014, which is the
date immediately preceding the tenth anniversary of the date of
the Plan’s adoption by the Board. The Board may, in its
sole discretion and at any earlier date, terminate the Plan.
Notwithstanding the foregoing, no termination of the Plan shall
adversely affect any Award theretofore granted without the
consent of the Participant or the permitted transferee of the
Award.

		
	 	
    THE ULTIMATE SOFTWARE GROUP, INC.

14Director Fee Option Award Agreement

 

Exhibit 10.2

DIRECTOR FEE OPTION AWARD AGREEMENT

The Ultimate Software Group, Inc.

2005 Equity and Incentive Plan

     This Award Agreement (the “Agreement”) made as of this 3rd day of January, 2005, between The
Ultimate Software Group, Inc., a Delaware corporation (the “Company”), and ___
(the “Optionee”), is made pursuant to the terms of The Ultimate Software Group, Inc. 2005 Equity
and Incentive Plan (the “Plan”). This Agreement and the benefits conferred hereunder shall be
subject to the approval of the Plan by the Company’s stockholders at the Company’s 2005 Annual
Meeting of Stockholders. Capitalized terms used herein but not defined shall have the meanings set
forth in the Plan.

     Section 1. Grant of Option. The Company has granted to the Optionee a
non-qualified stock option for the purchase of the number of shares of common stock of the Company,
par value $.01 per share (the “Common Stock”), specified in Appendix A hereto (the “Option
Shares”). Appendix A may be amended by the Company from time to time to reflect additional
grants, or the exercise of an option, following the date hereof. Each option identified in
Appendix A shall be subject to the conditions hereinafter provided and subject to the terms
and conditions set forth in the Plan, a copy of which the Optionee acknowledges having received.
(Each option identified in Appendix A is hereinafter referred to as an “Option.”)

     Section 2. Exercise Price. The exercise price per share of each Option shall
be 30% of the Fair Market Value of a share of the Common Stock on the Date of Grant (as defined in
the Plan) (the “Option Price”).

     Section 3. Vesting and Term. Each Option shall be fully and immediately
vested on the Date of Grant, but shall become exercisable or payable only in accordance with the
provisions of Sections 4 and 5 hereof. To the extent that an Option is not exercised within the
exercise period described in Section 4 hereof, and is not otherwise settled in accordance with
Section 5 hereof, the Option shall be terminated and the Optionee’s rights hereunder shall be
forfeited.

     Section 4. Exercise. An Option shall first become exercisable on the earliest
to occur of the following events: (i) the fifth (5th) anniversary of the Date of Grant, (ii) the
date on which the Optionee ceases to be a member of the Board, and (iii) the effective date of a
Change in Control (each, an “Exercise Event”); and shall remain exercisable for a period of 90 days
following the applicable Exercise Event. Notwithstanding the foregoing, a Change in Control that
does not also qualify as a “change in control” for purposes of Section 409A of the Code shall not
be treated as an Exercise Event for purposes hereof.

     Section 5. Cash Settlement. Notwithstanding the provisions of Section 4
hereof, the Committee may, in its discretion, cancel the right of the Optionee to exercise an

 

 

Option upon or following the occurrence of an Exercise Event as provided in Section 4 hereof
in exchange for a cash settlement payment to the Optionee (or the Optionee’s legal representative)
equal to the product of: (i) the number of shares of Common Stock subject to the Option being
cancelled, multiplied by (ii) the excess, if any, of the per share Fair Market Value of the Common
Stock on the date of cancellation of the Option over the exercise price per share of the Option.
To the extent that the Optionee (or the Optionee’s legal representative) fails to exercise the
Option prior to the expiration of the exercise period described in Section 4 hereof, the Option
shall automatically be cancelled immediately prior to the expiration of such exercise period, and
the Optionee (or the Optionee’s legal representative) shall be paid any cash settlement payment
determined as described in the preceding sentence as soon as practicable following such
cancellation.

     Section 6. Procedure for Exercise.

     (a) Notice of Exercise. An Option may be exercised, in whole or in part, and whole
Option Shares may be purchased, by delivery of a notice (the “Notice”) to the Secretary of the
Company at the Company’s principal business address and under any procedures specified by the
Committee, which Notice shall: (i) state the number of whole Option Shares being exercised; (ii)
state the method of payment of the Option Price and tax withholding; (iii) include any
representation of the Optionee required pursuant to Section 7 hereof; (iv) in the event that the
Option shall be exercised by any person other than the Optionee pursuant to Section 10 hereof,
include appropriate proof of the right of such person to exercise the Option; and (v) comply with
such further requirements consistent with the Plan as the Committee may from time to time
prescribe.

     (b) Payment of Option Price. Payment of the Option Price shall be made: (i) in cash
or by cash equivalent acceptable to the Committee, (ii) by payment in shares of Common Stock that
have been held by the Optionee for at least six months (or such other period as the Committee may
deem appropriate for purposes of applicable accounting rules), valued at the Fair Market Value of
such shares on the date of exercise, (iii) through an open-market, broker-assisted transaction, or
(iv) by a combination of the foregoing methods. In addition and at the time of exercise, if and to
the extent required by applicable law, the Optionee shall remit to the Company under procedures
specified by the Company all required Federal, state and local withholding tax amounts in any
manner as permitted above for payment of the Option Price.

     (c) Delivery of Stock Certificates Upon Exercise. Upon each exercise of an Option,
the Company shall mail or deliver to the Optionee (or beneficiary in the case of exercise by a
beneficiary), as promptly as practicable, a stock certificate or certificates representing the
shares of Common Stock then purchased, and will pay all stamp taxes payable in connection
therewith. Notwithstanding the foregoing, the Company shall not be obligated to deliver any such
certificate or certificates upon exercise of an Option until the Company shall have received such
assurances from its counsel as the Company may reasonably request that the exercise of the Option
and the issuance of shares of Common Stock pursuant to such exercise will not violate the
Securities Act of 1933 (the “Act”), as amended (as then in effect or any similar statute then in
effect), or the securities laws of any state applicable to such exercise, issuance or transfer.
Such assurances may include (but need not be limited to) opinions of counsel to the Company,
covenants by the holder or transferee to

2

 

observe such Act and laws and the placement of a legend on such certificate or certificates
restricting subsequent transfers or sales except in compliance with such Act and laws.

     Section 7. Investment Representation. Upon the exercise of an Option at a
time when there is not in effect a registration statement under the Act relating to the shares of
Common Stock, by virtue of such exercise, the Optionee shall be deemed to represent and warrant to
the Company that the shares of Common Stock shall be acquired for investment and not with a view to
the distribution thereof, and not with any present intention of distributing the same, and the
Optionee shall provide the Company with such further representations and warranties as the Company
may require in order to ensure compliance with applicable Federal and state securities, blue sky
and other laws. No shares of Common Stock shall be acquired unless and until the Company and/or
the Optionee shall have complied with all applicable Federal or state registration, listing and/or
qualification requirements and all other requirements of law or of any regulatory agencies having
jurisdiction, unless the Committee has received evidence satisfactory to it that the Optionee may
acquire such shares pursuant to an exemption from registration under the applicable securities
laws. Any determination in this connection by the Committee shall be final, binding and
conclusive.

     Section 8. Limitation of Rights. The Optionee shall not have any privileges
of a stockholder of the Company with respect to any Option Shares, including without limitation any
right to vote such Option Shares or to receive dividends or other distributions in respect thereof,
until the date of the issuance to the Optionee of a stock certificate evidencing the Common Stock.
Nothing in this Agreement or an Option shall confer upon the Optionee any right to continued
employment with the Company or to interfere in any way with the right of the Company to terminate
the Optionee’s employment at any time.

     Section 9. Adjustments. If there shall occur any recapitalization,
reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, or
other distribution with respect to the shares of Common Stock, or any merger, reorganization,
consolidation or other change in corporate structure affecting the Common Stock, the Committee
shall, in the manner and to the extent that it deems appropriate and equitable to the Optionee and
consistent with the terms of the Plan, cause an adjustment to be made in (i) the number and kind of
shares of Common Stock subject to the Option, (ii) the Option Price, and (iii) any other terms of
the Option that are affected by the event to prevent dilution or enlargement of the Optionee’s
rights hereunder.

     Section 10. Transfer Restrictions. No Option may be transferred, pledged,
assigned, hypothecated or otherwise disposed of in any way by the Optionee, except by will or by
the laws of descent and distribution; provided, however, that the Optionee may,
during the Optionee’s lifetime and subject to the prior approval of the Committee at the time of
proposed transfer, transfer all or part of an Option to or for the benefit of the Optionee’s
“family members” (as defined in a manner consistent with the rules applicable to registration
statements on Form S-8 promulgated under the Securities Act of 1933), which include certain trusts
and other entities established for the benefit of the Optionee and/or the Optionee’s family
members. Subsequent transfers of an Option shall be prohibited other than by will or the laws of
descent and distribution upon the death of the transferee. In the event that an Optionee becomes
legally

3

 

incapacitated, an Option shall be exercisable by the Optionee’s legal guardian, committee or legal
representative. If the Optionee dies, an Option shall thereafter be exercisable by the legatee of
such Option under the Optionee’s will or by the Optionee’s estate in accordance with the Optionee’s
will or the laws of descent and distribution, in each case in the same manner and to the same
extent that such Option was exercisable by the Optionee on the date of the Optionee’s death. An
Option shall not be subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of an Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon an Option, shall be null
and void and without effect.

     Section 11. Notices. Any notice hereunder by the Optionee shall be given to
the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the
Secretary of the Company. Any notice hereunder by the Company shall be given to the Optionee in
writing and such notice shall be deemed duly given only upon receipt thereof at such address as the
Optionee may have on file with the Company.

     Section 12. Construction. Any Option hereunder is granted pursuant to the
Plan and is in all respects subject to the terms and conditions of the Plan. The Optionee hereby
acknowledges that a copy of the Plan has been delivered to the Optionee and accepts the Options
hereunder subject to all terms and provisions of the Plan, which is incorporated herein by
reference. In the event of a conflict or ambiguity between any term or provision contained herein
and a term or provision of the Plan, the Plan will govern and prevail. The construction of and
decisions under the Plan are vested in the Committee, whose determinations shall be final,
conclusive and binding upon the Optionee.

     Section 13. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, without giving effect to the choice of law
principles thereof.

     Section 14. Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

     Section 15. Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the parties hereto as to the Options, and merges and supersedes all prior
discussions, agreements (including, without limitation, any stock option agreements) and
understandings of every kind and nature between them with respect to the Options. This Agreement
shall not be changed or amended except by a writing signed by each of the parties hereto.

[SIGNATURES ON FOLLOWING PAGE]

4

 

     IN WITNESS WHEREOF, the Company and the Optionee have executed this Agreement effective as of
the date first above written.

	 	 	 	 	 
	 	THE ULTIMATE SOFTWARE GROUP, INC.

 	 
	 	By:  	/s/
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	OPTIONEE

 	 
	 	
 	 
	 	Signature of Optionee 	 

	 
	 	_________________________________________

Print Name 	 

5

 

	 	 	 	 	 

Appendix A

	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Number of Shares	 	 	 	 
	 	Date of Grant	 	 	Subject to Option	 	 	Option Price	 
	 	January 3, 2005

	 	 	 	 	 	$3.65 per share	 
	 	April 1, 2005

	 	 	 	 	 	$4.71 per share	 
	 	 
	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 
	 

A-1

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