Document:

EX-10.C

 

Exhibit 10(C)

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT, dated as of the 17th day of July, 2006 (this “Agreement”), by and
between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Company”), and Brian A. Silva (the
“Executive”),

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the
best interests of the Company and its shareholders to assure that the Company will have the
continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined herein). The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties and risks created
by a pending or threatened Change of Control and to encourage the Executive’s full attention and
dedication to the current Company and in the event of any threatened or pending Change of Control,
and to provide the Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive will be satisfied and
that are competitive with those of other corporations. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

     Section 1. Certain Definitions.

     (a) “Effective Date” means the first date during the Change of Control Period (as defined
herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the
contrary, if a Change of Control occurs and if the Executive’s employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (1) was at the request of a third
party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise
arose in connection with or in anticipation of a Change of Control, then “Effective Date” means the
date immediately prior to the date of such termination of employment.

     (b) “Change of Control Period” means the period commencing on the date hereof and ending on
the third anniversary of the date hereof; provided, however, that, commencing on the date one year
after the date hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate three years from such Renewal Date,
unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.

     (c) “Company” means the Company as hereinbefore defined and any successor to its business
and/or assets as described below whether by merger, consolidation, purchase or otherwise, that
assumes and is bound to perform this Agreement by operation of law or otherwise.

     (d) “Affiliated company” means any company controlled by, controlling or under common
control with the Company.

     (e) “Change of Control” means:

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     (1) The acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then-outstanding common shares of
the Company (the “Outstanding Company Common Shares”) or (B) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided, however,
that, for purposes of this Agreement, the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any affiliated company, (iv) any acquisition by any
corporation pursuant to a transaction that complies with Sections l(d)(3)(A), l(d)(3)(B) and
l(d)(3)(C), or (v) any acquisition of 20% or more of the Outstanding Company Common Shares
or Outstanding Company Voting Securities by any Person who has acquired the Outstanding
Company Common Shares or Outstanding Company Voting Securities in the ordinary course of
business for investment purposes only and not with the purpose or effect of changing or
influencing the control of the Company, or in connection with or as a participant in any
transaction having such purpose or effect (“Investment Intent”), as demonstrated by the
filing by such Person of a statement on Schedule 13G (including amendments thereto) pursuant
to Regulation 13D under the Exchange Act, as long as such Person continues to hold the
Outstanding Company Common Shares or Outstanding Company Voting Securities with an
Investment Intent, unless the Incumbent Board (as defined below) determines, by a majority
vote, that the acquisition or holding of Outstanding Company Common Shares or Outstanding
Company Voting Securities by such Person constitutes a Change of Control.

     (2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board.

     (3) Consummation of a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, immediately following such Business Combination, (A)
all or substantially all of the individuals and entities that were the beneficial owners of
the Outstanding Company Common Shares and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or indirectly,
more than 60% of the then-outstanding common shares and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation that, as a result of such transaction, owns the Company or
all or substantially all of the Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership immediately prior to
such Business Combination of the Outstanding Company Common Shares and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination

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or any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then-outstanding common shares of the corporation resulting from
such Business Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership existed prior to
the Business Combination, and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement or of the action of
the Board providing for such Business Combination; or

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

     Section 2. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to
the terms and conditions of this Agreement, for the period commencing on the Effective Date and
ending on the third anniversary of the Effective Date (the “Employment Period”).

     Section 3. Terms of Employment. 

     (a) Position and Duties.

     (1) During the Employment Period, (A) the Executive’s position (including status,
offices, titles and reporting requirements), authority, duties and responsibilities shall be
at least commensurate in all material respects with the most significant of those held or
exercised by and assigned to the Executive at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive’s services shall be performed at the
office where the Executive was employed immediately preceding the Effective Date or at any
other location less than 25 miles from such office.

     (2) During the Employment Period, and excluding any periods of vacation and sick leave
to which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executive’s reasonable best efforts to perform faithfully and efficiently such
responsibilities to the best of his or her ability. During the Employment Period, it shall
not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long as such activities
do not significantly interfere with the performance of the Executive’s responsibilities as
an officer or employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that, to the extent that any such activities have been conducted by
the Executive prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of the Executive’s
responsibilities to the Company.

     (b) Compensation.

     (1) Base Salary. During the Employment Period, the Executive shall receive an annual

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base salary (the “Annual Base Salary”), which Annual Base Salary shall be at least equal to 12
times the highest monthly base salary paid or payable, including any base salary that has been
earned but deferred, to the Executive by the Company and the affiliated companies during the
12-month period immediately preceding the month in which the Effective Date occurs. The Annual Base
Salary shall be paid one-twelfth (1/12th) each month. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the
last salary increase awarded to the Executive prior to the Effective Date. Any increase in the
Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under
this Agreement. During the Employment Period, the Annual Base Salary shall not be reduced after any
such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so
increased.

     (2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual
Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s Executive Bonus
and/or Gainsharing Plans, or any comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date (annualized, in the event that the
Executive was not employed by the Company for the whole of such fiscal year) (the “Recent Annual
Bonus”). Each such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is awarded, except to the
extent that the Executive shall elect to defer the receipt of such Annual Bonus pursuant to and in
accordance with the Company’s Executive Deferral Plan or any successor plan thereto then in effect.

     (3) Company Equity Incentive Plans. During the Employment Period, the Executive shall
be entitled to participate in all restricted stock, stock option and other equity incentive plans,
practices, policies and programs (“Equity Incentive Plans”) applicable generally to other peer
executives of the Company and the affiliated companies, but in no event shall such Equity Incentive
Plans provide the Executive with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction is applicable), in
each case, less favorable, in the aggregate, than the most favorable of those provided by the
Company and the affiliated companies for the Executive under such Equity Incentive Plans as in
effect at any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the Effective Date to other
peer executives of the Company and the affiliated companies. The basis for the valuation for such
equity incentive awards for Executive shall be the highest applicable percent of salary within the
last three fiscal years prior to the Effective Date, based upon Executive’s job classification, and
a target award value that is equal to or greater than the highest target award value of any of the
equity incentive awards granted to the Executive during such 3-year period.

     (4) Savings, Retirement and Welfare Benefit Plans. During the Employment Period, the
Executive and as applicable the Executive’s family, as the case may be, shall be eligible for
participation in and shall receive all benefits under any incentive, savings, retirement plans and
welfare benefit plans, policies, practices and programs provided by the Company and the affiliated
companies (including, without limitation, medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and the affiliated companies, but in
no event shall such plans, practices, policies and programs provide the Executive and/or the
Executive’s family with benefits that are less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer executives of the
Company and the affiliated companies. In the event that because of applicable law, or

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for other good and valid reasons, such applicable benefit plans cannot be provided Executive
by the Company following Change of Control, the Company by agreement with Executive, which
agreement shall not be unreasonably withheld, may provide Executive with an amount having an
overall equivalent tax adjusted value for the applicable period to those employee benefits,
programs and the like, not otherwise being provided by the Company to Executive.

     (5) Expenses. During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in the furtherance of
the business or affairs of the Company or any of the Affiliated companies in accordance with the
most favorable policies, practices and procedures of the Company and the affiliated companies in
effect for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and the affiliated companies.

     (6) Office and Support Staff. During the Employment Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and to
personal secretarial and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and the affiliated companies at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as
provided generally at any time thereafter with respect to other peer executives of the Company and
the affiliated companies.

     (7) Vacation. During the Employment Period, the Executive shall be entitled to
paid
vacation in accordance with the most favorable plans, policies, programs and practices of the
Company and the affiliated companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of the Company and
the affiliated companies.

     Section 4. Termination of Employment

     (a) Death or Disability. The Executive’s employment shall terminate automatically if
the Executive dies during the Employment Period. If the Company determines in good faith that the
Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant
to the definition of “Disability”), it may give to the Executive written notice in accordance with
Section ll(b) of its intention to terminate the Executive’s employment. In such event, the
Executive’s employment with the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the
Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties
with the Company on a full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal
representative.

     (b) Cause. The Company may terminate the Executive’s employment during the Employment
Period for Cause. Subject to the last paragraph of Section 4(b), “Cause” means:

     (1) the willful failure of the Executive to perform, and the continuance of such
failure to perform for 60 days following the Executive’s receipt of notice from the Company,
substantially the Executive’s duties with the Company or any affiliated company (other than
any

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such failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the Executive by the Board or the
Chief Executive Officer of the Company that specifically identifies the manner in which the
Board or the Chief Executive Officer of the Company believes that the Executive has not
substantially performed the Executive’s duties; or

     (2) the willful engaging by the Executive in illegal conduct or gross misconduct that
is materially and demonstrably injurious to the Company; or

     (3) any violation of the Code of Conduct of the Company, as in effect immediately prior
to the Effective Date.

For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be
considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a
senior officer of the Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company.

     Notwithstanding the foregoing, the cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of
a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an opportunity, together
with counsel for the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in Sections 4(b)(l) or
4(b)(2), and specifying the particulars thereof in detail.

     (c) Good Reason. The Executive’s employment may be terminated by the Executive for
Good Reason. “Good Reason” means:

     (1) the assignment to the Executive of any duties inconsistent in any respect with the
Executive’s position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 3 (a), or any other action
by the Company that results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;

     (2) any failure by the Company to comply with any of the provisions of Section 3(b),
other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and
that is remedied by the Company promptly after receipt of notice thereof given by the
Executive;

     (3) the Company’s requiring the Executive to be based at any office or location other
than as provided in Section 3(a)(l)(B) or the Company’s requiring the Executive to travel on
Company business to a substantially greater extent than required immediately prior to the
Effective Date;

     (4) any purported termination by the Company of the Executive’s employment otherwise
than as expressly permitted by this Agreement; or

     (5) any failure by the Company to comply with and satisfy Section
10(c).

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For purposes of this Section 4(c), any good faith determination of Good Reason made by the
Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.

     (d) Notice of Termination. Any termination by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1)
indicates the specific termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive’s employment under the provision so indicated, and (3) if the Date
of Termination (as defined herein) is other than the date of receipt of such notice, specifies the
Date of Termination (which Date of Termination shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the Notice of Termination
any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the
Company’s respective rights hereunder.

     (e) Date of Termination. “Date of Termination” means (1) if the Executive’s
employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified in the Notice of Termination, as
the case may be, (2) if the Executive’s employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (3) if the Executive’s employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.

     Section 5. Obligations of the Company upon Termination, (a) Good Reason: Other
Than for Cause, Death or Disability. If, during the Employment Period, the Company terminates
the Executive’s employment other than for Cause or Disability or the Executive terminates
employment for Good Reason:

     (1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the
Date of Termination the aggregate of the following amounts:

     (A) the sum of (i) that portion of the Executive’s Annual Base Salary that has
accrued prior to the Date of Termination to the extent not theretofore paid, (ii)
the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof that has been earned
but deferred (and annualized for any fiscal year consisting of less than 12 full
months or during which the Executive was employed for less than 12 full months), for
the most recently completed fiscal year during the Employment Period, if any (such
higher amount, the “Highest Annual Bonus”) and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365, and (iii) any compensation
previously deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case, to the extent not theretofore
paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the
“Accrued Obligations”); and

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     (B) the amount equal to the higher of (i) the product of (x) two and (y) the
sum of (l) the Executive’s Annual Base Salary and (2) the Highest Annual Bonus or
(ii) the product of (x) four and (y) the Executive’s Annual Base Salary; less

     (C) the value of amounts paid or to be paid to the
Executive under any
severance pay plans or programs of the Company then in effect.

     (2) for two years after the Executive’s Date of Termination, or such longer period as
may be provided by the terms of the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or the Executive’s family at least
equal to those that would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(b)(4) if the Executive’s employment had not
been terminated or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and the affiliated companies
and their families, provided, however, that, if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained employed until three years
after the Date of Termination and to have retired on the last day of such period;

     (3) the Company shall, at its sole expense as incurred, provide the Executive with
outplacement services the scope and provider of which shall be selected by the Executive in
the Executive’s sole discretion; and

     (4) to the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided to
the Executive or that the Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and the affiliated companies (such other
amounts and benefits, the “Other Benefits”).

     (b) Death. If the Executive’s employment is terminated by reason of the Executive’s
death during the Employment Period, this Agreement shall terminate without further obligations to
the Executive’s estate, beneficiaries or legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The
Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the
Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without
limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and the affiliated companies
to the estates and beneficiaries of peer executives of the Company and the affiliated companies
under such plans, programs, practices and policies relating to death benefits, if any, as in effect
with respect to other peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the
Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other
peer executives of the Company and the affiliated companies and their beneficiaries.

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     (c) Disability. If the Executive’s employment is terminated by reason of the
Executive’s Disability during the Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued Obligations and the timely payment
or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the
Other Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive and/or the
Executive’s family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and the affiliated companies and their families.

     (d) Cause; Other Than for Good Reason. If the Executive’s employment is terminated for
Cause during the Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive (1) that portion of the Executive’s
Annual Base Salary that has accrued prior to the Date of Termination, (2) the amount of any
compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the
extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for the Accrued Obligations and the timely payment or
provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.

     Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive’s continuing or future participation in any plan, program, policy or practice
provided by the Company or the affiliated companies and for which the Executive may qualify, nor,
subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or the affiliated companies.
Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the Company or the
affiliated companies at or subsequent to the Date of Termination shall be payable in accordance
with such plan, policy, practice or program or contract or agreement, except as explicitly modified
by this Agreement.

     Section 7. Full Settlement. The Company’s obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall not be subject to
set-off or otherwise affected by any counterclaim, recoupment, defense, or other claim, right or
action that the Company or any of the Affiliated companies may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of the provisions of
this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal
fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
“Code”).

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     Section 8. Certain Additional Payments by the Company.

     (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the Company or the
affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise but determined without regard
to any additional payments required under this Section 8) (the “Payment”) would be subject to the
excise tax imposed by Section 4999 of the Code, as the same may be hereafter modified or amended or
any successor provision, or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and penalties, collectively, the
“Excise Tax”), then the Executive shall be entitled to receive an additional payment (the “Gross-Up
Payment”) in an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.

     (b) Subject to the provisions of Section 8(c), all determinations required to be made under
this Section 8, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by PricewaterhouseCoopers LLP or such other nationally recognized independent accounting firm
as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments that will not have been made by the Company should have been
made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the
event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.

     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which the Executive gives
such notice to the Company (or such shorter period ending on the date that any payment of taxes
with respect to such

-10-

 

claim is due). If the Company notifies the Executive in writing prior to the expiration of such
period that the Company desires to contest such claim, the Executive shall:

     (1) give the Company any information reasonably requested by the Company relating to
such claim,

     (2) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,

     (3) cooperate with the Company in good faith in order effectively to contest such
claim, and

     (4) permit the Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest, and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall
control all proceedings taken in connection with such contest, and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that, if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed income with respect to
such advance; and provided, further, that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control
of the contest shall be limited to issues with respect to which the Gross-Up Payment would be
payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing authority.

-11-

 

     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, upon
receipt of such refund, the Executive shall (subject to the Company’s complying with the
requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

     Section 9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or the affiliated companies, and their respective businesses, which
information, knowledge or data shall have been obtained by the Executive during the Executive’s
employment by the Company or the affiliated companies and which information, knowledge or data
shall not be or become public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Agreement). For two years after termination of the Executive’s
employment with the Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those persons designated by the
Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a
basis for deferring or withholding any amounts otherwise payable to the Executive under this
Agreement.

     Section 10. Successors.

     (a) This Agreement is personal to the Executive, and, without the prior written consent of the
Company, shall not be assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s
legal representatives.

     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.

     (c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place.

     Section 11. Miscellaneous.

     (a) This Agreement shall be governed by and construed in accordance with the laws of the State
of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified other than by a written agreement executed by the parties hereto or their
respective successors, permitted assigns and legal representatives.

     (b) All notices and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

-12-

 

     if to the Executive:

Brian A. Silva

(at his home address)

     if to the Company:

The Progressive Corporation

6300 Wilson Mills Road N72

Mayfield Village, Ohio 44143

Attention: Chief Legal Officer

or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the addressee.

     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.

     (d) This Agreement shall not be deemed to modify, amend or supplement the terms of any
existing benefit plan or program of the Company.

     (e) The Company may withhold from any amounts payable under this Agreement such United States
federal, state or local or foreign taxes or other items as shall be required to be withheld
pursuant to any applicable law or regulation.

     (f) The Executive’s or the Company’s failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to terminate employment
for Good Reason pursuant to Sections 4(c)(l) through 4(c)(5), shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.

     (g) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment of the Executive
by the Company is “at will” and, subject to Section l(a), prior to the Effective Date, the
Executive’s employment and/or this Agreement may be terminated by either the Executive or the
Company at any time prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.

- 13 -

 

     IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the
authorization from the Board, the Company has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.

	 	 	 	 	 
	 	 	 
	 	/s/ Brian A. Silva
 	 
	 	Brian A. Silva 	 
	 	 	 
	 
	 	THE PROGRESSIVE CORPORATION

 	 
	 	By:  	/s/ Glenn M. Renwick
 	 
	 	 	Name:  	Glenn M. Renwick 	 
	 	 	Chief Executive Officer 	 
	 

-14-EX-10.1

 

Exhibit 10.1

AGILYSYS, INC.

2006 STOCK INCENTIVE PLAN

ARTICLE 1

General Purpose of Plan; Definitions

     1.1 Name and Purposes. The name of this Plan is the Agilysys, Inc. 2006 Stock Incentive Plan.
The purpose of this Plan is to enable Agilysys, Inc. and its Affiliates to: (i) attract and retain
skilled and qualified officers, employees, directors and consultants who are expected to contribute
to the Company’s success by providing long-term incentive compensation opportunities competitive
with those made available by other companies; (ii) motivate Participants to achieve the long-term
success and growth of the Company; (iii) facilitate ownership of shares of the Company; and (iv)
align the interests of the Participants with those of the Company’s Shareholders.

     1.2 Certain Definitions. Unless the context otherwise indicates, the following words used
herein shall have the following meanings whenever used in this instrument:

     (a) “Affiliate” means (i) any entity that would be treated as an “affiliate” of the Company
for purposes of Rule 12b-2 issued under the Exchange Act, and (ii) any corporation, partnership,
joint venture or other entity, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with the Company as determined by the Board of
Directors in its discretion. For certain purposes described elsewhere in this Plan (for example,
with respect to ISOs), only entities described in relevant tax or other law are considered
affiliated with the Company.

     (b) “Award” means any grant under this Plan of a Stock Option, Stock Appreciation Right,
Restricted Share, Restricted Share Unit or Performance Share to any Plan Participant.

     (c) “Award Agreement” means a written agreement entered into between the Company and a
Participant setting forth the terms and conditions of an Award granted to the Participant.

     (d) “Board of Directors” means the Board of Directors of the Company, as constituted from
time to time.

     (e) “Cause” means a Participant’s termination of employment or directorship, as applicable,
which shall have been the result of:

	 	(i)	 	his conviction of any of the following offenses,
provided that such offense results in material economic harm to the
Company or any Affiliate or has a materially adverse effect on the
operations, property or business relationships of the Company or an
Affiliate: (A) misappropriation of money or other property of the Company
or any Affiliate or (B) any felony;
	 
	 	(ii)	 	his failure, during his employment with the Company
or any Affiliate, to devote his full time and undivided attention during
normal business hours to the business and affairs of the Company or any
Affiliate, except for reasonable vacations and for illness or incapacity;
provided, however, that a Participant may, with the consent of the
Company, serve as a director or member of an advisory committee of any
organization involving no conflict of interest with the interests of the
Company or its Affiliates, engage in charitable and community activities,
and manage his personal affairs, provided that such activities do not
materially interfere with the regular performance of his duties and
responsibilities of employment;
	 
	 	(iii)	 	his failure to substantially perform his
employment duties with the Company or an Affiliate;
	 
	 	(iv)	 	his failure to substantially perform his duties as
a Director; or

 

 

	 	(v)	 	conduct that is in material competition with the
Company or an Affiliate or conduct that breaches his duty of loyalty to
the Company or an Affiliate or that is materially injurious to the
Company or an Affiliate, monetarily or otherwise, which conduct may
include, but is not limited to, (A) disclosing or misusing any
confidential information pertaining to the Company or an Affiliate or (B)
attempting, directly or indirectly, to induce any employee or agent of
the Company or an Affiliate to be employed or perform services elsewhere.

The determination of whether any conduct, action or failure to act constitutes “Cause” shall be
made by the Committee in its sole discretion.

     (f) “Code” means the Internal Revenue Code of 1986, as amended, and any lawful regulations or
other guidance promulgated thereunder. Whenever reference is made to a specific Internal Revenue
Code section, such reference shall be deemed to be a reference to any successor Internal Revenue
Code section or sections with the same or similar purpose.

     (g) “Committee” means the entity administering this Plan as provided in Section 2.1.

     (h) “Company” means Agilysys, Inc., a corporation organized under the laws of the State of
Ohio and, except for purposes of determining whether a Change in Control has occurred, any
corporation or entity that is a successor to Agilysys, Inc. or substantially all of the assets of
Agilysys, Inc. and that assumes the obligations of Agilysys, Inc. under this Plan by operation of
law or otherwise.

     (i) “Date of Grant” means the date on which the Committee grants an Award or a future date
that the Committee designates as the effective date of the Award at the time it grants the Award.

     (j) “Director” means a member of the Board of Directors.

     (k) “Disability” means a Participant’s physical or mental incapacity resulting from personal
injury, disease, illness or other condition, which (i) prevents him from performing his duties for
the Company or an Affiliate, as the same is determined by the Committee or its designee after
reviewing any medical evidence or requiring any medical examinations which the Committee or its
designee considers necessary to its determination; and (ii) results in his termination of
employment or directorship, as applicable, with the Company or an Affiliate. Notwithstanding the
foregoing, the Committee may, in its sole discretion, substitute a different definition for the
term “Disability” to the extent provided herein or otherwise as appropriate.

     (l) “Early Retirement” means a Participant’s retirement from active employment or active
directorship with the Company or an Affiliate on and after the later of attainment of age 55 or
the completion of seven years of service.

     (m) “Eligible Director” is defined in Article 4.

     (n) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended and any
lawful regulations or other guidance promulgated thereunder. Whenever reference is made to a
specific ERISA section, such reference shall be deemed to be a reference to any successor ERISA
section or sections with the same or similar purpose.

     (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any lawful
regulations or other guidance promulgated thereunder. Whenever reference is made to a specific
Exchange Act section, such reference shall be deemed to be a reference to any successor Exchange
Act section or sections with the same or similar purpose.

     (p) “Exercise Price” means the purchase price of a Share pursuant to a Stock Option.

     (q) “Fair Market Value” means the last closing price of a Share as reported on The Nasdaq
Stock Market, or, if applicable, on another national securities exchange on which the Common
Shares are principally traded, on the date for which the determination of Fair Market Value is
made, or, if there are no sales of Common Shares on such date, then on the most recent immediately
preceding date on which there were any sales of Common Shares. If the Common Shares are not, or
cease to be, traded on The Nasdaq Stock Market or another national securities exchange, the “Fair
Market Value” of Common Shares shall be determined pursuant to a reasonable valuation method
prescribed by the

 

 

Committee. Notwithstanding the foregoing, as of any date, the “Fair Market Value” of Common
Shares shall be determined in a manner consistent with Section 409A of the Code and the guidance
then-existing thereunder to the extent applicable. In addition, “Fair Market Value” with respect
to ISOs and SARs related to ISOs shall be determined in accordance with Article 6 and the rules
relevant for ISO qualification.

     (r) “Incentive Stock Option” and “ISO” mean a Stock Option that is identified as such and
which is intended to meet the requirements of Section 422 of the Code.

     (s) “Non-Qualified Stock Option” and “NQSO” mean a Stock Option that either (i) is designated
as a Non-Qualified Stock Option or (ii) otherwise is not an ISO.

     (t) “Normal Retirement” means retirement from active employment or active directorship with
the Company or an Affiliate on or after attainment of age 65.

     (u) “Outside Director” means a Director who meets the definitions of the terms “outside
director” set forth in Section 162(m) of the Code, “independent director” set forth in The Nasdaq
Stock Market, Inc. rules, and “non-employee director” set forth in Rule 16b-3, or any successor
definitions adopted for a similar purpose by the Internal Revenue Service, The Nasdaq Stock
Market, Inc. and Securities and Exchange Commission, respectively, and similar requirements under
any other applicable laws and regulations as well as satisfying the Company’s relevant corporate
governance guidelines and any applicable Committee charter provision.

     (v) “Parent” means any corporation which qualifies as a “parent corporation” of the Company
under Section 424(e) of the Code relating to incentive stock options and certain employee stock
purchase plans.

     (w) “Participant” means an officer, employee, consultant or Director who has been granted an
Award.

     (x) “Performance Based Compensation” is defined in Article 9.

     (y) “Performance Period” means the time period specified by the Committee during which any
performance objective must be satisfied.

     (z) “Performance Shares” is defined in Article 9.

     (aa) “Plan” means this Agilysys, Inc. 2006 Stock Incentive Plan, as amended from time to time.

     (bb) “Restricted Share Units” is defined in Article 8.

     (cc) “Restricted Shares” is defined in Article 8.

     (dd) “Retirement” means Normal Retirement or Early Retirement.

     (ee) “Rule 16b-3” means Rule 16b-3 issued under the Exchange Act, as such rule may be amended
from time to time. Whenever reference is made to Rule 16b-3, such reference shall be deemed to be
a reference to any successor rule with the same or a similar purpose.

     (ff) “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended, and any lawful
regulations or other guidance promulgated thereunder. Whenever reference is made to a specific
Sarbanes-Oxley Act section, such reference shall be deemed to be a reference to any successor
Sarbanes-Oxley Act section or sections with the same or similar purpose.

     (gg) “Section 16 Person” means a person subject to potential liability under Section 16(b) of
the Exchange Act with respect to transactions involving equity securities of the Company.

     (hh) “Section 162(m) Person” means, for any taxable year, a person who is a “covered
employee” within the meaning of Section 162(m)(3) of the Code and whose compensation, therefore,
is subject to the tax deductibility limitations of Section 162(m) of the Code.

 

 

     (ii) “Share” or “Shares” mean one or more of the common shares, without par value, of the
Company.

     (jj) “Shareholder” means an individual or entity that owns one or more Shares.

     (kk) “Stock Appreciation Rights” and “SARs” mean any right pursuant to an Award granted under
Article 7.

     (ll) “Stock Option” means any right to purchase a specified number of Shares at a specified
price which is granted pursuant to Article 5 and may be an Incentive Stock Option or a
Non-Qualified Stock Option.

     (mm) “Stock Power” means a power of attorney executed by a Participant and delivered to the
Company which authorizes the Company to transfer ownership of Restricted Shares, Performance
Shares or Common Shares from the Participant to the Company or a third party.

     (nn) “Subsidiary” means any corporation which qualifies as a “subsidiary corporation” of the
Company under Section 424(f) of the Code relating to incentive stock options and certain employee
stock purchase plans.

     (oo) “Vested” means, regarding rights under this Plan, with respect to a Common Share, when
the Common Share has been awarded; with respect to a Stock Option, that the time has been reached
when the option to purchase Shares first becomes exercisable; with respect to a Stock Appreciation
Right, when the Stock Appreciation Right first becomes exercisable for payment; with respect to
Restricted Shares, when the Shares are no longer subject to forfeiture and restrictions on
transferability; with respect to Restricted Share Units and Performance Shares, when the units or
Shares are no longer subject to forfeiture and are convertible to Shares. The words “Vest” and
“Vesting” have meanings correlative to the foregoing. The fact that an Award is Vested does not
mean that it is free of restrictions which may be imposed by law, nor even that the Award may not
be forfeited in certain circumstances under the Plan (for example, due to a termination of
employment or directorship for Cause).

ARTICLE 2

Administration

     (2.1) Authority and Duties of the Committee.

     (a) The Plan shall be administered by a Committee of at least three Directors who are
appointed by the Board of Directors. Unless otherwise determined by the Board of Directors, the
Compensation Committee shall serve as the Committee, and all of the members of the Committee shall
be Outside Directors. Notwithstanding the requirement that the Committee consist exclusively of
Outside Directors, no action or determination by the Committee or an individual then considered to
be an Outside Director shall be deemed void because a member of the Committee or such individual
fails to satisfy the requirements for being an Outside Director, except to the extent required by
applicable law.

     (b) The Committee has the sole and exclusive power and authority to grant Awards pursuant to
the terms of this Plan to officers, employees and Eligible Directors and consultants.

     (c) The Committee has the sole and exclusive power and authority, subject to any limitations
specifically set forth in this Plan, to:

	 	(i)	 	select the officers, employees and Eligible
Directors and consultants to whom Awards are granted;
	 
	 	(ii)	 	determine the types of Awards granted and the
timing of such Awards;
	 
	 	(iii)	 	determine the number of Shares to be covered by
each Award granted hereunder;
	 
	 	(iv)	 	determine whether an Award is, or is intended to
be, Performance Based Compensation within the meaning of Section 162(m)
of the Code;
	 
	 	(v)	 	determine the other terms and conditions, not
inconsistent with the terms of this Plan and any operative employment or
other agreement, of any Award granted hereunder;

 

 

	 	 	 	such terms and conditions include, but are not limited to, the
Exercise Price, the time or times when Options or Stock Appreciation
Rights may be exercised (which may be based on performance
objectives), any Vesting, acceleration or waiver of forfeiture
restrictions, any performance criteria (including any performance
criteria as described in Section 162(m)(4)(C) of the Code) applicable
to an Award, and any restriction or limitation regarding any Option or
Stock Appreciation Right or the Common Shares relating thereto, based
in each case on such factors as the Committee, in its sole discretion,
shall determine;
	 
	 	(vi)	 	determine whether any conditions or objectives
related to Awards have been met, including any such determination
required for compliance with Section 162(m) of the Code;
	 
	 	(vii)	 	subsequently modify or waive any terms and
conditions of Awards, not inconsistent with the terms of this Plan and
any operative employment or other agreement;
	 
	 	(viii)	 	adopt, alter and repeal such administrative rules, guidelines and
practices governing this Plan as it deems advisable from time to time;
	 
	 	(ix)	 	promulgate such Award Agreements and other
administrative forms as the Committee from time to time deems necessary
or appropriate for administration of the Plan;
	 
	 	(x)	 	construe, interpret, administer and implement the
terms and provisions of this Plan, any Award Agreements or other
documents;
	 
	 	(xi)	 	make factual determinations with respect to the
Plan and any Awards;
	 
	 	(xii)	 	correct any defect, supply any omission and
reconcile any inconsistency in or between the Plan, any Award Agreements
or other documents;
	 
	 	(xiii)	 	prescribe any legends to be affixed to certificates representing Shares
or other interests granted or issued under the Plan; and
	 
	 	(xiv)	 	otherwise supervise the administration of this
Plan.

     (d) All decisions made by the Committee pursuant to the provisions of this Plan are final and
binding on all persons, including the Company, its Shareholders and Participants, but may be made
by their terms subject to ratification or approval by, the Board of Directors, another committee
of the Board of Directors or Shareholders.

     2.2 Delegation of Duties and Retention of Advisers. The Committee may delegate ministerial
duties to any other person or persons, and it may employ attorneys, consultants, accountants or
other professional advisers for purposes of Plan administration at the expense of the Company.

     2.3 Limitation of Liability. Members of the Board of Directors, members of the Committee and
officers and employees of the Company or any Affiliate who are their designees acting under this
Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur
no liability except for gross or willful misconduct in the performance of their duties hereunder.

ARTICLE 3

Stock Subject to Plan

     3.1 Total Shares Limitation. Subject to the provisions of this Article, the maximum number of
Shares that may be issued pursuant to Awards granted under this Plan is 3,200,000, which may be
treasury or authorized but unissued Shares.

     3.2 Other Limitations.

 

 

     (a) Option Limitation. The maximum number of Shares available with respect to all Stock
Options (whether Incentive Stock Options or Non-Qualified Stock Options) granted under this Plan
is 3,200,00 Shares. Therefore, Stock Options on up to 3,200,000 Shares may be granted as
Incentive Stock Options.

     (b) Full Value Share Limitation. The maximum number of Shares available with respect to all
Restricted Share, Restricted Share Unit and Performance Share Awards granted under this Plan is
1,600,000 Shares.

     (c) Per Participant Biannual Limitation. The aggregate number of Shares underlying Awards
granted under this Plan to any Participant in any two consecutive fiscal year period of the
Company, regardless of whether such Awards are thereafter cancelled, terminated or forfeited,
shall not exceed 1,600,000 Shares. The foregoing annual limitation is intended to include the
grant of all Awards, including but not limited to, Awards representing Performance Based
Compensation as described in Section 162(m)(4)(C) of the Code.

     (d) Overall Biannual Limitation. The aggregate number of Shares underlying Awards granted
under this Plan in any two consecutive fiscal year period of the Company, shall not exceed the sum
of (i) 1,600,000 Shares (disregarding any Shares underlying Awards cancelled, terminated or
forfeited during the period) plus (ii) the aggregate number of Shares underlying Awards previously
cancelled, terminated or forfeited.

     3.3 Awards Not Exercised and Other Special Share Counting Rules.

     (a) Awards Not Exercised. If any outstanding Award, or portion thereof, expires, or is
terminated, cancelled or forfeited, the Shares that would otherwise be issuable with respect to
the unexercised portion of such expired, terminated, cancelled or forfeited Award shall be
available for subsequent Awards under this Plan.

     (b) Shares Tendered in Payment. If the Exercise Price of an Award is paid in Shares, the
Shares received by the Company in connection therewith shall not be added to the maximum aggregate
number of Shares which may be issued under Section 3.1 nor in any other manner become eligible for
issuance under this Plan.

     (c) Shares Reserved for SARs. If an Award of SARs is made, the number of Shares deemed
subject to the Award shall equal the number of SARs awarded and each SAR exercised shall be
counted as using one Share for purposes of Sections 3.1 and 3.2 of this Plan even though fewer
Shares actually are issued to the Participant upon exercise.

     (d) Taxes. Shares sold or withheld to satisfy a Participant’s withholding tax obligations
upon the lapse of restrictions on Restricted Shares or the exercise of Options or SARs granted
under the Plan or upon any other payment or issuance of Shares under the Plan shall not thereafter
become available for issuance under the Plan.

     3.4 Dilution and Other Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other securities or other
property), recapitalization, stock split, reverse stock split, reorganization, redesignation,
reclassification, merger, consolidation, liquidation, split-up, reverse split, spin-off,
combination, repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company or other similar
corporate transaction or event affects the Shares such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under this Plan, then the Committee may, in such
manner as it deems equitable, adjust any or all of (i) the number and type of Shares (or other
securities or other property) which thereafter may be made the subject of Awards, (ii) the number
and type of Shares (or other securities or other property) subject to outstanding Awards, (iii) the
limitations set forth above and (iv) the purchase or Exercise Price or any performance objective
with respect to any Award; provided, however, that the number of Shares or other securities covered
by any Award or to which such Award relates is always a whole number. Notwithstanding the
foregoing, the foregoing adjustments shall be made in compliance with: (i) Sections 422 and 424 of
the Code with respect to ISOs and SARs related to ISOs; (ii) Treasury Department Regulation Section
1.424-1 (and any successor) with respect to NQSOs and SARs related to NQSOs, applied as if the
NQSOs were ISOs; (iii) Section 409A of the Code, to the extent necessary to avoid its application
or avoid adverse tax consequences thereunder; and (iv) Section 162(m) of the Code with respect to
Awards granted to Section 162(m) Persons that are intended to be Performance Based Compensation,
unless specifically determined otherwise by the Committee.

 

 

ARTICLE 4

Participants

     4.1 Eligibility. Officers, all other active common law employees of the Company or any of its
Affiliates, Directors (each an “Eligible Director”) and consultants who are selected by the
Committee in its sole discretion are eligible to participate in this Plan. (See Article 13 and
Article 17 with respect to the Shareholder approval requirement.) For purposes of determining
eligibility, officers and employees of Affiliates who are not also officers or employees of the
Company must hold such status with an Affiliate that has the necessary relationship for the Award
to be granted (for example, the Affiliate must be a Parent or Subsidiary if an ISO is to be
granted). Furthermore, if an Award is to be made to an officer, the officer must have the status
necessary to receive such Award (for example, the officer must be an employee if an ISO is to be
granted).

     4.2 Award Agreements. Awards are contingent upon the Participant’s execution of a written
Award Agreement in a form prescribed by the Committee. Execution of an Award Agreement shall
constitute the Participant’s irrevocable agreement (for himself and for anyone claiming through him
such as an heir) to, and acceptance of, the terms and conditions of the Award set forth in such
agreement and of the terms and conditions of the Plan applicable to such Award, including, without
limitation, any withholding tax requirement pursuant to Article 15. Award Agreements may differ
from time to time and from Participant to Participant.

ARTICLE 5

Stock Option Awards

     5.1 Option Grant. Each Stock Option granted under this Plan will be evidenced by minutes of a
meeting, or by a unanimous written consent without a meeting, of the Committee and by a written
Award Agreement dated as of the Date of Grant and executed by the Company and by the appropriate
Participant.

     5.2 Terms and Conditions of Grants. Stock Options granted under this Plan are subject to the
following terms and conditions and may contain such additional terms, conditions, restrictions and
contingencies with respect to exercisability and/or with respect to the Shares acquired upon
exercise as may be provided in the relevant Award Agreements evidencing the Stock Options, so long
as such terms and conditions are not inconsistent with the terms of this Plan and any operative
employment or other agreement, as the Committee deems desirable:

     (a) Exercise Price. Subject to Section 3.4, the Exercise Price will never be less than 100%
of the Fair Market Value of the Shares on the Date of Grant. If a variable Exercise Price is
specified at the time of grant, the Exercise Price may vary pursuant to a formula or other method
established by the Committee; provided, however, that such formula or method will provide for a
minimum Exercise Price equal to the Fair Market Value of the Shares on the Date of Grant. Except
as otherwise provided in Section 3.4, no subsequent amendment of an outstanding Stock Option may
reduce the Exercise Price to less than 100% of the Fair Market Value of the Shares on the Date of
Grant. Nothing in this Section 5.2(a) shall be construed as limiting the Committee’s authority to
grant premium price Stock Options which do not become exercisable until the Fair Market Value of
the underlying Shares exceeds a specified percentage (for example, 110% of Fair Market Value on
the Date of Grant for ISOs granted to a 10% or greater owner of the Company) of the Exercise
Price; provided, however, that such percentage will never be less than 100%.

     (b) Option Term. Any unexercised portion of a Stock Option granted hereunder shall expire at
the end of the stated term of the Stock Option. The Committee shall determine the term of each
Stock Option at the time of grant, which term shall not exceed 10 years from the Date of Grant.
The Committee may extend the term of a Stock Option, in its discretion, but not beyond the date
immediately prior to the tenth anniversary of the original Date of Grant. If a definite term is
not specified by the Committee at the time of grant, then the term is deemed to be 10 years.
Nothing in this Section 5.2(b) shall be construed as limiting the Committee’s authority to grant
Stock Options with a term shorter than 10 years.

     (c) Vesting. Stock Options, or portions thereof, shall be exercisable at such time or times
as determined by the Committee in its discretion at or after grant. If the Committee provides that
any Stock Option becomes Vested over a period of time, in full or in installments, the Committee
may waive or accelerate such Vesting provisions at any time. (Also, see the Change in Control
provisions in Article 11.)

     (d) Method of Exercise. Vested portions of any Stock Option may be exercised in whole or in
part at any time during the option term by giving written notice of exercise to the Company
specifying the number of Shares to be purchased. The notice must be given by or on behalf of a
person entitled to exercise the Stock Option, accompanied

 

 

by payment in full of the Exercise Price, along with any withholding tax pursuant to Article
15. The Exercise Price may be paid:

	 	(i)	 	in cash in any manner satisfactory to the
Committee;
	 
	 	(ii)	 	by tendering (by either actual delivery of Shares
or by attestation) unrestricted Shares that are owned on the date of
exercise by the person entitled to exercise the Stock Option having an
aggregate Fair Market Value on the date of exercise equal to the Exercise
Price applicable to such Stock Option exercise, and, with respect to the
exercise of NQSOs, including Restricted Shares;
	 
	 	(iii)	 	by a combination of cash and unrestricted Shares
that are owned on the date of exercise by the person entitled to exercise
the Stock Option;
	 
	 	(iv)	 	by the Participant authorizing a broker to sell, on
his behalf, the appropriate number of Shares otherwise issuable to the
Participant upon the exercise of a Stock Option with the proceeds of sale
applied to pay the Exercise Price and withholding tax; or
	 
	 	(v)	 	by another method permitted by law and
affirmatively approved by the Committee which assures full and immediate
payment or satisfaction of the Exercise Price.

     The Committee may suspend the use of any method of payment for any reason, in its sole
discretion, including but not limited to concerns that the proposed method of payment will result
in adverse financial accounting treatment for the Company, adverse tax treatment for the Company or
a Participant or a violation of the Sarbanes-Oxley Act.

     If the Exercise Price of an NQSO is paid by tendering Restricted Shares, then the Shares
received upon the exercise will contain identical restrictions as the Restricted Shares so
tendered.

     Except as otherwise permitted by law and in the Committee’s sole discretion, withholding tax
may be paid only by cash or through a same day sale transaction.

     (e) Issuance of Shares. The Company will issue or cause to be issued Shares as soon as
practicable upon exercise of the Option. No Shares will be issued until full payment has been
made. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a Shareholder will exist with respect
to the Shares, notwithstanding the exercise of the Option.

     (f) Type of Option. In general, a Stock Option Award Agreement will indicate whether the
Stock Option is intended to be an ISO or a NQSO. Unless a Stock Option is designated as an ISO at
the time of its grant, it shall be deemed to be an NQSO. ISOs are subject to the additional terms
and conditions in Article 6.

     (g) Section 409A of the Code. Unless the Committee provides otherwise, Stock Options awarded
under this Plan are intended to meet the requirements for exclusion from coverage under Section
409A of the Code dealing with nonqualified deferred compensation and all Stock Option Awards shall
be construed and administered accordingly.

     5.3 Termination of Grants Prior to Expiration. Unless otherwise provided in the Award
Agreement, or otherwise provided in an employment or other agreement entered into between the
Participant and the Company and approved by the Committee, either before or after the Date of
Grant, and subject to Article 6 with respect to ISOs, the following early termination provisions
apply to all Stock Options:

     (a) Termination by Death. If a Participant’s employment or directorship with the Company or
its Affiliates terminates by reason of his death, all Stock Options held by such Participant will
immediately become Vested, but thereafter may only be exercised (by the legal representative of
the Participant’s estate, or by the legatee or heir of the Participant pursuant to a will or the
laws of descent and distribution) for a period of one year (or such other period as the Committee
may specify at or after the time of grant) from the date of such death, or until the expiration of
the original term of the Stock Option, whichever period is shorter.

 

 

     (b) Termination by Reason of Disability. If a Participant’s employment or directorship with
the Company or its Affiliates terminates by reason of his Disability, all Stock Options held by
such Participant will immediately become Vested, but thereafter may only be exercised for a period
of one year (or such other period as the Committee may specify at or after the time of grant) from
the date of such termination, or until the expiration of the original term of the Stock Option,
whichever period is shorter. If the Participant dies within such one year period (or such other
period as applicable), any unexercised Stock Option held by such Participant will thereafter be
exercisable by the legal representative of the Participant’s estate, or by the legatee or heir of
the Participant pursuant to a will or the laws of descent and distribution, for the greater of the
remainder of the one year period (or other period as applicable) or for a period of 12 months from
the date of such death, but in no event shall any portion of the Stock Option be exercisable after
its original stated expiration date.

     (c) Termination by Reason of Retirement. If a Participant’s employment or directorship with
the Company or its Affiliates terminates by reason of his Retirement, all Stock Options held by
such Participant immediately become Vested but thereafter may only be exercised for a period of
two years (or such other period as the Committee may specify at or after the time of grant) from
the date of such Retirement, or until the expiration of the original term of the Stock Option,
whichever period is shorter. If the Participant dies within such two year period (or such other
period as applicable), any unexercised Stock Option held by such Participant will thereafter be
exercisable by the legal representative of the Participant’s estate, or by the legatee or heir of
the Participant pursuant to a will or the laws of descent and distribution, for the greater of the
remainder of the two year period (or such other period as applicable) or for a period of 12 months
from the date of such death, but in no event shall any portion of the Stock Option be exercisable
after its original stated expiration date.

     (d) Termination for Cause. If a Participant’s employment or directorship with the Company or
its Affiliates is terminated for Cause, all Stock Options (or portions thereof) which have not
been exercised, whether Vested or not, are automatically forfeited immediately upon termination.

     (e) Other Terminations. If a Participant’s employment or directorship with the Company or
its Affiliates terminates, voluntarily or involuntarily, for any reason other than death,
Disability, Retirement or for Cause, any Vested portions of Stock Options held by such Participant
at the time of termination may be exercised by the Participant for a period of three months (or
such other period as the Committee may specify at or after the time of grant) from the date of
such termination or until the expiration of the original term of the Stock Option, whichever
period is the shorter. No portion of any Stock Option which is not Vested at the time of such
termination will thereafter become Vested.

     (f) Certain Committee Determinations. The Committee shall have authority to determine in
each case whether an authorized leave of absence shall be deemed a termination of employment or
directorship for purposes hereof, as well as the effect of a leave of absence on the vesting and
exercisability of a Stock Option. Unless otherwise provided by the Committee, if an entity ceases
to be an Affiliate of the Company or otherwise ceases to be qualified under the Plan or if all or
substantially all of the assets of an Affiliate of the Company are conveyed (other than by
encumbrance), such cessation or action, as the case may be, shall be deemed for purposes hereof to
be a termination of the employment or directorship.

     5.4 Repricing Prohibited. Subject to the anti-dilution adjustment provisions contained in
Section 3.4 hereof, without the prior approval of the Company’s Shareholders, evidenced by a
majority of votes cast, neither the Committee nor the Board shall cause the cancellation,
substitution or amendment of a Stock Option that would have the effect of reducing the exercise
price of such a Stock Option previously granted under the Plan, or otherwise approve any
modification to such a Stock Option that would be treated as a “repricing” under the then
applicable rules, regulations or listing requirements adopted by The Nasdaq Stock Market or such
other stock market on which the Company’s Shares are traded.

ARTICLE 6

Special Rules Applicable to Incentive Stock Options

     6.1 Eligibility. Notwithstanding any other provision of this Plan to the contrary, an ISO may
only be granted to full or part-time employees (including officers and Directors who are also
employees) of the Company or of an Affiliate, provided that the Affiliate is a Parent or
Subsidiary.

 

 

     6.2 Special ISO Rules.

     (a) Exercise Price. The Exercise Price fixed at the time of grant will not be less than 100%
of the Fair Market Value of the Shares as of the Date of Grant. If a variable Exercise Price is
specified at the time of grant, the Exercise Price may vary pursuant to a formula or other method
established by the Committee which provides a floor not less than Fair Market Value as of the Date
of Grant. Except as otherwise provided in Section 3.4 hereof, dealing with the effects of certain
corporate transactions, no subsequent amendment of an outstanding Stock Option may reduce the
Exercise Price to less than 100% of the Fair Market Value of the Shares as of the Date of Grant.

     (b) Term. No ISO may be exercisable on or after the tenth anniversary of the Date of Grant,
and no ISO may be granted under this Plan on or after the tenth anniversary of the effective date
of this Plan. (See the Plan effective date provisions in Article 17.)

     (c) Ten Percent Shareholder. No Participant may receive an ISO under this Plan if such
Participant, at the time the Award is granted, owns (after application of the rules contained in
Section 424(d) of the Code) equity securities possessing more than 10% of the total combined
voting power of all classes of equity securities of the Company, its Parent or any Subsidiary,
unless (i) the option price for such ISO is at least 110% of the Fair Market Value of the Shares
as of the Date of Grant, and (ii) such ISO is not exercisable on or after the fifth anniversary of
the Date of Grant.

     (d) Limitation on Grants. The aggregate Fair Market Value (determined with respect to each
ISO at the time of grant) of the Shares with respect to which ISOs are exercisable for the first
time by a Participant during any calendar year (under this Plan or any other plan adopted by the
Company or its Parent or its Subsidiary) shall not exceed $100,000. If such aggregate Fair Market
Value shall exceed $100,000, such number of ISOs as shall have an aggregate Fair Market Value
equal to the amount in excess of $100,000 shall be treated as NQSOs. This limitation shall be
applied by taking Stock Options into account in the order in which granted.

     (e) Non-Transferability. Notwithstanding any other provision herein to the contrary, no ISO
granted hereunder (and, if applicable, related Stock Appreciation Right) may be transferred except
by will or by the laws of descent and distribution, nor may such ISO (or related Stock
Appreciation Right) be exercisable during a grantee’s lifetime other than by him (or his guardian
or legal representative to the extent permitted by applicable law).

     (f) Termination of Employment. No ISO may be exercised more than three months following
termination of employment for any reason (including Retirement) other than death or Disability,
nor more than one year following termination of employment for the reason of death or Disability
(as defined in Section 422 of the Code), or such option will no longer qualify as an ISO and shall
thereafter be, and receive the tax treatment applicable to, an NQSO. For this purpose, a
termination of employment is cessation of employment, under the rules applicable to ISOs, such
that no employment relationship exists between the Participant and the Company, a Parent or a
Subsidiary.

     (g) Fair Market Value. For purposes of any ISO granted hereunder (or, if applicable, any
related Stock Appreciation Right), the Fair Market Value of Shares shall be determined in the
manner required by Section 422 of the Code applicable to ISOs.

     6.3 Treatment as NQSO. Unless an Award Agreement for a Stock Option which is an ISO provides
otherwise, it is intended that such Stock 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.

     6.4 Disqualifying Dispositions. If Shares acquired by exercise of an Incentive Stock Option
are disposed of within two years following the Date of Grant or one year following the transfer 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.

     6.5 Compliance with the Code. The foregoing limitations are designed to comply with the
requirements of Section 422 of the Code dealing with the tax qualification of ISOs and shall be so
interpreted. Furthermore, if Section 422 of the Code is amended or modified, then, to the extent
permitted by law, this Plan shall be deemed automatically amended or modified to comply with
amendments or modifications to such Section 422. Any ISO which fails to comply with Section 422 of
the Code automatically shall be treated as an NQSO appropriately granted under this Plan provided
it otherwise meets the Plan’s requirements for NQSOs.

 

 

ARTICLE 7

Stock Appreciation Rights

     7.1 SAR Grant and Agreement. Stock Appreciation Rights may be granted under this Plan, either
independently or in conjunction with the grant of a Stock Option. Each SAR granted under this Plan
will be evidenced by minutes of a meeting, or by a unanimous written consent without a meeting, of
the Committee and by a written Award Agreement dated as of the Date of Grant and executed by the
Company and by the appropriate Participant.

     7.2 SARs Granted in Conjunction with Option. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under this Plan, either at the same time
or after the grant of the Stock Option, and will be subject to the following terms and conditions:

     (a) Term. Each Stock Appreciation Right, or applicable portion thereof, granted with respect
to a given Stock Option or portion thereof shall terminate and shall no longer be exercisable upon
the termination or exercise of the related Stock Option, or applicable portion thereof.

     (b) Exercisability. A Stock Appreciation Right shall be exercisable only at such time or
times and to the extent that the Stock Option to which it relates is Vested and exercisable in
accordance with the provisions of Article 5 or otherwise as the Committee may determine at or
after the time of grant.

     (c) Method of Exercise. A Stock Appreciation Right may be exercised by the surrender of the
applicable portion of the related Stock Option. Stock Options which have been so surrendered, in
whole or in part, are no longer exercisable to the extent the related Stock Appreciation Rights
have been exercised and are deemed to have been exercised for the purpose of the limitation set
forth in Article 3 on the number of Shares to be issued under this Plan, but only to the extent of
the number of Shares actually issued under the Stock Appreciation Right at the time of exercise.
Upon the exercise of a Stock Appreciation Right, subject to satisfaction of the withholding tax
requirements pursuant to Article 15, the holder of the Stock Appreciation Right shall be entitled
to receive Shares equal in value to the excess of the Fair Market Value of a Share on the exercise
date over the Exercise Price per Share specified in the related Stock Option, multiplied by the
number of Shares in respect of which the Stock Appreciation Right is exercised. At any time the
Exercise Price per Share of the related Stock Option exceeds the Fair Market Value of one Share,
the holder of the Stock Appreciation Right shall not be permitted to exercise such right.

     7.3 Independent SARs. Stock Appreciation Rights may be granted by the Committee without
related Stock Options, and independent Stock Appreciation Rights will be subject to the following
terms and conditions:

     (a) Term. Any unexercised portion of an independent Stock Appreciation Right granted
hereunder shall expire at the end of the stated term of the Stock Appreciation Right. The
Committee shall determine the term of each Stock Appreciation Right at the time of grant, which
term shall not exceed 10 years from the Date of Grant. The Committee may extend the term of a
Stock Appreciation Right, in its discretion, but not beyond the date immediately prior to the
tenth anniversary of the original Date of Grant. If a definite term is not specified by the
Committee at the time of grant, then the term is deemed to be ten years.

     (b) Exercise Price. Subject to Section 3.4, the base or Exercise Price of an independent
Stock Appreciation Right shall never be less than 100% of the Fair Market Value of the Shares on
the Date of Grant.

     (c) Exercisability. A Stock Appreciation Right shall be exercisable, in whole or in part, at
such time or times as determined by the Committee at or after the time of grant.

     (d) Method of Exercise. A Stock Appreciation Right may be exercised in whole or in part
during the term by giving written notice of exercise to the Company specifying the number of
Shares in respect of which the Stock Appreciation Right is being exercised. The notice must be
given by or on behalf of a person entitled to exercise the Stock Appreciation Right. Upon the
exercise of a Stock Appreciation Right, subject to satisfaction of the withholding tax
requirements pursuant to Article 15, the holder of the Stock Appreciation Right shall be entitled
to receive Shares equal in value to the excess of the Fair Market Value of a Share on the exercise
date over the Fair Market Value of a Share on the Date of Grant multiplied by the number of Stock
Appreciation Rights being exercised. At any time the Fair Market Value of a Share on a proposed
exercise date does not exceed the Fair Market Value of a Share on the Date of Grant, the holder of
the Stock Appreciation Right shall not be permitted to exercise such right.

 

 

     (e) Early Termination Prior to Expiration. Unless otherwise provided in an employment or
other agreement entered into between the holder of the Stock Appreciation Right and the Company
and approved by the Committee, either before or after the Date of Grant, the early termination
provisions set forth in Section 5.3 as applied to Non-Qualified Stock Options will apply to
independent Stock Appreciation Rights.

     7.4 Other Terms and Conditions of SAR Grants. Stock Appreciation Rights are subject to such
other terms and conditions, not inconsistent with the provisions of this Plan and any operative
employment or other agreement, as are determined from time to time by the Committee.

     7.5 Repricing Prohibited. Subject to the anti-dilution adjustment provisions contained in
Section 3.4 hereof, without the prior approval of the Company’s Shareholders, evidenced by a
majority of votes cast, neither the Committee nor the Board shall cause the cancellation,
substitution or amendment of a Stock Appreciation Right that would have the effect of reducing the
base price of such a Stock Appreciation Right previously granted under the Plan, or otherwise
approve any modification to such a Stock Appreciation Right that would be treated as a “repricing”
under the then applicable rules, regulations or listing requirements adopted by The Nasdaq Stock
Market or other stock market on which the Company’s Shares are traded.

     7.6 Section 409A of the Code. Unless an Award Agreement approved by the Committee provides
otherwise, Stock Appreciation Rights awarded under this Plan are intended to meet the requirements
for exclusion from coverage under Section 409A of the Code dealing with nonqualified deferred
compensation and all Stock Appreciation Rights Awards shall be construed and administered
accordingly.

ARTICLE 8

Restricted Share and Restricted Share Unit Awards

     8.1 Restricted Share Grants and Agreements. Restricted Share Awards consist of Shares which
are issued by the Company to a Participant at no cost or at a purchase price determined by the
Committee which may be below their Fair Market Value but which are subject to forfeiture and
restrictions on their sale or other transfer by the Participant. Each Restricted Share Award
granted under this Plan will be evidenced by minutes of a meeting, or by a unanimous written
consent without a meeting, of the Committee and by a written Award Agreement dated as of the Date
of Grant and executed by the Company and by the Participant. The timing of Restricted Share Awards
and the number of Shares to be issued (subject to Section 3.2) are to be determined by the
Committee in its discretion.

     8.2 Terms and Conditions of Restricted Share Grants. Restricted Shares granted under this Plan
are subject to the following terms and conditions, which, except as otherwise provided herein, need
not be the same for each Participant, and may contain such additional terms, conditions,
restrictions and contingencies not inconsistent with the terms of this Plan and any operative
employment or other agreement, as the Committee deems desirable:

     (a) Purchase Price. The Committee shall determine the prices, if any, at which Restricted
Shares are to be issued to a Participant, which may vary from time to time and from Participant to
Participant and which may be below the Fair Market Value of such Restricted Shares at the Date of
Grant, including, without limitation, a price of zero.

     (b) Restrictions. All Restricted Shares issued under this Plan will be subject to such
restrictions as the Committee may determine, which may include, without limitation, the following:

	 	(i)	 	a prohibition against the sale, transfer, pledge or
other encumbrance of the Restricted Shares, such prohibition to lapse at
such time or times as the Committee determines (whether in installments,
at the time of the death, Disability or Retirement of the holder of
such shares, or otherwise, but subject to the Change in Control provisions in
Article 11 unless otherwise provided by the Committee);
	 
	 	(ii)	 	a requirement that the Participant forfeit such
Restricted Shares in the event of termination of the Participant’s
employment or directorship with the Company or its Affiliates prior to
Vesting;
	 
	 	(iii)	 	a prohibition against employment or retention of
the Participant by any competitor of the Company or its Affiliates, or
against dissemination by the Participant of any secret

 

 

	 	 	 	or confidential information belonging to the Company or an Affiliate
or other forfeiture provisions relating to Cause;
	 
	 	(iv)	 	any applicable requirements arising under the
Securities Act of 1933, as amended, other securities laws, the rules and
regulations of The Nasdaq Stock Market or any other stock exchange or
transaction reporting system upon which such Restricted Shares are then
listed or quoted and any state laws, rules and regulations, including
“blue sky” laws; and
	 
	 	(v)	 	such additional restrictions as are required to
avoid the application of Section 409A of the Code thereto or to avoid
adverse tax consequences under the Code or other taxing statutes and
rules.

The Committee may at any time waive such restrictions or accelerate the date or dates on which the
restrictions will lapse. However, if the Committee determines that restrictions lapse upon the
attainment of specified performance objectives, then the provisions of Sections 9.2 and 9.3 will
apply (including, but not limited to, the enumerated performance objectives). If the Award
Agreement for a Section 162(m) Person provides that such Award is intended to qualify as
Performance Based Compensation, the provisions of Section 9.4(d) also will apply.

     (c) Delivery of Shares. Restricted Shares will be registered in the name of the Participant
and deposited, together with a Stock Power, with the Company or its agent. Each such certificate
will bear a legend in substantially the following form:

     “The transferability of this certificate and the Common Shares represented by it are subject
to the terms and conditions (including conditions of forfeiture) contained in the Agilysys, Inc.
2006 Stock Incentive Plan and an Award Agreement entered into between the registered owner and the
Company. A copy of this Plan and Award Agreement are on file in the office of the Secretary of the
Company.”

     At the end of any time period during which the Restricted Shares are subject to forfeiture and
restrictions on transfer, such Shares remaining after any tax withholding has occurred pursuant to
Article 15, will be delivered free of all restrictions (except for any pursuant to Section 14.2) to
the Participant or other appropriate person and with the foregoing legend removed.

     (d) Forfeiture of Shares. If a Participant who holds Restricted Shares fails to satisfy the
restrictions, Vesting requirements and other conditions relating to the Restricted Shares prior to
the lapse, satisfaction or waiver of such restrictions and conditions, except as may otherwise be
determined by the Committee, the Participant shall forfeit the Shares and transfer them back to
the Company in exchange for a refund of any consideration paid by the Participant or such other
amount which may be specifically set forth in the Award Agreement. A Participant shall execute and
deliver to the Company one or more Stock Powers with respect to Restricted Shares granted to such
Participant.

     (e) Voting and Other Rights. Except as otherwise required for compliance with Section 162(m)
of the Code, other applicable law and the terms of the applicable Restricted Share agreement,
during any period in which Restricted Shares are subject to forfeiture and restrictions on
transfer, the Participant holding such Restricted Shares shall have all the rights of a
Shareholder with respect to such Shares, including, without limitation, the right to vote such
Shares and the right to receive any dividends paid with respect to such Shares.

     (f) Section 83(b) Election. If a Participant makes an election pursuant to Section 83(b) of
the Code with respect to a Restricted Share Award, the Participant shall 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(b) of the Code. The
Committee may provide in an Award Agreement that the Restricted Share Award is conditioned upon
the Participant’s making or refraining from making an election with respect to the Award under
Section 83(b) of the Code.

     8.3 Restricted Share Unit Awards and Agreements. Restricted Share Unit Awards consist of
Shares that will be issued to a Participant at a future time or times at no cost or at a purchase
price determined by the Committee which may be below their Fair Market Value if continued
employment, continued directorship and/or other terms and conditions specified by the Committee are
satisfied. Each Restricted Share Unit Award granted under this Plan will be evidenced by minutes of
a meeting, or by a unanimous written consent without a meeting, of the Committee and by a written
Award Agreement dated as of the Date of Grant and executed by the Company and the Plan Participant.
The timing of Restricted

 

 

Share Unit Awards and the number of Restricted Share Units to be awarded (subject to Section
3.2) are to be determined by the Committee in its sole discretion.

     8.4 Terms and Conditions of Restricted Share Unit Awards. Restricted Share Unit Awards are
subject to the following terms and conditions, which, except as otherwise provided herein, need not
be the same for each Participant, and may contain such additional terms, conditions, restrictions
and contingencies not inconsistent with the terms of this Plan and any operative employment or
other agreement, as the Committee deems desirable:

     (a) Purchase Price. The Committee shall determine the prices, if any, at which Shares are to
be issued to a Participant after Vesting of Restricted Share Units, which may vary from time to
time and among Participants and which may be below the Fair Market Value of Shares at the Date of
Grant, including, without limitation, a price of zero.

     (b) Restrictions. All Restricted Share Units awarded under this Plan will be subject to such
restrictions as the Committee may determine, which may include, without limitation, the following:

	 	(i)	 	a prohibition against the sale, transfer, pledge or
other encumbrance of the Restricted Share Unit;
	 
	 	(ii)	 	a requirement that the Participant forfeit such
Restricted Share Unit in the event of termination of the Participant’s
employment or directorship with the Company or its Affiliates prior to
Vesting;
	 
	 	(iii)	 	a prohibition against employment of the
Participant by, or provision of services by the Participant to, any
competitor of the Company or its Affiliates, or against dissemination by
the Participant of any secret or confidential information belonging to
the Company or an Affiliate or other forfeiture provisions relating to
Cause;
	 
	 	(iv)	 	any applicable requirements arising under the
Securities Act of 1933, as amended, other securities laws, the rules and
regulations of The Nasdaq Stock Market or any other stock exchange or
transaction reporting system upon which the Common Shares are then listed
or quoted and any state laws, rules and interpretations, including “blue
sky” laws; and
	 
	 	(v)	 	such additional restrictions as are required to
avoid the application of Section 409A of the Code thereto or to avoid
adverse tax consequences under the Code or other taxing statutes or
rules.

The Committee may at any time waive such restrictions or accelerate the date or dates on which the
restrictions will lapse.

     (c) Performance Based Restrictions. The Committee may, in its sole discretion, provide
restrictions that lapse upon the attainment of specified performance objectives. In such case, the
provisions of Sections 9.2 and 9.3 will apply (including, but not limited to, the enumerated
performance objectives). If the written Award Agreement for a Section 162(m) Person provides that
such Award is intended to be Performance Based Compensation, the provisions of Section 9.4(d) also
will apply.

     (d) Voting and Other Rights. A Participant holding Restricted Share Units shall not be deemed
to be a Shareholder solely because of such units. Such Participant shall have no rights of a
Shareholder with respect to such units; provided, however, that an Award Agreement may provide for
payment of an amount of money (or Shares with a Fair Market Value equivalent to such amount) equal
to the dividends paid from time to time on the number of Common Shares that would become payable
upon vesting of a Restricted Share Unit Award.

     (e) Lapse of Restrictions. If a Participant who holds Restricted Share Units satisfies the
restrictions and other conditions relating to the Restricted Share Units prior to the lapse or
waiver of such restrictions and conditions, the Restricted Share Units shall be converted to, or
replaced with, Shares which are free of all restrictions except for any restrictions pursuant to
Section 14.2.

     (f) Forfeiture of Restricted Share Units. If a Participant who holds Restricted Share Units
fails to satisfy the restrictions, Vesting requirements and other conditions relating to the
Restricted Share Units prior to the lapse,

 

 

satisfaction or waiver of such restrictions and conditions, except as may otherwise be
determined by the Committee, the Participant shall forfeit the Restricted Share Units.

     (g) Termination. A Restricted Share Unit Award or unearned portion thereof will terminate
without the issuance of Shares on the termination date specified on the Date of Grant or upon the
termination of employment or directorship of the Participant during the Performance Period. If a
Participant’s employment or directorship with the Company or its Affiliates terminates by reason
of his death, Disability or Retirement, the Committee in its discretion at or after the Date of
Grant may determine that the Participant (or the heir, legatee or legal representative of the
Participant’s estate) will receive a distribution of Shares in an amount which is not more than
the number of Shares which would have been earned by the Participant if 100% of the performance
objectives for the current Performance Period had been achieved prorated based on the ratio of the
number of months of active employment in the Performance Period to the total number of months in
the Performance Period. However, with respect to Awards intended to be Performance Based
Compensation (as described in Section 9.4(d)), distribution of the Shares shall not be made prior
to attainment of the relevant performance objectives.

     (h) Section 409A of the Code. Unless an Award Agreement approved by the Committee provides
otherwise, Restricted Share Units awarded under this Plan are intended to meet the requirements
for exclusion from coverage under Section 409A of the Code or to otherwise avoid adverse tax
consequences thereunder and all Restricted Share Unit Awards shall be construed and administered
accordingly. The Committee reserves the right to substitute a definition of the term “Disability”
which is derived from a statute or regulations (e.g., Section 409A(a)(2)(C) of the Code) for the
definition of such term set forth in this Plan, as it deems necessary or appropriate in its sole
discretion with respect to Restricted Share Unit Awards.

     8.5 Time Vesting of Restricted Share and Restricted Share Unit Awards. Restricted Shares or
Restricted Share Units, or portions thereof, are exercisable at such time or times as determined by
the Committee in its discretion at or after grant, subject to the restrictions on time Vesting set
forth in this Section. If the Committee provides that any Restricted Shares or Restricted Share
Unit Awards become Vested over time (with or without a performance component), the Committee may
waive or accelerate such Vesting provisions at any time, subject to the restrictions on time
Vesting set forth in this Section.

ARTICLE 9

Performance Share Awards

     9.1 Performance Share Awards and Agreements. A Performance Share Award is a right to receive
Shares in the future conditioned upon the attainment of specified performance objectives and such
other conditions, restrictions and contingencies as the Committee may determine. Each Performance
Share Award granted under this Plan will be evidenced by minutes of a meeting, or by a unanimous
written consent without a meeting, of the Committee and by a written Award Agreement dated as of
the Date of Grant and executed by the Company and by the Plan Participant. The timing of
Performance Share Awards and the number of Shares covered by each Award (subject to Section 3.2)
are to be determined by the Committee in its discretion.

     9.2 Performance Objectives. At the time of grant of a Performance Share Award, the Committee
will specify the performance objectives which, depending on the extent to which they are met, will
determine the number of Shares that will be distributed to the Participant. The Committee will also
specify the Performance Period. With respect to awards to Section 162(m) Persons intended to be
Performance Based Compensation, the Committee may use performance objectives based on one or more
of the following (or substantially similar) criteria: cash generation, profit, revenue, market
share, profit or return ratios, Shareholder returns and/or specific, objective and measurable non
financial objectives, stock price, sales, earnings per share, return on equity, costs, earnings,
capital adjusted pre-tax earnings (economic profit), net income, operating income (including but
not limited to EBIT or EBITDA), performance profit (operating income minus an allocated charge
approximating the Company’s cost of capital, before or after tax), gross margin, revenue, working
capital, total assets, net assets, Shareholders’ equity and cash flow. Performance objectives may
include or exclude extraordinary charges, losses from discontinued operations, restatements and
accounting changes and other unplanned special charges such as restructuring expenses,
acquisitions, acquisition expenses, including expenses related to goodwill and other intangible
assets, stock offerings, stock repurchases and loan loss provisions, provided that in the case of
an Award intended to qualify for the exemption from the limitation on deductibility imposed by
Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code, such inclusion or
exclusion shall be made in compliance with Section 162(m) of the Code. The Committee may designate
a single objective or objectives for performance measurement purposes. Performance measurement may
be based on absolute Company, business unit or divisional performance and/or

 

 

on performance as compared with that of other publicly-traded companies. The performance
objectives and periods need not be the same for each Participant nor for each Award.

     9.3 Adjustment of Performance Objectives. The Committee may modify, amend or otherwise adjust
the performance objectives specified for outstanding Performance Share Awards if it determines that
an adjustment would be consistent with the objectives of this Plan and taking into account the
interests of the Participants and the public Shareholders of the Company and such adjustment
complies with the requirements of Section 162(m) of the Code for Section 162(m) Persons, to the
extent applicable, unless the Committee indicates a contrary intention. The types of events which
could cause an adjustment in the performance objectives include, without limitation, accounting
changes which substantially affect the determination of performance objectives, changes in
applicable laws or regulations which affect the performance objectives, and divisive corporate
reorganizations, including spin-offs and other distributions of property or stock.

     9.4 Other Terms and Conditions. Performance Share Awards granted under this Plan are subject
to the following terms and conditions and may contain such additional terms, conditions,
restrictions and contingencies not inconsistent with the terms of this Plan and any operative
employment or other agreement as the Committee deems desirable:

     (a) Delivery of Shares. As soon as practicable after the applicable Performance Period has
ended, the Participant will receive a distribution of the number of Shares earned during the
Performance Period, depending upon the extent to which the applicable performance objectives were
achieved. Such Shares will be registered in the name of the Participant and will be free of all
restrictions except for any restrictions pursuant to Section 14.2.

     (b) Termination. A Performance Share Award or unearned portion thereof will terminate without
the issuance of Shares on the termination date specified at the time of grant or upon the
termination of employment or directorship of the Participant during the Performance Period. If a
Participant’s employment or directorship with the Company or its Affiliates terminates by reason
of his death, Disability or Retirement (except with respect to Section 162(m) Persons), the
Committee in its discretion at or after the time of grant may determine, notwithstanding any
Vesting requirements under Section 9.4(a), that the Participant (or the heir, legatee or legal
representative of the Participant’s estate) will receive a distribution of a portion of the
Participant’s then-outstanding Performance Share Awards in an amount which is not more than the
number of Shares which would have been earned by the Participant if 100% of the performance
objectives for the current Performance Period had been achieved prorated based on the ratio of the
number of months of active employment in the Performance Period to the total number of months in
the Performance Period. However, with respect to Awards intended to be Performance Based
Compensation (as described in Section 9.4(d)), distribution of the Shares shall not be made prior
to attainment of the relevant performance objective.

     (c) Voting and Other Rights. Awards of Performance Shares do not provide the Participant with
voting rights or rights to dividends prior to the Participant becoming the holder of record of
Shares issued pursuant to an Award; provided, however, that an Award Agreement may provide for
payment of an amount of money (or Shares with a Fair Market Value equivalent to such amount) equal
to the dividends paid from time to time on the number of Common Shares that would become payable
upon vesting of a Performance Share Award. Prior to the issuance of Shares, Performance Share
Awards may not be sold, transferred, pledged, assigned or otherwise encumbered.

     (d) Performance-Based Compensation. The Committee may designate Performance Share Awards as
being “remuneration payable solely on account of the attainment of one or more performance goals”
as described in Section 162(m)(4)(C) of the Code. Such Awards shall be automatically amended or
modified to comply with amendments to Section 162 of the Code to the extent applicable, unless the
Committee indicates a contrary intention.

     9.5 Time Vesting of Performance Share Awards. Performance Share Awards, or portions thereof,
are exercisable at such time or times as determined by the Committee in its discretion at or after
grant, subject to the restrictions on time Vesting set forth in this Section. If the Committee
provides that any Performance Shares become Vested over time (accelerated by a performance
component), the Committee may waive or accelerate such Vesting provisions at any time, subject to
the restrictions on time Vesting set forth in this Section.

     9.6 Special Limitations on Performance Share Awards. Unless an Award Agreement approved by the
Committee provides otherwise, Performance Shares awarded under this Plan are intended to meet the
requirements for exclusion from coverage under Section 409A of the Code or to otherwise avoid
adverse tax consequences thereunder and all Performance Share Awards shall be construed and
administered accordingly. The Committee reserves the right to substitute a definition of the term
“Disability” which is derived from a statute or regulations (e.g., Section 409A(a)(2)(C) of

 

 

the Code) for the definition of such term set forth in this Plan, as it deems necessary or
appropriate in its sole discretion with respect to Performance Share Awards.

ARTICLE 10

Transfers and Leaves of Absence

     10.1 Transfer of Participant. For purposes of this Plan, the transfer of a Participant among
the Company and its Affiliates shall not be deemed to be a termination of employment except as
required by Section 422 of the Code with respect to ISOs or other applicable law including Section
409A of the Code, if relevant.

     10.2 Effect of Leaves of Absence. For purposes of this Plan, the following leaves of absence
are deemed not to be a termination of employment:

     (a) a leave of absence, approved in writing by the Company, for military service, sickness or
any other purpose approved by the Company, if the period of such leave does not exceed 90 days;

     (b) a leave of absence in excess of 90 days, approved in writing by the Company, but only if
the employee’s right to reemployment is guaranteed either by a statute or by contract, and
provided that, in the case of any such leave of absence, the employee returns to work within 30
days after the end of such leave; and

     (c) any other absence determined by the Committee in its discretion not to constitute a
termination of employment, to the extent such discretion is permitted by law including the
applicable rules with respect to ISOs.

ARTICLE 11

Effect of Change in Control

     11.1 Change in Control Defined. “Change in Control” means the occurrence of any of the
following:

     (a) all or substantially all of the assets of the Company are sold or transferred to another
corporation or entity, or the Company is merged, consolidated or reorganized with or into another
corporation or entity, with the result that upon conclusion of the transaction less than fifty-one
percent (51%) of the outstanding securities entitled to vote generally in the election of
Directors (“Voting Stock”) or other capital interests of the acquiring corporation or entity are
owned, directly or indirectly, by the holders of Voting Stock of the Company generally prior to
the transaction;

     (b) there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report), each as promulgated pursuant to the Exchange Act disclosing that any person (as
the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), excluding
the Company, any Affiliate, any employee benefit plan of the Company or an Affiliate, including
the trustee of any such plan has become the beneficial owner (as the term “beneficial owner” is
defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act)
of securities representing twenty percent (20%) or more of the combined voting power of the
then-outstanding Voting Stock of the Company;

     (c) the Company shall file a report or proxy statement with the Securities and Exchange
Commission pursuant to the Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or
Item 6(e) of Schedule 14A thereunder (or any successor schedule, form or report or item therein)
that a change in control of the Company has or may have occurred or will or may occur in the
future pursuant to any then-existing contract or transaction; or

     (d) the individuals who, at the beginning of any period of two (2) consecutive calendar
years, constituted the Directors of the Company cease for any reason to constitute at least a
majority thereof unless the nomination for election by the Company’s Shareholders of each new
Director of the Company was approved by a vote of at least two-thirds (2/3) of the Directors of
the Company still in office who were Directors of the Company at the beginning of any such period.

     11.2 Acceleration of Award. Except as otherwise provided in this Plan or an Award Agreement,
immediately upon the occurrence of a Change in Control:

 

 

     (a) all outstanding Stock Options automatically become fully exercisable;

     (b) all Restricted Share Awards automatically become fully Vested;

     (c) all Restricted Share Unit Awards automatically become fully Vested (or, if such
Restricted Share Unit Awards are subject to performance-based restrictions, shall become Vested on
a pro-rated basis as described in Section 11.2(d) with respect to Performance Share Awards) and,
to the extent Vested, convertible to Shares at the election of the holder;

     (d) all Participants holding Performance Share Awards become entitled to receive a partial
payout in an amount which is the number of Shares which would have been earned by the Participant
if 100% of the performance objectives for the current Performance Period had been achieved
pro-rated based on the ratio of the number of months of active employment in the Performance
Period to the total number of months in the Performance Period; and

     (e) Stock Appreciation Rights automatically become fully Vested and fully exercisable.

ARTICLE 12

Transferability of Awards

     12.1 Awards Are Non-Transferable. Except as provided in Sections 12.2 and 12.3, Awards are
non-transferable and any attempts to assign, pledge, hypothecate or otherwise alienate or encumber
(whether by operation of law or otherwise) any Award shall be null and void.

     12.2 Inter-Vivos Exercise of Awards. During a Participant’s lifetime, Awards are exercisable
only by the Participant or, as permitted by applicable law and notwithstanding Section 12.1 to the
contrary, the Participant’s guardian or other legal representative.

     12.3 Limited Transferability of Certain Awards. Notwithstanding Section 12.1 to the contrary,
Awards may be transferred by will and by the laws of descent and distribution. Moreover, the
Committee, in its discretion, may allow at or after the time of grant the transferability of Awards
which are Vested, provided that the permitted transfer is made (a) if the Award is an Incentive
Stock Option, the transfer is consistent with Section 422 of the Code; (b) to the Company (for
example in the case of forfeiture of Restricted Shares), an Affiliate or a person acting as the
agent of the foregoing or which is otherwise determined by the Committee to be in the interests of
the Company; or (c) by the Participant for no consideration to Immediate Family Members or to a
bona fide trust, partnership or other entity controlled by and for the benefit of one or more
Immediate Family Members. “Immediate Family Members” means the Participant’s spouse, children,
stepchildren, parents, stepparents, siblings (including half brothers and sisters), in-laws and
other individuals who have a relationship to the Participant arising because of a legal adoption.
No transfer may be made to the extent that transferability would cause Form S-8 or any successor
form thereto not to be available to register Shares related to an Award. The Committee in its
discretion may impose additional terms and conditions upon transferability. Transfers are subject
to prior Committee approval (except as provided in Section 12.3(b)) or they are null and void.

ARTICLE 13

Amendment and Discontinuation

     13.1 Amendment or Discontinuation of this Plan. The Board of Directors may amend, alter, or
discontinue this Plan at any time, provided that no amendment, alteration, or discontinuance may be
made:

     (a) which would materially and adversely affect the rights of a Participant under any Award
granted prior to the date such action is adopted by the Board of Directors without the
Participant’s written consent thereto; and

     (b) without Shareholder approval, if Shareholder approval is required under applicable laws,
regulations or exchange requirements (including Section 422 of the Code with respect to ISOs, and
for the purpose of qualification as Performance Based Compensation under Section 162(m) of the
Code).

Notwithstanding the foregoing, this Plan may be amended without Participants’ consent to: (i)
comply with any law; (ii) preserve any intended favorable tax effects for the Company, the Plan or
Participants; or (iii) avoid any unintended unfavorable tax effects for the Company, the Plan or
Participants.

 

 

     13.2 Amendment of Grants. The Committee may amend, prospectively or retroactively, the terms
of any outstanding Award, provided that no such amendment may be inconsistent with the terms of
this Plan (specifically including the prohibition on granting Stock Options with an Exercise Price
less than 100% of the Fair Market Value of the Common Shares on the Date of Grant) or would
materially and adversely affect the rights of any holder without his written consent.

ARTICLE 14

Share Certificates

     14.1 Delivery of Share Certificates. The Company is not required to issue or deliver any
certificates for Shares issuable with respect to Awards under this Plan prior to the fulfillment of
all of the following conditions, to the extent applicable:

     (a) payment in full for the Shares and for any withholding tax (See Article 15);

     (b) completion of any registration or other qualification of such Shares under any Federal or
state laws or under the rulings or regulations of the Securities and Exchange Commission or any
other regulating body which the Committee in its discretion deems necessary or advisable;

     (c) admission of such Shares to listing on The Nasdaq Stock Market or any stock exchange on
which the Shares are listed;

     (d) in the event the Shares are not registered under the Securities Act of 1933,
qualification as a private placement under said Act;

     (e) obtaining of any approval or other clearance from any Federal or state governmental
agency which the Committee in its discretion determines to be necessary or advisable; and

     (f) the Committee is fully satisfied that the issuance and delivery of Shares under this Plan
is in compliance with applicable Federal, state or local law, rule, regulation or ordinance or any
rule or regulation of any other regulating body, for which the Committee may seek approval of
counsel for the Company.

     14.2 Applicable Restrictions on Shares. Shares issued with respect to Awards may be subject to
such stock transfer orders and other restrictions as the Committee may determine necessary or
advisable under any applicable Federal or state securities law rules, regulations and other
requirements, the rules, regulations and other requirements of The Nasdaq Stock Market or any stock
exchange upon which the Shares are then listed, and any other applicable Federal or state law and
will include any restrictive legends the Committee may deem appropriate to include.

     14.3 Book Entry. In lieu of the issuance of stock certificates evidencing Shares, the Company
may use a “book entry” system in which a computerized or manual entry is made in the records of the
Company to evidence the issuance of such Shares. Such Company records are, absent manifest error,
binding on all parties.

ARTICLE 15

Satisfaction of Withholding Tax Liabilities

     15.1 In General. The Committee shall cause the Company to withhold any taxes which it
determines it is required by law or required by the terms of this Plan to withhold in connection
with any payments incident to this Plan. The Participant or other recipient shall provide the
Committee with such Stock Powers and additional information or documentation as may be necessary
for the Committee to discharge its obligations under this Section.

     15.2 Withholding from Share Distributions. With respect to a distribution in Shares pursuant
to Restricted Share, Restricted Share Unit and Performance Share Awards under the Plan, the
Committee shall cause the Company to sell the fewest number of such Shares for the proceeds of such
sale to equal (or exceed by not more than that actual sale price of a single Share) the
Participant’s or other recipient’s withholding tax liability, as set forth in Section 15.1,
resulting from such distribution. The Committee shall withhold the proceeds of such sale for
purposes of satisfying such withholding tax liability. In the event that a distribution in Shares
does not result in any withholding tax liability as a result of the

 

 

Participant’s election to be taxed at an earlier date or for any other reason, the Company
shall not be required to sell any Shares distributed to the Participant.

     15.3 Delivery of Withholding Proceeds. The Committee shall cause the Company to deliver
withholding proceeds to the Internal Revenue Service and/or other taxing authority in satisfaction
of a Participant’s or other recipient’s tax liability arising from a payment.

ARTICLE 16

General Provisions

     16.1 No Implied Rights to Awards, Employment or Directorship. No one has any claim or right to
be granted an Award under this Plan, and there is no obligation of uniformity of treatment of
Participants under this Plan. Neither this Plan nor any Award thereunder shall be construed as
giving any individual any right to continued employment or continued directorship with the Company
or any Affiliate. The Plan does not constitute a contract of employment or directorship, and the
Company and each Affiliate expressly reserve the right at any time to terminate employees free from
liability, or any claim, under this Plan, except as may be specifically provided in this Plan or in
an Award Agreement.

     16.2 Other Compensation Plans. Nothing contained in this Plan prevents the Board of Directors
from adopting other or additional compensation arrangements, subject to Shareholder approval if
such approval is required, and such arrangements may be either generally applicable or applicable
only in specific cases.

     16.3 Rule 16b-3 Compliance. This Plan is intended to comply with all applicable conditions of
Rule 16b-3. All transactions involving any Participant subject to Section 16(a) shall be subject
to the conditions set forth in Rule 16b-3, regardless of whether such conditions are expressly set
forth in this Plan. Any provision of this Plan that is contrary to Rule 16b-3 does not apply to
such Participants.

     16.4 Code Section 162(m) Compliance. This Plan is intended to comply with all applicable
requirements of Section 162(m) of the Code with respect to Performance Based Compensation for
Participants who are Section 162(m) Persons. Unless the Committee expressly determines otherwise,
any provision of this Plan that is contrary to such requirements does not apply to such
Participants.

     16.5 Successors. All obligations of the Company with respect to Awards granted under this Plan
are binding on any successor to the Company, whether as a result of a direct or indirect purchase,
merger, consolidation or otherwise of all or substantially all of the business and/or assets of the
Company.

     16.6 Severability. In the event any provision of this Plan, or the application thereof to any
person or circumstances, is held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of this Plan, or other applications, and this Plan is to be
construed and enforced as if the illegal or invalid provision had not been included.

     16.7 Governing Law. To the extent not preempted by Federal law, this Plan and all Award
Agreements pursuant thereto are construed in accordance with and governed by the laws of the State
of Ohio. This Plan is not intended to be governed by ERISA and shall be so construed and
administered.

ARTICLE 17

Effective Date

     17.1 Effective Date. The effective date of this Agilysys, Inc. 2006 Stock Incentive Plan is
the date on which the Shareholders of the Company approve it at a duly held Shareholder’s meeting.

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