Document:

Prepared and filed by St Ives Burrups

Exhibit 10.1

 

PALL CORPORATION

 

2005 STOCK COMPENSATION PLAN

 

 

1.        Purpose

 

          This  document sets forth the Pall Corporation 2005 Stock Compensation Plan as  adopted by the Board of Directors of Pall Corporation on September 17, 2004,  approved by shareholders at the 2004 Annual Meeting of Shareholders on November  17, 2004 and amended by the Board of Directors on July 19, 2005 and January 19,  2006.

 

          The  purpose of the Plan is to attract and retain individuals of outstanding ability  to serve as employees in positions of responsibility with the Corporation and  its Affiliated Companies, or to serve as non-employee directors of the  Corporation, by providing them with the opportunity to acquire a proprietary  interest (or to increase their proprietary interest) in the Corporation, and to  provide them with incentives and awards that will motivate their efforts and  contributions towards the success of the Corporation and its Affiliated  Companies and the growth of their businesses.

 

2.        Definitions

 

          As  used herein, the following terms shall have the following meanings:

 

          “Affiliated Companies” shall mean each  direct or indirect subsidiary of the Corporation.

 

          “Annual Award  Units” shall mean Units awarded to an Eligible Director pursuant to  Section 8.

 

          “Annual Award  Grant Date” shall mean, with respect to any calendar year beginning  on or after January 1, 2005, January 5 of such year or, if  January 5 of such year is not a Trading Day, the next day following  January 5 of such year that is a Trading Day.

 

          “Award”  shall mean the grant of any Option, Share or Unit to any Eligible Employee or  Eligible Director under the Plan.

 

            “Beneficiary” shall mean the  person or persons designated by a Participant in accordance with Section 15 to  receive any payment that is required to be made under the Plan upon or after  the Participant’s death.

 

          “Board of Directors” shall mean the Board of  Directors of the Corporation.

 

          “CEO” shall mean the Chief Executive Officer  of the Corporation.

 

 

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

 

	
   

  	
  (a)

  	
  the    “Distribution Date” as defined in Section 3 of the Rights Agreement dated as    of November 17, 1989 between the Corporation and United States Trust Company    of New York as Rights Agent, as amended by Amendment No. 1 thereto dated    April 20, 1999, and as the same may have been further amended or extended to    the time in question or in any successor agreement (the “Rights Agreement”);    or

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  any event    described in Section 11(a)(ii)(B) of the Rights Agreement; or

  
	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  any event    described in Section 13 of the Rights Agreement; or

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  the date on    which the number of duly elected and qualified directors of the Corporation    who were not either elected by the Board of Directors or nominated by the    Board of Directors or its Nominating Committee for election by the    shareholders shall equal or exceed one-third of the total number of directors    of the Corporation as fixed by its by-laws;

  

 

provided,  however, that no Change in Control shall be deemed to have occurred, and  no rights arising upon a Change in Control as provided in Section 12 hereof  shall exist (other than the rights provided for in Section 12(b) hereof), to the  extent that the Board of Directors so determines by resolution adopted and not  rescinded prior to the Change in Control.

 

          “Code” shall mean the Internal Revenue Code  of 1986, as amended.

 

          “Committee” shall mean (i) the Board of Directors,  with respect to any Award that may be granted, or that has been granted, to any  Eligible Director; (ii) the Compensation Committee, with respect to any Award  that may be granted, or that has been granted, to any Eligible Employee, except  as otherwise provided in (iii); or (iii) the CEO, with respect to those  specific matters pertaining to Awards to Eligible Employees who are not Elected  Officers that are within the scope of the authority granted to the CEO under  Section 14(d) or delegated to the CEO by the Compensation Committee under to  Section 14(e).

 

          “Common Stock” shall mean the common stock  ($0.10 par value) of the Corporation.

 

          “Compensation  Committee” shall mean the Compensation Committee of  the Board of Directors.

 

          “Corporation” shall mean Pall Corporation, a  New York Corporation.

 

          “Covered Executive” shall mean, with respect  to any Award granted hereunder, any individual who at the Date of Grant of such  Award is a “Covered Employee” of the Corporation for such year for purposes of  section 162(m) of the Code.

 

          “Date of  Grant” shall mean, with respect to any Award, the date on which the  Committee approves the grant of such Award, or such later date as may be  specified as the date of grant of such Award in the instrument evidencing the  grant of such Award.

 

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          “Disability”  shall mean, with respect to any Eligible Employee, such employee’s “permanent  and total disability” as defined in section 22(e)(3) of the Code or any  successor provision.

 

          “Dividend Equivalent Units” shall mean additional Units credited with  respect to a Participant’s Restricted Units, Performance Units, or Annual Award  Units pursuant to Section 6(c), Section 7(b) or Section 8(b).

 

          “Dividend Payment Date” shall mean each date on which the Corporation  pays a dividend on its Common Stock.

 

          “Elected  Officer” shall mean any individual who is an Elected Officer under  Section 4.01(a)(i) of the By-Laws of the Corporation.

 

          “Eligible  Director” shall mean any member of the Board of Directors who is not  an employee of the Corporation or any of its Affiliated Companies.

 

          “Eligible  Employee” shall mean any employee of the Corporation or any of its  Affiliated Companies who, in the judgment of the Committee, is expected to make  significant contributions to the success of the Corporation and its Affiliated  Companies and to the growth of their businesses.

 

          “Fair Market  Value” shall mean, with respect to any Share or Unit or any fractional  Share or fractional Unit as of any date of reference herein, the closing price  of a share of Common Stock as reported in the New York Stock Exchange  Consolidated Transactions  for such date  or, if such date is not a Trading Day, on the next Trading Day preceding such  date.

 

          “Incentive  Stock Option” shall mean an Option that is an “incentive stock  option” within the meaning of Section 422 of the Code.

 

          “Non-Qualified  Stock Option” shall mean an Option that is not an Incentive Stock  Option.

 

          “Option” shall  mean an option to purchase Shares granted pursuant to Section 5 of the  Plan or, solely for purposes of Section 5(h)(ii), granted under any other stock  option plan maintained by the Corporation.

 

          “Participant”  shall mean any Eligible Employee or Eligible Director who holds an Award  granted under the Plan, and  any  successor, permitted transferee or   Beneficiary that succeeds to such individual’s interest in such Award. 

 

          “Performance  Goals” shall mean the performance goals established by the Committee  in connection with Awards granted to Eligible Employees under Section 7 that  must be met in order for payment to be made with respect to such Awards.

 

          “Performance  Period” shall mean the period established by the Committee for  measuring whether, and to what extent, any Performance Goals established in  connection with any Award granted under Section 7 hereof have been met.

 

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          “Performance  Shares” shall mean Shares that may be issued and delivered  at the end of a Performance Period pursuant  to an Award made to an Eligible Employee under Section 7, depending on the  achievement, or the level of achievement, of one or more Performance Goals  within such period, as provided in Section 7.

 

          “Performance  Units” shall mean Units credited to an Eligible Employee at the  beginning of a Performance Period pursuant to an Award made to such employee  under Section 7, and any Dividend Equivalent Units that are credited to  the employee with respect to such Units during such Performance Period, payment  with respect to which Units and related Dividend Equivalent Units depends on  the achievement, or the level of achievement, of one or more Performance Goals  within such period, as provided in Section 7.

 

          “Plan” shall mean the Pall Corporation 2005  Stock Compensation Plan, as set forth herein and as amended from time to time.

 

          “Pro Rata  Portion” shall mean, with respect to any portion of the Restricted  Shares or Restricted Units granted pursuant to an Award made hereunder to an  Eligible Employee, or with respect to any Performance Shares or Performance  Units included in an Award made hereunder to an Eligible Employee, the  percentage determined by dividing (i) the number of months in the period  commencing on the first day of the Restricted Period established for such  portion of the Restricted Shares or Restricted Units so granted, or the  Performance Period established for the Performance Shares or Performance Units  so awarded, and ending on the date of the Eligible Employee’s Termination of  Employment, by (ii) the total number of months in such Restricted Period, or in  such Performance Period.

 

          “Restricted  Period” shall mean the period of time during which Restricted Shares  or Restricted Share Units are subject to Restrictions as set forth in Section  6.

 

          “Restricted  Shares” shall mean Shares which are granted subject to Restrictions  pursuant to Section 6.

 

          “Restricted  Units” shall mean Units credited to an Eligible Employee subject to  Restrictions at the beginning of a Restricted Period pursuant to an Award made  to such employee under Section 6, and any Dividend Equivalent Units that are  credited to the employee with respect to such Units during such Restricted  Period as provided in Section 6.

 

          “Restrictions”  shall mean the restrictions to which Restricted Shares or Restricted Units are  subject under the provisions of Section 6.

 

          “Retirement” shall mean the termination of  a Participant’s employment with the Corporation and all of its Affiliated  Companies, if at the time of such termination of employment the Participant has  attained age 62 and is eligible to receive a Retirement Benefit under the Pall  Corporation Cash Balance Pension Plan or (ii), in the case of any Participant  who is not a resident of the U.S., a similar type of benefit under any plan or  program maintained by the Corporation or any of its Affiliated Companies (or to  which the Corporation or any of its Affiliated Companies makes contributions)  that provides benefits to Employees upon their retirement.

 

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          “Share”  shall mean a share of Common Stock.

 

          “Termination  of Board Membership” shall mean, with respect to any Eligible  Director, his or her ceasing to be a member of the Board of Directors. 

 

          “Termination  of Employment” shall mean, with respect to any Eligible Employee,  his or her ceasing to be employed by the Corporation or any of its Affiliated  Companies.

 

          “Trading Day”  shall mean any day on which the New York Stock Exchange is open for trading.

 

          “Unit” shall mean a unit of measurement  equivalent to one share of Common Stock, with none of the attendant rights of  a shareholder of such share, (including among the rights which the holder of a  Unit does not have are the right to vote such share and the right to receive  dividends thereon), except to the extent otherwise specifically provided  herein.

 

3.        Awards

 

           (a)        Form  of Awards.  Awards under the Plan may  be made in the form of Options, Restricted Shares, Restricted Units,  Performance Shares, Performance Units, and Annual Award Units.  An Award in any of the foregoing forms  other than Annual Award Units may be granted  to any individual Eligible Employee, or to any group of Eligible Employees,  upon terms and conditions that differ from the terms and conditions upon which  any other Awards in the same form are made to other individual Eligible  Employees or groups of Eligible Employees.

 

           (b)        Written  Instrument.  Each Award made to an  Eligible Employee or Eligible Director under the Plan shall be evidenced by a  written instrument in such form as the Committee shall prescribe, setting forth  the terms and conditions of the Award.   The instrument evidencing the grant of any Award hereunder shall specify  that the Award shall be subject to all of the terms and provisions of the Plan  as in effect from time to time but subject to the limitation on amendments set  forth in Section 16 of the Plan.

 

           (c)        Surrender  and Exchange of Awards.  The  Committee may in its discretion grant to a Participant who has been granted an  Award under the Plan or an award under any other employee compensation or  benefit plan maintained by the Corporation or any of its Affiliates (any such  Award or award is referred to herein as a “Prior Award”), in exchange for the  surrender and cancellation of such Prior Award or any portion thereof, a new  Award under the Plan. As the Committee may determine in its discretion,  the new Award so granted  may be in a form different than that of the  Prior Award surrendered, and may be granted subject to  terms and conditions that differ from those  to which the surrendered Prior Award were subject. Notwithstanding the  foregoing, no grant of a new Award in exchange for a Prior Award may
be made  hereunder unless (i) the aggregate fair value of the new Award does not exceed  the aggregate fair value of the Prior Award, determined as of the time the new  Award is granted; and (ii) the grant of the new Award would not constitute a  “repricing” of any Option or would not otherwise be treated as a “material  revision” of the Plan for purposes of the applicable rules of the New York  Stock Exchange. 

 

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4.       Shares  Available for Awards

 

          Shares  distributed in respect of  Awards made  under the Plan may be authorized but unissued Shares, Shares held in the  treasury of the Corporation, or Shares purchased by the Corporation on the open  market at such time or times and in such manner as it may determine.  The Corporation shall be under no obligation  to issue or acquire Shares in respect of an Award made under the Plan before  the time when delivery of Shares is due under the terms of the Award.  The number of Shares available for distribution  in respect of Awards made under the Plan shall be subject to the following  limitations:

 

          (a)        The  aggregate number of Shares that may be distributed in respect of Awards made  under the Plan shall be limited to 5,000,000 Shares.  Of that aggregate number, no more than 2,500,000 Shares in the  aggregate shall be available for Awards of   Restricted Shares, Restricted Units, Performance Shares, Performance  Units and Annual Award Units. The maximum aggregate number of Shares that may  be issued pursuant to the exercise of Incentive Stock Options granted under the  Plan shall not exceed 2,500,000 Shares. 

 

          (b)        Upon  the grant of any Award, the overall aggregate number of Shares available for  further Awards under the Plan , and if the Award so granted  was in a form subject to a limitation on the  aggregate number of shares available for Awards in that form, the aggregate  number of Shares available for further Awards under the Plan in that form,  shall be reduced by the number of Shares subject to the Award so granted. 

 

          (c)        There  shall be added back to the aggregate number of Shares available for the grant  of Awards under the Plan, as determined under (a) and (b) above, the  following:  (i) any Shares as to which  an Option granted hereunder has not been exercised at the time of its  expiration, cancellation or forfeiture; (ii) any Shares that otherwise would  have been issued upon the exercise of an Option granted hereunder that are  surrendered in payment of the exercise price of such Option; (iii) any Shares  included in any other form of Award granted hereunder, to the extent that the  Participant’s right to receive such Shares, or any cash payment in settlement  of such Award, becomes forfeited; (iv) any Shares that otherwise would have  been issued upon the exercise of an Option or in payment with respect to any  other form of Award granted hereunder,
that are surrendered in payment or  partial payment of taxes required to be withheld with respect to the exercise  of such option or the making of such   payment; (v) any Shares represented by Restricted Units or Performance  Units granted hereunder as to which payment   is made in cash instead of by the issuance and delivery of Shares; and  (vi) any Shares subject to an Option granted hereunder, or covered by any other  form of Award made hereunder, to the extent such Option or other Award is  surrendered in exchange for any other Award made hereunder, subject to the  limitations set forth in the last sentence of Section 3(c) hereof.

 

          (d)        The  limitations provided in this Section 4 shall be subject to adjustment as  provided in Section 13.

 

5.       Awards  of Options.

 

          Subject  to the limitations set forth in Section 4 and to the other terms and conditions  of the Plan, Options may be granted under the Plan to such Eligible Employees  for the purchase of 

 

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such number of Shares, at such  times, and upon such terms and conditions, as the Committee in its discretion  may determine. Options shall be granted in accordance with the provisions set  forth below.

 

          (a)        Type  of Options.  Each Option granted  hereunder shall be identified in the instrument evidencing such grant as either  (i) an Option intended to be treated as an Incentive Stock Option, or (ii) an  Option that shall be treated as a Non-Qualified Stock Option.

 

          (b)        Maximum  Number of Shares Subject to Options.   The total number of Shares with respect to which Options may be granted  to any Eligible Employee during any period of 24 consecutive months shall not  exceed 300,000 Shares, subject to adjustment as provided in Section 13.

 

          (c)        Term  of Options.  The term during which  an Option may be exercised shall be such period of time as determined by the  Committee and specified in the instrument evidencing the grant of the Option,  but in no event may the term of any Option exceed ten years from the Date of  Grant of the Option.  Notwithstanding  any other provision in the Plan to the contrary, no Option may be exercised  after its expiration.

 

          (d)        Exercise  of Options.  Each Option granted  hereunder shall become exercisable, in whole or in part, at such time or times  during its term as the instrument evidencing the grant of such Option shall  specify.  To the extent that an  Option  has become exercisable pursuant  to the preceding sentence, it may be exercised thereafter at any time or  from time to time during its term, as to any or all Shares as to which the  Option has become and remains exercisable, subject to the provisions of (e)  below.

 

          (e)        Termination  of Employment.  Except as the  instrument evidencing the grant of an Option may otherwise provide, the portion  of any outstanding Option held by an Eligible Employee on the date of his or  her Termination of Employment that has not become exercisable prior to such  date, and the portion of such Option which was exercisable but had not been  exercised prior to such date, shall be forfeited on such date. 

 

          The  instrument evidencing the grant of an Option may provide for the portion of the  Option that is exercisable at the time of the Eligible Employee’s Termination  of Employment to remain exercisable, and for the portion of such Option that is  not yet exercisable at such time to become exercisable in accordance with the  terms of the Option and remain exercisable thereafter, during such period of  time after the date on which the Eligible Employee’s Termination of Employment  occurs (but not beyond the expiration of the term of the Option), in such  circumstances and subject to such terms and conditions, as are specified in  such instrument.  However, to the extent  that any Option granted hereunder to an Eligible Employee as an Incentive Stock  Option is exercised more than three months after the date of such employee’s  Termination of Employment for any reason other than
Disability, or more than  one year after such date if the employee’s Termination of Employment occurred  because of Disability, the Option shall be treated as a Non-Qualified Stock Option  for purposes of the Plan.

 

          (f)        Exercise  Price and Method of Exercise.  The  price at which Shares may be purchased upon any exercise of an Option shall be  the price per share determined by the 

 

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Committee and specified in the  instrument evidencing the grant of such Option, but in no event shall the  exercise price per share be less than (i) the Fair Market Value of a Share  determined as of the Date of Grant of the Option, or (ii), if greater, the par  value of a Share.

 

          An  Option shall be exercised by delivery of a written notice of exercise, in a  form satisfactory to the Committee, to the Corporation at its principal  business office and addressed to the attention of the Corporation’s
    Secretary or such other person as the Corporate Secretary may have designated
to receive such not ice.  The notice shall specify  the number of Shares with respect to which the Option is being exercised.  The notice shall be accompanied by payment  of the exercise price of the Shares for which the Option is being exercised,  which payment shall be made under one or more of the methods of payment  provided in (g) below.  An Option may  not be exercised at any one time as to less than 100 Shares, or less than the  number of Shares to which the Option is then exercisable if that number is less  than 100 Shares.

 

          (g)        Payment.  Payment of the exercise price for Shares  purchased upon the exercise of an Option shall be made by one, or by a  combination of any, of the following methods:   (i) in cash, which may be paid by check or other instrument  acceptable to the Corporation, or by wire transfer of funds, in each case in  United States dollars; (ii) if   permitted by the Committee and subject to any terms and conditions it  may impose on the use of such methods, by (A) the delivery to the  Corporation of other Shares owned by the Participant, or (B) the surrender  to the Corporation of Shares that otherwise would have been  delivered to the Participant upon exercise  of the Option; (iii) to the extent permissible under applicable law,  through any cashless exercise sale and remittance procedure that the
Committee  in its discretion may from time to time approve; (iv) to the extent  permissible under applicable law and permitted by the Committee, by the execution  by the Participant and delivery to the Corporation of a promissory note or  other instrument evidencing the Participant’s agreement to pay part or all of  the option exercise price on a deferred or installment payment basis, upon such  terms and conditions (including without limitation terms requiring Shares  purchased upon the exercise of the Option to be pledged to the Corporation to secure payment of any  outstanding balance of the option exercise price ) as the Committee shall  require; or (v) any other method of payment as the Committee may from time  to time approve. 

 

          For  purposes of determining the portion of the exercise price payable upon the  exercise of an Option that will be treated as satisfied by the delivery or  surrender of Shares pursuant to clause (ii) (A) or (B) above, Shares so  delivered or surrendered shall be valued at their Fair Market Value determined  as of the Trading Day next preceding the date on which the Option is exercised  .

 

          (h)        Incentive  Stock Options.   Notwithstanding any other provisions of the  Plan, Incentive Stock Options granted under the Plan shall be subject to the  following provisions:

 

	
   

  	
              (i)        No    Incentive Stock Option may be granted under the Plan after November 16,    2014, unless the shareholders of the Corporation have approved an extension    of the period for granting Incentive Stock Options under the Plan beyond that    date.

  

 

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              (ii)       To    the extent that the aggregate Fair Market Value of Shares with respect to which    Incentive Stock Options granted under the Plan and under all other stock    option plans maintained by the Corporation are exercisable for the first time    by a Participant during any calendar year shall exceed $100,000, the    Incentive Stock Options so exercisable shall be treated as Non-Qualified    Stock Options.  For purposes of the    foregoing, the Fair Market Value of Shares as to which any Incentive Stock    Option may be exercised shall be determined as of the date on which such    Option is granted. The determination of whether the limitation set forth in    the second preceding sentence shall apply with respect to any Incentive Stock    Option granted under the Plan shall be made in accordance with applicable    provisions of section
422 of the Code and     the regulations issued thereunder.

  
	
   

  	
   

  
	
   

  	
              (iii)      No    Incentive Stock Option shall be granted to an Eligible Employee if, as of the    Date of Grant of such Option, such Eligible Employee owns stock possessing    more than ten percent of the total combined voting power of all classes of    stock of the Corporation, unless (A) the exercise price per Share under such    Option is at least 110% percent of the Fair Market Value of a Share    determined as of the Date of Grant of such Option, and (B) such Option    is not exercisable after the expiration of five years from the Date of Grant    of such Option.

  
	
   

  	
   

  
	
   

  	
              (iv)      The    instrument evidencing the grant of any Incentive Stock Option shall require    that if any Shares acquired upon the exercise of such option are disposed of    within 2 years from the Date of Grant of such option, or within one year from    the date as of which the Shares disposed of were transferred to the    Participant pursuant to the exercise of such option,  the Participant shall give the Corporation    written notice of such disposition, within ten days following the date of    such disposition.  

  

 

          (i)        Other  Option Provisions.  The instrument  evidencing the grant of any Option hereunder may contain such other terms and  conditions, not inconsistent with the provisions of the Plan or any applicable  law, as the Committee may determine.

 

          (j)        Rights  of a Shareholder.  Upon the exercise  of an Option or any portion thereof in accordance with the Plan, the provisions  of the instrument evidencing the grant of such Option and any applicable rules  and regulations established by the Committee, the holder of the Option shall  have all of the rights of a shareholder of the Corporation with respect to the  Shares issued as a result of such exercise.

 

6.        Awards  of Restricted Shares and Restricted Units

 

          Subject  to the limitations set forth in Section 4 and to the other terms and conditions  of the Plan, Restricted Shares or Restricted Units may be granted to such  Eligible Employees, at such times, and in such amounts, as the Committee may  determine in its discretion. Restricted Shares   and Restricted Units shall be granted in accordance with the provisions  set forth below.

 

          (a)        Restrictions  and Restricted Period.  At the time  of each grant of Restricted Shares or Restricted Units to any Participant, the  Committee shall establish a period of time within which the Restricted Shares  or Restricted Units covered by such grant (and the Participant’s right 

 

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to receive payment with respect  to such restricted Units) may not be sold, assigned, transferred (other than a  transfer to the Participant’s Beneficiary occurring by reason of the  Participant’s death), made subject to gift, or otherwise disposed of,  mortgaged, pledged or otherwise encumbered, whether voluntarily or by operation  of law.  The Committee in its discretion  may prescribe a separate Restricted Period for any specified portion of the  Restricted Shares or Restricted Units granted pursuant to any Award.

 

          (b)        Rights  While Restricted Shares Remain Subject to Restrictions.  Restricted Shares granted to a Participant  hereunder shall be issued to the Participant as of the Date of Grant as  uncertificated shares.  Until the  Restrictions to which such shares are subject lapse in accordance with the  provisions of (d) below or Section 12(c), the Restricted Shares granted to a  Participant shall be held in the Participant’s name in a bookkeeping account  maintained by the Corporation. A separate account shall be maintained for all  Restricted Shares granted to a Participant with a Restricted Period ending on  the same date.

 

          Except  for the Restrictions to which such shares are subject, and subject to the  forfeiture provisions applicable under (e) below, a Participant shall have,  with respect to all Restricted Shares so held for his account, all of the  rights of a shareholder of the Corporation, including full voting rights with  respect to such shares and the right to receive currently with respect to the  Participant’s Restricted Shares all dividends and other distributions payable  generally on the Corporation’s Shares. If any dividends or distributions so  payable are paid in Shares, the Shares paid as a dividend or distribution with  respect to a Participant’s Restricted Shares shall be subject to the same  Restrictions and provisions relating to forfeiture as apply to the Restricted  Shares with respect to which they were paid.   Such stock dividend Shares shall themselves be treated as
Restricted  Shares, and shall be credited to the same account which the Corporation  maintains for those Restricted Shares of the Participant with respect to which  such stock dividends or distributions were paid. 

 

          Notwithstanding  the foregoing, if the instrument evidencing the grant of any Restricted Shares  to a Participant so provides, all cash dividends and distributions payable  generally on the Corporation’s Shares that are otherwise payable with respect  to the Restricted Shares granted to the Participant shall not be paid currently  to the Participant but instead, shall be applied to the purchase of additional  Shares for the Participant’s account. The additional Shares so purchased shall  be subject to the same Restrictions and provisions relating to forfeiture as  apply to the Restricted Shares with respect to which they were paid.  Such additional Shares shall themselves be  treated as Restricted Shares, and shall be credited to the same account which  the Corporation maintains for those Restricted Shares of the Participant with  respect to which such dividends or distributions were
paid.  The purchase of any such additional Shares  shall be made either (i) through the Corporation’s Dividend Reinvestment Plan,  or (ii) in accordance with such other procedure as may be specified in the  instrument evidencing the grant of the Restricted Shares on which such  dividends are paid.

 

          (c)        Rights  While Restricted Units Remain Subject to Restrictions.  No Shares shall be issued at the time any  award of Restricted Units is made hereunder. Restricted Units granted to a  Participant hereunder shall be credited to a bookkeeping account maintained by  the Corporation for the Participant.  A  separate account shall be maintained for all Restricted Units granted to a 

 

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Participant with a Restricted  Period ending on the same date, and for all Dividend Equivalent Units that are  to be credited to such account  in  accordance with the next following paragraph.

 

          Until  the Restrictions applicable to the Restricted Units credited upon grant to any  account maintained for a Participant  in  accordance with the preceding paragraph shall lapse, additional Restricted  Units shall be credited to such account with respect to the Restricted Units so  credited, as of each Dividend Payment Date.   The number of additional Restricted Units to be credited shall be  determined by first multiplying (A) the total number of Restricted Units  standing to the Participant’s credit in such account on the day immediately  preceding such Dividend Payment Date (including all Dividend Equivalent Units  credited to such account on all previous Dividend Payment Dates), by (B) the  per-share dollar amount of the dividend paid on such Dividend Payment Date and  then, dividing the resulting amount by the Closing Price of one share of  Common Stock on such
Dividend Payment Date.

 

          (d)        Lapse  of Restrictions and Payment.  Upon  the expiration of the Restricted Period for any Restricted Shares or Restricted  Units granted to a Participant hereunder but subject to the provisions of (e)  below, the Restrictions applicable to such Restricted Shares or Restricted  Units shall lapse, and payment with respect to such Restricted Shares or  Restricted Units (including any related Dividend Equivalent Units) shall be  made in accordance with the following provisions:

 

	
   

  	
              (i)        In    the case of Restricted Shares, payment shall be made by delivery to the    Participant of a stock certificate for the number of such  Restricted Shares, free and clear of all    Restrictions to which such shares were subject. However, if the Restricted    Shares with respect to which the applicable Restrictions have lapsed includes    a fractional Share, payment for such fractional Share shall be made in cash,    in an amount equal to the Fair Market Value of such fractional Share    determined as of  the date on which    such Restrictions lapsed. Delivery of such stock certificate and any such    cash payment shall be made to the Participant as soon after the lapse of the    applicable Restriction as is practicable. 

  
	
   

  	
   

  
	
   

  	
                  (ii)      In the case of Restricted Units    (including related Dividend Equivalent Units), payment shall be made (A)    by  the issuance and delivery to the    Participant of a stock certificate for a number of Shares equal to the number    of whole Restricted Units and related Dividend Equivalent Units with respect    to which the applicable Restrictions have lapsed, and (B) by payment in    cash for any fractional Restricted Unit payable as a result of the lapse of    such Restrictions, in an amount equal to the Fair Market Value of such    fractional Restricted Unit determined as of the date as of which such    Restrictions lapsed.  Notwithstanding    the foregoing, payment for Restricted Units (including related Dividend    Equivalent Units) with respect to which the applicable Restrictions have    lapsed shall be made solely in
cash, in an amount equal to the Fair Market    Value of all of such Units and any fractional Unit, determined as of the date    on which such Restrictions lapsed, if the instrument evidencing the grant of    such Restricted Units so provides.     Payment shall be made in such manner and at such time or times as    provided in such instrument.  If such    instrument so permits, payment with respect to any part or all of an Eligible    Employee’s Restricted Units (including related Dividend Equivalent Units) may    

  

 

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  be deferred,    at the Eligible Employee’s election, upon such terms and conditions as are    specified in such instrument.

  

 

          (e)        Termination  of Employment.  Upon an Eligible  Employee’s Termination of Employment for any reason prior to the expiration of  the Restricted Period for any Restricted Shares or Restricted Units (and  related Dividend Equivalent Units) standing to his or her credit immediately  prior to such Termination of Employment, the Eligible Employee’s right to  receive payment with respect to such Restricted Shares, Restricted Units and  Dividend Equivalent Units shall be forfeited and cancelled as of the date of  such Termination of Employment, and no payment of any kind shall be made with  respect to such Restricted Shares, Restricted Units and Dividend Equivalent  Units, except as otherwise provided in the instrument or instruments evidencing  the grant of such Shares or Units.

 

          If  the Committee so determines in its discretion, the instrument evidencing the  Award of such Restricted Shares or Restricted Units may provide that if the  Eligible Employee’s Termination of Employment prior to the end of the  Restricted Period established for such Restricted Shares or Restricted Units  occurs as a result of the Eligible Employee’s death, Disability, Retirement, or  for any other reason other than discharge by the Corporation or any of its  Affiliated Companies for “cause” as defined in such instrument, payment shall  be made with respect to all or a Pro Rata Portion of such Restricted Shares or  Restricted Units and any related Dividend Equivalent Units .  In such case, only the Eligible Employee’s  right to receive payment with respect to any remaining portion of the  Restricted Shares or Restricted Units (and related Dividend Equivalent Units)  for
which such Restricted Period was established shall be cancelled and  forfeited. Any payment required to be made with respect to an Eligible  Employee’s Restricted Shares or Restricted Units (and related Dividend  Equivalent Units) pursuant to this paragraph shall be made as soon as  practicable after  the date of such  employee’s Termination of Employment, and shall be made in the manner specified  in Section 6(d)

 

          (f)        Notice  of Code Section 83(b) Election.  A  Participant who files an election under section 83(b) of the Code to include in  gross income the Fair Market Value of any Restricted Shares granted hereunder  while such Shares are still subject to Restrictions shall furnish the  Corporation with a copy of the election so filed by the Participant, within ten  days of the filing of such election with the Internal Revenue Service.

 

7.        Awards  of Performance Shares and Performance Units

 

          Subject  to the limitations set forth in Section 4 and to the other terms and conditions  of the Plan, Performance Shares or Performance Units may be granted to such  Eligible Employees, at such times, in such amounts,  and upon such terms and conditions, as the Committee may  determine in its discretion.   Performance Shares and Performance Units shall be granted in accordance  with the provisions set forth below.

 

          (a)        Establishment  of Performance Goals and Performance Targets.  In connection with each Award of Performance Shares or  Performance Units, the Committee shall establish in writing, and the instrument  evidencing the grant of such Award shall specify, (i) the Performance Goal or  Goals and the Performance Period that will apply with respect to such Award;  (ii) the level or levels of achievement of the Performance Goal or Goals that  must be met in order for 

 

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payment to be made with respect  to the Award; (iii) the number of Performance Shares that will be issued and  delivered to the recipient of the Award, or the percentage of the Performance  Units (and any related Dividend Equivalent Units) credited to the recipient in  connection with the Award as to which payment will be made, if the Performance  Goal or Goals applicable to such Award (A) have been fully achieved, (B) have  been exceeded, or (C) have not been fully achieved but have been achieved at or  beyond any minimum or intermediate level of achievement specified in the  instrument evidencing the grant of such Award, and (iv) such other terms and  conditions pertaining to the Award as the Committee in its discretion may  determine.  In connection with any such  Award made to any Covered Executive, the matters described in the preceding  sentence shall  be established within  such period of time as may be permitted by the regulations issued
under section  162(m) of the Code.

 

          (b)        Accounts  and Dividend Equivalent Units for Performance Units Awards.  No Shares shall be issued at the time any  award of Performance Units is made hereunder. Performance Units granted to an  Eligible Employee hereunder shall be credited to a bookkeeping account  maintained by the Corporation for such employee. A separate account shall be  maintained for all Performance Units included in each separate Award of  Performance Units made to an Eligible Employee, and for all Dividend Equivalent  Units that are to be credited with respect to the Performance Units included in  such Award in accordance with the next following sentence. If the instrument  evidencing the grant of any Award of Performance Units so provides, Dividend  Equivalent Units shall be credited with respect to the Performance Units  included in such Award on each Dividend
Payment Date occurring within the  Performance Period applicable to such Award in the same manner as Dividend Equivalent  Units are credited with respect to Restricted Units during the applicable  Restricted Period, as set forth in Section 6(c) above.

 

          (c)        Limit  on Award Amounts.  The total number  of Shares for which any Award of Performance Shares  may be made to any Eligible Employee, and the total number of  Units for which any Award of Performance Units may be made to any Eligible  Employee (exclusive of any Dividend Equivalent Units credited with respect to  the Performance Units awarded to such employee),  may not exceed 75,000   Shares, or 75,000 Units, for each 12-month period included  in the Performance Period established for such Award. The foregoing limits  shall be subject to adjustment as provided in Section 13.

 

          (d)        Performance  Goals for Covered Executives.  In  the case of  any Award of Performance  Shares or Performance Units to any Eligible Employee who is a Covered  Executive, the Performance Goal or Goals established in connection with such  Award shall be based on one or more of the following business criteria, as  determined by the Committee in its discretion: (i) the attainment of specified  levels of, or increases in, the Corporation’s after-tax or pretax return on  stockholder’s equity, (ii) the attainment of specified levels in the fair  market value of the Corporation’s Shares; (iii) the attainment of specified  levels of growth in the value of an investment in the Corporation’s Shares,  assuming that all dividends paid on the Corporation’s Common Stock are  reinvested in additional Shares; (iv) the
attainment of specified levels of, or  increases in, the Corporation’s pre-tax or after-tax earnings, profits, net  income, or earnings per share; (v) the attainment of specified levels of, or  increases in, the Corporation’s earnings before income tax, depreciation and  amortization (EBITDA); (vi) attainment of specified levels of, or increases in,  the Corporation’s net sales, gross revenues or cash flow from 

 

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operations; (vii) the  attainment of specified levels of, or increases in, the Corporation’s working  capital, or in its return on capital employed or invested; (viii) the  attainment of specified levels of, or decreases in, the Corporation’s operating  costs or any one or more components thereof, or in the amount of all or any specified  portion of the Corporation’s debt or other outstanding financial obligations.

 

          Any  of the business criteria described in the preceding sentence which the  Committee establishes as a Performance Goal may be measured either by the  performance of the Corporation and its Affiliated Companies on a consolidated  basis, or by the performance of any one or more of the Corporation’s  subsidiaries, divisions, or other business units, as the Committee in its  discretion may determine.  In its  discretion, the Committee may also establish Performance Goals, based on any of  the business criteria described in this Section 7(d), that require the  attainment of a specified level of performance of the Corporation, or any of  its subsidiaries, divisions or other business units, relative to the  performance of other specified corporations, in order for such Goals to be met.

 

          The  Committee may also, in its discretion, include in any Performance Goal the  attainment of which depends on a determination of the net earnings or income of  the Corporation or any of its subsidiaries, divisions or other business units,  provisions which require such determination to be made by eliminating the  effects of any decreases in or charges to earnings for (A) the effect of foreign  currency exchange rates, (B) any acquisitions, divestitures, discontinuances of  business operations, restructurings or other special charges, (C) the  cumulative effect of any accounting changes, and (D) any “extraordinary items”  as determined under generally accepted accounting principles, to the extent  that such decreases or charges referred to in clauses (A) through (D) are  separately disclosed in the Corporation’s Annual Report for each fiscal year  within the applicable Performance
Period.

 

          (e)        Performance  Goals for Non-Covered Executives.   In the case of Awards of Performance Shares or Performance Units  made  hereunder to Eligible Employees  who are not Covered Executives, the Performance Goal or Goals applicable to  such Awards shall be such corporate or individual goals as the Committee in its  discretion may determine. 

 

          (f)        Measurement  of Performance.  At the end of the  Performance Period established in connection with any Award, the Committee  shall determine the extent to which the Performance Goal or Goals established  for such Award have been attained, and shall determine, on that basis, the  number of Performance Shares or Performance Units included in such Award  that have been earned and as to which  payment   will be made pursuant to section 7(h) below, subject to the adjustments  provide for in Section (7)(g) and the forfeiture provisions of Section  7(i).  In the case of any Award granted  to a Covered Executive, the Committee shall certify in writing the extent to which  it has determined that the Performance Goal or Goals established by it for such  Award have been attained.

 

          (g)        Adjustment  of Award Amounts.  The Number of  Shares or the amount of cash otherwise payable with respect to an Award on the  basis of the level of attainment of the applicable Performance Goals as  determined by the Committee under Section 7(f) shall be subject to adjustment  in accordance with the following provisions.

 

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              (i)        To    the extent not inconsistent with the terms of the Plan and if the instrument    evidencing  the Award so    provides,  the number of Shares or the    amount of cash otherwise so payable with respect to an Award to an Eligible    Employee who is not a Covered Executive may be increased or decreased to the    extent determined by the Committee in its discretion, based on the    Committee’s evaluation of the Eligible Employee’s individual performance or    to reflect such other events, circumstances or factors as the Committee in    its discretion deems appropriate in determining the extent to which payment    should be made with respect to the Eligible Employee’s Award.

  
	
   

  	
   

  
	
   

  	
              (ii)       The    Committee shall not have any authority to increase the number of Shares or    the amount of cash otherwise so payable with respect to any Award to a    Covered  Executive.  However, if the instrument evidencing such    Award so provides, the Committee may in its discretion reduce the number of    Shares or the amount of cash otherwise so payable with respect to such Award    (A) to reflect any decreases in or charges to earnings that were not taken    into account pursuant to clause (A), (B), (C), or (D) of Section 7(e) in    determining net earnings or income for purposes of any Performance Goal    established in connection with such Award; (B) to reflect any credits to    earnings for extraordinary items of income or gain that were taken into    account in determining net earnings or income for such purposes; (C) to
reflect the Committee’s evaluation of the Covered Executive’s individual    performance; or (D) to reflect any other events, circumstances or factors    which the Committee believes to be appropriate in determining the extent to    which payment should be made with respect to the Covered Executive’s Award.

  

 

          (h)        Payment  of Awards.  Payment with respect to  that number of Performance Shares or Performance Units subject to any Award  which the Committee has determined under Section 7(f) above to have been  earned, as adjusted to the extent determined by the Committee under Section  7(g), shall be made in accordance with the following provisions: 

 

	
   

  	
              (i)        In    the case of  any such Performance    Shares, payment  shall be made by the    issuance and delivery to the Participant of a stock certificate for the    requisite number of such Shares. If the instrument evidencing the Award of    such Shares so provides, a cash payment shall also be made to the    Participant, in an amount equal to all of the dividends that would have been    paid to the Participant upon such earned and adjusted number of Shares if    such Shares had been issued to the Participant as of the Date of Grant of the    Award in question.  Such Shares shall    be issued and delivered, and, if applicable, such cash payment shall be made,    to the Participant as soon as practicable after the end of the Performance    Period applicable to the Award in question.

  
	
   

  	
   

  
	
   

  	
              (ii)       In    the case of any such Performance Units, (including related Dividend    Equivalent Units), payment shall be made (A) by the issuance and delivery to    the Participant of a stock certificate for a number of Shares equal to the    total number of such whole Performance Units and related Dividend Equivalent    Units, and (B) by payment in cash for any fractional Unit in an amount    equal to the Fair Market Value of such fractional Unit determined as of the    Trading Day immediately preceding the date as of which payment is to be    made.  Notwithstanding the foregoing,    payment for such Performance Units (including related Dividend Equivalent    Units) shall be made solely in 

  

 

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  cash, in an    amount equal to the Fair Market Value of all of such Units and any fractional    Unit, determined as of the Trading Day immediately preceding the date as of    which payment is to be made, if the instrument evidencing the grant of such    Performance Units so provides.     Payment shall be made in such manner and at such time or times as    provided in such instrument.  If such    instrument so permits, payment with respect to any part or all of an Eligible    Employee’s Performance Units (including any related Dividend Equivalent    Units) may be deferred, at the Eligible Employee’s election, upon such terms    and conditions as are specified in such instrument.

  

 

          (i)        Termination  of Employment.  Upon an Eligible  Employee’s Termination of Employment for any reason prior to the end of the  Performance Period established for any Award of Performance Shares or  Performance Units made to the Eligible Employee hereunder,  such Award shall be cancelled as of the date  of such Termination of Employment, the Eligible Employee’s right to receive  payment with respect to any Performance Shares or Performance Units included in  such Award and any Dividend Equivalent Units that were credited with respect to  such Performance Units, shall be forfeited as of such date, and no payment of  any kind shall be made with respect to such Award, except as otherwise provided  in the instrument evidencing the grant of such Award.

 

          If  the Committee so determines in its discretion, the instrument evidencing  any  Award of Performance Shares or  Performance Units may provide that if the Eligible Employee’s Termination of  Employment prior to the end of the Performance Period established for such  Award occurs as a result of the Eligible Employee’s death, Disability,  Retirement, or for any other reason other than discharge by the Corporation or  any of its Affiliated Companies for “cause” as defined in such instrument,  payment shall be made at the end of the Performance Period, in accordance with  the provisions of Section 7(h), with respect to all or a Pro Rata Portion of  the number of Shares and/or the amount of cash that otherwise would have been  payable to the Eligible Employee, as determined in accordance with the  provisions of Sections 7(f) and (g), if the Eligible Employee’s Termination
of  Employment had not occurred prior to the end of such Performance Period.  In such case, only the Eligible Employee’s  right to receive payment with respect to any remaining portion of the  Performance Shares or Performance Units (and related Dividend Equivalent Units)  included in such Award shall be cancelled and forfeited. 

 

8.        Awards  to Eligible Directors

 

          Subject  to the limitations set forth in Section 4 and to the other terms and conditions  of the Plan, Annual Award Units shall be granted to Eligible Directors in  accordance with the provisions set forth below:

 

          (a)        Annual  Grants.  In each fiscal year of the  Corporation beginning with the fiscal year ending July 31, 2006, each member of  the Board of Directors who is an Eligible Director on the Annual Award Grant  Date in such fiscal year shall be entitled to receive 1750 Annual Award Units,  of which 1000 shall be granted on the Annual Award Grant Date (January 5, 2006)  and 750 shall be granted on January 19, 2006.   In each subsequent fiscal year, beginning with the fiscal year ending  July 31, 2007, said 1750 Annual Award Units shall automatically be granted on  the Annual Award Grant Date.  If any  Eligible Director has elected not to receive the Annual Award Units to which he  is entitled in any fiscal year beginning with the fiscal year ending July 31,  2006 

 

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but, prior to the end of such  fiscal year, desires to change his election, the Board of Directors shall have  the power to award to such Eligible Director, before the end of such fiscal  year, the Annual Award Units which he was entitled to receive during such  fiscal year.  Each person who is elected  a director of the Corporation by shareholders at an annual meeting of shareholders  for the first time (i.e., disregarding any previous election of such person by  the Board of Directors) and thereby becomes an Eligible Director shall  automatically be granted 1,000 Annual Award Units on the date of such annual  meeting of shareholders. 

 

          (b)        Accounts  and Dividend Equivalent Units.  No  Shares shall be issued at the time any Annual Award Units are granted  hereunder. Annual Award Units granted to an Eligible Director hereunder shall  be credited to a bookkeeping account maintained by the Corporation for the Eligible  Director. As of each Dividend Payment Date occurring prior to the date on  which  payment with respect to an  Eligible Director’s Annual Award Units is made pursuant to (c) below, Dividend  Equivalent Units shall be credited to the Eligible Director’s account with  respect to all Annual Award Units (and all Dividend Equivalent Units credited  to such account on all previous Dividend Payment Dates) standing to the  Eligible Director’s credit in such account immediately prior to such Dividend  Payment Date. The number of Dividend Equivalent
Units to be so credited shall  be determined in the same manner as Dividend Equivalent Units are credited with  respect to Restricted Units during the applicable Restricted Period, as set  forth in Section 6(c) above.

 

          (c)        Payment  with respect to Annual Award Units.  Upon an Eligible Director’s Termination of Board Membership for  any reason other than removal for cause in accordance with law, the Eligible  Director (or if such Termination has occurred by reason of death, his or her  Beneficiary) shall be entitled to receive payment with respect to all Annual  Award Units and related Dividend Equivalent Units then standing to his or her  credit in the account maintained for the Eligible Director pursuant to (b) above.  Payment shall be made (i) by the issuance  and delivery to the Eligible Director, or to his or her Beneficiary, of a stock  certificate for a number of Shares equal to the number of whole Annual Award  Units and related Dividend Equivalent Units standing to the Eligible Director’s  credit immediately prior to such Termination
of Board Membership, and (ii) by  payment in cash for any fractional Annual Award Unit standing to the Eligible  Director’s credit at such time.  Payment  shall be made as soon as practicable after the date on which the Eligible  Director’s Termination of Board Membership occurs.

 

          (d)        Forfeiture  of Annual Award Units.  Upon an  Eligible Director’s Termination of Board Membership as a result of removal for  cause in accordance with law, all Annual Award Units and related Dividend  Equivalent Units standing to his or her credit immediately prior to such  Termination of Board Membership shall be cancelled as of the date of such  Termination of Board Membership, the Eligible Director’s right to receive  payment with respect to such Annual Award Units and Dividend Equivalent Units  shall be forfeited as of such date, and no payment of any kind shall be made  with respect to such Annual Award Units and Dividend Equivalent Units.

 

9.        Transferability  of Awards

 

          Any  Option granted to an Eligible Employee under the Plan shall be nontransferable  and may be exercised during the Eligible Employee’s lifetime only by the  Eligible Employee.  A Participant’s  right to receive payment of Shares or cash with respect to any other Award  granted 

 

17

 

to the Participant under the  Plan shall not be subject in any manner to anticipation, alienation, sale,  transfer, assignment, pledge, encumbrance, attachment, or garnishment by  creditors of the Participant.

 

Notwithstanding the foregoing,  if the instrument evidencing the grant of any Award other than an Incentive  Stock Option so provides, the recipient of such Award may transfer his or her  rights with respect to such Award, or any portion thereof, to any “family  member” of the recipient, as that term is defined in the General Instructions  to Form S-8 promulgated by the Securities and Exchange Commission under the  Securities Act of 1933, as amended, subject to such limitations, terms and  conditions as may be specified in such instrument.

 

10.     Listing  and Qualification of Shares  

 

          The Corporation, in its  discretion, may postpone the issuance, delivery, or distribution of Shares with  respect to any Award until completion of such stock exchange listing or other  qualification of such Shares under any state or federal law, rule or regulation  as the Corporation may consider appropriate, and may require any Participant to  make such representations and furnish such information as it may consider appropriate  in connection with the issuance or delivery of the Shares in compliance with  applicable laws, rules and regulations.

 

11.     Taxes 

 

          Notwithstanding  any other provision of the Plan, the Corporation or any of its Affiliated  Companies may make such provisions and take such steps as it may deem necessary  or appropriate for the withholding of all federal, state and local taxes  required by law to be withheld with respect to the exercise of any Option or  with respect any payments to be made in respect of any other form of Award  granted to a Participant under the Plan, including but not limited to  (i) deducting the amount of taxes so required to be withheld from any  other compensation or other amounts then or thereafter payable to the Participant,  and/or (ii) withholding delivery of any Shares or payment of any cash amount  otherwise required to be delivered or paid to the Participant with respect to  the exercise of such Option, or with respect to such other form of Award, until  the amount of taxes so required to be
withheld has been paid in full to the  Corporation or any of its Affiliated Companies.  With the approval of the Compensation Committee and subject to  such terms and conditions as it may require, such amount may be paid in Shares  previously owned by the Participant, or by the surrender of a  portion of the Shares that otherwise would  be delivered or paid to such Participant with respect to his or her Award, or  by a combination of payments in cash and Shares.

 

12.     Change in  Control

 

          Notwithstanding  any other provision in the Plan to the contrary (but subject to the “provided,  however” clause contained in the definition of “Change in Control” in  Section 2), upon the occurrence of a Change in Control, the following  provisions shall apply.

 

          (a)        Each  Option outstanding under the Plan on the day preceding the date on which the  Change in Control occurs shall become immediately and fully exercisable on the  date of the Change in Control, and shall remain fully exercisable, irrespective  of the Participant’s 

 

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subsequent Termination of  Employment for any reason, until the date on which the Option otherwise would  expire by the passage of time in accordance with its terms.

 

          (b)        If  a Change in Control would be treated as having occurred but for the adoption by  the Board of Directors of a resolution described in the “provided, however”  clause in the definition of “Change in Control” in Section 2, and if such  resolution so provides and has not been rescinded prior to the Change in  Control, the Board  of Directors shall  have the right in its discretion (i) to direct that all Options then  outstanding  and held by Participants shall  be cancelled as of a date to be fixed by the Board, provided, however,  that not less than 30 days written notice of the date so fixed shall be given  to each such Participant, and each such Participant shall have the right during  such period (irrespective of the Participant’s Termination of Employment during  such
period) to exercise his or her Option as to all or any part of the Shares  covered thereby, including any Shares as to which the Option has not yet become  exercisable, or (ii) to authorize the substitution for each outstanding Option  of a new Option, provided that (A) each such new Option has a value at the time  it is granted that is at least equal to the value of the outstanding Option in  substitution for which it is granted, and contains terms and conditions no less  favorable to the Participant than those contained in his or her outstanding  Option, and (B) in the case of any new Incentive Stock Option that is granted  in substitution of an outstanding Incentive Stock Option, the requirements of  section 424(a) of the Code are met with regard to such substitution.

 

          (c)        The  Restricted Periods applicable to all Restricted Shares and Restricted Units  (including any related Dividend Equivalent Units) granted to a Participant  hereunder that are still outstanding on the day immediately preceding the date  on which such Change in Control occurs shall expire on such date; all  Restrictions applicable to such outstanding Restricted Shares, Restricted Units  and related Dividend Equivalent Units shall lapse on such date; and the  Participant’s rights to receive payment with respect to all such outstanding  Shares, Restricted Units and related Dividend Equivalent Units shall become  nonforfeitable as of such date.  Payment  with respect to such outstanding Restricted Shares, Restricted Units and  related Dividend Equivalent Units shall be made at the time or times, and in  the manner, specified in the instrument
or instruments evidencing the grant  thereof, except as the Committee  may  otherwise determine in its discretion at any time prior to the Change in  Control.

 

          (d)        The  Performance Periods applicable to all Performance Shares and Performance Units  (including any related Dividend Equivalent Units) granted to a Participant  hereunder that  are still outstanding on the day  immediately preceding the date on which such Change in Control occurs shall end  on such date; all Performance Goals that were established in connection with  the Award of such Performance Shares or Performance Units shall be deemed to  have been attained as of such date to the fullest extent necessary in order for  the Participant to be entitled to receive payment with respect to the maximum  number of such Performance Shares, or with respect to the maximum percentage  of  such Performance Units (and any  related Dividend Equivalent Units), as to which payment could be made under the  terms of the applicable Awards, as specified in
the instrument or instruments  evidencing the grant thereof; and the Participant shall acquire on such date a  nonforfeitable right to receive payment with respect to such maximum number of  Performance Shares (including any cash payment with respect to dividends that  would have been paid thereon, if the instrument evidencing the grant of such  shares provides for such 

 

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cash payment), or with respect  to such maximum percentage of Performance Units (and any related Dividend  Equivalent Units), determined without any adjustment under Section 7(g)(i) or  (ii); provided, however, that any Participant who, pursuant to  Section 7(i), would have been entitled to receive payment with respect to only  a Pro Rata Portion of the number of Shares or the amount of cash otherwise  payable with respect to such Performance Shares or Performance Units if no  Change in Control had occurred, shall be entitled to receive only a Pro Rata  Portion of the payment that otherwise would be made with respect to such  Performance Shares or Performance Units under the provisions of this Section  7(d). Payment with respect to such Performance Shares, Performance Units and  related Dividend Equivalent Units shall be made at the time or times, and in  the manner, specified in the instrument or instruments evidencing the grant  thereof,
except as the Committee may otherwise determine in its discretion at  any time prior to the Change in Control.

 

          (e)        If  any payment that is required to be made hereunder with respect to any  outstanding Award as a result of the occurrence of a Change in Control is to be  made by the issuance and delivery of Shares to the Participant, the Corporation  shall take whatever steps are necessary to cause such Shares to be issued to  the Participant, and to be treated as outstanding, at the effective time of the  transaction constituting the Change in Control.

 

13.     Certain  Adjustments to Shares

 

          In  the event of any change in the shares of Common Stock by reason of any stock  dividend, stock split, recapitalization, reorganization, merger, consolidation,  split-up, combination or exchange of shares, or any rights offering to purchase  shares of Common Stock at a price substantially below fair market value, or any  similar change affecting the shares of Common Stock, (i) the maximum  aggregate number and kind of shares specified herein as  available for the grant of Awards, or for  the grant of any particular form of Award, under the Plan, (ii) the number and  kind of shares that may be issued and delivered to Participants upon the  exercise of any Option, or in payment with respect to any Award of Restricted  Shares or Performance Shares, that is outstanding at the time of such change,  (iii) the number and kind of shares represented by any Restricted Units,  Performance Units,
Annual Award Units or Dividend Equivalent Units that are  outstanding at the time of such change, and (iv)  the exercise price per share of any Options granted hereunder  that are outstanding at the time of such change, shall be appropriately  adjusted consistent with such change in such manner as the Compensation  Committee, in its sole discretion, may deem equitable to prevent substantial  dilution or enlargement of the rights granted to, or available for, the  Participants hereunder.

 

          In  the case of any outstanding Incentive Stock Option, any such change shall be  made in the manner that satisfies the requirements that must be met under  section 424 of the Code in order for such change not to be treated as a  “modification” of such Option as defined under section 424 of the Code.

 

          The  Committee shall give notice to each Participant of any adjustment made pursuant  to this Section and, upon such notice, such adjustment shall be effective and  binding for all purposes.

 

20

 

14.     Administration

 

          The  Plan shall be administered in accordance with the provisions set forth below.

 

          (a)        In  General.  Except as otherwise  specifically provided in the Plan, the Plan shall be administered by (i) the  Board of Directors, with respect to all matters pertaining to Awards that may  be granted or that have been granted hereunder to Eligible Directors; (ii) by  the Compensation Committee, with respect to all matters pertaining to Awards  that may be made or that have been made to Eligible Employees, except as  otherwise provided in (iii); and (iii) by the CEO, with respect to those  specific matters pertaining to Awards to Eligible Employees who are not Elected  Officers that are within the scope of the authority granted to the CEO under  (d) below or delegated by the Compensation Committee to the CEO pursuant to (e)  below.  

 

          (b)        The  Committee’s Authority and Powers.   In addition to the responsibilities and powers assigned to the Committee  elsewhere in the Plan, the Committee shall have the authority, in its  discretion, to establish from time to time guidelines or regulations for the  administration of the Plan, to interpret the Plan, and to make all determinations  it considers necessary or advisable for the administration of the Plan.  All decisions, actions or interpretations of  the Committee under the Plan shall be final, conclusive and binding upon all  parties.  Notwithstanding the foregoing,  any determination made by the Committee after the occurrence of a Change in  Control that denies in whole or in part any claim made by any individual for  benefits under the Plan shall be subject to judicial review under a “de novo,”
rather than a deferential, standard.

 

          (c)        Modification  of Awards.  To the extent not  inconsistent with the terms of the Plan or any provision of applicable law, the  Committee  in its discretion may waive  or modify any of the terms and conditions set forth in the instrument  evidencing the grant of any Award made to a Participant hereunder, including  without limitation, (i) in the case of any Option,  to permit such Option to become exercisable as to any portion of  the Shares subject to the Option at any time earlier than the time specified in  such instrument,  to extend the term of  such Option beyond the date specified in such instrument as the expiration date  for the term of the Option (but not beyond the day immediately preceding the  tenth anniversary of the Date of Grant of the Option), or to permit such  Option, to the extent it has become or becomes
exercisable, to remain  exercisable for any period of time (including any period after the Eligible  Employee’s Termination of Employment) beyond the period of time specified in  such instrument but not beyond the date of expiration of the Option, including  any extension thereof permitted under this clause (i); and (ii) in the case of  any Award of Restricted Shares or Restricted Units, to cause the Restricted  Period applicable to such Restricted Shares or restricted Units to expire, and  the Restrictions applicable to such Restricted Shares or Restricted Units to  lapse, as of any date earlier than the date provided for in such instrument; 

 

          Notwithstanding  the foregoing, no waiver or amendment may be authorized or directed by the  Committee pursuant to this Section 14 (c) without the consent of the  Participant if (A) it would adversely affect, to any material extent, any of  the rights or obligations of the Participant with respect to such Award, or (B)  in the case of any Option granted hereunder that was intended to constitute an  Incentive Stock Option, if such waiver or amendment would cause such Option to  fail to be treated as an “incentive stock option” within the meaning of section  422 of the Code. In addition, no such waiver or amendment may be authorized or  directed by the Committee 

 

21

 

pursuant to this Section 14(c)  with respect to any Option, Performance Shares or Performance Units awarded to  any Covered Executive, if such waiver or amendment would cause the delivery of  Shares or the payment of any cash amounts that are made with respect to such  Award to fail to be deductible for federal income tax purposes pursuant to the  applicable provisions of section 162(m) of the Code and the regulations issued  thereunder.

 

          (d)        The  CEO’s Authority and Powers.  With  respect to such number of Shares as the Compensation Committee may in its  discretion determine to be available from time to time for the grant of Awards  in any form to Eligible Employees who are not Elected Officers, the CEO shall  have the authority (i) to determine which of such Eligible Employees shall  receive Awards in each form specified by the Compensation Committee; (ii) to  determine the time or times when Awards in such form shall be made to such  Eligible Employees; (iii) to determine the number of Shares that will be  subject to any Option, or the number of Restricted Shares, Restricted Units,  Performance Shares or Performance Units, to be included in any Award to any  such Eligible Employee; (iv) with respect to any Award of Performance Shares or  Performance Units made to any
such Eligible Employees, to make all  determinations which the Committee is authorized to make with respect to such  Award under the provisions of Section 7(a)(i),(ii) and (iii), Section 7(e) and  Section 7(g)(i); and (v) with respect to any Awards made to any such Eligible  Employees pursuant to the CEO’s exercise of the authority granted to him under  this Section 14(d), to exercise all of the authority and powers granted to the  Committee under (b) above and under the second paragraph of (e) below, but only  to the extent that any such exercise by the CEO is not inconsistent with any  action taken by the Compensation Committee, or with any determination, decision  or interpretation of the Plan made by the Compensation Committee, under (b)  above or any delegation made by the Compensation Committee under the second  paragraph of (e) below.

 

          Except  for the matters specified in the foregoing paragraph and any additional matters  pertaining to Awards to Eligible Employees who are not Elected Officers with  respect to which authority has been granted to the CEO pursuant to (e) below,  the CEO shall not have any of the authority or powers otherwise granted to the  Committee under any other provisions of the Plan.

 

          The  Compensation Committee in its discretion may at any time, by resolution duly  adopted by it and without any amendment of the Plan, revoke or modify in any  manner or respect the authority and powers granted to the CEO under this  Section 14(d).

 

          (e)        Delegation.  In addition to the authority and powers  granted to the CEO under (d) above, the Compensation Committee in its  discretion may, by resolution duly adopted by it, delegate to the CEO authority  with respect to such other matters pertaining to Awards to Eligible Employees  who are not Elected Officers as the Compensation Committee may specify in such  resolution.  Any authority so delegated  to the CEO may be revoked or modified by the Compensation Committee, in whole  or in part, at any time.

 

          The  Committee may delegate any ministerial or nondiscretionary function pertaining  to the administration of the Plan to any one or more officers or other  employees of the Corporation or any of its Affiliated Companies.

 

22

 

          (f)        Non-U.S.  Participants. In order to comply with any applicable provisions of local  law and regulations in any foreign country in which the Corporation or any of  its Affiliated Companies operates, the Committee may in its sole discretion (i)  modify the terms and conditions of Awards granted under the Plan to Eligible  Employees located in such foreign country, (ii) establish subplans with such  modifications to the terms of the Plan as it determines to be necessary or  appropriate under the circumstances applicable in such foreign country, or  (iii) take any other action that it deems necessary or appropriate in order to  comply with, or obtain any exemptions from the applicability of, the local laws  and regulations in such foreign country.

 

15.     Designation  and Change of Beneficiary

 

          Each  Participant shall file with the Committee, or with such employee of the  Corporation who has been designated by the Committee to receive same, a written  designation of one or more persons as the Beneficiary who shall be entitled to  receive any Shares or cash amount payable under the Plan upon or after the  Participant’s death.  A Participant may,  from time to time, revoke or change his or her Beneficiary designation without  the consent of any previously designated Beneficiary by filing a new  designation with the Committee or its designee.  The last such designation received by the Committee or its  designee shall  be controlling; provided, however, that no designation, or  change or revocation thereof, shall be effective unless received by the  Committee prior to the Participant’s death, and in no event shall it be  effective as of a date prior to such
receipt.   If at the date of a Participant’s death, there is no designation of a  Beneficiary in effect for the Participant pursuant to the provisions of this  Section 15, or if no Beneficiary designated by the Participant in  accordance with the provisions hereof survives to receive any Shares or cash  amount payable under the Plan with respect to the Participant after his or  death, the Participant’s estate shall be treated as the Participant’s  Beneficiary for purposes of the Plan.

 

16.     Amendment or  Termination

 

          The  Board of Directors may, with prospective or retroactive effect, amend, suspend  or terminate the Plan or any portion thereof at any time; provided, however,  that (a) no amendment, suspension or termination of the Plan shall adversely  affect the rights of any Participant with respect to any Awards previously  granted to the Participant without his or her written consent, and (b) no  amendment which constitutes a “material revision” of the Plan, as the term  material revision is defined in the applicable rules of the New York Stock  Exchange, shall be effective unless approved by the shareholders of the  Corporation in the manner required by such rules and by applicable law.

 

17.     General  Provisions

 

          (a)        Rights  of Participants.  A Participant’s  rights and interests under the Plan shall be subject to the following  provisions:

 

	
   

  	
             (i)        A    Participant shall have the status of a general unsecured creditor of the    Corporation with respect to his or her right to receive any payment under the    Plan.  The Plan shall constitute a    mere promise by the Corporation or the applicable Affiliated Company to make    payments in the future of the benefits provided for herein.  It is 

  

 

23

 

	
   

  	
  intended    that the arrangements reflected in the Plan be treated as unfunded for tax    purposes, as well as for purposes of any applicable provisions of Title I of    ERISA.

  
	
   

  	
   

  
	
   

  	
             (ii)       Neither    the Plan nor any action taken hereunder shall be construed as giving any    Participant any right to be retained in the employment of the Corporation or    any of its Affiliated Companies, or shall interfere with the right of the    Corporation or any of its Affiliated Companies with whom the Participant is    employed to terminate the Participant’s employment at any time subject,    however, to the Participant’s rights under any employment contract in effect    between the Participant and the Corporation or any of its Affiliated    Companies.

  
	
   

  	
   

  
	
   

  	
             (iii)      No    Award made to a Participant under the Plan, and no payment made with respect    to such Award, shall be considered as compensation under any employee benefit    plan of the Corporation or any of its Affiliated Companies, except as    specifically provided in such plan or as otherwise determined by the Board of    Directors.

  

 

          (b)        Successors.  The obligations of the Corporation under the  Plan shall be binding upon any successor corporation or organization resulting  from the merger, consolidation or other reorganization of the Corporation, or  upon any successor corporation or organization succeeding to substantially all  of the assets and business of the Corporation.   The Corporation agrees that it will make appropriate provision for the  preservation of Participants’ rights under the Plan in any agreement or plan  which it may enter into or adopt to effect any such merger, consolidation,  reorganization or transfer of assets.

 

          The  provisions of the Plan and the terms and conditions contained in the instrument  evidencing any Award made to a Participant hereunder shall be binding upon the  Participant, his or her successors and permitted transferees.

 

          (c)        Governing  Law.  The Plan shall be governed by  and construed in accordance with the laws of the State of New York.

 

16.     Effective  Date

 

          The  Plan was adopted on September 17, 2004 by the Board of Directors, subject,  however, to approval by the shareholders of the Corporation, in accordance with  the requirements of the New York Stock Exchange and applicable law, at the 2004  annual meeting of the Corporation’s shareholders including any adjournment  thereof.  The effective date of the Plan  shall be the date of such approval by the Corporation’s shareholders, and no  Awards may be granted hereunder prior to such date.

 

24FLIP form8k 03-08-2006 EX 10.1

    EXHIBIT
      10.1

    

    

    CERTIFICATE
      OF DESIGNATION 

     

    SERIES
      B
      CONVERTIBLE PREFERRED STOCK 

     

     

    

    ($.001
      Par Value) 

    

    of
      

    

    FTS
      GROUP, INC. 

     

       

    Section
      1. Designation
      and Amount.
      The
      shares of such series shall be designated as “Series B Convertible Preferred
      Stock” and the number of shares constituting such series shall be 1,000,000.
      Such number of shares may be increased or decreased by resolution of the Board
      of Directors; provided,
      however,
      that no
      decrease shall reduce the number of shares of Series B Convertible Preferred
      Stock to a number less than the number of shares then outstanding plus the
      number of shares reserved for issuance upon the exercise of outstanding options,
      rights or warrants or upon the conversion of any outstanding securities issued
      by the Corporation convertible into Series B Convertible Preferred Stock.

     

    Section
      2. Dividends.
      The
      holders of shares of Series B Convertible Preferred Stock shall not be entitled
      to receive dividends, whether in cash, property,
      or shares of the corporation's capital stock. 

      

    Section
      3.No
      Voting Rights.
      The
      holders of shares of Series B Convertible Preferred Stock shall have no voting
      rights.

     

    Section
      5. Reacquired
      Shares.
      Any
      shares of Series B Convertible Preferred Stock purchased or otherwise acquired
      by the Corporation in any manner whatsoever shall be retired and cancelled
      promptly after the acquisition thereof. All such shares shall upon their
      cancellation become authorized but unissued shares of Preferred Stock and may
      be
      reissued as part of a new series of Preferred Stock to be created by resolution
      or resolutions of the Board of Directors, subject to the conditions and
      restrictions on issuance set forth herein. 

     

    Section
      6. Liquidation,
      Dissolution on Winding Up.
      (A)
      Upon
      any liquidation (voluntary or otherwise), dissolution or winding up of the
      Corporation, holders of Series B Convertible Preferred Stock will receive their
      pro rata share of the total value of the assets and funds of the Corporation
      to
      be distributed, assuming the conversion of Series B Convertible Preferred Stock
      to Common Stock. 

     

    (B)
      Neither the consolidation, merger or other business combination of the
      Corporation with or into any other corporation the sale, lease, exchange or
      conveyance of all or any part of the property, assets or business of the
      Corporation shall be deemed to be a liquidation, dissolution or winding up
      of
      the Corporation for purposes of this Section 6. 

     

    Section
      7. Consolidation,
      Merger, etc.
      In case
      the Corporation shall enter into any consolidation, merger, combination or
      other
      transaction in which the shares of Common Stock are exchanged for or changed
      into other stock or securities, cash and/or any other property, then in any
      such
      case the shares of Series B Convertible Preferred Stock shall at the same time
      be similarly exchanged or changed in an amount per share (subject to the
      provision for adjustment hereinafter set forth) into which or for which each
      share of Common Stock is changed or exchanged. In the event the Corporation
      shall at any time declare or pay any dividend on Common Stock payable in shares
      of Common Stock, or effect a subdivision, combination or consolidation of the
      outstanding Common Stock (by reclassification or otherwise than by payment
      of a
      dividend in shares of Common Stock) into a greater or lesser number of shares
      of
      Common Stock, then in each such case the amount set forth in the preceding
      sentence with respect to the exchange or change of shares of Series B
      Convertible Preferred Stock shall be adjusted by multiplying such amount by
      a
      fraction the numerator of which is the number of shares of Common Stock
      outstanding immediately after such event and the denomination of which is the
      number of shares of Common Stock that were outstanding immediately prior to
      such
      event. 

     

    Section
      8.
      Redemption.
      After
      June 1, 2006, the shares of Series B Convertible Preferred Stock shall be
      redeemable at $2.00 per share solely at the Company’s option. 

     

    Section
      9. Amendment.
      The
      Certificate of Incorporation, as amended, of the Corporation shall not be
      further amended in any manner which would materially alter or change the powers,
      preferences or special rights of the Series B Convertible Preferred Stock so
      as
      to affect them adversely without the affirmative vote of the holders of at
      least
      fifty percent of the outstanding shares of Series B Convertible Preferred Stock,
      voting together as a single class. 

     

    Section
      10. Fractional
      Shares.
      Series
      B Convertible Preferred Stock may be issued in fractions of a share which shall
      entitle the holder, in proportion to such holder’s fractional shares, to
      exercise voting rights, participate in distributions and to have the benefit
      of
      all other rights of holders of Series B Convertible Preferred Stock.

    

    Section
      11. Conversion.
      The
      holders of the Series B Convertible Preferred Stock shall have the following
      rights with respect to the conversion of the Series B Convertible Preferred
      Stock into shares of Common Stock (the "Conversion Rights"):

    

    (A)
      Conversion. Subject to and in compliance with the provisions of this Section
      11,
      any shares of Series B Convertible Preferred Stock may, at any time after
      January 3rd,
      2008,
      at the option of the holder or the Corporation, be converted into fully paid
      and
      nonassessable shares of Common Stock (a "Conversion”). The number of shares of
      Common Stock to which a holder of Series B Convertible Preferred Stock shall
      be
      entitled upon a Conversion shall be the product obtained by multiplying the
      number of shares of Series B Convertible Preferred Stock being converted by
      twenty-five (25), subject to adjustment as set forth in this Section
      11.

    

    (B)
      Mechanics of the Conversion. Upon a Conversion, the holder of Series B
      Convertible Preferred Stock shall surrender the applicable certificate or
      certificates therefore, duly endorsed, at the office of the Corporation or
      any
      transfer agent for the Series B Convertible Preferred Stock, and, shall give
      written notice to the Corporation of the Conversion and the number of shares
      of
      Series B Convertible Preferred Stock being converted. Thereupon, the Corporation
      shall promptly issue and deliver to such holder a certificate or certificates
      for the number of shares of Common Stock to which such holder is
      entitled.

    

    (C)
      Adjustment for Reclassification, Exchange and Substitution. If at any time
      or
      from time to time after the Common Stock issuable upon the conversion of the
      Series B Convertible Preferred Stock is changed into the same or a different
      number of shares of any class or classes of stock, whether by recapitalization,
      reclassification or otherwise (other than a transaction provided for elsewhere
      in this Section 11), in any such event each holder of Series B Convertible
      Preferred Stock shall have the right, but not the obligation, thereafter to
      convert such stock into the kind and amount of stock and other securities and
      property receivable upon such recapitalization, reclassification or other change
      by holders of the maximum number of shares of Common Stock into which such
      shares of Series B Convertible Preferred Stock could have been converted
      immediately prior to such recapitalization, reclassification or change, all
      subject to further adjustment as provided herein or with respect to such other
      securities or property by the terms thereof.

    

    (D)
      Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time
      or
      from time to time after the date of issuance of the Series B Convertible
      Preferred Stock , there is a capital reorganization of the Common Stock (other
      than a transaction provided for elsewhere in this Section 11), as a part of
      such
      capital reorganization, provision shall be made so that the holders of the
      Series B Convertible Preferred Stock shall thereafter be entitled to receive
      upon conversion of the Series B Convertible Preferred Stock the number of shares
      of stock or other securities or property of the Corporation to which a holder
      of
      the number of shares of Common Stock deliverable upon conversion would have
      been
      entitled on such capital reorganization, subject to adjustment in respect of
      such stock or securities by the terms thereof.

    

    (E)
      Fractional Shares. Any fractional share resulting from the conversion of the
      Series B Convertible Preferred Stock may be rounded up to the nearest whole
      share at the discretion of the Corporation.

    

    (F)
      Reservation of Stock Issuable Upon Conversion. The Corporation shall at all
      times after June 1, 2006, reserve and keep available out of its authorized
      but
      unissued shares of Common Stock, solely for the purpose of effecting the
      conversion of the shares of the Series B Convertible Preferred Stock , such
      number of its shares of Common Stock as shall from time to time be sufficient
      to
      effect the conversion of all outstanding shares of the Series B Convertible
      Preferred Stock . If at any time the number of authorized but unissued shares
      of
      Common Stock shall not be sufficient to effect the conversion of all then
      outstanding shares of the Series B Convertible Preferred Stock, the Corporation
      will take such corporate action as may, in the opinion of its counsel, be
      necessary to increase its authorized but unissued shares of Common Stock to
      such
      number of shares as shall be sufficient for such purpose.

    

    Section
      12 Notices.
      Any
      notice required by the provisions of this Certificate of Designation shall
      be in
      writing and shall be deemed effectively given: (i) upon personal delivery to
      the
      party to be notified, (ii) when sent by confirmed telex or facsimile if sent
      during normal business hours of the recipient; if not, then on the next business
      day, (iii) three (3) days after having been sent by registered or certified
      mail, return receipt requested, postage prepaid, or (iv) one (1) day after
      deposit with a nationally recognized overnight courier, specifying next day
      delivery, with written verification of receipt. All notices shall be addressed
      to each holder of record at the address of such holder appearing on the books
      of
      the Corporation.

    

    Section
      13. No
      Impairment.
      The
      Corporation will not, by amendment of its Amended and Restated Certificate
      of
      Incorporation, as amended, or through any reorganization, recapitalization,
      transfer of assets, consolidation, merger, dissolution, issue or sale of
      securities or any other voluntary action, avoid or seek to avoid the observance
      or performance of any of the terms to be observed or performed hereunder by
      the
      Corporation but will at all times in good faith assist in the carrying out
      of
      all the provisions of this Certificate of Designation and in the taking of
      all
      such action as may be necessary or appropriate in order to protect the
      Conversion Rights of the holder of the Series B Convertible Preferred Stock
      against impairment. 

    

    IN
      WITNESS WHEREOF, said FTS Group, Inc. has caused this Certificate of Designation
      to be signed by its duly authorized officer this 8th  day of March ,
      2006. 

     

    
      	
              FTS
                GROUP, INC.

            
	 	 	 
	
              By

            	
               

            	
               
                /s/
                Scott Gallagher

            
	
               

            	
               

            	
               

              Scott
                Gallagher,

              Chief
                Executive Officer

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