Document:

exv10w117

 

EXHIBIT 10.117

VERSAR, INC.

2005 STOCK INCENTIVE PLAN

1.  Establishment, Purpose, and Types of Awards

     Versar, Inc. (the “Company”) hereby establishes this equity-based incentive compensation plan
to be known as the “Versar, Inc. 2005 Stock Incentive Plan” (hereinafter referred to as the
“Plan”), in order to provide incentives and awards to select employees and directors of the Company
and its Affiliates.

     The Plan permits the granting of the following types of awards (“Awards”), according to the
Sections of the Plan listed here:

	 	 	 	 	 
	 

	 	Section 6
	 	Options
	 

	 	Section 7
	 	Share Appreciation Rights
	 

	 	Section 8
	 	Restricted Shares and Restricted Share Units
	 

	 	Section 9
	 	Deferred Share Units
	 

	 	Section 10
	 	Performance Awards

     The Plan is not intended to affect and shall not affect any stock options, equity-based
compensation, or other benefits that the Company or its Affiliates may have provided, or may
separately provide in the future pursuant to any agreement, plan, or program that is independent of
this Plan.

2.  Defined Terms

     Terms in the Plan that begin with an initial capital letter have the defined meaning set forth
in Appendix A, unless defined elsewhere in this Plan or the context of their use clearly indicates
a different meaning.

3. Shares Subject to the Plan

     Subject to the provisions of Section 13 of the Plan, the maximum number of Shares that the
Company may issue for all Awards is 400,000 Shares, subject to the limitation set forth in Section
5(c). For all Awards, the Shares issued pursuant to the Plan may be authorized but unissued
Shares, or Shares that the Company has reacquired or otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is forfeited, is cancelled,
or becomes unexercisable, and Shares that are for any other reason not paid or delivered under the
Plan shall again, except to the extent prohibited by Applicable Law, be available for subsequent
Awards under the Plan. Notwithstanding the foregoing, but subject to adjustments pursuant to
Section 13 below, the number of Shares that are available for ISO Awards shall be determined, to
the extent required under applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares issued pursuant to Awards, provided that any Shares
that are issued under the Plan and forfeited back to the Plan shall be available for issuance
pursuant to future ISO Awards.

4.  Administration

     (a) General. The Committee shall administer the Plan in accordance with its terms,
provided that the Board may act in lieu of the Committee on any matter. The Committee shall hold
meetings at such times and places as it may determine and shall make such rules and regulations for
the conduct of its business as it deems advisable.

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In the absence of a duly appointed Committee or
if the Board otherwise chooses to act in lieu of the Committee, the Board shall function as the
Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the Committee. If
and to the extent permitted by Applicable Law, the Committee may authorize one or more Reporting
Persons (or other officers) to make Awards to Eligible Persons who are not Reporting Persons (or
other officers whom the Committee has specifically authorized to make Awards). The Board may at
any time appoint additional members to the Committee, remove and replace members of the Committee
with or without Cause, and fill vacancies on the Committee however caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the Committee
shall have the authority, in its sole discretion:

     (i) to determine Eligible Persons to whom Awards shall be granted from time
to time and the number of Shares, units, or SARs to be covered by each Award;

     (ii) to determine, from time to time, the Fair Market Value of Shares;

     (iii) to determine, and to set forth in Award Agreements, the terms and
conditions of all Awards, including any applicable exercise or purchase price, the
installments and conditions under which an Award shall become vested (which may be based on
performance), terminated, expired, cancelled, or replaced, and the circumstances for
vesting acceleration or waiver of forfeiture restrictions, and other restrictions and
limitations;

     (iv) to approve the forms of Award Agreements and all other documents,
notices and certificates in connection therewith which need not be identical either as to
type of Award or among Participants;

     (v) to construe and interpret the terms of the Plan and any Award Agreement,
to determine the meaning of their terms, and to prescribe, amend, and rescind rules and
procedures relating to the Plan and its administration;

     (vi) in order to fulfill the purposes of the Plan and without amending the
Plan, modify, cancel, or waive the Company’s rights with respect to any Awards, to adjust or
to modify Award Agreements for changes in Applicable Law, and to recognize differences in
foreign law, tax policies, or customs; and

     (vii) to make all other interpretations and to take all other actions that
the Committee may consider necessary or advisable to administer the Plan or to effectuate
its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may
delegate administrative functions to individuals who are Reporting Persons, officers, or Employees
of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the discretion
to interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems
to be appropriate in its sole discretion, and to make any findings of fact needed in the
administration of the Plan or Award Agreements. The Committee’s prior exercise of its
discretionary authority shall not obligate it to exercise its authority in a like fashion
thereafter. The Committee’s interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The validity of any such
interpretation, construction, decision or finding of fact shall not be given de novo review if
challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly
arbitrary or capricious.

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     (e) No Liability; Indemnification. Neither the Board nor any Committee member, nor
any Person acting at the direction of the Board or the Committee, shall be liable for any act,
omission, interpretation, construction or determination made in good faith with respect to the
Plan, any Award or any Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who takes action in
connection with the Plan, for all expenses incurred with respect to the Plan, and to the full
extent allowable under Applicable Law shall indemnify each and every one of them for any claims,
liabilities, and costs (including reasonable attorney’s fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain liability
insurance for this purpose.

5.  Eligibility

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a “parent corporation” or
“subsidiary corporation” within the meaning of Section 424 of the Code, and may grant all other
Awards to any Eligible Person. A Participant who has been granted an Award may be granted an
additional Award or Awards if the Committee shall so determine, if such person is otherwise an
Eligible Person and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the Committee
shall determine from the class of Eligible Persons those individuals to whom Awards under the Plan
may be granted, the number of Shares subject to each Award, the price (if any) to be paid for the
Shares or the Award and, in the case of Performance Awards, in addition to the matters addressed in
Section 10 below, the specific objectives, goals and performance criteria that further define the
Performance Award. Each Award shall be evidenced by an Award Agreement signed by the Company and,
if required by the Committee, by the Participant. The Award Agreement shall set forth the material
terms and conditions of the Award established by the Committee.

     (c) Limits on Awards. During the term of the Plan, no single Participant may
receive Awards that in the aggregate relate to more than 100,000 Shares. The Committee will adjust
this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any associated
Stockholder approval requirements), the Committee may, in its sole discretion and upon such terms
as it deems appropriate, require as a condition of the grant of an Award to a Participant that the
Participant surrender for cancellation some or all of the Awards that have previously been granted
to the Participant under this Plan or otherwise. An Award that is conditioned upon such surrender
may or may not be the same type of Award, may cover the same (or a lesser or greater) number of
Shares as such surrendered Award, may have other terms that are determined without regard to the
terms or conditions of such surrendered Award, and may contain any other terms that the Committee
deems appropriate. In the case of Options, these other terms may not involve an Exercise Price
that is lower than the Exercise Price of the surrendered Option unless the Company’s stockholders
approve the grant itself or the program under which the grant is made pursuant to the Plan.

6.  Option Awards

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to any
Employee and Non-ISOs to any Eligible Person, and shall evidence any such grants in an Award
Agreement that is delivered to the Participant. Each Option shall be designated in the Award
Agreement as an ISO or a Non-ISO, and the same Award Agreement may grant both types of Options. At
the sole discretion of the Committee, any Option may be exercisable, in whole or in part,
immediately upon the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may contain such terms
and provisions not inconsistent with the Plan that the Committee shall deem advisable in its sole
and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market Value of
Shares with respect to which Options designated as ISOs first become exercisable by a Participant
in any calendar year (under this Plan and any other plan of the Company or any Affiliate) exceeds
$100,000, such excess Options shall be treated

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as Non-ISOs. For purposes of determining whether
the $100,000 limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall be
determined as of the Grant Date. In reducing the number of Options treated as ISOs to meet the
$100,000 limit, the most recently granted Options shall be reduced first. In the event that
Section 422 of the Code is amended to alter the limitation set forth therein, the limitation of
this Section 6(b) shall be automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end of which
the Option automatically expires, subject to earlier termination provisions contained in Section
6(h) hereof; provided, that, the term of any Option may not exceed ten years from the Grant Date;
provided that the term of any ISO granted to an Employee who is a Ten Percent Holder on the Grant
Date shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by the
Committee in its discretion and shall be set forth in the Award Agreement, provided that (i) if an
ISO is granted to an Employee who on the Grant Date is a Ten Percent Holder, the per Share exercise
price shall not be less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100% of the Fair Market
Value per Share on the Grant Date. Neither the Company nor the Committee shall, without
stockholder approval, allow for a repricing of Options within the meaning of the federal securities
laws and the rules and regulations of the American Stock Exchange.

     (e) Exercise of Option. The Committee shall in its sole discretion determine the
times, circumstances, and conditions under which an Option shall be exercisable, and shall set them
forth in the Award Agreement. The Committee shall have the discretion to determine whether and to
what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided,
however, that in the absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a fraction of
a Share. The Committee may require in an Award Agreement that an Option be exercised as to a
minimum number of Shares, provided that such requirement shall not prevent a Participant from
purchasing the full number of Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of the
applicable Award Agreement, and subject to the times, circumstances and conditions for exercise
contained in the applicable Award Agreement, each Option may be exercised, in whole or in part
(provided that the Company shall not be required to issue fractional shares), by delivery of
written notice of exercise to the secretary of the Company accompanied by the full exercise price
of the Shares being purchased. In the case of an ISO, the Committee shall determine the acceptable
methods of payment on the Grant Date and shall include such methods in the applicable Award
Agreement. The methods of payment that the Committee may in its discretion accept or commit to
accept in an Award Agreement include:

     (i) cash or check payable to the Company (in U.S. dollars);

     (ii) other Shares that (A) are owned by the Participant who is purchasing
Shares pursuant to an Option, (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which the Option is being exercised, (C)
were not acquired by such Participant pursuant to the exercise of an Option, unless such
Shares have been owned by such Participant for at least six months or such other period as
the Committee may determine, (D) are all, at the time of such surrender, free and clear of
any and all claims, pledges, liens and encumbrances, or any restrictions which would in any
manner restrict the transfer of such shares to or by the Company (other than such
restrictions as may have existed prior to an issuance of such Shares by the Company to such
Participant), and (E) are duly endorsed for transfer to the Company;

     (iii) a cashless exercise program that the Committee may approve, from time
to time in its discretion, pursuant to which a Participant may concurrently provide
irrevocable instructions (A) to such

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Participant’s broker or dealer to effect the immediate
sale of the purchased Shares and remit to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the exercise price of the Option plus all
applicable taxes required to be withheld by the Company by reason of such exercise, and (B)
to the Company to deliver the certificates for the purchased Shares directly to such broker
or dealer in order to complete the sale;

     (iv) a promissory note in a principal amount equal to the exercise price and
otherwise in a form and with such terms as are approved by the Committee or cancellation of
other indebtedness, provided no executive officer or director of the Company shall be
permitted to pay any portion of an Option exercise price by issuance of a promissory note;
or

     (v) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the exercise of an Option
until payment of the full exercise price therefore is received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set forth in
the applicable Award Agreement the terms and conditions on which an Option shall remain
exercisable, if at all, following termination of a Participant’s Continuous Service. The Committee
may waive or modify these provisions at any time. To the extent that a Participant is not entitled
to exercise an Option at the date of his or her termination of Continuous Service, or if the
Participant (or other person entitled to exercise the Option) does not exercise the Option to the
extent so entitled within the time specified in the Award Agreement or below (as applicable), the
Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert
to the Plan and become available for future Awards. In no event may any Option be exercised after
the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an Option shall terminate when there is a termination of a
Participant’s Continuous Service:

     (i)  Termination other than Upon Disability, Death or Retirement or for
Cause. In the event of termination of a Participant’s Continuous Service (other than as
a result of Participant’s death, disability, retirement or termination for Cause), the
Participant shall have the right to exercise an Option at any time within 90 days following
such termination to the extent the Participant was entitled to exercise such Option at the
date of such termination.

     (ii)  Disability. In the event of termination of a Participant’s
Continuous Service as a result of his or her being Disabled, the Participant shall have the
right to exercise an Option at any time within one year following such termination to the
extent the Participant was entitled to exercise such Option at the date of such termination.

     (iii)  Retirement. In the event of termination of a Participant’s
Continuous Service as a result of Participant’s retirement, the Participant shall have the
right to exercise the Option at any time within six months following such termination to the
extent the Participant was entitled to exercise such Option at the date of such termination.

     (iv)  Death. In the event of the death of a Participant during the
period of Continuous Service since the Grant Date of an Option, or within thirty days
following termination of the Participant’s Continuous Service, the Option may be exercised,
at any time within one year following the date of the Participant’s death, by the
Participant’s estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the right to exercise the Option had vested at the
date of death or, if earlier, the date the Participant’s Continuous Service terminated.

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     (v)  Cause. If the Committee determines that a Participant’s
Continuous Service terminated due to Cause, the Participant shall immediately forfeit the
right to exercise any Option, and it shall be considered immediately null and void.

     (i) Reverse Vesting. The Committee in its sole and absolute discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued shall be Restricted
Shares having analogous vesting restrictions to the unvested Options.

7.  Share Appreciate Rights (SARs)

     (a) Grants. The Committee may in its discretion grant Share Appreciation Rights to
any Eligible Person, in any of the following forms:

     (i)  SARs related to Options. The Committee may grant SARs either
concurrently with the grant of an Option or with respect to an outstanding Option, in which
case the SAR shall extend to all or a portion of the Shares covered by the related Option.
An SAR shall entitle the Participant who holds the related Option, upon exercise of the SAR
and surrender of the related Option, or portion thereof, to the extent the SAR and related
Option each were previously unexercised, to receive payment of an amount determined pursuant
to Section 7(e) below. Any SAR granted in connection with an ISO will contain such terms as
may be required to comply with the provisions of Section 422 of the Code and the regulations
promulgated thereunder.

     (ii)  SARs Independent of Options. The Committee may grant SARs which
are independent of any Option subject to such conditions as the Committee may in its
discretion determine, which conditions will be set forth in the applicable Award Agreement.

     (iii)  Limited SARs. The Committee may grant SARs exercisable only
upon or in respect of a Change in Control or any other specified event, and such limited
SARs may relate to or operate in tandem or combination with or substitution for Options or
other SARs, or on a stand-alone basis, and may be payable in cash or Shares based on the
spread between the exercise price of the SAR, and (A) a price based upon or equal to the
Fair Market Value of the Shares during a specified period, at a specified time within a
specified period before, after or including the date of such event, or (B) a price related
to consideration payable to Company’s stockholders generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be determined in
the sole discretion of the Committee, shall be set forth in the applicable Award Agreement, and
shall be no less than 100% of the Fair Market Value of one Share. The exercise price of an SAR
related to an Option shall be the same as the exercise price of the related Option. The exercise
price of an SAR shall be subject to the special rules on pricing contained in Sections 6(d).
Neither the Company nor the Committee shall, without stockholder approval, allow for a repricing of
SARs within the meaning of federal securities laws or the rules and regulations of the American
Stock Exchange.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR related
to an Option will be exercisable at such time or times, and to the extent, that the related Option
will be exercisable; provided that the Award Agreement shall not, without the approval of the
stockholders of the Company, provide for a vesting period for the exercise of the SAR that is more
favorable to the Participant than the exercise period for the related Option. An SAR may not have
a term exceeding ten years from its Grant Date. An SAR granted independently of any other Award
will be exercisable pursuant to the terms of the Award Agreement. Whether an SAR is related to an
Option or is granted independently, the SAR may only be exercised when the Fair Market Value of the
Shares underlying the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs to be settled in shares of the Company’s
stock shall be counted in full against the number of shares available for award under the Plan,
regardless of the number of shares actually issued upon settlement of the SARs.

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     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will be entitled to
receive payment of an amount determined by multiplying –

     (i) the excess of the Fair Market Value of a Share on the date of exercise of
the SAR over the exercise price per Share of the SAR, by

     (ii) the number of Shares with respect to which the SAR has been exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option (i) may limit the
amount payable to the Participant to a percentage, specified in the Award Agreement but not
exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence,
and (ii) shall be subject to any payment or other restrictions that the Committee may at any time
impose in its discretion, including restrictions intended to conform the SARs with Section 409A of
the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee may, in its
sole discretion, settle the amount determined under Section 7(e) above solely in cash, solely in
Shares (valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash
and partly in Shares. In any event, cash shall be paid in lieu of fractional Shares. Absent a
contrary determination by the Committee, all SARs shall be settled in cash as soon as practicable
after exercise. Notwithstanding the foregoing, the Committee may, in an Award Agreement, determine
the maximum amount of cash or Shares or combination thereof that may be delivered upon exercise of
an SAR.

     (g) Termination of Employment or Consulting Relationship. The Committee shall
establish and set forth in the applicable Award Agreement the terms and conditions on which an SAR
shall remain exercisable, if at all, following termination of a Participant’s Continuous Service.
The provisions of Section 6(h) above shall apply to the extent an Award Agreement does not specify
the terms and conditions upon which an SAR shall terminate when there is a termination of a
Participant’s Continuous Service.

8.  Restricted Shares and Restricted Share Units

     (a) Grants. The Committee may in its discretion grant restricted shares
(“Restricted Shares”) to any Eligible Person and shall evidence such grant in an Award Agreement
that is delivered to the Participant and that sets forth the number of Restricted Shares, the
purchase price for such Restricted Shares (if any), and the terms upon which the Restricted Shares
may become vested. In addition, the Company may in its discretion grant the right to receive
Shares after certain vesting requirements are met (“Restricted Share Units”) to any Eligible Person
and shall evidence such grant in an Award Agreement that is delivered to the Participant which sets
forth the number of Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to receive upon vesting
and the terms upon which the Shares subject to a Restricted Share Unit may become vested. The
Committee may condition any Award of Restricted Shares or Restricted Share Units to a Participant
on receiving from the Participant such further assurances and documents as the Committee may
require to enforce the restrictions.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award Agreement
granting Restricted Shares or Restricted Share Units, the terms and conditions under which the
Participant’s interest in the Restricted Shares or the Shares subject to Restricted Share Units
will become vested and non-forfeitable. Except as set forth in the applicable Award Agreement or
the Committee otherwise determines, upon termination of a Participant’s Continuous Service for any
other reason, the Participant shall forfeit his or her Restricted Shares and Restricted Share
Units; provided that if a Participant purchases the Restricted Shares and forfeits them for any
reason, the Company shall return the purchase price to the Participant only if and to the extent
set forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue stock
certificates that evidence Restricted Shares pending the lapse of applicable restrictions, and that
bear a legend making appropriate

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reference to such restrictions. Except as set forth in the
applicable Award Agreement or the Committee otherwise determines, the Company or a third party that
the Company designates shall hold such Restricted Shares and any dividends that accrue with respect
to Restricted Shares pursuant to Section 8(e) below.

     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting of a
Participant’s Restricted Shares (or Shares underlying Restricted Share Units) and the Participant’s
satisfaction of applicable tax withholding requirements, the Company shall release to the
Participant, free from the vesting restrictions, one Share for each vested Restricted Share (or
issue one Share free of the vesting restriction for each vested Restricted Share Unit), unless an
Award Agreement provides otherwise. No fractional shares shall be distributed, and cash shall be
paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a Participant
under Section 8(d) above pursuant to the vesting of Restricted Shares or the Shares underlying
Restricted Share Units are issued to a Participant pursuant to Section 8(d) above, such Participant
shall receive (unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the discretion of the
Committee, simple interest at a rate as the Committee may determine) and a number of Shares equal
to any stock dividends, which were declared and paid to the holders of Shares between the Grant
Date and the date such Share is released or issued.

     (f) Section 83(b) Elections. A Participant may make an election under Section 83(b)
of the Code (the “Section 83(b) Election”) with respect to Restricted Shares. If a Participant who
has received Restricted Share Units provides the Committee with written notice of his or her
intention to make Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant’s Restricted Share Units
into Restricted Shares, on a one-for-one basis, in full satisfaction of the Participant’s
Restricted Share Unit Award. The Participant may then make a Section 83(b) Election with respect
to those Restricted Shares. Shares with respect to which a Participant makes a Section 83(b)
Election shall not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other shorter
or longer period that the Committee selects) in which a Participant who is a member of a select
group of management or highly compensated employees (within the meaning of the Code) receives an
Award of either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the Committee, to defer
the receipt of all or a percentage of the Shares that would otherwise be transferred to the
Participant upon the vesting of such Award. If the Participant makes this election, the Shares
subject to the election, and any associated dividends and interest, shall be credited to an account
established pursuant to Section 9 hereof on the date such Shares would otherwise have been released
or issued to the Participant pursuant to Section 8(d) above.

9.  Deferred Share Units

     (a) Elections to Defer. The Committee may permit any Eligible Person who is a
Director, Consultant or member of a select group of management or highly compensated employees
(within the meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the
Committee (the “Election Form”), to forego the receipt of cash or other compensation (including the
Shares deliverable pursuant to any Award other than Restricted Shares for which a Section 83(b)
Election has been made), and in lieu thereof to have the Company credit to an internal Plan account
(the “Account”) a number of deferred share units (“Deferred Share Units”) having a Fair Market
Value equal to the Shares and other compensation deferred. These credits will be made at the end
of each calendar month during which compensation is deferred. Each Election Form shall take effect
on the first day of the next calendar year (or on the first day of the next calendar month in the
case of an initial election by a Participant who is first eligible to defer hereunder) after its
delivery to the Company, subject to Section 8(g) regarding deferral of Restricted Shares and
Restricted Share Units and to Section 10(e) regarding deferral of Performance Awards, unless the
Company sends the Participant a written notice explaining why the Election Form is invalid within
five business days after the Company receives it. Notwithstanding the foregoing sentence: (i)
Election Forms shall be ineffective with respect to any compensation that a Participant earns
before the date on which the Company receives

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the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one Share for
each Deferred Share Unit in five substantially equal annual installments that are issued before the
last day of each of the five calendar years that end after the date on which the Participant’s
Continuous Service terminates, unless –

     (i) the Participant has properly elected a different form of distribution, on
a form approved by the Committee, that permits the Participant to select any combination of
a lump sum and annual installments that are completed within ten years following termination
of the Participant’s Continuous Service, and

     (ii) the Company received the Participant’s distribution election form at the
time the Participant elects to defer the receipt of cash or other compensation pursuant to
Section 9(a), provided that such election may be changed through any subsequent election
that (i) is delivered to the Administrator at least one year before the date on which
distributions are otherwise scheduled to commence pursuant to the Participant’s election,
and (ii) defers the commencement of distributions by at least five years from the originally
scheduled commencement date.

Fractional shares shall not be issued, and instead shall be paid out in cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant pursuant to
Section 9(c) above, such Participant shall also be entitled to receive, with respect to each Share
issued, a cash amount equal to any cash dividends (plus simple interest at a rate of five percent
per annum, or such other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of Shares between the
Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an unforeseeable
emergency within the contemplation of this Section and Section 409A of the Code, the Participant
may apply to the Company for an immediate distribution of all or a portion of the Participant’s
Deferred Share Units. The unforeseeable emergency must result from a sudden and unexpected illness
or accident of the Participant, the Participant’s spouse, or a dependent (within the meaning of
Section 152(a) of the Code) of the Participant, casualty loss of the Participant’s property, or
other similar extraordinary and unforeseeable conditions beyond the control of the Participant.
Examples of purposes which are not considered unforeseeable emergencies include post-secondary
school expenses or the desire to purchase a residence. In no event will a distribution be made to
the extent the unforeseeable emergency could be relieved through reimbursement or compensation by
insurance or otherwise, or by liquidation of the Participant’s nonessential assets to the extent
such liquidation would not itself cause a severe financial hardship. The amount of any
distribution hereunder shall be limited to the amount necessary to relieve the Participant’s
unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result of
the distribution. The Committee shall determine whether a Participant has a qualifying
unforeseeable emergency and the amount which qualifies for distribution, if any. The Committee may
require evidence of the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant’s right to Deferred
Share Units shall at all times constitute an unsecured promise of the Company to pay benefits as
they come due. The right of the Participant or the Participant’s duly-authorized transferee to
receive benefits hereunder shall be solely an unsecured claim against the general assets of the
Company. Neither the Participant nor the Participant’s duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the Company.

41

 

10.  Performance Awards

     (a) Performance Units. Subject to the limitations set forth in paragraph (c)
hereof, the Committee may in its discretion grant Performance Units to any Eligible Person and
shall evidence such grant in an Award Agreement that is delivered to the Participant which sets
forth the terms and conditions of the Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth in
paragraph (c) hereof, the Committee may, at the time of grant of a Performance Unit, designate such
Award as a “Performance Compensation Award” in order that such Award constitutes “qualified
performance-based compensation” under Code Section 162(m), in which event the Committee shall have
the power to grant such Performance Compensation Award upon terms and conditions that qualify it as
“qualified performance-based compensation” within the meaning of Code Section 162(m). With respect
to each such Performance Compensation Award, the Committee shall establish, in writing within the
time required under Code Section 162(m), a “Performance Period,” “Performance Measure(s)”, and
“Performance Formula(e)” (each such term being hereinafter defined).

     A Participant shall be eligible to receive payment in respect of a Performance Compensation
Award only to the extent that the Performance Measure(s) for such Award is achieved and the
Performance Formula(e) as applied against such Performance Measure(s) determines that all or some
portion of such Participant’s Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall review and certify in
writing whether, and to what extent, the Performance Measure(s) for the Performance Period have
been achieved and, if so, determine and certify in writing the amount of the Performance
Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon
such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award including any
performance Compensation Award, that Participants may receive in the aggregate for any one
Performance Period shall not exceed 100,000 Shares. The Committee shall have the discretion to
provide in any Award Agreement that any amounts earned in excess of these limitations will be
credited as Deferred Share Units. Any amounts for which payment to the Participant is deferred
pursuant to the preceding sentence shall be paid to the Participant in a future year or years not
earlier than, and only to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the restrictions set forth
under Section 162(b) of the Code.

     (d) Definitions.

     (i) “Performance Formula” means, for a Performance Period, one or more
objective formulas or standards established by the Committee for purposes of determining
whether or the extent to which an Award has been earned based on the level of performance
attained or to be attained with respect to one or more Performance Measure(s). Performance
Formulae may vary from Performance Period to Performance Period and from Participant to
Participant and may be established on a stand-alone basis, in tandem or in the alternative.

     (ii) “Performance Measure” means one or more of the following selected by the
Committee to measure Company, Affiliate, and/or business unit performance for a Performance
Period, whether in absolute or relative terms (including, without limitation, terms relative
to a peer group or index): basic, diluted, or adjusted earnings per share; sales or
revenue; earnings before interest, taxes, and other adjustments (in total or on a per share
basis); basic or adjusted net income; returns on equity, assets, capital, revenue or similar
measure; economic value added; working capital; total stockholder return; and product
development, product market share, research, licensing, litigation, human resources,
information services, mergers, acquisitions, sales of assets of Affiliates or business
units. Each such measure shall be, to the extent applicable, determined in accordance with
generally accepted accounting principles as consistently applied by the Company (or such
other standard applied by the Committee) and, if so determined by the Committee, and in the
case of a Performance Compensation Award, to the extent permitted under Code

42

 

Section 162(m),
adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a
business segment, unusual or infrequently occurring events and transactions and cumulative
effects of changes in accounting principles. Performance Measures may vary from Performance
Period to Performance Period and from Participant to Participant, and may be established on
a stand-alone basis, in tandem or in the alternative.

     (iii) “Performance Period” means one or more periods of time (of not less
than one fiscal year of the Company), as the Committee may designate, over which the
attainment of one or more Performance Measure(s) will be measured for the purpose of
determining a Participant’s rights in respect of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six months
before the close of a Performance Period (or shorter or longer period that the Committee selects)
with respect to an Award of either Performance Units or Performance Compensation, the Committee may
permit a Participant who is a member of a select group of management or highly compensated
employees (within the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If the Participant
makes this election, the Shares subject to the election, and any associated interest and dividends,
shall be credited to an account established pursuant to Section 9 hereof on the date such Shares
would otherwise have been released or issued to the Participant pursuant to Section 10(a) or
Section 10(b) above.

11.  Taxes

     (a) General. As a condition to the issuance or distribution of Shares pursuant to
the Plan, the Participant (or in the case of the Participant’s death, the person who succeeds to
the Participant’s rights) shall make such arrangements as the Company may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax obligations that
may arise in connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the Committee allows the
withholding or surrender of Shares to satisfy a Participant’s tax withholding obligations, the
Committee shall not allow Shares to be withheld in an amount that exceeds the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an Employee
shall be deemed to have directed the Company to withhold or collect from his or her cash
compensation an amount sufficient to satisfy such tax obligations from the next payroll payment
otherwise payable after the date of the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or in the
case of an Employee where the next payroll payment is not sufficient to satisfy such tax
obligations, with respect to any remaining tax obligations), in the absence of any other
arrangement and to the extent permitted under Applicable Law, the Participant shall be deemed to
have elected to have the Company withhold from the Shares or cash to be issued pursuant to an Award
that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as
defined below) or cash equal to the amount required to be withheld. For purposes of this Section
11, the Fair Market Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the Applicable Law (the “Tax Date”).

     (d) Surrender of Shares. If permitted by the Committee, in its discretion, a
Participant may satisfy the minimum applicable tax withholding and employment tax obligations
associated with an Award by surrendering Shares to the Company (including Shares that would
otherwise be issued pursuant to the Award) that have a Fair Market Value determined as of the
applicable Tax Date equal to the amount required to be withheld. In the case of Shares previously
acquired from the Company that are surrendered under this Section 11, such Shares must have been
owned by the Participant for more than six months on the date of surrender (or such longer period
of time the Company may in its discretion require).

43

 

     (e) Income Taxes and Deferred Compensation. Participants are solely responsible and
liable for the satisfaction of all taxes and penalties that may arise in connection with Awards
(including any taxes arising under Section 409A of the Code), and the Company shall not have any
obligation to indemnify or otherwise hold any Participant harmless from any or all of such taxes.
The Administrator shall have the discretion to organize any deferral program, to require deferral
election forms, and to grant or to unilaterally modify any Award in a manner that (i) conforms with
the requirements of Section 409A of the Code with respect to compensation that is deferred and that
vests after December 31, 2004, (ii) that voids any Participant election to the extent it would
violate Section 409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the earliest to occur of a
distribution event that is allowable under Section 409A of the Code or any distribution event that
is both allowable under Section 409A of the Code and is elected by the Participant, subject to any
valid second election to defer, provided that the Administrator permits second elections to defer
in accordance with Section 409A(a)(4)(C). The Administrator shall have the sole discretion to
interpret the requirements of the Code, including Section 409A, for purposes of the Plan and all
Awards.

12.  Non-Transferability of Awards

     (a) General. Except as set forth in this Section 12, or as otherwise approved by
the Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent or distribution. The designation of a
beneficiary by a Participant will not constitute a transfer. An Award may be exercised, during the
lifetime of the holder of an Award, only by such holder, the duly-authorized legal representative
of a Participant who is Disabled, or a transferee permitted by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this Section
12, the Committee may in its discretion provide in an Award Agreement that an Award other than an
ISO may be transferred, on such terms and conditions as the Committee deems appropriate, either (i)
by instrument to the Participant’s “Immediate Family” (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be passed to the
Participant’s designated beneficiaries, or (iii) by gift to charitable institutions. Any
transferee of the Participant’s rights shall succeed and be subject to all of the terms of this
Award Agreement and the Plan. “Immediate Family” means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.

13.  Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions

     (a) Changes in Capitalization. The Committee shall equitably adjust the number of
Shares covered by each outstanding Award, and the number of Shares that have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or that have been returned
to the Plan upon cancellation, forfeiture, or expiration of an Award, as well as the price per
Share covered by each such outstanding Award, to reflect any increase or decrease in the number of
issued Shares resulting from a stock-split, reverse stock-split, stock dividend, combination,
recapitalization or reclassification of the Shares, or any other increase or decrease in the number
of issued Shares effected without receipt of consideration by the Company. In the event of any
such transaction or event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of any surviving
entity) as it may in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all Options so replaced. In any case, such substitution
of securities shall not require the consent of any person who is granted Options pursuant to the
Plan. Except as expressly provided herein, or in an Award Agreement, if the Company issues for
consideration shares of stock of any class or securities convertible into shares of stock of any
class, the issuance shall not affect, and no adjustment by reason thereof shall be required to be
made with respect to the number or price of Shares subject to any award.

     (b) Dissolution or Liquidation. In the event of the dissolution or liquidation of
the Company other than as part of a Change of Control, each Award will terminate immediately prior
to the consummation of such action, subject to the ability of the Committee to exercise any
discretion authorized in the case of a Change in Control.

44

 

     (c) Change in Control. In the event of a Change in Control, the Committee may in
its sole and absolute discretion and authority, without obtaining the approval or consent of the
Company’s stockholders or any Participant with respect to his or her outstanding Awards, take one
or more of the following actions:

     (i) arrange for or otherwise provide that each outstanding Award
shall be assumed or a substantially similar award shall be substituted by a
successor corporation or a parent or subsidiary of such successor corporation (the
“Successor Corporation”);

     (ii) accelerate the vesting of Awards so that Awards shall vest (and,
to the extent applicable, become exercisable) as to the Shares that otherwise would
have been unvested and provide that repurchase rights of the Company with respect to
Shares issued upon exercise of an Award shall lapse as to the Shares subject to such
repurchase right;

     (iii) arrange or otherwise provide for the payment of cash or other
consideration to Participants in exchange for the satisfaction and cancellation of
outstanding Awards; or

     (iv) make such other modifications, adjustments or amendments to
outstanding Awards or this Plan as the Committee deems necessary or appropriate,
subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award assumed or substituted
by the Successor Corporation in a Change in Control is Involuntarily Terminated by the Successor
Corporation in connection with, or within 12 months following consummation of, the Change in
Control, then any assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in the case of
Options and SARs), and any repurchase right applicable to any Shares shall lapse in full, unless an
Award Agreement provides for a more restrictive acceleration or vesting schedule or more
restrictive limitations on the lapse of repurchase rights or otherwise places additional
restrictions, limitations and conditions on an Award. The acceleration of vesting and lapse of
repurchase rights provided for in the previous sentence shall occur immediately prior to the
effective date of the Participant’s termination, unless an Award Agreement provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the Company’s
stockholders of securities of any other entity or other assets (other than dividends payable in
cash or stock of the Company) without receipt of consideration by the Company, the Committee may,
in its discretion, appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14.  Time of Granting Awards.

     The date of grant (“Grant Date”) of an Award shall be the date on which the Committee makes
the determination granting such Award or such other date as is determined by the Committee,
provided that in the case of an ISO, the Grant Date shall be the later of the date on which the
Committee makes the determination granting such ISO or the date of commencement of the
Participant’s employment relationship with the Company.

15.  Modification of Awards and Substitution of Options.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations of the
Plan, the Committee may modify an Award to accelerate the rate at which an Option or SAR may be
exercised (including without limitation permitting an Option or SAR to be exercised in full without
regard to the installment or vesting provisions of the applicable Award Agreement or whether the
Option or SAR is at the time exercisable, to the extent it has not previously been exercised), to
accelerate the vesting of any Award, to extend or renew outstanding Awards or to accept the
cancellation of outstanding Awards to the extent not previously exercised. However, the Committee
may not cancel an outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement Award of a different type,
without stockholder approval.

45

 

Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant’s rights thereunder,
unless either the Participant provides written consent or there is an express Plan provision
permitting the Committee to act unilaterally to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or limits
under the Plan, in the event the Company or an Affiliate acquires (whether by purchase, merger or
otherwise) all or substantially all of outstanding capital stock or assets of another corporation
or in the event of any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section, substitute Options for
options under the plan of the acquired company provided (i) the excess of the aggregate fair market
value of the shares subject to an option immediately after the substitution over the aggregate
option price of such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits, including any
extension of the exercise period.

16.  Term of Plan.

     The Plan shall continue in effect for a term of ten (10) years from its effective date as
determined under Section 20 below, unless the Plan is sooner terminated under Section 17 below.

17.  Amendment and Termination of the Plan.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board may from
time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or termination of
the Plan shall materially and adversely affect Awards already granted unless either it relates to
an adjustment pursuant to Section 13 above, or it is otherwise mutually agreed between the
Participant and the Committee, which agreement must be in writing and signed by the Participant and
the Company. Notwithstanding the foregoing, the Committee may amend the Plan to eliminate
provisions which are no longer necessary as a result of changes in tax or securities laws or
regulations, or in the interpretation thereof.

18.  Conditions Upon Issuance of Shares.

     Notwithstanding any other provision of the Plan or any agreement entered into by the Company
pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure,
to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with
Applicable Law, with such compliance determined by the Company in consultation with its legal
counsel.

19.  Reservation of Shares.

     The Company, during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.

20.  Effective Date.

     This Plan shall become effective on the date of its approval by the Board; provided that this
Plan shall be submitted to the Company’s stockholders for approval, and if not approved by the
stockholders in accordance with Applicable Laws (as determined by the Committee in its discretion)
within one year from the date of approval by the Board, this Plan and any Awards shall be null,
void, and of no force and effect. Awards granted under this Plan before approval of this Plan by
the stockholders shall be granted subject to such approval, and no Shares shall be distributed
before such approval.

46

 

21.  Controlling Law.

     All disputes relating to or arising from the Plan shall be governed by the internal
substantive laws (and not the laws of conflicts of laws) of the State of Virginia, to the extent
not preempted by United States federal law. If any provision of this Plan is held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions shall continue to
be fully effective.

22.  Laws And Regulations.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise of
Options and SARs under this Plan, and the obligation of the Company to sell or deliver any of its
securities (including, without limitation, Options, Restricted Shares, Restricted Share Units,
Deferred Share Units, and Shares) under this Plan shall be subject to all Applicable Law. In the
event that the Shares are not registered under the Securities Act of 1933, as amended (the “Act”),
or any applicable state securities laws prior to the delivery of such Shares, the Company may
require, as a condition to the issuance thereof, that the persons to whom Shares are to be issued
represent and warrant in writing to the Company that such Shares are being acquired by him or her
for investment for his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of such Shares within
the meaning of the Act, and a legend to that effect may be placed on the certificates representing
the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award under
this Plan, the Committee may provide for such special terms for Awards to Participants who are
foreign nationals or who are employed by the Company or any Affiliate outside of the United States
of America as the Committee may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom. The Company may adopt rules and procedures relating to the
operation and administration of this Plan to accommodate the specific requirements of local laws
and procedures of particular countries. Without limiting the foregoing, the Company is
specifically authorized to adopt rules and procedures regarding the conversion of local currency,
taxes, withholding procedures and handling of stock certificates which vary with the customs and
requirements of particular countries. The Company may adopt sub-plans and establish escrow
accounts and trusts as may be appropriate or applicable to particular locations and countries.

     23.  No Stockholder Rights. Neither a Participant nor any transferee of a
Participant shall have any rights as a stockholder of the Company with respect to any Shares
underlying any Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company’s governing instruments
and Applicable Law. Prior to the issuance of Shares pursuant to an Award, a Participant shall not
have the right to vote or to receive dividends or any other rights as a stockholder with respect to
the Shares underlying the Award, notwithstanding its exercise in the case of Options and SARs. No
adjustment will be made for a dividend or other right that is determined based on a record date
prior to the date the stock certificate is issued, except as otherwise specifically provided for in
this Plan.

     24.  No Employment Rights. The Plan shall not confer upon any Participant any
right to continue an employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant’s right or the Company’s right to terminate the Participant’s
employment, service, or consulting relationship at any time, with or without Cause.

25.  Termination, Rescission and Recapture. 

     (a) Each Award under the Plan is intended to align the Participant’s long-term
interest with those of the Company. If the Participant engages in certain activities discussed
below, either during employment or after employment with the Company terminates for any reason, the
Participant is acting contrary to the long-term interests of the Company. Accordingly, except as
otherwise expressly provided in the Award
Agreement, the Company may terminate any outstanding,
unexercised, unexpired, unpaid, or deferred Awards (“Termination”), rescind any exercise, payment
or delivery pursuant to the Award

47

 

(“Rescission”), or recapture any Common Stock (whether restricted
or unrestricted) or proceeds from the Participant’s sale of Shares issued pursuant to the Award
(“Recapture”), if the Participant does not comply with the conditions of subsections (b) and (c)
hereof (collectively, the “Conditions”).

     (b) A Participant shall not, without the Company’s prior written authorization,
disclose to anyone outside the Company, or use in other than the Company’s business, any
proprietary or confidential information or material, as those or other similar terms are used in
any applicable patent, confidentiality, inventions, secrecy, or other agreement between the
Participant and the Company with regard to any such proprietary or confidential information or
material.

     (c) Pursuant to any agreement between the Participant and the Company with regard to
intellectual property (including but not limited to patents, trademarks, copyrights, trade secrets,
inventions, developments, improvements, proprietary information, confidential business and
personnel information), a Participant shall promptly disclose and assign to the Company or its
designee all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and interest in such
intellectual property in the United States and in any foreign country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to an
Award, the Participant shall certify on a form acceptable to the Company that he or she is in
compliance with the terms and conditions of the Plan and, if a severance of Continuous Service has
occurred for any reason, shall state the name and address of the Participant’s then-current
employer or any entity for which the Participant performs business services and the Participant’s
title, and shall identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that (i) a
Participant has violated any of the Conditions or (ii) during his or her Continuous Service, or
within one year after its termination for any reason, a Participant (a) has rendered services to or
otherwise directly or indirectly engaged in or assisted, any organization or business that, in the
judgment of the Company in its sole and absolute discretion, is or is working to become competitive
with the Company; (b) has solicited any non-administrative employee of the Company to terminate
employment with the Company; or (c) has engaged in activities which are materially prejudicial to
or in conflict with the interests of the Company, including any breaches of fiduciary duty or the
duty of loyalty, or material breach or failure to comply with any Company policy applicable to
Participant, then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant’s relevant Awards,
Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such activity,
the Participant shall deliver to the Company the Shares acquired pursuant to the Award, or, if
Participant has sold the Shares, the gain realized, or payment received as a result of the
rescinded exercise, payment, or delivery; provided, that if the Participant returns Shares that the
Participant purchased pursuant to the exercise of an Option (or the gains realized from the sale of
such Common Stock), the Company shall promptly refund the exercise price, without earnings, that
the Participant paid for the Shares. Any payment by the Participant to the Company pursuant to
this Section 25 shall be made either in cash or by returning to the Company the number of Shares
that the Participant received in connection with the rescinded exercise, payment, or delivery. It
shall not be a basis for Termination, Rescission or Recapture if after termination of a
Participant’s Continuous Service, the Participant purchases, as an investment or otherwise, stock
or other securities of such an organization or business, so long as (i) such stock or other
securities are listed upon a recognized securities exchange or traded over-the-counter, and (ii)
such investment does not represent more than a five percent (5%) equity interest in the
organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company has sole
and absolute discretion not to require Termination, Rescission and/or Recapture, and its
determination not to require Termination, Rescission and/or Recapture with respect to any
particular act by a particular Participant or Award shall not in any way reduce or eliminate the
Company’s authority to require Termination, Rescission and/or Recapture with respect to any other
act or Participant or Award. Nothing in this Section shall be construed to impose obligations on
the Participant to refrain from engaging in lawful competition with the Company after the
termination of employment

48

 

that does not violate subsections (b) or (c) of this Section, other than
any obligations that are part of any separate agreement between the Company and the Participant or
that arise under applicable law.

     (h) All administrative and discretionary authority given to the Company under this
Section shall be exercised by the most senior human resources executive of the Company or such
other person or committee (including without limitation the Committee) as the Committee may
designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this Section
is determined to be unenforceable or invalid under any applicable law, such provision will be
applied to the maximum extent permitted by applicable law, and shall automatically be deemed
amended in a manner consistent with its objectives to the extent necessary to conform to any
limitations required under applicable law. Furthermore, if any provision of this Section is
illegal under any applicable law, such provision shall be null and void to the extent necessary to
comply with applicable law.

     Notwithstanding the foregoing, but subject to any contrary terms set forth in any Award
Agreement, this Section shall not be applicable: (i) to any Participant who is not, on the Award
Date, an Employee of the Company or its Affiliates; and (ii) to any Participant from and after his
or her termination of Continuous Service after a Change in Control.

49

 

Versar, Inc.

2005 Stock Incentive Plan

 

Appendix A: Definitions

 

As used in the Plan, the following definitions shall apply:

     “Affiliate” means, with respect to any Person (as defined below), any other Person that
directly or indirectly controls or is controlled by or under common control with such Person. For
the purposes of this definition, “control,” when used with respect to any Person, means the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of such Person or the power to elect directors, whether through the ownership of voting
securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled”
have meanings correlative to the foregoing.

     “Applicable Law” means the legal requirements relating to the administration of options
and share-based plans under applicable U.S. federal and state laws, the Code, any applicable stock
exchange or automated quotation system (including the American Stock Exchange) rules or
regulations, and the applicable laws of any other country or jurisdiction where Awards are granted,
as such laws, rules, regulations and requirements shall be in place from time to time.

     “Award” means any award made pursuant to the Plan, including awards made in the form of
an Option, an SAR, a Restricted Share, a Restricted Share Unit, a Deferred Share Unit and a
Performance Award, or any combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     “Award Agreement” means any written document setting forth the terms of an Award that
has been authorized by the Committee. The Committee shall determine the form or forms of documents
to be used, and may change them from time to time for any reason.

     “Board” means the Board of Directors of the Company.

     “Cause” for termination of a Participant’s Continuous Service will exist if the
Participant is terminated from employment or other service with the Company or an Affiliate for any
of the following reasons: (i) the Participant’s willful failure to substantially perform his or her
duties and responsibilities to the Company or deliberate violation of a material Company policy;
(ii) the Participant’s commission of any material act or acts of fraud, embezzlement, dishonesty,
or other willful misconduct; (iii) the Participant’s material unauthorized use or disclosure of any
proprietary information or trade secrets of the Company or any other party to whom the Participant
owes an obligation of nondisclosure as a result of his or her relationship with the Company; or
(iv) Participant’s willful and material breach of any of his or her obligations under any written
agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a Participant is being
terminated for Cause. The Committee’s determination shall, unless arbitrary and capricious, be
final and binding on the Participant, the Company, and all other affected persons. The foregoing
definition does not in any way limit the Company’s ability to terminate a Participant’s employment
or consulting relationship at any time, and the term “Company” will be interpreted herein to
include any Affiliate or successor thereto, if appropriate.

50

 

     “Change in Control” means any of the following:

     (j) The acquisition in one or more transactions by any “Person” (as the term person
is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”)), of “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of forty percent (40%) or more of the combined voting power of the Company’s then
outstanding voting securities (the “Voting Securities”), provided, however, that for purposes of
this definition, Voting Securities acquired directly from the Company by any Person shall be
excluded from the determination of such Person’s Beneficial Ownership of Voting Securities (but
such Voting Securities shall be included in the calculation of the total number of Voting
Securities then outstanding); or

     (k) The individuals who are members of the Incumbent Board, cease for any reason to
constitute at least two-thirds of the Board; or

     (l) Approval by the stockholders of the Company of (i) a merger or consolidation
involving the Company if the stockholders of the Company immediately before such merger or
consolidation do not own, directly or indirectly, immediately following such merger or
consolidation, more than sixty percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation in substantially the same
proportion as their ownership of the Voting Securities immediately before such merger or
consolidation, or (ii) a complete liquidation or dissolution of the Company or an agreement for the
sale or other disposition of all or subsequently all of the assets of the Company.

     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because
forty percent (40%) or more of the then outstanding Voting Securities is acquired by (i) a trustee
or other fiduciary holding securities under one or more employee benefit plans maintained by the
Company or any of its Affiliates, or (ii) any corporation, which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company in the same
proportion as their ownership of stock in the Company immediately prior to such acquisition.

     Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a
Change in Control would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share acquisition by the Company,
the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Security Beneficially Owned by the Subject Person,
then a Change in Control shall occur.

     “Code” means the U.S. Internal Revenue Code of 1986, as amended.

     “Committee” means the Compensation Committee or one or more other committees or
subcommittees comprised of at least three directors of the Board appointed by the Board to
administer the Plan in accordance with Section 4 above. With respect to any decision involving an
Award intended to satisfy the requirements of Section 162(m) of the Code, the Committee shall
consist of Directors of the Company who are “outside directors” within the meaning of Section
162(m) of the Code. With respect to any decision relating to a Reporting Person, the Committee
shall consist of Directors who are non-employee directors within the meaning of Rule 16b-3.

     “Company” means Versar, Inc., a Delaware corporation; provided, however, that in the
event the Company reincorporates to another jurisdiction, all references to the term “Company”
shall refer to the Company in such new jurisdiction.

     “Consultant” means any person, including an advisor, who is engaged by the Company or
any Affiliate to render services and is compensated for such services.

51

 

     “Continuous Service” means the absence of any interruption or termination of service as
an Employee, Director, or Consultant. Continuous Service shall not be considered interrupted in
the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than 90 days, unless reemployment
upon the expiration of such leave is guaranteed by contract or statute, or unless provided
otherwise pursuant to Company policy adopted from time to time; (iv) changes in status from
Director to advisory director or emeritus status; or (iv) in the case of transfers between
locations of the Company or between the Company, its Affiliates or their respective successors.
Changes in status between service as an Employee, Director, and a Consultant will not constitute an
interruption of Continuous Service.

     “Deferred Share Units” mean Awards pursuant to Section 9 of the Plan.

     “Director” means a member of the Board, or a member of the board of directors of an
Affiliate.

     “Disabled” means a condition under which a Participant —

     (a) is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or

     (b) is, by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months, received income replacement benefits for a period of not less than 3 months under an
accident or health plan covering employees of the Company.

     “Eligible Person” means any Consultant, Director or Employee and includes non-Employees
to whom an offer of employment has been extended.

     “Employee” means any person whom the Company or any Affiliate classifies as an employee
(including an officer) for employment tax purposes. The payment by the Company of a director’s fee
to a Director shall not be sufficient to constitute “employment” of such Director by the Company.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Fair Market Value” means, as of any date (the “Determination Date”) means: (i) the
closing price of a Share on the American Stock Exchange (the “Exchange”), on the Determination
Date, or, if shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on the Exchange but
is quoted on NASDAQ or a successor quotation system, (A) the last sales price (if the stock is then
listed as a National Market Issue under The Nasdaq National Market System) or (B) the mean between
the closing representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or (iii) if such stock
is not traded on the Exchange or quoted on NASDAQ but is otherwise traded in the over-the-counter,
the mean between the representative bid and asked prices on the Determination Date; or (iv) if
subsections (i)-(iii) do not apply, the fair market value established in good faith by the Board.

     “Grant Date” has the meaning set forth in Section 14 of the Plan.

     “Incentive Share Option or ISO” hereinafter means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as designated in the
applicable Award Agreement.

     “Incumbent Board” shall mean the individuals who as of September 7, 2005 are members of
the Board and any individual becoming a director subsequent to September 7, 2005 whose election, or
nomination for election by the Company’s stockholders, was approved by a vote of at least
two-thirds of the directors then comprising the Incumbent Board; provided, however, that any
individual who is not a member of the Incumbent Board at the time he or she becomes a member of the
Board shall become a member of the Incumbent Board upon the completion of

52

 

two full years as a
member of the Board; provided, further, however, that notwithstanding the foregoing, no individual
shall be considered a member of the Incumbent Board if such individual initially assumed office (i)
as a result of either an actual or threatened “election contest” (within the meaning of Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a “Proxy Contest”), or (ii) with the approval of
the other Board members, but by reason of any agreement intended to avoid or settle a Proxy
Contest.

     “Involuntary Termination” means termination of a Participant’s Continuous Service under
the following circumstances occurring on or after a Change in Control: (i) termination without
Cause by the Company or an Affiliate or successor thereto, as appropriate; or (ii) voluntary
termination by the Participant within 60 days following (A) a material reduction in the
Participant’s job responsibilities, provided that neither a mere change in title alone nor
reassignment to a substantially similar position shall constitute a material reduction in job
responsibilities; (B) an involuntary relocation of the Participant’s work site to a facility or
location more than 50 miles from the Participant’s principal work site at the time of the Change in
Control; or (C) a material reduction in Participant’s total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other similarly-situated
Employees, Directors or Consultants.

     “Non-ISO” means an Option not intended to qualify as an ISO, as designated in the
applicable Award Agreement.

     “Option” means any stock option granted pursuant to Section 6 of the Plan.

     “Participant” means any holder of one or more Awards, or the Shares issuable or issued
upon exercise of such Awards, under the Plan.

     “Performance Awards” mean Performance Units and Performance Compensation Awards granted
pursuant to Section 10.

     “Performance Compensation Awards” mean Awards granted pursuant to Section 10(b) of the
Plan.

     “Performance Unit” means Awards granted pursuant to Section 10(a) of the Plan which may
be paid in cash, in Shares, or such combination of cash and Shares as the Committee in its sole
discretion shall determine.

     “Person” means any natural person, association, trust, business trust, cooperative,
corporation, general partnership, joint venture, joint-stock company, limited partnership, limited
liability company, real estate investment trust, regulatory body, governmental agency or
instrumentality, unincorporated organization or organizational entity.

     “Plan” means this Versar, Inc. 2005 Stock Incentive Plan.

     “Reporting Person” means an officer, Director, or greater than ten percent stockholder
of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file
reports pursuant to Rule 16a-3 under the Exchange Act.

     “Restricted Shares” mean Shares subject to restrictions imposed pursuant to Section 8
of the Plan.

     “Restricted Share Units” mean Awards pursuant to Section 8 of the Plan.

     “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time
to time, or any successor provision.

     “SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 7 of the
Plan.

     “Share” means a share of common stock of the Company, as adjusted in accordance with
Section 13 of the Plan.

53

 

     “Ten Percent Holder” means a person who owns stock representing more than ten percent
(10%) of the combined voting power of all classes of stock of the Company or any Affiliate.

54exv10w118

 

Exhibit 10.118

THIRD MODIFICATION AGREEMENT

     THIS THIRD MODIFICATION AGREEMENT (this “Agreement”), effective as of the 30th day
of November 2005, is by and between UNITED BANK, a Virginia banking corporation (the “Bank”); and
VERSAR, INC. a Delaware corporation, GEOMET TECHNOLOGIES, LLC, a Maryland limited liability
company, VERSAR GLOBAL SOLUTIONS, INC., a Virginia corporation, and VEC, INC., a Pennsylvania
corporation and successor to Versar Environmental Company, Inc. (individually and collectively, the
“Borrower”).

WITNESSETH THAT:

     WHEREAS, the Bank is the owner and holder of that certain Revolving Commercial Note dated
September 26, 2003, in the amount of $5,000,000.00 made by the Borrower payable to the order of the
Bank and bearing interest and being payable in accordance with the terms and conditions therein set
forth (the “Note”); and

     WHEREAS, the Note is issued pursuant to the terms of a certain Loan and Security Agreement
dated September 26, 2003, between the Borrower and the Bank (as modified in accordance with that
certain First Modification Agreement dated as of May 5, 2004, that certain Second Modification
Agreement dated as of May 12, 2004, and as otherwise amended, extended, increased, replaced and
supplemented from time to time, the “Loan Agreement”); and

     WHEREAS, as of the effective date hereof, the principal balance of the Note is $ 0.00 
and the parties hereto desire to modify the Loan Agreement.

     NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. The maturity date of the Note is hereby extended to November
30, 2007. The
definition of “Date of Maturity” in the Note and the Loan Agreement is hereby changed to “November
30, 2007”.

     2. The Loan Agreement is hereby further modified by replacing
“$6,500,000.00”
with “$8,500,000.00” in Section VI(A)(4).

     3. The other “Loan Documents”, as defined in the Note, are
hereby modified to the
extent necessary to carry out the purposes of this Agreement.

     4. The Borrower hereby acknowledges and agrees that, as of the effective date hereof, the
unpaid principal balance of the Note is $ 0.00  and that there are no set-offs or
defenses against the Note, the Loan Agreement, or the other Loan Documents.

     5. The parties to this Agreement do not intend that this
Agreement be construed as
a novation of the Note, the Loan Agreement, or any of the other Loan Documents.

     5A. The interest rate on the Note is hereby reduced to the “Prime Rate” (as
defined in
the Note).

55

 

     6. Except as hereby expressly modified, the Note and Loan Agreement shall

     otherwise be unchanged, shall remain in full force and effect, and are hereby expressly approved,
ratified and confirmed. A legend shall be placed on the face of the Note indicating that its terms
have been modified hereby, and the original of this Agreement shall be affixed to the original of
the Note.

     7. This Agreement shall be governed in all respects by the laws
of the Commonwealth
of Virginia and shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, executors, administrators, personal representatives, successors and
assigns.

WITNESS the following signatures and seals.

	 	 	 	 	 	 	 
	 	 	UNITED BANK	 	[SEAL]
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/S/ Dennis M. Coombe	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	      Dennis M. Coombe	 	 
	 

	 	 	 	      Executive Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	VERSAR, INC.	 	[SEAL]
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/S/ Lawrence W. Sinnott	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	      Name: Lawrence W. Sinnott	 	 
	 

	 	 	 	      Title: Exec. V.P., COO & CFO	 	 
	 
	 	 	 	 	 	 
	 	 	GEOMET TECHNOLOGIES, LLC	 	[SEAL]
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/S/ Lawrence W. Sinnott	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	      Name: Lawrence W. Sinnott	 	 
	 

	 	 	 	      Title: V.P. and Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	VERSAR GLOBAL SOLUTIONS, INC.	 	[SEAL]
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/S/ Lawrence W. Sinnott	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	      Name: Lawrence W. Sinnott	 	 
	 

	 	 	 	      Title: V.P. and Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	VEC, INC.	 	[SEAL]
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/S/ Lawrence W. Sinnott	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	      Name: Lawrence W. Sinnott	 	 
	 

	 	 	 	      Title: V.P. and Treasurer	 	 

56

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