Document:

2006 Equity Incentive Plan

 

Exhibit 10.13

HOME DIAGNOSTICS, INC.

2006 EQUITY INCENTIVE PLAN

 

 

HOME DIAGNOSTICS, INC.

2006 EQUITY INCENTIVE PLAN

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	1.

	 	Purpose
	 	 	1	 
	 
	 	 	 	 	 	 
	2.

	 	Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	3.

	 	Administration
	 	 	3	 
	 
	 	 	 	 	 	 
	4.

	 	Stock Subject to Plan
	 	 	4	 
	 
	 	 	 	 	 	 
	5.

	 	Eligibility; Per-Person Award Limitations
	 	 	4	 
	 
	 	 	 	 	 	 
	6.

	 	Specific Terms of Awards
	 	 	5	 
	 
	 	 	 	 	 	 
	7.

	 	Performance Awards
	 	 	9	 
	 
	 	 	 	 	 	 
	8.

	 	Certain Provisions Applicable to Awards
	 	 	11	 
	 
	 	 	 	 	 	 
	9.

	 	Change of Control
	 	 	12	 
	 
	 	 	 	 	 	 
	10.

	 	General Provisions
	 	 	14	 

 

 

HOME DIAGNOSTICS, INC.

2006 EQUITY INCENTIVE PLAN

     1. Purpose. The purpose of this 2006 Equity Incentive Plan (the “Plan”) is to aid Home
Diagnostics, Inc., a Delaware corporation (together with its successors and assigns, the
“Company”), in attracting, retaining, motivating and rewarding employees, non-employee directors,
consultants and advisors of the Company or its subsidiaries, to provide for equitable and
competitive compensation opportunities, to recognize individual contributions and reward
achievement of Company goals, and promote the creation of long-term value for stockholders by
closely aligning the interests of Participants with those of stockholders. The Plan authorizes
stock-based and cash-based incentives for Participants.

     2. Definitions. In addition to the terms defined in Section 1 above and elsewhere in the
Plan, the following capitalized terms used in the Plan have the respective meanings set forth in
this Section:

     (a) “Annual Limit” shall have the meaning specified in Section 5(b).

     (b) “Award” means any Option, SAR, Restricted Stock, Restricted Stock Units, Stock
granted as a bonus or in lieu of another award, Dividend Equivalent, Other Stock-Based Award or
Performance Award, together with any related right or interest, granted to a Participant under the
Plan.

     (c) “Beneficiary” means the legal representatives of the Participant’s estate entitled
by will or the laws of descent and distribution to receive the benefits under a Participant’s Award
upon a Participant’s death, provided that, if and to the extent authorized by the Committee, a
Participant may be permitted to designate a Beneficiary, in which case the “Beneficiary” instead
will be the person, persons, trust or trusts (if any are then surviving) which have been designated
by the Participant in his or her most recent written and duly filed beneficiary designation to
receive the benefits specified under the Participant’s Award upon such Participant’s death. Unless
otherwise determined by the Committee, any designation of a Beneficiary other than a Participant’s
spouse shall be subject to such spouse’s written consent.

     (d) “Board” means the Company’s Board of Directors.

     (e) “Change
in Control” has the meanings specified in Section 9.

     (f) “Code” means the Internal Revenue Code of 1986, as amended. References to any
provision of the Code or regulation thereunder shall include any successor provisions and
regulations, and reference to regulations includes any applicable guidance or pronouncement of the
Department of the Treasury and Internal Revenue Service.

     (g) “Committee” means the Compensation Committee of the Board, which shall consist
solely of two or more “Outside Directors” in accordance with Code Section 162(m), or solely of two
or more “Non-Employee Directors”, in accordance with Rule 16(b)-3 of the Exchange Act. No action
of the Committee shall be void or deemed to be without authority due to the failure of any member,
at the time the action was taken, to meet any qualification standard set forth in the Committee
Charter or the Plan. The full Board may perform any function of the Committee hereunder, in which
case the term “Committee” shall refer to the Board.

     (h) “Covered Employee” means an Eligible Person who is a Covered Employee as specified
in Section 10(j).

-1-

 

     (i) “Dividend Equivalent” means a right, granted under this Plan, to receive cash,
Stock, other Awards or other property equal in value to all or a specified portion of the dividends
paid with respect to a specified number of shares of Stock.

     (j) “Effective Date” means the effective date specified in Section 10(p).

     (k) “Eligible Person” has the meaning specified in Section 5.

     (l) “Exchange Act” means the Securities Exchange Act of 1934, as amended. References
to any provision of the Exchange Act or rule (including a proposed rule) thereunder shall include
any successor provisions and rules.

     (m) “Fair Market Value” means the fair market value of Stock, Awards or other property
as determined in good faith by the Committee or under procedures established by the Committee.
Unless otherwise determined by the Committee, the Fair Market Value of Stock shall be the closing
sales price for such Stock (or the closing bid, if no sales were reported) as quoted on the NASDAQ
National Market or the NASDAQ SmallCap Market or any other established stock exchange, as
applicable, on the last market trading day prior to the day of determination, as reported in the
Wall Street Journal or such other source as the Board deems reliable. Fair Market Value relating
to the exercise price or base price of any Non-409A Option or SAR shall conform to requirements
under Code Section 409A.

     (n) “409A Awards” means Awards that constitute a deferral of compensation under Code
Section 409A and regulations thereunder. “Non-409A Awards” means Awards other than 409A
Awards. Although the Committee retains authority under the Plan to grant Options, SARs and
Restricted Stock on terms that will qualify those Awards as 409A Awards, Options, SARs exercisable
for Stock, and Restricted Stock are intended to be Non-409A Awards unless otherwise expressly
specified by the Committee.

     (o) “Incentive Stock Option” or “ISO” means any Option designated as an
incentive stock option within the meaning of Code Section 422 and qualifying thereunder.

     (p) “Option” means a right, granted under this Plan, to purchase Stock.

     (q) “Other Stock-Based Awards” means Awards granted to a Participant under Section
6(h).

     (r) “Participant” means a person who has been granted an Award under the Plan which
remains outstanding, including a person who is no longer an Eligible Person.

     (s) “Performance Award” means a conditional right, granted to a Participant under
Sections 6(i) and 7, to receive cash, Stock or other Awards or payments.

     (t) “Preexisting Plans” means the Home Diagnostics, Inc. 2002 Stock Option Plan and
the Home Diagnostics, Inc. 1992 Stock Option Plan.

     (u) “Restricted Stock” means Stock granted under this Plan which is subject to certain
restrictions and to a risk of forfeiture.

     (v) “Restricted Stock Unit” or “RSU” means a right, granted under this Plan,
to receive Stock or other Awards or a combination thereof at the end of a specified deferral
period.

-2-

 

     (w) “Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to
Participants, promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act.

     (x) “Stock” means the Company’s Common Stock, par value $0.01 per share, and any other
equity securities of the Company that may be substituted or resubstituted for Stock pursuant to
Section 10(c).

     (y) “Stock Appreciation Rights” or “SAR” means a right granted to a
Participant under Section 6(c).

     3. Administration.

     (a) Authority of the Committee. The Plan shall be administered by the Committee, which shall
have full and final authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants; to grant Awards; to determine the type and
number of Awards, the dates on which Awards may be exercised and on which the risk of forfeiture or
deferral period relating to Awards shall lapse or terminate, the acceleration of any such dates,
the expiration date of any Award, whether, to what extent, and under what circumstances an Award
may be settled, or the exercise price of an Award may be paid, in cash, Stock, other Awards, or
other property, and other terms and conditions of, and all other matters relating to, Awards; to
prescribe documents evidencing or setting terms of Awards (such Award documents need not be
identical for each Participant), amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto (including outstanding Awards); to construe and
interpret the Plan and Award documents and correct defects, supply omissions or reconcile
inconsistencies therein; and to make all other decisions and determinations as the Committee may
deem necessary or advisable for the administration of the Plan. Decisions of the Committee with
respect to the administration and interpretation of the Plan shall be final, conclusive, and
binding upon all persons interested in the Plan, including Participants, Beneficiaries, transferees
under Section 10(b) and other persons claiming rights from or through a Participant, and
stockholders. The foregoing notwithstanding, the Board shall perform the functions of the
Committee for purposes of granting Awards under the Plan to members of the Committee.

     (b) Manner of Exercise of Committee Authority. The express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not be construed as limiting any
power or authority of the Committee. The Committee may act through subcommittees, including for
purposes of perfecting exemptions under Rule 16b-3 or qualifying Awards under Code Section 162(m)
as performance-based compensation, in which case the subcommittee shall be subject to and have
authority under the charter applicable to the Committee, and the acts of the subcommittee shall be
deemed to be acts of the Committee hereunder. The Committee may delegate to officers or managers
of the Company or any subsidiary, or committees thereof, the authority, subject to such terms as
the Committee shall determine, to perform such functions, including administrative functions, as
the Committee may determine, to the extent (i) that such delegation will not result in the loss of
an exemption under Rule 16b-3 for Awards granted to Participants subject to Section 16 of the
Exchange Act in respect of the Company and will not cause Awards intended to qualify as
“performance-based compensation” under Code Section 162(m) to fail to so qualify, and (ii)
permitted under Section 157 and other applicable provisions of the Delaware General Corporation
Law.

     (c) Limitation of Liability. The Committee and each member thereof, and any person acting
pursuant to authority delegated by the Committee, shall be entitled, in good faith, to rely or act
upon any report or other information furnished by any executive officer, other officer or employee
of the Company or a subsidiary, the Company’s independent auditors, consultants or

-3-

 

any other agents assisting in the administration of the Plan. Members of the Committee, any person
acting pursuant to authority delegated by the Committee, and any officer or employee of the Company
or a subsidiary acting at the direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action or determination.

     4. Stock Subject To Plan.

     (a) Overall Number of Shares Available for Delivery. The total number of shares of Stock
reserved and available for delivery in connection with Awards under the Plan shall be the sum of:
(i) 2,000,000 new shares, and (ii) the number of shares which become available in accordance with
Section 4(b) after the Effective Date. Any shares of Stock delivered under the Plan shall consist
of authorized and unissued shares or treasury shares.

     (b) Share Counting Rules. The Committee may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute
awards) and make adjustments in accordance with this Section 4(b). Shares that are potentially
deliverable under an Award under the Plan that are canceled, expired, forfeited, settled in cash or
otherwise terminated without a delivery of such shares to the Participant will not be counted as
delivered under the Plan and shall be available for Awards under this Plan. Shares that have been
issued in connection with an Award under this Plan (e.g., Restricted Stock) or any Preexisting Plan
award that is canceled, forfeited, or settled in cash such that those shares are returned to the
Company shall be available for Awards under this Plan. Shares that are withheld from such an Award
or separately surrendered by the Participant in payment of any exercise price relating to such an
Award shall be deemed to constitute shares not delivered to the Participant and will be available
under the Plan.

     5. Eligibility; Per-Person Award Limitations.

     (a) Eligibility. Awards may be granted under the Plan only to Eligible Persons. For purposes
of the Plan, an “Eligible Person” means an employee,, executive officer, director, advisor or
consultant of the Company or a subsidiary, and any person who has been offered employment by the
Company or a subsidiary, provided that such prospective employee may not receive any payment or
exercise any right relating to an Award until such person has commenced employment with the Company
or a subsidiary. An employee on “leave of absence” (as such term is defined in the Company’s
employee handbook or, if no such definition exists, as otherwise defined by the Committee in its
discretion) may be considered as still in the employ of the Company or a subsidiary for purposes of
eligibility for participation in the Plan, if so determined by the Committee. If so determined by
the Committee, holders of outstanding awards granted by a company or business acquired by the
Company or a subsidiary, or with which the Company or a subsidiary combines, are eligible for
grants under the Plan of substitute awards either through assumption of such awards or the grant of
a substitute award in connection with such acquisition or combination transaction.

     (b) Per-Person Award Limitations. In each calendar year during any part of which the Plan is
in effect, an Eligible Person may be granted Awards under each of Section 6(b), 6(c), 6(d), 6(e),
6(f), 6(g) or 6(h) up to his or her Annual Limit (such Annual Limit to apply separately to the
type of Award authorized under each specified subsection, except that the limitation applies to
Dividend Equivalents under Section 6(g) only if such Dividend Equivalents are granted separately
from and not as a feature of another Award). A Participant’s Annual Limit, in any year during any
part of which the Participant is then eligible under the Plan, shall equal 200,000 shares, subject
to adjustment as provided in Section 10(c). In the case of an Award which is not valued in a way
in which the limitation set forth in the preceding sentence would operate as an effective
limitation

-4-

 

satisfying applicable law (including Treasury Regulation 1.162-27(e)(4)), an Eligible Person may
not be granted Awards authorizing the earning during any calendar year of an amount that exceeds
the Eligible Person’s Annual Limit, which for this purpose shall equal $1,000,000 (this limitation
is separate and not affected by the number of Awards granted during such calendar year subject to
the limitation in the preceding sentence). For this purpose, (i) “earning” means satisfying
performance conditions so that an amount becomes payable, without regard to whether it is to be
paid currently or on a deferred basis or continues to be subject to any service requirement or
other non-performance condition, and (ii) a Participant’s Annual Limit is used to the extent an
amount or number of shares may be potentially earned or paid under an Award, regardless of whether
such amount or shares are in fact earned or paid.

     6. Specific Terms of Awards.

     (a) General. Awards may be granted on the terms and conditions set forth in this Section 6.
In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or
thereafter (subject to Sections 10(e) and 10(k)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or service by the
Participant and terms permitting a Participant to make elections relating to his or her Award. The
Committee shall retain full power and discretion with respect to any term or condition of an Award
that is not mandatory under the Plan, subject to Section 10(k). The Committee shall require the
payment of lawful consideration for an Award to the extent necessary to satisfy the requirements of
the Delaware General Corporation Law, and may otherwise require payment of consideration for an
Award except as limited by the Plan.

     (b) Options. The Committee is authorized to grant Options to Participants on the following
terms and conditions:

	 	(i)	 	Exercise Price. The exercise price per share of Stock purchasable under an
Option (including both ISOs and non-qualified Options) shall be determined by the
Committee, provided that, notwithstanding anything contained herein to the contrary
such exercise price shall be (A) fixed as of the grant date, and (B) not less than the
Fair Market Value of a share of Stock on the date of grant of such Option.
Notwithstanding the foregoing, any substitute award granted in assumption of or in
substitution for an outstanding award granted by a company or business acquired by the
Company or a subsidiary, or with which the Company or a subsidiary combines may be
granted with an exercise price per share of Stock other than as required above,
provided, however, that such substitute award is determined and granted in a manner
satisfying the requirements of Treasury Regulation section 1.424-1(a).
	 
	 	(ii)	 	Option Term; Time and Method of Exercise. The Committee shall determine the
term of each Option, provided that in no event shall the term of any Option exceed a
period of ten years from the date of grant. The Committee shall determine the time or
times at which or the circumstances under which an Option may be exercised in whole or
in part, provided that, notwithstanding anything contained herein to the contrary, the
sole and exclusive basis for determining both the vesting and exercisability of an
option will be the passage of a specific period of time or the occurrence or
non-occurrence of certain specific events (which may include, but is not limited to,
the achievement of performance goals and/or future service requirements). In
addition, the Committee shall determine the methods by which such exercise price may
be paid or deemed to be paid and the form of such payment (subject to Section 10(k)),
including, without limitation, cash, Stock (including by withholding Stock deliverable
upon exercise, if such

-5-

 

	 	 	 	withholding or withholding feature will not result in additional accounting expense
to the Company), other Awards or awards granted under other plans of the Company or
any subsidiary, or other property (including through broker-assisted “cashless
exercise” arrangements, to the extent permitted by applicable law), and the methods
by or forms in which Stock will be delivered or deemed to be delivered in
satisfaction of Options to Participants (including, in the case of 409A Awards,
deferred delivery of shares subject to the Option, as mandated by the Committee,
with such deferred shares subject to any vesting, forfeiture or other terms as the
Committee may specify).

	 	(iii)	 	ISOs. The terms of any ISO granted under the Plan shall comply in all
respects with the provisions of Code Section 422.
	 
	 	(iv)	 	Repricing. Notwithstanding anything in this Plan to the contrary, without
the approval of stockholders, the Committee will not amend or replace previously
granted Options in a transaction that constitutes a “repricing,” as such term is used
in Section 303A.08 of the Listed Company Manual of the New York Stock Exchange or
NASDAQ National Market (as then applicable) or Item 402(i)(1) of Regulation S-K of the
Exchange Act.

     (c) Stock Appreciation Rights. The Committee is authorized to grant SARs to Participants on
the following terms and conditions:

	 	(i)	 	Right to Payment. A SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market
Value of one share of Stock on the date of exercise over (B) the grant price of the
SAR as determined by the Committee.
	 
	 	(ii)	 	Other Terms. The Committee shall determine the term of each SAR, provided
that in no event shall the term of a SAR exceed a period of ten years from the date of
grant. The Committee shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be exercised in whole or in
part (including based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be delivered or deemed
to be delivered to Participants, whether or not a SAR shall be free-standing or in
tandem or combination with any other Award, and whether or not the SAR will be a 409A
Award or Non-409A Award. The Committee may require that an outstanding Option be
exchanged for a SAR exercisable for Stock having vesting, expiration, and other terms
substantially the same as the Option, so long as such exchange will not result in
additional accounting expense to the Company.
	 
	 	(iii)	 	Repricing. Notwithstanding anything in this Plan to the contrary, without
the approval of stockholders, the Committee will not amend or replace previously
granted SARs in a transaction that constitutes a “repricing,” as such term is used in
Section 303A.08 of the Listed Company Manual of the New York Stock Exchange or NASDAQ
National Market (as then applicable).

     (d) Restricted Stock. The Committee is authorized to grant Restricted Stock to Participants
on the following terms and conditions:

	 	(i)	 	Grant and Restrictions. Except as provided herein, Restricted Stock shall be
subject to such restrictions on transferability, risk of forfeiture and other

-6-

 

	 	 	 	restrictions, if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances (including
based on achievement of performance goals and/or future service requirements), in
such installments or otherwise and under such other circumstances as the Committee
may determine at the date of grant or thereafter. Except to the extent restricted
under the terms of the Plan and any Award document relating to the Restricted
Stock, a Participant granted Restricted Stock shall have all of the rights of a
stockholder, including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee). Notwithstanding the foregoing, however,
Restricted Stock shall not become vested more quickly than ratably over a minimum
period of three years except in the event of a Participant’s death, disability, or
retirement, or in the event of a Change in Control or other special circumstances.
The foregoing notwithstanding, (i) Restricted Stock as to which vesting is based
on, among other things, the achievement of one or more performance conditions shall
not become vested until the later of the attainment of such performance conditions
or one year after the date of grant, except in the event of a Participant’s death,
disability, or retirement, or in the event of a change in control or other special
circumstances, and (ii) up to 5% of the shares of Stock authorized under the Plan
may be granted as Restricted Stock without any minimum vesting requirements. For
purposes of this Section 6(d), a performance period that precedes the grant of the
Restricted Stock will be treated as part of the vesting period if the participant
has been notified promptly after the commencement of the performance period that he
or she has the opportunity to earn the Award based on performance and continued
service.

	 	(ii)	 	Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited and
reacquired by the Company; provided that the Committee may provide, by rule or
regulation or in any Award document, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock will lapse in whole
or in part, including in the event of terminations resulting from specified causes.
	 
	 	(iii)	 	Certificates for Stock. Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee shall determine. If certificates
representing Restricted Stock are registered in the name of the Participant, the
Committee may require that such certificates bear an appropriate legend referring to
the terms, conditions and restrictions applicable to such Restricted Stock, that the
Company retain physical possession of the certificates, and that the Participant
deliver a stock power to the Company, endorsed in blank, relating to the Restricted
Stock.
	 
	 	(iv)	 	Dividends and Splits. As a condition to the grant of an Award of Restricted
Stock, the Committee may require that any dividends paid on a share of Restricted
Stock shall be either (A) paid with respect to such Restricted Stock at the dividend
payment date in cash, in kind, or in a number of shares of unrestricted Stock having a
Fair Market Value equal to the amount of such dividends, or (B) automatically
reinvested in additional Restricted Stock or held in kind, which shall be subject to
the same terms as applied to the original Restricted Stock to which it relates, or (C)
deferred as to payment, either as a cash deferral or with the amount or value thereof
automatically deemed reinvested in shares of Restricted Stock Units, other Awards or
other investment vehicles, subject to such terms as the Committee shall determine or
permit a Participant to elect. Unless otherwise determined by the Committee, Stock

-7-

 

	 	 	 	distributed in connection with a Stock split or Stock dividend, and other cash or
property distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to which such
Stock or other property has been distributed.

     (e) Restricted Stock Units. The Committee is authorized to grant RSUs to Participants,
subject to the following terms and conditions:

	 	(i)	 	Award and Restrictions. Subject to Section 6(e)(ii), RSUs shall be subject
to such restrictions on transferability, risk of forfeiture and other restrictions, if
any, as the Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances (including based on achievement of
performance conditions and/or future service requirements), in such installments or
otherwise and under such other circumstances as the Committee may determine at the
date of grant or thereafter. A Participant granted RSUs shall not have any of the
rights of a stockholder, including the right to vote, until Stock shall have been
issued in the Participant’s name pursuant to the RSUs, except that the Committee may
provide for dividend equivalents pursuant to Section 6(e)(iii) below.
	 
	 	(ii)	 	Limitation on Vesting. The grant, issuance, retention, vesting and/or
settlement of RSUs shall occur at such time and in such installments as determined by
the Committee or under criteria established by the Committee. The Committee shall
have the right to make the timing of the grant and/or the issuance, ability to retain,
vesting and/or settlement of RSUs subject to continued employment, passage of time
and/or such performance conditions as deemed appropriate by the Committee; provided
that the grant, issuance, retention, vesting and/or settlement of an RSU that is based
in whole or in part on performance conditions and/or the level of achievement versus
such performance conditions shall be subject to a performance period of not less than
one year, and any Award based solely upon continued employment or the passage of time
shall vest over a period not less than three years from the date the Award is made,
provided that such vesting may occur ratably over the three-year period. The
foregoing minimum vesting conditions need not apply (A) in the case of the death,
disability or Retirement of the Participant or termination in connection with a Change
in Control, and (B) with respect to up to an aggregate of 5% of the shares of Stock
authorized under the Plan, which may be granted (or regranted upon forfeiture) as
Restricted Stock or RSUs without regard to such minimum vesting requirements.
	 
	 	(iii)	 	Dividend Equivalents. Unless otherwise determined by the Committee,
dividend equivalents on the specified number of shares of Stock covered by an Award of
RSUs shall be either (A) paid with respect to such RSUs at the dividend payment date
in cash or in shares of unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or (B) deferred with respect to such RSUs, either as a cash
deferral or with the amount or value thereof automatically deemed reinvested in
additional RSUs, other Awards or other investment vehicles having a Fair Market Value
equal to the amount of such dividends, as the Committee shall determine or permit a
Participant to elect.

     (f) Bonus Stock and Awards in Lieu of Obligations. The Committee is authorized to grant Stock
as a bonus, or to grant Stock or other Awards in lieu of obligations of the Company or a subsidiary
to pay cash or deliver other property under the Plan or under other plans or compensatory
arrangements, subject to such terms as shall be determined by the Committee.

-8-

 

     (g) Dividend Equivalents. The Committee is authorized to grant Dividend Equivalents to a
Participant, which may be awarded on a free-standing basis or in connection with another Award.
The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles,
and subject to restrictions on transferability, risks of forfeiture and such other terms as the
Committee may specify.

     (h) Other Stock-Based Awards. The Committee is authorized, subject to limitations under
applicable law, to grant to Participants such other Awards that may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related to, Stock or factors
that may influence the value of Stock, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock,
Awards with value and payment contingent upon performance of the Company or business units thereof
or any other factors designated by the Committee, and Awards valued by reference to the book value
of Stock or the value of securities of or the performance of specified subsidiaries or other
business units. The Committee shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right granted under this Section 6(h)
shall be purchased for such consideration, paid for at such times, by such methods, and in such
forms, including, without limitation, cash, Stock, other Awards, notes, or other property, as the
Committee shall determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).

     (i) Performance Awards. Performance Awards, denominated in cash or in Stock or other Awards
(but excluding Options), may be granted by the Committee in accordance with Section 7.

     7. Performance Awards.

     (a) Performance Awards Generally. Performance Awards may be denominated as a cash amount,
number of shares of Stock, or specified number of other Awards or a combination of the foregoing,
which may be earned upon achievement or satisfaction of performance conditions specified by the
Committee. In addition, the Committee may specify that any other Award shall constitute a
Performance Award by conditioning the right of a Participant to exercise the Award or have it
settled, and the timing thereof, upon achievement or satisfaction of such performance conditions as
may be specified by the Committee. The Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under any Award subject to
performance conditions, except as limited under Sections 7(b) and 7(c) in the case of a Performance
Award intended to qualify as “performance-based compensation” under Code Section 162(m).

     (b) Performance Awards Granted to Covered Employees. If the Committee determines that a
Performance Award to be granted to an Eligible Person who is designated by the Committee as likely
to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Performance Award shall be contingent
upon achievement of a preestablished performance goal and other terms set forth in this Section
7(b).

	 	(i)	 	Performance Goal Generally. The performance goal for such Performance Awards
shall consist of one or more business criteria and a targeted level or levels of
performance with respect to each of such criteria, as specified by the Committee
consistent with this Section 7(b). The performance goal shall be

-9-

 

	 	 	 	objective and shall otherwise meet the requirements of Code Section 162(m) and
regulations thereunder, including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance
goals being “substantially uncertain.” The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon achievement of
any one performance goal or that two or more of the performance goals must be
achieved as a condition to grant, exercise and/or settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.

	 	(ii)	 	Business Criteria. One or more of the following business criteria for the
Company, on a consolidated basis, and/or for specified subsidiaries or other business
units of the Company shall be used by the Committee in establishing performance goals
for such Performance Awards: (1) earnings (net of or including dividends); (2) EBIT or
EBITDA; (3) gross or net revenue or changes in annual revenues; (4) cash flow(s)
(including operating or net cash flow(s)); (5) financial return ratios; (6) total
shareholder return, shareholder return based on growth measures or the attainment by
the shares of a specified value for a specified period of time, share price or share
price appreciation; (7) earnings growth or EPS growth; (8) return measures, including
return or net return on assets, net assets, equity, capital or gross sales; (9)
adjusted pre-tax margin; (10) pre-tax profits; (11) operating margins, operating
profits; and/or operating expenses; (12) dividends; (13) net income or net operating
income; (14) growth in operating earnings or growth in EPS; (15) value of assets; (16)
market share or market penetration with respect to specific designated products or
product groups and/or specific geographic areas; (17) aggregate product price and
other product measures; (18) expense or cost levels; (19) reduction of losses, loss
ratios or expense ratios; (20) reduction in fixed costs; (21) operating cost
management; (22) cost of capital; (23) debt reduction; (24) productivity improvements;
(25) average inventory turnover; (26) satisfaction of specified business expansion
goals or goals relating to acquisitions or divestitures; (27) advertising efficiency;
(28) customer satisfaction based on specified objective goals or a Company-sponsored
customer survey; (29) employee diversity goals or employee turnover; (30) specified
objective social goals; (31) safety record; (32) management of employment practices
and employee benefits; (33) supervision of litigation and information technology; and
(34) goals relating to acquisitions or divestitures of subsidiaries or joint ventures.
The targeted level or levels of performance with respect to such business criteria
may be established at such levels and in such terms as the Committee may determine, in
its discretion, including in absolute terms, as a goal relative to performance in
prior periods, or as a goal compared to the performance of one or more comparable
companies or an index covering multiple companies.
	 
	 	(iii)	 	Performance Period; Timing for Establishing Performance Goals. Achievement
of performance goals in respect of such Performance Awards shall be measured over a
performance period of one year or more, as specified by the Committee. A performance
goal shall be established not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such Performance Award or (B) the
time 25% of such performance period has elapsed.
	 
	 	(iv)	 	Performance Award Pool. The Committee may establish a Performance Award
pool, which shall be an unfunded pool, for purposes of measuring performance of the
Company in connection with Performance Awards. The amount of such Performance Award
pool shall be based upon the achievement of a performance goal or goals based on one
or more of the business criteria set forth in Section

-10-

 

	 	 	 	7(b)(ii) during the given performance period, as specified by the Committee in
accordance with Section 7(b)(iii). The Committee may specify the amount of the
Performance Award pool as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount, or as another amount which need
not bear a strictly mathematical relationship to such business criteria.

	 	(v)	 	Settlement of Performance Awards; Other Terms. Settlement of Performance
Awards shall be in cash, Stock, other Awards or other property, in the Committee’s
discretion. The Committee may, in its discretion, increase or reduce the amount of a
settlement otherwise to be made in connection with such Performance Awards, but may
not exercise discretion to increase any such amount payable to a Covered Employee in
respect of a Performance Award subject to this Section 7(b). Any settlement which
changes the form of payment from that originally specified shall be implemented in a
manner such that the Performance Award and other related Awards do not, solely for
that reason, fail to qualify as “performance-based compensation” for purposes of Code
Section 162(m). The Committee shall specify the circumstances in which such
Performance Awards shall be paid or forfeited in the event of termination of
employment by a Participant or other event (including a Change in Control) prior to
the end of a performance period or settlement of such Performance Awards.

     (c) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect of Performance
Awards, the level of actual achievement of the specified performance goals relating to Performance
Awards, and the amount of any final Performance Award shall be recorded in writing in the case of
Performance Awards intended to qualify under Section 162(m). Specifically, the Committee shall
certify in writing, in a manner conforming to applicable regulations under Section 162(m), prior to
settlement of each such Award granted to a Covered Employee, that the performance objective
relating to the Performance Award and other material terms of the Award upon which settlement of
the Award was conditioned have been satisfied.

     8. Certain Provisions Applicable To Awards.

     (a) Stand-Alone, Additional, and Tandem Awards. Awards granted under the Plan may, in the
Committee’s discretion, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under another plan of the
Company, any subsidiary, or any business entity acquired by the Company or a subsidiary, or any
other right of a Participant to receive payment from the Company or any subsidiary; provided,
however, that a 409A Award may not be granted in tandem with a Non-409A Award. Awards granted in
addition to or in tandem with other Awards or awards may be granted either as of the same time as
or a different time from the grant of such other Awards or awards. Notwithstanding anything in
this Section 8(a) to the contrary, in no event may Options or SARs be exchanged for Awards of the
same or different type in a manner that would violate the provisions of Section 303A.08 of the
Listed Company Manual of the New York Stock Exchange or NASDAQ National Market (as then
applicable).

     (b) Term of Awards. The term of each Award shall be for such period as may be determined by
the Committee, subject to the express limitations set forth in Sections 6(b)(ii), 6(c)(ii) and 8 or
elsewhere in the Plan.

     (c) Form and Timing of Payment under Awards; Deferrals. Subject to the terms of the Plan
(including Sections 10(k)) and any applicable Award document, payments to be made by the Company or
a subsidiary upon the exercise of an Option or other Award or settlement of an Award may be made in
such forms as the Committee shall determine, including, without

-11-

 

limitation, cash, Stock, other Awards or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. The settlement of any Award may be accelerated,
and cash paid in lieu of Stock in connection with such settlement, in the Committee’s discretion or
upon occurrence of one or more specified events, subject to Sections 6(b) and 10(k). Subject to
Section 10(k), installment or deferred payments may be required by the Committee (subject to
Section 10(e)) or permitted at Participant’s election on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments denominated in Stock.
In the case of any 409A Award that is vested and no longer subject to a risk of forfeiture (within
the meaning of Code Section 83), such Award will be distributed to the Participant, upon
application of the Participant, if the Participant has had an unforeseeable emergency within the
meaning of Code Sections 409A(a)(2)(A)(vi) and 409A(a)(2)(B)(ii), in accordance with Section
409A(a)(2)(B)(ii).

     9. Change in Control.

     (a) Treatment of Awards. The Committee shall have the discretion to provide that in the event
of a Change in Control (as defined in Section 9(b) or 9(c) below with respect to 409A Awards), the
following provisions will apply:

	 	(i)	 	Each outstanding Option or SAR (or such lesser portion of each Option or SAR
as is set forth in an applicable Award agreement) will immediately become exercisable
in full.
	 
	 	(ii)	 	Each outstanding share of Restricted Stock (or such lesser number of shares
as is set forth in an applicable Award agreement) will immediately become free of the
restrictions.
	 
	 	(iii)	 	To the extent provided in an applicable Award agreement, each outstanding
other Award shall be deemed free of restriction and any performance goals shall be
determined to be satisfied to the extent set forth in the Award agreement.
	 
	 	(iv)	 	In the event of a Change in Control that is a merger or consolidation in
which the Company is not the surviving corporation or which results in the acquisition
of substantially all of the Company’s outstanding Stock by a single person or entity
or by a group of persons or entities acting in concert, or in the event of a sale or
transfer of all or substantially all of the Company’s assets (a “Covered
Transaction”), the Committee shall have the discretion to provide for the termination
of all outstanding Options and SARs as of the effective date of the Covered
Transaction; provided, that, if the Covered Transaction follows a Change in Control or
would give rise to a Change in Control, no Option or SAR will be so terminated
(without the consent of the Participant) prior to the expiration of 20 days following
the later of (A) the date on which the Award became fully exercisable and (B) the date
on which the Participant received written notice of the consummation of a Covered
Transaction.

     (b) General Definition. Except as provided in Section 9(c), a “Change in Control” shall be
deemed to have occurred if the event set forth in any one of the following paragraphs shall have
occurred:

	 	(i)	 	any person is or becomes the beneficial owner (as determined under Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person or any securities

-12-

 

	 	 	 	acquired directly from the Company or its affiliates (as determined under Rule
12b-2 under the Exchange Act)) representing fifty percent (50%) or more of the
combined voting power of the Company’s then outstanding securities, excluding any
person who becomes such a beneficial owner in connection with a Non-Control Merger
(as defined in paragraph (iii) below); or

	 	(ii)	 	there is consummated a merger or consolidation of the Company or any direct
or indirect subsidiary of the Company with any other corporation, other than a merger
or consolidation (a “Non-Control Merger”) immediately following which the individuals
who comprise the Board immediately prior thereto constitute at least a majority of the
board of directors of the Company, the entity surviving such merger or consolidation
or any parent thereof; or
	 
	 	(iii)	 	the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the Company’s assets, other
than a sale or disposition by the Company of all or substantially all of the Company’s
assets immediately following which the individuals who comprise the Board immediately
prior thereto constitute at least a majority of the board of directors of the entity
to which such assets are sold or disposed or any parent thereof.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue
of the consummation of any transaction or series of integrated transactions immediately following
which the record holders of the common stock of the Company immediately prior to such transaction
or series of transactions continue to have substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company immediately following such
transaction or series of transactions.

     (c) Definition for 409A Awards. To the extent required for purposes of compliance with
Section 409A, the following definition of a “Change in Control” shall apply to 409A Awards. A
“Change in Control” shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:

	 	(i)	 	Change in Ownership. Any one person, or more than one person acting as a
group (“Person”), acquires ownership of stock of the Company that, together with stock
held by the Person, constitutes more than 50 percent (50%) of the total fair market
value or total voting power of the stock of the Company. However, if any Person is
considered to own more than 50 percent (50%) of the total fair market value or total
voting power of the stock of the Company, the acquisition of additional stock by the
Person is not considered to cause a change in the ownership of the Company (or to
cause a change in the effective control of the Company (within the meaning of
paragraph (ii)).
	 
	 	(ii)	 	Change in Effective Control. A change in effective control of the Company
occurs only on the date that either:

	 	(A)	 	Any Person acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by the Person) ownership of stock of the
Company possessing fifty percent (50%) or more of the total voting power of the
stock of the Company; or
	 
	 	(B)	 	A majority of the members of the Board is replaced during any 12-month period
by directors whose appointment or election is not endorsed by a majority of the
members of the Board prior to the date of the appointment or election.

-13-

 

	 	(iii)	 	Change in Ownership of a Substantial Portion of the Company’s Assets. Any
Person acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by the Person) assets from the Company that have a total gross
fair market value equal to or more than fifty percent (50%) of the total gross fair
market value of all of the assets of the Company immediately prior to the acquisition
or acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined
without regard to any liabilities associated with the assets.

The determination of whether a “Change in Control” has occurred and the date consummated, shall be
made by the Board, in good faith, consistent with the requirements of Code Section 409A.

     10. General Provisions.

     (a) Compliance with Legal and Other Requirements. The Company may, to the extent deemed
necessary or advisable by the Committee, postpone the issuance or delivery of Stock or payment of
other benefits under any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation, listing or other
required action with respect to any stock exchange or automated quotation system upon which the
Stock or other securities of the Company are listed or quoted, or compliance with any other
obligation of the Company, as the Committee may consider appropriate, and may require any
Participant to make such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the issuance or delivery of
Stock or payment of other benefits in compliance with applicable laws, rules, and regulations,
listing requirements, or other obligations. The foregoing notwithstanding, in connection with a
Change in Control, the Company shall take or cause to be taken no action, and shall undertake or
permit to arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under any Award or the
imposition of any other conditions on such issuance, delivery or payment, to the extent that such
postponement or other condition would represent a greater burden on a Participant than existed on
the 90th day preceding the Change in Control.

     (b) Limits on Transferability; Beneficiaries. No Award or other right or interest of a
Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any
lien, obligation or liability of such Participant to any party (other than the Company or a
subsidiary thereof), or assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such
Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative, except that Awards and
other rights (other than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent such transfers are permitted
by the Committee, subject to any terms and conditions which the Committee may impose thereon (which
may include limitations the Committee may deem appropriate in order that offers and sales under the
Plan will meet applicable requirements of registration forms under the Securities Act of 1933
specified by the Securities and Exchange Commission), provided, however, that no
such transfer may occur for consideration. A Beneficiary, transferee, or other person claiming any
rights under the Plan from or through any Participant shall be subject to all terms and conditions
of the Plan and any Award document applicable to such Participant, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the
Committee.

-14-

 

     (c) Adjustments. In the event that any large, special and non-recurring dividend or other
distribution (whether in the form of cash or property other than Stock), recapitalization, forward
or reverse split, Stock dividend, reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or
event affects the Stock such that an adjustment is determined by the Committee to be appropriate
and, in the case of any outstanding Award, necessary to prevent dilution or enlargement of
Participant’s rights, then the Committee shall, in an equitable manner as determined by the
Committee, adjust any or all of (i) the number and kind of shares of Stock which may be delivered
in connection with Awards granted thereafter, (ii) the number and kind of shares of Stock by which
annual per-person Award limitations are measured under Section 5, (iii) the number and kind of
shares of Stock subject to or deliverable in respect of outstanding Awards and (iv) the exercise
price, grant price or purchase price relating to any Award or, if deemed appropriate, the Committee
may make provision for a payment of cash or property to the holder of an outstanding Option or
other Award. In addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance Awards and performance
goals and any hypothetical funding pool relating thereto) in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding sentence, as well as
acquisitions and dispositions of businesses and assets) affecting the Company, any subsidiary or
other business unit, or the financial statements of the Company or any subsidiary, or in response
to changes in applicable laws, regulations, accounting principles, tax rates and regulations or
business conditions or in view of the Committee’s assessment of the business strategy of the
Company, any subsidiary or business unit thereof, performance of comparable organizations, economic
and business conditions, personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if and to the extent that
the existence of such authority (i) would cause Options, SARs, or Performance Awards granted under
the Plan to Participants designated by the Committee as Covered Employees and intended to qualify
as “performance-based compensation” under Code Section 162(m) and regulations thereunder to
otherwise fail to qualify as “performance-based compensation” under Code Section 162(m) and
regulations thereunder, (ii) would cause the Committee to be deemed to have authority to change the
targets, within the meaning of Treasury Regulation 1.162-27(e)(4)(vi), under the performance goals
relating to Options or SARs granted to Covered Employees and intended to qualify as
“performance-based compensation” under Code Section 162(m) and regulations thereunder, or (iii)
cause a Non-409A Award to be treated as a 409A Award.

     (d) Tax Provisions.

	 	(i)	 	Withholding. The Company and any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a Participant, amounts of
withholding and other taxes due or potentially payable in connection with any
transaction involving an Award, and to take such other action as the Committee may
deem advisable to enable the Company and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other property and
to make cash payments in respect thereof in satisfaction of a Participant’s
withholding obligations, either on a mandatory or elective basis in the discretion of
the Committee, or in satisfaction of other tax obligations. Other provisions of the
Plan notwithstanding, only the minimum amount of Stock deliverable in connection with
an Award necessary to satisfy statutory withholding requirements will be withheld,
unless withholding of any additional amount of Stock will not result in additional
accounting expense to the Company. 

-15-

 

	 	(ii)	 	Required Consent to and Notification of Code Section 83(b) Election. No
election under Section 83(b) of the Code (to include in gross income in the year of
transfer the amounts specified in Code Section 83(b)) or under a similar provision of
the laws of a jurisdiction outside the United States may be made unless expressly
permitted by the terms of the Award document or by action of the Committee in writing
prior to the making of such election. In any case in which a Participant is permitted
to make such an election in connection with an Award, the Participant shall notify the
Company of such election within ten days of filing notice of the election with the
Internal Revenue Service or other governmental authority, in addition to any filing
and notification required pursuant to regulations issued under Code Section 83(b) or
other applicable provision.
	 
	 	(iii)	 	Requirement of Notification Upon Disqualifying Disposition Under Code
Section 421(b). If any Participant shall make any disposition of shares of Stock
delivered pursuant to the exercise of an ISO under the circumstances described in Code
Section 421(b) (i.e., a disqualifying disposition), such Participant shall notify the
Company of such disposition within ten days thereof.

     (e) Changes to the Plan. The Board may amend, suspend or terminate the Plan or the
Committee’s authority to grant Awards under the Plan without the consent of stockholders or
Participants; provided, however, that any amendment to the Plan shall be submitted to the Company’s
stockholders for approval not later than the earliest annual meeting for which the record date is
at or after the date of such Board action if such stockholder approval is required by any federal
or state law or regulation or the rules of the New York Stock Exchange or NASDAQ National Market
(as then applicable) or any other stock exchange or automated quotation system on which the Stock
may then be listed or quoted, or if such amendment would materially increase the number of shares
reserved for issuance and delivery under the Plan, and the Board may otherwise, in its discretion,
determine to submit other amendments to the Plan to stockholders for approval; and provided
further, that, without the consent of an affected Participant, no such Board action may materially
and adversely affect the rights of such Participant under any outstanding Award (for this purpose,
actions that alter the timing of federal income taxation of a Participant will not be deemed
material unless such action results in an income tax penalty on the Participant). Without the
approval of stockholders, the Committee will not amend or replace previously granted Options or
SARs in a transaction that constitutes a “repricing,” as such term is used in Section 303A.08 of
the Listed Company Manual of the New York Stock Exchange or NASDAQ National Market (as then
applicable). With regard to other terms of Awards, the Committee shall have no authority to waive
or modify any such Award term after the Award has been granted to the extent the waived or modified
term would be mandatory under the Plan for any Award newly granted at the date of the waiver or
modification.

     (f) Right of Setoff. The Company or any subsidiary may, to the extent permitted by applicable
law, deduct from and set off against any amounts the Company or a subsidiary may owe to the
Participant from time to time (including amounts payable in connection with any Award, owed as
wages, fringe benefits, amounts related to Awards which should have, but have not previously been,
withheld by the Company for tax purposes, or other compensation owed to the Participant), such
amounts as may be owed by the Participant to the Company, although the Participant shall remain
liable for any part of the Participant’s payment obligation not satisfied through such deduction
and setoff. By accepting any Award granted hereunder, the Participant agrees to any deduction or
setoff under this Section 10(f).

     (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an
“unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made
to a Participant or obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may

-16-

 

authorize the creation of trusts and deposit therein cash, Stock, other Awards or other property,
or make other arrangements to meet the Company’s obligations under the Plan. Such trusts or other
arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.

     (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its
submission to the stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board or a committee thereof to adopt such other incentive
arrangements, apart from the Plan, as it may deem desirable, including incentive arrangements and
awards which do not qualify under Code Section 162(m), and such other arrangements may be either
applicable generally or only in specific cases.

     (i) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by
the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid
cash consideration, the Participant shall be repaid the amount of such cash consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other property shall be issued or paid in
lieu of such fractional shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.

     (j) Compliance with Code Section 162(m). It is the intent of the Company that Options and
SARs granted to Covered Employees and other Awards designated as Awards to Covered Employees
subject to Section 7 shall constitute qualified “performance-based compensation” within the meaning
of Code Section 162(m) and regulations thereunder, unless otherwise determined by the Committee at
the time of allocation of an Award. Accordingly, the terms of Sections 7(b) and (c), including the
definitions of Covered Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee
as used herein shall mean only a person designated by the Committee as likely to be a Covered
Employee with respect to a specified fiscal year. If any provision of the Plan or any Award
document relating to a Performance Award that is designated as intended to comply with Code Section
162(m) does not comply or is inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or deemed amended to the extent necessary
to conform to such requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise payable in connection
with any such Award upon attainment of the applicable performance objectives.

     (k) Certain Limitations on Awards to Ensure Compliance with Code Section 409A. For purposes
of this Plan, references to an award term or event (including any authority or right of the Company
or a Participant) being “permitted” under Code Section 409A mean, for a 409A Award, that the term
or event will not cause the Participant to be liable for payment of interest or a tax penalty under
Code Section 409A and, for a Non-409A Award, that the term or event will not cause the Award to be
treated as subject to Code Section 409A. Other provisions of the Plan notwithstanding, the terms
of any 409A Award and any Non-409A Award, including any authority of the Company and rights of the
Participant with respect to the Award, shall be limited to those terms permitted under Code Section
409A, and any terms not permitted under Code Section 409A shall be automatically modified and
limited to the extent necessary to conform with Code Section 409A. For this purpose, other
provisions of the Plan notwithstanding, the Company shall have no authority to accelerate
distributions relating to 409A Awards in excess of the authority permitted under Code Section 409A,
and any distribution subject to Code Section 409A(a)(2)(A)(i) (separation from service) to a “key
employee” as defined under Code Section 409A(a)(2)(B)(i), shall not occur earlier than the earliest
time permitted under Code Section 409A(a)(2)(B)(i).

-17-

 

     (l) Governing Law. The validity, construction, and effect of the Plan, any rules
and regulations relating to the Plan and any Award document shall be determined in accordance with
the laws of the State of Florida, without giving effect to principles of conflicts of laws, and
applicable provisions of federal law.

     (m) Awards to Participants Outside the United States. The Committee may modify the terms of
any Award under the Plan made to or held by a Participant who is then resident or primarily
employed outside of the United States in any manner deemed by the Committee to be necessary or
appropriate in order that such Award shall conform to laws, regulations, and customs of the country
in which the Participant is then resident or primarily employed, or so that the value and other
benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions
applicable as a result of the Participant’s residence or employment abroad shall be comparable to
the value of such an Award to a Participant who is resident or primarily employed in the United
States. An Award may be modified under this Section 10(m) in a manner that is inconsistent with
the express terms of the Plan, so long as such modifications will not contravene any applicable law
or regulation or result in actual liability under Section 16(b) for the Participant whose Award is
modified.

     (n) Limitation on Rights Conferred under Plan. Neither the Plan nor any action taken
hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue
as an Eligible Person or Participant or in the employ or service of the Company or a subsidiary,
(ii) interfering in any way with the right of the Company or a subsidiary to terminate any Eligible
Person’s or Participant’s employment or service at any time (subject to the terms and provisions of
any separate written agreements), (iii) giving an Eligible Person or Participant any claim to be
granted any Award under the Plan or to be treated uniformly with other Participants and employees,
or (iv) conferring on a Participant any of the rights of a stockholder of the Company unless and
until the Participant is duly issued or transferred shares of Stock in accordance with the terms of
an Award or an Option is duly exercised. Except as expressly provided in the Plan and an Award
document, neither the Plan nor any Award document shall confer on any person other than the Company
and the Participant any rights or remedies thereunder.

     (o) Severability; Entire Agreement. If any of the provisions of this Plan or any Award
document is finally held to be invalid, illegal or unenforceable (whether in whole or in part),
such provision shall be deemed modified to the extent, but only to the extent, of such invalidity,
illegality or unenforceability, and the remaining provisions shall not be affected thereby;
provided, that, if any of such provisions is finally held to be invalid, illegal, or unenforceable
because it exceeds the maximum scope determined to be acceptable to permit such provision to be
enforceable, such provision shall be deemed to be modified to the minimum extent necessary to
modify such scope in order to make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the subject matter thereof
and supersede all prior agreements, promises, covenants, arrangements, communications,
representations and warranties between them, whether written or oral with respect to the subject
matter thereof.

     (p) Plan Effective Date and Termination; No New Grants under Preexisting Plans. The Plan
shall become effective if, and at such time as, the stockholders of the Company have approved it by
the affirmative votes of the holders of a majority of the voting securities of the Company present.
Upon such approval of the Plan by the stockholders of the Company, no further awards shall be
granted under any Preexisting Plan. In addition, the Preexisting Plans shall become null and void,
provided, however, that any outstanding awards under the Preexisting Plans shall continue in
accordance with its terms. Unless earlier terminated by action of the Board of Directors, the
authority of the Committee to make grants under the Plan shall terminate on the date that is ten
years after the latest date upon which stockholders of the
Company have approved the Plan, and the Plan will remain in effect until such time as no Stock
remains available for delivery under the Plan or as set forth above and the Company has no further
rights or obligations under the Plan with respect to outstanding Awards under the Plan.

-18-Ex-10.2

 

Exhibit 10.2

AMENDMENT TO EMPLOYMENT SEPARATION AGREEMENT

     THIS AMENDMENT TO EMPLOYMENT SEPARATION AGREEMENT (the “Amendment”), is entered into by and
between TEKELEC, a California corporation (sometimes referred to herein as “Tekelec” or “Company”),
and FRED LAX (sometimes referred to herein as “Former Employee”), and shall become effective when
executed by both parties hereto (the “Effective Date”).

RECITALS

     A. On October 26, 2005, Tekelec and Former Employee entered into an
Employment Separation Agreement with respect to Former Employee’s resignation on
January 1, 2006.

     B. Former Employee has certain outstanding stock purchase rights including
(among others) a nonstatutory stock option for 146,875 shares of the Company’s
common stock which was granted pursuant to the 1994 Stock Option Plan with a
purchase price per share of $8.54 (hereinafter referred to as the “NSO”).

     C. In accordance with the 1994 Stock Option Plan, the Employment
Separation Agreement reflected that the NSO would terminate on April 1, 2006, three
months after Former Employee’s resignation date. The Employment Separation
Agreement did not extend the exercise period for the NSO.

     D. In connection with the filing of Tekelec’s Form 8-K in February 2006
wherein Tekelec announced it would restate previously issued financial statements,
Tekelec instituted an option exercise blackout for both current and former employees
under Tekelec’s stock option plans. As a result of the blackout, optionees are not allowed
to exercise any of their options under the Company’s stock option plans until such time
as the Company becomes current in its SEC reporting. The need to restate financial
results and resulting blackout were not anticipated at the time the parties entered into the
Employment Separation Agreement.

     E. As a result of the blackout, Former Employee has been and will be unable
to exercise the NSO before its scheduled termination on April 1, 2006.

     F. Under the 1994 Stock Option Plan, the Compensation Committee of the
Board of Directors of the Company has the authority, in its discretion, to extend the
exercise period of the NSO for a period which cannot exceed three months.

1

 

     G. Former Employee has asserted that the blackout has deprived him of a substantial benefit
under the 1994 Stock Option Plan and the Employment Separation Agreement.

     H. In light of Former Employee’s inability to exercise the NSO within the period following
termination contemplated by the 1994 Stock Option Agreement and the Employment Separation
Agreement, and to resolve all outstanding disputes between them, Tekelec has agreed to extend
Former Employee’s exercise rights with respect to the NSO subject to the terms of this Agreement
and the 1994 Stock Option Plan.

AGREEMENTS

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and
conditions set forth herein, the receipt and sufficiency of which are hereby acknowledged, Tekelec
and Former Employee hereby agree as follows:

1. Extension of Exercise Period. In consideration for Former Employee’s release of
claims set forth herein, and his continuing performance of his obligations under the
Employment Separation Agreement (including but not limited to Employee’s obligations
under Sections 7, 8, 10 and 11 thereof), Tekelec agrees to extend the exercise period
with respect to the nonstatutory stock option for 146,875 shares granted on January 31,
2003 pursuant to the 1994 Stock Option Plan (the “NSO”), through the earlier of (a) the
thirtieth (30th) calendar day after the blackout ends, or (b) July 1, 2006, whereupon said
NSO, to the extent not exercised, shall terminate and expire for all purposes.

2. No Guarantees of Exercisability or Value; No Other Changes. Tekelec cannot
and has not promised Former Employee that the blackout will expire prior to the
termination of the NSO, nor has Tekelec guaranteed the value (if any) of the NSO should
it become exercisable before it terminates. Former Employee acknowledges and agrees
that there can be no assurance that Former Employee will have the opportunity to
exercise the NSO prior to its termination. Except as set forth in paragraph 1 above,
nothing in this Agreement shall alter or affect any outstanding stock options, warrants or
rights or Former Employee’s rights or responsibilities with respect thereto. Except as set
forth in paragraph 1 above and Section 6 of the Employment Separation Agreement, the
time period through which Former Employee may exercise his vested stock options shall
expire in accordance with the terms of the stock option plans under which Former
Employee’s options were granted.

3. Release of Claims.

     3.1 Effective as of the Effective Date of this Amendment, Former Employee does hereby and
forever release and discharge Tekelec and the predecessor corporation of Tekelec as well as the
successors, current, prior or future shareholders of record, officers, directors, heirs,
predecessors, assigns, agents, employees, attorneys, insurers and representatives of each of them,
past, present or future, from any and all cause or causes

2

 

of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities and
demands of any kind or character whatsoever, whether known or unknown, suspected to exist or not
suspected to exist, anticipated or not anticipated, whether or not heretofore brought before any
state or federal agency, court or other governmental entity (“Claims”) which, directly or
indirectly, in whole or in part, relate or are attributable to, connected with, or incidental to
Former Employee’s rights, ability or inability to exercise the NSO prior to or due to the
“blackout” implemented by Tekelec in February 2006.

     3.2 Waiver of Unknown Claims. Former Employee acknowledges that he is
aware that he may hereafter discover claims or facts different from or in addition to those
he now knows or believes to be true with respect to the matters herein released as set
forth in paragraph 3.1 above, and he agrees that this release shall be and remain in effect
in all respects a complete general release as to the matters released and all claims relative
thereto which may exist or may heretofore have existed, notwithstanding any such
different or additional facts. Former Employee acknowledges that he has been informed
of Section 1542 of the Civil Code of the State of California, and does hereby expressly
waive and relinquish all rights and benefits which he has or may have under said Section,
which reads as follows:

“A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.”

     3.3 Covenant Not to Sue and Related Matters. Former Employee covenants
that he will not make, assert or maintain against any person or entity that Former
Employee has released in this Agreement, any claim, demand, action, cause of action,
suit or proceeding arising out of or in connection with the matters herein released.
Former Employee represents and warrants that he has not assigned or transferred,
purported to assign or transfer, and will not assign or transfer, any matter or claim herein
released. Former Employee represents and warrants that he knows of no other person or
entity which claims an interest in the matters or claims herein released. Former
Employee agrees to, and shall at all times, indemnify and hold harmless each person and
entity that Former Employee has released in this Agreement against any claim, demand,
damage, debt, liability, account, action or cause of action, or cost or expense, including
attorneys’ fees, resulting or arising from any breach of the representations, warranties and
covenants made herein.

4. Legal Advice and Construction of Agreement. Both Tekelec and Former Employee have
received (or have voluntarily and knowingly elected not to receive) independent legal and tax
advice with respect to the advisability of entering into this Amendment and with respect to all
matters covered by it, and neither has been entitled to rely upon or has in fact relied upon the
legal or other advice of the other party or such other party’s counsel (or employees) in entering
into this Agreement. Without limiting the generality of the foregoing, Former Employee has not
relied upon the legal or other advice of the General Counsel of Tekelec.

3

 

5. Entire Agreement. This Amendment together with the Employment Separation
Agreement, constitutes a single integrated contract expressing the entire agreement of the
parties with respect to the subject matter thereof and supersedes all prior and
contemporaneous oral and written agreements and discussions with respect to the subject
matter hereof. Except as specifically modified by this Amendment, all of the terms and
provisions of the Employment Separation Agreement shall remain in effect and shall be
deemed to incorporate the terms of this Amendment as if entered into concurrently
therewith.

6. Review Rights. Former Employee acknowledges that he was advised in writing
to consult with an attorney prior to executing this Amendment and further acknowledges
that he has been given through March 31, 2006, within which to consider the terms and
provisions of this Amendment. If Former Employee has not executed and delivered to
Tekelec this Agreement prior to the close of business on March 31, 2006, the Company’s
offer as set forth herein shall be deemed withdrawn.

	 	 	 	 	 	 	 	 	 
	TEKELEC	 	FRED LAX	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	      /s/ Ronald W. Buckly
 

	 	Signature:
	 	      Fred Lax
 

	 	 
	 
	 	 	 	 	 	 	 	 
	Name:

	 	Ronald W. Buckly
	 	Date:
	 	3/31/06
	 	 
	 
	 	 	 	 	 	 	 	 
	Title:

	 	SVP & General Counsel
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Date:

	 	3/31/06
	 	 	 	 	 	 

4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}]]