Document:

exv4w3

 

Exhibit 4.3

TELLABS, INC.

2004 INCENTIVE COMPENSATION PLAN

(As adopted February 20, 2004)

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	 	Page
	Article 1.
	 	Establishment, Purpose, and Duration	 	 
	1.1
	 	Establishment of the Plan	 	1
	1.2
	 	Purpose of the Plan	 	1
	1.3
	 	Duration of the Plan	 	1
	Article 2.
	 	Definitions and Construction	 	 
	2.1
	 	Definitions	 	1
	2.2
	 	Gender and Number	 	4
	2.3
	 	Severability	 	4
	Article 3.
	 	Administration	 	 
	3.1
	 	Authority of the Committee	 	5
	3.2
	 	Decisions Binding	 	5
	3.3
	 	Delegation of Certain Responsibilities	 	6
	3.4
	 	Procedures of the Committee	 	6
	3.5
	 	Award Agreements	 	6
	Article 4.
	 	Stock Subject to the Plan	 	 
	4.1
	 	Number of Shares	 	6
	4.2
	 	Adjustments in Authorized Shares	 	7
	Article 5.
	 	Eligibility and Participation	 	 
	5.1
	 	Eligibility	 	8
	5.2
	 	Actual Participation	 	8
	Article 6.
	 	Options	 	 
	6.1
	 	Grant of Options	 	8
	6.2
	 	Option Price	 	8
	6.3
	 	Payment	 	8
	6.4
	 	Special Provisions Applicable to Incentive Stock Options	 	9
	Article 7.
	 	Stock Appreciation Rights	 	 
	7.1
	 	Grant of Stock Appreciation Rights	 	9
	7.2
	 	Payment of SAR Amount	 	9
	7.3
	 	Form of Payment	 	9
	Article 8.
	 	Restricted Stock and Restricted Stock Units	 	 
	8.1
	 	Grant of Restricted Stock and Restricted Stock Units	 	9
	8.2
	 	End of Period of Restriction	 	9
	Article 9.
	 	Performance Units and Performance Shares	 	 
	9.1
	 	Grant of Performance Units or Performance Shares	 	10
	9.2
	 	Value of Performance Units and Performance Shares	 	10
	9.3
	 	Payment of Performance Units and Performance Shares	 	10
	Article 10.
	 	Annual and Other Incentive Awards	 	 
	10.1
	 	Annual Incentive Awards	 	10
	10.2
	 	Grant of Other Incentive Awards	 	11
	10.3
	 	Limitations	 	11
	Article 11.
	 	Performance Goals	 	 
	11.1
	 	Performance Goals	 	12

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TABLE OF CONTENTS
(continued)

	 	 	 	 	 
	 	 	 	 	Page
	Article 12.
	 	Beneficiary Designation	 	 
	Article 13.
	 	Rights of Participants	 	 
	13.1
	 	Employment or Service	 	13
	13.2
	 	Participation	 	13
	13.3
	 	No Right to Company Assets	 	13
	13.4
	 	Rights as Stockholder; Fractional Shares	 	13
	13.5
	 	Nontransferability of Awards	 	13
	13.6
	 	Election to Defer	 	14
	13.7
	 	Other Restrictions and Limitations	 	14
	13.8
	 	Awards to Participants Outside the United States	 	14
	Article 14.
	 	Change in Control	 	 
	14.1
	 	Stock Based Awards	 	14
	14.2
	 	Performance Based Awards	 	14
	Article 15.
	 	Amendment, Modification, and Termination	 	 
	15.1
	 	Amendment, Modification and Termination of Plan	 	14
	15.2
	 	Amendment or Modification Awards	 	15
	15.3
	 	Effect on Outstanding Awards	 	15
	Article 16.
	 	Withholding	 	 
	16.1
	 	Tax Withholding	 	15
	16.2
	 	Stock Delivery or Withholding	 	15
	Article 17.
	 	Successors	 	 
	Article 18.
	 	Requirements of Law	 	 
	18.1
	 	Requirements of Law	 	16
	18.2
	 	Governing Law	 	16

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Article 1. Establishment, Purpose, and Duration

     1.1 Establishment of the Plan. On February 20, 2004, the Board of Directors of
Tellabs, Inc. (the “Company”) adopted, subject to the approval of stockholders, this incentive
compensation plan known as the “Tellabs, Inc. Incentive Compensation Plan” (hereinafter referred to
as the “Plan”), which permits the grant of short-term and long-term incentive and other stock and
cash awards.

     1.2 Purpose of the Plan. The purpose of the Plan is to promote the success of the
Company and its Subsidiaries by providing incentives to Employees, Directors and Consultants of the
Company and its Subsidiaries that will link their personal interests to the financial success of
the Company and its Subsidiaries and to growth in stockholder value. The Plan is designed to
provide flexibility to the Company and its Subsidiaries in their ability to motivate, attract, and
retain the services of Employees, Directors and Consultants upon whose judgment, interest, and
special effort the successful conduct of their operations is largely dependent.

     1.3 Duration of the Plan. The Plan was approved by the Board on February 20, 2004,
shall become effective on the date it is approved by the Company’s stockholders (the “Effective
Date”), and shall remain in effect, subject to the right of the Board of Directors to terminate the
Plan at any time pursuant to Article 15 herein, until all Shares subject to it shall have been
purchased or acquired according to the provisions herein. However, in no event may an Award be
granted under the Plan on or after the tenth (10th) anniversary of the Effective Date of the Plan.

Article 2. Definitions and Construction

     2.1 Definitions. Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter of the word is
capitalized:

          (a) “Award” includes, without limitation, Options, Stock Appreciation Rights, Performance
Share or Unit Awards, Dividend or Dividend Equivalent Rights, Stock Awards, Restricted Stock or
Unit Awards, Cash Awards, Annual Incentive Awards or Other Incentive Awards as described in or
granted under this Plan.

          (b) “Award Agreement” means the agreement or other writing (which may be framed as a plan or
program) that sets forth the terms and conditions of each Award under the Plan, including any
amendment or modification thereof.

          (c) “Change in Control” shall be deemed to have occurred the first to occur of:

               (i) Any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)), excluding for this purpose, the Company or any
subsidiary of the Company, or any employee benefit plan of the Company or any subsidiary of
the Company, or any person or entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan which acquires beneficial ownership of voting
securities of the Company, is or becomes

 

 

the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Company representing 20% or more of the combined voting
power of the Company’s then outstanding securities; provided, however, that no Change in
Control will be deemed to have occurred as a result of a change in ownership percentage
resulting solely from an acquisition of securities by the Company; and provided further that
no Change in Control will be deemed to have occurred if a person inadvertently acquires an
ownership interest of 20% or more but then promptly reduces that ownership interest below
20%;

               (ii) During any two consecutive years, individuals who at the beginning of such
two-year period constitute the Board and any new director (except for a director designated
by a person who has entered into an agreement with the Company to effect a transaction
described elsewhere in this definition of Change in Control) whose election by the Board or
nomination for election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so approved (such
individuals and any such new director, the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board;

               (iii) Consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business Combination,

                    (A) all or substantially all of the individuals and entities who were the
beneficial owners of outstanding voting securities of the Company immediately prior
to such Business Combination beneficially own, directly or indirectly, more than 50%
of the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or more
subsidiaries) (the “Resulting Company”) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the outstanding
voting securities of the Company;

                    (B) no person (as defined in Section 13(d) and 14(d) of the Exchange Act)(other
than the Company, the Resulting Company or any employee benefit plan (or related
trust) of the Company or such Resulting Company) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then combined voting power of the then
outstanding voting securities of the Resulting Company, except to the extent that
such ownership resulted solely from ownership of securities of the Company prior to
the Business Combination; and

                    (C) at least a majority of the members of the board of directors of the
Resulting Company were members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board, providing for such Business
Combination;

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               (iv) Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company; or

               (v) A tender offer (for which a filing has been made with the Securities and Exchange
Commission “SEC”) which purports to comply with the requirements of Section 14(d) of the
Exchange Act and the corresponding SEC rules) is made for voting securities of the Company,
and then the first to occur of:

                    (A) Any time during the offer when the person making the offer owns or has
accepted for payment stock of the Company with 25% or more of the total voting power
of the Company’s securities, or

                    (B) Three (3) business days before the offer is to terminate unless the offer
is withdrawn first if the person making the offer could own, by the terms of the
offer plus any shares owned by the person, stock with 50% or more of total voting
power of the Company’s securities when the offer terminates.

          (d) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

          (e) “Committee” means the Tellabs, Inc. Compensation Committee, or such other committee
designated by the Board of Directors to administer this Plan. The Committee shall be appointed by
the Board, shall consist of three or more outside, independent members of the Board, and in the
judgment of the Board, shall be qualified to administer the Plan as contemplated by (i) Rule 16b-3
of the Securities Exchange Act of 1934 (or any successor rule), (ii) Section 162(m) of the Code, as
amended, and the regulations thereunder (or any successor Section and regulations), and (iii) any
rules and regulations of the Nasdaq Stock Market (or such other stock exchange on which the Common
Stock is traded). Any member of the Committee who does not satisfy the qualifications set out in
the preceding sentence may recuse himself or herself from any vote or other action taken by the
Committee. The Board may, at any time and in its complete discretion, remove any member of the
Committee and may fill any vacancy in the Committee.

          (f) “Common Stock,” “Shares” or “Stock” means the common stock, par value $.01 per share, of
the Company.

          (g) “Company” means Tellabs, Inc., a Delaware corporation, or any successor thereto as
provided in Article 15 herein.

          (h) “Consultant” means any person, including an advisor (other than a person who is an
Employee or a Director), or any entity that renders services to the Company and/or a Subsidiary.

          (i) “Covered Employee” means any Participant who is or may be a “covered employee” within the
meaning of Section 162(m)(3) of the Code in the year in which an Award becomes taxable to such
Participant.

          (j) “Director” means a director of the Company or a Subsidiary.

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          (k) Effective Date” means the date this Plan is approved by the Company’s stockholders.

          (l) “Employee” means an employee of the Company or any of its Subsidiaries, including an
employee who is an officer or a Director.

          (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

          (n) As used in this Plan (unless a different method of calculation is required by applicable
law) “Fair Market Value” on or as of any date shall mean (i) the closing price of the Stock as
reported by the Nasdaq Stock Market (or, if the Stock is not listed for trading on the Nasdaq Stock
Market, then on such other national exchange upon which the Stock is then listed) for such date, or
if there are no sales on such date, on the next preceding day on which there were sales, or (ii) in
the event that the Stock is no longer listed for trading on a national exchange, an amount
determined in accordance with standards adopted by the Committee.

          (o) “Participant” means an Employee, a Director or a Consultant who has been granted an Award
under the Plan.

          (p) “Plan” means this Tellabs, Inc. 2004 Incentive Compensation Plan, as herein described and
as hereafter from time to time amended.

          (q) “Predecessor Plans” means the 1984 Incentive Stock Option Plan, as amended and restated,
1986 Non-Qualified Stock Option Plan, as amended and restated, 1987 Stock Option Plan for
Non-Employee Corporate Directors, as amended and restated, 1989 Stock Option Plan, as amended and
restated, 1991 Stock Option Plan, as amended and restated, 1994 Stock Option Plan, Tellabs, Inc.
1997 Stock Option Plan, Tellabs, Inc. 1998 Stock Option Plan, 1999 Tellabs, Inc., Stock Bonus Plan,
and the Tellabs, Inc. 2001 Stock Option Plan.

          (r) “Previously-Acquired Shares” means shares of Stock acquired by the Participant or any
beneficiary of a Participant, which Shares have been held for a period of not less than six months,
or such longer or shorter period as the Committee may require or permit.

          (s) “Subsidiary” shall mean any corporation which is a subsidiary corporation of the Company,
as that term is defined in Section 424(f) of the Code.

     2.2 Gender and Number. Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine, the plural shall include the singular, and the
singular shall include the plural.

     2.3 Severability. In the event any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not
been included.

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Article 3. Administration

     3.1 Authority of the Committee.

          (a) The Plan shall be administered by the Committee. Subject to the provisions of the Plan,
the Committee shall have all powers vested in it by the terms of the Plan, such powers to include
the authority to:

               (i) Select the persons to be granted Awards under the Plan;

               (ii) Determine the terms, conditions, form and amount of Awards to be made to each
person selected;

               (iii) Determine the time when Awards are to be made and any conditions which must be
satisfied before an Award is made;

               (iv) To establish objectives and conditions for earning Awards;

               (v) To determine the terms of each Award Agreement and any amendments or modifications
thereof (which shall not be inconsistent with the Plan);

               (vi) To determine whether the conditions for earning an Award have been met and whether
an Award will be paid at the end of the Performance Period;

               (vii) To determine if and when an Award may be deferred;

               (viii) To determine whether the amount or payment of an Award should be reduced or
eliminated; and

               (ix) To determine the guidelines and/or procedures for the payment or exercise of
Awards; and

               (x) Make such other determinations and take such other actions relating to Awards as
the Committee deems necessary or appropriate.

Notwithstanding the foregoing, no action of the Committee (other than pursuant to Sections 4.2 8.3,
10.1 or Article 11) may, without the consent of the person or persons entitled to exercise any
outstanding Option or Stock Appreciation Right or to receive payment of any other outstanding
Award, adversely affect the rights of such person or persons with respect to such Awards.

     3.2 Decisions Binding. The Committee shall have full power and authority to
administer and interpret the Plan and to adopt or establish such rules, regulations, agreements,
guidelines, procedures and instruments, which are not contrary to the terms of the Plan and which,
in its opinion, may be necessary or advisable for the administration and operation of the Plan.
All determinations and decisions made by the Committee pursuant to the provisions of the Plan and
all related orders or resolutions of the Board of Directors shall be final, conclusive and binding
on all persons, including the Company and its Subsidiaries, its stockholders, employees,

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and Participants and their estates and beneficiaries, and such determinations and decisions
shall not be reviewable.

     3.3 Delegation of Certain Responsibilities. The Committee may, subject to the terms
of the Plan and applicable law, appoint such agents as it deems necessary or advisable for the
proper administration of the Plan under this Article 3; provided, however, that except as provided
below the Committee may not delegate its authority to grant Awards under the Plan or to correct
errors, omissions or inconsistencies in the Plan. The Committee may delegate to the Company’s
Chief Executive Officer and/or to other officers of the Company its authority under this Article 3,
provided that such delegation shall not extend to the grant of Awards or the exercise of discretion
with respect to Awards to Employees who, at the time of such action, are (a) Covered Employees or
(b) officers of the Company or its Subsidiaries who are subject to the reporting requirements of
Section 16(a) of the Exchange Act. All authority delegated by the Committee under this Section 3.3
shall be exercised in accordance with the provisions of the Plan and any guidelines for the
exercise of such authority that may from time to time be established by the Committee.

     3.4 Procedures of the Committee. Except as may otherwise be provided in the charter
or similar governing document applicable to the Committee, (a) all determinations of the Committee
shall be made by not less than a majority of its members present at the meeting (in person or
otherwise) at which a quorum is present; (b) a majority of the entire Committee shall constitute a
quorum for the transaction of business; and (c) any action required or permitted to be taken at a
meeting of the Committee may be taken without a meeting if a unanimous written consent, which sets
forth the action, is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee.

     3.5 Award Agreements. Each Award under the Plan shall be evidenced by an Award
Agreement which shall be signed by an authorized officer of the Company and, if required, by the
Participant, and shall contain such terms and conditions as may be authorized or approved by the
Committee. Such terms and conditions need not be the same in all cases.

Article 4. Stock Subject to the Plan

     4.1 Number of Shares.

          (a) Subject to adjustment as provided in Section 4.2 herein, the aggregate number of shares
Common Stock that may be delivered under the Plan at any time shall not exceed (i) 10,000,000
Shares, plus (ii) the number of Shares that remain available for issuance under the Predecessor
Plans as of the Effective Date (increased by any Shares subject to any award (or portion thereof)
outstanding under the Predecessor Plans on the Effective Date which are not issued upon or due to
the subsequent exercise, termination, expiration or lapse of such award). Stock delivered under
the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares.
To the extent that shares of Stock subject to an outstanding Award or an award under the
Predecessor Plan are not issued by reason of the forfeiture, termination, surrender, cancellation
or expiration while unexercised of such award, by reason of the tendering or withholding of Shares
(by either actual delivery or by attestation) to pay all or a portion of the purchase price or to
satisfy all or a portion of the tax withholding obligations

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relating to an Award, by reason of being settled in cash in lieu of Stock or settled in a
manner such that some or all of the Shares covered by the Award are not issued to a Participant, or
being exchanged for a grant under this Plan that does not involve Stock, then such shares shall
immediately again be available for issuance under this Plan. The Committee may from time to time
adopt and observe such procedures concerning the counting of Shares against the Plan maximum as it
may deem appropriate.

          (b) Shares of Common Stock issued in connection with awards that are assumed, converted or
substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or
any of its Subsidiaries shall not reduce the number of Shares available for issuance under this
Plan.

          (c) Subject to Section 4.2, the following limitations shall apply to Awards under the Plan:

               (i) All of the Shares that may be issued under this Plan may be issued pursuant to
SARs, Options or other Awards hereunder, provided, however, that the number of shares of
Common Stock that may be issued under this Plan pursuant to Options which are Incentive
Stock Options shall be limited to 10,000,000, and provided, further, that not more than
9,000,000 shares of Common Stock may be delivered pursuant to Awards of Restricted Stock or
Restricted Stock Units.

               (ii) The maximum number of Shares that may be covered by Awards granted under this Plan
to any single Participant shall be [1,000,000] Shares during any one calendar year. For
purposes of applying the limitations set forth in this paragraph (ii), if an Award,
including, but not limited to Options, SARs, Restricted Stock, Restricted Stock Units and
Performance Shares, is denominated in Shares or the amount of the payment to be made
thereunder shall be determined by reference to the value of Shares, then such Award shall be
counted in the year the Award is granted as covering the number of Shares set forth in the
Award. If an Award is granted in tandem with a Stock Appreciation Right, such that the
exercise of the Award right or Stock Appreciation Right with respect to a share of Common
Stock cancels the tandem Stock Appreciation Right or Award right, respectively, with respect
to such share, the tandem Award right and Stock Appreciation Right with respect to each
share of Stock shall be counted as covering but one share of Stock for purposes of applying
the limitations of this paragraph (ii).

     4.2 Adjustments in Authorized Shares. In the event of any merger, reorganization,
consolidation, recapitalization, separation, liquidation, Common stock dividend, split-up, share
combination, or other change in the corporate structure of the Company affecting the Common stock,
such adjustment shall be made in the number and class of shares which may be delivered under the
Plan, in the maximum number of Shares set forth in paragraph 4.1(c) above, and in the number and
class of and/or price of shares subject to outstanding Awards granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; and provided that the number of shares subject to any Award
shall always be a whole number. Any adjustment of an Incentive Stock Option under this

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     paragraph shall be made in such a manner so as not to constitute a modification within the
meaning of Section 424(h)(3) of the Code.

Article 5. Eligibility and Participation

     5.1 Eligibility. Persons eligible to participate in this Plan include all Employees
Directors and Consultants.

     5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may
from time to time select those Employees, Directors and Consultants to whom Awards shall be granted
and determine the nature and amount of each Award.

Article 6. Options

     6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be
granted to Employees, Directors, and/or Consultants at any time and from time to time as shall be
determined by the Committee. The Committee may grant any type of Option to purchase Stock that is
permitted by law at the time of grant including, but not limited to Incentive Stock Options
(“ISOs”) or Nonqualified Stock Option (“NQSOs”). However, only Employees may receive an Award of
Incentive Stock Option. Unless the Award Agreement shall specify that the Option is intended to be
an Incentive Stock Option within the meaning of Section 422 of the Code, the Option shall be a
Nonqualified Stock Option whose grant is not intended to be subject to the provisions of Code
Section 422. Each Option shall expire at such time as the Committee shall determine in the Award
Agreement, however, no Option shall be exercisable later than the tenth (10th) anniversary date of
its grant.

     6.2 Option Price. The purchase price per share of Stock covered by an Option shall be
determined by the Committee but shall not be less than 100% of the Fair Market Value of such Stock
on the date the Option is granted. Notwithstanding the authority granted to the Committee pursuant
to Section 3.1 of the Plan, once an Option is granted, the Committee shall have no authority to
reduce the Option price, nor may any Option granted under the Plan be surrendered to the Company as
consideration for the grant of a new Option with a lower exercise price without the approval of the
Company’s stockholders, except pursuant to Section 4.2 of the Plan related to an adjustment in the
number of Shares.

     6.3 Payment. Options shall be exercised by the delivery of a written notice to the
Company setting forth the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares. The Option price of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, including, but not limited to, delivery of a
properly completed exercise notice, together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale proceeds from the sale of the Shares subject to the
Option exercise or to deliver loan proceeds from such broker to pay the exercise price and any
withholding taxes due, (b) by delivery or deemed delivery through attestation of
Previously-Acquired Shares having a Fair Market Value at the time of exercise equal to the total
Option price, (c) by a combination of (a) or (b), or (d) such other methods as the Committee may
permit.

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     6.4 Special Provisions Applicable to Incentive Stock Options. To the extent provided
or required under Section 422 of the Code or regulations thereunder (or any successor section or
regulations) the Award of Incentive Stock Options shall be subject to the following:

          (a) In the event that the aggregate Fair Market Value of the Common Stock (determined at the
time the Options are granted) subject to ISOs held by a Participant that first becomes exercisable
during any calendar year exceeds $100,000 then the portion of such ISOs equal to such excess shall
be NQSOs.

          (b) An Incentive Stock Option granted to an employee who, at the time of grant, owns (within
the meaning of Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of Stock of the Company, shall have an exercise price which is at least
110% of the Fair Market Value of the Common Stock subject to the Option, and shall be exercisable
later than the fifth (5th) anniversary date of its grant.

Article 7. Stock Appreciation Rights

     7.1 Grant of Stock Appreciation Rights. Subject to the terms and conditions of the
Plan, stock appreciation rights (“SARs”) may be granted to Employees, Directors and/or Consultants
at any time and from time to time, at the discretion of the Committee. Each SAR shall expire at
such time as the Committee shall determine in the Award Agreement, however, no SAR shall be
exercisable later than the tenth (10th) anniversary of the date of its grant.

     7.2 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be entitled to
receive payment of an amount determined by multiplying:

          (a) The difference between the Fair Market Value of a Share on the date of exercise over the
price fixed by the Committee at the date of grant (which price shall not be less than 100% of the
Fair Market Value of a Share on the date of grant); by

          (b) The number of Shares with respect to which the SAR is exercised.

     7.3 Form of Payment. Payment to a Participant of the amount due upon SAR exercise
will be made in Shares having a Fair Market Value as of the date of exercise equal to the amount
determined under Section 6.2 above, except as the Committee may otherwise provide for the payment
in cash in the applicable Award Agreement or any amendment or modification thereof.

Article 8. Restricted Stock and Restricted Stock Units

     8.1 Grant of Restricted Stock and Restricted Stock Units. Subject to the terms and
conditions of the Plan, the Committee, at any time and from time to time, may grant restricted
Stock and Restricted Stock Units under the Plan to such Employees, Directors and/or Consultants and
in such amounts and on such terms and conditions as it shall determine.

     8.2 End of Period of Restriction. Restricted Stock and Restricted Stock Units shall
be subject to such restrictions as the Committee determines, including, without limitation,
prohibition against sale, transfer, assignment or encumbrance for a specified period, and a

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requirement to forfeit or return Restricted Stock or Restricted Stock Units in the vent of
termination of employment or service during the specified period. After the last day of the period
of restriction, (a) Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant, and (b) the Participant shall be
entitled to receive one Share of Common Stock with respect to each Restricted Stock Unit.

Article 9. Performance Units and Performance Shares

     9.1 Grant of Performance Units or Performance Shares. Subject to the terms and
conditions of the Plan, Performance Units or Performance Shares may be granted to Employees,
Directors and/or Consultants at any time and from time to time as shall be determined by the
Committee.

     9.2 Value of Performance Units and Performance Shares. With respect to each grant of
Performance Units or Performance Shares, the Committee shall establish an initial value for each
Performance Unit and an initial number of Shares for each Performance Share granted to each
Participant, the performance goals that will be used to determine the extent to which the
Participant receives a payment of the value of the Performance Units or number of Shares for the
Performance Shares awarded, and the period over which such performance will be measured
(“Performance Period”). These goals will be based on the attainment, by the Company or its
Subsidiaries, of one or more certain performance criteria and objectives described in Article 11
herein. With respect to each such performance measure utilized during a Performance Period, the
Committee shall assign percentages to various levels of performance which shall be applied to
determine the extent to which the Participant shall receive a payout of the values of Performance
Units and number of Performance Shares awarded. Subject to limitations applicable to payments to
Covered Employees, the Committee shall have the authority to modify, amend or adjust the terms and
conditions of any Performance Unit award or Performance Share award, at any time or from time to
time, including but not limited to the performance goals.

     9.3 Payment of Performance Units and Performance Shares. After a Performance Period
has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the
value thereof as determined by the Committee. The Committee shall make this determination by first
determining the extent to which the performance goals set pursuant to Section 8.2 have been met.
It will then determine the applicable percentage to be applied to, and will apply such percentage
to, the value of Performance Units or number of Performance Shares to determine the payout to be
received by the Participant. In addition, with respect to Performance Units and Performance Shares
granted to any Covered Employee, no payout shall be made hereunder except upon written
certification by the Committee that the applicable performance goal or goals have been satisfied to
a particular extent. The payment described in this Section 8.3 herein shall be made in cash, Common
Stock, or a combination thereof as determined by the Committee.

Article 10. Annual and Other Incentive Awards

     10.1 Annual Incentive Awards. The Committee may from time to time, subject to the
provisions of the Plan and such other terms and conditions as the Committee may determine,

10

 

grant Annual Incentive Awards to Employees, including, but not limited to, Covered Employees.
Each such Award shall be subject to the following provisions.

          (a) Amounts earned by and paid to Participants under Annual Incentive Awards will be based
upon achievement of performance goals established pursuant to Article 11 above over a one-year
Performance Period, subject to the Committee’s authority to reduce, but not increase, such amount;

          (b) The maximum amount any Participant may earn under an Annual Incentive Award for any
calendar year shall not exceed $[3,000,000].

          (c) Annual Incentive Awards shall be paid in cash, subject to the Committee providing that all
or a portion of any such amount may be paid in Shares.

     10.2 Grant of Other Incentive Awards. In addition to Awards under Sections 6 through
9, and Section 10.1 above, the Committee may grant Other Incentives Awards payable in cash or in
Common Stock under the Plan as it determines in its sole discretion. Other Incentive Awards may be
granted to Employees, Directors and/or Consultants at any time and from time to time as shall be
determined by the Committee. Such Awards may include, but are not limited to:

          (a) Dividend or Dividend Equivalent Right. A right to receive dividends or their
equivalent in value in Stock, cash or in a combination of both with respect to any new or
previously existing Award.

          (b) Stock Award. An unrestricted transfer of ownership of Stock.

          (c) Awards under Deferred Compensation or Similar Plans. The right to receive Stock
or a fixed or variable share denominated unit granted under this Plan or any deferred compensation
or similar plan established from time to time by the Company.

          (d) Cash Award. An award denominated in cash, subject to the achievement of
performance goals set forth in Section 8.8 during a Performance Period determined by the Committee,
or that may be earned under a Company or Subsidiary bonus or incentive plan or program.

          (e) Other Incentive Awards. Other Incentive Awards which are related to or serve a
similar function to those Awards set forth in this Section 10.2.

     10.3 Limitations. The number of Shares covered by Other Incentive Awards granted to a
Participant during a calendar year shall be taken into account for purposes of the annual
limitation set forth in Section 4.1(c)(iii) above. The maximum amount that may be earned under the
Plan during any calendar year with respect to any Cash Award or Other Incentive Award described in
Section 10.2, shall be $3,000,000. Any amount earned with respect to which performance is measured
over a period greater than one year shall be deemed to have been earned ratably over the full and
partial calendar years in such period.

11

 

Article 11. Performance Goals

     11.1 Performance Goals. For purposes of this Plan, including, but not limited to,
Awards of Performance Shares and Performance Units under Article 8, and of Annual Incentive Awards
or other performance-based Awards under Article 10, “performance goals” shall mean the criteria and
objectives, determined by the Committee, which shall be satisfied or met during the applicable
period of restriction or Performance Period, as the case may be, as a condition to the
Participant’s receipt, of Shares or cash with respect to such Award. The criteria or objectives
for an Award shall be determined by the Committee in writing, shall be measured for achievement or
satisfaction during the Performance Period or period of restriction in which the Committee
established for such Participant to satisfy or achieve such criteria and objectives and may be
absolute in their terms or measured against or in relationship to other companies comparably,
similarly or otherwise situated or other external or internal measure and may be based on or
adjusted for any other objective goals, events, or occurrences established by the Committee,
provided that such criteria and objectives relate to one or more of the following: total
stockholder return, earnings, earnings per share, net income, gross margin, earnings before
interest, taxes, depreciation and/or amortization, revenues, expenses, cash flow, indebtedness,
market share, return on assets, return on equity, economic value added, assets, Fair Market Value
of the Common Stock, value of assets, regulatory compliance, satisfactory internal or external
audits, improvement of financial ratings, achievement of balance sheet or income statement
objectives, or other financial, accounting or quantitative objective established by the Committee.
Performance criteria and objectives may include or exclude extraordinary charges, losses from
discontinued operations, restatements and accounting changes and other unplanned special charges
such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to
goodwill and other intangible assets, stock offerings, and stock repurchases. Such performance
criteria and objectives may be particular to a line of business, Subsidiary or other unit or the
Company generally, and may, but need not be, based upon a change or an increase or positive result.
In interpreting Plan provisions applicable to performance criteria and objectives and to
performance-based Awards to Participants who are Covered Employees, it is the intent of the Plan to
conform with the standards of Section 162(m) of the Code and the regulations thereunder. The
Committee in establishing performance criteria and objectives applicable to such performance-based
Awards, and in interpreting the Plan, shall be guided by such standards, including, but not limited
to providing that the performance-based Award shall be paid, vested or otherwise delivered solely
as a function of attainment of objective performance criteria and objectives based on one or more
of the specific criteria and objectives set forth in this Article 11 established by the Committee
not later than 90 days after the Performance Period or Period of Restriction applicable to the
Award has commenced (or, if such period of service is less than one year, not later than the date
on which 25% of such period has elapsed). Prior to the payment of any compensation based on
achievement of performance criteria and objectives to any such Covered Employee, the Committee must
certify in writing the extent to which the applicable performance criteria and objectives were, in
fact, achieved and the amounts to be paid, vested or delivered as a result thereof, provided the
Committee may reduce, but not increase, such amount.

12

 

Article 12. Beneficiary Designation

     Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively and who may include a trustee under a will or living
trust) to whom any benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be effective only when filed
by the Participant in writing with the Committee during his lifetime. In the absence of any such
designation or if all designated beneficiaries predecease the Participant, benefits remaining
unpaid at the Participant’s death shall be paid to the Participant’s estate.

Article 13. Rights of Participants

     13.1 Employment or Service. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any of its Subsidiaries to terminate any Participant’s employment
or service as a Director or Consultant at any time, nor confer upon any Participant any right to
continue in the employ or to so serve as a Director or Consultant of the Company or any of its
Subsidiaries.

     13.2 Participation. No Employee, Director or Consultant shall have a right to be
selected as a Participant, or, having been so selected, to be selected again as a Participant.

     13.3 No Right to Company Assets. Neither the Participant nor any other person shall
acquire, by reason of the Plan, any right in or title to any assets, funds or property of the
Company or any of its Subsidiaries whatsoever including, without limiting the generality of the
foregoing, any specific funds, assets, or other property which the Company or any of its
Subsidiaries, in its sole discretion, may set aside in anticipation of a liability hereunder. Any
benefits which become payable hereunder shall be paid from the general assets of the Company or the
applicable Subsidiary.

     13.4 Rights as Stockholder; Fractional Shares. Except as otherwise provided under the
Plan, a Participant or Beneficiary shall have no rights as a holder of Shares with respect to
Awards hereunder, unless and until Shares are issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). Fractional Shares
shall not be issued or transferred under an Award, but the Committee may authorize payment of cash
in lieu of a fraction, or round the fraction down. To the extent the Common Stock is
uncertificated, references in this Plan to certificates shall be deemed to include references to
any book-entry evidencing such Shares.

     13.5 Nontransferability of Awards. The Committee may permit the transfer of Awards,
and may impose such restrictions on transferability, and establish such operational procedures
regarding transferability, as it may deem appropriate, necessary, or advisable. Except as the
Committee may permit, no Award granted under the Plan may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution. Further, all Awards granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.

13

 

     13.6 Election to Defer. The receipt of payment of cash or delivery of Shares that
would otherwise be due to a Participant pursuant to an Award hereunder may be deferred at the
election of the Participant pursuant to an applicable deferral plan established by the Company or a
Subsidiary. Such deferrals shall be made in accordance with such rules and procedures as the
Committee may establish under this Plan or the applicable deferral plan.

     13.7 Other Restrictions and Limitations. The Committee may impose such restrictions
and limitations on any Awards and/or any amounts payable thereunder as it may deem advisable,
including, without limitation, restrictions intended to comply with applicable Federal or state
securities laws, Share ownership or holding period requirements, or requirements to enter into or
to comply with confidentiality, non-competition and/or other restrictive or similar covenants
(including provisions relating to forfeiture of awards for violation of such covenants, and may
legend the certificates issued in connection with an Award to give appropriate notice of any such
restrictions.

     13.8 Awards to Participants Outside the United States. In the event any Award under
this Plan is granted to a Participant who is employed or providing services outside the United
States and who is not compensated from a payroll maintained in the United States, the Committee
may, in its discretion, modify the provisions of this Plan as they pertain to such individuals to
comply with applicable law, regulation or accounting rules.

Article 14. Change in Control

     14.1 Stock Based Awards. Notwithstanding any other provisions of the Plan, and except
as otherwise provided in the Award Agreement, in the event of a Change in Control, all Stock-based
Awards granted under this Plan shall immediately vest 100% in each Participant, including Options,
SARs, Restricted Stock and Restricted Stock Units.

     14.2 Performance Based Awards. Notwithstanding any other provisions of the Plan, and
except as otherwise provided in the Award Agreement, in the event of a Change in Control, all
Awards granted under this Plan which are subject to performance goals shall be immediately paid
out, including Performance Units and Performance Shares. The amount of the payout shall be based
on the higher of: (i) the extent, as determined by the Committee, to which performance goals,
established for the Performance Period then in progress have been met up through and including the
effective date of the Change in Control, or (ii) 100% of the value on the date of grant of the
Performance Units or number of Performance Shares.

Article 15. Amendment, Modification, and Termination

     15.1 Amendment, Modification and Termination of Plan. The Board may terminate the
Plan or any portion thereof at any time, and may amend or modify the Plan from time to time in such
respects as the Board may deem advisable in order that any Awards thereunder shall conform to any
change in applicable laws or regulations or in any other respect the Board may deem to be in the
best interests of the Company; provided, however, that no such amendment or modification shall,
without stockholder approval, (i) except as provided in Section 4.2, increase the number of shares
of Stock which may be issued under the Plan, (ii) expand the types of Awards available to
Participants under the Plan, (iii) materially expand the class of persons

14

 

eligible to participate in the Plan; (iv) delete or limit the provisions in Section 6.2
prohibiting the repricing of Options or reduce the price at which Shares may be offered under
Options; or (v) extend the termination date for making Awards under the Plan. In addition, the
Plan shall not be amended without approval of such amendment by the Company’s stockholders if such
amendment is required under (1) the rules and regulations of the Nasdaq Stock Market or an other
national exchange on which the Stock is then listed, or (2) other applicable law, rules or
regulations.

     15.2 Amendment or Modification Awards. The Committee may amend or modify any
outstanding Awards in any manner to the extent that the Committee would have had the authority
under the Plan initially to make such Award as so modified or amended, including without
limitation, to change the date or dates as of which Awards may be exercised, to remove the
restrictions on Awards, or to modify the manner in which Awards are determined and paid.

     15.3 Effect on Outstanding Awards. No such amendment, modification or termination of
the Plan pursuant to Section 15.1 above, or amendment or modification of an Award pursuant to
Section 15.2 above, shall materially adversely alter or impair any outstanding Awards without the
consent of the Participant affected thereby.

Article 16. Withholding

     16.1 Tax Withholding. The Company and any of its Subsidiaries shall have the power
and the right to deduct or withhold, or require a Participant to remit to the Company or any of its
Subsidiaries, an amount sufficient to satisfy Federal, state and local taxes (including the
Participant’s FICA obligation) required by law to be withheld with respect to any grant, exercise,
or payment made under or as a result of this Plan.

     16.2 Stock Delivery or Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock or Restricted Stock
Units, or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect to satisfy the withholding requirement, in whole or in part, by having the
Company withhold shares of Common Stock having a Fair Market Value on the date the tax is to be
determined equal to the minimum (or such greater amount as the Committee may permit) statutory
total tax which would be imposed on the transaction. All such elections shall be subject to any
procedures, restrictions or limitations that the Committee, in its sole discretion, deems
appropriate.

Article 17. Successors

     All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall
be binding on any successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all
of the business and/or assets of the Company.

15

 

Article 18. Requirements of Law

     18.1 Requirements of Law. The granting of Awards and the issuance of Shares of Stock
under this Plan shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may be required.

     18.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Delaware.

16<PAGE>

                                                                   EXHIBIT 10.11

                         RFE INVESTMENT PARTNERS V, L.P.
                                 36 GROVE STREET
                              NEW CANAAN, CT 06840

December 23, 2004

Metalico, Inc.
186 North Avenue East
Cranford, New Jersey  07016
Attention:  Carlos E. Aguero, CEO

Dear Carlos:

      Please be informed that, effective as of January 1, 2005, RFE Investment
Partners V, L.P. ("RFE") hereby waives the following rights that RFE has in its
capacity as a stockholder of Metalico, Inc. (the "Company"):

         -   Section 2.1(a)(iv) of the Second Amended and Restated Stockholders'
Agreement (the "Stockholders' Agreement"), dated May 24, 2004, among the Company
and the stockholders named therein;

         -   Section 2.1(c) of the Stockholders' Agreement, as such section
applies to RFE;

         -   Section 2.1(e) of the Stockholders' Agreement, as such section
applies to RFE; and

         -   Section 8.1 of the Preferred Stock Purchase Agreement, dated
February 5, 1998, among the Company and the purchasers listed therein.

      Notwithstanding the foregoing, if:

         -   the Company's common stock (the "Common Stock") is not listed for
trading on the American Stock Exchange ("AMEX") on or prior to September 30,
2005, or

         -   after the Company's common stock is listed for trading on AMEX on
or prior to September 30, 2005, the Common Stock is suspended from trading on
AMEX or the Common Stock's listed status on AMEX is otherwise lost (a
"Suspension/Loss"), in any case, for more than fifteen (15) consecutive days,

then (i) the foregoing waivers automatically shall become null and void and be
of no further effect from and after October 1, 2005 or fifteen (15) days after
the date of such Suspension/Loss, as the case may be, and (ii) any right waived
herein shall be reinstated as of October 1, 2005 or fifteen (15) days after the
date of such Suspension/Loss, as the case may be, to its fullest extent for the
benefit of RFE. With respect to any rights that are reinstated for the benefit
of RFE under Section 2.1 of the Stockholders' Agreement pursuant to the
preceding clauses (i) and (ii), the Company agrees that it shall use its best
efforts to reinstate an RFE Nominee (as defined in the Stockholders' Agreement)
to the Company's board of directors within forty-five (45) days of RFE's
exercise of any right under Section 2.1(a)(iv) of the Stockholders' Agreement
and RFE agrees that it will not deem the Company to be in violation of its
obligation to seat an RFE Nominee under Section 2.1(a)(iv) of the Stockholders'
Agreement during such 45-day period.

<PAGE>

Mr. Carlos E. Aguero, Metalico, Inc.
December 23, 2004
Page 2

      The waivers given by RFE in this letter are irrevocable, subject only to
the reinstatement provisions set forth in the above paragraph.

      Kindly acknowledge the foregoing by executing in the space below on behalf
of the Company.

                                         Sincerely,

                                         RFE INVESTMENTS PARTNERS V, L.P.

                                         By: RFE Associates V, L.P., its
                                              general partners

                                         By:
                                             -----------------------------------
                                              Name:
                                              Title: General Partner

Acknowledged and confirmed as of the date written above:

METALICO, INC.

By:
    ----------------------------
     Carlos E. Aguero, CEO

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