Document:

<PAGE>
                                                                   Exhibit 10.03

                        AMENDMENT NO. 2 dated as of July 14, 2004 (this
                  "Amendment"), to the Credit Agreement dated as of March 3,
                  2004 (as amended, supplemented or otherwise modified from time
                  to time, the "Credit Agreement"), among FLEXTRONICS
                  INTERNATIONAL USA, INC., a California corporation (the
                  "Borrower"), the financial institutions party to the Credit
                  Agreement as Lenders (the "Lenders"), and ABN AMRO BANK N.V.,
                  as Agent.

            A. Pursuant to the Credit Agreement, the Lenders have extended and
agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.

            B. The Borrower has requested that the Lenders amend the Credit
Agreement to, among other things (a) provide for a decrease in the Total
Commitment and a decrease in the Commitment of each Lender as set forth on Annex
I hereto and (b) permit the Borrower to further decrease or increase the Total
Commitment after the date of this Amendment upon written notice to the Lenders,
provided that the Combined Total Commitment does not exceed $1,100,000,000. The
Lenders are willing so to amend the Credit Agreement on the terms and subject to
the conditions set forth herein.

            Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:

            SECTION 1. Amendments to Section 1.01. (a) Section 1.01 of the
Credit Agreement is hereby amended by deleting the definition of the term "Total
Commitment" in its entirety and replacing it with the following:

            "Total Commitment" shall mean, at any time, the sum at such time of
      the Lenders' Commitments. The Total Commitment as of July 14, 2004 is Two
      Hundred Million Dollars ($200,000,000).

            (b) The term "EBITDA" in Section 1.01 of the Credit Agreement is
hereby amended by deleting the text "September 30, 2004" in clause (d) thereof
and substituting "June 28, 2004" therefore.

            SECTION 2. Amendment to Section 2.01. Clause (i)(A) of Subparagraph
2.01 (b) is hereby amended by inserting the text "the lesser of (i) the Total
Commitment and (ii)" after the text "shall not exceed."

            SECTION 3. Amendment to Section 2.05. (a) Section 2.05 of the Credit
Agreement is hereby amended by adding the following Subparagraph 2.05(d) at the
end of such Section:

<PAGE>

                                                                               2

            "(d) Increases and Decreases in Commitments. Upon five (5) Business
      Days prior written notice to the Lenders and Agent in the form attached
      hereto as Exhibit A-2 or another form acceptable to Agent, the Borrower
      may (without the consent of any Lender) increase or decrease the Total
      Commitment by Five Million Dollars ($5,000,000) or integral multiples
      thereof by reallocating between "Commitments" under the FIL Credit
      Agreement and "Commitments" under this Agreement; provided, however that:

            (i) any increase (or decrease) in the Total Commitment pursuant to
            this Subparagraph 2.05(d) shall automatically result in (and be
            subject to) a corresponding decrease (or increase) in the "Total
            Commitment" under the FIL Credit Agreement;

            (ii) any increase (or decrease) in a Lender's Commitment pursuant to
            this Subparagraph 2.05(d) shall automatically result in (and be
            subject to) a corresponding decrease (or increase) in such Lender's
            "Commitment" under the FIL Credit Agreement;

            (iii) the Combined Total Commitment shall not exceed One Billion One
            Hundred Million Dollars ($1,100,000,000), as permanently reduced
            pursuant to Subparagraph 2.05(b) of this Agreement and Subparagraph
            2.05(c) of the FIL Credit Agreement;

            (iv) each Lender's Combined Commitment shall not exceed the amount
            set forth under the caption "Combined Commitment" in Part A of
            Schedule I, as permanently reduced pursuant to Subparagraph 2.05(b)
            of this Agreement and Subparagraph 2.05(c) of the FIL Credit
            Agreement;

            (v) the Borrower may not reduce the Total Commitment prior to the
            Maturity Date if, after giving effect to such reduction, the
            aggregate principal amount of all Loans then outstanding plus the
            aggregate amount available for drawing under all Letters of Credit
            plus the aggregate amount of all Reimbursement Obligations
            outstanding at such time would exceed the Total Commitment; and

            (vi) no Default or Event of Default under this Agreement and no
            "Default" or "Event of Default" under the FIL Credit Agreement has
            occurred and is continuing or would result from such increase or
            decrease in the Total Commitment.

            (b) Subparagraph 2.05(c) is hereby amended by (i) adding the text
"(except as set forth in Subparagraph 2.05(d))" after the text "reduced or
cancelled" and (ii) adding the following text at the end of such Subparagraph:

            "Any increase in the Total Commitment shall be applied to increase
      each Lender's Commitment pro rata according to such Lender's Proportionate
      Share."

<PAGE>

                                                                               3

            SECTION 4. Amendment to Section 2.06. Section 2.06 of the Credit
Agreement is hereby amended by adding the following new Subparagraph (d) at the
end of such Section:

            "(d) Utilization Fee. For each day on which the sum of (i) the Used
      Commitment and (ii) the "Used Commitment" as defined in the FIL Credit
      Agreement is equal to or greater than 33% of the Combined Total Commitment
      on such day (and for each day after the day on which the Commitments
      terminate), the Borrowers agree to pay to the Agent, in US Dollars, for
      the account of each Lender, a utilization fee, which shall accrue at the
      rate under the column "Utilization Fee" on Schedule II on the daily amount
      of the Used Commitment, to be paid to the Lenders based on each Lender's
      Proportionate Share. Accrued utilization fees shall be payable in arrears
      on the last day of March, June, September and December of each year, on
      any date prior to the Maturity Date on which the Commitments terminate and
      on the Maturity Date commencing on September 30,2004, provided that any
      utilization fees accruing after the Maturity Date shall be payable on
      demand. All utilization fees shall be computed on the basis of a year of
      360 days and shall be payable for the actual number of days elapsed
      (including the first day but excluding the last day)."

            SECTION 5. Amendment to Section 5.01. Section 5.01 is hereby amended
by deleting Subparagraph 5.01(k) in its entirety and substituting the following
therefor:

            "(k) Flextronics Hungaria Kft. In the event that Flextronics
      Hungaria Kft. (x) has not been liquidated or dissolved by September 30,
      2004, and (y) is a "Material Subsidiary" as of such date, then, within
      five (5) Business Days of such date, Borrower shall cause Flextronics
      Hungaria Kft. to (i) complete and execute a Subsidiary Joinder and (ii)
      deliver or cause to be delivered such other instruments, agreements,
      certificates, opinions and documents as Agent may reasonably request."

            SECTION 6. Amendment to Section 8.04. Subparagraph 8.04(i) is hereby
amended by inserting the text "(other than as provided in Subparagraph 2.05(e))"
after the text "(A) increase the Total Commitment."

            SECTION 7. Amendments to Section 8.05. Subparagraph 8.05(c) is
hereby amended by deleting clause (iv) in its entirety and replace it with the
following:

            "(iv) No Lender may make any Assignment of its Commitment and Loans
      under this Agreement to any Assignee Lender unless such Lender
      concurrently assigns and delegates to such Assignee Lender an equal pro
      rata interest in such Lender's "Commitment" and "Loans" under the FIL
      Credit Agreement; and"

            SECTION 8. Amendments to Schedules and Exhibits (a) Part A of
Schedule I of the Credit Agreement is hereby deleted in its entirety and
replaced with the revised "Schedule I - Part A" attached hereto as Annex I.

<PAGE>

                                                                               4

            (b) A new Exhibit A-2 is hereby added to the Credit Agreement in the
form attached hereto as Annex II.

            (c) Schedule II of the Credit Agreement is hereby deleted in its
entirety and replaced with the revised Schedule II attached hereto as Annex III.

            SECTION 9. Representations and Warranties. To induce the other
parties to enter into this Amendment, the Borrower represents and warrants to
the Agent and to each Lender that:

            (a) This Amendment has been duly authorized, executed and delivered
by it and constitutes a legal, valid and binding obligation of such party
hereto, enforceable against it in accordance with its terms.

            (b) After giving effect to this Amendment, the representations and
warranties set forth in Section IV of the Credit Agreement are true and correct
in all material respects on and as of the date hereof with the same effect as if
made on and as of the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties were true and correct as of such earlier date).

            (c) The acquisition by the Borrower of a fifty-five percent (55%)
ownership interest in Hughes Software Systems is permitted under the Credit
Agreement.

            (d) After giving effect to this Amendment, no Event of Default or
Default has occurred and is continuing.

            SECTION 10. Conditions to Effectiveness. This Amendment shall become
effective as of the date first above written when (a) the Agent shall have
received (i) counterparts of this Amendment that, when taken together, bear the
signatures of each Borrower and each Lender and (ii) counterparts of Amendment
No. 2 to the FIL Credit Agreement dated the date hereof that, when taken
together, bear the signatures of FIL and each Lender party thereto, (b) the
representations and warranties set forth in Section 9 of this Amendment are true
and correct and (c) all expenses required to be paid or reimbursed by the
Borrower pursuant to this Amendment, the Credit Agreement, the FIL Credit
Agreement or otherwise, including all reasonable invoiced fees and expenses of
counsel to the Agent, shall have been paid or reimbursed, as applicable.

            SECTION 11. Effect of Amendment. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein and only for the circumstances referred to
herein. Any default under this Amendment shall constitute an Event of Default
under the Credit Agreement.

            SECTION 12. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

<PAGE>

                                                                               5

            SECTION 13. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement. Delivery of an executed
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually signed counterpart of this Amendment.

            SECTION 14. Expenses. The Borrower agrees to reimburse the Agent for
its reasonable out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore LLP, counsel for the Agent.

            SECTION 15. Headings. The headings of this Amendment are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.

<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.

                                     FLEXTRONICS INTERNATIONAL USA,
                                     INC.,

                                         by /s/ THOMAS J. SMACH
                                            ------------------------------------
                                            Name: THOMAS J. SMACH
                                            Title: CFO

<PAGE>

                                     ABN AMRO BANK N.V., individually and
                                     as Agent,
                                         by /s/ WILLIAM W. DAVIDSON
                                            ------------------------------------
                                            Name: WILLIAM W. DAVIDSON
                                            Title: VICE PRESIDENT

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of institution Bank of America, N.A.

                                         by /s/ JAMES P. JOHNSON
                                            ------------------------------------
                                            Name: JAMES P. JOHNSON
                                            Title: Managing Director

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution ALLIED IRISH BANKS Plc.

                                         by /s/ Michael Doyle
                                            ------------------------------------
                                            Name: MICHAEL DOYLE
                                            Title: SENIOR VICE PRESIDENT

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FUJI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution BANK AUSTRIA CREDITANSTALT AG

                                         by /s/ K. Prauckl
                                            ------------------------------------
                                            Name:  K. Prauckl
                                            Title: Ingo Bleler

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution BNP PARIBAS

                                         by /s/ Rafael Lumanlan
                                            ------------------------------------
                                            Name: Rafael Lumanlan
                                            Title: Director

                                         by /s/ Stuart Darby
                                            ------------------------------------
                                            Name: Stuart Darby
                                            Title: Vice President

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name Of Institution ABN-AMRO BANK N.V.

                                         by /s/ WILLIAM W. DAVIDSON
                                            ------------------------------------
                                            Name: WILLIAM W. DAVIDSON
                                            Title: VICE PRESIDENT

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Citicorp USA, Inc.

                                         by /s/ Spiegel
                                            ------------------------------------
                                            Name: Spiegel

                                            Title: V.P.

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

                                     CREDIT SUISSE FIRST BOSTON ACTING
                                     THROUGH ITS CAYMAN ISLANDS BRANCH

                                     by: /s/ Peter Chauvin
                                         -----------------------------
                                         Peter Chauvin
                                         Vice President

                                     by: /s/ Alain Daoust
                                         -----------------------------
                                         Alain Daoust
                                         Director

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Deutsche Bank AG, New York Branch

                                         by /s/ Paul O'Leary
                                            ------------------------------------
                                            Name: Paul O'Leary
                                            Title: Vice President

                                         /s/ Gregory Shefrin
                                         ---------------------------------------
                                             Name: Gregory Shefrin
                                             Title: Director

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution FLEET NATIONAL BANK

                                         by /s/ JAMES P. JOHNSON
                                            ------------------------------------
                                            Name: JAMES P. JOHNSON
                                            Title: Managing Director

                                            Attention: Bank of America, N.A.
                                                       Technology Group

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution HSBC Bank USA, NA

                                         by /s/ David Wagstaff
                                            ------------------------------------
                                            Name: David Wagstaff
                                            Title: Senior Vice President

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Kereskedelmi es Hitel bank Rt.

                                         by ___________________________________
                                            Name:
                                            Title:

                                /s/ Attila Paczoli         /s/ Zoltan Petrov
                                -------------------     ------------------------
                                 Attila Paczoli             Zoltan Petrov
                                   Director               Relationship Manager

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Key Bank National Association

                                         by /s/ Robert W. Boswell
                                            ------------------------------------
                                            Name: ROBERT W. BOSWELL
                                            Title: VICE PRESIDENT

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution LEHMAN COMMERCIAL PAPER, INC.

                                         by /s/ Francis J. Chang
                                            ------------------------------------
                                            Name: Francis J. Chang
                                            Title: Authorized Signatory

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Mizuho Corporate Bank, Ltd.

                                         by /s/ Yuichi Hirashima
                                            ------------------------------------
                                            Name: Yuichi Hirashima
                                            Title: Deputy General Manager

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

TO Approve the Amendment:

Name of Institution Royal Bank of Canada

                                         by /s/ Stephanie Babich-Allegra
                                            ------------------------------------
                                            Name: Stephanie Babich-Allegra
                                            Title: Authorized Signatory

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIU1 CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Skandinaviska Enskilda Banken AB (publ)

                                         by /s/ Michael I Dicks
                                            ------------------------------------
                                            Name: Michael I Dicks
                                            Title: Head of DCM, London

                                         by /s/ Martin Lindeberg
                                            ------------------------------------
                                            Name: Martin Lindeberg
                                            Title: Transaction Manager

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Sumitomo Mitsui Banking Corporation

                                         by /s/ Leo E. Pagarigan
                                            ------------------------------------
                                            Name: Leo E. Pagarigan
                                            Title: Senior Vice President

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution The Bank of Nova Scotia

                                         by /s/ Kemp  Leonard
                                            ------------------------------------
                                            Name: Kemp  Leonard
                                            Title: Director

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

                           UBS LOAN FINANCE LLC

                           By: /s/ Doris Mesa
                               ------------------------------
                                   Doris Mesa
                                   Associate Director
                                   Banking Products
                                   Services, US

                           By: /s/ JOSELIN FERNANDES
                               ------------------------------
                                   Joselin Fernandes
                                   Associate Director
                                   Banking Products
                                   Services, US

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Union Bank of California, N.A.

                                         by /s/ Sarabelle Hitchner
                                            ------------------------------------
                                            Name: Sarabelle Hitchner
                                            Title: Vice President

<PAGE>

                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution U.S. Bank National Association

                                         by /s/ Janet E. Jordan
                                            ------------------------------------
                                            Name: Janet E. Jordan
                                            Title: Vice President

<PAGE>

                                                                         ANNEX I

                               SCHEDULE I - PART A

<TABLE>
<CAPTION>
                                                                NEW ALLOCATION
                                            ---------------------------------------------------
                                                Combined
        Institution                            Commitment             FIL              FIUI
---------------------------------           ---------------      -------------    -------------
<S>                                         <C>                  <C>              <C>
ABN AMRO                                    $    85,000,000      $  69,545,456    $  15,454,544
Fleet                                       $    85,000,000      $  69,545,455    $  15,454,545
Bank of America                             $    81,500,000      $  66,681,818    $  14,818,182
Citibank                                    $    81,500,000      $  66,681,818    $  14,818,182
Deutsche Bank AG, New York Branch           $    81,500,000      $  66,681,818    $  14,818,182
Credit Suisse First Boston                  $    81,500,000      $  66,681,818    $  14,818,182
Scotia Capital                              $    81,500,000      $  66,681,818    $  14,818,182
BNP Paribas                                 $    62,500,000      $  51,136,364    $  11,363,636
Key Bank                                    $    60,000,000      $  49,090,909    $  10,909,091
HSBC                                        $    50,000,000      $  40,909,091    $   9,090,909
UBS                                         $    50,000,000      $  40,909,091    $   9,090,909
Royal Bank of Canada                        $    50,000,000      $  40,909,091    $   9,090,909
Lehman Brothers                             $    50,000,000      $  40,909,091    $   9,090,909
Mizuho                                      $    35,000,000      $  28,636,364    $   6,363,636
Union Bank of California                    $    30,000,000      $  24,545,455    $   5,454,545
Bank Austria                                $    25,000,000      $  20,454,545    $   4,545,455
K&H Bank                                    $    25,000,000      $  20,454,545    $   4,545,455
US Bank                                     $    25,000,000      $  20,454,545    $   4,545,455
SE Banken                                   $    25,000,000      $  20,454,545    $   4,545,455
Sumitomo Mitsui                             $    25,000,000      $  20,454,545    $   4,545,455
Allied Irish Bank                           $    10,000,000      $   8,181,818    $   1,818,182
                                            ---------------      -------------    -------------
                                            $ 1,100,000,000      $ 900,000,000    $ 200,000,000
</TABLE>

<PAGE>

                                                                        ANNEX II

                                   EXHIBIT A-2

                         NOTICE OF INCREASE OR DECREASE
                              IN TOTAL COMMITMENTS

                                     [Date]

ABN AMRO Bank N.V.

as Agent

[_______________]

Attn: [_________________]

      1. Reference is made to that certain Credit Agreement, dated as of March
3, 2004 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Flextronics International USA, Inc. ("Borrower").
Lenders, Fleet National Bank, as Issuing Bank, and ABN AMRO Bank N.V., as Agent.
Lenders have agreed to extend credit to Borrower upon the terms and subject to
the conditions set forth therein. Unless otherwise indicated, all terms defined
in the Credit Agreement have the same respective meanings when used herein.

      2. Pursuant to Paragraph 2.05(d) of the Credit Agreement, Borrower hereby
requests [an increase] [a decrease] in the Total Commitment in the amount of
$[ ] and a corresponding [decrease] [increase] in the "Total Commitment" under
the FIL Credit Agreement.

      3. Borrower hereby certifies to Lenders and Agent that, on the date of
this Notice and after giving effect to the requested [increase] [decrease] in
the Total Commitment:

            (a) The representations and warranties set forth in Paragraph 4.01
of the Credit Agreement and in the other Credit Documents are true and correct
in all material respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true as of such
date); and

            (b) No Default has occurred and is continuing or will result from
such [increase] [decrease] in the Total Commitment.

            (c) After giving effect to such [increase] [decrease] in the Total
Commitment (i) the Combined Total Commitment does not exceed $1,100,000,000 and
(ii) the Total Commitment is not less than the sum of (x) the then aggregate
principal amount of Loans outstanding, (y) the aggregate amount available for
drawing under all Letters of Credit and (z) the aggregate amount of all
Reimbursement Obligations then outstanding.

<PAGE>

                                                                        ANNEX II

            IN WITNESS WHEREOF, Borrower has executed this Notice on the date
set forth above.

                                         FLEXTRONICS INTERNATIONAL USA, INC.,

                                         By: ___________________________________
                                             Name: _____________________________
                                             Title: ____________________________

                                         FLEXTRONICS INTERNATIONAL LTD.,

                                         By: ___________________________________
                                             Name: _____________________________
                                             Title: ____________________________

<PAGE>

                                                                       ANNEX III

                                   SCHEDULE II

                                  PRICING GRID

<TABLE>
<CAPTION>
                                                APPLICABLE
                                                  MARGIN
                                APPLICABLE         FOR
      FIL'S                       MARGIN        LIBOR RATE
     SENIOR                         FOR         BORROWINGS                      COMMITMENT
      DEBT          PRICING      BASE RATE        AND LC     UTILIZATION            FEE
     RATING          LEVEL      BORROWINGS      USAGE FEE         FEE           PERCENTAGE
-----------------   -------     ----------      -----------  -----------        ----------
<S>                 <C>         <C>             <C>          <C>                <C>
> or = BBB / Baa2      1              0%          0.750%          0.250%          0.150%
      BBB- / Baa3      2              0%          1.000%          0.250%          0.200%
       BB+ / Bal       3          0.250%          1.250%          0.250%          0.250%
        BB / Ba2       4          0.500%          1.500%          0.250%          0.350%
< or = BB- / Ba3       5          1.000%          2.000%          0.250%          0.500%
</TABLE>

<PAGE>

                                                                       ANNEX III

                                   EXPLANATION

The Applicable Margin with respect to the LIBOR Rate Loans, the LC Usage Fee (as
applicable) and the Commitment Fee Percentage will be determined based on FIL's
Senior Debt Rating assigned by S&P and Moody's as follows:

1.    In the event FIL does not have a Senior Debt Rating from either S&P or
      Moody's, then such rating agency will be deemed for purposes hereof to
      have established a Senior Debt Rating for FIL below BB- and Ba3,
      respectively.

2.    If the Senior Debt Rating established or deemed to have been established
      by S&P and Moody's are split within different categories above, then the
      lower rating shall apply (with Pricing Level 3 being lower than Pricing
      Level 2).

3.    Any change in FIL's Senior Debt Rating shall be effective on the date such
      change is first announced by the rating agency making such change.

In addition, the Borrower will pay the utilization fee specified in the fifth
column above as provided in Section 2.06 of the Credit Agreement.exv10w1

 

Exhibit 10.1

SAFEGUARD SCIENTIFICS, INC.

2004 EQUITY COMPENSATION PLAN

     1.       Purpose

          The purpose of the Safeguard Scientifics, Inc. 2004 Equity Compensation
Plan is to provide (i) designated Company employees, (ii) individuals to whom
an offer of employment has been extended, (iii) certain advisors who perform
services for the Company, and (iv) nonemployee members of the Company’s Board
of Directors with the opportunity to receive grants of incentive stock options,
nonqualified stock options, stock units, stock appreciation rights, performance
units, stock awards, dividend equivalents and other stock-based awards. The
Company believes that the Plan will encourage the participants to contribute
materially to the Company’s growth, thereby benefiting the Company’s
shareholders, and will align the economic interests of the participants with
those of the shareholders.

     2.       Definitions

     Whenever used in this Plan, the following terms will have the respective
meanings set forth below:

          (a)      “Board” means the Company’s Board of Directors as constituted from
time to time.

          (b)      “Change of Control” means the first to occur of any of the following
events:

               (i)      An acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (1) the then outstanding shares of Common Stock of the
Company (“Common Stock”) or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”) (a “Control
Purchase”); excluding, however, the following: (1) any acquisition directly
from the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, (4) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of subsection (iii) of this definition, or (5)
provided, however, that notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person acquires beneficial
ownership of more than 20% of the Common Stock or the Outstanding Company
Voting Securities as a result of the acquisition of Common Stock or Outstanding
Company Voting Securities by the Company which reduces the amount of Common
Stock or Outstanding Company Voting Securities; provided, that if after such
acquisition by the Company such Person becomes the beneficial owner of
additional Common Stock or Outstanding Company Voting Securities that increases
the percentage of Common Stock or

 

 

Outstanding Company Voting Securities beneficially owned by such Person, a
Change in Control shall then occur; or

               (ii)      A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be hereinafter referred to as the “Incumbent Board”) cease for any reason
to constitute at least a majority of the Board; provided, however, for purposes
of this subsection (ii), that any individual who becomes a member of the Board
subsequent to the effective date of the Plan, whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or whose membership on the Board was so
approved by a board which itself consisted of a majority of directors elected
by the Incumbent Board) shall be considered as though such individual were a
member of the Incumbent Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the Incumbent
Board (a “Board Change”); or

               (iii)      Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
(“Corporate Transaction”); excluding, however, such a Corporate Transaction
pursuant to which (1) all or substantially all of the individuals and entities
who are the beneficial owners, respectively, of the Common Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50% of,
respectively, the outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (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) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no Person (other
than the Company, any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Corporate Transaction) will
beneficially own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors except to the extent that such ownership existed prior to the
Corporate Transaction, and (3) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or

               (iv)      The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

          (c)      “Code” means the Internal Revenue Code of 1986, as amended.

-2-

 

          (d)      “Committee” means (i) with respect to Grants to Employees, the
Compensation Committee of the Board or its delegate or successor, or such other
committee appointed by the Board to administer the Plan or its delegate or its
successor, (ii) with respect to Grants made to Nonemployee Directors, the Board
or its delegate, and (iii) with respect to Grants designated as “qualified
performance based compensation” under Code Section 162(m), a committee that
consists of two or more persons appointed by the Board, all of whom shall be
“outside directors” as defined under Code Section 162(m) and related Treasury
regulations.

          (e)      “Company” means Safeguard Scientifics, Inc., any successor
corporation, each corporation which is a member of a controlled group of
corporations (within the meaning of Code Section 414(b)) of which the Company
is a component member, any subsidiary at least 50% directly or indirectly owned
by Safeguard Scientifics, Inc. (or any successor thereto)and any affiliate
entity which, with the approval of the Committee, is deemed to constitute an
entity controlled by Safeguard Scientifics, Inc.

          (f)      “Date of Grant” means the effective date of a Grant; provided,
however, that no retroactive Grants will be made.

          (g)      “Dividend Equivalent” means an amount determined by multiplying the
number of shares of Stock or Stock Units subject to a Grant by the per-share
cash dividend, or the per-share fair market value (as determined by the
Committee) of any dividend in consideration other than cash, paid by the
Company on its Stock on a dividend payment date.

          (h)      “Effective Date” means April 6, 2004, subject to the Company’s
obtaining shareholder approval of this Plan.

          (i)      “Employee” means, unless otherwise determined by the Committee, an
employee of the Company (including an officer or director who is also an
employee) other than an individual (a) employed in a casual or temporary
capacity (i.e., those hired for a specific job of limited duration), (b) whose
terms of employment are governed by a collective bargaining agreement that does
not provide for participation in this Plan, (c) characterized as a “leased
employee” within the meaning of Code Section 414(d) who is a non-resident
alien, or (d) classified by the Company as a “contractor” or “consultant,” no
matter how characterized by the Internal Revenue Service, other governmental
agency or a court; provided, however, that the Committee shall have the
discretion to determine on a case by case basis whether and to what extent an
employee of an affiliate shall be deemed an Employee. Any change of
characterization of an individual by any court or government agency shall have
no effect upon the classification of an individual as an Employee for purposes
of this Plan, unless the Committee determines otherwise.

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

          (k)      “Fair Market Value” means the average of the highest and lowest sales
prices of a share of Stock on the New York Stock Exchange on the day on which
Fair Market Value is being determined, as reported on the composite tape for
transactions on the New York Stock Exchange. In the event that there are no
Stock transactions on the New York Stock

-3-

 

Exchange on such day, the Fair Market Value will be determined as of the
immediately preceding day on which there were Stock transactions on that
exchange. Notwithstanding the foregoing, in the case of a cashless exercise
pursuant to Section 8(g), the Fair Market Value will be the actual sale price
of the shares issued upon exercise of the Option.

          (l)      “Grant” means an Option, Stock Unit, Performance Unit, Stock Award,
Dividend Equivalent, Stock Appreciation Right or Other Stock-Based Award
granted under the Plan.

          (m)      “Grant Instrument” means the written agreement that sets forth the
terms and conditions of a Grant, including all amendments thereto.

          (n)      “Incentive Stock Option” means a stock option that is intended to meet
the requirements of Code Section 422, as described in Section 8.

          (o)      “Nonemployee Director” means a member of the Board who is not an
employee of the Company.

          (p)      “Nonqualified Stock Option” means a stock option that is not intended
to meet the requirements of Code Section 422, as described in Section 8.

          (q)      “Option” means an Incentive Stock Option or Nonqualified Stock Option
to purchase Stock at the Option Price for a specified period of time.

          (r)      “Option Price” means an amount per share of Stock purchasable under an
Option, as designated by the Committee.

          (s)      “Other Stock-Based Award” means any Grant based on, measured by or
payable in Stock (other than Grants described in Sections 7, 8, 9, 10, 11 and
12 of the Plan) as described in Section 13.

          (t)      “Participant” means an Employee, Nonemployee Director or Key Advisor
designated by the Committee to participate in the Plan.

          (u)      “Performance Units” means phantom units, as described in Section 10.

          (v)      “Plan” means this 2004 Equity Compensation Plan, as in effect from
time to time.

          (w)      “Stock” means the common stock of Safeguard Scientifics, Inc. or such
other securities of Safeguard Scientifics, Inc. as may be substituted for Stock
pursuant to Section 5(c) or Section 18.

          (x)      “Stock Award” means an award of Stock, as described in Section 11.

          (y)      “Stock Unit” means an award of a phantom unit, representing one or
more shares of Stock, as described in Section 9.

-4-

 

     3.       Administration

          (a)      Committee. The Plan shall be administered and interpreted by the
Committee or its successor; ministerial functions may be performed by an
administrative committee comprised of Company employees appointed by the
Committee.

          (b)      Committee Authority. The Committee shall have the sole authority to
(i) determine the individuals to whom Grants shall be made under the Plan, (ii)
determine the type, size and terms of the Grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, and (iv)
amend the terms of any previously issued Grant, subject to the provisions of
Section 21 below, and (v) deal with any other matters arising under the Plan.

          (c)      Committee Determinations. The Committee shall have full power and
express discretionary authority to administer and interpret the Plan, to make
factual determinations and to adopt or amend such rules, regulations,
agreements and instruments for implementing the Plan and for the conduct of its
business as it deems necessary or advisable, in its sole discretion. The
Committee’s interpretations of the Plan and all determinations made by the
Committee pursuant to the powers vested in it hereunder shall be conclusive and
binding on all persons having any interest in the Plan or in any awards granted
hereunder. All powers of the Committee shall be executed in its sole
discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to similarly
situated individuals.

     4.       Grants

          (a)      In General. Grants under the Plan may consist of grants of Stock
Appreciation Rights as described in Section 7, Incentive Stock Options and
Nonqualified Stock Options as described in Section 8, Stock Units as described
in Section 9, Performance Units as described in Section 10, Stock Awards as
described in Section 11, Dividend Equivalents as described in Section 12 and
Other Stock-Based Awards as described in Section 13. All Grants shall be made
conditional upon the Participant’s acknowledgement, in writing or by acceptance
of the Grant, that all decisions and determinations of the Committee shall be
final and binding on the Participant, his or her beneficiaries and any other
person having or claiming an interest under such Grant. Grants under a
particular Section of the Plan need not be uniform as among the Participants.
Notwithstanding any provision of the Plan to the contrary, Grants to
Participants, if made, will be made contingent upon, and subject to,
shareholder approval of the Plan at the 2004 shareholders’ meeting.

-5-

 

     5.       Shares Subject to the Plan

          (a)      Shares Authorized. The total aggregate number of shares of Stock that
may be issued or transferred under the Plan is 6,000,000 shares. The shares
may be authorized but unissued shares of Stock or reacquired shares of Stock,
including shares purchased by the Company on the open market for purposes of
the Plan. If and to the extent Options granted under the Plan terminate,
expire, or are canceled, forfeited, exchanged or surrendered without having
been exercised or if any Stock Appreciation Rights, Stock Awards, Stock Units,
Performance Units, Dividend Equivalents or Other Stock-Based Awards are
forfeited or terminated, the shares subject to such Grants shall again be
available for purposes of the Plan. Shares of Stock surrendered in payment of
the Option Price of an Option or any withholding taxes, shall again be
available for issuance or transfer under the Plan. To the extent that any
Grants are paid in cash, and not in shares of Stock, any shares previously
reserved for issuance or transfer under the Plan with respect to such Grants
shall again be available for issuance or transfer under the Plan.

          (b)      Individual Limits. Grants under the Plan may be expressed in cash, in
shares of Stock or in a combination of the two, as the Committee determines.
The maximum aggregate number of shares of Stock that shall be subject to Grants
made under the Plan to any individual during any calendar year shall be
1,500,000 shares, subject to adjustment as described below. A Participant may
not accrue Dividend Equivalents during any calendar year in excess of $500,000.
To the extent that Grants made under the Plan are expressed in dollar amounts,
the maximum amount payable to any individual during any calendar year shall be
$1,000,000.

          (c)      Adjustments. If there is any change in the number or kind of shares
of Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation, (iii) by reason of a
reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Stock as a class
without the Company’s receipt of consideration, or if the value of outstanding
shares of Stock is substantially reduced as a result of a spinoff or the
Company’s payment of an extraordinary dividend or distribution, the maximum
number of shares of Stock available for issuance under the Plan, the maximum
number of shares of Stock for which any individual may receive Grants in any
year, the number of shares covered by outstanding Grants, the kind of shares to
be issued or transferred under the Plan, and the price per share or the
applicable market value of such Grants may be appropriately adjusted by the
Committee to reflect any increase or decrease in the number of, or change in
the kind or value of, issued shares of Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated by rounding any portion of a share equal to .5
or greater up, and any portion of a share equal to less than .5 down, in each
case to the nearest whole number. Any adjustments determined by the Committee
shall be final, binding and conclusive.

-6-

 

     6.       Eligibility for Participation

          (a)      Eligible Persons. All Employees, including Employees who are officers
or members of the Board, and all Nonemployee Directors shall be eligible to
participate in the Plan. Advisors who perform services at the Company’s
request (“Key Advisors”) shall be eligible to participate in the Plan.

          (b)      Selection of Participants. The Committee shall select the eligible
parties to receive Grants and shall determine the number of shares of Stock
subject to each Grant.

     7.       Stock Appreciation Rights

          (a)      General Requirements. The Committee may grant Stock Appreciation
Rights (“SARs”) to a Participant separately or in tandem with any Option (for
all or a portion of the applicable Option). Tandem SARs may be granted either
at the time the Option is granted or at any time thereafter while the Option
remains outstanding; provided, however, that, in the case of an Incentive Stock
Option, SARs may be granted only at the time of the Grant of the Incentive
Stock Option. The Committee shall establish the base amount of the SAR at the
time the SAR is granted. Unless the Committee determines otherwise, the base
amount of each SAR shall be equal to the per share Exercise Price of the
related Option or, if there is no related Option, the Fair Market Value of a
share of Stock as of the date of Grant of the SAR.

          (b)      Tandem SARs. In the case of tandem SARs, the number of SARs granted
to a Participant that shall be exercisable during a specified period shall not
exceed the number of shares of Company Stock that the Participant may purchase
upon the exercise of the related Option during such period. Upon the exercise
of an Option, the SARs relating to the Stock purchased pursuant to such Option
shall terminate. Upon the exercise of SARs, the related Option shall terminate
to the extent of an equal number of shares of Company Stock.

          (c)      Exercisability. A SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Participant is
employed by, or providing service to, the Company or during the applicable
period after termination of employment. A tandem SAR shall be exercisable only
during the period when the Option to which it is related is also exercisable.
No SAR may be exercised for cash by an officer or director of the Company or
any of its subsidiaries who is subject to Section 16 of the Exchange Act,
except in accordance with Rule 16b-3 under the Exchange Act.

          (d)      Value of SARs. When a Participant exercises SARs, the Participant
shall receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash, Stock or
a combination thereof, as determined by the Committee. The stock appreciation
for a SAR is the amount by which the Fair Market Value of the underlying Stock
on the date of exercise of the SAR exceeds the base amount of the SAR as
described in Subsection (a).

-7-

 

          (e)      Form of Payment. The Committee shall determine whether the
appreciation in a SAR shall be paid in the form of cash, shares of Stock, or a
combination of the two, in such proportion as the Committee deems appropriate.
For purposes of calculating the number of shares of Stock to be received,
shares of Stock shall be valued at their Fair Market Value on the date of
exercise of the SAR. If shares of Stock are to be received upon exercise of a
SAR, cash shall be delivered in lieu of any fractional share.

     8.       Options

          (a)      General Requirements. The Committee may grant Options to an Employee
or Nonemployee Director or Key Advisor upon such terms and conditions as the
Committee deems appropriate under this Section 8. The Committee may grant
Dividend Equivalents with respect to Options.

          (b)      Number of Shares. The Committee shall determine the number of shares
of Stock that will be subject to each Grant of Options.

          (c)      Type of Option and Price.

               (i)      The Committee may grant Incentive Stock Options or Nonqualified Stock
Options, or any combination of Incentive Stock Options and Nonqualified Stock
Options. Incentive Stock Options may be granted only to employees of the
Company or its parents or subsidiaries, as defined in Code Section 424.
Nonqualified Stock Options may be granted to Employees, Nonemployee Directors
and Key Advisors.

               (ii)      The Option Price shall be determined by the Committee and may be
equal to or greater than the Fair Market Value on the Date of Grant; provided,
however, that an Incentive Stock Option may not be granted to an Employee who,
at the Date of Grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, as defined in Code Section 424, unless the Option
Price per share is not less than 110% of the Fair Market Value on the Date of
Grant.

          (d)      Option Term. The Committee shall determine the term of each Option.
The term of an Option shall not exceed ten years from the Date of Grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
Date of Grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, as defined in Code Section 424, may not have a term
that exceeds five years from the Date of Grant.

          (e)      Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, as may be determined by the
Committee and specified in the Grant Instrument. The Committee may accelerate
the exercisability of any or all outstanding Options at any time for any
reason. With the consent of the Committee, an Option may be exercised at a time
prior to the time at which the Option would otherwise be fully exercisable, in
which event the Participant shall receive shares of restricted stock (or be
granted interests in

-8-

 

restricted shares in a book entry system) on such terms and conditions as
shall be determined by the Committee.

          (f)      Termination of Employment or Service. Except as provided in the Grant
Instrument, or as otherwise may be determined by the Committee in its
discretion, an Option may only be exercised while the Participant is employed
by, or providing service to, the Company. The Committee shall specify in the
Grant Instrument under what circumstances and during what time periods a
Participant may exercise an Option.

          (g)      Exercise of Options. A Participant may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company or its designated agent. The Participant shall pay the Option
Price and any withholding taxes for the Option:

               (i)      in cash,

               (ii)      with the approval of the Committee, by delivering shares of Stock
owned by the Participant (including Stock acquired in connection with the
exercise of an Option, subject to such restrictions as the Committee deems
appropriate) and having a Fair Market Value on the date of exercise equal to
the Option Price, or by attestation (on a form prescribed by the Committee) to
ownership of shares of Stock having a Fair Market Value on the date of exercise
equal to the Option Price,

               (iii)      in cash, provided the payment is made in accordance with procedures
permitted by Regulation T of the Federal Reserve Board and such procedures do
not violate applicable law, as determined by the Committee in its sole
discretion, or

               (iv)      by such other method as the Committee may approve.

          Shares of Stock used to exercise an Option shall have been held by the
Participant for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. Payment for the shares
pursuant to the Option, and any required withholding taxes, must be received by
the time specified by the Committee depending on the type of payment being
made.

          (h)      Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that if the aggregate Fair Market Value on the Date of Grant with
respect to which Incentive Stock Options are exercisable for the first time by
a Participant during any calendar year, under the Plan or any other stock
option plan of the Company or a parent or subsidiary, exceeds $100,000, then
the Option, as to the excess, shall be treated as a Nonqualified Stock Option.
An Incentive Stock Option shall not be granted to any person who is not an
employee of the Company or a parent or subsidiary, as defined in Code Section
424.

     9.       Stock Units

          (a)      General Requirements. The Committee may grant Stock Units to an
Employee, Nonemployee Director or Key Advisor, upon such terms and conditions
as the

-9-

 

Committee deems appropriate under this Section 9. Each Stock Unit shall
represent the right of the Participant to receive a share of Stock or an amount
based on the value of a share of Stock. All Stock Units shall be credited to
accounts on the Company’s records for purposes of the Plan.

          (b)      Terms of Stock Units. The Committee may grant Stock Units that are
payable if specified performance goals or other conditions are met, or under
other circumstances. Stock Units may be paid at the end of a specified period,
or payment may be deferred to a date authorized by the Committee. The
Committee shall determine the number of Stock Units to be granted and the
requirements applicable to such Stock Units. The Committee may grant Dividend
Equivalents with respect to Stock Units.

          (c)      Payment With Respect to Stock Units. Payment with respect to Stock
Units shall be made in cash, in Stock, or in a combination of the two, as
determined by the Committee.

          (d)      Requirement of Employment, Service or Other Action. If a Participant
ceases to be employed by, or providing service to the Company, or if other
conditions established by the Committee are not met, the Participant’s unvested
or contingent Stock Units shall be forfeited. The Committee may grant Stock
Units contingent upon the Participant’s taking certain specified actions as the
Committee sees fit, including, but not limited to, deferral of compensation by
the Participant. The Committee may provide for complete or partial exceptions
to this requirement as it deems appropriate.

     10.       Performance Units

          (a)      General Requirements. The Committee may grant Performance Units to an
Employee or Nonemployee Director, upon such terms and conditions as the
Committee deems appropriate under this Section 10. Each Performance Unit shall
represent the right of the Participant to receive a share of Stock or an amount
based on the value of a share of Stock, if specified performance goals are met.
All Performance Units shall be credited to accounts on the Company’s records
for purposes of the Plan.

          (b)      Terms of Performance Units. The Committee shall establish the
performance goals and other conditions for payment of Performance Units.
Performance Units may be paid at the end of a specified performance or other
period, or payment may be deferred to a date authorized by the Committee. The
Committee shall determine the number of Performance Units to be granted and the
requirement applicable to such Performance Units. The Committee may grant
Dividend Equivalents with respect to Performance Units.

          (c)      Requirement of Employment or Service. If a Participant ceases to be
employed by, or providing service to the Company, or if other conditions
established by the Committee are not met, the Participant’s Performance Units
shall be forfeited. The Committee may provide for complete or partial
exceptions to this requirement as it deems appropriate.

-10-

 

     11.       Stock Awards

          (a)      General Requirements. The Committee may issue or transfer shares of
Stock to an Employee or Nonemployee Director under a Stock Award, upon such
terms and conditions as the Committee deems appropriate under this Section 11.
Shares of Stock issued or transferred pursuant to Stock Awards may be issued or
transferred for consideration or for no consideration (except as required by
applicable law), and subject to restrictions or no restrictions, as determined
by the Committee. The Committee may establish conditions under which
restrictions on Stock Awards shall lapse over a period of time or according to
such other criteria as the Committee deems appropriate, including restrictions
based upon the achievement of specific performance goals.

          (b)      Number of Shares. The Committee shall determine the number of shares
of Stock to be issued or transferred pursuant to a Stock Award and any
restrictions applicable to such shares.

          (c)      Requirement of Employment or Service. If the Participant ceases to be
employed by, or providing service to, the Company, or if other specified
conditions are not met, the Stock Award shall terminate as to all shares
covered by the Grant as to which the restrictions have not lapsed, and those
shares of stock must be immediately returned to the Company. The Committee may
provide for complete or partial exceptions to this requirement as it deems
appropriate.

          (d)      Restrictions on Transfer. During the restriction period, a
Participant may not sell, assign, transfer, pledge or otherwise dispose of the
shares of a Stock Award except under death as described in Section 17. Each
certificate for a share of a Stock Award shall contain a legend giving
appropriate notice of the restrictions in the Grant. The Participant shall be
entitled to have the legend removed from the stock certificate covering any
shares as to which restrictions have lapsed. The Committee may determine that
the Company will not issue certificates for Stock Awards until all restrictions
on such shares have lapsed, or that the Company will retain possession of
certificates for shares of Stock Awards until all restrictions on such shares
have lapsed. Alternatively, the Participant’s rights in the Stock Award shall
be appropriately reflected in a book entry system maintained by the Company,
and a stock certificate shall be issuable at the end of the restriction period.

          (e)      Right to Vote and to Receive Dividends. The Committee shall determine
to what extent, and under what conditions, the Participant shall have the right
to vote shares of Stock Awards and to receive any dividends or other
distributions paid on such shares, during the restriction period. The
Committee may determine that a Participant’s entitlement to dividends or other
distributions with respect to a Stock Award shall be subject to achievement of
performance goals or other conditions.

     12.       Dividend Equivalents

          The Committee may grant Dividend Equivalents in connection with Grants
under the Plan, under such terms and conditions as the Committee deems
appropriate under this Section

-11-

 

12. Dividend Equivalents may be paid to Participants currently or may be
deferred. All Dividend Equivalents may be paid to Participants currently or
may be deferred. All Dividend Equivalents that are not paid currently shall be
credited to accounts on the Company’s records for purposes of the Plan.
Dividend Equivalents may be accrued as a cash obligation, or may be converted
to Stock Units for the Participant. The Committee shall determine whether any
deferred Dividend Equivalents will accrue interest. The Committee may provide
that a Participant may use Dividend Equivalents to pay the Option Price. The
Committee may also provide that Dividend Equivalents shall be payable based on
the achievement of specific performance goals. Dividend Equivalents may be
payable in cash or shares of Stock or in a combination of two, as determined by
the Committee.

     13.       Other Stock-Based Grants

          The Committee may grant other awards that are based on, measured by or
payable in Stock to Employees or Nonemployee Directors, on such terms and
conditions as the Committee deems appropriate under this Section 13. Other
Stock-Based Awards may be granted subject to achievement of performance goals
or other conditions and may be payable in Stock or cash, or in a combination of
the two, as determined by the Committee. The Committee may grant Dividend
Equivalents with respect to Other Stock-Based Awards.

     14.       Qualified Performance-Based Compensation

          (a)      Designation as Qualified Performance-Based Compensation. The
Committee may determine that Stock Units, Performance Units, Stock Awards,
Stock Appreciation Rights, Dividend Equivalents or Other Stock-Based Awards
granted to an Employee shall be considered “qualified performance-based
compensation” under Code Section 162(m). The provisions of this Section 14
shall apply to any such Grants that are to be considered “qualified
performance-based compensation” under Code Section 162(m). To the extent that
Grants under this Plan designated as “qualified performance-based compensation
under Code Section 162(m) are made, no such Grant may be made as an alternative
to another Grant that is not designated as qualified performance based
compensation but instead must be separate and apart from all other Grants made.

          (b)      Performance Goals. When Grants that are to be considered “qualified
performance-based compensation” are granted, the Committee shall establish in
writing

               (i)      the objective performance goals that must be met,

               (ii)      the period during which performance will be measured,

               (iii)      the maximum amounts that may be paid if the performance goals are
met, and

               (iv)      any other conditions that the Committee deems appropriate and
consistent with the Plan and the requirements of Code Section 162 for
“qualified performance-based compensation.” The performance goals shall
satisfy the requirements for “qualified performance-based compensation,”
including the requirement that the achievement of the goals

-12-

 

be substantially uncertain at the time they are established and that the
performance goals be established in such a way that a third party with
knowledge of the relevant facts could determine whether and to what extent the
performance goals have been met. The Committee shall not have discretion to
increase the amount of compensation that is payable upon achievement of the
designated performance goals, but the Committee may reduce the amount of
compensation that is payable upon achievement of the designated performance
goals.

          (c)      Criteria Used for Objective Performance Goals. In setting the
performance goals for Grants designated as “qualified performance-based
compensation” pursuant to this Section 14, the Committee shall use objectively
determinable performance goals based on one or more of the following objective
criteria, either in absolute terms or in comparison to publicly available
industry standards or indices: earnings, revenue, operating margins and
statistics, operating or net cash flows, financial return and leverage ratios,
total shareholder returns, market share, or strategic business criteria
consisting of one or more penetration goals, geographic business expansion
goals, cost targets, customer satisfaction goals, product development goals,
goals relating to acquisitions or divestitures, or any other objective measure
derived from any of the foregoing criteria. In addition, in setting the
performance goals for Grants not designated as “qualified performance-based
compensation” for purposes of Code Section 162(m), the Committee may use such
other goals as are developed in the Company’s operating plan for the
Performance Period. The performance goals may relate to the Participant’s
business unit or the performance of the Company as a whole, or any combination
of the foregoing. Performance goals need not be uniform as among Participants.

          (d)      Timing of Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the performance
period or during a period ending no later than the earlier of (i) 90 days after
the beginning of the performance period or (ii) the date on which 25% of the
performance period has been completed, or such other date as may be required or
permitted under applicable regulations under Code Section 162(m).

          (e)      Announcement of Results. The Committee shall certify and announce the
results for the performance period to all Participants after the Company
announces the Company’s financial results for the performance period. If and to
the extent that the Committee does not certify that the performance goals have
been met, the applicable Grants for the performance period shall be forfeited
or shall not be paid as applicable.

          (f)      Death, Disability or Other Circumstances. The Committee may provide
that Grants shall be payable or restrictions shall lapse, in whole or in part,
in the event of the Participant’s death or disability during the Performance
Period, a Change of Control or under other circumstances consistent with the
Treasury regulations and rulings under Code Section 162(m).

     15.       Deferrals

          The Committee may permit or require a Participant to defer receipt of the
payment of cash or the delivery of shares that would otherwise be due to the
Participant in connection with

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any Grant. If any such deferral election is permitted or required, the
Committee shall establish rules and procedures for such deferrals as it shall
determine in its sole discretion.

     16.       Withholding of Taxes

          (a)      Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require that the Participant or other person
receiving or exercising Grants pay to the Company the amount of any federal,
state or local taxes that the Company is required to withhold with respect to
such Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.

          (b)      Share Withholding. At the Company’s election, or if the Committee so
permits, with respect to a Participant, the Company’s tax withholding
obligation with respect to Grants paid in Stock may be satisfied by having
shares withheld, at the time such Grants become taxable, up to an amount that
does not exceed the minimum applicable withholding tax rate for federal
(including FICA), state and local tax liabilities, provided, however, that at
the Company’s sole discretion, a Participant may be permitted to tender other
shares of Stock to the Company to supplement such withholding, but only if such
action is not in violation of applicable law and does not result in materially
disadvantageous tax, accounting or financial results to the Company. If the
Committee permits a Participant to elect share withholding, the Participant’s
election must be in a form and manner prescribed by the Committee and may be
subject to the prior approval of the Committee.

     17.       Transferability of Options

          The transferability of options granted under the Plan shall be governed by
the following provisions:

          (a)      Incentive Stock Options. Unless otherwise specifically determined by
the Committee, during the lifetime of the Participant, Incentive Stock Options
shall be exercisable only by the Participant and shall not be assignable or
transferable other than by will or the laws of inheritance following the
Participant’s death.

          (b)      Nonqualified Stock Options — Limited Transferability. Except for the
specially transferable Nonqualified Stock Options described in subparagraph (c)
below, or except as otherwise specifically determined by the Committee,
Nonqualified Stock Options shall be subject to the same limitation on transfer
as Incentive Stock Options, except that the Committee may structure one or more
Nonqualified Stock Options so that the option may be assigned in whole or in
part during the Participant’s lifetime to one or more family members of the
Participant or to a trust established exclusively for one or more such family
members, to the extent such assignment is in connection with the Participant’s
estate plan or pursuant to a domestic relations order. The assigned portion
may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option
immediately prior to

-14-

 

such assignment and shall be set forth in such documents issued to the
assignee as the Committee may deem appropriate.

          (c)      Specially Transferable Nonqualified Stock Options. The Committee may,
in its sole discretion, structure one or more Nonqualified Stock Options,
either at the time of the initial grant or through subsequent amendment, so
that those options will be transferable to a third party for consideration
payable in cash, securities or other property, subject to the following
limitations: (i) each such option may be transferred only to the extent that
option is at the time exercisable for vested shares, (ii) such option may only
be transferred to a third party approved by the Committee, (iii) the period
during which the option may in fact be transferable may be limited to one or
more periods designated by the Committee, (iv) the Committee may structure the
option so that restrictions upon subsequent transferability may become
applicable following the initial transfer of that option to a third party, (v)
the term of such option may be limited to a fixed period, whether or not the
Participant continues in service, where such period varies in duration than the
maximum term in effect for the option in the absence of such transfer, and (vi)
the share reserve under the Plan shall be reduced immediately upon the
transfer, whether or not the transferred option is in fact exercised. The
Committee shall have complete discretion (subject to the express limitations of
the Plan) to establish the remaining terms and provisions of each such
specially transferable option, including appropriate anti-dilution provisions
and reorganization/recapitalization adjustments, so as to facilitate the
marketability of the option and conform such option to the typical terms and
provisions in effect for similar securities traded in the open market.

          Notwithstanding the foregoing, the Participant may designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options,
and those options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Participant’s death
while holding those options. Such beneficiary or beneficiaries shall take the
transferred options subject to all the terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised
following the Participant’s death.

     18.       Consequences of a Change of Control

          (a)      Notice and Acceleration. Upon a Change of Control, unless the
Committee determines otherwise, (i) the Company shall provide each Participant
who holds outstanding Grants with written notice of the Change of Control, (ii)
all outstanding Options shall automatically accelerate and become fully
exercisable, (iii) the restrictions and conditions on all outstanding Stock
Awards shall immediately lapse, (iv) all Stock Units and Performance Units
shall become payable in cash or in stock in an amount not less than the Fair
Market Value of the Stock or the Stock to which the units relate, as determined
by the Committee, and (v) Dividend Equivalents and Other Stock-Based Awards
shall become payable in full in cash or in stock, in amounts determined by the
Committee.

          (b)      Assumption of Grants. Upon a Change of Control where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding
Options and SARs that are not exercised shall

-15-

 

be assumed by, or replaced with comparable options by, the surviving
corporation (or a parent or subsidiary of the surviving corporation), and other
Grants that remain outstanding shall be converted to similar grants of the
surviving corporation (or a parent or subsidiary of the surviving corporation).

          (c)      Other Alternatives. Notwithstanding the foregoing, subject to
subsection (d) below, in the event of a Change of Control, the Committee may
take any of the following actions with respect to any or all outstanding
Grants, without the consent of any Participant: (i) the Committee may require
that Participants surrender their outstanding Options in exchange for a payment
by the Company, in cash or Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value subject to the
Participant’s unexercised Options exceeds the Option Price, if any, or (ii)
after giving Participants an opportunity to exercise their outstanding Options,
the Committee may terminate any or all unexercised Options, at such time as the
Committee deems appropriate, and (iii) with respect to Participants holding
Stock Units, Performance Units, Dividend Equivalents or Other Stock-Based
Awards, the Committee may determine that such Participants shall receive a
payment in settlement of such Stock Units, Performance Units, Dividend
Equivalents or other Stock-Based Awards, in such amount and form as may be
determined by the Committee; provided, that the payment amount shall deliver an
equivalent value for such settled Award. Such surrender, termination or
settlement shall take place as of the date of the Change of Control or such
other date as the Committee may specify.

          (d)      Committee. The Committee making the determinations under this Section
18 following a change of control must be comprised of the same members as those
members of the Committee immediately before the Change of Control. If the
Committee members do not meet this requirement, the automatic provisions of
subsections (a) and (b) shall apply, and the Committee shall not have
discretion to vary them.

     19.       Other Transactions

          The Committee may provide in a Grant Instrument that a sale or other
transaction involving a Subsidiary or other business unit of the Company shall
be considered a Change of Control for purposes of a Grant or the Committee may
establish other positions that shall be applicable in the event of a specified
transaction.

     20.       Requirements for Issuance or Transfer of Shares

          No Stock shall be issued or transferred in connection with any Grant
hereunder unless and until all legal requirements applicable to the issuance of
such Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Participant
hereunder on such Participant’s undertaking in writing to comply with such
restrictions on the Participant’s subsequent disposition of such shares of
Stock as the Committee shall deem necessary or advisable, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Stock issued or transferred under the Plan
will be subject to such stop-transfer orders and other

-16-

 

restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.

     21.       Amendment and Termination of the Plan

          (a)      Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without approval of
the shareholders of the Company if such approval is required in order to comply
with the Code or applicable laws, or to comply with applicable stock exchange
requirements. No amendment or termination of this Plan shall, without the
consent of the Participant, impair any rights or obligations under any Grant
previously made to the Participant, unless such right has been reserved in the
Plan or the Grant Instrument, or except as provided in Section 23(b) below.

          (b)      No Repricing Without Shareholder Approval. Notwithstanding anything
in the Plan to the contrary, the Committee may not reprice Options, nor may the
Board amend the Plan to permit repricing of Options, unless the shareholders of
the Company provide prior approval for such repricing. The term “repricing”
shall have the meaning given that term in Section 303A(8) of the New York Stock
Exchange Listed Company Manual, as in effect from time to time, or any other
substantially equivalent successor rule.

          (c)      Shareholder Approval for “Qualified Performance-Based Compensation.”
If Grants denominated as “qualified performance-based compensation” are awarded
under Section 14 above, the Plan must be reapproved by the Company’s
shareholders no later than the first shareholders’ meeting that occurs in the
fifth year following the year in which the shareholders previously approved the
provisions of Section 14, if additional Grants are to be made under Section 14
and if required by Section 162(m) of the Code or the regulations thereunder.
Any such reapproval shall not affect outstanding grants made within the
five-year period following the year in which the previous approval was
obtained.

          (d)      Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval
of the shareholders. The termination of the Plan shall not impair the power
and authority of the Committee with respect to an outstanding Grant.

     22.       Effective Date of the Plan

          The Plan shall be effective as of April 6, 2004, subject to approval by
the shareholders of the Company.

     23.        Miscellaneous

          (a)      Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees, or for other proper corporate

-17-

 

purposes, or (ii) limit the right of the Company to grant stock options or
make other awards outside of this Plan. Without limiting the foregoing, the
Committee may make a Grant to an employee of another corporation who becomes an
Employee by reason of a corporate merger, consolidation, acquisition of stock
or property, reorganization or liquidation involving the Company in
substitution for a grant made by such corporation. The terms and conditions of
the substitute Grants may vary from the terms and conditions required by the
Plan and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute Grants.

          (b)      Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Stock under Grants
shall be subject to all applicable laws and to approvals by any governmental or
regulatory agency as may be required. With respect to persons subject to
Section 16 of the Exchange Act, it is the intent of the Company that the Plan
and all transactions under the Plan comply with all applicable provisions of
Rule 16b-3 or its successors under the Exchange Act. In addition, it is the
intent of the Company that the Plan and applicable Grants comply with the
applicable provisions of Code Section 162(m) and Code Section 422. To the
extent that any legal requirement of Section 16 of the Exchange Act or Code
Section 162(m) or 422 as set forth in the Plan ceases to be required under
Section 16 of the Exchange Act or Code Section 162(m) or 422, that Plan
provision shall cease to apply. The Committee may revoke any Grant if it is
contrary to law or modify a Grant to bring it into compliance with any valid
and mandatory government regulation. The Committee may also adopt rules
regarding the withholding of taxes on payments to Participants. The Committee
may, in its sole discretion, agree to limit its authority under this Section.

          (c)      Effect of Revisions to Accounting Standards or Applicable Law. In the
event of revisions to accounting standards applicable to the Company or to
applicable law, which revisions are viewed by the Committee as resulting in a
material detriment to the Company, the Committee shall have the discretion to
modify any Grant, Grant Instrument or related right or document issued under
this Plan but only to the extent such modification does not result in a
material detriment to the Participant.

          (d)      Enforceability. The Plan shall be binding upon and enforceable
against the Company and its successors and assigns.

          (e)      Funding the Plan. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants under this Plant.

          (f)      Rights of Participants. Nothing in this Plan shall entitle any
Employee, Nonemployee Director or other person to any claim or right to receive
a Grant under this Plan. Neither this Plan nor any action taken hereunder
shall be construed as giving any individual any rights to be retained by or in
the employment or service of the Company.

          (g)      No Fractional Shares. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Grant. The Committee shall determine
whether cash, other

-18-

 

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 limited.

          (h)      Employees Subject to Taxation Outside the United States. With respect
to Participants who are subject to taxation in countries other than the United
States, the Committee may make Grants on such terms and conditions as the
Committee deems appropriate to comply with the laws of the applicable
countries, and the Committee may create such produces addendum and subplans and
make such modifications as may be necessary or advisable to comply with such
laws.

          (i)      Governing Law. The validity, construction, interpretation and effect
of the Plan and Grant Instruments issued under the Plan shall be governed and
construed by and determined in accordance with the laws of the Commonwealth of
Pennsylvania without giving effect to the conflict of laws provisions thereof.

i

	i Adopted by the Board of Directors on April 6, 2004. Approved by the shareholders on June 11, 2004.

-19-

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