CHESAPEAKE CORPORATION

2005 INCENTIVE PLAN

 

ARTICLE I

DEFINITIONS

 

1.01.

Administrator

 

Administrator means the Board’s Corporate Governance and Nominating Committee with respect to grants and awards made to non-employee Directors. With respect to all other Participants, Administrator means the Committee and any delegate of the Committee that is appointed in accordance with Article III.

 

1.02.

Affiliate and Associate

 

Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

 

1.03.

Agreement

 

Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of Performance Shares, Stock Units, Stock Awards, Incentive Awards or Options awarded or granted to such Participant.

 

1.04.

Beneficial Owner

 

A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities:

 

(a) that such Person or any of such Person’s Affiliates or Associates owns, directly or indirectly;

 

(b) that such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed to be the “Beneficial Owner” of, or to “beneficially own,” (1) securities tendered pursuant to a tender or exchange offer made by such Person or any such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (2) securities issuable upon exercise of rights under the Company’s Shareholder Rights Plan as in effect from time to time;

 

(c) that such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote, including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this subsection as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (1) arises solely from a revocable proxy given in response to a

 

 

public proxy solicitation made pursuant to, and in accordance with the applicable provisions of the General Rules and Regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or

 

(d) that are beneficially owned, directly or indirectly, by any other individual (or any Affiliate or Associates thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (c) of this definition) or disposing of any voting securities of the Company;

 

provided, however, that notwithstanding any provision of this definition, any Person engaged in business as an underwriter of securities who acquires any securities of the Company through such Person’s participation in good faith in a firm commitment underwriting registered under the Securities Act of 1933, shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” such securities until the expiration of forty days after the date of acquisition; and provided, further, that in no case shall an officer or director of the Company be deemed (1) the beneficial owner of any securities beneficially owned by another officer or director of the Company solely by reason of actions undertaken by such persons in their capacity as officers or directors of the Company, or (2) the beneficial owner of securities held of record by the trustee of any employee benefit plan of the Company or any Subsidiary of the Company for the benefit of any employee of the Company or any Subsidiary of the Company, other than the officer or director, by reason of any influences that such officer or director may have over the voting of the securities held in the plan.

 

1.05.

Board

 

Board means the Board of Directors of the Company.

 

1.06.

Change in Control

 

Change in Control means the occurrence of any of the following events:

 

(a) any Person or group (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act) (other than the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan) at any time becomes the Beneficial Owner of 20% or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Voting Securities”), other than (i) through an acquisition of Voting Securities directly from the Company in a transaction approved by the Continuing Directors, (ii) as a result of the Company’s repurchase of Voting Securities if, thereafter, such Beneficial Owner purchases no additional Voting Securities while such Beneficial Owner is entitled to exercise voting power in excess of the foregoing percentage, or (iii) pursuant to a Business Combination (as defined below) that does not constitute a Change in Control pursuant to subsection (c) of this definition;

 

(b) Continuing Directors cease to constitute a majority of the members of the Board;

 

 (c) the shareholders of the Company approve a reorganization, merger, share exchange or consolidation (a “Business Combination”), in each case, unless immediately following such Business Combination, (i) all or substantially all of the Persons who were the Beneficial Owners, respectively, of the Common Stock and Voting Securities outstanding immediately prior to such Business Combination beneficially own more than 80% of, respectively, the then-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 Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Common Stock and Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan or related trust of the Company or of such corporation resulting from such Business Combination) beneficially owns 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination are Continuing Directors; or

 

(d) the shareholders of the Company approve a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company, unless, in the case of any such sale or other disposition, immediately thereafter (i) all or substantially all of the Persons who were the Beneficial Owners, respectively, of the Common Stock and Voting Securities outstanding immediately prior to such sale or other disposition beneficially own more than 80% of, respectively, the then-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 that acquired such assets (including, without limitation, a corporation which as a result of such transaction owns such assets through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such transaction, of the Common Stock and Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan or related trust of the Company or of the corporation that acquired such assets) beneficially owns 20% or more of, respectively, the then-outstanding shares of common stock of the corporation that acquired such assets or the combined voting power of the then-outstanding voting securities of such corporation, and (iii) at least a majority of the members of the board of directors of the corporation that acquired such assets are Continuing Directors.

 

1.07.

Code

 

Code means the Internal Revenue Code of 1986, and any amendments thereto from time to time.

 

1.08.

Committee

 

Committee means the Executive Compensation Committee of the Board.

 

1.09.

Common Stock

 

Common Stock means the common stock of the Company.

 

1.10.

Company

 

Company means Chesapeake Corporation.

 

1.11.

Continuing Director

 

Continuing Director means any member of the Company’s Board, while a member of that Board, and (i) who was a member of the Company’s Board on the date the Plan was adopted by the Board or (ii) whose subsequent nomination for election or reelection to the Board was recommended or approved by a majority of the then Continuing Directors.

 

1.12.

Control Change Date

 

Control Change Date means the date on which a Change in Control occurs. If a Change in Control occurs on account of a series of transactions or events, the Control Change Date is the date of the last of such transactions or events.

 

1.13.

Deferred Benefit

 

Deferred Benefit means a Stock Award that is issued in settlement of an obligation under a deferred compensation plan maintained by the Company or a Related Entity.

 

1.14.

Director

 

Director, as of any given date, means a member of the Board on such date.

 

1.15.

Exchange Act

 

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

 

1.16.

Fair Market Value

 

Fair Market Value means, on any given date, either of the following as determined by the Administrator: (i) the closing price of a share of Common Stock on such date, as reported on the New York Stock Exchange composite tape on such date, or if the Common Stock was not traded on the New York Stock Exchange on such date, then on the next preceding day that the Common Stock was traded on such exchange; or (ii) the average of the closing price of a share of Common Stock on the 20 consecutive trading days immediately preceding and including such date, as reported on the New York Stock Exchange composite tape on such dates, all as reported by such source as the Administrator may select; provided, however, that with respect to an Incentive Stock Option, Fair Market Value means the closing price of a share of Common Stock on the date of grant.

 

1.17.

Incentive Award

 

Incentive Award means an award that, subject to such terms and conditions as may be prescribed by the Administrator, entitles the Participant to receive a cash payment from the Company or a Related Entity or shares of Common Stock or a combination thereof.

 

1.18.

Incentive Stock Option

 

Incentive Stock Option means an Option that is intended to satisfy the requirements of Code Section 422.

 

1.19.

LTIP Performance Cycle

 

LTIP Performance Cycle means a performance period longer than twelve months designated by the Company under a long-term incentive program sponsored by the Company.

 

1.20.

Option

 

Option means a stock option that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement.

 

1.21.

Participant

 

Participant means an employee of the Company or a Related Entity, including a member of the Board, or a non-employee Director, in each case, who satisfies the requirements of Article IV and is selected by the Administrator to receive an award of Performance Shares or Stock Units, a Stock Award, an Option, or an Incentive Award or any combination thereof.

 

1.22.

Performance Objectives

 

Performance Objectives means specified performance objectives that must be achieved by the Participant, the Company, a Related Entity or an operating unit (as specified by the Administrator) and which are stated with respect to (i) gross, operating or net earnings before or after taxes, (ii) return on equity, (iii) return on capital, (iv) return on sales, (v) return on assets or net assets, (vi) earnings per share, (vii) cash flow per share, (viii) book value per share, (ix) earnings growth, (x) sales growth, (xi) volume growth, (xii) cash flow, (xiii) Fair Market Value, (xiv) share price or total shareholder return, (xv) market share, (xvi) economic value added, (xvii) market value added, (xviii) productivity, (xix) level of expenses, (xx) objective measures of product quality, (xxi) safety, health and environmental compliance, (xxii) the results of customer satisfaction surveys, (xxiii) cash available for shareholders and debt reduction or (xxiv) peer group comparisons of any of the aforementioned objectives.

 

1.23.

Performance Shares

 

Performance Shares means an award that, in accordance with and subject to an Agreement, will entitle the Participant, or his estate or beneficiary in the event of the Participant’s death, to receive cash or shares of Common Stock or a combination thereof.

 

1.24.

Person

 

Person means any individual, firm, corporation, partnership or other entity.

 

1.25.

Plan

 

Plan means the Chesapeake Corporation 2005 Incentive Plan.

 

1.26.

Related Entity

 

Related Entity means (i) any entity that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company or (ii) any entity that is designated by the Board as a participating company in the Plan.

 

1.27.

Reload Option

 

A Reload Option means an Option described in Section 6.10.

 

1.28.

Restoration Feature

 

Restoration Feature means the right to receive a Reload Option as provided in Section 6.10.

 

1.29.

Rule 16b-3

 

Rule 16b-3 means Rule 16b-3 under the Exchange Act, as in effect from time to time.

 

1.30.

Stock Award

 

Stock Award means Common Stock awarded to a Participant under Article VII. The term Stock Award includes shares of Common Stock issued as a Deferred Benefit.

 

1.31.

Stock Unit

 

Stock Unit means an award, in the amount determined by the Administrator and specified in an Agreement, stated with reference to a specified number of shares of Common Stock, that entitles the holder to receive a payment for each Stock Unit equal to the Fair Market Value of a share of Common Stock on the date of payment.

 

1.32.

Subsidiary

 

Subsidiary means, with reference to any Person, any corporation or other entity of which an amount of voting securities sufficient to elect a majority of the directors or Persons having similar authority of such corporation or other entity is beneficially owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person.

 

ARTICLE II

PURPOSES

 

The Plan is intended to assist the Company and Related Entities in recruiting and retaining individuals with ability and initiative by enabling such persons to participate in the future success of the Company and the Related Entities and to associate their interests with those of the Company and its shareholders. The Plan is intended to permit the award of Performance Shares and Stock Units, the grant of Stock Awards, the grant of Options qualifying as Incentive Stock Options and Options not so qualifying, and the grant of Incentive Awards. No Option that is intended to be an Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option. The proceeds received by the Company from the sale of shares of Common Stock pursuant to this Plan shall be used for general corporate purposes.

 

 

ARTICLE III

ADMINISTRATION

 

The Plan shall be administered by the Administrator; provided, however, that all grants and awards to non-employee Directors (and any actions or decisions with respect to such awards) shall be subject to final approval by the Board. The Administrator shall have authority to award Performance Shares and Stock Units and to grant Stock Awards, Incentive Awards and Options upon such terms (not inconsistent with the provisions of the Plan) as the Administrator may consider appropriate. Such terms may include conditions (in addition to those contained in the Plan) on the exercisability of all or any part of an Option or on the transferability or forfeitability of a Stock Award, Incentive Award, Performance Shares, or Stock Units including, by way of example and not limitation, requirements that the Participant complete a specified period of employment with the Company or a Related Entity, that the Company or a Related Entity achieve a specified level of financial performance or that the Company or a Related Entity achieve a specified level of financial return. Notwithstanding any such conditions, the Administrator may, in its discretion, accelerate the time at which any Option may be exercised, or the time at which a Stock Award may become transferable or nonforfeitable or the time at which a Stock Unit or Incentive Award may be settled. In addition, the Administrator shall have the authority to grant a Stock Award as a Deferred Benefit.

 

The Administrator shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator. Any decision made, or action taken, by the Administrator or in connection with the administration of this Plan shall be final and conclusive. Neither the Administrator nor any member of the Committee nor any member of the Board’s Corporate Governance and Nominating Committee nor any member of the Board shall be liable for any act done in good faith with respect to this Plan or any Agreement, Option, Stock Award, Incentive Award or an award of Performance Shares or Stock Units. All expenses of administering this Plan shall be borne by the Company.

 

The Committee, in its discretion, may delegate to one or more officers of the Company all or part of the Committee’s authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee’s delegate or delegates that were consistent with the terms of the Plan.

 

In addition, the Committee may, in its discretion, specify that grants and awards to any United States national who is employed by the Company or a Related Entity outside of the United States, or to any foreign national who is employed by the Company or a Related Entity, can be made on such terms and conditions that are different from those specified in the Plan and which, in the judgment of the Committee, are necessary or desirable to further the purposes of the Plan; other than with respect to (i) the applicable individual limitations on grants and awards set forth in Plan sections 6.01, 7.01, 8.01, 9.01 and 10.01; (ii) the criteria for establishing the option price described in Plan section 6.02; and (iii) the minimum vesting requirement for Stock Awards described in Plan section 7.02.

 

ARTICLE IV

ELIGIBILITY

 

4.01.

General

 

Any employee of the Company or a Related Entity (including a corporation that becomes a Related Entity after the adoption of this Plan) or a person who provides services to the Company or a Related Entity (including a corporation that becomes a Related Entity after the adoption of this Plan) is eligible to participate in this Plan if the Administrator, in its sole discretion, determines that such person has contributed significantly or can be expected to contribute significantly to the profits or growth of the Company or a Related Entity. Directors of the Company may be selected to participate in the Plan.

 

4.02.

Grants

 

The Administrator will designate individuals to whom an award of Stock Units or Performance Shares are to be granted and to whom Stock Awards, Incentive Awards and Options are to be granted, and will specify the number of shares of Common Stock subject to each award or grant. An Option may be granted, with or without a Restoration Feature. Each award of Performance Shares or Stock Units, and all Stock Awards and Options granted under this Plan, shall be evidenced by Agreements which shall be subject to the applicable provisions of this Plan and to such other provisions as the Administrator may adopt. No Participant who is not an employee of the Company or a Subsidiary may be granted an Option that is an Incentive Stock Option. No Participant may be granted Incentive Stock Options which are first exercisable in any calendar year for stock having an aggregate Fair Market Value (determined as of the date an Option is granted) that exceed the limitation prescribed by Code Section 422(d). The preceding annual limitation shall not apply with respect to Options that are not Incentive Stock Options.

 

ARTICLE V

STOCK SUBJECT TO PLAN

 

5.01.

Common Stock Issued or Delivered

 

Upon the award of Common Stock pursuant to a Stock Award, the settlement of an award of Stock Units, Performance Shares or any Incentive Award, or upon the exercise of any Option, the Company may deliver shares of Common Stock from its authorized but unissued Common Stock to the Participant (or the Participant’s successor in interest or personal representative, or if the Participant so directs, the Participant’s broker).

 

5.02.

Aggregate Limit

 

The maximum aggregate number of shares of Common Stock that may be issued or delivered under this Plan pursuant to the exercise of Options, the grant of Stock Awards and the settlement of Performance Shares, Stock Units or Incentive Awards is 1,750,000 shares of Common Stock. The maximum aggregate number of shares of Common Stock that may be issued or delivered under this Plan and the limit set forth in the preceding sentence shall be adjusted in accordance Article XI.

 

5.03.

Reallocation of Shares

 

If (i) any award or grant under the Plan expires or is terminated unexercised, or is settled for cash or otherwise settled without the issuance of shares of Common Stock or for fewer shares of Common Stock than the maximum number subject to such award or grant (including where any such shares are withheld to satisfy a Participant’s tax withholding obligations) or (ii) any shares of Common Stock are tendered by a Participant to pay the exercise price of, or are delivered to satisfy tax obligations in respect of, any award or grant under this Plan, then any shares of Common Stock covered by such lapsed, cancelled, expired or settled portion of such award or grant and any such tendered shares of stock shall be available for the grant of other Options, Stock Awards, Stock Units and settlement of Performance Shares and Incentive Awards under this Plan.

 

ARTICLE VI

OPTIONS

 

6.01.

Award

 

In accordance with the provisions of Article IV, the Administrator will designate each individual to whom an Option is to be granted and will specify the number of shares of Common Stock covered by such awards; provided, however, that no Participant may be granted Options in any calendar year and the four preceding calendar years (or, if less, the calendar years after 2004) covering more than 500,000 shares of Common Stock.

 

6.02.

Option Price

 

The price per share for Common Stock purchased on the exercise of an Option shall be determined by the Administrator on the date of grant; provided, however, that (i) the price per share for Common Stock purchased on the exercise of any Option shall not be less than the Fair Market Value on the date the Option is granted and (ii) the exercise price per share for Common Stock purchased on the exercise of an outstanding Option shall not be reduced, except in accordance with Article XI.

 

6.03.

Maximum Option Period

 

The maximum period in which an Option may be exercised shall be determined by the Administrator on the date of grant, except that no Option shall be exercisable after the expiration of ten years from the date such Option was granted. The terms of any Option may provide that it is exercisable for a period less than such maximum period.

 

6.04.

Nontransferability

 

Except as provided in Section 6.05, any Option granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. Except as provided in Section 6.05, during the lifetime of the Participant to whom the Option is granted, the Option may be exercised only by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant.

 

6.05.

Transferable Options

 

Section 6.04 to the contrary notwithstanding, if the Agreement provides, an Option that is not an Incentive Stock Option may be transferred by a Participant to such persons or entities as permitted under Rule 16b-3 on such terms and conditions as permitted under Rule 16b-3. The holder of an Option transferred pursuant to this Section shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Participant; provided, however, that such transferee may not transfer the Option except by will or by the laws of descent and distribution.

 

6.06.

Change in Control

 

Section 6.03 to the contrary notwithstanding but subject to Article XIV, on and after a Control Change Date each Option shall be exercisable in whole or in part.

 

6.07.

Disposition of Stock

 

A Participant shall notify the Administrator of any sale or other disposition of Common Stock acquired pursuant to an Incentive Stock Option if such sale or disposition occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of the Common Stock to the Participant. Such notice shall be in writing and directed to the Secretary of the Company.

 

6.08.

Exercise

 

Subject to the provisions of this Plan and the applicable Agreement, an Option may be exercised in whole at any time or in part from time to time at such times and in compliance with such requirements as the Administrator shall determine. An Option granted under this Plan may be exercised with respect to any number of whole shares less than the full number for which the Option could be exercised. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Agreement with respect to the remaining shares subject to the Option.

 

6.09.

Payment

 

Subject to rules established by the Administrator and unless otherwise provided by the Agreement, payment of the Option price may be made (i) in cash or a cash equivalent acceptable to the Administrator or (ii) by the surrender (actually or by attestation) of shares of Common Stock held by the Participant provided, however, that if those shares were acquired from the Company, the shares have been held by the Participant for at least six months. If shares of Common Stock are used to pay all or part of the Option price, the sum of the cash and cash equivalent and the Fair Market Value of the shares (determined as of the day preceding the date of exercise) must not be less than the Option price of shares for which the Option is being exercised. Payment in “cash” or “cash equivalents” includes delivery of cash or cash equivalents by a broker under a “cashless exercise” arrangement at the time of exercise or following the sale of shares to which the exercise relates.

 

6.10.

Restoration Feature

 

In the sole discretion of the Administrator, the terms of an Option may entitle the Participant to the grant of a “Reload Option” in the event the Participant exercises an Option and surrenders shares of Common Stock to pay all or part of the Option price. A Reload Option (i) shall be exercisable and subject to such conditions or criteria as the Administrator, in its sole discretion, shall establish from time to time and (ii) shall entitle the holder to purchase a number of shares of Common Stock equal to the number of shares delivered upon exercise of the original Option and, in the discretion of the Administrator, the number of shares, if any, tendered to the Company to satisfy any withholding tax liability arising in connection with the exercise of the original Option. A Reload Option shall have (x) an exercise price of not less than the Fair Market Value of the Common Stock on the date of grant of such Reload Option, (y) a term not longer than the remaining term of the original Option at the time of exercise of the original Option, and (z) such other terms and conditions as the Administrator in its sole discretion shall determine.

 

6.11.

Shareholder Rights

 

No Participant shall have any rights as a shareholder with respect to shares subject to his Option until the date of exercise of such Option.

 

ARTICLE VII

STOCK AWARDS

 

7.01.

Awards

 

In accordance with the provisions of Article IV, the Administrator will designate each individual to whom a Stock Award is to be made and will specify the number of shares of Common Stock covered by such awards; provided, however, that no Participant may receive Stock Awards in any calendar year and the four preceding calendar years (or, if less, the calendar years after 2004) for more than 300,000 shares of Common Stock. The preceding limitations shall not apply to Stock Awards granted as Deferred Benefits.

 

7.02.

Vesting

 

The Administrator, on the date of the award, may prescribe that a Participant’s rights in the Stock Award shall be forfeitable or otherwise restricted for a period of time or subject to such conditions as may be set forth in the Agreement. The period of restriction set forth in the Agreement shall be at least three years; provided, however, that the period of restriction shall be at least one year in the case of any Stock Award to a non-employee Director or in the case of any other Stock Award that will become nonforfeitable and transferrable on account of satisfaction of performance criteria prescribed by the Administrator. By way of example and not of limitation, the Administrator may prescribe restrictions that postpone transferability of the shares until the attainment of criteria stated with respect to Performance Objectives or provide that the shares will be forfeited if the Participant separates from the service of the Company and its Related Entities before the expiration of a stated term.

 

7.03.

Performance Objectives

 

In accordance with Section 7.02, the Administrator may prescribe that Stock Awards will become vested or transferable or both only upon the attainment of criteria stated with respect to Performance Objectives or satisfaction of such other performance criteria as may be prescribed by the Administrator consistent with the Plan. If the Administrator designates that any Stock Award is intended to be “performance based compensation” as that term is used in Code Section 162(m), then the shares of Common Stock subject to such Stock Award shall become nonforfeitable and transferable only to the extent the Committee certifies that such performance criteria have been achieved. The Administrator may adjust the performance criteria as it deems equitable to reflect unusual or extraordinary transactions or events affecting the Company or a Related Entity, changes in applicable tax laws or accounting principles, or such other factors as the Administrator may determine.

 

7.04.

Change in Control

 

Sections 7.02 and 7.03 to the contrary notwithstanding but subject to Article XIV, each outstanding Stock Award shall become transferable and nonforfeitable on and after a Control Change Date without regard to whether any Performance Objectives or other condition to which the award is subject have been met.

 

7.05.

Shareholder Rights

 

Prior to their forfeiture (in accordance with the terms of the Agreement and while the shares of Common Stock granted pursuant to the Stock Award may be forfeited), a Participant will have all rights of a shareholder with respect to a Stock Award, including the right to receive dividends and vote the shares; provided, however, that during such period (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to a Stock Award, (ii) the Company shall retain custody of the certificates evidencing shares of Common Stock granted pursuant to a Stock Award, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each Stock Award. After the shares of Common Stock granted under the Stock Award are no longer forfeitable, the limitations set forth in the preceding sentence shall not apply and the Company shall deliver to the Participant certificates evidencing shares of Common Stock subject to the award as soon thereafter as possible.

 

ARTICLE VIII

PERFORMANCE SHARE AWARDS

 

8.01.

Award

 

In accordance with the provisions of Article IV, the Administrator will designate individuals to whom an award of Performance Shares is to be granted and will specify the number of shares of Common Stock covered by the award; provided, however, that no Participant may receive awards of Performance Shares in any calendar year and the four preceding calendar years (or, if less, the calendar years after 2004) covering more than 300,000 shares of Common Stock.

 

8.02.

Earning the Award

 

The Administrator, on the date of the grant of an award, may prescribe that the Performance Shares, or portion thereof, will be earned, and the Participant will be entitled to receive payment pursuant to the award of Performance Shares, only upon satisfaction of criteria stated with respect to Performance Objectives or other such criteria as may be prescribed by the Administrator. With respect to Performance Shares that are intended to be “performance based compensation” within the meaning of Code section 162(m), a payment will be made pursuant to such Performance Shares only to the extent that the Administrator certifies that such performance criteria have been achieved. The Administrator may adjust the performance criteria as it deems equitable to reflect unusual or extraordinary transactions or events affecting the Company or a Related Entity, changes in applicable tax laws or accounting principles, or such other factors as the Administrator may determine.

 

8.03.

Payment

 

In accordance with the Agreement, the amount payable when an award of Performance Shares is earned may be settled in cash, shares of Common Stock or a combination of cash and shares of Common Stock. A fractional share shall not be deliverable when an award of Performance Share is earned, but a cash payment will be made in lieu thereof.

 

8.04.

Change in Control

 

Section 8.02 to the contrary notwithstanding, but subject to Article XIV, each Performance Share shall be earned in its entirety as of a Control Change Date. To the extent a Performance Share award is settled in shares of Common Stock, such shares of Common Stock will be transferable and nonforfeitable on the Control Change Date.

 

8.05.

Shareholder Rights

 

No Participant shall, as a result of receiving an award of Performance Shares, have any rights as a shareholder until and to the extent that the Performance Shares are earned and settled in shares of Common Stock. To the extent that an award of Performance Shares is earned and settled in shares of Common Stock, a Participant will have all the rights of a shareholder with respect to those shares. Notwithstanding the foregoing, the Administrator may provide in an Agreement that the recipient of an award of Performance Shares is entitled to dividend equivalents between the date the Performance Shares are awarded and the date the Performance Shares are earned and settled in shares of Common Stock.

 

8.06.

Nontransferability

 

A Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of a Performance Share award or the right to receive Common Stock thereunder other than by will or the laws of descent and distribution.

 

ARTICLE IX

STOCK UNITS

 

9.01.

Award

 

In accordance with the provisions of Article IV, the Administrator will designate individuals to whom an award of Stock Units is to be made and will specify the number of Stock Units covered by such award; provided, however, that no Participant may be awarded Stock Units in any calendar year and the four preceding calendar years (or, if less, the calendar years after 2004) for more than an aggregate of 300,000 Stock Units.

 

9.02.

Earning the Award

 

The Administrator, on the date of grant of the award, may prescribe that the Stock Units will be earned, and the Participant will be entitled to receive a payment under an award of Stock Units, only upon satisfaction of criteria stated with respect to Performance Objectives or such other criteria as may be prescribed by the Administrator consistent with the Plan. The period of restriction or performance shall be at least one year. With respect to Stock Unit awards that are intended to be “performance based compensation” within the meaning of Code Section 162(m), a payment will be made pursuant to such Stock Units only to the extent that the Administrator certifies that such performance criteria have been achieved. The Administrator may adjust the performance criteria for any performance cycle as it deems equitable to reflect unusual or extraordinary transactions or events affecting the Company or a Related Entity, changes in applicable tax laws or accounting principles, or such other factors as the Administrator may determine.

 

9.03.

Payment

 

In accordance with the Agreement, the amount payable when an award of Stock Units are earned may be settled in cash, shares of Common Stock or a combination of cash and shares of Common Stock. A fractional share shall not be deliverable when an award of Stock Units is earned, but a cash payment will be made in lieu thereof.

 

9.04.

Nontransferability

 

A Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of a Stock Unit award other than by will or the laws of descent and distribution. The limitations set forth in the preceding sentence shall not apply to Common Stock issued as payment pursuant to a Stock Unit award.

 

9.05.

Shareholder Rights

 

No Participant shall, as a result of receiving a Stock Unit award, have any rights as a shareholder of the Company or Related Entity until and to the extent that the Stock Units are earned and settled in shares of Common Stock. If Stock Units are earned and settled in shares of Common Stock, a Participant will have all the rights of a shareholder with respect to such shares. Notwithstanding the foregoing, the Administrator may provide in an Agreement that the recipient of an award of Stock Units is entitled to dividend equivalents between the date of the award and the date the Stock Units are earned and settled.

 

9.06.

Change in Control

 

Section 9.02 to the contrary notwithstanding, but subject to Article XIV, each Stock Unit shall be earned in its entirety as of a Control Change Date without regard to whether any Performance Objectives or other condition to which the award is subject have been met. To the extent an award of Stock Units is settled in shares of Common Stock, such shares shall be transferable and nonforfeitable as of the Control Change Date.

 

ARTICLE X

INCENTIVE AWARDS

 

10.01. 

Awards

 

The Administrator shall designate Participants to whom Incentive Awards are made and will specify the amount of the Incentive Award. All Incentive Awards shall be determined exclusively by the Administrator under the procedures established by the Administrator; provided, however, that no Participant may receive Incentive Award payments in any calendar year exceeding $1,500,000.

 

10.02. 

Terms and Conditions

 

The Administrator, at the time an Incentive Award is made, shall specify the terms and conditions which govern the award. Such terms and conditions may include, by way of example and not of limitation, requirements that the Incentive Award will be earned only upon satisfaction of certain performance criteria including, without limitation, performance criteria stated with respect to Performance Objectives. The performance measurement period shall be at least one year. An Incentive Award that is intended to be “performance based compensation” within the meaning of Code Section 162(m), shall be earned only to the extent that the Administrator certifies that such performance criteria have been achieved. The Administrator, at the time an Incentive Award is made, also shall specify when amounts shall be payable under the Incentive Award and whether amounts shall be payable in the event of the Participant’s death, disability, or retirement.

 

10.03. 

Payment

 

In accordance with the Agreement, the amount payable when an Incentive Award is earned may be settled in cash, shares of Common Stock or a combination of cash and shares of Common Stock. A fractional share shall not be deliverable when an Incentive Award is earned but a cash payment will be made in lieu thereof.

 

10.04. 

Nontransferability

 

A Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of an Incentive Award other than by will or the laws of descent and distribution. The limitations set forth in the preceding sentence shall not apply to shares of Common Stock issued as payment in settlement of an Incentive Award.

 

10.05. 

Shareholder Rights

 

No Participant shall, as a result of receiving an Incentive Award, have any rights as a shareholder of the Company or Related Entity until and to the extent that the Incentive Award is earned and settled in shares of Common Stock. If and to the extent an Incentive Award is earned and settled in shares of Common Stock, a Participant will have all the rights of a shareholder with respect to such shares.

 

ARTICLE XI

ADJUSTMENT UPON CHANGE IN COMMON STOCK

 

The maximum number of shares as to which Options, Performance Shares, Stock Awards, Stock Units and Incentive Awards may be granted under this Plan, the terms of outstanding awards of Performance Shares, Incentive Awards, Stock Awards, Stock Units and Options, and the individual limitations on the grant or settlement of Options, Performance Shares, Stock Awards, Stock Units and Incentive Awards shall be adjusted as the Administrator shall determine to be equitably required in the event that (a) the Company (i) effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or (ii) engages in a transaction to which Code Section 424 applies or (b) there occurs any other event that, in the judgment of the Administrator, necessitates such action. Notwithstanding the foregoing, the Administrator in its sole discretion may elect not to adjust the terms of any award if it determines that such adjustment would cause such award to fail to qualify as performance-based compensation under Code Section 162(m). Any determination made under this Article XI by the Administrator shall be final and conclusive.

 

The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to: the maximum number of shares for which Options, Performance Shares, Incentive Awards, Stock Awards or Stock Units may be granted; the terms of outstanding Options, Performance Shares, Stock Awards, Incentive Awards or Stock Units; or the individual limitations on the grant or settlement of Options, Performance Shares, Stock Awards, Incentive Awards and Stock Units.

 

The Administrator may make Stock Awards and may grant awards of Performance Shares, Stock Units, Incentive Awards and Options in substitution for performance shares, phantom shares, stock awards, stock options, or similar awards held by an individual who becomes an employee or a Director of the Company or a Related Entity in connection with a transaction described in the first paragraph of this Article XI. Notwithstanding any provision of the Plan (other than the limitations of Section 5.02), the terms of such substituted awards of Performance Shares, Stock Units or grants of Stock Awards, Incentive Awards or Option shall be as the Administrator, in its discretion, determines is appropriate.

 

ARTICLE XII

COMPLIANCE WITH LAW AND

APPROVAL OF REGULATORY BODIES

 

No Option shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Company is a party, and the rules of all domestic stock exchanges on which the Company’s shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to evidence Common Stock when a Stock Award is granted or when a Performance Share or Stock Unit or Incentive Award is settled or for which an Option is exercised may bear such legends and statements as the Administrator may deem advisable to assure compliance with federal and state laws and regulations. No Option shall be exercisable, no Stock Award shall be granted, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Administrator may deem advisable from regulatory bodies having jurisdiction over such matters.

 

ARTICLE XIII

GENERAL PROVISIONS

 

13.01. 

Effect on Employment

 

Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any individual any right to continue in the employ or service of the Company or a Related Entity or in any way affect any right and power of the Company or a Related Entity to terminate the employment or service of any individual at any time with or without assigning a reason therefor.

 

13.02. 

Unfunded Plan

 

The Plan, insofar as it provides for grants and awards, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants or awards under this Plan. Any liability of the Company to any person with respect to any grant or award under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.

 

13.03. 

Rules of Construction

 

Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.

 

13.04. 

Employee Status

 

For purposes of determining the applicability of Code section 422 (relating to Incentive Stock Options), or in the event that the terms of any Performance Shares, Stock Units, Stock

 

Awards, Incentive Awards or Options provide that shares may be issued or become transferable and nonforfeitable thereunder only after completion of a specified period of employment, the Administrator may decide in each case to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment.

 

13.05. 

Withholding Taxes

 

Each Participant shall be responsible for satisfying any income and employment tax withholding obligations attributable to participation in the Plan. Unless otherwise provided by the Agreement, any such withholding tax obligations may be satisfied in cash (including from any cash payable in settlement of an award of Performance Shares, Stock Units or an Incentive Award) or a cash equivalent acceptable to the Administrator. Any withholding tax obligations also may be satisfied (a) by surrendering to the Company shares of Common Stock previously acquired by the Participant having a Fair Market Value, on the date the tax liability first arises, equal to the tax liability and, as to shares that were acquired from the Company, have been held by the Participant for at least six months; (b) by authorizing the Company to withhold or reduce the number of shares of Common Stock otherwise issuable to the Participant upon the exercise of an Option, the settlement of a Performance Share award, Stock Unit award or Incentive Award or the grant or vesting of a Stock Award; or (c) by any other method as may be approved by the Administrator. If shares of Common Stock are used to pay all or part of such withholding tax obligation, the Fair Market Value of the shares surrendered, withheld or reduced shall be determined as of the day the tax liability arises.

 

13.06. 

Dividends and Dividend Equivalents

 

At the discretion of the Administrator, an award of Stock Units or Performance Shares may include dividend equivalent rights, payable in cash or shares of Common Stock on a current or deferred basis. All dividend equivalents which are not paid currently may, at the Administrator’s discretion, accrue interest, be reinvested in additional shares of Common Stock and paid if, when, and to the extent that the underlying awards are earned and paid. The total number of shares of Common Stock available for grant under the Plan shall not be reduced on account of any dividend equivalents that are reinvested and credited as additional Stock Awards, Stock Units or Performance Share awards, as applicable.

 

ARTICLE XIV

LIMITATION ON BENEFITS

 

The benefits that a Participant may be entitled to receive under this Plan and other benefits that a Participant is entitled to receive under other plans, agreements and arrangements (which, together with the benefits provided under this Plan, are referred to as “Payments”), may constitute Parachute Payments that are subject to Code Sections 280G and 4999. As provided in this Article XI, the Parachute Payments will be reduced if, and only to the extent that, a reduction will allow a Participant to receive a greater Net After Tax Amount than a Participant would receive absent a reduction.

 

The Accounting Firm will first determine the amount of any Parachute Payments that are payable to a Participant. The Accounting Firm also will determine the Net After Tax Amount attributable to the Participant’s total Parachute Payments.

 

The Accounting Firm will next determine the largest amount of Payments that may be made to the Participant without subjecting the Participant to tax under Code Section 4999 (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

 

The Participant will receive the total Parachute Payments or the Capped Payments, whichever provides the Participant with the higher Net After Tax Amount. If the Participant will receive the Capped Payments, the total Parachute Payments will be adjusted by first reducing the amount of any noncash benefits under this Plan or any other plan, agreement or arrangement (with the source of the reduction to be directed by the Participant) and then by reducing the amount of any cash benefits under this Plan or any other plan, agreement or arrangement (with the source of the reduction to be directed by the Participant). The Accounting Firm will notify the Participant and the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and will send the Participant and the Company a copy of its detailed calculations supporting that determination.

 

As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that the Accounting Firm makes its determinations under this Article XIV, it is possible that amounts will have been paid or distributed to the Participant that should not have been paid or distributed under this Article XIV (“Overpayments”), or that additional amounts should be paid or distributed to the Participant under this Article XIV (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Participant must repay to the Company, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Participant to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Participant is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Participant and the Company of that determination and the amount of that Underpayment will be paid to the Participant promptly by the Company.

 

For purposes of this Article XIV, the term “Accounting Firm” means the independent accounting firm engaged by the Company immediately before the Control Change Date. For purposes of this Article XIV, the term “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Participant on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment. For purposes of this Article XIV, the term “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.

 

Notwithstanding any other provision of this Article XIV, the limitations and provisions of this Article XIV shall not apply to any Participant who, pursuant to an agreement with the Company or the terms of another plan maintained by the Company, is entitled to indemnification for any liability that the Participant may incur under Code Section 4999.

 

 

ARTICLE XV

AMENDMENT

 

The Board may amend or terminate this Plan from time to time; provided, however, that no amendment may become effective until shareholder approval is obtained if (a) the amendment increases the aggregate number of shares of Common Stock that may be issued under the Plan, (b) the amendment changes the class of individuals eligible to become Participants or (c) the amendment requires shareholder approval under the rules of the New York Stock Exchange as in effect from time to time. No amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Performance Shares, Stock Units, Stock Awards, Incentive Awards or Options outstanding at the time such amendment is made.

 

ARTICLE XVI

DURATION OF PLAN

 

No Performance Shares or Stock Units may be awarded and no Stock Award, Option or Incentive Award may be granted under this Plan after the tenth anniversary (the “termination date”) of the date that the Plan is adopted by the Board. Performance Shares and Stock Units awarded, and Stock Awards, Options, and Incentive Awards granted before the termination date shall remain valid in accordance with their terms.

 

ARTICLE XVII

EFFECTIVE DATE OF PLAN

 

Performance Shares and Stock Units may be awarded and Stock Awards, Options and Incentive Awards may be granted under this Plan upon its adoption by the Board, provided that no award of Performance Shares, Stock Unit, Stock Award, Incentive Award or Option will be effective unless this Plan is approved by a majority of the shareholders of Common Stock entitled to vote and present or represented by properly executed and delivered proxies at a duly held shareholders’ meeting at which a quorum is present within twelve months of such adoption.