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FRANKLIN ELECTRONIC PUBLISHERS, INC.
1998 STOCK OPTION PLAN
(As Amended and Restated Effective July 19, 2000)
1. Purpose.
The purpose of this Stock Option Plan (the "Plan") is to induce key
personnel, including employees, officers, directors and independent contractors,
to remain in the employ or service of Franklin Electronic Publishers, Inc. (the
"Company") and its present and future subsidiary corporations ("Subsidiaries"),
to attract new key personnel to the employ or service of the Company and the
Subsidiaries and to encourage such key personnel to secure or increase on
reasonable terms their stock ownership in the Company. The Board of Directors of
the Company (the "Board") believes that the granting of stock options
("Options") under the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company and aid in
securing its continued growth and financial success by those who are or may
become primarily responsible for shaping and carrying out the long range plans
of the Company.
2. Effective Date of the Plan.
The Plan became effective on May 1, 1998 and was amended and restated
effective July 19, 2000.
3. Stock Subject to Plan.
1,500,000 of the authorized but unissued shares of the common stock, no
par value, of the Company (the "Common Stock") may be issued upon the exercise
of Options and are hereby reserved for such issue; provided, however, that the
number of shares so reserved may from time to time be reduced to the extent that
a corresponding number of issued and outstanding shares of the Common Stock are
purchased by the Company and set aside for issue upon the exercise of
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Options. If any Option expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject thereto shall again be
available for the purposes of the Plan.
4. Committee.
The committee (the "Committee") shall consist of two or more members of
the Board. The Committee shall be appointed annually by the Board, which may at
any time and from time to time remove any member of the Committee, with or
without cause, appoint additional members to the Committee and fill vacancies,
however caused, in the Committee. A majority of the members of the Committee
shall constitute a quorum. All determinations of the Committee shall be made by
a majority of its members present at a duly called meeting of the Committee at
which a quorum is present. Any determination of the Committee signed by all of
the members of the Committee shall be fully as effective as if it had been made
at a meeting duly called and held.
5. Administration.
The Plan shall be administered by the Committee. The Committee shall
have complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the option agreements or certificates which evidence Options,
to determine the individuals (the "Participants") to whom and the times and the
prices at which Options shall be granted, the periods during which Options shall
be exercisable, the number of shares of the Common Stock to be subject to
Options and to make all other determinations necessary or advisable for the
administration of the Plan. In making such determinations, the Committee may
take into account the nature of the services rendered by the respective
Participants, their present and potential contributions to the success of the
Company and the Subsidiaries and such other factors as the Committee in its
discretion shall deem relevant. The Committee shall have the authority to
determine whether Options granted hereunder shall be (a) "incentive stock
options" (which term, when used herein, shall have the
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meaning ascribed thereto by the provisions of Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code")), (b) Options which are not
incentive stock options ("non-incentive stock options") or (c) a combination
thereof. The Committee's determination on the matters referred to in this
Section 5 shall be conclusive. Any dispute or disagreement which may arise under
or as a result of or with respect to any Option shall be determined by the
Committee, in its sole discretion, and any interpretation by the Committee of
the terms of any Option shall be final, binding and conclusive.
6. Eligibility.
An Option may be granted only to (a) key employees of the Company or a
Subsidiary (including officers and/or directors), (b) directors of the Company
who are not employees or officers of the Company or a Subsidiary, (c)
independent contractors hired by the Company or a Subsidiary to provide
consulting services for the Company or a Subsidiary and (d) employees of a
corporation which has been acquired by the Company or a Subsidiary, whether by
way of exchange or purchase of stock, purchase of assets, merger or reverse
merger, or otherwise, who hold options with respect to the stock of such
corporation which the Company has agreed to assume.
7. Option Prices.
A. Except as otherwise provided in Section 21 hereof, the initial per
share option price of any Option which is an incentive stock option shall not be
less than the fair market value of a share of the Common Stock on the date such
Option is granted; provided, however, that, in the case of a Participant who
owns more than 10% of the Common Stock at the time an Option which is an
incentive stock option is granted to such Participant, the initial per share
option price shall not be less than 110% of the fair market value of a share of
the Common Stock on the date such Option is granted.
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B. Except as otherwise provided in Section 21 hereof, the initial per
share option price of any Option which is a non-incentive stock option shall not
be less than 75% of the fair market value of a share of the Common Stock on the
date such Option is granted; provided, however, that the initial per share
option price of any non-incentive option which is granted to a person who is or
who in the opinion of the Committee may become a "covered employee" within the
contemplation of Section 162(m)(3) of the Code shall not be less than 100% of
the fair market value of a share of the Common Stock on the date such Option is
granted.
C. For all purposes of the Plan, the fair market value of a share of
the Common Stock on any date shall be equal to (i) the closing sale price of the
Common Stock on the New York Stock Exchange on such date or (ii) if there is no
sale of the Common Stock on such Exchange on such date, the average of the bid
and asked prices on such Exchange at the close of the market on such date.
8. Option Term.
Except as otherwise provided in Section 21 hereof, Participants shall
be granted Options for such term as the Committee shall determine, not in excess
of ten years from the date of the granting thereof; provided, however, that, in
the case of a Participant who owns more than 10% of the Common Stock at the time
an Option which is an incentive stock option is granted to such Participant, the
term with respect to such Option shall not be in excess of five years from the
date such Option is granted.
9. Limitations on Amount of Stock Options Granted.
A. Except as otherwise provided in Section 21 hereof, the aggregate
fair market value of the shares of the Common Stock for which any Participant
may be granted incentive stock options which are exercisable for the first time
in any calendar year (whether under the terms of the Plan or any other stock
option plan of the Company) shall not exceed $100,000.
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B. No Participant shall, during any fiscal year of the Company, be
granted Options to purchase more than 100,000 shares of the Common Stock.
10. Exercise of Options.
A. Except as otherwise provided in Section 22 hereof, a Participant may
exercise each Option granted to such Participant in such installments as the
Committee shall determine at the time of the grant thereof; provided, however,
that, unless the Committee shall otherwise determine at the time of grant, a
Participant may not exercise an Option prior to the first anniversary of the
date of the granting of such Option and a Participant may (i) during the period
commencing on the first anniversary of the date of the granting of such Option
and ending on the day preceding the second anniversary of such date, exercise
such Option with respect to one-third of the shares subject thereto, (ii) during
the period commencing on such second anniversary and ending on the day preceding
the third anniversary of the date of the granting of such Option, exercise such
Option with respect to two-thirds of the shares originally subject thereto and
(iii) during the period commencing on such third anniversary, exercise such
Option with respect to all of the shares subject thereto.
B. Except as hereinbefore otherwise set forth, an Option may be
exercised either in whole at any time or in part from time to time.
C. The Committee may, in its discretion, permit any Option to be
exercised, in whole or in part, prior to the time when it would otherwise be
exercisable in accordance with the provisions of Section 10A hereof.
D. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of the Common
Stock and payment to the Company of the Common Stock so specified; provided,
however, that all or any portion of such payment may be made in kind by the
delivery of shares of the Common Stock which have been
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owned by the Participant for a minimum period of six months having a fair market
value on the date of delivery equal to the portion of the option price so paid;
provided, further, however, that, subject to the requirements of Regulation T
(as in effect from time to time) promulgated under the Securities Exchange Act
of 1934, as amended, the Committee may implement procedures to allow a broker
chosen by a Participant to make payment of all or any portion of the option
price payable upon the exercise of an Option and to receive, on behalf of such
Participant, all or any portion of the shares of the Common Stock issuable upon
such exercise.
11. Transferability.
A. Except as otherwise provided in Section 11B hereof, no Option shall
be assignable or transferable except by will and/or by the laws of descent and
distribution and, during the life of any Participant, each Option granted to
such Participant may be exercised only by him or her.
B. A Participant may, with the prior approval of the Committee,
transfer for no consideration an Option which is a non-incentive stock option to
or for the benefit of the Participant's Immediate Family, a trust for the
exclusive benefit of the Participant's Immediate Family or to a partnership or
limited liability company for one or more members of the Participant's Immediate
Family, subject to such limits as the Committee may establish, and the
transferee shall remain subject to all the terms and conditions applicable to
the Option prior to such transfer. The term "Immediate Family" shall mean the
Participant's spouse, parents, children, stepchildren, adoptive relationships,
sisters, brothers and grandchildren and any of their respective spouses.
12. Termination of Service.
In the event a Participant leaves the employ or service of the Company
and the Subsidiaries for any reason, whether voluntarily or otherwise, other
than by reason of death,
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retirement on or subsequent to his or her 65th birthday or permanent disability,
each Option granted to such Participant shall, to the extent it is exercisable
on the date of such termination of employment or service, terminate upon the
earlier to occur of (i) the expiration of 90 days after such termination of
employment or service or (ii) the expiration date specified in such Option. In
the event a Participant's employment or service with the Company and the
Subsidiaries terminates by reason of death, retirement on or subsequent to his
or her 65th birthday or permanent disability, each Option granted to such
Participant shall become immediately exercisable in full and shall terminate
upon the earlier to occur of (i) the expiration of six months after the date of
such death, retirement or permanent disability or (ii) the expiration date
specified in such Option.
13. Adjustment of Number of Shares.
In the event that a dividend shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any Option, the number of shares of the Common Stock which may
be issued pursuant to the Plan but not yet covered by Options and the number of
shares set forth in Sections 9B and 22B hereof shall be adjusted by adding to
each share the number of shares which would be distributable thereon if such
shares had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. In the event that the outstanding
shares of the Common Stock shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation, whether through reorganization, recapitalization, stock
split-up, combination of shares, sale of assets, merger or consolidation in
which the Company is the surviving corporation, then, there shall be substituted
for each share of the Common Stock then subject to any Option, for each share of
the Common Stock which may be issued pursuant to the Plan but not yet covered by
Options and for each share of the Common
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Stock referred to in Sections 9B and 22B hereof the number and kind of shares of
stock or other securities into which each outstanding share of the Common Stock
shall be so changed or for which each such share shall be exchanged. In the
event that there shall be any change, other than as specified in this Section
13, in the number or kind of outstanding shares of the Common Stock, or of any
stock or other securities into which the Common Stock shall have been changed,
or for which it shall have been exchanged, then, if the Committee shall, in its
sole discretion, determine that such change equitably requires an adjustment in
the number or kind of shares then subject to any Option, the number or kind of
shares which may be issued pursuant to the Plan but not yet covered by Options
and the number of shares set forth in Sections 9B and 22B hereof, such
adjustment shall be made by the Committee and shall be effective and binding for
all purposes of the Plan and of each outstanding Option. In the case of any
substitution or adjustment in accordance with the provisions of this Section 13,
the option price in each Option for each share covered thereby prior to such
substitution or adjustment shall be the option price for all shares of stock or
other securities which shall have been substituted for such share or to which
such share shall have been adjusted in accordance with the provisions of this
Section 13. No adjustment or substitution provided for in this Section 13 shall
require the Company to sell a fractional share under any Option. In the event of
the dissolution or liquidation of the Company, or a merger or consolidation in
which the Company is not the surviving corporation, all outstanding Options
shall terminate.
14. Purchase for Investment, Withholding and Waivers.
A. Unless the shares to be issued upon the exercise of an Option by a
Participant shall be registered prior to the issuance thereof under the
Securities Act of 1933, such Participant will be required, as a condition of the
Company's obligation to issue such shares, to give a
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representation in writing that he or she is acquiring such shares for his or her
own account as an investment and not with a view to, or for sale in connection
with, the distribution of any thereof.
B. In the event of the death of a Participant, a condition of
exercising any Option shall be the delivery to the Company of such tax waivers
and other documents as the Committee shall determine.
C. Each Participant shall be required, as a condition of exercising any
non-incentive stock option, to make such arrangements with the Company with
respect to withholding as the Committee may determine.
15. No Stockholder Status.
Neither any Participant nor his or her legal representatives, legatees
or distributees shall be or be deemed to be the holder of any share of the
Common Stock covered by an Option unless and until a certificate for such share
has been issued. Upon payment of the purchase price thereof, a share issued upon
exercise of an Option shall be fully paid and non-assessable.
16. No Restrictions on Corporate Acts.
Neither the existence of the Plan nor any Option shall in any way
affect the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate act or
proceeding whether of a similar character or otherwise.
17. Decline in Market Price.
In the event that the fair market value of the Common Stock declines
below the option price set forth in any Option, the Committee may, at any time,
adjust, reduce, cancel and regrant
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any unexercised Option or take any similar action it deems to be for the benefit
of the Participant in light of the declining fair market value of the Common
Stock; provided, however, that none of the foregoing actions may be taken
without the approval of the Board.
18. No Employment Right.
Neither the existence of the Plan nor the grant of any Option shall
require the Company or any Subsidiary to continue any Participant in the employ
or other service of the Company or such Subsidiary.
19. Amendment of the Plan.
The Board may at any time make such modifications of the Plan as it
shall deem advisable; provided, however, that the Board may not, without further
approval of stockholders representing a majority of the outstanding shares of
the Common Stock present in person or by proxy at any special or annual meeting
of the stockholders, increase the number of shares of the Common Stock as to
which Options which are intended to be incentive stock options may be granted
under the Plan (as adjusted in accordance with the provisions of Section 13
hereof), or change the class of persons eligible to receive Options which are
intended to be incentive stock options in the Plan. No termination or amendment
of the Plan may, without the consent of the Participant to whom any Option shall
theretofore have been granted, adversely affect the rights of such Participant
under such Option.
20. Expiration and Termination of the Plan.
The Plan shall terminate on April 30, 2008, or at such earlier time as
the Board may determine. Options may be granted under the Plan at any time and
from time to time prior to its termination. Any Option outstanding under the
Plan at the time of the termination of the Plan shall remain in effect until
such Option shall have been exercised or shall have expired in accordance with
its terms.
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21. Options Granted in Connection with Acquisitions.
In connection with the acquisition by the Company or a Subsidiary of
another corporation which will become a Subsidiary or division of the Company
(an "Acquired Subsidiary"), Options may be granted to employees and other
personnel of such Acquired Subsidiary in exchange or substitution for then
outstanding options to purchase securities of the Acquired Subsidiary, such
Options may be granted at such option prices, may be exercisable immediately or
at any time or times either in whole or in part, and may contain such other
provisions not inconsistent with the Plan, as the Committee, in its discretion,
shall deem appropriate at the time of the granting of such Options.
22. Options for Outside Directors.
A. Notwithstanding any other provision of the Plan, a director of the
Company who is not an employee of the Company or a Subsidiary (an "Outside
Director") shall be eligible to receive an Option only in accordance with the
terms and conditions of this Section 22. Except as otherwise provided in this
Section 22, each such Option shall be subject to all of the provisions of the
Plan.
B. I. On July 19, 2000, each Outside Director shall be granted an
Option to purchase shares of Common Stock equal to the difference, if positive,
between (A) the number derived by dividing $30,000 by the fair market value of a
share of Common Stock on July 19, 2000 and (B) 3,000. Thereafter, on the first
business day of January of each year, each Outside Director shall be granted an
Option to purchase the number of shares of Common Stock equal to the greater of
(x) 3,000 or (y) the number derived by dividing $30,000 by the fair market value
of a share of Common Stock on the date of grant. If an Outside Director shall
become an Outside Director subsequent to the first business day of January
during any year, on the first business day on which he or she shall be an
Outside Director, he or she shall be granted an Option to purchase
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the number of shares of the Common Stock equal to the product of (A) the greater
of (i) 3,000 or (ii) the number derived by dividing $30,000 by the fair market
value of a share of Common Stock on the date of grant and (B) the fraction the
numerator of which shall be the lesser of (x) four and (y) the number of
regularly scheduled meetings of the Board remaining in such calendar year and
the denominator of which shall be four.
II. The Committee may, with the approval of the Board, grant
additional Options, in such amounts and at such times as the Committee may
determine, to Outside Directors who perform services for the Company and who are
not members of the Committee at the time of such grant.
III. The per share option price of each Option granted to an
Outside Director pursuant to the provisions of this Section 22B shall be equal
to the fair market value of a share of the Common Stock on the date such Option
is granted.
IV. The term of each Option granted to an Outside Director shall
be ten years.
C. Any Option granted to an Outside Director shall be exercisable as to
all shares of the Common Stock covered thereby commencing on the date six months
after the date on which such Option is granted.
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