EXHIBIT 10.6
SIERRA HEALTH SERVICES, INC.
1995 LONG-TERM INCENTIVE PLAN,
As Amended and Restated as of May 12, 1998;
As amended December 9, 1999, May 18, 2000, and June 13, 2000
1. Purpose. The purpose of this 1995 Long-Term Incentive Plan, as
amended and restated (the "Plan"), of Sierra Health Services, Inc., a Nevada
corporation (the "Company"), is to advance the interests of the Company and its
stockholders by providing a means to attract, retain, and reward executive
officers and other key employees of, and consultants to, the Company and its
subsidiaries, directors of subsidiaries, and certain other service providers to
the Company and its subsidiaries and affiliates, to link compensation to
measures of the Company's performance in order to provide additional incentives,
including stock-based incentives and cash-based annual incentives, to such
persons for the creation of stockholder value, and to enable such persons to
acquire or increase a proprietary interest in the Company in order to promote a
closer identity of interests between such persons and the Company's
stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, and Other Stock-Based Awards, are
set forth in Section 6 of the Plan, and the definition of Performance Awards and
Annual Incentive Awards is set forth in Section 8 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." The definitions of terms relating to a Change of
Control of the Company are set forth in Section 9 of the Plan. In addition to
such terms and the terms defined in Section 1, the following terms shall be
defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice to
a Participant, or other instrument or document evidencing an Award.
(b) "Beneficiary" means the person, persons, trust, or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death. If, upon a
Participant's death, there is no designated Beneficiary or surviving designated
Beneficiary, then the term Beneficiary means the person, persons, trust, or
trusts entitled by will or the laws of descent and distribution to receive such
benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code include regulations
thereunder and successor provisions and regulations thereto.
(e) "Committee" means the Stock Plan Committee of the Board in the case
of Awards other than Annual Incentive Awards, the Compensation Committee of the
Board in the case of Annual Incentive Awards, or such other Board committee or
committees as may be designated by the Board to administer the Plan in respect
of any Award, and the term "Committee" shall refer to the full Board in any case
in which it is performing any function of the Committee under the Plan. In
appointing members of the Committee, the Board will consider whether each member
will qualify as a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)
and as an "outside director" within the meaning of Treasury Regulation
1.162-27(e)(3) under Code Section 162(m), but the members are not required to so
qualify at the time of appointment or during their term of service on the
Committee.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
include rules thereunder and successor provisions and rules thereto.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair
Market Value of Stock as of any given date means the closing sale price of a
share of common stock reported in the table entitled "New York Stock Exchange
Composite Transactions" contained in THE WALL STREET JOURNAL (or an equivalent
successor table) for such date or, if no such closing price was reported for
such date, for the most recent trading day prior to such date for which such
closing price was reported.
(h) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(i) "Participant" means a person who, as an executive officer or key
employee of the Company or a subsidiary, has been granted an Award under the
Plan which remains outstanding.
(j) "Reserved Award" means an Award granted to a Participant eligible
to receive such an Award under Section 5. A Reserved Award may relate only to
the shares of Stock designated for Reserved Awards under Section 4(a) and may
not be an ISO.
(k) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(l) "Stock" means the Common Stock, $.005 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
Participant;
(iii) to determine the number of Awards to be granted, the number of shares
of Stock to which an Award will relate, the cash amount payable in settlement of
an Annual Incentive Award and the performance conditions applicable thereto, all
other terms and conditions of any Award granted under the Plan (including, but
not limited to, any exercise price, grant price, or purchase price, any
restriction or condition, any schedule or performance conditions for the lapse
of restrictions or conditions relating to transferability, forfeiture,
exercisability, or settlement of an Award, and waivers, accelerations, or
modifications thereof, based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in connection
with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price
of an Award may be paid, in cash, Stock, other Awards, or
other property, or an Award may be cancelled, forfeited, or
surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property
payable with respect to an Award will be deferred either
automatically, at the election of the Committee, or at the
election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the
Plan and any Award, rules and regulations, Award Agreement, or
other instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may
deem necessary or advisable for the administration of the
Plan.
(b) Manner of Exercise of Committee Authority. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any subsidiary of the Company the authority,
subject to such terms as the Committee shall determine, to perform such
functions as the Committee may determine, to the extent that such delegation
will not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards
granted to Participants subject to Section 16 of the Exchange Act in respect of
the Company and will not cause Awards intended to qualify as "performance-based"
compensation under Code Section 162(m) to fail to so qualify, and as otherwise
limited by applicable law. Other provisions of the Plan notwithstanding, the
Board may perform any function of the Committee under the Plan, in order to
ensure that transactions under the Plan are exempt under Rule 16b-3 or for any
other reason; provided, however, that authority specifically reserved to the
Board under the terms of the Plan, the Company's Certificate of Incorporation or
By-laws, or applicable law shall be exercised by the Board and not by the
Committee.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
behalf of the Committee or members thereof shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to any such
action, determination, or interpretation.
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4. Stock Available Under the Plan; Per-Person Award Limitations;
Adjustments.
(a) Stock Reserved for Awards. Subject to adjustment as hereinafter
provided, the total number of shares of Stock reserved and available for
issuance to Participants in connection with (i) Awards other than Reserved
Awards shall be 4,423,150 plus the number of shares reserved for the grant of
awards under the Company's Second Amended and Restated 1986 Stock Option Plan
and Second Restated Capital Accumulation Plan but which have not been and will
not be issued under such plans (as determined at any time during the
effectiveness of the Plan) and (ii) Reserved Awards shall be 1,800,000 (subject
to Section 11(k)). No Award may be granted if the number of shares to which such
Award relates, when added to the number of shares to which other
then-outstanding Awards relate, exceeds the number of shares then remaining
available for issuance under this Section 4. If all or any portion of an Award
is forfeited, settled in cash, or otherwise terminated without issuance of
shares to the Participant, the shares to which such Award or portion thereof
related shall again be available for Awards under the Plan; provided, however,
that shares withheld in payment of the exercise price of any Option or
withholding taxes relating to Awards and shares equal to the number of Shares
surrendered in payment of the exercise price of any Option or withholding taxes
relating to Awards shall, for purposes of this provision, be deemed not to have
been issued to the Participant in connection with such Awards under the Plan;
and provided further, that shares relating to a Reserved Award will become
available again only for Reserved Awards. The Committee may adopt procedures for
the counting of shares relating to any Award to ensure appropriate counting and
avoid double counting (in the case of tandem or substitute awards). Shares of
Stock issued pursuant to an Award other than a Reserved Award shall consist of
authorized and unissued shares for up to 3,150,000 shares and shall consist of
treasury shares or shares acquired in the market for the account of the
Participant for up to 1,273,150 shares (which treasury shares or acquired shares
will be deemed to have been "issued" pursuant to such Award). Shares of Stock
issued pursuant to a Reserved Award shall consist of authorized and unissued
shares. Each Award granted on or after December 9, 1999 to a person other than a
director or officer shall be deemed, to the fullest extent practicable, a
Reserved Award, unless otherwise specified by the Committee. For purposes of the
preceding sentence and the second sentence of Section 5, the term "officer"
means an "officer" as such term is defined in Section 312.04(g) of the New York
Stock Exchange's Listed Company Manual as in effect at May 18, 2000. The General
Counsel may determine whether shares issued pursuant to particular Awards are
authorized and unissued, treasury, or acquired shares, consistent with this
Section 4(a) and the applicable provisions of Section 312.03 and 312.04 of such
Listed Company Manual as in effect at May 18, 2000.
(b) Annual Individual Limitations. During any calendar year, no
Participant may be granted Options, SARs, and other Awards under the Plan with
respect to more than 200,000 shares of Stock, subject to adjustment as provided
in Section 4(c). For purposes of this Section 4(b), unless more restrictive
counting is required in order for Awards to comply with the requirements of Code
Section 162(m) and regulations thereunder, this provision will limit the maximum
number of shares that can be issued to a Participant under Awards (taking into
consideration the terms of the Awards, including tandem exercise provisions). In
addition, no Annual Incentive Award or Awards granted to a Participant in
respect of any one calendar year may be settled by payment of an amount that
exceeds four percent of the Company's pre-tax operating income (determined under
generally accepted accounting principles) for that year.
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(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution in the form of Stock or property other than cash,
other special, large, and non-recurring dividends or distributions,
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of shares
of Stock reserved and available for Awards under Section 4(a), (ii) the number
and kind of shares of outstanding Restricted Stock or relating to any other
outstanding Award in connection with which shares have been issued, (iii) the
number and kind of shares that may be issued in respect of other outstanding
Awards, (iv) the exercise price, grant price, or purchase price relating to any
Award (or, if deemed appropriate, the Committee may make provision for a cash
payment with respect to any outstanding Award), and (v) the number of shares
with respect to which Options, SARs, and other Awards may be granted to a
Participant in any calendar year, as set forth in Section 4(b). In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards (including Performance Awards and performance
goals, and Annual Incentive Awards and any performance goals relating thereto)
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence) affecting the Company or any
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
The foregoing notwithstanding, no adjustments shall be authorized under this
Section 4(c) with respect to ISOs or SARs in tandem therewith to the extent that
such authority would cause the Plan or such Awards to fail to comply with
Section 422 of the Code, and no such adjustment shall be authorized with respect
to Options, SARs, Annual Incentive Awards, or other Awards subject to Section 8
to the extent that such authority would cause such Awards intended to qualify as
"qualified performance-based compensation" under Section 162(m)(4)(C) of the
Code and regulations thereunder to fail to so qualify.
5. Eligibility. Executive officers and other key employees of the
Company and its subsidiaries (including any director of the Company who is also
an executive officer or key employee), and consultants to the Company and its
subsidiaries and directors of any subsidiary (excluding any director of the
Company who would be eligible solely due to service as such a consultant or
subsidiary director), are eligible to be granted Awards under the Plan.
Employees of the Company and its affiliates, directors of subsidiaries of the
Company, and consultants and others who provide substantial services to the
Company and its affiliates are eligible to be granted Reserved Awards under the
Plan, provided that no person who is a director, officer, or owner of 5% of an
outstanding class of equity securities of the Company shall be eligible to be
granted a Reserved Award under the Plan. For purposes of the Plan, a person
provides "substantial services" if such services are approximately equivalent to
the services that would be performed by full-time employee of the Company or an
affiliate (determined at the time of grant of any Award). The foregoing
notwithstanding, no member of the Committee shall be eligible to be granted
Awards under the Plan.
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6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
11(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service by the Participant or upon the occurrence of other events. Except as
expressly provided by the Committee (including for purposes of complying with
requirements of the Nevada General Corporation Law relating to lawful
consideration for issuance of shares), no consideration other than for services
will be required for the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants (including "reload" options automatically granted to offset
specified exercises of options) on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the
Committee; provided, however, that, except as provided in
Section 7(a), such exercise price shall be not less than the
Fair Market Value of a share on the date of grant of such
Option.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or
in part, the methods by which such exercise price may be paid
or deemed to be paid, the form of such payment, including,
without limitation, cash, Stock, other Awards or awards
granted under other Company plans, or other property
(including notes or other contractual obligations of
Participants to make payment on a deferred basis, such as
through "cashless exercise" arrangements, to the extent
permitted by applicable law), and the methods by which Stock
will be delivered or deemed to be delivered to Participants.
(iii) ISOs. ISOs only may be granted in respect of Awards other than
Reserved Awards, and then only to the extent authorized but unissued shares
(and not treasury or reacquired shares) are then available for the grant of such
Awards. The terms of any ISO granted under the Plan shall comply in all respects
with the provisions of Section 422 of the Code, including but not limited to the
requirement that no ISO shall be granted more than ten years after the effective
date of the Plan. Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to ISOs shall be interpreted, amended, or altered, nor
shall any discretion or authority granted under the Plan be exercised, so as to
disqualify either the Plan or any ISO under Section 422 of the Code, unless the
Participant has first requested such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of (A) the Fair
Market Value of one share of Stock on the date of exercise (or, if the Committee
shall so determine in the case of any such right other than one related to an
ISO, the Fair Market Value of one share at any time during a specified period
before or after the date of exercise), over (B) the grant price of the SAR as
determined by the Committee as of the date of grant of the SAR, which, except as
provided in Section 7(a), shall be not less than the Fair Market Value of one
share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or times at which
an SAR may be exercised in whole or in part, the method of exercise, method of
settlement, form of consideration payable in settlement, method by which Stock
will be delivered or deemed to be delivered to Participants, whether or not an
SAR shall be in tandem with any other Award, and any other terms and conditions
of any SAR. Limited SARs that may only be exercised upon the occurrence of a
Change of Control (as such term is defined in Section 11(b) or as otherwise
defined by the Committee) may be granted on such terms, not inconsistent with
this Section 6(c), as the Committee may determine. Such Limited SARs may be
either freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted Stock
to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the Committee
may impose, which restrictions may lapse separately or in combination at such
times, under such circumstances, in such installments, or otherwise as the
Committee may determine; provided, however, that Restricted Stock the grant of
which is not conditioned upon achievement of any performance objective shall be
subject to a restriction on transferability and a risk of forfeiture for a
period of not less than three years after the date of grant (except that the
Committee may accelerate the lapse of such restrictions in the event of the
Participant's termination of employment or service due to death, disability,
normal or approved early retirement, or involuntary termination by the Company
or a subsidiary without "cause," as defined by the Committee). Except to the
extent restricted under the terms of the Plan and any Award Agreement relating
to the Restricted Stock, a Participant granted Restricted Stock shall have all
of the rights of a stockholder including, without limitation, the right to vote
Restricted Stock or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the
applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited and
reacquired by the Company; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, except as
otherwise provided in Section 6(d)(i).
(iii) Certificates for stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, such certificates
shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted
Stock, the Company shall retain physical possession of the
certificate, and the Participant shall have delivered a stock
power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends and Distributions. Dividends paid on Restricted Stock shall
be either paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or the
payment of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property is distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions as the
Committee may impose, if any, which restrictions may lapse at
the expiration of the deferral period or at earlier specified
times, separately or in combination, under such circumstances,
in such installments, or otherwise as the Committee may
determine.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as provided in
the Award Agreement evidencing the Deferred Stock), all Deferred Stock that is
at that time subject to such risk of forfeiture shall be forfeited; provided,
however, that the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will be waived
in whole or in part in the event of terminations resulting from specified
causes.
(iii) Dividend Equivalents. The Committee may provide that payments
in the form of dividend equivalents will be credited in
respect of Deferred Stock, which amounts may be paid or
distributed when accrued or deemed reinvested in additional
Deferred Stock.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements. Stock or Awards granted hereunder shall be subject to such other
terms as shall be determined by the Committee.
(g) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock and factors that may influence
the value of Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee, and Awards valued
by reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the terms
and conditions of such Awards. Stock issued pursuant to an Award in the nature
of a purchase right granted under this Section 6(g) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, or other property, as
the Committee shall determine. Cash awards, as an element of or supplement to
any other Award under the Plan, may be granted pursuant to this Section 6(g).
7. Certain Provisions Applicable to Awards.
(a) Stand-alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. Awards granted in addition to or in tandem
with other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards. The per share
exercise price of any Option, grant price of any SAR, or purchase price of any
other Award conferring a right to purchase Stock granted in substitution for an
outstanding Award or award may be adjusted to reflect the in-the-money value of
the surrendered Award or award.
(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of dividend
equivalents in respect of installment or deferred payments denominated in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise dispose
of equity securities (including derivative securities) acquired under the Plan
without incurring liability under Section 16(b) of the Exchange Act, equity
securities acquired under the Plan must be held for a period of six months
following the date of such acquisition, provided that this condition shall be
satisfied with respect to a derivative security if at least six months elapse
from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security.
(ii) Compliance Generally. With respect to a Participant who is then
subject to the reporting requirements of Section 16(a) of the Exchange Act in
respect of the Company, the Committee shall implement transactions under the
Plan and administer the Plan in a manner that will ensure that each transaction
by such a Participant is exempt from liability under Rule 16b-3, except that
this provision shall not limit sales by such a Participant, and such a
Participant may engage in other non-exempt transactions under the Plan if
written notice is given to the Participant regarding the non-exempt nature of
such transaction. The Committee may authorize the Company to repurchase any
Award or shares of Stock resulting from any Award in order to prevent a
Participant who is subject to Section 16 of the Exchange Act from incurring
liability under Section 16(b). Unless otherwise specified by the Participant,
equity securities or derivative securities acquired under the Plan which are
disposed of by a Participant shall be deemed to be disposed of in the order
acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and conditions, if any, under which the
loan or loans may be forgiven.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of performance as it
may deem appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under any
Award subject to performance conditions, except as limited under Sections 8(b)
and 8(c) hereof in the case of a Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Employees. If the
Committee determines that a Performance Award to be granted to an eligible
person who is designated by the Committee as likely to be a "covered employee"
(as such term is used in the regulations under Section 162(m)) with respect to a
specified fiscal year (a "Covered Employee") should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise, and/or settlement of such Performance Award shall be contingent upon
achievement of preestablished performance goals and other terms set forth in
this Section 8(b).
(i) Performance Goals Generally. The performance goals for such Performance
Awards shall consist of one or more business criteria and a targeted level or
levels of performance with respect to each of such criteria, as specified by the
Committee consistent with this Section 8(b). Performance goals shall be
objective and shall otherwise meet the requirements of Code Section 162(m) and
regulations thereunder (including Regulation 1.162-27 and successor regulations
thereto), including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised, and/or settled upon achievement of any one
performance goal or that two or more of the performance goals must be achieved
as a condition to the grant, exercise, and/or settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii) Business Criteria. One or more of the following business criteria for
the Company, on a consolidated basis, and/or for specified subsidiaries or
business units of the Company (except with respect to the annual earnings per
share and total stockholder return criteria), shall be used by the Committee in
establishing performance goals for such Performance Awards: (1) annual return on
equity; (2) annual earnings or earnings per share; (3) changes in annual
revenues; (4) operating income; (5) total stockholder return; and/or (6)
strategic business criteria, consisting of one or more objectives based on
meeting specified revenue, market penetration, geographic business expansion
goals, cost targets, and goals relating to acquisitions or divestitures. The
targeted level or levels of performance with respect to such business criteria
may be established at such levels and in such terms as the Committee may
determine, in its discretion, including in absolute terms, as a goal relative to
performance in prior periods, or as a goal compared to the performance of one or
more comparable companies or an index covering multiple companies.
(iii) Performance Period; Timing for Establishing Performance Goals.
Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period
specified by the Committee. Performance goals shall be
established not later than 90 days after the beginning of any
performance period applicable to such Performance Awards, or
at such other date as may be required or permitted for
"performance-based compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in Stock, other Awards, or other property, in the
discretion of the Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with such Performance
Awards, but may not exercise discretion to increase any such amount payable to a
Covered Employee in respect of a Performance Award subject to this Section 8(b).
The Committee shall specify the circumstances in which such Performance Awards
shall be paid or forfeited in the event of termination of employment by the
Participant or other event (including a Change of Control) prior to the end of a
performance period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees.
The Committee may grant an Annual Incentive Award under the Plan to a person who
is designated by the Committee as a Covered Employee. Such Annual Incentive
Award will be intended to qualify as "performance-based compensation" for
purposes of Code Section 162(m), and therefore its grant, exercise, and/or
settlement shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 8(c).
(i) Grant of Annual Incentive Awards. Not later than the end of the 90th
day of each fiscal year, or at such other date as may be required or permitted
in the case of Awards intended to be "performance-based compensation" under Code
Section 162(m), the Committee shall determine the Covered Employees who will
potentially receive Annual Incentive Awards, and the amount(s) potentially
payable thereunder, for that fiscal year. The amount(s) potentially payable
shall be based upon the achievement of a performance goal or goals based on one
or more of the business criteria set forth in Section 8(b)(ii) hereof in the
given performance year, as specified by the Committee. The Committee may
designate an annual incentive award pool as the means by which Annual Incentive
Awards will be measured, provided that the portion of such pool potentially
payable to the Covered Employee shall be preestablished. In all cases, the
maximum Annual Incentive Award of any Participant shall be subject to the
limitation set forth in Section 5 hereof.
(ii) Payout of Annual Incentive Awards. After the end of each fiscal year,
the Committee shall determine the amount, if any, of the Annual Incentive Award
for that fiscal year payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any Participant as a final
Annual Incentive Award shall be reduced from the amount of his or her potential
Annual Incentive Award, including a determination to make no final Award
whatsoever, but may not exercise discretion to increase any such amount. The
Committee shall specify the circumstances in which an Annual Incentive Award
shall be paid or forfeited in the event of termination of employment by the
Participant or other event (including a Change of Control) prior to the end of a
fiscal year or settlement of such Annual Incentive Award.
(d) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect of
Performance Awards and Annual Incentive Awards, the achievement of performance
goals relating to Performance Awards and Annual Incentive Awards, and the amount
of any final Performance Award and Annual Incentive Award shall be recorded in
writing, except in the case of Performance Awards not intended to qualify under
Section 162(m). Specifically, the Committee shall certify in writing, in a
manner conforming to applicable regulations under Section 162(m), prior to
settlement of each such Award granted to a Covered Employee, that the
performance objective relating to operating profits and other material terms of
the Award upon which settlement of the Award was conditioned have been
satisfied. The Committee may not delegate any responsibility relating to such
Performance Awards or Annual Incentive Awards, and the Board shall not perform
such functions at any time that the Committee is composed solely of members who
qualify as "outside directors" under the Section 162(m) regulations.
9. Change of Control Provisions.
(a) Effect of Change of Control. Unless otherwise specified by the
Committee in any Award agreement (subject to Section 11(e)), in the event of a
"Change of Control," as defined in this Section, the following acceleration
provisions shall apply:
(i) any outstanding Award carrying a right to exercise which Award
was not previously exercisable and vested, shall become fully
exercisable and vested, subject only to the restrictions set
forth in Sections 7(d)(i) and 11(a); and
(ii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other outstanding Award, other
than an Annual Incentive Award, granted six months or more
before the date of the Change of Control shall lapse and such
Award shall be deemed fully vested, subject to the
restrictions set forth in Sections 7(d)(i) and 11(a).
(b) Definition of Change of Control. For purposes of the Plan, a
"Change of Control" means a transaction or event in which, after the effective
date of the Plan, (i) the Company shall merge or consolidate with any other
corporation and shall not be the surviving corporation; (ii) the Company shall
transfer all or substantially all of its assets to any other person; or (iii)
any person shall have become the beneficial owner of more than 50% of the voting
power of outstanding voting securities of the Company.
10. Additional Award Forfeiture Provisions
(a) Forfeiture of Options and Other Awards and Gains Realized Upon
Prior Option Exercises. Unless otherwise determined by the Committee, each
Reserved Award granted hereunder, and each other Award if so specified by the
Committee, shall be subject to the following additional forfeiture conditions,
to which each Participant who accepts such an Award hereunder shall agree. If
any of the events specified in Section 10(b)(i), (ii), or (iii) occurs, all of
the following forfeitures will result:
(i) The unexercised portion of the Option, whether or not vested,
and any other Award not then settled (except for an Award that
has not been settled solely due to an elective deferral by the
Participant) will be immediately forfeited and cancelled upon
the occurrence of such event; and
(ii) The Participant will be obligated to repay to the Company, in cash,
within five business days after demand is made therefor by the Company, the
total amount of After-Tax Option Gain (as defined herein) realized by
Participant upon each exercise of an Option that occurred on or after (A) the
date that is six months prior to the occurrence of such event, if such event
occurred while Participant was employed by the Company or a subsidiary, or (B)
the date that is six months prior to the date Participant's employment by the
Company or a subsidiary terminated, if the event occurred after Participant
ceased to be so employed. For purposes of this Section, the term "After-Tax
Option Gain" in respect of a given exercise shall mean the product of (X) the
Fair Market Value per share of Stock at the date of such exercise (without
regard to any subsequent change in the market price of shares) minus the
exercise price times (Y) the number of shares as to which the Option was
exercised at that date, such product to be reduced by the amount of federal,
state, and local income taxes (not including FICA taxes) payable or actually
paid by Participant or payable as a result of such exercise.
(b) Events Triggering Forfeiture. The forfeitures specified in Section
10(a) will be triggered upon the occurrence of any one of the following events
at any time during Participant's employment by the Company or a subsidiary or
during the one-year period following termination of such employment (but not
later than 18 months after the Award terminates or, in the case of an Option, is
fully exercised):
(i) Participant, acting alone or with others, directly or indirectly, prior
to a Change in Control, (A) engages (either as employee, employer, owner,
investor, partner, stockholder, consultant, advisor, or director) in any
business in Nevada, Arizona, California, or Texas, or in any other state of the
United States in which the Company conducts business at the date the event
occurs, which is directly in competition with a business then conducted by the
Company or a subsidiary; (B) induces any customer or supplier of the Company or
a subsidiary with whom Participant has had contacts or relationships, directly
or indirectly, during and within the scope of his employment with the Company or
any subsidiary, to curtail, cancel, not renew, or not continue his or her or its
business with the Company or any subsidiary; or (C) induces, or attempts to
influence, any employee of or service provider to the Company or a subsidiary to
terminate such employment or service;
(ii) Participant discloses, uses, sells, or otherwise transfers,
except in the course of employment with or other service to
the Company or any subsidiary, any proprietary information of
the Company or any subsidiary so long as such information has
not otherwise been disclosed to the public or is not otherwise
in the public domain, except as required by law or pursuant to
legal process; or
(iii) Participant fails to cooperate with the Company or any
subsidiary by making himself or herself available to testify
on behalf of the Company or such subsidiary in any action,
suit, or proceeding, whether civil, criminal, administrative,
or investigative, or otherwise fails to assist the Company or
any subsidiary in any such action, suit, or proceeding by
providing information and meeting and consulting with members
of management of, other representatives of, or counsel to, the
Company or such subsidiary, as reasonably requested.
(c) Agreement Does Not Prohibit Competition or Other Participant
Activities. The conditions set forth in this Section 10 and Participant's
agreement thereto do not prohibit Participant from engaging in any activity,
including but not limited to competition with the Company and its subsidiaries.
Rather, the non-occurrence of events set forth in Section 10(b) is a condition
to Participant's right to realize and retain value from his or her compensatory
Options and Awards, and the only consequence if Participant engages in an
activity giving rise to any such event, which events and activities are hereby
acknowledged to be harmful to the Company, are the forfeitures specified herein.
The Company and Participant shall not be precluded by this provision or
otherwise from entering into other agreements concerning the subject matter of
Section 10(a) and 10(b).
(d) Right of Setoff. Participant agrees that the Company or any
subsidiary may, to the extent permitted by applicable law, deduct from and set
off against any amounts the Company or a subsidiary may owe to Participant from
time to time, including amounts owed as wages or other compensation, fringe
benefits, or other amounts owed to Participant, such amounts as may be owed by
Participant to the Company under Section 10(a), although Participant shall
remain liable for any part of Participant's payment obligation under Section
10(a) not satisfied through such deduction and setoff.
(e) Committee Discretion. The Committee may, in its discretion, waive
in whole or in part the Company's right to forfeiture under this Section, but no
such waiver shall be effective unless evidenced by a writing signed by a duly
authorized officer of the Company. In addition, the Committee may impose
additional conditions on Awards, by inclusion of appropriate provisions in the
agreement evidencing any such Award.
11. General Provisions.
(a) Compliance with Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system, or
any other law, regulation, or contractual obligation of the Company, until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations, and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution (or to a designated Beneficiary in the event of the
Participant's death), and, if exercisable, shall be exercisable during the
lifetime of a Participant only by such Participant or his guardian or legal
representative; provided, however, that such Awards and other rights (other than
ISOs and SARs in tandem therewith) may be transferred during the lifetime of the
Participant, for purposes of the Participant's estate planning or other purposes
consistent with the purposes of the Plan (as determined by the Committee), and
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent then consistent with the registration of the offer
and sale of Stock on Form S-8 or Form S-3 or such other registration form of the
Securities and Exchange Commission as may then be filed and effective with
respect to the Plan, and permitted by the Committee. Awards and other rights
under the Plan may not be pledged, mortgaged, hypothecated, or otherwise
encumbered, and shall not be subject to the claims of creditors.
(c) No Right to Continued Employment; Leaves of Absence. Neither the
Plan nor any action taken hereunder shall be construed as giving any employee,
consultant, subsidiary director, or other person the right to be retained in the
employ or service of the Company or any of its subsidiaries, nor shall it
interfere in any way with the right of the Company or any of its subsidiaries to
terminate any person's employment or service at any time. Unless otherwise
specified in the applicable Award Agreement, an approved leave of absence shall
not be considered a termination of employment or service for purposes of an
Award under the Plan.
(d) Taxes. The Company and any subsidiary is authorized to withhold
from any Award granted or to be settled, any delivery of Stock in connection
with an Award, any other payment relating to an Award, or any payroll or other
payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or Participants,
except that any amendment or alteration shall be subject to the approval of the
Company's stockholders at or before the next annual meeting of stockholders for
which the record date is after the date of such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such amendments or alterations to stockholders for approval;
provided, however, that, without the consent of an affected Participant, no such
action may materially impair the rights of such Participant under any Award
theretofore granted to him. The Committee may waive any conditions or rights
under, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted and any Award Agreement relating thereto; provided, however,
that, without the consent of an affected Participant, no such action may
materially impair the rights of such Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. No Participant or other
person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatments of Participants, employees,
consultants, or subsidiary directors. No Award shall confer on any Participant
any of the rights of a stockholder of the Company unless and until Stock is duly
issued or transferred and delivered to the Participant in accordance with the
terms of the Award or, in the case of an Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of awards otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the
Company that Options, SARs, and other Awards designated as Awards to Covered
Employees subject to Section 8 shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder (including Proposed Regulation 1.162-27). Accordingly, the terms of
Sections 8(b), (c), and (d), including the definitions of Covered Employee and
other terms used therein, shall be interpreted in a manner consistent with Code
Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given
Participant will be a Covered Employee with respect to a fiscal year that has
not yet been completed, the term Covered Employee as used herein shall mean only
a person designated by the Committee, at the time of grant of Performance Awards
or an Annual Incentive Award, as likely to be a Covered Employee with respect to
a specified fiscal year. If any provision of the Plan or any agreement relating
to a Performance Award or Annual Incentive Award that is designated as intended
to comply with Code Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise
payable in connection with any such Award upon attainment of the applicable
performance objectives.
(k) Merger of 1998 Stock Incentive Plan. Effective December 9, 1999,
the Company's 1998 Stock Incentive Plan (the "SIP") is merged with and into this
Plan. Each outstanding Award under the SIP shall be deemed a Reserved Award
under this Plan, subject to terms and conditions identical to those applicable
to such awards under the SIP immediately prior to the merger of the SIP and the
Plan. The 400,000 shares reserved under the SIP have been included in the shares
available for Reserved Awards under the Plan. The terms of all currently
outstanding awards under this Plan likewise shall not be changed as a result of
the merger. The foregoing notwithstanding, the Committee retains discretion to
modify the terms and conditions of any outstanding Award, subject to the
applicable requirements of the Plan.
(l) Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations under the Plan, and any Award Agreement will be
determined in accordance with the Nevada General Corporation Law and other laws
(including those governing contracts) of the State of Nevada, without giving
effect to principles of conflicts of laws, and applicable federal law.
(m) Effective Date, Stockholder Approval, and Plan Termination. The
Plan became effective May 16, 1995, upon its approval by stockholders of the
Company, and was amended and restated, with the approval of stockholders of the
Company, on May 12, 1998. Unless earlier terminated by action of the Board of
Directors, the Plan will remain in effect until such time as no Stock remains
available for delivery under the Plan and the Company has no further rights or
obligations under the Plan with respect to outstanding Awards under the Plan.
