CYANOTECH CORPORATION
1995 STOCK OPTION PLAN
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ARTICLE ONE
GENERAL
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I. PURPOSE OF THE PLAN
A. This 1995 Stock Option Plan ("Plan") is intended to promote the
interests of Cyanotech Corporation, a Nevada corporation (the "Corporation"), by
providing (i) key employees (including officers) of the Corporation (or its
subsidiary corporations) and (ii) consultants and other independent contractors
who provide valuable services to the Corporation (or its subsidiary
corporations) with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to join or remain in the service of the Corporation (or its
subsidiary corporations).
B. The Plan shall become effective immediately upon approval of the
Corporations' stockholders at the 1995 Annual Stockholders Meeting to be held on
August 9, 1995. Such date is hereby designated as the Effective Date of the
Plan.
C. For purposes of the various equity incentive programs in effect
under the Plan, the following definitions apply:
Board: the Corporation's Board of Directors.
Common Stock: shares of the Corporation's common stock, par
value $0.005 per share.
Change in Control: a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, "1934 Act") of stock possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
stock pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders accept; or
(ii) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number)
ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of persons who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period
by at least a majority of
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the Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.
Corporate Transaction: any of the following stockholder-approved
transactions to which the Corporation is a party:
(i) a merger or consolidation in which the
Corporation is not the surviving entity, except for a transaction the
principal purpose of which is to change the State in which the
Corporation is incorporated,
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is
the surviving entity but in which stock possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding stock are transferred to person or persons different from
those who held such stock immediately prior to such merger.
Employee: a person who performs services while in the employ of
the Corporation or one or more subsidiary corporations, subject to the control
and direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
Fair Market Value: the last reported price per share of the
Common Stock on the day in question on the NASDAQ Small-Cap Market, or if the
Common Stock is regularly traded in some other market or on an exchange the
closing selling price per share of the Common Stock on the date in question, as
such price is officially quoted by a national reporting service. If there is no
such reported price on the date in question, then the fair market value shall be
the price on the last preceding date for which such quotation exists.
Hostile Take-Over: a change in ownership of the Corporation
through the following transaction:
(i) any person or related group of persons (other
than the Corporation or a person that directly or indirectly controls,
is controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of stock possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding stock pursuant
to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
(ii) more than fifty percent (50%) of the stock so
acquired in such tender or exchange offer are accepted from holders
other than the officers and directors of the Corporation who are
subject to the short-swing profit restrictions of Section 16 of the
1934 Act.
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Service: the performance of services on a periodic basis to the
Corporation (or any subsidiary corporation) in the capacity of an Employee or an
independent consultant, except to the extent otherwise specifically provided in
the applicable stock option agreement.
Take-Over Price: the greater of (a) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (b) the highest reported price per
share of Common Stock paid by the tender offerer in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, as defined
in Section IV (C) of this Article One, the Take-Over Price shall not exceed the
clause (a) price per share.
D. The following provisions shall be applicable in determining the
subsidiary corporations of the Corporation:
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in any other corporation in such chain.
II. STRUCTURE OF THE PLAN
A. Option Programs. The Plan shall be divided into two separate
equity incentive programs: the Discretionary Option Grant Program specified in
Article Two and the Discount Option Grant Program specified in Article Three.
Under the Discretionary Option Grant Program, eligible persons may, at the
discretion of the Committee, be granted options to purchase shares of Common
Stock in accordance with the provisions of Article Two. Under the Discount
Option Grant Program, eligible persons may elect, in accordance with the
provisions of Article Three, to have a portion of their base salary reduced
each year in return for options to purchase shares of Common Stock at an
aggregate discountfrom the Fair Market Value of the option shares on the grant
date equal to the salary reduction amount.
B. GENERAL PROVISIONS. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four shall apply to the
Discretionary Option Grant Program and the Discount Option Grant Program and
shall accordingly govern the interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Stock Option and
Compensation Committee of the Board ("Committee") or other named Committee of
the Board, subject to the requirements of 1934 Act Rule 16b-3:
(i) The Committee of two (2) or more non-employee Board
members shall be appointed by the Board to have sole and exclusive
authority to administer the Discretionary Option Grant and Discount
Option Grant Programs. No Board member shall be eligible to serve on the
Committee if such person has, within the twelve (12)-month period
immediately preceding the date he or she is to be appointed to the
Committee, received an option grant or stock issuance under this Plan or
any other stock option, stock
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appreciation, stock bonus or other stock plan of the Corporation (or
any subsidiary corporation), other than plans permitted by 1934 Act
Rule 16b-3.
(ii) Members of the Committee shall serve for such term as
the Board may determine and shall be subject to removal by the Board at
any time.
B. The Committee shall have full power and authority (subject to
the express provisions of the Plan) to establish such rules and regulations as
it may deem appropriate for the proper administration of the Discretionary
Option Grant and Discount Option Grant Programs and to make such determinations
under, and issue such interpretations of, the provisions of each such program
and any outstanding option grants thereunder as it may deem necessary or
advisable. All decisions of the Committee within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant or Discount
Option Grant Program under its jurisdiction or any outstanding option
thereunder.
C. Service on the Committee shall constitute service as a Board
member, and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on the
Committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grant under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two and the Discount Option Grant Program under
Article Three ("Optionees") are as follows:
(i) officers and other employees of the Corporation
(or its subsidiary corporations) who render services which contribute
to the management, growth and financial success of the Corporation (or
its subsidiary corporations); and
(ii) those consultants or other independent
contractors who provide valuable services to the Corporation (or its
subsidiary corporations).
B. Non-employee Board members shall not be eligible to participate
in the Discretionary Option Grant or Discount Option Grant Program or in
any other stock option, stock purchase, stock bonus or other stock plan
of the Corporation (or its subsidiary corporations), except for plans
permitted by 1934 Act Rule 16b-3.
C. The Committee shall have full authority to determine which
eligible persons are to receive option grants, the number of shares to
be covered by each such grant, the status of the granted option as
either an incentive stock option ("Incentive Option") which satisfies
the requirements of Section 422 of the Internal Revenue Code or a
non-qualified option not intended to meet such requirements, the time or
times at which each granted option is to become exercisable and the
maximum term for which the option may remain outstanding.
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V. STOCK SUBJECT TO THE PLAN
A. Shares of the Corporation's Common Stock shall be available
for issuance under the Plan and shall be drawn from either the Corporation's
authorized but unissued shares of Common Stock or from reacquired shares of
Common Stock, including shares repurchased by the Corporation on the open
market. The maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed 800,000 shares, subject to adjustment from
time to time in accordance with the provisions of this Section V.
B. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full (including any option
canceled in accordance with the cancellation-regrant provisions of Section IV of
Article Two of the Plan), then the shares subject to the portion of each option
not so exercised shall be available for subsequent option grant under the Plan.
Shares subject to any option or portion thereof surrendered in accordance with
the stock appreciation right provisions of the Plan and all share issuances
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent option grants under the Plan. In addition,
should the exercise price of an outstanding option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an outstanding option under the
Plan, then the number of shares or Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised, and not by the net number of shares of Common Stock actually issued
to the option holder.
C. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of stock issuable under and (ii) the number and/or class
of stock and price per share in effect under each option outstanding under the
Discretionary Option Grant or Discount Option Grant. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Committee shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
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I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Committee and may, at the Committee's
discretion, be either Incentive Options or non-qualified options. Persons who
are not Employees of the Corporation may only be granted non-qualified options.
Each granted option shall be evidenced by one or more instruments in the form
approved by the Committee; provided, however, that each such instrument shall
comply with the terms and conditions specified below. Each instrument evidencing
an Incentive Option shall, in addition, be subject to the applicable provisions
of Section II of this Article Two.
A. Option Price.
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1. The option price per share under this Article Two shall
be fixed by the Committee in accordance with the following provisions:
(i) The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one
hundred percent (100%) of the Fair Market Value of such Common Stock on
the grant date.
(ii) The option price per share of the Common Stock
subject to a non-qualified stock option shall be in the amount
determined by the Committee at the time of grant and may be less than,
equal to or more than the Fair Market Value of such Common Stock on the
grant date.
2. The option price shall become immediately due upon
exercise of the option and shall be payable in one of the alternative forms
specified below;
(i) full payment in cash or check made payable to
the Corporation's order:
(ii) full payment in shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is hereinafter defined in
subparagraph 2);
(iii) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid a charge
to the Corporation's reported earnings and valued at Fair Market Value
on the Exercise Date and cash or check payable to the Corporation's
order; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient
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funds to cover the aggregate option price payable for the purchased
shares plus all applicable Federal and State income and employment taxes
required to be withheld by the Corporation in connection with such
purchase and (II) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
For purposes of this subparagraph 2, the Exercise Date shall be
the date on which written notice of the of the option exercise is delivered to
the Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
B. Term and Exercise of Options.
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Each option granted under this Article Two shall be
exercisable at such time or times, during such period, and for such number of
shares as shall be determined by the Committee and set forth in the instrument
evidencing such option. No granted option shall, however, have a maximum term in
excess of ten (10) years. During the lifetime of the Optionee, the option,
together with any stock appreciation rights pertaining to such option, shall be
exercisable only by the Optionee and shall not be assignable or transferable
other than by transfer of the option effected by will or by the laws of descent
and distribution following the Optionee's death, or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employment Retirement Income Security Act, or the
rules thereunder. Notwithstanding the provisions of the preceding sentence, at
the discretion of the Committee, the instrument evidencing an option may permit
the transferability of such option by the Optionee solely to members of the
Optionee's immediate family or a trust or partnership for the benefit of the
Optionee or such persons, in which case such option shall be exercisable by such
transferee.
C. Termination of Service.
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1. In the event the Optionee should cease Service
while holding one or more options under this Article Two, then each such option
shall not remain exercisable beyond the limited post-Service exercise period
specified by the Committee in the instrument evidencing the grant, unless the
Committee otherwise extends such period in accordance with subparagraph C.5
below.
2. During the post-Service exercise period, the option may
not be exercised for more than the number of option shares (if any) in which the
Optionee is vested at the time of cessation of Service. Upon the expiration of
such post-Service exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding. However,
each option shall immediately terminate and cease to be outstanding, at the time
of the Optionee's cessation of Service, with respect to any option shares for
which such option is not otherwise at the time exercisable.
3. Should the optionee die while holding one or more
outstanding options under this Article Two, then each such option may be
exercised, subject to the limitations of subparagraph 2 above, by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or the laws of descent and
distribution.
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4. Should (i) the Optionee's Service be terminated for
misconduct (including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the optionee make any unauthorized
use or disclosure of confidential information or trade secrets of the
Corporation or its subsidiaries, then in any such event all outstanding options
held by the Optionee under this Article Two shall terminate immediately and
cease to be outstanding.
5. The Committee shall have full power and authority to
extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service or death from the limited period
specified in the instrument evidencing such grant to such greater period of time
as the Committee shall deem appropriate under the circumstances. In no event,
however, shall such option be exercisable after the specified expiration date of
the option term.
6. The Committee shall have complete discretion,
exercisable either at the time the option is granted or at any time the option
remains outstanding, to permit one or more options granted under this Article
Two to be exercised not only for the number of shares for which each such
option is exercisable at the time of the Optionee's cessation of Service
but also for one or more subsequent installments of purchasable shares for which
the option would otherwise have become exercisable had such cessation of Service
not occurred.
D. Stockholder Rights.
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An Optionee has none of the rights of a stockholder with respect
to any option shares until such person has exercised the option and paid the
option price for the purchased shares.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to persons who are Employees of the Corporation. Options which are
specifically designated as "non-qualified" options when issued under the Plan
shall not be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the respective date of dates of grant of the Common Stock for which one or
more options granted to any Employee under this Plan (or any other option plan
of the Corporation or its subsidiary corporations) may for the first time
become exercisable as incentive stock options under the Federal tax laws during
any one calendar year shall not exceed the sum of One Hundred Thousand dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as incentive stock options
under the federal tax laws shall be applied on the basis of the order in which
such options are granted. Should the number of shares of Common Stock for which
any Incentive Option first becomes exercisable in any calendar year exceed the
applicable one hundred thousand dollar ($100,000) limitation, then the option
may nevertheless be exercised in that calendar year for the excess number of
shares as a non-qualified option under the Federal tax laws.
B. 10% STOCKHOLDER. If any person to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or
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more of the total combined voting power of all classes of stock of the
corporation or any one of its subsidiary corporations, then the option price per
share shall not be less than one hundred and ten percent (110%) of the fair
market value per share of Common Stock on the grant date, and the option term
shall not exceed five (4) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS / CHANGES IN CONTROL
A. Each option which is outstanding under this Article Two at the
time of a Corporate Transaction shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for
such Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Article Two shall not so accelerate if and to the extent: (i) such
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof, (ii) such option is to be replaced with a cash incentive program
of the successor corporation which preserves the option spread existing at the
time of the Corporate Transaction and provides for subsequent payout in
accordance with the same exercise schedule applicable to such option, or (iii)
the acceleration of such option is subject to other limitations imposed by the
Committee, at the time of the option grant. The determination of option
comparability under clause (i) above shall be final, binding and conclusive. The
Committee shall also have full power and authority to grant options under the
Plan which are to automatically accelerate in whole or in part immediately prior
to the Corporate Transaction or upon the subsequent termination of the
Optionee's Service, whether or not those options are otherwise to be assumed or
replaced in connection with the consummation of such Corporate Transaction.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of stock which would
have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the Option
price payable per share, provided the aggregate option price payable for such
stock shall remain the same. In addition, the class and number of stock
available for issuance under the Plan following the consummation of the
Corporate Transaction shall be appropriately adjusted.
D. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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E. The Committee shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control or
at the time of an actual Change in Control, to provide for the automatic
acceleration of one or more outstanding options under this Article Two upon the
occurrence of the Change in Control. The Committee shall also have full power
and authority to condition any such option acceleration upon the subsequent
termination of the Optionee's Service within a specified period following the
Change in Control.
F. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term or the surrender of such option in accordance with Section V of this
Article Two.
G. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and from
time to time, with the consent of the affected Optionees, the cancellation of
any or all outstanding options under this Article Two and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but with an option price per share based upon the Fair
Market Value of the Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. One or more Optionees may be granted the right, exercisable upon
such terms and conditions as the Committee may establish, to surrender all or
part of an unexercised option under this Article Two in exchange for a
distribution from the Corporation in an amount equal to the excess of (i) the
Fair Market Value (on the option surrender date) of the number of shares for
which the option is at the time exercisable (or surrendered portion thereof)
over (ii) the aggregate option price payable for such shares.
B. No such option surrender shall be effective unless it is
approved by the Committee. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Committee shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Committee, then
the Optionee shall retain whatever rights the Optionee had under the surrendered
option (or surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (i) five (5) business
days after the receipt of the rejection notice or (ii) the last day on which the
option is otherwise exercisable in accordance with the terms of the instrument
evidencing such option, but in no event may such rights be exercised more than
ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Committee's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Discretionary Option Grant
Program. Upon the
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occurrence of a Hostile Take-Over, each such officer holding one or more options
with such a limited stock appreciation right in effect for at least six (6)
months shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time exercisable. In return for
the surrendered option, the officer shall be entitled to a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock which are at the time vested under each
surrendered option (or surrendered portion) over (ii) the aggregate exercise
price payable for such vested shares. Such cash distribution shall be paid
within five (5) days following the option surrender date. Neither the approval
of the Committee nor the consent of the Board shall be required in connection
with such option surrender and cash distribution. The balance of the option (if
any) shall continue in full force and effect in accordance with the instrument
evidencing such grant.
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ARTICLE THREE
DISCOUNT OPTION GRANT PROGRAM
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I. ELIGIBILITY
The Committee shall have authority to select, prior to the start of each
calendar year, the particular key employees who will be eligible for
participation in the Discount Option Grant Program for the calendar year. In
order to become an actual participant for a particular calendar year, each
selected person must, prior to the start of that calendar year, file with the
Committee (or its designate) an irrevocable authorization pursuant to which the
Corporation is to reduce his or her base salary for that calendar year by a
designated multiple of five percent (5%).
The Committee shall review the filed authorizations and determine
whether to approve, in whole or in part, one or more of these authorizations. To
the extent the Committee approves one or more such authorizations, the
participants who filed those authorizations shall be granted options under this
Article Three option program. To the extent one or more authorizations are not
approved by the Committee, those authorizations shall have no force or effect
and no discounted options shall be granted with respect to the unapproved salary
reductions.
To the extent options are granted under the Discount Option Grant
Program, such options shall be non-qualified options evidenced by instruments in
such form as the Committee shall from time to time approve; provided, however,
that each such instrument shall comply with and incorporate the terms and
conditions specified below.
II. TERMS AND CONDITIONS OF OPTION
A. Option Price.
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1. The option price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the grant date.
2. The option price shall become immediately due upon
exercise of the option and shall be payable in one of the alternative forms
specified in Section I(A)(2) of Article Two.
B. Number of Option Shares.
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1. The number of shares of Common Stock for which each
grant under this Article Three is to be made to a selected Optionee shall
be determined pursuant to the following formula:
X = A / (B x 66-2/3%)
where X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the date
of the grant.
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C. Term and Exercise of Options.
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1. Each option shall have a maximum term of ten (10) years
measured from the grant date. Provided the Optionee continues in Service, the
option shall become exercisable for (A) fifty percent (50%) of the option shares
on last day of June next following the grant date and (B) for the balance of the
option shares in a series of six (6) successive equal monthly installments on
the last day of each of the next six (6) calendar months.
2. During the Optionee's lifetime, the option, shall be
exercisable only by the Optionee and shall not be assignable or transferable
other than by transfer of the option by will or by the laws of descent and
distribution following the Optionee's death, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended, or
Title I of the Employment Retirement Income Security Act, or the rules
thereunder.
D. Effect of Termination of Service.
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1. Should an Optionee cease Service for any reason after
one or more of his outstanding options under this Article Three have become
exercisable in whole or in part, then each such option shall remain exercisable,
for any or all of the shares for which the option is exercisable on the date of
such cessation of Service, until the expiration of the ten (10)-year option term
or its sooner termination, under Section F(1) of this Article Three. Following
the Optionee's death, each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's death,
by the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution, but any such exercise must
be effected prior to the expiration or sooner termination of the option term.
2. Should the Optionee die before one or more of his
outstanding options under this Article Three become exercisable for any of the
option shares, then the personal representative of the Optionee's estate or the
person or persons to whom such options are transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution shall
nevertheless have the right to exercise each such option for up to that number
of option shares equal to (A) one-twelfth (1/12) of the total number of option
shares multiplied by (B) the number of full calendar months which will have
elapsed between the first day of the calendar year for which the option is
granted and the last day of the calendar month during which the Optionee ceases
Service. Such exercise must occur prior to the specified expiration date of the
option term or (if earlier) the first anniversary of the date of the Optionee's
death. Upon the occurrence of the earlier event, the option shall terminate and
cease to be exercisable. Each such option shall, with respect to the balance of
the option shares for which it is not exercisable at the time of the Optionee's
cessation of Service, terminate immediately upon such cessation of Service and
shall cease to be outstanding with respect to those option shares.
3. Should the Optionee become permanently disabled (as
determined in accordance with Section 22(e) of the Internal Revenue Code) and
cease by reason thereof to remain in Service before one or more of his
outstanding options under this Article Three become exercisable for any of the
option shares, then the Optionee shall nevertheless have the right to exercise
each such option for up to that
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number of option shares equal to (A) one-twelfth (1/12) of the total number of
option shares multiplied by (B) the number of full calendar months which will
have elapsed between the first day of the calendar year for which the option is
granted and the last day of the calendar month during which the Optionee ceases
Service. Each such exercise must, however, be effected prior to the expiration
of the ten (10)-year option term or its sooner termination under Section F(1) of
this Article Three. The option shall, with respect to the balance of the option
shares for which it is not exercisable at the time of the Optionee's cessation
of Service, terminate immediately upon such cessation of Service and shall cease
to be outstanding with respect to those option shares.
4. Except to the limited extent specifically provided in
subparagraphs 2 and 3 above, should the Optionee cease for any reason to remain
in Service before one or more of his outstanding options under this Article
Three become exercisable for any of the option shares, then each such non-
exercisable option shall immediately terminate upon such cessation of Service
and cease to be outstanding.
E. STOCKHOLDER RIGHTS. The Optionee shall have none of the rights
of a stockholder with respect to any option shares until such person shall have
exercised the option and paid the option price for those shares.
F. Corporate Transaction / Change in Control.
-----------------------------------------
1. Should any Corporate Transaction occur while the
Optionee remains in Service, then each outstanding option held by such Optionee
under this Article Three shall become exercisable, immediately prior to the
specified effective date of such Corporate Transaction, for all of the shares at
the time subject to such option and may be exercised for any or all of such
shares. Upon the consummation of the Corporate Transaction, each such option
shall terminate unless assumed by the successor corporation or parent thereof.
2. Should a Change in Control occur while the Optionee is
still in Service, then each outstanding option held by such Optionee under this
Article Three shall, immediately prior to the effective date of such Change in
Control, become exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares at any time prior to the expiration or sooner termination
of the option term.
3. The grant of options under this Article Three shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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ARTICLE FOUR
MISCELLANEOUS
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I. LOANS OR INSTALLMENT PAYMENTS
A. The Committee may assist any Optionee (including any officer) in
the exercise of one or more outstanding options under the Discretionary Option
Grant or Discount Option Grant Program by (a) authorizing the extension of a
loan to such Optionee from the Corporation or (b) permitting the Optionee to
pay the option price for the purchased Common Stock in installments over a
period of years. The terms of any such loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Committee in its sole discretion. Loans and installment payments may be granted
without security or collateral, but the maximum credit available per person
shall not exceed the sum of (i) the aggregate option price of the purchased
shares plus (ii) any Federal, State and local income tax and employment tax
liabilities incurred by the person in connection with the exercise of the option
or the acquisition of the shares.
B. The Committee may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Committee may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any equity incentive program hereunder) in any or
all respects whatsoever. However, no such amendment or modification shall
adversely affect rights and obligations with respect to options at the time
outstanding under the Plan, unless the Optionee consents to such amendment.
In addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan, except for permissible adjustments under Section
V(C) of Article One, (ii) materially modify the eligibility requirements for
plan participation or (iii) materially increase the benefits accruing to
Optionees.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and the Discount Option Grant Programs which are
in excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Discretionary Option Grant
or the Discount Option Grant Program are held in escrow until stockholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
share issuances are made, then (I) any unexercised excess options shall
terminate and cease to be exercisable and (II) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
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III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon exercise of stock options or the vesting of shares acquire upon exercise of
such options under the Plan shall be subject to the satisfaction of all
applicable Federal, State and local income tax and employment tax withholding
requirements.
B. The Committee may, in its discretion and in accordance with the
provisions of this Section III and such supplemental rules as the Committee may
from time to time adopt (including the applicable safe-harbor provisions of 1934
Act Rule 16b-3), provide any or all holders of non-qualified options or unvested
shares under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Federal, State and local income tax and
employment tax liabilities incurred by such holders in connection with the
exercise of their options. Such right may be provided to any such holder in
either or both of the following formats:
(i) Stock Withholding: The holder of the
non-qualified option may be provided with the election to have the
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such non-qualified option, a portion of
those shares with an aggregate Fair Market Value equal to the
percentage of the applicable Taxes (up to one hundred (100%)) specified
by such holder.
(ii) Stock Delivery: The Committee may, in its
discretion, provide the holder of the non-qualified option with the
election to deliver to the Corporation, at the time the non-qualified
option is exercised, one or more shares of Common Stock already held by
such person with an aggregate Fair Market Value (100%) as specified by
such person) of the Taxes incurred in connection with such option
exercise.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan shall become effective on August 9, 1995, immediately
upon approval by the Corporation's stockholders at the 1995 Annual Meeting.
B. The Plan shall terminate upon the earlier of (i) August 8, 2005
or (ii) the date on which all shares available for issuance under the Plan
shall have been issued or canceled pursuant to the exercise of options or
stock appreciation rights granted under the Plan. If the date of termination is
determined under clause (i) above, then all option grants and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
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VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan, and the issuance of Common Stock upon the exercise or surrender of
the option grants made hereunder shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options granted under it, and the Common
Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under this Plan unless and until there shall have been compliance
with all applicable requirements of Federal and State securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any securities exchange on which the Common Stock is then
listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Committee hereunder, nor any provision of the Plan shall be
construed so as to grant any person the right to remain in the employ or service
of the Corporation (or any subsidiary corporation) for any period of specific
duration, and the Corporation (or any subsidiary corporation retaining the
services of such person) may terminate such person's employment or service at
any time and for any reason, with or without cause.
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee, except
as specifically provided in the Plan.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of Hawaii,
as such laws are applied to contracts entered into.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Optionees, the legal representatives
of their respective estates, their respective heirs or legatees and their
permitted assignees.
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