<PAGE>
As filed with the Securities and Exchange Commission on January 13, 1998.
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
APPLIED VOICE RECOGNITION, INC.
(Exact Name of Registrant as Specified in its Charter)
_______________
UTAH 87-042552
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4615 POST OAK PLACE, SUITE 111
HOUSTON, TEXAS 77027
(Address of Principal Executive Offices)
_______________
APPLIED VOICE RECOGNITION, INC.
1997 INCENTIVE PLAN
(Full Title of the Plan)
_______________
Name, Address and Telephone Copy of Communications to:
Number of Agent for Service:
TIMOTHY J. CONNOLLY ROBERT G. REEDY
APPLIED VOICE RECOGNITION, INC. PORTER & HEDGES, L.L.P.
4615 POST OAK PLACE, SUITE 111 700 LOUISIANA STREET
HOUSTON, TEXAS 77027 HOUSTON, TEXAS 77002-2764
(713) 621-5678 (713) 226-0600
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED
AMOUNT TO OFFERING MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share 3,000,000 $2.9063 $8,718,900 $2,573
====================================================================================================================================
</TABLE>
(1) Pursuant to Rule 416(a), also registered hereunder is an indeterminate
number of shares of Common Stock issuable as a result of the anti-dilution
provisions of the Plan.
(2) Pursuant to Rule 457(c), the registration fee is calculated on the basis of
the average of the high and low sale prices for the Common Stock on The
Nasdaq Over-the-Counter Bulletin Board on January 12, 1998, $2.9063.
Pursuant to Rule 457(h), the registration fee is calculated with respect to
the maximum number of the registrant's securities issuable under the Plan.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The contents of the following documents filed by Applied Voice Recognition,
Inc., a Utah corporation (the "Company" or "Registrant"), with the Securities
and Exchange Commission ("Commission") are incorporated into this registration
statement ("Registration Statement") by reference:
(i) the Company's annual report on Form 10-KSB for the year ended
December 31, 1996, as filed on March 31, 1997;
(ii) the Company's quarterly reports on Form 10-QSB for the quarters ended
March 31, 1997 (as filed on May 15, 1997), June 30, 1997 (as filed on
August 14, 1997), and September 30, 1997 (as filed on November 14,
1997);
(iii) the Company's Current Report on Form 8-K dated March 14, 1997; and
(iv) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A effective January 9,
1998 (Commission File No. 000-23607), including any amendments or
reports filed for the purpose of updating such description.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the filing date of this Registration
Statement and prior to the filing of a post-effective amendment to this
Registration Statement which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold shall be deemed
to be incorporated by reference in this Registration Statement and to be a part
hereof from the date of filing such documents. The Company will provide without
charge to each participant in the Company's 1997 Incentive Plan, as an amendment
and restatement effective as of October 1, 1997 of the Company's 1996 Stock
Option Plan and 1996 Director Stock Option Plan, upon written or oral request of
such person, a copy (without exhibits, unless such exhibits are specifically
incorporated by reference) of any or all of the documents incorporated by
reference pursuant to this Item 3.
ITEM 4. DESCRIPTION OF SECURITIES
Not Applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not Applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Part 9 of the URBCA contains provisions entitling directors and
officers of the Company to indemnification under certain conditions from
judgments, fines, amounts paid in settlement, and reasonable expenses, including
attorneys' fees, as the result of an action or proceeding in which they may be
involved by reason of being or having been a director or officer of the Company.
Indemnification under the URBCA is generally permissible if the conduct of the
director or officer was in good faith and the director or officer reasonably
believed that his conduct was in, or not opposed to, the Company's best
interests, and, in a criminal case, that the director or officer had no
reasonable cause to believe his conduct was unlawful. Such indemnification would
not be permitted under the URBCA in connection with a proceeding by or in the
right of the Company in which the director or officer was adjudged liable to the
Company, or in connection with any other proceeding in which the officer or
director was adjudged liable on the basis that he derived an improper personal
benefit.
Mandatory indemnification is required under the URBCA for a director or
officer who is successful, on the merits or otherwise, in the defense of any
proceeding, or any claim, issue or matter in a proceeding, to which he was a
party because he is or was an officer or director of the Company. A court may
order indemnification where mandatory under the URBCA or if the court determines
that the officer or director is fairly and reasonably entitled to
indemnification in view of all relevant
-2-
<PAGE>
circumstances and regardless of whether the officer or director met the
applicable standard of conduct or was adjudged liable to the Company or adjudged
liable on the basis that he derived an improper personal benefit.
Payment of expenses for officers and directors is permitted in advance
of a final disposition of a proceeding on certain conditions, including the
furnishing of written affirmation by the officer or director of his good faith
belief that he has met the applicable standard of conduct, the furnishing of a
written agreement to repay the advance if the officer or director is ultimately
determined not to have met the applicable standard of conduct, and a
determination is made that the facts then known to the persons making the
determination would not preclude indemnification under the URBCA. This
determination is to be made by the Board of Directors.
The Articles of Incorporation and Bylaws of the Company, as each has
been amended, require the Company to indemnify any and all persons who may serve
or who have served at any time as directors or officers or who at the request of
the Board of Director of the Company, may serve or any time have served as
directors or officers of another Company in which the Company at such time owned
or may own shares of stock or of which it was or may be a creditor, and their
respective heirs, administrators, successors and assigns, against any and all
expenses, including amounts paid upon judgments, counsel fees and amounts paid
in settlement (before or after suit is commenced), actually and necessarily by
such persons in connection with the defense or settlement of any claim, action,
suit or proceeding in which they, or any of them, are made parties, or a party,
or which may be asserted against them or any of them, by reason of being or
having been directors or officers of the Company, or of such other Company,
except in relation to matters as to which any such director or officer of the
Company, or of such other Company or former director or officer or person shall
be adjudged in any action, suit or proceeding to be liable for his own
negligence or misconduct in the performance of his duty. Such indemnification
shall be in addition to any other rights to which those indemnified may be
entitled under any law, by law, agreement, vote of shareholder or otherwise.
The above discussion of the Company's Articles of Incorporation and
Bylaws, as each has been amended, and the URBCA is not intended to be exhaustive
and is qualified in its entirety by such Articles, Bylaws and statute.
The Company maintains officers' and directors' indemnity insurance
against expenses of defending claims or payment of amounts arising out of good-
faith conduct believed by the officer or director to be in or not opposed to the
best interest of the Company.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not Applicable.
ITEM 8. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
4.1 1997 Incentive Plan effective as of October 1, 1997 (filed herewith).
5.1 Opinion of Porter & Hedges, L.L.P. with respect to legality of securities (filed herewith).
23.1 Consent of Malone & Bailey, PLLC (filed herewith).
23.2 Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
</TABLE>
ITEM 9. UNDERTAKINGS
(a) Undertaking to Update
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
-3-
<PAGE>
(i) include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the Registration
Statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking With Respect to Documents Incorporated by Reference
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Undertaking With Respect to Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
-4-
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy J. Connolly and Charles W. Skamser, and
each of them, either of whom may act without joinder of the other, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all pre- and post-effective amendments
and supplements to this Registration Statement, and to file the same, or caused
to be filed the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on this 13th day of January,
1998.
APPLIED VOICE RECOGNITION, INC.
By: /s/ Timothy J. Connolly
---------------------------------------
Timothy J. Connolly,
Chief Executive Officer, Chairman of the Board
and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on this 13th day of January, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Timothy J. Connolly Chief Executive Officer, Chairman of the Board and
- ---------------------------------------------- Director
Timothy J. Connolly
/s/ Charles W. Skamser President, Chief Operating Officer and Director
- ----------------------------------------------
Charles W. Skamser
/s/ H. Russell Douglas Vice President Research and Development and
- ---------------------------------------------- Director
H. Russell Douglas
/s/ William T. Kennedy Chief Financial Officer and Assistant Secretary
- ----------------------------------------------
William T. Kennedy
/s/ Jan Carson Connolly Director
- ----------------------------------------------
Jan Carson Connolly
/s/ Jesse R. Marion Director
- ----------------------------------------------
Jesse R. Marion
/s/ Nolan Bedford Director
- ----------------------------------------------
Nolan Bedford
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Frederick A. Huttner Director
- ----------------------------------------------
Frederick A. Huttner
/s/ G. Edward Powell Director
- ----------------------------------------------
G. Edward Powell
/s/ Michael Wilson Director
- ----------------------------------------------
Michael Wilson
/s/ J. William Boyar Director
- ----------------------------------------------
J. William Boyar
/s/ Raymond Betz Director
- ----------------------------------------------
Raymond Betz
</TABLE>
-6-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
4.1 1997 Incentive Plan effective as of October 1, 1997 (filed herewith).
5.1 Opinion of Porter & Hedges, L.L.P. with respect to legality of securities (filed herewith).
23.1 Consent of Malone & Bailey, PLLC (filed herewith).
23.2 Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
</TABLE>
-7-
<PAGE>
EXHIBIT 4.1
APPLIED VOICE RECOGNITION, INC.
1997 INCENTIVE PLAN
(AS AN AMENDMENT AND RESTATEMENT EFFECTIVE AS OF OCTOBER 1, 1997
OF THE APPLIED VOICE RECOGNITION, INC. 1996 STOCK OPTION PLAN
AND THE APPLIED VOICE RECOGNITION, INC. 1996 DIRECTOR STOCK OPTION PLAN)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS..............................................1
1.1 Amendment and Restatement of Plan...................................................1
1.2 Purpose.............................................................................1
1.3 Definitions.........................................................................2
(a) Appreciation................................................................2
(b) Authorized Officer..........................................................2
(c) Board.......................................................................2
(d) Cause.......................................................................2
(e) Change in Control...........................................................2
(f) Code........................................................................2
(g) Committee...................................................................2
(h) Common Stock................................................................3
(i) Company.....................................................................3
(j) Consultant..................................................................3
(k) Covered Employee............................................................3
(l) Deferred Stock..............................................................3
(m) Disability..................................................................3
(n) Employee....................................................................4
(o) Employment..................................................................4
(p) Exchange Act................................................................4
(q) Fair Market Value...........................................................4
(r) Grantee.....................................................................5
(s) Incentive Award.............................................................5
(t) Incentive Agreement.........................................................5
(u) Incentive Stock Option......................................................5
(v) Independent SAR.............................................................5
(w) Insider.....................................................................5
(x) Nonstatutory Stock Option...................................................5
(y) Option Price................................................................5
(z) Other Stock-Based Award.....................................................5
(aa) Outside Director............................................................5
(bb) Parent......................................................................6
(cc) Performance-Based Exception.................................................6
(dd) Performance Period..........................................................6
(ee) Performance Share or Performance Unit.......................................6
(ff) Plan........................................................................6
(gg) Restricted Stock............................................................6
(hh) Restricted Stock Award......................................................6
(ii) Restriction Period..........................................................6
(jj) Retirement..................................................................6
(kk) Share.......................................................................6
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(ll) Share Pool..................................................................6
(mm) Spread......................................................................7
(nn) Stock Appreciation Right or SAR.............................................7
(oo) Stock Option or Option......................................................7
(pp) Subsidiary..................................................................7
(qq) Supplemental Payment........................................................7
(rr) Tandem SAR..................................................................7
1.4 Plan Administration................................................................7
(a) Authority of the Committee.................................................7
(b) Meetings...................................................................7
(c) Decisions Binding..........................................................8
(d) Modification of Outstanding Incentive Awards...............................8
(e) Delegation of Authority....................................................8
(f) Expenses of Committee......................................................8
(g) Surrender of Previous Incentive Awards.....................................8
(h) Indemnification............................................................8
1.5 Shares of Common Stock Available for Incentive Awards..............................9
1.6 Share Pool Adjustments for Awards and Payouts.....................................10
1.7 Common Stock Available............................................................11
1.8 Participation.....................................................................11
(a) Eligibility...............................................................11
(b) Incentive Stock Option Eligibility........................................11
1.9 Types of Incentive Awards.........................................................11
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.......................................12
2.1 Grant of Stock Options............................................................12
2.2 Stock Option Terms................................................................12
(a) Written Agreement.........................................................12
(b) Number of Shares..........................................................12
(c) Exercise Price............................................................12
(d) Term......................................................................12
(e) Exercise..................................................................12
(f) $100,000 Annual Limit on Incentive Stock Options..........................13
2.3 Stock Option Exercises............................................................13
(a) Method of Exercise and Payment............................................13
(b) Restrictions on Share Transferability.....................................14
(c) Notification of Disqualifying Disposition of Shares from Incentive
Stock Options.............................................................14
(d) Proceeds of Option Exercise...............................................14
2.4 Stock Appreciation Rights in Tandem with Nonstatutory Stock Options...............15
(a) Grant.....................................................................15
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(b) General Provisions........................................................15
(c) Exercise..................................................................15
(d) Settlement................................................................15
2.5 Stock Appreciation Rights Independent of Nonstatutory Stock Options...............15
(a) Grant.....................................................................15
(b) General Provisions........................................................15
(c) Exercise..................................................................16
(d) Settlement................................................................16
2.6 Reload Options....................................................................16
2.7 Supplemental Payment on Exercise of Nonstatutory Stock Options or Stock
Appreciation Rights...............................................................16
SECTION 3. RESTRICTED STOCK..................................................................16
3.1 Award of Restricted Stock.........................................................16
(a) Grant.....................................................................16
(b) Immediate Transfer Without Immediate Delivery of Restricted Stock.........17
3.2 Restrictions......................................................................17
(a) Forfeiture of Restricted Stock............................................17
(b) Issuance of Certificates..................................................18
(c) Removal of Restrictions...................................................18
3.3 Delivery of Shares of Common Stock................................................18
3.4 Supplemental Payment on Vesting of Restricted Stock...............................18
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES..........................................19
4.1 Performance Based Awards..........................................................19
(a) Grant.....................................................................19
(b) Performance Criteria......................................................19
(c) Modification..............................................................19
(d) Payment...................................................................19
(e) Special Rule for Covered Employees........................................20
4.2 Supplemental Payment on Vesting of Performance Units or Performance
Shares............................................................................20
SECTION 5. OTHER STOCK-BASED AWARDS..........................................................20
5.1 Grant of Other Stock-Based Awards.................................................20
5.2 Other Stock-Based Award Terms.....................................................21
(a) Written Agreement.........................................................21
(b) Purchase Price............................................................21
(c) Performance Criteria and Other Terms......................................21
(d) Payment...................................................................21
(e) Dividends.................................................................21
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6. PROVISIONS RELATING TO PLAN PARTICIPATION.........................................21
6.1 Plan Conditions...................................................................21
(a) Incentive Agreement.......................................................21
(b) No Right to Employment....................................................22
(c) Securities Requirements...................................................22
6.2 Transferability...................................................................22
(a) Non-Transferable Awards and Options.......................................22
(b) Ability to Exercise Rights................................................23
6.3 Rights as a Stockholder...........................................................23
(a) No Stockholder Rights.....................................................23
(b) Representation of Ownership...............................................23
6.4 Listing and Registration of Shares of Common Stock................................23
6.5 Change in Stock and Adjustments...................................................23
(a) Changes in Law or Circumstances...........................................23
(b) Exercise of Corporate Powers..............................................24
(c) Recapitalization of the Company...........................................24
(d) Reorganization of the Company.............................................24
(e) Issue of Common Stock by the Company......................................25
(f) Acquisition of the Company................................................25
(g) Assumption of Outstanding Incentive Awards under the Plan.................25
(h) Assumption of Incentive Awards by a Successor.............................26
6.6 Termination of Employment, Death, Disability and Retirement.......................26
(a) Termination of Employment.................................................26
(b) Termination of Employment for Cause.......................................27
(c) Retirement................................................................27
(d) Disability or Death.......................................................27
(e) Continuation..............................................................27
6.7 Change in Control.................................................................28
6.8 Exchange of Incentive Awards......................................................29
6.9 Financing.........................................................................30
SECTION 7. GENERAL...........................................................................30
7.1 Effective Date and Grant Period...................................................30
7.2 Funding and Liability of Company..................................................30
7.3 Withholding Taxes.................................................................31
(a) Tax Withholding...........................................................31
(b) Share Withholding.........................................................31
(c) Incentive Stock Options...................................................31
(d) Loans31
7.4 No Guarantee of Tax Consequences..................................................31
</TABLE>
-iv-
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.5 Designation of Beneficiary by Participant.........................................31
7.6 Deferrals.........................................................................32
7.7 Amendment and Termination.........................................................32
7.8 Requirements of Law...............................................................32
7.9 Rule 16b-3 Securities Law Compliance..............................................33
7.10 Compliance with Code Section 162(m)...............................................33
7.11 Successors........................................................................33
7.12 Miscellaneous Provisions..........................................................33
7.13 Severability......................................................................34
7.14 Gender, Tense and Headings........................................................34
7.15 Governing Law.....................................................................34
</TABLE>
-v-
<PAGE>
APPLIED VOICE RECOGNITION, INC.
1997 INCENTIVE PLAN
SECTION 1.
-----------
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 AMENDMENT AND RESTATEMENT OF PLAN
The Applied Voice Recognition, Inc. 1997 Incentive Plan is an amendment and
restatement, effective as of October 1, 1997, of the plans formerly known as the
"Applied Voice Recognition, Inc. 1996 Stock Option Plan" and the "Applied Voice
Recognition, Inc. 1996 Director Stock Option Plan" (the "Prior Plans"). All
outstanding stock options previously granted under the Prior Plans shall be
assumed and continued, without modification, under the Plan and treated in all
respects as Incentive Awards hereunder.
1.2 PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of Applied Voice Recognition, Inc. (the "Company") and its Subsidiaries
and to increase stockholder value by: (a) encouraging the commitment of selected
key Employees, Consultants and Outside Directors, (b) motivating superior
performance of key Employees, Consultants and Outside Directors by means of
long-term performance related incentives, (c) encouraging and providing key
Employees, Consultants and Outside Directors with a program for obtaining
ownership interests in the Company which link and align their personal interests
to those of the Company's stockholders, (d) attracting and retaining key
Employees, Consultants and Outside Directors by providing competitive incentive
compensation opportunities, and (e) enabling key Employees, Consultants and
Outside Directors to share in the long-term growth and success of the Company.
The Plan provides for payment of various forms of incentive compensation
and, therefore, is not intended to be a plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA). The Plan shall be
interpreted, construed and administered consistent with its status as a plan
that is not subject to ERISA.
Subject to approval by the Company's stockholders pursuant to Section 7.1,
the Plan, as an amendment and restatement of the Prior Plans, shall become
effective as of October 1, 1997 (the "EFFECTIVE DATE"). The Plan shall commence
on the Effective Date, and shall remain in effect, subject to the right of the
Board to amend or terminate the Plan at any time pursuant to Section 7.7, until
all Shares subject to the Plan have been purchased or acquired according to its
provisions. However, in no event may an Incentive Award be granted under the
Plan after the expiration of ten (10) years
<PAGE>
from the Effective Date. Any Incentive Award granted prior to the Effective
Date, other than outstanding stock options which were granted under the Prior
Plans and assumed and continued hereunder, will be subject to the subsequent
receipt of stockholder approval of the Plan pursuant to Section 7.1.
1.3 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) APPRECIATION. The difference between the option exercise price
per share of the Nonstatutory Stock Option to which a Tandem SAR relates
and the Fair Market Value of a share of Common Stock on the date of
exercise of the Tandem SAR.
(b) AUTHORIZED OFFICER. The Chairman of the Board or the Chief
Executive Officer of the Company or any other senior officer of the Company
to whom either of them delegate the authority to execute any Incentive
Agreement for and on behalf of the Company. No officer or director shall be
an Authorized Officer with respect to any Incentive Agreement for himself.
(c) BOARD. The Board of Directors of the Company.
(d) CAUSE. When used in connection with the termination of a
Grantee's Employment, shall mean the termination of the Grantee's
Employment by the Company by reason of (i) the conviction of the Grantee by
a court of competent jurisdiction as to which no further appeal can be
taken of a crime involving moral turpitude or a felony; (ii) the proven
commission by the Grantee of an act of fraud upon the Company; (iii) the
willful and proven misappropriation of any funds or property of the Company
by the Grantee; (iv) the willful, continued and unreasonable failure by the
Grantee to perform the material duties assigned to him; (v) the knowing
engagement by the Grantee in any direct, material conflict of interest with
the Company without compliance with the Company's conflict of interest
policy, if any, then in effect; (vi) the knowing engagement by the Grantee,
without the written approval of the Board, in any activity which competes
with the business of the Company or which would result in a material injury
to the business, reputation or goodwill of the Company; or (vii) the
knowing and intentional engagement by Grantee in any activity which would
constitute a material violation of the provisions of the Company's policies
and procedures manual, if any, then in effect.
(e) CHANGE IN CONTROL. Any of the events described in and subject to
Section 6.7.
(f) CODE. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder by the appropriate
governmental authority. References herein to any provision of the Code
shall refer to any successor provision thereto.
(g) COMMITTEE. A committee appointed by the Board consisting of not
less than two directors who fulfill the "non-employee director"
requirements of Rule 16b-3 under the
-2-
<PAGE>
Exchange Act and the "outside director" requirements of Section 162(m) of
the Code. Without limitation, the Committee may be the Compensation
Committee of the Board, or any subcommittee of the Compensation Committee,
provided that the members of the Committee satisfy the requirements of the
previous sentence. The Board shall have the power to fill vacancies on the
Committee arising by resignation, death, removal or otherwise. The Board,
in its sole discretion, may bifurcate the powers and duties of the
Committee among one or more separate committees, or retain all powers and
duties of the Committee in a single Committee. The members of the Committee
shall serve at the discretion of the Board.
Notwithstanding the preceding paragraph, the term "Committee" as used
in the Plan with respect to any Incentive Award for an Outside Director
shall refer to the Board. In the case of an Incentive Award for an Outside
Director, the Board shall have all the powers and responsibilities of the
Committee hereunder as to such Incentive Award, and any actions as to such
Incentive Award may be acted upon only by the Board (unless it otherwise
designates in its discretion). When the Board exercises its authority to
act in the capacity as the Committee hereunder with respect to an Incentive
Award for an Outside Director, it shall so designate with respect to any
action that it undertakes in its capacity as the Committee.
(h) COMMON STOCK. The common stock of the Company, $.001 par value
per share, and any class of common stock into which such common shares may
hereafter be converted, reclassified or recapitalized.
(i) COMPANY. Applied Voice Recognition, Inc., a corporation
organized under the laws of the State of Delaware, and any successor in
interest thereto.
(j) CONSULTANT. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee, or any other individual
who is not an Outside Director or employee of the Company (or any Parent or
Subsidiary) and who, in the opinion of the Committee, is in a position to
contribute materially to the growth or financial success of the Company (or
any Parent or Subsidiary).
(k) COVERED EMPLOYEE. A named executive officer who is one of the
group of covered employees as defined in Section 162(m) of the Code and
Treasury Regulation (S) 1.162-27(c) (or its successor).
(l) DEFERRED STOCK. Shares of Common Stock to be issued or
transferred to a Grantee under an Other Stock-Based Award granted pursuant
to Section 5 at the end of a specified deferral period, as set forth in the
Incentive Agreement pertaining thereto.
(m) DISABILITY. As determined by the Committee in its discretion
exercised in good faith, a physical or mental condition of the Employee
that would entitle him to payment of disability income payments under the
Company's long term disability insurance policy or plan for employees, as
then effective, if any; or in the event that the Grantee is not covered,
for whatever reason, under the Company's long-term disability insurance
policy or plan, "Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the Code. A determination of Disability may
be made by a physician selected or approved by the
-3-
<PAGE>
Committee and, in this respect, the Grantee shall submit to an examination
by such physician upon request.
(n) EMPLOYEE. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in the
opinion of the Committee, is one of a select group of executive officers,
other officers, or other key personnel of the Company (or any Parent or
Subsidiary), who is in a position to contribute materially to the growth
and development and to the financial success of the Company (or any Parent
or Subsidiary), including, without limitation, officers who are members of
the Board.
(o) EMPLOYMENT. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive Award
in any transaction described in Section 424(a) of the Code, or by a parent
corporation or a subsidiary corporation of such corporation issuing or
assuming such Incentive Award, as the parent-subsidiary relationship shall
be determined at the time of the corporate action described in Section
424(a) of the Code. In this regard, neither the transfer of a Grantee from
Employment by the Company to Employment by any Parent or Subsidiary, nor
the transfer of a Grantee from Employment by any Parent or Subsidiary to
Employment by the Company, shall be deemed to be a termination of
Employment of the Grantee. Moreover, the Employment of a Grantee shall not
be deemed to have been terminated because of an approved leave of absence
from active Employment on account of temporary illness, authorized vacation
or granted for reasons of professional advancement, education, health, or
government service, or during military leave for any period (if the Grantee
returns to active Employment within 90 days after the termination of
military leave), or during any period required to be treated as a leave of
absence by virtue of any applicable statute, Company personnel policy or
agreement. Whether an authorized leave of absence shall constitute
termination of Employment hereunder shall be determined by the Committee in
its discretion.
Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan will also include compensatory
services performed by a Consultant for the Company (or any Parent or
Subsidiary) as well as membership on the Board by an Outside Director.
(p) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
(q) FAIR MARKET VALUE. The fair market value of one share of Common
Stock on the date in question, which is deemed to be (i) the closing sales
price on the immediately preceding business day of a share of Common Stock
as reported on the principal securities exchange on which Shares are then
listed or admitted to trading, or (ii) if not so reported, the average of
the closing bid and asked prices for a Share on the immediately preceding
business day as quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or (iii) if not quoted on NASDAQ,
the average of the closing bid and asked prices for a Share as quoted by
the National Quotation Bureau's "Pink Sheets" or the National Association
of Securities Dealers' OTC Bulletin Board System. If there was no public
trade of Common Stock on the date in question, Fair Market Value shall be
determined by reference to the last preceding date on which such a trade
was so reported.
-4-
<PAGE>
If the Common Stock is not traded in accordance with clauses (i), (ii)
or (iii) of the preceding paragraph at the time a determination of its Fair
Market Value is required to be made hereunder, the determination of Fair
Market Value for purposes of the Plan shall be made by the Committee in its
discretion exercised in good faith. In this respect, the Committee may
rely on such financial data, valuations or experts as it deems advisable
under the circumstances.
(r) GRANTEE. Any Employee, Consultant or Outside Director who is
granted an Incentive Award under the Plan.
(s) INCENTIVE AWARD. A grant of an award under the Plan to a
Grantee, including any Nonstatutory Stock Option, Incentive Stock Option,
Reload Option, Stock Appreciation Right, Restricted Stock Award,
Performance Unit, Performance Share, or Other Stock-Based Award, as well as
any Supplemental Payment.
(t) INCENTIVE AGREEMENT. The written agreement entered into between
the Company and the Grantee setting forth the terms and conditions pursuant
to which an Incentive Award is granted under the Plan, as such agreement is
further defined in Section 6.1(a).
(u) INCENTIVE STOCK OPTION. A Stock Option granted by the Committee
to an Employee under Section 2 which is designated by the Committee as an
Incentive Stock Option and intended to qualify as an Incentive Stock Option
under Section 422 of the Code.
(v) INDEPENDENT SAR. A Stock Appreciation Right described in Section
2.5.
(w) INSIDER. An individual who is, on the relevant date, an officer,
director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
(x) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
Committee to a Grantee under Section 2 which is not designated by the
Committee as an Incentive Stock Option.
(y) OPTION PRICE. The exercise price at which a Share may be
purchased by the Grantee of a Stock Option.
(z) OTHER STOCK-BASED AWARD. An award granted by the Committee to a
Grantee under Section 5.1 that is valued in whole or in part by reference
to, or is otherwise based upon, Common Stock.
(aa) OUTSIDE DIRECTOR. A member of the Board who is not, at the time
of grant of an Incentive Award, an employee of the Company or any Parent or
Subsidiary.
-5-
<PAGE>
(bb) PARENT. Any corporation (whether now or hereafter existing)
which constitutes a "parent" of the Company, as defined in Section 424(e)
of the Code.
(cc) PERFORMANCE-BASED EXCEPTION. The performance-based exception
from the tax deductibility limitations of Section 162(m) of the Code, as
prescribed in Code (S) 162(m) and Treasury Regulation (S) 1.162-27(e) (or
its successor).
(dd) PERFORMANCE PERIOD. A period of time determined by the
Committee over which performance is measured for the purpose of determining
a Grantee's right to and the payment value of any Performance Unit,
Performance Share or Other Stock-Based Award.
(ee) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award
representing a contingent right to receive cash or shares of Common Stock
(which may be Restricted Stock) at the end of a Performance Period and
which, in the case of Performance Shares, is denominated in Common Stock,
and, in the case of Performance Units, is denominated in cash values.
(ff) PLAN. The Applied Voice Recognition, Inc.1997 Incentive Plan as
set forth herein and as it may be amended from time to time. The Plan is
an amendment and restatement, effective as of October 1, 1997, of both the
Applied Voice Recognition, Inc. 1996 Stock Option Plan and the Applied
Voice Recognition, Inc. 1996 Director Stock Option Plan.
(gg) RESTRICTED STOCK. Shares of Common Stock issued or transferred
to a Grantee pursuant to Section 3.
(hh) RESTRICTED STOCK AWARD. An authorization by the Committee to
issue or transfer Restricted Stock to a Grantee.
(ii) RESTRICTION PERIOD. The period of time determined by the
Committee and set forth in the Incentive Agreement during which the
transfer of Restricted Stock by the Grantee is restricted.
(jj) RETIREMENT. The voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on any
date after the Employee attains the normal retirement age of 65 years, or
such other age as may be designated by the Committee in the Employee's
Incentive Agreement..
(kk) SHARE. A share of the Common Stock of the Company.
(ll) SHARE POOL. The number of shares authorized for issuance under
Section 1.4, as adjusted for awards and payouts under Section 1.5 and as
adjusted for changes in corporate capitalization under Section 6.5.
-6-
<PAGE>
(mm) SPREAD. The difference between the exercise price per Share
specified in any Independent SAR grant and the Fair Market Value of a Share
on the date of exercise of the Independent SAR.
(nn) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in
Section 2.4 or an Independent SAR described in Section 2.5.
(oo) STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an Incentive
Stock Option granted to an Employee, or (ii) a Nonstatutory Stock Option
granted to an Employee, Consultant or Outside Director, whereunder such
option the Grantee has the right to purchase Shares of Common Stock. In
accordance with Section 422 of the Code, no Consultant or Outside Director
shall be granted an Incentive Stock Option.
(pp) SUBSIDIARY. Any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the Company, as defined in Section
424(f) of the Code.
(qq) SUPPLEMENTAL PAYMENT. Any amount, as described in Sections 2.7,
3.5, 4.2 and/or 5.2, dedicated to payment of income taxes that are payable
by the Grantee on an Incentive Award.
(rr) TANDEM SAR. A Stock Appreciation Right that is granted in
connection with a related Stock Option pursuant to Section 2.4, the
exercise of which shall require forfeiture of the right to purchase a Share
under the related Stock Option (and when a Share is purchased under the
Stock Option, the Tandem SAR shall similarly be canceled).
1.4 PLAN ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law and
subject to the provisions herein, the Committee shall have full power to
(i) select Grantees who shall participate in the Plan; (ii) determine the
sizes, duration and types of Incentive Awards; (iii) determine the terms
and conditions of Incentive Awards and Incentive Agreements; (iv) determine
whether any Shares subject to Incentive Awards will be subject to any
restrictions on transfer; (v) construe and interpret the Plan and any
Incentive Agreement or other agreement entered into under the Plan; and
(vi) establish, amend, or waive rules for the Plan's administration.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan.
(b) MEETINGS. The Committee shall designate a chairman from among
its members who shall preside at all of its meetings, and shall designate a
secretary, without regard to whether that person is a member of the
Committee, who shall keep the minutes of the proceedings and all records,
documents, and data pertaining to its administration of the Plan. Meetings
shall be held at such times and places as shall be determined by the
Committee and the Committee may hold telephonic meetings. The Committee
may take any action otherwise proper under the Plan by the affirmative
vote, taken with or without a meeting, of a majority of its members. The
Committee may authorize any one or more of their members or any officer of
the Company to execute and deliver documents on behalf of the Committee.
-7-
<PAGE>
(c) DECISIONS BINDING. All determinations and decisions made by the
Committee shall be made in its discretion pursuant to the provisions of the
Plan, and shall be final, conclusive and binding on all persons including
the Company, its shareholders, Employees, Grantees, and their estates and
beneficiaries. The Committee's decisions and determinations with respect
to any Incentive Award need not be uniform and may be made selectively
among Incentive Awards and Grantees, whether or not such Incentive Awards
are similar or such Grantees are similarly situated.
(d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the
stockholder approval requirements of Section 7.7 if applicable, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award, eliminate or make less restrictive
any restrictions contained in an Incentive Award, waive any restriction or
other provisions of an Incentive Award, or otherwise amend or modify an
Incentive Award in any manner that is either (i) not adverse to the Grantee
to whom such Incentive Award was granted or (ii) consented to by such
Grantee. The Committee may grant an Incentive Award to an individual who
it expects to become an Employee within the next six months, with such
Incentive Award being subject to such individual actually becoming an
Employee within such time period, and subject to such other terms and
conditions as may be established by the Committee in its discretion.
(e) DELEGATION OF AUTHORITY. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties
under this Plan pursuant to such conditions or limitations as the Committee
may establish from time to time, except that the Committee may not delegate
to any person the authority to (i) grant Incentive Awards, or (ii) take any
action which would contravene the requirements of Rule 16b-3 under the
Exchange Act or the Performance-Based Exception under Section 162(m) of the
Code.
(f) EXPENSES OF COMMITTEE. The Committee may employ legal counsel,
including, without limitation, independent legal counsel and counsel
regularly employed by the Company, and other agents as the Committee may
deem appropriate for the administration of the Plan. The Committee may
rely upon any opinion or computation received from any such counsel or
agent. All expenses incurred by the Committee in interpreting and
administering the Plan, including, without limitation, meeting expenses and
professional fees, shall be paid by the Company.
(g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may, in
its absolute discretion, grant Incentive Awards to Grantees on the
condition that such Grantees surrender to the Committee for cancellation
such other Incentive Awards (including, without limitation, Incentive
Awards with higher exercise prices) as the Committee directs. Incentive
Awards granted on the condition precedent of surrender of outstanding
Incentive Awards shall not count against the limits set forth in Section
1.4 until such time as such previous Incentive Awards are surrendered and
canceled.
(h) INDEMNIFICATION. Each person who is or was a member of the
Committee, or of the Board, shall be indemnified by the Company against and
from any damage, loss, liability, cost and expense that may be imposed upon
or reasonably incurred by him in
-8-
<PAGE>
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any
action taken or failure to act under the Plan, except for any such act or
omission constituting willful misconduct or gross negligence. Such person
shall be indemnified by the Company for all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in
satisfaction of any judgment in any such action, suit, or proceeding
against him, provided he shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and
defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Articles of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
1.5 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under Section 6.5, there shall be available for
Incentive Awards under this Plan granted wholly or partly in Common Stock
(including rights or Options that may be exercised for or settled in Common
Stock) an aggregate of the greater of (a) 3,000,000 Shares of Common Stock and
(b) 20% of the number of Shares of Common Stock issued and outstanding on the
last day of each calendar quarter, of which an aggregate of not more than
1,000,000 Shares shall be available for Incentive Awards granted to Outside
Directors and the remainder shall be available for Incentive Awards to Employees
and Consultants. No more than 3,000,000 Shares of Common Stock shall be
available for Incentive Stock Options. The number of Shares of Common Stock
that are the subject of Incentive Awards under this Plan, that are forfeited or
terminated, expire unexercised, are settled in cash in lieu of Common Stock or
in a manner such that all or some of the Shares covered by an Incentive Award
are not issued to a Grantee or are exchanged for Incentive Awards that do not
involve Common Stock, shall again immediately become available for Incentive
Awards hereunder. The Committee may from time to time adopt and observe such
procedures concerning the counting of Shares against the Plan maximum as it may
deem appropriate. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that Shares are available for issuance pursuant to
Incentive Awards.
Unless and until the Committee determines that a particular Incentive Award
granted to a Covered Employee is not intended to comply with the Performance-
Based Exception, the following rules shall apply to grants of Incentive Awards
to Covered Employees:
(a) Subject to adjustment as provided in Section 6.5, the maximum
aggregate number of Shares of Common Stock (including Stock Options, SARs,
Restricted Stock, Performance Units and Performance Shares paid out in
Shares, or Other Stock-Based Awards paid out in Shares) that may be granted
or that may vest, as applicable, in any calendar year pursuant to any
Incentive Award held by any individual Covered Employee shall be two
million (2,000,000) Shares.
-9-
<PAGE>
(b) The maximum aggregate cash payout (including SARs, Performance
Units and Performance Shares paid out in cash, or Other Stock-Based Awards
paid out in cash) with respect to Incentive Awards granted in any calendar
year which may be made to any Covered Employee shall be five million
dollars ($5,000,000).
(c) With respect to any Stock Option or Stock Appreciation Right
granted to a Covered Employee that is canceled or repriced, the number of
Shares subject to such Stock Option or Stock Appreciation Right shall
continue to count against the maximum number of Shares that may be the
subject of Stock Options or Stock Appreciation Rights granted to such
Covered Employee hereunder and, in this regard, such maximum number shall
be determined in accordance with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above shall be
construed and administered so as to comply with the Performance-Based
Exception.
1.6 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.
The following Incentive Awards and payouts shall reduce, on a one Share for
one Share basis, the number of Shares authorized for issuance under the Share
Pool:
(a) Stock Option;
(b) SAR (except a Tandem SAR);
(c) Restricted Stock;
(d) A payout of a Performance Share in Shares;
(e) A payout of a Performance Unit in Shares; and
(f) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A Payout of an SAR, Tandem SAR, Restricted Stock Award, or Other
Stock-Based Award in the form of cash;
(b) A cancellation, termination, expiration, forfeiture, or lapse for
any reason (with the exception of the termination of a Tandem SAR upon
exercise of the related Stock Option, or the termination of a related Stock
Option upon exercise of the corresponding Tandem SAR) of any Shares subject
to an Incentive Award; and
(c) Payment of an Option Price with previously acquired Shares or by
withholding Shares which otherwise would be acquired on exercise (i.e., the
Share Pool shall be increased by the number of Shares turned in or withheld
as payment of the Option Price).
-10-
<PAGE>
1.7 COMMON STOCK AVAILABLE.
The Common Stock available for issuance or transfer under the Plan shall be
made available from Shares now or hereafter (i) held in the treasury of the
Company, (ii) authorized but unissued shares, or (iii) shares to be purchased
or acquired by the Company. No fractional shares shall be issued under the
Plan; payment for fractional shares shall be made in cash.
1.8 PARTICIPATION
(a) ELIGIBILITY. The Committee shall from time to time designate
those Employees, Consultants and/or Outside Directors, if any, to be
granted Incentive Awards under the Plan, the type of Incentive Awards
granted, the number of Shares, Stock Options, rights or units, as the case
may be, which shall be granted to each such person, and any other terms or
conditions relating to the Incentive Awards as it may deem appropriate to
the extent consistent with the provisions of the Plan. A Grantee who has
been granted an Incentive Award may, if otherwise eligible, be granted
additional Incentive Awards at any time.
(b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or Outside
Director shall be eligible for the grant of any Incentive Stock Option. In
addition, no Employee shall be eligible for the grant of any Incentive
Stock Option who owns or would own immediately before the grant of such
Incentive Stock Option, directly or indirectly, stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company, or any Parent or Subsidiary. This restriction does
not apply if, at the time such Incentive Stock Option is granted, the
Incentive Stock Option exercise price is at least one hundred and ten
percent (110%) of the Fair Market Value on the date of grant and the
Incentive Stock Option by its terms is not exercisable after the expiration
of five (5) years from the date of grant. For the purpose of the
immediately preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply for the purpose of determining an Employee's
percentage ownership in the Company or any Parent or Subsidiary. This
paragraph shall be construed consistent with the requirements of Section
422 of the Code.
1.9 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in Section 2,
Restricted Stock and Supplemental Payments as described in Section 3,
Performance Units, Performance Shares and Supplemental Payments as described in
Section 4, Other Stock-Based Awards and Supplemental Payments as described in
Section 5, or any combination of the foregoing.
-11-
<PAGE>
SECTION 2.
----------
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options
to Employees only, in accordance with the terms and conditions of the Plan, and
with such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall determine in its discretion. Successive grants may be made
to the same Grantee whether or not any Stock Option previously granted to such
person remains unexercised.
2.2 STOCK OPTION TERMS
(a) WRITTEN AGREEMENT. Each grant of an Stock Option shall be
evidenced by a written Incentive Agreement. Among its other provisions,
each Incentive Agreement shall set forth the extent to which the Grantee
shall have the right to exercise the Stock Option following termination of
the Grantee's Employment. Such provisions shall be determined in the
discretion of the Committee, shall be included in the Grantee's Incentive
Agreement, need not be uniform among all Stock Options issued pursuant to
the Plan.
(b) NUMBER OF SHARES. Each Stock Option shall specify the number of
Shares of Common Stock to which it pertains.
(c) EXERCISE PRICE. The exercise price per Share of Common Stock
under each Stock Option shall be determined by the Committee; provided,
however, that in the case of an Incentive Stock Option, such exercise price
shall not be less than 100% of the Fair Market Value per Share on the date
the Incentive Stock Option is granted. To the extent that the Stock Option
is intended to qualify for the Performance-Based Exception, the exercise
price shall not be less than 100% of the Fair Market Value per Share on the
date the Stock Option is granted. Each Stock Option shall specify the
method of exercise which shall be consistent with the requirements of
Section 2.3(a).
(d) TERM. In the Incentive Agreement, the Committee shall fix the
term of each Stock Option which shall be not more than ten (10) years from
the date of grant. In the event no term is fixed, such term shall be ten
(10) years from the date of grant.
(e) EXERCISE. The Committee shall determine the time or times at
which a Stock Option may be exercised in whole or in part. Each Stock
Option may specify the required period of continuous Employment and/or the
performance objectives to be achieved before the Stock Option or portion
thereof will become exercisable. Each Stock Option, the exercise of which,
or the timing of the exercise of which, is dependent, in whole or in part,
on the achievement of designated performance objectives, may specify a
minimum level of achievement in respect of the specified performance
objectives below which no Stock Options will be exercisable and a method
for determining the number of Stock Options that will be
-12-
<PAGE>
exercisable if performance is at or above such minimum but short of full
achievement of the performance objectives. All such terms and conditions
shall be set forth in the Incentive Agreement.
(f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS.
Notwithstanding any contrary provision in the Plan, to the extent that the
aggregate Fair Market Value (determined as of the time the Incentive Stock
Option is granted) of the Shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any Grantee
during any single calendar year (under the Plan and any other stock option
plans of the Company and its Subsidiaries or Parent) exceeds the sum of
$100,000, such Incentive Stock Option shall be treated as a Nonstatutory
Stock Option to the extent in excess of the $100,000 limit, and not an
Incentive Stock Option, but all other terms and provisions of such Stock
Option shall remain unchanged. This paragraph shall be applied by taking
Incentive Stock Options into account in the order in which they are granted
and shall be construed in accordance with Section 422(d) of the Code. In
the absence of regulations or other authority, or if such regulations or
other authority require or permit a designation of the Options which shall
cease to constitute Incentive Stock Options, Incentive Stock Options, to
the extent of such excess and in the order in which they were granted,
shall automatically be deemed to be Nonstatutory Stock Options, but all
other terms and provisions of such Incentive Stock Options, and in the
corresponding Incentive Award(s), shall remain unchanged.
2.3 STOCK OPTION EXERCISES
(a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be exercised
by the delivery of a signed written notice of exercise to the Company as of
a date set by the Company in advance of the effective date of the proposed
exercise. The notice shall set forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the
Shares.
The Option Price upon exercise of any Stock Option shall be payable to
the Company in full either: (i) in cash or its equivalent, or (ii) subject
to prior approval by the Committee in its discretion, by tendering
previously acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price (provided that the Shares
which are tendered must have been held for at least six (6) months prior to
their tender to satisfy the Option Price), or (iii) subject to prior
approval by the Committee in its discretion, by withholding Shares which
otherwise would be acquired on exercise having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price, or (iv)
subject to prior approval by the Committee in its discretion, by a
combination of (i), (ii), and (iii) above. Any payment in Shares of Common
Stock shall be effected by the delivery of such Shares to the Secretary of
the Company, duly endorsed in blank or accompanied by stock powers duly
executed in blank, together with any other documents as the Secretary shall
require from time to time.
The Committee, in its discretion, also may allow (i) "cashless
exercise" as permitted under Federal Reserve Board's Regulation T, 12 CFR
Part 220 (or its successor), and subject to applicable securities law
restrictions and tax withholdings, or (ii) by any other means which
-13-
<PAGE>
the Committee, in its discretion, determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to or on behalf of the
Grantee, in the name of the Grantee or other appropriate recipient, Share
certificates for the number of Shares purchased under the Stock Option.
Such delivery shall be effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United
States mail, addressed to Grantee or other appropriate recipient.
During the lifetime of a Grantee, each Option granted to him shall be
exercisable only by the Grantee (or his legal guardian in the event of his
Disability) or by a broker-dealer acting on his behalf pursuant to a
cashless exercise under the foregoing provisions of this Section 2.3(a).
No Option shall be assignable or transferable by Grantee otherwise than by
will or by the laws of descent and distribution.
(b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of a
Stock Option as it may deem advisable, including, without limitation,
restrictions under (i) any buy/sell agreement or right of first refusal,
(ii) any applicable federal securities laws, (iii) the requirements of any
stock exchange or market upon which such Shares are then listed and/or
traded, or (iv) any blue sky or state securities law applicable to such
Shares. Any certificate issued to evidence Shares issued upon the exercise
of an Incentive Award may bear such legends and statements as the Committee
shall deem advisable to assure compliance with federal and state laws and
regulations.
Any Grantee or other person exercising an Incentive Award may be
required by the Committee to give a written representation that the
Incentive Award and the Shares subject to the Incentive Award will be
acquired for investment and not with a view to public distribution;
provided, however, that the Committee, in its sole discretion, may release
any person receiving an Incentive Award from any such representations
either prior to or subsequent to the exercise of the Incentive Award.
(c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM
INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan,
a Grantee who disposes of Shares of Common Stock acquired upon the exercise
of an Incentive Stock Option by a sale or exchange either (i) within two
(2) years after the date of the grant of the Incentive Stock Option under
which the Shares were acquired or (ii) within one (1) year after the
transfer of such Shares to him pursuant to exercise, shall promptly notify
the Company of such disposition, the amount realized and his adjusted basis
in such Shares.
(d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
Company from the sale of Shares pursuant to Stock Options exercised under
the Plan shall be used for general corporate purposes.
-14-
<PAGE>
2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may, at the time of grant of a Nonstatutory
Stock Option, or at any time thereafter during the term of the Nonstatutory
Stock Option, grant Stock Appreciation Rights with respect to all or any
portion of the Shares of Common Stock covered by such Nonstatutory Stock
Option. A Stock Appreciation Right in tandem with a Nonstatutory Stock
Option is referred to herein as a "Tandem SAR."
(b) GENERAL PROVISIONS. The terms and conditions of each Tandem SAR
shall be evidenced by an Incentive Agreement. The Option Price per Share
of a Tandem SAR shall be fixed in the Incentive Agreement and shall not be
less than one hundred percent (100%) of the Fair Market Value of a Share on
the grant date of the Nonstatutory Stock Option to which it relates.
(c) EXERCISE. A Tandem SAR may be exercised at any time the
Nonstatutory Stock Option to which it relates is then exercisable, but only
to the extent such Nonstatutory Stock Option is exercisable, and shall
otherwise be subject to the conditions applicable to such Nonstatutory
Stock Option. When a Tandem SAR is exercised, the Nonstatutory Stock
Option to which it relates shall terminate to the extent of the number of
Shares with respect to which the Tandem SAR is exercised. Similarly, when
a Nonstatutory Stock Option is exercised, the Tandem SARs relating to the
Shares covered by such Nonstatutory Stock Option exercise shall terminate.
Any Tandem SAR which is outstanding on the last day of the term of the
related Nonstatutory Stock Option shall be automatically exercised on such
date for cash, without the need for any action by the Grantee, to the
extent of any Appreciation.
(d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall
receive, for each Share with respect to which the Tandem SAR is exercised,
an amount equal to the Appreciation. The Appreciation shall be payable in
cash, Common Stock, or a combination of both, as specified in the Incentive
Agreement (or in the discretion of the Committee if not so specified). The
Appreciation shall be paid within 30 calendar days of the exercise of the
Tandem SAR. The number of Shares of Common Stock which shall be issuable
upon exercise of a Tandem SAR shall be determined by dividing (1) by (2),
where (1) is the number of Shares as to which the Tandem SAR is exercised
multiplied by the Appreciation in such shares and (2) is the Fair Market
Value of a Share on the exercise date.
2.5 STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may grant Stock Appreciation Rights
independent of Nonstatutory Stock Options ("Independent SARs").
(b) GENERAL PROVISIONS. The terms and conditions of each Independent
SAR shall be evidenced by an Incentive Agreement. The exercise price per
share of Common Stock shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share of Common Stock on the date of grant of
the Independent SAR. The term of an Independent SAR shall be determined by
the Committee.
-15-
<PAGE>
(c) EXERCISE. Independent SARs shall be exercisable at such time and
subject to such terms and conditions as the Committee shall specify in the
Incentive Agreement for the Independent SAR grant.
(d) SETTLEMENT. Upon exercise of an Independent SAR, the holder
shall receive, for each Share specified in the Independent SAR grant, an
amount equal to the Spread. The Spread shall be payable in cash, Common
Stock, or a combination of both, in the discretion of the Committee or as
specified in the Incentive Agreement. The Spread shall be paid within 30
calendar days of the exercise of the Independent SAR. The number of Shares
of Common Stock which shall be issuable upon exercise of an Independent SAR
shall be determined by dividing (1) by (2), where (1) is the number of
Shares as to which the Independent SAR is exercised multiplied by the
Spread in such Shares and (2) is the Fair Market Value of a Share on the
exercise date.
2.6 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options that permit the Grantee to
purchase an additional number of Shares equal to the number of previously owned
Shares surrendered by the Grantee to pay all or a portion of the Option Price
upon exercise of his Stock Options.
2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
APPRECIATION RIGHTS
The Committee, either at the time of grant or as of the time of exercise of
any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the
Incentive Agreement for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Nonstatutory Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified
by the Committee, which amount shall not exceed the amount necessary to pay the
federal and state income tax payable with respect to both the exercise of the
Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.
SECTION 3.
-----------
RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK
(a) GRANT. In consideration of the performance of Employment by any
Grantee who is an Employee, Consultant or Outside Director, Shares of
Restricted Stock may be
-16-
<PAGE>
awarded under the Plan by the Committee with such restrictions during the
Restriction Period as the Committee may designate in its discretion, any of
which restrictions may differ with respect to each particular Grantee.
Restricted Stock shall be awarded for no additional consideration or such
additional consideration as the Committee may determine, which
consideration may be less than, equal to or more than the Fair Market Value
of the shares of Restricted Stock on the grant date. The terms and
conditions of each grant of Restricted Stock shall be evidenced by an
Incentive Agreement.
(b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF RESTRICTED
STOCK. Unless otherwise specified in the Grantee's Incentive Agreement,
each Restricted Stock Award shall constitute an immediate transfer of the
record and beneficial ownership of the Shares of Restricted Stock to the
Grantee in consideration of the performance of services as an Employee,
Consultant or Outside Director, as applicable, entitling such Grantee to
all voting and other ownership rights in such Shares.
As specified in the Incentive Agreement, a Restricted Stock Award may
limit the Grantee's dividend rights during the Restriction Period in which
the shares of Restricted Stock are subject to a "substantial risk of
forfeiture" (within the meaning given to such term under Code Section 83)
and restrictions on transfer. In the Incentive Agreement, the Committee
may apply any restrictions to the dividends that the Committee deems
appropriate. Without limiting the generality of the preceding sentence, if
the grant or vesting of Shares of Restricted Stock granted to a Covered
Employee is designed to comply with the requirements of the Performance-
Based Exception, the Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such
Shares of Restricted Stock, such that the dividends and/or the Shares of
Restricted Stock maintain eligibility for the Performance-Based Exception.
In the event that any dividend constitutes a derivative security or an
equity security pursuant to the rules under Section 16 of the Exchange Act,
such dividend shall be subject to a vesting period equal to the remaining
vesting period of the Shares of Restricted Stock with respect to which the
dividend is paid.
Shares awarded pursuant to a grant of Restricted Stock may be issued
in the name of the Grantee and held, together with a stock power endorsed
in blank, by the Committee or Company (or their delegates) or in trust or
in escrow pursuant to an agreement satisfactory to the Committee, as
determined by the Committee, until such time as the restrictions on
transfer have expired. All such terms and conditions shall be set forth in
the particular Grantee's Incentive Agreement. The Company or Committee (or
their delegates) shall issue to the Grantee a receipt evidencing the
certificates held by it which are registered in the name of the Grantee.
3.2 RESTRICTIONS
(a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded to a
Grantee may be subject to the following restrictions until the expiration
of the Restriction Period: (i) a restriction that constitutes a
"substantial risk of forfeiture" (as defined in Code Section 83), or a
restriction on transferability; (ii) unless otherwise specified by the
Committee in the Incentive Agreement, the Restricted Stock that is subject
to restrictions which are not
-17-
<PAGE>
satisfied shall be forfeited and all rights of the Grantee to such Shares
shall terminate; and (iii) any other restrictions that the Committee
determines in advance are appropriate, including, without limitation,
rights of repurchase or first refusal in the Company or provisions
subjecting the Restricted Stock to a continuing substantial risk of
forfeiture in the hands of any transferee. Any such restrictions shall be
set forth in the particular Grantee's Incentive Agreement.
(b) ISSUANCE OF CERTIFICATES. Reasonably promptly after the date of
grant with respect to Shares of Restricted Stock, the Company shall cause
to be issued a stock certificate, registered in the name of the Grantee to
whom such Shares of Restricted Stock were granted, evidencing such Shares;
provided, however, that the Company shall not cause to be issued such a
stock certificate unless it has received a stock power duly endorsed in
blank with respect to such Shares. Each such stock certificate shall bear
the following legend or any other legend approved by the Company:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against transfer)
contained in the Applied Voice Recognition, Inc. 1997 Incentive Plan
and an Incentive Agreement entered into between the registered owner
of such shares and Applied Voice Recognition, Inc. A copy of the Plan
and Incentive Agreement are on file in the office of the Secretary of
Applied Voice Recognition, Inc.
Such legend shall not be removed from the certificate evidencing such
Shares of Restricted Stock until such Shares vest pursuant to the terms of
the Incentive Agreement.
(c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion, shall
have the authority to remove any or all of the restrictions on the
Restricted Stock if it determines that, by reason of a change in applicable
law or another change in circumstance arising after the grant date of the
Restricted Stock, such action is appropriate.
3.3 DELIVERY OF SHARES OF COMMON STOCK
Subject to withholding taxes under Section 7.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
been satisfied shall be delivered to the Grantee or other appropriate recipient
free of restrictions. Such delivery shall be effected for all purposes when the
Company shall have deposited such certificate in the United States mail,
addressed to the Grantee or other appropriate recipient.
3.4 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or vesting of Restricted Stock,
may provide for a Supplemental Payment by the Company to the holder in an amount
specified by the Committee, which amount shall not exceed the amount necessary
to pay the federal and state income tax payable
-18-
<PAGE>
with respect to both the vesting of the Restricted Stock and receipt of the
Supplemental Payment, assuming the Grantee is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.
SECTION 4.
-----------
PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 PERFORMANCE BASED AWARDS
(a) GRANT. The Committee is authorized to grant Performance Units
and Performance Shares to selected Grantees who are Employees or
Consultants. Each grant of Performance Units and/or Performance Shares
shall be evidenced by an Incentive Agreement in such amounts and upon such
terms as shall be determined by the Committee. The Committee may make
grants of Performance Units or Performance Shares in such a manner that
more than one Performance Period is in progress concurrently. For each
Performance Period, the Committee shall establish the number of Performance
Units or Performance Shares and their contingent values which may vary
depending on the degree to which performance criteria established by the
Committee are met.
(b) PERFORMANCE CRITERIA. At the beginning of each Performance
Period, the Committee shall (i) establish for such Performance Period
specific financial or non-financial performance objectives that the
Committee believes are relevant to the Company's business objectives; (ii)
determine the value of a Performance Unit or the number of Shares under a
Performance Share grant relative to performance objectives; and (iii)
notify each Grantee in writing of the established performance objectives
and, if applicable, the minimum, target, and maximum value of Performance
Units or Performance Shares for such Performance Period.
(c) MODIFICATION. If the Committee determines, in its discretion
exercised in good faith, that the established performance measures or
objectives are no longer suitable to the Company's objectives because of a
change in the Company's business, operations, corporate structure, capital
structure, or other conditions the Committee deems to be appropriate, the
Committee may modify the performance measures and objectives to the extent
it considers to be necessary. The Committee shall determine whether any
such modification would cause the Performance Unit or Performance Share to
fail to qualify for the Performance-Based Exception.
(d) PAYMENT. The basis for payment of Performance Units or
Performance Shares for a given Performance Period shall be the achievement
of those performance objectives determined by the Committee at the
beginning of the Performance Period as specified in the Grantee's Incentive
Agreement. If minimum performance is not achieved for a Performance
Period, no payment shall be made and all contingent rights shall cease. If
minimum
-19-
<PAGE>
performance is achieved or exceeded, the value of a Performance Unit or
Performance Share may be based on the degree to which actual performance
exceeded the preestablished minimum performance standards. The amount of
payment shall be determined by multiplying the number of Performance Units
or Performance Shares granted at the beginning of the Performance Period
times the final Performance Unit or Performance Share value. Payments shall
be made, in the discretion of the Committee as specified in the Incentive
Agreement, solely in cash or Common Stock, or a combination of cash and
Common Stock, following the close of the applicable Performance Period.
(e) SPECIAL RULE FOR COVERED EMPLOYEES. The Committee may establish
performance goals applicable to Performance Units or Performance Shares
awarded to Covered Employees in such a manner as shall permit payments with
respect thereto to qualify for the Performance-Based Exception. If a
Performance Unit or Performance Share granted to a Covered Employee is
intended to comply with the Performance-Based Exception, the Committee in
establishing performance goals shall be guided by Treasury Regulation (S)
1.162-27(e)(2) (or its successor).
4.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE SHARES
The Committee, either at the time of grant or at the time of vesting of
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal and state income
tax payable with respect to both the vesting of such Performance Units or
Performance Shares and receipt of the Supplemental Payment, assuming the Grantee
is taxed at either the maximum effective income tax rate applicable thereto or
at a lower tax rate as seemed appropriate by the Committee. The Committee shall
have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the
time of payment.
SECTION 5.
----------
OTHER STOCK-BASED AWARDS
5.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation,
Deferred Stock, purchase rights, Shares of Common Stock awarded which are not
subject to any restrictions or conditions, convertible or exchangeable
debentures, other rights convertible into Shares, Incentive Awards valued by
reference to the value of securities of or the performance of a specified
Subsidiary, division or department, and settlement in cancellation of rights of
any person with a vested interest in any other plan, fund, program or
arrangement that is or was sponsored, maintained or participated in by the
Company or any Parent or Subsidiary. As is the case with other Incentive
Awards, Other
-20-
<PAGE>
Stock-Based Awards may be awarded either alone or in addition to or in tandem
with any other Incentive Awards.
5.2 OTHER STOCK-BASED AWARD TERMS
(a) WRITTEN AGREEMENT. The terms and conditions of each grant of an
Other Stock-Based Award shall be evidenced by an Incentive Agreement.
(b) PURCHASE PRICE. Except to the extent that an Other Stock-Based
Award is granted in substitution for an outstanding Incentive Award or is
delivered upon exercise of a Stock Option, the amount of consideration
required to be received by the Company shall be either (i) no consideration
other than services actually rendered (in the case of authorized and
unissued shares) or to be rendered, or (ii) in the case of an Other Stock-
Based Award in the nature of a purchase right, consideration (other than
services rendered or to be rendered) at least equal to 50% of the Fair
Market Value of the Shares covered by such grant on the date of grant.
(c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the
Committee may specify such criteria, periods or goals for vesting in Other
Stock-Based Awards and payment thereof to the Grantee as it shall
determine; and the extent to which such criteria, periods or goals have
been met shall be determined by the Committee. All terms and conditions of
Other Stock-Based Awards shall be determined by the Committee and set forth
in the Incentive Agreement. The Committee may also provide for a
Supplemental Payment similar to such payment as described in Section 4.2.
(d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
Common Stock or other consideration related to such Shares, in a single
payment or in installments on such dates as determined by the Committee,
all as specified in the Incentive Agreement.
(e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall be
entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of Shares covered by the
Other Stock-Based Award, as determined by the Committee and set forth in
the Incentive Agreement. The Committee may also provide in the Incentive
Agreement that such amounts (if any) shall be deemed to have been
reinvested in additional Common Stock.
SECTION 6.
----------
PROVISIONS RELATING TO PLAN PARTICIPATION
6.1 PLAN CONDITIONS
(a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award is
granted shall be required to enter into an Incentive Agreement with the
Company, in such a form as is provided by the Committee. The Incentive
Agreement shall contain specific terms as
-21-
<PAGE>
determined by the Committee, in its discretion, with respect to the
Grantee's particular Incentive Award. Such terms need not be uniform among
all Grantees or any similarly-situated Grantees. The Incentive Agreement
may include, without limitation, vesting, forfeiture and other provisions
particular to the particular Grantee's Incentive Award, as well as, for
example, provisions to the effect that the Grantee (i) shall not disclose
any confidential information acquired during Employment with the Company,
(ii) shall abide by all the terms and conditions of the Plan and such other
terms and conditions as may be imposed by the Committee, (iii) shall not
interfere with the employment or other service of any employee, (iv) shall
not compete with the Company or become involved in a conflict of interest
with the interests of the Company, (v) shall forfeit an Incentive Award if
terminated for Cause, (vi) shall not be permitted to make an election under
Section 83(b) of the Code when applicable, and (vii) shall be subject to
any other agreement between the Grantee and the Company regarding Shares
that may be acquired under an Incentive Award including, without
limitation, an agreement restricting the transferability of Shares by
Grantee. An Incentive Agreement shall include such terms and conditions as
are determined by the Committee, in its discretion, to be appropriate with
respect to any individual Grantee. The Incentive Agreement shall be signed
by the Grantee to whom the Incentive Award is made and by an Authorized
Officer.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument
executed pursuant to the Plan shall create any Employment rights (including
without limitation, rights to continued Employment) in any Grantee or
affect the right of the Company to terminate the Employment of any Grantee
at any time without regard to the existence of the Plan.
(c) SECURITIES REQUIREMENTS. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of
1933 of any Shares of Common Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything herein
to the contrary, the Company shall not be obligated to cause to be issued
or delivered any certificates evidencing Shares pursuant to the Plan unless
and until the Company is advised by its counsel that the issuance and
delivery of such certificates is in compliance with all applicable laws,
regulations of governmental authorities, and the requirements of any
securities exchange on which Shares are traded. The Committee may require,
as a condition of the issuance and delivery of certificates evidencing
Shares of Common Stock pursuant to the terms hereof, that the recipient of
such Shares make such covenants, agreements and representations, and that
such certificates bear such legends, as the Committee, in its discretion,
deems necessary or desirable.
6.2 TRANSFERABILITY
(a) NON-TRANSFERABLE AWARDS AND OPTIONS. No Incentive Award and no
right under the Plan, contingent or otherwise, will be (i) assignable,
saleable, or otherwise transferable by a Grantee except by will or by the
laws of descent and distribution, or (ii) subject to any encumbrance,
pledge, lien, assignment or charge of any nature.
No transfer by will or by the laws of descent and distribution shall
be effective to bind the Company unless the Committee has been furnished
with a copy of the deceased Grantee's
-22-
<PAGE>
enforceable will or such other evidence as the Committee deems necessary to
establish the validity of the transfer. Any attempted transfer in violation
of this Section 6.2(a) shall be void and ineffective.
(b) ABILITY TO EXERCISE RIGHTS. Subject to a beneficiary designation
pursuant to Section 7.5, only the Grantee (or his legal guardian in the
event of Grantee's Disability), or in the event of his death, his estate,
may exercise Stock Options, receive cash payments and deliveries of Shares,
and otherwise assume the rights of the Grantee.
6.3 RIGHTS AS A STOCKHOLDER
(a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in Section
3.1(b) for grants of Restricted Stock, a Grantee of an Incentive Award (or
a permitted transferee of such Grantee) shall have no rights as a
stockholder with respect to any Shares of Common Stock until the issuance
of a stock certificate for such Shares.
(b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of an
Incentive Award by a person or estate acquiring the right to exercise such
Incentive Award by reason of the death or Disability of a Grantee, the
Committee may require reasonable evidence as to the ownership of such
Incentive Award or the authority of such person and may require such
consents and releases of taxing authorities as the Committee may deem
advisable.
6.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares of Common Stock are
traded. The Committee may, in its discretion, defer the effectiveness of any
exercise of an Incentive Award in order to allow the issuance of Shares of
Common Stock to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Committee shall inform the Grantee in writing of its
decision to defer the effectiveness of the exercise of an Incentive Award.
During the period that the effectiveness of the exercise of an Incentive Award
has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
6.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to Section 6.7 (which
only applies in the event of a Change in Control), in the event of any
change in applicable laws or any change in circumstances which results in
or would result in any dilution of the rights granted under the Plan, or
which otherwise warrants equitable adjustment because it interferes with
the intended operation of the Plan, then, if the Committee should
determine, in its absolute discretion, that such change equitably requires
an adjustment in the number or kind of shares of stock or other securities
or property theretofore subject, or which may become subject, to issuance
or transfer under the Plan or in the terms and conditions of outstanding
-23-
<PAGE>
Incentive Awards, such adjustment shall be made in accordance with such
determination. Such adjustments may include changes with respect to (i) the
aggregate number of Shares that may be issued under the Plan, (ii) the
number of Shares subject to Incentive Awards, and (iii) the price per Share
for outstanding Incentive Awards. Any adjustment under this paragraph of
an outstanding Incentive Stock Option shall be made only to the extent not
constituting a "modification" within the meaning of Section 424(h)(3) of
the Code unless otherwise agreed to by the Grantee in writing. The
Committee shall give notice to each applicable Grantee of such adjustment
which shall be effective and binding.
(b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
outstanding Incentive Awards hereunder shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalization, reorganization or other changes in
the Company's capital structure or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stocks ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding whether of a similar character or otherwise.
(c) RECAPITALIZATION OF THE COMPANY. Subject to Section 6.7, if
while there are Incentive Awards outstanding, the Company shall effect any
subdivision or consolidation of Shares of Common Stock or other capital
readjustment, the payment of a stock dividend, stock split, combination of
Shares, recapitalization or other increase or reduction in the number of
Shares outstanding, without receiving compensation therefor in money,
services or property, then the number of Shares available under the Plan
and the number of Incentive Awards which may thereafter be exercised shall
(i) in the event of an increase in the number of Shares outstanding, be
proportionately increased and the Fair Market Value of the Incentive Awards
awarded shall be proportionately reduced; and (ii) in the event of a
reduction in the number of Shares outstanding, be proportionately reduced,
and the Fair Market Value of the Incentive Awards awarded shall be
proportionately increased. The Committee shall take such action and
whatever other action it deems appropriate, in its discretion, so that the
value of each outstanding Incentive Award to the Grantee shall not be
adversely affected by a corporate event described in this subsection (c).
(d) REORGANIZATION OF THE COMPANY. Subject to Section 6.7, if the
Company is reorganized, merged or consolidated, or is a party to a plan of
exchange with another corporation, pursuant to which reorganization,
merger, consolidation or exchange, stockholders of the Company receive any
Shares of Common Stock or other securities or property, or if the Company
should distribute securities of another corporation to its stockholders,
each Grantee shall be entitled to receive, in lieu of the number of
unexercised Incentive Awards previously awarded, the number of Stock
Options, Stock Appreciation Rights, Performance Shares or Units, Restricted
Stock shares, or Other Stock-Based Awards, with a corresponding adjustment
to the Fair Market Value of said Incentive Awards, to which he would have
been entitled if, immediately prior to such corporate action, such Grantee
had been the holder of record of a number of Shares equal to the number of
the outstanding Incentive Awards payable in Shares that were previously
awarded to him. For this purpose,
-24-
<PAGE>
Shares of Restricted Stock shall be treated the same as unrestricted
outstanding Shares of Common Stock. In this regard, the Committee shall
take whatever other action it deems appropriate to preserve the rights of
Grantees holding outstanding Incentive Awards.
(e) ISSUE OF COMMON STOCK BY THE COMPANY. Except as hereinabove
expressly provided in this Section 6.5 and subject to Section 6.7, the
issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon any conversion of shares or
obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or Fair Market Value of, any Incentive
Awards then outstanding under previously granted Incentive Awards;
provided, however, in such event, outstanding Shares of Restricted Stock
shall be treated the same as outstanding unrestricted Shares of Common
Stock.
(f) ACQUISITION OF THE COMPANY. Subject to Section 6.7, in the case
of any sale of assets, merger, consolidation or combination of the Company
with or into another corporation other than a transaction in which the
Company is the continuing or surviving corporation and which does not
result in the outstanding Shares being converted into or exchanged for
different securities, cash or other property, or any combination thereof
(an "Acquisition"), in the absolute discretion of the Committee, any
Grantee who holds an outstanding Incentive Award shall have the right
(subject to any limitation applicable to the Incentive Award) thereafter
and during the term of the Incentive Award, to receive upon exercise
thereof the Acquisition Consideration (as defined below) receivable upon
the Acquisition by a holder of the number of Shares which would have been
obtained upon exercise of the Incentive Award immediately prior to the
Acquisition. The term "Acquisition Consideration" shall mean the kind and
amount of shares of the surviving or new corporation, cash, securities,
evidence of indebtedness, other property or any combination thereof
receivable in respect of one Share upon consummation of an Acquisition.
The Committee, in its discretion, shall have the authority to take whatever
action it deems appropriate to effectuate the provisions of this subsection
(f).
(g) ASSUMPTION OF OUTSTANDING INCENTIVE AWARDS UNDER THE PLAN.
Notwith-standing any other provision of the Plan, the Committee, in its
absolute discretion, may authorize the assumption and continuation under
the Plan of outstanding and unexercised stock options or other types of
stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was
maintained by a corporation or other entity that was merged into,
consolidated with, or whose stock or assets were acquired by, the Company
as the surviving corporation. Any such action shall be upon such terms and
conditions as the Committee, in its discretion, may deem appropriate,
including provisions to preserve the holder's rights under the previously
granted and unexercised stock option or other stock-based incentive award,
such as, for example, retaining an existing exercise price under an
outstanding stock option. Any such assumption and continuation of any such
previously granted and unexercised incentive award shall be treated as an
outstanding Incentive Award under the Plan and shall thus count against the
number of Shares reserved for issuance pursuant to Section 1.4. With
respect to an incentive
-25-
<PAGE>
stock option (as described in Section 422 of the Code) subject to this
subsection (g), no adjustment to such option shall be made to the extent
constituting a "modification" within the meaning of Section 424(h)(3) of
the Code unless otherwise agreed to by the optionee in writing.
(h) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. In the event of a
dissolution or liquidation of the Company, a sale of all or substantially
all of the Company's assets, a merger or consolidation involving the
Company in which the Company is not the surviving corporation, or a merger
or consolidation involving the Company in which the Company is the
surviving corporation but the holders of Shares of Common Stock receive
securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the right and power
to:
(i) cancel, effective immediately prior to the occurrence of such
corporate event, each outstanding Incentive Award (whether or not then
exercisable), and, in full consideration of such cancellation, pay to
the Grantee to whom such Incentive Award was granted an amount in cash
equal to the excess of (A) the value, as determined by the Committee,
in its absolute discretion, of the property (including cash) received
by the holder of a Share of Common Stock as a result of such event
over (B) the exercise price of such Incentive Award, if any; or
(ii) provide for the exchange of each Incentive Award outstanding
immediately prior to such corporate event (whether or not then
exercisable) for an incentive award on some or all of the property for
which such Incentive Award is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee, in its absolute
discretion, in the exercise price of the incentive award, if any, or
the number of shares or amount of property (including cash) subject to
the incentive award or, if appropriate, provide for a cash payment to
the Grantee to whom such Incentive Award was granted in consideration
for the exchange of the Incentive Award.
The Committee, in its discretion, shall have the authority to take whatever
action it deems appropriate to effectuate the provisions of this subsection
6.5(h).
6.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly provided
in the Grantee's Incentive Agreement, if the Grantee's Employment is
terminated for any reason other than due to his death, Disability,
Retirement or for Cause, any non-vested portion of any Stock Option or
other applicable Incentive Award at the time of such termination shall
automatically expire and terminate and no further vesting shall occur. In
such event, except as otherwise expressly provided in his Incentive
Agreement, the Grantee shall be entitled to exercise his rights only with
respect to the portion of the Incentive Award that was vested as of the
termination date for a period that shall end on the earlier of (i) the
expiration date set forth in the Incentive Agreement with respect to the
vested portion of such Incentive Award or (ii) the date that occurs sixty
(60) calendar days after his termination date.
-26-
<PAGE>
(b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, in the event of the
termination of a Grantee's Employment for Cause, all vested and non-vested
Stock Options and other Incentive Awards granted to such Grantee shall
immediately expire, and shall not be exercisable, as of the commencement of
business on the date of such termination.
(c) RETIREMENT. Unless otherwise expressly provided in the Grantee's
Incentive Agreement, upon the Retirement of any Employee who is a Grantee:
(i) any non-vested portion of any outstanding Option or other
Incentive Award shall immediately terminate and no further vesting
shall occur; and
(ii) any vested Option or other Incentive Award shall expire on
the earlier of (A) the expiration date set forth in the Incentive
Agreement for such Incentive Award; or (B) the expiration of (1) six
months after the date of Retirement in the case of any Incentive Award
other than an Incentive Stock Option, or (2) three months after the
date of Retirement in the case of an Incentive Stock Option.
(d) DISABILITY OR DEATH. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon termination of Employment as a result
of the Grantee's Disability or death:
(i) any nonvested portion of any outstanding Option or other
applicable Incentive Award shall immediately terminate upon
termination of Employment, as applicable, and no further vesting shall
occur; and
(ii) any vested Incentive Award shall expire upon the earlier of
either (A) the expiration date set forth in the Incentive Agreement or
(B) the first anniversary of the Grantee's termination of Employment,
as applicable, as a result of his Disability or death.
In the case of any vested Incentive Stock Option held by an Employee
following termination of Employment, notwithstanding the definition of
"Disability" in Section 1.2, whether the Employee has incurred a
"Disability" for purposes of determining the length of the Option exercise
period following termination of Employment under this paragraph (d) shall
be determined by reference to Section 22(e)(3) of the Code to the extent
required by Section 422(c)(6) of the Code. The Committee shall determine
whether a Disability for purposes of this subsection (d) has occurred.
(e) CONTINUATION. Subject to the conditions and limitations of the
Plan and applicable law and regulation in the event that a Grantee ceases
to be an Employee, Outside Director or Consultant, as applicable, for
whatever reason, the Committee and Grantee may mutually agree with respect
to any outstanding Option or other Incentive Award then held by the Grantee
(i) for an acceleration or other adjustment in any vesting schedule
applicable to the Incentive Award, (ii) for a continuation of the exercise
period following termination for a longer period than is otherwise provided
under such Incentive Award, or (iii) to any
-27-
<PAGE>
other change in the terms and conditions of the Incentive Award. In the
event of any such change to an outstanding Inventive Award, a written
amendment to the Grantee's Incentive Agreement shall be required.
6.7 CHANGE IN CONTROL
Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below), the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
expressly provided otherwise in the Grantee's Incentive Agreement:
(a) all of the Stock Options and Stock Appreciation Rights then
outstanding shall become 100% vested and immediately and fully exercisable;
(b) all of the restrictions and conditions of any Restricted Stock and
any Other Stock-Based Awards then outstanding shall be deemed satisfied,
and the Restriction Period with respect thereto shall be deemed to have
expired; and
(c) all of the Performance Shares, Performance Units and any Other
Stock-Based Awards shall become fully vested, deemed earned in full, and
promptly paid within thirty (30) days to the affected Grantees without
regard to payment schedules and notwithstanding that the applicable
performance cycle, retention cycle or other restrictions and conditions
have not been completed or satisfied.
Notwithstanding any other provision of this Plan, unless expressly provided
otherwise in the Grantee's Incentive Agreement, the provisions of this Section
6.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Awards subject,
however, to the last paragraph of this Section 6.7.
For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company shall
mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of twenty percent (20%) or more of the total voting power
of all the Company's then outstanding securities entitled to vote generally
in the election of directors to the Board; provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change in Control: (i) any acquisition by the Company or its
Parent or Subsidiaries, (ii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or its Parent or
Subsidiaries, or (iii) any acquisition consummated with the prior approval
of the Board.
(b) During the period of two consecutive calendar years, individuals
who at the beginning of such period constitute the Board, and any new
director(s) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of
-28-
<PAGE>
at least two-thirds of the directors then still in office, who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; or
(c) The Company becomes a party to a merger, plan of reorganization,
consolidation or share exchange in which either (i) the Company will not be
the surviving corporation or (ii) the Company will be the surviving
corporation and any outstanding shares of the Company's common stock will
be converted into shares of any other company (other than a reincorporation
or the establishment of a holding company involving no change of ownership
of the Company) or other securities, cash or other property (excluding
payments made solely for fractional shares); or
(d) The shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other corporation,
and immediately following such merger, plan of reorganization,
consolidation or share exchange the holders of the voting securities of the
Company outstanding immediately prior thereto hold securities representing
fifty percent (50%) or less of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger, plan of reorganization, consolidation or share exchange;
provided, however, that notwithstanding the foregoing, no Change in Control
shall be deemed to have occurred if one-half (1/2) or more of the members
of the Board of the Company or such surviving entity immediately after such
merger, plan of reorganization, consolidation or share exchange is
comprised of persons who served as directors of the Company immediately
prior to such merger, plan of reorganization, consolidation or share
exchange or who are otherwise designees of the Company; or
(e) Upon approval by the Company's stockholders of a complete
liquidation and dissolution of the Company or the sale or other disposition
of all or substantially all of the assets of the Company other than to a
Parent or Subsidiary; or
(f) Any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change in Control.
Notwithstanding the occurrence of any of the foregoing events of this
Section 6.7 which would otherwise result in a Change in Control, the Board may
determine in its discretion, if it deems it to be in the best interest of the
Company, that an event or events otherwise constituting a Change in Control
shall not be considered a Change in Control. Such determination shall be
effective only if it is made by the Board prior to the occurrence of an event
that otherwise would be or probably would lead to a Change in Control; or after
such event if made by the Board a majority of which is composed of directors who
were members of the Board immediately prior to the event that otherwise would
be or probably would lead to a Change in Control.
6.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding
-29-
<PAGE>
Incentive Awards (or comparable rights under other plans or arrangements) as a
condition precedent to the grant of new Incentive Awards.
6.9 FINANCING
The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.
SECTION 7.
-----------
GENERAL
7.1 EFFECTIVE DATE AND GRANT PERIOD
This Plan is adopted by the Board effective as of October 1, 1997 (the
"EFFECTIVE DATE"), subject to the approval of the stockholders of the Company on
or before September 30, 1998. Incentive Awards may be granted under the Plan at
any time prior to receipt of such stockholder approval; provided, however, if
the requisite stockholder approval is not obtained, then any Incentive Awards
granted hereunder on or after October 1, 1997 shall automatically become null
and void and of no force or effect, but outstanding stock options granted before
that date under the Prior Plans (as defined in Section 1.1) shall remain
unaffected. Unless sooner terminated by the Board, no Incentive Award shall be
granted under the Plan after ten (10) years from the Effective Date.
7.2 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the
Company, the Board nor the Committee shall be required to give any security or
bond for the performance of any obligation that may be created by the Plan.
-30-
<PAGE>
7.3 WITHHOLDING TAXES
(a) TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Grantee to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan or an Incentive Award
hereunder.
(b) SHARE WITHHOLDING. With respect to tax withholding required upon
the exercise of Stock Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event arising as a result of
any Incentive Awards, Grantees may elect, subject to the approval of the
Committee in its discretion, to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair
Market Value on the date the tax is to be determined equal to the minimum
statutory total tax which could be imposed on the transaction. All such
elections shall be made in writing, signed by the Grantee, and shall be
subject to any restrictions or limitations that the Committee, in its
discretion, deems appropriate.
(c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a
Grantee pursuant to the exercise of an Incentive Stock Option, if such
Grantee disposes of any such Shares within (i) two years from the date of
grant of such Option or (ii) one year after the transfer of such shares to
the Grantee, the Company shall have the right to withhold from any salary,
wages or other compensation payable by the Company to the Grantee an amount
sufficient to satisfy federal, state and local tax withholding requirements
attributable to such disqualifying disposition.
(d) LOANS. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Grantee who is an Employee or
Consultant to permit the payment of taxes required by law.
7.4 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
7.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of his death before he receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Grantee, shall be in a form prescribed by the Committee, and will be effective
only when filed by the Grantee in writing with the Committee during the
Grantee's lifetime. In the absence of any such designation, benefits remaining
unpaid at the Grantee's death shall be paid to the Grantee's estate.
-31-
<PAGE>
7.6 DEFERRALS
The Committee may permit a Grantee to defer such Grantee's receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units, Performance Shares or Other Stock-Based Awards. If any
such deferral election is permitted, the Committee shall, in its discretion,
establish rules and procedures for such payment deferrals to the extent
consistent with the Code.
7.7 AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate or amend the
Plan at any time; provided, however, that the Board shall not, without the
approval of the stockholders of the Company within the time period required by
applicable law, (a) except as provided in Section 6.5, increase the maximum
number of Shares which may be issued under the Plan pursuant to Section 1.4, (b)
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan, (c) increase the maximum limits on Incentive Awards to
Covered Employees as set for compliance with the Performance-Based Exception,
(d) extend the term of the Plan, or (e) decrease the authority granted to the
Committee under the Plan in contravention of Rule 16b-3 under the Exchange Act.
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
or (b) the Code (or regulations promulgated thereunder), require stockholder
approval in order to maintain compliance with such listing requirements or to
maintain any favorable tax advantages or qualifications, then the Plan shall not
be amended in such respect without approval of the Company's stockholders.
7.8 REQUIREMENTS OF LAW
The granting of Incentive Awards and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required. Certificates evidencing shares of Common Stock delivered under
this Plan (to the extent that such shares are so evidenced) may be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules and regulations of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
the Common Stock is then listed or to which it is admitted for quotation, and
any applicable federal or state securities law. The Committee may cause a
legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.
-32-
<PAGE>
7.9 RULE 16B-3 SECURITIES LAW COMPLIANCE
With respect to Insiders, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the Exchange Act. Any
ambiguities or inconsistencies in the construction of an Incentive Award or the
Plan shall be interpreted to give effect to such intention. However, to the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void to the extent permitted by law and deemed
advisable by the Committee in its discretion.
7.1 COMPLIANCE WITH CODE SECTION 162(M)
Unless otherwise determined by the Committee with respect to any particular
Incentive Award, it is extended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that any applicable types of
Incentive Awards that are granted to Covered Employees shall qualify for the
Performance-Based Exception. If any provision of the Plan or an Incentive
Agreement would disqualify the Plan or would not otherwise permit the Plan or
Incentive Award to comply with the Performance-Based Exception as so intended,
such provision shall be construed or deemed amended to conform to the
requirements of the Performance-Based Exception to the extent permitted by
applicable law and deemed advisable by the Committee; provided that no such
construction or amendment shall have an adverse effect on the prior grant of an
Incentive Award or the economic value to a Grantee of any outstanding Incentive
Award.
7.1 SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
7.1 MISCELLANEOUS PROVISIONS
(a) No Employee, Consultant, Outside Director, or other person shall
have any claim or right to be granted an Incentive Award under the Plan.
Neither the Plan, nor any action taken hereunder, shall be construed as
giving any Employee, Consultant, or Outside Director any right to be
retained in the Employment or other service of the Company or any Parent or
Subsidiary.
(b) No Shares of Common Stock shall be issued hereunder unless counsel
for the Company is then reasonably satisfied that such issuance will be in
compliance with federal and state securities laws, if applicable.
(c) The expenses of the Plan shall be borne by the Company.
(d) By accepting any Incentive Award, each Grantee and each person
claiming by or through him shall be deemed to have indicated his acceptance
of the Plan.
-33-
<PAGE>
7.1 SEVERABILITY
In the event that any provision of this Plan shall be held illegal, invalid
or unenforceable for any reason, such provision shall be fully severable, but
shall not affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if the illegal, invalid, or unenforceable provision
was not included herein.
7.1 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used herein
shall include the feminine and neuter, and words used in the singular shall
include the plural. Section headings as used herein are inserted solely for
convenience and reference and constitute no part of the interpretation or
construction of the Plan.
7.1 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance with
the laws of the State of Delaware, except as superseded by applicable the laws
of the United States.
[SIGNATURE PAGE FOLLOWS]
-34-
<PAGE>
IN WITNESS WHEREOF, Applied Voice Recognition, Inc. has caused this amended
and restated Plan to be duly executed in its name and on its behalf by its duly
authorized officer, to be effective as of October 1, 1997.
ATTEST: APPLIED VOICE RECOGNITION, INC.
By:/s/ William T. Kennedy By:/s/ Timothy J. Connolly
---------------------------- -------------------------------------
William T. Kennedy Timothy J. Connolly
Chief Financial Officer Chief Executive Officer and
and Assistant Secretary Chairman of the Board
-35-
<PAGE>
EXHIBIT 5.1
January 13, 1998
Applied Voice Recognition, Inc.
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Re: APPLIED VOICE RECOGNITION, INC. REGISTRATION STATEMENT ON FORM S-8;
1997 INCENTIVE PLAN EFFECTIVE AS OF OCTOBER 1, 1997
Gentlemen:
We have acted as counsel to Applied Voice Recognition, Inc., a Utah
corporation (the "Company"), in connection with the preparation for filing with
the Securities and Exchange Commission of a Registration Statement on Form S-8
(the "Registration Statement") under the Securities Act of 1933, as amended.
The Registration Statement relates to an aggregate of 3,000,000 shares (the
"Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock"), issuable pursuant to the Company's 1997 Incentive Plan (the "Plan") as
an amendment and restatement effective as of October 1, 1997 of the Company's
1996 Stock Option Plan and the Company's 1996 Director Stock Option Plan.
We have examined the Plan and such corporate records, documents,
instruments and certificates of the Company, and have reviewed such questions of
law as we have deemed necessary, relevant or appropriate to enable us to render
the opinion expressed herein. In such examination, we have assumed without
independent investigation the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of all natural
persons, and the conformity of any documents submitted to us as copies to their
respective originals. As to certain questions of fact material to this opinion,
we have relied without independent investigation upon statements or certificates
of public officials and officers of the Company.
Based upon such examination and review, we are of the opinion that the
Shares have been duly and validly authorized and will, upon issuance and
delivery as contemplated by the Plan, be validly issued, fully paid and
nonassessable outstanding shares of Common Stock.
This Firm consents to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Porter & Hedges, L.L.P.
PORTER & HEDGES, L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We consent to the incorporation by reference in this Registration
Statement of Applied Voice Recognition, Inc. on Form S-8 of our report dated
March 12, 1997 appearing in its Annual Report on Form 10-KSB for the two years
ended December 31, 1996.
/s/ Malone & Bailey, PLLC
MALONE & BAILEY, PLLC
Houston, Texas
January 13, 1998
