Table of Contents

 

	Page
ARTICLE I PURPOSE	1
ARTICLE II DEFINITIONS AND CONSTRUCTION	1
Section 2.1                       Definitions	1
Act	1
Award	1
Award Agreement	1
Beneficiary	1
Board	2
Cause	2
Chairman	2
Change of Control	2
Code	3
Committee	3
Common Stock	3
Company	3
Date of Grant	3
Director	4
Disability	4
Effective Date	4
Employee	4
Fair Market Value	4
Grantee	4
Grantor	4
Holder	4
Incentive Stock Option or ISO	4
Non-Qualified Stock Option	4
Nonreporting Person	4
Option or Stock Option	4
Option Period	4
Option Price	5
Other Award	5
Performance Goals	5
Phantom Stock Unit	5
Phantom Stock Unit Award	5
Plan	5
Reporting Person	5
Restricted Period	5
Restricted Stock	5
Restricted Stock Award	5
Retirement	6

 

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Rule 16b-3	6
SAR Base Amount	6
Stock Appreciation Right or SAR	6
Stock Appreciation Right Award	6
Stock Option Award	6
Subsidiary	6
Ten Percent Shareholder	6
Section 2.2                       Construction	6
ARTICLE III STOCK AVAILABLE FOR AWARDS	7
Section 3.1                       Common Stock	7
Section 3.2                       Number of Shares Deliverable	7
Section 3.3                       Reusable Shares	7
ARTICLE IV AWARDS AND AWARD AGREEMENTS	7
Section 4.1                       General	7
Section 4.2                       Eligibility	8
Section 4.3                       Terms and Conditions; Award Agreements	8
4.3.1 Terms and Conditions	8
4.3.2 Award Agreements	9
ARTICLE V OPTIONS	9
Section 5.1                       Award of Options	9
5.1.1 Grants	9
5.1.2 Types of Options	9
5.1.3 Maximum Award To An Individual	9
5.1.4 Internal Revenue Code Limits	9
Section 5.2                       Option Price	9
Section 5.3                       Option Periods	10
Section 5.4                       Exercisability	10
5.4.3 Method of Exercise	10
Section 5.5                       Time and Method of Payment for Options	10
5.5.1 Form of Payment	10
5.5.2 Time of Payment	10
5.5.3 Methods for Tendering Shares	10
Section 5.6                       Delivery of Shares Pursuant to Exercise of Option	11
ARTICLE VI STOCK APPRECIATION RIGHTS	11
Section 6.1                       Award of SARs	11
6.1.1 Grants	11
6.1.2 Maximum Award To An Individual	11
6.1.3 SAR Base Amount	11
Section 6.2                       SAR Periods	11
Section 6.3                       Exercisability	11

 

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Section 6.4                       Method of Exercise	12
Section 6.5                       Payment Amount, Time and Method of Payment With Respect to SARs	12
Section 6.6                       Nature of SARs	12
ARTICLE VII RESTRICTED STOCK AWARDS	13
Section 7.1                       Grants	13
Section 7.2                       Maximum Award to An Individual	13
Section 7.3                       Restricted Period	13
Section 7.4                       Restrictions and Forfeiture	13
Section 7.5                       Issuance of Stock and Stock Certificate(s)	13
7.5.1 Issuance	13
7.5.2 Custody and Registration	14
Section 7.6                       Shareholder Rights	14
Section 7.7                       Delivery of Shares	14
ARTICLE VIII PHANTOM STOCK UNIT AWARDS	14
Section 8.1                       Grants	14
Section 8.2                       Maximum Award to An Individual	15
Section 8.3                       Vesting of Phantom Stock Unit Awards	15
Section 8.4                       Cash Value of Phantom Stock Unit Payments	15
Section 8.5                       Time of Payment	15
Section 8.6                       Nature of Phantom Stock Units	15
ARTICLE IX OTHER AWARDS	15
Section 9.1                       Grants	15
Section 9.2                       Maximum Award to An Individual	16
9.2.1 Awards Denominated or Payable with Reference to Common Stock	16
9.2.2 Awards Denominated or Payable with Reference to Cash	16
Section 9.3                       Description of Other Awards	16
ARTICLE X TERMINATION OF EMPLOYMENT OR CESSATION OF BOARD SERVICE	16
Section 10.1                 Stock Options and SARs	16
Section 10.2                 Restricted Stock and Phantom Stock Units	17
Section 10.3                 Date of Termination of Employment	17
Section 10.4                 Specified Employee Restriction	17
Section 10.5                 Immediate Forfeiture; Acceleration	17
Section 10.6                 Terms of Award Agreement	17
ARTICLE XI CERTAIN TERMS APPLICABLE TO ALL AWARDS	18
Section 11.1                 Withholding Taxes	18
Section 11.2                 Adjustments to Reflect Capital Changes	18

 

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11.2.1 Recapitalization, etc	18
11.2.2 Sale or Reorganization	18
11.2.3 Options to Purchase Stock of Acquired Companies	19
Section 11.3                 Failure to Comply with Terms and Conditions	19
Section 11.4                 Regulatory Approvals and Listing	19
Section 11.5                 Restrictions Upon Resale of Stock	20
Section 11.6                 Reporting Person Limitation	20
ARTICLE XII ADMINISTRATION OF THE PLAN	20
Section 12.1                 Committee	20
Section 12.2                 Committee Actions	20
Section 12.3                 Designation of Beneficiary	20
Section 12.4                 No Right to an Award or to Continued Employment	21
Section 12.5                 Discretion of the Grantor	21
Section 12.6                 Indemnification and Exculpation	21
12.6.1 Indemnification	21
12.6.2 Exculpation	22
Section 12.7                 Unfunded Plan	22
Section 12.8                 Inalienability of Rights and Interests	22
Section 12.9                 Awards Not Includable for Benefit Purposes	23
Section 12.10           No Issuance of Fractional Shares	23
Section 12.11           Modification for International Grantees	23
Section 12.12           Leaves of Absence	23
Section 12.13           Communications	24
12.13.1 Communications by the Grantor	24
12.13.2 Communications by the Directors, Employees, and Others	24
Section 12.14           Parties in Interest	24
Section 12.15           Severability	24
Section 12.16           Compliance with Laws	24
Section 12.17           No Strict Construction	25
Section 12.18           Modification	25
Section 12.19           Governing Law	25
ARTICLE XIII CHANGE OF CONTROL	25
Section 13.1                 Options and SARS	25
Section 13.2                 Restricted Stock Awards and Phantom Stock Unit Awards	25
ARTICLE XIV AMENDMENT AND TERMINATION	26
Section 14.1                 Amendment; No Repricing	26
Section 14.2                 Suspension or Termination	26
ARTICLE XV SECTION 409A	26

 

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ARTICLE XVI EFFECTIVE DATE AND TERM OF THE PLAN

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PENN NATIONAL GAMING, INC.

2008 LONG TERM INCENTIVE COMPENSATION PLAN

 

ARTICLE I
PURPOSE

 

The 2008 Long Term Incentive Compensation Plan is intended to advance the interests of Penn National Gaming, Inc., a Pennsylvania corporation, and its shareholders by providing a means by which the Company and its subsidiaries and affiliates shall be able to motivate directors and selected key employees (including officers) to direct their efforts to those activities that will contribute materially to the Company’s success.  The Plan is also intended to serve the best interests of the shareholders by linking remunerative benefits paid to employees who have substantial responsibility for the successful operation, administration and management of the Company and/or its subsidiaries and affiliates with the enhancement of shareholder value while such key employees increase their proprietary interest in the Company.  Finally, the Plan is intended to enable the Company to attract and retain in its service highly qualified persons for the successful conduct of its business.

 

ARTICLE II
DEFINITIONS AND CONSTRUCTION

 

Section 2.1                                    Definitions

 

The following words and phrases when used in the Plan with an initial capital letter, unless their context clearly indicates to the contrary, shall have the respective meanings set forth below in this Section 2.1:

 

Act.   The Securities Exchange Act of 1934, as now in effect or as hereafter amended from time to time. References to any Section or Subsection of the Act are to such Section or Subsection as the same may from time to time be amended or renumbered and/or any comparable or succeeding provisions of any legislation that amends, supplements or replaces such Section or Subsection.

 

Award.   A grant of one of the following under the Plan: “Stock Option Award”; “Stock Appreciation Right Award”; “Restricted Stock Award”; “Phantom Stock Unit Award”; and “Other Award”; all as further defined herein.

 

Award Agreement.   The written instrument delivered by the Company to a Grantee evidencing an Award, and setting forth such terms and conditions of the Award as may be deemed appropriate by the Grantor. The Award Agreement shall be in a form approved by the Grantor, and once executed, shall be amended from time to time to include such additional or amended terms and conditions as the Grantor may specify after the execution in the exercise of his or its, as the case may be, powers under the Plan.

 

Beneficiary.   Any individual, estate or trust who or which by designation of the a Holder pursuant to Section 12.3 or operation of law succeeds to the rights and obligations of the Holder under the Plan and one or more Award Agreements.

 

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Board.   The Board of Directors of the Company, as it may be constituted from time to time.

 

Cause.   Fraud, embezzlement, theft or dishonesty against the Company, conviction of a felony, willful misconduct, being found unsuitable by a regulatory authority having jurisdiction over the Company, willful and wrongful disclosure of confidential information, engagement in competition with the Company and any other conduct defined as cause in any agreement between a Grantee and the Company or any Subsidiary, in each case during employment with the Company and all Subsidiaries or service as a Director, as the case may be.

 

Chairman.   The Chairman of the Board of the Company or his designee(s).

 

Change of Control .

 

(a)                                   With respect to Awards that are not “deferred compensation” under Section 409A of the Code, any of the following events shall constitute a Change of Control for purposes of this Plan:

 

(i)                                      the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of fifty percent (50%) or more of either (A) the then outstanding shares of the Company (the “Outstanding Company Shares”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Subsection (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (4) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of Subsection (iii) below; or

 

(ii)                                   approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or

 

(iii)                                consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (each, a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Shares and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation or other entity resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through

 

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one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Company Shares and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan or related trust of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership of the Company existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation (or other governing board of a non-corporate entity) resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or

 

(iv)                               individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds ( 2 / 3 ) of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

 

(b)                                  With respect to Awards that are “deferred compensation” under Section 409A of the Code, each of the foregoing events shall only be deemed to be a Change of Control for purposes of the Plan to the extent such event qualifies as a “change in control event” for purposes of Section 409A of the Code. The Grantor shall be entitled to amend or interpret the terms of any Award to the extent necessary to avoid adverse Federal income tax consequences to a Grantee under Section 409A of the Code.

 

Code.   The Internal Revenue Code of 1986, amended from time to time, and any successor thereto, the Treasury Regulations thereunder and other relevant interpretive guidance issued by the Internal Revenue Service or the Treasury Department. Reference to any specific section of the Code shall be deemed to include such regulations and guidance, as well as any successor provision of the Code.

 

Committee.   The Compensation Committee of the Board.

 

Common Stock.   Common stock of the Company, par value $.01.

 

Company.   Penn National Gaming, Inc., a Pennsylvania corporation, and its successors and assigns.

 

Date of Grant.   The date as of which the Grantor grants an Award.

 

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Option Price.   The per share price at which shares of Common Stock may be purchased upon exercise of a particular Option.

 

Other Award.   Awards granted pursuant to Article IX.

 

Performance Goals.   One or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or related company, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to a previous year’s results or to a designated comparison group, in each case as specified by the Grantor in the Award: free cash flow, EBITDA, sales, revenue, revenue growth, income, operating income, net income, net earnings, earnings per share, return on total capital, return on equity, cash flow, operating profit and margin rate, gross margins, debt leverage (debt to capital), market capitalization, total enterprise value (market capitalization plus debt), total shareholder return and stock price. With respect to any Award that is intended to be “performance-based compensation” under Section 162 of the Code, (i) the outcome of the Performance Goals must be substantially uncertain at the time the Grantor establishes the Performance Goals, and (ii) to the extent consistent with Section 162 of the Code, the Grantor shall appropriately adjust any Performance Goal to take into account the impact of any of the following events on the Company that occurs during the period to which such Performance Goal is applied: asset write-downs; litigation, claims, judgments, settlements; currency fluctuations and other non-cash charges; changes in applicable law, rule or regulation or accounting principles; accruals for reorganization and restructuring programs; costs incurred in the pursuit of acquisition opportunities; strikes, delays or similar disruptions by organized labor, guilds or horsemen’s organizations; national macroeconomic conditions; terrorism and other international hostilities; significant regional weather events; and any other extraordinary, unusual or non-recurring as described in Accounting Principles Board Opinion No. 30 and/or management’s discussion and analysis of financial condition and results of operations appearing in the Company’s securities filings. Any Award may be granted subject to the attainment of such Performance Goals as determined by the Grantor.

 

Phantom Stock Unit.   A right granted under Article VIII.

 

Phantom Stock Unit Award.   An Award of Phantom Stock Units under Article VIII.

 

Plan.   Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as set forth herein and as amended from time to time.

 

Reporting Person.   A Grantee who is subject to Section 16 of the Act.

 

Restricted Period.   The period of time beginning with the Date of Grant of a Restricted Stock Award or Phantom Stock Unit Award and ending when the Restricted Stock or Phantom Stock Unit is forfeited or when all conditions for vesting are satisfied.

 

Restricted Stock.   Shares of Common Stock issued pursuant to a Restricted Stock Award.

 

Restricted Stock Award.   An Award of Restricted Stock under Article VII.

 

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Retirement.   Termination of service by the Grantee on or after the normal retirement date under a plan maintained by the Company or a Subsidiary in which the Grantee is a participant or under an applicable Company policy or procedure or as otherwise agreed to by the Company.

 

Rule 16b-3.   Rule 16b-3 of the General Rules and Regulations under the Act, or any law, rule, regulation or other provision that may hereafter replace such Rule.

 

SAR Base Amount.   An amount set forth in the Award Agreement for a SAR.

 

Stock Appreciation Right or SAR.   A right granted under Article VI.

 

Stock Appreciation Right Award.   An Award of Stock Appreciation Rights under Article VI.

 

Stock Option Award.   An Award of Options under Article V.

 

Subsidiary.   Any corporation, partnership, joint venture or other entity in which the Committee has determined that the Company had made, directly or indirectly through one or more intermediaries, a substantial investment or commitment, including, without limit, through the purchase of equity or debt or the entering into of a management agreement or joint operating agreement. In the case of Incentive Stock Options, Subsidiary shall mean any entity that qualifies as a “subsidiary corporation” of the Company under Section 424(f) of the Code.

 

Ten Percent Shareholder.   A person owning shares possessing more than 10% of the total combined voting power of all classes of shares of the Company, any subsidiary corporation (within the meaning of Section 424(f) of the Code) or parent corporation (within the meaning of Section 424(e) of the Code).

 

Section 2.2                                    Construction

 

Whenever any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. Headings of Sections and Subsections of the Plan are inserted for convenience of reference, are not a part of the Plan, and are not to be considered in the construction hereof. The words “hereof”, “herein”, “hereunder” and other similar compounds of the word “here” shall mean and refer to the entire Plan, and not to any particular provision or Section. The words “includes”, “including” and other similar compounds of the word “include” shall mean and refer to including without limitation. All references herein to specific Articles, Sections or Subsections shall mean Articles, Sections or Subsections of this document unless otherwise qualified.

 

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ARTICLE III
STOCK AVAILABLE FOR AWARDS

 

Section 3.1                                    Common Stock

 

Shares of Common Stock may be delivered under the Plan, such shares to be made available from authorized but unissued shares or from shares reacquired by the Company, including shares purchased in the open market.

 

Section 3.2                                    Number of Shares Deliverable

 

Subject to adjustments as provided in Section 11.2, no more than 6,900,000 shares of Common Stock may be issued under the Plan. Any shares of Common Stock issued under Options or Stock Appreciation Rights shall be counted against this limit as one (1) share of Common Stock. Any shares of Common Stock issued under Awards other than Options or Stock Appreciation Rights shall be counted against this limit as two and sixteen one hundredths (2.16) shares of Common Stock. Any Awards that are not settled in shares of Common Stock shall not count against this limit.

 

Section 3.3                                    Reusable Shares

 

Shares of Common Stock subject to an Award that are forfeited to the Company shall again be available for issuance under the Plan.

 

ARTICLE IV
AWARDS AND AWARD AGREEMENTS

 

Section 4.1                                    General

 

4.1.1                         Subject to the provisions of the Plan, the Committee may at any time and from time to time (i) determine and designate those Reporting Persons who are Employees to whom Awards are to be granted; (ii) determine the time or times when Awards to Reporting Persons who are Employees shall be granted; (iii) determine the form or forms of Awards to be granted to any Reporting Person who is an Employee; (iv) determine the number of shares of Common Stock or dollar amounts subject to or denominated by each Award to be granted to any Reporting Person who is an Employee; (v) determine the terms and conditions of each Award to a Reporting Person who is an Employee; (vi) determine the maximum aggregate number of shares or, for purposes of Other Awards payable in cash, the aggregate amount of cash subject to Awards to be granted to Nonreporting Persons, as a group, who are Employees; and (vii) determine the general form or forms of Awards to be granted to Nonreporting Persons who are Employees.

 

4.1.2                         The Committee or the Chairman, subject to the provisions of the Plan and authorization by the Committee, may, at any time and from time to time, (i) determine and designate at any time and from time to time those Nonreporting Persons who are Employees to whom Awards are to be granted; (ii) determine the time or times when Awards to Nonreporting Persons who are Employees shall be granted; (iii) determine the form or forms of Award to be granted to any Nonreporting Person who is an Employee, from among the form or forms

 

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approved by the Committee; (iv) determine the number of shares of Common Stock or dollar amounts subject to or denominated by each Award to be granted to any Nonreporting Person who is an Employee; and (v) determine the terms and conditions of each Award to a Nonreporting Person who is an Employee.

 

4.1.3                         Subject to the provisions of the Plan, the Board or Committee may, at any time and from time to time, (i) determine and designate at any time and from time to time those Directors to whom Awards, other than Incentive Stock Options, are to be granted; (ii) determine the time or times when Awards to Directors shall be granted; (iii) determine the form or forms of Awards to be granted to any Director; (iv) determine the number of shares of Common Stock or dollar amounts subject to or denominated by each Award to be granted to a Director; and (v) determine the terms and condition of each Award to a Director.

 

4.1.4                         Awards may be granted singly, in combination or in tandem and may be made in combination or in tandem with or in replacement of, or as alternatives to awards or grants under any other employee plan maintained by the Company or its Subsidiaries. No Awards shall be granted under the Plan after the tenth anniversary of the Effective Date.

 

Section 4.2                                    Eligibility

 

Any Director or Employee, including any officer who is an Employee and any director who is an Employee, and, except with respect to Stock Options and SARs, an individual who has accepted the Company’s or a Subsidiary’s offer of employment but who has not commenced performing services for the Company or a Subsidiary, shall be eligible to receive Awards under the Plan.

 

Section 4.3                                    Terms and Conditions; Award Agreements

 

4.3.1   Terms and Conditions.   Each Award granted pursuant to the Plan shall be subject to all of the terms, conditions and restrictions provided in the Plan and such other terms, conditions and restrictions, if any, as may be specified by the Grantor with respect to the Award at the time of the making of the Award or as may be amended or specified thereafter by the Grantor in the exercise of its or his, as the case may be, powers under the Plan. Without limiting the foregoing, it is understood that the Grantor may, at any time and from time to time after the granting of an Award hereunder, specify such amended or additional terms, conditions and restrictions with respect to such Award as may be deemed necessary or appropriate to ensure compliance with any and all applicable laws, including, but not limited to, compliance with Federal and state securities laws, compliance with Federal and state gaming or racing laws, compliance with Federal and state tax laws that would otherwise result in adverse and unintended tax consequences for a Grantee, the Company or any Subsidiary and methods of withholding or providing for the payment of required taxes. The terms, conditions and restrictions with respect to any Award, Grantee or Award Agreement need not be identical with the terms, conditions and restrictions with respect to any other Award, Grantee or Award Agreement.

 

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4.3.2    Award Agreements.   Except as otherwise provided in the Plan, each Award granted pursuant to the Plan shall be evidenced by an Award Agreement and shall comply with, and be subject to, the provisions of the Plan.

 

ARTICLE V
OPTIONS

 

Section 5.1                                    Award of Options

 

5.1.1   Grants.   From time to time, the Committee may grant Stock Option Awards to such Reporting Persons who are Employees as the Committee may select in its sole discretion. From time to time, the Committee or the Chairman may grant Stock Option Awards in such number as the Committee or the Chairman may determine to such Nonreporting Persons who are Employees as the Committee or the Chairman may select in its or his, as the case may be, sole discretion; provided, however, each and all such grants shall be subject to any maximum aggregate amount of Awards in general and Options in particular (if any) established by the Committee for grants under the Plan for Nonreporting Persons who are Employees as a group. From time to time, the Board or Committee may grant Options to such Directors as the Board or Committee may select in its sole discretion. The Grantor shall determine the number of shares of Common Stock to which each Option relates. A Stock Option entitles the holder thereof to purchase full shares of Common Stock at a stated price for a specified period of time.

 

5.1.2   Types of Options

 

5.1.2.1   Employees.   Options granted to Employees pursuant to the Plan may be either in the form of Incentive Stock Options or in the form of Non-Qualified Stock Options.

 

5.1.2.2   Directors.   Options granted to Directors pursuant to the Plan will be in the form of Non-Qualified Stock Options.

 

5.1.3   Maximum Award To An Individual.   No individual shall be granted in any calendar year Options to purchase more than 1,000,000 shares of Common Stock.

 

5.1.4   Internal Revenue Code Limits.   Options designated as Incentive Stock Options shall not be eligible for treatment under the Code as “incentive stock options” (and will be deemed to be Non-Qualified Stock Options) to the extent that either (1) the aggregate Fair Market Value of Shares (determined as of the time of grant) with respect to which such Options are exercisable for the first time by the Grantee during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking Options into account in the order in which they were granted or (2) such Options otherwise remain exercisable but are not exercised within three (3) months of termination of employment (or such other period of time provided in Section 422 of the Code).

 

Section 5.2                                    Option Price

 

The Option Price of Common Stock covered by each Option shall be determined by the Grantor, but shall not be less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant, provided , however , in the case of an Incentive Stock Option granted to Ten

 

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Percent Shareholder, the Option Price shall be no less than 110% of the Fair Market Value of the of a share of Common Stock on the Date of Grant.

 

Section 5.3                                    Option Periods

 

The Grantor shall, from time to time, determine the term of each Option which shall be reflected in the Award Agreement. No Option may be exercised after the expiration of its term. Subject to earlier termination as provided in the Plan, the term shall not exceed seven (7) years from the Date of Grant; provided , that the term of an Incentive Stock Option granted to a Ten Percent Shareholder shall not exceed 5 years.

 

Section 5.4                                    Exercisability

 

5.4.1                         Subject to Article X and XIII, each Option shall be exercisable at any time or times during the term of the Option and in such amount or amounts and subject to such conditions, including, without limitation, attainment of one or more Performance Goals, as the Grantor may prescribe in the applicable Award Agreement.

 

5.4.2                         Except as provided in Article X, or as otherwise provided in an Award Agreement, an Option may be exercised only during the Grantee’s employment with the Company or any of its Subsidiaries or service as a Director. No Option may be exercised for a fractional share.

 

5.4.3   Method of Exercise.   A Holder may exercise an Option, in whole or from time to time in part, by giving notice of exercise to the Company, in a form and manner acceptable to the Company.

 

Section 5.5                                    Time and Method of Payment for Options

 

5.5.1   Form of Payment.   The Holder shall pay the Option Price in cash (including a personal check) or, with the Grantor’s permission and according to such rules as it may prescribe, by delivering shares of Common Stock already owned by the Holder having a Fair Market Value on the date of exercise equal to the Option Price, or a combination of cash and such shares. The Grantor may also permit payment in accordance with a cashless exercise program under which, if so instructed by the Holder, shar