AMENDED AND RESTATED 2002 LONG-TERM INCENTIVE AWARD PLAN OF WALTER INDUSTRIES, INC

 

 

(a) (i) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or any person which as of the date of adoption of this Plan by the Board, has “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than 30% of the total combined voting power of the Company’s outstanding securities) directly or indirectly acquires beneficial ownership of securities possessing more than 40% of the total combined voting power of the Company’s outstanding securities, or

 

(ii) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) who is not, as of the date of adoption of this Plan by the Board, a beneficial owner of 1% or more of the total combined voting power of the Company’s outstanding securities, directly or indirectly acquires beneficial ownership of securities possessing more than 25% of the total combined voting power of the Company’s outstanding securities and is, upon the consummation of such acquisition, the beneficial owner of the largest percentage of the total combined voting power of the Company’s outstanding securities; or

 

(b) There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or

 

(c) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation (or other entity), other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however , that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 25% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control; or

 

(d) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease or other disposition by the Company of all or substantially all of the Company’s assets.

 

1.7. “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

1.8. “ Committee ” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 10.1.

 

1.9. “ Common Stock ” shall mean the common stock of the Company, par value $.01 per share.

 

1.10. “ Company ” shall mean Walter Industries, Inc., a Delaware corporation.

 

1.11. “ Consultant ” shall mean any consultant or adviser if:

 

(a) The consultant or adviser renders bona fide services to the Company;

 

(b) The services rendered by the consultant or adviser are not in connection with the offer or sale of

 

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securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and

 

(c) The consultant or adviser is a natural person who has contracted directly with the Company to render such services.

 

1.12. “ Deferred Stock ” shall mean an Award under Article VIII of the Plan of the right to receive Common Stock at the end of specified period and under specified conditions.

 

1.13. “ Director ” shall mean a member of the Board.

 

1.14. “ Dividend Equivalent ” shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Article VIII of the Plan.

 

1.15. “ DRO ” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

 

1.16. “ Employee ” shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary.

 

1.17. “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

1.18. “ Fair Market Value ” of a share of Common Stock as of a given date shall be (a) if the Common Stock is traded on the New York Stock Exchange or another securities exchange, the mean of the high and low sales prices (rounded to the nearest $0.01) of a share of Common Stock as reported by the New York Stock Exchange or such other exchange on such date, or if shares were not traded on such date, then on the next preceding date on which a trade occurred; or (b) if the Common Stock is not traded on the New York Stock Exchange or another securities exchange, the fair market value of a share of Common Stock as established by the Administrator acting in good faith based on a reasonable valuation method that is consistent with the requirements of Section 409A of the Code and all other applicable rules and regulations.

 

1.19. “ Holder ” shall mean a person who has been granted or awarded an Award.

 

1.20. “ Incentive Stock Option ” shall mean an option which conforms to the applicable provisions of Section 422 of the Code and which is designated as an Incentive Stock Option by the Administrator.

 

1.21. “ Independent Director ” shall mean a member of the Board who is not an employee of the Company.

 

1.22. “ Non-Qualified Stock Option ” shall mean an Option which is not designated as an Incentive Stock Option by the Administrator.

 

1.23. “ Option ” shall mean a stock option granted under Article IV of the Plan. An Option granted under the Plan shall, as determined by the Administrator, be either a Non-Qualified Stock Option or an Incentive Stock Option; provided, however , that Options granted to Independent Directors and Consultants shall be Non-Qualified Stock Options.

 

1.24. “ Performance Award ” shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VIII of the Plan.

 

1.25. “ Performance Criteria ” shall mean any objective business criterion with respect to the Company,

 

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any Subsidiary or any division or operating unit, as determined by the Administrator. Such performance criteria may include, without limitation, one or more of: (a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return on invested capital or assets, (h) cost reductions or savings, (i) funds from operations, (j) appreciation in the fair market value of Common Stock, (k) earnings before any one or more of the following items: interest, taxes, depreciation or amortization and (l) consummations of acquisitions or sales of certain of the Company’s assets, subsidiaries or other businesses. With respect to Awards intended to qualify as “performance-based compensation” under Section 162(m)(4)(C) of the Code, “Performance Criteria” shall be limited to the criteria set forth in Section 1.25(a)-(l) above, and such criteria shall be applied only to the extent permissible with respect to such qualification under Section 162(m)(4)(C).

 

1.26. “ Plan ” shall mean the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc.

 

1.27. “ Restricted Stock ” shall mean Common Stock awarded under Article VII of the Plan.

 

1.28. “ Rule 16b-3 ” shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.

 

1.29. “ Section 162(m) Participant ” shall mean any Employee whose compensation for a given fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code.

 

1.30. “ Securities Act ” shall mean the Securities Act of 1933, as amended.

 

1.31. “ Stock Appreciation Right ” shall mean a stock appreciation right granted under Article IX of the Plan.

 

1.32. “ Stock Payment ” shall mean (a) a payment in the form of shares of Common Stock, or (b) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses and commissions, that would otherwise become payable to an Employee or Consultant in cash, awarded under Article VIII of the Plan.

 

1.33. “ Subsidiary ” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

1.34. “ Substitute Award ” shall mean an Option granted under this Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; provided, however , that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option.

 

1.35. “ Termination of Consultancy ” shall mean the time when the engagement of a Holder as a Consultant to the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous commencement of employment with the Company or any Subsidiary. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of the Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a Consultant’s service at any time for any reason whatsoever, with or without cause, except to the extent

 

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expressly provided otherwise in writing.

 

1.36. “ Termination of Directorship ” shall mean the time when a Holder who is an Independent Director ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors.

 

1.37. “ Termination of Employment ” shall mean the time when the employee-employer relationship between a Holder and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of a Holder by the Company or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment; provided, however , that, with respect to Incentive Stock Options, unless otherwise determined by the Administrator in its discretion, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section.

 

ARTICLE II.

SHARES SUBJECT TO PLAN

 

2.1. Shares Subject to Plan .

 

(a) The shares of stock subject to Awards shall be Common Stock. Subject to adjustment as provided in Section 11.3, the aggregate number of such shares which may be issued upon exercise of such Options or rights or upon any such Awards under the Plan shall not exceed 3,000,000. The shares of Common Stock issuable upon exercise of such Options or rights or upon any such awards may be either previously authorized but unissued shares or treasury shares.

 

(b) The maximum number of shares which may be subject to Awards granted under the Plan to any individual in any calendar year shall not exceed the Award Limit. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled continue to be counted against the Award Limit.

 

2.2. Add-back of Options and Other Rights; Certain Acquired Entities.

 

(a) If any Option, or other right to acquire shares of Common Stock under any other Award under the Plan, expires or is canceled without having been fully exercised, or is exercised in whole or in part for cash as permitted by the Plan, the number of shares subject to such Option or other right but as to which such Option or other right was not exercised prior to its expiration, cancellation or exercise may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to Section 11.3 and become exercisable with respect to shares of stock of another corporation shall be considered cancelled and may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Shares of Common Stock which are delivered by the Holder or withheld by the Company upon the exercise of any Award under the Plan, in

 

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payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. If any shares of Restricted Stock are surrendered by the Holder or repurchased by the Company pursuant to Section 7.4 or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of Common Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

(b) Subject to Sections 3.2(d) and 3.3, any shares of Common Stock that are issued by the Company, and any Awards that are granted as a result of the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity shall not be counted against the limitations set forth in Section 2.1.

 

ARTICLE III.

GRANTING OF AWARDS

 

3.1. Award Agreement . Each Award shall be evidenced by an Award Agreement. Award Agreements evidencing Awards intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.

 

3.2. Provisions Applicable to Section 162(m) Participants .

 

(a) The Committee, in its discretion, may determine whether an Award is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code.

 

(b) Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m) Participant, including Restricted Stock the restrictions with respect to which lapse upon the attainment of performance goals which are related to one or more of the Performance Criteria, and any performance or incentive award described in Article VIII that vests or becomes exercisable or payable upon the attainment of performance goals which are related to one or more of the Performance Criteria.

 

(c) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles VII and VIII which may be granted to one or more Section 162(m) Participants, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants,(ii) select the Performance Criteria applicable to the fiscal year or other designated fiscal period or period of service, (iii) establish the various performance targets, in terms of an objective formula or standard, and amounts of such Awards, as applicable, which may be earned for such fiscal year or other designated fiscal period or period of service, and (iv) specify the relationship between Performance Criteria and the performance targets and the amounts of such Awards, as applicable, to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period or period of service. Following the completion of each fiscal year or other designated fiscal period or period of service, the Committee shall certify in writing whether the applicable performance targets have been achieved for such fiscal year or other designated fiscal period or period of service. In determining the amount earned by a Section 162(m) Participant, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the fiscal year or other designated fiscal period or period of service.

 

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(d) Furthermore, notwithstanding any other provision of the Plan, any Award which is granted to a Section 162(m) Participant and is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

 

3.3. Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

 

3.4. Consideration . In consideration of the granting of an Award under the Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of (or to consult for or to serve as an Independent Director of, as applicable) the Company or any Subsidiary for a period of at least one year (or such shorter period as may be fixed in the Award Agreement or by action of the Administrator following grant of the Award) after the Award is granted (or, in the case of an Independent Director, until the next annual meeting of stockholders of the Company).

 

3.5. At-Will Employment . Nothing in the Plan or in any Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of, or as a Consultant for, the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Holder and the Company and any Subsidiary.

 

3.6   Non-Qualified Deferred Compensation . In the event that any Award granted under the Plan is determined to constitute nonqualified deferred compensation within the meaning of Section 409A of the Code (a “NQDC Award”), in whole or in part, the Award Agreement evidencing such NQDC Award shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 409A of the Code, subject to the following:

 

(a)  The Award Agreement for the NQDC Award shall set forth the amount (or the method or formula for determining the amount) of the deferred compensation and the time and form of payment, which shall comply with Section 3.6(b).

 

(b)  The NQDC Award shall provide for payment of the deferred compensation in a manner consistent with the permissible payment rules of Section 409A of the Code and Treasury Regulation Section 1.409A-3 not earlier than (i) the Holder’s Separation from Service (as defined below, and subject to Section 3.6(e)) (ii) the Holder’s death, (iii) the Holder becoming  “disabled” (as defined under Section 409A of the Code), (iv) a specified time or fixed schedule set forth in the Award Agreement, (v) the occurrence of a 409A Change in Control (as defined below), and/or (vi) the occurrence of an “unforeseeable emergency” (as defined under Section 409A of the Code, and subject to the limitation on payment described in Section 409A(a)(2)(B)(ii)(II)). With respect to an Option or Stock Appreciation Right, payment means the exercise of the Option or Stock Appreciation Right

 

(b)  The NQDC Award shall not permit the acceleration of the time or schedule of payment of deferred compensation within the meaning of Section 409A of the Code and Treasury Regulation Section

 

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1.409A-3(j), except that the Administrator, in its sole discretion, may accelerate payment of deferred compensation if such acceleration is permitted by Section 409A of the Code.

 

(c)  Unless the Administrator elects otherwise, the NQDC Award shall not permit either initial deferral elections (under Treasury Regulations Section 1.409A-2(a)) or subsequent deferral elections (under Treasury Regulations Section 1.409A-2(b)). If a NQDC Award provides either the Company or the Holder with the right to make an initial deferral election, the conditions under which such election may be made must be set forth in writing on or before the date the applicable election is required to be irrevocable to satisfy the requirements of Treasury Regulations Section 1.409A-2(a). If a NQDC Award provides either the Company or the Holder with the right to make an subsequent deferral election, the conditions under which such election may be made must be set forth in writing on or before the date the applicable election is required to be irrevocable to satisfy the requirements of Treasury Regulations Section 1.409A-2(b).

 

(d)   If an amount of deferred compensation is otherwise payable upon a Termination of Consultancy, Termination of Directorship or Termination of Employment, such payment shall not be made unless and until the Holder experiences a Separation from Service. “ Separation from Service ” means Holder’s “separation from service” from Holder’s service recipient within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, Holder’s “ service recipient ” is the Company or the Subsidiary that, if Holder is an employee, directly employs Holder or, if Holder is an independent contractor, Holder performs services for, and every entity or other person which collectively with such direct employer/service recipient constitutes a single service recipient (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the employer/service recipient for this purpose.

 

(e) If Holder is a Specified Employee (as defined below), a payment of an amount of deferred compensation upon the Holder’s Separation from Service shall not be made before the date that is six (6) months after the date of Holder’s Separation from Service (or, if earlier, the date of Holder’s death). The Administrator shall set forth in the Award Agreement the time in which amounts otherwise payable during such period shall be paid to Holder, subject to compliance with the applicable requirements of Section 409A of the Code, or, if no time is specified, all such amounts shall be accumulated and paid in a single lump sum to Holder on the first business day after the date that is six (6) months after the date of Holder’s Separation from Service (or, if earlier, within fifteen (15) days following Holder’s date of death). “ Specified Employee ” means a “ specified employee” of the service recipient that includes the Company or the Subsidiary that directly employs Holder (as determined under Treasury Regulations Sections 1.409A-1(g)) within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

 

(f)   A “ 409A Change in Control ” means a transaction that (i) constitutes a Change in Control as defined under the terms of the Plan, and (ii) constitutes a change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, in each case as defined under Section 409A of the Code and Treasury Regulations 1.409A-3(i)(5).

 

ARTICLE IV.

GRANTING OF OPTIONS TO EMPLOYEES,

CONSULTANTS AND INDEPENDENT DIRECTORS

 

4.1. Eligibility . Any Employee or Consultant selected by the Administrator pursuant to Section 4.4(a)(i)

 

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shall be eligible to be granted an Option. Each Independent Director of the Company shall be eligible to be granted Options at the times and in the manner set forth in Section 4.5.

 

4.2. Disqualification for Stock Ownership . No person may be granted an Incentive Stock Option under the Plan if such person, at the time the Incentive Stock Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any then existing Subsidiary or parent corporation (within the meaning of Section 422 of the Code) unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code.

 

4.3. Qualification of Incentive Stock Options . No Incentive Stock Option shall be granted to any person who is not an Employee.

 

4.4. Granting of Options to Employees and Consultants .

 

(a) The Administrator shall from time to time, in its discretion, and subject to applicable limitations of the Plan:

 

(i) Select from among the Employees or Consultants (including Employees or Consultants who have previously received Awards under the Plan) such of them as in its opinion should be granted Options;

 

(ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Employees or Consultants;

 

(iii) Subject to Section 4.3, determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options and whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; and

 

(iv) Determine the terms and conditions of such Options, consistent with the Plan; provided, however , that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code.

 

(b) Upon the selection of an Employee or Consultant to be granted an Option, the Administrator shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate.

 

(c) Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code.

 

4.5. Grants of Options to Independent Directors .

 

(a)  Automatic Grants . Each person who is an Independent Director as of the effective date hereof automatically shall be granted (i) an Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on such effective date and (ii) commencing in the first calendar year which begins after the effective date hereof, an Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on the date of each annual meeting of the Company’s stockholders at which the Independent Director is reelected to the Board. During the term of the Plan, a person who is initially elected to the Board after the effective date hereof and who is an Independent Director at the time of such initial election automatically shall be granted (i) an Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on the date of such initial election and (ii) commencing in the first calendar year which begins after the date of such election, an

 

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from the requirements of Section 409A of the Code for non-qualified stock options under Treasury Regulations Section 1.409A-1(b)(5)): (i) the exercise price of the Option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted, (ii) the number of shares subject to the Option shall be fixed on the date the Option is granted, and (iii) the Option shall not include any feature for the deferral of compensation within the meaning of Treasury Regulations Section 1.409A-1(b)(5) other than the deferral of recognition of income until the later of the exercise or disposition of the Option under Treasury Regulation Section 1.83-7, or the time the shares of Common Stock acquired pursuant to the e