SPARTON CORPORATION
2010 LONG-TERM STOCK OPTION INCENTIVE PLAN
The purpose of
Sparton Corporation’s 2010 Long-Term Incentive Plan is to
align the interests of employees and directors of the Corporation
selected to receive awards with those of stockholders by rewarding
long term decision-making and actions for the betterment of the
Corporation. Accordingly, Eligible Individuals may receive
Awards of Options, Stock Appreciation Rights, Restricted Stock or
Restricted Stock Units, Performance Awards and Other Stock-Based
Awards including grants of Shares. Equity-based compensation
assists in the attraction and retention of qualified employees and
directors, and provides them with additional incentive to devote
their best efforts to pursue and sustain the Corporation’s
superior long-term performance. This enhances the value of
the Corporation for the benefit of its stockholders.
A. “Affiliate”
means (i) any corporation, partnership, joint venture or other
entity that is controlled by the Corporation, whether directly or
indirectly, and (ii) any corporation, partnership, joint
venture or other entity in which the Corporation has a significant
equity interest, as determined by the Committee; provided, however,
that with respect to an Award of an Incentive Stock Option and an
Award that is subject to Code Section 409A, the term
“Affiliate” shall refer solely to a
Subsidiary.
B. “Aggregated
Plan” means all agreements, methods, programs, and other
arrangements sponsored by the Corporation that would be aggregated
with this Plan under Section 1.409A-1(c) of the
Regulations.
C. “Award”
means an Option, a Stock Appreciation Right, a Share of Restricted
Stock, a Restricted Stock Unit, a Performance Award, including a
Qualified Performance-Based Award, or an Other Stock-Based Award
pursuant to the Plan. Each Award shall be evidenced by an
Award Agreement.
D. “Award
Agreement” means a written agreement, in a form approved by
the Committee, which sets forth the terms and conditions of an
Award, including, but not limited to, the Performance Period and/or
Restriction Period, as appropriate. Agreements shall be
subject to the express terms and conditions set forth herein, and
to such other terms and conditions not inconsistent with the Plan
as the Committee shall deem appropriate.
E. “Award
Recipient” means an Eligible Individual who has been granted
an Award under the Plan and has entered into an Award Agreement
evidencing the grant of such Award or otherwise accepted the terms
of an Award Agreement, including by electronic acceptance or
acknowledgement.
F. “Beneficiary”
means any person(s) designated by an Award Recipient on a
beneficiary designation form submitted to the Plan Administrator,
or, if no form has been submitted, any person(s) entitled to
receive any amounts owing to such Award Recipient under this Plan
upon his or her death by reason of having been named in the Award
Recipient’s will or trust agreement or having qualified as a
taker of the Award Recipient’s property under the laws of
intestacy. If an Award Recipient authorizes any person, in
writing, to exercise such individual’s Options or Stock
Appreciation Rights following the Award Recipient’s death,
the term “Beneficiary” shall include any person in
whose favor such Options or Stock Appreciation Rights are exercised
by the person authorized to exercise the Options or Stock
Appreciation Rights.
G. “Board”
means the Board of Directors of the Corporation.
H. “Cause”
means (1) conviction of the Award Recipient for committing a
felony under Federal law or the law of the state in which such
action occurred, (2) dishonesty in the course of fulfilling
the Award Recipient’s employment duties, (3) willful and
deliberate failure on the part of the Award Recipient to perform
his or her employment duties in any material respect, or
(4) before a Change of Control, such other events as shall be
determined by the Committee. Before a Change of Control, the
Committee shall, unless otherwise provided in an Individual
Agreement with the Award Recipient, have the sole discretion to
determine whether “Cause” exists, and its determination
shall be final.
I. “Change
of Control” shall have the meaning set forth in
Exhibit A to this Plan.
J. “Code”
means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
K. “Committee”
means the Compensation Committee of the Board or such other
committee of the Board as the Board may from time to time
designate, which, with respect to the establishment of Performance
Measures, shall be composed solely of not less than two outside
directors (as described under Regulations
Section 1.162-27(e)(3)), and shall be appointed by and serve
at the pleasure of the Board.
L. “Corporation”
means Sparton Corporation, an Ohio corporation, and its successors
and assigns.
M. “Date
of Grant” means the effective date of an Award granted by the
Committee to an Award Recipient.
N. “Disabled”
or “Disability” means “Totally Disabled”
(or any derivation of such term) within the meaning of the
Long-Term Disability Plan of Sparton Corporation, or if there is no
such plan, “Disability” as determined by the
Committee. However, with respect to the rules relating
to Incentive Stock Options, the term “Disabled” shall
mean disabled as that term is utilized in Sections 422 and
22(e)(3) of the Code, or any successor Code provisions
relating to
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ISOs.
Furthermore, with respect to Awards subject to Section 409A of
the Code, “Disabled” shall not have either of the prior
meanings, but shall mean an Award Recipient’s inability to
engage in any substantial gainful activity due to a medically
determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period
of not less than twelve (12) months.
O. “Disaffiliation”
means a Subsidiary’s or Affiliate’s ceasing to be a
Subsidiary or Affiliate for any reason (including, without
limitation, as a result of a public offering, or a spinoff or sale
by the Corporation, of the stock of the Subsidiary or Affiliate) or
a sale of a division of the Corporation and its
Affiliates.
P. “Eligible
Individual” means any officers, employees and members of the
Board of Directors of the Corporation and any officers, employees
and directors of its Subsidiaries or Affiliates, and prospective
officers and employees who have accepted offers of employment from
the Corporation or its Subsidiaries or Affiliates.
Notwithstanding the foregoing, an Eligible Individual for purposes
of receipt of the grant of an ISO shall be limited to those
individuals who are eligible to receive ISOs under rules set
forth in the Code and applicable regulations.
Q. “Exchange
Act” means the Securities Exchange Act of 1934, as
amended.
R. “Fair
Market Value” means the closing price of a Share on the New
York Stock Exchange; if, however, there is no trading of Shares on
the date in question, then the closing price of the Shares as so
reported, on the last preceding trading day shall instead be used
to determine Fair Market Value. If Fair Market Value for any
date in question cannot be determined as provided above, Fair
Market Value shall be determined by the Committee in its good faith
discretion based on a reasonable valuation method in accordance
with the Regulations and applicable guidance promulgated under Code
Section 409A.
S. “Incentive
Stock Option” or “ISO Award” means an Option
granted pursuant to the Plan that is designated in the applicable
Award Agreement as an “incentive stock option” within
the meaning of Section 422 of the Code, and that in fact so
qualifies.
T. “Nonqualified
Stock Option” or “NQSO Award” means an Option
granted pursuant to the Plan that is not intended to be, or
does not qualify as, an Incentive Stock Option.
U. “Option”
means a Nonqualified Stock Option or an Incentive Stock Option
granted pursuant to Section 6(A) of the Plan.
V. “Other
Stock-Based Award” means any right granted under
Section 6(F) of the Plan.
W. “Performance
Award” means any Award, including a Qualified
Performance-Based Award, granted pursuant to
Section 6(E) of the Plan.
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X. “Performance
Measures” means the performance goals established by the
Committee and relating to a Performance Period in connection with
the grant of an Award. In the case of any Qualified
Performance-Based Award, such goals shall be (i) based on the
attainment of specified levels of one or more of the following
measures (a) earnings per share, (b) return measures
(including, but not limited to, return on assets, equity or sales),
(c) net income (before or after taxes), (d) cash flow
(including, but not limited to, operating cash flow and free cash
flow), (e) cash flow return on investments, which equals net
cash flows divided by owner’s equity, (f) earnings
before or after taxes, interest, depreciation and/or amortization,
(g) internal rate of return or increase in net present value,
(h) gross revenues, (i) gross margins or (j) stock
price (including, but not limited to, growth measures and total
stockholder return) and (ii) set by the Committee within the
time period prescribed by Section 162(m) of the
Code. Performance Measures may be absolute in their terms or
measured against or in relationship to other companies comparably,
similarly or otherwise situated and may be based on or adjusted for
any other objective goals, events, or occurrences established by
the Committee for a Performance Period. Such Performance
Measures may be particular to a line of business, Subsidiary or
other unit or may be based on the performance of the Corporation
generally. Such Performance Measures may cover the
Performance Period(s) as specified by the Committee.
Performance Measures may be adjusted by the Committee in its sole
discretion to eliminate the unbudgeted effects of charges for
restructurings, charges for discontinued operations, charges for
extraordinary items and other unusual or non-recurring items of
loss or expense, merger related charges, cumulative effect of
accounting changes, the unbudgeted financial impact of any
acquisition or divestiture made during the applicable Performance
Period, and any direct or indirect change in the Federal corporate
tax rate affecting the Performance Period, each as defined by
generally accepted accounting principles and identified in the
audited financial statements, notes to the audited financial
statements, management’s discussion and analysis or other
Corporation filings with the Securities and Exchange
Commission
Y. “Performance
Period” means the period designated by the Committee during
which the Performance Measures applicable to an Award shall be
measured. The Performance Period shall be established at or
before the time of the grant of the Award, and the length of any
Performance Period shall be within the discretion of the
Committee.
Z. “Plan”
means the Sparton Corporation 2010 Long-Term Incentive Plan, as may
be amended from time to time.
AA. “Qualified
Performance-Based Award” means an Award intended to qualify
for the Section 162(m) Exemption, as provided in
Section 7.
BB. “Regulations”
means the Treasury Regulations promulgated under the
Code.
CC. “Restriction
Period” means the period designated by the Committee during
which Shares of a Restricted Stock Award remain forfeitable or a
Restricted Stock Unit Award is subject to vesting
requirements.
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DD. “Restricted
Stock” or “Restricted Stock Award” means an award
of Shares pursuant to Section 6(C) of the Plan subject to
the terms, conditions and such restrictions as may be determined by
the Committee and set forth in the applicable Award
Agreement. Shares of Restricted Stock shall constitute issued
and outstanding Shares for all corporate purposes.
EE. “Restricted
Stock Units” or “Restricted Stock Unit Award”
means an Award granted pursuant to Section 6(D) of the
Plan denominated in Shares subject to the terms, conditions and
restrictions determined by the Committee and set forth in the
applicable Award Agreement.
FF. “Retirement”
means, unless otherwise provided in an Award Agreement or
determined by the Committee, an Award Recipient’s Termination
of Employment (or with respect to Awards subject to Code
Section 409A, an Award Recipient’s Separation from
Service) at or after age 65 or after attainment of both age 55 and
ten (10) years of continuous service with the Corporation and
Affiliates.
GG. “Section 162(m) Exemption”
means the exemption from the limitation on deductibility imposed by
Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
HH. “Separation
from Service” means, with respect to any Award that is
subject to Code Section 409A, the date on which the
Corporation and the Award Recipient reasonably anticipate a
permanent reduction in the level of bona fide services performed by
the Award Recipient for the Corporation or any Affiliate to 20% or
less of the average level of bona fide services performed by the
Award Recipient for the Corporation or any Affiliate (whether as an
employee or an independent contractor) in the immediately preceding
thirty-six (36) months (or the full period of service to the
Corporation and any Affiliate if the Award Recipient has been
providing services to the Corporation and its Affiliates for less
than thirty-six (36) months). The determination of
whether a Separation from Service has occurred shall be made by the
Plan Administrator in accordance with the provisions of Code
Section 409A and the Regulations promulgated
thereunder.
II. “Share”
means a share of common stock, $1.25 par value, of the Corporation
or such other securities or property as may become subject to
Awards pursuant to an adjustment made under
Section 3(C) of the Plan.
JJ. “Specified
Employee” means a key employee of the Corporation as defined
in Code Section 416(i) without regard to paragraph
(5) thereof. The determination of whether an Award
Recipient is a Specified Employee shall be made by the Committee as
of the specified employee identification date adopted by the
Corporation in accordance with the provisions of Code
Section 409A and the Regulations promulgated
thereunder.
KK. “Stock
Appreciation Right” or “SAR Award” means a right
granted under Section 6(B) of the Plan.
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LL. “Subsidiary”
means any entity (other than the Corporation) in an unbroken chain
of entities beginning with the Corporation, provided each entity
(other than the last entity) in the unbroken chain owns, at the
time of the determination, ownership interests possessing fifty
percent (50%) or more of the total combined voting power of all
classes of ownership interests in one of the other entities in such
chain; provided, however, with respect to any Award that is an
Incentive Stock Option, the term “Subsidiary” shall
refer solely to an entity that is taxed under Federal tax law as a
corporation.
MM. “Tax
Withholding Date” shall mean the earliest date the obligation
to withhold tax with respect to an Award arises.
NN. “Term”
means the maximum period during which an Option or Stock
Appreciation Right may remain outstanding (subject to earlier
termination upon Termination of Employment or otherwise) as
specified in the applicable Award Agreement or, to the extent not
specified in the Award Agreement, as provided in the
Plan.
OO. “Termination
of Employment” means the termination of the applicable Award
Recipient’s employment or service as a director with the
Corporation and any of its Affiliates. An Award Recipient
employed by an Affiliate or a division of the Corporation or any of
its Affiliates shall be deemed to incur a Termination of Employment
if, as a result of a Disaffiliation, such Affiliate or division
ceases to be an Affiliate or division, as the case may be, and the
Award Recipient does not immediately thereafter become an employee
or director of the Corporation or an Affiliate. Neither a
temporary absence because of illness, vacation or leave of absence
nor a transfer among the Corporation and its Affiliates shall be
considered a Termination of Employment.
SECTION 3
STOCK SUBJECT TO THE PLAN
A. Plan
Maximums. The maximum number of Shares that may be delivered
pursuant to Awards under the Plan shall be One Million (1,000,000).
Shares subject to an Award under the Plan may be authorized and
unissued Shares or treasury Shares.
B. Rules for
Calculating Shares Delivered. Any Shares covered by an Award
that has been granted shall be counted as used under the Plan as of
the Date of Grant. To the extent that any Award is forfeited,
or any Option or Stock Appreciation Right terminates, expires or
lapses without being exercised, the Shares subject to such Awards
not delivered as a result thereof shall again be available for
Awards under the Plan. The following Shares, however, may not
again be made available for issuance in respect of Awards under
this Plan: (i) Shares not issued or delivered as a result of
the net settlement of an outstanding Stock Appreciation Right;
(ii) Shares used to pay the exercise price or withholding
taxes related to an outstanding Award; or (iii) Shares
repurchased by the Corporation on the open market with the proceeds
of an Option exercise price to settle an Option.
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C. Adjustment
Provision. In the event of (i) a stock dividend, stock
split, reverse stock split, share combination, or recapitalization
or similar event affecting the capital structure of the Corporation
(each, a “Share Change”), or (ii) a merger,
consolidation, acquisition of property or shares, separation,
spinoff, reorganization, stock rights offering, liquidation,
Disaffiliation, or similar event affecting the Corporation or any
of its Subsidiaries (each, a “Corporate Transaction”),
the Committee or the Board shall make appropriate substitutions or
adjustments to (A) the aggregate number and kind of Shares or
other securities reserved for issuance and delivery under the Plan,
(B) the maximum limitation set forth in
Section 3(A) upon certain types of Awards and upon the
grants to individuals of certain types of Awards, (C) the
number and kind of Shares or other securities subject to
outstanding Awards, and (D) the exercise price of outstanding
Options and Stock Appreciation Rights, provided that the aggregate
exercise price or aggregate grant price of the Options or Stock
Appreciation Rights is not less than the aggregate exercise price
or aggregate grant price before the Corporate Transaction. In
the case of Corporate Transactions, such adjustments may include,
without limitation, (1) the cancellation of outstanding Awards
in exchange for payments of cash, property or a combination thereof
having an aggregate value equal to the value of such Awards, as
determined by the Committee or the Board in its sole discretion (it
being understood that in the case of a Corporate Transaction with
respect to which stockholders of Common Stock receive consideration
other than publicly traded equity securities of the ultimate
surviving entity, any such determination by the Committee that the
value of an Option or Stock Appreciation Right shall for this
purpose be deemed to equal the excess, if any, of the value of the
consideration being paid for each Share pursuant to such Corporate
Transaction over the exercise price of such Option or Stock
Appreciation Right shall conclusively be deemed valid);
(2) the substitution of other property (including, without
limitation, cash or other securities of the Corporation and
securities of entities other than the Corporation) for the Shares
subject to outstanding Awards; and (3) in connection with any
Disaffiliation, arranging for the assumption of Awards, or
replacement of Awards with new awards based on other property or
other securities (including, without limitation, other securities
of the Corporation and securities of entities other than the
Corporation), by the affected Subsidiary, Affiliate, or division or
by the entity that controls such Subsidiary, Affiliate, or division
following such Disaffiliation (as well as any corresponding
adjustments to Awards that remain based upon Corporation
securities). Any such adjustments shall be made in a manner
that (i) with respect to Awards that are not considered to be
deferred compensation within the meaning of Section 409A of
the Code as of immediately prior to such adjustment, would not
cause such Awards to become deferred compensation subject to
Section 409A of the Code and (ii) with respect to Awards
that are considered deferred compensation within the meaning of
Section 409A of the Code, would not cause such Awards to be
non-compliant with the requirements of Section 409A of the
Code.
A. Committee.
The Plan shall be administered by the Committee. In addition
to any implied powers and duties that may be needed to carry out
the provisions of the Plan, the Committee shall have all the powers
vested in it by the terms of the Plan, including the following
authority, with approval of the Board the Committee may: select
Eligible Individuals; make
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Awards; and
determine the type, size, terms and timing of Awards (which need
not be uniform). The Committee may also accelerate the vesting of
Awards, including upon the occurrence of a Change of Control of the
Corporation or an Award Recipient’s Termination of
Employment; prescribe the form of the Award Agreement; modify,
amend or adjust the terms and conditions of any Award, subject to
Sections 7 and 10; adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall from
time to time deem advisable; interpret the terms and provisions of
the Plan and any Award issued under the Plan (and any Award
Agreement relating thereto); and make any other determinations it
believes necessary or advisable in connection with the
administration of the Plan; correct any defect, supply any omission
or reconcile any inconsistency in the Plan or in any Award
Agreement; establish any “blackout” period that the
Committee in its sole discretion deems necessary or advisable; and
otherwise administer the Plan.
B. Procedures.
Determinations of the Committee shall be made by a majority vote of
its members at a meeting at which a quorum is present or pursuant
to a unanimous written consent of its members. A majority of
the members of the Committee shall constitute a quorum.
Subject to Section 7(D), any authority granted to the
Committee may also be exercised by the full Board. To the
extent that any permitted action taken by the Board conflicts with
action taken by the Committee, the Board action shall
control. The Committee may authorize any one or more of its
members, or any officer of the Corporation, to execute and deliver
documents on behalf of the Committee.
Except to the
extent prohibited by applicable law or the applicable rules of
a stock exchange, the Committee may (i) allocate all or any
portion of its responsibilities and powers to any one or more of
its members and/or (ii) delegate all or any part of its
responsibilities and powers to any person or persons selected by
it, provided that, the Committee may not delegate its
responsibilities and powers if such delegation would cause an Award
made to an individual subject to Section 16 of the Exchange
Act not to qualify for an exemption from Section 16(b) of
the Exchange Act or cause an Award intended to be a Qualified
Performance-Based Award not to qualify for, or to cease to qualify
for, the Section 162(m) Exemption. Any such
allocation or delegation may be revoked by the Committee at any
time.
All decisions
made by the Committee (or any person or persons to whom the
Committee has allocated or delegated all or any portion of its
responsibilities and powers in accordance with this Plan) shall be
final and binding on all persons, including the Corporation, its
Affiliates, Subsidiaries, stockholders, Eligible Individuals, Award
Recipients, Beneficiaries and other interested parties.
C. Discretion
of the Committee. Subject to Section 6(G), any
determination made by the Committee or by an appropriately
delegated officer pursuant to delegated authority under the
provisions of the Plan with respect to any Award shall be made in
the sole discretion of the Committee or such delegate at the time
of the grant of the Award or, unless in contravention of any
express term of the Plan, at any time thereafter. All
decisions made by the Committee or any appropriately delegated
officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Corporation, Award Recipients
and Eligible Individuals.
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D. Cancellation
or Suspension of Awards. The Committee may cancel all or any
portion of any Award, whether or not vested or deferred, as set
forth below in this Section 4(D). Upon cancellation, the
Award Recipient shall forfeit the Award and any benefits
attributable to such canceled Award or portion thereof. The
Committee may cancel an Award if, in its sole discretion, the
Committee determines in good faith that the Award Recipient has
done any of the following: (i) committed a felony;
(ii) committed fraud; (iii) embezzled;
(iv) disclosed confidential information or trade secrets;
(v) was terminated for Cause; (vi) engaged in any
activity in competition with the business of the Corporation or any
Subsidiary or Affiliate of the Corporation; or (vii) engaged
in conduct that adversely affected the Corporation. The
Director Corporate Human Resources, or such other person designated
from time to time by the Chief Executive Officer of the Corporation
(the “Delegate”), shall have the power and authority to
suspend all or any portion of any Award if the Delegate makes in
good faith the determination described in the preceding
sentence. Any such suspension of an Award shall remain in
effect until the suspension shall be presented to and acted on by
the Committee at its next meeting.
Awards may only
be made to Eligible Individuals.
A. Options.
The Committee may grant Options to Eligible Individuals in
accordance with the provisions of this subsection subject to such
additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine to be
appropriate.
1. Exercise
Price. The exercise price per Share of an Option shall be
determined by the Committee; provided, however, that such exercise
price shall not be less than 100% of the Fair Market Value of a
Share on the Date of Grant of such Option, and such exercise price
may not be decreased during the Term of the Option except pursuant
to an adjustment in accordance with Section 3(C).
2. Option
Term. The Term of each Option shall be fixed by the Committee
and the maximum Term of each Option shall be ten
(10) years.
3. Time and Manner
of Exercise. The Committee shall determine the time or times
at which an Option may be exercised, and the manner in which
(including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, having
a Fair Market Value on the exercise date equal to the relevant
exercise price) payment of the exercise price with respect thereto
may be made, or deemed to have been made. The Committee may
authorize the use of any form of “cashless” exercise of
an Option that is legally permissible.
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4. Employment
Status. Except as provided in paragraphs (a) through
(d) below or as may otherwise be provided by the Committee
(either at the time of grant of an Option or thereafter), an Award
Recipient’s Options and Stock Appreciation Rights shall be
immediately forfeited upon his or her Termination of
Employment.
a.
Retirement. An Award Recipient’s Retirement shall not
affect any Option outstanding as of the Termination of Employment
due to Retirement other than those granted in the calendar year of
Retirement. All Options outstanding as of the Termination of
Employment due to Retirement other than those granted in the
calendar year of such Termination of Employment shall continue to
vest pursuant to the vesting schedule applicable to such Options,
and any vested Options outstanding as of the Termination of
Employment due to Retirement (including any ISO held by an Award
Recipient who is not Disabled) shall co
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