PERFORMANCE AWARD PLAN
Published on March 1, 1999
EXHIBIT 4.1
KORN/FERRY INTERNATIONAL
PERFORMANCE AWARD PLAN
TABLE OF CONTENTS
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TABLE OF CONTENTS
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KORN/FERRY INTERNATIONAL
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PERFORMANCE AWARD PLAN
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1. THE PLAN
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1.1 PURPOSE. The purpose of this Plan is to promote the success of the Company
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and the interests of its shareholders by attracting, motivating, retaining
and rewarding directors, officers, employees and other eligible persons
with awards and incentives for high levels of individual performance and
improved financial performance of the Company; to attract, motivate and
retain experienced and knowledgeable independent directors through the
benefits provided under Section 8; and to further align their respective
interests with those of shareholders generally through awards of stock-
based incentives. Capitalized terms are defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
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1.2.1 COMMITTEE. This Plan will be administered by the Committee. All
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Awards to Eligible Persons will be authorized by the Committee except that
all discretionary Awards to Non-Employee Directors must be approved or
ratified by the Board. All Awards to Other Eligible Persons will be subject
to approval by the Committee and ratification by the Board, unless the
Board expressly (by resolution or amendment to this Plan) provides
otherwise. Action of the Committee with respect to the administration of
this Plan will be taken pursuant to a majority vote or by written consent
of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
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express provisions of this Plan, and any express limitations on the
delegated authority of a Committee, the Committee will have the authority
to determine eligibility and the particular Eligible Persons who will
receive Awards;
(a) grant Awards to Eligible Persons, determine the effective date of
grant (which may be a date after but not before the Committee's
authorization of the Award), determine the price at which securities
will be offered or awarded and the amount of securities to be offered
or awarded to any of such persons, determine the other specific terms
and conditions of such Awards consistent with the express limits of
this Plan, establish the installments (if any) in which such Awards
will become exercisable or will vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards, all consistent with the
express limits of this Plan;
(b) approve the forms of Award (which need not necessarily be identical
either as to type of Award or among Participants);
(c) construe and interpret this Plan and any agreements defining the
rights and obligations of the Company and Eligible Persons under this
Plan, further define the terms used in this Plan, and prescribe, amend
and rescind rules and regulations relating to the administration of
this Plan;
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(d) cancel, modify, or waive the Company's rights with respect to, or
modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Persons, subject to any required consent under
Section 6.6;
(e) accelerate or extend the exercisability or extend the term of any or
all such outstanding Awards within the limitations under Section 1.6;
and
(f) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Section 8 relating to Non-
Employee Director Awards will be automatic. To the extent required, any
interpretation or administration of this Plan in respect of Awards under Section
8 shall be the responsibility of the Board.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of, the
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Company, the Board or the Committee relating or pursuant to this Plan will
be within the absolute discretion of that entity or body and will be
conclusive and binding upon all persons. No member of the Board or
Committee, or any officer of the Company, will be liable for any action or
inaction of the entity or body, of another person or of the member or
officer, except in circumstances involving his or her bad faith. Subject
only to compliance with the express provisions hereof, the Board and
Committee may act in their absolute discretion in matters within their
authority related to this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking or not
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taking any action under this Plan, the Committee or the Board, as the case
may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Company. No director, officer or agent of the
Company will be liable for any such action or determination taken or made
or omitted in good faith.
1.2.5 DELEGATION. The Committee may delegate ministerial, non-
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discretionary functions to individuals who are officers or employees of the
Company.
1.3 PARTICIPATION. Discretionary Awards may be granted by the Committee only to
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those persons that the Committee determines to be Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise eligible,
be granted additional Awards if the Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
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1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.2, the
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capital stock that may be delivered under this Plan will be shares of the
Company's authorized but unissued Common Stock and any shares of its Common
Stock held as treasury shares. The shares may be delivered for any lawful
consideration.
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1.4.2 SHARE LIMITS. The maximum number of shares of Common Stock that may
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be delivered pursuant to Awards granted to Eligible Persons under this Plan
will not exceed 7,000,000 shares (the "Share Limit"). The number of shares
subject to Awards outstanding at any time will not exceed the number of
shares remaining available for issuance under the Plan. The maximum number
of shares subject to those options and Stock Appreciation Rights that are
granted during any calendar year to any one individual will be limited to
700,000 shares covered by the Plan, and the maximum individual limit on the
number of shares in the aggregate subject to all Awards that during any
calendar year are granted under this Plan to any one individual will be
1,050,000 shares covered by the Plan. The maximum individual limit for any
Non-Employee Director, including any Option granted or to be granted
(assuming continued eligibility during the year of grant) pursuant to
Section 8 of this Plan, will be 50,000 shares covered by the Plan during
any twelve month period. Each of the foregoing numerical limits will be
subject to adjustment as contemplated by this Section 1.4 and Section 6.2.
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED AWARDS. No
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Award may be granted under this Plan unless, on the date of grant, the sum
of (a) the maximum number of shares issuable at any time pursuant to such
Award, plus (b) the number of shares that have previously been issued
pursuant to Awards granted under this Plan, other than reacquired shares
available for reissue consistent with any applicable legal limitations,
plus (c) the maximum number of shares that may be issued at any time after
such date of grant pursuant to Awards that are outstanding on such date,
does not exceed the Share Limit. Shares that are subject to or underlie
Awards that expire or for any reason are cancelled or terminated, are
forfeited, fail to vest, or for any other reason are not paid or delivered
under this Plan, as well as reacquired shares, will again, except to the
extent prohibited by law (including Section 162(m)), be available for
subsequent Awards under the Plan. Except as limited by law (including
Section 162(m)), if an Award is or may be settled only in cash, such Award
need not be counted against any of the limits under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
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Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award and,
in the case of Performance Share Awards, in addition to matters addressed
in Section 1.2.2, the specific objectives, goals and performance criteria
(such as an increase in sales, market value, earnings or book value over a
base period, the years of service before vesting, the relevant job
classification or level of responsibility or other factors) that further
define the terms of the Performance Share Award. Each Award will be
evidenced by an Award Agreement signed by the Company and, if required by
the Committee, by the Participant.
1.6 AWARD PERIOD. Any Option, SAR, warrant or similar right shall expire and
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any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that a payment of cash or
delivery of shares pursuant to an Award may be delayed until a future date
under and in accordance with the specific terms of a non-qualified deferred
compensation plan sponsored by the Company.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
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1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise expressly
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provides, once exercisable an Award will remain exercisable until the
expiration or earlier termination of the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be exercised when
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the Company receives written notice of such exercise from the Participant,
together with any required payment made in accordance with Section 2.2.2 or
8.4, as the case may be, and any other requirements of exercise, including
any documents required by Section 6.4, are satisfied.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests will be
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disregarded, but may be accumulated. The Committee, however, may determine
in the case of Eligible Persons that cash, other securities, or other
property will be paid or transferred in lieu of any fractional share
interests. No fewer than 100 shares, irrespective of any Adjustments under
Sections 6.2 or 8.6 of this Plan, may be purchased on exercise of any Award
at one time unless the number purchased is the total number at the time
available for purchase under the Award.
1.8 ACCEPTANCE OF PROMISSORY NOTES TO FINANCE EXERCISE. The Company, in its
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sole discretion, may, with the Committee's express approval, accept one or
more promissory notes from any Eligible Person in connection with the
exercise or receipt of any outstanding Award; but any such note will be
subject to at least the following terms and conditions:
1.8.1 PRINCIPAL. The principal of the note will not exceed the amount
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required to be paid to the Company upon the exercise or receipt of one or
more Awards under the Plan and the note will be delivered directly to the
Company in consideration of such exercise or receipt.
1.8.2 TERM. The initial term of the note will be determined by the
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Committee; but the term of the note, including extensions, will not exceed
a period of five years.
1.8.3 RECOURSE; SECURITY. The note will provide for full recourse to the
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Participant and will bear interest at a rate determined by the Committee
but not less than the interest rate necessary to avoid the imputation of
interest under the Code. If required by the Committee or by applicable law,
the note will be secured by a pledge of any shares or rights financed
thereby in compliance with applicable law. The terms, repayment provisions,
and collateral release provisions of the note and the pledge securing the
note will conform with applicable rules and regulations of the Federal
Reserve Board as then in effect.
1.8.4 TERMINATION OF EMPLOYMENT. If the employment or service of the
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Participant terminates, the unpaid principal balance of the note will
become due and payable no later than the 10th business day after such
termination unless the Committee at the time expressly authorized an
extension.
1.8.5 OTHER CONDITIONS. Participants who are not employees or directors of
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the Company will not be entitled to purchase shares of Common Stock with a
promissory
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note unless the note is adequately secured by collateral other than the
shares of Common Stock. The portion of the exercise price for (or purchase
price of) shares of Common Stock equal to the par value, if any, of any
newly issued shares under this Plan must be paid in cash, for services
rendered or other valid consideration.
1.9 TRANSFER RESTRICTIONS AND EXCEPTIONS.
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1.9.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly provided
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in (or pursuant to) this Section 1.9, by applicable law and by the Award
Agreement, as the same may be amended, (a) all Awards are non-transferable
and will not be subject in any manner to sale, transfer, anticipation,
alienation, assignment, pledge, encumbrance or charge; (b) Awards may be
exercised only by the Participant; and (c) amounts payable or shares
issuable pursuant to an Award will be delivered only to (or for the account
of) the Participant.
1.9.2 EXCEPTIONS. The Committee may permit Awards to be exercised by and
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paid only to certain persons or entities related to the Participant
pursuant to such conditions and procedures as the Committee may establish.
Any permitted transfer will be subject to the conditions that the transfer
is consistent with applicable requirements for registration of the shares
with the Securities Exchange Commission, and that the Committee receive
evidence satisfactory to it that the transfer is being made to related
persons for estate and/or tax planning purposes and without consideration
(other than nominal consideration). ISOs and Restricted Stock Awards,
however, will be subject to any and all additional transfer restrictions
under the Code.
1.9.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and transfer
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restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Company,
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to or
exercise by the Participant's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will or the laws of
descent and distribution,
(c) except in the case of ISOs, transfers pursuant to a qualified domestic
relations order if approved or ratified by the Committee,
(d) if the Participant has suffered a disability that renders the
Participant unable to legally act on his or her own behalf, permitted
transfers or exercises on behalf of the Participant by the
Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise" procedures
with third parties who provide financing for the purpose of (or who
otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Committee.
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(f) REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS. Subject to
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Section 1.4 and Section 6.6 and the specific limitations on Awards
contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible
Person any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or
the term of, an Option, SAR or other Award granted under this Plan by
cancellation of an outstanding Award and a subsequent regranting of an
Award, by amendment, by substitution of an outstanding Award, by
waiver or by other legally valid means. Such amendment or other action
may result among other changes in an exercise or purchase price that
is higher or lower than the exercise, base or purchase price of the
original or prior Award, provide for a greater or lesser number of
shares subject to the Award, or provide for a longer or shorter
vesting or exercise period.
2. OPTIONS
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2.1 GRANTS. One or more Options may be granted under this Section to any
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Eligible Person. Each Option granted will be designated by the Committee,
in the applicable Award Agreement, as either an Incentive Stock Option
(subject to Section 2.3) or a Nonqualified Stock Option.
2.2 OPTION PRICE.
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2.2.1 PRICING LIMITS. The purchase price per share of the Common Stock
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covered by each Option will be determined by the Committee at the time of
the Award, but in no event will the purchase price per share of shares
covered by an Incentive Stock Option be less than 100% (110% in the case of
a Participant described in Section 2.4) of the Fair Market Value of the
Common Stock on the date of grant (or date of amendment in the case of an
amendment to the exercise price).
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares purchased on
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exercise of an Option granted under this Section will be paid in full at
the time of each purchase in one or a combination of the following methods:
(a) in cash or by electronic funds transfer;
(b) by certified or cashier's check payable to the order of the Company;
(c) if authorized by the Committee or specified in the applicable Award
Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.8 and 6.4;
(d) by notice and third party payment in such manner as may be authorized
by the Committee; or
(e) by the delivery of shares of Common Stock of the Company already owned
by the Participant; provided that the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by
delivering such shares, and any
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shares delivered that were initially acquired from the Company must
have been owned by the Participant at least six months as of the date
of delivery. Shares of Common Stock used to satisfy the exercise price
of an Option will be valued at their Fair Market Value on the date of
exercise.
2.2.3 "CASHLESS EXERCISE" PROVISIONS. Without limiting the generality of
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the foregoing, the Committee may provide that the Option can be exercised
and payment made by delivering a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale proceeds necessary to pay the exercise
price and, unless otherwise prohibited by the Committee or applicable
law, any applicable tax withholding under Section 6.5.
2.2.4 DELIVERY CONDITION. The Company will not be obligated to deliver
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certificates for any shares of Common Stock on exercise of an Option
unless and until it receives full payment of the exercise price and any
related withholding obligations have been satisfied.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
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2.3.1 $100,000 LIMIT. To the extent that the aggregate Fair Market Value of
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stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking
into account both Common Stock subject to Incentive Stock Options under
this Plan and Common Stock subject to incentive stock options under all
other plans of the Company or any other includable parent or subsidiary
corporations (as these terms are used under Section 422(d) and defined in
Section 424(e) and (f) of the Code), such options will be treated as
Nonqualified Stock Options. For this purpose, the Fair Market Value of the
stock subject to options will be determined as of the date the options were
awarded. In reducing the number of options treated as incentive stock
options to meet the $100,000 limit, the most recently granted options will
be reduced first. To the extent a reduction of simultaneously granted
options is necessary to meet the $100,000 limit, the Committee may, in the
manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
2.3.2 OPTION PERIOD. Subject to Section 1.6, each Option and all rights
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thereunder will expire no later than 10 years after the Award Date.
2.3.3 OTHER CODE LIMITS. Incentive Stock Options may only be granted to
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Eligible Employees of the Company that meet the other eligibility
requirements of the Code. There will be imposed in any Award Agreement
relating to Incentive Stock Options such other terms and conditions as from
time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted to any
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person who, at the time the Option is granted, owns (or is deemed to own
under Section 424(d) of the Code) shares of outstanding Common Stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the
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Option and such Option by its terms is not exercisable after the expiration
of five years from the date such Option is granted.
2.5 EFFECTS OF TERMINATION OF EMPLOYMENT/SERVICE; TERMINATION OF SUBSIDIARY
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STATUS; DISCRETIONARY PROVISIONS.
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2.5.1 OPTIONS - RESIGNATION OR DISMISSAL. Unless the Committee otherwise
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provides, if the Participant's employment by (or other service specified in
the Award Agreement to) the Company terminates for any reason (the date of
such termination being referred to as the "Severance Date") other than
Retirement, Total Disability or death, or a "Termination For Cause" (as
determined in the discretion of the Committee), the Participant will have,
subject to earlier expiration or termination pursuant to or as contemplated
by Section 1.6 or 6.2, until three (3) months after the Severance Date to
exercise any Option to the extent it has become exercisable on or before
the Severance Date. In the case of a Termination For Cause, the Option will
terminate on the Severance Date. To the extent not exercisable on the
Severance Date, the Option will terminate on the Severance Date.
2.5.2 OPTIONS - DEATH OR TOTAL DISABILITY. Unless the Committee otherwise
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provides, if the Participant's employment by (or specified service to) the
Company terminates as a result of Total Disability or death, the
Participant, Participant's Personal Representative or the Participant's
Beneficiary, as the case may be, will have, subject to earlier expiration
or termination pursuant to or as contemplated by Section 1.6 or 6.2, until
twelve (12) months after the Severance Date to exercise any Option to the
extent it has become exercisable on or prior to the Severance Date. To the
extent not exercisable on the Severance Date, the Option will terminate on
the Severance Date.
2.5.3 OPTIONS - RETIREMENT. Unless the Committee otherwise provides, if
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the Participant's employment by (or specified service to) the Company
terminates as a result of Retirement, the Participant, Participant's
Personal Representative or the Participant's Beneficiary, as the case may
be, will have, subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.2, until twelve (12) months after the
Severance Date to exercise any Nonqualified Stock Option (three (3) months
after the Severance Date in the case of an Incentive Stock Option) to the
extent it has become exercisable on or prior to the Severance Date. To the
extent not exercisable on the Severance Date, the Option will terminate on
the Severance Date.
2.5.4 CERTAIN SARS. Any SAR granted concurrently or in tandem with an
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Option will have the same post-termination provisions and exercisability
periods as the Option to which it relates, unless the Committee otherwise
provides.
2.5.5 COMMITTEE DISCRETION. Notwithstanding the foregoing provisions of
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this Section 2.5, in the event of, or in anticipation of, a termination of
employment or service with the Company for any reason, other than
Termination For Cause, the Committee may increase the portion of the
Participant's Award available to the Participant, or Participant's
Beneficiary or Personal Representative, as the case may be, or, subject to
the provisions of Section 1.6, extend the exercisability period, upon such
terms as the Committee expressly approves by resolution or by amendment to
the Award Agreement.
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3. STOCK APPRECIATION RIGHTS
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(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)
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3.1 GRANTS. The Committee may grant to any Eligible Person Stock Appreciation
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Rights either concurrently with the grant of another Award or in respect of
an outstanding Award, in whole or in part, or independently of any other
Award. Any Stock Appreciation Right granted in connection with an Incentive
Stock Option will contain such terms as may be required to comply with the
provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
3.2 PRICING LIMITS. The pricing restrictions applicable to Options under
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Section 2.2.1 of this Plan shall apply as well to the base or reference
price of SARs granted under this Plan.
3.3 EXERCISE OF STOCK APPRECIATION RIGHTS.
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3.3.1 EXERCISABILITY. Unless the Award Agreement or the Committee otherwise
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provides, a Stock Appreciation Right related to another Award will be
exercisable at such time or times, and to the extent, that the related
Award will be exercisable.
3.3.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock Appreciation
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Right is exercised, only the actual number of delivered shares of Common
Stock will be charged against the maximum amount of Common Stock that may
be delivered pursuant to Awards under this Plan. The number of shares
subject to the Stock Appreciation Right and the related Option of the
Participant will, however, be reduced by the number of underlying shares as
to which the exercise related, unless the Award Agreement otherwise
provides.
3.3.3 STAND-ALONE SARS. A Stock Appreciation Right granted independently of
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any other Award will be exercisable pursuant to the terms of the Award
Agreement.
3.3.4 PROPORTIONATE REDUCTION If an SAR extends to less than all the shares
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covered by the related Award and if a portion of the related Award is
thereafter exercised, the number of shares subject to the unexercised SAR
shall be reduced only if and to the extent that the remaining number of
shares covered by such related Award is less than the remaining number of
shares subject to such SAR.
3.4 PAYMENT.
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3.4.1 AMOUNT. Unless the Committee otherwise provides, upon exercise of a
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Stock Appreciation Right and the attendant surrender of an exercisable
portion of any related Award, the Participant will be entitled to receive
subject to Section 6.5 payment of an amount determined by multiplying
(a) the difference obtained by subtracting the exercise or base reference
price per share of Common Stock under the related Award (if
applicable) or the initial share value specified in the Award, from
the Fair Market Value of a share of Common Stock on the date of
exercise of the Stock Appreciation Right, by
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(b) the number of shares with respect to which the Stock Appreciation
Right has been exercised.
3.4.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
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determine the form in which payment will be made of the amount determined
under Section 3.4.1 above, either solely in cash, solely in shares of
Common Stock (valued at Fair Market Value on the date of exercise of the
Stock Appreciation Right), or partly in such shares and partly in cash,
provided that the Committee has determined that such exercise and payment
are consistent with applicable law. If the Committee permits the
Participant to elect to receive cash or shares (or a combination thereof)
upon such exercise, the election will be subject to any further conditions
that the Committee may impose.
3.5 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any Eligible
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Person Stock Appreciation Rights exercisable only upon or in respect of a
change in control or any other specified event ("Limited SARs") and such
Limited SARs may relate to or operate in tandem or combination with or
substitution for Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the spread between
the base price of the SAR and a price based upon or equal to the Fair
Market Value of the Shares during a specified period or at a specified time
within a specified period before, after or including the date of such
event.
4. RESTRICTED STOCK AWARDS
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4.1 GRANTS. Subject to Section 4.2.4, the Committee may grant one or more
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Restricted Stock Awards to any Eligible Person. Each Restricted Stock Award
Agreement will specify the number of shares of Common Stock to be issued to
the Participant, the date of such issuance, the consideration for such
shares (but not less than the minimum lawful consideration under applicable
state law) to be paid by the Participant, the extent (if any) to which and
the time (if ever) at which the Participant will be entitled to dividends,
voting and other rights in respect of the shares prior to vesting, and the
restrictions (which may be based on performance criteria, passage of time
or other factors or any combination thereof) imposed on such shares and the
conditions of release or lapse of such restrictions. Unless the Committee
otherwise provides, such restrictions will lapse in respect of 20% of the
shares subject to the Award on the first anniversary of the Award Date and
in respect of an additional 20% of the shares subject to the Award on the
second, third, fourth and fifth anniversaries of the Award Date. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions ("Restricted Shares") will bear a legend making appropriate
reference to the restrictions imposed hereunder and will be held by the
Company or by a third party designated by the Committee until the
restrictions on the shares have lapsed and the shares have vested in
accordance with the provisions of the Award and Section 1.7. Upon issuance
of the Restricted Stock Award, the Participant may be required to provide
such further assurance and documents as the Committee may require to
enforce the restrictions.
4.2 RESTRICTIONS.
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4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and 1.9,
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Restricted Shares comprising any Restricted Stock Award may not be sold,
assigned, transferred,
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pledged or otherwise disposed of or encumbered, either voluntarily or
involuntarily, until the restrictions on such shares have lapsed and the
shares have become vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
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applicable Award Agreement:
(a) a Participant receiving a Restricted Stock Award shall be entitled to
vote such shares but shall not be entitled to dividends on any of the
shares until the shares have vested; and
(b) all dividends shall be retained in a restricted account until the
shares have vested and shall revert to the Company to the extent that
they fail to vest.
(c) CASH PAYMENTS. If the Participant has been paid or received cash
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(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement will specify whether and to what extent
such cash will be returned (with or without an earnings factor) as to
any Restricted Shares that cease to be eligible for vesting.
4.3 LIMIT ON NUMBER OF RESTRICTED SHARES. In no event shall more than 350,000
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shares of Common Stock covered by the Plan be available for Awards issued
(or reissued) under this Plan as time-based Restricted Stock Awards for
nominal or no consideration other than the par value. This limit on
Restricted Shares does not apply to shares issued principally for past
services, to shares issued in respect of compensation earned but deferred,
or to shares issued in respect of Performance-Based Awards under Section
5.2.
4.4 RETURN TO THE COMPANY. Unless the Committee otherwise expressly provides,
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Restricted Shares that remain subject to restrictions at the time of
termination of employment or service, or are subject to other conditions to
vesting that have not been satisfied by the time specified in the
applicable Award Agreement, will not vest and will be returned to the
Company.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES
------------------------------------------
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant Performance
----------------------------------
Share Awards to Eligible Employees based upon such factors as the Committee
deems relevant in light of the specific type and terms of the award. An
Award Agreement will specify the maximum number of shares of Common Stock
(if any) subject to the Performance Share Award, the consideration (but not
less than the minimum lawful consideration) to be paid for any such shares
as may be issuable to the Participant, the duration of the Award and the
conditions upon which delivery of any shares or cash to the Participant
will be based. The amount of cash or shares or other property that may be
deliverable pursuant to such Award will be based upon the degree of
attainment over a specified period of not more than 10 years (a
"performance cycle") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may
provide for full or partial credit, prior to completion of such performance
cycle or the attainment
11
of the performance achievement specified in the Award, in the event of the
Participant's death, Retirement, or Total Disability, a Change in Control
Event or in such other circumstances as the Committee (consistent with
Section 6.10.3(b), if applicable) may determine.
5.2 SPECIAL (SECTION 162(m)) PERFORMANCE-BASED SHARE AWARDS. Options or SAR's
-------------------------------------------------------
granted with an exercise price not less than Fair Market Value at the
applicable date of grant for Section 162(m) purposes to Eligible Employees
which otherwise satisfy the conditions to deductibility under Section
162(m) of the Code are deemed "Qualifying Awards". Such awards are intended
and will be deemed performance-based awards under Section 162(m). Without
limiting the generality of the foregoing, and in addition to Qualifying
Awards granted under other provisions of this Plan, other performance-based
awards within the meaning of Section 162(m) of the Code ("Performance-Based
Awards"), whether initially in the form of bonus stock, stock units,
restricted stock, performance stock, phantom stock or other rights,
including cash-only bonuses or other incentives, the vesting of which
depends on the performance of the Company on a consolidated, segment,
subsidiary, or division basis, with reference to revenue growth, net
earnings (before or after taxes or before or after taxes, interest,
depreciation, extra-ordinary items and/or amortization), cash flow, return
on equity, return on assets or return on net investment, cost containment
or reduction, or any combination thereof (the "business criteria") relative
to preestablished performance goals, may be granted under this Section 5.2.
These terms are used as applied under generally accepted accounting
principles and in the Company's financial reporting. The applicable
business criterion or criteria, the specific performance goals and, if
applicable, the objective formula or standard for computing the amount
payable or the number of shares to be delivered if the performance goal is
(or the performance goals are) attained, must be approved by the Committee
in advance of applicable deadlines under the Code and while the performance
relating to such goals remains substantially uncertain. The applicable
performance measurement period may be not less than one (except as provided
in Section 1.6) nor more than 10 years. No more than one performance cycle
for awards payable only in cash and not related to shares, shall begin in
any year. Other types of performance and non-performance awards may also be
granted under the other provisions of this Plan. The following provisions
relate to all Performance-Based Awards (other than Qualifying Awards)
granted under this Plan:
5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under this
--------------
Section is officers of the Company.
5.2.2 MAXIMUM AWARD. Grants or awards under this Section 5.2 may be paid
-------------
in cash or shares or any combination thereof. In no event shall grants of
share-based Awards made in any calendar year to any Eligible Employee under
this Section 5.2 relate to more than 700,000 shares covered by the Plan. In
no event shall grants to any Eligible Employee under this Plan of Awards
payable only in cash and not related to shares provide for payment of more
than $2.5 million, times the number of years (not more than five), in the
applicable performance period.
12
5.2.3 COMMITTEE CERTIFICATION. To the extent required by Section 162(m),
-----------------------
before any Performance-Based Award under this Section 5.2 is paid, the
Committee must certify that the specific performance goals and any other
material terms of the Performance-Based Award were satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have discretion
------------------------------
to determine the restrictions or other limitations of the individual Awards
under this Section 5.2 (including the authority to reduce Awards, payouts
or vesting or to pay no Awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in
its authorizing resolutions or otherwise). Notwithstanding anything
contained in this Plan to the contrary, the Committee shall have no
discretion to increase the amount of cash or number of shares to be
delivered upon attainment of the performance goals set forth in the
Performance Award Agreement.
5.2.5 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or other features
--------------------------------
of an Award under this Section 5.2 may provide that they (a) shall be
adjusted to reflect a change in corporate capitalization, a corporate
transaction (such as a reorganization, combination, separation, or merger)
or a complete or partial corporate liquidation, or (b) shall be calculated
either without regard for or to reflect any change in accounting policies
or practices affecting the Company and/or the business criteria or
performance goals or targets, or (c) shall be adjusted for any other
circumstance or event, or (d) any combination of (a) through (c), but only
to the extent in each case that such adjustment or determination in respect
of Performance-Based Awards would be consistent with the requirements of
Section 162(m) to qualify as performance-based compensation.
5.3 OTHER STOCK BONUSES. The Committee may grant a Stock Bonus to any Eligible
-------------------
Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the
Committee. The number of shares so awarded will be determined by the
Committee. The Award may be granted independently or in lieu of a cash
bonus and may be paid in the form of Common Stock, Restricted Shares, an
Option, Stock Units (payable in Common Stock or cash) or other Award.
5.4 DEFERRED PAYMENTS. The Committee may provide for the deferral of payment
-----------------
of any Qualifying Award, Performance Share Award or Stock Bonus under and
in accordance with the specific terms of a non-qualified deferred
compensation plan sponsored by the Company, provided that in the case of
Qualifying Awards and Performance-Based Awards, the amount deferred shall
be credited with earnings or dividend equivalents in accordance with
Section 162(m).
5.5 CASH BONUSES. The Committee may establish a program of annual incentive
------------
awards that are payable in cash to Eligible Persons based upon the extent
to which performance goals are met during the performance period. The
performance goals may depend upon the performance of the Company on a
consolidated, subsidiary or division basis with reference to any one or
more of the business criteria set forth in Section 5.2 or such other
13
strategic goals or individual factors (or any combination of such criteria,
goals, or factors).
5.6 ALTERNATIVE PAYMENTS. In lieu of a cash payment of an Award payable in
--------------------
cash, the Committee may require or allow all or a portion of the Award to
be paid or credited in the form of shares of Common Stock, Restricted
Shares, Stock Units, an Option or other Award.
6. OTHER PROVISIONS
----------------
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
-----------------------------------------------------------
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
-----------------
construed as a commitment that any Award will be made under this Plan to an
Eligible Person or to Eligible Persons generally.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any
----------------------
other documents related to this Plan or to any Award) will confer upon any
Eligible Person or other Participant any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other service, nor will interfere in any way with the right
of the Company to otherwise change such person's compensation or other
benefits or to terminate the employment or other service of such person,
with or without cause, but nothing contained in this Plan or any related
document will adversely affect any independent contractual right of such
person without the Participant's consent.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be payable in
---------------
shares or from the general assets of the Company, and (except as provided
in Section 1.4.3) no special or separate reserve, fund or deposit will be
made to assure payment of such Awards. No Participant, Beneficiary or other
person will have any right, title or interest in any fund or in any
specific asset (including shares of Common Stock, except as expressly
otherwise provided) of the Company by reason of any Award hereunder.
Neither the provisions of this Plan (or of any related documents), nor the
creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan will create, or be construed to create, a trust of
any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment pursuant to
any Award hereunder, such right will be no greater than the right of any
unsecured general creditor of the Company.
6.2 ADJUSTMENTS; ACCELERATION.
-------------------------
6.2.1 ADJUSTMENTS. Upon or in contemplation of any reclassification,
-----------
recapitalization, stock split (including a stock split in the form of a
stock dividend) or reverse stock split; any merger, combination,
consolidation, or other reorganization; any spin-off, split-up, or similar
extraordinary dividend distribution ("spin-off") in respect of the Common
Stock (whether in the form of securities or property); any exchange of
Common Stock or other securities of the Company, or any similar, unusual or
extraordinary corporate transaction in respect of the Common Stock; or a
sale of all or substantially all the assets of the
14
Company as an entirety ("asset sale"); then the Committee shall, in such
manner, to such extent (if any) and at such time as it deems appropriate
and equitable in the circumstances:
(a) in any of such events, proportionately adjust any or all of (1) the
number and type of shares of Common Stock (or other securities) that
thereafter may be made the subject of Awards (including the specific
maxima and numbers of shares set forth elsewhere in this Plan), (2)
the number, amount and type of shares of Common Stock (or other
securities or property) subject to any or all outstanding Awards, (3)
the grant, purchase, or exercise price of any or all outstanding
Awards, (4) the securities, cash or other property deliverable upon
exercise of any outstanding Awards, or (5) (subject to limitations
under Section 6.10.3(b)) the performance standards appropriate to any
outstanding Awards, or
(b) in the case of a reclassification, recapitalization, merger,
consolidation, combination, or other reorganization, spin off or asset
sale, make provision for a cash payment or for the substitution or
exchange of any or all outstanding share-based Awards or the cash,
securities or property deliverable to the holder of any or all
outstanding share-based Awards, based upon the distribution or
consideration payable to holders of the Common Stock upon or in
respect of such event.
In each case, with respect to Awards of Incentive Stock Options, no
adjustment will be made that would cause the Plan to violate Section
424(a) of the Code or any successor provisions without the written
consent of holders materially adversely affected thereby.
In any of such events, the Committee may take such action prior to
such event to the extent that the Committee deems the action necessary
to permit the Participant to realize the benefits intended to be
conveyed with respect to the underlying shares in the same manner as
is or will be available to shareholders generally.
6.2.2 ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Unless prior to a
---------------------------------------------
Change in Control Event the Committee determines that, upon its
occurrence, benefits under any or all Awards will not be accelerated
or determines that only certain or limited benefits under any or all
Awards will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such
Event for such acceleration, then upon the occurrence of a Change in
Control Event:
(a) each Option and Stock Appreciation Right will become immediately
exercisable,
(b) Restricted Stock will immediately vest free of restrictions, and
(c) each Performance Share Award will become payable to the
Participant.
Any discretion with respect to these events shall be limited to
the extent required by applicable accounting requirements in the
case of a transaction intended to be accounted for as a pooling
of interests transaction.
15
The Committee may override the limitations on acceleration in
this Section 6.2.2 by express provision in the Award Agreement
and may accord any Eligible Person a right to refuse any
acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve.
Any acceleration of Awards will comply with applicable legal
requirements and, if necessary to accomplish the purposes of the
acceleration or if the circumstances require, may be deemed by
the Committee to occur (subject to Section 6.2.4) a limited
period of time not greater than 30 days before the event.
6.2.3 POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option or
------------------------------------------------
other right to acquire Common Stock under this Plan has been fully
accelerated as required or permitted by Section 6.2.2 but is not exercised
prior to (a) a dissolution of the Company, or (b) an event described in
Section 6.2.1 that the Company does not survive, or (c) the consummation of
an event described in Section 6.1 involving a Change of Control approved by
the Board, such Option or right will terminate, subject to any provision
that has been expressly made by the Board, the Committee through a plan of
reorganization approved by the Board or otherwise for the survival,
substitution, assumption, exchange or other settlement of such Option or
right.
6.2.4 POSSIBLE RECISION OF ACCELERATION. If the vesting of an Award has
---------------------------------
been accelerated expressly in anticipation of an event or subject to
shareholder approval of an event and the Committee or the Board later
determines that the event will not occur, the Committee may rescind the
effect of the acceleration as to any then outstanding and unexercised or
otherwise unvested Awards.
6.2.5 ACCELERATION UPON TERMINATION OF SERVICE IN ANTICIPATION OF, OR
---------------------------------------------------------------
FOLLOWING A CHANGE IN CONTROL. Unless the Committee otherwise provides
-----------------------------
prior to a Change in Control, if any Participant's employment is terminated
by the Company for any reason other than For Cause either in express
anticipation of and within three months of, or within one year after a
Change of Control, then all Options/Awards held by the Participant shall be
deemed fully vested immediately prior to the date of termination,
irrespective of the vesting provisions of the Participant's Award
Agreement.
6.3 EFFECT OF TERMINATION OF SERVICE ON AWARDS. The Committee will establish
------------------------------------------
the effect of a termination of employment or service on the rights and
benefits for each Award under this Plan and in so doing may make
distinctions based upon the cause of termination.
6.3.1 TERMINATION OF CONSULTING OR AFFILIATE SERVICES. If the Participant
-----------------------------------------------
is not an Eligible Employee or director and provides services as an Other
Eligible Person, the Committee shall be the sole judge of whether the
Participant continues to render services to the Company, unless a contract
or the Award otherwise provides. If in these circumstances the Committee
notifies the Participant in writing that a termination of services of the
Participant for purposes of this Plan has occurred, then (unless the
contract or Award otherwise expressly provides), the Participant's
termination of services for purposes of Section 2.6, 3, 4.3 or 5 shall be
the date which is 10 days after the
16
Committee's mailing of the notice or, in the case of a Termination For
Cause, the date of the mailing of the notice.
6.3.2 EVENTS NOT DEEMED TERMINATIONS OF SERVICE. Unless Company policy or
-----------------------------------------
the Committee otherwise provides, the employment or service relationship
shall not be considered terminated in the case of (i) sick leave, (ii)
military leave, or (iii) any other leave of absence authorized by the
Company or the Committee; provided that unless reemployment upon the
expiration of such leave is guaranteed by contract or law, such leave is
for a period of not more than 90 days. In the case of any Eligible Employee
on an approved leave of absence, continued vesting of the Award while on
leave from the employ of the Company shall be suspended, unless the
Committee otherwise provides or applicable law otherwise requires. In no
event shall an Award be exercised after the expiration of the term set
forth in the Award Agreement.
6.3.3 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan and
-------------------------------------
any Award, if an entity ceases to be a Subsidiary a termination of
employment or service will be deemed to have occurred with respect to each
Eligible Person in respect of the Subsidiary who does not continue as an
Eligible Person in respect of another entity within the Company.
6.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards under
--------------------
this Plan, the offer, issuance and delivery of shares of Common Stock, the
acceptance of promissory notes and/or the payment of money under this Plan
or under Awards are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state and
federal securities law, federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion
of counsel for the Company, be necessary or advisable in connection
therewith. In addition, any securities delivered under this Plan may be
subject to any special restrictions that the Committee may require to
preserve a pooling of interests under generally accepted accounting
principles. The person acquiring any securities under this Plan will, if
requested by the Company, provide such assurances and representations to
the Company as the Committee may deem necessary or desirable to assure
compliance with all applicable legal and accounting requirements.
6.5 TAX MATTERS.
-----------
6.5.1 PROVISION FOR TAX WITHHOLDING OR OFFSET. Upon any exercise, vesting,
---------------------------------------
or payment of any Award or upon the disposition of shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option prior to
satisfaction of the holding period requirements of Section 422 of the Code,
the Company shall have the right at its option to (a) require the
Participant (or Personal Representative or Beneficiary, as the case may be)
to pay or provide for payment of the amount of any taxes which the Company
may be required to withhold with respect to such Award event or payment or
(b) deduct from any amount payable in cash the amount of any taxes which
the Company may require to be withheld with respect to such cash payment.
In any case where a tax is required to be withheld in connection with the
delivery of shares of Common Stock under this Plan, the Committee may in
its sole discretion (subject to Section 6.4) grant
17
(either at the time of the Award or thereafter) to the Participant the
right to elect, pursuant to such rules and subject to such conditions as
the Committee may establish, to have the Company reduce the number of
shares to be delivered by (or otherwise reacquire) the appropriate number
of shares valued at their Fair Market Value, to satisfy such withholding
obligation, determined in each case as of the trading day next preceding
the applicable date of exercise, vesting or payment.
6.5.2 TAX LOANS. If so provided in the Award Agreement, the Company may, to
---------
the extent permitted by law, authorize a short-term loan of not more than
nine (9) months to an Eligible Person in the amount of any taxes that the
Company may be required to withhold with respect to shares of Common Stock
received (or disposed of, as the case may be) pursuant to a transaction
described in Section 6.5.1. Such a loan will be for a term, at a rate of
interest and pursuant to such other terms and conditions as the Committee,
under applicable law, may establish and such loan need not comply with the
other provisions of Section 1.8.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
------------------------------------------
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or, from
-------------------
time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee will retain jurisdiction as to
Awards then outstanding in accordance with the terms of this Plan.
6.6.2 SHAREHOLDER APPROVAL. To the extent then required under Sections
--------------------
162(m), 422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan shall be
subject to shareholder approval.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express authority of
--------------------
the Committee under (but subject to) the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations
on Awards to Participants that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make
other changes to the terms and conditions of Awards that do not affect in
any manner materially adverse to the Participant, the Participant's rights
and benefits under an Award.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
--------------------------------------------
suspension or termination of this Plan or change of or affecting any
outstanding Award will, without written consent of the Participant, affect
in any manner materially adverse to the Participant any rights or benefits
of the Participant or obligations of the Company under any Award granted
under this Plan prior to the effective date of such change. Changes
contemplated by Section 6.2 will not be deemed to constitute changes or
amendments for purposes of this Section 6.6.
6.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly authorized by
-----------------------------
the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record
18
by the Participant. No adjustment will be made for dividends or other
rights as a shareholder for which a record date is prior to such date of
delivery.
6.8 EFFECTIVE DATE OF THE PLAN. This Plan is effective as of August 5, 1998,
--------------------------
the date of approval by the Board. The Plan shall be submitted for and
subject to shareholder approval.
6.9 TERM OF THE PLAN. No Award will be granted under this Plan after August 4,
----------------
2008 (the "termination date"). Unless otherwise expressly provided in this
Plan or in an applicable Award Agreement, any Award granted prior to the
termination date may extend beyond such date, and all authority of the
Committee with respect to Awards hereunder, including the authority to
amend an Award, will continue during any suspension of this Plan and in
respect of Awards outstanding on the termination date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
---------------------------------------
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents will be governed by, and construed
in accordance with the laws of the State of California.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
------------
provision invalid and unenforceable, the remaining provisions of this Plan
will continue in effect.
6.10.3 Plan Construction.
(a) RULE 16B-3. It is the intent of the Company that the Awards and
----------
transactions permitted by Awards generally satisfy and be interpreted
in a manner that, in the case of Participants who are or may be
subject to Section 16 of the Exchange Act, satisfies the applicable
requirements of Rule 16b-3 so that such persons (unless they
otherwise agree) will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act in respect
of those transactions and will not be subjected to avoidable
liability.
(b) SECTION 162(M). It is the further intent of the Company that (to the
--------------
extent the Company or Awards under this Plan may be or become subject
to limitations on deductibility under Section 162(m) of the Code),
the Initial Options and Options or SARs subsequently granted with an
exercise or base price not less than Fair Market Value on the date of
grant and Performance-Based Awards under Section 5.2 of this Plan
that are granted to or held by a person subject to Section 162(m) of
the Code will qualify as performance-based compensation or otherwise
be exempt from deductibility limitations under Section 162(m) of the
Code, to the extent that the Committee authorizing the Award (or the
payment thereof, as the case may be) satisfies any applicable
administrative requirements thereof. This Plan will be interpreted
consistent with such intent.
6.11 CAPTIONS. Captions and headings are given to the sections and subsections
--------
of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any
19
way material or relevant to the construction or interpretation of this
Plan or any provision thereof.
6.12 STOCK-BASED AWARDS IN SUBSTITUTION FOR STOCK OPTIONS OR AWARDS GRANTED BY
-------------------------------------------------------------------------
OTHER CORPORATIONS. Awards may be granted to Eligible Persons under this
------------------
Plan in substitution for employee stock options, SARs, restricted stock or
other stock-based awards granted by other entities to persons who are or
who will become Eligible Persons in respect of the Company, in connection
with a distribution, merger or reorganization by or with the granting
entity or an affiliated entity, or the acquisition by the Company,
directly or indirectly, of all or a substantial part of the stock or
assets of the employing entity.
6.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be deemed to
-----------------------
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
7. DEFINITIONS
-----------
"Award" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"Award Agreement" means any writing setting forth the terms of an Award
that has been authorized by the Committee.
"Award Date" means the date upon which the Committee took the action
granting an Award or such later date as the Committee designates as the grant or
award date at the time of the Award or, in the case of Awards under Section 8,
the applicable dates set forth therein.
"Award Period" means the period beginning on an Award Date and ending on
the expiration date of such Award.
"Beneficiary" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the laws of
descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"Board" means the Board of Directors of Korn/Ferry International.
"Change in Control Event" means any of the following:
(a) An acquisition by any Person (excluding one or more Excluded Persons)
of beneficial ownership (within the meaning of Rule 13d 3 under Exchange
Act or a pecuniary interest in (either comprising "ownership of") more than
------------
30% of the Common Stock or voting securities entitled to then vote
generally in the election of directors of
20
Korn/Ferry International ("Voting Stock"), after giving effect to any new
------ -----
issue in the case of an acquisition from Korn/Ferry International; or
(b) Approval by the shareholders of Korn/Ferry International of a plan of
merger, consolidation, or reorganization of Korn/Ferry International or of
a sale or other disposition of all or substantially all of Korn/Ferry
International's consolidated assets as an entirety (collectively, a
"Business Combination"), other than a Business Combination (1) in which all
---------------------
or substantially all of the holders of Voting Stock hold or receive
directly or indirectly 70% or more of the voting stock of the entity
resulting from the Business Combination (or a parent company), and (2)
after which no Person (other than any one or more of the Excluded Persons)
owns more than 30% of the voting stock of the resulting entity (or a parent
company) who did not own directly or indirectly at least that amount of
Voting Stock immediately before the Business Combination, and (3) after
which one or more Excluded Persons own an aggregate number of shares of the
voting stock at least equal to the aggregate number of shares of voting
stock owned by any other Person who is not an Excluded Person (except for
any person described in and satisfying the conditions of Rule 13d-1(b)(1)
under the Exchange Act), if any, and who owns more than 30% of the voting
stock.
(c) Approval by the Board and (if required by law) by shareholders of
Korn/Ferry International of a plan to consummate the dissolution or
complete liquidation of Korn/Ferry International; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board and any new director (other
than a director designated by a person who has entered into an agreement or
arrangement with Korn/Ferry International to effect a transaction described
in clause (a) or (b) of this definition) whose appointment, election, or
nomination for election was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose appointment, election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board;
For purposes of determining whether a Change in Control Event has occurred, a
transaction includes all transactions in a series of related transactions.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commission" means the Securities and Exchange Commission.
"Committee" means the Board or a committee appointed by the Board to
administer this Plan, provided that any committee shall be comprised only of two
or more directors subject to the following restrictions:
(a) In respect of any decision of the Committee made at a time when the
Participant affected by the decision may be subject to Section 162(m) of
the Code, and the Awards subject to such decision are intended to satisfy
the requirements for exemption therefrom,
21
the decision shall be approved by a committee comprised of "outside
directors" (as this term is defined in Section 162(m)) to the extent
required by Section 162(m).
(b) In respect of any decision of the Committee made at a time when the
Participant affected by the decision may be subject to Section 16(b) of the
Exchange Act, and the Awards subject to such decision are intended to
satisfy the requirements for exemption therefrom, the decision shall be
approved by the Board or by a committee comprised of Non-Employee Directors
(as this term is as defined in Rule 16(b)-3 of the Exchange Act) to the
extent required by Rule 16(b)-3.
"Common Stock" means the Common Stock of Korn/Ferry International and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 6.2 of this
Plan.
"Company" means Korn/Ferry International, a California Corporation, its
successors, and/or its Subsidiaries, as the context requires, provided that with
respect to the Common Stock, or the grant, exercise, or disposition of an Award
or the provisions of Sections 1.8, 5.2.1, 6.2.1, 6.2.3, 6.4 and 6.10, Company
means only Korn/Ferry International.
"Eligible Employee" means an officer (whether or not a director) or
employee of the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person,
as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Excluded Person" means
(a) the Company
(b) any person described in and satisfying the conditions of Rule 13d-
1(b)(1) under the Exchange Act);
(c) any employee benefit plan of Korn/Ferry International;
(d) any affiliates (within the meaning of the Exchange Act), successors, or
heirs, descendants or members of the immediate families of the individuals
identified in part (b) of this definition.
"Fair Market Value" on any date means
(a) if the stock is listed or admitted to trade on a national securities
exchange, the closing price of the stock on the Composite Tape of the
principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on
such date, then the closing price of the stock as quoted on such Composite
Tape on the next preceding date on which there was trading in such shares;
(b) if the stock is not listed or admitted to trade on a national
securities exchange, the closing price for the stock on such date, as
furnished by the National Association of
22
Securities Dealers, Inc. ("NASD") through the NASDAQ National Market
Reporting System or a similar organization if the NASD is no longer
reporting such information;
(c) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market Reporting
System, the mean between the bid and asked price for the stock on such
date, as furnished by the NASD or a similar organization; or
(d) if the stock is not listed or admitted to trade on a national
securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by the
NASD or a similar organization, the value as established by the Committee
at such time for purposes of this Plan.
Notwithstanding the foregoing, the Fair Market Value of the Common Stock for
purposes of determining the exercise price of the Initial Options granted to
employees under this Plan will be deemed to be the initial price at which the
Common Stock is offered to the public in the IPO.
"Incentive Stock Option" or "ISO" means an Option that is designated and
intended as an incentive stock option within the meaning of Section 422 of the
Code, the award of that contains such provisions (including but not limited to
the receipt of shareholder approval of this Plan, if the award is made prior to
such approval) and is made under such circumstances and to such persons as may
be necessary to comply with that section.
"Initial Options" means Options granted during or at the completion of an
IPO.
"IPO" means a bona fide, firm commitment underwritten public offering of
the Common Stock pursuant to a registration statement on Form S-1 (or other
applicable form) that is declared effective under the Securities Act that
results in Korn/Ferry International becoming a registered company in respect of
the Common Stock under the Exchange Act.
"Korn/Ferry International" means Korn/Ferry International, a California
Corporation, and its successors (if any).
"Nonqualified Stock Option" means an Option that is designated as a
Nonqualified Stock Option and will include any Option intended as an Incentive
Stock Option that fails to meet the applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an incentive stock option
will be deemed to be designated a nonqualified stock option under this Plan and
not an incentive stock option under the Code.
"Non-Employee Director" for purposes of Section 8 means a member of the
Board of Directors of Korn/Ferry International who is not an officer or employee
of the Company or any 50% or greater parent corporation.
"Non-Employee Director Participant" means a Non-Employee Director who holds
an outstanding Award under the provisions of Section 8.
"Option" means an option to purchase Common Stock granted under this Plan.
The Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
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"Other Eligible Person" means (a) any director, or (b) any individual
consultant or advisor or agent who renders or has rendered bona fide services
---- ----
(other than services in connection with the offering or sale of securities of
the Company in a capital raising transaction) to the Company, and who (to the
extent provided in the next sentence) is selected to participate in this Plan by
the Committee. A person who is neither an employee nor officer who provides
bona fide services to the Company may be selected as an Other Eligible Person
- ---- ----
only if such person's participation in this Plan would not adversely affect (a)
Korn/Ferry International's eligibility to use Form S-8 to register under the
Securities Act of 1933, as amended, the offering and sale of shares issuable
under this Plan by Korn/Ferry International or (b) Korn/Ferry International's
compliance with any other applicable laws.
"Performance Share Award" means an Award of a right to receive shares of
Common Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of that
is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"Person" means an association, a corporation, an individual, a partnership,
a trust or any other entity or organization, including a governmental entity and
a "person" as that term is used under Section 13(d) or 14(d) of the Exchange
Act.
"Personal Representative" means the person or persons who, upon the
disability or legal incompetence of a Participant, has acquired on behalf of the
Participant, by legal proceeding or otherwise, the power to exercise the rights
or receive benefits under this Plan by virtue of having become the legal
representative of the Participant.
"Plan" means this Performance Award Plan, as may be amended from time to
time.
"Restricted Shares" or "Restricted Stock" means shares of Common Stock
awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include, among
others, the passage of time, specified performance objectives or other factors)
and such transfer and other restrictions as are established in or pursuant to
this Plan and the related Award Agreement, for so long as such shares remain
unvested or restricted under the terms of the applicable Award Agreement.
"Retirement" means retirement from active service as an employee or officer
of the Company after age 65.
"Rule 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to
the Exchange Act, as amended from time to time.
"Section 16 Person" means a person subject to Section 16(a) of the Exchange
Act.
"Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
24
"Stock Appreciation Right" or "SAR" means a right authorized under this
Plan to receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"Stock Bonus" means an Award of shares of Common Stock granted under this
Plan for no consideration other than past services and without restriction other
than such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"Stock Unit" means a bookkeeping entry which serves as a unit of
measurement relative to a share of Common Stock for purposes of determining the
payment of a deferred benefit or right under the Plan.
"Subsidiary" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by Korn/Ferry International.
"Termination For Cause" means (unless otherwise expressly provided in the
Award Agreement or another contract) a termination of service, based upon a
finding by the Company, acting in good faith and based on its reasonable belief
at the time, that the Participant:
(a) is or has been dishonest, incompetent, or negligent in the discharge of
his or her duties to the Company; or has refused to perform stated or
assigned duties; or
(b) has committed a theft or embezzlement, or a breach of confidentiality
or unauthorized disclosure or use of inside information, customer lists,
trade secrets or other confidential information, or a breach of fiduciary
duty involving personal profit, or a willful or negligent violation of any
law, rule or regulation or of Company rules or policy, in any material
respect; or has been convicted of a felony or misdemeanor (other than minor
traffic violations or similar offenses); or
(c) has materially breached any of the provisions of any agreement with the
Company or a parent corporation; or
(d) has engaged in unfair competition with, or otherwise acted
intentionally in a manner injurious to the reputation, business or assets
of the Company; or has induced a customer to break or terminate any
contract with the Company or an affiliate; or has induced any principal for
whom the Company (or an affiliate) acts as agent to terminate such agency
relationship.
A Termination For Cause shall be deemed to occur (subject to reinstatement upon
a contrary final determination by the Board or Committee) on the date when the
Company first delivers notice to the Participant of a finding of Termination For
Cause and shall be final in all respects on the date following the opportunity
to be heard and written notice to the Participant that his or her service is
terminated.
"Total Disability" means any medically determinable physical or mental
condition or impairment which prevents the Participant from performing the
essential functions of his or her
25
job with the Company that can be expected to result in death or that has lasted
or can be expected to last for a period of 90 consecutive days or for shorter
periods aggregating 180 days in any consecutive 12 month period.
8. NON-EMPLOYEE DIRECTOR OPTIONS
-----------------------------
8.1 PARTICIPATION. Awards under this Section 8 will be made only to Non-
-------------
Employee Directors and will be evidenced by Award Agreements substantially
in the form of Exhibit A or the form approved by the Board.
8.2 OPTION GRANTS.
-------------
8.2.1 INITIAL AWARD. Any person who is not an officer or employee of the
-------------
Company and who is or who thereafter becomes a director of Korn/Ferry
---
International upon completion of an IPO and the registration of the Common
Stock of Korn/Ferry International under the Exchange Act, will
automatically be granted (without any action by the Board or Committee) a
Nonqualified Stock Option (the Award Date of which will be the tenth (10th)
trading day after the date of such registration or the time such person
takes office, as the case may be) to purchase 2,000 shares of Common Stock.
8.2.2 SUBSEQUENT ANNUAL AWARDS. Subject to Section 8.2.3, at the close of
------------------------
trading on the day of the annual shareholders meeting in each year during
the term of the Plan commencing in 1999, there will be granted
automatically (without any action by the Committee or the Board) a
Nonqualified Stock Option (the Award Date of which will be such date) to
each Non-Employee Director then continuing in office to purchase 2,000
shares of Common Stock.
8.2.3 MAXIMUM NUMBER OF OPTIONS/SHARES. Annual grants that would otherwise
--------------------------------
exceed the maximum number of shares under Section 1.4.1 will be prorated
within such limitation. A Non-Employee Director will not receive more than
one Nonqualified Stock Option under this Section 8.2 in any calendar year.
8.3 OPTION PRICE. The purchase price per share of the Common Stock covered by
------------
each Option granted pursuant to Section 8.2 will be 100% of the Fair Market
Value of the Common Stock on the Award Date. The exercise price of any
Option granted under this Section will be paid in full at the time of each
(i) purchase in cash or by check, (ii) in shares of Common Stock valued at
their Fair Market Value on the date of exercise of the Option and, if the
shares were acquired from the Company, owned by the Participant at least
six months prior to the date of exercise, (iii) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, or (iv) any combination of the
foregoing methods of payment.
8.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this Section 8
--------------------------------
and all rights or obligations thereunder will expire on the day before the
10th anniversary of the Award Date and will be subject to earlier
termination as provided below. Unless the Committee provides otherwise, an
Option granted under Section 8.2 will become exercisable on the Award Date.
26
8.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services as a
---------------------------
member of the Board terminate for any reason, an Option granted pursuant to
this Section 8 and then held by the director, to the extent the Option is
then exercisable, will remain exercisable for 12 months after the date of
termination or until the expiration of the stated term of the Option,
whichever first occurs. Any portion of an Option granted pursuant to this
Section 8 that is not exercisable at the time of the termination of service
will terminate upon the termination of service.
8.6 ADJUSTMENTS; ACCELERATION UPON A CHANGE IN CONTROL EVENT; TERMINATION.
---------------------------------------------------------------------
Options granted under this Section 8 will be subject to adjustment,
assumption, conversion, substitution or exchange, termination and
acceleration as provided in Section 6.2, but in the case of a Change in
Control Event only to the extent that the changes and any Board or
Committee action in respect thereof (i) are effected pursuant to the terms
of a reorganization agreement approved by shareholders of Korn/Ferry
International or otherwise consistent with the effect of the event on
Options held by persons other than executive officers or directors of
Korn/Ferry International and (ii) are consistent in respect of the
underlying shares with the effect on shareholders generally.
27