EX-10.3 4 h87279ex10-3.txt 2001 INCENTIVE PLAN 1 EXHIBIT 10.3 ADMINISTAFF, INC. 2001 INCENTIVE PLAN (ADOPTED EFFECTIVE AS OF MARCH 7, 2001) 1. OBJECTIVES. This Administaff, Inc. 2001 Incentive Plan (this "Plan") is intended as an incentive to retain and attract persons of training, experience and ability to serve as employees of Administaff, Inc., a Delaware corporation (the "Company"), and its Subsidiaries and as nonemployee directors of the Company, to encourage the sense of proprietorship of such persons and to stimulate the active interest of such persons in the development and financial success of the Company and its Subsidiaries. 2. DEFINITIONS. As used herein, the terms set forth below shall have the following respective meanings: "ANNUAL DIRECTOR AWARD DATE" means, for each calendar year beginning on or after January 1, 2002, in which this Plan is in effect, the date on which the annual meeting of the stockholders of the Company is held in that year. "AWARD" means an Employee Award or a Director Award. "AWARD AGREEMENT" means a written agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to an Award. "BOARD" means the Board of Directors of the Company. "CASH AWARD" means an Award payable in cash. "CAUSE" means: (a) the Director whose removal is proposed has been convicted, or when a Director is granted immunity to testify when another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (b) such Director has been found by the affirmative vote of a majority of the entire Board at any regular or special meeting of the Board called for that purpose or by a court of competent jurisdiction to have been guilty of willful misconduct in the performance of his duties to the Company in a matter of substantial importance to the Company; or (c) such Director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a Director of the Company. "CHANGE IN CONTROL" means: 2 (a) the date of the acquisition by any "person" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the Company or any of its Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of either the then outstanding shares of common stock of the Company or the then outstanding voting securities entitled to vote generally in the election of directors; or (b) the date the individuals who constitute the Board as of March 7, 2001 (the "Incumbent Board"), cease for any reason to constitute at least a majority of the members of the Board, provided that any person becoming a director subsequent to March 7, 2001, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than any individual whose nomination for election to Board membership was not endorsed by the Company's management prior to, or at the time of, such individual's initial nomination for election) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or (c) the date of consummation of a merger, consolidation, recapitalization, reorganization, sale or disposition of all or a substantial portion of the Company's assets or the issuance of shares of stock of the Company in connection with the acquisition of the stock or assets of another entity, provided, however, that a Change in Control shall not occur under this clause (c) if consummation of the transaction would result in at least 65% of the total voting power represented by the voting securities of the Company (or, if not the Company, the entity that succeeds to all or substantially all of the Company's business) outstanding immediately after such transaction being beneficially owned (within the meaning of Rule 13d-3 promulgated pursuant to the Exchange Act) by at least 65% of the holders of outstanding voting securities of the Company immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or (d) the date the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report of item therein) that a change in control of the Company has or may have occurred, or will or may occur in the future, pursuant to any then existing contract or transaction. "CODE" means the United States Internal Revenue Code of 1986, as amended from time to time. "COMMITTEE" means the Compensation Committee of the Board or any other committee as may be designated by the Board. "COMMON STOCK" means the common stock, par value $0.01 per share, of the Company or any security into which such Common Stock may be changed by reason of any transaction or event of the type described in Section 13. "COMPANY" means Administaff, Inc., a Delaware corporation. -2- 3 "DIRECTOR" means a member of the Board, excluding any individual who is also an employee of the Company or any Subsidiary. "DIRECTOR AWARD" means a Director Option. "DIRECTOR OPTION" means a nonqualified stock option granted to a Director pursuant to Section 7. "DISABILITY" means the inability to perform the duties of the Director's position for a period of six (6) consecutive months or for an aggregate of six (6) months during any twelve (12) month period after the Grant Date by reason of any medically determinable physical or mental impairment, as determined by the Committee in the Committee's sole discretion. "EMPLOYEE" means an individual employed by the Company or any Subsidiary. For purposes of this Plan, an Employee also includes any individual who has been offered employment by the Company or any Subsidiary, provided that (a) any Award granted to such prospective employee shall be canceled if such individual fails to commence such employment, (b) no payment of value may be made in connection with such Award until such individual has commenced such employment, and (c) such individual may not be granted an ISO prior to the date the individual actually commences employment. "EMPLOYEE AWARD" means any Option, Performance Award, Phantom Stock Award, Cash Award, Stock Award, Stock Appreciation Right or Other Stock-Based Award, whether granted singly, in combination or in tandem, to a Participant who is an Employee pursuant to any applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. "EXERCISE PRICE" means the price at which the Option Shares may be purchased under the terms of the Award Agreement. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. "FAIR MARKET VALUE" of a share of Common Stock means, as of a particular date, (a) if shares of Common Stock are listed on a national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported or, at the discretion of the Committee, the price prevailing on the exchange at the time of exercise; (b) if shares of Common Stock are not so listed but are quoted on the Nasdaq National Market, the closing sales price per share of Common Stock reported by the Nasdaq National Market on that date or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported or, at the discretion of the Committee, the price prevailing on the Nasdaq National Market at the time of exercise; (c) if the Common Stock is not so listed or quoted, the closing price on that date or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by the Nasdaq Stock Market or, if not reported by the Nasdaq Stock Market, by the National Quotation Bureau Incorporated; or (d) if none of the above is applicable, -3- 4 then such amount as may be determined by the Committee or the Board in such a manner as it deems in good faith to be the fair market value per share of Common Stock. "GRANT DATE" means (a) with respect to an Award other than a Director Award, the date specified by the Committee in the Award Agreement on which such Award will become effective, and (b) with respect to a Director Award, the automatic date of grant for such Award as provided in Section 7. "ISO" means an incentive stock option within the meaning of Code Section 422. "OPTION" means a right to purchase a particular number of shares of Common Stock at a particular Exercise Price, subject to certain terms and conditions as provided in this Plan and in the Award Agreement. An Option may be in the form of an ISO or a nonqualified stock option within the meaning of Code Section 83. "OPTION SHARES" means the shares of Common Stock covered by a particular Option. "OTHER STOCK-BASED AWARD" means any Award that shall consist of a right that (a) is not an Option, Performance Award, Phantom Stock Award, Stock Award or SAR, and (b) is denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock as is deemed by the Committee to be consistent with the terms of the Plan. "PARTICIPANT" means an Employee or a Director to whom an Award has been granted under this Plan. "PERFORMANCE AWARD" means an Employee Award, such as a Performance Unit, that is subject to the achievement of one or more Performance Objectives established by the Committee. "PERFORMANCE OBJECTIVES" means the objectives, if any, established by the Committee that are to be achieved with respect to an Award granted under this Plan, which may be described in terms of Company-wide objectives, in terms of objectives that are related to performance of a division, Subsidiary, department, geographic market or function within the Company or a Subsidiary in which the Participant receiving the Award is employed, or in individual or other terms, and which shall relate to the period of time determined by the Committee. The Performance Objectives intended to qualify under Code Section 162(m) shall be with respect to one or more of the following: (a) net earnings; (b) operating income; (c) earnings before interest and taxes; (d) earnings before interest, taxes, depreciation and amortization expenses; (e) earnings before taxes and unusual or nonrecurring items; (f) total revenue; (g) return on investment; (h) return on equity; (i) return on total capital; (j) return on assets; (k) total stockholder return; (l) return on capital employed in the business; (m) stock price performance; (n) earnings per share growth; (o) cash flows; (p) total profit; (q) operating expenses; (r) fee revenue; (s) total revenue less bonus payroll; (t) the number of paid worksite employees; and (u) gross mark-up per worksite employee. -4- 5 The Committee shall determine, in its sole discretion, at the time of grant of an Award, which Performance Objectives to use with respect to an Award, the weighting of such objectives if more than one is used and whether such objective(s) is (are) to be measured against a Company-established budget or target, an index or a peer group of companies. A Performance Objective need not be based on an increase or a positive result and may be based, for example, on maintaining the status quo or limiting economic losses. "PERFORMANCE UNIT" means a unit equivalent to $100 or such other value as determined by the Committee. "PHANTOM STOCK AWARD" means the right to receive the value of a specified number of shares of Common Stock. "PLAN" means the Administaff, Inc. 2001 Incentive Plan, as amended from time to time. "RESTRICTED STOCK" means shares of Common Stock that are restricted or subject to forfeiture provisions. "STOCK APPRECIATION RIGHTS" or "SARS" means the right to receive an amount in cash or Common Stock equal to the appreciation in value of a specified number of shares of Common Stock over a particular period of time. "STOCK AWARD" means an Employee Award denominated in or payable in shares of Common Stock, which may be Restricted Stock. "SUBSIDIARY" means (a) with respect to any Awards other than ISOs, (i) in the case of a corporation, any corporation of which the Company directly or indirectly owns shares representing 50% or more of the combined voting power of the shares of all classes or series of capital stock of such corporation that have the right to vote generally on matters submitted to a vote of the stockholders of such corporation, and (ii) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Company directly or indirectly owns 50% or more of the voting, capital or profits interests (whether in the form of partnership interests, membership interests or otherwise), and (b) with respect to Awards of ISOs, any subsidiary within the meaning of Code Section 424(f). 3. PLAN ADMINISTRATION AND DESIGNATION OF PARTICIPANTS. All Employees of the Company and its Subsidiaries and all Directors of the Company are eligible for Awards under this Plan. The Committee shall select the Participants from time to time by the grant of Employee Awards under this Plan and, subject to the terms and conditions of this Plan, shall determine all terms and conditions of the Employee Awards. The Committee shall have no discretion with respect to the grant of Director Awards. This Plan shall be administered by the Committee, which shall have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or appropriate. The Committee may, in its discretion, provide for the extension of the exercisability of an Employee Award, accelerate the vesting or exercisability of an Employee -5- 6 Award, eliminate or make less restrictive any restrictions contained in an Employee Award, waive any restriction or other provision of this Plan or an Employee Award or otherwise amend or modify an Employee Award in any manner that is either (a) not adverse to the Participant to whom such Employee Award was granted, or (b) consented to by such Participant. Notwithstanding anything herein to the contrary, no Option or SAR shall be granted in exchange for another Option or SAR if the Exercise Price of the previously granted Option or SAR is greater than the Exercise Price of the replacement Option or SAR. No member of the Committee shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute. 4. AWARD AGREEMENT. Each Award granted hereunder shall be described in an Award Agreement, which shall be subject to the terms and conditions of this Plan and shall be signed by the Participant and by the appropriate officer for and on behalf of the Company. 5. SHARES OF COMMON STOCK RESERVED FOR THIS PLAN. Subject to adjustment as provided in Section 13 hereof, a total of 1,500,000 shares of Common Stock shall be reserved for issuance upon the exercise or payment of Awards granted pursuant to this Plan. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. The Committee and the appropriate officers of the Company shall from time to time take whatever actions are necessary to execute, acknowledge, file and deliver any documents required to be filed with or delivered to any governmental authority or any stock exchange or transaction reporting system on which shares of Common Stock are listed or quoted in order to make shares of Common Stock available for issuance pursuant to this Plan. Awards that are forfeited or terminated or expire unexercised in such a manner that all or some of the shares of Common Stock subject thereto are not issued to a Participant shall immediately become available for the granting of Awards under this Plan. 6. EMPLOYEE AWARDS. (a) OPTIONS. An Employee Award may be in the form of an Option. The Exercise Price of an Option granted under this Plan shall not be less than 100% of the Fair Market value of the Common Stock at the time of grant. Options granted to an Employee of the Company may, in the discretion of the Committee, provide for an automatic "reload" grant upon the exercise of the Option, with such terms and conditions on any such reload grant as the Committee may choose, provided, however, that the Exercise Price for such reload option shall not be less than 100% of the Fair Market Value of the Common Stock at the time of grant of such reload option and the term for such reload option shall not exceed the remaining term for the original Option. (i) INCENTIVE STOCK OPTIONS. Options granted to Employees hereunder may be ISOs. An ISO shall consist of a right to purchase a specified number of shares of Common Stock at a price specified by the Committee in the Award Agreement or otherwise, which shall not be less than the Fair Market Value of the Common Stock on the Grant Date. Any ISO granted shall expire not later than ten (10) years after the Grant Date, with the expiration date to be specified by the Committee in the Award Agreement. Any ISO granted must, in addition to being -6- 7 subject to applicable terms, conditions and limitations established by the Committee, comply with Code Section 422. All other terms, conditions and limitations applicable to ISOs shall be determined by the Committee. (ii) NONQUALIFIED STOCK OPTIONS. Options granted to Employees may be nonqualified stock options within the meaning of Code Section 83. A nonqualified stock option shall consist of a right to purchase a specified number of shares of Common Stock at a price specified by the Committee in the Award Agreement or otherwise, which shall not be less than the Fair Market Value of the Common Stock on the Grant Date. The expiration date of the nonqualified stock option shall be specified by the Committee in the Award Agreement. All other terms, conditions and limitations applicable to nonqualified stock options shall be determined by the Committee. (b) PERFORMANCE AWARD. An Employee Award may be in the form of a Performance Award, such as a Performance Unit. A Performance Award shall be subject to the achievement of one or more Performance Objectives. All other terms, conditions and limitations applicable to Performance Awards shall be determined by the Committee. (c) STOCK AWARD (INCLUDING RESTRICTED STOCK). An Employee Award may consist of Common Stock or may be denominated in units of Common Stock. All terms, conditions and limitations applicable to any Stock Award pursuant to this Plan shall be determined by the Committee. (d) PHANTOM STOCK AWARD. An Employee Award may be in the form of Phantom Stock or other bookkeeping account tied to the value of shares of Common Stock. All terms, conditions and limitations applicable to any Phantom Stock Award shall be determined by the Committee. (e) STOCK APPRECIATION RIGHT. An Employee Award may be in the form of SARs. All terms, conditions and limitations applicable to any Employee Awards of SARs shall be determined by the Committee. (f) CASH AWARD. An Employee Award may be in the form of a Cash Award. All terms, conditions and limitations applicable to any Cash Award shall be determined by the Committee. (g) OTHER STOCK-BASED AWARDS. An Employee Award may be in the form of any Other Stock-Based Award. All terms, conditions and limitations applicable to any Other Stock-Based Award shall be determined by the Committee. (h) The following limitations shall apply to any Award made hereunder: (i) Notwithstanding anything herein to the contrary, no Participant may be granted, during any one calendar year period, Options or SARs (that are not subject to the achievement of any Performance Objectives) with respect to more than 100,000 shares of Common Stock. -7- 8 (ii) Notwithstanding anything herein to the contrary, no Participant may be granted, during any one calendar year period, Performance Awards having a total value in excess of $1,000,000 or Cash Awards (that are not subject to the achievement of any Performance Objectives) having a total value in excess of $1,000,000. (iii) Notwithstanding anything herein to the contrary, no Participant may be granted, during any one calendar year period, Stock Awards or Phantom Stock Awards (that are not subject to the achievement of any Performance Objectives) or Other Stock-Based Awards with respect to more than 100,000 shares of Common Stock. 7. DIRECTORS AWARDS. Directors of the Company shall be granted Director Awards in accordance with this Section 7 and subject to applicable terms and limitations set forth in this Plan and the applicable Award Agreements. Notwithstanding anything herein to the contrary, if the number of shares of Common Stock available for Awards under this Plan is insufficient to make all automatic grants of Director Awards provided for in this Section 7 on the applicable Grant Date, then all Directors who are entitled to a Director Award on such date shall share ratably in the number of shares then available for Awards under this Plan, all Directors shall have no right to receive a Director Award with respect to the deficiencies in the number of available shares, and all future Director Awards under this Section 7 shall terminate. (a) INITIAL DIRECTOR AWARD. Each Director who is elected or appointed to the Board for the first time after March 7, 2001, shall be automatically granted, on the date of his or her election or appointment to the Board, a Director Option to purchase 7,500 shares of Common Stock (the "Initial Director Award"), which shall become vested and exercisable as to one-third (1/3) of the Option Shares on each anniversary of the Grant Date unless such Director requests in writing not to receive such Initial Director Award. Notwithstanding the foregoing, if the Director terminates his service as a member of the Board, his or her unvested Option Shares, if any, shall terminate immediately on such termination date, unless such termination of service is due to death or Disability, in which event the unvested Option Shares shall become immediately 100% vested and exercisable on such termination date. (b) ANNUAL DIRECTOR AWARD. On the Annual Director Award Date, each Director who is in office immediately after the annual meeting on such date and who was not elected or appointed to the Board for the first time on such date shall be automatically granted a Director Option to purchase 5000 shares of Common Stock (the "Annual Director Award"), which shall be 100% vested and exercisable on the Grant Date unless such Director requests in writing not to receive such Annual Director Award. (c) TERMINATION OF DIRECTOR AWARDS. The Initial Director Award and the Annual Director Award granted to each Director shall terminate and be of no force and effect with respect to any shares of Common Stock not previously purchased by the Director upon the first to occur of: (i) the tenth (10th) anniversary of the Grant Date for such Award or -8- 9 (ii) with respect to (1) the portion of the Initial Director Award and Annual Director Award exercisable upon termination of service, the expiration of (A) three (3) months following the Director's termination of service for Cause or (B) three (3) years following the Director's termination of service for any other reason; and/or (2) the portion of the Initial Director Award not exercisable upon termination of service, the date of the Director's termination of service. Notwithstanding anything herein to the contrary, the normal expiration date for Director Awards shall not be extended. (d) EXERCISE PRICE. The exercise price of the Common Stock under the Initial Director Award and the Annual Director Award granted to each Director shall be the Fair Market Value of the shares of Common Stock subject to such Director Award on the Grant Date for such Director Award. (e) AWARD AGREEMENT. Each Initial Director Award and Annual Director Award granted to a Director shall be evidenced by an Award Agreement between the Company and such Director that sets forth the terms, conditions and limitations described above and any additional terms, conditions and limitations applicable to the Initial Director Award or the Annual Director Award. Such Award Agreements shall be consistent with the terms and conditions of this Plan. 8. PAYMENT OF AWARDS. (a) GENERAL. Payment of Awards may be made in the form of cash or Common Stock or combinations thereof and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. (b) DEFERRAL. The Committee may, in its discretion, (i) permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee or (ii) provide for the deferral of an Award in an Award Agreement or otherwise. Any such deferral may be in the form of installment payments or a future lump-sum payment. Any deferred payment, whether elected by the Participant or specified by the Award Agreement or the Committee, may be forfeited if and to the extent that the Award Agreement so provides. (c) DIVIDENDS AND INTEREST. Dividends or dividend equivalent rights may be extended to and made part of any Award denominated in Common Stock or units of Common Stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for deferred payment denominated in Common Stock or units of Common Stock. -9- 10 (d) SUBSTITUTION OF AWARDS. At the discretion of the Committee, a Participant who has been granted an Employee Award may be offered an election to substitute an Employee Award for another Employee Award or Employee Awards of the same or different type, subject to the overall limits expressed in this Plan. (e) NO FRACTIONAL SHARES. The Committee shall not be required to issue any fractional shares of Common Stock under this Plan. The Committee, in its sole discretion, may provide for the elimination of fractions for the settlement of fractions in cash. 9. OPTION EXERCISE. The price at which shares of Common Stock may be purchased under an Option shall be paid in full at the time of exercise (a) in cash or by check payable and acceptable to the Company, or (b) by tendering to the Company shares of Common Stock owned by the Participant for at least six months, if acquired pursuant to a Company stock option, such shares having an aggregate Fair Market Value as of the date of exercise and tender that is not greater than the Exercise Price for the shares with respect to which the Option is being exercised, and by paying any remaining amount of the Exercise Price as provided in (a) above (provided that the Committee may, upon confirming that the Participant owns the number of shares being tendered, authorize the issuance of a new certificate for the number of shares being acquired pursuant to the exercise of the Option less the number of shares being tendered upon the exercise and return to the Participant (or not require surrender of) the certificate for the shares being tendered upon the exercise), or (c) by the Participant delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the Exercise Price and any required tax withholding amounts, provided that in the event the Participant chooses to pay the Exercise Price and withholding taxes as provided in (c) above, the Participant and the broker shall comply with such procedures and enter into such agreements as the Committee may prescribe as a condition of such payment procedure, or (d) by a combination of such payment methods. 10. TERMINATION OF EMPLOYMENT OR SERVICE. Upon the termination of employment or service by a Participant, any unexercised, deferred or unpaid Awards shall be treated as provided in the specific Award Agreement evidencing the Award or, in the case of Director Awards, as provided in this Plan. Unless otherwise specifically provided in the Award Agreement, each Award granted pursuant to this Plan that is an Option shall immediately terminate to the extent the Option is not vested (or does not become vested as a result of such termination of employment or service) on the date the Participant terminates employment or service with the Company or its Subsidiaries. 11. ACCELERATION UPON A CHANGE IN CONTROL. Notwithstanding anything herein to the contrary, all conditions and/or restrictions relating to the continued employment or service of a Participant and/or the achievement of Performance Objectives with respect to the vesting and exercisability or full entitlement to any Award shall immediately lapse upon a Change in Control. 12. ASSIGNABILITY. Unless otherwise permitted by the Committee, no Award granted under this Plan shall be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a Participant other than by (a) will or the laws of descent and distribution, or (b) -10- 11 a qualified domestic relations order. During the lifetime of a Participant, any Award shall be exercisable only by him, or in the case of a Participant who is mentally incapacitated, the Award shall be exercisable by his guardian or legal representative. The Committee may prescribe and include in applicable Award Agreements other restrictions on transfer. Any attempted assignment or transfer in violation of this Section 12 shall be null and void. Upon the Participant's death, the personal representative or other person entitled to succeed to the rights of the Participant (the "Successor Participant") may exercise such rights. A Successor Participant must furnish proof satisfactory to the Company of his or her right to exercise the Award under the Participant's will or under the applicable laws of descent and distribution. Subject to approval by the Committee in its sole discretion, other than with respect to ISOs, all or a portion of the Awards granted to a Participant under this Plan may be transferable by the Participant, to the extent and only to the extent specified in such approval, to (a) the spouse, children or grandchildren (including adopted children and stepchildren and grandchildren) of the Participant ("Immediate Family Members"), (b) a trust or trusts for the exclusive benefit of such Immediate Family Members and, if applicable, the Participant, or (c) a partnership or partnerships in which such Immediate Family Members and, if applicable, the Participant are the only partners, provided that the Award Agreement pursuant to which such Awards are granted (or an amendment thereto) must expressly provide for transferability in a manner consistent with this Section. Subsequent transfers of transferred Awards shall be prohibited except by will or the laws of descent and distribution, unless such transfers are made to the original Participant or a person to whom the original Participant could have made a transfer in the manner described herein. No transfer shall be effective unless and until written notice of such transfer is provided to the Committee, in the form and manner prescribed by the Committee. Following transfer, any such Awards shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and except as otherwise provided herein, the term "Participant" shall be deemed to refer to the transferee. No transferred Options shall be exercisable unless arrangements satisfactory to the Company have been made to satisfy any tax withholding obligations the Company may have with respect to the Options. The consequences of termination of employment or service shall continue to be applied with respect to the original Participant, following which the Awards shall be exercisable by the transferee only to the extent and for the periods specified in this Plan and the Award Agreement. 13. ADJUSTMENTS. (a) The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its stockholders to make or authorize (i) any or all adjustments, recapitalization, reorganizations or other changes in the ownership of the Company or its business, (ii) any merger or consolidation of the Company, (iii) any issue of bonds, debentures or other obligations, (iv) the dissolution or liquidation of the Company, (v) any sale or transfer of all or any part of its assets or business, or (vi) any other Company act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. (b) In the event of any Common Stock distribution or split, recapitalization, extraordinary distribution, merger, consolidation, combination or exchange of shares of Common Stock or similar change or upon the occurrence of any other event that the -11- 12 Committee, in its sole discretion, deems appropriate, (i) the number of shares of Common Stock reserved under this Plan and covered by outstanding Awards, (ii) the Exercise Price in respect of such Awards, and (iii) the kind of shares covered thereby (including shares of another issuer) shall be adjusted as appropriate. (c) In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee shall be authorized (i) to issue or assume Awards by means of substitution of new Awards, as appropriate, for previously issued Awards or to assume previously issued Awards as part of such adjustment, or (ii) to cancel Awards that are Options or SARs and give the Participants who are the holders of such Awards notice and opportunity to exercise for thirty (30) days prior to such cancellation. (d) The Committee, in its sole discretion and without the consent of the Participant, may amend (i) any stock-based Award to reflect a change in accounting rules required by the Financial Accounting Standards Board, and (ii) any Award that is not intended to meet the requirements of Code Section 162(m), to reflect a significant event that the Committee, in its sole discretion, believes to be appropriate to reflect the original intent in the grant of the Award. 14. TAX WITHHOLDING. The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Award with respect to which withholding is required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made. 15. AMENDMENTS OR TERMINATION. The Company may amend, alter or discontinue this Plan, except that (a) no amendment or alteration that would impair the rights of any Participant under any Award that he has been granted shall be made without his consent, and (b) no amendment or alteration shall be effective prior to approval by the Company's stockholders to the extent such approval is determined by the Board to be required by applicable laws, regulations or exchange requirements. 16. RESTRICTIONS. No shares of Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied, based on the advice of its counsel, that such issuance will be in compliance with applicable federal and state securities laws. The Award Agreement may include provisions for the repurchase by the Company of Common Stock acquired pursuant to an Award and repurchase of the Participant's Option rights. 17. UNFUNDED PLAN. Insofar as it provides for Awards of cash, Common Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, -12- 13 Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to a grant of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. None of the Company, the Board or the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan. 18. INDEMNIFICATION. The Company shall indemnify and hold harmless any member of the Board or the Compensation Committee and other individuals, including Employees and Directors, performing services on behalf of the Committee, against any liability, cost or expense arising as a result of any claim asserted by any person or entity under the laws of any state or of the United States with respect to any action or failure to act of such individuals taken in connection with this Plan, except claims or liabilities arising on account of the willful misconduct or bad faith of such Board member, Compensation Committee member or individual. 19. MISCELLANEOUS. The granting of any Award shall not impose upon the Company any obligation to maintain any Participant as an Employee or a Director and shall not diminish the power of the Company to terminate any Participant's employment or service at any time. 20. GOVERNING LAW. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Texas. 21. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of March 7, 2001, subject to approval of this Plan by the stockholders of the Company within one year of the date this Plan is adopted by the Board. If the stockholders of the Company should fail to so approve this Plan within one year of the adoption date, this Plan shall terminate and cease to be of any further force or effect and all grants of Awards hereunder shall be null and void. Attested to by the Secretary of Administaff, Inc., as adopted by the Board of Directors effective as of March 7, 2001. /s/ John H. Spurgin -------------------------------------------- -13-