Exhibit 10.1

 

HANGER, INC.
SPECIAL EQUITY PLAN

 

1.     Purposes and Effective Date.

 

(a)   Purpose. The Hanger, Inc. Special Equity Plan has the purpose of retaining
and incentivizing key employees and officers.  The Plan will provide
participants the opportunity to acquire shares of the Company’s common stock on
the potentially favorable terms that this Plan provides.

 

(b)   Effective Date. This Plan will become effective, and Awards may be granted
under this Plan, on and after the Effective Date.  This Plan will terminate as
provided in Section 10.

 

2.     Definitions. Capitalized terms used and not otherwise defined in this
Plan or in any Award agreement have the following meanings:

 

(a)   “Administrator” means the Committee.

 

(b)   “Affiliate” has the meaning ascribed to such term in Rule 12b-2 under the
Exchange Act. Notwithstanding the foregoing, for purposes of determining those
individuals to whom an Option may be granted, the term “Affiliate” means any
entity that, directly or through one or more intermediaries, is controlled by or
is under common control with, the Company within the meaning of Code Sections
414(b) or (c); provided that, in applying such provisions, the phrase “at least
20 percent” shall be used in place of “at least 80 percent” each place it
appears therein.

 

(c)   “Award” means a grant of Options, Restricted Stock Units or Performance
Share Units.

 

(d)   “Board” means the Board of Directors of the Company.

 

(e)   “Cause” (i) has the meaning given in a Participant’s employment,
retention, change of control, severance or similar agreement with the Company or
any Affiliate, or (ii) if no such agreement is in effect, then (A) if the
determination of Cause is being made prior to a Change of Control, Cause has the
meaning given in the Company’s employment policies, if any, as in effect at the
time of the determination or (B) if the determination of Cause is being made
following a Change of Control, Cause has the meaning given in the Company’s
employment policies, if any, as in effect immediately prior to the Change of
Control, or (iii) if no such agreement or policies are in effect, then Cause
shall mean the occurrence of any of the following: (x) the repeated failure or
refusal of the Participant to follow the lawful directives of the Company or an
Affiliate (except due to sickness, injury or disabilities), (y) gross
inattention to duty or any other willful, reckless or grossly negligent act (or
omission to act) by the Participant, which, in the good faith judgment of the
Company, could result in a material injury to the Company or an Affiliate
including but not limited to the repeated failure to follow the policies and
procedures of the Company, or (z) the commission by the Participant of a felony
or other crime involving moral turpitude or the commission by the Participant of
an act of financial dishonesty against the Company or an Affiliate.

 

(f)    A “Change of Control” shall be deemed to exist if:

 

(i)            a Person either (A) acquires twenty percent (20%) or more of the
combined voting power of the outstanding securities of the Company having the
right to

 

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vote in elections of directors and such acquisition shall not have been approved
within sixty (60) days following such acquisition by a majority of the
Continuing Directors (as hereinafter defined) then in office, or (B) acquires
fifty percent (50%) or more of the combined voting power of the outstanding
securities of the Company having a right to vote in elections of directors; or

 

(ii)           Continuing Directors shall for any reason cease to constitute a
majority of the Board; or

 

(iii)          the Company disposes of all or substantially all of the business
of the Company to a party or parties other than a subsidiary or other affiliate
of the Company pursuant to a partial or complete liquidation of the Company,
sale of assets (including stock of a subsidiary of the Company) or otherwise; or

 

(iv)          there is consummated a merger, consolidation or share exchange of
the Company with any other corporation or the issuance of voting securities of
the Company in connection with a merger, consolidation or share exchange of the
Company (or any direct or indirect subsidiary of the Company), other than (A) a
merger, consolidation or share exchange which would result in the voting
securities of the Company outstanding immediately prior to such merger,
consolidation or share exchange continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or any parent thereof) at least fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger, consolidation or share
exchange, or (B) a merger, consolidation or share exchange effected to implement
a recapitalization of the Company (or similar transaction) in which no Person
(other than an Excluded Person) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its Affiliates after the Effective Date pursuant to express
authorization by the Board that refers to this exception) representing twenty
percent (20%) or more of either the then outstanding shares of Stock or the
Company or the combined voting power of the Company’s then outstanding voting
securities.

 

For purposes of this Plan, (1) the term “Continuing Director” shall mean a
member of the Board who either was a member of the Board on the Effective Date
or who subsequently became a Director and whose election, or nomination for
election, was approved by a vote of at least two-thirds (2/3) of the Continuing
Directors then in office, and (2) the term “Excluded Person” shall mean (A) the
Company or its subsidiaries, (B) a trustee or other fiduciary holding securities
under any employee benefit plan of the Company or its subsidiaries, (C) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (D) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock in the Company.

 

If an Award is considered deferred compensation subject to the provisions of
Code Section 409A, then the foregoing definition shall be deemed amended to the
minimum extent necessary to comply with Code Section 409A, and the Administrator
may include such amended definition in the Award agreement issued with respect
to such Award.

 

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(g)   “Code” means the Internal Revenue Code of 1986, as amended. Any reference
to a specific provision of the Code includes any successor provision and the
regulations promulgated under such provision.

 

(h)   “Committee” means the Compensation Committee of the Board, any successor
committee thereto or such other committee of the Board that is designated by the
Board with the same or similar authority. The Committee shall consist only of
Non-Employee Directors (not fewer than two (2)) who also qualify as Non-Employee
Directors to the extent necessary for the Plan to comply with Rule 16b-3
promulgated under the Exchange Act.

 

(i)    “Company” means Hanger, Inc., a Delaware corporation, or any successor
thereto.

 

(j)    “Director” means a member of the Board.

 

(k)   “Effective Date” means the date the Board approves this Plan.

 

(l)    “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any
reference to a specific provision of the Exchange Act includes any successor
provision and the regulations and rules promulgated under such provision.

 

(m)  “Fair Market Value” means, per Share on a particular date, (i) if the
Shares are listed on a national securities exchange, the last sales price on the
immediately preceding day on the national securities exchange on which the Stock
is then traded, as reported in The Wall Street Journal, or if no sales of Stock
occur on such immediately preceding day, then on the last preceding date on
which there was a sale on such exchange; or (ii) if the Shares are not listed on
a national securities exchange, but are traded in an over-the-counter market,
the last sales price (or, if there is no last sales price reported, the average
of the closing bid and asked prices) for the Shares on the immediately preceding
day, or on the last preceding date on which there was a sale of Shares on that
market; or (iii) if the Shares are neither listed on a national securities
exchange nor traded in an over-the-counter market, the price determined by the
Administrator, in its discretion. Notwithstanding the foregoing, in the case of
the sale of Shares, the actual sale price shall be the Fair Market Value of such
Shares.

 

(n)   “Non-Employee Director” means a Director who is not also an employee of
the Company or its Subsidiaries.

 

(o)   “Option” means the right to purchase Shares at a stated price for a
specified period of time.  All Options granted under this Plan shall be
nonqualified stock options not intended to meet the requirements of Code
Section 422.

 

(p)   “Participant” means an individual selected by the Administrator to receive
an Award.

 

(q)   “Performance Goals” means any goals the Administrator establishes.

 

(r)    “Performance Share Units” means the right to receive Shares, or the Fair
Market Value equivalent in cash, to the extent Performance Goals are achieved
(and/or other requirements are met).

 

(s)    “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof, or any group of Persons
acting in concert that

 

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would be considered “persons acting as a group” within the meaning of Treas.
Reg. § 1.409A-3(i)(5).

 

(t)    “Plan” means this Hanger, Inc. Special Equity Plan, as it may be amended
from time to time.

 

(u)   “Restricted Stock Unit” means the right to receive a cash payment and/or
Shares the value of which is equal to the Fair Market Value of one Share.

 

(v)   “Section 16 Participants” means Participants who are subject to the
provisions of Section 16 of the Exchange Act.

 

(w)  “Share” means a share of Stock.

 

(x)   “Stock” means the Common Stock of the Company, $.01 par value.

 

3.     Administration.

 

(a)   Administration. The Committee has the authority to determine the amounts,
forms and terms of the Awards granted to Participants; provided that the
Committee shall make all Awards under the Plan on a single grant date of its
choosing.  Subject to the foregoing, the Administrator has full discretionary
authority to administer this Plan, including but not limited to the authority
to: (i) interpret the provisions of this Plan or any agreement covering an
Award; (ii) prescribe, amend and rescind rules and regulations relating to this
Plan; (iii) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any agreement covering an Award in the
manner and to the extent it deems desirable to carry this Plan or such Award
into effect; and (iv) make all other determinations necessary or advisable for
the administration of this Plan. All Administrator determinations shall be made
in the sole discretion of the Administrator and are final and binding on all
interested parties.

 

(b)   No Liability; Indemnification. No member of the Board or the Committee
will be liable for any act done, or determination made, by the individual in
good faith with respect to the Plan or any Award. The Company will indemnify and
hold harmless each such individual as to any acts or omissions, or
determinations made, in each case done or made in good faith, with respect to
this Plan or any Award to the maximum extent that the law and the Company’s
By-Laws permit.

 

4.     Eligibility. The Administrator may designate any officer or other
employee of the Company or its Affiliates as a Participant to the extent of the
Administrator’s authority. The Administrator’s granting of a particular type of
Award to a Participant will not require the Administrator to grant any other
type of Award to such individual.

 

5.     Types of Awards. Subject to the terms of this Plan, the Administrator may
grant any type of Award or combination of Award types to any Participant.

 

6.     Shares Reserved under this Plan.

 

(a)   Plan Reserve. Subject to adjustment as provided in Section 12, an
aggregate of one million five hundred thousand (1,500,000) Shares are reserved
for issuance under this Plan. The aggregate number of Shares reserved under this
Section 6(a) shall be depleted on the date of grant of the Awards by the maximum
number of Shares with respect to which such Award is

 

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granted.  All Awards under the Plan shall be made on a single grant date of the
Committee’s choosing.

 

(b)   No Replenishment of Shares Under this Plan. If an Award lapses, expires,
terminates or is cancelled without the issuance of Shares thereunder, such
Shares shall not be available for future grants under the Plan.

 

7.     Options. Subject to the terms of this Plan, the Administrator will
determine all terms and conditions of each Option, including but not limited to:
(a) the grant date, which shall be a single date of the Administrator’s choosing
for all Awards under the Plan and may not be any day prior to the date that the
Administrator approves the grant; (b) the number of Shares subject to the
Option; (c) the exercise price, which may never be less than the Fair Market
Value of the Shares subject to the Option as determined on the date of grant;
(d) the terms and conditions of vesting and exercise; (e) the term, except that
an Option must terminate no later than ten (10) years after the date of grant;
and (f) the manner of payment of the exercise price. To the extent permitted by
the Administrator, and subject to such procedures as the Administrator may
specify, the payment of the exercise price of Options may be made by
(w) delivery of cash or other Shares or other securities of the Company
(including by attestation) having a then Fair Market Value equal to the purchase
price of such Shares, (x) by delivery (including by fax) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the Shares and deliver the sale or margin loan proceeds directly to
the Company to pay for the exercise price, (y) by surrendering the right to
receive Shares otherwise deliverable to the Participant upon exercise of the
Award having a Fair Market Value at the time of exercise equal to the total
exercise price, or (z) by any combination of (w), (x) and/or (y). Except to the
extent otherwise set forth in an Award agreement, a Participant shall have no
rights as a holder of Stock as a result of the grant of an Option until the
Option is exercised, the exercise price and applicable withholding taxes are
paid and the Shares subject to the Option are issued thereunder.

 

8.     Restricted Stock Units and Performance Share Units.  Subject to the terms
of this Plan, the Administrator will determine all terms and conditions of each
award of Restricted Stock Units and Performance Share Units, including but not
limited to: (a) the grant date, which shall be a single date of the
Administrator’s choosing for all Awards under the Plan; (b) the number of Shares
and/or units to which such Award relates; (c) the Performance Goals, if any,
that must be achieved during such period as the Administrator specifies to earn
the Award; (d) the length of the vesting and/or performance period; (e) whether
such Restricted Stock Units or  Performance Share Units will be settled in
Shares, cash or a combination thereof; and (f) the date on which payment of the
benefit provided under the Award will be made.

 

9.     Transferability.   Awards are not transferable other than by will or the
laws of descent and distribution, unless and to the extent the Administrator
allows a Participant to: (a) designate in writing a beneficiary to exercise the
Award or receive payment under the Award after the Participant’s death;
(b) transfer an Award to the former spouse of the Participant as required by a
domestic relations order incident to a divorce; or (c) transfer an Award;
provided, however, that with respect to clause (c) above the Participant may not
receive consideration for such a transfer of an Award.

 

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10.  Termination and Amendment of Plan; Amendment, Modification or Cancellation
of Awards.

 

(a)   Term of Plan. Unless the Board earlier terminates this Plan pursuant to
Section 10(b), this Plan will terminate when all Awards granted hereunder have
been settled, forfeited or otherwise terminated.

 

(b)   Termination and Amendment. The Board or the Administrator may amend,
alter, suspend, discontinue or terminate this Plan at any time, subject to the
following limitations:

 

(i)            the Board must approve any amendment of this Plan to the extent
the Company determines such approval is required by: (A) prior action of the
Board,  (B) applicable corporate law, or (C) any other applicable law;

 

(ii)           shareholders must approve any amendment of this Plan (which may
include an amendment to materially increase any number of Shares specified in
Section 6(a), except as permitted by Section 12) to the extent the Company
determines such approval is required by: (A) Section 16 of the Exchange Act,
(B) the Code, (C) the listing requirements of any principal securities exchange
or market on which the Shares are then traded, or (D) any other applicable law;
and

 

(iii)          shareholders must approve an amendment that would diminish the
protections afforded by Section 10(e).

 

(c)           Amendment, Modification, Cancellation and Disgorgement of Awards.

 

(i)            Except as provided in Section 10(e) and subject to the
requirements of this Plan, the Administrator may modify, amend or cancel any
Award, or waive any restrictions or conditions applicable to any Award or the
exercise of the Award; provided that, except as otherwise provided in the Plan
or the Award agreement, any modification or amendment that materially diminishes
the rights of the Participant, or the cancellation of an Award, shall be
effective only if agreed to by the Participant or any other person(s) as may
then have an interest in such Award, but the Administrator need not obtain
Participant (or other interested party) consent for the modification, amendment
or cancellation of an Award pursuant to the provisions of subsection (ii) or
Section 12 or as follows: (A) to the extent the Administrator deems such action
necessary to comply with any applicable law or the listing requirements of any
principal securities exchange or market on which the Shares are then traded;
(B) to the extent the Administrator deems necessary to preserve favorable
accounting or tax treatment of any Award for the Company; or (C) to the extent
the Administrator determines that such action does not materially and adversely
affect the value of an Award or that such action is in the best interest of the
affected Participant (or any other person(s) as may then have an interest in the
Award). Notwithstanding the foregoing, unless determined otherwise by the
Administrator, any such amendment shall be made in a manner that will enable an
Award intended to be exempt from Code Section 409A to continue to be so exempt,
or to enable an Award intended to comply with Code Section 409A to continue to
so comply.

 

(ii)           Notwithstanding anything to the contrary in an Award agreement,
the Administrator shall have full power and authority to terminate or cause the
Participant to forfeit the Award, and require the Participant to disgorge to the
Company any gains attributable to the Award, if the Participant engages in any
action constituting, as determined by the Administrator in its discretion, Cause
for termination, or a breach of any Award agreement or any other agreement
between the Participant and the

 

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Company or an Affiliate concerning noncompetition, nonsolicitation,
confidentiality, trade secrets, intellectual property, nondisparagement or
similar obligations.

 

(iii)          Any Awards granted pursuant to this Plan, and any Stock issued or
cash paid pursuant to an Award, shall be subject to any recoupment or clawback
policy that is adopted by, or any recoupment or similar requirement otherwise
made applicable by law, regulation or listing standards to, the Company from
time to time.

 

(d)   Survival of Authority and Awards. Notwithstanding the foregoing, the
authority of the Board and the Administrator under this Section 10 and to
otherwise administer the Plan with respect to then-outstanding Awards will
extend beyond the date of this Plan’s termination. In addition, termination of
this Plan will not affect the rights of Participants with respect to Awards
previously granted to them, and all unexpired Awards will continue in force and
effect after termination of this Plan except as they may lapse or be terminated
by their own terms and conditions.

 

(e)   Repricing and Backdating Prohibited. Notwithstanding anything in this Plan
to the contrary, and except for the adjustments provided for in Section 12,
neither the Administrator nor any other person may (i) amend the terms of
outstanding Options to reduce the exercise price of such outstanding Options;
(ii) cancel outstanding Options in exchange for Options with an exercise price
that is less than the exercise price of the original Options; or (iii) cancel
outstanding Options with an exercise price above the current Fair Market Value
of a Share in exchange for cash or other securities. In addition, the
Administrator may not make a grant of an Option with a grant date that is
effective prior to the date the Administrator takes action to approve such
Award.

 

11.  Taxes.

 

(a)   Withholding. In the event the Company or one of its Affiliates is required
to withhold any Federal, state or local taxes or other amounts in respect of any
income recognized by a Participant as a result of the grant, vesting, payment or
settlement of an Award or disposition of any Shares acquired under an Award, the
Company may deduct (or require an Affiliate to deduct) from any payments of any
kind otherwise due the Participant cash, or with the consent of the
Administrator, Shares otherwise deliverable or vesting under an Award, to
satisfy such tax or other obligations. Alternatively, the Company or its
Affiliate may require such Participant to pay to the Company or its Affiliate,
in cash, promptly on demand, or make other arrangements satisfactory to the
Company or its Affiliate regarding the payment to the Company or its Affiliate
of the aggregate amount of any such taxes and other amounts. If Shares are
deliverable upon exercise or payment of an Award, then the Administrator may
permit a Participant to satisfy all or a portion of the Federal, state and local
withholding tax obligations arising in connection with such Award by electing to
(i) have the Company or its Affiliate withhold Shares otherwise issuable under
the Award, (ii) tender back Shares received in connection with such Award or
(iii) deliver other previously owned Shares, in each case having a Fair Market
Value equal to the amount to be withheld; provided that the amount to be
withheld may not exceed the total minimum federal, state and local tax
withholding obligations associated with the transaction to the extent needed for
the Company and its Affiliates to avoid an accounting charge until Accounting
Standards Update 2016-09 applies to the Company, after which time the amount to
be withheld may not exceed the total maximum statutory tax rates associated with
the transaction. If an election is provided, the election must be made on or
before the date as of which the amount of tax to be withheld is determined and
otherwise as the Administrator

 

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requires. In any case, the Company and its Affiliates may defer making payment
or delivery under any Award if any such tax may be pending unless and until
indemnified to its satisfaction.

 

(b)         No Guarantee of Tax Treatment. Notwithstanding any provisions of
this Plan to the contrary, the Company does not guarantee to any Participant or
any other Person with an interest in an Award that (i) any Award intended to be
exempt from Code Section 409A shall be so exempt, (ii) any Award intended to
comply with Code Section 409A shall so comply, or (iii) any Award shall
otherwise receive a specific tax treatment under any other applicable tax law,
nor in any such case will the Company or any Affiliate be required to indemnify,
defend or hold harmless any individual with respect to the tax consequences of
any Award.

 

12.       Adjustment and Change of Control Provisions.

 

(a)         Adjustment of Shares. If (i) the Company shall at any time be
involved in a merger or other transaction in which the Shares are changed or
exchanged; (ii) the Company shall subdivide or combine the Shares or the Company
shall declare a dividend payable in Shares, other securities (other than stock
purchase rights issued pursuant to a shareholder rights agreement) or other
property; (iii) the Company shall effect a cash dividend the amount of which, on
a per Share basis, exceeds ten percent (10%) of the Fair Market Value of a Share
at the time the dividend is declared, or the Company shall effect any other
dividend or other distribution on the Shares in the form of cash, or a
repurchase of Shares, that the Board determines by resolution is special or
extraordinary in nature or that is in connection with a transaction that the
Company characterizes publicly as a recapitalization or reorganization involving
the Shares; or (iv) any other event shall occur, which, in the case of this
clause (iv), in the judgment of the Administrator necessitates an adjustment to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under this Plan, then the Administrator shall, in such
manner as it may deem equitable to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under this Plan,
adjust any or all of: (A) the number and type of Shares subject to this Plan
(including the number and type of Shares described in Section 6(a)) and which
may after the event be made the subject of Awards; (B) the number and type of
Shares subject to outstanding Awards; (C) the exercise price with respect to any
Award; and (D) the Performance Goals of an Award. In any such case, the
Administrator may also (or in lieu of the foregoing) make provision for a cash
payment to the holder of an outstanding Award in exchange for the cancellation
of all or a portion of the Award (without the consent of the holder of an Award)
in an amount determined by the Administrator effective at such time as the
Administrator specifies (which may be the time such transaction or event is
effective). Further, the number of Shares subject to any Award payable or
denominated in Shares must always be a whole number. In any event, previously
granted Options are subject to only such adjustments as are necessary to
maintain the relative proportionate interest the Options represented immediately
prior to any such event and to preserve, without exceeding, the value of such
Options.

 

Without limitation, in the event of any reorganization, merger, consolidation,
combination or other similar corporate transaction or event, whether or not
constituting a Change of Control (other than any such transaction in which the
Company is the continuing corporation and in which the outstanding Stock is not
being converted into or exchanged for different securities, cash or other
property, or any combination thereof), the Administrator may substitute, on an
equitable basis as the Administrator determines, for each Share then subject to
an Award and the Shares subject to this Plan (if the Plan will continue in
effect), the number and kind of shares of stock, other securities, cash or other
property to which holders of Stock are or will be entitled in respect of each
Share pursuant to the transaction.

 

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Notwithstanding the foregoing, in the case of a stock dividend (other than a
stock dividend declared in lieu of an ordinary cash dividend) or subdivision or
combination of the Shares (including a reverse stock split), if no action is
taken by the Administrator, adjustments contemplated by this subsection that are
proportionate shall nevertheless automatically be made as of the date of such
stock dividend or subdivision or combination of the Shares.

 

(b)         Issuance or Assumption. Notwithstanding any other provision of this
Plan, and without affecting the number of Shares otherwise reserved or available
under this Plan, in connection with any merger, consolidation, acquisition of
property or stock, or reorganization, the Administrator may authorize the
issuance or assumption of awards under this Plan upon such terms and conditions
as it may deem appropriate.

 

(c)          Effect of Change of Control and Termination of Employment. The
Administrator may designate in the agreement representing an Award the effect of
a Change of Control or the termination of the Participant’s employment upon such
Award.  To the extent such agreement does not address the effect of a Change of
Control or termination of the Participant’s employment, the Administrator may
determine the effect (if any) in its discretion upon such Change of Control or
termination of employment.  Notwithstanding anything to the contrary in this
Plan or an Award agreement, upon a Change of Control, the Administrator may
elect to cancel some or all Awards that are outstanding upon the date of such
Change of Control, whether or not then vested, in exchange for cash or property
equal to the Fair Market Value of such cancelled Awards, as determined by the
Administrator in its discretion; provided that Options the exercise price per
Share of which exceeds the Fair Market Value of a Share in the Change of Control
may be cancelled for no payment.

 

(d)         Application of Limits on Payments.

 

(i)                                     Determination of Cap or Payment. Except
to the extent the Participant has in effect an employment or similar agreement
with the Company or any Affiliate or is subject to a policy that provides for a
more favorable result to the Participant upon a Change of Control, if any
payments or benefits paid by the Company pursuant to this Plan, including any
accelerated vesting or similar provisions (“Plan Payments”), would cause some or
all of the Plan Payments in conjunction with any other payments made to or
benefits received by a Participant in connection with a Change of Control (such
payments or benefits, together with the Plan Payments, the “Total Payments”) to
be subject to the tax (“Excise Tax”) imposed by Code Section 4999 but for this
Section 12(d), then, notwithstanding any other provision of this Plan to the
contrary, the Total Payments shall be delivered either (A) in full or (B) in an
amount such that the value of the aggregate Total Payments that the Participant
is entitled to receive shall be One Dollar ($1.00) less than the maximum amount
that the Participant may receive without being subject to the Excise Tax,
whichever of (A) or (B) results in the receipt by the Participant of the
greatest benefit on an after-tax basis (taking into account applicable federal,
state and local income taxes and the Excise Tax).

 

(ii)                                  Procedures.

 

(A)       If a Participant or the Company believes that a payment or benefit due
the Participant will result in some or all of the Total Payments being subject
to the Excise Tax, then the Company, at its expense, shall obtain the opinion
(which need not be unqualified) of nationally recognized tax counsel (“National
Tax Counsel”) selected by the

 

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Company (which may be regular outside counsel to the Company), which opinion
sets forth (1) the amount of the Base Period Income (as defined below), (2) the
amount and present value of the Total Payments, (3) the amount and present value
of any excess parachute payments determined without regard to any reduction of
Total Payments pursuant to Section 12(d)(i), and (4) the net after-tax proceeds
to the Participant, taking into account applicable federal, state and local
income taxes and the Excise Tax if (x) the Total Payments were delivered in
accordance with Section 12(d)(i)(A) or (y) the Total Payments were delivered in
accordance with Section 12(d)(i)(B). The opinion of National Tax Counsel shall
be addressed to the Company and the Participant and shall be binding upon the
Company and the Participant. If such National Tax Counsel opinion determines
that Section 12(d)(i)(B) applies, then the Plan Payments or any other payment or
benefit determined by such counsel to be includable in the Total Payments shall
be reduced or eliminated so that under the bases of calculations set forth in
such opinion there will be no excess parachute payment. In such event, payments
or benefits included in the Total Payments shall be reduced or eliminated by
applying the following principles, in order: (1) the payment or benefit with the
higher ratio of the parachute payment value to present economic value
(determined using reasonable actuarial assumptions) shall be reduced or
eliminated before a payment or benefit with a lower ratio; (2) the payment or
benefit with the later possible payment date shall be reduced or eliminated
before a payment or benefit with an earlier payment date; and (3) cash payments
shall be reduced prior to non-cash benefits; provided that if the foregoing
order of reduction or elimination would violate Code Section 409A, then the
reduction shall be made pro rata among the payments or benefits included in the
Total Payments (on the basis of the relative present value of the parachute
payments).

 

(B)       For purposes of this Section 12: (1) the terms “excess parachute
payment” and “parachute payments” shall have the meanings given in Code
Section 280G and such “parachute payments” shall be valued as provided therein;
(2) present value shall be calculated in accordance with Code
Section 280G(d)(4); (3) the term “Base Period Income” means an amount equal to
the Participant’s “annualized includible compensation for the base period” as
defined in Code Section 280G(d)(1); (4) for purposes of the opinion of National
Tax Counsel, the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company’s independent auditors in accordance
with the principles of Code Sections 280G(d)(3) and (4); and (5) the Participant
shall be deemed to pay federal income tax and employment taxes at the highest
marginal rate of federal income and employment taxation, and state and local
income taxes at the highest marginal rate of taxation in the state or locality
of the Participant’s domicile, net of the maximum reduction in federal income
taxes that may be obtained from the deduction of such state and local taxes.

 

(C)       If National Tax Counsel so requests in connection with the opinion
required by this Section 12(d)(ii), the Company shall obtain, at the Company’s
expense, and the National Tax Counsel may rely on, the

 

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advice of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the Participant
solely with respect to its status under Code Section 280G.

 

(D)       The Company agrees to bear all costs associated with, and to indemnify
and hold harmless the National Tax Counsel from, any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to this
Section 12, except for claims, damages or expenses resulting from the gross
negligence or willful misconduct of such firm.

 

(E)        This Section 12 shall be amended to comply with any amendment or
successor provision to Code Section 280G or Code Section 4999. If such
provisions are repealed without successor, then this Section 12 shall be
cancelled without further effect.

 

13.       Miscellaneous.

 

(a)         Other Terms and Conditions. The Administrator may provide in any
Award agreement such other provisions (whether or not applicable to the Award
granted to any other Participant) as the Administrator determines appropriate to
the extent not otherwise prohibited by the terms of the Plan.

 

(b)         Employment and Service. The issuance of an Award shall not confer
upon a Participant any right with respect to continued employment or service
with the Company or any Affiliate. Unless determined otherwise by the
Administrator, for purposes of the Plan and all Awards, the following
rules shall apply:

 

(i)                                     a Participant who transfers employment
between the Company and its Affiliates, or between Affiliates, will not be
considered to have terminated employment;

 

(ii)                                  a Participant who ceases to be employed by
the Company or an Affiliate and immediately thereafter becomes a Non-Employee
Director, a non-employee director of an Affiliate, or a consultant to the
Company or any Affiliate shall not be considered to have terminated employment
until such Participant’s service as a director of, or consultant to, the Company
and its Affiliates has ceased; and

 

(iii)                               a Participant employed by an Affiliate will
be considered to have terminated employment when such entity ceases to be an
Affiliate.

 

Notwithstanding the foregoing, for purposes of an Award that is subject to Code
Section 409A, if a Participant’s termination of employment or service triggers
the payment of compensation under such Award, then the Participant will be
deemed to have terminated employment or service upon his or her “separation from
service” within the meaning of Code Section 409A. Notwithstanding any other
provision in this Plan or an Award to the contrary, if any Participant is a
“specified employee” within the meaning of Code Section 409A as of the date of
his or her “separation from service” within the meaning of Code Section 409A,
then, to the extent required by Code Section 409A, any payment made to the
Participant on account of such separation from service shall not be made before
a date that is six months after the date of the separation from service.

 

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(c)          No Fractional Shares. No fractional Shares or other securities may
be issued or delivered pursuant to this Plan, and the Administrator may
determine whether cash, other securities or other property will be paid or
transferred in lieu of any fractional Shares or other securities, or whether
such fractional Shares or other securities or any rights to fractional Shares or
other securities will be canceled, terminated or otherwise eliminated.

 

(d)         Unfunded Plan; Awards Not Includable for Benefits Purposes. This
Plan is unfunded and does not create, and should not be construed to create, a
trust or separate fund with respect to this Plan’s benefits. This Plan does not
establish any fiduciary relationship between the Company and any Participant or
other person. To the extent any person holds any rights by virtue of an Award
granted under this Plan, such rights are no greater than the rights of the
Company’s general unsecured creditors. Income recognized by a Participant
pursuant to an Award shall not be included in the determination of benefits
under any employee pension benefit plan (as such term is defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended)
or group insurance or other benefit plans applicable to the Participant which
are maintained by the Company or any Affiliate, except as may be provided under
the terms of such plans or determined by resolution of the Board.

 

(e)          Requirements of Law and Securities Exchange. The granting of Awards
and the issuance of Shares in connection with an Award are subject to all
applicable laws, rules and regulations and to such approvals by any governmental
agencies or national securities exchanges as may be required. Notwithstanding
any other provision of this Plan or any award agreement, the Company has no
liability to deliver any Shares under this Plan or make any payment unless such
delivery or payment would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity, and unless and until
the Participant has taken all actions required by the Company in connection
therewith. The Company may impose such restrictions on any Shares issued under
the Plan as the Company determines necessary or desirable to comply with all
applicable laws, rules and regulations or the requirements of any national
securities exchanges.

 

(f)           Governing Law; Venue. This Plan, and all agreements under this
Plan, will be construed in accordance with and governed by the laws of the State
of Delaware, without reference to any conflict of law principles. Any legal
action or proceeding with respect to this Plan, any Award or any award
agreement, or for recognition and enforcement of any judgment in respect of this
Plan, any Award or any award agreement, may only be brought and determined in
(i) a court sitting in the State of Texas, and (ii) a “bench” trial, and any
party to such action or proceeding shall agree to waive its right to a jury
trial.

 

(g)          Limitations on Actions. Any legal action or proceeding with respect
to this Plan, any Award or any award agreement, must be brought within one year
(365 days) after the day the complaining party first knew or should have known
of the events giving rise to the complaint.

 

(h)         Construction. Whenever any words are used herein in the masculine,
they shall be construed as though they were used in the feminine in all cases
where they would so apply; and wherever any words are used in the singular or
plural, they shall be construed as though they were used in the plural or
singular, as the case may be, in all cases where they would so apply. Titles of
sections are for general information only, and this Plan is not to be construed
with reference to such titles.

 

(i)             Severability. If any provision of this Plan or any award
agreement or any Award (a) is or becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction, or as to any

 

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person or Award, or (b) would cause this Plan, any award agreement or any Award
to violate or be disqualified under any law the Administrator deems applicable,
then such provision should be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Administrator, materially altering the intent of this
Plan, award agreement or Award, then such provision should be stricken as to
such jurisdiction, person or Award, and the remainder of this Plan, such award
agreement and such Award will remain in full force and effect.

 

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