Exhibit 10.1

 

 

 

 

SALIX PHARMACEUTICALS, LTD.

2014 STOCK INCENTIVE PLAN

 

 

 

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TABLE OF CONTENTS

 

ARTICLE 1.  INTRODUCTION      1    1.1.    Purpose of the Plan.      1    1.2.
   Nature of Awards.      1    1.3.    Effective Date and Term of Plan.      1
   ARTICLE 2.  DEFINITIONS AND CONSTRUCTION      2    2.1.    Definitions.     
2    2.2.    Construction.      5    ARTICLE 3.  ELIGIBILITY      6    3.1.   
In General.      6    ARTICLE 4.  ADMINISTRATION OF THE PLAN      7    4.1.   
In General.      7    4.2.    Delegation to Committees and Officers.      8   
ARTICLE 5.  STOCK SUBJECT TO THE PLAN      9    5.1.    Number of Shares.      9
   5.2.    Substitute Awards.      9    ARTICLE 6.  TYPES OF AWARDS      10   
6.1.    Stock Options.      10    6.2.    Stock Appreciation Rights.      14   
6.3.    Restricted Stock.      15    6.4.    Restricted Stock Units.      16   
6.5.    Other Stock-Based Awards.      16    6.6.    Cash Awards.      16   
6.7.    Performance-Based Awards.      17    ARTICLE 7.  ADJUSTMENTS      20   
7.1.    Changes in Capitalization.      20    7.2.    Change in Control.      20
   ARTICLE 8.  GENERAL PROVISIONS APPLICABLE TO ALL AWARDS      22    8.1.   
Transferability of Awards.      22    8.2.    Termination of Status.      22   
8.3.    Withholding.      22    8.4.    Conditions on Delivery of Stock.      23
   8.5.    Acceleration.      23    ARTICLE 9.   MISCELLANEOUS      24    9.1.
   No Right to Employment or Other Status.      24    9.2.    No Rights as
Stockholder.      24   

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9.3.    Amendment.      24    9.4.    Compliance with Code Section 409A.      25
   9.5.    Governing Law.      25   

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ARTICLE 1.  INTRODUCTION

1.1.    Purpose of the Plan.

The Plan is intended to enhance the Company’s ability to attract, retain and
motivate the best available employees, officers, directors, consultants, and
advisors, and to provide them with equity ownership opportunities and
performance-based incentives that are intended to align their interests with
those of the Company’s stockholders and to promote the success of the Company’s
business. The Plan succeeds the Company’s 2005 Stock Plan, and no awards shall
be granted under that plan on or after the effective date of this Plan.

1.2.    Nature of Awards.

The Plan permits the grant of Stock Options, Stock Appreciation Rights, shares
of Restricted Stock, Restricted Stock Units, and any other form of award based
on the value (or the increase in value) of shares of the common stock of the
Company. The Plan also permits cash incentive awards. Except as otherwise
provided by the Plan, each Award may be made alone or in addition or in relation
to any other Award. The terms of each Award need not be identical, and the
Compensation Committee need not treat Participants uniformly.

1.3.    Effective Date and Term of Plan.

The Plan is effective as of June 13, 2014. No Awards shall be granted under the
Plan after June 12, 2024 (or such earlier date as may apply under applicable
law), but Awards previously granted may extend beyond that date.

 

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ARTICLE 2.  DEFINITIONS AND CONSTRUCTION

2.1.    Definitions.

When used in this 2014 Stock Plan, the following terms shall have the meanings
set forth below, unless the context clearly requires a different meaning:

(a) “Award” means an award issued under the Plan.

(b) “Award Certificate” means the agreement, certificate or other document
evidencing an Award, which shall be in such form (written, electronic or
otherwise) as the Compensation Committee shall determine.

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

(d) “Change in Control” means:

(1) any “person” (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than the Company, any subsidiary of the Company or any
employee benefit plan of the Company or any subsidiary of the Company) is or
becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of more than 50% of the combined voting
power of the Company’s then outstanding securities entitled to vote generally in
the election of members of the Board (securities of any entity entitled to vote
generally in the election of members of the board of directors of such entity
are referred to herein as “Voting Stock”); provided that a transaction will not
be deemed to constitute a Change in Control if (i) the Company becomes a direct
or indirect wholly owned subsidiary of a holding company and (ii)(A) the direct
or indirect holders of the Voting Stock of such holding company immediately
following such transaction are substantially the same as the holders of the
Company’s Voting Stock immediately prior to such transaction or (B) immediately
following such transaction, no “person” (as that term is used in Sections 13(d)
and 14(d) of the Exchange Act) (other than a holding company satisfying the
requirements of this sentence) is the beneficial owner, directly or indirectly,
of more than 50% of the Voting Stock of such holding company;

(2) during any period of two consecutive years, individuals who at the beginning
of such period constituted the Board

 

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(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of at least two-thirds of the members of the Board then still in office who
were either members of the Board at the beginning of such period or whose
election or nomination for election was previously so approved) cease, for any
reason, to constitute at least a majority of the Board then in office;

(3) the consummation of any merger or consolidation of the Company with or into
another entity or the merger of another entity with or into the Company;
provided that, a merger or consolidation will not be deemed to constitute a
Change in Control if the shares of the Company’s Voting Stock outstanding
immediately prior to such merger or consolidation constitute, or are converted
into or exchanged for, securities representing more than 50% of the Voting Stock
of (i) the surviving entity in such merger or consolidation (the “Surviving
Entity”) or (ii) a holding company of which such Surviving Entity is a direct or
indirect wholly owned subsidiary, in each case immediately after such merger or
consolidation;

(4) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way or merger or consolidation), in one or a series of
transactions, of all or substantially all of the assets of the Company (on a
consolidated basis) to any “person” (as that term is used in Sections 13(d) and
14(d) of the Exchange Act); or

(5) the adoption of any plan relating to the liquidation or dissolution of the
Company.

Notwithstanding the foregoing, (i) the transfer of assets between or among the
Company and its subsidiaries shall not itself constitute a Change in Control,
(ii) the term Change in Control shall not include a merger or consolidation of
the Company with or into, or the sale, transfer, conveyance or other disposition
of all or substantially all of the assets of the Company to, an affiliate of the
Company incorporated or organized solely for the purpose or reincorporating or
reorganizing the Company in another jurisdiction and/or for the sole purpose of
forming, collapsing or dissolving a holding company structure, (iii) a “person”
(as that term is used in Sections 13(d) and 14(d) of the Exchange Act) shall not
be deemed to have beneficial ownership of

 

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securities subject to a stock purchase agreement, merger agreement or similar
agreement (or voting or option agreement related thereto) until the consummation
of the transactions contemplated by such agreement and (iv) in no event shall a
Change in Control be deemed to have occurred with respect to a holder of an
Award, if such holder is part of a purchasing group that consummates the Change
in Control transaction (such holder shall be deemed “part of a purchasing group”
for purposes of this clause (iv) if he, she or it is either directly or
indirectly an equity participant in the purchasing group (except for (A) passive
ownership of less than 3% of the stock of the purchasing group, or (B) ownership
of equity participation in the purchasing group which is otherwise not
significant, as determined prior to the Change in Control by the Board).

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Company” means Salix Pharmaceuticals, Ltd.

(g) “Compensation Committee” shall mean the Compensation Committee of the Board.

(h) “Disability” shall mean a disability within the meaning of the Company’s
long-term disability plan in which the Participant participates or, if there is
no such plan, the federal Social Security Act.

(i) “Effective Date” means the first date set forth in Section 1.3.

(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(k) “Fair Market Value” means the closing sales price (or the closing bid, if no
sales were reported) for the primary trading session of a Share on the last
market trading day before the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable. The
Compensation Committee can substitute a particular time of day or other measure
of “closing sale price” if appropriate because of unusual circumstances or can
use weighted averages either on a daily basis or such longer period as complies
with section 409A of the Code.

(l) “Plan” means this 2014 Stock Incentive Plan.

(m) “Prior Plan” means the Salix Pharmaceuticals, Ltd., 2005 Stock Plan, as
amended.

(n) “Restricted Stock” means an Award granted pursuant to Section 6.3.

 

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(o) “Restricted Stock Unit” means an Award granted pursuant to Section 6.4.

(p) “Section” means a section of the Plan.

(q) “Share” means a share of common stock of the Company.

(r) “Stock Appreciation Right” or “SAR” means an Award granted pursuant to
Section 6.2.

(s) “Stock Option” means an Award granted pursuant to Section 6.1; a Stock
Option can be either an “Incentive Stock Option” (if it complies with the
requirements of Section 6.1(b)) or a “Nonqualified Stock Option” or
“Nonstatutory Stock Option” (if it does not comply with the requirements of
Section 6.1(b)).

(t) “Ten Percent Stockholder” means a Participant who on the date of grant is
treated under section 424(d) of the Code as owning stock (not including stock
purchasable under outstanding options) possessing more than 10% of the total
combined voting power of all classes of the stock of the Company or any parent
or subsidiary of the Company as defined in section 424(e) or (f) of the Code.

2.2.    Construction.

When used in the Plan, (a) the terms “include” and “including” shall be deemed
to include the phrase “but not limited to” and (b) masculine pronouns shall
include the feminine.

 

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ARTICLE 3.  ELIGIBILITY

3.1.    In General.

Any natural person is eligible to be granted an Award if such individual is a
current employee, officer, director, consultant, or advisor of the Company or
any of the Company’s present or future parent or subsidiary corporations as
defined in sections 424(e) or (f) of the Code or any other business venture
(including, without limitation, a joint venture or limited liability company) in
which the Company has a controlling interest, as determined by the Compensation
Committee.

 

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ARTICLE 4.  ADMINISTRATION OF THE PLAN

4.1.    In General.

(a) The Plan will be administered by the Compensation Committee. The
Compensation Committee shall have discretionary authority to grant Awards and
determine recipients and terms of any Awards, and to adopt, amend and repeal
administrative rules, guidelines and practices relating to the Plan.

(b) The Compensation Committee shall have full discretionary authority to:

(1) to select the employees, officers, directors, consultants, or advisors to
whom Awards may be granted;

(2) to determine whether and to what extent Awards are granted;

(3) to determine the number of shares of common stock subject to any Award;

(4) to approve forms of Award Certificate for use under the Plan;

(5) to determine the terms and conditions, not inconsistent with the terms of
the Plan, of any Award (including the exercise price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions and
the form of consideration to be paid to the Company for the exercise of any
Stock Option, SAR or purchase of Shares with respect to an Award);

(6) to determine the time or times when each Stock Option or SAR shall become
exercisable and the duration of the exercise period;

(7) to determine whether restrictions are to be imposed on Shares subject to
Awards and the nature of such restrictions, if any;

(8) to determine whether, to what extent and under what circumstances common
stock and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the participant (including providing
for and determining the amount, if any, of any deemed earnings on any deferred
amount during any deferral period);

(9) to construe and interpret the terms of the Plan and Awards;

(10) to institute an option exchange program;

 

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(11) to determine all facts necessary to administer the Plan and any Award or
Award Certificate; and

(12) to make all other determinations necessary or advisable for the
administration of the Plan.

(c) The Compensation Committee shall have the discretion to correct any defect,
supply any omission or reconcile any inconsistency in the Plan or any Award
Certificate in the manner and to the extent it shall deem necessary or
advisable.

(d) All decisions by the Compensation Committee shall be made in its sole
discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award. No director or person acting pursuant to
the authority delegated by the Compensation Committee shall be liable for any
action or determination relating to or under the Plan made in good faith.

(e) With respect to Awards made to directors, the Board shall also have the
authority described in this Section 4.1 and Section 8.5.

4.2.    Delegation to Committees and Officers.

(a) To the extent permitted by applicable law, the Compensation Committee may
delegate any or all of its powers under the Plan to one or more committees or
subcommittees of the Company’s management.

(b) To the extent permitted by applicable law and subject to any limitations
under the Plan, the Compensation Committee may delegate to one or more officers
of the Company the power (1) to grant Awards to any individual eligible under
Section 3.1 other than a director or executive officer and (2) to exercise such
other powers under the Plan as the Compensation Committee may determine;
provided further, however, that no officer shall be authorized to grant Awards
to himself or herself.

(c) All references in the Plan to the “Compensation Committee” shall mean the
Compensation Committee or a committee of the Board (or the Company’s management)
or the officers referred to in Section 4.2(b) to the extent that the
Compensation Committee’s powers or authority under the Plan have been delegated
to such committee or officers.

 

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ARTICLE 5.  STOCK SUBJECT TO THE PLAN

5.1.    Number of Shares.

(a) Subject to adjustment under ARTICLE 7, Awards may be made under the Plan for
up to 1,500,000 Shares, plus any shares subject to the Prior Plan that remain
available for grant as of the Effective Date. All of the Shares available for
Awards under the Plan can be issued as Incentive Stock Options.

(b) If any Award expires or is terminated, surrendered or canceled without
having been fully exercised, is forfeited in whole or in part, or results in any
Shares not being issued, the unused Shares covered by such Award shall again be
available for the grant of Awards under the Plan, except to the extent
prohibited by law. Shares issued under the Plan shall consist of authorized but
unissued shares.

5.2.    Substitute Awards.

(a) In connection with a merger or consolidation of an entity with the Company
or the acquisition by the Company of property or stock of an entity, the
Compensation Committee may grant Awards in substitution for any options or other
stock or stock-based awards granted by such entity or an affiliate thereof.
Substitute Awards may be granted on such terms as the Compensation Committee
deems appropriate in the circumstances.

(b) Substitute Awards shall not count against the overall share limit set forth
in Section 5.1, except as may be required by reason of section 422 and related
provisions of the Code.

 

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ARTICLE 6.  TYPES OF AWARDS

6.1.    Stock Options.

(a) In General. The Compensation Committee may grant options to purchase Shares
and determine the number of Shares to be covered by each option, the exercise
price of each option and the conditions and limitations applicable to the
exercise of each option, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable. A Stock Option
that is not intended to be an Incentive Stock Option shall be designated as a
“Nonstatutory Stock Option” or a “Nonqualified Stock Option.”

(b) Incentive Stock Options.

(1) A Stock Option that the Compensation Committee intends to be an Incentive
Stock Option shall only be granted to employees of the Company or any of the
Company’s present or future parent or subsidiary corporations as defined in
sections 424(e) or (f) of the Code, and any other entities the employees of
which are eligible to receive Incentive Stock Options under the Code, and shall
be subject to and construed consistently with the requirements of section 422 of
the Code.

(2) A Stock Option that is intended to be an Incentive Stock Option shall be
treated as a Nonqualified Stock Option to the extent that, in the calendar year
in which the Award is first exercisable, the aggregate Fair Market Value of the
Shares subject to the Award (when added to other awards granted to the same
individual that are intended to be Incentive Stock Options under the Plan or any
other plan maintained by the Company and certain related corporations) exceeds
$100,000 or such other limitation as might apply under section 422 of the Code.

(3) The Company shall have no liability to a Participant, or any other party, if
a Stock Option (or any part thereof) that is intended to be an Incentive Stock
Option is not an Incentive Stock Option, or for any action taken by the
Compensation Committee, including without limitation the conversion of an
Incentive Stock Option to a Nonstatutory Stock Option.

 

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(c) Exercise Price.

(1) The Compensation Committee shall establish the exercise price of each Stock
Option and specify the exercise price in the applicable Award Certificate.

(2) The exercise price of a Stock Option shall not be less than 100% of the Fair
Market Value of a Share on the date the Stock Option is granted, except that, if
any Incentive Stock Option is granted to a Ten Percent Stockholder, the exercise
price shall not be less than 110% of the Fair Market Value of a Share on the
date such Incentive Stock Option is granted. The 100% and 110% limitation in
this Section 6.1(c)(2) shall automatically adjust to the extent required by
section 422 of the Code.

(d) Term of Stock Options.

(1) Each Stock Option shall be exercisable at such times and subject to such
terms and conditions as the Compensation Committee may specify in the applicable
Award Certificate; except that no Stock Option shall be granted for a term of
more than 10 years. Incentive Stock Options issued to a Ten Percent Stockholder
shall not have a term of more than 5 years.

(2) If a Participant’s status as an employee or consultant terminates for any
reason other than by reason of death or Disability, such Participant may, but
only within thirty (30) days (or such other period of time, not exceeding three
(3) months in the case of an Incentive Stock Option or six (6) months in the
case of a Nonstatutory Stock Option, as is determined by the Compensation
Committee) after the date of such termination (but in no event later than the
date of expiration of the term of such Stock Option as set forth in the Award
Certificate), exercise his or her Stock Option to the extent that he or she was
entitled to exercise it at the date of termination. To the extent that the
Participant was not entitled to exercise the Stock Option at the date of
termination, or if the Participant does not exercise the Stock Option within the
time specified herein, the Stock Option shall terminate.

(3) No Stock Option shall permit the Participant to defer receipt of
compensation on the Stock Option beyond the date of exercise, unless the
Compensation Committee expressly determines that such Stock Option shall be
subject to section 409A of the Code.

(e) Exercise of Stock Option.

 

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(1) Stock Options may be exercised by delivery to the Company of a written
notice of exercise in the form attached to, or the manner described in, the
Award Certificate or by any other form of notice (including electronic notice)
or such other manner approved by the Compensation Committee, together with
payment in full for the number of shares for which the Stock Option is
exercised. Shares subject to the Stock Option will be delivered by the Company
as soon as practicable following exercise. A Stock Option may not be exercised
for a fraction of a Share.

(2) A Stock Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option by the person entitled to exercise the Stock Option and full payment for
the Shares with respect to which the Stock Option is exercised has been received
by the Company. Full payment may, as authorized by the Compensation Committee,
consist of any consideration and method of payment allowable under
Section 6.1(f). Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect the
Shares, notwithstanding the exercise of the Stock Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Stock Option. No adjustment will be made for a dividend or other right for
which the record date is before the date the stock certificate is issued.

(3) Exercise of a Stock Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Stock Option, by the number of Shares as to which
the Stock Option is exercised.

(f) Payment Upon Exercise.

Shares purchased upon the exercise of a Stock Option granted under the Plan
shall be paid for as follows:

(1) in cash or by check, payable to the Company;

(2) if provided in the applicable Award Certificate, by (A) delivery of an
irrevocable and unconditional undertaking by a creditworthy

 

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broker to deliver promptly to the Company sufficient funds to pay the exercise
price and any required tax withholding or (B) delivery by the Participant to the
Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price and any required tax withholding;

(3) authorization to the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised;

(4) to the extent provided for in the applicable Award Certificate or approved
by the Compensation Committee, by delivery (either by actual delivery or
attestation) of Shares owned by the Participant valued at their Fair Market
Value, provided (A) such method of payment is then permitted under applicable
law, (B) such Shares, if acquired directly from the Company, were owned by the
Participant for such minimum period of time, if any, as may be established by
the Compensation Committee, and (C) such Shares are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements;

(5) to the extent permitted by applicable law and provided for in the applicable
Award Certificate, by (1) delivery of a promissory note of the Participant to
the Company on terms determined by the Compensation Committee, or (2) payment of
such other lawful consideration as the Compensation Committee may determine;

(6) as determined by the Compensation Committee, such other consideration and
method of payment for the issuance of Shares to the extent permitted under
applicable laws; or

(7) by any combination of the above-permitted forms of payment.

(g) Disability of Participant.

(1) If a Participant’s status as an employee or consultant terminates by reason
of the Participant’s Disability, all unvested Stock Options shall immediately
vest, and the Participant may, but only within twelve (12) months (or such
shorter period of time as is determined by the Compensation Committee) from the
date of such termination (but in no event later than the date of

 

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expiration of the term of such Stock Option), exercise his or her Stock Option.

(2) To the extent that the Participant does not exercise a Stock Option within
the time specified above, the Stock Option shall terminate.

(h) Death of Participant.

(1) If a Participant’s status as an employee or consultant terminates by reason
of the Participant’s death, all unvested Stock Options held by the Participant
shall immediately vest, and the Stock Options may be exercised, at any time
within twelve (12) months (or such shorter period of time as is determined by
the Compensation Committee) following the date of death (but in no event later
than the date of expiration of the term of such Stock Option as set forth in the
Award Certificate), by the Participant’s estate or by a person who acquired the
right to exercise the Option by bequest or inheritance; or

(2) If a Participant dies within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Compensation Committee)
after his or her status as an employee or consultant terminates, the Stock
Options may be exercised, at any time within twelve (12) months (or such shorter
period of time as is determined by the Compensation Committee) following the
date of death (but in no event later than the date of expiration of the term of
such Stock Option as set forth in the Award Certificate), by the Participant’s
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the right to exercise had accrued as
of the date of termination or cessation.

6.2.    Stock Appreciation Rights.

(a) In General. A Stock Appreciation Right is an Award in the form of a right to
receive cash or a Share, upon surrender of the Stock Appreciation Right, in an
amount equal to the appreciation in the value of the Share over a base price
established in the Award. The Committee may grant Stock Appreciation Rights
either independently of Stock Options, or in tandem with Stock Options such that
the exercise of the Stock Option or Stock Appreciation Right cancels the tandem
Stock Appreciation Right or Stock Option.

(b) Exercise Price. The minimum base price of a Stock Appreciation Right granted
under the Plan shall be the price set forth in the applicable

 

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Award Certificate, or, in the case of a Stock Appreciation Right related to a
Stock Option (whether already outstanding or concurrently granted), the exercise
price of the related Stock Option.

(c) Term, Exercise, Payment, Etc. The provisions of Section 6.1(d) shall
generally apply to Stock Appreciation Rights, as applicable.

6.3.    Restricted Stock.

(a) In General. The Compensation Committee may grant Awards of Restricted Stock.
The Compensation Committee shall determine the terms and conditions of a
Restricted Stock Award, including the conditions for vesting and repurchase (or
forfeiture), the issue price (if any) and whether the Shares shall be entitled
to exercise voting or other rights associated with ownership of a Share.

(b) Dividends. Unless otherwise provided by the Compensation Committee,
Participants holding Restricted Stock will be eligible to receive all dividends
paid with respect to such Shares. If any dividends or distributions are paid in
shares, or consist of a dividend or distribution to holders of Shares other than
an ordinary cash dividend, the shares or other property will be subject to the
same restrictions on transferability and forfeitability as the Restricted Stock
with respect to which they were paid. Each dividend payment will be made no
later than the end of the calendar year in which the Restricted Stock on which
such dividends are paid vests or, if later, the 15th day of the third month
following the date on which the Restricted Stock on which such dividends are
paid vests.

(c) Stock Certificates. The Company may require that any stock certificates
issued for shares of Restricted Stock be deposited in escrow by the Participant,
together with a stock power endorsed in blank, with the Company (or its
designee). At the expiration of the applicable restriction periods, the Company
(or such designee) shall deliver the certificates no longer subject to such
restrictions to the Participant. If the Participant has died before the
certificates are delivered, the certificates shall be delivered to the
beneficiary designated by the Participant under the Plan and on file with the
Company (or its designee) before the Participant’s death. If there is no such
valid beneficiary designation, the Participant’s estate shall be the
beneficiary.

(d) Termination of Employment. If a Participant’s status as an employee or
consultant terminates for any reason other than by reason of death or
Disability, any Award of Restricted Stock that remains subject to

 

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restrictions shall immediately terminate, and the Participant shall not receive
any Shares or be entitled to any payment or other consideration. If a
Participant’s status as an employee or consultant terminates by reason of his or
her death or Disability, all restrictions on Awards of Restricted Stock shall
immediately lapse and the Participant (or his or her estate or other
beneficiary) shall receive the applicable Shares.

6.4.    Restricted Stock Units.

(a) The Compensation Committee may grant Restricted Stock Units to any
participant subject to the same conditions and restrictions as the Compensation
Committee would have imposed in connection with any Award of Restricted Stock.
Each Restricted Stock Unit shall have a value equal to the Fair Market Value of
one Share. Restricted Stock Units may be paid at such time as the Compensation
Committee may determine and payments may be made in a lump sum or in
installments, in cash, Shares, or any combination thereof, as determined by the
Compensation Committee.

(b) If a Participant’s status as an employee or consultant terminates for any
reason other than by reason of death or Disability, any Award of Restricted
Stock Units that remains unvested shall immediately terminate, and the
Participant shall not receive any Shares or be entitled to any payment or other
consideration. If a Participant’s status as an employee or consultant terminates
by reason of his or her death or Disability, all Awards of Restricted Stock
Units shall immediately vest and the Participant (or his or her estate or other
beneficiary) shall receive the applicable payment.

6.5.    Other Stock-Based Awards.

Other Awards that are valued in whole or in part by reference to, or are
otherwise based on, Shares or other property, may be granted under the Plan to
Participants. To the extent permitted by law, such other Share Awards shall also
be available as a form of payment in the settlement of other Awards granted
under the Plan or as payment in lieu of compensation to which a Participant is
otherwise entitled. Other Share Awards may be paid in Shares or cash, as the
Compensation Committee shall determine. Subject to the provisions of the Plan,
the Compensation Committee shall determine the terms and conditions of each
other Share Award.

6.6.    Cash Awards.

Cash Awards are Awards that provide participants with the opportunity to earn a
cash payment based upon the achievement of one or more performance goals for a
performance period determined by the Compensation Committee. For each

 

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performance period, the Compensation Committee shall determine the relevant
performance criteria, the performance goal for each performance criterion, the
level or levels of achievement necessary for Awards to be paid, the weighting of
the performance goals if more than one performance goal is applicable, and the
size of the Awards.

6.7.    Performance-Based Awards.

(a) In General. Any of the Awards listed in ARTICLE 6 may be granted as Awards
that satisfy the requirements for “performance-based compensation” within the
meaning of section 162(m) of the Code. The performance goals must be established
by the Compensation Committee and may be for the Company, or a Company
subsidiary, affiliate or other Company operating unit or department, or a
combination of such units or departments. The performance goal shall be based on
one or more performance criteria selected by the Compensation Committee. With
the exception of any Stock Option or Stock Appreciation Right, an Award that is
intended to satisfy the requirements of a performance-based Award shall be so
designated at the time of grant.

(b) Limits. The maximum aggregate number of shares of Stock for which
performance-based Awards may be issued under this Section 6.7 in any calendar
year to an individual Participant shall not exceed 500,000, the maximum amount
that may be earned as a Cash Award for a performance period for a single
calendar year by any individual Participant is $2,000,000, and the maximum
amount that may be earned as a Cash Award for a performance period of greater
than a single calendar year by any individual Participant is $2,000,000.

(c) Performance Criteria. In the case of Awards intended to qualify as
performance-based Awards, the performance criteria shall be selected only from
among the following: production growth; reserve growth; reserve replacement;
lease operating expense; revenue growth; finding/development costs; net sales;
operating income; pre- or after-tax income; operating profit minus capital
charges; cash flow, including operating cash flow, free cash flow, cash flow
return on equity and cash flow return on investment; net income; earnings per
share; earnings before interest and taxes; earnings before interest, taxes,
depreciation and/or amortization; return on equity; return on invested capital;
return on assets; economic value added (or an equivalent measure); share price
performance; total stockholder return; improvement in or achievement of expense
levels; improvement in or achievement of working capital levels; innovation as
measured by a percentage of sales of new products; market share; productivity
ratios; completion and/or

 

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integration of acquisitions of businesses or companies; completion of
divestitures and asset sales; sales goals, measured in an aggregate or on a
product-specific basis; research and development goals, including development
and marketing milestones, and the completion of Phase II and Phase III studies;
developing and strengthening the Company’s intellectual property, including
filing new patent applications or the licensing of patents; and any combination
of any of the foregoing business criteria. Any of the performance criteria may
be used to measure the performance of the Company, a subsidiary, and/or
affiliate as a whole or any business unit of the Company, a subsidiary, and/or
affiliate or any combination thereof, as the Compensation Committee may deem
appropriate, or any of the above performance criteria as compared to the
performance of a group of comparator companies, or published or special index
that the Compensation Committee deems appropriate. The Compensation Committee
also has the authority to provide for accelerated vesting of any Award based on
the achievement of the performance criteria specified in this Section 6.7.

(d) Application to Stock Options and Stock Appreciation Rights. Notwithstanding
anything contained in this Section 6.7 to the contrary, Stock Options and Stock
Appreciation Rights need not satisfy the specific performance criteria described
in this Section 6.7 in order to qualify as performance-based Awards under this
section 162(m) of the Code.

(e) Time for Establishing Performance Goals. The specific performance goal(s)
and the applicable performance criteria must be established by the Compensation
Committee in advance of the deadlines applicable under section 162(m) of the
Code and while the achievement of the performance goal(s) remains substantially
uncertain.

(f) Committee Certification and Payment of Awards. Before any performance-based
Award (other than Stock Options and Stock Appreciation Rights) is paid, the
Compensation Committee must certify in writing (by resolution or otherwise) that
the applicable performance goal(s) and any other material terms of the Award
have been satisfied. Unless otherwise provided by the Compensation Committee,
performance-based Awards shall be paid as soon as practicable after the
Compensation Committee has certified that the applicable goals and terms of such
awards have been satisfied, but in no event later than the fifteenth (15th) day
of the third month following the end of the performance period to which the
award relates (absent a timely election to defer such Award under a deferred
compensation plan, if any, maintained by the Company). Notwithstanding the

 

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foregoing, to the extent an amount was intended to be paid so as to qualify as a
short-term deferral under section 409A of the Code and the applicable
regulations, then such payment may be delayed if the requirements of Treas. Reg.
1.409A-1(b)(4)(ii) are met. In such case, payment of such deferred amounts must
be made as soon as reasonably practicable following the first date on which the
Company anticipates or reasonably should anticipate that, if the payments were
made on such date, the Company’s deduction with respect to such payment would no
longer be restricted due to the applicability of section 162(m) of the Code.

(g) Terms and Conditions of Awards; Committee Discretion to Reduce Performance
Awards. The Compensation Committee shall have discretion to determine the
conditions, restrictions or other limitations, in accordance with, and subject
to, the terms of the Plan and section 162(m) of the Code, on the payment of
individual Awards under this Section 6.7. To the extent set forth in an Award
Certificate, the Compensation Committee may reserve the right to adjust the
amount payable in accordance with any standards or on any other basis (including
the Compensation Committee’s discretion), as the Compensation Committee may
determine; provided, however, that, in the case of Awards intended to qualify as
performance-based Awards, such adjustments shall be prescribed in a form that
meets the requirements of section 162(m) of the Code.

(h) Adjustments for Material Changes. To the extent the Compensation Committee
makes adjustments in accordance with ARTICLE 7 that affect Awards intended to be
performance-based Awards under this Section 6.7, such adjustments shall be
prescribed in a form that meets the requirements of section 162(m) of the Code.

 

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ARTICLE 7.  ADJUSTMENTS

7.1.    Changes in Capitalization.

In the event of any stock split, reverse stock split, stock dividend,
recapitalization, combination of shares, reclassification of shares, spin-off or
other similar change in capitalization or event, or any dividend or distribution
to holders of Shares other than an ordinary cash dividend, (a) the number and
class of securities available under this Plan, (b) the number and class of
securities and exercise price per Share of each outstanding Stock Option,
(c) the number of Shares subject to each outstanding Restricted Stock Award, and
(d) the terms of each other outstanding Award shall be equitably adjusted by the
Company (or substituted Awards may be made, if applicable) in the manner
determined by the Compensation Committee. Without limiting the generality of the
foregoing, if the Company effects a split of the Shares by means of a stock
dividend and the exercise price of and the number of Shares subject to an
outstanding Stock Option are adjusted as of the date of the distribution of the
dividend (rather than as of the record date for such dividend), then an optionee
who exercises a Stock Option between the record date and the distribution date
for such stock dividend shall be entitled to receive, on the distribution date,
the stock dividend with respect to the Shares acquired upon such Stock Option
exercise, notwithstanding the fact that such Shares were not outstanding as of
the close of business on the record date for such stock dividend.

7.2.    Change in Control.

(a) In the event of a Change in Control, all outstanding Awards and any
restricted Shares acquired on the exercise of an Award shall either:

(1) be assumed or an equivalent award shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, and no
additional vesting or waiver of forfeiture restrictions shall occur as a result
of the Change in Control unless the Award holder is terminated other than for
“cause” or quits for “good reason,” as those terms are defined in the relevant
Award Certificate, during the three-year period beginning on the date of the
Change in Control, in which case any Awards and any restricted Shares acquired
on the exercise of such an Award shall become vested and immediately and fully
exercisable, and all forfeiture restrictions shall be waived, or

(2) if not so assumed or substituted, become vested and immediately and fully
exercisable, and all forfeiture restrictions shall be waived, and may terminate
ten (10) days after the Compensation Committee shall notify the holder of such
vesting and termination.

 

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(b) For the purposes of this Section, the Award shall be considered assumed if,
following the merger or sale of assets, the Award confers the right to purchase
or receive, for each Share subject to the Award immediately before the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of common stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its parent, the Compensation Committee
may, with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Award, for each Share
subject to the Award, to be solely common stock of the successor corporation or
its parent equal in fair market value to the per share consideration received by
holders of common stock in the merger or sale of assets.

 

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ARTICLE 8.  GENERAL PROVISIONS APPLICABLE TO ALL AWARDS.

8.1.    Transferability of Awards.

Except as the Compensation Committee may otherwise determine or provide in an
Award Certificate, Awards shall not be sold, assigned, transferred, pledged or
otherwise encumbered by the person to whom they are granted, either voluntarily
or by operation of law, except by will or the laws of descent and distribution
or, other than in the case of an Incentive Stock Option, pursuant to a qualified
domestic relations order, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

8.2.  Termination of Status.

Except to the extent provided in an Award Certificate or as set forth above, the
Compensation Committee shall determine the effect on an Award of the Disability,
death, termination or other cessation of employment, authorized leave of absence
or other change in the employment or other status of a Participant and the
extent to which, and the period during which, the Participant, or the
Participant’s legal representative, conservator, guardian or Beneficiary, may
exercise rights under the Award.

8.3.  Withholding.

The Participant must satisfy all applicable federal, state, and local or other
income and employment tax withholding obligations before the Company will
deliver stock certificates or otherwise recognize ownership of Shares under an
Award. The Company may decide to satisfy the withholding obligations through
additional withholding on salary or wages. If the Company elects not to or
cannot withhold from other compensation, the Participant must pay the Company
the full amount, if any, required for withholding. Payment of withholding
obligations is due before the Company will issue any Shares on exercise or
release from forfeiture of an Award or, if the Company so requires, at the same
time as is payment of the exercise price unless the Company determines
otherwise. To the extent not otherwise provided for in an Award Certificate or
approved by the Compensation Committee, a Participant shall satisfy such tax
obligations in whole or in part by delivery of a portion of the Award creating
the tax obligation, valued at Fair Market Value; provided, however, except as
otherwise provided by the Compensation Committee, that the total tax withholding
where stock is being used to satisfy such tax obligations cannot exceed the
Company’s minimum statutory withholding obligations (based on minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
that are applicable to such supplemental taxable income). Shares surrendered to
satisfy tax withholding requirements cannot be

 

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subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.

8.4.    Conditions on Delivery of Stock.

The Company will not be obligated to deliver any Shares pursuant to the Plan or
to remove restrictions from Shares previously delivered under the Plan until
(a) all conditions of the Award have been met or removed to the satisfaction of
the Company, (b) in the opinion of the Company’s counsel, all other legal
matters in connection with the issuance and delivery of such Shares have been
satisfied, including any applicable securities laws and any applicable stock
exchange or stock market rules and regulations, and (c) the Participant has
executed and delivered to the Company such representations or agreements as the
Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.

8.5.    Acceleration.

The Compensation Committee or its delegee may at any time provide that any Award
shall become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.

 

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ARTICLE 9.  MISCELLANEOUS

9.1.    No Right to Employment or Other Status.

No person shall have any claim or right to be granted an Award, and the grant of
an Award shall not be construed as giving a Participant the right to continued
employment or any other relationship with the Company. The Company expressly
reserves the right at any time to dismiss or otherwise terminate its
relationship with a Participant free from any liability or claim under the Plan,
except as expressly provided in the applicable Award Certificate.

9.2.    No Rights as Stockholder.

Subject to the provisions of the applicable Award Certificate and except as
provided in Section 6.3, no Participant or beneficiary shall have any rights as
a stockholder with respect to any Shares to be distributed with respect to an
Award until becoming the record holder of such shares.

9.3.    Amendment.

(a) Amendment of the Plan. The Compensation Committee may amend, suspend or
terminate the Plan or any portion of the Plan at any time; provided, however,
that the Compensation Committee may not effect such modification or amendment
without approval of the Company’s stockholders if:

(1) At the time of the amendment such approval is required under (A) section 422
of the Code or any successor provision with respect to Incentive Stock Options,
(B) the listing standards of the exchange on which the Company’s common stock is
at the time primarily traded, or (C) any other applicable law or regulation, or

(2) Such amendment will result in (A) the downward repricing of any Stock Option
or SAR, (B) the cancellation of a Stock Option or SAR in exchange for new a
Stock Option or SAR with a lower exercise price, (C) the substitution of a full
value Award for a Stock Option or SAR that has an exercise price below the Fair
Market Value of a Share at the time of the substitution (an “underwater Stock
Option or SAR”), or (D) the buyback or buyout of an underwater Stock Option or
SAR in exchange for cash or a new Award.

Unless otherwise specified in the amendment, any amendment to the Plan adopted
in accordance with this Section 9.3 shall apply to, and be binding on the
holders of, all Awards outstanding under the Plan at the time the amendment is
adopted, provided the Compensation Committee determines that such amendment,
taking into account any related action, does not materially and adversely affect
the rights of Participants under the Plan.

 

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(b) Amendment of Award. Subject to the terms of 9.3(a), the Compensation
Committee may amend, modify or terminate any outstanding Award, including but
not limited to, substituting another Award of the same or a different type,
changing the date of exercise or realization, and converting an Incentive Stock
Option to a Nonstatutory Stock Option. The Participant’s consent to such action
shall be required unless the Compensation Committee determines that the action,
taking into account any related action, would not materially and adversely
affect the Participant’s rights under the Plan.

9.4.    Compliance with Code Section 409A.

No Award shall provide for a deferral of compensation within the meaning of
section 409A of the Code, unless the Compensation Committee, at the time of
grant, specifically provides that the Award is intended to be subject to section
409A of the Code. If an Award is intended to be subject to section 409A, the
following provisions shall apply except to the extent that a contrary provision
is included in the Award Certificate: (a) such Award shall be payable on the
earlier of a “change in control” or the Participant’s “separation from service”
with the Company and (2) any payment made to a Participant who is a “specified
employee” of the Company shall not be made before such date as is six months
after the Participant’s “separation from service” to the extent required to
avoid the adverse consequences of Section 409A of the Code. For purposes of this
Section 9.4, the terms “change in control,” “separation from service” and
“specified employee” shall have the meanings set forth in section 409A and the
applicable Treasury regulations. The Company shall have no liability to a
Participant, or any other party, if an Award that is intended to be exempt from,
or compliant with, section 409A is not so exempt or compliant or for any action
taken by the Compensation Committee.

9.5.    Governing Law.

The provisions of the Plan and all Awards made hereunder shall be governed by
and interpreted in accordance with the laws of the State of Delaware, excluding
choice-of-law principles of the law of such state that would require the
application of the laws of a jurisdiction other than such state.

 

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