Exhibit 10.1

 

ARTHROCARE CORPORATION

LONG TERM INCENTIVE PROGRAM

(Effective January 6, 2012)

 

ARTICLE I

 

PURPOSE

 

The purpose of this document is to set forth the general terms and conditions
applicable to the ArthroCare Corporation Long Term Incentive Program (the
“Program”) established by the Compensation Committee of the Board of Directors
of ArthroCare Corporation (the “Company”) pursuant to, and in implementation of,
Articles 8 and 9 of the Company’s Amended and Restated 2003 Incentive Stock Plan
(the “Plan”).  The Program is intended to carry out the purposes of the Plan and
provide a means to reinforce objectives for sustained long-term performance and
value creation by awarding selected key employees of the Company with payments
in Company stock based on the level of achievement of pre-established
performance goals during performance periods through the award of Performance
Shares pursuant to Article 8 of the Plan that, with respect to
Section 162(m) Participants (as defined below), are intended to constitute
Performance-Based Awards, subject to the restrictions and other provisions of
the Program and the Plan.

 

ARTICLE II

 

DEFINITIONS

 

Unless otherwise defined herein, capitalized terms used herein shall have the
meanings assigned to such terms in the Plan.  The following words and phrases
shall have the following meanings:

 

“Cause” shall exist with respect to a Participant if a termination of employment
is for “Cause” pursuant to a written agreement between the Participant and the
Company (an “Individual Agreement”) that is then in effect or, if there is no
Individual Agreement in effect that defines “Cause”, “Cause” shall mean a
finding by the Committee, before or after the Participant’s termination of
employment, of: (i) any material failure by the Participant to perform the
Participant’s duties and responsibilities under any written agreement between
the Participant and the Company; (ii) any act of fraud, embezzlement, theft or
misappropriation by the Participant relating to the Company; (iii) the
Participant’s commission of a felony or a crime involving moral turpitude;
(iv) any gross negligence or intentional misconduct on the part of the
Participant in the conduct of the Participant’s duties and responsibilities with
the Company or which adversely affects the image, reputation or business of the
Company; or (v) any material breach by the Participant of any agreement between
the Company or any of its Subsidiaries, on the one hand, and the Participant on
the other. The findings and decision of the Committee with respect to such
matter, including those regarding the acts of the Participant and the impact
thereof, will be final for all purposes.

 

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“Change of Control” means and includes each of the following:

 

(a)   the acquisition, directly or indirectly, by any “person” or “group” (as
those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act
and the rules thereunder) of “beneficial ownership” (as determined pursuant to
Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in
the election of directors (“voting securities”) of the Company that represent
50% or more of the combined voting power of the Company’s then outstanding
voting securities, other than:

 

(i)  an acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company or by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any person controlled
by the Company, or

 

(i)  an acquisition of voting securities by the Company or a corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company;

 

Notwithstanding the foregoing, the following event shall not constitute an
“acquisition” by any person or group for purposes of this definition: an
acquisition of the Company’s securities by the Company that causes the Company’s
voting securities beneficially owned by a person or group to represent 50% or
more of the combined voting power of the Company’s then outstanding voting
securities; provided, however, that if a person or group shall become the
beneficial owner of 50% or more of the combined voting power of the Company’s
then outstanding voting securities by reason of share acquisitions by the
Company as described above and shall, after such share acquisitions by the
Company, become the beneficial owner of any additional voting securities of the
Company, then such acquisition shall constitute a Change of Control; or

 

(b)   during any period of two consecutive years, individuals who, at the
beginning of such period, constitute the Board together with any new
director(s) (other than a director designated by a person who shall have entered
into an agreement with the Company to effect a transaction described in clauses
(a) or (c) of this definition) whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or

 

(c)   the consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of (x) a
merger, consolidation, reorganization, or business combination or (y) a sale or
other disposition of all or substantially all of the Company’s assets or (z) the
acquisition of assets or stock of another entity, in each case other than a
transaction:

 

(i)  which results in the Company’s voting securities outstanding immediately
before the transaction continuing to represent (either by remaining outstanding
or by being converted

 

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into voting securities of the Company or the person that, as a result of the
transaction, controls, directly or indirectly, the Company or owns, directly or
indirectly, all or substantially all of the Company’s assets or otherwise
succeeds to the business of the Company (the Company or such person, the
“Successor Entity”)) directly or indirectly, at least a majority of the combined
voting power of the Successor Entity’s outstanding voting securities immediately
after the transaction, and

 

(ii)  after which no person or group beneficially owns voting securities
representing 50% or more of the combined voting power of the Successor Entity;
provided, however, that no person or group shall be treated for purposes of this
clause (B) as beneficially owning 50% or more of combined voting power of the
Successor Entity solely as a result of the voting power held in the Company
prior to the consummation of the transaction.

 

Notwithstanding the foregoing, a Change of Control shall not be deemed to exist
unless such Change of Control also constitutes a “change in control event”
within the meaning of Section 409A of the Code and the regulations and other
guidance promulgated thereunder.  The Committee shall have full and final
authority, which shall be exercised in its discretion, to determine conclusively
whether a Change of Control of the Company has occurred pursuant to the above
definition, and the date of the occurrence of such Change of Control and any
incidental matters relating thereto.

 

“Common Stock” shall mean the Common Stock of the Company.

 

“Good Reason” shall exist with respect to a Participant if a termination of
employment is for “Good Reason” pursuant to an Individual Agreement to which
such Participant is a party and that is then in effect or, if there is no
Individual Agreement in effect that defines “Good Reason”, “Good Reason” shall
mean the Participant’s voluntary resignation following any one or more of the
following that is effected without the Participant’s written consent: (i) a
change in his or her position that materially reduces his or her duties or
responsibilities, (ii) a material reduction in his or her base salary, unless
the base salaries of all similarly situated individuals are similarly reduced,
or (iii) a relocation of such Participant’s principal place of employment of
more than fifty (50) miles.  Notwithstanding the foregoing, a voluntary
resignation shall not be deemed to be for Good Reason unless the Participant
provides written notice to the Company of the Participant’s intent to resign for
Good Reason specifying the condition giving rise to Good Reason within thirty
(30) days following the initial existence of such condition, the Company fails
to correct such condition within the thirty (30) day period beginning upon the
Company’s receipt of such notice (the “Cure Period”) and such resignation is
effective within thirty (30) days following the end of the Cure Period.

 

“LTIP Award” shall mean the earned Performance Shares payable in Common Stock
under the Program for a Performance Period.

 

“Participant” shall mean a key employee of the Company or an Affiliate who
participates in this Program pursuant to the provisions of Article III hereof.

 

“Performance Period” shall mean a period of time with respect to which
performance is measured as determined by the Committee.  Performance Periods may
overlap.

 

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“Permanent and Total Disability” shall have the meaning ascribed to such term
under Section 22(e)(3) of the Code and with such permanent and total disability
being certified prior to termination of a Participant’s employment by (i) the
Social Security Administration, (ii) the comparable governmental authority
applicable to an Affiliate of the Company, (iii) such other body having the
relevant decision-making power applicable to an Affiliate of the Company, or
(iv) an independent medical advisor appointed by the Company in its sole
discretion, as applicable, in any such case.

 

“Section 162(m) Participant” shall mean any Participant designated by the
Committee as a “covered employee” within the meaning of Section 162(m) of the
Code whose compensation for the fiscal year in which the Participant is so
designated or a future fiscal year may be subject to the limit on deductible
compensation imposed by Section 162(m) of the Code.

 

“Voluntary Retirement” shall mean voluntary termination of employment of a
Participant after attaining age sixty-five (65).

 

ARTICLE III

 

PARTICIPATION

 

3.1                                 Participants.  Participants for any
Performance Period shall be those active key employees of the Company or an
Affiliate who are designated in writing as eligible for participation by the
Committee within the first ninety (90) days of such Performance Period.

 

3.2                                 No Right to Participate.  No Participant or
other employee of the Company or an Affiliate shall, at any time, have a right
to participate in this Program for any Performance Period, notwithstanding
having previously participated in this Program.

 

ARTICLE IV

 

ADMINISTRATION

 

4.1                                 Generally.  The Committee shall establish
the basis for payments under this Program in relation to specified Performance
Goals, as more fully described in Article V hereof.  With respect to the
162(m) Participants, the Committee shall establish the basis for payments under
this Program in relation to specified Performance Goals within the first ninety
(90) days of each Performance Period, but in no event after 25 percent of the
Performance Period has lapsed. Following the end of each Performance Period,
once all of the information necessary for the Committee to determine the
Company’s performance is made available to the Committee, the Committee shall
determine the amount of the LTIP Award payable to each Participant; provided,
however, that any such determination shall be made no later than thirty (30)
days following the date the Form 10-K for the last fiscal year in such
Performance Period has been filed with the Securities and Exchange Commission
(the date of such determination shall hereinafter be called the “Determination
Date”).  The Committee shall have the power and authority granted it under
Article 12 of the Plan, including, without limitation, the authority to construe
and interpret this Program, to prescribe, amend and rescind rules, regulations
and procedures relating to its

 

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administration and to make all other determinations necessary or advisable for
administration of this Program.  Decisions of the Committee in accordance with
the authority granted hereby shall be conclusive and binding.  Subject only to
compliance with the express provisions hereof, the Committee may act in its sole
and absolute discretion with respect to matters within its authority under this
Program.

 

4.2                                 Provisions Applicable to
Section 162(m) Participants.  Subject to the sole discretion of the Committee,
any LTIP Awards paid hereunder to a Section 162(m) Participant shall satisfy and
shall be interpreted in a manner that satisfies any applicable requirements as
“qualified performance-based compensation” within the meaning of
Section 162(m) of the Code and any provisions, application or interpretation of
the Program or the Plan that is inconsistent with this intent shall be
disregarded. To the extent that any LTIP Award (i) is deemed to constitute
“nonqualified deferred compensation” (within the meaning of Code Section 409A)
and (ii) would nevertheless be subject to the deduction limitations imposed by
Section 162(m) of the Code in the year in which such LTIP Award would otherwise
be paid under this Program, the payment of such LTIP Award may, in the
Committee’s discretion, be delayed until the earlier of (A) the first year in
which such LTIP Award would not be subject to the deduction limitations imposed
by Section 162(m) or (B) such time as the Participant ceases to be a “service
provider” to the Company (within the meaning of Section 409A of the Code).

 

ARTICLE V

 

AWARD DETERMINATIONS

 

5.1                                 Award of Performance Shares.  The Committee
shall determine the number of Performance Shares (rounded down to the nearest
whole number) to be awarded under this Program to each Participant with respect
to such Performance Period. With respect to the Section 162(m) Participants, the
Committee shall determine the number of Performance Shares (rounded down to the
nearest whole number) to be awarded under this Program to each
Section 162(m) Participant with respect to such Performance Period within the
first ninety (90) days of such Performance Period, but in no event after 25
percent of the Performance Period has elapsed.  Performance Shares granted under
the Program shall constitute Performance-Based Awards under Article 9 of the
Plan.

 

5.2                                 Performance Requirements.  The Committee
shall approve the performance goals (collectively, the “Performance Goals”) with
respect to any of the business criteria permitted under the Plan), each subject
to such adjustments as the Committee may specify in writing at such time, and
shall establish a formula, standard or schedule which aligns the level of
achievement of the Performance Goals with the earned Performance Shares.

 

With respect to the Section 162(m) Participants, the Committee shall approve the
Performance Goals within the first ninety (90) days of such the Performance
Period, but in no event after 25 percent of the Performance Period has elapsed,
and the Performance Goals may not be changed during the Performance Period, but
the thresholds, targets and multiplier measures of the Performance Goals shall
be subject to such adjustments as the Committee may

 

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specify in writing within the first ninety (90) days of the Performance Period,
but in no event after 25 percent of the Performance Period has elapsed.

 

ARTICLE VI

 

PAYMENT OF AWARDS

 

6.1                                 Form and Timing of Payment.  Except as set
forth in Section 8.1 below, no LTIP Award payable pursuant to this Program shall
be paid unless and until the Committee certifies, in writing, the extent to
which the Performance Goals have been achieved and the corresponding number of
Performance Shares earned.  Shares of Common Stock issued in respect of an LTIP
Award shall be deemed to be issued in consideration for future services to be
rendered or past services actually rendered to the Company or for its benefit,
by the Participant, which the Committee deems to have a value at least equal to
the aggregate par value thereof.

 

6.2                                 Tax Withholding.  Regardless of any action
the Company or its Affiliate takes with respect to any or all income tax
(including federal, state and local taxes), social insurance, payroll tax,
payment on account or other tax-related items related to participation in the
Program and legally applicable to the Participant (“Tax Obligations”), the
Participant acknowledges that the ultimate liability for all Tax Obligations is
and remains the Participant’s responsibility and may exceed the amount actually
withheld by the Company and/or its Affiliate.  The Participant further
acknowledges that the Company and/or its Affiliate (i) make no representations
or undertakings regarding the treatment of any Tax Obligations in connection
with any aspect of the Performance Shares, including the grant of the
Performance Shares, the vesting of Performance Shares, the conversion of the
Performance Shares into shares, the subsequent sale of any shares acquired at
vesting and the receipt of any dividends; and (ii) do not commit to and are
under no obligation to structure the terms of the grant or any aspect of the
Performance Shares to reduce or eliminate the Participant’s liability for Tax
Obligations or achieve any particular tax result.  Furthermore, if the
Participant becomes subject to tax in more than one jurisdiction between the
Grant Date and the date of any relevant taxable event, the Participant
acknowledges that the Company and/or its Affiliate may be required to withhold
or account for Tax Obligations in more than one jurisdiction.

 

Prior to any relevant taxable or tax withholding event, as applicable, the
Participant shall pay, or make adequate arrangements satisfactory to the Company
or to its Affiliate (in their sole discretion) to satisfy all Tax Obligations. 
In this regard, the Participant shall, at his or her discretion, satisfy all
applicable Tax Obligations by one or a combination of the following:

 

(a)                                  withholding from the Participant’s wages or
other cash compensation paid to the Participant by the Company and/or its
Affiliate; or

 

(b)                                 withholding from proceeds of the sale of
shares of Common Stock acquired upon vesting or payment of the Performance
Shares either through a voluntary sale or through a mandatory sale arranged by
the Company (on the Participant’s behalf pursuant to this authorization); or

 

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(c)                                  withholding in shares of Common Stock to be
issued upon vesting or payment of the Performance Shares, provided that the
Company and its Affiliate shall only withhold an amount of shares of Common
Stock with a fair market value equal to the minimum statutory Tax Obligations.

 

Finally, the Participant shall pay to the Company or its Affiliate any amount of
Tax Obligations that the Company or its Affiliate may be required to withhold or
account for as a result of the Participant’s participation in the Program that
cannot be satisfied by the means previously described.  The Participant agrees
to take any further actions and execute any additional documents as may be
necessary to effectuate the provisions of this Section 6.2.  Notwithstanding
Section 6.1 above, the Company may refuse to issue or deliver the shares or the
proceeds of the sale of shares of Common Stock if the Participant fails to
comply with its obligations in connection with the Tax Obligations.

 

ARTICLE VII

 

TERMINATION OF EMPLOYMENT

 

7.1                                 Certain Terminations of Employment Prior to
Determination Date.  In the case of a termination of the Participant’s
employment with the Company (a “Termination of Employment”) by reason of
Voluntary Retirement, death or Total and Permanent Disability prior to the
Determination Date for a Performance Period, the number of Performance Shares
earned for such Performance Period shall be determined as follows:  first, the
Committee shall determine the number of Performance Shares earned based on
actual achievement of the Performance Goals following the end of the Performance
Period; and second, the number of Performance Shares so obtained shall be
multiplied by a fraction, the numerator of which is the total number of full
months elapsed from the first day of the Performance Period to the date of the
Participant’s Termination of Employment and the denominator of which is the
total number of months in the Performance Period with the resultant number
rounded down to the nearest whole number.  Such number of Performance Shares
shall then be settled in accordance with the terms of the Program without regard
to any continuous service requirement.

 

7.2                                 Certain Terminations of Employment After
Determination Date.  In the case of a Participant’s Termination of Employment by
the Company for other than Cause, by reason of death or Disability or by the
Participant for Good Reason or Voluntary Retirement after the Determination Date
for a Performance Period but prior to settlement, the Performance Shares earned
by the Participant which have not yet been settled shall be issued to such
Participant on the thirtieth (30th) day following the Termination of Employment.

 

7.3                                 All Other Terminations.  Except as provided
in Section 7.1 or 7.2, all Performance Shares not yet settled shall be forfeited
as of the date of the Termination of Employment.

 

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ARTICLE VIII

 

CHANGE OF CONTROL

 

8.1                                 Change of Control During Performance
Period.  Notwithstanding anything to the contrary in the Program, in the event
of a Change of Control that occurs during a Performance Period, such Performance
Period shall be shortened and shall terminate as of the last business day of the
last completed fiscal quarter preceding the date of such Change of Control and
each Participant employed by the Company immediately prior to such Change of
Control shall be entitled to a payment equal to the greater of (a) the amount of
the Participant’s LTIP Award (rounded down to the nearest whole number) he or
she would have been entitled to receive for such shortened Performance Period,
determined based on the Company’s performance for such shortened Performance
Period or (b) one-third (1/3rd) of the Participant’s LTIP Award.  Any such
payment shall be made in a single lump sum immediately prior to such Change of
Control without regard to any deferred payment or settlement dates (provided,
that the Company may elect, in its sole discretion, to make any such payments in
a manner that will not subject the payments to penalties under Code
Section 409A).

 

8.2                                 Change of Control After End of Performance
Period.  Notwithstanding anything to the contrary in the Program, in the event
of a Change of Control that occurs after the end of the applicable Performance
Period but prior to the Determination Date, the amount of any LTIP Award
applicable to such Performance Period shall be paid to the Participant based
upon the performance of the Company during such Performance Period, such payment
to be made in a single lump sum as of immediately prior to the Change of Control
without regard to any deferred payment or settlement dates.

 

ARTICLE IX

 

MISCELLANEOUS

 

9.1                                 Reporting Obligations.  Upon notification by
the Committee that a Participant is eligible for an Award pursuant to the
Program, the Participant shall disclose to the Committee such Participant’s
holdings of Common Stock as of the date of such notification.  Thereafter,
through the Performance Period, each Participant shall disclose to the Committee
any and all transactions whereby the Participant disposes of or acquires Common
Stock. Such disclosure shall be made in writing to the General Counsel of the
Company.

 

9.2                                 Plan.  The Program is subject to all the
provisions of the Plan and its provisions are hereby made a part of the Program,
including without limitation the provisions of Articles 8 and 9 thereof
(relating to Performance Shares and Performance-Based Awards) and Section 13.2
thereof (relating to adjustments upon changes in the Common Stock), and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan.  In the
event of any conflict between the provisions of the Program and those of the
Plan, the provisions of the Plan shall control.

 

9.2                                 Amendment and Termination.  Notwithstanding
anything herein to the contrary, the Committee may, at any time, terminate,
modify or suspend this Program; provided, however, that, without the prior
consent of the Participants affected, no such action may adversely affect any
rights or obligations with respect to any LTIP Awards theretofore earned but
unpaid for a completed Performance Period, whether or not the amounts of such
LTIP Awards have been

 

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computed and whether or not such LTIP Awards are then payable.  Notwithstanding
the forgoing, at any time the Committee determines that the Performance
Shares may be subject to Section 409A of the Code, the Committee shall have the
right, in its sole discretion, and without a Participant’s prior consent to
amend the Program as it may determine is necessary or desirable either for
the Performance Shares to be exempt from the application of Section 409A or to
satisfy the requirements of Section 409A, including by adding conditions with
respect to the vesting and/or the payment of the Performance Shares, provided
that no such amendment may change the Program’s “performance goals,” within the
meaning of Section 162(m) of the Code, with respect to any person who is a
“covered employee,” within the meaning of Section 162(m) of the Code.

 

9.3                                 Limitation on Payments. Notwithstanding
anything in this Program to the contrary, if any payment or distribution a
Participant would receive pursuant to this Prgoram or otherwise (“Payment”)
would (a) constitute a “parachute payment” within the meaning of Section 280G of
the Code, and (b) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then such Payment shall either be
(i) delivered in full, or (ii) delivered as to such lesser extent which would
result in no portion of such Payment being subject to the Excise Tax, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the Excise Tax, results in the receipt by such
Participant on an after-tax basis, of the largest payment, notwithstanding that
all or some portion the Payment may be taxable under Section 4999 of the Code.
The accounting firm engaged by the Company for general audit purposes as of the
day prior to the effective date of the Change of Control shall perform the
foregoing calculations.  The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder.  The
accounting firm shall provide its calculations to the Company and the
Participant within fifteen (15) calendar days after the date on which the
Participant’s right to a Payment is triggered (if requested at that time by the
Company or the Participant) or such other time as requested by the Company or
the Participant.  Any good faith determinations of the accounting firm made
hereunder shall be final, binding and conclusive upon the Company and the
Participant.  Any reduction in payments and/or benefits pursuant to this
Section 9.3 will occur in the following order: (1) reduction of cash payments;
(2) cancellation of accelerated vesting of equity awards other than stock
options; (3) cancellation of accelerated vesting of stock options; and
(4) reduction of other benefits payable to Executive.

 

9.4                                 No Contract for Employment.  Nothing
contained in this Program or in any document related to this Program or to any
LTIP Award shall confer upon any Participant any right to continue as an
employee or in the employ of the Company or an Affiliate or constitute any
contract or agreement of employment for a specific term or interfere in any way
with the right of the Company or an Affiliate to reduce such person’s
compensation, to change the position held by such person or to terminate the
employment of such person, with or without cause.

 

9.5                                 Nontransferability.  No benefit payable
under, or interest in, this Program shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any such

 

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attempted action shall be void and no such benefit or interest shall be, in any
manner, liable for, or subject to, debts, contracts, liabilities or torts of any
Participant or beneficiary; provided, however, that, nothing in this Section 9.4
shall prevent transfer (i) by will, or (ii) by applicable laws of descent and
distribution.

 

9.6                                 Compensation Subject to Recovery.  The LTIP
Awards under this Program and all compensation payable with respect to them
shall be subject to recovery by the Company pursuant to any and all of the
Company’s policies with respect to the recovery of compensation, as they shall
be in effect and may be amended from time to time, to the maximum extent
permitted by applicable law.

 

9.7                                 Nature of Program.  No Participant,
beneficiary or other person shall have any right, title or interest in any fund
or in any specific asset of the Company or any Affiliate by reason of any award
hereunder.  There shall be no funding of any benefits which may become payable
hereunder.  Nothing contained in this Program (or in any document related
thereto), nor the creation or adoption of this Program, nor any action taken
pursuant to the provisions of this Program shall create, or be construed to
create, a trust of any kind or a fiduciary relationship between the Company or
an Affiliate and any Participant, beneficiary or other person.  To the extent
that a Participant, beneficiary or other person acquires a right to receive
payment with respect to an LTIP Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company or other
employing entity, as applicable.  All amounts payable under this Program shall
be paid from the general assets of the Company or employing entity, as
applicable, and no special or separate fund or deposit shall be established and
no segregation of assets shall be made to assure payment of such amounts. 
Nothing in this Program shall be deemed to give any employee any right to
participate in this Program except in accordance herewith.

 

9.8                                 Governing Law.  This Program shall be
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.

 

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