Exhibit 10.1
 
 
HOKU CORPORATION
 
LONG-TERM INCENTIVE COMPENSATION PLAN
 
ARTICLE I
 
NAME AND PURPOSE
 
1.01           Purpose.  Hoku Corporation, a corporation duly organized and
existing under the laws of the State of Delaware (the “Corporation”), hereby
establishes the Hoku Corporation Long-Term Incentive Compensation Plan (the
“Plan”) in order to provide the Corporation’s executive officers and other
select key employees with the opportunity to earn incentive compensation
contingent upon the Corporation’s attainment of pre-established performance
objectives and their completion of designated service periods.
 
1.02           General.  The benefits provided under the Plan shall be paid, as
they become due, from the Corporation’s general assets. The interest of each
participant (and his or her beneficiary) in any benefits that become payable
under the Plan shall be no greater than that of an unsecured creditor of the
Corporation.
 
ARTICLE II
 
ADMINISTRATION OF THE PLAN
 
2.01           Plan Administrator.  The Plan shall be administered by the
Compensation Committee of the Board, and the Compensation Committee acting in
such capacity shall hereinafter be referred to as the Plan Administrator.  As
Plan Administrator, the Compensation Committee shall have full power and
authority to administer the Plan and select the Eligible Employees who are to
participate in the Plan.
 
2.02           Authority.  The interpretation and construction of any provision
of the Plan and the adoption of rules and regulations for plan administration
shall be made by the Plan Administrator.  Decisions of the Plan Administrator
shall be final and binding on all parties who have an interest in the Plan,
including (without limitation) all decisions relating to an individual’s
eligibility for participation in the Plan, his or her entitlement to benefits
hereunder and the amount of any such benefit entitlement.
 
 
 

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ARTICLE III
 
DEFINITIONS
 
3.01           “Board” shall mean the Corporation’s Board of Directors.
 
3.02            “Change in Control” shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:
 
 (i)           a merger or consolidation in which the Corporation is not the
surviving entity and in which one person or a group of related persons (other
than the Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) acquires
ownership of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities;
 
(ii)           the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution of
the Corporation;
 
(iii)           any reverse merger in which the Corporation is the surviving
entity but in which one person or a group of related persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) acquires ownership of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Corporation’s outstanding securities;
 
 (iv)           the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation’s stockholders: or
 
(v)           a change in the composition of the Board over a period of twelve
(12) consecutive months or less such that a majority of the Board members cease,
by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board
approved such election or nomination.
 
3.03           “Code” shall mean the Internal Revenue Code of 1986, as amended
from time to time.
 
 
 

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3.04            “Corporation” shall mean Hoku Corporation and any successor or
assignee corporation, whether by way of merger, acquisition or other
reorganization.
 
3.05           “Eligible Employee” shall mean each executive officer of the
Corporation and any other key employee of the Corporation or any Subsidiary who
the Plan Administrator deems essential to the growth and financial success of
the Corporation.
 
3.06            “Employee” shall mean any person in the employ of the
Corporation or any Subsidiary, subject to control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance.
 
3.07            “Long-Term Incentive Bonus” shall mean the bonus to which the
Participant may become entitled with respect to a particular Performance Period
on the basis of the Corporation’s attainment of the Performance Milestones which
the Plan Administrator establishes for that Performance Period.
 
3.08           “1934 Act” shall mean the Securities Exchange of 1934, as
amended.
 
3.09           “Participant” shall mean each Eligible Employee who participates
in the Plan.
 
3.10           “Performance Milestones” shall mean one or more specific
performance objectives which the Plan Administrator designates for the
Corporation to attain in a particular Performance Period in order for each
Participant to become entitled to a Long-Term Incentive Bonus for that
Performance Period.  Performance Milestones shall be based on one or more of the
following criteria:  (i) revenue, (ii) capital expenditure targets, (iii)
achievement of specified milestones in the development, commercialization or
manufacturing of one or more of the Company’s products, (iv) expense targets,
(v) share price (including, but not limited to, growth measures and total
shareholder return), (vi) earnings per share, (vii) operating or gross margin,
(viii) return measures (including, but not limited to, return on assets,
capital, equity, or sales), (ix) productivity ratios, (x) measures of income and
profits, (xi) cash flow (including, but not limited to, operating cash flow,
free cash flow and cash flow return on capital), (xii) earnings before or after
interest, taxes, depreciation, amortization and/or stock-based compensation
expense, (xiii) economic value added, (xiv) market share (xv) working capital
targets, and (xvi) environmental compliance and employee health and safety
measures. Such Performance Milestones may be measured not only in terms of the
Company’s performance but also in terms of its performance relative to the
performance of other entities or may be measured on the basis of the performance
of any of the Company’s business units or divisions or any parent or Subsidiary.
 
3.11           “Performance Period” shall mean the period over which the
Corporation must attain the Performance Milestones which the Plan Administrator
has established for that period.
 
3.12           “Service” shall mean Participant’s performance of services for
the Corporation (or any Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor. For purposes of this Agreement, Participant shall be deemed to cease
Service immediately upon the occurrence of the either of the following events:
(i) Participant no longer performs services in any of the foregoing capacities
for the Corporation (or any Subsidiary) or (ii) the entity for which Participant
performs such services ceases to remain a Subsidiary of the Corporation, even
though Participant may subsequently continue to perform services for that
entity.
 
 
 

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3.13           “Subsidiary” shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
 
ARTICLE IV
 
PARTICIPATION
 
4.01           Eligibility Rules.  The Plan Administrator shall have absolute
discretion in selecting the Eligible Employees who are to participate in each
Performance Period implemented under the Plan. The initial Participants for each
Performance Period shall be selected not later than the ninetieth (90th) day
after the commencement date of that Performance Period. The Plan Administrator
may select additional Participants for the Performance Period after such
ninetieth (90th) day; provided, however, that the Plan Administrator may, in its
sole discretion, pro-rate the Long-Term Incentive Bonus which the Participant
may earn for that Performance Period to reflect his or her actual period of
Service during that Performance Period.
 
4.02           Cessation of Participation. The Plan Administrator shall have
complete discretion to exclude one or more individuals from Participant status
for one or more subsequent Performance Periods implemented under the Plan. If
any individual is excluded from Participant status for one or more Performance
Periods, then such individual shall not be entitled to any Long-Term Incentive
Bonus for those Performance Periods.
 
ARTICLE V
 
LONG-TERM INCENTIVE BONUSES
 
5.01           Timing and Nature of Awards.  The Plan Administrator shall have
complete discretion to implement one or more Performance Periods under the
Plan.  The Plan Administrator shall, within the first ninety (90) days of each
Performance Period, establish the specific Performance Milestones which must be
attained for that Performance Period.  For each Performance Milestone, the Plan
Administrator may set threshold, target and above-target levels of attainment.
The Plan Administrator shall then establish for each Participant dollar levels
for the Long-Term Incentive Bonus to which he or she may become entitled for
that Performance Period based on the level at which each Performance Milestone
is actually attained.  Such dollar levels may be a specified dollar amount or
tied to a percentage or multiple of the annual rate of base salary in effect for
the Participant for the applicable Performance Period.
 
 
 

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5.02           Service Requirement.  A Participant shall not become entitled to
a Long-Term Incentive Bonus for a particular Performance Period unless the
Participant continues in Service through the completion of that Performance
Period.
 
5.03           Determination of Bonus Amount.  As soon as practicable, but not
later than sixty (60) days following the completion of the Performance Period,
the Plan Administrator shall determine the actual level of attainment of each
Performance Milestone established for that Performance Period and shall then
measure and certify that level of attainment against the levels of attainment
established for that Performance Milestone. Except to the extent determined
otherwise by the Plan Administrator at the time each Performance Milestone is
established, to the extent the actual level of attainment for any Performance
Milestone is at a point between two of the levels established by the Plan
Administrator, the dollar amount of the portion of each Long-Term Incentive
Bonus tied to that Performance Milestone shall be pro-rated between the two
points on a straight-line basis. On the basis of the foregoing measurements and
certification, the Plan Administrator shall determine the actual Long-Term
Incentive Bonus for each Participant entitled to a Long-Term Incentive Bonus for
the Performance Period.
 
5.04           Change in Control.  Should a Change in Control transaction be
consummated after the first ninety (90) days of the Performance Period but prior
to the completion of that Performance Period, then the Performance Period shall
terminate upon the consummation of that Change in Control.  In such event, the
actual Long-Term Incentive Bonus for each Participant entitled under Section
5.01 to a bonus for that Performance Period shall be in the dollar amount
previously set by the Plan Administrator at target level attainment of each
Performance Milestone.  Should the Change in Control transaction occur within
the first ninety (90) days of the Performance Period, the Plan Administrator
shall have complete discretion whether and to what extent any bonuses should be
paid under the Plan for that limited Performance Period.
 
ARTICLE VI
 
PAYMENT OF LONG-TERM INCENTIVE BONUSES
 
6.01           Payment.   The Participant’s Long-Term Incentive Bonus shall be
paid to the Participant in cash in accordance with the following requirements:
 
(i)           for a full Performance Period coincidental with the Corporation’s
fiscal year, the payment shall be made concurrent with payment of regular
payroll for the first regular pay period of the succeeding fiscal year or such
later date as may be required for administrative purposes, but not later than
the last day of the first fiscal quarter of that succeeding fiscal year.
 
 
 

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(ii)           for a Performance Period that is shorter than the Corporation’s
fiscal year, other than an abbreviated Performance Period under Section 5.04,
the payment shall be made concurrent with payment of regular payroll for the
first administratively feasible regular pay period after the last day of the
Performance Period, but not later than sixty (60) days after the last day of the
Performance Period.

(iii)           for an abbreviated Performance Period under Section 5.04, the
payment shall be made within sixty (60) days after the effective date of the
Change in Control transaction triggering that abbreviated Performance Period.

6.02           Withholding Taxes.  The Corporation shall collect all federal,
state and local income, employment and other payroll taxes (including FICA
taxes) required to be withheld from the Participant’s Long-Term Incentive Bonus,
as and when those taxes become due under applicable law. The Corporation shall
collect such taxes through tax withholdings from the Long-Term Incentive Bonus
or other wages and earnings payable to the Participant or by any other means
acceptable to the Corporation.
 
ARTICLE VII
 
MISCELLANEOUS
 
7.01          Plan Effective Date.  The Plan shall become effective immediately
upon approval by the Compensation Committee of the Board.
 
7.02          Benefit Limit. In the event any payment to which Participant
becomes entitled under the Plan would otherwise constitute a parachute payment
under Code Section 280G, then that payment shall be subject to reduction to the
extent necessary to assure that such payment will be limited to the greater of
(i)  the dollar amount which can be paid to the Participant without triggering a
parachute payment under Code Section 280G or (ii)  the dollar amount of that
payment which provides the Participant with the greatest after-tax amount after
taking into account any excise tax the Participant may incur under Code Section
4999 with respect to such payment and any other benefits or payments to which
the Participant may be entitled in connection with any change in control or
ownership of the Corporation or the subsequent termination of the Participant’s
Service.
 
7.03          Benefits Not Funded.  The obligation to pay each Participant’s
Long-Term Incentive Bonus shall at all times be an unfunded and unsecured
obligation of the Corporation. The Corporation shall not have any obligation to
establish any trust, escrow arrangement or other fiduciary relationship for the
purpose of segregating funds for the payment of the Long-Term Incentives Bonuses
which become payable under the Plan, nor shall the Corporation be under any
obligation to invest any portion of its general assets in mutual funds, stocks,
bonds, securities or other similar investments in order to accumulate funds for
the satisfaction of its respective obligations under the Plan.  The Participant
(or his or her beneficiary) shall look solely and exclusively to the general
assets of the Corporation for the payment of his or her Long-Term Incentive
Bonus.
 
 
 

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7.04          No Employment Right.  Neither the action of the Corporation in
establishing or maintaining the Plan, nor any action taken under the Plan by the
Plan Administrator, nor any provision of the Plan itself shall be construed so
as to grant any person the right to remain in the Service of the Corporation for
any period of specific duration, and the Participant shall at all times remain
an Employee at will and may accordingly be discharged at any time, with or
without cause and with or without advance notice of such discharge.
 
7.05          Amendment/Termination.  The Compensation Committee may at any time
amend, suspend or terminate the Plan.  Moreover, the Compensation Committee
reserves the right to amend this Plan as may be necessary or appropriate to
avoid adverse tax consequences under Section 409A of the Code.
 
7.06          Applicable Law.  The provisions of the Plan shall also be
construed, administered and governed by the laws of the State of Delaware
without resort to its conflict-of-laws provisions.  If any provision of this
Plan shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions of the Plan shall continue in full force
and effect.
 
7.07          Satisfaction of Claims.  Any payment made to a Participant or his
or her legal representative, beneficiary or estate  in accordance with the terms
of this Plan shall to the extent thereof be in full satisfaction of all claims
with respect to that payment which such person may have against the Plan, the
Plan Administrator (or its designate) or the Corporation (or any parent or
Subsidiary), any of whom may require the Participant or his or her legal
representative, beneficiary or estate, as a condition precedent to such payment,
to execute a receipt and release in such form as shall be determined by the Plan
Administrator.
 
7.08          Alienation of Benefits.  No person entitled to benefits under the
Plan shall have any right to transfer, assign, alienate, pledge, hypothecate or
otherwise encumber his or her interest in such benefits prior to actual receipt
of those benefits. The benefits payable under the Plan shall not, prior to
actual payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant or any
other person and shall not, to the maximum extent permitted by law, be
transferable by operation of law in the event of the bankruptcy or insolvency of
the Participant or any other person.
 
7.09          Successors and Assigns.  The obligation of the Corporation to make
the payments required hereunder shall be binding upon the successors and assigns
of the Corporation, whether by merger, consolidation, acquisition or other
reorganization.
 
7.10          Construction and Interpretation.  The Plan shall be administered,
operated and construed in compliance with the requirements of the short-term
deferral exception to Internal Revenue Code Section 409A of and Treasury
Regulations Section 1.409A-1(b)(4).  Accordingly, to the extent there is any
ambiguity as to whether one or more provisions of the Plan would otherwise
contravene the requirements or limitations of Internal Revenue Code Section 409A
applicable to such short-term deferral exception, then those provisions shall be
interpreted and applied in a manner that does not result in a violation of the
requirements or limitations of Internal Revenue Code Section 409A and the
Treasury Regulations thereunder that apply to such exception.