Exhibit 10.1

 

PROPEX FABRICS HOLDINGS INC.

 

2005 STOCK AWARDS PLAN

 

I.

PURPOSE

 

The purpose of the Propex Fabrics Holdings Inc. 2005 Stock Awards Plan (the
“Plan”) is to provide a means through which Propex Fabrics Holdings Inc., a
Delaware corporation and its subsidiaries, may attract able persons to the
Company and its Affiliates (as defined below) and to provide a means whereby
those employees, directors and consultants, upon whom the responsibilities of
the successful administration and management of the Company rest, and whose
present and potential contributions to the welfare of the Company are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of the Company and their desire to remain in its
employ or service. A further purpose of the Plan is to provide such employees,
directors and consultants with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the Plan
provides for granting Incentive Stock Options, Options which do not constitute
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Performance Awards, Phantom Stock Awards, or any combination of the foregoing,
as is best suited to the circumstances of the particular employee, director, or
consultant, as provided herein.

 

II.

DEFINITIONS

 

The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:

 

(a) “Affiliate” of any person or entity means any other person or entity which,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such person or entity and, in the
case of the Company, includes but is not limited to, Propex Fabrics Inc.

 

(b) “Award” means, individually or collectively, any Option, Restricted Stock
Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.

 

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

 

(d) “Change of Control” means the occurrence of any of the following events:
(i) any merger, consolidation or other reorganization

 

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(other than a merger or consolidation with the Principal Holder), in which the
Company is not the surviving entity or in which the Company survives only as a
subsidiary of an entity, other than a previously wholly-owned subsidiary of the
Company or the Principal Holder, (ii) the Company sells, leases or exchanges all
or substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company, or the Principal Holder), (iii) the
Company is to be dissolved and liquidated, (iv) any person or entity (other than
the Principal Holder), including a “group” as contemplated by Section 13(d)(3)
of the 1934 Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the
Company’s voting stock (based upon voting power with respect to the election of
directors), or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.

 

(e) “Change of Control Value” shall mean (i) the per share price offered to
stockholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Change of Control takes place, or (iii) if such Change of Control occurs other
than pursuant to a tender or exchange offer, the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee,
whichever is applicable. In the event that the consideration offered to
stockholders of the Company consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash.

 

(f) “Code” means the Internal Revenue Code of 1986, as amended. Reference in the
Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to any section and any regulations under such section.

 

(g) “Committee” means the Compensation Committee of the Board provided that, if
the Company has a class of equity securities registered under Section 12 of the
1934 Act (i) the Compensation Committee shall be constituted to include at least
two “non-employee directors” (as defined under Rule 16b-3 promulgated under the
1934 Act), to permit the Awards and subsequent transactions contemplated
hereunder to comply with Rule 16b-3 and (ii) any Award subject to Section 162(m)
of the Code shall be made solely by members of the Committee who are “outside
directors,” within the meaning of section 162(m) of the Code and applicable
interpretive authority thereunder.

 

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(h) “Company” means Propex Fabrics Holdings Inc. and any of its Affiliates,
which includes, but is not limited to, Propex Fabrics Inc.

 

(i) A “consultant” means an individual who performs services for the Company as
an independent contractor.

 

(j) A “director” means an individual who performs services for the Company as a
member of the Board.

 

(k) An “employee” means any person in an employment relationship with the
Company or one of its Affiliates (as defined in section 424 of the Code).

 

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

 

(m) “Fair Market Value” means, as of any specified date, the closing price of
the Stock as reported in The Wall Street Journal’s New York Stock Exchange
(“NYSE”) - Composite Transactions listing for such day (corrected for obvious
typographical errors), or if the shares are listed for trading on the NYSE but
no closing price is reported in such listing for such day, then the last
reported closing price for such shares on the NYSE, or if such shares are not
listed or traded on the NYSE, the closing sales price on any national securities
exchange on which the Stock is traded, or if the Stock is not traded on any
national securities exchange, then the mean of the reported high and low sales
prices for such shares in the over-the-counter market, as reported on the
National Association of Securities Dealers Automated Quotations System, or, if
such prices shall not be reported thereon, the mean between the closing bid and
asked prices reported by the National Quotation Bureau Incorporated, or, in all
other cases, the fair market value of a share of Stock as determined by the
Committee. The Committee may, but shall have no obligation to, engage one or
more appraisers in making its determination of Fair Market Value, and the Fair
Market Value as determined by the Committee may be higher or lower than any such
appraisal.

 

(n) “Holder” means an employee, director, or consultant who has been granted an
Award.

 

(o) “Incentive Stock Option” means an option that is designated as an incentive
stock option within the meaning of section 422 of the Code.

 

(p) “Nonqualified Stock Option” means an option granted under Paragraph VII of
the Plan to purchase Stock which does not constitute an Incentive Stock Option.

 

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(q) “Option” means an Award granted under Paragraph VII of the Plan and includes
both Incentive Stock Options to purchase Stock and Nonqualified Stock Options to
purchase Stock.

 

(r) “Option Agreement” means a written agreement between the Company and a
Holder with respect to an Option.

 

(s) “Performance Award” means an Award granted under Paragraph X of the Plan.

 

(t) “Performance Award Agreement” means a written agreement between the Company
and a Holder with respect to a Performance Award.

 

(u) “Phantom Stock Award” means an Award granted under Paragraph XI of the Plan.

 

(v) “Phantom Stock Award Agreement” means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award.

 

(w) “Plan” means the Propex Fabrics Holdings Inc. 2005 Stock Awards Plan, as
amended from time to time.

 

(x) “Principal Holder” means The Sterling Group, L.P., Genstar Capital, L.P.,
Laminar Direct Capital, L.P., BNP Paribas Private Capital Group, and their
respective Affiliates, in each case, other than their respective portfolio
companies.

 

(y) “Restricted Stock Agreement” means a written agreement between the Company
and a Holder with respect to a Restricted Stock Award.

 

(z) “Restricted Stock Award” means an Award granted under Paragraph IX of the
Plan.

 

(aa) “Rule 16b-3” means SEC Rule 16b-3 promulgated under the 1934 Act, as such
may be amended from time to time, and any successor rule, regulation or statute
fulfilling the same or a similar function.

 

(bb) “Spread” means, in the case of a Stock Appreciation Right, an amount equal
to the excess, if any, of the Fair Market Value of a share of Stock on the date
such right is exercised over the exercise price of such Stock Appreciation
Right.

 

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(cc) “Stock” means the Class A Common Stock, $0.01 par value, of the Company.

 

(dd) “Stock Appreciation Right” means an Award granted under Paragraph VIII of
the Plan.

 

(ee) “Stock Appreciation Rights Agreement” means a written agreement between the
Company and a Holder with respect to an Award of Stock Appreciation Rights.

 

III.

EFFECTIVE DATE AND DURATION OF THE PLAN

 

The Plan shall be effective upon the date of its adoption by the Board, provided
that the Plan is approved by the stockholders of the Company within twelve
months thereafter. All Awards granted under this Plan prior to stockholder
approval of the Plan are expressly subject to the foregoing stockholder
approval. If the Plan is not approved by the stockholders within twelve months
of the date the Board approved the Plan, the Plan shall terminate and all Awards
granted under the Plan shall become void and of no effect. No further Awards may
be granted under the Plan after the expiration of ten years from the date of its
adoption by the Board. The Plan shall remain in effect until all Awards granted
under the Plan have been satisfied or expired.

 

IV.

ADMINISTRATION

 

(a) Committee. The Plan shall be administered by the Committee.

 

(b) Powers. Subject to the provisions of the Plan, the Committee shall have sole
authority, in its discretion, to determine which employees, directors and
consultants shall receive an Award, the time or times when such Award shall be
made, whether an Incentive Stock Option, Nonqualified Option or Stock
Appreciation Right shall be granted, the number and class of shares of Stock
which may be issued under each Option, Stock Appreciation Right or Restricted
Stock Award, and the value of each Performance Award and Phantom Stock Award. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective employees, directors and consultants,
their present and potential contributions to the Company’s success and such
other factors as the Committee in its discretion shall deem relevant. The
Committee, in its sole discretion, may waive compliance with any provision of
any Award, or any related agreement, may extend the date through which any Award
is exercisable, and/or may accelerate the earliest date on which such Award
becomes exercisable, provided in each case such action does not adversely affect
the rights of the Holder.

 

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(c) Additional Powers. The Committee shall have such additional powers as are
delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Paragraph IV
shall be made in a reasonable, good faith manner.

 

V.

GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS, RESTRICTED STOCK

AWARDS, PERFORMANCE AWARDS AND PHANTOM STOCK AWARDS;

SHARES SUBJECT TO THE PLAN

 

(a) Stock Grant and Award Limits. The Committee may from time to time grant
Awards to one or more employees, directors, or consultants determined by it to
be eligible for participation in the Plan in accordance with the provisions of
Paragraph VI. Subject to Paragraph XII, the aggregate number of shares of Stock
(irrespective of class) that may be issued (or in respect of which Awards may be
issued) under the Plan shall not exceed 57,750 shares. Shares of Stock shall be
deemed to have been issued under the Plan only to the extent actually issued and
delivered pursuant to an Award. To the extent that an Award lapses or the rights
of its Holder terminate or are relinquished or the Award is paid in cash, any
shares of Stock subject to such Award shall again be available for the grant of
an Award. Separate stock certificates shall be issued by the Company for those
shares acquired pursuant to the exercise of an Incentive Stock Option and for
those shares acquired pursuant to the exercise of a Nonqualified Stock Option.

 

(b) Stock Offered. The stock to be offered pursuant to the grant of an Award may
be authorized but unissued Stock or Stock previously issued and outstanding and
reacquired by the Company.

 

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VI.

ELIGIBILITY

 

Awards may be granted only to persons who, at the time of grant, are employees,
directors, or consultants of the Company and its Affiliates; provided that, only
employees of the Company and its Affiliates may be granted an Incentive Stock
Option. An Award may be granted on more than one occasion to the same person,
and, subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option or a Nonqualified Stock Option, a Stock Appreciation
Right, a Restricted Stock Award, a Performance Award, a Phantom Stock Award or
any combination thereof.

 

VII.

STOCK OPTIONS

 

(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant; provided that, the term of an Incentive Stock
Option cannot exceed ten years from the date of grant.

 

(b) Limitations on Exercise of Option. An Option shall be exercisable in whole
or in such installments and at such times as determined by the Committee.

 

(c) Special Limitations on Incentive Stock Options. No more than 45,450 shares
of Stock (irrespective of class) may be subject to Incentive Stock Options.
Incentive Stock Options may only be granted to employees of the Company and its
Affiliates. To the extent that the aggregate Fair Market Value (determined at
the time the respective Incentive Stock Option is granted) of Stock with respect
to which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year under all incentive stock option plans of
the Company and its parent and subsidiary corporations exceeds $100,000, such
Incentive Stock Options shall be treated as Nonqualified Stock Options as
determined by the Committee. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of an optionee’s Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the optionee of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted the
Option price is at least 110% of the Fair Market Value of the Stock subject to
the Option and (ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.

 

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(d) Option Agreement. Each Option shall be evidenced by an Option Agreement in
such form and containing such provisions not inconsistent with the provisions of
the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under section 422 of
the Code. The Option price must be paid in full at the time of each exercise in
one or a combination of the following methods (to the extent authorized and
approved by the Committee or set forth in the applicable Option Agreement):
(a) cash or immediately available funds (including wire transfer, personal
check, cashier’s check, postal or express money order or bank draft) or (b) with
shares of common stock already owned by the participant for at least six months,
provided that for purposes of this clause (b), a Holder shall be deemed to own
shares of common stock issuable upon conversion of any class or series of
preferred stock of the Company owned by such Holder. Additionally, in the
discretion of the Committee, payment for any shares subject to an Option may
also be made by a “cashless exercise” which shall include the following:
delivering a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds necessary to pay the purchase price, and, if
requested, the amount of any federal, state, local or foreign withholding taxes.
To facilitate the foregoing “cashless exercise,” the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. Each
Option Agreement shall specify the effect of termination of employment, or the
cessation of performing services as a member of the Board or a consultant to the
Company on the exercisability of the Option. Such Option Agreement may also
include, without limitation, provisions relating to (i) vesting of Options,
(ii) tax matters (including provisions (1) permitting the delivery of additional
shares of Stock or the withholding of shares of Stock from those acquired upon
exercise to satisfy federal or state income tax withholding requirements and
(2) addressing any other applicable employee wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Option Agreements need not be identical.

 

(e) Option Price and Payment. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Option on the date the Option is granted and (ii) such purchase
price shall be subject to adjustment as provided in Paragraph XII. The Option or
portion thereof may be exercised by delivery of an irrevocable notice of
exercise to the Company. The purchase price of the Option or portion thereof
shall be paid in full in the manner prescribed by the Committee.

 

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(f) Stockholder Rights and Privileges. The Holder shall be entitled to all the
privileges and rights of a stockholder only with respect to such shares of Stock
as have been purchased under the Option and for which certificates of stock have
been registered in the Holder’s name.

 

(g) Options in Substitution for Stock Options Granted by Other Corporations.
Options may be granted under the Plan from time to time in substitution for
stock options held by individuals employed by corporations who become employees
as a result of a merger or consolidation of the employing corporation with the
Company, or the acquisition by the Company of the assets of the employing
corporation, or the acquisition by the Company of stock of the employing
corporation with the result that such employing corporation becomes a
subsidiary.

 

VIII.

STOCK APPRECIATION RIGHTS

 

(a) Stock Appreciation Rights. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement,
which shall contain such terms and conditions as may be approved by the
Committee. The Spread with respect to a Stock Appreciation Right shall be
payable in cash, provided that the Stock Appreciation Rights Agreement may
specify that the Spread may be payable in cash, shares of Stock with a Fair
Market Value equal to the Spread or in a combination of cash and shares of
Stock, at election of the Committee. With respect to Stock Appreciation Rights
that are subject to Section 16 of the 1934 Act, however, the Committee shall,
except as provided in Paragraph XII(c), retain sole discretion (i) to determine
the form in which payment of the Stock Appreciation Right will be made (i.e.,
cash, securities or any combination thereof) and (ii) to approve an election by
a Holder to receive cash in full or partial settlement of Stock Appreciation
Rights. Each Stock Appreciation Rights Agreement shall specify the effect of
termination of employment or the cessation of performing services as a
consultant to the Company on the exercisability of the Stock Appreciation
Rights.

 

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(b) Other Terms and Conditions. At the time of such Award, the Committee, may in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Stock Appreciation Rights, including, but not limited to rules
pertaining to termination of employment or the cessation of performing services
as a director or as a consultant to the Company (by retirement, disability,
death or otherwise) of a Holder prior to the expiration of such Stock
Appreciation Rights. Such additional terms, conditions or restrictions shall be
set forth in the Stock Appreciation Rights Agreement made in conjunction with
the Award. Such Stock Appreciation Rights Agreements may also include, without
limitation, provisions relating to (i) vesting of Awards, (ii) tax matters
(including provisions covering applicable wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan, that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Stock Appreciation Rights Agreements need not be
identical.

 

(c) Exercise Price. The exercise price of each Stock Appreciation Right shall be
determined by the Committee, but such exercise price (i) shall not be less than
the Fair Market Value of a share of Stock on the date the Stock Appreciation
Right is granted and (ii) shall be subject to adjustment as provided in
Paragraph XII.

 

(d) Exercise Period. The term of each Stock Appreciation Right shall be as
specified by the Committee at the date of grant.

 

(e) Limitations on Exercise of Stock Appreciation Right. A Stock Appreciation
Right shall be exercisable in whole or in such installments and at such times as
determined by the Committee.

 

(f) Stock Appreciation Rights and Section 409A. It is intended that the grant of
any Stock Appreciation Right satisfy all the requirements of Section 409A of the
Code.

 

IX.

RESTRICTED STOCK AWARDS

 

(a) Forfeiture Restrictions to be Established by the Committee. Shares of Stock
that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
“Forfeiture Restrictions”). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the

 

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Committee may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of targets established by the Committee that are based on (1) the
price of a share of Stock, (2) the Company’s earnings per share, (3) the
Company’s revenue, or the revenue of a business unit of the Company designated
by the Committee, (4) the return on stockholders’ equity achieved by the
Company, (5) the Company’s pre-tax cash flow from operations or the pre-tax cash
flow from operations of a business unit of the Company designated by the
Committee, (6) the Company’s return on capital, (7) the Company’s return on
assets or (8) the Company’s free cash flow or the free cash flow of a business
unit of the Company designated by the Committee, (ii) the Holder’s continued
service or employment with the Company for a specified period of time, or
(iii) a combination of any two or more of the factors listed in clauses (i) and
(ii) of this sentence, or other factors set forth in the Restricted Stock
Agreement. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee. The Forfeiture Restrictions
applicable to a particular Restricted Stock Award shall not be changed except as
permitted by Paragraph IX(b) or Paragraph XII.

 

(b) Other Terms and Conditions. Stock awarded pursuant to a Restricted Stock
Award shall be represented by a stock certificate registered in the name of the
Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends with respect to Stock subject to a Restricted Stock Award, to
vote Stock subject thereto and to enjoy all other stockholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Stock until the Forfeiture Restrictions shall have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment, the cessation of serving on the
Board or the cessation of performing services as a consultant to the Company (by
retirement, disability, death or otherwise) of a Holder prior to expiration of
the Forfeiture Restrictions. Such additional terms, conditions or restrictions
shall be set forth in a Restricted Stock Agreement made in conjunction with the
Award. Such Restricted Stock Agreement may also include, without limitation,
provisions relating to (i) vesting of Awards, (ii) tax matters (including
provisions (1) covering any applicable employee wage withholding requirements
and (2) requiring or prohibiting an election by the Holder under section 83(b)
of the Code), and (iii) any other matters

 

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not inconsistent with the terms and provisions of this Plan that the Committee
shall in its sole discretion determine. The terms and conditions of the
respective Restricted Stock Agreements need not be identical.

 

(c) Payment for Restricted Stock. The Committee shall determine the amount and
form of any payment for Stock received pursuant to a Restricted Stock Award,
provided that in the absence of such a determination, a Holder shall not be
required to make any payment for Stock received pursuant to a Restricted Stock
Award, except to the extent otherwise required by law.

 

(d) Agreements. At the time any Award is made under this Paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.

 

X.

PERFORMANCE AWARDS

 

(a) Performance Period. The Committee shall establish, with respect to and at
the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.

 

(b) Performance Awards. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.

 

(c) Performance Measures. A Performance Award shall be awarded to an employee,
director, or consultant contingent upon future performance of the employee,
director, or consultant, the Company or any subsidiary, division or department
thereof by or in which he is employed or for which he performs services during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.

 

(d) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account an employee’s, director’s, or consultant’s
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.

 

(e) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an

 

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amount, not exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a Performance Award may be made in cash,
Stock or a combination thereof, as determined by the Committee. Payment shall be
made in a lump sum or in installments as prescribed by the Committee. Any
payment to be made in Stock shall be based on the Fair Market Value of the Stock
on the payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.

 

(f) Termination of Employment, Cessation of Serving on Board or Termination of
Service. A Performance Award shall terminate if the Holder does not remain
continuously in the employ of the Company or fails to perform services for the
Company at all times during the applicable performance period, except as may be
determined by the Committee or as may otherwise be provided in the Award at the
time granted.

 

(g) Agreements. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement setting
forth each of the matters contemplated hereby, and, in addition, such matters
set forth in Paragraph IX(b) as the Committee may determine to be appropriate.
The terms and provisions of the respective agreements need not be identical.

 

XI.

PHANTOM STOCK AWARDS

 

(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive shares of
Stock (or cash in an amount equal to the Fair Market Value thereof), or rights
to receive an amount equal to any appreciation in the Fair Market Value of Stock
(or portion thereof) over a specified period of time, which vest over a period
of time or upon the occurrence of an event (including without limitation a
Change of Control) as established by the Committee, without payment of any
amounts by the Holder thereof (except to the extent otherwise required by law)
or satisfaction of any performance criteria or objectives. Each Phantom Stock
Award shall have a maximum value established by the Committee at the time of
such Award.

 

(b) Award Period. The Committee shall establish, with respect to and at the time
of each Phantom Stock Award, a period over which or the event upon which the
Award shall vest with respect to the Holder.

 

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(c) Awards Criteria. In determining the value of Phantom Stock Awards, the
Committee shall take into account an employee’s, director’s, or consultant’s
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.

 

(d) Payment. Following the end of the vesting period for a Phantom Stock Award,
the Holder of a Phantom Stock Award shall be entitled to receive payment of an
amount, not exceeding the maximum value of the Phantom Stock Award, based on the
then vested value of the Award. Payment of a Phantom Stock Award may be made in
cash, Stock or a combination thereof as determined by the Committee. Payment
shall be made in a lump sum or in installments as prescribed by the Committee in
its sole discretion. Any payment to be made in Stock shall be based on the Fair
Market Value of the Stock on the payment date. Cash dividend equivalents may be
paid during or after the vesting period with respect to a Phantom Stock Award,
as determined by the Committee. If a payment of cash is to be made on a deferred
basis, the Committee shall establish whether interest shall be credited, the
rate thereof and any other terms and conditions applicable thereto.

 

(e) Termination of Employment, Cessation of Serving on Board or Termination of
Service. A Phantom Stock Award shall terminate if the Holder does not remain
continuously in the employ of the Company or fails to perform services for the
Company at all times during the applicable vesting period, except as may be
otherwise determined by the Committee or as set forth in the Award at the time
of grant.

 

(f) Agreements. At the time any Award is made under this Paragraph XI, the
Company and the Holder shall enter into a Phantom Stock Award Agreement setting
forth each of the matters contemplated hereby and, in addition such matters set
forth in Paragraph IX(b) as the Committee may determine to be appropriate. The
terms and provisions of the respective agreements need not be identical.

 

(g) Phantom Stock Awards and Section 409A. It is intended that the grant of any
Phantom Stock Award satisfy all of the requirements of Section 409A of the Code.

 

XII.

RECAPITALIZATION OR REORGANIZATION

 

(a) The shares with respect to which Awards may be granted are shares of Stock
as presently constituted, but if, and whenever, prior to the expiration of an
Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or

 

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satisfied, as applicable, (i) in the event of an increase in the number of
outstanding shares shall be proportionately increased, and the purchase price
per share shall be proportionately reduced, and (ii) in the event of a reduction
in the number of outstanding shares shall be proportionately reduced, and the
purchase price per share shall be proportionately increased.

 

(b) If the Company recapitalizes or otherwise changes its capital structure,
thereafter upon any exercise or satisfaction, as applicable, of an Award
theretofore granted the Holder shall be entitled to (or entitled to purchase, if
applicable) under such Award, in lieu of the number of shares of Stock then
covered by such Award, the number and class of shares of stock and securities to
which the Holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to such recapitalization, the Holder had
been the holder of record of the number of shares of Stock then covered by such
Award.

 

(c) The Committee may, upon the occurrence of a Change of Control, determine
that all outstanding Awards shall immediately vest and become exercisable or
satisfiable, as applicable. The Committee, in its discretion, may determine that
upon the occurrence of a Change of Control, each Award, other than an Option
outstanding hereunder, shall terminate within a specified number of days after
notice to the Holder, and such Holder shall receive, with respect to each share
of Stock subject to such Award, cash in an amount equal to the excess, if any,
of the Change of Control Value over the exercise price. Further, in the event of
a Change of Control, the Committee, in its discretion, but only if a Holder’s
Option Agreement does not provide otherwise, shall act to effect one or more of
the following alternatives with respect to outstanding Options, which may vary
among individual Holders and which may vary among Options held by any individual
Holder: (1) determine a limited period of time for the exercise of such Options
in a manner determined by the Committee (notwithstanding the provisions set
forth in Paragraph VII(e) with respect to the exercise of such options) on or
before a specified date (before or after such Change of Control) after which
specified date all unexercised Options and all rights of Holders thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Holders of some or all of the outstanding Options held by such Holders
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Change of Control, specified by
the Committee, in which event the Committee shall thereupon cancel such Options
and the Company shall pay to each Holder an amount of cash and other
consideration, as determined by the Committee in its sole discretion, where the
total cash and other consideration paid or delivered per share is equal to the
excess, if any, of the Change of Control Value of the shares subject to such
Option over the exercise price(s) under such Options for

 

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such shares, (3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Change of Control (provided,
however, that the Committee may determine in its sole discretion that no
adjustment is necessary to Options then outstanding) or (4) provide that
thereafter upon any exercise of an Option theretofore granted the Holder shall
be entitled to purchase under such Option, in lieu of the number of shares of
Stock then covered by such Option, the number and class of shares of stock or
other securities or property (including, without limitation, cash) to which the
Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution, the Holder has
been the holder of record of the number of shares of Stock then covered by such
Option. The provisions contained in this paragraph shall be inapplicable to an
Award granted within six (6) months before the occurrence of a Change of
Control, but only if (i) the Holder of such Award is subject to the reporting
requirements of Section 16(a) of the 1934 Act and (ii) such provisions (even
after preapproval by the Compensation Committee or the Board pursuant to Rule
16b-3) would create a matching transaction under Section 16(b) of the 1934 Act
with respect to such Holder. The provisions contained in this paragraph shall
not alter any rights or terminate any rights of the Holder to further payments
pursuant to any other agreement with the Company following a Change of Control.

 

(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration (including without limitation,
cash) subject to such Awards. In the event of any such change in the outstanding
Stock, the aggregate number of shares available under the Plan may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.

 

(e) The existence of the Plan and the Awards granted hereunder shall not affect
in any way the right or power of the Board or the stockholders of the Company to
make or authorize any adjustment, recapitalization, reorganization or other
change in the Company’s capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.

 

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(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required stockholder action.

 

(g) Except as hereinbefore expressly provided, the issuance by the Company of
shares of stock of any class or securities convertible into shares of stock of
any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.

 

XIII.

AMENDMENT AND TERMINATION OF THE PLAN

 

The Board in its discretion may terminate the Plan at any time with respect to
any shares for which Awards have not theretofore been granted. The Board shall
have the right to alter or amend the Plan or any part thereof from time to time;
provided that no change in any Award theretofore granted may be made which would
impair the rights of the Holder without the consent of the Holder (unless such
change is required in order to cause the benefits under the Plan to qualify as
performance-based compensation within the meaning of section 162(m) of the Code
and applicable interpretive authority thereunder), and provided, further, that
the Board may not, without approval of the stockholders, amend the Plan:

 

(a) to increase the maximum number of shares which may be issued on exercise or
surrender of an Award, except as provided in Paragraph XII;

 

(b) to change the class of employees, directors, or consultants eligible to
receive Awards or materially increase the benefits accruing to employees,
directors, or consultants under the Plan;

 

(c) to extend the maximum period during which Awards may be granted under the
Plan;

 

(d) to modify materially the requirements as to eligibility for participation in
the Plan; or

 

(e) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.

 

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XIV.

MISCELLANEOUS

 

(a) No Right to an Award. Neither the adoption of the Plan by the Company nor
any action of the Board or the Committee shall be deemed to give an employee,
director, or consultant any right to be granted an Award to purchase Stock, a
right to a Stock Appreciation Right, a Restricted Stock Award, a Performance
Award or a Phantom Stock Award or any of the rights hereunder except as may be
evidenced by an Award or by an Option Agreement, Stock Appreciation Rights
Agreement, Restricted Stock Agreement, Performance Award Agreement or Phantom
Stock Award Agreement on behalf of the Company, and then only to the extent and
on the terms and conditions expressly set forth therein. The Plan shall not be a
“funded plan” within the meaning of the Employee Retirement Income Security Act
of 1974, as amended. The Company shall not be required to establish any special
or separate fund or to make any other segregation of funds or assets to assure
the payment of any Award.

 

(b) No Employment or Service Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee, director, or consultant any right with
respect to continuation of employment or service with the Company or any
subsidiary or (ii) interfere in any way with the right of the Company or any
subsidiary to terminate an employee’s, director’s, or consultant’s employment or
service at any time, with or without cause.

 

(c) Other Laws; Withholding. The Company shall not be obligated to issue any
Stock pursuant to any Award granted under the Plan at any time when the shares
covered by such Award have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the issuance and sale of such shares. No
fractional shares of Stock shall be delivered, nor shall any cash in lieu of
fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.

 

(d) No Restriction on Corporate Action. Nothing contained in the Plan shall be
construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No employee, director, consultant,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.

 

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(e) Restrictions on Transfer. An Award shall not be transferable otherwise than
by will or the laws of descent and distribution or pursuant to a “qualified
domestic relations order” as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the Holder’s lifetime only by such Holder or the
Holder’s guardian or legal representative. However, the Committee may, in its
discretion, provide in an Option Agreement (other than with respect to an
Incentive Stock Option) that the Option right granted to the individual may be
transferred (in whole or in part and shall be subject to such terms and
conditions as the Committee may impose thereon, including, without limitation,
the approval by the Company of the form of transfer agreement) by the individual
to (i) the spouse, children, grandchildren and/or the direct descendents of the
individual (“Immediate Family Members”), (ii) a partnership in which such
Immediate Family Members and, if applicable, the individual are the only
partners, or (iv) any other person or entity otherwise permitted by the
Committee. Following transfer, any such transferred Option rights shall continue
to be subject to the same terms and conditions as were applicable to the Option
rights immediately prior to transfer; provided, however, that no transferred
Option rights shall be exercisable unless arrangements satisfactory to the
Company have been made to satisfy any tax withholding obligations the Company
may have with respect to the Option rights.

 

(f) Rule 16b-3. It is intended that any grant of an Award (and subsequent
transactions contemplated thereby) made to a person subject to Section 16 of the
1934 Act meet all of the requirements of Rule 16b-3. If any such Award does not
comply with Rule 16b-3, such Award shall be construed or deemed amended to
comply with Rule 16b-3.

 

(g) Section 162(m). If the Plan is subject to section 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute “performance-based” compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.

 

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(h) Section 409A. It is intended that any grant of an Award to which
Section 409A of the Code is applicable satisfy all of the requirements of such
section.

 

(i) Governing Law. This Plan shall be construed in accordance with the laws of
the State of Delaware.

 

IN WITNESS WHEREOF, the Company has caused this Plan to be executed on this 25th
day of October, 2005.

 

PROPEX FABRICS HOLDINGS INC.

By:

 

/s/ Edmund A. Stanczak, Jr.

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    President and Chief Executive Officer

 

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