Exhibit 10.3
 
EARTHSTONE ENERGY, INC.
2014 LONG-TERM INCENTIVE PLAN

 
ARTICLE I
PURPOSE
 
1.1 Purpose. The purposes of this Plan are to create incentives which are
designed to motivate Participants to put forth maximum effort toward the success
and growth of the Company and to enable the Company to attract and retain
experienced individuals who by their position, ability and diligence are able to
make important contributions to the Company’s success. Toward these objectives,
this Plan provides for the grant of Options, Restricted Stock Awards, Restricted
Stock Units, SARs, Performance Units, Performance Bonuses, Stock Awards and
Other Incentive Awards to Eligible Employees and the grant of Nonqualified Stock
Options, Restricted Stock Awards, Restricted Stock Units, SARs, Performance
Units, Stock Awards and Other Incentive Awards to Consultants and Eligible
Directors, subject to the conditions set forth in this Plan.
 
ARTICLE II
DEFINITIONS
 
2.1 “Affiliated Entity” means any corporation, partnership, limited liability
company or other form of legal entity in which a majority of the ownership
interest thereof is owned or controlled, directly or indirectly, by the Company
or one or more of its Subsidiaries or Affiliated Entities or a combination
thereof. For purposes hereof, the Company, a Subsidiary or an Affiliated Entity
shall be deemed to have a majority ownership interest in a partnership or
limited liability company if the Company, such Subsidiary or Affiliated Entity
shall be allocated a majority of partnership or limited liability company gains
or losses or shall be or control a managing director or a general partner of
such partnership or limited liability company.
 
2.2 “Award” means, individually or collectively, any Option, Restricted Stock
Award, Restricted Stock Unit, SAR, Performance Unit, Performance Bonus, Stock
Award or Other Incentive Award granted under this Plan to an Eligible Employee
by the Board or any Nonqualified Stock Option, Performance Unit, SAR, Restricted
Stock Award, Restricted Stock Unit, Stock Award or Other Incentive Award granted
under this Plan to a Consultant or an Eligible Director by the Board, in either
case pursuant to such terms, conditions, restrictions, and/or limitations, if
any, as the Board may establish by the Award Agreement or otherwise.
 
2.3 “Award Agreement” means any written or electronic instrument that
establishes the terms, conditions, restrictions, and/or limitations applicable
to an Award in addition to those established by this Plan and by the Board’s
exercise of its administrative powers.
 
2.4 “Board” means the Board of Directors of the Company and, if the Board has
appointed a Committee as provided in Section 3.2, the term “Board” shall include
such Committee.
 
2.5 “Cash Dividend Right” means a contingent right, granted in tandem with a
specific Restricted Stock Unit Award, to receive an amount in cash equal to the
cash distributions made by the Company with respect to a share of Common Stock
during the period such Award is outstanding.
 
2.6 “Change of Control Event” means each of the following:

 
(a)           Any transaction in which shares of voting securities of the
Company representing more than 50% of the total combined voting power of all
outstanding voting securities of the Company are issued by the Company, or sold
or transferred by the stockholders of the Company, in either case resulting in
those persons and entities who beneficially owned voting securities of the
Company representing more than 50% of the total combined voting power of all
outstanding voting securities of the Company immediately prior to such
transaction ceasing to beneficially own voting securities of the Company
representing more than 50% of the total combined voting power of all outstanding
voting securities of the Company immediately after such transaction;
 
(b)           The merger or consolidation of the Company with or into another
entity resulting in those persons and entities who beneficially owned voting
securities of the Company representing more than 50% of the total combined
voting power of all outstanding voting securities of the Company immediately
prior to such merger or consolidation ceasing to beneficially own voting
securities representing more than 50% of the total combined voting power of all
outstanding voting securities of the surviving corporation or resulting entity
immediately after such merger of consolidation; or
 
 
 
1

--------------------------------------------------------------------------------

 
 
(c)           The sale of all or substantially all of the Company’s assets
unless those persons and entities who beneficially owned voting securities of
the Company representing more than 50% of the total combined voting power of all
outstanding voting securities of the Company immediately prior to such asset
sale beneficially own voting securities of the purchasing entity representing
more than 50% of the total combined voting power of all outstanding voting
securities of the purchasing entity immediately after such asset sale.
 
2.7 “Code” means the Internal Revenue Code of 1986, as amended. References in
this Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
 
2.8 “Committee” means the Committee appointed by the Board as provided in
Section 3.2.
 
2.9 “Common Stock” means the common stock, $0.001 par value per share, of the
Company, and after substitution, such other stock as shall be substituted
therefore as provided in Article XII.
 
2.10 “Company” means Earthstone Energy, Inc., a Delaware corporation.
 
2.11 “Consultant” means any individual who is engaged by the Company, a
Subsidiary or an Affiliated Entity to render bona-fide consulting or advisory
services, which services are not in connection with the offer or sale of
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company’s securities.
 
2.12 “Date of Grant” means the date on which the grant of an Award is authorized
by the Board or such later date as may be specified by the Board as the Date of
Grant in such authorization.
 
2.13 “Disability” means the Participant is unable to continue providing services
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous
period of not less than 12 months. For purposes of this Plan, the determination
of Disability shall be made in the sole and absolute discretion of the Board.
 
2.14 “Dividend Unit Right” means a contingent right, granted in tandem with a
specific Restricted Stock Unit Award, to have an additional number of Restricted
Stock Units credited to a Participant in respect of the Award equal to the
number of whole shares of Common Stock that could be purchased at Fair Market
Value upon, and with the amount of, each cash distribution made by the Company
during the period such Award is outstanding with respect to a number of shares
of Common Stock equal to the number of Restricted Stock Units subject to the
Award at the time of each such distribution.
 
2.15 “Eligible Employee” means any employee of the Company, a Subsidiary, or an
Affiliated Entity as approved by the Board.
 
2.16 “Eligible Director” means any member of the Board who is not an employee of
the Company, a Subsidiary or an Affiliated Entity, or a Consultant.
 
2.17 “Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
 
 
2

--------------------------------------------------------------------------------

 
 
2.18 “Fair Market Value” means (a) during such time as the Common Stock is
registered under Section 12 of the Exchange Act, the closing sales price of the
Common Stock  as quoted by an established stock exchange or automated quotation
system on the day for which such value is to be determined, or, if there was no
quoted price for such day, then for the last preceding business day on which
there was a quoted price as reported in The Wall Street Journal or such other
sources as the Board deems reliable, or (b) during any such time as the Common
Stock is not listed upon an established stock exchange or automated quotation
system, the mean between dealer “bid” and “ask” prices of the Common Stock in
the over-the-counter market on the day for which such value is to be determined,
as reported in The Wall Street Journal or such other source as the Board deems
reliable, or (c) during any such time as the Common Stock cannot be valued
pursuant to (a) or (b) above, the fair market value of the Common Stock as
determined in good faith by the Board using a “reasonable application of a
reasonable valuation method” within the meaning of Treasury Regulation
Section 1.409A-1(b)(5)(iv)(B) or any successor provision.
 
2.19 “Incentive Stock Option” means an Option that is intended to be an
“incentive stock option” within the meaning of Section 422 of the Code.
 
2.20 “Nonqualified Stock Option” means an Option which is not an Incentive Stock
Option.
 
2.21 “Other Incentive Award” means an incentive award granted to an Eligible
Employee, Consultant or Eligible Director under Article XI of this Plan.
 
2.22 “Option” means an Award granted under Article V of this Plan and includes
both Nonqualified Stock Options and Incentive Stock Options to purchase shares
of Common Stock.
 
2.23 “Participant” means an Eligible Employee, a Consultant or an Eligible
Director to whom an Award has been granted by the Board under this Plan.
 
2.24 “Performance Bonus” means the bonus which may be granted to Eligible
Employees under Article X of this Plan.
 
2.25 “Performance Units” means those monetary units and/or units representing
fictional shares of Common Stock that may be granted to Eligible Employees,
Consultants or Eligible Directors pursuant to Article IX hereof.
 
2.26 “Plan” means the Earthstone Energy, Inc. 2014 Long-Term Incentive Plan.
 
2.27 “Restricted Stock Award” means an Award granted to an Eligible Employee,
Consultant or Eligible Director under Article VI of this Plan.
 
2.28 “Restricted Stock Unit” means an Award granted to an Eligible Employee,
Consultant or Eligible Director under Article VII of this Plan.
 
2.29 “SAR” means a stock appreciation right granted to an Eligible Employee,
Consultant or Eligible Director under Article VIII of this Plan.
 
2.30 “Stock Award” means an Award granted to an Eligible Employee, Consultant or
Eligible Director under Article XI of this Plan.
 
2.31 “Subsidiary” means a “subsidiary corporation” of the Company, as defined in
Section 424(f) of the Code.
 
 
 
3

--------------------------------------------------------------------------------

 

 
ARTICLE III
ADMINISTRATION
 
3.1 Shares Subject to this Plan. Subject to the limitations set forth herein,
750,000 shares of Common Stock are reserved for issuance pursuant to Awards made
under this Plan. The limitations of this Section 3.1 shall be subject to the
adjustment provisions of Article XII.
 
3.2 Administration of this Plan by the Board. The Board shall administer this
Plan. The Board may, by resolution, appoint a committee of one or more members
of the Board to administer this Plan and delegate its powers described under
this Section 3.2 for purposes of Awards granted to Eligible Employees and
Consultants; provided, however, that no such delegation shall be effective with
respect to Awards for individuals subject to Section 16 of the Exchange Act with
respect to the Company unless the committee consists solely of two or more
“non-employee directors.” Subject to the provisions of this Plan, the Board
shall have exclusive power to:
 
(a)           Select Eligible Employees and Consultants to participate in this
Plan.
 
(b)           Determine the time or times when Awards will be made to Eligible
Employees or Consultants.
 
(c)           Determine the form of an Award, whether an Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, Restricted Stock Unit, SAR,
Performance Unit, Performance Bonus, Stock Award or Other Incentive Award, the
number of shares of Common Stock, Performance Units or Restricted Stock Units
subject to the Award, the amount and all the terms, conditions (including
performance requirements), restrictions and/or limitations, if any, of an Award,
including the time and conditions of exercise or vesting, and the terms of any
Award Agreement, which may include the waiver or amendment of prior terms and
conditions or acceleration or early vesting or payment of an Award under certain
circumstances determined by the Board.
 
(d)           Determine whether Awards will be granted singly or in combination.
 
(e)           Accelerate the vesting, exercise or payment of an Award or the
performance period of an Award.
 
(f)           Take any and all other action it deems necessary or advisable for
the proper operation or administration of this Plan.
 
3.3 Administration of Grants to Eligible Directors. The Board shall have the
exclusive power to select Eligible Directors to participate in this Plan and to
determine the number of Nonqualified Stock Options, Performance Units,
Restricted Stock Units, SARs, Stock Awards, Other Incentive Awards or the number
of shares of Common Stock subject to a Restricted Stock Award awarded to
Eligible Directors selected for participation. If the Board appoints a committee
to administer this Plan, it may delegate to the committee administration of all
other aspects of the Awards made to Eligible Directors.

3.4 The Board to Make Rules and Interpret Plan. The Board in its sole discretion
shall have the authority, subject to the provisions of this Plan, to establish,
adopt, or revise such rules and regulations and to make all such determinations
relating to this Plan, as it may deem necessary or advisable for the
administration of this Plan. The Board’s interpretation of this Plan or any
Awards and all decisions and determinations by the Board with respect to this
Plan shall be final, binding, and conclusive on all parties.
 
3.5 Section 162(m) Provisions. The Company intends for this Plan to permit, but
not require, the grant of  Awards that qualify for the exception from
Section 162(m) of the Code for “qualified performance based compensation.” In
the event Awards granted hereunder are intended to be “qualified performance
based compensation,” a Committee composed of two or more “outside directors”
within the meaning of Section 162(m) of the Code shall make such Awards and
shall exercise all administrative authority with respect to such
Awards.  Nothing herein shall require that the Board or the Committee grant
awards that satisfy the “qualified performance based compensation” requirements
of Section 162(m) of the Code, and neither the Board, nor the Committee, nor the
Company shall be liable for any failure to satisfy such requirements.
 
3.6 Indemnification. In addition to such other rights of indemnification as they
may have as members of the Board, and to the extent allowed by applicable laws,
the Board shall be indemnified by the Company against the reasonable expenses,
including attorneys’ fees, actually incurred in connection with any action, suit
or proceeding or in connection with any appeal therein, to which the Board may
be party by reason of any action taken or failure to act under or in connection
with this Plan or any Award granted under this Plan, and against all amounts
paid by the Board in settlement thereof (provided, however, that the settlement
has been approved by the Company, which approval shall not be unreasonably
withheld) or paid by the Board in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Board did not act in good
faith and in a manner which such person reasonably believed to be in the best
interests of the Company, or in the case of a criminal proceeding, had no reason
to believe that the conduct complained of was unlawful; provided, however, that
within 60 days after institution of any such action, suit or proceeding, the
Board shall, in writing, offer the Company the opportunity at its own expense to
handle and defend such action, suit or proceeding.
 
 
 
4

--------------------------------------------------------------------------------

 
 
ARTICLE IV
GRANT OF AWARDS

 
4.1            Grant of Awards. Awards granted under this Plan shall be subject
to the following conditions:
 
(a)           Subject to Article XII, the aggregate number of shares of Common
Stock covered by Options and/or SARs granted to any Eligible Employee in any
calendar year may not exceed 250,000.
 
(b)           Subject to Article XII, the aggregate number of shares of Common
Stock that may be issued pursuant to Awards (other than Options and/or SARs)
granted to any Eligible Employee in any calendar year may not exceed 150,000.

 
(c)           The maximum aggregate amount that may be paid in cash pursuant to
Awards (other than Options and/or SARs) granted to any Eligible Employee in any
calendar year may not exceed $2,000,000.
 
(d)           Any shares of Common Stock related to Awards which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of shares
of Common Stock or are exchanged in the Board’s discretion for Awards not
involving the issuance of shares of Common Stock, shall be available again for
grant under this Plan and shall not be counted against the shares authorized
under Section 3.1. Any shares of Common Stock issued as Restricted Stock Awards
that subsequently are forfeited without vesting shall again be available for
grant under this Plan and shall not be counted against the shares authorized
under Section 3.1. Any Awards that, pursuant to the terms of the applicable
Award Agreement, are to be settled in cash, whether or not denominated in or
determined with reference to shares of Common Stock (for example, SARs,
Performance Units or Restricted Stock Units to be settled in cash), shall not be
counted against the shares authorized under Section 3.1.  Shares of Common Stock
withheld to satisfy applicable withholding taxes pursuant to Section 13.3 shall
NOT be available for future issuance under the Plan.
 
(e)           Common Stock delivered by the Company in payment of an Award
authorized under Articles V and VI of this Plan may be authorized and unissued
Common Stock or Common Stock held in the treasury of the Company.
 
(f)           The Board shall, in its sole discretion, determine the manner in
which fractional shares arising under this Plan shall be treated.
 
(g)           Share of Common Stock issued hereunder may be evidenced in any
manner determined by the Board, including, but not limited to, separate
certificates or book-entry registration
 
(h)           The Board shall be prohibited from canceling, reissuing or
modifying Awards if such action will have the effect of repricing the
Participant’s Award, unless such action is approved in advance by the Company’s
stockholders.
 
(i)           Eligible Directors and Consultants may only be granted
Nonqualified Stock Options, Performance Units, Restricted Stock Awards,
Restricted Stock Units, SARs, Stock Awards or Other Incentive Awards under this
Plan.
 
(j)           The maximum term of any Award shall be ten years.
 
 
 
5

--------------------------------------------------------------------------------

 
 
ARTICLE V
STOCK OPTIONS
 
5.1            Grant of Options. The Board may, from time to time, subject to
the provisions of this Plan and such other terms and conditions as it may
determine, grant Options to Eligible Employees. These Options may be Incentive
Stock Options or Nonqualified Stock Options, or a combination of both. The Board
may, subject to the provisions of this Plan and such other terms and conditions
as it may determine, grant Nonqualified Stock Options to Eligible Directors and
Consultants. Notwithstanding the foregoing, Nonqualified Stock Options may be
granted only to Eligible Employees, Eligible Directors and Consultants
performing services for the Company or a corporation or other type of entity in
a chain of corporations or other entities in which each corporation or other
entity has a “controlling interest” in another corporation or entity in the
chain, starting with the Company and ending with the corporation or other entity
for which the Eligible Employee, Eligible Director or Consultant performs
services. For purposes of this Section 5.1, the term “controlling interest”
means (a) in the case of a corporation, ownership of stock possessing at least
50% of total combined voting power of all classes of stock entitled to vote of
such corporation or at least 50% of the total value of shares of all classes of
stock of such corporation; (b) in the case of a partnership, ownership of at
least 50% of the profits interest or capital interest of such partnership;
(c) in the case of a sole proprietorship, ownership of the sole proprietorship;
or (d) in the case of a trust or estate, ownership of an actuarial interest (as
defined in Treasury Regulation Section 1.414(c)-2(b)(2)(ii)) of at least 50% of
such trust or estate. Each grant of an Option shall be evidenced by an Award
Agreement executed by the Company and the Participant, and shall contain such
terms and conditions and be in such form as the Board may from time to time
approve, subject to the requirements of Section 5.2.
 
5.2            Conditions of Options. Each Option so granted shall be subject to
the following conditions:
 
(a)            Exercise Price. As limited by Section 5.2(e) below, each Option
shall state the exercise price which shall be set by the Board at the Date of
Grant; provided, however, no Option shall be granted at an exercise price which
is less than the Fair Market Value of the Common Stock on the Date of Grant
unless the Option is granted through the assumption of, or in substitution for,
outstanding awards previously granted to individuals who became Eligible
Employees (or other service providers) as a result of a merger, consolidation,
acquisition or other corporate transaction involving the Company which complies
with Treasury Regulation Section 1.409A-1(b)(5)(v)(D).
 
(b)            Form of Payment. The exercise price of an Option may be paid
(i) in cash or by check, bank draft or money order payable to the order of the
Company; (ii) subject to prior approval by the Board in its discretion, by
delivering previously acquired shares of Common Stock having an aggregate Fair
Market Value on the date of payment equal to the amount of the exercise price,
but only to the extent such exercise of an Option would not result in an adverse
accounting charge to the Company for financial accounting purposes with respect
to the shares used to pay the exercise price unless otherwise determined by the
Board; (iii) subject to prior approval by the Board in its discretion, by
withholding shares of Common Stock which otherwise would be acquired on exercise
having an aggregate Fair Market Value at on the date of payment equal to the
amount of the exercise price; or (iv) subject to prior approval by the Board in
its discretion, by a combination of the foregoing. In addition to the foregoing,
the Board may permit an Option granted under this Plan to be exercised by a
broker-dealer acting on behalf of a Participant through procedures approved by
the Board. Such procedures may include a broker either (x) selling all of the
shares of Common Stock received when an Option is exercised and paying the
Participant the proceeds of the sale (minus the exercise price, withholding
taxes and any fees due to the broker) or (y) selling enough of the shares of
Common Stock received upon exercise of the Option to cover the exercise price,
withholding taxes and any fees due to the broker and delivering to the
Participant (either directly or through the Company) a stock certificate for the
remaining shares of Common Stock.
 
(c)            Exercise of Options.
 
(i)           Options granted under this Plan shall be exercisable, in whole or
in such installments and at such times, and shall expire at such time, as shall
be provided by the Board in the Award Agreement. Exercise of an Option shall be
by written notice to the Secretary of the Company (or such other officer as may
be designated by the Board) at least two business days in advance of such
exercise (or such lesser period of time as the Board may require) stating the
election to exercise in the form and manner determined by the Board. Every share
of Common Stock acquired through the exercise of an Option shall be deemed to be
fully paid at the time of exercise and payment of the exercise price.
 
(ii)           Unless otherwise provided in an Award Agreement, the following
provisions will apply to the exercisability of Options following the termination
of a Participant’s employment or service with the Company, a Subsidiary or an
Affiliated Entity:

 
6

--------------------------------------------------------------------------------

 
 
(A)           If an Eligible Employee’s employment with the Company, a
Subsidiary or an Affiliated Entity terminates as a result of death or
Disability, the Eligible Employee (or personal representative in the case of
death) shall be entitled to purchase all or any part of the shares subject to
any (i) vested Incentive Stock Option for a period of up one year and
(ii) vested Nonqualified Stock Option during the remaining term of the Option.
If an Eligible Employee’s employment terminates for any other reason, the
Eligible Employee shall be entitled to purchase all or any part of the shares
subject to any vested Option for a period of up to three months from such date
of termination. In no event shall any Option be exercisable past the term of the
Option. The unvested portion of any Option shall be forfeited immediately upon
termination; provided, however, that the Board may, in its sole discretion,
accelerate the vesting of unvested Options in the event of termination of
employment of any Participant.
 
(B)           In the event a Consultant ceases to provide services to the
Company or an Eligible Director terminates service as a director of the Company,
the unvested portion of any Award shall be forfeited unless otherwise
accelerated pursuant to the terms of the Eligible Director’s Award Agreement or
by the Board. Unless otherwise provided in the applicable Award Agreement, the
Consultant or Eligible Director shall have a period of three years following the
date he ceases to provide consulting services or ceases to be a director, as
applicable, to exercise any Nonqualified Stock Options which are otherwise
exercisable on his date of termination of service. In no event shall any Option
be exercisable past the term of the Option.
 
(d)            Other Terms and Conditions. Among other conditions that may be
imposed by the Board, if deemed appropriate, are those relating to (i) the
period or periods and the conditions of exercisability of any Option; (ii) the
minimum periods during which Participants must be employed by the Company, its
Subsidiaries, or an Affiliated Entity, or must hold Options before they may be
exercised; (iii) the minimum periods during which shares acquired upon exercise
must be held before sale or transfer shall be permitted; (iv) conditions under
which such Options or shares may be subject to forfeiture; (v) the frequency of
exercise or the minimum or maximum number of shares that may be acquired at any
one time; (vi) the achievement by the Company of specified performance criteria;
and (vii) non-compete and protection of business matters.
 
(e)            Special Restrictions Relating to Incentive Stock Options.
 
(i)           Options issued in the form of Incentive Stock Options shall only
be granted to Eligible Employees of the Company or a Subsidiary, and not to
Eligible Employees of an Affiliated Entity unless such entity shall be
considered as a “disregarded entity” under the Code and shall not be
distinguished for federal tax purposes from the Company or the applicable
Subsidiary.
 
(ii)           No Incentive Stock Option shall be granted to an Eligible
Employee who owns or who would own immediately before the grant of such
Incentive Stock Option more than 10% of the combined voting power of the Company
or its Subsidiaries or a “parent corporation”, unless (A) at the time such
Option is granted the exercise price is at least 110% of the Fair Market Value
of a share of Common Stock on the date of grant and (B) such Option by its terms
is not exercisable after the expiration of five years from the date of grant.
For purposes of this Section 5.2(e), “parent corporation” means a “parent
corporation” of the Company, as defined in Section 424(e) of the Code.
 
(iii)           To the extent that the aggregate Fair Market Value (determined
at the time an Incentive Stock Option is granted) of shares of Common 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 Subsidiaries and parent corporations exceeds $100,000, such
excess Incentive Stock Options shall be treated as Nonqualified Stock Options.
The Board shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of a
Participant’s Options will not constitute Incentive Stock Options because of
such limitation and shall notify the Participant of such determination as soon
as practicable after such determination.
 
(iv)           Each Participant awarded an Incentive Stock Option shall notify
the Company in writing immediately after the date he or she makes a
disqualifying disposition of any shares of Common Stock acquired pursuant to the
exercise of such Incentive Stock Option. A disqualifying disposition is any
disposition (including any sale) of such Common Stock before the later of
(i) two years after the Date of Grant of the Incentive Stock Option or (ii) one
year after the date of exercise of the Incentive Stock Option.
 
(v)           Except in the case of death, an Option will not be treated as an
Incentive Stock Option unless at all times beginning on the Date of Grant and
ending on the day three months (one year in the case of a Participant who is
“disabled” within the meaning of Section 22(e)(3) of the Code) before the date
of exercise of the Option, the Participant is an employee of the Company or a
parent corporation of the Company or a Subsidiary (or a corporation or a parent
corporation or subsidiary corporation of such corporation issuing or assuming an
Option in a transaction to which Section 424(a) of the Code applies).
 
(f)            Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to Options will be used for general corporate
purposes.
 
(g)            Stockholder Rights. No Participant shall have a right as a
stockholder with respect to any share of Common Stock subject to an Option prior
to purchase of such shares of Common Stock by exercise of the Option.
 
 
 
7

--------------------------------------------------------------------------------

 

ARTICLE VI
RESTRICTED STOCK AWARDS
 
6.1            Grant of Restricted Stock Awards. The Board may, from time to
time, subject to the provisions of this Plan and such other terms and conditions
as it may determine, grant a Restricted Stock Award to Eligible Employees,
Consultants or Eligible Directors. Restricted Stock Awards shall be awarded in
such number and at such times during the term of this Plan as the Board shall
determine. Each Restricted Stock Award shall be subject to an Award Agreement
setting forth the terms of such Restricted Stock Award and may be evidenced in
such manner as the Board deems appropriate, including without limitation, a
book-entry registration or issuance of a stock certificate or certificates.
 
6.2            Conditions of Restricted Stock Awards. The grant of a Restricted
Stock Award shall be subject to the following:
 
(a)            Restriction Period. Restricted Stock Awards granted to an
Eligible Employee shall require the holder to remain in the employment of the
Company, a Subsidiary, or an Affiliated Entity for a prescribed period.
Restricted Stock Awards granted to Consultants or Eligible Directors shall
require the holder to provide continued services to the Company for a period of
time. These employment and service requirements are collectively referred to as
a “Restriction Period.” The Board shall determine the Restriction Period or
Periods which shall apply to the shares of Common Stock covered by each
Restricted Stock Award or portion thereof. In addition to any time vesting
conditions determined by the Board vesting and/or the grant of Restricted Stock
Awards may be subject to the achievement by the Company of specified performance
criteria as may from time to time be established by the Board. The Board also
will determine whether the Award is intended to satisfy the Section 162(m)
Requirements, as described in Exhibit A attached hereto, in which case the
performance criteria shall be based upon the Company’s achievement of all or any
of the operational, financial or stock performance criteria set forth on Exhibit
A. At the end of the Restriction Period, or upon the later fulfillment of any
other specified vesting conditions, the restrictions imposed by the Board shall
lapse with respect to the shares of Common Stock covered by the Restricted Stock
Award or portion thereof. In addition to acceleration of vesting upon the
occurrence of a Change of Control Event as provided in Section 13.4, the Board
may, in its discretion, accelerate the vesting of a Restricted Stock Award in
the case of the death or Disability of the Participant who is an Eligible
Employee or resignation of a Participant who is a Consultant or an Eligible
Director.
 
(b)            Restrictions. The holder of a Restricted Stock Award may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the
shares of Common Stock represented by the Restricted Stock Award during the
applicable Restriction Period or prior to the fulfillment of any other specified
vesting conditions. The Board shall impose such other restrictions and
conditions on any shares of Common Stock covered by a Restricted Stock Award as
it may deem advisable including, without limitation, restrictions under
applicable federal or state securities laws, and may legend the certificates
representing shares of Common Stock covered by a Restricted Stock Award to give
appropriate notice of such restrictions.
 
(c)            Rights as Stockholders. Unless otherwise provided in the Award
Agreement, during any Restriction Period (and prior to the fulfillment of any
other specified vesting conditions), the Participant shall have all of the
rights of a stockholder with respect to the shares, including, but not by way of
limitation, the right to vote such shares and to receive dividends. If any
dividends or other distributions are paid in shares of Common Stock, all such
shares shall be subject to the same risk of forfeiture and same restrictions on
transferability as the shares of Common Stock covered by the Restricted Stock
Award with respect to which they were paid.

 
ARTICLE VII
RESTRICTED STOCK UNITS
 
7.1            Grant of Restricted Stock Units. The Board may, from time to
time, subject to the provisions of this Plan and such other terms and conditions
as it may determine, grant Restricted Stock Units to Eligible Employees,
Consultants or Eligible Directors. Restricted Stock Units shall be awarded in
such number and at such times during the term of this Plan as the Board shall
determine. Each Award of Restricted Stock Units shall be subject to an Award
Agreement setting forth the terms of such Award of Restricted Stock Units. A
Participant shall not be required to make any payment for Restricted Stock
Units.
 
 
 
8

--------------------------------------------------------------------------------

 
 
7.2            Conditions of Restricted Stock Units. The grant of Restricted
Stock Units shall be subject to the following:
 
(a)            Restriction Period. Restricted Stock Units granted to an Eligible
Employee shall require the holder to remain in the employment of the Company, a
Subsidiary, or an Affiliated Entity for a prescribed period. Restricted Stock
Units granted to Consultants or Eligible Directors shall require the holder to
provide continued services to the Company for a period of time. These employment
and service requirements are collectively referred to as a “Restriction Period.”
The Board shall determine the Restriction Period or Periods which shall apply to
the Restricted Stock Units. In addition to any time vesting conditions
determined by the Board vesting and/or the grant of Restricted Stock Units may
be subject to the achievement by the Company of specified performance criteria
as may from time to time be established by the Board. The Board also will
determine whether the Award is intended to satisfy the Section 162(m)
Requirements, as described in Exhibit A attached hereto, in which case the
performance criteria shall be based upon the Company’s achievement of all or any
of the operational, financial or stock performance criteria set forth on Exhibit
A. At the end of the Restriction Period, or upon the later fulfillment of any
other specified vesting conditions, the restrictions imposed by the Board shall
lapse with respect to the Restricted Stock Units. In addition to acceleration of
vesting upon the occurrence of a Change of Control Event as provided in
Section 13.4, the Board may, in its discretion, accelerate the vesting of an
Award of Restricted Stock Units in the case of the death or Disability of the
Participant who is an Eligible Employee or resignation of a Participant who is a
Consultant or an Eligible Director.
 
(b)            Lapse of Restrictions. Upon the lapse of restrictions with
respect to each Restricted Stock Unit, the Participant shall be entitled to
receive one share of Common Stock or an amount of cash equal to the Fair Market
Value of one share of Common Stock, as provided in the Award Agreement.
 
(c)            Cash Dividend Rights and Dividend Unit Rights. The Board may, in
its sole discretion, grant a tandem Cash Dividend Right or Dividend Unit Right
grant with respect to Restricted Stock Units. A grant of Cash Dividend Rights
may provide that such Cash Dividend Rights shall be paid directly to the
Participant at the time of payment of the related dividend, be credited to a
bookkeeping account subject to the same vesting and payment provisions as the
tandem Award (with or without interest in the sole discretion of the Board), or
be subject to such other provisions or restrictions as determined by the Board
in its sole discretion. A grant of Dividend Unit Rights may provide that such
Dividend Unit Rights shall be subject to the same vesting and payment provisions
as the tandem Award or be subject to such other provisions and restrictions as
determined by the Board in its sole discretion.

 
ARTICLE VIII
STOCK APPRECIATION RIGHTS
 
8.1            Grant of SARs. The Board may from time to time, in its sole
discretion, subject to the provisions of this Plan and subject to other terms
and conditions as the Board may determine, grant a SAR to any Eligible Employee,
Consultant or Eligible Director. SARs may be granted in tandem with an Option,
in which event, the Participant has the right to elect to exercise either the
SAR or the Option. Upon the Participant’s election to exercise one of these
Awards, the other tandem Award is automatically terminated. SARs may also be
granted as an independent Award separate from an Option. Each grant of a SAR
shall be evidenced by an Award Agreement executed by the Company and the
Participant and shall contain such terms and conditions and be in such form as
the Board may from time to time approve, subject to the requirements of this
Plan. The exercise price of the SAR shall not be less than the Fair Market Value
of a share of Common Stock on the Date of Grant of the SAR.
 
 
 
9

--------------------------------------------------------------------------------

 
 
8.2            Exercise and Payment. SARs granted under this Plan shall be
exercisable in whole or in installments and at such times as shall be provided
by the Board in the Award Agreement. Exercise of a SAR shall be by written
notice to the Secretary of the Company at least two business days in advance of
such exercise (or such lesser period of time as the Board may require). The
amount payable with respect to each SAR shall be equal in value to the excess,
if any, of the Fair Market Value of a share of Common Stock on the exercise date
over the exercise price of the SAR. Payment of amounts attributable to a SAR
shall be made in cash or in shares of Common Stock, as provided by the terms of
the applicable Award Agreement.
 
8.3            Restrictions. In the event a SAR is granted in tandem with an
Incentive Stock Option, the Board shall use commercially reasonable efforts to
subject the SAR to restrictions necessary to ensure satisfaction of the
requirements under Section 422 of the Code. In the case of a SAR granted in
tandem with an Incentive Stock Option to an Eligible Employee who owns more than
10% of the combined voting power of the Company or its Subsidiaries or a “parent
corporation” (as defined in Section 424(e) of the Code) on the date of such
grant, the amount payable with respect to each SAR shall be equal in value to
the applicable percentage of the excess, if any, of the Fair Market Value of a
share of Common Stock on the exercise date over the exercise price of the SAR,
which exercise price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the SAR is granted.
 
 
ARTICLE IX
PERFORMANCE UNITS
 
9.1            Grant of Awards. The Board may, from time to time, subject to the
provisions of this Plan and such other terms and conditions as it may determine,
grant Performance Units to Eligible Employees, Consultants and Eligible
Directors. Each Award of Performance Units shall be evidenced by an Award
Agreement executed by the Company and the Participant, and shall contain such
terms and conditions and be in such form as the Board may from time to time
approve, subject to the requirements of Section 9.2.
 
9.2            Conditions of Awards. Each Award of Performance Units shall be
subject to the following conditions:
 
(a)            Establishment of Award Terms. Each Award shall state the target,
maximum and minimum value of each Performance Unit payable upon the achievement
of performance goals.
 
(b)            Achievement of Performance Goals. The Board shall establish
performance targets for each Award.  If the Award is intended to satisfy the
Section 162(m) Requirements, as described in Exhibit A, the performance targets
shall be based on some or all of the operational, financial or stock performance
criteria listed in Exhibit A. The Board shall also establish such other terms
and conditions as it deems appropriate to such Award. The Award may be paid out
in cash or Common Stock as determined in the sole discretion of the Board.

 
ARTICLE X
PERFORMANCE BONUS
 
10.1            Grant of Performance Bonus. The Board may from time to time,
subject to the provisions of this Plan and such other terms and conditions as
the Board may determine, grant a Performance Bonus to certain Eligible Employees
selected for participation. The Board will determine the amount that may be
earned as a Performance Bonus in any period of one year or more upon the
achievement of a performance target established by the Board. The Board shall
select the applicable performance target(s) for each period in which a
Performance Bonus is awarded. The performance target shall be based upon all or
some of the operational, financial or performance criteria more specifically
listed in Exhibit A attached hereto and shall be intended to satisfy the
Section 162(m) Requirements, as described in Exhibit A.
 
10.2            Payment of Performance Bonus. In order for any Participant to be
entitled to payment of a Performance Bonus, the applicable performance target(s)
established by the Board must first be obtained or exceeded. Payment of a
Performance Bonus may be made in cash or shares of Common Stock, as provided by
the terms of the applicable Award Agreement.
 
 
 
10

--------------------------------------------------------------------------------

 
 
ARTICLE XI
STOCK AWARDS AND OTHER INCENTIVE AWARDS
 
11.1            Grant of Stock Awards. The Board may, from time to time, subject
to the provisions of this Plan and such other terms and conditions as it may
determine, grant Stock Awards of shares of Common Stock not subject to vesting
or forfeiture restrictions to Eligible Employees, Consultants or Eligible
Directors. Stock Awards shall be awarded with respect to such number of shares
of Common Stock and at such times during the term of this Plan as the Board
shall determine. Each Stock Award shall be subject to an Award Agreement setting
forth the terms of such Stock Award. The Board may in its sole discretion
require a Participant to pay a stipulated purchase price for each share of
Common Stock covered by a Stock Award.
 
11.2            Grant of Other Incentive Awards. The Board may, from time to
time, subject to the provisions of this Plan and such other terms and conditions
as it may determine, grant Other Incentive Awards to Eligible Employees,
Consultants or Eligible Directors. Other Incentive Awards may be granted based
upon, payable in or otherwise related to, in whole or in part, shares of Common
Stock if the Board, in its sole discretion, determines that such Other Incentive
Awards are consistent with the purposes of this Plan. Such Awards may include,
but are not limited to, Common Stock awarded as a bonus, dividend equivalents,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Common Stock, purchase rights for Common Stock, Awards with
value and payment contingent upon the Company’s performance or any other factors
designated by the Board, and awards valued by reference to the book value of
Common Stock or the value of securities of or the performance of specified
subsidiaries. Long-term cash Awards also may be made under this Plan. Cash
Awards also may be granted as an element of or a supplement to any Awards
permitted under this Plan. Awards may also be granted in lieu of obligations to
pay cash or deliver other property under this Plan or under other plans or
compensation arrangements, subject to any applicable provision under Section 16
of the Exchange Act. Each grant of an Other Incentive Award shall be evidenced
by an Award Agreement that shall specify the amount of the Other Incentive Award
and the terms, conditions, restrictions and limitations applicable to such
Award. Payment of Other Incentive Awards shall be made at such times and in such
form, which may be cash, shares of Common Stock or other property (or a
combination thereof), as established by the Board, subject to the terms of this
Plan.
 
ARTICLE XII
STOCK ADJUSTMENTS
 
12.1           Recapitalizations and Reorganizations. In the event that the
shares of Common Stock, as constituted on the effective date of this Plan, shall
be changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company or of another corporation (whether by reason
of merger, consolidation, recapitalization, reclassification, stock split,
spin-off, combination of shares or otherwise), or if the number of such shares
of Common Stock shall be increased through the payment of a stock dividend, or a
dividend on the shares of Common Stock, or if rights or warrants to purchase
securities of the Company shall be issued to holders of all outstanding Common
Stock, then the maximum number and kind of shares of Common Stock available for
issuance under this Plan, the maximum number and kind of shares of Common Stock
for which any individual may receive Awards in any calendar year under this
Plan, the number and kind of shares of Common Stock covered by outstanding
Awards, and the price per share or the applicable market value or performance
target of such Awards will be appropriately adjusted by the Board to reflect any
increase or decrease in the number of, or change in the kind or value of, issued
shares of Common Stock to preclude, to the extent practicable, the enlargement
or dilution of rights under such Awards. Notwithstanding the provisions of this
Section 12.1, (i) the number and kind of shares of Common Stock available for
issuance as Incentive Stock Options under this Plan shall be adjusted only in
accordance with the applicable provisions of Sections 422 and 424 of the Code
and the regulations thereunder, and (ii) outstanding Awards and Award Agreements
shall be adjusted in accordance with (A) Sections 422 and 424 of the Code and
the regulations thereunder with respect to Incentive Stock Options and
(B) Section 409A of the Code with respect to Nonqualified Stock Options, SARs
and, to the extent applicable, other Awards. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock, or
any stock or other securities into which the Common Stock shall have been
changed or for which it shall have been exchanged, then if the Board shall, in
its sole discretion, determine that such change equitably requires an adjustment
in the shares available under and subject to this Plan, or in any Award,
theretofore granted, such adjustments shall be made in accordance with such
determination. No fractional shares of Common Stock or units of other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
 
12.2            Adjustments Upon Change of Control Event. Upon the occurrence of
a Change of Control Event, the Board, in its sole discretion, without the
consent of any Participant or holder of the Award, and on such terms and
conditions as it deems appropriate, may take any one or more of the following
actions in connection with such Change in Control Event:
 
(a)           provide for either (i) the termination of any Award in exchange
for an amount of cash, if any, equal to the amount that would have been attained
upon the realization of the Participant’s rights (and, for the avoidance of
doubt, if as of the date of the occurrence of such transaction or event, the
Board determines in good faith that no amount would have been attained upon the
realization of the Participant’s rights, then such Award may be terminated by
the Board without payment) or (ii) the replacement of such Award with other
rights or property selected by the Board in its sole discretion;
 
 
 
11

--------------------------------------------------------------------------------

 
 
(b)           provide that such Award be assumed by a successor or survivor
entity, or a parent or subsidiary thereof, or be exchanged for similar rights or
awards covering the equity of the successor or survivor, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
equity interests and prices;
 
(c)           make adjustments in the number and type of Common Stock (or other
securities or property) subject to outstanding Awards, and in the number and
kind of outstanding Awards or in the terms and conditions of, and the vesting
criteria included in, outstanding Awards, or both;
 
(d)           accelerate any vesting schedule to which an Award is subject;
 
(e)           provide that such Award shall be payable, notwithstanding anything
to the contrary in this Plan or the applicable Award Agreement; and/or
 
(f)           provide that the Award cannot become payable after such event,
i.e., shall terminate upon such event.
 
Notwithstanding the foregoing, any such action contemplated under this Section
12.2 shall be effective only to the extent that such action will not cause any
Award that is designed to satisfy Section 409A of the Code to fail to satisfy
such section.
 
ARTICLE XIII
GENERAL

 
13.1            Effective Date; Amendment or Termination of this Plan. This Plan
shall become effective on the date of the closing of the transactions
contemplated by that certain Exchange Agreement by and among the Company and Oak
Valley Resources dated May 15, 2014 (the “Effective Date”).  The Board may
alter, suspend or terminate this Plan at any time. In addition, the Board may,
from time to time, amend this Plan in any manner, but may not without
stockholder approval adopt any amendment which would (i) increase the aggregate
number of shares of Common Stock available under this Plan (except by operation
of Article XII), (ii) materially modify the requirements as to eligibility for
participation in this Plan, or (iii) materially increase the benefits to
Participants provided by this Plan. Unless terminated earlier by the Board
pursuant to this Section 13.1, this Plan shall terminate on the day prior to the
tenth anniversary of the Effective Date. This Plan shall continue in effect
until all matters relating to the payment of Awards and administration of this
Plan have been settled.
 
13.2            Transferability. The Board may, in its discretion, authorize all
or a portion of the Nonqualified Stock Options granted under this Plan to be on
terms which permit transfer by the Participant to (i) the ex-spouse of the
Participant pursuant to the terms of a domestic relations order, (ii) the
spouse, children or grandchildren of the Participant (“Immediate Family
Members”), (iii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iv) a partnership or limited liability company in which such
Immediate Family Members are the only partners or members. In addition there may
be no consideration for any such transfer. The Award Agreement pursuant to which
such Nonqualified Stock Options are granted expressly provides for
transferability in a manner consistent with this Section 13.2. Subsequent
transfers of transferred Nonqualified Stock Options shall be prohibited except
as set forth below in this Section 13.2. Following transfer, any such
Nonqualified Stock Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of Section 5.2(c)(ii) or similar provisions of an Award Agreement the
term “Participant” shall be deemed to refer to the transferee. The events of
termination of employment of Section 5.2(c)(ii) or similar provisions of an
Award Agreement shall continue to be applied with respect to the original
Participant, following which the Nonqualified Stock Options shall be exercisable
by the transferee only to the extent, and for the periods specified in
Section 5.2(c)(ii). No transfer pursuant to this Section 13.2 shall be effective
to bind the Company unless the Company shall have been furnished with written
notice of such transfer together with such other documents regarding the
transfer as the Board shall request. With the exception of a transfer in
compliance with the foregoing provisions of this Section 13.2, all other types
of Awards authorized under this Plan shall be transferable only by will or the
laws of descent and distribution; however, no such transfer shall be effective
to bind the Company unless the Board has been furnished with written notice of
such transfer and an authenticated copy of the will and/or such other evidence
as the Board may deem necessary to establish the validity of the transfer and
the acceptance by the transferee of the terms and conditions of such Award.
 
13.3            Withholding Taxes. Unless otherwise paid by the Participant, the
Company, its Subsidiaries or any of its Affiliated Entities shall be entitled to
deduct from any payment under this Plan, regardless of the form of such payment,
the amount of all applicable income and employment taxes required by law to be
withheld with respect to such payment, may require the Participant to pay to it
such tax prior to and as a condition of the making of such payment, and shall be
entitled to deduct from any other compensation payable to the Participant any
withholding obligations with respect to Awards. In accordance with any
applicable administrative guidelines it establishes, the Board may allow a
Participant to pay the amount of taxes required by law to be withheld from an
Award by (i) directing the Company to withhold from any payment of the Award a
number of shares of Common Stock having a Fair Market Value on the date of
payment equal to the minimum amount of the required withholding taxes or
(ii) delivering to the Company previously owned shares of Common Stock having a
Fair Market Value on the date of payment equal to the amount of the required
withholding taxes. However, any payment made by the Participant pursuant to
either of the foregoing clauses (i) or (ii) shall not be permitted if it would
result in an adverse accounting charge with respect to such shares used to pay
such taxes unless otherwise approved by the Board.
 
 
 
12

--------------------------------------------------------------------------------

 
 
13.4            Change of Control. Unless otherwise provided in the applicable
Award Agreement, Awards granted under this Plan to any Eligible Employee,
Consultant or Eligible Director shall be immediately vested, fully earned and
exercisable upon the occurrence of a Change of Control Event.
 
13.5            Amendments to Awards. Subject to the limitations of Article IV,
such as the prohibition on repricing of Options, the Board may at any time
unilaterally amend the terms of any Award Agreement, whether or not presently
exercisable or vested, to the extent it deems appropriate. However, amendments
which are adverse to the Participant shall require the Participant’s consent.
 
13.6            Regulatory Approval and Listings. In the sole discretion of the
Board, the Company may file with the Securities and Exchange Commission and keep
continuously effective, a Registration Statement on Form S-8 with respect to
shares of Common Stock subject to Awards hereunder. Notwithstanding anything
contained in this Plan to the contrary, the Company shall have no obligation to
issue shares of Common Stock under this Plan prior to the obtaining of any
approval from, or satisfaction of any waiting period or other condition imposed
by, any governmental agency which the Board shall, in its sole discretion,
determine to be necessary or advisable. In addition, and notwithstanding
anything contained in this Plan to the contrary, at such time as the Company is
subject to the reporting requirements of Section 12 of the Exchange Act, the
Company shall have no obligation to issue shares of Common Stock under this Plan
prior to:
 
(a)           the admission of such shares to listing on the stock exchange on
which the Common Stock may be listed; and
 
(b)           the completion of any registration or other qualification of such
shares under any state or federal law or ruling of any governmental body which
the Board shall, in its sole discretion, determine to be necessary or advisable.

13.7            Right to Continued Employment. Participation in this Plan shall
not give any Eligible Employee any right to remain employed by or in the service
of the Company, any Subsidiary, or any Affiliated Entity. The Company or, in the
case of employment or services with a Subsidiary or an Affiliated Entity, the
Subsidiary or Affiliated Entity, reserves the right to terminate any Participant
at any time. Further, the adoption of this Plan shall not be deemed to give any
Eligible Employee or any other individual any right to be selected as a
Participant or to be granted an Award.
 
13.8            Reliance on Reports. Each member of the Board shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and its Subsidiaries and upon any
other information furnished in connection with this Plan by any person or
persons other than himself or herself. In no event shall any person who is or
shall have been a member of the Board be liable for any determination made or
other action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information, or
failure to act, if in good faith.
 
13.9            Construction. Masculine pronouns and other words of masculine
gender shall refer to both men and women. The titles and headings of the
sections in this Plan are for the convenience of reference only, and in the
event of any conflict, the text of this Plan, rather than such titles or
headings, shall control.
 
13.10          Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Delaware except as superseded by
applicable federal law.
 
13.11          Other Laws. The Board may refuse to issue or transfer any shares
of Common Stock or other consideration under an Award if, acting in its sole
discretion, it determines that the issuance or transfer of such shares or such
other consideration might violate any applicable law or regulation or entitle
the Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. In addition, by accepting or
exercising any Award granted under this Plan (or any predecessor plan), the
Participant agrees to abide and be bound by any policies adopted by the Company
pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act and any rules or exchange listing standards promulgated
thereunder calling for the repayment and/or forfeiture of any Award or payment
resulting from an accounting restatement. Such repayment and/or forfeiture
provisions shall apply whether or not the Participant is employed by or
affiliated with the Company.
 
13.12               No Trust or Fund Created. Neither this Plan nor an Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
person. To the extent that a Participant acquires the right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any general unsecured creditor of the Company.
 
 
 
13

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Plan has been executed to be effective on the Effective
Date.
 

 
EARTHSTONE ENERGY, INC.
         
 
By:
/s/ Ray Singleton      
Ray Singleton
     
President and Chief Executive Officer
         

 
 
14

--------------------------------------------------------------------------------

 

EXHIBIT A
 
2014 Long-Term Incentive Plan
162(m) Provisions and Performance Criteria
 
Requirements of Section 162(m) of the Code. The Board will have the discretion
to determine whether all or any portion of a Restricted Stock Award, Restricted
Stock Unit Award, Performance Unit Award, Performance Bonus, Stock Award or
Other Incentive Award is intended to satisfy the requirements for
“performance-based compensation” under Section 162(m) of the Code (the “162(m)
Requirements”). The performance criteria for any such Award that is intended to
satisfy the 162(m) Requirements shall be established in writing by the Board
based on one or more performance criteria listed in this Exhibit A not later
than 90 days after commencement of the performance period with respect to such
Award or any such other date as may be required or permitted for
“performance-based compensation” under the 162(m) Requirements, provided that
the outcome of the performance in respect of the goals remains substantially
uncertain as of such time. At the time of the grant of an Award and to the
extent permitted under Section 162(m) of the Code and the regulations thereunder
for an Award intended to satisfy the 162(m) Requirements, the Board may provide
for the manner in which the performance goals will be measured in light of
specified corporate transactions, extraordinary events, accounting changes and
other similar occurrences. All determinations made by the Board as to the
establishment or achievement of performance goals, or the final settlement of an
Award intended to satisfy the 162(m) Requirements shall be made in writing.
 
Performance Criteria.   The performance criteria to be used for purposes of
Awards intended to meet the 162(m) Requirements shall be set in the Committee’s
sole discretion and may be described in terms of objectives that are related to
the individual Participant or objectives that are Company-wide or related to a
subsidiary, division, department, region, function or business unit of the
Company in which the Participant is employed or with respect to which the
Participant performs services, and shall consist of one or more or any
combination of the following criteria:
 
Operational Criteria may include:
 
●
Reserve additions/replacements

●
Finding & development costs

●
Production volume

●
Production Costs

 
 
15

--------------------------------------------------------------------------------

 
 
Financial Criteria may include:
 
●
Earnings

 
●
EBITDA (net income, earnings before interest, taxes, depreciation and
amortization)

 
●
Earnings per share

●
Free cash flow

 
●
Cash flow

●
Operating income

●
General and Administrative Expenses

●
Debt to equity ratio

●
Debt to cash flow

●
Debt to EBITDA

●
EBITDA to Interest

●
Return on Assets

●
Return on Equity

●
Return on Invested Capital

●
Profit returns/margins

Stock Performance Criteria:
 
●
Stock price appreciation

●
Total stockholder return

●
Relative stock price performance

 
 
16

--------------------------------------------------------------------------------

 

 
Certification and Negative Discretion. Before payment is made in relation to any
Award that is intended to satisfy the 162(m) Requirements, the Board shall
certify the extent to which the performance goals and other material terms of
the Award have been satisfied, and the Board in its sole discretion shall have
the authority to reduce, but not to increase, the amount payable and/or the
number of shares of Common Stock to be granted, issued, retained or vested
pursuant to any such Award.
 
Committee. In the case of an Award intended to meet the Section 162(m)
Requirements, the term “Board” shall mean the Committee, which shall be composed
of two or more “outside directors” within the meaning of Section 162(m) of the
Code, and the Committee may not delegate its duties with respect to such Awards.