**Exhibit 10.1**

 

**EXECUTION COPY**

 

**DUANEREADE INC.**

** **

**PHANTOMSTOCK PLAN**

 

# SECTION 1.                                General

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#### (a)                    Purpose.  The purpose of this Duane Reade Inc. PhantomStock Plan (the “Plan”) is to motivate, compensate and retain the seniorvice presidents of Duane Reade Inc. (the “Company”) who are primarilyresponsible for the long-term performance of the Company and to align theirinterests with those of the stockholders of the Company.

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# SECTION 2.                                Definitions.

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As used in this Plan, thefollowing terms shall have the meanings set forth below:

 

#### (a)                    Affiliate.  With respect to any person or entity, anyother person or entity that directly or indirectly controls, is controlled byor is under common control with, such first person or entity.  For the purposes of this definition,“control” (including, with correlative meanings, the terms “controlling,”“controlled by” and “under common control with”), as applied to any person orentity, means the possession, directly or indirectly, of the power to direct orcause the direction of the management and policies of that person or entity,whether through the ownership of voting securities, by contract or otherwise.

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#### (b)                   Account.  An unfunded bookkeeping account establishedto record a Participant’s interest under the Plan, the terms and conditions ofwhich are set forth in the Plan and in each Participant’s Award Agreement.

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#### (c)                    Appraiser’sDetermination.  Has the meaning setforth in Section 8(e) hereof.

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#### (d)                   Award.  A grant of Phantom Stock under the Plan.

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#### (e)                    AwardAgreement.  The written agreementevidencing an Award, which shall be executed or otherwise acknowledged inwriting by each Participant and whose terms and conditions, other than thenumber of shares of Phantom Stock awarded thereby shall be identical for allthe Participants.

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#### (f)                      Board.  The Board of Directors of the Company.

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#### (g)                   Beneficiary.  The individual identified in writing by theParticipant to receive benefits hereunder in the event of the Participant’sdeath.  A Participant may at any timechange his beneficiary designation without notice to, or consent of, anypreviously designated beneficiary, by giving prior written notice to theCompany, such notice to be effective on the date it is received by theCompany.  In the event a Participant hasnot designated a beneficiary at the time of his death, his estate shall bedeemed his Beneficiary.

 

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#### (h)                   Cause.  Has the meaning set forth in theParticipant’s employment agreement with the Company in effect on the EffectiveDate regardless of whether or not such agreement is in effect on the applicabledate.

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#### (i)                       CommonStock.  Common stock, par value $0.01per share, of Holdings and any other stock into which such common stock shallthereafter be changed by reason of a recapitalization, merger, consolidation,stock split, combination, exchange of stock or units or the like.

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#### (j)                       Changein Control.  The first of any of thefollowing events to occur after the Effective Date:

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##### (i)                                     anyindependent third party (which shall exclude, without limitation, the OHAffiliates, the Parent and any Subsidiary of the Parent) (x) by merger orotherwise is or becomes the beneficial owner directly or indirectly, ofsecurities of the Company representing 50% or more of the combined voting powerof the Company’s then outstanding securities, and (y) has the right to appointa majority of the members of the Board in each case other than by a merger orother transaction in which the shareholders of the Company immediately prior tothe merger own a majority of the surviving entity or its parent;

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##### (ii)                                  anystockholder of the Company (other than the Parent or any Subsidiary of theParent) (x) acquires a greater voting interest in the Company’s outstandingCommon Stock than the OH Investor Group and (y) has the authority to appoint amajority of the members of the Board;

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##### (iii)                               theCompany adopts a plan of complete liquidation (other than a liquidation intoParent or any Subsidiary of the Parent) of the Company or consummates anagreement for the sale or disposition by the Company of all or substantially allof the Company’s assets to an independent third party;

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##### (iv)                              atany time prior to the IPO, the failure by OH to designate one or more OHrelated persons to serve as its directors (it being understood that if theCompany is required to appoint independent directors by law or inter-dealerquotation system or exchange rules, or OH’s designee is otherwise preventedfrom serving, OH may designate non-OH related persons to serve as such); or

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##### (v)                                 atany time prior to the IPO, the failure of OH to retain and utilize its power toappoint more than 51% of the directors appointable by the OH Investor Group(for example, if the OH Investor Group has the right to appoint five directors,OH shall appoint at least three directors, and such directors shall be OH relatedpersons or if necessary, independent directors).

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#### (k)                    DeathPayment Date.  Has the meaning setforth in Section 8(a)(ii) hereof.

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#### (l)                       DistributionEvent.  Each of a Drag-Along Event,Tag-Along Event or the IPO.

 

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#### (m)                 Disability.  Has the meaning set forth in Duane ReadeInc.’s disability insurance plan whether or not the Participant participates insuch plan.

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#### (n)                   Drag-AlongCIC Portion.  Has the meaning setforth in Section 6(a)(i) hereof.

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#### (o)                   Drag-AlongPortion.  Has the meaning set forthin Section 6(a)(ii) hereof.

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#### (p)                   Drag-AlongEvent.  A Drag-Along Sale as suchterm is defined in the Stockholders Agreement.

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#### (q)                   EffectiveDate.  The consummation of thetransaction contemplated by the Merger Agreement.

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#### (r)                      EquitySecurities.  Has the meaning ascribedto such term in Rule 405 promulgated under the Securities Act of 1933, asamended (the “Securities Act”), as in effect on the date hereof, and inany event includes any common stock, any limited partnership interest, anylimited liability company interest and any other interest or security havingthe attendant right to vote for directors or similar representatives.

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#### (s)                    Fair MarketValue.  On any date of determination,the fair market value of a share of Common Stock (i) if the Common Stock islisted on an internationally recognized securities exchange or inter-dealerquotation system, the closing price reported on the day immediately prior tosuch date and (ii) if the Common Stock is not so listed, subject to eachParticipant’s right to bring a Valuation Challenge in accordance withSection 8(e) hereof, the amount determined by the Board to be fair marketvalue based upon a good faith attempt to value the Common Stock accuratelybased on the value of Holdings as a whole, on a fully diluted basis, withoutany control premium, and without any discount for lack of transferability orminority position.

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#### (t)                      Fees.  Has the meaning set forth inSection 8(e) hereof.

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#### (u)                   Good Reason.  Has the meaning set forth in theParticipant’s employment agreement with the Company in effect on the EffectiveDate regardless of whether or not such agreement is in effect on the applicabledate.

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#### (v)                   Holdings.  Duane Reade Holdings, Inc., a DelawareCorporation.

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#### (w)                 IPO.  An underwritten Public Sale of EquitySecurities of an IPO Entity pursuant to an effective registration statementunder the Securities Act that (a) results in the listing for trading on aninternationally recognized securities exchange or inter-dealer quotation systemand (b) either involves (alone or in combination with any prior suchofferings) either (i) a Public Sale of at least twenty percent (20%) ofsuch Equity Securities or (ii) an offering of Equity Securities whichgenerates gross proceeds of at least $100 million.

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#### (x)                     IPO Entity.   Has the meaning set forth in theStockholders Agreement.

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#### (y)                   MergerAgreement.  The Merger Agreementdated as of December 22, 2003, by and among Parent, Duane ReadeAcquisition Corp., a Delaware corporation (formerly

 

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#### known as Rex Corner Acquisition Corp.), and theCompany, as amended on June 10, 2004, June 13, 2004 and June 18,2004.

 

#### (z)                     OH.Oak Hill Capital Partners, L.P. and/or, as the case may be, Oak Hill CapitalManagement Partners, L.P.

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#### (aa)              OH Affiliates.  OH, any related OH partnership or any othermember of the OH Investor Group that is an Affiliate of OH or Oak Hill CapitalManagement, Inc., but excluding Anthony J. Cuti and the Participants.  For the avoidance of doubt, as of theEffective Date, the term OH Affiliate includes OHCP MGP, LLC.

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#### (bb)            OH Investor Group.  Oak Hill Capital Partners, L.P., related OakHill partnerships and their respective limited partners and Affiliates and theother initial investors (such other investors, “co-investors”) in thetransaction contemplated by the Merger Agreement, including those thatparticipate within 90 days following the Effective Date, but excluding AnthonyJ. Cuti and the Participants.

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#### (cc)              Parent.  Duane Reade Shareholders, LLC, a Delawarelimited liability company (formerly known as Rex Corner Holdings, LLC).

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#### (dd)            Parent Stockholder.  Has the meaning set forth in the StockholdersAgreement.

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#### (ee)              Parent TransferPercentage Interest.  Has the meaningset forth in the Stockholders Agreement.

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#### (ff)                  ParentTransfer Units.  Has the meaning setforth in the Stockholders Agreement.

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#### (gg)            Participant.  Each of Timothy LaBeau, Gary Charboneau, JohnK. Henry and Jerry Ray.  No otherindividual shall participate in the Plan.

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#### (hh)            Percentage Interest.  Has the meaning set forth in the StockholdersAgreement.

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#### (ii)                    PiggybackRight.  Has the meaning set forth inSection 6(c)(ii) hereof.

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#### (jj)                    PhantomStock.  A share of Phantom Stock is ashare of phantom stock representing a share of Common Stock that is credited toa Participant’s Account under the Plan.

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#### (kk)              Plan.  This Duane Reade Inc. Phantom Stock Plan.

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#### (ll)                    Public Sale.Any sale of Equity Securities to the public (a) pursuant to an offeringregistered under the Securities Act or (b) through a broker, dealer or marketmaker pursuant to the provisions of Rule 144 (or any similar provision then ineffect) adopted under the Securities Act, other than Rule 144(k) or any similarprovision then in effect.

 

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#### (mm)        Stockholders Agreement.  The Stockholders and Registration RightsAgreement, dated July 30, 2004, by and among the Company, Holdings, Parentand certain members of the Company’s management, as it may be amended from timeto time.

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#### (nn)            Subsidiary.  A Subsidiary of any person shall mean anyentity of which:

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##### (i)                                     ifa corporation, a majority of the total voting power of shares of stock entitled(without regard to the occurrence of any contingency) to vote in the electionof directors, managers or trustees thereof is at the time of determinationowned or controlled, directly or indirectly, collectively or individually, bysuch person or by one or more Subsidiaries of such person; and

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##### (ii)                                  ifa partnership, association, limited liability company or other entity, (A) thegeneral partner or similar managing entity and (B) a majority of thepartnership, membership or other similar ownership interest thereof is at thetime of determination beneficially owned or controlled, directly or indirectly,collectively or individually, by such person or by one or more Subsidiaries ofsuch person.

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For purposes of the Plan,the Company and its Subsidiaries shall be deemed to own a majority ownershipinterest in any partnership, association, limited liability company or otherentity if the Company and its subsidiary shall control the general partner ormanaging member or managing director of any such entity.

 

#### (oo)            Tag-Along Portion.  Has the meaning set forth inSection 6(b)(ii) hereof.

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#### (pp)            Tag-Along CICPortion.  Has the meaning set forthin Section 6(b)(i) hereof.

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#### (qq)            Tag-Along Event.  A Tag-Along Sale as such term is defined inthe Stockholders Agreement.

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#### (rr)                  ValuationChallenge.  Has the meaning set forthin Section 8(e) hereof.

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# SECTION 3.                                Administration.

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#### (a)                    This Planshall be administered by the Board or a committee thereof.  Subject to the provisions of this Plan andapplicable law and subject to the rights of each Participant under hisrespective outstanding Award Agreements, the Board shall have the power andsole discretion, in addition to other express powers and authorizationsconferred on the Board by this Plan, to: (i) determine, in a manner consistent with the terms of this Plan and anyAward Agreements entered into pursuant to this Plan, payments and how othermatters are to be calculated in connection with Awards and Accounts; (ii)determine the terms and conditions of Awards; (iii) determine whether, to whatextent, and under what circumstances Awards and amounts payable pursuant to anAccount shall be deferred at the election of the holder thereof or of theBoard; (iv) interpret, administer, reconcile any inconsistency, correct anydefect and/or supply any omission in this Plan and any instrument or agreementrelating to this Plan, or Awards under this Plan; (v) establish, amend,suspend, or waive such rules and regulations and appoint such agents as itshall deem appropriate for the proper administration of this Plan; and (vi)make any other determination and take any other action that the Board deemsnecessary or desirable for

 

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#### the administration of this Plan.  Whenever in this Agreement the Board, or acommittee thereof is permitted or required to make a decision in its “goodfaith” or under another express standard, the Board, or a committee thereofshall act under such express standard and shall not be subject to any other ordifferent standard imposed by any other agreement to which the Company may be aparty or any other applicable law.  Thedecisions of the Board shall be final, conclusive, and binding upon allparties, including, without limitation, the Company, any Participant, anyholder or Beneficiary of any Account and any stockholder of the Company.

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#### (b)                   No member ofthe Board or a committee thereof shall be liable for any loss, damage or claimincurred by reason of any act or omission performed or omitted by the Board ora committee thereof in good faith on behalf of the Company, with respect to thePlan, any Award or any Account.

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# SECTION 4.                                Eligibility.  The Participants are the only individualseligible to participate in the Plan.

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# SECTION 5.                                PhantomStock Awards.

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#### (a)                    General.  The Board shall determine the number ofshares of Phantom Stock to be granted to each Participant and such number shallbe designated in the applicable Award Agreement.  An Account shall be established on the booksand records of the Company to which the number of shares of Phantom Stock sogranted shall be credited.

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#### (b)                   Vesting.  Contingent upon a Participant’s continuedemployment with the Company or a Subsidiary and subject to accelerationpursuant to each of Section 6(a) (Drag-Along Event) and Section 6(b)(Tag-Along Event), each Participant’s Award shall vest and become nonforfeitableratably over 24 months in 24 equal monthly installments such that on the secondanniversary of the Effective Date, the Award shall be 100% vested andnonforfeitable.

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#### (c)                    Dividends.  To the extent that dividends or distributionsare declared and paid to holders of Common Stock, each Participant will receivethe amount that would have been distributed to the Participant as if thePhantom Stock credited to the Participant’s Account (solely to the extentvested) was issued and outstanding Common Stock and such dividend ordistribution shall be paid at the same time and in the same manner as dividendsor distributions are paid to holders of Common Stock.  The payment of a dividend with respect to anyAward shall not be considered a payment of any portion of a Participant’sAccount for purposes of Section 6 or Section 8 hereof.

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# SECTION 6.                                Paymentof Accounts.

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#### (a)                    Drag-AlongEvent.

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##### (i)                                     Vesting.  Except as provided in Section 8(relating to terminations of employment before a Distribution Event),immediately prior to a Drag-Along Event which constitutes a Change in Control,a Participant’s Account shall vest (in addition to the portion that has vestedas of such date pursuant to Section 5(b) hereof) in an additional amountsuch that after giving effect to such acceleration, the Participant’s Accountshall be vested as to a portion of the Account equal to the Parent TransferPercentage Interest proposed to be transferred pursuant to such Drag-AlongEvent (the

 

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##### “Drag-Along CICPortion”) (i.e., the Participant will be vested to the extentnecessary for the Participant to participate in the Drag-Along Event).

 

##### (ii)                                  Payment.  Immediately prior to the closing of aDrag-Along Event, each Account (A) in the case of a Drag-Along Event that is aChange in Control, to the extent of the Drag-Along CIC Portion or (B) in thecase of a Drag-Along Event that is not a Change in Control, to the extentvested but in no event in a greater percent of the Account than the Parent PercentageInterest proposed to be transferred pursuant to such Drag-Along Event (the “Drag-AlongPortion”), shall be credited with one share of Common Stock for each shareof Phantom Stock which makes up the Drag-Along CIC Portion or Drag-AlongPortion, as applicable.  Such portionshall be distributed to each Participant in Common Stock immediately prior tothe Drag-Along Event such that the Participant shall participate in theDrag-Along Event pursuant to Sections 2.3 and 2.6 of the StockholdersAgreement.  That portion of aParticipant’s Account (e.g., the Drag-Along Portion or Drag-Along CIC Portion)paid to him pursuant to this Section 6(a)(ii) shall be cancelled withoutany payment or other consideration being owed or paid to the Participant immediatelyfollowing such payment.

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#### (b)                   Tag-AlongEvent.

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##### (i)                                     Vesting.  Except as provided in Section 8(relating to termination of employment prior to a Distribution Event),immediately prior to a Tag-Along Event which constitutes a Change in Control, aParticipant’s Account shall vest (in addition to the portion that has vested asof such date pursuant to Section 5(b) hereof) in an additional amount suchthat after giving effect to such acceleration, the Participant’s Account shallbe vested as to the excess, if any, of (A) (x) the number of sharesof Phantom Stock equal to the Percentage Interest represented by theParticipant’s Account multiplied by (y) the number of shares of CommonStock to be transferred by the Parent Stockholder (or Parent Transfer Units)over (B) the number of shares of Phantom Stock comprising the vestedportion of the Participant’s Account as of such date (the “Tag-Along CICPortion”) (i.e. the Participant will be vested to the extentnecessary for the Participant to participate in the Tag-Along Event).

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##### (ii)                                  Payment.  Immediately prior to the closing of aTag-Along Event, each Account, (A) in the case of a Tag-Along Event that is aChange in Control, to the extent of the Tag-Along CIC Portion or (B) in thecase of a Tag-Along Event that is not a Change in Control, to the extent vestedbut in no event in a greater percentage of the Account than the number ofshares of Phantom Stock equal to the Percentage Interest represented by theParticipant’s Account multiplied by the number of shares of Common Stock of theParent Stockholder (or Parent Transfer Units) proposed to be transferredpursuant to such Tag-Along Event (the “Tag-Along Portion”), shall becredited with one share of Common Stock for each share of Phantom Stock whichmakes up the Tag-Along CIC Portion or the Tag-Along Portion, as applicable, andsuch portion shall be distributed to each Participant in Common Stockimmediately prior to the Tag-Along Event such that the Participant mayparticipate in the Tag-Along Event pursuant to Section 2.4 of theStockholders Agreement.  That portion ofa Participant’s Account paid to him pursuant to this Section 6(b)(ii)shall be cancelled without any payment or other consideration being owed orpaid to the Participant immediately following such payment.

 

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#### (c)                    IPO.

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##### (i)                                     Generally.  Except as provided in Section 8(relating to termination of employment prior to a Distribution Event), in theevent the Participant has not exercised his Piggyback Rights, the Company shallpay the vested portion of a Participant’s Account not later than 180 daysfollowing the IPO or such shorter period as applicable to the OH Affiliates,pursuant to any holdback agreement entered into in connection with such IPO,except that upon notice to the Company the Participant may be permitted tofurther defer receipt of such payment to one or more future dates, provided theelection shall be in writing, irrevocable when made and comply with such otherrequirements as the Board may reasonably impose.  Payment with respect to the vested portion ofthe Account pursuant to this Section 6(c) shall be made in Common Stock asif one share of Phantom Stock were one share of Common Stock; provided, however,that following an IPO (other than with respect to Holdings) payment will bemade in the Equity Securities of the IPO Entity that would have been receivedby the Participant had the Participant held the same number of shares of CommonStock represented by the vested portion of his Account prior to such IPO.  Additional payments with respect to the Awardshall be made as and when additional portions of the Account vest in accordancewith Section 5(b).  The Board maintainsdiscretion to pay all of the vested portion of the Account in shares of CommonStock immediately prior to the IPO so that the Participant may participate inthe IPO.  The portion of a Participant’sAccount paid to him pursuant to this Section 6(c)(i) shall be cancelledwithout any payment or other consideration being owed or paid to theParticipant immediately following such payment.

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##### (ii)                                  Piggyback.  Following the IPO to the extent the Accountis credited with shares of Common Stock, each Participant shall have the rightsset forth in Article III of the Stockholders Agreement (collectively,the “Piggyback Rights”).

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# SECTION 7.                                Compliancewith Debt Instruments and Legal Requirements.

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#### (a)                    LegalRequirements.  The grant of Awardsand the payment of the value of a Participant’s Account (including a partialdistribution of a Participant’s Account, if applicable), and the otherobligations of the Company under this Plan shall be subject to all applicablefederal and state laws, rules and regulations and to such approvals by anyregulatory or governmental agency including without limitation rules andregulations of the Securities and Exchange Commission or the applicable rulesand regulations of any securities exchange or inter-deal quotation system onwhich securities of the Company, Parent or Holdings are listed or traded as maybe required.

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#### (b)                   CreditAgreement Limitations.  The Company may delay any cash payment withrespect to all or a portion of any Account that would cause or reasonablylikely to cause, a default or an event of default of the Company, Parent orHoldings under any guarantee or other agreement under which the Company, Parentor Holdings has borrowed money or guarantee on any such loan, or if such cashpayment would constitute or is reasonably likely to constitute a breach, orresult in a default or an event of default of the Company, Parent or Holdingsunder such agreement, until such timeas the payment can be made without such breach or default.

 

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#### (c)                    Postponement.  The Board, in its sole discretion, maypostpone the issuance or delivery of any securities in respect of an Award asthe Board may consider appropriate and may require a Participant to make suchrepresentations and furnish such information as it may consider appropriate inconnection with the issuance or delivery of any such securities in compliancewith applicable laws, rules and regulations.

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# SECTION 8.                                Terminationof Employment.

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#### (a)                    Death.

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##### (i)                                     Vesting.  In the event that a Participant’s employmentwith the Company or its Subsidiaries terminates due to the Participant’s deathand he has not received full payment with respect to his Account, the Accountshall be deemed 100% vested as of the date of such Participant’s death andshall be paid to his Beneficiary pursuant to this Section 8(a).

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##### (ii)                                  Priorto the IPO.   If the Participant’semployment with the Company or its Subsidiaries terminates due to theParticipant’s death prior to the IPO, then payment of the Account shall be made to his Beneficiary upon thelater of the 5th anniversary of the Effective Date or 180 days following suchtermination on account of death (the “Death Payment Date”) in cash (orcash equivalents), with the value of each share of Phantom Stock credited tothe Account determined by reference to the Fair Market Value of one share ofCommon Stock as of either (x) the date of the Participant’s death, if theParticipant’s Beneficiary makes an irrevocable election in writing no laterthan 120 days following such death to have Fair Market Value determined as ofthe date of death or (y) if no such election is made, as of the DeathPayment Date.

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##### If a Tag-Along Event,Drag-Along Event or IPO occurs prior to the Death Payment Date, butafter the Participant’s death, then the unpaid portion of his Account will bepaid in accordance with Section 6(a), 6(b) or 6(c) hereof, as applicable.

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##### (iii)                               Afterthe IPO.  If the Participant’semployment with the Company or its Subsidiaries terminates due to theParticipant’s death at any time after the IPO, then payment of the Account (tothe extent not previously paid in accordance with Section 6 hereof) shallbe paid as soon as reasonably practicable following the Participant’stermination on account of death, but in no event earlier than 180 daysfollowing the IPO (or such shorter period as is applicable to the OHAffiliates, pursuant to any holdback agreement entered into in connection withthe IPO) in Common Stock as if each share of Phantom Stock credited to theAccount were one share of Common Stock.

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##### (iv)                              Notwithstandinganything herein to the contrary, the provisions of Section 8(a) shall notapply in the event the Participant’s employment with the Company or itsSubsidiaries is terminated for any reason prior to death.

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#### (b)                   Terminationwithout Cause or for Good Reason.

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##### (i)                                     Priorto the IPO.  Upon a termination ofthe Participant’s employment with the Company or its Subsidiaries without Causeor by the Participant for Good Reason, at any time prior to the IPO, theAccount to the extent vested (and not yet

 

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##### paid in accordancewith Section 6 hereof) shall be paid upon the later of: (x) thesecond anniversary of the Effective Date or (y) 90 days following suchtermination.  Such payment shall be madein cash or cash equivalents with the value of each share of Phantom Stockcredited to the Account determined by reference to the Fair Market Value of ashare of Common Stock determined as of the date of such termination; provided,however, that the Participant may elect no later than 15 days followingsuch termination to receive all or part of his distribution (in 25% increments)in shares of Common Stock rather than cash. To the extent a Participant so elects to receive shares of Common Stockin lieu of cash (or cash equivalents), he shall receive such shares of CommonStock 90 days following such termination of employment; provided, further,however, that if the Participant elects to receive a distribution ofshares of Common Stock, the Participant may at the same time he makes theelection to receive shares of Common Stock in lieu of cash (or cashequivalents), make a one-time irrevocable election to defer receipt of suchCommon Stock until the earlier of (1) a Distribution Event or (2) a specifiedpayment date that is at least 12 months following the date such shares ofCommon Stock would otherwise be distributed to the Participant pursuant to thisSection 8(b)(i).  In the event thatthe vested portion of the Account is not fully distributed in connection withany one Distribution Event, it shall be distributed (to the extent applicable)on the next Distribution Event and on each subsequent Distribution Event untilthe vested portion of the Account has been fully distributed.  Payment on each such Distribution Event shallbe at the time and in the form proscribed under each of Section 6(a), (b)or (c) or Section 8(d) (Sunset), as applicable.

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##### (ii)                                  Afterthe IPO.  Upon termination of aParticipant’s employment with the Company or its Subsidiaries without Cause orfor Good Reason, at any time after the IPO, the Account to the extent vested(and to the extent not previously paid in accordance with Section 6hereof) shall be paid 90 days following such termination in Common Stock witheach share of Phantom Stock credited to his Account treated as one share ofCommon Stock.

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##### (iii)                               Notwithstandingany other provision herein to the contrary, upon the termination of aParticipant’s employment pursuant to this Section 8(b), the portion of theAccount which is not vested on the date of such termination shall be forfeited withoutany payment or other consideration being owed or paid to the Participant.

 

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#### (c)                    Terminationfor Cause or without Good Reason.

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##### (i)                                     Timingof Payment.  Upon termination of aParticipant’s employment with the Company or its subsidiaries for Cause or bythe Participant without Good Reason, a Participant’s Account, to the extentvested on the date of such termination, shall remain so vested and will bedistributed on the earlier of: (A) a Distribution Event or (B) on or after thefifth anniversary of the Effective Date; provided, however, thata Participant may elect to defer receipt of such payment beyond the fifthanniversary of the Effective Date provided such Participant’s election is madein writing, is irrevocable when made and is made at least twelve months priorto the payment date so elected pursuant to this Section 8(c)(i).  The form and timing of payment made pursuantto clause A shall be in accordance with Section 6 hereof.  Payment made pursuant to clause B of theprior sentence shall be in the form of Common Stock.

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##### (ii)                                  Inthe event that the vestedportionof the Account is not fully distributed in connection with any one DistributionEvent pursuant to this Section 8(c), it shall be distributed (to theextent applicable) on the next Distribution Event and on each subsequentDistribution Event until the vested portion of the Account has been fullydistributed.  Payment on eachDistribution Event shall be at the time and in the form proscribed under eachof Section 6(a), (b) or (c), or Section 8(d) (Sunset), as applicable.

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##### (iii)                               Notwithstandingany other provision herein to the contrary, upon the termination of aParticipant’s employment pursuant to this Section 8(c), the portion of theAccount which is not vested on the date of such termination shall be forfeitedwithout further consideration to the Participant.

 

#### (d)                   Sunset.  The Participants shall have the right toreceive on or after the fifth anniversary of the Effective Date, payment of theAccount (to the extent not yet paid) in the form of Common Stock; provided,however, that each Participant may elect to defer receipt of suchpayment beyond the fifth anniversary of the Effective Date provided suchelection is made in writing, is irrevocable when made and is made at leasttwelve months prior to the selected payment date.

 

(e)                    ValuationChallenge.  Each Participant (or hisBeneficiary, as applicable) shall have the right by written notice to theCompany, within 30 days following a cash payment pursuant to an Award which ismade on the basis of Fair Market Value (pursuant to Section 8(a) or 8(b)hereof), to challenge the Board’s determination of Fair Market Value (a “ValuationChallenge”).  In the event one ormore Participants or Beneficiaries, as applicable, submits a ValuationChallenge, the Company shall retain the services of an independent third party appraiser, who shall (i) certify to each Participant that submits a ValuationChallenge such appraiser’s independence and (ii) determine the fairmarket value of the Common Stock (the “Appraiser’s Determination”).  The Appraiser’s Determination shall besubmitted in writing to the Board and shall be binding upon the Company, theParticipants and Beneficiaries and enforceable by a court of competentjurisdiction.  Accordingly, if theAppraiser’s Determination exceeds the Board’s determination, the affectedParticipants and/or Beneficiaries, as applicable, shall receive an additionalpayment equal to the excess, if any, of the amount such Participant orBeneficiary would have received with respect to such Participant’s Account hadthe Appraiser’s Determination of Fair Market Value been applied over the amountsuch Participant (or

 

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Beneficiary) previouslyreceived pursuant to Section 8(a) or (b). Such additional payment shall be made as soon as practicable followingthe date the Appraiser’s Determination is submitted to the Board.  If the Appraiser’s Determination is lowerthan the Board’s determination, the affected Participants and Beneficiaries, asapplicable, shall repay to the Company an amount equal to the excess of theamount such Participant (or Beneficiary) previously received pursuant toSection 8(a) or (b) hereof over the amount such Participant would havereceived with respect to such Participants’ Accounts had the Appraiser’sDetermination of the Fair Market Value been applied.

 

In addition, if the Appraiser’s Determination exceeds theBoard’s determination by more than 10%, the Company shall pay 100% of the feesand expenses associated with securing the Appraiser’s Determination (the “Fees”).  In all other events, the Participant orBeneficiary (or Participants if more than one Participant brings a ValuationChallenge) shall pay the lesser of (x)15% of the Fair Market Value of the aggregate vested portion of the Accountsdistributed or (y) the Fee, and the Company shall pay the balance.

 

#### (f)                      Disability.  If a Participant’s employment with theCompany or its Subsidiaries terminates on account of Disability, and suchParticipant has not as of the date of such termination received full paymentwith respect to his Account, the Account shall be deemed 100% vested as of thedate of such Participant’s termination of employment on account ofDisability.  The Account shall be paid inthe manner and time described in Section 8(b) without regard toSection 8(b)(iii).

####  

# SECTION 9.                                DilutionAdjustments.  In the event of areclassification, recapitalization, stock split, stock or other dividend, combinationof units, or other similar or extraordinary event, the number and kind ofAwards, in the aggregate, reserved for issuance or with respect to which Awardsmay be made under this Plan shall be adjusted to reflect such event in the samemanner in which Common Stock is adjusted to reflect such event, and the Boardshall make such adjustments as it deems appropriate and equitable in thenumber, kind credited to outstanding Accounts, and in any other matters whichrelate to Awards or Accounts and which are affected by the events referred toabove.

#  

# SECTION 10.                          Amendmentand Termination.

#  

#### (a)                    Amendmentsto the Plan.  The Board may amend,alter, suspend, discontinue, or terminate this Plan or any portion thereof atany time; provided, however, that any such amendment, alteration,suspension, discontinuance, or termination that would materially adverselyaffect the rights of any Participant or Beneficiary under this Plan shall notbe effective without the written consent of the affected Participant or Beneficiary.

####  

#### (b)                   Amendmentsto Awards.  The Board may waive anyconditions or rights under, amend any terms of, or alter, suspend, discontinue,cancel or terminate, any Account, prospectively or retroactively; provided,however, that any such waiver, amendment, alteration, suspension,discontinuance, cancellation or termination not expressly contemplated by thisPlan that would materially adversely affect the rights of any Participant orBeneficiary shall not be effective without the written consent of the affectedParticipant or Beneficiary.

 

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# SECTION 11.                          GeneralProvisions.

#  

#### (a)                    Nontransferability.  Participants may not directly or indirectlytransfer, sell, assign, pledge, lease, hypothetically mortgage, gift or createa security interest or trust (voting or otherwise) or other disposition of anAccount or any shares of Phantom Stock credited thereunder except that thedesignation of a Beneficiary or the transfer to a Beneficiary following aParticipant’s death shall not constitute a transfer, sale, assignment, pledge,lease, hypothetical mortgage, gift, creation of a security interest or trust,or other disposition.  Common Stockdistributed to Participants and Beneficiaries in respect of Awards shall besubject to the transfer restrictions set forth in Article II of theStockholders Agreement.

####  

#### (b)                   StockholdersAgreement and Preemptive Rights Agreement. Common Stock distributed to Participants and Beneficiaries in respect ofAwards shall be subject to all provisions of (i) the Stockholders Agreement and(ii) the Preemptive Rights Agreement, dated as of July 30, 2004, by andamong OH, Parent, Holdings, Anthony J. Cuti and certain other members of themanagement of the Company (the “Preemptive Rights Agreement”).  Solely for purposes of Section 2.5 ofthe Preemptive Rights Agreement, only vested shares of Phantom Stock creditedto a Participant’s Account shall be deemed to be shares of Common Stock forpurposes of determining the extent of a Participant’s “Percentage Interest” inapplying such section.

####  

(c)                    SecuritiesLaw.** **Theobligation of the Company to settle Awards in Common Stock, or otherwise, shallbe subject to all applicable laws, rules, and regulations, and to suchapprovals by governmental agencies as may be required.  Notwithstanding any terms or conditions ofany Award to the contrary, the Company shall be under no obligation to offer tosell or to sell and shall be prohibited from offering to sell or selling anyshares of Common Stock pursuant to an Award unless such shares have beenproperly registered for sale pursuant to the Securities Act with the Securitiesand Exchange Commission or unless the Company has received an opinion ofcounsel, satisfactory to the Company, that such shares may be offered or soldwithout such registration pursuant to an available exemption therefrom and theterms and conditions of such exemption have been fully complied with.  Tothe extent the Company pays any portion of the Account in Common Stock, at thetime of the IPO, Holdings or the Company will use commercially reasonableefforts to register a number of shares of Common Stock sufficient to cover suchpayment on Form S-8; unless in the reasonable judgment of the Board (or of themanaging underwriter in the IPO) such a registration could reasonable beexpected to have an adverse effect on the market for the securities beingregistered in the IPO; provided, further, that the resale of anyshares of Common Stock distributed pursuant to an Award shall be restricted asif the volume and manner of sale restrictions of Rule 144 (without regard toRule 144 (k)) were applicable.

####  

#### (d)                   TaxWithholding and Representations.  Allpayments or benefits made pursuant to any Award under the Plan are subject towithholding and deduction for Federal, state or local taxes as the Companyshall determine to be required to comply with applicable law or regulation andeach Participant shall agree in the applicable Award Agreement that, to theextent necessary to satisfy such withholding obligation, the Company maywithhold such amounts from payments or benefits due with respect to the Awardor any other compensation due the Participant.

 

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#### (e)                    OtherCompensation Arrangements.

####  

##### (i)                                     Nothingcontained in this Plan shall prevent the Company or any Subsidiary or otherAffiliate from adopting or continuing in effect other compensationarrangements, which may, but need not, provide for the grant of options,securities and other types of awards, and such arrangements may be eithergenerally applicable or applicable only in specific cases.

#####  

##### (ii)                                  Neitherthe grant of Awards hereunder nor the payment of any amounts in respect of anyAccount shall be taken into account in determining a Participant’s right to receiveany additional benefits or compensation under any other plan or arrangement.

#####  

#### (f)                      No Rightto Service or Employment.  The grantof an Award hereunder shall not be construed as giving a Participant the rightto be retained in the employ or service of the Company or any Subsidiary.  Further, the Company or its Subsidiaries mayat any time terminate a Participant from any employment or other servicerelationship or discontinue such relationship, free from any liability or anyclaim under this Plan, unless otherwise expressly provided in this Plan or inthe Participant’s Award Agreement.

####  

#### (g)                   Awards as anUnsecured Promise.

####  

##### (i)                                     Awardsgranted under this Plan do not constitute an equity interest in the Company orits Subsidiaries.  A Participant shall notshare in the voting rights of the Company or its Subsidiaries as a result of anAward unless and until payment with respect to such an award is received in theform of Common Stock.

#####  

##### (ii)                                  TheCompany shall not be required to, and shall not, segregate any fundsrepresenting awards of Phantom Stock granted hereunder, and nothing in the Planor any Award Agreement shall be construed as providing for such segregation.

#####  

##### (iii)                               Nothingin this Plan or any Award Agreement, and no action taken pursuant to their respectiveterms, shall create or be construed to create a trust or escrow account of anykind, or a fiduciary relationship between the Company or its Subsidiaries, onthe one hand, and any Participant, or any other person, on the other hand.

#####  

##### (iv)                              TheParticipants and their Beneficiaries shall rely solely on the unsecured promiseof the Company to make the payments required under the terms of any Award, butshall have the right to enforce such a claim in the same manner as anyunsecured general creditor of the Company. The Participants shall not have any preferred claim on, or anybeneficial ownership in, any assets of the Company.  Any rights created under this Plan or anyAward Agreement shall be mere unsecured contractual rights of the Participantsagainst the Company.

#####  

#### (h)                   Terminationwith Subsidiaries.  For purposes ofthis Plan, a Participant’s employment will be deemed terminated when he or sheis no longer employed by the Parent, Holdings, the Company or any of theirrespective direct or indirect Subsidiaries.

 

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#### (i)                       Conflicts.  In the event of a conflict between the termsof this Plan and any Award Agreement, the terms of this Plan shall prevail.

####  

#### (j)                       GoverningLaw.  Unless otherwise provided inthe applicable Award Agreement, the validity, construction, and effect of thisPlan and any rules and regulations relating to this Plan and any AwardAgreement shall be determined in accordance with the laws of the State of NewYork applicable to agreements made and to be performed entirely within suchstate.

####  

#### (k)                    Headings.  Headings are given to the sections andsubsections of this Plan solely as a convenience to facilitate reference.  Such headings shall not be deemed in any waymaterial or relevant to the construction or interpretation of this Plan or anyprovision thereof.

 

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