EXHIBIT 10.7


 


SM ENERGY COMPANY


 


EQUITY INCENTIVE COMPENSATION PLAN


 


As Amended as of July 30, 2010


 


ARTICLE I


ESTABLISHMENT, PURPOSE AND DURATION


 


1.1           Establishment.  SM Energy Company, a Delaware corporation
(the “Company”), has established an equity incentive compensation plan formerly
known as the 2006 Equity Incentive Compensation Plan (the “Plan”). On
March 26, 2009, the Plan was renamed as the Equity Incentive
Compensation Plan. The Plan permits the grant of Restricted Stock, Restricted
Stock Units, Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Performance Shares, Performance Units and Stock Based
Awards. The Plan became effective upon its approval by the Company’s
stockholders on May 17, 2006 (the “Effective Date”) and shall remain
in effect as provided in Section 1.3 hereof.


 


1.2           Purpose.  The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal interests
of the Participants to those of the Company’s stockholders, and by providing
Participants with an incentive for outstanding performance. The Plan is further
intended to provide flexibility to the Company in its ability to attract,
motivate, and retain the services of Participants upon whose judgment,
interest, and special effort the success of the Company is substantially
dependent.


 


1.3           Duration.  The Plan commenced as of the Effective Date,
as set forth in Section 1.1 hereof, and shall remain in effect, subject to
the right of the Committee or the Board to amend or terminate the Plan at any
time pursuant to Article XIV hereof, until the earlier of (i) the
tenth anniversary of the Effective Date, or (ii) when all Shares subject
to the Plan have been purchased or acquired according to the Plan’s provisions.
Any previously granted Awards under this Plan which remain outstanding as of
the date of expiration or other termination of the Plan shall not be affected
by such expiration or other termination and shall continue in effect in
accordance with their respective terms.


 


1.4           Successor
Plan.  This Plan shall serve
as the successor to the St. Mary Land & Exploration Company Stock
Option Plan, the St. Mary Land & Exploration Company Incentive
Stock Option Plan, the St. Mary Land & Exploration Company
Restricted Stock Plan, and the St. Mary Land & Exploration
Company Non-Employee Director Stock Compensation Plan (collectively, the “Predecessor
Plans”), and no further grants or awards shall be made under the Predecessor
Plans from and after the Effective Date of this Plan. Each outstanding grant or
award under a Predecessor Plan immediately prior to the Effective Date of this
Plan shall continue to be governed solely by the terms and conditions of the
applicable Predecessor Plan and the instruments evidencing such grant or award,
and, except as otherwise expressly provided herein or by the Committee, no
provision of this Plan shall affect or otherwise modify the rights or
obligations of holders of such outstanding grants or awards under the
Predecessor Plans. Any Shares reserved for issuance under the Predecessor Plans
in excess of the number of Shares as to which grants or awards have been made
thereunder shall be transferred into this Plan upon the Effective Date and
shall become available for Awards under this Plan. Any Shares related to grants
or awards made under the Predecessor Plans that after the Effective Date may
lapse, expire, terminate, or are cancelled, are settled in cash in lieu of
common stock, are tendered (either by actual delivery or attestation) to pay
the option price, or are used to satisfy any tax withholding requirements shall
be deemed to be available for issuance or reissuance under Section 4.1 of
this Plan; provided, however, that any Shares that from and after
May 21, 2008 are tendered (either by actual delivery or attestation)
to pay the option price or are used to satisfy any tax withholding requirements
shall not be deemed available for issuance or reissuance under Section 4.1
of this Plan.


 


ARTICLE II


DEFINITIONS AND CONSTRUCTION


 


2.1           Definitions.  Whenever used herein, the following
terms shall have the respective meanings set forth below, unless the context
clearly requires otherwise, and when such meaning is intended the term shall be
capitalized.


 


1

















 


(a)           “Affiliate”
shall have the meaning given to such term in Rule 12b-2 under the Exchange
Act, with reference to the Company, and shall also include any corporation,
partnership, joint venture, limited liability company or other entity in which
the Company owns, directly or indirectly, at least 50 percent of the total
combined voting power of such corporation or of the capital interest or profits
interest of such partnership or other entity.


 


(b)           “Award”
means, individually or collectively, a grant or award under this Plan of
Restricted Stock, Restricted Stock Units, NQSOs, ISOs, SARs, Performance
Shares, Performance Units or Stock Based Awards, in each case subject to the
terms of this Plan.


 


(c)           “Award
Agreement” means either (i) a written agreement entered into by
the Company and a Participant setting forth the terms and provisions applicable
to Awards granted under this Plan; or (ii) a written statement issued by
the Company to a Participant describing the terms and provisions of such Award.
All Award Agreements shall be deemed to incorporate the provisions of the Plan.
An Award Agreement need not be identical to other Award Agreements either in
form or substance.


 


(d)           “Board”
or “Board of Directors” means the
Board of Directors of the Company.


 


(e)           “Change
of Control” shall mean any of the following events:


 


(i)            (A) The acquisition by any
individual or entity (a “Person”) or Persons acting as a group of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of more than 50 percent of either (1) the then value of the
outstanding shares of common stock of the Company, or (2) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors.


 


(B)           For purposes of
paragraph (A), Persons will not be considered to be acting as a group
solely because they purchase or own stock of the same corporation at the same
time, or as a result of the same public offering. However, Persons will be
considered to be acting as a group if they are owners of a corporation that
enters into a merger, consolidation, purchase or acquisition of stock, or
similar business transaction with the Company. If a Person, including an
entity, owns stock in both corporations that enter into a merger,
consolidation, purchase or acquisition of stock, or similar transaction, such
shareholder is considered to be acting as a group with other shareholders in a
corporation prior to the transaction giving rise to the change and not with
respect to the ownership interest in the other corporation. For purposes of
determining stock ownership, see (e)(iv) below.


 


(ii)           A majority of members of the Board is
replaced during any 12 month period by Directors whose appointment or
election is not endorsed by a majority of the members of the Board prior to the
date of the appointment or election; or


 


(iii)          (A) Any one Person, or more than
one Person acting as a group (as determined in (e)(iii)(C) below),
acquires (or has acquired during the 12 month period ending on the date of
the most recent acquisition by such Person or Persons) assets from the Company
that have a total gross fair market value equal to or more than 50 percent
of the total gross fair market value of all of the assets of the Company immediately
prior to such acquisition or acquisitions. For this purpose, gross fair market
value means the value of the assets of the Company, or the value of the assets
being disposed of, determined without regard to any liabilities associated with
such assets.


 


(B)           A transfer of assets
by the Company is not treated as a change in the ownership of such assets if
the assets are transferred to—


 


(1)           A stockholder of the
Company (immediately before the asset transfer) in exchange for or with respect
to its stock;


 


(2)           An entity,
50 percent or more of the total value or voting power of which is owned,
directly or indirectly, by the Company;


 


2

















 


(3)           A Person, or more
than one Person acting as a group, that owns, directly or indirectly,
50 percent or more of the total value or voting power of all the
outstanding stock of the Company; or


 


(4)           An entity, at least
50 percent of the total value or voting power of which is owned, directly
or indirectly, by a Person described in (e)(iii)(B)(3). For purposes of this
paragraph (e)(iii)(B) and except as otherwise provided, a Person’s
status is determined immediately after the transfer of the assets. For example,
a transfer to a corporation in which the Company has no ownership interest before
the transaction, but which is a majority owned subsidiary of the Company after
the transaction, is not treated as a change in the ownership of the assets of
the Company.


 


(C)           Persons will not be
considered to be acting as a group for purposes of this paragraph (e)(iii) solely
because they purchase assets of the Company at the same time. However, Persons
will be considered to be acting as a group if they are owners of a corporation
that enters into a merger, consolidation, purchase or acquisition of assets, or
similar business transaction with the Company. If a Person, including an entity
shareholder, owns stock in both corporations that enter into a merger,
consolidation, purchase or acquisition of stock or similar transaction, such
shareholder is considered to be acting as a group with other shareholders in a
corporation only to the extent of the ownership in that corporation prior to
the transaction giving rise to the change and not with respect to the ownership
interest in the other corporation.


 


(D)          For purposes of
determining stock ownership, see (e)(iv) below.


 


(iv)          For purposes of determining whether
there has been a Change of Control, Section 318(a) of the Code
applies to determine stock ownership. Stock underlying a vested option is
considered owned by the individual who holds the vested option (and the stock
underlying an unvested option is not considered owned by the individual who
holds the unvested option). For purposes of the preceding sentence, however, if
a vested option is exercisable for stock that is not substantially vested (as
defined by §§1.83-3(b) and (j) of the income tax regulations
promulgated by the Internal Revenue Service), the stock underlying the option
is not treated as owned by the individual who holds the option.


 


(f)            “Change
of Control Price” means the highest per share price for Shares
offered in conjunction with any transaction resulting in a Change of Control
(as determined in good faith by the Committee if any part of the offered price
is payable other than in cash) or, in the case of a Change of Control occurring
solely by reason of a change in the composition of the Board, the highest Fair
Market Value of the Shares on any of the 30 trading days immediately preceding
the date on which a Change of Control occurs.


 


(g)           “Change
of Control Termination” has the meaning set forth in
Section 13.2 hereof.


 


(h)           “Code”
means the Internal Revenue Code of 1986, as amended.


 


(i)            “Committee”
means the Compensation Committee of the Board of Directors, or any other duly
authorized committee of the Board appointed by the Board to administer the
Plan. The Committee shall be comprised of two or more directors, and each
member of the Committee shall be a Non-Employee Director, an “outside director”
within the meaning of the regulations under Section 162(m) of the
Code, and an “independent director” for purposes of the rules and
regulations of the New York Stock Exchange (“NYSE”) (or such other principal
securities market on which the Shares are traded).


 


(j)            “Company”
means SM Energy Company, a Delaware corporation, and any successor thereto as
provided in Article XVII hereof.


 


(k)           “Covered
Employee” means an Employee who is, or who the Committee expects to
become, a “covered employee” within the meaning of Section 162(m) of
the Code.


 


(l)            “Director”
means any individual who is a member of the Board of Directors of the Company.


 


3

















 


(m)          “Dividend
Equivalent” means a right with respect to an Award to receive cash,
Shares or other property equal in value and form to dividends declared by the
Board and paid with respect to outstanding Shares. Dividend Equivalents shall
not apply to Options or Stock Appreciation Rights, and shall not apply to any
other type of Award unless specifically provided for in the Award Agreement,
and if specifically provided for in the Award Agreement shall be subject to
such terms and conditions set forth in the Award Agreement as the Committee
shall determine.


 


(n)           “Employee”
means any employee of the Company or an Affiliate. Directors who are not
otherwise employed by the Company or an Affiliate shall not be considered
Employees under this Plan.


 


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


 


(p)           “Fair
Market Value” or “FMV”
means a value or price that is based on the opening, closing, actual, high, low
or average selling prices per Share on the NYSE or other established stock
exchange (or exchanges) on the applicable date, the preceding trading day, the
next succeeding trading day, or an average of trading days, as determined by
the Committee in its discretion. Such definition(s) of FMV may differ
depending on whether FMV is in reference to the grant, exercise, vesting,
settlement or payout of an Award. If Shares are not traded on an established stock
exchange, FMV shall be determined by the Committee based on objective criteria.


 


(q)           “Fiscal
Year” means the year commencing on January 1 and ending on
December 31, or such other fiscal year period as approved by the Board.


 


(r)            “Freestanding
SAR” means a SAR that is not a Tandem SAR, as described in
Article VIII herein.


 


(s)           “Grant
Price” means the price against which the amount payable is
determined upon exercise of a SAR.


 


(t)            “Incentive
Stock Option” or “ISO”
means an Option to purchase Shares granted under Article VII herein and
that is designated as an Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code, or any successor provision.


 


(u)           “Non-Employee
Director” means a Director who meets the definition of a “Non-Employee
Director” set forth in Rule 16b-3(b)(3) under the Exchange Act, or
any successor definition adopted by the Securities and Exchange Commission.


 


(v)           “Nonqualified
Stock Option” or “NQSO”
means an Option to purchase Shares granted under Article VII herein, which
is not intended to be an Incentive Stock Option or which otherwise does not
meet the requirements for an ISO.


 


(w)          “Option”
means the conditional right to purchase Shares at a stated Option Price for a
specified period of time in the form of an Incentive Stock Option or a
Nonqualified Stock Option subject to the terms of this Plan.


 


(x)            “Option
Price” means the price at which a Share may be purchased by a
Participant pursuant to an Option, as determined by the Committee.


 


(y)           “Participant”
means a participant holding an outstanding Award granted under the Plan.


 


(z)            “Performance
Based Compensation” means compensation under an Award that is
granted in order to provide remuneration solely on account of the attainment of
one or more Performance Goals under circumstances that satisfy the requirements
of Section 162(m) of the Code.


 


(aa)         “Performance
Goal” means a performance criterion selected by the Committee for a
particular Award for purposes of Article XI based on one or more
Performance Measures.


 


4

















 


(bb)         “Performance
Measures” mean measures as described in Article XI, the
attainment of one or more of which shall, as determined by the Committee,
determine the vesting, monetization, or value of an Award to a Covered Employee
that is designated to qualify as Performance Based Compensation.


 


(cc)         “Performance
Period” means the period of time, which shall not be shorter than
12 months, during which the assigned performance criteria must be met in
order to determine the degree of payout and/or vesting with respect to an Award
of Performance Shares or Performance Units.


 


(dd)         “Performance
Share” means an Award granted under Article IX herein,
denominated in Shares, the value of which at the time it is payable is
determined as a function of the extent to which corresponding performance
criteria have been achieved.


 


(ee)         “Performance
Unit” means an Award granted under Article IX herein,
denominated in units, which may be valued by reference to a designated amount
of property other than Shares, the value of which at the time it is payable is
determined as a function of the extent to which corresponding performance
criteria have been achieved.


 


(ff)           “Plan”
means this Equity Incentive Compensation Plan, as it may be amended from time
to time.


 


(gg)         “Restricted
Stock” means an Award under Article VI of Shares that may be
subject to certain restrictions and to a risk of forfeiture as set forth in the
Award Agreement.


 


(hh)         “Restricted
Stock Unit” means an Award under Article VI that is valued by
reference to a Share, which value may be paid by delivery of Shares or cash or
a combination thereof upon settlement of the Award, subject to the specific
terms and conditions of the Award as set forth in the Award Agreement.


 


(ii)           “Securities
Act” means the Securities Act of 1933, as amended.


 


(jj)           “Shares”
means shares of common stock of the Company, $0.01 par value per share.


 


(kk)         “Stock
Appreciation Right” or “SAR”
means the conditional right to receive the difference between the FMV of a
Share on the date of exercise over the Grant Price, pursuant to the terms of
Article VIII herein.


 


(ll)           “Stock
Based Award” means an equity based or equity related Award granted
pursuant to the terms of Article X herein.


 


(mm)       “Tandem
SAR” means a SAR that the Committee specifies pursuant to
Article VIII herein is granted in connection with a related Option, the
exercise of which SAR shall require forfeiture of the right to purchase a Share
under the related Option (and when a Share is purchased under the Option, the
Tandem SAR shall similarly be cancelled), or a SAR that is granted in tandem
with an Option but the exercise of such Option does not cancel the SAR, but
rather results in the exercise of the related SAR. Regardless of whether an
Option is granted coincident with a SAR, a SAR is not a Tandem SAR unless so
specified by the Committee at the time of grant.


 


2.2           Construction.  Captions and titles contained herein are for
convenience of reference only and shall not affect the meaning or
interpretation of any provision of the Plan. Except when otherwise indicated by
the context, any definition of any term herein in the singular also shall
include the plural.


 


ARTICLE III


ADMINISTRATION


 


3.1           General.  The Committee shall be responsible for
administering the Plan. The Committee may employ attorneys, consultants,
accountants, agents, and other individuals, any of whom may be an Employee, and
the Committee, the Company, and the Company’s officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee shall be final, conclusive, and binding upon the Participants, the
Company, and all other interested 


 


5

















 


parties. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award granted under the Plan.


 


3.2           Authority
of the Committee.  The
Committee shall have full and exclusive discretionary power to
(i) interpret the terms and the intent of the Plan, any Award and any
Award Agreement or other agreement ancillary to or in connection with the Plan,
(ii) determine eligibility for Awards and select those who will become
Participants in the Plan, (iii) adopt such rules, regulations, and
guidelines for administering the Plan as the Committee may deem necessary or
proper, (iv) provide for conditions and assurances deemed necessary or
advisable to protect the interests of the Company with respect to the Plan and
(v) make all other determinations necessary or advisable for the
administration of the Plan. Such authority shall include, but not be limited
to, selecting Award recipients, establishing all Award terms and conditions
and, subject to Article XIV, adopting modifications, amendments or
subplans to the Plan or any Award Agreement. Subject to the terms and
provisions of the Plan, the Committee shall have complete discretion in
determining the nature, terms, conditions and amount of each Award. In making
such determinations, the Committee may take into account the nature of services
rendered by the recipient of the Award, such person’s present and potential
contributions to the Company and such other factors as the Committee in its
discretion shall deem relevant.


 


3.3           Delegation.  The Committee may delegate to one or more of
its members any of the Committee’s administrative duties or powers as it may
deem advisable; provided, however, that any such delegation shall not be
inconsistent with the provisions of Rule 16b-3 under the Exchange Act or
Section 162(m) of the Code as to actions to be taken by the Committee
in connection therewith.


 


ARTICLE IV


SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS


 


4.1           Total
Number of Shares Available for Awards.  Subject to adjustment as provided in
Section 4.2 herein, the total number of Shares hereby made available and
reserved for issuance to Participants pursuant to Awards granted under the Plan
shall be 7,600,000, plus any remaining Shares available for issuance under the
Predecessor Plans as set forth in Section 1.4 (with such total number of
Shares, including such adjustment and remaining Shares, to be referred to as
the “Total Share Authorization”). Any Shares issued in connection with an
Option or SAR shall be counted against the Total Share Authorization limit as
one Share for every one Share issued. Any Shares issued pursuant to Awards
granted on or before May 20, 2009 in connection with an Award other
than an Option or SAR shall be counted against the Total Share Authorization
limit as two Shares for every one Share issued. Any Shares issued pursuant to
Awards granted after May 20, 2009 in connection with an Award other
than an Option or SAR shall be counted against the Total Share Authorization
limit as 1.43 Shares for every one Share issued. The maximum aggregate number
of Shares that may be issued through Nonqualified Stock Options shall be equal
to the Total Share Authorization. The maximum aggregate number of Shares that
may be issued through Incentive Stock Options shall be 7,600,000.


 


Any
Awards that are not settled in Shares shall not be counted against the Total
Share Authorization limit. Any Shares related to Awards (or after the Effective
Date, awards granted or issued under the Predecessor Plans) which
(i) terminate by expiration, forfeiture, cancellation or otherwise without
the issuance of such Shares, (ii) are settled in cash either in lieu of
Shares or otherwise, or (iii) are exchanged with the Committee’s approval
for Awards not involving Shares, shall be available again for issuance under
the Plan. In addition, if the Option Price of any Option granted under the Plan
or the tax withholding requirement with respect to any Award granted under the
Plan is satisfied by tendering Shares to the Company (by either actual delivery
or by attestation), or if a SAR is exercised, only the number of Shares issued,
net of the Shares tendered, if any, will be deemed delivered for purposes of
determining the maximum number of Shares available for issuance under the Plan;
provided, however, that from and after May 21, 2008, Shares tendered
as full or partial payment to the Company of the Option Price upon exercise of
Options granted under this Plan, Shares reserved for issuance upon grant of
SARs, to the extent the number of reserved Shares exceeds the number of Shares
actually issued upon exercise of the SARs, and Shares withheld by, or otherwise
remitted to, the Company to satisfy a Participant’s tax withholding obligations
with respect to any Award granted under this Plan, shall not become available
again for issuance under this Plan. The maximum number of Shares available for
issuance under the Plan shall be reduced to reflect any dividends or Dividend
Equivalents that are reinvested into additional Shares under this Plan or
credited as additional Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Units or Stock Based Awards. The Shares available for
issuance under the 


 


6

















 


Plan may be authorized and
unissued Shares or treasury Shares. Unless and until the Committee determines
that an Award to a Covered Employee shall not be designed to qualify as
Performance Based Compensation, the following limits (“Award Limits”) shall
apply to grants of Awards to Covered Employees under the Plan:


 


(a)           Restricted
Stock/Restricted Units.  The
maximum aggregate number of Shares that may be granted in the form of
Restricted Stock/Restricted Stock Units in any one Fiscal Year to any one
Participant shall be 100,000.


 


(b)           Options
and SARS.  The maximum
aggregate number of Shares that may be granted in the form of Options or SARs
in any one Fiscal Year to any one Participant shall be 200,000.


 


(c)           Performance
Shares/Performance Units.  The
maximum aggregate Award of Performance Shares or Performance Units that a
Participant may receive in any one Fiscal Year shall be 200,000 Shares, and the
maximum value of Performance Units that a Participant may receive with respect
to Awards in any one Fiscal Year shall be a value of $5,000,000 determined as
of the date of vesting or payout, as applicable.


 


(d)           Stock
Based Awards.  The maximum
aggregate grant with respect to Stock Based Awards in any one Fiscal Year to
any one Participant shall be 200,000.


 


4.2           Adjustments
in Authorized Shares.  In the
event of any corporate event or transaction (including, but not limited to, a
change in the Shares of the Company or the capitalization of the Company) such
as a merger, consolidation, reorganization, recapitalization, separation, stock
dividend, extraordinary or special dividend, stock split, reverse stock split,
split up, spin off, other distribution of stock or property of the Company,
combination of securities, exchange of securities, dividend in kind, or other
like change in capital structure or distribution (other than normal cash
dividends) to the stockholders of the Company, or any similar corporate event
or transaction, the Committee, in order to prevent dilution or enlargement of
Participants’ rights under the Plan, shall make or provide for appropriate
proportionate substitutions or adjustments, as applicable, to the number and
kind of Shares that may be issued under the Plan, the number and kind of Shares
subject to outstanding Awards, the Option Price or Grant Price applicable to
outstanding Awards, the application and computation of any Dividend Equivalents
that may be provided for in Award Agreements, the Award Limits, the limit on
issuing Awards other than Options granted with an Option Price equal to at
least the FMV of a Share on the date of grant or Stock Appreciation Rights with
a Grant Price equal to at least the FMV of a Share on the date of grant, and
any other value determinations applicable to outstanding Awards or to this
Plan. Such adjustments shall be made automatically, without the necessity of
Committee action, on the customary and appropriate arithmetical basis, in the
case of any stock split, including a stock split effected by means of a stock
dividend, and in the case of any other dividend paid in Shares, and shall be
made in the discretion of the Committee with respect to other corporate events
or transactions. The Committee, in its sole discretion, may also make other
appropriate adjustments in the terms of any Awards under the Plan to reflect,
or related to, such changes or distributions and may modify any other terms of
outstanding Awards, including modifications of performance criteria and changes
in the length of Performance Periods, as are equitably necessary to prevent
dilution or enlargement of Participant’s rights under the Plan that otherwise
would result from such corporate event or transaction. The determination of the
Committee as to the foregoing adjustments, if any, shall be conclusive and
binding on Participants under the Plan. Subject to the provisions of
Article XIII and any applicable law or regulatory requirement, without
affecting the number of Shares reserved or available hereunder, the Committee
may authorize the issuance, assumption, substitution or conversion of Awards
under this Plan in connection with any such corporate event or transaction upon
such terms and conditions as it may deem appropriate. In addition, the
Committee may amend the Plan, or adopt supplements to the Plan, in such manner
as it deems appropriate to provide for such issuance, assumption, substitution
or conversion as provided in the previous sentence.


 


ARTICLE V


ELIGIBILITY AND PARTICIPATION


 


5.1           Eligibility.  All Employees, consultants who are natural
persons, and members of the Board of the Company and of any Affiliate of the
Company shall be eligible to participate in the Plan and be granted Awards
under the Plan.


 


7

















 


5.2           Actual
Participation.  Subject to the
provisions of the Plan, the Committee may from time to time, in its sole
discretion, select from among persons eligible to participate in the Plan those
to whom Awards shall be granted under the Plan, and shall determine in its
discretion the nature, terms, conditions, and amount of each Award.


 


ARTICLE VI


RESTRICTED STOCK AND RESTRICTED STOCK UNITS


 


6.1           Grant
of Restricted Stock or Restricted Stock Units.  Subject to the terms and conditions of the
Plan, the Committee, at any time and from time to time, in its discretion may
grant Shares of Restricted Stock and/or Restricted Stock Units to Participants
in such amounts and upon such terms as the Committee shall determine.


 


(a)          Restricted
Stock.


 


(i)            Nature of
Restricted Stock.  Restricted Stock may
be issued for services rendered with any or no additional purchase price as
shall be determined by the Committee in its discretion, and may be subject to
certain restrictions and to a risk of forfeiture as set forth in the Award
Agreement. A Participant to whom Shares of Restricted Stock are issued shall
have all of the rights of ownership with respect to the Shares subject to such
Restricted Stock Award, including the right to vote the same and receive any
dividends paid thereon; subject, however, to the terms, conditions and
restrictions contained in this Plan and in the applicable Award Agreement.


 


(ii)           Forfeiture and
Vesting.  A Restricted Stock Award
Agreement may provide for forfeiture of the Restricted Stock upon termination
of the Participant’s employment or other relationship with the Company or
nonperformance of specified performance goals or measures established by the
Committee. A Restricted Stock Award Agreement may also provide for
(i) vesting periods which require the passage of time and/or the
occurrence of events in order for the Restricted Stock to vest and become no
longer subject to forfeiture and (ii) holding periods during which the
Restricted Stock may not be sold or otherwise transferred.


 


(iii)          Delivery of Shares
and Settlement.  Upon an Award of
Restricted Stock, the Company shall deliver to the Participant the Shares
subject to the Award (which Shares may be delivered in book-entry or
certificated form), and such Shares shall be evidenced with an appropriate
legend referring to or setting forth the applicable restrictions to which such
Shares are subject (by means of appropriate stop-transfer orders on Shares
credited to book-entry accounts or by means of appropriate legends on Shares
that have been certificated). After the Shares are no longer subject to such
restrictions, the Company shall, in accordance with the terms and conditions of
the Award Agreement and upon the request of the Participant and the surrender
by the Participant of any certificated Shares, settle the completed Restricted
Stock Award by providing the Participant with Shares with such restrictions
removed.


 


(b)          Restricted
Stock Units.


 


(i)            Nature of
Restricted Stock Units; Accounts.  Each
Restricted Stock Unit awarded shall represent a right for one Share to be
delivered upon settlement of the Award, which right shall be subject to a risk
of forfeiture and cancellation and to the other terms and conditions set forth
in the Plan and the Award Agreement. The Company shall establish and maintain a
Participant account to record Restricted Stock Units and transactions and
events affecting such units. Restricted Stock Units and other items reflected
in the account will represent only bookkeeping entries by the Company to
evidence unfunded obligations of the Company.


 


(ii)           Deferral Period and
Settlement Date.  Restricted Stock Units
(if not previously cancelled or forfeited) shall be settled on the date or
dates set forth in the Award Agreement. In addition, unless otherwise
determined by the Committee, if the Committee reasonably determines 


 


8

















 


that
any settlement of Restricted Stock Units would result in payment of
compensation to a Participant which is not deductible by the Company under
Section 162(m) of the Code, such settlement shall be deferred,
subject to compliance with Section 409A of the Code as referred to in
Article XX herein, to the extent necessary to avoid payment of such
nondeductible compensation, with such deferral continuing only until such date
as settlement can be effected without loss of deductibility by the Company
under Section 162(m) of the Code.


 


(iii)          Cancellation and
Vesting.  A Restricted Stock Unit Award
Agreement may provide for cancellation of the Restricted Stock Units upon
termination of the Participant’s employment or other relationship with the
Company or nonperformance of specified performance goals or measures
established by the Committee. A Restricted Stock Unit Award Agreement may also
provide for vesting periods which require the passage of time and/or the
occurrence of events in order for the Restricted Stock Units to vest and become
no longer subject to cancellation.


 


(iv)          Dividend
Equivalents.  Restricted Stock Units
shall not be credited with Dividend Equivalents unless specifically provided
for in the Award Agreement, and then only upon such terms and conditions as set
forth in the Award Agreement.


 


(v)           Settlement and
Delivery of Shares.  Settlement of a
Restricted Stock Unit Award shall be made in accordance with the terms and
conditions of the applicable Award Agreement. A Restricted Stock Unit Award
Agreement may provide that settlement may be made (A) solely through the
issuance of Shares or (B) at the mutual election of the Participant and
the Company, in a combination of Shares and cash. Upon the settlement of a Restricted
Stock Unit Award, the Company shall deliver to the Participant the number of
Shares issued to the Participant in settlement of the Award (which Shares may
be delivered in book-entry or certificated form).


 


6.2           Restricted
Stock and Restricted Stock Unit Award Agreements.  Each Restricted Stock and Restricted Stock
Unit Award shall be evidenced by an Award Agreement which shall set forth the
terms and conditions of such Award, including the number of Shares to which the
Award relates, the date or dates upon which such Award shall vest and the
circumstances (including termination of employment or failure to satisfy one or
more restrictive covenants or other ongoing obligations) under which the Award
shall not vest, the time and manner of settlement of the Award, such transfer
restrictions which the Committee may impose, and any other terms or conditions
which the Committee may impose.


 


(a)           If not otherwise specified by the
Committee, the following terms and conditions shall apply to Restricted Stock
and Restricted Stock Units awarded under the Plan:


 


(i)            Vesting.    An Award of Restricted Stock or Restricted
Stock Units shall vest pursuant to a vesting schedule as determined by the
Committee, which vesting schedule may provide that (A) an Award held by a Participant
who retires from employment with the Company after having both reached the age
of sixty and completed twelve years of service with the Company shall continue
to vest in accordance with the vesting schedule set forth in the applicable
Award Agreement notwithstanding the termination of the Participant’s employment
with the Company, provided that prior to full vesting of the Award such
Participant does not after such retirement become employed on a full time basis
by a competitor of the Company prior to reaching age sixty-five, and
(B) an Award held by a Non-Employee Director of the Company who resigns
from the Board after completing at least five years of service to the Company
as a Non-Employee Director shall become fully vested.


 


(ii)           Termination.  An outstanding Award of Restricted Stock that
has not vested or an outstanding Award of Restricted Stock Units that has not
been settled shall be cancelled upon the Company’s termination of the
employment of the Participant for cause.


 


9

















 


(iii)          Acceleration.  An outstanding Award of Restricted Stock or
Restricted Stock Units shall become fully vested and settled irrespective of
its other provisions upon termination of the Participant’s employment with the
Company or Affiliate because of death, disability or normal retirement upon
reaching the age of sixty-five.


 


(iv)          Transferability.  An outstanding Award of Restricted Stock or
Restricted Stock Units that has not vested and been settled or is otherwise
restricted by the terms of the Award Agreement as to transferability shall not
be transferable by the Participant, and the Participant shall not be permitted
to sell, transfer, pledge or otherwise encumber such Award or the Shares
issuable in settlement thereof, other than (A) to the person or persons to
whom the Participant’s rights under such Award pass by will or the laws of
descent and distribution, (B) to the spouse or the descendants of the
Participant or to trusts for such persons to whom or which the Participant may
transfer such Award, (C) to the legal representative of any of the
foregoing, or (D) pursuant to a qualified domestic relations order as
defined under Section 414(p) of the Code or similar order or
agreement relating to the provision of child support, alimony payments or
marital property rights to a spouse, former spouse, child or other dependent of
the Participant. If an Award is transferred to any person to whom a transfer of
the Award is permitted, the transferee shall remain subject to all of the
vesting conditions to which the Award is subject. Any such transfer shall be
made only in compliance with the Securities Act and the requirements therefor
as set forth by the Company.


 


(b)           The Committee shall be free to
specify terms and conditions other than and in addition to those set forth
above, in its discretion.


 


ARTICLE VII


 


STOCK OPTIONS


 


7.1           Grant
of Options.  Subject to the
terms and conditions of the Plan, Options may be granted to Participants in
such number, and upon such terms, and at any time and from time to time, as
shall be determined by the Committee in its discretion. ISOs may be granted
only to Employees of the Company or a parent or subsidiary corporation of the
Company within the meaning of Section 424 of the Code, and no ISOs may be
granted more than 10 years after the adoption of the Plan by the Board.


 


7.2           Award
Agreement.  Each Option grant
shall be evidenced by an Award Agreement that shall specify the Option Price,
the duration of the Option, the number of Shares to which the Option relates,
the conditions upon which an Option shall become vested and exercisable, and
any other terms and conditions as the Committee shall determine. The Award
Agreement shall also specify whether the Option is intended to be an ISO or a
NQSO.


 


7.3           Option
Price.  The Option Price for
each grant of an Option under this Plan shall be determined by the Committee
and shall be specified in the Award Agreement. The Option Price for an Option,
whether issued as an ISO or an NQSO, shall be not less than 100 percent of
the FMV of the underlying Shares on the date of grant; provided, however, that
the Option Price for an ISO granted to a person who at the time of grant owns
(or is deemed to own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates (a “Significant
Stockholder”) shall be not less than 110 percent of the Fair Market Value
of the underlying Shares as of the date of grant.


 


7.4           Duration
of Options.  Each Option
granted to a Participant shall expire at such time as the Committee shall
determine at the time of grant; provided however, that no Option shall be
exercisable later than the tenth anniversary date of its grant, and provided
further that no ISO granted to a Significant Stockholder shall be exercisable
after the expiration of five years from the date of grant.


 


7.5           Exercise
of Options.  Options shall be
exercisable at such times and on the occurrence of such events, and be subject
to such restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each Participant.
Options shall be exercised by the delivery of a notice of exercise to the
Company or an agent designated by the Company in a form specified by or
acceptable to the Committee, or by complying with any alternative procedures
which may be authorized by the Committee, setting 


 


10

















 


forth the number of Shares
with respect to which the Option is to be exercised, and accompanied by full
payment for the Shares. Upon exercise of any Option, the Option Price shall be
payable to the Company in full either: (a) in cash or its equivalent;
(b) by tendering (either by actual delivery or attestation) previously
acquired Shares having an aggregate FMV at the time of exercise equal to the
total Option Price; (c) by a combination of (a) and (b); or
(d) by any other method approved or accepted by the Committee in its sole
discretion and subject to such rules and regulations as the Committee may
establish. Subject to Section 7.6 and any governing rules or
regulations, as soon as practicable after receipt of a notification of exercise
and full payment for the Shares, the Company shall cause to be delivered to the
Participant Share certificates or evidence of book entry Shares in an
appropriate amount based upon the number of Shares purchased under the
Option(s).


 


7.6           Restrictions
on Share Transferability.  The
Committee may impose such restrictions on any Shares acquired pursuant to the
exercise of an Option granted under the Plan as it may deem advisable,
including, without limitation, requiring the Participant to hold the Shares
acquired pursuant to exercise for a specified period of time, or restrictions
under applicable laws or under the requirements of any stock exchange or market
upon which such Shares are listed and/or traded.


 


7.7           Termination
of Employment.  Each
Participant’s Award Agreement shall set forth the extent to which the
Participant shall have the right to exercise the Option following the
termination of the Participant’s employment or other relationship with the
Company or Affiliates. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all Options granted
under the Plan, and may reflect distinctions based on the reasons for
termination.


 


7.8           Nontransferability
of Options.


 


(a)  Incentive Stock Options.  No ISO granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. In addition, all ISOs
granted to a Participant under the Plan shall be exercisable during such
Participant’s lifetime only by such Participant.


 


(b)  Nonqualified Stock
Options.  Except as otherwise
provided in a Participant’s Award Agreement at the time of grant or thereafter
by the Committee, a NQSO granted under the Plan may not be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. In addition, except as otherwise
provided in a Participant’s Award Agreement at the time of grant or thereafter
by the Committee, all NQSOs granted to a Participant under the Plan shall be
exercisable during such Participant’s lifetime only by such Participant.


 


(c)  Notification of
Disqualifying Disposition. 
The Participant to whom an ISO is granted shall notify the Company upon
the disposition of Shares issued pursuant to the exercise of an ISO or Shares
received as a dividend on ISO stock. The Company shall use such information to
determine whether a disqualifying disposition as described in Section 421(b) of
the Code has occurred.


 


7.9           $100,000
Annual ISO Limitation.  To the
extent that the aggregate Fair Market Value of Shares (determined as of the
time the ISOs with respect to such Shares are granted) with respect to which
ISOs are exercisable for the first time by any Participant during any calendar
year (under this Plan and all other plans of the Company and any Affiliate)
exceeds $100,000, such ISOs shall be treated as NQSOs. The foregoing provisions
shall be applied by taking ISOs into account in the order in which they were
granted.


 


ARTICLE VIII


STOCK APPRECIATION RIGHTS


 


8.1           Grant
of SARs.  Subject to the terms
and conditions of the Plan, SARs may be granted to Participants at any time and
from time to time and upon such terms as shall be determined by the Committee
in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or
any combination of these forms of SARs. The SAR Grant Price for each grant of a
Freestanding SAR shall be determined by the Committee and shall be specified in
the Award Agreement. The SAR Grant Price may include a Grant Price based on
100 percent of the FMV of the underlying Share on the date of grant or a
Grant Price that is set at a premium to the FMV of the underlying Share on the
date of grant. The SAR Grant Price shall not be less than FMV of the underlying
Share on the date of grant. The Grant Price of Tandem SARs shall be equal to
the Option Price of the related Option.


 


11
















 


8.2           SAR
Agreement.  Each SAR Award
shall be evidenced by an Award Agreement that shall specify the Grant Price,
the term of the SAR, and any such other provisions as the Committee shall
determine.


 


8.3           Term
of SAR.  The term of a SAR
granted under the Plan shall be determined by the Committee in its sole
discretion, and except as determined otherwise by the Committee and specified
in the SAR Award Agreement, no SAR shall be exercisable later than the tenth
anniversary date of its grant.


 


8.4           Exercise
of Freestanding SARs. 
Freestanding SARs may be exercised upon whatever terms and conditions
that the Committee in its sole discretion imposes.


 


8.5           Exercise
of Tandem SARs.  Tandem SARs
may be exercised for all or part of the Shares subject to the related Option
upon the surrender of the right to exercise the equivalent portion of the
related Option. A Tandem SAR may be exercised only with respect to the Shares
for which its related Option is then exercisable. Notwithstanding any other
provision of this Plan to the contrary, with respect to a Tandem SAR granted in
connection with an ISO: (a) the Tandem SAR will expire no later than the
expiration of the underlying ISO; (b) the value of the payout with respect
to the Tandem SAR may be for no more than 100 percent of the difference
between the Option Price of the underlying ISO and the FMV of the Shares
subject to the underlying ISO at the time the Tandem SAR is exercised; and
(c) the Tandem SAR may be exercised only when the FMV of the Shares
subject to the ISO exceeds the Option Price of the ISO.


 


8.6           Payment
of SAR Amount.  Upon the
exercise of a SAR, a Participant shall be entitled to receive payment from the
Company in an amount representing the difference between the FMV of the
underlying Share on the date of exercise over the Grant Price. At the
discretion of the Committee, the payment upon SAR exercise may be in cash,
Shares of equivalent value (based on the FMV on the date of exercise of the
SAR, as defined in the Award Agreement or otherwise defined by the Committee
thereafter), in some combination thereof, or in any other form approved by the
Committee in its sole discretion. The Committee’s determination regarding the
form of SAR payout shall be set forth or reserved for later determination in
the Award Agreement for the grant of the SAR.


 


8.7           Termination
of Employment.  Each Award
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the SAR following the termination of the Participant’s
employment or other relationship with the Company or Affiliates. Such
provisions shall be determined in the sole discretion of the Committee, need
not be uniform among all SARs issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination.


 


8.8           Nontransferability
of SARs.  Except as otherwise
provided in a Participant’s Award Agreement at the time of grant or thereafter
by the Committee, a SAR granted under the Plan may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. In addition, except as otherwise
provided in a Participant’s Award Agreement at the time of grant or thereafter
by the Committee, all SARs granted to a Participant under the Plan shall be exercisable
during such Participant’s lifetime only by such Participant.


 


8.9           Other
Restrictions.  Without
limiting the generality of any other provision of this Plan, the Committee may
impose such other conditions and/or restrictions on any Shares received upon
exercise of a SAR granted pursuant to the Plan as it may deem advisable. This
includes, but is not limited to, requiring the Participant to hold the Shares
received upon exercise of a SAR for a specified period of time.


 


ARTICLE IX


PERFORMANCE SHARES AND PERFORMANCE UNITS


 


9.1           Grant
of Performance Shares and Performance Units.  Subject to the terms and conditions of the
Plan, the Committee, at any time and from time to time, may grant Performance
Shares and/or Performance Units to Participants in such amounts and upon such
terms as the Committee shall determine.


 


9.2           Value
of Performance Shares and Performance Units.  Each Performance Share and Performance Unit
shall have an initial value that is established by the Committee at the time of
grant. The Committee shall in its 


 


12

















 


discretion set performance
criteria for a Performance Period which, depending on the extent to which the
performance criteria are met, will determine, in the manner established by the
Committee and set forth in the Award Agreement, the value and/or amount of each
Performance Share or Performance Unit that will be paid to the Participant.


 


9.3           Earnings
of Performance Shares and Performance Units.  Subject to the terms of this Plan and the
applicable Award Agreement, after the applicable Performance Period has ended,
the holder of Performance Shares and/or Performance Units shall be entitled to
receive, to the extent that the Performance Shares or Performance Units have
vested, if applicable, a payout of the value and/or amount of Performance
Shares and/or Performance Units, determined as a function of the extent to
which the corresponding performance criteria have been achieved. The Committee
may in its discretion require the Participant to hold the Shares or other
property received pursuant to such Award for a specified period of time.


 


9.4           Form and
Timing of Payment of Performance Shares and Performance Units.  Payment of earned Performance Shares and
Performance Units shall be made in accordance with the terms and conditions of
the applicable Award Agreement. A Performance Share or Performance Unit Award
Agreement may provide that payment may be made, to the extent that the
Performance Share or Performance Unit has vested and the performance criteria
are met, solely through the issuance of Shares earned upon the expiration of
the applicable Performance Period, and that the Participant may elect to
satisfy the Participant’s tax withholding obligation with respect to the Award
by having the Company withhold Shares or other property or by the Participant
surrendering Shares or other property to the Company with a FMV on or near the
tax withholding date equal to the tax withholding obligation. Upon the payment
in the form of Shares of a Performance Share or Performance Unit Award, the
Company shall deliver to the Participant the number of Shares issued to the
Participant in payment of the Award (which Shares may be delivered in
book-entry or certificated form).


 


9.5           Dividends
and Other Distributions. 
Dividends and other distributions declared by the Board and paid with
respect to outstanding Shares shall only be paid with respect to Performance
Share and Performance Unit Awards for Shares that have been issued by the
Company in payment of such Awards to the extent that the Awards have vested and
upon the expiration of the applicable Performance Periods for the Awards.
Performance Shares and Performance Units shall not be credited with Dividend
Equivalents unless specifically provided for in the Award Agreement, and then
only upon such terms and conditions as set forth in the Award Agreement.


 


9.6           Vesting
and Termination of Employment. 
Each Award Agreement shall set forth the extent to which the Award shall
vest, which may be pursuant to a vesting schedule as determined by the
Committee, and the extent to which the Participant shall have the right to
retain Performance Shares and/or Performance Units following the termination of
the Participant’s employment or other relationship with the Company or an
Affiliate. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Performance Shares and Performance
Units issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination.


 


9.7           Nontransferability
of Performance Shares and Performance Units.  Except as otherwise provided in a Participant’s
Award Agreement at the time of grant or thereafter by the Committee,
Performance Shares and Performance Units may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. In addition, except as otherwise provided in
a Participant’s Award Agreement at the time of grant or thereafter by the Committee,
a Participant’s rights with respect to Performance Shares and Performance Units
shall inure during such Participant’s lifetime only to such Participant.


 


ARTICLE X


STOCK BASED AWARDS


 


10.1         Stock
Based Awards.  Subject to the
terms and conditions of the Plan, the Committee, at any time and from time to
time, may grant other types of equity based or equity related Awards not
described by the other terms of the Plan (including the grant or offer for sale
of unrestricted Shares) in such amounts and subject to such terms and
conditions, including, but not limited to, conditions based on the satisfaction
of performance criteria or the satisfaction of such obligations as the
Committee shall determine. Such Awards may involve the transfer of actual
Shares to Participants, or payment in cash or otherwise of amounts based on the
value of Shares.


 


13

















 


10.2         Termination
of Employment.  Each Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive Stock Based Awards following the termination of the
Participant’s employment or other relationship with the Company or Affiliates.
Such provisions shall be determined in the sole discretion of the Committee,
need not be uniform among all Stock Based Awards issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination.


 


10.3         Nontransferability
of Stock Based Awards.  Except
as otherwise provided in a Participant’s Award Agreement at the time of grant
or thereafter by the Committee, Stock Based Awards may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. In addition, except as
otherwise provided in a Participant’s Award Agreement at the time of grant or
thereafter by the Committee, a Participant’s rights with respect to Stock Based
Awards shall inure during such Participant’s lifetime only to such Participant.


 


ARTICLE XI


PERFORMANCE MEASURES


 


Notwithstanding
any other terms of this Plan, the vesting, payability or value (as determined
by the Committee) of each Award other than an Option or SAR that, at the time
of grant, the Committee intends to be Performance Based Compensation to a
Covered Employee, shall be determined by the attainment of one or more
Performance Goals as determined by the Committee in conformity with
Section 162(m) of the Code. The Committee shall specify in writing,
by resolution or otherwise, the Participants eligible to receive such an Award
(which may be expressed in terms of a class of individuals) and the Performance
Goal(s) applicable to such Awards within 90 days after the
commencement of the period to which the Performance Goal(s) relate(s), or
such earlier time as required to comply with Section 162(m) of the
Code. No such Award shall be payable unless the Committee certifies in writing,
by resolution or otherwise, that the Performance Goal(s) applicable to the
Award were satisfied. In no case may the Committee increase the value of an
Award of Performance Based Compensation above the maximum value determined
under the performance formula by the attainment of the applicable Performance
Goal(s), but the Committee retains the discretion to reduce the value below
such maximum.


 


Unless
and until the Committee proposes for stockholder vote and the stockholders
approve a change in the general Performance Measures set forth in this
Article XI, the Performance Goal(s) upon which the payment or vesting
of an Award to a Covered Employee that is intended to qualify as Performance
Based Compensation shall be limited to the following Performance Measures:


 


(a)           Increases in, or levels of, net asset
value; net asset value per share; pretax earnings; earnings before interest and
taxes; earnings before interest, taxes, depreciation and amortization; net
income and/or earnings per share;


 


(b)           Return on equity, return on assets or
net assets, return on capital (including return on total capital or return on
invested capital);


 


(c)           Share price or stockholder return
performance (including, but not limited to, growth measures and total
stockholder return, which may be measured in absolute terms and/or in
comparison to a group of peer companies or an index);


 


(d)           Oil and gas reserve replacement,
reserve growth and finding and development cost targets;


 


(e)           Oil and gas production targets;


 


(f)            Performance of investments in oil
and gas properties;


 


(g)           Cash flow measures (including, but
not limited to, cash flows from operating activities, discretionary cash flows,
and cash flow return on investment, assets, equity or capital); and


 


(h)           Increases in, or levels of, operating
and/or nonoperating expenses.


 


14

















 


Any Performance Measure(s) may
be used to measure the performance of the Company as a whole and/or any one or
more regional operations and/or Affiliates of the Company or any combination
thereof, as the Committee may deem appropriate, and any Performance Measure(s) may
be used in comparison to the performance of a group of peer companies, or a
published or special index that the Committee, in its sole discretion, deems
appropriate. The Committee shall also have the authority to provide in Award
Agreements for accelerated vesting of an Award based on the achievement of
Performance Goal(s).


 


The
Committee may provide in any Award Agreement that any evaluation of attainment
of a Performance Goal may include or exclude any of the following events that
occurs during the relevant period: (a) asset write downs;
(b) litigation judgments or settlements; (c) the effect of changes in
tax laws, accounting principles, or other laws or regulations affecting
reported results; (d) any reorganization or restructuring transactions;
(e) extraordinary nonrecurring items as described in Accounting Principles
Board Opinion No. 30 and/or in management’s discussion and analysis of
financial condition and results of operations appearing in the Company’s Annual
Report on Form 10-K for the applicable year; and (f) significant
acquisitions or divestitures. To the extent such inclusions or exclusions
affect Awards to Covered Employees, they shall be prescribed in a form that
meets the requirements of Section 162(m) of the Code for
deductibility.


 


In
the event that applicable tax and/or securities laws change to permit
discretion by the Committee to alter the governing Performance Measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In addition,
in the event that the Committee determines that it is advisable to grant Awards
to Covered Employees that shall not qualify as Performance Based Compensation,
the Committee may make such grants without satisfying the requirements of
Section 162(m) of the Code.


 


ARTICLE XII


RIGHTS OF PERSONS ELIGIBLE TO PARTICIPATE


 


12.1         Employment.  Nothing in the Plan or an Award Agreement
shall interfere with or limit in any way the right of the Company or an
Affiliate to terminate any Participant’s employment, consulting or other
service relationship with the Company or an Affiliate at any time, nor confer
upon any Participant any right to continue in the capacity in which he or she
is employed or otherwise serves the Company or an Affiliate. Neither an Award
nor any benefits arising under this Plan shall constitute part of an employment
or service contract between a Participant and the Company or an Affiliate, and,
accordingly, subject to the terms of this Plan, this Plan may be terminated,
amended or modified at any time in the sole and exclusive discretion of the
Committee without giving rise to liability on the part of the Company or an
Affiliate for severance payments or otherwise, except as provided in this Plan.


 


For
purposes of the Plan, unless otherwise provided by the Committee, transfer of
employment of a Participant between the Company and an Affiliate or among
Affiliates, shall not be deemed a termination of employment. The Committee may
provide in a Participant’s Award Agreement or otherwise the conditions under
which a transfer of employment to an entity that is spun off from the Company
or an Affiliate shall not be deemed a termination of employment for purposes of
an Award.


 


12.2         Participation.  No Employee or other person eligible to
participate in the Plan shall have the right to be selected to receive an
Award. No person selected to receive an Award shall have the right to be
selected to receive a future Award or, if selected to receive a future Award,
the right to receive such future Award on terms and conditions identical or in
proportion in any way to any prior Award.


 


12.3         Rights
as a Stockholder.  A
Participant shall have none of the rights of a stockholder with respect to
Shares covered by any Award until the Participant becomes the record holder of
such Shares.


 


15

















 


ARTICLE XIII


CHANGE OF CONTROL


 


13.1         Accelerated
Vesting and Payment Applicable to Awards Granted prior to
May 21, 2008. 
Subject to the provisions of Section 13.3 or as otherwise provided
in the Award Agreement, for Awards granted prior to May 21, 2008, in
the event of a Change of Control, unless otherwise specifically prohibited by
law or the rules and regulations of a national securities exchange on
which Shares are listed or traded:


 


(a)           Any vesting period requirements and
other restrictions imposed on Restricted Stock or Restricted Stock Units shall
lapse, and Restricted Stock Units shall be immediately payable;


 


(b)           Any and all Options and SARs granted
hereunder shall become immediately exercisable;


 


(c)           The target payout opportunities
attainable under all outstanding Awards of performance based Restricted Stock
and performance based Restricted Stock Units, Performance Shares and
Performance Units (including but not limited to Awards intended to be
Performance Based Compensation) shall be deemed to have been fully earned based
on targeted performance being attained as of the effective date of the Change
of Control, and:


 


(i)            The vesting of all
Awards denominated in Shares shall be accelerated as of the effective date of
the Change of Control, and shall be paid out to Participants within
30 days following the effective date of the Change of Control; and


 


(ii)           Awards denominated
in cash shall be paid to Participants in cash within 30 days following the
effective date of the Change of Control;


 


(d)           Upon a Change of Control, unless
otherwise specifically provided in a written agreement entered into between the
Participant and the Company or an Affiliate, the Committee shall immediately
cause all other Stock Based Awards to vest and be paid out as determined by the
Committee; and


 


(e)           The Committee shall have the
discretion to unilaterally determine that all outstanding Awards shall be
cancelled upon a Change of Control, and that the value of such Awards, as
determined by the Committee in accordance with the terms of the Plan and the
Award Agreements, shall be paid out in cash in an amount based on the Change of
Control Price within a reasonable time subsequent to the Change of Control;
provided, however, that no such payment shall be made on account of an ISO
using a value higher than the FMV of the underlying Shares on the date of
settlement.


 


13.2         Accelerated
Vesting and Payment Applicable to Awards Granted on or after
May 21, 2008. 
Subject to the provisions of Section 13.3 or as otherwise provided
in the Award Agreement, for Awards granted on or after May 21, 2008
and prior to a Change of Control, in the event that a Change of Control occurs
and a Participant’s employment with the Company is subsequently terminated
without Cause (as defined in such Participant’s Award Agreement) or the
Participant terminates his or her employment with the Company for Good Reason
(as defined in such Participant’s Award Agreement) within 30 months of the
Change of Control (a “Change of Control Termination”), unless otherwise
specifically prohibited by law or the rules and regulations of a national
securities exchange on which Shares are listed or traded, with respect to such
Awards granted to such Participant:


 


(a)           Any vesting period requirements and
other restrictions imposed on Restricted Stock or Restricted Stock Units shall
lapse, and Restricted Stock Units shall be immediately payable;


 


(b)           Any and all Options and SARs granted
hereunder shall become immediately exercisable;


 


(c)           The target payout opportunities
attainable under all outstanding Awards of performance based Restricted Stock
and performance based Restricted Stock Units, Performance Shares and
Performance Units (including but not limited to Awards intended to be
Performance Based Compensation) shall be deemed to have been fully earned based
on measured performance as of the effective date of the Change of Control, and:


 


16

















 


(i)            The vesting of all
Awards denominated in Shares shall be accelerated as of the effective date of
the Change of Control Termination, and shall be paid out to such Participant
within 30 days following the effective date of the Change of Control
Termination; and


 


(ii)           Awards denominated
in cash shall be paid to Participants in cash within 30 days following the
effective date of the Change of Control Termination;


 


(d)           Upon a Change of Control Termination,
unless otherwise specifically provided in a written agreement entered into
between the Participant and the Company or an Affiliate, the Committee shall
immediately cause all other Stock Based Awards to vest and be paid out as
determined by the Committee; and


 


(e)           The Committee shall have the
discretion to unilaterally determine that all outstanding Awards shall be
cancelled upon a Change of Control Termination, and that the value of such
Awards, as determined by the Committee in accordance with the terms of the Plan
and the Award Agreements, shall be paid out in cash in an amount determined by
the Committee, in accordance with the terms of the Plan and the Award
Agreements, within a reasonable time subsequent to the Change of Control
Termination; provided, however, that no such payment shall be made on account
of an ISO using a value higher than the FMV of the underlying Shares on the
date of settlement.


 


In
the event that the existence of the foregoing provisions, even if a Change of
Control and a Change of Control Termination do not occur, would result in an
Award to a Covered Employee designed to qualify as Performance Based
Compensation to not so qualify, the Committee shall have the discretion to
adopt for such Award such provisions as shall satisfy the requirements of
Section 162(m) of the Code.


 


13.3         Alternative
Awards.  Notwithstanding
Sections 13.1 and 13.2, no cancellation, acceleration of vesting, lapsing
of restrictions, payment of an Award, cash settlement, or other payment shall
occur with respect to any Award if the Committee reasonably determines in good
faith prior to the occurrence of a Change of Control, that such Award shall be
honored or assumed, or new rights substituted therefor (with such honored,
assumed or substituted Award hereinafter referred to as an “Alternative Award”)
by any successor to the Company or an Affiliate as described in
Article XVII; provided, however, that any such Alternative Award must:


 


(a)           Be based on stock which is traded on
an established U.S. securities market, or that the Committee reasonably
believes will be so traded within 60 days after the Change of Control;


 


(b)           Provide such Participant with rights
and entitlements substantially equivalent to or more favorable than the rights,
terms, and conditions applicable under such Award, including, but not limited
to, an identical or more favorable exercise or vesting schedule and identical
or more favorable timing and methods of payment; and


 


(c)           Have substantially equivalent
economic value to such Award (determined at the time of the Change of Control).


 


ARTICLE XIV


AMENDMENT AND TERMINATION OF THE PLAN


 


14.1         Amendment,
Modification, Suspension, and Termination.  The Committee or the Board may, at any time
and from time to time, alter, amend, modify, suspend or terminate the Plan in
whole or in part; provided, however, that:


 


(a)           Consistent with the provisions of
Section 4.2 and except in connection with a corporate transaction
involving the Company (including, without limitation, any stock dividend, stock
split, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, or exchange of shares), the
terms of outstanding Awards may not be amended to reduce the Option Price of
outstanding Options or the Grant Price of outstanding SARs or cancel
outstanding Options 


 


17

















 


or
SARs in exchange for cash, other Awards or Options or SARs with an Option Price
or Grant Price that is less than the Option Price or Grant Price of the
original Options or SARs without stockholder approval.


 


(b)           No amendment or modification which
would increase the total number of Shares available for issuance under the Plan
or the total number of shares available for ISOs under the Plan shall be
effective unless approved by the stockholders of the Company.


 


(c)           To the extent necessary under any
applicable law, regulation, or securities exchange or market requirement, no
amendment or modification shall be effective unless approved by the
stockholders of the Company in accordance with the applicable law, regulation,
or securities exchange or market requirement.


 


14.2         Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events.  The Committee may make adjustments in the
terms and conditions of, and the criteria provided in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, the events
described in Section 4.2 hereof) affecting the Company or the financial
statements of the Company, or in recognition of changes in applicable laws,
regulations or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent unintended dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Awards and the Plan. The determination of the Committee as to the
foregoing adjustments, if any, shall be conclusive and binding on all
Participants under the Plan. To the extent such adjustments affect Awards to
Covered Employees intended to be Performance Based Compensation, they shall be
prescribed in a form that meets the requirements of Section 162(m) of
the Code for deductibility.


 


14.3         No
Impairment of Outstanding Awards. 
Notwithstanding any other provision of the Plan to the contrary, no
amendment, modification, suspension or termination of the Plan shall in any
manner adversely affect in any material way any outstanding Award previously
granted under the Plan without the written consent of the Participant holding
such Award.


 


ARTICLE XV


SECURITIES REGISTRATION


 


15.1         Securities
Registration.  In the event that
the Company shall deem it necessary or desirable to register under the
Securities Act, or any other applicable statute, any Awards or any Shares with
respect to which an Award may be or shall have been granted, or to qualify any
such Awards or Shares under the Securities Act or any other statute, then the
affected Participants shall cooperate with the Company and take such action as
is necessary to permit registration or qualification of such Awards or Shares.


 


15.2         Representations.  Unless the Company determines that the
following representation is unnecessary, each person receiving an Award under
the Plan may be required by the Company, as a condition to the issuance of
Shares pursuant to the Award, to make a representation in writing that
(i) he or she is acquiring such Shares for his or her own account for
investment and not with a view to, or for sale in connection with, the
distribution of any part thereof within the meaning of the Securities Act, and
(ii) before any transfer in connection with the resale of such Shares, an
exemption from registration of such transaction under the Securities Act shall
be established to the satisfaction of the Company. The Company may also require
that any certificates or book-entry accounts for such Shares contain restrictive
legends or stop-transfer orders reflecting the foregoing.


 


ARTICLE XVI


TAX WITHHOLDING


 


In
connection with Awards granted under the Plan, the Company and any Affiliate
shall have the power and the right to deduct or withhold, or require a Participant
to remit to the Company or any Affiliate, amounts sufficient to satisfy any
federal, state and local withholding tax requirements with respect to any
taxable event as a result of the Plan and Awards granted under the Plan. The
Committee may provide for Participants to satisfy withholding requirements by
having the Company withhold Shares or the Participant making other
arrangements, in either case on such conditions as the Committee specifies. The
Company may in its discretion make loans to 


 


18

















 


Participants of funds
sufficient to satisfy any such withholding tax requirements, provided that any
such loan shall comply with all applicable laws, rules and regulations and
no such loan shall be made to a Director or executive officer of the Company in
violation of Section 13(k) of the Exchange Act, as adopted pursuant
to Section 402 of the Sarbanes-Oxley Act of 2002. The Company and any
Affiliate shall have the right to require that any recipient or permitted transferee
of an Award under the Plan who is not an Employee shall be responsible for the
payment of all amounts required to satisfy all federal, state, and local
withholding taxes applicable to such persons with respect to such Award.


 


ARTICLE XVII


SUCCESSORS


 


Any
obligations of the Company or an Affiliate under the Plan with respect to
Awards granted hereunder, shall be binding on any successor to the Company or
Affiliate, respectively, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company or Affiliate, as
applicable.


 


ARTICLE XVIII


INDEMNIFICATION


 


To
the extent permitted by law, each person who is or shall have been a member of
the Board or the Committee, or an officer or employee who assists in
administering the Plan, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company’s approval, or paid by him or her in
satisfaction of judgment in any such action, suit or proceeding against him or
her, provided that he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle
and defend it on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company’s certificate of incorporation or
bylaws, as a matter of law or otherwise, or any power that the Company or an
Affiliate may have to indemnify them or hold them harmless.


 


ARTICLE XIX


GENERAL PROVISIONS


 


19.1         Forfeiture
Events.  Without limiting in
any way the generality of the Committee’s power to specify any terms and
conditions of an Award consistent with law, the Committee may specify in an
Award Agreement that the Participant’s rights, payments, and benefits with
respect to an Award shall be subject to reduction, cancellation, forfeiture or
recoupment upon the occurrence of certain specified events, in addition to any
otherwise applicable vesting or performance conditions of an Award. Such events
may include, but not be limited to, failure to accept the terms of the Award
Agreement, termination of employment under certain or all circumstances,
violation of material Company and Affiliate policies, breach of noncompetition,
confidentiality, nonsolicitation, noninterference, corporate property
protection or other agreements that may apply to the Participant, or other
conduct by the Participant that is detrimental to the business or reputation of
the Company or Affiliates.


 


19.2         Evidence
of Restrictions.  The
certificates or book-entry accounts for Shares issued under the Plan may
include or be subject to any legend or stop-transfer order that the Committee
deems appropriate to reflect any restrictions on transfer of such Shares.


 


19.3         Delivery
of Title.  The Company shall
have no obligation to issue or deliver evidence of title for Shares issued
under the Plan prior to:


 


(a)           Obtaining any approvals from
governmental agencies that the Company determines are necessary or advisable;
and


 


19

















 


(b)           Completion of any registration or
other qualification of the Shares under any applicable federal or state law or
ruling of any governmental body that the Company determines to be necessary or
advisable, and the listing or approval for trading of such Shares on any
applicable securities exchange or market.


 


19.4         Uncertificated
Shares.  Where the Plan
provides for the issuance of stock certificates to evidence the issuance or
transfer of Shares, such Shares may be evidenced on an uncertificated basis to
the extent not prohibited by applicable law or stock exchange rules.


 


19.5         Unfunded
Plan.  Participants shall have
no right, title or interest whatsoever in or to any investments that the
Company or an Affiliate may make to aid it in meeting its obligations under the
Plan. Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company or an Affiliate and any Participant,
beneficiary, legal representative or any other person. Awards shall be general
unsecured obligations of the Company, except that if an Affiliate executes an
Award Agreement instead of the Company, the Award shall be a general unsecured
obligation of the Affiliate and not an obligation of the Company. To the extent
that any individual acquires a right to receive payments from the Company or an
Affiliate, such right shall be no greater than the right of an unsecured
general creditor of the Company or Affiliate, as applicable. All payments to be
made hereunder shall be paid from the general funds of the Company or
Affiliate, as applicable, and no special or separate fund shall be established
and no segregation of assets shall be made to assure payment of such amounts except
as expressly set forth in the Plan. The Plan is not intended to be subject to
the Employee Retirement Income Security Act of 1974.


 


19.6         No
Fractional Shares.  No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award Agreement. In the event that any fractional Shares would otherwise result
from the application of the terms of an Award, the Company shall instead pay
cash in lieu of fractional Shares on such basis as the Committee may determine
in its discretion.


 


19.7         Other
Compensation and Benefit Plans. 
Nothing in this Plan shall be construed to limit the right of the
Company or an Affiliate to establish other compensation or benefit plans,
programs, policies or arrangements. Except as may be otherwise specifically
stated in any other benefit plan, policy, program or arrangement, no Award
shall be treated as compensation for purposes of calculating a Participant’s
rights under any such other plan, policy, program or arrangement.


 


19.8         No
Constraint on Corporate Action. 
Nothing in this Plan shall be construed to (i) limit, impair or
otherwise affect the Company’s or an Affiliate’s right or power to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, or to merge or consolidate, or dissolve, liquidate, sell or
transfer all or any part of its business or assets, or (ii) limit the
right or power of the Company or an Affiliate to take any action which such
entity deems to be necessary or appropriate.


 


19.9         Severability.  In the event that any provision of the Plan
shall be held to be illegal or invalid for any reason, the illegality or
invalidity thereof shall not affect the remaining parts of the Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had
not been included.


 


19.10       Requirements
of Law.  The granting of
Awards and the issuance of Shares pursuant to an Award shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or securities exchanges or markets as may be required.
The Company or an Affiliate shall receive the consideration required by law for
the issuance of Awards under the Plan. The inability of the Company or an
Affiliate to obtain authority from any regulatory body having jurisdiction,
which authority is necessary for the lawful issuance and sale of any Shares
hereunder, shall relieve the Company or Affiliate of any liability in respect
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.


 


19.11       Governing
Law.  The Plan and all Award
Agreements hereunder shall be construed in accordance with and governed by the
laws of the State of Colorado, excluding any conflicts or choice of law
principles which might otherwise result in construction or interpretation of
the Plan or an Award Agreement under the substantive law of another
jurisdiction.


 


20

















 


ARTICLE XX


SECTION 409A OF THE CODE


 


This
Plan is intended in all respects to comply with the provisions of
Section 409A of the Code and the Company shall interpret and administer
the Plan in a manner consistent with Section 409A of the Code. In
accordance with Prop. Reg. §1.409A-3(h)(2)(vi) (or any subsequent
corresponding provision of law), should there be a final determination that
this Plan fails to meet the requirements of Section 409A and the
regulations thereunder with respect to any Participant, the Company may
distribute to the Participant an amount not to exceed the amount required to be
included in income as a result of the failure to comply with the requirements
of Section 409A and the regulations.


 


Notwithstanding
any other provision of this Plan to the contrary, in the event that any
compensation pursuant to the other provisions of this Plan would result in the
imposition on a Participant of any additional taxes or interest pursuant to the
provisions of Section 409A of the Code and any temporary or final Treasury
Regulations or Internal Revenue Service guidance thereunder, the timing of the
payment or settlement of such compensation shall be appropriately and equitably
adjusted, together with any appropriate and equitable adjustments to reflect
the time value of money, in order that such Participant may receive substantially
the same economic benefits as provided under this Plan and in compliance with
Section 409A of the Code and without the imposition on such Participant of
any additional taxes or interest thereunder.


 


[Remainder of page intentionally left blank]


 


This
Equity Incentive Compensation Plan, as amended, was adopted by the Board of
Directors of SM Energy Company on July 30, 2010.


 


	
   

  	
  SM ENERGY COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ANTHONY
  J. BEST

  
	
   

  	
   

  	
  Chief
  Executive Officer and President

  



 


21