Document:

exv10w3

 

Exhibit 10.3

STOCKHOLDERS’ AGREEMENT

     This Stockholders’ Agreement (“Agreement”) is entered into as of November 22, 2005, by
and among Therma-Wave, Inc., a Delaware corporation (the “Company”), and the parties set
forth on Exhibit A hereto (each a “Purchaser” and collectively, the
“Purchasers”).

Recitals

     WHEREAS, it is a condition to the closing of the sale of the Company’s Series B Convertible
Preferred Stock to the Purchasers pursuant to the Stock Purchase Agreement of even date herewith
(the “Purchase Agreement”) that the parties hereto enter into this Agreement to make certain
provisions with respect to the Company’s organization and governance.

     NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth,
the parties hereto agree as follows:

SECTION 1

DEFINITIONS

     1.1. Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:

     “Affiliate” has the meaning set forth in Regulation D under the Securities Act of
1933.

     “Board” means the Board of Directors of the Company.

     “Change of Control” means any of the events described below:

     (1) The occurrence of any event that would, if known to the Company’s management, be required
to be reported by the Company under Item 5.01(a) of Form 8-K pursuant to the Securities Exchange
Act of 1934 (the “Exchange Act”); or

     (2) The acquisition or receipt, in any manner, by any person (as defined for purposes of the
Exchange Act) or any group of persons acting in concert, of direct or indirect beneficial ownership
(as defined for purposes of the Exchange Act) of fifty percent (50%) or more of the combined voting
securities ordinarily having the right to vote for the election of directors of the Company;
provided that the following shall not constitute a Change in Control: (i) any acquisition directly
from the Company; (ii) any acquisition by the Company or any of its affiliates, or (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company
or any of its affiliates; or

     (3) A change in the constituency of the Board with the result that individuals (the
“Incumbent Directors”) who are members of the Board as of the date of this Agreement cease
for any reason to constitute at least a majority of the Board; provided that any individual

 

 

who is elected to the Board after the date of this Agreement and whose nomination for election
was unanimously approved by the Incumbent Directors shall be considered an Incumbent Director
beginning on the date of his or her election to the Board; or

     (4) Consummation of a merger, consolidation or reorganization involving the Company, unless
such merger, consolidation or reorganization results in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity or parent thereof) more than
fifty percent (50%) of the total voting power represented by the voting securities of the Company
or such surviving entity or parent thereof outstanding immediately after such merger, consolidation
or reorganization; or

     (5) A complete liquidation or dissolution of the Company;

     (6) A sale, exchange or other disposition or transfer of all or substantially all of the
Company’s business or assets, other than pursuant to a spin-off or comparable transaction in which
the transferee is controlled by the Company or its existing stockholders immediately prior to such
transfer; or

     (7) execution of a binding agreement with respect to a transaction that, if completed, would
constitute or result in a Change in Control.

     “Common Stock” means the common stock, $0.01 par value per share, of the Company.

     “GAAP” means United States generally accepted accounting principles.

     “Holders” means the Purchasers and their respective Affiliates.

     “Person” means an individual, partnership, corporation, limited liability company,
association, trust, joint venture, unincorporated organization and any government, governmental
department or agency or political subdivision thereof.

     “Permitted Transferee” means (i) any affiliate of a Purchaser, (ii) any successor
entity that succeeds to all or substantially all of the assets of transferor,(iii) any limited
partner, general partner or limited liability company member who receives a distribution from a
Purchaser, (iv) any Person with at least $25.0 million in assets whose primary purpose is to invest
in other entities or securities, including registered and unregistered investment companies and
investment funds, financial institutions and other investment or financial entities (a
“Financial Entity”), and (v) any Person following such time as the Purchasers are entitled
to an additional director pursuant to Section 2.1(a)(iii) hereof, but without giving effect to any
limitation imposed by the proviso in Section 2.1(a)(iii).

     “Preferred Stock” means the Series B Convertible Preferred Stock, par value $0.01 per
share, of the Company.

     “Purchaser” has the meaning set forth in the introductory paragraph of this Agreement.

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SECTION 2

BOARD OF DIRECTORS

     2.1. Board Composition.

          (a) Effective at the closing of the sale of the Company’s Series B Convertible Preferred Stock
to the Purchasers pursuant to the Purchase Agreement, the Purchasers shall be entitled to designate
members to the Board (the “Purchaser Designees”), as follows: (i) one individual designated
by North Run Master Fund, LP (the “North Run Designee”), (ii) one individual designated
collectively by Deephaven Relative Value Equity Trading Ltd and Deephaven Long Short Equity Trading
Ltd (the “Deephaven Designee”); and (iii) in the event the Company’s cash and cash
equivalents, determined in accordance with GAAP applied consistently with the Company’s past
practice, are less than $15.0 million as of the end of a fiscal quarter as reported on the
Company’s balance sheet included in Form 10-Q or Form 10-K for such quarter, the holders of a
majority of Preferred Stock shall be entitled to designate one additional director (or such greater
number as may be required such that the aggregate number of directors designated pursuant to this
Section 2.1 equals the minimum number of directors necessary such that the aggregate number of
directors equals at least thirty percent (30%) of the then sitting board members); provided,
however, that notwithstanding the foregoing, in no event shall the percentage of board seats that
holders of Preferred Stock are entitled to elect exceed their proportion of ownership of voting
securities of the Company. Notwithstanding the foregoing, any individual (or individuals) to be
nominated or elected to the Board pursuant to this Agreement that is designated by an initial
Purchaser or a Permitted Transferee (pursuant to sections (i) – (iv) of the Permitted Transferee
definition) shall be appointed only after reasonable consultation, review and discussion with the
Company’s board of directors and its nominating committee. The Company agrees that its review
process for the initial designees shall be completed no later than December 9, 2005. Any
individual or individuals to be nominated or elected to the Board pursuant to this Agreement by a
Permitted Transferee pursuant solely to section (v) of the Permitted Transferee definition must
first be reasonably acceptable to a majority of the existing directors (excluding the North Run
Designee and the Deephaven Designee), who shall not unreasonably withhold or delay their approval
of such individual.

          (b) Notwithstanding the foregoing, (i) in the event the Purchasers together hold less than 50%
of the number of shares of Preferred Stock originally purchased by them pursuant to the Purchase
Agreement, the holders of a majority in interest of the Preferred Stock shall be entitled to elect
a single director (and the Purchasers shall cause any director nominated pursuant to Section 2.1(a)
and not reelected pursuant to this section to promptly tender his or her resignation from the
Board) and (ii) in the event the Purchasers together hold less than 20% of the number of shares of
Preferred Stock originally purchased by them pursuant to the Purchase Agreement, the rights set
forth in this Section 2.1 shall terminate and Purchasers shall cause any director elected pursuant
to Section 2.1(a) to promptly tender his or her resignation from the Board. In the event that any
Purchaser Designee fails to deliver his or her resignation as may be required by this Section
2.1(b), the Company and the Purchasers shall be

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entitled to take all necessary and appropriate action to cause such Purchaser Designee to be
removed .

          (c) The Company shall take all actions reasonably necessary and requested by any other
stockholder within its control (including, without limitation, calling special board and
stockholders’ meetings) so that the Purchaser Designees shall be elected to or removed from the
Board as provided in this Section 2.1. The Company shall cause its Board of Directors to take all
action necessary to appoint directors designated pursuant to this Section 2.1 to the Compensation
Committee and Audit Committee and each other committee as such directors may reasonably request, so
that the directors will have representation on each such committee proportional to their
representation on the Board, unless outside counsel has provided written advice that such
membership is prohibited by applicable law or the rules of the Nasdaq Stock Market. The Company
shall pay the reasonable out-of-pocket travel, lodging and other related expenses of all directors
elected pursuant to this Section 2.1 incurred in connection with attendance at meetings of the
Board or any committee thereof.

          (d) If a vacancy of a position held by a Purchaser Designee occurs or exists on the Board at
any time and for any reason, including but not limited to a vacancy because of the death,
disability, retirement, resignation or removal of any director for cause or otherwise, then the
Purchaser who originally designated such director pursuant to this Section 2.1 shall have the sole
right to designate an individual to fill such vacancy (provided such Purchaser is still entitled to
designate a member to the Board thereunder), and the Company shall take all reasonable steps to
elect such nominee to fill such vacancy.

          (e) At the request of the entity designating a Purchaser Designee and only if such Purchaser
is still entitled to designate a Board member pursuant to Section 2.1 hereof, the Company shall (x)
use all reasonable efforts to (i) seek action by written consent as promptly as practicable
following such request to remove such Purchaser Designee, or (ii) if action by written consent of
stockholders is not then permitted by the certificate of incorporation and bylaws of the Company,
the Company may, in its sole discretion, cause a special meeting of stockholders to be held
proposing the removal of such Purchaser Designee and (y) to the extent permitted by law and to the
extent an action by written consent is sought or a special meeting of stockholders is called
pursuant to this paragraph, use all reasonable efforts to solicit from stockholders of the Company
eligible to vote for the election of directors proxies to remove such Purchaser Designee.

SECTION 3

TRANSFER RESTRICTIONS

     3.1. Transfer Restrictions. Prior to the second anniversary of the date of the
original issuance of Preferred Stock to the Stockholders, except as approved by the Board
(excluding the directors nominated pursuant to Section 2.1 above), each Purchaser and each
Permitted Transferees agrees that it shall not sell or otherwise transfer or agree to sell or
otherwise transfer (a “Transfer”) any shares of Preferred Stock except to a Permitted
Transferee; provided, however, that the foregoing restrictions shall not restrict the Purchaser
from transferring at anytime and without consent, any or all of its shares of Common Stock.

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     3.2. Certain Transferees to Become Parties. Any transferee receiving Preferred Stock
in a Transfer pursuant to Section 3.1 shall sign and delivery to the Secretary of the Company a
counterpart to this Agreement in substantially the form attached hereto as Exhibit B.

SECTION 4

MISCELLANEOUS

     4.1. Waivers and Amendments, Termination. The rights and obligations of the Company
and the Purchasers hereunder may only be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time or indefinitely)
or amended with the written consent of the Company and Purchasers. This Agreement shall terminate
at such time all Preferred Stock is converted into Common Stock or earlier if following the
effectiveness of a Change of Control the Stockholders, in aggregate, own ten percent (10%) or less
of the outstanding capital stock of the surviving entity, assuming the conversion of all
convertible securities and exercise of all options and warrants whose exercise price equals or
exceeds the fair market value of the underlying securities immediately following the effectiveness
of such Change of Control.

     4.2. Governing Law. This Agreement shall be governed by and construed under the laws
of the State of Delaware (without giving effect to any conflicts or choice of laws provisions
thereof that would cause the application of the domestic substantive laws of any other
jurisdiction).

     4.3. Successors and Assigns. This Agreement shall be binding on each party hereto
with respect to all shares of Preferred Stock now or hereafter held by each Holder. Except as
otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
Neither this Agreement nor any right or obligation hereunder is assignable by any party except with
the prior written consent of the other party or parties; provided, however, each Holder may assign
or transfer any or all of its rights under this Agreement to a Permitted Transferee in connection
with a transfer of Preferred Stock pursuant to Section 3; and provided further that upon a Change
of Control, this Agreement and all rights or obligations hereunder may be assigned by the Company
only to the surviving entity without the prior written consent of the other party or parties.

     4.4. Entire Agreement. This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and thereof. This Agreement
supersedes all prior and inconsistent agreements and understandings between and among any of the
parties hereto.

     4.5. Notices. All demands, notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing and shall be personally delivered or
sent by facsimile machine (with a confirmation copy sent by one of the other methods authorized in
this Section), commercial (including Federal Express) or U.S. Postal Service overnight delivery
service, or deposited in the U.S. Postal Service mailed first class, registered or certified mail,
postage prepaid, as set forth below:

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	 	 	If to the Company, addressed to:
	 
	 	 	 	 
	 

	 	 	 	Therma-Wave, Inc.

1250 Reliance Way

Fremont, CA 94539

Attn: Chief Financial Officer

Telecopier: 510-656-3852
	 
	 	 	 	 
	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Wilson Sonsini Goodrich & Rosati

650 Page Mill Road

Palo Alto, CA 94304

Attn: Matthew Sonsini

Telecopier: 650-493-6811
	 
	 	 	 	 
	 	 	If to any Holder, at
the address set forth on Exhibit A
	 
	 	 	 	 
	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Ropes & Gray LLP

One International Place

Boston, MA 02110

Attn: Julie H. Jones

Telecopier: 617-951-7050

     Notices shall be deemed given upon the earlier to occur of (i) receipt by the party to whom
such notice is directed; (ii) if sent by facsimile machine, on the date (other than a Saturday,
Sunday or legal holiday in the jurisdiction to which such notice is directed) such notice is sent,
if sent (as evidenced by the facsimile confirmed receipt) prior to 5:00 p.m. Pacific Standard Time
and, if sent after 5:00 p.m. Pacific Standard Time, on the day (other than a Saturday, Sunday or
legal holiday in the jurisdiction to which such notice is directed) after which such notice is
sent; (iii) on the first business day (other than a Saturday, Sunday or legal holiday in the
jurisdiction to which such notice is directed) following the day the same is deposited with the
commercial carrier if sent by commercial overnight delivery service; or (iv) the fifth day (other
than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed)
following deposit thereof with the U.S. Postal Service as aforesaid. Each party, by notice duly
given in accordance therewith may specify a different address for the giving of any notice
hereunder.

     4.6. Severability. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.

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     4.7. Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in construing this
Agreement.

     4.8. Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together constitute one instrument.

     4.9.  Remedies.

          (a) The rights and remedies provided by this Agreement are cumulative and the use of any one
right or remedy by any party shall not preclude or waive its rights to use any or all other
remedies. Said rights and remedies are given in addition to any other rights the parties may have
at law or in equity.

          (b) Without limitation of the foregoing, the parties hereto agree that irreparable harm would
occur in the event that any of the agreements and provisions of this Agreement were not performed
fully by the parties hereto in accordance with their specific terms or were otherwise breached, and
that money damages are an inadequate remedy for breach of the Agreement because of the difficulty
of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in
the event that this Agreement is not performed in accordance with its terms or is otherwise
breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an
injunction or injunctions to restrain, enjoin and prevent breaches of this Agreement by the other
parties and to enforce specifically such terms and provisions of this Agreement, such remedy being
in addition to and not in lieu of, any other rights and remedies to which the other parties are
entitled to at law or in equity.

          (c) Except where a time period is otherwise specified, no delay on the part of any party in
the exercise of any right, power, privilege or remedy hereunder shall operate as a waiver thereof,
nor shall any exercise or partial exercise of any such right, power, privilege or remedy preclude
any further exercise thereof or the exercise of any right, power, privilege or remedy.

     4.10. Legends. The Purchaser agrees that the certificates for the Preferred Stock
shall bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY, AS SET FORTH IN A SHAREHOLDERS AGREEMENT, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.

The legend set forth above shall be removed from the certificates for the Preferred Stock following
the second anniversary of the date of the original issuance of Preferred Stock to the Stockholders.

     4.11. No Grant of Proxy, Not a Voting Trust. This Agreement does not grant any proxy
and should not be interpreted as doing so. Nevertheless, should the provisions of this Agreement
be construed to constitute the granting of proxies, such proxies shall be deemed

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coupled with an interest and are irrevocable for the term of this Agreement. This Agreement
is not a voting trust governed by Section 218 of the Delaware General Corporation Law and should
not be interpreted as such.

     4.12. No Third Party Beneficiary. There are no third party beneficiaries of this
Agreement.

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     IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the date
first set forth above.

	 	 	 	 	 	 	 
	 	 	“Company”
	 
	 	 	 	 	 	 
	 	 	 	 	Therma-Wave, Inc.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Boris Lipkin
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:

Title:
	 	Boris Lipkin

Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	“Purchasers”
	 
	 	 	 	 	 	 
	 	 	 	 	North Run Master Fund, L.P.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	North Run GP, LP,

its General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	North Run Advisors, LLC,

its General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Thomas B. Ellis
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Thomas B. Ellis, Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Todd B. Hammer
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Todd B. Hammer, Member
	 
	 	 	 	 	 	 
	 	 	 	 	Deephaven Relative Value Equity
Trading Ltd.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Colin Smith
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:

Title:
	 	Colin Smith

CEO
	 
	 	 	 	 	 	 
	 	 	 	 	Deephaven Long Short Equity Trading
Ltd.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Colin Smith
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:

Title:
	 	Colin Smith

CEO

[SIGNATURE PAGE TO STOCKHOLDERS’ AGREEMENT]

 

 

EXHIBIT A

NAME AND ADDRESS OF PURCHASERS

Name

North Run Master Fund, L.P.

One International Place – Suite 2401

Boston, MA 02110

Deephaven Relative Value Equity Trading Ltd

130 Cheshire Parkway, Suite 102

Minnetonka, MN 55305

Deephaven Long Short Equity Trading Ltd

130 Cheshire Parkway, Suite 102

Minnetonka, MN 55305

 

 

EXHIBIT B

COUNTERPART TO STOCKHOLDERS AGREEMENT

     Reference is made to that certain Stockholders’ Agreement dated as of November ___, 2005, by
and among Therma-Wave, Inc. and the Stockholders party thereto (as amended from time to time, the
“Agreement”). As a proposed recipient of shares of stock covered by the Agreement, the
undersigned hereby acknowledges and agrees that such shares upon receipt shall remain subject to
all of the terms and provisions of the Agreement and all rights and obligations thereunder arising
prior to such receipt, and the undersigned hereby agrees to be bound by all of the terms and
provisions of the Agreement. The undersigned hereby joins and executes said Agreement, hereby
authorizing this Counterpart to be attached thereto.

     Dated this                      day of                                         , 20___.

	 	 	 
	 

	 	Signature:
	 
	 	 
	 	 	 
	 
	 	 
	 

	 	Print Name:
	 
	 	 
	 	 	 
	 
	 	 
	 

	 	Address for Notice:exv10w1

 

Exhibit 10.1

 

SUNOCO PARTNERS LLC

ANNUAL INCENTIVE PLAN

Amended as of January 1, 2005, and Restated Effective December 20, 2005

 

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SUNOCO PARTNERS LLC

ANNUAL INCENTIVE PLAN

     1. Definitions. As used in this Plan, the following terms shall have the meanings herein
specified:

	 	1.1	 	Affiliate — means, with respect to any entity, any other entity
that directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, the entity in question. For
purposes of this definition, “control” means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of an
entity, whether through ownership of voting securities, by contract or otherwise.
	 
	 	1.2	 	Board of Directors — shall mean the Board of Directors of the Company.
	 
	 	1.3	 	Cause — shall mean

	 	(a)	 	fraud or embezzlement on the part of the Participant;
	 
	 	(b)	 	conviction of or the entry of a plea of nolo contendere by the
Participant to any felony;
	 
	 	(c)	 	the willful and continued failure or refusal by the Participant
to perform substantially the Participant’s duties with the Company or an
Affiliate thereof (other than any such failure resulting from incapacity due
to physical or mental illness, or death, or following notice of employment
termination by the Participant pursuant to subsections 1.6(c)(1), (2), (3),
(4) or (5)) within thirty (30) days following the delivery of a written
demand for substantial performance to the Participant by the Board of
Directors, or any employee of the Company or an Affiliate with supervisory
authority over the Participant, that specifically identifies the manner in
which the Board of Directors or such supervising employee believes that the
Participant has not substantially performed the Participant’s duties; or
	 
	 	(d)	 	any act of willful misconduct by the Participant which:

	 	(1)	 	is intended to result in substantial personal
enrichment of the Participant at the expense of the Partnership, the
Company, or any respective Affiliates thereof; or
	 
	 	(2)	 	has a material adverse impact on the business or
reputation of the Partnership, the Company, or any respective
Affiliate thereof (such determination to be made by the Partnership,
the Company, or any such Affiliate in the good faith exercise of its
reasonable judgment).

	 	1.4	 	Change of Control — shall mean, and shall be deemed to have
occurred upon the occurrence of one or more of the following events:

	 	(a)	 	the consolidation, reorganization, merger or other transaction
pursuant to which more than fifty percent (50%) of the combined voting power
of the outstanding equity interests in the Company cease to be owned by
Sunoco, Inc. and its Affiliates;
	 
	 	(b)	 	a “Change in Control” of Sunoco, as defined from time to time in
the Sunoco stock plans; or

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	 	(c)	 	the general partner (whether the Company or any other Person) of
the Partnership ceases to be an Affiliate of Sunoco.

	 	1.5	 	CIC Incentive Award — shall mean the incentive award payable in
cash following a Change of Control, as described herein at Section 8.4.
	 
	 	1.6	 	CIC Participant — shall mean a Participant:

	 	(a)	 	whose employment was terminated by the Company (other than for
cause) on or following the Change of Control, but before payment of the CIC
Incentive Award; or
	 
	 	(b)	 	whose employment was terminated by the Company (other than for
Cause) before the Change of Control, or
	 
	 	(c)	 	who terminated employment for one of the following reasons:

	 	(1)	 	the assignment to such Participant of any duties
inconsistent in a way significantly adverse to such Participant, with
such Participant’s positions, duties, responsibilities and status with
the Company immediately prior to the Change of Control, or a significant
reduction in the duties and responsibilities held by the Participant
immediately prior to the Change of Control, in each case except in
connection with such Participant’s termination of employment by the
Company for Cause; or
	 
	 	(2)	 	with respect to any Participant who is a member of the
Company’s board of directors immediately prior to the Change of Control,
any failure of the members of the Company to elect or re-elect, or of
the Company to appoint or re-appoint, the Participant as a member of
such board of directors; or
	 
	 	(3)	 	a reduction by the Company in either the Participant’s
annual base salary or guideline (target) bonus as in effect immediately
prior to the Change of Control; or
	 
	 	(4)	 	the failure of the Company to provide the Participant
with employee benefits and incentive compensation opportunities that:

	 	(i)	 	are not less favorable than those provided to
other executives who occupy the same grade level at the Company as
the Participant, or if the Company’s grade levels are no longer
applicable, to a similar peer group of the executives of the
Company; and
	 
	 	(ii)	 	provide the Participant with benefits that are
at least as favorable, measured separately for:

	 	(A)	 	incentive compensation opportunities,
	 
	 	(B)	 	savings and retirement benefits,
	 
	 	(C)	 	welfare benefits, and
	 
	 	(D)	 	fringe benefits and vacation,

	 	 	 	as the most favorable of each such category of benefit in effect
for the Participant at any time during the 120-day period
immediately preceding the Change of Control; or

	 	(5)	 	the Company requires the Participant to be based anywhere
other than the Participant’s present work location or a location within
thirty-five (35) miles from the present location; or the Company
requires the Participant to travel on Company business to an extent
substantially more burdensome than such

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	 	 	 	Participant’s travel obligations during the period of twelve (12)
consecutive months immediately preceding the Change of Control;

	 	 	 	provided, however, that in the case of a Participant whose employment terminates
under either subsection 1.6(b) or (c), such Participant can demonstrate that such
termination, or circumstance leading to the termination, was at the request of a
third party with which the Company had entered into negotiations or an agreement
regarding a Change of Control, or otherwise occurred in connection with a Change
of Control; and further provided, that in either case, the Change of Control
actually occurs within one (1) year following the employment termination and, in
the event of a termination under 1.6(c), the termination occurs within 120 days
after the occurrence of the event or events constituting the reason for such
termination; or

	 	(d)	 	who was, immediately before the Change of Control, eligible for a
prorated award under the provisions of Section 8.3; or
	 
	 	(e)	 	who was employed by the Company on the date of the Change of
Control and who does not incur a termination for Cause before payment of
the CIC Incentive Award, in the event that, prior to the end of the calendar
year in which the Change of Control occurred, either:

	 	(1)	 	the Plan is terminated; or
	 
	 	(2)	 	the performance measures and/or performance targets
for the applicable Plan Year are changed or modified, resulting in a
decrease in the amount of any CIC Incentive Award otherwise payable.

	 	1.7	 	CIC Short Period — shall mean the portion of the Plan Year from
January 1 to the date of the occurrence of a Change of Control.
	 
	 	1.8	 	Company — shall mean Sunoco Partners LLC, a Delaware limited
liability company. The term “Company” shall include any successor to Sunoco
Partners LLC, any subsidiary or Affiliate that has adopted the Plan, or any company
succeeding to the business of Sunoco Partners LLC by merger, consolidation,
liquidation, or purchase of assets or stock, or similar transaction.
	 
	 	1.9	 	Compensation Committee — shall mean the Compensation Committee of
the Company’s Board of Directors.
	 
	 	1.10	 	Participant — shall mean a person participating or eligible to
participate in the Plan, as determined under Section 4.
	 
	 	1.11	 	Partnership — shall mean Sunoco Logistics Partners L.P., a Delaware
limited partnership, and its subsidiaries.
	 
	 	1.12	 	Plan — shall mean the Company’s Annual Incentive Plan as amended and
restated effective as of April 21, 2005.
	 
	 	1.13	 	Plan Year — shall mean the performance (calendar) year.
	 
	 	1.14	 	Pro-rated Bonus Award — shall mean an amount equal to the award
otherwise payable to a Participant for the Plan Year in which the Participant’s
termination of employment with the Company (other than for Cause) is effective,
multiplied by a fraction the numerator of which is the number of full and partial
months in the applicable Plan Year through the date of termination of such
Participant’s employment, and the denominator of which is twelve (12).

3

 

     2. Purpose. The purpose of this Plan is to motivate management and the employees of the
Company and its Affiliates who perform services for the Partnership to collectively produce
outstanding results, encourage superior performance, increase productivity, and aid in attracting
and retaining key employees.

     3. Plan guidelines. The administration of the Plan and any potential awards granted pursuant
to the Plan is subject to the determination by the Compensation Committee of the Company’s Board of
Directors that the performance goals for the applicable periods have been achieved. The Plan is an
additional compensation program designed to encourage Participants to exceed specified objective
performance targets for the designated period. The Compensation Committee will review the
Partnership’s performance results for the designated performance period, and thereafter will
determine whether or not to approve awards under the Plan.

     4. Performance Targets.

	 	4.1	 	Designation of Performance Targets. The Company’s Chief Executive
Officer shall recommend, subject to approval by the Company’s Compensation
Committee, the performance measures and performance targets to be used for each
Plan Year in determining the bonus amounts to be paid under the Plan. Performance
targets may be based on Partnership, business unit and/or individual achievements,
or any combination of these, or on such other factors as the Company’s Chief
Executive Officer, subject to the approval of the Compensation Committee, may
determine. Different performance targets may be established for different
participants for any Plan Year. Satisfactory results, as determined by the
Company’s Compensation Committee in its sole discretion, must be achieved in order
for an award to be made pursuant to the Plan.
	 
	 	4.2	 	Equitable Adjustment to Performance Targets. At its discretion,
the Compensation Committee may adjust actual performance measure results for
extraordinary events or accounting adjustments resulting from significant asset
purchases or dispositions or other events not contemplated or otherwise considered
by the Compensation Committee when the performance measures and targets were set.

     5. Participants. The Compensation Committee, in consultation with the Company’s Chief
Executive Officer, will designate members of management and employees of the Company and its
Affiliates as eligible to participate in the Plan. Employees so designated shall be referred to as
“Participants.”

     6. Participation Levels. A Participant’s designated level of participation in the Plan, or
target bonus, will be determined under criteria established or approved by the Compensation
Committee for that Plan Year or designated performance period. Levels of participation in the Plan
may vary according to a Participant’s position and the relative impact such Participant can have on
the Company’s and/or Affiliates’ operations. Care will be used in communicating to any participant
his performance targets and potential performance amount for a Plan Year. The amount of target
bonus a participant may receive for any Plan Year, if any, will depend upon the performance level
achieved (unless waived) for that Plan Year, as determined by the Compensation Committee. No
Participant shall have any claim to be granted any award under the Plan, and there is no obligation
for uniformity of treatment of Participants. The terms and conditions of awards need not be the
same respecting each Participant.

     7. Award Payout. Awards typically will be determined after the end of the Plan Year or
designated performance period. Awards will be paid in cash annually, unless otherwise determined by

4

 

the Compensation Committee. The Compensation Committee will have the discretion, by Participant and
by grant, to reduce (but not to increase) some or all of the amount of any award that otherwise
would be payable by reason of the satisfaction of the applicable performance targets. In making any
such determination, the Compensation Committee is authorized to take into account any such factor
or factors it determines are appropriate, including but not limited to Company, business unit and
individual performance; provided, however, that the exercise of such negative discretion with
respect to one Participant may not be used to increase the amount of any award otherwise payable to
another Participant. Notwithstanding the foregoing, payment of awards will be made within two and
one-half (2-1/2) months following the end of the Plan Year.

     8. Termination of Employment.

	 	8.1	 	Voluntary Termination. Except in the event of a Change of Control,
if a Participant terminates his or her employment with the Company (for any reason
other than retirement, death, permanent disability, or approved leave of absence)
prior to December 31 of any Plan Year, such Participant will not receive payment of
the award for such Plan Year, and will forfeit any right, title or interest in such
award, unless and to the extent waived by the Compensation Committee in its sole
discretion.
	 
	 	8.2	 	Termination for Cause. A Participant will not receive payment of
any award for a particular Plan Year if the Participant’s employment with the
Company is terminated for Cause prior to the payment of such award.
	 
	 	8.3	 	Death, Retirement, Disability, Leaves of Absence, Etc. A Pro-rated
Bonus Award, reflecting participation for a portion of the Plan Year, will be paid
to any Participant whose employment status changed during the year as a result of:

	 	(a)	 	death;
	 
	 	(b)	 	permanent disability (as determined by the Committee);
	 
	 	(c)	 	retirement;
	 
	 	(d)	 	approved leave of absence; or
	 
	 	(e)	 	termination at the Company’s request (other than for Cause), for
Participants in salary Grade 11 or above on the employment termination date.

	 	 	 	New hires and part-time employees also will receive a Pro-rated Bonus Award. Unless
otherwise required by applicable law, any Pro-rated Bonus Award payable hereunder
will be paid on the date when awards are otherwise payable as provided in the Plan.
	 
	 	8.4	 	Change of Control. Upon the occurrence of a Change of Control, the
terms of this Section 8.4 shall immediately become operative, without further
action or consent by any person or entity, and once operative shall supersede and
control over any other provisions of this Plan.:

	 	(a)	 	Acceleration. The CIC Incentive Award shall be payable in cash
to all CIC Participants within thirty (30) days following the occurrence of
a Change of Control (or as soon as it is practicable to determine the level
of attainment of applicable performance targets under subsection 8.4(a)(1)).
Such award shall be calculated according to the terms of the Plan, except
as follows:

	 	(1)	 	the level of attainment of applicable performance
targets shall be determined based upon the performance of the
Partnership for completed months from January 1 through the date of
the Change of Control.
	 
	 	(2)	 	The amount of the CIC Incentive Award shall be equal
to the respective

5

 

	 	 	 	award adjusted to reflect the level of attainment of applicable
performance targets, multiplied by the number of full and partial
months in the CIC Short Period divided by twelve (12).
	 
	 	(3)	 	Notwithstanding anything herein to the contrary, no
action taken by the Compensation Committee or the Board of Directors
after a Change of Control, or before, but in connection with, a Change
of Control, may:

	 	(i)	 	terminate or reduce the CIC Incentive Award
or prospective CIC Incentive Award payable to any Participant
in connection with such Change of Control without the express
written consent of such Participant; or
	 
	 	(ii)	 	adversely affect a Participant’s rights
under subsection 8.4(b) in connection with such Change of
Control.

	 	(b)	 	Attorney’s Fees. The Company shall pay all reasonable legal fees
and related expenses incurred by a Participant in seeking to obtain or
enforce payment of the CIC Incentive Award to which such Participant may be
entitled under the Plan after a Change of Control; provided, however, that
the Participant shall be required to repay any such amounts to the Company
to the extent a court of competent jurisdiction issues a final and
non-appealable order setting forth the determination that the position taken
by the Participant was frivolous or advanced in bad faith.

     9. Amendment and Termination. The Company’s Compensation Committee, at its sole discretion,
may amend the Plan or terminate the Plan at any time. (except as otherwise set forth in Section
8.4).

     10. Administration. The Compensation Committee may delegate the responsibility for the
administration and operation of the Plan to the Chief Executive Officer (or designee) of the
Company or any participating Affiliate. The Compensation Committee (or the person(s) to which
administrative authority has been delegated) shall have the authority to interpret and construe any
and all provisions of the Plan, including all performance targets and whether and to what extent
achieved. Any determination made by the Compensation Committee (or the person(s) to which
administrative authority has been delegated) shall be final and conclusive and binding on all
persons.

     11. Indemnification. Neither the Company, any participating Affiliate, nor the Board of
Directors, or any member or any committee thereof, of the Company or any participating Affiliate,
nor any employee of the Company or any participating Affiliate shall be liable for any act,
omission, interpretation, construction or determination made in connection with the Plan in good
faith; and the members of the Company’s Board of Directors, the Compensation Committee and/or the
employees of the Company or any participating Affiliate shall be entitled to indemnification and
reimbursement by the Company to the maximum extent permitted by law in respect of any claim, loss,
damage or expense (including counsel’s fees) arising from their acts, omission and conduct in their
official capacity with respect to the Plan.

     12. General provisions.

	 	12.1	 	Non-Guarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Company and/or a participating
Affiliate and a Participant, and nothing in this Plan shall confer upon any
Participant any right to continued employment with the Company or a participating
Affiliate, or to interfere with

6

 

	 	 	 	the right of the Company or a participating Affiliate to terminate a Participant’s
employment, with or without cause.
	 
	 	12.2	 	Interests Not Transferable. No benefits under the Plan shall be
subject in any manner to alienation, sale, transfer, assignment, pledge, attachment
or other legal process, or encumbrance of any kind, and any attempt to do so shall
be void.
	 
	 	12.3	 	Facility Payment. Any amounts payable hereunder to any person under
legal disability or who, in the judgment of the Compensation Committee or its
designee, is unable to properly manage his or her financial affairs, may be paid to
the legal representative of such person, or may be applied for the benefit of such
person in any manner which the Compensation Committee or its designee may select,
and each participating Affiliate shall be relieved of any further liability for
payment of such amounts.
	 
	 	12.4	 	Controlling Law. To the extent not superseded by federal law, the
law of the Commonwealth of Pennsylvania shall be controlling in all matters relating
to the Plan.
	 
	 	12.5	 	No Rights to Award. No person shall have any claim to be granted any
award under the Plan, and there is no obligation for uniformity of treatment of
participants. The terms and conditions of awards need not be the same with respect
to each recipient.
	 
	 	12.6	 	Severability. If any Plan provision or any award is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any
person or award, or would disqualify the Plan or any award under the law deemed
applicable by the Compensation Committee, such provision shall be construed or
deemed amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Compensation Committee,
materially altering the intent of the Plan or the award, such provision shall be
stricken as to such jurisdiction, person or award and the remainder of the Plan and
any such award shall remain in full force and effect.
	 
	 	12.7	 	No Trust or Fund Created. Neither the Plan nor any award shall
create or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any participating Affiliate and a Participant or
any other person. To the extent that any person acquires a right to receive payments
from the Company or any participating Affiliate pursuant to an award, such right
shall be no greater than the right of any general unsecured creditor of the Company
or any participating Affiliate.
	 
	 	12.8	 	Headings. Headings are given to the sections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way
material or relevant to the construction or interpretation of the Plan or any
provision of it.
	 
	 	12.9	 	Tax Withholding. The Company and/or any participating Affiliate may
deduct from any payment otherwise due under this Plan to a Participant (or
beneficiary) amounts required by law to be withheld for purposes of federal, state
or local taxes.

7

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