Document:

exv10w07

 

Exhibit 10.07

FLEXTRONICS INTERNATIONAL LTD.

2001 EQUITY INCENTIVE PLAN

As Adopted August 13, 2001 and amended through September 23, 2004

     1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate
eligible persons whose present and potential contributions are important to the success of the
Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the
Company’s future performance through grants of Awards. Capitalized terms not defined in the text
are defined in Section 21.

     2. SHARES SUBJECT TO THE PLAN.

          2.1 Number of Shares Available. Subject to Sections 2.2 and 15, the total number of Shares reserved and available for grant and
issuance pursuant to this Plan will be 27,000,000 Shares, plus shares that are subject to issuance
upon exercise of an Award but cease to be subject to such Award for any reason other than exercise
of such Award. In addition, any authorized shares not issued or subject to outstanding grants under
the Company’s 1993 Share Option Plan, 1997 Interim Option Plan, 1998 Interim Option Plan, 1999
Interim Option Plan, ASIC International, Inc. Non-Qualified Stock Option Plan, Wave Optics, Inc.
1997 Share Option Plan, Wave Optics, Inc. 2000 Share Option Plan, Chatham Technologies, Inc. Stock
Option Plan, Chatham Technologies, Inc. 1997 Stock Option Plan, IEC Holdings Limited 1997 Share
Option Scheme, Palo Alto Products International Private Ltd 1996 Share Option Plan, The DII Group,
Inc. 1994 Stock Incentive Plan, The DII Group, Inc. 1993 Stock Option Plan, Orbit Semiconductor,
Inc. 1994 Stock Incentive Plan, Telcom Global Solutions Holdings, Inc. 2000 Equity Incentive Plan,
Telcom Global Solutions, Inc. 2000 Stock Option Plan, KMOS Semi-Customs, Inc. 1989 Stock Option
Plan, and KMOS Semi-Customs, Inc. 1990 Non-Qualified Stock Option Plan, (each a “Prior Plan” and
collectively, the “Prior Plans”) and any shares subject to outstanding grants that are forfeited
and/or that are issuable upon exercise of options granted pursuant to the Prior Plans that expire
or become unexercisable for any reason without having been exercised in full, will no longer be
available for grant and issuance under the Prior Plans, but will be available for grant and
issuance under this Plan. At all times the Company shall reserve and keep available a sufficient
number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted
under this Plan. No more than 30,000,000 Shares shall be issued as ISOs and no more than
10,000,000 Shares shall be issued as Stock Bonuses. No more than 2,000,000 Shares may be issued
and outstanding at any point during the term of this Plan pursuant to Awards granted under Section
20 of this Plan.

          2.2 Adjustment of Shares. Should any change be made to the Shares issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Shares as a class without the
Company’s receipt of consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any Participant may be granted Awards over the term of the Plan, (iii) the
number and/or class of securities and price per Share in effect under each Award outstanding under
Sections 5, 7, and 20, and (iv) the class of securities for which automatic Option grants are to be
subsequently made to newly elected or continuing Outside Directors

 

 

under Section 7. Such adjustments to the outstanding Awards are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under such Awards,
provided, however, that (i) fractions of a Share will not be issued but will be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share, as determined by the Committee,
and (ii) no such adjustment shall be made if as a result, the Exercise Price would fall below the
par value of a Share and if such adjustment would but for this paragraph (ii) result in the
Exercise Price being less than the par value of a Share, the Exercise Price payable shall be the
par value of a Share. The adjustments determined by the Committee shall be final, binding and
conclusive. The repricing, replacement or regranting of any previously granted Award, through
cancellation or by lowering the Exercise Price or Purchase Price of such Award, shall be prohibited
unless the shareholders of the Company first approve such repricing, replacement or regranting.

     3. ELIGIBILITY. All Awards may be granted to employees, officers and directors of the Company
or any Parent or Subsidiary of the Company. No person will be eligible to receive more than
4,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder;
provided, however, that no Outside Director will be eligible to receive more than 100,000 Shares,
in the aggregate, in any calendar year under this Plan pursuant to the grant of Awards hereunder. A
person may be granted more than one Award under this Plan.

     4. ADMINISTRATION.

          4.1 Committee Authority. This Plan will be administered by the Committee or by the
Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section
7 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the
direction of the Board, the Committee will have full power to implement and carry out this Plan.
Except for automatic grants to Outside Directors pursuant to Section 7 hereof, the Committee will
have the authority to:

               (a) construe and interpret this Plan, any Award Agreement and any other agreement or document
executed pursuant to this Plan;

               (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award;

               (c) select persons to receive Awards;

               (d) determine the form and terms of Awards;

               (e) determine the number of Shares or other consideration subject to Awards;

               (f) determine whether Awards will be granted singly, in combination with, in tandem with, in
replacement of, or as alternatives to, other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of the Company;

               (g) grant waivers of Plan or Award conditions;

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               (h) determine the vesting, exercisability and payment of Awards;

               (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any
Award or any Award Agreement;

               (j) determine whether an Award has been earned; and

               (k) make all other determinations necessary or advisable for the administration of this Plan.

          4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant
to Section 7 hereof, any determination made by the Committee with respect to any Award will be made
in its sole discretion at the time of grant of the Award or, unless in contravention of any express
term of this Plan or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant an Award under this Plan to
Participants who are not Insiders of the Company.

     5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether
such Options will be Incentive Stock Options within the meaning of the Code (“ISOs”) or
Nonqualified Stock Options (“NQSOs”), the number of Shares subject to the Option, the Exercise
Price of the Option, the period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:

          5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an
Award Agreement which will expressly identify the Option as an ISO or an NQSO (“Stock Option
Agreement”), and, except as otherwise required by the terms of Section 7 hereof, will be in such
form and contain such provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the terms and
conditions of this Plan.

          5.2 Date of Grant. The date of grant of an Option will be the date on which the
Committee makes the determination to grant such Option, unless otherwise specified by the
Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant
within a reasonable time after the granting of the Option.

          5.3 Exercise Period. Options may be exercisable within the times or upon the events
determined by the Committee as set forth in the Stock Option Agreement governing such Option;
provided, however, that no Option will be exercisable after the expiration of ten (10) years from
the date the Option is granted; and provided further that (i) no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total combined voting power of
all classes of shares or stock of the Company or of any Parent or Subsidiary of the Company (“Ten
Percent Shareholder”) will be exercisable after the expiration of five (5) years from the date the
ISO is granted and (ii) no Option granted to a person who is not an employee of the Company or any
Parent or Subsidiary of the Company on the date of grant of that Option will be exercisable after
the expiration of five (5) years from the date the Option is granted. The Committee also may
provide for Options to become exercisable at one time or from

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time to time, periodically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines.

          5.4 Exercise Price. The Exercise Price of an Option will be determined by the
Committee when the Option is granted; provided that: (i) the Exercise Price will be not less than
100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of
any ISO granted to a Ten Percent Shareholder will not be less than 110% of the Fair Market Value of
the Shares on the date of grant. In no event may the Exercise Price of an Option be less than the
par value of the Shares. Payment for the Shares purchased may be made in accordance with Section 6
of this Plan.

          5.5 Method of Exercise.

               (a) Options may be exercised only by delivery to the Company (or as the Company may direct) of
a written stock option exercise agreement (the “Exercise Agreement”) (in the case of a written
Exercise Agreement, in the form approved by the Board or the Committee, which need not be the same
for each Participant), in each case stating the number of Shares being purchased, the restrictions
imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and
agreements regarding Participant’s investment intent and access to information and other matters,
if any, as may be required or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price for the number of Shares being purchased.

               (b) A written Exercise Agreement may be communicated electronically through the use of such
security device (including, without limitation, any logon identifier, password, personal
identification number, smartcard, digital certificate, digital signature, encryption device,
electronic key, and/or other code or any access procedure incorporating any one or more of the
foregoing) as may be designated by the Board or the Committee for use in conjunction with the Plan
from time to time (“Security Device”), or via an electronic page, site, or environment designated
by the Company which is accessible only through the use of such Security Device, and such written
Exercise Agreement shall thereby be deemed to have been sent by the designated holder of such
Security Device. The Company (or its agent) may accept and act upon any written Exercise Agreement
issued and/or transmitted through the use of the Participant’s Security Device (whether actually
authorized by the Participant or not) as his authentic and duly authorized Exercise Agreement and
the Company (or its agent) may treat such Exercise Agreement as valid and binding on the
Participant notwithstanding any error, fraud, forgery, lack of clarity or misunderstanding in the
terms of such Exercise Agreement. All written Exercise Agreements issued and/or transmitted through
the use of the Participant’s Security Device (whether actually authorized by the Participant or
not) are irrevocable and binding on the Participant upon transmission to the Company (or as the
Company may direct) and the Company (or its agent) shall be entitled to effect, perform or process
such Exercise Agreement without the Participant’s further consent and without further reference to
the Participant.

               (c) The Company’s records of the Exercise Agreements (whether delivered or communicated
electronically or in printed form), and its record of any transactions maintained by any relevant
person authorized by the Company relating to or connected with the

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Plan, whether stored in audio, electronic, printed or other form, shall be binding and
conclusive on the Participant and shall be conclusive evidence of such Exercise Agreements and/or
transactions. All such records shall be admissible in evidence and, in the case of a written
Exercise Agreement which has been communicated electronically, the Participant shall not challenge
or dispute the admissibility, reliability, accuracy or the authenticity of the contents of such
records merely on the basis that such records were incorporated and/or set out in electronic form
or were produced by or are the output of a computer system, and the Participant waives any of his
rights (if any) to so object.

          5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:

               (a) If the Participant is Terminated for any reason except death or Disability, then the
Participant may exercise such Participant’s Options only to the extent that such Options would have
been exercisable upon the Termination Date no later than three (3) months after the Termination
Date (or such shorter or longer time period not exceeding five (5) years as may be determined by
the Committee, provided, that any Option which is exercised beyond three (3) months after the
Termination Date shall be deemed to be an NQSO), but in any event no later than the expiration date
of the Options.

               (b) If the Participant is Terminated because of the Participant’s death or Disability (or the
Participant dies within three (3) months after a Termination other than for Cause or because of the
Participant’s Disability), then the Participant’s Options may be exercised only to the extent that
such Options would have been exercisable by the Participant on the Termination Date and must be
exercised by the Participant (or the Participant’s legal representative or authorized assignee) no
later than twelve (12) months after the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee, provided, that any Option which is
exercised beyond twelve (12) months after the Termination Date when the Termination is for
Participant’s Disability, shall be deemed to be an NQSO), but in any event no later than the
expiration date of the Options.

               (c) If the Participant is terminated for Cause, then the Participant’s Options shall expire on
such Participant’s Termination Date, or at such later time and on such conditions as are determined
by the Committee (but in any event, no later than the expiration date of the Options).

          5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number
of Shares that may be purchased on any exercise of an Option, provided that such minimum number
will not prevent Participant from exercising the Option for the full number of Shares for which it
is then exercisable.

          5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of
grant) of Shares with respect to which ISO are exercisable for the first time by a Participant
during any calendar year (under this Plan or under any other incentive stock option plan of the
Company, Parent or Subsidiary of the Company) will not exceed US$100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the first time by a
Participant during any calendar year exceeds US$100,000, then the Options

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for the first US$100,000 worth of Shares to become exercisable in such calendar year will be
ISO and the Options for the amount in excess of US$100,000 that become exercisable in that calendar
year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are
amended after the Effective Date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective date of such
amendment.

          5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options in substitution therefor, provided that
any such action may not, without the written consent of a Participant, impair any of such
Participant’s rights under any Option previously granted, and provided further that the exercise
period of any Option may not in any event be extended beyond the periods specified in Section 5.3.
Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code.

          5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term
of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or
authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any ISO under Section
422 of the Code.

     6. PAYMENT FOR SHARE PURCHASES.

          6.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash
(by check) or, where expressly approved for the Participant by the Committee and where permitted by
law:

               (a) by cancellation of indebtedness of the Company to the Participant;

               (b) by waiver of compensation due or accrued to the Participant for services rendered;

               (c) with respect only to purchases upon exercise of an Option, and provided that a public
market for the Company’s Shares exists:

                    (i) through a “same day sale” commitment from the Participant and a broker-dealer that is a
member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the Participant
irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares
to forward the Exercise Price directly to the Company; or

                    (ii) through a “margin” commitment from the Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the
NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company;

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               (d) conversion of a convertible note issued by the Company, the terms of which provide that it
is convertible into Shares issuable pursuant to the Plan (with the principal amount and any accrued
interest being converted and credited dollar for dollar to the payment of the Exercise Price); or

               (e) by any combination of the foregoing.

     7. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.

          7.1 Types of Options and Shares. Options granted under this Plan and subject to this
Section 7 shall be NQSOs.

          7.2 Eligibility. Options subject to this Section 7 shall be granted only to Outside
Directors. In no event, however, may any Outside Director be granted any Options under this Section
7 if such grant is (a) prohibited, or (b) restricted (either absolutely or subject to various
securities requirements, whether legal or administrative, being complied with), in the jurisdiction
in which such Outside Director is resident under the relevant securities laws of that jurisdiction.

          7.3 Initial Grant. Each Outside Director who first becomes a member of the Board
after the Effective Date will automatically be granted an Option for 25,000 Shares (an “Initial
Grant”) on the date such Outside Director first becomes a member of the Board. Each Outside
Director who became a member of the Board on or prior to the Effective Date and who did not receive
a prior option grant (under this Plan or otherwise and from the Company or any of its corporate
predecessors) will receive an Initial Grant on the Effective Date.

          7.4 Succeeding Grant. Immediately following each Annual General Meeting of
shareholders of the Company, each Outside Director will automatically be granted an Option for
12,500 Shares (a “Succeeding Grant”), provided, that the Outside Director is a member of the Board
on such date and has served continuously as a member of the Board for a period of at least twelve
(12) months since the last Option grant (whether an Initial Grant or a Succeeding Grant) to such
Outside Director. If less than twelve (12) months has passed, then the number of shares subject to
the Succeeding Grant will be pro-rated based on the number of days passed since the last Option
grant to such Outside Director, divided by 365 days.

          7.5 Vesting and Exercisability. The date an Outside Director receives an Initial
Grant or a Succeeding Grant is referred to in this Plan as the “Start Date” for such Option.

               (a) Initial Grant. Each Initial Grant will vest and be exercisable as to 25% of the
Shares on the first one year anniversary of the Start Date for such Initial Grant, and thereafter
as to 1/48 of the Shares at the end of each full succeeding month, so long as the Outside Director
continuously remains a director or a consultant of the Company.

               (b) Succeeding Grant. Each Succeeding Grant will vest and be exercisable as to 25% of
the Shares on the first one year anniversary of the Start Date for such Succeeding Grant, and
thereafter as to 1/48 of the Shares at the end of each full succeeding month, so long as the
Outside Director continuously remains a director or a consultant of the

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Company. No Options granted to an Outside Director will be exercisable after the expiration of
five (5) years from the date the Option is granted to such Outside Director. If the Outside
Director is Terminated, the Outside Director may exercise such Outside Director’s Options only to
the extent that such Options would have been exercisable upon the Termination Date for such period
as set forth in Section 5.6. Notwithstanding any provision to the contrary, in the event of a
Corporate Transaction described in Section 15.1, the vesting of all Options granted to Outside
Directors pursuant to this Section 7 will accelerate and such Options will become exercisable in
full prior to the consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within three (3) months of the consummation of said
event. Any Options not exercised within such three-month period shall expire. Notwithstanding any
provision to the contrary, in the event of a Hostile Take-Over, the Outside Director shall have a
thirty-day period in which to surrender to the Company each option held by him or her under this
Plan for a period of at least six (6) months. The Outside Director shall in return be entitled to a
cash distribution from the Company in an amount equal to the excess of (i) the Take-Over Price of
the Shares at the time subject to the surrendered Option (whether or not the Option is otherwise at
the time exercisable for those Shares) over (ii) the aggregate Exercise Price payable for such
Shares. Such cash distribution shall be paid within five (5) days following the surrender of the
Option to the Company. Neither the approval of the Committee nor the consent of the Board shall be
required in connection with such option surrender and cash distribution. The Shares subject to each
Option surrendered in connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under the Plan.

          7.6 Exercise Price. The Exercise Price of an Option pursuant to an Initial Grant and
Succeeding Grant shall be the Fair Market Value of the Shares, at the time that the Option is
granted.

     8. WITHHOLDING TAXES.

          8.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards
granted under this Plan, the Company may require the Participant to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for such Shares. Whenever, under this Plan, payments in
satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.

          8.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax
liability in connection with the exercise or vesting of any Award that is subject to tax
withholding and the Participant is obligated to pay the Company the amount required to be withheld,
the Committee may in its sole discretion, and subject to compliance with all applicable laws and
regulations, allow the Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares having a Fair Market
Value equal to the minimum amount required to be withheld, determined on the date that the amount
of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld
for this purpose will be made in accordance with the requirements established by the Committee and
be in writing in a form acceptable to the Committee.

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     9. TRANSFERABILITY.

          9.1 Except as otherwise provided in this Section 9, Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by a Participant, and may not be made
subject to execution, attachment or similar process, otherwise than by will or by the laws of
descent and distribution or as determined by the Committee and set forth in the Award Agreement
with respect to Awards. Notwithstanding the foregoing, (i) Participants may transfer or assign
their Options to Family Members through a gift or a domestic relations order (and not in a transfer
for value), and (ii) if the terms of the applicable instrument evidencing the grant of an Option so
provide, Participants who reside outside of the United States and Singapore may assign their
Options to a financial institution outside of the United States and Singapore that has been
approved by the Committee, in accordance with the terms of the applicable instrument, subject to
Code regulations providing that any transfer of an ISO may cause such ISO to become a NQSO. The
Participant shall be solely responsible for effecting any such assignment, and for ensuring that
such assignment is valid, legal and binding under all applicable laws. The Committee shall have the
discretion to adopt such rules as it deems necessary to ensure that any assignment is in compliance
with all applicable laws.

          9.2 All Awards other than NQSO’s. All Awards other than NQSO’s shall be exercisable:
(i) during the Participant’s lifetime, only by (A) the Participant, or (B) the Participant’s
guardian or legal representative; and (ii) after Participant’s death, by the legal representative
of the Participant’s heirs or legatees. 9.3 NQSOs. Unless otherwise restricted by the Committee, an
NQSO shall be exercisable: (i) during the Participant’s lifetime only by (A) the Participant, (B)
the Participant’s guardian or legal representative, (C) a Family Member of the Participant who has
acquired the NQSO by “permitted transfer;” as defined below, (ii) by a transferee that is permitted
pursuant to clause (ii) of Section 9.2, for such period as may be authorized by the terms of the
applicable instrument evidencing the grant of the applicable Option, or by the Committee, and (iii)
after Participant’s death, by the legal representative of the Participant’s heirs or legatees.
“Permitted transfer” means any transfer of an interest in such NQSO by gift or domestic relations
order effected by the Participant during the Participant’s lifetime. A permitted transfer shall not
include any transfer for value; provided that the following shall be permitted transfers and shall
not be considered to be transfers for value: (a) a transfer under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which more than fifty
percent of the voting interests are owned by Family Members or the Participant in exchange for an
interest in that entity.

     10. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the rights of a
shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares
are issued to the Participant, the Participant will be a shareholder and have all the rights of a
shareholder with respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares.

     11. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan
will be subject to such stock transfer orders, legends and other restrictions as the Committee may
deem necessary or advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

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     12. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time and
subject to compliance with all applicable laws and regulations, authorize the Company, with the
consent of the respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time and subject to
compliance with all applicable laws and regulations buy from a Participant an Award previously
granted with payment in cash, Shares or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.

     13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless
such Award is in compliance with all applicable federal and state securities laws, rules and
regulations of any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in this Plan, the Company will have no obligation to issue or deliver certificates
for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that
the Company determines are necessary or advisable; and/or (b) completion of any registration or
other qualification of such Shares under any state or federal law or ruling of any governmental
body that the Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or failure to do so.

     14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will
confer or be deemed to confer on any Participant any right to continue in the employ of, or to
continue any other relationship with, the Company or any Parent or Subsidiary of the Company or
limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant’s employment or other relationship at any time, with or without cause.

     15. CORPORATE TRANSACTIONS.

          15.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to
Outside Directors pursuant to Section 7 hereof, in the event of (a) a dissolution or liquidation of
the Company, (b) a merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or other transaction in which there is no substantial change
in the shareholders of the Company or their relative share holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation, which assumption will be
binding on all Participants), (c) a merger in which the Company is the surviving corporation but
after which the shareholders of the Company immediately prior to such merger (other than any
shareholder that merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in the Company, (d) the
sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer
of more than 50% of the outstanding shares of the Company by tender offer or similar transaction
(each, a “Corporate Transaction ”), each Option which is at the time outstanding under this Plan
shall automatically

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accelerate so that each such Option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the total number of Shares
at the time subject to such Option and may be exercised for all or any portion of such Shares.
However, subject to the specific terms of a Participant’s Award Agreement, an outstanding Option
under this Plan shall not so accelerate if and to the extent: (i) such Option is, in connection
with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof
or to be replaced with a comparable Option to purchase shares of the capital stock of the successor
corporation or parent thereof, (ii) such Option is to be replaced with a cash incentive program of
the successor corporation which preserves the Option spread existing at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same vesting schedule
applicable to such Option or (iii) the acceleration of such Option is subject to other limitations
imposed by the Committee at the time of the Option grant. The determination of Option comparability
under clause (i) above shall be made by the Committee, and its determination shall be final,
binding and conclusive.

          15.2 Other Treatment of Awards. Subject to any greater rights granted to Participants
under the foregoing provisions of this Section 15 or other specific terms of a Participant’s Award
Agreement, in the event of the occurrence of any Corporate Transaction described in Section 15.1,
any outstanding Awards will be treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, or sale of assets.

          15.3 Assumption of Awards by the Company. The Company, from time to time, also may
substitute or assume outstanding awards granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company’s award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award granted under this
Plan. Such substitution or assumption will be permissible if the holder of the substituted or
assumed award would have been eligible to be granted an Award under this Plan if the other company
had applied the rules of this Plan to such grant. In the event the Company assumes an award granted
by another company, the terms and conditions of such award will remain unchanged (except that the
Exercise Price and the number and nature of Shares issuable upon exercise of any such Option will
be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects
to grant a new Option rather than assuming an existing Option, such new Option may be granted with
a similarly adjusted Exercise Price.

     16. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on the date on which
the Board adopts the Plan (the “Effective Date”). This Plan shall be approved by the shareholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws,
within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a)
no Option may be exercised prior to initial shareholder approval of this Plan; (b) no Option
granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board
will be exercised prior to the time such increase has been approved by the shareholders of the
Company; (c) in the event that initial shareholder approval is not obtained within the time period
provided herein, all Awards granted hereunder shall be cancelled; and (d) in the event that
shareholder approval of such increase is not obtained

11

 

within the time period provided herein, all Awards granted pursuant to such increase will be
cancelled.

     17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will
terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date
of shareholder approval. This Plan and all agreements thereunder shall be governed by and construed
in accordance with the laws of the State of California.

     18. AMENDMENT OR TERMINATION OF PLAN. The Board has complete and exclusive power and
authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) no such amendment or modification shall adversely affect rights and obligations with
respect to Options at the time outstanding under the Plan, unless the Participant consents to such
amendment, and (ii) the automatic grants to Outside Directors pursuant to Section 7 may not be
amended at intervals more frequently than once every six (6) months, other than to the extent
necessary to comply with applicable U.S. income tax laws and regulations. In addition, the Board
may not, without the approval of the Company’s shareholders, amend the Plan to (i) materially
increase the maximum number of Shares issuable under the Plan or the number of Shares for which
Options may be granted per newly-elected or continuing Outside Director or the maximum number of
Shares for which any one individual participating in the Plan may be granted Options, (ii)
materially modify the eligibility requirements for plan participation or (iii) materially increase
the benefits accruing to Participants. The Board may at any time terminate or amend this Plan in
any respect, including without limitation amendment of any form of Award Agreement or instrument to
be executed pursuant to this Plan; provided, however, that the Board will not, without the approval
of the shareholders of the Company, amend this Plan in any manner that requires such shareholder
approval.

     19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the
submission of this Plan to the shareholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.

     20. STOCK BONUSES. A Stock Bonus is a grant of Shares by the Company to an individual who has
satisfied the terms and conditions set by the Committee on the making of such grant. The Committee
will determine to whom a grant may be made, the number of Shares that may be granted, the
restrictions to the making of such grant, and all other terms and conditions of the Stock Bonus.
The conditions to grant may be based upon completion of a specified number of years of service with
the Company or upon completion of the performance goals as set out by the Committee. Grants of
Stock Bonuses may vary from Participant to Participant and between groups of Participants. Prior
to the grant of a Stock Bonus, the Committee shall: (a) determine the nature, length and starting
date of any Performance Period that may be a condition precedent to grant of a Stock Bonus; (b)
select from among the Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to the grant of any
Stock Bonus, the Committee shall determine the extent to which such Stock Bonus has been earned.
Performance Periods may overlap and Participants may participate simultaneously with respect to
Stock Bonuses that

12

 

are subject to different Performance Periods and having different performance goals and other
criteria. Participants shall be required to pay the par value for any Shares issued as a Stock
Bonus.

     21. DEFINITIONS. As used in this Plan, the following terms will have the following meanings:

     “Award” means any Options or shares from Stock Bonuses granted under this Plan.

     “Award Agreement” means, with respect to each Award, the signed written agreement between the
Company and the Participant setting forth the terms and conditions of the Award.

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

     “Cause” means (a) the commission of an act of theft, embezzlement, fraud, dishonesty, (b) a
breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company or (c) a failure
to materially perform the customary duties of the employee’s employment.

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

     “Committee” means the Compensation Committee of the Board.

     “Company” means Flextronics International Ltd. or any successor corporation.

     “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

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

     “Exercise Price” means the price at which a holder of an Option may purchase the Shares
issuable upon exercise of the Option.

     “Fair Market Value” means, as of any date, the value of the Shares determined as follows:

               (a) if such Shares are then quoted on the Nasdaq National Market, the closing price of such
Shares on the Nasdaq National Market on the date of determination as reported in The Wall Street
Journal;

               (b) if such Shares are publicly traded and are then listed on a national securities exchange,
the closing price of such Shares on the date of determination on the principal national securities
exchange on which the Shares are listed or admitted to trading as reported in The Wall Street
Journal;

               (c) if such Shares are publicly traded but are not quoted on the Nasdaq National Market nor
listed or admitted to trading on a national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall Street Journal; or

13

 

               (d) if none of the foregoing is applicable, by the Committee in good faith.

     “Family Member” includes any of the following:

               (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law of the Participant, including any such person with such relationship to the
Participant by adoption;

               (b) any person (other than a tenant or employee) sharing the Participant’s household;

               (c) a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial
interest;

               (d) a foundation in which the persons in (a) and (b) or the Participant control the management
of assets; or

               (e) any other entity in which the persons in (a) and (b) or the Participant own more than
fifty percent of the voting interest.

     “Hostile Take-Over” means a change in ownership of the Company effected through the following
transaction:

               (a) the direct or indirect acquisition by any person or related group of persons (other than
the Company or a person that directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting
power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly
to the Company’s shareholders which the Board does not recommend such shareholders to accept, and

               (b) the acceptance of more than fifty percent (50%) of the securities so acquired in such
tender or exchange offer from holders other than Insiders.

     “Insider” means an officer or director of the Company or any other person whose transactions
in the Company’s Shares are subject to Section 16 of the Exchange Act.

     “Option” means an award of an option to purchase Shares pursuant to Sections 5 and 7.

     “Outside Director” means a member of the Board who is not an employee of the Company or any
Parent or Subsidiary.

     “Parent” means any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if each of such corporations other than the Company owns stock possessing
more than 50% of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

14

 

     “Participant” means a person who receives an Award under this Plan.

     “Performance Factors” means the factors selected by the Committee from among the following
measures to determine whether the performance goals established by the Committee and applicable to
Awards have been satisfied:

     (a) Net revenue and/or net revenue growth;

     (b) Earnings before income taxes and amortization and/or earnings before income taxes
and amortization growth;

     (c) Operating income and/or operating income growth;

     (d) Net income and/or net income growth;

     (e) Earnings per share and/or earnings per share growth;

     (f) Total stockholder return and/or total stockholder return growth;

     (g) Return on equity;

     (h) Operating cash flow return on income;

     (i) Adjusted operating cash flow return on income;

     (j) Economic value added; and

     (k) Individual confidential business objectives.

     “Performance Period” means the period of service determined by the Committee, not to exceed
five years, during which years of service or performance is to be measured for Awards.

     “Plan” means this Flextronics International Ltd. 2001 Equity Incentive Plan, as amended from
time to time.

     “SEC” means the Securities and Exchange Commission.

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

     “Shares” means ordinary shares of par value S$0.01 each in the capital of the Company reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 15, and any successor
security.

     “Stock Bonus” means an award of Shares pursuant to Section 20.

     “Subsidiary” means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing more than 50% of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

15

 

     “Take-Over Price” means the greater of (a) the Fair Market Value per Share on the date the
particular Option to purchase Shares is surrendered to the Company in connection with a Hostile
Take-Over or (b) the highest reported price per Share paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered Option is an ISO, the Take-Over Price shall not
exceed the clause (a) price per Share.

     “Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant,
that the Participant has for any reason ceased to provide services as an employee, officer or
director to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any
other leave of absence approved by the Committee, provided, that such leave is for a period of not
more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract
or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated to employees in writing. In the case of any employee on an
approved leave of absence, the Committee may make such provisions respecting suspension of vesting
of the Award while on leave from the employ of the Company or a Subsidiary as it may deem
appropriate, except that in no event may an Option be exercised after the expiration of the term
set forth in the Stock Option Agreement. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the “Termination Date”).

16<PAGE>

EXHIBIT 10.12

                           CHANGE OF CONTROL AGREEMENT

            This is a CHANGE OF CONTROL AGREEMENT ("Agreement") dated March 17,
1999, between Airgas, Inc., a Delaware corporation (the "Company"), and Peter
McCausland (the "Executive").

                                   BACKGROUND

            Executive is the current Chairman and CEO of the Company. The Board
of Directors of the Company (the "Board") has determined it is in the Company's
best interest to assure that the Company will have the continued dedication of
Executive, notwithstanding the possibility, threat or occurrence of a Change of
Control of the Company, as will be defined below. To diminish the inevitable
distraction to Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage Executive's
full attention and dedication to the Company currently and in the event of any
Change of Control, and to provide Executive with compensation arrangements upon
a Change of Control that provide Executive financial security and that are
competitive with peer corporations of the Company, the Company and Executive
desire to enter into this Agreement that is in the best interests of the Company
and Executive.

            NOW, THEREFORE, intending to be legally bound, and in consideration
of the mutual promises and representations set forth in this Agreement, the
Company and Executive agree as follows:

                          ARTICLE I - TERM OF AGREEMENT

      1.1 TERM. The term of this Agreement shall commence as of the date hereof,
and shall terminate upon the earlier of (i) Executive's termination of
employment with the Company for any reason, or (ii) the later of (A) date which
is three years following the date on which a Change of Control, as defined in
Section 2.2, occurred; or (B) the date as of which funding is required under
3.5.2 following a Standstill Agreement provided, however, that the Agreement
shall remain in effect until Executive (or Executive's beneficiary if Executive
is not alive) has received any and all amounts to which Executive is entitled
under Article III, if any.

<PAGE>

               ARTICLE II - TERMINATION OF EXECUTIVE'S EMPLOYMENT

      2.1 CHANGE OF CONTROL REQUIRED. No amounts or benefits shall be paid or
become payable to Executive under this Agreement unless a Change of Control, as
defined in Section 2.2, occurs.

      2.2 CERTAIN DEFINITIONS. For purposes of this Agreement:

            2.2.1 A "Change of Control" shall mean any one or more of the
following:

                  2.2.1.1 As a result of a tender offer, stock purchase, other
            stock acquisition, merger, consolidation, recapitalization, reverse
            split, sale or transfer of any asset or other transaction any person
            or group (as such terms are used in and under Section 13(d) of the
            Securities Exchange Act of 1934 (the "Exchange Act")) other than the
            Company, any affiliate, or any employee benefit plan of the Company
            or an affiliate, shall become the beneficial owner (as defined in
            Rule 13-d under the Exchange Act) directly or indirectly of
            securities of the Company representing 20% or more of the combined
            voting power of the Company's then outstanding securities;
            providing, however, that this provision shall not apply to Peter
            McCausland ("McCausland"), unless and until McCausland, together
            with all affiliates and associates, becomes the beneficial owner of
            30% or more of the combined voting power of the Company's then
            outstanding securities;

                  2.2.1.2 Stockholders approve the consummation of any merger of
            the Company or any sale or other disposition of all or substantially
            all of its assets, if the Company's stockholders immediately before
            such transaction own, immediately after consummation of such
            transaction, equity securities (other than options and other rights
            to acquire equity securities) possessing less than 50% of the voting
            power of the surviving or acquiring corporation; or

                  2.2.1.3 A change in the majority of the individuals who
            constitute the Board occurs during any period of two years for any
            reason without the approval of at least a majority of directors in
            office at the beginning of such period.

            2.2.2 A "Potential Change of Control" shall be deemed to have
occurred if:

                                     - 2 -
<PAGE>

                  2.2.2.1 The Company enters into an agreement, the consummation
            of which would result in the occurrence of a Change of Control of
            the Company;

                  2.2.2.2 Any person (including the Company) publicly announces
            an intention to take or to consider taking actions which if
            consummated would constitute a Change of Control of the Company;

                  2.2.2.3 Any person, other than a trustee or other fiduciary
            holding securities under an employee benefit plan of the Company or
            a corporation owned, directly or indirectly, by the stockholders of
            the Company in substantially the same proportions as their ownership
            of stock of the Company, who is or becomes the beneficial owner,
            directly or indirectly, of securities of the Company representing
            10% or more of the combined voting power of the Company's then
            outstanding securities, increases his beneficial ownership of such
            securities by 5% or more of the combined voting power of the
            Company's then outstanding securities on the effective date of this
            Agreement; provided, that this Section 2.2.2.3 shall not apply to an
            increase in ownership by McCausland; or

                  2.2.2.4 The Board adopts a resolution to the effect that, for
            purposes of this Agreement, a "Potential Change of Control" has
            occurred.

            2.2.3 A "Triggering Event" means a Potential Change of Control or a
Change of Control.

      2.3 TERMINATION OF EXECUTIVE'S EMPLOYMENT ENTITLING EXECUTIVE TO BENEFITS.
A termination of Executive's employment In Connection With a Change of Control
(as hereinafter defined), for any reason set forth in this Section 2.3 shall
entitle Executive to the amounts and benefits set forth in Section 3.1. Such
termination shall be considered "In Connection With a Change of Control" if such
termination occurs (i) within three years following a Change of Control or (ii)
following a Potential Change of Control but before an actual Change of Control,
provided the Potential Change of Control results in a Change of Control within
one year following the Potential Change of Control.

            2.3.1 VOLUNTARY TERMINATION FOR GOOD REASON. Executive may notify
the Company of Executive's intention to terminate employment with the Company
for Good Reason, as hereinafter defined, In Connection With a Change of Control.
The Company shall have 30 days to cure the defects stated in such notice

                                     - 3 -
<PAGE>

that would give rise to a termination for Good Reason. If the Company has not
cured all such defects at the end of that 30-day period, Executive may terminate
employment with the Company effective, for purposes of this Agreement, as of the
date that Executive provided notice to the Company pursuant to the first
sentence of this Section 2.3.1, and Executive shall be entitled to the amounts
and benefits set forth in Section 3.1. For purposes of this Agreement, "Good
Reason" shall mean any of the following:

                  2.3.1.1 Any change in Executive's total compensation and
            benefits package from the Company that, in the aggregate, materially
            decreases Executive's total compensation. Such changes include, but
            are not limited to, a decrease in Executive's annual base salary, a
            decrease in any incentive compensation opportunity, a decrease in
            any material benefit plan, program or policy in which Executive is
            participating at the time of a Triggering Event, or the taking of
            any action by the Company that would adversely affect Executive's
            participation in or materially reduce Executive's opportunity to
            receive benefits under any such benefit plan, program or policy or
            that would deprive Executive of any material fringe benefit enjoyed
            by Executive at the time of a Triggering Event; provided, however,
            that no single decrease shall be determinative, but rather the
            aggregate of all such decreases and any increases in compensation or
            benefits shall determine whether there has been a material decrease
            in Executive's total compensation and benefits package; or

                  2.3.1.2 Executive's relocation to any location more than 35
            miles from the location at which Executive performed his duties
            prior to a Triggering Event, except for required travel by Executive
            on the Company's business to an extent substantially consistent with
            Executive's business travel obligations prior to a Triggering Event.

            2.3.2 INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. If the Company
terminates Executive's employment other than for Cause, as defined in Section
2.4, In Connection With a Change of Control, Executive shall be entitled to the
amounts and benefits set forth in Section 3.1.

      2.4 CAUSE DEFINED. Executive's termination of employment with the Company
shall be for "Cause" if one or more of the following events occur:

            2.4.1 Executive's willful misconduct or gross negligence in the
performance of Executive's duties;

                                     - 4 -
<PAGE>

            2.4.2 Executive's commission of any act of fraud or embezzlement
against the Company or Executive's commission of a felony or any other offense
involving moral turpitude; or

            2.4.3 Executive's unauthorized dissemination of confidential
information, observations, and data concerning the business plans, financial
data, customer lists, trade secrets and acquisitions strategies of the Company
and its subsidiaries which has a material adverse effect on the Company or its
subsidiaries.

      2.5 NO OTHER AMOUNTS PAYABLE. Except as provided in Section 2.3, no
amounts or benefits shall be paid or become payable to Executive under this
Agreement.

                             ARTICLE III - BENEFITS

      3.1 BENEFITS. If Executive's employment with the Company terminates in a
manner described in Section 2.3, the Company shall pay Executive the following
amounts and provide to Executive the following benefits, subject to Sections
3.3:

            3.1.1 CASH PAYMENT. As soon as practicable, but not later than 60
days following the later of (i) Executive's termination of employment, or (ii)
the Change of Control, the Company shall make a lump sum payment to Executive
equal to three times the sum of (x) and (y), as described immediately hereafter.
For this purpose, (x) equals the greater of Executive's annual base salary as in
effect (a) immediately prior to Executive's termination, or (b) at the time a
Triggering Event occurred, and (y) equals the potential bonus amount determined
for Executive under the Company's bonus plan for the fiscal year of the Company
in which a Triggering Event occurred (or, if no such bonus amount has been
determined for any such fiscal year, the immediately preceding fiscal year of
the Company) as if 100% of plan established pursuant to such bonus plan were
achieved and the maximum level of the discretionary portion were achieved.

            3.1.2 HEALTH AND WELFARE BENEFITS. For a period of three years
following Executive's termination of employment, the Company shall continue to
provide Executive with medical, dental, prescription drug, life, accidental
death, and disability (short-term and long-term) insurance benefits at the same
level and cost to Executive as were in effect immediately prior to Executive's
termination. If the Executive's employment terminates after a Potential Change
of Control and no Change of Control occurs within one year of the Potential
Change of Control, such benefits shall continue only until the expiration of
such one-year period. However,

                                     - 5 -
<PAGE>

the above benefits shall terminate if Executive is entitled to comparable
coverage from a subsequent employer, to the extent permitted under Code section
4980B. The Executive and his dependents shall continue to receive or be eligible
for benefits under the Company's Scholarship and Tuition Reimbursement Programs
as if the Executive remained employed by the Company for the remainder of the
relevant academic year(s) in which the Executive's employment terminates.

            3.1.3 STOCK OPTIONS AND RESTRICTED STOCK. All stock options and
restricted stock grants awarded to Executive under any stock option or stock
grant plans of the Company shall become fully vested upon a Change of Control
and, notwithstanding any provision of any such option plan to the contrary, any
stock option shall remain exercisable until that option's expiration date,
determined without regard to Executive's termination of employment.

      3.2 REDUCTION OF BENEFITS.

            3.2.1 REDUCED PAYMENT. If any payment or benefit provided to
Executive by the Company pursuant to this Agreement or otherwise (the "Payment")
shall be determined to be an "Excess Parachute Payment," (as defined in Code
section 280G(b)(1)), that would be subject to the excise tax imposed by Code
Section 4999, then the aggregate present value of amounts or benefits payable to
Executive pursuant to this Agreement (the "Agreement Payments") shall be reduced
(but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an
amount expressed in present value that maximizes the aggregate present value of
Agreement Payments without causing any payments or benefits hereunder to be an
Excess Parachute Payment. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any payment from the
Company to Executive that is not an Agreement Payment would nevertheless be an
Excess Parachute Payment, then the aggregate present value of Payments that are
not Agreement Payments shall also be reduced (but not below zero) to an amount,
if any, if the present value of such lesser amount maximizes the aggregate
present value of Payments to Executive on an after-tax basis, taking into
account income and excise taxes under section 1 and section 4999 of the Code.
For purposes of this Section 3.2 present value shall be determined in accordance
with section 280G(d)(4) of the Code.

            3.2.2 DETERMINATION OF AGREEMENT PAYMENTS. All determinations
required under this Section 3.2 shall be made by a national accounting firm
retained by the Company at its own expense. The accounting firm shall provide
the Company and the Executive with a report and supporting calculations within
15 business days of the date Executive's employment with the Company terminates
or such earlier time as is requested by the Company. In addition, the accounting
firm

                                     - 6 -
<PAGE>

shall provide an opinion to Executive that the Executive has substantial
authority not to report any excise tax on Executive's federal income tax return
with respect to the Agreement Payments. Any such determination by the accounting
firm shall be binding upon the Company and Executive. Executive shall determine
which and how much of the Agreement Payments or Payments, as the case may be,
shall be eliminated or reduced consistent with the requirements of this Section
3.2, provided that, if Executive does not make such determination within 10
business days of the receipt of the calculations from the accounting firm, the
Company shall elect which and how much of the Agreement Payments or Payments, as
the case may be, shall be eliminated or reduced consistent with the requirements
of this Section 3.2 and shall notify Executive promptly of such election. Within
10 business days thereafter, the Company shall pay to or distribute to or for
the benefit of Executive such amounts are then due to Executive under this
Agreement.

      3.3 DEFERRAL OF BENEFITS. If the Company, based on written advice of
reputable counsel, a copy of which shall be provided to Executive, determines
that in the aggregate any benefit or payment under this Agreement and under any
other arrangement or agreement between the Company and Executive would not be
deductible for federal income taxes by the Company solely as a result of the
application of section 162(m) of the Code, the payment of any amounts otherwise
payable under this Agreement in the then current year shall be reduced, but not
below zero, by the amount of any such non-deductible amounts. The Company shall
pay the entire non-deductible amount to Executive at the earliest possible time
or times that such amounts (or portions thereof) may be paid to Executive
without such amounts being non-deductible under Code section 162(m), along with
interest accrued on such amounts since the date they would have been payable but
for this Section 3.3 calculated at the applicable federal short-term rate. If
any other agreement between the Company and Executive provides for the deferral
of payments from the Company to Executive solely as a result of the application
of Code section 162(m), the deferral provisions in this Agreement shall prevail
and all deferrals shall be made from amounts payable under Section 3.1 of this
Agreement before any amounts may be deferred under any other arrangements solely
as a result of the application of Code section 162(m).

      3.4 WITHHOLDING TAXES. The Company shall withhold from any payments or
benefits made under this Agreement all applicable federal, state and local
income and employment taxes, as well as any other amounts required to be
withheld under any law.

      3.5 FUNDING.

            3.5.1 REQUIRED FUNDING. The Company shall not be required to

                                     - 7 -
<PAGE>

fund in advance the amounts and benefits payable under this Agreement until a
Triggering Event occurs. Upon the occurrence of a Triggering Event, the Company
shall immediately contribute an amount to an irrevocable grantor trust, of which
Executive is the beneficiary and a third-party is the trustee (a "Trust"), equal
to 120% of the amounts that could become payable to Executive under this
Agreement.

            3.5.2 STANDSTILL AGREEMENTS. Notwithstanding Section 3.5.1, if a
transaction is approved by the Board, including one that would constitute a
Change of Control, and the transaction is accompanied by a Board approved
standstill agreement that provides for (i) no further acquisition of Company
securities by the shareholder(s) entering into the agreement and (ii) management
autonomy for the Company's management at the time the agreement is executed (a
"Standstill Agreement"), the Board shall determine whether to contribute amounts
to a Trust to fund benefits payable under this Agreement at the time the
Standstill Agreement is executed. The Company shall fund such a Trust, however,
if after such a transaction and the execution of a Standstill Agreement (i) the
terms of the Standstill Agreement, including the management autonomy provision,
are violated or (ii) the Company terminates any of its executive officers
without Cause, as defined in Section 2.4. If a Trust is to be funded under this
Section 3.5.2, the Company shall immediately contribute an amount to the Trust
equal to 120% of the amounts that could become payable to Executive under this
Agreement.

            3.5.3 PAYMENTS FROM TRUST AND REVERSIONS. To the extent any
provision of this Agreement provides for a payment from the Company to
Executive, the Company may direct the trustee of a Trust created pursuant to
this Section 3.5 to make such payment to the extent that any remaining assets in
the Trust are reasonably expected to be sufficient for any additional amounts or
benefits that may be due Executive from the Company under this Agreement. No
amount in a Trust may revert to the Company until 90 days after the expiration
of the Term of this Agreement. Notwithstanding the above, (i) if the Triggering
Event causing a Trust to be funded under Section 3.5.1 is a Potential Change of
Control and no Change of Control occurs within one year of the Potential Change
of Control, amounts in the Trust may revert to the Company at the expiration of
such one-year period, and (ii) if Executive has brought a lawsuit against the
Company claiming amounts or benefits under this Agreement, no amounts from the
Trust shall revert to the Company while such claim is pending.

      3.6 LEGAL EXPENSES. If Executive determines in good faith to retain legal
counsel and/or to incur other reasonable costs or expenses in order to enforce
any or all of Executive's rights under this Agreement, the Company shall pay all
such attorneys' fees, costs and expenses incurred in connection with
non-frivolous applications to interpret or enforce Executive's rights. In
addition, during the

                                     - 8 -
<PAGE>

pendency of any such controversy or claim, the Company will continue to pay
Executive, with the customary frequency, the greater of Executive's base pay as
in effect immediately prior to the Triggering Event or immediately prior to
Executive's termination of employment, and, to the extent permitted under law,
to provide the Executive with the same benefits Executive was receiving
immediately prior to the Triggering Event until the controversy or claim finally
is resolved. These payments and the provision of benefits hereunder shall be in
addition to, and not in derogation or mitigation of any other payment or benefit
due Executive under this Agreement.

      3.7 NO DUTY OF MITIGATION. The Executive shall have no duty to seek new
employment after his employment with the Company terminates or to take any other
actions which could reduce the amounts the Company is obligated to pay or reduce
the benefits the Company is required to provide under this Agreement.

                           ARTICLE IV - MISCELLANEOUS

      4.1 MODIFICATION OF THIS AGREEMENT. Executive acknowledges and agrees that
no one employed by or representing the Company has any authority to make oral
statements which modify, waive or discharge, in any manner, any provision of
this Agreement. Executive further acknowledges and agrees that no provision of
this Agreement may be modified, waived or discharged unless agreed to in
writing, and signed and executed by Executive and the Board, or its delegate.
Executive acknowledges and agrees that in executing this Agreement Executive has
not relied upon any representation or statement made by the Company or its
representatives, other than those specifically stated in this Agreement.

      4.2 NOTICES. All notices required or permitted hereunder shall be made in
writing by hand-delivery, certified or registered first-class mail, facsimile
transmission or air courier guaranteeing overnight delivery to the other party
at the following addresses:

      To Company:       Airgas, Inc.
                        259 N. Radnor-Chester Road
                        Radnor, PA 19087-8675
                        Attention: Corporate Secretary

      To Executive:     Peter McCausland
                        612 E. Gravers Lane
                        Wyndmoor, PA 19038

or to such other address as either of such parties may designate in a written
notice

                                     - 9 -
<PAGE>

served upon the other party in the manner provided herein. All notices required
or permitted hereunder shall be deemed duly given and received when delivered by
hand, if personally delivered; on the fifth day next succeeding the date of
mailing if sent by certified or registered first-class mail, when received if
sent by facsimile transmission, and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.

      4.3 EMPLOYMENT STATUS. Unless an agreement between the Company and the
Executive provides otherwise, the Company and Executive acknowledge that,
notwithstanding this Agreement, the employment of Executive by the Company is
"at will," and the Company may terminate Executive's employment with the Company
at any time, although certain terminations as specified in Article II will
entitle Executive to amounts and benefits from the Company.

      4.4 OTHER ARRANGEMENTS NOT AFFECTED. Except as otherwise provided herein,
this Agreement shall not have any effect on any other benefit plan, arrangement
or agreement under which Executive currently participates, has in the past
participated, or may in the future participate.

      4.5 APPLICABLE LAW. The parties have agreed that this Agreement shall be
governed by, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania without giving effect to conflict of law
principles.

      4.6 HEADINGS. The headings used throughout this Agreement have been used
for convenience only and do not constitute matter to be considered in
interpreting this Agreement.

                                     - 10 -
<PAGE>

            IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the dates indicated below:

Peter McCausland                                AIRGAS, INC.

Signature: /S/ Peter McCausland                 By: /S/ Scott M. Melman
                                                    Scott M. Melman

Date: March 19, 1999                            Title: Chief Financial Officer

                                                Date: March 19, 1999

                                     - 11 -

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