Document:

pten-ex101_14.htm

Exhibit 10.1

PATTERSON-UTI ENERGY, INC.

2014 LONG-TERM INCENTIVE PLAN

(As Amended and Restated Effective June 29, 2017)

Patterson-UTI Energy, Inc. (the “Company”), a Delaware corporation, hereby establishes and adopts the following 2014 Long-Term Incentive Plan, as amended and restated effective as of June 29, 2017 (the “Plan”).

1.PURPOSE OF THE PLAN

The purpose of the Plan is to assist the Company and its Subsidiaries in attracting and retaining selected individuals to serve as directors, employees, consultants and/or advisors of the Company who are expected to contribute to the Company’s success and to achieve long-term objectives which will inure to the benefit of all stockholders of the Company through the additional incentives inherent in the Awards hereunder.

2.DEFINITIONS

2.1“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Performance Award, Other Stock Unit Award or any other right, interest or option relating to Shares or other property (including cash) granted pursuant to the provisions of the Plan.

2.2“Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted by the Committee hereunder.

2.3“Board” shall mean the board of directors of the Company.

2.4“Change of Control of the Company” shall mean the occurrence of any of the following:

	
 
	
i
	
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) (a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (A) the then outstanding shares of the common stock of the Company (the “Outstanding Company Common Stock”), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i) of this Section 2.4, the following acquisitions shall not constitute a Change of Control of the Company: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2.4; or

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ii
	
Individuals who, as of the effective date of the Plan, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Covered Person other than the Board; or

	
 
	
iii
	
Consummation of (xx) a reorganization, merger or consolidation or sale of the Company or any subsidiary of the Company, or (yy) a disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, direct or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Covered Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or, if earlier, of the action of the Board, providing for such Business Combination.

2.5“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

2.6“Committee” shall mean the Compensation Committee of the Board, consisting of no fewer than two Directors, each of whom is (i) a “Non-Employee Director” within the meaning of Rule 16b-3 of the Exchange Act, (ii) an “outside director” within the meaning of Section 

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162(m) of the Code, and (iii) an “independent director” for purpose of the rules and regulations of the Nasdaq Stock Market.

2.7“Covered Employee” shall mean a “covered employee” within the meaning of Section 162(m) of the Code.

2.8“Director” shall mean a non-employee member of the Board.

2.9“Dividend Equivalents” shall have the meaning set forth in Section 12.6.

2.10“Employee” shall mean any employee of the Company or any Subsidiary and any prospective employee conditioned upon, and effective not earlier than, such person’s becoming an employee of the Company or any Subsidiary.  Solely for purposes of the Plan, an Employee shall also mean any consultant or advisor who provides services to the Company or any Subsidiary, so long as such person (i) renders bona fide services that are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and (ii) does not directly or indirectly promote or maintain a market for the Company’s securities.

2.11“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

2.12“Fair Market Value” shall mean, with respect to any property other than Shares, the market value of such property determined by such methods or procedures as shall be established from time to time by the Committee.  The Fair Market Value of Shares as of any date shall be the per Share closing price of the Shares as reported on the Nasdaq Stock Market on that date (or if there were no reported prices on such date, on the last preceding date on which the prices were reported) or, if the Company is not then listed on the Nasdaq Stock Market, on the principal national securities exchange on which the Company is listed, and if the Company is not then listed on the Nasdaq Stock Market or any national securities exchange, the Fair Market Value of Shares shall be determined by the Committee in its sole discretion using appropriate criteria. 

2.13“Freestanding Stock Appreciation Right” shall have the meaning set forth in Section 6.1.

2.14“Limitations” shall have the meaning set forth in Section 10.5.

2.15“Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine.

2.16“Other Stock Unit Award” shall have the meaning set forth in Section 8.1.

2.17“Participant” shall mean an Employee or Director who is selected by the Committee to receive an Award under the Plan.

2.18“Payee” shall have the meaning set forth in Section 13.1.

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2.19“Performance Award” shall mean any Award of Performance Shares or Performance Units granted pursuant to Article 9.

2.20“Performance Period” shall mean that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are to be measured.

2.21“Performance Share” shall mean any grant pursuant to Section 9 of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.

2.22“Performance Unit” shall mean any grant pursuant to Section 9 of a unit valued by reference to a designated amount of property (including cash) other than Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.

2.23“Permitted Assignee” shall have the meaning set forth in Section 12.3.

2.24“Prior Plans” shall mean, collectively, the Company’s Amended and Restated 1997 Long-Term Incentive Plan and the 2005 Long-Term Incentive Plan, as amended.

2.25“Restricted Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee, in its sole discretion, may impose (including any restriction on the right to vote such Share and the right to receive any dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate in its sole discretion.

2.26“Restriction Period” shall have the meaning set forth in Section 7.1.

2.27“Restricted Stock Award” shall have the meaning set forth in Section 7.1. 

2.28“Shares” shall mean the shares of common stock of the Company, par value $.01 per share.

2.29“Stock Appreciation Right” shall mean the right granted to a Participant pursuant to Section 6.

2.30“Subsidiary” shall mean any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a proprietary interest of more than fifty percent (50%) by reason of stock ownership or otherwise.

2.31“Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or 

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obligation to make future awards, by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.

2.32“Tandem Stock Appreciation Right” shall have the meaning set forth in Section 6.1.

3.SHARES SUBJECT TO THE PLAN

3.1Number of Shares.  (a)  Subject to adjustment as provided in Section 12.2 and this Section 3.1, the total number of Shares authorized for grant under the Plan shall be 28,400,000.  Any Shares that are subject to Awards of Options or Stock Appreciation Rights, whether granted under the Prior Plans or under the Plan shall be counted against this limit as one (1) Share for every one (1) Share granted.  Any Shares that are subject to Awards other than Options or Stock Appreciation Rights awarded under the Prior Plans during the period commencing on January 1, 2014 and ending on April 17, 2014 shall be counted against this limit as one and 35 one-hundredths (1.35) Shares for every one (1) Share awarded.  Any Shares that are subject to Awards other than Options or Stock Appreciation Rights awarded under the Plan following April 17, 2014 shall be counted against this limit as two (2) Shares for every one (1) Share awarded. 

(b)If any Shares subject to an Award or to an award under the Prior Plans are forfeited, expire or otherwise terminate without issuance of such Shares, or any Award or award under the Prior Plans is settled for cash or otherwise does not result in the issuance of all or a portion of the Shares subject to such Award, the Shares shall, to the extent of such forfeiture, expiration, termination, cash settlement or non-issuance, again be available for Awards under the Plan, subject to Section 3.1(d) below.  Notwithstanding the foregoing, the following Shares shall not become available for grant under the Plan: (i) Shares subject to an Award are used to exercise Options, are not issued upon the settlement of a Stock Appreciation Right, or are withheld by the Company for income or employment taxes on exercise of an Option or Stock Appreciation Right or (ii) Shares repurchased on the open market with the proceeds of the Option exercise price.  

(c)Substitute Awards shall not reduce the Shares authorized for grant under the Plan or authorized for grant to a Participant in any calendar year.  Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided that Awards using such available shares shall only be made (i) until the last date that awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and (ii) to individuals who were not Employees or Directors prior to such acquisition or combination.  

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(d)Any Shares that again become available for grant pursuant to this Article shall be added back (x) as one (1) Share if such Shares were subject to Options or Stock Appreciation Rights granted under the Prior Plans or the Plan, (y) as one and thirty-five one hundredths (1.35) Shares if such Shares were subject to Awards other than Options or Stock Appreciation Rights that were granted under Prior Plans during the period commencing on January 1, 2014 and ending on April 17, 2014 or (z) as two (2) Shares if such Shares were subject to Awards other than Options or Stock Appreciation Rights that were granted under the Plan or the Prior Plans following April 17, 2014.

3.2Character of Shares.  Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased in the open market or otherwise.  

3.3Minimum Vesting for Awards. Subject to Section 12.1, all Awards shall provide for vesting based on employment or service which is at least one year from the date of grant, and there shall be no acceleration of vesting of an Award to vest more rapidly than one year from the date of grant, other than in the event of an earlier death, disability or retirement of the Participant or a Change of Control referred to in Article 11. Notwithstanding the foregoing, Awards with respect to up to five percent (5%) of the Shares authorized for grant pursuant to this Plan may be issued pursuant to Awards without regard to the limitations of this Section 3.3.

4.ELIGIBILITY AND ADMINISTRATION

4.1Eligibility.  Any Employee or Director shall be eligible to be selected as a Participant.

4.2Administration.  (a) The Plan shall be administered by the Committee.  The Committee shall have full power and authority, subject to the provisions of the Plan and subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to, in its sole discretion,: (i) select the Employees and Directors to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Awards, not inconsistent with the provisions of the Plan, to be granted to each Participant hereunder; (iii) determine the number of Shares to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the provisions of the Plan, of any Award granted hereunder; (v) determine whether, to what extent and under what circumstances Awards may be settled in cash, Shares or other property, subject to Section 8.1; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other property and other amounts payable with respect to an Award made under the Plan shall be deferred either automatically or at the election of the Participant; (vii) determine whether, to what extent and under what circumstances any Award shall be canceled or suspended; (viii) interpret and administer the Plan and any instrument or agreement entered into under or in connection with the Plan, including any Award Agreement; (ix) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent that the Committee shall deem desirable to carry it into effect; (x) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (xi) determine whether any Award (other than Options or Stock Appreciation Rights) will have Dividend Equivalents; and (xii) make any other determination and take any other action that the 

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Committee deems necessary or desirable for administration of the Plan.  Notwithstanding the foregoing, the Board shall have the same powers as the Committee with respect to Awards to Directors.

(b)Decisions of the Committee shall be final, conclusive and binding on all persons or entities, including the Company, any Participant, and any Subsidiary.  A majority of the members of the Committee may determine its actions and fix the time and place of its meetings.

(c)To the extent not inconsistent with applicable law, including Section 162(m) of the Code, or the rules and regulations of the Nasdaq Stock Market (or any other principal national securities exchange on which the Company is then listed), the Committee may delegate to a committee of one or more directors of the Company or, to the extent permitted by law, to one or more executive officers or a committee of executive officers the right to grant Awards to Employees who are not Directors or executive officers of the Company and the authority to take action on behalf of the Committee pursuant to the Plan to cancel or suspend Awards to Employees who are not Directors or executive officers of the Company; provided, however, (i) the resolution providing such authorization sets forth the total number of Awards such officer(s) may grant; and (ii) the officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority delegated.

5.OPTIONS

5.1Grant of Options.  Options may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan; provided that incentive stock options may be granted only to eligible Employees of the Company or of any parent or subsidiary corporation (as permitted by Section 422 of the Code and the regulations thereunder).  Any Option shall be subject to the terms and conditions of this Article and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine in its sole discretion.

5.2Award Agreements.  All Options granted pursuant to this Article shall be evidenced by a written Award Agreement in such form and containing such terms and conditions as the Committee shall determine which are not inconsistent with the provisions of the Plan.  The terms of Options need not be the same with respect to each Participant.  Granting of an Option pursuant to the Plan shall impose no obligation on the recipient to exercise such Option.  Any individual who is granted an Option pursuant to this Article may hold more than one Option granted pursuant to the Plan at the same time.  The Award Agreement also shall specify whether the Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code.

5.3Option Price.  Other than in connection with Substitute Awards or an adjustment in connection with Section 12.2, the option price per each Share purchasable under any Option granted pursuant to this Article shall not be less than 100% of the Fair Market Value of such Share on the date of grant of such Option.

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5.4Option Term.  The term of each Option shall be fixed by the Committee in its sole discretion; provided that no Option shall be exercisable after the expiration of ten years from the date the Option is granted.

5.5Exercise of Options.  Vested Options granted under the Plan shall be exercised by the Participant or by a Permitted Assignee thereof (or by the Participant’s executors, administrators, guardian or legal representative, as may be provided in an Award Agreement) as to all or part of the Shares covered thereby, by the giving of written notice of exercise to the Company or its designated agent, specifying the number of Shares to be purchased, accompanied by payment of the full purchase price for the Shares being purchased.  Unless otherwise provided in an Award Agreement, full payment of such purchase price shall be made at the time of exercise and shall be made (a) in cash or cash equivalents (including certified check or bank check or wire transfer of immediately available funds), (b) by tendering previously acquired Shares (either actually or by attestation, valued at their then Fair Market Value) that have been owned for a period of at least six months (or such other period to avoid accounting charges against the Company’s earnings), (c) with the consent of the Committee, by delivery of other consideration (including, where permitted by law and the Committee, other Awards) having a Fair Market Value on the exercise date equal to the total purchase price, (d) with the consent of the Committee, by withholding Shares otherwise issuable in connection with the exercise of the Option, (e) through any other method specified in an Award Agreement, or (f) any combination of any of the foregoing.  The notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Committee may from time to time direct, and shall be in such form, containing such further provisions consistent with the provisions of the Plan, as the Committee may from time to time prescribe.  In no event may any Option granted hereunder be exercised for a fraction of a Share.  No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

5.6Form of Settlement.  In its sole discretion, the Committee may provide, at the time of grant, that the Shares to be issued upon an Option’s exercise shall be in the form of Restricted Stock or other similar securities, or may reserve the right to provide so after the time of grant.

5.7Vesting.  Except for certain limited situations (including the death, disability or retirement of the Participant or a Change of Control referred to in Article 11), Options shall vest over a period of not less than (i) one year from date of grant for Directors or (ii) three years from the date of grant for Employees; provided that, subject to the limitations set forth in Section 3.3, such vesting shall not be required for any grants to new hires or with respect to any Substitute Awards.  Subject to Section 3.3, Options may vest ratably over such vesting periods in any increments, including but not limited to annual increments, quarterly increments, monthly increments, or a combination thereof; provided, however, that such incremental vesting shall not be permitted prior to the first anniversary of the date of grant.  The vesting schedule shall be set forth in the Award Agreement.

5.8Incentive Stock Options.  The Committee may grant Options intended to qualify as “incentive stock options” as defined in Section 422 of the Code, to any employee of the Company or any Subsidiary, subject to the requirements of Section 422 of the Code.  Notwithstanding anything in Section 3.1 to the contrary and solely for the purposes of 

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determining whether Shares are available for the grant of “incentive stock options” under the Plan, the maximum aggregate number of Shares with respect to which “incentive stock options” may be granted under the Plan shall be the number of Shares authorized for grant under Section 3.1.

5.9No Repricing.  Notwithstanding anything in the Plan to the contrary, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be amended without stockholder approval to (i) reduce the option price of outstanding Options, (ii) cancel outstanding Options in exchange for cash, other awards or Options with an option price that is less than the option price of the original Options, (iii) take any other action with respect to an Option that would be treated as a repricing under the rules and regulations of the principal national securities exchange on which they are listed or (iv) permit the grant of any Options that contains a so-called “reload” feature under which additional Options or other Awards are granted automatically to the Participant upon exercise of the original Option.

6.STOCK APPRECIATION RIGHTS

6.1Grant and Exercise.  The Committee may provide Stock Appreciation Rights (a) in conjunction with all or part of any Option granted under the Plan (“Tandem Stock Appreciation Right”), (b) in conjunction with all or part of any Award (other than an Option) granted under the Plan, or (c) without regard to any Option or other Award (a “Freestanding Stock Appreciation Right”), in each case upon such terms and conditions as the Committee may establish in its sole discretion.

6.2Terms and Conditions.  Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following: 

(a)Except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2, the grant price of a Stock Appreciation Right shall not be less than the Fair Market Value of one Share on such date of grant of the right.  Upon the exercise of a Stock Appreciation Right, the holder shall have the right to receive the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the right on the date of grant.

(b)Upon the exercise of a Stock Appreciation Right, payment shall be made in the sole discretion of the Committee in (i) whole Shares, (ii) cash or (iii) a combination of (i) or (ii).

(c)Any Tandem Stock Appreciation Right shall be granted at the same time as the related Option is granted.  

(d)Any Tandem Stock Appreciation Right related to an Option may be exercised only when the related Option would be exercisable and the Fair Market Value of the Shares subject to the related Option exceeds the option price at which Shares can be 

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acquired pursuant to the Option.  In addition, (i) if a Tandem Stock Appreciation Right exists with respect to less than the full number of Shares covered by a related Option, then an exercise or termination of such Option shall not reduce the number of Shares to which the Tandem Stock Appreciation Right applies until the number of Shares then exercisable under such Option equals the number of Shares to which the Tandem Stock Appreciation Right applies, and (ii) no Tandem Stock Appreciation Right granted under the Plan to a person then subject to Section 16 of the Exchange Act shall be exercised during the first six months of its term for cash, except as provided in Article 11.

(e)Any Option related to a Tandem Stock Appreciation Right shall no longer be exercisable to the extent the Tandem Stock Appreciation Right has been exercised.

(f)The provisions of Stock Appreciation Rights need not be the same with respect to each recipient.  

(g)Subject to Section 12.2, a Freestanding Stock Appreciation Right shall have the same terms and conditions as Options, including (i) an exercise price not less than Fair Market Value on the date of grant, (ii) a term not greater than ten years, and (iii) not being exercisable before the expiration of (1) one year from the date of grant to a Director or (2) three years from the date of grant to an Employee, except for, subject to the limitations set forth in Section 3.3, grants to new hires or Substitute Awards, under circumstances contemplated by Article 11 or as may be set forth in an Award Agreement with respect to (x) retirement, death or disability of a Participant or (y) special circumstances determined by the Committee, such as the achievement of performance objectives.  Subject to Section 3.3, Stock Appreciation Rights may vest ratably over such vesting periods in any increments, including but not limited to annual increments, quarterly increments, monthly increments, or a combination thereof; provided, however, that such incremental vesting shall not be permitted prior to the first anniversary of the date of grant.  In addition to the foregoing, but subject to Section 12.2, the base amount of any Stock Appreciation Right shall not be reduced after the date of grant.

(h)The Committee may impose such terms and conditions on Stock Appreciation Rights granted in conjunction with any Award (other than an Option) as the Committee shall determine in its sole discretion.

6.3No Repricing.  Notwithstanding anything in the Plan to the contrary, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding awards may not be amended without stockholder approval to (i) reduce the exercise price of outstanding Stock Appreciation Rights, (ii) cancel outstanding Stock Appreciation Rights in exchange for cash, other awards or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Stock Appreciation Rights (iii) take any other action with respect to the Stock Appreciation Rights that would be treated as a repricing under the rules and regulations of the principal national securities exchange on which they are listed or (iv) permit the grant of any Stock Appreciation Rights that contains a so-called “reload” feature 

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under which additional Stock Appreciation Rights or other Awards are granted automatically to the Participant upon exercise of the original Stock Appreciation Rights.

7.RESTRICTED STOCK AWARDS

7.1Grants.  Awards of Restricted Stock may be issued hereunder to Participants either alone or in addition to other Awards granted under the Plan (a “Restricted Stock Award”), and such Restricted Stock Awards shall also be available as a form of payment of Performance Awards and other earned cash-based incentive compensation.  A Restricted Stock Award shall be subject to restrictions imposed by the Committee covering a period of time specified by the Committee (the “Restriction Period”).   The Committee has sole discretion to determine whether any consideration (other than services) is to be received by the Company or any Subsidiary as a condition precedent to the issuance of Restricted Stock.

7.2Award Agreements.  The terms of any Restricted Stock Award granted under the Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan.  The terms of Restricted Stock Awards need not be the same with respect to each Participant.

7.3Rights of Holders of Restricted Stock.  Beginning on the date of grant of the Restricted Stock Award and subject to execution of the Award Agreement, the Participant shall become a shareholder of the Company with respect to all Shares subject to the Award Agreement and shall have all of the rights of a shareholder, including the right to vote such Shares and the right to receive distributions made with respect to such Shares unless otherwise provided in such Award Agreement; provided, however, that any Shares, any other property, or cash distributed as a dividend or otherwise with respect to any Restricted Stock as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Stock.

7.4Minimum Vesting Period.  Except for certain limited situations (including the death, disability or retirement of the Participant, or a Change of Control referred to in Article 11), or special circumstances determined by the Committee (such as the achievement of performance objectives) Restricted Stock Awards subject solely to continued employment restrictions of Employees shall have a Restriction Period of not less than three years from date of grant.  Subject to Section 3.3, Restricted Stock Awards may vest ratably over such vesting period in any increments, including but not limited to annual increments, quarterly increments, monthly increments, or a combination thereof; provided, however, that such incremental vesting shall not be permitted prior to the first anniversary of the date of grant.  Notwithstanding the foregoing, subject to the limitations set forth in Section 3.3, the provisions of this Section shall not be applicable to any grants to new hires, Substitute Awards or grants of Restricted Stock in payment of Performance Awards and other earned cash-based incentive compensation or grants to Directors.  Subject to the foregoing three-year minimum vesting requirement, the Committee may, in its sole discretion and subject to the limitations imposed under Section 162(m) of the Code and the regulations thereunder in the case of a Restricted Stock Award intended to comply with the performance-based exception under Section 162(m) of the Code, waive the forfeiture period and any other conditions set forth in any Award Agreement subject to such terms and conditions as the Committee shall deem appropriate in its sole discretion.  The maximum aggregate number of Shares with respect to which Restricted Stock Awards or Other Stock Units 

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that are subject solely to continued employment or service restrictions of Employees or directors of the Company or any Subsidiary with a Restriction Period of less than three years from date of grant (but permitting pro rata vesting over such time) shall be five percent (5%) of the number of Shares authorized for grant under Section 3.1 (as such number may be adjusted as provided in Sections 3.1 and 12.2); provided that this limit shall not be applicable to any grants to new hires, Substitute Awards or grants of Restricted Stock in payment of Performance Awards and other earned cash-based incentive compensation or grants to Directors.  Any Restricted Stock Award or portion of such award that is subject to a Restriction Period of three years or more (notwithstanding the fact that a portion of such award may vest within three years of the date of grant due to pro rata vesting over the Restriction Period) or that meets the requirements of a Performance Award under Section 9 shall not be subject to the foregoing five-percent (5%) limitation. Notwithstanding the foregoing, all Restricted Stock Awards are subject to the provisions set forth in Section 3.3.

7.5Section 83(b) Election. The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company. 

8.OTHER STOCK UNIT AWARDS

8.1Grants.  Other Awards of units having a value equal to an identical number of Shares (“Other Stock Unit Awards”) may be granted hereunder to Participants, in addition to other Awards granted under the Plan.  Other Stock Unit Awards shall also be available as a form of payment of other Awards granted under the Plan and other earned cash-based incentive compensation.

8.2Award Agreements.  The terms of Other Stock Unit Award granted under the Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan.  The terms of such Awards need not be the same with respect to each Participant.

8.3Vesting.  Except for certain limited situations (including the death, disability or retirement of the Participant or a Change of Control referred to in Article 11), Other Stock Unit Awards subject solely to continued employment restrictions of Employees shall be subject to restrictions imposed by the Committee for a period of not less than three years from date of grant.  Subject to Section 3.3, Other Stock Unit Awards may vest ratably over such vesting period in any increments, including but not limited to annual increments, quarterly increments, monthly increments, or a combination thereof; provided, however, that such incremental vesting shall not be permitted prior to the first anniversary of the date of grant.  Notwithstanding the foregoing, subject to the limitations set forth in Section 3.3, such restrictions shall not be applicable to any grants to new hires, any Substitute Awards, grants of Other Stock Unit Awards in payment of Performance Awards pursuant to Article 9 and other earned cash-based incentive compensation, or grants of Other Stock Unit Awards on a deferred basis.  The maximum aggregate number of Shares with respect to which Restricted Stock Awards or Other Stock Units that are subject solely to continued employment or service restrictions of Employees or directors 

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of the Company or any Subsidiary with a Restriction Period of less than three years from date of grant (but permitting pro rata vesting over such time) shall be five percent (5%) of the number of Shares authorized for grant under Section 3.1 (as such number may be adjusted as provided in Sections 3.1 and 12.2); provided that this limit shall not be applicable to any grants to new hires, any Substitute Awards, grants of Other Stock Unit Awards in payment of Performance Awards pursuant to Article 9 and other earned cash-based incentive compensation, or grants of Other Stock Unit Awards on a deferred basis.  Any Other Stock Unit Award or portion of such award that is subject to a Restriction Period of three years or more (notwithstanding the fact that a portion of such award may vest within three years of the date of grant due to pro rata vesting over the Restriction Period) or that meets the requirements of a Performance Award under Section 9 shall not be subject to the foregoing five-percent (5%) limitation. Notwithstanding the foregoing, all Other Stock Unit Awards are subject to the provisions set forth in Section 3.3.

8.4Payment.  Except as provided in Article 11 or as maybe provided in an Award Agreement, Other Stock Unit Awards may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee at the time of payment.  Other Stock Unit Awards may be paid in a lump sum or in installments following the lapse of the restrictions applicable to such Awards, but, unless expressly provided in an Award Agreement, no later than 21⁄2 months following the end of the calendar year in which such restrictions lapse, or in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code.

9.PERFORMANCE AWARDS

9.1Grants.  Performance Awards in the form of Performance Shares or Performance Units, as determined by the Committee in its sole discretion, may be granted hereunder to Participants, for no consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The performance goals to be achieved for each Performance Period shall be conclusively determined by the Committee and may be based upon the criteria set forth in Section 10.2.  

9.2Award Agreements.  The terms of any Performance Award granted under the Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan, including whether such Awards shall have Dividend Equivalents. The terms of Performance Awards need not be the same with respect to each Participant.

9.3Terms and Conditions.  The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee upon the grant of each Performance Award.  Performance Awards shall be subject to the vesting requirements as set forth in Section 3.3. The amount of the Award to be distributed shall be conclusively determined by the Committee.  

9.4Payment.  Except as provided in Article 11 or as may be provided in an Award Agreement, Performance Awards will be distributed only after the end of the relevant Performance Period.  Performance Awards may be paid in cash, Shares, or any combination thereof, in the sole discretion of the Committee at the time of payment.  Performance Awards 

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may be paid in a lump sum or in installments, but, unless expressly provided in an Award Agreement, no later than 21⁄2 months following the close of the calendar year that contains the end of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code.

9.5Performance Award Dividend Equivalents.  Subject to the provisions of the Plan and any Award Agreement, the Committee in its sole discretion may award currently or on a deferred basis, Dividend Equivalents with respect to the number of Shares covered by a Performance Unit or Performance Share Award, provided, that such Dividend Equivalents (if any) shall be deemed to have been reinvested in additional Shares or Units and shall provide that such Dividend Equivalents are subject to the same performance conditions as the underlying Award.

10.CODE SECTION 162(m) PROVISIONS

10.1Covered Employees.  Notwithstanding any other provision of the Plan, if the Committee determines at the time a Restricted Stock Award, a Performance Award or an Other Stock Unit Award is granted to a Participant who is, or is likely to be, as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this Article 10 is applicable to such Award.

10.2Performance Criteria.   If the Committee determines that a Restricted Stock Award, a Performance Award or an Other Stock Unit Award is subject to this Article 10, the lapsing of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of specified levels of one or any combination of the following: net sales; revenue growth; pre-tax income before allocation of corporate overhead and bonus; earnings per share; operating income, net income; division, group or corporate financial goals; return on stockholders’ equity; total stockholder return; return on assets; attainment of strategic and operational initiatives; appreciation in and/or maintenance of the price of the Shares or any other publicly-traded securities of the Company; market share; gross profits; earnings before taxes; earnings before interest and taxes; earnings before interest, taxes, depreciation, depletion and amortization; economic value-added models; comparisons with various stock market indices; reductions in costs; cash flow, cash flow per share; return on invested capital, cash flow return on investment; improvement in or attainment of expense levels or working capital levels; cash margins; safety records; and rig utilization and rig count growth.  Such performance goals also may be based solely by reference to the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies.  The Committee may also exclude the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, infrequent and unusual items, and other unusual or non-recurring charges, (b) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, or (c) the cumulative effects of tax or accounting changes in accordance with generally accepted accounting principles.  Such performance goals 

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shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, and the regulations thereunder.

10.3Adjustments.  Notwithstanding any provision of the Plan (other than Article 11), with respect to any Restricted Stock, Performance Award or Other Stock Unit Award that is subject to this Section 10, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals, except in the case of the death or disability of the Participant or as otherwise determined by the Committee in special circumstances.

10.4Restrictions.  The Committee shall have the power to impose such other restrictions on Awards subject to this Article as it may deem necessary or appropriate in its sole discretion to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m) of the Code.

10.5Limitations on Grants to Individual Participant.  Subject to adjustment as provided in Section 12.2, no Participant may be granted (i) Options or Stock Appreciation Rights during any calendar year with respect to more than 1,000,000 Shares or (ii) Restricted Stock, Performance Awards denominated in Shares and/or Other Stock Unit Awards that are denominated in Shares in any calendar year with respect to more than 500,000 Shares (the “Limitations”).  In addition to the foregoing, the maximum dollar value payable to any Participant in respect of any calendar year with respect to Performance Awards denominated in cash is $5,000,000.  For the avoidance of doubt, any Award shall only be subject to one of the applicable per person limitations set forth in the previous two sentences.  If an Award is cancelled, the cancelled Award shall continue to be counted toward the applicable Limitations.  Further, no Director may be granted during any calendar year Awards having a fair value determined on the date of grant when added to all cash compensation paid to the Director during the same calendar year in excess of $500,000.

11.CHANGE OF CONTROL PROVISIONS

Impact of Change of Control.  The terms of any Award may provide in the Award Agreement evidencing the Award that, upon a “Change of Control” of the Company, (a) Options and Stock Appreciation Rights outstanding as of the date of the Change of Control immediately vest and become fully exercisable, (b) that Options and Stock Appreciation Rights outstanding as of the date of the Change of Control may be cancelled and terminated without payment therefor if the Fair Market Value of one Share as of the date of the Change of Control is less than the per Share Option exercise price or Stock Appreciation Right grant price, (c) restrictions and deferral limitations on Restricted Stock lapse and the Restricted Stock become free of all restrictions and limitations and become fully vested, (d) all Performance Awards shall be considered to be earned and payable (either in full or pro rata based on the portion of Performance Period completed as of the date of the Change of Control), and any deferral or other restriction shall lapse and such Performance Awards shall be immediately settled or distributed to the extent permitted under Section 409A of the Code, (e) the restrictions and deferral limitations and other conditions applicable to any Other Stock Unit Awards or any other Awards shall lapse, and such Other Stock Unit Awards or such other Awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original grant to the 

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extent permitted under Section 409A of the Code, and (f) such other additional benefits as the Committee deems appropriate in its sole discretion shall apply, subject in each case to any terms and conditions contained in the Award Agreement evidencing such Award.  Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, may determine that, upon the occurrence of a Change of Control of the Company, each Option and Stock Appreciation Right outstanding shall terminate within a specified number of days after notice to the Participant, and/or that each Participant shall receive, with respect to each Share subject to such Option or Stock Appreciation Right, an amount equal to the excess, if any, of the Fair Market Value of such Share immediately prior to the occurrence of such Change of Control over the exercise price per share of such Option and/or Stock Appreciation Right; such amount to be payable in cash, in one or more kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its sole discretion, shall determine.

12.GENERALLY APPLICABLE PROVISIONS

12.1Amendment and Termination of the Plan.  The Board may, from time to time, alter, amend, suspend or terminate the Plan as it shall deem advisable in its sole discretion, subject to any requirement for stockholder approval imposed by applicable law, including the rules and regulations of the Nasdaq Stock Market (or any other principal national securities exchange on which the Company is listed) provided that the Board may not amend the Plan in any manner that would result in noncompliance with Rule 16b-3 of the Exchange Act; and further provided that the Board may not, without the approval of the Company’s stockholders, amend the Plan to (a) increase the number of Shares that may be the subject of Awards under the Plan (except for adjustments pursuant to Section 12.2), (b) expand the types of awards available under the Plan, (c) materially expand the class of persons eligible to participate in the Plan, (d) amend any provision of Section 5.9, (e) increase the maximum permissible term of any Option specified by Section 5.4, (f) amend any provision of Section 6.3 or (g) amend any provision of Section 10.5.  In addition, no amendments to, or termination of, the Plan shall in any way impair the rights of a Participant under any Award previously granted without such Participant’s consent.

12.2Adjustments.  In the event of any merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property, other than a regular cash dividend), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Shares or the value thereof, such adjustments and other substitutions shall be made to the Plan and to Awards as the Committee, in its sole discretion, deems equitable or appropriate, including such adjustments in the aggregate number, class and kind of securities that may be delivered under the Plan and, in the aggregate or to any one Participant, in the number, class, kind and option or exercise price of securities subject to outstanding Awards granted under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company) as the Committee may determine to be appropriate in its sole discretion; provided, however, that the number of Shares subject to any Award shall always be a whole number.  No adjustment or substitution pursuant to this Section 12.2 shall be made in a manner that results in noncompliance with the requirements of Section 409A of the Code, to the extent applicable.

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12.3Transferability of Awards.  Except as provided below, no Award and no Shares subject to Awards described in Article 8 that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution or pursuant to a domestic relations order, as determined by the Committee, and such Award may be exercised during the life of the Participant only by the Participant or the Participant’s guardian or legal representative.  Notwithstanding the foregoing, a Participant may assign or transfer an Award with the consent of the Committee (i) for charitable donations; (ii) to the Participant’s spouse, children or grandchildren (including any adopted and stepchildren and grandchildren), or (iii) a trust for the benefit of one or more of the Participants or the persons referred to in clause (ii) (each transferee thereof, a “Permitted Assignee”); provided that such Permitted Assignee shall be bound by and subject to all of the terms and conditions of the Plan and the Award Agreement relating to the transferred Award and shall execute an agreement satisfactory to the Company evidencing such obligations; and provided further that such Participant shall remain bound by the terms and conditions of the Plan.  The Company shall cooperate with any Permitted Assignee and the Company’s transfer agent in effectuating any transfer permitted under this Section.  Notwithstanding the foregoing, no Incentive Stock Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Incentive Stock Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.

12.4Termination of Employment.  The Committee shall determine and set forth in each Award Agreement whether any Awards granted in such Award Agreement will continue to be exercisable, and the terms of such exercise, on and after the date that a Participant ceases to be employed by or to provide services to the Company or any Subsidiary (including as a Director), whether by reason of death, disability, voluntary or involuntary termination of employment or services, or otherwise.  The date of termination of a Participant’s employment or services will be determined by the Committee, which determination will be final.

12.5Deferral.  The Committee shall be authorized to establish procedures pursuant to which the payment of any Award may be deferred.  Such deferrals shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent.  

12.6Dividend Equivalents.  Subject to the provisions of the Plan and any Award Agreement, the recipient of an Award (including any deferred Award) may, if so determined by the Committee, be entitled to receive, on a deferred basis, cash, stock or other property dividends, or cash payments in amounts equivalent to cash, stock or other property dividends on Shares (“Dividend Equivalents”) with respect to the number of Shares covered by the Award, as determined by the Committee, in its sole discretion.  Dividend Equivalents may accrue but will not, in any event, be payable until the vesting conditions of the underlying Award have been met. The Committee may provide that such amounts and Dividend Equivalents (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Notwithstanding the foregoing, Dividend Equivalents shall not be made part of any Options or Stock Appreciation Rights.

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13.MISCELLANEOUS

13.1Tax Withholding.  The Company shall have the right to make all payments or distributions pursuant to the Plan to a Participant (or a Permitted Assignee thereof) (any such person, a “Payee”) net of any applicable federal, state and local taxes required to be paid or withheld as a result of (a) the grant of any Award, (b) the exercise of an Option or Stock Appreciation Right, (c) the delivery of Shares or cash, (d) the lapse of any restrictions in connection with any Award or (e) any other event occurring pursuant to the Plan.  The Company or any Subsidiary shall have the right to withhold from wages or other amounts otherwise payable to such Payee such minimum statutory withholding taxes as may be required by law, or to otherwise require the Payee to pay such withholding taxes.  If the Payee shall fail to make such tax payments as are required, the Company or its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Payee or to take such other action as may be necessary to satisfy such withholding obligations.  The Committee shall be authorized to establish procedures for election by Participants to satisfy such obligation for the payment of such taxes by tendering previously acquired Shares (either actually or by attestation, valued at their then Fair Market Value) that have been owned for a period of at least six months (or such other period to avoid accounting charges against the Company’s earnings), or by directing the Company to retain Shares (up to the Participant’s minimum required tax withholding rate or such other rate that will not trigger a negative accounting impact) otherwise deliverable in connection with the Award. 

13.2Right of Discharge Reserved; Claims to Awards.  Nothing in the Plan nor the grant of an Award hereunder shall confer upon any Employee or Director the right to continue in the employment or service of the Company or any Subsidiary or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) any such Employee or Director at any time for any reason.  Except as specifically provided by the Committee, the Company shall not be liable for the loss of existing or potential profit from an Award granted in the event of termination of an employment or other relationship.  No Employee or Participant shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Employees or Participants under the Plan.

13.3Prospective Recipient.  The prospective recipient of any Award under the Plan shall not, with respect to such Award, be deemed to have become a Participant, or to have any rights with respect to such Award, until and unless such recipient shall have executed an agreement or other instrument (in written or electronic form, in such manner as may be designated by the Committee) evidencing the Award and delivered a copy thereof to the Company, and otherwise complied with the then applicable terms and conditions.

13.4Cancellation of Award.  Notwithstanding anything to the contrary contained herein, all outstanding Awards granted to any Participant may be canceled if the Participant, without the consent of the Company, while employed by the Company or any Subsidiary or after termination of such employment or service, establishes a relationship with a competitor of the Company or any Subsidiary or engages in activity that is in conflict with or adverse to the interest of the Company or any Subsidiary, as determined by the Committee in its sole discretion.

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13.5Stop Transfer Orders.  All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable in its sole discretion under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

13.6Nature of Payments.  All Awards made pursuant to the Plan are in consideration of services performed or to be performed for the Company or any Subsidiary, division or business unit of the Company.  Neither Awards made under the Plan nor Shares or cash paid pursuant to such Awards, may be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s or any Subsidiary’s retirement plans (both qualified and non-qualified), welfare benefit plans or other employee benefit plans unless such plan expressly provides that such compensation shall be taken into account in computing a participant’s benefit.

13.7Other Plans.  Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

13.8Severability.  If any provision of the Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction, such provision shall (a) be deemed limited to the extent that such court of competent jurisdiction deems it lawful, valid and/or enforceable and as so limited shall remain in full force and effect, and (b) not affect any other provision of the Plan or part thereof, each of which shall remain in full force and effect.  If the making of any payment or the provision of any other benefit required under the Plan shall be held unlawful or otherwise invalid or unenforceable by a court of competent jurisdiction, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit from being made or provided under the Plan, and if the making of any payment in full or the provision of any other benefit required under the Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided under the Plan. 

13.9Construction.  As used in the Plan, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”  

13.10Unfunded Status of the Plan.  The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation.  With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.  In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations 

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created under the Plan to deliver the Shares or payments in lieu of or with respect to Awards hereunder; provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

13.11Governing Law.  The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware, without reference to principles of conflict of laws, and construed accordingly.

13.12Effective Date of Plan; Termination of Plan.  The Plan was originally approved by the Company’s stockholders on April 17, 2014.  The Plan as amended and restated was approved by the Board on May 17, 2017 and by the Company's stockholders on June 29, 2017.  Awards may be granted under the Plan at any time and from time to time on or prior to June 6, 2029, on which date the Plan will expire except as to Awards then outstanding under the Plan.  Such outstanding Awards shall remain in effect until they have been exercised or terminated, or have expired. 

13.13Foreign Employees.  Awards may be granted to Participants who are foreign nationals or employed outside the United States, or both, on such terms and conditions different from those applicable to Awards to Employees employed in the United States as may, in the Committee’s sole discretion, be necessary or desirable in order to recognize differences in local law or tax policy.  The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Employees on assignments outside their home country.

13.14Section 409A of the Code.

(a)Awards made under the Plan are intended to comply with or be exempt from Section 409A of the Code, and ambiguous provisions hereof, if any, shall be construed and interpreted in a manner consistent with such intent.  No payment, benefit or consideration shall be substituted for an Award if such action would result in the imposition of taxes under Section 409A of the Code.  Notwithstanding anything in the Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an additional tax under Section 409A of the Code, that Plan provision or Award shall be reformed, to the extent permissible under Code Section 409A, to avoid imposition of the additional tax, and no such action shall be deemed to adversely affect the Participant’s rights to an Award. 

(b)Unless the Committee provides otherwise in an Award Agreement, each Other Stock Unit Award or Performance Unit (or portion thereof if the Award is subject to a vesting schedule) shall be settled no later than the 15th day of the third month after the end of the first calendar year in which the Award (or such portion thereof) is no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A of the Code.  If the Committee determines that an Other Stock Unit Award or Performance Unit is intended to be subject to Section 409A of the Code, the applicable Award Agreement shall include terms that are designed to satisfy the requirements of Section 409A of the Code.

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(c)If the Participant is identified by the Company as a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date on which the Participant has a “separation from service” (other than due to death) within the meaning of Treasury Regulation § 1.409A-1(h), any Award payable or settled on account of a separation from service that is deferred compensation subject to Section 409A of the Code shall be paid or settled on the earliest of (1) the first business day following the expiration of six months from the Participant’s separation from service, (2) the date of the Participant’s death, or (3) such earlier date as complies with the requirements of Section 409A of the Code.

13.15Captions.  The captions in the Plan are for convenience of reference only, and are not intended to narrow, limit or affect the substance or interpretation of the provisions contained herein.

13.16Notification of Disqualifying Disposition. If any Participant shall make any disposition of Shares issued pursuant to the exercise of an incentive stock option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days thereof.

13.17Sarbanes Oxley Act and Clawback Policy.  If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, or if the Participant is one of the persons subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, the Participant shall reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the twelve-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever just occurred) of the financial document embodying such financial reporting requirement. Notwithstanding any other provisions in this Plan, any Award shall be subject to recovery or clawback by the Company under any applicable clawback policy adopted by the Company whether before or after the date of grant of the Award.

13.18Indemnification. Each person who is or shall have been a member of the Board, or a Committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 4.2 shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a result of his or her own willful misconduct or except as expressly provided by statute.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation of Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

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Exhibit 10.1

 

 
RETIREMENT AND CONSULTING AGREEMENT
 

 

This RETIREMENT AND CONSULTING AGREEMENT (“Agreement”) is made by and between ARLINGTON ASSET INVESTMENT CORP. (the “Company”) and ERIC F. BILLINGS (“Executive”) and is effective as of June 6, 2019 (the “Effective Date”).  Capitalized terms that are not defined in this Agreement shall have the same meaning as set forth in the Company’s 2014 Long-Term Incentive Plan (the “LTIP”).

 

RECITALS

 

WHEREAS, Executive is the Executive Chairman of the Company and a member of the Company’s Board of Directors (the “Board”); and

 

WHEREAS, Executive has advised the Company of his decision to voluntarily retire from the employ of the Company and as a member of the Board effective December 31, 2019; and

 

WHEREAS, Executive and the Company desire to memorialize and confirm certain terms of Executive’s employment and service from July 1, 2019 until December 31, 2019 the “Employment Period”; and

 

WHEREAS, the Company recognizes that Executive, by virtue of his long and distinguished service to the Company, possesses valuable expertise and institutional knowledge; and

 

WHEREAS, the Company desires to establish a consulting arrangement with Executive so that the Company may take advantage of Executive’s valuable expertise and institutional knowledge after December 31, 2019 and Executive is willing to enter into a consulting arrangement with the Company as set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows:

 

1.Employment After Effective Date.  

(a)  The Company and Executive agree that the Executive will remain the Company’s Executive Chairman and will continue to serve as a member of the Board from the Effective Date and until December 31, 2019.  During such period Executive will continue to hold such other positions and titles with the Company and its subsidiaries as he holds on the Effective Date.

(b)  As compensation for the services that Executive performs during the Employment Period the Company will pay or provide Executive with the following compensation and benefits:

 

 

(i) The Company will continue to pay Executive his annual base salary as in effect on the Effective Date (so that Executive will receive $400,000 in base salary during the Employment Period) and the base salary shall be paid in accordance with the Company’s regular payroll schedule.

(ii)Executive will be eligible to earn an annual incentive bonus for calendar 2019 in accordance with the terms previously established by the Company and such annual bonus, to the extent earned, will be paid in a single cash payment no later than March 15, 2020.

(iii)Effective as of July 1, 2019 the Company will grant Executive an award of Restricted Stock Units (the “RSU Award”) under the LTIP.  The RSU Award will be evidenced by a written award agreement between the Company and Executive that reflects the terms described in this Section 1(b)(iii).  The number of Restricted Stock Units covered by the RSU Award will equal the number of whole Shares that have a Fair Market Value on July 1, 2019 that most nearly equals, but does not exceed, $600,000.  Each Restricted Stock Unit covered by the RSU Award will include dividend equivalent rights (“DERS”) that will vest on the same terms as the Restricted Stock Units and that will be settled in whole Shares (and cash for any fractional share). Twenty percent of the Restricted Stock Units covered by the RSU Award will vest on each of January 1, 2020, July 1, 2020, January 1, 2021, July 1, 2021 and January 1, 2022; provided that Executive remains employed or continues to provide consulting services in accordance with this Agreement until such date or dates.  Notwithstanding the preceding sentence, if not sooner vested, the RSU Award will be 100% vested on the date Executive’s employment or consulting service ends on account of his death or because Executive is permanently and totally disabled within the meaning of Section 22(e)(3) of the Code. In addition, if not sooner vested, the RSU Award will be 100% vested if a Change in Control occurs before 2022 and either (i) the surviving or successor entity in the Change in Control does not continue, assume or replace the RSU Award with a substitute grant with the same intrinsic value and Executive remains employed or continues to provide consulting services in accordance with this Agreement until the date on which the Change in Control occurs (in which case the RSU Award shall be vested on the date of the Change in Control) or (ii) the surviving or successor entity in the Change in Control continues, assumes or replaces the RSU Award with a substitute grant with the same intrinsic value, Executive’s employment or consulting services are terminated without Cause or by Executive with Good Reason and Executive remains employed or continues to provide consulting services in accordance with this Agreement until such termination or resignation (in which case the RSU Award or the substitute grant shall be vested on the date of such termination or resignation).  The written award agreement evidencing the RSU Award will define the terms “Cause” and “Good Reason” consistent with the definitions set forth in the agreement evidencing the Performance Share Award identified in Section 1(b)(vi). One whole Share shall be issued to Executive for each Restricted Stock Unit and DER that becomes vested, and such Shares shall be issued within ten days after each date that Restricted Stock Units and DERS become vested and each Share shall be immediately vested and transferable upon issuance.

(iv)The agreement evidencing the Restricted Stock Award covering 27,994 Shares granted to Executive on July 24, 2018 is hereby amended to provide that Executive’s interest in such Shares will be vested and nonforfeitable on December 31, 2019 if Executive remains employed by the Company until his retirement on December 31, 2019; provided, however, that 

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Executive agrees that such Shares (and any dividends paid on such Shares after 2019) must be returned to the Company if Executive does not provide the Release required by Section 4 and the Release Effective Date (as defined in Section 4) is after February 15, 2020.

(v)A Restricted Stock Award shall be issued in accordance with the agreement evidencing the Performance Share Award covering 31,038 Performance Shares granted to Executive on July 1, 2018.  The agreement evidencing such Performance Share Award is hereby amended to provide that Executive’s interest in such Restricted Stock Award will be vested and nonforfeitable on December 31, 2019 if Executive remains employed by the Company until his retirement on December 31, 2019; provided, however, that Executive agrees that such Shares (and any dividends paid on such Shares after 2019) must be returned to the Company if Executive does not provide the Release required by Section 4 and the Release Effective Date (as defined in Section 4) is after February 15, 2020.

(vi)The Performance Share Award covering 44,121 Performance Shares granted to Executive on July 1, 2018 will remain in effect after December 31, 2019 and the agreement evidencing such award is hereby amended to provide that Executive’s service as a consultant in accordance with the terms of this Agreement is treated as continued employment with the Company. Executive agrees that Section 4(b) of such award agreement shall not apply to the cessation of Executive’s employment with the Company.

(vii)The Performance Share Award covering 33,273 Performance Shares granted to Executive on July 24, 2017 will remain in effect after December 31, 2019 and the agreement evidencing such award is hereby amended to provide that Executive’s service as a consultant in accordance with the terms of this Agreement is treated as continued employment with the Company.  Executive agrees that Section 4(b) of such award agreement shall not apply to the cessation of Executive’s employment with the Company.

(viii)Executive’s rights with respect to the Performance Share Award covering 65,419 Performance Shares granted to Executive on July 1, 2016 are not affected by this Agreement and such award shall continue to be governed by the agreement evidencing such award.

(ix)During the Employment Period Executive (and Executive’s dependents, as applicable) shall be eligible to participate in the employee benefit, fringe benefit and expense reimbursement arrangements in which Executive participated immediately before the Effective Date.

2.Retirement.  Executive agrees to retire and resign from employment with the Company and from the Board effective December 31, 2019.  Executive also agrees to retire and resign from all positions or employment that he holds with any subsidiary of the Company effective December 31, 2019.  Except as required by applicable law or as set forth in this Agreement, Executive shall not be entitled to participate in any benefit plans or programs provided to employees of the Company after December 31, 2019.

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3.Consulting Services; Compensation. 

(a)Subject to Section 6, during the period beginning January 1, 2020 and ending on January 1, 2022 (the “Consulting Period”), Executive agrees to make himself available to provide consulting services to the Company in accordance with this Section 3(a).  During the Consulting Period Executive will advise or consult with the Company’s officers and employees on business or investment planning and strategy and other affairs of the Company as determined by the Company’s Chief Executive Officer. The Company and Executive intend that Executive’s resignation on December 31, 2019 constitute a “separation from service” under Section 409A of the Code and consistent with that intent, the time that Executive is required to devote to consulting services in each calendar year during the Consulting Period shall not exceed twenty percent of the average level of services that Executive provided to the Company during calendar years 2017, 2018, 2019 and 2022.

(b)  As compensation for the consulting services provided by Executive during calendar year 2020, the Company will pay Executive cash compensation equal to the sum of $500,000 plus the COBRA Supplement calculated as of January 1, 2020.  The “COBRA Supplement is the product of twelve times 125% of the monthly premium that employees are required to pay on the calculation date for continued health care coverage under Section 4980B of the Code for the same type and level of coverage in effect for Executive and Executive’s eligible dependents under the Company’s group health plan on December 31, 2019.  One-half of the cash compensation described in this Section 3(b) shall be paid in a single cash payment on the fifth day after the Release Effective Date (as defined in Section 4) and the remainder of the cash compensation described in this Section 3(b) shall be paid in a single cash payment on July 1, 2020. 

 

(c)  As compensation for the consulting services provided by Executive during the remainder of the Consulting Period, the Company will pay Executive cash compensation equal to the sum of $500,000 plus the COBRA Supplement calculated as of January 1, 2021.  One-half of the cash compensation described in the preceding sentence shall be paid in a single cash payment on January 1, 2021 and the remainder of the cash compensation described in the preceding sentence shall be paid in a single cash payment on July 1, 2021.

 

(d)  The Company will make cash payments to Executive in lieu of the Company providing Executive an office for Executive’s use during the Consulting Period and while Executive is providing consulting services to the Company.  The Company will pay Executive $20,000 in a single cash payment on the fifth day after the Release Effective Date (as defined in Section 4) if Executive is providing consulting services to the Company on such date.  The Company will pay Executive $20,000 in a single cash payment on January 1, 2021 if Executive is providing consulting services to the Company on such date.  During the Consulting Period and while Executive is providing consulting services to the Company, the Company, at no cost to Executive, will provide Executive the support of an administrative assistant (who will remain an employee of the Company and available to provide services to the Company, as well as to Executive, during such period).

 

 

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(e)  No compensation will be paid and no other benefits will be provided under this Section 3 after Executive is unwilling, unable or refuses to provide consulting services as provided in Section 3(a).

 

(f)Notwithstanding any provision to the contrary, in the event a Change in Control occurs prior to the end of the Consulting Period and Executive is not entitled to compensation or benefits under the Continuity Agreement (defined below) and either (i) the surviving or successor entity in the Change in Control does not continue, assume this Agreement or (ii) the surviving or successor entity in the Change in Control assumes this Agreement but, Executive’s employment or consulting services are terminated without “Cause” or by Executive with “Good Reason” (as such terms are defined below) and Executive remains employed or continues to provide consulting services in accordance with this Agreement until such termination or resignation, the Company (or the surviving or successor entity in the Change in Control) shall pay Executive any unpaid amounts described in this Section 3 in a single cash lump sum payment upon the date of such Change in Control if this Agreement is not assumed or, if this Agreement is assumed, upon the date of Executive’s termination without Cause or Executive’s resignation with Good Reason.  For purposes of this Section 3(f), the terms “Cause” and “Good Reason” shall have the definitions set forth in the agreement evidencing the Performance Share Award identified in Section 1(b)(vi); provided that during the Consulting Period references to base salary or incentive compensation and references to Executive’s authority, duties or responsibilities in the definition of Good Reason shall be interpreted in a manner consistent with the compensation and benefits and authority, duties and responsibilities set forth in Section 3. 

 

4.Release.  The compensation and benefits described in Sections 3(b), 3(c) and 3(d) will not be payable to Executive unless, on or after January 1, 2020  (a) Executive signs  and does not revoke the General Release and Waiver of Claims attached as Exhibit A to this Agreement (the “Release”) and (b) delivers the executed Release to the Company’s Secretary.  The “Release Effective Date” is the later of (i) the date the executed Release is received by the Company’s Secretary and (ii) the day after the last day of the revocation period stated in the Release expires without Executive’s revocation of the Release.

5.Recoupment.  The cash compensation and benefits described in Section 3(b) and Section 3(d) payable for consulting services to be provided in calendar 2020 and the cash compensation and benefits described in Section 3(c)  and Section 3(d) are payable for consulting services to be provided in calendar 2021.  Executive agrees that if he fails or refuses to provide consulting services in accordance with Section 3(a) after receiving payment under Section 3(b), 3(c), or 3(d), then promptly after demand by the Company he will repay a pro rata amount of the compensation previously paid for consulting services, after the month in which Executive fails to provide the required services.  The preceding sentence shall not apply if Executive’s failure to provide consulting services is on account of Executive’s death or Executive’s mental illness or physical illness or injury.  In addition, Executive agrees that any incentive or equity compensation that he receives shall be subject to recoupment or clawback to the extent provided in a written clawback or recoupment policy of the Company.

6.Change in Control Agreement.  The Company and Executive agree that the current Change in Control Continuity Agreement between Executive and the Company and dated 

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as of January 27, 2017 (the “Continuity Agreement”) shall terminate on December 31, 2019 such that, unless Executive has become entitled to compensation or benefits under the Continuity Agreement on or prior to December 31, 2019, Executive will have no further rights under that agreement after December 31, 2019.  Executive agrees that he will not be engaged to provide consulting services and will not be entitled to receive any compensation or benefits under Section 3 if Executive becomes entitled to payments or benefits under the Continuity Agreement in 2019.

7.Confidential Information.  Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data related to the Company and its subsidiaries and their respective businesses.  After Executive’s employment with the Company has ended, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information or data to anyone other than the Company and those persons designated by the Company.  This Section 7 is not intended to, and shall not be interpreted in a manner that does, limit or restrict Executive from exercising any legally protected whistleblower rights (including pursuant to Rule 21F promulgated under the Securities Exchange Act of 1934, as amended).

8.Noncompetition.  Executive agrees that during his employment with the Company and following the termination of that employment and until December 31, 2022 (the “Restriction Period”), Executive will not have a financial interest in, direct business to, cause business to be done on behalf of, or serve as a principal, stockholder, member, partner, director, officer, agent, employee, contractor or consultant for any business engaged in the mortgage REIT business (a “Prohibited Business”), unless the Company provides prior written consent.  Notwithstanding the preceding sentence, this Section 8 shall not prohibit Executive’s purchase or ownership of not more than three percent of the securities of any class of any public corporation, whether or not such corporation is engaged in a Prohibited Business.

9.Nonsolicitation.  Executive agrees that during the Restriction Period he shall not, without the Company’s prior written consent, directly or indirectly, solicit or encourage to leave the employment or other service of the Company or its subsidiaries, any current employee or independent contractor thereof.  In addition, during the Restriction Period Executive shall not, whether for his own account or the account of any other person, firm, corporation or other business organization, intentionally interfere with the Company’s relationships with any other person or entity who is a shareholder, director, officer or investor of the Company.

10.Nondisparagement.  Executive agrees that he will not take any action or make any statement (orally or in writing and regardless of whether the statement is truthful) which impugns, defames, disparages, criticizes, negatively characterizes or casts in an unfavorable light the Company or any of its subsidiaries or their respective current and former officers, directors, partners, owners, employees, agents, representatives, financial advisors or the predecessor or successor of any of the foregoing.  The Company shall instruct each of its executive officers that the executive officer must not take any action or make any statement (orally or in writing and regardless of whether the statement is truthful) which impugns, defames, disparages, criticizes, negatively characterizes Executive or casts Executive in an unfavorable light.  Notwithstanding the foregoing, Executive’s testimony, responses or other statements provided in connection with 

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a subpoena or otherwise required by applicable law shall not be considered a violation of this Section 10.

11.Survival of Covenants; Remedies.

(a)Any provision of this Agreement to the contrary notwithstanding, if this Agreement is terminated by the Company or Executive for any reason, the provisions and covenants of Sections 7, 8, 9 and 10 shall nevertheless remain in full force and effect in accordance with their respective terms, and shall be enforceable notwithstanding any claim Executive may have against the Company or any subsidiary of the Company.

(b)Executive acknowledges that the restrictions set forth in Sections 7, 8, 9 and 10, in view of the nature of the business in which the Company and its subsidiaries are engaged, are reasonable and necessary in order to protect the legitimate interests of the Company and its subsidiaries and that any violation thereof would result in irreparable injuries to the Company and its subsidiaries and Executive therefore acknowledges that in the event of Executive’s violation of any of those restrictions, the Company and/or its subsidiaries shall be entitled to obtain from any court of competent jurisdiction (in any appropriate jurisdiction) preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other rights or remedies to which they may be entitled.  

12.Section 409A.  

(a) This Agreement and the amounts payable and other benefits provided under this Agreement are intended to comply with, or otherwise be exempt from, Section 409A of the Code (“Section 409A”), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12).  This Agreement shall be administered, interpreted and construed in a manner consistent with Section 409A.  If any provision of this Agreement is found not to comply with, or otherwise not be exempt from, the provisions of Section 409A, it shall be modified and given effect, in the sole discretion of the Company and without requiring Executive’s consent, in such manner as the Company determines to be necessary or appropriate to comply with, or to effectuate an exemption from, Section 409A; provided, however, that in exercising its discretion, the Company shall modify this Agreement in the least restrictive manner necessary.  Each payment under this Agreement shall be treated as a separate identified payment for purposes of Section 409A.

(b) With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following limitations:  (i) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year; (ii) the reimbursement of an eligible expense shall be made as specified in this Agreement but in no event later than the end of the year after the year in which the expense was incurred and (iii) the right to reimbursement or in-kind benefit shall not be subject to liquidation or exchange for another benefit.

 

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(c) Executive agrees and acknowledges that he has had the opportunity to assess the tax consequences of this Agreement and the payments and benefits to be provided under it and that he has had the opportunity to discuss the tax consequences of this Agreement and the payments and benefits to be provided under it.  Executive further acknowledges and agrees that he is responsible for all tax consequences arising under this Agreement and that the Company has no obligation to indemnify or otherwise reimburse or provide additional compensation or benefits to Executive for any penalties, interest or adverse tax consequences arising under Section 409A.

 

13. Cooperation in Legal Proceedings.  Executive agrees, for the period beginning on the Effective Date and continuing until the third anniversary of the end of the Consulting Period, to reasonably cooperate in good faith with, and provide reasonable assistance to the Company, upon its reasonable request, taking into considerations and subject to Executive’s other obligations and commitments, with respect to the defense or prosecution of any litigation, investigation or other legal proceeding involving the Company.  The Company shall promptly reimburse Executive for all reasonably out-of-pocket expenses incurred in connection with such cooperation and, in the case of such services provided after the Consulting Period, shall pay Executive a per-diem cooperation fee based on the $500,000 annual consulting fee. 

14.Return of Property.  Executive represents and agrees that all files, records, correspondence, memoranda, notes or other documents (including, without limitation, those in computer-readable form) or property relating or belonging to the Company or its subsidiary, whether prepared by Executive or otherwise coming into his possession in the course of his employment with the Company or his service on the Board, are the exclusive property of the Company and will be delivered to the Company promptly after December 31, 2019 and not retained by Executive (or will promptly be returned upon discovery by Executive that any such property is in his possession).  Notwithstanding the foregoing, the Company and Executive acknowledge that Executive maintains several personal files and effects and the parties agree to facilitate Executive’s retention of such items.

15.No Waiver.  The Company and Executive acknowledge and agree that the failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by either party of any of the provisions of this Agreement shall in no way be construed as a waiver of such provision or affect the validity of this Agreement or any part of this Agreement, or the right of the Company or Executive thereafter to enforce each and every provision in accordance with the terms of this Agreement.

16.Successors.

(a) This Agreement is personal to Executive and, without the prior written consent of the Company, shall not be assignable by Executive other than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.  Except as provided in Section 16(c), without the prior written consent of Executive this Agreement shall not be assignable by the Company.

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(c)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  For purposes of this Agreement, “Company” means the Company as defined above and any successor to its business and/or assets that assumes this Agreement by operation or law or otherwise.

	
 
	
17.
	
 Miscellaneous.

(a)This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without reference to principles of conflict of laws.  The captions or headings of this Agreement are not part of the provisions of this Agreement and shall have no force or effect.  This Agreement may not be amended or modified other than by a written agreement executed by the Company and Executive or their respective successors and legal representatives.

(b)All notices and other communications related to this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:

At the most recent address on file at the Company;

If to the Company:

Arlington Asset Investment Corp.

1001 Nineteenth Street North

Suite 1900

Arlington, Virginia 22209

Attention:  Chair, Compensation Committee;

 

or to such other address as either party shall have furnished to the other in writing in accordance wherewith.  Notice and communications shall be effective when actually received by the addressee.

 

(c)Executive agrees that he is solely responsible for satisfying any income or other tax liability imposed on Executive on account of the compensation or benefits provided under this Agreement.  Executive and the Company agree that Executive shall be considered an independent contractor with respect to the services provided by Executive under Section 3 and the compensation and benefits provided under Section 3. To the extent required by applicable law, each payment or benefit provided to Executive under this Agreement or the LTIP shall be reduced by applicable income and employment tax withholdings and Executive shall make arrangements satisfactory to the Company for the satisfaction of applicable income and employment tax withholdings on any non-cash benefit provided to Executive.

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(d)This Agreement constitutes the entire agreement between the Company and Executive with respect to the subject matter hereof and shall supersede any other agreement, whether oral or written, between the parties with respect to the subject matter hereof in effect immediately prior to the execution of this Agreement; provided, however, that the Change in Control Continuity Agreement described in Section 6 shall remain in effect until December 31, 2019 unless sooner terminated by the written agreement of the Company and Executive.

IN WITNESS WHEREOF, Executive has executed this Agreement and, pursuant to the authorization of the Board, the Company has caused this Agreement to be executed in its name on its behalf.

 

ARLINGTON ASSET INVESTMENT CORP.EXECUTIVE

 

 

By: /s/ J. Rock Tonkel, Jr./s/ Eric F. Billings

    Name: J. Rock Tonkel, Jr.Name: Eric F. Billings

    Title: Chief Executive OfficersExecutive Chairman  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

Exhibit A

 

 

 

 
GENERAL RELEASE AND WAIVER OF CLAIMS
 

 

THIS GENERAL RELEASE AND WAIVER OF CLAIMS (this “Release”) is made and entered into by ERIC F. BILLINGS (“Executive”) and ARLINGTON ASSET INVESTMENT CORP. (the “Company”).

 

In exchange for the mutual commitments and other consideration in this Release, the Company and Executive agree as follows:

 

1.Retirement and Consulting Agreement.  Executive and the Company previously entered into that certain Retirement and Consulting Agreement effective as of June 6, 2019 (the “Agreement”). Terms that are defined in the Agreement and that are not defined in this Release shall have the same meaning as set forth in the Agreement when those terms are used in this Release.

2.Consideration for Release.  Executive acknowledges that the Agreement provides compensation and benefits in exchange for Executive’s promises under this Release.  Executive further acknowledges that the compensation payable under the Agreement for consulting services (the “Compensation”), accelerated vesting of certain equity awards (“Early Vesting”) and the opportunity of continued vesting of certain other equity awards during the Consulting Period exceed any amount to which Executive would be entitled under any law, regulation, contract or any policy or benefit plan of the Company or any of its subsidiary companies absent Executive’s execution of this Release and this Release becoming effective and irrevocable.

3.Release Requirement.  As set forth in the Agreement, the Compensation and Early Vesting will not be payable or provided to Executive unless this Release becomes effective and irrevocable.  This Release will become effective and irrevocable on the date specified in Section 5. 

4.Executive Release.  For and in consideration of the payment of the Compensation, the Early Vesting  and other good and valuable consideration, the sufficiency of which is hereby acknowledged, Executive hereby releases, acquits, and forever discharges the Company, all of the Company’s present and past subsidiaries and affiliates and all of their present and past affiliates, parents, subsidiaries, partners, joint venturers, owners, and shareholders, and all of the past and present officers, directors, employees, representatives, and agents of the Company and the other foregoing entities, and all successors and assigns thereof (each a “Released Party”), from any and all claims, charges, complaints, demands, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, entitlements, costs, losses, debts, and expenses (including attorneys’ fees and legal expenses), of any nature whatsoever, known or unknown, which Executive now has, had, or may hereafter claim to have had against the Company or any other Released Party, of any kind or nature whatsoever, arising from any act, omission, transaction, matter, or event which has occurred or is alleged to have occurred up to the date Executive executes this Release.

The claims knowingly and voluntarily released herein include, but are not limited to, all claims relating in any way to Executive’s employment with the Company or any Released Party 

 

 

and the termination of that employment, whether such claims are now known or are later discovered, including claims under the Age Discrimination in Employment Act, Title Vll of the Civil Rights Act of 1964, 42 U.S.C. § 1981, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act or other federal or state wage and hour laws, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), claims for breach of contract, infliction of emotional distress, claims under any other federal or state law pertaining to employment or employment benefits, and any other claims of any kind based on any contract, tort, ordinance, regulation, statute, or constitution; provided, however, that nothing in this Release shall be interpreted to release (i) any claims that Executive may have for workers compensation benefits, (ii) any claims that Executive may have to enforce the terms of this Release or the Agreement, (iii) any claims that Executive may have that as a matter of law cannot be waived, (iv) any claims that Executive may have as a terminated employee to receive benefits under the “employee benefit plans” (as defined in Section 3(3) of ERISA) in which Executive participates or participated or (v) any claims of Executive that arise after Executive’s execution of this Release.  Executive acknowledges that this Release is a complete defense and shall constitute a full and final bar to any claim by Executive based on any act, omission, transaction, matter, or event which has occurred or is alleged to have occurred up to the date Executive executes this Release.

Executive acknowledges that nothing contained in this Release limits Executive’s ability to file a charge or complaint with any federal, state or local government agency or commission (a “Government Agency”).  In addition, nothing contained in this Release limits Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including Executive’s ability to provide documents or other information, without notice to the Company, nor does anything contained in this Release apply to truthful testimony in litigation.  If Executive files any charge or complaint with any Government Agency and if the Government Agency pursues any claim on Executive’s behalf, or if any other third party pursues any claim on Executive’s behalf, Executive hereby waives any right to monetary or other individualized relief (either individually or as part of any collective or class action); provided, however, that Executive acknowledges that nothing in this Release limits any right Executive may have to receive a whistleblower award or bounty for information provided to the Securities and Exchange Commission.

Notwithstanding the foregoing, nothing in this Release shall be deemed to alter, impair or otherwise modify Executive’s coverage under Company Directors & Officers insurance or any other right Executive may have to seek indemnification from the Company.

5.Receipt and Effective Date.  Executive acknowledges that Executive has read and understands this Release. Executive acknowledges that Executive is hereby provided a period of twenty-one days to consider the terms of this Release, that Executive is hereby advised in writing to discuss its terms with an attorney or other advisor before executing this Release, and that Executive’s execution of this Release is purely voluntary.  Executive understands that Executive may revoke this Release within seven (7) calendar days after the date Executive signs it by delivering written notice of revocation to the Company, attention: Chair, Compensation Committee, 1001 Nineteenth Street North, Suite 1900, Arlington, Virginia 22209. If the end of such revocation period falls on a Saturday, Sunday or legal holiday in the Commonwealth of Virginia, the revocation period shall be extended until the next day that is not a Saturday, Sunday 

 

 

or legal holiday in the Commonwealth of Virginia.  If Executive signs this Release it will become effective and irrevocable on the day after the last day of the revocation period (provided Executive has not properly revoked this Release). 

6.Choice of Law.  The validity, construction and interpretation of this Release shall be governed by the laws of the Commonwealth of Virginia, without regard to its conflicts of law rules, except as to matters governed by Federal law.

IN WITNESS WHEREOF, the Company and Executive have executed this Release on the date(s) shown below.

ARLINGTON ASSET INVESTMENT CORP.ERIC F. BILLINGS

 

By:_____________________________________________________

[Name]

[Title]

Date:________________________Date:________________________

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