Document:

Exhibit 10.1

 

LPL Investment Holdings Inc.

2008 STOCK OPTION PLAN

 

1.             DEFINED TERMS

 

Exhibit A, which is incorporated by reference, defines the terms
used in the Plan and sets forth certain operational rules related to those
terms.

 

2.             PURPOSE

 

The Plan has been established to advance the interests of the Company
by providing for the grant to Participants of Stock Options.

 

3.             ADMINISTRATION

 

The Administrator has discretionary authority, subject
only to the express provisions of the Plan, to interpret the Plan; determine
eligibility for and grant Stock Options; determine, modify or waive the terms
and conditions of any Stock Option; prescribe forms, rules and procedures;
and otherwise do all things necessary to carry out the purposes of the
Plan.  Determinations of the
Administrator made under the Plan will be conclusive and will bind all parties.

 

4.             LIMITS ON STOCK OPTIONS UNDER THE PLAN

 

(a)           Number of Shares.  At
the Effective Date, the maximum number of shares of Stock that may be delivered
in satisfaction of Stock Options under the Plan shall be two (2%) of the Stock
(determined at such date on a fully diluted basis).  On the first anniversary of the Effective
Date, such maximum number of shares of Stock available to be delivered in
satisfaction of Stock Options under the Plan shall be increased by an
additional two (2%) percent of the Stock (determined at such date on a fully
diluted basis).  On each of the second
and third anniversaries of the Effective Date, the maximum number of Shares
available to be delivered in satisfaction of Stock Options under the Plan shall
be increased by an additional two and one-half (2-1/2%) percent of the Stock,
(determined on each such date on a fully diluted basis).  Notwithstanding the foregoing, unless
otherwise specified by the Board, the percentage increases provided in each of
the first, second and third anniversaries of the Effective Date shall be
reduced by the amount of Stock Options that are made available under any equity
incentive plan established by the Company for the benefit of non-employee
advisers to the Company.  No Stock
Options shall be granted under the Plan following an IPO.

 

(b)           ISO Shares; Adjustments to
Maximum Available Shares.  The maximum
number of shares of Stock deliverable upon the exercise of ISOs is
10,000,000.   Shares of Stock that are
subject to Stock Options that have been terminated, cancelled or forfeited upon
termination of Employment under Section 6(a)(4) without becoming
exercisable shall be available again for future grant under the Plan.  The number of shares of Stock delivered in 

 

 

satisfaction of Stock Options shall be determined net of shares of
Stock withheld by the Company in payment of the exercise price of the Stock
Option or in satisfaction of tax withholding requirements with respect to the Stock
Option.  The limit set forth in this Section 4(b) shall
be construed to comply with Section 422. 
To the extent consistent with the requirements of Section 422,
Stock issued under awards of an acquired company that are converted, replaced
or adjusted in connection with the acquisition shall not reduce the number of
shares available for delivery upon the exercise of Stock Options under the
Plan.

 

(c)           Type of Shares. 
Stock delivered by the Company under the Plan may be authorized but
unissued Stock or previously issued Stock acquired by the Company.  No fractional shares of Stock will be
delivered under the Plan.

 

5.             ELIGIBILITY AND PARTICIPATION

 

The Administrator will select
Participants from among those key Employees and directors of, and consultants
and advisors to, the Company or its Affiliates who, in the opinion of the
Administrator, are in a position to make a significant contribution to the
success of the Company and its Affiliates. 
Eligibility for ISOs is limited to employees of the Company or of a “parent
corporation” or “subsidiary corporation” of the Company as those terms are
defined in Section 424 of the Code.

 

6.             RULES APPLICABLE TO STOCK OPTION AWARDS

 

(a)           All Stock Option Awards

 

(1)  Provisions. 
The Administrator will determine the terms of all Stock Options, subject
to the limitations provided herein.  By
accepting (or, under such rules as the Administrator may prescribe, being
deemed to have accepted) an award of a Stock Option, the Participant agrees to
the terms of the Stock Option and the Plan. 
Notwithstanding any provision of this Plan to the contrary, awards of an
acquired company that are converted, replaced or adjusted in connection with
the acquisition may contain terms and conditions that are inconsistent with the
terms and conditions specified herein, as determined by the Administrator.

 

(2)  Term of Plan. 
No awards of Stock Options may be made after January 1, 2018, but
previously granted Stock Options may continue beyond that date in accordance
with their terms.

 

(3)  Transferability. 
Neither ISOs nor, except as the Administrator otherwise expressly
provides in accordance with the second sentence of this Section 6(a)(3), Stock
Options that are not ISOs may be transferred other than by will or by the laws
of descent and distribution, and during a Participant’s lifetime ISOs (and,
except as the Administrator otherwise expressly provides in accordance with the
second sentence of this Section 6(a)(3), Stock Options that are not ISOs)
may be exercised only by the Participant. 
The Administrator may permit Stock Options that are not ISOs, but not ISOs,
to be transferred by gift, subject to such limitations as the Administrator may
impose.

 

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(4)  Vesting, Etc.  
The Administrator may determine the time or times at which a Stock
Option will vest or become exercisable and the terms on which a Stock Option will
remain exercisable.  Without limiting the
foregoing, the Administrator may at any time accelerate the vesting or
exercisability of a Stock Option, regardless of any adverse or potentially
adverse tax consequences resulting from such acceleration.  Unless the Administrator expressly provides
otherwise, however, the following rules will apply: immediately upon the
cessation of the Participant’s Employment, each Stock Option that is then held
by the Participant or by the Participant’s permitted transferees, if any, will
cease to be exercisable and will terminate, except that:

 

(A) 
subject to (B), (C) and (D) below, all Stock Options held by the
Participant or the Participant’s permitted transferees, if any, immediately
prior to the cessation of the Participant’s Employment, to the extent then
exercisable, will remain exercisable for the lesser of (i) a period of 90
days or (ii) the period ending on the latest date on which such Stock
Option could have been exercised without regard to this Section 6(a)(4),
and will thereupon terminate;

 

(B)  all Stock Options held by a Participant or
the Participant’s permitted transferees, if any, immediately prior to the
Participant’s death or total and permanent disability (as determined by the
Administrator in its sole discretion), to the extent then exercisable, will
remain exercisable for the lesser of (i) the one year period ending with
the first anniversary of the Participant’s death or the date on which the
Participant becomes so disabled or (ii) the period ending on the latest
date on which such Stock Option could have been exercised without regard to
this Section 6(a)(4), and will thereupon terminate;

 

(C)  all Stock Options held by a Participant or
the Participant’s permitted transferees, if any, immediately prior to the
Participant’s Retirement, to the extent then exercisable will remain
exercisable for the lesser of (i) a period of two years or (ii) the
period ending on the latest date on which such Stock Option could have been
exercised without regard to this Section 6(a)(4), and will thereupon
terminate; provided that all Stock Options will
terminate immediately in the event the Board determines that the Participant is
not in compliance with any non-competition or non-solicitation or
non-disclosure agreement with the Company, or if no such agreement exists,
engages in Competitive Activity, within twelve (12) months following the
Participant’s Retirement; and

 

(D)  all Stock Options held by a Participant or
the Participant’s permitted transferees, if any, immediately prior to the
cessation of the Participant’s Employment will immediately terminate upon such
cessation if the Administrator in its sole discretion determines that such
cessation of Employment is for Cause.

 

(5)  Taxes. 
The Administrator will make such provision for the withholding and
payment of taxes as it deems necessary.  Such
taxes shall be remitted to the Company by cash or check acceptable to the
Administrator or by other means acceptable to the Administrator.  In particular, but not in limitation of the
foregoing, the Administrator may, but need not, hold back 

 

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shares of Stock from a Stock Option or permit a Participant to tender
previously owned shares of Stock in satisfaction of tax withholding
requirements (but not in excess of the minimum withholding required by law).

 

(6)  Dividend
Equivalents, Etc.  The Administrator may in its
sole discretion provide for the payment of amounts in lieu of cash dividends or
other cash distributions with respect to Stock subject to a Stock Option.  Any payment of dividend equivalents or
similar payments shall be established and administered consistent either with
exemption from, or compliance with, the requirements of Section 409A.

 

(7)  Rights Limited. 
Nothing in the Plan will be construed as giving any person the right to
continued employment or service with the Company or its Affiliates, or any
rights as a stockholder except as to shares of Stock actually issued under the
Plan.  The loss of existing or potential
profit in Stock Options will not constitute an element of damages in the event
of termination of Employment for any reason, even if the termination is in
violation of an obligation of the Company or any Affiliate to the Participant.

 

(8)  Coordination with
Other Plans.  Stock Option awards under the Plan may be
granted in tandem with, or in satisfaction of or substitution for, other awards
made under other compensatory plans or programs of the Company or its
Affiliates.  For example, but without
limiting the generality of the foregoing, awards under other compensatory plans
or programs of the Company or its Affiliates may be settled in Stock if the
Administrator so determines, in which case the shares delivered shall be
treated as awarded under the Plan (and shall reduce the number of shares
thereafter available under the Plan in accordance with the rules set forth
in Section 4).

 

(9) 
Section 409A.  Each Stock Option award shall
contain such terms as the Administrator determines, and shall be construed and
administered, such that the Stock Option either (i) qualifies for an
exemption from the requirements of Section 409A to the extent applicable,
or (ii) satisfies such requirements.

 

(10)  Certain
Requirements of Corporate Law.  Stock Options
shall be granted and administered consistent with the requirements of
applicable Delaware law relating to the issuance of stock and the consideration
to be received therefor, and with the applicable requirements of the stock
exchanges or other trading systems on which the Stock is listed or entered for
trading, in each case as determined by the Administrator.

 

(11)  Stockholders Agreement.  Unless
otherwise specifically provided, all Stock Options issued under the Plan and
all Stock issued thereunder will be subject to the Stockholders Agreement.

 

(b)           Stock Option Exercise.

 

(1)  Time And Manner Of
Exercise.  Unless the Administrator expressly provides
otherwise, a Stock Option will not be deemed to have been exercised until
the Administrator receives a notice of exercise (in form acceptable to the
Administrator) signed by the appropriate person and accompanied by any payment required
under the Stock Option.  If the 

 

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Stock Option is exercised by any person other than the Participant, the
Administrator may require satisfactory evidence that the person exercising the Stock
Option has the right to do so.

 

(2)  Exercise Price. 
The exercise price of each Stock Option requiring exercise shall be 100%
(in the case of an ISO granted to a ten-percent shareholder within the meaning
of subsection (b)(6) of Section 422, 110%) of the Fair Market Value
of the Stock subject to the Stock Option, determined as of the date of grant,
or such other amount as the Administrator may determine in connection with the
grant.

 

(3)  Payment Of Exercise
Price.  Where the exercise of a Stock Option is to be
accompanied by payment, payment of the exercise price shall be by cash or check
acceptable to the Administrator, or, if so permitted by the Administrator and
if legally permissible, (i) through the delivery of shares of Stock that
have been outstanding for at least six months (unless the Administrator
approves a shorter period) and that have a Fair Market Value equal to the
exercise price, (ii) through the withholding of shares of Stock otherwise
to be delivered upon exercise of the Stock Option whose Fair Market Value is
equal to the aggregate exercise price of the Stock Option being exercised, (iii) by
other means acceptable to the Administrator, or (iv) by any combination of
the foregoing permissible forms of payment. 
The delivery of shares in payment of the exercise price under clause (i) above
may be accomplished either by actual delivery or by constructive delivery
through attestation of ownership, subject to such rules as the
Administrator may prescribe.

 

(4)  Maximum Term.  Stock
Options will have a maximum term not to exceed ten (10) years (in the case
of an ISO granted to a ten-percent shareholder within the meaning of subsection
(b)(6) of Section 422, five (5) years) from the date of grant.

 

7.             EFFECT OF CERTAIN TRANSACTIONS

 

(a)           Mergers, etc.  Except as
otherwise provided in a Stock Option award, the following provisions shall
apply in the event of a Change in Control:

 

(1)   Assumption or Substitution.  If the Change in Control is one in which
there is an acquiring or surviving entity, the Administrator may provide for
the assumption of some or all outstanding Stock Options or for the grant of new
stock options in substitution therefor by the acquiror or survivor or an
affiliate of the acquiror or survivor.

 

(2)   Cash-Out of Stock Options.  If the Change in Control is one in which
holders of Stock will receive upon consummation a payment (whether cash,
non-cash or a combination of the foregoing), the Administrator may provide for
payment (a “cash-out”), with respect to some or all Stock Options or any
portion thereof, equal in the case of each affected Stock Option or portion
thereof to the excess, if any, of (A) the Fair Market Value of one share
of Stock times the number of shares of Stock subject to the Stock Option or
such portion, over (B) the aggregate exercise or purchase price, if any,
under the Stock Option or such portion, in each case on such payment terms
(which need not be the same as the terms of payment to holders of Stock) and
other terms, and subject to such conditions, as the Administrator determines; provided, that the Administrator shall not exercise its
discretion under this Section 7(a)(2) with respect to a Stock Option
or portion thereof providing for “nonqualified deferred compensation” 

 

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subject to Section 409A
in a manner that would constitute an extension or acceleration of, or other
change in, payment terms if such change would be inconsistent with the
applicable requirements of Section 409A.

 

(3) 
Acceleration of Certain Stock Options.  If the Change
in Control (whether or not there is an acquiring or surviving entity) is one in
which there is no assumption, substitution or cash-out, each Stock Option will
become fully exercisable and such shares will be delivered, prior to the Change
in Control, in each case on a basis that gives the holder of the Stock Option a
reasonable opportunity, as determined by the Administrator, following exercise
of the Stock Option or the delivery of the shares, as the case may be, to
participate as a stockholder in the Change in Control; provided,
that to the extent acceleration pursuant to this Section 7(a)(3) of a
Stock Option subject to Section 409A would cause the Stock Option to fail
to satisfy the requirements of Section 409A, the Stock Option shall not be
accelerated and the Administrator in lieu thereof shall take such steps as are
necessary to ensure that payment of the Stock Option is made in a medium other
than Stock and on terms that as nearly as possible, but taking into account
adjustments required or permitted by this Section 7, replicate the prior
terms of the Stock Option.

 

(4)  Termination of Stock Options Upon
Consummation of Change in Control.  Each Stock
Option will terminate upon consummation of the Change in Control, other than
the following:  (i) Stock Options
assumed pursuant to Section 7(a)(1) above; and (ii) Stock Options
converted pursuant to the proviso in Section 7(a)(3) above into an
ongoing right to receive payment other than Stock.

 

(b)           Changes in and
Distributions With Respect to Stock

 

(1) 
Basic Adjustment Provisions.  In the event
of a stock dividend, stock split or combination of shares (including a reverse
stock split), recapitalization or other change in the Company’s capital
structure, the Administrator shall make appropriate adjustments to the maximum
number of shares specified in Section 4(a) that may be delivered
under the Plan and will also make appropriate adjustments to the number and
kind of shares of stock or securities subject to Stock Options then outstanding
or subsequently granted, any exercise prices relating to Stock Options and any
other provision of Stock Option awards affected by such change.

 

(2) 
Certain Other Adjustments.  The
Administrator may also make adjustments of the type described in Section 7(b)(1) above
to take into account distributions to stockholders other than those provided
for in Section 7(a) and 7(b)(1), or any other event, if the
Administrator determines that adjustments are appropriate to avoid distortion
in the operation of the Plan and to preserve the value of Stock Options made
hereunder, having due regard for the qualification of ISOs under Section 422
and the requirements of Section 409A, where applicable.

 

(3) 
Continuing Application of Plan Terms.  References in
the Plan to shares of Stock will be construed to include any stock or
securities resulting from an adjustment pursuant to this Section 7.

 

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8.             LEGAL CONDITIONS ON DELIVERY OF STOCK

 

The Company will not be
obligated to deliver any shares of Stock pursuant to the Plan or to remove any
restriction from shares of Stock previously delivered under the Plan until: (i) the
Company is satisfied that all legal matters in connection with the issuance and
delivery of such shares have been addressed and resolved; (ii) if the
outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and (iii) all conditions of the Stock Option have been satisfied
or waived.  If the sale of Stock has not
been registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Stock Option, such representations
or agreements as counsel for the Company may consider appropriate to avoid
violation of such Act.  The Company may
require that certificates evidencing Stock issued under the Plan bear an appropriate
legend reflecting any restriction on transfer applicable to such Stock, and the
Company may hold the certificates pending lapse of the applicable restrictions.

 

9.             AMENDMENT AND TERMINATION

 

The Administrator may at
any time or times amend the Plan or any outstanding Stock Option for any
purpose which may at the time be permitted by law, and may at any time
terminate the Plan as to any future grants of Stock Options; provided, that except as otherwise expressly provided in the
Plan the Administrator may not, without the Participant’s consent, alter the
terms of a Stock Option so as to affect materially and adversely the
Participant’s rights under the Stock Option, unless the Administrator expressly
reserved the right to do so at the time of the Stock Option award.  Any amendments to the Plan shall be
conditioned upon stockholder approval only to the extent, if any, such approval
is required by law (including the Code), as determined by the Administrator.

 

10.          OTHER COMPENSATION ARRANGEMENTS

 

The
existence of the Plan or the grant of any Stock Option will not in any way
affect the Company’s right to award a person bonuses or other compensation in
addition to Stock Options under the Plan.

 

11.          MISCELLANEOUS

 

(a)           Waiver of Jury Trial.  By accepting a
Stock Option under the Plan, each Participant waives any right to a trial by
jury in any action, proceeding or counterclaim concerning any rights under the
Plan and any Stock Option, or under any amendment, waiver, consent, instrument,
document or other agreement delivered or which in the future may be delivered
in connection therewith, and agrees that any such action, proceedings or
counterclaim shall be tried before a court and not before a jury.  By accepting a Stock Option under the Plan,
each Participant certifies that no officer, representative, or attorney of the
Company has represented, expressly or otherwise, that the Company would not, in
the event of any action, proceeding or counterclaim, seek to enforce the
foregoing waivers.

 

(b)           Limitation of Liability. 
Notwithstanding anything to the contrary in the Plan, neither the
Company, nor any Affiliate, nor the Administrator, nor any person acting on
behalf of 

 

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the Company, any
Affiliate, or the Administrator, shall be liable to any Participant or to the
estate or beneficiary of any Participant or to any other holder of a Stock
Option by reason of any acceleration of income, or any additional tax, asserted
by reason of the failure of a Stock Option to satisfy the requirements of Section 422
or Section 409A or by reason of Section 4999 of the Code.

 

12.          ESTABLISHMENT OF SUB-PLANS

 

The Board may from time
to time establish one or more sub-plans under the Plan for purposes of
satisfying applicable blue sky, securities or tax laws of various
jurisdictions.  The Board shall establish
such sub-plans by adopting supplements to the Plan setting forth (i) such
limitations on the Administrator’s discretion under the Plan as the Board deems
necessary or desirable and (ii) such additional terms and conditions not
otherwise inconsistent with the Plan as the Board shall deem necessary or
desirable.  All supplements adopted by
the Board shall be deemed to be part of the Plan, but each supplement shall
apply only to Participants within the affected jurisdiction and the Company
shall not be required to provide copies of any supplement to Participants in
any jurisdiction that is not affected.

 

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EXHIBIT A

 

Definition of Terms

 

The following terms, when used in the Plan, will have the meanings and
be subject to the provisions set forth below:

 

“Administrator”:  The Board,
except that the Board may delegate its authority under the Plan to a committee
of the Board, in which case references herein to the Board shall refer to such
committee.  The Board may delegate (i) to
one or more of its members such of its duties, powers and responsibilities as
it may determine; (ii) to one or more officers of the Company the power to
grant rights or options to the extent permitted by Section 157(c) of
the Delaware General Corporation Law; and (iii) to such Employees or other
persons as it determines such ministerial tasks as it deems appropriate.  In the event of any delegation described in
the preceding sentence, the term “Administrator” shall include the person or
persons so delegated to the extent of such delegation.

 

“Affiliate”:  Any
corporation or other entity that stands in a relationship to the Company that
would result in the Company and such corporation or other entity being treated
as one employer under Section 414(b) and Section 414(c) of
the Code, except that in determining eligibility for the grant of a Stock
Option by reason of service for an Affiliate, Sections 414(b) and 414(c) of
the Code shall be applied by substituting “at least 50%” for “at least 80%”
under Section 1563(a)(1), (2) and (3) of the Code and Treas.
Regs. § 1.414(c)-2; provided, that
to the extent permitted under Section 409A, “at least 20%” shall be used
in lieu of “at least 50%”; and further provided,
that the lower ownership threshold described in this definition (50% or 20% as
the case may be) shall apply only if the same definition of affiliation is used
consistently with respect to all compensatory stock options or stock awards
(whether under the Plan or another plan). The Company may at any time by
amendment provide that different ownership thresholds (consistent with Section 409A)
apply but any such change shall not be effective for twelve (12) months.

 

“Board”:  The Board of
Directors of the Company.

 

“Cause”:  In the case of any Participant, unless otherwise set
forth in a Participant’s Stock Option award or employment agreement, a
termination by the Company or an affiliate of the Participant’s Employment or a
termination by the Participant of the Participant’s Employment, in either case
following the occurrence of any of the following events: (i) the
Participant’s willful and continued failure to perform, or gross negligence or
willful misconduct in the performance of, his or her material duties with
respect to the Company or an Affiliate which, if curable, continues beyond ten
business days after a written demand for substantial performance is delivered
to the Participant by the Company; or (ii) Participant’s conviction of, or
a plea of nolo contendere to, a crime constituting a felony under the laws of
the United States or any state thereof; (iii) the Participant’s committing
or engaging in any act of fraud, embezzlement, theft or other act of dishonesty
against the Company or its subsidiaries that causes material injury, monetarily
or otherwise, to the Company or an affiliate or the Sponsors and any of their
respective affiliates; or (iv) the Participant’s breach of his or her
noncompetition or nonsolicitation obligations in any agreement with the Company
that causes material injury, 

 

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monetarily or otherwise,
to the Company or an affiliate or the Sponsors and any of their respective
affiliates.

 

“Code”:  The U.S.
Internal Revenue Code of 1986 as from time to time amended and in effect, or
any successor statute as from time to time in effect.

 

“Company”:  LPL Investment
Holdings Inc.

 

“Change in Control”:  the consummation of
(i) any consolidation or merger of the Company with or into any other
Person, or any other corporate reorganization, transaction or transfer of
securities of the Company by its stockholders, or series of related
transactions (including the acquisition of capital stock of the Company),
whether or not the Company is a party thereto, in which the stockholders of the
Company immediately prior to such consolidation, merger, reorganization or
transaction, own, directly or indirectly, capital stock either (A) representing
directly or indirectly through one or more entities, less than fifty percent
(50%) of the equity economic interests in or voting power of the Company or
other surviving entity immediately after such consolidation, merger,
reorganization or transaction or (B) that does not directly, or indirectly
through one or more entities, have the power to elect a majority of the entire
board of directors or other similar governing body of the Company or other
surviving entity immediately after such consolidation, merger, reorganization
or transaction, (ii) any transaction or series of related transactions,
whether or not the Company is party thereto, after giving effect to which in
excess of fifty percent (50%) of the Company’s voting power is owned directly,
or indirectly through one or more entities, by any person and its “affiliates”
or “associates” (as such terms are defined in the Exchange Act Rules) or any “group”
(as defined in the Exchange Act Rules) other than, in each case, the Company or
an affiliate of the Company immediately following the Closing, or (iii) a
sale or other disposition of all or substantially all of the consolidated
assets of the Company (each of the foregoing, a “Business Combination”),
provided that, notwithstanding the foregoing, the following transactions shall
in no event constitute a Change in Control: (A) a Business Combination
following which the individuals or entities who were beneficial owners of the
outstanding securities entitled to vote generally in the election of directors
of the Company immediately prior to such Business Combination beneficially own,
directly or indirectly, 50% or more of the outstanding securities entitled to
vote generally in the election of directors of the resulting, surviving or
acquiring corporation in such transaction or (B) an IPO.

 

“Competitive Activity”:  engaging, directly or indirectly, alone or as
principal, agent, employee, employer, consultant, investor, partner or manager,
or providing advisory or other services to, or owning any stock or any other
ownership interest in, or making any financial investment in any business (or
entity) that engages in any business in which the Company and its subsidiaries
are engaged, or that provides any material products and/or services that the
Company or its subsidiaries were actively developing or designing (provided
that where such Competitive Activity occurs following termination of
Employment, the Competitive Activity shall be determined at the date of
termination); provided, that the foregoing shall not restrict the Participant
from owning less than two percent (2%) of the outstanding securities of any
class of securities listed on a national exchange or inter-dealer quotation
system.

 

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“Effective Date”: January 1, 2008.

 

“Employee”:  Any person who
is employed by the Company or an Affiliate.

 

“Employment”: 
A
Participant’s employment or other service relationship with the Company and its
Affiliates.  Employment will be deemed to
continue, unless the Administrator expressly provides otherwise, so long as the
Participant is employed by, or otherwise is providing services in a capacity
described in Section 5 to the Company or its Affiliates.  If a Participant’s employment or other
service relationship is with an Affiliate and that entity ceases to be an
Affiliate, the Participant’s Employment will be deemed to have terminated when
the entity ceases to be an Affiliate unless the Participant transfers
Employment to the Company or its remaining Affiliates.

 

“Fair Market Value”: As defined in the Stockholders Agreement
consistent with the applicable requirements of Section 422 and Section 409A.

 

“IPO”: An underwritten public offering and sale of Stock for
cash pursuant to an effective registration statement filed by the Company.

 

 “ISO”:  A
Stock Option intended to be an “incentive stock option” within the meaning of Section 422.  Each option granted pursuant to the Plan will
be treated as providing by its terms that it is to be a non-incentive stock
option unless, as of the date of grant, it is expressly designated as an ISO.

 

“Participant”:  A person who
is granted a Stock Option under the Plan.

 

“Plan”:  The LPL
Investment Holdings Inc. 2008 Stock Option Plan as from time to time amended
and in effect.

 

“Retirement”: Termination of Employment other than for Cause
following attainment of age 65 and completion of five (5) years of
continuous service with the Company.

 

“Section 409A”:  Section 409A
of the Code.

 

“Section 422”:  Section 422
of the Code.

 

“Sponsors”:
Shall have the meaning set
forth in the Stockholders Agreement.

 

“Stock”:  Common Stock
of the Company, par value $0.01 per share.

 

“Stock Option”:  An option
entitling the holder to acquire shares of Stock upon payment of the exercise
price.

 

“Stockholders
Agreement”: Stockholders Agreement, dated as of December 28,
2005 among the Company and certain Affiliates, stockholders and certain
Participants, as amended from time to time.

 

11EXHIBIT 10.1

 

CANO PETROLEUM, INC.

2008 ANNUAL INCENTIVE PLAN

 

Purpose

 

The
purpose of the Cano Petroleum, Inc. 2008 Annual Incentive Plan (the “Plan”)
is to advance the interests of Cano Petroleum, Inc. (the “Company”) and
its stockholders by (a) providing certain employees of the Company and its
Subsidiaries (as hereinafter defined) incentive compensation which is tied to
the achievement of pre-established and objective performance goals, (b) identifying
and rewarding superior performance and providing competitive compensation to
attract, motivate, and maintain employees who have outstanding skills and
abilities and who achieve superior performance, and (c) fostering
accountability and teamwork throughout the Company.

 

The
Plan is intended to provide Participants (as hereinafter defined) with
incentive compensation which is not subject to the deduction limitation rules prescribed
under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the “Code”), and should be construed to the extent possible as providing for
remuneration which is “performance-based compensation” within the meaning of Section 162(m) of
the Code and the treasury regulations promulgated thereunder.

 

Article I

Definitions

 

For
the purposes of this Plan, unless the context requires otherwise, the following
terms shall have the meanings indicated:

 

“Award”
means a grant of Incentive Compensation that may be paid to an Eligible
Employee upon the satisfaction of specified Performance Goal(s) for a
particular Performance Period; such Performance Period may be a period of less
than a Fiscal Year (e.g., six months, a “Short-Term Cash Bonus Award”), a
period equal to a Fiscal Year (an “Annual Cash Bonus Award”), or a period in
excess of a Fiscal Year (e.g., three Fiscal Years, a “Long-Term Cash Bonus
Award”).

 

“Base
Pay” means for a Performance Period with a duration equal to or less than a
Fiscal Year a Participant’s base salary in effect on the date the Performance
Goals are established or, for a Performance Period with a duration longer than
a Fiscal Year, a Participant’s annualized rate of base salary as of the first
day of the Performance Period, each according to the books and records of the
Company, excluding overtime, commissions, bonuses, disability pay, any
Incentive Compensation paid to the Participant, or any other payment in the
nature of a bonus or compensation paid under any other employee plan, contract,
agreement, or program.

 

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

 

“Business
Unit” means any segment or operating or administrative unit, including
geographical unit, of the Company identified by the Committee as a separate
business unit, or a Subsidiary identified by the Committee as a separate
business unit.

 

“Business
Unit Performance Goals” means the Performance Goals established for each
Business Unit in accordance with Sections 4.1 and 4.2 below for
any Performance Period.

 

“Change
in Control” means a “change in control” as defined in the Cano Petroleum, Inc.
2005 Long Term Incentive Plan.

 

 

“Chief
Executive Officer” or “CEO” means the chief executive officer of the Company.

 

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

 

“Committee”
means the Compensation Committee of the Board, which shall consist of two or
more “outside directors” within the meaning of Section 162(m) of the
Code.

 

“Company”
means Cano Petroleum, Inc., a Delaware corporation.

 

“Company
Performance Goals” means the Performance Goals established for the Company in
accordance with Sections 4.1 and 4.3 below for any Performance
Period.

 

“Covered
Employee” shall have the same meaning as the term “covered employee” (or its
counterpart, as such term may be changed from time to time) contained in the
treasury regulations promulgated under Section 162(m) of the Code, or
their respective successor provision or provisions, that being an employee for
whom the limitation on deductibility for compensation pursuant to Section 162(m) of
the Code is applicable.

 

“Disability”
means a Participant is qualified for long-term disability benefits under the
Company’s or Subsidiary’s disability plan or insurance policy; or, if no such
plan or policy is then in existence or if the Participant is not eligible to
participate in such plan or policy, that the Participant, because of a physical
or mental condition resulting from bodily injury, disease, or mental disorder,
is unable to perform his or her duties of employment for a period of six (6) continuous
months, as determined in good faith by the Committee, based upon medical
reports or other evidence satisfactory to the Committee.  Notwithstanding the foregoing sentence, in
the event an Award issued under the Plan is subject to Section 409A of the
Code, then, in lieu of the foregoing definition and to the extent necessary to
comply with the requirements of Section 409A of the Code, the definition
of “Disability” for purposes of such Award shall be the definition of “disability”
provided for under Section 409A of the Code and the regulations or other
guidance issued thereunder.

 

“Eligible
Employee” shall mean any employee of the Company or any Subsidiary.

 

“Fiscal
Year” means the fiscal year of the Company, which is the twelve-month
(12-month) period ending on June 30 of each calendar year.

 

“Incentive
Compensation” means the compensation approved by the Committee to be paid to a
Participant for any Performance Period under the Plan.

 

“Individual
Performance Goals” means the Performance Goals established for an individual
Participant in accordance with Section 4.6 below for any
Performance Period.

 

“Maximum
Achievement” means, for a Participant for any Performance Period, the maximum
level of achievement of a set of Performance Goals required for Incentive
Compensation to be paid, which shall be established by the Committee in
accordance with Section 4.1 below.

 

“Participant”
means an employee of the Company or a Subsidiary who satisfies the eligibility
requirements of Article III of the Plan and who is selected by the
Committee to participate in the Plan for any Performance Period.

 

2

 

“Performance
Goals” means the Individual Performance Goals, Business Unit Performance Goals,
and Company Performance Goals established by the Committee for the Company and
each Business Unit for any Performance Period, as provided in Sections 4.1,
4.2,  4.3 and 4.6 below.

 

“Performance
Period” means the period selected by the Committee for the payment of Incentive
Compensation.  Unless the Committee, in
its discretion, specifies other Performance Periods for the payment of
Incentive Compensation hereunder, the Performance Period shall be a Fiscal
Year.

 

“Plan”
means the Cano Petroleum, Inc. 2008 Annual Incentive Plan, as it may be
amended from time to time.

 

“Subsidiary”
means (i) any corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing a majority of the total combined
voting power of all classes of stock in one of the other corporations in the
chain, (ii) any limited partnership, if the Company or any corporation
described in item (i) above owns a majority of the general partnership
interest and a majority of the limited partnership interests entitled to vote
on the removal and replacement of the general partner, and (iii) any
partnership or limited liability company, if the partners or members thereof
are composed only of the Company, any corporation listed in item (i) above
or any limited partnership listed in item (ii) above.  “Subsidiaries” means more than one of any
such corporations, limited partnerships, partnerships, or limited liability
company.

 

“Target
Achievement” means, for a Participant for any Performance Period, the level of
achievement of a set of Performance Goals required for Incentive Compensation
to be paid, which shall be established by the Committee in accordance with Section 4.1
below.

 

“Threshold
Achievement” means, for a Participant for any Performance Period, the minimum
level of achievement of a set of Performance Goals required for any Incentive
Compensation to be paid, which shall be established by the Committee in
accordance with Section 4.1 below.

 

Article II

Administration

 

2.1                                 Committee’s
Authority.  Subject to
the terms of this Article II, the Plan shall be administered by the Committee.  For each Performance Period, the Committee
shall have full authority to (i) designate the Eligible Employees who
shall participate in the Plan; (ii) establish the Performance Goals and
achievement levels for each Participant pursuant to Article IV hereof; and
(iii) establish and certify the achievement of the Performance Goals.  Notwithstanding any provision of the Plan to
the contrary, any decision concerning the awarding of Incentive Compensation
hereunder (including, without limitation, establishment of Performance Goals,
Threshold Achievement, Target Achievement, Maximum Achievement, and any other
information necessary to calculate Incentive Compensation for a Covered
Employee for such Performance Period) shall be made exclusively by the members of
the Committee who are at that time “outside” directors, as that term is used in
Section 162(m) of the Code and the treasury regulations promulgated
thereunder.

 

2.2                                 Committee
Action.  A majority of the Committee
shall constitute a quorum, and the act of a majority of the members of the
Committee present at a meeting at which a quorum is present shall be the act of
the Committee.

 

2.3                                 Committee’s
Powers.  The Committee shall have the
power, in its discretion, to take such actions as may be necessary to carry out
the provisions and purposes of the Plan and shall have the 

 

3

 

authority to control and
manage the operation and administration of the Plan.  In order to effectuate the purposes of the
Plan, the Committee shall have the discretionary power and authority to
construe and interpret the Plan, to supply any omissions therein, to reconcile
and correct any errors or inconsistencies, to decide any questions in the
administration and application of the Plan, and to make equitable adjustments
for any mistakes or errors made in the administration of the Plan.  All such actions or determinations made by
the Committee, and the application of rules and regulations to a
particular case or issue by the Committee, in good faith, shall not be subject
to review by anyone, but shall be final, binding and conclusive on all persons
ever interested hereunder.

 

In construing the Plan and in exercising its power
under provisions requiring the Committee’s approval, the Committee shall
attempt to ascertain the purpose of the provisions in question, and when the
purpose is known or reasonably ascertainable, the purpose shall be given effect
to the extent feasible.  Likewise, the
Committee is authorized to determine all questions with respect to the
individual rights of all Participants under this Plan, including, but not
limited to, all issues with respect to eligibility.  The Committee shall have all powers necessary
or appropriate to accomplish its duties under this Plan including, but not
limited to, the power to:

 

(a)                                  designate the
Eligible Employees who shall participate in the Plan;

 

(b)                                 maintain
complete and accurate records of all plan transactions and other data in the
manner necessary for proper administration of the Plan;

 

(c)                                  adopt rules of
procedure and regulations necessary for the proper and efficient administration
of the Plan, provided the rules and regulations are not inconsistent with
the terms of the Plan as set out herein. 
All rules and decisions of the Committee shall be uniformly and
consistently applied to all Participants in similar circumstances;

 

(d)                                 enforce the
terms of the Plan and the rules and regulations it adopts;

 

(e)                                  review claims
and render decisions on claims for benefits under the Plan;

 

(f)                                    furnish the
Company or the Participants, upon request, with information that the Company or
the Participants may require for tax or other purposes;

 

(g)                                 employ agents,
attorneys, accountants or other persons (who also may be employed by or
represent the Company) for such purposes as the Committee considers necessary
or desirable in connection with its duties hereunder; and

 

(h)                                 perform any and
all other acts necessary or appropriate for the proper management and
administration of the Plan.

 

Article III

Eligibility

 

For
each Performance Period, the Committee shall select the particular Eligible
Employees to whom Incentive Compensation may be awarded for such Performance
Period; with respect to Covered Employees, such determination shall be made
within the first ninety (90) days of such Performance Period (and in the case
of a Performance Period less than a Fiscal Year, such determination shall be
made no later than the date 25% of the Performance Period has elapsed).  To the extent permitted by the Committee,
employees who participate in the Plan may also participate in other incentive
or benefit plans of the Company or any Subsidiary.  Senior management of each Business Unit shall
recommend to the 

 

4

 

Committee within not more
than ninety (90) days after the beginning of a Performance Period (and in the
case of a Performance Period less than a Fiscal Year, such determination shall
be made no later than the date 25% of the Performance Period has elapsed) those
employees of such Business Unit to be eligible to participate in the Plan for
such Performance Period; the Committee shall consider, but shall not be bound
by, such recommendations. 
Notwithstanding any provision in this Plan to the contrary, the
Committee may grant one or more Awards to an Eligible Employee at any time, and
from time to time, and the Committee shall have the discretion to determine
whether any such Award shall be a Short-Term Cash Bonus Award, an Annual Cash
Bonus Award or a Long-Term Cash Bonus Award.

 

Article IV

Determination of Goals and Incentive Compensation

 

4.1                                 Establishment
of Business Unit and Company Performance Goals.  No later than the ninetieth (90th)
day of the Performance Period (and in the case of a Performance Period less
than a Fiscal Year, such determination shall be made no later than the date 25%
of the Performance Period has elapsed), the Committee shall approve and deliver
to the Chief Executive Officer of the Company a written report setting forth: (i) 
the Business Unit Performance Goals for the Performance Period, (ii) the
Company Performance Goals for the Performance Period, (iii) the Threshold,
Target, and Maximum Achievement levels for the Business Unit Performance Goals
and Company Performance Goals for the Performance Period, (iv) with
respect to each Participant, Incentive Compensation for achievement of
Threshold, Target, and Maximum Achievement levels and the relative weighting of
each Performance Goal in determining the Participant’s Incentive Compensation,
and (v) a schedule setting forth the payout opportunity for Threshold,
Target, and Maximum Achievement levels.

 

4.2                                 Categories of
Business Unit Performance Goals.  The Business Unit Performance Goals
established by the Committee for any Performance Period may differ among
Participants and Business Units.  For
each Business Unit, the Business Unit Performance Goals shall be based on the
performance of the Business Unit.

 

Performance
criteria for a Business Unit shall be related to the achievement of financial
and operating objectives of the Business Unit, including such factors as: (a) earnings
(either in aggregate or on a per-share basis); (b) net income; (c) operating
income; (d) operating profit; (e) cash flow; (f) stockholder
returns/including return on assets, investment, invested capital, and equity,
(including income applicable to common stockholders or other class of
stockholders); (g) return measures (including return on assets, equity, or
invested capital); (h) earnings before or after either, or any combination
of, interest, taxes, depreciation, or amortization (EBITDA); (i) gross
revenues; (j) share price (including growth measures and total stockholder
return or attainment by the shares of a specified value for a specified period
of time; (k) reduction in expense levels in each case, where applicable,
determined either on a Company-wide basis or in respect of any one or more
Subsidiaries or Business Units thereof; (l) economic value; (m) market
share; (n) annual net income to common stock; (o) earnings per share;
(p) annual cash flow provided by operations; (q) changes in annual
revenue; (r) strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, objectively identified project milestones, production
volume levels, cost targets, and goals relating to acquisitions or
divestitures; (s) operational performance measures tied to refining
including production volumes, refinery downtimes, environmental compliance, safety
and accident rates, and refining margins; (t) operational measures tied to
exploration and production including changes in proven reserves, finding and
development costs, drilling costs, lifting costs, and exploration costs; (u) operational
measures tied to marketing and retail operations including sales volume
increases, sales volume increases per existing retail store, retail margins,
special product volumes, and increases in specific product volumes; and (v) operating
and maintenance cost management.

 

5

 

4.3                                 Company
Performance Goals.  The Company
Performance Goals established by the Committee for any Performance Period shall
relate to the achievement of predetermined financial and operating objectives for
the Company and its Subsidiaries on a consolidated basis, including the factors
listed in Section 4.2 above, as applied to the Company and its
Subsidiaries on a consolidated basis. 
The Company Performance Goals may be established either on an absolute
or on a per share basis reflecting dilution of shares as the Committee deems
appropriate and, if the Committee so determines, net of or including cash
dividends.  The Company Performance Goals
may also be established on a relative basis as compared to the performance of a
published or special index deemed applicable by the Committee including, but
not limited to, the Standard & Poor’s 500 Stock Index or a group of
companies deemed by the Committee to be comparable to the Company.

 

4.4                                 Certification.  Within ten (10) days after the receipt
of the Independent Auditor’s Report on the Company’s financial statements for a
Performance Period consisting of one or more Fiscal Years covered by the
financial statements or other accounting finalizing the Company’s financial
results for any Performance Period, the senior management of the Company and
each Business Unit shall report to the Committee the extent to which Business
Unit and Company Performance Goals were achieved for the Performance Period.  As soon as practicable following the
finalization of the Company’s financial statements or receipt of the
Independent Auditor’s Report  and receipt
of the report of the Company and Business Unit senior management, the Committee
shall certify in writing and in compliance with the requirements of Treasury
Regulation 1.162-27 (and successor regulations thereto) in the case of any
Award intended to qualify under Section 162(m) of the Code: (i) the
extent to which each Business Unit achieved its Business Unit Performance Goals
for the Performance Period, (ii) the extent to which the Company achieved
its Company Performance Goals for the Performance Period, (iii) the
calculation of the Participants’ Incentive Compensation, and (iv) the
determination by the Committee of the amount of Incentive Compensation, if any,
to be paid to each Participant for the Performance Period. In determining
whether Performance Goals have been achieved and Incentive Compensation is
payable for a given Performance Period, generally accepted accounting principles
to the extent applicable to the Performance Goal shall be applied on a basis
consistent with prior periods, and such determinations shall be based on the
calculations made by the Company and binding on each Participant.

 

4.5                                 Earned Award
Based on Level of Achievement.  If Threshold Achievement is attained with
respect to a Performance Goal, then the Incentive Compensation that may be paid
to such Participant with respect to such Performance Goal shall be based on the
Committee’s predetermined schedule (which may allow for interpolation between
achievement levels) setting forth the earned award.

 

4.6                                 Discretion to
Reduce Incentive Compensation.  After the certification described in Section 4.4
the Committee may, in its sole and absolute discretion, decrease the Incentive
Compensation to be paid to one or more Participants for such Performance
Period.  The Committee may consider
subjective factors, including factors communicated to the Participant at the
beginning of the Performance Period or other factors the Committee considers
appropriate, and including any Individual Performance Goals set for the
Participant for the given Performance Period, in determining whether to reduce
the Incentive Compensation to be paid to a Participant.  Individual Performance Goals need not have
been established during the specific time periods set forth in Section 4.1
above for the establishment of Company Performance Goals and Business Unit
Performance Goals.

 

4.7                                 Limitation on
Total Incentive Compensation.  Notwithstanding any provision to the contrary
contained herein, the maximum Incentive Compensation payable to any Participant
with respect to any single Award shall not exceed $2,500,000.

 

6

 

Article V

Payment of Incentive Compensation

 

5.1                                 Form and
Time of Payment.  Subject to
the provisions of Sections 5.2 and 5.3 below and except as
otherwise provided herein, a Participant’s Incentive Compensation for each
Performance Period shall be paid as soon as practicable after the results for
such Performance Period have been finalized, but in no event later than March 15th
of the first calendar year immediately following the close of such Performance
Period.  The payment shall be in the form
directed by the Committee and may either be paid in a cash lump sum payment or
in installments.

 

5.2                                 Forfeiture Upon
Termination Prior to Date of Payment.  If a Participant’s employment with the
Company and all of its Subsidiaries is terminated voluntarily by the
Participant for any reason, or is terminated by his or her employer for any
reason other than the death or Disability of the Participant, during a
Performance Period or after a Performance Period but prior to the date of
actual payment in accordance with Section 5.1 above, then such Participant
will immediately forfeit any right to receive any Incentive Compensation
hereunder for such Performance Period. 
However, under such circumstances where the termination of employment
occurs after the Performance Period has ended but prior to the date of actual
payment, the Committee may pay the Participant an amount not to exceed the
amount earned according to the terms of the Award.

 

5.3                                 Pro Rata
Payment for Death or Disability; New Hires.

 

(a)                                  Death or
Disability.  If during a
Performance Period, a Participant’s employment is terminated by reason of the
Participant’s death or Disability, then such Participant shall, if the
Committee so determines, be eligible to receive pro rata portion of the
Incentive Compensation that would have been payable to such Participant, if he
or she had remained employed, based on the number of days worked during the
Performance Period.  Such Incentive
Compensation shall be paid at the time and in the manner set forth in Section 5.1
hereof.

 

(b)                                 New Hires;
Promotions.  Any
individual who is newly-hired or becomes an Eligible Employee during a
Performance Period and who is selected by the Committee to participate in the
Plan shall be eligible to receive a pro rata portion of the Incentive
Compensation to which he or she could have been entitled if he or she had been
employed for the full Performance Period, based on the number of days during
the Performance Period during which he or she is a Participant in the Plan and
calculated on the basis of his or her Base Pay received for the Performance
Period.  Such Incentive Compensation
shall be paid at the time and in the manner set forth in Section 5.1
hereof.

 

5.4                                 Change in
Control.  In the event of a Change in
Control during a Performance Period, the Committee may, in its sole discretion,
take such action with respect to the Plan and any Incentive Compensation
payable during such Performance Period as is consistent with and otherwise not
contrary to the provisions of Section 162(m) of the Code and the
treasury regulations promulgated thereunder, as the Committee determines is in
the best interest of the Company.

 

Article VI

Miscellaneous Provisions

 

6.1                                 Non-Assignability.  A Participant may not alienate, assign,
pledge, encumber, transfer, sell or otherwise dispose of any rights or benefits
awarded hereunder prior to the actual receipt thereof; and any attempt to
alienate, assign, pledge, sell, transfer or assign prior to such receipt, or
any levy, attachment, execution or similar process upon any such rights or
benefits shall be null and void.

 

7

 

6.2                                 No Right To
Continue In Employment. 
Nothing in the Plan confers upon any employee the right to continue in
the employ of the Company or any Subsidiary, or interferes with or restricts in
any way the right of the Company and its Subsidiaries to discharge any employee
at any time (subject to any contract rights of such employee).

 

6.3                                 Indemnification
Of Committee.  No member
of the Committee nor any officer or employee of the Company acting with or on
behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to
the Plan, and all members of the Committee, and each officer or employee of the
Company acting with it or on its behalf shall, to the extent permitted by law,
be fully indemnified and protected by the Company with respect to any such
action, determination or interpretation.

 

6.4                                 No Plan Funding.  The Plan shall at all times be entirely
unfunded, and no provision shall at any time be made with respect to
segregating assets of the Company for payment of any amounts hereunder.  No Participant, beneficiary, or other person
shall have any interest in any particular assets of the Company by reason of
the right to receive Incentive Compensation under the Plan.  Participants and beneficiaries shall have
only the rights of a general unsecured creditor of the Company.

 

6.5                                 Governing Law.  This Plan shall be construed in accordance
with the laws of the State of Texas and the rights and obligations created
hereby shall be governed by the laws of the State of Texas.

 

6.6                                 Binding Effect.  This Plan shall be binding upon and inure to
the benefit of the Company, its successors and assigns, and the Participants,
and their heirs, assigns, and personal representatives.

 

6.7                                 Construction of
Plan.  The captions used in this Plan
are for convenience only and shall not be construed in interpreting the
Plan.  Whenever the context so requires,
the masculine shall include the feminine and neuter, and the singular shall
also include the plural, and conversely.

 

6.8                                 Integrated Plan.  This Plan constitutes the final and complete
expression of agreement with respect to the subject matter hereof.

 

6.9                                 Tax
Requirements.  The Company
(and, where applicable, its Subsidiaries) shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy applicable taxes required by law to be withheld with
respect to any payment of any Incentive Compensation to a Participant.

 

6.10                           Adjustments. In the event
of (a) any merger, reorganization, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights, offering, extraordinary dividend (including a spin-off), or
other similar change affecting the Company’s shares; (b) any purchase,
acquisition, sale, or disposition of a significant amount of assets other than
in the ordinary course of business, or of a significant business; (c) any
change resulting from the accounting effects of discontinued operations,
extraordinary income or loss, changes in accounting as determined under
generally accepted accounting principles, or restatement of earnings; or (d) any
charge or credit resulting from an item which is classified as “non-recurring,”
“restructuring,” or similar unusual item on the Company’s audited annual
Statement of Income which, in the case of (a) – (d), results in a change in the
components of the calculations of any of the criteria upon which the
Performance Goals are based, as established by the Committee, in each case with
respect to the Company or any other entity whose performance is relevant to the
achievement of any Performance Goal included in an Award, the Committee shall,
without the consent of any affected Participant, amend or modify the terms of
any outstanding Award that includes any Performance Goal based in whole or in
part on the financial 

 

8

 

performance of the Company (or any Subsidiary
or division thereof) or such other entity so as equitably to reflect such event
or events, such that the criteria for evaluating such financial performance of
the Company or such other entity (and the achievement of the corresponding
Performance Goal) will be substantially the same (as determined by the
Committee or the committee of the board of directors of the surviving
corporation) following such event as prior to such event; provided, however,
that the Committee shall not take any action pursuant to this Section which
would constitute an impermissible exercise of discretion pursuant to Section 162(m) of
the Code.

 

Article VII

Amendment or Discontinuance

 

Except as provided in Section 6.10,
the Committee may at any time and from time to time, without the consent of the
Participants, alter, amend, revise, suspend, or discontinue the Plan in whole
or in part; provided that any amendment that modifies any preestablished
Performance Goal for a Participant who is a Covered Employee (or his
successor(s), as may be applicable) under this Plan with respect to any
particular Performance Period may only be effected on or prior to that date
which is ninety (90) days following the commencement of such Performance Period
(and in the case of a Performance Period less than a Fiscal Year, such
determination shall be made no later than the date 25% of the Performance
Period has elapsed).  In addition, the
Board shall have the power to discontinue the Plan in whole or in part and
amend the Plan in any manner advisable in order for Incentive Compensation
granted under the Plan to qualify as “performance-based” compensation under Section 162(m) of
the Code (including amendments as a result of changes to Section 162(m) or
the regulations thereunder to permit greater flexibility with respect to
Incentive Compensation granted under the Plan).

 

Article VIII

Effect of the Plan

 

Neither the adoption of this
Plan nor any action of the Board or the Committee shall be deemed to give any
Participant any right to be granted Incentive Compensation or any other
rights.  In addition, nothing contained
in this Plan and no action taken pursuant to its provisions shall be construed
to (a) give any Participant any right to any compensation, except as
expressly provided herein; (b) be evidence of any agreement, contract or
understanding, express or implied, that the Company or any Subsidiary will
employ a Participant in any particular position; (c) give any Participant
any right, title, or interest whatsoever in or to any investments which the
Company may make to aid it in meeting its obligations hereunder; or (d) create
a trust of any kind or a fiduciary relationship between the Company and a
Participant or any other person.

 

Article IX

Term

 

The effective date of this
Plan shall be as of February 15, 2008, subject to stockholder
approval.  The material terms of this
Plan shall be disclosed to the stockholders of the Company for approval in
accordance with Section 162(m) of the Code. This Plan and any
benefits granted hereunder shall be null and void if stockholder approval is
not obtained at the next annual meeting of stockholders of the Company, and no
award or payment of Incentive Compensation under this Plan to any Covered
Employee shall be made unless such stockholder approval is obtained.  This Plan shall remain in effect until it is
terminated by the Committee or the Board.

 

*******************************

 

9

 

IN WITNESS WHEREOF, this
Plan has been adopted this 15th day of February, 2008.

 

 

	
   

  	
  CANO PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
  Name:

  	
  S. Jeffrey Johnson

  
	
   

  	
  Title:

  	
  Chairman of the Board and
  Chief Executive

  Officer

  

 

10

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