Document:

Exhibit 10.5

 

EXECUTION VERSION

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”), entered into on April 17, 2013, with employment effective as of March 4, 2013 (the “Effective Date”), is made by and between Jeffrey Smith (the “Executive”) and ProPetro Holding Corp., a Texas corporation (together with any of its subsidiaries and Affiliates as may employ the Executive from time to time, and any successor(s) thereto, the “Company”).

 

RECITALS

 

A.       The Company desires to assure itself of the services of the Executive by engaging the Executive to perform services under the terms hereof

 

B.       The Executive desires to provide services to the Company on the terms herein provided.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, including the respective covenants and agreements set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.         Certain Definitions.

 

(a)        “Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person where “control” shall have the meaning given such term under Rule 405 of the Securities Act of 1933, as amended from time to time.

 

(b)        “Agreement” shall have the meaning set forth in the preamble hereto.

 

(c)        “Annual Base Salary” shall have the meaning set forth in Section 3(a).

 

(d)       “Annual Bonus” shall have the meaning set forth in Section 3(b).

 

(e)        “Board” shall mean the Board of Directors of the Company.

 

(f)        The Company shall have “Cause” to terminate the Executive’s employment hereunder upon: (i) the Executive’s willful failure to substantially perform the duties set forth herein (other than any such failure resulting from the Executive’s Disability); (ii) the Executive’s willful failure to carry out, or comply with, in any material respect any lawful directive of the Board; (iii) the Executive’s commission at any time of any act or omission that results in, or may reasonably be expected to result in, a conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony or crime involving moral turpitude; (iv) the Executive’s unlawful use (including being under the influence) or possession of illegal drugs on the Company’s premises or while performing the Executive’s duties and responsibilities hereunder; (v) the Executive’s commission at any time of any act of fraud, embezzlement, misappropriation, misconduct, conversion of assets of the Company, or

 

 

breach of fiduciary duty against the Company (or any predecessor thereto or successor thereof); or (vi) the Executive’s material breach of this Agreement, the Shareholders Agreement or any other agreements with the Company (including, without limitation, any breach of the restrictive covenants of any such agreement); and which, in the case of clauses (i), (ii) and (vi), continues beyond thirty (30) days after the Company has provided the Executive written notice of such failure or breach (to the extent that, in the reasonable judgment of the Board, such failure or breach can be cured by the Executive). Whether or not an event giving rise to “Cause” occurs will be determined by the Board in its sole discretion.

 

(g)        “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(h)        “Committee” shall mean the Compensation Committee of the Board, or if no such committee exists, the Board.

 

(i)         “Common Stock” shall mean the common stock of ProPetro Holding Corp., par value $0.001 per share.

 

(j)         “Company” shall, except as otherwise provided in Section 6(i), have the meaning set forth in the preamble hereto.

 

(k)        “Date of Termination” shall mean (i) if the Executive’s employment is terminated due to the Executive’s death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated due to the Executive’s Disability, the date determined pursuant to Section 4(a)(ii); (iii) if the Executive’s employment is terminated pursuant to Section 4(a)(iii)-(vi), either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 4(b), whichever is earlier; or (iv) if the Executive’s employment is terminated pursuant to Section 4(a)(vii)-(viii), the date immediately following the expiration of the then-current Term.

 

(l)         “Disability” shall mean the Executive’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that can be expected to last for a continuous period of not less than twelve (12) months.

 

(m)       “Effective Date” shall have the meaning set forth in the preamble hereto.

 

(n)        “Executive” shall have the meaning set forth in the preamble hereto.

 

(o)        “Extension Term” shall have the meaning set forth in Section 2(b).

 

(p)        “First Payment Date” shall have the meaning set forth in Section 5(b).

 

(q)        The Executive shall have “Good Reason” to terminate the Executive’s employment hereunder within six (6) months after the occurrence of one or more of the following conditions without the Executive’s consent: (i) a material diminution in the Executive’s authority, duties, or responsibilities, as described herein; (ii) a material diminution in the Executive’s base compensation, as described herein; or (iii) any other action or inaction that constitutes a material breach of this Agreement by the Company; and which, in the case of any of

 

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the foregoing, continues beyond thirty (30) days after the Executive has provided the Company written notice that the Executive believes in good faith that such condition giving rise to such claim of Good Reason has occurred, so long as such notice is provided within ninety (90) days after the initial existence of such condition.

 

(r)        “Initial Term” shall have the meaning set forth in Section 2(b).

 

(s)        “Installment Payments” shall have the meaning set forth in Section 5(b).

 

(t)        “Noncompetition Restricted Period” shall mean the period from the Effective Date through the first (1st) anniversary of the Date of Termination.

 

(u)        “Nonsolicitation Restricted Period” shall mean the period from the Effective Date through the third (3rd) anniversary of the Date of Termination.

 

(v)        “Notice of Termination” shall have the meaning set forth in Section 4(b).

 

(w)       “Option” shall have the meaning set forth in Section 3(c).

 

(x)        “Performance Targets” shall have the meaning set forth in Section 3(b).

 

(y)        “Person” shall mean any individual, natural person, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), incorporated or unincorporated association, governmental authority, firm, society or other enterprise, organization or other entity of any nature.

 

(z)        “Proprietary Information” shall have the meaning set forth in Section 6(c).

 

(aa)      “Section 409A” shall mean Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date.

 

(bb)      “Severance Payment” shall have the meaning set forth in Section 5(b).

 

(cc)      “Severance Period” shall have the meaning set forth in Section 5(b).

 

(dd)     “Shareholders Agreement” shall mean that certain management stockholders agreement to be entered into by and among ProPetro Holding Corp., the Executive, other senior executives of the Company and certain other Persons, attached hereto as Exhibit A, as it may be amended from time to time.

 

(ee)      “Term” shall have the meaning set forth in Section 2(b).

 

(ff)       “Transaction Agreement” shall mean that certain Transaction Agreement dated March 4, 2013, by and among the Company; Blinn Tenney; Shamrock Kelley Energy, Inc.; The JaLee Fladeland 101 Trust; The W.D. Martin 101 Trust; Craig Hart; Sharon Hart; Chuck MacArthur; David Gayanich; West Partners, LLC; Leslie Tenney, Rockbrook Capital, LLP; Dale

 

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Redman; Energy Capital Partners II, LP, a Delaware limited partnership; Energy Capital Partners II-A, LP, a Delaware limited partnership; Energy Capital Partners II-B, LP, a Delaware limited partnership; Energy Capital Partners II-C (Direct IP), LP, a Delaware limited partnership; and Energy Capital Partners II-D, LP, a Delaware limited partnership.

 

2.         Employment.

 

(a)        In General. The Company shall employ the Executive and the Executive shall enter the employ of the Company, for the period set forth in Section 2(b), in the position set forth in Section 2(c), and upon the other terms and conditions herein provided.

 

(b)        Term of Employment. The initial term of employment under this Agreement (the “Initial Term”) shall be for the period beginning on the Effective Date and ending on the second (2nd) anniversary thereof, unless earlier terminated as provided in Section 4; provided that, notwithstanding anything to the contrary herein, the Effective Date shall not occur, and the Initial Term shall not begin, unless and until the Executive has successfully completed a background check and has completed all necessary employment documentation, in each case in accordance with the Company’s hiring policies. The Initial Term shall automatically be extended for successive one (1) year periods (each, an “Extension Term” and, collectively with the Initial Term, the “Term”), unless either party hereto gives notice of non- extension to the other no later than ninety (90) days prior to the expiration of the then-applicable Term.

 

(c)        Position and Duties. During the Term, the Executive: (i) shall serve as the Chief Financial Officer of the Company, with responsibilities, duties and authority customary for such positions, subject to direction by Chief Executive Officer of the Company; (ii) shall report to the Chief Executive Officer of the Company; (iii) shall devote substantially all the Executive’s working time and efforts to the business and affairs of the Company and its subsidiaries; and (iv) agrees to observe and comply with the Company’s rules and policies as adopted by the Company from time to time.

 

3.         Compensation and Related Matters.

 

(a)        Annual Base Salary. During the Term, the Executive shall receive a base salary at a rate of $250,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to review by the Board in its sole discretion (the “Annual Base Salary”).

 

(b)        Annual Bonus. With respect to each calendar year that ends during the Term, commencing with calendar year 2013, the Executive shall be eligible to receive an annual cash bonus (the “Annual Bonus”) in an amount up to fifty percent (50%) of Executive’s Annual Base Salary, based upon individual and Company annual performance targets (the “Performance Targets”) established by the Board in its sole discretion. The amount of the Annual Bonus shall be based upon the Executive’s and the Company’s attainment of the Performance Targets, as determined by the Board (or any authorized committee of the Board) in its sole discretion. Each such Annual Bonus shall be payable on such date as is determined by the Board in its sole discretion, but in any event on or prior to March 15 of the calendar year immediately following

 

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the calendar year with respect to which such Annual Bonus relates. Notwithstanding the foregoing, no bonus shall be payable with respect to any calendar year unless the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on December 31 of such year.

 

(c)        Stock Options. As soon as practicable following the Effective Date, the Company shall grant the Executive a non-qualified stock option (“Option”) to purchase a number of shares of Common Stock equal to the product of (i) 77,758,274.11 and (ii) the Adjustment Percentage (as defined below), at an exercise price per share of Common Stock equal to the fair market value per share of Common Stock on the date of grant of such Option, and pursuant to the terms and conditions of the Stock Option Plan of the Company and a non-qualified stock option agreement substantially in the form attached hereto as Exhibit B. For purposes of this Section 3(c) the “Adjustment Percentage” shall mean the ratio of (i) the number of shares of Common Stock issued to the Purchasers (as defined in the Transaction Agreement) after adjustment pursuant to Section 1.04(d) of the Transaction Agreement to (ii) the number of such shares prior to such adjustment. The Executive and the Company acknowledge and agree that any shares of Common Stock or other equity securities of the Company acquired by the Executive upon exercise of such Option or otherwise shall be subject to the terms and conditions of the Shareholders Agreement.

 

(d)       Benefits. The Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company, as in effect from time to time (including, without limitation, medical and dental insurance and a 401(k) plan).

 

(e)        Vacation; Holidays. During the Term, the Executive shall be entitled to four (4) weeks paid vacation each full calendar year. Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive and in accordance with Company policy. Holidays shall be provided in accordance with Company policy, as in effect from time to time.

 

(f)        Business Expenses. During the Term, the Company shall reimburse the Executive for all reasonable, documented, out-of-pocket travel and other business expenses incurred by the Executive in the performance of the Executive’s duties to the Company in accordance with the Company’s applicable expense reimbursement policies and procedures, as in effect from time to time.

 

4.         Termination. The Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement, only under the following circumstances:

 

(a)        Circumstances

 

(i)         Death. The Executive’s employment hereunder shall terminate upon the Executive’s death.

 

(ii)        Disability. If the Executive incurs a Disability, the Company may give the Executive written notice of its intention to terminate the Executive’s employment. In that event, the Executive’s employment with the Company shall

 

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terminate, effective on the later of the thirtieth (30th) day after receipt of such notice by the Executive or the date specified in such notice; provided that within the thirty (30) day period following receipt of such notice, the Executive shall not have returned to full-time performance of the Executive’s duties hereunder.

 

(iii)       Termination for Cause. The Company may terminate the Executive’s employment for Cause.

 

(iv)       Termination without Cause. The Company may terminate the Executive’s employment without Cause.

 

(v)        Resignation for Good Reason. The Executive may resign from the Executive’s employment for Good Reason.

 

(vi)       Resignation without Good Reason. The Executive may resign from the Executive’s employment without Good Reason.

 

(vii)      Non-Extension of Term by the Company. The Company may give notice of non-extension to the Executive pursuant to Section 2(b). For the avoidance of doubt, non-extension of the Term by the Company shall not constitute termination by the Company without Cause.

 

(viii)     Non-Extension of Term by the Executive. The Executive may give notice of non-extension to the Company pursuant to Section 2(b).

 

(b)        Notice of Termination. Any termination of the Executive’s employment by the Company or by the Executive under this Section 4 (other than a termination pursuant to Section 4(a)(i) above) shall be communicated by a written notice to the other party hereto (a “Notice of Termination”): (i) indicating the specific termination provision in this Agreement relied upon, (ii) except with respect to a termination pursuant to Sections 4(a)(iv), (vi), (vii) or (viii), setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) specifying a Date of Termination, which, if submitted by the Executive, shall be at least thirty (30) days following the date of such notice; provided, however, that a Notice of Termination delivered by the Company pursuant to Section 4(a)(ii) shall not be required to specify a Date of Termination, in which case the Date of Termination shall be determined pursuant to Section 4(a)(ii); and provided, further, that in the event that the Executive delivers a Notice of Termination (other than a Notice of Termination under Section 4(a)(viii) above) to the Company, the Company may, in its sole discretion, accelerate the Date of Termination to any date that occurs following the date of Company’s receipt of such Notice of Termination (even if such date is prior to the date specified in such Notice of Termination). A Notice of Termination submitted by the Company (other than a Notice of Termination under Section 4(a)(ii) or Section 4(a)(vii) above) may provide for a Date of Termination on the date the Executive receives the Notice of Termination, or any date thereafter elected by the Company in its sole discretion. The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause or Good Reason shall not waive any right of the Company or

 

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the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company’s or the Executive’s rights hereunder.

 

5.         Company Obligations Upon Termination of Employment.

 

(a)        In General. Upon a termination of the Executive’s employment for any reason, the Executive (or the Executive’s estate) shall be entitled to receive: (i) any portion of the Executive’s Annual Base Salary through the Date of Termination not theretofore paid, (ii) any expenses owed to the Executive under Section 3(f), (iii) any accrued but unused vacation pay owed to the Executive pursuant to Section 3(e), and (iv) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3(d), which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements. Any Annual Bonus earned for any calendar year completed prior to the Date of Termination, but unpaid prior to such date, shall be paid on or prior to March 15 of the calendar year immediately following such completed calendar year with respect to which such Annual Bonus was earned. Any equity awards granted to the Executive, including stock options, shall continue to be governed by the terms and conditions of the applicable plans and agreements. Except as otherwise set forth in Section 5(b) below, the payments and benefits described in this Section 5(a) shall be the only payments and benefits payable in the event of the Executive’s termination of employment for any reason.

 

(b)        Severance Payment

 

(i)         In the event of the Executive’s termination of employment (1) by the Company without Cause pursuant to Section 4(a)(iv) or (2) by the Executive’s resignation for Good Reason pursuant to Section 4(a)(v), then, in addition to the payments and benefits described in Section 5(a) above, the Company shall, during the period beginning on the Date of Termination and ending on the first (1st) anniversary of the Date of Termination (the “Severance Period”), pay to the Executive an amount (the “Severance Payment”) equal to the sum of (A) the Annual Base Salary for the year in which the Date of Termination occurs, and (B) the Annual Bonus paid to the Executive in respect of the calendar year immediately preceding the year in which the Date of Termination occurs; provided that, in the case of such a termination prior to January 1, 2014, the amount in the foregoing clause (B) shall instead be the target Annual Bonus for calendar year 2013, prorated based on the number of days that the Executive is employed by the Company during the period beginning on the Effective Date and ending on December 31, 2013, and in the case of such a termination in 2014, the amount in the foregoing clause (B) shall be annualized. The Company shall subsidize the Executive’s COBRA premiums with respect to continued coverage under the Company’s health plans so that the Executive will pay the same premium as that of an active employee of the Company for health coverage for the duration of the Severance Period; provided that such subsidies will cease as of the date, if any, that the Executive becomes covered under the group health plans of another employer.

 

(ii)        The Severance Payment shall be in lieu of notice or any other severance benefits to which the Executive might otherwise be entitled. Notwithstanding anything herein to the contrary, (A) no portion of the Severance Payment shall be paid

 

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unless, on or prior to the thirtieth (30th) day following the Date of Termination, the Executive timely executes a general waiver and release of claims agreement in the Company’s customary form (which release shall be delivered by the Company to the Executive within seven (7) days after the Date of Termination and shall not require the Executive to release or waive any vested benefits or claims that arise for the first time after the Effective Date), and such release shall not have been revoked by the Executive prior to the expiration of the period (if any) during which any portion of such release is revocable under applicable law, and (B) as of the first date on which the Executive violates any covenant contained in Section 6, any remaining unpaid portion of the Severance Payment shall thereupon be forfeited. Subject to the provisions of Section 8, the Severance Payment shall be paid in equal installments during the Severance Period, at the same time and in the same manner as the Annual Base Salary would have been paid had the Executive remained in active employment during the Severance Period, in accordance with the Company’s normal payroll practices in effect on the Date of Termination; provided that any installment that would otherwise have been paid prior to the first normal payroll payment date occurring on or after the thirtieth (30th) day following the Date of Termination (such payroll date, the “First Payment Date”) shall instead be paid on the First Payment Date. For purposes of Section 409A (including, without limitation, for purposes of Section 1.409A-2(b)(2)(iii) of the Department of Treasury Regulations), the Executive’s right to receive the Severance Payment in the form of installment payments (the “Installment Payments”) shall be treated as a right to receive a series of separate payments and, accordingly, each Installment Payment shall at all times be considered a separate and distinct payment.

 

(c)        The provisions of this Section 5 shall supersede in their entirety any severance payment provisions in any severance plan, policy, program or other arrangement maintained by the Company.

 

6.         Restrictive Covenants.

 

(a)        The Executive hereby agrees that the Executive shall not, at any time during the Noncompetition Restricted Period, directly or indirectly engage in, have any interest in (including, without limitation, through the investment of capital or lending of money or property), or manage, operate or otherwise render any services to, any Person (whether on his own or in association with others, as a principal, director, officer, employee, agent, representative, partner, member, security holder, consultant, advisor, independent contractor, owner, investor, participant or in any other capacity) that engages in (either directly or through any subsidiary or Affiliate thereof) any business or activity, within any of the states or territories within the United States or any other country, territory or state in which the Company or any of its subsidiaries operate, (i) that creates, designs, invents, engineers, develops, sources, markets, manufactures, distributes or sells any product or provides any service that may be used as a substitute for or otherwise competes with any product or service of the Company or any entity owned by the Company, or (ii) which the Company or any of its Affiliates has taken active steps to engage in or acquire, but only if the Executive directly or indirectly engages in, has any interest in (including, without limitation, through the investment of capital or lending of money or property), or manages, operates or otherwise renders any services in connection with, such business or activity (whether on his own or in association with others, as a principal, director,

 

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officer, employee, agent, representative, partner, member, security holder, consultant, advisor, independent contractor, owner, investor, participant or in any other capacity). Notwithstanding the foregoing, the Executive shall be permitted to acquire a passive stock or equity interest in such a business; provided that such stock or other equity interest acquired is not more than five percent (5%) of the outstanding interest in such business.

 

(b)        The Executive hereby agrees that the Executive shall not, at any time during the Nonsolicitation Restricted Period, directly or indirectly, either for himself or on behalf of any other Person, (i) recruit or otherwise solicit or induce any employee, customer or supplier of the Company to terminate its employment or arrangement with the Company, or otherwise change its relationship with the Company, or (ii) hire, or cause to be hired, any person who was employed by the Company at any time during the twelve (12)-month period immediately prior to the Date of Termination or who thereafter becomes employed by the Company.

 

(c)        Except as the Executive reasonably and in good faith determines to be required in the faithful performance of the Executive’s duties hereunder or in accordance with Section 6(e), the Executive shall, during the Term and after the Date of Termination, maintain in confidence and shall not directly or indirectly, use, disseminate, disclose or publish, for the Executive’s benefit or the benefit of any other Person, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Company’s operations, processes, protocols, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment (“Proprietary Information”), or deliver to any Person, any document, record, notebook, computer program or similar repository of or containing any such Proprietary Information. The Executive’s obligation to maintain and not use, disseminate, disclose or publish, or use for the Executive’s benefit or the benefit of any other Person, any Proprietary Information after the Date of Termination will continue so long as such Proprietary Information is not, or has not by legitimate means become, generally known and in the public domain (other than by means of the Executive’s direct or indirect disclosure of such Proprietary Information) and continues to be maintained as Proprietary Information by the Company. The parties hereby stipulate and agree that as between them, the Proprietary Information identified herein is important, material and affects the successful conduct of the businesses of the Company (and any successor or assignee of the Company).

 

(d)       Upon termination of the Executive’s employment with the Company for any reason, the Executive will promptly deliver to the Company (i) all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents that are Proprietary Information, including all physical and digital copies thereof, and (ii) all other Company property (including, without limitation, any personal computer or wireless device and related accessories, keys, credit cards and other similar items) which is in his possession, custody or control.

 

(e)        The Executive may respond to a lawful and valid subpoena or other legal
 process but shall give the Company the earliest possible notice thereof, and shall, as much in advance of the return date as possible, make available to the Company and its counsel the

 

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documents and other information sought, and shall assist such counsel in resisting or otherwise responding to such process.

 

(f)        The Executive agrees not to disparage the Company, any of its products or practices, or any of its directors, officers, agents, representatives, partners, members, equity holders or Affiliates, either orally or in writing, at any time; provided that the Executive may confer in confidence with the Executive’s legal representatives and make truthful statements as required by law.

 

(g)        Prior to accepting other employment or any other service relationship during the Noncompetition Restricted Period, the Executive shall provide a copy of this Section 6 to any recruiter who assists the Executive in obtaining other employment or any other service relationship and to any employer or other Person with which the Executive discusses potential employment or any other service relationship.

 

(h)        In the event the terms of this Section 6 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it will be interpreted to extend only over the maximum period of time for which it may be enforceable, over the maximum geographical area as to which it may be enforceable, or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. Any breach or violation by the Executive of the provisions of this Section 6 shall toll the running of any time periods set forth in this Section 6 for the duration of any such breach or violation.

 

(i)         As used in this Section 6, the term “Company” shall include the Company and any parent, affiliated, related and/or direct or indirect subsidiary entity thereof.

 

7.         Injunctive Relief. The Executive recognizes and acknowledges that a breach of the covenants contained in Section 6 will cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Section 6, in addition to any other remedy which may be available at law or in equity, the Company will be entitled to specific performance and injunctive relief.

 

8.         Section 409A.

 

(a)        General. The parties hereto acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that any amounts payable hereunder will be immediately taxable to the Executive under Section 409A, the Company reserves the right to (without any obligation to do so or to indemnify the Executive for failure to do so) (i) adopt such amendments to this Agreement or adopt such other policies and procedures (including amendments, policies and procedures with retroactive effect) that it determines to be necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Agreement,

 

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to preserve the economic benefits of this Agreement and to avoid less favorable accounting or tax consequences for the Company and/or (ii) take such other actions it determines to be necessary or appropriate to exempt the amounts payable hereunder from Section 409A or to comply with the requirements of Section 409 A and thereby avoid the application of penalty taxes thereunder. Notwithstanding anything herein to the contrary, no provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of its Affiliates, employees or agents.

 

(b)        Separation from Service under Section 409A; 409A Compliance. Notwithstanding anything herein to the contrary: (i) no termination or other similar payments and benefits hereunder shall be payable unless the Executive’s termination of employment constitutes a “separation from service” within the meaning of Section 1.409A-1 (h) of the Department of Treasury Regulations; (ii) if the Executive is deemed at the time of the Executive’s separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of any termination or other similar payments and benefits to which the Executive may be entitled hereunder (after taking into account all exclusions applicable to such payments or benefits under Section 409A) is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of such payments and benefits shall not be provided to the Executive prior to the earlier of (x) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service” with the Company (as such term is defined in the Department of Treasury Regulations issued under Section 409A) or (y) the date of the Executive’s death; provided that upon the earlier of such dates, all payments and benefits deferred pursuant to this Section 8(b)(ii) shall be paid in a lump sum to the Executive, and any remaining payments and benefits due hereunder shall be provided as otherwise specified herein; (iii) the determination of whether the Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of the Executive’s separation from service shall be made by the Company in accordance with the terms of Section 409A (including, without limitation, Section 1.409A-1(i) of the Department of Treasury Regulations and any successor provision thereto); (iv) to the extent that any installment payments under this Agreement are deemed to constitute “nonqualified deferred compensation” within the meaning of Section 409A, for purposes of Section 409A (including, without limitation, for purposes of Section 1.409A-2(b)(2)(iii) of the Department of Treasury Regulations), each such payment that the Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment; (v) to the extent that any reimbursements or corresponding in-kind benefits provided to the Executive under this Agreement are deemed to constitute “deferred compensation” under Section 409A, such reimbursements or benefits shall be provided reasonably promptly, but in no event later than December 31 of the year following the year in which the expense was incurred, and in any event in accordance with Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations; and (vi) the amount of any such payments or expense reimbursements in one calendar year shall not affect the expenses or in-kind benefits eligible for payment or reimbursement in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and the Executive’s right to such payments or reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit.

 

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9.         Assignment and Successors. The Company may assign its rights and obligations under this Agreement to any entity, including any successor to all or substantially all the assets of the Company, by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its Affiliates. The Executive may not assign the Executive’s rights or obligations under this Agreement to any individual or entity. This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.

 

10.       Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Texas, without giving effect to any principles of conflicts of law, whether of the State of Texas or any other jurisdiction, and where applicable, the laws of the United States, that would result in the application of the laws of any other jurisdiction.

 

11.       Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

 

12.       Notices. Any notice, request, claim, demand, document and other communication hereunder to any party hereto shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, to the following address (or at any other address as any patty hereto shall have specified by notice in writing to the other party hereto):

 

(a)       If to the Company:

 

1706 Midkiff, Building B

Midland, TX 79702

Telephone: (432) 688-0012

Attention: Dale Redman

Facsimile: (432) 688-3976

 

With a copy to:

 

Energy Capital Partners, LLC

11943 El Camino Real, Suite 220

San Diego, California 92130

Attention: Chris Leininger

Facsimile: (858) 703-4401

 

(b)      If to the Executive, at the address set forth on the signature page hereto.

 

13.       Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

 

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14.       Entire Agreement. The terms of this Agreement (together with any other agreements and instruments contemplated hereby or referred to herein) are intended by the parties hereto to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement (including, without limitation, any term sheet or offer letter). The terms of this Agreement supersede all prior agreements, oral and written between the parties hereto with respect to the subject matter hereof, which the parties acknowledge and agree are hereby terminated and canceled. The parties hereto further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.

 

15.       Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and a duly authorized officer of the Company and approved by the Board, which expressly identifies the amended provision of this Agreement. By an instrument in writing similarly executed and approved by the Board, the Executive or a duly authorized officer of the Company may waive compliance by the other party or parties hereto with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or perform. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

 

16.       No Inconsistent Actions. The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.

 

17.       Construction. This Agreement shall be deemed drafted equally by both of the parties hereto. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party hereto shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (a) the plural includes the singular and the singular includes the plural; (b) “and” and “or” are each used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (d) “includes” and “including” are each “without limitation”; (e) “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (f) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.

 

18.       Arbitration. Any dispute or controversy based on, arising under or relating to this Agreement shall be settled exclusively by final and binding arbitration, conducted before a

 

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single neutral arbitrator in Dallas, Texas in accordance with the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association (the “AAA”) then in effect. Arbitration may be compelled, and judgment may be entered on the arbitration award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 6, and the Executive hereby consents that such restraining order or injunction may be granted without requiring the Company to post a bond. Only individuals who are (a) lawyers engaged full-time in the practice of law and (b) on the AAA roster of arbitrators shall be selected as an arbitrator. Within twenty (20) days of the conclusion of the arbitration hearing, the arbitrator shall prepare written findings of fact and conclusions of law. Each party shall bear its own costs and attorneys’ fees in connection with an arbitration; provided that the Company shall bear the cost of the arbitrator and the AAA’s administrative fees.

 

19.       Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

 

20.       Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement, any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.

 

21.       Absence of Conflicts; Executive Acknowledgement; Confidentiality. The Executive hereby represents that from and after the Effective Date the performance of the Executive’s duties hereunder will not breach any other agreement to which the Executive is a party. The Executive acknowledges that the Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on the Executive’s own judgment. The Executive agrees not to disclose the terms or existence of this Agreement to any Person unless the Company agrees to such disclosure in advance and in writing; provided that the Executive may, without such permission, make such disclosures as are required by applicable law, including disclosures to taxing agencies, and disclose the terms of this Agreement to the Executive’s attorney(s), accountant(s), tax advisor(s), and other professional service provider(s), and to members of the Executive’s immediate family, as reasonably necessary; provided, further, that the Executive instructs such person(s) that the terms of this Agreement are strictly confidential and are not to be revealed to anyone else except as required by applicable law.

 

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22.       Survival. The expiration or termination of the Term shall not impair the rights or obligations of any party hereto which shall have accrued prior to such expiration or termination (including, without limitation, pursuant to the provisions of Section 6 hereof).

 

[Signature pages follow]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written.

 

	
 
    	
PROPETRO HOLDING   CORP.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Dale Redman
    
	
 
    	
 
    	
Name:
    	
Dale Redman
    
	
 
    	
 
    	
Title:
    	
CEO
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
JEFFREY SMITH
    
	
 
    	
 
    
	
 
    	
/s/ Jeffrey   Smith
    

 

Signature Page to the
 Employment Agreement

 

 

EXHIBIT A

 

[FORM OF OPTION AGREEMENT]

 

 

EXHIBIT B

 

[SHAREHOLDERS AGREEMENT]Exhibit 10.6

 

EXECUTION VERSION

 

STOCK OPTION PLAN
 OF
 PROPETRO HOLDING CORP.

 

ProPetro Holding Corp., a Texas corporation (the “Company”), hereby adopts this Stock Option Plan of ProPetro Holding Corp. (the “Plan”). The purposes of this Plan are as follows:

 

(1)                                   To further the growth, development and financial success of the Company and its Subsidiaries (as defined herein), by providing additional incentives to Employees, Consultants and Independent Directors (as such terms are defined below) of the Company and its Subsidiaries who have been or will be given responsibility for the management or administration of the Company’s (or one of its Subsidiaries’) business affairs, by assisting them to become owners of Common Stock (as defined herein), thereby enabling them to benefit directly from the growth, development and financial success of the Company and its Subsidiaries.

 

(2)                                   To enable the Company (and its Subsidiaries) to obtain and retain the services of the type of professional, technical and managerial Employees, Consultants and Independent Directors considered essential to the long-range success of the Company (and its Subsidiaries) by providing and offering them an opportunity to become owners of Common Stock through the exercise of Options (as defined herein), including, in the case of certain Employees, Options that are intended to qualify as “incentive stock options” under Section 422 of the Code (as defined herein).

 

ARTICLE I.
  DEFINITIONS

 

Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The singular pronoun shall include the plural where the context so indicates.

 

Section 1.1                        “Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person where “control” shall have the meaning given such term under Rule 405 of the Securities Act.

 

Section 1.2                        “Board” shall mean the Board of Directors of the Company.

 

Section 1.3                        “Change in Control” shall mean (i) a merger or consolidation of the Company with or into any other corporation or other entity or Person, (ii) a sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company’s assets, or (iii) any other transaction, including the sale by the Company of new shares of its Common Stock or a transfer of existing shares of Common Stock, the result of which is that a third party that is not an Affiliate of the Company or its shareholders (or a group of third parties not affiliated with the Company or its shareholders) immediately prior to such transaction acquires or holds Common Stock of the Company representing a majority of the Company’s outstanding voting power immediately following such transaction; provided that the following events shall not constitute a “Change in Control”: (A) a transaction (other than a sale of all or substantially all of the Company’s assets) in which the holders of the voting securities of the Company immediately prior to the merger or consolidation hold, directly or indirectly, at

 

 

least a majority of the voting securities in the successor corporation or its parent immediately after the merger or consolidation; (B) a sale, lease, exchange or other transaction in one transaction or a series of related transactions of all or substantially all of the Company’s assets to an Affiliate of the Company; (C) an initial public offering of any of the Company’s securities; (D) a reincorporation of the Company solely to change its jurisdiction; or (E) a transaction undertaken for the primary purpose of creating a holding company that will be owned in substantially the same proportion by the Persons who held the Company’s securities immediately before such transaction. Notwithstanding the foregoing, if a Change in Control would give rise to a payment event with respect to any Option that constitutes “nonqualified deferred compensation,” the transaction or event constituting the Change in Control must also constitute a “change in control event” (as defined in Treasury Regulation § 1 .409A-3 (i)(5)) in order to give rise to the payment event for such Option, to the extent required by Section 409A.

 

Section 1.4                        “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

Section 1.5                        “Committee” shall mean the Committee as provided in Section 6.1.

 

Section 1.6                        “Common Stock” shall mean the common stock, par value $ 0.00 1 per share, of the Company.

 

Section 1.7                        “Company” shall mean ProPetro Holding Corp., a Texas corporation. In addition, “Company” shall mean any corporation assuming, or issuing new employee stock options in substitution for, Incentive Stock Options outstanding under the Plan in a transaction to which Section 424(a) of the Code applies.

 

Section 1.8                        “Consultant” shall mean any consultant or advisor if: (a) the consultant or advisor renders bona fide services to the Company or any of its Subsidiaries; (b) the services rendered by the consultant or advisor are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or advisor is a natural person who has contracted directly with the Company or any of its Subsidiaries to render such services.

 

Section 1.9                      “Corporate Event” shall mean, as determined by the Committee (or by the Board, in the case of Options granted to Independent Directors) in its sole discretion, any transaction or event described in Section 7.1(a) or any extraordinary or nonrecurring transaction or event affecting the Company, any Affiliate of the Company, or the financial statements of the Company or any Affiliate of the Company, or any material change in applicable laws, regulations, or accounting principles.

 

Section 1.10                “Director” shall mean a member of the Board.

 

Section 1.11                “Eligible Representative” for an Optionee shall mean such Optionee’s personal representative or such other person as is empowered under the deceased Optionee’s will or the then applicable laws of descent and distribution to represent the Optionee hereunder.

 

Section 1.12                “Employee” shall mean, with respect to any entity, any employee of such entity (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code).

 

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Section 1.13                “Equity Restructuring” means a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the shares of Common Stock (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of outstanding Options.

 

Section 1.14                “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

Section 1.15                “Fair Market Value” of a share of Common Stock as of a given date shall be:

 

(a)                               the closing price of a share of Common Stock on the principal exchange on which such shares are then trading, if any (or as reported on any composite index which includes such principal exchange), on the most recent trading day prior to such determination date; or

 

(b)                              if Common Stock is not traded on an exchange, the mean between the closing representative bid and asked prices for a share of Common Stock on the most recent trading day prior to such determination date as reported by Nasdaq or, if Nasdaq is not then in existence, by its successor quotation system; or

 

(c)                               if Common Stock is not publicly traded on an exchange and not quoted on Nasdaq or a successor quotation system, the fair market value of a share of Common Stock as determined in good faith by the Board in its sole discretion.

 

Section 1.16                “Incentive Stock Option” shall mean an Option that conforms to the applicable provisions of Section 422 of the Code and that is designated as an Incentive Stock Option by the Committee.

 

Section 1.17                “Independent Director” shall mean a member of the Board who is not an Employee of the Company or any of its Subsidiaries.

 

Section 1.18                “Initial Public Offering” shall mean the first issuance by the Company of any class of common equity securities that is required to be registered (other than on a Form S-8) under Section 12 of the Exchange Act.

 

Section 1.19                “Non-Qualified Stock Option” shall mean an Option which is not an “incentive stock option” within the meaning of Section 422 of the Code.

 

Section 1.20                “Officer” shall mean an officer of the Company, as defined in Rule 16a-l(f) under the Exchange Act, as such Rule may be amended from time to time.

 

Section 1.21              “Option” shall mean an option granted under the Plan to purchase Common Stock. Subject to Section 3.2, an Option shall, as determined by the Committee, be either an Incentive Stock Option or a Non-Qualified Stock Option.

 

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Section 1.22                “Optionee” shall mean an Employee, Consultant or Independent Director to whom an Option is granted under the Plan.

 

Section 1.23                “Person” shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.

 

Section 1.24                “Plan” shall mean this Stock Option Plan of ProPetro Holding Corp., as amended from time to time.

 

Section 1.25                “Rule 16b-3” shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.

 

Section 1.26                “Section 409A” shall have the meaning set forth in Section 7.10.

 

Section 1.27                “Securities Act” shall mean the Securities Act of 1933, as amended.

 

Section 1.28                “Shareholders Agreement” shall mean that certain Shareholders Agreement entered into as of March 4, 2013, by and among the Company, Energy Capital Partners II, LP, a Delaware limited partnership, Energy Capital Partners II-A, LP, a Delaware limited partnership, Energy Capital Partners II-B, LP, a Delaware limited partnership, Energy Capital Partners II-C (ProPetro IP), LP, a Delaware limited partnership, Energy Capital Partners II-D, LP, a Delaware limited partnership, Regiment Capital Special Situations Fund III, L.P., a Delaware limited partnership, Dale Redman, Jeffrey Smith and JP Morgan Securities LLC, a Delaware limited liability corporation, and each of the stockholders who becomes a party to the Shareholders Agreement from time to time in accordance with the terms thereof as a result of the exercise by such stockholder of vested Options to purchase Common Stock.

 

Section 1.29                “Stock Option Agreement” shall have the meaning set forth in Section 4.1.

 

Section 1.30                “Subsidiary” of any entity shall mean any corporation in an unbroken chain of corporations beginning with such entity if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

Section 1.31                “Termination of Consultancy” shall mean the time when the engagement of an Optionee as a Consultant to the Company or any of its Subsidiaries is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding a termination where there is a simultaneous commencement of employment with the Company or any of its Subsidiaries. The Committee, in its sole discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy.

 

Section 1.32                “Termination of Directorship” shall mean the time when an Optionee who is an Independent Director ceases to be a Director for any reason, including but not by way of limitation, a termination by resignation, failure to be elected or appointed, death or retirement. The Board, in its sole discretion, shall determine the effect of all matters and questions relating to Termination of Directorship.

 

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Section 1.33              “Termination of Employment” shall mean the time when the employee- employer relationship between an Optionee and the Company or one of its Subsidiaries, as applicable, is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death or retirement, but excluding a termination where there is a simultaneous reemployment by the Company or one of its Subsidiaries, as applicable. The Committee shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment; provided, however, that, with respect to Incentive Stock Options, a leave of absence shall constitute a Termination of Employment if, and to the extent that, such leave of absence interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under Section 422(a)(2) of the Code.

 

ARTICLE II.
  SHARES SUBJECT TO PLAN

 

Section 2.1                        Shares Subject to Plan. The shares of stock subject to Options shall be shares of Common Stock. Subject to Section 7.1, the aggregate number of such shares which may be issued upon exercise of Options shall not exceed 388,791,371 shares of Common Stock.

 

Section 2.2                        Unexercised Options. If any Option (or portion thereof) expires or is canceled without having been fully exercised, the number of shares of Common Stock subject to such Option (or portion thereof), but as to which such Option was not exercised prior to its expiration or cancellation, may again be issued hereunder, subject to the limitations of Section 2.1.

 

ARTICLE III.
  GRANTING OF OPTIONS

 

Section 3.1                        Eligibility. Subject to Section 3.2, any (a) Employee of the Company or one of its Subsidiaries; (b) Consultant; or (c) Independent Director shall be eligible to be granted Options.

 

Section 3.2                        Qualification of Incentive Stock Options. Notwithstanding Section 3.1, no Incentive Stock Option shall be granted to any person who is not an Employee of the Company or one of its Subsidiaries.

 

Section 3.3                        Granting of Options to Employees and Consultants

 

(a)                               The Committee shall from time to time:

 

(i)                                  select from among the Employees and Consultants of the Company and any of its Subsidiaries (including those to whom Options have been previously granted under the Plan) such of them as in its opinion should be granted Options;

 

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(ii)                                   determine the number of shares of Common Stock to be subject to such Options granted to such Employees and Consultants and, subject to Section 3.2, determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options; and

 

(iii)                               determine the terms and conditions of such Options, consistent with the Plan.

 

(b)                              Upon the selection of an Employee or Consultant of the Company or any of its Subsidiaries to be granted an Option pursuant to Section 3.3(a), the Committee shall instruct the corporate secretary or another authorized Officer of the Company to issue such Option and may impose such conditions on the grant of such Option as it deems appropriate. Without limiting the generality of the preceding sentence, the Committee may require as a condition to the grant of an Option to such an Employee or Consultant that such Employee or Consultant surrender for cancellation some or all of the unexercised Options which have been previously granted to him or her. An Option the grant of which is conditioned upon the surrender of unexercised Options may have an exercise price lower (or higher) than the exercise price of the surrendered Option, may cover the same (or a lesser or greater) number of shares as the surrendered Option, may contain such other terms as the Committee deems appropriate and shall be exercisable in accordance with its terms, without regard to the number of shares, price, period of exercisability or any other term or condition of the surrendered Option.

 

Section 3.4                      Granting of Option to Independent Directors

 

(a)                               The Board shall from time to time:

 

(i)                                       select from among the Independent Directors (including those to whom Options have previously been granted under the Plan) such of them as in its opinion should be granted Options;

 

(ii)                                   determine the number of shares of Common Stock to be subject to such Options granted to such selected Independent Directors; and

 

(iii)                               determine the terms and conditions of such Options, consistent with the Plan; provided, however, that all Options granted to Independent Directors shall be Non-Qualified Stock Options.

 

(b)                              Upon the selection of an Independent Director to be granted an Option pursuant to Section 3.4(a), the Board shall instruct the corporate secretary or another authorized Officer of the Company to issue such Option and may impose such conditions on the grant of such Option as it deems appropriate. Without limiting the generality of the preceding sentence, the Board may require as a condition to the grant of an Option to an Independent Director that the Independent Director surrender for cancellation some or all of the unexercised Options which have been previously granted to him or her. An Option the grant of which is conditioned upon such surrender may have an exercise price lower (or higher) than the exercise price of the surrendered Option, may cover the same (or a lesser or greater) number of shares as the surrendered Option, may contain such other terms as the Board deems appropriate and shall be exercisable in accordance with its terms, without regard to the number of shares, price, period of exercisability or any other term or condition of the surrendered Option.

 

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ARTICLE IV.
  TERMS OF OPTIONS

 

Section 4.1                        Stock Option Agreement. Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized Officer of the Company and which shall contain such terms and conditions as the Committee (or the Board, in the case of Options granted to Independent Directors) shall determine, consistent with the Plan. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to qualify such Options as “incentive stock options” within the meaning of Section 422 of the Code.

 

Section 4.2                         Exercisability of Options

 

(a)                               Each Option shall become exercisable according to the terms of the applicable Stock Option Agreement; provided, however, that by a resolution adopted after an Option is granted, the Committee (or the Board, in the case of Options granted to Independent Directors) may, on such terms and conditions as it may determine to be appropriate, accelerate the time at which such Option or any portion thereof may be exercised.

 

(b)                              Except as otherwise provided in the applicable Stock Option Agreement, no portion of an Option which is unexercisable at Termination of Employment, Termination of Consultancy or Termination of Directorship, as applicable, shall thereafter become exercisable.

 

(c)                               To the extent that the aggregate Fair Market Value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by an Optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company or any Subsidiary thereof) exceeds $100,000, such options shall be treated and taxable as Non-Qualified Stock Options. The rule set forth in the preceding sentence shall be applied by taking options into account in the order in which they were granted, and the stock issued upon exercise of Options shall designate whether such stock was acquired upon exercise of an Incentive Stock Option. For purposes of these rules, the Fair Market Value of stock shall be determined as of the date of grant of the Option granted with respect to such stock.

 

Section 4.3                        Exercise Price. The price of the shares subject to each Option shall be set by the Committee (or the Board, in the case of Options granted to Independent Directors); provided, however, that in the case of an Incentive Stock Option, the price per share shall be not less than one hundred percent (100%) of the Fair Market Value of such shares on the date such Option is granted; and provided, further, that in the case of an Incentive Stock Option granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the price per share shall not be less than one hundred and ten percent (110%) of the Fair Market Value of such shares on the date such Incentive Stock Option is granted.

 

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Section 4.4                        Expiration of Options. No Option may be exercised to any extent by anyone after the first to occur of the following events, or such earlier date as may be set forth in any Stock Option Agreement:

 

(a)                               the expiration of ten (10) years from the date the Option was granted; or

 

(b)                              with respect to an Incentive Stock Option in the case of an Optionee owning (within the meaning of Section 424(d) of the Code), at the time the Incentive Stock Option was granted, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the expiration of five (5) years from the date the Incentive Stock Option was granted.

 

Section 4.5                        At-Will Employment. Nothing in the Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue in the employ of, or as a Consultant for, the Company or any of its Subsidiaries, or shall interfere with or restrict in any way the rights of the Company and any of its Subsidiaries, which are hereby expressly reserved, to discharge any Optionee at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Optionee and the Company or any of its Subsidiaries.

 

ARTICLE V.
  EXERCISE OF OPTIONS

 

Section 5.1                        Person Eligible to Exercise. During the lifetime of the Optionee, only he or she may exercise an Option (or any portion thereof); provided, however, that the Optionee’s Eligible Representative may exercise such Optionee’s Option during the period of his or her disability (as defined in Section 22(e)(3) of the Code) notwithstanding that an Option so exercised may not qualify as an Incentive Stock Option. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement, be exercised by his or her Eligible Representative.

 

Section 5.2                        Partial Exercise. At any time and from time to time prior to the time when the Option becomes unexercisable under the Plan or the applicable Stock Option Agreement, the exercisable portion of an Option may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares and the Committee (or the Board, in the case of Options granted to Independent Directors) may, by the terms of the Stock Option Agreement, require any partial exercise to exceed a specified minimum number of shares.

 

Section 5.3                        Manner of Exercise. An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the corporate secretary of all of the following prior to the time when such Option or such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement:

 

(a)                               notice in writing signed by the Optionee or his or her Eligible Representative, stating that such Option or portion is exercised, and specifically stating the number of shares with respect to which the Option is being exercised;

 

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(b)                              a copy of the Shareholders Agreement signed by the Optionee or Eligible Representative, as applicable;

 

(c)                               full payment for the shares with respect to which such Option or portion is thereby exercised:

 

(i)                                       in cash or by personal, certified, or bank cashier check; or

 

(ii)                                   with the consent of the Committee (or the Board, in the case of Options granted to Independent Directors), (A) in shares of Common Stock which have been owned by the Optionee for at least six (6) months (or such other minimum period of time, if any, as the Committee (or the Board, in the case of Options granted to Independent Directors) deems necessary or appropriate to avoid adverse financial accounting consequences for the Company), duly endorsed for transfer to the Company with a Fair Market Value on the day prior to the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (B) except with respect to Incentive Stock Options, in shares of the Common Stock issuable to the Optionee upon exercise of the Option, with a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the shares with respect to which such Option or portion is thereby exercised; (C) following an Initial Public Offering, by delivery of a notice that the Optionee has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; or (D) in any combination of the consideration listed in this Section 5.3(c);

 

(d)                             the payment to the Company (in cash or by personal, certified or bank cashier check or by any other means of payment approved by the Committee) of all amounts necessary to satisfy any and all federal, state and local tax withholding requirements arising in connection with the exercise of the Option;

 

(e)                               such representations and documents as the Committee (or the Board, in the case of Options granted to Independent Directors) deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act, Exchange Act and any other federal or state securities laws or regulations. The Committee (or the Board, in the case of Options granted to Independent Directors) may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance, including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and

 

(f)                                in the event that the Option or portion thereof shall be exercised pursuant to Section 5.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option or portion thereof.

 

Section 5.4                        Conditions to Issuance of Stock Certificates. The shares of Common Stock issuable and deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. A certificate of shares will be delivered to the Optionee at the Company’s principal place of business within thirty (30) days of receipt by the Company of the

 

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written notice and payment, unless an earlier date is agreed upon. Notwithstanding the above, the Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:

 

(a)                               the admission of such shares to listing on any and all stock exchanges on which such class of stock is then listed;

 

(b)                              the execution by the Optionee and delivery to the Company of the Shareholders Agreement;

 

(c)                               the completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee (or the Board, in the case of Options granted to Independent Directors) shall, in its sole discretion, deem necessary or advisable;

 

(d)                                  the obtaining of any approval or other clearance from any state or federal governmental agency which the Committee (or the Board, in the case of Options granted to Independent Directors) shall, in its sole discretion, determine to be necessary or advisable; and

 

(e)                               the payment to the Company of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option.

 

Section 5.5                        Rights as Stockholders. The holder of an Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares of Common Stock purchasable upon the exercise of any part of an Option unless and until such holder has signed the Shareholders Agreement and certificates representing such shares of Common Stock have been issued by the Company to such holder.

 

Section 5.6                        Transfer Restrictions. Shares acquired upon exercise of an Option shall be subject to the terms and conditions of a Shareholders Agreement. In addition, the Committee (or the Board, in the case of Options granted to Independent Directors), in its sole discretion, may impose further restrictions on the transferability of the shares of Common Stock purchasable upon the exercise of an Option as it deems appropriate. Any such restriction shall be set forth in the respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. The Committee may require an Employee to give the Company prompt notice of any disposition within two (2) years from the date of granting such Option, or one (1) year after the transfer of such shares to such Employee, of shares of stock acquired by exercise of an Incentive Stock Option. The Committee may direct that the certificates evidencing shares of Common Stock acquired by exercise of an Incentive Stock Option refer to such requirement.

 

ARTICLE VI.
  ADMINISTRATION

 

Section 6.1                        Committee. Prior to an Initial Public Offering, unless and until the Board delegates administration of the Plan to the Compensation Committee of the Board, the Plan shall be administered by the full Board, and for such purposes, the term “Committee” as used in this

 

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Plan shall be deemed to refer to the Board. Following an Initial Public Offering, if any, the full Board shall administer the Plan unless and until there is appointed a Compensation Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan). Unless otherwise determined by the Board, following an Initial Public Offering, the Compensation Committee shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a “non- employee director” as defined by Rule 1 6b-3 and an “outside director” for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board in its sole discretion. Any action required or permitted to be taken by the Committee hereunder or under any Stock Option Agreement may be taken by the Board.

 

Section 6.2                        Delegation of Authority. The Committee may, but need not, from time to time delegate some or all of its authority to grant Options under the Plan to a committee or subcommittee consisting of one or more members of the Committee or of one or more Officers of the Company; provided, however, that the Committee may not delegate its authority to grant Options to individuals (a) who are subject on the date of the grant to the reporting rules under Section 16(a) of the Exchange Act, (b) whose compensation the Committee determines is, or may become, subject to the deduction limitations set forth in Section 162(m) of the Code or (c) who are Officers of the Company who are delegated authority by the Committee hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation, and the Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 6.2 shall serve in such capacity at the pleasure of the Committee.

 

Section 6.3                        Duties and Powers of the Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Options and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. Notwithstanding the foregoing, the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Options granted to Independent Directors. Any such interpretations and rules in regard to Incentive Stock Options shall be consistent with the terms and conditions applicable to “incentive stock options” within the meaning of Section 422 of the Code. All determinations and decisions made by the Committee under any provision of the Plan or of any Option granted thereunder shall be final, conclusive and binding on all persons.

 

Section 6.4                        Compensation, Professional Assistance, Good Faith Actions. The members of the Committee shall receive such compensation, if any, for their services hereunder as may be determined by the Board. All expenses and liabilities incurred by the members of the Committee or the Board in connection with the administration of the Plan shall be borne by the Company. The Committee or the Board may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and its Officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee and the Board in good faith shall be final and binding upon all Optionees, the Company and all other

 

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interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee and the Board shall be fully protected by the Company with respect to any such action, determination or interpretation.

 

ARTICLE VII.
  OTHER PROVISIONS

 

Section 7.1                        Changes in Common Stock; Disposition of Assets and Corporate Events

 

(a)                               Subject to Section 7.1(f), in the event that the Committee (or the Board, in the case of Options granted to Independent Directors) determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event (other than an Equity Restructuring), in the Committee’s sole discretion (or in the case of Options granted to Independent Directors, the Board’s sole discretion), affects the Common Stock such that an adjustment is determined by the Committee (or the Board, in the case of Options granted to Independent Directors) to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Option, then the Committee (or the Board, in the case of Options granted to Independent Directors) shall, in such manner as it may deem equitable, adjust any or all of:

 

(i)                                  the number and kind of shares of Common Stock (or other securities or property) with respect to which Options may be granted under the Plan (including, but not limited to, adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued);

 

(ii)                         the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options;

 

(iii)                     the exercise price with respect to any Option; and

 

(iv)                     any financial or other “targets” specified in each Stock Option Agreement for determining the exercisability of Options.

 

(b)                              Subject to Section 7.1(f) and the terms of outstanding Stock Option Agreements, upon the occurrence of a Corporate Event (other than an Equity Restructuring), the Committee (or the Board, in the case of Options granted to Independent Directors), in its sole discretion, is hereby authorized to take any one or more of the following actions whenever the Committee (or the Board, in the case of Options granted to Independent Directors) determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Option under this Plan, to facilitate such Corporate Event or to give effect to such changes in laws, regulations or principles:

 

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(i)                                       In its sole discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of the applicable Stock Option Agreement or by action taken prior to the occurrence of such Corporate Event and either automatically or upon the Optionee’s request, for either (A) the purchase of any such Option for an amount of cash, securities, or other property equal to the amount that could have been attained upon the exercise of the vested portion of such Option (and such additional portion of the Option as the Board or Committee may determine) immediately prior to the occurrence of such transaction or event (and, for the avoidance of doubt, if as of the date of the occurrence of such transaction or event, the Committee (or the Board, in the case of Options granted to Independent Directors) determines in good faith that no amount would have been obtained upon the exercise of such Option, then the Option may be terminated by the Company without payment), or (B) the replacement of such vested (and other) portion of such Option with other rights or property of not less than equal value selected by the Committee (or the Board, in the case of Options granted to Independent Directors) in its sole discretion;

 

(ii)                                   In its sole discretion, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of the applicable Stock Option Agreement or by action taken prior to the occurrence of such Corporate Event, that the Option (or any portion thereof) cannot be exercised after such event;

 

(iii)                               In its sole discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of the applicable Stock Option Agreement or by action taken prior to the occurrence of such Corporate Event, that for a specified period of time prior to such Corporate Event, such Option shall be exercisable as to all shares covered thereby or a specified portion of such shares, notwithstanding anything to the contrary in this Plan or the applicable Stock Option Agreement;

 

(iv)                               In its sole discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of the applicable Stock Option Agreement or by action taken prior to the occurrence of such Corporate Event, that upon such event, such Option (or any portion thereof) be assumed by the successor or survivor corporation, or a parent or subsidiary thereof (including without limitation any common parent of the Company and any other company or companies), or shall be substituted for by similar options, rights or awards of not less than equal value covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof (including without limitation any common parent of the Company and any other company or companies), with appropriate adjustments as to the number and kind of shares and prices; and

 

(v)                                   In its sole discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Options (or any portion thereof) and/or in the terms and conditions of (including the exercise price), and the criteria included in, outstanding Options and Options which may be granted in the future.

 

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(c)                               Notwithstanding any other provision of the Plan, if a Change in Control occurs, then immediately prior to the Change in Control, such Options shall become fully vested and exercisable, and any restrictions on such Options shall lapse; provided, that the Optionee has remained continuously employed in active service by the Company.

 

(d)                             In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Section 7.1(a) and Section 7.1(b):

 

(i)                                       The number and type of securities subject to each outstanding Option, and the exercise price or grant price thereof, will be proportionately adjusted so that the fair value of each such Option and the proportionate interest represented thereby immediately after the Equity Restructuring will equal the fair value of such Option and the proportionate interest represented thereby immediately prior to such Equity Restructuring. The adjustments provided under this Section 7.1 (d)(i) shall be nondiscretionary and shall be final and binding on the affected Optionees and the Company; and

 

(ii)                                   The Committee (or the Board, in the case of Options granted to Independent Directors) shall make such proportionate adjustments, if any, as the Committee (or the Board, in the case of Options granted to Independent Directors) in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan.

 

(e)                               Subject to Section 7.1(f), the Committee (or the Board, in the case of Options granted to Independent Directors) may, in its sole discretion, include such further provisions and limitations in any Stock Option Agreement as it may deem equitable and in the best interests of the Company and its Affiliates.

 

(f)                                With respect to Incentive Stock Options, no adjustment or action described in this Section 7.1 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code or any successor provisions thereto, unless the Committee determines that the Plan and/or the Options are not to comply with Section 422(b)(1) of the Code. The number of shares of Common Stock subject to any Option shall always be rounded up to the next higher whole number.

 

Section 7.2                        Options Not Transferable. No Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law, by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.2 shall prevent transfers by will or by the applicable laws of descent and distribution.

 

Section 7.3                        Amendment, Suspension or Termination of the Plan. The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without stockholder approval within

 

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twelve (12) months before or after such action no action of the Board or the Committee may, except as provided in Section 7.1, increase any limit imposed in Section 2.1 on the maximum number of shares which may be issued on exercise of Options, reduce the minimum exercise price requirements of Section 4.3, or extend the limit imposed in this Section 7.3 on the period during which Options may be granted. Except as provided by Section 7.1, neither the amendment, suspension nor termination of the Plan shall, without the consent of the holder of the Option, alter or impair any rights or obligations under any Option theretofore granted. No Option may be granted during any period of suspension nor after termination of the Plan, and in no event may any Option be granted under this Plan after the expiration of ten (10) years from the date the Plan is adopted by the Board.

 

Section 7.4                        Effect of Plan Upon Other Option and Compensation Plans. The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Company or its Affiliates. Nothing in this Plan shall be construed to limit the right of the Company or its Affiliates (a) to establish any other forms of incentives or compensation for directors or employees of the Company or its Affiliates, or (b) to grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association.

 

Section 7.5                        Approval of Plan by Stockholders. This Plan will be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s initial adoption of this Plan. No Option may be exercised to any extent by anyone unless and until the Plan is so approved by the stockholders, and if such approval has not been obtained by the end of said twelve (12) month period, the Plan and all Options theretofore granted shall thereupon be canceled and become null and void.

 

Section 7.6                        Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

 

Section 7.7                        Conformity to Securities Laws. The Plan is intended to conform to the extent necessary with all provisions of (a) the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and (b) any applicable state and local securities laws and any and all regulations and rules promulgated by any applicable state or local regulatory authority thereunder, in each case to the extent the Company or any Optionee is subject to the provisions thereof. Notwithstanding anything herein to the contrary, the Plan shall be administered, and Options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

 

Section 7.8                        Governing Law. To the extent not preempted by federal law, the Plan shall be construed in accordance with and governed by the internal laws of the State of Texas, without regard to the principles of conflicts of law thereof, or principles of conflicts of law of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Texas.

 

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Section 7.9                        Severability. In the event any portion of the Plan or any action taken pursuant thereto shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provisions had not been included, and the illegal or invalid action shall be null and void.

 

Section 7.10                Section 409A. To the extent applicable, the Plan and Stock Option Agreements shall be interpreted in accordance with Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder, including, without limitation, any such regulations or other guidance that may be issued after the date hereof (collectively, “Section 409A”). Notwithstanding any provision of the Plan to the contrary, if at any time the Committee determines that any Option (or any portion thereof) may be subject to Section 409A, the Committee shall have the right in its sole discretion (without any obligation to do so or to indemnify any Optionee or any other Person for failure to do so) (a) to adopt such amendments to the Plan or the applicable Stock Option Agreement or adopt such other policies and procedures (including amendments, policies and procedures with retroactive effect) that it determines are necessary or appropriate to preserve the intended tax treatment of the benefits provided with respect to the Option, to preserve the economic benefits thereof or to avoid less favorable accounting or tax consequences for the Company and/or (b) to take any other actions that it determines are necessary or appropriate to exempt the Option from Section 409A or to comply with the requirements of Section 409A and thereby avoid the application of penalty taxes thereunder. Notwithstanding anything herein to the contrary, no provision of the Plan shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from any Optionee or any other Person to the Company or any of its Affiliates, employees or agents.

 

* * * * *

 

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I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of ProPetro Holding Corp. as of     March 4                  , 2013.

 

Executed as of  March 4                  , 2013.

 

	
 
    	
PROPETRO HOLDING   CORP.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Dale Redman
    
	
 
    	
 
    	
Name: 
    	
Dale Redman
    
	
 
    	
 
    	
Title:
    	
CEO
    

 

SIGNATURE PAGE TO STOCK OPTION PLAN

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