Document:

Form of Registration Rights Agreement

EXHIBIT 10.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of May 27, 2011, between H & H Imports, Inc., a Florida corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser, a “Purchaser” and, collectively, the “Purchasers”).

               This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “Purchase Agreement”).

               The Company and each Purchaser hereby agrees as follows:

        1. 

Definitions.

               Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

            “Advice” shall have the meaning set forth in Section 6(d).

“Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, the 60th calendar day following the Filing Date (or, in the event of a “full review” by the Commission, the 90th calendar day following the Filing Date) and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 60th calendar day following the date on which an additional Registration Statement is required to be filed hereunder (or, in the event of a “full review” by the Commission, the 90th calendar day following the date such additional Registration Statement is required to be filed hereunder); provided, however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Event” shall have the meaning set forth in Section 2(d).

“Event Date” shall have the meaning set forth in Section 2(d).

“Filing Date” means, with respect to the Initial Registration Statement required hereunder, the 30th calendar day following the earlier of (i) the Outside Date or (ii) the date the Offering is terminated, or, if such dates have occurred but the Company’s registration Statement on Form S-1 filed with the Commission (file no. 333-170778) on November 23, 2010 (the “November 2010 Registration Statement") has not yet been declared effective by the Commission or withdrawn by the Company then 30 days following the earlier to occur of , (x) the effective date of the November 2010 Registration Statement or (y) the date of the Company’s withdrawal of such registration statement from filing with the Commission, and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted 0by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.

“Losses” shall have the meaning set forth in Section 5(a).

“Plan of Distribution” shall have the meaning set forth in Section 2(a). 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means, as of any date of determination, (a) all of the Shares, (b), all Warrant Shares then issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) and (c) any securities issued or then issuable upon any stock split, dividend or other distribution,  recapitalization or similar 

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event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercisable by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.

“Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“Selling Stockholder Questionnaire” shall have the meaning set forth in Section 3(a).

“SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

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        2. 

Shelf Registration.

(a)

On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415.  Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “Plan of Distribution” attached hereto as Annex A.  Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”).  The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day.   The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement.  The Company shall, by 9:30 a.m. Eastern Time on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424.  Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d). 

(b)

 Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); provided, however, that prior to 

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filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09. 

(c)

Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows: 

a.

First, the Company shall reduce or eliminate any securities to be included by any Person other than a Holder; and

b.

Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders).

In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment.  In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

(d)

If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within fifteen (15) calendar 

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days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than fifteen (15) consecutive calendar days or more than an aggregate of thirty (30) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such ten (10) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash or in shares of Common Stock, or a combination thereof, as partial liquidated damages and not as a penalty, equal to 1.0% of such Holder’s Subscription amount under the Purchase Agreement.  The price at which shares of Common Stock issuable in lieu of cash hereunder shall be equal to the lesser of (x) 85% of the average of the 5 consecutive VWAPs immediately prior to the applicable Event Date, (y) 85% of the average of the 5 consecutive VWAPs immediately prior to the date such damages are due or (z) the Per Share Purchase Price.  Subject to the terms and conditions herein, the decision whether to pay partial liquidated damages hereunder in shares of Common Stock or cash shall be at the discretion of the Company.  Subject to the aforementioned conditions, failure to timely provide such written notice shall be deemed an election by the Company to pay the partial liquidated damages on such Event Date in cash.  Except as otherwise provided herein, if at any time the Company pays partial liquidated damages partially in cash and partially in shares of Common Stock, then such payment shall be distributed ratably among the Holders based upon the subscription amount paid by each Holder.  The parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 6% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement.  If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any 

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portion of a month prior to the cure of an Event.  For clarity, for all purposes under the Transaction Documents, the terms “Securities” and “Shares” shall include any shares of Common Stock issued pursuant to this Section. 

(e)

If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

3. 

Registration Procedures.

               In connection with the Company’s registration obligations hereunder, the Company shall:

(a)

Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holders advance copies of any universal shelf registration statement registering securities in addition to those required hereunder, or any Prospectus prepared thereto.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “Selling Stockholder Questionnaire”) on a date that is not less than two (2) Trading Days prior to the Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.   

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(b)

(i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

(c)

If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.  

(d)

Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the 

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effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided, however, in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

(e)

Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(f)

Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

(g)

Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

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(h)

 The Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder, and the Company shall pay the filing fee required by such filing within two (2) Business Days of request therefor.

(i)

Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

(j)

If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

(k)

Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(k) to suspend 

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the availability of a Registration Statement and Prospectus, without payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 20 calendar days (which need not be consecutive days) in any 12-month period.

(l)

Comply with all applicable rules and regulations of the Commission.

(m)

The Company shall use its best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

(n)

The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

        4. 

Registration Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses 

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incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

        5. 

Indemnification.

(a)

Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, 

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defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected.  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).

(b)

Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected.  In no event shall the liability of any selling Holder under this Section 5(b) be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

13

(c)

Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

               An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

               Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined 

14

by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

(d)

Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

               The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

        6. 

Miscellaneous.

(a)

Remedies.  In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement.  Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by 

15

reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

(b)

No Piggyback on Registrations; Prohibition on Filing Other Registration Statements.  Except for a Registration Statement on Form S-8 or S-4 or as set forth on Schedule 6(b) attached hereto and in connection with transactions contemplated by clause (d) under Exempt Issuance, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities.  The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission.

(c)

Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.

(d)

Discontinued Disposition.  By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).

(e)

Piggy-Back Registrations. If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement.

16

(f)

Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the (i) Company and (ii) the Holders of the Registrable Securities and the holders of Additional Securities pursuant to clause (d) of Exempt Issuance holding at least a majority in interest of the then outstanding Registrable Securities and Additional Securities, in the aggregate (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security).  If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first  sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

(g)

Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.  

(h)

Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.

(i)

No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(i), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

17

(j)

Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

(k)

Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

(l)

Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

(m)

Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(n)

Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

(o)

Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not asset any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such 

18

purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder.  It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

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

(Signature Pages Follow)

19

               IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

	
	H & H IMPORTS, INC.  

	By:__________________________________________

     Name:

     Title:

                             

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

[SIGNATURE PAGE OF HOLDERS TO HNHI RRA]

Name of Holder: __________________________

Signature of Authorized Signatory of Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGES CONTINUE]

Annex A

Plan of Distribution

Each Selling Stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions.  These sales may be at fixed or negotiated prices.  A Selling Stockholder may use any one or more of the following methods when selling securities:

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; 

·

in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

·

a combination of any such methods of sale; or

·

any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the 

purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.  

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume.  The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities.  The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities.  The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.  

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or 

2

(ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect.  The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.  In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person.  We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

3

Annex B

H & H IMPORTS, INC.

Selling Stockholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “Registrable Securities”) of H & H Imports, Inc., a Florida corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned beneficial owner (the “Selling Stockholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1.

Name.

(a)

Full Legal Name of Selling Stockholder

		
	 
	 

	 
	 

(b)

Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

		
	 
	 

	 
	 

(c)

Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

		
	 
	 

	 
	 

2.  Address for Notices to Selling Stockholder:

	
	 

	 

	 

	Telephone: __________________________________________________________________

	Fax: _______________________________________________________________________

	Contact Person: ______________________________________________________________

3.  Broker-Dealer Status:

(a)

Are you a broker-dealer?

Yes    ̈ 

No    ̈ 

(b)

If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

Yes    ̈ 

No    ̈ 

Note:

If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

2

(c)

Are you an affiliate of a broker-dealer?

Yes    ̈ 

No    ̈ 

(d)

If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes    ̈ 

No    ̈ 

Note:

If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

4.  Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

(a)

Type and Amount of other securities beneficially owned by the Selling Stockholder:

		
	 
	 

	 
	 

	 
	 

3

5.  Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

		
	 
	 

	 
	 

	 
	 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Date: 

Beneficial Owner: 

By:

Name:

Title:

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

4exv10w1

Exhibit 10.1

PIEDMONT NATURAL GAS COMPANY, INC.

INCENTIVE COMPENSATION PLAN

As Amended and Restated

Effective December 15, 2010

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I PURPOSE
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	2.1 “Agreement”
	 	 	1	 
	2.2 “Annual Incentive Award”
	 	 	1	 
	2.3 “Award”
	 	 	1	 
	2.4 “Award Date” or “Grant Date”
	 	 	1	 
	2.5 “Board” or “Board of Directors”
	 	 	1	 
	2.6 “Cashless Exercise”
	 	 	1	 
	2.7 “Cause”
	 	 	1	 
	2.8 “Change in Control”
	 	 	1	 
	2.9 “Code”
	 	 	1	 
	2.10 “Committee”
	 	 	2	 
	2.11 “Common Stock” or “Stock”
	 	 	2	 
	2.12 “Company”
	 	 	2	 
	2.13 “Covered Participant”
	 	 	2	 
	2.14 “Designated Beneficiary”
	 	 	2	 
	2.15 “Disability”
	 	 	2	 
	2.16 “Effective Date”
	 	 	2	 
	2.17 “Eligible Employee”
	 	 	2	 
	2.18 “Employee”
	 	 	2	 
	2.19 “Exchange Act”
	 	 	2	 
	2.20 “Fair Market Value”
	 	 	2	 
	2.21 “Good Reason”
	 	 	2	 
	2.22 “Incentive Stock Option”
	 	 	3	 
	2.23 “Non-qualified Stock Option”
	 	 	3	 
	2.24 “Option Price”
	 	 	3	 
	2.25 “Outside Director”
	 	 	3	 
	2.26 “Participant”
	 	 	3	 
	2.27 “Participating Company”
	 	 	3	 
	2.28 “Performance Award”
	 	 	3	 
	2.29 “Performance Criteria”
	 	 	3	 
	2.30 “Performance Period”
	 	 	3	 
	2.31 “Performance Share” or “Performance Unit”
	 	 	3	 
	2.32 “Person”
	 	 	3	 
	2.33 “Plan”
	 	 	3	 
	2.34 “Restricted Stock”
	 	 	3	 
	2.35 “Restriction Period”
	 	 	3	 
	2.36 “Retirement”
	 	 	4	 
	2.37 “Rule 16b-3”
	 	 	4	 
	2.38 “Section 162(m)”
	 	 	4	 
	2.39 “Securities Act”
	 	 	4	 
	2.40 “Shares”
	 	 	4	 
	2.41 “Stock Appreciation Right”
	 	 	4	 
	2.42 “Stock Option” or “Option”
	 	 	4	 
	2.43 “Stock Unit Award”
	 	 	4	 

 

 

	 	 	 	 	 
	 	 	Page	 
	2.44 “Subsidiary”
	 	 	4	 
	 
	 	 	 	 
	ARTICLE III ELIGIBILITY
	 	 	4	 
	 
	 	 	 	 
	ARTICLE IV SHARES SUBJECT TO THE PLAN
	 	 	5	 
	 
	 	 	 	 
	4.1 Number of Shares
	 	 	5	 
	4.2 Share Counting
	 	 	5	 
	4.3 Capital Adjustments
	 	 	5	 
	 
	 	 	 	 
	ARTICLE V STOCK OPTIONS
	 	 	5	 
	 
	 	 	 	 
	5.1 Grant of Stock Options
	 	 	5	 
	5.2 Option Price
	 	 	6	 
	5.3 Exercisability
	 	 	6	 
	5.4 Method of Exercise
	 	 	6	 
	5.5 Death, Disability, Retirement or Other Termination of Employment
	 	 	6	 
	 
	 	 	 	 
	ARTICLE VI RESTRICTED STOCK
	 	 	7	 
	 
	 	 	 	 
	6.1 Grant of Restricted Stock
	 	 	7	 
	6.2 Restricted Stock Award Agreement
	 	 	7	 
	6.3 Restriction Period
	 	 	7	 
	6.4 Removal of Restrictions
	 	 	7	 
	6.5 Voting Rights
	 	 	7	 
	6.6 Dividends and Other Distributions
	 	 	7	 
	6.7 Death, Disability or Retirement
	 	 	7	 
	 
	 	 	 	 
	ARTICLE VII OTHER STOCK BASED AWARDS
	 	 	8	 
	 
	 	 	 	 
	7.1 Grant of Other Stock Based Awards
	 	 	8	 
	7.2 Stock Appreciation Rights
	 	 	8	 
	7.3 Performance Awards
	 	 	8	 
	7.4 Stock Unit Awards
	 	 	10	 
	 
	 	 	 	 
	ARTICLE VIII ANNUAL INCENTIVE AWARDS
	 	 	11	 
	 
	 	 	 	 
	8.1 Timing and Determination of Annual Incentive Awards
	 	 	11	 
	8.2 Performance Criteria for Annual Incentive Awards
	 	 	11	 
	8.3 Maximum Annual Incentive Award
	 	 	11	 
	8.4 Short Performance Period
	 	 	12	 
	8.5 Limitation on Right to Payment of Award
	 	 	12	 
	 
	 	 	 	 
	ARTICLE IX SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS
	 	 	13	 
	 
	 	 	 	 
	ARTICLE X CHANGE IN CONTROL
	 	 	14	 
	 
	 	 	 	 
	10.1 Acceleration upon a Change in Control
	 	 	14	 
	10.2 Change in Control Defined
	 	 	14	 
	10.3 Good Reason Defined
	 	 	16	 
	10.4 Cause Defined
	 	 	17	 
	 
	 	 	 	 
	ARTICLE XI ADMINISTRATION
	 	 	18	 
	 
	 	 	 	 
	11.1 The Committee
	 	 	18	 

ii

 

	 	 	 	 	 
	 	 	Page	 
	11.2 Committee Decisions
	 	 	18	 
	11.3 Rule 16b-3 and Section 162(m) Requirements
	 	 	18	 
	 
	 	 	 	 
	ARTICLE XII GENERAL PROVISIONS
	 	 	18	 
	 
	 	 	 	 
	12.1 Withholding
	 	 	18	 
	12.2 Code Section 409A
	 	 	18	 
	12.3 Terms of Awards
	 	 	19	 
	12.4 Recoupment of Awards
	 	 	19	 
	12.5 Forfeiture of Awards for Engaging in Competition
	 	 	19	 
	12.6 Change in Position
	 	 	20	 
	12.7 Non-transferability
	 	 	20	 
	12.8 No Right to Employment
	 	 	20	 
	12.9 Rights as Shareholder
	 	 	20	 
	12.10 Construction of the Plan
	 	 	20	 
	12.11 Amendment of Plan or Awards
	 	 	20	 
	12.12 Exclusion from Computation of Compensation for Other Purposes
	 	 	20	 
	12.13 Legend
	 	 	21	 
	12.14 Special Provisions for Certain Participants
	 	 	21	 
	12.15 Unfunded Plan
	 	 	21	 
	12.16 Conflict with Employment Agreement
	 	 	21	 
	12.17 Gender and Number
	 	 	21	 
	12.18 Severability
	 	 	21	 
	12.19 Effect of Headings
	 	 	21	 
	12.20 No Liability
	 	 	21	 
	12.21 Limited Effect of Plan Restatement
	 	 	22	 

iii

 

ARTICLE I

PURPOSE

     The Company adopted the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan
effective November 1, 2005 to promote the interests of the Company and its shareholders through (a)
the attraction and retention of Participants essential to the success of the Company; (b) the
motivation of Participants using performance-related incentives linked to performance goals and the
interests of Company shareholders; and (c) enabling such individuals to share in the growth and
success of the Company and its Subsidiaries. The Plan permits the grant of Annual Incentive
Awards, Performance Shares, Restricted Stock and other forms of stock-based awards as the
Committee, in its sole and complete discretion, may determine to be appropriate to carry out the
intent and purposes of this Plan. The Company’s shareholders approved the Plan on March 3, 2006.

     Effective as of December 15, 2010, subject to approval by the Company’s shareholders at the
Company’s 2011 annual meeting of shareholders, the Plan is amended and restated as set forth in
this instrument.

ARTICLE II

DEFINITIONS

     2.1 “Agreement” shall mean a written agreement between the Company and a Participant
implementing an Award and setting forth the particular terms, conditions and restrictions of the
Award. With respect to the grant of a Stock Option, the Agreement may be referred to herein as an
“Option Agreement,” and with respect to any other Award hereunder, the Agreement may be
referred to herein as an “Award Agreement.”

     2.2 “Annual Incentive Award” shall mean a cash bonus payable to a Participant under
Article VIII.

     2.3 “Award” shall mean an award or grant made to a Participant under Article V, VI, or
VII, or an Annual Incentive Award under Article VIII.

     2.4 “Award Date” or “Grant Date” shall mean the date on which an Award is made
by the Committee.

     2.5 “Board” or “Board of Directors” shall mean the Board of Directors of the
Company.

     2.6 “Cashless Exercise” shall mean the exercise of an Option by a Participant through
the use of a brokerage firm to make payment to the Company of the exercise price from the proceeds
of the sale of Stock issued pursuant to the exercise of the Option, and upon receipt of such
payment, the Company’s delivery of the exercised Shares to the brokerage firm.

     2.7 “Cause” shall be defined in Section 10.4.

     2.8 “Change in Control” shall be defined in Section 10.2.

     2.9 “Code” shall mean the Internal Revenue Code of 1986 and the rules and regulations
promulgated thereunder, or any successor law, as amended from time to time.

 

 

     2.10 “Committee” shall mean the Compensation Committee of the Board or such other
committee appointed by the Board to administer the Plan in accordance with Article XI.

     2.11 “Common Stock” or “Stock” shall mean the common stock, no par value, of
the Company, or such other security or right or instrument into which such common stock may be
changed or converted in the future.

     2.12 “Company” shall mean Piedmont Natural Gas Company, Inc., a North Carolina
corporation, or any successor thereto.

     2.13 “Covered Participant” shall mean a Participant who is a “covered employee” as
defined in Code Section 162(m)(3).

     2.14 “Designated Beneficiary” shall mean the beneficiary designated by the
Participant, pursuant to procedures established by the Committee, to receive amounts due to the
Participant in the event of the Participant’s death. If the Participant does not make an effective
designation, then the Designated Beneficiary will be the Participant’s estate.

     2.15 “Disability” shall mean (a) the mental or physical disability of the Participant
defined as “Disability” under the terms of the long-term disability plan sponsored by the Company
and in which the Participant is covered, as amended from time to time in accordance with the
provisions of such plan; or (b) a determination by the Committee, in its sole discretion, of total
disability (based on medical evidence) that precludes the Participant from engaging in any
occupation or employment for wage or profit for at least twelve months and appears to be permanent.
All decisions by the Committee relating to a Participant’s Disability (including a decision that a
Participant is not disabled) shall be final and binding on all parties.

     2.16 “Effective Date” of this amended and restated Plan shall mean December 15, 2010,
subject to approval by the Company’s shareholders at the Company’s 2011 annual meeting of
shareholders.

     2.17 “Eligible Employee” shall mean an Employee who is an officer or other key
employee of a Participating Company as designated by the Committee to be eligible to participate in
the Plan.

     2.18 “Employee” shall mean an individual who is employed by a Participating Company in
a customary employer-employee relationship and designated as such in accordance with the Company’s
standard employment practices.

     2.19 “Exchange Act” shall mean the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder, or any successor law, as amended from time to time.

     2.20 “Fair Market Value” shall mean, for any given date, the closing price of Common
Stock as reported on the composite tape of the primary stock exchange in which the Common Stock is
listed on the immediately preceding day or, if no Shares were traded on such stock exchange on such
day, then on the next preceding day that Stock was traded on such exchange, all as reported by The
Wall Street Journal or such other source as the Committee may select.

     2.21 “Good Reason” shall be defined in Section 10.3.

2

 

     2.22 “Incentive Stock Option” shall mean an option to purchase Stock, granted under
Article V, which is designated as an incentive stock option and is intended to meet the
requirements of Code Section 422.

     2.23 “Non-qualified Stock Option” shall mean an option to purchase Stock, granted
under Article V, which is not intended to qualify as an Incentive Stock Option.

     2.24 “Option Price” shall mean the exercise price per share of Stock covered by an
Option in accordance with Section 5.2.

     2.25 “Outside Director” shall mean a member of the Board who is not an Employee.

     2.26 “Participant” shall mean an Eligible Employee or Outside Director who has been
selected from time to time under Article III to receive an Award under the Plan.

     2.27 “Participating Company” shall mean the Company and such other Subsidiaries as the
Board authorizes to participate herein.

     2.28 “Performance Award” shall mean a performance-based Award made under Section 7.3,
which may be in the form of either Performance Shares or Performance Units.

     2.29 “Performance Criteria” shall mean objectives established by the Committee for a
Performance Period for the purpose of determining when an Award subject to such objectives has been
earned, and may include alternative and multiple Performance Criteria, including, but not limited
to, operating and maintenance expense targets, customer satisfaction, safety, and financial goals
including, but not limited to, absolute or relative (i.e., in relation to a peer group of
companies) total shareholder return, revenues, sales, net income, EBITDA, return on assets,
earnings per share and/or growth thereof, or net worth of the Company, any of its Subsidiaries,
divisions, business units or other areas of the Company.

     2.30 “Performance Period” shall mean the time period designated by the Committee
during which Performance Criteria must be met in order for a Participant to earn a
performance-based award.

     2.31 “Performance Share” or “Performance Unit” shall mean an Award granted to
a Participant pursuant to Section 7.3, the value of which is linked to Company Stock and which is
earned, in whole or in part, by the attainment of Performance Criteria pre-established by the
Committee and described in the Agreement.

     2.32 “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in
Section 13(d) thereof.

     2.33 “Plan” shall mean the Piedmont Natural Gas Company, Inc. Incentive Compensation
Plan, as set forth herein and as hereafter amended from time to time.

     2.34 “Restricted Stock” shall mean an Award of Stock to a Participant pursuant to
Article VI.

     2.35 “Restriction Period” shall mean the period during which the transfer of
Restricted Stock is prohibited and is subject to a risk of forfeiture pursuant to Article VI.

3

 

     2.36 “Retirement” shall mean the termination of employment of a Participant on or
after such Participant is eligible for early or normal retirement under the defined benefit pension
plan sponsored by the Company or would have been so eligible if the Participant were eligible to
participate in such plan. Notwithstanding the foregoing, “Retirement” before the Participant is
(or would be) eligible for normal retirement under such plan shall require prior approval by the
Committee. With respect to a Participant who is an Outside Director, “Retirement” shall mean the
end of the director’s term of office upon attaining the mandatory retirement age for directors.

     2.37 “Rule 16b-3” shall mean Rule 16b-3 under Section 16(b) of the Exchange Act as
adopted in Exchange Act Release No. 34-37260 (May 30, 1996), or any successor rule as amended from
time to time.

     2.38 “Section 162(m)” shall mean Section 162(m) of the Code, or any successor section
under the Code, as amended from time to time.

     2.39 “Securities Act” shall mean the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as amended from time to time.

     2.40 “Shares” shall mean shares of Common Stock of the Company.

     2.41 “Stock Appreciation Right” shall mean the right to receive an amount equal to the
excess of the Fair Market Value of a share of Stock (as determined on the date of exercise) over
the Option Price of a related Option or the Fair Market Value of the Stock on the Grant Date of the
Stock Appreciation Right.

     2.42 “Stock Option” or “Option” shall mean an Incentive Stock Option or a
Non-qualified Stock Option.

     2.43 “Stock Unit Award” shall mean an award of Common Stock or units granted under
Section 7.4.

     2.44 “Subsidiary” shall mean any entity (other than the Company) with respect to which
the Company owns, either directly or indirectly, at least 50% of the total combined voting power of
all classes of stock or other ownership interest.

ARTICLE III

ELIGIBILITY

     The Committee shall have sole and complete discretion to determine the Eligible Employees and
Outside Directors who shall be eligible to participate in the Plan. An Outside Director who is
selected by the Committee to participate in the Plan shall only be eligible for Awards under
Articles V, VI or VII and shall not be eligible for Annual Incentive Awards under Article VIII. An
Eligible Employee or Outside Director designated by the Committee as eligible hereunder shall be
considered a Participant upon receiving an Award under the Plan.

4

 

ARTICLE IV

SHARES SUBJECT TO THE PLAN

     4.1 Number of Shares. Subject to adjustment as provided for in Section 4.3, the
maximum aggregate number of Shares that may be issued pursuant to Awards made under the Plan
(whether granted under the Plan before or after the Effective Date) shall not exceed 1,500,000
Shares.

     Shares of Common Stock issued pursuant to Awards under the Plan may be authorized but unissued
Shares or Shares purchased in the open market for purposes of the Plan.

     4.2 Share Counting. The Committee may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting and make adjustments in the number of shares of Common
Stock available under Section 4.1 if the number of Shares actually delivered to a Participant
differs from the number of shares of Common Stock previously counted in connection with an Award
to the Participant, subject, however, to the following:

     (i) Shares subject to an Award (whether granted under the Plan before or after the
Effective Date ) that is canceled, expired, forfeited, settled in cash or is otherwise
terminated without a delivery of Common Stock to the Participant will again be available for
Awards under the Plan.

     (ii) Shares that are withheld in payment of the exercise price of a Stock Option or in
payment of withholding taxes relating to an Award shall be deemed to constitute Shares
delivered to the Participant and shall not be available for future Awards under the Plan.

     (iii) Upon the exercise of a Stock Option or if a Stock Appreciation Right is settled
with Shares, the total number of Shares subject to the Stock Option or Stock Appreciation
Right (as the case may be) shall be deemed delivered to the Participant (regardless of the
number of shares of Common Stock actually paid to the Participant) and shall not be
available for future Awards under the Plan.

     4.3 Capital Adjustments. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure, capitalization or Shares of the Company, the Committee shall
make such adjustments as are appropriate in the maximum number and kind of Shares that may be
issued under the Plan and to any Participant, in the number and kind of Shares covered by any
Awards granted before such change and in the Option Price of any Option granted before such change
or in the Fair Market Value of the Shares on the Grant Date of any Stock Appreciation Right granted
before such change. Such adjustments shall be intended to put the Participant in the same position
as he or she was in immediately before such event.

ARTICLE V

STOCK OPTIONS

     5.1 Grant of Stock Options. Subject to the limitation set forth in Section 4.1 and
the other terms and provisions of the Plan and applicable law, the Committee, at any time and from
time to time, may grant Stock Options to Participants as it shall determine. The Committee shall
have sole and complete discretion in determining the type of Option granted, the Option Price, the
duration of the Option, the number of Shares to which an Option pertains, any conditions imposed
upon the exercisability or the transferability of the Options, including vesting conditions, the
conditions under which the Option may be terminated, and any such other provisions as may be
warranted to comply

5

 

with the law or rules of any securities trading system or stock exchange. Each Option grant shall
have such specified terms and conditions detailed in an Option Agreement. The Opton Agreement
shall specify whether the Option is intended to be an Incentive Stock Option or a Non-qualified
Stock Option. However, no Incentive Stock Option may be awarded (a) after the tenth anniversary of
the Effective Date or (b) to a Participant who is not an Employee.

     5.2 Option Price. The exercise price per share of Stock covered by an Option shall be
determined on the Grant Date by the Committee; provided that the Option Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Grant Date. Further provided, in the
case of an Incentive Stock Option granted to any Employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company or a Subsidiary, the Option Price
shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date. No
Option shall provide by its terms for the re-setting of its exercise price or for its cancellation
and reissuance, in whole or in part; provided that the foregoing shall not limit the authority of
the Committee to grant additional Options hereunder.

     5.3 Exercisability. Except as otherwise provided herein, Options granted under the
Plan shall be exercisable at such times and be subject to such restrictions and conditions as the
Committee shall determine, which will be specified in the Option Agreement and need not be the same
for each Participant. However, under no circumstances, may an Incentive Stock Option be
exercisable after the expiration of 10 years from the Grant Date (5 years from the Grant Date for
any Employee who owns more than 10% of the total combined voting power of all classes of stock of
the Company or a Subsidiary).

     5.4 Method of Exercise. Options shall be exercised by the delivery of a written
notice from the Participant to the Company in a form prescribed by the Committee setting forth the
number of Shares with respect to which the Option is to be exercised, accompanied by full payment
of the Option Price for the Shares. The Option Price shall be payable to the Company in full in
cash, or its equivalent, or by delivery of Shares (not subject to any security interest or pledge)
having a Fair Market Value at the time of exercise equal to the Option Price of the Shares with
respect to which the Option is to be exercised, or by a combination of the foregoing. In addition,
at the request of the Participant, and subject to applicable laws and regulations, the Company may
(but shall not be required to) cooperate in a Cashless Exercise of the Option. After receipt of
written notice and full payment of the Option Price, the Company shall deliver to the Participant
as soon as practicable, or, at a later mutually agreed upon date, a stock certificate or other
documentation, issued in the Participant’s name, evidencing the number of Shares with respect to
which the Option was exercised.

     5.5 Death, Disability, Retirement or Other Termination of Employment. Except as
otherwise provided in a Participant’s Option Agreement:

     (a) in the event of a Participant’s death, Disability or Retirement while an Employee
or an Outside Director, Options granted to the Participant shall be considered immediately
vested and shall be exercisable at such time as specified in the Option Agreement, and

     (b) subject to Article X, in the event the Participant resigns, is terminated from the
Company or, in the case of an Outside Director, is not reelected to the Board or otherwise
resigns as a member of the Board, Options which have not vested by such date shall be
forfeited, and the Participant shall have three months from such date to exercise vested
Options (but not beyond the expiration of the term of the Option, if earlier).
Notwithstanding

6

 

the foregoing, if the Participant is terminated from the Company for Cause, all of the
Participant’s Options (whether vested or unvested) shall be immediately forfeited.

ARTICLE VI

RESTRICTED STOCK

     6.1 Grant of Restricted Stock. Subject to the limitations set forth in Section 4.1
and the other terms and provisions of the Plan and applicable law, the Committee, at any time, and,
from time to time, may grant shares of Restricted Stock under the Plan to such Participants, and in
such amounts and for such duration and/or consideration as it shall determine.

     6.2 Restricted Stock Award Agreement. Restricted Stock granted hereunder shall be
evidenced by an Award Agreement that shall specify the Restriction Period, the number of Shares of
Restricted Stock granted, and such other provisions as the Committee may deem advisable, including
requirements established pursuant to the Securities Act, the Exchange Act, the Code and any
securities trading system or stock exchange upon which such Shares under the Plan are listed.

     6.3 Restriction Period. Except as otherwise provided in this Article, the Shares of
Restricted Stock granted under the Plan may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the termination of the applicable Restriction Period.

     Subject to Section 6.7 and Article X, if a Participant resigns, is otherwise terminated from
the Company or, in the case of an Outside Director is not reelected to the Board or otherwise
resigns as a member of the Board, prior to the end of the Restriction Period, he or she will
forfeit all interests in the Restricted Stock Award. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant or his or her guardian or legal representative.

     6.4 Removal of Restrictions. Except as otherwise provided in this Article, Restricted
Stock covered by each Award made under the Plan shall become freely transferable by the Participant
after the last day of the Restriction Period and/or upon the satisfaction of other conditions as
determined by the Committee.

     6.5 Voting Rights. During the Restriction Period, Participants in whose name
Restricted Stock is granted under the Plan may exercise full voting rights with respect to those
Shares.

     6.6 Dividends and Other Distributions. Except as otherwise provided in a
Participant’s Award Agreement, during the Restriction Period, Participants in whose name Restricted
Stock is granted under the Plan shall be entitled to receive all dividends and other distributions
paid with respect to those Shares. If any such dividends or distributions are paid in Shares, the
Shares shall be subject to the same restrictions on transferability and forfeitability as the
Restricted Stock with respect to which they were distributed.

     6.7 Death, Disability or Retirement. Except as otherwise provided in a Participant’s
Award Agreement, in the event of the Participant’s death, Disability or Retirement while an
Employee or an Outside Director and before the Restriction Period has ended, the restrictions on
the Shares of Restricted Stock awarded to the Participant shall be removed upon the Participant’s
date of death, Disability or Retirement.

7

 

ARTICLE VII

OTHER STOCK BASED AWARDS

     7.1 Grant of Other Stock Based Awards. Subject to the limitations set forth in
Section 4.1 and the other terms and provisions of the Plan and applicable law, the Committee may,
at any time and from time to time, issue to Participants, either alone or in addition to other
Awards made under the Plan, Stock Appreciation Rights as described in Section 7.2, Performance
Awards as described in Section 7.3 or other Stock Unit Awards as described in Section 7.4. Any
such Awards shall be governed by the terms of an Award Agreement, and the Committee may impose such
terms and conditions, including Performance Criteria conditions and conditions similar to those
described in Section 5.1 and/or Section 6.2 and not inconsistent with the terms of this Plan, as it
deems appropriate on such Award.

     7.2 Stock Appreciation Rights.

     (a) Grant of Stock Appreciation Rights. Stock Appreciation Rights granted in
tandem with an Option or in addition to an Option may be granted at the time of the Option
or at a later time. No Stock Appreciation Rights granted under the Plan may be exercisable
until the expiration of at least six months after the Grant Date (except that such
limitations shall not apply in the case of death or Disability of the Participant).

     (b) Price. The exercise price of each Stock Appreciation Right shall be
determined at the time of grant by the Committee, subject to the limitation that the
exercise price shall not be less than 100% of Fair Market Value of the Common Stock on the
Grant Date.

     (c) Exercise. Stock Appreciation Rights shall be exercised by the delivery of
a written notice from the Participant to the Company in a form prescribed by the Committee.
Upon such exercise, the Participant shall be entitled to receive an amount equal to the
excess of the Fair Market Value of a Share over the grant price thereof on the date of
exercise of the Stock Appreciation Right multiplied by the number of Shares for which the
Stock Appreciation Right was granted.

     (d) Payment. Payment upon exercise of the Stock Appreciation Right shall be
made in Shares of Common Stock. However, if any payment in the form of Shares results in a
fractional share, such payment for the fractional share shall be made in cash.

     7.3 Performance Awards.

     (a) Grant of Performance Awards. Performance Awards granted hereunder may be
issued in the form of either Performance Units or Performance Shares to Participants
subject to the Performance Criteria, Performance Period and other considerations or
restrictions as the Committee shall determine. The Committee shall have complete
discretion in determining the number and value of Performance Units or Performance Shares
granted to each Participant.

     (b) Value of Performance Awards. The Committee shall determine the number and
value of Performance Units or Performance Shares granted to each Participant as a
Performance Award. The Committee shall set Performance Criteria in its discretion for each
Participant who is granted a Performance Award. The Committee shall determine the extent
to which such Performance Criteria are met and will determine the value of the Performance

8

 

Unit or Performance Share to the Participant, and in making such determination, the
Committee may use negative discretion to decrease, but not increase, the value of the
Performance Unit or Performance Share.

     (c) Settlement of Performance Awards. After a Performance Period has ended,
the holder of a Performance Unit or Performance Share shall be entitled to receive the
value thereof determined as provided in Section 7.3(b). Notwithstanding the foregoing, no
distributions in respect of Performance Units shall be made if at the time distribution
would otherwise have been made:

     (i) The regular quarterly dividend on any outstanding common or preferred
shares of the Company has been omitted and not subsequently paid or there exists
any default in payment of dividends on any such outstanding shares,

     (ii) The estimated consolidated net income of the Company for the immediately
preceding twelve-month period is less than the sum of (i) the aggregate amount to
be distributed plus (ii) dividends on all outstanding preferred and common shares
of the Company applicable to such twelve-month period (either paid, declared or
accrued at the most recently paid rate); or

     (iii) The distribution would result in a default in any agreement by which the
Company is bound.

     (d) Form of Payment. Payment of the amount to which a Participant shall be
entitled upon the settlement of the Performance Award shall be made in Shares. However, if
any payment in the form of Shares results in a fractional share, such payment for the
fractional share shall be made in cash.

     (e) Effect of Death, Disability, Retirement or Leave of Absence During Performance
Period.

     (i) Unless otherwise provided in a Participant’s Award Agreement, in the event
of the Participant’s Disability or Retirement before the Performance Period has
ended, the number of Shares the Participant shall be entitled to, if any, shall
equal (A) the number of Shares, if any, the Participant would otherwise be entitled
to had the individual been an active Participant at the end of the Performance
Period (i.e., as adjusted or forfeited based on the actual Performance Criteria)
multiplied by (B) the portion of the Performance Period during which the
Participant was an active Participant, and such Shares shall be distributed within
2 1/2 months after the end of the Performance Period;

     (ii) Unless otherwise provided in a Participant’s Award Agreement, in the
event of a Participant’s death while an Employee before the Performance Period has
ended, the Company will be assumed to have achieved a target performance level for
the Performance Period in which death occurs, and the number of Shares the
Participant’s Designated Beneficiary shall be entitled to, if any, shall equal the
number of Shares the Participant would otherwise be entitled to had the Participant
been an active Participant at the end of the Performance Period, and such Shares
shall be distributed within 60 days after the Participant’s death; and

9

 

     (iii) Absence of a Participant from employment during a Performance Period and
entitling the Participant to (A) reemployment rights following military service
under the Uniformed Services Employment and Reemployment Rights Act (USERRA) (or
any other similar applicable federal or state law) or (B) sickness allowance or
short-term disability benefits under the Company’s employee benefit plans, shall
not affect any Stock-based Award made under this Article VII. Unless otherwise
provided in a Participant’s Award Agreement, in the event a Participant is absent
from employment during a Performance Period due to an authorized leave of absence
not described in the immediately preceding sentence, the amount or number of Shares
the Participant shall be entitled to, if any, under any Stock-based Award made
under this Article VII shall equal (A) the amount or number of Shares, if any, to
which the Participant would otherwise be entitled had the individual been an active
Participant during the entire Performance Period (i.e., as adjusted or forfeited
based on the Performance Criteria) multiplied by (B) the portion of the Performance
Period during which the Participant was an active Participant (i.e., excluding the
period of the authorized leave of absence) and such Shares shall be distributed
within 2 1/2 months after the end of the Performance Period.

     7.4 Stock Unit Awards.

     (a) Grant of Other Stock Unit Awards. Stock Unit Awards granted hereunder may
be in the form of Common Stock or other securities. The value of each such Award shall be
based, in whole or in part, on the value of the underlying Common Stock on the Grant Date.
The Committee, in its sole and complete discretion, may determine that an Award, either in
the form of a Stock Unit Award under this Section or as an Award granted pursuant to the
other provisions of the Plan, may provide to the Participant (i) dividends or dividend
equivalents (payable on a current or deferred basis) and (ii) cash payments in lieu of or
in addition to an Award. Subject to the provisions of the Plan, the Committee, in its sole
and complete discretion, shall determine the terms, restrictions, conditions, vesting
requirements, and payment rules of the Award. The Award Agreement shall specify the rules
of each Award as determined by the Committee. However, each Stock Unit Award need not be
subject to identical rules.

     (b) Rules. The Committee, in its sole and complete discretion, may grant a
Stock Unit Award subject to the following rules:

     (i) Common Stock or other securities issued pursuant to Stock Unit Awards may
not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated
by a Participant until the expiration of at least six months from the Grant Date,
except that such limitation shall not apply in the case of death or Disability of
the Participant, a Change in Control, or where a Committee of the Board, comprised
of non-Employee directors of the Company within the meaning of Rule 16b-3, approved
the Award. To the extent Stock Unit Awards are deemed to be derivative securities
within the meaning of Rule 16b-3, the rights of a Participant who is subject to
Section 16 of the Exchange Act with respect to such Awards shall not vest or be
exercisable until the expiration of at least six months from the Award Date unless
the Board or the Committee, comprised of non-Employee directors of the Company
within the meaning of Rule 16b-3, specifies otherwise. All rights with respect to
such Stock Unit Awards granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant or his or her guardian or legal
representative.

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     (ii) Stock Unit Awards may require the payment of cash consideration by the
Participant in receipt of the Award or provide that the Award, and any Common Stock
or other securities issued in conjunction with the Award, be delivered without the
payment of cash consideration.

     (iii) The Committee, in its sole and complete discretion, may establish
certain Performance Criteria that may relate in whole or in part to receipt of
Stock Unit Awards.

     (iv) Stock Unit Awards may be subject to a deferred payment schedule and/or
vesting over a specified period.

     (v) The Committee, in its sole and complete discretion, as a result of certain
circumstances, may waive or otherwise remove, in whole or in part, any restriction
or condition imposed on a Stock Unit Award.

ARTICLE VIII

ANNUAL INCENTIVE AWARDS

     8.1 Timing and Determination of Annual Incentive Awards. Following the completion of
a Performance Period, the Committee shall undertake or direct an evaluation of Performance Criteria
for such Performance Period as determined in Section 8.2.

     No Annual Incentive Award may be paid without a determination by the Committee that the
Performance Criteria have been met, and in making such determination, the Committee may use
negative discretion to decrease, but not increase, the Annual Incentive Award.

     Any Annual Incentive Awards will be paid at such time or times as may be determined by the
Committee following the end of the Performance Period to which they relate, but not later than the
last day of the 2 1/2 month period following the end of the Performance Period.

     8.2 Performance Criteria for Annual Incentive Awards. Performance Criteria of the
Company will be established in writing by the Committee.

     The Performance Period with respect to Awards shall be the Company’s fiscal year or any other
period designated as such by the Committee.

     8.3 Maximum Annual Incentive Award. The maximum individual Annual Incentive Award for
a Performance Period of twelve calendar months will be $1,000,000, provided the Eligible Employee
has been a Participant for such twelve month period. In the event that an Annual Incentive Award
is being determined for a Performance Period of less than twelve calendar months or for the
Performance Period in which the Eligible Employee becomes a Participant, dies, incurs a Disability
or terminates employment due to Retirement, the maximum Annual Incentive Award of $1,000,000 shall
be prorated in accordance with Section 8.4 or 8.5, whichever is applicable.

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     8.4 Short Performance Period.

     (a) Death, Disability or Retirement. In the event of a Participant’s death,
Disability or Retirement prior to the date the Annual Incentive Award is paid, the
following shall apply:

     (i) In the event of the Participant’s death or Disability before the end of
the Performance Period, the Company will be assumed to have achieved a target
performance level for the Performance Period in which death or Disability occurs
for purposes of determining the Annual Incentive Award and such Annual Incentive
Award shall be paid within 60 days after the Participant’s death or Disability. In
the event of the Participant’s death or Disability after the end of the Performance
Period, but before the date the Annual Incentive Award is paid, the Participant’s
Annual Incentive Award shall be payable based on the actual Performance Criteria
for the entire Performance Period.

     (ii) In the event of a Participant’s Retirement, the Participant’s Annual
Incentive Award shall be determined and payable following the end of the
Performance Period based on the actual Performance Criteria for the entire
Performance Period.

     (iii) In any of such events, the amount of Annual Incentive Award shall be
prorated as necessary to reflect the period of time during which the individual was
employed during the Performance Period.

     (b) New Participants. In the event an individual becomes a Participant and is
eligible for an Annual Incentive Award based on a Performance Period shorter than twelve
months, such Annual Incentive Award shall be prorated to reflect the period of time the
individual was employed in the Performance Period.

     (c) Leave of Absence. Absence of a Participant from employment during a
Performance Period and entitling the Participant to (i) reemployment rights following
military service under the Uniformed Services Employment and Reemployment Rights Act
(USERRA) (or any other similar applicable federal or state law) or (ii) sickness allowance
or short-term disability benefits under the Company’s employee benefit plans, shall not
affect any Annual Incentive Award. In the event a Participant is absent from employment
during a Performance Period due to an authorized leave of absence not described in the
immediately preceding sentence, the amount the Participant shall be entitled to receive, if
any, under any Annual Incentive Award shall equal (i) the amount, if any, to which the
Participant would otherwise be entitled had the individual been an active Participant
during the entire Performance Period (i.e., as adjusted or forfeited based on the
Performance Criteria) multiplied by (ii) the portion of the Performance Period during which
the Participant was an active Participant (i.e., excluding the period of the authorized
leave of absence) and such amount shall be paid following the end of the Performance
Period.

     8.5 Limitation on Right to Payment of Award. Notwithstanding any other Plan provision
to the contrary, no Participant shall have a right to receive payment of an Annual Incentive Award
under the Plan if, subsequent to the commencement of the Performance Period and prior to the date
any Award would otherwise be payable, the Participant resigns or is otherwise terminated from the
Participating Company for reasons other than death, Disability, or Retirement or following a Change

12

 

in Control as provided in Article X. Notwithstanding the foregoing, no distributions of
Annual Incentive Awards shall be made if at the time distribution would otherwise have been made:

     (a) The regular quarterly dividend on any outstanding common or preferred shares of
the Company has been omitted and not subsequently paid or there exists any default in
payment of dividends on any such outstanding shares,

     (b) The estimated consolidated net income of the Company for the immediately preceding
twelve-month period is less than the sum of (i) the aggregate amount to be distributed plus
(ii) dividends on all outstanding preferred and common shares of the Company applicable to
such twelve-month period (either paid, declared or accrued at the most recently paid rate);
or

     (c) The distribution would result in a default in any agreement by which the Company
is bound.

ARTICLE IX

SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS

     Awards to Covered Participants shall be governed by the conditions of this Article in addition
to the requirements of Articles V through VIII above. Should conditions set forth under this
Article conflict with the requirements of Articles V through VIII, the conditions of this Article
shall prevail.

     (a) All Performance Criteria relating to Covered Participants for a relevant
Performance Period shall be established by the Committee in writing prior to the beginning
of the Performance Period, or by such other later date for the Performance Period as may be
permitted under Section 162(m) of the Code.

     (b) The Performance Criteria must be objective and must satisfy third party
“objectivity” standards under Code Section 162(m).

     (c) The Performance Criteria shall not allow for any discretion by the Committee to
increase any Award, but discretion to lower an Award is permissible.

     (d) The Award and payment of any Award under this Plan to a Covered Participant with
respect to a relevant Performance Period shall be contingent upon the attainment of the
Performance Criteria that are applicable to such Award. The Committee shall certify in
writing prior to payment of any such Award that such applicable Performance Criteria have
been satisfied. Resolutions adopted by the Committee may be used for this purpose.

     (e) The aggregate maximum number of Shares subject to Awards that may be granted to
any Covered Participant under Articles V, VI and VII during any fiscal year of the Company
shall be 250,000 Shares.

     (f) All Awards under this Plan to Covered Participants or to other Participants who
may become Covered Participants at a relevant future date shall be further subject to such
other conditions, restrictions, and requirements as the Committee may determine to be
necessary to carry out the purposes of this Article, which is to avoid the loss of
deduction by the Company under Code section 162(m).

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ARTICLE X

CHANGE IN CONTROL

     10.1 Acceleration upon a Change in Control. The provision of this Section shall apply
notwithstanding any Plan provision to the contrary, and notwithstanding any agreement between the
Company and such Participant which relate to the terms of Awards hereunder, upon a Change in
Control. Upon the termination of an employee Participant’s employment by the Company without
Cause, or by an employee Participant for Good Reason, within a period of one year following the
occurrence of a Change in Control, the following shall apply:

     (a) Any Stock Option and Stock Appreciation Right Awards shall be exercisable within
such time as specified in the Award Agreement.

     (b) All restrictions on any Restricted Stock Awards and Stock Unit Awards shall be
eliminated, and such awards shall immediately vest and not be subject to forfeiture.

     (c) If the termination of employment occurs before the end of the Performance Period,
the amount of any Performance Award shall be determined assuming the Company achieved a
target performance level and no adjustment or proration shall be made to the Award. If the
termination of employment occurs after the end of the Performance Period but before the
Performance Award is paid, the amount payable shall be determined based on the actual
Performance Criteria for the Performance Period. In either case, settlement of the
Performance Award shall be made within 2 1/2 months after termination of employment or the
end of the Performance Period (as the case may be).

     (d) If the termination of employment occurs before the end of the Performance Period,
the amount of any Annual Incentive Award shall be determined assuming the Company has
achieved a target performance level, and such amount shall then be multiplied by the
portion of the Performance Period the individual was an active Participant hereunder. If
the termination of employment occurs after the end of the Performance Period but before the
Annual Incentive Award is paid, the amount payable shall be determined based on the actual
Performance Criteria for the Performance Period. In either case, payment of the Annual
Incentive Award shall be made within 2 1/2 months after termination of employment or the end
of the Performance Period (as the case may be).

     10.2 Change in Control Defined. For purposes of this Article, “Change in Control”
shall have the same meaning as such term or similar term is defined in a Participant’s individual
agreement with the Company which relates to such Participant’s compensation and benefits upon the
occurrence of a change in ownership of the Company or similar event.

     (a) In the event there is no such agreement, “Change in Control” shall mean:

     (i) The acquisition by any Person of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more
of either (A) the then outstanding shares of Common Stock of the Company (the
“Outstanding Company Common Stock”) or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided,
however, that the following acquisitions shall not constitute an acquisition of
control: any acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), any acquisition by the Company,
any

14

 

acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (A), (B) and (C) of subsection (iii) of this
section are satisfied;

     (ii) Individuals who, as of the Effective Date, constitute the Board of
Directors (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination for election
by the Company’s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;

     (iii) Consummation of a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation, (A) more than sixty
percent (60%) of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding the Company, any employee
benefit plan or related trust of the Company, or such corporation resulting from
such reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or
Outstanding Voting Securities, as the case may be) beneficially owns, directly or
indirectly, twenty percent (20%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of directors of
the corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation;

     (iv) Approval by the shareholders of the Company of (A) a complete liquidation
or dissolution of the Company or (B) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition (1) more than sixty
percent (60%) of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting securities

15

 

of such corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (2) no Person (excluding the Company and any employee benefit
plan or related trust of the Company, or such corporation and any Person
beneficially owning, immediately prior to such sale or other disposition, directly
or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock
or Outstanding Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, twenty percent (20%) or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (3) at least a majority of the
members of the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company; or

     (v) The closing, as defined in the documents relating to, or as evidenced by a
certificate of any state or federal governmental authority in connection with, a
transaction approval of which by the shareholders of the Company would constitute a
“Change in Control” under subsection (iii) or (iv) of this Section.

     (b) Notwithstanding (a) above, if the Participant’s employment is terminated before a
Change in Control and the Participant reasonably demonstrates that such termination (i) was
at the request of a third party who has indicated an intention or taken steps reasonably
calculated to effect a “Change in Control” and who effectuates a “Change in Control” or
(ii) otherwise occurred in connection with, or in anticipation of, a “Change in Control”
which actually occurs, then for all purposes of this Plan, the date of a “Change in
Control” with respect to the Participant shall mean the date immediately prior to the date
of such termination of the Participant’s employment.

     10.3 Good Reason Defined. “Good Reason” shall mean, without the Participant’s written
consent,

     (a) a change in the Participant’s status, position or responsibilities which, in his
reasonable judgment, represents a demotion from his status, position or responsibilities as
in effect immediately prior to the Change in Control;

     (b) the assignment to the Participant of any duties or responsibilities which, in his
reasonable judgment, are inconsistent with such status, position or responsibilities
immediately prior to the Change in Control; or any removal of the Participant from or
failure to reappoint or reelect him to any of such positions that the Participant had
immediately prior to the Change in Control;

     (c) a reduction by the Company in the Participant’s base salary or the Company’s
failure to increase (within twelve (12) months of the Participant’s last increase in base
salary) the Participant’s base salary after a Change in Control in an amount which at least
equals, on a percentage basis, the average percentage increase in base salary for all

16

 

executive and senior executives of the Company effected in the preceding twelve (12)
months;

     (d) the relocation of the principal executive offices of the Company or Subsidiary,
whichever entity on behalf of which the Participant performs a principal function of that
entity as part of his employment services, to a location more than fifty (50) miles outside
the Charlotte, North Carolina metropolitan area or, if his services are not performed in
Charlotte, North Carolina, the Company’s requiring him to be based at any place other than
the location at which he performed his duties immediately prior to the Change in Control,
except for required travel on the Company’s business to an extent substantially consistent
with his business travel obligations at the time of a Change in Control;

     (e) the failure by the Company to continue in effect any incentive, bonus or other
compensation plan in which the Participant participates immediately prior to the Change in
Control, including but not limited to this Plan, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan), with which he has consented, has been made
with respect to such plan in connection with the Change in Control, or the failure by the
Company to continue his participation therein, or any action by the Company which would
directly or indirectly materially reduce his participation therein;

     (f) the failure by the Company to continue to provide the Participant with benefits
substantially similar to those enjoyed by him or to which he was entitled under any of the
Company’s pension, profit sharing, life insurance, medical, dental, health and accident, or
disability plans in which he was participating at the time of a Change in Control, the
taking of any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive him of any material fringe benefit enjoyed by him or to
which he was entitled at the time of the Change in Control, or the failure by the Company
to provide him with the number of paid vacation and sick leave days to which he is entitled
on the basis of years of service with the Company in accordance with the Company’s normal
vacation policy in effect on the date hereof;

     (g) the failure of the Company to obtain a satisfactory agreement with any successor
or assign of the Company to assume and agree to perform under any Change in Control
agreement between the Company and the Participant; or

     (h) any request by the Company that the Participant participate in an unlawful act or
take any action constituting a breach of the Participant’s professional standard of
conduct.

     10.4 Cause Defined. “Cause” shall mean

     (a) intentional gross misconduct by the Participant damaging in a material way to the
Company, or

     (b) a material breach of the Participant’s employment agreement, after the Company has
given the Participant notice thereof and a reasonable opportunity to cure.

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ARTICLE XI

ADMINISTRATION

     11.1 The Committee. The Plan shall be administered and interpreted by the Committee
which shall have full authority, discretion and power necessary or desirable for such
administration and interpretation. The express grant in this Plan of any specific power to the
Committee shall not be construed as limiting any power or authority of the Committee. In its sole
and complete discretion the Committee may adopt, alter, suspend and repeal any such administrative
rules, regulations, guidelines, and practices governing the operation of the Plan as it shall from
time to time deem advisable. In addition to any other powers and, subject to the provisions of the
Plan, the Committee shall have the following specific powers: (a) to determine the terms and
conditions upon which Awards may be made and exercised; (b) to determine the Participants to which
Awards shall be made; (c) to determine all terms and provisions of each Agreement, which need not
be identical for types of Awards nor for the same type of Award to different Participants; (d) to
construe and interpret all terms, conditions and provisions of the Plan and all Agreements; (e) to
establish, amend, or waive rules or regulations for the Plan’s administration; (f) to accelerate
the exercisability of any Award, the length of a Performance Period or the termination of any
Restriction Period; and (g) to make all other determinations and take all other actions necessary
or advisable for the administration or interpretation of the Plan. The Committee may seek the
assistance or advice of any persons it deems necessary to the proper administration of the Plan.

     11.2 Committee Decisions. Unless strictly and expressly prohibited by law, all
determinations and decisions made by the Committee pursuant to the provisions of this Plan shall be
final, conclusive, and binding upon all persons, including Participants, Designated Beneficiaries,
the Company, its shareholders and employees.

     11.3 Rule 16b-3 and Section 162(m) Requirements. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on any Award as it may deem to be
advisable or required to satisfy the requirements of Rule 16b-3 or Section 162(m).

ARTICLE XII

GENERAL PROVISIONS

     12.1 Withholding. The Company shall have the right to deduct or withhold, or require
a Participant to remit to the Company, any taxes required by law to be withheld from Awards made
under this Plan. In the event an Award is paid in the form of Common Stock, the Participant may
remit to the Company the amount of any taxes required to be withheld from such payment in cash, or,
in lieu thereof, the Company may withhold (or the Participant may be provided the opportunity to
elect to tender) the number of shares of Common Stock equal in Fair Market Value to the amount
required to be withheld.

     12.2 Code Section 409A.

     (a) Delay of Certain Payments. Notwithstanding anything in the Plan to the
contrary, if any amount or benefit that the Company determines would constitute non-exempt
“deferred compensation” for purposes of Section 409A of the Code would otherwise be payable
or distributable under this Plan by reason of a Participant’s termination of employment,
then to the extent necessary to comply with Code Section 409A:

     (i) if the payment or distribution is payable in a lump sum, the Participant’s
right to receive payment or distribution of such non-exempt deferred

18

 

compensation will be delayed until the earlier of the Participant’s death or
the seventh month following the Participant’s termination of employment; and

     (ii) if the payment or distribution is payable over time, the amount of such
non-exempt deferred compensation that would otherwise be payable during the six (6)
month period immediately following the Participant’s termination of employment will
be accumulated and the Participant’s right to receive payment or distribution of
such accumulated amount will be delayed until the earlier of the Participant’s
death or the seventh month following the Participant’s termination of employment
and paid on the earlier of such dates, without interest, and the normal payment or
distribution schedule for any remaining payments or distributions will commence.

     (b) Separation from Service Required. A termination of employment shall not
be deemed to have occurred for purposes of any provision of this Plan providing for the
payment of any amounts or benefits subject to Code Section 409A upon or following a
termination of employment unless such termination is also a “separation from service”
within the meaning of Code Section 409A and, for purposes of any such provision of this
Plan, references to a “termination,” “termination of employment” or like terms shall mean
“separation from service.”

     (c) Interpretation and Administration. Nothing in this Plan shall operate or
be construed to cause the Plan to fail to comply with the requirements of Code Section 409A
and, to the extent applicable, it is intended that the Plan comply with the provisions of
Code Section 409A and shall be administered in a manner consistent with that intent. Any
provision of this Plan that would cause the Plan or any payment made hereunder to fail to
satisfy Code Section 409A shall have no force and effect until amended by the Company to
comply with Code Section 409A (which amendment may be retroactive to the extent permitted
by Code Section 409A) and may be made by the Company without the consent of any
Participant.

     12.3 Terms of Awards. Each Award granted under the Plan shall be evidenced in a
corresponding Award Agreement provided in writing to the Participant, which shall specify the
terms, conditions and any rules applicable to the Award, including but not limited to the effect of
a Change in Control, or death, Disability, or other termination of employment of the Participant on
the Award.

     12.4 Recoupment of Awards. The Committee may require in any Award Agreement that any
current or former Participant reimburse the Company for all or any portion of any Award, terminate
any outstanding, unexercised, unexpired or unpaid Award, rescind any exercise, payment or delivery
pursuant to an Award or recapture any Shares (whether restricted or unrestricted) or proceeds from
the Participant’s sale of Shares issued pursuant to an Award to the extent required by any
recoupment or clawback policy adopted by the Committee in its discretion or to comply with the
requirements of any applicable law.

     12.5 Forfeiture of Awards for Engaging in Competition. All outstanding Awards held by
a Participant and not previously paid shall be immediately forfeited and canceled in their entirety
if the Participant, without the prior written consent of the Company, and while employed by the
Company, becomes associated with, employed by, renders services to, consults with, acquires
ownership of more than five percent of any class of stock of, or acquires beneficial ownership of
more than five percent of the earnings or profits of any corporation, partnership, proprietorship,
trust,

19

 

or other entity which, in the Committee’s judgment, competes directly or indirectly with the
Company or any Subsidiary in any of their lines of business.

     12.6 Change in Position. The Committee, in its discretion, may reduce an Annual
Incentive Award or Performance Award in the event of a Participant’s demotion during a Performance
Period, or subject to Article IX, grant an additional Annual Incentive Award or Performance Award
in the event of a Participant’s promotion during a Performance Period.

     12.7 Non-transferability. No Award, including any Options, granted under the Plan may
be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or
the laws of descent and distribution. Further, no lien, obligation, or liability of the
Participant may be assigned to any right or interest of the Participant in an Award under this
Plan.

     12.8 No Right to Employment. Neither the Plan, nor any Award made, or any other
action taken, hereunder shall be construed as giving any Participant or other person any right of
employment or continued employment with the Participating Company.

     12.9 Rights as Shareholder. Subject to the terms and conditions of each particular
Award, no Participant or Designated Beneficiary shall be deemed a shareholder of the Company nor
have any rights as such with respect to any shares of Common Stock to be provided under the Plan
until he or she has become the holder of such shares.

     12.10 Construction of the Plan. Except to the extent superseded by the laws of the
United States, the Plan and all Agreements shall be governed, construed, interpreted and
administered in accordance with the laws of the State of North Carolina. In the event any
provision of the Plan or any Agreement shall be held invalid, illegal or unenforceable, in whole or
in part, for any reason, such determination shall not affect the validity, legality or
enforceability of any remaining provision, portion of provision or the Plan overall, which shall
remain in full force and effect as if the Plan had been absent the invalid, illegal or
unenforceable provision or portion thereof.

     12.11 Amendment of Plan or Awards. The Committee or the Board of Directors may amend,
suspend, or terminate the Plan or any portion thereof at any time, provided such amendment is made
with shareholder approval if and to the extent such approval is necessary to comply with any legal
requirement, including for these purposes any approval requirement which is a requirement for the
performance-based compensation exception under Code Section 162(m). In no event shall the
Committee increase the amount payable pursuant to an Award after it has been granted. In addition,
no amendment shall be made to an outstanding Award without written consent of the affected
Participant. Notwithstanding the preceding, the Committee may amend or modify the Plan or any
outstanding Award to the extent necessary to cause the Plan or such Award to comply with the
requirements of Section 409A of the Code or the Listed Company Manual of the New York Stock
Exchange.

     12.12 Exclusion from Computation of Compensation for Other Purposes. By acceptance of
an applicable Award under this Plan, subject to the conditions of such Award, each Participant
shall be considered in agreement that all shares of Stock sold or awarded and all Options granted
under this Plan shall be considered extraordinary, special incentive compensation and will not be
included as “earnings,” “wages,” “salary” or “compensation” in any pension, welfare, life
insurance, or other employee benefit arrangement of the Company except as otherwise specifically
provided in such arrangement.

20

 

     12.13 Legend. In it sole and complete discretion, the Committee may elect to legend
certificates representing Shares sold or awarded under the Plan, to make appropriate references to
the restrictions imposed on such Shares.

     12.14 Special Provisions for Certain Participants. All Award Agreements for
Participants subject to Section 16(b) of the Exchange Act shall be deemed to include any such
additional terms, conditions, limitations and provisions as Rule 16b-3 requires, unless the
Committee in its discretion determines that any such Award should not be governed by Rule 16b-3.
All performance-based Awards to Covered Participants shall be deemed to include any such additional
terms, conditions, limitations and provisions as are necessary to comply with the performance-based
compensation exemption of Code Section 162(m), unless the Committee, in its discretion, determines
that any such Award is not intended to qualify for the exemption for performance-based compensation
under Code Section 162(m).

     12.15 Unfunded Plan. The Plan shall be unfunded and the Company shall not be required
to segregate any assets in connection with any Awards under the Plan. Any liability of the Company
to any person with respect to any Award under the Plan or any Award Agreement shall be based solely
upon the contractual obligations that may be created as a result of the Plan or any such award or
agreement. No such obligation of the Company shall be deemed to be secured by any pledge of,
encumbrance on, or other interest in, any property or asset of the Company or any Subsidiary.
Nothing contained in the Plan or any Award Agreement shall be construed as creating in respect of
any Participant (or beneficiary thereof or any other person) any equity or other interest of any
kind in any assets of the Company or any Subsidiary or creating a trust of any kind or a fiduciary
relationship of any kind between the Company, any Subsidiary and/or any such Participant, any
beneficiary thereof or any other person.

     12.16 Conflict with Employment Agreement. Except as specified in Article X or
otherwise restricted under Section 12.2 or 12.14, to the extent any provision of this Plan
conflicts with any provision of a written employment agreement between an Employee and the Company,
the material terms of which have been approved by the Board, the provisions of the employment
agreement shall control.

     12.17 Gender and Number. Where the context admits, words in the masculine gender
shall include the feminine gender, the plural shall include the singular and the singular shall
include the plural.

     12.18 Severability. In the event any provision of this Plan shall be held to be
illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining
parts of this Plan, and this Plan shall be construed and endorsed as if such illegal or invalid
provision had never been contained in this Plan.

     12.19 Effect of Headings. The descriptive headings of the Articles and Sections of
this Plan are inserted for convenience of reference and identification only and do not constitute a
part of this Plan for purposes of interpretation.

     12.20 No Liability. No member of the Board or the Committee or any officer or
Employee shall be personally liable for any action, omission or determination made in good faith in
connection with this Plan. The Company shall indemnify and hold harmless the members of the
Committee, the Board and the officers and Employees, and each of them, from and against any and all
loss which results from liability to which any of them may be subjected by reason of any act or
conduct (except willful misconduct or gross negligence) in their official capacities in connection
with the

21

 

administration of this Plan, including all expenses reasonably incurred in their defense, in
case the Company fails to provide such defense. By participating in this Plan, each Employee
agrees to release and hold harmless the Company and its Subsidiaries (and their respective
directors, officers and employees), the Board and the Committee, from and against any tax or other
liability, including without limitation, interest and penalties, incurred by the Employee in
connection with his participation in this Plan.

     12.21 Limited Effect of Plan Restatement. Notwithstanding anything to the contrary
contained in the Plan, this instrument shall not alter or adversely affect a Participant’s rights
under any Award granted to the Participant prior to the Effective Date without the Participant’s
written consent.

     IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Plan as
of the 15th day of December, 2010.

	 	 	 	 	 
	 	PIEDMONT NATURAL GAS COMPANY, INC.

 	 
	 	By:  	/s/ Kevin M. O’Hara
 	 
	 	 	Kevin M. O’Hara 	 
	 	 	Senior Vice President — Corporate and Community Affairs 	 
	 

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