Document:

exv10w2

 

Exhibit
10.2

RIATA 2005 STOCK PLAN

     1. Purpose of the Plan. The purposes of this RIATA 2005 Stock Plan are to attract and
retain the best available individuals for positions of substantial responsibility, to provide
additional incentive to such individuals, and to promote the success of the Company’s business by
aligning the financial interests of Employees and Consultants providing personal services to the
Company or to any Subsidiary of the Company with long-term shareholder value.

     Awards granted hereunder may be Incentive Stock Options, Nonqualified Stock Options,
Stock Awards, or SARs, at the discretion of the Board and as reflected in the terms of the
Award Agreement.

     2. Definitions. As used herein, the following definitions shall apply:

     (a) “Award” shall mean any award or benefits granted under the Plan.

     (b) “Award Agreement” shall mean a written or electronic agreement between
the Company and the Awardee setting forth the terms of the Award.

     (c) “Awardee” shall mean the holder of an outstanding Award.

     (d) “Board” shall mean (i) the Board of Directors of the Company or (ii)
both the Board and the Committee, if a Committee has been appointed in accordance with Section
4(a) of the Plan.

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

     (f) “Committee” shall mean the Compensation Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is appointed; provided,
however, if the Board of Directors appoints more than one Committee pursuant to Section 4(a),
then “Committee” shall refer to the appropriate Committee, as indicated by the context of the
reference.

 

     (g) “Common Shares” shall mean the common shares of Riata Energy, Inc.

     (h) “Company” shall mean Riata Energy, Inc., a Texas corporation and any
successor thereto.

     (i) “Consultant” shall mean any person, except an Employee, engaged by the
Company or Subsidiary of the Company, to render personal services to such entity, including as
an advisor.

     (j) “Continuous Status as a Participant” shall mean as the Awardee’s
continuation as an Employee, Consultant, or Director, as provided in the regulations under
Section 409A of the Code. Continuous Status as a Participant shall not be considered
interrupted (i) for an Employee in the case of sick leave, maternity leave, infant care leave,
medical emergency leave, military leave, or any other leave of absence for which Continuous
Status is not considered interrupted in accordance with the Company’s policies on such
matters, and (ii) for a Consultant, in the case of any temporary interruption in such person’s
availability to provide services to the Company which has been authorized in writing by a Vice
President of the Company prior to its commencement.

     (k) “Conversion Options” shall mean the Options described in Section 6(c)
of the Plan.

     (l) “Director” shall mean any person serving on the Board of Directors of
the Company.

     (m) “Employee” shall mean any person, including an officer, who is a common law
employee of, receives remuneration for personal services to, is reflected on the official
human resources database as an employee of, and is on the payroll of the Company or Subsidiary
of the Company. A person is on the payroll if he or she is paid from the payroll department of
the Company, or Subsidiary of the Company. Persons providing services to the Company, or to
any Subsidiary of the Company, pursuant to an agreement with a staff leasing organization,
temporary workers engaged through or employed by temporary or leasing agencies, and workers
who hold themselves out to the Company, or Subsidiary to which they are providing services as
being independent contractors, or as being employed by or engaged through another company
while providing the services are not Employees for purposes of this Plan, whether or not such
persons are, or may be reclassified by the courts, the Internal Revenue Service, the U. S.
Department of Labor, or other person or entity as, common law employees of the Company,
Parent, or Subsidiary, either solely or jointly with another person or entity.

     (n) “Effective Date” shall mean September 23, 2005.

 

     (o) “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended.

     (p) “Incentive Stock Option” shall mean any Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.

     (q) “Maximum Annual Participant Award” shall have the meaning set forth in
Section 5(b).

     (r) “Nonqualified Stock Option” shall mean an Option not intended to
qualify as an Incentive Stock Option.

     (s) “Option” shall mean a stock option granted pursuant to Section 6 of
the Plan.

     (t) “Participant” shall mean an Employee, Consultant, or Director.

     (u) “Performance Goals” shall mean goals established by the Board in connection
with any proposed Award pursuant to Section 4 of the Plan.

     (v) “Performance Year” with respect to an Award shall be the
calendar year within which the Performance Goals relating to that Award are to be
achieved.

     (w) “Phantom Stock” means an Award of the right to receive the value of a Share.

     (x) “Plan” shall mean this RIATA 2005 Stock Plan, including any amendments
thereto.

     (y) “Restricted Stock” shall mean a Share subject to a “substantial risk of
forfeiture” within the meaning of Section 83 of the Code.

     (z) “Share” shall mean one Common Share, as adjusted in accordance
with Section 14 of the Plan.

     (aa) “SAR” shall mean a stock appreciation right awarded pursuant to
Section 8 of the Plan.

     (bb) “Stock Award” shall mean a grant of Shares or of a right to
receive Shares or their cash equivalent (or both) pursuant to Section 7 of the
Plan, whether as Stock Option, Phantom Stock, SARS, Restricted Stock, or other
Stock Based Award.

     (cc) “Stock Based Award” means a Stock based Award other than a Stock Option, a
SAR or

 

     Phantom Stock.

     (dd) “Stock Option” means Incentive Stock Options and Non-Qualified Stock
Options.

     (ee) “Subsidiary” shall mean (i) in the case of an Incentive Stock Option a
“subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of
the Code, and (ii) in the case of a Nonqualified Stock Option, a Stock Award or an SAR, in
addition to a subsidiary corporation as defined in (i), a limited liability company,
partnership or other entity in which the Company controls 50 percent or more of the voting
power or equity interests.

     3. Shares Subject to the Plan. Subject to the provisions of Sections 15 and 17 of
the Plan, the maximum aggregate number of Shares (increased, proportionately, in the event of any
stock split, stock dividend or similar event with respect to the Shares) which may be awarded and
delivered under the Plan are 25,125 Shares. The Shares may be authorized, but unissued, or
reacquired Shares, including shares used to pay any exercise price, withholding tax or other
expense.

Subject to the provisions of the following sentence, if an Award should expire or become
unexercisable for any reason without having been exercised in full, the undelivered Shares which
were subject thereto shall, unless the Plan shall have been terminated, become available for future
Awards under the Plan.

     4. Administration of the Plan.

     (a) Procedure. The Plan shall be administered by the Board of Directors of
the Company.

     (i) The Board of Directors may appoint one or more Committees each consisting
of not less than two members of the Board of Directors to administer the Plan on behalf
of the Board of Directors, subject to such terms and conditions as the Board of
Directors may prescribe. Once appointed, such Committees shall continue to serve until
otherwise directed by the Board of Directors.

     (ii) From time to time the Board of Directors may increase the size of the
Committee(s) and appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, or fill vacancies however
caused.

     (b) Powers of the Board. Subject to the provisions of the Plan, the Board
shall have the authority, in its discretion: (i) to grant Incentive Stock Options,
Nonqualified Stock Options, SARS,

 

Phantom Stock, Restricted Stock or other Stock Awards, (ii) cash denominated Awards that
may be paid in Shares, cash or both, (iii) to determine, in accordance with Section 11(b) of
the Plan, the fair market value of the Shares; (iv) to determine, in accordance with Section
11(a) of the Plan, the exercise price per Share of Awards to be granted; (v) to establish
Performance Goals and determine whether such goals have been achieved; (vi) to determine the
Participants to whom, and the time or times at which, Awards shall be granted and the number
of Shares to be represented by each Award; (vii) to interpret the Plan and the terms of
Awards; (viii) to prescribe, amend, and rescind rules and regulations relating to the Plan;
including the form of Award Agreement, and manner of acceptance of an Award, (ix) to determine
the terms and provisions of each Award to be granted (which need not be identical) and, with
the consent of the Awardee, modify or amend any Award; (x) to authorize conversion or
substitution under the Plan of any or all Conversion Options; (xi) to accelerate or defer
(with the consent of the Awardee) the vesting or exercise date of any Award; (xii) to
authorize any person to execute on behalf of the Company any instrument required to effectuate
the grant of an Award previously granted by the Board; (xiii) delegate to the President of the
Company the ability to make Awards subject to such limitations as the Committee may proscribe
and subject to any legal restrictions; and (xiv) to make all other determinations deemed
necessary or advisable for the administration of the Plan; provided that, no consent of an
Awardee is necessary under clauses (xi) if the modification, amendment, acceleration, or
deferral, in the reasonable judgment of the Board confers a benefit on the Awardee, or is made
pursuant to an adjustment in accordance with Section 15.

     (c) The Board may, but need not, determine that an Award shall vest or be granted
subject to the satisfaction of one or more Performance Goals. Performance Goals for awards
will be determined by the Compensation Committee of the Board and will be designed to support
the business strategy, and align executives’ interests with customer and shareholder
interests. For awards that are intended to qualify as performance-based compensation under
Section 162(m) of the Code, Performance Goals will be based on one or more of the following
business criteria:

(i) Company earnings per share;

(ii) Cash distributions to shareholders;

(iii) Company or Subsidiary earnings before interest and taxes or earnings before
interest, taxes and corporate charges;

(iv) Company or Subsidiary net income;

 

(v) Company or Subsidiary revenues;

(vi) Company or Subsidiary unit revenues minus unit variable costs;

(vii) Company or Subsidiary return on capital, return on equity, return on assets, or
return on invested capital;

(viii) Company or Subsidiary cash flow return on assets or cash flows from operating
activities;

(ix) Company or Subsidiary capital expenditures;

(x) Company or Subsidiary operations and maintenance expense or general and
administrative expense;

(xi) Company or Subsidiary debt-equity ratios and key profitability ratios;

(xii) Company stock price;

(xiii) Company or Subsidiary proven reserves

(xiv) the Company or Subsidiary production; and

(xv)the Company or Subsidiary finding costs.

     (d) At the time of establishing the Performance Goals, the Committee shall specify (i)
the formula to be used in calculating the compensation payable to a Participant if the
Performance Goals are obtained, and (ii) the individual employee or class of employees to
which the formula applies. The Award shall be expressed as an amount of cash. The Committee
may also specify a minimum acceptable level of achievement of the relevant Performance Goals,
as well as one or more additional levels of achievement, and a formula to determine the
percentage of the Award opportunity deemed to have been earned by the Participant upon
attainment of each such level of achievement. The Performance Goals and opportunity relating
to any particular Award need not be the same as those relating to any other Award, whether
made at the same or a different time.

 

     (e) Earning and Certification of Award. Promptly after the date on which the
necessary information for a particular Performance Year becomes available, the Committee shall
determine, and certify in writing (with respect to each Participant who is a “covered
employee”), the extent to which the Award for such Performance Year has been earned, through
the achievement of the relevant Performance Goals, by each Participant for such Performance
Year.

     (f) These criteria may be measured: individually, alternatively or in any combination;
with respect to the Company, a Subsidiary, division, business unit, product line, product or
any combination of the foregoing; on an absolute basis, or relative to the Performance Goal,
to a designated comparison group, to results in other periods or to other external measures;
and including or excluding items that could affect the measurement, such as extraordinary or
unusual and nonrecurring gains or losses, litigation or claim judgments or settlements,
material changes in tax laws, acquisitions or divestitures, the cumulative effect of
accounting changes, asset write-downs, restructuring charges, or the results of discontinued
operations.

     (g) Effect of Board’s Decision. All decisions, determinations, and
interpretations of the Board shall be final and binding on all Participants and Awardees.

     (h) Discretionary Downward Adjustments. Notwithstanding the terms of any Award,
the Committee, in its sole and absolute discretion, may reduce the amount of the Award payable
to any Participant for any reason, including the Committee’s judgment that the Performance
Goals have become an inappropriate measure of achievement, a change in the employment status,
position or duties of the Participant, unsatisfactory performance of the Participant, or the
Participant’s service for less than the entire Performance Year. Notwithstanding the
foregoing, the reduction of an Award payable to a Participant may not result in an increase in
the amount of an Award payable to another Participant.

5. Eligibility.

     (a) Awards may be granted to Participants and to persons to whom offers of
employment as an Employee have been extended; provided that Incentive Stock Options may only
be granted to Employees.

     (b) The maximum number of Shares-denominated Awards that may be granted to any
Participant in any one calendar year (the “Maximum Annual Participant Award”) shall not exceed

 

7,500 Common Shares, subject to adjustment as provided in Section 15. The maximum amount
of dollar-denominated Awards that may be granted to any Participant in any calendar year may
not exceed $5,000,000.

6. Options.

     (a) Each Option shall be designated in the written or electronic option agreement as
either an Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding such
designations, to the extent that the aggregate fair market value of the Shares with respect to
which Options designated as Incentive Stock Options are exercisable for the first time by any
Employee during any calendar year (under all plans of the Company) exceeds $100,000, such
Options shall be treated as Nonqualified Stock Options.

     (b) For purposes of Section 6(a), Options shall be taken into account in the order
in which they were granted, and the fair market value of the Shares shall be determined as of
the time the Option with respect to such Shares is granted.

     (c) Options converted or substituted under the Plan for any or all outstanding stock
options and stock appreciation rights held by employees, consultants, advisors or other option
holders granted by entities subsequently acquired by the Company or a subsidiary or affiliate
of the Company (“Conversion Options”) shall be effective as of the close of the respective
mergers and acquisitions of such entities by the Company. The Conversion Options may be
Incentive Stock Options or Nonqualified Stock Options, as determined by the Committee;
provided, however, that stock appreciation rights in the acquired entity shall only be
converted to or substituted with Nonqualified Stock Options. The Conversion Options shall be
options to purchase the number of Common Shares determined by multiplying the number of shares
of the acquired entity’s common stock underlying each such stock option or stock appreciation
right immediately prior to the closing of such merger or acquisition by the number specified
in the applicable merger or acquisition agreement for conversion of each share of such
entity’s common stock to a Common Share (the “Merger Ratio”). Such Conversion Options shall be
exercisable at an exercise price per Common Share (increased to the nearest whole cent) equal
to the exercise price per share of the acquired entity’s common stock under each such stock
option or stock appreciation right immediately prior to closing divided by the Merger Ratio.
No fractional Common Shares will be issued upon exercise of Conversion Options. In lieu of
such issuance, the Common Shares issued pursuant to each such exercise shall be rounded to the
closest whole Share. All other terms and conditions applicable to such stock options and stock
appreciation rights prior to closing of the acquisition, including vesting, shall remain
unchanged

 

under the Conversion Options.

     (d) Subject to adjustment pursuant to Section 15, no more than 12,500 Shares may be
issued with respect to Incentive Stock Options.

7. Stock Awards.

     (a) Stock Awards may be granted either alone, in addition to, or in tandem with
other Awards granted under the Plan. After the Committee determines that it will offer a Stock
Award, it will advise the Awardee in writing or electronically, by means of an Award
Agreement, of the terms, conditions and restrictions, including vesting, if any, related to
the offer, including the number of Shares that the Awardee shall be entitled to receive or
purchase, the price to be paid, if any, and, if applicable, the time within which the Awardee
must accept the offer. The offer shall be accepted by execution of an Award Agreement in the
manner determined by the Committee.

     (b) Unless the Committee determines otherwise, the Award Agreement shall provide for
the forfeiture of the non-vested Common Shares underlying such Stock Award upon the Awardee
ceasing to be a Participant. To the extent that the Awardee purchased the Shares granted under
such Stock Award and any such Shares remain non-vested at the time the Awardee ceases to be a
Participant, the cessation of Participant status shall cause an immediate sale of such
non-vested Shares to the Company at the original price per Common Share paid by the Awardee.

8. SARs.

     (a) The Committee shall have the full power and authority, exercisable in its sole
discretion, to grant SARs to selected Awardees. The Committee is authorized to grant both
tandem stock appreciation rights (“Tandem SARs”) and stand-alone stock appreciation rights
(“Stand-Alone SARs”) as described below.

     (b) Tandem SARs.

     (i) Awardees may be granted a Tandem SAR, exercisable upon such terms and
conditions as the Committee shall establish, to elect between the exercise of the
underlying Section 6 Option for Common Shares or the surrender of the Option in exchange
for a distribution from the Company in an amount equal to the excess of (A) the fair
market value (on the Option surrender date) of the number of Shares in which the Awardee
is at the time

 

vested under the surrendered Option (or surrendered portion thereof) over (B) the
aggregate exercise price payable for such vested Shares.

     (ii) No such Option surrender shall be effective unless it is approved by the
Committee, either at the time of the actual Option surrender or at any earlier time. If
the surrender is so approved, then the distributions to which the Awardee shall become
entitled under this Section 8(b) may be made in Common Shares valued at fair market
value on the Option surrender date, in cash, or partly in Shares and partly in cash, as
the Committee shall deem appropriate.

     (iii) If the surrender of an Option is not approved by the Committee, then the
Awardee shall retain whatever rights he or she had under the surrendered Option (or
surrendered portion thereof) on the Option surrender date and may exercise such rights
at any time prior to the later of (A) five (5) business days after the receipt of the
rejection notice or (B) the last day on which the Option is otherwise exercisable in
accordance with the terms of the instrument evidencing such Option, but in no event may
such rights be exercised more than ten (10) years after the date of the Option grant.

     (c) Stand-Alone SARs.

     (i) An Awardee may be granted a Stand-Alone SAR not tied to any underlying
Option under Section 6 of the Plan. The Stand-Alone SAR shall cover a specified number
of Common Shares and shall be exercisable upon such terms and conditions as the
Committee shall establish. Upon exercise of the Stand-Alone SAR, the holder shall be
entitled to receive a distribution from the Company in an amount equal to the excess of
(A) the aggregate fair market value (on the exercise date) of the Common Shares
underlying the exercised right over (B) the aggregate base price in effect for those
Shares.

     (ii) The number of Common Shares underlying each Stand-Alone SAR and the base
price in effect for those Shares shall be determined by the Committee at the time the
Stand-Alone SAR is granted. In no event, however, may the base price per Share be less
than the fair market value per underlying Common Share on the grant date.

     (iii) The distribution with respect to an exercised Stand-Alone SAR may be
made in Common Shares valued at fair market value on the exercise date, in cash, or
partly in Shares and partly in cash, as the Committee shall deem appropriate.

 

     (d) The Common Shares underlying any SARs exercised under this Section 8 shall not
be available for subsequent issuance under the Plan.

     9. Term of Plan. The Plan shall become effective as of the Effective Date. It
shall continue in effect until terminated under Section 17 of the Plan.

     10. Term of Award; Limitations on Vesting and Repricing.

     (a) The term of each Award shall be no more than ten (10) years from the date of
grant. However, in the case of an Incentive Stock Option granted to a Participant who, at the
time the Option is granted, owns Shares representing more than ten percent (10%) of the voting
power of all classes of shares of the Company or any Parent or Subsidiary, the term of the
Option shall be no more than five (5) years from the date of grant.

     (b) Each award shall vest over a period of time set forth in the Award Agreement.

     (c) No Award may be repriced, replaced, regranted through cancellation, or modified
without approval of the shareholders of the Company (except in connection with an adjustment
pursuant to Section 15 if the effect would be to reduce the exercise price for the Shares
underlying such Award.

     11. Exercise Price and Consideration.

     (a) The per Share exercise price under each Award shall be such price as is
determined by the Board, subject to the following:

     (i) In the case of an Incentive Stock Option

     (A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns shares representing more than ten percent (10%) of
the voting power of all classes of shares of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant.

     (B) granted to any other Employee, the per Share exercise price shall
be no less than 100% of the fair market value per Share on the date of grant.

     (ii) Except for Conversion Options under Section 6(c), the per Share exercise
price under

 

a Nonqualified Stock Option or SAR shall be no less than seventy-five percent (75%)
of the fair market value per Share on the date of grant.

     (iii) The maximum aggregate number of Shares underlying all Nonqualified Stock
Options and SARs with a per Share exercise price of less than fair market value on any
grant date that may be granted under this Plan is 1,000 Shares (increased,
proportionately, in the event of any stock split, or stock dividend or similar event
with respect to the Shares); provided that Conversion Options shall not count against
the limit of this Section 11(a)(iii).

     (b) The fair market value per Share shall be the closing price per share of the
Common Share on the national market exchange on which the Shares are listed on the date of
grant. If the Shares are not listed on a national market exchange, the Board shall designate
an alternative method of determining the fair market value of the Shares.

     (c) The consideration to be paid for the Shares to be issued upon exercise of an
Award, including the method of payment, shall be determined by the Board from time to time and
may consist of cash and/or check, surrender of Shares, withholding Shares upon the exercise or
payment of the Award, surrender of Awards (either fully or partially) or such other method as
the Board may determine. Payment may also be made by delivering a properly executed exercise
notice together with irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale proceeds necessary to pay the exercise price.

     (d) Prior to issuance of the Shares upon exercise of an Award, the Awardee shall pay
or cause to be paid all tax withholding obligations applicable to such Award, and payment may
be made in such manor authorized by the Board. If an Awardee is an officer of the Company
within the meaning of Section 16 of the Exchange Act, he may elect to pay such withholding tax
obligations by having the Company withhold Shares having a value equal to the amount required
to be withheld, and any Award under the Plan may permit or require that such withholding tax
obligations be paid by having the Company withhold Shares having a value equal to the amount
required to be withheld. The value of the Shares to be withheld shall equal the fair market
value of the Shares on the day the Award is exercised. The right of an officer to dispose of
Shares to the Company in satisfaction of withholding tax obligations shall be deemed to be
approved as part of the initial grant of an Award, unless thereafter rescinded, and shall
otherwise be made in compliance with Rule 16b-3 and other applicable regulations, and any
Award under the Plan may permit or require that such withholding tax obligations be paid by
having the Company withhold Shares having a value equal to the amount required to be withheld.

 

     12. Exercise of Award.

     (a) Procedure for Exercise; Rights as a Shareholder. Any Award granted
hereunder shall be exercisable at such times and under such conditions as determined by the
Board at the time of grant, and as shall be permissible under the terms of the Plan.

     An Award may not be exercised for a fraction of a Share.

     An Award shall be deemed to be exercised when written or electronic notice of such
exercise has been given to the Company in accordance with the terms of the Award by the person
entitled to exercise the Award and full payment for the Shares with respect to which the Award
is exercised has been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 11(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the share certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares subject to the Award, notwithstanding the exercise of the Award.
The Company shall issue (or cause to be issued) such share certificate promptly upon exercise
of the Award. In the event that the exercise of an Award is treated in part as the exercise of
an Incentive Stock Option and in part as the exercise of a Nonqualified Stock Option pursuant
to Section 6(a), the Company shall issue a share certificate evidencing the Shares treated as
acquired upon the exercise of an Incentive Stock Option and a separate share certificate
evidencing the Shares treated as acquired upon the exercise of a Nonqualified Stock Option,
and shall identify each such certificate accordingly in its share transfer records. No
adjustment will be made for a dividend or other right for which the record date is prior to
the date the share certificate is issued, except as provided in Section 15 of the Plan.

     Exercise of an Award in any manner and delivery of the Shares subject to such Award
shall result in a decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Award, by the number of Shares as to which the
Award is exercised.

     (b) Termination of Status as a Participant. In the event of termination of
an Awardee’s Continuous Status as a Participant, such Awardee may exercise his or her rights
under any outstanding Awards to the extent exercisable on the date of termination (but in no
event later than the date of expiration of the term of such Award as set forth in the Award
Agreement). To the extent that the Awardee was not entitled to exercise his or her rights
under such Awards at the date of such

 

termination, or does not exercise such rights within the time specified in the individual
Award Agreements, the Awards shall terminate.

     (c) Disability of Awardee. Notwithstanding the provisions of Section 12(b)
above, to the extent not provided otherwise in an Award Agreement, in the event of termination
of an Awardee’s Continuous Status as a Participant as a result of total and permanent
disability (i.e., the inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a continuous period of twelve (12) months),
the Awardee will vest in the Award, but only to the extent of the vesting that would have
occurred had the Awardee remained in Continuous Status as a Participant for a period of twelve
(12) months after the date on which the Participant ceased performing services as a result of
the total and permanent disability. An Option or SAR that is vested pursuant to this Section
12(c) must be exercised within eighteen (18) months (or such shorter time as is specified in
the grant) from the date on which the Participant ceased performing services as a result of
the total and permanent disability (but in no event later than the date of expiration of the
term of such Option or SAR as set forth in the Award Agreement). To the extent that the
Awardee was not entitled to exercise such Option or SAR within the time specified herein, the
Award shall terminate.

     (d) Death of Awardee. Notwithstanding the provisions of Section 12(b) above,
to the extent not provided otherwise in an Award Agreement, in the event of the death of an
Awardee:

     (i) who is at the time of death a Participant, the Award will vest, but only
to the extent of the vesting that would have occurred had the Awardee continued living
and remained in Continuous Status as a Participant twelve (12) months following the date
of death. An Option or SAR that is vested pursuant to this Section 12(d)(i) may be
exercised, at any time within twelve (12) months following the date of death, by the
Awardee’s estate or by a person who acquired the right to exercise the Award by bequest
or inheritance; or

     (ii) whose Option or SAR has not yet expired but whose Continuous Status as a
Participant terminated prior to the date of death, the Option or SAR may be exercised,
at any time within twelve (12) months following the date of death, by the Awardee’s
estate or by a person who acquired the right to exercise the Option or SAR by bequest or
inheritance, but only to the extent of the right to exercise that had vested at the date
of termination.

     (e) Notwithstanding subsections (b), (c), and (d) of this Section 12, the Board
shall have the authority to extend the expiration date of any outstanding Option in
circumstances in which it deems

 

such action to be appropriate (provided that no such extension shall extend the term of
an Award beyond the date on which the Award would have expired if no termination of the
Awardee’s Continuous Status as a Participant had occurred).

     13. Non-Transferability of Awards. An Award may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the Awardee, only by the
Awardee; provided that the Board may permit further transferability, on a general or specific
basis, and may impose conditions and limitations on any permitted transferability.

14. Change in Control.

     (a) Notwithstanding any other provision of this Plan or contained in any Award granted
hereunder (including any provision for deferred payment thereof), upon the occurrence of a
Change in Control, the Board, in its discretion, may take any action with respect to
outstanding Awards that it deems appropriate, which action may vary among Awards granted to
individual Participants. If a Change in Control occurs and, in connection with or as a result
of such Change in Control, N. Malone Mitchell 3rd no longer holds or does not
continue to hold the office of Chairman of the Company, each Participant shall be deemed to
have earned 100% of the bonus opportunities contained in any outstanding Awards for which the
determinations have not been made, and the amount of such bonus opportunities shall be paid
promptly and no later than 30 days after the Change of Control) in a cash lump sum.
Notwithstanding the provisions of Section 2.3, following a Change in Control the Board shall
not adjust the bonus opportunity specified in an Award from that in effect immediately prior
to the Change in Control in a manner adverse to the Participant.

     (b) A “Change in Control” shall be deemed to have occurred if the conditions set forth in
any one or more of the following shall have been satisfied:

     (i) any “person,” as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”) (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of the
Company or any corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of stock of the
Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting

 

         power of the Company’s then outstanding securities;

     (ii) during any period of two consecutive years (not including any period prior to
the Effective Date of the Plan), individuals who at the beginning of such period
constitute the Board of Directors, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to effect a
transaction described in paragraph (a), (c) or (d) of this Section 14(b)) whose election
by the Board of Directors or nomination for election by the Company’s shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason other than normal
retirement, death or disability to constitute at least a majority thereof;

     (iii) completion of a merger or consolidation of the Company with any other person,
other than (i) a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities for the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of the Company or surviving entity outstanding immediately after such merger
or consolidation, or (ii) a merger in which the Company is the surviving entity but no
“person” (as defined above) acquires more than fifty percent (50%) of the combined
voting power of the Company’s then outstanding securities; or

     (iv) the shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets (or any transaction having a similar effect).

     (c) Notwithstanding the foregoing, to the extent that an Award is subject to Code
Section 409A, the provisions of Code Section 409A and regulations promulgated thereunder shall
define a “Change in Control” for the purpose of such Award.

     15. Adjustments to Shares Subject to the Plan. If any change is made to the
Shares by reason of any stock split, stock dividend, capitalization, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Shares as a class without
the Company’s receipt of consideration, appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the number and/or class of
securities and/or the price per Share covered by outstanding Awards under the Plan, (iii) the
Maximum Annual Participant Award, and (iv) the maximum aggregate

 

number of Shares underlying all Nonqualified Stock Options and SARs with a per Share exercise
price of less than fair market value on any grant date that may be granted under the Plan. The
Board may also make adjustments described in (i)-(v) of the previous sentence in the event of any
distribution of assets to shareholders other than a normal cash dividend. In determining
adjustments to be made under this Section 15, the Board may take into account such factors as it
deems appropriate, including (i) the restrictions of applicable law, (ii) the potential tax
consequences of an adjustment and (iii) the possibility that some Awardees might receive an
adjustment and a distribution or other unintended benefit, and in light of such factors or
circumstances may make adjustments that are not uniform or proportionate among outstanding Awards,
modify vesting dates, defer the delivery of stock certificates or make other equitable adjustments.
Any such adjustments to outstanding Awards will be effected in a manner that precludes the
enlargement of rights and benefits under such Awards. Adjustments, if any, and any determinations
or interpretations, including any determination of whether a distribution is other than a normal
cash dividend, made by the Board shall be final, binding and conclusive. For purposes of this
Section 15, conversion of any convertible securities of the Company shall not be deemed to have
been effected without receipt of consideration. Except as expressly provided herein, no issuance by
the Company of shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the number or price of
Shares subject to an Award.

     In the event of the proposed dissolution or liquidation of the Company, the Award will
terminate immediately prior to the consummation of such proposed action, unless otherwise provided
by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that
any Award shall terminate as of a date fixed by the Board and give each Awardee the right to
exercise an Award as to all or any part of the Shares subject to an Award, including Shares as to
which the Award would not otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company with or into another
corporation, each Award shall be assumed or an equivalent award shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation, unless such
successor corporation does not agree to assume the Award or to substitute an equivalent award, in
which case the Board shall, in lieu of such assumption or substitution, provide for the Awardee to
have the right to exercise the Award as to all of the Shares subject to Awards, including Shares as
to which the Award would not otherwise be exercisable. If the Board makes an Award fully
exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Awardee that the Award shall be fully exercisable for a period of fifteen
(15) days from the date of such notice, and the Award will terminate upon the expiration of such
period.

     16. Time of Granting Awards. The date of grant of an Award shall, for all
purposes, be the date on which the Company completes the corporate action relating to the grant of
such Award and all conditions to

 

the grant have been satisfied, provided that conditions to the grant, exercise or vesting of
an Award shall not defer the date of grant. Notice of a grant shall be given to each Participant to
whom an Award is so granted within a reasonable time after the determination has been made.

     17. Substitutions and Assumptions. The Board shall have the right to substitute
or assume Awards in connection with mergers, reorganizations, separations, or other transactions to
which Section 424(a) of the Code applies, provided such substitutions and assumptions are permitted
by Section 424 of the Code and the regulations promulgated thereunder. The number of Shares
reserved pursuant to Section 3 may be increased by the corresponding number of Awards assumed and,
in the case of a substitution, by the net increase in the number of Shares subject to Awards before
and after the substitution.

     18. Amendment and Termination of the Plan.

     (a) Amendment and Termination. The Board, in its sole discretion, may amend
or terminate the Plan from time to time in such respects as the Board may deem advisable
(including, but not limited to amendments which the Board deems appropriate to enhance the
Company’s ability to claim deductions related to stock option exercises) without shareholder
approval, except that any increase in the number of Shares subject to the Plan, other than in
connection with an adjustment under Section 15 of the Plan, and shall require approval of or
ratification by the shareholders of the Company.

     (b) Effect of Amendment or Termination. Except as otherwise provided in
Sections 4 and 14, any such amendment or termination of the Plan shall not affect Awards
already granted and such Awards shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise between the Awardee and the
Board, which agreement must be in writing and signed by the Awardee and the Company.

     19. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then
be listed, and shall be further subject to the approval of counsel for the Company with respect to
such compliance.

     20. Reservation of Shares. The Company, during the term of this Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

 

     21. No Employment/Service Rights. Nothing in the Plan shall confer upon any
Participant the right to an Award or to continue in service as an Employee, Director, or Consultant
for any period of specific duration, or interfere with or otherwise restrict in any way the rights
of the Company (or any Parent or Subsidiary employing or retaining such person), or of any
Participant or Awardee, which rights are hereby expressly reserved by each, to terminate such
person’s services at any time for any reason, with or without cause.

     22. Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute
an “unfunded” plan. With respect to any amounts payable to a Participant pursuant to an Award,
nothing contained in the Plan (or in any documents related thereto), nor the creation or adoption
of the Plan, the grant of any Award, or the taking of any other action pursuant to the plan, shall
give any such Participant any rights that are greater than those of a general creditor of the
Company. The Committee may authorize the creation of trusts or make other arrangements to meet the
Company’s obligations under the Plan; however, such trusts or other arrangements shall be
consistent with the “unfunded” status of the Plan.

     23. Section 162(m). It is intended that the Plan comply fully with and meet all the
requirements of Code Section 162(m) with respect to “covered employees” so that Awards granted
hereunder to “covered employees” shall constitute “qualified performance-based compensation” within
the meaning of Code Section 162(m). If any provision of the Plan would disqualify the Plan or
would not otherwise permit the Plan to comply with Code Section 162(m) as so intended, such
provision shall be construed or deemed amended to conform to the requirements or provisions of Code
Section 162(m).exv10w46

 

EXHIBIT 10.46

TANDY BRANDS ACCESSORIES, INC.

STOCK PURCHASE PROGRAM

(AS AMENDED AND RESTATED

EFFECTIVE DECEMBER 1, 2005)

ARTICLE I

PURPOSE AND SCOPE

     The Tandy Brands Accessories, Inc. Stock Purchase Program (the “Program”) provides employees
of Tandy Brands Accessories, Inc. and its participating affiliates and associates (both
collectively called “Tandy Brands Accessories” or “Company”) an opportunity for convenient and
regular personal investments in the common stock, $1.00 par value per share (“Stock”), of Tandy
Brands Accessories.

     The Program provides for matching contributions by the Company (“Company Contributions”) of
twenty-five percent (25%) or fifty percent (50%) of employee payroll deductions which are invested
in Stock.

WITNESSETH:

WHEREAS, the Company originally established the Program, effective January 1, 1991, for the benefit
of its employees and employees of its affiliates that participate in the Program;

WHEREAS, the Program has been amended from time to time to (i) modify the Company Contribution
eligibility requirements, and (ii) make necessary changes to the terms of the Program so that the
employees of H.A. Sheldon, Ltd. (“H.A. Sheldon”), a Canadian subsidiary of the Company, could
participate in the Program; and

WHEREAS, the Company now wishes to amend and restate the Program to incorporate the prior
amendments and to make certain other conforming changes so that the terms of the Program reflect
how the Program is currently administered;

NOW, THEREFORE, effective December 1, 2005, in consideration of the premises and the covenants
herein contained, the Company hereby adopts the Program, as amended and restated, as follows:

ARTICLE II

PARTICIPATION IN THE PROGRAM

     A. Adoption of Program. Tandy Brands Accessories adopts the Program for all or part
of its employees as its Board of Directors may in its discretion approve.

     B. Eligibility. The Program has two levels of Company Contributions (25% and 50%)
with each level having different eligibility requirements, as follows:

 

 

     1. Level One Participants: Eligibility for 25% Company Contribution. Any
employee of Tandy Brands Accessories and its divisions (and subsidiaries which have adopted
the Program) may participate in the Program with a 25% Company Contribution if:

     (a) The employee is of legal age; and

     (b) The employee has been (i) continuously employed by this Company for at
least six (6) months, but less than one (1) year, or (ii) continuously employed by
the Company for one (1) year or more, and contributing to the Tandy Brands
Accessories, Inc. Employees Investment Plan (the “Plan”); and

     (c) The employee’s employment contemplates that the employee will regularly
work a minimum of twenty (20) hours per week; and

     (d) The employee’s conditions of employment are not governed by a collective
bargaining agreement between employee representatives and the Company.

     2.
Level Two Participants: Eligibility for 50% Company
Contribution. Any employee of Tandy Brands Accessories and its divisions (and
subsidiaries which have adopted the Program) may participate in the Program with a 50%
Company Contribution if:

     (a) The employee satisfies the eligibility requirements for the 25% Company
Contribution set forth in ARTICLE II-B-1 above; and

     (b) The employee has been continuously employed by the Company for two (2)
years or more.

     With respect to ARTICLE II-B-1-b and 2-b, an employee’s employment with H.A. Sheldon shall
count as employment with the Company for purposes of the continuous employment requirement.

     C. Application for Participation. In order to become a Participant hereunder, each
eligible employee shall execute a written application, on a form to be furnished by the Company,
wherein the employee shall evidence:

     1. His/her intent to participate in the Program;

     2. His/her consent for payroll deductions in accordance with ARTICLE III below; and

     3. His/her acknowledgment and consent to pay the taxes resulting from the Company
Contributions during the taxable year in which the Company Contributions are made, in
accordance with any applicable statutes or regulations concerning taxation.

     Once an employee has completed the necessary service for participation in the Program, and if
necessary to meet the eligibility requirements, has become a participant or has executed and
delivered an appropriate application for participation in the Plan, the employee may file an
application for participation at any time thereafter. Participation in the Program shall not
become effective, however, until the

2

 

 start of the next pay period after the application is received
by the Company.

ARTICLE III

EMPLOYEE CONTRIBUTIONS

     A. Rate of Payroll Deduction.

     1. Participants may elect to have payroll deductions withheld at the rate of five
percent (5%) or ten percent (10%) of Earnings (as defined in ARTICLE XVIII).

     2. Participants shall designate their rate of payroll deduction by means of a signed
payroll deduction authorization form. The initial rate of deduction authorized by the
Participant shall become effective with the first day of the pay period following the date
on which the authorization is received by the appropriate payroll department. The initial
authorization shall continue in effect, notwithstanding any change in the Participant’s
Earnings, until the Participant authorizes a change in his rate of deduction, as provided in
ARTICLE III-B-1 below, or until the Participant becomes ineligible for the Program.
Deductions made pursuant to such authorization are called “Employee Payroll Deductions.”

     B. Changes in Employee Contributions. Without withdrawing from the Program, a
Participant may at any time by written notice to the payroll department suspend, increase, or
decrease Employee Payroll Deductions. Any such notice of suspension, increase, or decrease of
Employee Payroll Deductions shall be effective as soon as is administratively practicable following
its receipt by the payroll department, but in no event later than the first payroll period in the
month following receipt of notice.

     If a Participant is also a participant in the Plan, the Participant’s Employee Payroll
Deductions will automatically be suspended if the Participant’s contributions to the Plan are
suspended for any reason. A Participant’s Employee Payroll Deductions will automatically resume at
the level elected by the Participant prior to the suspension of the Participant’s Employee Payroll
Deductions when the Participant’s contributions resume under the Plan.

     1. Procedure. Changes in the percentage rates of Employee Payroll Deduction
shall be made by signing a new payroll deduction authorization on a form authorized by Tandy
Brands Accessories.

     C. Special Catch-up Contribution for Certain Employees of H.A. Sheldon.
Notwithstanding any other provision of the Program, employees of H.A. Sheldon who begin
participating in the Program during September 1995 shall be given a special election to make a
catch-up contribution to the Program for July and August 1995 to the extent such employees were
employed by H.A. Sheldon during such months. H.A. Sheldon employees who are eligible for this
catch-up contribution may elect to make such contribution by completing the special catch-up
contribution section of the payroll deduction authorization form provided by the Company. The
payroll deductions necessary for an employee’s special catch-up contribution shall be made during
the pay period following the date on which the payroll authorization is received by the appropriate
payroll department. Thereafter, an H.A. Sheldon’s
employee’s payroll deductions shall be as designated by such employee in

3

 

 accordance with ARTICLE III-A
and as may be changed in accordance with ARTICLE III-B.

ARTICLE IV

CREDITS TO PARTICIPANT’S ACCOUNTS

     A. Monthly Credits. As of the end of each calendar month the following credits shall
be made to each Participant’s account:

     1. Employee Payroll Deductions. The amount of Employee Payroll Deductions
withheld during such month shall be credited to each Participant’s account.

     2. Company Contributions. The amount of the Company Contribution credited on a
monthly basis to each Participant’s account shall be either twenty-five percent (25%) or
fifty percent (50%) of the Employee Payroll Deduction, which shall be determined on the
basis of each Participant’s eligibility status as set forth in ARTICLE II-B, above.

     3. Application of Monthly Credits. The Employee Payroll Deductions and Company
Contributions shall be used for the acquisition of Stock monthly and shall be credited to
the Participant’s account as Stock and as fractional shares, if necessary, on the basis of a
price (the “Stock Price”) equal to the average of the closing prices of the Stock on the
NASDAQ National Market System for each trading day in the month for which credits are made.
Provided, however, with respect to employees of H.A. Sheldon, the Stock Price shall be the
purchase price of the Stock on the Purchase Date described in the second paragraph of
ARTICLE VI-A.

     4. Dividend Income on Stock. Any cash dividends paid with respect to the Stock
shall be paid to each Participant on the basis of all the Stock and fractional shares
credited to the Participant’s account as of the record date designated for such
dividend. Dividend payments shall be made to Participants at the same time such payments are
made to all other stockholders of the Company.

     All rights and warrants for a whole share of Stock shall also be distributed to each
Participant. All rights and warrants for less than a full share of Stock shall be sold and
the net proceeds promptly paid to the Participant.

     5. Stock Splits. Any Stock issuable by the Company as a stock dividend or
stock split shall be credited to each Participant’s account (in an amount per share
equivalent to any dividend actually paid during such month on its Stock then outstanding) on
the basis of all Stock and fractional shares credited to the Participant’s account as of the
record date designated by the Company for such dividend or split.

4

 

ARTICLE V

TRANSFERS TO THE PROGRAM

     A. Employee Payroll Deductions. The Company shall transfer to the Program the
Employee Payroll Deductions of each Participant as soon as practicable after the payroll period
nearest the end of the calendar month in which such Employee Payroll Deductions are withheld.

     B. Company Contributions. The Company shall transfer to the Program the Company
Contribution for each Participant as soon as practicable after the payroll period nearest the end
of the calendar month in which the Employee Payroll Deductions with respect to which such Company
Contribution is made are withheld.

ARTICLE VI

ARTICLE VI INVESTMENT.

     A. Stock. Any Stock required for the purposes of the Program may be treasury shares
or original issue shares. Stock shall be purchased as of the end of each calendar month in the
amount required by the Program at the Stock Price determined for such month.

     Notwithstanding the preceding paragraph, with respect to employees of H.A. Sheldon, any Stock
required for the purposes of the Program shall be purchased on the open market. The Employee
Payroll Deductions and the Company Contributions transferred to the Program for each H.A. Sheldon’s
Participant account shall be used to purchase the maximum possible number of whole shares of Stock
for the account of such Participant. Such Stock shall be purchased in the name of the H.A. Sheldon
Participant and shall be held by the Company as custodian until distribution to the H.A. Sheldon
Participant. The purchase of Stock in the name of an H.A. Sheldon Participant shall be made on the
first trading day of each calendar month (or as soon after such day as practicable) following the
month in which the Employee Payroll Deductions and Company Contributions are made (“Purchase
Date”). The Stock Price for such purchases shall be the price at which the Stock is purchased on
such Purchase Date. To the extent funds remain in an H.A. Sheldon’s Participant account after the
purchase of Stock, such funds shall be carried forward in the Participant’s account until the next
Purchase Date, at which time such funds shall be used along with additions to the Participant’s
account to purchase additional Stock.

     B. Other Interest and Income. Except as herein expressly provided, no interest or
other income will be paid or credited on account of Employee Payroll Deductions, Company
Contributions, or any other amounts payable or credited to Participant’s accounts.

ARTICLE VII

HOLDING PERIOD AND DISTRIBUTION

     A. Holding Period. The Stock purchased by or on behalf of the Program and credited to
Participant’s accounts shall be held by the Company as custodian, at its discretion either in its
name or in the name of one or more nominees, during the holding period (the “Holding Period”)
specified in ARTICLE-VII-B below and until such Stock is distributed to Participants.

5

 

     B. Duration. The Holding Period with respect to Stock credited to a Participant’s
account shall commence on the date such Stock is credited to the Participant’s account and shall
end on December 31 of the year in which such Stock is credited.

     C. Distribution.

     1. As promptly as practicable after December 31 of each year, but not later than
February 15, the Company shall distribute to the Participant the Stock then held by the
Company which was credited to the Participant under the Program during the preceding
calendar year, except that any fractional shares of Stock shall be retained by the Company
and carried forward to the credit of the Participant.

     2. In lieu of retaining a prior year’s fractional share, the Company may, at its
election, distribute cash in lieu of any fractional share held for the account of any
Participant who has no payroll deduction authorization form or in effect. For such
fractional share of Stock, the Company shall pay the Participant the pro rata Stock Price
for the month preceding the date of the distribution. With respect to any funds that remain
in an H.A. Sheldon Participant’s account after the end of each Holding Period, the Company
may either (i) carry such funds forward in the Participant’s account, with such funds to be
used at the next Purchase Date, or (ii) distribute such funds to the H.A. Sheldon
Participant as soon as practicable after the end of the Holding Period.

ARTICLE VIII

WITHDRAWALS AND PAYMENTS

     A. Conditions of Withdrawal. Notwithstanding the provisions of ARTICLE VII relating
to the Holding Period, a Participant may make a withdrawal under the conditions specified in this
ARTICLE VIII-A. The method of payment upon any such withdrawal is specified in ARTICLE VIII-C
below.

     1. Notwithstanding the Holding Period, all Stock and cash for any fractional share
previously credited to the account of a Participant will be delivered to the Participant,
his/her beneficiary or estate as the case may be, upon the occurrence of the following
events:

     (a) Death of the Participant;

     (b) Termination of employment;

     (c) Retirement at age 65 or older;

     (d) Withdrawal in full from participation in the Program.

     2. In any such event, delivery of the Stock and cash for any fractional share shall be
made as soon as practicable following the end of the month in which such event occurred.

     B. Cessation of Company Contributions; Eligibility for Future Participation. All
Company Contributions shall terminate on cessation of withholding of Employee Payroll Deductions.
A Participant withdrawing from the Program during his employment is
not eligible for

6

 

renewed participation in the Program until after the expiration of twenty-four (24) months
from his date of withdrawal.

     C. Method of Payment.

     1. In the event of any withdrawal under this ARTICLE VIII, payment shall be made to
Participant in cash equal to the value of the Participant’s account or in Stock, in
accordance with ARTICLE VIII-C-2 and ARTICLE VIII-C-3 below.

     2. For the purpose of making cash payments upon withdrawal, cash will be paid for Stock
credited to the Participant’s account at the Stock Price for the calendar month preceding
the Company’s receipt of the withdrawal request.

     3. A Participant may be delivered Stock in lieu of cash under ARTICLE VIII-C-1 above,
provided such Participant notifies the Administrative Committee in writing of the
desire to be issued Stock. Stock will be issued only at the regularly scheduled annual
distribution as set forth in Article VII.

     4. Notwithstanding any other provision of this ARTICLE VII-C to the contrary, with
respect to H.A. Sheldon Participants, the withdrawals and payments under this ARTICLE VIII
shall be made by distributing the Stock and funds, if any, in the Participant’s account to
the H.A. Sheldon Participant. Such distribution shall be made as soon as administratively
practicable following the Participant’s entitlement to a withdrawal or payment under this
ARTICLE VIII.

     D. Refund of Uncredited Accounts. Upon a Participant electing to withdraw, the
Company will refund any Employee Payroll Deductions and Company Contributions not already credited
to the Participant’s account for the month the withdrawal election is made.

ARTICLE IX

DESIGNATION OF BENEFICIARY

     A. Participants shall file with the Company a written designation of beneficiary designating
who is to receive any Stock, fractional shares, and cash being held for the Participant’s benefit
under the Program in the event of the Participant’s death.

     B. A Participant may change beneficiary designations at any time by written notice to the
Company. Such change shall take effect as of the date the Participant signed such written notice,
whether or not Participant is living at the time of receipt of such notice by the Company, but
without prejudice to the Company on account of payments made before such receipt.

     C. Upon the death of a Participant and upon receipt of proof deemed adequate by the Company of
the identity and existence at the Participant’s death of a beneficiary or beneficiaries validly
designated under the Program, the Stock, fractional shares and cash being held for the
Participant’s benefit under the Program shall be delivered to the beneficiary designated under
ARTICLE IX-A.

     D. In the absence of a beneficiary designated under the Program who is living at the time of a
Participant’s death, payment shall be made to the executor or administrator of the estate of the
Participant. If no executor or administrator has been appointed to the Company’s

7

 

knowledge (or in the event such executor or administrator has been disqualified) payment may
be made to such person or persons as the Company shall be satisfied is legally entitled thereto.

     E. No designated beneficiary shall, prior to the death of the Participant, acquire any
interest in the Stock, fractional shares or cash credited to the Participant under the Program.

ARTICLE X

VOTING RIGHTS AND TENDER RIGHTS

     A. Voting Rights — In General. While Stock is held by the Company as custodian under
the Program, the Company will deliver to each Participant all notices of meetings, proxy statements
and other materials distributed by the Company to its stockholders. The full shares of Stock in
each Participant’s account will be voted in accordance with the Participant’s signed proxy
instructions timely delivered to the Company. Fractional shares shall be voted on a combined basis
in order to comply, to the extent possible, with all timely written instructions received from
Participants. If timely written instructions are not received from a Participant, the custodian
shall vote such Participant’s shares in the same proportion as those shares of stock with respect
to which timely written instructions were received.

     B. Voting Rights and Tender Rights — After Commencement of a Tender Offer.
Notwithstanding anything to the contrary in the Program, the following provisions shall govern
after the Commencement Date of a Tender Offer (each as hereinafter defined):

     1. For purposes of this ARTICLE X-B, the terms set forth below shall have the following
meanings:

“Affiliate” shall mean, with respect to Tandy Brands Accessories any person or
entity that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with Tandy Brands Accessories.

“Commencement Date” shall mean the date of public announcement of the commencement
of any Tender Offer.

“Credited Shares” shall mean, with respect to a Participant, any and all shares of
Stock credited to such Participant’s account that have been transferred to the
Special Custodian in accordance with ARTICLE X-B-2. hereof.

“Special Custodian” shall mean the bank, trust company or other entity appointed as
such by the Company in accordance with ARTICLE X-B-2 hereof.

“Tender Offer” shall mean any tender offer for, or request or invitation for tenders
of, shares of Stock, whether the consideration proposed to be
exchanged for such shares is cash, the securities of any person or any other form of property.

“Tender Rights” shall mean any and all rights to tender or exchange shares of Stock
pursuant to a Tender Offer.

“Voting
Rights” shall mean any and all rights to vote or consent with respect to shares of Stock.

8

 

     2. As promptly as practicable following any Commencement Date, the Company shall (a)
appoint a bank, trust company or other entity that is not an Affiliate of Tandy Brands
Accessories to act as Special Custodian for Stock held by the Company as custodian under the
Program and (b) irrevocably transfer all shares of Stock then held by the Company as
custodian to the Special Custodian. Thereafter, the Company shall, until the date on which
the Tender Offer is consummated or abandoned, irrevocably transfer
any and all additional shares of Stock acquired by it as custodian to the Special Custodian. Cash held by the
Company as custodian shall not be transferred to the Special Custodian.

     3. Except as otherwise expressly provided in ARTICLE X-B-4 hereof, the Special
Custodian shall hold shares of Stock transferred to it by the Company on such terms and
conditions of the Program, as shall be agreed upon by the Company and the Special Custodian;
provided, however, that, with respect to the rights of a Participant to shares of Stock, the
terms and conditions under which the Special Custodian shall hold shares of Stock
transferred to it shall be at least as favorable as those available to a Participant under
the Program.

     4. The following provisions shall govern the exercise by the Special Custodian of
Voting Rights and Tender Rights with respect to shares of Stock transferred to it by the
Company:

     (a) The Special Custodian shall exercise Tender Rights with respect to a
Participant’s Credited Shares in accordance with timely written instructions
delivered by such Participant to the Special Custodian.

     Tender Rights with respect to fractional Credited Shares shall be exercised on
a combined basis in order to comply, to the extent possible, with all timely written
instructions received from Participants. If timely written instructions are not
received from a Participant, the Special Custodian shall not exercise Tender Rights
with respect to such Participant’s Credited Shares.

     (b) The Special Custodian shall exercise Voting Rights with respect to a
Participant’s Credited Shares in accordance with timely written instructions
delivered by such Participant to the Special Custodian. Voting Rights with respect
to fractional Credited Shares shall be exercised on a combined basis in order to
comply, to the extent possible, with all timely written instructions received from
Participants. If timely written instructions are not received from a Participant,
the Special Custodian shall exercise Voting Rights with respect to such
Participant’s Credited Shares in the same proportion as those shares of Stock with
respect to which timely written instructions were received.

     (c) The Special Custodian shall use its best efforts to ensure that
Participants are able to direct the exercise of Voting Rights and Tender Rights on
the basis of the same information, and in accordance with substantially the same
procedures, as are available to the holders of shares of Stock. Without limiting the
generality of the foregoing, the Special Custodian shall take the following actions:

     (1) Give prior written notice to each Participant of any occasion upon
which Voting Rights or Tender Rights may be exercised;

9

 

     (2) Transmit to each Participant any written information relating to
the exercise of Voting Rights or Tender Rights that is distributed by the
management of the Company or any other person;

     (3) Request written instructions from each Participant as to the manner
in which Voting Rights or Tender Rights should be exercised; and

     (4) Exercise Voting Rights or Tender Rights in accordance with the
written instructions delivered by the Participant to the Special Custodian.

     (d) The Special Custodian shall not disclose to the Company, and shall maintain
strict confidentiality with respect to, any information regarding the exercise of
Voting Rights or Tender Rights, including without limitation information regarding
the identity of any Participant who exercises or fails to exercise such rights.

     (e) Any cash or other property received by the Special Custodian upon
consummation of a Tender Offer shall be distributed to Participants as promptly as
practicable following receipt thereof.

     C. Applicability of Terms of Program. Except as expressly provided in this ARTICLE X,
the terms and provisions of the Program shall remain in full force and effect.

ARTICLE XI

ADMINISTRATION

     A. Authority of Tandy Brands Accessories.

     1. The Program shall be administered by Tandy Brands Accessories through such persons
as it shall name to the Administrative Committee.

     2. The powers of the Company with respect to the administration of this Program shall
include those conferred elsewhere in the Program plus those set forth below.

     (a) Authorizing delivery and payment of Stock and cash under the Program.

     (b) Making, amending and enforcing all appropriate rules and regulations for
the administration of the Program.

     (c) Deciding or resolving any and all questions as may arise in connection with
the Program.

     3. Any determination, decision or action of the Company or the Administrative Committee
concerning or with respect to any question arising out of or in connection with the
construction, interpretation, administration and application of the Program and of its rules
and regulations, shall lie within the absolute discretion of the Company and shall be final,
conclusive and binding upon all Participants and any and all persons claiming under or
through any Participant.

10

 

     B. Cost of Administration. All costs of administration of the Program shall be paid by
the Company.

ARTICLE XII

PARTICIPATION BY AFFILIATED COMPANIES

     This Program shall apply to any corporation a portion of whose voting stock is owned directly
or indirectly by Tandy Brands Accessories and any of its affiliates, if such corporation shall
elect to participate and if., and so long as, such participation shall be approved by Tandy Brands
Accessories. Such participating corporations are called “Participating Companies”. The
Participating Companies shall be bound by the terms of this document unless otherwise determined by
the Administrative Committee and approved by the Tandy Brands Accessories Board of Directors.

ARTICLE XIII

NO WARRANTY OF SECURITY VALUES

     Neither Tandy Brands Accessories nor any Participating Companies, their officers, directors,
agents or servants, warrants or represents in any way that the value of Stock in which the
Participant may have an interest will increase or will not decrease. Each Participant assumes all
risk in connection with any changes in the value of Stock to the extent he/she may have an interest
therein.

ARTICLE XIV

GENERAL PROVISIONS

A. Extent of Certain Rights of Participants.

     1. Participation in the Program shall not entitle any employee to be retained in the
service of Tandy Brands Accessories or of any Participating Company. The right and power of
Tandy Brands Accessories and of each Participating Company to dismiss or discharge any
employee is specifically reserved.

     2. No Participant nor any person claiming under or through them shall have any right or
interest under the Program that is not herein expressly granted.

     3. No interest in any Stock or cash held under the Program prior to delivery to the
Participant as hereinabove provided, shall be assigned, alienated, pledged, or other-wise
encumbered in whole or in part, either directly, by operation of law, or otherwise. If any
attempt is made by a Participant to assign, alienate, pledge or otherwise encumber his
interest in such Stock or cash prior to such delivery, for his debts, liabilities or in tort
or contract, or otherwise, then the Company (in its absolute discretion) may treat such
attempt as an election by the Participant to withdraw from the Program and submit to any
loss of rights as provided in the Program in the case of a withdrawal at the time of such
attempt.

11

 

     B. Quarterly Statement of Account. As soon as practicable after the end of each
calendar quarter, all Participants shall be furnished with a statement of their account under the
Program.

     C. Registration of Stock. Each Participant shall, at such time as the Company may
reasonably request, furnish written instructions for the registration of Stock to be delivered
under the Program upon completion of the Holding Period. Such Stock will be registered in the
Participant’s name alone or in such name and that of one such other adult person as may be
designated as joint .tenants with right of survivorship, and not as tenants in common. Such
instructions shall remain in effect until receipt by the Company of written instructions to change
the registration previously authorized. In the absence of such written instructions, Stock to be
delivered to a. Participant will be registered in the Participant’s name alone or, in the event of
death prior to such delivery, will be registered in the name of the person or persons entitled
thereto.

     D. Miscellaneous.

     1. The Administrative Committee may rely upon the authenticity of any information
supplied to them by the Company in connection with the operation of the Program, and shall
be fully protected in relying upon such information.

     2. No individual administering or aiding in the administration of the Program shall
have any liability, except as provided in ARTICLE XIV-D-3 below. As a condition precedent
to participation in the Program or the receipt of benefits thereunder, such liability, if
any, is expressly waived and released by each Participant and by the act of participation or
the acceptance of benefits thereunder.

     3. No individual administering or aiding in the administration of the Program shall be
liable except for his own act or omissions and then only for willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of his office.
As used herein, “individual administering or aiding in the administration of the Program”
shall include any director, officer, employee or agent of the Company.

     4. The Company may require compliance with any legal requirements which it deems
necessary as a condition for delivery of, or payment for, any Stock or cash credited to a
Participant’s account under the Program.

     5. By a Participant’s act of participating in the Program or by the acceptance of any
of the benefits thereunder, such Participant and any and all persons claiming under or
through any such Participant, shall thereby be conclusively deemed to have indicated his
acceptance and ratification of, and consent to, the application of the provisions of the
Program.

     6. For the purposes of the Program, unless the contrary is clearly indicated by the
context, the use of the masculine gender shall also include within its meaning the feminine,
and the use of the singular shall also include within its meaning the plural, and vice
versa.

12

 

ARTICLE XV

NOTICES AND COMMUNICATIONS

     A. To Participants. All notices, reports and other communications to a Participant
under or in connection with the Program shall be deemed to have been duly given, made or delivered
when received by the Participant, or (if mailed) when mailed with postage prepaid and addressed to
the Participant at his address last appearing on the records of the Company.

     B. By Participant. All notices, instructions or other communications by a Participant
to the Company under or in connection with the Program shall be deemed to have been duly given,
made or delivered when received by the Vice President and Chief Financial Officer of the Company at
690 East Lamar Blvd., Suite 200, Arlington, Texas 76011 or when received in the form specified by
the Company and at the location, or by the person, designated for receipt of such notice,
instruction or other communication by the Company.

ARTICLE XVI

AUTHORITY TO AMEND, SUSPEND OR TERMINATE

     A. The Board of Directors of the Company may amend, suspend or terminate the Program at any
time, or from time to time. Without limitation, such amendment may change: (a) the rates of
allowable Employee Payroll Deductions which may be designated by all Participants; (b) the rates of
Company Contributions; or (c) any other provision of the Program, except that a Participant’s
percentage rate of Employee Payroll Deductions may not be increased without his consent.

     B. The Board of Directors of the Company may delegate to the Administrative Committee the
authority to amend any provisions of this Program, provided such amendment is (a) of an
administrative nature or (b) does not result in any material increase in the Company’s cost.

     C. The Board of Directors of the Company shall have the discretionary authority to waive the
requirement that a Participant in the Program be employed by the Company for at least two (2) years
and be contributing to the Plan as described in ARTICLE II-B and confer immediate eligibility for
the Participant in the Program at the fifty percent (50%) Company Contribution level as described
in ARTICLE II-B-2; provided, however, that such Participant will lose eligibility for the fifty
percent (50%) Company Contribution and will no longer be eligible to participate in the Program
unless the Participant begins contributions to the Plan as soon as possible after the Participant
satisfies the Plan’s eligibility requirements.

     D. No amendment, suspension or termination shall adversely affect any rights of a Participant
to Stock, fractional shares or cash credited to his account under the Program as of the date of
amendment, suspension or termination. Upon termination of the Program, all Stock, fractional
shares and cash credited to the account of each Participant under the Program shall be promptly
paid to such Participant.

13

 

ARTICLE XVII

APPLICABLE LAW

     Except as otherwise provided herein, any question concerning or with respect to the validity;
construction, interpretation, administration and effect of the Program, and of its rules and
regulations, and the rights of any or all persons having or claiming to have an interest therein or
thereunder, shall be governed exclusively and solely in accordance with the laws of the State of
Texas.

ARTICLE XVIII

DEFINITIONS

     For the purpose of the Program, unless some other meaning is clearly indicated by the context,
the following definitions shall be applicable:

     “Company” is defined in ARTICLE I as Tandy Brands Accessories and its participating affiliates
and associates.

     “Company Contributions” is defined in ARTICLE I.

     “Earnings” means the amount which an employee is receiving as salary or wages from the
Company, including (a) payments for overtime, vacation pay, night shift bonus, and any cost of
living adjustment, including incentive compensation, other variable compensation, and the value of
the personal use of company vehicles and company automobile allowances, but excluding (b) living
allowance, retainers, and any special payments made for services performed outside his regular
duties and any other special payments, (c) except to the extent that the inclusion of any item in
(b) above is specifically approved by the Chief Executive Officer of the Company or by such
employee or employees of the Company as he may authorize in writing. Commissions shall be included
as Earnings only to the extent determined by the Chief Executive Officer of the Company or by such
employee or employees of the Company as he may authorize in writing.

     “Employee” means a regular employee of the Company receiving wages or salary, but shall not
include any. person compensated pursuant to a contract other than an employment contract
with the Company under the terms of which compensation is paid on a regular fixed salary or wage
basis. As used above, “Employee” shall also include, without limitation, any salesman who is a
bona fide employee of the Company and recognized as such for Social Security purposes.

     “Employee Payroll Deductions” is defined in ARTICLE III-A.

     “Holding Period” is defined in ARTICLE VII-A.

     “Participant” means an employee who is eligible to be and becomes a participant in accordance
with the provisions of the Program.

14

 

     “Participating Companies” is defined in ARTICLE XII.

     “Program” is defined in ARTICLE I.

     “Stock” is defined in ARTICLE I.

     “Stock Price” is defined in ARTICLE IV. Provided, however, with respect to employees of H.A.
Sheldon, “Stock Price” is defined in ARTICLE VI-A.

     “Tandy Brands Accessories” means Tandy Brands Accessories, Inc., a Delaware corporation.

ARTICLE XIX

EFFECTIVE DATE

     A. The original effective date of the Program was January 1, 1991. The effective date of this
amendment and restatement of the Program shall be December 1, 2005 provided all approvals, rulings
and orders (satisfactory to Tandy Brands Accessories and, to the extent deemed by Tandy Brands
Accessories to be necessary or desirable) by the appropriate State and Federal or other
Governmental authorities with respect to the Program and any action contemplated under the Program
have been obtained or satisfied.

     B. Notwithstanding the provisions of ARTICLE II and ARTICLE XIX-A, employees who are
represented by a union (pursuant to a certification by the National Labor Relations Board otherwise
in accordance with the provisions of Section 9 of the National Labor Relations Act) shall become
eligible to participate in the Program (a) only after the Company and such union shall have entered
into a written agreement to the effect that the Program shall be offered to the employees so
represented, and (b) only in accordance with any conditions or requirements contained in such
agreement.

     IN WITNESS WHEREOF, this document has been executed this 30 day of November, 2005.

	 	 	 	 	 	 	 
	 	 	TANDY BRANDS ACCESSORIES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ J.S.B. Jenkins
 

	 	 
	 

	 	Name:
	 	J.S.B. Jenkins	 	 
	 

	 	Title:
	 	President and CEO	 	 

15

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