Document:

Exhibit
10.2

WAIVER
AND THIRD AMENDMENT TO

AMENDED
AND RESTATED CREDIT AGREEMENT

THIS WAIVER AND
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Waiver and Amendment”)
is entered into as of November 29, 2006, among UNIVERSAL AMERICAN FINANCIAL CORP., a New York corporation
(the “Borrower”), the Banks party to the
Credit Agreement (hereinafter defined) and BANK OF AMERICA, N.A.,
as the Administrative Agent for the Banks.

The Borrower, the
Banks and the Administrative Agent are party to the Amended and Restated Credit
Agreement dated as of May 28, 2004, as amended by the First Amendment to
Amended and Restated Credit Agreement dated as of June 2, 2005 and the
Waiver and Second Amendment to Amended and Restated Credit Agreement dated as
of December 30, 2005 (the
“Credit
Agreement”).  The
Borrower has requested that the Credit Agreement be amended and waived to
permit the following:

A.            The Asset Sale of 100% of the
capital stock of UAFC (Canada) Inc. pursuant to and upon the terms and
conditions of that certain Share Purchase Agreement dated August 31, 2006,
among the Borrower, Pennsylvania Life Insurance Company, La Capitale Assureur
de L’Administration Publique Inc. and GMF Assurances S.A. (the “PennCorp Canada
Sale”), and notwithstanding the provisions of Section 3.03(i)(c) of the
Credit Agreement, the retention by the Borrower of all of the Net Available
Proceeds of such Asset Sale;

B.            The Asset Sale of 100% of the
capital stock of Peninsular Life Insurance Company pursuant to and upon the
terms and conditions of that certain Stock Purchase Agreement dated
September 8, 2006, among Universal Managed Care, Inc., Peninsular Life
Insurance Company, American Pioneer Life Insurance Company and American
Exchange Life Insurance Company (the “Peninsular Sale”), and notwithstanding
the provisions of Section 3.03(i)(c) of the Credit Agreement, the
retention by the Borrower of all of the Net Available Proceeds of such Asset
Sale;

C.            The acquisition of 100% of the
capital stock of Harmony Health, Inc. pursuant to and upon the terms and
conditions of that certain Stock Purchase Agreement dated November 13,
2006, among Heritage Health Systems, Inc., Harmony Health, Inc., GlobalHealth,
Inc., The Oklahoma City Clinic, a Professional Corporation, and certain other selling
shareholders (the “Harmony Health Acquisition”);

D.            The dissolution and termination of
the existence of HHS-HPN Network, Inc. and HPN Network Venture, LP and the
distribution of the assets of such Persons to their respective shareholders,
members or partners (the “Dissolution”);

E.             An increase in the amount of the
Capital Expenditures permitted by Section 7.05 of the Credit Agreement;
and

F.             An increase in the amount of
Revolving Loans that may be incurred under the Credit Agreement or of other
indebtedness that may be incurred pursuant to Section 7.04 of the Credit
Agreement.

Accordingly, for valuable
and acknowledged consideration, the Borrower, the Banks and the Administrative
Agent agree and acknowledge as follows:

1.             Defined
Terms.  Unless otherwise
stated in this Waiver and Amendment, terms defined in the Credit Agreement have
the same meanings when used in this Waiver and Amendment.

2.             Waivers.  The Banks
hereby consent to the following and agree that the following shall not
constitute a Default or Event of Default under the Credit Agreement:

 

 

 

(a)           The
PennCorp Canada Sale and the retention by the Borrower of 100% of the Net
Available Proceeds of the PennCorp Canada Sale, and the Banks agree that such
Net Available Proceeds shall not count against the amount described in the
first proviso to Section 3.03(i)(c) of the Credit Agreement.  The Banks further agree that, effective
immediately prior to  the closing of the
PennCorp Canada Sale, the shares of capital stock of UAFC (Canada) Inc. held in
pledge by the Administrative Agent
for the benefit of the Banks pursuant to the Credit Agreement and the other
Credit Documents, including the Pledge Agreement and the Security Agreement,
shall be released and discharged, any and all obligations of UAFC (Canada) Inc.
or any of its Subsidiaries under the Credit Agreement and the other Credit
Documents, including the Pledge Agreement and the Security Agreement, shall be
released and discharged, and the appropriate Form UCC-3 financing
statement changes shall be filed in each necessary jurisdiction;

(b)           The
Peninsular Sale and the retention by the Borrower of 100% of the Net Available
Proceeds of the Peninsular Sale, and the Banks agree that such Net Available
Proceeds shall not count against the amount described in the first proviso to
Section 3.03(i)(c) of the Credit Agreement;

(c)           The
Harmony Health Acquisition, and the Banks agree that the consideration paid for
the Harmony Health Acquisition shall not count against the amounts described in
Sections 7.02(i)(iv) and 7.02(i)(v) of the Credit Agreement; provided that
the Borrower complies with Section 7.16 of the Credit Agreement within 60
days after the date of this Waiver and Amendment; and

(d)           The
Dissolution, and the Banks agree that, effective immediately prior to the
completion of the Dissolution, the shares of capital stock of HHS-HPN Network,
Inc. and the partnership interests of HPN Network Venture, LP held in pledge by
the Administrative Agent for the
benefit of the Banks pursuant to the Credit Agreement and the other Credit
Documents, including the Pledge Agreement and the Security Agreement, shall be
released and discharged, any and all obligations of HHS-HPN Network, Inc. and
HPN Network Venture, LP under the Credit Agreement and the other Credit Documents,
including the Pledge Agreement and the Security Agreement, shall be released
and discharged, and the appropriate Form UCC-3 financing statement changes
shall be filed in each necessary jurisdiction.

3.             Amendments.  The Credit Agreement is amended as follows:

(a)           A
new Section 2.03, reading in its entirety as follows, is added to the
Credit Agreement:

“2.03       Increase in Total Revolving Loan
Commitment.

(a)           Request for Increase.  Provided there exists no Default, upon notice
to the Administrative Agent (which shall promptly notify such of the Banks
as  the Borrower may direct), the
Borrower may from time to time request an increase in the Total Revolving Loan
Commitment by an amount (for all such requests) not exceeding $50,000,000;
provided that (i) any such request for an increase shall be in a minimum amount
of $20,000,000, and (ii) the Borrower may make a maximum of three such
requests.  At the time of sending such
notice, the Borrower (in consultation with the Administrative Agent) shall
specify the time period within which each Bank directed to be notified by the
Borrower is requested to respond (which, unless waived by such Banks, shall in
no event be less than five Business Days from the date of delivery of such
notice to such Banks).

 

 2
 

 

 

(b)           Bank Elections to Increase.  Each Bank so notified shall notify the
Administrative Agent within such time period whether or not it agrees to
increase its Revolving Loan Commitment and, if so, by what amount.  Any Bank not responding within such time
period shall be deemed to have declined to increase its Revolving Loan
Commitment.

(c)           Additional Banks.  To achieve the full amount of a requested
increase and subject to the approval of the Administrative Agent and the L/C
Issuer (which approvals shall not be unreasonably withheld), the Borrower may
also invite additional Eligible Assignees to become Banks pursuant to a joinder
agreement to this Agreement in form and substance satisfactory to the
Administrative Agent and its counsel.

(d)           Effective Date and Allocations.  If the Total Revolving Loan Commitment is
increased in accordance with this Section, the Administrative Agent and the
Borrower shall determine the effective date (the “Increase Effective Date”) and
the final allocation of such increase. 
The Administrative Agent shall promptly notify the Borrower and the
Banks of the final allocation of such increase and the Increase Effective Date.

(e)           Conditions to Effectiveness of
Increase.  As a condition precedent to
such increase, the Borrower shall deliver to the Administrative Agent a
certificate of the Borrower and each Subsidiary Guarantor dated as of the
Increase Effective Date, signed by a Responsible Officer of the Borrower and
each Subsidiary Guarantor, (i) certifying and attaching the resolutions adopted
by the Borrower and each Subsidiary Guarantor approving or consenting to such
increase, and (ii) in the case of the Borrower, certifying that, before and
after giving effect to such increase, (A) the representations and warranties
contained in Section 5 and the other Credit Documents are true and correct
on and as of the Increase Effective Date, except to the extent that such
representations and warranties specifically refer to an earlier date and (B) no
Default exists.  The Borrower shall
prepay any Revolving Loans outstanding on the Increase Effective Date (and pay
any additional amounts required pursuant to Section 1.12) to the extent
necessary to keep the outstanding Revolving Loans held by the Banks ratable in
accordance with any revised pro rata shares arising from any nonratable
increase in the Revolving Loan Commitments under this Section.

(f)            Conflicting Provisions.  This Section shall supersede any provisions
in Section 11.04 to the contrary.”

(b)           Section 7.04(k)
of the Credit Agreement is amended to read in its entirety as follows:

“(k)         Other Indebtedness, including revolving
Indebtedness, having terms and conditions reasonably satisfactory to the
Administrative Agent in an aggregate outstanding principal amount not to exceed
$57,500,000 at any time; provided that, before and after giving effect to the
incurrence of such other Indebtedness, the Borrower is in compliance with
Sections 7.10 and 7.13 and no other Event of Default exists.”

 

 3
 

 

 

(c)           Section 7.05(a) of the Credit
Agreement is amended to read in its entirety as follows:

“(a)         The Borrower will not incur, and will
not permit any of its Subsidiaries to incur, Capital Expenditures in an amount
that exceeds, for the Borrower and its Subsidiaries on a consolidated basis,
(i) $15,000,000 during any fiscal year, or (ii) $60,000,000 after the Effective
Date.”

4.             Conditions
Precedent to Effectiveness of Waiver and Amendment.  This Waiver and Amendment shall not be
effective until the Administrative Agent receives: (a) counterparts of this
Waiver and Amendment executed by the Borrower, the Subsidiary Guarantors, the
requisite Banks and the Administrative Agent; (b) payment of all reasonable expenses, including
reasonable legal fees and expenses of counsel to the Administrative Agent,
incurred by the Administrative Agent in connection with this Waiver and
Amendment, to the extent invoiced to the Borrower on or prior to the date
hereof; and (c) such other agreements, documents, instruments and items as the
Administrative Agent may reasonably request, including, without limitation,
documents evidencing the due authorization of the execution, delivery and
performance by the Borrower and each of the Subsidiary Guarantors of this
Waiver and Amendment, the incumbency of the officer of the Borrower and each of
the Subsidiary Guarantors executing this Waiver and Amendment, and any other
matters relevant thereto.

5.             Representations.  The Borrower represents and warrants to the Administrative Agent
and the Banks as follows:  (a) the
execution, delivery and performance by the Borrower and the Subsidiary
Guarantors of this Waiver and Amendment and the Credit Agreement, as amended
hereby, have been duly authorized by all necessary corporate action; (b) all
representations and warranties made or deemed made by the Borrower in the
Credit Documents are true and correct as of the date hereof, except to the
extent that such representations and warranties expressly relate solely to an
earlier date (in which case such representations and warranties were true and
accurate on and as of such earlier date) and except for changes in factual
circumstances not prohibited by the Credit Agreement; and (c) except as waived
hereby, no Default or Event of Default has occurred and is continuing as of the
date hereof.

6.             Effect of
Waiver and Amendment. 
This Waiver and Amendment is a Credit Document.  The waivers set forth in this Waiver and
Amendment are limited to the matters expressly set forth herein and do not
constitute the waiver of any other matter now or hereafter requiring the
consent or waiver of the Banks or the Administrative Agent under the Credit
Documents.  Except as expressly modified
and amended by this Waiver and Amendment, all of the terms, provisions and
conditions of the Credit Documents, and the Liens created thereby, shall remain
unchanged and in full force and effect and are hereby ratified and
confirmed.  If any part of this Waiver
and Amendment is for any reason found to be unenforceable, all other portions
of it shall nevertheless remain enforceable. 
The Credit Documents and any and all other documents heretofore, now or
hereafter executed and delivered pursuant to the terms of the Credit Agreement
are hereby amended so that any reference to the Credit Agreement shall mean a
reference to the Credit Agreement as waived and amended hereby.

7.             Expenses.  The Borrower shall pay all reasonable fees
and expenses paid or incurred by the Administrative Agent incident to this
Waiver and Amendment, including, without limitation, the reasonable fees and
expenses of the Administrative Agent’s counsel in connection with the
negotiation, preparation, delivery and execution of this Waiver and Amendment
and any related documents.

8.             Governing Law.  This
Waiver and Amendment shall be governed by and construed in accordance with and
be governed by the laws of the State of New York, without regard to conflict of
laws principles.

 

 4
 

 

 

9.             Counterparts.  This Waiver and Amendment may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.

10.           ENTIRETY. 
THIS WAIVER AND AMENDMENT, THE CREDIT AGREEMENT, AND THE OTHER CREDIT
DOCUMENTS EMBODY THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERCEDE ALL
PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER
HEREOF.  THESE CREDIT DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

11.           Parties.  This Waiver and Amendment binds and inures to
the benefit of the Borrower, the Subsidiary Guarantors, the Administrative
Agent, the Banks and their respective permitted successors and assigns.

[REMAINDER OF PAGE INTENTIONALLY
BLANK.

SIGNATURE PAGES FOLLOW.]

 5

 

Signature Page to that certain Waiver and Third Amendment to Amended
and Restated Credit Agreement dated as of the date first set forth above, among
Universal American Financial Corp., as the Borrower, Bank of America, N.A., as
the Administrative Agent, and the Banks party thereto.

	
  UNIVERSAL AMERICAN FINANCIAL

  CORP., as the Borrower

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Robert Waegelein

  	
   

  
	
   

  	
  Robert Waegelein, Executive Vice

  	
   

  
	
   

  	
  President and Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  BANK OF AMERICA, N.A., as a
  Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Joseph L. Corah

  	
   

  
	
   

  	
  Joseph L. Corah, Senior Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  ACKNOWLEDGED:

  	
   

  
	
  BANK OF AMERICA, N.A., as the

  	
   

  
	
  Administrative Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Aamir Saleem

  	
   

  
	
   

  	
  Aamir Saleem,
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  DENALI
  CAPITAL CLO III LTD, as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John P. Thacker

  	
   

  
	
   

  	
  John P. Thacker,
  Chief Credit Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  DENALI
  CAPITAL CLO IV LTD, as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John P. Thacker

  	
   

  
	
   

  	
  John P. Thacker,
  Chief Credit Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  CAPITAL LLC, as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Mark R. Newsome

  	
   

  
	
   

  	
  Mark R. Newsome,
  Director

  	
   

  
	
   

  	
   

  	
   

  
	
  LASALLE
  BANK, N.A., as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Andrew C. Haak

  	
   

  
	
   

  	
  Andrew C. Haak,
  Senior Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  RAYMOND
  JAMES BANK, FSB, as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Joseph A. Ciccolini

  	
   

  
	
   

  	
  Joseph A. Ciccolini, Vice President, Senior

  	
   

  
	
   

  	
  Corporate Banker

  	
   

  
	
   

  	
   

  	
   

  
	
  SUNTRUST BANK, as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Stephen L. Leister

  	
   

  
	
   

  	
  Stephen L.
  Leister, First Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  U.S.
  BANK NATIONAL ASSOCIATION, as a Bank

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Ziad W. Amra

  	
   

  
	
   

  	
  Ziad W. Amra, Assistant Vice President

  	
   

  

 

 

 

To induce the
Administrative Agent and the Banks to enter into this Waiver and Amendment, the
undersigned consent and agree (a) to its execution and delivery and terms and
conditions thereof, (b) that this document in no way releases, diminishes,
impairs, reduces, or otherwise adversely affects any Liens, Subsidiary
Guaranties, assurances, or other obligations or undertakings of any of the
undersigned under any Credit Documents, and (c) that this Waiver and Amendment
binds each of the undersigned and its successors and permitted assigns and
inures to the benefit of the Administrative Agent, the Banks, and their
respective successors and permitted assigns.

	
  WORLDNET
  SERVICES CORP., as a Guarantor

  	
  

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Robert Waegelein

  	
   

  
	
   

  	
  Robert
  Waegelein, Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  UNIVERSAL
  AMERICAN FINANCIAL SERVICES, INC., as a Guarantor

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Robert Waegelein

  	
   

  
	
   

  	
  Robert
  Waegelein, President

  	
   

  
	
   

  	
   

  	
   

  
	
  QUINCY
  COVERAGE CORPORATION, as a Guarantor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Robert Waegelein

  	
   

  
	
   

  	
  Robert
  Waegelein, President

  	
   

  
	
   

  	
   

  	
   

  
	
  HERITAGE
  HEALTH SYSTEMS, INC., as a Guarantor

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Steven C. Holman

  	
   

  
	
   

  	
  Steven C.
  Holman, Assistant Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
  HERITAGE
  HEALTH SYSTEMS OF TEXAS, INC., as a Guarantor

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Penny Louviere

  	
   

  
	
   

  	
  Penny Louviere,
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  HHS
  TEXAS MANAGEMENT, INC., as a Guarantor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Steven C. Holman

  	
   

  
	
   

  	
  Steven C.
  Holman, Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
  CHCS
  SERVICES INC., as a Guarantor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Robert Waegelein

  	
   

  
	
   

  	
  Robert
  Waegelein, Executive Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  CHCS
  INC., as a
  Guarantor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Robert Waegelein

  	
   

  
	
   

  	
  Robert
  Waegelein, Executive Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  PSO
  MANAGEMENT OF TEXAS, LLC, as a Guarantor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Steven C. Holman

  	
   

  
	
   

  	
  Steven C.
  Holman, Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
  HHS-HPN
  NETWORK, INC., as a Guarantor

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Steven C. Holman

  	
   

  
	
   

  	
  Steven C.
  Holman, Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
  HHS
  TEXAS MANAGEMENT, L.P., as a Guarantor

  	
   

  
	
   

  	
   

  
	
  By:

  	
  HHS
  Texas Management, Inc., its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Steven C. Holman

  	
   

  
	
   

  	
  Steven C.
  Holman, SecretaryExhibit
4.1

Natural
Gas Systems, Inc.

2003 Stock Plan

Adopted on September 23, 2003

 

Natural
Gas Systems, Inc.

2003 Stock
Plan

Adopted on September 25, 2003

	
  SECTION 1.

  	
   

  	
  ESTABLISHMENT AND PURPOSE

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
   

  	
  ADMINISTRATION

  	
   

  	
  3

  
	
   

  	
  (a)

  	
   

  	
   Committees of the Board of Directors

  	
   

  	
  3

  
	
   

  	
  (b)

  	
   

  	
   Authority of the Board of Directors

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
   

  	
  ELIGIBILITY.

  	
   

  	
  3

  
	
   

  	
  (a)

  	
   

  	
   General Rule

  	
   

  	
  3

  
	
   

  	
  (b)

  	
   

  	
   Ten-Percent Stockholders

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
   

  	
  STOCK SUBJECT TO PLAN

  	
   

  	
  4

  
	
   

  	
  (a)

  	
   

  	
   Basic Limitation

  	
   

  	
  4

  
	
   

  	
  (b)

  	
   

  	
   Additional Shares

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
   

  	
  TERMS AND CONDITIONS OF AWARDS OR SALES

  	
   

  	
  4

  
	
   

  	
  (a)

  	
   

  	
   Stock Purchase Agreement

  	
   

  	
  4

  
	
   

  	
  (b)

  	
   

  	
   Duration of Offers and Nontransferability of Rights

  	
   

  	
  4

  
	
   

  	
  (c)

  	
   

  	
   Purchase Price

  	
   

  	
  4

  
	
   

  	
  (d)

  	
   

  	
   Withholding Taxes

  	
   

  	
  4

  
	
   

  	
  (e)

  	
   

  	
   Restrictions on Transfer of Shares

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
   

  	
  TERMS AND CONDITIONS OF OPTIONS

  	
   

  	
  5

  
	
   

  	
  (a)

  	
   

  	
   Stock Option Agreement

  	
   

  	
  5

  
	
   

  	
  (b)

  	
   

  	
   Number of Shares

  	
   

  	
  5

  
	
   

  	
  (c)

  	
   

  	
   Exercise Price

  	
   

  	
  5

  
	
   

  	
  (d)

  	
   

  	
   Exercisability

  	
   

  	
  5

  
	
   

  	
  (e)

  	
   

  	
   Accelerated Exercisability

  	
   

  	
  5

  
	
   

  	
  (f)

  	
   

  	
   Term

  	
   

  	
  6

  
	
   

  	
  (g)

  	
   

  	
   Restrictions on Transfer of Shares

  	
   

  	
  6

  
	
   

  	
  (h)

  	
   

  	
   Transferability of Options

  	
   

  	
  6

  
	
   

  	
  (i)

  	
   

  	
   Withholding Taxes

  	
   

  	
  6

  
	
   

  	
  (j)

  	
   

  	
   No Rights as a Stockholder

  	
   

  	
  6

  
	
   

  	
  (k)

  	
   

  	
   Modification, Extension and Assumption of Options

  	
   

  	
  6

  

 

 

 

	
  SECTION 7.

  	
   

  	
  PAYMENT FOR SHARES

  	
   

  	
  7

  
	
   

  	
  (a)

  	
   

  	
   General Rule

  	
   

  	
  7

  
	
   

  	
  (b)

  	
   

  	
   Surrender of Stock

  	
   

  	
  7

  
	
   

  	
  (c)

  	
   

  	
   Services Rendered

  	
   

  	
  7

  
	
   

  	
  (d)

  	
   

  	
   Promissory Note

  	
   

  	
  7

  
	
   

  	
  (e)

  	
   

  	
   Exercise/Sale

  	
   

  	
  7

  
	
   

  	
  (f)

  	
   

  	
   Exercise/Pledge

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.

  	
   

  	
  ADJUSTMENT OF SHARES

  	
   

  	
  8

  
	
   

  	
  (a)

  	
   

  	
   General

  	
   

  	
  8

  
	
   

  	
  (b)

  	
   

  	
   Mergers and Consolidations

  	
   

  	
  8

  
	
   

  	
  (c)

  	
   

  	
   Reservation of Rights

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.

  	
   

  	
  SECURITIES LAWS REQUIREMENTS

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.

  	
   

  	
  NO RETENTION RIGHTS

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.

  	
   

  	
  DURATION AND AMENDMENTS

  	
   

  	
  9

  
	
   

  	
  (a)

  	
   

  	
   Term of the Plan

  	
   

  	
  9

  
	
   

  	
  (b)

  	
   

  	
   Right to Amend or Terminate the Plan

  	
   

  	
  9

  
	
   

  	
  (c)

  	
   

  	
   Effect of Amendment or Termination

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.

  	
   

  	
  DEFINITIONS

  	
   

  	
  10

  

 

 2
 

 

Natural Gas Systems, Inc.

2003
Stock Plan

SECTION 1.         ESTABLISHMENT AND PURPOSE.

The purpose of the Plan is to offer selected persons
an opportunity to acquire a proprietary interest in the success of the Company,
or to increase such interest, by purchasing Shares of the Company’s Stock. The
Plan provides both for the direct award or sale of Shares and for the grant of
Options to purchase Shares. Options granted under the Plan may include
Nonstatutory Options as well as ISOs intended to qualify under Section 422 of
the Code.

Capitalized terms are defined in Section 12.

SECTION
2.         ADMINISTRATION.

(a)          Committees of the Board of
Directors.    The Plan may be administered by one or more
Committees. Each Committee shall consist of one or more members of the Board of
Directors who have been appointed by the Board of Directors. Each Committee
shall have such authority and be responsible for such functions as the Board of
Directors has assigned to it. If no Committee has been appointed, the entire
Board of Directors shall administer the Plan. Any reference to the Board of
Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.

(b)          Authority of the Board of
Directors.  Subject to the provisions of the Plan, the
Board of Directors shall have full authority and discretion to take any actions
it deems necessary or advisable for the administration of the Plan. All
decisions, interpretations and other actions of the Board of Directors shall be
final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.

SECTION 3.         ELIGIBILITY.

(a)          General Rule.  Only Employees, Outside Directors and Consultants shall be eligible for
the grant of Nonstatutory Options or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs.

(b)          Ten-Percent Stockholders.  A person who owns more than 10% of the total combined voting power of
all classes of outstanding stock of the Company, its Parent or any of its
Subsidiaries shall not be eligible for the grant of an ISO unless (i) the Exercise
Price is at Least 110% of the Fair Market Value of a Share on the date of grant
and (ii) such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the
Code shall be applied.

 3
 

 

SECTION 4.         STOCK SUBJECT TO PLAN.

(a)          Basic Limitation.    Not more than                 Shares
may be issued under the Plan (subject to Subsection (b) below and Section 8).
The number of Shares that are subject to Options or other rights outstanding at
any time under the Plan shall not exceed the number of Shares that then remain
available for issuance under the Plan. The Company, during the term of the
Plan, shall at all times reserve and keep available sufficient Shares to
satisfy the requirements of the Plan. Shares offered under the Plan may be
authorized but unissued Shares or treasury Shares.

(b)          Additional Shares. In the event that Shares previously issued under
the Plan are reacquired by the Company pursuant to a forfeiture provision,
right of repurchase or right of first refusal, such Shares shall be added to
the number of Shares then available for issuance under the Plan. However, the
aggregate number of Shares issued upon the exercise of ISOs (including Shares
reacquired by the Company) shall in no event exceed 200% of the number
specified in Subsection (a) above. In the event that an outstanding Option or
other right for any reason expires or is canceled, the Shares allocable to the
unexercised portion of such Option or other right shall not reduce the number
of Shares available for issuance under the Plan.

SECTION 5.         TERMS AND CONDITIONS OF
AWARDS OR SALES.

(a)          Stock Purchase Agreement.  Each award or sale of Shares under the Plan (other than upon exercise
of an Option) shall be evidenced by a Stock Purchase Agreement between the
Purchaser and the Company. Such award or sale shall be subject to all
applicable terms and conditions of the Plan and may be subject to any other
terms and conditions which are not inconsistent with the Plan and which the
Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.

(b)          Duration of Offers and
Nontransferability of Rights.  Any right to acquire Shares under the Plan
(other than an Option) shall automatically expire if not exercised by the
Purchaser within 30 days after the grant of such right was communicated to the
Purchaser by the Company. Such right shall not be transferable and shall be
exercisable only by the Purchaser to whom such right was granted.

(c)          Purchase Price.  The Purchase Price of Shares to be offered under the Plan, if newly
issued, shall not be less than the par value of such Shares. Subject to the
preceding sentence, the Board of Directors shall determine the Purchase Price
at its sole discretion. The Purchase Price shall be payable in a form described
in Section 7.

(d)          Withholding Taxes.  As a condition to the purchase of Shares, the Purchaser shall make such
arrangements as the Board of Directors may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with such purchase.

 4
 

 

(e)          Restrictions on Transfer of
Shares.  Any Shares awarded or sold under the Plan
shall be subject to such special forfeiture conditions, rights of repurchase,
rights of first refusal and other transfer restrictions as the Board of
Directors may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any restrictions that
may apply to holders of Shares generally. A Stock Purchase Agreement may
provide for accelerated vesting in the event of the Purchaser’s death,
disability or retirement or other events.

SECTION 6.         TERMS AND CONDITIONS OF
OPTIONS.

(a)          Stock Option Agreement.  Each grant of an Option under the Plan shall be evidenced by a Stock
Option Agreement between the Optionee and the Company. Such Option shall be
subject to all applicable terms and conditions of the Plan and may be subject
to any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Option
Agreement. The provisions of the various Stock Option Agreements entered into
under the Plan need not be identical.

(b)          Number of Shares.   Each Stock Option Agreement shall specify the number of Shares that are
subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.

(c)          Exercise Price.  Each Stock Option Agreement shall specify the Exercise Price. The
Exercise Price of an ISO shall not be less than 100% of the Fair Market Value
of a Share on the date of grant, and a higher percentage may be required by
Section 3(b). The Exercise Price of a Nonstatutory Option to purchase newly
issued Shares shall not be less than 30% of the Fair Market Value of a Share on
the date of grant. Subject to the preceding two sentences, the Exercise Price
under an Option shall be determined by the Board of Directors at its sole
discretion. The Exercise Price shall be payable in a form described in Section
7.

(d)           Vesting and Exercisability.  Each Stock Option Agreement shall specify the date when all or any
installment of the Option is to become vested and exercisable. No Option shall
be exercisable unless the Optionee has delivered an executed copy of the Stock
Option Agreement to the Company. The Board of Directors shall determine the
exercisability provisions of any Stock Option Agreement at its sole discretion.

(e)           Accelerated Exercisability.  Unless the applicable Stock Option Agreement provides otherwise, all of
an Optionee’s Options shall become exercisable in full if (i) the Company is
subject to a Change in Control before the Optionee’s Service terminates, (ii)
such Options do not remain outstanding, (iii) such Options are not assumed by
the surviving corporation or its
parent and (iv) the surviving corporation or its parent does not substitute
options with substantially the same terms for such Options. A Stock Option
Agreement may also provide for accelerated exercisability in the
event of 

 5
 

 

the
Optionee’s death, disability or retirement or other events.

(f)          Term.  The Stock Option Agreement shall specify the term of the Option. The
term shall not exceed 10 years from the date of grant, and in the case of an ISO a shorter term may be
required by Section 3(b). Subject to the preceding sentence, the Board of
Directors at its sole discretion shall determine when an Option is to expire. A
Stock Option Agreement may provide for expiration prior to the end of its term
in the event of the termination of the Optionee’s Service or death.

(g)         Restrictions on Transfer of
Shares.  Any Shares issued upon exercise of an Option
shall be subject to such special forfeiture conditions, rights of repurchase,
rights of first refusal and other transfer restrictions as the Board of
Directors may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any restrictions that may
apply to holders of Shares generally.

(h)          Transferability of Options.  An Option shall be transferable by the Optionee only by (i) a
beneficiary designation, (ii) a will or (iii) the laws of descent and
distribution, except as provided in the next sentence. If the applicable Stock
Option Agreement so provides, a Nonstatutory Option shall also be transferable
by the Optionee by (i) a gift to a member of the Optionee’s Immediate Family or
(ii) a gift to an inter vivos or
testamentary trust in which members of the Optionee’s Immediate Family have a
beneficial interest of more than 50% and which provides that such Nonstatutory
Option is to be transferred to the beneficiaries upon the Optionee’s death. An
ISO may be exercised during the lifetime of the Optionee only by the Optionee
or by the Optionee’s guardian or legal representative.

(i)           Withholding Taxes.  As a
condition to the exercise of an Option, the Optionee shall make such
arrangements as the Board of Directors may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with such exercise. The Optionee shall also make such arrangements
as the Board of Directors may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.

(j)           No Rights as a
Stockholder.
 An Optionee, or a transferee of an Optionee, shall have no rights as a
stockholder with respect to any Shares covered by the Optionee’s Option until
such person becomes entitled to receive such Shares by filing a notice of
exercise and paying the Exercise Price pursuant to the terms of such Option.

(k)          Modification, Extension and
Assumption of Options.  Within the limitations of the Plan, the Board
of Directors may modify, extend or assume outstanding Options or may accept the
cancellation of outstanding Options (whether granted by the Company or another
issuer) in return for the grant of new Options for the same or a different
number of Shares and at the same or a different Exercise Price. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair the Optionee’s rights or increase the Optionee’s obligations
under such Option.

 6
 

 

SECTION 7.         PAYMENT FOR SHARES.

(a)          General Rule.  The entire Purchase Price or Exercise Price of Shares issued under the
Plan shall be payable in cash or cash equivalents at the time when such Shares
are purchased, except as otherwise provided in this Section 7.

(b)          Surrender of Stock.  To the extent that a Stock Option Agreement so provides, all or any
part of the Exercise Price may be paid by surrendering, or attesting to the
ownership of, Shares that are already owned by the Optionee. Such Shares shall
be surrendered to the Company in good form for transfer and shall be valued at
their Fair Market Value on the date when the Option is exercised.

(c)          Services Rendered.  At the discretion of the Board of Directors
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.

(d)          Promissory Note. To the extent that a Stock Option Agreement
or Stock Purchase Agreement. so provides, all or a portion of the Exercise
Price or Purchase Price (as the case may be) of Shares issued under the Plan
may be paid with a full-recourse promissory note. However, the par value of the
Shares, if newly issued, shall be paid in cash or cash equivalents. The Shares
shall be pledged as security for payment of the principal amount of the
promissory note and interest thereon. The interest rate payable under the terms
of the promissory note shall not be less than the minimum rate (if any)
required to avoid the imputation of additional interest under the Code. Subject
to the foregoing, the Board of Directors (at its sole discretion) shall specify
the term, interest rate, amortization requirements (if any) and other
provisions of such note.

(e)          Exercise/Sale.   To the extent that a Stock Option Agreement so provides, and if Stock
is publicly traded, payment may be made all or in part by the delivery (on a
form prescribed by the Company) of an irrevocable direction to a securities
broker approved by the Company to sell Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.

(f)           Exercise/Pledge.  To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.

(g)          Surrender of Options.  To the extent that a Stock Option
Agreement so provides, payment may be made all or in part by the surrender of a
portion of the Options, wherein the aggregate amount of the excess of market
value over exercise price of the surrendered options shall be applied against
the total exercise price. Market value shall be the most recent publicly traded
price of the stock or, if no public market exists, the fair market value as
mutually agreed to by Company and Optionee.

 7
 

 

SECTION 8.         ADJUSTMENT OF SHARES.

(a)           General.  In the event of a subdivision of the outstanding Stock, a declaration
of a dividend payable in Shares, a declaration of an extraordinary dividend
payable in a form other than Shares in an amount that has a material effect on
the Fair Market Value of the Stock, a combination or consolidation of the
outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option, or (iii) the Exercise Price under each outstanding
Option.

(b)           Mergers and Consolidations.  In the event that the Company is a party to a merger or consolidation,
outstanding Options shall be subject to the agreement of merger or
consolidation. At the sole discretion of the board of directors, such agreement
shall provide for:

(i)            The continuation of such outstanding Options
by the Company (if the Company is the surviving corporation);

(ii)           The assumption or the Plan and such outstanding Options by the
surviving corporation or its parent;

(iii)          The substitution by the surviving corporation or its parent of options
with the same terms for such outstanding Options;

(iv)          The full exercisability of such outstanding Options and full vesting of
the Shares subject to such Options, followed by the cancellation of such
Options; OR

(v)           The settlement of the full value of such, outstanding Options (whether
or not then exercisable) in cash or cash equivalents, including (without
limitation) deferred cash payments, followed by the cancellation of such
Options.

(c)           Reservation of Rights.  Except as provided in this Section 8, an Optionee or Purchaser shall
have no rights by reason of (i) any subdivision or consolidation of shares of
stock of any class, (ii) the payment of any dividend or (iii) any other
increase or decrease in the number of shares of stock of any class. Any
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant, of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.

 8
 

 

SECTION 9.         SECURITIES LAW REQUIREMENTS.

Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder,
state securities laws and regulations, and the regulations of any stock
exchange or other securities market on which the Company’s securities may then
be traded.

SECTION 10.       NO RETENTION RIGHTS.

Nothing in the Plan or in any right or Option
granted under the Plan shall confer upon the Purchaser or Optionee any right to
continue in Service 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 the Purchaser or Optionee) or of the Purchase
or Optionee, which rights are hereby expressly reserved by each, to terminate
his or her Service at any time and for any reason, with or without cause.

SECTION 11.       DURATION AND AMENDMENTS.

(a)           Term of the Plan.  The Plan, as set forth herein, shall become effective on the date of
its adoption by the Board of Directors, subject to the approval of the Company’s
stockholders. If the stockholders fail to approve the Plan within 12 months
after its adoption by the Board of Directors, then any grants, exercises or
sales that have already occurred under the Plan shall be rescinded and no
additional grants, exercises or sales shall thereafter be made under the Plan.
The Plan shall terminate automatically 10 years after the later of (i) its
adoption by the Board of Directors or (ii) the most recent increase in the
number of Shares reserved under Section 4 that was approved by the Company’s
stockholders. The Plan may be terminated on any earlier date pursuant to
Subsection (b) below.

(b)           Right to Amend or Terminate the Plan.  The Board of Directors may amend, suspend or terminate the Plan at any
time and for any reason; provided, however, that any amendment of the Plan
shall be subject to the approval of the Company’s stockholders if it (i)
increases the number of Shares available for issuance under the Plan (except,
as provided in Section 8) or (ii) materially changes the class of persons who are eligible for the
grant of ISOs. Stockholder approval shall not be required for any other
amendment of the Plan. If the stockholders fail to approve an increase in the
number of Shares reserved under Section 4 within 12 months after its adoption by
the Board of Directors, then any grants, exercises or sales that have already
occurred in reliance on such increase shall be rescinded and no additional
grants, exercises or sales shall thereafter be made in reliance on such
increase.

(c)           Effect of Amendment or
Termination.  No Shares shall be issued or sold under the
Plan after the termination thereof, except upon exercise of an Option granted
prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.

 9
 

 

SECTION 12.       DEFINITIONS.

(a)          “Board of Directors”
shall mean the Board of Directors of the Company, as constituted
from time to time.

(b)          “Change in Control” shall mean:

(i)            The consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if persons who were not controlling stockholders of the Company
immediately prior to such merger, consolidation or other reorganization own immediately
after such merger, consolidation or other reorganization 50% or more of the
voting power of the outstanding securities of each of (A) the continuing or
surviving entity and (B) any direct or indirect parent corporation of such
continuing or surviving entity; or

(ii)           The sale, transfer or other disposition of all or substantially all of
the Company’s assets. 

A
transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company’s incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who
held the Company’s securities immediately before such transaction.

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

“Committee” shall mean a committee of the Board of
Directors, as described in
Section 2(a).

“Company” shall mean Natural Gas Systems, Inc., a
Delaware corporation.

“Consultant” shall mean a person who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.

“Employee” shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.

“Exercise Price” shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Board of Directors
in the applicable Stock Option Agreement.

“Fair Market Value” shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.

 10
 

 

“Immediate Family” shall mean any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include
adoptive relationships.

“ISO” shall mean an employee incentive stock option
described in Section 422(b) of the Code.

“Nonstatutory Option” shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.

“Option” shall mean an ISO or Nonstatutory Option
granted under the Plan and entitling the holder to purchase Shares.

“Optionee” shall mean a person who holds an Option.

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

“Parent” shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if each
of the corporations other than the Company owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.

“Plan” shall mean Natural Gas Systems, Inc. 2003
Stock Plan.

“Purchase Price” shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option),
as specified by the Board of Directors.

“Purchaser” shall mean a person to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).

“Service” shall mean service as an Employee. Outside
Director or Consultant

“Share” shall mean one share of Stock, as adjusted
in accordance with Section 8 (if applicable).

“Stock” shall mean the Common Stock of the Company,
with a par value of $0.001 per Share.

“Stock Option Agreement” shall mean the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to the Optionee’s Option.

 11
 

 

“Stock Purchase Agreement” shall mean the agreement between the Company
and a Purchaser who acquires Shares under the Plan that contains the terms,
conditions and restrictions pertaining to the acquisition of such Shares.

“Subsidiary” shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the
Plan shall be considered a Subsidiary commencing as of such date.

 12

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