Document:

Exhibit
10.3

 

VALENCE TECHNOLOGY, INC.

 

2009 EQUITY INCENTIVE PLAN

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE I INTRODUCTION

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Purpose

  	
   

  	
  1

  
	
  1.2

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  1.3

  	
   

  	
  Shares Subject to the Plan

  	
   

  	
  5

  
	
  1.4

  	
   

  	
  Administration of the Plan

  	
   

  	
  6

  
	
  1.5

  	
   

  	
  Granting of Awards to Participants

  	
   

  	
  8

  
	
  1.6

  	
   

  	
  Leave of Absence

  	
   

  	
  8

  
	
  1.7

  	
   

  	
  Term of Plan

  	
   

  	
  8

  
	
  1.8

  	
   

  	
  Amendment and Discontinuance of the Plan

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II NON-QUALIFIED OPTIONS

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Eligibility

  	
   

  	
  9

  
	
  2.2

  	
   

  	
  Exercise Price

  	
   

  	
  9

  
	
  2.3

  	
   

  	
  Terms and Conditions of Non-Qualified Options

  	
   

  	
  9

  
	
  2.4

  	
   

  	
  Option Repricing

  	
   

  	
  10

  
	
  2.5

  	
   

  	
  Vesting

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III INCENTIVE STOCK OPTIONS

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Eligibility

  	
   

  	
  11

  
	
  3.2

  	
   

  	
  Exercise Price

  	
   

  	
  11

  
	
  3.3

  	
   

  	
  Dollar Limitation

  	
   

  	
  11

  
	
  3.4

  	
   

  	
  10% Stockholder

  	
   

  	
  11

  
	
  3.5

  	
   

  	
  Incentive Stock Options Not Transferable

  	
   

  	
  11

  
	
  3.6

  	
   

  	
  Compliance with Code Section 422

  	
   

  	
  12

  
	
  3.7

  	
   

  	
  Limitations on Exercise

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV AUTOMATIC DIRECTOR OPTION GRANT PROGRAM

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Terms and Conditions of Non-Employee Director Options

  	
   

  	
  12

  
	
  4.2

  	
   

  	
  Automatic Grant

  	
   

  	
  12

  
	
  4.3

  	
   

  	
  Exercisability and Term of Non-Employee Director Options

  	
   

  	
  13

  
	
  4.4

  	
   

  	
  Effect of Change of Control on Non-Employee Director
  Options

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V RESTRICTED STOCK

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Eligibility

  	
   

  	
  13

  
	
  5.2

  	
   

  	
  Restrictions, Restricted Period and Vesting

  	
   

  	
  14

  
	
  5.3

  	
   

  	
  Forfeiture of Restricted Stock

  	
   

  	
  14

  
	
  5.4

  	
   

  	
  Delivery of Shares of Common Stock

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI PERFORMANCE
  AWARDS

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Performance Awards

  	
   

  	
  15

  
	
  6.2

  	
   

  	
  Performance Goals

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII OTHER STOCK OR
  PERFORMANCE-BASED AWARDS

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII CERTAIN PROVISIONS APPLICABLE TO ALL
  AWARDS

  	
   

  	
  18

  
	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  General

  	
   

  	
  18

  

 

i

 

	
  8.2

  	
   

  	
  Stand-Alone, Additional, Tandem and Substitute Awards

  	
   

  	
  18

  
	
  8.3

  	
   

  	
  Term of Awards

  	
   

  	
  19

  
	
  8.4

  	
   

  	
  Form and Timing of Payment under Awards; Deferrals

  	
   

  	
  19

  
	
  8.5

  	
   

  	
  Issuance of Restricted Stock/Forfeiture

  	
   

  	
  19

  
	
  8.6

  	
   

  	
  Securities Requirements

  	
   

  	
  19

  
	
  8.7

  	
   

  	
  Transferability

  	
   

  	
  19

  
	
  8.8

  	
   

  	
  No Rights as a Stockholder

  	
   

  	
  20

  
	
  8.9

  	
   

  	
  Listing and Registration of Shares of Common Stock

  	
   

  	
  20

  
	
  8.10

  	
   

  	
  Termination of Employment, Death, Disability and Retirement

  	
   

  	
  20

  
	
  8.11

  	
   

  	
  Change of Control

  	
   

  	
  21

  
	
  8.12

  	
   

  	
  First Refusal Rights

  	
   

  	
  23

  
	
  8.13

  	
   

  	
  Lock-Up Agreement

  	
   

  	
  23

  
	
  8.14

  	
   

  	
  Stockholder Agreements/Investment Representations

  	
   

  	
  23

  
	
  8.15

  	
   

  	
  Exemptions from Section 16(b) Liability

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX WITHHOLDING FOR TAXES

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X MISCELLANEOUS

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  No Rights to Awards or Uniformity Among Awards

  	
   

  	
  24

  
	
  10.2

  	
   

  	
  Conflicts with Plan

  	
   

  	
  24

  
	
  10.3

  	
   

  	
  Rights as Employee, Consultant or Director

  	
   

  	
  24

  
	
  10.4

  	
   

  	
  Governing Law

  	
   

  	
  24

  
	
  10.5

  	
   

  	
  Gender, Tense and Headings

  	
   

  	
  24

  
	
  10.6

  	
   

  	
  Severability

  	
   

  	
  24

  
	
  10.7

  	
   

  	
  Other Laws

  	
   

  	
  25

  
	
  10.8

  	
   

  	
  Unfunded Obligations

  	
   

  	
  25

  
	
  10.9

  	
   

  	
  No Guarantee of Tax Consequences

  	
   

  	
  25

  
	
  10.10

  	
   

  	
  Stockholder Agreements

  	
   

  	
  25

  
	
  10.11

  	
   

  	
  Specified Employee under Section 409A of the Code

  	
   

  	
  25

  
	
  10.12

  	
   

  	
  No Additional Deferral Features

  	
   

  	
  26

  

 

[End of Table
of Contents]

 

ii

 

VALENCE
TECHNOLOGY, INC.

2009 EQUITY INCENTIVE PLAN

 

ARTICLE I

INTRODUCTION

 

1.1          Purpose.  The Valence Technology, Inc. 2009 Equity
Incentive Plan (the “Plan”) is intended to promote
the interests of Valence Technology, Inc., a Delaware corporation (the “Company”),
and its stockholders by encouraging Employees, Service Providers and
Non-Employee Directors of the Company or its Affiliates (as defined below) to
acquire or increase their equity interests in the Company, thereby giving them
an added incentive to work toward the continued growth and success of the
Company.  The Board of Directors of the
Company (the “Board”) also contemplates
that through the Plan, the Company and its Affiliates will be better able to
compete for the services of the individuals needed for the continued growth and
success of the Company.  The Plan
provides for payment of various forms of incentive compensation, and accordingly,
is not intended to be a plan that is subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”),
and shall be administered accordingly.

 

1.2          Definitions.  As used in the Plan, the following terms
shall have the meanings set forth below:

 

“Affiliate”
means (i) any entity in which the Company, directly or indirectly, owns
50% or more of the combined voting power, as determined by the Committee, (ii) any
“parent corporation” of the Company (as defined in Section 424(e) of
the Code), (iii) any “subsidiary corporation” of any such parent
corporation (as defined in Section 424(f) of the Code) of the Company
and (iv) any trades or businesses, whether or not incorporated, which are
members of a controlled group or are under common control (as defined in
Sections 414(b) or (c) of the Code) with the Company; provided, however, that with respect to grants of
Non-Qualified Options to purchase Common Stock of the Company, the term “Affiliate”
shall mean only a corporation or other entity in a chain of corporations and/or
other entities in which the Company has a “controlling interest” within the
meaning of Treas. Reg. §1.414(c)-2(b)(2)(i), but using the threshold of 50%
ownership wherever 80% appears.

 

“Awards”
means, collectively, Options, Restricted Stock, Performance Awards or Other
Stock or Performance-Based Awards.

 

“Change
of Control” shall be deemed to have occurred upon
any of the following events:

 

(a)           any “person” or “persons” (as defined
in Section 3(a)(9) of the Exchange Act, and as modified in Section 13(d) and
14(d) of the Exchange Act) other than and excluding (i) the Company
or any of its subsidiaries, (ii) any employee benefit plan of the Company
or any of its subsidiaries, (iii) any Affiliate of the Company, (iv) an
entity owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the
Company or (v) an underwriter temporarily holding securities pursuant to
an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the shares of voting stock of the Company then
outstanding;

 

 

(b)           the consummation of any merger,
organization, business combination or consolidation of the Company or one of
its subsidiaries with or into any other entity, other than a merger,
reorganization, business combination or consolidation which would result in the
holders of the voting securities of the Company outstanding immediately prior
thereto and their respective Affiliates holding securities which represent
immediately after such merger, reorganization, business combination or
consolidation more than 50% of the combined voting power of the voting
securities of the Company or the surviving company or the parent of such
surviving company;

 

(c)           the consummation of a sale or
disposition by the Company of all or substantially all of the Company’s assets,
other than a sale or disposition if the holders of the voting securities of the
Company outstanding immediately prior thereto and their respective Affiliates
hold securities immediately thereafter which represent more than 50% of the
combined voting power of the voting securities of the acquiror, or parent of
the acquiror, of such assets;

 

(d)           the stockholders of the Company
approve a plan of complete liquidation or dissolution of the Company; or

 

(e)           individuals who, as of the Effective
Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the Effective Date whose
election by the Board was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an election contest with respect to the election or removal of
directors or other solicitation of proxies or consents by or on behalf of a
person other than the Board.

 

Notwithstanding the
foregoing, solely with respect to any Award that is subject to Section 409A
of the Code and payable upon a Change of Control, the term “Change of Control”
shall mean an event described in one or more of the foregoing provisions of
this definition, but only if it also constitutes a “change of control event”
within the meaning of Treas. Reg. §1.409A-3(i)(5).

 

“Code”
means the Internal Revenue Code of 1986, as amended from time to time, and the rules and
regulations thereunder.

 

“Committee”
means the committee of one or more persons designated by the Board to
administer the Plan and/or the Board; provided, however, that with respect to an Award granted to a Covered
Employee that is intended to be “performance-based compensation” as described
in Section 162(m)(4)(c) of the Code, the Committee shall consist
solely of two or more “outside directors” as described in Section 162(m)(4)(c)(i) of
the Code; and if the Company is subject to the Exchange Act, the Committee
shall mean the Committee of the Board, which shall consist of not less than two
independent members of the Board, each of whom shall qualify as a “non-employee
director” (as that term is defined in Rule 16b-3 under the Exchange Act).

 

“Common
Stock” means the common stock, par value $0.001
per share, of the Company.

 

2

 

“Company”
means the corporation described in Section 1.1 or any successor
thereto which assumes and continues the Plan.

 

“Covered
Employee” means the Chief Executive Officer of the Company and
the three highest paid officers of the Company other than the Chief Executive
Officer or the Chief Financial Officer as described in Section 162(m)(3) of
the Code, as well as any person designated by the Committee, at the time of
grant of a Performance Award, who is likely to be a Covered Employee with
respect to that fiscal year; provided that the term “Covered Employee” shall in
any case mean a “covered employee” as defined in Section 162(m) of
the Code.

 

“Disability”
means an inability to perform the Employee’s or Non-Employee Director’s
material services for the Company for a period of 90 consecutive days or a
total of 180 days, during any 365-day period, in either case as a result of
incapacity due to mental or physical illness, which is determined to be total
and permanent.  A determination of
Disability shall be made by a physician reasonably satisfactory to both the
Participant (or his guardian) and the Company, provided
that if the Employee or Non-Employee Director (or his guardian) and the Company
do not agree on a physician, the Employee or Non-Employee Director (or his
guardian) and the Company shall each select a physician and these two together
shall select a third physician, whose determination as to Disability shall be
final, binding and conclusive with respect to all parties.  Notwithstanding the above, eligibility for
disability benefits under any policy for long-term disability benefits provided
to the Participant by the Company shall conclusively establish the Participant’s
disability.  Solely with respect to any
Award that is subject to Section 409A of the Code and payable upon
Disability, the term “Disability” shall mean (i) an inability of the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve months or (ii) the receipt of income replacements by the
Participant, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months, for a period of not less
than three months under the Company’s accident and health plan.

 

“Effective
Date” means, with respect to the Plan, the date
that the Plan is (a) adopted by the Board and (b) approved by
stockholders of the Company, provided that
such stockholder approval occurs not more than one year prior to or after the
date of such adoption.

 

“Employee”
means any employee of the Company or an Affiliate, including any such employee
who is an officer or Director of the Company or an Affiliate.

 

“Employment”
includes any period in which a Participant is an Employee of the Company or an
Affiliate.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as
amended.

 

“Fair
Market Value” or “FMV
Per Share” mean, with respect to shares of Common Stock, the
fair market value of such shares determined in good faith by the Committee,
using a reasonable application of any fair and reasonable method selected in
the Committee’s discretion.  If the
shares of Common Stock are traded on any exchange, the Fair Market Value or FMV
Per Share shall be the closing sales price (or, if applicable, the highest
reported bid price) of a share of Common Stock on the applicable date (or if
there is no trading in the Common Stock on such

 

3

 

date,
on the next preceding date on which there was trading) as reported in The
Wall Street Journal (or other reporting service approved by
the Committee).

 

“Hostile
Take-Over” means (A) the acquisition, directly or indirectly,
by any “person” or “persons” (as defined in Section 3(a)(9) of the
Exchange Act, and as modified in Section 13(d) and 14(d) of the
Exchange Act) other than and excluding (i) the Company or any of its
subsidiaries, (ii) any employee benefit plan of the Company or any of its
subsidiaries, (iii) any Affiliate of the Company, (iv) an
entity owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the
Company or (v) an underwriter temporarily holding securities pursuant to
an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the shares of voting stock of the Company then
outstanding pursuant to a tender or exchange offer made directly to the Company’s
stockholders which the Board does not recommend that such stockholders accept;
or (B) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that the Incumbent Board ceases for any
reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective Date whose election
by the Board was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an election contest with respect to the election or removal of
directors or other solicitation of proxies or consents by or on behalf of a
person other than the Board. 
Notwithstanding the foregoing, solely with respect to any Award that is
subject to Section 409A of the Code and payable upon a Hostile Take-Over,
the term “Hostile Take-Over” shall mean an event described in one or more of
the foregoing provisions of this definition, but only if it also constitutes a “change
of control event” within the meaning of Treas. Reg. §1.409A-3(i)(5).

 

“Incentive
Stock Option” means any option that satisfies the
requirements of Code Section 422 and is granted pursuant to ARTICLE III
of the Plan.

 

“Non-Employee
Director” means a person who is a member of the
Board but who is neither an Employee nor a Service Provider of the Company or
any Affiliate.

 

“Non-Qualified
Option” means an option not intended to satisfy
the requirements of Code Section 422 and which is granted pursuant to ARTICLE
II of the Plan.

 

“Option”
means an option to acquire Common Stock granted pursuant to the provisions of
the Plan, and refers to either an Incentive Stock Option or a Non-Qualified
Option, or both, as applicable.

 

“Option
Expiration Date” means the date determined by the
Board or the Committee, which shall not be more than ten (10) years after
the date of grant of an Option.

 

“Optionee”
means a Participant who has received or will receive an Option.

 

“Other
Stock or Performance-Based Award” means an award granted
pursuant to ARTICLE VII of the Plan.

 

4

 

“Participant”
means any Non-Employee Director, Employee or Service Provider granted an Award
under the Plan.

 

“Performance
Award” means an Award granted pursuant to ARTICLE VI of the
Plan, which, if earned, shall be payable in shares of Common Stock, cash, or
any combination thereof as determined by the Committee.

 

“Performance
Period” means a period of not less than twelve (12) months and
not more than sixty (60) months during which the Committee may grant
Performance Awards.

 

“Restricted
Period” means the period established by the Board
or the Committee with respect to an Award during which the Award either remains
subject to forfeiture or is not exercisable by the Participant.

 

“Restricted
Stock” means one or more shares of Common Stock,
prior to the lapse of restrictions thereon, granted under ARTICLE V of the
Plan.

 

“Retirement”
means termination of Employment of an Employee, or if determined by the Committee,
termination of service of a Non-Employee Director, under circumstances as shall
constitute retirement, as determined by the Committee or the Board.  In the event an Award issued under the Plan
is subject to Section 409A of the Code, then, to the extent necessary to
comply with the requirements of Section 409A of the Code, the definition
of “separation from service” provided for under Section 409A of the Code
and the regulations or other guidance issued thereunder shall be used in
determining whether an Employee’s Employment has been terminated or a
Non-Employee Director’s or Service Provider’s service has been terminated.

 

“Service
Provider” means any individual, other than a
Non-Employee Director or an Employee, who renders services to the Company or an
Affiliate, whose participation in the Plan is determined to be in the best
interests of the Company by the Committee.

 

1.3          Shares Subject to the Plan.

 

(a)           Authorized Shares; Annual Increase.  The maximum number of shares of Common Stock
that may be issued under the Plan shall be 3,000,000 shares; provided that this number shall
automatically increase on the first trading day of April each fiscal year
during the term of the Plan, beginning with the fiscal year ending March 31,
2011, by (i) an amount (the “Annual Increase Amount”) equal to the lesser of (A) one
percent (1%) of the total number of shares of Common Stock outstanding on the
last trading day in March of the immediately preceding fiscal year and (B)
1,500,000 shares, or (ii) such other amount that is lower than the lesser of
the amount determined by the preceding clauses (A)(i) and (ii) that the Board,
in its sole discretion (but without any obligation), may determine shall be the
Annual Increase Amount with respect to any applicable annual period.  The maximum number of shares of Common Stock
that may be issued under the Plan pursuant to the exercise of Incentive Stock
Options is the lesser of (A) 3,000,000 shares, increased on the first trading
day of April each fiscal year during the term of the Plan, beginning with the
fiscal year ending March 31, 2011, by the Annual Increase Amount, and (B)
16,500,000 shares.  No more than
3,000,000 Options, stock appreciation rights or shares of Common Stock shall be
issued to any one Participant pursuant to this Plan in any one fiscal
year.  With respect to Performance Awards
paid in cash or a combination of cash and Common Stock, the sum of such cash
and Common Stock underlying an Award paid to any one individual in any one
fiscal year shall not exceed 3,000,000 shares and/or $5.0 million.

 

5

 

(b)           Shares Returned.  In the event the number of shares to be
delivered upon the exercise or payment of any Award granted under the Plan is
reduced for any reason other than the withholding of shares or the payment of
taxes or exercise price, or in the event any Award (or portion thereof) granted
under the Plan can no longer under any circumstances be exercised or paid, the
number of shares no longer subject to such Award shall thereupon be released
from such Award and shall thereafter be available under the Plan for the grant
of additional Awards.  Shares that cease
to be subject to an Award because of the exercise of the Award, or the vesting
of a Restricted Stock Award, shall no longer be subject to or available for any
further grant under the Plan.  Shares
issued pursuant to the Plan (x) may be treasury shares, authorized but
unissued shares or, if applicable, shares acquired in the open market and (y) shall
be fully paid and nonassessable.  No
fractional shares shall be issued under the Plan.  Payment for any fractional shares that would
otherwise be issuable hereunder in the absence of the immediately preceding
sentence shall be made in cash.

 

(c)           Share Adjustments.  Notwithstanding the above, in the event that
at any time after the Effective Date the outstanding shares of Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of a merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, combination of
shares or the like, the aggregate number and class of securities available
under the Plan shall be ratably adjusted by the Board.  Upon the occurrence of any of the events
described in the immediately preceding sentence, in order to preserve the fair
value of Awards subject to the Plan, the Board shall adjust any or all of the
following so that the fair value of the Award immediately after the event is
equal to the fair value of the Award immediately prior to the event:  (a) the number of shares of Common Stock
not subject to outstanding Awards with respect to which Awards may be granted, (b) the
number of shares of Common Stock subject to outstanding Awards and (c) the
grant or exercise price with respect to an Award.  Such adjustment in an outstanding Option
shall be made (i) without change in the total price applicable to the
Option or any unexercised portion of the Option (except for any change in the
aggregate price resulting from rounding-off of share quantities or prices) and (ii) with
any necessary corresponding adjustment in exercise price per share. The Board’s
determinations shall be final, binding and conclusive with respect to the
Company and all other interested persons.

 

1.4          Administration of the Plan.  The Plan shall be administered by the
Committee.  In addition to any other
powers set forth in the Plan and subject to the provisions of the Plan, the  Board or the Committee shall have the full
and final power and authority, in its discretion:

 

(a)           to interpret the Plan and all Awards
under the Plan;

 

(b)           to make, amend and rescind such rules as
it deems necessary for the proper administration of the Plan;

 

(c)           to make all other determinations
necessary or advisable for the administration of the Plan;

 

(d)           to correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award under the
Plan in the manner and to the extent that the Committee deems desirable to
effectuate the Plan;

 

6

 

(e)           to determine the persons to whom, and
the time or times at which, Awards shall be granted and the number of shares of
Common Stock to be subject to each Award;

 

(f)            to determine the type of Award
granted and to designate Options as Incentive Stock Options or Non-Qualified
Options;

 

(g)           to determine the Fair Market Value of
shares of Common Stock or other property;

 

(h)           to determine the terms, conditions
and restrictions applicable to each Award (which need not be identical) and any
shares acquired pursuant thereto, including, without limitation, (i) the
exercise or purchase price of shares purchased pursuant to any Award, (ii) the
method of payment for shares purchased pursuant to any Award, (iii) the
method for satisfaction of any tax withholding obligation arising in connection
with Award, including by the withholding or delivery of shares of Common Stock,
(iv) the timing, terms and conditions of the exercisability or vesting of
any Award or any shares acquired pursuant thereto, (v) the formula and
goals applicable to any Performance-Based Award and the extent to which such
goals have been attained, (vi) the time of the expiration of any Award, (vii) the
effect of the Participant’s termination of Service on any of the foregoing, and
(viii) all other terms, conditions and restrictions applicable to any
Award or shares acquired pursuant thereto not inconsistent with the terms of
the Plan;

 

(i)            to determine whether an Award will
be settled in shares of stock, cash, or in any combination thereof;

 

(j)            to approve one or more forms of
Award Agreement;

 

(k)           to amend, modify, extend, cancel or
renew any Award or to waive any restrictions or conditions applicable to any
Award or any shares acquired pursuant thereto;

 

(l)            to accelerate, continue, extend or
defer the exercisability or vesting of any Award or any shares acquired
pursuant thereto, including with respect to the period following a Participant’s
termination of Service; and

 

(m)          to prescribe, amend or rescind rules,
guidelines and policies relating to the Plan, or to adopt sub-plans or
supplements to, or alternative versions of, the Plan, including, without
limitation, as the Committee deems necessary or desirable to comply with the
laws of or to accommodate the laws, regulations, tax or accounting
effectiveness, accounting principles or custom of, foreign jurisdictions whose
citizens may be granted Awards.

 

Any action taken or
determination made by the Committee pursuant to this and the other sections of
the Plan shall be final, binding and conclusive on all affected persons,
including, without limitation, the Company, any Affiliate, any grantee, holder
or beneficiary of an Award, any stockholder and any Employee, Service Provider
or Non-Employee Director.  No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Award granted hereunder, and the
members of the Board and the Committee shall be entitled to indemnification to
the fullest extent permitted by law and reimbursement by the Company and its
Affiliates in respect of any claim, loss, damage or expense (including legal
fees) arising from or in connection with the defense of any action, suit 

 

7

 

or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties.

 

1.5          Granting of Awards to
Participants.  The Committee
shall have the authority to grant, prior to the expiration date of the Plan,
Awards to such Employees, Service Providers and Non-Employee Directors as may
be selected by it, subject to the terms and conditions set forth in the
Plan.  In selecting the persons to
receive Awards, including the type and size of the Award, the Board or the
Committee may consider the contribution the recipient has made and/or may make
to the growth of the Company or its Affiliates and any other factors that it
may deem relevant.  No member of the
Committee shall vote or act upon any matter relating solely to himself.  Grants of Awards to members of the Committee
must be ratified by the Board.  In no
event shall any Employee, Service Provider or Non-Employee Director, nor his,
her or its legal representatives, heirs, legatees, distributees or successors
have any right to participate in the Plan, except to such extent, if any, as
permitted under the Plan and as the Board or the Committee may determine.

 

1.6          Leave of Absence.  If an employee is on military, sick leave or
other bona fide leave of absence, such person shall be considered an “Employee”
for purposes of an outstanding Award during the period of such leave, provided that it does not exceed 90 days (or such longer
period as may be determined by the Committee in its sole discretion), or, if
longer, so long as the person’s right to reemployment is guaranteed either by
statute or by contract.  If the period of
leave exceeds 90 days (or such longer period as may be determined by the
Committee in its sole discretion), the employment relationship shall be deemed
to have terminated on the ninety-first (91st) day (or the first day immediately
following any period of leave in excess of 90 days as approved by the
Committee) of such leave, unless the person’s right to reemployment is
guaranteed by statute or contract.

 

1.7          Term of Plan.  If not sooner terminated under the provisions
of Section 1.8, the Plan shall terminate upon, and no further
Awards shall be made, after the tenth (10th) anniversary of the Effective Date.

 

1.8          Amendment and
Discontinuance of the Plan. 
The Board may amend, suspend or terminate the Plan at any time without
prior notice to or consent of any person; provided, however, that subject to ARTICLE VIII,
no amendment, suspension or termination of the Plan may without the consent of
the holder of an Award, terminate such Award or adversely affect such person’s
rights with respect to such Award in any material respect unless or to the
extent specified in the Award itself; and provided  further that, no amendment shall
be effective prior to its approval by the stockholders of the Company, to the
extent such approval is required by (a) applicable legal requirements or (b) the
requirements of any securities exchange on which the Company’s stock may be
listed.  Notwithstanding the foregoing,
the Board may amend the Plan or any Award in such manner as it deems necessary
in order to permit Awards to meet the requirements of the Code or other
applicable laws, or to prevent adverse tax consequences to the Participants.

 

8

 

ARTICLE
II

NON-QUALIFIED OPTIONS

 

2.1                               Eligibility.  The Committee may grant Non-Qualified Options
to purchase shares of Common Stock to any Employee, Service Provider and
Non-Employee Directors according to the terms set forth below.  Each Non-Qualified Option granted under the
Plan shall be evidenced by a written agreement between the Company and the
individual to whom such Non-Qualified Option was granted in such form as the
Committee shall provide.

 

2.2                               Exercise
Price.  The exercise price to be paid
for each share of Common Stock deliverable upon exercise of each Non-Qualified
Option granted under this ARTICLE
II shall not be less than one hundred percent (100%) of the
FMV Per Share on the date of grant of such Non-Qualified Option.  The exercise price for each Non-Qualified
Option granted under ARTICLE
II shall be subject to adjustment as provided in Section 2.3(e).

 

2.3                               Terms
and Conditions of Non-Qualified Options.  Non-Qualified Options shall be in such form
as the Board or the Committee may from time to time approve, shall be subject
to the following terms and conditions and may contain such additional terms and
conditions, not inconsistent with this ARTICLE II, as the Committee
shall deem desirable:

 

(a)                                  Option Period and Conditions and Limitations on
Exercise.  No
Non-Qualified Option shall be exercisable later than the Option Expiration
Date.  To the extent not prohibited by
other provisions of the Plan, each Non-Qualified Option shall be exercisable at
such time or times as the Board or the Committee, in its discretion, may
determine at the time such Non-Qualified Option is granted.

 

(b)                                 Manner of Exercise.  In order to exercise a Non-Qualified Option,
the person or persons entitled to exercise such Non-Qualified Option shall
deliver to the Company payment in full for (i) the shares being purchased
and (ii) unless other arrangements have been made with the Committee, any
required withholding taxes.  The payment
of the exercise price for each Non-Qualified Option shall be made (i) in
cash or by certified check payable and acceptable to the Company, (ii) with
the consent of the Committee, by tendering to the Company shares of Common
Stock owned by the person for more than six months having an aggregate Fair
Market Value as of the date of exercise that is not greater than the full
exercise price for the shares with respect to which the Non-Qualified Option is being exercised and by paying any remaining amount of the
exercise price as provided in (i) above, or (iii) subject to such
instructions as the Committee may specify, at the person’s written request the
Company may deliver certificates for the shares of Common Stock for which the
Non-Qualified Option is being exercised to a broker for sale on behalf of the
person; provided that the person has irrevocably
instructed such broker to remit directly to the Company on the person’s behalf
the full amount of the exercise price from the proceeds of such sale.  In the event that the person elects to make
payment as allowed under clause (ii) above, the Committee may, upon
confirming that the Optionee owns the number of additional shares being
tendered, authorize the issuance of a new certificate for the number of shares
being acquired pursuant to the exercise of the Non-Qualified Option less the number of shares being tendered
upon the exercise and return to the person (or not require surrender of) the
certificate for the shares being tendered upon the exercise.  If the Committee so requires, such person or
persons shall also deliver a written representation that all

 

9

 

shares being purchased are
being acquired for investment and not with a view to, or for resale in
connection with, any distribution of such shares.

 

(c)                                  Proceeds.  The proceeds received from the sale of shares
of Common Stock pursuant to exercise of Non-Qualified Options exercised under
the Plan will be used for general corporate purposes.

 

(d)                                 Non-Qualified Options Not Transferable.  Except as provided below, no Non-Qualified
Option granted hereunder shall be transferable other than by (i) will or
by the laws of descent and distribution or (ii) pursuant to a domestic
relations order, and during the lifetime of the Participant to whom any such
Non-Qualified Option is granted, it shall be exercisable only by the
Participant (or his guardian).  Any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to
subject to execution, attachment or similar process, any Non-Qualified Option
granted hereunder, or any right thereunder, contrary to the provisions hereof,
shall be void and ineffective, shall give no right to the purported transferee
and shall, at the sole discretion of the Board or the Committee, result in
forfeiture of the Non-Qualified Option with respect to the shares involved in
such attempt.  With respect to a specific
Non-Qualified Option, in accordance with rules and procedures established
by the Board or the Committee from time to time, the Participant (or his
guardian) may transfer, for estate planning purposes, all or part of such
Non-Qualified Option to one or more immediate family members or related family
trusts or partnerships or similar entities as determined by the Board or the
Committee.  Any Non-Qualified Option that
is transferred in accordance with the provisions of this Section 2.3(d) may only be exercised by the
person or persons who acquire a proprietary interest in the Non-Qualified
Options pursuant to the transfer.

 

(e)                                  Adjustment of Non-Qualified Options.  In the event that at any time after the
Effective Date the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split, stock dividend, combination of shares or the like, the Board shall
make appropriate and equitable adjustments to all Non Qualified Options then
outstanding as provided in Section 1.3.

 

(f)                                    Listing and Registration of Shares.  Each Non-Qualified Option shall be subject to
the requirement that if at any time the Board or the Committee determines, in
its discretion, that the listing, registration or qualification of the shares
subject to such Non-Qualified Option under any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
issue or purchase of shares thereunder, such Non-Qualified Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained and the same shall
have been free of any conditions not acceptable to  the Board.

 

2.4                               Option
Repricing.  The Board
or the Committee may, subject to stockholder approval and compliance with
applicable securities laws, grant to holders of outstanding Non-Qualified
Options, in exchange for the surrender and cancellation of such Non-Qualified
Options, new Non-Qualified Options having exercise prices lower (but not lower
than the FMV Per Share on the date of grant of the new Non-Qualified Option) or
higher (with any required consent from the holder) than the exercise price
provided in the Non-Qualified Options so

 

10

 

surrendered
and canceled and containing such other terms and conditions as the Board or the
Committee may deem appropriate, other than any changes, terms or conditions
that would cause the affected Non-Qualified Options to become subject to Section 409A
of the Code, whether by reason of an extension of the term, an additional
deferral feature, or otherwise.

 

2.5                               Vesting.  Subject to Sections 8.10 and 8.11, unless otherwise provided in an
Award, one-fourth
(1/4th) of the Options granted to a
Participant shall vest on each anniversary of the date of grant of such Options
until all Options are fully vested or any unvested Options are forfeited.

 

ARTICLE III

INCENTIVE STOCK OPTIONS

 

The terms specified in this ARTICLE
III shall be applicable to all Incentive Stock Options.  Except as modified by the provisions of this ARTICLE
III, all the provisions of ARTICLE II shall be applicable to
Incentive Stock Options.  Options which
are specifically designated as Non-Qualified Options shall not be subject to the terms of
this ARTICLE III.

 

3.1                               Eligibility.  Incentive Stock Options may only be granted
to Employees of the Company or its parent or subsidiary as defined in Sections
424(e) or (f) of the Code, as applicable, while each such entity is a
“corporation” described in Section 7701(a)(3) of the Code and Treas.
Reg. §1.421-1(i)(1).

 

3.2                               Exercise
Price.  Subject to Section 3.4,
the exercise price per share shall not be less than one hundred percent (100%)
of the FMV Per Share on the date of grant of the Incentive Stock Option.

 

3.3                               Dollar
Limitation.  The
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of shares of Common Stock for which one or more Options granted to any
Employee under the Plan (or any other option plan of the Company or any Affiliate
which is a parent or subsidiary as defined in Code Sections 424(e) or (f),
as applicable) may for the first time become exercisable as Incentive Stock
Options during any one (1) calendar year shall not exceed the sum of
$100,000.  To the extent the Employee
holds two (2) or more such Options which become exercisable for the first
time in the same calendar year, the foregoing limitation on the exercisability
of such Options as Incentive Stock Options shall be applied on the basis of the
order in which such Options are granted.

 

3.4                               10%
Stockholder.  If any
Employee to whom an Incentive Stock Option is granted owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or any “parent corporation” of the Company (as defined
in Section 424(e) of the Code) or any “subsidiary corporation” of the
Company (as defined in Section 424(f) of the Code), then the exercise
price per share under such Incentive Stock Option shall not be less than one hundred
ten percent (110%) of the FMV Per Share on the date of grant, and the Option
term shall not exceed five (5) years measured from the date of grant.  For purposes of the immediately preceding
sentence, the attribution rules under Section 424(d) of the Code
shall apply for purposes of determining an Employee’s ownership.

 

3.5                               Incentive
Stock Options Not Transferable.  No Incentive Stock Option granted hereunder (a) shall
be transferable other than by will or by the laws of descent and distribution

 

11

 

and
(b) except as permitted in regulations or other guidance issued under Section 422
of the Code, shall be exercisable during the Optionee’s lifetime by any person
other than the Optionee (or his guardian).

 

3.6                               Compliance
with Code Section 422.  All Options that are intended to be Incentive
Stock Options described in Code Section 422 shall be designated as such in
the Option grant and in all respects shall be issued in compliance with Code Section 422.

 

3.7                               Limitations
on Exercise.  No
Incentive Stock Option shall be exercisable more than three (3) months
after the Optionee ceases to be an Employee for any reason other than death or
Disability, or more than one (1) year after the Optionee ceases to be an
Employee due to death or Disability.

 

ARTICLE IV

AUTOMATIC DIRECTOR OPTION GRANT PROGRAM

 

4.1                               Terms
and Conditions of Non-Employee Director Options.  Non-Employee Director Options shall be
evidenced by Award Agreements specifying the number of shares of Stock covered
thereby, in such form as the Board shall from time to time establish.  Non-Employee Director Award agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the terms and conditions of ARTICLE II to the
extent not inconsistent with this ARTICLE IV and the following terms and
conditions.

 

4.2                               Automatic
Grant.  Subject to the execution by a
Non-Employee Director of an appropriate Award agreement, Options shall be
granted automatically and without further action of the Board, as follows:

 

(a)                                  Initial Option. 
Each person who first becomes a Non-Employee Director after the
Effective Date shall be granted on the date such person first becomes a
Non-Employee Director an Option to purchase 100,000 shares of Stock (an “Initial Option”).

 

(b)                                 Annual Option. 
Each Non-Employee Director shall be granted on the date of each annual
meeting of the stockholders of the Company which occurs on or after the
Effective Date (an “Annual Meeting”) immediately
following which such person remains a Non-Employee Director an Option to
purchase 50,000 shares of Stock (an “Annual Option”);
provided, however,
that a Non-Employee Director granted an Initial Option on, or within a period
of six (6) months prior to, the date of an Annual Meeting shall not be
granted an Annual Option pursuant to this Section with respect to the same
Annual Meeting.

 

(c)                                  Right to Decline Non-Employee Director
Option.  Notwithstanding the foregoing, any person may
elect not to receive a Non-Employee Director Option by delivering written
notice of such election to the Board no later than the day prior to the date
such Option would otherwise be granted. 
A person so declining a Non-Employee Director Option shall receive no
payment or other consideration in lieu of such declined Non-Employee Director
Option.  A person who has declined a
Non-Employee Director Option may revoke such election by delivering written
notice of such revocation to the Board no later than the day prior to the date
such Non-Employee Director Option would be granted pursuant to Section 4.2(a) or
(b), as the case may be.

 

12

 

4.3                               Exercisability
and Term of Non-Employee Director Options.  Each Non-Employee Director Option shall vest
and become exercisable as set forth below and shall, for such Options granted
after approval of this Plan by Company stockholders, terminate and cease to be
exercisable on the tenth (10th) anniversary of the date of grant of the Non-Employee Director Option,
unless earlier terminated in accordance with the terms of the Plan or the Award
agreement evidencing such Non-Employee Director Option.

 

(a)                                  Initial Options. 
Except as otherwise provided in the Plan or in the Award agreement
evidencing such Non-Employee Director Option, each Initial Option shall vest
and become exercisable in four (4) substantially equal installments on
each of the first four (4) anniversaries of the date of grant of the
Initial Option, provided that the Non-Employee Director’s Service has not
terminated prior to the relevant date.

 

(b)                                 Annual Options. 
Except as otherwise provided in the Plan or in the Award agreement
evidencing such Non-Employee Director Option, each Annual Option shall vest and
become exercisable in four (4) substantially equal installments on each of
the first four (4) anniversaries of the date of grant of the Annual
Option, provided that the Non-Employee Director’s Service has not terminated
prior to the relevant date.

 

4.4                               Effect
of Change of Control on Non-Employee Director Options.  In the event of a Change of Control, any
unexercisable or unvested portions of outstanding Non-Employee Director Options
held by Non-Employee Directors whose Service has not terminated prior to such
date shall be immediately exercisable and vested in full as of the date ten (10) days
prior to the date of the Change of Control. 
The exercise or vesting of any Non-Employee Director Option and any
shares acquired upon the exercise thereof that was permissible solely by reason
of this Section 4.4 shall be conditioned upon the consummation of
the Change of Control.  In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the “Acquiring
Corporation”), may either assume the Company’s rights and
obligations under outstanding Non-Employee Director Options or substitute for
outstanding Options substantially equivalent options for the Acquiring
Corporation’s stock.  Any Non-Employee
Director Options which are neither assumed nor substituted for by the Acquiring
Corporation in connection with the Change of Control nor exercised as of the
date of the Change of Control shall terminate and cease to be outstanding
effective as of the date of the Change of Control.  Notwithstanding the foregoing, if the
corporation the stock of which is subject to the outstanding Non-Employee
Director Options immediately prior to an event constituting a Change of Control
is the surviving or continuing corporation and immediately after such event
less than fifty percent (50%) of the total combined voting power of its voting
stock is held by another corporation or by other corporations that are members
of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code,
the outstanding Non-Employee Director Options shall not terminate.

 

ARTICLE
V

RESTRICTED STOCK

 

5.1                               Eligibility.  All Employees, Service Providers and
Non-Employee Directors shall be eligible for grants of Restricted Stock.

 

13

 

5.2                               Restrictions,
Restricted Period and Vesting.

 

(a)                                  Restrictions.  The Restricted Stock shall be subject to such
forfeiture restrictions (including, without limitation, limitations that
qualify as a “substantial risk of forfeiture” within the meaning given to that
term under Section 83 of the Code) and restrictions on transfer by the
Participant and repurchase by the Company as the Committee, in its sole
discretion, shall determine.  Prior to
the lapse of such restrictions, the Participant shall not be permitted to
transfer such shares.  The Company shall
have the right to repurchase or recover such shares for the lesser of (i) the
amount of cash paid therefor, if any, or (ii) the Fair Market Value of the
shares if (x) the Participant shall terminate Employment from, or services
to, the Company prior to the lapse of such restrictions under circumstances
that do not result in full vesting or (y) the Restricted Stock is
otherwise forfeited by the Participant pursuant to the terms of the Award.

 

(b)                                 Vesting.  Subject to Sections 8.10 and 8.11, unless otherwise provided in an Award, one-fourth (1/4th) of
the Restricted Stock granted to a Participant shall vest on each anniversary
date of the grant of such Restricted Stock until all Restricted Stock is fully
vested or any unvested Restricted Stock is forfeited.

 

(c)                                  Immediate Transfer Without Immediate Delivery of
Restricted Stock.  Each certificate representing Restricted
Stock awarded under the Plan shall be registered in the name of the Participant
and, during the Restricted Period, shall be left on deposit with the Company,
or in trust or escrow pursuant to an agreement satisfactory to the Committee,
along with a stock power endorsed in blank, until such time as the restrictions
on transfer have lapsed.  The grantee of
Restricted Stock shall have all the rights of a stockholder with respect to
such shares including the right to vote and the right to receive dividends or
other distributions paid or made with respect to such shares; provided, however,
that the Committee may in the Award restrict the Participant’s right to
dividends and voting until the restrictions on the Restricted Stock lapse.  Any certificate or certificates representing
shares of Restricted Stock (vested or unvested) shall bear a legend similar to
the following:

 

“The shares represented by
this certificate have been issued pursuant to the terms of the Valence
Technology, Inc. 2009 Equity Incentive Plan and may not be sold, pledged,
transferred, assigned or otherwise encumbered in any manner except as is set
forth in the terms of such award dated                               ,
20      .”

 

In addition, during any periods when Awards
of Restricted Stock are made and the Company does not have in place an
effective registration statement on Form S-8 or other available form
permitted by the Securities and Exchange Commission, any certificate or
certificates representing shares of Restricted Stock (vested or unvested) shall
bear a legend similar to the following:

 

“The shares represented by
this certificate have not been registered under the Securities Act of 1933, as
amended (the “Act”), or any other securities law.  No sale, transfer or other disposition of
such securities, or of any interest therein, may be made or shall be recognized
unless in the satisfactory written opinion of counsel for, or other counsel
satisfactory to, the issuer such transaction would not violate or require
registration under the Act or other law.”

 

5.3                               Forfeiture
of Restricted Stock.  If, for any
reason, the restrictions imposed by the Committee upon Restricted Stock are not
satisfied at the end of the Restricted Period, any

 

14

 

Restricted
Stock remaining subject to such restrictions shall thereupon be forfeited by
the Participant and reacquired by the Company at the lower of (a) the
price per share paid for such Restricted Stock (if any) by the Participant or (b) its
Fair Market Value on the date of forfeiture.

 

5.4                               Delivery
of Shares of Common Stock. 
Subject to the withholding and other requirements of ARTICLE VIII and provisions of the Award, at the
expiration of the Restricted Period, a stock certificate evidencing the
Restricted Stock (to the nearest full share) with respect to which the
Restricted Period has expired shall be delivered without charge to the
Participant, or his personal representative, free of all vesting restrictions
under the Plan, but subject to any restrictions under the Securities Act of
1933, as amended (the “Securities Act”),
or any other securities statute.

 

ARTICLE VI

PERFORMANCE AWARDS

 

6.1                               Performance
Awards.  To the extent the Committee
determines that any Award granted pursuant to this Plan shall be contingent
upon performance goals or shall constitute performance-based compensation for
purposes of Section 162(m) of the Code, the grant or settlement of
the Award shall, in the Committee’s discretion, be subject to the achievement
of performance goals determined and applied in a manner consistent with this Section 6.1.  The Committee may grant Performance Awards
based on performance criteria measured over a Performance Period.  The Committee may use such business criteria
and other measures of performance as it may deem appropriate in establishing
any performance conditions, and may exercise its discretion to increase the
amounts payable under any Award subject to performance conditions except as
limited under Section 6.2 hereof in the case of a Performance Award
granted to a Covered Employee.

 

6.2                               Performance
Goals.  The grant and/or settlement of
a Performance Award shall be contingent upon the terms set forth in this Section 6.2.

 

(a)                                  General. 
The performance goals for Performance Awards shall consist of one or
more business criteria and a targeted level or levels of performance with
respect to each such criterion, as specified by the Committee.  In the case of any Award granted to a Covered
Employee, performance goals shall be designed to be objective and shall otherwise
meet the requirements of Section 162(m) of the Code and regulations
thereunder (including Treas. Reg. §1.162-27 and successor regulations thereto),
including the requirement that the level or levels of performance targeted by
the Committee are such that the achievement of performance goals is “substantially
uncertain” at the time the Award is granted. 
The Committee may determine that such Performance Awards shall be
granted and/or settled upon achievement of any one performance goal or that two
or more of the performance goals must be achieved as a condition to the grant
and/or settlement of such Performance Awards. 
Performance goals may differ among Performance Awards granted to any one
Participant or for Performance Awards granted to different Participants.

 

(b)                                 Business
Criteria.  One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries, divisions or business or geographical units of the Company
(except with respect to the total stockholder return and earnings per share
criteria), shall be used by the Committee in establishing performance goals for
Performance Awards granted to a Participant:

 

15

 

	
   

  	
  (i)

  	
  stock price;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
  earnings per share;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
  increase in revenues;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv)

  	
  increase in cash flow;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (v)

  	
  increase in cash flow
  return;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vi)

  	
  return on net assets;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vii)

  	
  return on assets;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (viii)

  	
  return on investment;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ix)

  	
  return on capital;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (x)

  	
  return on equity;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xi)

  	
  economic value added;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xii)

  	
  gross margin;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xiii)

  	
  net income;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xiv)

  	
  pretax earnings;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xv)

  	
  pretax earnings before
  interest;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xvi)

  	
  pretax earnings before
  interest, depreciation and amortization;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xvii)

  	
  pretax operating earnings
  after interest expense and before incentives, service fees and extraordinary
  or special 

  	
   

  
	
  items;

  	
   

  
	
   

  	
  (xviii)

  	
  operating income;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xix)

  	
  total stockholder return;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xx)

  	
  debt reduction;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xxi)

  	
  increases in megawatts
  through new contract executions;

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xxii)

  	
  successful completion of
  an acquisition, initial public offering, private placement of equity or debt;
  or

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xxiii)

  	
  reduction of expenses.

  	
   

  

 

Any of the above goals may
be determined on the absolute or relative basis or as compared to the
performance of a published or special index deemed applicable by the Committee,
including, but not limited to, the Standard & Poor’s 500 Stock Index
or a group of

 

16

 

comparable
companies.  Performance targets may
include a minimum, maximum, target level and intermediate levels of
performance, with the final value of a Performance Award determined under the
applicable Performance Award formula by the level attained during the
applicable Performance Period.  A
Performance target may be stated as an absolute value or as a value determined
relative to a standard selected by the Committee.

 

(c)                                  Timing for
Establishing Performance Goals.  Performance
goals in the case of any Award granted to a Participant who is a Covered
Employee shall be established not later than 90 days after the beginning of any
Performance Period applicable to such Performance Awards, or at such other date
as may be required or permitted for “performance-based compensation” under Section 162(m) of
the Code.

 

(d)                                 Settlement of
Performance Awards; Other Terms.  After the end
of each Performance Period, the Committee shall determine the amount, if any,
of Performance Awards payable to each Participant based upon achievement of
business criteria over a Performance Period. 
The Committee may not exercise discretion to increase any such amount
payable in respect of a Performance Award to a Covered Employee that is designed
to comply with Section 162(m) of the Code.  The Committee shall specify the circumstances
in which such Performance Awards shall be paid or forfeited in the event of
termination of Employment by the Participant prior to the end of a Performance
Period or settlement of Performance Awards.

 

(e)                                  Written
Determinations.  All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award, and
the achievement of performance goals relating to Performance Awards shall be
made in writing in the case of any Award granted to a Participant.  The Committee may not delegate any
responsibility relating to Performance Awards discussed in this Section 6.2(e).

 

(f)                                    Status of
Performance Awards under Section 162(m) of the Code. 
It is the intent of the Company that Performance Awards granted to
persons who are designated by the Committee as likely to be Covered Employees
within the meaning of Section 162(m) of the Code and regulations
thereunder (including Treas. Reg. §1.162-27 and successor regulations thereto)
shall, if so designated by the Committee, constitute “performance-based
compensation” within the meaning of Section 162(m) of the Code and
regulations thereunder.  Accordingly, the
terms of this Section 6.2 shall be interpreted in a manner
consistent with Section 162(m) of the Code and regulations
thereunder.  If any provision of the Plan
as in effect on the date of adoption or any agreements relating to Performance
Awards that are designated as intended to comply with Section 162(m) of
the Code does not comply or is inconsistent with the requirements of Section 162(m) of
the Code or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements.

 

ARTICLE
VII
 OTHER STOCK OR PERFORMANCE-BASED AWARDS

 

The
Committee is hereby authorized to grant to Employees, Service Providers and
Non-Employee Directors “Other Stock or Performance-Based
Awards,” which shall
consist of a right which (a) is not an Award described in any other Article of
this Plan and (b) is denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to, shares of Common Stock
(including, without limitation, units or securities convertible into shares of
Common Stock) or cash as deemed by the Committee to be consistent with the
purposes of

 

17

 

this Plan. 
Subject to the terms of this Plan, the Committee shall determine the
terms and conditions of any such Other Stock or Performance-Based Awards, which
shall be contained in a written agreement or other document covering such
Awards.

 

ARTICLE VIII

CERTAIN PROVISIONS APPLICABLE TO ALL AWARDS

 

8.1                               General.  Awards shall be evidenced by a written
agreement or other document and may be granted on the terms and conditions set
forth herein.  In addition, the Committee
may impose on any Award or the exercise thereof, such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall determine, including terms requiring forfeiture of Awards in the event of
termination of employment by the Participant and terms permitting a Participant
to make elections relating to his or her Award; provided, however,
that any such election would not (i) cause the application of Section 409A
of the Code to the Award or (ii) create adverse tax consequences under Section 409A
of the Code should Section 409A apply to the Award.  The terms, conditions and/or restrictions
contained in an Award may differ from the terms, conditions and restrictions
contained in any other Award.  The Board
may amend an Award; provided, however,
that, subject to Section 8.11,
no amendment of an Award may, without the consent of the holder of the Award,
adversely affect such person’s rights with respect to such Award in any
material respect.  The Board or the
Committee shall retain full power and discretion to accelerate or waive, at any
time, any term or condition of an Award that is not mandatory under the Plan; provided, however,
that subject to Section 8.11,
the Board or the Committee shall not have the discretion to accelerate or waive
any term or condition of an Award if the Award is intended to qualify as “performance-based
compensation” for purposes of Section 162(m) of the Code and such
discretion would cause the Award not to so qualify.  Except in cases in which the  Board or the Committee is authorized to
require other forms of consideration under the Plan, or to the extent other
forms of consideration must be paid to satisfy the requirements of the Delaware
General Corporation Law, no consideration other than services may be required
for the grant of any Award.

 

8.2                               Stand-Alone,
Additional, Tandem and Substitute Awards.  Subject to Section 2.4, Awards
granted under the Plan may, in the discretion of the Board or the Committee, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Affiliate or any business entity to be acquired by the Company or
an Affiliate, or any other right of a Participant to receive payment from the
Company or any Affiliate; provided, however,
that no Award shall be issued under the Plan if issuance of the Award would
result in adverse tax consequences under Section 409A of the Code.  Such additional, tandem and substitute or
exchange Awards may be granted at any time. 
If an Award is granted in substitution or exchange for another Award, the
Board or the Committee shall require the surrender of such other Award for
cancellation in consideration for the grant of the new Award.  In addition, Awards may be granted in lieu of
cash compensation, including in lieu of cash amounts payable under other plans
of the Company or any Affiliate.  Any
such action contemplated under this Section 8.2 shall be effective
only to the extent that such action will not cause any Award that is subject to
Section 409A of the Code to result in adverse consequences under Section 409A
of the Code.

 

18

 

8.3          Term of Awards.  The term or Restricted Period of each Award
that is an Option or Restricted Stock shall be for such period as may be
determined by the Board or the Committee; provided, however, that in no event
shall the term of any such Award exceed a period of ten years (or such shorter
terms as may be required in respect of an Incentive Stock Option under Section 422
of the Code).

 

8.4          Form and Timing of
Payment under Awards; Deferrals. 
Subject to the terms of the Plan and any applicable Award agreement,
payments to be made by the Company or an Affiliate upon the exercise of an
Option or other Award or settlement of an Award may be made in a single payment
or transfer, or in installments.  The
settlement of any Award may, subject to any limitations set forth in the Award
agreement, be accelerated and cash paid in lieu of shares in connection with
such settlement, in the discretion of the Board or the Committee or upon
occurrence of one or more specified event.

 

8.5          Issuance of Restricted
Stock/Forfeiture.  After the
satisfaction of all of the terms and conditions set by the Committee with
respect to an Award of Restricted Stock, a certificate for the number of shares
that are no longer subject to such restrictions, terms and conditions shall be
delivered to the Employee.  The number of
shares of Common Stock which shall be issuable upon earning of an Award
denominated in cash shall be determined by dividing (A) by (B) where (A) is
the amount of Award that is earned and payable, as applicable, and (B) is
the FMV Per Share of Common Stock on the date the Award is earned and payable,
as applicable.  Upon termination,
resignation or removal of a Participant under circumstances that do not cause
such Participant to become fully vested, any remaining unvested Options, shares
of Restricted Stock, or other unvested Awards, as the case may be, shall either
be forfeited back to the Company or, if appropriate under the terms of the
Award, shall continue to be subject to the restrictions, terms and conditions
set by the  Committee with respect to
such Award.

 

8.6          Securities Requirements.  No shares of Common Stock will be issued or
transferred pursuant to an Award, including any repricing or exchange permitted
and effected hereunder, unless and until all then-applicable requirements
imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction and by any stock
market or exchange upon which the Common Stock may be listed, have been fully
met.  As a condition precedent to the
issuance of shares pursuant to the grant or exercise of an Award, the Company
may require the grantee to take any reasonable action to meet such
requirements.  The Company shall not be
obligated to take any affirmative action in order to cause the issuance or
transfer of shares pursuant to an Award to comply with any law or regulation
described in the second preceding sentence.

 

8.7          Transferability.

 

(a)           Non-Transferable Awards
and Options. 
Except as otherwise specifically provided in the Plan, no Award and no
right under the Plan, contingent or otherwise, other than Restricted Stock as
to which restrictions have lapsed, will be (i) assignable, saleable or
otherwise transferable by a Participant except by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order or (ii) subject
to any encumbrance, pledge or charge of any nature.  No transfer by will or by the laws of descent
and distribution shall be effective to bind the Company unless the Board or the
Committee shall have been furnished with a copy of the deceased Participant’s
will or such other evidence as the Board or the Committee may deem

 

19

 

necessary to establish the
validity of the transfer.  Any attempted
transfer in violation of this Section 8.7(a) shall be void and ineffective
for all purposes.

 

(b)           Ability to Exercise
Rights. 
Except as otherwise specifically provided under the Plan, only the
Participant or his guardian (if the Participant becomes Disabled), or in the
event of his death, his legal representative or beneficiary, may exercise
Options, receive cash payments and deliveries of shares or otherwise exercise
rights under the Plan.  The executor or
administrator of the Participant’s estate, or the person or persons to whom the
Participant’s rights under any Award will pass by will or the laws of descent
and distribution, shall be deemed to be the Participant’s beneficiary or
beneficiaries of the rights of the Participant hereunder and shall be entitled
to exercise such rights as are provided hereunder.

 

8.8          No Rights as a Stockholder.  Except as otherwise provided in Section 5.2(c),
a Participant who has received a grant of an Award or a transferee of such
Participant shall have no rights as a stockholder with respect to any shares of
Common Stock until such person becomes the holder of record.  Except as otherwise provided in Section 5.2(c),
no adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.

 

8.9          Listing and Registration
of Shares of Common Stock. 
The Company, in its discretion, may postpone the issuance and/or
delivery of shares of Common Stock upon any exercise of an Award until
completion of such stock exchange listing, registration or other qualification
of such shares under any state and/or federal law, rule or regulation as
the Company may consider appropriate, and may require any Participant to make
such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of the shares in
compliance with applicable laws, rules and regulations.

 

8.10        Termination of Employment,
Death, Disability and Retirement.

 

(a)           Termination of
Employment. 
Unless otherwise provided in the Award, if Employment of an Employee or
service of a Non-Employee Director is terminated for any reason whatsoever
other than death, Disability or Retirement, or if service of a Service Provider
is terminated for any reason whatsoever other than death, any unvested Award
granted pursuant to the Plan outstanding at the time of such termination and
all rights thereunder shall wholly and completely terminate and no further
vesting shall occur, and the Employee, Service Provider or Non-Employee
Director shall be entitled to exercise his or her rights with respect to the
portion of the Award vested as of the date of termination for a period that
shall end on the earlier of (i) the expiration date set forth in the Award
with respect to the vested portion of such Award or (ii) the date that
occurs three (3) months after such termination date.  In the event an Award issued under the Plan
is subject to Section 409A of the Code, then, to the extent necessary to
comply with the requirements of Section 409A of the Code, the definition
of “Separation from Service” provided for under Section 409A of the Code
and the regulations or other guidance issued thereunder shall be used in
determining whether an Employee’s Employment has been terminated or a
Non-Employee Directors or Service Provider’s service has been terminated.

 

(b)           Retirement.  Unless otherwise provided in the Award, upon
the Retirement of an Employee or, if applicable, Non-Employee Director:

 

20

 

(i)            any unvested portion of any outstanding Award shall
immediately terminate and no further vesting shall occur; and

 

(ii)           any vested Award shall expire on the earlier of (A) the
expiration date set forth in the Award or (B) the expiration of (1) twelve
(12) months after the date of Retirement in the case of any Award other than an
Incentive Stock Option and (2) three (3) months after the date of
Retirement in the case of an Incentive Stock Option.

 

(c)           Disability or Death.  Unless otherwise provided in the Award, upon
termination of Employment or service from the Company or any Affiliate that is
a parent or subsidiary of the Company as a result of Disability of an Employee
or Non-Employee Director or death of an Employee, Non-Employee Director or
Service Provider, or with respect to a Participant who is either a retired
former Employee or Non-Employee Director who dies during the period described
in Section 8.10(b),
hereinafter the “Applicable Retirement
Period,” or a disabled former Employee or
Non-Employee Director who dies during the period that expires on the earlier of
the expiration date set forth in any applicable outstanding Award or the first
anniversary of the person’s termination of Employment or service due to
Disability, hereinafter the “Applicable Disability
Period”:

 

(i)            any unvested portion of any outstanding Award that has
not already terminated shall immediately terminate and no further vesting shall
occur; and

 

(ii)           any vested Award shall expire upon the earlier of (A) the
expiration date set forth in the Award or (B) the later of (1) the
first anniversary of such termination of Employment as a result of Disability
or death or (2) the first anniversary of such person’s death during the
Applicable Retirement Period or the Applicable Disability Period.

 

(d)           Continuation.  Notwithstanding any other provision of the
Plan, the Board or the Committee, in its discretion, may provide for the
continuation of any Award for such period and upon such terms and conditions as
are determined by the Board or the Committee in the event that a Participant
ceases to be an Employee, Service Provider or Non-Employee Director, except to
the extent that such continuation would cause the Award to become subject to
the provisions of Section 409A of the Code or if the Award is intended to
qualify as “performance-based compensation” for purposes of Section 162(m) of
the Code and such continuation would cause the Award to not so qualify.

 

8.11        Change of Control.

 

(a)           Change of Control.  Unless otherwise provided in the Award, in
the event of a Change of Control, the Board shall have the authority in its
sole discretion to take any one or more of the following actions with respect
to the Awards:

 

(i)            the Board may accelerate vesting and the time at which
all Options then outstanding may be exercised so that those types of Awards may
be exercised in full for a limited period of time on or before a specified date
fixed by the Board or the Committee, after which specified date all unexercised
Options and all rights of Participants thereunder shall terminate, or the Board
or the Committee may accelerate vesting and the time at which Options may be
exercised so that those types of Awards may be exercised in full for their then
remaining term;

 

21

 

(ii)           the Board may waive all restrictions and conditions of all
Restricted Stock then outstanding with the result that those types of Awards
shall be deemed satisfied, and the Restricted Period or other limitations on
payment in full with respect thereto shall be deemed to have expired, as of the
date of the Change of Control or such other date as may be determined by the
Board;

 

(iii)          the Board may cause the acquirer to assume the Plan and the
Awards or exchange the Awards for awards for the acquirer’s stock; and

 

(iv)          the Board may terminate the Plan and all outstanding
unvested or unexercised Awards as of the date of the Change of Control.

 

(b)           Notwithstanding the above provisions
of this Section 8.11,
the Board shall not be required to take any action described in the preceding
provisions of this Section 8.11,
and any decision made by the Board, in its sole discretion, not to take some or
all of the actions described in the preceding provisions of this Section 8.11
shall be final, binding and conclusive with respect to the Company and all
other interested persons.

 

(c)           Right of Cash-Out.  The Board shall have the right for a forty-five
(45) day period immediately following the date that the Change of Control is
deemed to have occurred to require all, but not less than all, Participants to
transfer and deliver to the Company all Awards previously granted to the
Participants in exchange for an amount equal to the Cash Value (defined below)
of the Awards.  Such right shall be
exercised by written notice to all Participants.  For purposes of this Section 8.11, the “Cash Value” of an Award shall equal
the sum of (i) the cash value of all benefits to which the Participant
would be entitled upon settlement or exercise of any Award which is not an
Option or Restricted Stock and (ii) (A) in the case of any Award that
is an Option, the excess of the FMV Per Share over the option price or (B) in
the case of an Award that is Restricted Stock the FMV Per Share of Restricted
Stock, multiplied by the number of shares subject to such Award.  The amount payable to each Participant by the
Company pursuant to this Section 8.11(c) shall be in cash or by
certified check paid within five (5) days following the transfer and
delivery of such Award (but in no event later than fifty (50) days following
the date of the Change in Control) and shall be reduced by any taxes required
to be withheld.

 

(d)           Hostile Take-Over.  Notwithstanding the above provisions of this Section 8.11,
in the event of a Hostile Take-Over, the shares of Common Stock at the time
subject to each outstanding Option but not otherwise vested shall automatically
vest in full so that each such Option shall, immediately prior to date such
Hostile Take-Over is deemed to have occurred, become fully exercisable for all
of the shares of Common Stock at the time subject to such Option and may be
exercised for all or any of those shares as fully vested shares of Common
Stock.  Each such Option accelerated in
connection with a Hostile Take-Over shall remain exercisable until the
expiration or sooner termination of the Option term.  All outstanding repurchase rights related to
any outstanding Awards shall automatically terminate and the shares of Common
Stock subject to those terminated rights shall immediately vest in full in the
event of a Hostile Take-Over.  Upon the
occurrence of a Hostile Take-Over, within forty-five (45) days following such
Hostile Take-Over each Participant shall surrender to the Company each of his
or her outstanding Options or Awards (other than Restricted Stock) in exchange
for an amount equal to the Cash Value of such Option or Award (other than
Restricted Stock).  The amount

 

22

 

payable to each Participant
pursuant to this Section 8.11(d) shall be in cash or by
certified check paid within five (5) days following the surrender of the
Option or Award to the Company (but in no event later than fifty (50) days
following the date of the Hostile Take-Over) and shall be reduced by any taxes
required to be withheld.

 

8.12        First Refusal Rights.  If so provided in the Award agreement, the
Company shall have the right of first refusal with respect to any proposed
disposition by the Participant (or any successor in interest) of any shares of
Common Stock issued under the Plan.  Such
right of first refusal shall be exercisable and lapse in accordance with the
terms established by the Board or the Committee and set forth in the Award
agreement.

 

8.13        Lock-Up Agreement.  In the event of any underwritten public
offering of the Company’s securities made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Board and
the Committee shall have the right to impose market stand-off restrictions on
each Award recipient whereby such Participant shall not offer, sell, contract
to sell, pledge, hypothecate, grant any option to purchase or make any short
sale of, or otherwise dispose of any shares of stock of the Company or any
rights to acquire stock of the Company for such period of time from and after
the effective date of such registration statement as may be established by the
underwriter for such public offering; provided, however, that such period of time shall not exceed one
hundred eighty (180) days from the effective date of the registration statement
to be filed in connection with such public offering.  The foregoing limitation shall not apply to
shares registered in the public offering under the Securities Act.

 

8.14        Stockholder
Agreements/Investment Representations.  As a condition to the exercise of an Option
or the issuance of Common Stock hereunder, the Committee or the Board may
require the Participant to enter into such agreements (including but not
limited to a buy/sell or voting trust agreement) with respect to the shares as
may be required of other stockholders of the Company.  In addition, the Committee or the Board may
require the Participant to represent and warrant at the time of any such
exercise or issuance that the shares are being purchased only for investment
and without any present intention to sell or distribute such shares, if, in the
opinion of counsel for the Company, such a representation is required by any
relevant provisions of law.

 

8.15        Exemptions from Section 16(b) Liability.  It is the intent of the Company that the
grant of any Awards to or other transaction by a Participant who is subject to Section 16
of the Exchange Act shall be exempt from Section 16(b) of the
Exchange Act pursuant to an applicable exemption (except for transactions
acknowledged by the Participant in writing to be non-exempt).  Accordingly, if any provision of this Plan or
any Award agreement does not comply with the requirements of Rule 16b-3
under the Exchange Act as then applicable to any such transaction, such
provision shall be construed or deemed amended to the extent necessary to
conform to the applicable requirements of Rule 16b-3 so that such
Participant shall avoid liability under Section 16(b).

 

ARTICLE IX

WITHHOLDING FOR TAXES

 

Any issuance of Common Stock
pursuant to the exercise of an Option or in payment of any other Award under
the Plan shall not be made until appropriate arrangements satisfactory to the
Company have been made for the payment of any tax amounts (federal, state,
local or other)

 

23

 

that
may be required to be withheld or paid by the Company with respect thereto at
the minimum statutory rate.  Such
arrangements may, at the discretion of the Board or the Committee, include
allowing the person to tender to the Company shares of Common Stock owned by
the person if such tendered shares of Common Stock have been held by such
person for at least six months, or to request the Company to withhold shares of
Common Stock being acquired pursuant to the Award, whether through the exercise
of an Option or as a distribution pursuant to the Award, which have an
aggregate FMV Per Share as of the date of such withholding that is not greater
than the sum of all tax amounts to be withheld with respect thereto, together
with payment of any remaining portion of such tax amounts in cash or by
certified check payable and acceptable to the Company. Notwithstanding the
foregoing, if on the date of an event giving rise to a tax withholding
obligation on the part of the Company the person is an officer or individual
subject to Rule 16b-3 under the Exchange Act, such person may direct that
such tax withholding be effectuated by the Company withholding the necessary
number of shares of Common Stock (at the tax rate required by the Code) from
such Award payment or exercise.

 

ARTICLE X

MISCELLANEOUS

 

10.1        No Rights to Awards or
Uniformity Among Awards.  No
Participant or other person shall have any claim to be granted any Award; there
is no obligation for uniformity of treatment of Participants, or holders or
beneficiaries of Awards; and the terms and conditions of Awards need not be the
same with respect to each recipient.

 

10.2        Conflicts with Plan.  In the event of any inconsistency or conflict
between the terms of the Plan and an Award, the terms of the Plan shall govern.

 

10.3        Rights as Employee,
Consultant or Director.  No
person, even though eligible under this Plan, shall have a right to be selected
as a Participant (except in the case of the automatic option grant program for
Non-Employee Directors under ARTICLE IV), or, having been so selected,
to be selected again as a Participant (except in the case of the automatic
option grant program for Non-Employee Directors under ARTICLE IV).  Nothing in the Plan or any Award granted
under the Plan shall confer on any Participant a right to remain an Employee,
Service Provider or Director, or interfere with or limit in any way any right
of the Company or its Affiliates to terminate the Participant’s Service at any
time.  To the extent that an Employee of
an Affiliate other than the Company receives an Award under the Plan, the Award
can in no event be understood or interpreted to mean that the Company is the
Employee’s employer or that the Employee has an employment relationship with
the Company.

 

10.4        Governing Law.  The validity, construction and effect of the
Plan and any rules and regulations relating to the Plan shall be determined
in accordance with applicable federal law and the laws of the State of
Delaware, without regard to any principles of conflicts of law.

 

10.5        Gender, Tense and Headings.  Whenever the context requires such, words of
the masculine gender used herein shall include the feminine and neuter, and
words used in the singular shall include the plural.  Section headings as used herein are
inserted solely for convenience and reference and constitute no part of the
Plan.

 

10.6        Severability.  If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or as to any Participant or

 

24

 

Award,
or would disqualify the Plan or any Award under any law deemed applicable by
the Board or the Committee, such provision shall be construed or deemed amended
as necessary to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Board or the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Participant or Award, and the remainder of the Plan
and any such Award shall remain in full force and effect.

 

10.7        Other Laws.  The Board or the Committee may refuse to
issue or transfer any shares or other consideration under an Award if, acting
in its sole discretion, it determines that the issuance or transfer of such
shares or such other consideration might violate any applicable law.

 

10.8        Unfunded Obligations.  Any amounts payable to Participants pursuant
to the Plan shall be unfunded and unsecured obligations for all purposes.  Except as provided under  ARTICLE V of the Plan with respect
to the delivery of stock certificates, no provision of the Plan shall require
or permit the Company or any Affiliates, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust
or other entity to which contributions are made or otherwise to segregate any
assets, nor shall the Company nor any Affiliates maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes.  Participants shall have no rights under the
Plan other than as general unsecured creditors of the Company, except that
insofar as they may have become entitled to payment of additional compensation
by performance of services, they shall have the same rights as other Employees,
Service Providers or Non-Employee Directors under general law.  The Company shall retain at all times
beneficial ownership of any investments, including trust investments, which the
Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or
maintenance of any trust or any Participant account shall not create nor
constitute a trust or fiduciary relationship between the Committee or any
Affiliate and a Participant, nor otherwise create any vested or beneficial
interest in any Participant nor the Participant’s creditors in any assets of
the Company or any Affiliate.  The
Participants shall have no claim against any Affiliate for any changes in the
value of any assets which may be invested or reinvested by the Company with
respect to the Plan.  The Plan shall not
constitute an “employee benefit plan” for purposes of Section 3(3) of
ERISA.

 

10.9        No Guarantee of Tax
Consequences.  The Participant
shall be solely responsible for and liable for any tax consequences (including
but not limited to any interest or penalties) as a result of participation in
the Plan. Neither the Board, nor the Company nor the Committee makes any
commitment or guarantee that any federal, state or local tax treatment will
apply or be available to any person participating or eligible to participate
hereunder and assumes no liability whatsoever for the tax consequences to the
Participants.

 

10.10      Stockholder Agreements.  The Board of the Committee may, from time to
time, condition the grant, exercise or payment of any Award upon such
Participant entering into a stockholders’ agreement, voting agreement,
repurchase agreement or lockup or market standoff agreement in such form or
forms as approved from time to time by the Board.

 

10.11      Specified Employee under Section 409A
of the Code.  Subject to any
other restrictions or limitations contained herein, in the event that a “specified
employee” (as defined

 

25

 

under
Section 409A of the Code) becomes entitled to a payment under the Plan
that is subject to Section 409A of the Code on account of a “separation
from service” (as defined under Section 409A of the Code), such payment
shall not occur until the date that is six months plus one day from the date of
such “separation from service.”  Any
amount that is otherwise payable within the 6-month period described herein
will be aggregated and paid in a lump sum amount with interest at the prime
rate as reported in The Wall Street Journal.

 

10.12      No Additional Deferral
Features.  No Award shall
contain or reflect, or be amended or affected or supplemented by any other
agreement to contain or to be part of, a “deferral feature” or an “additional
deferral feature” within the meaning and usage of those terms under Section 409A
of the Code and the Treasury Regulations and other administrative guidance
thereunder.

 

[END
OF 2009 EQUITY INCENTIVE PLAN]

 

26Exhibit 10.5

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) dated as of May 14, 2007
is entered between Montpelier Re Holdings Ltd. (“Montpelier
Holdings” and, collectively, with its subsidiaries and affiliated
companies, the “Company”), and Stanley J. Kott
(the “Executive”).

 

WHEREAS, the Company and the Executive wish to enter
into an employment agreement whereby the Executive shall be employed by the
Company in accordance with the terms and conditions stated below.

 

NOW, THEREFORE, the parties hereby agree as follows:

 

ARTICLE 1

EMPLOYMENT, DUTIES AND RESPONSIBILITIES

 

Section 1.01.  Employment.  The Executive shall serve as Chief
Executive Officer of Montpelier Underwriting Inc. (“MUI”),
an entity within the Company; provided, however,
that Montpelier Holdings reserves the right to change the entity that employs
the Executive, and correspondingly the Executive’s title, based on the need of
the Company’s growing international infrastructure to comply with various
regulatory and tax regimes; and provided further
that the Executive may be concurrently employed by two entities within the
Company.  The Executive acknowledges that
such employment commenced as of the Commencement Date (as defined below).

 

Section 1.02.  Duties and Responsibilities.  (a)  The Executive shall
report to the President and Chief Executive Officer of Montpelier
Holdings.  Regardless of the entity or
entities that employ(s) the Executive, the Executive’s responsibilities
shall be commensurate with those of executives who occupy chief executive
positions at similarly situated companies.

 

(b)        The Executive shall devote substantially
all of his business time and services to the Company’s business and affairs and
shall perform faithfully the duties reasonably assigned to him to the best of
his ability.  In addition, and as set
forth in greater detail in Article 4, the Executive agrees to be subject
to covenants regarding non-competition and non-solicitation, confidentiality,
untrue statements, intellectual property and nondisparagement.  The Executive agrees that all of his
activities as an employee of the Company shall be in material compliance with
all policies, rules and regulations of the Company and whichever Company
entity(ies) serve(s) as his employer. 
The Executive acknowledges that he has reviewed and acknowledged in
writing the requisite company employee handbook(s), the terms of which are incorporated by reference in this Agreement, and Montpelier
Holdings’ Code of Conduct and Ethics, as each may be amended from time to time.

 

 

(c)           The Executive shall work in various
locations, including but not limited to MUI’s main office in Hartford,
Connecticut, the Executive’s home in Auburn, New York and such other offices of
the Company in the United States as may be established from time to time.  The Executive shall make himself available to
attend meetings and participate in conference calls at various other locations
and at such times as may be reasonably required.

 

ARTICLE 2

TERM

 

Section 2.01.  Term.  The term of the Executive’s employment
pursuant to this Agreement (the “Term”)
commenced on May 13, 2007 (the “Commencement Date”)
and shall continue for a period of five (5) years from the Commencement
Date.

 

ARTICLE 3

COMPENSATION, BENEFITS AND EXPENSES

 

Section 3.01.  Salary and Benefits.  As compensation and consideration
for the performance by the Executive of his obligations under this Agreement,
the Executive shall be entitled to the following during the Term (subject, in
each case, to the provisions of Article 5).

 

(a)        The Company shall pay the Executive a base salary during the
Term at the rate of US$425,000 per
year, payable monthly in arrears or as outlined in applicable payroll
processes once they have been established.

 

(b)        Beginning with the 2007 year, the Executive shall be entitled
to participate in the MUI Annual Bonus Plan, based upon the performance of
MUI.  The Executive shall be eligible to
receive an annual bonus in an amount of 30% of the MUI pool, based upon his
personal performance; provided that,
in respect of each of the 2007 and 2008 years, the Executive shall be eligible
for a guaranteed minimum bonus equal to 20% of his base salary. At the
discretion of the board and shareholders of MUI and subject to authorization by
the board of Montpelier Holdings, such bonus may be paid in all cash or part
cash and part stock, subject to vesting requirements.  The Executive shall be paid his bonus at the
same time annual bonuses are generally paid to other executives of MUI and, in
any event, no later than March 15 of the year immediately following the
year in respect of which the bonus is being paid; provided
that the Executive is actively employed within the Company on the date that
annual bonuses are paid and has not given or received any notice of termination
of employment.

 

(c)        The Executive shall be entitled to welfare and retirement
benefits (excluding his vacation and sick leave entitlement) in an amount of up
to

 

2

 

US$100,000.  This entitlement shall be comprised of a
package of life insurance policies, long-term care benefits covering the
Executive and his spouse and disability policies, as well as company
contributions to a deferred income fund and a defined contribution plan.  The Executive and the Company anticipate that
the annual cost for some of these benefits (e.g., long-term
care benefits, disability policies and, to the extent the Executive is able to
participate in one, a 401(k) plan) shall increase over time, thereby
reducing the annual cost of other benefits (e.g., company
contributions to a deferred income fund) borne by the Company.

 

(d)        In addition to ten (10) paid public U.S. holidays, the
Executive’s vacation entitlement shall be thirty (30) working days per calendar
year (prorated according to the Commencement Date) as set out in the MUI
employee handbook.  The Executive shall
also be entitled to up to ten (10) sick leave days (prorated according to
the Commencement Date) as set out in the MUI employee handbook.

 

Section 3.02.  Long-Term Incentive Plan.  The Executive shall be
granted a one-time award of restricted stock units (“RSUs”)
representing the value of 100,000 common shares of Montpelier Holdings,
pursuant to Montpelier Holdings’ Long-Term Incentive Plan (“LTIP”), which became effective on May 23, 2007.  This award shall be made as soon as
reasonably practicable, subject to the approval of Montpelier Holdings’
Compensation and Nominating Committee (the “Committee”),
and shall vest pro rata over five (5) years,
beginning with the first anniversary of the Commencement Date. The shares
underlying the RSUs shall not be transferable until the fifth anniversary of
the Commencement Date.  In the event the
one-time award of RSUs is not made to the Executive on a timely basis, the
Executive shall receive, in lieu of such RSUs, on each anniversary of the
Commencement Date for a five (5) year period beginning on the Commencement
Date, an amount in cash equal to one-fifth of the value of the common shares
underlying such RSUs, measured as of the Commencement Date; provided that the Executive is actively employed within the
Company on the date of such cash payment and has not given or received any
notice of termination of employment. 
Beginning with the 2008 year, subject to satisfactory performance and
the approval of the Committee, the Executive shall be eligible for
participation in the LTIP at a level and with terms and conditions that are
commensurate with those generally of other executives of the Company.

 

Section 3.03.  Expenses.  The Company shall reimburse the Executive for all reasonable travel,
hotel and other out-of-pocket expenses which are properly incurred by the
Executive in or about the performance of his duties hereunder and for which
receipts (if so required) are provided to the Company’s reasonable satisfaction.

 

3

 

ARTICLE 4

COVENANTS

 

Section 4.01. 
Non-competition; Non-solicitation.  Since
the Executive has obtained in the course of his employment on and after the
Commencement Date and is likely to obtain in the course of his employment
hereunder knowledge of the trade secrets and also other confidential
information in regard to the business of the Company and of any of the entities
within the Company with which he becomes associated, the Executive hereby
agrees with the Company that he shall not in Bermuda, the United States of
America, the United Kingdom or the European Union:

 

(a)        During the Executive’s
employment within the Company and the period of twelve (12) months following
the termination of his employment for any reason other than as a result of his
death (the “Relevant Period”), either on his
own account or for any other person, firm or entity, directly or indirectly be
engaged in or concerned with any business or undertaking which is engaged in or
carries on in Bermuda, the United States of America, the United Kingdom or the
European Union any insurance business which competes or seeks to compete with
the business carried on by the Company at the date of termination.

 

(b)        During the Executive’s
employment within the Company and the Relevant Period, either on his own
account or for any other person, firm or company, directly or indirectly
solicit, interfere with or endeavour to entice away from the Company the
business of any person, firm or entity that was a customer or client in the
habit of dealing with the Company or that was to the Executive’s knowledge
negotiating with the Company in relation to all or part of its business.

 

(c)        During the Executive’s
employment within the Company and the Relevant Period, either on his own
account or for any other person, firm or entity, solicit the services of or
recruit, hire or employ or endeavour to entice away from the Company any
director, employee or other personnel of the Company (whether or not such
person would commit any breach of his or her agreement of employment or other
service by reason of leaving the service of the Company), nor shall the
Executive knowingly employ or aid or assist in or procure the employment by any
other person, firm or entity of any such person.

 

Section 4.02. 
Confidentiality.  (a)  The Executive shall not either during the continuance
of his employment hereunder (otherwise than in the proper performance of his
duties hereunder) or at any time after the termination thereof divulge to any
person whomsoever and shall use his reasonable endeavours to prevent the
publication or disclosure of any trade secret or other confidential information
concerning the business, finances, accounts, dealings, transactions or affairs
of the Company or of any of its clients entrusted to him or arising or coming
to his knowledge during the course of his employment hereunder or otherwise.

 

4

 

(b)        The
Executive shall upon the termination of his employment hereunder immediately
deliver up to the Company all fee schedules, lists of clients, correspondence
and other documents, papers and property belonging to the Company or related to
any of the matters referred to in Section 4.02(a) which may have been
prepared by him or have come into his possession in the course of his
employment hereunder and shall not retain any copies thereof.

 

Section 4.03. Untrue Statements. 
The Executive agrees to not knowingly at any time make any untrue statement
in relation to the Company and, in particular, to not after the termination of
his employment wrongfully represent himself as being employed by or connected
with the Company.

 

Section 4.04.  Company Work-Product.  The Executive agrees to disclose
fully to the Company, and to assign and transfer to the Company immediately
upon origination or acquisition thereof, the right, title and interest in and
to any and all inventions, discoveries, improvements, innovations, copyrights,
trademarks, trade secrets and/or designs (“Work Product”)
made, discovered, developed or secured by the Executive, solely or jointly with
others or otherwise, either:

 

(a)        During the period of the Executive’s
services with the Company, if such Work Product is related, directly or
indirectly, to the business of, or to the research or development work of, the
Company;

 

(b)        With the use of the time, materials,
whether tangible or intangible, or facilities of the Company; or

 

(c)        Within the Relevant Period if conceived
as a result of and attributable to work done during such employment and relates
to a method, substance, article, procedure and/or process within the scope of
the business of the Company, together with rights to all intellectual property
rights which may be granted thereon.

 

Immediately upon making, discovering,
developing or securing any such Work Product, the Executive shall notify the
Company and shall execute and deliver to the Company, without further
compensation, such documents as may be necessary to prepare or prosecute
applications for such Work Product and to assign and transfer to the Company
the Executive’s right, title and interest in and to such Work Product and
intellectual property rights thereof. 
The Executive acknowledges that he has carefully read and considered the
provisions of this Section 4.04 and, having done so, agrees that the
restrictions set forth herein are fair and reasonable and are reasonably
required for the protection of the interests of the Company, its officers,
directors and other employees.

 

Section 4.05.  Nondisparagement.  During the Executive’s employment
within the Company and the period ending on the third anniversary of the date on which the Executive’s
employment terminates for any reason, (i) the Executive

 

5

 

agrees not to make or cause any other person
or entity to make any statement which disparages the Company in writing, orally
or otherwise, and (ii) the Company shall direct the executive officers and
directors not to make any statement which disparages the Executive in writing,
orally or otherwise.

 

Section 4.06.  Remedies.  If any provision contained in this
Article 4 shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement, but such provision shall be
amended or deemed amended to apply as to such maximum time and to such maximum
extent as determined to be valid, binding and enforceable. The provisions of
this Article 4 shall survive any termination of this Agreement pursuant to
Article 5.  The Executive
acknowledges and agrees that the Company’s remedies at law for a breach or
threatened breach of any of the provisions of Article 4 would be
inadequate and, in recognition of this fact, agrees that, in the event of such
a breach or threatened breach, in addition to any remedies at law, the Company,
without posting any bond, shall be entitled to obtain equitable relief in the
form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may be then available.

 

ARTICLE 5

TERMINATION

 

Section 5.01.  Notice of Termination.  In the event that the Company terminates the
employment of the Executive during the Term, the Company shall give the
Executive twelve (12) months’ advance written notice.  In the event that the Executive terminates
his employment during the Term, the Executive shall give the Company six (6) months’
advance written notice.  Notwithstanding
the foregoing:

 

(a)        The period of notice may be waived either in whole or partly
by mutual agreement of the Executive and the Company.

 

(b)        During the period of notice, the Executive shall continue to
be paid his base salary, but shall not be eligible for any annual bonus or
accrual of vacation or sick leave.  In
lieu of such period of notice, and at the Company’s discretion, the Executive
may receive a lump sum payment in cash.

 

(c)        The Company may terminate the Executive’s employment immediately
in the event that the Executive commits any act of gross default, serious
misconduct, dishonesty or fraud resulting in serious harm or injury either to
the reputation or business of the Company, or the clients of the Company.

 

Section 5.02.  Death.  In the event the Executive dies
during the Term, this Agreement and the Executive’s employment shall
automatically terminate, such termination to be effective on the date of the
Executive’s death.

 

6

 

Section 5.03.  Disability.  In the event that the Executive
shall suffer a medical disability which prevents him from performing
satisfactorily any of his obligations hereunder for a period of at least one
hundred eighty (180) consecutive days, the Company shall have the right to
terminate this Agreement and the Executive’s employment, such termination to be
effective upon the giving of notice thereof to the Executive in accordance with
Section 6.06.

 

Section 5.04.  Effect of Termination.  (a)  In the event of termination of the
Executive’s employment, whether before or after the Term, by either party for
any reason, or by reason of the Executive’s death or disability, the Company
shall pay to the Executive (or his beneficiary in the event of his death) any
base salary earned but not paid to the Executive prior to the effective date of
such termination.

 

(b)        During the Term, the Executive shall be eligible to
participate in the Montpelier Re Holdings Ltd. Severance Plan (the “Severance Plan”) as a Group B Executive (as defined in the
Severance Plan).  Payment of a severance
benefit under the Severance Plan shall be subject to and conditioned upon the
Executive’s execution of a separation agreement and general release under which
the Executive agrees to a general release of all claims against the
Company.  Under the Severance Plan, the
Committee shall have complete discretion to determine the form of that release.

 

(c)        Upon the termination
of this Agreement howsoever arising, the Executive shall at any time or from
time to time thereafter upon the request of the Company resign, without claim
for compensation for loss of office, as a director of the Company and such
offices held by him in the Company as may be so requested and, should he fail
to do so, the Company is hereby irrevocably authorized to appoint some person
in his name and on his behalf to sign and do any documents or things necessary
or requisite to give effect thereto.

 

ARTICLE 6

MISCELLANEOUS

 

Section 6.01.  Benefit Assignment;
Beneficiary.  This Agreement
shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including any entity or person which may acquire all or
substantially all of the Company’s assets or business, or with or into which
the Company may be consolidated or merged. 
This Agreement shall also inure to the benefit of, and be enforceable
by, the Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If the Executive should die while any amount
would still be payable to the Executive hereunder if he had continued to live,
all such amounts shall be paid in accordance with the terms of this Agreement
to the Executive’s beneficiary,

 

7

 

devisee, legatee or other designee, or if
there is no such designee, to the Executive’s estate.

 

Section 6.02.  No Violation.  The Executive represents and
warrants that:

 

(a)        The Executive is not subject to any employment agreement or
understanding with any prior employer or any other person, entity or
organization that restricts the Executive’s ability to negotiate or execute the
terms of this Agreement or that prevents the Executive from entering into
employment within the Company as of the Commencement Date;

 

(b)        The Executive does not possess any material, tangible,
confidential or proprietary information belonging to any prior employer or its
affiliates;

 

(c)        The Executive has not made any material misrepresentation or
omission in the course of his offer of employment within the Company; and

 

(d)        No representations were made to the Executive concerning his
offer of employment within the Company or the terms or conditions of his
employment within the Company.

 

Section 6.03.  Confidential Terms.  Without limiting the generality of
Section 4.02, the terms of this Agreement are strictly confidential, and
the Executive agrees not to disclose the contents to any person or entity
except to his spouse, attorney or financial or tax advisor.  If the Executive discloses the contents of
this Agreement other than as permitted by this Section 6.03 without prior
authorization, the Company reserves the right to rescind all of the terms of
this Agreement and subject the Executive to disciplinary action, including
termination of the Executive’s employment.

 

Section 6.04.  Section 409A.  Notwithstanding any provision of
this Agreement to the contrary, if at the time of the termination of the
Executive’s employment the Executive is a “specified employee” (as defined in Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”)),
the Executive shall not be entitled to any payments upon such termination until
the earlier of (i) the date which is 6 months after his termination of
employment for any reason other than death or disability (as such term is used
in Section 409A(a)(2)(C) of the Code) or (ii) the date of his
death or disability (as such term is used in Section 409A(a)(2)(C) of
the Code).  The provisions of this Section 6.04
shall only apply if required to comply with Section 409A of the Code.  In addition, if any provision of this
Agreement would subject the Executive to any additional tax or interest under Section 409A
of the Code or any regulations or Treasury guidance promulgated thereunder,
then upon written request by the Executive, the Company shall reform such
provision; provided that the Company shall (i) maintain,
to the maximum extent practicable, the original intent of the applicable
provision without subjecting the Executive to such additional tax or interest;
and (ii) not incur any additional compensation expense as a result of such
reformation.

 

8

 

This Section 6.04 does not guarantee
that the amounts or benefits owed or that may be owed to the Executive under
this Agreement shall not be subject to Section 409A of the Code.

 

Section 6.05.  Withholding of Tax.  All payments made to the Executive
under this Agreement are subject to such withholdings of tax and other ordinary
employee deductions as may be required by law.

 

Section 6.06.  Notices.  Any notice required or permitted
hereunder shall be in writing and shall be sufficiently given if personally
delivered or if sent by telegram or telex or by registered or certified mail,
postage prepaid, with return receipt requested, addressed:

 

(a)        In the case of the Company, to Montpelier Re Holdings Ltd.,
Attention: General Counsel, or to such other address and/or to the attention of
such other person as the Company shall designate by written notice to the
Executive; and

 

(b)        In the case of the Executive, to the address appearing on the
employment records of the Company, from time to time, or to such other address
as the Executive shall designate by written notice to the Company.

 

Any notice given hereunder shall be deemed to have
been given at the time of receipt thereof by the person to whom such notice is
given.

 

Section 6.07.  Entire Agreement;
Amendment.  This Agreement
contains the entire agreement of the parties hereto with respect to the terms
and conditions of the Executive’s employment during the Term and supersedes any
and all prior agreements and understandings (including the offer letter dated May 11,
2007), whether written or oral, between the parties hereto with respect to the
subject matter herein.  This Agreement
may not be changed or modified except by an instrument in writing signed by
both of the parties hereto.

 

Section 6.08.  No Waiver.  No waiver by either party of any
breach by the other party of any condition or provision contained in this
Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time.  Any waiver must be in
writing.

 

Section 6.09.  Headings.  The article and section headings
herein are for convenience of reference only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

 

Section 6.10.  Governing Law.  This Agreement shall be governed
by, and construed and interpreted in accordance with, the internal laws of the
State of Connecticut without reference to the principles of conflict of laws.

 

9

 

Section 6.11.  Agreement to Take
Actions.  Each party hereto
shall execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.

 

Section 6.12.  Jurisdiction.  The Executive and the Company each
hereby irrevocably and unconditionally submit to:

 

(a)        Arbitration brought in the Hartford, Connecticut metropolitan
area in the resolution of any dispute arising out of or relating to this
Agreement, and

 

(b)        The non-exclusive jurisdiction of any Connecticut State court
or Federal court of the United States of America sitting in Hartford,
Connecticut, and any appellate court from any thereof for recognition or
enforcement of any arbitration decision. 
Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.

 

Section 6.13.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.

 

Section 6.14.  Survivorship.  The respective rights and
obligations of the parties hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.

 

Section 6.15.  Severability.  The invalidity or unenforceability
of any provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision or provisions of this Agreement, which
shall remain in full force and effect.

 

Section 6.16.  Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument.

 

10

 

IN WITNESS WHEREOF, each of the parties hereto has
duly executed this Agreement as of the date first above written.

 

	
   

  	
   

  	
  MONTPELIER
  RE HOLDINGS LTD

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  ANTHONY TAYLOR

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Anthony
  Taylor

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STANLEY
  J. KOTT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  STANLEY J. KOTT

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