Document:

Exhibit 10.3

 

EXECUTION

VERSION

 

CENTERPOINT PROPERTIES TRUST

 

Series D Flexible Cumulative Redeemable Preferred Shares

 

(Five-Year Initial Fixed Rate Period)

(Liquidation Preference $1,000 Per Share)

 

CALCULATION AGENT AGREEMENT

 

THIS AGREEMENT dated as of
December 14, 2004, among CenterPoint Properties Trust (hereinafter called
the “Company”), a Maryland real estate investment trust having its
principal office at 1808 Swift Road, Oak Brook, Illinois 60523, and SunTrust
Bank, a banking corporation organized and existing under the laws of the State
of Georgia (hereinafter sometimes called the “Calculation Agent,” which
term shall, unless the context shall otherwise require, include its successors
and assigns), having a principal corporate trust office at 919 East Main
Street, Richmond, Virginia 23219.

 

Recitals of the Company

 

The Company is issuing on
the date hereof 100,000 Series D Flexible Cumulative Redeemable Preferred
Shares (the “Shares”) (Five-Year Initial Fixed Rate Period) having a
liquidation preference equivalent to $1,000 per Share under the articles
supplementary dated as of December 9, 2004 (the “Articles Supplementary”)
of the Company.  Capitalized terms used
in this Agreement and not otherwise defined herein are used as defined in the
Articles Supplementary.

 

The Initial Distribution
Rate on the Shares will be 5.377% per annum from the date of original issuance
through December 14, 2009 (the “Initial Fixed Rate Period”).  Thereafter, the Distribution Rate for the
Shares may be at Fixed Rates determined through Remarketing of the Shares for
specific periods of varying lengths or may be at Floating Rates reset quarterly
equal to 1.85%, plus the Adjustable Rate. 
The Company desires to engage the Calculation Agent to perform certain
services in connection with the Shares while the Shares bear interest at
Floating Rates.

 

NOW IT IS HEREBY, AGREED
THAT:

 

1.  The Company hereby appoints
SunTrust Bank at its corporate trust office in Richmond, Virginia, as
Calculation Agent (in such capacity, the “Calculation Agent”) for the
Shares, upon the terms and subject to the conditions herein mentioned, and
SunTrust Bank hereby accepts such appointment. 
The Calculation Agent shall act as an agent of the Company for the
purpose of determining the Floating Rates on the Shares.

 

2.  The Company has delivered to
the Calculation Agent a copy of the form of the Series D Preferred Share
Certificate and copies of the Articles Supplementary, including copies of all
terms and conditions relating to the determination of the Floating Rates
thereunder.  The Calculation Agent hereby
acknowledges its receipt of and acceptance of the form of the Series D
Preferred Share Certificate and of the Articles Supplementary, to the extent
relating to the determination of the Floating Rates on the Shares.  The Company agrees to give the Calculation
Agent written notice of the commencement of a Floating Rate Period immediately
after the Company has determined that, or is aware that, such Floating Rate
Period is to commence.  The Calculation
Agent shall have no liability for any failure to determine a Floating Rate on a
timely basis if such written notice is given to it on or after the Distribution
Determination Date preceding the commencement of the first Distribution Period
in a new Floating Rate 

 

 

Period.  The Company agrees to give the Calculation
Agent prompt written notice of the termination of a Floating Rate Period.

 

3.  The Company hereby notifies
the Calculation Agent that the Shares are being issued on the date hereof and
acknowledges that it has delivered to the Calculation Agent the information, if
any, required to be provided by the Company for the calculation of the Floating
Rate thereunder.  The Calculation Agent
shall calculate the Floating Rate for the applicable Distribution Determination
Date as follows:

 

Except as provided below,
the Floating Rate for any Floating Rate Period for the Shares will be equal to
the Adjustable Rate (as defined below) plus 1.85%.

 

The “Adjustable Rate”
for any Distribution Period during a Floating Rate Period will be equal to the
highest of the 3-month LIBOR Rate, the 10-year Treasury CMT and the 30-year
Treasury CMT (each as defined below and collectively referred to as the “Benchmark
Rates”).  In the event that the
Calculation Agent determines in good faith that for any reason:

 

(1)                                  any
one of the Benchmark Rates cannot be determined for any Distribution Period,
the Adjustable Rate for such Distribution Period will be equal to the higher of
whichever two of such rates can be so determined;

 

(2)                                  only
one of the Benchmark Rates can be determined for any Distribution Period, the
Adjustable Rate for such Distribution Period will be equal to whichever such
rate can be so determined; or

 

(3)                                  none
of the Benchmark Rates can be determined for any Distribution Period, the
Adjustable Rate for the preceding Distribution Period will be continued for
such Distribution Period.

 

The “3-month LIBOR
Rate” means, for each Distribution Period, the arithmetic average of the
two most recent weekly quotes for deposits for U.S. Dollars having a term of
three months, as published on the first Business Day of each week during the
relevant Calendar Period (as defined below) immediately preceding the
Distribution Period for which the Floating Rate is being determined.  Such quotes will be taken from the Bloomberg
interest rate page most nearly corresponding to Telerate Page 3750 (or such
other page as may replace such page for the purpose of displaying comparable
rates) at approximately 11:00 a.m. London time on the Distribution
Determination Date.  If such rate does
not appear on the Bloomberg interest rate page most nearly corresponding to
Telerate Page 3750 (or such other page as may replace such page for the purpose
of displaying comparable rates) on the relevant date, the 3-month LIBOR Rate
will be the arithmetic mean of the rates quoted by three major banks in New
York City selected by the Calculation Agent, at approximately 11:00 a.m., New
York City time, on the Distribution Determination Date for loans in U.S. Dollars
to leading European banks for a period of three months.

 

The “10-year Treasury
CMT” means the rate determined in accordance with the following provisions:

 

(1)                                  With
respect to any Distribution Determination Date and the Distribution Period that
begins immediately thereafter, the 10-year Treasury CMT means the rate
displayed on the Bloomberg interest rate page most nearly corresponding to
Telerate Page 7051 containing the caption “...Treasury Constant Maturities... 

 

2

 

Federal Reserve
Board Release H.15...Mondays Approximately 3:45 p.m.,” and the column for the
Designated CMT Maturity Index (as defined below).

 

(2)                                  If
such rate is no longer displayed on the page referenced in (1) above, or is not
so displayed by 3:00 p.m., New York City time, on the applicable Distribution
Determination Date, then the 10-year Treasury CMT for such Distribution
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as is published in H.15(519).

 

(3)                                  If
such rate is no longer displayed on the page referenced in (1) above, or if not
published by 3:00 p.m., New York City time, on the applicable Distribution
Determination Date, then the 10-year Treasury CMT for such Distribution
Determination Date will be such constant maturity treasury rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the applicable Distribution Determination
Date with respect to such Distribution reset date as may then be published by
either the Board of Governors of the Federal Reserve System or the United
States Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Bloomberg interest rate page
most nearly corresponding to Telerate Page 7051 and published in H.15(519).

 

(4)                                  If
such information is not provided by 3:00 p.m., New York City time, on the
applicable Distribution Determination Date, then the 10-year Treasury CMT for
such Distribution Determination Date will be calculated by the Calculation
Agent and will be a yield to maturity, based on the arithmetic mean of the
secondary market offered rates as of approximately 3:30 p.m., New York City
time, on such Distribution Determination Date reported, according to their
written records, by three leading primary United States government securities
dealers in The City of New York (each, a “Reference Dealer”) selected by
the Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States (“Treasury Debentures”) with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year.

 

(5)                                  If
the Calculation Agent is unable to obtain three such Treasury Debentures
quotations, the 10-year Treasury CMT for the applicable Distribution
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity based on the arithmetic mean of the secondary market offered
rates as of approximately 3:30 p.m., New York City time, on the applicable
Distribution Determination Date of three Reference Dealers in The City of New
York (from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury Debentures with an original maturity of the number of
years that is the next highest to the Designated CMT Maturity Index and a
remaining term to maturity closest to the Designated CMT Maturity Index and in
an amount of at least $100 million.

 

3

 

(6)                                  If
three or four (and not five) of such Reference Dealers are quoting as set forth
above, then the 10-year Treasury CMT will be based on the arithmetic mean of
the offered rates obtained and neither the highest nor lowest of such quotes
will be eliminated; provided, however, that if fewer than three Reference
Dealers selected by the Calculation Agent are quoting as set forth above, the
10-year Treasury CMT with respect to the applicable Distribution Determination
Date will remain the 10-year Treasury CMT for the immediately preceding
Distribution Period.  If two Treasury
Debentures with an original maturity as described in the second preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, then the quotes for the Treasury Debentures with the shorter
remaining term to maturity will be used.

 

The “30-year Treasury
CMT” has the meaning specified under the definition of 10-year Treasury
CMT, except that the Designated CMT Maturity Index for the 30-year Treasury CMT
shall be 30 years.

 

The 3-month LIBOR Rate,
the 10-year Treasury CMT and the 30-year Treasury CMT shall each be rounded to
the nearest hundredth of a percent.

 

The Floating Rate with
respect to each Floating Rate Period will be calculated as promptly as
practicable by the Calculation Agent according to the appropriate method
described above.

 

“Bloomberg” means
Bloomberg Financial Markets Commodities News.

 

“Business Day”
means a day other than (i) a Saturday or a Sunday; (ii) a day on which banks in
New York, New York are authorized or obligated by law or executive order to
remain closed; or (iii) a day on which the Company’s principal executive office
is closed for business.

 

“Calendar Period”
means a period of 180 days.

 

“Designated CMT
Maturity Index” means the original period to maturity of the U.S. Treasury
securities (10 years) with respect to which the 10-year Treasury CMT will be
calculated.

 

“Telerate Page 3750”
means the display designated on page 3750 on MoneyLine Telerate (or such other
page as may replace the 3750 page on the service or such other service as may
be nominated by the British Bankers’ Association for the purpose of displaying
London interbank offered rates for U.S. dollar deposits).

 

“Telerate Page 7051”
means the display on MoneyLine Telerate (or any successor service), on such page
(or any other page as may replace such page on that service), for the purpose
of displaying Treasury Constant Maturities as reported in H.15(519).

 

4.  Promptly following the
determination of each change to the Floating Rate applicable to the Shares, the
Calculation Agent will cause to be forwarded to the Company information
regarding such Floating Rate.

 

5.  The Calculation Agent shall
be entitled to such compensation for its services under this Agreement as the
Calculation Agent and the Company may agree, and the Company shall pay such
compensation and shall reimburse the Calculation Agent for all reasonable
expenses, including fees and expenses of its counsel, disbursements and
advances incurred or made by the Calculation Agent in connection with the services
rendered by it under this Agreement, upon receipt of such invoices as the
Company shall reasonably require.

 

4

 

6.  Notwithstanding any
redemption of the Shares, the Company will indemnify the Calculation Agent and
its agents, custodians or nominees against any losses, liabilities, costs,
claims, actions or demands which it may incur or sustain or which may be made
against it in connection with its appointment or the exercise of its powers and
duties hereunder as well as the reasonable costs, including the reasonable
expenses and fees of counsel, in defending any claim, action or demand, except
such as may result from the gross negligence, willful misconduct or bad faith
of the Calculation Agent or any of its employees.  Except as provided in the preceding sentence,
the Calculation Agent and its agents, custodians and nominees shall incur no
liability and shall be indemnified and held harmless by the Company for, or in
respect of, any actions taken or suffered to be taken in good faith by the
Calculation Agent or its agents, custodians or nominees in reliance upon (i)
the written opinion or advice of counsel, or (ii) written instructions from the
Company.

 

7.  The Calculation Agent accepts
its obligations herein set forth upon the terms and conditions hereof,
including the following, to all of which the Company agrees:

 

(i)                                     in
acting under this Agreement, the Calculation Agent, acting as agent for the
Company, does not assume any obligation towards, or any relationship of agency
or trust for or with, any of the purchasers of the Shares;

 

(ii)                                  unless
herein otherwise specifically provided, any order, certificate, notice, request
or communication from the Company made or given under any provision of this Agreement
shall be sufficient if signed by any person whom the Calculation Agent
reasonably believes to be a duly authorized officer or attorney-in-fact of the
Company;

 

(iii)                               the
Calculation Agent shall be obligated to perform only such duties as are set forth
specifically herein, and no other duties or obligations on the part of the
Calculation Agent, in its capacity as such, shall be implied by this Agreement;

 

(iv)                              the
Calculation Agent shall be protected and shall incur no liability for or in
respect of any action taken or omitted to be taken or anything suffered by it
or its agents, custodians or nominees in reliance upon anything contained in
the Articles Supplementary or any information supplied to it in writing by the
Company pursuant to this Agreement, including the information supplied pursuant
to paragraph 3 above;

 

(v)                                 the
Calculation Agent, whether acting for itself or in any other capacity, may
become the owner or pledgee of Shares with the same rights as it would have had
if it were not acting hereunder as Calculation Agent;

 

(vi)                              the
Calculation Agent or its agents, custodians or nominees shall incur no
liability hereunder except for loss sustained by reason of its gross
negligence, willful misconduct or bad faith;

 

(vii)                           The
Calculation Agent shall have the right, but not the obligation, to consult with
counsel of its choice and shall not be liable for action taken or omitted to be
taken in accordance with the advice of such counsel, which may be in-house
counsel;

 

(viii)                        The
Calculation Agent shall have the right to perform any of its duties hereunder
through agents, custodians or nominees; and

 

(ix)                                in
no event shall the Calculation Agent or its agents, custodians or nominees be
liable for special, punitive, indirect or consequential loss or damage of any 

 

5

 

kind whatsoever
(including but not limited to lost profits) even if the Calculation Agent has
been advised of the likelihood of such loss or damage and regardless of the
form of action.

 

8.                                       (a)  The Calculation Agent or its agents,
custodians or nominees shall not be responsible to the Company or any third
party for any failure of any bank or financial institution selected by the
Calculation Agent for the purpose of quoting rates in accordance with the terms
of the Shares and the Articles Supplementary to fulfill their duties or meet
their obligations to provide such rates or as a result of the Calculation Agent
having acted (except in the event of gross negligence, willful misconduct or
bad faith) on any quotation or other information given by any such bank or
financial institution which subsequently may be found to be incorrect.

 

(b)  Except as
provided below, the Calculation Agent may at any time resign as Calculation
Agent by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective,
provided that such notice shall be given not less than 60 days prior to the
said effective date unless the Company otherwise agrees in writing.  Except as provided below, the Calculation
Agent may be removed by the filing with it of an instrument in writing signed
by the Company specifying such removal and the date when it shall become effective
(such effective date being at least 20 days after said filing).  Any such resignation or removal shall take
effect upon:

 

(i)                                     the
appointment by the Company as hereinafter provided of a successor Calculation
Agent; and

 

(ii)                                  the
acceptance of such appointment by such successor Calculation Agent;

 

provided,  however,
that in the event the Calculation Agent has given not less than 60 days’ prior
notice of its desired resignation, and during such 60 days there has not been
acceptance by a successor Calculation Agent of its appointment as successor
Calculation Agent, the Calculation Agent so resigning may petition any court of
competent jurisdiction for the appointment of a successor Calculation
Agent.  The Company covenants that it
shall appoint a successor Calculation Agent as soon as practicable after
receipt of any notice of resignation hereunder. 
Upon its resignation or removal becoming effective, the retiring
Calculation Agent shall be entitled to the payment of its compensation and the
reimbursement of all expenses (including reasonable counsel fees) incurred by
such retiring Calculation Agent pursuant to paragraph 5 hereof to the date such
resignation or removal becomes effective.

 

(c)  If at any
time the Calculation Agent (i) shall resign or be removed, or (ii) shall become
incapable of acting or shall be adjudged bankrupt or insolvent, or liquidated
or dissolved, or an order is made or an effective resolution is passed to wind
up the Calculation Agent, or if the Calculation Agent shall file a voluntary
petition in bankruptcy or make an assignment for the benefit of its creditors,
or shall consent to the appointment of a receiver, administrator or other
similar official of all or any substantial part of its property, or shall admit
in writing its inability to pay or meet its debts as they mature, or if a
receiver, administrator or other similar official of the Calculation Agent or
of all or any substantial part of its property shall be appointed, or if any
order of any court shall be entered approving any petition filed by or against
the Calculation Agent under the provisions of any applicable bankruptcy or
insolvency law, or if any public officer shall take charge or control of the
Calculation Agent or its property or affairs for the purpose of rehabilitation,
conservation or liquidation (the Calculation Agent hereby agreeing to give the
Company prompt notice of any of the foregoing events referred to in this clause
(ii)), then a successor Calculation Agent shall be appointed by the Company by
an instrument in writing filed with the successor Calculation Agent.  Upon the appointment as aforesaid of a successor

 

6

 

Calculation Agent and acceptance by the latter of such appointment, the
former Calculation Agent shall cease to be Calculation Agent hereunder.

 

(d)  Any
successor Calculation Agent appointed hereunder shall execute and deliver to
its predecessor and the Company an instrument accepting such appointment
hereunder, and thereupon such successor Calculation Agent, without any further
act, deed or conveyance, shall become vested with all the authority, rights,
powers, immunities, duties and obligations of such predecessor with like effect
as if originally named as the Calculation Agent hereunder, and such
predecessor, upon payment of its compensation, charges and disbursements then
unpaid, shall thereupon become obliged to transfer and deliver, and such
successor Calculation Agent shall be entitled to receive, copies of any
relevant records maintained by such predecessor Calculation Agent.

 

(e)  Any
corporation into which the Calculation Agent may be merged or converted or any
corporation with which the Calculation Agent may be consolidated or any
corporation resulting from any merger, conversion or consolidation to which the
Calculation Agent shall be a party or any corporation to which the Calculation
Agent may otherwise transfer all or substantially all of its corporate trust
business shall, to the extent permitted by applicable law, be the successor
Calculation Agent under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties hereto.  Prompt notice of any such merger, conversion,
consolidation or transfer shall forthwith be given to the Company.

 

(f)  The
provisions of paragraphs 5 and 6 hereof shall survive any resignation or
removal hereunder.

 

(g)  The
Calculation Agent shall not be responsible or liable for any failure or delay
in the performance of its obligations under this Agreement or arising out of or
caused directly or indirectly, by circumstances beyond its reasonable control,
including acts of God; earthquakes; fires; floods; wars; civil or military
disturbances; sabotage; epidemics; riot; interruptions, loss or malfunctions of
utilities, or communications service; accidents; labor disputes; acts of civil
or military authorities or governmental actions; it being understood that the
Calculation Agent shall use its best efforts to resume performance as soon as
practicable under the circumstances.

 

9.                                       Any
notice or other communication required to be given hereunder shall be delivered
in person against written receipt, sent by letter or facsimile or communicated
by telephone (subject, in the case of communication by telephone, to
confirmation dispatched within two business days by letter or facsimile), in
the case of the Company, to it at the address of the Company set forth in the
heading of this Agreement, Attention: Paul Fisher, President, Facsimile: (630)
586-8010; in the case of the Calculation Agent, to it at the address set forth
below; or, in any case, to any other address of which the party receiving
notice shall have notified the party giving such notice in writing.

 

Calculation Agent:                                            SunTrust
Bank

919 East Main Street

Richmond, Virginia 23219

Attention: Corporate Trust Department, Mail Code HDQ 5310

Telephone: (804) 782-5170

Facsimile (804) 782-7855

 

10.                                 This
Agreement may be amended only by a writing duly executed and delivered by each
of the parties signing below.

 

7

 

11.                                 The
provisions of this Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.

 

12.                                 This
Agreement may be executed in counterparts and the executed counterparts shall
together constitute a single instrument.

 

13.                                 Except
as provided herein, this Agreement is solely for the benefit of the parties
hereto and their successors and assigns and no other person shall acquire or
have any rights under or by virtue hereof (whether or not the Shares are
issued).

 

14.                                 The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.

 

8

 

EXECUTION

VERSION

 

 

IN WITNESS WHEREOF, this
Agreement has been executed and delivered as of the day and year first above
written.

 

 

	
   

  	
  CENTERPOINT PROPERTIES TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Michael Kraft

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael Kraft

  
	
   

  	
   

  	
  Title:

  	
  Vice President and 

  
	
   

  	
   

  	
   

  	
  Assistant Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SUNTRUST BANK, as Calculation Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Patricia A. Welling

  	
   

  
	
   

  	
   

  	
  Name: Patricia A. Welling

  
	
   

  	
   

  	
  Title: First Vice PresidentExhibit 10.21

 

KMG CHEMICALS, INC.

 

2004 LONG-TERM INCENTIVE PLAN

 

The
KMG Chemicals, Inc. 2004 Long-Term Incentive Plan (the “Plan”) was adopted by
the Board of Directors of KMG Chemicals, Inc., a Texas corporation (the “Company”), effective
as of October 14, 2004 (“Effective Date”), subject to approval by the Company’s
shareholders.

 

ARTICLE 1

PURPOSE

 

The
purpose of the Plan is to attract and retain the services of key employees, and
Outside Directors of the Company and its Subsidiaries and to provide such
persons with a proprietary interest in the Company through the granting of
incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, dividend
equivalent rights, and other awards, whether granted singly, or in combination,
or in tandem, that will:

 

(a)                                  increase the interest of such persons in the
Company’s welfare;

 

(b)                                 furnish an incentive to such persons to
continue their services for the Company; and

 

(c)                                  provide a means through which the Company may
attract able persons as employees, and Outside Directors.

 

With
respect to Reporting Participants, the Plan and all transactions under the Plan
are intended to comply with all applicable conditions of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended from time to time (the “1934 Act”).  To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed
advisable by the Committee.

 

ARTICLE 2

DEFINITIONS

 

For
the purpose of the Plan, unless the context requires otherwise, the following
terms shall have the meanings indicated:

 

2.1                                 “Award” means the grant of any Incentive Stock
Option, Nonqualified Stock Option, Reload
Stock Option, Restricted Stock, SAR, Restricted Stock Units, Performance
Award, Dividend Equivalent Right or Other Award, whether granted singly or in
combination or in tandem (each individually referred to herein as an “Incentive”).

 

2.2                                 “Award Agreement” means a written agreement
between a Participant and the Company which sets out the terms of the grant of
an Award.

 

2.3                                 “Award Period” means the period set forth in
the Award Agreement during which one or more Incentives granted under an Award
may be exercised.

 

 

2.4                                 “Board” means the board of directors of the
Company.

 

2.5                                 “Change in Control”
means the occurrence of the event set forth in any one of the following
paragraphs:

 

(i)                                     any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any securities acquired
directly from the Company or its Affiliates) representing 50% or more of the
combined voting power of the Company’s then outstanding securities, excluding
(a) any Person who becomes such a Beneficial Owner in connection with a
transaction described in clause (a) of paragraph (iii) below, (b) any Person
that, as of the Effective Date of the Plan, holds more than 50% of the combined
voting power of the Company’s then outstanding securities; or

 

(ii)                                  the following individuals cease for any
reason to constitute a majority of the number of directors then serving:  individuals who, on the Effective Date of
this Plan, constitute the Board and any new director (other than a director
whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company’s
shareholders was approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors on the
Effective Date of this Plan or whose appointment, election or nomination for
election was previously so approved or recommended; or

 

(iii)                               there is consummated a merger or
consolidation of the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (a) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof) at least 60% of the combined
voting power of the securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or consolidation or
(b) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company (not
including the securities Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates other than in connection
with the acquisition by the Company or its Affiliates of a business)
representing 50% or more of the combined voting power of the Company’s then
outstanding securities; or

 

(iv)                              the shareholders of the Company approve a
plan of complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets, other than a sale or disposition by
the Company of all or substantially all of the Company’s assets to an entity,
at least 60% of the combined voting power of the voting securities of which are
owned by shareholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.

 

For
purposes hereof:

 

2

 

“Affiliate” shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the 1934 Act.

 

“Beneficial Owner” shall have the meaning set forth in
Rule 13d-3 under the 1934 Act.

 

“Person” shall have the meaning given in Section 3(a)(9)
of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

 

2.6                                 “Code”  means the Internal Revenue Code of 1986, as
amended.

 

2.7                                 “Committee” means the committee appointed or
designated by the Board to administer the Plan in accordance with Article 3
of this Plan.

 

2.8                                 “Common Stock”  means the common stock, par value $0.01
per share, which the Company is currently authorized to issue or may in the
future be authorized to issue, or any securities into which or for which the
common stock of the Company may be converted or exchanged, as the case may be,
pursuant to the terms of this Plan.

 

2.9                                 “Company” means KMG Chemicals, Inc., a Texas
corporation, and any successor entity.

 

2.10                           “Corporation” means any entity that (i) is
defined as a corporation under Section 7701 of the Code and (ii) is the
Company or is in an unbroken chain of corporations (other than the Company) beginning
with the Company, if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing a majority of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.  For purposes of clause (ii)
hereof, an entity shall be treated as a “corporation” if it satisfies the
definition of a corporation under Section 7701 of the Code.

 

2.11                           “Date of Grant” means the effective date on
which an Award is made to a Participant as set forth in the applicable Award
Agreement; provided, however, that solely for purposes of Section 16 of
the 1934 Act and the rules and regulations promulgated thereunder, the Date of
Grant of an Award shall be the date of shareholder
approval of the Plan if such date is later than the effective date of such
Award as set forth in the Award Agreement.

 

2.12                           “Dividend Equivalent Right” means the right of
the holder thereof to receive credits based on the cash dividends that would
have been paid on the shares of Common Stock specified in the Award if such
shares were held by the Participant to whom the Award is made.

 

2.13                           “Employee” means a common law employee (as
defined in accordance with the Regulations and Revenue Rulings then applicable
under Section 3401(c) of the Code) of the Company or any Subsidiary of the
Company.

 

3

 

2.14                           “Executive Officer” means an officer of the
Company or a Subsidiary subject to Section 16 of the 1934 Act or a “covered
employee” as defined in Section 162(m)(3) of the Code.

 

2.15                           “Fair Market Value” means, as of a particular
date, (a) if the shares of Common Stock are listed on a national
securities exchange, the closing sales price per share of Common Stock on the
consolidated transaction reporting system for the principal securities exchange
for the Common Stock on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was so
reported, (b) if the shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market System, the closing sales price per share
of Common Stock on the Nasdaq National Market System on that date, or, if there
shall have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, (c) if the Common Stock is not
so listed or quoted, the mean between the closing bid and asked price on that
date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by
Nasdaq, or, if not reported by Nasdaq, by the National Quotation Bureau, Inc.,
or (d) if none of the above is applicable, such amount as may be determined by
the Board (acting on the advice of an Independent Third Party, should the Board
elect in its sole discretion to utilize an Independent Third Party for this
purpose), in good faith, to be the fair market value per share of Common Stock.

 

2.16                           “Independent Third Party” means an individual
or entity independent of the Company having experience in providing investment
banking or similar appraisal or valuation services and with expertise generally
in the valuation of securities or other property for purposes of this
Plan.  The Board may utilize one or more
Independent Third Parties.

 

2.17                           “Incentive” is defined in Section 2.1
hereof.

 

2.18                           “Incentive Stock Option” means an incentive
stock option within the meaning of Section 422 of the Code, granted
pursuant to this Plan.

 

2.19                           “Nonqualified Stock Option” means a
nonqualified stock option, granted pursuant to this Plan, which is not an
Incentive Stock Option.

 

2.20                           “Option Price” means the price which must be
paid by a Participant upon exercise of a Stock Option to purchase a share of
Common Stock.

 

2.21                           “Other Award” means an Award issued pursuant
to Section 6.10 hereof.

 

2.22                           “Outside Director” means a director of the
Company who is not an Employee.

 

2.23                           “Participant” means an Employee or Outside
Director of the Company or a Subsidiary to whom an Award is granted under this
Plan.

 

2.24                           “Plan” means this KMG Chemicals, Inc. 2004
Long-Term Incentive Plan, as amended from time to time.

 

2.25                           “Performance Award” means an Award hereunder
of cash, shares of Common Stock, units or rights based upon, payable in, or otherwise
related to, Common Stock pursuant to Section 6.8 hereof.

 

2.26                           “Performance Goal” means any of the goals set
forth in Section 6.11 hereof.

 

4

 

2.27                           “Reload Stock Option” means a Nonqualified
Stock Option or an Incentive Stock Option granted pursuant to Section 8.3(c)
hereof.

 

2.28                           “Reporting Participant” means a Participant
who is subject to the reporting requirements of Section 16 of the 1934
Act.

 

2.29                           “Restricted Stock” means shares of Common
Stock issued or transferred to a Participant pursuant to Section 6.4 of
this Plan which are subject to restrictions or limitations set forth in this
Plan and in the related Award Agreement.

 

2.30                           “Restricted Stock Units” means units awarded
to Participants pursuant to Section 6.7 hereof, which are convertible into
Common Stock at such time as such units are no longer subject to restrictions
as established by the Committee.

 

2.31                           “Retirement” means any Termination of Service
solely due to retirement upon or after attainment of age sixty-five (65), or
permitted early retirement as determined by the Committee.

 

2.32                           “SAR” or “stock appreciation right” means the right to
receive a payment, in cash and/or Common Stock, equal to the excess of the Fair
Market Value of a specified number of shares of Common Stock on the date the
SAR is exercised over the SAR Price for such shares.

 

2.33                           “SAR Price” means the exercise price of each
share of Common Stock covered by a SAR, determined on the Date of Grant of the
SAR.

 

2.34                           “Stock Option” means a Nonqualified Stock
Option, a Reload Stock Option or
an Incentive Stock Option.

 

2.35                           “Subsidiary” means (i) any corporation in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing a majority of the total combined voting power of all classes of
stock in one of the other corporations in the chain, (ii) any limited
partnership, if the Company or any corporation described in item (i) above
owns a majority of the general partnership interest and a majority of the
limited partnership interests entitled to vote on the removal and replacement
of the general partner, and (iii) any partnership or limited liability
company, if the partners or members thereof are composed only of the Company,
any corporation listed in item (i) above or any limited partnership listed in
item (ii) above.  “Subsidiaries” means
more than one of any such corporations, limited partnerships, partnerships or
limited liability companies.

 

2.36                           “Termination of Service” occurs when a
Participant who is an Employee of the Company or any Subsidiary shall cease to
serve as an Employee of the Company and its Subsidiaries, for any reason; or,
when a Participant who is an Outside Director of the Company or a Subsidiary
shall cease to serve as a director of the Company and its Subsidiaries for any
reason.  Except as may be necessary or
desirable to comply with applicable federal or state law, a “Termination of
Service” shall not be deemed to have occurred when a Participant who is an
Employee becomes a an Outside Director or vice versa.  If, however, a Participant who is an Employee
and who has an Incentive Stock Option ceases to be an Employee but does not
suffer a Termination of Service, and if that Participant does not exercise the
Incentive Stock Option within the time required under Section 422 of the
Code upon ceasing to be an Employee, the Incentive Stock Option shall
thereafter become a Nonqualified Stock Option.

 

5

 

2.37                           “Total and Permanent Disability” means a
Participant is qualified for long-term disability benefits under the Company’s
or Subsidiary’s disability plan or insurance policy; or, if no such plan or
policy is then in existence or if the Participant is not eligible to
participate in such plan or policy, that the Participant, because of a physical
or mental condition resulting from bodily injury, disease, or mental disorder
which prevents the Participant from performing his or her duties of employment
for a period of six (6) continuous months, as determined in good faith by the
Committee, based upon medical reports or other evidence satisfactory to the
Committee; provided  that, with respect to any Incentive Stock Option,
Total and Permanent Disability shall have the meaning given it under the rules
governing Incentive Stock Options under the Code.

 

ARTICLE 3

ADMINISTRATION

 

Subject
to the terms of this Article 3, the Plan shall be administered by the
Board or such committee of the Board as is designated by the Board to
administer the Plan (the “Committee”).  The Committee shall consist of not fewer than
three persons.  Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board.  Any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board.  At any time there is no Committee to
administer the Plan, any references in this Plan to the Committee shall be
deemed to refer to the Board.

 

If
necessary to satisfy the requirements of Section 162(m) of the Code and/or
Rule 16b-3 promulgated under the 1934 Act, membership on the Committee shall be
limited to those members of the Board who are “outside directors” under Section 162(m)
of the Code and/or “non-employee directors” as defined in Rule 16b-3
promulgated under the 1934 Act.  The
Committee shall select one of its members to act as its Chairman.  A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at
a meeting at which a quorum is present shall be the act of the Committee.

 

The
Committee shall determine and designate from time to time the eligible persons
to whom Awards will be granted and shall set forth in each related Award
Agreement, where applicable, the Award Period, the Date of Grant, and such
other terms, provisions, limitations, and performance requirements, as are
approved by the Committee, but not inconsistent with the Plan.  The Committee shall determine whether an
Award shall include one type of Incentive or two or more Incentives granted in
combination or two or more Incentives granted in tandem (that is, a joint grant
where exercise of one Incentive results in cancellation of all or a portion of
the other Incentive). Although the
members of the Committee shall be eligible to receive Awards, all
decisions with respect to any Award, and the terms and conditions thereof, to
be granted under the Plan to any member of the Committee shall be made solely
and exclusively by the other members of the Committee, or if such member is the
only member of the Committee, by the Board.

 

The
Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe,
amend, and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, (iii)  establish performance goals for an
Award and certify the extent of their achievement, and (iv) make such other
determinations or certifications and take such other action as it deems
necessary or advisable in the administration of the Plan.  Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive
on all interested parties.

 

The
Committee may delegate to officers of the Company, pursuant to a written
delegation, the authority to perform specified functions under the Plan.  Any actions taken by any officers of the
Company pursuant to such written delegation of authority shall be deemed to
have been taken by the Committee. 
Notwithstanding the foregoing, to the extent necessary to satisfy the
requirements

 

6

 

of Section 162(m) of
the Code and/or Rule 16b-3 promulgated under the 1934 Act, any function
relating to a Reporting Participant or a covered employee (as defined in Section 162(m)
of the Code) shall be performed solely by the Committee.

 

With
respect to restrictions in the Plan that are based on the requirements of Rule
16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section 162(m)
of the Code, the rules of any exchange or inter-dealer quotation system upon
which the Company’s securities are listed or quoted, or any other applicable
law, rule or restriction (collectively, “applicable law”), to the extent that any such
restrictions are no longer required by applicable law, the Committee shall have
the sole discretion and authority to grant Awards that are not subject to such
mandated restrictions and/or to waive any such mandated restrictions with
respect to outstanding Awards.

 

ARTICLE 4

ELIGIBILITY

 

Any
Employee (including an Employee who is also a director or an officer), or
Outside Director of the Company whose judgment, initiative, and efforts
contributed or may be expected to contribute to the successful performance of
the Company is eligible to participate in the Plan; provided that only
Employees of a Corporation shall be eligible to receive Incentive Stock
Options.  The Committee, upon its own
action, may grant, but shall not be required to grant, an Award to any Employee
or Outside Director of the Company or any Subsidiary.  Awards may be granted by the Committee at any
time and from time to time to new Participants, or to then Participants, or to
a greater or lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. 
Except as required by this Plan, Awards granted at different times need
not contain similar provisions.  The
Committee’s determinations under the Plan (including without limitation
determinations of which Employees or Outside Directors, if any, are to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the agreements evidencing same) need not be uniform and may be
made by it selectively among Participants who receive, or are eligible to
receive, Awards under the Plan.

 

ARTICLE 5

SHARES SUBJECT TO PLAN

 

5.1                               Number Available for Awards. 
Subject to adjustment as provided in Articles 11 and 12, the
maximum number of shares of Common Stock that may be delivered pursuant to
Awards granted under the Plan is 375,000 shares.  Subject to adjustment pursuant to Articles 11
and 12, no Executive Officer may receive in any calendar year (i) Stock Options
or SARs relating to more than 250,000 shares of Common Stock, or (ii) Restricted
Stock, Restricted Stock Units, Performance Awards or Other Awards that are
subject to the attainment of Performance Goals relating to more than 100,000
shares of Common Stock.  Shares to be
issued may be made available from authorized but unissued Common Stock, Common
Stock held by the Company in its treasury, or Common Stock purchased by the
Company on the open market or otherwise. 
During the term of this Plan, the Company will at all times reserve and
keep available the number of shares of Common Stock that shall be sufficient to
satisfy the requirements of this Plan.

 

5.2                               Reuse of Shares.  To
the extent that any Award under this Plan shall be forfeited, shall expire or
be canceled, in whole or in part, then the number of shares of Common Stock covered
by the Award or stock option so forfeited, expired or canceled may again be
awarded pursuant to the provisions of this Plan.  In the event that previously acquired shares
of Common Stock or shares of Common Stock otherwise issuable upon exercise of a
Stock Option are delivered

 

7

 

to the Company in full or
partial payment of the exercise price for the exercise of a Stock Option
granted under this Plan, or shares of Common Stock issuable pursuant to an Incentive
upon exercise or vesting are used to satisfy the tax withholding requirements
upon exercise or vesting of an Incentive (other than an Incentive Stock
Option), the number of shares of Common Stock available for future Awards under
this Plan shall be reduced only by the net number of shares of Common Stock
issued upon the exercise of the Stock Option. 
Awards that may be satisfied either by the issuance of shares of Common
Stock or by cash or other consideration shall be counted against the maximum
number of shares of Common Stock that may be issued under this Plan only during
the period that the Award is outstanding or to the extent the Award is
ultimately satisfied by the issuance of shares of Common Stock.  Awards will not reduce the number of shares
of Common Stock that may be issued pursuant to this Plan if the settlement of
the Award will not require the issuance of shares of Common Stock, as, for
example, a SAR that can be satisfied only by the payment of cash.

 

ARTICLE 6

GRANT OF AWARDS

 

6.1                             In General.

 

(a)                                  The grant of an Award shall be authorized by
the Committee and shall be evidenced by an Award Agreement setting forth the
Incentive or Incentives being granted, the total number of shares of Common
Stock subject to the Incentive(s), the Option Price (if applicable), the Award
Period, the Date of Grant, and such other terms, provisions, limitations, and
performance objectives, as are approved by the Committee, but not inconsistent
with the Plan.  The Company shall execute
an Award Agreement with a Participant after the Committee approves the issuance
of an Award.  Any Award granted pursuant
to this Plan must be granted within ten (10) years of the date of adoption of
this Plan. The Plan shall be submitted to the Company’s shareholders for
approval; however, the Committee may grant Awards under the Plan prior to the
time of shareholder approval.  Any such
Award granted prior to such shareholder approval shall be made subject to such
shareholder approval. The grant of an Award to a Participant shall not be
deemed either to entitle the Participant to, or to disqualify the Participant
from, receipt of any other Award under the Plan.

 

(b)                                 If the Committee establishes a purchase price
for an Award, the Participant must accept such Award within a period of thirty
(30) days (or such shorter period as the Committee may specify) after the Date
of Grant by executing the applicable Award Agreement and paying such purchase
price.

 

(c)                                  Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide for interest
equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.

 

6.2                             Option Price.  The
Option Price for any share of Common Stock which may be purchased under a
Nonqualified Stock Option for any share of Common Stock may be less than, equal
to, or greater than the Fair Market Value of the share on the Date of
Grant.  The Option Price for any share of
Common Stock which may be purchased under an Incentive Stock Option must be at
least equal to the Fair Market Value of the share on the Date of Grant; if an
Incentive Stock Option is granted to an Employee who owns or is deemed to own
(by reason of the attribution rules

 

8

 

of Section 424(d) of
the Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary), the Option Price
shall be at least 110% of the Fair Market Value of the Common Stock on the Date
of Grant.

 

6.3                             Maximum ISO Grants.  The
Committee may not grant Incentive Stock Options under the Plan to any Employee
which would permit the aggregate Fair Market Value (determined on the Date of
Grant) of the Common Stock with respect to which Incentive Stock Options (under
this and any other plan of the Company and its Subsidiaries) are exercisable
for the first time by such Employee during any calendar year to exceed
$100,000.  To the extent any Stock Option
granted under this Plan which is designated as an Incentive Stock Option
exceeds this limit or otherwise fails to qualify as an Incentive Stock Option,
such Stock Option (or any such portion thereof) shall be a Nonqualified Stock
Option.  In such case, the Committee
shall designate which stock will be treated as Incentive Stock Option stock by
causing the issuance of a separate stock certificate and identifying such stock
as Incentive Stock Option stock on the Company’s stock transfer records.

 

6.4                             Restricted Stock.  If
Restricted Stock is granted to or received by a Participant under an Award
(including a Stock Option), the Committee shall set forth in the related Award
Agreement: (i) the number of shares of Common Stock awarded, (ii) the price, if
any, to be paid by the Participant for such Restricted Stock and the method of
payment of the price, (iii) the time or times within which such Award may be
subject to forfeiture, (iv) specified Performance Goals of the Company, a
Subsidiary, any division thereof or any group of Employees of the Company, or
other criteria, which the Committee determines must be met in order to remove
any restrictions (including vesting) on such Award, and (v) all other terms,
limitations, restrictions, and conditions of the Restricted Stock, which shall
be consistent with this Plan.  The
provisions of Restricted Stock need not be the same with respect to each
Participant.

 

(a)                                  Legend on Shares.  Each
Participant who is awarded or receives Restricted Stock shall be issued a stock
certificate or certificates in respect of such shares of Common Stock.  Such certificate(s) shall be registered in
the name of the Participant, and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock,
substantially as provided in Section 15.9 of the Plan.

 

(b)                                  Restrictions and Conditions. 
Shares of Restricted Stock shall be subject to the following
restrictions and conditions:

 

(i)                                     Subject to the other provisions of this Plan
and the terms of the particular Award Agreements, during such period as may be
determined by the Committee commencing on the Date of Grant or the date of
exercise of an Award (the “Restriction
Period”), the Participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock. Except for these limitations, the
Committee may in its sole discretion, remove any or all of the restrictions on
such Restricted Stock whenever it may determine that, by reason of changes in
applicable laws or other changes in circumstances arising after the date of the
Award, such action is appropriate.

 

(ii)                                  Except as provided in sub-paragraph (i) above
or in the applicable Award Agreement, the Participant shall have, with respect
to his or her Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon.  Certificates for shares of Common Stock free
of restriction under this Plan shall be delivered to the Participant promptly
after, and only after, the Restriction Period shall expire without forfeiture
in

 

9

 

respect
of such shares of Common Stock or after any other restrictions imposed in such
shares of Common Stock by the applicable Award Agreement or other agreement
have expired.  Certificates for the
shares of Common Stock forfeited under the provisions of the Plan and the
applicable Award Agreement shall be promptly returned to the Company by the
forfeiting Participant.  Each Award
Agreement shall require that (x) each
Participant, by his or her acceptance of Restricted Stock, shall irrevocably
grant to the Company a power of attorney to transfer any shares so forfeited to
the Company and agrees to execute any documents requested by the Company in
connection with such forfeiture and transfer, and (y) such provisions regarding
returns and transfers of stock certificates with respect to forfeited shares of
Common Stock shall be specifically performable by the Company in a court of
equity or law.

 

(iii)                               The Restriction Period of Restricted Stock shall commence on the Date
of Grant or the date of exercise of an Award, as specified in the Award
Agreement, and, subject to Article 12 of the Plan, unless otherwise established
by the Committee in the Award Agreement setting forth the terms of the
Restricted Stock, shall expire upon satisfaction of the conditions set forth in
the Award Agreement; such conditions may provide for vesting based on such
Performance Goals, as may be determined by the Committee in its sole
discretion.

 

(iv)                              Except as otherwise provided in the particular Award Agreement, upon
Termination of Service for any reason during the Restriction Period, the
nonvested shares of Restricted Stock shall be forfeited by the
Participant.  In the event a Participant
has paid any consideration to the Company for such forfeited Restricted Stock,
the Committee shall specify in the Award Agreement that either (i) the Company
shall be obligated to, or (ii) the Company may, in its sole discretion, elect
to, pay to the Participant, as soon as practicable after the event causing
forfeiture, in cash, an amount equal to the lesser of the total consideration
paid by the Participant for such forfeited shares or the Fair Market Value of
such forfeited shares as of the date of Termination of Service, as the
Committee, in its sole discretion shall select. Upon any forfeiture, all rights
of a Participant with respect to the forfeited shares of the Restricted Stock
shall cease and terminate, without any further obligation on the part of the
Company.

 

6.5                               SARs.  The
Committee may grant SARs to any Participant, either as a separate Award or in
connection with a Stock Option.  SARs
shall be subject to such terms and conditions as the Committee shall
impose.  The grant of the SAR may provide
that the holder may be paid for the value of the SAR either in cash or in
shares of Common Stock, or a combination thereof.  In the event of the exercise of a SAR payable
in shares of Common Stock, the holder of the SAR shall receive that number of
whole shares of Common Stock having an aggregate Fair Market Value on the date
of exercise equal to the value obtained by multiplying (i) the difference
between the Fair Market Value of a share of Common Stock on the date of
exercise over the  SAR Price as set forth
in such SAR (or other value specified in the agreement granting the SAR), by
(ii) the number of shares of Common Stock as to which the SAR is exercised, with
a cash settlement to be made for any fractional shares of Common Stock.  The Committee, in its sole discretion, may
place a ceiling on the amount payable upon exercise of a SAR, but any such
limitation shall be specified at the time that the SAR is granted.  The exercise price of any SAR shall in no
event be less than the Fair Market Value of the Shares at the time of the
grant.

 

10

 

6.6                               SAR Price.  The
SAR Price for any share of Common Stock subject to a SAR may be  equal to 
or greater than the Fair Market Value of the share on the Date of Grant.

 

6.7                               Restricted Stock Units. 
Restricted Stock Units may be awarded or sold to any Participant under
such terms and conditions as shall be established by the Committee.  Restricted Stock Units shall be subject to
such restrictions as the Committee determines, including, without limitation,
(a) a prohibition against sale, assignment, transfer, pledge, hypothecation or
other encumbrance for a specified period; or (b) a requirement that the holder
forfeit (or in the case of shares of Common Stock or units sold to the
Participant, resell to the Company at cost) such shares or units in the event
of Termination of Service during the period of restriction.

 

6.8                               Performance Awards.

 

(a)                                  The Committee may grant Performance Awards to
any Participant upon such terms and conditions as shall be specified at the
time of the grant and may include provisions establishing the performance
period, the Performance Goals to be achieved during a performance period, and
the maximum or minimum settlement values. 
Each Performance Award shall have its own terms and conditions.  If the Committee determines, in its sole
discretion, that the established performance measures or objectives are no
longer suitable because of a change in the Company’s business, operations,
corporate structure, or for other reasons that the Committee deemed
satisfactory, the Committee may modify the performance measures or objectives
and/or the performance period.  However,
the Committee may not, in any event, increase the number of shares of Common
Stock earned by any Executive Officer upon satisfaction of any Performance
Goal.

 

(b)                                 Performance Awards may be valued by reference
to the Fair Market Value of a share of Common Stock or according to any formula
or method deemed appropriate by the Committee, in its sole discretion,
including, but not limited to, achievement of Performance Goals or other
specific financial, production, sales or cost performance objectives that the
Committee believes to be relevant to the Company’s business and/or remaining in
the employ of the Company for a specified period of time.  Performance Awards may be paid in cash,
shares of Common Stock, or other consideration, or any combination thereof.  If payable in shares of Common Stock, the
consideration for the issuance of such shares may be the achievement of the
performance objective established at the time of the grant of the Performance
Award.  Performance Awards may be payable
in a single payment or in installments and may be payable at a specified date
or dates or upon attaining the performance objective.  The extent to which any applicable
performance objective has been achieved shall be conclusively determined by the
Committee.

 

11

 

6.9                               Dividend Equivalent
Rights.  The Committee may grant a Dividend Equivalent
Right to any Participant, either as a component of another Award or as a
separate Award. The terms and conditions of the Dividend Equivalent Right shall
be specified by the grant.  Dividend
equivalents credited to the holder of a Dividend Equivalent Right may be paid
currently or may be deemed to be reinvested in additional shares of Common
Stock (which may thereafter accrue additional dividend equivalents).  Any such reinvestment shall be at the Fair
Market Value at the time thereof. 
Dividend Equivalent Rights may be settled in cash or shares of Common
Stock, or a combination thereof, in a single payment or in installments.  A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right
shall be settled upon exercise, settlement, or payment of, or lapse of
restrictions on, such other Award, and that such Dividend Equivalent Right
granted as a component of another Award may also contain terms and conditions
different from such other Award.

 

6.10                        Other Awards.  The Committee may grant to any
Participant other forms of Awards,  based
upon, payable in, or otherwise related to, in whole or in part, shares of
Common Stock, if the Committee determines that such other form of Award is
consistent with the purpose and restrictions of this Plan.  The terms and conditions of such other form
of Award shall be specified by the grant. 
Such Other Awards may be granted for no cash consideration, for such
minimum consideration as may be required by applicable law, or for such other
consideration as may be specified by the grant.

 

6.11                        Performance Goals. 
Awards of Restricted
Stock, Restricted Stock Units, Performance Award and Other Awards (whether
relating to cash or shares of Common Stock) under the Plan may be made subject
to the attainment of Performance Goals relating to one or more business
criteria within the meaning of Section 162(m) of the Code, including,
but  not limited to, cash flow; cost;
ratio of debt to debt plus equity; profit before tax; economic profit; earnings
before interest and taxes; earnings before interest, taxes, depreciation and
amortization; earnings per share; operating earnings; economic value added;
ratio of operating earnings to capital spending; free cash flow; net profit;
net sales; sales growth; price of the Company’s Common Stock; return on net
assets, equity or shareholders’ equity; market share; or total return to
shareholders (“Performance
Criteria”).  Any Performance
Criteria may be used to measure the performance of the Company as a whole or
any business unit of the Company and may be measured relative to a peer group
or index.  Any Performance Criteria may
include or exclude (i) extraordinary, unusual and/or non-recurring items of
gain or loss, (ii) gains or losses on the disposition of a business, (iii)
changes in tax or accounting regulations or laws, or (iv) the effect of a
merger or acquisition, as identified in the Company’s quarterly and annual
earnings releases.  In all other
respects, Performance Criteria shall be calculated in accordance with the
Company’s financial statements, under generally accepted accounting principles,
or under a methodology established by the Committee prior to the issuance of an
Award which is consistently applied and identified in the audited financial
statements, including footnotes, or the Management Discussion and Analysis section of
the Company’s annual report.  However,
the Committee may not in any event increase the amount of compensation payable
to an individual upon the attainment of a Performance Goal.

 

6.12                        Tandem Awards.  The
Committee may grant two or more Incentives in one Award in the form of a “Tandem Award,” so
that the right of the Participant to exercise one Incentive shall be canceled
if, and to the extent, the other Incentive is exercised.  For example, if a Stock Option and a SAR are
issued in a tandem Award, and the Participant exercises the SAR with respect to
100 shares of Common Stock, the right of the Participant to exercise the
related Stock Option shall be canceled to the extent of 100 shares of Common
Stock.

 

6.13                        Maximum Individual Grants.  No
Participant may receive during any fiscal year of the Company Awards covering
an aggregate of more than 250,000 shares of Common Stock.

 

12

 

ARTICLE 7

AWARD PERIOD; VESTING

 

7.1                               Award Period.  Subject to the other provisions of this Plan, the Committee may, in its
discretion, provide that an Incentive may not be exercised in whole or in part
for any period or periods of time or beyond any date specified in the Award
Agreement.  Except as provided in the
Award Agreement, an Incentive may be exercised in whole or in part at any time
during its term.  The Award Period for an
Incentive shall be reduced or terminated upon Termination of Service.  No Incentive granted under the Plan may be
exercised at any time after the end of its Award Period.  No portion of any Incentive may be exercised
after the expiration of ten (10) years from its Date of Grant.  However, if an Employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code)
more than ten percent (10%) of the combined voting power of all classes of
stock of the Company (or any parent or Subsidiary) and an Incentive Stock
Option is granted to such Employee, the term of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no more than
five (5) years from the Date of Grant.

 

7.2                               Vesting.  The Committee,
in its sole discretion, may determine that an Incentive will be immediately
vested in whole or in part, or that all or any portion may not be vested until
a date, or dates, subsequent to its Date of Grant, or until the occurrence of
one or more specified events, subject in any case to the terms of the
Plan.  If the Committee imposes
conditions upon vesting, then, subsequent to the Date of Grant, the Committee
may, in its sole discretion, accelerate the date on which all or any portion of
the Incentive may be vested.

 

7.3                               Stock Option Award Periods. 
Unless otherwise provided in an Award Agreement or otherwise agreed to
by the Committee, upon the occurrence the following Termination of Service
events the Award Period for Stock Options will be adjusted as described below:

 

(a)                                  Upon the death of the Participant, any rights
to the extent exercisable on the date of death may be exercised by the
Participant’s estate, or by a person who acquires the right to exercise such
Stock Option by bequest or inheritance or by reason of the death of the
Participant, provided that such exercise occurs within both (i) the remaining
Award Period of the Stock Option and (ii) one year after the Participant’s
death.  The provisions of this Section shall
apply notwithstanding the fact that the Participant’s employment may have
terminated prior to death, but only to the extent of any Stock Options
exercisable on the date of death.

 

(b)                                 Upon a Termination of Services by reason of
Total and Permanent Disability or Retirement, the Participant may exercise any
Stock Options, provided such option exercise occurs within both (i) the
remaining Award Period and (ii) six months (in the case of Total and Permanent
Disability) or three months (in the case of Retirement).  Notwithstanding the terms of an Award
Agreement, the tax treatment available pursuant to Section 422 of the Code
upon the exercise of an Incentive Stock Option shall not be available to an
Participant who exercises any Incentive Stock Options more than (i) one year
after the date of Termination of Services due to Total and Permanent Disability
or (ii) three months after the date of Termination of Services of employment
due to Retirement.

 

(c)                                  Except as provided in (a) and (b) above, upon
Termination of Services by reason other than death, Retirement, Total and
Permanent Disability or cause (as determined by the Committee), the Participant
may exercise any Stock Options, provided such option exercise occurs

 

13

 

within both (i) the
remaining Award Period of the Stock Option and (ii) 30 days of the date of
Termination of Services.

 

(d)                                 All Stock Options shall terminate immediately
upon a Termination of Services for cause (as determined by the Committee).

 

ARTICLE 8

EXERCISE OF INCENTIVE

 

8.1                               In General.  A
vested Incentive may be exercised during its Award Period, subject to
limitations and restrictions set forth in the Award Agreement.

 

8.2                               Securities Law and Exchange
Restrictions.  In no event may an Incentive be exercised or
shares of Common Stock be issued pursuant to an Award if a necessary listing or
quotation of the shares of Common Stock on a stock exchange or inter-dealer
quotation system or any registration under state or federal securities laws
required under the circumstances has not been accomplished.

 

8.3                             Exercise of Stock Option.

 

(a)                                  In General.  If a Stock Option is exercisable prior to the time it is vested, the
Common Stock obtained on the exercise of the Stock Option shall be Restricted
Stock which is subject to the applicable provisions of the Plan and the Award
Agreement.  If the Committee imposes
conditions upon exercise, then subsequent to the Date of Grant, the Committee
may, in its sole discretion, accelerate the date on which all or any portion of
the Stock Option may be exercised.  No
Stock Option may be exercised  for a
fractional share of Common Stock.  The
granting of a Stock Option shall impose no obligation upon the Participant to
exercise that Stock Option.

 

(b)                                  Notice and Payment. 
Subject to such administrative regulations as the Committee may from
time to time adopt, a Stock Option may be exercised by the delivery of written
notice to the Committee setting forth the number of shares of Common Stock with
respect to which the Stock Option is to be exercised and the date of exercise
thereof (the “Option
Exercise Date”) which shall be at least three (3) days after
giving such notice unless an earlier time shall have been mutually agreed
upon.  On the Option Exercise Date, the
Participant shall deliver to the Company consideration with a value equal to
the total Option Price of the shares to be purchased, payable as provided in
the Award Agreement, which may provide for payment in any one or more of the
following ways:  (a) cash or check, bank
draft, or money order payable to the order of the Company, (b) Common Stock
(including Restricted Stock) owned by the Participant on the Option Exercise
Date, valued at its Fair Market Value on the Option Exercise Date, and which
the Participant has not acquired from the Company within six (6) months prior
to the Option Exercise Date, (c) by delivery (including by FAX) to the Company
or its designated agent of an executed irrevocable option exercise form
together with irrevocable instructions from the Participant to a broker or
dealer, reasonably acceptable to the Company, to sell certain of the shares of
Common Stock purchased upon exercise of the Stock Option or to pledge such
shares as collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price, and/ or (d) in
any other form of valid consideration that is acceptable to the Committee in
its sole discretion.  In the event that shares of Restricted Stock
are tendered as consideration for the exercise of a Stock Option,

 

14

 

a number of shares of Common Stock issued upon the
exercise of the Stock Option equal to the number of shares of Restricted Stock
used as consideration therefor shall be subject to the same restrictions and
provisions as the Restricted Stock so tendered.

 

(c)                                  Reload Stock Options.  In the event that shares of
Common Stock are delivered by a Participant in payment of all or a portion of
the exercise price of a Stock Option as set forth in Section 8.3(b) above
and/or shares of Common Stock are delivered to or withheld by the Company in
satisfaction of the Company’s tax withholding obligations upon exercise in
accordance with Section 15.6 hereof, then, subject to Article 10
hereof, the Committee may, in the applicable Award Agreement or at the time of
exercise, authorize the automatic grant to a Participant so exercising a
Nonqualified Stock Option, a replacement Nonqualified Stock Option, and to a
Participant so exercising an Incentive Stock Option, a replacement Incentive
Stock Option (in either case, a “Reload Stock Option”), to purchase that number of shares so delivered to or withheld by the
Company, as the case may be, at an option exercise price equal to the Fair
Market Value per share of the Common Stock on the date of exercise of the
original Stock Option (subject to the provisions of the Plan regarding
Incentive Stock Options and, in any event not less than the par value per share
of the Common Stock). The option period for a Reload Stock Option will commence
on its Date of Grant and expire on the expiration date of the original Stock
Option it replaces (subject to the provisions of the Plan regarding Incentive
Stock Options), after which period the Reload Stock Option cannot be exercised.  The Date of Grant of a Reload Stock Option
shall be the date that the Stock Option it replaces is exercised.  A Reload Stock Option shall automatically
vest and be exercisable in full after the expiration of six (6) months from its
Date of Grant.  It shall be a condition
to the grant of a Reload Stock Option that promptly after its Date of Grant, a
stock option agreement shall be delivered to the Participant and executed by
the Participant and the Company which sets forth the total number of shares subject
to the Reload Stock Option, the option exercise price, the option period of the
Reload Stock Option and such other terms and provisions as are consistent with
the Plan.

 

(d)                                  Issuance of Certificate. 
Except as otherwise provided in Section 6.4 hereof (with respect to
shares of Restricted Stock) or in the applicable Award Agreement, upon payment
of all amounts due from the Participant, the Company shall cause certificates
for the Common Stock then being purchased to be delivered as directed by the Participant
(or the person exercising the Participant’s Stock Option in the event of his
death) at its principal business office promptly after the Option Exercise
Date; provided that if the Participant has exercised an Incentive Stock Option,
the Company may at its option retain physical possession of the certificate
evidencing the shares acquired upon exercise until the expiration of the
holding periods described in Section 422(a)(1) of the Code. The obligation
of the Company to deliver shares of Common Stock shall, however, be subject to
the condition that, if at any time the Committee shall determine in its
discretion that the listing, registration, or qualification of the Stock Option
or the Common Stock upon any securities exchange or inter-dealer quotation
system or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in connection
with, the Stock Option or the issuance or purchase of shares of Common Stock
thereunder, the Stock Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not reasonably acceptable to the
Committee.

 

(e)                                  Failure to Pay. 
Except as may otherwise be provided in an Award Agreement, if the
Participant fails to pay for any of the Common Stock specified in such

 

15

 

notice
or fails to accept delivery thereof, that portion of the Participant’s Stock
Option and right to purchase such Common Stock may be forfeited by the Company.

 

8.4                               SARs. 
Subject to the conditions of this Section 8.4 and such
administrative regulations as the Committee may from time to time adopt, a SAR
may be exercised by the delivery (including by FAX) of written notice to the
Committee setting forth the number of shares of Common Stock with respect to
which the SAR is to be exercised and the date of exercise thereof (the “SAR Exercise Date”)
which shall be at least three (3) days after giving such notice unless an
earlier time shall have been mutually agreed upon. Subject to the terms of the
Award Agreement, on the SAR Exercise Date, the Participant shall receive from
the Company in exchange therefor cash in an amount equal to the excess (if any)
of the Fair Market Value (as of the date of the exercise of the SAR) per share
of Common Stock over the SAR Price per share specified in such SAR, multiplied
by the total number of shares of Common Stock of the SAR being surrendered.  In the discretion of the Committee, and
subject to the terms of the Award Agreement, the Company may satisfy its
obligation upon exercise of a SAR by the distribution of that number of shares
of Common Stock having an aggregate Fair Market Value (as of the date of the
exercise of the SAR) equal to the amount of cash otherwise payable to the
Participant, with a cash settlement to be made for any fractional share
interests, or the Company may settle such obligation in part with shares of
Common Stock and in part with cash.

 

8.5                               Disqualifying Disposition of
Incentive Stock Option.  If shares of Common Stock acquired upon
exercise of an Incentive Stock Option are disposed of by a Participant prior to
the expiration of either two (2) years from the Date of Grant of such Stock
Option or one (1) year from the transfer of shares of Common Stock to the
Participant pursuant to the exercise of such Stock Option, or in any other
disqualifying disposition within the meaning of Section 422 of the Code,
such Participant shall notify the Company in writing of the date and terms of
such disposition.  A disqualifying
disposition by a Participant shall not affect the status of any other Stock
Option granted under the Plan as an Incentive Stock Option within the meaning
of Section 422 of the Code.

 

ARTICLE 9

AMENDMENT OR DISCONTINUANCE

 

Subject
to the limitations set forth in this Article 9, the Board may at any time
and from time to time, without the consent of the Participants, alter, amend,
revise, suspend, or discontinue the Plan in whole or in part; provided,
however, that no amendment which requires shareholder approval in order for the Plan and Incentives awarded
under the Plan to continue to comply with Sections 162(m), 421, and 422 of the
Code, including any successors to such Sections, shall be effective unless such
amendment shall be approved by the requisite vote of the shareholders of the Company entitled
to vote thereon.  Any such amendment
shall, to the extent deemed necessary or advisable by the Committee, be applicable
to any outstanding Incentives theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any Award Agreement.  In the event of any such amendment to the
Plan, the holder of any Incentive outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability thereof,
execute a conforming amendment in the form prescribed by the Committee to any
Award Agreement relating thereto. 
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this Article 9
shall adversely affect any rights of Participants or obligations of the Company
to Participants with respect to any Incentive theretofore granted under the
Plan without the consent of the affected Participant.

 

16

 

ARTICLE 10

TERM

 

The
Plan shall be effective from the date that this Plan is approved by the
Board.  Unless sooner terminated by
action of the Board, the Plan will terminate on October 14, 2014, but
Incentives granted before that date will continue to be effective in accordance
with their terms and conditions.

 

ARTICLE 11

CAPITAL ADJUSTMENTS

 

In
the event that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, rights offering,
reorganization, merger, consolidation, split-up, spin-off, split-off,
combination, subdivision, repurchase, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event affects the Common Stock such that an adjustment is
determined by the Committee to be appropriate to prevent the dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of the (i) the number of shares and type of Common
Stock (or the securities or property) which thereafter may be made the subject
of Awards, (ii) the number of shares and type of Common Stock (or other
securities or property) subject to outstanding Awards, (iii) the number of
shares and type of Common Stock (or other securities or property) specified as
the annual per-participant limitation under Section 6.13 of the Plan, (iv)
the Option Price of each outstanding Award, (v) the amount, if any, the Company
pays for forfeited shares of Common Stock in accordance with Section 6.4,
and (vi) the number of or SAR Price of shares of Common Stock then subject to
outstanding SARs previously granted and unexercised under the Plan to the end
that the same proportion of the Company’s issued and outstanding shares of
Common Stock in each instance shall remain subject to exercise at the same
aggregate SAR Price; provided however, that the number of shares of
Common Stock (or other securities or property) subject to any Award shall
always be a whole number.  In lieu of the
foregoing, if deemed appropriate, the Committee may make provision for a cash
payment to the holder of an outstanding Award. 
Notwithstanding the foregoing, no such adjustment or cash payment shall
be made or authorized to the extent that such adjustment or cash payment would
cause the Plan or any Stock Option to violate Section 422 of the
Code.  Such adjustments shall be made in
accordance with the rules of any securities exchange, stock market, or stock
quotation system to which the Company is subject.

 

Upon
the occurrence of any such adjustment or cash payment, the Company shall
provide notice to each affected Participant of its computation of such
adjustment or cash payment which shall be conclusive and shall be binding upon
each such Participant.

 

ARTICLE 12

RECAPITALIZATION, MERGER AND CONSOLIDATION

 

12.1                        No Effect on Company’s Authority.  The
existence of this Plan and Incentives granted hereunder shall not affect in any
way the right or power of the Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company’s capital
structure and its business, or any merger or consolidation of the Company, or

 

17

 

any
issuance of bonds, debentures, preferred or preference stocks ranking prior to
or otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.

 

12.2                        Conversion of Incentives Where
Company Survives.  Subject to any required action by the shareholders, if the Company shall be
the surviving or resulting corporation in any merger, consolidation or share
exchange, any Incentive granted hereunder shall pertain to and apply to the
securities or rights (including cash, property, or assets) to which a holder of
the number of shares of Common Stock subject to the Incentive would have been
entitled.

 

Notwithstanding
the foregoing, however, if so provided in the agreement and plan of merger
pursuant to which such merger or consolidation is effected and the only
consideration to be received by a holder of Common Stock of the Company (the “Merger Consideration”)
in such merger or consolidation shall be cash, at the effective time of the
merger or consolidation (the “Merger Effective Time”):

 

(a)                                  each Incentive outstanding immediately prior
to the Merger Effective Time with an exercise price per share equal to or
greater than the Merger Consideration shall be canceled and the holder thereof
shall have no right to receive any consideration therefor; and

 

(b)                                 each Incentive outstanding immediately prior
to the Effective Time with an exercise price per share less than the Merger
Consideration shall be canceled in exchange for the right to receive a payment
in cash, without interest, equal to the product of (i) the excess of (x) the
Merger Consideration over (y) the exercise price per share under such Incentive
multiplied by (ii) the number of shares of Common Stock which such Incentive is
exercisable, which cash payment shall be reduced by any applicable withholding
taxes.

 

12.3                        Exchange or Cancellation of
Incentives Where Company Does Not Survive.  In the event of any merger,
consolidation or share exchange pursuant to which the Company is not the
surviving or resulting corporation, there shall be substituted for each share
of Common Stock subject to the unexercised portions of outstanding Incentives,
that number of shares of each class of stock or other securities or that amount
of cash, property, or assets of the surviving, resulting or consolidated
company which were distributed or distributable to the shareholders of the Company in respect to each share of Common
Stock held by them, such outstanding Incentives to be thereafter exercisable
for such stock, securities, cash, or property in accordance with their terms.

 

Notwithstanding
the foregoing, however, all such Incentives may be canceled by the Company, in
its sole discretion, as of the effective date of any such reorganization,
merger, consolidation, or share exchange, or of any proposed sale of all or
substantially all of the assets of the Company, or of any dissolution or
liquidation of the Company, by either:

 

(a)                                  giving notice to each holder thereof or his
personal representative of its intention to cancel those Incentives for which
the issuance of shares of Common Stock involved payment by the Participant for
such shares and, permitting the purchase during the thirty (30) day period next
preceding such effective date of any or all of the shares of Common Stock
subject to such outstanding Incentives, including in the Board’s discretion
some or all of the shares as to which such Incentives would not otherwise be
vested and exercisable; or

 

18

 

(b)                                 in the case of Incentives that are either (i)
settled only in shares of Common Stock, or (ii) at the election of the
Participant, settled in shares of Common Stock, paying the holder thereof an
amount equal to a reasonable estimate of the difference between the net amount
per share payable in such transaction or as a result of such transaction, and
the price per share of such Incentive to be paid by the Participant
(hereinafter the “Spread”),
multiplied by the number of shares subject to the Incentive.  In cases where the shares constitute, or
would after exercise, constitute Restricted Stock, the Company, in its
discretion may include some or all of those shares in the calculation of the
amount payable hereunder.  In estimating
the Spread, appropriate adjustments to give effect to the existence of the
Incentives shall be made, such as deeming the Incentives to have been
exercised, with the Company receiving the exercise price payable thereunder,
and treating the shares receivable upon exercise of the Incentives as being
outstanding in determining the net amount per share.  In cases where the proposed transaction
consists of the acquisition of assets of the Company, the net amount per share
shall be calculated on the basis of the net amount receivable with respect to
shares of Common Stock upon a distribution and liquidation by the Company after
giving effect to expenses and charges, including but not limited to taxes,
payable by the Company before such liquidation could be completed.

 

(c)                                  An Award that by its terms would be fully
vested or exercisable upon a Change of Control will be considered vested or
exercisable for purposes of Section 12.3(a) hereof.

 

ARTICLE 13

LIQUIDATION OR DISSOLUTION

 

Subject
to Section 12.3 hereof, in case the Company shall, at any time while any
Incentive under this Plan shall be in force and remain unexpired, (i) sell
all or substantially all of its property, or (ii) dissolve, liquidate, or
wind up its affairs, then each Participant shall be entitled to receive, in
lieu of each share of Common Stock of the Company which such Participant would
have been entitled to receive under the Incentive, the same kind and amount of
any securities or assets as may be issuable, distributable, or payable upon any
such sale, dissolution, liquidation, or winding up with respect to each share
of Common Stock of the Company.  If the
Company shall, at any time prior to the expiration of any Incentive, make any
partial distribution of its assets, in the nature of a partial liquidation,
whether payable in cash or in kind (but excluding the distribution of a cash
dividend payable out of earned surplus and designated as such) and an
adjustment is determined by the Committee to be appropriate to prevent the
dilution of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, make such adjustment in accordance with the provisions of Article 11
hereof.

 

ARTICLE 14

INCENTIVES IN SUBSTITUTION FOR

INCENTIVES GRANTED BY OTHER ENTITIES

 

Incentives
may be granted under the Plan from time to time in substitution for similar
instruments held by employees or directors of a corporation, partnership, or
limited liability company who become or are about to become Employees or
Outside Directors of the Company or any Subsidiary as a result of a merger or
consolidation of the employing corporation with the Company, the acquisition by
the Company of equity of the employing entity, or any other similar transaction
pursuant to which the Company becomes the successor employer.  The terms and conditions of the

 

19

 

substitute Incentives so
granted may vary from the terms and conditions set forth in this Plan to such
extent as the Committee at the time of grant may deem appropriate to conform,
in whole or in part, to the provisions of the Incentives in substitution for
which they are granted.

 

ARTICLE 15

MISCELLANEOUS PROVISIONS

 

15.1                        Investment Intent.  The
Company may require that there be presented to and filed with it by any Participant
under the Plan, such evidence as it may deem necessary to establish that the
Incentives granted or the shares of Common Stock to be purchased or transferred
are being acquired for investment and not with a view to their distribution.

 

15.2                        No Right to Continued Employment. 
Neither the Plan nor any Incentive granted under the Plan shall confer
upon any Participant any right with respect to continuance of employment by the
Company or any Subsidiary.

 

15.3                        Indemnification of Board and
Committee.  No member of the Board or the Committee, nor
any officer or Employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board and the Committee, each officer of the Company, and each
Employee of the Company acting on behalf of the Board or the Committee shall,
to the extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination, or interpretation.

 

15.4                        Effect of the Plan. 
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to be granted an Award
or any other rights except as may be evidenced by an Award Agreement, or any
amendment thereto, duly authorized by the Committee and executed on behalf of
the Company, and then only to the extent and upon the terms and conditions
expressly set forth therein.

 

15.5                        Compliance With Other Laws and
Regulations.  Notwithstanding anything contained herein to
the contrary, the Company shall not be required to sell or issue shares of
Common Stock under any Incentive if the issuance thereof would constitute a
violation by the Participant or the Company of any provisions of any law or
regulation of any governmental authority or any national securities exchange or
inter-dealer quotation system or other forum in which shares of Common Stock
are quoted or traded (including without limitation Section 16 of the 1934
Act and Section 162(m) of the Code); and, as a condition of any sale or
issuance of shares of Common Stock under an Incentive, the Committee may
require such agreements or undertakings, if any, as the Committee may deem
necessary or advisable to assure compliance with any such law or
regulation.  The Plan, the grant and
exercise of Incentives hereunder, and the obligation of the Company to sell and
deliver shares of Common Stock, shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required.

 

15.6                        Tax Requirements.  The
Company or, if applicable, any Subsidiary (for purposes of this Section 15.6,
the term “Company”
shall be deemed to include any applicable Subsidiary), shall have the right to
deduct from all amounts paid in cash or other form in connection with the Plan,
any Federal, state, local, or other taxes required by law to be withheld in
connection with an Award granted under this Plan.  The Company may, in its sole discretion, also
require the Participant receiving shares of Common Stock issued under the Plan
to pay the Company the amount of any

 

20

 

taxes that the Company is
required to withhold in connection with the Participant’s income arising with
respect to the Award.  Such payments
shall be required to be made when requested by Company and may be required to
be made prior to the delivery of any certificate representing shares of Common
Stock.  Such payment may be made (i) by
the delivery of cash to the Company in an amount that equals or exceeds (to
avoid the issuance of fractional shares under (iii) below) the required tax
withholding obligations of the Company; (ii) if the applicable Award Agreement
permits or if the Company, in its sole discretion, so consents in writing, the
actual delivery by the exercising Participant to the Company of shares of
Common Stock that the Participant has not acquired from the Company within six (6)
months prior to the date of exercise, which shares so delivered have an
aggregate Fair Market Value that equals or exceeds (to avoid the issuance of
fractional shares under (iii) below) the required tax withholding payment;
(iii) if the applicable Award Agreement permits or if the Company, in its sole
discretion, so consents in writing, the Company’s withholding of a number of
shares to be delivered upon the exercise or the vesting of the Incentive, which
shares so withheld have an aggregate fair market value that equals (but does
not exceed) the required tax withholding payment; or (iv) any combination of
(i), (ii), or (iii).  The Company may, in
its sole discretion, withhold any such taxes from any other cash remuneration
otherwise paid by the Company to the Participant.  The Committee may in the Award Agreement
impose any additional tax requirements or provisions that the Committee deems
necessary or desirable.

 

15.7                        Assignability. 
Incentive Stock Options may not be transferred, assigned, pledged, hypothecated
or otherwise conveyed or encumbered other than by will or the laws of descent
and distribution and may be exercised during the lifetime of the Participant
only by the Participant or the Participant’s legally authorized representative,
and each Award Agreement in respect of an Incentive Stock Option shall so
provide. The designation by a Participant of a beneficiary will not constitute
a transfer of the Stock Option.  The
Committee may waive or modify any limitation contained in the preceding sentences
of this Section 15.7 that is not required for compliance with Section 422
of the Code.

 

Except
as otherwise provided herein, Nonqualified Stock Options  and SARs may not be transferred, assigned,
pledged, hypothecated or otherwise conveyed or encumbered other than by will or
the laws of descent and distribution. 
The Committee may, in its discretion, authorize all or a portion of a
Nonqualified Stock Option or SAR to be 
granted to a Participant on terms which permit transfer by such
Participant to (i) the spouse (or former spouse), children or
grandchildren of the Participant (“Immediate Family Members”), (ii) a trust
or trusts for the exclusive benefit of such Immediate Family Members,
(iii) a partnership in which the only partners are (1) such Immediate
Family Members and/or (2) entities which are controlled by Immediate Family
Members, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3)
of the Code or any successor provision, or (v) a split interest trust or pooled
income fund described in Section 2522(c)(2) of the Code or any successor
provision, provided that (x) there shall be no consideration for
any such transfer, (y) the Award Agreement pursuant to which such
Nonqualified Stock Option or SAR is granted must be approved by the Committee
and must expressly provide for transferability in a manner consistent with this
Section, and (z) subsequent transfers of transferred Nonqualified Stock
Options or SARs shall be prohibited except those by will or the laws of descent
and distribution.

 

Following
any transfer, any such Nonqualified Stock Option and SAR shall continue to be
subject to the same terms and conditions as were applicable immediately prior
to transfer, provided that for purposes of Articles 8, 9, 11, 13 and 15
hereof the term “Participant”
shall be deemed to include the transferee. 
The events of Termination of Service shall continue to be applied with
respect to the original Participant, following which the Nonqualified Stock
Options and SARs shall be exercisable by the transferee only to the extent and
for the periods specified in the Award Agreement.  The Committee and the Company shall have no
obligation to inform any transferee of a

 

21

 

Nonqualified Stock Option
or SAR of any expiration, termination, lapse or acceleration of such Stock
Option or SAR.  The Company shall have no
obligation to register with any federal or state securities commission or
agency any Common Stock issuable or issued under a Nonqualified Stock Option or
SAR that has been transferred by a Participant under this Section 15.7.

 

15.8                      Use of Proceeds. 
Proceeds from the sale of shares of Common Stock pursuant to Incentives
granted under this Plan shall constitute general funds of the Company.

 

15.9                      Legend.  Each
certificate representing shares of Restricted Stock issued to a Participant
shall bear the following legend, or a similar legend deemed by the Company to
constitute an appropriate notice of the provisions hereof (any such certificate
not having such legend shall be surrendered upon demand by the Company and so
endorsed):

 

On
the face of the certificate:

 

“Transfer
of this stock is restricted in accordance with conditions printed on the
reverse of this certificate.”

 

On
the reverse:

 

“The
shares of stock evidenced by this certificate are subject to and transferable
only in accordance with that certain KMG Chemicals, Inc. 2004 Long-Term
Incentive Plan, a copy of which is on file at the principal office of the
Company in Houston, Texas.  No transfer
or pledge of the shares evidenced hereby may be made except in accordance with
and subject to the provisions of said Plan. 
By acceptance of this certificate, any holder, transferee or pledgee
hereof agrees to be bound by all of the provisions of said Plan.”

 

The
following legend shall be inserted on a certificate evidencing Common Stock
issued under the Plan if the shares were not issued in a transaction registered
under the applicable federal and state securities laws:

 

“Shares
of stock represented by this certificate have been acquired by the holder for
investment and not for resale, transfer or distribution, have been issued
pursuant to exemptions from the registration requirements of applicable state
and federal securities laws, and may not be offered for sale, sold or
transferred other than pursuant to effective registration under such laws, or
in transactions otherwise in compliance with such laws, and upon evidence
satisfactory to the Company of compliance with such laws, as to which the
Company may rely upon an opinion of counsel satisfactory to the Company.”

 

A
copy of this Plan shall be kept on file in the principal office of the Company
in Houston, Texas.

 

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

 

22

 

IN
WITNESS WHEREOF, the Company has caused this instrument to be executed as of November 16,
2004, by its Chief Executive Officer and Secretary pursuant to prior action
taken by the Board.

 

 

	
   

  	
  KMG
  Chemicals, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  David L. Hatcher

  	
   

  
	
   

  	
  Name:

  	
  David
  L. Hatcher

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
    /s/ Roger C. Jackson

  	
   

  	
   

  
	
  Roger
  C. Jackson

  	
   

  
							

 

23

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